I am sure that many of you contemplating the filing of a bankruptcy have heard reference made to the Massachusetts Homestead Exemption.  As it is currently written, it can be a godsend to those contemplating bankruptcy (and even to those not considering the filing of a bankruptcy).  What is the Homestead Exemption?  How does it affect your interest in real estate?  How does one take advantage of the Homestead Exemption?  All excellent question, that shall be answered by what follows.

In the Commonwealth of Massachusetts, the equity in homeowner’s principal place of residence can be protected up to $500,000.00.  Under the Massachusetts Homestead exemption as currently written, a homeowner now has an automatic exemption of $125,000.00 in equity.  A homeowner can protect equity up to $500,000.00 by recorded a Declaration of Homestead with the appropriate Registry of Deeds.

Are you eligible for Massachusetts homestead protection?

In order to qualify, you must own a home in Massachusetts. The home can be a:

  • single-family home
  • 2-4 unit multi-family home
  • condominium unit
  • mobile home
  • manufactured home
  • or cooperative housing unit
  • You must occupy the home, or intend to occupy the home, as your principal residence. If you own more than one home, homestead protection only applies to the home that is your principal dwelling.
  • You can be a sole owner, joint owner, or beneficiary of a trust.

What types of homesteads are available?

There are three (3) types of homesteads under the current law:

  • Automatic Homestead (section 4):
    If a homeowner does not file a Declaration of Homestead, the homeowner automatically receives homestead protection up to $125,000 of equity. The protection is for the homeowner and the homeowner’s family who live in the home as their principal residence.
  • Declared Homestead (section 3):
    If a homeowner records a homestead, the homestead is protected for up to $500,000 equity for all owners combined. For Section 3 protection, homeowners must file a Declaration of Homestead with the Registry of Deeds.
    The protection applies to the homeowner, the spouse of the homeowner, and family members who live in the house as their principal residence. Both spouses must sign the homestead declaration if both are owners. If the homeowner dies, the homestead protection continues for the spouse and minor children if they continue to live in the house as their principal residence.
  • Homestead for Elderly or Disabled Persons (Section 2):
    Section 2 applies to homeowners who are age 62 or older, or disabled. To be considered disabled, a homeowner must meet the SSI disability requirements. For Section 2 protection, the homeowner must file a Declaration of Homestead with the Registry of Deeds.
    Each elderly or disabled owner can file for up to $500,000 protection per owner. A married couple who own a home can get up to $1,000,000 protection if both spouses qualify as elderly or disabled. Section 2 homestead protection does not extend to other family members and ends upon the homeowner’s death.

What are the benefits?

The Homestead protects your home from being subject to the results of a civil lawsuit instituted by a creditor up to $500,000.00. While the Homestead Exemption protects up to $500,000.00 from general creditors, it does not protect your house from mortgage debt or liens on the property, and does not prevent foreclosure. It also does not provide protection from the recorded tax liens of the Internal Revenue Service or MA/DOR.

The amount of homestead protection is:

  • $125,000 automatic protection (no recording)
  • $500,000 of protection if you file a Declaration of Homestead with the Registry of Deeds
  • If you sell your house, the proceeds of the sale are protected until you buy a new home, or for one year, whichever happens first.
  • If your home was damaged or destroyed by fire or other casualty, the proceeds from your insurance claim are protected until the repairs are completed, or until you buy a new home, or for two years, whichever happens first.

The protection applies to all debts, including pre-existing debts, except:

  • federal, state, and local taxes and liens
  • liens on the property that existed before the homestead protection went into effect
  • mortgages on the home
  • court orders for spousal support or child support
  • attachments to land not owned by the owner of the homestead
  • court-ordered judgments based on “fraud, mistake, duress, undue influence or lack of capacity

N.B. Homestead protection does not protect your home if you go into a nursing facility paid for by Medicaid. The Medicaid lien is a government lien and is exempt from protection.

How do I obtain Homestead protection?

To get the automatic homestead protection up to $125,000, you do not have to do anything.

To get the $500,000 protection for Section 2 or Section 3 homesteads, you must file a Declaration of Homestead with the Registry of Deeds in your county or district.

Homesteads and Bankruptcy

When filing a bankruptcy, a debtor may elect between taking either the federal exemption or the state exemptions. By taking the state exemptions in a bankruptcy, debtors can avail themselves of the Massachusetts Homestead Exemption and protect up to $500,000.00 in equity in their primary residences. In most case, this exemption will cover most if not all of the equity in a debtor’s primary residence. In such instances, the equity in your primary residence is immune from the reach of the chapter 7 trustee and your creditors. Of course, as in so many things bankruptcy matters, there is an exception to this rule. Under certain circumstances, the available state homestead exemption regardless of the amount of equity can be limited to $155,675.00 in instances where the debtor acquired the property within the 1,215 day period prior to the filing or if the debtor has been convicted of a felony.
As you can see, the use of the Massachusetts Homestead Exemption is an excellent planning tool whether in bankruptcy or not.