Liens and the Massachusetts homestead exemption

Massachsetts homeowners are lucky enough to be protected by the Commonwealth’s generous homestead law, which typically will allow them to retain up to $500,000 in home equity even if their finances deteriorate to the point they have to file a Chapter 7 or Chapter 13 bankruptcy case.

A question that frequently comes up in the bankruptcy context, however, is what happens if creditors have already gone to court and obtained a lien on the home thorugh court-ordered judgments, attachments, or “executions.”

These cases may be a little more complicated than the typical Massachusetts bankruptcy case, but in general, the homeowner’s attorney can apply to the bankruptcy court for an order “avoiding” (that is, stripping) the lien, and the home will emerge from the case unencumbered.

In one recent Massachusetts case, however, the creditor fought back — and ultimately lost anyway. That creditor, Premier Capital Corp., tried to argue that a five year old deed in which homeowner Theresa Pagnini added her daughter’s name as a part owner her house was a fraudulent transfer which voided Pagnini’s homestead rights.

The bankruptcy court disagreed, however, ruling that the Chapter 7 trustee had the exclusive right to bring fraudulent conyeyance complaints once the bankruptcy had been filed. The particular trustee in this case never did so, nor would he have any practical reason to, since the total of the mortgages oustanding exceeded the value of the property.


By Doug Beaton

As a result the homeowner will be allowed to keep her home as well as her homestead rights in the event that real estate prices recover in the future. The case is In re Pagnini, and the opinion was written by bankruptcy judge William C. Hillman.

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