Why is there a fifteen day hold on settlement checks

There is a common scam out there. It goes something like this. Someone will contact an attorney or law firm. They claim they have a large case which needs to be settled. They sign a contract with the firm. The opposing party suddenly is interested in settling. A check is mailed to the firm.


How banking works


When any of us deposit a check at our bank which is from someone having an account at a different bank, our banks immediately place the indicated amount of money into our accounts.


However, the process of having the money from the sender’s bank be transferred to the depositors bank is NOT instantaneous. So, each time we deposit a check from someone banking at a different financial institution, our banks are providing us a brief loan without interest. They are placing the banks own money into our accounts, believing the check is actually good for the amount written. This almost always works out just fine.


Back to the scam


Scammers know about this delay in the processing of checks between financial institutions. It is called check kiting.


So the alleged opposing party sends a check to the law firm. The law firm deposits the check into its trust account. The alleged client demands the firm write a check for their portion of the settlement as soon as possible. The scammers know the check is invalid. If all goes well for the scammer, the law firm writes the check, and sends it off to the client.


The firm gets screwed


After a few days, the firm is informed by its bank that the check bounced. Having deposited its own money into the firm’s account, the attorney’s own bank withdraws the amount of money previously deposited into the firm’s account. The problem is, the alleged client has already cashed their check and has disappeared. The firm is left holding the bag, on the hook for the amount of the bad check.


For this reason, we have a mandatory hold on all settlement checks over a specific dollar amount. So note to scammers, go find someone else to screw over. Or, here’s a better idea. Get a job!



Contact The Lockwood Legal Group, LLC today!


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