|Servicing Category||Overall Ranking||Management and Organization||Loan Administration||Outlook|
|Tax lien servicer||Average||Average||Average||Stable|
S&P Global Ratings' ranking for TaxServ LLC (TaxServ) as a tax-lien servicer is AVERAGE. On Sept. 3, 2020, we affirmed the ranking (see "TaxServ LLC AVERAGE Tax Lien Servicer Ranking Affirmed; Outlook Stable" published Sept. 3, 2020). The outlook for the ranking is stable.
Our ranking reflects TaxServ's:
- Good management and staff experience and tenure;
- Deep understanding of the operational and political nuances of taxing authorities;
- Investment in technology to support efficiencies and controls;
- Ability to manage multiple product types;
- Outsourcing of support functions, including technology support for its proprietary servicing system; and
- Short track record and lack of independence of its internal audit program.
Due to the company's size, administrative support functions are either outsourced (information technology [IT] and payroll services) or performed by operational management (training, quality control, and vendor management). Training, internal auditing, and vendor management recently underwent formalization, which could mitigate risk going forward, in addition to external audits and reviews.
Since our prior review (see "Servicer Evaluation: TaxServ LLC" published Feb. 26, 2019), the following changes and/or developments have occurred:
- TaxServ hired a new executive vice president (EVP) to further support the management team;
- An internal hire was placed as lead of the call center after the previous lead retired;
- A dedicated position was created for client relationship and business development;
- The training manual and processes were formalized, and TaxServ began using a new online tool for new hire training;
- The internal audit process was formalized; and
- The vendor management process was documented within the policies and procedures manual.
The ranking outlook is stable. TaxServ has public sector contracts in place with terms generally ranging from three to four years. Many of these contracts have automatic renewal provisions. The demand for tax-lien collection services is not expected to diminish due to the pressure on municipal governments to collect taxes, the limited resources available for municipalities to perform billing and collections, and the municipalities' ability to charge the obligor for an outside tax collection vendor. TaxServ continues to develop relationships with taxing authorities to increase its public contracts while targeting private sector opportunities in collections of government receivables. The outlook also reflects the timeframes associated with the execution of new public contracts.
TaxServ maintains a disaster recovery and business continuity plan, including response procedures to address operational disruption as a result of a pandemic event. The company recently implemented its plan due to COVID-19. Management reported that there were no disruptions to the company's operations or data facilities.
In addition to conducting a virtual meeting with servicing management, our review includes current and historical servicer evaluation analytical methodology (SEAM) data through June 30, 2020, as well as other supporting documentation provided by the company.
|Primary servicing locations||West Palm Beach, Fla., and Hartford, Conn.|
|Loan servicing system||Proprietary|
|Portfolio types||Tax lien|
|As of Jun. 30, 2020|
|Number of servicing employees||33|
|Lien redemptive value (mil. $)||307,624|
|Lien count (number)||999,288|
TaxServ was established in 1993 as a collector and servicer of government receivables owed to municipalities or third-party owners. TaxServ is based in McLean, Va., with offices in West Palm Beach, Fla., and Hartford, Conn. The company provides servicing and collection activities for both tax and non-tax receivables. Currently, TaxServ manages the acquisition and servicing of portfolios of a variety of assets for clients in various municipalities.
TaxServ collects and services a variety of municipal-related debts, including real estate tax liens, motor vehicle tax liens, personal property tax liens, non-tax receivables, and municipal court debts for both public and private sector clients. As a tax-lien servicer, TaxServ is responsible for payment processing, reporting, asset management, and liquidation. For its public clients, taxpayers are charged a collection fee in addition to the tax fees and penalties; the collection fee is retained by TaxServ, with no fee sharing to the municipalities.
TaxServ's portfolio as of June 30, 2020, consisted of approximately 999,000 liens with a redemptive value of $307 million. The portfolio is comprised of real estate tax liens, water and sewer liens, municipal tax liens, municipal non-tax collections, and assessment and public land lease collections.
