Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

39 responses to “Weekly Twitter Digest (Link Roundup) for 2012-08-25”

  1. Kary L. Krismer

    I went to KT’s site in the picture, and she claims that the tax consequences of a foreclosure (1099-A) and short sale (1099-C) are the same. That, IMHO, is a very dangerous claim to make. To her credit though, she does mention taxes as being a factor to consider, and does suggest consulting with your CPA or tax preparer. I consider pointing out the possible tax consequences and referring to a tax preparer to be very important.

    http://savedfromforeclosure.com/faqs-view/what-about-taxes/

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  2. Kary L. Krismer

    On the Mortgage Interest Deduction, maybe what we need is a compromise! I know that’s a dirty word in DC, but it would be better than the status quo.

    My suggestion would be converting the deduction into a credit, at a much lower percentage, maybe even only 3%. That way people with lower mortgage amounts would still get some benefit, and it would be easier for people to actually calculate the amount of savings that they would get (the standard deduction would no longer be an issue). Also, it might keep a lot of people from needing to itemize, which would result in tax preparation savings.

    The main advantage to doing that though is it would make for an easier conversion. If you set the number at something that isn’t that much of a change in the tax amount, it wouldn’t be that unpopular. But moving forward, a number like 3% wouldn’t get many people to actually buy a house for the supposed tax benefits.

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  3. ARDELL

    RE: Kary L. Krismer @ 2

    3% of what? So a rich person buying a Two Million Dollar home all cash would get a 3% of Two Million Dollars deduction, but a poor person buying a $90,000 home VA 100% financed would get a 3% deduction regardless of the amount of interest paid in that year?

    3% of income, 3% of gross income, 3% of Active vs Active and Passive income, 3% of the Purchase Price, 3% of the Loan Amount. 3% of what?

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  4. ARDELL

    If the Country wants to support the concept of “home ownership” (not saying they should) why would they give NO benefit to a cash buyer and maximum benefit to the overly leveraged buyer?

    Why not a credit for buying a home vs merely for financing that purchase, and less money down equaling less of a benefit?

    It seems the Country would do better on Primary Residence to encourage people to put more money down…not less.

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  5. ARDELL

    The home buyer should choose between an up front Tax Credit ONLY in the year of purchase, similar to the Tax Credits that expired in 2010 OR the long term mortgage interest deduction. A one time option in the year of purchase.

    That would put the decision in the hands of the taxpayer vs the politicians and NAR lobbying efforts. I think most would opt for the up front credit vs the mortgage interest deduction and that would phase out the mortgage interest deduction based on homebuyer-tax payer proference, vs a forced on them by political whims change.

    The government would then be supporting “home ownership” vs supporting families carrying high debt loads.

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  6. Kary L. Krismer

    By ARDELL @ 5:

    If the Country wants to support the concept of “home ownership” (not saying they should) why would they give NO benefit to a cash buyer and maximum benefit to the overly leveraged buyer?

    Why not a credit for buying a home vs merely for financing that purchase, and less money down equaling less of a benefit?

    It seems the Country would do better on Primary Residence to encourage people to put more money down…not less.

    As Tim pointed out it would be on the interest payments each year.

    The only reason to have it at all is to make the situation more politically acceptable. Eliminating the deduction outright is going to be very unpopular.

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  7. David Losh

    RE: The Tim @ 7RE: The Tim @ 4

    The price of property would drop dramatically, so in that regard you may have a point.

    However it’s naive to say that housing isn’t a driving force of our economy, and has been since the GI Bill after WWII.

    These deductions are for the benefit of banks, and small business. The family home is one of the only asset people have had. That is changing now, because people are scared.

    So by all means get rid of that there gobmit interference, but let’s also address the war on drugs, military spending, farm subsidies, corporate tax shelters, just to name a few.

    Why would you be in favor of taking away what little the middle class has had as a vehicle to build wealth?

    I’m just saying that if those inducements go away, housing as an economic factor will also go by the way side. That may not be a bad thing, but there are much more pressing issues today for the good of the economy.

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  8. Kary L. Krismer

    RE: David Losh @ 9 – You could almost view getting rid of the deduction as consumer protection legislation. Ending it would end people thinking that if they are in the 20% bracket that they will save $2,000 on their taxes if they pay $10,000 of interest on their house.

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  9. Kary L. Krismer

    We seem to be on the topic of tax subsidies today–oil companies were mentioned elsewhere.

