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 September 30, 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 PRECEDING 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
- ---------- ---------- -------------
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
September 30, 1996 (unaudited)
<CAPTION>
ASSETS
Sept. 30, 1996 Dec.31, 1995
(unaudited) (audited)
<S> <C> <C>
Cash ....................................................................................... $ 728,482 $ 514,840
----------- -----------
Accounts Receivable:
Mortgage investments, secured by deeds of trust ........................................ 10,795,997 12,382,641
Accrued interest on mortgage investments ............................................... 223,680 940,541
Advances on mortgage investments ....................................................... 19,748 110,874
Other receivables - unsecured .......................................................... 306,467 378,200
----------- -----------
11,345,892 13,812,256
Less allowance for doubtful accounts ................................................... 226,122 200,000
----------- -----------
11,119,770 13,612,256
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Real estate owned, acquired through foreclosure,
at estimated net realizable value ...................................................... 1,682,983 1,347,997
Investment in Partnership .................................................................. 223,929 223,245
Formation loan due from Redwood Home Loan Co. .............................................. 435,291 517,051
Organization costs, less accumulated amortization
of $10,102 and $9,734 respectively ..................................................... 0.00 368
----------- -----------
$14,190,455 $16,215,757
=========== ===========
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Note payable - bank line of credit ..................................................... $ 0.00 $ 2,000,000
Accounts payable and accrued expenses .................................................. 1,472 1,472
----------- -----------
1,472 2,001,472
Partners capital ........................................................................... 14,188,983 14,214,285
----------- -----------
$14,190,455 $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 NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995 (unaudited)
<CAPTION>
9 months ended 9 months ended 3 months ended 3 months ended
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Interest on mortgage investmentss ...................... $1,083,669 1,026,759 369,526 322,819
Interest on bank deposits .............................. 4,461 6,965 1,610 2,611
Late Charges ........................................... 13,817 6,566 5,451 3,265
Miscellaneous .......................................... 20,779 1,130 14,614 411
---------- ---------- ---------- ----------
1,122,726 1,041,420 391,201 329,106
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Expenses:
Interest on note payable - bank ........................ 127,066 117,277 38,407 39,046
General Partner management fees ........................ 0.00 0.00 0.00 0.00
Amortization of organization costs ..................... 368 1,512 0.00 504
Clerical costs through Redwood Home .................... 30,758 19,051 10,464 8,338
Loan Co. ...................................................
Professional Fees ...................................... 17,637 18,366 473 1,364
Provision for loss on real estate acquired
through foreclosure and doubtful accounts............. 285,591 188,095 127,930 47,360
Electronic Processing .................................. 0.00 2,280 0.00 0.00
Other .................................................. 13,647 13,149 2,543 3,304
---------- ---------- ---------- ----------
475,067 359,730 179,817 99,916
---------- ---------- ---------- ----------
Net income ................................................. $ 647,659 681,690 211,384 229,190
========== ========== ========== ==========
Net income: to General Partners (1%) ...................... $ 6,476 6,816 2,113 2,292
Net income: to Limited Partners (99%) ..................... 641,183 674,874 209,271 226,898
========== ========== ========== ==========
647,659 681,690 211,384 229,190
========== ========== ========== ==========
Net income per $1000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded............... $ 44.78 $ 44.68 $ 14.71 $ 14.68
---------- ---------- ---------- ----------
- where partner receives income in monthly
distributions ....................................... $ 43.92 $ 43.82 $ 14.63 $ 14.60
---------- ---------- ---------- ----------
<FN>
See accompanying notes to Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1995
AND 1996 (unaudited)
<CAPTION>
Sept. 30, 1996 Sept. 30, 1995
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income ....................................................................... $ 647,659 $ 681,690
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of organization costs ............................................. 368 1,512
Increase (decrease) in allowance for doubtful accounts ......................... 26,122 (88,973)
(Increase) decrease in accrued interest and advances ........................... 807,987 (190,598)
Increase (decrease) in accounts payable and
accrued expenses .......................................................... 0.00 (7,164)
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Net cash provided by operating activities ........................................ 1,482,136 396,467
