Mortgages: hazard insurance proceeds.

Plain English Breakdown

The bill summary and digest do not provide information on the exact effective date, only that it takes effect immediately as an urgency statute.

Mortgages: Hazard Insurance Money

AB-493 allows financial institutions to hold hazard insurance proceeds in interest-bearing accounts and requires them to pay at least 2% simple interest on these funds if they are held for rebuilding or repairing damaged property, with certain exceptions.

What This Bill Does

• Allows banks to put hazard insurance money into accounts that earn interest.
• Requires banks to give borrowers at least 2% simple interest on the money kept in a loss draft account while waiting to rebuild or repair a home after damage.
• Prohibits banks from charging fees that would reduce the interest rate below 2% for the money held in these accounts.
• Exempts certain situations where state or federal rules require non-interest-bearing accounts.

Who It Names or Affects

• Homeowners with mortgages who have hazard insurance and need to rebuild or repair their homes after damage.
• Financial institutions that manage mortgage loans and hold hazard insurance proceeds.

Terms To Know

Loss Draft Account

An account where a financial institution holds money from hazard insurance while waiting for property rebuilding or repairs to be completed.

Financial Institution

A company that provides banking services, such as loans and mortgages.

Limits and Unknowns

• The bill does not specify the exact effective date but declares it an urgency statute which means it takes effect immediately after being signed into law.
• It is unclear how this will affect specific cases where state or federal regulations require non-interest-bearing accounts for hazard insurance proceeds.

Official Summary Text

AB 493, Harabedian.
Mortgages: hazard insurance proceeds.
Existing law, the California Residential Mortgage Lending Act, regulates persons engaging in the business of making residential mortgage loans or servicing of residential mortgage loans, as administered by the Commissioner of Financial Protection and Innovation. A willful violation of any provision of the act constitutes a crime, as specified. The act requires a trust account to be placed in a non-interest-bearing account in a federally insured depository institution, a federal home loan bank, or other similar government-sponsored enterprise, except as specified.
This bill would authorize a financial institution, as defined, to deposit hazard insurance proceeds in an interest-bearing account in a federally insured depository institution, a federal home loan
bank, a federal reserve bank, or another similar government-sponsored enterprise.
Existing law requires a financial institution that makes loans upon the security of real property containing only a one- to four-family residence in this state or purchases obligations secured by the property and that receives money in advance for payment of taxes and assessments on the property, for insurance, or for other purposes relating to the property to pay interest on those amounts to the borrower, as specified. Existing law prohibits those financial institutions from imposing any fee or charge in connection with the maintenance or disbursement of money received in advance for the payment of taxes and assessments on real property securing loans made by the financial institution, or for the payment of insurance, or for other
purposes relating to that real property, which would result in an interest rate of less than 2% per annum being paid on the moneys received. Existing law defines the term financial institution for purposes of those provisions to include, among other things, savings associations.
This bill would require a financial institution that makes loans or purchases obligations as described above 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, except as specified. The bill would require that interest to
start accruing on the effective date of the bill, as specified. The bill would prohibit those financial institutions from imposing any fee or charge in connection with the maintenance or disbursement of hazard insurance proceeds held in a loss draft account pending rebuilding or repair of the real property that would result in an interest rate of less than 2% per annum being paid on the amounts held. The bill would specify that the above provisions do not apply to hazard insurance proceeds held in a loss draft account that are required by a state or federal regulatory authority to be placed by a financial institution other than a bank in a non-interest-bearing demand trust fund account of a bank.
This bill would declare that it is to take effect immediately as an urgency statute.

Current Bill Text

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