Mortgages: hazard insurance proceeds: interest

Homeowners rebuilding or repairing a damaged one- to four-family home must receive at least 2% simple annual interest on insurance funds their lender holds in a loss draft account. The law adds direct-payment options while protecting the funds if a check goes uncashed.

What the law does ​

• Allows required interest on qualifying hazard-insurance proceeds to be credited to the loss draft account or paid directly to the borrower.
• Requires direct payments to use a check, electronic funds transfer, including ACH, or another method the borrower agrees to.
• Requires an uncashed direct-payment check to be canceled after 90 calendar days and its amount returned to the loss draft account at no cost to the borrower.
• Continues to bar fees that reduce the interest paid on held insurance proceeds below 2% per year.

Who it affects ​

• Borrowers with mortgages on California one- to four-family homes whose lenders hold hazard-insurance proceeds during rebuilding or repair.
• Banks, savings and loan associations, credit unions, and other mortgage lenders holding those proceeds.

Context ​

The requirement does not apply where a state or federal regulator requires a nonbank financial institution to place the proceeds in a non-interest-bearing bank trust account.