Controversy remains over how to support jeonse scheme victims

The Korea Times

The Korea Times

Finance

Tue, September 26, 2023 | 07:26

Economy

Controversy grows over how to support jeonse scheme victims

Posted : 2023-04-19 16:26

Updated : 2023-04-20 12:17

A rally is held in front of the presidential office in Seoul, calling on the government to come up with measures to stop housing rental scams, Tuesday. Yonhap

Gov't and banks to temporarily delay auctioning off victims' houses

By Anna J. Park

Following a recent series of suicides by victims of large-scale housing rental scams in Incheon, government ministries as well as the banking industry are working on drawing up measures to support the victims and prevent similar scams. Yet, controversies remain over what would be the optimal solution to address the problem.

Korea uses a unique type of housing rental system, in which a tenant pays a large lump-sum deposit to a landlord at the beginning of the lease term, instead of monthly rent. The deposit, known as "jeonse," is returned when the tenant moves out. As jeonse deposits are usually priced at about 50 percent to even 90 percent of a home's market value, the embezzlement of jeonse deposits wreaks havoc on the tenants, due to the large amount of money involved.

Financial authorities, both the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS), have been holding emergency meetings with the key executives of five major banks, as President Yoon Suk Yeol called for a thorough review of government policies to support the scam victims earlier this week.

"Jeonse scams are crimes that target the vulnerable of society, and victims of these tragic schemes are mostly young people who are the future of the country," President Yoon said during Tuesday's cabinet meeting.

Calling on the government to crack down on rental scams, the president also urged the suspension of ongoing auctions of the homes connected to the scams.

With swindlers pocketing tenants' lump-sum deposits, banks and credit guarantee institutions have been enforcing auctions of the homes of victims who lost their deposits. The ongoing auctions force the victims to be evicted, once their home is auctioned off to a new landlord.

In this auction process, three young tenants in Incheon ― all victims of large-scale jeonse fraud in the region ― committed suicide out of despair, as they were expecting to be thrown out of their current residences without getting their deposits refunded.

Upholding the president's order, financial regulators have decided to suspend auctions of victims' residences for the time being.

According to the FSS, Wednesday, the financial authorities, together with the banking industry, plan to delay auctions and sales of homes occupied by jeonse fraud victims for at least six months. The FSS will gather the addresses of residences connected to jeonse fraud from the land ministry, and send the information to financial institutions that operate mortgage loans. Then, the lenders that have provided mortgage loans to those homes will voluntarily delay auctioning them off for the protection of the victims.

"The FSS and financial institutions are planning to delay the auctioning process of homes occupied by jeonse fraud victims, if they wish to do so," the FSS said on Wednesday.

A memorial altar is set up near a subway station in Incheon on Tuesday, honoring three jeonse fraud victims who took their own lives. Yonhap

However, criticisms remain, as the government's measures to delay the auctioning process by at least six months is only a temporary fix, rather than a fundamental solution to address the situation.

Facing such criticisms, financial regulators and the banking industry are currently discussing whether to offer victims the right of preemption, allowing them the prioritized right to purchase the homes that they're residing in, while banks provide loans at very low interest rates. State-run financial institutions are also mulling over options to purchase the homes, while returning the jeonse deposits back to the victims.

Such options, then, could cause another controversy over fairness, as there have been numerous similar scams where the victims did not get any support from either the financial authorities or the banks. Some express concerns whether it is fair for the government to use up taxpayers' money to help out only a fraction of jeonse victims. In response such criticisms, the government is planning to announce more concrete measures in the near future.

annajpark@koreatimes.co.kr