Lowell Deeds

Massachusetts Lawyers Weekly published an editorial in yesterday’s edition calling on the state legislature to act upon Senate Bill 2653 which would enact some fundamental reforms of the Commonwealth’s homestead statute. The proposed amendment would clear up two of the major ambiguities that now exist: whether a new homestead must be filed after refinancing (the amendment says “no”) and whether property held in trust can be the subject of a declaration of homestead (the amendment says “yes”). Additionally, the new law would allow the protection offered by an earlier filed homestead to continue once a new homestead was recorded. Under current law, the filing of a new homestead voids a prior homestead, so debts that came after the first homestead but before the second slip outside the homestead’s protection when the second one is filed. The new law would eliminate this inequity. The new law would also extend the homestead’s protection to the proceeds of insurance or a taking that converted the house to cash. It would even extend to the proceeds of a sale provided they were re-invested in a new home within a certain period of time. If for no other reason than to clarify the “new homestead after refinancing question”, we hope the legislature acts rapidly on this bill.

The Real Estate Bar Association of Massachusetts (REBA) is confident that substantive amendments to existing homestead law will be enacted by the end of this legislative session. There are two major objectives of the proposed amendments. The first would clear up many of the ambiguities that currently plague homestead law such as the unintended termination of a homestead by an inter-family deed or by a refinanced mortgage, the automatic termination of an existing homestead by the filing of a subsequent declaration, the treatment of homesteads among multiple owners of property, both married and unmarried, and whether property in a trust can be the subject of a homestead. The second major change would make a certain amount of protection - $125,000 - automatic for every home owner although home owners could obtain the existing level of protection - $500,000 - by affirmatively filing a declaration at the registry of deeds. The law, if enacted, would operate retroactively, so if you already have a homestead you would not have to record a new one. These changes to homestead law are desperately needed. There is too much ambiguity and misinformation about this important consumer protection. Hopefully the legislature sees fit to enact it soon.

Assistant Register Tony Accardi and I will be at the Lowell Senior Center (corner of Broadway and Fletcher) tomorrow (Saturday, May 10) at 10 a.m. to talk about homesteads. We’ll have blank forms available and will be able to notarize the signature of anyone wishing to declare a homestead on their property. We’ll bring the executed forms with us to work on Monday where they’ll be recorded. If you have any questions about homesteads and can’t make it to tomorrow’s seminar, please visit the homestead section of our website.

A website user posed an interesting (and hypothetical) question via email over the weekend: Does an existing homestead protect the owner of a condominium from an action by the condominium association to collect unpaid condo fees? It’s a question that I’d never considered and I have not researched case law to find any decisions on point, but a close reading of applicable laws gives some clues. Chapter 188, section 1 sets out the exemptions to homestead protection. They are unpaid taxes, a debt contracted prior to the acquisition of the homestead, a debt contracted for the purchase of the home, child support, or “a judgment based on fraud, mistake, duress, undue influence or lack of capacity.” No mention of a condo lien there. But the condo lien is a type of super-lien that still may supercede the homestead. For instance, Chapter 183A, Section 6 specifically states (among many other things) that “Recording of the master deed constitutes record notice and perfection of this lien; no further recordation of any claim of lien for assessment under this section is required. I guess that means that the lien exists even before the individual unit is sold by the developer of the condominium but that the lien only becomes funded by the failure to pay fees when due. Under that interpretation, the condo lien would fall within one of the homestead exemptions (“a debt contracted prior to the acquisition of the homestead”). If this exception does apply, then the condo lien is entirely outside the homestead and actions to enforce it would not be barred.

I look forward to the Saturday Lowell Sun for two reasons: former publisher Kendall Wallace’s column on local politics and Attorney James Haroutunian’s column on real estate. Last Saturday, Jim Haroutunian wrote about a recent bankruptcy court case that seemed to hold that property owned by a nominee trust could be eligible for protection from the Declaration of Homestead. This has been a contentious issue since the Land Court has been rather adamant in its position that a Homestead cannot be registered for property held in trust under any circumstances. I can’t argue with the Land Court’s reasoning: a homestead is designed to protect the residence of an individual but a trust is a separate legal entity so therefore a house owned by the trust is not technically an individual’s residence. Still, most believe that where homeowners (usually spouses) have placed a property in trust but continue to live in the home and treat it as their personal residence, they should be entitled to a homestead’s protection. On the recorded land side where we have much greater latitude regarding what is recorded, homesteads are placed on property held in trust. With the help of the folks in the Law Library here in the Superior Court (which is a great asset, readily available to the public), I obtained a copy of the relevant decision. It’s by the US Bankruptcy Appellate Panel of the 1st Circuit and is dated July 6, 2007. Unfortunately, the holding of the case is not as simple as it seems at first. The debtor, Edward Szwyd, was the beneficiary of a trust created by his parents. The main asset of the trust was the family home. When his parents died, Edward became the sole trustee of the trust as well as the sole beneficiary. He then filed the homestead. The Bankruptcy Court concluded that under Massachusetts law, the trust had ceased to exist the moment Edward became both the sole trustee and the sole beneficiary. My recollection of Wills and Trusts from law school is a bit fuzzy, but here’s how I think this works: The essence of a trust is divided ownership – the trustee owns legal title and the beneficiary owns the beneficial title. When there’s only one trustee and only one beneficiary and they are the same person, those two titles merge together and the trust ceases to exist. (If there are contingent beneficiaries, for instance A is trustee and A is beneficiary but upon A’s death B is the beneficiary, then there’s no merger because B is in the picture, too). By my reading of the Bankruptcy Court decision, the court held that title had merged prior to the homestead being recorded, so when the homestead was recorded the property was owned by Mr. Szwyd as an individual and his designation as trustee was just an alias. So that really doesn’t conclusively answer the question of whether property held in trust will be protected by a homestead. Hopefully some future case will.

