Loans Usually in Writing

My uncle owned and operated a small farm.  That’s what he did his entire adult life.  He farmed.

As a boy of 8 or 10 years of age, I remember sitting in his living room in his rural farming community.  He was talking about the kinds of things grownups talk about, and he made one comment that has always stayed with me.  He said that he and my aunt had made a decision early in their marriage that they would always pay cash for everything, and that if they couldn’t afford something, then they would wait to buy it until they had the available cash.  But then my other relatives asked him “What about your house? Didn’t you borrow money to buy your house?”  And my uncle replied that of course he had borrowed money to buy his house – but for everything else he had always paid cash.

This exchange occurred many years ago.  But it illustrates a common fact.  While it’s possible to pay cash for a home, most homeowners end up getting a loan to help them pay for either part or all of the purchase price.  As a practical matter, it’s usually just too expensive for most homeowners to pay all cash for a home.  Many homeowners, and especially most first time homebuyers, simply don’t have the kind of economic resources they would need in order to be able to pay cash for a home.

There can be several potential loan sources for a potential homebuyer.  One of the most common sources is institutional lenders, such as a credit unions or a bank.  Family members can also sometimes contribute to the cost of buying a home.

A loan agreement can be either verbal or written.  But verbal loan agreements can create a lot of difficulties, including but not limited to proof as to the amount of money that was loaned and the time for repayment.  Small, informal loans between friends or family might be done on a handshake, but larger or more formal loans are almost always reflected in a written agreement or promissory note.

One of the most basic forms of loan is an “unsecured” loan, where a lender loans money in exchange for a simple written contract, or promissory note.  If the borrower doesn’t repay the loan, then the lender has certain legal remedies available that usually require the lender to go to court.  This can result in a court “Judgment” against the borrower.  But if the borrower has no money or other assets, then the lender might find that the judgment can’t be satisfied.

In order to protect the lender’s interest, sometimes lenders require a borrower to put up “security” or “collateral.”  The word “security” sometimes refers to security consisting of real estate; the word “collateral” is often used to refer to security consisting of personal property other than real estate.  The purpose of such “security” is to give the lender a specific asset that can be sold to satisfy and pay off the loan. This can be valuable if the borrower has no other assets which can be sold to repay the loan. If the lender does things properly, then the lender may be able to acquire a “lien” against the security so that the lender’s claim for repayment will be paid first.  This can be useful if other creditors might also be seeking repayment from the borrower.

It would be easy for lenders or creditors to misunderstand or misapply the legal principles and requirements involved in lending.  Many state and federal laws apply to loans. Violation of these laws can lead to liability and many different problems.  It’s generally not a good idea for persons to lend money unless they spend the necessary time and resources to make sure that their loan complies with all of the applicable laws.  Persons who are considering making loans should consult with competent, qualified legal and tax professionals to ensure that they fully understand all of the tax and legal considerations involved in making loans.

Early Advice Can Be Important

Everybody understands the concept of a sale.  Whether it’s a purchase of services, or groceries, or hardware, or whatever, everybody understands how the system works.  For a price, sellers will part with something of value when a buyer pays cash (or uses a check or a credit card).

But few people are aware that many legal rights can also be bought and sold.  For example, a business can sell its receivables, or its rights to be paid for goods or services it has sold to customers.  And a lender who remains unpaid can often sell its loan, or its repayment rights.  The right of a lender to be paid can still exist following a foreclosure.  For example, some homeowners buy their homes using both a first and a second loan.  If such a homeowner defaults on their loan payments, then either of the two lenders can foreclose.  If the first lender forecloses, then the second lender’s mortgage will probably be eliminated.  However, the elimination of the mortgage does not eliminate the loan.  In some cases, a second lender who loses their mortgage may still have the right to collect on the loan.  But some lenders aren’t interested in pursuing collection efforts on the loan.  In these circumstances, such lenders may elect to sell their loan rights to a third party, such as a debt collector.  If this happens, a homeowner who loses their home in foreclosure may find themselves dealing with a debt collector following such foreclosure.  This can be a difficult and expensive situation.

