Customer paid of loan and had an escrow surplus. Our institution mailed the customer a check for the surplus amount; however, the customer has not received the check and it has not been cashed/deposited. The customer contacted us informing he had not received the check, thus we have placed a stop payment on the check as over 30 days has passed since issuing the check. The customer asked if we could just deposit the surplus amount into his account, is this allowed or should we just issue a new check?

I see no harm in following the customer's request. If you want a paper trail, cut the check then deposit it for them.