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#2242243 - 09/10/20 02:02 PM Re: purchase lot with SFR that will be torn down-HMDA? raitchjay
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Yes, I would report that on the LAR. As I have argued all throughout the thread, when you purchase the property with the home, you purchased a "dwelling." What you do after that would be relevant to whatever other transaction may need to be engaged in to change from the purchased dwelling to something else.

What I was saying is I haven't heard any guidance or answered discussions with the CFPB about whether the condition of the razed home would cause a different answer. I.e., if the roof is caved in, there is ivy growing all along the walls, wild animals living in the home. Is that still a "dwelling?" Who knows? Hasn't been discussed yet, from what I can tell (other than by industry Compliance people like us).

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#2242259 - 09/10/20 04:16 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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As I've stated before one needs to contact their primary regulator to get their opinion on this scenario. Their opinion is the only one that matters in how you report.

I agree with Compliance NABW...I have always argued that a residential structure does not have to be "dwelled" in to meet the regulatory definition of a dwelling, regardless of its condition.

As for the "intended use" of the property - in the past I supported that reasoning. However, in light of the CFPB opinion I would not support that opinion now. As Compliance NABW stated the borrower is purchasing a dwelling (per the CFPB Q&A) with the loan proceeds, what the borrower does with the dwelling after the purchase does not play into the definition of a home purchase. The borrower can always change their mind about what they are going to do with the dwelling.

Just my 2 cents worth.
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#2242264 - 09/10/20 05:07 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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I agree with Dan to ask whoever is going to be doing examining you for data integrity, but just to add my 2 cents.

1) A building that can't be resided in (collapsed roof ect) isn't a dwelling (residential structure) in my book. Unless the proceeds are gong to be used to make it into a dwelling, then I would not report it. I agree that a dwelling that isn't currently being dwelt in is still a dwelling, but a building that isn't habitable isn't a dwelling.

2) I think tearing down a dwelling and putting up a different non-dwelling building shouldn't be reportable. It makes absolutely no sense for a loan to purchase a dwelling and use it as a day care facility to be excluded, but a loan to buy that same building and tear it down to build an actual day care facility to be reportable. I don't expect much sense from regulations, but I need more than that. I suppose it's not a dwelling because it is going to be converted (via destruction) to exclusive commercial use. It's a bit of a tortured reading of the reg and the FAQ, but the alternative makes no sense to me.
Last edited by Inherent_Risk; 09/10/20 05:08 PM.
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#2242271 - 09/10/20 05:57 PM Re: purchase lot with SFR that will be torn down-HMDA? Inherent_Risk
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Originally Posted by Inherent_Risk




2) I think tearing down a dwelling and putting up a different non-dwelling building shouldn't be reportable. It makes absolutely no sense for a loan to purchase a dwelling and use it as a day care facility to be excluded, but a loan to buy that same building and tear it down to build an actual day care facility to be reportable.


This is why i posed the question and i agree wholeheartedly that it makes no sense to report a loan to raze a dwelling and construct a day care facility, barbershop, whatever but NOT report a loan to CONVERT said dwelling to a day care facility, barbershop whatever.
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#2242282 - 09/10/20 07:58 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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I could be wrong but when the regulation discusses daycare facilities or professional offices, it is discussing them in past tense ("homes converted"). It's not stating "such as homes that will be converted to daycare facilities or professional offices."

To me, this is discussing a dwelling that is already a daycare or office at the time of application or loan origination.

From the regulation: "Also excluded are transitory residences such as hotels, hospitals, college dormitories, and recreational vehicle parks, and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices."

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#2242299 - 09/10/20 09:47 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
David Dickinson Offline
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"To me, this is discussing a dwelling that is already a daycare or office at the time of application or loan origination."
I disagree. The definition of "dwelling" is:

(f) Dwelling means a residential structure, whether or not attached to real property. The term includes but is not limited to a detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home, or a multifamily residential structure or community.

If it was already a daycare or office, it wouldn't be a "residential structure" anymore. If what you say is true, then any building that has ever served as a residence is only exempt once it becomes a non-residence and then the owners want to remodel it or someone buys it.

Let me apply some "logic" from other regulations:
If I own a bare lot and want to build a house on it, you must provide TRID disclosures and do a flood determination. Why? It's bare land! We don't look at what it is or was, we look at what it will be once the proceeds are applied. There will be a house on that lot, so TRID and Flood apply.

If I was building a non-residential structure on the lot, TRID would not apply - even if the lot was surrounded by houses and the property was zoned for residential use. You would comply with Flood because it will have a building on it when the proceeds are applied.

