Does a Homestead Provide Protection for Mixed Uses?

Declaration of Homestead

As discussed in an earlier issue of Legal News, a declaration of homestead protects a person’s principal residence from creditors. If you own any interest in property in Massachusetts and occupy or intend to occupy the home as a principal residence, you may file a declaration of homestead at the Registry of Deeds where the property is recorded. A homestead declaration will protect against attachment, seizure, execution on judgment, levy or sale for the payment of debts up to $500,000.00 per residence and family. Automatic protection of $125,000.00 applies on a home that does not have a recorded declaration. But, are you still protected if you operate a business out of your home? Two recent Massachusetts bankruptcy cases explored the answer to this question.

Case 1

In one case, the court considered whether “a single-family dwelling with a self-contained commercial use crosses the line from residential to commercial” and was no longer eligible for protection under the homestead statute. In that case, the creditor challenged the use of the property arguing that the commercial use predominated over the residential use, making it ineligible for homestead protection. The court in that case analyzed the predominant use of the property by evaluating factors such as how the property was zoned and the percentage of interior space dedicated to living area versus commercial use, ultimately determining that the property at issue was predominantly used for residential purposes and qualified for homestead protection.

Case 2

In the second case, the debtor claimed a homestead exemption for property located in a commercial zone, consisting of two residential units and a detached two-car garage. The debtors and their children lived in one unit as their principal residence. One of the debtors also operated a landscaping business from the property. The other unit was rented to third parties. Although stipulating that the property satisfied the definitions of “home” and “principal residence” set forth in the homestead statute, the creditor, relying on the earlier case, argued that the debtors’ homestead exemption would not survive a “predominant use” inquiry. In rejecting the creditor’s predominant use analysis, the bankruptcy judge in this second case concluded that the Massachusetts homestead statute did not impose a predominant use requirement. The judge found that the homestead statute required only that the property meet the definition of “home” and serve as the debtor’s “principal residence,” and that there was no language in the statute that precluded a debtor from claiming a valid homestead exemption “in a home that otherwise squarely fit the statutory definition, simply because the home is also used for other purposes.” The judge also noted that both public policy and the statute’s purpose to secure a home for the family regardless of a householder’s financial condition, supported that the homestead exemption should be construed liberally in favor of the debtor.


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