REDWOOD MORTGAGE INVESTORS VII
(a California Limited Partnership)
Index to Form 10-K
December 31, 1998
Part I
Page No.
Item 1 - Business 3
Item 2 - Properties 4-5
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a vote of Security Holders (partners) 6
Part II
Item 5 - Market for the Registrants Partners Capital and related matters 6
Item 6 - Selected Financial Data 6-8
Item 7 - Managements Discussion and Analysis of Financial condition
and Results of Operations 9-13
Item 8 - Financial Statements and Supplementary Data 14-38
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 39
Part III
Item 10 - Directors and Executive Officers of the Registrant 39
Item 11 - Executive Compensation 40
Item 12 - Security Ownership of Certain Beneficial Owners and management 41
Item 13 - Certain Relationships and Related Transactions 41
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K.41-42
Signatures 43
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the year ended December 31, 1998 Commission file number 33-30427
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VII
(Exact name of registrant as specified in its charter)
California 94-3094928
- ---------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
650 El Camino Real Suite G, Redwood City, CA 94063
- --------------------------------------------- ----------------------------------
(address of principal executive offices) (zip code)
Registrants telephone No. including area code (650) 365-5341
- --------------------------------------------- ----------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- -------------------------------------- -----------------------------------------
Limited Partnership Units None
- -------------------------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES XXXX NO
- --------------------------- -----------------------
Through December 31, 1992, the limited partnership units purchased by
non-affiliates was 119,983.59 units computed at $100.00 a unit for $11,998,359.
The offering was closed on September 30, 1992.
Documents incorporated by reference:
Portions of the Prospectus dated October 20, 1989, and Supplement #5 dated
February 14, 1992, filed on form S-11, are incorporated in Parts II, III, and
IV. Exhibits filed as part of Form S-11 Registration Statement #33-30427 are
referenced in part IV.
<PAGE>
Part I
Item 1 - Business
Redwood Mortgage Investors VII, a California limited partnership (the
Partnership), was organized in 1989 of which D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation, are the General
Partners. The address of the General Partners is 650 El Camino Real, Suite G,
Redwood City, California 94063. The Partnership is organized to engage in
business as a mortgage lender, for the primary purpose of making Mortgage
Investments secured by deeds of trust on California real estate. Mortgage
Investments are arranged and serviced by Redwood Mortgage Corp., an affiliate of
the General Partners. The Partnerships objectives are to make investments, as
referred to above, which will: (i) provide the maximum possible cash returns
which Limited Partners may elect to (a) receive as monthly, quarterly or annual
cash distributions or (b) have credited to their capital accounts and applied to
Partnership activities; and (ii) preserve and protect the Partnerships capital.
The Partnerships general business is more fully described under the section
entitled Investment Objectives and Criteria pages 26-31 of the Prospectus
which is incorporated by reference.
Originally, 60,000 Units were offered on a best efforts basis through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus, the General Partners increased
the number of units for sale from 60,000 to 120,000 and elected to continue the
offering until September 30, 1992. The offering closed on September 30, 1992,
and the Limited Partners contributed capital totalled $11,998,359 of an approved
$12,000,000 issue, in units of $100 each. At that date all the applicants had
been admitted into the Partnership with none left in the applicant status. The
final SR report (Report of Sales of Securities and use of proceeds therefrom),
was filed on September 21, 1992.
The Partnership began selling units in October, 1989 and began investing in
mortgages in December, 1989. At December 31, 1998, the Partnership had a balance
in its Mortgage Investments portfolio totalling $13,209,186 with interest rates
thereon ranging from 6.50% to 14.50%.
Currently, Mortgage Investments secured by First Trust Deeds comprise
65.40% of the amount of funds in the Mortgage Investment portfolio followed by
Second Trust Deeds of 31.71%, and Third Trust Deeds of 1.38%. A Fourth Trust
Deed makes up the balance. Owner-occupied homes, combined with non-owner
occupied homes total 18.45% of the Mortgage Investments. Commercial Mortgage
Investments origination increased from last year, now comprising 74.76% of the
portfolio, an increase of 6.26%. The past year brought many outstanding low loan
to value lending opportunities in the commercial segment of the market. 60.70%
of the total Mortgage Investments, are in six counties of the Bay Area. The
County of Stanislaus makes up 22.25% of the Mortgage Investments. Stanislaus
County is a fringe county to the San Francisco Bay Area. In 1998 the Partnership
received many good lending opportunities from this county. The balance of
Mortgage Investments are primarily in Northern California. Mortgage Investment
size increased this past year, and is now averaging $249,230 per Mortgage
Investment, an increase of $32,299. Some of the larger Mortgage Investments
invested in by the Partnership are fractionalized between other affiliated
partnerships with objectives similar to those of the Partnership to further
reduce risk. Average equity per loan transaction stood at 38.82%. A 40% equity
average on loan origination is generally considered very conservative.
Generally, the more equity, the more protection for the lender. The
Partnerships Mortgage Investment portfolio is in good condition with no
properties in foreclosure as of December, 1998.
<PAGE>
Item 2 - Properties
A summary of the Partnerships Mortgage Investment Portfolio as of December
31, 1998 is set forth below.
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds $8,638,975.93
Appraised Value of Properties 15,017,642.00
Total Investment as a % of Appraisal 57.53%
First Trust Deeds $8,638,975.93
Second Trust Deed Mortgage Investments 4,188,401.09
Third Trust Deed Mortgage Investments 181,808.20
Fourth Trust Deed Mortgage Investments * 200,001.20
-------------------
13,209,186.42
First Trust Deeds due other Lenders 11,769,481.00
Second Trust Deeds due other Lenders 816,528.00
Third Trust Deeds due other Lenders 142,858.00
Total Debt $25,938,053.42
Appraised Property Value $42,393,561.00
Total Investments as a % of Appraisal 61.18%
Number of Mortgage Investments Outstanding 53
Average Investment 249,229.93
Average Investment as a % of Net Assets 2.09%
Largest Investment Outstanding 1,050,000.00
Largest Investment as a % of Net Assets 8.79%
Mortgage Investments as a Percentage of Total Mortgage Investments
First Trust Deeds 65.40%
Second Trust Deeds 31.71%
Third Trust Deeds 1.38%
Fourth Trust Deeds 1.51%
-------------------
Total 100.00%
Mortgage Investments by Amount Percent
Type of Property
Owner Occupied Homes $746,334.37 5.65%
Non-Owner Occupied Homes 1,691,015.81 12.80%
Apartments 897,291.93 6.79%
Commercial 9,874,544.31 74.76%
------------------ -----------
Total $13,209,186.42 100.00%
* Footnotes on following page
<PAGE>
The following is a distribution of Mortgage Investments outstanding as of
December 31, 1998 by Counties.
County Total Mortgage Percent
Investments
Stanislaus $2,939,082.26 22.25%
San Francisco 1,971,467.60 14.93%
Alameda 1,748,735.54 13.24%
Santa Clara 1,679,961.01 12.72%
San Mateo 1,051,446.21 7.96%
Solano 994,111.14 7.53%
Contra Costa 850,970.56 6.44%
Monterey 757,092.47 5.73%
Marin 714,617.48 5.41%
Sonoma 174,697.65 1.32%
Sacramento 132,372.65 1.00%
Ventura 91,000.00 0.69%
Shasta 81,033.44 0.61%
Santa Cruz 22,598.41 0.17%
------------------ -----------
Total $13,209,186.42 100.00%
* Redwood Mortgage Investors VII, together with other Redwood Partnerships,
hold 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 at the inception of this loan was
76.52%. In addition to the borrower paying an interest rate of 12.25%, the
Partnership and other lenders will also participate in profits. The General
Partners have had previous loan activity with this borrower which had been
concluded successfully, with extra earnings earned for the other partnerships
involved.
