We have a non-customer who wants to cash a check from one of our customers, however, he has stamped "without recourse" before he endorses the check. We know that the funds are available; however, we would have no legal right to go against the non-customer for any potential loss. The UCC does not address "without recourse", and my reading of it suggests that if funds are available, and we can reasonably identify the non-customer, we should cash the check.

Has anyone ever had a similar situation, or have any ideas on how to handle this?

We never accept checks with this type of endorsement (I assume the non-customer was the one who stamped without recourse) . Neither did my previous FI. If the check comes back as fraudulent, altered, etc. you have no recourse whatsoever. I would tell the non-customer to negotiate the check at his FI (if he can) or obtain a replacement check from your customer.

FWIW - If I were your customer, I would not replace the check. I guarantee the non-customer would never make this "mistake" again.