What Are Lost Note Bonds and When to Use One?

Lost trust deed bonds, also known as lost note bonds, are a type of surety bond usually required by Title companies. If you have paid off a loan, but do not have a deed of reconveyance or the lender that placed the Deed of Trust on your property cannot be found or has gone out of business, you may be required to obtain a lost note bond in California.

*A deed of reconveyance is a legal document that transfers the property title from the bank or mortgage holder back to the borrower after the mortgage has been paid off. This document effectively removes the lender’s claim on the property title, thereby establishing the borrower as the sole owner of the property.

Usually, a lost note bond is recorded on title with the recorder or county clerk in the county where the property is located. The term of lost note bonds is three years.

There are three parties in a surety agreement-the principal- the party that is required to obtain a bond, the obligee-the entity that requires the surety to buy a bond (can be a title company, bank or any other financial instrument transfer agent), and the surety- the entity (in most cases, a surety company) that issues and guarantees the bond.

What Purpose Does a Lost Note Bond Serve?

A lost note bond in California enables the transfer of property title while guaranteeing financial protection to the title company and the lender in case an original unpaid lost / misplaced note surfaces (claimed to have been paid off). It protects the title company or financial institution from potential liabilities that could arise if the original deed is recovered in the future and found to be unsatisfied.

How Much Does a Lost Note Bond Cost?

Bond rates can vary depending on-a)- the age of the note, and b)-whether the principal has solid evidence to prove that they had paid off the loan. If you need a lost note bond and have undeniable evidence that you have paid off the loan, expect to pay 1-2 percent of the bond amount. Lost note bond premium usually starts from $100. If the note hasn’t been paid or you don’t have credible evidence to support your claims, you may be required to pay 4 percent of the bond amount or possibly give collateral.

Does a Lost Note Bond Have to be Renewed?

Usually, lost note bonds do not have to be renewed. Unlike many other types of surety bonds that must be held indefinitely, lost note bonds have a three-year non-renewable term.

How to Obtain a Lost Note Bond?

First, choose a reputable surety company equipped to meet your needs. Once you have selected a surety, you will be required to apply for a lost note/trust deed bond by filling out and sharing a surety bond application with the surety company. When filling out the application form, make sure you provide a statement of fact regarding the circumstances and whether or not the loan has been paid in full as well as any available evidence. Additionally, depending on the bond amount, you might need to submit your financial statements.

Here are some other documents you are required to attach with your application:

➢ A copy of preliminary title report
➢ Proof of payment-can be canceled checks or escrow statement
➢ Copies of quitclaim deeds or grant deeds (if applicable)
➢ Information regarding due diligence to find the lender.
➢ A declaration pursuant to California Civil Code 2941.7 (b)

How long it takes to get a lost note bond depends on the bond amount. If the value of your bond exceeds $100k, you can expect the underwriting process to last longer.

Tips to Avoid Claims on Your Lost Note Bond

Before signing on the dotted line, take the time to understand contract language. If you have any questions or do not understand a contract term, reach out to the surety. Try to understand your rights and responsibilities as a principal. To avoid claims, follow the surety’s instructions and carry out your duties if you find the original document.

If unfortunately, a claim is filed against your bond, do not panic. Communicate effectively with the surety and cooperate during the investigation. Most importantly, be honest and do not try to hold back information.

H.M. Vreeland is a trusted surety company serving businesses and individuals in California. We provide our clients with guidance every step of the way, helping make the process of obtaining a surety bond as hassle-free as possible. To make an appointment, call (415) 566-3401.