Reuben's Home Inspection Blog

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FHA Loans Need Appraisals, Not Inspections

I get a lot of questions about FHA Inspections, and it's about time I sat down and blogged about it.  Here are the most common questions I get asked about standard FHA loans.  This information does not apply to FHA 203(k) Loans.

Can You Do The FHA Inspection? FHA loans do not require a home inspection, they require an appraisal.  The appraiser does this.  These are often mistaken for an inspection.  Home inspections are still strongly encouraged.

How Can I Pass The FHA Inspection? First, see above.  FHA appraisals require the appraiser to look for obvious defects with the house, but the appraiser never requires repair of these items - the underwriter does.  Trying to figure out exactly what might require repair is a bit of a guessing game, and often has much more to do with the people doing the appraisal and the underwriting than it does the property itself.  Nevertheless, here is a partial list of some common defects that get flagged:

  • Chipping / Peeling / Flaking Paint
  • Rotting wood
  • Electrical outlets or switches that are defective
  • Plumbing leaks
  • Non-functional heating plant or AC
  • Roofs with less than two years of life left
  • Missing or badly damaged floor coverings
  • Obvious structural problems

Do I Need A Home Inspection If I'm Getting An FHA Inspection? Again, see above.  FHA appraisals are not home inspections, and it's unfortunate that they get confused as such.  The FHA appraisal has nothing to do with a home inspection.

Do I Need An FHA Certified Inspector If I'm Getting An FHA Loan? No.  The home inspection is completely independent of the FHA loan.

Reuben Saltzman, Structure Tech Home Inspections - Email - Minnesota Home Inspector

Reuben Saltzman, Structure Tech Home Inspections

        

Comment balloon 60 commentsReuben Saltzman • October 13 2009 06:09AM

Comments

Good information about a widely misunderstood matter.  I don't fault home buyers but agents should certainly know the difference between an FHA appraisal and inspection matters.

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) about 9 years ago

True, although HUD should require a Home Inspection for all transactions.  I feel like a Home Inspector sometimes, when I'm sent to appraise junk.

Posted by Alix Pinzon, (562)743-6086 (Open Mortgage, LLC NMLS # 2975) about 9 years ago

Best advice is to inspect the home regardless of the appraisal outcome.

Posted by Dave Humphrey, Broker, Real Estate Advice You Can TRUST! (RE/MAX Marketplace) about 9 years ago

Great blog about FHA requirements on FHA loans. This is often very misunderstood from consumers. The appraiser holds the golden key.

Posted by Chip Jefferson (Gibbs Realty and Auction Company) about 9 years ago

Appraisers are in the drivers seat when it comes to FHA loans. I would advise that the seller insures that the house is overall clean and no major repairs has been my experience.

Posted by Harry F. D'Elia, Investor , Mentor, GRI, Radio, CIPS, REOs, ABR (Real Estate and Beyond, LLC) about 9 years ago

Straight forward.  An FHA appraisal is not an inspection.  I think many agents have had a misconception about the FHA appraisal and you did well to point out the distinctions between the two.

I have had very good luck with FHA appraisals lately (knock on wood) and have not had any issues form the underwriter on any of my properties.  Yeah!

Posted by Dan Quinn, Dan Quinn (Berkshire Hathaway HomeServices PenFed Realty) about 9 years ago

About 10 years ago in PA., we had to modify our agreement of sale to clearly point out that the FHA appraiser was not a home inspector !!! There were many self-serving agents out there who were talking buyers out of getting a "whole house inspection" done !

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) about 9 years ago

Any agent who recommends using the FHA appraisal as a means of bypassing a real home inspection to save a few bucks is putting their client at a great deal of risk. 

Posted by Richard Iarossi, Crofton MD Real Estate, Annapolis MD Real Estate (Coldwell Banker Residential Brokerage) about 9 years ago

There are or used to be some requirements for FHA on the inspection side. One was a termite inspection. That rule has been relaxed, but some under writers still ask for an FHA termite inspection. This simply means that the inspector must have a supervisory license. This may be unique to CT, but I am sure it goes by other names in other States.

