10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Year Ended December 31, 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)

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Units of Limited Liability Company Interests

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☐    YES  ☒    NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ☐    YES  ☒    NO

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 every Interactive Data File required to be submitted 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 such files).☒    YES  ☐    NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K .  ☒

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	☐	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

The registrant’s units of limited liability company interests are not publicly traded and therefore have no market value. The registrant is conducting an ongoing public offering of its units pursuant to a Registration Statement on Form S-11 (File No. 333-208315), which are being sold at $1.00 per unit. The registrant had 80,340,505 limited liability company interests outstanding as of February 28, 2019.

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Index to Form 10-K

December 31, 2018

Part I
Item 1 – Business		1
Item 1A – Risk Factors		9
Item 1B – Unresolved Staff Comments		37
Item 2 – Properties		37
Item 3 – Legal Proceedings		37
Item 4 – Mine Safety Disclosures		37
Part II
Item 5 – Market for the Registrant’s Units, Related Unitholder Matters and Issuer Purchases of Equity Securities		38
Item 6 – Selected Financial Data		41
Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Item 7A – Quantitative and Qualitative Disclosures About Market Risk		52
Item 8 – Financial Statements and Supplementary Data		52
Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		78
Item 9A – Controls and Procedures		78
Item 9B – Other Information		78
Part III
Item 10 – Directors, Executive Officers and Corporate Governance		79
Item 11 – Executive Compensation		80
Item 12 – Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters		80
Item 13 – Certain Relationships and Related Transactions, and Director Independence		81
Item 14 – Principal Accountant Fees and Services		81
Part IV
Item 15 – Exhibits and Financial Statement Schedules		82
Item 16 – Form 10-K Summary	-	82
SIGNATURES		83

i

Forward-Looking Statements

Certain statements in this Report on Form 10-K 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 future 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, which to date have provided only immaterial gains to us;

• 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-K 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.

Part I

Item 1 – Business

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 by Redwood Mortgage Corp (“RMC” or “the manager”). 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. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC.

1

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.

The following is a summary of certain provisions of the Operating Agreement and is qualified in its entirety by the terms of the agreement itself. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions.

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 (net of redemption of members’ capital and operating expenses) from:

• sale of members’ units net of reimbursement to RMC of organization and offering expenses (“O&O expenses”) and net of amounts advanced for the formation loan to RMC;

• units sold pursuant to our distribution reinvestment plan (“DRIP”);

• payments from RMC on the outstanding balance of the formation loan;

• borrowers’ monthly principal and interest payments;

• loan payoffs;

• loan sales to unaffiliated 3^rd parties and loan transfers by executed assignment to affiliated mortgage funds; and

• a line of credit, if obtained.

Net income or loss is allocated among the members according to their respective capital accounts monthly after one percent (1%) of the net income or loss is 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 limited liability company cash receipts taxes paid by the company.

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’ accounts for the applicable period pursuant to the company’s reimbursement to RMC and allocation to members’ accounts of organization and offering expenses policy. The amount otherwise distributable, less the respective amounts of O&O 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.

2

See Note 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 of this report for a detailed discussion on the allocation of O&O expenses to members’ accounts, which presentation is incorporated by this reference into this Item 1.

Cash available for distributions allocable to members, other than those participating in the 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.

To determine the amount of cash to be distributed in any specific month, the company relies in part on its forecast of full year 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 December 31, 2018 cumulative year to date earnings (estimated) allocated to members’ accounts was $4,766,822 and net income available to members (actual) was $4,742,369. The difference between earnings allocated to members’ account and net income available to members of $24,453 is expected to be offset by future earning in excess of the net distribution rate in 2019.

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;

• the amount and timing of other operating expenses, including expenses for professional services;

• financial support, if any, from RMC; and

• payments from RMC on the outstanding balance of the formation loan.

Financial Support from RMC

Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:

• 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, and in certain periods, all of the company’s direct expenses, such as professional fees.

Such fee and cost-reimbursement waivers and the absorption 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 Operating Agreement 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.

