Mortgages: hazard insurance proceeds: interest.

Section 2954.85(a)(1) no longer requires that interest paid directly to the borrower be made 'with a check drawn by a financial institution payable at or through a bank.' It now simply states interest shall be 'paid directly to the borrower,' with the specific permitted methods (check, electronic funds transfer, or another agreed method) governed by subsection (a)(2)(A). This removes a redundant limitation and aligns the main provision with the more flexible payment options already specified in the detailed subsection.

Interest paid directly to the borrower can now be made by check, electronic funds transfer (including ACH), or another payment method agreed to by the borrower, rather than being limited to checks only.

Subdivision (a)(2) was restructured into subparagraphs (A), (B), and (C) to accommodate the new payment method provision while retaining the existing uncashed check cancellation rule and check definition.

The word 'otherwise' was removed from the phrase describing how interest could be paid directly to the borrower, simplifying the language without changing meaning.

All provisions amending Government Code Section 179 (ratification of the Emergency Management Assistance Compact) were removed. The bill now only addresses Civil Code Section 2954.85 regarding interest on hazard insurance proceeds held in loss draft accounts.

Interest paid directly to the borrower must now be issued as a check drawn by a financial institution payable at or through a bank, rather than simply being 'paid directly to the borrower' by any method.

A new rule requires that any check issued under this section that remains uncashed 90 calendar days after delivery be canceled at no cost to the borrower, with the amount credited back to the loss draft account.

A definition of 'check' was added: a draft other than a documentary draft, payable on demand and drawn on a bank that can be canceled by the issuer. Cashier's checks, money orders, and other non-cancelable instruments are explicitly excluded.

The bill now amends Section 2954.85 of the Civil Code in addition to the original Government Code amendment, expanding its subject matter from emergency management compact ratification to also cover mortgage hazard insurance proceeds.

Exempts hazard insurance proceeds that a state or federal regulatory authority requires to be placed in a non-interest-bearing demand trust fund account of a bank (i.e., not held by the financial institution itself).

Financial institutions holding hazard insurance proceeds in a loss draft account must pay at least 2 percent simple interest per annum on those funds.

Financial institutions are prohibited from imposing any fee or charge on the maintenance or disbursement of hazard insurance proceeds that would result in an effective interest rate below 2 percent per annum.

Interest must be credited to the loss draft account or paid directly to the borrower, annually or upon termination of the account, whichever is earlier. This gives borrowers a new option to receive funds directly rather than only through the account.

Defines 'financial institution' to include banks, savings and loan associations, credit unions chartered under state or federal law, and any other person or organization making loans secured by one- to four-family residences.

Permits financial institutions to deposit hazard insurance proceeds in interest-bearing accounts at federally insured depository institutions, federal home loan banks, federal reserve banks, or similar government-sponsored enterprises.

For funds already held in a loss draft account as of the effective date, interest begins accruing on that effective date rather than from the date the account was opened.

The fiscal committee designation changed from 'no' to 'yes,' indicating the amendment introduces a state fiscal impact (likely related to enforcement or administration costs).