    Tax subsidies which cause people to buy things are inflationary. Thus the mortgage interest deduction has inflated the price of houses to some extent. Even worse, the inflation caused by the tax free treatment of employee health benefits has totally ruined our health care system.

    In contrast, some tax subsidies reduce the cost of items. For example the oil company subsidies have increased the supply of oil, and help moderate prices. Subsidies for alternative energy has increased the supply of energy generally, and helped moderate prices.

    Subsidizing consumers buying things seldom works out well. Student loans are perhaps the best example of that, with tuition having skyrocketed as a result.

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  10. ARDELL

    RE: The Tim @ 7

    I don’t disagree with that at all. I am just saying that the credit would help to phase out the mortgage interest deduction and create less political fodder. Once the Mortgage Interest Deduction is a faint memory, the credit can be phased out. Phasing out the credit would have less political impact as it only would impact people in the year they buy the home vs everyone who has a mortgage.

    This would also help with the “house as ATM” problem, as many people throw their Student Loans and Car Debt into their mortgage or HELOC just to gain a tax deduction benefit.

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  11. ARDELL

    RE: David Losh @ 9

    I don’t think it would impact home values because the average person buying a house doesn’t do that to get an after tax benefit. That used to be the case, but no more…except maybe for the 1% vs the 99%. I don’t care about the 1%.

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  12. Kary L. Krismer

    By ARDELL @ 12:

    RE: The Tim @ 7

    I don’t disagree with that at all. I am just saying that the credit would help to phase out the mortgage interest deduction and create less political fodder. Once the Mortgage Interest Deduction is a faint memory, the credit can be phased out. Phasing out the credit would have less political impact as it only would impact people in the year they buy the home vs everyone who has a mortgage.

    I don’t see your type of tax credit reducing the political issue at all. A very small percentage of the population buys house in any given year. Most the existing homeowners would be extremely pissed if the mortgage interest deduction disappeared without any kind of a replacement.

    It’s sort of the opposite of the REET. WR has to be all over the legislature to keep REET taxes at their current levels. It’s an attractive target for the legislature because so few people sell their house an any given year.

    In contrast, phasing out my 3% of interest paid deduction would be much easier to phase out over time.

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  13. ARDELL

    RE: Kary L. Krismer @ 14

    Anyone who currently owns a home would not be affected at all. They continue the deduction on the current basis. I don’t think it’s fair to impose a game changer on them as the current system was in place when they made the decision to purchase.

    What I am saying is that anyone buying a home after the change is enacted would opt for a measly right now credit of say $3,000 in the year of purchase OR the mortgage interest deduction over the life of the loan. Regardless of the fact that the long term deduction would save them (and cost the taxpayers) more, they would opt for cash in hand. Make it $2,500. They will want the money today vs a 30 year mortgage interest deduction.

    That’s how it would phase out as people sell and buy homes. I am not in favor of changing the current system for current home owners. Not fair. They bought on the basis of the current system. Future buyers only.

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  14. Kary L. Krismer

    Taxes and fairness, together? Taxes are inherently unfair. ;-)

    BTW, any proposal to eliminate the deduction will likely be paired with a reduction of rates.

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  15. David S

    RE: Kary L. Krismer @ 14 – The biggest problem I see with the mortgage deduction is the way people think of it as a benefit, or a return, or a winning back from the IRS. Most people think when they get $1500 or $2175 back from the IRS on their returns that they are winning and sticking it to the man. Owing about $500 is the sweet spot.

    Getting $1400 deduction on a return is nothing compared to the $19500 paid in interest. The problem I have with the deduction is the way it’s marketed, perceived and pushed as a benefit.

    I think it should be ended. It’s misused.

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  16. David Losh

    It is a benefit to banks who charge interest, and a way for the government to help ease the burden of interest payments.

    Today at 4% interest it is no big whoop, but it has been in the past.

    The fatter the loan, in theory, the bigger the deduction.

    For Real Estate agents, or people who run businesses out of the home those little deductions add up, for the family no so much.

    That would also be true for rental property. The business of rentals is expensed. Every little bit helps.

    Sure, get rid of it. At this point it makes no difference. The price of property will fall no matter what, but by getting rid of the interest deduction it may help more banks to fail.

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  17. Kary L. Krismer

    By David Losh @ 18:

    I
    For Real Estate agents, or people who run businesses out of the home those little deductions add up, for the family no so much.

