FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended March 31, 1996
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Commission file number 33-30427
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REDWOOD MORTGAGE INVESTORS VII
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(exact name of registrant as specified in its charter)
California 94-3094928
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(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA. 94063
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(address of principal executive office)
(415) 365-5341
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(Registrants telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
- ------------------ --------------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRODDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE X
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers class of
common stock, as of the latest date.
NOT APPLICABLE
<PAGE>
<TABLE>
Part I
Item 1
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
Balance Sheets
December 31, 1995 (audited) and
March 31, 1996 (unaudited)
ASSETS
<CAPTION>
Mar. 31, 1996 Dec.31, 1995
(unaudited) (audited)
<S> <C> <C>
Cash .................................................$ 371,991 $ 514,840
----------- -----------
Accounts Receivable:
Mortgage loans, secured by deeds of trust ........12,431,962 12,382,641
Accrued interest on mortgage loans ............... 979,920 940,541
Advances on mortgage loans ....................... 108,284 110,874
Other receivables - unsecured .................... 307,667 378,200
----------- -----------
13,827,833 13,812,256
Less allowance for doubtful accounts ............. 190,000 200,000
---------- -----------
13,637,833 13,612,256
---------- -----------
Real estate owned, acquired through foreclosure,
at estimated net realizable value ................ 1,549,111 1,347,997
Investment in Partnership ............................ 223,245 223,245
Formation loan due from Redwood Home Loan Co. ........ 491,074 517,051
Organization costs, less accumulated amortization
of $10,102 and $9,734 respectively ............... -0- 368
---------- -----------
$16,273,254 $16,215,757
=========== ===========
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Notes payable - Bank line of credit .............$ 1,999,500 $ 2,000,000
Accounts payable and accrued expenses ........... 18,747 1,472
----------- -----------
2,018,247 2,001,472
Partners capital .................................... 14,255,007 14,214,285
----------- -----------
$16,273,254 $16,215.757
=========== ===========
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND 1995 (unaudited)
<CAPTION>
3 mths ended 3 mths ended
3/31/96 3/31/95
(unaudited) (unaudited)
Revenues:
<S> <C> <C>
Interest on Mortgage Loans ......................... $357,407 $357,958
Interest on Bank Deposits .......................... 668 2,240
Late Charges ....................................... 4,168 850
Miscellaneous ...................................... 3,520 397
-------- --------
365,763 361,445
-------- --------
Expenses:
Interest on note payable - bank .................... 42,547 42,452
General Partner management fees .................... -0- -0-
Amortization of organization costs ................. 368 504
Clerical costs through Redwood Home Loan Co. ...... 9,782 5,392
Professional Fees .................................. 16,102 15,692
Provision for loss on real estate acquired
through foreclosure and doubtful accounts ....... 65,670 67,326
Electronic data processing ......................... -0- 253
Other .............................................. 6,559 4,556
-------- --------
141,028 136,175
-------- --------
Net Income ........................................... $224,735 $225,270
======== ========
Net income: to General Partners (1%) ................ $ 2,247 $ 2,253
to Limited Partners (99%) ....... 222,488 223,017
======== ========
$224,735 $225,270
======== ========
Net income for $1,000 invested by limited partner
for entire period
- where income is reinvested and compounded ........ $ 14.71 $ 14.68
======== ========
- where Partner received income in monthly
distributions .................................. $ 14.64 $ 14.61
======== ========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THREE MONTHS ENDED MARCH 31, 1995
AND 1996 (unaudited)
<CAPTION>
March 31, 1996 March 31, 1995
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income: ................................. $224,735 $225,270
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of organization costs ...... 368 504
Increase (decrease) in allowance for
