§337. Duty of secured party upon payment of insurance claim for damage to mortgaged residential property

A. If payment in settlement of a damage claim on residential property in which another person holds a mortgage is by check or draft, of an insurer, made payable jointly to the claimant and the person holding the mortgage, then such "settlement proceeds," as defined in Subsection C of this Section, shall be placed in escrow and shall earn interest payable to the claimant in accordance with the provisions of Subsection C of this Section.

B. When the damaged property is replaced or otherwise repaired to the satisfaction of the claimant and the person holding the mortgage on the property, then 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. The person holding the security interest in the property shall cooperate fully with the claimant and the claimant's insurer in releasing funds in a timely manner to replace or repair the damaged property.

C. As used in this Section, "settlement proceeds" means funds paid on an insurance claim for damage to residential immovable property as a result of Hurricane Katrina or Hurricane Rita, and where the funds equal twenty-five thousand dollars or more. These funds shall be held in escrow by the lender or loan servicer. Interest shall accrue on settlement proceeds after being held in escrow for more than thirty days. For purposes of this Subsection, compliance with Fannie Mae or Freddie Mac servicing guidelines for payment of interest on property damage claim funds held in escrow by the lender or loan servicer constitutes compliance with this Section.

D. The provisions of this Section shall be applicable to state chartered federally insured financial institutions and their affiliates to the same extent that such provisions are applicable to federally chartered financial institutions.

Acts 2006, 1st Ex. Sess., No. 14, §1, eff. Feb. 23, 2006.