READYCAP LENDING, LLC, v. DONNA L. ALEXANDER and JAMES ALEXANDER

This case presents the question of whether the Massachusetts legislature intended in 2010 for its wholesale revision of the Commonwealth's homestead laws to apply to "declarations of homestead" signed before the 2010 act's effective date. The parties believe that no court has decided this question before. Based on the language of the 2010 act, as well as the Legislature's decision to replace the prior homestead laws in their entirety with the 2010 act, this Court holds that the 2010 act applies to pre-existing homestead declarations and governs the rights that flow from them.

The following facts, which are before the Court on plaintiff ReadyCap Lending, LLC's motion for summary judgment, are undisputed. Defendants Donna and James Alexander (the Court will refer to them by their first names) are married and reside at 15 Piccadilly Way in Westborough, Massachusetts. Donna purchased 15 Piccadilly in 2003 by herself. The deed for 15 Piccadilly lists her as the property's sole owner.

In 2005, Donna recorded at the Worcester District Registry of Deeds, in 15 Piccadilly's chain of title, a declaration of homestead (the "2005 Declaration"). Since she was 15 Piccadilly's sole owner, Donna was the only signatory of the 2005 Declaration. Donna's execution and recording of the 2005 Declaration complied fully with the then-applicable statutory requirements for acquiring a valid "estate of homestead" in 15 Piccadilly. See G.L. c. 188, § 2, as amended through St. 2004, c. 218. (As mentioned earlier, the Legislature has since repealed the 2004 act. Where this Decision refers to repealed laws, the Decision will note them as the "2004 Act," followed by the section number. References in this Decision to the current c. 188 have no further notation.)

Donna wasn't the only one who obtained an estate of homestead at the time of recording of the 2005 Declaration. Since Donna was married to James as of 2005, the recording of the 2005 Declaration automatically gave James an estate of homestead in 15 Piccadilly. He got that estate even though he didn't sign the 2005 Declaration. See 2004 Act, § 1 (owner signing a declaration of homestead acquires "an estate of homestead . . . for the benefit of his family"); id. (defining "family," in part, as a husband and wife).

For James in 2005, having an estate of homestead in 15 Piccadilly meant this: so long as he lived at 15 Piccadilly, whatever interest he may have had in 15 Piccadilly (say, an interest as Donna's surviving spouse), up to a value of $500,000, was "exempt" from creditors under "the laws of conveyance, descent, devise, attachment, levy on execution and sale for payment of debts or legacies." Id. The "exemption" had its own exemptions. It did not protect James's interests in 15 Piccadilly from, among other things, a sale for taxes, or a debt that existed prior to Donna's recording of the 2005 Declaration, or a debt arising out of Donna's purchase of 15 Piccadilly (a purchase-money mortgage). Id. But James's estate of homestead did protect his interest in 15 Piccadilly from mortgages on that property that secured loans obtained for purposes other than buying 15 Piccadilly.

The latter point is important because two years after signing the 2005 Declaration, Donna granted to CIT Small Business Lending Corporation a mortgage on 15 Piccadilly, plus two other properties. (Two days after Donna did that, CIT assigned the mortgage to ReadyCap.) The mortgage secured Donna's obligations to repay a loan made under a U.S. Small Business Administration program that assists the owners of small businesses. Donna didn't use her loan to buy 15 Piccadilly. Consequently, the 2005 Declaration -- standing alone, and having been recorded before ReadyCap's mortgage in time -- gave Donna and James estates of homestead in 15 Piccadilly that were senior to ReadyCap's mortgage interest.

Anticipating this potential problem, ReadyCap's mortgage included a provision in which Donna (as the person who signed the mortgage) "released" her estate of homestead (more precisely, she subordinated that estate to the mortgage). That release took care (from ReadyCap's perspective) of Donna's estate of homestead, but not James's. Under the 2004 Act, no release of homestead bound James unless he signed it. See 2004 Act at § 7. He signed nothing, and thus immediately following Donna's execution of the ReadyCap mortgage, the priority under Massachusetts law of the parties' interests in 15 Piccadilly Way was as follows: James' estate of homestead was first, followed by ReadyCap's mortgage, followed by Donna's estate of homestead. Thus, any attempt by ReadyCap to foreclose upon 15 Piccadilly Way was subject to James's homestead rights. See id. at § 1.

In 2010, the Massachusetts Legislature voted to repeal and replace the entirety of c. 188, the Commonwealth's homestead statute. See St. 2010, c. 395. The 2010 act became effective on March 16, 2011, over six years after Donna recorded the 2005 Declaration. See id. (preamble). The 2010 act made significant changes to the prior version of c. 188. Many favored homeowners and their families. First, the new act protects virtually every homeowner (albeit with an exemption of only $125,000) regardless of whether the owner has recorded (as Donna did) a declaration of homestead. See c.188 at § 4. Second, while "declared" homesteads continue to carry a $500,000 exemption under the 2010 act, the act contains language that suggests that, if defined "elderly" or "disabled" individuals have a stake in the home, the exemptions could accumulate up to $1 million. See id. at §§ 1, 2(a). Third, the 2010 act extends homestead protections to principal residences where title is held in trust. See id. at § 5(a)(4). Fourth, two-, three-, and four-family homes are now eligible for homestead protections. See id. at § 1 (definition of "home"). Fifth, the law states that "[t]he homestead rights of non-titled family members" like James "shall consist of the right to use, occupy and enjoy the home as their principal residence." Id. at § 3.