Financial support from RMC maintained the company’s annual 6.5% net distribution rate for periods prior to February 28, 2018.  In March 2018, RMC communicated to the members’ planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly.  

In March 2018 the net distribution rate as an annualized percentage of members’ capital decreased from 6.5% to 6.0%. In April 2018, the company commenced paying in full its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.).

The total financial support increased year over year, however the amount of direct cash support in the form of expenses absorbed by RMC decreased from 2017 to 2018. The amount of support in the form of waived fees, such as loan administrative fees, asset management fees, and costs from RMC, increased during the same period due to increased loan and capital balances. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC.  

3

RMC had communicated in March 2018 its intent for the company to be paying RMC in full the fees and reimbursements for the qualifying costs attributed to the company entitled to the manager under the Operating Agreement by July 2019. As of March 2019, while reserving its right to collect the amounts owing to it under the Operating Agreement, RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) during 2019, such that the full chargeable amount of the asset management fee will be collected in the 4^th quarter of 2019, and there will be a similar incremental phase in of the collection of cost reimbursements in 2020.

The net distribution rate, as an annualized percentage of members’ capital, for December 2018 was 5.70%. The net distribution rate for the year ended December 31, 2018 was 5.95%.

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

There are substantial restrictions on transferability of units, and 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 maximum number of units which may be redeemed per quarter per individual member shall not exceed the greater of (i) 100,000 units, or (ii) 25% of the member’s total outstanding units. 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. As provided in the Operating Agreement, 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. In the event unit withdrawal requests exceed 5% in any calendar year, units will be redeemed in the priority provided in the Operating Agreement.

Lending and investment guidelines, objectives and criteria

Our loans generally have shorter maturity terms than typical mortgages. In the event a borrower is unable to repay in full the principal owing on the loan at maturity, we may consider extending the term through a loan modification or may foreclose and take back the property for sale.

4

Generally, interest rates on our mortgage loans are not affected directly 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 our 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.

Our primary investment objectives are to:

• yield a favorable rate of return from our business of making and/or investing in loans;

• preserve and protect our 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.

Loans are arranged and generally are serviced by RMC. We generally funds loans at fixed interest rates that provide for:

• monthly payments of either (i) interest only with a balloon payment at maturity or (ii) principal and interest based on a 30-year amortization schedule with a balloon payment at maturity; and

• having maturities of 5 years or less.

The cash flow and the income generated by the real property securing the loan factor into the credit decisions, as does the general creditworthiness, experience and reputation of the borrower. However, for loans secured by real property, other than owner-occupied personal residences, such considerations are subordinate to a determination that the value of the real property is sufficient, in and of itself, as a source of repayment. The amount of the loan combined with the outstanding debt and claims secured by a senior deed of trust on the real property generally will not exceed a specified percentage of the appraised value of the property (the “loan-to-value ratio”, or LTV) as determined by an independent written appraisal at the time the loan is made. The LTV generally will not exceed 80% for residential properties (including multi-family), 75% for commercial properties, and 50% for land. The excess of the value of the collateral securing the loan over our debt and any senior debt owing on the property is the “protective equity.”

We believe our LTV policy gives us more potential protective equity than competing lenders who fund loans with a higher LTV. However, we may be viewed as an “asset” lender based on our emphasis on LTV in our underwriting process. Being an “asset” lender may increase the likelihood of payment defaults by borrowers. Accordingly, the company may have a higher level of payment delinquency and loans designated as impaired for financial reporting purposes than that of lenders, such as banks and other financial institutions subject to federal and state banking regulations, which are typically viewed as “credit” lenders.

See Note 4 (Loans) to the financial statements included in Part II, Item 8 of this report for a detailed presentation on the secured loan portfolio, which presentation is incorporated by this reference into this Item 1.

Competition

The San Francisco Bay Area, including the South Bay/Silicon Valley, and the coastal metropolitan regions of Southern California are our most significant locations of lending activity and the economic vitality of these regions – as well as the stability of the national economy and the financial markets – is of primary importance in determining the availability of new lending opportunities and the performance of previously made loans.

