Newsom promotes bill to bring interest from fire-related insurance payments to homeowners

California Gov. Gavin Newsom (D) threw his support Monday behind legislation aimed at guaranteeing that wildfire-impacted homeowners, rather than their lenders, would receive interest earned from insurance payouts.

The bill, authored by state Assemblymember John Harabedian (D), intends to fix what the governor's office described as "an inequity in current law," which has enabled lenders to collect such interest payments held in escrow following a disaster.

“Homeowners rebuilding after a disaster need all the support they can get, including the interest earned on their insurance funds," Newsom said in a statement.

The governor issued the announcement as part of a long list of actions taken with the intent of expediting rebuilding and recovery in the aftermath of the devastating wildfires that struck the Los Angeles region last month.

As far as postdisaster insurance payouts are concerned, after such an event occurs, these funds remain in escrow until rebuilding is complete — a process that can often take months or even years. And during that window, these funds can accrue considerable interest, the announcement noted.

California law requires lenders to pay to homeowners interest on funds escrowed for property taxes and insurance but does not apply these same rules to insurance payouts, according to the governor's office.

The newly introduced bill would amend state law to specifically mandate that lenders must pay homeowners the interest earned on postloss insurance payouts — just as they do for other escrowed real estate expenses.

"This is a commonsense solution that ensures that they receive every resource available to help them recover and rebuild," Newsom said.

Among the goals of the legislation is to provide a much-needed financial boost to wildfire victims who are in the process of rebuilding their communities, the governor's office stressed.

The bill would cause no new burdens on lenders and would instead align insurance payout escrow rules with existing escrow interest law, while protecting the rights of homeowners, the team’s announcement added.

"Homeowners, not insurance companies, should receive the interest earned on their insurance payouts," Harabedian said in a statement.

"Many Angelenos devastated by these wildfires have lost nearly everything; they are struggling and need every bit of financial support," he added. "This bill puts people over profits, ensuring that rightful insurance payments go to those who need them most."

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