doubtful accounts .................... ( 10,000) ( 7,991)
(Increase) decrease in accrued interest
and advances .......................... ( 36,789) ( 56,811)
Increase (decrease) in accounts payable
and accrued expenses .................. 17,275 2,500
(Increase) decrease in expenses and
other assets ......................... -0- -0-
-------- --------
Net cash provided by operating activities ... 195,589 163,472
-------- --------
Cash flows from investing activities:
Net (increase) decrease in:
Real estate acquired through
foreclosure .......................... (201,114) 368,939
Mortgage loans ........................ ( 49,321) 334,151
Formation loans ....................... 25,977 22,389
Partnership interests ................. -0- (223,245)
Other accounts receivables-unsecured .. 70,533 ( 25,403)
-------- --------
Net cash provided by (used in)
investing activities .............. (153,925) 476,831
-------- --------
Cash flows from financing activities:
Net increase (decrease) in note
payable-Bank .......................... ( 500) (670,000)
Partners withdrawals ................... (180,008) ( 66,207)
Syndication costs incurred ............. -0- ( 207)
Early withdrawal penalties, Net ........ ( 4,005) ( 392)
-------- --------
Net cash provided by (used in)
financing activities ............. (184,513) (736,806)
-------- --------
Net increase (decrease) in cash ............... (142,849) ( 96,503)
Cash - beginning of period .................... 514,840 462,681
-------- --------
Cash - end of period .......................... $371,991 $366,178
======== ========
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (audited)
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996 (unaudited)
<CAPTION>
PARTNERS CAPITAL
---------------------------------------------------------------------
UNALLOCATED
GENERAL LIMITED SYNDICATION
PARTNERS PARTNERS COSTS TOTAL
-------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Balances at December 31, 1992 11,987 13,121,673 (277,899) 12,855,761
Net income .................. 11,260 1,114,723 -0- 1,125,983
Allocation of syndication
costs ...................... ( 810) ( 80,190) 81,000 -0-
Early withdrawal penalties .. -0- ( 23,000) 7,195 ( 15,805)
Partners withdrawals ........ ( 10,459) ( 536,291) -0- ( 546,750)
----------- ----------- ----------- -----------
Balances at December 31, 1993 11,978 13,596,915 (189,704) 13,419,189
Net income .................. 9,273 918,018 -0- 927,291
Allocation of syndication
costs ..................... ( 810) ( 80,190) 81,000 -0-
Early withdrawal penalties .. -0- ( 34,001) 10,635 ( 23,666)
Partners withdrawals ........ ( 8,463) ( 560,753) -0- ( 569,216)
----------- --------- --------- -----------
Balances at December 31, 1994 11,978 13,839,989 ( 98,069) 13,753,898
Net income .................. 9,120 902,840 -0- 911,960
Allocation of syndication
costs ..................... ( 810) ( 80,190) 81,000 -0-
Early withdrawal penalties .. -0- ( 10,690) 3,344 ( 7,346)
Partners withdrawals ........ ( 8,310) ( 435,917) -0- ( 444,227)
----------- ----------- ------------ ----------
Balances at December 31, 1995 $ 11,978 $14,214,285 ( 13,725) $14,214,285
Net income .................. 2,247 222,488 -0- 224,735
Allocation of Syndication
Costs ..................... ( 137) ( 13,588) 13,725 -0-
Early withdrawal penalties .. -0- ( 4,005) -0- ( 4,005)
Partners withdrawals ........ ( 2,110) ( 177,898) -0- ( 180,008)
----------- ---------- ------------ ------------
Balance at March 31, 1996 ... $ 11,978 14,243,029 -0- 14,255,007
=========== ========== ============ =============
<FN>
See accompanying notes to Financial Statements.
</FN>
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 (audited) and
MARCH 31, 1996 (unaudited)
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the Partnership) is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The partnership was organized to engage in
business as a mortgage lender for the primary purpose of making loans secured by
Deeds of Trust on California real estate. Partnership loans are being arranged
and serviced by Redwood Home Loan Co. (RHL Co.), dba Redwood Mortgage, an
affiliate of the General Partners. At December 31, 1992, the offering had been
closed with contributed capital totaling $11,998,359 for limited partners with
none left in applicant status.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As mortgage loans
were identified, partners were transferred from applicant status to admitted
partners participating in mortgage loan operations. Each months income is
allocated to partners based upon their proportionate share of partners capital.