The mortgage-lending business is highly competitive, and we compete with numerous established entities, some of which have more financial resources and experience in the mortgage lending business than our manager. We will encounter significant competition from banks, insurance companies, savings and loan associations, mortgage bankers, real estate investment trusts (“REITs”) and other lenders with objectives similar in whole or in part to ours.

5

Regulations

We are engaged 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.  We and RMC, which arranges and generally services our loans, are heavily regulated by laws governing lending practices at the federal, state and local levels. In addition, proposals for further regulation of the financial services industry continually are being introduced. The laws and regulations to which we and RMC are subject include rules and restrictions pertaining to:

• the conduct of a mortgage lending business by a licensed California real estate broker under state and federal law;

• real estate settlement procedures;

• fair lending;

• truth in lending;

• federal and state loan disclosure requirements;

• the establishment of maximum interest rates, finance charges and other charges;

• loan-servicing procedures;

• secured transactions and foreclosure proceedings;

• privacy regulations providing for the use and safeguarding of non-public personal financial information of borrowers; and

• with respect to the company and the offering of member units, required filings with the Securities and Exchange Commission (“SEC”) pursuant to federal securities laws, including periodic reports such as Form 10-K and Form 10-Q, and with the States’ securities agencies.

Key federal and state laws, regulations, and rules relating to the conduct of our business include the following:

• California Real Estate Law.

The California Real Estate Law, codified in California Business and Professions Code Sections 10000 et seq., together with the Real Estate Commissioner’s rules thereunder, govern the licensing, administration and activities of licensed real estate brokers (including mortgage loans brokers) in the State of California, including rules relating to, among other things, licensing, borrower and investor disclosures, compensation and fees, disciplinary action, and transactions involving trust deeds and real property sale contracts generally.  We are not a licensed real estate broker but our manager, RMC, is so licensed and will be subject to those laws and regulations.

RMC’s loan files and other books and records are subject to examination by the California Department of Real Estate.  Such examinations, as well as new regulations that may be issued in the future, could ultimately increase RMC’s and our administrative burdens and costs.

6

• Dodd-Frank Wall Street Reform and Consumer Protection Act.

This federal law passed in 2010 imposes significant regulatory restrictions on the origination of residential mortgage loans, under sections concerning “Mortgage Reform and Anti-Predatory Lending.” For example, when a consumer loan is made, the lender is required to make a reasonable and good faith determination, based on verified and documented information concerning the consumer’s financial situation, as to whether the consumer has a reasonable ability to repay a residential mortgage loan before extending the loan. The act calls for regulations prohibiting a creditor from extending credit to a consumer secured by a high-cost mortgage without first receiving certification from an independent counselor approved by a government agency. The act also adds new provisions prohibiting balloon payments for defined high-cost mortgages. The act established the Consumer Financial Protection Bureau (CFPB), giving it regulatory authority over most federal consumer-lending laws, including those relating to residential mortgage lending, and oversight over companies that provide consumer financial products or services, including us. Many of the federal regulations governing mortgage lending have been significantly amended and expanded through the passage of the Dodd Frank Act.

The act also enhanced regulatory requirements on banking entities and other organizations considered significant to U.S. financial markets and provides for reform of the asset-backed securitization market. We do not expect these particular regulatory changes will have a material direct effect on our business or operations.

• Real Estate Settlement Procedures Act (“RESPA”).

RESPA is a federal law passed in 1974 with the purpose of establishing settlement procedures for consumer real estate purchase and refinance transactions on residential (1-4 unit) properties. It establishes rules relating to affiliated business relationships, escrow accounts for property taxes and hazard insurance and loan servicing, among other things. It prohibits unearned referral fees from being charged in a covered transaction. RESPA also governs the format of the Loan Estimate and the Closing Disclosure forms provided to consumers in real estate transactions.

• Truth in Lending Act (“TILA”).

TILA is a federal law passed in 1968 for the purpose of regulating consumer financing. For real estate lenders, TILA requires, among other things, advance disclosure of certain loan terms, calculation of the costs of the loan as demonstrated through an annual percentage rate, and the right of a consumer in a refinance transaction on their primary residence to rescind their loan within three days following signing of the loan document.

