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Abstract (Of Title)
- A summary of the public records relating to the title to a
particular piece of land. An attorney or title insurance
company reviews an abstract of title to determine whether
there are any title defects which must be cleared before a
buyer can purchase clear, marketable, and insurable title.
Acceleration Clause
- Condition in a mortgage that may require the balance of
the loan to become due immediately, if regular mortgage
payments are not made or for breach of other conditions of
the mortgage.
Adjustable Rate Mortgage
(ARM) - The recently authorized name for
residential mortgage loans having a periodically adjustable
interest rate offered by nationally chartered banks. The
adjustable rate mortgage is based off of an index and
margin.
Agreement of Sale
- Known by various names, such as contract of purchase,
purchase agreement, or sales agreement according to location
or jurisdiction. A contract in which a seller agrees to sell
and a buyer agrees to buy, under certain specific terms and
conditions spelled out in writing and signed by both
parties.
Amortization
- A plan for paying off a financial obligation by making
periodic installment payments over a set period of time, at
the end of which the loan balance is zero. Often mortgages
have a 30 year amortization, requiring the borrower to make
360 equal monthly payments.
Annual (Gross) Income - Total income (earned,
unearned and asset income) anticipated to be received by all
persons who currently reside or intend to reside in a
program assisted -unit for the coming 12 -month period. When
determining whether a household is income eligible, local
governments, participating jurisdictions and project owners
must use one of the following three definitions of annual
income:
(1) annual income as
defined at 24 CFR section 5.609 (except when determining
the income of a homeowner for an owner -occupied
rehabilitation project, the value of the homeowner’s
primary residence may be excluded from the calculation
of net family assets); or
(2) annual income as
reported under the Census long -form for the most recent
available decennial Census; or
(3)adjusted gross income
as defined for purposes of reporting under Internal
Revenue Service (IRS) Form 1040 series for individual
federal annual income tax purposes.
Appraisal - In
real estate, the estimate of the value of real property. The
most common method for single family units is the sales
-comparison approach in which the estimate of value is
obtained directly from experiences in the real estate market
(see “comparable” below).
Appreciation - Increase in the value of
property due to improvements made to the property or
surrounding area/neighborhood by the owner or other parties,
including the government and/or more general market forces.
Commonly, and incorrectly, used to describe an increase in
value through inflation.
Articles of Incorporation - Legal document
submitted to a designated officer of the state for
permission to commence business as either a for -profit or
non -profit corporation. The articles of incorporation, or
charter, state the purpose, rights and duties of the
corporation.
Assets - Cash or non -cash item that can be
converted to cash. Under most federally and state funded
housing programs, the income from an asset, either actual or
imputed, is included in a family’s total household income.
Assumption of Mortgage - An obligation
undertaken by the purchaser of property to be personally
liable for payment of an existing mortgage. In an
assumption, the purchaser is substituted for the original
mortgagor in the mortgage instrument and the original
mortgagor is to be released from further liability in the
assumption, the mortgagee's consent is usually required.
The original mortgagor should
always obtain a written release from further liability if he
desires to be fully released under the assumption. Failure
to obtain such a release renders the original mortgagor
liable if the person assuming the mortgage fails to make the
monthly payments.
An "Assumption of Mortgage" is
often confused with "purchasing subject to a mortgage." When
one purchases subject to a mortgage, the purchaser agrees to
make the monthly mortgage payments on an existing mortgage,
but the original mortgagor remains personally liable if the
purchaser fails to make the monthly payments. Since the
original mortgagor remains liable in the event of default,
the mortgagee's consent is not required to a sale subject to
a mortgage.
Both "Assumption of Mortgage" and "Purchasing Subject to a
Mortgage" are used to finance the sale of property. They may
also be used when a mortgagor is in financial difficulty and
desires to sell the property to avoid foreclosure.
