UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2018
☐ |
TRANSITION REPORT PURSUANT |
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-55601
REDWOOD MORTGAGE INVESTORS IX, LLC
(Exact name of registrant as specified in its charter)
Delaware |
|
26-3541068 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
177 Bovet Road, Suite 520, San Mateo, CA |
|
94402 |
(Address of principal executive offices) |
|
(Zip Code) |
(650) 365-5341
(Registrant’s telephone number, including area code)
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 such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ YES ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
(Do not check if a smaller reporting company) |
Smaller reporting company |
☒ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO
Part I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
REDWOOD MORTGAGE INVESTORS IX, LLC
June 30, 2018 (unaudited) and December 31, 2017 (audited)
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
16,814,623 |
|
|
$ |
8,509,852 |
|
Loans |
|
|
|
|
|
|
|
|
Principal |
|
|
53,538,730 |
|
|
|
54,768,689 |
|
Advances |
|
|
16,072 |
|
|
|
13,989 |
|
Accrued interest |
|
|
438,923 |
|
|
|
409,867 |
|
Loan balances secured by deeds of trust |
|
|
53,993,725 |
|
|
|
55,192,545 |
|
Loan administrative fees, net |
|
|
2,624 |
|
|
|
9,008 |
|
Receivable from affiliate |
|
|
135 |
|
|
|
— |
|
Total assets |
|
$ |
70,811,107 |
|
|
$ |
63,711,405 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities - Accounts payable and accrued liabilities |
|
$ |
2,075 |
|
|
$ |
180 |
|
|
|
|
|
|
|
|
|
|
Investors in applicant status |
|
|
1,300,160 |
|
|
|
3,270,312 |
|
|
|
|
|
|
|
|
|
|
Members’ capital, net |
|
|
73,853,088 |
|
|
|
64,218,001 |
|
Receivable from manager (formation loan) |
|
|
(4,344,216 |
) |
|
|
(3,777,088 |
) |
Members’ capital, net, less formation loan |
|
|
69,508,872 |
|
|
|
60,440,913 |
|
Total liabilities, investors in applicant status and members’ capital |
|
$ |
70,811,107 |
|
|
$ |
63,711,405 |
|
The accompanying notes are an integral part of these financial statements.
2
REDWOOD MORTGAGE INVESTORS IX, LLC
For the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Revenues, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1,315,915 |
|
|
$ |
940,264 |
|
|
|
2,493,647 |
|
|
$ |
1,776,244 |
|
Late fees |
|
|
5,531 |
|
|
|
1,638 |
|
|
|
10,242 |
|
|
|
7,827 |
|
Gain on sale, loans |
|
|
14,246 |
|
|
|
— |
|
|
|
14,246 |
|
|
|
— |
|
Total revenues |
|
|
1,335,692 |
|
|
|
941,902 |
|
|
|
2,518,135 |
|
|
|
1,784,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing fees |
|
|
38,694 |
|
|
|
26,858 |
|
|
|
73,878 |
|
|
|
51,168 |
|
Asset management fees, net (Note 3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Costs from Redwood Mortgage Corp., net (Note 3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Professional services, net (Note 3) |
|
|
84,213 |
|
|
|
2,364 |
|
|
|
88,898 |
|
|
|
2,364 |
|
Other |
|
|
8,412 |
|
|
|
3,086 |
|
|
|
8,497 |
|
|
|
4,125 |
|
Total operations expense |
|
|
131,319 |
|
|
|
32,308 |
|
|
|
171,273 |
|
|
|
57,657 |
|
Net income |
|
$ |
1,204,373 |
|
|
$ |
909,594 |
|
|
$ |
2,346,862 |
|
|
$ |
1,726,414 |
|
Members (99%) |
|
|
1,192,329 |
|
|
|
900,498 |
|
|
|
2,323,393 |
|
|
|
1,709,150 |
|
Managers (1%) |
|
|
12,044 |
|
|
|
9,096 |
|
|
|
23,469 |
|
|
|
17,264 |
|
|
|
$ |
1,204,373 |
|
|
$ |
909,594 |
|
|
$ |
2,346,862 |
|
|
$ |
1,726,414 |
|
The accompanying notes are an integral part of these financial statements.
3
REDWOOD MORTGAGE INVESTORS IX, LLC
Statement of Changes in Members’ Capital
For the Three Months Ended June 30, 2018 (unaudited)
|
|
|
|
|
|
Members' Capital, net |
|
|||||||||||||
|
|
Investors In Applicant Status |
|
|
Members’ Capital |
|
|
Manager’s Capital |
|
|
Unallocated Organization and Offering Expenses |
|
|
Members’ Capital, net |
|
|||||
Balance at March 31, 2018 |
|
$ |
4,415,358 |
|
|
$ |
69,816,123 |
|
|
$ |
117,527 |
|
|
$ |
(2,395,922 |
) |
|
$ |
67,537,728 |
|
Contributions on application |
|
|
3,094,160 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contributions admitted to members' capital |
|
|
(6,177,788 |
) |
|
|
6,177,788 |
|
|
|
6,210 |
|
|
|
— |
|
|
|
6,183,998 |
|
Premiums paid on application by RMC |
|
|
1,120 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Premiums admitted to members' capital |
|
|
(32,690 |
) |
|
|
32,690 |
|
|
|
— |
|
|
|
— |
|
|
|
32,690 |
|
Net income |
|
|
— |
|
|
|
1,192,329 |
|
|
|
12,044 |
|
|
|
— |
|
|
|
1,204,373 |
|
Earnings distributed to members |
|
|
— |
|
|
|
(1,088,573 |
) |
|
|
(38,690 |
) |
|
|
— |
|
|
|
(1,127,263 |
) |
Earnings distributed used in DRIP |
|
|
— |
|
|
|
589,482 |
|
|
|
— |
|
|
|
— |
|
|
|
589,482 |
|
Members’ redemptions |
|
|
— |
|
|
|
(299,240 |
) |
|
|
— |
|
|
|
— |
|
|
|
(299,240 |
) |
Organization and offering expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(278,696 |
) |
|
|
(278,696 |
) |
Organization and offering expenses allocated |
|
|
— |
|
|
|
(74,480 |
) |
|
|
— |
|
|
|
74,480 |
|
|
|
— |
|
Manager reimbursement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,137 |
|
|
|
9,137 |
|
Early withdrawal penalties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
879 |
|
|
|
879 |
|
Balance at June 30, 2018 |
|
$ |
1,300,160 |
|
|
$ |
76,346,119 |
|
|
$ |
97,091 |
|
|
$ |
(2,590,122 |
) |
|
$ |
73,853,088 |
|
Statement of Changes in Members’ Capital
For the Six Months Ended June 30, 2018 (unaudited)
|
|
|
|
|
|
Members' Capital, net |
|
|||||||||||||
|
|
Investors In Applicant Status |
|
|
Members’ Capital |
|
|
Manager’s Capital |
|
|
Unallocated Organization and Offering Expenses |
|
|
Members’ Capital, net |
|
|||||
Balance at December 31, 2017 |
|
$ |
3,270,312 |
|
|
$ |
66,450,424 |
|
|
$ |
102,902 |
|
|
$ |
(2,335,325 |
) |
|
$ |
64,218,001 |
|
Contributions on application |
|
|
7,407,598 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contributions admitted to members' capital |
|
|
(9,370,995 |
) |
|
|
9,370,995 |
|
|
|
9,410 |
|
|
|
— |
|
|
|
9,380,405 |
|
Premiums paid on application by RMC |
|
|
33,040 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Premiums admitted to members' capital |
|
|
(39,795 |
) |
|
|
39,795 |
|
|
|
— |
|
|
|
— |
|
|
|
39,795 |
|
Net income |
|
|
— |
|
|
|
2,323,393 |
|
|
|
23,469 |
|
|
|
— |
|
|
|
2,346,862 |
|
Earnings distributed to members |
|
|
— |
|
|
|
(2,178,920 |
) |
|
|
(38,690 |
) |
|
|
— |
|
|
|
(2,217,610 |
) |
Earnings distributed used in DRIP |
|
|
— |
|
|
|
1,187,760 |
|
|
|
— |
|
|
|
— |
|
|
|
1,187,760 |
|
Members’ redemptions |
|
|
— |
|
|
|
(702,640 |
) |
|
|
— |
|
|
|
— |
|
|
|
(702,640 |
) |
Organization and offering expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(422,390 |
) |
|
|
(422,390 |
) |
Organization and offering expenses allocated |
|
|
— |
|
|
|
(144,688 |
) |
|
|
— |
|
|
|
144,688 |
|
|
|
— |
|
Manager reimbursement |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,330 |
|
|
|
21,330 |
|
Early withdrawal penalties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,575 |
|
|
|
1,575 |
|
Balance at June 30, 2018 |
|
$ |
1,300,160 |
|
|
$ |
76,346,119 |
|
|
$ |
97,091 |
|
|
$ |
(2,590,122 |
) |
|
$ |
73,853,088 |
|
The accompanying notes are an integral part of these financial statements.
4
REDWOOD MORTGAGE INVESTORS IX, LLC
For the Three and Six Months Ended June 30, 2018 and 2017 (unaudited)
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest received |
|
$ |
1,224,758 |
|
|
$ |
880,164 |
|
|
$ |
2,385,819 |
|
|
$ |
1,717,482 |
|
Other loan income |
|
|
4,483 |
|
|
|
1,688 |
|
|
|
9,344 |
|
|
|
7,877 |
|
Loan administrative fee reimbursed (paid) |
|
|
— |
|
|
|
3,997 |
|
|
|
3,130 |
|
|
|
13,461 |
|
Operations expense |
|
|
(163,236 |
) |
|
|
(27,638 |
) |
|
|
(165,839 |
) |
|
|
(52,114 |
) |
Total cash provided by (used in) operations |
|
|
1,066,005 |
|
|
|
858,211 |
|
|
|
2,232,454 |
|
|
|
1,686,706 |
|
Investing – loan principal/advances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal collected on loans |
|
|
6,855,023 |
|
|
|
6,882,268 |
|
|
|
19,594,640 |
|
|
|
12,118,788 |
|
Loans originated |
|
|
(16,594,000 |
) |
|
|
(10,878,400 |
) |
|
|
(26,540,500 |
) |
|
|
(19,486,133 |
) |
Loans sold to non-affiliate, net |
|
|
14,163,158 |
|
|
|
— |
|
|
|
14,163,158 |
|
|
|
— |
|
Loans sold to affiliates |
|
|
— |
|
|
|
999,995 |
|
|
|
— |
|
|
|
999,995 |
|
Loans acquired from affiliates |
|
|
— |
|
|
|
— |
|
|
|
(5,889,819 |
) |
|
|
— |
|
Advances (made) received on loans |
|
|
565 |
|
|
|
185 |
|
|
|
(2,083 |
) |
|
|
(8,956 |
) |
Total cash provided by (used in) investing |
|
|
4,424,746 |
|
|
|
(2,995,952 |
) |
|
|
1,325,396 |
|
|
|
(6,376,306 |
) |
Financing – members’ capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by members, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by members |
|
|
3,101,230 |
|
|
|
5,666,527 |
|
|
|
7,449,992 |
|
|
|
10,209,440 |
|
Organization and offering expenses paid, net |
|
|
(269,560 |
) |
|
|
(201,094 |
) |
|
|
(401,060 |
) |
|
|
(367,850 |
) |
Formation loan funding |
|
|
(211,727 |
) |
|
|
(404,368 |
) |
|
|
(569,521 |
) |
|
|
(720,319 |
) |
Total cash provided by members, net |
|
|
2,619,943 |
|
|
|
5,061,065 |
|
|
|
6,479,411 |
|
|
|
9,121,271 |
|
Distributions to members |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings distributed |
|
|
(537,781 |
) |
|
|
(375,711 |
) |
|
|
(1,029,850 |
) |
|
|
(710,351 |
) |
Redemptions |
|
|
(299,240 |
) |
|
|
(53,152 |
) |
|
|
(702,640 |
) |
|
|
(453,462 |
) |
Cash distributions to members |
|
|
(837,021 |
) |
|
|
(428,863 |
) |
|
|
(1,732,490 |
) |
|
|
(1,163,813 |
) |
Total cash provided by (used in) financing |
|
|
1,782,922 |
|
|
|
4,632,202 |
|
|
|
4,746,921 |
|
|
|
7,957,458 |
|
Net increase (decrease) in cash |
|
|
7,273,673 |
|
|
|
2,494,461 |
|
|
|
8,304,771 |
|
|
|
3,267,858 |
|
Cash, beginning of period |
|
|
9,540,950 |
|
|
|
2,968,251 |
|
|
|
8,509,852 |
|
|
|
2,194,854 |
|
Cash, end of period |
|
$ |
16,814,623 |
|
|
$ |
5,462,712 |
|
|
$ |
16,814,623 |
|
|
$ |
5,462,712 |
|
Reconciliation of net income to Total cash provided by (used in) operations
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Net income |
|
$ |
1,204,373 |
|
|
$ |
909,594 |
|
|
$ |
2,346,862 |
|
|
$ |
1,726,414 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) on sale, loans |
|
|
(14,246 |
) |
|
|
— |
|
|
|
(14,246 |
) |
|
|
— |
|
Amortization of loan administrative fees |
|
|
3,254 |
|
|
|
— |
|
|
|
3,254 |
|
|
|
— |
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest |
|
|
(94,411 |
) |
|
|
(60,101 |
) |
|
|
(111,083 |
) |
|
|
(58,763 |
) |
Receivable from affiliate |
|
|
(135 |
) |
|
|
— |
|
|
|
(135 |
) |
|
|
— |
|
Loan administrative fees reimbursed (paid) |
|
|
— |
|
|
|
3,997 |
|
|
|
3,130 |
|
|
|
13,461 |
|
Accounts payable |
|
|
(33,803 |
) |
|
|
3,774 |
|
|
|
1,951 |
|
|
|
3,774 |
|
Other |
|
|
973 |
|
|
|
947 |
|
|
|
2,721 |
|
|
|
1,820 |
|
Total adjustments |
|
|
(138,368 |
) |
|
|
(51,383 |
) |
|
|
(114,408 |
) |
|
|
(39,708 |
) |
Total cash provided by (used in) operations |
|
$ |
1,066,005 |
|
|
$ |
858,211 |
|
|
$ |
2,232,454 |
|
|
$ |
1,686,706 |
|
The accompanying notes are an integral part of these financial statements.
5
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
NOTE 1 – ORGANIZATION AND GENERAL
In the opinion of the Redwood Mortgage Corp. (RMC or the manager), the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the company’s Form 10-K for the fiscal year December 31, 2017 filed with the U.S. Securities and Exchange Commission (SEC). The results of operations for the three and six month periods ended June 30, 2018 are not necessarily indicative of the operations results to be expected for the full year.
Redwood Mortgage Investors IX, LLC (RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment mortgage loans secured by California real estate, primarily through first and second deeds of trust.
The company’s primary investment objectives are to:
|
• |
yield a favorable rate of return from the company’s business of making and/or investing in loans; |
|
• |
preserve and protect the company’s capital by making and/or investing in loans secured by California real estate, preferably income-producing properties geographically situated in the San Francisco Bay Area and the coastal metropolitan regions of Southern California; and, |
|
• |
generate and distribute cash flow from these mortgage lending and investing activities. |
The ongoing sources of funds for loans are the proceeds from:
|
• |
sale of members’ units, net of reimbursement to RMC of organization and offering expenses (“O&O expenses”), including units sold by reinvestment of distributions; |
|
• |
loan payoffs; |
|
• |
borrowers’ monthly principal and interest payments; |
|
• |
loan sales; and |
|
• |
a line of credit, if obtained. |
Profits and losses are allocated among the members according to their respective capital accounts monthly after one percent (1%) of the profits and losses are allocated to the manager. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Investors should not expect the company to provide tax benefits of the type commonly associated with limited liability company tax shelter investments. Federal and state income taxes are the obligation of the members, if and when taxes apply, other than the annual California franchise tax and any California LLC cash receipts taxes paid by the company.
The company is externally managed by RMC. The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for the conduct of the business as RMI IX has no employees. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members.
The rights, duties and powers of the members and manager of the company are governed by the Ninth Amended and Restated Limited Liability Company Operating Agreement of RMI IX (the “Operating Agreement”), the Delaware Limited Liability Company Act and the California Revised Uniform Limited Liability Company Act. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions. Members representing a majority of the outstanding units may, without the concurrence of the managers, vote to: (i) dissolve the company, (ii) amend the Operating Agreement, subject to certain limitations, (iii) approve or disapprove the sale of all or substantially all of the assets of the company or (iv) remove or replace one or all of the managers. Where there is only one manager, a majority in interest of the members is required to elect a new manager to continue the company business after a manager ceases to be a manager due to its withdrawal.
6
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. Cash available for distribution means cash flow from operations (excluding repayments for loan principal and other capital transaction proceeds) less amounts set aside for creation or restoration of reserves. The manager may withhold from cash available for distribution otherwise distributable to the members with respect to any period the respective amounts of O&O expenses allocated to the members for the applicable period pursuant to the company’s reimbursement and allocation of organization and offering expenses policy. The amount otherwise distributable, less the respective amounts of organization and offering expenses allocated to members, is the net distribution. Per the terms of the company’s Operating Agreement, cash available for distribution allocated to the members is allocated among the members in proportion to their percentage interests (except with respect to differences in the amounts of organization and offering expenses allocated to the respective members during the applicable period) and in proportion to the number of days during the applicable month that they owned such percentage interests.
Cash available for distributions allocable to members, other than those participating in the distribution reinvestment plan (DRIP) and the manager, is distributed at the end of each calendar month. Cash available for distribution allocable to members who participate in the DRIP is used to purchase additional units at the end of each calendar month. The manager’s allocable share of cash available for distribution is also distributed not more frequently than with cash distributions to members.
The company’s net income, cash available for distribution, and net-distribution rate fluctuates depending on:
|
• |
loan origination volume and the balance of capital available to lend; |
|
• |
the current and future interest rates negotiated with borrowers; |
|
• |
the timing and amount of gains received from loan sales, if any; |
|
• |
payment of fees and cost reimbursements to RMC; and, |
|
• |
the amount and timing of other operating expenses, including expenses for professional services. |
To determine the amount of cash to be distributed in any specific month, the company relies in part on its annual forecast of profits, which takes into account the difference between the forecasted and actual results in the year and the requirement to maintain a cash reserve. At June 30, 2018 cumulative earnings (estimated) allocated to member accounts prior to month-end and net income available to members (actual) after month-end accounting adjustments and per the financial statements were approximately equal.
Since commencement of operations in 2009, the manager, at its sole discretion, provided significant financial support to the company which affected the net income, cash available for distribution, and the net-distribution rate, including:
|
• |
charging less than the maximum allowable fees; |
|
• |
not requesting reimbursement of qualifying costs attributable to the company (“Costs from RMC”) on the Statements of Income); and/or, |
|
• |
absorbing some/all of the company’s direct expenses, such as professional fees. |
Such fee and cost-reimbursement waivers and the absorbing of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the company has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expense allocation of 0.45%, annually when applicable).
In March 2018, the manager communicated to the members a reduction of the net distribution rate as an annualized percentage of members’ capital from 6.5% to 6.0% for March 2018 and that effective April 1, 2018, RMC would cease absorbing any of the company’s direct expenses. Further, by the fourth quarter of 2018, RMC will have begun reducing fee waivers and/or commenced requesting reimbursement of qualifying costs attributable to the company (i.e. Costs from RMC). By July 2019, the company will be paying RMC the fees entitled to the manager under the Operating Agreement and will be reimbursing RMC for the qualifying costs attributable to the company. As financial support from the manager decreases and eventually ceases, net distribution rates will decrease correspondingly. However, there is a possibility this could be partially offset by higher interest rates on loans and/or other potential sources of revenue, such as gains, net of expenses, on loan sales to unaffiliated third parties.
For the three months ended June 30, 2018, the company paid its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.) resulting in an annualized net distribution rate for the three months ended June 30, 2018 of 5.935%.
7
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Distribution reinvestment plan
The DRIP provision of the Operating Agreement permits members to elect to have all or a portion of their monthly distributions reinvested in additional units. Members may withdraw from the DRIP with written notice.
Liquidity and unit redemption program
Because there are substantial restrictions on transferability of units, there is no established public trading and/or secondary market for the units and none is expected to develop. In order to provide liquidity to members, the company’s Operating Agreement includes a unit redemption program, whereby beginning one year from the date of purchase of the units, a member may redeem all or part of their units, subject to certain limitations.
The price paid for redeemed units is based on the lesser of the purchase price paid by the redeeming member or the member’s capital account balance as of the date of each redemption payment. Redemption value is calculated based on the period from date of purchase as follows:
|
• |
after one year, 92% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after two years, 94% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after three years, 96% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after four years, 98% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after five years, 100% of the purchase price or of the capital account balance, whichever is less. |
The company redeems units quarterly, subject to certain limitations as provided for in the Operating Agreement. The number of units that may be redeemed per quarter per individual member is subject to a maximum of the greater of 100,000 units or 25% of the member’s units outstanding. For redemption requests requiring more than one quarter to fully redeem, the percentage discount amount that, if any, applies when the redemption payments begin continues to apply throughout the redemption period and applies to all units covered by such redemption request regardless of when the final redemption payment is made.
The company has not established a cash reserve from which to fund redemptions. The company’s capacity to redeem units upon request is limited by the availability of cash and the company’s cash flow. The company will not, in any calendar year, redeem more than five percent (5%) of the weighted average number of units outstanding during the twelve-month period immediately prior to the date of the redemption.
Contributed capital
The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members.
Manager’s interest
If a manager is removed, withdrawn or terminated, the company will pay to the manager all amounts then accrued and owing to the manager. Additionally, the company will terminate the manager’s interest in the company’s profits, losses, distributions and capital by payment of an amount in cash equal to the then-present fair value of such interest. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered.
Unit sales commissions paid to broker-dealers/formation loan
Commissions for unit sales to be paid to broker-dealers (B/D sales commissions) are paid by RMC and are not paid directly by the company out of offering proceeds. Instead, the company advances to RMC, from offering proceeds, amounts sufficient to pay the B/D sales commissions and premiums to be paid to investors. Such advances in total may not exceed seven percent (7%) of offering proceeds. The receivable arising from the advances is unsecured, and non-interest bearing and is referred to as the “formation loan.” As of June 30, 2018 the company had made such advances of $5,229,467, of which $4,344,216 remains outstanding on the formation loan.
RMC is required to make annual payments on the formation loan in the amount of one tenth of the principal balance outstanding at December 31 of the prior year.
8
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
The term of the company will continue until 2028, unless sooner terminated as provided in the Operating Agreement.
Ongoing public offering of units/ SEC Registrations
Gross proceeds from sales of units from inception (October, 2009) through June 30, 2018 are summarized below.
|
Proceeds |
|
|
From investors - admitted |
$ |
73,284,352 |
|
From members under our DRIP |
|
7,420,354 |
|
From premiums paid by RMC(1) |
|
328,899 |
|
Total proceeds from unit sales |
$ |
81,033,605 |
|
|
(1) |
If a member acquired units through an unsolicited sale (i.e. without broker/dealer) the member’s capital account is credited with their capital contribution plus a premium paid by RMC equal to the amount of the sales commissions that otherwise would have been paid to a broker-dealer by RMC. This premium is reported in the year paid as taxable income to the member. |
In June, 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continues in effect for up to three (3) years thereafter. As of June 30, 2018, the company had sold approximately 81,034,000 units– 39,407,000 units under previous registration statements and approximately 41,627,000 units under the June 2016 registration statement. Correspondingly, gross proceeds from unit sales at $1 per unit (including units issued under the distribution reinvestment plan) were approximately $39,407,000 and $41,627,000, respectively.
The June 2016 registration statement expires June 6, 2019, and unit sales will cease, unless extended by the filing of another follow-on registration statement prior to June 3, 2019.
Use of Proceeds from sale of units
We will use the proceeds from the sale of the units to:
|
• |
make additional loans; |
|
• |
fund working capital reserves; |
|
• |
pay RMC up to 4.5% of proceeds from sale of units for organization and offering expenses; and, |
|
• |
fund a formation loan to RMC at up to 7% of proceeds from sale of units. |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Management estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates.
9
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:
|
• |
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the company has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
• |
Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly in active markets and quoted prices for identical assets or liabilities that are not active, and inputs other than quoted prices that are observable or inputs derived from or corroborated by market data. |
|
• |
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the company’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the company’s own data. |
The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition).
Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types.
Cash and cash equivalents
The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At June 30, 2018, substantially all of the company’s cash balances in banks exceed the federal depository insurance limit of $250,000.
Loans and interest income
Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower.
The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. As monthly interest payments become due, the company funds the payments into the affiliated trust account.
10
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal.
If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal.
From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired.
Interest is accrued daily based on the principal of the loans. Impaired loans continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement.
Loan administrative fees paid to RMC for loans funded or invested in by the company are capitalized and amortized over the life of the loan on a straight-line method which approximates the effective interest method.
Allowance for loan losses
Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system of record. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.
For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value.
Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss ( i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed.
The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.
At foreclosure any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses.
11
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at the lower of the amount owed on the loan (legal basis), plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing.
Recently issued accounting pronouncements
-Accounting and Financial reporting for Expected Credit Losses
The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model.
RMI IX invests in real estate secured loans made with the expectation of zero credit losses as a result of substantial protective equity provided by the underlying collateral. For a loss to be recognized under the CECL or incurred loss model, if the lending/loan-to-value guidelines are followed effectively, an intervening, subsequent-to-loan-funding, event must negatively impact the value of the underlying collateral of the loan in an amount greater than the amount of protective equity provided by the collateral. Such an event would be either (or both) of:
|
• |
an uninsured event(s) specifically impacting the collateral or |
|
• |
a non-temporary decline in values in the applicable real estate market. |
In both of these instances the treatment would be the same in the incurred loss and CECL models of approximately the same amount. Other than in these events, the probable of occurrence criteria of the incurred loss model is not triggered and a loss is not recognized. Further, if the zero-expected-loss lending guideline is preserved and the protective equity provided by the collateral is not expected to be impaired over the life of the loans, then a loss is not required to be recognized under the CECL model.
This convergence between the CECL and incurred loss models as to loss recognition – as an event driven occurrence – in low LTV, real estate secured programs caused RMC to conclude that the CECL model will not materially impact the reported results of operations or financial position as compared to that which would be reported in the incurred loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020.
-Accounting and Financial Reporting for Revenue Recognition
On May 28, 2014, FASB issued a final standard on revenue from contracts with customers. The standard issued as ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is effective January 1, 2018, and has been adopted using the modified retrospective approach.
12
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
The goals of the revenue recognition project are to clarify and converge the revenue recognition principles under U.S. GAAP and to develop guidance that would streamline and enhance revenue recognition requirements. A core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Revenue is recognized when a performance obligation is satisfied by transferring goods or services to a customer. The FASB intentionally used the wording “be entitled” rather than “receive” or “collect” to distinguish collectability risk from other uncertainties that may exist under a contract.
Adoption of the revenue standard did not have an impact on the company’s current revenue recognition policies since the scope of guidance is not applicable to financial instruments including loans and therefore did not have an impact on the recognition of interest income or late fees.
NOTE 3 – MANAGER AND OTHER RELATED PARTIES
RMC’s allocated one percent (1%) of the profits and losses was $12,044 and $9,096 for the three months ended and $23,469 and $17,264 for the six months ended June 30, 2018 and 2017, respectively.
Manager financial support (RMC support)
RMC support provided, as detailed below, totaled approximately $426,000 and $426,000 for the three months ended and $1,054,000 and $807,000, for the six months ended June 30, 2018 and 2017, respectively.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three and six months ended June 30, 2018 are presented in the following table.