Some partners have elected to withdraw income on a monthly, quarterly or annual
basis.
A. Sales Commissions - Formation Loan
Sales commissions ranging from 0% (units sold by General Partners) to 10%
of the gross proceeds were paid by RHL Co., an affiliate of the General Partners
that arranges and services the mortgage loans. To finance the sales commissions,
the Partnership was authorized to loan to RHL Co. an amount not to exceed 8.3%
of the gross proceeds provided that the Formation Loan for the minimum offering
period could be 10% of the gross proceeds for that period. The Formation Loan is
unsecured and is being repaid, without interest, in ten installments of
principal, over a ten year period commencing January 1, 1992. At December 31,
1992, RHL Co. had borrowed $914,369 from the Partnership to cover sales
commissions relating to $11,998,359 limited partner contributions (7.62%).
Through March 31, 1996, $423,295 including $53,819 in early withdrawal
penalties, had been repaid leaving a balance of $491,074.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions,
(including printing costs, attorney and accountant fees, and other costs), were
paid by the Partnership. Such costs were limited to 10% of the gross proceeds of
the offering or $500,000 whichever was less. The General Partners were to pay
any amount of such expenses in excess of 10% of the gross proceeds or $500,000.
Organization costs of $10,102 and syndication costs of $415,692 were
incurred by the Partnership. The sum of organization and syndication costs,
$425,794, approximated 3.55% of the gross proceeds contributed by the Partners.
As of March 31, 1996, both, the Organization and Syndication Costs were fully
amortized.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenues and expenses are accounted for on the accrual basis of accounting.
The Partnership bears its own organization and syndication costs (other
than certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs were capitalized and amortized over a
five year period. Syndication costs were charged against partners capital and
were allocated to individual partners consistent with the partnership agreement.
As of March 31, 1996, both these costs have been fully amortized.
<PAGE>
Property acquired through foreclosure will be held for prompt sale to
return the funds to the loan portfolio. Such property is recorded at cost which
includes the principal balance of the former loan made by the Partnership plus
accrued interest, payments made to keep the senior loans current, costs of
obtaining title and possession, less rental income or at estimated net
realizable value, if less. The difference between such costs and estimated net
realizable value is deducted from cost in the Balance Sheet to arrive at the
carrying value of such property.
Mortgage loans and the related accrued interest, fees and advances are
analyzed on a continuous basis for recoverability. Delinquencies are identified
and followed as part of the mortgage loan system. A provision is made for
doubtful account to adjust the allowance for doubtful accounts to an amount
considered by management to be adequate to provide for unrecoverable accounts
receivable.
In preparing the financial statements, management is required to make
estimates based on the information available that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the related periods. Such estimates relate principally to the determination
of the allowance for doubtful accounts and the valuation of real estate acquired
through foreclosure. Actual results could differ significantly from these
estimates.
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
Amounts reflected in the statements of income as net income per $1,000
invested by Limited Partners for the entire period are actual amounts allocated
to Limited Partners who have their investment throughout the period and have
elected to either leave their earnings to compound or have elected to receive
monthly distributions of their net income. Individual income is allocated each
month based on the Limited partners pro rata share of Partners Capital.
Because the net income percentage varies from month to month, amounts per $1,000
will vary for those individuals who made or withdrew investments during the
period, or selected other options. However, the net income per $1,000 average
invested has approximated those reflected for those whose investments and
options have remained constant.
The interim financial statements dated March 31, 1996, are unaudited, but
in the opinion of the General Partners all adjustments (consisting solely of
normal adjustments) necessary to a fair presentation of the financial statements
at March 31, 1996 have been made.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the General
Partners and/or related parties.