While homeowners and their families gained additional rights under the 2010 act, they also lost certain rights pertaining to home mortgages. The prior law required that a release of homestead be signed by the owner of the property and the owner's spouse, and be recorded. See 2004 Act at § 7. The new law provides that "[t]he subordination shall not require the signature of a spouse who is not an owner [of the home]." G. L. c. 188, § 9. And most pertinent to this case, while the prior law didn't extend the homestead exemption to purchase-money mortgages, the new law excludes from the exemption all "mortgage[s] on the home," without differentiating among them. Id. at § 3. Further underscoring the point, new c. 188, § 9 states that "[a]n estate of homestead shall be subordinate to a mortgage encumbering the home executed by all the owners of the home."

These changes, if they apply to James, would erode his homestead rights: his estate of homestead would be "subordinate" to ReadyCap's mortgage, and thus the parties' priorities in 15 Piccadilly would be ReadyCap first, followed by the Alexanders' estates of homestead. ReadyCap argues that § 9 applies to all declarations of homestead, whether someone recorded them before or after the 2010 act's effective date. The Alexanders argue that § 9 applies only prospectively, and therefore James's estate of homestead continues to have priority over ReadyCap's mortgage. We thus have arrived at the central issue in this case.

Federal Nat'l Mtge. Ass'n v. Nunez, 460 Mass. 511 , 516-17 (2011), summarizes the general principles regarding when the courts will apply new statutes to conduct that predates the change in law (citations omitted):

"Whether a statutory enactment applies prospectively or retrospectively is a question of legislative intent." We have applied general rules of thumb in determining whether the Legislature intended prospective or retrospective application of a statute:

"As a general matter, 'all statutes are prospective in their operation, unless an intention that they shall be retrospective appears by necessary implication from their words, context or objects when considered in the light of the subject matter, the pre-existing state of the law and the effect upon existent rights, remedies and obligations. Doubtless all legislation commonly looks to the future, not to the past, and has no retroactive effect unless such effect manifestly is required by unequivocal terms."

See also Smith v. Massachusetts Bay Transp. Auth., 462 Mass. 370 , 372 (2012). If the Legislature unambiguously communicates its intent through statutory language, a court must end its analysis and give effect to the stated intent. See Wheatley v. Massachusetts Insurers Insolvency Fund, 456 Mass. 594 , 601 (2010). Nunez reserves an analysis of the statute's effects on particular litigants only for those cases "where the language of a statute and the ordinary tools of statutory interpretation do not resolve the statute's application to cases that are pending or to preenactment conduct or transactions," with the presumption being that the legislature did not intend "such a retroactive effect. . . ." Nunez, 460 Mass. at 517. And while c. 188 "should be construed liberally in favor of the debtors," so as to serve public policies that favor protecting family homes notwithstanding an owner's dire circumstances, see Dwyer v. Cempellin, 424 Mass. 26 , 29-30 (1996), the courts may not "stretch that principle in a manner that fundamentally ignores the words of the statute." Boyle v. Weiss, 461 Mass. 519 , 524 n.12 (2012).

The 2010 act expressly addresses the act's application to "existing estates of homestead." Section 3 of St. 2010, c. 395 ("Section 3") states (emphasis added):

All existing estates of homestead in effect on the effective date of this act shall continue in full force and effect notwithstanding the repeal of any law under which they were created and shall be governed by this act, notwithstanding their failure to comply with the execution requirements of section 5 of chapter 188. . . .

The Alexanders argue that Section 3 merely makes clear that pre-March 16, 2011 estates of homestead are valid notwithstanding any failures to comply with the specific requirements of new c. 188, § 5. Section 3 indeed has that effect, and it's one that bears on James's rights: the 2005 Declaration doesn't identify James as a non-titled spouse, and thus were it not for Section 3, one could construe the 2010 act as wiping out James's estate of homestead after March 16, 2011.

But accepting the Alexanders' reading of Section 3 doesn't rule out the interpretation advanced by ReadyCap: that the Legislature intended for all existing estates of homestead to "be governed by this act," in the act's entirety. After all, if the Legislature adopted Section 3 solely to preserve existing estates of homestead notwithstanding the 2010 act's new execution requirements, the Legislature could have achieved that goal without including the words "shall be governed by this act" in Section 3. Cutting those words would leave Section 3 declaring that existing estates continue "notwithstanding the repeal of any law under which they were created and notwithstanding their failure to comply with the execution requirements of section 5 of chapter 188." But the Legislature said something more: it not only preserved existing estates of homestead, but made them subject (like all other estates of homestead) to "this act" -- meaning the 2010 act -- and no other law.

The context of Section 3 lends support to ReadyCap's interpretation. The 2010 act starts by declaring that "[t]he General Laws are hereby amended by striking out chapter 188 and inserting in place thereof the following chapter. . . ." The Legislature did not merely tweak former c. 188; it repealed and replaced it with the current version. Nothing in the 2010 act suggests that, having "struck out" former c. 188, the Legislature intended either that former c. 188 survive with respect to pre-existing estates of homestead or (more radically) that such estates go completely unregulated, free from both the "stricken" c. 188 and its replacement.

The Court thus will enter a judgment in ReadyCap's favor, DECLARING that the Alexanders' rights under the 2005 Declaration are subordinate to ReadyCap's rights under its mortgage.

Judgment shall enter accordingly.