William Rosa | Partner

A homestead is an essential part of any financial planning and protection package that any individual, irrespective of their circumstances, should take advantage of. A homestead is a statutory creation which provides for extra protection for landowners beyond what the common law provides. In its simplest terms, a homestead is a device which protects the equity of a person’s residence. Equity being the difference between the recorded liens on the property and the home’s value. The Massachusetts’ statute has been amended a number of times and can be found in the Massachusetts General Laws in Chapter 188, Sections 1-10.

The primary purpose of the homestead is to insure that a person or persons principal residence is exempt from creditors using it to satisfy judgments in favor of the creditor. These liabilities of the homeowner can arise out of a variety of circumstances including accidents in which the homeowner was at fault, obligations to creditors which the homeowner failed to pay, or business liabilities if the homeowner operates a business which is not in an entity form that protects that person from creditors.

The owner or owners of the home, who occupy or intend to occupy a house as a principal residence, may file for homestead protection. The residence can be a single family home, a condominium, and, under the newest form of homesteads, a mobile or manufactured home.

The person claiming the homestead can be the sole owner, a joint tenant, or, if married, a husband and wife as tenants by the entirety, a tenant in common, holder of a life estate, or even a person whose property is in trust in which they have a beneficial interest in the trust as an owner. When more than one person owns the home, the homestead exemption may be allocated among them in a variety of manners which is really beyond the scope of this initial discussion.

It is important to note at this point that a homestead is not a substitute for insurance but is merely another device which protects a person’s assets from third-party creditors. It would never be my recommendation to not place liability insurance with the thought that the homestead would protect against all creditors.

The good news for homeowners under the most recent amendment of the homestead law is to provide protection up to $125,000 even if the homeowner doesn’t file a declaration of homestead. If you take the step of recording a declaration of homestead with the Registry of Deeds, then that $125,000 rises to $500,000; and, obviously, the protection is substantially stronger. $500,000 in equity is a substantial amount of money and, therefore, it is unlikely that other than for the most wealthy homeowner, that it will not protect the equity in their home. The Massachusetts legislature has also indicated that they may index that $500,000 so that over time it will rise in accordance with inflation.

Very often a declaration of homestead is filed when you acquire the property; however, at any time during your ownership, you are entitled to file a homestead. It can be done by filing a declaration of homestead (filled out in the proper manner and form) with the Registry of Deeds for the county in which the property is located. We at Wynn and Wynn are more than happy to assist in the preparation of the document. The filing fee charged at the Registry of Deeds is approximately $35; and, once the document has been filed, it remains in full force and effect for as long as you own the property. It is not necessary to record any type of renewal unless the ownership of the property changes.

There are certain claims that, irrespective of the filing of the homestead, are exempt from the statute and for which the homestead does not afford protection. One of the most common exemptions is a lien placed against the property by the Massachusetts Department of Transitional Assistance which relates to payments made to a homeowner. If the homeowner is hospitalized or institutionalized in a nursing home and is unable to pay for their cost of care, a lien may be placed against the property. The lien which the Commonwealth has against the residence for purposes of satisfying the monies owed, are exempt from the homestead and therefore the homestead would not protect an individual from the Commonwealth obtaining that money from the equity in the property.

In addition, there are other exemptions, including the following:

• a sale for federal, state and local taxes, assessments, claims, and liens;
• a mortgage on the home;
• an execution issued from the Probate Court to enforce its judgment that a spouse pay for the support of a spouse, former spouse or minor children;
• upon an execution issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity; and,
• a lien on the home recorded prior to the creation of the homestead.

There are a number of other rules and nuances regarding homestead which is beyond the scope of this blog.

In closing, it is important to point out several things. You can only declare a homestead on your principal residence (and there are guidelines to determine what is your principal residence). Unlike the older statute, it is not difficult to refinance your property when there is a homestead in place. You may sell the home at any time. There is an ability to terminate the homestead if your particular circumstances determine that that would be in your best interest. Circumstances can change very quickly and it is imperative that the homestead be filed before any unfortunate circumstance occurs.

I hope that you find this information helpful and I can say with complete confidence that if you own a principal residence in the Commonwealth of Massachusetts, whether or not you have substantial equity in the property, it would make complete sense to investigate the possibility of filing a homestead to take advantage of up to the $500,000 full benefit of the law.

If you have any questions or would like assistance in filing a homestead, please call the attorneys at Wynn & Wynn, P.C. at 1.800.852.5211 or request a free consultation.