Gyeonggi Special Judicial Police Arrest 7 Illegal Brokers Exploiting Jeonse Deposit Insurance

Investigation Status of Illegal Brokerage Activities Related to Jeonse Fraud

Gyeonggi Province has uncovered seven real estate agents who induced contracts for "empty shell jeonse" by listing jeonse and sales simultaneously in jeonse fraud cases.

This jeonse fraud is a new type that abuses a system where, regardless of the jeonse amount, the entire amount is guaranteed when tenants, front men (rental business operators), and agents join the deposit insurance. The damage caused by these individuals to the deposit insurance alone amounts to a staggering 19 billion KRW.

The Gyeonggi Province Special Judicial Police Unit announced on the 11th that, after intensively investigating illegal brokerage activities by licensed real estate agents involved in jeonse fraud since March, they uncovered that these agents had systematically conspired to illegally broker 125 lease contracts targeting newly built villas in Bucheon City. Seven real estate agents were booked on charges of violating the Licensed Real Estate Agents Act.

In a major case, the suspects checked property information through a real estate worker app and the opening ceremony of new villa sales, then received brokerage requests with rebates ranging from 10 million to 30 million KRW from the sales agents under the condition of simultaneously proceeding with "jeonse and sales."

They found tenants through online advertisements for the newly built villas they were commissioned to broker and reassured tenants that there was no risk of losing their deposits because the jeonse deposit insurance would be automatically enrolled if they took out a safe jeonse loan. They also offered conditions such as supporting the interest on the jeonse loan, moving expenses, and options like refrigerators during the lease contract. They explained that although the current owner was the builder, the ownership would soon change to a rental business operator, thereby inducing tenants to enter into empty shell jeonse contracts.

Since tenants needed a lease contract signed and sealed by a licensed real estate agent affiliated with a real estate office near the new villas to take out the safe jeonse loan and enroll in the deposit insurance, the suspects commissioned licensed real estate agent G at a Bucheon real estate office to prepare lease contracts from February to October 2019, paying 2 million KRW monthly totaling 18 million KRW. It was revealed that G signed and sealed the lease contracts without any brokerage activity.

Furthermore, simultaneously with the lease contracts, the suspects paid brokers H and I, who managed front men (rental business operators) for villa sales, between 1 million and 2 million KRW per case to introduce front men for ownership transfers. They also paid 400,000 to 500,000 KRW per case to front men they already knew to transfer ownership and fraudulently obtained rebates up to 42 million KRW from the builder. The rebates were distributed proportionally according to the organization's roles and brokerage activities.

Tenants also selected "empty shell jeonse" properties like shopping, receiving 620 million KRW, which is 44% of the 1.41 billion KRW in rebates received by the suspects. Some tenants received up to 24 million KRW.

Among the 78 villa sales illegally brokered by the suspects in Bucheon, two front men purchased 21 and 20 cases respectively through "zero capital gap investment." Of these 78 cases, 69 jeonse accidents occurred due to the front men’s planned bankruptcies, with 13 cases under seizure, 33 under auction proceedings, and 23 auctioned. The Korea Housing & Urban Guarantee Corporation (HUG) is conducting seizure and auction procedures.

Although tenants did not suffer direct damage as they enrolled in deposit insurance through safe jeonse loans, the damage to the jeonse deposit guarantee system operated by HUG amounts to a staggering 19 billion KRW.

Currently, Gyeonggi Province plans to send the seven illegal brokers involved in the Bucheon jeonse fraud to the prosecution. Additionally, investigations are ongoing into nine licensed real estate offices confirmed to have engaged in illegal brokerage in a similar manner.

Under the current Licensed Real Estate Agents Act, those who operate brokerage businesses without registering their brokerage office face imprisonment of up to three years or fines up to 30 million KRW. Those who allow others to use their name or trade name to conduct brokerage work face imprisonment of up to one year or fines up to 10 million KRW.

Gyeonggi Province Governor Kim Dong-yeon emphasized, "The fraud exploiting loopholes in the deposit insurance system results in damage that ultimately burdens the national finances. Gyeonggi Province will continuously implement comprehensive inspections of illegal brokerage websites, monitor high-risk jeonse housing, and crack down on illegal brokerage activities by licensed real estate agents to respond not only to structured and organized jeonse fraud but also to newly uncovered types of fraud."

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