It’s hardly news to say there is a housing crisis in New Hampshire. Housing prices have skyrocketed here even more than the rest of the country A national database of home sales at realtor.com ranks metropolitan areas in the United States based on market demand and the number of days a listing remains active. For the fifth month in a row, the Manchester-Nashua New Hampshire area ranked as the hottest area in the United States, placing number one out of 300 other metropolitan areas. This is not an aberration as New Hampshire has been at or near the top of the list since 2021. Historical data at Redfin.com indicates a NH home worth $280,000 in February of 2020 would now sell for $510,000. That’s a 45% increase. At a minimum, this increases property taxes, however, for those homeowners facing one of the usual precipitants of bankruptcy like a divorce, health issue or loss of income, there is a far bigger problem. The increase in house values has outstripped the homestead protections here in New Hampshire. The legislature has done nothing to respond to the present housing crisis since 2016 when the homestead amount became $120,000. States like Massachusetts have a $500,000 homestead exemption for the average homeowner that can rise to $1,000,000 for elderly or disabled homeowners. New Hampshire homeowners would benefit from that sort of protection but instead are finding themselves thrust into an uncertainty about the ability to keep their home when financial issues happen.
While hard statistics regarding the extent of this problem are hard to come by what is happening in bankruptcy court can be like the canary in the coal mine, a harbinger of worse problems to come. Anecdotal evidence suggests this situation is rising to crisis proportions. Attorney William Gillen in Manchester, New Hampshire indicates he has been forced to file chapter 13’s for a number of debtors who in earlier days could have filed a chapter 7. This only works if there is marginal equity, and those with more, cannot usually afford to file a bankruptcy. A number of entrepreneurs saw their businesses collapse during Covid through no fault of their own. Closing the business is comparatively easy compared to dealing with the personal guaranties that often require a personal bankruptcy to resolve. I’m hearing from a number of individuals who obtained substantial SBA business loans during Covid that, unlike those which were forgiven, have now come due. A personal bankruptcy is often the only solution. In one hypothetical scenario derived from a real life example, the home had doubled in value since its purchase and they now have $350,000 in equity. Since one spouse had better credit than the other, they got a better mortgage rate by putting the house only in one of their names. The amount of equity was too substantial for either a chapter 7 or chapter 13 to be feasible.
The non-bankruptcy options are actually worse. Before filing a lawsuit, it is a simple matter for collection lawyers to use the Registry of Deeds to see who owns the property, calculate an approximate mortgage balance, and run the address through online sites like Zillow or Redfin to see how much equity may be available to secure a judgment lien. While in my experience Writs of Execution are relatively rare in New Hampshire, it doesn’t take a rocket science to figure out the present market may be a game changer. In the scenario described above, the present system incentivizes collection lawyers to sell the homes of New Hampshire homeowners with equity beyond the homestead because that is what the law permits them to do. This is particularly problematic for homeowners getting close to retirement age who often have their home paid off or close to it and who face a financial issue. The confluence of an inflated real estate market and inadequate homestead protections here is leaving many homeowners with no realistic options.
As if the above situation is not bad enough, recent decisions from the New Hampshire Bankruptcy Court and the New Hampshire Supreme Court have exacerbated the problem as they continue to whittle away at the scant protections already on the books. These decisions have made it apparent the statutory language is inartfully drafted and susceptible to more than one interpretation. One such case arose out the situation where only one spouse’s name is on the deed. Brady v. Sumski decision, 307 A.3d 1116 (NH 2023). Until this case, it was routine for bankruptcy practitioners to double the exemption in reliance on dicta in federal district court decisions to allow an exemption of $240,000 for a married couple even if only one name appeared on the deed. An appeal to the federal district court got referred to the New Hampshire Supreme Court which agreed that the homestead amount was limited to $120,000. On information and belief, in 2023 the New Hampshire legislature considered a bill that would have granted a homestead to both spouses regardless whether both names appeared on the deed, but the bill died in the Commerce Committee and never reached the floor. This has had a chilling effect on the filing of bankruptcies
Another recent decision from the New Hampshire Bankruptcy Court similarly restricted homestead rights claimed by a married couple that had filed bankruptcy claiming a $240,000 homestead exemption on a home owned by a revocable trust to which the trustee had objected. Ford v. Decosta, 2024 BNH 005, AP# 23-1009-BAH (NH Bank. May 28, 2024). Mr. and Mrs. DeCosta were long time New Hampshire residents, having owned their home since 1977. In 2016, as they were getting close to retirement age, they had put the property in a revocable trust called ‘Decosta Family Living Trust.” The trustee objected to the claim of homestead claiming the word “revocable” needed to appear in either the deed or some other recorded document to be effective. RSA 480:9 states that notice of the revocability of the trust must be given in some manner and while mentioning the two methods cited by the trustee the use of the word “may” indicates these are illustrative not exhaustive. New Hampshire is a ‘race notice’ jurisdiction where notice can be actual, constructive, or one which prompts inquiry. Bilden Props LLC v. Birin, 165 NH 253 (2013). “ ‘Inquiry notice’ is notice that arises from a legal inference fact that is “sufficiently ‘curious’ or ‘suspicious,’ according to normal human experience, so that the purchaser should, as a matter of law, make an investigation into it.” Id. at 258. It was undisputed that the trust document indicated it was “revocable” as this document was submitted to the court. The court sustained the trustee’s objection, narrowly construing the statute. narrowly construed debtor’s right to homestead sustaining the trustee’s objection. This involved a narrow construction of the right to homestead in contravention to the general homestead principle that homestead rights ought to be broadly construed. Perhaps, like the Brady case, New Hampshire homeowners would have been better served by this case being transferred to the New Hampshire Supreme Court, however, even then, the result would have been uncertain. What is certain is that Mr. and Mrs. DeCosta have to move from a home they have owned since 1977. That is unconscionable. The Pacer docket indicates the trustee has asked the court to approve a real estate broker. Until the New Hampshire legislature decides to address this situation, not including the word “revocable” in a deed to trust is a trap for the unwary that could lead to malpractice exposure for estate planning lawyers.
Attacks on NH homestead law will continue to occur. Despite the risk, there is too much benefit for them to stop. Indeed, they are a predictable consequence of the scarcity of bankruptcies and the amount of equity in NH homes. Collection lawyers are already using these cases to their own advantage in state court. Perhaps the only silver lining in this situation is that these decisions will prompt the legislature to finally take action. As presently drafted, the New Hampshire homestead law is just not effective to do the job it was designed to do. Continuing to ignore the problem will lead to people like the DeCostas forced to leave their home, and perhaps the state entirely due to the housing crisis that awaits them when that happens. Fixing the homestead statute will not solve the housing crisis but it will at least allow homeowners to avoid having temporary financial issues spiral out of control and escalate into a life altering disaster.
Richard Gaudreau is a sole practitioner located in Salem, NH focusing on student loans and bankruptcy work.