Massachusetts Homestead Law

Effective as of March 16, 2011 a new homestead law went into effect in Massachusetts. The new law allows all owners of a parcel of real estate to make a Declaration of Homestead and be afforded the protection of the home from creditors up to a total amount of $500,000 of equity in the home.

Background

Under Massachusetts law, an owner of real estate can file for a homestead exemption on that real estate if it is used as his principal residence. Over the years, the amount of the protection has varied. With a homestead exemption the property can still be attached by a creditor and can even be sold, but the exempt portion of the proceeds would be set aside exclusive for the benefit of the homestead declarant.

It should be noted that the homestead exemption is not effective to protect against:

• unpaid taxes;
• a debt contracted for the purchase of the home itself (i.e., the mortgage); or
• an order issued by the probate court to enforce a judgment for child support.

Automatic Homestead Protection

One benefit of the new homestead law is that it protects up to $125,000 of equity in the residence automatically upon acquiring ownership of a principal residence without even having to file a Declaration of Homestead. Up to $500,000 of equity is protected if a Declaration of Homestead is filed. Such amount is afforded to all title owners of the premises who reside at the premises as their principal residence, with such amount divided among all the title owners in accordance with their respective percentages of ownership.

Mortgages Subordinate

The new law also makes it clear that a refinance of a mortgage will not cause the owners to have to re-file their respective Declarations of Homestead—the mortgage becomes subordinate to a previously declared Declaration of Homestead. No statement is needed by the homeowners to make the mortgage subordinate. A statement in a mortgage document purporting to have the homeowner/mortgage release their homestead is not given any effect.

Trust-owned homes & Homestead

Another benefit of the new law is that Declarations of Homestead can be filed even if a house is Trust-Owned—a life estate is not needed to be afforded the protections of the new homestead law. In a case where a property is to be owned by a trust, the Declaration would be made by the Trustee of the trust. Such a declaration must clearly state the names of all the beneficiaries of the trust who are to be afforded the homestead protection, and all such beneficiaries must also sign the Declaration. A deed out of the trust by the Trustee automatically terminates the Homestead protection, even if the beneficiaries do not sign that deed.

Relation Back to Old Homestead

A Declaration of Homestead made with respect to a home on which a Declaration was previously made under the “old” (pre-3/16/11) law relates back to the date of the originally recorded Declaration—it does not void the first Declaration.  Transfers among family members do not terminate a previously declared homestead. This is important in the instance of a divorce where one spouse transfers their interest to the other. For example, if the husband deeds his interest to the wife, and the wife had previously filed a Declaration of Homestead while married, her subsequently becoming a 100% owner of the premises will increase the amount of her equity, and the value of her homestead protection. Where she was previously a 50% owner and is now a 100% owner, her previous homestead was for $250,000, and now protects $500,000.

Pre-existing Debt

A big benefit of the new homestead law is that pre-existing debts are no longer excepted from homestead protection. Thus, in the event where debt exists, but has not been secured by a lien against the property, a Declaration of Homestead will protect against that debt even though the debtor was aware it existed at the time of making a Declaration of Homestead.

Effect of Marriage

In the event of marriage where the principle residence is owned by only one spouse, the new spouse is afforded the protections of the homestead law, even if the new spouse is not a title-owner of the premises. Thus, the new law requires all deeds to reference marital status. It is good practice to make sure that even if a spouse is not to be a title owner of the premises, their identity should be referenced in the deed in order that the public may be put on notice as to all the parties afforded the protection of the homestead laws.

In the event of a single homeowner selling a property, it is good practice to have that seller sign an affidavit that no one else is entitled to the protection of a Declaration of Homestead. In the event of a married seller, where only one spouse is a title owner, the non-title spouse should also sign the deed of sale.  Failure to release all rights to homestead may otherwise result in a deemed title defect.

Change to Procedure

Under the new law, a Declaration of Homestead may never be contained within a deed and it must always appear in a separately recorded/filed instrument. The Declaration must contain the marital status of the declarant. All title owners must sign the Declaration. A life estate is no longer needed in order to allow trust-owned property to file a Declaration of Homestead, but all beneficiaries of the trust must be identified within the Declaration, and also must sign the Declaration.