Title agents/agencies (occasionally referred to as escrow agents/agencies, abstractors, or title insurers) are typically required to hold a surety bond in order to achieve and maintain a license within their State of business. Once licensed, the title agent can proceed with securing various forms of title insurance for clients and/or prepare real estate titles for escrow. The State expects an agent to fulfill their job requirements and to follow the rules of their licensure.
Why is a surety bond needed? A Title Agent Bond acts as an extra layer of financial protection for customers of the agency, as well as the state regulator. If a license violation is committed AND compensation for the damages caused is not made, the bond may then be used as restitution by the harmed party.
So, what is Jet Insurance Company’s role? As a surety business, our goal is to provide our customers (title agents) with the licensing surety bond they need efficiently and at an affordable price. Simultaneously, we are a third-party financial resource for the benefit of the public and state regulators when things go wrong.
How to Steer Clear of a Claim on Your Bond
Title agents are responsible for researching the history of real estate properties, transferring the actual ownership of the property from the buyer to the seller, and/or providing title insurance services to the buyer.
To avoid action against your surety bond, you need to comply with the regulations of your license, perform your due diligence when it comes to title insurance, and fulfill any contractual obligations agreed upon with the clients of your business. This sounds simple enough, however, state regulations tend to be extensive and require review before title insurance services may be performed for the public.
To further understand the perils that cause a Title Agent Bond claim, look at the breakdown below.
Title Agent Prohibited Acts
The following acts can lead to an official complaint, civil action, or claim against a title agent:
- Willful misrepresentation of any title insurance policy or commitment to the customer
- Committing negligence, criminal malfeasance, embezzlement, and/or fraud
- Misappropriation or unlawful withholding of client funds
- Wrongfully instructing a consumer into an unnecessary loan
- Unlawfully rebating or dividing title insurance premium fees or any other charges
- Failure to timely submit account information to the customer and/or applicable escrow agency
Claims Process Details
Who Can File a Claim on a Title Agent Bond?
An agency’s client can typically file a claim on the surety bond at any point that the bond is active. Additionally, mandated cancellation periods of 30, 60, or 90 days extend the liability period depending on the State. This means a claim can still be filed during this window after a cancellation request by Jet to the state regulator has been made.
State regulators also have the right to file a bond claim, but this is usually on behalf of a proven damaged party. Occasionally, a regulator will take action against the bond regarding past due license fees or penalty charges but this is a rarity.
How Much Bond Coverage Is Provided?
The bond limit is typically set at a standard limit (Florida requires a $35,000 limit for all Title Agents). Sometimes the State regulator may base the bond limit on a trust account balance (Nevada does this) or other similar criteria. Either way, the sum is typically determined and/or approved by the state regulator in charge and can range from a $10,000 to $200,000 amount.
If a bond claim does occur, in no case can a single claim, or even multiple claims, exceed the bond’s limit. Once the bond amount has been “tapped out”, no further claims may be filed.
Where Does Jet Come In?
When a bond claim is made (either by a state regulator or the damaged party), the Jet team will review all available information that has been provided. It is important to note that the claim will likely have sufficient evidence backing it due to the previous investigation(s) and/or court proceedings. Regardless, Jet will look into your case for any signs of malfeasance and check to see if there is any way to resolve the issue.
If resolution by a claim payout is the only way, Jet will send funds to the damaged party. Once this has occurred, the bondholder will be expected to reimburse Jet for the claim amount paid on behalf of their transgression(s). This is part of the indemnification that is required to obtain a bond in the first place. In this regard, surety companies are more like creditors than insurance carriers.
What Would a Title Agent Bond Claim Look Like?
Suppose that we have a title agent named Jeremy King. Jeremy is hired by Sam and Helen Zell to handle the title process for a home they are purchasing. Jeremy takes full payment upfront for his services and promises that all will be ready once the property is in escrow. The time comes for the sale to be finalized, but the escrow agent reports that they have not received the proper documentation from King to transfer property rights to the Zells. Therefore, the sale cannot be completed on time, causing financial damages to the Zells while they are in limbo waiting to move in. So, what are they to do?
As for the first step, the Zell family can call Jeremy and ask for a prorated reimbursement due to his negligence (this would be the easiest way to resolve the problem and the costs can be small). If Jeremey is unable or unwilling to pay the Zells, then they may file a complaint with the state regulator that is in charge of Jeremy’s license. Once a complaint has been officially filed, the regulator’s team will look into the matter.
In some cases, the surety provider (Jet) would receive a complaint about a bondholder directly. If this occurs, our team will conduct our usual review and investigation of the accusation. Justified complaints can result in the pursuance of an official claim by the claimant; Jet will then oversee the claim process.
The regulator will review the complaint and proceed with an investigation to find proof of the accusation. This endeavor may include court proceedings. It will be up to the Zell family to show proof of payment to Jeremy, his carelessness regarding services hired, and consequent damages.
If the regulator finds the complaint to be valid, they may offer to file a claim on the Title Agent Bond on behalf of the Zells or direct the Zells to file the claim themselves.
Jet Insurance Company will investigate all claims against a bond.
In this case, the Zell family allows the state regulator to file a bond claim on their behalf that is to be sent to the surety provider, Jet Insurance Company. Once the Jet team receives the claim notification, we will proceed with our review process.
Since the regulator has done an investigation and made a judgment, the claim will likely hold up. If so, Jet is legally obligated per the Title Agent Bond form to make payment in the amount of the claim. This amount will be equal to the damages caused, but cannot exceed the bond limit. As soon as the payment goes through, the claim will be closed and Jeremy will be expected to reimburse Jet for the full amount of the claim payout.
It is important to note that each state’s laws vary slightly, so it is best to read up on these procedures for the state or states that are regulating your title agency.
Take a look at the chart below for further details on each state's bonding requirements, as well as access to contact info for every relevant state regulator.