Sometimes when the legislature acts in mysterious ways below the radar it’s to the benefit of their constituents. Few people noticed that the Affordable Homes Act that the legislature passed last August doubled the homestead exemption from $500,000 to $1 million.
The homestead exemption protects the equity in the home in the event of bankruptcy or any claim or lawsuit. So, people who owe money because they have borrowed it or as the result of a lawsuit verdict can file for bankruptcy and now protect up to $1 million of equity in their homes.
A few other things to know about homesteads:
- The protection is only available by filing a homestead declaration with the appropriate registry of deeds. The form may be downloaded here: https://www.sec.state.ma.us/divisions/registry-of-deeds/download/declaration-of-homestead-form-natural-persons.pdf.
- The declaration must be filed before any lawsuit has been filed against the homeowner.
- Homeowners who filed their homestead declarations before August 6th do not have to refile to obtain the higher protection amount.
- If no declaration has been filed in time, there’s an automatic $125,000 homestead protection. The legislature did not raise this amount.
- Homeowners who are disabled or age 62 or over can “stack” their protections, meaning that co-owners can together protect up to $2 million of equity in their homes.
- They must file a new elderly and disabled homestead declaration upon reaching age 62 to obtain this double protection. They can use the standard homestead declaration form, simply checking off the appropriate box.
- Mortgages take precedence over homesteads.
- If you sell your home, the sale proceeds are protected for one year after the sale.
- If your home is damaged, for instance by a fire, the insurance proceeds are protected for two years after the occurrence of the insured event.
- A refinancing does not extinguish a prior filed homestead declaration. You don’t need to file a new declaration.
- For a year after the sale of a property under a homestead the proceeds up to $1 million are protected and will continue to be if invested in a new principal residence in which you file a new homestead declaration.
- A word to the wise, don’t put a homestead on your vacation home since only your personal residence may be protected. In fact, if you file a new homestead on another property it extinguishes the original homestead on your home.
- Homestead protection is available for homes in revocable trusts, but the trustee must file using a separate form which is available here: https://www.sec.state.ma.us/divisions/registry-of-deeds/download/declaration-of-homestead-form-trust.pdf.
Let us know if you have any other questions about the Massachusetts homestead exemption.