OK. Developers are required to post performance bonds for the completion of roads in their subdivisions. Once the time limit to build the roads has passed, and the roads are not completed (or even started in some cases), how do I "forfeit" the performance bond??

You must sue the surety. The principal should probably be sued also.

Thanks, Ray. I haven't used your sample petition to sue a grass form regarding diverting water and causing flooding yet, but I'm almost ready to.

To sue the surety on a performance bond, is my form similar to the one I use for bail bond forfeitures?

A suit similar to a breach of contract should be filed against both bond company and any principals signing the bond, along with owner of the subdivsion. The most common mistake is failing to sue everyone possible, as sometimes a bond company will require a signature from someone else in addition to the owner(s) (as a credit quarantee)and often the principals are required to sign in their individual capacity as distinguished from their corporate capacity. See Texas Rules of Civil Procedure, Rule 31 (also 29,30 and 32 as may or may not be applicable depending on the facts). The bond company does have the right to seek recovery from their principals, and interestingly enough, while many contractors view getting sued as just another cost of doing business,especially given the "corporate veil" that may protect their personal assets, they hate it when the bond company gets sued, because it will directly impact their ability and cost of getting bonds for other projects. PLUS, the bond company may have required some signatures in the individual capacity---so now their personal assets are at risk to the bond company rather than some mere corporation without much in the way of assets!!!

And as a practical matter, a judgment is generally much easier to collect out of a bond company rather than someone's assets--and then let the bond company worry about collecting.


Sometimes the threat of suit on the bond (and not merely the against the owner) will spur fast action from the owner that eventually eliminates the need for a suit.

Another problem is that the owner(s) of the subdivsion may not have signed the bond and the contractor who was suppose to do the work, signed the bond. In such a case, sue them as well as everyone else.

Also NEVER accept roads, and then try to sue as it may eliminate potential bond liability and the perfomance bond is not a maintenance bond.

As to the filing of the suit and other details, Local Govt Code 232.005 provides something of an outline of the bond suit (such as Comissioner Court requesting the action) and other remedies. 232.004 discusses the bond requirements and please note that while the language of the bond is important, because this is a statutory bond, the statute is the controlling
"language" of the bond, even if omitted from the bond or in conflict with same.


MOST IMPORTANTLY are the "other remedies" under 232.005. These include injunctive relief against selling the lots, etc, and perhaps the biggest weapon--but very seldom used-is the fact that an intentional failure or violation is a Class B misdemeanor. Of course, there is the constitutional prohibition about imprisonment over payment of debts, but if you can put the case together in such a manner that demonstrates the money was there, especially from the sale of lots, but not spent on the roads, well, as they say, each case depends on its own facts, so to speak. Also be careful of the prohibition against using the threat of a crimnal prosecution to gain an advantage in a civil case.

In the past we have made a threat on these with a letter to the bonding company and the principal. The Bonding company calls the principal and assuming that some personal assets are on the line ACTION follows. Additionally, the principal will not be able to perform a bonded job in the interim without paying a dollar for dollar coverage. You just need to start with a demand letter.

[This message was edited by Ray on 10-14-04 at .]

I might add "the sooner, the better" to start, because they are probably busy selling lots. When the roads or other infrastructure, such as drainage does not get built, the innocent purchasers are often left trying to sue a defunct corporation that has evaporated with the money. While "buyer beware" might be the "preffurred" response, when the citizens are begging the Commissioners to fix the roads, drainage and/or other infrastructure, the more likely reality is the county taxpayers are likely to end up bearing the burden, unless the pressure is quickly applied to the bond company.

Also, do not be mislead by the appearance that this development company appears to have assets in the form of the land being sold/developed, because there are often very complicated deals where the real owner is buried in several layers of paperwork, and the land has been mortgaged and/or collateralized to the max. Whereas banks and investors often find themselves foreclosed or liquidated, bond companies are not nearly so trusting, and like their counterparts in the jail bond business, they do their best to insure some concrete assets are there.

[This message was edited by LV on 10-14-04 at .]

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