HB 7, sponsored by Louisiana State Representative LaFonta, was introduced to the Louisiana House of Representatives Committee on Commerce on 2/6/2006.

The proposed law  (which would repeal existing R.S. 10:9-211) would prohibit a mortgage holder from keeping more of the settlement proceeds from an insurance claim than are necessary to pay the unpaid balance of the loan when the settlement payment is made jointly to the mortgage holder and the mortgagor.  It also provides additional notice requirements and penalties for failure to comply.

The mortgage holder has fifteen (15) days to return the excess insurance settlement payment to the mortgagor or deposit it into an interest-bearing account in the name of the mortgagee and notify the mortgagor by certified mail, return receipt requested, that the deposit has occurred. In addition, the mortgage holder must provide an accounting to explain how the amount of the excess was calculated. This accounting must accompany either the returned excess amount or the notice of deposit.

When the mortgagor receives timely notice of the deposit, he or she  may demand payment from the mortgage holder by certified mail, return receipt requested. Once demand has been made, the mortgage holder must pay the excess funds deposited plus accrued interest to the mortgagor within five (5) days after receipt of the demand. Interest on the deposited funds will accrue to the mortgagor's benefit.

If the mortgage holder fails to provide timely notice, the mortgagor may demand payment by certified mail, return receipt requested. Within five (5) days of this notice, the mortgage holder must pay the excess funds to the mortgagor, plus a penalty of $150 per day for failure to provide timely notice. The $150 per day penalty applies to both the fifteen (15) and five (5) day notice periods described above. Failure to make timely payment of the excess plus penalties after demand will result in further penalties to  the mortgage holder.

If the property can be repaired or replaced, and the mortgagor desires to make those repairs or replacement, then the mortgage holder must cooperate fully to reasonably release the necessary funds in a timely manner to repair or replace the damaged property.

If passed, these requirements would apply retroactively to August 29, 2005-- on or about the dates of the 2005 hurricanes.

Existing law R.S. 10:9-211, which would be repealed, only requires that settlement proceeds made payable jointly to the mortgagor and mortgage holder listed as an additional insured on the policy be placed in an interest-bearing escrow account with interest on the funds deposited accruing to the benefit of the mortgagor. The mortgage holder or the mortgage holder's servicer is required to deposit these funds. The existing law requires that when the damaged property is replaced or otherwise repaired to the satisfaction of the mortgage holder and the mortgagor, any remaining balance in the escrow account shall be paid to the claimant together with all interest that accrued while the funds were in escrow. As in HB 7, the mortgage holder must cooperate fully with the mortgagor and their insurer in releasing funds in a timely manner to replace or repair the damaged property.

The existing law defines "Settlement proceeds" as funds of $25,000 or more paid on an insurance claim for damage to residential immovable property as a result of Hurricane Katrina or Hurricane Rita, held in an interest-bearing account for sixty (60)days or more. Compliance with Fannie Mae or Freddie Mac servicing guidelines for disposition of proceeds and maintaining funds in interest-bearing accounts constitutes compliance. Section 10:9-211 was passed effective December 5, 2005.