Mortgage Education

INSURANCE CODE
TITLE 5. PROTECTION OF CONSUMER INTERESTS
‍
CHAPTER 557. INSURED PROPERTY SUBJECT TO SECURITY INTEREST
INSURANCE CODE
‍
TITLE 5. PROTECTION OF CONSUMER INTERESTS
SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES
CHAPTER 557. INSURED PROPERTY SUBJECT TO SECURITY INTEREST
SUBCHAPTER A. INSURANCE PROCEEDS HELD BY LENDER PENDING REPAIR OF RESIDENTIAL REAL PROPERTY

Sec. 557.001. DEFINITIONS. In this subchapter:

1) “Lender” means a person holding a mortgage, lien, deed of trust, or other security interest in property.
2) “Residential real property” means:
- a single-family house;
- a duplex, triplex, or quadraplex; or
- a unit in a multi-unit residential structure in which title to an individual unit is transferred to the owner of the unit under a condominium or cooperative system. Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

INSURANCE PROCEEDS.

If a claim under an insurance policy for damage to residential real property is paid to the insured and a lender, and the lender holds all or part of the proceeds from the insurance claim payment pending completion of all or part of the repairs to the property, the lender shall notify the insured of each requirement with which the insured must comply for the lender to release the insurance proceeds.
‍
The notice required under this section must be provided not later than the 10th day after the date the lender receives payment of the insurance proceeds. Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

PROCEEDS. Not later than the 10th day after the date a lender receives from the insured a request for release of all or part of the insurance proceeds held by the lender, the lender shall:

1) if the lender has received sufficient evidence of the insured’s compliance with the requirements specified by the lender under Section 557.002 for release of the proceeds, release to the insured, as requested, all or part of the proceeds; or
2) provide notice to the insured that explains specifically:
-the reason for the lender’s refusal to release the proceeds to the insured; and
-each requirement with which the insured must comply for the lender to release the proceeds. Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

A lender who fails to provide notice as required by Section 557.002 or 557.003 or to release insurance proceeds as required by Section 557.003 shall pay to the insured interest at the rate of 10 percent a year on the proceeds held by the lender. Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

- If a lender fails to provide notice as required by Section 557.002 or 557.003, interest begins to accrue on the date the lender received the insurance proceeds.

- If a lender fails to release insurance proceeds as required by Section 557.003, interest begins to accrue on the date the lender receives sufficient evidence of the insured’s compliance with the requirements specified by the lender under Section 557.002 or 557.003 for release of the proceeds.

- Interest stops accruing on the date the lender complies with Section 557.002 or 557.003, as applicable. Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

A lender is not required to pay interest on insurance proceeds applied, in accordance with the terms and conditions of a deed of trust or other security agreement, to reduce a note. Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

If payment of an insurance claim relating to personal property requires the endorsement of a check or draft by a holder of a lien on the property or otherwise requires approval of the lienholder, not later than the 14th business day after the date the lienholder receives a request for

- the endorsement or other approval, the lienholder shall provide:the endorsement or approval; or
- a written statement of the reason for denial of the endorsement or approval to the person who requested the endorsement or approval.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

A lienholder who violates
Section 557.051 is liable for a civil penalty not to exceed $500 for each violation.

The attorney general may bring an action to collect a civil penalty under this section.
Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1, 2005.

Disclaimer: These codes may not be the most recent version. Texas may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.