Court auctions and public auctions are among the most effective ways to start or expand a lodging business. By minimizing initial investment costs, they reduce the burden of operational performance and enable more flexible responses to dynamic market changes. You can explore the procedures for court auctions and public auctions on Rebounder.
Table of Contents
1. Types of Auctions
Real estate auctions involve land and fixtures attached to it, such as houses, commercial buildings, forests, farmland, and factories. In contrast, movable property auctions involve tangible assets such as furniture and appliances, as well as claims and other property rights, including condominium memberships.
Private auctions are conducted by private parties, whereas public auctions are conducted by government authorities. Public auctions include court auctions, where the court acts as the enforcing authority, and public auctions conducted by public institutions such as the Korea Asset Management Corporation at OnBid.
A voluntary auction is conducted by a creditor to enforce a security right—such as a mortgage, collateral mortgage, lien, pledge, leasehold right, or security trust—established on real estate provided as collateral by the debtor. Therefore, it does not require an enforceable title. A compulsory auction, on the other hand, applies when no such collateral exists and requires an enforceable title issued by the court.
Enforceable title (“title of obligation” or “title of execution”): An official document that certifies the existence and scope of a claim enforceable through state authority and grants the right to compulsory execution. Examples include enforceable judgments, payment orders, and settlement records. (Civil Execution Act Article 24 and Civil Execution Act Article 56)
In voluntary auctions, even if the buyer acquires ownership after the auction, the ownership may be invalid if the underlying security right did not exist or was invalid prior to the commencement decision. In contrast, in compulsory auctions, the buyer’s ownership remains valid even if the underlying claim in the enforceable title did not exist or was invalid from the outset.
In general, court auctions are compulsory auctions, while OnBid public auctions are voluntary auctions.
2. Creditor’s Application for Auction
To apply for a compulsory auction, the creditor must submit the following documents to the competent court:
- Application for compulsory auction of real estate
- Enforceable copy of the enforceable title
- Documents proving the requirements for commencement of compulsory execution
- Proof of service of the enforceable title
- Additional execution clauses and proof of service where conditions or succession apply
- Notarized documents for collateral provision and proof of service
- Documents proving performance or tender of counter-obligations
- Certified copy of the real estate register or equivalent
- 10 copies of the list of real estate
- Revenue stamp (KRW 5,000 per enforceable title or security right)
- Supreme Court stamp (KRW 3,000 per real estate unit)
- Receipts for registration tax (0.2% of claim amount) and local education tax
- Advance payment of costs (service fees, appraisal fees, inspection fees, publication fees, sale commissions, etc.)
3. Commencement Decision and Preparation for Sale
Upon receiving the application, the court reviews the documents and decides whether to commence the auction. If approved, the court requests registration of the commencement decision. (Civil Execution Act Article 94)
In compulsory auctions, the court simultaneously orders seizure of the property. Although the debtor may continue to use and manage the property, they cannot transfer or dispose of it. (Civil Execution Act Article 83)
Upon issuing a commencement order for auction, the court first publicly notifies creditors—who will be satisfied through the proceeds of the sale of the property—as well as public authorities that collect taxes and various public charges, to file claims for distribution (dividend demands) by a specified deadline, and accepts such applications (Civil Execution Act Article 84 and Civil Execution Act Article 88).
In addition, in order to liquidate a property through auction, the court orders an enforcement officer to investigate the status of the property, occupancy relationships, the amount of rent or deposit, and other relevant conditions (Civil Execution Act Article 85(1) and Civil Execution Rules Article 46). An appraiser is then engaged to evaluate the property, and the minimum sale price is determined in consideration of the appraised value (Civil Execution Act Article 97(1)). The statement of sale, the status investigation report, and the appraisal report prepared in this process are made available at the court for public inspection by keeping copies on file until one week prior to the sale date or the commencement date of bidding (Civil Execution Act Article 105(2) and Civil Execution Rules Article 55).
4. Court’s Public Notice of Sale Date
The court determines whether the property will be sold by the method of date-specific bidding or by the method of period bidding (Civil Execution Act Article 103(1) and Auction Procedure Guidelines for Real Estate, etc. Article 3(1)).
Period bidding: A bidding procedure in which bidders state their purchase price on the bid form and submit it directly to the enforcement officer or by registered mail within the designated bidding period, and the bids are opened on the sale date (Civil Execution Act Articles 103(2), (3) and Civil Execution Rules Article 69).
In general, court auctions are conducted as date-specific bidding in court, while OnBid public auctions are conducted as period bidding online.
Unless any of the following reasons apply, the court shall, ex officio, set the sale date and the date for decision of sale, notify interested parties, and publicly announce them through the court bulletin board, official gazette, public notices, newspapers, or electronic communication media (court auction information website) (Civil Execution Act Article 102, Civil Execution Act Article 104 and Civil Execution Rules Article 11(1)).
