§ 6:337 — Duty of secured party upon payment of insurance claim for damage to mortgaged

Louisiana § 6:337

• Jurisdiction: Louisiana
• Title 6: Banks and Banking

Text

§337. Duty of secured party upon payment of insurance claim for damage to mortgaged
residential property
A. All of the following provisions shall apply to a mortgagee or mortgage servicer
servicing residential mortgage loans secured by a property that contains one to four
residential dwelling units in this state:
(1) The mortgagee or mortgage servicer shall promptly endorse a check, draft, or
other negotiable instrument for insurance settlement proceeds payable jointly to the
mortgagee or mortgage servicer and the borrower-payee by the insurance company.
However, the mortgagee or mortgage servicer is not required to endorse such instrument if
the borrower-payee refuses to endorse the instrument.
(2) Insurance settlement proceeds received by a mortgagee or mortgage servicer that
relate to compensation for damage to property or contents insurance coverage in which the
mortgagee or mortgage servicer has a mortgage or security interest shall be promptly
deposited into a segregated account of a federally insured financial institution, unless the
mortgagee or mortgage servicer returns such insurance settlement proceeds to the borrower-payee or the check, draft, or negotiable instrument is missing the borrower-payee's
endorsement. The segregated account may at the discretion of the mortgagee or mortgage
servicer be an individual deposit account for each borrower-payee or a master account
containing subaccounts for each borrower-payee.
(3) Insurance settlement proceeds received by a mortgagee or mortgage servicer that
relate to contents insurance coverage in which the mortgagee or mortgage servicer does not
have a security interest in the contents shall be promptly distributed to the borrower-payee
via traceable delivery or electronic transfer.
(4) Insurance settlement proceeds received by a mortgagee or mortgage servicer that
relate to additional living expenses shall be promptly distributed to the borrower-payee via
traceable delivery or electronic transfer.
B. Notwithstanding the provisions of Subsection A of this Section, the mortgagee
or mortgage servicer is not required to remit the portion of the insurance settlement proceeds
relating to additional living expenses and contents insurance if the mortgagee or mortgage
servicer is not able to determine which part of the proceeds relate to additional living
expenses and contents insurance.
C.(1) If a mortgagee or mortgage servicer holds all or part of the insurance settlement
proceeds pending completion of all or part of the repairs to the damaged property, the
mortgagee or mortgage servicer shall notify the borrower-payee of each requirement with
which the borrower-payee shall comply for the mortgagee or mortgage servicer to release the
insurance settlement proceeds. The notice required by this Paragraph shall be provided not
later than the tenth business day after the date the mortgagee or mortgage servicer receives
payment of the insurance settlement proceeds.
(2) Not later than the tenth business day after the date a mortgagee or mortgage
servicer receives from the borrower-payee a request for release of all or part of the insurance
settlement proceeds held by the mortgagee or mortgage servicer, the mortgagee or mortgage
servicer shall do either of the following:
(a) If the mortgagee or mortgage servicer does not require a property inspection to
be conducted and has received sufficient evidence of the borrower-payee's compliance with
the requirements specified by the mortgagee or mortgage servicer pursuant to Paragraph (1)
of this Subsection for release of the insurance settlement proceeds, release to the borrower-payee, as requested, all or part of the proceeds.
(b) Provide notice to the borrower-payee that explains with specificity both of the
following:
(i) The reason for the mortgagee or mortgage servicer's refusal to release the
insurance settlement proceeds to the borrower-payee.
(ii) Each requirement with which the borrower-payee shall comply for the mortgagee
or mortgage servicer to release the insurance settlement proceeds.
(3)(a) Property inspections related to residential mortgage loans covered by this
Section shall be conducted not later than the fifteenth business day after receipt by the
mortgagee or mortgage servicer of both a request by the borrower-payee for a property
inspection and receipt of sufficient evidence of the borrower-payee's compliance with the
requirements specified by the mortgagee or mortgage servicer pursuant to Paragraph (1) of
this Subsection, provided that the borrower-payee is cooperative and that the premises are
accessible.
(b) A mortgagee or mortgage servicer may, at their discretion, allow property
inspections to be conducted in person, through photographic or video evidence submitted by
the borrower-payee, through a servicer-directed video call with the borrower-payee, or by any
other means to document the progress or completion of repairs of the property.
(c) Photographic or video evidence shall also clearly identify the repairs that are
being documented and confirm the repairs were completed in accordance with the repair
plan. Any photographic or video evidence provided to a mortgagee or mortgage servicer may
not be accepted if it does not allow the mortgagee or mortgage servicer to determine the
repairs are from the location of the property subject to the mortgage loan, does not
authenticate when it was taken, or if it is believed by the mortgagee or mortgage servicer to
have been altered in any way.
(4)(a) The commissioner may impose civil money penalties of up to five hundred
dollars per day for each day that a mortgagee or mortgage servicer fails to comply with the
requirements of Paragraph (1) or (2) of this Subsection. The penalties provided by this
Paragraph shall not exceed five thousand dollars per violation.
(b) Penalties shall be due and payable upon notice of their assessment to the
mortgagee or mortgage servicer, unless such penalties are set aside after an administrative
hearing pursuant to the provisions of the Administrative Procedure Act. The assessment of
civil money penalties shall be final and definitive and subject to enforcement by the
commissioner through judicial proceedings.
D.(1) When the damaged property is replaced or otherwise repaired to the
satisfaction of the borrower-payee and the mortgagee or mortgage servicer, then any
remaining balance in the segregated account shall be paid to the borrower-payee together
with all interest that accrued while the funds were in the segregated account in accordance
with Paragraph (2) of this Subsection.
(2) Interest shall accrue on insurance settlement proceeds where the funds equal
twenty-five thousand dollars or more after being held by the mortgagee or mortgage servicer
in a segregated account for more than thirty days. For the purposes of this Subsection,
compliance with Fannie Mae or Freddie Mac servicing guidelines for payment of interest on
property damage claim funds held by the mortgagee or mortgage servicer constitutes
compliance with this Section.
E. The provisions of this Section and R.S. 6:338 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.
F. The provisions of this Section shall apply only to residential mortgage loans
secured by a property that contains one to four residential dwelling units. However, the
provisions of this Section shall not apply to a mortgagee or mortgage servicer when the
borrower-payee is in default on his mortgage loan, past due with payments on his mortgage
loan, or in foreclosure related to his mortgage loan.

Legislative History

Acts 2006, 1st Ex. Sess., No. 14, §1, eff. Feb. 23, 2006; Acts 2022, No. 744, §1.