COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

In his experience, Mr. Shaev said: “The attorneys who represent the banks invariably state that they will get the collateral file for us and prove that the banks had possession of the documents at the appropriate time. But then when we review the file it doesn’t show that at all.”

“The Central Question rising to the surface and now unavoidable is whether a party claiming to be a secured creditor would prevail if there was a normal adversary hearing on the merits where the normal rules of evidence apply” — Neil F Garfield

EDITOR’S NOTE:  In bankruptcy courts across the country, pretender lenders have been able to rely upon an unwritten code wherein a motion to lift stay (MLS) filed by a secured creditor would be unopposed by the trustee. The pretender lender would not only be free to continue with judicial or nonjudicial foreclosure and sale, they would also have the appearance of a court order  apparently confirming their right to foreclose.

When I first broached the subject with various US trustees around the country in 2007 and 2008 they were extremely skeptical. I proposed a business model to them which would provide the protection to the debtor that was intended by the Constitution and the statutes governing the substance of bankruptcy petitions.  I showed them that the US trustee, the attorney for the US trustee, the creditors, and the attorney for the debtor would all be able to share in a larger estate and thus earned more fees than was currently the case where a home was in foreclosure.

It was my opinion then and it is my opinion now that not only do the pretender lenders lack standing to pursue a foreclosure, but that there does not appear to be any credible party in the securitization chain who would possess such standing. It was my opinion that the participants in the securitization scheme had hopelessly obscured the obligation and split the obligation from the note and mortgage as well as splitting the note from the mortgage.

Thus while the obligation clearly exists, subject to offsets and counterclaims, there is no law or legal theory under which the obligation was in fact secured. The US trustees in bankruptcy were not only skeptical, they were actually opposed to my plan because they did not want to be part of any procedure by which a borrower abused the judicial process in order to gain a windfall or undue advantage.

In a major change of policy, US trustees in bankruptcy court are now challenging the standing and viability of the claims made by the pretender lenders. The premise was that if a lawyer came to bankruptcy court claiming to represent a lender that was secured by a mortgage on the property it was presumed that the representation to the court was true. As we have seen in various news reports there are good reasons to question whether the attorney represents anyone, whether any of the parties to whom the attorney refers is an actual creditor, and whether the claim is secured by a mortgage on the home.

The wrongful foreclosure damage actions are giving pause to everyone involved in the closing of these deals and in the processing of the “foreclosures.” Invariably, the old trustee on a deed of trust is substituted with one with whom the pretender lender has an ‘arrangement” concerning going forward, regardless of the obstacles.

The employment of  intermediaries used to obscure the fraud in the sale of the bogus mortgage bonds and the bogus mortgage loans are the business model for the employment of intermediaries used to obscure the fraud on the court in foreclosures.

These intermediaries — originators, brokers, title agents, escrow agents, appraisers, trustees, and foreclosure companies are all in the cross hairs of lawyers across the country who are suing for individual or class action relief. Any party moving forward at this point can be held to the “knew or should have known” status required for a fraudulent foreclosure or slander of title action. If it is negligence, there might be insurance coverage. If it is viewed as an intentional act of fraud, the insurer for errors and omissions might decline coverage for even the defense of the action.

The megabanks have intentionally and in so many words set up various “bankruptcy remote” vehicles that are intended to insulate them from liability in case this thing explodes in their faces. They wish to protect their claim of plausible deniability and point the finger at the actual people who got the hands dirty — as the recent closing of  David Stern’s office in Florida demonstrates. These remote vehicles are submitting credit bids at auction which are by all accounts not only illegal, but void.

Any issuance of a title document reflecting a “credit bid” is essentially a “wild deed,” — i.e., one that can and would be ignored by a title examiner. This leads to the inevitable conclusion that nearly all REO property is still legally owned by the homeowners who believe their home was foreclosed and sold.

The central question that is gradually rising to the surface is simply whether or not a party claiming to be a creditor could sustain its burden of proof in a normal evidentiary hearing. The presumptions that were used before the securitization of residential mortgage loans made sense when the transaction lacked the complexity and duplicity inherent in the scheme of securitization as it was practiced by Wall Street. It is now apparent to many judges, many lawyers, many people in the media, many homeowners, and now US trustees in bankruptcy, that the old presumptions do not apply.

