2023 Connecticut General Statutes › Title 36a - The Banking Law of Connecticut › Chapter 668 - Nondepository Financial Institutions › Section 36a-492. (Formerly Sec. 36-440g). - Surety bond required. Cancellation of bond. Automatic suspension of license. Notices.

(a)(1) Each licensed mortgage lender, mortgage correspondent lender and mortgage broker shall file with the commissioner a single surety bond, written by a surety authorized to write such bonds in this state, covering its main office and any branch office, in a penal sum determined in accordance with subsection (d) of this section, provided the penal sum of the bond for licensed mortgage lenders and mortgage correspondent lenders shall be not less than one hundred thousand dollars and the penal sum of the bond for mortgage brokers shall be not less than fifty thousand dollars. The bond shall cover all mortgage loan originators sponsored by such licensee.
(2) Each mortgage loan originator licensee shall be covered by a surety bond with a penal sum in an amount that reflects the dollar amount of loans originated by such mortgage loan originator in accordance with subsection (d) of this section, provided such coverage shall be provided through a single surety bond filed with the commissioner by the person who sponsors such mortgage loan originator.
(3) (A) In the case of an exempt registrant under subdivision (1), (2) or (3) of subsection (a) of section 36a-487: (i) The surety bond shall cover all mortgage loan originators sponsored by such exempt registrant and comply with the requirements set forth in this section, and (ii) the penal sum of such bond shall be in an amount determined in accordance with subsection (d) of this section, provided the penal sum of the bond shall be not less than one hundred thousand dollars; (B) in the case of an exempt registrant under subsection (b) of section 36a-487: (i) The surety bond shall cover all mortgage loan originators sponsored by such exempt registrant and comply with the requirements set forth in this section, and (ii) the penal sum of the bond shall be in an amount determined in accordance with subsection (d) of this section, provided the penal sum shall be not less than fifty thousand dollars; and (C) in the case of a person exempt from licensure as a mortgage lender, mortgage correspondent lender or mortgage broker under subdivision (4) of subsection (a) of section 36a-487, the surety bond shall cover all mortgage loan originators sponsored by such person and comply with the requirements set forth in section 36a-671d.
(4) The principal on a bond required by this section shall file quarterly reports on the system reflecting residential mortgage loan volume in accordance with subsection (c) of section 36a-534b to confirm that it maintains the required penal sum in an amount required by subsection (d) of this section. The principal shall file such information as the commissioner may require under subsection (d) of this section and shall file, as the commissioner may require, pursuant to subsection (d) of this section, any bond rider or endorsement to the surety bond on file with the commissioner to reflect any changes necessary to maintain the surety bond coverage required by this section.
(5) The commissioner may adopt regulations in accordance with chapter 54 with respect to the requirements for such surety bonds.
(b) Except for the bond required by subparagraph (C) of subdivision (3) of subsection (a) of this section, the bond required by subsection (a) of this section shall be (1) in a form approved by the Attorney General, and (2) conditioned upon the mortgage lender, mortgage correspondent lender or mortgage broker licensee and any mortgage loan originator licensee sponsored by such mortgage lender, mortgage correspondent lender or mortgage broker or, in the case of a mortgage loan originator licensee sponsored by an exempt registrant, upon such mortgage loan originator licensee faithfully performing any and all written agreements or commitments with or for the benefit of borrowers and prospective borrowers, truly and faithfully accounting for all funds received from a borrower or prospective borrower by the licensee in the licensee's capacity as a mortgage lender, mortgage correspondent lender, mortgage broker or mortgage loan originator, and conducting such mortgage business consistent with the provisions of sections 36a-485 to 36a-498e, inclusive, 36a-534a and 36a-534b. Any borrower or prospective borrower who may be damaged by failure to perform any written agreements or commitments, or by the wrongful conversion of funds paid by a borrower or prospective borrower to a licensee, may proceed on such bond against the principal or surety thereon, or both, to recover damages. Any borrower or prospective borrower who may be damaged by a mortgage lender, mortgage correspondent lender, mortgage broker or mortgage loan originator licensee's failure to satisfy a judgment against the licensee arising from the making or brokering of a nonprime home loan, as defined in section 36a-760, may proceed on such bond against the principal or surety thereon, or both, to recover the amount of the judgment. The commissioner may proceed on such bond against the principal or surety thereon, or both, to collect any civil penalty imposed upon a licensee pursuant to subsection (a) of section 36a-50 and any unpaid costs of examination of a licensee as determined pursuant to section 36a-65 and, on and after April 1, 2019, any restitution imposed pursuant to subsection (c) of section 36a-50. The proceeds of the bond, even if commingled with other assets of the principal, shall be deemed by operation of law to be held in trust for the benefit of such claimants against the principal in the event of bankruptcy of the principal and shall be immune from attachment by creditors and judgment creditors. The bond shall run concurrently with the period of the license for the main office and the aggregate liability under the bond shall not exceed the penal sum of the bond. The principal shall notify the commissioner of the commencement of an action on the bond. When an action is commenced on a principal's bond, the commissioner may require the filing of a new bond and immediately on recovery on any action on the bond, the principal shall file a new bond.
