Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.
Issue link: http://digital.canadawide.com/i/354755
MORTGAGEBROKER mbabc.ca summer 2014 | 21 lendinguncertainty is concerned. us if the lender has the 'luxury' of discovering the existence of the debt to the CRA then the lender could (assuming it is in a position to petition the borrower into bankruptcy) defeat the trust claim by CRA. If the debt is discovered prior to the discharge of the mortgage then the lenders' title insurance may be able to coordinate the bankruptcy option. 2. What I have done in an attempt to protect lenders from these potential claims aer a release of the mortgage is to include a provision in my mortgage documents that essentially requires the borrower to provide the lender a clearance certificate of some kind, prior to the lender providing a release of the mortgage. Here is the clause: Note also that in the sole discretion of the lender it may be a condition of registering the final discharge of this mortgage that the borrower provide confirmation to the lender from the Canada Revenue Agency that all GST and employee source deduction payments and remittances are current and paid in full as of the date of discharge of the mortgage. is clearance certificate process can be time consuming and thus the borrower is advised to contact the lender for instruction as soon as they know that a mortgage discharge may be required. is is really the only way the lender can attempt to protect itself from claims aer the mortgage is released and paid out. Unfortunately, as noted above, if the clearance certificate that the lender relies on is obtained fraudulently or is obtained from CRA based on inadvertent or erroneous assumptions made by the CRA then the clearance certificate won't protect the lender from claims later revealed by the CRA. e notion of requiring a clearance certificate from the borrower prior to the discharge may also run afoul of our various provincial rules relating to the time in which lenders are required to provide discharges to borrowers. For the time being I believe that in circumstances where the lender perceives a possible risk, the penalty for delay in providing a discharge until aer receipt of a clearance certificate will be minor when compared to the potential exposure to the lender if a claim is made later by the CRA. is whole process will need to be discussed by legislators, lenders and brokers. At this point in time, suffice to say that lenders may wish to amend their commitment letters to include language similar to that which I have imposed on the borrowers in the mortgage documents we are preparing. is way the borrowers will be aware when they enter into the mortgage loan transaction that they may be required to provide confirmation that they are in good standing with CRA prior to obtaining a release of the mortgage. e hoped for result of this scenario is that borrowers will be put on notice from the beginning of their mortgage loan that they must remain in good standing with respect to remittance of any GST or employee source deductions collected by them. Consequently although the measure is prophylactic it will hopefully keep borrowers on the straight and narrow with respect to remittances during the currency of the mortgage loan. 3. Although the notion is unproven in the courts, it may be advantageous to have all payments on the mortgage for the term of the mortgage collected at the time of funding. e thinking here is that as there will not be payments made by the borrower to the lender during the term of the mortgage (as all payments were prepaid on funding) there are no payments which CRA could claim a super priority over during the currency of the mortgage. In other words there were no payments made by the borrower to the lender during the term of the mortgage that would be impressed with the CRA trust as all payments were made prior to the CRA trust debt arising. Of course this only works for CRA debts that arise aer the date of funding of the mortgage. In summary, this unfortunate problem will probably require political/legislative action to properly remedy it. As this is a federal issue I would encourage any of you who have the ear of your member of Parliament to raise the issue with them in the hope that the problem can be solved with new legislation which better protects bona fide lenders for value without notice, i.e. secured creditors who are unaware of the existence of these unregistered debts. We have the best and most efficient land titles system in the world, but issues such as the one I have outlined above create an uncertainty in our land titles system that is unacceptable. • Ralph Yetman is a real estate lawyer at Yetmans in Vancouver. He acts for a number of private and institutional lenders as well as buyers and sellers of real estate and is a long time member and supporter of the MBABC.