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|||||||||||||||||
|
|
Loan Admin Fees |
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fee |
|
|
Costs from RMC |
|
|
Professional Services |
|
|
Other |
|
|
Total |
|
|||||||
For the three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeable/reimbursable |
|
$ |
165,940 |
|
|
$ |
38,694 |
|
|
$ |
82,066 |
|
|
$ |
177,858 |
|
|
$ |
84,213 |
|
|
$ |
8,412 |
|
|
$ |
557,183 |
|
RMC support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waived |
|
|
(165,940 |
) |
|
|
— |
|
|
|
(82,066 |
) |
|
|
(177,858 |
) |
|
|
— |
|
|
|
— |
|
|
|
(425,864 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total RMC support |
|
|
(165,940 |
) |
|
|
— |
|
|
|
(82,066 |
) |
|
|
(177,858 |
) |
|
|
— |
|
|
|
— |
|
|
|
(425,864 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged |
|
$ |
— |
|
|
$ |
38,694 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
84,213 |
|
|
$ |
8,412 |
|
|
$ |
131,319 |
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|||||||||||||||||
|
|
Loan Admin Fees |
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fee |
|
|
Costs from RMC |
|
|
Professional Services |
|
|
Other |
|
|
Total |
|
|||||||
For the six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeable/reimbursable |
|
$ |
324,303 |
|
|
$ |
73,878 |
|
|
$ |
209,910 |
|
|
$ |
362,007 |
|
|
$ |
232,050 |
|
|
$ |
22,743 |
|
|
$ |
1,224,891 |
|
RMC support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waived |
|
|
(324,303 |
) |
|
|
— |
|
|
|
(209,910 |
) |
|
|
(362,007 |
) |
|
|
— |
|
|
|
— |
|
|
|
(896,220 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(143,152 |
) |
|
|
(14,246 |
) |
|
|
(157,398 |
) |
Total RMC support |
|
|
(324,303 |
) |
|
|
— |
|
|
|
(209,910 |
) |
|
|
(362,007 |
) |
|
|
(143,152 |
) |
|
|
(14,246 |
) |
|
|
(1,053,618 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged |
|
$ |
— |
|
|
$ |
73,878 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
88,898 |
|
|
$ |
8,497 |
|
|
$ |
171,273 |
|
13
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three and six months ended June 30, 2017 are presented in the following table.
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|||||||||||||||||
|
|
Loan Admin Fees |
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fee |
|
|
Costs from RMC |
|
|
Professional Services |
|
|
Other |
|
|
Total |
|
|||||||
For the three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeable/reimbursable |
|
$ |
108,784 |
|
|
$ |
26,858 |
|
|
$ |
76,776 |
|
|
$ |
120,741 |
|
|
$ |
113,352 |
|
|
$ |
11,731 |
|
|
$ |
458,242 |
|
RMC support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waived |
|
|
(108,784 |
) |
|
|
— |
|
|
|
(76,776 |
) |
|
|
(120,741 |
) |
|
|
— |
|
|
|
— |
|
|
|
(306,301 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(110,988 |
) |
|
|
(8,645 |
) |
|
|
(119,633 |
) |
Total RMC support |
|
|
(108,784 |
) |
|
|
— |
|
|
|
(76,776 |
) |
|
|
(120,741 |
) |
|
|
(110,988 |
) |
|
|
(8,645 |
) |
|
|
(425,934 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged |
|
$ |
— |
|
|
$ |
26,858 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,364 |
|
|
$ |
3,086 |
|
|
$ |
32,308 |
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|||||||||||||||||
|
|
Loan Admin Fees |
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fee |
|
|
Costs from RMC |
|
|
Professional Services |
|
|
Other |
|
|
Total |
|
|||||||
For the six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeable/reimbursable |
|
$ |
194,861 |
|
|
$ |
51,168 |
|
|
$ |
153,552 |
|
|
$ |
218,346 |
|
|
$ |
233,091 |
|
|
$ |
14,074 |
|
|
$ |
865,092 |
|
RMC support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waived |
|
|
(194,861 |
) |
|
|
— |
|
|
|
(153,552 |
) |
|
|
(218,346 |
) |
|
|
— |
|
|
|
— |
|
|
|
(566,759 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(230,727 |
) |
|
|
(9,949 |
) |
|
|
(240,676 |
) |
Total RMC support |
|
|
(194,861 |
) |
|
|
— |
|
|
|
(153,552 |
) |
|
|
(218,346 |
) |
|
|
(230,727 |
) |
|
|
(9,949 |
) |
|
|
(807,435 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged |
|
$ |
— |
|
|
$ |
51,168 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,364 |
|
|
$ |
4,125 |
|
|
$ |
57,657 |
|
|
• |
Loan administrative fees |
RMC is entitled to receive a loan administrative fee in an amount up to one percent (1%) of the principal amount of each new loan originated or acquired on the company’s behalf by RMC for services rendered in connection with the selection and underwriting of potential loans. Such fees are payable by the company upon the closing or acquisition of each loan. Beginning in August 2015, RMC, at its sole discretion, began waiving loan administrative fees.
|
• |
Mortgage servicing fees |
RMC earns mortgage servicing fees from the company of up to one-quarter of one percent (0.25%) annually of the unpaid principal balance of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. RMC is entitled to receive these fees regardless of whether specific mortgage payments are collected. The mortgage servicing fees are accrued monthly on all loans. Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the company. An increase or decrease in this fee within the limits set by the Operating Agreement directly impacts the yield to the members.
14
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
RMC is entitled to receive a monthly asset management fee for managing the company’s portfolio and operations in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves. This amount will be recomputed annually after the second full year of operations by subtracting from the then fair value of the company’s loans plus working capital reserves, an amount equal to the outstanding debt.
RMC, at its sole discretion, may elect to accept less than the maximum amount of the asset management fee. An increase or decrease in this fee within the limits set by the Operating Agreement directly impacts the yield to the members. RMC intends to begin reducing these fee waivers by the fourth quarter of 2018. Beginning in April 2018, the calculation of the asset management fees was adjusted to conform to the specifically applicable provisions of the Operating Agreement, accordingly the 2017 dollar amounts in the table above have been updated. The previously disclosed asset management fees were $94,961 for the three months ended and $181,394 for the six months ended June 30, 2017. This update had no effect on net income or total operating expenses, as all asset management fees were waived in all periods presented.
|
• |
Costs from RMC |
RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g. postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g. RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g. by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all mortgage funds.
RMC, at its sole discretion, has elected to request less than the maximum amount of reimbursement for operating expenses. An increase or decrease in this reimbursement, within the limits set by the Operating Agreement, directly impacts the yield to the members. RMC intends to initiate collecting qualifying expenses by the fourth quarter of 2018.
|
• |
Professional Services |
Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses.
For the three months ended June 30, 2018, RMI IX paid for all professional services directly. Prior to April 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services (and other operating expenses directly incurred by the company).
Commissions and fees are paid by the borrowers to RMC.
|
• |
Brokerage commissions, loan originations |
For fees in connection with the review, selection, evaluation, negotiation and extension of loans, RMC may collect a loan brokerage commission that is expected to range from approximately 1.5% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed 4% of the total company assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the company.
|
• |
Other fees |
RMC receives fees for processing, notary, document preparation, credit investigation, reconveyance and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the company.
15
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
In the ordinary course of business, performing loans may be assigned, in-part or in-full, between the affiliated mortgage funds at par. During the six months ended June 30, 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, assigned to the company two performing loans in-full at par value of approximately $5,890,000. The company paid cash for the loans and the affiliated mortgage fund has no continuing obligation or involvement on the loans assigned to the company. During the six months ended June 30, 2017, the company assigned one loan at par value of approximately $999,995 to Redwood Mortgage Investors VIII, LP.
Formation loan
Formation loan transactions are presented in the following table.
|
|
For the six months ended |
|
|
Since Inception |
|
||
Balance, beginning of period |
|
$ |
3,777,088 |
|
|
$ |
— |
|
Formation loan advances to RMC |
|
|
569,521 |
|
|
|
5,229,467 |
|
Payments received from RMC |
|
|
— |
|
|
|
(854,077 |
) |
Early withdrawal penalties applied |
|
|
(2,393 |
) |
|
|
(31,174 |
) |
Balance, June 30, 2018 |
|
$ |
4,344,216 |
|
|
$ |
4,344,216 |
|
Subscription proceeds since inception |
|
|
|
|
|
$ |
74,584,162 |
|
Formation loan advance rate |
|
|
|
|
|
|
7 |
% |
The future minimum payments on the formation loan as of June 30, 2018 are presented in the following table.
2018 |
|
$ |
377,709 |
|
2019 |
|
|
377,709 |
|
2020 |
|
|
377,709 |
|
2021 |
|
|
377,709 |
|
2022 |
|
|
377,709 |
|
Thereafter |
|
|
2,455,671 |
|
Total |
|
$ |
4,344,216 |
|
RMC is required to make annual payments on the formation loan of one tenth of the principal balance outstanding at December 31 of the prior year. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered.
Reimbursement and allocation of organization and offering expenses
The manager is reimbursed for, or the company may pay directly, organization and offering expenses (or O&O expenses) incurred in connection with the organization of the company or offering of the units including, without limitation, attorneys’ fees, accounting fees, printing costs and other selling expenses (other than sales commissions) in a total amount not exceeding 4.5% of the original purchase price of all units (other than DRIP units) sold in all offerings (hereafter, the “maximum O&O expenses”), and the manager pays any O&O expenses in excess of the maximum O&O expenses. For each calendar quarter or portion thereof after December 31, 2015, that a member holds units (other than DRIP units) and for a maximum of forty (40) such quarters, a portion of the O&O expenses borne by the company is allocated to and debited from that member’s capital account in an annual amount equal to 0.45% of the member’s original purchase price for those units, in equal quarterly installments of 0.1125% each commencing with the later of the first calendar quarter of 2016 or the first full calendar quarter after a member’s purchase of units, and continuing through the quarter in which such units are redeemed. If at any time the aggregate O&O expenses actually paid or reimbursed by the company since inception are less than the maximum O&O expenses, the company shall first reimburse the manager for any O&O expenses previously borne by it so long as it does not result in the company bearing more than the maximum O&O expenses, and any savings thereafter remaining shall be equitably allocated among (and serve to reduce any subsequent such cost allocations to) those members who have not yet received forty (40) quarterly allocations of O&O expenses, as determined in the good faith judgment of the manager. Any O&O expenses with respect to a member’s units that remain unallocated upon redemption of such units shall be reimbursed to the company by the manager.
16
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
O & O expenses are summarized in the following table.
|
|
2018 |
|
|
Since Inception |
|
||
Balance, January 1 |
|
$ |
2,335,325 |
|
|
$ |
— |
|
O&O expenses reimbursed to RMC |
|
|
422,390 |
|
|
|
3,317,004 |
|
Early withdrawal penalties applied (1) |
|
|
(1,575 |
) |
|
|
(20,090 |
) |
O&O expenses allocated(2) |
|
|
(144,688 |
) |
|
|
(526,845 |
) |
O&O expenses reimbursed by RMC (3) |
|
|
(21,330 |
) |
|
|
(179,947 |
) |
Balance, June 30 (4) |
|
$ |
2,590,122 |
|
|
$ |
2,590,122 |
|
|
(1) |
Early withdrawal penalties collected are applied to the next installment of principal due under the formation loan and to reduce the amount owed to RMC for O&O expenses. The amounts credited will be determined by the ratio between the amount of the formation loan and the amount of offering costs incurred by the company. |
|
(2) |
Beginning in 2016, O&O expenses reimbursed to RMC by RMI IX are allocated to members’ capital accounts over 40 quarters |
|
(3) |
RMC reimburses the company for any yet unallocated O&O expenses on units redeemed prior to the 40 quarters. |
|
(4) |
Per the Operating Agreement, RMI IX reimburses RMC for O&O expenses at 4.5% gross proceeds from future unit sales. As of June 30, 2018, RMC had incurred $3,407,471 of cumulative O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC from proceeds of future unit sales. |
NOTE 4 – LOANS
Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value. As of June 30, 2018, 77 of the company’s 84 loans (representing 97% of the aggregate principal of the company’s loan portfolio) have a loan term of five years or less from loan inception. The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment penalty provision. As of June 30, 2018, 60 loans outstanding (representing 65% of the aggregate principal balance of the company’s loan portfolio) provide for monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity. The remaining loans provide for monthly payments of interest only, with the principal balance due at maturity.
Secured loans unpaid principal balance (principal)
Secured loan transactions are summarized in the following table for the three and six months ended June 30, 2018.
|
|
For the three months ended |
|
|
For the six months ended |
|
||
Principal, beginning of period |
|
$ |
57,865,391 |
|
|
$ |
54,768,689 |
|
Loans originated |
|
|
16,594,000 |
|
|
|
26,540,500 |
|
Loans acquired from affiliates |
|
|
— |
|
|
|
5,889,819 |
|
Loans sold to non-affiliate |
|
|
(14,065,638 |
) |
|
|
(14,065,638 |
) |
Principal payments received |
|
|
(6,855,023 |
) |
|
|
(19,594,640 |
) |
Principal, June 30, 2018 |
|
$ |
53,538,730 |
|
|
$ |
53,538,730 |
|
During the three and six months ended June 30, 2018, the company renewed 2 and 6 loans, at then market terms, with an aggregate principal balance of $1,168,072 and $2,492,545, respectively, which are not included in the activity shown above.
On June 27, 2018 the company closed on the sale of loans comprising approximately 20% of the loan portfolio to an unaffiliated bank (the “Acquiror”) pursuant to an Asset Sale Agreement dated June 27, 2018 (the “Asset Sale Agreement’). The Asset Sale Agreement contains customary representations, warranties, and covenants. The loans sold represented principal of $14,065,638 and interest owing of $82,027. The mortgage servicing rights were released to the Acquiror. The loans sold are secured by property located in the California counties of San Mateo, Sacramento, Contra Costa, San Bernardino, Alameda, Orange, San Francisco, Santa Clara, Sonoma, and San Joaquin. The loan sale transaction was arranged by a third-party, unaffiliated national firm engaged by RMC. Proceeds from the loan sales was $14,163,158, net of transactions costs of $70,148. The transaction generated an immaterial gain (net of expenses).
17
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
When RMC began negotiating the sale of the loans, pending (and future) loan applications meeting the investment criteria of the company exceeded the capital available to lend at closing. As this transaction occurred at quarter end, the loans to be funded in the place of the loans sold will be funded in the third quarter of 2018 from applications in the loan pipeline.
There are currently no planned future loan sales transactions, although similar transactions may be considered at a later date.
Loan characteristics
Secured loans had the characteristics presented in the following table.
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2018 |
|
|
2017 |
|
||
Number of secured loans |
|
|
84 |
|
|
|
93 |
|
Secured loans – principal |
|
$ |
53,538,730 |
|
|
$ |
54,768,689 |
|
Secured loans – lowest interest rate (fixed) |
|
|
7.0 |
% |
|
|
6.9 |
% |
Secured loans – highest interest rate (fixed) |
|
|
10.5 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
Average secured loan – principal |
|
$ |
637,366 |
|
|
$ |
588,911 |
|
Average principal as percent of total principal |
|
|
1.2 |
% |
|
|
1.1 |
% |
Average principal as percent of members’ capital |
|
|
0.9 |
% |
|
|
0.9 |
% |
Average principal as percent of total assets |
|
|
0.9 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
|
Largest secured loan – principal |
|
$ |
3,497,402 |
|
|
$ |
3,239,124 |
|
Largest principal as percent of total principal |
|
|
6.5 |
% |
|
|
5.9 |
% |
Largest principal as percent of members’ capital |
|
|
4.7 |
% |
|
|
5.0 |
% |
Largest principal as percent of total assets |
|
|
4.9 |
% |
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
Smallest secured loan – principal |
|
$ |
87,907 |
|
|
$ |
52,562 |
|
Smallest principal as percent of total principal |
|
|
0.2 |
% |
|
|
0.1 |
% |
Smallest principal as percent of members’ capital |
|
|
0.1 |
% |
|
|
0.1 |
% |
Smallest principal as percent of total assets |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
Number of California counties where security is located |
|
|
14 |
|
|
|
16 |
|
Largest percentage of principal in one California county |
|
|
23.6 |
% |
|
|
22.6 |
% |
|
|
|
|
|
|
|
|
|
Number of secured loans with filed notice of default |
|
|
1 |
|
|
|
1 |
|
Secured loans in foreclosure – principal |
|
$ |
138,426 |
|
|
$ |
139,643 |
|
|
|
|
|
|
|
|
|
|
Number of secured loans with an interest reserve |
|
|
— |
|
|
|
— |
|
Interest reserves |
|
$ |
— |
|
|
$ |
— |
|
As of June 30, 2018, the company’s largest loan with principal of $3,497,402 represents 6.5% of outstanding secured loans and 4.9% of company assets. The loan is secured single family residence located in San Mateo County, bears an interest rate of 7.50% and matures on May 1, 2019. As of June 30, 2018, the company had 1 loan with a notice of default filed.
In compliance with California laws and regulations, all borrower receipts are deposited into a bank trust account maintained by RMC and subsequently disbursed to the company after an appropriate holding period. At June 30, 2018, the trust account held a balance relating to the company’s loan portfolio of $77,843, consisting of both interest and principal payments from borrowers, all of which was disbursed by July 18, 2018.
18
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Secured loans had the lien positions presented in the following table.
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||||||||||||||||||
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
||||||
First trust deeds |
|
|
42 |
|
|
$ |
26,567,704 |
|
|
|
50 |
% |
|
|
60 |
|
|
$ |
37,032,195 |
|
|
|
68 |
% |
Second trust deeds |
|
|
42 |
|
|
|
26,971,026 |
|
|
|
50 |
|
|
|
33 |
|
|
|
17,736,494 |
|
|
|
32 |
|
Total secured loans |
|
|
84 |
|
|
|
53,538,730 |
|
|
|
100 |
% |
|
|
93 |
|
|
|
54,768,689 |
|
|
|
100 |
% |
Liens due other lenders at loan closing |
|
|
|
|
|
|
53,660,795 |
|
|
|
|
|
|
|
|
|
|
|
31,545,806 |
|
|
|
|
|
Total debt |
|
|
|
|
|
$ |
107,199,525 |
|
|
|
|
|
|
|
|
|
|
$ |
86,314,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appraised property value at loan closing |
|
|
|
|
|
$ |
216,434,000 |
|
|
|
|
|
|
|
|
|
|
$ |
181,018,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total debt to appraised values (LTV) at loan closing(1) |
|
|
|
|
|
|
52.8 |
% |
|
|
|
|
|
|
|
|
|
|
53.5 |
% |
|
|
|
|
(1) |
Based on appraised values and liens due other lenders at loan closing. The weighted-average loan-to-value (LTV) computation above does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders. |
Property type
Secured loans summarized by property type are presented in the following table.
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||||||||||||||||||
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
||||||
Single family(2) |
|
|
59 |
|
|
$ |
36,378,340 |
|
|
|
68 |
% |
|
|
67 |
|
|
$ |
37,615,216 |
|
|
|
69 |
% |
Multi-family |
|
|
9 |
|
|
|
6,474,401 |
|
|
|
12 |
|
|
|
5 |
|
|
|
2,164,861 |
|
|
|
4 |
|
Commercial |
|
|
16 |
|
|
|
10,685,989 |
|
|
|
20 |
|
|
|
21 |
|
|
|
14,988,612 |
|
|
|
27 |
|
Total secured loan balance |
|
|
84 |
|
|
$ |
53,538,730 |
|
|
|
100 |
% |
|
|
93 |
|
|
|
54,768,689 |
|
|
|
100 |
% |
(2) |
Single family property type as of June 30, 2018 consists of 12 loans with principal of $8,107,237 that are owner occupied and 47 loans with principal of $28,271,103 that are non-owner occupied. At December 31, 2017, single family property consisted of 10 loans with principal of $6,309,036 that are owner occupied and 57 loans with principal of $31,306,180 that are non-owner occupied. |
19
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Distribution of loans within California
The distribution of secured loans by counties is presented in the following table as of June 30, 2018, and December 31, 2017.
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||||||||||
|
|
Principal |
|
|
Percent |
|
|
Principal |
|
|
Percent |
|
||||
San Francisco Bay Area(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Mateo |
|
$ |
7,628,843 |
|
|
|
14.3 |
% |
|
$ |
7,800,549 |
|
|
|
14.2 |
% |
San Francisco |
|
|
7,440,268 |
|
|
|
13.9 |
|
|
|
8,338,720 |
|
|
|
15.1 |
|
Alameda |
|
|
6,011,233 |
|
|
|
11.2 |
|
|
|
9,869,036 |
|
|
|
18.0 |
|
Santa Clara |
|
|
5,842,399 |
|
|
|
10.9 |
|
|
|
5,461,084 |
|
|
|
10.0 |
|
Contra Costa |
|
|
3,127,788 |
|
|
|
5.8 |
|
|
|
1,511,195 |
|
|
|
2.8 |
|
Sonoma |
|
|
300,000 |
|
|
|
0.6 |
|
|
|
— |
|
|
|
— |
|
Solano |
|
|
— |
|
|
|
— |
|
|
|
109,443 |
|
|
|
0.2 |
|
|
|
|
30,350,531 |
|
|
|
56.7 |
|
|
|
33,090,027 |
|
|
|
60.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Northern California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Placer |
|
|
640,195 |
|
|
|
1.2 |
|
|
|
642,913 |
|
|
|
1.2 |
|
Sacramento |
|
|
— |
|
|
|
— |
|
|
|
850,000 |
|
|
|
1.6 |
|
Yolo |
|
|
— |
|
|
|
— |
|
|
|
174,758 |
|
|
|
0.3 |
|
San Joaquin |
|
|
— |
|
|
|
— |
|
|
|
157,039 |
|
|
|
0.3 |
|
|
|
|
640,195 |
|
|
|
1.2 |
|
|
|
1,824,710 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern California Total |
|
|
30,990,726 |
|
|
|
57.9 |
|
|
|
34,914,737 |
|
|
|
63.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles & Coastal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
|
|
12,645,932 |
|
|
|
23.6 |
|
|
|
12,357,456 |
|
|
|
22.6 |
|
Orange |
|
|
4,081,922 |
|
|
|
7.6 |
|
|
|
1,487,747 |
|
|
|
2.7 |
|
San Diego |
|
|
2,921,478 |
|
|
|
5.5 |
|
|
|
2,192,746 |
|
|
|
4.0 |
|
Santa Barbara |
|
|
992,739 |
|
|
|
1.8 |
|
|
|
996,768 |
|
|
|
1.8 |
|
Ventura |
|
|
348,567 |
|
|
|
0.7 |
|
|
|
350,000 |
|
|
|
0.6 |
|
|
|
|
20,990,638 |
|
|
|
39.2 |
|
|
|
17,384,717 |
|
|
|
31.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Southern California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Bernardino |
|
|
1,200,000 |
|
|
|
2.2 |
|
|
|
2,110,000 |
|
|
|
3.9 |
|
Riverside |
|
|
357,366 |
|
|
|
0.7 |
|
|
|
359,235 |
|
|
|
0.7 |
|
|
|
|
1,557,366 |
|
|
|
2.9 |
|
|
|
2,469,235 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern California Total |
|
|
22,548,004 |
|
|
|
42.1 |
|
|
|
19,853,952 |
|
|
|
36.3 |
|
Total Secured Loans |
|
$ |
53,538,730 |
|
|
|
100.0 |
% |
|
$ |
54,768,689 |
|
|
|
100.0 |
% |
(3) |
Includes Silicon Valley |
20
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Secured loans are scheduled to mature as presented in the following table as of June 30, 2018.
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
|||
2018(4) |
|
|
5 |
|
|
$ |
6,998,966 |
|
|
|
13 |
% |
2019 |
|
|
41 |
|
|
|
28,779,755 |
|
|
|
53 |
|
2020 |
|
|
15 |
|
|
|
7,295,429 |
|
|
|
14 |
|
2021 |
|
|
12 |
|
|
|
5,359,857 |
|
|
|
10 |
|
2022 |
|
|
5 |
|
|
|
1,464,100 |
|
|
|
3 |
|
Thereafter |
|
|
4 |
|
|
|
618,289 |
|
|
|
1 |
|
Total future maturities |
|
|
82 |
|
|
|
50,516,396 |
|
|
|
94 |
|
Matured as of June 30, 2018 |
|
|
2 |
|
|
|
3,022,334 |
|
|
|
6 |
|
Total secured loan balance |
|
|
84 |
|
|
$ |
53,538,730 |
|
|
|
100 |
% |
(4) |
Loans maturing in 2018 from July 1 to December 31. |
2 loans with an aggregate principal balance of $3,022,334 were past maturity at June 30, 2018. One loan, with a principal balance of $138,426 was 425 days delinquent and designated as impaired and in non-accrual status at June 30, 2018. The other loan with a principal balance of $2,883,908 matured on June 1, 2018 and was not designated as impaired or in non-accrual status at June 30, 2018 and paid off in full in July 2018.
Loans may be repaid or refinanced before, at or after the contractual maturity date. On matured loans, the company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.
Delinquency
Secured loans summarized by payment delinquency are presented in the following table as of June 30, 2018 and December 31, 2017.
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||||||||||
|
|
Loans |
|
|
Amount |
|
|
Loans |
|
|
Amount |
|
||||
Past Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days |
|
|
— |
|
|
$ |
— |
|
|
|
3 |
|
|
$ |
1,259,100 |
|
90-179 days |
|
|
1 |
|
|
|
428,784 |
|
|
|
— |
|
|
|
— |
|
180 or more days |
|
|
1 |
|
|
|
138,426 |
|
|
|
1 |
|
|
|
139,643 |
|
Total past due |
|
|
2 |
|
|
|
567,210 |
|
|
|
4 |
|
|
|
1,398,743 |
|
Current |
|
|
82 |
|
|
|
52,971,520 |
|
|
|
89 |
|
|
|
53,369,946 |
|
Total secured loan balance |
|
|
84 |
|
|
$ |
53,538,730 |
|
|
|
93 |
|
|
$ |
54,768,689 |
|
Loans in non-accrual status
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||
Number of loans |
|
$ |
1 |
|
|
$ |
1 |
|
Principal investment |
|
|
138,426 |
|
|
|
139,643 |
|
Advances |
|
|
4,369 |
|
|
|
969 |
|
Accrued Interest |
|
|
5,662 |
|
|
|
11,025 |
|
Total recorded investment |
|
$ |
148,457 |
|
|
$ |
151,637 |
|
Foregone interest |
|
$ |
10,670 |
|
|
$ |
4,306 |
|
At June 30, 2018, one loan with a principal balance of $428,784 was 90 or more days past due as to principal or interest and not in non-accrual status. No loans were 90 or more days past due as to principal or interest and not in non-accrual status at December 31, 2017.
21
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Impaired loans/allowance for loan losses
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||
Principal |
|
$ |
567,210 |
|
|
$ |
139,643 |
|
Recorded investment(5) |
|
|
593,766 |
|
|
|
151,637 |
|
Impaired loans without allowance |
|
|
593,766 |
|
|
|
151,637 |
|
Impaired loans with allowance |
|
|
— |
|
|
|
— |
|
Allowance for loan losses, impaired loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Number of loans |
|
|
2 |
|
|
|
1 |
|
(5)Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes.
Two and one loans were designated as impaired at June 30, 2018 and at December 31, 2017, respectively. No allowance for loan losses has been recorded as all loans were deemed to have protective equity (i.e., low loan-to-value ratio) such that collection is reasonably assured for all amounts owing.
Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the six months ended June 30, 2018 and the year ended December 31, 2017.
|
|
June 30, 2018 |
|
|
December 31, 2017 |
|
||
Average recorded investment |
|
$ |
372,702 |
|
|
$ |
536,934 |
|
Interest income recognized |
|
|
— |
|
|
|
8,602 |
|
Interest income received in cash |
|
|
5,363 |
|
|
|
4,342 |
|
Modifications and troubled debt restructurings
No loan payment modifications were made during three and six months ended June 30, 2018, and no modifications were in effect at June 30, 2018 and December 31, 2017.
Commitments/loan disbursements/construction and rehabilitation loans
As of June 30, 2018, the company had no construction loans outstanding. The company may make construction loans that are not fully disbursed at loan inception. Construction loans are determined by the manager to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multi-family properties. The company will approve and fund the construction loan up to a maximum loan balance. Disbursements will be made periodically as phases of the construction are completed or at such other times as the loan documents may require. Undisbursed construction funds will be held in escrow pending disbursement. Upon project completion, construction loans are reclassified as permanent loans. Funding of construction loans is limited to 10% of the loan portfolio.
At June 30, 2018, the company had no rehabilitation loans outstanding. The company may also make rehabilitation loans. A rehabilitation loan will be approved up to a maximum principal balance and, at loan inception, will be either fully or partially disbursed. If fully disbursed, a rehabilitation escrow account is established and advanced periodically as phases of the rehabilitation are completed or at such other times as the loan documents may require. If not fully disbursed, the rehabilitation loan will be funded from available cash balances and future cash receipts. The company does not maintain a separate cash reserve to fund undisbursed rehabilitation loan obligations. Rehabilitation loan proceeds are generally used to acquire and remodel single family homes for future sale or rental. Upon project completion, rehabilitation loans are reclassified as permanent loans. Funding of rehabilitation loans is limited to 15% of the loan portfolio.
22
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
The company does not record its loans at fair value on a recurring basis as it is the intention of the company to hold loans until maturity. As substantially all loans are written without a prepayment penalty provision, the recorded amount of the performing loan (i.e., the loan balance) is deemed to approximate fair value as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized such that collection of the amount owed is assured, including forgone interest, if any).
Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis. No assets or liabilities were measured at fair value on a non-recurring basis at and for the periods ended June 30, 2018 or December 31, 2017.
Secured loans, performing (i.e. not designated as impaired) (Level 2) - Each loan is reviewed quarterly for its delinquency, LTV adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. Also considered is the limited resale market for the loans. Most companies or individuals making similar loans as the company intend to hold the loans until maturity as the average contractual term of the loans (and the historical experience of the time the loan is outstanding due to pre-payments) is shorter than conventional mortgages. As there are no prepayment penalties to be collected, loan buyers may be hesitant to risk paying above par. Due to these factors, sales of the loans are infrequent, and an active market does not exist. The recorded amount of the performing loans (i.e. the loan balance) is deemed to approximate the fair value, although the intrinsic value of the loans, if held to maturity, would reflect a premium due to the interest to be received being at a rate favorable to conventional mortgage rates.
Secured loans, designated impaired (Level 2) - Secured loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions (Level 2 inputs).
The following methods and assumptions are used to determine the fair value of the collateral securing a loan.
Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison method. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition and year built.
If applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of brokers’ opinions of value or appraisals.
Multi-family residential – Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, rental income, number of units, composition of units by the number of bedrooms and bathrooms, square footage, condition, amenities and year built.
Management’s secondary method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals.
Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals.
23
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
June 30, 2018 (unaudited)
Management supplements the direct capitalization method with additional information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.
Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.
NOTE 5 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS
Commitments
The company had two contractual obligations as of June 30, 2018:
|
• |
To reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales. As of June 30, 2018, RMC had incurred $3,407,471 of cumulative O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC from proceeds of future unit sales; and, |
|
• |
Redemptions of members' capital scheduled of $929,284 , to be paid between 2018 and 2021. |
Scheduled redemptions as of June 30, 2018 are presented in the following table.
2018 |
|
$ |
902,119 |
|
2019 |
|
|
12,000 |
|
2020 |
|
|
12,000 |
|
2021 |
|
|
3,165 |
|
Total |
|
$ |
929,284 |
|
Legal proceedings
In the normal course of its business, the company may become involved in legal proceedings (such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc.) to collect the debt owed under the promissory notes, to enforce the provisions of the deeds of trust, to protect its interest in the real property subject to the deeds of trust and to resolve disputes with borrowers, lenders, lien holders and mechanics. None of these actions, in and of themselves, typically would be of any material financial impact to the net income or balance sheet of the company. As of the date hereof, the company is not involved in any legal proceedings other than those that would be considered part of the normal course of business.
NOTE 6 – SUBSEQUENT EVENTS
None.
24
The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto, which are included in Item 1 of this report on Form 10-Q, as well as the audited financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the U.S. Securities and Exchange Commission (or SEC). The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the operations results to be expected for the full year.
Forward-Looking Statements
Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding the company’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements, which are based on various assumptions (some of which are beyond our control), may be identified by reference to a future period or periods or by use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” “possible” or similar terms or variations on those terms or the negative of those terms. Forward-looking statements include statements regarding trends in the California real estate market; future interest rates and economic conditions and their effect on the company and its assets; estimates as to the allowance for loan losses; forecasts of future sales and redemptions of units, forecasts of future funding of loans; loan payoffs and the possibility of future loan sales (and the gain thereon, net of expenses) to third parties, if any; forecasts of future financial support by the manager including the eventual elimination of financial support; future fluctuations in the net distribution rate; and beliefs relating to how the company will be affected by current economic conditions and trends in the financial and credit markets. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the following:
|
• |
changes in economic conditions, interest rates, and/or changes in California real estate markets; |
|
• |
the impact of competition and competitive pricing for mortgage loans; |
|
• |
the ability to grow our mortgage lending business in line with future unit sales; |
|
• |
the manager’s ability to make and arrange for loans that fit our investment criteria; |
|
• |
whether we will have any loan sales to unaffiliated third parties, and, if we do,the gain, net of expenses, and the volume/timing of loan sales to unaffiliated third parties; |
|
• |
the timing and dollar amount of the decreasing financial support from the manager and the corresponding impact on the net distribution rate to members; |
|
• |
the concentration of credit risks to which we are exposed; |
|
• |
increases in payment delinquencies and defaults on our mortgage loans; and |
|
• |
changes in government regulation and legislative actions affecting our business. |
All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.
Overview
Redwood Mortgage Investors IX, LLC (we, RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment loans secured by California real estate, primarily through first and second deeds of trust. The company is externally managed. Redwood Mortgage Corp. (RMC, the manager or management) is the manager of the company.
See Note 1 (Organization and General) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for additional detail on the organization and operations of RMI IX which detail is incorporated by this reference into this Item 2. For a detailed presentation of the company activities for which related parties are compensated and related transactions, including the formation loan to RMC, See Note 1 (Organization and General) and Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report, which presentation is incorporated by this reference into this Item 2.
25
Since commencement of operations in 2009, the manager, at its sole discretion, provided significant financial support to the company which affected the net income, cash available for distribution, and the net-distribution rate, including:
|
• |
charging less than the maximum allowable fees under the Ninth Amended and Restated Limited Liability Company Operating Agreement of RMI IX (the “Operating Agreement”); |
|
• |
not requesting reimbursement of qualifying costs attributable to the company (“Costs from RMC”) on the Statements of Income); and/or, |
|
• |
absorbing most of the company’s direct expenses, such as professional fees. |
Such fee and cost-reimbursement waivers and the absorbing of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the company has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees and/or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased our financial performance and resulted in an annual 6.5% net distribution rate since our inception (6.95% before O&O expense allocation of 0.45% annually when applicable).
In March 2018, the manager communicated to the members a reduction of the net distribution rate as an annualized percentage of members’ capital from 6.5% to 6.0% for March 2018 and that effective April 1, 2018, RMC would cease absorbing any of the company’s direct expenses. Further, by the fourth quarter of 2018, RMC will have begun reducing fee waivers and/or commenced requesting reimbursement of qualifying costs attributable to the company (i.e. Costs from RMC). By July 2019, we will be paying RMC, in accordance with the Operating Agreement, the fees to which it is entitled, and will be reimbursing RMC for the qualifying costs attributable to the company. As financial support from the manager decreases and eventually ceases, net distribution rates will decrease correspondingly. However, there is the possibility the expected decrease in the net distribution rate could be partially offset by increased revenue from higher interest rates on loans and/or from other potential sources of revenue, such as gains, net of expenses, on loan sales to unaffiliated third parties; however as discussed below, if future market conditions and the characteristics of the company’s loan portfolio do not materially deviate from market conditions during the period ended June 30, 2018, the company does not believe any such actions will materially offset any decrease in net distribution rates.
We believe the dollar amount of increased revenues, if any, from higher interest rates and from net gains on loan sales is not expected to have a significant impact on our net income in the remainder of 2018 or beyond. The United States has experienced historically low interest rates for ten years following the 2007/2008 financial crisis and the subsequent Great Recession. Interest rate actions by the Federal Reserve Bank during the past 18 months raised yields on short-term interest rate, however, the yield on the U.S. Treasury 10-year note is lower than when RMI IX commenced operations in 2009. Also, there is significant competition among lenders for loans with low loan-to-value ratios secured by California real estate in the markets in which RMC lends. The competition has, in general, held interest rates steady to date on loans funded.
On June 27, 2018 the company closed on the sale of loans comprising approximately 20% of the loan portfolio to an unaffiliated bank (the “Acquiror”) pursuant to an Asset Sale Agreement dated June 27, 2018 (the “Asset Sale Agreement’). The Asset Sale Agreement contains customary representations, warranties, and covenants. The loans sold represented principal of $14,065,638 and interest owing of $82,027. The mortgage servicing rights were released to the Acquiror. The loans sold are secured by property located in the California counties of San Mateo, Sacramento, Contra Costa, San Bernardino, Alameda, Orange, San Francisco, Santa Clara, Sonoma, and San Joaquin. The loan sale transaction was arranged by a third-party, unaffiliated national firm engaged by RMC. Proceeds from the loan sales was $14,163,158, net of transaction costs of $70,148. The transaction generated an immaterial gain (net of expenses) for the reasons set forth below.
When RMC began negotiating the sale of the loans, pending (and future) loan applications meeting the investment criteria of the company exceeded the capital available to lend at closing. As this transaction occurred at quarter end, the loans to be funded in the place of the loans sold will be funded in the third quarter of 2018 from applications in the loan pipeline. Notwithstanding potential loan sales, we will attempt, although we cannot guarantee, to be fully invested in loans in the future.
Most companies or individuals making similar loans as the company intend to hold the loans until maturity as the average contractual term of the loans (and the historical experience of the time the loan is outstanding due to pre-payments) is shorter than conventional mortgages. Because there are no prepayment penalties to be collected on the company’s loans, loan buyers may be hesitant to risk paying above par. Due to these factors, sales of the loans are infrequent, and an active market does not exist. There are currently no planned future loan sales transactions, although similar transactions may be considered at a later date.
Fees and cost reimbursements to RMC by us under the Operating Agreement in addition to fees collected by RMC at loan origination by borrowers are sources of funds that enable RMC to retain staff and management, repay the formation loan which was the source of funds to pay commissions to broker-dealers for raising our capital, to pay unreimbursed O&O expenses, and to have RMC’s cash flow exceed the carrying value of its intangible assets.
26
Ongoing public offering of units/ SEC Registrations
In June, 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continues for up to three (3) years thereafter. As of June 30, 2018, we had sold approximately 81,034,000 units – 39,407,000 units under our previous registration statements and 41,627,000 units under our current registration which is effective as of June 2016. Correspondingly, gross proceeds from unit sales at $1 per unit (including units issued under our distribution reinvestment plan) were approximately $39,407,000 and $41,627,000, respectively.
Our registration statement expires June 6, 2019, and unit sales will cease, unless extended by the filing of another follow-on registration statement prior to June 3, 2019.
The units have been registered pursuant to Section 12(g) of the Exchange Act of 1934 (or the Exchange Act). Such registration of the units, along with the satisfaction of certain other requirements under ERISA, enables the units to qualify as “publicly-offered securities” for purposes of ERISA and regulations issued thereunder. By satisfying those requirements, the underlying assets of the company should not be considered assets of a “benefit plan investor” (as defined under ERISA) by virtue of the investment by such benefit plan investor in the units.
The following summarizes the proceeds from sales of units, from inception (October, 2009) through June 30, 2018.
|
Proceeds |
|
|
From investors - admitted |
$ |
73,284,352 |
|
From members under our DRIP |
|
7,420,354 |
|
From premiums paid by RMC(1) |
|
328,899 |
|
Total proceeds from unit sales |
$ |
81,033,605 |
|
(1) |
If a member acquired units through an unsolicited sale (i.e. without broker/dealer) the member’s capital account is credited with their capital contribution plus a premium paid by RMC equal to the amount of the sales commissions that otherwise would have been paid to a broker-dealer by RMC. This premium is reported in the year paid as taxable income to the member. |
The proceeds from the sales of the units will not be segregated but will be commingled with the company’s cash. The ongoing sources of funds for loans are the proceeds from:
|
• |
sale of members’ units (net of reimbursement to RMC of O&O expenses), including units sold by reinvestment of distributions; |
|
• |
loan payoffs; |
|
• |
borrowers’ monthly principal and interest payments; |
|
• |
loan sales; and, |
|
• |
a line of credit, if obtained. |
Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, reimbursements to RMC of O&O expenses, and unit redemptions. The cash flow, if any, in excess of these uses is reinvested in new loans.
Critical Accounting Policies
See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for a detailed presentation of critical accounting policies, which presentation is incorporated by this reference into this Item 2.
Results of Operations
General economic conditions – California
All of our mortgage loans are secured by California real estate. Our secured-loan investment activity and the value of the real estate securing our loans is significantly dependent on economic activity and employment conditions in the state. Wells Fargo’s Economics Group periodically provides timely, relevant information and analysis in its commentary and reports regarding California’s employment and economic conditions. Highlights from a recently issued report from Wells Fargo Securities Economic Group is presented below.
In the publication “California Gets a Jump on 2018” dated March 9, 2018:
27
“Nonfarm employment fell for the second month in a row in California, as employers cut a net 7,300 jobs during March. The drop follows a 5,200-job decline in February. Despite the declines, employment remains up solidly on a year-to-year basis, climbing 2.1 percent and posting a net gain of 345,200 jobs. California’s unemployment rate was unchanged in March at 4.3 percent, which matches its modern era low. The number of employed Californians has increased 1.5 percent over the past year, or more than three times faster than the labor force has risen. The number of unemployed has fallen 17.1 percent over the past year.”
“The recent pullback in nonfarm employment may simply be statistical noise. The monthly data can bounce around quite a bit, and the October to January period averaged close to 50,000 net new jobs per month. Taking the past six months together, the monthly average gain is now 30,400 jobs, which is more in line with the year-to-year trend. Most major industry categories posted declines during March, led by other services, retail trade, financial activities and management of companies. The softness in these four sectors may be more problematic than the slowing of the overall data. The most common occupations in the other services category are car detailers, automotive technicians, hair stylists, manicurists and parking lot attendants–most of which, with the exception of automotive technicians, are relatively low paid jobs that earn less than $25,000 a year. Workers in these fields are increasingly leaving the state as it has become exceptionally difficult for them to afford to live in California. The tighter labor market may also be opening the door for workers in lower-paying occupations to land jobs in higher paying fields. Workers in lower-paying occupations in retail trade and financial services are also increasingly being priced out of the state, while the drop in jobs in management of companies, which has fallen in 8 of the past 12 months and is down 0.4 percent year-to-year, likely reflects the relocation of corporate offices and headquarters to other states. Even companies that are staying in California are increasingly moving administrative functions to lower cost areas in Arizona, Nevada, Utah, Texas and the Southeast.”
“California’s education & health services sector has supplied some of the strongest year-over-year payroll growth in the state at 3.3 percent, second only to the much smaller construction industry. The 88,000 jobs added in education and health care account for one quarter of the jobs added in California during the past year, with most of the gain coming in health care and social assistance.”
“Health care is an important driver of the California economy according to the recently-released Occupational Employment Statistics, which provides annual detail on payrolls and average earnings for occupations within major industries. According to the report, the healthcare and social assistance sector is the largest in the state and employs nearly 2.4 million workers with an average annual wage of $57,260. Over half of those jobs can be found in just two major occupation categories that are at opposite ends of the wage spectrum. Healthcare practitioners and technical occupations is at the top end of the wage spectrum, with its 668,730 workers earning an average annual wage of $99,090. …”
“Educational services is the fourth largest aggregate employer in the state with 1,473,180 in total employment and an average wage of $62,950. Within that broad category, education, training and library services accounted for just under two-thirds of jobs in 2017. While the average annual wage for the sector is $66,090, the distribution of wages within the category varies considerably. Elementary school teachers are the largest subsector in the category, which numbered 156,320 in the state, and earned an above average wage of $78,010. Postsecondary teachers fell at the high- end of the wage spectrum, earning the highest average annual earnings of the sector at $93,757. Indeed, the 27 highest paying teaching occupations in education services are all at colleges and universities, led by health specialties instructors, who earn over $158,000 per year. Teacher assistant, however, is the second largest occupation in the education services category, employing 140,540 workers, yet earned $35,020 on average.”
In addition to the Wells Fargo article above, several articles have been published recently regarding California’s economic recovery since the “great recession,” excerpts from one such article posted on the LA Times website by Associated Press, May 4, 2018, 1:50pm “California is now the world's fifth-largest economy, surpassing United Kingdom” reads as follows:
“California's economy has surpassed that of the United Kingdom to become the world's fifth largest, according to new federal data made public Friday.
California's gross domestic product rose by $127 billion from 2016 to 2017, surpassing $2.7 trillion, the data said. Meanwhile, the U.K.'s economic output slightly shrank over that time when measured in U.S. dollars, due in part to exchange rate fluctuations.
The data demonstrate the sheer immensity of California's economy, home to nearly 40 million people, a thriving technology sector in Silicon Valley, the world's entertainment capital in Hollywood and the nation's salad bowl in the Central Valley agricultural heartland. It also reflects a substantial turnaround since the Great Recession.
All economic sectors except agriculture contributed to California's higher GDP, said Irena Asmundson, chief economist at the California Department of Finance. Financial services and real estate led the pack at $26 billion in growth, followed by the information sector, which includes many technology companies, at $20 billion. Manufacturing was up $10 billion.
California last had the world's fifth largest economy in 2002 but fell as low as 10th in 2012 following the Great Recession. Since then, the most populous U.S. state has added 2 million jobs and grown its GDP by $700 billion.
California's economic output is now surpassed only by the total GDP of the United States, China, Japan and Germany. The state has 12% of the U.S. population but contributed 16% of the country's job growth between 2012 and 2017. Its share of the national economy also grew to 14.2% from 12.8% over that five-year period, according to state economists.
28
California's strong economic performance relative to other industrialized economies is driven by worker productivity, said Lee Ohanian, an economics professor at UCLA and director of the university's Ettinger Family Program in Macroeconomic Research. The United Kingdom has 25 million more people than California but now has a smaller GDP, he said.
California's economic juggernaut is concentrated in coastal metropolises around San Francisco, San Jose, Los Angeles and San Diego.”
Key Performance Indicators
The table below shows key performance indicators at and for the six months ended June 30.
|
|
2018 |
|
|
2017 |
|
|
||
Secured loans – end of period balance |
|
$ |
53,538,730 |
|
|
$ |
46,490,743 |
|
|
Secured loans – average daily balance |
|
$ |
59,332,000 |
|
|
$ |
42,040,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans, gross |
|
$ |
2,496,900 |
|
|
$ |
1,776,244 |
|
|
Portfolio interest rate(1) |
|
|
8.4 |
% |
|
|
8.5 |
% |
|
Effective yield rate(2) |
|
|
8.4 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan administrative fees, net(7) |
|
$ |
3,254 |
|
|
$ |
— |
|
|
Percent of average daily balance(2) |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Interest on loans, net |
|
$ |
2,493,647 |
|
|
$ |
1,776,244 |
|
|
Percent of average daily balance(2) |
|
|
8.4 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
$ |
— |
|
|
$ |
— |
|
|
Percent of average daily balance(2) |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total operations expense(7) |
|
$ |
171,273 |
|
|
$ |
57,657 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(7) |
|
$ |
2,346,862 |
|
|
$ |
1,726,414 |
|
|
Percent of average members’ capital(3)(4) |
|
|
6.6 |
% |
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Member Distributions, net |
|
$ |
2,178,920 |
|
|
$ |
1,595,811 |
|
|
Percent of average members’ capital(3)(4)(5) |
|
|
6.1 |
% |
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Members’ capital, gross – end of period balance |
|
$ |
76,346,119 |
|
|
$ |
54,391,904 |
|
|
Members’ capital, gross – average daily balance |
|
$ |
70,621,000 |
|
|
$ |
48,800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Member Redemptions(6) |
|
$ |
702,640 |
|
|
$ |
453,462 |
|
|
(1) |
Stated note interest rate, weighted daily average (annualized) |
(2) |
Percent of secured loans – average daily balance (annualized) |
(3) |
Percent of members’ capital, gross – average daily balance (annualized) |
(4) |
Percent based on the net income available to members (excluding 1% allocated to manager) |
(5) |
Members Capital Distributed is net of O&O costs allocated to members during the year |
(6) |
Scheduled member redemptions as of June 30, 2018 were $929,284 payable between 2018 and 2021. Scheduled member redemptions as of June 30, 2017 were $246,800, payable in 2017. |
(7) See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2
29
The table below shows key performance indicators at and for the three months ended June 30.
|
|
2018 |
|
|
2017 |
|
|
||
Secured loans – end of period balance |
|
$ |
53,538,730 |
|
|
|
46,490,743 |
|
|
Secured loans – average daily balance |
|
$ |
62,866,000 |
|
|
|
44,575,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans, gross |
|
$ |
1,319,168 |
|
|
|
940,264 |
|
|
Portfolio interest rate(1) |
|
|
8.4 |
% |
|
|
8.5 |
% |
|
Effective yield rate(2) |
|
|
8.4 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan administrative fees, net(7) |
|
|
3,254 |
|
|
|
— |
|
|
Percent of average daily balance(2) |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Interest on loans, net |
|
$ |
1,315,915 |
|
|
|
940,264 |
|
|
Percent of average daily balance(2) |
|
|
8.4 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
$ |
— |
|
|
|
— |
|
|
Percent of average daily balance(2) |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total operations expense(7) |
|
$ |
131,319 |
|
|
|
32,308 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(7) |
|
$ |
1,204,373 |
|
|
|
909,594 |
|
|
Percent of average members’ capital(3)(4) |
|
|
6.6 |
% |
|
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Member Distributions, net |
|
$ |
1,088,573 |
|
|
|
838,456 |
|
|
Percent of average members’ capital(3)(4)(5) |
|
|
5.9 |
% |
|
|
6.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Members’ capital, gross – end of period balance |
|
$ |
76,346,119 |
|
|
|
54,391,904 |
|
|
Members’ capital, gross – average balance |
|
$ |
72,774,000 |
|
|
|
51,223,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Member Redemptions(6) |
|
$ |
299,240 |
|
|
|
53,152 |
|
|
(1) |
Stated note interest rate, weighted daily average (annualized) |
(2) |
Percent of secured loans – average daily balance (annualized) |
(3) |
Percent of members’ capital, gross – average daily balance (annualized) |
(4) |
Percent based on the net income available to members (excluding 1% allocated to manager) |
(5) |
Members Capital Distributed is net of O&O costs allocated to members during the year |
(6) |
Scheduled member redemptions as of June 30, 2018 were $929,284 payable between 2018 and 2021. Scheduled member redemptions as of June 30, 2017 were $246,800, payable in 2017. |
(7) See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2
Secured loans
The secured loan balance at June 30, 2018 of $53,538,730 was an increase of approximately 15.2% ($7.0 million) over 2017’s $46,490,743. The increased balance of the secured loan portfolio is due to the 1) increased balance of members’ capital which provides additional capital for funding loans, and 2) the favorable economic environment generally and to increased investment in California real estate markets specifically, both of which expands the opportunity for new loans. Due to the sale of approximately $14.1 million on June 27, 2018, the average daily balance of secured loans (three months ended) was approximately $9.3 million higher than the end of period secured loan. As this transaction occurred at quarter end, the loans to be funded in the place of the loans sold will be funded in the third quarter of 2018 from applications in the loan pipeline. Secured loans as a percent of member’s capital (based on average balances) was 86.4% and 87.0% for three months ended June 30, 2018 and 2017, respectively.
30
Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value. As of June 30, 2018, 77 of the company’s 84 loans (representing 97% of the aggregate principal of the company’s loan portfolio) had a loan term of five years or less from loan inception. The remaining loans had terms longer than five years. Substantially all loans are written without a prepayment-penalty provision. As of June 30, 2018, 60 loans outstanding (representing 65% of the aggregate principal balance of the company’s loan portfolio) provide for monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity. The remaining loans provide for monthly payments of interest only, with principal due in full at maturity.
We have sought to exercise strong discipline in underwriting loan applications and lending against collateral at amounts that create a mortgage portfolio that has substantial protective equity (i.e., safety margins to outstanding debt) as indicated by the overall conservative weighted average loan-to-value ratio (LTV) which at June 30, 2018 was approximately 52.8%. Thus, per the appraisal-based valuations at the time of loan inception, borrowers have, in the aggregate, equity of 47.2% in the property, and we as lenders have lent in the aggregate 52.8% (including other senior liens on the property) against the properties we hold as collateral for the repayment of our loans.
On June 27, 2018 the company closed on the sale of loans comprising principal of $14,065,638 and interest owing of $82,027. The mortgage servicing rights were released to the Acquiror. Proceeds for the sale of loans was $14,163,158 net of transaction costs of $70,148. The transaction generated an immaterial gain (net of expenses).
See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for detailed presentations on the secured loan portfolio and on the allowance for loan losses, which presentations are incorporated by this reference into this Item 2.
Performance overview
Revenue from the interest on loans, net for the six months ended June 30, 2018 increased by approximately $717,000, over the same period in 2017, due to the increased average loan balance of the secured loan portfolio. Operations expense for the six months ended June 30, 2018 increased by approximately $114,000, over the same period in 2017 due primarily to the termination of financial support from RMC for our direct operating expenses (e.g. professional services and other direct operating expenses) beginning April 1, 2018, and an increase in mortgage servicing fees due to an increased loan portfolio.
For the three months ended June 30, 2018, RMC ceased absorbing our direct expenses for professional services (legal and audit/tax-compliance) and other operating expenses (postage, printing etc.) resulting in an annual net distribution rate of 5.935%. During the three months ended June 30, 2017, RMC, in its sole discretion, provided financial support in the amounts of $110,988 and $8,645 for professional services and other direct operating expenses, respectively.
RMC support that was provided to us totaled approximately $426,000 and $426,000 for the three months ended and $1,054,000 and $807,000 for the six months ended June 30, 2018 and 2017, respectively. However, this support is being reduced and RMC has stated that all support will ultimately cease by July 2019, as discussed below. See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item I of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2.
