# Selling a house to Muslim



## Alice In TX/MO (May 10, 2002)

i am considering selling a house to a very nice Muslim family. 

Sharia law disallows paying interest. 

So, the contract has to be somewhat like a rent to own document. However, I can’t figure out how that impacts the income to the seller. 

A google search says there aren’t clear IRS Guidelines. 

Does anyone have experience with this situation?


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## Murby (May 24, 2016)

I wouldn't do it..
If you sell a home, make sure you get a check from a bank. If they default and trash the house, you lose.

Rent-to-own and land contracts are just full of troubles..


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## Alice In TX/MO (May 10, 2002)

I am selling other house by owner finance. I like doing it that way. 

This family has been renting frim me for years. Good people. 

I am hoping there is someone with experience in thus type of contract.


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## Redlands Okie (Nov 28, 2017)

Figure up the interest. Add it to the cost of the house. Tell em the price. Let em pay it out over time figured in. 
Many places have a handling charge. 
Money institutions have all kinds of fees and handling charges. That’s all interest is basically. A charge for handling the loan. 
You can do the same. 

Letting someone else’s religion affect your finical well being sound like a bad deal. 

I do have to agree with some of the other comments about how easy it is to have a lease to own deal cause problems. If you do go that route make sure there is substantial down payment or something to help you cover possible (probable) losses. 

Do not forget the paper work. Insurance is paid by whom and are you notified if it falls behind. Does the insurance cover replacing the house. Who is responsible for maintence and upkeep of the property. You might have a 15 thousand dollar HVAC system in it now. And get it back with window air conditioners. Just one example of issues. Clogged sewer drains, cheap roof, anyway I am sure you get the idea. 

P.S. I have personally worked on several home or apartments where a bathroom was used for butchering purposes. Blood on the walls, clogged drains, etc etc. 
A couple homes where chickens were butchered in the backyard and the remains left laying.
For real, in northern Oklahoma. Religion and different lifestyles can can lead to interesting situations. 


Best of luck.


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## GTX63 (Dec 13, 2016)

Alice In TX/MO said:


> i am considering selling a house to a very nice Muslim family.
> 
> Sharia law disallows paying interest.
> 
> ...


Just speaking from experience, never ever allow yourself to sell property on someone else's terms. Good people or no. Some of the worst ends to real estate deals I have been involved in were with very nice people.
Interest guises itself as many things, so to say one is forbidden from paying interest would be for them to ignore the tools used for creating the profit necessary to justify commerce.

Staples, Office Max, etc are not going to have pre printed forms for what you need.
You should have a real estate attorney draw up paperwork with your own guidelines while using his expertise in the law.
That includes dictating responsibility for insurance, property taxes, maintenance, utilities, and how you reap your final price, either thru interest, ballon, up front down payment. Roll the attorney fees into the terms. Once you have a contract agreeable to you the seller first, and it is signed and witnessed, file it with the county.

My father in law has done approximately 6 CFDs, yes 6, on a small home in the one horse town they live in. The first ended in the buyer's death, the following four ended in eviction/foreclosure and the last one has been a wonderful success.
I have preferred to use more of a rent to own contract; while neither is pleasant, the process of evictions are easier and quicker than a foreclosure.


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## Alice In TX/MO (May 10, 2002)

I have never done a contract for deed, so I am leary on that, too. 

I do have an attorney for the process, and I will talking to my accountant.

I googled how the Muslim banks arrange house purchases, and it appears to be a re-naming of the payments. So, I guess it’s not interest if they call it something else. I can’t see how this benefits the buyer, because they can’t use the interest deduction on their taxes.

Still reading and exploring the idea. Thank you for the detailed answers.


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## haypoint (Oct 4, 2006)

If I bought a piece of property for $100,000 and over 30 years paid an extra $100,000 in interest, then sold it for $200,000, I'd pay federal taxes on the $100,000 capital gains.
If I bought a piece of property for $200,000, making interest-free payments for 30 years, when I sold it for $200,000 there would be no capital gains taxes.
For a seller, I don't think it makes much difference if you are gaining income from rent or interest. Income is taxed either way. If you don't charge interest, the year or two that it takes to kick them out, will not cost them any growing interest

I find it hard to believe that the hundreds of thousands of Muslims in Dearborn have bought homes and businesses and vehicles without financing that has interest.