A. Loan Brokerage Commissions
For services in connection with the review, selection, evaluation,
negotiation and extension of Partnership loans in an amount up to 12% of the
principal through the period ending 6 months after the termination date of the
offering. Thereafter, loan brokerage commissions will be limited to an amount
not to exceed 4% of the total Partnership assets per year. The loan brokerage
commissions are paid by the borrowers, and thus, not an expense of the
partnership.
<PAGE>
B. Loan Servicing Fees
Monthly loan servicing fees are payable to RHL Co. of up to 1/8 of 1% (1.5%
annual) of the unpaid principal, or such lesser amount as is reasonable and
customary in the geographic area where the property securing the loan is
located. Amounts remitted to the Company and recorded as interest on mortgage
loans is net of such fees. In 1993, $57,825 of the total loan servicing fees of
$116,627 were waived by Redwood Home Loan Co. In 1994, all $124,049 in loan
servicing fees were waived. In 1995, $66,888 of the total loan servicing fees of
$100,282 were waived and during the three months through March 31, 1996, $14,270
of the total loan servicing fees of $31,481 were also waived by RHL Co.
C. Asset Management Fee
The General Partners receive a monthly fee for managing the Partnerships
loan portfolio and operations equal to 1/32 of 1% of the net asset value (3/8
of 1% annual). In 1995, 1994 and 1993, the asset management fees charged were
$-0-, $10,008, and $16,735, respectively. The computed management fees were $
52,801, $51,519, and $50,360 respectively, with the difference being waived by
the General Partners. During the three months through March 31, 1996, management
fees totalling $13,380 were also waived by the General Partners.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
loan assumption and loan extension fees. Such fees are incurred by the borrowers
and are paid to parties related to the General Partners.
E. Income and Losses
All income is credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) is a total of 1%.
F. Operating Expenses
The General Partners or their affiliate (Redwood Home Loan Co.) are
reimbursed by the Partnership for all operating expenses actually incurred by
them on behalf of the Partnership, including without limitation, out-of-pocket
general and administration expenses of the Partnership, accounting and audit
fees, legal fees and expenses, postage and preparation of reports to Limited
Partners. In 1994, all such expenses were absorbed by Redwood Home Loan Co. In
1995 and 1993, reimbursed expenses totalled $27,762 and $33,641, respectively.
During the quarter under review, Redwood Home Loan Co. was paid $9,782 in
operating expenses.
The General Partners collectively or severally were to contribute 1/10 of
1% in cash contributions as proceeds from the offering were admitted to limited
partners capital. As of December 31, 1992 a General Partner, GYMNO Corporation,
had contributed $11,998, 1/10 of 1% of limited partner contributions in
accordance with Section 4.02(a) of the Partnership Agreement.
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units were not admitted to
the Partnership until appropriate lending opportunities were available. During
the period prior to the time of admission, which ranged between 1-120 days,
purchasers subscriptions remained irrevocable and earned interest at money
market rates, which were lower than the return on the Partnerships loan
portfolio.
Interest earned prior to admission was credited to partners in applicant
status. As loans were made and partners were transferred to regular status to
begin sharing in income from loans secured by deeds of trust, the interest
credited was either paid to the investors or transferred to Partners Capital
along with the original investment.
<PAGE>
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner
terminated as provided. The provisions provide for no capital withdrawal for the
first five years, subject to the penalty provision set forth in (E) below.
Thereafter, investors have the right to withdraw over a five-year period, or
longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly
or annual distributions of earnings allocations, or to allow earnings to
compound for at least a period of 5 years.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to
their respective capital accounts after 1% is allocated to the General Partners.