Statement of Condition of Mortgage Investments
Number of Mortgage Investments in Foreclosure -0-
Scheduled maturity dates of mortgage investments as of December 31, 1998
are as follows:
Year Ending
December 31,
-------------------
1999 $4,910,183
2000 3,556,483
2001 1,794,692
2002 1,317,987
2003 1,209,761
Thereafter 420,080
===============
$13,209,186
===============
The scheduled maturities for 1999 include approximately $1,560,605 in
twelve mortgage investments which are past maturity at December 31, 1998.
Interest payments on most of these loans are current. $479,308 of these Mortgage
Investments were categorized as delinquent over 90 days.
Five mortgage investments with principal outstanding of $1,566,585 had
interest payments overdue in excess of 90 days. Two Mortgage Investments with
principal outstanding of $231,966 were considered impaired at December 31, 1998.
That is interest accruals are no longer recorded thereon.
<PAGE>
Item 3 - Legal Proceedings
In the normal course of business the Partnership may become involved in
various types of legal proceedings such as assignments of rents, bankruptcy
proceedings, appointments of receivers, unlawful detainers, judicial
foreclosures, etc., to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory notes or to protect/recoup its investment from
the real property secured by the deeds. As of the date hereof, the Partnership
is not involved in any legal proceedings other than those that would be
considered part of the normal course of business. Management anticipates that
the ultimate result 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. Also refer to a more precise
discussion under Note 6 of the Financial Statements on Page 27 of this report.
Item 4 - Submission of matters to vote of Security Holders (Partners).
No matters have been submitted to a vote of the Partnership.
Part II
Item 5 - Market for the Registrant Units and Related Partnership Matters.
120,000 units at $100 each (minimum 20 units) were offered through
broker-dealer member firms of the National Association of Securities Dealers on
a best efforts basis (as indicated in Part I item 1). Investors have the
option of withdrawing earnings on a monthly, quarterly, or annual basis or
reinvesting and compounding the earnings. Limited Partners may withdraw from the
Partnership in accordance with the terms of the Partnership Agreement subject to
possible early withdrawal penalties. There is no established public trading
market.
A description of the Partnership units, transfer restrictions and
withdrawal provisions is more fully described under the section entitled
Description of Units and summary of Limited Partnership Agreement, pages 47 to
50 of the Prospectus, a part of the referenced Registration Statement, which is
incorporated by reference.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VII began operations in December 1989. Financial
results for years 1984 to 1989 for prior partnerships are incorporated by
reference to the Prospectus (S-11) dated October 20, 1989, Table III pages 7
through 11 and Supplement No. 3 dated October 2, 1990 to Prospectus dated
October 20, 1989, Table III pages 27 through 33.
<PAGE>
Financial condition and results of operation for the Partnership for three
years to December 31, 1998 were:
<TABLE>
<CAPTION>
Balance Sheet
Assets
December 31,
------------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash $461,544 $520,837 $755,089
Accounts Receivable:
Mortgage Investments secured by Deeds of Trust 13,209,186 13,449,741 12,036,293
Accrued interest and other fees 442,350 427,952 264,495
Advances on Mortgage Investments 39,733 33,154 41,203
Other receivables - Unsecured 242,493 252,422 337,242
Less allowance for losses (787,042) (424,738) (228,647)
Real Estate Owned acquired through foreclosure at
estimated net realizable value 397,396 687,139 1,468,345
Partnership Interest 0 346,017 242,394
-------------- -------------- --------------
$14,005,660 $15,292,524 $14,916,414
-------------- -------------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Partners Capital
December 31,
------------------------------------------------------
1998 1997 1996
-------------- --------------
--------------
Liabilities:
<S> <C> <C> <C>
Note payable - Bank $1,912,663 $2,341,816 $1,175,000
Accounts payable and accrued expenses 12,547 1,845 1,472
Deferred Interest 131,743 69,316 154,598
-------------- -------------- --------------
2,056,953 2,412,977 1,331,070
Partners Capital:
General Partners 11,978 11,978 11,978
Limited Partners subject to redemption 11,936,729 12,867,569 13,573,366
-------------- -------------- --------------
Total Partners Capital 11,948,707 12,879,547 13,585,344
-------------- -------------- --------------
$14,005,660 $15,292,524 $14,916,414
-------------- -------------- --------------
Statement of Income
Gross revenue $1,657,728 $1,623,863 $1,580,500
Expenses 811,157 796,984 721,401
-------------- -------------- --------------
Net Income 846,571 $826,879 $859,099
-------------- -------------- --------------
Net income to General Partners (1%) 8,466 $8,269 $8,591
============== ============== ==============
Net Income to Limited Partners (99%) 838,105 $818,610 $850,508
============== ============== ==============
Net Income per $1,000 invested by Limited
Partners for entire period:
- where income is reinvested and compounded $67 $61 $60
============== ============== ==============
- where partner receives income in monthly
distributions $65 $59 $59
============== ============== ==============
<FN>
Net income in 1996 averaged at an annualized yield of 6.02%. In 1997, the annualized yield was 6.10% and in 1998 the annualized
yield was 6.69%. Average annualized yield since inception through December 31, 1998, was 7.75%.
</FN>
</TABLE>
<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 totaled $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
December 31, 1998, Partners Capital totaled $11,948,707.
At December 31, 1998, the Partnership Mortgage Investments outstanding
totalled $13,209,186. This represents a decline of $240,555 from the 12/31/97
Mortgage Investments balance. This reduction in Mortgage Investments outstanding
as of 12/31/98 was chiefly due to payments of cash withdrawals to the Limited
Partners of $1,856,833, a reduction of Real Estate owned and a reduction in
Partnership Interest of $289,743 and $ 346,017, respectively, a decrease in Note
Payable-Bank of $429,153, reinvestment of earnings of $846,571 and investment of
cash. The ability of the Partnership to invest in new Mortgage Investments
during 1998 was partially offset by withdrawals of income and capital by the
Partners in the amount of $1,856,833 including early withdrawal penalties.
Mortgage investment increased from $12,036,293 from 1996 to $13,449,741 in 1997,
an increase of $1,413,448 chiefly due to the ability of the General Partners to
reduce the net amounts invested in real estate owed (REO) during the twelve
months, by increasing bank credit line borrowing to $2,341,816 as of December
31, 1997 from $1,175,000 as of December 31, 1996, by reinvesting of earnings of
$419,231 and investment of cash. Mortgage Investments decreased slightly, by
$346,348, during the year ended December 31, 1996, from $12,382,641 as of
December 31, 1995, to $12,036,293 as of December 31, 1996. This Mortgage
Investment reduction was due primarily to a reduced usage of the bank line of
credit. The Partnership began funding Mortgage Investments on December 27, 1989,
and as of December 31, 1998, had credited the Partners accounts with income at
an average annualized (compounded) yield of 7.75%.
Currently, general 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 change significantly from the beginning of 1999 over the next
twelve months. As of December 31, 1998 the Partnership Real Estate Owned account
and the investment in Partnership account have been reduced to a combined
balance of $397,396. These accounts had combined balances of $1,033,156 and
$1,710,739 for the years ended December 31, 1997 and 1996, respectively. The
conversion of these non-earning assets to income producing assets will generate
increased income. The overall effect of these developments will allow the
Partnership to increase the annualized yields paid by the Partnership in future
quarters. The General Partners anticipate that the annualized yield for the
coming new year, 1999, will be higher than the previous years.
The Partnership has a line of credit with a commercial bank secured by its
Mortgage Investments to a limit of $3,000,000, at a variable interest rate set
at one half percent above the prime rate. As of December 31, 1998, it has
borrowed $1,912,663. This line of credit expires on March 31, 1999. The
Partnership has successfully negotiated for a replacement line of credit,
effective January, 1999, with another institution for a limit of $3,500,000 at
prime plus .25% (7.75% + .25% = 8%). This facility could increase as the
Partnership capital increases. This added source of funds helped in maximizing
the Partnership yield by allowing the Partnership to minimize the amount of
funds in lower yield investment accounts when appropriate Mortgage Investments
are not currently available. Since 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, 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
December 31, 1998, the Partnership is current with its interest payments on the
line of credit. In 1995, the
<PAGE>
Partnership incurred $163,361 of interest on note payables reflecting a
small increase in the overall average credit balance outstanding from the
previous year. The Partnership still maintained a positive spread between the
cost of borrowing the funds and the interest earned in lending the funds. In
1996, interest payments decreased to $127,454 reflecting the Partnerships
overall smaller average outstanding credit line balance due primarily to a large
number of Mortgage Investment payoffs. For the years ended December 31, 1997 and
1998, interest paid was $198,316 and $170,867 respectively, reflecting an
overall greater average utilization of the credit line from the previous three
years.