HMDA is no different. The Commentary to 1003.2(f) says this is illustrative and gives examples of what are NOT dwellings.
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#2242400 - 09/14/20 05:51 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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If I was building a non-residential structure on the lot, TRID would not apply

That is only true if the loan is not for a consumer purpose. All consumer purpose loans secured by "dirt" are subject to TRID.

HMDA is no different. The Commentary to 1003.2(f) says this is illustrative

I searched 1003.2(f) for the word "illustrative" and it does not appear from what I could find.

1002.3(f) does refer to the following: . . . . and structures originally designed as dwellings but used exclusively for commercial purposes, such as homes converted to daycare facilities or professional offices.

It doesn't say "to be converted".
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#2242402 - 09/14/20 05:56 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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How any of this meets the stated purpose of HMDA is beyond me, and i still say if they want to interpret it this way, they need to change their own definitions, as the Webster's definition of "residential" says it needs to be lived in or meant to live in......but i guess they DO want it interpreted this way now.....so according to the CFPB, start reporting loans to raze structures that were dwellings 20, 30, 40, 50 years ago.

I'm really not sure that they've considered all the ramifications of this interpretation.
Last edited by raitchjay; 09/14/20 05:58 PM.
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#2242403 - 09/14/20 06:05 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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I just want to add--i think it's a whole different story if someone wants to buy a piece of land with a "dwelling" on it (dilapidated or otherwise) and just hold it for investment versus a loan with a stated purpose of razing that structure/"dwelling" and building a new commercial structure in its place. In the 2nd scenario, there really is no consideration that the borrower might "change their mind" as the bank is financing/monitoring funds for the construction of the new commercial building (especially in a scenario where you have a small parcel of land with space for only the 1 structure). So the thought process behind reporting this 2nd scenario, and how it advances the stated cause of monitoring "home loans" in the U.S. is quite a leap IMHO.
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#2242422 - 09/14/20 09:22 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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Dan: You & I have discussed this to death. I didn't bring this back up to see if I could convince you. A previous poster asked me if my opinion has changed. It hasn't.

You're right about TRID - I didn't provide enough details, but I believe you understood my point.
I believe HMDA ISdifferent. The HOME mortgage disclosure act wants to know about housing. Many dwellings were removed from the latest rules (like a motor home that serves as a full time residence, houseboats and farms with houses). There is no logic in trying to include a dilapidated building that once served as a residence but now the rats are even nervous about staying there. smile

You can stick to your interpretation (that's okay, I'm sure it works for you). You know I turn legalistic terms into plain English. You're right that technically the term "illustrative" is not found in §1003.2(f) [You'll notice that I didn't quote the regulation in italics or state it verbatim.] BUT you will find the phrase ". . .includes but is not limited to . . ." numerous times in the regulation, commentary and preamble. That phrase would be the same as "illustrative" to me. I'm just trying to help people understand, not be legalistic or unrealistic.

I stand by what I've stated above and many times before on this topic.
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#2242542 - 09/16/20 07:35 PM Re: purchase lot with SFR that will be torn down-HMDA? David Dickinson
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[quote][/quote]I respect you sticking to your guns, @David, but I think it is clear now that the official CFPB line disagrees.

In reply to your question for proof in the other thread - The FAQ (#1 in the Construction Transaction section): https://www.consumerfinance.gov/com...ments/home-mortgage-disclosure-act-faqs/

If the original, demolished dwelling wasn't in the picture, then this should be an excluded "spec home" transaction.
Last edited by John Burnett; 08/22/22 02:35 PM. Reason: Updated the link to the CFPB's FAQs
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#2242546 - 09/16/20 07:48 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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I still say there's a lot of wiggle room here: IMO it doesn't take much for a dilapidated "dwelling" to be something else--IOW, if the borrowers or previous owners had previously used it as a storage shed or some other use, then voila, you are back to just razing a "structure" and all of this goes away. The quoted FAQ says "buy a house". If it's last use was a storage shed or something else, then it's not a "house" and that FAQ is no longer applicable IMO.
Last edited by raitchjay; 09/16/20 07:50 PM.
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#2242565 - 09/16/20 09:01 PM Re: purchase lot with SFR that will be torn down-HMDA? Compliance NABW
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If you read "converted to" to include loans where the proceeds are doing the converting (reasonable minds can disagree), then there is nothing inconsistent with that and the FAQ for a spec home. The conversion is what takes the loan out of the definition of a dwelling. For a purchase of a dwelling then razed to build a spec home, there isn't a question about whether the initial building is a dwelling. It's right there in the FAQ. It's a dwelling. Temporary financing exemptions don't define a dwelling.