    That would also be true for rental property. The business of rentals is expensed. Every little bit helps.

    The mortgage interest deduction requires that the taxpayer have enough deductions to itemize their personal expenses. Depreciation and rental expenses don’t have that limitation. The first dollar of such expenses can be setoff against income.

    BTW, there are downsides to taking a home office deduction.

    And finally, I noticed over in your business blog you may be under the impression that you can avoid withholding taxes by making your cleaners “independent contractors.” Highly doubtful the members of a cleaning crew would be considered independent contractors by the IRS. In addition, you clearly cannot avoid paying L&I for workers’ comp insurance, because it expressly covers most independent contractors. That’s why real estate agents are covered.

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  18. Kary L. Krismer

    RE: David S @ 17 – That’s exactly why I liked my credit idea. It would help end the misconceptions people have about the interest deduction.

    Many people think that when a business “writes it off on their taxes” that the business’ tax bill gets reduced dollar for dollar. That it doesn’t cost them a cent. It wouldn’t surprise me that some consumers think that about mortgage interest, but I suspect most first-time buyers of a house don’t realize there’s the standard deduction to eat up before interest and real estate taxes get deducted. If it’s a credit of X percent of what you paid in interest, seemingly that would be difficult for people to not understand.

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  19. Kary L. Krismer

    By ARDELL @ 5:

    If the Country wants to support the concept of “home ownership” (not saying they should) why would they give NO benefit to a cash buyer and maximum benefit to the overly leveraged buyer?.

    I just wanted to come back to this. Decades ago all consumer interest was deductible. I think it changed during Reagan. I don’t think they left the mortgage interest deduction to support home ownership so much as because it would have been very politically unpopular back then to get rid of it.

    One other point. With the large standard deduction, arguably cash buyers and renters are better off from a tax perspective because they can deduct something like $10,000 from their income without spending a dime on interest. In the case of the renter it’s without spending a dime on interest or real estate taxes. The person who is spending money on interest gets back only 20-30% of what they spend, after exceeding the SD.

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  20. David Losh

    ok

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  21. ESS

    By The Tim @ 7:

    RE: ARDELL @ 6 – For the record, I’m in favor of eliminating all homeowner / homedebtor deductions and credits of any kind. If people want to buy a home, fine. But let’s not pretend it’s some sort of greater good, that homebuyers are somehow more virtuous or deserving of benefits than those who choose to rent.

    It has been my experience that homeowners have a greater concern for the local community that they reside in than renters do. Having observed public testimony at numerous city council meetings in the cities I have resided in over the years, as well as participating in neighborhood grass roots organizations addressing local community issues, I can assure all that homeowners have a much higher rate of participation than renters. They have a greater stake in what happens to their neighborhoods than renters who can easily move on if they don’t like what is going on

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  22. David Losh

    RE: Kary L. Krismer @ 19

    Now you’re a tax expert. Thanks for your free consultation. So how many independent contractors do you work with, on a daily basis to have such astute insight?

    Do you own a business that is based on independent contracting?

    Many cleaning companies use independent contractors with the “office” offering advertising, and support services. Our business model is to encourage people to start businesses, and we have helped set up more than a couple. I believe that if you give a person a fish, they eat for a day, if you teach a person how to fish they eat for a life time.

    If you read my blog postings it increases our Google search placement. We can, and sometimes do dominate the Google placement for house cleaning, or house cleaning in Seattle. There has been more than enough business to go around, so it’s nothing to me to refer out business that does not interest me. No I don’t collect a fee for that.

    For the record we have employees paid hourly.

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  23. David Losh

    RE: The Tim @ 7

    I would like to know why you targeted the one deduction the middle class has to help them build wealth. You claim Real Estate isn’t an investment, but have stated your first home purchase may someday become a rental.

    To me there are much bigger fish to fry.

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  24. Kary L. Krismer

    By David Losh @ 24:

    RE: Kary L. Krismer @ 19

    Now you’re a tax expert. Thanks for your free consultation. So how many independent contractors do you work with, on a daily basis to have such astute insight?

    Do you own a business that is based on independent contracting?

    As an attorney I represented people in bankruptcy who owed taxes they didn’t think they had to pay because they thought their employees were independent contractors. So I am rather familiar with the issue, although admittedly I haven’t practiced now for about 6 or 7 years or so.

    I was the Chair of a group for WR that investigated what to try to do with the issue of real estate agents and the worker’s comp rules.