31
Analysis and Discussion of income from operations 2018 v. 2017 (six months ended)
Significant changes to revenue and expenses during the six months ended June 30, 2018 and 2017 are summarized in the following table.
|
|
Interest on loans, net |
|
|
Provision For Loan Losses |
|
|
Operations Expense |
|
|
Net Income |
|
||||
For the six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 |
|
$ |
2,493,647 |
|
|
|
— |
|
|
|
171,273 |
|
|
|
2,346,862 |
|
June 30, 2017 |
|
|
1,776,244 |
|
|
|
— |
|
|
|
57,657 |
|
|
|
1,726,414 |
|
Change |
|
$ |
717,403 |
|
|
|
— |
|
|
|
113,616 |
|
|
|
620,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance increase |
|
$ |
725,958 |
|
|
|
— |
|
|
|
22,710 |
|
|
|
703,248 |
|
Loan portfolio effective yield rate |
|
|
(8,555 |
) |
|
|
— |
|
|
|
— |
|
|
|
(8,555 |
) |
Gain on sale, loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,246 |
|
Late fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,415 |
|
Capital balance increase |
|
|
— |
|
|
|
— |
|
|
|
200,019 |
|
|
|
(200,019 |
) |
RMC fees/costs waived |
|
|
— |
|
|
|
— |
|
|
|
(200,019 |
) |
|
|
200,019 |
|
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
83,278 |
|
|
|
(83,278 |
) |
Expense Reductions |
|
|
— |
|
|
|
— |
|
|
|
(1,041 |
) |
|
|
1,041 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
8,669 |
|
|
|
(8,669 |
) |
Change |
|
$ |
717,403 |
|
|
|
— |
|
|
|
113,616 |
|
|
|
620,448 |
|
The table above displays only significant changes to net income for the period, and is not intended to cross foot.
See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.
Interest on Loans, net
Interest on loans increased by $717,403 due to growth of the secured loan portfolio. The portfolio has strong payment history with 2 loans (representing 1.1% of the aggregate principal balance of the company’s loan portfolio) currently designated as impaired. The Secured loans – average daily balance at June 30, 2018 increased approximately $17.3 million, or approximately 41.1% over the average daily balance at June 30, 2017.
Provision for loan losses
At June 30, 2018 and 2017, the company had not recorded an allowance for loan losses as all loans had protective equity such that at June 30, 2018 and 2017, collection was deemed probable.
Total Principal amounts past due more than 90 days at June 30, 2018 and 2017 were $567,210 and $1,074,838 (representing 1.1% and 2.3% of the aggregate principal balance of the company’s loan portfolio), respectively.
Operations expense
Operations expense as a percent of interest on loans, net was approximately 6.9% and 3.2% for the six months ended June 30, 2018 and 2017, respectively. The increase in operations expense was due primarily to RMC ceasing to absorb our direct operating expenses (e.g. professional service expense and other direct operating expenses), beginning April 1, 2018, and an increase in mortgage servicing fees due to an increase average daily balance in the secured loan portfolio.
As discussed above, beginning in April 2018, RMC ceased absorbing our direct expenses, and intends, by the fourth quarter of 2018, to begin reducing fee waivers and commence collecting reimbursable expenses so that by July 2019 we will be paying RMC the fees it is entitled to under the Operating Agreement and reimbursing RMC for expenses attributed to us.
32
Significant changes to Operations expense during the six months ended June 30, 2018 and 2017, are summarized in the following table.
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fees, net |
|
|
Costs From RMC, net |
|
|
Professional Services, net |
|
|
Other |
|
|
Total |
|
||||||
For the six months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 |
|
$ |
73,878 |
|
|
|
— |
|
|
|
— |
|
|
|
88,898 |
|
|
|
8,497 |
|
|
|
171,273 |
|
June 30, 2017 |
|
|
51,168 |
|
|
|
— |
|
|
|
— |
|
|
|
2,364 |
|
|
|
4,125 |
|
|
|
57,657 |
|
Change |
|
$ |
22,710 |
|
|
|
— |
|
|
|
— |
|
|
|
86,534 |
|
|
|
4,372 |
|
|
|
113,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance increase |
|
$ |
22,710 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,710 |
|
Capital balance increase |
|
|
— |
|
|
|
56,358 |
|
|
|
143,661 |
|
|
|
— |
|
|
|
— |
|
|
|
200,019 |
|
RMC fees/costs waived |
|
|
— |
|
|
|
(56,358 |
) |
|
|
(143,661 |
) |
|
|
— |
|
|
|
— |
|
|
|
(200,019 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
87,575 |
|
|
|
(4,297 |
) |
|
|
83,278 |
|
Expense Reductions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,041 |
) |
|
|
— |
|
|
|
(1,041 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,669 |
|
|
|
8,669 |
|
Change |
|
|
22,710 |
|
|
|
— |
|
|
|
— |
|
|
|
86,534 |
|
|
|
4,372 |
|
|
|
113,616 |
|
See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.
•Mortgage Servicing fees
The increase in mortgage servicing fees of $22,710 was consistent with the increase in the average daily secured loan portfolio to $59,332,000, noted above in Key Performance Indicators, at the annual rate of 0.25%
•Asset management fee
The total amount of asset management fees chargeable were $209,910 and $153,552 for the six months ended June 30, 2018 and 2017, respectively. Of the total amount chargeable, RMC, at its sole discretion, waived all asset management fees for the six months ended June 30, 2018 and 2017, respectively.
•Costs through RMC
Cost incurred by RMC, for which reimbursement could have been requested were $362,007 and $218,346 for the six months ended June 30, 2018 and 2017, respectively. RMC, at its sole discretion, waived all reimbursements for the six months ended June 30, 2018 and 2017, respectively.
•Professional Services
Professional services consist primarily of legal, audit and tax-compliance expenses. Professional service expense incurred during the six months ended June 30, 2018 and 2017 was $232,050 and $233,091, respectively. The decrease in professional service expense incurred of $1,041 was offset by a RMC ceasing to absorb our direct operating expenses beginning April 1, 2018. During the six months ended June 30, 2018 and 2017, RMC, in its sole discretion, reimbursed $143,152 and $230,727 of professional services, respectively.
33
Analysis and discussion of income from operations 2018 v. 2017 (three months ended)
Significant changes to revenue and expenses during three months ended June 30, 2018 and 2017 are summarized in the following table.
|
|
Interest on loans, net |
|
|
Provision For Loan Losses |
|
|
Operations Expense |
|
|
Net Income |
|
||||
For the three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 |
|
$ |
1,315,915 |
|
|
|
— |
|
|
|
131,319 |
|
|
|
1,204,373 |
|
June 30, 2017 |
|
|
940,264 |
|
|
|
— |
|
|
|
32,308 |
|
|
|
909,594 |
|
Change |
|
$ |
375,651 |
|
|
|
— |
|
|
|
99,011 |
|
|
|
294,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance increase |
|
$ |
375,651 |
|
|
|
— |
|
|
|
11,836 |
|
|
|
363,815 |
|
Gain on sale, loans |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,246 |
|
Late fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,893 |
|
Capital balance increase |
|
|
— |
|
|
|
— |
|
|
|
62,407 |
|
|
|
(62,407 |
) |
RMC fees/costs waived |
|
|
— |
|
|
|
— |
|
|
|
(62,407 |
) |
|
|
62,407 |
|
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
119,633 |
|
|
|
(119,633 |
) |
Expense Reductions |
|
|
— |
|
|
|
— |
|
|
|
(32,458 |
) |
|
|
32,458 |
|
Change |
|
$ |
375,651 |
|
|
|
— |
|
|
|
99,011 |
|
|
|
294,779 |
|
The table above displays only significant changes to net income for the period, and is not intended to cross foot.
See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.
Interest on loans, net
Interest on loans increased by $375,651 due to growth of the secured loan portfolio. The portfolio has a strong payment history, with two loans (representing 1.1% of the aggregate principal balance of the company loan portfolio) currently designated as impaired. The Secured loans – average daily balance at June 30, 2018 increased approximately $18.3 million, or approximately 41.0%, over the average daily balance at June 30, 2017.
Provision for loan losses
At June 30, 2018 and 2017, the company had not recorded an allowance for loan losses as all loans had protective equity such that at June 30, 2018 and 2017, collection was deemed probable for amounts owing.
Total principal amounts past due more than 90 days at June 30, 2018 and 2017 were $567,210 and $1,074,838 (representing 1.1% and 2.3% of the aggregate principal balance of the company’s loan portfolio), respectively.
Operations expense
Operations expense as a percent of interest on loans, net was approximately 10.0% and 3.4% for the three months ended June 30, 2018 and 2017, respectively. The increase in operations expense was due primarily to RMC ceasing to absorb our direct operating expenses (e.g. professional services and other direct operating expense), beginning April 1, 2018, and an increase in mortgage servicing fees due to an increase average daily balance in the secured loan portfolio.
As discussed above, beginning April 1, 2018, RMC no longer provides financial support by absorbing our direct expenses, and intends, by the fourth quarter of 2018, to begin reducing fee waivers and commence collecting reimbursable expenses so that by July 2019 we will be paying RMC the fees and cost reimbursements it is entitled to under the Operating Agreement and reimbursing RMC for expenses attributed to us.
34
Significant changes to operations expense during the three months ended June 30, 2018 and 2017, are summarized in the following table.
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fees, net |
|
|
Costs From RMC, net |
|
|
Professional Services, net |
|
|
Other |
|
|
Total |
|
||||||
For the three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018 |
|
$ |
38,694 |
|
|
|
— |
|
|
|
— |
|
|
|
84,213 |
|
|
|
8,412 |
|
|
|
131,319 |
|
June 30, 2017 |
|
|
26,858 |
|
|
|
— |
|
|
|
— |
|
|
|
2,364 |
|
|
|
3,086 |
|
|
|
32,308 |
|
Change |
|
$ |
11,836 |
|
|
|
— |
|
|
|
— |
|
|
|
81,849 |
|
|
|
5,326 |
|
|
|
99,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance increase |
|
$ |
11,836 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,836 |
|
Capital balance increase |
|
|
— |
|
|
|
5,290 |
|
|
|
57,117 |
|
|
|
— |
|
|
|
— |
|
|
|
62,407 |
|
RMC fees/costs waived |
|
|
— |
|
|
|
(5,290 |
) |
|
|
(57,117 |
) |
|
|
— |
|
|
|
— |
|
|
|
(62,407 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110,988 |
|
|
|
8,645 |
|
|
|
119,633 |
|
Expense Reductions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29,139 |
) |
|
|
(3,319 |
) |
|
|
(32,458 |
) |
Change |
|
|
11,836 |
|
|
|
— |
|
|
|
— |
|
|
|
81,849 |
|
|
|
5,326 |
|
|
|
99,011 |
|
See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.
•Mortgage servicing fees
The increase in mortgage servicing fees of $11,836 was consistent with the increase in the average daily secured loan portfolio to $62,866,000, noted above in Key Performance Indicators, at the annual rate of 0.25%.
•Asset management fees
The total amount of asset management fees chargeable were $82,066 and $76,776 for the three months ended June 30, 2018 and 2017, respectively. Of the total amount chargeable, RMC, at its sole discretion, waived all asset management fees for the three months ended June 30, 2018 and 2017, respectively.
•Costs through RMC
Costs incurred by RMC, for which reimbursement could have been requested were $177,858 and $120,741 for the three months ended June 30, 2018 and 2017, respectively. RMC, at its sole discretion, waived all reimbursements for the three months ended June 30, 2018 and 2017, respectively.
•Professional services
Professional services consist primarily of legal, audit and tax-compliance expenses. Professional services incurred during the three months ended June 30, 2018 and 2017 declined to $84,213 from $113,352, respectively, due to the timing of services provided and increased efficiency in the reporting process. The decrease in professional services incurred of $29,139 was offset by RMC ceasing to absorb our direct operating expenses beginning April 1, 2018. During the three months ended June 30, 2017, RMC, in its sole discretion, reimbursed $110,998 of professional service expenses.
35
Members' capital, cash flows and liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows by business activity are presented in the following table for the three and six months ended June 30.
|
|
For the three months ended |
|
|
For the six months ended |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Members’ capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions by members, net |
|
$ |
3,101,230 |
|
|
$ |
5,666,527 |
|
|
$ |
7,449,992 |
|
|
$ |
10,209,440 |
|
Organization and offering costs, net |
|
|
(269,560 |
) |
|
|
(201,094 |
) |
|
|
(401,060 |
) |
|
|
(367,850 |
) |
Formation loan, net |
|
|
(211,727 |
) |
|
|
(404,368 |
) |
|
|
(569,521 |
) |
|
|
(720,319 |
) |
Distributions and redemptions, net |
|
|
(837,021 |
) |
|
|
(428,863 |
) |
|
|
(1,732,490 |
) |
|
|
(1,163,813 |
) |
Cash – members’ capital, net |
|
|
1,782,922 |
|
|
|
4,632,202 |
|
|
|
4,746,921 |
|
|
|
7,957,458 |
|
Loan principal/advances/interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal collected |
|
$ |
6,855,023 |
|
|
$ |
6,882,268 |
|
|
$ |
19,594,640 |
|
|
$ |
12,118,788 |
|
Loans sold to non-affiliate, net |
|
|
14,163,158 |
|
|
|
— |
|
|
|
14,163,158 |
|
|
|
— |
|
Loans sold to affiliates |
|
|
— |
|
|
|
999,995 |
|
|
|
— |
|
|
|
999,995 |
|
Interest received, net |
|
|
1,224,758 |
|
|
|
884,161 |
|
|
|
2,388,949 |
|
|
|
1,730,943 |
|
Other loan income |
|
|
4,483 |
|
|
|
1,688 |
|
|
|
9,344 |
|
|
|
7,877 |
|
Loan funding & advances, net |
|
|
(16,593,435 |
) |
|
|
(10,878,215 |
) |
|
|
(26,542,583 |
) |
|
|
(19,495,089 |
) |
Loans acquired from affiliates |
|
|
— |
|
|
|
— |
|
|
|
(5,889,819 |
) |
|
|
— |
|
Cash – loans, net |
|
|
5,653,987 |
|
|
|
(2,110,103 |
) |
|
|
3,723,689 |
|
|
|
(4,637,486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
(163,236 |
) |
|
|
(27,638 |
) |
|
|
(165,839 |
) |
|
|
(52,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash |
|
$ |
7,273,673 |
|
|
$ |
2,494,461 |
|
|
$ |
8,304,771 |
|
|
$ |
3,267,858 |
|
The table below shows the breakout of distributions for the six months ended June 30, 2018 and 2017.
|
|
2018 |
|
|
2017 |
|
||
DRIP |
|
$ |
1,187,760 |
|
|
$ |
885,459 |
|
Cash |
|
|
991,160 |
|
|
|
710,352 |
|
Total |
|
$ |
2,178,920 |
|
|
$ |
1,595,811 |
|
Percent of members’ capital, electing cash distribution |
|
|
45 |
% |
|
|
45 |
% |
The table below shows the company’s unit redemptions for the three and six months ended June 30, 2018 and 2017.
|
|
Three months ended |
|
|
Six months ended |
|
||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
Capital redemptions-without penalty |
|
$ |
259,817 |
|
|
$ |
29,500 |
|
|
$ |
575,867 |
|
|
$ |
407,788 |
|
Capital redemptions-subject to penalty |
|
|
39,423 |
|
|
|
23,652 |
|
|
|
126,773 |
|
|
|
45,674 |
|
Total |
|
$ |
299,240 |
|
|
$ |
53,152 |
|
|
$ |
702,640 |
|
|
$ |
453,462 |
|
Scheduled redemptions at June 30, 2018 were $929,284, to be paid between 2018 and 2021.
The ongoing sources of funds for loans are the proceeds from:
|
• |
sale of members’ units (net of reimbursement to RMC of O&O expenses), including units sold by reinvestment of distributions; |
|
• |
loan payoffs; |
|
• |
borrowers’ monthly principal and interest payments; |
|
• |
loan sales; and, |
|
• |
a line of credit, if obtained. |
36
The company’s loans generally have shorter maturity terms than typical mortgages. As a result, constraints on the ability of our borrowers to refinance their loans at maturity possibly would have a negative impact on their ability to repay their loans. In the event a borrower is unable to repay at maturity, the company may consider extending the term through a loan modification or foreclosing on the property. A reduction in loan repayments would reduce the company’s cash flows and restrict the company’s ability to invest in new loans and/or, if ongoing for an extended period, provide earnings distributions and redemptions of members’ capital.
Generally, within a broad range, the company’s rates on mortgage loans is not affected by market movements in interest rates. If, as expected, we continue to make and invest in fixed rate loans primarily, and interest rates were to rise, a possible result would be lower prepayments of the company’s loans. This increase in the duration of time loans are on the books may reduce overall liquidity, which itself may reduce the company’s investment into new loans at higher interest rates. Conversely, if interest rates were to decline, we could see a significant increase in borrower prepayments. If we then invest in new loans at lower rates of interest, a lower yield to members may possibly result.
Contractual obligations
The company had two contractual obligations as of June 30, 2018.
|
• |
To reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales. As of June 30, 2018, RMC had incurred $3,407,471 of cumulative O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC from proceeds of future unit sales; and, |
|
• |
Redemptions of members' capital scheduled of $929,284, to be paid between 2018 and 2021. |
Scheduled redemptions as of June 30, 2018 are presented in the following table.
2018 |
|
$ |
902,119 |
|
2019 |
|
|
12,000 |
|
2020 |
|
|
12,000 |
|
2021 |
|
|
3,165 |
|
Total |
|
$ |
929,284 |
|
See Note 3 (Manager and Other Related Parties) and Note 5 (Commitments and Contingencies, Other Than Loan Commitments) to the financial statements included in Part I, Item 1 of this report for a detailed presentation on commitments and contingencies, which presentation is incorporated by this reference into this Item 2.
At June 30, 2018, the company had no construction or rehabilitation loans outstanding.
The Company has no off-balance sheet arrangements as such arrangements are not permitted by the Operating Agreement.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not included because the company is a smaller reporting company.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The company is externally managed by RMC. The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for us to conduct our business, as we have no employees of our own.
As a limited liability company, we do not have a board of directors, nor, therefore, do we have an audit committee of the board of directors. Thus, there is not conventional independent oversight of the company’s financial reporting process. The manager, however, provides the equivalent functions of a board of directors and of an audit committee for, among other things, the following purposes:
|
• |
Appointment; compensation, and review and oversight of the work of our independent public accountants; and |
|
• |
establishing and maintaining internal controls over our financial reporting. |
37
RMC, as the manager, carried out an evaluation, with the participation of RMC's President (acting as principal executive officer/principal financial officer) of the effectiveness of the design and operation of the manager's controls and procedures over financial reporting and disclosure (as defined in Rule 13a-15 of the Exchange Act) for the year ended December 31, 2017. Based upon that evaluation, RMC's principal executive officer/principal financial officer concluded that the manager's disclosure controls and procedures were effective.
Changes to Internal Control Over Financial Reporting
There have not been any changes in internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the manager’s or company’s internal control over financial reporting.
38
ITEM 1. |
Legal Proceedings |
In the normal course of business, the company may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc. to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes or protect or recoup its investment from the real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of June 30, 2018, the company was not involved in any legal proceedings other than those that would be considered part of the normal course of business.
ITEM 1A. |
Risk Factors |
There have been no material changes to the risk factors set forth in the “Risk Factors” section of the Prospectus filed with the SEC on May 1, 2018.
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Recent Sales of Unregistered Securities
There were no sales of securities by the company which were not registered under the Securities Act of 1933.
Use of Proceeds from Registered Securities
On June 6, 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and is effective for up to three (3) years thereafter. The registration statement was amended on May 1, 2018. As of June 30, 2018, we had sold approximately 81,034,000 units – 39,407,000 units under our previous registration statements and 41,627,000 units under our 2016 registration statement. Correspondingly, gross proceeds from unit sales at $1 per unit (including units issued under our distribution reinvestment plan) were approximately– $39,407,000 and $41,627,000, respectively.
The current registration statement is effective for 3 years and expires June 6, 2019, and unit sales will cease, unless extended by the filing of another follow-on registration statement prior to June 3, 2019.
The units have been registered pursuant to Section 12(g) of the Exchange Act. Such registration of the units, along with the satisfaction of certain other requirements under ERISA, enables the units to qualify as “publicly-offered securities” for purposes of ERISA and regulations issued thereunder. By satisfying those requirements, the underlying assets of the company should not be considered assets of a “benefit plan investor” (as defined under ERISA) by virtue of the investment by such benefit plan investor in the units.
The following summarizes the proceeds from sales of units from inception (October 2009) through June 30, 2018.
|
Proceeds |
|
|
From investors - admitted |
$ |
73,284,352 |
|
From members under our DRIP |
|
7,420,354 |
|
From premiums paid by RMC(1) |
|
328,899 |
|
Total proceeds from unit sales |
$ |
81,033,605 |
|
|
(1) |
If a member acquired units through an unsolicited sale, the member’s capital account is credited with their capital contribution plus a premium paid by RMC equal to the amount of the sales commissions that otherwise would have been paid to a broker-dealer by RMC. This amount is reported in the year paid as taxable income to the member. |
The proceeds from the sales of the units will not be segregated but will be commingled with the company’s cash. The ongoing sources of funds for loans are the proceeds from
|
• |
sale of units, including units sold by reinvestment of distributions; |
|
• |
loan payoffs; |
|
• |
borrowers’ monthly principal and interest payments; |
|
• |
loan sales; and, |
|
• |
a line of credit, if obtained. |
Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, reimbursements to RMC of O&O expenses, and unit redemptions. The cash flow, if any, in excess of these uses is reinvested in new loans.
39
For a description of the formation loan advances made by RMI IX to RMC from offering proceeds to pay broker dealer sales commissions, see Note 3 (Manager and other Related Parties) to the financial statements included in Part I, Item 1 of this report, which information is incorporated by reference in this Item 2.
Redemptions are made once a quarter, on the last business day of the quarter. Redemptions for the three months ended June 30, 2018 were $299,240. The unit redemption program is ongoing and available to members beginning one year after the purchase of the units. The maximum number of units that may be redeemed in any year and the maximum amount of redemption available in any period to members are subject to certain limitations.
On June 20, 2018, RMC, the company’s manager, approved an amendment of our Operating Agreement to delete Section 7.4(c) effective June 7, 2018. The California Department of Business Oversight (the “Department”) in connection with the company’s annual renewal of its California securities registration required that Section 7.4(c) be deleted from the Operating Agreement. Section 7.4(c) required that instruments evidencing the company’s membership interests include a legend stating it is unlawful to consummate a sale or transfer of the company’s membership interests without the prior written consent of the Commissioner of Corporations of the State of California, except as permitted in the Commissioner’s rules. The company was advised by the Department that this requirement is no longer applicable.
ITEM 3. |
Defaults Upon Senior Securities |
Not Applicable.
ITEM 4. |
Mine Safety Disclosures |
Not Applicable.
ITEM 5. |
Other Information |
Report issued by Redwood Mortgage Corp. on the fair market value per unit at December 31, 2017 of limited liability company units in Redwood Mortgage Investors IX, LLC, is filed as exhibit 99.1 and is incorporated by reference.
ITEM 6. |
Exhibits |
Exhibit No. |
|
Description of Exhibits |
|
|
|
3.3 |
|
|
|
|
|
10.8 |
|
|
|
|
|
31.1 |
|
Certification of Manager pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
Certification of Manager pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
99.1 |
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
40
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
REDWOOD MORTGAGE INVESTORS IX, LLC |
|||
|
(Registrant) |
|||
|
|
|
||
Date: August 14, 2018 |
By: |
Redwood Mortgage Corp., Manager |
||
|
|
|
|
|
|
|
By: |
/s/ Michael R. Burwell |
|
|
|
Name: |
Michael R. Burwell |
|
|
|
Title: |
President, Secretary and Treasurer |
|
|
|
|
(On behalf of the registrant, and in the capacity of principal financial officer) |
41
Exhibit 10.8
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT ("Agreement"), entered into this 27th day of June, 2018, by and between the undersigned Seller and Buyer sets forth the terms and conditions whereby the Seller agrees to sell and the Buyer agrees to purchase the Loan(s) identified herein. For purposes of clarification, Redwood Mortgage Corp. (RMC) is a licensed real estate broker in the State of California. RMC brokers real estate secured loans between borrowers and its investors, Redwood Mortgage Investors VIII, a limited partnership, (“RMI 8”) and Redwood Mortgage Investors IX, LLC, a limited liability company (“RMI 9”). RMC’s president is Michael Burwell. RMC is one of the general partners of RMI 8. RMC is one of the managers of RMI 9. Notwithstanding the foregoing, the negotiation of this Asset Sale Agreement is being handled by RMI 8 and RMI 9 as independent entities, through either its general partner or its manager.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Seller and the Buyer hereby agree as follows:
1.Definitions. Capitalized terms shall be defined as set forth in this Agreement, including in Appendix A to this Agreement.
2.Agreement to Purchase and Sell. Subject to and in accordance with the terms and conditions of this Agreement, the Seller hereby agrees to sell, assign, transfer and convey to the Buyer on the Closing Date, and the Buyer hereby agrees to purchase and accept on the Closing Date, all rights, title, and interests of the Seller, together with all payment and performance obligations of the Seller, as of the Closing Date, in, to and under the Loan(s) set forth on Schedule A attached hereto. The Loan(s) shall be sold on a whole loan servicing released basis.
3.Payment of Purchase Price; Closing. The closing shall occur on the Closing Date, by delivery of Closing Documents by hand or overnight delivery.
3.1Intentionally Omitted.
3.2Payment of Adjusted Purchase Price. On the Closing Date, the Buyer shall pay to the Seller by wire transfer in immediately available funds, the amount of the Purchase Price, adjusted as follows: (i) ) less all principal payments received by the Seller on account of the Loan(s) from the Calculation Date through the day before the Closing Date multiplied by the Bid Percentage, (ii) plus accrued and unpaid interest with respect to an Loan(s) which are not more than sixty (60) days past due, (iii) less any escrows held by, or plus any escrows owed to, the Seller relating to the Loan(s), and (iv) plus any protective advances made by the Seller, in its
reasonable discretion between the Calculation Date and the Closing Date. The adjusted Purchase Price shall be calculated on a settlement statement prepared by the Seller and available for the Buyer's review two Business Days prior to the Closing Date.
3.3Conveyance. Upon receipt of the Purchase Price, the Seller shall sell, assign, transfer and convey the Loan(s) to the Buyer subject to and in accordance with the provisions of this Agreement.
3.4Taxes, Fees, Etc. The Buyer shall pay all transfer, filing and recording fees, taxes, costs and expenses, and any applicable documentary taxes, required to be paid by either the Seller or the Buyer in connection with the transactions contemplated hereby, and hereby agrees to indemnify and hold the Seller harmless from and against any and all claims, liability, costs and expenses arising out of or in connection with the failure of the Buyer to pay any such amount on a timely basis. The Seller shall be entitled to require the payment of any such fees, taxes, costs and expenses at or prior to the closing and as a condition thereof. This Section shall not require the Buyer to pay any taxes, costs or expenses related to the Seller’s sale or income tax obligations occasioned by the sale of the Loan(s).
3.5Payments Subsequent to the Closing Date. From time to time after the Closing Date the Seller shall pay to the Buyer, within five (5) Business Days after receipt thereof, the net amount of any Collections received by the Seller on or after the Closing Date (to the extent collected in good funds by the Seller) and not already so paid to the Buyer, but only after all payments due to the Seller from the Buyer in connection with the sale of the Loan(s) have been paid to the Seller, including, without limitation, any costs and expenses related to any Collections.
4.Transfer of Loan(s).
