Surety Bond Encyclopedia

Motor Vehicle Dealer Title Defect ($25,000) Bond - Statewide in Ohio

Brief Summary

This is the bond Ohio makes a dealer post after the Attorney General has already paid one of that dealer's customers out of the Title Defect Recision Fund. Getting it filed promptly is what keeps the situation from becoming a deceptive trade practice violation on top of the original title problem. It is written for a minimum of $25,000, filed with the Attorney General's Consumer Protection Section, and it is separate from the licensing bond.

Ohio Revised Code 4505.181(A)(2) requires a motor vehicle dealer or manufactured housing dealer to post a surety bond of not less than $25,000 with the Attorney General's office, in favor of the state, if the Attorney General has paid a retail purchaser of that dealer or a secured party under division (D), (E) or (G) of the section within the prior three years. It is not a bond every dealer carries. It is triggered by a payout from the Title Defect Recision Fund. Failure to post it is a deceptive act or practice in connection with a consumer transaction and a violation of ORC 1345.02.

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How to Apply for a Motor Vehicle Dealer Title Defect ($25,000) Bond:

Confirm which bond you actually need. The $25,000 title defect bond applies only if the Attorney General has paid a retail purchaser of yours or a secured party within the prior three years. The licensing bond for a used dealer application is $75,000.
Business name exactly as it appears on file with the Ohio Bureau of Motor Vehicles and the Secretary of State.
Owner or officer information for the underwriting and credit review.
Complete the bond application and review the quoted premium.
Receive the executed bond, written for not less than $25,000 in favor of the State of Ohio.
Mail the original to the Ohio Attorney General, Consumer Protection Section, Attn: TDR Fund Unit Surety Bond, 30 E Broad Street, 14th Floor, Columbus, OH 43215, and keep a copy since it will not be returned.
Notify the registrar and the surety within 15 days of any change to the information in the bond application.
Replace the bond before any cancellation takes effect, or expect to appear before the Motor Vehicle Dealers Board.

Detailed Information About the Ohio Motor Vehicle Dealer Title Defect ($25,000) Bond:

This is not the bond every Ohio dealer posts

Two different bonds run to the Ohio Attorney General and they get confused constantly.

The licensing bond is $75,000. Under OAC 4501:1-3-11(C), each application for a used motor vehicle dealer license received on or after January 27, 2018 must post with the Attorney General's office, in favor of the state, a surety bond of not less than $75,000. It replenishes funds paid out of the Title Defect Recision Fund and it can also satisfy the $75,000 net worth requirement in paragraph (A) of that rule.

The bond on this page is the $25,000 bond in ORC 4505.181(A)(2), and it is conditional. It applies to a dealer only if the Attorney General has paid a retail purchaser of that dealer, or a secured party, under division (D), (E) or (G) of the section within the three years before the date in question. The Attorney General's own page says it plainly: if the Attorney General pays a consumer on behalf of a dealer as a result of a TDR payout, then the dealer must obtain a surety bond.

So the honest answer to who needs the $25,000 bond is a dealer with a payout behind them, not a first time applicant.

Who is exempt from the $75,000 licensing bond

Worth knowing, because dealers reach this page while sorting the two out. Paragraph (E) of OAC 4501:1-3-11 says no surety bond is required if the used motor vehicle dealer, or any sole proprietor, corporate officer, business trust trustee, or partner or member of a partnership or LLC, currently holds or has held a new motor vehicle dealer license, adaptive mobility dealer license or leasing dealer license within the year immediately before the application date, and that previous license was not suspended, revoked or found in violation of ORC 4505.181.

That exemption is about licensing. It does nothing about the $25,000 bond, which follows a payout.

What triggers a payout in the first place

A dealer may display, offer for sale or sell a used vehicle without first holding title in the dealer's own name, provided the dealer holds the bill of sale, power of attorney or related documents and keeps copies until title issues in the dealer's name.

The buyer gets an unconditional right to demand rescission if the dealer fails to obtain title in the purchaser's name on or before the fortieth day after the sale, if the title shows a rebuilt salvage vehicle that was not disclosed in writing before the purchase agreement was signed, if the title shows the dealer made an inaccurate odometer disclosure, if the title shows a buyback vehicle as defined in ORC 1345.71 that was not disclosed in the written purchase agreement, or in the repossessed manufactured or mobile home situation described in division (B)(5).

Notice deadlines matter. For the 40 day title failure the purchaser must notify the dealer no later than 60 days from the date the vehicle is titled in the purchaser's name. For the salvage, odometer and buyback grounds the window is 180 days from that date. A purchaser who misses the window has no recovery and no cause of action under the section.

Once notified, the dealer has seven business days to rescind or reach a satisfactory compromise. Miss that and the purchaser can apply to the Attorney General for payment of the full purchase price from the fund. Division (G) covers a different failure, where the dealer does not pay off a security interest on a trade in, and the Attorney General may pay the secured creditor plus resulting interest and late fees.

Full purchase price is defined broadly. It includes the contract price, dealer installed options and accessories, all finance, credit insurance and service contract charges the purchaser incurred, sales tax, license and registration fees, and negative equity the dealer did not already pay to a third party to satisfy a lien.

After the payout

The Attorney General may collect the proceeds of a bond posted under division (A) from a dealer who failed to comply with division (D), and may sell or dispose of a vehicle delivered under the section. Proceeds go back into the Title Defect Recision Fund.

