FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Period Ended September 30, 2001
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Commission file number 000-19992
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REDWOOD MORTGAGE INVESTORS VII
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(exact name of registrant as specified in its charter)
California 94-3094928
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(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification No.
650 El Camino Real, Suite G, Redwood City, CA 94063
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(address of principal executive office)
(650) 365-5341
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO
----------- -------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO NOT APPLICABLE X
--------- --------- ---------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest date.
NOT APPLICABLE
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
SEPTEMBER 30, 2001 (unaudited)
AND DECEMBER 31, 2000 (audited)
ASSETS
September 30, December 31,
2001 2000
(unaudited) (audited)
------------- ------------
Cash $301,083 269,000
Accounts receivable:
Loans, secured by deeds of trust 10,314,061 12,794,297
Accrued Interest on loans 578,448 363,321
Advances on loans 46,326 29,825
Accounts receivables, unsecured 177,481 188,421
------------- -------------
11,116,316 13,375,864
Less allowance for doubtful accounts 871 850,548
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10,245,266 12,525,316
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Real estate owned, acquired through
foreclosure, held for sale 987,957 816,094
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$11,534,306 $13,610,410
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Notes payable - bank line of credit $1,902,000 $3,500,000
Accounts payable and accrued expenses 12,797 4,102
------------- -------------
Total liabilities 1,914,797 3,504,102
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Partners' capital
Limited Partners' capital, subject to redemption
Net of Formation Loan receivable of $0 and
$75,612 for 2001 and 2000, respectively 9,607,531 10,094,330
General Partners' capital 11,978 11,978
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Total partners' capital 9,619,509 10,106,308
-------------- -------------
Total liabilities and partners' capital $11,534,306 $13,610,410
============== =============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001
AND SEPTEMBER 30, 2000 (unaudited)
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
----------------- ----------------- ----------------- ----------------- --
Revenues:
Interest on loans $888,060 $1,008,205 $256,016 $355,633
Interest on bank deposits 3,312 1,391 901 429
Late charges 6,478 2,657 3,394 1,553
Other 3,865 14,412 1,001 4,971
----------------- ----------------- ----------------- ----------------- --
901,715 1,026,665 261,312 362,586
----------------- ----------------- ----------------- ----------------- --
Expenses:
Loan servicing fees 55,195 70,472 15,369 28,469
Interest on note payable - bank 104,741 170,181 12,542 86,314
Clerical costs through Redwood
Mortgage Corp. 29,569 20,310 9,190 6,385
Asset management fee 28,176 28,565 9,208 10,065
Provision for doubtful accounts and
losses on real estate acquired
through foreclosure 20,503 14,040 -268 - 1,594
Professional services 30,391 28,324 10,042 7,474
Printing, supplies and postage 7,681 8,198 2,148 3,245
Other 4,004 3,373 0 259
----------------- ----------------- ----------------- ----------------- --
280,260 343,463 58,231 140,617
----------------- ----------------- ----------------- ----------------- --
Net Income $621,455 $683,202 $203,081 $221,969
================= ================= ================= ================= ==
Net income: To General Partners (1%) $6,215 $6,832 $2,031 $2,220
To Limited Partners (99%) 615,240 676,370 201,050 219,749
----------------- ----------------- ----------------- ----------------- --
$621,455 $683,202 $203,081 $221,969
================= ================= ================= ================= ==
Net income per $1,000 invested by Limited Partners for entire period:
- where income is reinvested and
compounded $63.11 $63.29 $20.61 $20.61
================= ================= ================= ================= ==
- where partner receives income in
monthly distributions $61.41 $61.58 $20.47 $20.47
================= ================= ================= ================= ==
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (unaudited)
PARTNERS' CAPITAL
-----------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------
Capital Total
Account Formation Limited
Limited Loan Partners'
Partners Receivable Capital
--------------- --------------- --------------
Balances at January 1, 1998 $13,208,844 $ -341,275 $12,867,569
Formation Loan collections 0 66,908 66,908
Net Income 838,105 0 838,105
Early withdrawal penalties - 30,529 20,980 - 9,549
Partners' withdrawals -1,826,304 0 - 1,826,304
--------------- --------------- --------------
Balances at December 31, 1998 $12,190,116 $ -253,387 $11,936,729
Formation Loan collections 0 75,138 75,138
Net Income 900,485 0 900,485
Early withdrawal penalties - 12,750 - 5,803
18,553
Partners' withdrawals -1,909,231 0 -1,909,231
--------------- --------------- --------------
Balances at December 31, 1999 $11,162,817 $-165,499 $10,997,318
Formation Loan collections 0 79,505 79,505
Net Income 891,145 0 891,145
Early withdrawal penalties -15,107 10,382 -
4,725
Partners' withdrawals -1,868,913 0 - 1,868,913
--------------- --------------- --------------
Balances at December 31, 2000 $10,169,942 $-75,612 $10,094,330
