By declaring your home as a homestead in Massachusetts, you can protect the equity in your home from some creditors if they try to force a sale of your home in an attempt to settle a debt. Filing a declaration of homestead is relatively easy, but you should know what the rules are around homestead declarations before you go down that route.
The state legislation that may provide protection from having to sell your home is the homestead law (M.G.L. c. 188). This law provides automatic protection without even having to file a declaration of homestead up to a certain amount of equity. The declaration of homestead, once having been secured, provides additional protection if your equity is greater.
What sort of debts can a declaration of homestead protect you from?
A declaration of homestead can protect your equity from unsecured creditors, e.g. credit card debts. It will not protect you from secured creditors, liens that were imposed on your home before the declaration had been made or government taxes or other government debts.
Secured creditors include lenders like banks or mortgage providers that have entered into an agreement with you to provide a loan which you have promised to repay. Mortgages, for example, are secured loans and non-payment of mortgage installments may lead to the mortgage provider foreclosing on your home, i.e. forcing the sale of it to release enough money to pay off the debt.
Understanding equity
Home equity is the amount that you calculate actually belongs to you. This depends on the market value of your home and how much you have already paid off. For example, if you have a home which has a market value of $350,000 and you have a mortgage of $250,000, then the equity is $350,000 – $250,000 = $100,000.
The equity in mobile homes and trailer homes is also protected by the state’s homestead law. The automatic equity limit without having to file a homestead declaration is $125,000. So, if you have taken out a loan for a car or have a credit card debt and have had difficulties repaying the debt, you may find that the lender tries to force a sale of your home to get the debt paid. Foreclosure is automatically prohibited in Massachusetts up to the value of $125,000 in equity, but protection is extended up to $500,000 in equity if you have filed a declaration of homestead. Note that if there is more than one person who is elderly (62 and over) or disabled living in the home, the homestead law provides protection up to $500,000 for each person. So, if two elderly people live in a home that has had a declaration of homestead filed for it, equity up to the value of $1,000,000 is protected from foreclosure in the event that unsecured creditors come knocking on the door.
More about unsecured and secured loans and government debts
The main difference between an unsecured and a secured loan is that an unsecured loan does not include an agreement to sell your home if you cannot keep up the repayments. You have only agreed to repay the money you owe. With a secured loan, like a mortgage, you not only agree to keep to the repayment schedule, but also agree that your home can be sold if you default on repayments. The state’s homestead law does not protect you from these secured loans, so you may still be forced to sell your home or have it sold by the creditor if you default on something like a mortgage.
Government debts include unpaid taxes and such things as unpaid child support payments that have been ordered by a court. These are like secured loans so a homestead declaration will not protect you from action taken to foreclose on your home in order to secure repayment of these debts.
How to file a declaration of homestead
To file a declaration of homestead, you need to go to the Registry of Deeds office in the county you live in and ask for a “Declaration of Homestead” form. Even if you have a mobile or manufactured home, you can still complete a form to file a declaration of homestead at the Registry of Deeds office. If you have a deed stored at the Registry, fill in the book and page number on the form. You will need to sign the form in the presence of a Notary Public who will witness it. If there are several people living in the home, or there is more than one owner, they can all sign, but only one owner actually needs to sign the form. Give the form back to the Clerk to file it.
Criteria for homestead declaration protection against foreclosure
There are a few more preconditions for homestead declaration protection. You must be ordinarily resident in the home you are filing the declaration of homestead for. Ordinarily resident means that it is your primary or main home, the place you normally live in or plan to live in.
Other members of your family who live in the home, or live in the home after your death, also gain protection from the homestead law and a declaration of homestead. This means that any members of your family who live in your home after you die inherit the protection from foreclosure made possible by the declaration of homestead you filed.
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