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Binder or "Offer to
Purchase" - A preliminary agreement, secured by
the payment of earnest money, between a buyer and seller as
an offer to purchase real estate. A binder secures the right
to purchase real estate upon agreed terms for a limited
period of time. If the buyer changes his mind or is unable
to purchase, the earnest money is forfeited unless the
binder expressly provides that it is to be refunded.
Broker - (See
Real Estate Broker)
Building Line or Setback -
Distances from the ends and/or sides of the lot beyond which
construction may not extend. The building line may be
established by a filed plat of subdivision, by restrictive
covenants in deeds or leases, by building codes, or by
zoning ordinances.
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Certificate of Title
- A certificate issued by a title company or a written
opinion rendered by an attorney that the seller has good
marketable and insurable title to the property which he is
offering for sale. A certificate of title offers no
protection against any hidden defects in the title which an
examination of the records could not reveal. The issuer of a
certificate of title is liable only for damages due to
negligence. The protection offered a homeowner under a
certificate of title is not as great as that offered in a
title insurance policy.
Closing Costs - The
numerous expenses which buyers and sellers normally incur to
complete a transaction in the transfer of ownership of real
estate. These costs are in addition to price of the property
and are items prepaid at the closing day.
This is a typical list:
Buyer's and Seller's
Expenses:
Documentary Stamps on Notes Cost of Abstract Recording
Deed and Mortgage Documentary Stamps on Deed Escrow Fees
Real Estate Commission
Attorney's Fee Recording Mortgage
Title Insurance Survey Charge
Appraisal and Inspection Escrow Fees
Survey Charge Attorney's Fee
Courier Fees
The agreement of sale negotiated previously between the
buyer and the seller may state in writing who will pay
each of the above costs.
Closing - The final
procedure in a real estate sale, in which property ownership
is transferred in exchange for an agreed upon payment.
Cloud (On Title) - An outstanding claim or
encumbrance which adversely affects the marketability of
title.
Collateral - Assets pledged to secure a loan.
Commission - Money paid
to a real estate agent or broker by the seller as
compensation for finding a buyer and completing the sale.
Usually it is a percentage of the sale price 6 to 7% on
houses, 10% on land.
Comparable - In the
sales -comparison appraisal method, a property that closely
resembles the property for which a value is being estimated.
A comparable should closely resemble the subject property
with respect to property rights, conditions of sale, market
conditions, financing terms, location, and physical
characteristics.
Compliance - The act of meeting requirements and
conditions specified in statutes, rules and/or federal laws.
Condemnation - The
taking of private property for public use by a government
unit, against the will of the owner, but with payment of
just compensation under the government's power of eminent
domain. Condemnation may also be a determination by a
governmental agency that a particular building is unsafe or
unfit for use.
Condominium -
Individual ownership of a dwelling unit and an individual
interest in the common areas and facilities which serve the
multi -unit project. Florida has many condominium projects.
Contractor - In the
construction industry, a contractor is one who contracts to
erect buildings or portions of them. There are also
contractors for each phase of construction: heating,
electrical, plumbing, air conditioning, road building,
bridge and dam erection, and others.
Conventional Mortgage -
A mortgage loan not insured by HUD or guaranteed by the
Veterans' Administration. It is subject to conditions
established by the lending institution and State statutes.
The mortgage rates may vary with different institutions and
between states. (States have various interest limits.)
Credit Underwriting - A
process used by lenders (including government lenders) to
evaluate the feasibility of a rental development, i.e.,
whether project income will be sufficient to pay the loan
and operating expenses.
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Deed - A legal
instrument that transfers property ownership from one party
to another.
Default - Failure to
make mortgage payments as agreed to in a commitment based on
the terms and at the designated time set forth in the
mortgage or deed of trust. It is the mortgagor's
responsibility to remember the due date and send the payment
prior to the due date, not after. Generally, thirty days
after the due date if payment is not received, the mortgage
is in default. In the event of default, the mortgage may
give the lender the right to accelerate payments, take
possession and receive rents, and start foreclosure.
Defaults may also come about by the failure to observe other
conditions in the mortgage or deed of trust.
