The CMHC, the federal housing agency, processed repayment of an interest-free government loan upon CIBC’s request, even though Raymond Chen and his wife didn’t intend for the money to be used that way.Fred Lum/The Globe and Mail
The start of 2025 was to mark a financial reset for Raymond Chen.
In December, the Hamilton-based truck driver and his wife had signed a mortgage refinance agreement with Canadian Imperial Bank of Commerce. The plan, as laid out in the document, was to use nearly 40 per cent of the money to wipe out a long list of high-interest debts the couple had accumulated during a costly legal battle.
Instead, CIBC used around $57,000 of the funds to extinguish an interest-free government loan the couple had taken out years before through the First-Time Home Buyer Incentive, a federal housing affordability program administered by the Canada Mortgage and Housing Corp.
A copy of the refinance agreement seen by The Globe and Mail makes no mention of repaying the loan, which was not required by CMHC. But upon CIBC’s request, the federal housing agency processed the repayment even though it didn’t have written documentation showing that Mr. Chen and his wife intended to use the money that way, The Globe’s reporting shows.
Now, Mr. Chen said his family is struggling with tens of thousands of dollars in credit-card and lines-of-credit debt they must still repay, while also carrying a mortgage that is more than $190,000 larger after refinancing.
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The saga represents “a significant screw-up involving both CMHC and CIBC,” said Geoff White, executive director and general counsel at the Public Interest Advocacy Centre, a consumer rights group.
It also highlights the potential risks for consumers when banks rely on companies that provide title insurance, which protects buyers and lenders from potential ownership issues, to process real estate transactions. Mr. Chen and his wife didn’t have a lawyer, who would have had a duty to ensure their interests were protected, according to Mr. White.
“There was a failure to get clear consent from a customer,” he said.
CIBC declined to comment on the specifics of the case, citing privacy reasons.
In a letter to Mr. Chen in April, the bank said it had to pay off the CMHC loan because of the loan-to-value ratio, a financial metric that compares the amount of a mortgage to the value of the home.
Federally regulated financial institutions generally cannot lend more than 80 per cent of the appraised value of a property for a refinance.
CIBC said it generally does not require the repayment of loans such as Mr. Chen’s for a refinance as long as the loan-to-value ratio remains 80 per cent.
“Our process is to ensure clients are aware and informed, and have provided signed authorization,” Stephanie Marcus, a spokesperson for the bank, said via e-mail.
But Mr. Chen said the bank never told him he would have to repay the CMHC loan during the refinance application.
Mr. Chen and his wife had signed up for the loan, which amounted to around $40,000, in 2019, the year the government of former prime minister Justin Trudeau rolled out the First-Time Home Buyer Incentive.
The program allowed eligible first-time buyers to borrow up to 10 per cent of a home’s purchase price through an interest-free loan from the government, which would reduce the size of their mortgage and monthly payments. In exchange, the government would take an equity stake in the property, which homeowners would have to repay upon selling the house or within 25 years.
Such loans are registered as a second mortgage on the borrower’s property.
The program, which proved unpopular among homebuyers because of concerns about sharing any home equity gains with the government, stopped accepting new applications in March of last year.
E-mail correspondence reviewed by The Globe shows Mr. Chen disclosed the loan to CIBC when he first approached the bank about the possibility of refinancing his mortgage in November.
Mr. Chen’s refinance agreement contains a long list of non-mortgage debts that the document said would be repaid with funds from the new mortgage. But the contract doesn’t mention the couple’s loan under the First-Time Home Buyer Incentive.
Yet, after Mr. Chen and his wife signed the refinance agreement, the bank used around $57,000 – roughly $17,000 more than what the couple had borrowed – to pay off the loan with CMHC, documents show.
The total repayment included the loan principal, an additional amount, worth around $16,000, that reflects the higher value of the government’s equity share in the house, which has appreciated since 2019, and some modest processing fees.
Mr. Chen said he was shocked to learn about repayment through an e-mail from CMHC in late December. Had he known in advance that paying off the loan was a necessary step, he might have decided not to proceed with the refinance, he said.
Monique LaPlante, a spokesperson for the CMHC, said via e-mail that the federal agency can’t comment on a specific transaction but “continues to urge the borrower to seek further clarification from its financial institution.”
Ms. LaPlante said there is no formal application document that borrowers are required to sign when asking to repay a First-Time Homebuyer Incentive.
“Depending on the circumstances, repayment requests can be submitted by the borrowers themselves or by third parties, such as solicitors or first-ranking lenders,” she said.
“When contacted by the first-ranking lenders, CMHC relies on them to verify and relay the borrowers’ instructions,” she added.
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Both CIBC and CMHC appear to carry blame for what happened to Mr. Chen and his wife, said Mr. White.
“CIBC had their duty to get informed consent on this, obviously,” he said. As well, he added, “it appears CMHC didn’t do their due diligence here to verify that this is what the customer wanted.”
Usually, a lawyer would be involved in a mortgage refinancing transaction, ensuring that the borrower’s intentions are followed, he added.
But in Mr. Chen’s case, it was a title insurance company that handled the closing of the new mortgage with CIBC, including the repayment of the CMHC loan.
(Title insurance protects homeowners and their lenders against losses related to the property’s title or ownership, such as unpaid debts secured against the home, errors in surveys and public records, or fraud. Some companies that offer title insurance also handle the processing of certain real estate transactions.)
There is no requirement in Ontario for the registration of a new mortgage or discharge of a mortgage to be signed off by a lawyer, said Matt Wilson, who heads the real estate department at Siskinds LLP.
Relying on a title insurance company to process a mortgage refinance can be cheaper, a common practice the banks sometimes call “in-house refinance closings,” he said.
But when it’s an insurance company handling the paperwork, “there’s no one there to answer the questions that the borrower might have or to look out for the interests of the borrower,” he said, speaking in general terms and not specifically about Mr. Chen’s experience.
When a lawyer handles a refinance involving an institutional lender such as a bank, in Ontario, they typically represent both the lender and the borrower, meaning they have a duty to look out for the interests of both parties, Mr. Wilson said.
Relying on a lawyer can be particularly important in cases involving unusual or complex circumstances, he added.
Mr. Chen said he has escalated his complaint within CIBC. If he’s not satisfied with the bank’s response, he will pursue his grievance through the Ombudsman for Banking Services and Investments, Canada’s independent banking ombudsman.
With reporting assistance from Chen Wang