The second requirement, and I find this to still be needed, is water testing when a home has a well. If the home is older a lead in water test is also required.

I always ask the potential client if they are going through FHA. Sometimes they have no idea what they need.

Posted by James Quarello, Connecticut Home Inspector (JRV Home Inspection Services, LLC) about 9 years ago

Lenn - thanks for reading, and you're right, agents should definitely know the difference!  That's exactly why I wrote this.  It's usually the agents asking me these questions, not the buyers.

Gregg - I completely agree. I'm guessing it would be tough to regulate that in states that don't have licensing for home inspectors though.

Dave - Exactly!

Laura - yes, I can't believe how many times I've been asked to do an FHA inspection.

Harry - thanks for the tip.  That would be good advice for any seller.

Dan - I've heard that the repair requirements on FHA loans have been significantly scaled back recently... but being I'm not an appraiser, I'm only quoting what I've heard.  

Michael - I recently co-signed a loan for a family member, and at the time we signed the document waiving the home inspection (can you guess why?), it was already way too late in the game to get an inspection.  They're on the right track encouraging buyers to get an inspection, but I think much more still needs to be done.  There are still a ton of agents out there telling buyers they don't need anything more than an FHA "Inspection".  I hear from these buyers way too often.

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) about 9 years ago

Good call on pointing this out. Inspection vs. Appraisal should be a Real Estate, Day One kind of lesson, but amongst all the other details i think it gets mixed up by folks newer to the RE community.

From a lending standpoint, an inpsection on FHA property/loan is typically only required if the appraiser makes note of an issue.

Posted by Greg George (Mortgage Guru, Specializing in Jumbo, FHA and Conv Loans) about 9 years ago

Reuben, Good information on FHA guidelines. We currently have a lot of FHA buyers in the market today. And unfortunately we are finding that many of the properties that are still for sale (typically short sales and foreclosures) in the lower price ranges will not be able to go FHA because of deferred maintenance and disrepair.

Posted by Sandy Shores FL Realtor®, Melbourne Real Estate, Brevard County Real Estate, Florida's Space Coast (M & M Realty of Brevard Inc.) about 9 years ago

Reuben.. This is all good information.. thanks for keep us updated on the in's and out's of inspections when it comes to FHA Loans.

valerie osterhoudt

Posted by Valerie Osterhoudt, ABR, Cromwell, CT Real Estate ~ 860.883.8889 (Johnson Real Estate, Inc.) about 9 years ago

I'm with Richard, appraisals and inspections may be apples and oranges but inspections are necessary to protect the client. 

Posted by J. Philip Faranda, Broker-Owner (J. Philip Faranda (J. Philip R.E. LLC) Westchester County NY) about 9 years ago

Reuben, My husband I chuckle about this issue. When he bought his first home (at 23) he was under the impression stated in your article..that if his loan was fha he did not need a home inspection. When he moved in none of the plugs would stay in the walls and when he did the dishes in the kitchen sink and let out the water, it came up in the bathroom sink, which was directly behind the kitchen sink. Funny story to me, but always a reminder that fha buyers should always have the home inspected by a professional.

Posted by Barb Szabo, CRS, E-pro Realtor, Cleveland Ohio Homes (RE/MAX Trinity Brecksville Ohio) about 9 years ago

Reuben -- great post about this very topical issue -- I have people really not understanding -- yet also had appraisers call to ask for the home inspection, so you can understand the confusion. Thanks for breaking it down!

Posted by Marney Kirk, Towson, Maryland Real Estate (Cummings & Co. Realtors) about 9 years ago

Perceptions are very important its up to people like us to educate people. Sometimes you listen to someone say the wrong word, you tell them what its really called, and they still use that incorrect word. Habits are hard to break I guess. Appraisers asking for home inspection?  Geeez i guess we all have those days?