Deferred Payment Loan -
Funds provided to a borrower under terms that calls for
repayment to be delayed for a certain length of time, until
certain circumstances change, or a certain threshold is met.
In housing programs, deferred payment loans are often used
as a recapture mechanism. In home ownership programs the
loans often become due when the assisted family sells the
home. Under rental programs the loans often become due if
the affordability requirements are breached. In most housing
programs these loans have an interest rate of zero percent;
in some communities interest does accrue.
Depreciation - Decline in value of a house due to
wear and tear, adverse changes in the neighborhood, or any
other reason.
Documentary Stamps - A
State tax, in the forms of stamps, required on deeds and
mortgages when real estate title passes from one owner to
another. The amount of stamps required varies with each
state.
Down payment - The
amount of money to be paid by the purchaser to the seller
upon the signing of the agreement of sale. The agreement of
sale will refer to the down payment amount and will
acknowledge receipt of the down payment. Down payment is the
difference between the sales price and maximum mortgage
amount. The down payment may not be refundable if the
purchaser fails to buy the property without good cause. If
the purchaser wants the down payment to be refundable, he
should insert a clause in the agreement of sale specifying
the conditions under which the deposit will be refunded, if
the agreement does not already contain such clause. If the
seller cannot deliver good title, the agreement of sale
usually requires the seller to return the down payment and
to pay interest and expenses incurred by the purchaser.
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Earnest Money - The
deposit money given to the seller or his agent by the
potential buyer upon the signing of the agreement of sale to
show that he is serious about buying the house. If the sale
goes through, the earnest money is applied against the down
payment. If the sale does not go through, the earnest money
will be forfeited or lost unless the binder or offer to
purchase expressly provides that it is refundable.
Easement Rights - A
right of way granted to a person or company authorizing
access to or over the owner's land. An electric company
obtaining a right of way across private property is a common
example.
Encroachment - An
obstruction, building, or part of a building that intrudes
beyond a legal boundary onto neighboring private or public
land, or a building extending beyond the building line.
Encumbrance - A legal
right or interest in land that affects a good or clear
title, and diminishes the land's value. It can take numerous
forms, such as zoning ordinances, easement rights, claims,
mortgages, liens, charges, a pending legal action, unpaid
taxes, or restrictive covenants. An encumbrance does not
legally prevent transfer of the property to another. A title
search is all that is usually done to reveal the existence
of such encumbrances, and it is up to the buyer to determine
whether he wants to purchase with the encumbrance, or what
can be done to remove it.
Equity - The value of a
homeowner's unencumbered interest in real estate. Equity is
computed by subtracting from the property's fair market
value the total of the unpaid mortgage balance and any
outstanding liens or other debts against the property. A
homeowner's equity increases as he pays off his mortgage or
as the property appreciates in value. When the mortgage and
all other debts against the property are paid in full the
homeowner has 100% equity in his property.
Escrow - Funds paid by
one party to another (the escrow agent) to hold until the
occurrence of a specified event, after which the funds are
released to a designated individual. In FHA mortgage
transactions an escrow account usually refers to the funds a
mortgagor pays the lender at the time of the periodic
mortgage payments. The money is held in a trust fund,
provided by the lender for the buyer. Such funds should be
adequate to cover yearly anticipated expenditures for
mortgage insurance premiums, taxes, hazard insurance
premiums, and special assessments.
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Fair Housing Act - The
Fair Housing Act makes it illegal to deny housing, refuse to
rent, sell, or negotiate, or offer different terms and
considerations because of race, color, religion, sex,
national origin, handicap, or familial status. If you
suspect violation of the Fair Housing Act or want more
information, you may contact the U.S. Department of Housing
and Urban Development, Fair Housing, 451 7th Street, SW,
Washington, D.C. 20410, 1 -800 -669 -9777.
FHO - Fair Housing
Ordinance - A FHO is required of all localities
participating in federal programs. It makes illegal any
discrimination based on race, color, ancestry, religion,
sex, national origin, familial status or handicap.
