Bank of America Short Sales and Bankruptcy: What Agents Need to Know

December 24, 2012

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Bank of America can review a short sale offer while the loan is in an active bankruptcy. To complete a short sale and issue the approval letter, the bankruptcy documents must be filed and approved by the court. Any final agreement will require Bankruptcy court approval.

Homeowner(s) should consult with their Bankruptcy Counsel about how these programs could affect their mortgage and their bankruptcy case.

When a loan is in bankruptcy, there is an Automatic Stay, also known as a “hold,” of any collection activity placed on any and/or all debts to which the debtor is a party. Before the short sale specialist can discuss the short sale, Bank of America must have written authorization from the Homeowner(s’) Bankruptcy attorney on the law firm’s letterhead to discuss loss mitigation options with the borrower. This is in addition to the Bank of America Third-Party Authorization Form needed from the borrower to speak to the bankruptcy attorney and the listing agent.

If Homeowner(s) is/are currently in a bankruptcy proceeding, or have previously obtained a discharge of this debt under applicable bankruptcy law, all communication and notices are for information purposes only and is not an attempt to collect the debt, a demand for payment, or an attempt to impose personal liability for that debt. The Homeowner(s) is/are not obligated to discuss their home loan with Bank of America or enter into a short sale agreement or other loan-assistance program. Customers should consult with their bankruptcy attorney or other adviser about their legal rights and options.

For a short sale to be processed to completion for a loan in bankruptcy, Bank of America must receive one of the following releases issued by the bankruptcy court:

  • Granted Motion to Sell*
  • Granted Motion for Relief from Automatic Stay with noted short sale negotiation*
  • Dismissal
  • Discharge with Abandonment, Closing Order, Final Decree, Trustee No Asset Review

*A granted Motion differs from a requested Motion.

Note: If Homeowner(s) receive(s) a discharge under a Chapter 7 bankruptcy proceeding: discharge releases the Homeowner(s) from personal liability for certain specified types of debts. The Homeowner(s) is/are no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the Homeowner(s) from taking any form of collection action on discharged debts, including legal action and communications with the Homeowner(s), such as telephone calls, letters, and personal contacts.

Although a Homeowner is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

Bankruptcy Frequently Asked Questions:

What additional documents will be needed to complete this short sale?

Bank of America must have written authorization from the Homeowner’s bankruptcy attorney (on the law firm’s letterhead) to discuss loss mitigation options with the Homeowner. The customer and the attorney may determine that they do not want to give this authorization and the short sale can be negotiated through the attorney. This attorney authorization permitting Bank of America to speak to the Homeowner(s) is in addition to the Bank of America Third-Party Authorization Form needed from the Homeowner(s) to speak to the bankruptcy attorney and agent. Communication cannot occur with the real estate agent/Homeowner(s) until the bankruptcy attorney’s written authorization on the firm’s letterhead and the Bank of America Third-Party Authorization Form are received.

When will I receive the approval letter?

An approval letter cannot be issued until the releases, identified above from the Bankruptcy court has been received. Once the release is received, the file can be submitted for approval to the appropriate investor(s) and/or mortgage insurance company. The file will then follow the normal approval process to ensure it meets investor requirements.

Why can’t you approve a short sale file while waiting for the bankruptcy to be released?

An approval must follow the direction provided in the release by the Bankruptcy court. That is why a short sale will not be approved unless a court order permitting the sale is first received.

What fees can be paid related to the bankruptcy proceeding?

Any fees that are directly associated with the bankruptcy would be subject to further review and approval. For example, if Bank of America incurs fees to file a pleading to approve the short sale in the Bankruptcy court, Bank of America may seek permission from the Bankruptcy court to allow such attorney and filing fees.

Can a homeowner qualify for a Home Affordable Foreclosure Alternative (HAFA) incentive while in bankruptcy?

Yes. However, any funds going to the Homeowner(s) through state incentives or other incentive programs must be properly disclosed and handled in accordance with bankruptcy legislation and local rules.

Are additional documents required for a short sale when the homeowner is in active bankruptcy?