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#2242569 - 09/16/20 09:11 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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I guess my mind is just asking this question:

How many "dwellings" that have any value, and that could be lived in without spending tens of thousands dollars to repair them, actually get razed? In my world...virtually none. And again, what is it about having 4 walls, a roof, and the memories of people who once lived in the structure, that now has no plumbing and no electricity, that makes that thing a "dwelling" or as the FAQ would say it "a house"? I don't really think the FAQ covers all it needs to cover....
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#2242574 - 09/16/20 09:33 PM Re: purchase lot with SFR that will be torn down-HMDA? raitchjay
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Exactly though Raitchjay, so under your own analysis of the situation you should be pretty much agreeing. How many times does a functioning home get torn down and rebuilt? You conclude almost none (though in some parts of the country where the lot is actually the more valuable "commodity," it is decently common). Therefore, the question (in your framing) should have implicitly arisen from a scenario where the borrower bought a dilapidated house, demolished it, and then had a new house built.

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#2242575 - 09/16/20 09:35 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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Of course the FAQ doesn't cover all it needs to, they never do, lol. They usually give you general guidance that you then have to fit to a varying range of specific scenarios.

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#2242577 - 09/16/20 09:37 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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What i'm saying is....i have no problem (based on the FAQ) with the thought that a loan to purchase a "dwelling" or "house" to be razed and replaced by a spec home is a reportable HMDA transaction. It just still goes back to what a "dwelling" or a "house" IS. Is a structure built in 1940 that once housed families and now has no plumbing, no electricity, no toilet, no sink a "dwelling"? I don't think it is......again, a "residential structure" (not defined by Reg. C) is defined by Webster's as the place where someone lives. My logic extends that definition to include "or a place where someone CAN or WILL live". So as far as it goes....i agree with the FAQ....i just don't agree that every structure that once upon a century housed a family is and always will be a "dwelling".
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#2242579 - 09/16/20 09:41 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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And i reiterate my question about how this FAQ furthers the cause of HMDA, to report and monitor the "housing needs" of the country. I have no idea how a loan to raze a structure/dwelling/house and replace it with a feed store informs anything about the housing needs of that community.

So yes, i recognize what the FAQ is saying....i have a problem with their logic, in the face of the definition of "dwelling" and i have a problem with how this FAQ lines up with their supposed aims for Reg. C.
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#2242583 - 09/16/20 09:49 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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Quote
i have no problem (based on the FAQ) with the thought that a loan to purchase a "dwelling" or "house" to be razed and replaced by a spec home is a reportable HMDA transaction.


I agree completely.

Quote
. . .I think it is clear now that the official CFPB line disagrees.

I disagree completely.

I think raitchjay spelled it out very well in the last post but let me ask, are these dwellings?
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#2242601 - 09/17/20 12:36 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
Adam Witmer Offline
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Well, it looks like I'm a bit late to this "party" and there are a lot of moving parts here, but here are my thoughts. wink

First, as Dan stated, I think it is important to run debatable/gray areas like this by your primary regulator so that everyone is on the same page come exam time.

Secondly, what I recommend below isn't necessarily what I think is logical or goes with the "spirit of HMDA" which is to report a banks record of meeting the housing needs of the community.

That said, I want to point out two things: 1) CFPB guidance and 2) managing gray areas.

1) CFPB Guidance. I believe that, while this topic is debatable, we have three forms of guidance from the CFPB that give us enough to lean heavily in one camp.

The first guidance to look at from the CFPB is their HMDA FAQs. When I look at FAQ 1 in the "Construction and Construction/Permanent Transactions" section of the CFPB FAQs, it appears to me that the CFPB considers a home to be torn down to be a dwelling. In this example, if there wasn't an existing structure, the transaction clearly would not be reportable since the transaction is for a builder to construct a dwelling for sale. But since the example is not exempt, this tells me that the CFPB believes that a structure that is a dwelling at the time of closing - regardless of what will happen to that structure - is a dwelling for HMDA purposes and should be reported (if applicable). Again, I don't necessarily agree with this logic, but to me, the CFPB has made their position clear.

The second piece of guidance from the CFPB to look at is Footnote 82 in the 2017 HMDA Final Rule which says this:

""Examples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby)."

As we can see, the CFPB explained in Footnote 82 that loans to purchase or improve a single-family home to be used as a professional office, "currently are reported." To me, it again appears that the CFPB is looking at a structure at the time of closing rather than the future.

The final thing we can at is the definition of a dwelling. If we look at the commentary to the definition of a dwelling in comment 1003.2(2)(f)(3), the example there (which is talking about loans that are excluded) makes it clear that structures already converted to daycare facilities or professional offices (i.e. commercial use), are not HMDA reportable. As others have stated, this example does not say "to be converted" and is clear that the structure was already converted to, and used exclusively for, commercial purposes.