Posted by Justin Douglass (Benchmark Residential & Investment Real Estate) about 9 years ago

I hear this all the time!  I inform the consumer that a home inspection and an appraisal by an FHA appraiser are NOT the same thing and that a home inspection is VERY IMPORTANT!  Thanks for the blog clarifying...a good one to share!

Posted by Jeani Codrey, If you're not learning, you're not living! (The Learning Jeani) about 9 years ago

I get thi question a lot from my borrowers. They have been told by some that the FHA Appraiser does an inspection. Well, they do...  Kind of!!! They do a visual inspection for the lender... not the borrower.

I always recommend an inspection.

Posted by Tom Burris, Texas/Louisiana Mortgage Pro - 13 YRS Experience (NMLS# 335055) about 9 years ago

Keep in mind that the FHA did away with the VC sheet years ago to compete with conventional loans. FHA appraisers were NEVER inspectors, they just had a punch list to run through, and many of the items that pop up can be issues on a conventional loan as well. Typically an FHA buyer is more willing to buy a house in need of a little TLC where the typical conventional buyer is more apt to buy a home that is in more "move in" condition.

ANY appraiser (fha or conv) can ask for repairs, it is NOT just FHA that calls for them.

That Being said: Do yourself a favor and get a home inspection!

Posted by Robert Rauf (HomeBridge Financial Services (NJ)) about 9 years ago

Reuben:  So let me see if I got this correct - I need an FHA inspection in order to get an FHA loan - right?  Great post ... I think this gets confused for some people when they hear words used interchangeably.  An appraiser may call out items that may appear like an inspection ... when they are actually standards that must be met. 

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) about 9 years ago

Thanks for posting this!  Ther eis a lot fo bad information out there and this really helps consumers weed through it.

Posted by Courtney Cooper, 206-850-8841 (Team Leader/ Investor for Brand New Keller Williams North Seattle Office) about 9 years ago

Greg (response #2) we don't need the government adding more requirements and regulations making the process even more cumbersome.  HVCC has once again demonstrated that more government involvement hurts the consumer.

Posted by Lucien Vaillancourt, Jacksonville Florida Real Estate (Native Sun Realty, Inc.) about 9 years ago

its a good idea to make sure the cleint does know the difference

Posted by Gene perez (Greater Mortgage Solutions & Valley Hills Realty ) about 9 years ago

How could this possibly be misunderstood? 

Posted by Aaron Vaughn | Builder | Investor, If the deal makes sense, the cash will follow. (Conifer Homes) about 9 years ago

Good reminders.

Posted by Marian Goetzinger, Crystal Coast Real Estate NC (Pine Knoll Shores Realty 252-422-9000) about 9 years ago

Good information.   I have an FHA appraisal going on this week.  Thanks for sharing!

Posted by Lisa Matykiewicz (United Brokers Group) about 9 years ago

It is amazing how many peopel still think that these 2 are the same thing!!

Posted by Paul Carson (Mortgage Network Inc.) about 9 years ago

Reuben,

The confusion stems from the FHA Inspections of long ago.  Agents would get a knot in their stomachs because the inspectors would "white glove" a home and then some.  There is still a stigma associated with FHA loans.  In fact, my first FHA loan in many, many, many years closed within three weeks of the finalized contract--even though the contract was first written with conventional financing, the house flooded shortly after the buyers' inspection, and when the radon was re-tested the property had to be mitigated!  LOL!  I was actually notified of the water in the basement by the radon inspector who was picking up the radon canisters.  He called just when my date and I arrived so off my date and I went to try to get the water out (with the help the fire department, the public works department, a plumber and a restoration service).  My sellers were out of town!

That's one for the books!

Linda Kemp, Keller Williams Realty Naperville, IL

Posted by Linda Kemp about 9 years ago

that is a hard one for people to under stand.. although I will say that some fha appraisers act like home inspectors sometimes.

Posted by Konnie Mac McCarthy, Broker/Owner - VA & MD "Time To Get A Move On!" (MacNificent Properties, LLC) about 9 years ago

I'm going to reblog this - I get asked the same question all the time.

