In 2012, the State of Massachusetts changed and clarified the rights of its homeowners to protect their financial interests in their homes from the reach of common unsecured creditors. What follows is a basic guide for understanding your legal rights in your home if you living in Massachusetts.
What is a “Homestead Exemption” anyway?
A “Homestead Exemption” is best thought of a statutory “set aside” for the benefit of a homeowner. In some states, like Texas, the “size” of the homestead exemption is measured in acres or square feet. In Massachusetts, the homestead exemption is measured in dollars of “equity”. “Equity” in this case is the dollar amount remaining after all mortgages and municipal charges (like real estate taxes and water and sewer liens) are deducted from the fair market value of the real estate. For example, If a home’s fair market value is $300,000 with a mortgage balance of $150,000 and outstanding municipal charges of $25,000, the homeowner’s “equity” in the home would amount to $125,000 (i.e. $300,000 less $150,000 less $25,000 equals $125,000). In that event the homeowner would have $125,000 of equity that he would seek to protect from the reach of his creditors should he or she become delinquent on his or her otherwise unsecured debts, like credit card companies and banks and finance companies that make unsecured personal loans.
Although no one likes to think about it, when you become delinquent on a personal loan or credit card debt, creditors will ordinarily seek to secure repayment by obtaining an attachment or other judicial lien against a person’s home as part of their attempt to collect on the debt in a court of law. Only a court can grant a judicial lien or attachment prior to the entry of a judgment. However, once an Execution of Judgment is issued by a Court, the creditor can have a deputy sheriff record a levy (that also creates a judicial lien) against a debtor’s home.
The Massachusetts homestead exemption under Mass. General Laws Chapter 188, Section 1, et al. allows a Massachusetts homeowner to defend their equity in their home either in a Massachusetts State Court or (more effectively) in a U.S. Bankruptcy Court
What Kinds of Homestead Exemptions are there in Massachusetts?
There are really three (3) types of homestead exemptions available to homeowners in Massachusetts and they are as follows:
1. The “Automatic Homestead”. Under Mass. Gen. Laws Ch. 188, Section 4, there is an “automatic” exemption of $125,000. There is no need to file anything to lay claim to this exemption.
2. The “Declared Homestead Exemption”. Under Mass. Gen. Laws Ch. 188, Section 3, a homeowner (or group of homeowners) may claim up to $500,000 of equity in their home as exempt. However, to claim this exemption the homeowner must file a “Declaration of Homestead” with the County Register of Deeds in the county where the home is located. The declaration must be signed before a Notary Public and the present cost filing of the declaration is $35.
3. The “Elderly or Disabled Person’s Homestead”. Like the “Declared Homestead”, under Mass. Gen. Laws Chapter 188, Section 2, a homeowner (or group of homeowners) may *each* claim up to $500,000 of equity in their home as exempt. This type of homestead exemption also requires the filing of a “Declaration of Homestead” with the County Register of Deeds in the county where the home is located, plus proof of disability or a certification that the homeowner(s) are at least 62 years old. The most important benefit of the Elderly of Disabled Persons’ Homestead Exemption is the ability to “stack” the exemption so that an elderly (over 62) married couple that owns their home jointly may claim an aggregate homestead of *two (2) times* the basic $500,000 homestead amount, PLUS another $250,000 in equity, for a total aggregate exemption of $1,250,000.
For whose benefit may a homestead exemption be claimed?
The homestead exemption may be “declared” by one homeowner, but its protection is intended for the benefit of AND covers the legal interests of the Declarant homeowner’s family members living with him or her at the time of the filing of the Declaration of Homestead with the Registry of Deeds. The homeowner “declaring” the homestead must actually reside at the home as their principal place of residence or intend to reside at the the home as their principal place of residence in order for the Declaration of Homestead to be effective.
Geographically, what comprises my “home” for homestead purposes?
Even if your “home” is situated on more than one lot of land (say, in a subdivision), the entire undivided (or unsubdivided) property will be covered by the exemption, even if some adjacent lots consist of vacant land, SO LONG AS the lots are actually “used” as part of the homestead property even for such things as recreation, storage, gardening, etc. So long as there is proof of “use” as part of your home, it will be covered by the Massachusetts homestead exemption.
Are their any exceptions to the kind of debts that can “pierce through” a homestead exemption?
Yes. Under Mass.General Laws Chapter 188, ? 3(b), certain types of debts can “pierce” a homestead exemption claim. These include:
(1) debts for federal, state and local taxes;
(2) debts for a judicial lien on the home recorded BEFORE to the creation of the estate of homestead;
(3) debts secured by a mortgage on the home;
(4) debts for non-payment of an order by a court for the support of a spouse, former spouse or minor children;
(5) where buildings owned by the homeowner is situated on land NOT owned by the homeowner; and
(6) upon an execution of judgment issued from a court of competent jurisdiction to enforce its judgment based upon fraud, mistake, duress, undue influence or lack of capacity.
These “exception” to the Massachusetts homestead exemption apply only in the case where the homeowner has NOT sought protection under Chapter 7, 11 or 13 of the Bankruptcy Code. The protections provide by the Bankruptcy Code “amplify” and expand the protections already provided under Massachusetts State law.
How does a Bankruptcy filing add additional protections to a Mass. Homestead Exemption claim?
Under Section 522(c) of the U.S. Bankruptcy Code, “Unless the case is dismissed, property exempted under this section is not liable DURING OR AFTER THE CASE for any debt of the debtor that arose . . . before the commencement of the case, except–”
1. debts for State or Federal taxes or a debt for child support, alimony or the like;
2.debts secured by a lien that is not “avoidable” (i.e. capable of being extinguished) under the Bankruptcy Code;
3. debts secured by a tax lien;
4. debts owed by a debtor that is an “affiliated” (i.e. president, officer or director) with an “insured depositary institution” (i.e. a Bank, Savings and Loan, or an insured Credit Union) on account of fraud or willful and malicious injury and that is owed to the federal Receiver of the defunct bank;
5. a debt for fraud in the obtaining or providing of any scholarship, grant, loan, tuition, discount, award, or other financial assistance for purposes of financing an education at an institution of higher education.
Because most of the “exceptions” to allowed exemptions under Section 522(c) are MUCH more narrow than the exceptions found in the state exemption statute, only the exceptions found under Section 522(c) will apply to a homeowner that files for bankruptcy protection. Therefore, many of the exceptions found in Mass. Gen. Laws Ch. 188, Section 3(b) (see above) DO NOT APPLY with respect to past creditors included in the bankruptcy case to the extent that they conflict with the narrower exceptions under the Bankruptcy Code under a legal doctrine called “federal supremacy” or federal pre-emption”.
Can I “lose” homestead protection?
A homestead can only be terminated by deeding it to someone else, abandoning the home (except that family members that remain still have homestead protections), establishing a new homestead somewhere else. (Remember: You can only have ONE Principal residence so there can only be one homestead exemption to which it applies!)
What if I sell my house? Are the proceeds of sale protected?
If you sell your house, the net proceeds of sale, so long as they are less than the applicable homestead amount, remain exempt for at least one (1) year after the sale. But some court have held that time restrictions such as this one MAY not apply if the homeowner seeks bankruptcy protection as well because of the protections under Section 522(c) of the Bankruptcy Code.