My former colleague, Pallett Valo LLP lawyer Steven Pordage, was recently interviewed by The Lawyer’s Daily regarding his article on the concerning implications of April’s Toronto-Dominion Bank v. Canada 2020 FCA 80 decision. In addition to discussing the case’s fearsome spectre of increased lender liability, he mentions how title insurance can mitigate risks associated with super-priority GST/HST liens. Such liens may take priority over registered mortgages in power of sale (POS) proceedings, which further exacerbate shortfalls in recovery funds typically available to lenders.
In Toronto-Dominion Bank, the lender’s title insurance would have covered the entire lien amount of $67,854, since all GST liability arose prior to the policy date. If title insurance coverage is not available for some reason, impacted lenders can try to pursue litigation against the borrower, if possible. Otherwise, if such lenders do not pay the GST/HST amount to the Canada Revenue Agency (CRA), they will face litigation from the Crown.
In order to understand the issues involved, how this increased lender liability arises, and when lenders should exercise title insurance and litigation options, consider the following sample scenario. Prior to registering a mortgage in 2020 for $400,000, a lender becomes concerned after reading the court’s decision in Toronto-Dominion Bank. Following the court’s suggestion, it anxiously obtains its borrower’s authorization to contact the CRA directly about the borrower’s possibly outstanding GST/HST liability.