There are three parties involved in a surety bond. The first is the obligee which is the principle which is the person who needs to obtain a surety bond. The second party is the surety whose role is to ensure that the principal can complete the task for which the surety bond is needed. The third party is the obligee who is the entity that needs the principal to do work for them.
If the principal does not satisfactorily complete the work for which they needed a surety bond than they have to pay out the limit of what the surety bond’s face value is. This is often $5,000 but can be more or less depending on the nature of the work that needs completion. This protects the obligee from financial harm if the principal does not fulfill the terms of the contract they signed.
Surety bonds have been around since at least 2750 BC. Surety bonds were included in the Code of Hammurabi as well as multiple civilizations such as Rome, Persia, and Babylon. In the corporate world, they have been used since 1840, first being used in England. The U.S. Congress started requiring surety bonds on all federally funded projects beginning in 1894.
Each state’s insurance commissioner oversees their states surety bond market, including surety bonds Scottsdale AZ. Contract surety bonds are regularly used in the construction industry. General contractors are often required to have a surety bond by the people and businesses who use their services. This can include different types of surety bonds such as performance bonds, bid bonds, and maintenance bonds.
It is often the case that there are city, state, and/or federal rules that business owners need to have a surety bond in order to become licensed. These are called either license bonds or permit bonds and guarantee that the business will do what they say they will do. There are other types of surety bonds might have to get as well such as tax bonds for those companies that need to remit sales tax to their city or state government.
Bail bonds are only used in the United States. These types of bonds are often required before a person is let out of jail after having been accused of committing a crime. A bail bond is meant to ensure that a person who has been released will show up for any future hearings before a judge. If the accused person doesn’t show up the surety bonding agency will try to track them down so they don’t have to pay out on the bond.
The recently passed credit freeze legislation affects surety bonds.
The surety bonding company needs to see the credit history of anyone applying for a surety bond. For this reason, if a person is seeking to become bonded and has a credit freeze in place they will need to temporarily remove it. After the surety bonding company has run the credit the person can then refreeze their credit history with the three credit reporting agencies.