Simple, no! This question was engendered as a result of the clients’ continual demand for interest on “hazard insurance proceeds” in escrow accounts. They based their claims on the fact that California, like 16 other states, demand lenders pay interest on mortgage loan’s escrow account. To make matters worse, there are sundry of websites backing this claim as legitimate. They derive their arguments from California’s impound account interest law passed in 1976. On loans secured by real property, lenders are required by law to charge borrowers a simple yearly interest rate of 2%. Banks must also furnish a statement of escrow account funds received, held, and disbursed.
However, the case, Gray v. Quicken Loans, which occurred after the Thomas wildfire, which ravaged Ventura and Santa Barbara counties in December 2017 established the opposite of the claims. The Thomas Fire destroyed the residence, and the insurance company reimbursed the homeowner and mortgage lender a total of $1,342,740. Not satisfied, the Gray homeowner contended that because the hazard insurance earnings were paid and received “in advance of rebuilding,” they were subject to California’s interest in impound account law.
Because there has been no prior appeal decision on this matter, the court relied on an unpublished district court case, Lippitt v. Nationstar Mortgage, for guidance. The lawsuit centered on whether hazard insurance money should be collected “in advance” of reconstruction. It was also a case of class action filed against a lender for failing to pay interest on insurance funds deposits for property owners harmed by natural disasters.
The eventual ruling established that interest on impound account law in California does not apply to hazard insurance money. This law does not cover hazard insurance proceeds earned following an insured loss.
Do you want to know more about the payment of interest on mortgage loan, click here to find out.
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