How can homeowners avoid such a situation?  In part by being proactive.  Homeowners may be able to avoid dealing with debt collectors if they take proper or appropriate steps before or early in the foreclosure process.  When homeowners find themselves in foreclosure, or unable to make their payments, they do well to seek skilled, competent, professional advice early.

Facing the Music

So what can five dollars get you?

At the right fast food place, it can get you a cheeseburger, fries, and maybe a drink.

It can get you just over a gallon of gas.

It can get you several candy bars.

It can get you a fantastic bowl of ice cream at several Bay Area high-end ice cream shops.

And, if you happen to find yourself in Escalon, California on the second Wednesday of any given month, five dollars can get you an admission ticket to the Escalon Community Center.

Why, you may ask, would anybody want to pay five dollars to gain entrance to the Escalon Community Center on the second Wednesday of any given month?

Because the Good Time Accordion Club holds its regular monthly meeting on the second Wednesday of every month at 7:00 p.m. at the Escalon Community Center, 1055 Escalon Avenue, Escalon, California. (Website address

So why would anybody want to drive all the way over to Escalon to attend the regularly scheduled monthly meeting of the Good Time Accordion Club?

Because after the initial club business has been conducted, the club hosts about two hours of the most joyful, rollicking accordion music you could ever hope to hear.

I’ve been playing the accordion for nearly  40 years.  But the only person I’ve ever heard play was myself – and a certain deceased television personality who has several resorts named after him (website address

On a recent Wednesday evening, I made my way with my favorite date of nearly 30 years over to the monthly meeting of the Good Time Accordion Club.  There we listened to a world class accordion player, who had no less than 3 microphones trained on his accordion.  He sat down, I had high expectations – and I was not disappointed.  He began the evening by playing The Blue Danube waltz by Johann Strauss.  This number is sometimes referred to as one of the most popular classical numbers ever written.  I’d never heard anything like it on the accordion.  The accordion is sometimes referred to as a “one man band” and this professional accordion player referred to it as a “Pipe Organ in your lap.”  And it truly was.

The number started slow, and as it went along it built in tempo, complexity, and intensity.  The performance was exhilarating.  As the artist got underway, I thought to myself “I could learn this music.  I could play this piece, just like he’s playing it.  But it would take me some time to learn it.”

I’m self employed, so if I don’t work, there’s no income.  So I sometimes think of activities in the context of how much income I’d have to give up to do something else. I know how to play the accordion and the piano, and I know how much time it takes to learn new music.  As this artist got underway, I thought “You know, I could do this, but it would cost me $10,000 in time.”  As he continued, I thought “No, better make that $50,000.”  As the music became more complex, I thought “No – better make that $100,000.” Eventually I thought to myself “You know, I think I’d rather just pay $5 and listen to him play it.”

And that’s what I did.

So what does playing an accordion have to do with being a lawyer?  The answer is opportunity cost.  I could learn to play The Blue Danube waltz as well as this professional played it – but it would take me something like a year of full time work to do it.  It’s considerably more cost efficient for me to pay $5 and enjoy the benefits of his thousands of hours of practice.

The same is true for legal work.  Most legal training consists of reading, writing, thinking, speaking and analyzing – and these are activities that many of us do all day long for much of our lives.  So sometimes it’s tempting for people to want to save costs by doing their own legal work.  But the amount of  time, effort, study and experience necessary to do it well – or to do it correctly – can be staggering.  Many times its just plain simpler, easier, faster, cheaper, and better to let somebody else do it who has made a lifetime study of it.

Easter a Traditional Time

On Easter a lot of colored Easter eggs will show up in homes all across the country.  And a lot of sugar and chocolate Easter candy will show up as well.

