Bond claims present a serious road-block to all areas of your mortgage career: your financial stability, your ability to be trusted, and your reputation. Follow the guidelines below and you should be bringing in the clients, not bringing in the claims.
#1: Understand What Your Surety Bond Is (And Is Not)
The first step to avoiding surety bond claims is to understand the language of your bond. Put simply, a mortgage bond is a type of license and permit surety bond that protects your clients from dishonest or unethical actions performed by you or your company. If you or your company do not live up to your obligations to your client, then your client is protected and they will be compensated for any losses incurred.
Understanding the fine-print of your bond, including the specifics of your surety bond indemnity agreement, who is protected by the bond, and what happens if a claim is made against you, are all important and vital aspects to fully understand before doing business.
Understanding what your bond is not is an often overlooked concept. One common misconception is that surety bond is insurance for your business. This is not the case. Surety bonds do not protect your business. Instead, they protect your customers. Make sure you are familiar with the obligations you are held liable for under your bond contract.
#2: Know Your State and Federal Rules and Regulations
Every state has different mortgage bonds, different bond amounts, and different rules that apply to their bonds, such as when you can/can’t cancel them. Some states don’t even require a mortgage bond and instead require mortgage loan originators to contribute to a state recovery fund every year.
The Surety & Fidelity Association of America created a surety bond requirement chart for mortgage brokers and mortgage bankers. Pay specific attention to your state’s bond amounts and the time requirement for cancellation of a bond. You can get slapped with a bond cancellation penalty fee if you break the terms of your bond and do not follow proper protocol for cancelling your bond the right way.
#3: Know Who Can File a Claim Against You
Any customer you work with can file a bond claim against you. The state you are licensed in can also file a claim against you. In rare cases when you have committed a violation of your obligations, other parties who have been affected can also file a claim.
Though any of these parties can make a claim against you, it takes more than just a simple phone call. There is a surety bond claim process that must be followed. In some cases, a bond claim may be taken directly to court. Don’t think that just because the process is not quick and simple that a claim will never be filed against you. When you are dealing with people’s money, claims are definitely possible.
#4: Be Clear With Your Customers
No, not as clear as mud. As clear as possible. Make sure you are speaking their language. Avoid mortgage jargon that might get misconstrued. If a customer gets angry with you because of a misunderstanding, try to work out the dispute, even if the customer is demanding. Working out the dispute, no matter how much it takes, will always be less of a hassle than dealing with a bond claim.
#5: Stick To The High Road
Probably the best action you can take to avoid bond claims is to take the high road in your business transactions, and stick to it all the way through. An honest approach to doing business might be harder at times, but when you think about the cost of bond claims, an honest approach is the only approach.
The most common reasons for claims against mortgage brokers are related to fraud and abusive practices such as:
- Intentionally providing your clients with a mortgage that they cannot pay for
- Convincing borrowers to choose high-risk loans
- Manipulating your fees, or the buyer’s interest rate
- Encouraging fraudulent practices to your customers during their application process
If A Claim Is Filed Against You
When a bond claim is filed, your surety provider’s first step is to investigate. This investigation should be carried out in a timely manner, but even so, it can be stressful and leave you financially damaged. Be patient during this time; a pending claim does not necessarily mean it will be valid. If a claim is determined to be valid, you will be reminded of your obligations under the indemnity agreement of the bond and given the opportunity to satisfy the claim first.
In some cases, your mortgage license might be revoked due to a valid claim on your bond. Even if this doesn’t happen, a claim on your bond is not good. It is like a ticket or arrest on your record; it stays. Trying to obtain a surety bond in the future will be harder if you have a claim on a past surety bond.
Do You Need a Mortgage Bond?
If you don’t have a mortgage bond yet, why not try Surety Solutions? We offer mortgage bonds for individuals and companies. We have relationships with over 30 of the best insurance companies, so you can be sure that you are getting the best rate out there.
Want to know what you would pay for your mortgage bond? Try the Bond Cost Calculator, a free tool that generates instant quotes for you, no log-in or purchase required.