What Is a Surety Bond for an Auto Title?

Selling a car or registering a newly acquired used vehicle can be relatively straightforward, unless the car’s title cannot be located. Resolving this issue can be as simple as ordering a duplicate title, but if the car’s owner does not have a bill of sale either, the situation gets a bit more complicated. This is where auto title bonds come in, to resolve any issues with ownership and to create a clean and clear title to the vehicle.

A surety bond, in general, is a guarantee of performance of a specific obligation or contract. An auto title surety bond, also known as a defective title bond, provides a guarantee of ownership to a state’s Department of Motor Vehicles. A title bond is required to satisfy the ownership documentation for a vehicle that does not have other forms of documentation available. Application forms and costs for title bonds vary by state.

A title bond is used to re-establish a person’s ownership of a car before selling it and transferring the title legally to someone else. If the original title documents are unavailable, a title bond must be purchased in order to satisfy the DMV. Certain situations may cause a title to be unclear. For example, an individual has paid for a car, but the lien holder has gone out of business and the car’s title is unobtainable; the car’s original documents have been lost or destroyed in a disaster, or no title exists because the car was custom made or is very old.

The bond serves as insurance to protect a rightful owner or lien holder to a car by proving ownership, in case the title is released to someone who does not legally own the car.

The title bond amount should be set based on the estimated replacement or recovery cost of the car. This cost is determined by performing an appraisal of the vehicle to assess its condition and market value. Premiums for a title bond vary depending upon the bond issuer. As an example, a title bond may cost 1.5 percent of the bond amount, with a minimum $100 premium.

Each state’s insurance regulatory agency or Department of Motor Vehicles can provide information on how to buy a title bond. Additionally, several bond companies do business online and can be found through an Internet search. Once an individual has purchased a title bond, he must have his signature notarized on it, and provide the bond to his Department of Motor Vehicles. The DMV will then provide the certificate of ownership for the vehicle.