Who delivers all of those eggs, and all of that Easter candy?  Opinions vary.  My youngest daughter did volunteer work in Sweden.  She emailed me a photograph of the business district of the city where she’s serving.  The photo showed a number of young, small city trees with hundreds of black, yellow and red feathers tied to the branches.  Why the feathers?  As reported by my daughter, the Swedish Easter tradition involves “Easter Chicks” instead of “Easter bunnies” because bunnies don’t lay eggs. (Apparently the Swedish Easter Chicks do lay such eggs).

So the Easter Bunny has been has been around for a long time.  If Wikipedia is correct, then the tradition of having an abundance of eggs on Easter may be traced to an old custom during Lent of forbearing from eating eggs – with the result that perhaps many eggs might be consumed on Easter.

The Easter Bunny is clearly a well-known part of American culture – so well known, in fact, that the Easter Bunny shows up in the occasional legal opinion.

In 2007, a father and a son sought to obtain special permits under Iowa law that would allow them to carry a concealed weapon.  They met all of the legal requirements for getting such a permit, but a local Sheriff denied them the permits anyway.  According to the court opinion, the Sheriff did so because of the father’s political writings and affiliations.  It appears that the Sheriff did not agree with these writings and affiliations, or that the Sheriff may have had other concerns about them.

The father and the son filed a lawsuit in Federal District Court, alleging that the Sheriff had infringed on their right to bear arms under the Constitution.  The father and the son also argued that their civil rights had been violated under a civil rights law known as section 1983.

During the course of the lawsuit, the Sheriff’s deposition was taken (a deposition is an out-of-court proceeding where a witness or a party is asked questions and must give answers under oath).  In the deposition, the Sheriff conceded that he had acted improperly in denying the father and the son’s applications for the weapons permit – in essence, the Sheriff admitted that he had violated the constitutional rights of the father and the son.

The lawsuit proceeded to trial, and the father won.  The civil rights law that had been violated provided for an award of attorneys fees.  The father asked that his attorneys fees be awarded.  The Court found that because he had won, the father was entitled to an award of attorneys fees.  However, the Court felt that the amount of fees requested was excessive (the father requested over $118,000 of fees).  The Court stated, in its written opinion, that after the Sheriff admitted his constitutional violations at deposition, that it would be about as likely for the father to lose his case as it would be for the Easter Bunny to throw the winning touchdown pass at the next Super Bowl game, off a triple reverse on the last play of the game. The Court felt that because it was so highly likely that the father would win, the amount of fees incurred by the father’s lawyers were unnecessary and excessive.

The case is reported as Dorr v. Weber (2010) 741 F. Supp. 2d 1022.

(Incidentally – the father did receive an award of his attorneys fees, but the judge discounted the fees from $118,415.75 to $54,174.86 – for an award of approximately one-half of the fees incurred).

Attorneys fee awards, civil rights claims, and weapon issues can all involve complex issues of law.  Persons with issues, matters, or questions on such matters and on all legal matters should seek competent legal counsel.

Drama with Texas Deed

            So what was going on in 1895?

In the United States (according to Wikipedia), the sport of volleyball was invented by William G. Morgan at Holyoke, Massachusetts.  The first American professional football game was played in Latrobe, Pennsylvania between the Latrobe YMCA and the Jeannette Athletic Club (Latrobe wins 12-0). George B. Selden was granted the first U.S. patent for an automobile.  Oscar Hammerstein opened the first theatre to be built in New York City’s Times Square District.  And the gold reserve of the U.S. Treasury was saved when J.P. Morgan and the Rothschilds loaned $65 million in gold to the U.S. Government.

Internationally (according to Tchaikovsky’s ballet “Swan Lake” opened in St. Petersburg. Frederick E. Blaisdell patented the pencil. Wilhelm Roentgen of Germany discovered x-rays. Alfred Nobel established the Nobel Prize.  The first shipment of canned pineapple from Hawaii was received. The world’s first movie theater opened in Paris. And Oscar Wilde’s “The Importance of Being Earnest” opened in London.

