An appeal bond is important to understand beyond knowing that it is required. Most potential delays or mistakes that can occur while in the process of obtaining an appeal bond can be avoided by working with an experienced surety broker that is familiar with what an appeal bond does, the steps an appellant must take, how to navigate the types of collateral accepted by sureties, and the costs a client will face when seeking the bond.
Below you’ll find an overview of the essential information that will prepare you and your client for approaching a broker and avoiding a lengthy underwriting process.
What is an Appeal Bond?
When an appeal bond is posted with the court it maintains the status quo during the appeal proceedings, where the surety insurer issues a guarantee on behalf of the appellant to the appellee. If the judgment is affirmed, the surety will pay the appellee if the appellant cannot. In more simple terms, an appeal bond ensures the judgment debtor will satisfy the judgment if they are not successful in the appeal.
The appeal bond also protects the appellant, or judgment debtor, from all collection activities until the appellate decision has been entered in the case.
How to Apply for a Supersedeas Bond
The process for obtaining an appeal bond requires several pieces of information from the appellant such as:
- An Application
- Court Complaint
- Notice of Appeal
Due to the high risk and probability of a claim, collateral in the full amount of the appeal bond is typically required. There are several exceptions to this general rule, and to consider providing a bond without collateral, surety insurers review the company or individual’s financial statements to determine if the financial strength is significantly greater than the bond required.
Types of Collateral
When applying for an appeal bond, only specific types of collateral are accepted and some under specific circumstances. Below you will find the four types of collateral a surety will accept before issuing a supersedeas bond. It’s important to note that these forms of collateral are not mutually exclusive and can be used in combination with one another:
Using cash as collateral for an appeal bond carries a couple of advantages, such as some sureties paying interest on the cash deposit. Another advantage of using cash as collateral is that it can shorten the time it takes to acquire the appeal bond versus posting another type of collateral.
Letter of Credit from a Bank
A letter of credit is essentially a promise by a bank to pay a beneficiary (in this case the surety company” a specified amount upon demand (typically equal to the bond amount). Given the liquid nature of a letter of credit, this form of collateral is seen as very similar to cash collateral by sureties. If using this type of collateral, the surety would first approve the bank as the surety’s risk is with the bank’s solvency. So the surety needs to ensure that the bank isn’t at risk of failing. It’s important to note that sureties have their own letter of credit format that is generally provided once the bank has been approved.
Real estate is also an option, but there are only two sureties that currently consider taking real estate as collateral for appeal bonds. The sureties will primarily consider residential real estate (single and multi-family) and commercial properties (office, industrial, and retail). In some instances, they will accept the raw land in very well-developed and high-demand areas. Sureties typically require a property appraisal, title insurance, and will discount the value of the property to account for market fluctuations. Using real estate as collateral can be a lengthy process, usually 30 to 60 days, depending on the size of the bond and type of property.
This type of collateral includes stocks and bonds held in non-retirement accounts, as well as mutual funds, exchange-traded funds, and money market funds. If the appellant wants to use marketable securities for collateral, they must first provide the surety company with their most recent account statement and the value of the account usually needs to exceed the amount of the bond. If the surety deems the assets acceptable, they will then enter into an account control or pledge agreement with the brokerage firm and the client.
What Does an Appeal Bond Cost?
This can vary a great deal and depends on the size of the judgment, the financial strength of the applicant relative to the bond amount, and if collateral is required, the type of collateral that is used. The cost of an appeal bond is a percentage of that total bond amount, which can range anywhere from .30% to 4%. For example, if the appellant needs to post a $1,000,000 appeal bond, and the premium rate was set at 1% then their premium for the bond would be $10,000. The bond premium is in addition to the collateral that the appellant may have to post.
To learn more about what is involved in the cost of an appeal bond, we invite you to read an article on that subject here:
Working with a Broker to get a Bond
The best way for an appellant to get a supersedeas bond is to work with a surety broker that specializes in appeal bonds. Just as appellate practitioners would advise a client to work with a specialist in the appellate field, the same holds true for selecting a broker for appeal bonds.
Here at CSBA, we have been assisting attorneys and their clients with appeal bonds for a variety of civil litigation matters since 1984. We have over 110 years of combined experience, which is important as our specialty is in supersedeas bonds. We have also consulted on preparing pre-trial reports, served as expert witnesses, and provided declarations and affidavits to courts.
From our extensive work with almost every major law firm in the industry, we have gained a deep understanding of the appellate process at both the state courts and federal courts, as well as at the local levels. Due to our expertise and experience underwriting appeal bonds, we at CSBA have access to surety insurers that other brokers do not and have the ability to use a wider variety of forms of collateral.
This is the kind of expertise needed when appealing a court’s decision and obtaining a bond for the appeal. If your client needs an appeal bond, we encourage you to reach out to us and begin the process of pre-qualifying your client for an appeal bond.