- Where it is deemed that nothing would remain after paying all encumbrances on the property that take priority over the seizing creditor’s claim and procedural costs with the minimum sale price
- Where the seizing creditor fails, within one week from receipt of the notice above, to provide sufficient security while applying to purchase the property at a price that would cover such encumbrances and costs if no purchase application is made at that price
5. Participation of Bidders
To participate in bidding, one must first identify which properties are scheduled for sale (auction). Information on such properties can be obtained through the court bulletin board, official gazette, public notices, newspapers, or electronic communication media (court auction information website) (Civil Execution Act Article 104(1) and Civil Execution Rules Article 11(1)).
The following bidding-related information can be obtained through such announcements (Civil Execution Act Article 106, Civil Execution Act Article 268 and Civil Execution Rules Article 56):
- Description of the property
- Statement that the property is to be sold by compulsory execution or voluntary auction and the method of sale
- Occupant of the property, basis of occupancy, period of occupancy, rent or deposit agreement and amount
- Date, time, and place of the sale; name of the enforcement officer; and, in case of period bidding, the bidding period and place
- Minimum sale price
- Date, time, and place of the decision of sale
- Statement that copies of the statement of sale, status investigation report, and appraisal report will be made available at the court prior to the sale date
- Statement that persons holding rights not required to be registered must file their claims
- Statement that interested parties may attend the sale date
- In case of bulk sale decision, that fact
- Restrictions on bidder qualifications, if any
- Amount and method of providing the bid deposit
Bulk sale decision: Refers to a decision by the court, either ex officio or upon request of an interested party, to sell multiple properties as a single group when deemed appropriate considering their location, form, and usage relationships (Civil Execution Act Article 98(1)).
If an area is designated as an Educational Environment Protection Zone, lodging business under the Public Health Control Act and tourist accommodation business under the Tourism Promotion Act are not permitted. In other words, if a lodging business that commenced prior to such designation is closed, new registration is, in principle, not allowed.
To determine which rights will be extinguished or assumed, one must first examine the real estate registry and conduct on-site investigation to identify existing rights. Since rights extinguished are generally those participating in the distribution procedure, it is also useful to review which rights were the basis for distribution claims by interested parties (Civil Execution Act Article 88 and Civil Execution Act Article 148).
In general, most rights are extinguished upon purchase in court auctions, whereas in OnBid public auctions, most rights are assumed after purchase.
Bidders participate in either date-specific bidding or period bidding depending on the method designated by the court (Civil Execution Act Article 103 and Auction Procedure Guidelines for Real Estate, etc. Article 3(1)).
For date-specific bidding, the bidder attends court on the designated date, prepares a bid form, and submits it along with the bid deposit to the enforcement officer (Civil Execution Act Article 103(3), Civil Execution Rules Article 62(1) and Civil Execution Rules Article 64).
For period bidding, the bidder prepares the bid form within the designated period, places it in an envelope together with the deposit, seals it, writes the sale date on the envelope, and submits it to the enforcement officer or sends it by registered mail (Civil Execution Act Article 103(3), Civil Execution Rules Article 69 and Civil Execution Rules Article 70).
When bidding closes, the enforcement officer opens the bid forms in the presence of bidders (or, if none, a person deemed appropriate) (Civil Execution Rules Article 65(2) and Civil Execution Rules Article 71).
If there is a highest bidder, the enforcement officer announces the name and price of the highest bidder, calls for secondary bids, and if a valid secondary bidder exists, announces their name and price, then declares the sale date concluded (Civil Execution Act Article 115(1)).
Other bidders are released from their purchase obligations and may immediately request the return of their bid deposits (Civil Execution Act Article 115(3)).
6. Rights Extinguished or Assumed
Rights that may be extinguished or assumed include mortgages, seizures, provisional seizures, superficies, easements, leasehold rights, registered leasehold rights, liens, and graveyard rights.
A mortgage refers to the right to receive preferential repayment of one’s claim over other creditors with respect to real property provided as collateral by a debtor or a third party without transfer of possession (Civil Act, Article 356). A root mortgage refers to a right that, in order to secure multiple unspecified claims that may arise in the future from a continuing transaction relationship, stipulates only the maximum amount of the debt to be secured and covers claims determined in the future within that limit (Civil Act, Article 357).
