Real Estate Litigation 2025 Comparisons

For real estate provided as collateral, the lender can recover the loan claim by applying for an auction to execute the security interest and receiving a portion of the sale proceeds through the distribution of the auction’s sale price.

This process of executing a security interest via auction has a non-judicial aspect in that it does not require a court judgment or execution title. However, it still falls under the judicial procedure, as it follows the process outlined in the Civil Execution Act and is under the jurisdiction of the execution court. This distinguishes it from non-judicial foreclosure processes used in some countries like the USA, where the foreclosure can proceed without going through the court system.

When a property owner provides a portion of their ownership interest as collateral, the lender can seize that specific share of the property. If the creditor applies for an auction on the provided ownership share, the court will issue a decision to commence the auction process, seizing the share of ownership and proceeding with the auction procedure. This auction, like other enforcement actions, is governed by the procedures set forth in the Civil Execution Act and falls under the jurisdiction of the execution court, making it a judicial procedure.

As noted earlier, in South Korea, the process of executing a security interest through an auction also involves the execution court, and it follows the procedures specified in the Civil Execution Act. Therefore, unlike non-judicial foreclosure in the USA, there are no special notification periods or steps unique to this process in South Korea, as the procedure is judicial in nature and requires court involvement.

If the debtor repays the debt to the creditor during an ongoing auction process but the creditor does not voluntarily withdraw the auction, the debtor can file a claim for objection and simultaneously apply for a suspension of enforcement. By doing so, the debtor can halt the ongoing auction and, if successful in the claim for objection, have the auction cancelled.

However, this cancellation of the auction by the debtor is only permitted before the successful bidder (the buyer) has fully paid the purchase price. Once the bidder has completed the payment and acquired ownership of the property, even if the court decision to start the auction is cancelled, the effect of the final approval of the sale remains intact. This means that the successful bidder’s (buyer’s) ownership rights are not affected by the cancellation of the auction decision.

Even if a creditor with a mortgage right executes the mortgage and an auction takes place, the creditor can still file a lawsuit to demand the performance of the debt by the debtor. If the debt is partially or fully repaid through the auction, this repayment can be raised as a defence in the lawsuit seeking the performance of the debt.

If the creditor wins the lawsuit demanding the performance of the debt, the creditor can use the judgment as an execution title to apply for forced auction on the debtor’s other assets, in the capacity of a general creditor. However, in the case of claims against affiliated companies, unless the affiliated company has explicitly provided guarantees or similar assurances, claims against the affiliated company are not permitted.

In South Korea, the real estate auction process is carried out in accordance with the procedures outlined in the Civil Execution Act. After the creditor applies for the auction, and the court issues the decision to commence the auction, the process from the payment of the final sale price to the transfer of ownership to the buyer can vary. This depends on factors such as the workload of the execution court, any objections raised by relevant parties, and other related circumstances. Generally, the process takes about six months to one year, but in some cases, it may take longer depending on the specific situation.

After the real estate auction, the process involves distributing the sale proceeds among the creditors. If there is a creditor with a priority claim or multiple creditors, the distribution is made proportionally to the amount of each creditor’s claim. As a result, there may be situations where the distributed proceeds are insufficient to fully satisfy the claims of all creditors.

In such cases, the creditor will still retain the outstanding portion of the claim that was not satisfied by the auction proceeds. The creditor can then pursue forced execution on other assets owned by the debtor to recover the remaining amount of the debt. This means that even if part of the debt is repaid through the auction proceeds, the creditor may continue to seek repayment from the debtor’s other properties.

A collective investment vehicle (Jip Hap Tu Ja Ki Ku in Korean) in the form of an investment trust (Tu Ja Shin Tak in Korean, commonly known as “K-Trust”), a limited liability company under the Financial Investment Services and Capital Markets Act (the “Capital Markets Act”) (for acquisition) and a project financing vehicle (Project Keum Yoong Tu Ja Hoe Sa in Korean, commonly known as “PFV”) under the Act on Restriction on Special Cases Concerning Taxation (for development) are the predominant forms of entity for real estate projects, and the joint venture is formed either in the form of a co-operation agreement under which the parties agree to form an entity suitable for the particular project or in the form of a shareholders' agreement or the likes upon capital injection into the particular project vehicle employed.

A more common practice is to have the local partner(s) be mainly responsible for the operation of the project while foreign or financial institutional investors remain passive with respect to the day-to-day operation. If a K-Trust is formed, then, under the Capital Markets Act, the collective investment company (ie, the asset manager) is the one that forms and manages such K-Trust, and management interference by any investor is generally prohibited, while the investors may have voting/consent rights on certain fundamental matters. In the case of the LLC form of collective investment company, the collective investment company is to serve as the corporate director of the vehicle. In the PFV scheme, the day-to-day management is also delegated to asset management companies (Ja San Kwan Li Hoe Sa in Korean). In both instances, the collective investment company and the asset management companies have a fiduciary duty towards their investors.

There are no statutory or common law duties that exist for persons with ownership interests in a real estate joint venture per se, other than the general principle of good faith dealing.

Upon breach of the joint venture agreement, the non-breaching party is entitled to the remedies as provided for in the joint venture agreement, such as monetary damages, special performance or forfeiture of voting/consent rights, if any.

