By Howard S. Goldman, Esq.
The Homestead Law is changing soon, effective date March 16, 2011, to provide an automatic $125,000 in protection to homeowners from debt collectors. Under the new Homestead Law, homeowners no longer need to file a Declaration of Homestead in order to obtain protection of up to $125,000 in home equity from creditors. While the protection for the initial $125,000 is automatic, homeowners, who hold more than $125,000 in equity in their home, must still file a Declaration of Homestead with the Registry of Deeds to gain up to $500,000 in protection from creditors.
The new Homestead law also clarifies that a previously-filed Declaration of Homestead remains in effect after a family members transfers his/her home to a relative, or refinances the mortgage. Similarly, after the death of a homeowner, the Declaration of Homestead transfers automatically to the surviving spouse or co-owner. The law also allows for houses owned by trusts to qualify for Homestead Act protection, and provides protection for multi-family homes of up to four families. And even if a home is sold, the closing proceeds will be protected from creditors for up to a year. Insurance payouts from casualties are also exempt from creditors for up to two years, and the new law no longer excludes pre-existing debts from creditor protection.
Closing attorneys or settlement agents in all mortgage transactions must obtain written proof that they informed borrowers of their right to declare a homestead. They must also discuss the difference between automatic and declared homestead.
All existing homesteads will be grandfathered under the new law.
Main features of the new Declaration of Homestead Laws are as follows:
- Automatic protection of up to $125,000 in home equity protected from creditors in Massachusetts.
- Up to $500,000 of additional protection available if a Declaration of Homestead is recorded at the appropriate Registry of Deeds.
- Family members can declare homestead protection on the family home.
- An owner can now claim homestead with or without children, and whether or not married.
- The home can be a one, two, three or four family building, an apartment house or a condominium unit so long as it is residential.
- Homestead cannot be claimed on a secondary residence, such as a cottage or summer home.
- There cannot be more than one homestead estate for an individual.
- Homestead can be filed by a sole owner, or, if there is more than one owner, by any of the owners. Only one should file to protect a family, except, if there are two owners and both are either disabled or over 62, it is advantageous for both to file.
- Homestead won’t stop enforcement of court orders for family support, unpaid taxes, or if debts involve duress, fraud, etc.
- Homestead declarations will not stop foreclosure for money used to buy the property (usually a mortgage).
- If the homeowner is under 62 and not permanently disabled, the law offers homestead protection of $500,000.
- An owner 62 or over, or permanently disabled, can file a claim for $500,000.
- If there are two owners – both either permanently disabled or at least 62 – each may file a five hundred thousand dollar homestead for a total of $1,000,000.
- Disability is proved by an “award letter” from Social Security, or, by a signed letter from your own doctor.
- If a declaration has been recorded and the owner becomes disabled or sixty-two, a new form should be filed to increase the protection.
- Filing a Declaration of Homestead will not prevent you from selling the property or leaving it to someone in your estate plan.
While the automatic protection is intended to protect individuals who are not aware of the benefits of filing a Declaration of Homestead, it is still beneficial to file for the additional protection from creditors. This relatively inexpensive procedure can help to protect your most important asset, your family home, to the fullest extent. You may review the complete Massachusetts Homestead Law here
Goldman & Pease provides prompt, courteous, and professional legal counsel to property owners, condominium associations, lending institutions, management companies and condominium developers in various real estate, zoning, and home closings matters. Through their active involvement in the real estate, business, and litigation law sections of the Boston, Massachusetts, and Rhode Island Bar Associations, the CAI Attorneys Committee, REBA, and IREM, Goldman & Pease have demonstrated themselves to be on the forefront of changing real estate laws.
This Client Update is designed to provide accurate and authoritative information in connection with the subject matter covered, but it should not be construed as legal advice or legal opinion on any facts or circumstances. You are urged to consult an attorney concerning your own situation and any specific legal questions you may have.
The Massachusetts real estate litigation lawyers at Goldman & Pease specialize in commercial and residential real estate legal matters and serve the greater Boston metro region including Alston, Arlington, Belmont, Brighton, Brookline, Cambridge, Canton, Dedham, Dover, Milton, Natick, Needham, Newton, Norwood, Waltham, Watertown, Wayland, Wellesley, Weston, West Roxbury, Westwood, and all of Massachusetts.