A mortgage or root mortgage registered against an auctioned property serves as the baseline extinguishment right and is extinguished upon the purchaser’s acquisition. Furthermore, superficies, easements, lease on a deposit basis, registered leasehold rights, attachments, provisional attachments, and provisional registration security interests established after the registration of the mortgage or root mortgage are all junior rights established after the baseline extinguishment right and are therefore all extinguished. (Civil Execution Act, Article 91, (2),(3))
An attachment refers to the prohibition imposed by the executing court on a debtor’s disposition of property, based on a final judgment or other title of execution, in order to secure the enforcement of a claim (Civil Execution Act, Articles 24, Civil Execution Act, Articles 83, and Civil Execution Act, Articles 223). A provisional attachment refers to the pre-emptive attachment of a debtor’s property concerning a monetary claim or a claim convertible into money, for the purpose of preserving future enforcement, so as to prevent the debtor from disposing of the property. (Civil Execution Act, Article 276)
An attachment or provisional attachment registered against an auctioned property serves as the baseline extinguishment right and is extinguished upon the purchaser’s acquisition. (Civil Execution Act, Article 91, (3),(4))
A superficies refers to the right to use another person’s land for the purpose of owning a building, other structure, or trees on that land (Civil Act, Article 279). An easement refers to the right to use another person’s land for the benefit of one’s own land for a specific purpose, such as a prohibition on construction to secure access or sunlight. (Civil Act, Article 291)
Superficies and easements registered against an auctioned property may either be extinguished or assumed by the purchaser upon acquisition. Superficies and easements established after the registration of the baseline extinguishment right — namely the mortgage and attachment — are extinguished, whereas those established prior to such registration are assumed by the purchaser. However, where a statutory superficies exists, it is unconditionally assumed by the purchaser regardless of the time of its establishment, and caution is therefore required. (Civil Execution Act, Article 91, (3),(4))
Lease on a deposit basis refers to the right to occupy another person’s real property by paying a deposit, to use and derive profit from that property in accordance with its purpose, and to receive preferential repayment of the deposit from the entirety of that property over junior right holders and other creditors. (Civil Act, Article 303)
A lease on a deposit basis registered against an auctioned property may either be extinguished or assumed by the purchaser upon acquisition. A lease on a deposit basis established after the registration of the baseline extinguishment right — namely the mortgage and attachment — is extinguished, whereas one established prior to such registration is assumed by the purchaser. However, if the lease on a deposit basis holder files a claim for distribution, the right is extinguished and is not assumed by the purchaser. (Civil Execution Act, Article 91, (3),(4))
A leasehold right refers to the right of a lessee, based on a lease agreement, to pay rent and use and derive profit from the leased object. (Civil Act, Article 618)
A leasehold right registered against an auctioned property may either be extinguished or assumed by the purchaser upon acquisition. A leasehold right registered after the establishment of the baseline extinguishment right — namely the mortgage and attachment — is extinguished, whereas one registered prior thereto is assumed by the purchaser. (Civil Execution Act, Article 91, (3),(4))
A leasehold right that satisfies the requirements for both opposability and priority repayment is effective against third parties even without registration. Such a leasehold right may either be extinguished or assumed by the purchaser upon the purchaser’s acquisition.
Where a lessee with both opposability and priority repayment rights exercises the right to demand distribution and receives full repayment of the deposit, the leasehold right is extinguished; in all other cases, it is assumed by the purchaser. For example, if a lessee with both opposability and priority repayment rights does not file a claim for distribution, or files such a claim but receives only partial repayment, the deposit has not been fully repaid and the leasehold right is therefore assumed by the purchaser. (Housing Lease Protection Act, Article 3-2, (2); Housing Lease Protection Act, Article 3-5; Commercial Building Lease Protection Act, Article 5, (2); Commercial Building Lease Protection Act, Article 8)
However, where there is a root mortgage senior to a lessee who satisfies the opposability requirements under Article 3 of the Housing Lease Protection Act, if that senior root mortgage is extinguished upon successful bid, the junior leasehold right also loses its opposability. (Supreme Court, April 25, 2003, 4. 25. Decision 2002da70075)
Meanwhile, a leasehold right that satisfies only the requirements for opposability, without priority repayment rights, is assumed by the purchaser. That is, where only the requirements for opposability are met, there is no right of priority repayment — which is the prerequisite for exercising the right to demand distribution — and therefore the deposit cannot be recovered through a distribution claim. Accordingly, since the deposit has not been repaid in such cases, the leasehold right is assumed by the purchaser. (Civil Execution Act, Article 88, (1); Housing Lease Protection Act, Article 3-5; Commercial Building Lease Protection Act, Article 8)
Priority Repayment Right: The right to receive repayment of the lease deposit from the sale proceeds (successful bid price) in priority over other junior right holders, when the leased dwelling or commercial building is subject to auction under the Civil Execution Act or public sale under the National Tax Collection Act. Priority repayment rights take effect when the lessee has satisfied the requirements for opposability and obtained a fixed date stamp. (Housing Lease Protection Act, Article 3-2, (2); Commercial Building Lease Protection Act, Article 5, (2))
Provisional registration refers to either a security provisional registration — made where the substantive or procedural requirements for a final registration have not yet been met, or to preserve a claim for the establishment, transfer, modification, or extinguishment of a right — or a priority-preserving provisional registration, which has the effect of preserving the priority ranking in advance for a final registration where the relevant claim is conditional, time-limited, or to be determined in the future. (Real Estate Registration Act, Articles 88 and Real Estate Registration Act, and 91)
A security provisional registration established against an auctioned property is extinguished upon the purchaser’s acquisition. (Provisional Registration Security Act, Article 15) However, a priority-preserving provisional registration established prior to the baseline extinguishment right is not extinguished and is assumed by the purchaser.
