(a)Every financial institution that makes loans upon the security of real property containing only a one- to four-family residence and located in this state or purchases obligations secured by such property and that receives money in advance for payment of taxes and assessments on the property, for insurance, or for other purposes relating to the property, shall pay interest on the amount so held to the borrower. The interest on such amounts shall be at the rate of at least 2 percent simple interest per annum. Such interest shall be credited to the borrower’s account annually or upon termination of such account, whichever is earlier.
(b)No financial institution subject to the provisions of this section shall impose any fee or charge in connection with the maintenance or disbursement of money received in advance for the payment of taxes and assessments on real property securing loans made by such financial institution, or for the payment of insurance, or for other purposes relating to such real property, that will result in an interest rate of less than 2 percent per annum being paid on the moneys so received.
(c)For the purposes of this section, “financial institution” means a bank, savings and loan association or credit union chartered under the laws of this state or the United States, or any other person or organization making loans upon the security of real property containing only a one- to four-family residence.
(d)The provisions of this
section do not apply to any of the following:
(1)Loans executed prior to the effective date of this section.
(2)Moneys which are required by a state or federal regulatory authority to be placed by a financial institution other than a bank in a non-interest-bearing demand trust fund account of a bank.
The amendment of this section made by the 1979–80 Regular Session of the Legislature shall only apply to loans executed on or after January 1, 1980.
Notes of Decisions
Donald Lusnak v. Bank of America (2018)
ca9 · cites it 19×
“BANK OF AMERICA SUMMARY * Preemption / National Bank Act The panel reversed the district court’s dismissal of a putative class action; held that that the National Banking Act did not preempt California’s state escrow interest law, Cal. Civil Code § 2954.8 (a); and remanded so…”
Susan McShannock v. Jp Morgan Chase Bank (2020)
ca9 · cites it 3×
“Appellees, whose homes were located in California, would normally have been entitled to “at least 2 percent simple interest per annum” on any funds held in escrow under California Civil Code Section 2954.8 (hereinafter, “California’s interest-on- escrow law”).”
McShannock v. JP Morgan Chase Bank N.A. (2018)
cand · cites it 4×
“Plaintiffs assert that Chase's failure to pay escrow interest on their mortgage accounts violates California Civil Code § 2954.8 and 15 U.S.”
William Kivett v. Flagstar Bank, Fsb (2025)
ca9 · cites it 13×
“Since 1976, “[e]very financial institution” in California that makes certain home mortgage loans and sets up an escrow account “shall pay interest on the amount so held to the borrower .”
Ditech Holding Corporation (2023)
nysb · cites it 2×
“California Civil Code § 2954.8(a) The Claimant asserts that “Di-Tech is still in possession of the [CSE Insurance Proceeds] which also should have interest applied for as long as they have kept it, fee’s that Di-Tech LLC fraudulently charged to me [sic].”
Smith v. Flagstar Bank, FSB (2019)
cand
“STATEMENT 21 California Civil Code § 2954.8(a) requires “[e]very financial institution that makes loans 22 upon the security of real property containing only a one- to four-family residence and located in 23 this state” to “pay interest on the amount so held to the borrower.”
— Cal. Civil Code § 2954.8(a) — 5 cases
Donald Lusnak v. Bank of America (2018)
ca9
“BANK OF AMERICA SUMMARY * Preemption / National Bank Act The panel reversed the district court’s dismissal of a putative class action; held that that the National Banking Act did not preempt California’s state escrow interest law, Cal. Civil Code § 2954.8 (a); and remanded so…”
William Kivett v. Flagstar Bank, Fsb (2025)
ca9
“Since 1976, “[e]very financial institution” in California that makes certain home mortgage loans and sets up an escrow account “shall pay interest on the amount so held to the borrower .”
Ditech Holding Corporation (2023)
nysb
“California Civil Code § 2954.8(a) The Claimant asserts that “Di-Tech is still in possession of the [CSE Insurance Proceeds] which also should have interest applied for as long as they have kept it, fee’s that Di-Tech LLC fraudulently charged to me [sic].”
Smith v. Flagstar Bank, FSB (2019)
cand
“STATEMENT 21 California Civil Code § 2954.8(a) requires “[e]very financial institution that makes loans 22 upon the security of real property containing only a one- to four-family residence and located in 23 this state” to “pay interest on the amount so held to the borrower.”
— Cal. Civil Code § 2954.8(d)(2) — 1 case
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