What is a Title Agent Bond?
Title agent bonds are a subset of the broader license bond category that must be filed with the state government agency responsible for regulating title service activity in the agent’s jurisdiction as a condition of licensure for most title agents, escrow agents, or closing agents. Title agents are responsible for making sure all necessary transactions are documented and completed in order for a customer to close escrow on real estate transactions.
Title agent 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 title agent bond, will also be referred to as the “surety company” or the “bond company”.
Why is a Title Agent Bond required?
Title agents 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 an agent breaking title agent license law. The surety company provides the government a guarantee (the surety bond) that the buyer and seller working with a licensed title agent will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the title agent 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, agents 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. Title agent bonds refer to the agent as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Title agent bond violations triggering a bond payout may include an agent committing any fraudulent or dishonest act within the scope of their business, misleading their customers, and allowing unlicensed personnel to act in the capacity of a licensed title agent
How much does a Title Agent Bond cost?
Title agent bonds generally cost between 1% and 5% of the bond limit.
Example: $10,000 Title Agent Bond Cost
| Credit Score | Premium Rate | Bond Cost |
|---|---|---|
| 650 or above | 1.0% | $100 |
| 625-649 | 1.25% | $125 |
| 600-624 | 2.5% | $250 |
| 575-599 | 3.0% | $300 |
| 550-574 | 4.0% | $400 |
| 500-549 | 5.0% | $500 |
The actual cost of a specific title agent license bond can vary depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the agent’s license history, experience and creditworthiness.
Is a Credit Check Required for Title Agent Bonds?
Credit checks are required for title agent license bonds required by state agencies. 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 Title Agent Bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and title agent (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 title agent via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a title agent 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 $35,000 title agent bond with an aggregate limit of $35,000 will pay out no more than $35,000, regardless of the number of damaged parties or claim occurrences. Title agent 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 title agent 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 agent failing to pay premiums due, claim payouts, or material changes in the agent’s credit score. Title agent 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”). Title agent bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.