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When the Canada Revenue Agency registers a lien against your home, it’s a frontal attack on your biggest asset. It’s aggressive collection on the part of the CRA. And it’s something that happens because a tax balance has remained unpaid for an extended period of time. It’s a serious matter. But if you stay calm and act reasonably, there are things you can, and ways you can use your home equity, to help pay the CRA and protect your home.
Here are the answers to common questions about tax liens… to help you understand what to do, and where to turn for help.
How do I know if there is a lien registered against my home?
A title search on your property will reveal the existence of a lien.
CRA process usually advises you by letter that a Certificate has been registered in Federal Court for the arrears owing. This is usually the opening move in a plan to register a lien against your home and/or real estate property. If and when the property lien is registered, CRA typically advises you by letter.
In some cases, though, you may not discover there’s a lien until you try to sell your home, or refinance the home with a new or bigger mortgage
Does a tax lien mean I have lost title to my home?
No. The lien is a registration on the title that effectively prevents you from closing a sale or refinancing your home until you make arrangements with the CRA for proceeds from any sale or home refinancing to be directed to the CRA against payment of your debt.
When your tax debt is paid in full, the lien will be removed by CRA.
Does a lien mean the CRA will take my home?
Not immediately. A lien is registered as security against your tax debt. However, after the passage of significant time, if your tax balance remains unpaid, the CRA may register a Writ of Seizure and Sale, which is very serious enforcement action. If you do not make arrangements for settlement of your tax debt, the CRA then has the legal authority to seize your home and sell it. Any proceeds remaining after your tax balance is discharged will be paid to you. But your home will have been liquidated to satisfy your tax debt.
Does this happen? Yes. But not without many months – even years – of prior notice. The CRA prefers you to find other means of sourcing the funds with which to pay your tax balance. By law, there is mandatory notice period that CRA – or any other creditor – must serve to you advising of their intent execute on the Writ of Seizure and Sale. If you still do not make arrangements to retire your tax arrears, CRA will then make arrangements to sell your home, and you will be required to leave the premises.
If CRA lien has registered a lien, can I sell my home, or renew the mortgage?
Yes. Even with a CRA lien, you can access the equity in your home through a secured line of credit, mortgages, and even the sale of your home. But because CRA has registered security against that equity, the proceeds of any sale or financing must be paid to the CRA to retire the arrears in full. Thereafter, any remaining proceeds are payable to you.
You will, however, need the cooperation of the CRA to secure your home equity financing, or close the sale of your home.
If you are borrowing from home equity, once the bank, or other lender, confirms the amount of money you are approved to borrow, the CRA will agree to lift the lien in order for the financing to occur, on condition that the CRA’s position against the property is paid out of the funds advanced.
If you are selling your home, CRA will agree to lift the lien on the condition that when the proceeds of the sale are transferred to your real estate lawyer, the CRA’s position against the home is paid out before the balance of the proceeds are paid to you.
NOTE: Your mortgage(s) are generally registered in first position. Therefore, when you sell your home, the funds from the sale go to, in this order:
1. The bank (or the mortagee)
2. Other secured lenders, if any.
3. The CRA
4. Any other creditors who have registrations against your property
5. You, the seller.
What if the tax debt is more than I can get from selling my house?
If the sale price of your home is not enough to discharge the tax debt in full – after the mortgage(s) and secured lines of credit are paid out, of course – the CRA will be paid whatever is left. This will be applied against your tax balance to reduce it. Whatever is left unpaid remains as a tax balance you still owe to the CRA.
What if there are other people on title besides me?
CRA can only realize proceeds from your share of the equity in the property. So if you sell, only your share of the equity can be paid out the CRA. The CRA cannot seize your wife’s, or any else’s equity. However….
If you have transferred your equity (title) to someone else , without receiving payment for that share that equates to the fair market value at the time of the transfer, CRA may consider assessing that someone else for the amount of your tax arrears.
Can I go bankrupt to get rid of the tax lien?
No. And this is important. Filing for bankruptcy, or filing a consumer proposal, does not discharge a lien against your property. If you go bankrupt on your CRA debt, the lien remains and – even worse – accrues interest over time. Even after your discharge from bankruptcy, the lien remains in force, until you eventually sell your home. At that point, the CRA will be second in line after the mortgage holder, etc, and will receive the remaining proceeds up until your share of the equity is exhausted. After that, however, because of your bankruptcy, your tax debt is extinguished – even if your equity is not enough to pay the tax in full.
The Bottom Line: Tax liens are serious, complicated, and too dangerous for do-it-yourself solutions.
Better talk to a tax lawyer.
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