• Home Ownership and Equity Protection Act (“HOEPA”) and California Covered Loan Law.

HOEPA is a federal law passed in 1994 to provide additional disclosures for certain closed-end home mortgages. These “high-cost” closed-end home mortgages are loans with interest rates and fees in excess of certain percentage or amount thresholds. These regulations primarily focus on additional disclosure with respect to the terms of the loan to the borrower, the timing of such disclosures, and the prohibition of certain loan terms, including balloon payments and negative amortization. Failure to comply with the regulations will render the loan rescindable for up to three years. Lenders can be held liable for attorneys’ fees, finance charges and fees paid by the borrower and certain other money damages.  Similarly, in California, Financial Code Section 4970, et. seq., became effective in 2002. It provides for state regulation of “high-cost” consumer residential mortgage loans (also called “covered loans”) secured by liens on real property. Section 4970 defines covered loans as consumer loans on primary residences in which the original principal balance of the loan does not exceed the most current conforming loan limit for a single-family first mortgage loan established by the Federal National Mortgage Association, with interest rates and/or fees exceeding one of the statutorily defined percentage or amount thresholds. The law prohibits certain lending practices with respect to high-cost loans, including the making of a loan without regard to the borrower’s income or obligations. When making such loans, lenders must provide borrowers with a consumer disclosure and provide for an additional rescission period prior to closing the loan.

7

• Mortgage Disclosure Improvement Act.

This federal law enacted in 2008, regulates the timing and delivery of loan disclosures for all mortgage loan transactions governed under the Real Estate Settlement Procedures Act.

• Home Mortgage Disclosure Act (“HMDA”).

This federal law enacted in 1975 provides for public access to information on a lender’s loan activity. It requires lenders to report to their federal regulator certain information about mortgage loan applications it receives, such as the race and gender of its customers, the disposition of the mortgage application, income of the borrowers and interest rate (i.e., APR) information. Amendments to HMDA became effective on January 1, 2018. Under the amended regulation lenders are required to report 40 additional data points on their loan applications, including borrower age and credit data, lender fees, debt-to-income ratios and loan-to-value ratios.

• Red Flags Rule.

This federal rule was issued in 2007 under Section 114 of the Fair and Accurate Credit Transactions Act of 2003 and amended by the Red Flag Program Clarification Act of 2010. It requires lenders and creditors to implement an identity theft prevention program to identify and respond to account activity in which the misuse of a consumer’s personal identification may be suspected.

• Gramm-Leach-Bliley Act (aka Financial Services Modernization Act of 1999).

This federal act passed in 1999 requires all businesses that have access to consumers’ personal identification information to implement a plan providing for security measures to protect that information. As part of this program, we provide applicants and borrowers with a copy of our privacy policy.

• The California Homeowner Bill of Rights (“HOBR”).

This series of state laws, which initially became effective January 1, 2013, and was reinstated by Senate Bill No. 818 on September 14, 2018, is intended to ensure fair lending and borrowing practices for California homeowners by guaranteeing basic fairness and transparency during the foreclosure process. Key provisions include restrictions on dual-track foreclosures, a guaranteed single point of contact, civil penalties for lenders filing unverified documents, and protections for tenants of foreclosed properties. HOBR also provides borrowers with the authority to seek redress of material violations of its rules, such as by an injunction (prior to foreclosure sale) or recovery of damages (after foreclosure sale).

In addition, key federal and state laws, regulations, and rules are applicable as a result of the offering of our units.

• Federal Securities Laws: The Securities Act of 1933 and The Exchange Act of 1944

Because our offering of units has been registered under the Securities Act and we have registered the units pursuant to Section 12(g) of the Exchange Act, we are a public reporting company. As a public reporting company, we are required to file annual, quarterly and other periodic reports with the SEC and comply with applicable provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the related rules and regulations promulgated by the SEC. However, as discussed in Item 9.A. of this report, the company is externally managed by RMC and many of the requirements of Sarbanes-Oxley are not directly applicable to us since we do not have a board of directors, including an independent board member. The registration of our units pursuant to Section 12(g) of the Exchange Act, along with the satisfaction of certain other requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”), enables the units to qualify as “publicly-offered securities” for purposes of ERISA and regulations issued thereunder. See Section 9.A. of this report.

