Filing a Declaration of Homestead is one of those things that you might know a little about and recognize, but not really understand fully what it is and how it works. It can also be an additional recording fee required to be disclosed, and is subject to 10% tolerance, which means if your deed and mortgage recording fees equal $300, and a $35 homestead declaration fee wasn’t disclosed on the LE, then you’d be $5 over tolerance. It’s useful then to understand what the homestead declaration is, how it works, and who is qualified to file one.
Background: In 2010, MA updated the Homestead Act (Mass. Gen. Laws, Ch. 188) to give an automatic homestead protection of $125,000 to an owner’s primary dwelling. Residents have the option to file a Declaration of Homestead with the Registry of Deeds in order to increase that protection up to $500,000 in a primary dwelling. The Act expanded on protections for the elderly and allow for homes held in trust to benefit from homestead protections.
How the Protection Works: The homestead protection protects equity built up in the home against some creditors. The protection is subordinate to mortgages and certain liens on the property though, such federal, state, and local taxes and liens. A creditor who tries to make an attachment to a home (such as by court order) in violation of the homestead can get that attachment avoided.
It also offers substantial protection in bankruptcy, and is often what enables bankruptcy debtors to stay in their home. A bankrupcty debtor who has built up equity in his or her home but has a lot of unsecured debt can keep up to $500,000 of their home’s equity out of the bankruptcy estate if they file a Declaration of Homestead properly (and up to $125,000 automatically under the new law).
Qualifications: A Declaration of Homestead may be filed by 1 or more owners who occupy or intend to occupy a home as a primary residence. It ONLY applies to primary residences. The homestead protection applies to the owners and family members who occupy a home as a primary residence. A homestead is terminated if the home is conveyed to a non-family member though, so even if a Declaration of Homestead was previously filed on the property, the new owner will still need to file a new declaration.
It’s optional whether or not a borrower will elect to file one though, so it can be difficult for a lender or broker issuing the Loan Estimate to determine whether to disclose the recording fee for the homestead. The recording fee for a Declaration of Homestead is $35 (https://www.sec.state.ma.us/rod/rodfees.htm), so my $5 out of tolerance example is not a remote possibility. But the cost is so minimal compared to the potentially $375,000 extra protection it offers, that you could probably assume that an applicant who qualifies for filing the Declaration will do so at closing. However, there is no requirement that the Declaration be filed at closing, though there is a disclosure requirement about the homestead the settlement agent needs to provide. Thus if you have a reason to believe the borrower will opt out of filing the Declaration, then that’s fine. But if you are unsure at the LE stage, it is better to include it than not.
Bryan T. Noonan, Esq.
Regulatory Compliance Consultant
SPILLANE CONSULTING ASSOCIATES, INC.
501 John Mahar Highway, Suite 101
Braintree, MA 02184