2) Managing Gray Areas. At the end of the day, gray areas can lead to inconsistencies, which can lead to violations. Years ago, I had a rough HMDA exam because I was trying to defend our HMDA team against an unreasonable and legalistic - but extremely intelligent - examiner. Believe me, I put up the absolute best argument I could, but at the end of the day, he got us on inconsistencies. I would argue one camp, but he would bring up a slightly different situation that our HMDA team chose the other camp and said we couldn't have it both ways. Now, I know raitchjay and David wouldn't fear going to battle with an examiner on this topic (and other gray areas), but unless I'm the one making the decision on gray areas 100% of the time, I just don't think it is wise to take this up-hill strategy. In other words, if there is a very solid argument that can work - even if I disagree with that logic - I've come to terms that, for management purposes (when others are making the decisions), it is best to take a hard-line approach and go with the path of least resistance. So, in the case of dwellings and future use of the property, I've come to terms that the best recommendation most times is to take a hard-line approach and look at a structure at the time of closing to determine whether it is a dwelling at closing (rather than what will happen after closing). I completely agree that this is debatable and have no doubts that raitchjay or David would be able to successfully argue this with most examiners/auditors, but not everyone is able to do that and inconsistencies, as I experienced, can put you between a rock and a hard place with an unreasonable and legalistic, but highly intelligent, examiner.

So based on all of this, my 2 cents is that most should use a hard-line approach with their HMDA teams by looking at the structure at the time of closing, not looking at what will happen in the future.

And to be consistent for management purposes, I also think it would be wise for most to consider dilapidated structures that were originally designed as a dwelling but never converted to non-residential/commercial use, as a dwelling - unless your primary regulator gives you other guidance in writing. Again, if you generally don't report dilapidated structures as dwellings, then you could easily end up with inconsistencies from where you draw the line of dilapidated that could get you in trouble with an unreasonable and legalistic, but highly intelligent, examiner.

Again, just my two cents so take it for what its worth.
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#2242616 - 09/17/20 01:51 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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Been wondering when you'd chime in Adam. smile Thanks for doing so.
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#2242620 - 09/17/20 03:05 PM Re: purchase lot with SFR that will be torn down-HMDA? Adam Witmer
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Being a (somewhat) unreasonable and legalistic, but highly intelligent, examiner in a prior portion of life, I fully agree smile. We have no guidance at this time as to where to draw a line between a dilapidated building in terms of is it habitable or not and how that intersects with being a "dwellig". I could only pen the first one of David's pictures, but, yeah, that old house looks like a dwelling to me. It wasn't in super bad condition. I have seen far worse, which, again, what is the criteria? We don't know. It's subjective to each different viewer to a point. As Adam stated, I agree it may not go with the intent of HMDA, or be all that logical, although it is logical to me, as this has always been my position in the thread. However, the CFPB has given us a "template" with the FAQ to use as a "standard" for most such scenarios. I would be very careful about going against the "standard" treatment they have outlined. Perhaps we can all start sending in questions to their HMDA Help site about "homes" that are totally trashed and see if they want to give some kind of criteria for when a dilapidated building is a "dwelling" or not. But, beyond that, I believe in the vast majority of situations, they expect these to be reported.

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#2242679 - 09/18/20 12:55 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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I think regs should be read to fulfill the purpose of the law. Collateral where people will be living is fundanmentally different than collateral where people will not be living. That's the whole point of HMDA. I'm not saying the reg can't be read to include a bunch of loans secured by property where people won't be living. I'm saying it shouldn't be, and there IS a way to reasonably read the reg to exclude them.

As just about everyone has said, check with your exminer if you are concerned and do what they say. If your examiner cares about the purpose of the reg, they should exclude these in my opinion. If they like to quote the implications of unrelated commentary to increase compliance burdens and muddy the HMDA dataset, then you should report them. smile

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#2242701 - 09/18/20 02:56 PM Re: purchase lot with SFR that will be torn down-HMDA? bnkgrl77
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Sorry, the other 2 links didn't work (I'm not sure why).

Compliance NABW said: "yeah, that old house looks like a dwelling to me. It wasn't in super bad condition."

Really? There's a tree growing inside of it on the side facing the camera and another growing out of the right side window. It's obvious that no one has lived in it for years. If you think that's a dwelling, then we'll never see eye to eye on this issue (and that's okay), but I would argue this adamantly with any examiner that tried to say otherwise.

Well said, Inherent_Risk. As much as we like to joke about it, common sense does still exist and we shouldn't accept otherwise.
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#2242756 - 09/18/20 08:29 PM Re: purchase lot with SFR that will be torn down-HMDA? David Dickinson
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It just looks to me like some ivy is growing up the side of it. If there is really a tree growing inside the house, then, yeah, that's pretty bad, but I've seen places with roofs caved in, whole walls collapsed, etc. The old farmhouse isn't all that bad in comparison wink
Last edited by Compliance NABW; 09/18/20 08:30 PM.
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