Over 30 Billion Won Jeonse Fraud Involving Managers and Agents... Some Deposits Squandered on Gambling

Embezzling 34.5 Billion Won Through Ponzi-like Schemes...
Mass Arrests in Tin Can Jeonse Case
Deceiving Tenants and Inflating Market Values...
Some Deposits Squandered on Gambling

Illustration of a tin-can house. Photo by The Asia Business Daily DB

A group that continued the so-called "tin-can jeonse" scam-constructing buildings without stable capital and repaying loans with deposits collected from tenants-has been apprehended by the police.

On November 17, the Busan Metropolitan Police Agency's Criminal Investigation Unit announced that it had recently arrested a total of 21 individuals. This includes the main perpetrator, identified as Mr. A, and five building managers accused of aiding and abetting fraud, as well as 15 real estate agents and assistants charged with violating the Certified Real Estate Agents Act.

From March 2018 to February this year, they are suspected of running a rental business using a "Ponzi scheme" method with almost no personal capital, defrauding 325 tenants out of a total of 34.5 billion won in deposits.

Their method involved first borrowing money from a third party to purchase land. They then used the purchased land as collateral to take out a bank loan and constructed multi-family buildings. After completion, they secured additional loans using the land and buildings as collateral, repaid the initial borrowed amount for the land purchase, and then used the tenants' deposits to pay off the loans.

In this process, the combined total of tenant deposits and collateralized loans exceeded the market value of the building, resulting in what is commonly called a "tin-can house." Although not legally defined, real estate agents generally consider a property relatively safe if the combined amount of tenant deposits and collateralized loans does not exceed 50% of the market value.

The five managers accused of aiding and abetting fraud reassured tenants who were concerned about the return of their deposits by falsely claiming that the amount of the senior mortgage was only 10% of the building's value or by inflating the building's market price. They exploited the fact that while the maximum claim amount can be checked in the certified copy of the real estate register, the total amount of deposits cannot be verified there.

To verify the total deposit amount for a building, one must check the certificate of resident registration or the status of fixed date assignments and calculate it directly. However, due to the time and procedural requirements, prospective tenants rarely review these documents in practice.

It was found that Mr. A used 6 billion won of the defrauded deposits to repay loans from financial institutions and squandered 10.8 billion won on gambling. A police official stated, "To prevent jeonse fraud, tenants must enroll in jeonse deposit insurance before signing a lease contract and check local sale and rental prices through the Ministry of Land, Infrastructure and Transport's real transaction disclosure system." The official also advised, "It is necessary to verify the list of malicious landlords and tax delinquency status through the HUG Safe Jeonse application."

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