Collateral Corner – Chapter 2

Real Estate as Collateral

Real estate is a very important source of collateral when securing the bond and/or the balance due on the premium.

When you secure the bond with collateral you have not only protected yourself financially, you have also improved the likelihood that the defendant will “answer to his charge(s)” since many (not all!) of the defendants we deal with don’t want mom to lose her home if the bond forfeits.

One size does not fit all. There is some uniformity in the law but state laws vary. Learn what is required in your state. The best practice is to hire a real estate professional, for example, an attorney or title insurance company, to prepare and record the legal documents. You will have to pay for their services but in many cases this cost can be passed to your defendant or co-signer.

Important: A recent situation involved a potential bond to be written in a bail state that would be secured by real estate in Illinois, a state that does not allow commercial bail. The question was, could an enforceable collateral interest be created in Illinois real estate under these circumstances? The answer, yes.

The steps:

  1. Verify ownership of the property.

A tax or mortgage statement provides a positive indication of ownership, but is not proof of ownership. Possession of a deed is not proof because even after ownership is transferred, you still have the deed. The only way to be certain who owns the property is to have the title searched. This can be done by a title insurance company or an attorney who deals in real estate. A title search is worth the cost.

It is critical to determine everyone with an ownership interest in the property because each person with an ownership interest must sign the deed of trust or mortgage.

  1. Verify equity in the property.

Do this with a title search that will disclose all liens against the property such as mortgages, judgments, and unpaid taxes. It is very important that you determine if there is a sufficient “cushion” in the property to cover the new debt created by the bond or premium.

  1. Preparation of the documents to SECURE THE BOND.

Two documents are necessary to create the security interest: (1) a promissory note and (2) a deed of trust or mortgage. A promissory note is required in all states but use of a deed of trust or mortgage depends upon the law of the state where the property is located.

The best practice is to have a real estate professional prepare the documents and give that person the sample document wording from this article.

  • Promissory note for the bond.

The face amount of the promissory note will be the amount of the bond. Use the following type of wording:

“… payable to Seneca Insurance Company, Inc., a New York corporation and/or Bail USA, Inc., a Pennsylvania corporation, their successors or assigns, or order. This promissory note shall be payable on demand in the event the bail bond in the amount of (insert the amount) ($xxxx) Dollars, written (insert date), in (insert jurisdiction where bond written), for (insert name of defendant), principal, is forfeited and paid. In addition, if the principal causes Seneca Insurance Company, Inc., and/or Bail USA, Inc., or their agent, to incur costs other than by forfeiture of the bail bond, such costs shall be payable on demand. These obligations are secured by a mortgage (or a deed of trust) dated (insert date), on the following property: (insert street address of property)

  • Deed of trust or mortgage that secures the promissory note. 

Every person with an ownership interest in the property must sign the deed of trust or mortgage.

Use the following type of wording:

“This deed of trust (mortgage) secures the promissory note signed by (insert name) and dated (insert date). Said note is payable to Seneca Insurance Company, Inc., a New York corporation and/or Bail USA, Inc., a Pennsylvania corporation, their successors or assigns, or order. This promissory note shall be payable on demand in the event the bail bond in the amount of (insert the amount) ($xxxx) Dollars, written (insert date), in (insert jurisdiction where bond written), for (insert name of defendant), principal, is forfeited and paid. In addition, if the principal causes Seneca Insurance Company, Inc., and/or Bail USA, Inc., or their agent, to incur costs other than by forfeiture of the bail bond, such costs shall be payable on demand.”

In the event the bond is forfeited and the money is taken from your BUF or otherwise paid by you, Seneca and Bail USA may assign the note and deed of trust or mortgage to you and then you begin the legal process to recover your losses.

  1. Preparation of the documents to SECURE THE PREMIUM.

 

  • Promissory note for the premium.

The face amount of the promissory note will be what is owed on the premium. Insert the following type of wording:

“…payable to (your company), its successor or assigns, or order. This amount shall be payable in the following manner (specify payment amounts, dates and interest rate and where payments are to be made). This obligation is secured by a mortgage (or a deed of trust) dated (insert date), on the following property: (insert the street address of the property)

  • Deed of trust or mortgage to secure the promissory note.

Insert the following type of wording:

“This deed of trust (mortgage) secures the promissory note signed by (insert name) and dated (insert date). Said note is payable to (your company), its successor or assigns, or order.”

  1. Give copies of the note and deed of trust or mortgage to the person(s) who has signed and is obligated.

 

  1. If required to do so, send copies of these documents to Bail USA.

 

  1. You keep the original note in a secure location.

 

  1. Take the original deed of trust or mortgage to the clerk of court’s office in the jurisdiction where the property is located and pay the appropriate fee to record the document. This is very important because the general rule of priority is “First in time, first in right.” This means that if your documents are signed today and my documents for the same property are signed next week, if I record my deed of trust or mortgage before you do, I have a claim to the property superior to yours.

 

  1. a.         When the obligations are satisfied, that is, the bond is exonerated and/or the balance of the bail premium has been paid, write “Paid in Full” on the face of the original promissory note, and right after that place your signature and date and then return the original note to the person(s) who had signed. If the note is in favor of Seneca and Bail USA, send the original note to Bail USA and it will be marked “Paid in Full” signed, dated and then returned to the person(s) who had signed.

 

  1. The deed of trust or mortgage is released by filing what is commonly called a Certificate of Satisfaction in the clerk of court’s office in the jurisdiction where the property is located. This step is very important because it releases this lien against the property. It is best to have a real estate professional do this. The Certificate of Satisfaction is then mailed by the clerk to the property owner(s).

Profitable, long-term operation in the bail profession requires that you be cautious and selective in determining which bail to write. The best practice will be to decline that big bond that cannot be adequately secured by hard collateral such as real estate. If you are fortunate and there is adequate collateral to secure the bond and/or unpaid premium, make sure that you follow the proper legal procedures so that you have an enforceable security interest.