Controversy Over Property Rights

Financial institutions will be able to auction apartments on which loans are secured in case the debtors cannot reduce the number of their apartment mortgages to one in housing speculation areas until the due date.

A total of 209,000 out of around 4.89 million mortgage debtors will be affected by this measure.

The Financial Supervisory Service (FSS) said yesterday that it had circulated “management guidelines based on the 1.11 real estate measure of limiting the number of loans” as outlined above to financial institutions.

According to the guidelines, debtors who have taken two or more apartment mortgages in speculation areas will be subject to overdue interest starting from January 15, in case that they cannot repay the mortgage amount within one year after the expiration date. Lenders can take a compulsory repayment measures by attachment and auction in case debtors keep delaying the repayment for the following three months.

Also, on the basis of the “6.30 real estate measure” in 2005, if a debtor, who had already had a residential mortgage, agreed to sell his/her existing house within one year with banks for an additional apartment mortgage in speculation areas, they should repay the principal by selling the existing house as agreed even after speculation area nomination is lifted.

The loan guideline includes apartments installment and move expense loans as well.

For example, if you have one secured loan with an existing apartment and one installment loan, you should cut off the number of loans to one within one year after the expiration date of the installment loan (completion date of the apartment under construction).

An FSS official explained, “Failure to perform the agreement (of selling existing housing) will be subject to compulsory disposal.” However, financial industry points out that it would be infringing property rights for financial institutions to compel the debtor to repay the debt through a particular mean.

legman@donga.com