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ARTICLE · 01 JULY 2020

How Secure Is A Lender's Secured Interest?

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Consider a scenario where a lender provides a borrower with a loan and secures that loan against the borrower's home.

CanadaTax
Reea Galeano
Reea Galeano
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Consider a scenario where a lender provides a borrower with a loan and secures that loan against the borrower's home. Unbeknownst to the lender, the borrower has outstanding GST remittance obligations. When the borrower sells the home, who gets the sale proceeds? That question lies at the heart of a recent Federal Court of Appeal ("FCA") decision.1 The FCA held that the sale proceeds, paid to the lender in that case ("Lender"), to satisfy a secured line of credit and mortgage loan, were deemed to be held in trust for the Crown. In doing so, the FCA affirmed the lower court's decision and clarified the boundaries of the Crown's priority over secured creditors.

The Lender had extended a line of credit and a mortgage loan to two debtors in 2010. Before one of the debtors became a customer of the Lender, he had an outstanding GST remittance obligation of $67,854. The debtors sold their home in 2011 and repaid the line of credit and mortgage loan. In 2013, the Canada

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