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Cash flows from investing activities:
Net (increase) decrease in:
Real estate acquired through foreclosure ................................... (334,986) 492,837
Mortgage investments ....................................................... 1,586,644 (947,722)
Formation loans ............................................................ 81,760 48,460
Partnership interests ...................................................... (684) (223,244)
Other accounts receivables - unsecured ..................................... 71,733 30,957
----------- -----------
Net cash provided by (used in)investing activities ............................ 1,404,467 (598,712)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank ................................ (2,000,000) 70,370
Partners withdrawals ........................................................ (657,117) (276,236)
Early withdrawal penalties, Net ............................................. (15,844) (4,516)
----------- -----------
Net cash provided by (used in) financing activities ........................... (2,672,961) (210,382)
----------- -----------
Net increase (decrease) in cash .................................................... 213,642 (412,627)
Cash - beginning of period ......................................................... 514,840 462,681
=========== ===========
Cash - end of period ............................................................... 728,482 50,054
=========== ===========
<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 NINE MONTHS ENDED SEPTEMBER 30, 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 0.00 1,125,983
Allocation of syndication costs ................ (810) (80,190) 81,000 0.00
Early withdrawal penalties ..................... 0.00 (23,000) 7,195 (15,805)
Partners withdrawals ........................... (10,459) (536,291) 0.00 (546,750)
------------ ------------ ------------ ------------
Balances at December 31, 1993 .................. 11,978 13,596,915 (189,704) 13,419,189
Net income ..................................... 9,273 918,018 0.00 927,291
Allocation of syndication costs ................ (810) (80,190) 81,000 0.00
Early withdrawal penalties ..................... 0.00 (34,001) 10,635 (23,366)
Partners withdrawals .......................... (8,463) (560,753) 0.00 (569,216)
------------ ------------ ------------ ------------
Balances at December 31, 1994 .................. 11,978 13,839,989 (98,069) 13,753,898
Net income ..................................... 9,120 902,840 0.00 911,960
Allocation of syndication costs ................ (810) (80,190) 81,000 0.00
Early withdrawal penalties ..................... 0.00 (10,690) 3,344 (7,346)
Partners withdrawals .......................... (8,310) (435,917) 0.00 (444,227)
------------ ------------ ------------ ------------
Balances at December 31, 1995 .................. 11,978 14,216,032 (13,725) 14,214,285
Net income ..................................... 6,476 641,183 0.00 647,659
Allocation of Syndication Costs ................ (138) (13,587) 13,725 0.00
Early withdrawal penalties ..................... 0.00 (15,844) 0.00 (15,844)
Partners withdrawals .......................... (6,339) (650,778) 0.00 (657,117)
------------ ------------ ------------ ------------
Balance at September 30, 1996 .................. $ 11,977 $ 14,177,006 0.00 $ 14,188,983
============ ============ ============ ============
<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
SEPTEMBER 30, 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. Mortgage Investments are being
arranged and serviced by Redwood Home Loan Co., dba Redwood Mortgage, (RHL Co.)
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.
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
investments were identified, partners were transferred from applicant status to
admitted partners participating in mortgage investment 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 Redwood Mortgage, an affiliate of the General
Partners that arranges and services the mortgage investments. To finance the
sales commissions, the Partnership was authorized to loan to Redwood Mortgage 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,
over a ten year period commencing January 1, 1992. At December 31, 1992, Redwood
Mortgage had borrowed $914,369 from the Partnership to cover sales commissions
relating to $11,998,359 limited partner contributions (7.62%). Through September
30, 1996, $479,078 including $65,658 in early withdrawal penalties, had been
repaid leaving a balance of $435,291
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.
Both the Organization and Syndication Costs have been fully amortized and
allocated to the Partners.
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.
These costs have been fully amortized and allocated.
<PAGE>
Property acquired through foreclosure will be held for sale at its
estimated market value. Such property is recorded at cost which includes the
principal balance of the former mortgage investment 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 investments 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 investment system. A provision
is made for doubtful accounts 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 September 30, 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 September 30, 1996 have been made.
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are paid to the General
Partners and/or related parties.