There’s been a discernable upsurge in the number of customers arriving at our Customer Service office looking for Homestead forms. I checked the stats and they don’t really disclose the increase when compared to August of last year, but there certainly seems to be rising interest in homesteads. This may be due to many people being on vacation this time of year which presents a rare opportunity to come to the registry and not miss work. But another inference is that people are becoming more nervous about the economy and their place in it. With all the talk of mortgage foreclosures, the credit crunch and stock market mood swings, it’s inevitable that folks grow more uneasy about their financial situation.

Assistant Register of Deeds Tony Accardi and I spent this morning at the Lowell Senior Center conducting a homestead seminar. We’ve done this many times and have a set procedure. First, I explain how the Declaration of Homestead operates and then answer questions. Those in attendance then have the opportunity to complete homestead forms on the spot with us notarizing their signatures. They give us the filing fee and the completed form which we bring back to the registry and record. Every time we do this someone says “I’ve been meaning to do this for years but I never got around to it” which is evidence that our services our useful to people. Because of the many ambiguities surrounding homestead law, the question period is always a challenge. I used to wonder if someone would ask “do I need a new homestead if I refinance?” but now I just wonder who in the crowd will be the one to ask that question because it always gets asked. In addition to homestead questions, it’s apparent that many people have great interest in real estate matters and find it a interesting topic for discussion. If anyone would like to organize a homestead seminar, they can send me an email or call me at 978/322-9000.

The December 26, 2005 edition of Massachusetts Lawyers Weekly has a front page story about a recent bankruptcy court decision that addressed the applicability of the homestead exemption to the proceeds from the sale of the protected house. “Judge: homestead exemption follows house-sale proceeds” involved a situation where a person filed for bankruptcy protection and then sold his homestead-protected house. The creditor argued that once the home was converted to cash, the homestead no longer applied (after all, it’s intended to protect the home, isn’t it?). The judge disagreed, saying (among other things) that the status of the property as exempt was fixed as of the date of the filing of the bankruptcy petition and a subsequent change in the nature of the property (i.e., from a house into cash) could not alter its exempt status. The attorney for the creditor indicated he will appeal this decision.

It is uncertain what application this case will have to non-bankruptcy situations. I doubt that a non-bankrupt debtor will be permitted to sell his homestead-protected home and then walk away with up to $500,000 in the proceeds at the expense of his creditors. Of course, logic and homestead law don’t exactly walk arm in arm, so we can’t be sure about that.

We rolled out our newest invention today – a Homestead maker. Every day about a dozen individuals come to the registry’s Customer Service office to fill out a Declaration of Homestead. Up until now, we have provided preprinted forms that contain blank spaces for the customer’s name, address, town, and deed book and page reference. The customer fills these out, dates and signs the document. Then, one of our many notaries will acknowledge the signature and the customer moves over to the recording counter and records the document. Our new invention uses a computer with touch screen technology and a laser printer to produce personalized, fully printed Declarations of Homestead. On screen instructions prompt the customer to use a fingertip with the on-screen keyboard to enter the customer’s name, address, book and page reference. The computer automatically inserts the current date and then prints the completed form. The customer signs the form, we notarize it and record it – a clean, fully typed document. We’re still in an experimental mode with this new device, but if it works the way we hope it does, we might start mass producing them as a type of ATM-like kiosk that can be installed in town halls, libraries and other locations where people congregate.

Yesterday I traveled to Burlington to attend an MCLE seminar, Preserving and Transferring Your Client’s Principal Residence, primarily to hear the discussion about Declarations of Homestead. The distinguished panel of experts consisted of Alexander Bove, David Correira, Robert Ryan, Leslie Sleeper Madge and Robert Gorfinkle. Much of the program involved Medicaid planning and it was fascinating but also a little frightening given its complexity. Unfortunately, but not unexpectedly, the “should you file a new homestead after refinancing” question was left unanswered. In the 2003 Bankruptcy Court decision, In re Heretakis, 293 BR 82, that court held that Massachusetts law would not consider a mortgage to be a deed that would terminate an existing homestead. Unfortunately, no state appellate court has held likewise (although no such court has held the contrary, either). In the meantime, the panel seemed to suggest that practitioners continue to give explanatory but non-specific answers when confronted with this question, and hope that one of several pending homestead-related bills that clarify this situation be enacted soon. There did seem to be agreement that advising a client to record a new homestead after refinancing “to be safe” was problematic since the new homestead would wipe out the earlier homestead regardless of the legal effect of the mortgage. If the homeowner recorded a homestead in 2001, incurred a debt in 2002, refinanced in 2003 and recorded a new homestead in 2004, the 2004 homestead would terminate the one filed in 2001 and the debt from 2002 would then come before the homestead and be outside of its protection. (I had always understood this to be the case but once when I explained it on the Blog I was chastised by a lawyer who maintained that there would be no “interruption of coverage” in this scenario). One last thing: the panel emphasized that anyone filing for bankruptcy absolutely should file a declaration of homestead before filing the bankruptcy petition, no matter when the debts came into existence.