If we were to note in the endorsement section of loan payoff checks to other banks, "this check may only be applied to loan number XXX and may not be deposited by furnisher" or something to that effect, and the bank allowed the customer to deposit the check into their checking account and the individual withdrew the money and fled the country, could the depositing bank be held liable. I.E. would adding this language transfer some liability to the other bank or would it do no good whatsoever?

Or...since the check would be made out to the financial institution versus the individual, would the liability rest with the bank regardless as the individual wasn't a holder in due course.

was the check made poayable to the bank? or the individual? or both? I don't believe that putting a restriction in the endorsement section on the back of the check is enforceable (I can't find a reference that says that it is). I think liability will be strictly on whom the check is made to, and how it is endorsed.

HG, thanks for the reply, the check would be made payble directly to the bank, not the individual.

then I would say you are on the hook for it...and need to do some teller training to boot.

This was not something that happened to our bank. We were just being proactive with regards to the risk on payoff checks that we issue.

Then be further pro-active and let the other bank know you are working a payoff and that you will be wiring the funds to effect the payoff and get wiring instructions from them.