In Texas?  There was drama with respect to the sale of a parcel of real property. This sale ended up in a court case.  It seems there was man with the initials of C.C.A. who was interested in acquiring a piece of land.  The court’s opinion doesn’t say how C.C.A. knew about this land, or why he wanted it, or what he planned to do with it.  But it’s clear that C.C.A. wanted it.

The land was owned by a husband and wife with the last name of Bargas.  The court opinion doesn’t say how C.C.A. knew Bargas, and the opinion doesn’t say if they were friends.  The opinion doesn’t even say whether or not the property was for sale, and it doesn’t say whether C.C.A. ever tried to buy the property.

But the opinion does say what happened on June 3, 1895.  On that day, C.C.A. took with him a notary public, and went to visit the home of Mr. Bargas, who was one of the owners of the property. The court opinion notes that on the same day, Mr. Bargas was dying, and that he was unconscious, and was incapable, both physically and mentally, of performing any act.  Before C.C.A. went to visit the property owner, he wrote out a warranty deed which purported to transfer title to the property from Mr. Bargas to C.C.A.  When C.C.A. and the notary public arrived at Mr. Bargas’ home, they found Mr. Bargas unconcious, dying, unable to raise his hand, and completely unaware of anything.  After finding Mr. Bargas in this condition, C.C.A. (or the notary) raised Mr. Bargas “from his dying bed, took his helpless hand, touched it to a pen, and then with the said pen . . . made a cross mark . . . and above the cross wrote the words “his,” and below it the word “mark.”

There was no evidence that Mr. Bargas ever acknowledged the deed or knew it existed.  Instead, the evidence showed “beyond doubt” that Mr. Bargas was “wholly unconscious” after the deed was signed up until the time of his death, which occurred on the same day, a short time afterwards.

On these facts, the Texas court found the deed and the cross mark to be a “forgery. ” The court found that because Mr. Bargas knew nothing about the deed or its execution, the deed was never intended by Mr. Bargas to convey title, and the deed was never delivered by him to C.C.A.  The Texas court therefore found that the deed was completely ineffective to convey title to C.C.A.

There are other facts of the case not recited here.  The case is reported as Abee v. Bargas (1901) 65  S.W. 489.

The rules concerning conveyances of title to property can be complex, and results can vary.  Persons considering matters or issues involving deeds or other transfers of title to property should consult appropriate legal counsel.

Water Level an Old but Effective Device

            Some years ago I had the opportunity of traveling to Israel.  My daughter was participating in a study abroad program in Jerusalem.  Israel seemed like a different world in many respects.  The culture, the food, the history, the atmosphere – everything was unique, different, and fascinating.

As a real estate attorney, I took particular notice of the construction that we saw.  Both modern and ancient construction practices, methods and materials appeared to be different from United States practices in many respects too numerous to describe here. The ancient ability to construct large and complex structures with limited technology, engineering and equipment was remarkable. But one particular engineering feat especially caught my attention.

In approximately 700 A.D., the King of Israel recognized that the city of Jerusalem was vulnerable to attack by the Assyrians, who were a large, influential and powerful neighboring kingdom.  One of the major water sources for Jerusalem was located outside the walls of the city.  The King of Israel discovered that the elevation of a portion of the city of Jerusalem was lower than the spring.  So the King developed an elaborate engineering scheme to bore through nearly 1800 feet of solid limestone rock in order to allow spring water to flow into the city.  If the Assyrians laid siege to Jerusalem, then at least the City would have water while it was fighting off the attack.

The ancient engineers and workmen dug from both ends of the tunnel – one from the spring, and one from inside the city.  After many months, the workmen met in the middle, over a hundred feet underground.   Their work is still visible today, and as a tourist, you can pay a small admission fee and walk through the tunnel, end to end, with the spring waters still flowing past your feet from the spring into the city of Jerusalem.