Yes. Two additional documents are needed for a short sale that is in active bankruptcy:

  • An attorney authorization letter from the Bankruptcy attorney providing permission to speak with the Homeowner(s) is required. This is separate and in addition to the required Bank of America Third-Party Authorization Form signed by the Homeowner(s) permitting Bank of America to speak with the bankruptcy attorney and the real estate agent.
  • Bank of America must receive a release issued by the Bankruptcy court (listed above).

If you have questions, first contact your short sale specialist (or closing officer) through Equator messaging. If there’s no response after two days, escalate to the team lead.

For urgent needs (such as a foreclosure postponement) or for escalation beyond the team lead, contact Short Sale Customer/Agent Care at 1.866.880.1232.


Are you Eligible for Relief under the National Mortgage Settlement?

September 3, 2012

OVERVIEW

The National Mortgage Settlement will offer various forms of relief for distressed families who qualify. As provided by the Center for Responsible Lending, the below is a preliminary guide that offers information for those who may be eligible for relief.

The Settlement administrators (designated by participating states*), state attorneys general and the mortgage servicers** involved in the lawsuit will identify homeowners eligible for benefits. These benefits may include immediate cash payments, loan modifications with mortgage balance reductions, or refinancing. If you are eligible, you should receive a letter from the administrator in your state. All actions resulting from the settlement are scheduled to take place over the next three and a half years.

Please note that benefits are not guaranteed even if you meet eligibility requirements; every case will be considered individually. However, you may be eligible for help under the national mortgage settlement if any one of these situations applies to you:

  1. You lost your home to foreclosure between 2008 and 2011; OR
  2. You are current on your mortgage payments, but underwater (you owe more on your mortgage than the current value of the house); OR
  3. You are behind on your mortgage or at immediate risk of falling behind.

For the most up-to-date information, click here.

*All states are participating except Oklahoma.
**Mortgage servicers are the companies or banks that receive and process mortgage payments and handle other administrative tasks related to home loans.

AM I ELIGIBLE FOR HELP?

Scenario 1: You have already lost your home to foreclosure.

Potential Benefits

Cash payment of approximately $1,800-$2,000 If you still owe any money on the mortgage because of an outstanding balance after a foreclosure sale, you may have an opportunity to have some or all of that debt forgiven.

Preliminary Checklist for Eligibility

  • When you owned the home, you occupied the house as the owner, and the property had no more than four separate units.
  • Your foreclosure sale was completed between Jan. 1, 2008 and Dec. 31, 2011.
  • Your mortgage was serviced or owned by Bank of America, JPMorgan Chase, Citibank, Wells Fargo or Ally Financial (formerly GMAC).

Process

  • If you are eligible for benefits, you should receive a claim form in the mail from the settlement administrator.
  • If you are concerned you will be difficult to locate, you should contact your Attorney General’s Office, and they will forward your information to the appropriate person to ensure you are contacted if you are eligible.

Scenario 2: You are current on your loan, but underwater.

Potential Benefits

Eligible underwater borrowers may have an opportunity to refinance loans at lower interest rates.

Preliminary Checklist for Eligibility

  • You own and occupy your property, and your property has no more than four separate units.
  • Your mortgage is serviced and owned by one of these banks: Bank of America, JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial (formerly GMAC). Note that Fannie Mae and Freddie Mac-owned loans may be eligible for refinance under a separate program called HARP. To see if your loan is owned by Fannie Mae or Freddie Mac, go here.
  • Your mortgage is underwater—i.e., you owe more on the loan than the current value of the house.
  • You have not made any late mortgage payments within the last 12 months.
  • You have not been through a bankruptcy or foreclosure in the last 24 months.
  • Your current interest rate is at least 5.25%
  • The refinance would reduce your interest rate by ¼ of a percentage point or your monthly payment by at least $100.
  • Your mortgage is not a manufactured home loan, and it is not insured by the Federal Housing Administration (FHA) or the Veterans’ Administration (VA).
  • There are no restrictions on when your mortgage was made – could be any date.

Process

  • The participating banks (BoA, JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial) are required to notify eligible borrowers of the availability of the refinance program, but borrowers may also contact the banks directly for information.
  • The application process has yet to be determined.

Scenario 3: You’re late on your mortgage or at imminent risk of missing payments.

