What Is a Lost Note/Instrument Bond?

If you have lost or misplaced a financial certificate, you may be required to secure a lost instrument bond (also known as a lost note and lose deed bond) before issuing a replacement or being able to proceed with a financial transaction. A lost note bond in California is a type of surety bond. When you secure a lost note bond, your financial institution is protected if the original document is later found.

There are three parties involved in a lost instrument bond: the Principal, Obligee, and Surety.

• The Principal is the party that secures the bond
• The Obligee is the financial institution that issued the certificate
• The Surety is the party that issues and guarantees the bond

Your bank may require you to obtain a lost note if you lose any of the following documents:

➢ Cashier’s checks
➢ Property deeds
➢ Stock certificates
➢ Life insurance policy document
➢ Car title
➢ Savings bank book
➢ Municipal or corporate bonds
➢ Loan shares

Types of Lost Instrument Bonds

Lost instrument bonds can be classified into two types:

➢Fixed penalty lost instrument bonds: A fixed penalty lost instrument bond has a fixed amount. It is required when the lost, stolen, or destroyed certificate has a fixed monetary value. Typical examples include money orders, certified checks and certificates of deposit.

➢Open penalty lost instrument bonds: An open penalty lost instrument bond is used when the value of the lost certificate can fluctuate depending on market conditions. Some typical examples include stock certificates and bonds issued by publicly traded companies

Why Do Financial Institutions Require a Lost Instrument Bond?

When you request a bank or financial institution to issue a duplicate instrument, you might be required to get a lost instrument bond. A lost instrument bond guarantees the financial institution will be protected if the original document is found after a duplicate certificate is issued. In case you cash the original document, the lost instrument bond protects the financial institution from financial loss of having to honor the certificate more than once.

How Much Do Lost Instrument Bonds Cost?

A lost instrument bond that covers instruments up to $5,000 will cost you $100. For lost instruments with a higher value, rates increase. Usually, the rate of increase is 2-4%, meaning that for every $1,000 increase in value, you pay an additional $20-$40.

The Claims Process

If you fail to fulfill your obligations as the Principal, the financial institution that issued the lost certificate will file a claim against your bond. Once the Surety receives the claim, it will launch an investigation.

If the claim is found to be valid, the Surety will compensate the claimant for any loss incurred. After the claims process ends, the Surety will require you to reimburse the expenses it incurred – which includes the settlement amount and any legal and other expenses incurred.

Having difficulty choosing the right surety bond for your business? Let H.M. Vreeland help. We help businesses weigh the pros and cons of different types of bonds, paving the way for better decision making. To talk to one of our pros, call (415) 566-3401.