Risky system, housing scams leave many young tenants financially ruined

Park Soon-nam, a victim of a jeonse fraud scandal, poses with a complaint filed against her landlord in Michuhol District, Incheon, Aug. 19. Korea Times photo by Park Ung

On Feb. 25, 2023, Park Soon-nam, 49, vice chair of a countermeasure committee for victims of “jeonse” housing fraud in Incheon’s Michuhol District, appeared at a press conference alongside another victim, a man in his 30s whose name she declined to disclose.

Jeonse is a unique Korean rental system where tenants pay a large lump-sum deposit, known as key money, to the landlord, in lieu of monthly rent.

“He was one of the most dedicated members of our committee,” Park told The Korea Times. “He kept revising the statement until the day before the press conference, and on the day itself, we couldn’t even share lunch because he was rushing between job interviews.”

That was the last time Park saw him. Three days later, he took his own life. Over the next three months, three more victims followed, all casualties of jeonse housing fraud, a scandal that has shaken Korea in recent years.

The recent tragedies have underscored how the jeonse system has become a source of financial ruin for many. Designed to offer stable housing, the system has instead exposed residents to devastating losses when landlords, who are expected to return the full deposit at the end of the lease, exploit the model through fraud or are hit by market downturns.

The system allows landlords to access large sums of capital, which they can invest for returns or deposit in banks to earn interest, while tenants live rent-free. But when landlords fail to return deposits, renters can face devastating financial losses.

Most tenants finance their jeonse deposits by combining their savings with additional loans, meaning that if the money is not returned, they may lose nearly the entirety of their assets.

Protesters urge stronger action to address the jeonse fraud crisis during a press conference in Yongsan District, central Seoul, July 10. Yonhap

By July, the Ministry of Land, Infrastructure and Transport had officially recognized 32,185 people as victims under the Special Act on Supporting Jeonse Fraud Victims and Housing Stability.

But the actual number of victims is believed to be higher, as many were excluded for failing to meet eligibility requirements.

Young adults in their 20s and 30s account for 75 percent of cases, and deposits ranging from 100 million won ($71,000) to 200 million won were the most common, representing 42.5 percent of total victims.

According to the ministry, the most common type of fraudulent contract involved landlords who lacked the means to return deposits but still signed a lease agreement after buying homes.

The scheme involves buying homes with minimal upfront money by using the lump-sum jeonse deposits of tenants to cover purchase costs, allowing landlords to acquire properties with little of their own capital. This type of fraud accounted for 48 percent of all victims.

Cases of failed deposit returns typically arise when falling home prices prevent sales from covering the deposits, or when heavily indebted landlords lose properties at auction, leaving claims behind in priority to mortgages or unpaid taxes.

Park still vividly remembers May 2023, when she discovered that the home she shared with her middle school-aged son had been put up for auction.

“That money came from selling my parents’ rice paddies, since they were too old to farm, and from loans I had taken out,” Park said, wiping away tears.

She soon realized she was not alone. Many others had also fallen victim to the same scheme.

President Lee Jae Myung, then leader of the Democratic Party of Korea, inspects a damaged ceiling at the home of a jeonse fraud victim in Michuhol District, Incheon, Feb. 26, 2024. Korea Times photo by Ko Young-kwon

Nam Heon-gi, 63, the ringleader of the scam, defrauded 820 people of 58.9 billion won by building and owning around 2,700 flats in Incheon, pocketing jeonse deposits and hiding ownership under borrowed names.

Nam lured tenants with below-market leases and used the deposits to fund his business. He was indicted on five charges, and the Supreme Court this January sentenced him to a seven-year prison term for one of them.

But even after the perpetrator was punished, Park’s ordeal continued.

With no intention of buying the property, she nonetheless ended up purchasing the very home she had been scammed on when it went to auction — the only way to avoid being left homeless with her son if it were sold.

Noncitizens also affected by jeonse fraud, but get little help

The impact of jeonse fraud extends beyond Korean citizens. Of 32,185 victims, Koreans accounted for 98.5 percent, meaning the rest were foreign nationals. Among the remaining 473 people was Nan Ming-ji, 39, an ethnic Chinese who moved to Korea five years ago.

In 2022, Nan and his parents moved into a home in Ansan, Gyeonggi Province, paying a 140 million won jeonse deposit using money his parents had saved through years of hard labor since arriving in Korea two decades earlier.

“When we signed the contract, the realtor assured us not to worry, saying the landlord was wealthy and there was no need to fear for our deposit,” Nan said.

The assurances did not last. In October 2023, Nan’s father discovered a notice that their home was being put up for auction. At first, Nan did not take it seriously.

A month later, other Chinese victims living in properties owned by Nan’s landlord knocked on his door, saying he also held multiple buildings under his wife’s and brother-in-law’s names, all already flagged for auction. They came to ask whether Nan’s home had been seized as well.

That was when Nan realized his home, too, might be lost.

The revelations that followed were even more shocking. When Nan signed the jeonse contract around midday on Jan. 13, 2022, the realtor said the property carried a 700 million won mortgage. Hours later, at 5:46 p.m., the landlord placed another debt on the property — this time for 2 billion won.

A low-rise apartment in Ansan, Gyeonggi Province, where housing lease scam victim Nan Ming-ji lived with his parents in one of 12 units / Courtesy of Nan Ming-ji

Nan still lives in the home ensnared by the scam. The bank has tried twice to auction it off, but he filed petitions to stall both sales.

For now, he remains in the home, but once the process resumes, he and his parents could be forced to leave.

“I quit my job last month,” Nan said. “For three months I’ve battled severe depression, taking medication that left my focus slipping away. The stress makes it impossible to work. Both my parents are over 60 and can’t find jobs. My father can no longer find work at construction sites.”

Nan urged the Korean government to extend relief measures to foreign victims of jeonse fraud. He pointed to a Korea Land & Housing Corp. (LH) program that buys foreclosed homes and allows tenants to stay by paying affordable rent.

“With that system, we wouldn’t be forced out and could remain in our homes,” he said.

Nan added that the special law on jeonse fraud does not explicitly exclude foreign residents. However, the government explained to him that LH’s program to purchase foreclosed homes is funded through the Housing and Urban Fund, which is reserved for Korean citizens.

As a result, foreign residents are excluded from eligibility under the law.

“This is rigid, inflexible administration,” Nan said. “Even Korea’s Police Act states its purpose is to protect citizens’ lives and safety. When someone is harmed, would the police really help only citizens and turn their backs on foreigners? Authorities should not cling to the word ‘citizen’ but extend protection to foreigners as well.”