Bail bonds are a way to reduce the cost of bail. Defendants go to bail bondsmen and ask them to pay the bail on their behalf. In exchange, the bail bondsman receives a fee and issues a bail bond – a promise to deliver the defendant to the court at the right date and time.
In most cases, bail bondsmen will issue bail bonds without requiring collateral. However, if they judge the risk is high (perhaps because they believe the defendant may skip court), they may request collateral. This way, they can protect themselves against loss, should the defendant fail to fulfill their obligations.
What Is Bail Bond Collateral?
Bail bond collateral is any asset that the bail bondsman can sell if the defendant does something to forfeit their bail. For instance, if the defendant does not show up for their trial on the arranged date and the bail bondsman cannot recover the bail amount from the court, they can pursue the defendant for the debt.
An example can explain this more clearly. Suppose that the court sets bail at $50,000 and the defendant cannot pay the full amount upfront. They pay a bail bondsman a $5,000 non-refundable fee for a bail bond, helping them secure their freedom.
Unfortunately, the defendant has a history of failing to show up to court. Therefore, the bail bondsman asks them to provide collateral before issuing the bail bond. The defendant agrees to forfeit their assets if they fail to adhere to the terms set by the court. This way, the bail bondsman can reduce the risk they face.
What Types Of Bail Bond Collateral Are There?
There are many types of collateral defendants can use for bail bonds.
The first and most obvious bail bond collateral is real estate. In California, bail bond companies can put a lien on the defendant’s home until they complete the terms of the bail bond. A lien is just a legal claim against a property for the purpose of collateral or to repay a debt. Hence, if the defendant fails to show up at court on their due date, the bail bond company has legal means to recoup their losses by selling their property.
If the bail bondsman believes that the defendant poses a significant risk, they will ask for real estate collateral in excess of the value of the bail. Asking for a higher amount covers various risks and transaction costs associated with selling property. For instance, the value of the property might go down before the trial, there may be legal disputes over ownership, or the bail bond company may have to pay legal and real estate agent fees.
Despite these risks, though, most bail bond agencies prefer to use real estate as collateral. That’s because it tends to be one of the most secure assets and is always accessible.
In some cases, bail bondsmen will accept money placed in brokerage accounts as collateral. Brokerage accounts contain financial assets, such as bonds, stocks, ETFs, foreign exchange, and so on. In most cases, defendants don’t want to liquidate these assets, so there is an incentive for them to show up in court at the specified time and date.
There are two ways for defendants to use brokerage accounts as collateral. The first is to simply offer existing investments directly. The second is to get a bank to issue an irrevocable line of credit (ILOC). Here, the bank agrees to extend credit to the bail bondsman using the defendant’s brokerage account as collateral.
Getting an ILOC can be challenging and most customers won’t have access to one. This form of credit requires a good relationship with the bank and a high degree of trust. Typically, it is only available if you have an excellent credit history and are well-known for being financially stable or wealthy.
If you qualify, most financial institutions can complete these arrangements in a matter of days. However, how long it takes depends on the firm the defendant used.
In some situations, bond companies may accept credit cards as collateral. Here, they place a “hold” on the card, charging money in a similar way to a hotel reservation. Holds don’t appear on statements, but they do provide bail bondsmen with some protection. Usually, defendants can only use credit cards as collateral for small bail amounts or in combination with other forms of collateral.
Other Personal Property
If a defendant doesn’t want to use their house as collateral, or they don’t own one, then they can sometimes use other personal property. For instance, some bail bondsmen may accept jewelry, electronic equipment or automobiles.
However, arrangements for this type of collateral tend to be complicated. Parties have to agree on things like:
- Where items will be stored
- Who will pay for the items
- Who the real owner of the property is
- Whether items will be stolen
- What items are really worth
Bail bondsmen love cash as a form of collateral as it is the most reliable. Defendants simply wire cash to the bail bond company or present them with a cashier’s check. If the defendant fails to show up to court, the bail bond company can collect the cash, as per the agreement with the arrestee.
Of course, having sufficient cash available to provide the bail bond company can be a problem. Most defendants don’t have enough liquid capital in their accounts.
In summary, bail bond collateral is a form of surety that encourages bail bondsmen to provide defendants with bail bonds. If they ask for collateral, it is usually in the form of real estate. However, most bail bonds issued in California do not require it.
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