What is a Condemnation Bond? 

A Condemnation Bond is a unique type of judicial surety bond that provides a guarantee that the owner of private property that has been condemned for public use will be paid whatever price that the court has determined. Because it also functions as an absolute financial guarantee, a Condemnation Bond mandates that the Principal (one who posted the bond and will perform under the contract) must pay the owner of the private property the price set by the court.

How Much Does a Condemnation Bond Cost?

The cost of a bond premium for a Condemnation Bond varies from state to state. It also depends on the type of project and the property to be seized. Applicants with a high credit score, or those with a FICO more than 700, are usually granted a lower premium by sureties. But those with poor credit scores will be charged a higher premium.

Underwriters are also expected to conduct a thorough background of the applicant to determine your financial standing. However, in most cases, sureties do not need to evaluate the merits of the lawsuit or whether payment will be made. The only unknown factor in this type of litigation is the sale price. Sureties are exposed to less risk from writing a Condemnation Bond because utility firms are considered financially stable. Often, the bond penalty is set at the difference between the price offered by the company and the private property owner.

 

What is Condemnation of Property?

Condemnation of property is the process where private property is appropriated for public use, particularly involving public infrastructure projects. To be clear, there is a distinction between condemnation and eminent domain. Condemnation pertains to the process of appropriating private property. Eminent domain is the government’s inherent right to take or appropriate private property for public use. Eminent domain is a government’s authority.

 

What Is The Process of Condemnation?

The Takings Clause of the U.S. Constitution provides that if the government or private company wants to take or appropriate private property for public use, they must pay “just compensation” to the private property owner for any damage or loss they might incur.

Because “just compensation” is not a fast and straightforward rule, on many occasions, the company seizing the property and the owner of the private property may not be able to agree on the price and value of the property. To avoid delay in the completion of the project for which the property is needed, the company may obtain a Condemnation Bond after filing an eminent domain case.

 

Examples of Condemnation Surety Bonds

Case 1

Max’s property sits right in the middle of the expansion of Katy Freeway in Houston, Texas. Max is willing to sell his property to pave the way for the road expansion, but he is asking to be paid above the fair market value (FMV) of the land. He argues that the land is very productive because he is growing corn on his land and is producing high yields.

 But the private contractor does not want to pay above the FMV and is insisting on paying based only on FMV. Because of the deadlock in the price of the property, the private company filed an eminent domain case before a district court to settle the price issue.

 To guarantee that the private contractor will pay Max the price it will eventually set; the district court ordered the private company to obtain a Condemnation Bond before the start of the hearing.

Case 2

The small mining town of Eureka in Nevada is in a secluded area. Its 610 population enjoys the quaint architecture design of the houses there. However, communication to and from Eureka is problematic as the cell tower in the town has been destroyed by a recent storm.

 The telecom service provider in the town has decided that the next cell tower should be constructed at the outskirt of Eureka because the location provides not only sufficient protection from high winds and storms but is also ideal for maximum signal strength.

 The problem is the property belongs to Mrs. Smith where their ancestral house is also built. Mrs. Smith has rejected offers by the telecom company to buy or purchase a small portion of her property for the construction of the cell tower. She said the construction of the cell tower on her property would be an “ugly speck” on her house and would diminish its market value.

 Since the construction of the cell tower is crucial to the town’s communication system, the telecom company decided to take the matter to the courts and filed an eminent domain case. The court then asked the telecom firm to obtain a Condemnation Surety Bond as a guarantee for payment.

In both cases, Max and Mrs. Smith have two options should they feel that the price set by the courts is unfair. The first option is to allow the projects to proceed but files a post-deprivation hearing to obtain fair compensation. An alternative is to seek an injunction against the projects. 

 

How Does Condemnation Works Benefit Public Works

Sometimes a private property gets in the way of an important public infrastructure project and could delay its early completion. However, certain statutory conditions allow contractors of public works to condemn property or land and convert it to public use against the owner’s wishes. Companies can do this under the principle of eminent domain in projects involving railroads, road widening or road construction, telecommunications, and other public utilities.

But condemning properties is not always a smooth deal. There are instances when courts have to intervene, particularly if the company and the owner of the land cannot agree on a price. The courts can establish and determine a fair price for the property based on prevailing market value. The company has to file an eminent domain case before the courts “to determine all issues, including the authority to condemn property and the assessment of damages.”

Companies that want to take possession of the private property to avoid delay in the completion of their project must obtain a Condemnation Surety Bond. The company is the Principal on this type of bond, and the court is the Obligee. A Condemnation Bond provides a guarantee that the company will compensate the owner the amount set by the court after hearing all the evidence presented in the case.

The Condemnation Bond is considered an absolute financial guarantee because the Principal is mandated to pay the price set by the court regardless of the result of the litigation.

 

About Surety Bond Authority:

If you require a Condemnation Bond, our company can help you. We have a professional and competent staff to provide you with the best quote and information about your needs. You can call us at 800-333-7800, and our licensed agents will be happy to answer all your queries. You can also use our online platform through our website,

Surety Bond Authority is a full-service surety bond company which prides itself on a solid reputation and professional integrity. We are founded by our CEO Greg Rynerson who has more than 25 years of excellent experience in the surety and insurance industries. Greg has written bonds at the state and federal levels throughout his professional career for his satisfied clients.

At Surety Bond Authority, you can be confident of the highest standard of service.  Call us now and be one of our satisfied customers!

Check out this Infographic!

Have a better view of Condemnation Bonds through this infographic.

Condemnation Bond Infographic
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