By Richard A. McGrath, CIC, LIA
It’s hard to imagine a worse financial tragedy than losing your home.
That’s why many states, including Massachusetts, long ago created “homestead” laws, which protect a person’s primary residence from creditors. The Massachusetts Homestead Act (GL c. 188), which dates back to 1851, was amended last year to provide greater protection for Massachusetts homeowners.
The Homestead Act protects the primary residence against attachment, seizure, execution upon judgment, levy or sale for the payment of certain debts. In other words, it would be very difficult for someone who is owed money to force a Massachusetts homeowner to sell or give up the home to pay off the debt.
It does not protect the homeowner from all creditors. Exceptions include collection of:
- Federal, state and local taxes, assessments, claims and liens
- Liens existing before the declaration of homestead is filed
- In general, the mortgage on the home
- Court orders for payment of support to a current or former spouse, or a minor child
- Court judgments based on charges of fraud, mistake, duress, undue influence or lack of capacity
- Ground rent, where the land on which the owner’s home is located is leased
Automatic Declaration Provided
Before the new law was enacted, the homeowner had to record a declaration of homestead that meets legal requirements to receive homestead protection. Under the revised law, automatic homestead protection is provided, but not to the same extent as when a declaration is filed.
Automatic declaration, which covers all homes for which no declaration of homestead is filed, protects equity of up to $125,000, whether there is one owner or multiple owners. That’s far less than the protection available when a declaration of homestead is filed.
Forms to file a declaration of homestead are available online from the Massachusetts Registry of Deeds (www.sec.state.ma.us/rod/rodhom/homidx.htm). Homes protected under the law before it was amended will automatically be protected under the new law.
The Massachusetts homestead law gives homeowners greater protection than almost any other homestead law in the country. Of course, Massachusetts homes are also among the most expensive in the country. The law recognizes two types of homestead declarations:
- Standard declaration. Available to all homeowners, a standard declaration protects up to $500,000 in equity on the owner’s primary residence. If two individuals own the home as “joint tenants” or “tenants by the entirety,” the homestead exemption remains whole and still provides protection for up to $500,000 in equity.
- Special declaration. Homeowners who are at least 62 years old or who meet requirements for federal supplemental security income because of a disability can also receive protection for up to $500,000 in equity. However, if two owners both meet special declaration qualifications, they can each take advantage of the $500,000 exemption, for total protection of up to $1,000,000 in equity.
Under the revised law, if there are multiple owners, some owners can record standard declarations while other owners of the same property can record special declarations.
The revised law also makes homestead protection available to those who own their primary residence through a trust. It provides temporary homestead protection during the sale of a home, and to insurance proceeds when a home is damaged or destroyed. It also permits certain declarations to “relate back” to the date of prior declarations, maintaining priority over liens recorded since that date.
When a standard declaration is filed, spouses and children who are 21 or younger who are non-owners can sometimes enjoy independent homestead protection, giving them the right to live in and use the home, even in the case of a divorce or the death of the owner.
However, when a special declaration is filed, it applies only to the owner or owners who filed it. When a disabled owner dies, for example, the homestead declaration terminates automatically.
The revised Homestead Act provides added protection at a time when many homeowners have been struggling to pay off their debts. In many cases, it will give homeowners a second chance, without declaring bankruptcy, by allowing them to stay in their homes while they get their debts under control.
Richard A. McGrath, CIC, LIA is President and CEO of McGrath Insurance Group, Inc. of Sturbridge, Mass. He can be reached at email@example.com.
This article is written for informational purposes only and should not be construed as providing legal advice.