What is a Sequestration Bond?
A Sequestration Bond is a type of financial guarantee that if a court later finds a sequestration case to be untrue or malicious, the plaintiff will release the held property or funds and pays damages and costs as mandated by the court.
This type of bond is required on behalf of the plaintiffs who are seeking to seize a property held by the defendant to satisfy a payment of debt. The bond ensures indemnity to the defendants against damage or losses in case the court decides there
The bond ensures indemnity to the defendants against damage or losses in case the court decides there are no grounds for sequestration or that a plaintiff fails to obtain a judgment against a defendant.
How does sequestration work?
Sequestration is a prejudgment action in which the plaintiff (moving party) seizes or attaches to property or funds that belong to the defendant (opposing party). The process is similar to replevin (replevy) or attachment. The outcome is the sequestration (taking legal possession of assets) and/or the attachment and impounding of financial accounts pending further pleadings made by the plaintiff.
Since sequestration results in a loss of use of the attached property or that funds in the sequestered financial account cannot be distributed except by direct court order, the defendant’s property that is being attached can suffer losses and damages.
To obtain the legal sequestration, the plaintiff should indicate that his grounds for sequestration in apprehending a property is done without prejudice.
A Sequestration Bond is often required as an effort to alleviate this harsh legal remedy. The bond covers the action, so in case the court later finds a wrongful sequestration, the bond guarantees financial compensation to the defendant.
Why is there a need for a Sequestration Bond?
In sequestration cases, a plaintiff must file a bond in favor of the defendant. This is to afford relief to the defendant in the writ in case it is found that the sequestration has been maliciously obtained.
In fact, the defendant’s right to require a Sequestration Bond, whether of movables or immovables, is absolute.
There are cases where the plaintiff is not required to execute a surety bond:
- where the court declares the defendant as insolvent;
- where the defendant has already made a cession (giving up of rights) of his property and belongings to his creditors;
- where sequestered property’s release would defeat the purpose of the lawsuit (in a manner of partnership settlements, liquidation, partition proceedings, etc.).
In a way, the defendant can recover for all the losses and damages he or she may have sustained from the wrongful sequestration, including, but not limited to attorney’s fees and damage to property and reputation.
Sequestration Bond Example:
Phil Mahon was in default of paying his mortgaged vehicle. His creditor by special mortgage sequestered the movable property in a state of apprehension that Phil may move it out of the state or jurisdiction before he can have the benefit of his mortgage. Sequestration here means a court-ordered confiscation of property.
This is a case where a writ of sequestration can be issued with the creditor making an oath of the facts which provoked his belief concerning the property since merely swearing that he fears the removal of the said property is insufficient.
As a defendant, Phil has the right to require a surety bond regarding the sequestration. When the court ruled evidence that the grounds for sequestration have no basis, except for the misgivings assumed by the creditor, Phil can collect any fees and damages and recover the said property. If a claim is made against the bond (Phil failed to comply with his bond obligations), the Surety will compensate the court and Phil will have to reimburse the Surety of the amount that was paid out.
How much does a Sequestration Bond cost?
The cost (bond premium) of the Sequestration Bond is a small percentage of its overall value. Usually, it is 1% of the bond amount. The minimum cost would be $100.
The bond amount is a matter of judicial discretion with the exemption of sequestered real property that is revenue-producing. The judge hearing the case may raise the bond amount to cover legal fees and/or the law enforcement agency consigned to seize the property and assets. For example, the U.S. Marshals Service deals with the writ of sequestrations as a part of their regular law enforcement duties.
In all cases, whether the property is movable (money, jewelry, vehicles) or immovable (real estate), the amount of the bond equals to the value of the property released, where such value is determined by the judge.
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How do I get a Sequestration Bond?
The first step is to look for a certified and licensed surety bond company. You will be asked to fill out an application form and submit financials. A surety underwriter will conduct an assessment and review of your background and financial stability. All of your financial information will be kept confidential.
The requirements for obtaining a Sequestration Bond include:
- Completed bond application form
- We might need: Financial documents (income statements, bank account balances, irrevocable lines of credit, etc.)
- Copy of plaintiff’s affidavit
- Copy of judge’s order for issuance of the writ of sequestration
- Applicable bond forms obtained from the court
Sequestration is a drastic action and can only be resorted to cases authorized by law. Thus, judicial and legal sequestration is limited to situations set forth in governing state laws and provisions.
If you need a Sequestration Bond for your attachment proceedings, our surety bond experts can assist you and provide consulting services for your bonding needs. Contact us today!