Here was the engineering feat that caught my attention.  As you walk through the tunnel, the slope of the tunnel floor is for the most part gradual, almost imperceptible.  The elevation drop between the start and the end of the tunnel is only a very few feet.  So without the benefit of modern laser or leveling equipment, how did the workmen properly slope the floor of the tunnel so that it was neither too steep nor too shallow?  At the point where the workmen met, the tunnel floor is smooth and nearly flawless.  How did the workmen work towards the same point, so that when they met they were both at the same elevation?

The workmen carved an inscription on the wall to celebrate their accomplishment.  But they don’t appear to have left any kind of detailed description of their engineering or construction methods.

One potential answer to these two questions is the use of a water level.  I’ve been told by civil engineers that the water level is one of the oldest leveling devices known to man, and these same engineers have also told me that water levels were used in building the Egyptian pyramids.

The concept is both simple and elegant.   An empty bowl is placed on a stand, and a twenty or thirty foot hose or tube is connected to the bowl.  A stick is fastened to the far end of the hose, and the hose runs several feet up the stick.  The bowl and the hose are then filled with water.  The water will fill the hose to the same level as the water in the bowl due to gravity.  As a result, by placing one end of the stick on a spot on the floor, the builders can tell whether that spot is higher, even with, or lower than the bowl, even if that spot is 10, 20 or 30 or more feet from the bowl.  By placing marks on the stick, the builders can tell the exact difference in elevation between the bowl and the surrounding areas.

What does this have to do with California?  Homes in the San Francisco Bay Area are often built on expansive soils that move up or down.  When soils move after the completion of a home, then foundations often move as well, and when foundations move, then floors will often move.  By using a water level, engineers can often track the amount of up or down movement in the floor of a modern California home.

Foreclosure Timing Can Be Important

            The real estate market downturn was a fact of life for several years. There appear to be many homeowners who are still having a hard time making their mortgage payments.  Sometimes this difficulty is due to losing a job.  Sometimes it’s due to other reasons.

Sometimes there’s just no viable alternative for homeowners other than foreclosure.  But even though California is sometimes referred to as a “non-recourse” state, borrowers can still be personally liable following some foreclosure sales.

Borrowers with only a single loan are at risk when they don’t or can’t make their payments.  Single loan borrowers can also be at risk in connection with a short sale.  Borrowers who have two loans are particularly at risk, especially if the second loan is a recourse loan.  In these situations, a borrower can be personally liable for the unpaid balance of the second loan even after the first lender forecloses.  It’s sometimes tempting for homeowners to think that their liability ends with a foreclosure or short sale. But that’s not always the case.  Sometimes the homeowner realizes too late that personal liability may still exist after such a sale as to one or more of the loans secured by their property.

Many homeowners who are having trouble making their monthly payments find it difficult to spend even more money consulting professionals as to what they should do about their financial problems.  But tax and legal issues can result in hundreds of thousands of dollars of borrower liability in some situations.  The law concerning short sales and foreclosure is complex, and the tax consequences of a foreclosure or short sale can be severe.  Homeowners who can’t make their regular payments act wisely when then seek out competent, qualified, and capable tax and legal advice with respect to their inability to stay current on their loans.

He Better Watch Out . . .

There has to be an exception.  Somewhere buried deep in the laws of the United States, there has to be a legal exception for Santa Claus. I know there’s got to be one.  I just don’t know where to find it.

How do I know this?  Because without a big legal exception, Santa would be in a heap of trouble.

What kind of trouble?  Every kind.  Just think about it for a minute.  Santa runs one of the biggest industrial, travel and shipping operations in the world.

When we talk about travel destinations, we might think of Maui or Cancun.  But what about a travel agency that books a destination to every single house on the face of the planet? And all in a single night?  The logistics are mind boggling. How Santa did all this before the age of the internet is unthinkable.  But there it is – he visits every house, every where, and delivers just about every thing under the sun.