Financial Statements -
Written record of the financial status of an individual,
organization or governmental entity. Statements commonly
include income statement, balance sheet, cash flow
statement, and if the organization is a non -profit, a funds
balance statement.
Financing Fee - money
charged by a lender to originate a loan. The fees are based
on a percentage of the loan amount, and one point is
equivalent to 1 percent.
Foreclosure - The legal
process a lender uses to exercise its right to force the
sale of a property to gain repayment of mortgage debt.
Generally, lenders exercise this right when a borrower has
failed to make timely payments.
Front -End Ratio -
(i.e., income ratio) A calculation used by the lender to
determine if an applicant’s income is sufficient to afford
the monthly payment. It is calculated by taking the monthly
mortgage payment (principal, interest, taxes and insurance)
and dividing it by the gross monthly income of the
applicant. The acceptable ratio for affordable housing is
between 30 -35%. In other words, no more than 30 -35% of the
income should be set aside for the monthly mortgage payment.
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General Warranty Deed -
A deed which conveys not only all the grantor's interests in
and title to the property to the grantee, but also warrants
that if the title is defective or has a "cloud" on it (such
as mortgage claims, tax liens, title claims, judgments, or
mechanic's liens against it) the grantee may hold the
grantor liable.
Grantee - That party in
the deed who is the buyer or recipient.
Grantor - That party in
the deed who is the seller or giver.
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Hazard Insurance -
Protects against damages caused to property by fire,
windstorms, and other common hazards.
HUD - U.S. Department
of Housing and Urban Development. Office of Housing/Federal
Housing Administration within HUD insures home mortgage
loans made by lenders and sets minimum standards for such
homes.
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Interest - A charge
paid for borrowing money. (See
Mortgage Note)
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Liabilities - A general
term encompassing all types of debts and obligations.
Lien - Recorded claim
against a property whereby the property is security for a
debt. Under certain circumstances, the holder of the lien is
entitled to have the property sold to satisfy the debt. A
lien is an encumbrance against the property.
Loan - Loans are often
referred to as debt financing and must be repaid according
to a fixed payment schedule, generally with interest. Use of
a deferred payment loan is common in affordable housing. In
a deferred payment loan, funds provided to a borrower under
terms that calls for repayment to be delayed for a certain
length of time, until certain circumstances change, or a
certain threshold is met. In housing programs, deferred
payment loans are often used as a recapture mechanism. In
home ownership programs the loans often become due when the
assisted family sells the home. Under rental programs the
loans often become due if the affordability requirements are
breached. In most housing programs these loans have an
interest rate of zero percent; in some communities interest
does accrue.
Loan Guarantees - A
pledge by a third party that, in case of default by the
borrower, promises to repay all or a portion of the borrowed
amount. State and local governments and non -profit
intermediaries are often sources of loan guarantees, with
the Federal Housing Administration (FHA) being one of the
most well known.
Loan-To-Value Ratio -
The loan amount(s) as a percentage of the property’s
appraised value or sales price, whichever is less. For
example, a loan amount of $57,000 on a home that has a sales
price of $60,000 has a 95 percent loan -to -value ratio
(57,000/60,000). A lender will use a loan -to -value ratio
to determine the maximum amount it will lend on a property.
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Marketable Title - A
title that is free and clear of objectionable liens, clouds,
or other title defects. A title which enables an owner to
sell his property freely to others and which others will
accept without objection.
Market Value - The price a property would sell for in
a competitive market when there has been a normal offering
time, no coercion, arms -length bargaining, typical
financing, and informed buyer and sellers.
Mortgage - A temporary and conditional pledge of
property to a creditor as security for the repayment of a
debt. The borrower (mortgagor) retains possession and use of
the property.
Mortgage Commitment - A written notice from the bank
or other lending institution saying it will advance mortgage
funds in a specified amount to enable a buyer to purchase a
house.