4.1Closing Documents. Upon receipt of the Purchase Price, as adjusted pursuant to Section 3.2, the Seller shall deliver to the Buyer (i) a Bill of Sale in the form attached hereto as Attachment 1, selling, assigning, transferring and conveying to the Buyer all rights, title and interests of the Seller in, to and under the Loan(s), all on the terms and conditions set forth in this Agreement; (ii) the original Note(s), or affidavits of lost Note(s), endorsed to the Buyer by allonge in the form attached hereto as Attachment 2; and (iii) assignment(s) of the Mortgage(s) in the form attached hereto as Attachment 3 (collectively, to the extent delivered to the Buyer, the "Closing Documents"). The endorsements and assignments included in the Closing Documents shall be without recourse, representation or warranty of any kind or nature. Such qualifying language on the endorsements and assignments shall not affect, limit or enlarge the obligations of
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
the Seller and the rights, remedies and recourse of the Buyer under this Agreement. The Seller shall furnish to the Buyer (i) drafts of the Closing Documents, and (ii) final pay histories with respect to the Loan(s) at least one day prior to the Closing Date.
4.2Delivery of Closing Documents. The Seller shall make the Closing Documents available for review by the Buyer prior to the closing. The Seller shall have the Closing Documents delivered to the Buyer by hand or overnight delivery upon Seller's receipt of the adjusted Purchase Price.
4.3Delivery of Collateral Documents, Etc. Within five (5) calendar days of the Closing Date, the Seller shall deliver to the Buyer the entire Review File including, without limitation, originals of each Collateral Document to the extent originals are in the Seller's possession.
4.4Execution of Separate Loan Assignments. At and after the closing, to the extent prepared by the Buyer, the Seller shall execute, and acknowledge if appropriate, for delivery to the Buyer one or more additional documents to the extent required by applicable public recording or filing laws to transfer to such Buyer the rights, title and interests of the Seller in, to and under the purchased Loan(s) (collectively, "Separate Loan Assignments"). The Separate Loan Assignments shall be without recourse, representation or warranty of any kind or nature. Such qualifying language on the Separate Loan Assignments shall not affect, limit or enlarge the obligations of the Seller and the rights, remedies and recourse of the Buyer under this Agreement. The Buyer shall prepare and furnish any and all further Separate Loan Assignments, if necessary, in form satisfactory to the Seller. The Buyer shall promptly file or record each Separate Loan Assignment, at its sole cost and expense.
4.5Hazard, Liability Insurance, Etc. At the request and sole cost and expense of the Buyer, the Seller shall cooperate with the Buyer in executing written requests to each hazard, casualty and liability insurer, and to the writing agent for each flood hazard insurer, issuing a policy of insurance obtained by an Obligor with respect to the Loan(s), requesting an endorsement of its policy of insurance effective on the Closing Date adding the Buyer as the mortgagee, the loss payee and/or an insured named therein, as the case may be, together with
instructions that such endorsement be forwarded directly to the Buyer, with a copy to the Seller at the address herein specified for notices. Each such request shall be prepared by the Buyer at its sole cost and expense, and any additional premium or other charge in connection therewith shall be paid by the Buyer. The Buyer shall not be entitled to be added to or acquire an interest in any policy of insurance obtained by the Seller. Any loss on or after the Closing Date either to an Obligor, the Buyer or to the value or collectability of the Loan(s) due to the Seller's cancellation
of collateral or real property risk insurance or its failure to identify the Buyer as loss payee,
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
mortgagee or other insured is the sole responsibility of the Buyer. To the extent the Loan(s) constitute personal or real property, the Seller expressly disclaims any obligation to provide title insurance, pay property taxes, or pay any related transaction taxes or other fees.
5.Representations and Warranties of the Buyer. The Buyer hereby represents and warrants as follows:
5.1Organization, Existence, Etc. The Buyer is duly formed or organized, validly existing and in good standing under the laws of the jurisdiction of its formation or organization, and is registered or qualified to conduct business in all other jurisdictions in which the failure to be so registered or qualified would materially and adversely affect the ability of the Buyer to perform its obligations hereunder.
5.2Authority and Enforceability, Etc. The Buyer has the power and authority to execute, deliver and perform each of the Sale Documents to which it is a party and has taken all necessary action to authorize such execution, delivery and performance. The Buyer's execution of this Agreement and its performance of its obligations hereunder are not subject to any further approval, vote or contingency from any person or committee. Assuming due authorization, execution and delivery by the Seller, the Sale Documents and all obligations of the Buyer thereunder are the legal, valid and binding obligations of the Buyer, enforceable in accordance
with the terms of the Sale Documents, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
5.3Conflict with Existing Laws or Contracts. The execution and delivery of the Sale Documents and the performance by the Buyer of its obligations thereunder will not conflict with or be a breach of any provision of any law, regulation, judgment, order, decree, writ, injunction, contract, agreement or instrument to which the Buyer is subject; and the Buyer has obtained any consent, approval, authorization or order of any court or governmental agency or body required for the execution, delivery and performance by the Buyer of the Sale Documents.
5.4Financial Condition. Neither the Buyer nor any general partner, limited partner, shareholder or joint venturer in the Buyer is involved in any financial difficulties which would impair or prevent a closing pursuant to this Agreement on the Closing Date. The Buyer has now and will have as of the Closing Date sufficient liquid assets, capital and net worth to meet its obligations under the Sale Documents and to pay the Purchase Price without any financing or other contingencies.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
5.5Decision to Purchase. The Buyer's bid and decision to purchase the Loan(s) is based upon its own comprehensive review and independent expert evaluation and analysis of the Review File and other materials deemed relevant by the Buyer and its agents. The Buyer has made such independent investigation as the Buyer deems to be warranted into the nature, title, attachment, perfection, priority, validity, enforceability, collectability, and value of the Loan(s), the title, condition and value of any collateral securing the Loan(s), the market conditions and other characteristics of the places where any such collateral is located, and all other facts it deems material to the purchase of the Loan(s).
5.6 No Reliance. In entering into this Agreement and the other Sale Documents, the Buyer has not relied upon any oral or written information from the Seller or any of its respective employees, agents, attorneys or representatives, other than the limited representations and warranties of the Seller contained herein. The Buyer acknowledges that no employee, agent, attorney or representative of the Seller has been authorized to make, and that the Buyer has not relied upon, any statements, representations or warranties other than those specifically contained in this Agreement.
5.7 Buyer a Sophisticated Investor. The Buyer is a sophisticated investor (as that term is used in regulations promulgated under the Securities Act of 1933) who could withstand the loss of the entire Purchase Price.
5.8Information True and Correct, Full Disclosure. The information provided by the Buyer in connection with its negotiations with Seller was true and correct on the date provided and did not omit any information necessary to the accuracy and full disclosure of information provided and such information is accurate and complete on the date hereof except as the Buyer has otherwise disclosed in writing to the Seller.
5.9Confidentiality Agreement. The Buyer has not violated any of the terms of the Confidentiality Agreement. At no time has the Buyer or any of its representatives or agents communicated with any Obligor or any of its representatives or agents regarding the Loan(s). The Buyer has no affiliation with, any ownership interest in, or agreement with the Obligor or any of its representatives or agents regarding the Loan(s).
5.10Brokers. No broker or other party entitled to a commission is involved in connection with this transaction other than [*], who shall be paid by the Seller.
6.Seller's Representations, Warranties and Recourse. This sale is made without recourse against the Seller, or representation or warranty by the Seller, whether expressed, implied or imposed by law, of any kind or nature except as provided in Sections 6 and 22 of this Agreement.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
The Seller has attempted to provide accurate information to Buyer. Without limiting the generality of the foregoing, the Seller does not represent, warrant or insure the accuracy or completeness of any information or its sources of information contained in the Review File, Collateral Documents, Note(s) or Loan(s) (whether contained in originals, duplicate originals, copies, or magnetic media, including computer tapes and disks), including without limitation any reports or other information prepared by accountants, engineers, appraisers, environmental consultants or other professionals. The Seller has not, does not and will not make any representations or warranties with respect to the collectibility of any Loan or the value or condition of the Mortgaged Property. To the extent the Loan(s) constitute personal or real property, such property is sold "as is, where is," and the Seller expressly disclaims any representations or warranties with respect to such property.
6.1Representations and Warranties by the Seller. The Seller hereby represents and warrants as follows:
6.1.1Organization, Existence, Etc. The Seller is duly formed or organized, validly existing and in good standing under the laws of the jurisdiction of its formation or organization, and is registered or qualified to conduct business in all other jurisdictions in which the failure to be so registered or qualified would materially and adversely affect the ability of the Seller to perform its obligations hereunder.
6.1.2Authority, Enforceability, Etc. The Seller has taken all necessary action to authorize execution, delivery and performance of each of the Sale Documents to which it is a party. Assuming due authorization, execution and delivery by the Buyer, the Sale Documents and all the obligations of the Seller thereunder are the legal, valid and binding obligations of the Seller enforceable in accordance with the terms of the Sale Documents, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
6.1.3Conflict with Existing Laws or Contracts. The execution and delivery of the Sale Documents and the performance by the Seller of its obligations thereunder will not conflict with or be a breach of any material provision of any law, regulation, judgment, order, decree, writ, injunction, contract, agreement or instrument to which the Seller is subject; and the Seller has obtained any consent, approval, authorization or order of any court or governmental agency or body required for the execution, delivery and performance by the Seller of the Sale Documents.
6.1.4 Legal Action Against Seller. There is no action, suit or proceeding of which the Seller has received actual notice pending against the Seller in any court or by or before any other
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
governmental agency or instrumentality which would materially affect the ability of the Seller to carry out the transactions contemplated by the Sale Documents.
6.1.5Brokers. No broker or other party entitled to a commission is involved in connection with this transaction other than [*], who shall be paid by the Seller.
6.1.6Marketing Prior to Closing. Seller agrees that it shall not sell any of the Loan(s) to any third party or otherwise market or dispose of any Loan(s) prior to closing.
6.2Representations and Warranties by Seller as to the Loan(s). Except as otherwise disclosed in the Review File, the Seller hereby represents and warrants that, as to the Loan(s), the following representations and warranties are true and correct in all material respects as of the date hereof.
6.2.1Title to Loan(s). The Seller has good title to and is the sole owner of the Loan(s), free and clear of any liens, claims, encumbrances or other charges whatsoever. The Loan(s) are not subject to any prior assignment, conveyance, transfer or participation or agreement to assign, convey, transfer or participate, in whole or in part.
6.2.2Enforceability. To the best of the Seller’s knowledge, the Note(s) and Mortgage(s) are the legal, valid and binding obligations of the Obligor thereof, enforceable against such Obligor in accordance with their terms (a) except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors rights generally and by general equity principles (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (b) except particular remedies, waivers and other provisions may not be enforceable, but such unenforceability does not affect the practical realization of the intended benefits of the Mortgage(s), meaning the ability of the holder thereof to foreclose the Mortgage(s) for any payment default by the maker or obligor thereunder.
6.2.3No Defense by Obligor. To the best of the Seller’s knowledge, the Obligor has no valid defense that prevents enforcement by the holder thereof of the provisions of the Note(s) or Mortgage(s), or realization by the holder thereof or its assigns against the Mortgaged Property that arises from applicable local, state or federal laws, regulations or other requirements pertaining to usury and any or all other requirement of any federal, state or local law including,
without limitation, truth-in-lending, real estate settlement procedures, consumer credit protection, and equal credit opportunity or disclosure laws applicable to such Loan(s). To the best of the Seller’s knowledge, the Loan(s) are not subject to any valid right of rescission, set-off,
abatement, diminution, counterclaim or defense that prevents enforcement by the Seller thereof
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
or its assigns of the provisions of the Note(s) or Mortgage(s), or realization by the Seller thereof or its assigns against the Mortgaged Property of the intended benefits of such Mortgage and no such claims have been asserted as of the date hereof with respect to such Loan.
6.2.4 Certain Schedule Information. The statement of the principal balances and, if included, accrued and unpaid interest for the Loan(s) set forth in Schedule A is true and correct as of the date of calculation.
6.2.5No Modification. Except by written instrument or other written documentation contained in the Review File, neither the Seller nor, to the best of the Seller’s knowledge, any prior holder of the Loan(s) has (i) modified the Note(s) or Mortgage(s) or satisfied, canceled or subordinated the Note(s) or Mortgage(s) in whole or in part, (ii) released all or any material portion of the Mortgaged Property from the lien of the Mortgage(s) or executed any instrument of
release, cancellation or satisfaction, or (iii) entered into an agreement with any Borrower or Obligor, which has not expired, to (A) accept less than a full payoff on any of the Loan(s), (B) release any or all of the Mortgaged Property, and/or (C) release any Borrower or Obligor from liability under the Note(s) and Loan. The Note(s) and Mortgage(s) and any documents modifying their terms included in the Review File are true and correct copies of the documents they purport to be and have not been superseded, amended, modified, canceled or otherwise changed except as disclosed in the Review File.
6.2.6 Review File. The Review File includes all material documents in the possession of the Seller, or copies thereof, relating to the Loan(s).
6.2.7Disbursement of Loan Proceeds. The Obligor does not have the right to disbursement of additional loan proceeds or future advances with respect to the Loan(s).
6.2.8Cross-Collateralization. The Loan(s) are not secured by the same property as any other loan held by the Seller or its affiliated entities, which is not the subject of this Agreement.
6.2.9Litigation. To the best of the Seller’s knowledge, there is no litigation, proceeding or governmental investigation pending, or any order, injunction or decree outstanding, existing or relating to the Loan(s) or Mortgaged Property.
6.2.10Third Party Liabilities. There are no third party liabilities (e.g. legal fees, fines, unpaid bills, real estate taxes, future advances etc.) which would be assumed by Buyer at closing.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
7.Conditions Precedent to Closing. The respective obligations of the Buyer and the Seller to complete the purchase and sale of the Loan(s) pursuant to this Agreement are subject to the fulfillment on or prior to Closing Date of each of the following additional conditions to be fulfilled by the other, unless the same is specifically waived in writing by the party for whose benefit the same is to be fulfilled:
7.1Performance of Covenants. The Seller and the Buyer shall have performed all of their respective covenants and agreements contained herein which are required to be performed by them on or prior to the Closing Date.
7.2Representations and Warranties. All representations and warranties of the Buyer set forth in Section 5 and the Seller set forth in Section 6.1 of this Agreement shall be true in all material respects at and as of the Closing Date.
7.3Governmental Approvals. All requisite federal, state and local governmental and regulatory approvals relating to the transactions contemplated hereby, if any, shall have been obtained.
7.4Other Approvals. Upon the request of the other, the Seller and the Buyer shall provide certified copies of appropriate resolutions, directions and consents approving the execution and delivery of the Sale Documents and the consummation of the transactions contemplated thereby together with such other certificates of incumbency and other evidences of authority as the Seller or the Buyer or their respective counsel may reasonably require.
8.Certain Obligations of the Buyer.
8.1Collection Practices. The Buyer will not violate any laws relating to unfair credit collection practices in connection with the Loan(s). The Buyer hereby agrees to indemnify the
Seller and to hold it harmless from and against any and all claims, demands, losses, damages, penalties, fines, forfeitures, judgments, legal fees and any other costs, fees, and expenses incurred by the Seller as a result of (1) a breach by the Buyer of the aforesaid warranty or (2) any claim, demand, or assertion that, after the Closing Date, the Seller was in any way involved in or had in any way authorized any unlawful collection practices in connection with the Loan(s) transferred
to the Buyer pursuant to this Agreement. The Buyer agrees to notify the Seller within ten (10) Business Days of notice or knowledge of any such claim or demand.
8.2Reporting to or for the Internal Revenue Service. The Seller and Buyer agree to submit all Internal Revenue Service Forms and Information Returns for the Loan(s) for the period during which each owned the Loan(s). Following the Closing Date, the Seller shall
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
furnish the Buyer with the tax identification information for each Obligor on the Loan(s).
8.3Buyer’s Duties Regarding Litigation. If the Loan(s) are or become subject to any claim, action, lawsuit, foreclosure action, bankruptcy, or other proceeding, administrative or judicial, or similar action filed by or against any Obligor (collectively, “Litigation”), Buyer shall within the later of (i) ten (10) days after the Closing Date or (ii) ten (10) days after receipt of notice of such Litigation, provide Seller and Seller’s counsel in connection with each such Litigation with the name of counsel selected by Buyer to represent Buyer’s interests in such Litigation. Buyer shall, at its own cost, liability, responsibility and risk, within ten (10) days after the Closing Date, notify the applicable clerk of all applicable courts and all counsel of record that ownership of the Loan(s) was transferred from Seller to Buyer. Buyer shall have its counsel file appropriate pleadings with all applicable courts within ten (10) days after the Closing Date substituting Buyer’s counsel for Seller’s counsel, removing Seller as a party to all Litigation and substituting Buyer as the real party in interest in all such Litigation, such that Seller shall have no further obligation with respect to any such Litigation, including any fees or costs of any receiver arising from and after the Closing. Seller shall have the right to notify its counsel representing its interests to cease participating in all Litigation upon the Closing Date or any date thereafter.
Buyer hereby irrevocably appoints the Seller and Seller’s agents as the true and lawful attorney of Buyer (which appointment is coupled with an interest) in the name, place and stead of, and at the expense of, the Buyer to take such actions and file such motions and other documents with the court and otherwise as necessary to substitute Buyer in place of Seller in all such Litigation, to effectuate Seller’s counsel’s withdrawal as counsel from the Litigation, and to otherwise effectuate Buyer’s assumed obligations with respect to such Litigation. Seller may, but shall not be obligated to, utilize this power of attorney.
9.Notice to Obligor. The Buyer and Seller shall, within five (5) Business Days after the Closing Date or such other period as may be required by applicable regulations or laws, give notice of this transfer of the Loan(s) to the Obligors by first class U.S. Mail.
10. Notice of Claim. The Buyer shall immediately notify the Seller of any claim, threatened claim, or any litigation against the Seller or any of their predecessors or affiliates, which may come to its attention relating to the Loan(s).
11.Notices. All notices or deliveries required or permitted hereunder shall be in writing and delivered personally or by facsimile or generally recognized overnight delivery service, and shall be deemed given (a) when delivered, if delivered personally or by facsimile, or (b) on the following Business Day, if sent by generally recognized overnight delivery service, in each case to the Seller at the following address, to the Buyer at the address set forth on the signature page below, or such other address as either party may hereafter designate by notice given in
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
compliance with this Section to the other party:
SELLER:Redwood Mortgage
177 Bovet Road, Suite 520, San Mateo, CA 94402
Attn: Anthony Garcia
Operations Manager
Ph. 650-645-9723
Fax 650-257-8364
BUYER: [*]
12.Severability. Each part of this Agreement is intended to be severable. If any term, covenant, condition or provision hereof is unlawful, invalid, or unenforceable for any reason whatsoever, and such illegality, invalidity, or unenforceability does not affect the remaining parts of this Agreement, then all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the invalid or unenforceable part had not been included.
13.Construction. Unless the context otherwise requires, singular nouns and pronouns (including defined terms), when used herein, shall be deemed to include the plural and vice versa, and impersonal pronouns shall be deemed to include the personal pronoun of the appropriate gender.
14.Assignment. This Agreement and the terms, covenants, conditions, provisions, obligations, undertakings, rights and benefits hereof, including any attachments hereto, shall be binding upon, and shall inure to the benefit of, the undersigned parties and their respective heirs, executors, administrators, representatives, successors, and assigns. Notwithstanding anything herein to the contrary, however, the Buyer shall not assign its rights under this Agreement without the prior written consent of the Seller, except that the Buyer may assign its rights under this Agreement to an affiliate, and in the event of any assignment both the Buyer and assignee shall be jointly and severally liable hereunder.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
15.Prior Understandings. This Agreement supersedes any and all prior discussions and agreements between the Seller and the Buyer with respect to the purchase of the Loan(s) and other matters contained herein, and this Agreement contains the sole and entire understanding between the parties hereto with respect to the transactions contemplated herein.
16.Survival. Each and every covenant made by the Buyer or the Seller in this Agreement shall survive the closing and shall not merge into the closing documents, but instead shall be independently enforceable, provided, however, that the Seller's representations and warranties set forth in Section 6 shall expire six (6) months after the Closing Date, after which time no claim for breach of the Seller's representations or warranties may be made.
17.Indemnifications.
17.1 Buyer's Indemnification Covenants. Buyer shall indemnify, save and keep Seller, and its successors and assigns, harmless against and from all liabilities, demands, claims, actions or causes of action, assessments, loses, fines, penalties, costs, damages and expenses, including reasonable attorneys' and expert witness fees, sustained or incurred by Seller, its successors and assigns, as a result of or arising out of or by virtue of:
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(a) |
The material inaccuracy of any representation or warranty made by Buyer herein; |
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(b) |
The breach by Buyer of any of the covenants of this Agreement to be performed by it; or |
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(c) |
Any and all actions, claims, liabilities or damages arising out of the acts or omissions of Buyer in regard to any Loan from and after the Closing Date. |
17.2. Seller's Indemnification Covenants. Seller shall indemnify, save and keep Buyer and its successors and assigns harmless against and from all liabilities, demands, claims, actions or causes of action, assessments, losses, fines, penalties, costs, damages and expenses, including reasonable attorneys' and expert witness fees, sustained or incurred by Buyer or its successors or assigns as a result of or arising out of or by virtue of:
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(a) |
The material inaccuracy of any representation or warranty made by Seller herein; |
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(b) |
The breach by Seller of any of the covenants of this Agreement to be performed by it; or |
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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(c) |
Any and all actions, claims, liabilities or damages arising out of the acts or omissions of Seller in regard to any Loan prior to the Closing Date. |
18.Choice of Law. This Agreement and claims arising out of or in connection therewith shall be governed by and construed and enforced in accordance with the laws of the state of the Seller's incorporation or organization, or, if the Seller is organized under the laws of the United States or a foreign jurisdiction, the state of the Seller's principal place of business, and the Buyer consents to jurisdiction in the federal or state courts situated in the city or county of the Seller's principal place of business.
19.Time of the Essence. Time is of the essence of all provisions of this Agreement.
20.Buyer Failure to Fund. If the Buyer fails to tender the balance of the Purchase Price for the Loan(s) on the Closing Date, the Seller may pursue all remedies available at law or in equity, including, without limitation, the remedy of specific performance.
21.Remedies and Recourse. In the event that the Seller shall have any liability hereunder or in connection with the transactions contemplated hereby with respect to the Loan(s), the Buyer's sole claim shall be against the Seller.
22.Limitation of Damages. Neither party shall be liable to the other party for any consequential, special or punitive damages. . If after the Closing Date the Seller breaches any representation or warranty set forth in Section 6 which has not expired, the Buyer shall give written notice to the Seller within 30 days of discovery of such breach, and the Seller shall have the right to cure such breach during a period of ninety (90) days after receipt of such notice. If such breach or failure is not duly cured within such ninety (90) day period, or not waived or consented to in writing by the Buyer, the Seller shall elect, in its sole discretion to either (i) repurchase the Loan(s) at the Repurchase Price, or (ii) to pay to Buyer the Buyer's actual damages directly caused by such breach, up to an amount not exceeding the Repurchase Price. The Buyer's remedies set forth in this Section 22 shall be the exclusive remedies of the Buyer, and the Buyer shall not be entitled to any other
rights, remedies or other relief, at law or in equity, for the Seller's breach of any representation or warranty set forth in this Agreement.
23. Counterparts; Faxed Document. This Agreement may be executed and delivered by the parties in facsimile format and in any number of separate counterparts, all of which, when delivered, shall together constitute one and the same document.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
[Signatures on Following Page] [Remainder of Page Intentionally Left Blank]
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
EXECUTED AS AN INSTRUMENT UNDER SEAL AS OF THE DATE WRITTEN ABOVE.
BUYER:SELLER:
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[*] |
REDWOOD MORTGAGE INVESTORS VIII* |
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By: __________________By:___________________
Name:________________Name:_________________
Title:__________________Title:__________________
REDWOOD MORTGAGE INVESTORS IX LLC*
By: __________________
Name:________________
Title:__________________
*It is expressly acknowledged and agreed that this Agreement applies to each Seller only as to any and all of the Loans which it holds upon the Closing Date, i.e. each Seller makes only the representations,
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
warranties and covenants in this Agreement only as to the Loans it owns at the Closing Date.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
APPENDIX A Definitions
"Bid Percentage" means one hundred and 60/100ths percent (100.60%).
"Business Day" means any day other than a Saturday, Sunday or national holiday.
"Buyer" is defined in the preamble hereto, and shall also mean and include its heirs, personal representatives, successors and assigns.
"Calculation Date" is defined as June 26, 2018.
"Closing Date" is defined as June 27, 2018, or such other date as the Seller and the Buyer may agree in writing.
"Closing Documents" is defined in Section 4.1 of this Agreement.
"Collateral Document" means the Mortgage(s), any assignments of leases and rents, security agreements, financing statements, guaranties, and other agreements or documents, whether an original or a copy and whether or not similar to those enumerated, evidencing, securing, guarantying or otherwise documenting or giving notice of the Loan(s) and any performance or payment obligations with respect thereto or any document evidencing ownership in any asset that was acquired in connection with a foreclosure, deed-in-lieu of foreclosure or otherwise in connection with the resolution of a Loan, and title insurance policies insuring the ownership or liens thereof, provided, however, that the term "Collateral Document" shall expressly exclude the Note(s).
"Collections" means all payments, proceeds and/or awards, actually received by the specified holder of the Note(s), in cash, including checks which have been reduced to good funds, for current application to the indebtedness of the Obligor under the Loan(s), whether or not so applied and, if so applied, whether applied to principal, interest, fees, or any other such indebtedness.
"Confidentiality Agreement" means any confidentiality agreement executed by the
Buyer in favor of the Seller.
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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“Excluded Information” means information or documentation excluded from the Review File or redacted from documents left in the Review File relating to the Loan(s) or the Obligors including internal memoranda and officer comments, attorney-client correspondence or other information from attorneys or prepared in anticipation of litigation, personal tax returns, and any documents prepared by or for the use of the Seller regarding the valuation of the Loan(s).
"Loan(s)" means the loan obligations and debts evidenced by the Note(s) and includes
(a) the Note(s); (b) all rights to payment and other rights, title and interests of the Seller in, to and under the Note(s), specifically including, all accrued interest and late charges; (c) each Collateral Document; (d) all rights, title, interests, powers, liens or security interests of the Seller in, to or under each Collateral Document, including without limitation claims and rights to and interests
in proceeds of hazard or casualty insurance covering collateral securing such Loan and awards in eminent domain and condemnation proceedings affecting such collateral; (e) all Collections received by the Seller on or after the Closing Date and then or thereafter actually collected in good funds; (f) any right, claim or cause of action, and any liability or counterclaim associated therewith, arising out of or in connection with litigation pending, if any; (g) any judgment or execution based upon the Note(s) or any Collateral Document, to the extent attributable thereto, and any lien arising from any such judgment or execution; and (h) all other documents held by the Seller contained in the Review File with respect to the Loan(s).
"Mortgage(s)" means each mortgage, deed of trust or other similar instrument, if any, securing the Note(s), including, without limitation, all modifications, restructurings, extensions consolidations and amendments thereof.
"Mortgaged Property" means the real property covered by the Mortgage(s) or Deed of
Trust(s).
"Note(s)" means each promissory note, other instrument evidencing indebtedness or other asset as listed on Schedule A, including, without limitation, all modifications, restructurings, extensions, consolidations and amendments thereof.
"Obligor" means the maker, co-maker of the Note(s) and any guarantor, surety or other primary, secondary or other party obligated with respect to the Loan(s) or any performance or payment obligation in connection therewith, and any other party who has granted collateral for or whose property or any part thereof is subject to any encumbrance securing the Loan(s) or any performance or payment obligation in connection therewith.
"Purchase Price" means the amount bid by the Buyer for the Loan(s).
