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Buying a House With Cold, Hard Cash

This article was written by in Real Estate and Home. 29 comments.


When I write about the unbanked, the vast majority of this category of consumer avoids the financial industry due to lack of trust in the industry or a belief that living paycheck to paycheck doesn’t necessitate the fees and hassles of including a third party in financial transactions. Cash, in some respects, keeps you off the map. Also, it’s more likely that those avoiding the mainstream financial industry and opting for alternative financial products like payday loans and check cashing services live within lower socio-economic status communities.

That isn’t always the case, though. Here’s an interesting question I received from a reader:

I read your article on how to buy a house with cash. I will be in that situation in another year or two, moving out of state. But my question is, how do you buy a house using actual cash money and not checks or wire transfers? All the cash was obtained legally, but if I deposit it all at the same time into a financial institution, then write a check at closing, would that not sound all kinds of bells and whistles at the bank and IRS?

I understand that any transaction of ten thousand dollars or more and the bank is obligated to contact the IRS. I’ve already paid tax on this money and don’t want or need the IRS hounding me. So, what are your thoughts and ideas?

CashThis is an interesting question. Usually, when people talk about buying a car or a house with cash — I bought my car with cash — they’re usually referring to paying by check or bank transfer. Carrying thousands, tens of thousands, or hundreds of thousands of dollars in bills is not only inconvenient, it’s risky. If you lose your checkbook, you can cancel your checks. If you lose a briefcase full of cash, good luck.

But before we get to the logistics of paying for a house with cold, hard cash, it might be good to address the reader’s assumptions.

Banks are required to report some transactions to the government. Transactions over $10,000 — or multiple smaller transactions that add up to over $10,000, or a transaction for $9,999 when you change your deposit amount when the teller mentions your transactions over $10,000 will be reported — are reported on a Currency Transaction Report and filed with the IRS. Another form is required if the money travels into or out of the United States, to or from a foreign country. If the bank has some reason to believe the transaction is related to something illegal, they would need to file a Suspicious Activity Report for the Financial Crimes Enforcement Network (FinCEN), a division of the Treasury Department.

You can download the Currency Transaction Report here, directly from the FinCEN. I am neither a lawyer nor a tax expert, but depositing a large amount of cash for later withdrawal is not an uncommon practice at banks. If you’re not trying to hide anything from the IRS, if you’re not doing anything else illegal, if you don’t have a suspicious appearance, and if the teller doesn’t have any reason to think you’re trying to hide something, you shouldn’t have any problems.

I believe that process is much easier than showing up to a house contract closing with a briefcase or sack full of cash. In my opinion, that’s more suspicious than showing up at a bank for a large deposit. This would require everyone to count the money, bill by bill, at least twice.

Seeking some advice from a professional, I asked Barbara Friedberg for her thoughts on the matter. Barb has been working in the real estate industry for decades, and is currently the chief financial officer and portfolio manager of a real estate holding company. She also finds the time to be the writer behind Barbara Friedberg Personal Finance. Bringing her experience with real estate deals to Consumerism Commentary, here is what Barb suggests:

Yikes, a suitcase full of cash, I assume you mean “real money.” The reader needs to deposit the cash in a bank. Then she needs to check with the bank to find out how long they need to hold it before she can withdraw it. At the real estate closing she needs to bring a cashiers check or arrange with the bank for a wire transfer. I suppose bringing cash to a closing is possible, but… I checked with my real estate experts, and my own experience suggests that this is infrequent at best and at worst, quite dangerous.

There is the problem of malfeasance on several fronts without using the security of a cashier’s check or wire transfer. The realtors and closing agents are given free reign with tens of thousands of dollars. Your proof of ever paying the cash is limited to a flimsy receipt.

My advice, deposit the cash, and schedule the closing for a date when the reader is certain she can have full access to the cash.

It sounds like bringing cash to a real estate closing is a bad idea.

I’d love for more Consumerism Commentary readers to weigh in. If you’ve worked as a bank teller, how did you handle large cash deposits? If you’ve been involved with real estate transactions, has any party ever brought a bag full of cash to the closing?

JMR_Photography

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Are You Ready For Higher Cell Phone Bills?

This article was written by in Consumer. 16 comments.