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is illiquid. Limited Partners had
no right to withdraw from the partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units. In
order to provide a certain degree of liquidity to the Limited Partners after the
one-year period. Limited Partners may withdraw all or part of their Capital
Accounts from the Partnership in four quarterly installments beginning on the
last day of the calendar quarter following the quarter in which the notice of
withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty
is applicable to the amount withdrawn as stated in the Notice of Withdrawal and
will be deducted from the Capital Account and the balance distributed in four
quarterly installments. Withdrawal after the one-year holding period and before
the five-year holding period will be permitted only upon the terms set forth
above.
Limited Partners will also have the right after five years from the date of
purchase of the Units to withdraw from the partnership on an installment basis,
generally over a five year period in twenty (20) quarterly installments or
longer. Once this five year period expires, no penalty will be imposed if
withdrawal is made in twenty (20) quarterly installments or longer.
Notwithstanding the five-year (or longer) withdrawal period, the General
partners will liquidate all or part of a Limited Partners capital account in
four quarterly installments beginning on the last day of the calendar quarter
following the quarter in which the notice of withdrawal is given, subject to a
10% early withdrawal penalty applicable to any sums withdrawn prior to the time
when such sums could have been withdrawn pursuant to the five-year (or longer)
withdrawal period.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnerships capacity to return a Limited Partners
capital account is restricted to the availability of Partnership cash flow.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner was admitted to
the Partnership and ending 3 months after the offering termination date, the
General Partners guaranteed an interest rate equal to the greater of actual
earnings from mortgage operations or 2% above The Weighted Average cost of Funds
Index for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco, up to
a maximum interest rate of 12%. The guarantee amounted to $12,855 and $5,195 in
1990 and 1991, respectively. In 1992 and 1993, actual realization exceeded the
guaranteed amount each month. None of 1994 or 1995 was subject to the guarantee.
This guarantee is not applicable now.
<PAGE>
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land, acquired through foreclosure, located
in East Palo Alto with costs totalling $223,245 has been invested with that of
two other Partnerships (total cost of $941,050) in a partnership which is in the
process of constructing approximately 72 single family homes for sale. Redwood
Mortgage Investors V, VI and VII have first priority on return of investment
plus interest thereon, in addition to a share of profits realized.
NOTE 6 - LEGAL PROCEEDINGS
The Partnership is not a defendant in any legal actions. However, legal
actions against borrowers and other involved parties have been initiated by the
Partnership to help assure payments against unsecured accounts receivable
totalling $307,667 at March 31, 1996.
Management anticipates that the ultimate results of these cases will not
have a material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
NOTE 7 - NOTES PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its mortgage loan
portfolio up to $2,000,000 at 1% over prime. The balance outstanding as of March
31, 1996 was $1,999,500, and the interest rate at March 31, 1996 was 9.5% (8.50%
prime + 1%).
NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The mortgage loans are secured by recorded deeds of trust. At March 31,
1996, there were 74 loans outstanding with the following characteristics:
Number of loans outstanding 74
Total loans outstanding $12,431,962
Average loan outstanding $ 167,999
Average loan as percent of total 1.35%
Average loan as percent of Partners Capital 1.18%
Largest loan outstanding $955,000
Largest loan as percent of total 7.68%
Largest loan as percent of Partners Capital 6.70%
Number of counties where security is
located (all California) 16
Largest percentage of loans in one county 24.64%
Average loan to appraised value of security
at time loan was consummated 63.04%
Number of loans in foreclosure status 1
Amount of loan in foreclosure $ 63,056
The cash balance at March 31, 1996 of $371,991 was in three banks with
interest bearing balances totalling $351,907. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $251,907.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On September 30, 1992, the Partnership had sold 119,983.59 units and its
contributed capital totalled $11,998,359 of the approved $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally closed. At March
31, 1996, Partners Capital totalled $14,255,007.
The Partnership began funding mortgage investments on December 27, 1989 and
as of March 31, 1996 had credited the Partners accounts with income at an
average annualized (compounded) yield of 8.40%.
