Tech Talk: I’m Protected by the Homestead Act - I Don’t NEED Liability Insurance…
Irene L. Morrill, CPCU, CIC, ARM, CRM, CRIS, MLIS, LIA, CPIW
VP Technical Affairs, MAIA
That is one of the most FOOLISH statements that I have ever heard, and it is SO UNTRUE!
Don’t get me wrong. I think protecting one’s residence by filing under the Homestead Act found in MGL 188 is a smart thing to do but not in LIEU of purchasing liability insurance! One should file for homestead in CONJUNCTION with/ in ADDITION to purchasing liability insurance.
I just received an email from an agent stating:
Often when I am reviewing the homeowner’s policy and umbrella policies customers will say “well I have a Homestead” filed. They say they think that that will protect their home should they be sued. What are your thoughts on that?
Brief overview of the Homestead Act
How broad is the protection?
“A declared homestead exemption” created by a written declaration provides $500,000 of protection for one’s PRINCIPAL residence only. The MGL (Massachusetts General Law) discussing homesteads is M.G.L. c. 188 can be found at the Commonwealth of Massachusetts website: https://www.mass.gov/info-details/massachusetts-law-about-homestead
This same website has a “fillable option” to create a written declaration of Homestead:
https://www.sec.state.ma.us/rod/rodhom/Declaration_of_Homestead_form_Natural_Persons.pdf and this can be completed and sent to one’s local Registry of Deeds and filed for a mere $35.00. The homestead fillable form can also be found at the MA Registry of Deeds website and completed there: https://www.sec.state.ma.us/rod/rodhom/homidx.htm
The written homestead declaration might be witnessed by a notary public when signed by the applicant before filing with the Registry of Deeds.
The Homestead Act was broadened in 2011 to require that the closing attorney on a home sale must provide the buyer with notice of their right to declare a homestead protection. I wonder if this automatic filing discussion “mis-informs” the client into thinking they don’t need insurance?
As of March 2011, trusts are also eligible for homestead protections.
For those individuals over the age of 62 (elderly) or legally disabled, the 2011 law expressly states that a homestead may be filed on each individual's behalf and the aggregate protection increases to $1 million!
What’s the purpose of a homestead declaration?
The general purpose of the “estate of homestead” is to protect oneself from unsecured creditors. A creditor cannot force an auction on one’s home to pay off unsecured debt. Your family members or other owners of the home living in that household are still protected by the homestead declaration even after you (the homestead declaration filer) are deceased.
Filing for an “estate of homestead” exempts your principal residence to the tune of $500,000 from MOST attachments or debts. However, the Homestead Act does NOT exempt you from such things as:
1) sale of property to pay federal, state or local taxes, assessments, liens
2) debts incurred PRIOR to creation of “estate of homestead” (sort of similar to NO prior acts coverage!)
3) mortgage debt ON the home
4) child support or alimony
5) Criminal fines
When your client states/asks that they are protected by the homestead act, why should they still purchase high liability limits on their auto and homeowners policies, here is an answer:
The MA auto policy and the defense issue…
Purchasing MA state minimum limits of 20/40/5 (state minimum limits) can be a problem when causing a SERIOUS injury to someone even if the homestead act protects one’s home.
Suppose the plaintiff is suing for $1,000,000 and the request is not unreasonable based on his/her injuries. The accident is clearly your fault. Will your company choose to spend thousands of dollars on defense for you to settle for a lesser amount than the million when you only carry MA minimum limits? In the long run, the carrier won’t pay out more than the $20,000 per person limit so what will the carrier gain by offering a long involved and costly defense, especially if they don’t have to?
The duty to defend language in the MAP is “interestingly dangerous” ….
We also have a duty to defend any such lawsuit, even if it is without merit, but our duty to defend ends when we tender, or pay to any claimant or to a court of competent jurisdiction, with the court’s permission, the maximum limits of coverage under this policy. We may end our duty to defend at any time during the course of the lawsuit, by tendering, or paying the maximum limits of coverage under the policy, without the need for a judgment or settlement of the lawsuit or a release by the claimant.
The MAP language allows the carrier to pay out and go home without obtaining a release from the plaintiff for their client! The insured is going to have to come up with EXTRA money to pay for a lawyer to help get him/herself out of the lawsuit!!!
Massachusetts Uninsured and Underinsured Motorists Coverage…
One CANNOT buy a higher limit of insurance for Uninsured Motorists Coverage (Part 3) or Underinsured Motorist Coverage (Part 12) than is purchased for Optional Bodily Injury (Part 5).
Only buying MA state minimum BI limits of 20/40 means that’s all the insured is allowed to purchase for their UM/UIM coverages.
There are a certain number of individuals out there who FAIL TO PAY their auto insurance premiums. If you are a victim and are seriously injured by someone who didn’t buy insurance or let their insurance lapse, what will YOU do? How will you pay YOUR bills? It is very likely that many of these people will NOT have any “assets” to attach or wages to garnish. Purchasing high Uninsured Motorists coverage limits will allow YOU to receive compensation from your OWN carrier when YOU are the victim! Let your carrier worry about getting the money back!
