Surety Bond News

The state of Virginia has updated the bond requirements for tobacco manufacturers. The new bill is titled SB 1268 and changes the bond requirement by having tobacco manufacturers calculate the bond amount by the highest amount of sales in a year. The old law calculated the bond amount using the previous year.

Virginia State legislators seem to be rather lax when it comes to public funds within their state. They recently proposed a new law that will heavily affect both the construction industry and taxpayer’s alike. The potential new law, which is named HB 1951 Public Procurement Act, boosts the minimum contract amount required for bid, performance, or payment bonds from $100,000 to $500,000. This means jobs that fall under $500,000 are not required to obtain a surety bond to guarantee their work; it’s risky business for both contractors and taxpayer’s.

When it comes to trying to rationalize the proposed bill, it does give previously unqualified contractor’s more opportunities to work on bigger jobs that formerly required a surety bond. But whose interest does that serve? Just because some contractors may not have been able to qualify for Performance Surety bonds doesn’t mean it’s a clever idea to raise the minimum contract amount so they have more chances to work on larger projects. There are reasons why certain contractors that weren’t underwritten by a bonding company didn’t qualify to attain a surety bond. I will agree that surety underwriting is rather conservative these days, but that only lends to an environment of financially sound contractors getting good public work.

HB 1951 is essentially lowering the bar to put contractors who have contracts under $500,000 free of having to post a surety bond; the bond as you might know, would guarantee the completion of the job while protecting public funds should a contractor default. Let’s remember, we as Americans pay taxes that run to the State and Federal level who end up paying these contractors on public jobs. The whole point of the bond is to guarantee the work being done on any given job. Let’s say a contractor does default on a project that was protected with a surety bond, the surety company backing the bond would pay out for the remainder of the uncompleted work so no one is stuck with a half completed building, stadium, parking garage, etc. This new enactment prevents the pay out from happening on contracts up to $499,999 simply by raising the minimum contract amount that requires a surety bond; that’s a large amount of taxpayer cash being gambled with.

Plain and simple, the point of a surety bond is to guarantee something. In this case, it’s to guarantee the success of a construction contract. The HB 1951 Public Procurement Act that changes the surety bond requirements threatens taxpayer’s dollars and future construction projects.

Motor vehicle title lenders in Virginia State are affected by a new bill which is referred to as SB 606. The new bill requires motor vehicle title lenders to acquire a surety bond in a quantity of $50,000 for each location, but cannot surpass $500,000. The surety bond is conditioned on the licensee executing all written agreements with borrowers correctly accounting for all funds accepted by the applicant or licensee in its licensed business; including cooperation with all pertinent legislation relating to operating their business. SB 606 authorizes direct actions on the surety bond, but the surety’s aggregate liability is restricted to the surety bond quantity.

SB 606 is a new law that was presented in Virginia State concerning motor vehicle title lenders. The new law requires motor vehicle title lenders to be licensed and to acquire a surety bond in the quantity of $50,000 for each location, but can not surpass $500,000. Initially, the bill would have required a surety bond in the quantity of $10,000 for each location, not to surpass $50,000; the bill was exchanged for a larger surety bond. The surety bond would be conditioned on the licensee executing all written agreements with borrowers or potential borrowers, properly and accurately accounting for all funds received by the applicant/licensee in its licensed business, and the cooperation with all related legislation in managing their business. The bill would authorize direct actions on the surety bond, but the surety’s aggregate liability would be restricted to the surety bond quantity.

HB 2031/SB 1171 is new legislation that was enacted relating to mortgage originators in the State of Virginia. The new legislation adopts the federal S.A.F.E. Mortgage Licensing Act; which includes the federal definition of a mortgage originator and requires such individuals to acquire a surety bond if the mortgage originator is not a member of staff or exclusive agent of a mortgage broker or a mortgage lender. The mortgage originators that are the employee or agent of a lender/broker have to be covered under their employer’s surety bond. The surety bond has to be in a minimum amount of $25,000 or a larger sum that the Commissioner of the Bureau of Financial Institutions establishes that is calculated by the sum amount of mortgage loans originated in the preceding calendar year. The present law requires a surety bond in the quantity of $25,000 for mortgage brokers and lenders, and this new law states that those bonds may be utilized to fulfill the new bonding requirements if the quantity agrees with the schedule that the Commissioner will promulgate. HB 2031/SB 1171 provides for direct actions on the individual mortgage originator’s surety bond, but restricts the aggregate liability of the surety to the penal sum of the bond. Present law includes these same requirements for the existing mortgage broker and mortgage lender license bonds. The new legislation also states that the mortgage originator’s surety bond will be conditioned on the execution of all written agreements with borrowers or prospective borrowers, the accurate and exact accounting of all finances received in the course of the licensee’s business procedures, and conduct in compliance with the new law and all applicable laws and policies.