(The Center Square) — The California Legislature this week passed a bill to give at least 2% of interest on insurance payments to owners of homes that need rebuilding or repair from natural disasters.
Legislators said they felt compelled to pass Assembly Bill 493 after thousands of Los Angeles homeowners lost their homes during the Palisades and Eaton fires in January.
In such disasters, homeowners and lenders are typically given joint checks from insurers that are then placed into escrow accounts by the lender. The funds earn interest that the lender could keep.
California Assemblymember John Harabedian, D-Pasadena, the leading author of the bill, said it is important homeowners, especially the ones affected by the wildfires, benefit from the insurance payments meant to help them recover from a disaster.
“This bill will ensure that thousands of dollars go back to homeowners, rather than Wall Street,” Harabedian told The Center Square Thursday. “This is about fairness and protecting families when they need it most.”
The bill states the interest for homeowners cannot be reduced through fees or charges by the loaners.
To secure their loan on the property, lenders often hold the insurance money in escrow to ensure homeowners use it for repairs or rebuilding, rather than something else. Lenders will usually hold onto the funds until after the property is restored if money is still owned on the loan for the property.
The bill applies to existing insurance payments being held in escrow accounts and also to new escrow accounts that open following a disaster. An interest rate at 2% will be applied starting the bill’s effective date.
Under California law, lenders are already required to pay homeowners interest on funds for property taxes and insurance that are in escrow accounts, but nowhere is insurance payments explicitly mentioned. The Legislature sought to close that loophole with the bill.
The legislation is now heading over to California Gov. Gavin Newsom to be signed into law. Newsom has already voiced his support.
“I want to thank Gov. Newsom for his partnership on this measure, and my colleagues in the Assembly and Senate for recognizing the urgent need for this bill,” Harabedian said.
