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What Protection Do Homestead and Tenancy by the Entirety Provide?

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Two recent bankruptcy cases illustrate the limits of protection under the Massachusetts homestead exemption. The first also provides insight on protections provided by ownership of property by married couples as “tenants by the entirety.” Before we get into the actual cases, we should explain why almost all cases involving homestead exemptions happen in the context of bankruptcy proceedings.

All homeowners in Massachusetts have an automatic $125,000 homestead protection. In addition, they can protect an additional $375,000 by filing a homestead declaration. Homeowners who are married and age 62 or older or disabled can double this $500,000 protection to $1 million by both filing elder or disabled homestead declarations. (Other states have different systems and limits. Florida is well known (notorious?) for having an unlimited homestead protection, which is why O.J. Simpson and former baseball commissioner Bowie Kuhn moved there when facing lawsuits.)

Homeowners invoke their homestead protections when they have debts they cannot pay from their other assets. Those seeking payment will always seek recovery from other assets first, such as savings, investments, and other real estate. Retirement plans such as IRAs and 401(k) plans also are protected from creditors, but inherited IRAs are not.

With that background, let’s look at some recent cases.

Tenancy by the Entirety Only Provides Partial Protection

In the case of In re: Cecilia M. Hector (Bankr. D. Mass., Case No. 19-11979-JEB, March 21, 2022), a couple was not protected from a lien by the gas company because only the husband signed the homestead declaration. Cecilia and Richard Hector bought their home in Brockton as “tenants by the entirety” in 2003. In 2005, Richard filed a homestead declaration. In 2009, Columbia Gas obtained a lien on the property for unpaid gas bills, making its claim against Richard.

In 2019, Cecelia filed for bankruptcy and asked for removal of lien because it “impairs her interest in the property” even though the lien was only against Richard’s interest. The court disagrees, in effect saying that since the lien was only against Richard’s interest, it does not affect Cecelia’s interest. This is especially the case because Richard and Cecelia own the property as “tenants by the entirety.” This is a form of joint ownership only available to married homeowners which protects each from the debts of the other. As explained by the court:

Under Massachusetts law, the interest of [Cecelia] in property held as tenants by the entirety was not subject to seizure or attachment by her husband’s creditors as long as it was her principal residence. M.G.L. c. 209, § 1. Although a creditor could file a judicial lien against Richard Hector’s interest, it could not affect [Cecelia’s] rights in the Property. [Cites omitted.] Since execution never “fixed” against [Cecelia’s] interest in the property, she cannot avoid the lien.

In other words, while Columbia Gas cannot force a sale of the property, since that would certainly impair Cecelia’s interest, it can impose a lien on Richard’s interest so that it will be repaid if the property is sold at a later date. The reader may well wonder why Columbia Gas could obtain a lien against Richard’s interest in the property if he had a valid homestead declaration. The answer is that Columbia Gas’s claim is for the value of Richard’s interest in the property over and above the $500,000 that’s protected, if any.

Don’t Use the Wrong Form

In the next case, In Re: Danny Luu (Bankr. D. Mass., Case No. 21-40233-CJP, April 18, 2022), the debtor loses out because he apparently used the wrong homestead declaration form. Danny Luu purchased his home in Worcester in 2002 and filed a homestead declaration in 2021. The form he used did not recite that he was signing it “under penalty of perjury” as required by the homestead statute Mass. Gen. Laws ch. 188, § 5.

Mr. Luu subsequently filed for bankruptcy and the bankruptcy trustee challenged the homestead declaration on a number of grounds. The court only focuses on Mr. Luu’s failure to sign under the penalty of perjury. It first notes that under Massachusetts law, the homestead exemption is to be construed liberally due to the intent of the statute to give homeowners and their families security in their homes. However, it says, “[d]espite liberal construction of the Massachusetts Homestead Act, Massachusetts courts have strictly enforced the provisions of that act where they are clear.” In this case, it finds that the statute it very clear in requiring that the homeowner declare the necessary facts for homestead protection under the penalty of perjury and since Mr. Luu did not do so, he’s only entitled to the $125,000 statutory protection:

Given that the Massachusetts Homestead Act requires the declarant to make certain statements identifying the owners to be specifically benefited and that they occupy or intend to occupy the subject property as a principal residence, the legislature appears to have intended that any false statements made in a declaration of homestead be punished by penalty of perjury. Where the Debtor has failed to subject himself to the “penalty of perjury” by not including any form of oath in the Homestead Declaration or a jurat indicating that he verbally gave that oath before a notary public, there does not appear to be any room for a different construction of the requirement because it would contradict the explicit and unambiguous text of the statute.

The court acknowledges that “this is a trap for the unwary and a harsh result for this Debtor, who used an incorrect form,” but finds that it is constrained by the unambiguous terms of the Massachusetts homestead law.

One wonders where Mr. Luu obtained the homestead declaration he used when the secretary of state makes a standard form that contains the right wording available here. The law is full of traps and complications that can trip up anyone, but especially those without the benefit of legal counsel. It’s not clear why the Massachusetts legislature chose to grant homeowners an automatic $125,000 exemption while requiring them to file a declaration of homestead to protect an additional $375,000. In this case, that distinction may well have cost Mr. Luu and their family their home.

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