An MLO's surety bond claim is filed by a borrower for $35,000 in damages. The MLO's bond amount is $75,000. After the claim is paid, what happens to the MLO's bond coverage?
Correct Answer
D) The bond coverage is reduced to $40,000 until renewed
Most surety bonds operate on an aggregate basis, meaning that claims paid reduce the available coverage amount. After a $35,000 claim is paid from a $75,000 bond, only $40,000 in coverage remains. The MLO may need to restore the bond to its full amount or obtain additional coverage to maintain compliance.
Why This Is the Correct Answer
Most surety bonds operate on an aggregate basis, meaning that claims paid reduce the available coverage amount. After a $35,000 claim is paid from a $75,000 bond, only $40,000 in coverage remains. The MLO may need to restore the bond to its full amount or obtain additional coverage to maintain compliance.
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