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As a broker or lender, you must furnish a surety bond in support of your state license to protect against any violation of the state’s rules, regulations, or statutes by your business. But what about you? Aren’t you and your business entitled to this protection too? We think you are, so we’ve developed a bond to do just that!
Your business could be held liable for financial obligations to third parties that result from a loan originator’s violation of the state’s rules, regulations, or statutes. In most states, your loan originators (LOs) are covered under your license bond required by the state, so you are ultimately responsible for the acts of your LOs and any resulting financial obligations.
So how do you protect yourself? By instructing your LOs to provide you with an Individual Loan Originator Bond available exclusively through Scott Bond Services.
What protection is provided?
Generally, this bond offers you protection in the event a financial obligation is imposed on you as a result of an LO’s violation. The bond covers an individual LO for a specified amount for violations under a specific state license for a specified period of time. It is offered in increments of $25,000 and $50,000 and coverage is subject to a relatively small retention amount, i.e. the business is responsible for this before coverage would apply. Violations of state rules, regulations, or statutes are covered. The violation must have occurred under a license in the covered state while the bond was in force. While fines and penalties are covered, legal expenses are not. It must be clear that the violation is a result of the LO’s actions, i.e. if the business, management, etc. is implicated or found to condone the violation, the bond will not respond. We can provide a specimen bond form for review upon request.
Wouldn’t insurance coverage apply?
It’s theoretically possible, but not likely. Your general liability insurance would not extend to this sort of situation. You may have E&O insurance, but it will apply only if the act is an unintentional error, and even then, coverage is typically limited by a myriad of exclusions. You may also have fidelity coverage, but it is designed to guard against direct loss stemming from employee dishonesty, embezzlement, etc. and is unlikely to help with this type of loss. None of these policies are likely to respond to fines or penalties imposed by regulators, and these items have become much more significant in recent years.
Are there any limitations on claims?
The violation must result in a court judgment against the covered business or a written demand on the covered business by a state regulatory agency. The surety must be notified within 60 days of said judgment or demand. A claim could be made after the bond has expired, but it must be made not more than 36 months after the violation.
What is the process for obtaining these bonds?
You instruct your LO to obtain the bond from us specifying the state, bond amount, & retention (bond amount/retention/premium options are outlined on the application). They begin the process by completing and faxing back the application (see link below) along with a copy of their resume. Typical underwriting consists of the app, the resume, a NMLS check, and a credit check. Once their application is approved, the bond will be sent to the originator for signature and delivery to you. The billing will also go directly to the originator, so there’s no cost to you!
Click here for our Individual Loan Originator Application
Click here for Other FAQ
Scott Bond Services 800.365.0101
Fax 434.832.2287
Primary Contacts
Cary McFadden 434.832.2111 cmcfadden@scottins.com
Joanna Carson 434.832.2293 jcarson@scottins.com
Steve Dolin 434.832.2198 sdolin@scottins.com
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