The government is looking into the situation regarding a private rental apartment where a rental guarantee incident of around 30 billion won has occurred due to the bankruptcy of the construction company. This private rental apartment is insured under the Housing and Urban Guarantee Corporation's (HUG) rental guarantee insurance. However, due to the construction company failing to pay the rental deposit into the designated account correctly, prospective residents are unable to get their rental deposits back. HUG has stated that it can only fulfill guarantees for rental deposits paid into the account specified in the guarantee terms, making it difficult to refund the rental deposit to prospective residents. Instead, it has been reported that the negotiating group is continuing discussions on the feasibility of the project. As discussions among stakeholders regarding the enforcement of the rental guarantee have prolonged, the government has decided to review the matter.
According to the government and HUG on the 11th, the Ministry of Land, Infrastructure and Transport will look into the rental deposit incident that occurred at the private rental apartment 'Sion Greenside Morning View' located in Geunhwa-dong, Chuncheon. A Ministry official noted, "I understand that HUG and others have been discussing the issue regarding the rental deposit incident at the private rental apartment located in Chuncheon, and we are trying to see if there are any aspects that can be viewed positively."
Sion Greenside Morning View in Chuncheon is a private rental apartment with 318 units, which halted construction at a progress rate of 78.78% after the construction company, Sion Construction, went bankrupt last October. Consequently, prospective residents inquired with HUG about the refund process for the 38.5 billion won rental deposit they paid as a down payment and interim payment. When constructing more than 30 units of apartments, it is mandatory to subscribe to rental guarantee insurance. Sion Greenside Morning View in Chuncheon is also insured under the rental guarantee insurance. The rental guarantee insurance is a guarantee product from HUG that holds responsibility for refunding the rental deposit to tenants in cases where the rental business operator fails to return the deposit.
◇Rental deposit deposited into the construction company account instead of the HUG designated account
The problem started when the scale of the rental guarantee deposit that HUG could refund was limited. The scope of HUG's guarantee responsibility under the rental guarantee insurance includes interim payments made to the accounts specified in the guarantee certificate. HUG specifies in the rental guarantee terms that rental deposits not paid into the deposit account indicated in the guarantee certificate are not subject to the guarantee enforcement. However, the construction company and the Saemaul Geumgo, which handled collective loans, deposited rental deposits into the construction company's account instead of the account designated by HUG. It is reported that about 7.8 billion won of the 38.5 billion won rental deposit was paid into the designated account.
A government official explained, "There are cases where rental deposits are paid through loans, and in this case, the institution that initiated the interim payment loan was Saemaul Geumgo. However, Saemaul Geumgo failed to send the payment to the designated account and directly deposited it into the construction company's account, causing the problem."
Prospective residents who believed they could be protected by rental guarantee insurance ended up losing their rental deposits. In the case of prospective residents who paid the rental deposit through a loan, they find themselves in a position where they have to repay this debt. Consequently, the prospective residents have filed civil lawsuits for damages and debt non-existence confirmation against Saemaul Geumgo and others. A Saemaul Geumgo official stated that severe disciplinary actions such as "dismissals of executives from the respective local credit unions, employee disciplinary dismissals, pay cuts, and more severe sanctions" have been implemented and explained that the reason local credit unions did not deposit the interim payment with HUG is currently under investigation by prosecutorial authorities.
◇Ongoing business likely…discrepancies over funding
HUG is considering 'continuing the project' as a method of enforcing the rental guarantee. This involves proceeding with the project normally so that prospective residents can move into the dwellings as originally planned. There are two methods for enforcing the rental guarantee: continuing the project and refund enforcement. If refund enforcement is chosen, only rental deposits paid into the designated account can be refunded, leading to greater losses for prospective residents. Therefore, there is a focus on the option of finding a new construction company to continue the project.
However, in this case, additional enforcement of guarantees by HUG and additional rental deposit payment by some prospective residents will be needed. Also, if additional rental deposits are to be paid, Saemaul Geumgo must handle this, but there is a burden in executing additional loans for loans where an incident has already occurred. Accordingly, it has been reported that HUG, Chuncheon City Hall, the construction company, Saemaul Geumgo, and the prospective residents' council are continuously holding meetings to devise plans for normalizing the project.
An official from the council representing the Chuncheon district stated, "The location of the business site is relatively good, so I believe there are positive aspects if the project is normalized, and they are positively considering the option of continuing the project," while adding, "The condition for the project to proceed is the funding issue, and discussions on this matter are actively ongoing."
A HUG official stated, "Currently, we are reviewing the possibility of continuing the project with Chuncheon City, the project entities, and related financial institutions," and noted, "In the future, we will decide whether to continue the project based on the financing plan of the project entities and the feasibility of fulfilling rental contracts."