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When is an "Official Check" not so official?

I’ve just had my first encounter with a proven, undeniable, thief who sought to steal money from our escrow account. Lots of money. Lawyers, closing agents, and Realtors need to know the story. This guy could have done no more damage if he had shown up in the lobby with a gun and demanded cash from the trust account.

A week ago I got an email from a person who said he was in California, who had gotten my name from an attorney in his state, whom he named. He gave us his own company name and address, and the name of his attorney in California. We checked his company and the attorney. Both were listed, and both looked legitimate. The man said in his email that he needed help collecting money from a local business in Okaloosa County. He had had a good history with the business, and he knew they wanted to pay, but they had gotten behind to the tune of about $500,000. He had heard good things about our firm, and he wanted us because he wanted to maintain his prior good relationship with his customer, but he needed us to help him collect. He had heard our reputation was good enough that the man might pay to avoid court action.

We checked for conflicts, and told him by email that we’d be glad to assist. I sent him a contract to sign, hiring our firm as his attorney, and told him the amount we would require as a retainer. I got the contract back today, by email, signed, but without the retainer. Coincidentally, at almost the same time, I got a letter from the man who owed the money, written on his company stationery, and apologizing for the delay in payment. The address matched a residence address in Shalimar. The letter also included an “OFFICIAL CHECK”, written on the Citibank of New York, in the amount of $198,000, payable to my firm. I called the client immediately and relayed the good news. He was very happy, and he told me that he was getting pressure from his own suppliers, that I should deposit the check, take out my retainer, and forward the rest by wire transfer to his supplier, all to happen as soon as possible.

The matter required some urgency because of his own pressure to make payments, and he implied on the phone that he really expected our wire go out tomorrow. We walked next door to the bank, asked them to call Citibank, and asked when we could expect the check to be good in our account. They made the call. Citibank said the routing numbers on the check didn’t match anything they had authorized.

My next call was to the local business that purportedly sent the check. The printed stationery listed an 800 telephone number, which I called. No one answered. I found a residential listing for the company president who had ostensibly signed the letter, in Shalimar. I called him and told him that I had his check in my office for $198,000. He laughed. He had written no such letter, or check, and owed no amount to someone in California.

Understand how complete this deception was. The companies were all real. The check was real, and was convincingly marked “Official Check”. The people were all real. Most of the information was real and easily verified. We did all those things. Yet the person was only hours away from stealing $196,000.

These are some lessons:

  1. Regardless of how slick and professional looking, and regardless of the label “Official Check”, “Cashier’s Check”, or “Certified Check”, a forged check is a nullity. It has no status as a payment instrument at all. Today’s printers can make counterfeit instruments more impressive looking than the original.
  2. An “Official Check”, even if legitimately signed by the maker, is often merely a personal check with the word “official” written on it. It is an imposter to the extent it is presented with an implication that it has status greater than an ordinary personal check, unless it is in fact signed by and written on the bank’s own account.
  3. Any personal check can be provisionally credited to your account. But the check is subject to collection from the bank on which it is drawn. A check written on a local bank should be actually collected from that bank within 3 days after it is presented. A check on an out of town bank will require more than a week to be paid by the drawee bank. The provisional credit will be reversed by the drawee bank if it is a forgery, or if there is no money in the account.
  4. A “Cashier’s Check”, if genuine, is a check written by a bank on its own assets. Payment could be stopped on a cashier’s check, but normally to do so would create liability to the bank. A genuine cashier’s check is normally safe to accept and fund upon.
  5. A wire transfer can be reversed as long as the money rests in the account into which it was wired. A careful professional will have a standing order for the bank to move wired money immediately from the transfer account into another account.
  6. If you’re asked to fund on an instrument without sufficient time to confirm its legitimacy, stop. Call the bank on which the check is written. By all means, don’t fund on the instrument unless you are sure the proceeds are successfully and irrevocably in your account.
  7. All these scams will look genuine. The people who put these schemes together are slick professionals who know what they are doing; the schemes generally have in common the fact that money must be paid out quickly in order to satisfy a very plausible deadline.
  8. Remember that these people want you to feel pressure to avoid looking stupid. Your finest moment will be when you don’t care what you look like, as long as you get it right.

In real estate closings, a careful professional will advise his clients far ahead of time that large money transfers need to be made at least a week before closing. For closing agents, funding at a closing table is Russian roulette unless all deposits can be confirmed prior to closing. That normally requires several days for in-town checks, or more than a week for checks from out of town. Anyone who urges you to fund quickly is asking you to risk your escrow account and your reputation for his convenience. If you allow that, you’re in the wrong business. But not for long.