Surety Bond News

Texas debt management service providers must follow new surety legislation. The new law is titled SB 141 and requires debt management service providers to obtain a surety bond in a quantity equivalent to the average daily balance of the trust account holding funds for Texas consumers over a six-month period before the bond is issued. SB 141 states that the initial surety bond must be $50,000 if the provider doesn’t hold money paid by a consumer for distribution to creditors. The new law also requires the surety who writes the bond to be “A-” rated from a nationally known rating service.

Mortgage loan originators must abide by a new law in the state of Texas. The new law is named SB 17 and requires residential mortgage loan servicers/mortgage loan originators to register with the state; in order to do so they must obtain a surety bond of no more than $200,000. Should the servicer’s volume of sales be less than $1 million per year, then the bond amount is capped at $25,000. In the past Texas mortgage loan originators were not required to obtain surety bonds.

Legislatures in Texas have enacted a new law directly affecting the surety bond industry. When one looks at the changes included in the bill, it’s hard to see what it actually accomplishes; it raises the question of whether the legislators writing laws affecting the world of surety have adequate knowledge of the industry.
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Good quality work can be hard to find in these modern days; it seems like businesses often cut corners to save money, out of convenience, or just out of pure laziness. The City of El Paso, Texas has had one too many run-ins with unreliable construction contractors and is making changes to put a stop to it.

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Many skaters in San Marcos, Texas were not pleased when a contractor that was supposed to construct a skate park in the city fled the skeleton of a potential park. Fortunately for the city and skaters a like a surety bond was in place incase something like this occurred.

A large crater in the ground with exposed grids of metal rebar was supposed to be a skate park including large bowl and pool-like concrete structures, but development on the park halted last year because the contractor “basically was not able to complete the job”, city Officials said. City attorney Michael Cosentino said San Marcos has made a claim on the performance bond while obtaining a replacement contractor to finish the job. Kristy Stark who is the public information specialist for the Capital Improvements Program, said the contractor never gave notice that the company wouldn’t be able to finish the job. Luckily, DAVCAR Engineering Services, the design engineer for the project, suggested that the city file a claim “due to the contractor’s unsatisfactory progress.” The claim was filed against the performance bond which was written by Western Surety Company.

When this contractor abandoned the skate park job, it demonstrated how important a surety bond can be regarding construction projects. If a performance bond wasn’t obtained for the job, the city would be stuck with the responsibility of funding the rest of the skate park or just be forced to forget the project altogether. Since a performance bond was in place guaranteeing the work, the surety who wrote the bond will finance the rest of the incomplete job; in turn the surety will put a claim out on the contractor who deserted the job. When a city gets stuck with the bill for an incomplete job because it wasn’t protected with a surety bond, so does the public within the Commonwealth being the city will most likely dip in to tax dollars to fund the rest of the job. The performance bond is protection not only for the obligee, which in this case is the city of San Marcos, but also the public within the city.

“The additional cost to complete the work is being borne by the bonding company, not the city. The bonding company is taking up the difference,” Cosentino said.

There are many questionable contractors and companies lurking around; it’s hard to know who will perform faithful work. A surety bond can help ease any worries when it comes to ensuring all sorts of services, including construction projects. The City of San Marcos played it safe; when in doubt, secure a bond simply because it will guarantee the services agreed upon.