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Subdivision Bonds

Subdivision Bond

The total number of housing units in the United States has grown from around 78 million in 1975 to nearly 140 million in 2019. The almost two-fold increase in the number of units includes a number of subdivisions. As builders continue to break ground on new ones, they will often need to secure a Subdivision Bond as part of the process. The following guide answers all the most common questions about this specific type of surety bond.

What is a Subdivision Bond?

A Subdivision Bond is a type of Contract Performance Bond that some state governments and municipalities require of landowners to make improvements to land within a subdivision, such as improving electrical lines, sewer, sidewalks, gutters, grading, etc.

The Subdivision Bond covers every aspect of construction, guaranteeing that the required improvements are completed properly, and in a timely fashion. If construction does not meet those standards, the state government or municipality that requires the surety bond may file a claim against it for damages. Provided the claim holds up under investigation, the party that filed the claim is guaranteed a settlement. Likewise, the party that caused the claim (the landowner) is guaranteed to be held financially liable.

Who are the parties in a Subdivision Surety Bond

Unlike a typical insurance agreement that involves two parties, there are three parties involved in a Subdivision Bond:

  • The principal is the landowner who purchases the surety bond to guarantee financial liability. The bond agreement compels the principal to pay for any claims filed against the surety bond.
  • The obligee is the public agency that requires the principal to be bonded. The obligee also has the right to file claims against the surety bond seeking financial compensation for damages caused by the principal.
  • The surety is an underwriter who issues the Subdivision Bond. The surety agrees to settle any valid claims, essentially guaranteeing payment to obligees, but the surety does not accept the financial loss. The final financial responsibility to claims always resides with the principal, who must pay the surety back whenever it steps in to settle claims.

How Much Do Claims Cost for Subdivision Bonds?

The answer to that question depends on who is paying. When the surety settles a claim with the obligee, the surety will pay the exact amount of the claim up to the bond limit. When the principal repays the surety for a settled claim, however, interest and fees are included in the amount. The interest total depends on the duration of the unpaid debt, while the fees are equivalent to the costs the surety incurred to investigate and administer the claim. A principal can avoid paying interest and fees to the surety by settling claims directly with the obligee.

Are There Other Names for Subdivision Bonds?

You may hear this type of surety bond go by a different name because the Subdivision Bond definition encompasses a range of potential projects and contractual agreements. The concept is the same in all cases: the surety bond holds the principal financially accountable for any breach in the terms of the bond. However, the title of the specific surety bond and the details of the arrangement may differ slightly. Subdivision Bonds are also known as:

  • Developer Bonds
  • Land Improvement Bonds
  • Site Improvement Bonds
  • Plat Bonds
  • Completion Bonds
  • Performance Bonds

What's the Difference Between Subdivision Bonds and Performance Bonds?

One major difference between Subdivision Bonds and traditional Performance Bonds is that the principal of the Subdivision Bond must pay the cost of building the bonded improvements rather than the obligee, no matter who the principal is. Traditionally, the owner or developer will secure the bond for construction. However, if a contractor agrees to secure/post the Subdivision Bonds on behalf of the owner, then the contractor will be obligated to complete the improvements and pay all the bills whether or not the owner pays the contractor.

When Do I Need a Subdivision Bond?

Most local government agencies require a Subdivision Bond before allowing landowners to start work on a subdivision development project. Failure to secure a surety bond can make it impossible for a project to proceed legally, which emphasizes the importance of seeking out a bond as soon as the requirement becomes apparent. There are no benefits to waiting but significant penalties for delaying too long. You can receive a quote for a Subdivision Bond in as little as 24 hours by working with Viking Bond Service.

Why Do I Need a Subdivision Bond?

Subdivisions are a growing construction segment, and because of that, government agencies require bonds on subdivisions to ensure that project expectations are met. The Subdivision Bond holds developers accountable to build and/or renovate important public systems to meet local specifications, including sidewalks, electrical lines, and sewage systems. Accountability helps the obligee feel more confident about entering into a contract with the principal, which ends up leading to more work for contractors and construction companies that serve subdivisions. Bonding can feel like an unwelcome obligation, especially when the principal shoulders the cost of the bond and the responsibility for claims. In practice, though, surety bonds benefit all parties involved.

Benefits for the Obligees:

  1. In the event that the developer fails to complete the subdivision project, the surety will provide the harmed parties with money to complete the project. The surety then requires the principal to reimburse them for all money paid out.
  2. Subdivision Bonds allow the developers to file plans with the county or city before completing construction of the development.

Benefits for the Principal:

  1. The willingness and ability to secure a Subdivision Bond makes a landowner or construction contractor appear more trustworthy and, therefore, a more reliable person to work with.
  2. Subdivision Bond requirements help to keep unscrupulous parties out of the industry, creating more work for reputable contractors and less hesitancy on the part of the obligee.

How Much Are Subdivision Bonds Written for?

The amount of the Subdivision Bond is calculated based on the estimate of the project costs. A surety will not settle claims beyond the amount of the beyond - eg. they will pay up to $100,000 to back a surety bond of the same value.

How Much Do Subdivision Bonds Cost?

The cost of your Subdivision Bond will be based on:

  • The contract size and terms
  • The dollar amount of the bond requested
  • The work record of the principal developer
  • The credit score of the principal developer
  • Other financial qualifiers from the principal contractor

The premium will usually be around 3% of the bond amount. To find out how much your Subdivision Bond will cost, contact Viking Bond Service to request a quote today. Thanks to our national reach, abundant connections, and extensive in-house resources, we can help you find a subdivision surety bond at a competitive rate - in under 48 hours.

Can You Get a Subdivision Bond With Bad Credit?

Surety companies evaluate bond applicants based on their financial fitness. Applicants with a low credit score or a blemished financial record might discover that some surety companies won't offer them a bond at any price. Because of mistakes in the past, these applicants are seen as too risky to work with at all. It may be harder to get a bond with bad credit, but it's not impossible with the help of Viking Bond Service. Take advantage of a program we created to help more people get bonded regardless of their credit.

What Do You Need to Secure a Subdivision Bond?

Typically, Subdivision Bonds require:

  • A background and financial information check
  • Verification of the developer's capacity, experience, finances, and character
  • Credit check
  • Bond application
  • Scope of the project information
  • Costs of the project
  • Source of funding

For certain projects you may need to produce:

  • Three year-end financial reports
  • Personal financial statements for each owner
  • Key people information
  • Project completion history
  • Banking relationships
  • Business plans
  • Any applicable partnership, trust, or operating agreements.

A Viking agent will let you know exactly what is needed to get your specific Subdivision Bond quoted and processed.

Get Your Bond Fast

Subdivision Bonds are complex and require a thorough application process. However, we at Viking Bond Service are on your side to help you process your bond as quickly as possible, sometimes within just a few days. As a nationwide surety, we work with contractors and project owners across the country, and we've been involved with subdivision projects in numerous states. Thanks to that experience, we know what obligees are looking for in a bond agreement (i.e. subdivision and performance bonds) and what principals want from the bond process. Contact Viking Bond Service to get your Subdivision Bond process started.

Three Easy Ways to Request a Subdivision Bond Quote Today:

You can call us at 1-888-278-7389 to speak directly to one of our surety bond specialists. You can also fill out the contact form on this page with any questions or requests you may have. Or you can request a quote here and we'll contact you to get the process started. No matter how you choose to make contact, count on Viking Bond Service to meet all your needs and exceed your expectations.

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