8

• Sarbanes-Oxley Act of 2002

RMC, as our manager, is responsible for establishing and maintaining adequate internal control over financial reporting with respect to us as required by Section 404 of Sarbanes-Oxley and rules and regulations of the SEC thereunder. RMC is required to review and evaluate on an annual basis our internal control over financial reporting, and on a quarterly basis, to evaluate changes in our internal control over financial reporting.

• Financial Industry Regulatory Authority Regulatory Notice 15-02

In 2015 the SEC approved amendments to rules of the Financial Industry Regulatory Authority (“FINRA”) applicable to securities of direct participation programs, such as our units and to non-listed real estate investment trusts. The amendments, which became effective on April 11, 2016, provide, among other things, that (i) FINRA members distributing our units must include in customer account statements our per unit estimated value that must be developed using a methodology reasonably designed to ensure our per unit estimated value’s reliability; and (ii) our per unit estimated value disclosed from and after 150 days following the second anniversary of the admission of investors in our public offering must be based on an appraised valuation methodology developed by, or with the material assistance of, a third-party expert and updated on at least an annual basis. The rule changes also provide that the account statements must include additional disclosure regarding the sources of our distributions to unit holders.

• Blue Sky Laws

We are subject to the state securities laws (“blue sky laws”) of the states in which we intend to offer for sale our units. Under these blue sky laws, we have to register the offering of units being made pursuant to the prospectus before we can begin to sell in a state. Also, many of the states have adopted or apply the Mortgage Program Guidelines adopted by the North American Securities Administrators Association (“NASAA”). The NASAA Mortgage Program Guidelines require us to include certain offering terms and conditions that we might not have included if we were not subject to the state blue sky laws. Provisions imposed by the NASAA Mortgage Program Guidelines include restrictions on:

• the requirements of sponsors (i.e., the manager), such as the required experience and net worth of the sponsor;

• the fiduciary duty obligations of the sponsor;

• the suitability of the investors, including the economic suitability, the factors that must be reviewed in determining that the investor is suitable and the representations that can be required of the investor in the subscription agreement for the investment;

• the fees and compensation that can be charged and paid to the sponsor as well as the expenses that can be reimbursed to the sponsor;

• the handling of certain conflicts of interest between us and the sponsor; and

• investment restrictions on our activities and restrictions on the sponsor related to our activities.

Term of the company

The term of the company will continue until October 2028, unless sooner terminated as provided in the Operating Agreement.

Item 1A – Risk Factors

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered, in addition to the other information presented elsewhere in this report, in evaluating us and our business. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also adversely affect our business operations. If any of the following risks or additional risks and uncertainties actually occur, our business, operating results, and financial condition could be adversely affected.

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INVESTMENT RISKS

Our units are not listed on an exchange or quoted through a quotation system, and will not be for the foreseeable future, if ever and there are substantial restrictions on the transferability of units.

Investors will have limited ability to sell their units. Our units are not listed on an exchange or quoted through a quotation system, and there is no secondary market nor do we expect that any will develop in the foreseeable future. Units are not freely transferable, and they may not be acceptable by a lender as security for borrowing. Our operating agreement also imposes substantial restrictions upon your ability to transfer units. Therefore, an investment in our units is not suitable for investors who expect to require short-term liquidity from their investments.

You are limited in your ability to have your units redeemed under our unit redemption program.

