Collateral, Premiums, Refunds and Recordkeeping
Collateral
Why collateral exists
Collateral protects the surety against the loss it suffers if the defendant absconds and the bond is forfeited. It is not the agent's money, and it is not a fee.
Forms and documentation
Cash, real property, vehicles, securities, and third-party indemnity are all used. Real property demands the most care: a title search for existing liens and encumbrances, an appraisal or comparable valuation, a deed of trust or mortgage recorded in favor of the surety or agent, and a written acknowledgment that the indemnitor understands the property can be lost. Every item must be described on a written collateral receipt - date, description, estimated value, and the name of the person depositing it.
Handling and return
Hold collateral in a fiduciary capacity: separate from operating funds, secured, insured where appropriate, never pledged or spent. When the bond is exonerated - the defendant appears and the case concludes, the defendant is surrendered and discharged, or the court orders exoneration - return the collateral to the depositor and record the reconveyance or release of any recorded instrument. Keeping collateral as leverage for an unrelated debt, or holding it after the obligation ends, is a breach of fiduciary duty and a discipline issue.
Traps
- Taking collateral worth far more than the bond invites claims; taking too little leaves the surety exposed.
- Accepting property with undisclosed liens.
- Failing to give a receipt, or giving one that omits the valuation.
- Selling collateral without the legal process the security instrument provides.
Rule of thumb: collateral is measured against the face amount of the bond, and it goes back - promptly and with a written release - when the bond obligation ends.
Premiums, Refunds and Recordkeeping
What the premium is
The premium is the price of the surety's risk, customarily computed as a percentage of the bond amount (10% is the familiar benchmark). The benchmark is not a license to improvise: the insurer files its rates with the Commissioner and the agent must charge the filed rate. Charging more is an overcharge; charging less, waiving the premium, or giving something of value back to close the deal is an unlawful rebate.
When a refund is due
In California practice the premium is earned when the bond is posted, so a defendant who is released and later returned to custody ordinarily gets no premium back. Refunds are owed when:
- the bond is never posted or is rejected, so no risk attached;
- the agent collected more than the filed rate;
- the charge was never authorized at all (a junk fee presented as "premium");
- the surety or the court directs a return. Keep premium and collateral distinct in your analysis: collateral is returnable; premium usually is not.
Recordkeeping
Maintain a complete file for each bond and keep it available for examination by the Department of Insurance: application and indemnity agreement, copy of the bond, power of attorney, receipts for premium and collateral, the collateral receipt, trust-account and disbursement records, and correspondence about forfeitures. Retention is measured in years (five is the working standard), and the Commissioner may examine the books at any time. Sloppy records are treated as evidence of the underlying violation.
Trap: "we charged 10%, plus a $150 processing fee that isn't in the filing." A separate charge that is really compensation for the bail transaction is premium by another name.
Rule of thumb: one filed rate, one receipt, one file - every time.