Posted by Stephen Kappre, Helping You Home (KW Hometown) about 9 years ago

YES!  People always get these confused so this is the perfect post and I am reblogging too!

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) about 9 years ago

Short, sweet and to the point. Thanks for the clear information about the difference.

Posted by James Lyon (Vista Pacific Realty) about 9 years ago

If it's the agents asking the question, pity the poor buyer or seller they represent.

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) about 9 years ago

Thank you for clarifying the difference for soooo many readers. I make it a point to explain the difference "ad nauseum" to my Buyer clients so that they readily realize the difference between the two. In addition, I have them initial a flyer recommending an independent home inspection. People don't realize how important it is.

Posted by Vanessa Calhoun, Your Greater Atlanta Marketing Guru!! (PalmerHouse Properties & Associates, LLC) about 9 years ago

We see a lot of the items you listed come up as a condition of the FHA loan on our Foreclosure listings. We also see drywall damage and loose rails come up as well. Thanks for reiterating the difference between a Home Inspection and FHA Appraisal. I always encourage my clients to have a home inspection regardless of the financing they are obtaining.

Lenn brings up a good point as well!

Posted by Cara Pearlman, Realtor - ABR, SFR (Frankly Real Estate, Inc) about 9 years ago

According to FHA Mortgagee letter 05-48, Appendix D, an appraiser is required to insure that the subject property meets FHA Minimum Property Requirements or Minimum Property Standards.  Below is a description of the "Quick Tips" provided by the FHA:

In the performance of an FHA appraisal, the appraiser must denote any deficiency in the appropriate section(s) (site issues in the site section, improvement issues in the improvements section) of the appraisal report. The appraiser is to note those repairs necessary to make the property comply with FHA's Minimum Property Requirements (MPR) or Minimum Property Standards (MPS) together with the estimated cost to cure. The lender will determine which repairs for existing properties must be made for the property to be eligible for FHA-insured financing.

Cosmetic repairs are not required; however, they are to be considered in the overall condition rating and valuation of the property. Examples of cosmetic repairs would include surface treatments, beautification or adornment not required for the preservation of the property. For example, generally, worn floor finishes or carpeting, holes in window screens, or a small crack in a windowpane are examples of deferred maintenance that do not rise to the level of a required repair but must be reported by the appraiser.

The physical condition of existing building improvements is examined at the time of the appraisal to determine whether repairs, alterations or inspections are necessary - essential to eliminate conditions threatening the continued physical security of the property.

Required repairs will be limited to necessary requirements to:

  • protect the health and safety of the occupants (Safety)
  • protect the security of the property (Security)
  • correct physical deficiencies or conditions affecting structural integrity (Soundness)

A property with defective conditions is unacceptable until the defects or conditions have been remedied and the probability of further damage eliminated. Defective conditions include:

  • defective construction
  • other readily observable conditions that impair the safety, sanitation or structural soundness of the dwelling

Typical conditions that would require further inspection or testing by qualified individuals or entities:

  • infestation - evidence of termites
  • inoperative or inadequate plumbing, heating or electrical systems
  • structural failure in framing members
  • leaking or worn-out roofs
  • cracked masonry or foundation damage
  • drainage problems

Appraisers are reminded not to recommend inspections only as a means of limiting liability. The reason or indication of a particular problem must be given when requiring an inspection of any mechanical system, structural system, etc.

These guidelines are provided to assist in the examination of the property. To perform this analysis, the appraiser must have full access to all property improvements.

If unable to visually evaluate the improvements in their entirety, contact the lender and reschedule a time when a complete visual inspection can be performed. This includes access to the crawl space and attic. The appraiser is not required to disturb insulation, move personal items, furniture, equipment, plant life, soil, snow, ice or debris that obstructs access or visibility.

An inspection done in accordance with these guidelines is visual and is not technically exhaustive. These guidelines are applicable to buildings with four or less dwellings units and their related property improvements.

Posted by Jesse Skolkin (Independent New York State Certified Real Estate Appraiser) about 9 years ago

Great information explained very clearly.  Thanks!