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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"Repurchase Price" means with respect to the Loan(s), the price to be paid by the Seller for such Loan(s) if repurchased from the Buyer pursuant to the terms of this Agreement, which shall be computed as follows:
(a)the Purchase Price for such Loan(s) paid by the Buyer; minus
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(b) |
all amounts paid by any Obligor or otherwise received or collected by the Buyer in respect of the Loan(s) between the Closing Date and the repurchase date (whether characterized as principal, interest, principal and interest, fees, expenses, proceeds and any other payment of every kind and nature), which amounts shall be evidenced and certified by the Buyer to the Seller as true and accurate; minus |
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(c) |
any diminution in the value of the Loan(s) since the Closing Date attributable to the action, omission or fault of the Buyer; plus |
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(d) |
all (i) reasonable amounts paid by the Buyer in good faith to third parties to collect principal, interest and other amounts due under the Loan(s), and (ii) commercially reasonable advances made by the Buyer to third parties in order to protect the security of its collateral and other advances made by the Buyer pursuant to the |
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Collateral Documents, in each case from the Closing Date to the repurchase date (as evidenced by invoices and canceled checks) and (iii) all accrued and unpaid interest from the Closing Date through the repurchase date on such Loan(s).
"Review File" means all instruments and documents, in the files of the Seller pertaining to the Loan(s), including without limitation, the Note(s) and any Collateral Documents and any loan summaries prepared by the Seller, but excluding any Excluded Information.
"Sale Documents" means this Agreement and all attachments hereto, and all other instruments, agreements, certificates and other documents at any time executed and delivered by or on behalf of the Seller and/or the Buyer in connection with the sale of the Loan(s).
"Separate Loan Assignments" is defined in Section 4.4 of this Agreement.
"Seller" is defined in the preamble hereto and shall also mean and include its successors and assigns.
END OF APPENDIX A
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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SCHEDULE A LOANS
[*]
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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ATTACHMENT 1
BILL OF SALE
(the "Seller"), for value received and pursuant to the
between
(the "Buyer"), does
hereby sell, assign, transfer and convey to the Buyer, its heirs, administrators, representatives, successors and assigns, all rights, title and interests of the Seller, as of the date hereof, in, to and under the Loan(s) described in the Asset Sale Agreement.
THIS BILL OF SALE IS EXECUTED WITHOUT RECOURSE AND WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESSED, IMPLIED OR IMPOSED BY LAW, EXCEPT AS PROVIDED IN THE ASSET SALE AGREEMENT.
EXECUTED this day of , .
SELLER:
By: Its:
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
21
ATTACHMENT 2
Allonge
("Assignor")[, as successor to]. It is intended that this Allonge be attached to and made a permanent part of the Note.
("Assignee"), without recourse,
By: Its:
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
22
THIS INSTRUMENT PREPARED BY:
RECORD AND RETURN TO:
APN:
_____________________________________________________________________________________
SPACE ABOVE THIS LINE FOR RECORDER’S USE ONLY
ASSIGNMENT OF SECURITY INSTRUMENT(S)
For Value Received, __________________, a ___________________, having an address at _________________________ (the “Assignor”), the holder of the instrument(s) described on SCHEDULE A (the “Instrument(s)”), does hereby grant, sell, assign, transfer and convey, unto ____________________, a ________________, having an address at ________________________, its successors and assigns (the “Assignee”), without recourse, representation, warranty or covenant, express or implied, except as provided in that certain __________________ dated on or near _____________, by and between Assignor and Assignee, all interest of the undersigned Assignor in and to the lien upon the following described property situated in _______________ County, State of California, and more particularly described in EXHIBIT A attached hereto (the “Property”).
The transaction to which this assignment is a part is unrelated to the sale of any interest in the Property owned by the obligor named in the Instrument(s). The Instrument(s) is being assigned to a new lender in a transaction in which no new monies will be advanced by the new lender.
TO HAVE AND TO HOLD the same unto Assignee, its successor and assigns, forever, subject only to the terms and conditions of the Instrument.
IT WITNESS WHEREOF, this assignment was executed by the undersigned Assignor on this the ___ day of ______________, 2018.
“Assignor”
___________________________________
___________________________________
By:
Its:
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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ACKNOWLEDGEMENT
A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy or validity of that document.
State of _________________________
County of _______________________, ss.
On ________________________, 2018 before me, ____________________, Notary Public (insert name and title of the officer) personally appeared ________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of ____________________ that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
Signature ______________________________ (Seal)
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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SCHEDULE A
[Insert DOT schedule]
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
25
EXHIBIT A
[Insert Legal Description]
[*] Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
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Exhibit 31.1
PRESIDENT’S CERTIFICATION
I, Michael R. Burwell, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors IX, LLC, a Delaware limited liability company (the “Registrant”); |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
4. |
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have: |
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
5. |
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
/s/ Michael R. Burwell |
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Michael R. Burwell, President, |
(principal executive officer and principal financial officer) |
Redwood Mortgage Corp., |
Manager |
August 14, 2018 |
|
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors IX, LLC (the “company”) on Form 10-Q for the period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:
|
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company at the dates and for the periods indicated. |
A signed original of this written statement required by Section 906 has been provided to Redwood Mortgage Investors IX, LLC and will be retained by Redwood Mortgage Investors IX, LLC and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Michael R. Burwell |
|
Michael R. Burwell, President, |
(principal executive officer and principal financial officer) |
Redwood Mortgage Corp., |
Manager |
August 14, 2018 |
Exhibit 99.1
Redwood Mortgage Corp., Manager May 2018
Redwood Mortgage Investors IX, a Delaware Limited Liability Company
Fair Value per Unit at December 31, 2017
Background
Redwood Mortgage Corp. (RMC or manager) obtained information regarding the fair value of a unit of membership interest and of net assets at December 31, 2017 (the valuation date) for Redwood Mortgage Investors IX, a Delaware Limited Liability Company (RMI IX). A qualified, nationally prominent firm performed the analysis in accordance with scope criteria, objectives and an overall approach set by RMC. The purpose of their valuation was to provide an opinion of the fair value of a unit of membership interest, which is determined principally by the fair value of the commercial mortgage loans held in portfolio (collectively referred to as, the “subject items”) and the liquidity available to the members, inclusive of redemption price and distribution factors. The firm understood that the valuation report would be used by the manager for financial and regulatory reporting purposes, specifically FINRA Rule 2310 and NASD Rule 2340. Income (including Discounted Cash Flow methods), Market and Cost approaches were utilized, as appropriate, in deriving the fair values.
As of the valuation date, RMI IX had total assets with a book value of approximately $63.7 million comprised of $8.5 million in net cash, $54.8 million in loan principal in 93 secured loans and $0.43 million in accrued interest and other assets. Members’ capital was $60.4 million, net of the formation loan of $3.8 million at December 31, 2017. Members’ capital in applicant status was $3.3 million. Based on our analysis contained herein, the fair value of the loan portfolio is approximately $56.8 million, representing a premium of approximately $2.0 million to the book value of the portfolios.
Fair Value of a Unit of Membership Interest for RMI IX
Based on the analysis summarized below, RMC concurred with the firm’s conclusion that the fair value of a unit of membership interest, as of the valuation date is $0.97 ($0.98 in 2016 and 2015) .
The Gross Fair Value per unit at December 31, 2017 was computed at $1.03 based on the fair value of the assets (net) of $62.4 million and Net RMI IX members’ capital, net of the formation loan of $60.4 million.
RMI IX membership units have certain restrictions, as to transferability and redemption including maximums on individual and total annual and quarterly redemption amounts. To provide liquidity, members have the option after one year to sell their shares back to the company for $1.00 per unit, adjusted for the years held (one year – 92% of the lesser of the purchase price or the account balance, two years – 94%, three years – 96%, four years – 98%, five years and longer – 100%).
The following three methods for valuing the $1 per unit redemption price – considering these restrictions – are outlined below.
|
1. |
The Black-Scholes-Merton option-pricing model was used as a proxy or method to calculate the unit value. The Black-Scholes-Merton model is a mathematical formula used to calculate a theoretical call value using key determinants of an option's price: stock price, strike price, volatility, time to expiration, and short-term (risk-free) interest rate. The volatility is derived from the trading volatilities of companies comparable to RMI IX for a term commensurate with the expected term of maturity. Using these inputs, the Black-Scholes-Merton model produces an option value of $0.99 (same as at year-ends 2016 and 2015). |
Redwood Mortgage Investors IX, LLC Per Unit Fair ValuePage | 2
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3. |
Based on the average age of an investment in RMI IX of 3.7 years (3.5 years at year-end 2016), the weighted average redemption percentage is 96% (same as in 2016). The rounded value of a unit based on this method for a $1.00 redemption amount (before discount) would be $0.96 (same as in 2016, $0.97 at year-end 2015). This amount is considered to be the floor value. |
Valuation of the Commercial Mortgage Loan Portfolio
The fair value of the loan portfolio is approximately $56.8 million, representing a premium of approximately $2.0 million (4.0%) to the book value of $54.8 million.
At December 31, 2017, RMI IX had a loan portfolio with a principal balance of $54.8 million from 93 secured loans (2016 - $40.1 million from 89 secured loans). These commercial mortgage loans were secured by single-family residences (69%), multi-family (4%), and commercial (27%). The balances and key characteristics of each loan strata came from RMI IX’s loan trial balance and were, classified into pools of like assets and then valued, as appropriate.
The valuation work was completed in accordance with ASC 820 (from the Codification of Accounting Standards published by the FASB), which calls for a priority of valuation methods. In the context of a loan portfolio valuation, Level 1 inputs are direct sale quotes for the specific loans; Level 2 inputs are sales of comparable loans and, Level 3 inputs require the use of management assumptions in determining the fair value of the loans. The critical reasons for the lack of Level 1 or 2 quotes are as follows:
|
° |
Non-Standardization: mortgage and commercial real estate credit generally is specific to an in- house lending policy, borrower needs, local market conditions, and for RMC’s loans in particular (which are of shorter term and lower LTV’s,) - the unique characteristics of the real property collateralizing the loans. With the exception of certain types of mortgage credit, the terms and conditions usually do not fit a conforming standard that are consistent across loans. As such, mortgage and commercial real estate loans often are not liquid and an inducement to investors requires a significant premium. Interests in some large loans are traded in the secondary market, but generally with very low frequency; the vast majority of loans never trade after origination and syndication. |
|
° |
Market Preferences: In times of market turmoil, fixed-income investors often pursue less risky investments, such as U.S. government bonds and bills, agency securities and investment grade corporate bonds and notes. To induce market investors to invest in certain loans requires a significant “liquidity” discount on the value of a credit to compensate for inability to shift from one asset to another. |
The valuation considered adjustments regarding interest rate risk, required equity return, servicing and a liquidity risk. We generally considered systematic liquidity risk, or the liquidity risk associated with financial instruments that are uniquely designed and generally having limited covenants and borrower- specific terms and conditions, as well as unsystematic liquidity risk.
The firm engaged by RMC did not undertake a separate, independent credit file review of the loans. RMC projects credit losses at the time of loan funding to be zero dollars due to the low LTV’s at origination.
Redwood Mortgage Investors IX, LLC Per Unit Fair ValuePage | 3
Management of RMC believes that exercising strong discipline in underwriting loan applications and lending against collateral at conservative weighted average loan-to-value ratios provides additional safety against possible loan losses. Management also reviews the values of collateral periodically to validate the “protective equity.” The firm reviewed the estimated loss-rates assumption for reasonableness. Life-of-loan loss estimate percentages are calculated for each pool separately.
Based on the firm’s economic forecasting model, the minimum projected loss rate of one percent (1%) is applied to in order to account for the necessary “alpha” involved in valuing assets without zero credit risk (applied to imply the inherent credit risk above notes issued by the U.S. Treasury). The one percent (1%) loss rate is then applied to the performing loan balances of each of the individual loan pools to forecast the total losses that are expected for each of the respective loan pools. A monthly loss rate was applied to the beginning balance each month for each loan pool that would result in the sum of the monthly losses to be equal to the estimated losses.
Performing loans were valued using the Discounted Cash Flow methodology and were then pooled based on similar characteristics, such as underlying collateral and loan type.
In applying the discounted cash flow approach, the fair value of the loan portfolio was based on the present value of the expected cash flows from the portfolio. This process involved the following steps:
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° |
The monthly principal and interest cash flows were projected based on the contractual terms of the loans, including both maturity and contractual amortization; |
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° |
The monthly principal and interest cash flows were adjusted for prepayments (12% at year-end 2017; 6 % for 2016 and 2015), where appropriate; |
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° |
A discount rate was developed based on the relative risk of the cash flows, taking into account the loan type, the maturity of the loans and a required return on capital; and |
|
° |
The monthly principal and interest cash flows were discounted to present value and summed to arrive at the calculated value of the loans. This analysis was performed for each loan pool in the portfolio. |
Sources of Information
RMC provided financial and other information to the firm and it accessed other information from various public, financial, and industry sources. The principal sources of information used in performing the valuation included the following:
|
° |
SEC filings, financial statements, financial reports and other accounting records at and for the years ended December 31, 2017, 2016 and 2015 |
|
° |
Historical capital contributions to RMI IX including redemptions |
|
° |
Detailed loan trial balance as of December 31, 2017 |
|
° |
LLC Operating Agreement (Ninth amended and restated) |
|
° |
Discussions with Management regarding the historical and expected future performance of RMI IX, as well as related information contained in management reports |
|
° |
Capital IQ’s database of publicly-traded and private companies |
|
° |
SNL’s database of publicly-traded and private companies |
Redwood Mortgage Investors IX, LLC Per Unit Fair ValuePage | 4
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° |
Bloomberg’s online database covering financial markets and news |
|
° |
Other information pertinent to our analysis. |
Procedures and Analytic Approaches
The firm performed the following customary procedures:
|
° |
Received a description of the subject items |
|
° |
Reviewed the various methodologies used to estimate the fair value of such items |
|
° |
Calculated an estimate of the fair value of the subject items using the methodology and assumptions provided by Management. |
The following is a description of the valuation approaches for assets.
The Income Approach indicates the fair market value of the assets or liabilities of a business is based on the present value of the cash flows that can be expected to generate in the future. This approach is considered to be the most theoretically correct method of valuation since it explicitly considers the future benefits associated with the assets or liabilities. The Income Approach is typically applied using the Discounted Cash Flow Method.
The Discounted Cash Flow Method is comprised of four steps.
|
1) |
Project future cash flows for a certain discrete projection period |
|
2) |
Discount these cash flows to present value at a rate of return that considers the relative risk of achieving the cash flows and the time value of money |
|
3) |
Estimate the residual value of cash flows subsequent to the discrete projection period |
|
4) |
Combine the present value of the residual cash flows with the discrete projection period cash flows to indicate the fair market value. |
The Market Approach uses the price at which similar assets or liabilities are exchanged to estimate the fair market value of the assets or liabilities.
The advantage of the Market Approach is that it recognizes the effect of most of the principal valuation factors identified above. Quoted market prices of similar publicly traded assets or liabilities incorporate the effects on value of earnings and cash generation while also recognizing general economic conditions, the position of the industry in the economy, and the position of the company in its industry.
As quoted market prices are the best indication of fair value, quoted market prices should be used whenever possible. However, the use of quoted market prices is limited to homogenous categories of the assets or liabilities for which frequent trading occurs. The key in applying the market approach is to be certain that there is comparability between the subject assets or liabilities and the quoted market assets or liabilities, and to make adjustments for any differences. If many subjective assumptions needed to be made to account for the differences, then a discounted cash flow approach may be utilized.
The Cost Approach, or book value analysis, should approximate fair value for the assets or liabilities, which reprice frequently, provided there has been no material change in the underlying structure or credit quality since origination. For example, if a frequently repricing loan was originated at prime, and if the loan were originated today it would be originated at prime, then book
Redwood Mortgage Investors IX, LLC Per Unit Fair ValuePage | 5
value should approximate fair value.
Book value may also approximate fair value for assets or liabilities with a relatively short term to maturity, provided there is little or no risk of material changes before maturity and the disparity between the assets’ or liabilities’ current rate and that of the quoted market rate is minimal. Any mark-to-market adjustment for these short-term assets or liabilities would presumably be immaterial.
Document and Entity Information |
6 Months Ended |
---|---|
Jun. 30, 2018
shares
| |
Document And Entity Information [Abstract] | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Jun. 30, 2018 |
Document Fiscal Year Focus | 2018 |
Document Fiscal Period Focus | Q2 |
Trading Symbol | CK0001448038 |
Entity Registrant Name | Redwood Mortgage Investors IX |
Entity Central Index Key | 0001448038 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Smaller Reporting Company |
Entity Common Stock, Shares Outstanding | 0 |
Balance Sheets - USD ($) |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
ASSETS | ||
Cash and cash equivalents | $ 16,814,623 | $ 8,509,852 |
Loans | ||
Principal | 53,538,730 | 54,768,689 |
Advances | 16,072 | 13,989 |
Accrued interest | 438,923 | 409,867 |
Loan balances secured by deeds of trust | 53,993,725 | 55,192,545 |
Loan administrative fees, net | 2,624 | 9,008 |
Receivable from affiliate | 135 | |
Total assets | 70,811,107 | 63,711,405 |
LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL | ||
Liabilities - Accounts payable and accrued liabilities | 2,075 | 180 |
Investors in applicant status | 1,300,160 | 3,270,312 |
Members’ capital, net | 73,853,088 | 64,218,001 |
Receivable from manager (formation loan) | (4,344,216) | (3,777,088) |
Members’ capital, net, less formation loan | 69,508,872 | 60,440,913 |
Total liabilities, investors in applicant status and members’ capital | $ 70,811,107 | $ 63,711,405 |
Statements of Income (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Revenues, net | ||||
Interest income | $ 1,315,915 | $ 940,264 | $ 2,493,647 | $ 1,776,244 |
Late fees | 5,531 | 1,638 | 10,242 | 7,827 |
Gain on sale, loans | 14,246 | 14,246 | ||
Total revenues | 1,335,692 | 941,902 | 2,518,135 | 1,784,071 |
Operations expense | ||||
Mortgage servicing fees | 38,694 | 26,858 | 73,878 | 51,168 |
Professional services, net (Note 3) | 84,213 | 2,364 | 88,898 | 2,364 |
Other | 8,412 | 3,086 | 8,497 | 4,125 |
Total operations expense | 131,319 | 32,308 | 171,273 | 57,657 |
Net income | 1,204,373 | 909,594 | 2,346,862 | 1,726,414 |
Members (99%) | 1,192,329 | 900,498 | 2,323,393 | 1,709,150 |
Managers (1%) | $ 12,044 | $ 9,096 | $ 23,469 | $ 17,264 |
Statements of Income (Parenthetical) (Unaudited) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Income Statement [Abstract] | ||||
Members investment | 99.00% | 99.00% | 99.00% | 99.00% |
Managers investment | 1.00% | 1.00% | 1.00% | 1.00% |
Statements of Cash Flows (Unaudited) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Operations | ||||
Interest received | $ 1,224,758 | $ 880,164 | $ 2,385,819 | $ 1,717,482 |
Other loan income | 4,483 | 1,688 | 9,344 | 7,877 |
Loan administrative fee reimbursed (paid) | 3,997 | 3,130 | 13,461 | |
Operations expense | (163,236) | (27,638) | (165,839) | (52,114) |
Total cash provided by (used in) operations | 1,066,005 | 858,211 | 2,232,454 | 1,686,706 |
Investing – loan principal/advances | ||||
Principal collected on loans | 6,855,023 | 6,882,268 | 19,594,640 | 12,118,788 |
Loans originated | (16,594,000) | (10,878,400) | (26,540,500) | (19,486,133) |
Loans sold to non-affiliate, net | 14,163,158 | 14,163,158 | ||
Loans sold to affiliates | 999,995 | 999,995 | ||
Loans acquired from affiliates | (5,889,819) | |||
Advances (made) received on loans | 565 | 185 | (2,083) | (8,956) |
Total cash provided by (used in) investing | 4,424,746 | (2,995,952) | 1,325,396 | (6,376,306) |
Contributions by members, net | ||||
Organization and offering expenses paid, net | (269,560) | (201,094) | (401,060) | (367,850) |
Formation loan funding | (211,727) | (404,368) | (569,521) | (720,319) |
Total cash provided by members, net | 2,619,943 | 5,061,065 | 6,479,411 | 9,121,271 |
Distributions to members | ||||
Distributions to Member | (837,021) | (428,863) | (1,732,490) | (1,163,813) |
Total cash provided by (used in) financing | 1,782,922 | 4,632,202 | 4,746,921 | 7,957,458 |
Net increase (decrease) in cash | 7,273,673 | 2,494,461 | 8,304,771 | 3,267,858 |
Cash, beginning of period | 9,540,950 | 2,968,251 | 8,509,852 | 2,194,854 |
Cash, end of period | 16,814,623 | 5,462,712 | 16,814,623 | 5,462,712 |
Net income | 1,204,373 | 909,594 | 2,346,862 | 1,726,414 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | ||||
(Gain) on sale, loans | (14,246) | (14,246) | ||
Amortization of loan administrative fees | 3,254 | 3,254 | ||
Change in operating assets and liabilities | ||||
Accrued interest | (94,411) | (60,101) | (111,083) | (58,763) |
Receivable from affiliate | (135) | (135) | ||
Loan administrative fees reimbursed (paid) | 3,997 | 3,130 | 13,461 | |
Accounts payable | (33,803) | 3,774 | 1,951 | 3,774 |
Other | 973 | 947 | 2,721 | 1,820 |
Total adjustments | (138,368) | (51,383) | (114,408) | (39,708) |
Total cash provided by (used in) operations | 1,066,005 | 858,211 | 2,232,454 | 1,686,706 |
Members Equity Contributions [Member] | ||||
Contributions by members, net | ||||
Contributions by members/manager | 3,101,230 | 5,666,527 | 7,449,992 | 10,209,440 |
Earnings Distributed To Members [Member] | ||||
Distributions to members | ||||
Distributions to Member | (537,781) | (375,711) | (1,029,850) | (710,351) |
Member's Redemptions [Member] | ||||
Distributions to members | ||||
Distributions to Member | $ (299,240) | $ (53,152) | $ (702,640) | $ (453,462) |
Organization and General |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and General | NOTE 1 – ORGANIZATION AND GENERAL In the opinion of the Redwood Mortgage Corp. (RMC or the manager), the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the company’s Form 10-K for the fiscal year December 31, 2017 filed with the U.S. Securities and Exchange Commission (SEC). The results of operations for the three and six month periods ended June 30, 2018 are not necessarily indicative of the operations results to be expected for the full year. Redwood Mortgage Investors IX, LLC (RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment mortgage loans secured by California real estate, primarily through first and second deeds of trust. The company’s primary investment objectives are to:
The ongoing sources of funds for loans are the proceeds from:
Profits and losses are allocated among the members according to their respective capital accounts monthly after one percent (1%) of the profits and losses are allocated to the manager. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Investors should not expect the company to provide tax benefits of the type commonly associated with limited liability company tax shelter investments. Federal and state income taxes are the obligation of the members, if and when taxes apply, other than the annual California franchise tax and any California LLC cash receipts taxes paid by the company. The company is externally managed by RMC. The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for the conduct of the business as RMI IX has no employees. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The rights, duties and powers of the members and manager of the company are governed by the Ninth Amended and Restated Limited Liability Company Operating Agreement of RMI IX (the “Operating Agreement”), the Delaware Limited Liability Company Act and the California Revised Uniform Limited Liability Company Act. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions. Members representing a majority of the outstanding units may, without the concurrence of the managers, vote to: (i) dissolve the company, (ii) amend the Operating Agreement, subject to certain limitations, (iii) approve or disapprove the sale of all or substantially all of the assets of the company or (iv) remove or replace one or all of the managers. Where there is only one manager, a majority in interest of the members is required to elect a new manager to continue the company business after a manager ceases to be a manager due to its withdrawal. Distribution policy Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. Cash available for distribution means cash flow from operations (excluding repayments for loan principal and other capital transaction proceeds) less amounts set aside for creation or restoration of reserves. The manager may withhold from cash available for distribution otherwise distributable to the members with respect to any period the respective amounts of O&O expenses allocated to the members for the applicable period pursuant to the company’s reimbursement and allocation of organization and offering expenses policy. The amount otherwise distributable, less the respective amounts of organization and offering expenses allocated to members, is the net distribution. Per the terms of the company’s Operating Agreement, cash available for distribution allocated to the members is allocated among the members in proportion to their percentage interests (except with respect to differences in the amounts of organization and offering expenses allocated to the respective members during the applicable period) and in proportion to the number of days during the applicable month that they owned such percentage interests. Cash available for distributions allocable to members, other than those participating in the distribution reinvestment plan (DRIP) and the manager, is distributed at the end of each calendar month. Cash available for distribution allocable to members who participate in the DRIP is used to purchase additional units at the end of each calendar month. The manager’s allocable share of cash available for distribution is also distributed not more frequently than with cash distributions to members. The company’s net income, cash available for distribution, and net-distribution rate fluctuates depending on:
To determine the amount of cash to be distributed in any specific month, the company relies in part on its annual forecast of profits, which takes into account the difference between the forecasted and actual results in the year and the requirement to maintain a cash reserve. At June 30, 2018 cumulative earnings (estimated) allocated to member accounts prior to month-end and net income available to members (actual) after month-end accounting adjustments and per the financial statements were approximately equal. Since commencement of operations in 2009, the manager, at its sole discretion, provided significant financial support to the company which affected the net income, cash available for distribution, and the net-distribution rate, including:
Such fee and cost-reimbursement waivers and the absorbing of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the company has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expense allocation of 0.45%, annually when applicable). In March 2018, the manager communicated to the members a reduction of the net distribution rate as an annualized percentage of members’ capital from 6.5% to 6.0% for March 2018 and that effective April 1, 2018, RMC would cease absorbing any of the company’s direct expenses. Further, by the fourth quarter of 2018, RMC will have begun reducing fee waivers and/or commenced requesting reimbursement of qualifying costs attributable to the company (i.e. Costs from RMC). By July 2019, the company will be paying RMC the fees entitled to the manager under the Operating Agreement and will be reimbursing RMC for the qualifying costs attributable to the company. As financial support from the manager decreases and eventually ceases, net distribution rates will decrease correspondingly. However, there is a possibility this could be partially offset by higher interest rates on loans and/or other potential sources of revenue, such as gains, net of expenses, on loan sales to unaffiliated third parties. For the three months ended June 30, 2018, the company paid its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.) resulting in an annualized net distribution rate for the three months ended June 30, 2018 of 5.935%. Distribution reinvestment plan The DRIP provision of the Operating Agreement permits members to elect to have all or a portion of their monthly distributions reinvested in additional units. Members may withdraw from the DRIP with written notice. Liquidity and unit redemption program Because there are substantial restrictions on transferability of units, there is no established public trading and/or secondary market for the units and none is expected to develop. In order to provide liquidity to members, the company’s Operating Agreement includes a unit redemption program, whereby beginning one year from the date of purchase of the units, a member may redeem all or part of their units, subject to certain limitations. The price paid for redeemed units is based on the lesser of the purchase price paid by the redeeming member or the member’s capital account balance as of the date of each redemption payment. Redemption value is calculated based on the period from date of purchase as follows:
The company redeems units quarterly, subject to certain limitations as provided for in the Operating Agreement. The number of units that may be redeemed per quarter per individual member is subject to a maximum of the greater of 100,000 units or 25% of the member’s units outstanding. For redemption requests requiring more than one quarter to fully redeem, the percentage discount amount that, if any, applies when the redemption payments begin continues to apply throughout the redemption period and applies to all units covered by such redemption request regardless of when the final redemption payment is made. The company has not established a cash reserve from which to fund redemptions. The company’s capacity to redeem units upon request is limited by the availability of cash and the company’s cash flow. The company will not, in any calendar year, redeem more than five percent (5%) of the weighted average number of units outstanding during the twelve-month period immediately prior to the date of the redemption. Contributed capital The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. Manager’s interest If a manager is removed, withdrawn or terminated, the company will pay to the manager all amounts then accrued and owing to the manager. Additionally, the company will terminate the manager’s interest in the company’s profits, losses, distributions and capital by payment of an amount in cash equal to the then-present fair value of such interest. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered. Unit sales commissions paid to broker-dealers/formation loan Commissions for unit sales to be paid to broker-dealers (B/D sales commissions) are paid by RMC and are not paid directly by the company out of offering proceeds. Instead, the company advances to RMC, from offering proceeds, amounts sufficient to pay the B/D sales commissions and premiums to be paid to investors. Such advances in total may not exceed seven percent (7%) of offering proceeds. The receivable arising from the advances is unsecured, and non-interest bearing and is referred to as the “formation loan.” As of June 30, 2018 the company had made such advances of $5,229,467, of which $4,344,216 remains outstanding on the formation loan. RMC is required to make annual payments on the formation loan in the amount of one tenth of the principal balance outstanding at December 31 of the prior year. Term of the company The term of the company will continue until 2028, unless sooner terminated as provided in the Operating Agreement. Ongoing public offering of units/ SEC Registrations Gross proceeds from sales of units from inception (October, 2009) through June 30, 2018 are summarized below.
