We received a check for deposit made payable to 2 different parties, one of the parties we can verify the endorsement on and the 2nd party's endorsement appears to be forged. We placed a hold on the deposit. When the hold is released, can we withdraw the funds as the FI and hold them in a cashier's check until the item is returned? What time frames apply? Or, do we just have to leave the funds in the account and hope the money is still there when the check is returned?

The question is why did you accept it for deposit in the first place. You really have no right at this time to delay the availability of the funds at this point unless you are sure it is coming back.

The teller did not notice the endorsement, it was noticed later. We were in contact with the payor and payor FI who both stated the check would be returned.

If you are sure the check is on the way, I would probably let the customer know that you are on to their little trick and let them know you are debiting the account now. What are they going to do - sue you.

That is the question. If they do sue us, what time frame do we have to hold the funds before the check is returned? Or is this one of the wonderful grey areas?

Well, you don't say how much the check is for. Is the risk of loss to the bank large enough to bend the rules. There comes a time when in suspected fraudulent situations, it is better to protect the bank. If the endorsement is forged, they are facing criminal prosecution. On what grounds would they sue?

That we held just over $10,000 and they had property that may be forclosed on.

For that amount I would be visiting with your legal counsel.