In plain language, the parties claiming to be creditors are not creditors, because the bankruptcy estate does not owe them any money. The same is true in federal and state civil court. The mega banks took advantage of their appearance of propriety and the old presumptions and made the judicial system of vehicle for fraudulent conveyances. The resulting chaos in the chain of title, claims under title insurance, and the inability to obtain a satisfaction of mortgage from a party that is authorized to execute it is the major challenge confronting the legal system.

This has thrust an enormous burden on the offices of the  property appraiser and County recorder across the country. 66 million transactions involving “wild deeds” are now in the chains of title in tens of millions of homes.

The resolution to this crisis is obvious even if it is odious. It has happened in the past that title records have been corrupted beyond repair. It becomes necessary to push a figurative “reset” button with a window of opportunity for those affected to present their claims in a manner required by the court and the legislature of each state. It is in this process that the homeowners will receive an opportunity to obtain some relief while the investors who advanced the funds for the loans recover as much as possible.


November 27, 2010

Don’t Just Tell Us. Show Us That You Can Foreclose.




AFTER examining their foreclosure practices for flaws in mortgage documentation and other procedures, many of the nation’s largest banks have resumed — or will soon resume — trying to evict defaulted borrowers.

JPMorgan Chase, for example, told investors this month that it had extensively reviewed its foreclosure controls, trained personnel in the unit and started new procedures to ensure that all legal requirements would be met when it moves to seize a property in default.

“If we find any foreclosures in error, we will fix them,” JPMorgan Chase said.

But while banks may have booted a few robo-signers and tightened up some lax procedures, one question at the heart of the foreclosure mess refuses to go away: whether institutions trying to take back a property can prove they even have the right to foreclose at all.

Some in the industry believe that questions about this issue — known as “legal standing” — are trivial. They say it’s just a gambit by borrowers’ lawyers to throw sand in the foreclosure machine. Nine times out of 10, bankers say, the right institutions are foreclosing on the right borrowers.

Maybe so. But the United States Trustee Program, the unit of the Justice Department charged with overseeing the integrity of the nation’s bankruptcy courts, is taking a different view. The unit is stepping up its scrutiny of the veracity of banks’ claims against borrowers, and its approach is evident in two cases in federal bankruptcy court in Atlanta.

In both cases, Donald F. Walton, the United States trustee for the region, has intervened, filing motions contending that the banks trying to foreclose have not shown they have the right to do so.

The matters involve borrowers operating under Chapter 13 bankruptcy plans overseen by the court in the Northern District of Georgia. In both cases, the banks have filed motions with the bankruptcy court to remove the automatic foreclosure stay that results when a court confirms a debtor’s Chapter 13 repayment plan. If the stay is removed, the banks can foreclose.

In one case, the borrower had her Chapter 13 plan confirmed by the court early last month. About two weeks later, Wells Fargo asked the court for relief from the stay so that it could foreclose.

Responding on Nov. 16, Mr. Walton asked the court to deny the bank’s request because it had failed to produce any facts showing that it was entitled to foreclose — either as the holder of the underlying note or as the agent for the holder.

The other case involves a couple who had their Chapter 13 plan confirmed by the court in March 2009. A month ago, Chase Home Finance, a unit of JPMorgan Chase, asked the court for relief from the automatic stay so that it could start foreclosure proceedings.

Again, Mr. Walton objected, asking the court to deny the request on the same grounds as argued in the Wells Fargo matter — in this case, that Chase hadn’t proved that it controlled the note on the property.

Jane Limprecht, a spokeswoman for the trustee program, confirmed that it was ratcheting up its scrutiny on banks’ foreclosure practices.

“The United States Trustee Program is engaged in an enhanced review of mortgage servicer filings in bankruptcy cases to help ensure the accuracy of the claim to repayment,” she said. She declined to comment on specific filings.

A Chase spokesman said the bank is the holder of the note in the Georgia case, giving it standing to file the motion.

A spokeswoman for Wells Fargo said that in its case, it is the trustee of a mortgage security that contains the loan, not the servicer. In its capacity as the trustee for mortgage loans serviced by others, it says it expects those servicers to abide by all required laws, processes and procedures.