TaxServ's strategy is to continue to grow public sector contracts, which provide a steady portfolio based on the contract lengths and annual tax placements, while targeting an increase in the private sector tax-lien servicing portfolio over the next three to five years. TaxServ has demonstrated its ability to adapt its processes and systems in order to service new products presented by clients. This flexibility has enabled it to add new clients with differing business models and needs. Management indicated it added a number of clients, both private and municipal, during 2019. The tax lien servicing business runs counter cyclically to the economy, because during an economic downturn when taxpayers are unable to pay their taxes timely and, therefore, more taxes become past due and are place for collections or sold to third-party tax lien purchasers. While this is a positive for TaxServ, as with all of our clients, we will continue to monitor its progress during the COVID-19 pandemic and its unique challenges.
Management And Organization
The management and organization subranking is AVERAGE for tax lien servicing.
Organizational structure, staff, and turnover
TaxServ has experienced managers in all key areas, including the areas responsible for asset management. The senior management team averages 25 years' industry experience with 15 years' average company tenure, while middle managers average 17 years' industry experience and 13 years' company tenure. There was no turnover in management and 9% staff turnover in the first half of 2020, which we consider manageable.
In addition to its tax-lien servicing background, TaxServ's management team brings a diverse range of experience to the company, including time working in municipal taxing authorities, municipal governments, mortgage servicing, and collections. The experience working in local government not only provides a deep level of understanding of the nuances of governmental processes, but it also brings credibility to the local agencies to build and develop relationships. Per management, this relationship building with the municipal tax collection agencies is a key to success. The management team's diverse background has also enabled TaxServ to take on the collection of debt outside of its standard products, such as municipal court fees and fines collections and public land leases.
As of June 30, 2020, the company had 33 employees devoted to servicing. TaxServ utilizes contractors for various support functions, including technology, which is appropriate for a company of its size. Operational functions are divided among the three sites, with collections performed in Hartford, servicing administration in West Palm Beach, and corporate and administrative functions in McLean. Since our last review, management added a new EVP with extensive experience in the industry to share in the duties of the existing president. We believe this addition to the executive management team helps to mitigate the risk of key person dependency within the company. With the addition of the new EVP, a reorganization was done and a dedicated client relationship and business development position was created. A tenured employee was moved into this role. Additionally, the head of the call center retired, replaced by an internal hire with 11 years in the company and five years in a municipal tax office.
TaxServ uses a professional employer organization to manage payroll, new hire onboarding (including background and credit checks), payroll tax administration, and benefits.
Management said that typically municipal tax servicing contracts have terms of three to four years, with built in auto-renewals for many of those. Due to the length of the contracts and the timeframe involved in executing new contracts, TaxServ feels it can manage capacity effectively. The office locations as well as the technology afford the opportunity for growth.
Since our last review, TaxServ took steps to formalize its training program. At the beginning of 2020, it began an overhaul of the training manual and processes. A new training system was deployed to formally track training. The module includes mandatory courses, including cyber security, sexual harassment training, and office safety, as well as optional courses. Additionally, TaxServ implemented a program where a stipend is paid by the company for employees to attend extracurricular training sessions.
New employees are assigned to a current employee who acts as their mentor and trainer. The new employee is trained on the system by their mentor and then shadows them for period of time. The mentor will transition tasks to the new employee until the new hires are performing the responsibilities of the job with the mentor shadowing them.
For collectors, the collection supervisor acts as the mentor and the training lasting approximately two weeks, with new collectors able to work independently generally by three weeks. Since the collection staff is located in the same office, help on a call-to-call basis is readily available not only to new hires but to all collectors. Additionally, collectors can use their chat tool to get help with any questions while on calls. While TaxServ is not required to be in compliance with Fair Debt Collection Practices Act (FDCPA) requirements, all employees who may have contact with taxpayers are trained to be in compliance with the act.
Annual compliance training is required of all employees with customer facing staff are required to take 12 hours and non-customer facing employees required to take three hours.
We view the formalization of the training program positively and will continue to monitor its development. We feel, based on the company's size and the combination of the mentoring program and the experience of the management team and existing staff, that the training program is sufficient for the company.
Systems and technology
TaxServ utilizes a vendor to manage its IT functions, including the management of the proprietary servicing system as well as network and information security management. The head of the vendor firm worked for the tax-lien arm of an insurance company that was bought out by TaxServ, so the vendor has extensive background with the servicing system and the company. TaxServ utilizes a proprietary system, Asset Information Management (AIM), as its system of record for servicing. A manager at the vendor manages the AIM system with the help of subcontractors. While understanding the limits of a smaller company to have in-house programmers, there is risk associated with the programming knowledge and expertise for the proprietary system being held within a small firm to a limited group of people.