Formation Loan collections 0 71,461 71,461
Net Income 615,240 0 615,240
Early withdrawal penalties - 6,041 4,151 -1,890
Partners' withdrawals -1,171,610 0 -1,171,610
--------------- --------------- --------------
Balances at September 30, 2001 $9,607,531 $ 0 $9,607,531
=============== =============== ==============
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000 (audited) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (unaudited)
PARTNERS' CAPITAL
--------------------------------------
Capital Account
General Total Partners'
Partners Capital
------------------ -------------------
Balances at January 1, 1998 $11,978 $12,879,547
Formation Loan collections 0 66,908
Net income 8,466 846,571
Early withdrawal penalties 0 -9,549
Partners' withdrawals -8,466 -1,834,770
------------------ -------------------
Balances at December 31, 1998 $11,978 $11,948,707
Formation Loan collections 0 75,138
Net income 9,096 909,581
Early withdrawal penalties 0 -5,803
Partners' withdrawals -9,096 -1,918,327
------------------ -------------------
Balances at December 31, 1999 $11,978 $11,009,296
Formation Loan collections 0 79,505
Net income 9,001 900,146
Early withdrawal penalties 0 -4,725
Partners' withdrawals -9,001 -1,877,914
------------------ -------------------
Balances at December 31, 2000 $11,978 $10,106,308
Formation Loan collections 0 71,461
Net income 6,215 621,455
Early withdrawal penalties 0 -1,890
Partners' withdrawals -6,215 -1,177,825
------------------ ------------------
Balances at September 30, 2001 $11,978 $9,619,509
================== ==================
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000
--------- --------
Cash flows from operating activities:
Net income $621,455 $683,202
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for doubtful accounts 20,503 3,940
Provision for losses on real estate held for sale 0 10,100
Early withdrawal penalty credited to income -1,890 -3,816
(Increase) decrease in accrued interest
and advances -231,628 -130,293
Increase (decrease) in accounts payable
and accrued expenses 8,695 -20,027
Increase (decrease) in deferred interest on loans 0 -115,709
Increase (decrease) in prepaid expenses 0 0
--------- --------
Net cash provided by operating activities 417,135 427,397
--------- --------
Cash flows from investing activities:
Principal collected on loans 5,750,503 4,067,472
Loans made -3,050,730 -6,140,661
Additions to Real Estate held for sale -425,660 -47,089
Dispositions of Real Estate held for sale 34,259 58,359
Accounts Receivable Unsecured (disbursement) -310 -1,321
Proceeds from unsecured Accounts Receivable 11,250 3,057
--------- --------
Net cash provided by (used in) investing activities 2,319,312 -2,060,183
--------- ---------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank -1,598,000 2,700,000
Formation Loan collections 71,461 57,534
Partners withdrawals -1,177,825 -1,402,268
---------- ---------
Net cash provided by (used in) financing activities -2,704,364 1,355,266
---------- ---------
Net increase/(decrease) in cash 32,083 -277,520
Cash - beginning of period 269,000 388,770
---------- ---------
Cash - end of period $301,083 $111,250
=========== =========
Interest paid $104,741 $170,181
The accompanying notes are an integral part of the financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the General Partners are Michael R. Burwell and Gymno
Corporation, a California corporation partially owned and operated by the
individual General Partner. The Partnership was organized to engage in business
as a mortgage lender for the primary purpose of making loans secured by Deeds of
Trust on California real estate. Loans 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 totaling $11,998,359
for limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units
($12,000,000) were offered through qualified broker-dealers. As loans were
identified, partners were transferred from applicant status to admitted partners
participating in loan operations. Each month's income is allocated to partners
based upon their proportionate share of partner's 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 Corp., an affiliate of the
General Partners that arranges and services the loans. To finance the sales
commissions, the Partnership was authorized to loan to Redwood Mortgage Corp. an
amount not to exceed 8.3% of the gross proceeds invested in the Partnership. The
Formation Loan for the minimum offering period could be 10% of the gross
proceeds for the minimum offering period. The Formation Loan was unsecured and
was being repaid, without interest, in ten installments of principal, over a
ten-year period commencing January 1, 1992. At December 31, 1992, Redwood
Mortgage Corp. had borrowed $914,369 from the Partnership to cover sales
commissions relating to $11,998,359 limited partner contributions (7.62%).
Through September 30, 2001, $914,369 including $151,405 in early withdrawal
penalties had been repaid leaving a balance of $0. The Formation Loan, which was
due from an affiliate of the General Partners', had been deducted from Limited
Partners' capital in the balance sheet. As amounts were collected from Redwood
Mortgage Corp., the deduction from capital was 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.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
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
loans, and the valuation of real estate acquired through foreclosure. Actual
results could differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans 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 provide
that if the probable ultimate recovery of the carrying amount of a loan, 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.