Posted by Joyce Thomas, Your Home Sold Guaranteed! (eXp Realty) about 9 years ago

Thanks for reading everyone!

James - termites, huh?  Heard of 'em, never seen 'em. We also need to have wells tested here in MN.

Greg - excellent points, this should be something that gets taught on the first day, but it's usually agents asking these questions.

Barb - great story!  

Robert - that VC sheet is probably what gets everybody confused.  Interesting info on how any appraiser can ask for repairs.  I wasn't aware of that.

Kathleen - maybe I wasn't clear enough ;)

Linda - that's called full service.  Way to take care of your properties!

Vanessa - you're doing the right thing!

Cara - drywall damage?  I can't imagine why any appraiser would care about a damaged wall covering.

Jesse - Fantastic information!  Thanks for posting this.  Would you ever make an issue over damaged drywall?  What about a loose handrail?  

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) about 9 years ago

Drywall damage is an item which should be noted, but probably does not rise to the level of a required repair.  However, if the drywall is damaged and, for example, wiring is exposed, this would be an item for which an appraiser perform the appraisal "subject to" the repair (i.e.: the appraised value is based upon the assumption that the item noted has been repaired).

A loose handrail could be a safety issue - I guess it depends on how loose we're talking about.  If it can support my weight, it's probably o.k.

Posted by Jesse Skolkin (Independent New York State Certified Real Estate Appraiser) about 9 years ago

The answer is get a Home Inspection and you will not have any problems understanding what deficiencies that you have to contend with upon the purchase of one of the largest investments of your life. The defects that a Home Inspector will find will allow you to make a more informed decision on the purchase of your house.

 You won't need a appraisal if the house has more repairs than you bargained for . Every house should pass FHA for your own benefit. Why not know the condition of the house before you buy?

A Home Inspection is the condition of the house while the appraisal is the value of the house.

Smart Move Home Inspection LLC     Best Reggards Doug

 

Posted by Doug about 9 years ago

Yes you are so right. Have they elinimated the appraiser checking out garage door openers?

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) about 9 years ago

Great post - it usually is not a problem getting the buyer to understand the difference.  What has been difficult is when the FHA "appraiser" notes installing a stove as a condition of loan approval (foreclosure property).  Banks in so many cases will not pay for any repairs & that includes installing a stove.  The buyer's question was - "why do I have to buy a stove before I close on the house?" My question too!

Posted by Lani Sussman, MI. Specialist - Oakland County (Max Broock Realtors) about 9 years ago

Good post, simple and informative.

Posted by Bristol Restoration, When you need it done right and done right now! (Bristol Restoration, Inc 661-294-1812) about 9 years ago

The dings I see the most (outside of peeling paint) is missing hand rails on stairs, crawl space with less than 18" of space, lack of a vapor barrier and porch or steps more than 30 inches off the ground without a railing.  Good post!

Posted by Damon Gettier, Broker/Owner ABRM, GRI, CDPE (Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert) about 9 years ago

This is good information.  Appraisals are very different from home inspections though I believe both are extremely important.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) about 9 years ago

I agree with you in the difference.

I understand the difference. But, then why are so many appraisers tagging certain items and then having to come out and reinspect. Yes, appraisers not inspectors.

Drives me batty.

Posted by Missy Caulk, Savvy Realtor - Ann Arbor Real Estate (Missy Caulk TEAM) about 9 years ago

Knowledgable inspectors and appraisers play an important factor as well.   For example, in the Chicago area where agents are using Redytemp adjustable circulators to protect properties pipes from freezing or even bursting.  Those of you who haven't experienced a burst water pipe you can imagine the loss of time and money in getting a flooded property back on the market.  Nonetheless, agents often have a friend or family member install one on the property to prevent having to repeatedly remember to open cabinet doors or bear the cost of leaving the heat on all the time.    But, when inspectors or appraisers arrived on the property they often assumed there was a problem because the home was so cold or they mistakenly noted a lack of heat tape.  It's not a issue anymore since they've since become familiar with seeing homes equipped with this system which can easily be mistaken as a instant water heating device.  Once the property closed agents often left the Redytemp as their gift to the new owners.