Currently, mortgage interest rates are lower than those prevalent at the
inception of the Partnership. New loans are being originated at these lower
interest rates. The result is a reduction of the average return across the
entire portfolio held by the Partnership. In the future, interest rates likely
will change from their current levels. The General Partners cannot at this time
predict at what levels interest rates will be in the future. The General
Partners believe the rates charged by the Partnership to its borrowers will not
change significantly in the immediate future. Based upon the rates payable in
connection with the existing loans, the current and anticipated interest rates
to be charged by the Partnerships, and current reserve requirements, the General
Partners anticipate that the annualized yield this year will range only slightly
from its current rate.
The Partnership has a line of credit with a commercial bank secured by its
mortgage loans to a limit of $2,000,000, at a variable interest rate set at one
percent above the prime rate. Currently, it has borrowed $1,999,500. This
facility could increase as the Partnership capital increases. This added source
of funds helped in maximizing the Partnership yield because most of the loans
made by the Partnership bear interest at a rate in excess of the rate payable to
the bank which extended the line of credit. As a result, once the required
principal and interest payments on the line of credit are paid to the bank, the
loans funded using the line of credit generate revenue for the Partnership. As
of March 31, 1996, the Partnership is current with its interest payments on the
line of credit.
California has been experiencing an economic slump over five of the last
six years, fueled by a downturn in the aerospace, communications, banking and
retail trade industries, and in the federal government sector. This slump has
been, and continues to be, reflected in property values, to a greater or lesser
degree depending upon location. The Partnerships income and expenses, accruals
and delinquencies are within the normal range of the General partners
expectations, based upon their experience in managing similar Partnerships over
the last nineteen years. Borrowers foreclosures, as set forth under Results of
Operations, are a normal aspect of partnership operations and the General
Partners anticipate that they will not have a material effect on liquidity. Cash
is constantly being generated from interest earnings, late charges, pre-payment
penalties, amortization of Notes and pay-off on Notes. Currently, cash flow
exceeds Partnership expenses and earnings payout requirements. As loan
opportunities become available, excess cash and available funds are invested in
new loans.
The General Partners are continually reviewing the loan portfolio,
examining the status of delinquencies, the underlying collateral securing these
properties, the REO expenses and sales activities, borrowers payment records,
etc. Data on the local real estate market and on the national and local economy
are studied. Based upon this information and other data, loss reserves are
increased or decreased. Because of the number of variables involved, the
magnitude of the possible swings and the General Partners inability to control
many of these factors, actual results may and do sometimes differ significantly
from estimates made by the General Partners.
<PAGE>
I. COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the three months ending March 31, 1996.
All such compensation is in compliance with the guidelines and limitations set
forth in the Prospectus:
ENTITY RECEIVING DESCRIPTION OF COMPENSATION AMOUNT
COMPENSATION and SERVICES RENDERED
- -------------------------------------------------------------------------------
RHL Co. Loan servicing fees for servicing loan $17,211
($14,270 waived by the General Partners.)
General Partners
&/or Affiliates Asset Management Fee for managing assets $ -0-
($13,380 waived by the General Partners).
General Partners 1% interest in profits, losses and distributions
of cash available for distribution $ 2,247
Less allocation for Syndication Costs $ 137
-----------
$ 2,110
II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED BY COMPANIES RELATED TO
THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS, NOT OF THE
PARTNERSHIP):
RHL Co. Loan Brokerage Commissions for services
in connection with the review, selection,
evaluation, negotiation, and extension of
the Partnership Loans paid by the borrower
and not by the Partnership. $140,440
RHL Co. Processing and Escrow Fees for services
in connection with notary,document preparation,
credit investigation, and escrow fees payable
by the borrower and not by the Partnership $ 1,582
III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME.
