7.2 Collateral Security and Trust Obligations

Why Collateral Rules Are Strict

Collateral is often a family's savings, car title, or home. Ohio's statute treats the agent as a fiduciary: someone holding another's property for a limited purpose, securing the surety against loss, and nothing more. Violating ORC 3905.92 is a first-degree misdemeanor (ORC 3905.92(F); 3905.99(D)). Misusing collateral is also a disciplinary ground for improperly withholding, misappropriating, or converting property (ORC 3905.14(B)(4)).

Taking Collateral (ORC 3905.92(A))

Interest-Bearing Accounts (ORC 3905.92(B))

Collateral may be placed in an interest-bearing account in a federally insured Ohio bank or savings and loan, with interest accruing to the person who gave the collateral. The agent, surety, or MGA may not make any pecuniary gain on collateral.

No Waivers, No Agreed Values (ORC 3905.92(E))

An agent or surety may not solicit or accept a waiver of any of these protections, or enter into any agreement as to the value of the collateral. A contract clause saying "the parties agree the car is worth $3,000 for all purposes" is unlawful.

Who Is Liable for Collateral (ORC 3905.92(C))

• The surety is liable for all collateral accepted by its agent.
• If, upon final termination of liability, the agent or MGA fails to return the collateral, the surety must return the actual collateral, or pay the person under the statute if it cannot locate it.
• This liability survives termination of the agent's appointment for bonds the agent executed before the termination.

Example: An agent takes a $5,000 cash deposit, spends it, and loses her license. When the case ends, the family goes to the surety, which must pay them.

Converting Collateral After a Forfeiture (ORC 3905.92(D))

When a forfeiture occurs:

1. Notice: The agent or surety gives the principal and the person who gave the collateral 10 days' written notice of intent to convert the collateral to cash to satisfy the forfeiture. The notice goes by certified mail, return receipt requested, to their last known addresses.
2. Conversion: Convert the collateral to cash within a reasonable time.
3. Accounting: Keep the face value of the bond plus the actual and reasonable expenses of conversion, and return the rest.
4. Expense cap: Expenses may not exceed 10% of the bond's face value, unless the court, on motion and proof, allows more.
5. Remission: If the court later remits a forfeiture the surety had to pay, the surety pays the collateral giver the value of the collateral received, minus the permitted expenses.

Worked Example

A $20,000 bond is forfeited, and the surety pays. The indemnitor's pledged vehicle sells for $26,000, and reasonable sale expenses are $1,600.

• Expense cap: 10% x $20,000 = $2,000, so the $1,600 is allowed.
• Surety keeps: $20,000 face value + $1,600 expenses = $21,600.
• Returned to the indemnitor: $26,000 - $21,600 = $4,400.

If the expenses had been $2,600, only $2,000 could be kept without court approval on motion and proof.

Real Property Collateral (OAC 3901-1-66(H))

When real property is accepted as collateral:

• The agent may not require transfer of title as a condition of the bond.
• The agent may require the owner to establish title and unencumbered value at the defendant's expense, together with a mortgage or other documents needed to establish the lien interest.
• The agent may not provide title, notary, or lien-filing services for a fee, directly or indirectly, and may not take anything of value for referring someone to those services.
• Return when the bond ends and the bond was not called or used:
  • Unfiled security document: stamp the original cancelled and return it within 21 days after the end of the bond.
  • Filed security document: complete a release within 21 days after the end of the bond, and give the client a copy with an official date/time stamp within 26 days.

Loan Companies (OAC 3901-1-66(G))

An agent may not be employed by, contract with, act as agent for, or own an interest in any business that lends money, or takes collateral for a loan, to post a cash bond or surety bail bond for a defendant.

Collateral Handling Checklist

• Is the collateral reasonable for this bond?
• Is it an acceptable form, and is any cash over $50,000 in the required payable-to-surety form?
• Has the giver received a numbered, detailed receipt with document copies?
• Is it held in the surety's name, separate from agency funds?
• Is any interest going only to the giver?
• Is there a return plan with dates (Section 8.3) and a 10-day certified-mail notice plan if forfeiture occurs?