Homestead

First Reported Case Considering Scope Of New Massachusetts Homestead Law

Advice To Homeowners: Get Your Homestead Declaration Recorded ASAP

One of the benefits of the new Homestead Protection Act signed into law last year is that homeowners can use homestead protections against many more creditors. Under the old homestead law, debts which arose prior to the recording of a homestead declaration were not affected at all by the homestead protection. For example, if a homeowner recorded a homestead declaration on January 1, 2005, but owed a debt to a contractor which arose on December 31, 2004, the contractor could still pursue the full amount.

Under the new homestead law, however, a homeowner is protected from a pre-existing debt (except mortgages) unless a creditor files an attachment or lien prior to the recording of the homestead declaration or if the contractor obtains a court execution “based upon fraud, mistake, duress, undue influence or lack of capacity.” The new Homestead Act is simply much more favorable to homeowners because most creditors do not file liens fast enough and most consumer debts are not the product of fraud, mistake, duress, etc.

Bad Facts Make Bad Law

A recent Superior Court decision in the case of Tewhey v. Bodkins (embedded below) is one of the first reported decisions interpreting the scope of pre-existing debt protection under the new Homestead Act, and illustrates that some confusion remains as to what it does and doesn’t cover. Unfortunately, this case is a classic example of the saying that “bad facts make bad law.”

In Tewhey, the parties were attorney and his former client who obtained a default judgment against the attorney for professional malpractice in her divorce. (It appears that the attorney did not bother to defend the case at all). In 2010, the client recorded on the title to the attorney’s residence a court execution for just short of $50,000. However, 9 months earlier, the attorney’s wife, who owned the property jointly, recorded a homestead declaration.

Under the new Homestead Act, since the wife recorded the homestead before the client recorded the court execution, the client was seemingly out of luck. Well, not so fast said Superior Court Judge Edward P. Leibensperger. No doubt recognizing that the client would get the short end of the homestead stick, the judge ultimately ruled that the client’s claim fell under the exception of a claim based upon “fraud, mistake, duress, undue influence or lack of capacity,” and thus, the client could proceed against the attorney’s property.

In my opinion, the judge misread the statutory language because legal malpractice is a tort and is not covered under the exclusion. We will see what the Appeals Court says as the case is now on appeal.

Take-Aways

As for take-aways, the case illustrates two important things. First, homeowners should get their homestead declarations recorded ASAP, before creditors take legal action. For most consumer debt such as credit cards, this will give you the maximum $500,000 protection. Second and likewise, for creditors, you need to get liens filed on debtor’s property ASAP before they record homestead protection, otherwise you’ll likely get the short end of the homestead stick.

If you need a homestead declaration prepared and recorded, my office will do it for a nominal fee. Please contact us at info@vetsteinlawgroup.com.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at info@vetsteinlawgroup.com or 508-620-5352.

Tewhey Decision

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It’s time again for our annual review of highlights in Massachusetts Real Estate Law for the past year. It’s been a very busy year. From the foreclosure fallout, to Occupy Boston, to the new homestead law, there’s been lots to report on. We’ll start in order of importance this year.

SJC Decides Controversial U.S. Bank v. Ibanez Case

2011 started off with a bang with the Supreme Judicial Court’s decision in the widely publicized foreclosure case of U.S. Bank v. Ibanez. Our coverage of the case can be read here and here. The Court’s ruling was rather elementary: you need to own the mortgage before you can foreclose. But it’s become much more complicated with the proliferation of securitized mortgages bought and sold numerous times on Wall Street. The Court held that the common industry practice of assigning a mortgage “in blank” — meaning without specifying to whom the mortgage would be assigned until after the fact — does not constitute a proper assignment, at least in Massachusetts. The ruling left many innocent homeowners and title insurance companies scrambling to deal with titles rendered defective due to the ruling. The fallout continues to this day with no resolution by lawmakers.

AG Coakley Sues Major Banks For Foreclosure Fraud

2011 was certainly the Year of Foreclosure Fallout. Earlier in December, Attorney General Martha Coakley filed a huge consumer protection lawsuit over wrongful foreclosures against the top 5 U.S. lenders, Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial. Coakley also names Mortgage Electronic Registration System, or MERS, the electronic mortgage registration system which proliferated during the securitization boom of the last decade. The lawsuit said it sought “to hold multiple banks accountable for their rampant violations of Massachusetts law and associated unfair and deceptive conduct amidst the foreclosure crisis that has gripped Massachusetts and the nation since 2007.” The case remains pending.