<PAGE>
LOAN PORTFOLIO SUMMARY AS OF MARCH 31, 1996
Partnership Highlights
Loan to Value Ratios
First Trust Deeds $4,188,464.34
Appraised Value of Properties * 9,536,910.00
Total Investment as a % of Appraisal 43.92%
First Trust Deed Loans 4,188,464.34
Second Trust Deed Loans 7,265,987.53
Third Trust Deed Loans 783,222.98
Fourth Trust Deed Loans ** 194,286.88
-----------------
$12,431,961.73
First Trust Deeds due other Lenders 28,164,224.00
Second Trust Deeds due other Lenders 1,194,402.00
Third Trust Deeds due other Lenders 142,858.00
-----------------
Total Debt $41,933,445.73
Appraised Property Value * 66,514,042.00
Total Investment as a % of Appraisal 63.04%
Number of Loans Outstanding 74
Average Investment $ 167,999.48
Average Investment as a % of Net Assets 1.18%
Largest Investment Outstanding $ 955,000.00
Largest Investment as a % of Net Assets 6.70%
Loans as a Percentage of Total Loans
First Trust Deed Loans 33.69%
Second Trust Deed Loans 58.45%
Third Trust Deed Loans 6.30%
Fourth Trust Deed Loans 1.56%
-------------------
Total 100.00%
Loans by Type of Property Amount Percent
Owner Occupied Homes $ 2,406,884.37 19.36%
Non Owner Occupied Homes 492,385.49 3.96%
Apartments 848,941.99 6.83%
Commercial 8,683,749.88 69.85%
------------- ---------
Total $12,431,961.73 100.00%
Statement of Conditions of Loans
Number of Loans in Foreclosure 1
*Values used are the appraisal values utilized at the time the loan was
consummated.
<PAGE>
Diversification by County
County Total Loans Percent
Santa Clara $ 3,062,750.00 24.64%
San Mateo 2,492,545.70 20.05%
San Francisco 1,950,112.11 15.69%
Alameda 1,179,340.65 9.49%
Contra Costa 1,146,432.93 9.22%
Stanislaus 830,031.39 6.68%
Sonoma 377,531.90 3.04%
Monterey 285,129.16 2.29%
El Dorado 276,493.42 2.22%
Marin 211,823.42 1.70%
Sacramento 182,246.57 1.47%
Santa Barbara 123,372.52 0.99%
Solano 104,939.43 0.84%
Santa Cruz 58,930.42 0.47%
Miscellaneous *** 150,282.11 1.21%
----------------- -----------
Total $ 12,431,961.73 100.00%
** Redwood Mortgage Investors VII, together with other Redwood
Partnerships, holds a second and a fourth trust deed against the secured
property. In addition, the principals behind the borrower corporation have given
personal guarantees as collateral. The overall loan to value ratio on this loan
is 76.52%. Besides the borrower paying a fixed interest rate of 12.25%, the
partnership and other lenders will also be entitled to share in profits
generated by the corporation with respect to the secured property. The
affiliates of the Partnership had entered into previous loan transactions with
this borrower which had been concluded successfully, resulting in additional
revenue beyond interest payments for the affiliates involved.
*** Tuoloume, Shasta
<PAGE>
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
None, where the Partnership is a defendant.
Please refer to Note 6 of Notes to Financial
Statements.
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not Applicable
(b) Form 8-K
The registrant has not filed any reports
on Form 8-K during the nine month period
ending March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized on the 3rd day of May,
1996.
REDWOOD MORTGAGE INVESTORS VII
By:
---------------------------------------------
D. Russell Burwell, General Partner
By:
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By:
---------------------------------------------
D. Russell Burwell, President
By:
---------------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 3rd day of May, 1996.
Signature Title Date
- ---------------------
D. Russell Burwell General Partner May 3, 1996
- ---------------------
Michael R. Burwell General Partner May 3, 1996
- ---------------------
D. Russell Burwell President of Gymno Corporation, May 3, 1996
(Principal Executive Officer);
Director of Gymno Corporation
- ---------------------
Michael R. Burwell Secretary/Treasurer of Gymno May 3, 1996
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
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