Howard D. Rothbloom, a lawyer in Atlanta who represents borrowers in bankruptcy, welcomed the actions by Mr. Walton and said he believes they show a sea change in the United States trustee’s thinking on the foreclosure mess.

“Until now, what we had was homeowners complaining about a lack of due process,” Mr. Rothbloom said. “Now you have the federal government complaining about the abuse of the judicial process. That’s really what was missing before.”

The judges overseeing these matters have not yet ruled on the banks’ or the trustee’s requests. And Wells Fargo and Chase may indeed be able to persuade the trustee that their filings were proper.

But the trustee’s intervention in these matters indicates that it wants banks to show the courts that they have the right to foreclose, rather than simply telling them they do. That had been the custom, after all. Now, Mr. Walton’s motions may serve as a warning to banks that they need to be better prepared if they want to foreclose on a borrower.

“For years, the trustee would always take the creditors’ side,” Mr. Rothbloom said. “My strong opinion is the U.S. trustee’s perspective is that they exist to stop borrowers from cheating banks. Perhaps they are coming to the realization that banks can also cheat borrowers.”

FEDERAL trustees in other parts of the country have also intervened in borrower cases, but many of these actions have been related to questionable foreclosure fees or to dubious legal or documentation practices. The shift to a broader focus on the issue of standing suggests that the courts may no longer accept at face value the banks’ arguments that they have the right to foreclose or represent the institution that does.

David Shaev, a lawyer in New York who works with troubled borrowers, says the United States trustee there has also intervened in one of his cases, taking up the issue of a bank’s right to foreclose.

In his experience, Mr. Shaev said: “The attorneys who represent the banks invariably state that they will get the collateral file for us and prove that the banks had possession of the documents at the appropriate time. But then when we review the file it doesn’t show that at all.”

As many large banks renew their foreclosure efforts, Mr. Rothbloom says he hopes that the United States trustee will bring about a comprehensive change in bank practices.

“I’ve gotten resolutions for clients in individual cases, but I’m just a flea on the tail of an elephant,” he said. “Resolutions of individual cases don’t bring about systemic change.”

And systemic change is precisely what’s needed.

24 Responses

  1. As a follow up to the US Trustee in Atlanta filing motions opposing the lifting of stay, the Trustee has subpoenaed one of the mortgage companies involved.
    There is a hearing set for the second week of February in Atlanta. I will be attending for sure.

  2. Looking for legal help in Central Virginia! Just received a foreclosure notice today from PNC. PNC never recorded the assignment of the promissory note from National City Mortgage in the land records ( I found this out at the end of October 2010). From what I’ve read, it seems that PNC now has an unsecured claim and cannot take my house. They also may be in violation of TILA – I found out in Oct. 2010 that they may have misrepresented themselves as the owner of my note despite no evidence of this in the land records.

    Any suggestions?

  3. b davies,

    Great post link – love it!!!!


    Yeah – blah blah blah – the foreclosure attorneys whine.

    Ethics?? Anyone??? These guys/gal foreclosure attorneys are making money on your hardship fraud!!!!!

  4. Lawyer stands up for the “little people” against prejudiced judge (surprise, surprise). A must read!


  6. James McGuire has a great document to explain to the press or others including the Judges.

  7. Deutsche Bank and MERS request for the documents. The third party supoena requests. If non responsive then it is contempt. Different than a State case.

  8. @E. Tolle

    Exactly! 100% would be good–10% of 10 foreclosures is unacceptable, and for sure, 10% of more than 4 million foreclosures is reprehensible.

  9. OT:my condo assc is not willing to accept a payment plan to satisfy my arrears in two yr time frame. I might just throw in the towel. My question is would the pretender lender give me go away money for a deed in lue?

  10. Gretchen Morgensen wrote:

    Some in the industry believe that questions about this issue — known as “legal standing” — are trivial. They say it’s just a gambit by borrowers’ lawyers to throw sand in the foreclosure machine. Nine times out of 10, bankers say, the right institutions are foreclosing on the right borrowers.

    Is it just me, or is 9 out of ten still a totally unacceptable figure? How’s about we try for 100% or thereabouts?

  11. I apologize if this case has already been discussed here. It is a denial of a motion to lift stay in a recent (Oct. 27, 2010) NY BK case, and it dovetails quite nicely with Kemp v Countrywide–lots of good case law cited. Only 9 pages long–a very worthwhile read!