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 twenty-one years.
Mortgage Servicing Fees decreased from $97,267 in 1996, to $83,559 in 1997,
primarily due to timing of receipt of payments from borrowers and actual payment
of the Mortgage Servicing Fee. Mortgage Servicing Fees increased in 1998 to
$128,493 from $83,559 in 1997 chiefly due to an increase during the 1998 year of
the monthly loan service fee to 1/12% (1% per year). Asset Management Fees
increased in 1998 from $0 in 1997 and $0 in 1996 to $16,141 in 1998. As for the
two previous years, the General Partners waived this fee to the Partnership. All
other expenses flucuated in a very close range except for Interest on Note
Payable - bank and Provision for Doubtful Accounts and losses on Real Estate
acquired through foreclosure each discussed elsewhere in this Management
Discussion and Analysis of Financial Condition and Results of Operations.
Borrower 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. As of December 31, 1998, there was
no property in foreclosure. Cash is constantly being generated from interest
earnings, late charges, pre-payment penalties, amortization of Mortgage
Investments and pay-off on notes. Currently, cash flow exceeds Partnership
expenses, earnings and capital payout requirements. Excess cash flow will be
invested in new Mortgage Investment opportunities when available, used to reduce
the Partnership credit line or other Partnership business.
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. Management provided $419,437,
$434,495 and $423,054 as provision for doubtful accounts for the years ended
December 31, 1996, 1997 and 1998, respectively. The provision for doubtful
account was increased by $15,058 in 1997, to $434,495 as the selling of REO
accumulated primarily in the California recession of the early to mid 1990s
netted less proceeds than originally anticipated and the General Partners
further refinement of anticipated sales proceeds on remaining REO, collections
of unsecured receivables, and additional provisions for unspecified losses. The
provision for doubtful accounts was decreased by $11,441 to $423,054 in 1998.
This decrease reflected reduced expected REO anticipated losses and improved
collections of secured and unsecured receivables.
The December 1998 issue of Western Economic Developments, published by the
Federal Reserve Bank of San Francisco, said the following about the California
economy:
The pace of economic growth in California was solid in recent months,
despite continued contraction in some major industries. Total payroll employment
rose 3.2 percent on an annual basis in October and November. This is above the
average growth rate for the first eleven months of 1998, but it is below the 3.8
percent pace from last year. Faced by declining export demand and rising import
competition, durable
<PAGE>
goods manufacturers cut employment in November. Manufacturers of computers
and electronic components have been particularly hard hit this year, and
aerospace employment has contracted. However, the pace of job creation has
remained strong in sectors other than manufacturing, and this has helped to
lower the state unemployment rate to 5.7 percent in November.
Californias state and local governments have created new jobs at about a
2.5 percent annual pace this year, a pickup from prior years that is due in part
to improved fiscal capacity. About 21,000 of the 29,000 jobs created this year
were for educators at local schools.
To the Partnership, the above evaluation of the California economy means an
increase in property values, job growth, personal income growth, etc., which all
translates into more loan activity, which of course, is healthy for the
Partnerships lending activity.
The Partnerships interest in land located in East Palo Alto, Ca, was
acquired through foreclosure. The investment is classified as Investment in
Partnership in the Financial Statements. The Partnerships interest is invested
with that of two other Partnerships. The Partnerships basis of $ 0, $346,017
and $242,394 for the years ended December 31, 1998, 1997 and 1996 respectively,
has been invested with that of two other Partnerships. The Partnership had been
attempting to develop property into an approximately 63 units residential
subdivision, (the Development). The proposed Development had gained
significant public awareness as a result of certain environmental, fish and
wildlife, density, and other concerns. Incorporated into the proposed
Development were various mitigation measures which included remediation of
hazardous material existing on the property, and protection of potentially
affected species due to the proximity of the property to the San Francisco
Baylands. These issues and others sparked significant public controversy.
Opposition against and support for the proposed Development existed. Among those
in opposition to the project was Rhone Poulanc, Inc. which is responsible for a
nearby hazardous waste site. Rhone Poulanc, Inc. has been identified as the
Responsible Party for the Arsenic Contamination which affected a portion of the
property. On May 8, 1998, the Partnership, in order to resolve disputes which
arose during the course of the attempts to obtain entitlements for this
Development, entered into agreements with Rhone-Poulanc, Inc which among other
things, restricted the property to non residential uses, provided for
appropriate indemnification and included other considerations including a cash
payment to the Partnership. The Partnership has retained ownership of the
property, which is subject to various deed restrictions, options and or first
rights of refusal. The General Partners are pleased with this outcome to the
residential development attempt. The General Partners may now explore other
available options with respect to alternative uses for the property. In order to
pursue these options, rezoning of the propertys existing residential zoning
classification will be required. The Partnership is continuing to explore
remediation options available to mitigate the pesticide contamination, which
affects the property. This pesticide contamination appears to be the result of
agricultural operations by prior owners, and is unrelated to the Arsenic
Contamination for which Rhone-Poulanc, Inc. remains responsible. The General
Partners do not believe at this time that remediation of the pesticide
contaminants will have a material adverse effect on the financial condition of
the Partnership.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1996, December 31, 1997, and December 31, 1998, the
Partnership made distributions of earnings to Limited Partners after allocation
of syndication costs of, $327,887, $399,379 and $456,358 respectively.
Distribution of Earnings to Limited Partners after allocation of syndication
costs for the years ended December 31, 1996, December 31, 1997, and 1998 to
Limited Partners capital accounts and not withdrawn was $522,621, $419,231, and
$381,747 respectively. As of December 31, 1996, December 31, 1997 and December
31, 1998, Limited Partners electing to withdraw earnings represented 36%, 44%,
53% and 54% of the Limited Partners capital.
<PAGE>
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1996, December 31,
1997, and December 31, 1998, $412,798, $475,348 and $381,458 respectively, were
liquidated subject to the 10% penalty for early withdrawal. These withdrawals
are within the normally anticipated range that the General Partners would expect
in their experience in this and other partnerships. The General Partners expect
that a small percentage of Limited Partners will elect to liquidate their
capital accounts over one year with a 10% early withdrawal penalty. In
originally conceiving the Partnership, the General Partners wanted to provide
Limited Partners needing their capital returned a degree of liquidity.
Generally, Limited Partners electing to withdraw over one year need to liquidate
investment to raise cash. The trend the Partnership is experiencing in
withdrawals by Limited Partners electing a one year liquidation program
represents a small percentage of Limited Partner capital as of December 31,
1996, December 31, 1997, and December 31, 1998, respectively and is expected by
the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1996, December 31, 1997, and
December 31, 1998, $318,902, $737,568 and $1,019,017 respectively, were
liquidated by Limited Partners who have elected a liquidation program over a
period of five years or longer. This ability to withdraw after five years by
Limited Partners has the effect of providing Limited Partner liquidity which the
General Partners then expect a portion of the Limited Partners to avail
themselves of. This has the anticipated effect of the Partnership growing,
primarily through reinvestment of earnings in years one through five. The
General Partners expect to see increasing numbers of Limited Partner withdrawals
in years five through eleven, at which time the bulk of those Limited Partners
who have sought withdrawal have been liquidated. After year eleven, liquidation
generally subsides and the Partnership capital again tends to increase.
Actual liquidation of both capital and earnings from year five (1994)
through year nine (1998) is shown hereunder: Years ended December 31,
<TABLE>
1994 1995 1996 1997 1998
------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings $263,206 270,760 336,341 399,379 456,358
Capital *$340,011 184,157 722,536 1,212,916 1,400,475
============= ============== ============== ============== ===============
Total $603,217 $454,917 $1,058,877 $1,612,295 $1,856,833
============= ============== ============== ============== ===============
</TABLE>
* These amounts represent gross of early withdrawal penalties.
