RELATING TO INSURANCE PROCEEDS.

SB1142

THE SENATE

S.B. NO.

1142

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating
to insurance proceeds
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

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SECTION 1.
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Section 454M-1, Hawaii Revised Statutes, is
amended by adding two new definitions to be appropriately inserted and to read
as follows:

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"Rebuild
plan" means a written plan to rebuild residential real estate that is
subject to a mortgage and has been destroyed.

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"Repair
plan" means a written plan to repair residential real estate that is
subject to a mortgage and has been damaged.
"

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SECTION
2.
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Chapter 454M, Hawaii Revised
Statutes, is amended by adding a new section to be appropriately designated and
to read as follows:

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�454M-
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Disbursement of insurance
proceeds; disclosure of mortgage interest rate; retention of communications.
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(a)
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Upon the request of a borrower, a mortgage
servicer shall promptly disclose to the borrower the specific conditions under
which the mortgage servicer will disburse insurance proceeds to the borrower if
the residential real estate that is the subject of a mortgage is damaged or
destroyed and an insurance company pays insurance proceeds to satisfy a claim
associated with the damage or destruction.
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A mortgage servicer may provide the
information electronically.

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(b)
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If a residential real estate
is damaged or destroyed, a borrower, after consulting with a contractor
licensed pursuant to chapter 444, shall create a repair plan or rebuild plan
for the residential real estate.
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The
repair plan or rebuild plan shall include specific milestones that require the
mortgage servicer to disburse insurance proceeds in certain amounts upon
reaching the specified milestones, as described in subsections (d)(2) and (f)(2).
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If a mortgage servicer employs inspectors for
the purpose of determining when the milestones are attained, the mortgage
servicer shall notify the borrower of the specific criteria that the inspectors
use to make those determinations.

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(c)
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The borrower shall submit the repair plan or
rebuild plan to the mortgage servicer for approval.
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The mortgage servicer shall indicate approval
or denial of the plan within thirty days of receipt.

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(d)
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If a borrower is not
delinquent in making payments on the mortgage or the borrower is less than
thirty-one days delinquent in making payments on the mortgage, a mortgage
servicer shall disburse the insurance proceeds to the borrower as follows:

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(1)
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If the amount of the insurance
proceeds is less than or equal to forty thousand dollars, the mortgage servicer
shall disburse the entire amount to the borrower in one payment; or

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(2)
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If the amount of the insurance
proceeds is more than forty thousand dollars, the mortgage servicer shall
initially disburse to the borrower an amount that is forty thousand dollars or
thirty-three percent of the total proceeds, whichever amount is greater.
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Thereafter, the mortgage servicer shall
disburse the remaining proceeds based on periodic inspections and progress on
the work in accordance with the milestones in the repair plan or rebuild plan
described in subsection (b) and, where required by federal law or regulation,
after approval by the federal home loan banks or applicable federal agency.

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(e)
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For the purposes of this
subsection and subsection (d), if a borrower has made advance payments to a
contractor or to purchase materials, as evidenced by paid receipts, the
mortgage servicer may reimburse the borrower for those payments.

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(f)
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If a borrower is more than thirty-one
days delinquent in making payments on the mortgage, a mortgage servicer shall
disburse the insurance proceeds to the borrower as follows:

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(1)
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If the amount of the insurance
proceeds is less than or equal to five thousand dollars, the mortgage servicer
shall disburse the entire amount to the borrower in one payment; or

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(2)
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If the amount of the insurance
proceeds is more than five thousand dollars, the mortgage servicer shall
initially disburse to the borrower an amount that is twenty-five percent of the
total proceeds; except that the amount of this initial disbursement shall not
exceed ten thousand dollars or the amount by which the total proceeds exceed
the sum of the unpaid balance on the mortgage, any interest accrued on the
mortgage, and any advances made on the mortgage.
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Thereafter, the mortgage servicer shall
disburse the remaining proceeds in amounts not to exceed twenty-five percent of
the remaining proceeds, in accordance with the milestones established in the
repair plan or the rebuild plan pursuant to subsection (b); provided that the
mortgage servicer shall not disburse any remaining proceeds until the mortgage
servicer or the mortgage servicer's agent has inspected the repairs, if any,
that have been made pursuant to a repair plan established pursuant to
subsection (b).

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(g)
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For the purposes of
disbursement of insurance proceeds as described in subsections (d), (e), and (f):

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(1)
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A mortgage servicer shall make the
first disbursement of insurance proceeds to the borrower:

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(A)
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Within fourteen days after the
mortgage servicer receives the insurance proceeds if the mortgage is insured by
the federal government or securitized by the Federal National Mortgage Association
or the Federal Home Loan Mortgage Corporation; or

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(B)
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As soon as reasonably possible and no later than thirty days after the
mortgage servicer receives the insurance proceeds if the mortgage is not
insured by the federal government or securitized by the Federal National Mortgage
Association or the Federal Home Loan Mortgage Corporation; and

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(2)
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A mortgage servicer may disburse
funds directly to a designee of a borrower if:

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(A)
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The designee is agreed to by both
the borrower and the mortgage servicer; and

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(B)
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The designation is permitted by
federal and state law and any associated rules.

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(h)
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Notwithstanding any other
provision of this section, a mortgage servicer shall promptly disburse to a
borrower any amount of insurance proceeds that exceed the remaining amount that
the borrower owes on the mortgage unless:

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(1)
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The property is an affordable
residential rental property that is subject to rent or income restrictions as
required by federal, state, or county program requirements; and

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(2)
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The insurance proceeds that exceed the
remaining amount that the borrower owes on the mortgage are necessary to return
the property to the same condition in which the property existed prior to the
damage or destruction.

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(i)
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A mortgage servicer shall hold
in an interest-bearing account any insurance proceeds that the mortgage
servicer does not immediately disburse to a borrower as required by this
section.
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The account shall generate
interest at a rate that is not less than the national rate for money market
accounts, as determined by title 12 Code of Federal Regulations section 337.7.

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A mortgage servicer shall ensure that
any interest that is credited to the account is credited and disbursed to the
borrower.

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(j)
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Immediately upon commencing
the servicing of a mortgage, and at any time thereafter at the request of the
borrower, a mortgage servicer shall:

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(1)
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Disclose to the borrower the
interest rate associated with the mortgage; and

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(2)
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Provide the borrower, in writing,
with a primary point of contact for the purpose of communicating with the
mortgage servicer.

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(k)
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A mortgage servicer shall
retain for at least four years all written and electronic communications
between the mortgage servicer and a borrower.

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(l)
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Nothing in this section shall
be construed to:

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(1)
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Prohibit a mortgage servicer from
releasing insurance proceeds in amounts greater than required by this section;

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(2)
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Prohibit or limit a mortgage
servicer from distributing additional money that is made available during a
declared state of emergency or natural disaster; or

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(3)
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Prohibit a mortgage servicer from
complying with federal rules, regulations, and requirements.
"

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SECTION 3.
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This Act does not affect rights and duties that matured, penalties that
were incurred, and proceedings that were begun before its effective date.

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SECTION 4.
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New statutory material is underscored.

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SECTION 5.
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This Act shall take effect upon its approval.

INTRODUCED BY:

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Report Title:

Mortgage
Services; Destroyed and Damaged Residential Real Estate; Disbursement of
Insurance Proceeds

Description:

Requires
mortgage services to comply with certain requirements regarding the
disbursement of insurance proceeds for residential real estate that has been
destroyed or damaged.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.