Stop Payment Orders for Cashier's Checks

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Question:

I understand that loan proceed checks are considered cashier's checks. We have had several occasions where an auto dealership claims not to have received our check and we have to place a stop pay. Should the dealer be signing a notarized stop pay or should our customer who is purchasing the car do this? Can we process this internally without a notarized stop pay request?

Answer:

The liability your bank exposes itself to when it replaces a lost, stolen or destroyed cashier's check without waiting 90 days and following carefully the requirements of UCC Section 3-312 is considerable. I would never suggest that you replace such a check without getting a signed, written claim from the payee or the remitter (the only two parties allowed to file a claim). The claim should be accompanied by a Declaration of Loss, which you can require in the form of an affidavit (check your state's version of Section 3-312 to determine if it must be an affidavit).

The declaration or affidavit of loss is evidence of fraud if the dealer receives and negotiates the original check in addition to the replacement.

Very few banks will replace cashier's checks before they're 90 days old, because they want the protection from liability that Section 3-312 provides. Those that replace early generally do so only with some enforceable agreement (a bond or a guarantee) from a party able to back it up that the bank will be made whole if it has to pay the original check.

First published on BankersOnline.com 2/21/11