HUD 3259 Surety Bond Against Defects

Surety Bond Against Defects
Due to Defective Materials
and/or Faulty Workmanship

U.S. Department of Housing
and Urban Development
Office of Housing
Federal Housing Commissioner

OMB Approval No. 2502-0468
(Expires xx/xx/xxxx)

For all Insurance Upon Completion Projects.

Know All Men By These Presents, That We,
(hereinafter called the “Principal”) as Principal,
and

,

a

corporation (hereinafter called the “Surety”), as Surety,

are held and firmly bound unto
(hereinafter called the “Borrower”)
and unto

(hereinafter called the “Lender”),

their successors and assigns, as their respective interests may appear, as Obligees, in the sum of *
Dollars ($
)
lawful money of the United States of America, for the payment of which, We, the Principal and Surety, bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally, firmly by these presents.
demand of the Borrower, Lender or Federal Housing Commissioner, or any of them, at the cost and expense of the undersigned and without recourse against the Borrower, Lender or
Commissioner, or any of them, to remedy or cause to be remedied
all defects due to faulty materials or workmanship or both, or any
damage to the mortgaged premises resulting therefrom which
become apparent within one year from the date the Commissioner
acting through the Chief Underwriter of the responsible HUD
Field Office, approves the final Project Inspection Report. Such
date is hereinafter referred to as the “date of substantial completion.” Said final Project Inspection Report may be approved
subject to an escrow for incomplete items.
Whereas, it was a condition precedent to the granting of the loan
The condition of this obligation is such that, if the Principal
that the Lender should receive as additional security assurance
shall well and truly perform said undertaking and agreement
that the improvements to the property described in said Mortgage
hereinabove set forth, and fully indemnify and save harmless
would be constructed in accordance with Drawings and SpecifiObligees from all cost and damage which they may suffer by
cations mutually approved by Borrower, Lender, and Commisreason of Principal's failure to do so, and fully reimburse and
sioner prior to the commencement of construction of said imrepay said Obligees for all outlay and expense which Obligees
provements, subject to only such changes in said Drawings and
may incur in making good any such default, then this obligation
Specifications as may have been approved in writing by the
shall be null and void; otherwise, it shall remain in full force and
Borrower, the Lender and the Federal Housing Commissioner;
effect.
and
It is further understood and agreed by the parties hereto as
Whereas, the Commissioner is unwilling to insure said Mortgage
follows:
in favor of Lender without assurance that said improvements
1. This Bond and all rights accruing hereunder may be assigned
have been made and installed in accordance with said Drawings
to any owner or holder of the insured mortgage and to the
and Specifications and such changes therein approved as above;
Commissioner or his/her successor in office; and that such
and
assignment shall in no manner invalidate or qualify this Bond.
Whereas, Principal, as ** is expected to receive certain benefits 2. That neither the Principal nor the Surety shall have any right of
recourse against the Borrower, the Lender or the Commisfrom the granting of said loan to Borrower by Lender and the
sioner, whether by subrogation, contribution or otherwise, by
insurance of said Mortgage by the Commissioner.
reason of any payment made or work done pursuant to this
Now Therefore, in order to induce the Lender to make said loan
Bond.
and the Commissioner to insure said Mortgage, the Principal
unconditionally undertakes and agrees and guarantees on

Whereas, Borrower is indebted to Lender in the sum of $
, said indebtedness
being evidenced by a
,
dated
hereinafter
referred to as “Note,” said indebtedness being secured by a
mortgage or deed of trust of the same date, covering certain
improved property more particularly described therein, hereinafter referred to as “Mortgage,” which Mortgage is to be insured by
the Federal Housing Commissioner, hereinafter referred to as the
“Commissioner,” under the provisions of the National Housing
Act, as amended; and

Previous editions are obsolete

Page 1 of 2

form HUD-3259 (2/2001)
ref Handbooks 4470.1 & 4600.1

3. That this Bond is a continuing guaranty within the limits
aforesaid and shall run for a period of two years from the
aforesaid date of substantial completion.
4. That the liability of the undersigned under this Bond shall
continue and remain in full force and effect irrespective of the
fact that the Mortgage loan encumbering said Project insured
by the Commissioner has been repaid and the Mortgage
discharged prior to the end of said two-year period.
5. That the aggregate liability of Surety hereunder to the Obligees or their assigns is limited to the penal sum above stated,
and Surety, upon making any payment hereunder, shall be
subrogated to, and shall be entitled to an assignment of, all
rights of the payee against the Principal.

Signed and Sealed this

6. *** Surety and Principal agree that any right of action that the
Borrower herein might have under this Bond may be assigned
to the purchasing nonprofit ownership housing corporation or
trust approved by the Commissioner and that such assignment
will in no manner invalidate or qualify this instrument.
7. **** Surety and Principal agree that any claim or right of action
that the Borrower herein might have under this Bond may be
assigned to the Association of Owners and to the members of
such Association and their successors in interest, as their
interest may appear, after the property described in said
mortgage has been subdivided into individual condominium
estates, and that such assignment will in no manner invalidate
or qualify this instrument.

day of

, 20

.

Witness as to Principal

Principal

(Seal)

By

Surety

(Seal)

By

* An amount not less than
% of the cost of construction as estimated by FHA.
** State here the relationship of Principal to the project. The principal will normally be the general contractor, or may be the principal
stockholder, partner or joint venturer of the general contractor.
*** Applicable only to Investor-Sponsor Projects under Section 213 or 221(d)(3) and to Section 221(d)(3) Builder-Seller Projects. Delete for
all other projects.
**** Applicable only to projects under Section 234. Delete for all other projects.
Public Reporting Burden for this collection of information is estimated to average 0.3 hours per response, including the time for reviewing instructions, searching existing data
sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. This information collection is necessary to ensure that improvements
to insured property are made as required. It is important to obtain commitment from the Principal and the Surety that any defects discovered within two years of project completion
are corrected without recourse to the Borrower, the Lender, or the Commissioner. For additional information or questions, please contact Mr. Dan Sullivan at Office of Multifamily Housing
Development; e­mail address: Daniel.J.Sullivan@hud.gov. or 202­402­6130. This information is required in order to obtain benefits. This information is considered non-sensitive
and no assurance of confidentiality is provided. This agency may not collect this information, and you are not required to complete this form unless it displays a currently valid
OMB control number.

form HUD-3259 (2/2001)
ref Handbooks 4470.1 & 4600.1