    Judges are definitely starting to catch on to the shenanigans.


    If in FLORIDA a loan is sold after default and in fact in the middle of a foreclosure action ,, the new plaintiff has obviously suffered no loss.. If the substitute plaintiff is offered the ability to credit bid how do you force them to bid actual cash??


    FHLB System’s Rationale Erodes as Advances Dwindle

    Monday, November 29, 2010
    In an era of low interest rates, weak loan demand and unprecedented efforts by the Federal Reserve Board to pump liquidity into the economy, the demand for Federal Home Loan Bank advances has plummeted to a 10-year low, raising questions about the system’s future as the government weighs a redesign of the housing finance sector.
    Total outstanding advances fell to $402 billion in the third quarter, their lowest point since 1999, and far below their $809 billion total at the end of 2007. At the same time, the number of member banks holding such advances has also cratered, to 4,671, the fewest in more than a decade.
    Though advances rise and fall with member demand, the abrupt decline comes at a key time for the Home Loan banks. Advances are the banks’ traditional business, and recent efforts to expand into other areas by buying mortgages from member institutions and investing in mortgage-backed securities have caused steep losses at several Home Loan banks.
    To be sure, the Home Loan banks and their regulator say the decline in advances is just a reaction to the market’s needs and that its recent boost during the financial crisis was never expected to be sustained.
    Advances peaked at $1 trillion in October 2008 during the crisis and began to decline only after the Fed began to pump money into the market. Since then, advances began plummeting, falling to $631 billion by the end of 2009 and below $500 billion this year.
    In a report to Congress this month, the FHFA expressed concern about the credit-related impairment charges on the banks’ holdings of private-label MBS, which totaled $900 million in fiscal year 2010. At Sept. 30, the Home Loan banks held private-label MBS equivalent to 4.5% of assets, according to the agency.
    To date, shortfalls in principal or interest have occurred in 1% of those private-label MBS, but collectively they have recognized $3.3 billion in credit-related impairments and an additional $10.8 billion in noncredit-related, other-than-temporary impairment on those investments, according to FHFA’s report.

    REIT Agrees to Buy $90MM of Whole Loans

    Monday, November 29, 2010
    Walter Investment Management Corp., Tampa, said it has signed deals to pay $90 million for several pools of mostly performing first liens from undisclosed sellers.
    The pools consist of fixed-rate and ARMs collateralized by single-family, owner-occupied homes located in the company’s southern U.S. footprint.
    The transactions are expected to close by yearend.
    The publicly traded REIT said it continues to see “significant flows of loan pools being offered for sale.”
    In a statement, company president Mark J. O’Brien said the firm has been working “diligently” to grow its acquisition pipeline and has $300 million of deals under contract or in the works.

    Fannie and Freddie Restart REO Sales

    Monday, November 29, 2010
    Fannie Mae and Freddie Mac have resumed sales of foreclosed properties that were placed on hold in late September due to questions about improper affidavits used in the foreclosure process.
    “Following a review of its REO acquisitions, and in consultation with its regulator, the company is resuming the scheduling and closings of sales of vacant REO properties,” said Fannie spokeswoman Janis Smith.
    Freddie notified its listing brokers on Nov. 24 that they can resume marketing and sales of REO properties previously placed “on hold” due to the foreclosure review process.
    Freddie ‘HomeSteps’ brokers sold 26,300 REO properties in the third quarter, up 47% from a year ago. Freddie held 74,900 REO units as of September 30, according to the GSE’s third quarter financial report.
    Fannie ‘HomePath’ brokers sold 48,000 single-family REO properties in the third quarter. The GSE had nearly 166,800 REO on its books as of September 30.
    Fannie said its decision to resume REO sales was motivated by several factors including the availability of title insurance to protect buyers.
    The GSE also considered the “negative impact lingering foreclosed properties has on neighborhoods and the cost burden that is placed on taxpayers when REO sales are suspended,” Smith said.