Massachusetts Real Estate Attorneys Win Legal Victory Ensuring Their Place At Closing Table

In the closely watched case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS), Massachusetts real estate attorneys won a huge legal victory reaffirming their long-standing role to oversee the closing process and conduct closings in Massachusetts. The case pitted Mass. attorneys vs. out of state notary companies who were trying to conduct notary real estate closings without trained attorneys. Siding with the consumer, the court required “not only the presence but the substantive participation of an attorney on behalf of the mortgage lender.”

New Homestead Law

This year saw the passing of the long-awaited comprehensive revision to our outdated Homestead Act. Here is a summary:

  • All Massachusetts homeowners receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
  • All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
  • Homesteads are now available on 2-4 family homes, and for homes in trust.
  • The existing “elderly and disabled” homestead will remain available at $500,000.
  • If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse. Homesteads now pass on to the surviving spouse and children who live in the home.
  • You do not have to re-file a homestead after a refinance.

More Foreclosure Fallout With Bevilacqua and Eaton Cases

The U.S. Bank v. Ibanez case was the start, but certainly not the ending of the foreclosure fallout. The case of Bevilacqua v. Rodriguez considered property owners’ rights when they are saddled with defective titles stemming from improper foreclosures. The ruling with a mix of good and bad news. The bad news was that victims of defective foreclosure titles could not seek redress through the Land Court “quiet title” procedure. The good news was that the court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles.

Eaton v. Fannie Mae is the next foreclosure case awaiting final decision. As outlined in my prior post on the case, the Court is considering the very important question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Using the “produce the note” defense which has been gaining steam across across the country, the borrower, Ms. Eaton, was able to obtain an injunction from the Superior Court halting her eviction by a foreclosing lender. The SJC heard arguments in the fall and is expected to issue a final ruling early in 2012. A ruling against lenders would be as big, or even bigger, than the Ibanez case.

Lastly, another case to watch for in 2012 is HSBC Bank v. Jodi Matt which will decide whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. The case is should be ready for oral argument in late winter, early spring 2012.

Judge Evicts Occupy Boston Protesters

What would 2011 be without a homage to the Occupy Movement! Citing property and trespass law from centuries ago, Massachusetts Superior Court Justice Frances A. McIntyre issuing a ruling clearing the way for the eviction of the Occupy Boston protest which has taken over Dewey Square in downtown Boston. Our coverage of the ruling is here.

Well, that’s it for a very busy year 2011 in Massachusetts real estate law! The year 2012 is expected to be just as busy, and of course, we’ll be on top of all the breaking news here on the Blog.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigator and attorney. Please contact him if you are dealing with a Massachusetts foreclosure title dispute.

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A Guest Post by Harold Clarke, Esq., New England Regional Counsel, Westcor Land Title Insurance Company.

On December 16, 2010, Governor Patrick signed into law a greatly expanded and revised Massachusetts Homestead Act which will take effect on March 16, 2011.

Changing Definition of a “Family”

Since its inception in the 1850’s, the homestead statute, now MGL c. 188, was designed to protect a person’s home from the claims of the homesteader’s creditors. This protection extended not only to the homesteader but to his/her family as well. The legislature realized that the very concept of a “family” has changed over the years and that conflicting court decisions have created confusion regarding certain provisions of the existing homestead law. As a result, this year the legislature repealed the existing statute and replaced it with a new c. 188.

At the outset, the statute defines a family as (1) married individuals, both of whom own a home, and any minor child; (2) a married individual who owns a home, a non-titled spouse of the married individual and any minor child; or (3) an unmarried individual who owns a home and any minor child. For the purpose of the statute, a minor child is a person aged 21 and under.

The statute defines a home as the aggregate of any of the following:  a single family dwelling including accessory structures and the land on which it is located, a 2-4-family dwelling including accessory structures and the land, a manufactured home and for the first time units in a residential condominium or in a cooperative are specifically mentioned.

