This week we’re coming back to discuss a topic that many of this season’s new home buyers should be considering—declaring an estate of homestead (more colloquially “declaring” or “filing a homestead”). Here’s the most common scene at closing: “Mr. Smith, did you know you have a right to declare a homestead today?” Mr. Smith looks back inquisitively, invariably thinking: “I’m buying a two bedroom condo in Southie—aren’t homesteads giant tracts of land in the undeveloped wilds of the west with names like dusty gulch?” Instead Mr. Smith says: “I’ve heard of this—could you tell me more?”
The simplicity of the concept of declaring a homestead (more accurately “establishing an estate of homestead”) is obscured by its name. While you could declare a homestead on your tumbleweed cattle ranch—and we would usually advise you that this is a good idea—you can declare a homestead just as easily on your two bedroom ranch on the cape.
What is a Homestead? Declaring a homestead protects the homeowner against certain types of unsecured debts (and by implication, creditors) from being satisfied by forced sale, execution, attachment, levy and the like. In short: you cannot be dispossessed of your home to satisfy unsecured debts with an effective Homestead Declaration.
Who can claim an estate of homestead? Anyone who owns the property (is on the deed) and who uses the property as his/her primary residence (sorry, no vacation or investment properties). Married couples can join a declaration together—non-married owners must file separately.
What’s the protection limit? By declaring an estate of homestead, protection increases from the “automatic homestead” of $125,000 to $500,000. Two qualifying owners over 62 years of age (which the Homestead Act so callously calls “Elderly”) or owners who are disabled are protected in an aggregate amount up to $1,000,000 from unsecured creditors.
It’s at this point in the explanation that some of our clever Buyers lean back and smirk. We have to break the news to them that a homestead does not protect the owner against their lender foreclosing on their mortgage or against tax liens. While this is a shame from the Buyer’s perspective, the protection offered by filing a homestead is still robust. Here’s an example: you’re driving home from another long day at the office when a minivan pulls out in front of you. Before you can slam on the brakes, you rear end the minivan, which results in serious injury to the passengers of the vehicle. While this in itself is horrible and unavoidable, the worst is to come. You’re sued by the driver of the minivan (lawyers—am I right?), and you lose. Worse yet, you haven’t declared a homestead. In order to satisfy judgment, the Judge orders your home to be sold to satisfy the hefty sum.
If you had declared a homestead, you would still owe the award of damages; however, you wouldn’t be forced to sell your home to satisfy it (assuming of course the judgment is for less than the protection limit).This encapsulates the real benefit of declaring a homestead.
After seeing the various costs, fees, and charges of buying a house, many buyers are skeptical that such protection can be purchased affordably. Most are surprised to learn that a lawyer will draft and file a homestead declaration for less than the cost of a nice dinner. This is one of those instances where if it sounds too good to be true, it isn’t.
In almost every case, we advise our clients to declare a homestead. It’s short money to obtain robust protection. While the name “homestead” may conjure unintended images of covered wagons and rolling prairies, it fits with the notion that a person’s right to their home is something that should be strongly protected. It also happens to be one of the better bargains when buying a home.
Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions. Stiles Law serves all areas of eastern Massachusetts–the North Shore, Boston, and Cape Cod, in addition to the entire South Shore, including: Plymouth, Kingston, Duxbury, Hanover, Pembroke, Marshfield, Scituate, Norwell, Cohasset, Hull, Hingham, Weymouth, Braintree, and Quincy.
Copyright © 2014 Stiles Law, All rights reserved. Stiles Law is a Massachusetts licensed law firm and all content is based on Massachusetts law. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts. No child labor laws were breached during the creation of this Blog, further Bob Bonkley and Molly Moraine were compensated for their likenesses and appearances in the same.