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New law clarifies Mass. homestead protections

Property owners get $125,000 buffer against creditors

By Jenifer B. McKim
Globe Staff / December 18, 2010

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Protecting your home against creditors will be easier now that Governor Deval Patrick signed into law a bill that automatically provides Massachusetts homeowners with a $125,000 cushion against debt collectors, if they hold that much equity in their properties.

The legislation, signed Thursday, clarifies ambiguities in a law first enacted in 1851. The statute, amended a number of times in ensuing years, provided $500,000 in protection from creditors — but only for homeowners who file a so-called homestead declaration with a county registry of deeds, a process that can cost between $35 and $100. Under the new law, homeowners do not have to make such a filing unless they hold more than $125,000 in equity in their homes. They can still get $500,000 in protection if they file a homestead declaration.

“It is an important piece of consumer protection,’’ said Michael Goldberg, cochairman of the legislation committee for the Real Estate Bar Association for Massachusetts. “It ensures that homeowners in the Commonwealth have the protection of a modernized, understandable homestead law.’’

The legislation culminates a years-long effort by attorney groups to improve the antiquated homestead law, enacted when women could not own property. It also addresses complaints that the law was unfair to homeowners who didn’t have the training or legal counsel to help with the declaration filing process.

“At a time like today, when more and more people are facing bankruptcy, this will provide needed protection,’’ said Kathleen Joyce, director of government relations at the Boston Bar Association. “It clears up ambiguities for everybody.’’

Among other changes, the law clarifies that the home equity protections remain valid if a family member transfers a house to another relative or refinances a mortgage. It provides additional protection for homeowners who receive insurance proceeds from fire or other damages. And it now provides coverage to people whose homes are in a trust for estate planning or other reasons. The law does not protect residents from foreclosure.

Susan Grossberg, a Boston bankruptcy attorney, said the new legislation will protect many debt-ridden homeowners who would otherwise be at risk of losing their homes to creditors such as credit card companies.

“Someone who has a significant amount of equity, and they are swamped with debt and they don’t obtain good legal counsel, they can lose their house,’’ she said. “I’ve seen it happen on more than one occasion.’’

Real estate attorney David R. Baron praised the new legislation for making the protections more clear. For example, the old law only allowed one owner’s name to be on the homestead declaration, he said, even though the credit protection extended equally to both spouses and their minor children.

“You have two professionals purchasing a property together, equally likely to get sued or run into trouble with creditors, and you can only put the homestead in one of their names,’’ he said. “The new law gets rid of that source of confusion.’’

Homeowners interested in filing a homestead declaration to qualify for up to $500,000 in protection should speak to a lawyer, Goldberg said. The statute takes effect in 90 days.

Jenifer B. McKim can be reached at jmckim@globe.com.