California examines wildfire insurance disbursements. Learn about lender-held rebuilding funds and interest protections for qualifying loss-draft accounts.
On October 15, 2026, California’s Business and Consumer Services Agency and Department of Financial Protection and Innovation announced mandatory reporting requirements concerning financial institutions’ handling of insurance proceeds after the Los Angeles wildfires.1
Regulators are examining delayed disbursements, appeal procedures, and funds retained after loans were fully repaid. DFPI reported receiving more than 160 complaints since January 2025. Those complaints are not findings of legal violations, and the announcement did not identify lender-specific liability determinations.1
Insurance payment and lender disbursement are different issues
An insurer’s payment does not necessarily mean every dollar is immediately available to the borrower. Mortgage documents may authorize a lender to monitor repairs and verify completion before releasing funds. The Office of the Comptroller of the Currency explains that loan documents commonly provide this authority.2
The relevant question is whether a particular hold or release condition is supported by the loan documents and applicable law—not simply whether funds remain with the lender.
Interest protections and the January 2027 amendment
AB 493 added Civil Code section 2954.85, requiring covered financial institutions holding hazard-insurance proceeds pending repair or rebuilding of qualifying California one-to-four-family residential property to pay at least 2% simple annual interest. Under that enactment, interest is credited to the loss-draft account annually or when the account terminates, whichever occurs first.3
The statute restricts charges that would reduce interest below the minimum and excludes certain proceeds that regulators require nonbank institutions to hold in specified non-interest-bearing trust accounts. AB 493 took effect August 29, 2025; for funds already held then, the statute provides for interest to begin accruing on that date.3
AB 1278, approved September 30, 2026, amends the payment mechanics effective January 1, 2027. It permits interest to be credited to the account or paid directly to the borrower. Direct payments may use a check, electronic transfer, or another agreed method. A qualifying check left uncashed for 90 calendar days after delivery must be canceled without cost to the borrower and credited to the account.45
The amendment does not increase the 2% minimum or make every property, institution, or account eligible.
What property owners can request
As practical starting points, ask the lender or servicer for:
- A written accounting of insurance proceeds received, released, and retained.
- Its disbursement requirements and the contractual basis for any hold.
- Any outstanding inspection, repair, or documentation requirements.
- An explanation of interest credited and fees charged.
- Available review or complaint procedures.
Keep the mortgage documents, insurance settlement, account statements, repair records, and correspondence together.
The state announcement directs consumers who believe a financial institution violated the law to DFPI’s complaint process.1 A complaint does not guarantee payment or establish a civil claim.
Scope note: This article summarizes the October 15 announcement and the cited statutory provisions. Individual reporting demands and lender-specific compliance have not been independently reviewed.
General information only; not legal advice. Rights depend on the governing documents, applicable law, and facts. Reading this article does not create an attorney-client relationship.
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Omeed Mahrouyan is the founder of Mahrouyan Law, P.C., a California firm handling business and commercial litigation, property and cargo damage claims, personal injury, landlord representation, startup transactions, and practical intellectual property matters. Clients work directly with him on strategy, drafting, and case decisions.
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