Auction

As discussed above, an auction may be conducted by a seller directly for the purpose of selling property, but it is also conducted by a creditor for the purpose of recovering a claim that the creditor has not been paid by the debtor.

When a debtor is unable to repay a debt, the creditor may apply to the court for an auction.

The process then proceeds in the following manner: the court sells the debtor's property (real estate) through bidding and applies the proceeds of the sale toward satisfying the creditor's claim.

Auctions are divided into “real estate auctions” and “movable property auctions” depending on what is being sold, and the applicable laws and practices differ accordingly.

A real estate auction concerns registered, independent real estate and is conducted primarily through a court auction.

A movable property auction, on the other hand, covers “tangible movables” such as vehicles and machinery, or certain rights (memberships, claims, etc.).

Depending on who conducts the enforcement, auctions are divided into “private auctions” and “public auctions,” and public auctions are further classified into two types.

In this regard, a court auction may be enforced upon a creditor's application to the court, while a public sale is conducted by public institutions such as the National Tax Service and the Korea Asset Management Corporation for the purpose of recovering delinquent taxes and public charges.

Depending on whether a title of execution recognized by the court is required to commence the auction, auctions are divided into “auctions to enforce a security right” and “compulsory auctions,” with differences in legal stability.

The basic subject matter of a real estate auction is land.

Under Article 99(1) of the 「Civil Act」, land is regarded as independent real estate, and all types of land—including farmland, building sites, and forest land—are subject to auction.

The space below and above the surface is also included within a certain scope of benefit (Article 212 of the 「Civil Act」).

Separately from land, a building is classified as independent real estate (Article 14(1) of the 「Real Estate Registration Act」).

However, it is recognized as independent real estate only when it meets the following requirements.

A building under construction is still regarded as a “tangible movable,” and may therefore be subject to a movable property auction (Article 189(2)1 of the 「Civil Execution Act」).

A portion added by extension to an existing building may, depending on the circumstances, become independent real estate, or it may become an accession (a part subordinate to the existing building).

The determination is made according to the following three criteria.

Trees are generally regarded as fixtures attached to the land and are auctioned together with the land.

However, if either of the following applies, they may be auctioned as independent real estate separate from the land.

If real estate is co-owned, only one's own share may be auctioned separately (Article 139 of the 「Civil Execution Act」).

However, the right to use the site of an aggregate building, such as an apartment, cannot be auctioned separately from the exclusively owned portion unless there is a special agreement.

Certain movables that can be registered or recorded are subject, mutatis mutandis, to the real estate auction procedure under the Civil Execution Act.

The following special rights are also subject to a real estate auction.

Although they are not regarded as “real estate” under the law, they are handled in the same manner as real estate in an auction.

Although these rights have no physical substance, they confer an exclusive right to use and profit from a certain area, and are therefore recognized as subject to auction in the same way as real estate.

An auction generally begins when a creditor applies to the court for an auction of the debtor's real estate. The competent court is the district court for the location of the real estate.

Below is a list of the main documents that must be submitted to the court when applying for a compulsory auction.

Required Documents (for a Compulsory Auction)

When an auction application is received, the court determines whether to commence the auction through a review of the documents and commissions the registration of attachment on the relevant real estate.

The following procedures then follow.

The following documents prepared during this process are kept at the court until one week before the sale date or the bidding commencement date, so that anyone may inspect them.

Available for Inspection of Auction Materials

The court determines the auction method and schedule and gives public notice of them in the official gazette, newspapers, the court bulletin board, and the like.

Types of Bidding Methods

Bidders gather information on the property through the court bulletin board, online portals, and the like, and decide whether to participate in bidding after conducting a rights analysis and a field survey.

Points to Note

Depending on the chosen method (date/period), a bidder must submit a bid form and a purchase application deposit (usually 10% of the minimum price).

Date Bidding Procedure

Period Bidding Procedure

After bidding closes, the highest-price purchase reporter and the next-highest reporter are selected.

The court subsequently, on the sale decision date, hears the opinions of interested parties and determines whether there is any objection, and then renders a decision to permit or to refuse the sale.

Once the decision to permit the sale becomes final, the purchaser must pay the sale price in full within the prescribed period.

Upon full payment, the following effects arise.

Once the sale price is paid in full, the court designates a distribution date and notifies the interested parties, and carries out distribution through the following procedure.

A purchaser acquires ownership upon paying the entire sale price within the period set by the court.

In this case, ownership is transferred not by the purchaser having to file a registration claim against the former owner, but by the court directly commissioning the registrar to register the transfer of ownership.

However, if registration is not made, acts of disposition (sale, gift, etc.) are restricted, so the registration procedure must by all means be completed.

Documents Required for the Application to Commission Registration

When real estate is acquired through an auction, taxes such as acquisition tax, stamp tax, local education tax, and the special rural development tax must be paid.

A successful auction bid, like an ordinary sale, constitutes a “non-gratuitous acquisition” for tax purposes, and the related taxes must be reported and paid by the purchaser directly.

Main Taxes

This law firm includes a substantial number of real estate specialist attorneys registered with the Korean Bar Association and specialist attorneys with an average of more than 10 years of experience.

We are able to provide precise and comprehensive legal assistance throughout the entire process, from debt recovery, rights analysis, and the formulation of bidding strategies to the distribution of sale proceeds and the transfer of real estate ownership.

If handling all of the procedures alone is difficult, we encourage you to proceed more accurately and promptly with the assistance of a real estate attorney.