Be Careful When Endorsing a Check

We frequently get calls from people who have been swindled by storm damage repair companies that convince them to sign over an insurance check to them. Say you get a check for roof repairs due to a storm, signing that check over to a repair company may leave you with a leaky roof and an empty bank account.

Most checks have language on them that says, “Pay to the Order Of. . .” followed by naming a particular person or business, which tells the bank to whom it can pay the money. This makes holding a check different from holding cash.

Cash is easily transferred from person to person by giving up possession. If Bob wants to give Joe his twenty dollar bill, he can just hand it to Joe. If Bob wants to give Joe a $20 check that is currently made payable to Bob, Bob can’t just hand the check to Joe. Bob has to either sign the check in his own name (called a blank endorsement) or sign the check and name Joe as the person to pay (called a special endorsement).

By signing the back of an insurance check to endorse it, without naming someone else to whom the check is payable or without writing “for deposit only,” the check has been turned into what is called bearer paper, which is a lot like cash. Whoever is in possession of a check that has become bearer paper can cash it. For this reason, it is unwise to sign the back of a check to endorse it if you are not immediately about to deposit it or cash it out yourself. If you endorse the back of a check and it falls into the hands of another person, that person in possession of it can cash it. Even if that person is wrongfully in possession of the bearer paper, it can be near impossible to catch someone like that after the check has been cashed.

Swindlers often want you to go to the bank with them so you can endorse the check and give them cash, or they ask you to endorse the check over to them. The swindler makes a big deal out of you getting an insurance check and can cause you to forget about normal caution that you would have in business dealings. Giving money to someone to make repairs before the repairs are done is rarely a smart thing to do. Depositing insurance proceeds in your own account and having a proper repair contract where you pay for work as it is done, makes much more sense. If thousands of dollars are involved, you may want to consider consulting an attorney.

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