By Edward J. Smith, Esq.
Nearly seven years ago the General Court passed legislation to improve and modernize the Massachusetts Homestead Law. St.2010, c.395, amending M.G.L. c.188. The statute resolved much of the confusion that had arisen in the wake of judicial decisions, generally by the Bankruptcy Court, concerning such matters as termination of the homestead by an inter-family deed that fails to reserve the homestead, or by the recording of a refinancing mortgage, or by the filing of a second declaration; and the treatment of homesteads among multiple owners of the same property, both married and unmarried, and the availability of homestead protection to beneficiaries of a trust that holds title to the home. Real estate lawyers had lamented the failure to deal with some of the more improvidently drafted provisions in the former statute that resulted in unanticipated, even perverse, consequences. That may have been OK when the Bankruptcy Court judges interpreted the statute liberally in favor of debtors, as was their want for many years. The holdings in other cases were not as beneficent, but nonetheless the result of fair reading of the statute by judges. The 2010 statute also created an "automatic homestead," i.e., homestead protection without the necessity of filing a declaration of homestead, for an owner who occupies, or intends to occupy, his/her home as a primary residence, to a maximum amount of $125,000. (Upon filing a declaration of homestead, the exemption increases to $500,000.)
REBA has filed legislation in the current legislative term, the purpose of which is to clarify language in chapter 188 that, since the passage of the 2010 Act, has been interpreted by judges in unexpected, at times perverse, ways.
Section 1 of Senate Bill 795 would limit the allocation of the homestead exemption to trust beneficiaries and co-tenants residing in the home as their principal residence, thereby eliminating the reduction of the homestead where the home is owned in part by beneficiaries or co-tenants who do not reside there. See In re VanBuskirk, 511 B.R. 220 (Bankr. D. Mass. 2014).
(a) adds the remainder interest in a life estate and the lessee of a residential cooperative
housing unit as a clarification of persons entitled to the benefits of a homestead, so long as the person occupies the property as a principal residence. See In Re Dougan, Bankruptcy case 11-19503; In Re Gordon, 479 B.R. 9, 13 (Bankr. D. Mass. 2012), and In Re Bertone, Bankruptcy case 12-12071 (2013). The authors of the 2010 amendments intended this, and
(b) excludes from the definition of trust beneficiary entitled to homestead protection holders
of future and contingent beneficial interests in a trust, thus removing confusion that had arisen over allocating the homestead among children, holders of contingent remainder interests, and others who had no present interest in the home. See In re Newcomb, 513 B.R. 7 (Bankr. D. Mass. 2013).
Section 3 relates to the statutory exceptions to the protection of a homestead exemption: in this case, the exception for debts arising from fraud, mistake, duress, undue influence or lack of capacity. A 2012 Massachusetts Superior Court decision incorrectly relied on this exception, ruling that a homestead did not protect the proceeds from the sale of the debtor’s home from a default judgment based on the debtor’s professional malpractice. Tewhey v. Bodkins, 29 Mass. L. Rptr. 290 (Sup. Ct. 2012). The legal doctrine of mistake relates to a mistake of fact, rather than a legal wrong based on a mistake that might be actionable, or a procedural mistake that resulted in a default judgment. To avoid future confusion, this narrow exception to the protection afforded by the homestead would be eliminated.
Section 4 amends § 10(a) of M.G.L. c. 188 to provide, in para. 6, for the inclusion of certain statements in a deed regarding the marital status of the grantor, or the nonresidential status of the property, that will support the termination of the homestead upon the execution and delivery of the deed. The proposed new language in para. 7 recognizes the validity of an affidavit, prepared in accordance with § 13 of M.G.L. c. 188 containing such information. These provisions are particularly relevant to the automatic homestead, which has existed under Massachusetts law since 2010. Title underwriters and examiners have recommended this language.
Section 5 is prompted by the Bankruptcy Court decision in In Re: Canto, 476 B.R. 370 (Bankr. D. Mass. 2012), which denied the protection of homestead benefit for the proceeds of a sale on extremely technical grounds that the proceeds of sale (in that case, a foreclosure sale that had generated equity over the mortgage) were not entitled to homestead protection because they had been paid into an interpleader, rather than into the debtor’s account.
Section 6, amending § 13 of M.G.L. c. 188, corresponds to the changes made to § 10 of M.G.L. c. 188, described above, recognizing the efficacy of an affidavit regarding marital status or nonresidential nature of the property conveyed in a deed to terminate the homestead.
Section 7 makes the legislation applicable to “estates of homestead arising or created before, on or after the bill’s effective date, except with respect to the subject matter of any final judgment to the contrary by a court of competent jurisdiction prior to said effective date.”
Senate Bill 795 was filed by Senator Cynthia S. Creem. A public hearing on the legislation was held by the Joint Committee on the Judiciary in September. Letters of support may be sent at any time to the Committee’s co-chairs, Senator William N. Brownsberger (D-Belmont) and Representative Claire D. Cronin (D-Easton).
Edward J. Smith, Esq. serves as REBA’s legislative counsel. He represents clients in legislative and regulatory matters in state government. He can be reached at email@example.com.