At September 30, 2001, and years ended December 31, 2000 and 1999,
reductions in the cost of loans categorized as impaired by the Partnership
totaled $137,175, $137,175 and $152,231, respectively. The reduction in stated
value was accomplished by increasing the allowance for doubtful accounts.
As presented in Note 9 to the financial statements as of September 30,
2001, the average loan to appraised value of security at the time the loans were
consummated was 61.20%. 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 property's estimated fair
value, less estimated costs to sell.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
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 September 30, 2001 and December 31, 2000:
September 30, December 31,
2001 2000
------------------ --------------
Costs of properties $1,372,315 $1,258,966
Reduction in value -384,358 -442,872
------------------ --------------
Fair value reflected in financial statements $987,957 $816,094
================== ==============
F. 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.
G. 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
applicable 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.
H. Allowance for Doubtful Accounts
Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. A provision is made for bad debts to an amount
considered by management to be adequate, with due consideration to collateral
value, to provide for unrecoverable accounts receivable, including impaired
loans, other loans, accrued interest and advances on loans, and other accounts
receivable (unsecured). The composition of the allowance for doubtful accounts
as of September 30, 2001 and December 31, 2000 was as follows:
September 30, December 31,
2001 2000
----------------- --------------
Impaired loans $137,175 $137,175
Unspecified loans 590,114 569,612
Accounts receivable, unsecured 143,761 143,761
----------------- -------------
$871,050 $850,548
================= =============
I. 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 had 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.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which are be paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions Redwood Mortgage Corp. receives mortgage
brokerage commissions for services in connection with the review, selection,
evaluation, negotiation and extension of loans in an amount up to 12% of the
principal amount of the loans through the period ending 6 months after the
termination date of the offering. Thereafter, commissions are limited to an
amount not to exceed 4% of the total Partnership assets per year. Such
commissions are paid by the borrowers, and are not an expense to the
Partnership. Loan brokerage fees for nine months through September 30, 2001, and
years ended December 31, 2000, 1999, and 1998, totaled $84,137, $130,487,
$207,739 and $166,752, respectively.
B. Loan Servicing Fees Redwood Mortgage Corp. also receives monthly loan
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 loan is located. Loan servicing fees of $55,195, $110,713,
$127,440 and $128,493 were incurred for the nine months ended September 30, 2001
and years ended December 31, 2000, 1999 and 1998, respectively.
C. Asset Management Fee The General Partners receive a monthly fee for
managing the Partnership's loan portfolio and operations of up to 1/32 of 1% of
the "net asset value" (3/8 of 1% annual). Asset management fees were $28,176,
$38,400, $44,524 and $16,141 during the nine months ended September 30, 2001,
and the years ended December 31, 2000, 1999 and 1998, respectively.
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 and losses are credited or charged to
partners in relation to their respective Partnership interests. The Partnership
interest of the General Partners (combined) is a total of 1%.
F. Operating Expenses The General Partners or their affiliate (Redwood
Mortgage Corp.) 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.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
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 Partnership's loan
portfolio.
Interest earned prior to admission was credited to partners in applicant
status. As loans were made, applicant subscriptions were transferred to Limited
Partner status to begin sharing in income from loans secured by deeds of trust.
The interest earned prior to admission 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.
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.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and
accordingly an investment in the Partnership is not liquid. Limited Partners had
no right to withdraw from the Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of Units, which
in all instances had occurred as of September 30, 2001. 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 early and will be deducted from the Capital Account.
Withdrawal after the one-year holding period and before the five-year holding
period was permitted only upon the terms set forth above.
After five years from the date of purchase of the Units, Limited Partners
have the right to withdraw from the Partnership, on an installment basis.
Generally this is done over a five-year period in twenty (20) quarterly
installments. Once a Limited Partner has been in the Partnership for the minimum
five-year period, 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 may liquidate all or part of a Limited
Partner's 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. This withdrawal is subject to a 10% early withdrawal
penalty applicable to any sums withdrawn prior to the time when such sums could
have been withdrawn without penalty.
The Partnership will not establish a reserve from which to fund withdrawals
and, accordingly, the Partnership's capacity to return a Limited Partner's
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 - LEGAL PROCEEDINGS
Legal actions against borrowers and other involved parties have been
initiated by the Partnership to help assure payments against unsecured accounts
receivable totaling $177,481 at September 30, 2001 ("Collection Suits"). The
Partnership is a defendant, along with numerous other defendants including a
developer, contractor and other lenders, in a lawsuit involving a homeowner's
association's attempt to recover alleged "damages" for faulty construction (the
"Action").