    Fannie May Use the NPL Auction Market

    Monday, November 29, 2010
    Fannie Mae is contemplating selling nonperforming mortgages out of its portfolio, offering the notes to the highest bidder, according to vendors and investors who have talked to the GSE about the plan.
    At this point, no NPL auctions are scheduled and the GSE is still exploring the situations, officials said.
    Fannie, which has been under government control since September 2008, declined to comment.
    Industry sources said if Fannie sells NPLs – instead of foreclosing on the mortgages and selling the resulting REO – it could save hundreds of millions of dollars, depending on the final sale price.
    Over the past year the GSE, along with Freddie Mac, have purchased nearly $267 billion of NPLs out of their MBS pools.
    Now that the two have taken title to these “loan” assets, they must either resolve the mortgage loan out through a specialty servicer, or foreclose.
    IMA Offering Fannie Mae Servicing
    Monday, November 29, 2010
    Interactive Mortgage Advisors, Denver, is selling a $226 million portfolio of bulk Fannie Mae servicing rights for an undisclosed client.
    The receivables are backed by 1,000 loans, only one of which is considered delinquent. Final bids will be taken next week.
    The portfolio has an average weighted yield of 4.9% and a servicing fee of 25 basis points. Roughly 70% of the homes are located in California.
    The bulk market for servicing rights has been slow the past few years — unless the government has been the seller — but advisors are hopeful that activity will pick up a bit as the smoke clears from regulatory reform.

    Industry Groups Want Delay on Disclosures

    Monday, November 29, 2010
    Three industry groups are urging the Federal Reserve Board to postpone implementation of new mortgage disclosures that are scheduled to go into effect January 30.
    The American Bankers Association, Consumer Mortgage Coalition and Mortgage Bankers Association want the Fed to make compliance voluntary on Jan. 30 — provided that lenders are in compliance with the 2009 amendments to Real Estate Settlement Procedures Act rules.
    The new disclosures mandated by the Mortgage Disclosure Improvement Act involve the presentation of changes to the interest rate or payments in tabular form. Lenders also have to provide a statement to the borrower that they cannot guarantee a refinancing of the loan in the future.
    The trade groups contend RESPA rules require comparable disclosures under the MDIA interim final rule approved by the Fed on Sept. 24. The joint letter also says implementation by Jan. 30 will be “costly” and “impossible” for some lenders.
    The trade groups say a major priority of the new Consumer Financial Protection Bureau will be to merge and streamline mortgage disclosures in 2011.
    “The lender associations believe the Board should consider this rulemaking effort in light of the broader [CFPB] mortgage reform effort, and minimize the addition of repetitive forms and rulemakings in favor of a more comprehensive approach,” the Nov. 23 letter says.

    Lennar Closes $300MM REO, Distressed Mortgage Investment Fund

    Monday, November 29, 2010
    A subsidiary of homebuilder Lennar Corp. completed its first closing of a real estate fund to invest in distressed real estate assets.
    Rialto Capital closed the fund with $300 million in initial equity commitments, including $75 million from the Miami-based homebuilder.
    The fund will extend Lennar’s distressed real estate and mortgage investments for the next three years.
    While the core operations of homebuilders have lagged in recent years, Lennar has seen some success in purchasing real estate owned properties and distressed mortgage debt through the Rialto subsidiary.
    Deals in 2010 include a $3.05 billion portfolio from the Federal Deposit Insurance Corp. The February deal included a combined 5,500 mortgages from two pools of notes—including distressed residential and commercial real estate assets—culled from 22 failed banks.
    A more recent deal from early October was a series of transactions to purchase a combined $740 million in distressed commercial and residential real estate assets from three undisclosed financial institutions. When the deal was announced, Lennar said the acquired assets included 397 loans with a total unpaid principal balance of approximately $529 million and 306 REO properties with an appraised value of approximately $211 million.
    Lennar said the acquisition was purchased at a discount and paid for with a combination of cash and senior unsecured financing provided by one of the selling financial institutions.
    The Rialto subsidiary’s activities in distressed asset investment netted Lennar $7.7 million in net operating earnings during its fiscal year third quarter that ended on August 31. The company posted FY3Q10 earnings of $30 million, or $0.16 per share, compared to a net loss of $171.6 million, $0.97 per share, in FY3Q09.

  14. […] This post was mentioned on Twitter by Matt Curtis, kim thomas. kim thomas said: US TRUSTEES ATTACKING PRETENDER LENDER STANDING IN MLS: […]

  15. ZOE- a law firm on behalf of BAC sent a notice of foreclsure letter stating BAC was the creditor, but in RESPA QWR’s from BAC they stated teh loan was sold and Fannie Mae was the investor, then they stated in another QWR letter the investor was some trust….they don’t know which end is up.

