Notary bond claims: how they arise and how they are paid

Notary bond claims are rare relative to the number of notarial acts performed, but when they arise the losses are concentrated in a few recurring fact patterns. Knowing them is the best loss prevention a notary can practice.

The recurring fact patterns

• The signer never appeared. The notary certified an acknowledgment as an accommodation to an employer, a family member or a customer who "will sign it later." The signature was forged; a deed, mortgage or power of attorney was recorded; a lender or buyer lost money. This is the single most common notary bond claim and it is almost always indefensible.
• The signer appeared but was not properly identified. The notary relied on a document that was not satisfactory evidence of identity under state law, on personal knowledge that was not actually personal, or on a credible witness who did not qualify. The signer was an impostor.
• The certificate was defective. A missing venue, a wrong date, an acknowledgment form used where a jurat was required, an expired commission, a seal that did not meet statutory specifications. The instrument was rejected for recording or challenged in litigation, and the delay or the failure caused loss.
• The notary exceeded the office. Unauthorized practice of law, preparing documents the notary was not licensed to prepare, notarizing outside the jurisdiction, notarizing an instrument in which the notary had an interest.

How a claim is made

The claimant, usually the party who lost money or that party's insurer or lender, gives written notice to the surety identifying the notary, the bond, the notarial act and the loss. The surety investigates: it obtains the instrument, the notary's journal if the state requires one, and the notary's account. If liability is established and the loss is within the bond's condition, the surety pays up to the penalty. Where the loss exceeds the penalty, the claimant pursues the notary directly for the excess.

What happens to the notary

Three things. First, the surety demands reimbursement of the amount paid, with its costs, under the indemnity the notary gave when the bond was purchased; the surety may sue to collect. Second, the commissioning authority may be notified of the paid claim, and most states treat a paid bond claim as grounds for suspension or revocation of the commission. Third, if the loss exceeded the penalty, or the claimant elected to sue the notary rather than the surety, the notary defends and pays that action personally.

Where E&O changes the outcome

A notary with Errors & Omissions insurance tenders the claim to the E&O insurer. For an honest error (a defective certificate, an identification that fell short of the statute, a good-faith mistake), the insurer pays the claim and the defense, and reimburses the surety's demand up to the policy limit. The notary is left with a disciplinary issue, not a debt. For a dishonest act, no policy responds; the bond pays the public and the notary pays the surety.

Loss prevention

The notary who never certifies an act that did not occur in the notary's presence, who identifies every signer by the means the statute specifies and no other, who keeps a journal whether or not the state requires it, and who completes every certificate fully and on the day of the act, will almost never see a claim. Nearly all of the claims we pay could have been avoided by the first rule alone.