(c) The surety company shall have the right to cancel the bond at any time by a written notice to the principal stating the date cancellation shall take effect, provided the surety company notifies the commissioner in writing not less than thirty days prior to the effective date of cancellation. If the bond is issued electronically on the system, written notice of cancellation may be provided by the surety company to the principal and the commissioner through the system at least thirty days prior to the date of cancellation. Any notice of cancellation not provided through the system shall be sent by certified mail to the principal and the commissioner at least thirty days prior to the date of cancellation. A surety bond shall not be cancelled unless the surety company notifies the commissioner in writing not less than thirty days prior to the effective date of cancellation. After receipt of such notification from the surety company, the commissioner shall give written notice to the principal of the date such bond cancellation shall take effect and such notice shall be deemed notice to each mortgage loan originator licensee sponsored by such principal. The commissioner shall automatically suspend the licenses of a mortgage lender, mortgage correspondent lender or mortgage broker on such date and inactivate the licenses of the mortgage loan originators sponsored by such lender, correspondent lender or broker. In the case of a cancellation of an exempt registrant's bond, the commissioner shall inactivate the licenses of the mortgage loan originators sponsored by such exempt registrant. No automatic suspension or inactivation shall occur if, prior to the date that the bond cancellation shall take effect, (1) the principal submits a letter of reinstatement of the bond from the surety company or a new bond, (2) the mortgage lender, mortgage correspondent lender or mortgage broker licensee has ceased business and has surrendered all licenses in accordance with subsection (a) of section 36a-490, or (3) in the case of a mortgage loan originator licensee, the sponsorship with the mortgage lender, mortgage correspondent lender or mortgage broker who was automatically suspended pursuant to this section or, with the exempt registrant who failed to provide the bond required by this section, has been terminated and a new sponsor has been requested and approved. After a mortgage lender, mortgage correspondent lender or mortgage broker license has been automatically suspended pursuant to this section, the commissioner shall (A) give the licensee notice of the automatic suspension, pending proceedings for revocation or refusal to renew pursuant to section 36a-494 and an opportunity for a hearing on such action in accordance with section 36a-51, and (B) require such licensee to take or refrain from taking such action as the commissioner deems necessary to effectuate the purposes of this section. The commissioner may provide information to an exempt registrant concerning actions taken by the commissioner pursuant to this subsection against any mortgage loan originator licensee that was sponsored and bonded by such exempt registrant.
(d) The penal sum of the bond required by subdivisions (1) to (3), inclusive, of subsection (a) of this section shall be determined as follows:
(1) An applicant for an initial mortgage lender license or mortgage correspondent lender license shall file a bond in a penal sum of one hundred thousand dollars in connection with its application for the main office.
(2) An applicant for an initial mortgage broker license shall file a bond in a penal sum of fifty thousand dollars in connection with its application for the main office.
(3) An exempt registrant under subsection (d) of section 36a-487 who is exempt from licensure under subdivision (1), (2) or (3) of subsection (a) of section 36a-487 shall file a bond in a penal sum of one hundred thousand dollars the first time such exempt registrant sponsors a mortgage loan originator.
(4) An exempt registrant under subsection (d) of section 36a-487 who is exempt from licensure under subsection (b) of section 36a-487 shall file a bond in a penal sum of fifty thousand dollars the first time such exempt registrant sponsors a mortgage loan originator.
(5) Persons exempt from licensure under subdivision (4) of subsection (a) of section 36a-487, shall file a bond in a penal sum as set forth in section 36a-671d.