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## po boy (Jul 12, 2010)

haypoint said:


> If I bought a piece of property for $100,000 and over 30 years paid an extra $100,000 in interest, then sold it for $200,000, I'd pay federal taxes on the $100,000 capital gains.
> *If I bought a piece of property for $200,000, making interest-free payments for 30 years, when I sold it for $200,000 there would be no capital gains taxes.*
> For a seller, I don't think it makes much difference if you are gaining income from rent or interest. Income is taxed either way. If you don't charge interest, the year or two that it takes to kick them out, will not cost them any growing interest
> 
> I find it hard to believe that the hundreds of thousands of Muslims in Dearborn have bought homes and businesses and vehicles without financing that has interest.


My thought also, but would need language in note for a pro-rata refund if prepaid?


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## Alice In TX/MO (May 10, 2002)

That crossed my mind as well.


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## MO_cows (Aug 14, 2010)

I wouldn't do it just on principle. I don't live under Sharia law and wouldn't let someone force it on me. But the tax and legal implications are interesting.


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## City Bound (Jan 24, 2009)

if I am not mistaken sharia law does allow interest but only a very modest percentage.


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## Alice In TX/MO (May 10, 2002)

No. Muslim law doesn’t allow paying or receiving interest.


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## Alice In TX/MO (May 10, 2002)

I understand the point of view about not conforming to Sharia law. 

Please understand that I am exploring the legal and financial ramifications of writing a contract that satisfies both parties in this transaction.


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## poppy (Feb 21, 2008)

If you sell it interest free, the IRS will not allow it. Have a friend who sold his MIL's house to a young couple in his church interest free. The IRS caught it in a few years and said he couldn't do that. They arbitrarily assigned a 3% interest rate to it. I suppose they are trying to keep people from skirting the taxes on interest income.


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## Alice In TX/MO (May 10, 2002)

See, that is exactly one of my questions. 

Can she NOT claim interest in order to comply with her religion, and at the same time, I would show the income as return of principle, long term capital gains, and interest?


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## Belfrybat (Feb 21, 2003)

Here are a couple of articles I found. They might not be applicable in your situation but might give you some ideas. Personally, I'd go with a rent-to-own contract and stay clear of contract for deed as I think that would have to have some form of interest. 
https://www.brickunderground.com/buy/muslim-friendly-mortgages
https://www.bizjournals.com/seattle...-observant-muslims-can-buy-homes-and-why.html

In a nutshell, both these articles talk about regional co-ops that buy the property outright and do a rent to own with the buyer. There should be an attorney or three in the Metroplex that is conversant with Muslim law.


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## Alice In TX/MO (May 10, 2002)

This is the Ozarks. 

Thanks. Will look at articles.


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## Fishindude (May 19, 2015)

MO_cows said:


> I wouldn't do it just on principle. I don't live under Sharia law and wouldn't let someone force it on me. But the tax and legal implications are interesting.


My thoughts also. Last I checked this was the good old USA and Sharia law doesn't apply. When you borrow money you pay interest. Let them get their money someplace else.


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## Forcast (Apr 15, 2014)

So how do they pay otherbthings on payment plans? Seems like they need to pay cash then. I got burned bad on a rent to own. Even with a contract. My house was unlivable for a year while I cleaned and git rid of roaches and replaced all the things they destroyed.


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## Alice In TX/MO (May 10, 2002)

I do have the advantage that I know her, and she has been my tenant for years.

If it is possible, I have no problems making financial arrangements for her to own a property that she has gardened on, raised goats on, raised children on, etc.

I don't *want* her to find financial arrangements elsewhere unless this simply won't work. I bought the property as an investment. It would be advantageous from me to sell it to her over time. I will make more money that way. I don't need a cash buy out from a third party.


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## HeavyHauler (Dec 21, 2017)

Since you live in the States, Sharia Law does not exist there. If you lived in the Middle East, then it would.

Sell the house as you would normally and by the law, or face the consequences.


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## Hiro (Feb 14, 2016)

You own it. You set the price and the terms. If both are not to your liking, don't sell it to them. Someone else will need a house.