Our unit redemption program contains significant restrictions and limitations that limit your ability to redeem your units. Therefore, in making a decision to purchase units, you should not assume that you will be able to sell any of your units back to us pursuant to our redemption program. Our operating agreement makes no provision for members to withdraw from the company or to obtain the return on their capital accounts for a one-year period from the date of the purchase of units. In addition, the number of units you may redeem per quarter is subject to a maximum of the greater of 100,000 units or 25% of your units outstanding. Also, we will not, in any calendar year, redeem from all of our members a total of more than 5% (or in any calendar quarter, redeem more than 1.25%) of the weighted average number of all units outstanding during the 12-month period immediately prior to the date of the redemption. Moreover, our manager reserves the right, in its sole discretion, at any time, to reject any request for redemption, or to suspend or terminate the acceptance of new redemption requests without prior notice, or to terminate, suspend or amend the unit redemption program upon 30-day notice. We will fund redemptions solely from available company cash flow and will not establish a working capital reserve from which to fund redemptions. For this purpose, cash flow is considered to be available only after all current company expenses have been paid (including compensation to our manager), adequate provision has been made for payment of our current and future debt, and adequate provision has been made for the payment of all monthly cash distributions to members who do not reinvest distributions pursuant to our distribution reinvestment plan. Accordingly, we cannot guarantee that we will have sufficient funds to accommodate all redemption requests made in any given year.

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There is no assurance you will receive cash distributions.		Although our manager has provided significant financial support as discussed below in “– We may defer or reduce distributions,” our manager will be paid and reimbursed by us for certain services performed for us and expenses paid on our behalf. We will bear all other expenses incurred in our operations. All of these fees and expenses are deducted from cash funds generated by our operations prior to computing the amount that is available for distribution to you. In this regard, see Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Performance overview” for a discussion of: •the financial support that has been provided by our manager in 2017 and 2018; •our manager’s plan to reduce and ultimately cease financial support and waiving fees in any form by the 4th quarter of 2020; and •reduction in the distribution rate. Also, our manager, in its discretion, may retain a portion of cash funds generated from operations for working capital purposes. Thus, there is no assurance as to when or whether cash will be available for distributions to you.
We may defer or reduce distributions.	In the event we do not have enough cash flow from operating activities to fund our distributions, we may need to defer or reduce distributions. For example, our manager has provided significant financial support that improved net income, and the return to investors. Since our inception the manager, at its sole discretion, has: •waived fees; •elected not to request reimbursement for certain operating expenses; and •absorbed professional fees. If our manager had not taken this action, then we would not have had enough cash flow from operating activities to fund our distributions at past levels. Our manager began to reduce its support to us beginning in April 2018 and intends to cease providing support by the fourth quarter of 2020. Depending on our future cash flow from operating activities, we may be required to reduce our distributions as the manager’s support is reduced. It is unlikely that we could maintain the existing distribution level through our investment activity. Increased competition and new entrants in the market for mortgage loan originations could adversely impact our ability to originate and acquire real estate-related loans at attractive risk-adjusted returns.
You will have no control over our operations, including the loans we make or sell; you must rely on the judgment of our manager in making loans.	You have no right or power to take part in our management. All decisions with respect to our management will be made exclusively by our manager. Our success will, to a large extent, depend on the judgment of our manager as it relates to lending decisions and sales of loans to third parties, if any. You should carefully evaluate our manager’s capabilities to perform such functions.
Our manager has broad discretion to implement our investment objectives and can change investment strategies without member consent.	Our operating agreement contains investment objectives, but our manager has broad discretion to implement those objectives. A change in our investment strategy may, among other things, increase our exposure to real estate market fluctuations, default risk and interest rate risk, all of which could materially affect our results of operations and financial condition.

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Our manager has various conflicts of interest.

We are managed by our manager which has various conflicts of interest in connection with its management of us, including but not limited to the following: •Our manager has legal and financial obligations with respect to other entities that are similar to its obligations to us. •Our manager has to allocate its time between us and other activities, including other entities with which it is involved. •The fees of our manager are not determined based on arm’s-length negotiations. •The same legal counsel currently represents us and the manager. •Our manager has the right to conduct other business and to compete with our business. •Our manager is responsible for originating or arranging substantially all of the loans invested by us and can place loans in our portfolio or other funds that are also managed by our manager. Loan brokerage commissions on loans originated by our manager for our portfolio are retained by our manager. •In the event our manager defaults on the repayment of the formation loan, a conflict of interest would arise on the manager’s part in connection with the enforcement of the formation loan and continued payment of other fees and compensation to our manager, including, but not limited to, the loan servicing fees, loan administrative fees and asset management fees, while such default is continuing. •See “Our manager’s selection of loans for sale to third parties may involve conflicts of interest between us and out manager.”