Automatic Protection for $125,000

The new law provides for an automatic homestead exemption (Section 1C) in the amount of $125,000.00. It’s automatic in that it does not require recording anything in order to obtain its protection. As with the old statute, a homestead only applies to a person’s principal residence. Now, by definition, a person may have only 1 principal residence. In addition, in all mortgage transactions, the closing attorney must provide the borrower with a notice of the right to declare a homestead. The borrower must acknowledge receipt of this notice in writing. The notice must include a summary of the differences between the automatic homestead protection and the enhanced benefits acquired by making and recording a declaration of homestead.

Elective Protection For $500,000

The statute (Section 2) provides the procedure for declaring a homestead. This homestead, referred to as a Section 1B homestead, must be in writing and signed and acknowledged under the penalty of perjury by each owner and then recorded/filed at the appropriate Registry of Deeds. If the owner has a non-titled spouse, he/she must be identified. The declaration must state that each person named intends to or occupies the home as their principal residence. It is to be signed by both spouses if they are the co-owners and the home is or will be each ones principal residence. The homestead must be created by a separate instrument; it can not be incorporated in the deed of the home. The Section 1B exemption remains at $500,000.00.

The statute recognizes two new classes of owners- holders of a life estate and holders of a beneficial interest in a trust. If the home is owned in a trust, only the trustee need execute the homestead.

Elderly Homestead

The statute continues to provide for homesteads for the elderly (age 62 or older) and for disabled persons. There are specific recording requirements for each type of these Section 1A homesteads. The Section 1A exemption also remains at $500,000.00.

For the first time, the statute provides for stacking Section 1B and 1A homesteads on the same home. The statute contains mathematical formulas to calculate the available exemption depending on the way that the title is held between the owners. The statute makes it clear however that no person may concurrently hold rights under a Section 1A and Section1B homestead.

Termination of Homestead

Frequently for real estate attorneys, it is also important to know how to terminate an existing homestead.

A Section 1A homestead is terminated upon: (1) sale or transfer of the homesteader’s interest in the home, except where the elderly or disabled person is also the transferee; (2) a recorded release of the person’s homestead; (3) a subsequent declaration of homestead on another property; (4) the abandonment of the home as the principal residence by the homesteader; (4) upon the death of the homesteader; (5) as to a home owned in a trust, the execution of a deed or recorded release by the trustee.

A Section 1B (and the automatic Section 1C homestead) may be terminated by (1) a deed to a non-family member conveying the home, signed by the owner and a non-owner spouse or former spouse residing in the home as a principal residence as of the date of the deed; (2) a recorded release of the homestead, duly signed and acknowledged by the owner and a non-owner spouse or former spouse residing in the home as a principal residence as of the date of the release; (3) the abandonment of the home as the principal residence by the owner, the owner’s spouse, former spouse or minor children . Note that no person in the military service shall be deemed to have abandoned the home due to such service; (4) if the title is in a trust, by either (a) the execution of a deed or a release of homestead by the trustee or (b) action of a beneficial owner identified in the declaration, who is not a minor child, taken in the same manner as provided in clauses (2) and (3) above; or, (5) a subsequent recorded homestead under Section 1B on another property, except that the declaration shall terminate only the rights of the owner making the subsequent recorded homestead and the rights of that owner’s spouse and minor children who reside or intend to reside in the other property as their principal residence.

Effect of Mortgage Refinancing

Section 6 is of particular interest to real estate attorneys. It provides that an estate of homestead shall be subordinate to a mortgage encumbering the home executed by all the owners of the home. A non-titled spouse does not have to sign the mortgage. A mortgage lender shall not require a release of an existing homestead in a refinance. The statute controls and the mortgage does not have to state that a recorded homestead is subordinate to it.

Other Matters

The statute eliminates the problem of the so-called “silent termination” involving deeds between spouses, former spouses and other co-owners who individually or jointly hold a Section 1B or Section 1C homestead estate, deeds between trustees and trust beneficiaries and life tenants and remaindermen. In these situations, the homestead is not terminated unless it is expressly released, pursuant to the statute, by parties entitled to protection under the act.

The statute also provides that recording a second declaration of homestead on the same property relates back to the initial declaration. Under the old statute, the newer homestead would terminate the earlier one thus exposing the homesteader to the claims of intervening creditors.

