The amendment changes the payment route
California's September 30 approval of AB 1278 changes how interest on specified hazard-insurance proceeds can reach homeowners. The chaptered text permits the interest to be credited to the loss-draft account or paid directly to the borrower annually or when the account ends, whichever comes first.
The underlying law requires at least two-percent simple annual interest on covered funds held by financial institutions pending rebuilding or repair of a one- to four-family residence. The new amendment does not create that rate for the first time. It adds direct-payment mechanics to an existing requirement.
An uncashed check returns to the account
Direct payment can use a check, electronic transfer or another agreed method. A covered check left uncashed ninety calendar days after delivery is canceled without cost to the borrower and its amount credited to the loss-draft account. That rule matters when correspondence goes missing during a lengthy recovery.
The statute contains an exception for specified funds a regulator requires to be kept in a non-interest-bearing trust account. It also prohibits fees that effectively reduce the covered interest below the required rate. Homeowners should ask which account holds their proceeds and where interest is being credited, rather than assume the entire insurance claim is immediately payable to them. The newly signed amendment is about access to accrued interest, not additional insurance coverage or forgiveness of the mortgage.