[Taemin Ryu's Real Estate A to Z] How to Avoid Cash Settlement in Reconstruction Property Auctions?

Auction Winning Bids Also Subject to Prohibition on Transfer of Cooperative Member Status
Cooperative Member Status for Reconstructed Housing and Commercial Units Cannot Be Inherited After Cooperative Establishment Approval
Beware of 'Muldakji' Without Occupancy Rights When Trading in Redevelopment Areas
Exceptions Recognized for Financial Institution Debt Fulfillment and Tax-Delinquent Auction and Public Sale Items

[Asia Economy Reporter Ryu Tae-min] #Office worker A recently won a bid for a reconstruction apartment through a court auction to obtain a pre-sale right at a low price. Believing the claim that although sales are restricted in transferring union member status, there is no problem if won through auction, he bid a price higher than the appraised value. However, shortly after, he received a notice from the union that he was subject to cash liquidation. Upon hearing that the cash liquidation amount was lower than the winning bid, A's worries grew even more.

In court auctions, there are many cases of winning bids on houses or commercial properties within redevelopment or reconstruction maintenance zones expecting occupancy rights. However, if one bids on any property without proper legal knowledge, they may later become subject to cash liquidation, so caution is necessary.

The current prohibition on transferring union member status applies equally to auctioned properties. Under current law, in reconstruction projects, once the union is established, union member status cannot be transferred to a third party. In redevelopment projects, this applies from the point of approval of the management disposition plan.

In particular, for redevelopment, it is important to check whether the property is a ‘muldakji’ (a property without occupancy rights). For example, according to Article 39, Paragraph 1 of the Act on Maintenance and Improvement of Urban Areas and Residential Environment (Dojeongbeop), if one owner holds multiple houses within a specific redevelopment zone where the union establishment has been approved and sells one of them, the buyer of that property may not receive occupancy rights. However, if the property was sold before the union was established, both seller and buyer have no issues receiving occupancy rights.

The same applies if the seller’s household members own other houses in the same zone. Even if the seller owned only one house and sold it, if the spouse, children, or other household members own other houses within the same zone, the buyer shares one occupancy right with them. Also, if the original land or house owner gave up union member status before selling, or if the property is a ‘fractional share’ where land or building shares are divided and sold separately, the pre-sale right cannot be acquired, so caution is needed.

However, there is an exception to the prohibition on transferring union member status in auctions. In cases of auctioned properties due to failure to fulfill debts to financial institutions or public sales due to unpaid national taxes, regardless of the project procedure status, the winning bidder can inherit union member status. In this case, the auction applicant must be an accredited financial institution or government agency. If an individual privately requested the auction due to private debt, even if they win the bid, they cannot receive the pre-sale right.