As more consumers in the United States are jumping on the smartphone and tablet bandwagon — personally, I contribute to this mess with one of the latest phones with Android software as well as a first-generation iPad — there’s less room in the limited airwaves for customers’ needs to access the internet and occasionally make telephone calls over mobile networks. Mobile carriers are doing what they can to preserve what remains of the spectrum, usually by increasing prices or limiting bandwidth.

The idea behind the peak oil movement is that in the future — and sometime soon — the world will not be able to efficiently produce as much oil as the citizens of the world need to consume, and due to the imbalance between supply and demand, prices for oil (and thus everything else that relies on oil) will skyrocket. Peak oil has been proven difficult to predict.

TabletUnlike peak oil, wireless carriers know how much spectrum they have left before they can’t support any additional traffic over the air. The situation is similar to real estate. There’s only so much available land for construction, and as the available land in any area with adequate demand is sold, the pressure of the lack of supply drives prices up. Dish Network, for example, has a significant amount of unused spectrum, and it would like to sell what it isn’t using to a wireless provider that desperately needs the spectrum to satisfy its customers.

As companies need to devote more of their resources towards increasing spectrum — whether through consolidation attempts in the industry like AT&T’s purchase of T-Mobile — or through buying spectrum from other owners at a high price — and as companies use pricing to limit customers’ use of the spectrum, the cost for a family or an individual to receive the same level of service is going to increase.

Save money on your cell phone bills

You can keep your cell phone bills in check:

  • Use a service like Validas to make sure you’re paying for the best mobile plan for you.
  • Compare prices across carriers. Don’t just consider the mainstream plans with the major carriers; pre-paid mobile phone plans could cost less.
  • Consider skipping internet-enabled devices. If all you need to do is talk, you can save yourself the expense of the latest high-tech phones and stay on a less expensive voice plan.
  • If you have other telecommunication services, like cable television and home phone, consider bundling these services to save money.
  • Call and ask for a discount. Sometimes, you can get a price break just by asking. Don’t threaten to leave, though, unless you’re willing to live up to that promise.

I’m currently paying over $100 per month for my mobile phone service with Verizon Wireless, which includes my phone with 4G smartphone service as well as a 3G service for my iPad through a separate device. How much do you pay for your mobile phone service? Are you prepared for this cost to increase in the next year or two as companies fight over remaining broadband spectrum?

Photo: @iannnnn
CNN Money

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Bank Switch Kit and Checklist

This article was written by in Banking, Featured. 9 comments.

With Wells Fargo changing their policies to be less consumer-oriented this week, I’ve received several questions about the logistics switching banks. In previous decades, closing your account at one bank and opening an account at another was a simple process. All that was required was to walk into one branch, ask to close your account, provide some proof of your identity, take your cash or cashier’s check to a different location, and open a new account with your deposit.

With automated banking, direct deposits, and pre-authorized electronic withdrawals and online bill payments, taking your business from one bank to another can be a hassle. There is a financial risk involved; if you neglect to change your banking information with a vendor, your payment could bounce, and you could be subject to late fees, insufficient fund fees, and perhaps even cancellation of your services.

Broken piggy bankIf you’ve taken a modern approach to banking, with automated and electronic payments, you’ll need to start planning in advance. Here are the priorities, if you’ve already chosen your new bank. To compare banks, read through the reviews available here on Consumerism Commentary, but also consider your local community banks and credit unions.

Download the Consumerism Commentary Bank Switch Kit to help you organize the information you’ll need. The link is at the bottom of this article.

Step 1. Open the new account with appropriate minimums.

Before you can change the account information stored with companies that bill you, you’ll need to have your new bank’s routing (ABA) number and your new account number. For a short period of time, both your old bank account and your new bank account will be active. This ensures that all your payments go through and all your deposits are received during the transition period. Determine which types of accounts you need at your new bank, and have the minimum required to open the accounts ready to deposit.

If you had debit cards, ATM cards, check cards, deposit slips, or paper checks with your old account, don’t forget to order the same when you open your new account.

Download the Bank Switch Kit for a convenient way to keep track of your new banking information.

Step 2. Change your direct deposit information.