Also, in Massachusetts many people either make poor insurance buying decisions or just can’t afford to purchase much insurance. They meet state law requirements but what good is $20,000 when YOU are seriously injured? Buying high Underinsured Motorist Limits can provide you with $$$ to pay your mortgage and other monetary obligations when you are the victim in an auto accident.
In order to purchase high UM and UIM limits, one must purchase a high BI limit!
MA auto Property Damage Liability Coverage Part 4 …
This coverage is inexpensive when purchasing limits HIGHER than state minimum, the first $5,000 costs the most. The premium jump to $10,000 is somewhat hefty, but after that additional limits are inexpensive! We ALL know that the average cost of a newer vehicle can be well over $50,000! We also know that if an insurance company pays a collision loss to its customer it WILL subrogate against the “guilty party”. Purchasing adequate Property Damage Liability limits is MUCH cheaper than having one’s wages attached by the insurance company’s subrogation department! The additional premium can easily be portioned over the normal automobile payment plan.
When purchasing higher BI and PD limits one then can be eligible for a Personal Umbrella policy and many of those policies, such as RLI, allow the purchase of MORE UM and UIM! Hoorah!
Homeowners liability insurance …
Is so INEXPENSIVE, it is ridiculous! Increasing one’s Homeowners liability limit from the base of $100,000 to $500,000 or to $1 million is usually less than $50. What a deal!
Judgments rendered must be paid whether or not by insurance…
Filing an estate of homestead does NOT keep you from being sued. If you negligently cause injury to another person or their property, then a court of law can find against you. A huge judgment could be rendered against you. Granted, the Homestead Act could protect your principal residence but not any SECONDARY residence. Also, what about your savings account????? Or, the ATVs, Mercedes, sail or motorboats or other owned “toys”? You can kiss them goodbye!
If found guilty, your wages could be GARNISHED (attached)! MGL 246 describes how property, cash and WAGES can be attached.
Section 28. If wages for personal labor or personal services of a defendant are attached for a debt or claim, an amount not exceeding the greater of 85 per cent of the debtor's gross wages or 50 times the greater of the federal or the Massachusetts hourly minimum wage for each week or portion thereof out of the wages then due to the defendant for labor performed or services rendered during each week for which such wages were earned but not paid shall be reserved in the hands of the trustee and shall be exempt from such attachment.
Inflation is taking a big enough “bite” out of my wages, I don’t want MORE taken out!
According to MGL 246 s.28A a whopping $2500 of your savings accounts are exempt which means any more than that IS “attachable”. Oh boy!!!
Could an outstanding judgment that attaches your pay…
Affect your ability to
Acquire a (or keep or continue to pay for) second home
Send your kids to the “best” colleges
Purchase that fancy car
Go on vacations
Go out to eat
Or otherwise affect your lifestyle or desired standard of living? You bet! That’s why liability insurance protection is so vital!
According to MGL 260 s.20 a money judgment entered in the State of Massachusetts is generally enforceable for a period of 20 years. That’s a LONG, LONG time to try to put off your earning power to avoid your judgment obligations!
Fine, I’ll declare bankruptcy…
Well, from what I read of the bankruptcy laws are another can of worms. Chapter 7 bankruptcy is an “asset liquidation proceeding”. A Homestead Declaration will not exempt the home from liquidation but will allow the individual to keep a “greater portion of the proceeds” from a liquidation sale.
In a chapter 13 bankruptcy a Homestead Declaration allows you to retain the home, but you will be required to repay “some or all of the unsecured debt over a 3 to 5 year period”.
Bankruptcy stays on your record for 10 years. We ALL know that a bankruptcy in your credit history will “adversely affect” your ability to buy insurance in the standard voluntary market!
I think purchasing insurance is WAY EASIER than filing bankruptcy, easier and CHEAPER, too!
If one is really contemplating bankruptcy, then Consumer Credit Counseling Service of Southern New England should be contacted at 1-800-208-2227.
Refer your insured to the Commonwealth of Massachusetts or Massachusetts Registry of Deeds websites if they want more information and/or proof of “the facts”. The Commonwealth website has plenty of information about the homestead act and NONE of it says, “and lucky you, now you don’t need to buy liability insurance”! In fact, the Massachusetts Registry of Deeds Website cautions the consumer NOT to use the Homestead Act in lieu of insurance, but in conjunction with it.
This is excellent advice buy adequate insurance and then utilize the Homestead Act as added protection
I truly believe “there ain’t NOTHING like having your OWN insurance policy!”
As always, if you have any further questions, please feel free to email me, Irene Morrill, Vice President of Technical Affairs, at [email protected]
This article has been developed expressly for the members of MAIA. Reprint by other than members without the express permissions of the author is not permitted