Potential Benefits

  • Loan modification. You may have opportunity to receive a loan modification with a principal write-down (i.e., a reduction in the amount you owe) that would reduce your monthly payments.
  • Forbearance. If you are unemployed, you may have an opportunity to get mortgage payment forbearance (the lender will delay foreclosure and offer a plan for allowing you to catch up on payments).
  • Short sale. You may have the opportunity to have the bank facilitate a short sale (i.e., you would sell your property for less than the amount of the mortgage to avoid a foreclosure).
  • Deed in lieu. You may have an opportunity to proceed with a “deed in lieu of foreclosure” (i.e., you give the lender all legal rights to the property in exchange for its agreement not to pursue foreclosure formally).
  • Relocation assistance. You may be able to get funds to help pay relocation expenses following a foreclosure.
  • Relief from further financial obligations after home sale. You may have an opportunity to receive relief from paying some or all of the amounts that might still be legally owed on the mortgage loan following a foreclosure sale or short sale.

Preliminary Checklist for Eligibility

  • You own and occupy your property, and your property has no more than four separate units.
  • Your mortgage is serviced or owned by Bank of America, JPMorgan Chase, Citibank, Wells Fargo or Ally Financial (formerly GMAC).
  • Mortgages owned by Fannie Mae or Freddie Mac are not eligible. To see if your loan is owned by Fannie or Freddie, go here.
  • There are no restrictions on when your mortgage was made – could be any date.

Process

  • You may be contacted directly by one of the five participating mortgage servicers, but you should also contact your servicer to request consideration for the range of options that might be available to you.
  • You may want to consult a HUD-certified housing counselor for assistance.
  • Some details of the process are yet to be determined.

WHAT ABOUT THE INDEPENDENT FORECLOSURE REVIEW?

The Office of the Comptroller of the Currency and the Federal Reserve Board are overseeing an Independent Foreclosure Review. This is a separate effort from the National Mortgage Settlement. This initiative could result in cash payouts to borrowers who suffered financial harm due to improper foreclosures.

Potential Benefits

You may be eligible to receive cash remedies if the Review shows (1) your loan was serviced by one of the banks or companies listed below, and if (2) if you suffered financial harm due to errors, misrepresentations or other deficiencies in the foreclosure process. If you are a candidate for this benefit, you must apply and submit paperwork to participate in the Review. Deadline for submitting a request for review is December 31, 2012.

Basic Eligibility

  1. You were in any stage of the foreclosure process on a home that was your primary residence from January 1, 2009 to December 31, 2010.
  2. Your mortgage servicer (the company that received your mortgage payments) was one of these businesses:
  • America’s Servicing Company
  • Countrywide
  • National City
  • Aurora Loan Services
  • EMC
  • PNC
  • BAC Home Loans Servicing
  • Everbank/Everhome
  • Sovereign Bank
  • Bank of America
  • Financial Freedom
  • SunTrust Mortgage
  • Beneficial
  • GMAC Mortgage
  • U.S. Bank
  • Chase
  • HFC
  • Wachovia
  • Citibank
  • HSBC
  • Washington Mutual
  • CitiFinancial
  • IndyMac Mortgage Services
  • Wells Fargo
  • CitiMortgage
  • Metlife Bank
  • Wilshire Credit

Find Out More about the Independent Foreclosure Review

Answers to questions about the process and borrower eligibility are available at (888) 952-9105, Monday through Friday from 8 a.m. to 10 p.m. (ET), and Saturday from 8 a.m. to 5 p.m. (ET). You can also get more information about the review at the website.

Click here to see Frequently Asked Questions and Answers.


How the Money Will be Distributed in the National Mortgage Settlement

September 2, 2012

In February 2012, 49 state attorneys general (except Oklahoma) and the Federal Government announced the largest consumer financial protection settlement in U.S. history with the country’s five largest loan servicers, known as the National Mortgage Settlement:

The five servicers will provide at least $25 billion in consumer relief to distressed borrowers and directs payments to states and the Federal Government.

The agreement settles state and Federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct.  Both of these practices violate the law.  The settlement provides benefits to borrowers whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service.*

*Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement.

As stated in the Settlement Fact Sheet, the money in the settlement will be distributed in several ways:

FINANCIAL RELIEF FOR HOMEOWNERS:

The servicers will be required to dedicate $20 billion to various forms of relief to borrowers.

