New law that will increase homestead protection for homeowners in Massachusetts.
The Massachusetts Legislature has enacted a new law that will increase homestead protection for homeowners in Massachusetts. Homestead protects a person’s residence from most creditors. If a homeowner is sued by a creditor or files for bankruptcy, a portion of the equity in their home - the “homestead estate” - is deemed unavailable to their creditors. The new law was passed on December 16, 2010, and will become effective on March16, 2011.
Massachusetts homeowners’ property will automatically be protected from debt collectors up to an amount of $125,000
The new law provides that Massachusetts homeowners’ property will automatically be protected from debt collectors up to an amount of $125,000, provided they occupy or intend to occupy their home as their principal residence and that they hold that much equity in their properties. Prior to this new statute, homeowners only received this protection if they filed a declaration of homestead with the Registry of Deeds. The new law makes this protection automatic for up to $125,000. Homeowners may still file a separate declaration of homestead with the Registry of Deeds, which will provide additional protection of up to $500,000.
This homestead continuation will remain in effect even if the surviving spouse remarries.
Of particular interest to elders, the new law also permits married homeowners to each file a declaration of homestead. The prior law allowed only one spouse to file for the protection. If the homeowners are over age 62 or disabled, each owner is entitled to the full exemption amount of $500,000, resulting in protection of up to one million dollars for an older couple. If they are under 62 years old or not disabled, the total exempt amount allowed for a couple will be $500,000. In addition, under the new statute, transfers among family members will not terminate a previously filed homestead declaration, even if the homestead is not specifically reserved in the deed. Further, a declaration will automatically pass from a deceased homeowner to his or her surviving spouse or co-owner. This homestead continuation will remain in effect even if the surviving spouse remarries.
Another important change under the new law is that a homeowner who puts his or her property in a revocable trust and continues to occupy the premises as his or her primary residence will be entitled to homestead protection. In this case, the beneficiary is protected but only the trustee may sign the declaration. If there are two beneficiaries, both may be protected from creditors up to a total amount of $500,000. Prior to this statute, a property that was in held in a trust was not eligible for homestead protection, even when the beneficiary was living in the house as his or her primary residence.
The new law also clarifies that a homeowner who refinances his or her property is not required to file a new homestead declaration in order to be protected. In that case, the homestead already on file will remain in effect after the new mortgage is filed. Lastly, in addition to protecting the home itself from creditors, the homestead now protects the proceeds from the sale of a home from creditors for up to one year, and insurance payouts for fire or other losses are protected for up to two years. In the past, the homestead was deemed to apply only to the house, not the cash if the house was sold. This often left debtors “trapped” in their homes because they couldn’t sell the house and be guaranteed that they would be able to keep any of the proceeds.
This new statute is designed to provide additional protections for homeowners who may be facing debt issues in this difficult economic time. It is always wise to protect what is for most people their most valuable possession - their home. If you have any questions about this information, please call our office.