    But whatever. Don’t go see an expert. Go ahead and accrue a bunch of taxes you can’t pay. I’d not my risk, it’s yours.

    BTW, you never answered the question from the other thread. Your website claims you are a licensed contractor, but that doesn’t appear to be the case. Why does your website claim you are licensed?

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  25. Kary L. Krismer

    By David Losh @ 24:

    If you read my blog postings it increases our Google search placement.

    It did sort of seem like self-promotion. ;-)

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  26. David Losh

    RE: Kary L. Krismer @ 26

    and I asked you what claim. I posted that question almost immediately, but you never responded.

    Once again, thanks, but I do have an accountant, and a bookkeeper. I consult with experts a lot. I even have an attorney on retainer, just in case. He’s a tax attorney who can represent me to the IRS tax court? am I saying that right?

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  27. Kary L. Krismer

    RE: David Losh @ 28 – Sorry, I saw the “what claim” question, but I didn’t know what you were addressing.

    http://www.seattlehousecleaning.com/maid-service/maid-service-faqs.aspx

    This claims you have a contractor’s license. 4th item down.

    I’m not sure you need one for your business, but if you claim to have one the claim should be true.

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  28. David Losh

    RE: Kary L. Krismer @ 29

    What it says is: “We carry a regular contractor’s insurance and a bond. This is a step above what is required.”

    We are bonded, and insured in excess of what is required for our industry because our business was built on preparing properties for sale.

    We have had our own contractors that we referred, in the past, for many years, some for over twenty years. Because of our position we just maintained that level of coverage.

    There is no claim that we are licensed contractors, it says we carry regular contractor insurance, and bond. It cost a little more, but our clientele is worth it.

    We have two trucks that have been sitting for over two years. We may at some point go back to working on properties, but for right now cleaning is all that is required to get a house sold.

    If you are selling, clean it up, price it right, and get rid of it.

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  29. Kary L. Krismer

    RE: David Losh @ 30 – They will sell you a contractor’s bond without being a licensed contractor? Or does the term “contractor’s” only apply to the insurance and not the bond?

    http://apps.leg.wa.gov/rcw/default.aspx?cite=18.27.040

    This statute says: “The bond shall have the state of Washington named as obligee . . ..” I’m not sure the bond does anything outside of creditor registration. I think you might be paying for nothing, and offering no protection, but I’d have to think about that.

    It also says: “Service of process in an action filed under this chapter against the contractor and the contractor’s bond or the deposit shall be exclusively by service upon the department.” If the department doesn’t know how you are, they wouldn’t be able to notify you of the suit.

    That clearly is outside my area of expertise. While I did sometimes represent contractors who needed to be registered and bonded, I never represented anyone who wanted to be bonded without being registered. And I do know there are other types of bonds, which gave rise to my second question above, but I think those typically name only one client.

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  30. ARDELL

    RE: ESS @ 23

    I agree. But my support of home ownership as “The American Dream” comes from my Italian grandmother who arrived in this Country at age 19 as a bride in an arranged marriage. Her husband died young, before age 50, and as a widowed mother of 8 children she made and sold little bags of pasta for a quarter and bought her home.

    She didn’t know a lot about how to care for it as you note as a homeowner difference to renters. She didn’t know any more about it as the owner than she did as the renter before she bought it with her quarters. She even had chickens and a goat in the yard in the city. :) She couldn’t speak any English to go to meetings. Those were the days when the local “committeeman” spoke for all of the immigrant families as to potholes and such.

    The American Dream is alive and well. BUT that said…the scale tips too far to the WRONG side when the RICH want to treat those who do not own homes, yet or ever, as 2nd class citizens.

    There are MANY instances in this Country where a family does not own due to discrimination…and historically that has been even more true. So the land owners cannot be the all powerful vs “the renters” and that is why I fight for buyer’s rights. Not everyone is equally afforded the right to own property and it is only in recent history that they have even been allowed to own property. Hence all the “white only” clauses still in Seattle Deeds. Not enforceable…but come on. Get that language out of the Deeds. It’s practically criminal not to in this day and age.

    Discrimination still exists…discrimination against renters…and against a lot of people some wish would remain renters.

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  31. David Losh

    RE: Kary L. Krismer @ 31

    I’d also like to say that we are insured by Loyds of London rather than your typical CornBlelt Insurance company of Nebraska.

