Violation of the Act on the Registration of Real Estate under Actual Titleholder's Name

Two-party title trust is a method in which the truster, who actually purchased the real estate, places the registration in the trustee's name rather than the truster's own name.

The contract, the payment of the price, and substantive ownership all rest with the truster, and the trustee merely has its name entered in the registration.

In such a case, under Article 4 of the Real Estate Real-Name Act, the title trust agreement is void, and even if the trustee returns the registration to its own name, the trustee cannot assert ownership in law.

The truster may seek cancellation of the registration against the trustee or claim registration of ownership transfer.

Three-party title trust is a form in which the truster directly concludes a sales contract with the seller and pays the price but asks that the registration be transferred into the name of a third party, the trustee.

The contracting parties are the truster and the seller.

Here too the title trust agreement is void, so even where the seller has transferred the registration into the trustee's name, the truster may, on behalf of the seller, cancel the registration in the trustee's name and claim its transfer to the truster (subrogated claim for transfer of registration).

However, because this right is subject to a 10-year extinctive prescription, caution is needed.

That said, if the truster has continued to occupy the relevant real estate, the extinctive prescription does not run.

Contractual title trust is a structure arranged so that, on its face, the trustee directly concludes the contract with the seller and appears to have paid the price as well.

However, in reality the truster provided the funds, and all decisions are made by the truster.

The key standard here is whether the seller was aware of the title trust.

In this case the truster cannot assert any right to the real estate itself and may only make a claim against the trustee for return of unjust enrichment in the amount of the purchase price paid.

A penalty surcharge is a sanction that may be imposed at up to 30% of the value of the relevant real estate when title trust is discovered.

A title truster who has not registered a right concerning real estate in the name of the actual rightholder may be assessed a penalty surcharge calculated as follows (Articles 3-2, 4-2, and 8 of the Real Estate Real-Name Act).

A title truster must pay a penalty surcharge equal to the appraised value of the real estate multiplied by the penalty surcharge rate, according to the following standards.

In addition, an extra penalty surcharge based on how long the title trust state has continued must also be added in the calculation.

A title truster on whom a penalty surcharge has been imposed has an obligation to complete real-name registration without delay.

If this is not done, an additional enforcement fine is imposed in stages.

Structure of Enforcement Fine Imposition

In other words, it may be imposed repeatedly until real-name registration is completed.

Under Article 7 of the Real Estate Real-Name Act, the following punishments are imposed on the title truster, the title trustee, a person who prepared false documents, and others.

Criminal punishment is imposed separately from the administrative sanctions, such as the penalty surcharge and enforcement fine, discussed above.

In other words, for a single instance of title trust, a penalty surcharge, an enforcement fine, and criminal punishment may all be imposed together.

You should first confirm accurately whether title trust exists through the certified copy of the real estate register and the contract documents.

In particular, because the response differs depending on the title trust structure, you should accurately grasp the legal effects and risks for each type.

If a violation of the Act on the Registration of Real Estate under Actual Titleholder's Name is left unaddressed, penalty surcharges and enforcement fines continue to be imposed, so you should complete the real-name registration procedure as quickly as possible.

The truster may request the title trustee to file for registration of ownership transfer or , if necessary, bring a lawsuit before the court seeking cancellation and transfer of the registration.

The most important response is restoring a normal ownership state through cancellation of the title trust registration and real-name registration.

If a criminal accusation is possible, you should focus on responding to the investigation in advance and on collecting evidence.

If you acknowledge the unlawful conduct, you may aim for a reduced sentence through voluntary reporting and proper performance of the procedures under the law.

However, if additional charges beyond the violation of the Act on the Registration of Real Estate under Actual Titleholder's Name, such as tax evasion, are anticipated, you should work with a professional to prepare a comprehensive response strategy.

This law firm has many real estate specialist attorneys registered with the Korean Bar Association, along with specialist attorneys who have an average of more than 10 years of experience.

When various legal risks arise, such as the imposition of a penalty surcharge, an enforcement fine, criminal punishment, or invalidity of registration, practical legal support is available from the objection stage through administrative adjudication and the response in the criminal procedure.

We recommend that you seek the assistance of a real estate specialist attorney to promptly assess whether a violation of the Act on the Registration of Real Estate under Actual Titleholder's Name has occurred and to develop a response strategy.