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## Alice In TX/MO (May 10, 2002)

I fully intend to sell it by the law, and I've made that clear above. I know I set the price and terms, but I'm open to helping a homesteader family achieve their dream, even if I have to learn something new. 

Thank you for your posts, but I was hoping someone had knowledge and experience.


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## Hoopy Frood (Mar 2, 2018)

Another vote for there is no Sharia "law" in the US. If your tenant can't pay interest for religious reasons, that's their problem. Definitely have an RE lawyer draw up the contracts. There should be no problem for you to report "interest" income to the IRS on your returns (even if it's rolled in the the "principle" on the buyer end)... the buyer should NOT be declaring interest paid on a mortgage to the IRS as a deduction - especially if their religion prohibits them from paying interest! 

You're trying to help them. Their religious proclivities aside they OWE you interest because this is how RE business is done. Just dress it up in terms they can sign their names to. You'll pay the IRS the taxes owed on interest and they will not deduct that portion of their payment (that would have gone to interest) for tax purposes. The IRS is happy, they are happy.

Rule number 1, though, CYA  Good luck!


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## mreynolds (Jan 1, 2015)

Alice In TX/MO said:


> This is the Ozarks.
> 
> Thanks. Will look at articles.


Well you had me until you said the Ozarks. I know some of the Texas laws on Owner finance but its different state by state. There are still some Dodd Frank rules that are applicable. You did say you are using a lawyer so I dont need to chime in an that one anyway.

If you sell owner finance you will only pay tax on what you receive for the year. If the house is worth 100k retail and you sell for 200k OF you will not pay CG until you receive them. How much is CG and how much is equity though? Thats a question above my pay grade and you also said you have an accountant for that.

Other than that, I have known many people (including me) who have bought and sold many properties on owner finance. Both before and after Dodd Frank. Its not illegal and in fact is advantageous to both parties if done correctly. Dont listen to the naysayers. I applaud the competition in the marketplace and at least you have never asked for a bailout.


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## HeavyHauler (Dec 21, 2017)

Just add the taxes to the price?


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## dmm1976 (Oct 29, 2013)

Alice In TX/MO said:


> i am considering selling a house to a very nice Muslim family.
> 
> Sharia law disallows paying interest.
> 
> ...


We bought our house from my dad on a contract for deed. We went through a lawyer and all together it cost like $350. They didn't need any income verification from me.


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## AmericanStand (Jul 29, 2014)

I think you are helping her to subvert her religion.
I don't think much Of her personnel use of religion If shes asking you to help her do that.
On the other hand if she said something like I cant pay interest set your price high enough to cover your inconvenience that's a different matter.
AS for you helping her to do it I disagree with that too Muslims should not get the advantages of how things work in the USA while trying to subvert it.


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## Alice In TX/MO (May 10, 2002)

Subvert? Really?

How about I respect her and her choices?

I am exploring how to do it legally.
That has been stated over and over.

I think you are reading more into it than necessary, but thank you for your input.


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## Belfrybat (Feb 21, 2003)

Alice, I too thought the house was in Texas. But that doesn't really change what I said above. Find someone conversant in Muslim ways of buying on time without paying interest. One article I read said some banks lend money to Muslims with a service charge instead of interest and that apparently is approved of. So possibly you could charge a service charge to handle the loan?

ETA: Look up murabaha mortgages. This webpage from a bank in the UK might be helpful as it describes how it is done. http://www.islamic-mortgage.co.uk/murabaha-mortgage.html. Apparently there is less risk for the lender with this kind of loan.


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## Alice In TX/MO (May 10, 2002)

Thanks! I will read that article


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## po boy (Jul 12, 2010)

Look at this......  They lend in Missouri... Would be good if u could find an attorney that has closed some of these.
Another good read


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## Shine (Feb 19, 2011)

Alice In TX/MO said:


> No. Muslim law doesn’t allow paying or receiving interest.


Just curious here. If you were selling the home for $100,000 but the Muslim family cannot pay interest on the "loan" and you jack the price up to recoup what the interest would have brought you, aren't they still paying interest?

Seems that they are just lying to themselves...


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## Alice In TX/MO (May 10, 2002)

It's the system. It's just words, in my humble opinion. 

On the other hand, isn't baptism just dunking in the river?


