A surety bond is a third party guarantee that an individual or a company will fulfill their obligations. The surety bond is a three party agreement between the principal (the person or company requesting the bond), the obligee (the beneficiary on the bond), and the surety bond company (the third party guarantor that the Principal will perform their obligations).
For example, a fidelity surety bond guarantees the principal will handle the obligee’s finances or property with honesty. If the principal does not, the surety bond company must reimburse the obligee up to the full amount of the bond. The surety bond company must then seek indemnification from the principal.
Almost all surety bonds are in some way designed to protect public monies or to help protect the public against fraud, unethical business practices or business failures. For example, with a mortgage broker surety bond , the mortgage broker or mortgage broker company is the Principal on the bond and the state in which they operate is the Obligee. This license and permit bond helps protect the public against anyone operating outside the established laws and regulations governing mortgage brokers in that state.