Management anticipates that the ultimate results of these Collection Suits
and the Action will not have a material adverse effect on the net assets of the
Partnership, with due consideration having been given in the case of the
Collection Suits and the Action in arriving at the allowance for doubtful
accounts.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its loan portfolio of
up to $3,500,000 at .25% over prime. The balances outstanding as of September
30, 2001 and December 31, 2000 were $1,902,000 and $3,500,000 respectively, and
the interest rate was 6.25% (6.00% prime + .25%) at September 30, 2001. This
line of credit expires May 1, 2003.
NOTE 7 - 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:
September 30, December 31,
2001 2000
---------------- --------------
Net assets - Partners' Capital
per financial statements $9,619,509 $10,106,308
Formation Loan receivable 0 75,612
Allowance for doubtful accounts 871,050 850,548
---------------- --------------
Net assets tax basis $10,490,559 $11,032,468
================ ==============
In 2000 and 1999, approximately 70% and 69%, respectively, 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.
NOTE 8 - 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) Loans (see note 2 (c) had a carrying value of $10,314,061 at September
30, 2001. The fair value of these loans of $10,454,916 was 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.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At September 30, 2001,
there were 36 loans outstanding with the following characteristics:
Number of loans outstanding 36
Total loans outstanding $10,314,061
Average loan outstanding $286,502
Average loan as percent of total 2.78%
Largest loan outstanding $1,109,159
Largest loan as percent of total 10.75%
Number of counties where security is located (all California) 11
Largest percentage of loans in one county 33.17%
Average loan to appraised value of security at
time loan was consummated 61.20%
Number of loans in foreclosure 2
The following categories of loans are pertinent at September 30, 2001, and
December 31, 2000:
September 30, December 31,
2001 2000
--------------- -------------
First Trust Deeds $5,233,894 $8,720,986
Second Trust Deeds 4,849,385 4,000,140
Third Trust Deeds 230,782 73,171
--------------- -------------
Total loan 10,314,061 12,794,297
Prior liens due 9,318,486 8,761,363
--------------- -------------
Total debt $19,632,547 $21,555,660
=============== =============
Appraised property value at time of loan $32,079,580 $35,518,467
=============== =============
Total investments as a percent of appraisals 61.20% 60.69%
=============== =============
Investments by Type of Property:
Owner occupied homes $607,906 $218,942
Non-Owner occupied homes 1,605,481 1,644,636
Apartments 1,717,884 2,590,022
Commercial 6,382,790 8,340,697
--------------- -------------
$10,314,061 $12,794,297
=============== =============
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
Scheduled maturity dates of loans are as follows:
Year Ending
December 31, Amount
-------------------- -------------------
2001 $6,112,539
2002 2,692,117
2003 556,932
2004 503,876
2005 40,125
Thereafter 408,472
-------------------
Total $10,314,061
===================
The scheduled maturities for 2001 above include approximately $4,940,413 in
thirteen loans, which are past maturity at September 30, 2001. Although interest
payments on some of these loans are current, $3,646,646 of these loans was
categorized as delinquent over 90 days.
The cash balance at September 30, 2001 of $301,083 was in one bank with
interest bearing balances totaling $276,322. The balances exceeded FDIC
insurance limits (up to $100,000 per bank) by $201,083. The Partnership's bank
is the same financial institution that has provided the Partnership with the
$3,500,000 limit line of credit. At September 30, 2001, draw down against this
facility was $1,902,000. As and when deposits in the Partnership's bank accounts
increase significantly beyond the insured limit, the funds are either placed in
new loans or used to pay-down on the line of credit balance.
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
September 30, 2001, Partners' Capital totaled $9,619,509.
At September 30, 2001, the Partnership loans outstanding totaled
$10,314,061. This represents a decline of $2,480,236 from the December 31, 2000
loans balance. This reduction in loans outstanding as of September 30, 2001 was
chiefly due to loan repayments and loan pay-offs being used to fund withdrawals
to the Limited Partners of $1,171,610 during nine months through September 30,
2001 and partial reduction in line of credit balance by $1,598,000. Loans
decreased from $13,449,741 from 1997 to $12,794,297 in 2000, a decrease of
$655,444 chiefly due to the ability of the General Partners to reduce amounts of
real estate owned by $289,743, reinvestment of earnings of $390,213, offset by
payments to withdrawing Limited Partners $1,856,833, a reduction of outstanding
Note Payable - Bank of $1,112,663 and investment of cash. The Partnership began
funding loans on December 27, 1989, and as of September 30, 2001, had credited
the Partners' accounts with income at an average annualized (compounded) yield
of 7.85%.