The Year 2000 will be a challenge for the entire world, with respect to the
conversion of existing computerized operations. The Partnership is completing an
assessment of Year 2000 hardware and software issues. This assessment is not yet
fully complete. The Partnership relies on Redwood Mortgage Corp., an affiliate
of the Partnership, and third parties to provide loan and investor services and
other computerized functions effected by Year 2000 computerized operations.
Major services provided to the Partnership by these companies are loan
servicing, accounting and investor services. The vendors that supply the
software for loan servicing have already confirmed compliance with Year 2000
issues. Installation of accounting software that is Year 2000 compliant will
begin after the 1998-year end. The investor servicing software Year 2000
compliance is still under assessment. Existing investor servicing software
maintenance agreements provide for conversion to Year 2000 compliance to be
provided by the vendor. Additionally, the Partnership has contacted several
vendors that provide investor services as a possible alternative to continuing
to provide investors services in house. It would appear that these service
providers would be more expensive than the current in house systems but they do
provide a back-up alternative in the event of our own failure to fully convert.
Hardware utilized by Redwood Mortgage Corporation, is currently being tested to
insure that modifications necessary to be made prior to Year 2000
<PAGE>
can be accomplished. At this juncture, existing hardware appears to be
substantially compliant with Year 2000 issues.
The costs of updating the various software systems will be borne by the
various companies that supply the Partnership with services. Therefore, no
significant capital outlays are anticipated and the Partnership expects only
incidental costs of conversion for Year 2000 issues.
The Partnership is in the business of making Mortgage Investments secured
by real estate. The most important factor in making the Mortgage Investments is
the value of the real estate security. Year 2000 issues have some potential to
effect industries and businesses located in the marketplaces in which the
Partnership places its Mortgage Investments. This would only have an affect on
the Partnership if Year 2000 issues cause a significant downturn in the northern
California economy. In fact, Silicon Valley is located in our marketplace. There
may be significant increased demand for Silicon Valley type services and goods
as companies make ready for the Year 2000 conversion.
Although not fully developed if all or any accounting, loan servicing and
investor services conversions should fail the size and scope of the
Partnerships activities are such that they could be handled at an equal or
higher cost on a manual basis or outsourced to other servicers existing in the
industry while correcting the systems, and are likely to be temporary in nature.
While this would entail some initial set up costs, these costs would likely not
be so significant as to have a material effect upon the Partnership, shifting
portions of daily operations to manual or outsourced systems may result in time
delays. Time delays in providing accurate and pertinent information could
negatively affect customer relations and lead to the potential loss of new loans
and Limited Partner investments.
The foregoing analysis of Year 2000 issues includes forward-looking
statements and predictions about possible or future events, results of
operations and financial condition. As such, this analysis may prove to be
inaccurate because of the assumptions made by the General Partner or the actual
development of future events. No assurance can be given that any of these
forward-looking statements and predictions will ultimately prove to be correct
or even substantially correct.
Various other risks and uncertainties could also affect the Year 2000
analysis causing the effect on the Partnership to be more severe than discussed
above. The General Partners Year 2000 compliance testing cannot guarantee that
all computer systems will function without error beyond the Year 2000. Risks
also exist with respect to Year 2000 compliance by external parties who may have
no relationship to the Partnership or the General Partner, but who have a
significant relationship with one or more third parties, and may have a system
failure that adversely affects the Partnerships ability to conduct business.
While the General Partner is attempting to identify such external parties, no
assurance can be given that it will be able to do so. Furthermore, third parties
with direct relationships with the Partnership, whose systems have been
identified as likely to be Year 2000 compliant, may suffer a breakdown due to
unforeseen circumstances. It is also possible that the information collected by
the General Partner for these third parties regarding their compliance with Year
2000 issues may be incorrect. Finally, it should be noted that the foregoing
discussion of Year 2000 issues assumes that to the extent the General Partners
systems fail, whether because of unforeseen complications or because of third
parties failure, switching to manual operations will allow the Partnership to
continue to conduct its business. While the General Partner believes this
assumption to be reasonable, if it is incorrect, the Partnerships results of
operations would likely be adversely affected.
<PAGE>
Item 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VII, a California Limited Partnership's list of
Financial Statements and Financial Statement schedules:
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VII are
included in Item 8:
Independent Auditors Report,
Balance Sheets - December 31, 1998, and December 31, 1997,
Statements of Income for the three years ended December 31, 1998,
Statements of Changes in Partners Capital for the three years ended
December 31, 1998,
Statements of Cash Flows for the three years ended December 31, 1998,
Notes to Financial Statements - December 31, 1998.
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors
VII are included in Item 8.
Schedule II Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties
Schedule VIII Valuation of Qualifying Accounts
Schedule IX Short Term Borrowings
Schedule XII Mortgage loans on real estate
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
(With Auditors Report Thereon)
<PAGE>
PARODI & CROPPER
CERTIFIED PUBLIC ACCOUNTANTS
3658 Mount Diablo Blvd., Suite #205
Lafayette CA 94549
(925) 284-3590
INDEPENDENT AUDITORS REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VII (A California Limited Partnership) listed in Item 8 on
form 10-K including balance sheets as of December 31, 1998 and 1997 and the
statements of income, changes in partners capital and cash flows for the three
years ended December 31, 1998. These financial statements are the responsibility
of the Partnerships management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REDWOOD MORTGAGE INVESTORS
VII as of December 31, 1998 and 1997, and the results of its operations and cash
flows for the three years ended December 31, 1998 in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
/s/ Bruce Cropper
PARODI & CROPPER
Lafayette, California
March 3, 1999
<PAGE>
<TABLE>
<CAPTION>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
1998 1997
-------------- --------------
<S> <C> <C>
Cash $461,544 $520,837
-------------- --------------
Accounts receivable:
Mortgage Investments, secured by deeds of trust 13,209,186 13,449,741
Accrued Interest on Mortgage Investments 442,350 427,952
Advances on Mortgage Investments 39,733 33,154
Accounts receivables, unsecured 242,493 252,422
-------------- --------------
13,933,762 14,163,269
Less allowance for doubtful accounts 787,042 424,738
-------------- --------------
13,146,720 13,738,531
-------------- --------------
Real estate owned, acquired through foreclosure, held for sale 397,396 687,139
Investment in partnership 0 346,017
-------------- --------------
$14,005,660 $15,292,524
============== ==============
LIABILITIES AND PARTNERS CAPITAL
Liabilities:
Notes payable - bank line of credit $1,912,663 $2,341,816
Accounts payable and accrued expenses 12,547 1,845
Deferred Interest 131,743 69,316
-------------- --------------
2,056,953 2,412,977
-------------- --------------
Partners Capital
Limited partners capital, subject to redemption (Note 4E):
Net of Formation Loan receivable of $253,387 and $341,275 for
1998 and 1997, respectively 11,936,729 12,867,569
General partners capital, 11,978 11,978
-------------- --------------
Total Partners Capital 11,948,707 12,879,547
-------------- --------------
Total Liabilities and Partners Capital $14,005,660 $15,292,524
============== ==============
<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 YEARS ENDED DECEMBER 31, 1998
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
------------- ------------- --------------
Revenues:
<S> <C> <C> <C>
Interest on Mortgage Investments $1,625,573 $1,593,335 $1,527,450
Interest on bank deposits 7,465 7,882 10,228
Late charges 13,632 8,598 17,266
Other 11,058 14,048 25,556
------------- ------------- --------------
------------- ------------- --------------
1,657,728 1,623,863 1,580,500
------------- ------------- --------------
Expenses:
Mortgage servicing fees 128,493 83,559 97,267
Interest on note payable - bank 170,867 198,316 127,454
Clerical costs through Redwood Mortgage 34,173 37,760 40,874
Asset management fee 16,141 0 0