(6) (A) For mortgage lender and mortgage correspondent lender licensees and persons sponsoring and bonding at least one mortgage loan originator as an exempt registrant under subsection (d) of section 36a-487 and who are exempt from licensing under subdivision (1), (2) or (3) of subsection (a) of section 36a-487, if: (i) The aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is less than thirty million dollars, the penal sum of the bond shall be one hundred thousand dollars; (ii) the aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is thirty million dollars or more but less than one hundred million dollars, the penal sum of the bond shall be two hundred thousand dollars; (iii) the aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is one hundred million dollars or more but less than two hundred fifty million dollars, the penal sum of the bond shall be three hundred thousand dollars; and (iv) the aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is two hundred fifty million dollars or more, the penal sum of the bond shall be five hundred thousand dollars.
(B) For mortgage broker licensees and persons who are sponsoring and bonding at least one mortgage loan originator as an exempt registrant under subsection (d) of section 36a-487 and who are exempt from licensing under subsection (b) or (c) of section 36a-487, if: (i) The aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is less than thirty million dollars, the penal sum of the bond shall be fifty thousand dollars; (ii) the aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is thirty million dollars or more but less than fifty million dollars, the penal sum of the bond shall be one hundred thousand dollars; and (iii) the aggregate dollar amount of all residential mortgage loans originated by such licensee at all licensed locations or by the exempt registrant during the preceding four quarters ending June thirtieth is fifty million dollars or more, the penal sum of the bond shall be one hundred fifty thousand dollars.
(7) For purposes of this subsection, the aggregate dollar amount of all residential mortgage loans originated by such licensee or exempt registrant includes the aggregate dollar amount of all closed residential mortgage loans that the licensee or exempt registrant originated, brokered or made, as applicable.
(8) Financial information necessary to verify the aggregate dollar amount of residential mortgage loans originated shall be filed with the commissioner, as the commissioner may require, and shall be reported on the system at such time and in such form as the system may require.
(9) The commissioner may require a change in the penal sum of the bond if the commissioner determines at any time that the aggregate dollar amount of all residential mortgage loans originated warrants a change in the penal sum of the bond.
(P.A. 85-399, S. 8; P.A. 89-347, S. 15; P.A. 90-277; P.A. 94-122, S. 235, 340; P.A. 99-36, S. 28; P.A. 02-111, S. 9; P.A. 04-69, S. 7; P.A. 07-156, S. 10; P.A. 08-176, S. 31, 46, 47; P.A. 09-208, S. 5; 09-209, S. 12; P.A. 11-216, S. 21; P.A. 14-7, S. 12; 14-89, S. 47; P.A. 15-235, S. 29; P.A. 17-38, S. 8; P.A. 18-173, S. 13; P.A. 22-94, S. 6.)
History: P.A. 89-347 extended the application of the section to mortgage brokers; P.A. 90-277 reduced the required bond sum from $50,000 to $40,000; P.A. 94-122 made technical changes, effective January 1, 1995; Sec. 36-440g transferred to Sec. 36a-492 in 1995; P.A. 99-36 made technical changes; P.A. 02-111 added provision re performance “for the benefit” of borrowers and prospective borrowers, changed any “person” to any “borrower or perspective borrower”, added provisions re commissioner to proceed on bond to collect civil penalty imposed pursuant to Sec. 36a-50(a) and re bond proceeds deemed to be held in trust and immune from attachment, and made conforming and technical changes; P.A. 04-69 designated existing provisions as Subsec. (a), substituting “36a-498a” for “36a-498” therein, and added Subsec. (b) giving surety company the right to cancel the bond at any time by written notice to licensee, specifying manner of notice, requiring surety company to notify commissioner in writing prior to cancellation, requiring commissioner to automatically suspend license on date cancellation takes effect, unless bond has been replaced or renewed, and requiring commissioner to give licensee notice of automatic suspension pending proceedings for revocation or refusal to renew and an opportunity for a hearing in accordance with Sec. 36a-51; P.A. 07-156 amended Subsec. (a) to insert “mortgage lender or first mortgage broker” re license, effective September 30, 2008; P.A. 08-176 changed effective date of P.A. 07-156, S. 10, from September 30, 2008, to July 1, 2008, amended Subsec. (a) to add “mortgage correspondent lender”, to increase amount of bond to $80,000 on and after August 1, 2009, to add provision, commencing August 1, 2009, for