AIM is used to manage the processes for servicing tax liens throughout the life of the lien through final resolution, including:
- Capturing and maintaining asset data;
- Payment posting;
- Investor reporting and remittance;
- Capturing account activity, correspondence, and notes;
- Collection assignments;
- Payment plan tracking and monitoring;
- Tracking bankruptcy, legal remedy, and foreclosure cases;
- Determining asset disposition with a net present value tool;
- Bankruptcy plan payment management;
- Managing real estate-owned (REO) activity and disposition of assets; and
- Acting as a document repository.
AIM user access is restricted based on function so that not all users have access to all areas within the system. The system maintains a full logging and change management record that captures the date, time, and user for each entry and change. All AIM source code is backed up with monthly restores. TaxServ does not maintain any obligor social security numbers in its servicing system.
TaxServ uses change management software to track all system updates. It is also used as a help desk ticketing system.
TaxServ has the following in place to manage and monitor security:
- A cloud-based event logging and monitoring of firewall activity.
- Read-only access to data provided to clients via Remote Desktop Services.
- Servers that are replicated with daily backups stored locally and in the cloud.
- Malware detection and antivirus software on all computers and servers.
- Email filtering software, which was implemented since our last review.
TaxServ engaged a third party to complete penetration testing in 2020. There were no critical priority issues identified in the testing.
As previously noted, TaxServ's mandatory training includes cybersecurity training for all employees. Additionally, the operations manager sends emails to staff regarding new threats and reminders of what steps are required to prevent issues.
Business continuity and disaster recovery
As part of its disaster recovery protocol, TaxServ utilizes a co-location site to house its servers. While located in south Florida, the site is in a category 5 hurricane-rated building with three generators. In the event of a disaster, users can access applications via remote access. Backups are performed daily.
Each TaxServ site has a designated senior manager in charge of communication during a disaster. Managers have the ability to access systems remotely. TaxServ's cloud-based phone system and remote system access make it possible for staff to work remotely in the event of an emergency.
TaxServ reported that it had the infrastructure for employees to work from home on day one of COVID-19 pandemic plan implementation.
TaxServ monitors regulatory changes through regulatory commissions, industry associations, municipality legislative liaisons, and outside legal counsel. TaxServ's senior counsel summarizes adopted changes and distributes the summary internally. This change summary is used to update the policy and procedures (P&Ps) manual and make changes to the servicing system as needed. While not in a standardized or consistent format, TaxServ has a detailed and comprehensive published P&Ps manual. Staff is notified of updates and changes directly by management.
Compliance and quality control
The individual business units perform quality checks that are built into the workflow processes, including:
- Collection activity reports are used to ensure that collector activity is appropriate and timely.
- The call center manager performs regular account reviews to monitor collector activity against regulatory and contractual requirements.
- All letter batches have a quality review internally before they are sent to the client for sign off.
- A dual count of all customer checks received for payment posting is performed.
- Wire entry requests and approvals are performed independently by different managers.
Internal and external audits
In early 2020, TaxServ added an internal audit process to its P&Ps. Seven divisions within company have been broken out and risk rated and are subject to audit. Two audits are run per quarter with the exception of the final quarter, in which one is conducted. In the second and third quarters of 2020, the call center, asset management, legal and compliance, and operations had audits conducted. Audits are performed by either the president or the EVP. We would typically expect that the internal audit group maintain its independence from the operational groups; however, it is not unusual to see this function as part of senior management duties in smaller organizations. We reviewed the audit memo and associated audit scorecard for one completed audit. While the documented audit process includes steps required to assess the managers' understanding of the internal controls for their operations, the final audit memorandum does not include the results of that assessment. Without this summary to tie the testing back to the control, the audit report reviewed was more akin to those we typically see for compliance audits, where testing and recommendations are focused at a transactional level and do not have a clear tie to the risks and controls.
All issues discovered within audits are detailed and remediation items are noted within the audit report. One month after an audit review is completed, applicable management holds a meeting to review remediation progress. Any permanent changes due to remediation are memorialized in the P&Ps.
In those states requiring licensing as a collection agency (Connecticut, Massachusetts, Maryland, and Florida), the states perform periodic operational audits. Florida and Connecticut perform on-site and/or phone audits, while the others perform desk audits. Management stated that there have been no state banking committee audits since the last review.
