There are alternative assets, and then there are really, really alternative assets. I would consider bail bond investing a potentially lucrative yet risky endeavor. But how do bail bonds work? If you’re looking for alternative investing ideas, a few aspects of this type of capital allocation should be understood.
It’s hard to imagine a more alternative way to invest capital than posting bail bonds, but how do bail bonds work? It might also sound like the riskiest way to make a return on your capital. But where risk is enormous, potential returns must also be abnormally high.
The Importance of Bail Bonds
Not only are there potential profits in the bail bond industry, but there’s also critical service to provide. We usually hear about the large bail amounts in the news headlines for famous business people or celebrities, but bail bonds fill an important need to the justice system outside of the headlines.
When bail is set, some people can post their own bail and walk out of jail free to await their day in court. Others who don’t have access to funds in the amount of their bail must wait in jail until their court date. Or they can get a bail bond. This critical service enables people to exit jail and return to their daily lives, making a living, and spending time with their families.
There’s a lot to learn before you begin posting bail for clients. The wild world of bail bonds is littered with risk. And as everyone is well aware, the U.S. court system is far from perfect. But some of the most successful bail agents make handsome returns on their capital by representing clients and playing an important role in the justice system.
What is a Bail Bond?
A bail bond is a way for a defendant to pledge money as assurance they will return to court for their scheduled hearing. It’s usually a deposit made to the court, often cash, that assures they will return to court when required. The amount set during the bail bond process depends on numerous factors and is decided on by the court.
When you pledge cash as a bail bond agency, the amount is returned to you in full if the defendant shows up to court. Sometimes, a payment plan or other payment options are arranged if the defendant cannot come up with the entire bail bond fee upfront.
If the defendant fails to attend the scheduled court hearing, you forfeit the cash. The next step is locating the defendent, which is the job of a bounty hunter.
Why would you be crazy enough to post bail for someone charged in a crime or has an order to appear in court? The simple answer is profit. Investing in bail bonds provides a service to the justice system and the defendent ordered to appear in court. Rather than remaining in jail, the defendent can post bail and remain free, as long as they return to court for the scheduled hearing. The financial incentive to recover the bail bond cost provides an incentive for the court system.
How do Bail Bonds Work?
Every state has its own bail bond system. A bail bond gives someone who’s been charged with a crime the chance to get out of jail until their appointed court date and trial. The amounts for bail bonds can be as little as $100 and as much as over a billion dollars.
So you might be wondering still how anyone could be crazy enough to put their own financial capital on the line for someone who may or may not be a criminal. Risking potential financial loss for someone who may have no plans to appear back in court to face the consequences of the justice system?
Again, the answer is profit. Bail bonds command high interest rates on the cash they provide and potentially lucrative fees and profit. Sometimes, a friend or family member can pay an entire bail amount. But other times, bail amounts are too high to afford, so a bail bond is needed.
Other times, for high-net-worth individuals who find themselves in legal trouble, bail services are considered money well spent. I would imagine having the ability to assemble your legal team and begin defending the charges brought against you is easier from your home rather than a jail cell.
Even for a serious felony crime or a felony charge, defendants can still obtain a bail bond. However, bails are usually set much higher depending on the specific crime and a defendant’s flight risk.
Investing in Bail Bonds
Most bail bond investors own a company to post a secured bail bond for their clients. In this case, the client would be charged with a crime and held in jail without their own capital for the bail amount. The bail bond investor charges an interest rate, usually 10% – 20% of the bond amount, which the defendant would not get back.
The total amount of the bail bond is paid to the court, and the customer (defendant) is released from jail and ordered to return at a specified date. The bail bond investor would keep the fee charged to the criminal defendant and reclaim their capital from the court once the defendant appears before the judge as specified.
You might be asking yourself why anyone would want to be a bail bond investor. And how do bail bonds work? The simple answer is bail bonds can be a very lucrative business. A single bail bond can be multi-millions of dollars. Let’s say you post a cash bond of $5 million for your customer. At a 10% interest rate, the potential fee is $500,000. But the biggest risk is not receiving your $5 million back from the court. If your client doesn’t return for the court appearance at the exact date and time, the court keeps the $5 million.
Surety Bail Bonds
Surety bail bonds command a minimum 10% fee which is non-refundable. This 10% fee must also cover the cost for insurance called surety bonds guarantee. The insurance gives the court confidence that a bail bond agent can cover the entire cost of the bail if the defendant fails to appear in court. Many times, bail bond agents will arrange a blanket bail bond with the courts so they won’t need to deposit cash for each new client.
Each time a defendant fails to appear in court, the surety bond guarantee insurance will cover the defaulted bail. These insurance policies are critical, so the courts will be compensated when defendants don’t show up in court.