Mortgage Insurance Premium
- The payment made by a borrower to the lender for
transmittal to HUD to help defray the cost of the FHA
mortgage insurance program and to provide a reserve fund to
protect lenders against loss in insured mortgage
transactions. In FHA insured mortgages this represents an
annual rate of one half of one percent paid by the mortgagor
on a monthly basis.
Mortgage Note - A
written agreement to repay a loan. The agreement is secured
by a mortgage, serves as proof of an indebtedness, and
states the manner in which it shall be paid. The note states
the actual amount of the debt that the mortgage secures and
renders the mortgagor personally responsible for repayment.
Mortgage (Open End) - A
mortgage with a provision that permits borrowing additional
money in the future without refinancing the loan or paying
additional financing charges. Open end provisions often
limit such borrowing to no more than would raise the balance
to the original loan figure.
Mortgagee - The lender
in a mortgage agreement.
Mortgagor - The
borrower in a mortgage agreement.
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NOI -Net Operating
Income - Gross profits minus operating expenses and taxes.
Non-profit Corporation - A corporation established
under state law for purposes other than making profits that
would be distributed to the owners, directors, members or
officers.
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Plat - A map or chart
of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land,
and easements.
Points - Sometimes
called "discount points." A point is one percent of the
amount of the mortgage loan. For example, if a loan is for
$25,000, one point is $250. Points are charged by a lender
to raise the yield on his loan at a time when money is
tight, interest rates are high, and there is a legal limit
to the interest rate that can be charged on a mortgage.
Buyers are prohibited from paying points on HUD or Veterans'
Administration guaranteed loans (sellers can pay, however).
On a conventional mortgage, points may be paid by either
buyer or seller or split between them.
PMI - Private
Mortgage Insurance (also referred to as MI) - Coverage that,
in instances of default, guarantees a lender the partial
payment of an outstanding loan balance. Traditionally,
lenders require PMI in instances where the loan to value
ratio is higher than 80 percent, however, lenders have been
known to waive this requirement under their affordable
housing programs. PMI premiums are included in a borrower’s
monthly mortgage payments. The amount can range anywhere
from $30 -$50 per month, depending in the loan amount. The
insurance can be discontinued when an appraisal shows that
the loan to value ratio has dropped below 80 percent. The
cost of such an appraisal is the responsibility of the
borrower.
Prepayment - Payment of mortgage loan, or part of it,
before due date. Mortgage agreements often restrict the
right of prepayment either by limiting the amount that can
be prepaid in any one year or charging a penalty for
prepayment. The Federal Housing Administration does not
permit such restrictions in FHA insured mortgages.
Principal - The currently unpaid balance of a loan,
not including interest.
Purchase Agreement -
See Agreement of Sale.
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Quitclaim Deed - A deed
which transfers whatever interest the maker of the deed may
have in the particular parcel of land. A quitclaim deed is
often given to clear the title when the grantor's interest
in a property is questionable. By accepting such a deed the
buyer assumes all the risks. Such a deed makes no warranties
as to the title, but simply transfers to the buyer whatever
interest the grantor has. (See Deed.)
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RD – Rural Development (formerly known as Farmers
Home Administration (FmHa) - Provides funding for
mainly rural housing programs. Sometimes used by local
governments to supplement CDBG projects. The state RD office
is located in Gainesville. Initial inquiries should be made
at the local RD office. See federal government listing in
local telephone directory for U.S. Department of Agriculture
or resources section of handbook.
Real Estate Broker - A middle man or agent who buys
and sells real estate for a company, firm, or individual on
a commission basis. The broker does not have title to the
property, but generally represents the owner.
Real Property - Land,
including all things permanently attached to the land, such
as buildings and infrastructure, commonly referred to as
appurtenances.
Reconstruction -
Rebuilding of a structure, usually on the same foundation as
the existing housing which will be demolished.
Refinancing - The
process of the same mortgagor paying off one loan with the
proceeds from another loan.
