Why All The Fuss About CRA Debt?
While CRA debt is never a good thing, in the eyes of your lender, it can be a real problem.
Unfortunately, while some people are amazing at running a business, they can be lousy at maintaining the administrative end. This in turn can lead to CRA debts. And while this is definitely an issue that needs to be handled, it’s important to remember that not all CRA debts are treated the same by lenders.
- GST and Employee Source Deduction amounts are like kryptonite to lenders. In certain circumstances, the CRA can even assert a priority over the lender’s mortgage.
- Income Tax arrears do not pose the same risk to lenders, so they don’t cause the same level of concern.
So, what does this mean to mortgage brokers?
If the borrower mentions CRA debts, arrears, or judgments, it’s critical to ask what they relate to. And if it is GST or Employee Source Deductions, most likely the lender will insist that they be paid out in full, either before or as a part of closing. If the amount of funds available from the mortgage is insufficient to pay them out completely, the lender will likely not fund.
Depending on the facts, the lender may be less strict about the repayment of the CRA debt if it relates to Income Tax. While it’s still a debt obligation, it doesn’t have the same potential priority over a 1st mortgage. Lenders may be able to treat it like they would a debt to any other creditor.
The other unintended consequence of CRA obligations is the timing. It can be a good idea to prepare clients for longer than normal closing times. The CRA often takes longer to provide confirmation amounts than other creditors.
Contact the experts at Kokanee Mortgage for all the best advice and guidance when working with borrowers who have CRA obligations on their books.
