The Jury Is Out
Governor Patrick approved Chapter 395, of the Acts of 2010 Laws revising Massachusetts Homestead Law, M.G.L. ch. 188 (see Senate Bill No. 2406).
A Declaration of Homestead is a document which, when recorded with the appropriate Registry of Deeds, protects a portion of the property owner's equity (market value less secured debt) in the property from creditors who have obtained a judgment against the property owner.
The new Homestead Law takes effect March 16, 2011 and provides Massachusetts homeowners greater protections against judgment creditors. A summary of the new law is as follows:
$125,000.00 Automatic Homestead Protection. Every homewoner in Massachusetts that occupies his/her home as their primary residenced will now have an automatic $125,000.00 homestead protection. No requirement to actually file a written declaration and record with the Registry of Deeds.
$500,000.00 Homestead Protection With The Filing Of A Declaration. Upon the filing of a Declaration of Homestead with the Registry of Deeds, a resident homeowner will now have $500,000.00 equity protected against judgment creditors. Not bad for a mere $35.00 recording fee.
Law Applies To A Family Home Held In Trust. If your home is held in trust, live in it, and have a beneficial interest in it, you will now be protected under the new law.
Homestead Protection Continues After Refinance. The old law was unclear whether a refinance extinguished the prior homestead declaration. No longer any confusion since the new law states that a refinance will not waive the previous homestead declaration. Furthemore, lenders can no longer make you waive the previous homestead declaration as a condition of the loan.
Proceeds From A Home Sale And Any Insurance Payouts Will Now Be Protected. The theory of the old law was that the homestead protection applied to the home only, not the cash derived from a sale or insurance proceeds. The new law protects proceeds from the sale of your home for one year, and insurance payments for two years.
Multi-Family Homes Now Protected. The new law protects multi-family homes up to four (4) units.
Eliminates Pre-Existing Debt Exclusion. Although a Federal Bankruptcy Court held that the reference to pre-existing debt exclusion under the old law unenforceable, the new law eliminates the reference to pre-existing debt exclusion.
Attorneys And Settlement Agents MUST Inform Borrowers In All Mortgage Transactions Of The Homestead Protection. Not only must attorneys and settlement agents inform borrowers of the homestead protection, but attorneys and settlement agents must explain the difference between the declared and the automatic homestead. Written proof of this requirement is mandated on attorneys and settlement agents (yet another form to be signed at closing).
That is a brief summary of the substantial changes in the law. Of course, the homestead protection does not apply to most taxes, security mortgages, orders of the probate court for child or spousal support, and judgments for fraud and the like.
Should you have any specific questions regarding the new Homestead Protection Law, call our office and we will be glad to discuss this new law as it applies to your specific situation.
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