Surety Bond Authority Weblog

As of July 1, 2009, HB 1359 established an increase in the license bond amount required for all exterminators of termites and structural pests operating in the state of Arkansas. The license bond amount doubled from $50,000 to $100,000. However, HB 1350 did not increase the surety bond amount required for Arkansas’ exterminators of house pests and rodents, keeping that bond at $50,000.

Alabama SB 249, which was enacted on May 21, 2009, created a licensing requirement for all mortgage loan originators, as well as a requirement for them to be covered by a surety bond. However, the law does allow mortgage loan originators to use the surety bond of someone whom they are an employee or an exclusive agent of, as long as that person is subject to the Mortgage Brokers License Act (SB 232) or the Alabama Consumer Credit Act (SB 234). This license bond needs to provide ample coverage for each mortgage loan originator in an amount equal to the amount of the originated loans.

This new law became effective in Alabama on June 1, 2009, but the licensing requirements will not go effective until June 1 of this current year.

Similar to my recent post about SB 232 (Mortgage Broker Bonds), Alabama SB 234 created a new surety bond requirement for the state’s consumer lenders. The new law, effective on November 21, 2009, grants the State Banking Department the authority to make consumer lenders obtain a license bond in place of meeting current net worth requirements. Once again, the Banking Department is authorized to determine the bond amounts. No such surety bonding requirement existed for consumer lenders prior to this enactment.

Effective on November 21, 2009, Alabama SB 232 created a new surety bond requirement for the state’s mortgage brokers. This bill allows the State Banking Department to require mortgage brokers to obtain a mortgage broker bond in place of meeting current net worth requirements. Surety bond amounts will be determined by the Banking Department.

On May 21, 2009, with the enactment of Alabama’s Senate Bill (SB) 98, the Alabama Boxing Commission was created. SB 98 also requires all Alabama-based boxing promoters to be officially licensed by the state, and to obtain and post a performance bond (license bond). Specific amounts and conditions for the surety bond will be determined by the newly created Alabama Boxing Commission.

On top of that requirement, boxing promoters must get a permit for each boxing match held in Alabama. The Alabama Boxing Commission may also require promoters to obtain a separate performance bond to go along with each fight permit, which would be in addition to the original surety bond required for them to be licensed promoters.

With the recent enactment of HB 2315, Kansas now requires all home inspectors operating in the state to register with Kansas’ Home Inspectors Registration Board and to obtain a fidelity bond for no less than $10,000. Proof of the fidelity bond is required in order to cover any dishonesty.

Additionally, this new state law requires home inspectors to provide a separate submission to prove financial responsibility, which is this case can be in the form of a surety bond (license bond). The license surety bond must also be no less than $10,000, and cannot be terminated unless written notice is provided to the Board 30 days prior to requested termination. If the home inspectors are unable to obtain the license surety bond, for whatever reason, other acceptable forms of proving financial responsibility could include either an irrevocable letter or credit, an escrow account, or an errors and omissions insurance policy.

The recent credit crisis and major problems in the mortgage lending and real estate markets have brought about a number of new types of financial service providers. Subsequently, states are responding by attempting to create laws that require license bonds (surety bonds) for these new providers, such as foreclosure consultants, credit counselors, debt collection agencies, debt management services, and settlement servicers. Since most of this legislations was just recently introduced for the first time, it may take a year or two before the states are able to successfully enact these laws relating to license bonds.

The following Colorado House & Senate Bills pertaining to the state’s surety bond requirements were enacted within the past couple of months:

HB 1254: License & Permit Bond for Exchange Facilitators
Enacted on April 16, 2009, this bill requires all exchange facilitators operating in Colorado to post either cash, securities or an irrevocable line of credit for at least $1,000,000. The exchange facilitators can also opt to post a fidelity bond/s from a state-licensed insurer for the same amount if they so choose. Additionally, they must also obtain a $250,000 errors and omissions insurance policy. According to the Surety & Fidelity Association of America (SFAA), a surety bond (license bond) can fulfill this requirement as well, in place of the fidelity bond.

SB 40: Miscellaneous Bond
As of July 1, 2009, limited waivers may be granted for the surety bond requirement needed to get the certificate of title for manufactured homes in Colorado. Up until now, a commercial bond needed to be whenever someone applied for the title of a manufactured home, but did not possess adequate proof of ownership. Now, with the enactment of SB 40, waivers for this surety bond can be granted if the home is at least 25 years old, proof is provided that no property taxes are currently due, the home is inspected for its identification, and all other essential documentation for the title applicant is submitted.

SB 114: License & Permit Bond for Commodity Agents
The April 9th enactment of SB 114 canceled the previous licensing requirement for commodity agents in Colorado, to include the surety bond requirement. However, this bill upheld the license bond requirement for commodity handlers.

SB 117: License & Permit Bond for Home Food Service Plans
Effective as of its April 16th enactment, this bill requires all sellers of home food service plans to obtain a licensure as well as a surety bond from a state-licensed surety company. The Commissioner of Agriculture will determine specific surety bond amounts required by each seller, but the bond is conditioned not to exceed $50,000.

