Legislation that has been submitted to the Massachusetts legislature by the Real Estate Bar Association (REBA) proposes to make significant changes to what many consider to be an outdated homestead statute.
This Homestead Bill has been proposed in reaction to the frustrations of bankruptcy judges who often struggle to effectively apply the older and ambiguous statute. Additionally, REBA hopes that the revisions will provide more consistent protection for debtors and creditors alike.
Automatic Homestead. Of great benefit to Massachusetts homeowners, the proposed Bill would automatically provide a safety net that protects up to $125,000 of home equity for all homeowners, regardless of whether the homeowners filed a declaration. Homeowners who record a homestead declaration would still receive protection of their equity up to $500,000.
Signature. A flaw in the current homestead statute is that only one owner may acquire a homestead in any such home. Thus, under the current statute, joint owners, including spouses, currently have to decide which individual is more likely to incur liability for a claim that is not covered by insurance. The proposed Bill would allow both spouses to file, even if only one spouse is named on the title.
Second Homestead. Under the proposed Bill, a second homestead filing would relate back to the date of the first filing. This protects against liability incurred between the two filings that could compromise the second declarant's equity.
Trust. In complete contrast to the current statute, the Bill would provide protection to beneficiaries of trusts that hold title to the residence, provided that the home is, in reality, the beneficiaries' principal residence.
Transfer of Title Between Spouses and Co-owners. Currently, spouses or co-owners who transfer title between themselves without explicitly retaining homestead rights inadvertently terminate their right to protection. Under the proposed Bill, such transfers would not terminate homestead rights unless each co-owner or spouse expressly releases their rights to protection.
Sale Proceeds. Under the current homestead statute, there is no express protection for homeowners who sell their home and do not immediately reinvest the proceeds in a new principal residence. Additionally, the current statute also affects homeowners who sustain a casualty loss and do not immediately spend the insurance proceeds. The Bill would protect the proceeds from the sale of the protected residence for up to 12 months. Additionally, homeowners subject to a casualty loss would be protected for up to two years after the date of the loss.
Mortgage. Lastly, the Bill would prohibit mortgage lenders from requiring homeowners to terminate their homestead rights in order to secure a mortgage.
By: Gina M. Barry, Esq.