Market Place

[Harley]

Why does the market place effect the way in which a sub-division bond can be written?

[marietta68]

Originally Posted by Harley

Why does the market place effect the way in which a sub-division bond can be written?

The "market place" generally refers to the economy in general. Thus, a bond that guarantees completion of a particular project - regardless of how it may be impacted by the economy, not to mention other factors, can be a hazardous obligation. Subdivision bonds aren't cancellable, and the obligation continues until the bond is released after successful inspection by the county or city engineers.

[Bond Magician]

Marietta,
How come subdivision bonds cannot be cancelled?

[marietta68]

The bond forms contain no cancellation provision - the obligation is to complete the work as required to record the subdivision in the jurisdiction's legal land records. The surety's inability to terminate its liability is why the bonds are so carefully underwritten. Keep in mind that no one is paying the subdivider to perform - he's responsible for the project's financing. If funds run out, if his lender pulls the plug, if one of his contractors starts filing liens, if he can't sell the lots - dozens of "ifs" - he may find it difficult to complete the sidewalks, the paving, the landscaping, etc. It can get ugly and very expensive for the bond company.

[Surety Queen]

Originally Posted by marietta68

The bond forms contain no cancellation provision - the obligation is to complete the work as required to record the subdivision in the jurisdiction's legal land records. The surety's inability to terminate its liability is why the bonds are so carefully underwritten. Keep in mind that no one is paying the subdivider to perform - he's responsible for the project's financing. If funds run out, if his lender pulls the plug, if one of his contractors starts filing liens, if he can't sell the lots - dozens of "ifs" - he may find it difficult to complete the sidewalks, the paving, the landscaping, etc. It can get ugly and very expensive for the bond company.

Marietta68 is so right - these bonds are always a challenge at renewal time. The only way for Surety to release the bond is if they receive, in writing, a copy of the municipality's resolution indicating that they have accepted the work as completed and that THEY release the bond. Very tricky to get this in time to avoid renewal premiums because the municipality's engineer has to do an inspection and make his recommendation in time for the monthly (?) meeting to have the recommendation accepted.