Mortgages: hazard insurance proceeds: interest.

Plain English Breakdown

The official source material did not provide specific details on how existing loss draft accounts will be affected before the law takes effect.

Mortgages: Hazard Insurance Money Interest

This law changes how financial institutions must pay interest on hazard insurance money held in a loss draft account to homeowners by requiring the payment either be added to the account or sent directly as a check.

What This Bill Does

• Requires financial institutions to credit interest to a loss draft account annually or upon termination of the account, whichever is earlier.
• Specifies that if interest cannot be credited to the account, it must be paid with a check drawn by the institution payable at or through a bank directly to the borrower.
• States that an uncashed check issued for this purpose will be canceled 90 calendar days after delivery.

Who It Names or Affects

• Homeowners with mortgages on one- to four-family residences who have hazard insurance and need rebuilding funds.
• Financial institutions like banks that hold hazard insurance proceeds in loss draft accounts.

Terms To Know

loss draft account

A special bank account where money from a homeowner's hazard insurance is kept until it’s needed for repairs or rebuilding after damage to the home.

simple interest

Interest calculated only on the original amount of money, without adding previously earned interest to the calculation.

Limits and Unknowns

• The bill does not specify what happens if a check is canceled but later needed by the homeowner.
• It’s unclear how this change will affect existing loss draft accounts before the law takes effect.

Official Summary Text

AB 1278, as amended, Harabedian.
Mortgages: hazard insurance proceeds: interest.
Existing law establishes the Department of Financial Protection and Innovation, which is under the direction of the Commissioner of Financial Protection and Innovation, and makes the department responsible for administering various laws relating to financial institutions and products, including mortgages. Existing law defines and regulates mortgages. Existing law requires a financial institution that makes loans upon the security of real property containing only a one- to 4-family residence in this state or purchases obligations secured by the property and that holds hazard insurance proceeds in a loss draft account pending property rebuilding or repair to pay interest on those funds at a rate of at least 2% simple interest per annum, as specified. Existing law requires that interest to be credited to the above-described loss draft account annually or upon termination of the account,
whichever is earlier.
This bill would, instead, require that interest to be credited to the above-described loss draft account, or
otherwise
paid
with a check, as defined, drawn by a financial institution payable at or through a bank
directly to the borrower, annually or upon termination of the account, whichever is earlier.
The bill would make a check issued pursuant to the above-described provision that is uncashed 90 calendar days after delivery canceled, as specified.

Current Bill Text

Download Bill PDF