In June, 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continues in effect for up to three (3) years thereafter. As of June 30, 2018, the company had sold approximately 81,034,000 units– 39,407,000 units under previous registration statements and approximately 41,627,000 units under the June 2016 registration statement. Correspondingly, gross proceeds from unit sales at $1 per unit (including units issued under the distribution reinvestment plan) were approximately $39,407,000 and $41,627,000, respectively. The June 2016 registration statement expires June 6, 2019, and unit sales will cease, unless extended by the filing of another follow-on registration statement prior to June 3, 2019. Use of Proceeds from sale of units We will use the proceeds from the sale of the units to:
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Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | ||||||||||||||||
Summary of Significant Accounting Policies | NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Management estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates. Fair value estimates GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:
The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition). Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types. Cash and cash equivalents The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At June 30, 2018, substantially all of the company’s cash balances in banks exceed the federal depository insurance limit of $250,000. Loans and interest income Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower. The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. As monthly interest payments become due, the company funds the payments into the affiliated trust account. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal. If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal. From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired. Interest is accrued daily based on the principal of the loans. Impaired loans continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement. Loan administrative fees paid to RMC for loans funded or invested in by the company are capitalized and amortized over the life of the loan on a straight-line method which approximates the effective interest method. Allowance for loan losses Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system of record. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate. For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value. Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss ( i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible. At foreclosure any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses. Real estate owned (REO) Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at the lower of the amount owed on the loan (legal basis), plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing. Recently issued accounting pronouncements -Accounting and Financial reporting for Expected Credit Losses The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model. RMI IX invests in real estate secured loans made with the expectation of zero credit losses as a result of substantial protective equity provided by the underlying collateral. For a loss to be recognized under the CECL or incurred loss model, if the lending/loan-to-value guidelines are followed effectively, an intervening, subsequent-to-loan-funding, event must negatively impact the value of the underlying collateral of the loan in an amount greater than the amount of protective equity provided by the collateral. Such an event would be either (or both) of:
In both of these instances the treatment would be the same in the incurred loss and CECL models of approximately the same amount. Other than in these events, the probable of occurrence criteria of the incurred loss model is not triggered and a loss is not recognized. Further, if the zero-expected-loss lending guideline is preserved and the protective equity provided by the collateral is not expected to be impaired over the life of the loans, then a loss is not required to be recognized under the CECL model. This convergence between the CECL and incurred loss models as to loss recognition – as an event driven occurrence – in low LTV, real estate secured programs caused RMC to conclude that the CECL model will not materially impact the reported results of operations or financial position as compared to that which would be reported in the incurred loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020. -Accounting and Financial Reporting for Revenue Recognition On May 28, 2014, FASB issued a final standard on revenue from contracts with customers. The standard issued as ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is effective January 1, 2018, and has been adopted using the modified retrospective approach. The goals of the revenue recognition project are to clarify and converge the revenue recognition principles under U.S. GAAP and to develop guidance that would streamline and enhance revenue recognition requirements. A core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Revenue is recognized when a performance obligation is satisfied by transferring goods or services to a customer. The FASB intentionally used the wording “be entitled” rather than “receive” or “collect” to distinguish collectability risk from other uncertainties that may exist under a contract. Adoption of the revenue standard did not have an impact on the company’s current revenue recognition policies since the scope of guidance is not applicable to financial instruments including loans and therefore did not have an impact on the recognition of interest income or late fees.
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Manager and Other Related Parties |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Manager and Other Related Parties | NOTE 3 – MANAGER AND OTHER RELATED PARTIES RMC’s allocated one percent (1%) of the profits and losses was $12,044 and $9,096 for the three months ended and $23,469 and $17,264 for the six months ended June 30, 2018 and 2017, respectively. Manager financial support (RMC support) RMC support provided, as detailed below, totaled approximately $426,000 and $426,000 for the three months ended and $1,054,000 and $807,000, for the six months ended June 30, 2018 and 2017, respectively. Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three and six months ended June 30, 2018 are presented in the following table.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three and six months ended June 30, 2017 are presented in the following table.
RMC is entitled to receive a loan administrative fee in an amount up to one percent (1%) of the principal amount of each new loan originated or acquired on the company’s behalf by RMC for services rendered in connection with the selection and underwriting of potential loans. Such fees are payable by the company upon the closing or acquisition of each loan. Beginning in August 2015, RMC, at its sole discretion, began waiving loan administrative fees.
RMC earns mortgage servicing fees from the company of up to one-quarter of one percent (0.25%) annually of the unpaid principal balance of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. RMC is entitled to receive these fees regardless of whether specific mortgage payments are collected. The mortgage servicing fees are accrued monthly on all loans. Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the company. An increase or decrease in this fee within the limits set by the Operating Agreement directly impacts the yield to the members.
RMC is entitled to receive a monthly asset management fee for managing the company’s portfolio and operations in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves. This amount will be recomputed annually after the second full year of operations by subtracting from the then fair value of the company’s loans plus working capital reserves, an amount equal to the outstanding debt. RMC, at its sole discretion, may elect to accept less than the maximum amount of the asset management fee. An increase or decrease in this fee within the limits set by the Operating Agreement directly impacts the yield to the members. RMC intends to begin reducing these fee waivers by the fourth quarter of 2018. Beginning in April 2018, the calculation of the asset management fees was adjusted to conform to the specifically applicable provisions of the Operating Agreement, accordingly the 2017 dollar amounts in the table above have been updated. The previously disclosed asset management fees were $94,961 for the three months ended and $181,394 for the six months ended June 30, 2017. This update had no effect on net income or total operating expenses, as all asset management fees were waived in all periods presented.
RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g. postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g. RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g. by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all mortgage funds. RMC, at its sole discretion, has elected to request less than the maximum amount of reimbursement for operating expenses. An increase or decrease in this reimbursement, within the limits set by the Operating Agreement, directly impacts the yield to the members. RMC intends to initiate collecting qualifying expenses by the fourth quarter of 2018.
Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses.
For the three months ended June 30, 2018, RMI IX paid for all professional services directly. Prior to April 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services (and other operating expenses directly incurred by the company). Commissions and fees are paid by the borrowers to RMC.
For fees in connection with the review, selection, evaluation, negotiation and extension of loans, RMC may collect a loan brokerage commission that is expected to range from approximately 1.5% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed 4% of the total company assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the company.
RMC receives fees for processing, notary, document preparation, credit investigation, reconveyance and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the company. In the ordinary course of business, performing loans may be assigned, in-part or in-full, between the affiliated mortgage funds at par. During the six months ended June 30, 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, assigned to the company two performing loans in-full at par value of approximately $5,890,000. The company paid cash for the loans and the affiliated mortgage fund has no continuing obligation or involvement on the loans assigned to the company. During the six months ended June 30, 2017, the company assigned one loan at par value of approximately $999,995 to Redwood Mortgage Investors VIII, LP. Formation loan Formation loan transactions are presented in the following table.
The future minimum payments on the formation loan as of June 30, 2018 are presented in the following table.
RMC is required to make annual payments on the formation loan of one tenth of the principal balance outstanding at December 31 of the prior year. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered. Reimbursement and allocation of organization and offering expenses The manager is reimbursed for, or the company may pay directly, organization and offering expenses (or O&O expenses) incurred in connection with the organization of the company or offering of the units including, without limitation, attorneys’ fees, accounting fees, printing costs and other selling expenses (other than sales commissions) in a total amount not exceeding 4.5% of the original purchase price of all units (other than DRIP units) sold in all offerings (hereafter, the “maximum O&O expenses”), and the manager pays any O&O expenses in excess of the maximum O&O expenses. For each calendar quarter or portion thereof after December 31, 2015, that a member holds units (other than DRIP units) and for a maximum of forty (40) such quarters, a portion of the O&O expenses borne by the company is allocated to and debited from that member’s capital account in an annual amount equal to 0.45% of the member’s original purchase price for those units, in equal quarterly installments of 0.1125% each commencing with the later of the first calendar quarter of 2016 or the first full calendar quarter after a member’s purchase of units, and continuing through the quarter in which such units are redeemed. If at any time the aggregate O&O expenses actually paid or reimbursed by the company since inception are less than the maximum O&O expenses, the company shall first reimburse the manager for any O&O expenses previously borne by it so long as it does not result in the company bearing more than the maximum O&O expenses, and any savings thereafter remaining shall be equitably allocated among (and serve to reduce any subsequent such cost allocations to) those members who have not yet received forty (40) quarterly allocations of O&O expenses, as determined in the good faith judgment of the manager. Any O&O expenses with respect to a member’s units that remain unallocated upon redemption of such units shall be reimbursed to the company by the manager.
O & O expenses are summarized in the following table.
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans | NOTE 4 – LOANS Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value. As of June 30, 2018, 77 of the company’s 84 loans (representing 97% of the aggregate principal of the company’s loan portfolio) have a loan term of five years or less from loan inception. The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment penalty provision. As of June 30, 2018, 60 loans outstanding (representing 65% of the aggregate principal balance of the company’s loan portfolio) provide for monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity. The remaining loans provide for monthly payments of interest only, with the principal balance due at maturity. Secured loans unpaid principal balance (principal) Secured loan transactions are summarized in the following table for the three and six months ended June 30, 2018.
During the three and six months ended June 30, 2018, the company renewed 2 and 6 loans, at then market terms, with an aggregate principal balance of $1,168,072 and $2,492,545, respectively, which are not included in the activity shown above.
On June 27, 2018 the company closed on the sale of loans comprising approximately 20% of the loan portfolio to an unaffiliated bank (the “Acquiror”) pursuant to an Asset Sale Agreement dated June 27, 2018 (the “Asset Sale Agreement’). The Asset Sale Agreement contains customary representations, warranties, and covenants. The loans sold represented principal of $14,065,638 and interest owing of $82,027. The mortgage servicing rights were released to the Acquiror. The loans sold are secured by property located in the California counties of San Mateo, Sacramento, Contra Costa, San Bernardino, Alameda, Orange, San Francisco, Santa Clara, Sonoma, and San Joaquin. The loan sale transaction was arranged by a third-party, unaffiliated national firm engaged by RMC. Proceeds from the loan sales was $14,163,158, net of transactions costs of $70,148. The transaction generated an immaterial gain (net of expenses). When RMC began negotiating the sale of the loans, pending (and future) loan applications meeting the investment criteria of the company exceeded the capital available to lend at closing. As this transaction occurred at quarter end, the loans to be funded in the place of the loans sold will be funded in the third quarter of 2018 from applications in the loan pipeline. There are currently no planned future loan sales transactions, although similar transactions may be considered at a later date. Loan characteristics Secured loans had the characteristics presented in the following table.
As of June 30, 2018, the company’s largest loan with principal of $3,497,402 represents 6.5% of outstanding secured loans and 4.9% of company assets. The loan is secured single family residence located in San Mateo County, bears an interest rate of 7.50% and matures on May 1, 2019. As of June 30, 2018, the company had 1 loan with a notice of default filed. In compliance with California laws and regulations, all borrower receipts are deposited into a bank trust account maintained by RMC and subsequently disbursed to the company after an appropriate holding period. At June 30, 2018, the trust account held a balance relating to the company’s loan portfolio of $77,843, consisting of both interest and principal payments from borrowers, all of which was disbursed by July 18, 2018. Lien position Secured loans had the lien positions presented in the following table.
Property type Secured loans summarized by property type are presented in the following table.
Distribution of loans within California The distribution of secured loans by counties is presented in the following table as of June 30, 2018, and December 31, 2017.
Scheduled maturities Secured loans are scheduled to mature as presented in the following table as of June 30, 2018.
2 loans with an aggregate principal balance of $3,022,334 were past maturity at June 30, 2018. One loan, with a principal balance of $138,426 was 425 days delinquent and designated as impaired and in non-accrual status at June 30, 2018. The other loan with a principal balance of $2,883,908 matured on June 1, 2018 and was not designated as impaired or in non-accrual status at June 30, 2018 and paid off in full in July 2018. Loans may be repaid or refinanced before, at or after the contractual maturity date. On matured loans, the company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts. Delinquency Secured loans summarized by payment delinquency are presented in the following table as of June 30, 2018 and December 31, 2017.
Loans in non-accrual status
At June 30, 2018, one loan with a principal balance of $428,784 was 90 or more days past due as to principal or interest and not in non-accrual status. No loans were 90 or more days past due as to principal or interest and not in non-accrual status at December 31, 2017. Impaired loans/allowance for loan losses
(5)Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes.
Two and one loans were designated as impaired at June 30, 2018 and at December 31, 2017, respectively. No allowance for loan losses has been recorded as all loans were deemed to have protective equity (i.e., low loan-to-value ratio) such that collection is reasonably assured for all amounts owing.
Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the six months ended June 30, 2018 and the year ended December 31, 2017.
Modifications and troubled debt restructurings No loan payment modifications were made during three and six months ended June 30, 2018, and no modifications were in effect at June 30, 2018 and December 31, 2017. Commitments/loan disbursements/construction and rehabilitation loans As of June 30, 2018, the company had no construction loans outstanding. The company may make construction loans that are not fully disbursed at loan inception. Construction loans are determined by the manager to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multi-family properties. The company will approve and fund the construction loan up to a maximum loan balance. Disbursements will be made periodically as phases of the construction are completed or at such other times as the loan documents may require. Undisbursed construction funds will be held in escrow pending disbursement. Upon project completion, construction loans are reclassified as permanent loans. Funding of construction loans is limited to 10% of the loan portfolio. At June 30, 2018, the company had no rehabilitation loans outstanding. The company may also make rehabilitation loans. A rehabilitation loan will be approved up to a maximum principal balance and, at loan inception, will be either fully or partially disbursed. If fully disbursed, a rehabilitation escrow account is established and advanced periodically as phases of the rehabilitation are completed or at such other times as the loan documents may require. If not fully disbursed, the rehabilitation loan will be funded from available cash balances and future cash receipts. The company does not maintain a separate cash reserve to fund undisbursed rehabilitation loan obligations. Rehabilitation loan proceeds are generally used to acquire and remodel single family homes for future sale or rental. Upon project completion, rehabilitation loans are reclassified as permanent loans. Funding of rehabilitation loans is limited to 15% of the loan portfolio. Fair Value The company does not record its loans at fair value on a recurring basis as it is the intention of the company to hold loans until maturity. As substantially all loans are written without a prepayment penalty provision, the recorded amount of the performing loan (i.e., the loan balance) is deemed to approximate fair value as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized such that collection of the amount owed is assured, including forgone interest, if any). Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis. No assets or liabilities were measured at fair value on a non-recurring basis at and for the periods ended June 30, 2018 or December 31, 2017. Secured loans, performing (i.e. not designated as impaired) (Level 2) - Each loan is reviewed quarterly for its delinquency, LTV adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. Also considered is the limited resale market for the loans. Most companies or individuals making similar loans as the company intend to hold the loans until maturity as the average contractual term of the loans (and the historical experience of the time the loan is outstanding due to pre-payments) is shorter than conventional mortgages. As there are no prepayment penalties to be collected, loan buyers may be hesitant to risk paying above par. Due to these factors, sales of the loans are infrequent, and an active market does not exist. The recorded amount of the performing loans (i.e. the loan balance) is deemed to approximate the fair value, although the intrinsic value of the loans, if held to maturity, would reflect a premium due to the interest to be received being at a rate favorable to conventional mortgage rates. Secured loans, designated impaired (Level 2) - Secured loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions (Level 2 inputs). The following methods and assumptions are used to determine the fair value of the collateral securing a loan. Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison method. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition and year built. If applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of brokers’ opinions of value or appraisals. Multi-family residential – Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, rental income, number of units, composition of units by the number of bedrooms and bathrooms, square footage, condition, amenities and year built. Management’s secondary method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals. Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals. Management supplements the direct capitalization method with additional information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal. Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal. |
Commitments and Contingencies, Other Than Loan Commitments |
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Commitments And Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||
Commitments and Contingencies, Other Than Loan Commitments | NOTE 5 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS Commitments The company had two contractual obligations as of June 30, 2018:
Scheduled redemptions as of June 30, 2018 are presented in the following table.
Legal proceedings In the normal course of its business, the company may become involved in legal proceedings (such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc.) to collect the debt owed under the promissory notes, to enforce the provisions of the deeds of trust, to protect its interest in the real property subject to the deeds of trust and to resolve disputes with borrowers, lenders, lien holders and mechanics. None of these actions, in and of themselves, typically would be of any material financial impact to the net income or balance sheet of the company. As of the date hereof, the company is not involved in any legal proceedings other than those that would be considered part of the normal course of business.
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | NOTE 6 – SUBSEQUENT EVENTS None.
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Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2018 | ||||||||||
Accounting Policies [Abstract] | ||||||||||
Basis of Presentation | Basis of presentation The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). |
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Management Estimates | Management estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates. |
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Fair Value Estimates | Fair value estimates GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:
The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g. as-is, when-completed or for land when-entitled); and determining the unit of value (e.g. as a series of individual unit sales or as a bulk disposition). Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types. |
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Cash and Cash Equivalents | Cash and cash equivalents The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At June 30, 2018, substantially all of the company’s cash balances in banks exceed the federal depository insurance limit of $250,000. |
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Loans and Interest Income | Loans and interest income Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower. The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. As monthly interest payments become due, the company funds the payments into the affiliated trust account. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal. If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal. From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired. Interest is accrued daily based on the principal of the loans. Impaired loans continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement. Loan administrative fees paid to RMC for loans funded or invested in by the company are capitalized and amortized over the life of the loan on a straight-line method which approximates the effective interest method. |
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Allowance for Loan Losses | Allowance for loan losses Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system of record. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate. For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value. Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss ( i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible. At foreclosure any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses. |
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Real Estate Owned (REO) | Real estate owned (REO) Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at the lower of the amount owed on the loan (legal basis), plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing. |
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Recently Issued Accounting Pronouncements | Recently issued accounting pronouncements -Accounting and Financial reporting for Expected Credit Losses The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model. RMI IX invests in real estate secured loans made with the expectation of zero credit losses as a result of substantial protective equity provided by the underlying collateral. For a loss to be recognized under the CECL or incurred loss model, if the lending/loan-to-value guidelines are followed effectively, an intervening, subsequent-to-loan-funding, event must negatively impact the value of the underlying collateral of the loan in an amount greater than the amount of protective equity provided by the collateral. Such an event would be either (or both) of:
In both of these instances the treatment would be the same in the incurred loss and CECL models of approximately the same amount. Other than in these events, the probable of occurrence criteria of the incurred loss model is not triggered and a loss is not recognized. Further, if the zero-expected-loss lending guideline is preserved and the protective equity provided by the collateral is not expected to be impaired over the life of the loans, then a loss is not required to be recognized under the CECL model. This convergence between the CECL and incurred loss models as to loss recognition – as an event driven occurrence – in low LTV, real estate secured programs caused RMC to conclude that the CECL model will not materially impact the reported results of operations or financial position as compared to that which would be reported in the incurred loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020. -Accounting and Financial Reporting for Revenue Recognition On May 28, 2014, FASB issued a final standard on revenue from contracts with customers. The standard issued as ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard is effective January 1, 2018, and has been adopted using the modified retrospective approach. The goals of the revenue recognition project are to clarify and converge the revenue recognition principles under U.S. GAAP and to develop guidance that would streamline and enhance revenue recognition requirements. A core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Revenue is recognized when a performance obligation is satisfied by transferring goods or services to a customer. The FASB intentionally used the wording “be entitled” rather than “receive” or “collect” to distinguish collectability risk from other uncertainties that may exist under a contract. Adoption of the revenue standard did not have an impact on the company’s current revenue recognition policies since the scope of guidance is not applicable to financial instruments including loans and therefore did not have an impact on the recognition of interest income or late fees. |
Organization and General (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||
Summary of Gross Proceeds from Sales of Units | Gross proceeds from sales of units from inception (October, 2009) through June 30, 2018 are summarized below.
In June, 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continues in effect for up to three (3) years thereafter. As of June 30, 2018, the company had sold approximately 81,034,000 units– 39,407,000 units under previous registration statements and approximately 41,627,000 units under the June 2016 registration statement. Correspondingly, gross proceeds from unit sales at $1 per unit (including units issued under the distribution reinvestment plan) were approximately $39,407,000 and $41,627,000, respectively. |
Manager and Other Related Parties (Tables) |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Loan Administrative Fees and Operating Expenses, for Fees and Cost Reimbursements Waived and Expenses Absorbed | Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three and six months ended June 30, 2018 are presented in the following table.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three and six months ended June 30, 2017 are presented in the following table.
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Schedule of Accounts, Notes, Loans and Financing Receivable | Formation loan transactions are presented in the following table.
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Formation Loan, Future Minimum Payments | The future minimum payments on the formation loan as of June 30, 2018 are presented in the following table.
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Summary of Organization and Offering Expenses | O & O expenses are summarized in the following table.
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Loans (Tables) |
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Secured Loan Principal Transactions | Secured loan transactions are summarized in the following table for the three and six months ended June 30, 2018.
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Secured Loans Characteristics | Secured loans had the characteristics presented in the following table.
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Secured Loans by Lien Position in the Collateral | Secured loans had the lien positions presented in the following table.
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Secured Loans by Property Type of the Collateral | Secured loans summarized by property type are presented in the following table.
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Secured Loans Distributed within California | The distribution of secured loans by counties is presented in the following table as of June 30, 2018, and December 31, 2017.
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Secured Loans Scheduled Maturities | Secured loans are scheduled to mature as presented in the following table as of June 30, 2018.
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Past Due Financing Receivables | Secured loans summarized by payment delinquency are presented in the following table as of June 30, 2018 and December 31, 2017.
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Secured Loans in Non-Accrual Status |
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Impaired Loans [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired Financing Receivables | Impaired loans/allowance for loan losses
(5)Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes. |
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Average Balances and Interest Income [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired Financing Receivables | Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the six months ended June 30, 2018 and the year ended December 31, 2017.
|
Commitments and Contingencies, Other Than Loan Commitments (Tables) |
6 Months Ended | |||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 | ||||||||||||||||||||||||||
Scheduled Redemptions Of Members Capital [Abstract] | ||||||||||||||||||||||||||
Scheduled Redemptions of Members' Capital | Scheduled redemptions as of June 30, 2018 are presented in the following table.