And where does he get it all?  He MAKES it.  That’s one big industrial operation.

So what kind of trouble could Santa be in?  Well, there’s plenty of paint and plastics in the things he makes.  That means there’s plenty of hydrocarbons involved in his manufacturing processes, and there’s going to be industrial waste.  He better not just stuff it under the nearest iceberg – because he might violate international laws and treaties about ocean pollution.

He better be careful where he sets up shop – he wouldn’t want to disturb the natural habitat of the polar bears up at the North Pole. They are an endangered species – so any interference with their lifestyle or habitat could be a problem.

He better watch out for air pollution too, because with all of that manufacturing going on, there’s sure to be smoke from all kinds of different things.

And what kind of labor force would he have to use?  Just planning the travel and delivery logistics would take an army of elves.  Getting the right present into the sack in the right order? No small thing.  If the gift you want is at the bottom of the sack – well, you see the problem.  It’s all got to be stacked in there just so.  Besides all the logistical work, there’s all of the manufacturing and other activities.  Santa even has to deal with organized labor issues.  First there’s the general purpose labor union, the Brotherhood of Northern International Christmas Elves (BNICE). But Santa also has to deal with specialty unions, such as the elves that grow all those oranges that go into the toe of all the Christmas stockings.  Their union is known as the Elves Garden Group of Northern Orange Growers (EGGNOG).  Santa has to deal with other specialty unions, such as elves who make all the Christmas candy and also supply the North Pole with ice cream, which is the Cooperative Organization Of Kandy and Ice cream Elves (COOKIE).  There are other specialty labor unions, such as union that only installs locks on dollhouses, hinges on jewelry boxes and similar hardware (Santa’s Little Elves who Install General Hardware, or SLEIGH). Elves can get a bit territorial – so even the smallest, least frequent tasks can require a union with a long name, such as the Generally Organized Officers and Dutiful Christmas Holiday Elves who Energize Rudolph (GOODCHEER). Kind of hard to imagine that periodically changing the batteries in Rudolph’s nose requires a whole separate union — but it does.

And all of this doesn’t even get things “off the ground.”  Once everything has been made, Santa has to personally deliver it.  I wonder if Santa has received appropriate licensing from the FAA to operate an aircraft in U.S. airspace?  I don’t know- maybe a “miniature sleigh with eight tiny reindeer” doesn’t qualify as an aircraft.  Really, who in their right mind would consider a sleigh to be an aircraft?  Maybe Santa gets to “slide” by on this one.

But “laying aside” this issue, Santa still has to deal with all of the laws about getting the gifts into each house.  Landing a sleigh on a rooftop without permission?  Could be a trespass.  But I’ve seen stop signs at homes that say “Santa! Stop Here!  The Children inside have been good this year!”  Maybe that kind of sign is an invitation – and then Santa would be a welcome guest.  When somebody is invited onto a property, there’s no trespass.  But going down the chimney?  Could be breaking and entering – another legal problem.  But the cookies and milk waiting for him might be an invitation to come inside – and there’s no breaking or entering when someone is invited to come in.

Santa’s legal problems are almost enough to make your head swim.  Good thing he’s got the world’s best legal team up at the North Pole.  Their address?  Holley,  Jolley, Mistle and Toe, LLP, North Pole.  And when it’s all done?  On December 26, Santa is always Ho Ho Hammered.

Bay Area City Programs Can Make Housing More Affordable

Even with the significant downturn in the real estate market, some first-time homebuyers can find it difficult to come up with a down payment to buy a home.  Others may find it difficult to qualify for a loan at all.

