Black and Buono Blog

...by Kiley Black

The Massachusetts Homestead Act provides $500,000.00 protection on the recording of a written Declaration of Homestead to a homeowner's primary residence.

This allows the owner to claim the first $500,000 of equity in his or her home above the mortgages on the property. Essentially, this means, if you are sued as a result of an accident or professional liability claim, and your insurance is insufficient, your home is protected up to $500,000.

Homestead should not be considered a substitute for home insurance or other liability insurance. These are separate forms of protection. The Homestead Act will protect you after the liability insurance has paid for any liability.

Homestead Declarations are for primary residences only and do not apply to vacation homes or investment property.

However, there are some debts that are still exempt from the Homestead Law:

• Federal, state and local taxes, assessments, claims, and liens
• Mortgages used to purchase the residence, and in the case of the Elderly Homestead, first and second mortgages held by financial institutions or others
• An execution issued from the Probate Court to enforce a judgment that a spouse pay for the support of a spouse or a minor children
• Debts contracted prior to the acquisition of the Homestead
• A court can enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity

...by Anthony Buono

At Black and Buono, we are often getting the same question. We have clients who are having trouble paying their bills and they want to know if homesteading their property will protect them from creditors in a lawsuit.  We’ve decided to address this in our blog this week.

Massachusetts homestead laws are concerned with protecting a certain portion of the head of household’s property from being confiscated and sold to satisfy debts.

In March of this year, the Homestead Act was changed to allow an automatic homestead of $125,000 without the homeowner doing anything at all, this is an improvement over the past, when no protection was provided automatically. A declaration of Homestead provides for up to $500,000 of protection.

Many homeowners misunderstand the law and think that it provides much more protection than it actually does.  For example, under the Homestead law, $125,000 of the equity in your home is protected. Meaning no forced sale can happen to satisfy "unsecured" creditors.

Notice, we said unsecured creditors. The homestead exemption does NOT protect you from secured creditors such as your mortgage holder.

If you stop making your mortgage payments, the bank can foreclose and sell your house. This can happen regardless of a homestead exemption because the mortgage is a voluntary secured lien, which means that you put up your home as collateral when you took out the loan.

However, the homestead law does protect you from unsecured creditors. Therefore, if your only financial asset was $125,000 equity in your home and you owed were sued for a $100,000 judgment the party suing you could not foreclose on your home to collect.  Remember, the first $125,000 worth of equity in your home is protected by the Homestead law. The same works for Declaration of Homestead of$500,000 worth of protection.

However, in the above scenario, $125,000 of your home’s equity is protected, and you have $225,000 worth of equity in your home, the party suing you actually could force the sale of your home. In this case, you would receive $125,000 of the sale (which is protected) and they would keep the other $100,000 as payment.
 
Through these examples you can see the benefit of a Declaration of Homestead, which protects $500,000 of your homes equity.

Unfortunately, mortgage lenders are not the only secured creditors who are exempt from the homestead protection. Child support debts, condominium association dues, certain debts in bankruptcy filed by your spouse, and a few others.

The most important place that the homestead law has an effect is in bankruptcies. When homeowners are over their head in debt, many homeowners opt to stop paying other bills in order to continue with their mortgage payments.  In other words, they stop paying unsecured debt, which they are protected from, to continue paying their secured debt, i.e mortgage, which they are not protected from.

Bankruptcy judges tend to be fairly lenient with the homestead exemption limit. In a bankruptcy court, the judge will let the homeowner keep their house if their mortgage payments are not delinquent and the equity in their home is $125,000 or less.

If your only asset is the equity in your home of $125,000 or less, the homestead law would most likely discourage someone from suing you.  It may allow you to keep your home if you wind up in bankruptcy court. Declaration of Homestead would give you much more security.However, it will not protect you from all of your creditors.

If you are facing increasing debt, buying a new home, or have more questions regarding the Homestead Act, please contact Black and Buono in Framingham, MA.

By Kiley Black

There are many value added services which a real estate law firm can provide to realtors. However, it is not just monetary services you should provide to your clients, the whole customer service package enhances your value and keeps repeat business and referrals coming back to you. When home buyers and sellers see that you have their interests in mind, and that you surround yourself with others throughout the process that have their interests in mind, they remember you when they or someone they know has a real estate transaction. It is important in this age of technology, information, and the tightening dollar to show value for your services.

Providing a real estate attorney that does E-recording and declarations of homestead can figure into your value proposition. E-recordings allow the transfer of the deeds and paperwork to be done while the closing is still taking place.

This in turn, gets the funds transferred faster, the recording of documents is accelerated, and it eliminates a big headache for the realtor. As the real estate market heats up, in addition to the fact that traditionally spring brings with it an increase in home sales, realtors will benefit from no longer having to go to the Registry for closings. This is very beneficial when you have back to back closings. There are very few law offices in Massachusetts which are able to do e-recordings and Black and Buono is one of them. Additionally, the costly overhead of traditional submission and recordation methods is reduced with e-recordings, therefore providing superior service to your clients, while saving them money and time.

We will also provide to your clients Declarations of Homestead for no additional fee. The Declaration of Homestead allows your clients to protect their property up to five hundred thousand dollars of the value per residence, per family. This service is also provided by Black and Buono at no extra fee. If you are a realtor looking to expand your service level to your clients, contact Black and Buono in Framingham.

At Black and Buono, we draft Homesteads at no charge, as a professional courtesy, to our clients. You only pay the recording cost, charged by the Registry of Deeds of $35.00. This represents an average savings of $100.00.

As of March 16, 2011 the revised Homestead Law takes effect (2010 Mass. Acts Chapter 395). The revisions generally expand the scope of Homesteads and also do away with some of the prior law’s more anachronistic provisions.

The statute now provides for an automatic homestead without any action required of the owner. The automatic homestead, under section four, provides for $125,000.00 protection for the owner and his or her family. It should be noted, however, that while this is an improvement upon the old statute where no coverage was provided on an automatic basis, the protection provided is still significantly less than the $500,000 protection provided under the declared homestead.

The new statute provides $500,000.00 protection on the recording of a written Declaration of Homestead. Section 5 provides several amendments for the form of declaration to be recorded, the most notable among these being:

1. Homesteads may now be declared where the home is owned by a trust
2. If the Homestead is declared while the owner is single, and the owner then gets married, the homestead shall accrue to the benefit of the new spouse, and that benefit shall accrue as of the date of the original filing.
3. The new statute anticipates that a homestead may be declared by multiple owners. That is, each co-tenant, joint owner or tenant by the entirety may declare their own homestead.