A surety bond is a type of insurance that protects against losses caused by the failure of another party to meet its obligations. When a security, such as a stock certificate, is lost, the owner may obtain a surety bond to replace it. The process generally involves the owner filing a claim with their bank, which investigates the claim and then issues a bond for the value of the lost security. The owner then uses the bond to obtain a replacement security from the issuer.
Another example would be if a check is lost or stolen, the owner may request a stop payment from the bank. However, the owner is still responsible for the payment of the check, also referred to as “instrument”. A lost instrument surety bond protects the obligee, the party requiring the bond, against loss suffered because of the dishonesty, disappearance, or insolvency of the principal, the original owner of the check. In this case the bond is written for a specific amount, usually double the value of the instrument, and is conditioned upon the principal’s honest and faithful performance of duties relating to the care and custody of the instrument. The bond also provides for the payment of any loss sustained by the obligee if the principal fails to perform.
In yet another example, when a homeowner or business owner is unable to produce the original note for their mortgage, they may be able to obtain a lost note surety bond. This type of bond guarantees that the mortgage will be paid in full if the original note is not located.
To obtain a lost note surety bond, the homeowner or business owner will need to contact a surety company. The surety company will require the following information:
– A copy of the mortgage agreement
– A description of the efforts made to locate the original note
– An explanation of why the original note cannot be produced
Once the surety company has this information, they will review it and determine if a lost note surety bond can be issued. If the bond is approved, the homeowner or business owner will be required to pay a premium. The premium is typically a small percentage of the mortgage amount, often 2% of the bond amount which is usually double the amount of the mortgage. If the original mortgage note is later located, the lost note surety bond will be voided and the premium will be refunded depending upon the insurance company. Many have time limitations or other restrictions.
There are a few things to keep in mind when obtaining a surety bond to replace a lost security, instrument or note. First, the surety company will likely require some documentation to support the claim, such as a police report if the security or instrument was stolen. Second, the bond may have a higher premium than the original security, due to the increased risk. Finally, the surety company may require collateral to secure the bond, such as cash or other securities.
Overall, obtaining a surety bond to replace a lost security, instrument or note is a relatively straightforward process, but it is important to work with a reputable surety company and provide the necessary documentation.
If you have any questions about lost securities, instruments or note bonds, contact us.
In the context of securities, a surety bond may be required by the SEC in order for a broker-dealer to become registered. The surety bond must be in an amount specified by the SEC, and the broker-dealer must maintain the bond at all times while it is registered. If a broker-dealer fails to meet its obligations, the SEC may initiate proceedings to revoke its registration. If the registration is revoked, the broker-dealer will be unable to conduct business. In such a case, the surety bond would be used to reimburse customers for any losses they incurred as a result of the broker-dealer’s failure. The SEC requires that surety bonds be obtained from an insurer that is licensed to do business in the United States. The insurer must also be approved by the SEC.
From another site:
A Lost Securities surety bond is a bond required by banks or other financial instrument transfer agents for persons who have lost or misplaced bond or stock certificates or a payment check. The intuition/agent agrees to pay the person the value of the lost instrument or provide a replacement in exchange for a surety bond. The bond promises to reimburse the intuition/agent in the event the original instrument is found or surfaces and is sold, traded or transferred in a manner which causes the institution/agent financial loss.
These are also called Lost Instrument surety bonds.
