(a) Escrow funds for a purpose authorized by the residential mortgage loan contract (1) shall be subject to and satisfy all applicable state and federal requirements, including Section 2609 of the federal Real Estate Settlement Procedures Act of 1974, as amended (12 U.S.C. Sec. 2601 et seq.) and all applicable provisions of the Civil Code, (2) shall be maintained in a depository institution as described in subdivision (b), and (3) may not be commingled with a licensee’s funds.
(b) Except as provided in subdivision (f), or as authorized by Section 2954.85 of the Civil Code, a trust account shall be placed in a non-interest-bearing account in a federally insured depository institution, a federal home loan bank, a federal reserve bank, or other similar government-sponsored enterprise, to be removed and used only for the following:
(1) Payments authorized by the borrower, allowed by the mortgage loan contract, or required by federal or state law.
(2) Refunds to the borrower.
(3) Transfer to another institution that is described in this subdivision.
(4) Forwarding to the appropriate servicer in case of a transfer of servicing.
(5) Any other purpose authorized by the residential mortgage loan contract.
(6) Compliance with a regulatory or court order.
(c) As used in this section, “trust funds” means funds collected by a licensee in connection with the making or servicing of a residential mortgage loan that the licensee holds on behalf of another.
(d) Notwithstanding any other provision of law, but subject to the limitations of Section 854, benefits accruing from the placement in a non-interest-bearing account of a commercial bank (including a national banking association) of funds received by a licensee who services mortgage loans under this law, shall inure to the licensee, unless otherwise agreed in writing by the licensee and the investor on whose behalf the licensee services the loan. A borrower shall receive at least 2 percent simple interest per annum on impound account payments covered by Section 2954.8 of the Civil Code.
(e) Trust funds are not subject to the enforcement of a money judgment arising out of a claim against the licensee or person acting as the servicing agent, and in no instance shall the trust funds be considered or treated as an asset of the licensee or person performing the functions of a residential mortgage lender or loan servicer.
(f) A licensee may, at the request of the owner of the trust funds, transfer the funds initially deposited in a non-interest-bearing trust account into an interest-bearing account in a federally insured depository institution if all of the following requirements are met:
(1) The account is in the name of the residential mortgage lender licensee in trust for the specified beneficiary.
(2) All of the funds in the account are federally insured.
(3) The funds in the account are kept separate and distinct from the funds of the licensee or funds of any other person for whom the licensee holds funds in trust.
(4) The licensee discloses to the person from whom the funds are received and the beneficiary of the account how interest will be calculated and paid, whether service charges will be paid to the depository and by whom, and possible notice requirements or penalties for withdrawal of funds from the account.
(5) All interest earned on the account will be paid to the owner of the trust funds or the beneficiary.
(Amended by Stats. 2025, Ch. 103, Sec. 2. (AB 493) Effective August 29, 2025.)