Posted by Kevin about 9 years ago

Reuben, I got a call the other day from a buyer looking for an "FHA Inspector," I told them that there was not such thing and that as a Licensed Washington Home Inspector I was capable and qualified to inspect their home.  They moved on to someone that knew what they were talking about:)  There is indeed a lot of confusion out there about this, and your post is both accurate and too the point.

Posted by Charles Buell, Seattle Home Inspector (Charles Buell Inspections Inc.) about 9 years ago

Jesse - thanks for the clarification.

Joe - I'm not sure.  Maybe an appraiser reading your comment would know...?

Lani - why should be buyer invest any money in to the house before they own it?  Just seems silly to me too.  

Kevin - interesting info.  Homes here in Minnesota get winterized all the time, but I've never hard of a 'Redytemp'.

Charles - I just got a call about this today, and after doing a little research for this blog, I was able to ask another question when my potential client told me he needed an FHA inspection.  "Are you getting a 203K loan through FHA?"  When he said no, I told him that was good news, because FHA won't require an inspection.  I booked the inspection. 

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) about 9 years ago

Great post, Reuban!

My complaint is take the FHA guys will walk right past a mojor issue without even pausing.  When clients ask whether it'll pass FHA, all I can tell them is that some things may not but that the appraisers are all over the ballpark on what they call.

I had crawlspace on a 120 year old home that I entered one arm at a time and used my hammer to drap myself into because it was so skinny.  Told my client about the issues under there so they wouldn't get caught by surprise and also told them that FHA probably wouldn't even look in there.  I was right.  FHA didn't bat an eyeball. 

Posted by Paul Duffau, Caring for People, Educating about Homes (Safe@Home Inspections, LLC in SE Washington) about 9 years ago

Paul - I'm not surprised at all.

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) about 9 years ago

FYI my reblog got you on the Chicago Sun Times

Posted by Renée Donohue~Home Photography, Western Michigan Real Estate Photographer (Savvy Home Pix) almost 9 years ago

Renee - that's crazy!  Wow, thanks for the reblog, and thanks for letting me know!

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) almost 9 years ago

we purchased a home thru hud and notice a pipe has burst in the slad... what can we do about this

Posted by mimi almost 9 years ago

Mimi - I would call a plumber out to repair it.

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) almost 9 years ago

Me too Missy!

This is good information, and as REALTORS we need to be aware of issues that may cause a red flag for our clients/customers. I try to stay on top of these issues.

I currently have a client in the process of buying an older home (FHA).  We had our home inspection as I ALWAYS recommend no matter how it is being bought.  The buyer was informed of the issue of a 2 wire electrical system and was fine with everything.

Now the appraiser comes in and tests the outlets and reports "no ground".  Underwriters are now requiring electrical inspection.  I want to scream!!!

 

Posted by Tammy Warner over 8 years ago

Tammy - no kidding?  That's ridiculous.  I've heard a lot of horror stories with underwriters. 

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) over 8 years ago

tenant in a building that is going to be bought via fha loan question what rights do i have when the inspector comes ? porches coming apart structual damage electrical and plumbing problems, potential new owner is claiming he will repair it old landlord just wants to get out. this is a young

kid and dont want to see him get taken. can i say anything or file some sort of complaint?

 

 

Posted by bob harris about 8 years ago

Bob - I'm having a hard time following your question.  Let me know if I have this right - you are a tenant in the building, and the potential new owner is a young kid, correct?

Your main concern is that the building has a lot of problems that the current owner hasn't dealt with, and that the new owner won't have the means to make these repairs either.  

If your city has a rental inspections department, you could take up these concerns with the rental inspections department.  If there is no such thing, you could bring up your concerns to the building inspections department.  That doesn't mean anything will get done, but it's a start.

Posted by Reuben Saltzman, Delivering the Unbiased Truth. (Structure Tech Home Inspections) about 8 years ago

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