What Happens if You Don’t Pay Bail Bonds?
If you are arrested and put in jail, you can get out by posting bail. Depending on the charges, bail can be set at high amounts above what the defendent is capable of paying. The best plan of action might be hiring a bail bond agent. By paying a fee to the bail bond agent, they can help navigate the legal system and assure your release.
So what happens if you agree to pay a fee to the bail bond agent, are released from jail, and then never actually pay the fee? Your situation could go from bad to worse in a hurry. For a bail bond investor who has posted bail for a client, only to have that client skip the fee payment, there are a few decisions to make.
If you post a bail bond for a client, only to have them refuse payment once they are free, it’s a civil offense. You can take your client to court to get your money. If you have a signed contract, the court can mandate that you pay the fees associated with the bail bond.
Even if the defendent ends up in prison, they can still be mandated to pay the bail bond fee once a contract was signed. Sometimes a defendant is released on their own recognizance, meaning they are set free without bail. If you’ve already arranged a bail bond for a defendant who is released by their own recognizances, you can recall your bail bond.
Pull the Bond
Another option at the disposal of bail bond investors who haven’t been paid the fee for the bond they posted is to pull the bond at the court. This will keep the defendent in jail, and if they were released before the bond payment occurs, they would go back to jail.
As a bail bond agent, you don’t want to commit capital for a client who won’t pay the fee. Not only will you not collect your fee, but it’s not a good sign that the defendant can be trusted. Remember, if the defendant doesn’t show up to court on a future date, you will lose the entire amount of the bond.
Bail Bondmans to the Stars
Bail bond investing is fraught with risk, but some experts in the industry make millions of dollars representing high-profile defendants during a time of need. Ira Judelson has been one of New York’s most prominent licensed Bail Bondsmen with over twenty years of experience.
He’s undertaken some of the most difficult bails in history and is a favorite among celebrities and business moguls in need of a fast, large, and no-nonsense bail bond.
If you want to dive into the world of bail bonds, I would highly recommend this episode of ‘Bailstreet.’ Legendary Bail Bondsman Ira Judelson and Wall Street veteran Danny Moses discuss a wide range of topics.
In the episode above, NBA star Charles Oakley and trial lawyer Alex Spiro discuss gambling, the Knicks, prison reform, and bail reform, a subject Spiro is passionate about. And as always, an insightful look at the bail bond industry from Judelson.
Highest Bails Ever Set
Raj Rajaratnam – $100 Million USD
Bernard ‘Bernie’ Madoff – $10 Million USD
Marion ‘Suge’ Knight – $25 Million USD
Kening Ma – $150 Million USD
Julius Meinl V. – $129 Million USD
Dmitry Firtash – $174 Million USD
Michael Milken – $250 Million USD
Subrata Roy – $1.6 Billion USD
Robert Durst – $3 Billion USD
Largest Bail Surety Providers
One of the largest bail bonding services in the U.S. is AIA Bail Bond Insurance Company. Each year, AIA underwrites over $700 million worth of bail. There are over 30 insurance companies that underwrite roughly $14 billion worth of bail bonds each year in the United States.
Bail bond investing is not for the faint of heart. The best bail bonds services work night and day, around the clock, and are available at a moment’s notice to spring into action for a potential client in trouble.
When the going gets tough and the hard-earned capital you’ve committed to the court for the release of your client is in jeopardy, it’s time for a bounty hunter.
What do Bounty Hunters do?
When a defendant who is freed from jail on a bail bond that you’ve posted for them goes missing, it’s time to call the bounty hunter. Remember, when your client fails to appear before a judge, the court keeps the entire amount of the bail bond. You could potentially lose thousands, hundreds of thousands, or even millions of dollars.
When someone fails to appear for their court date, it usually means they have fled and could be anywhere in the world. If you can locate the fleeing defendant and bring them back to court within a given time limit, there’s a chance you can recapture your bond.
Bounty hunters are people who have the authority of bail bond agents to arrest delinquent clients and deliver them to authorities. But the bounty hunters are paid a percentage of the bail bond amount and only paid if they return the fugitive back to the court. Although, bounty hunters have different limits placed on them depending on state laws.
Bail Bond Investing and Bounty Hunters
If you think bail bond investing is less risky with a good bounty hunter, think again. An extremely motivated bounty hunter can be liable for reckless pursuits and apprehensions of fugitives. Your bail bond company could become liable for any property damage or injury caused by the bounty hunter employed by your firm. Like I said earlier, bail bond investing is not for the faint of heart.
This video does a good job explaining how bail bonds attempt to help lower-income people facing charges from the court. By posting collateral such as a house, a car, or cash, the defendant is released to continue walking free, with the ability to continue working while waiting for their court date.