Between the fall of 1999 to January, 2001, mortgage interest rates had been
rising due primarily to economic forces and by the Federal Reserve raising its
core interest rates. However, since January 2001, the Federal Reserve has been
dramatically cutting its core interest rates with eight successive cuts, ranging
from .25% to .50%. The latest cut being October 02, 2001, which reduced the
Federal Funds Rate to 2.5%. The effect of the cuts has greatly reduced
short-term interest rates and to a lesser extent reduced long-term interest
rates. New loans will be originated at then existing interest rates. 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. Although the rates charged by the Partnership are influenced by the
level of interest rates in the market, the General Partners anticipate that
rates charged by the Partnership to its borrowers will be somewhat lower than
the first half of 2001. The General Partners anticipate that new loans will be
placed at rates approximately 1% lower than similar loans during the first half
of 2001. The lowering of interest rates has encouraged those borrowers that hold
higher interest rate loans than those currently available to seek refinancing of
their existing obligations to take advantage of these lower rates. The
Partnership may face prepayments in the existing portfolio from borrowers taking
advantage of these lower rates. However, demand for loans from qualified
borrowers continues to be strong and as prepayments occur, we expect to replace
these loans with loans at somewhat lower interest rates. At this time, we
believe that the average loan portfolio interest rate will decline approximately
.25% to .50% over the remainder of the year. Nevertheless, based upon the rates
expected in connection with the existing loans, and anticipated interest rates
to be charged by the Partnership and the General Partners' experience, the
General Partners anticipate that the annualized yield will range between eight
and eight and one half percent (8.00% - 8.50%) for the remainder of 2001.
The Partnership has a line of credit with a commercial bank secured by its
loans to a limit of $3,500,000, at a variable interest rate set at one-quarter
percent above the prime rate. As of September 30, 2001, the prime rate was 6.00%
and the line of credit rate was 6.25%. As of September 30, 2001, December 31,
2000, and December 31, 1999, the balances were $1,902,000, $3,500,000 and
$800,000, respectively. This line of credit expires on May 01, 2003. 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 loans are not currently available. Since most of the loans made
by the Partnership bear interest at a rate in excess of the rate payable to the
bank which extended the line of credit, once the required principal and interest
payments on the line of credit are paid to the bank, the loans funded using the
line of credit generate revenue for the Partnership. As of September 30, 2001,
the Partnership is current with its interest payments on the line of credit. For
the years ended December 31, 1998, 1999, 2000 and nine months through September
30, 2001, interest paid was $170,867, $182,350, $257,390 and $104,741,
respectively. The somewhat lower interest paid in the first nine months of 2001
is reflective of both a lower than average credit line usage and the lower
existing interest rate.
The Partnership's 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-four years.
Loan servicing fees in 1998 were $128,493, in 1999 were $127,440, in 2000 were
$110,713, and nine months through September 30, 2001 were $55,195. These loan
servicing fees were declining as the outstanding mortgage loan portfolio
balances declined. Asset Management Fees increased to $16,141 in 1998, and to
$44,524 in 1999. For the year 2000, Management Fees paid were $38,400, and for
nine months through September 30, 2001, management fee paid was $28,176. In
1997, the General Partners waived or partially waived this fee to the
Partnership and increased the Asset Management Fee to its allowed amount of 3/8
of 1% in 1999, 2000, and 2001. The Asset Management Fee is declining as the
Partnership distributes Partners Capital.
All other expenses fluctuated 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 September 30, 2001, there
were two properties in foreclosure, representing 1.9% of the Partnership's loan
portfolio. In November one of the loans which had a balance of $170,000,
representing 1.6% of the Partnership loan portfolio, was paid off. Cash is
constantly being generated from interest earnings, late charges, pre-payment
penalties, amortization of loans and pay-off on notes. Currently, cash flow
exceeds Partnership expenses, earnings and capital payout requirements. Excess
cash flow will be invested in new loan opportunities when available, used to
reduce the Partnership credit line or other Partnership business.
The General Partners regularly review the loan portfolio, examining the
status of delinquencies, the underlying collateral securing these properties,
the REO expenses and sales activities, borrowers payment records, etc. Data on
the local real estate market and on the national and local economy are studied.
Based upon this information and other data, loss reserves are increased or
decreased. Because of the number of variables involved, the magnitude of the
possible swings and the General Partners inability to control many of these
factors, actual results may and do sometimes differ significantly from estimates
made by the General Partners. Management provided $423,054, $329,057, $65,664,
and $20,503, as provisions for doubtful accounts for the years ended December
31, 1998, 1999, 2000, and nine months through September 30, 2001, respectively.
The provision for doubtful accounts was decreased $11,441 to $423,054 in 1998,
by $93,997 to $329,057 in 1999, by $263,393 to $65,664 in 2000 and to $20,503
through September 30, 2001. These decreases reflect reduced expected REO
anticipated losses and improved collections of secured and unsecured
receivables. If conditions change, the Partnership may again increase it's
provisions for doubtful accounts.
The Partnership makes loans primarily in Northern California. As of
September 30, 2001, approximately 65.61%, ($6,766,737) of the loans held by the
Partnership were in the five San Francisco Bay Area Counties. The remainder of
the loans held were secured primarily by Northern California real estate outside
the San Francisco Bay Area.
