California bill would allow fire victims to receive interest earned on payouts

In the wake of Los Angeles’ devastating wildfires, California Gov. Gavin Newsom’s office announced he is sponsoring legislation that would ensure that homeowners, not lenders, benefit from interest earned on insurance payouts for destroyed or damaged property.

Assembly Bill 493 — authored by Assemblymember John Harabedian, D-Pasadena — seeks to correct an inequity that allows lenders to collect interest on insurance funds held in escrow after a disaster, according to the governor’s office. A spot bill was introduced on Monday, but the earliest it can be amended is March 10.

Newsom called the bill a commonsense solution that ensures homeowners rebuilding after a disaster “receive every resource available to help them recover.”

“Homeowners, not insurance companies, should receive the interest earned on their insurance payouts,” Harabedian said. “Many Angelenos devastated by these wildfires have lost nearly everything; they are struggling and need every bit of financial support.”

“We believe that there will be widespread support for this commonsense measure to support disaster victims,” he said.

After a disaster, insurance payouts are held in escrow until rebuilding is complete, which can take months or even years, according to the governor’s office. During this time, these funds can accrue significant interest.

While California law requires lenders to pay homeowners interest on escrowed funds for property taxes and insurance, it does not extend this requirement to insurance payouts held in escrow. This legislation would amend state law to explicitly require lenders to pay homeowners the interest earned on post-loss insurance payouts, just as they do for other escrowed property expenses.

The change would not affect lenders, according to the governor’s office, because it simply would align insurance payout escrow rules with existing California escrow interest law.

Newsom has issued several executive orders to aid Angelenos affected by the fires.

State lawmakers have introduced a flurry of laws to aid the insurance industry, homeowners and businesses since the deadly fires ignited in early January.

The state postponed the individual tax filing deadline to Oct. 15 for Los Angeles County taxpayers, extended the Jan. 31 sales and tax use tax filing deadline for the county’s taxpayers until April 30 to aid affected businesses, and suspended penalties and interest on late property tax payments for a year, effectively extending the state property tax deadline.

Newsom also signed an executive order in mid-January suspending permitting and review requirements under the California Environmental Quality Act and California Coastal act to streamline the rebuilding of homes and businesses destroyed.

He also directed the Coastal Commission not to issue guidance or take any action that interferes with or conflicts with his executive orders.