Options Exist for Check Problems

With the continuing popularity of online banking and the widespread use of credit  and debit cards, it seems like virtually all transactions these days are being done electronically.  But some large transactions are still done mostly by check.

A good example of this is the sale of real estate.  Most real estate sales involve an “escrow holder.”  This “escrow holder” accepts instructions from both the Buyer and the Seller.  The Seller deposits a deed into escrow and the Buyer (or the Buyer’s lender) deposits the purchase price into the escrow.  When the escrow holder can fully comply with the instructions from the Buyer and the Seller, then the “escrow” is closed, the deed is recorded and the Buyer’s money is given to the Seller.

Most often the purchase money is given to the Seller in the form of a check.  So what happens if the Seller takes the check, goes out to dinner to celebrate the sale, but leaves the check in the restaurant with their purse or wallet?  What if the check is lost or stolen?  Can the Seller do anything about this?

The answer is “Yes.”  In that situation, the Seller can contact the escrow holder and request that a “stop payment” be issued on the check.  The escrow holder can contact its bank and ask that the check not be honored.  A verbal “stop payment” is generally valid for 14 days.  If a letter is sent, then such a stop payment request is usually valid for 6 months.  As long as the bank is given sufficient notice to act on the sop payment request, then the Bank can’t properly honor the check if a valid stop payment request has been made.  If the bank honors the check after receiving a valid stop payment request then the bank may be liable for any loss or damage that results from any wrongful payment by the bank on the check.

This isn’t to say that persons receiving checks should plan to rely on a stop payment order if they lose a check.  Mistakes happen, and sometimes checks are honored when they shouldn’t be.  If a bank mistakenly pays a check subject to a stop order, the person who lost the check may be unable to get a replacement from the check issuer and this person may need to rely on the bank for repayment.

The bank may resist making such a payment and an expensive lawsuit may be necessary.  Further, if the stop payment was only verbal, there may be no record of the stop payment and the bank may dispute when or whether such a stop payment request was validly made.

Therefore, in order to avoid a real headache situation, the best policy with respect to checks is to treat them like cash.