As to existing homesteads, they are still valid despite the fact that the act under which they were created has been repealed or that their execution would be invalid under the new statute.

If you would like to discuss this or any other issue, please contact me directly at (617) 823-2719.

Harold Clarke

New England Regional Counsel

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Rich’s Note: Thank you Harold for the informative post!

Two important take-aways: (1) If you don’t have a homestead declaration filed, get it filed. Contact our office and we can do it for you for less than $100; (2) if you already have a declaration of homestead recorded, you automatically get the protection of the new law, so you don’t have to do anything.

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We’ve been following the decade old attempt to modernize the Massachusetts Homestead Act, and are happy to report Gov. Patrick signed it into law last Thursday. The law provides up to $500,000 in creditor protection, but you need to record a Declaration of Homestead with your county Registry of Deeds. Contact us and we’ll prepare and file it for you!

Highlights:

  • All Massachusetts homeowners will receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
  • All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
  • Homesteads are now available on 2-4 family homes, and for homes in trust.
  • The existing “elderly and disabled” homestead will remain available at $500,000.
  • If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse! Homesteads now pass on to the surviving spouse and children who live in the home.
  • You do not have to re-file a homestead after a refinance. There’s always been confusion here, 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 must now provide borrowers with a notice of availability of a homestead.

Click here to read our prior posts on the new Massachusetts Homestead Law.

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New Homestead Law Went Into Effect 3/16/11 (click here to download)

Automatic $125,000 Homestead For All Mass. Residents; Up to $500,000 In Homestead Protection

For less than $100, a Massachusetts homestead provides a simple and inexpensive asset protection device which shields a principal home from up to $500,000 in certain creditor’s claims. Now the Legislature has passed the long awaited revisions to the Massachusetts Homestead Act (Senate Bill 2406), giving homeowners expanded protection. Pending some minor amendments, the Governor is expected to sign the bill.

Here’s a summary of highlights of the amended bill:

  • All Massachusetts homeowners will receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
  • All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
  • If you already have a homestead recorded at the registry of deeds, you do not have to re-file it. You are all set, and have the full $500,000 protection.
  • Homesteads are now available on 2-4 family homes, and for homes in trust.
  • The existing “elderly and disabled” homestead will remain available at $500,000.
  • If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse! Homesteads now pass on to the surviving spouse and children who live in the home.
  • You do not have to re-file a homestead after a refinance. There’s always been confusion here, 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 must now provide borrowers with a notice of availability of a homestead.

As part of all residential real estate transactions, I always ask clients if they would like me to prepare a homestead declaration for a nominal fee ($40 + $35 state recording fee). Now that the protections are enhanced and attorneys are obligated to disclose, every homeowner should opt to declare a homestead. Please contact us at 781-247-4250 if you would like a homestead recorded on your property.

More info: Secretary of State Homestead Guide

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Update (June 28, 2010): The bill is heading up to Gov. Patrick’s office for approval.

The Massachusetts Senate recently passed wide-ranging legislation that updates the homestead law, protects tenants in foreclosed properties from arbitrary evictions, criminalizes mortgage fraud and certain unsolicited loans. The legislation, part of a series of consumer protection bills that passed the Senate, was approved unanimously.

Metrowest Senator Karen Spilka, who spearheaded the changes, writes about them on her blog (and she has a Facebook Page!).

Foreclosure Bill

  • Tenants in foreclosed buildings can only be evicted for just cause, or if the building is purchased by a third party. Also, a lender cannot evict a tenant for failure to pay rent unless it has posted and delivered a written notice including critical information, including a contact number for the new owner. This does not prohibit a lender from evicting tenants for other valid reasons, such as interfering with the quiet enjoyment of other tenants, using a unit for illegal purposes, or refusing to allow the lender to enter the unit to make repairs.
  • For homeowners, the legislation temporarily extends the 90-day right to cure period, enacted by the legislature in 2007, to 150 days. The 2007 law gave homeowners 90 days to come up with past due payments on their mortgage, before the lender could require full payment of unpaid balance. This was intended as a cooling off period for the lender and homeowner to work out a new payment plan to avoid foreclosure.
  • Bill requires at least one meeting or telephone conversation between the homeowner and the lender to discuss a commercially reasonable alternative to foreclosure. The lender’s representative must have the authority to agree to the revised terms. The right to cure period can be reduced from 150 days to 90 days if the lender makes a good faith effort to negotiate a commercially reasonable alternative to foreclosure.
  • Allows the 150-day right to cure to be granted once every 3 years; currently, the 90-day right to cure is only available once every 5 years.
  • Creates a 2-year pilot program within the Division of Banks that requires all property owners, including lenders, trustees, and service companies, to register and maintain vacant and/or foreclosing properties in the Commonwealth.