The United States Economy has slowed from the robust Gross Domestic Product
growth levels of 4.2% in 1999 and 5.0% in 2000 to a growth rate of 1.2%, and .7%
in the 1st and 2nd quarters to a decrease of .4% in the 3rd quarter of 2001.
Additionally, the United States was attacked by terrorists on September 11,
2001. Management is deeply saddened by the loss of life and property form these
attacks and is outraged at the perpetrators. Our thoughts and prayers go out to
all those who have been affected by this horrific event. President Bush has
declared war on the terrorists, and the United States has begun military actions
in Afghanistan in response. The terrorist attacks occurred on the East Coast of
the United States far removed from the operations of the Partnership. The
Partnership was not affected directly by these attacks. Indirectly, the
Partnership will feel the effects of the attacks. The terrorist attacks have
caused a further slowing of the United States economy, the extent of this slow
down and it's longevity is not yet known. Key to the Partnership is the ability
of borrowers to make the payments associated with their respective loans. In
response to the slow down in the United States economy, the Federal Reserve has
acted as noted primarily through reductions in the Federal Funds rates to
stimulate the United States economy. Their interest rate cuts have lowered the
Federal Funds rate form 6.5% to 2.5% or 66.67% over the course of 2001.
Like the rest of the nation, the San Francisco Bay Area has also felt the
slow down in economic growth. The technology companies of Silicon Valley, and
now the airline industry, the tourism industry and other industries are feeling
the effects of the overall US economy slowdown, which include lower earnings,
losses and layoffs. The Northern California real estate market and particularly
the San Francisco Bay Area real estate marketplace experienced increases in
values of over 10% in 1999 and 2000.
Throughout 2000, in the San Francisco Bay Area residential marketplace,
offers for residential real estate were often at or above asking price. The
residential market has slowed and is returning to a more normal market, wherein
buyers and sellers negotiate the terms of a sale without undue influence from
other buyers desiring the property. This has resulted in longer listing and
transaction times. According to Dataquick Information Systems, August 2001,
residential real estate sales were 14.5% lower than the previous year, with the
six San Francisco Bay Area counties experiencing residential sales transactions
down between 7.0% and 29.1%. In spite of the lower number of transactions, the
median sales price for resale homes increased by 4% from the previous year with
variances of between minus 4.2% to a positive 16.7% for the six San Francisco
Bay Area Counties. The General Partners believe, mid-priced and lower-end homes
have continued to increase in value, although at a reduced rate from 2000, while
the high end homes have begun to decrease in value. The Partnership may
experience higher delinquencies due to layoffs or from borrowers who need to
sell their homes in order to repay their debt not anticipating currently
existing transaction times. Significant foreclosures and the take back of the
real estate security have not significantly manifested themselves as borrowers
have been able to handle their own financial affairs.
For commercial properties vacancy rates continued to increase as space
absorption has slowed and sub lease space has been put on the market. C.B.
Richard Ellis, reports office vacancy in the San Francisco Bay Area at an
approximately 14% level as of the 3rd quarter 2001. County variances range from
10.1% to 17.2% of total availability. Lease rates are down as landlords attempt
to attract tenants. "Despite the current conditions, many feel the cycle will
not be as deep as those seen during the 80's and 90's, where new supply, not
decreased demand, drove corrections." The Partnership may experience
delinquencies in its commercial portion of the portfolio if landlord's existing
leases expire or space becomes available through business failures or the
completion of building renovations.
The Partnership had an average loan to value ratio computed as of the date
the loan was made of 61.20%, as of September 30, 2001. This did not account for
any increases in property values for loans, which were acquired by the
Partnership during 1997, 1998, 1999, and 2000 when Northern California Real
Estate substantially increased in value. This low loan to value will assist the
Partnership in weathering downturns in real estate values if they materialize in
the coming months.
On April 6th 2001, Pacific Gas and Electric (PG&E) California's biggest
public utility company filed for Chapter 11 bankruptcy. The full effect of
PG&E's bankruptcy is unknown. Stockholders, other utility companies and banks
that have loaned PG&E millions of dollars were particularly hit hard. When a
company like PG&E goes bankrupt, it has a ripple effect. This has not only
affected the hi-tech and manufacturing industries, professional and commercial
businesses, transportation and utilities sectors, but every household and
individual as a whole. The crisis, which means higher costs to consumers, could
adversely affect the economy, employment and the Partnership's lending in its
commercial sector. The state government, PG&E and others are working diligently
to solve the power crisis in California. The likely result is that electric and
natural gas will cost consumers more than ever before. This may have some effect
upon real estate values as demand for real estate could be reduced as companies
make long term plans to locate in areas without power delivery problems and
lower cost power availability.
