Hello. This is attorney Lee Kyung-joon of Cheongchul Law Firm.

A jeonse lease has ended, but the deposit has not been returned. Feeling wronged, the tenant wants to file a criminal fraud complaint. From the landlord's side, there was no problem at all when the contract was signed; housing prices simply fell and funds became tied up — and one day the landlord finds himself questioned as a fraud suspect.

Both situations converge on a single question: is "failing to return the money" itself fraud, or merely a civil default? The line between the two is drawn by the intent to defraud at the time of contracting.

Below, through Supreme Court Decision 2012Do14516 of April 28, 2016, which clarified the point in time for judging fraud, we examine when property crimes such as jeonse fraud lead to criminal punishment.

1. Not every unreturned deposit is fraud

Jeonse fraud commonly appears in forms such as deposits exceeding market value, so-called "underwater" leases burdened with excessive senior mortgages, or nominal landlords lending only their names. The harm is real and public anger is considerable.

Criminal law, however, looks not at the outcome but at "what the landlord's situation was at the time of contracting and what was misrepresented." It must first be understood that the mere result of a deposit going unreturned does not automatically constitute fraud.

Thus, even among cases that all look like "the deposit was not returned," planned fraud where there was never any intention to repay is treated entirely differently in criminal law from default where return was blocked by market conditions. Missing this distinction means a complaint may end in a finding of no offense, or, conversely, an innocent person may be saddled with a criminal record.

2. The structure of fraud and "deception"

Fraud (Criminal Act Article 347) is established where a person deceives another, causes that person to fall into error, and obtains property or a benefit through a disposition made under that error. There must be a causal link between the deception, the error and the disposition.

Deception can be established not only by actively telling a lie but also by omission — concealing an important circumstance that the counterparty would have needed to know to decide against contracting, where there is a duty of disclosure under the principle of good faith. This is why concealing senior rights or the ability to repay is at issue in jeonse fraud.

3. The Supreme Court's standard — "at the time of the act" and the intent to defraud

The Supreme Court has stated that whether fraud is established must be judged as of "the time of the act." If the person had the intention and ability to repay when borrowing money or entering the contract, a subsequent failure to repay is merely a civil default and does not constitute fraud.

In particular, where the counterparty already knew the debtor's credit status and could foresee the risk of delayed or impossible repayment, the Court held that the mere fact of later failing to repay properly cannot by itself establish deception or an intent to defraud.

Intent to defraud is not outwardly visible unless the defendant confesses. Courts therefore examine objective circumstances — financial means and environment before and after the offense, the course of performance of the transaction, and the relationship with the victim — to determine whether there was an intention to deceive at the time of contracting.

Indeed, in the above decision the Supreme Court found it difficult to conclude that there was an intent to defraud at the time of borrowing, relying on grounds such as the debtor having steadily repaid several times the amount borrowed and having continued income-earning activity. The point is that one must read the whole course of conduct before and after the contract, not the outcome alone.

4. Applying this to jeonse fraud

The problem case is where the landlord already knew at the time of contracting that the deposit could not be returned and concealed that fact. Where the structure involves a deposit far above market value, senior debt beyond the landlord's means, or a nominal landlord with no substance, deception by omission and an intent to defraud are likely to be found.

Conversely, where the rights position was sound at the time of contracting and there was no problem with returning the deposit, but funds later became tied up due to falling house prices or sharply rising interest rates, the case is closer to civil default. Where this line is drawn separates the criminal from the civil.

The purport of the Supreme Court decision carries through here. The mere fact that the tenant reviewed the register at the time of contracting and already knew of a senior mortgage does not negate the landlord's intent to defraud; but equally, an intent to defraud must not be lightly found from the mere outcome of delayed return. The key is always the landlord's intention and ability "at the very moment of contracting."

5. Practical points for both victims and suspects

For a tenant who has suffered loss, the decisive factor is evidence proving "the circumstances at the time of contracting." The register and market price at the time of the contract, the landlord's financial condition, and other harm arising simultaneously from the same landlord are all powerful circumstantial support for an intent to defraud.

Conversely, a landlord questioned as a fraud suspect must specifically demonstrate that he had the intention and ability to return the deposit at the time of contracting, and that he actually made efforts afterwards to return it. Setting the wrong direction early on can turn a matter that would have remained civil into a criminal case.

6. What to check at the outset of a case

Please organize the following first: (1) the register, mortgages and senior deposits at the time of contracting; (2) the gap between the deposit and the actual market price; (3) the landlord's assets and liabilities; and (4) whether the landlord is the actual owner or merely lent his name.

Next, check (5) whether other harm has arisen involving the same landlord or broker; (6) the content of the landlord's explanations and promises before and after the contract; and (7) traces of negotiations and efforts to return the deposit. These materials form the basis for judging the intent to defraud.

7. Closing

Jeonse fraud cases are an area where the victim's grievance — "why is this not fraud?" — collides with the suspect's — "why am I a fraudster?" In the end, the outcome turns on how meticulously the circumstances at the time of contracting can be reconstructed.

From the perspective of an attorney with prosecutorial experience, Cheongchul Law Firm analyzes the circumstances at the time of contracting and the intent to defraud with precision, building strategy from the complaint stage through investigation and trial. If you are troubled by a criminal matter involving a deposit, we recommend consulting us at an early stage.