Coverage on this bill from the Boston Globe can be found here.

Homestead Law Update

  • Updates the homestead law to protect up to $500,000 of a home’s value. It also includes unsecured debts, such as credit card debt, that were incurred before the homestead was filed.
  • Extending homestead protection to manufactured homes, and multifamily properties of up to 4 units.
  • Requiring homeowners with more than one property to file a declaration, signed under the penalty of perjury, of which dwelling is their primary residence and therefore eligible for homestead protection to avoid fraud.
  • Clarifying that the proceeds of fire/casualty insurance or sales/takings are protected from creditors. Fire/casualty proceeds are protected until re-occupancy; a homestead is declared on new home; or for 2 years after the date of the fire/casualty.
  • Protecting the proceeds from sales or taking until a new homestead is declared or for 1 year, whichever occurs first.
  • Allowing trustees of trusts to file homestead declarations on behalf of trust beneficiaries who reside in the property as their principal place of residence.
  • Creates an automatic homestead of $125,000 for all homeowners.

Other Consumer Protection Provisions

  • As advocated by the Attorney General, the bill would criminalize residential mortgage fraud.
  • Prohibits financial institutions and lenders from sending consumers unsolicited loans which are a negotiable check, money order, draft or other instrument that may be used to unknowingly activate a loan that was not solicited by the consumer.  10 day right of rescission on these loan products.

The three bills now move to the House of Representatives for further action.

The homestead law update is long-awaited and much needed. I wrote about it in the Fall here.

The foreclosure bill is quite a victory for tenant and distressed property owner advocates.

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There’s a bill (House Bill No. 1584) currently pending this legislative session to update the Massachusetts Homestead Law which would provide additional financial protections to homeowners and consumers in Massachusetts.homestead-stamp

A Massachusetts homestead declaration is a simple and inexpensive tool enabling homeowners to protect up to $500,000 of equity in their principal residence from the majority of creditors. The mechanism is relatively simple. All that is required is the preparation and recording of a Declaration of Homestead with the applicable Registry of Deeds and the payment of a state mandated recording fee. The total cost is typically around $100 to prepare and record the instrument.

The Homestead Exemption provides protection and security to homeowners, eliminating the threat that the equity in their principal residence could be exposed to satisfy common unsecured debts or obligations.

Many feel that the Homestead Law (M.G.L. c. 188 §1, et seq.) is greatly in need of modernization. If ultimately passed, this homestead bill will have a significant impact in favor of Massachusetts consumers and  homeowners who run into financial difficulty.

Here’s a summary of the changes:

  • There will be automatic homestead protection, without the need for recording a declaration, of up to $125,000 in equity, which amount corresponds to some of the limitations on homestead exemptions enacted in 2005 in the Federal Bankruptcy Code as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Individuals and families with more equity in their homes will still have a significant incentive to record a standard declaration to protect up to $500,000 of their equity (the amount of the declared exemption under current law).
  • Beneficiaries of trusts are entitled to homestead protection
  • Mortgages cannot terminate previously filed homesteads – instead, any provision in a mortgage that purports to terminate a homestead is deemed merely to subordinate the homestead to such mortgage
  • Proceeds from the sale of a home, or insurance proceeds, are entitled to homestead protection (for up to a year for sale proceeds, and two years for insurance proceeds)
  • Transfers among family members will not terminate a previously declared homestead – even if the homestead isn’t reserved in the deed
  • Manufactured homes are eligible for protection under all provisions of the statute

We always highly recommend that our buyer clients record a homestead on their principal residence if they have not done so already. The new law will protect those who don’t (up to $125,000), but will provide even more incentive for those who do.

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