borrower or prospective borrower of nonprime home loan to proceed on bond to recover amount of judgment, to allow commissioner to proceed on bond to collect any unpaid costs of examination of licensee and to make conforming changes, and amended Subsec. (b) to delete provision re automatic suspension of license when bond is cancelled, effective July 1, 2008; P.A. 09-208 amended Subsec. (b) by adding provisions re automatic suspension of license and opportunity for hearing upon cancellation of bond; P.A. 09-209 amended Subsec. (a) by designating existing provisions as Subdiv. (1), deleting provisions re conditions of surety bond and proceeding on bonds, adding provision re penal sum of bond reflecting dollar amount of loans originated by lender or broker as determined by commissioner and adding Subdiv. (2) re surety bonds for originators, added new Subsec. (b) re conditions of surety bond and proceeding on bonds and redesignated existing Subsec. (b) as Subsec. (c), effective July 31, 2009; P.A. 11-216 replaced former Subsec. (a)(1) and (2) with new Subsec. (a)(1) to (5) re surety bond requirements, amended Subsec. (b) to require bond to be in form approved by Attorney General, add provision re mortgage loan originator licensee sponsored by an exempt registrant, make technical changes, and replace “licensee” with “principal”, amended Subsec. (c) to replace “licensee” with “principal”, permit notice from commissioner to principal of bond cancellation to be deemed notice to each mortgage loan originator licensee sponsored by such principal, add requirements re suspension or inactivation of license and prevention of suspension or inactivation for mortgage loan originator licensees whose sponsorship has been terminated and who have requested and received approval for new sponsor, permit commissioner to provide information re exempt registrants concerning actions taken against any mortgage loan originator licensees sponsored by such registrants and make technical changes, and added Subsec. (d) re determination of penal sum of bond required, effective July 1, 2011; P.A. 14-7 amended Subsec. (d) by replacing references to Sec. 36a-487(c) with references to Sec. 36a-487(d) in Subdivs. (3) to (6) and adding reference to Sec. 36a-487(c) in Subdiv. (6)(B), effective May 8, 2014; P.A. 14-89 added references to Sec. 36a-487(a)(2) or (3) in Subsecs. (a)(3), (d)(3) and (d)(6) and replaced references to Sec. 36a-487(a)(2) with references to Sec. 36a-487(a)(4) in Subsecs. (a)(3) and (d)(5); P.A. 15-235 replaced references to not later than September 1, 2011, and every September first thereafter with references to after review of preceding four-quarter period ending June thirtieth re deadline for principal on bond to file information with commissioner in Subsec. (a)(4), replaced references to twelve-month period ending July thirty-first of current year with references to four quarters ending June thirtieth re time period for determination of penal sum on bond in Subsec. (d)(6), and made technical changes, effective July 7, 2015; P.A. 17-38 deleted references to October 1, 2011, amended Subsec. (b) to delete reference to August 1, 2009, and made technical changes; P.A. 18-173 amended Subsec. (a) by replacing references to exempt registrant with references to person exempt from licensure as mortgage lender, mortgage correspondent lender or mortgage broker in Subdiv. (3), replacing provision re annual confirmation in connection with renewal request with provision re filing quarterly reports on system, and deleting provision re reviewing preceding four-quarter period, deleting Subpara. (B) re principal on bond to annually confirm it maintains required penal sum and filing information as commissioner may require, and deleting Subpara. (A) designator in Subdiv. (4), amended Subsec. (b) by adding reference to bond required by Subsec. (a)(3)(C), replacing reference to Sec. 36a-498f with reference to Sec. 36a-498e, and adding provision re restitution imposed on and after April 1, 2019, amended Subsec. (c) by adding provisions re surety company to notify commissioner prior to effective date of cancellation, designating existing provisions re notice to licensee and requiring licensee to take or refrain from taking action as Subparas. (A) and (B), respectively, replacing “action as in the opinion of the commissioner will effectuate” with “action as the commissioner deems necessary to effectuate” in Subpara. (B), amended Subsec. (d)(5) by deleting reference to exempt registrant, and made technical and conforming changes; P.A. 22-94 amended Subsec. (a)(1) by deleting “file an addendum to such bond to cover”, effective May 24, 2022.
Subsec. (c): Use of the word “shall” is mandatory and directs the commissioner to suspend a mortgage lender license in the event of surety bond cancellation unless the lender satisfies one of two exceptions to the requirement of automatic suspension. 342 C. 273.