I have a question regarding an individual who cashed counterfeit postal money orders. He apparently did not know they were counterfeit. I understand that under the UCC, he as the person cashing the money orders has liability regarding the counterfeit money orders.

From reading entries in the InfoVault, it appears that the depository bank can always recover from the person who deposits the counterfeit check. However, is it possible that the depository bank may also be liable if they should have known that the money orders were counterfeit. In this case, the attorney for the depository bank has
stated something to the effect that the counterfeit money orders were not very good and were obviously fake.

Also, it has been months since the individual cashed the money orders and the bank is just now coming after him. Is there a time limit on any action by the bank?

The law is pretty plain on this: the depositor is liable on his endorsement, which guaranteed the legitimacy of the item.

Whether any liability could be assigned to the bank based on some non-UCC statute is not something I could offer an opinion on. If what you've said is true, the bank might rightly be irked at its attorney for having suggested that the counterfeits were "obviously fake." Most attorneys that I know would more circumspect than to offer such an opinion publicly.

As to timing, it often takes a while for the Postal Service to return counterfeit money orders. Whether the bank promptly enough is a matter of state law.

1) The bank has no liability.
2) Postal money orders can be returned by the US Postal Service for months:

"The postmaster general has the right to demand refund from the presenting bank of the amount of a paid money order if, after payment, the money order is found to be stolen, or to have a forged or unauthorized endorsement, or to contain any material defect or alteration not discovered on examination. Such right includes, but is not limited to, the right to make reclamation of the amount by which a genuine money order with a proper and authorized endorsement has been raised. Such right must be exercised within a reasonable time after the postmaster general discovers that the money order is stolen, bears a forged or unauthorized endorsement, or is otherwise defective."