Surety Bond Regulations: A surety bond is required in a variety of situations involving contracts, commercial activity and licensing. With regard to broker surety bonds, there are three categories of bonds: freight broker bond, insurance broker bond, and mortgage broker bond. Each category of broker bonds is regulated under different laws. The freight broker bond is regulated by federal law, and insurance broker and mortgage broker bonds are regulated according to each state’s own law. Freight Broker Bond The Federal Motor Carrier Safety Administration (FMCSA) requires that every freight transportation operation that involves a property broker obtain a Freight Brokers Bond (known as “BMC-84”) from a qualified surety. The bond must be for $10,000 and the FMCSA will refuse to license anyone as a property broker unless such a bond is in effect. A property broker’s license is only in effect so long as the surety bond remains in effect. If a property broker does not qualify for such a bond, the FMCSA will accept as an alternative a trust fund for $10,000 with a qualifying financial institution, called a BMC-85. Insurance Broker Bonds Regulation of insurance companies is generally done at the state level, and requirements for insurance broker bonds will be found at the department of insurance of each state. Although regulations will vary from state to state, insurance broker bonds are generally required to protect any member of the public who may be wronged as a result of action by a licensed insurance broker. Each state will specify its own requirements for total bond amount, as well as specific language for the bond. If the insurance broker desires to conduct business in more than one state, he will have to obtain a separate bond in each state. Mortgage Broker Bonds Like insurance bonds, mortgage broker bonds are regulated at the state level and each state will have its own set of rules and regulations. Mortgage brokers doing business in more than one state will likewise have to obtain a separate bond in each state. The purpose of the mortgage bond is to ensure that the broker will follow state law and the bond is posted as a condition of obtaining a license to operate his business. The requirements of each state’s mortgage bond will specify the state laws being guaranteed by the bond and the penalty amounts for any violation. Most reputable surety companies will maintain a ready list of each state’s requirements for mortgage broker bonds.
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