It could take as many as two pay periods for your new direct deposit instructions to take effect. It could take two to four weeks after requesting the change to your direct deposit before you receive a pay check at your new bank. Most employers have their own forms for submitting changes to direct deposit, but I’ve included a generic form in the Bank Switch Kit that most human resources should be able to accept. Many employers have the ability to accept direct deposit instructions online, so check with your employer as soon as possible.

This is the slowest aspect of moving from one bank to another, so start as soon as you’ve opened your new accounts.

Step 3. Adjust your automated bill payments.

If you’re living in the twenty-first century, you’ve likely configured many of your monthly financial obligations to withdraw money from your bank accounts. You’ll need to change this banking information one vendor at a time without missing any possible automated withdrawals. Review your past three or four banking statements to help your recollection of all the bills that are paid automatically. Here’s a list of some of the most common bills that allow automated payments from your bank accounts.

  • Your rent or mortgage.
  • Your power bills (electricity or gas).
  • Your telephone bills (land line and mobile phone).
  • Your water and sewer bills.
  • Your property taxes.
  • Your income taxes, if you have enrolled in the Electronic Federal Tax Payment System (EFTPS) or your state’s electronic payment system.
  • Your car, home, and life insurance.
  • Your other insurance payments.
  • Your credit card bills.
  • Your payments to student loans.
  • Your payments to car loans.

The downloadable bank switch kit has a checklist where you can indicate the date you called to have your banking information changed. When you call, email, or complete this change online, make sure you know when the changes will take effect. Most of the time, the change is immediate, but if you have a payment already pending using your old bank account’s information, it might not be until the following month that the vendor applies the new banking information.

If you’ve opened your new bank account with just the minimum required to avoid fees, keep in mind that you may need to transfer more money from your to cover your bills.

Step 4. Update any linked bank accounts or investments.

The ability to begin investing using automated bank transfers has helped many people begin to save for retirement — or the future in general — without having a large sum to devote to the investment immediately. It’s easy to forget about these investments and transfers. I have had a weekly $15 transfer from my primary checking account to another bank’s savings account for years, and it would be easy to forget this without reviewing my transactions each month. Updating information regarding your linked accounts serves two purposes:

  • to ensure your accounts don’t try to send money to or withdraw money from the account you intend to close, and
  • to ensure you don’t miss any saving or investment opportunities as you rearrange your bank accounts.

First, as mentioned above, link the new bank account to your old bank account to ensure you can transfer money to your new account at will. This will ensure you have enough funds in the account to cover all the bills you’ve transitioned in the previous step. Keep in mind that savings accounts are limited to six on-demand withdrawals per month. If you exceed that number, the bank may charge you fees or close your account before you’re ready.

Pay attention to your automated investments to your IRA, transfers to your high-yield savings accounts, and investments to your kids’ education funds. Download the Bank Switch Kit for a complete list of possible linked accounts.

Step 5. Wait and close your old bank account.

After you’ve taken the time to ensure that your old bank account has been inactive and will not expect any new deposits or withdrawals, follow your bank’s process for closing your account. In most cases, you can walk into any branch with proper identification for closing your account, but in some cases, banks require you call a telephone number. If that is the case, they might want you to talk to a “retention specialist” who will do his or her best to keep you from closing your account, perhaps by offering you a better deal than you may be receiving. It’s best to ignore these offers and stick to your resolution.

If you are required to close your account by phone or by mail, the only way you may be able to receive your deposited money is through a check sent to the address your bank has on file for your account. This is an imperfect process; it would be much better to walk into a branch and walk out with your money. It would frighten me if I had to close a bank account with a significant sum of money and wait for a check for the amount to arrive in the mail.

Once you’ve received the check, make sure the bank has provided the full balance. Your balance at the end of the statement or online should be zero. Ensure you’ve received any accrued interest your account would have earned. In some cases, you may need to time the closing of your bank account to ensure you don’t miss on any substantial interest that might be due to you if your bank does not accrue interest on a daily basis.

The Consumerism Commentary Bank Switch Kit available for download includes a generic letter you may send to your bank in order to close your account.

Step 6. Destroy old forms.

Shred any debit cards and deposit slips associated with your old account once you receive confirmation that your old bank has closed your account. Get rid of your paper checks and any endorsement stamps that you may have that include your bank number.

