Legal Guide

What You Need to Know About Motor Vehicle Dealer Bonds

In a nutshell, a motor vehicle dealer surety bond will protect the buyer, creditors, and the government. When it comes to being a motor dealer, trust is pretty much involved, and the customers should have under the impression that they were told about everything that they need about their vehicle truthfully.

The creditors and the sellers trust that the merchants will pay them back for their financing and inventory services. The state government also relies on the dealers to pay the required taxes and abide by the laws in the area. In order to prosper and grow, the company selling the vehicles should ensure that all the parties involved in a transaction are protected in case of violations and disputes.

This is where the bonds come in.

What are Surety Bonds?

The government's motor vehicle dealer surety bond is required to protect all the parties who have partaken in a vehicle sale. Many companies like those in Florida have surety bonds from sites like that check everything, including past taxes, credit ratings, history, and more. The MVD bond usually uses third-party providers to be a guarantor and show everyone that they follow all the legalities and standards set by the state.

How Does It Work?

The surety is contracts that are made with third-party companies that guarantee that the principal (dealer) will obey all the ethical rules required by the obligee (government), and a surety acts as a guarantor.

This can be different from other types of insurance that the dealers are required to have. These bonds protect the creditors and the customers if the dealer fails to follow the rules and regulations set by the Secretary of State or the Department of Motor Vehicles. Read more about them on this site here. The ones who can file a claim are the following people:

  • Buyers who have just bought a new car, motorcycle, or any vehicle from a merchant
  • Sellers who sell their vehicles to the dealership company
  • Lenders who provided financing to make a sale go through
  • Creditors that have financed the money of the dealership company
  • State regulators that issued the license and the rules

Most of the claims are filed because of the following reasons:

  • Tampering with the odometer and saying wrong information about the overall condition of the vehicle
  • Not delivering title certificates after a car's purchase
  • Failure to pay the sales tax to the government
  • Selling of stolen or tampered cars
  • Not properly reporting that a sale has been made

Many states will offer databases where you can search for licensed companies that are allowed to sell vehicles in your area. What you can do is to ensure that they are licensed and bonded before you call or visit their showrooms.

The Process of Claiming

The process of bond claims is through escalation. The complainant that is eligible to have a claim will contact the dealer for any problems. The seller will do a proper investigation about the complaint and negotiate an agreeable solution for both parties. If no solution has been reached, the next thing to do is contact the surety company to file for a bond.

The surety will then reach to all the involved parties and listen to their stories. There will be an investigation afterwards to make sure that the claims are valid. If it's invalid, the inquiry is closed, and no further action is needed. If the validity is confirmed, then there will be a payout of the claims, and the company that sold the car will repay the surety. You can learn more about a surety here:

Different Types Needed for Motor Vehicle Dealerships

There are different types of companies that sell cars. Some of them were franchised from established names in the industry, and they usually sell new vehicles. They typically use single bond types to cover their franchises.

Others have independent used vehicle bonds that pertain to used cars of any make or variety. These companies should have an auto dealer surety bond that will protect the company and the customers. Others are in the wholesale markets, and they use the same types as independent companies. What's important is that you'll find a company with the right insurance in place for your protection regardless of whether you have purchased a new or used vehicle.

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