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Massachusetts Agencies

Release in Mortgage

Homestead

Where there is a homestead the execution of a mortgage will result in the homestead being subordinated to the mortgage, but kept in place as to the rest of the world. The case of Atlantic Savings Bank v. Metropolitan Bank and Trust Company, 9 Mass.App.Ct. 286, 400 N.E.2d 1290 (1980) sheds light on the matter. In Atlantic Savings Bank Mr. and Mrs. McHardy, after having granted a first mortgage to Atlantic Savings Bank, made a joint[1] declaration of homestead on their property in 1976. Thereafter, they granted a mortgage to Metropolitan Bank and Trust Company. Although the second mortgage was executed by both parties, it did not contain a release of the homestead. After a foreclosure by Atlantic Savings Bank there was a surplus. The question was whether the excess funds generated by the foreclosure sale should be payable to the McHardys, based on the fact that they still held a homestead which had priority over the mortgage of Metropolitan Bank and Trust Company, or whether that bank was entitled to the surplus based on some theory that the homestead had been effectively released with respect to the second mortgage.

When the second mortgage was executed the provisions of the homestead statute were as follows:

§6. Property that is subject to a mortgage executed before an estate of homestead was acquired therein, or executed afterward and containing a release thereof, shall be subject to an estate of homestead, except as against the mortgage (sic)[2] and those claiming under him, in the same manner as if there were no such mortgage.

§7. No conveyance of property in which an estate of homestead exists, and no release or waiver of such estate, shall convey the part so held and exempted, or defeat the right of the owner or of his wife[3] and children to a homestead therein, unless such conveyance is by a deed signed by the wife, she being competent so to act, or unless such right is released as provided in chapter two hundred and nine; but a deed duly executed without such signature or release shall be valid to pass, according to its terms, any title or interest in the property beyond the estate of homestead.

The McHardys had taken the position in Atlantic Savings Bank that the homestead had not been effectively released in the mortgage to Metropolitan Bank & Trust Company because the instrument did not contain a "release" of the homestead.

The court said this:

The argument overlooks the features of the mortgage, as well as the provisions of [§7] . . . which defined the term "release" in [§6]. [S]ection [7] expressly provided that the spouse's signature on a deed was sufficient to release her rights [in a homestead]. * * * The word "deed" as used in §7 includes a mortgage. [Citations omitted]. 

In our opinion, this expedited method for release changed the preexisting case law (relied upon by the defendants) which held, based on outmoded concepts of coverture, that in order to bar a wife's right of homestead not only was the wife required to join with her husband in the conveyance by executing the instrument, but also the conveyance, so executed, must have contained apt words expressly releasing her homestead right.[4]

Although the dispute in the case revolved around the form that a release of the right of homestead should take, the decision clearly focused on and required the spouse's signature on the mortgage in order to release that right.

Section 6 of the statute is the same today as it was at the time of the decision in Atlantic Savings Bank (except for the corrective change noted in footnote 2). Section 7 now reads as follows:

An estate of homestead created under section two may be terminated during the lifetime of the owner by either of the following methods:

(1) a deed conveying the property in which an estate of homestead exists, signed by the owner and the owner's spouse, if any, which does not specifically reserve said right of homestead; or by

(2) a release of the estate of homestead, duly signed, sealed and acknowledged by the owner and the owner's spouse, if any, and recorded with the registry of deeds for the county or district in which the property is located.

Although the provisions of the present Section 7 are somewhat different than those in effect at the time of the decision in Atlantic Savings Bank, it is clear that the effect is the same—requiring the spouse to join in the mortgage to effectively release the estate of homestead—especially in view of the language in the decision that "the provisions of [§7] . . . define[ ] the term 'release' as used in [§6]." As in the prior version of Section 7 the word "release" is used—and also appears in Section 6 — so there is no doubt that such a release must satisfy the requirements of Atlantic Savings Bank, namely that the signature of both spouses, and not simply the signature or release of the spouse who owns the property, must appear on the instrument. 

Some conveyancers might think that there is a "cleaner" way to address the question of making sure that a mortgage has a priority position over a homestead. Some have suggested an outright release of the homestead under §7, with the subsequent execution of a mortgage followed by a new homestead declaration. This course, however, would seem to be fraught with trouble. It essentially eliminates the protection against general creditors that was in place on account of the original homestead[5] and allows the claims of those creditors to flood in and take a priority position, not over the mortgage, but over the householder's interest. Because such a course of action is not necessary in order for the mortgagee to protect itself, its use would seem to subject the party requiring it to liability.

The result obtained in Atlantic Savings Bank was followed in a decision rendered by the federal court. In In re Desroches, 314 B.R. 14 (2004), the debtors owed property on which they had declared a homestead. They granted a mortgage to Banknorth. The mortgage contained words of grant and mortgage covenants, but did not contain a specific release of the homestead. When Banknorth proceeded to foreclose the debtor claimed that the homestead took priority over the mortgage. The federal court disagreed. After noting the provisions of §6 concerning mortgages, the court said:

In light of the continuing validity of the common law doctrine of title theory in Massachusetts, the mortgage conveyed interests in the residence to the bank sufficient to trigger the release provisions of §7 as to the bank. The Atlantic Savings court held that the mortgage in that case was written in the statutory short form. * * * Given the foregoing, this Court holds that the SJC, if asked, would rule that, under the relevant statutory provisions and case law, the mortgage contained sufficient terms to subordinate the homestead as to the bank.

Note that the court said that the terms of the mortgage "subordinate[d] the homestead as to the bank," indicating, just as §6 provides, that the homestead stays in place but its priority as to the mortgage is readjusted. 

1 Although the court intimated that a joint declaration would result in no homestead being created, it indicated that it was not necessary to decide the issue inasmuch as it concluded that the homestead, if it existed, had been effectively released. In any event, under the statute being construed the wife could not declare a homestead, such right being exclusively held by the husband under the law in effect at the time. [Back to Text]

2 This typographical error was corrected by Section 165 of Chapter 557 of the Acts of 1986, which replaced the word "mortgage" with "mortgagee." The court in Atlantic Savings Bank interpreted the language as it was obviously intended to read, quoting the section as containing the latter term. [Back to Text

3 The statute under consideration in Atlantic Savings Bank provided that only the husband could declare a homestead and that it was, therefore, necessary for the wife to join in the release. Under today's version of the legislation either spouse—but still only one—can declare a homestead. [Back to Text]

4 The court also noted in this particular case that since the wife had joined in the mortgage in the granting clause "[her] execution of the mortgage, taken together with its covenants (especially the covenants pertaining to seisin and freedom from encumbrances), was sufficient to release her interest in the homestead without the need for specific words of release." [Back to Text

5 Under G.L.c. 188, §1 there is no protection afforded by the homestead with respect to a debt contracted for prior to the acquisition of the homestead. Upon the release of the old homestead all debts then in existence will, by definition, be debts contracted for before the acquisition of the new homestead and will, therefore, have a priority position over the householder's interest. [Back to Text]