Looking for a mortgage or to refinance? Make sure that you have paid your income taxes!
Mortgage lending and income taxes – how do they relate? Being current with your income taxes is very important as it affects your ability to qualify for a mortgage in Canada. Most of the time, unpaid income taxes will result in a rejection of your mortgage application.
Superpriority Claim regulation – what is it?
The Canada Revenue Agency has Superpriority Claim rights, which simply means it can make a claim on all your assets if you don’t pay your income taxes, including foreclosing on your property! Mortgage lenders don’t like that as it puts them in second place to get paid back and there may not be enough equity left on the property for that. Note that neither the Canada Revenue Agency nor the mortgage lender will care about your particular situation under those circumstances. They are just going to fight over who gets the property and the Canada Revenue Agency is going to win. Therefore, mortgage lenders, private or institutional, will not lend you money if you cannot prove you are up to date with your income taxes!
The potential existence of a Superpriority Claim is very scary and unfair for all mortgage lenders since they can find their mortgage securitization completely wiped out. However, with some vigilance, mortgage lenders can minimize that risk by verifying a debtor’s notice of assessment before signing a mortgage. The effect of the regulation will not apply if the mortgage loan is registered before any amounts become due to the Canada Revenue Agency.
How do private lenders normally handle clients with unpaid income taxes?
Private lenders may agree to finance you, but they will require that a part of the disbursement be applied to be used to pay any legal lien published by the Canada Revenue Agency or Revenue Québec.