California passed a bill amending hazard insurance proceed requirements with respect to the method of payment of interest to the borrower. Under the bill, the method of payment related to the payment of interest for hazard insurance proceeds to the borrower was amended to include a payment directly to the borrower (previously, the only method of payment allowed to the borrower for interest related to hazard insurance proceeds was as a credit to the borrower’s lost draft account). In addition, a payment made directly to the borrower must be made by check, electronic funds transfer, including automated clearing house transfers, or another payment method agreed to by the borrower. A check that is uncashed 90 calendar days after delivery must be canceled at no cost to the borrower and the amount credited to the loss draft account. “Check” means a draft, other than a documentary draft, payable on demand and drawn on a bank and which can be canceled by the issuer (“Check” shall not include a cashier’s check, money order, or other instrument that cannot be canceled by the issuer).

The bill becomes effective January 1, 2027.

Click to view the CA AB 1278: https://www.tenaco.com/wp-content/uploads/2026/10/CA-AB-1278-10-01-26.pdf