Mandatory Disclosure of Landlord's Arrears... One-Stop Verification of Jeonse Price Ratio via App [Jeonse Fraud Measures]

Government Announces 'Measures to Prevent Jeonse Fraud'
Prevention Through Expanded Tenant Information Disclosure
Victims Supported with Annual 1% Low-Interest Loans... Temporary Housing Provided at 30% Market Rent
Strict Punishment for Brokers and Appraisers Involved in Jeonse Fraud

Minister of Land, Infrastructure and Transport Won Hee-ryong is announcing measures to prevent jeonse fraud at the briefing room of the Government Seoul Office Building on the 1st.

Before signing a lease contract, tenants will be able to easily verify the appropriate sale and jeonse prices of the jeonse property, whether the landlord has any outstanding tax arrears, and the priority rights relationships. Penalties will be strengthened not only for landlords involved in jeonse fraud but also for licensed real estate agents and appraisers. Additionally, protective measures such as ultra-low interest rate financial support at around 1% per annum will be provided to victims of jeonse fraud.

On the 1st, the Ministry of Land, Infrastructure and Transport announced a joint government plan titled “Measures to Prevent Jeonse Fraud Damage” with related ministries to protect tenants' assets and support housing stability. This plan consists of ▲prevention of jeonse fraud damage ▲support for victims ▲strengthening of crackdowns and penalties.

◆Preventing Jeonse Fraud Damage by Expanding Tenant Information Provision= First, information provision related to jeonse properties will be expanded. The government will launch a 'Self-Diagnosis Safe Jeonse App (tentative name)' in January next year, which will compile key information tenants need to check, such as the jeonse price ratio, so they can verify it at a glance when signing a jeonse contract.

Until now, tenants often faced information asymmetry when signing jeonse contracts, unable to grasp information such as appropriate jeonse prices or whether the landlord had tax arrears, which has been a major cause of jeonse fraud.

Currently, information that tenants can use to judge risky transactions is scattered across multiple sources, and lists of malicious landlords who habitually fail to return deposits or the market prices of newly built villas are not publicly disclosed, making it difficult to prepare against jeonse damage.

Therefore, the Self-Diagnosis Safe Jeonse App will provide information on the appropriate jeonse and sale price levels of the desired residence, lists of malicious landlords, whether the landlord has subscribed to rental deposit insurance, and whether the property is an illegal or unauthorized building.

Priority rights relationships and unpaid taxes, which were previously impossible to verify without the landlord’s consent, will also become easier for tenants to check.

Currently, when a jeonse house goes to auction, tenants cannot confirm the amount of unpaid taxes that take precedence over their deposits without the landlord’s cooperation, creating significant uncertainty. The government plans to improve the system so tenants can verify priority rights relationships of rental housing.

If tenants request information on the landlord’s tax arrears or priority deposits before signing the contract, landlords will be obligated to provide it. After the contract, tenants will be able to check information on unpaid national and local taxes without the landlord’s consent until the lease commencement date.

Additionally, licensed real estate agents will be required to explain to tenants that they have the right to verify priority rights relationships, and this will be reflected in the standard lease contract form.

The market’s monitoring function, including licensed real estate agents, will also be expanded. Previously, voluntary reporting by market participants such as real estate agents of suspicious jeonse fraud listings was insufficient. Therefore, a system will be established to provide rewards (e.g., 500,000 KRW) when real estate agents report suspicious jeonse fraud listings to local governments.

A fair price assessment system for newly built villas and similar properties will also be established.

Until now, for properties like newly built villas where market prices are difficult to verify, there have been many cases of so-called “empty jeonse” contracts induced by inflating the house price when subscribing to guarantees from the Housing and Urban Guarantee Corporation (HUG).

To reflect appropriate market prices, reliable appraisers will be recommended to assess prices, and the application rate of official prices will be lowered from the current 150% to 140%, improving the housing price assessment system.

Legal protections for tenants, such as raising the priority repayment amount, will also be strengthened.

Currently, under the Housing Lease Protection Act, tenants can receive a priority repayment of a certain amount of their deposit regardless of the order of mortgage registration. The priority repayment amounts are 50 million KRW in Seoul, 43 million KRW in densely regulated areas, 23 million KRW in metropolitan cities, and about 20 million KRW elsewhere.

The government plans to review various conditions such as lease deposit statistics and regional lease market status and push to raise the priority repayment amount in the fourth quarter of this year.

Tenant’s opposability rights will also be reinforced. There have been many cases where landlords exploited the fact that tenants’ opposability rights arise the day after moving in by selling the house or setting mortgages before the tenant’s opposability rights take effect, weakening protection of tenant deposits.

Accordingly, the standard housing lease contract will be improved to include a special clause stating that the landlord will not sell or set mortgages until the tenant’s opposability rights take effect.

Currently, when landlords apply for secured loans without notifying the lease contract, banks find it difficult to verify, and if financial institutions establish security rights before the tenant’s opposability rights arise, tenants may have difficulty recovering their deposits.

Going forward, banks will check the confirmed date status of the property when executing secured loans and will consult with major commercial banks to consider deposits of tenants whose opposability rights have not yet arisen.

◆Ultra-Low Interest Rate Support at Around 1%... Temporary Housing Provided at 30% of Market Price= Victims of jeonse fraud will receive one-stop services including emergency financial support, temporary housing, and legal counseling. Ultra-low interest loans at around 1% per annum, support for subscribing to jeonse deposit return guarantees, and temporary housing at below 30% of market price will be provided.

Support for subscribing to jeonse deposit return guarantees will also be provided. Although HUG offers guarantee products to cover deposits in case of jeonse damage, subscription rates are low (18% as of 2021) due to the burden of guarantee fees. Therefore, additional support for guarantee fees will be provided to vulnerable groups such as youth and newlyweds to encourage subscription.

Jeonse fraud victims face housing instability as securing funds and finding suitable new residences take considerable time. HUG plans to provide forcibly managed houses and others as temporary housing at below 30% of market price.

◆Strict Punishment for Real Estate Agents and Appraisers Involved in Jeonse Fraud= Penalties for those involved in fraud will also be strengthened. Landlords involved in jeonse fraud will be denied business registration, and existing registered landlords will have their registration canceled. Penalties will also be strengthened for licensed professionals such as real estate agents and appraisers by expanding the disqualification period and grounds for license revocation.

A dedicated team within HUG will be operated to intensively recover claims from malicious debtors to thoroughly reclaim illicit gains.

The government plans to open a Jeonse Fraud Support Center this month and start by signing a Memorandum of Understanding (MoU) between the Ministry of Land, Infrastructure and Transport and the National Police Agency, and will steadily implement the detailed tasks included in the plan.

Most tasks aim to be completed within this year, and those requiring legal amendments will be closely coordinated with the National Assembly to be implemented by next year at the latest.

Won Hee-ryong, Minister of Land, Infrastructure and Transport, said, “The government has prepared this plan under the principle of thoroughly eradicating jeonse fraud by preventing damage in advance, promptly remedying unavoidable damage, and strictly punishing criminals. We will mobilize all government capabilities to ensure that no more families are devastated by jeonse fraud crimes.”

This content was produced with the assistance of AI translation services.