A provisional disposition refers to either an order prohibiting changes to the current state of a disputed object — where, if that state were to change, a party would be unable to enforce their rights or it would be extremely difficult to do so — or an order establishing a temporary status with respect to a disputed legal relationship. (Civil Execution Act, Article 300)
A provisional disposition registered against an auctioned property may either be extinguished or assumed by the purchaser. Where a provisional disposition was established prior to the baseline extinguishment right, the right is not extinguished and is assumed by the purchaser; conversely, a provisional disposition established after the baseline extinguishment right is extinguished and not assumed by the purchaser. However, a provisional disposition made by a landowner against the owner of a building on that land — specifically, a prohibition on disposition placed on the building in connection with a principal action seeking demolition of the building or return of the land — is unconditionally assumed by the purchaser regardless of the time of its establishment, and caution is therefore required.
A lien refers to the right of a person in possession of another’s property or negotiable instrument to retain that property or instrument until a claim arising in connection with it has been repaid, where that claim has become due. (Civil Act, Article 320, (1))
A lien established against an auctioned property is assumed by the purchaser regardless of registration priority. (Civil Execution Act, Article 91, (5))
A statutory superficies refers to the right of a building owner to use the land where the land and the building situated thereon belong to different owners (Civil Act, Article 305, (1); Civil Act, Article 366; Provisional Registration Security Act, Article 10; Timber Act, Article 6, (1)). A grave site right refers to the right to use another person’s land to the extent necessary to achieve the purpose of maintaining and conducting ancestral rites for a grave. (Supreme Court, August 21, 2001, 8. 21. Decision 2001da28367)
Statutory superficies and grave site rights established against an auctioned property are assumed by the purchaser regardless of registration priority.
In general, because a mortgage or root mortgage securing a loan holds the highest priority, most other rights are extinguished in court auction proceedings. However, leasehold rights with opposability, liens, statutory superficies, and grave site rights are not automatically extinguished.
7. Court Decision on Sale Approval
Once the highest bidder is determined, the court holds a decision hearing, hears opinions of interested parties, and determines whether grounds exist to approve or deny the sale (Civil Execution Act Article 120 and Civil Execution Act Article 123).
Interested parties suffering damage may file an immediate appeal. The bidder may also appeal if the approval lacks justification or should be granted under different conditions (Civil Execution Act Article 129).
8. Payment of Sale Price and Acquisition of Rights
Upon finalization of sale approval, the purchaser must pay the sale price within the deadline set by the court (Civil Execution Act Article 142 and Civil Execution Rules Article 78).
Failure to pay results in resale or approval of the next highest bidder, and the deposit is forfeited (Civil Execution Act Articles 137 and Civil Execution Act 138(1),(4)).
However, even after resale is ordered, the purchaser may cancel resale by paying: 1) the sale price, 2) interest at 12% per annum from the due date, and 3) procedural costs,within three days before the resale date (Civil Execution Rules, Article 138(3) and Civil Execution Rules, Article 75).
The purchaser acquires rights upon full payment (Civil Execution Act, Article 135). Ownership is transferred, and non-assumed rights and the auction commencement registration are extinguished (Civil Execution Act, Article 144(1)).
If the property is not vacated, the purchaser may apply for a delivery order within six months, unless the occupant has a legally enforceable right (Civil Execution Act, Article 136(1)).
9. Distribution to Creditors
After payment, the court sets a distribution date and notifies interested parties and creditors (Civil Execution Act, Article 146). A draft distribution schedule is prepared and made available three days in advance (Civil Execution Act, Article 149(1) and Civil Execution Act, Article 150(1)).
On the distribution date, the schedule is finalized after hearing interested parties, and distribution is executed accordingly (Civil Execution Act, Article 149(2), Civil Execution Act, Article 150(2), and Civil Execution Act, Article 159).
※ This content is excerpted from the Real Estate Auction section of Easy-to-Find Living Law Information >.