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## Nevada (Sep 9, 2004)

As you know, I lived among Muslims in the middle east at one time. Yes, they are good people and I respect how sincere they are in their beliefs.

That said, treat them like everyone else. You don't have to call it interest or usury. They can call it anything they want to call it. This is America so they have to play by our rules and customs. If they finance a house anyplace else in America they'll have to pay interest, so include fair interest in the contract. Make it a take it or leave it offer.

I suppose I would agree at raising the price of the home to compensate for fair interest. Maybe that will make them feel better.


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## Fishindude (May 19, 2015)

Shine said:


> Just curious here. If you were selling the home for $100,000 but the Muslim family cannot pay interest on the "loan" and you jack the price up to recoup what the interest would have brought you, aren't they still paying interest?
> 
> Seems that they are just lying to themselves...



/\ /\ THIS /\ /\


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## Alice In TX/MO (May 10, 2002)

My Muslim friend was raised in Minnesota. She is Irish and Native American. She was raised in the Catholic church.

I am choosing to search for a solution that is fair to both of us and legal and allows her to comply with the guidelines of her chosen religion.

I have also lived in Indonesia, a Muslim country.

I think some of the folks who posted on this thread have made unfortunate assumptions and revealed an intolerance for people who are different.

My America allows for religious freedom.


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## emdeengee (Apr 20, 2010)

I have never dealt with this situation. If I understand this - you will be holding the mortgage? Your purchaser can get a Sharia compliant mortgage from an Islamic finance institution. This would be the least risky proposition for you as you would have your purchase price up front and in your hands.

I do know several Muslims who use credit cards - and they pay interest.


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## Nevada (Sep 9, 2004)

emdeengee said:


> I have never dealt with this situation. If I understand this - you will be holding the mortgage? Your purchaser can get a Sharia compliant mortgage from an Islamic finance institution. This would be the least risky proposition for you as you would have your purchase price up front and in your hands.
> 
> I do know several Muslims who use credit cards - and they pay interest.


My opinion that she treat them like anyone else isn't because I have it in for Muslims. I have that opinion because I was treated as an Arab when I was in the middle east, so they should expect to be treated as Americans when in the United States. If they were dealing with a bank, or anyone else for that matter, then they wouldn't even entertain a conversation about a zero interest mortgage.

Finally, I'm certainly not an expert on Muslim religion and culture, but as I understand it the Qaran doesn't prohibit Muslims from PAYING interest, the prohibition is on Muslims CHARGING interest.


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## gerold (Jul 18, 2011)

Alice In TX/MO said:


> Subvert? Really?
> 
> How about I respect her and her choices?
> 
> ...


Hoping you can make a good deal and come out ok on this deal. I have sold a lot of property and always play by the rules. I have had people be friendly and try to talk this or that about price and rates etc. I play by one rule in business and it applies to all business deals for me. 

Friendship is friendship, business is business.
Best,
Gerold.


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## Alice In TX/MO (May 10, 2002)

The prohibition runs both ways.


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## Nevada (Sep 9, 2004)

Alice In TX/MO said:


> The prohibition runs both ways.


I don't think so. The related verses in the Qaran specifically prohibit "riba" (Arabic for usury). While that seems to point to unreasonable interest, I know that many Muslims believe it prohibits all interest. Be that as it may, the Qaran still discusses the evils of charging usury, not for paying usury, and forgiving usury because it's the right thing to do. See for yourself.

_Those who devour usury (riba) shall not rise again except as he rises, whom Satan of the touch prostrates; that is because they say, 'Trafficking (trade) is like usury (riba).' God has permitted trafficking, and forbidden usury (riba). Whosoever receives an admonition from his Lord and gives over, he shall have his past gains, and his affair is committed to God; but whosoever reverts — those are the inhabitants of the Fire, therein dwelling forever.
God blots out usury, but freewill offerings He augments with interest. God loves not any guilty ingrate.
Those who believe and do deeds of righteousness, and perform the prayer, and pay the alms - their wage awaits them with their Lord, and no fear shall be on them, neither shall they sorrow.
O believers, fear you God; and give up the usury (riba) that is outstanding, if you are believers.
But if you do not, then take notice that God shall war with you, and His Messenger; yet if you repent, you shall have your principal, unwronging and unwronged.
And if any man should be in difficulties, let him have respite till things are easier; but that you should give freewill offerings is better for you, did you but know. (Quran 2:275-280)_
https://en.wikipedia.org/wiki/Riba#Quran_and_prohibition

But if you have another reference I'll be glad to take a look at it.


