What is a Manufactured Home Bond?
Manufactured Home bonds are a subset of the broader license bond category that must be filed with the government agency (city, county, or state) responsible for regulating mobile home dealers as a condition of licensure for most mobile home, manufactured housing, or modular home dealers, retailers, manufacturers and installers. The majority of states handle manufactured home dealer licensing directly, while some cities and counties require permit bonds for installation or moving of manufactured homes.
Manufactured home dealer bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as a manufactured home dealer license bond, will also be referred to as the “surety company” or the “bond company”. Mobile home dealer license bonds refer to the dealer or installer as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Why is a Manufactured Home Bond required?
Manufactured home dealers are required to purchase license bonds by state and local statutes to protect a government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from a manufactured home dealer breaking state or local license law. The surety company provides the government a guarantee (the surety bond) that the customers of a licensed manufactured home dealer will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the manufactured home dealer license up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, mobile home dealers are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension.
Manufactured housing bond violations triggering a bond payout may include manufacturers failing to comply with home construction standards, or installers failing to properly install the manufactured home.
How much does a Manufactured Home Bond cost?
Manufactured Home dealer bonds generally cost between 1% and 10% of the bond limit.
Example: $10,000 Manufactured Home Bond Cost
| Credit Score | Premium Rate | Bond Cost |
|---|---|---|
| 680 or above | 1.0% | $100 |
| 650-679 | 1.5% | $150 |
| 625-649 | 2.0% | $200 |
| 600-624 | 3.0% | $300 |
| 550-599 | 5.0% | $500 |
| 500-549 | 7.0% | $700 |
| 499 or below | 10.0% | $1,000 |
The actual cost of a specific manufactured home dealer bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the dealer's license history, experience and creditworthiness. Mobile home dealer bonds required by a local government (city or county) tend to have the lowest cost, while state requirements have potentially higher costs.
Is a Credit Check Required for Manufactured Home Bond?
Credit checks are required for most manufactured home dealer license bonds required by state agencies. Mobile home bonds required by cities, townships or counties with bond amounts under $25,000 generally do not require a credit check to purchase the bond. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.
How does the wording in the bond form impact the cost of a Manufactured Home Bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and manufactured home dealer (principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the dealer via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a manufactured home dealer license bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses. Aggregate Limits
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 mobile home dealer bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Manufactured home dealer bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.
Cancellation Provisions
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the contractor and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the manufactured home dealer failing to pay premiums due, claim payouts, or material changes in the contractor’s credit score. Manufactured home dealer bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.
Forfeiture Clause
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Manufactured home dealer bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.