The Court of Appeals for the State of California, Second District of Appeal, recently ruled that neither Section 2954.8 of the California Civil Code nor the parties’ loan agreement required the mortgagee to pay interest on the insurance proceeds which he held in escrow after the destruction of the plaintiff’s house.
A copy of the notice in Gray v. Quicken Loans is available on: Link to Opinion.
The plaintiff’s house was destroyed by a forest fire and his risk insurance policy jointly paid him and his mortgagee, the defendant, a total of $ 1,342,740. The trust deed allowed the mortgagee to hold the insurance proceeds in escrow and disburse the funds while repairs to the home were carried out. Therefore, the mortgagee placed the funds in an interest-free escrow account.
The plaintiff then brought an action, alleging that the mortgagee had breached his fiduciary duty and violated article 2954.8 of the Civil Code and article 17200 of the Business and Professional Code. total destruction of the residence or any other structure of the insured.
The trial court upheld the mortgagee’s opposition to the complaint without leave to amend, and the plaintiff appealed.
Article 2954.8, subsection (a), requires that a lender “who receives money in advance for the payment of taxes and appraisals on the property, for insurance or for other purposes relating to property ‘must pay two percent interest per annum on the amount being held. Article 2954.8. The plaintiff argued that the proceeds from the risk insurance that the defendant received count as “cash upfront”.
The trust deed in this case required the plaintiff to take out risk insurance on his home and further stated: “During this period of repair and restoration, the lender shall be entitled to hold the proceeds of the insurance until the lender has had an opportunity to inspect that property. to ensure that the work has been completed to the satisfaction of the lender, provided that such inspection is undertaken promptly. The lender may disburse the proceeds of repairs and restoration in a single payment or in a series of progress payments as the work is completed. Unless an agreement is made in writing or applicable law requires the payment of interest on such insurance products, the Lender will not be obligated to pay the Borrower any interest or income thereon. products.“(Emphasis added).”
The second district noted that Lippitt v. Nationstar Mortgage, LLC (CD Cal. April 16, 2020, n ° SA CV 19-1115-DOC-DFM) 2020 US Dist. Lexis 122881, addressed facts almost identical to the case at hand. The Lippitt the court, reading the borrower’s trust deed in conjunction with the plain language of section 2954.8, concluded that section 2954.8 did not apply to insurance funds received in arrears for past losses and then held for specified purposes. Identifier. to 20. The court of Lippitt did not consider these funds to be “cash up front”. Identifier.
The second district agreed with the Lippitt court and held that, on the basis of contract language and the plain language of the law, section 2954.8 applies to joint receiverships maintained to pay taxes, contributions and insurance premiums, and not to the single scenario of the risk insurance proceeds held by a lender while awaiting the property replenishment. Identifier. to 21.
The Second District also concluded that the plaintiff’s secondary recourse to the purported purpose of section 2954.8 cannot override the plain language of the law. “The ordinary meaning of the law controls the court’s interpretation unless its terms are ambiguous. While the plain language of a statute is unambiguous, no court needs or should go beyond this pure expression of legislative intent. ” Blanc vs. Ultramar, Inc. (1999) 21 Cal. 4th 563, 572.
Since the Second District determined that no violation of Section 2954.8 had occurred, it did not consider whether the law creates a private right of action or whether, by not paying interest on insurance proceeds, the mortgagee breached his fiduciary duties and engaged in unfair competition. .
As a result, the Second District concluded that the insurance proceeds held by the mortgagee under the trust deed did not fall within the scope of section 2954.8 and upheld the decision of the trial court. supporting the mortgagee’s opposition to the complaint without leave to amend.