With this step, you can celebrate the moment you are now free from a relationship you are better off without. Don’t forget to monitor your new account and your bills closely over the next few months to ensure you haven’t missed anything. If you find a problem quickly, you may be able to resolve it without needing to pay any penalties (or have penalties reversed if they are charged automatically).

Download the Bank Switch Kit and Checklist Here

Bank Switch Kit and ChecklistDownload the Consumerism Commentary Bank Switch Kit (version 1.0α, February 14, 2012). Adobe Reader or another program that displays and prints Portable Document Format (PDF) files is required.

This is a work in progress. Please feel free to share your feedback. I’ll continue to revise the Kit to improve it for more consumers who wish to leave one bank behind in favor of another financial institution, whether a national, regional, or community bank or a credit union.

Photo: Images_of_Money

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Consumer Financial Protection Bureau Wants Payday Loan Feedback

This article was written by in Consumer. 8 comments.

While the mainstream financial industry has faced a dizzying array of government and quasi-government regulations through most of the last one hundred years, non-bank financial products have, for the most part, evaded regulations. Catering to lower-income communities, payday loan storefronts and check cashing establishments have managed to justify their business models. The more desperate you are to pay your electricity bills and your rent before your power is turned off and you’re evicted, the more likely you are to willfully ignore the fact that the companies helping you are taking advantage of you in ways that a traditional bank would never be allowed to do.

The Consumer Financial Protection Bureau (CFPB) is now charged with recommending new regulations that go beyond retail banks, thrifts, investment banks, and credit unions into the murky world of non-bank financial products.

If you compare a short-term payday loan with a loan from a bank, you might see that the payday loan’s equivalent interest rate (APR) is 450% or even higher. Mortgages tend to be 3% to 7%, business and personal loans could be 5% to 10%, and credit cards are 10% to 20% unless you default. Anything higher, and the loan might be considered usurious. So how do payday lenders get away with charging 450% or more?

Well, these lenders frame what they charge as a flat or sliding fee, not interest. The loans are typically due in two weeks, the expected arrival of your next paycheck. It might not be fair to compare these fees with interest rates, because the borrower doesn’t hold onto the loan for a long time.

Or does he? There’s some evidence suggesting payday loans create a cycle; rather than paying off the loan when the next paycheck arrives, lenders offer an enticing deal to encourage borrowers to begin the next loan. The two-week cycle repeats.

The CFPB wants to hear from people who have had experiences with payday lenders. In order to get a good grasp on how non-bank financial products can and should be regulated, the organization is seeking comments from the public. What have been your experiences with payday loans? Feel free to share here on Consumerism Commentary, or tell the CFPB your story directly.

Photo: bigburpsx3

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The Worst Celebrity Tax Problems

by Flexo

It’s with a tinge of schadenfreude that people are fascinated with the failures and foibles of famous celebrities. Every year, the IRS chases people who evade or underpay federal income tax, and actors and popular figures in the media, who often don’t manage their own finances, make the news. The latest is Lindsay Lohan. You ... Continue reading this article…

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Five Conversations Before Moving In Together

by Aloysa
Couple

This is a guest article by Aloysa, a creator of My Broken Coin. In this article, Aloysa offers five conversation starters for couples considering moving in together. Based on my own personal experience I can tell you that expectations of your significant other change as soon as you move in together. All of a sudden, ... Continue reading this article…

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Verizon Wireless Plans Then Rescinds $2 Fee for Paying Your Bill

by Flexo
Verizon Wireless

Update: Less than a day after a Verizon Wireless employee leaked a memo with this information, the company has announced that it will not be moving forward with the implementation of this $2 fee. The sad fact is we now live in a world where many companies have left their customers behind in the search ... Continue reading this article…

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Paying Off Layaway Accounts at Kmart

by Flexo
Kmart

When I first read the news about alleged Good Samaritans and Secret Santas paying off Kmart customers’ layaway accounts, the cynical side of my mind took over. What a great marketing maneuver for K-Mart. With mystery lay-off angels, they are saying, “Buy your gifts on layaway here, an action that could very well be profitable ... Continue reading this article…

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