An act to amend Section 2954.85 of the Civil Code, relating to mortgages.
Summary
AB 1278 amends California Civil Code Section 2954.85, which governs how financial institutions handle hazard insurance proceeds held in a loss draft account after damage to a one- to four-family residential property. Under current law, lenders must pay at least 2% simple interest on those funds and credit that interest to the account annually or when the account ends. This bill keeps the 2% interest requirement but adds an alternative method for delivering the interest: the lender may either credit the loss draft account or pay the borrower directly by check drawn by a financial institution and payable through a bank.
The bill also specifies that any such check that remains uncashed 90 calendar days after delivery is canceled at no cost to the borrower, with the amount returned to the loss draft account. It defines “check” for this purpose and excludes instruments like cashier’s checks and money orders that cannot be canceled by the issuer. The bill preserves existing rules barring fees that would reduce the effective interest rate below 2%, and it continues to allow certain deposits in interest-bearing accounts at federally insured or similar institutions.
Impact
AB 1278 would modify the administration of Civil Code Section 2954.85 without changing the underlying 2% minimum interest obligation on hazard insurance proceeds held by lenders. Its main legal effect is to expand how interest may be delivered to borrowers, creating a direct-payment option while retaining the existing account-crediting method. The bill applies to financial institutions making loans secured by one- to four-family residences in California and to the handling of hazard insurance proceeds during rebuilding or repair after a loss. It also clarifies treatment of uncashed checks and continues to regulate fees and exceptions for certain trust-fund arrangements.
Sentiment
The bill appears to have broad support and little visible opposition. It passed committee and floor votes unanimously or near-unanimously, including 8-0, 15-0, and 70-0 votes, and was recommended for the consent calendar. The available context suggests the measure is viewed as a technical or consumer-protection update rather than a controversial policy change.
Contention
There is no recorded committee testimony or floor debate in the provided materials, and no formal opposition is reflected in the votes. Any potential point of discussion would likely center on the mechanics of paying interest directly to borrowers versus crediting the loss draft account, and on the administrative handling of uncashed checks. Because the bill preserves the 2% interest floor and existing fee restrictions, it does not appear to raise major substantive disputes among lenders, regulators, or consumer advocates in the available record.
A BILL for an Act to create and enact three new sections to chapter 47-10.2 of the North Dakota Century Code, relating to the payment of interest on escrow accounts for residential mortgages; to amend and reenact section 47-10.2-01 of the North Dakota Century Code, relating to definitions for escrow accounts; to provide a penalty; and to provide for application.
An act to amend Sections 2924d, 2924h, and 2924m of the Civil Code, and to amend Sections 50612 and 50720.2 of the Health and Safety Code, relating to mortgages.