Jeonnam Police Arrest Gang Involved in 'No-Capital and Gap Speculation' Jeonse Fraud

Two Main Suspects Arrested, Investigation Expanded to Accomplices and Additional Crimes

A group involved in embezzling jeonse deposits by purchasing apartments without their own capital using loans and jeonse deposits, then collecting jeonse deposits from tenants higher than the purchase price?a practice known as ‘empty can jeonse’?has been arrested by the police.

On the 8th, the Anti-Corruption Economic Crime Investigation Unit 2 of the Jeonnam Provincial Police Agency announced that they have arrested Mr. A and Mr. B on charges of embezzling jeonse deposits without returning them in Gwangyang City, Jeonnam Province (commonly called ‘no-capital gap speculation jeonse fraud’) and are continuing investigations into real estate agents involved in the crime.

They are accused of signing lease contracts with 173 people at amounts close to the apartment sale prices and failing to return the tenant deposits (worth approximately 10.3 billion KRW) after the lease period expired, resulting in forced auction sales.

According to police investigations, they approached tenants reluctant to move in due to mortgage registrations and reassured them that if they enrolled in the Jeonse Deposit Return Guarantee Insurance provided by the Korea Housing & Urban Guarantee Corporation (HUG), they could safely get their deposits back.

From 2018 to 2019, knowing that Gwangyang City had many companies and thus high rental demand, they registered as individual housing rental business operators without any capital and, through real estate agents, acquired aged (20 years old) mid-to-low priced apartments with mortgage registrations (30% of housing price) via housing mortgage loans, and introduced tenants to move in.

Using this method, they have purchased a total of 173 apartments in Gwangyang City to date, and 144 households, amounting to 8.2 billion KRW, have not yet received their deposits back after the lease period expired.

After receiving auction notices, 36 households (15 enrolled in guarantee insurance, 21 not enrolled) have been forced to purchase apartments that are over 20 years old and have declined in value below the jeonse deposit to reduce their losses. As the lease expiration dates approach, the damage is expected to continue increasing.

In July 2022, during a nationwide special crackdown on jeonse fraud, the police obtained intelligence confirming that dozens of units in the ‘S Apartment’ complex located in Gwangyang City were undergoing auction proceedings.

Subsequently, they verified the homeowners and tenants, secured guarantee data from HUG who made subrogation payments for the lease deposits, court registration data, court auction data, testimonies and evidence from 60 victim tenants, and arrested and detained Mr. A and Mr. B.

Recently, cases of jeonse fraud where tenants fail to recover their deposits after lease contracts end have surged, with victims mainly being young people and newlyweds who lack social experience. Authorities urge these groups to exercise special caution when entering lease agreements.

A representative from the Jeonnam Provincial Police Agency stated, “We will thoroughly investigate those involved in this ‘no-capital gap speculation jeonse fraud’ case and continue to strictly respond to jeonse fraud crimes that cause hardship to ordinary citizens.”

Meanwhile, the Korea Housing & Urban Guarantee Corporation has made subrogation payments for 6.8 billion KRW in jeonse deposits on 121 out of 150 units enrolled in the jeonse deposit return product (29 units are in progress, 23 units not enrolled). They are pursuing debt recovery on the auctioned apartments; however, recovery is expected to be difficult as the amount recoverable after excluding senior financial claims is insufficient, indicating significant anticipated losses.

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