TaxServ's SSAE 18 SOC 1 Type 2 report for the June 1, 2019, through May 31, 2020, period cited no deviations.
TaxServ has developed a taxpayer information sheet, which is provided to obligors through the collection letter process. This sheet includes information regarding debt disputes. TaxServ requests that obligors provide disputes in writing and has an email address specifically for these items. Obligors can also fill out a form on TaxServ's website, which is directed to the dispute email inbox on submission.
Though there is no requirement for TaxServ to register under the CFPB complaint database, it has voluntarily elected to do so. There have been minimal complaints file through CFPB complaint database and none since our prior review.
In the third quarter of 2019, TaxServ formalized the vendor management process by adding its normal processes to the P&Ps. Primary vendors include those used for administrative functions (the IT service provider, human resources service provider, and database manager) as well as those utilized for operational processes (the bulk mail vendor, foreclosure attorneys, bankruptcy attorneys, and REO brokers). Vendors are selected by senior management, performance is measured based on operational interactions, and vendors are subject to annual review. TaxServ does require vendors to follow the bond and insurance requirements of the clients. We view the formalization of the vendor management process positively.
Insurance and legal proceedings
TaxServ has represented that its directors and officers as well as its errors and omissions insurance coverage is in line with the requirements of its portfolio size. As of the date of this report, there were no material servicing-related pending litigation items.
The loan administration subranking is AVERAGE.
As of June 30, 2020, the company had a servicing portfolio with a redemptive value of $307.6 million. The portfolio included approximately 763,000 real estate tax, municipal tax, and sewer and water liens, along with just over 225,000 municipal non-tax liens and over 10,500 assessments and land lease collections (see tables 1 and 2).
|TaxServ LLC--Lien Portfolio|
|June 30, 2020||Dec. 31, 2019||Dec. 31, 2018||Dec. 31, 2017||Dec. 31, 2016||Dec. 31, 2015|
|Redemptive lien balances ($)||307,624,042||261,676,559||337,250,355||308,751,401||242,854,127||303,802,780|
|Underlying real estate collateral value ($)||294,248,485||243,426,895||312,598,803||282,150,488||236,674,619||293,636,758|
|TaxServ LLC--Lien Portfolio by Product Type|
|Balance ($)||Redemptive balance ($)||No. of liens||No. of properties|
|Lien--water and sewer||2,112,685||2,112,685||2,912||1,036|
|Assessments and land lease||3,713,527||3,713,527||10,621||977|
New lien set-up
TaxServ boards new liens to its servicing system via electronic file uploads from municipalities and private clients. Before upload, the new placement file is scrubbed to identify liens under the same obligor in order to link the new liens to the existing account within AIM. TaxServ receives new placements from the public clients every six months or annually depending on the tax cycle of the municipality.
Once the liens are boarded to the servicing system, reports are run to reconcile balances and lien counts to the boarding files provided or the city tax lien system, as applicable. In addition to the boarding reconciliation, the first post-boarding monthly report includes additional reviews and validation prior to sending to the client.
Obligors remit lien payments directly to TaxServ by check, cash, or credit card; by lockbox; or to the taxing authority, who then sends an electronic file identifying the payments to TaxServ. For the payments received directly by TaxServ, the following controls are utilized by the cash management team:
- There are transfer-of-custody processes for the handling of original checks.
- Checks are stored in a locked fireproof box until deposited to the client trust accounts.
- Reconciliation of funds received versus payments posted is performed weekly.
- Payments are posted to AIM in batches, which are reconciled to the bank deposits slips.
- All checks and accompanying envelopes are scanned and uploaded to AIM.
- The payment waterfall is controlled within AIM.
Payments via credit card, debit card, or Automated Clearing House through TaxServ's website are included in an electronic file transmitted by the card-processing vendor to TaxServ through a file transfer protocol site and uploaded to the AIM system, where the payments are automatically applied. TaxServ does not hold or have access to any obligor credit or debit card account numbers.
During the COVID-19 pandemic, TaxServ maintains a single employee in the office to image physical payments and manage routine deposits. There has been an increase in utilization of manual posting (12% of payments) and the website (19% of payments), in part due to COVID-19. Additionally, management indicated that collections is encouraging website payments.
