{legal Realtor®} Revisiting the Massachusetts Homestead Act

by ROBERT S. KUTNER, ESQ. Partner, Casner & Edwards | Jun 29, 2016
The Massachusetts Homestead Act, General Laws Chapter 388, Section 1, protects much of the equity most homeowners have in their residences from creditors. As you may remember, the Act was dramatically overhauled in 2010 with changes becoming effective in March, 2011.
Homestead protection is available to the owner (or owners) of a home who intend to occupy the home as a principal residence. Based on the 2010 revision, the Act now provides: 

  • An “automatic” homestead exemption of $125,000, for owners in their primary residence without the need for filing a homestead declaration at the registry of deeds;
  • New requirements for the homestead declaration form that allow an increase in the protection for a homeowners’ residence to a maximum of $500,000; 
  • Homestead protection for insurance and sale proceeds;
  • Availability of homestead for trust beneficiaries; and 
  • Elimination of the pre-existing debt exclusion
Among its most important provisions, the 2010 Homestead Act provides a “safety net” 
in the form of an automatic homestead of $125,000, available to all homeowners in the Commonwealth regardless of whether they file a declaration of homestead.  The Act still permits maximum protection of $500,000 (the current amount available) upon the filing of a declaration of homestead.  

I. The Background – Problems with the Former Law

The longstanding Homestead Act was enacted in 1851, at a time when, among other things, women could not own real property. Except as amended from time-to-time to recognize that elderly people have greater financial burdens, and by amendments that have increased the amount of protection to reflect increasing home values, the statute had remained substantively unchanged since its adoption. However, the statute, when applied to a modern family and modern ownership structures, led to numerous problems.  Moreover, its unclear language and outdated provisions often led to surprising, if not counterintuitive, results.  For example:

  • Many, if not most, refinancing mortgages provide for a waiver of the borrower’s homestead rights.  That waiver left the homeowner potentially unprotected against the claims of his or her other creditors – and, even if the borrower refiled after signing the mortgage, his or her new homestead would not have provided protection against debts incurred prior to filing the new homestead declaration.
  • Under the existing homestead law, if the homestead were to be partially or totally destroyed by a casualty, the insurance proceeds would not be protected under the homestead statute – even if the declarant intended to use them to reconstruct the home.  
  • Under the statute, there was substantial uncertainty whether trust beneficiaries residing in the home were entitled to file a homestead declaration – and it was commonly believed such protection would not be available.  
  • Where two spouses owned a home as tenants by the entirety, but only one of them files a homestead declaration protecting both spouses, after a divorce, which transforms their ownership into a tenancy in common, the non-filing spouse lost his/her homestead protection.   
  • Under the law, if a declarant owned a home with his/her spouse as tenant by the entirety, and then transferred the house to one spouse without reserving the homestead declaration in the deed, homestead protection could be lost.  
  • The statute’s handling of manufactured homes was so unclear (not surprising, since they didn’t exist in the 19th century) that two different bankruptcy judges came to opposite conclusions regarding the applicability of the homestead to manufactured homes.  
  • The existing law’s provision for only one signature on a homestead declaration – even if the home is owned jointly by a married couple – was an endless source of confusion and misunderstanding. 
II. Changes Made in 2010

The 2010 Homestead Act made sweeping changes in the rules governing the homestead exemption in Massachusetts, removing many of the inconsistencies and ambiguities described above. Among its most important changes is the creation of the “automatic” homestead, which provides all homeowners with $125,000 in protection of their equity in their homes without the need for a filing.  

Given the prior law’s requirement of the filing of a declaration, and the number of homeowners not represented by counsel at the closing of their home purchase, many homeowners simply failed to avail themselves of the protection of the exemption.  This resulted in a situation where those who could afford a lawyer at closing – often, those with greater financial resources – could rely on their home equity in the event of financial hardship, but the less fortunate could not.  

This arbitrary result obviously created great hardship, particularly among consumers without significant financial resources other than their equity in their homes.
The new provision eliminates this harsh result, providing a “safety net” for Massachusetts homeowners. At a time of great economic hardship, this change will produce obvious benefits for Massachusetts homeowners – without exposing creditors of those families to unfair burdens. The new law still permits homeowners to avail themselves of the full $500,000 exemption by filing a declaration of homestead.

The new Homestead Act was a new day for homeowners of the Commonwealth. With the 2010 Homestead Act, those homeowners now benefit without having to file a homestead declaration. In a period of great financial uncertainty, the new law is a modern, logical and equitable homestead statute that will provide welcome relief to many residents of the Commonwealth.