The Homestead Act
The federal Homestead Act, which was enacted in 1862, originally offered free 160-acre parcels of land to early settlers, or “homesteaders.” Although this act was repealed in 1977, many states have enacted their own homestead laws. Some states use their homestead laws to protect your home against judgments and creditors. Some states offer automatic homestead protection, while others require a form be filed with your state.
Homestead exemptions are available to home owners and are applicable to your primary residence only. While many of the homestead laws pertain to bankruptcy filings, they also protect the equity in your home from any creditor for an unsecured debt. A declaration of homestead will not protect you from mortgage creditors or state long term care debts (i.e. Medicaid liabilities). An Owner is defined to include a natural person who is a sole owner, joint tenant, tenant by the entirety, tenant in common and a life estate holder. Some states include a holder of beneficial interest in a trust. State-specific information is provided below.
While some states provide for additional homestead protection for persons over the age of 62, it is important to understand that a Homestead will not protect your home from long term care or nursing home expenses.
In this article we will focus on the homestead laws of the New England states.
Homestead laws did not become effective in Connecticut until 1993. Connecticut provides a homestead exemption of $75,000 of equity per owner, provided the debt was incurred after October 1, 1993, the effective date of the law. The homestead exemption is increased to $125,000 if you are trying to protect your home against a monetary judgment from a hospital bill. If you are a married couple, Connecticut allows you to double your homestead exemption to $150,000, however, you must own the property jointly.
In Connecticut the homestead exemption is automatic – you don’t have to file a homestead declaration in order to claim the homestead exemption in bankruptcy.[i]
Under the Maine general laws, homeowners may exempt up to $47,500 of real or personal property used as a homestead, including a cooperative. If the debtor has minor dependents or they are over the age of 60 or if they are physically or mentally disabled, that amount is raised to $95,000. If a married couple owns a home jointly, they can double their exemption to $95,000. If they are over the age of 60 or are physically or mentally disabled, the exemption amount increases to $190,000.[ii]
In Maine the homestead exemption applies to real and personal property used as your primary residence, including a house, mobile home, co-op or condominium. The exemption also includes burial plots. The Maine homestead exemption also applies to the proceeds from the sale of any homesteaded property for six months after you receive the proceeds.
In Maine the homestead exemption is automatic – you don’t have to file a homestead declaration.
Effective March 16, 2011, Massachusetts offers an automatic homestead protection of $125,000, for homes that do not formally declare a homestead exemption with the Registry of Deeds. While this automatic exemption may be sufficient to protect the equity value in your home while you are carrying a mortgage, it is not likely sufficient coverage to protect the full value of your home. In order for homeowners in Massachusetts to protect up to $500,000, you must file a document called the “Declaration of Homestead”.
A Declaration of Homestead can only be filed by an owner or owners for their primary residence. A sole owner, joint tenant, tenant by the entirety, tenant in common, life estate holder, or holder of a beneficial interest in a trust may all be regarded as owners. With respect to a home owned by joint tenants or tenants by the entirety, the homestead exemption remains whole and unallocated between the owners. If there are more than two (2) joint tenant owners, there is ability to add an additional two hundred and fifty thousand dollars ($250,000) to the exemption amount for additional joint tenants in certain cases. With respect to a home owned by multiple owners as either tenant’s in common or as trust beneficiaries, the homestead exemption shall be distributed among the owners in proportion to each of their ownership interests. Manufactured or mobile home owners are also eligible to declare homestead protection under the provisions of the new statute. [iii]
If you filed a homestead declaration prior to March 16, 2011, your $500,000 protection will continue to apply. There is no need to re-file your homestead protections due to these statutory changes. The new law creates an automatic $125,000 protection on homes that do not have a homestead declaration filed at the Registry of Deeds in order to safeguard deposits and situations where a declaration may be incorrectly filed. Homestead protections now extend to pre-existing debts and the proceeds of a sale or insurance coverage. [iv]
There is no immediate need to file a new homestead if you re-mortgage your home or if you take out a second mortgage or equity loan. Although it is not necessary, it may be advisable in certain circumstances. For example, if the new financing is executed by fewer parties than all of the owners of the property, it may be advisable to re-file your Declaration of Homestead. Under the new laws, you can file a new declaration without injury.
Trusts are now eligible for homestead protections. For those individuals over the age of 62 (elderly) or legally disabled, the new law now expressly states that a homestead may be filed on each individual’s behalf and the aggregate protection increases to $1 million. Homestead declarations filed on manufactured homes must now be filed at the local Registry of Deeds, not the town offices.
If you are purchasing your new principal residence, your closing attorney must provide you, as a mortgagor, with notice of your right to declare a homestead protection. At that time, you will be asked to acknowledge receipt of this notice in writing.
