The envelope has arrived just in time for your monthly bill-paying day. There's only one problem: When you open it, you see what a difference the absence of a zero can make because the amount on the cashier's check is incorrect. You could send the check back or wait for another check to make up the difference. But what's the point in creating a delay when you can sign the check over to someone else? It's not the most direct way to take care of business, but it's a perfectly acceptable transaction – as long as you follow a few simple rules that apply to these types of checks.
Certain Types of Checks Allow You to Bank on Safety
Now that you're thinking of it, you may be unsure why you received a cashier's check as a form of payment in the first place. In fact, unless you ask the payer directly, you may never know, but you can make two deductions:
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- You did not receive a personal check because the payer does not have a checking account.
- You did not receive a money order because the payer either does not have easy access to a bank or enjoys easier access to a grocery store, department store or post office. In other words, only banks issue cashier's checks whereas plenty of businesses sell money orders.
Whatever the reason, at least the person who owes you money did not take the risk of sending cash in the mail. And you can rest assured that the cashier's check in front of you is safe and secure because it is guaranteed by the bank that issued it, Forbes says. So while the amount may be incorrect, you won't have to worry about the check being negated by insufficient funds; it's already been paid for.
Certain Types of Checks Raise a Red Flag
By signing a check over to someone else, including a business, you will create what is known as a third-party check. (The person who sent you the cashier's check is the first party; you, the recipient, are the second party; and the person or business you plan to endorse it to becomes the third party.)
From the perspective of a bank or credit union, there are one too many parties in this type of transaction. They would prefer that the transaction ends with you, either by cashing or depositing the cashier's check in your account. Since they still must collect the funds from the bank that issued the cashier's check, and they tend to err on the cautious side anyway, they may cast a suspicious eye on a third-party check.
Some banks and credit unions banish the potential for problems by disallowing third-party checks, particularly personal checks. While perfectly legal, third-party checks fall outside the norm, Fiscal Tiger says, and so they tend to invite additional scrutiny.
Follow a Simple Sign-Over Process
Far from trying to change your mind about creating a third-party check, the red flag that it raises underscores why it's important to follow the endorsement process to the letter, Huntington says. The straightforward process calls for you to:
Call the person or business to ensure they will accept the cashier's check.
Ask the intended recipient to clear the next hurdle: Ensuring that his bank will accept the check.
Sign your name on the back of the cashier's check – just as it appears on the front. If the payer used your middle name, and you despise your middle name, swallow your distaste and include it in your signature anyway. Consistency will make the transaction go much more smoothly.
Below your signature, write "pay to the order of" and the recipient's name.
Give or send the check to the recipient.
If all of this strikes you as a lot of rigmarole to go through to unload a cashier's check, try to see the similarities between it and all of the other three-party transactions you probably are party to. (You receive money as a gift, take the money to the store to buy something new and the store uses the money to help pay its bills.) It's commerce, and it works when everybody follows the same playbook.