The Partnership's interest in land located in East Palo Alto, CA was
acquired through foreclosure. The investment was previously classified as
Investment in Partnership in the Financial Statements and has been reclassified
into Real Estate Owned. The Partnership's basis of $47,363, $38,238, $9,039 and
$ 0, for the nine months ended September 30, 2001 and the years ended December
31, 2000, 1999, and 1998, respectively, has been invested with that of two other
partnerships. In order to pursue development options, rezoning of the property's
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. 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. The efforts of the General Partners to subdivide
the land have met with success. The arsenic contaminated portion of the property
has been delivered to the party responsible for the arsenic contamination. The
remaining land will be made available for development or sale by the
Partnership. The General Partners believe this to be a good result for 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, 1998, 1999, 2000, and nine months through September 30, 2001,
the Partnership made distributions of earnings to Limited Partners after
allocation of syndication costs of $456,358, $490,841, $454,386, and $284,446,
respectively. Distribution of Earnings to Limited Partners after allocation of
syndication costs for the years ended December 31, 1998, 1999, 2000 and nine
months through September 30, 2001 to Limited Partners' capital accounts and not
withdrawn was $381,747, $409,644, $436,759, and $330,794, respectively. As of
December 31 1998, 1999, 2000 and nine months ended September 30, 2001, Limited
Partners electing to withdraw earnings represented 53%, 54%, 49% and 45% of the
Limited Partners capital.
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, 1998, 1999, 2000, and
nine months through September 30, 2001, $381,458, $231,025, $179,343, and
$75,512 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 their 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, 1998, 1999, 2000, and nine months through September 30, 2001, respectively
and is expected by the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1998, 1999, 2000, and nine
months through September 30, 2001, $1,019,017, $1,205,917, $1,250,291, and
$817,693, 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. The General Partners expect a portion of the Limited
Partners to take advantage of this provision. 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, after 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 eleven (2000) and nine months through September 30, 2001 is shown
hereunder; which confirms the General Partners theory on the liquidation habits
of the Limited Partners:
Years ended December 31,
Earnings Capital
Liquidation Liquidation Total
--------------- -------------- ------------
1994 $263,206 *$340,011 $603,217
1995 $270,760 *$184,157 $454,917
1996 $336,341 *$722,536 $1,058,877
1997 $399,379 *$1,212,916 $1,612,295
1998 $456,358 *$1,400,475 $1,856,833
1999 $490,841 *$1,436,942 $1,927,783
2000 $454,386 *$1,429,634 $1,884,020
Nine months through
September 30, 2001 $284,446 *$893,205 $1,177,651
* These amounts represent gross of early withdrawal penalties.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership, has retired
effective September 30, 2001. "Russ" enjoyed a long and successful career. His
original business model, upon which our Partnership has its roots, has withstood
the test of time through varying economic cycles. This Partnership originally
raised $11,998,359 in Limited Partner Capital contributions and at September 30,
2001 had $9,607,531 in remaining Limited Partner Capital.
Over the last few years, Russ has been passing along his duties and
responsibilities to the remaining General Partners. The remaining General
Partners are Mr. Michael Burwell and Gymno Corporation a California Corporation.
Mr. Michael Burwell has been a General Partner of Redwood Mortgage Investors VII
since its inception and has been employed by Redwood Mortgage Corp, an affiliate
of the Partnership, since 1979. The Partnership through the remaining General
Partners and the employees of Redwood Mortgage Corp., are well prepared for
Russ' departure and look forward to emulating the steady consistent returns that
the Limited Partners have enjoyed during Russ' tenure.
In some cases in order to satisfy Broker Dealers and other reporting
requirements, the General Partners have valued the limited partners' interest in
the Partnership on a basis which utilizes a per unit system of calculation,
rather than based upon the investors' capital account. This information has been
reported in this manner in order to allow the Partnership to integrate with
certain software used by the Broker Dealers and other reporting entities. In
those cases, the Partnership will report to Broker Dealers, Trust Companies and
others a "reporting" number of units based upon a $1.00 per unit calculation.
The number of reporting units provided will be calculated based upon the Limited
Partner's capital account value divided by $1.00. Each investor's capital
account balance is set forth periodically on the partnership account statement
provided to investors. The reporting units are solely for Broker Dealers
requiring such information for their software programs and do not reflect actual
units owned by a limited partner or the limited partners' right or interest in
cash flow or any other economic benefit in the Partnership. Each investor's
capital account balance is set forth periodically on the Partnership account
statement provided to investors. The amount of Partnership earnings each
investor is entitled to receive is determined by the ratio that each investor's
capital account bears to the total amount of all investor capital accounts then
outstanding. The capital account balance of each investor should be included on
any NASD member client account statement in providing a per unit estimated value
of the client's investment in the Partnership in accordance with NASD Rule 2340.
While the General Partners have set an estimated value for the Partnership
units, such determination may not be representative of the ultimate price
realized by an Investor for such units upon sale. No public trading market
exists for the Partnership's units and none is likely to develop. Thus, there is
no certainty that the units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain liquidation rights provided by the
Partnership, which may include early withdrawal penalties (See the section of
the Prospectus entitled "Risk Factors - Purchase of Units is a long term
investment").