Given that K-Trusts and PFVs are the predominant types of entity for real estate transactions, where the power to make management decisions is exclusively conferred upon the asset managers, at least on the surface, particularly with respect to K-Trusts, there should be no ‘disputes’ per se, unless the investors (ie, the actual joint venture partners) argue that there has been a breach of fiduciary duty by such asset managers. That said, in practice, the joint venture document (in the form of the shareholders' agreement or co-operation agreement, as the case may be) often provides for dispute resolution mechanisms, mostly by providing the parties with the option to sell (and/or purchase) equity interest to (and/or from) the other party.

Under South Korean law, provisions that automatically consider a judgment as rendered upon the fulfilment of certain conditions (automatic entry of judgment) or provisions that automatically provide provisional remedies such as attachment or injunctions (automatic entry of provisional remedies) are not recognised as having legal effect.

In other words, judicial decisions such as a judgment or provisional remedies must be explicitly ordered by a court through a formal procedure. The court’s active involvement is required in all stages, and such automatic provisions do not apply in the South Korean legal system.

While it varies depending on the type of entity employed, we have observed that the actual winding down process usually takes about four to six months (or even 12 months) after the disposition of the investment to complete (including the creditor protection notice period, which normally runs for a month) in practice.  The parties should give due consideration to the time required to complete such process when setting their respective exit timelines.

In South Korea, most real estate financing is carried out on a recourse basis, while the prevalence of a single-asset entity scheme (ie, the K-Trust or the PFV) effectively makes it work as if they are non-recourse-based. The unique feature of the project financing for development projects is that the contractor (often being an affiliate of the Korean conglomerate) provides a completion guarantee and undertaking under which the contractor assumes the obligations of the (defaulting) borrower upon occurrence of certain enumerated cases (eg, bankruptcy, forfeiture/cancellation of their licence, etc).

As noted in 4.1 Types of Guarantees, in South Korea, “carve-out” guarantees are not common.

The Korean courts have been consistent in honouring/upholding the parties’ agreement, including any unconditional or absolute guarantees and waivers of defences thereof, unless the arrangement goes against the general principle of good morals or other social order, or the general principle of good faith and fairness provided for in the Civil Code of the Republic of Korea.

No expedited procedures are available that are particular to the enforcement of guarantees. We have seen more often than not that the guarantee works effectively in the form of a surety in the sense that the provisions therein require the exhaustion of the remedies against the borrower.

Domestic real estate sale and purchase contracts typically use standardised terms and conditions, which usually specify litigation in court as the dispute resolution method. However, in cases involving foreign parties or large transactions, arbitration clauses may be included, though they remain relatively uncommon.

Arbitration offers a distinct advantage over litigation by resolving disputes more swiftly and providing greater flexibility in the presentation and admission of evidence. As a result, arbitration is particularly valuable in real estate transactions, serving as an effective means to achieve a fair and timely resolution.

Mediation is seldom used in South Korea, both in general and within real estate transactional contracts.

Provisional remedies include measures such as injunctions to maintain the status quo of property title, garnishments to secure monetary claims, and injunctions to prevent interference with the peaceful possession and enjoyment of property. Among the remedies mentioned, an injunction to maintain the status quo of property title is a common provisional remedy, which enables a creditor to prevent the sale or encumbrance of real property while a dispute is ongoing in relation to that property.

A court order is required to obtain any provisional remedy, and such remedies cannot be secured through any other procedure.

The plaintiff is required to compensate the defendant for any damages incurred as a result of an improper or fraudulent provisional remedy.

Provided the necessary elements for a temporary injunction are met, the courts are willing to issue such injunctions.

South Korean courts do not mandate irreparable harm as a prerequisite for a preliminary injunction. Instead, such injunctions are granted when there is a concern that a party will either be unable to enforce its rights or face significant difficulty in doing so if the status quo is altered.

A court order is not required to place a lien on a property; it can be done when the conditions outlined in the Civil or Commercial Codes are met. Unless a covenant excludes the lien, a contractor may place a lien on a lawfully occupied property to secure a debt that is due and payable.

The Special Act on Private Rental Housing or the House Lease Protection Act are typically applied, as, generally, when private equity firms or real estate investment trusts acquire or develop residential units, they register as private rental housing operators and use the properties for rental purposes. On the other hand, regarding the financing required for the acquisition of rental housing, the loan-to-value (LTV) regulations under the Banking Act and related regulations apply, with relatively strict standards for the LTV ratios of residential units. Generally, the government entity responsible for residential units is MOLIT, while the Financial Services Commission governs the LTV regulations that relate to residential units.

In South Korea, housing-related issues are sensitive matters, and the supply of rental housing is considered with the public interest in mind. As a result, regulations are often interpreted in a way that favours tenants (individuals) more than rental housing operators (corporations). Accordingly, rental business operators, such as private equity firms or real estate investment trusts, should always consider the regulations that relate to rent increases, mandatory lease periods and other relevant factors. In particular, when a landlord wishes to evict a tenant, even if the lease period has ended, it is prohibited for the landlord to unilaterally carry out the eviction without a court ruling, if the tenant has not vacated the property.