Your Lender Is Holding Your Insurance Check. In California, It Owes You at Least 2%.

If your California home burned, flooded, or got hit by a falling tree, and your mortgage lender is holding the insurance money until the rebuild is done, that money has been earning you interest since August 29, 2025. At least 2% a year. Whether it actually landed in your account is a separate question, and it’s worth five minutes to find out.

Here’s how the money gets stuck in the first place. The insurance check comes made out to you and your lender. The lender deposits it in a “loss draft account” and doles it out in stages as the contractor finishes work. On a full rebuild that can take a year or more.

For a long time, the lender kept whatever that pile of cash earned. In 2021 a borrower sued Quicken Loans over exactly this, and a California appeals court said the lender owed nothing. California’s 2% escrow interest law covered tax and insurance escrow, the court ruled, not insurance proceeds held for a rebuild. The deed of trust sealed it: the lender owed no interest on insurance proceeds unless “Applicable Law” required it.

So the Legislature wrote the applicable law. AB 493 was signed August 29, 2025 as an urgency bill, and its stated reason was to stop “the withholding of interest on insurance payouts in the aftermath of wildfires.” Banks, credit unions, and any other lender on a one- to four-family home must pay at least 2% simple interest on loss draft money, credited every year or when the account closes, whichever comes first. They also can’t charge fees that drag your net rate under 2%.

On September 30 the Governor signed AB 1278, which lets that interest go straight to you by check or transfer instead of sitting in the same account you’re already waiting on. That starts January 1, 2027.

Now the math. Say your lender is holding $300,000 for a rebuild. At 2% simple, that’s $6,000 a year. Real money, and it’s yours.

Here’s the catch. Two percent is a floor, not a market rate. The Fed raised its benchmark rate to a range of 3.75% to 4% on September 16. Two percent is about half of that. Bank’s bet: you’re too busy fighting your insurer and your contractor to read the loss draft statement. The law sets a minimum. Nothing in it stops a lender from paying more, and nothing makes one do it unless you ask.

Do this now. Pull your loss draft account statement or call the loss draft department and ask three questions. What rate are you paying on my balance? When was interest last credited? How much? If the money was there on August 29, 2025, a year’s interest should already have been credited. If it wasn’t, put the request in writing and cite California Civil Code section 2954.85.

If the answer is a shrug, file a mortgage complaint with the CFPB. Companies generally answer within 15 days.

Then run your remaining balance and payment through our mortgage calculator so you know what you’re working with when the rebuild finishes. For everything else on your loan, start at the mortgages hub.

One carve-out for the fine-print crowd: the rule doesn’t apply to proceeds that a regulator requires a non-bank lender to hold in a non-interest-bearing trust account. If your lender claims that exemption, make it name the regulator and the requirement in writing.

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