The Latest on Homesteads

This week's edition of Massachusetts Lawyers Weekly (Sept 13, 2004) has a front page story on a Bankruptcy Court decision that interpreted Massachusetts homestead law. It seems the homeowner had a first mortgage that was used to purchase the property, then recorded a homestead and then recorded a second mortgage. The second contained no language releasing or otherwise addressing the homestead. Now the homeowners are in Chapter 7 liquidation proceedings and the second mortgage holder wants relief from the automatic stay that comes with filing bankruptcy. The homeowners claimed that since the homestead preceded the second mortgage, the homestead protected the home from that particular creditor. The judge ruled that since Massachusetts is a "title theory" state, a mortgage constitutes a deed and since a new deed dissolves the existing homestead, the second mortgage holder is not barred from foreclosing by the homestead. The decision seems a bit confusing. If the mortgage/deed dissolves the homestead, it would seem to be dissolved for all subsequent debts, not just the new mortgage. But the decision seems to suggest that it's only the new mortgage that is outside the homestead's protection. Whatever. The important point is that many lawyers and homeowners ask whether a new homestead must be recorded after refinancing. From my non-scientific survey, I would say a slight majority of attorney's say no, it's not necessary. This decision seems to indicate otherwise.