Checks Marked "PAID IN FULL" - A Trap?

QUESTION:   Our Association received a check marked Paid in Full”.  But the check was for less than the full amount owed by that owner. What should we do with the check?

ANSWER:   The act of cashing the check generally constitutes acceptance of the owner’s terms.  It is not enough to simply cross out the “Paid in Full”.  It is not enough to add a reservation of rights, such as “the acceptance of this payment is under protest”.

Before depositing the check, you have two basic options: (1) Return the check and ask for one that is not marked “Paid in Full”; or (2) Send it for deposit, knowing that it may be treated by a court as “Paid in Full”

Nevertheless, if you accidentally cash a check that purports to be “Paid in Full”, do not despair. You may prevent a full satisfaction of the account if, within 90 days of payment of the check, the Association tenders repayment of the amount of the check. However, this will only work if the Association did not have previous knowledge that the check was being submitted in full satisfaction of their account.    

Legal Tip:         If your Association uses a lockbox, checks are typically deposited automatically. Colorado law allows Association’s to challenge checks deposited in this manner if it gives owners certain information in advance. At least annually, the Association should send  a “conspicuous statement” to its owners stating that “communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to” a designated person, office or place.  

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