Even with Apartment Fraudulent Subscription... Earnest Money Can Be Refunded

'Cancellation of Fraudulent Subscription Contracts Leading to Forfeiture of Penalty Fees' Halted... Court Says "No Effect Without Explanation"'

Archive photo / Photo by Mun Ho-nam munonam@

[Asia Economy Reporter Yuri Kim] A court ruling has been made that if those whose apartment sale contracts were canceled due to illegal subscription were not informed about penalty fees, they cannot be held liable for them.

According to the legal community on the 19th, the Suwon District Court Seongnam Branch Civil Division 2 (Presiding Judge Sangcheol Jeong) ruled on the 14th in a lawsuit filed by Mr. A, a buyer of an illegal subscription sale right, against the developer, stating, "If the developer did not fulfill the obligation to explain the penalty fee forfeiture clause, it is ineffective," and ordered the developer to return the penalty fee.

In 2017, Mr. A purchased an apartment sale right in Seongnam-si, Gyeonggi Province from Mr. B. However, the following year, the Ministry of Land, Infrastructure and Transport included this sale right among 257 cases of mass-detected illegal apartment subscriptions. Illegal subscription refers to cases where subscription accounts are purchased and brokers apply for apartments on behalf of the subscription holder, or where general applicants win by fraudulent means such as document forgery or false residence registration. The Ministry sent official letters to local governments instructing them to cancel the sale contracts administratively, and the developer canceled the sale right while forfeiting the deposit equivalent to 10% of the sale price as a penalty fee.

The court judged that the clause forfeiting 10% of the total supply price as a penalty fee is an important matter subject to the obligation of clear terms and explanations, and if the developer did not fulfill the obligation to explain the penalty fee forfeiture clause, it is ineffective.

Earlier, on the 8th, the Seoul Central District Court (Civil Division 20, Presiding Judge Hyungseok Kim) ruled that the clause in the sale contract allowing forfeiture of penalty fees upon cancellation of sale rights due to first-priority qualification violations is invalid as a "contract term that unfairly imposes excessive damages liability on customers."

The court considered that when subscription accounts are transferred in violation of the Housing Act and the supply contract is canceled, the agreement to bear a penalty fee equivalent to 10% of the total supply price is not generally practiced in typical apartment supply contracts; that apartment resident recruitment announcements only state that supply contracts are canceled in cases of illegal subscription without mentioning penalty fee forfeiture; and that related laws such as the Housing Act allow developers to cancel supply contracts for illegal subscriptions but do not provide for penalty fee forfeiture. Therefore, the court found that the penalty fee forfeiture clause was not a reasonably foreseeable matter.

Attorney Seongjun Moon of the law firm Hanyu, representing this case, said, "Although the Ministry of Land, Infrastructure and Transport and local governments administratively instructed that sale rights be canceled and the full sale price returned to the contract holder according to housing laws in illegal subscription cases, developers unfairly forfeited penalty fees from contract holders. The court's repeated rulings have put a stop to such unfair practices." He added, "The clause in the sale contract allowing developers to forfeit penalty fees from contract holders, contrary to housing law provisions, riding on the government's strong crackdown on illegal subscription sale rights as part of real estate market stabilization policies, constitutes an unfair abuse of power and must be corrected."

Meanwhile, separate lawsuits confirming the status of buyers who received cancellation of apartment sale contracts due to illegal subscription, like Mr. A, are ongoing.

This content was produced with the assistance of AI translation services.