Is "Two Party Check" an acceptable reason for an exception hold?

"Unable to verify endorsement" is closer to language used in one of the model forms.

Keep in mind, Reg CC gives you a hold up to the 7th business day following the banking day of deposit. On the other hand, under the model version of the UCC the paying bank has up to three years to send the check back for a forged endorsement.

The exception hold is the equivalent of a straw house.

You need to be sure you can rely on the endorsement of the final party - which should be your customer. And if it comes back, contact your customer for collection. Do not bypass them in the collection process. They accepted responsibility for the item when they endorsed it; have them pay you and then they can try to collect from original party.

My bank has been burned many times in the past where a customer has endorsed the back of a non-customer check and the customer in time has closed their account. The check the customer has endorsed then comes back 2 to 3 years later for a forged endorsement and we are left holding the bag because we can not reach the former customer. We have it in policy now that all third party checks (with the exception of a parent/guardian as the third party endorsement) must have the original payee present to deposit or cash. We take a thumbprint if the original payee is a non-customer along with documenting all identification information and performing an OFAC check on the original payee. May be a bit extreme for some; however, we do not have any more loss due to forged endorsements!