Amortization of organization costs 0 0 368
Provision for doubtful accounts and losses
on real estate acquired through foreclosure 423,054 434,495 419,437
Professional services 19,983 25,107 18,802
Printing, supplies and postage 12,326 11,997 12,466
Other 6,120 5,750 4,733
------------- ------------- --------------
811,157 796,984 721,401
------------- ------------- --------------
Net Income $846,571 $826,879 $859,099
============= ============= ==============
Net income: To General Partners(1%) $8,466 $8,269 $8,591
To Limited Partners (99%) 838,105 818,610 850,508
============= ============= ==============
$846,571 $826,879 $859,099
============= ============= ==============
Net income per $1,000 invested by Limited
Partners for entire period:
-where income is reinvested and compounded $67 $61 $ 60
============= ============= ==============
-where partner receives income in monthly distributions $65 $59 $ 59
============= ============= ==============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS CAPITAL
---------------------------------------------------------------------------
LIMITED PARTNERS CAPITAL
---------------------------------------------------------------------------
Capital
Account- Unallocated Formation
Limited Syndication Loan
Partners Costs Receivable Total
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $14,216,032 $(13,588) $(517,051) $13,685,393
Formation Loan collections 0 0 62,225 62,225
Net income 850,508 0 0 850,508
Allocation of syndication costs (13,588) 13,588 0 0
Early withdrawal penalties (37,345) 0 25,663 (11,682)
Partners withdrawals (1,013,078) 0 0 (1,013,078)
-------------- --------------- --------------- --------------
Balances at December 31, 1996 $14,002,529 $0 $(429,163) $13,573,366
Formation Loan collections 0 0 60,223 60,223
Net Income 818,610 0 0 818,610
Early withdrawal penalties (40,258) 0 27,665 (12,593)
Partners withdrawals (1,572,037) 0 0 (1,572,037)
-------------- --------------- --------------- --------------
Balances at December 31, 1997 $13,208,844 $0 $(341,275) $12,867,569
Formation Loan collections 0 0 66,908 66,908
Net Income 838,105 0 0 838,105
Early withdrawal penalties (30,529) 0 20,980 (9,549)
Partners withdrawals (1,826,304) 0 0 (1,826,304)
-------------- --------------- --------------- --------------
Balances at December 31, 1998 $12,190,116 $0 $(253,387) $11,936,729
============== =============== =============== ==============
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
PARTNERS CAPITAL
------------------------------------------------------------------------------
GENERAL PARTNERS CAPITAL
----------------------------------------------------------
Capital Account Unallocated Total
General Partners Syndication Costs Partners
Total Capital
------------------ ------------------- ------------ ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $11,978 $(137) $11,841 $13,697,234
Formation Loan collections 0 0 0 62,225
Net income 8,591 0 8,591 859,099
Allocation of syndication costs (137) 137 0 0
Early withdrawal penalties 0 0 0 (11,682)
Partners withdrawals (8,454) 0 (8,454) (1,021,532)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1996 $11,978 $0 $11,978 $13,585,344
Formation Loan collections 0 0 0 60,223
Net income 8,269 0 8,269 826,879
Early withdrawal penalties 0 0 0 (12,593)
Partners withdrawals (8,269) 0 (8,269) (1,580,306)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1997 $11,978 $0 $11,978 $12,879,547
Formation Loan collections 0 0 0 66,908
Net income 8,466 0 8,466 846,571
Early withdrawal penalties 0 0 0 (9,549)
Partners withdrawals (8,466) 0 (8,466) (1,834,770)
------------------ ------------------- ------------ ----------------
Balances at December 31, 1998 $11,978 $0 $11,978 $11,948,707
================== =================== ============ ================
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------------- ---------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $846,571 $826,879 $859,099
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of organization costs 0 0 368
Provision for doubtful accounts 362,304 374,499 204,398
Provision for losses on real estate held for sale 60,750 59,996 215,039
Early withdrawal penalty credited to income (9,549) (12,593) (11,682)
(Increase) decrease in accrued interest & advances (20,977) (155,408) 745,717
Increase (decrease) in accounts payable and accrued expenses 10,702 373 0
(Increase) decrease in amount due from or to Redwood Mortgage 0 0
Increase (decrease) in deferred interest on Mortgage Investments 62,427 (85,282) 154,598
-------------- ---------------- -------------
Net cash provided by operating activities 1,312,228 1,008,464 2,167,537
-------------- ---------------- -------------
Cash flows from investing activities:
Principal collected on mortgage investments 6,529,324 6,278,832 8,923,339
Mortgage Investments made (6,398,769) (7,841,128) (9,099,688)
Additions to Real Estate held for sale 323,720 (202,645) (147,733)
Dispositions of Real Estate held for sale (55,532) 979,115 200,250
Proceeds from Partnership 522,212 0 0
Investment in Partnership (105,390) (103,623) (19,149)
Proceeds from unsecured Accounts Receivable 9,929 0 0
-------------- ---------------- -------------
Net cash provided by (used in) investing activities 825,494 (889,449) (142,981)
-------------- ---------------- -------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank (429,153) 1,166,816 (825,000)
Formation loan collections 66,908 60,223 62,225
Partners withdrawals (1,834,770) (1,580,306) (1,021,532)
-------------- ---------------- -------------
Net cash provided by (used in) financing activities (2,197,015) (353,267) (1,784,307)
-------------- ---------------- -------------
Net increase (decrease) in cash (59,293) (234,252) 240,249
Cash - beginning of period 520,837 755,089 514,840
-------------- ---------------- -------------
Cash - end of period $461,544 $520,837 $755,089
============== ================ =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 Mortgage
Investments secured by Deeds of Trust on California real estate. Mortgage
Investments are being arranged and serviced by Redwood Mortgage Corp., an
affiliate of the General Partners. At September 30, 1992, the offering had been
closed with contributed capital totalling $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,
in ten installments of principal, 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 December 31, 1998, $660,982 including $124,123 in
early withdrawal penalties, had been repaid leaving a balance of $253,387. The
Formation Loan, which is due from an affiliate of the General Partners, has
been deducted from Limited Partners capital in the balance sheet. As amounts
are collected from Redwood Mortgage, the deduction from capital will be reduced.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.
B. Management Estimates
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, including the valuation of impaired
mortgage investments, and the valuation of real estate acquired through
foreclosure. Actual results could differ significantly from these estimates.
C. Mortgage Investments, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the Mortgage
Investments to maturity, i.e., held for long-term investment. They are therefore
valued at cost for financial statement purposes with interest thereon being
accrued by the simple interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118
(effective January 1, 1995) provide that if the probable ultimate recovery of
the carrying amount of a mortgage investment, with due consideration for the
fair value of collateral, is less than the recorded investment, and related
amount due and the impairment is considered to be other than temporary, the
carrying amount of the investment (cost) shall be reduced to the present value
of future cash flows. The adoption of these statements did not have a material
effect on the financial statements of the Partnership because that was
substantially the valuation method previously used on impaired loans.
At December 31, 1998, 1997 and 1996, reductions in the cost of Mortgage
Investments categorized as impaired by the Partnership totalled $38,634, $0 and
$9,595, respectively. The reduction in stated value was accomplished by
increasing the allowance for doubtful accounts.
As presented in Note 10 to the financial statements as of December 31,
1998, the average mortgage investment to appraised value of security at the time
the loans were consummated was 61.18%. When a loan is valued for impairment
purposes, an updating is made in the valuation of collateral security. However,
such a low loan to value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the propertys estimated fair
value, less estimated costs to sell.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of December 31, 1998 and 1997:
December 31,
-----------------------------------------------
1998 1997
--------------- ---------------
Costs of properties $765,986 $906,499
Reduction in value (348,590) (219,360)
REO prior lien (20,000) 0
--------------- ---------------
Fair value reflected in
financial statements $397,396 $687,139
=============== ===============
Effective January 1, 1996, the Partnership adopted the provisions of
statement No 121 (SFAS 121) of the Financial Accounting Standards Board,
Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be disposed of. The adoption of SFAS 121 did not have a material impact on the
Partnerships financial position because the methods indicated were essentially
those previously used by the Partnership.
