Real Property Transactions and Why Korea Needs a U.S. Styled Escrow System

A standard residential real property sales transaction is an exchange that requires the transfer of documents and monies. The exchange of monies for the legal documents of ownership is a nearly simultaneous exchange and is very risky because each party is giving up something of great value (money for real property) without the assurances that the other party will perform as promised. To reduce the risk and avoid fraud, U.S. real property transactions use a neutral third party called an escrow agent. The escrow agent orchestrates the transaction process and ensures that the transaction proceeds according to the conditions established by the parties. In contrast, the Korean real property transaction process usually takes place directly between the buyer and the seller. However, there is no mechanism to assure that the seller will show up at the land registry to transfer ownership once the monies are in the seller’s account. In a lease transaction, the tenant gives the landlord/owner a large deposit, but without a guarantee that the landlord/owner will promptly return the money when the lease expires. The U.S. system requires that all lease deposits be held in escrow or a trust account during the duration of the lease to ensure that the deposit is promptly returned. * Assistant Professor of Law, Pusan National University School of Law. Although Korea currently uses escrow for electronic commerce and project financing, this article recommends the use of a U.S. styled escrow system to mitigate the inherent risks associated with Korean residential sales and lease transaction processes. This article explains the role of escrow agents and the advantages the system has. The article also argues that Korean judicial scriveners are uniquely positioned to assume the duties of escrow agents which will give these individuals added job security given the changes in the legal environment. Additionally, real estate agents may likewise assume some responsibilities concerning tenant deposits.