A. Loan Brokerage Commissions
Loan brokerage commissions are paid 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 are
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 Redwood Mortgage 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 investment
is located. Amounts remitted to the Company and recorded as interest on mortgage
investments is net of such fees. In 1993, $57,825 of the total loan servicing
fees of $116,627 were waived by Redwood Mortgage. 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 nine months through September 30, 1996,
$55,079 of the total loan servicing fees of $152,347 were also waived by RHL Co.
C. Asset Management Fee
The General Partners receive a monthly fee for managing the Partnerships
mortgage investment 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 nine months through
September 30, 1996, management fees totalling $40,193 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 Mortgage) 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 Mortgage. In 1995 and 1993,
reimbursed expenses totalled $27,762 and $33,641, respectively. During the nine
month period under review, Redwood Mortgage was paid $30,758 for 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 mortgage
investment portfolio.
Interest earned prior to admission was credited to partners in applicant
status. As mortgage investments were made and partners were transferred to
regular status to begin sharing in income from mortgage investments secured by
deeds of trust, the interest credited was either paid to the investors or
transferred to PartnersCapital 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.
<PAGE>
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land, acquired through foreclosure, located in
East Palo Alto with costs totalling $223,929 has been invested with that of two
other Partnerships (total cost of $943,920) in a partnership which is in the
preliminary process of obtaining approval to construct 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 $306,467 at September 30, 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
investment portfolio up to $3,000,000 at 1/2% over prime. The balance
outstanding as of September 30, 1996 was $0.00, and the interest rate at
September 30, 1996 was 8.75% (8.25% prime + 1/2%).
NOTE 8 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The mortgage investments are secured by recorded deeds of trust. At
September 30, 1996, there were 65 mortgage investments outstanding with the
following characteristics:
Number of mortgage investments outstanding 65
Total mortgage investments outstanding $10,795,997
Average mortgage investment outstanding $166,092
Average mortgage investment as percent of total 1.54%
Average mortgage investment as percent of Partners Capital 1.17%
Largest mortgage investment outstanding $955,000
Largest mortgage investment as percent of total 8.85%
Largest mortgage investment as percent of Partners Capital 6.73%
Number of counties where security is
located (all California) 16
Largest percentage of mortgage investments in one county 26.48%
Average mortgage investment to appraised value of security
at time mortgage investment was consummated 64.89%
Number of mortgage investments in foreclosure status 2
Amount of mortgage investments in foreclosure $198,200
The cash balance at September 30, 1996 of $728,482 was in two banks with
interest bearing balances totalling $658,484. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $558,484.
<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
September 30, 1996, Partners Capital totalled $14,188,983.
The Partnership began funding mortgage investments on December 27, 1989 and
as of September 30, 1996 had credited the Partners accounts with income at an
average annualized (compounded) yield of 8.22%.
Currently, mortgage interest rates are lower than those prevalent at the
inception of the Partnership. New mortgage investments 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 mortgage investments, 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 higher from its current rate.
The Partnership has a line of credit with a commercial bank secured by its
mortgage mortgage investments to a limit of $3,000,000, at a variable interest
rate set at one half percent above the prime rate. Currently, it has repaid the
borrowed amount in full. This facility could increase as the Partnership capital
increases. This added source of funds helped in maximizing the Partnership yield
because most of the mortgage investments 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 mortgage investments funded using the
line of credit generate revenue for the Partnership. As of September 30, 1996,
the Partnership is current with its interest payments on the line of credit.
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 mortgage investments opportunities become
available, excess cash and available funds are invested in new mortgage
investments.
The General Partners regularly review the mortgage investment 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.
Its now clear the Northern California recession reached bottom in 1993.
Since then, the California economy has been improving, slowly at first, but now,
more vigorously. A wide variety of indicators suggest that the economy in
California was strong in the first half of 1996, and the State is well -
positioned for fast growth in the second half of the year. This improvement is
reflective in increasing property values, in job growth, personal income growth,
etc., which all translates into more loan activity, which of course, is healthy
for our lending activity.
