Four Types of Jeonse Fraud Explained
1. Double-Contracting by Intermediaries
Real estate contracts should be directly between landlords and tenants, but sometimes intermediaries are involved due to various reasons. In some cases, these intermediaries promise landlords a monthly rent agreement while entering into a full-deposit (jeonse) agreement with tenants, pocketing the deposit. There are also instances where regular tenants secretly engage in jeonse agreements with other tenants.
2. Engaging in 'Gap Jeonse' Contracts
'Gap jeonse' refers to properties where the jeonse price is similar to the sale price. Landlords enter into jeonse agreements with the intention of transferring the ownership to individuals who lack the financial ability to repay, once they've received the jeonse payment. Tenants often lose their deposit as they have no way to reclaim it when such properties go to auction.
3. Multiple Tenants for a Single Property
This type involves renting directly from the landlord without using a real estate agent. It's possible for a single property to have multiple tenants, but potential tenants cannot access information about current occupants until after signing the lease agreement.
4. Involvement in Trust Scams
In this scenario, real estate properties are entrusted to professionals for management. The properties are often used to secure housing loans, and ownership is transferred to the trust company. If the landlord, not the trust company, enters into a lease agreement without their consent, the contract can be rendered void. It's crucial to note that this situation involves illegal occupancy and can lead to tenants losing their deposits.
Government's Five Countermeasures to Prevent Jeonse Fraud
1. Reducing Information Asymmetry between Landlords and Tenants
The government recognizes information asymmetry as a key reason for jeonse fraud. To address this, they are developing the "Safe Jeonse App," which allows tenants to verify whether the landlord has subscribed to rental guarantee insurance, their history of jeonse fraud, and the appropriate jeonse value for the property. This app was launched on February 2, 2023.
2. Adding a Clause to Invalidate Contracts in Case of Fraud
Currently, the legal transfer of rights for tenants takes effect at midnight on the day following their move-in registration. However, some landlords exploit this gap period to secure loans using their property or sell it. To prevent this, a new clause will be added to the standard lease agreement, preventing landlords from selling or encumbering the property during this period.
3. Increasing the Priority Repayment Amount
The government will increase the "priority repayment amount," which allows a certain sum of money to be repaid before other claims, irrespective of the property's lien status. This is intended to secure tenants' deposits when the property goes to auction.
4. Providing Support for Fraud Victims
To support victims of jeonse fraud, the government has introduced a rental program through the Housing and Urban Development Corporation (HUG), offering loans of up to 160 million KRW (approximately $135,000 USD) at a 1% interest rate. Additionally, some assistance will be provided to help tenants from economically disadvantaged backgrounds who wish to take out insurance against jeonse fraud.
5. Strengthening Penalties for Jeonse Fraud
To deter jeonse fraud, the government will enforce tougher penalties for perpetrators, including real estate agents involved in such scams.
Key Precautions Before Signing a Jeonse Agreement
1. When Using an Intermediary
If using an intermediary, scrutinize documents like power of attorney, proof of identity, and other relevant papers. It's wise to contact the landlord directly to verify the contract details and ensure that the deposit is paid to the landlord's account.
2. If Jeonse and Sale Prices Are Similar
Check the publicized transaction price data to confirm the market value of the property. When dealing with gap investments, verify whether there are liens or outstanding loans by examining the property register.
Preventing Trust-Based Jeonse Fraud
Check the Property Register
Check the 'Gubgu' section of the property register to identify if there is a trust agreement. The 'Gubgu' contains details about the trust contract, which can help determine if the property has been entrusted and used for loans.
It's worth noting that while the government's countermeasures aim to address jeonse fraud, the complexity of real estate transactions may require legislative changes that could take some time to implement.