What is an indemnity bond?
It’s a bond to repay a lender in the event of a shortfall in a loan repayment. For example, in real estate, a lender may require an indemnity bond in markets with slow growth in cases where the loan amount is greater than 75% of the home’s value. In the event of forclosure and if the house is sold to pay off the loan, but there is negative equity (house is worth less than the loan amount), the indemnity bond pays the difference. There’s a fee for having an indemnity bond in place if required by a lender, but it protects lenders in riskier loan situations.
