The Massachusetts Homestead Law – 2011

On December 17, 2010, a new Homestead Law was signed by the Governor in Massachusetts. This version of the Homestead Law seeks to resolve a number of issues that arose over the years regarding the prior version of the statute and in addition new benefits are provided.To understand the provisions of the new law it is necessary to understand the concept of tenancies. A tenancy describes how multiple owners hold their interests in relation to each other. The tenancy is stated in the document creating the ownership. If no tenancy is stated, a tenancy in common is created. Joint tenants hold a single unified interest in the entire property. Joint tenants have equal shares in the property and may occupy the property subject only to the rights of other joint tenants. If a joint tenant dies, their interest passes to the remaining joint tenants. A tenancy by the entirety is exclusively available to married couples. It also has a right of survivorship. Neither spouse may independently convey their interest. There is protection for each against creditors of the other. Tenants in common own a fractional interest in the entire property. Upon death, a tenant in commons’ interest will pass by the terms of their Will, or if none, by intestate law.

There is now an automatic Homestead in the amount of $125,000 for all individuals owning an interest in real estate used or intended to be used as their home. If multiple owners of such real estate own their property as joint tenants or tenants by the entirety, they will each have an automatic Homestead of $125,000,but the aggregate will be capped at $125,000. Multiple tenants in common and beneficiaries of trusts have the $125,000 automatic Homestead allocated in accordance with their percentage interest.  To illustrate, a tenant in common with a fifty percent interest would have an automatic Homestead of $62,500.00.

The law allows owners to record Homestead Declarations at the appropriate registry of deeds and thereby acquire $500,000 of protection. This is the same amount of protection that a recorded Homestead provided under the prior law and it supersedes the new automatic protection.

An uncertainty in the prior law was whether multiple owners could record Declarations of Homestead without disrupting the Homestead protection of a co-owner who previously recorded a Declaration. Now it is clear: multiple owners may claim a Homestead in the same home.

Under the prior law, it was unclear if trust beneficiaries could acquire a Homestead estate. The new statute makes it clear they can.

The new law retains a dichotomy of an elderly and disabled Homestead (Section 2) and a Homestead available to all other types of owners (Section 3). Homestead protection amounts are now further defined by the type of tenancy an owner holds.

Under Section 2, a person 62 years of age or older, or a person who is disabled may record a Declaration of Homestead which will secure $500,000 of protection for the owner. A disabled person is defined as one who is medically determined to be permanently physically or mentally impaired to the extent they meet the disability requirements for Supplemental Security Income. If co-owners file under this same section and are tenants in common or trust beneficiaries, they each will receive $500,000 of protection with their filings. If they are joint tenants or tenants by the entirety filing under Section 2 they each will have $500,000 in protection individually but in the aggregate they will have $500,000 multiplied by the number of such declarations, plus $250,000.

Under section 3, an owner may file a declaration and acquire $500,000 in protection. Tenants in common who file such a declaration receive protection in the amount of $500,000 multiplied by their percentage interest in the property. Joint tenants and tenants by the entirety each receive the individual protection of $500,000 but their aggregate protection is capped at the $500,000. There is no stacking of these individual homestead amounts under Section 3.

Homesteads under the new law will continue to protect an owner’s family. Family is defined to include married co-owners, married individual owners and non-titled spouses and unmarried individuals, all with their minor (under 21 years of age) children.

Homesteads are not applicable only to single family homes, accessory building and land. The new law makes it clear that two to four family homes, condominium units, co-operative housing and manufactured homes may have Homesteads declared in them. It was uncertain under the prior law if owners of manufactured homes who were not 62 years of age or older, or disabled, could file a Homestead on such property.

Another clarification was made in regard to the proceeds derived from the sale of a property which was subject to a Homestead and from insurance proceeds acquired from the loss of such a property due to casualty. Sales proceeds are now protected until another home is acquired as a principal residence or one year from the sale date, whichever occurs first. In the event of casualty, protection runs until repair is completed, a new home is acquired or two years, whichever occurs first.

Another issue which existed under the old law was whether recording of a mortgage terminated a homestead. The new law provides that while the existing Homestead of an owner will be subordinate to new mortgages signed by the owner, the Homestead will not be terminated and will remain in place. Mortgage documents need not contain subordinating language and they will be treated as superior to Homesteads for signing owners and their non-titled family members. Mortgage lenders are prohibited from requiring a release of an existing Homestead in connection with making a mortgage loan.

No deeds between spouses, former spouses or other co-owners who hold an estate of Homestead and no deed between a trustee and a trust beneficiary or between a life tenant and a remainderman will terminate a Homestead unless it is expressly released in the deed. This also clarifies an issue unresolved under the prior law.

Finally, the new law requires the closing attorney or settlement agent in all mortgage transactions, to provide the mortgagor with notice of their right to declare Homestead protection pursuant to chapter 188 and to obtain receipt of the notification from the mortgagor in writing. The notice must include, but not be limited to, a summary of the differences between the automatic protection and the enhanced benefits acquired by making a declaration.

The law will take effect 90 days from signing.

Homestead Proceeds Exempt

If you’ve read my newsletter on homesteads, you understand that in most cases $500,000 of equity in a principal residence can be exempted in a bankruptcy case. But the question remained: if the principal residence were sold subsequent to the bankruptcy filing would the proceeds of the sale remain exempt? The United States Court of Appeals for the First Circuit addressed that issue in the case of In re Cunningham, 513 F.3d 318 (1st Cir. 2008). The Court decided that proceeds of a sale of exempt property retain exempt status. The facts of the case involved a creditor whose claim survived the bankruptcy, as it was not dischargeable due to fraud. The debtor owned a home and properly claimed his homestead exemption. When the debtor tried to sell the home, the creditor attempted to reach the proceeds. The creditor argued that once the homestead was converted to cash, the homestead protection of the exemption ceased. The Court disagreed, and found homestead protection extends to the proceeds of the sale of the home. The Court based it’s ruling on language found in 11 U.S.C. section 522(c) which reads in part property “exempted under this section is not liable during or after the case for any debt of the debtor that arose . . . before commencement of the case . . .” The Court did recognize exceptions for debts such as child support arrears and taxes.