Working on my Reg CC Audit and this one just doesn't seem right...what would you do? Customer deposited three checks totaling more than $65,000.00 into two different accounts. The deposits were made in October 2017 to a farm account in two individuals names, however the check was made payable to an individual AND a business. We accepted the deposit without the businesses indorsement (I know, first mistake). Then in January we received a letter from the attorney representing the business that was a payee on the checks stating that suit has been filed against the individual and there's a lien against the grain. Once we received the letter from the attorney, we "memo-posted" the account to remove the amount of the checks from the customers available balance per management. No hold notice was sent informing the customer that a hold would be placed on the funds which at this point I'm thinking is such a small issue in the big picture of things. We've not had this "hold" on the account for 3 months. My first recommendation is going to be for management to seek legal advice from our counsel. But this just sounds like a huge mess and the bank could have some serious repercussions. Just trying to gather others thoughts and opinions.....TIA!

My first recommendation is going to be for management to seek legal advice from our counsel.

That is the first and only thought. They are up to their necks in a hole and don't know enough to drop the shovel.

First, there is no provision in Regulation CC that anticipates the hold your bank placed.

Second, if the account owner wrote a check against those "held" funds and the bank refused payment, the bank could be staring at a suit for wrongful dishonor.

I assume that you meant to say, "We've now (not "not") had this 'hold' on the account for 3 months."

The notice of the suit against the individual and the lien on the grain held by the business didn't give you reason to hold those funds. At least from your narrative, I don't see any mention of a claim for breach of transfer and presentation warranties. THAT would have given you reason to grab funds from the account.

This is an illustration of why it's better to ask for permission before doing something rather than beg forgiveness later. Management should have consulted counsel before its knee-jerk decision to hold the funds.

At this point, management should most definitely talk with bank counsel and figure out what its options are. One of those options could be releasing that hold.

Thank you for your insight Randy and John. John, you are correct, I mean to say "now we've had the hold on for 3 months...."

I just spoke briefly with the our Chief Operations Officer and he is going to try to contact the customer again. He mentioned he's been easy to work with and the customer was aware of the issue and thought he settled up with the grain bin. I'm a bit concerned we're just taking the customer's word for it. I'm also concerned that our COO mentioned calling the attorney who sent us the letter and is representing the business. Ummm what?? I told him, and I quote "never take advice from someone else's attorney" I really pressed him to call our attorney. Well see what happens. John, I did recommend that we release the hold and maybe educate our tellers to not except checks for deposit if they are not properly endorsed. Jeesh, I hope this works out in our favor and doesn't blow up.....