[Practical Finance] Real Estate Online 'Gongmae'... "Carefully Check Eviction Lawsuits and Defects"

Lower Bidding Competition Than Auction Due to Possibility of Brightness Lawsuit
Thorough Preparation Needed as Loans Are Difficult When Winning Special Rights Properties

The appearance of former President Lee Myung-bak's residence in Nonhyeon-dong, Gangnam-gu, Seoul, which was disposed of through public auction
Photo by Yonhap News

[Asia Economy Reporter Noh Kyung-jo] The minimum bid price for the land and building at 29 Nonhyeon-dong, Gangnam-gu, Seoul, owned by former President Lee Myung-bak, which was put up for public auction last April, was 11,126,190,000 KRW. As the bidding proceeded through general competition (highest bid method), the building and land were sold in July of the same year for 11,156,000,000 KRW.

There are quite a few cases where real estate owned by high-ranking public officials or famous celebrities is put up for public auction. Previously, the residence of the late former President Chun Doo-hwan in Yeonhui-dong, Seodaemun-gu, was put up for public auction and was sold on the sixth attempt after five failed auctions.

Public auction is the sale of assets seized by public institutions to secure unpaid taxes or financial revenue, and it is compulsory. While auctions are conducted by courts under the Civil Execution Act to sell real estate, public auctions are conducted by Korea Asset Management Corporation (KAMCO) under the National Tax Collection Act. Bidding can be done online through the public auction system "Onbid," and a deposit of 10% of the bid price must be paid. Payment can be made in cash or via electronic guarantee certificates. The range of available items is narrower than in auctions.

If no successful bidder is found and the item is passed over, the price decreases by 10% each time. Compared to auctions, where prices can be reduced by 20-30% depending on the jurisdictional court, the reduction rate is lower. However, if the price falls to 50% of the appraised value, the public auction process is halted. Also, since there is no delivery order system, the occupant and the successful bidder must negotiate the handover, and if this is not amicable, it can lead to litigation. Due to these burdens, the competition rate for bidding is lower than in auctions.

If there is a defect in the purchased item, a "Request for Cancellation of Sale Decision" can be submitted. This differs from the lawsuit filed by former President Lee against KAMCO to cancel the sale decision. Sometimes, after winning the bid, a "disapproval" notice may be issued, such as when a public institution cancels the public auction due to confirmation of senior claims. This also can lead to legal disputes.

Loans are another important consideration. In auctions and public auctions, it may be difficult to obtain a loan if the purchased item has special rights. This includes items with reported possessory liens or false senior tenants. In such cases, documents and precedents proving that the possessory lien is false must be prepared. For false tenants, usage records of gas and electricity should be attached to prove that they have no status. It is necessary to think from the bank’s perspective and prepare grounds to ensure the loan is granted.

Meanwhile, KAMCO expects that the cumulative transaction amount of Onbid, which started operating in 2002, will approach 100 trillion KRW and is likely to surpass it within this month. A KAMCO official said, "It is essential to thoroughly check whether the item is subject to eviction lawsuits, as well as to carefully analyze lease relationships and rights through public notices, item information, and registry copies," adding, "Even if there are no issues on paper, a site inspection should be conducted meticulously to check for any problems with the surrounding environment, usage status, and rights relationships."