Sometimes it seems like we’re seeing more collections activities by the Canada Revenue Agency than we did 20 years ago. Whether it is the registration of a judgment against a title or even taking back a mortgage for security as a part of a repayment agreement, these charges can present challenges for mortgage brokers and lenders. Why? Because CRA debt is not like other forms of debt.
Here’s an example: If a business-for-self borrower has not remitted employee source deductions, CRA has the right, in certain circumstances, to collect those in priority to a registered mortgage. As a lender, this is pretty scary. Other items like judgments for credit card or other types of debt don’t enjoy the same priority treatment.
So what does this mean to you the mortgage broker? Here are several things to be aware of:
- If there is a list of debts that are to be paid out in
a refinance, the CRA debt will be a top priority for payout at
closing. If the new mortgage funds will be insufficient to pay out
all of the creditors, the CRA debt will have to be paid out, even if some
- CRA will have to be paid out in full. If the borrower
is in a dispute with CRA as to the amount, paying CRA only the amount that
the borrower thinks they actually owe is not an option. There still
may be ways to close the transaction if funds are held in trust with the
lawyer, but this will take additional negotiation between the borrower’s
lawyer and CRA. In other words, if the amount owed to CRA is
disputed, the transaction may not close as quickly.
- The lender may want some assurance that the borrower is current with CRA and has systems in place to ensure that they don’t get behind again. This may take different forms depending on the lender’s requirements.