A Declaration of Homestead does not take the place of home insurance. While it can help protect your home from unsecured creditors and certain other debts or attachments, it does not offer protection from first or second mortgages lenders and/or equity lenders who possess a security interest in a home. If payments are not current in these types of secured credit, a homeowner runs the risk of losing the home to foreclosure proceedings.
Liens imposed by the Massachusetts Department of Transitional Assistance, as a result of the payment of Medicaid benefits, are exempt from the homestead protection. Therefore, a Declaration of Homestead will not protect your home from the cost of long term care expenses. You should consult an attorney to address your specific concerns regarding Medicaid and protecting your assets.
The fee for filing a Declaration of Homestead in Massachusetts is $35.00 and your signature(s) must be notarized. Attached you will find the Homestead forms for a Natural Person. We have not included a Declaration of Homestead for a trust. We would strongly encourage you to speak with an attorney familiar with the laws in your state before filing a Declaration of Homestead for a trust as you may in fact, have greater creditor protection by not filing a homestead if your primary residence is owned by an Irrevocable Trust.
In New Hampshire, protection is granted automatically and you do not need to formally file a Declaration of Homestead. The homestead exemption protects up to $100,000 from unsecured debt. It does not protect your home when it is used to secure a loan or if it is used as collateral.
There are two circumstances under which you would need to formally file for homestead protection in New Hampshire. First, if you are building or remodeling a home that is slated to become your primary residence and you are not currently living there. You will need to file a declaration of homestead asking to have that home protected under the homestead exemption while it is not currently your primary residence. Second, if you are applying for federal bankruptcy.
New Hampshire does not have a Declaration of Homestead form. Instead, you would compose a letter and deliver it to the Tax Assessor’s office in the county in which the home is located. We recommend contacting the Tax Assessor’s office prior to drafting your letter to determine exactly what information is required by your county.
In Rhode Island, the homestead exemption is automatic and you don’t have to file a homestead declaration in order to claim the homestead exemption in bankruptcy. Under the Rhode Island exemption system, homeowners may exempt up to $300,000 of their home or other property covered by the homestead exemption. Rhode Island also provides a $5,000 wildcard exemption that may be used to protect any assets, including additional value in your homestead. [v] While some states allow you to double your exemption for married couples, Rhode Island does not permit this.
If property is held as a tenancy in the entirety, it means the property is jointly owned by a married couple as a single marital entity, not as individuals. In some states, a tenancy by the entirety provides additional protection for the owners, because creditors cannot take property owned by a couple to satisfy the debts of only one spouse. While Rhode Island does permit tenancies by the entirety, it also allows creditors to attach a home owned by a married couple to satisfy the debts of only one of them, meaning creditors may attach a lien to the property with the expectation of collecting in the future. Creditors may not force the owners to sell the home to satisfy the debt, but when the tenancy by the entirety is severed, that is, the home is sold or transferred to another owner, the creditor may then collect on the debt.[vi]
Under the Vermont state exemption system, homeowners may exempt up to $125,000 of their home or other property covered by the homestead exemption. If a couple is married and filing jointly, each spouse may claim the full amount of each exemption. Thus, married couples filing jointly may double the homestead exemption to $250,000 under the Vermont homestead laws. In Vermont the homestead exemption applies to real property, such as your home and condominium, and the outbuildings and land used in connection with that home or condominium. Mobile homes are also covered and the exemption also applies to rents, issues, profits, and products of any real property.
Before 2010, Vermont required you to file a yearly homestead declaration known as Form HS-122 (a form filed with the county recorder’s office to put on record your right to a homestead exemption) before you filed for bankruptcy in order to claim the homestead exemption. Since 2010, you are no longer required to file a yearly homestead declaration; the 2010 homestead declaration remains on record until the property is sold. However, you must file a homestead declaration, now known as Form HS-131, when you purchase a property that will be used as your homestead or if there is a change in the use of your current homestead.[vii]
[i] Connecticut General Statutes Annotated § 52-352a(e) and § 52-352b(t).
[ii] Maine Revised Statutes, http://www.mainelegislature.org/legis/statutes/14/title14sec4422.html
[iii] Secretary Galvin’s Homestead Act Questions & Answers, The Homestead Act, Massachusetts General Laws Ch. 188, § 1-10.
[iv] Secretary Galvin announces changes to Homestead Protection Laws, www.sec.state.ma.us.com/rod/rodhom/homidx.com.
[v] R.I. Gen. Laws § 9-26-4.(16)
Content provided by Forefield Inc. and prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013. Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group and the Securities America companies are unaffiliated. Representatives of Securities America, Inc. do not provide legal or tax advice. Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. October 2013