[Korean Law Insights] Legal Issues Concerning Nominee Ownership of Real Estate in Korea

[Published on October 24, 2023 edition of the "Korean Law Insights" column in the Korea Daily’s Economic Expert Section]

- Nominee ownership in violation of the Real Name Real Estate Act is invalid

- Beware of civil, criminal, administrative, and tax consequences

Korean immigrants who own real estate in Korea or those who have inherited property there from their ancestors often find it difficult to manage or dispose of such property after moving to the United States.

In these cases, it is possible to manage or dispose of Korean property through an agent. However, some go further and change the ownership name on the Korean property register to that of a person (such as an agent) who will assist in the management or disposal.

When there is an actual owner (A) who has no intention of transferring ownership but registers the property under another person’s name (B), this constitutes a nominee ownership arrangement. Except for certain statutory exceptions, this practice violates the Act on Registration of Real Estate under Actual Titleholder’s Name (commonly known as the Real Name Real Estate Act). Both the nominee ownership agreement and the registration of ownership transfer are therefore invalid. Accordingly, the original owner (A) may file a lawsuit to cancel the ownership transfer registration in the name of (B) or demand re-registration of ownership.

However, problems arise when the registered owner (B) denies the nominee ownership agreement or transfers the property to a third party by sale or gift. If (B) denies the agreement, the original owner (A) bears the burden of proving the nominee ownership arrangement. Since it is rare for such agreements to be made in writing, proving their existence is extremely difficult. Korean courts have held that the mere absence of payment for the sale price is insufficient to establish nominee ownership, meaning (A) must gather as much evidence as possible to prove it.

If the property is transferred to a third party, ownership is definitively transferred to that third party regardless of whether the third party knew about the nominee ownership. As a result, the original owner (A) cannot recover ownership from either the original transferee (B) or the subsequent transferee.

Nevertheless, (A) may claim the sale proceeds or the market value of the property received by (B) from the third party as unjust enrichment or damages. In other words, although ownership cannot be recovered, (A) may assert a right to the monetary equivalent of the ownership.

Another issue concerns whether (B), who wrongfully transferred the ownership, can be criminally punished. Previously, Korean courts had recognized embezzlement in so-called “bilateral nominee ownership” cases. However, in 2021, the Supreme Court of Korea overturned this precedent, ruling that such nominee ownership does not constitute a legally protected fiduciary relationship and thus embezzlement cannot be established.

In addition to these civil and criminal issues, nominee ownership also triggers administrative penalties such as surcharges, enforcement fines, and criminal punishment under the Real Name Real Estate Act. It may also raise tax issues, including capital gains tax and gift tax related to the transfer of ownership to third parties. Therefore, it is most advisable not to engage in nominee ownership in violation of the law. However, if a nominee ownership arrangement already exists, it is important to consult a legal expert to find a prudent solution.

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Jin Hee Lee/K-Law Consulting Korean Attorney

[Reference link in original Korean] 

https://www.koreadaily.com/article/20231024223014619