A short time ago I was contacted by an attorney in San Jose, CA. He told me that he received a check from a new client in the amount of $215,000. Part of this money was a retainer. The majority was to be used by the attorney as good faith or interest money toward the purchase of real estate. The real estate market had turned sour and cash was king. A self-described investor was interested in finding distressed properties to be purchased on the cheap, and the attorney agreed to help. A short time later, this same attorney related that he received a communication from this investor who now advised that the market was worse than imagined and he was no longer interested in California real estate. He requested that the attorney keep $15,000 and wire the balance back to him. The attorney was suspicious and asked me what he should do.

I suggested that before wiring $200,000 back to the client he should verify the sender's identity and the bank that issued the check. He disagreed with my suspicion and my suggestion. He said that the check was from outside the U.S. and when he deposited the money in his trust fund account the bank had placed a hold on the funds due to the origin and amount of the check. "But," he continued, "the bank has released its hold, indicating that the check is valid." He said he felt pressured to return the money to his potential client, and he did so.

What happens when you deposit a check? What do those words that the bank employees use really mean? I'm talking about words like, "hold on your funds", "available balance", "P.E.G." and more. These terms become very relevant when you receive a check from a client and you need to be certain that the check is good before writing checks on your account.

Anytime you deposit a large check you may be informed by the teller that a hold has been placed on your account. The purpose of this hold is to allow your bank to validate the authenticity of the check, so that you don't withdraw the newly deposited funds immediately and leave the bank liable. The bank places a hold on the deposited funds until the funds actually arrive. Or do they? It is common for holds to last from three to ten days or more.

Typically, a bank will credit an account to show the deposited funds as part of the account holder's overall balance. However, the account holder will not be able to withdraw these funds until the hold is lifted. Generally the length of the hold is determined by several factors: