Effective January 1, 2016, escrow companies must file a surety bond with the Financial Institutions Division of the New Mexico Regulation and Licensing Department. SB 412 increased the minimum amount for the surety bond from $50,000 to $100,000, while removing the option to post an employee dishonesty bond. It also eliminated the option for escrow companies to post a $50,000 cash deposit in lieu of the surety bond. Here is a quick guide for New Mexico escrow companies to learn about the purpose and details of the new requirement.
What does this bond do?
This bond holds the principal (escrow company) liable for fraudulent or otherwise unlawful business practices. Any escrow company that violates the Escrow Company Act (Chapter 58, Article 22 of the New Mexico Statutes) is subject to claims filed against this bond. The surety will cover damages up to the penal sum of the bond if the claim is found to be valid. In this event, the principal would have to compensate the surety company with the equivalent amount of money in a timely manner. Violations of this act include the following business practices:
- operating without a license
- advertising escrow business without a license
- accepting escrow instruction with a blank to be filled after the signing of the escrow instruction
- failing to fulfill the escrow services according to the written escrow instructions
- refusing parties of the escrow transaction access to the records of the transaction
- failing to distribute funds according to escrow instructions promptly (no later than five days from final payment)
For a comprehensive list of licensing requirements and authorized actions for New Mexico escrow companies, read through the Escrow Company Act.
What is the fine print of the bond?
As mentioned previously, the new minimum amount for this bond is $100,000 (up from $50,000). This bond expires when the principal’s license is withdrawn or revoked. This bond remains in full force and effect for the duration of the principal’s license. If the surety wishes to terminate the bond, it must send a 30-day notice to both the principal and the director of the Financial Institutions Division. The surety remains liable for any claims filed against the bond during this period. In no case can the aggregate liability of the surety on the bond exceed the penal sum of the bond. If a claim is filed against this bond, the principal and surety must give written notice of the action to the Financial Institutions Division within 10 days. A copy of the escrow company surety bond form can be found here.
Photo Courtesy teofilo (CC BY 2.0)