Rehabilitation - The alteration, improvement or
modification of an existing structure.
REO - Real Estate Owned
- Property that is owned by a lender, usually acquired
through a foreclosure, or through a deed in lieu of
foreclosure.
Reserves - Funds held
to pay future liabilities. Typical reserves include
replacement reserve for major repairs, operating reserve for
covering negative cash flow and contingency funds.
RESPA - Real Estate
Settlement Procedures Act - RESPA requires that lenders give
all borrowers of federally related mortgage loans an
estimate of settlement costs and a HUD -prepared booklet
with information about real estate transactions, settlement
services, cost comparisons, and relevant consumer protection
laws.
Restrictive Covenants -
Private restrictions limiting the use of real property.
Restrictive covenants are created by deed and may "run with
the land," binding all subsequent purchasers of the land, or
may be "personal" and binding only between the original
seller and buyer. The determination whether a covenant runs
with the land or is personal is governed by the language of
the covenant, the intent of the parties, and the law in the
State where the land is situated. Restrictive covenants that
run with the land are encumbrances and may affect the value
and marketability of title. Restrictive covenants may limit
the density of buildings per acre, regulate size, style or
price range of buildings to be erected, or prevent
particular businesses from operating or minority groups from
owning or occupying homes in a given area. (This latter
discriminatory covenant is unconstitutional and has been
declared unenforceable by the U.S. Supreme Court.)
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Secondary Market -
Markets into which originating lenders sell their loans to
investors who are seeking longer term investments (such as
Fannie Mae).
Section 504 - Section
of the Handicapped Accessibility/Architectural Barriers Act
that requires all public buildings to be designed,
constructed, or renovated to provide access for physically
handicapped persons.
Subordinated (Secondary or Tertiary) Debt - If more
than one lender has a lien on a property, the subordinated
debt is paid after the debt of lien holders in superior (or
first) positions.
Subsidy - Financial
assistance in the form of government loans, grants, or other
contributions that are used to make housing affordable.
Survey - A map or plat
made by a licensed surveyor showing the results of measuring
the land with its elevations, improvements, boundaries, and
its relationship to surrounding tracts of land. A survey is
often required by the lender to assure him that a building
is actually sited on the land according to its legal
description.
Sweat Equity - The
value of volunteer labor in producing affordable housing.
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Tax - As applied to
real estate, an enforced charge imposed on persons, property
or income, to be used to support the State. The governing
body in turn utilizes the funds in the best interest of the
general public.
Title - As generally
used, the rights of ownership and possession of particular
property. In real estate usage, title may refer to the
instruments or documents by which a right of ownership is
established (title documents), or it may refer to the
ownership interest one has in the real estate.
Title Insurance -
Protects lenders or homeowners against loss of their
interest in property due to legal defects in title. Title
insurance may be issued to a "mortgagee's title policy."
Insurance benefits will be paid only to the "named insured"
in the title policy, so it is important that an owner
purchase an "owner's title policy", if he desires the
protection of title insurance.
Title Search or Examination
- A check of the title records, generally at the local
courthouse, to make sure the buyer is purchasing a house
from the legal owner and there are no liens, overdue special
assessments, or other claims or outstanding restrictive
covenants filed in the record, which would adversely affect
the marketability or value of title.
Trustee - A party who
is given legal responsibility to hold property in the best
interest of or "for the benefit of" another. The trustee is
one placed in a position of responsibility for another, a
responsibility enforceable in a court of law. (See Deed of
Trust.)
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Unsecured - A loan that
has no collateral pledged as security.
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Veteran's Administration
- A Federal agency that provides services for Veterans of US
Army forces.
Variable -Rate Mortgage (VRM)
- The VRM, like the renegotiable -rate mortgage, is one of
new experiments with adjustable interest rate that have been
supplanted by ARM authorizations. (See
also adjustable rate mortgage.)
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Zoning Ordinances - The
acts of an authorized local government establishing building
codes, and setting forth regulations for property land
usage.
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