F. Investment in Partnership (see note 5)
G. Income Taxes
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.
H. Organization and Syndication Costs
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 of $10,102 were capitalized and were
amortized over a five year period. Syndication costs of $415,692 were charged
against partners capital and were allocated to individual partners consistent
with the Partnership Agreement.
I. Allowance for Doubtful Accounts
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, with due consideration to
collateral value, to provide for unrecoverable accounts receivable, including
impaired mortgage investments, unspecified mortgage investments, accrued
interest and advances on mortgage investments, and other accounts receivable
(unsecured). The composition of the allowance for doubtful accounts as of
December 31, 1998 and 1997 was as follows:
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
December 31,
-----------------------------------------------
1998 1997
--------------- ---------------
Impaired mortgage investments $38,634 $0
Unspecified mortgage investments 606,299 284,738
Accounts receivable, unsecured 142,109 140,000
--------------- ---------------
$787,042 $424,738
=============== ===============
J. Net Income Per $1,000 Invested
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 select other options. However, the net income per $1,000 average invested has
approximated those reflected for those whose investments and options have
remained constant.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. Mortgage Brokerage Commissions
For services in connection with the review, selection, evaluation,
negotiation and extension of Mortgage Investments 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. Loan brokerage fees for 1998 and 1997 totalled $166,752 and
$83,559, respectively.
B. Mortgage Servicing Fees
Monthly mortgage servicing fees 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 Mortgage Investment is located
are paid to Redwood Mortgage Corp. Mortgage servicing fees of $128,493, $83,559
and $97,267 were incurred for years 1998, 1997 and 1996, respectively.
C. Asset Management Fee
The General Partners receive a monthly fee for managing the Partnerships
Mortgage Investment portfolio and operations of up to 1/32 of 1% of the net
asset value (3/8 of 1% annual). Asset management fees were $16,141 during 1998.
No management fees were incurred for either 1997 or 1996.
D. Other Fees
The Partnership Agreement provides for other fees such as reconveyance,
Mortgage assumption and Mortgage 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%.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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. Such reimbursements are reflected as expenses in the
Statements of Income.
G. General Partners Contributions
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
Partner 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 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 Partners Capital along with the original investment.
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.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 have
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 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.
Furthermore, no more than 20% of the total Limited Partners capital accounts
outstanding at the beginning of any year shall be liquidated during any calendar
year.
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
monthly, 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. Beginning with fiscal years after
1993, the guarantee no longer applies.
NOTE 5 - INVESTMENT IN PARTNERSHIP
The Partnerships interest in land located in East Palo Alto, CA., was
acquired through foreclosure. The Partnerships interest was invested with that
of two other Partnerships. The Partnerships had been attempting to develop the
property into single family residences. Significant community resistance, as
well as environmental, and fish and wildlife concerns affected efforts to obtain
the required approvals. The Partnership, in resolving disputes which arose
during the course of the Partnerships attempt to obtain entitlements to develop
the property, entered into agreements on May 8, 1998 with Rhone-Poulanc, Inc.
These agreements, among other things, restrict the property to non-residential
uses, provide for appropriate indemnifications, and include other consideration
including the payment of cash.
<PAGE>
The Partnership still REDWOOD MORTGAGE INVESTORS VII (A California Limited
Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 retains liability
for the remediation of pesticide contamination effecting the property.
Investigation of remediation options are ongoing. At this time management does
not believe that remediation of the pesticide contaminants will have a material
adverse effect on the financial condition of the Partnership. As of December 31,
1998, the Partnership had recovered $70,805 in excess of its costs.
NOTE 6 - LEGAL PROCEEDINGS
Legal actions against borrowers and other involved parties have been
initiated by the Partnership to help assure payments against unsecured accounts
receivable totalling $242,493 at December 31, 1998. The Partnership is a
defendant, along with numerous defendants including a developer, contractor and
other lenders, in a lawsuit involving the Partnerships attempt to recover its
investment in Real Estate acquired through foreclosure.
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 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its Mortgage
Investment portfolio of up to $3,000,000 at .50% over prime. The balances
outstanding as of December 31, 1998 and 1997 were $1,912,663, and $2,341,816,
respectively, and the interest rate at December 31, 1998 was 8.25% (7.75% prime
+ .50%).
The line of credit expired in 1998 but was formally extended to March 31,
1999. In 1999 a new line of credit has been secured with another institution.
The new borrowing limit is $3,500,000 at prime +.25%. (7.75% + .25% = 8.00%)
NOTE 8 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
--------------------------------------------
1998 1997
---------------- ---------------
Net assets - Partner Capital
per financial statements $11,948,707 $12,879,547
Formation loan receivable 253,387 341,275
Allowance for doubtful accounts 787,042 424,738
---------------- ---------------
Net assets tax basis $12,989,136 $13,645,560
================ ===============
In 1998, approximately 68% of taxable income was allocated to tax exempt
organizations i.e., retirement plans. Such plans do not have to file income tax
returns unless their unrelated business income exceeds $1,000. Applicable
amounts become taxable when distribution is made to participants.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) The Carrying Value of Mortgage Investments - (see note 2 (c)) is
$13,209,186. The December 31, 1998 fair value of these investments of
$13,278,844 is estimated based upon projected cash flows discounted at the
estimated current interest rates at which similar loans would be made. The
applicable amount of the allowance for doubtful accounts along with accrued
interest and advances related thereto should also be considered in evaluating
the fair value versus the carrying value.
NOTE 10 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The Mortgage Investments are secured by recorded deeds of trust. At
December 31, 1998, there were 53 Mortgage Investments outstanding with the
following characteristics:
Number of Mortgage Investments outstanding 53
Total Mortgage Investments outstanding $13,209,186
Average Mortgage Investment outstanding $249,230
Average Mortgage Investment as percent of total 1.89%
Average Mortgage Investment as percent of Partners Capital 2.09%
Largest Mortgage Investment outstanding $1,050,000
Largest Mortgage Investment as percent of total 7.95%
Largest Mortgage Investment as percent of Partners Capital 8.79%
Number of counties where security is located(all California) 14
Largest percentage of Mortgage Investments in one county 22.25%
Average Mortgage Investment to appraised value of security
at time loan was consummated 61.18%
Number of Mortgage Investments in foreclosure -0-
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
The following categories of mortgage investments are pertinent at December
31, 1998 and 1997:
December 31,
------------------------------------------
1998 1997
----------------- ---------------
First Trust Deeds $8,638,976 $6,810,113
Second Trust Deeds 4,188,401 5,719,369
Third Trust Deeds 181,808 720,258
Fourth Trust Deeds 200,001 200,001
----------------- ---------------
Total mortgage investments 13,209,186 13,449,741
Prior liens due other lenders 12,728,867 17,951,579
----------------- ---------------
Total debt $25,938,053 $31,401,320
================= ===============
Appraised property value at time $42,393,561 $52,077,885
of loan ================= ===============
Total investments as a percent of
appraisals 61.18% 60.30%
================= ===============
Investments by Type of Property
Owner occupied homes $746,334 $1,104,742
Non-Owner occupied homes 1,691,016 1,464,596
Apartments 897,292 1,666,916
Commercial 9,874,544 9,213,487
================= ===============
$13,209,186 $13,449,741
================= ===============
Scheduled maturity dates of mortgage investments as of December 31, 1998
are as follows:
Year Ending
December 31,
-------------------
1999 $4,910,183
2000 3,556,483
2001 1,794,692
2002 1,317,987
2003 1,209,761
Thereafter 420,080
=================
$13,209,186
=================
The scheduled maturities for 1999 include approximately $1,560,605 in
twelve mortgage investments which are past maturity at December 31, 1998.
Interest payments on most of these loans are current. $479,308 of these Mortgage
Investments were categorized as delinquent over 90 days.
Five mortgage investments with principal outstanding of $1,566,585 had
interest payments overdue in excess of 90 days. Two Mortgage Investments with
principal outstanding of $231,966 were considered impaired at December 31, 1998.
That is interest accruals are no longer recorded thereon.
