A derelict building that had sat for more than 15 years around Sinchon Station on Seoul Subway Line No. 2 was set to be replaced by a 22-story urban studio housing complex, but the plan is on the verge of collapse. That is because Sinchon Saemaeul Geumgo, which had signed a contract to purchase part of the new building, filed a lawsuit against the National Credit Union Federation of Korea, saying it was barred from executing funds after undergoing an inspection by the federation.
Exit No. 3 of Sinchon Station is a meeting spot for college students. But there is a hideous derelict building in front of Exit No. 4, less than 50 meters away. It was designated as a maintenance zone in 2010, a district unit planning zone in 2013, and an urban environment maintenance zone in 2014, but it remains an unresolved headache.
The area around Exit No. 4 of Sinchon Station reached a turning point in Jul. 2021 when it was changed to a redevelopment zone for urban maintenance. The developer SCD purchased three lots, including the derelict building site (18-42, Changcheon-dong, Seodaemun-gu), for 126 billion won and sought to build a 20-story building.
Around this time, Sinchon Saemaeul Geumgo pursued a plan to relocate its headquarters to the building SCD would construct. Sinchon Saemaeul Geumgo received final approval from the federation with an "appropriate opinion" for the headquarters relocation and, in Apr. 2023, signed a final contract to purchase the basement level 1 and ground floors 1–2 for 41.8 billion won. After that, Sinchon Saemaeul Geumgo paid 27.3 billion won in interim payments and more. Expectations rose as a sign reading "MG Sinchon Saemaeul Geumgo new construction site" went up on the prime site that had been left idle for more than 15 years.
However, three months after the contract, in Jul. and Aug. 2023, the federation conducted two inspections of Sinchon Saemaeul Geumgo and determined that, although the deal was nominally a sales contract, it was in substance an agreement for Sinchon Saemaeul Geumgo to directly participate in a real estate development project. Participation in development projects by a credit union is prohibited by law. The federation took issue with the fact that the memorandum of understanding (MOU) signed before the final contract contained clauses related to the development project. This document was not submitted during the federation's final approval process.
When Sinchon Saemaeul Geumgo was unable to pay the remaining sales price due to the inspection results, the developer SCD fell into a cash crunch and failed to repay principal and interest on its loans. The lots were eventually put up for public auction. In the process, Sinchon Saemaeul Geumgo failed to recover a single won of the 27.6 billion won it had already paid in reservation and interim payments, deteriorating into a distressed credit union, and in May it was merged into Dongnimmun Saemaeul Geumgo.
Sinchon Saemaeul Geumgo argues that the MOU in question is merely a document reflecting a provisional agreement with no legal effect and that the federation's inspection was unjust. It says all potentially problematic clauses were deleted from the final sales contract, which has legal effect, and that the federation caused the credit union irreparable harm by taking issue with clauses contained in the MOU.
The conflict has escalated into a legal battle. Sinchon Saemaeul Geumgo filed lawsuits against the federation seeking 27.6 billion won in damages and the nullification of the merger and public auction, among other claims. The federation filed a criminal complaint against an employee, identified as A, who handled the related work at Sinchon Saemaeul Geumgo, on charges including occupational embezzlement and breach of trust under the Act on the Aggravated Punishment of Specific Economic Crimes. Police referred A to prosecutors, but prosecutors have requested a supplementary investigation, saying the current evidence is insufficient to indict.
This court battle is expected to also disrupt redevelopment around Exit No. 4 of Sinchon Station. That is because the lawsuit to nullify the public auction makes presales difficult. Redevelopment typically begins after the lead lenders, including banks and securities firms, extend real estate project financing (PF) loans, and the developer secures funds through presales proceeds. If presale proceeds do not come in smoothly, fresh distress may occur.
The lots at issue were purchased at public auction by Wonkyeong Development, led by Seo Kyung-seon, the second-generation owner of Daemyung Sono Group, for 91 billion won, about half the appraised value of 170.7 billion won. The existing buildings are currently being demolished. The site is slated to house an officetel and neighborhood living facilities from five basement levels to 22 above-ground floors.