SB 141: Public Officials
Enacted on April 30, 2009, SB 141 formed Colorado’s Fountain Creek Watershed, Flood Control, and Greenway District (District). This bill created a surety bond requirement for the appointed custodian of this District’s funds. The surety bond amount will be determined by the District’s board.

2008 saw a large increase in the amount of legislation pertaining to mortgage broker bonds and mortgage lender bonds (types of commercial bonds). Most of the legislation focused on tightening regulation on mortgage brokers and lenders, and also on increasing the specific license bond amounts. While a good amount of legislation has been passing, many states are willing to wait and see what the US Congress’ economic stimulus plan entails this year, which will aim to alleviate economic problems in general as well as the significant problems in the housing markets, and what impact such changes will have on the surety bond industry. Before making any significant changes with regards to mortgage broker bonds or mortgage lender bonds regulation, some states wanted to see if any actions taken by Congress would significantly decrease the demand for the renewal of these surety bonds. In the aftermath of the subprime mortgage market meltdown, many mortgage brokers have been forced to go out of business, or have voluntarily shut down their operations.

This past year, numerous states, as well as the District of Columbia, passed bills that created either a new mortgage broker bond and/or mortgage lender bond requirement, or increased an existing bond amount.

States with changes to their required bond amounts:
• Connecticut’s House Bill (HB) 5577 doubled the required amount for mortgage broker bonds from $40,000 to $80,000.
• In Iowa, HB 2556 doubled the amount for mortgage brokers and bankers from $50,000 to $100,000.
• Maryland’s HB 363 & Senate Bill (SB) 270 also doubled the required amount of the license bond needed for mortgage lenders depending on the loan volume. Loan volumes of $3,000,000 or less saw the surety bond requirement increase from $25,000 to $50,000. Loans of $3,000,000-$10,000,000 rose from $50,000 to $100,000. The surety bond requirement for any loan greater than $10,000,000 went from $75,000 to $150,000.
• Conversely, Idaho’s HB 450 got rid of the $10,000 license bond required for loan originators.
• District of Columbia Bill 1020 added a net worth requirement on mortgage brokers to go along with the current license bond requirement. The recently enacted bill gives mortgage brokers the option of paying into a recovery fund, as prescribed by the Commissioner of Insurance, in lieu of meeting the previously mentioned net worth and license bond requirements. The surety bond amount is based off of the loan volume of the respective mortgage broker, with a $12,500 minimum and a $50,000 max.

Other changes to requirements pertaining to mortgage broker bonds (and/or lender):
• With the enactment of HB 2463, North Carolina mandates that “mortgage servicers” must be subjected to the same licensing and bonding requirements as mortgage brokers and lenders operating in the state.
• Similarly, in Pennsylvania, HB 2179 requires that “correspondent lenders” post the license bond required for mortgage brokers.
• Wyoming’s SB 44 changes the forfeiture requirements under the existing law for the license bond required for mortgage brokers and lenders. While the previous law required that the entire surety bond be forfeited to persons suffering damage as a result of a violation by a mortgage broker or lender, the new law requires that the bond only be forfeited in a sufficient amount to right the wrong. In the event that the violation exceeded that amount, the entire penal sum of the license bond could be forfeited.

Similar to last year, the Surety and Fidelity Association of American (SFAA) noticed a trend of amended state bills that change specific requirements pertaining to motor vehicle bonds (type of commercial bond also referred to as “auto dealer bonds”). These new bills are either requiring an increase in the motor vehicle bond amount, or an extension of its application to include additional vehicle types as well. The five states with recent enactments by state legislature are Colorado, Idaho, Pennsylvania, Tennessee and West Virginia.

In Colorado, Senate Bill 144 (SB 144) requires that all motor vehicle repair shops operating in the state must obtain a surety bond twice the amount of the retail value of a vehicle whenever they choose to seek title for any abandoned vehicle.

Idaho has two new requirements pertaining to motor vehicle regulation. House Bill 365 mandates that all dealers of motor-driven cycles comply with the $20,000 surety bond requirement, which currently is in existence for vehicle dealers operating in the state. Additionally, Idaho House Bill 440 requires all dealers of truck campers to obtain a $10,000 license bond.

The enactment of Pennsylvania Senate Bill 1019 (SB 1019), makes it a requirement for all state recreational vehicle dealers to obtain a license bond in the amount of $30,000, in order to act as a security against any possible claims. Specifically, this license bond will protect against claims brought up by an agency of the commonwealth for money past due, such as fees, licenses, unpaid taxes, payment of criminal penalties, civil fines/penalty, etc.

Tennessee’s House Bill 2809 simply increases (doubles) the surety bond amount requirement for a motor vehicle dealer license from $25,000 to $50,000.

Similarly, in West Virginia, House Bill 4364 raised the motor vehicle dealer license bond amount from $10,000 up to $25,000.

While the aforementioned states experienced amendments to existing motor vehicle bond requirements, etc, the SFAA was successful in working to defeat California AB 1939, which could have raised the license bond requirement for CA’s motor vehicle dealers from $50,000 all the way to $100,000.