Massachusetts Homestead Law
Effective as of March 16, 2011 a new homestead law goes into effect in
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
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
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
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.