Old-Biscuit wrote:
YEP....1 valve system
With the handle on cold inlet (bottom valve) pointing up the valve would be in 'bypass' and the check valve (brass fitting on hot out) should stop any flow into WH
With handle pointing sideways....cold water would flow into WH and out top (hot)
Disconnect hot line and inspect that check valve...
Personally I would get rid of that check valve and install a shutoff valve. Hate those cheapo junk check valves. Prefer valves that I operate.
Something like this......

Or install another 3 way valve at that 'T' like this one...

Thanks for the imput. Tomorrow I'll go and remove the check valve and see if it's jacked up. If so... off to get a inline valve and be done with it.