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 As a result, this year the legislature repealed the existing statute and replaced it with a new c. 188.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.
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.
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.
New England Regional Counsel
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.