Gray v. Quicken Loans, Inc.

Facts: Improvements on an owner’s property were destroyed in a fire. The owner’s hazard insurance policy insurer disburses funds as a covered event payable to the owner and the mortgage holder. The mortgage loan documents call for the mortgage holder to hold the insurance proceeds and disburse them as repairs to the home progress. The mortgage holder places the funds in a non-interest-bearing escrow account. The owner makes a demand on the mortgage holder to pay interest on the proceeds while held by the mortgage holder.

Claim: The owner claims the mortgage holder is obligated to pay interest on funds disbursed by their insurer for rebuilding of property since a mortgage lender is required to pay interest on funds held in escrow for taxes, assessments, and mortgage insurance premiums.

Counterclaim: The mortgage holder claims they are not obligated to pay interest on funds held for hazard insurance premiums since neither state law nor mortgage documents call for the payment of interest.

Holding: A California appeals court holds the mortgage holder has no obligation to pay interest on funds the lender received from the owner’s insurer and held for rebuilding the property improvements since no statutory obligation exists and no written agreement with the lender calls for interest to accrue and be paid on the funds. [Gray v. Quicken Loans, Inc. (2021) 61 CA5th 524]

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