  • Principal reduction. At least $10 billion will be dedicated to reducing principal for borrowers who, as of the date of the settlement, owe more on their mortgages than their homes are worth and are either delinquent or at imminent risk of default.
  • Refinancing. At least $3 billion will be dedicated to a refinancing program for borrowers who are current on their mortgages but who owe more on their mortgages than their homes are worth. All borrowers who meet basic eligibility criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates.
  • Other forms of relief. Servicers will be required to dedicate up to $7 billion to other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their homes at a loss as a result of a Permanent Change in Station, and other programs.

To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months – and additional cash payments required for any servicer that fails to meet its obligation within three years. Servicers will receive only partial credit for every dollar spent on some of the required activities, so the settlement will provide direct benefits to borrowers in excess of $20 billion.

PAYMENTS TO STATE AND FEDERAL GOVERNMENTS:

In addition to the $20 billion of financial relief for homeowners, the servicers will make $5 billion in cash payments to the states and the Federal Government. Of the $5 billion:

  • Payments to Foreclosed Borrowers. Through the settlement, a $1.5 billion Borrower Payment Fund will be established to provide cash payments to borrowers whose homes were sold or taken in foreclosure between and including Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. This program is distinct from, but complimentary to, the restitution program currently being administered by Federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct.
  • State and Federal payments. The remaining funds of $3.5 billion will go to state and Federal Governments to be used to repay public funds lost as a result of servicer misconduct, fund housing counselors, legal aid, and other similar purposes determined by state attorneys general. The funds coming to the Federal Government will primarily be allocated to the FHA Capital Reserve Account, with portions also going to the Veterans Housing Benefit Program Fund and to the Rural Housing Service.

FINANCIAL OBLIGATIONS OF INDIVIDUAL SERVICERS:


Details on HUD Emergency Homeowners Loan Program

October 14, 2010


On October 5, 2010, HUD released details about the $1 Billion Emergency Homeowners Loan Program (EHLP) authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

EHLP will offer declining balance, deferred payment “bridge loan” (non-recourse, subordinate loans with 0% interest rate) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Borrowers living in the following jurisdictions are eligible to receive funds through the EHLP:

TX Texas $ 135,418,959
NY New York $ 111,649,112
PA Pennsylvania $ 105,804,905
MA Massachusetts $  61,036,001
WA Washington $  56,272,599
MN Minnesota $  55,848,137
WI Wisconsin $   51,540,638
MO Missouri $   49,001,729
VA Virginia $   46,627,889
CO Colorado $   41,286,747
MD Maryland $   39,962,270
CT Connecticut $   32,946,864
KS Kansas $   17,748,782
AR Arkansas $   17,736,991
IA Iowa $   17,379,343
LA Louisiana $   16,691,558
UT Utah $   16,577,582
OK Oklahoma $   15,575,381
PR Puerto Rico $   14,714,668
ID Idaho $   13,284,075
NH New Hampshire $   12,655,243
NM New Mexico $   10,725,515
ME Maine $   10,379,657
WV West Virginia $     8,339,884
NE Nebraska $     8,304,512
HI Hawaii $     6,292,250
DE Delaware $     6,048,577
MT Montana $     5,710,580
VT Vermont $     4,830,215
AK Alaska $     3,890,898
WY Wyoming $     2,346,329
SD South Dakota $     2,051,563
ND North Dakota $     1,320,547
Total: $ 1,000,000,000

Program Administration

Delegated Approach: Borrowers who are listed in one of the above 32 states or Puerto Rico will meet with non-profit housing counselors who are part of the National Foreclosure Mitigation Counseling Program administered by NeighborWorks® America to receive funding.