    You are outside of your area of expertise. We are required to be licensed, bonded, and insured.

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  32. Kary L. Krismer

    RE: David Losh @ 33

    I wish you would make up your mind.

    There is no claim that we are licensed contractors

    We are required to be licensed, bonded, and insured.

    Whether wou are not licensed as a contractor was my question. I think you have said you are not, but you’ve said so many things it’s hard to say. You do have to be licensed as a business, but in the context of being “licensed, bonded and insured” that typically means licensed as a contractor, not merely having a business license.

    BTW, I know someone with a bad faith claim against Loyds of London, who prior to making a claim thought that was better too. They don’t necessarily provide any better coverage than other carriers, they just provide some more unique types of coverage.

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  33. David Losh

    RE: Kary L. Krismer @ 34

    You are the person making weird claims that have me answering your questions about my business, then offering advice, but get this, you say you are outside of your expertise.

    I am having a hard time keeping up here, because this is a twitter thread, and the discussion was mortgage tax deductions.

    I’m more than happy to talk about my business, or any one else’s business if they are so inclined.

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  34. Kary L. Krismer

    Fine. You’re the one who started talking about your business and your current sales promotions in the Short Sale thread.

    http://seattlebubble.com/blog/2012/08/20/underwater-pros-and-cons-of-trying-a-short-sale/comment-page-1/#comment-175974

    I’m not really sure what that had to do with short sales. . .

    I just find some of the things about your business questionable. You at the very least imply that you are a licensed contractor, when that doesn’t seem to be the case. And following the link you provided, you don’t seem to understand taxes for your type of business.

    http://aspringcleaning.com/

    For the record, I think it’s a good thing you switched to treating your workers as employees, because I think they likely would be treated as such by the IRS, especially with them working as a crew. Posting on a blog page that they weren’t treated that way before–well that’s not such a good thing. You don’t need to publicly post everything that happens in your business!

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  35. David Losh

    RE: Kary L. Krismer @ 36

    It’s another red herring straw man moment for you Kary.

    My comment was in response to your very good buddy corndogs comment.

    He was there to defend you, for what ever reason. My response was as ridiculous as his misquoting our company name.

    This line of comments from you is typical.

    What I don’t like in your Underwater Home Owner articles is you are holding yourself out as a person who can help with short sales, and REOs.

    All day, every day you come to this blog, and demonstrate a lack of knowledge, experience, or ability to be helping people navigate a Real Estate transaction.

    The short sale, and REO discussions have taken place here over several years where people have tried to give you some insight into the process. You don’t want to listen, you don’t want to learn.

    Learning is what the Real Estate business, industry, or sales is all about. Every day is a learning experience.

    What I gather from you is that you want to educate me. You are outside of your area of expertise, as you say, but you want to lecture me about my business, or business practices.

    It makes no sense.

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  36. Kary L. Krismer

    By David Losh @ 37:

    What I don’t like in your Underwater Home Owner articles is you are holding yourself out as a person who can help with short sales, and REOs.

    All day, every day you come to this blog, and demonstrate a lack of knowledge, experience, or ability to be helping people navigate a Real Estate transaction.
    .

    David, again you’re in no position to judge me. You don’t have the intelligence, education or experience to judge me. You were a failure in the real estate business, and now seemingly you’ve demonstrated that you don’t even know how to run a trash business. But on the topic of real estate, you’re a laughing stalk.

    And also once again, just because you don’t understand the things I’m saying, that doesn’t mean they are in any way incorrect. The very fact that you can’t point to a single thing I’ve said that you think is wrong proves you simply don’t understand. Again, you don’t have the intelligence, education or experience to understand. It’s way over your head.

    BTW, I would never refer anyone to your business because you can’t even demonstrate in simple English whether or not you’re properly licensed. It’s a licensing violation for agents (and most other licensed people, with the possible exception of attorneys) to refer people to unlicensed businesses. So even if I thought you could haul garbage better and cheaper than every other garbage business out there, I wouldn’t refer a single person to you, because I don’t think you have enough experience in business to even know how to be properly licensed.

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  37. David Losh

    RE: Kary L. Krismer @ 38

    What the heck are you talking about now?

    You are right, you are very hard to follow. It’s not over my head, I understand what you are saying, it’s just so fabricated.

    Why would you do that? Why would you take so much time out of a day to have circular arguments with yourself?

    It makes me insane for engaging you.

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