Funds for payments collected are remitted to clients on a weekly basis (or other frequency as requested by the client) via wire or check. Wire requests and wire approvals are performed by two separate people to ensure segregation of duties.
TaxServ provides reporting packages to its clients on a monthly or quarterly basis, per the client's preference. Clients also have access to a client portal through which they have read-only access to account activity reports.
Collateral tracking and lien release
As noted, at the time of boarding, new accounts are scrubbed and matched to existing records within AIM. This process allows for clear visibility of all liens serviced for a single property. The cash management team is responsible for processing and tracking lien redemptions and posting payments.
In most municipalities today, there are no longer physical lien certificates. While TaxServ has historically held limited physical certificates, with the addition of a new private client, the number has increased, and TaxServ now has a full-time employee managing the tax certificates. TaxServ has P&Ps for the management of those certificates. At the time of boarding, all original tax certificates received are reconciled to the client-boarding document and to AIM. A copy of the tax certificate is uploaded to AIM, while the original is kept in a fireproof cabinet. An inventory of all certificates is prepared and used to reconcile the physical certificates to the liens in AIM. When a lien is to be released, TaxServ prepares the release and sends the release with the original tax certificate via tracked mail to either the attorney or county for recording.
The company develops a strategy for each portfolio based on statutory requirements and client needs. As part of TaxServ's new client interview process it develops the strategy for managing the client's portfolio.
The financial system of record for public sector accounts is that of the municipality, not TaxServ. Because of this, TaxServ downloads data from the municipal systems on a monthly basis. That data is then uploaded into AIM, and any accounts in AIM where the obligors paid the municipality directly are updated. TaxServ reconciles AIM with the public clients' systems of record on a weekly basis by uploading data from the municipalities to AIM. This process identifies any adjustment to taxes due as a result of disputes or payments made directly to the taxing authority.
TaxServ utilizes a print vendor to prepare and send obligor letters. TaxServ works with the client and the vendor through a change-management process to update or create new letters. Revisions, approvals, revision dates, and prior versions of the letters are maintained in a network folder. Returned letters are scanned and attached to the account in AIM. Skip-tracing tools are utilized to locate a valid obligor address.
Collection and payment plans
TaxServ's collection team is made up of well-tenured and seasoned management and staff. Collection management has an average of 12 years of industry experience and 12 years of tenure, while the collection staff averages 11 years of industry experience and eight years of tenure. TaxServ hired two additional account managers since our last review to support the increase in the private client liens. The account managers are assigned specific portfolios and loss mitigation functions.
Accounts are assigned to collectors through the AIM system. The liens of the largest clients are disbursed among collectors; for clients with smaller portfolios, the total book is typically assigned to one or two collectors.
A series of letters are sent to obligors based on the collection strategy of the client. Collectors provide payoff amounts, answer questions regarding the amount due, and work with obligors on voluntary payment plans.
TaxServ now has clients that accept payment plans. Collectors have delegated authority to enter into plans within the clients guidelines. The AIM system has the functionality to manage and track. The account managers monitor the payment plans and manage the foreclosure holds based on client guidelines.
Collection management reviews account notes in AIM for collector coaching and feedback. Productivity reports are also produced to manage collector performance. TaxServ implemented new call center software, which provides tools for better call center management, including:
- A real-time dashboard;
- Live monitoring of calls; and
- Improved reporting functionality.
The call center manager performs call monitoring of agents weekly. Staff reviews are performed monthly and include call monitoring results, collection management reviews of account notes in AIM, and productivity reports
Since the first half of 2018, TaxServ has shown a consistently favorable abandonment rates, reporting 2% for both December 31, 2019, and June 30, 2020. Management attributes these low figures to the visibility afforded through the call center software reporting.
While TaxServ is not subject to the requirements under the FDCPA or the Telephone Consumer Protection Act, as a best practice, its P&Ps comply with both regulations.
None of the portfolio was in bankruptcy as of June 30, 2020. For public clients, all bankruptcy accounts are returned to the client. For private clients, due to the costs of engaging an attorney versus the lien balance, most bankruptcy work is completed in-house. TaxServ will engage counsel when necessary. The servicing system includes a bankruptcy module with detailed steps for monitoring and managing the bankruptcy. The bankruptcy plan can be set up in AIM for appropriate payment posting tracking of trustee payments.