Few people seem to be aware that several Bay Area cities operate various types of government-funded programs to assist some first-time home buyers.  For example, the City of Pleasanton operates an affordable housing program that has resulted in the development of over 120 affordable homes in 10 separate developments.  The prices of these home have ranged from the low-$100,000’s to the low-$200,000’s. These houses typically have price restrictions associated with any resale.  As a result, there are often restrictions on the amount of income that can be earned by prospective buyers of such home.  These restrictions help assure that homes in the program are re-sold to buyers who may also have difficulty purchasing a home in the Pleasanton real estate market.  More information about the program and its guidelines and requirements can be viewed at

The City of Dublin also operates a First Time Homebuyer Loan Program.  The Dublin city guidelines defines a First Time Homebuyer as a household that has not owned a residential property or home within the previous three years.  The guidelines for this program provide, among other things, that the borrower must provide at least 3% of the purchase price as a down payment.  Borrowers who are approved by the City will received a 30 year deferred loan at an interest rate determined by the City, with no payments due until either the home is refinanced or sold.  The current interest rate on these loans is 3.5%.  The amount of the loan can be for up to 10% of the sales price, so it can be potentially used for down payment or to help with closing costs. More information about the program and its guidelines and requirements can be viewed at (click on “Departments” and then “Housing”).

Other cities also have affordable housing or first-time buyer programs. Requirements, guidelines, and availability vary from city to city.  Information about the program run by the City of San Ramon can be viewed at (click on “services” and then “Special Services” and then “Affordable Housing”). The site for the City of Danville is (click on “Residents” and then “Housing Information”). The site for the Livermore City Program can be found at (click on “How Do I” and then “Apply for Affordable Housing”). And the Tri-Valley program web site can be viewed at

Other Bay Area Cities may also have similar programs.

Checks Still Common in Real Estate Transactions

            Credit cards have virtually eclipsed the use of cash and checks for routine retail transactions.  Thirty or forty years ago, before credit cards were widely used, most transactions were done by cash or check.  These days, it seems like virtually all retail transactions are done by credit card except for the smallest retail purchases.

But in real estate transactions, the use of checks is still common.  Most sales of real estate involve a down payment, and the amount of the down payment is large enough that cash is seldom used.  Common practice is to use either a personal or cashier’s check for such a down payment, which is often for several thousand dollars or even for tens of thousands of dollars.

There can be situations where a person writing a check may want to “post-date” a check.  Such a person may need time to gather money from various sources.  Recognizing that a return of a check for insufficient funds can create a number of problems, such persons may offer to “post-date” the check to a later date and ask for an agreement that the check not be deposited until such later date.

This can lead to an interesting question as to what a Bank would do if such a check were deposited before the date shown on the check.  Most people probably don’t know whether a Bank can properly pay, deposit, or negotiate a post-dated check before the date shown on the check.

Two rules govern situations involving post dated checks.  The first rule provides that “negotiable instruments” such as checks are not properly payable until the date shown on the instrument. But a second rule provides an exception, and it states that a Bank may properly charge its customer’s account for a post-dated check before the date shown on the check.  These rules are found at California Commercial Code sections 3113 and 4401.  As a result, a person who receives a post-dated check can literally go straight down to their bank, deposit the check, and the Bank can properly honor that check.  (If the Bank has a different policy regarding post-dated checks, then the Bank may nevertheless refuse to honor the check even though the law provides it could be properly paid).

There’s one important exception.  If, before the check is deposited, the customer provides notice to the Bank that the check is post-dated, and if the Bank is given enough advance notice to act on this notice before the check is presented, then the Bank cannot properly honor the post- dated check before the date on the check.  If the customer tells the Bank about the post-dated check over the phone or verbally, then the Bank is supposed to wait 14 calendar days before it honors the post-dated check, unless the check’s date is within that 14 day period.  But if the customer follows up with a letter, then the customer’s instruction to not pay the post-dated check is valid for up to 6 months.

Sometimes bank errors occur, and checks get honored that shouldn’t be honored.  And there can be other exceptions and considerations involving post-dated checks.  As a result, if a person intends to write a post-dated check and if any significant amount of money is involved, such a person should consult an appropriate professional if the time of deposit is of any concern.