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Filing Claims Against a Surety Bond

All licensed dealers – including motor vehicles, motorcycles, wholesale only, wholesale motor vehicle auction and independent mobility motor vehicle licensees- in Texas are required to maintain a $25,000 surety bond. The bond is supposed to guarantee that the dealer will pay all valid bank drafts and checks drawn by her/him to purchase vehicles, as well as transfer valid titles for all vehicles that s/he plans to sell. If someone suffers a financial loss as a result of a dealer's failure to do certain things, then the full amount of the bond is available to offset that loss.

Who can file a dealer surety bond claim? And how does one do it?

Any customer, dealer, auction, third party lender, or other entity that does business with a dealer may file a claim against that dealer's surety bond. This includes other dealers, the State of Texas and counties in which the dealer does business.

How Does One File a Claim?

An individual who wishes to make a claim against a dealer may submit an open records inquiry to DMV to obtain a copy of the dealer's bond.  Once obtained, they can contact the bond provider to file a claim against the dealer and their bond. The company will investigate the claim and, if the company determines that the claim is valid, then the company will reimburse the claimant for any losses up to the bond amount. Keep in mind that once the bond is exhausted, no other valid claims will be reimbursed.

It's important to remember that the Surety Company will likely come back against the dealer to be reimbursed for any claim payments made. Also, once a claim is validated and paid, it becomes very difficult for a dealer to obtain a dealer bond. Bonds are not insurance, but only promises that the dealer will pay. Please note that changes will go into effect on Septermber 1, 2019 relating to recovery claims against surety bonds. TIADA will provide more information soon. 

Texas Transportation Code 503.033

(d)  A person may recover against a surety bond or other security if the person obtains against a person issued a motor vehicle dealer general distinguishing number or a wholesale motor vehicle auction general distinguishing number a judgment assessing damages and reasonable attorney's fees based on an act or omission on which the bond is conditioned that occurred during the term for which the general distinguishing number was valid.

(e)  The liability imposed on a surety is limited to:

(1)  the amount:

(A)  of the valid bank drafts, including checks, drawn by the applicant to buy motor vehicles;  or

(B)  paid to the applicant for a motor vehicle for which the applicant did not deliver good title;  and

(2)  attorney's fees that are incurred in the recovery of the judgment and that are reasonable in relation to the work performed.

(f)  The liability of a surety may not exceed the face value of the surety bond.  A surety is not liable for successive claims in excess of the bond amount regardless of the number of claims made against the bond or the number of years the bond remains in force.

(g)  This section does not apply to a person licensed as a franchised motor vehicle dealer by the department.

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