The Massachusetts Homestead Act is simple in its concept, but occasionally requires litigation to determine how it works in practice. A recent case regarding subdivided land and a homestead in bankruptcy is worthy of discussion. First, what is the Homestead Law?
How Does the Homestead Act work?
Under Massachusetts General Laws, Chapter 188, Section 1, any homeowner who resides on the land he or she owns, has an automatic homestead up to $125,000 of equity. That is, a creditor cannot get that first $125,000 of equity that you have in your house. Furthermore, a creditor would not have any claim on the mortgage, if any, so that is an additional portion of the ownership of your home that is protected from outside creditors.
Significantly, however, the Massachusetts legislature has created a way for homeowners to get further protection. By filing a simple Declaration of Homestead in the proper Massachusetts Registry of Deeds, you can get up to $500,000 in homestead protection. Thus, the first $500,000 plus any mortgage, is unavailable from any other creditor.
In bankruptcy, the protection afforded by the Homestead Act is exempt from the federal bankruptcy Trustee who represents creditors in those proceedings. The Trustee simply verifies that you own the land and that the value of the property is as you testify. Next, if you are trying to exempt over $125,000 in equity, that you have a valid Declaration of Homestead with the appropriate Registry of Deeds. With a proper bankruptcy filing, the Trustee will simple make those verifications and your homestead is exempt from the creditors.
Homestead on Subdivided Land?
In a case recently handed down by federal Bankruptcy Court for the Massachusetts District, Judge Hillman had an interesting set of facts to consider. The debtor filed for bankruptcy protection in 2011. The debtor owned 15 acres of land in Harwich, Massachusetts. Apparently the debtor had tried to subdivide the land on two separate occasions, in 1992 and 2003. The debtor had arguments that the entire property plus the house where the debtor lived was exempt.
The court framed the issue as follows: “was the land, i.e. the entire property, used and occupied as a part of the Debtor’s principal residence.” The Court said that because of those instances in which the debtors tried to subdivide the property, the burden of proof was on the debtor to produce “unequivocal” evidence that the debtors never intended to divide the property. Apparently this was not possible so the Court determined that the property was divisible. That is the Court limited the Homestead to the house, where the debtor lives, and the property immediately around it. The Trustee would be able to use the subdivision and take the three other lots for sale, to pay the creditors.
Hire an Experienced Bankruptcy Lawyer for Homesteads
While this case contains facts not pertinent to most of our clients, if you own land, and you live on that land, and there is equity, you should seek an experienced bankruptcy lawyer. Attorney Neil Burns has filed bankruptcies on behalf of hundreds of clients since 1985. Protecting your land can be reasonably priced by getting an experienced bankruptcy lawyer on your side.