TaxServ identifies bankruptcy filings through skip-tracing activities and relies on its clients' or debtors' counsel to notify them of new filings. Once identified, TaxServ utilizes PACER to obtain details on the bankruptcy. We generally see servicers utilizing a bankruptcy filing notification system such as PACER to identify new filings. Utilizing such a service helps to identify accounts for obligors in bankruptcy quickly for proper handling.
Before initiating foreclosure, the asset manager will provide a case summary to the senior management committee and the client for review and approval. This case summary includes an economic and financial analysis based on the property value, environmental condition, and title status, as well as a risk analysis based on the anticipated time and expense of litigation. Management compares this analysis with the options for workout solutions to determine the best path to mitigate loss.
Foreclosures are referred to attorneys within TaxServ's approved legal network. TaxServ and its attorneys utilize the foreclosure module within AIM to manage the foreclosure steps and processes. Timetables are built into the system based on property jurisdiction and are used to manage and monitor attorney performance. Asset managers are also responsible for reviewing and validating that attorney invoices are accurate and recoverable.
TaxServ also has processes for managing administrative tax deeds. The requirements vary by state, and the asset manager is required to work with senior counsel through the process.
As of June 30, 2020, the company was managing 385 liens in the foreclosure process and had completed 15 foreclosures. As noted in table 3, TaxServ saw a slight decrease of initiated foreclosures between Dec. 31, 2019, and June 30, 2020.
|TaxServ LLC--Foreclosure Activity|
|June 30, 2020||Dec. 31, 2019||Dec. 31, 2018||Dec. 31, 2017||Dec. 31, 2016||Dec. 31, 2015|
|Foreclosures initiated and in process (no.)||385||469||472||693||53||136|
|Redemptive lien balances in foreclosure ($)||6,687,143||5,404,467||7,205,358||9,578,180||1,643,906||4,052,696|
|Underlying real estate collateral value--foreclosures in process ($)||27,838,592||29,322,788||21,866,164||5,213,435||988,883||2,752,392|
|Foreclosures completed (no.)||15||14||26||26||1||0|
|Redemptive lien balances in foreclosures completed ($)||92,998||405,082||1,009,546||569,551||40,688||0|
TaxServ had six REO properties as of June 30, 2020. Tax deed sales are not managed for public clients by TaxServ but are instead returned to the municipality.
TaxServ coordinates the property acquisition activity from the foreclosure sale to final disposition for its private clients. Attorneys are used to manage the eviction process, while the asset manager engages a broker from TaxServ's approved broker list to manage the property preservation, listing, marketing, and inspections of the property. The asset manager obtains approval from both the senior management committee and the client before finalizing list prices or the sale price.
Until the sale of the asset, the asset manager will oversee the broker's marketing and property management activity, analyze any bids received, obtain credit committee approval for bids, and coordinate the closing of the sale. As with the other servicing processes, AIM includes an REO module that has specific steps and timelines for the marketing and sale of REOs. These timelines are used to manage and monitor real estate brokers and attorneys.
|TaxServ LLC--REO Portfolio|
|June 30, 2020||Dec. 31, 2019||Dec. 31, 2018||Dec. 31, 2017||Dec. 31, 2016||Dec. 31, 2015|
|REO lien balances ($)||208,584||951,661||1,281,724||4,058,167||1,498,573||3,537,557|
|REO property values ($)||47,788||462,832||454,689||3,272,433||554,439||2,848,599|
|REO properties (no.)||6||16||38||342||84||157|
|REO--Real estate owned.|
The financial position is SUFFICIENT.
- TaxServ LLC AVERAGE Tax Lien Servicer Ranking Affirmed; Outlook Stable, Sept. 3, 2020
- Select Servicer List, July 2, 2020
- Servicer Evaluation: TaxServ LLC, Feb. 26, 2019
- Analytical Approach: Global Servicer Evaluations Rankings, Jan. 7, 2019
|Servicer Analyst:||Leigh Stafford McLean, Farmers Branch + 1 (214) 765 5867;|
|Secondary Contact:||Jason Riche, Farmers Branch + 1 (214) 468 3495;|
|Analytical Manager, Servicer Evaluations:||Robert J Radziul, New York (1) 212-438-1051;|
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