|
Organization and General - Additional Information (Details) |
1 Months Ended | 3 Months Ended | 6 Months Ended | 105 Months Ended | |||||
---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 |
Feb. 28, 2018 |
Jun. 30, 2018
USD ($)
$ / shares
shares
|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2018
USD ($)
Unit
$ / shares
shares
|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2018
USD ($)
$ / shares
shares
|
Dec. 31, 2017
USD ($)
|
Jun. 30, 2016
USD ($)
shares
|
|
Organization and General (Details) [Line Items] | |||||||||
Ownership interest held by the manager | 1.00% | 1.00% | 1.00% | 1.00% | |||||
Members or partners capital, description | Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. | ||||||||
Percentage of distribution allocated to members | 99.00% | ||||||||
Annualized net distribution rate | 5.935% | 6.50% | |||||||
Net distribution rate before organization and offering expense percentage | 6.95% | ||||||||
Organization and offering expense percentage | 0.45% | ||||||||
Reduction in annual percentage of member's capital | 6.00% | 6.50% | |||||||
Unit Redemption Program, Years After Purchase | 1 year | ||||||||
Maximum Capital Units for Redemption Per Quarter Per Individual | Unit | 100,000 | ||||||||
Maximum Percentage of Members Outstanding Units for Redemption Per Quarter Per Individual | 25.00% | ||||||||
Maximum Percentage of Weighted Average Number of Members Outstanding Units During Twelve Months for Redemption | 5.00% | ||||||||
Formation loan, advances | $ 211,727 | $ 404,368 | $ 569,521 | $ 720,319 | |||||
Receivable from affiliate (formation loan) | $ 4,344,216 | $ 4,344,216 | $ 4,344,216 | $ 3,777,088 | |||||
Capital Unit Sold in Public Offering, Shares | shares | 120,000,000 | ||||||||
Capital Unit Sold in Public Offering, Value | $ (120,000,000) | ||||||||
Member Units [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Capital Unit Sold in Public Offering, Shares | shares | 41,627,000 | 41,627,000 | 41,627,000 | 20,000,000 | |||||
Capital Unit Sold in Public Offering, Value | $ 41,627,000 | $ 41,627,000 | $ 41,627,000 | $ (20,000,000) | |||||
Limited partners capital account sales per unit from gross proceeds of unit sales | $ / shares | $ 1 | $ 1 | $ 1 | ||||||
Maximum [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Percentage of offering proceeds | 7.00% | ||||||||
Maximum [Member] | Member Units [Member] | Capital Units Issued Under Previous Registration Statements [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Capital Unit Sold in Public Offering, Shares | shares | 81,034,000 | 81,034,000 | 81,034,000 | ||||||
Minimum [Member] | Member Units [Member] | Capital Units Issued Under Previous Registration Statements [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Capital Unit Sold in Public Offering, Shares | shares | 39,407,000 | 39,407,000 | 39,407,000 | ||||||
Capital Unit Sold in Public Offering, Value | $ 39,407,000 | $ 39,407,000 | $ 39,407,000 | ||||||
Formation Loan [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Formation loan, advances | 5,229,467 | ||||||||
Receivable from affiliate (formation loan) | $ 4,344,216 | $ 4,344,216 | $ 4,344,216 | ||||||
Redemption Between One to Two Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 92.00% | 92.00% | 92.00% | ||||||
Redemption Between Two to Three Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 94.00% | 94.00% | 94.00% | ||||||
Redemption Between Three to Four Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 96.00% | 96.00% | 96.00% | ||||||
Redemption Between Four to Five Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 98.00% | 98.00% | 98.00% | ||||||
Redemption After Five Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 100.00% | 100.00% | 100.00% | ||||||
RMC [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Percentage of profits and losses allocated to manager | 1.00% | ||||||||
Ownership interest held by the manager | 0.10% | ||||||||
RMC [Member] | Maximum [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Percentage of proceeds from sale of units used to pay for organization and offering expenses | 4.50% | ||||||||
Percentage of proceeds from sale of units used for funding formation loan to related party | 7.00% |
Organization and General - Summary of Gross Proceeds from Sales of Units (Detail) |
105 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2018
USD ($)
| ||||
Limited Partners' Capital Account [Line Items] | ||||
Total proceeds from unit sales | $ 81,033,605 | |||
Contributions Admitted To Members Capital [Member] | ||||
Limited Partners' Capital Account [Line Items] | ||||
Total proceeds from unit sales | 73,284,352 | |||
DRIP [Member] | ||||
Limited Partners' Capital Account [Line Items] | ||||
Total proceeds from unit sales | 7,420,354 | |||
Premiums Admitted To Members Capital [Member] | ||||
Limited Partners' Capital Account [Line Items] | ||||
Total proceeds from unit sales | $ 328,899 | [1] | ||
|
Summary of Significant Accounting Policies - Additional Information (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
Approach
| |
Summary of Significant Accounting Policies [Line Items] | |
Estimating Real Property Value, Number of Approaches | Approach | 3 |
Cash and Cash Equivalents, Maximum Initial Maturity | 3 months |
Interest Reserve Minimum Length | 1 year |
Interest Reserve Maximum Length | 2 years |
ASU 2014-09 [Member] | |
Summary of Significant Accounting Policies [Line Items] | |
Adoption of revenue standard, impact on recognition of interest income or late fees | $ 0 |
Real Estate Secured Loans [Member] | |
Summary of Significant Accounting Policies [Line Items] | |
Expected credit losses from investment | 0 |
Maximum [Member] | |
Summary of Significant Accounting Policies [Line Items] | |
Federal depository insurance limit | $ 250,000 |
Manager and Other Related Parties - Additional Information (Details) |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|
Jun. 30, 2018
USD ($)
|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2018
USD ($)
MortgageLoan
|
Jun. 30, 2017
USD ($)
MortgageLoan
|
Dec. 31, 2017
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
|
|
Managers and Other Related Parties (Details) [Line Items] | ||||||
Managers Share of Profits or Losses | 1.00% | |||||
Managers (1%), Net income | $ 12,044 | $ 9,096 | $ 23,469 | $ 17,264 | ||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 84 | 93 | ||||
Principal | 53,538,730 | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 | ||
Percentage of reimbursement of organization and offering expenses | 4.50% | |||||
Reimbursement as a percentage of member's original purchase price | 0.45% | |||||
Percentage of original purchase price, quarterly installment percentage | 0.1125% | |||||
Performing Loans [Member] | ||||||
Managers and Other Related Parties (Details) [Line Items] | ||||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 2 | 1 | ||||
Principal | $ 5,890,000 | 999,995 | $ 5,890,000 | $ 999,995 | ||
Maximum [Member] | ||||||
Managers and Other Related Parties (Details) [Line Items] | ||||||
Annual mortgage servicing fees, percentage | 0.25% | 0.25% | ||||
Percentage of reimbursement of organization and offering expenses | 4.50% | |||||
Reimbursement threshold | Maximum of forty (40) such quarters | |||||
RMC [Member] | ||||||
Managers and Other Related Parties (Details) [Line Items] | ||||||
Managers (1%), Net income | $ 12,044 | 9,096 | $ 23,469 | 17,264 | ||
Related Party Transaction, Amounts of Transaction | $ 426,000 | 426,000 | $ 1,054,000 | 807,000 | ||
Administrative Fees, Percentage | 1.00% | 1.00% | ||||
Management Fee, Percentage | 0.75% | 0.75% | ||||
Working Capital Reserve, Percentage | 2.00% | 2.00% | ||||
Asset management fees | $ 425,864 | 425,934 | $ 1,053,618 | 807,435 | ||
Loan Brokerage Commission Percent Minimum | 1.50% | 1.50% | ||||
Loan Brokerage Commission Percent Maximum | 5.00% | 5.00% | ||||
Loan Brokerage Commissions, Maximum Percent of Assets | 4.00% | 4.00% | ||||
RMC [Member] | Asset Management Fee [Member] | ||||||
Managers and Other Related Parties (Details) [Line Items] | ||||||
Asset management fees | $ 82,066 | 76,776 | $ 209,910 | 153,552 | ||
RMC [Member] | Asset Management Fee [Member] | Scenario Previously Reported [Member] | ||||||
Managers and Other Related Parties (Details) [Line Items] | ||||||
Asset management fees | $ 94,961 | $ 181,394 |
Manager and Other Related Parties - Summary of Loan Administrative Fees and Operating Expenses, for Fees and Cost Reimbursements Waived and Expenses Absorbed (Details) - RMC [Member] - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | $ 557,183 | $ 458,242 | $ 1,224,891 | $ 865,092 |
Waived | (425,864) | (306,301) | (896,220) | (566,759) |
Expenses absorbed by RMC | (119,633) | (157,398) | (240,676) | |
Total RMC support | (425,864) | (425,934) | (1,053,618) | (807,435) |
Net charged | 131,319 | 32,308 | 171,273 | 57,657 |
Loan Admin Fees [Member] | ||||
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | 165,940 | 108,784 | 324,303 | 194,861 |
Waived | (165,940) | (108,784) | (324,303) | (194,861) |
Total RMC support | (165,940) | (108,784) | (324,303) | (194,861) |
Mortgage Servicing Fees [Member] | ||||
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | 38,694 | 26,858 | 73,878 | 51,168 |
Net charged | 38,694 | 26,858 | 73,878 | 51,168 |
Asset Management Fee [Member] | ||||
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | 82,066 | 76,776 | 209,910 | 153,552 |
Waived | (82,066) | (76,776) | (209,910) | (153,552) |
Total RMC support | (82,066) | (76,776) | (209,910) | (153,552) |
Costs from RMC [Member] | ||||
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | 177,858 | 120,741 | 362,007 | 218,346 |
Waived | (177,858) | (120,741) | (362,007) | (218,346) |
Total RMC support | (177,858) | (120,741) | (362,007) | (218,346) |
Professional Services [Member] | ||||
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | 84,213 | 113,352 | 232,050 | 233,091 |
Expenses absorbed by RMC | (110,988) | (143,152) | (230,727) | |
Total RMC support | (110,988) | (143,152) | (230,727) | |
Net charged | 84,213 | 2,364 | 88,898 | 2,364 |
Other [Member] | ||||
Managers and Other Related Parties (Details) [Line Items] | ||||
Chargeable/reimbursable | 8,412 | 11,731 | 22,743 | 14,074 |
Expenses absorbed by RMC | (8,645) | (14,246) | (9,949) | |
Total RMC support | (8,645) | (14,246) | (9,949) | |
Net charged | $ 8,412 | $ 3,086 | $ 8,497 | $ 4,125 |
Manager and Other Related Parties - Formation Loan Transactions (Details) - USD ($) |
6 Months Ended | 105 Months Ended |
---|---|---|
Jun. 30, 2018 |
Jun. 30, 2018 |
|
Formation Loan Transactions [Abstract] | ||
Balance, beginning of period | $ 3,777,088 | |
Formation loan advances to RMC | 569,521 | $ 5,229,467 |
Payments received from RMC | (854,077) | |
Early withdrawal penalties applied | (2,393) | (31,174) |
Balance, June 30, 2018 | $ 4,344,216 | 4,344,216 |
Subscription proceeds since inception | $ 74,584,162 | |
Formation loan advance rate | 7.00% |
Manager and Other Related Parties - Formation Loan, Future Minimum Payments (Details) |
Jun. 30, 2018
USD ($)
|
---|---|
Formation Loan Future Minimum Payments [Abstract] | |
2018 | $ 377,709 |
2019 | 377,709 |
2020 | 377,709 |
2021 | 377,709 |
2022 | 377,709 |
Thereafter | 2,455,671 |
Total | $ 4,344,216 |
Manager and Other Related Parties - Summary of Organization and Offering Expenses (Details) - USD ($) |
6 Months Ended | 105 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2018 |
||||||||||
Related Party Transactions [Abstract] | |||||||||||
Balance, January 1 | $ 2,335,325 | ||||||||||
O&O expenses reimbursed to RMC | 422,390 | $ 3,317,004 | |||||||||
Early withdrawal penalties applied | [1] | (1,575) | (20,090) | ||||||||
O&O expenses allocated | [2] | (144,688) | (526,845) | ||||||||
O&O expenses reimbursed by RMC | [3] | (21,330) | (179,947) | ||||||||
Balance, June 30 | [4] | $ 2,590,122 | $ 2,590,122 | ||||||||
|
Manager and Other Related Parties - Summary of Organization and Offering Expenses (Parenthetical) (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Related Party Transactions [Abstract] | |
O&O expenses reimbursed period to RMC | 120 months |
Unallocated O&O expenses on units reimbursed period | 120 months |
Percentage of reimbursement of organization and offering expenses | 4.50% |
RMC incurred cumulative O&O expenses in excess of 4.5% cap and reimbursed to RMC | $ 3,407,471 |
Loans - Additional Information (Details) |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 27, 2018
USD ($)
|
Jun. 30, 2018
USD ($)
MortgageLoan
Loan
|
Jun. 30, 2018
USD ($)
MortgageLoan
Loan
|
Dec. 31, 2017
USD ($)
MortgageLoan
Loan
|
Mar. 31, 2018
USD ($)
|
|
Loans (Details) [Line Items] | |||||
Loans Receivable, Term | 5 years | ||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 84 | 93 | |||
Loans Receivable, Number of Principal and Interest Loans | Loan | 60 | 60 | |||
Loans Receivable, Amortization Term | 30 years | ||||
Mortgage Loans on Real Estate Renewed, Number of Loans | MortgageLoan | 2 | 6 | |||
Loans - principal renewed (in Dollars) | $ 1,168,072 | $ 2,492,545 | |||
Mortgage loans on real estate percentage | 20.00% | ||||
Loans sold to non-affiliates | $ 14,065,638 | 14,065,638 | 14,065,638 | ||
Mortgage loans on real estate interest owned | 82,027 | ||||
Proceeds from loan sales to non-affiliates | 14,163,158 | 14,163,158 | 14,163,158 | ||
Transactions costs on loan sales to non-affiliates | $ 70,148 | ||||
Loans Receivable Largest Loan (in Dollars) | $ 3,497,402 | $ 3,497,402 | $ 3,239,124 | ||
Loans Receivable, Percent | 100.00% | 100.00% | 100.00% | ||
Balance relating to loan portfolio held in bank trust account | $ 77,843 | $ 77,843 | |||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 2 | 2 | |||
Mortgage Loans on Real Estate, principal balance | $ 3,022,334 | $ 3,022,334 | |||
Delinquent secured loans, number | Loan | 84 | 84 | 93 | ||
Delinquent secured loans, principal balance | $ 53,538,730 | $ 53,538,730 | $ 54,768,689 | ||
Financing receivable, recorded investment, 90 days past due and still accruing | 0 | ||||
Financing Receivable, Modifications, Number of Contracts | Loan | 0 | 0 | |||
Loans - principal (in Dollars) | $ 53,538,730 | $ 53,538,730 | 54,768,689 | $ 57,865,391 | |
Percentage of loan portfolio limited for funding of construction loans | 10.00% | 10.00% | |||
Percentage of loan portfolio limited for funding of rehabilitation loans | 15.00% | 15.00% | |||
Fair Value on Non-recurring [Member] | |||||
Loans (Details) [Line Items] | |||||
Assets measured at fair value on non-recurring basis | $ 0 | $ 0 | 0 | ||
Liabilities measured at fair value on non-recurring basis | 0 | 0 | $ 0 | ||
Construction Loans [Member] | |||||
Loans (Details) [Line Items] | |||||
Loans - principal (in Dollars) | 0 | 0 | |||
Rehabilitation Loans [Member] | |||||
Loans (Details) [Line Items] | |||||
Loans - principal (in Dollars) | 0 | $ 0 | |||
Loan Matured on June 1, 2018 [Member] | |||||
Loans (Details) [Line Items] | |||||
Loans Receivable Maturity Date | Jun. 01, 2018 | ||||
Mortgage Loans on Real Estate, principal balance | $ 2,883,908 | $ 2,883,908 | |||
Past Due 90 Days Or More [Member] | |||||
Loans (Details) [Line Items] | |||||
Delinquent secured loans, number | MortgageLoan | 1 | 1 | |||
Delinquent secured loans, principal balance | $ 428,784 | $ 428,784 | |||
Impaired Loans [Member] | |||||
Loans (Details) [Line Items] | |||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 2 | 1 | |||
Impaired Loans [Member] | Past Maturity 1 to 425 Days [Member] | |||||
Loans (Details) [Line Items] | |||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 1 | 1 | |||
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $ 138,426 | $ 138,426 | |||
Five Years Or Less Term Loans [Member] | |||||
Loans (Details) [Line Items] | |||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 77 | ||||
Loans Receivable, Percent of Aggregate Principal | 97.00% | 97.00% | |||
Interest Only [Member] | |||||
Loans (Details) [Line Items] | |||||
Loans Receivable, Percent of Aggregate Principal | 65.00% | 65.00% | |||
Largest Loan [Member] | |||||
Loans (Details) [Line Items] | |||||
Loans Receivable, Percent | 6.50% | 6.50% | |||
Loans Receivable, Percent of Assets | 4.90% | 4.90% | |||
Loans Receivable, Yield of Loan Acquired | 7.50% | 7.50% | |||
Loans Receivable Maturity Date | May 01, 2019 | ||||
Largest Loan [Member] | Filed Notice Of Sale [Member] | |||||
Loans (Details) [Line Items] | |||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 1 | ||||
Minimum [Member] | |||||
Loans (Details) [Line Items] | |||||
Loans Receivable, Remaining Term | 5 years | ||||
Maximum [Member] | |||||
Loans (Details) [Line Items] | |||||
Balance relating to loan portfolio held in bank trust account, disbursement date to partnership | Jul. 18, 2018 |
Loans - Secured Loan Principal Transactions (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 27, 2018 |
Jun. 30, 2018 |
Jun. 30, 2018 |
|
Receivables [Abstract] | |||
Principal, beginning of period | $ 57,865,391 | $ 54,768,689 | |
Loans originated | 16,594,000 | 26,540,500 | |
Loans acquired from affiliates | 5,889,819 | ||
Loans sold to non-affiliate | $ (14,065,638) | (14,065,638) | (14,065,638) |
Principal payments received | (6,855,023) | (19,594,640) | |
Principal, June 30, 2018 | $ 53,538,730 | $ 53,538,730 |
Loans - Secured Loans Characteristics (Details) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2018
USD ($)
MortgageLoan
Country
|
Dec. 31, 2017
USD ($)
MortgageLoan
Country
|
Mar. 31, 2018
USD ($)
|
|
Secured Loan Transactions [Line Items] | |||
Number of secured loans | MortgageLoan | 84 | 93 | |
Secured loans - principal (in Dollars) | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 |
Average secured loan - principal (in Dollars) | $ 637,366 | $ 588,911 | |
Average principal as percent of total principal | 1.20% | 1.10% | |
Average principal as percent of members’ capital | 0.90% | 0.90% | |
Average principal as percent of total assets | 0.90% | 0.90% | |
Largest secured loan - principal (in Dollars) | $ 3,497,402 | $ 3,239,124 | |
Largest principal as percent of total principal | 6.50% | 5.90% | |
Largest principal as percent of members’ capital | 4.70% | 5.00% | |
Largest principal as percent of total assets | 4.90% | 5.10% | |
Smallest secured loan - principal (in Dollars) | $ 87,907 | $ 52,562 | |
Smallest principal as percent of total principal | 0.20% | 0.10% | |
Smallest principal as percent of members’ capital | 0.10% | 0.10% | |
Smallest principal as percent of total assets | 0.10% | 0.10% | |
Number of California counties where security is located | Country | 14 | 16 | |
Largest percentage of principal in one California county | 23.60% | 22.60% | |
Secured loans in foreclosure - principal (in Dollars) | $ 138,426 | $ 139,643 | |
Minimum [Member] | |||
Secured Loan Transactions [Line Items] | |||
Secured loans – interest rate (fixed) | 7.00% | 6.90% | |
Maximum [Member] | |||
Secured Loan Transactions [Line Items] | |||
Secured loans – interest rate (fixed) | 10.50% | 10.50% | |
Filed Notice of Default [Member] | |||
Secured Loan Transactions [Line Items] | |||
Number of secured loans | MortgageLoan | 1 | 1 |
Loans - Secured Loans by Lien Position in the Collateral (Details) |
6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018
USD ($)
MortgageLoan
|
Dec. 31, 2017
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
|
|||
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items] | |||||
Loans | MortgageLoan | 84 | 93 | |||
Loans - principal (in Dollars) | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 | ||
Liens due other lenders at loan closing | 53,660,795 | 31,545,806 | |||
Total debt | 107,199,525 | 86,314,495 | |||
Appraised property value at loan closing | $ 216,434,000 | $ 181,018,000 | |||
Percent of total debt to appraised values (LTV) at loan closing | [1] | 52.80% | 53.50% | ||
Loans - percent | 100.00% | 100.00% | |||
First Trust Deeds [Member] | |||||
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items] | |||||
Loans | MortgageLoan | 42 | 60 | |||
Loans - principal (in Dollars) | $ 26,567,704 | $ 37,032,195 | |||
Loans - percent | 50.00% | 68.00% | |||
Second Trust Deeds [Member] | |||||
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items] | |||||
Loans | MortgageLoan | 42 | 33 | |||
Loans - principal (in Dollars) | $ 26,971,026 | $ 17,736,494 | |||
Loans - percent | 50.00% | 32.00% | |||
|
Loans - Secured Loans by Property Type (Details) |
6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2018
USD ($)
MortgageLoan
|
Dec. 31, 2017
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
|
||||
Loans (Details) - Secured Loans by Property Type [Line Items] | ||||||
Loans | MortgageLoan | 84 | 93 | ||||
Loans - principal (in Dollars) | $ | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 | |||
Loans - percent | 100.00% | 100.00% | ||||
Single Family [Member] | ||||||
Loans (Details) - Secured Loans by Property Type [Line Items] | ||||||
Loans | MortgageLoan | [1] | 59 | 67 | |||
Loans - principal (in Dollars) | $ | [1] | $ 36,378,340 | $ 37,615,216 | |||
Loans - percent | [1] | 68.00% | 69.00% | |||
Multifamily [Member] | ||||||
Loans (Details) - Secured Loans by Property Type [Line Items] | ||||||
Loans | MortgageLoan | 9 | 5 | ||||
Loans - principal (in Dollars) | $ | $ 6,474,401 | $ 2,164,861 | ||||
Loans - percent | 12.00% | 4.00% | ||||
Commercial [Member] | ||||||
Loans (Details) - Secured Loans by Property Type [Line Items] | ||||||
Loans | MortgageLoan | 16 | 21 | ||||
Loans - principal (in Dollars) | $ | $ 10,685,989 | $ 14,988,612 | ||||
Loans - percent | 20.00% | 27.00% | ||||
|
Loans - Secured Loans by Property Type (Parenthetical) (Details) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2018
USD ($)
MortgageLoan
|
Dec. 31, 2017
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
|
|
Loans (Details) - Secured Loans by Property Type [Line Items] | |||
Number of secured loans | MortgageLoan | 84 | 93 | |
Principal | $ | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 |
Single Family Property-Owner Occupied [Member] | |||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||
Number of secured loans | MortgageLoan | 12 | 10 | |
Principal | $ | $ 8,107,237 | $ 6,309,036 | |
Single Family Property-NonOwner Occupied [Member] | |||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||
Number of secured loans | MortgageLoan | 47 | 57 | |
Principal | $ | $ 28,271,103 | $ 31,306,180 |
Loans - Secured Loans Distributed Within California (Details) - USD ($) |
Jun. 30, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
|||
---|---|---|---|---|---|---|
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 53,538,730 | $ 57,865,391 | $ 54,768,689 | |||
Loans - percent | 100.00% | 100.00% | ||||
San Mateo [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 7,628,843 | $ 7,800,549 | |||
Loans - percent | [1] | 14.30% | 14.20% | |||
San Francisco [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 7,440,268 | $ 8,338,720 | |||
Loans - percent | [1] | 13.90% | 15.10% | |||
Alameda [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 6,011,233 | $ 9,869,036 | |||
Loans - percent | [1] | 11.20% | 18.00% | |||
Santa Clara [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 5,842,399 | $ 5,461,084 | |||
Loans - percent | [1] | 10.90% | 10.00% | |||
Contra Costa [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 3,127,788 | $ 1,511,195 | |||
Loans - percent | [1] | 5.80% | 2.80% | |||
Sonoma [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 300,000 | ||||
Loans - percent | [1] | 0.60% | ||||
Solano [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 109,443 | ||||
Loans - percent | [1] | 0.20% | ||||
San Francisco Bay Area [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | [1] | $ 30,350,531 | $ 33,090,027 | |||
Loans - percent | [1] | 56.70% | 60.30% | |||
Placer [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 640,195 | $ 642,913 | ||||
Loans - percent | 1.20% | 1.20% | ||||
Sacramento [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 850,000 | |||||
Loans - percent | 1.60% | |||||
Yolo [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 174,758 | |||||
Loans - percent | 0.30% | |||||
San Joaquin [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 157,039 | |||||
Loans - percent | 0.30% | |||||
Other Northern California [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 640,195 | $ 1,824,710 | ||||
Loans - percent | 1.20% | 3.40% | ||||
Northern California [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 30,990,726 | $ 34,914,737 | ||||
Loans - percent | 57.90% | 63.70% | ||||
Los Angeles [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 12,645,932 | $ 12,357,456 | ||||
Loans - percent | 23.60% | 22.60% | ||||
Orange [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 4,081,922 | $ 1,487,747 | ||||
Loans - percent | 7.60% | 2.70% | ||||
San Diego [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 2,921,478 | $ 2,192,746 | ||||
Loans - percent | 5.50% | 4.00% | ||||
Santa Barbara [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 992,739 | $ 996,768 | ||||
Loans - percent | 1.80% | 1.80% | ||||
Ventura [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 348,567 | $ 350,000 | ||||
Loans - percent | 0.70% | 0.60% | ||||
Los Angeles & Coastal [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 20,990,638 | $ 17,384,717 | ||||
Loans - percent | 39.20% | 31.70% | ||||
San Bernardino [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 1,200,000 | $ 2,110,000 | ||||
Loans - percent | 2.20% | 3.90% | ||||
Riverside [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 357,366 | $ 359,235 | ||||
Loans - percent | 0.70% | 0.70% | ||||
Other Southern California [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 1,557,366 | $ 2,469,235 | ||||
Loans - percent | 2.90% | 4.60% | ||||
Southern California [Member] | ||||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | ||||||
Loans - principal (in Dollars) | $ 22,548,004 | $ 19,853,952 | ||||
Loans - percent | 42.10% | 36.30% | ||||
|
Loans - Secured Loans Scheduled Maturities (Details) |
6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2018
USD ($)
MortgageLoan
|
Dec. 31, 2017
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
|
||||
Secured Loans Scheduled Maturities [Abstract] | ||||||
2018, Loans | MortgageLoan | [1] | 5 | ||||
2019, Loans | MortgageLoan | 41 | |||||
2020, Loans | MortgageLoan | 15 | |||||
2021, Loans | MortgageLoan | 12 | |||||
2022, Loans | MortgageLoan | 5 | |||||
Thereafter, Loans | MortgageLoan | 4 | |||||
Total future maturities, Loans | MortgageLoan | 82 | |||||
Matured as of June 30, 2018, Loans | MortgageLoan | 2 | |||||
Number of secured loans | MortgageLoan | 84 | 93 | ||||
2018, Principal | $ | [1] | $ 6,998,966 | ||||
2019, Principal | $ | 28,779,755 | |||||
2020, Principal | $ | 7,295,429 | |||||
2021, Principal | $ | 5,359,857 | |||||
2022, Principal | $ | 1,464,100 | |||||
Thereafter, Principal | $ | 618,289 | |||||
Total future maturities, Principal | $ | 50,516,396 | |||||
Matured as of June 30, 2018, Principal | $ | 3,022,334 | |||||
Total secured loan balance, Principal | $ | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 | |||
2018, Percent | [1] | 13.00% | ||||
2019, Percent | 53.00% | |||||
2020, Percent | 14.00% | |||||
2021, Percent | 10.00% | |||||
2022, Percent | 3.00% | |||||
Thereafter, Percent | 1.00% | |||||
Total future maturities, Percent | 94.00% | |||||
Matured as of June 30, 2018, Percent | 6.00% | |||||
Total secured loan balance, Percent | 100.00% | 100.00% | ||||
|
Loans - Past Due Financing Receivables (Details) |
Jun. 30, 2018
USD ($)
Loan
|
Dec. 31, 2017
USD ($)
Loan
|
---|---|---|
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 84 | 93 |
Amount | $ | $ 53,538,730 | $ 54,768,689 |
Past Due 30-89 Days [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 3 | |
Amount | $ | $ 1,259,100 | |
Past Due 90-179 Days [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 1 | |
Amount | $ | $ 428,784 | |
Past Due 180 Or More Days [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 1 | 1 |
Amount | $ | $ 138,426 | $ 139,643 |
Total Past Due [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 2 | 4 |
Amount | $ | $ 567,210 | $ 1,398,743 |
Current [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 82 | 89 |
Amount | $ | $ 52,971,520 | $ 53,369,946 |
Loans - Secured Loans in Non-Accrual Status (Details) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2018
USD ($)
MortgageLoan
|
Dec. 31, 2017
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
|
|
Loans Details Secured Loans In Nonaccrual Status [Line Items] | |||
Number of secured loans | MortgageLoan | 84 | 93 | |
Loans - principal (in Dollars) | $ 53,538,730 | $ 54,768,689 | $ 57,865,391 |
Accrued interest | $ 438,923 | $ 409,867 | |
Non-Accrual Status [Member] | |||
Loans Details Secured Loans In Nonaccrual Status [Line Items] | |||
Number of secured loans | MortgageLoan | 1 | 1 | |
Loans - principal (in Dollars) | $ 148,457 | $ 151,637 | |
Accrued interest | 5,662 | 11,025 | |
Foregone interest | 10,670 | 4,306 | |
Principal [Member] | Non-Accrual Status [Member] | |||
Loans Details Secured Loans In Nonaccrual Status [Line Items] | |||
Loans - principal (in Dollars) | 138,426 | 139,643 | |
Advances [Member] | Non-Accrual Status [Member] | |||
Loans Details Secured Loans In Nonaccrual Status [Line Items] | |||
Loans - principal (in Dollars) | $ 4,369 | $ 969 |
Loans - Schedule of Impaired Loans/Allowance for Loan Losses (Details) |
6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018
USD ($)
Loan
|
Dec. 31, 2017
USD ($)
Loan
|
|||
Secured Loans Designated as Impaired Loans [Abstract] | ||||
Principal | $ 567,210 | $ 139,643 | ||
Recorded investment | [1] | 593,766 | 151,637 | |
Impaired loans without allowance | $ 593,766 | $ 151,637 | ||
Number of loans | Loan | 2 | 1 | ||
|
Loans - Impaired Loans - Average Balances and Interest Income (Details) - USD ($) |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Impaired Loans - Average Balances and Interest Income [Abstract] | ||
Average recorded investment | $ 372,702 | $ 536,934 |
Interest income recognized | 8,602 | |
Interest income received in cash | $ 5,363 | $ 4,342 |
Commitment and Contingencies, Other Than Loan Commitments - Additional Information (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
ContractualObligation
| |
Commitments And Contingencies Disclosure [Abstract] | |
Number of contractual obligations | ContractualObligation | 2 |
Percentage of reimbursement of organization and offering expenses | 4.50% |
RMC incurred cumulative O&O expenses in excess of 4.5% cap and reimbursed to RMC | $ 3,407,471 |
Redemptions of members' capital | $ 929,284 |
Commitments and Contingencies, Other Than Loan Commitments - Scheduled Redemptions of Members' Capital (Details) |
6 Months Ended |
---|---|
Jun. 30, 2018
USD ($)
| |
Scheduled Redemptions Of Members Capital [Abstract] | |
2018 | $ 902,119 |
2019 | 12,000 |
2020 | 12,000 |
2021 | 3,165 |
Total | $ 929,284 |
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