Hello, I am Attorney Bae Gi-hyung from the Law Firm Cheongchul.

As the value of real estate rises, disputes surrounding shared ownership are also increasing, and interest in the concept of "claim for partition of shared property" is growing. Although it is fundamentally easier to address how co-owners divide shared property, there are cases where the issue may also arise regarding whether shared property can be forcibly divided when the debtor's assets are shared.

This post will revolve around the Supreme Court ruling on May 21, 2020, case 2018Da879, examining whether creditors can exercise the right to claim for partition of shared property in place of the debtor and its implications. Although this legal issue may be somewhat unfamiliar, it is a crucial matter that practically affects the creditor's ability to recover debts, so I encourage you to read it lightly.

[Question]

Can a creditor file a partition claim for shared property on behalf of the debtor?

[Answer]

In conclusion, the Supreme Court ruled that 'it is generally not permitted for a creditor to exercise the right to claim partition of shared property in place of the debtor unless it is an extremely exceptional case.' This officially changes the previous Supreme Court ruling, which determined that when an auction procedure regarding shared ownership is cancelled due to the existence of superior rights such as a mortgage, the creditor of the co-owner can exercise the right to partition on their behalf.

[Facts of the case]

The apartment in question was originally owned by the deceased, and one of the heirs completed the inheritance registration according to the agreement on partition. However, another heir acquired the creditor's position and claimed "cancellation of fraudulent acts," which eventually resulted in a court ruling that one-seventh of the apartment share was owned by the debtor (A), and the remaining six-sevenths were owned by the defendant (the debtor's family).

However, there were already superior rights such as a mortgage established on the entire apartment, so there was a high possibility that the auction of only the debtor's one-seventh share would yield no remaining funds. Therefore, the creditor eventually filed a partition claim to “auction the entire real estate on behalf of the debtor (A) and distribute the auction proceeds according to ownership shares.”

[Issues of the case]

1. When a mortgage is established on shared real estate, each share serves as collateral for the entire mortgage.

2. Typically, a mortgage is set based on the value of the entire real estate, so the amount of the secured debt is greater than the value of individual shares.

3. In this case, if an auction is requested for the share, it is judged that, based on the consideration that the amount of the secured debt is larger than the auction proceeds from the share, the auction procedure is cancelled under Article 102 of the Civil Execution Act due to the impossibility of any remaining funds.

4. On the other hand, if the entire shared real estate is auctioned as a method of partition, the claims secured by the joint mortgage will be distributed according to the auction proceeds of each shared ownership as per Article 368, Paragraph 1 of the Civil Act, thus allowing for the possibility of repaying the secured debt from the auction proceeds of the debtor's share.

5. Historically, this allowed the creditors of the co-owners to file a claim for partition.

[Supreme Court Ruling]

The Supreme Court changed its stance, ruling that creditors of co-owners cannot file a partition claim on behalf of the debtor.

The Supreme Court indicated that permitting the substitution for the partition claim of shared property for the purpose of preserving monetary claims cannot be justified and will create various legal problems. Thus, unless in extremely exceptional cases, creditors cannot assert the right to partition shared property on behalf of the debtor, and this holds true even in circumstances where enforcement of the responsible share is complicated due to superior rights such as mortgages.

In practice, if the exercise of the partition claim on behalf of the creditor of the co-owner is recognized, it can lead to the problem of forcing other co-owners to dispose of the property, which allows for an understanding of the implications of the aforementioned Supreme Court ruling.

This Supreme Court ruling has made the process of securing creditors' claims solely through the debtor's share of real estate more complex. Even if the debtor's lack of solvency is an issue, it seems unlikely that cases where partition claims are accepted will be frequent.

Conversely, it is very risky for creditors to rely solely on the debtor's share at the beginning of a dispute and to proceed with litigation; thus, it is essential to take precautionary measures such as provisional seizure or to establish strategies for securing other guarantees. Please remember this.

The Law Firm Cheongchul consists exclusively of attorneys from top domestic law firms such as Kim & Chang, Bae, Kim & Lee, and Yulchon, as well as legal teams from large corporations, with a team approach where specialized attorneys in relevant fields handle cases rather than a single attorney. Cheongchul focuses on providing comprehensive solutions for overall business issues beyond merely resolving specific disputes, ultimately aiming to fulfill the client's needs. If you need help achieving your goals, please do not hesitate to contact Cheongchul.