<PAGE>
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
The cash balance at December 31, 1998 of $461,544 were in three banks with
an interest bearing balance totalling $244,294. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $165,573. The Partnerships main
bank is the same financial institution that has provided the Partnership with
the $3,000,000 limit line of credit. At December 31, 1998, draw down against
this facility was $1,912,663. As and when deposits in the Partnerships bank
accounts increase significantly beyond the insured limit, the funds are either
placed on new Mortgage Investments or used to pay-down on the line of credit
balance.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES. Rule 12-03
Column A Column B Column C Column D Column E
Name of Debtor Balance Beginning Additions Deductions Balance at end of period
of period 12/31/97 (1) (2) (1) (2)
Amounts Amounts Current Not Current
collected written off 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Redwood Mortgage $341,275 $0.00 $66,908 $20,980* $0.00 $253,387
<FN>
The above schedule represents the Formation Loan borrowed by Redwood Mortgage from the Partnership to pay for the selling
commissions on Units. It is an unsecured loan and will not bear interest. It is being repaid to the Partnership in ten annual
installments of principal only which began January 1, 1992.
* The amount written off represents the proportionate amount of early withdrawal penalties allocated to the Formation
Loan as provided for in the Prospectus.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
REDWOOD MORTGAGE INVESTORS VII
Column A Column B Column C Column D Column E
Description Balance at Additions Deductions Balance at
------------------------------------
beginning of (1) (2) Describe End of Period
of period Charged to Charged to *
Costs & Expenses Other accounts -
Describe
Year Ended
12/31/98
Deducted from
Asset accounts:
Allowance for
<S> <C> <C> <C> <C> <C>
Doubtful accts $424,738 $362,304 $0 $0 $787,042
Cumulative
write-down of
Real Estate held
for sale (REO) $219,360 $60,750 $0 $(68,480) $348,590
--------------- ------------------ ------------------- ---------------- ----------------
Total $644,098 $423,054 $0 $(68,480) $1,135,632
============== =================== =================== ================ ================
<FN>
(*) represents net loss or net (gain) on Mortgage Investments and real estate held for sale.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IX
SHORT TERM BORROWINGS
REDWOOD MORTGAGE INVESTORS VII
RULE 12-10
Column A Column B Column C Column D Column E Column F
Category of Aggregate Balance at End Weighted Average Maximum Amount Average Amount Weighted Average
Short-Term Borrowings of Period Interest Rate Outstanding Outstanding Interest Rate
during
During the Period During the Period the period
<S> <C> <C> <C> <C> <C>
Year-Ended 12/31/98 $1,912,663 8.99% $2,662,663 $1,899,987 8.99%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XII
MORTGAGE INVESTMENTS ON REAL ESTATE.
RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Descp. Interest Final Periodic Prior Liens Face Amt. of Carrying Principal Type of Geographic
Rate Maturity Payment Mortgage amount of amt of Lien County
Date Terms Investments Mortgage Mortgage Location
(original Investments Investments
amount) subject to
Delinq.
Prin. or
Interest
========= ======== ========= =========== ============== =============== ============== ============== ========= ==============
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Res 13.75 10/01/96 916.67 369,163.00 80,000.00 80,000.00 0.00 2nd Mtg San Mateo
Res 13.75 10/01/96 988.28 0.00 86,250.00 86,250.00 0.00 1st Mtg Santa Clara
Res 12.50 02/01/07 369.76 0.00 30,000.00 22,598.41 0.00 1st Mtg Santa Cruz
Res 10.00 04/17/97 132.08 126,800.00 15,850.00 15,774.68 0.00 2nd Mtg Sonoma
Comm 10.00 08/06/02 400.63 17,382.00 46,803.50 43,409.17 0.00 2nd Mtg Alameda
Comm 14.50 01/01/00 4,926.06 354,077.00 400,002.40 400,002.42 0.00 2nd Mtg Contra Costa
Res 12.00 01/10/04 150.00 208,000.00 15,000.00 6,773.07 0.00 2nd Mtg San Mateo
Apts 6.50 05/01/06 540.83 89,904.00 75,000.00 96,716.11 8,112.45 2nd Mtg Sacramento
Res 12.75 07/01/08 370.90 236,164.00 29,700.00 24,529.12 0.00 2nd Mtg San Mateo
Res 13.50 09/01/08 1,647.07 106,044.00 126,861.90 107,422.56 0.00 2nd Mtg Contra Costa
Comm 12.00 09/01/03 848.61 0.00 82,500.00 80,397.94 0.00 lst Mtg Alameda
Comm 10.00 09/01/03 1,167.00 0.00 133,000.00 122,189.51 0.00 lst Mtg San Mateo
Comm 12.00 11/01/98 2,057.23 5,635.00 200,000.00 35,656.54 0.00 2nd Mtg Sacramento
Res 8.00 05/01/09 753.50 0.00 81,825.00 64,886.89 0.00 lst Mtg Alameda
Comm 10.00 12/01/98 647.21 0.00 73,750.00 72,766.69 3,883.26 lst Mtg Stanislaus
Comm 14.00 01/01/00 2,760.29 891,453.00 200,001.20 200,001.20 0.00 4th Mtg Contra Costa
Comm 10.00 12/01/98 3,619.98 0.00 412,500.00 406,541.72 18,099.90 lst Mtg Alameda
Comm 7.00 12/01/03 575.74 281,250.00 49,586.38 40,560.78 2,878.70 2nd Mtg Alameda
Comm 12.00 02/01/99 3,420.76 0.00 335,638.30 335,638.30 0.00 1st Mtg Santa Clara
Land 12.00 07/01/96 1,352.50 679,258.00 13,250.00 135,250.00 0.00 3rd Mtg Sonoma
Land 13.75 12/20/98 7,366.08 338,793.00 757,144.25 232,315.57 14,732.16 2nd Mtg Stanislaus
Apts 7.00 02/10/05 234.06 80,250.00 40,125.00 40,125.00 0.00 2nd Mtg San Francisco
Apts 11.50 04/01/05 453.88 0.00 550,000.00 45,833.34 0.00 1st Mtg San Francisco
Comm 9.00 05/10/02 670.52 0.00 83,333.33 81,033.44 0.00 lst Mtg Shasta
Res 8.00 09/27/00 530.79 106,333.00 79,619.05 77,679.33 0.00 2nd Mtg Monterey
Comm 12.00 12/31/01 10,106.91 5,492,794.00 955,000.00 1,010,691.25 0.00 2nd Mtg Santa Clara
Land 14.00 02/01/97 3,822.50 0.00 382,250.00 235,381.46 0.00 lst Mtg Santa Clara
Res 8.00 09/18/03 87.56 0.00 11,932.83 11,688.87 0.00 1st Mtg Sonoma
Res 8.00 09/30/03 89.71 0.00 12,225.92 11,984.10 0.00 lst Mtg Sonoma
Comm 12.00 02/01/99 124.00 312,000.00 12,000.00 12,000.00 0.00 2nd Mtg Santa Clara
Res 13.00 12/01/99 704.17 0.00 65,000.00 65,000.00 248.00 1st Mtg Ventura
Res 13.00 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 lst Mtg Ventura
Res 13.00 12/01/99 140.83 0.00 65,000.00 13,000.00 0.00 lst Mtg Ventura
Res 14.00 01/01/98 1,983.34 0.00 340,000.00 170,000.00 0.00 lst Mtg Alameda
Land 12.00 01/01/00 9,500.00 89,692.00 950,000.00 950,000.00 28,500.00 2nd Mtg Stanislaus
Land 12.00 05/01/99 2,354.00 0.00 235,400.00 235,400.00 0.00 lst Mtg San Mateo
Comm 7.00 07/01/02 1,131.11 0.00 146,666.66 143,544.38 0.00 lst Mtg Contra Costa
Comm 12.00 07/01/02 10,500.00 0.00 1,350,000.00 1,050,000.00 0.00 lst Mtg San Francisco
Res 12.00 01/01/99 6,726.86 250,668.00 700,000.00 679,413.14 0.00 2nd Mtg Monterey
Res 9.00 09/01/07 154.77 61,645.00 12,217.98 11,196.31 0.00 2nd Mtg San Mateo
Land 12.00 05/01/99 460.00 235,400.00 46,000.00 46,000.00 0.00 2nd Mtg San Mateo
Res 12.00 05/01/99 5,773.22 0.00 1,225,000.00 601,484.36 0.00 lst Mtg San Francisco
Comm 12.00 01/01/03 9,736.79 0.00 1,075,000.00 942,939.04 0.00 lst Mtg Alameda
Land 11.50 09/01/99 3,833.33 0.00 400,000.00 400,000.00 0.00 lst Mtg Stanislaus
Land 12.00 03/01/00 4,788.00 0.00 478,800.00 478,800.00 0.00 lst Mtg San Mateo
Land 11.00 07/01/99 2,216.74 2,074,689.00 400,000.00 234,024.90 0.00 2nd Mtg San Francisco
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Descp. Interest Final Periodic Prior Liens Face Amt. of Carrying Principal Type of Geographic
Rate Maturity Payment Mortgage amount of amount of Lien County
Date Terms Investments Mortgage Mortgage Location
(original Investments Investments
amount) subject to
Delinq.