Failing to post the required bond is itself a deceptive act or practice in connection with a consumer transaction under ORC 1345.02. So is failing to comply with divisions (B) and (C).

The dealer's surety must notify the registrar and the Attorney General when a motor vehicle dealer's bond is cancelled, and must notify the Division of Real Estate of the Department of Commerce and the Attorney General for a manufactured housing dealer's bond. The notice has to state the effective date and the reason.

Bond mechanics from the rule and the AG's office

The business name on the bond must correspond exactly with the business name on file with the Bureau of Motor Vehicles and the Secretary of State. The bond is posted in favor of the State of Ohio and is mailed to the Ohio Attorney General, Consumer Protection Section, Attn: TDR Fund Unit Surety Bond, 30 E Broad Street, 14th Floor, Columbus, OH 43215. The Attorney General's office does not return the document, so keep a copy, and use the same address for changes, renewals and cancellation notices. The Attorney General publishes a sample surety bond on the Title Defect Recision Fund page.

Under the rule, a surety may not cancel on less than 30 days written notice to the registrar. If a bond is cancelled and the licensee does not file a replacement in the required amount on or before the cancellation effective date, the licensee has to appear before the Motor Vehicle Dealers Board. The licensee must also notify the registrar and the surety within 15 days of any change in the information in the bond application.

One more assessment to plan for

If at any time during a calendar year the fund balance falls below $300,000, the Attorney General may assess every motor vehicle dealer licensed under Chapter 4517 and every manufactured housing dealer licensed under Chapter 4781 one hundred fifty dollars, until the balance reaches $300,000. Notice goes to each dealer at its licensed location, and the Attorney General may sue to collect from a dealer who does not pay. That assessment is not a bond and no bond removes it.

Eligibility and Requirements for a Ohio Motor Vehicle Dealer Title Defect ($25,000) Bond:

A surety company authorized to do business in Ohio.
Amount of not less than $25,000 under ORC 4505.181(A)(2).
Posted with the Attorney General's office in favor of the State of Ohio.
Used solely to compensate retail purchasers who suffer damages from the dealer's failure to comply with ORC 4505.181.
Business name on the bond matching the BMV and Secretary of State records exactly.
Maintained without lapse, with at least 30 days written cancellation notice to the registrar and notice to the Attorney General.
Owner credit review. At this bond size credit generally shapes the rate rather than eligibility.

Ohio Motor Vehicle Dealer Title Defect ($25,000) Bond FAQs:

Does every Ohio dealer need this $25,000 bond?

No. ORC 4505.181(A)(2) requires it only if the Attorney General has paid a retail purchaser of that dealer or a secured party under division (D), (E) or (G) within the three years before. It follows a Title Defect Recision Fund payout.

Then what is the bond I need to get licensed?

For a used motor vehicle dealer application received on or after January 27, 2018, OAC 4501:1-3-11(C) requires a surety bond of not less than $75,000 posted with the Attorney General's office. That is a different, larger bond, and it can also satisfy the $75,000 net worth requirement in paragraph (A) of the same rule.

Is anyone exempt from the $75,000 licensing bond?

Yes. Under paragraph (E), no bond is required if the used dealer, or any sole proprietor, corporate officer, business trust trustee, partner or LLC member, currently holds or held a new motor vehicle dealer, adaptive mobility dealer or leasing dealer license within the year immediately before the application, and that license was not suspended, revoked or found in violation of ORC 4505.181. That exemption does not touch the $25,000 bond.

What happens if I do not post the bond after a payout?

Failure to post it constitutes a deceptive act or practice in connection with a consumer transaction and is a violation of ORC 1345.02. The Attorney General can also collect the proceeds of a posted bond from a dealer who failed to comply with division (D).

What triggers a customer's right to rescind?

Failure to obtain title in the buyer's name by the fortieth day after the sale, an undisclosed rebuilt salvage title, an inaccurate odometer disclosure shown on the title, an undisclosed manufacturer buyback, or the repossessed manufactured or mobile home situation in division (B)(5).

How long does a buyer have to complain?

For the 40 day title failure, no later than 60 days from the date the vehicle is titled in the purchaser's name. For the salvage, odometer and buyback grounds, 180 days from that date. Miss the window and the purchaser has no recovery or cause of action under the section.

How long do I have to fix it before the state pays my customer?

Seven business days from presentation of the rescission claim to either rescind as the statute requires or reach a satisfactory compromise. After that the purchaser may apply to the Attorney General for payment from the fund.

What does the bond premium cost?

There is no set rate, and this bond in particular is underwritten against a dealer who already has a fund payout on the record. Premium is determined by the owners' credit, the dealership's financial condition and that claim history. Get a quote on your own file rather than working from a percentage on a website.

What is the $150 assessment I keep hearing about?

If the fund balance falls below $300,000 during a calendar year, the Attorney General may assess every dealer licensed under Chapter 4517 and every manufactured housing dealer licensed under Chapter 4781 one hundred fifty dollars until the balance reaches $300,000. It is an assessment, not a bond, and no bond removes it.

Can my surety cancel?

Not without at least 30 days written notice to the registrar, and the surety must also notify the Attorney General, stating the effective date and reason. If you do not file a replacement bond by the cancellation date, you appear before the Motor Vehicle Dealers Board.