In October, 2017, a customer deposited a check from an insurance company for just over $10,000. Procedures were followed, holds placed. Check did clear the bank. In December the same customer came in with another check, from a title company in excess of $12,000. This was not normal activity for this customer and her explanation did not seem reasonable. We accepted the check with an extended hold. Upon further investigation, within hours of the deposit, we discovered the check had been washed. We contacted the bank's loss mitigation department who contacted the owner of the check. The payee's name had been washed and our customers replaced on the check. We contacted authorities. We reviewed the check from the October deposit and contacted the bank stating they may have a problem. They told us no, the check cleared without instance.

We have now received a letter from the bank asking us to send them the $10,000 from the October payment. They contacted the business owner, and it seems checks had been washed from the title company. The owner of the business had no idea until the bank contacted him.

UCC Code requires the customer and the processing bank to have controls in place. Are we responsible at this point in time to refund the bank?

Depending on your state's Uniform Commercial Code, the maker of a check may have up to one year to report an alteration. For $10K, I'd be discussing my options with bank counsel.

Thank you.