<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 nine months ending September 30,
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
- --------------------------------------------------------------------------------
Redwood Mortgage Loan servicing fees for servicing loans $97,268
($55,079 waived by the General Partners.)
General Partners
&/or Affiliates Asset Management Fee for managing assets $ 0.00
($40,193 waived by the General Partners).
General Partners 1% interest in profits, losses and distributions
of cash available for distribution $ 6,476
Less allocation for Syndication Costs $ 138
--------
$ 6,338
-----------
II. FEES PAID BY BORROWERS ON MORTGAGE INVESTMENTS PLACED BY COMPANIES
RELATED TO THE GENERAL PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS, NOT
OF THE PARTNERSHIP):
Redwood Mortgage Loan Brokerage Commissions for services
in connection with the review, selection,
evaluation, negotiation, and extension of
the Mortgage Investment paid by the
borrower and not by the Partnership. $196,065
Redwood Mortgage 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 $ 3,615
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>
MORTGAGE INVESTMENT PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 1996
Partnership Highlights
Mortgage Investment to Value Ratios
First Trust Deeds $3,667,840.16
Appraised Value of Properties * 7,620,197.00
Total Investment as a % of Appraisal 48.13%
First Trust Deed Mortgage Investments 3,667,840.16
Second Trust Deed Mortgage Investments 6,207,236.60
Third Trust Deed Mortgage Investments 723,359.51
Fourth Trust Deed Mortgage Investments ** 197,560.33
-----------------
$10,795,996.60
First Trust Deeds due other Lenders 21,375,602.00
Second Trust Deeds due other Lenders 979,402.00
Third Trust Deeds due other Lenders 142,858.00
-----------------
Total Debt $33,293,858.60
Appraised Property Value * 51,304,829.00
Total Investment as a % of Appraisal 64.89%
Number of Mortgage Investments Outstanding 65
Average Investment $166,092.26
Average Investment as a % of Net Assets 1.17%
Largest Investment Outstanding $955,000.00
Largest Investment as a % of Net Assets 6.73%
Loans as a Percentage of Total Mortgage Investments
First Trust Deed Mortgage Investments 33.97%
Second Trust Deed Mortgage Investments 57.50%
Third Trust Deed Mortgage Investments 6.70%
Fourth Trust Deed Mortgage Investments 1.83%
----------------
Total 100.00%
Mortgage Investments by Type of
Property Amount Percent
Owner Occupied Homes $1,772,718.08 16.42%
Non Owner Occupied Homes 395,294.88 3.66%
Apartments 1,629,449.77 15.09%
Commercial 6,998,533.87 64.83%
----------------
------------------
Total $10,795,996.60 100.00%
Statement of Conditions of Mortgage Investments
Number of Mortgage Investments in Foreclosure 2
*Values used are the appraisal values utilized at the time the mortgage
investment was consummated.
<PAGE>
Diversification by County
County Total Loans Percent
Santa Clara $2,859,138.30 26.48%
San Francisco 2,103,047.70 19.48%
San Mateo 1,512,456.21 14.01%
Contra Costa 1,146,135.35 10.62%
Alameda 890,157.08 8.25%
Stanislaus 830,031.39 7.69%
Sonoma 401,238.37 3.72%
El Dorado 274,178.59 2.54%
Sacramento 206,893.59 1.91%
Santa Barbara 122,863.11 1.14%
Solano 104,796.30 0.97%
Monterey 79,619.05 0.74%
Marin 62,950.08 0.58%
Santa Cruz 53,951.23 0.50%
Miscellaneous 148,540.25 1.37%
------------------- -----------
Total $10,795,996.60 100.00%
** 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.
*** Tuolume, 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 September 30, 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 8th day of
November 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 8th day of November, 1996.
Signature Title Date
- -----------------------
D. Russell Burwell General Partner November 8, 1996
- -----------------------
Michael R. Burwell General Partner November 8, 1996
- ----------------------
D. Russell Burwell President of Gymno Corporation, November 8, 1996
(Principal Executive Officer);
Director of Gymno Corporation
- ---------------------
Michael R. Burwell Secretary/Treasurer of Gymno November 8, 1996
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
<PAGE>
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