March 15, 2011 | by Attorney Jennifer Taddeo
For years, many Massachusetts homeowners have unknowingly let a valuable benefit go unclaimed — homestead protection. In Massachusetts, any homeowner could record a single-page document, pay a $35-36 county recording fee, and protect up to $500,000 of equity in their home. However, a homeowner who did not know about this law, or who failed to record such a document, had no protection.
On March 16, 2011, a new law will take effect, updating our homestead law and providing many needed improvements. Beginning that day, every homeowner in Massachusetts will automatically have protection of up to $125,000 of the equity in their home — the “automatic homestead exemption.” By filing a homestead, they can increase their protection to $500,000 — the “declared homestead exemption.” Those who already have a homestead in place do not need to record a new one.
Either type of homestead protects equity in a principal residence from any debt that was incurred after the date the homestead is recorded with the Registry of Deeds. Because the protection is tied to the date the homestead is recorded, it is generally best to keep an existing homestead with its earlier date of recording. If you refinance the mortgage on a principal residence, the law allows the existing homestead to remain in place, although it will not protect you from the claim the new mortgage company has on your home. The law also provides you with a limited time during which proceeds from the sale of your primary residence or insurance proceeds paid as a result of the destruction of a primary residence are protected as well.
A principal residence is a home, some multi-family dwellings, a manufactured home, a condominium unit, or a housing cooperative where the owner resides or intends to reside as a primary dwelling. No individual may have more than one principal residence.
Under the new homestead law, if multiple parties own a property as joint tenants or as tenants by the entirety (as most spouses do), any one spouse or joint owner is protected for the full amount of the exemption, but the protection cannot be combined to exceed $125,000 for automatic homestead exemptions and $500,000 for declared homestead exemptions.
If, however, multiple parties own a property as tenants in common, then each tenant has homestead protection in proportion to their ownership. For example, if three people each has a one-third ownership of a property, an automatic homestead exemption will protect $41,666.66 for each of them and a declared homestead exemption will protect $166,666.66 for each of them.
The new law makes clear that an “owner” includes the “holder of a beneficial interest in a trust.” This means that any person that is a current beneficiary of a trust can now declare a homestead on their principal residence that is in the trust. Further, the law provides that if you own a property and have a declared homestead on it, you may transfer that property into a qualified trust without terminating the homestead.
Spouses or former spouses may also transfer a principal residence between them without terminating an existing homestead. This is helpful in estate planning or MassHealth planning, where there is a reason for one spouse rather than the other to own a property. It also allows an existing homestead to survive a divorce and a transfer to one of the former spouses.
When an elderly (defined as a person age 62 or older) or disabled person declares a homestead exemption, he or she is entitled to the full $500,000 protection, regardless of whether another joint owner also has a homestead on the same property. This enables elderly joint owners to combine their protection so that jointly they can protect the first $1,000,000.00 of their equity in their home.