The Surety Bond Claim Process For Car Dealers (And How To Avoid It)

motor vehicle dealer bond claim

A Motor Vehicle Dealer Bond (also known as an Auto Dealer Bond or Car Dealer Bond) is a type of surety bond that protects your customers.

If you fail to fulfill your obligations or follow rules and regulations, someone can make a claim against your bond.

Don’t have a Motor Vehicle Dealer Bond? Get one now.

If you are a licensed car dealer, you’ve probably gone through the process of obtaining a surety bond for your dealership. But what happens if a claim is made against your surety bond?

What is a Motor Vehicle Dealer Bond Claim?

A motor vehicle dealer bond claim is a complaint saying that you have not fulfilled your obligations or respected the rules and regulations defined by state or federal laws in your dealership operation.

Motor vehicle dealer bond claims are understood to be intentional violations made by you or your dealership. They can also be misunderstandings with your customers, though.

Who can file a bond claim against you?

Any customer you work with
The state you are licensed in
Essentially any person – anyone can make a claim against your bond

Common reasons someone would file a claim against you:

Not supplying titles with a vehicle purchase
Not reporting a sale of a vehicle
Not paying for a vehicle (including trade-in vehicles)
Not paying lenders
Misrepresenting a motor vehicle’s state during a transaction
Not meeting warranty obligations
Selling stolen motor vehicles
Not paying sales taxes or other mandated fees

What Happens When a Surety Bond Claim Is Made?

The Motor Vehicle Dealer Bond Claim Process

If you get a claim filed against you, the surety bond claim will go through the following process:

Step #1: Claimant completes bond claim form

Claimants can find who issued your bond by contacting the Motor Vehicle Commission in their state.

Step #2: Claim is filed with surety company that issued the bond

Step #3: Surety investigates claim and evaluates its validity

Step #4: One of two things will happen:

Claim is determined to be false/invalid: nothing further happens. You go back to business.
Claim is determined to be valid: you will get the opportunity to satisfy the claim.

Step #5: If you fail to satisfy the claim, the surety will reimburse the claimant for any losses

Reimbursement cannot be more than the amount of your surety bond. For example, if you secured a $10,000 bond, then no claimant can be reimbursed more than $10,000.
The conditions and timing of payment for a claim vary from state to state. In some states, the surety has 60 days to pay the claimant. In other states, it is just 15 days.

Step #6: Surety will require you to pay them back

This is due to the indemnity agreement that you signed before purchasing your bond.

You are responsibile for repaying every penny the surety company paid out on your claim.

In some cases, your auto dealer license might be revoked due to a valid motor vehicle dealer bond claim. Even if this doesn’t happen, a claim on your bond is not good. It is like a ticket or arrest on your record; it stays.

It will be more difficult (or near impossible) for you to obtain surety bonds in the future if you have claims on past surety bonds.

How Can I Avoid a Motor Vehicle Dealer Bond Claim?

The best way to avoid motor vehicle bond claims is to run an honest and ethical business.

Understand your state and federal rules and regulations regarding your car dealership
Understand the language of your surety bond
Work out any disputes with customers

Read this expert interview about the top car dealer mistakes to stop now.

If a claim is filed against you, be sure to follow the proper steps. Non-compliance with the claim process could result in more serious repercussions.

Work with a specialist (like a lawyer or accountant) to evaluate your case and help you in the process.

Be honest and communicate effectively with all parties during the process. Effective communication is needed during the process to make sure the claim is evaluated with all the facts.