Conn. Gen. Stat. § 36a-719c: Surety bond, fidelity bond and errors and omissions coverage. Cancellation. Automatic suspension of license or registration. Notices.

(a) Each mortgage servicer applicant or licensee and exempt mortgage servicer registrant shall file with the commissioner (1) a surety bond, written by a surety authorized to write such bonds in this state, covering its main office and any branch office from which it acts as mortgage servicer, in a penal sum of one hundred thousand dollars per office location in accordance with subsection (b) of this section, (2) a fidelity bond, written by a surety authorized to write such bonds in this state, in accordance with the requirements of subsection (c) of this section, and (3) evidence of errors and omissions coverage, written by a surety authorized to write such coverage in this state, in accordance with the requirements of subsection (c) of this section. No mortgage servicer licensee and no exempt mortgage servicer registrant shall act as a mortgage servicer in this state without maintaining the surety bond, fidelity bond and errors and omissions coverage required by this section.

(b) The surety 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 servicer licensee or exempt mortgage servicer registrant faithfully performing any and all written agreements or commitments with or for the benefit of mortgagors and mortgagees, truly and faithfully accounting for all funds received from a mortgagor or mortgagee in such person's capacity as a mortgage servicer, and conducting such mortgage business consistent with the provisions of sections 36a-715 to 36a-719l, inclusive. Any mortgagor that may be damaged by the failure of a mortgage servicer licensee or exempt mortgage servicer registrant to perform any written agreements or commitments, or by the wrongful conversion of funds paid by a mortgagor to such licensee or registrant, may proceed on such bond against the principal or surety thereon, or both, to recover damages. The commissioner may proceed on such bond against the principal or surety on such bond, or both, to collect any civil penalty imposed pursuant to subsection (a) of section 36a-50, any restitution imposed pursuant to subsection (c) of section 36a-50 and any unpaid costs of examination of a licensee as determined pursuant to section 36a-65. 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 surety bond shall run concurrently with the period of the license or registration for the main office of the mortgage servicer or exempt mortgage servicer registrant 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) (1) The fidelity bond and errors and omissions coverage required by subsection (a) of this section shall name the commissioner as an additional loss payee on drafts the surety issues to pay for covered losses directly or indirectly incurred by mortgagors of residential mortgage loans serviced by the mortgage servicer or exempt mortgage servicer registrant. The fidelity bond shall cover losses arising from dishonest and fraudulent acts, embezzlement, misplacement, forgery and similar events committed by employees of the mortgage servicer or exempt mortgage servicer registrant. The errors and omissions coverage shall cover losses arising from negligence, errors and omissions by the mortgage servicer or exempt mortgage servicer registrant with respect to the payment of real estate taxes and special assessments, hazard and flood insurance or the maintenance of mortgage and guaranty insurance. The fidelity bond and errors and omissions coverage shall each be in the following principal amounts based on the mortgage servicer's or exempt mortgage servicer registrant's volume of servicing activity most recently reported to the commissioner:

(A) If the amount of the residential mortgage loans serviced is one hundred million dollars or less, the principal amount shall be at least three hundred thousand dollars; or

(B) If the amount of such loans exceeds one hundred million dollars, the principal amount shall be at least three hundred thousand dollars plus (i) three-twentieths of one per cent of the amount of residential mortgage loans serviced greater than one hundred million dollars but less than or equal to five hundred million dollars; (ii) plus one-eighth of one per cent of the amount of residential mortgage loans serviced greater than five hundred million dollars but less than or equal to one billion dollars; and (iii) plus one-tenth of one per cent of the amount of residential mortgage loans serviced greater than one billion dollars.

(2) The fidelity bond and errors and omissions coverage may provide for a deductible amount not to exceed the greater of one hundred thousand dollars or five per cent of the face amount of such bond or coverage.

(d) A surety shall have the right to cancel the surety bond, fidelity bond and errors and omissions coverage required by this section at any time by a written notice to the principal and the commissioner stating the date cancellation shall take effect. Such written notice of cancellation shall 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. A surety bond, fidelity bond or errors and omissions coverage shall not be cancelled unless the surety 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, the commissioner shall give written notice to the principal of the date such cancellation shall take effect. The commissioner shall automatically suspend the license of a mortgage servicer licensee or registration of an exempt mortgage servicer registrant on such date or on any date when a fidelity bond or errors and omissions coverage expires or is no longer in effect. No automatic suspension or inactivation shall occur if, prior to the date that such bond or errors and omissions coverage cancellation or expiration shall take effect, (1) the principal submits a letter of reinstatement of the bond or errors and omissions coverage, or a new bond or errors and omissions policy, or (2) the mortgage servicer licensee or exempt mortgage servicer registrant has ceased business in this state and has surrendered all (A) licenses in accordance with section 36a-51 and section 36a-719a, and (B) registrations in accordance with section 36a-718. After a mortgage servicer license or exempt mortgage servicer registration has been automatically suspended pursuant to this section, the commissioner shall (i) give the licensee or registrant notice of the automatic suspension, pending proceedings for revocation or refusal to renew pursuant to section 36a-719j or subsection (d) of section 36a-718 and an opportunity for a hearing on such action in accordance with section 36a-51, and (ii) require such licensee or registrant to take or refrain from taking such action as the commissioner deems necessary to effectuate the purposes of this section. Any exempt mortgage servicer registrant acting as a mortgage servicer from a location licensed as a main office or branch office under sections 36a-485 to 36a-498e, inclusive, 36a-534a and 36a-534b shall cease to be exempt from mortgage servicer licensing requirements in this state upon cancellation or expiration of any surety bond, fidelity bond or errors and omissions coverage required by this section.

(e) If the commissioner finds that the financial condition of a mortgage servicer licensee or exempt mortgage servicer registrant so requires, as evidenced by the reduction of tangible net worth, financial losses or potential losses as a result of a violation of sections 36a-715 to 36a-719k, inclusive, the commissioner may require one or more additional bonds meeting the standards set forth in this section. The mortgage servicer licensee or exempt mortgage servicer registrant shall file any such additional bonds not later than ten days after receipt of the commissioner's written notice of such requirement. A mortgage servicer licensee or exempt mortgage servicer registrant shall file, as the commissioner may require, any bond rider or endorsement or addendum, as applicable, to any bond or evidence of errors and omissions coverage on file with the commissioner to reflect any changes necessary to maintain the surety bond, fidelity bond and errors and omissions coverage required by this section.