Homestead Act Revised: Bill 2406

Governor Deval Patrick received a revised Homestead Act, Senate Bill 2406, in the beginning of December, which would act to automate homestead exemption of $125,000 for every homeowner in Massachusetts. Additionally, the bill states that a homestead declaration is no longer required.  These provisions would protect homeowners filing for foreclosure, as well as sellers and owners whose properties are in trusts.

These are important steps forward for homeowners and estate planning attorneys alike.

The existing homestead law, which studies indicate most Massachusetts homeowners are unaware of, doesn’t clearly express whether or not a re-declaration of homestead is required after property refinance; the result has been a lack of cash protection on foreclosed on homes, and last-minute Massachusetts estate planning lawyers re-declaring homestead for their panicked clients.

The bill clearly states an important revision: You do not need to re-declare homestead after refinancing your home.

Another crystal clear revision on existing “murky” literature deals with homestead law on property held in a trust. Just like traditional homeowners will expect if the bill passes, equity protection is mandated for trust-owned properties. Creditors cannot claim proceeds for up to a year. If a homeowner is in dept, she will no longer have to worry that homestead protects the home but not the cash she sold it for. With the new bill, if the homeowner wants to liquidate the house, her proceeds will remain intact.

Another change: pre-existing dept no longer impacts protection rights—they are granted in the new bill regardless, so “your rights before you file bankruptcy and after you filed bankruptcy are complete consistent with one another,” said Michael J. Goldberg, co-chair of the Real Estate Bar Association’s legislation committee.  Additionally, the bill states that declaration will pass without-question, directly from a deceased homeowner to next of kin or co-owner.

“Finally,” wrote Philip Bantz in his article for Massachusetts Lawyers Weekly, Big changes slated for homestead law, “the bill requires closing attorneys or settlement agents in all mortgage transactions to obtain written proof that they have informed borrowers of their right to declare homestead. They must also discuss the difference between automatic and declared homestead.” OK.