  16. @ Catch Them

    Excuse my ignorance, but why did you say it is funny that BAC says Fannie Mae is the investor? My QWR answer states the same.

  17. Great post! You mean the way the courts are supposed to work is finally kicking in? Wow, I am impressed. You can see, however, it is the bankruptcy courts that are taking a good look at the foreclosure mess. Hopefully, the federal courts and, most importantly, the state courts are going to get it together and see that the home owner is not a “deadbeat”. Of course, I am hopeful that Elizabeth Warren is going to get into this mess. We should all hope that she is not removed for some nefarious reason, so that the powers that be can continue to fleece the middle class. She is impressive.

  18. Bottom line the Banksters are like parasites they suck the blood of productive being





  19. Neil, you wrote – “It becomes necessary to push a figurative “reset” button with a window of opportunity for those affected to present their claims in a manner required by the court and the legislature of each state.”

    -Did somebody do just that – literally, not figuratively – in “The Big Easy?” Check out “Progress reported in solving New Orleans’ mortgage data crisis, but solution not yet in sight”


  20. Agree with Simon – great post – Neil!!

    Neil – just a question related to our old funding issue – you write – “investors who advanced the funds for the loans recover as much as possible.”

    It is my understanding that the MBS security investors (who received income pass-through on principal investment) – have been paid back their principal via the executed credit default swaps. Since “insurers” such as AIG could not actually honor their obligation to the swaps, the government stepped in to bail out AIG (and other insurers) on the swap obligations and the MBS investors were paid their principal back. Some MBS security investors are now suing for the difference in the income they could have received as opposed to what they actually received. The swaps were paid at 100% value – meaning no principal was lost to MBS investors. Technically, this swap payoff destroyed the whole “waterfall” structure of the trusts – dissolving the original structure.

    What remained after the swap payoff – was some mezzanine tranches (much smaller proportioned) – who were only to be paid any income – after the upper tier tranches were paid by a waterfall structure. Since the structure is now dissolved – there was no income “left-over” to be paid to the lower tranche holders. These mezzanine tranche holders – knew the risk – with or without the collapse of the trust itself. And, most have already written off the mezzanine tranches investments – or they are with the government – who pawns them off to distressed debt buyers/hedge fund at a discount.

    All of this – is for performing loans only. And, FASB 166 and 167 has mandated that these “broken” off-balance sheet conduits – be brought back onto balance sheets – which most financial institutions have now complied with.

    Non-performing loans are removed from the trusts – via the tranches that were not securitized (certificates not sold to security underwriters). The servicer continues to services for entities that have purchased the collection rights to non-performing loans. – or, in some cases, for themselves if the servicer now owns the collection rights.

    So, my question is – which investors do you think should recover??
    1) the MBS security investors who have been paid back principal but did not realize their “income” yield that was promised to them?
    2) the mezzanine tranche investors who invested a much smaller principal and have written off those investments – and/or the government who now owns many of these mezzanine remnants?
    3) the distressed debt buyers/hedge funds who purchase collection rights to non-performing loans at a discount??
    4) or the servicers who may have purchased collection rights at a very steep discount?

    Believe the government made big mistakes when it first addressed the crisis and bailed out everyone except the homeowner victims.

  21. Questions #1-

    Notice of Sale letters use the word Creditor; Isn’t Creditor “someone money/debt is owed to.”?

    How can a Servicer be a creditor?(FUNNY- QWR’s from BAC state Fannie Mae is the Investor.)

    Question #2-

    Secured vs Unsecured; If a mortgage is determined to be UNSECURED; Can they still sue you and get a judgment? Or do you have to file Bankruptcy to have the unsecured claim erased or cramed down?

  22. One of your very best posts Neil. Way to go!

  23. Now the federal reserve is putting proposal for alproval to further water down TILA rescission rights, punishing borrowers for bankers non disclosure.

    there is an editorial article in the New York Times today.

    I believe this is a preentive strike by the crooked bankers as a direct result of what is coming down the road. When the true accounting of each individual loan is known in discovery, the rescission and damages will be huge.

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