What is a surety bond?
Considering purchasing Jetty Deposit?
But before you do, it’s important to understand what, exactly, you’re buying, and what your responsibilities are as a Jetty Member. That’s why we’ve put together this quick FAQ on what a surety bond is, and what that means in the context of security deposit alternatives.
What is a surety bond?
A surety bond is a type of “insurance-like” agreement among three people or parties. (This is different from a typical insurance policy, which is an agreement between only two parties—the insurer and the insured.)
Those three parties are:
- A principal—the person purchasing the policy
- An obligee—the person protected by the policy
- A surety company—a company that provides coverage to the obligee in the event that the principal does not hold up their end of the agreement stated in the policy
For the principal, a surety bond essentially serves as a type of credit. For the obligee, it’s a type of insurance that protects them against loss if the principal owes money and can’t (or won’t) pay.
What is security deposit alternative?
Most of us are familiar with the traditional security deposit model: A renter provides the property with a check (typically in the amount of one month’s rent), and the property holds onto that money for as long as the renter lives there.
When the renter moves out, that cash is used to cover any damages or missed rent. And if the renter hasn’t caused any damage, the deposit is returned.
A security deposit alternative (as the name implies) is an alternative way for properties to protect themselves against damage. In most cases, they’re a type of surety bond between a renter, a property, and a third-party provider.
In this case:
- The principal is the renter
- The obligee is the property
- The surety is the third-party provider
Sound confusing? Let us explain.
In a typical lease-signing process, the renter gives their property manager a cash security deposit, often in the amount of one month’s rent. With a security deposit alternative, the renter pays a third-party provider (in this case, Jetty) a sum of money up-front—one that’s typically much lower than a standard deposit.
It’s important to note, here, that when the renter purchases a surety bond, they’re agreeing not to cause damage beyond standard wear and tear on their rental home, and they remain responsible for keeping it in good condition.
This means that if the renter does cause excessive damage, the property will contact them to collect the necessary funds for repairs. If the renter does not comply, the property can turn to the bond provider to cover the costs, up to the bond amount. Then, the provider assumes the responsibility of recovering that money from the renter.
This arrangement reduces the property’s risk of losing money because of damage or missed rent, as they can rely on the deposit alternative provider in the event that a renter fails to pay.
How does Jetty Deposit work?
Renters can purchase Jetty Deposit as an alternative to a standard deposit at Jetty Partner properties, for a fee of 17.5% of the deposit amount.
So, for example, if a unit typically requires a cash deposit of $1,000, the renter could opt to instead purchase that same amount of coverage from Jetty for $175, making it much more affordable to move in.
As with all surety bonds, however, the renter remains responsible for keeping their rental home in good condition, and for making all rent payments. In the event that a renter causes damage or skips rent and refuses to pay the property, the property can file a claim with Jetty. We’ll cover the property up to the bond amount, then contact the renter to collect those funds.
What are your responsibilities after purchasing Jetty Deposit?
After purchasing Jetty Deposit, a renter’s responsibilities are the same as what they’d be after paying a standard deposit: not damaging the rental home beyond normal wear and tear.
It’s also important to note that unlike a traditional deposit, Jetty is purchased with a non-refundable fee. This means that there aren’t any funds held in escrow, so the renter cannot use the amount they paid for Jetty to cover their last month’s rent.
What happens when a lease signed with Jetty Deposit ends?
If a renter renews their lease, they don’t need to renew Jetty Deposit. Coverage remains in effect as long as they live in the same unit.
If a renter is moving out, the property manager will inspect their unit. If everything is in order, that’s it! The renter can move out, and doesn’t need to wait for a deposit to be returned.
If the property manager discovers damage at move-out, they’ll contact the renter to cover the cost and send a bill detailing the issues. In the event that the renter fails to pay, they’ll be contacted by Jetty to recover the costs.