'Blind' Trust Contract Unknown Even to Owner... Overturned Mokdong 7 Complex

No Regulations for Selecting Preliminary Trust Companies
No Legal Effect, but OS Activities Possible by Custom
Ministry of Land, Infrastructure and Transport: "Will Confirm Need for Management and Supervision"

Mokdong New Town Complex 7 (Mokdong 7 Complex), a representative reconstruction complex in Mokdong, Yangcheon-gu, Seoul, is in turmoil. Amid ongoing discussions among owners about whether to proceed with a trust or an association-based project, a group of owners (informal) issued a 'Preliminary Project Implementer (Trust Company) Selection Bid Announcement' and selected a preliminary trust company.

However, since there is no term or system called "preliminary trust company" in the regulations for maintenance projects and trust projects, it is difficult to review whether this is illegal. The Ministry of Land, Infrastructure and Transport holds the position that the preliminary trust company system itself does not exist and therefore has no effect, but in trust industry practices, preliminary trust companies can conduct official OS (promotional agent) activities in the future. The lack of regulations related to the trust method, especially the selection of preliminary trust companies, has led to this situation, making urgent improvements necessary.

Mokdong 7 Complex panorama. [Photo by Mokdong 7 Complex Reconstruction Preparation Committee]

According to the maintenance industry on the 27th, Mokdong 7 Complex, which recently announced the selection of Koramco Asset Trust (Koramco) as the preliminary trust company, revealed institutional shortcomings in the procedures related to the selection of trust project operators.

A series of procedures such as ▲pursuing a specific project method ▲registering a bid announcement on the national procurement system ▲signing a preliminary trust company business agreement were carried out through a group of owners without collecting owners' opinions, but there were no trust regulations to restrain this.

Until now, all complexes that signed trust method projects collected owners' opinions on trust and association methods, received majority support, then issued bid announcements and selected preliminary trust companies. Afterward, once the competent authority designated the maintenance zone, they formally signed contracts with the project implementer (trust company).

However, the selection of the preliminary trust company in Mokdong 7 Complex was flawed from the start. It is known that there was no collection of owners' opinions on the project method. The Maintenance Project Promotion Committee (Jeongchu-wi), which led the selection of the preliminary trust company, claims to have conducted a survey on the project method targeting owners, but the majority of owners deny ever having taken such a survey.

Despite owners' demands to disclose the survey results if conducted, the Jeongchu-wi has not announced them. This contrasts with complexes that chose the trust method, where the survey approval rate with participation from the majority of owners was disclosed before selecting the preliminary trust company.

The bid announcement process is also controversial. Generally, it is common to notify owners when announcing bids, but most owners claim they were completely unaware of the announcement details. On the 6th, without prior notice, the Jeongchu-wi posted a 'Preliminary Project Implementer (Trust Company) Selection Bid Announcement' on the national procurement system, and ten days later, on the 16th from 3 PM to 5 PM, accepted applications via on-site document submission for two hours. As a result, only Koramco participated in the bid alone, leading to the signing of an MOU.

Mokdong 7 Complex holds a key location among the 14 complexes in Mokdong New Town Apartments and is called the 'Mokdong flagship.' Several trust companies, including Korea Land Trust and Korea Asset Trust, had been competing to win the contract. However, these trust companies did not participate in the bid.

A trust company official said, "We knew about the bid announcement, but did not participate due to many procedural issues," adding, "Currently, multiple promotion committees in Mokdong 7 Complex are engaged in power struggles, and the Jeongchu-wi proceeded with the project recklessly."

Currently, two owner groups in Mokdong 7 Complex are in conflict over the leadership of the reconstruction project. While the Mokdong 7 Complex Reconstruction Promotion Preparation Committee (Jaejun-wi), which has been leading the project from the reconstruction safety diagnosis to the Seoul City rapid integrated planning reconstruction application, exists, the recently dismissed former Jaejun-wi chairman and many representatives formed the Jeongchu-wi and led the selection of the preliminary trust company.

In response, the Jaejun-wi issued an official statement regarding the MOU between Koramco and Jeongchu-wi, stating, "Jaejun-wi is the only group that has been promoting reconstruction since February 12, 2018," and "We have not yet voted on the project method and plan to discuss with owners and proceed with the voting process on the project method."

However, the preliminary trust company business agreement in Mokdong 7 Complex is expected to remain as is because there are no regulations on preliminary trust companies in trust project regulations.

A Ministry of Land official said, "There is no legal effect because the preliminary trust company system does not exist in the maintenance project trust method," but added, "We will assess the situation and confirm the need for management and supervision regarding issues that have continued as industry practices, such as OS activities."