Collateral, Indemnity, and Recovery
Core Concepts
Collateral is property or money pledged to secure the bond. Bail agents must understand collateral receipt requirements, valuation of collateral, and safekeeping rules. Under Arizona law, collateral must be held in trust and returned upon exoneration, less any lawful fees. The indemnity agreement is the surety’s primary recovery tool; it allows the surety to pursue the defendant for any amounts paid on the bond. Recovery may also involve skip tracing to locate the defendant, surrender, and asset investigation. Know the difference between indemnity (reimbursement) and subrogation (stepping into the court’s shoes). Also, understand that collateral cannot be used to pay the agent’s fees unless specified in a written agreement.
Traps
A common trap is assuming collateral can be kept indefinitely-unclaimed collateral must be returned or escheated under Arizona’s unclaimed property laws. Another trap: confusing indemnity with insurance; indemnity is a contractual promise to reimburse, not a policy. Also, do not confuse recovery (getting money back) with exoneration (release from liability).
Worked Example
A defendant posts a $10,000 cash collateral. The bond is exonerated, but the agent deducts a $1,000 fee per the signed agreement. The agent must return $9,000. Rule of thumb: Return collateral promptly upon exoneration, minus only agreed fees.
Key Exam Points
- Collateral must be held in trust and returned upon exoneration, less lawful fees.
- Indemnity agreement allows the surety to recover from the defendant.
- Subrogation allows the surety to pursue third parties.
- Unclaimed collateral may be subject to escheat laws.
- Skip tracing and surrender are key recovery tools.