I love writing sub-division risks

[Riskwriter]

Seriously- This is a class of business that when I got into this industry was rather easily written, and the agency I was working for at that time saw virtually no claims occur. Then we all felt the switch of the hard marketplace, and to write a sub-division bond required, set aside letters, Letters of credit as collateral (which entirely defeated the purpose of getting a bond anyhow) and other numerious requirements (first borns blood sample etc)

Now, there are a select few markets that realize the potential of smaller developers sub-dividing for 4-5 homes. Generally, these developers have worked a large portion of their life to get their project organized - they have invested time, money and a ton of effort to allow it to just fall apart. Weather that may be due to poor financing or shotty construction- the developer has enough at stake to not just walk away from the project-unlike performance bonds. I can't tell you how many times I have seen claims arise on a standard performance job for a City/Town etc. as oposed to a claim on a new development.

Let me simply say, that there are a few markets out there that have this same philosophy- and Gold bless them as they have made our life easier. It's a shame that those markets are the only ones I have seen willing to capitalize on the situation. Well...I'm there with them.

Subdivision bonds have become a very hard bond to place in recent years, especially without collateral.

You better have sent your underwriters a big christmas gift basket if you can write subdivision with no collateral!

That we did indeed!

[BondLaw]

One of the biggest problems with the subdivision market is the resistance to bonds by many public entities. In some of the most lucrative and stable areas for development (Maryland, Virginia) a number of agencies insist on cash or an LOC and will not even consider a surety bond. In my opinion, the future for this market requires overcoming these barriers.

[Riskwriter]

I couldn't agree more. In fact we have restrictions in writing this class of business within certain counties in Virginia for that exact reason. Both Maryland and VA seem to have quite a bit of distaste for the bond guarantee as opposed to a liquid security.

What I can't seem to understand is, why would a government what the burden of holding cash, then should there be an issue regarding the development, and there is a claim- does the governing body really want the responsibility of settling a claim? I'm sure this could only further result in lawsuits and more legal fees.

With a bond, they have a 3rd party fully responsible for the completion should the developer be at fault. No where near as much hassle or legal trouble. And obviously, from the developers view, a bond means keeping working capital in his/her pocket AND it means should a problem arise, you don't have Uncle Sam holding your LC/Certified check.

Originally Posted by Riskwriter

I couldn't agree more. In fact we have restrictions in writing this class of business within certain counties in Virginia for that exact reason. Both Maryland and VA seem to have quite a bit of distaste for the bond guarantee as opposed to a liquid security.

What I can't seem to understand is, why would a government what the burden of holding cash, then should there be an issue regarding the development, and there is a claim- does the governing body really want the responsibility of settling a claim? I'm sure this could only further result in lawsuits and more legal fees.

With a bond, they have a 3rd party fully responsible for the completion should the developer be at fault. No where near as much hassle or legal trouble. And obviously, from the developers view, a bond means keeping working capital in his/her pocket AND it means should a problem arise, you don't have Uncle Sam holding your LC/Certified check.

I work for a locality that is reluctant to accept insurance bonds. If we hold a more liquid security, and the developer defaults, gaining remedy is easy- we "take" the money, contract to have the work completed, and consider the matter closed.

I am not sure how we would proceed to get satisfaction on an insurance bond. Would we have trouble getting the default condition recognized? How much control would we have over getting the agreed-upon work completed?

It just seems to me, the insurance company is going to try to hang on to the money. With cash or a letter of credit, I don't have to "go up against" a big financial entity with cadres of lawyers at its disposal.

For my city that is true as well, I've only seen once where they didn't take cash for the 10% maintenance deposit, however the rest were either true bonds, or in rare cases LOC. Anyone know how to obtain a pdf or a word doc of the most recent or fairly recent Subdivision Map Act, my most recent is 1993 and I need to do some reading this weekend for background legal info. Either that or if there's a site that shows recent years updates.

[Admin]

Is it safe to assume you are in California?

THE SUBDIVISION MAP ACT