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## Hiro (Feb 14, 2016)

Alice In TX/MO said:


> The prohibition runs both ways.


That was my understanding as well. 

It is gracious of you to try to work with them; but, my advice was based on similar efforts to accommodate people in prior business dealings. Forgive me if I come off as patronizing, but that is not my intention. My business experience is quite diverse. Mostly I have been successful at business enterprises that I could focus on. Those that I could not focus on had mixed results. If you are in the business of building/buying houses and reselling them, in my opinion it is best to focus on that. If you want to get in the business of finance, go with that. If you want to mix the two, a nonconventional purchase agreement you are likely stuck with for some time, then you are potentially adding a great deal of extra complications, not just now, but for the next 10-30 years to try to "help" them with financing without paying interest.


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## mnn2501 (Apr 2, 2008)

If you raise the price to cover the interest, you'll be paying much higher capital gains.
My opinion: I agree with the person who said they're playing word games with their religion.


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## Bearfootfarm (Jul 13, 2006)

Shine said:


> Seems that they are just lying to themselves...


By Jove, I think he's got it?!!


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## Alice In TX/MO (May 10, 2002)

Mnn2501, that is one of my concerns. I doubt it can count as principle and interest on my side of the contract, and a different entity on her side.


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## Alice In TX/MO (May 10, 2002)

This article, posted above by one if the more helpful folks, explains that the loan issue is controversial even among Muslims. 

When all is said and done, it doesn’t matter what you or I think or believe. It matters what my friend believes. 

https://www.seattletimes.com/seattle-news/faith-and-finance-collide-for-muslim-home-buyers/


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## Alice In TX/MO (May 10, 2002)

I almost forgot to answer Hiro’s concern.

I began acquiring distressed properties while I was teaching in a small public school district. I fixed them up and rented them out.

Now, as I have neared what would normally be retirement age, I have been selling them one at a time, as convenient, owner finance. That way, I still have monthly income.

Only one of my owner financed homes paid off early. The rest are quietly ginning away, putting money in the bank.

I also manage a trust established by my grandfather. Stocks, bonds, and commercial real estate.

My investments and experience are diversified.


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## Hiro (Feb 14, 2016)

Alice In TX/MO said:


> I almost forgot to answer Hiro’s concern.
> 
> I began acquiring distressed properties while I was teaching in a small public school district. I fixed them up and rented them out.
> 
> ...


I think that is wonderful. I began not having reasonable returns on my rental properties, not on an ROI basis, but on a peace of mind basis some years ago. I am down to two residential properties with absolutely outstanding tenants and one commercial tenant. If I lose any of them, I will sell those as they become vacant since I am old and grumpy now and have to focus my attention closer to home. Obviously, you have the energy and desire to engage and are trying to find an equitable outcome for all parties. I salute you. 

If I were you, just increase the purchase price a reasonable amount and do a lease to own or contract for deed. FWIW, capital gains tax rates are lower than ordinary income tax rates, so you'll come out ahead tax wise that way. A contract for deed and lease to own are recognized by the IRS as legitimate ways to transfer real property, or it was ten years ago. An interest free loan is more problematic.


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## mreynolds (Jan 1, 2015)

Alice In TX/MO said:


> Wow.


California is soooo tolerant huh?


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## AmericanStand (Jul 29, 2014)

It strikes me that interest is a ongoing “penalty” if you miss a payment or something. Take that into account.


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## AmericanStand (Jul 29, 2014)

I


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## Alice In TX/MO (May 10, 2002)

Thank you, Hiro.


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## Alice In TX/MO (May 10, 2002)

Bless your heart. That’s a good motto. Doesn’t apply to my situation, but thank you for sharing.


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## mreynolds (Jan 1, 2015)

Alice In TX/MO said:


> Bless your heart. That’s a good motto. Doesn’t apply to my situation, but thank you for sharing.


Best of luck Alice in this deal. I am ashamed of some of the generalized replies on here. I really expected better but I dont know why.


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