Recently, we had a closing in our office in which we were representing the buyer and the mortgage company (this is allowed). As we began going over the 126-page document (yes, I counted them), we came across the standard Declaration of Homestead form. The buyer wanted to know what it was and what it does. I told him that it can protect the equity in his home under certain situations. He looked puzzled, so I thought it would be a great topic to explore in this column.
To explain home equity, I always use the following example: Let’s say your house is worth $500,000 and you have a mortgage on the property for $250,000. That means you have $250,000 in equity. That $250,000 could be subject to creditors’ claims if you don’t file a homestead declaration. In order to qualify, your property must be your principal residence; this includes mobile and manufactured homes. Every homeowner of a principal residence in Massachusetts has $125,000 in homestead protection automatically. People who file a declaration of homestead for their primary residence, however, can protect up to $500,000 of their property’s value. The elderly are personally exempt up to $500,000 each, so if two owners qualify, then the total protection is $1 million, according to state regulations. The cost of filing: $35 and visits to a notary public and your county’s registry of deeds. With the homestead protection, whether automatic or declared, the owner of the principal residence will be protected against claims of creditors. For example, your equity would be protected against a civil judgment in a motor vehicle accident with injury in which you were deemed responsible. It is not, however, a substitute for home or vehicle insurance.
You’re not protected from:
■ Seizure of assets for failure to pay the mortgage on your home;
■ A lien in place before you filed your declaration;
■ A judgment and execution from a court based upon a claim of fraud, duress, undue influence, or lack of capacity. That’s a lot of legalese, so I’ll give you an example: You would not be protected if you were found to have committed forgery on a deed;
■ The forced sale of your property for failure to pay federal, state, or local taxes;
■ Failure to pay child or spousal support.
Many people are transferring their properties into a trust as a part of an estate-planning strategy. Before 2011, homestead declarations could not be filed for properties that were held in trust. Now the “beneficial interest holder,” someone who owns the equity of the trust assets, is considered an owner entitled to homestead protection. (The trustee must identify all beneficiaries.)
Questions also arise when the owner of a homesteaded property goes into a nursing home. The declaration of homestead is irrelevant here. When a homeowner enters into a nursing home and receives state assistance for care, a lien will be placed on the property. The state will look for reimbursement of medical expenses, and the lien will be exempt from homestead protection. If the owner’s spouse still lives in the home, however, the state cannot recover the assets until the spouse can no longer reside there or dies.
If you are a homeowner, I would, without hesitation, file a written declaration of homestead at the Registry of Deeds. You can find the form at your lawyer’s office or at www.sec.state.ma.us/rod/rodhom/homidx.htm. It will be the best $35 you ever spend.