Principal or
Interest
========= ======== ========= =========== ============== =============== ============== ============== ========= ==============
<S> <C> <C> <C> <C> <C> <C> <C>
Apts 12.00 08/01/99 7,010.66 0.00 725,000.00 714,617.48 0.00 lst Mtg Marin
Comm 11.50 12/05/01 4,791.67 0.00 500,000.00 500,000.00 0.00 lst Mtg Stanislaus
Land 13.00 10/01/00 10,291.67 0.00 950,000.00 950,000.00 0.00 lst Mtg Solano
Res 11.00 10/01/01 2,603.33 0.00 284,000.00 284,000.00 0.00 lst Mtg Stanislaus
Land 11.50 02/01/00 4,791.67 0.00 500,000.00 500,000.00 0.00 lst Mtg Stanislaus
Res 10.00 08/01/97 388.67 309,872.00 45,000.00 46,558.20 0.00 3rd Mtg San Mateo
Res 15.25 04/01/95 588.29 11,601.00 45,800.00 44,111.14 0.00 2nd Mtg Solano
------------ -------------- --------------- -------------- --------------
$141,741.06 $12,728,867.00 $15,975,033.70 $13,209,186.42 $76,454.47
<FN>
Notes:
Mortgage Investments classified as impaired Mortgage Investments had principal balances totalling $231,966 at
December 31, 1998. Impaired Mortgage Investments are defined as Mortgage Investments where the costs of related
balances exceeds the anticipated fair value less costs to collect. Accrued interest is no longer recorded thereon.
Amounts reflected in column G (carrying amount of Mortgage Investments) represents both costs and the tax basis of the
Mortgage Investments.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Schedule XII
Reconciliation of carrying amount (cost) of Mortgage Investments at close of periods
Year ended December 31,
----------------------------------------------------------
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Balance at beginning of year $13,449,741 $12,036,293 $12,382,641
--------------- --------------- --------------
Additions during period:
New Mortgage Investments 6,398,769 7,841,128 9,099,688
Other 0 0 0
--------------- --------------- --------------
Total Additions 6,398,769 7,841,128 9,099,688
--------------- --------------- --------------
Deduction during period:
Collections of principal 6,529,324 6,278,832 8,923,339
Foreclosures 110,000 148,848 492,697
Cost of Mortgage Investments sold 0 0 0
Amortization of Premium 0 0 0
Other 0 0 30,000
--------------- --------------- --------------
Total Deductions 6,639,324 6,427,680 9,446,036
---------------
--------------- --------------
Balance at close of year $13,209,186 $13,449,741 $12,036,293
=============== =============== ==============
</TABLE>
<PAGE>
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Partnership has neither changed its accountants nor does it have any
disagreement on any matter of accounting principles or practices of financial
statement disclosures.
Part III
Item 10 - Directors and Executive Officers of the Registrant
The Partnership has no Officers or Directors. Rather, the activities of the
Partnership are managed by the three General Partners of which two individuals
are D. Russell Burwell and Michael R. Burwell. The third General Partner is
Gymno Corporation, a California corporation, formed in 1986. The Burwells are
the two shareholders of Gymno Corporation, a California corporation, on an equal
(50-50) basis.
<PAGE>
Item 11 - Executive Compensation
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP
As indicated above in Item 10, the Partnership has no officers or
directors. The Partnership is managed by the General Partners.
There are certain fees and other items paid to management and related parties.
A more complete description of management compensation is found in the
Prospectus, pages 12-13, under the section Compensation of the General partners
and the Affiliates, which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and
Affiliates for services rendered during the year ended December 31, 1998. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
Entity Receiving Description of Compensation and Amount
Compensation Services Rendered
- ------------------------- ----------------------------------------- ------------
I. Redwood Mortgage Mortgage Servicing Fee for servicing
Mortgage Investments $128,493
General Partners &/or
Affiliate Asset Management Fee for managing assets $16,141
General Partners 1% interest in profits $8,466
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 Mortgage Brokerage Commissions for services in
connection with the review, selection, evaluation,
negotiation, and extension of the Mortgage Investments
paid by the borrowers and not by the
Partnership $166,752
Redwood Mortgage Processing and Escrow Fees for services in
connection with notary, document preparation,
credit investigation, and escrow fees payable by
the borrowers and not by the Partnership $3,383
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. $34,173
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The General Partners are to own a combined total of 1% of the Partnership
including a 1% portion of income and losses.
Item 13 - Certain Relationships and Related Transactions
Refer to footnote 3 of the notes to financial statements in Part II item 8
which describes related party fees and data.
Also refer to the Prospectus dated October 20, 1989 (incorporated herein by
reference) on page 12 Compensation of General Partners and Affiliates and page
14 Conflicts of Interes.
Part IV
Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K.
A. Documents filed as part of this report are incorporated:
1. In Part II, Item 8 under A - Financial Statements.
2. The Financial Statement Schedules are listed in Part II - Item 8
under B - Financial Statement Schedules.
<PAGE>
3. Exhibits.
Exhibit No. Description of Exhibits
- ------------ --------------------------
3.1 Limited Partnership Agreement
3.2 Form of Certificate of Limited Partnership Interest
3.3 Certificate of Limited Partnership
10.1 Escrow Agreement
10.2 Servicing Agreement
10.3 (a) Form of Note secured by Deed of Trust which provides for
principal and interest payments.
(b) Form of Note secured by Deed of Trust which provides
principal and interest payments and right of assumption
(c) Form of Note secured by Deed of Trust which provides
for interest only payments
(d) Form of Note
10.4 (a) Deed of Trust and Assignment of Rents to accompany
Exhibits 10.3 (a), and (c)
(b) Deed of Trust and Assignment of Rents to accompany
Exhibit 10.3 (b)
(c) Deed of Trust to accompany Exhibit 10.3 (d)
10.5 Promissory Note for Formation Loan
10.6 Agreement to Seek a Lender
24.1 Consent of Parodi & Cropper
24.2 Consent of Stephen C. Ryan & Associates.
All of these exhibits were previously filed as the exhibits to Registrants
Statement on Form S-11 (Registration No. 33-30427 and incorporated by reference
herein).
B. Reports of Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
C. See A (3) above.
D. See A (2) above. Additional reference is made to the prospectus (S-11
filed as part of the Registration Statement) dated October 20, 1989 to pages 65
through 67 and Supplement #5 dated February 14, 1992 for financial data related
to Gymno Corporation, a General Partner.
<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 23rd day of March,
1999.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
---------------------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
---------------------------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
---------------------------------------------
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 23rd day of March, 1999.
Signature Title Date
/S/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell General Partner March 23, 1999
/S/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell General Partner March 23, 1999
/S/ D. Russell Burwell
- ---------------------------------
D. Russell Burwell President of Gymno Corporation, March 23, 1999
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ---------------------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 23, 1999
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation
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