3rd Party Check – Endorsement Verification
by John Burnett, BOL Guru
Question: If a customer brings a third party check to deposit into his account, should we verify the first two party endorsements? Does the endorsement of our customer provide sufficient recourse?
Answer: Whether or not your bank requires that earlier endorsements be verified will be a matter of bank policy. Many banks have opted not to accept third party checks specifically because of the difficulties of verifying endorsements, and the long life (up to three years in most states) of any potential liability for a forged endorsement.
There's no absolute answer to your question about recourse. Is your depositor liable for the validity of endorsements made earlier? Yes. Will your customer be willing/able to honor that liability three years from now? That is the real question. Banks that accept third-party endorsed checks for deposit should have analyzed the risk of doing so, and the strength and ability of each depositor to cover that risk if the endorsement should prove invalid.
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