Indemnity Bond Law and Legal Definition

An indemnity bond is a bond that is intended to reimburse the holder for any actual or claimed loss caused by the issuer’s conduct or another person’s conduct. An indemnity bond acts as coverage for loss of an obligee when a principal fails to perform according to the standards agreed upon between the obligee and the principal. During the time of foreclosure, if the house is sold to pay off the loan and there is negative equity, then the indemnity bond pays the difference.