The non-profit housing counselors will provide intake and outreach services including:

  • (i) developing and disseminating program marketing materials, (ii) providing an overview of the program and eligibility requirements, (iii) conducting initial eligibility screening (including verifying income), (iv) counseling  potential applicants, providing information concerning available employment and training resources,  (v) collecting and assembling homeowner documentation, (vi) submitting homeowner application, and (vii) providing transition counseling to explore with the homeowner other loss mitigation options, including loan modification, short sale, deed-in-lieu of foreclosure, or traditional sale of home.
  • The counselors shall also be encouraged to conduct outreach to entities in local communities to provide information on assistance available to unemployed homeowners through this program and shall publicize the list of entities approved to assist potential applicants with applying to the program

State Law Approach: Borrowers or state HFAs that operate loan assistance programs that are determined by HUD to be substantially similar to the EHRF program will receive allocations to fund emergency loans for borrowers in the states below:

Alabama $60,672,471
California $476,257,070
Florida $238,864,755
Georgia $126,650,987
Illinois $166,352,726
Indiana $82,762,859
Kentucky $55,588,050
Michigan $128,461,559
Mississippi $38,036,950
Nevada $34,056,581
New Jersey $112,200,638
North Carolina $120,874,221
Ohio $148,728,864
Oregon $49,294,215
Rhode Island $13,570,770
South Carolina $58,772,347
Tennessee $81,128,260
Washington, DC $7,726,678

Allocation of Program Funds

Recipient Geography: HUD will assist borrowers living in Puerto Rico and the 32 states otherwise not funded by Treasury’s Innovation Fund for Hardest Hit Housing Markets (Hardest Hit Fund) program.

Allocation Amount: The total amount reserved will be based on the state’s approximate share of unemployed homeowners with a mortgage relative to all unemployed homeowners with a mortgage

Targeting Funds to Local Geographies: HUD will provide information that identifies pockets within each of the designated states that have suffered the most from recent spikes in unemployment and/or mortgage delinquencies.  HUD will encourage the use of program dollars in these hardest-hit areas.

Homeowner Eligibility and Program Operation

Income Thresholds: Has a total pre-event household income equal to, or less than, 120% of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: Has a current gross income (income before taxes) that is at least 15% lower than the pre-event income.

  • “Pre-event income”: the income prior to the onset of unemployment, underemployment, or medical emergency
  • “Current income”: the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: Must be at least 3 months delinquent on payments and have received notification of an intention to foreclose.  This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least 3 months of missed payments and the mortgagee’s intent to foreclose.  In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least 3 months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by:

Back-end DTI ratio:

Total Monthly Debt Expenses ÷ Total Gross Monthly Income

  • Total monthly debt expenses = mortgage principal, interest, taxes, insurance, & revolving and fixed installment debt

***Note: For this calculation, gross income will be measured at the “pre-event” level***

Principal Residence: Must reside in the mortgaged property and be your  principal residence.  The mortgaged property must also be a single family residence (1 – 4 unit structure or condominium unit).

Creation of HUD Note:  After the first assistance payment is made on behalf of the homeowner, the fiscal agent will create an open-ended “HUD note” and a mortgage to be  in the name of the Secretary HUD of sufficient size to accommodate the expected amount of assistance to be provided to homeowner.

Ongoing Qualification of Homeowner

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

  • The maximum loan ($50,000) amount has been reached;
  • The homeowner fails to report changes in unemployment status or income;
  • The homeowner’s income regains 85% or more of its pre-event level;
  • The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
  • The homeowner defaults on their portion of the current first lien mortgage loan payments

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any)

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31% of gross income at the time of application, but in no instance will it be less than $25 per month

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a 2 month period.  In any event, assistance with monthly payments may not continue beyond 24 months

Repayment Terms

Transition Counseling:   The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner  to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deed-in-lieu of foreclosure, or traditional sale of home

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance.  The note and mortgage will be in the form of a 5 year declining balance, 0% interest, non-recourse loan, and the mortgage shall be in the form of a secured junior lien on the property

Terms for Declining Balance Feature:  No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan.  If the homeowner meets these two conditions, the balance due shall decline by 20% annually, until the note is extinguished and the junior loan is terminated

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor,  if, at any time during the 5 year repayment period, any of the following events occur:

  • The homeowner no longer resides in the mortgaged property as a principal residence, but maintains ownership;
  • The homeowner defaults on its portion of  the current mortgage; or
  • The homeowner receives net proceeds from selling or refinancing debt on the home.

***Note: Net proceeds — after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold — will go towards paying down the HUD note.  In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released***

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives), which will not trigger repayment of the HUD note

  • Underwater homeowners = homeowners with mortgage debt in excess of the market value of their home

Program Start Date

HUD intends for EHLP to begin taking applications by the end of 2010




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