For a relatively low filing fee, Massachusetts homeowners have the ability to protect their principle residence from the claims of certain creditors up to $500,000.00. Until recently, this powerful, and relatively inexpensive protection was only available to homeowners who prepared and filed a “Homestead Declaration” with the Registry of Deeds. Recent revisions to the existing Homestead Act, which were signed into law by Governor Patrick, will provide every Massachusetts homeowner with up to $125,000.00 in creditor protection automatically, beginning in March 2011.
The new law, which goes into effect on March 16, 2011, effectively amends and clarifies the Homestead Act in some of the following ways:
- All Massachusetts homeowners will receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence, without the need to prepare or record a declaration.
- All Massachusetts homeowners continue to be eligible for a $500,000.00 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds.
- For married couples, each spouse will not have to sign the declaration of homestead – which is a change from prior practice. Because this is not a federal law or protection, same-sex married couples have the same rights and protections afforded all “married spouses” under the Homestead Act.
- Homesteads protection will now be available for 2-4 family homes, and for homes in trust.
- The existing “elderly and disabled” homestead protections will remain available at $500,000.00.
- If you have a homestead as a single person, and later become married, the homestead automatically protects your new spouse! Homesteads now pass on to the surviving spouse and children who live in the home. Again, married same-sex couples are considered “spouses” for the purposes of the Homestead Act.
- You do not have to re-file a homestead after a refinance. This has been an area of confusion and disagreement, with lenders requiring homeowners to either subordinate or release homesteads. Under the new law, homesteads are automatically subordinate to mortgages, and lenders are specifically prohibited from having borrowers waive or release a homestead.
- Closing attorneys in mortgage transactions are required to provide borrowers with a notice of availability of a homestead.
A recent Boston Globe article, New Law Clarifies Mass. Homestead Protections, describes the impact of the new law:
The legislation, signed Thursday, clarifies ambiguities in a law first enacted in 1851. The statute, amended a number of times in ensuing years, provided $500,000 in protection from creditors — but only for homeowners who file a so-called homestead declaration with a county registry of deeds, a process that can cost between $35 and $100. Under the new law, homeowners do not have to make such a filing unless they hold more than $125,000 in equity in their homes. They can still get $500,000 in protection if they file a homestead declaration.
The legislation culminates a years-long effort by attorney groups to improve the antiquated homestead law, enacted when women could not own property. It also addresses complaints that the law was unfair to homeowners who didn’t have the training or legal counsel to help with the declaration filing process.
Among other changes, the law clarifies that the home equity protections remain valid if a family member transfers a house to another relative or refinances a mortgage. It provides additional protection for homeowners who receive insurance proceeds from fire or other damages. And it now provides coverage to people whose homes are in a trust for estate planning or other reasons. The law does not protect residents from foreclosure.