Frequently Asked Questions

Q: What is Deposit Solution?

A: Deposit Solution issues a financial guarantee bond that replaces conventional security deposits. Our bond guarantees the performance of a tenant, according to the terms of a signed lease agreement.

The concept is simple: instead of requiring a full security deposit, tenants are offered the option of promising to return the unit in good condition and satisfy all rental and financial obligations by paying a modest premium for a surety bond. If the tenant does not meet his or her obligations, he or she is required to reimburse the Surety for the amount owed of his or her rental and financial obligations.

Q: Why secure a bond in  lieu of cash or letter of credit?

A: Bonds are easier to secure, and are often less expensive, than letters of credit and they do not tie up working capital like cash deposits.

Additional benefits include the following:

  • Bonds do not affect tenants’ balance sheet
  • Bonds do not require the tenant to provide additional security through a bank
  • Owners have the ability to ask for larger bonds when required
  • Bonds are not subject to bankruptcy action against the tenant
  • Bonds are simple to negotiate

Q: What is actually covered by the bond?

A: Bonds cover actual damage to the leased property and loss of rents up to the amount required under the lease.

Q: What is the financial security behind the bond?

A: HCC Insurance Holdings, Inc. is a leading specialty insurer. Their companies hold the strongest financial rating offered in the industry.

Q: What does the bond cost, and who is obligated on default?

A: We offer highly competitive pricing for the annual cost of a tenant surety bond. The individual pricing required by the carrier will vary depending on the individual tenant’s particular situation and the financial underwriting conducted by the carrier specific to that tenant, including, but not limited to, the identity of the lessee and the financial strength of the bond indemnitor/guarantor.

Q: How is default defined?

A: Default is nonpayment, as stated in the terms of the lease agreement.

Q: How long is the transaction to determine a tenant qualifies for a bond?

A: Bond execution, underwriting review of application, credit and financial analysis will be reviewed immediately within receipt. Upon favorable review, bonds can be processed within 24-48 hours. If further underwriting is needed, submission will be completed within 10 days or sooner.

Q: Does the bond cover the term of the lease?

A: The bond will be executed and renewed on an annual period for the entire period of the lease. The annual renewal will typically be automatic.

Q: How do the landlord and tenant both benefit?

A:
  • Bonds are exempt from bankruptcy action.
  • Bonds are issued to most governmental agencies, in lieu of cash.
  • Landlords will attract more tenants using this method, and reduce negotiation time involving collateral.
  • Tenants will have access to their cash, so it will not remain inactive.

Q: Is a surety bond the same as insurance?

A: Insurance and surety bonds are very different.

An insurance policy promises to pay the insured person for any losses that are covered under the policy (e.g., accident, fire, or death). Such losses are paid out of the combined pooling of all the policy premiums paid.

A surety bond does not contemplate losses. Premium paid by the principal (tenant) is simply a service fee to the surety for allowing its credit to be used. On the other hand, if the principal (tenant) fails to carry out the undertaking, the surety must make good the loss to the obligee (property owner). The surety then has recourse to the principal (tenant) for total reimbursement, if and when possible.

In many respects, a surety underwriter is similar to a banker making a loan. In effect, both are lending their credit. The bankers want to make sure their loan will be repaid; therefore, a cosigner is found by the applicant for the loan, to ensure that the bank will not encounter a loss.

Q: What happens at lease renewal time?

A: Deposit Solution is a great retention and renewal tool for qualified tenants. Deposit Solution provides assistance in launching a renewal program. Tenants love receiving their security deposits back, and leasing agents love having something to offer good tenants—to keep them on-site or within the portfolio.

Q: How quickly will the landlord be reimbursed if a default occurs?

A: The surety requires 30-day notification of nonpayment of rents. HCC has a professional claims management team dedicated to processing these claims. They will expedite all requests quickly and efficiently, without delay.

Submit your application now or call us at (949) 252-4425