Metro®Boston, Publication Date: June 1, 2011
By Attorney George Warshaw
If you mention “homestead law” to someone in Massachusetts, their eyes usually roll in puzzlement and ask, “What’s that?”
Quite simply, it’s a law designed to help homeowners keep their homes when in debt or faced with a judgment they cannot pay. The law does not protect against divorce, taxes, or mortgage foreclosure, but it is very helpful in many other situations.
The law prevents a plaintiff, claimant or creditor from selling your principal residence to satisfy a debt, as long the equity in your home is not more than $125,000 or $500,000.
By filing a Declaration of Homestead in the registry of deeds, you protect up to $500,000 of the equity in your home against liens imposed after the time and date of your filing.
If you choose not to file, you still receive $125,000 in protection – but only if you bought your home on or after March 16, 2011. Otherwise, you must file a written declaration to gain any protection.
Filing a declaration is cheap and easy to do. While it is better to have a lawyer guide you, you can download the form on most registries of deeds websites.
Homesteads filed under the old law are valid with, perhaps, one exception: recent decisions from the bankruptcy court have led many to question whether the “release of homestead” language in the standard Fannie Mae mortgage inadvertently terminated a homestead filed before March 16th (i.e. under the former version of the law).
Many commentators are suggesting that homeowners file a new homestead declaration to be safe.
How the new law works. Here’s an example:
Husband and wife (H&W) purchase a home for $500,000 and borrow $100,000 from the bank, giving the bank a mortgage for the amount borrowed. It will be their principal residence.
They thought about filing a formal homestead declaration to obtain the maximum protection but did not. Fortunately, the new law gives them an automatic $125,000 protection in the equity in their new house or condominium from liens and lawsuits.
They hire a home improvement contractor and get into a dispute. The contractor files a mechanic’s lien and later obtains a judgment for $25,000. The judgment cannot be enforced against the marital home. Thus, the contractor cannot force the sale of the house or condo to pay the judgment. Their home is safe under the homestead law – at least for now.
A few years pass and the husband and wife sell their home for the same price they paid. The contractor cannot stop the sale or require they pay the $25,000 judgment as a condition of the sale. The husband and wife take the proceeds from the sale, a little less than $100,000, and put it into their bank account. That money is safe for one year under the new law.
If the husband and wife use the proceeds from their sale to buy a new home within one year of their sale, the proceeds and their new home will be protected against the contractor’s judgment.
The new Massachusetts Homestead Law is very complicated, but it works to the benefit of all homeowners. It provides special protections for persons of age 62 or more or who are disabled and permits beneficiaries of a trust to protect their principal residence if the real estate is in the trust.
It will take a few years before the courts provide guidance and clarity on the details of the law. © 2011 George Warshaw. All rights reserved.
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George Warshaw is a real estate attorney and author. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts, and estate plans. George welcomes new clients and questions at george.warshaw@warshawlaw.com.
Legal Advice: Laws, and court decisions interpreting them, change frequently and this article is not updated as laws change. The content and information contained in this article is neither intended as legal advice nor shall establish an attorney-client relationship. Before making any legal decision, consult an attorney to see how the foregoing may apply to your circumstances.
If you missed my column in the Wednesday Boston®Metro newspaper you can read it here! And contact me if you need help in buying or selling your home or in planning your will. - George
George in the Metro 