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 are 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 nine months ended September 30,
2001. All such compensation is in compliance with the guidelines and limitations
set forth in the Prospectus.
Entity Receiving Description of Compensation and
Compensation Services Rendered Amount
- --------------- ---------------------------------------- ----------
I. Redwood Mortgage Loan Servicing Fee
Corp. for servicing loan . . . . . . . . . . $55,195
General Partners Asset Management Fee for
&/or Affiliates managing assets . . . . . . . . . . . . $28,176
General Partners 1% interest in profits . . . . . . . . . . . $6,215
General Partners Portion of early withdrawal penalties applied
&/or Affiliates to reduce Formation Loan . . . . . . . $4,151
II. FEES PAID BY BORROWERS ON LOANS 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
Corp. with the review, selection, evaluation, negotiation, and
extension of the loan paid by the borrowers and not by the
Partnership . . . . . . . . . . . . . . . . . . $84,137
Redwood Mortgage Processing and Escrow Fees for services in connection with
Corp. notary, document preparation, credit investigation, and
escrow fees payable by the borrowers and not by the
Partnership . . . . . . . . . . . . . . . . . . . $2,714
Gymno Corporation
Inc. Reconveyance Fee . . . . . . . . . . . . . $903
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. . . . . . . . . . . . . . . . . . . . . . . . . . $29,569
LOAN PORTFOLIO SUMMARY AS OF SEPTEMBER 30, 2001
Partnership Highlights
Loan to Value Ratios
First Trust Deeds $5,233,894.17
Appraised Value of Properties * 9,469,695.00
Total Investment as a % of Appraised Value 55.27%
First Trust Deed Loans $5,233,894.17
Second Trust Deed Loans 4,849,385.10
Third Trust Deed Loans 230,781.39
------------------
$10,314,060.66
First Trust Deeds due other Lenders 7,840,390.00
Second Trust Deeds due other Lenders 1,478,096.00
------------------
Total Debt $19,632,546.66
==================
Appraised Property Value * $32,079,580.00
Total Investment as a % of Appraised Value 61.20%
Number of Loans Outstanding 36
Average Investment 286,501.68
Average Investment as a % of total loans 2.78%
Largest Investment Outstanding 1,109,158.69
Largest Investment as a % of total loans 10.75%
Loans as a Percentage of Total Loans
First Trust Deed Loans 50.74%
Second Trust Deed Loans 47.02%
Third Trust Deed Loans 2.24%
-----------------
Total 100.00%
Loans by Type of Property Amount Percent
Owner Occupied Homes $607,906.42 5.89%
Non Owner Occupied Homes 1,605,480.72 15.57%
Apartments 1,717,883.84 16.66%
Commercial 6,382,789.68 61.88%
-----------------
-----------------
Total $10,314,060.66 100.00%
Statement of Conditions of Loans
Number of loans in Foreclosure 2
*Values used are the appraisal values utilized at the time the loan was
consummated.
Diversification by County
County Total loans Percent
San Francisco $3,421,167.79 33.17%
Stanislaus 2,789,213.33 27.04%
Santa Clara 1,336,675.28 12.96%
Contra Costa 966,630.50 9.37%
Alameda 820,668.60 7.96%
Santa Cruz 375,000.00 3.64%
San Mateo 221,595.15 2.15%
Placer 184,608.82 1.79%
Sacramento 96,716.11 .94%
Shasta 78,851.91 .76%
Sonoma 22,933.17 .22%
------------------- -----------
Total $10,314,060.66 100.00%
=================== ===========
PART 2
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is a defendant in a legal
action. Please refer to Note 5 of the
Financial Statements.
Item 2. Changes in the Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not Applicable
(b) Form 8-K
Form 8-K was filed on February 7, 2000,
relating to a change by the Partnership's
accountants in accounting firms. A Form 8-K
was filed on February 13, 2001, relating to
the subsequent change by the Partnership's
accountants to another accounting firm. On
April 11, 2001, the Partnership filed
another Form 8-K regarding D. Russell
Burwell's retirement as more fully discussed
earlier under "Management Discussion and
Analysis" section. An Amended Form 8-K was
filed on August 3, 2001 regarding the
Partnership's change in Accountants.
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 13th day of
November, 2001.
REDWOOD MORTGAGE INVESTORS VII
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 13th day of November 2001.
Signature Title Date
/S/ Michael R. Burwell
- ------------------------
Michael R. Burwell General Partner November 13, 2001
/S/ D. Russell Burwell
- ------------------------
D. Russell Burwell President of Gymno Corporation, November 13, 2001
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- -----------------------
Michael R. Burwell Secretary/Treasurer of Gymno November 13, 2001
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation