Judicial and Court Bonds
In a civil proceeding, bonds are often required by the court, as they protect those involved in the proceedings and guarantee the bonded parties – either the plaintiff or defendant or both – will take action. Certain legislation, along with the court’s ruling, typically set the required dollar amount of these bonds. Court Bonds can generally be broken down into 2 distinct categories:
- Civil Court Bonds- required by the court at significant point in litigation process. It protects the opposing party from any loss suffered as a result of the court’s having temporarily granted the privilege.
- Fiduciary Bonds (Probate Bonds)- required by a court when an individual, or corporation are appointed in wills, deed of trust, guardians or conservators of minors or wards of the court to take control of the property and/or manage, transfer and distribute the assets in accordance with the court’s orders. These bonds guarantee that the interest of those concerned will be properly safeguarded.
The following are some of the most common types of court bonds:
- Appeal Bond- isrequired to guarantee that the payment of the original judgment will be paid if the appeal fails. The appeal bond discourages people from time-wasting appeals.
- Bail Bond- is posted to ensure a person in jail will appear in court after being released back into the public. If the accused person fails to do so, the bail money must be forfeited to the court.
- Custodian Bond (Guardianship Bond)- ensures that an appointed custodian will correctly manage the finances of the individual. The terms “custodian bond” and “guardianship bond” are often used interchangeably.
- Executor Bond- is also known as an estate bond or probate bond. Sometimes it’s referred to as “fiduciary bond.” They must be purchased by those responsible for distributing a person’s estate after they die. The probate bond protects the deceased’s assets.
- VA Fiduciary Bond- in 2011, the VA began allowing veterans’ friends and family members to act as fiduciaries, which gave those closest to veterans the ability to retain control of their finances, estates and benefits without having to pay the hefty fees charged by fiduciaries who work for the court.
What are some of the benefits of obtaining a court bond?
- Court Requirement– In some instances, the courts will mandate that a bond be put in place before a court action can be pursued or postponed.
- Better than the cash alternative– Some courts, in lieu of a bond will take cash security. Therefore the principal, if they qualify for the bond will not have to use their cash reserves to post the security.
- Avoidance of bureaucratic management of security- In the event that the principal has the funds to post the security in lieu of the bond, it is not recommended, as those funds will now be in the management of the courts and when the case is resolve, it might be extremely burdensome to apply for those funds to be returned.
How are court bonds underwritten?
Each surety company has their own guidelines and criteria for underwriting a court bond. However, in general, court bonds are underwritten under two categories:
- Non-Collateralized– bonds, such as receiver bonds or attachment bonds, will be underwritten based on the principal’s credit profile and financial position. If they credit qualify them, the principal’s indemnity is enough to obtain the bond.
- Collateralized– certain bonds, such as appeal bonds or release of a mechanic’s lien bonds, will entail collateral regardless of the principal’s credit profile and financial position.
When submitting the first request for bonding, the following information should be included to ensure a quicker response:
- A complete court bond application– This provides a basic overview of the bond being requested, as well as information on the principal requesting the bond.
- Copy of the court documentation– This provides information as to the case and lets the surety determine the strength of the principal’s chance of prevailing in the case.
- Bond requirement document– This court issued document states the type of bond that is needed and in what amount. It is among the most important document because it verifies that the bond requested is indeed required and validates the amount for the surety.
- Business Financial Statements– If the principal requesting the bond is a corporation, they need to provide the most recent year business financial statements (balance sheet and income statement). A personal financial statement of all the owners of the corporation should be provided as well.
- Personal Financial Statement– If the principal(s) is an individual, they need to provide a personal financial statement for the principal(s).
- Current Bank Statements– If the corporation or individual’s financial statement has a high declaration of short term/liquid assets (cash, stock and securities), current statements to verify these assets should also be provided.