We have no board of directors.

As is customary for a limited liability company, we do not have a board of directors or any independent directors. In addition, we are not subject to certain of the corporate governance rules under the federal securities laws or under rules established by the national securities exchanges because our units are not registered for trading under the Exchange Act of 1934, as amended. Among other things, these rules relate to: •independent director standards; •audit and compensation committees standards; and •the use of an audit committee financial expert. Accordingly, our members will not receive the protections these rules and standards were enacted to provide, such as protections against interested director transactions, conflicts of interest and similar matters. We do not have an audit or compensation committee. As a result, members will have to rely on our manager, which is not independent, to perform these functions. Thus, there is a potential conflict in that our manager, which is engaged in management, will participate in decisions concerning management compensation and audit issues that may affect management performance.

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We established the $1 per unit offering price on an arbitrary basis.	We arbitrarily determined the $1 per unit selling price for the offering of units we are currently conducting as well as the $1 per unit price for reinvestment of distributions. Such price also is not necessarily the amount you may receive pursuant to your limited right to redeem units, subject to certain requirements. The amount that a redeeming member will receive is the lesser of the purchase price for the redeemed units or the redeeming member’s capital account balance as of the date of each redemption payment. The fair market value of your interest in the company will be irrelevant in determining amounts to be paid upon redemption.
Our manager may purchase units which generally will give our manager the same rights as members.	Our manager, in its discretion, may purchase units for its own account. Upon any such purchases of units, our manager will have the same rights as other members in respect of the units owned by them, including the right to vote on matters that are subject to the vote of members, subject to certain exceptions.
Your interest in us will be diluted if we issue additional units, which could reduce the value of your investment in us.	Our investors do not have any preemptive rights to any units we issue in the future. Pursuant to our operating agreement, we may issue additional units in the future without your consent or the consent of any other members. To the extent we issue additional equity interests after an investor purchases our units, an investor’s percentage ownership interest in us will be diluted. In addition, depending on the terms and pricing of any additional offerings and the value of our investments, an investor may also experience dilution in the book value of his or her units.
Our interests in our properties may not be insured or may be underinsured against certain types of losses.	We will require comprehensive insurance, including fire and extended coverage, which is customarily obtained for or by a lender, on properties in which we acquire a security interest. Generally, such insurance will be obtained by and at the cost of the borrower. However, there are certain types of losses (generally of a catastrophic nature, such as civil disturbances or terrorism and acts of God such as earthquakes, floods and land or mud slides) which are either uninsurable or not economically insurable. Should such a disaster occur to, or cause the full or partial destruction of, any property serving as collateral for a loan, we could lose both our invested capital and anticipated profits from such investment. In addition, on certain real estate owned by us as a result of foreclosure, we may require homeowner’s liability insurance. However, insurance may not be available on such real estate owned for the following: •theft; •terrorism; •vandalism; •land or mud slides; •hazardous substances; or earthquakes. Thus, losses from such events would adversely affect our profitability.

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Downturns in the economy and real estate market in the San Francisco Bay Area and the coastal metropolitan regions of Southern California or on a regional or national scale or changing conditions affecting the mortgage lending business could adversely affect our business.	We expect that most of our loans will be secured by properties located in nine counties that comprise the San Francisco Bay Area (San Francisco, San Mateo, Santa Clara, Alameda, Contra Costa, Marin, Napa, Solano and Sonoma) and the coastal metropolitan regions of Southern California (Los Angeles, Orange, Ventura, and San Diego counties). Our anticipated concentration of loans in the San Francisco Bay Area and the coastal metropolitan regions of Southern California exposes us to greater risk of loss if the economy in the San Francisco Bay Area or the coastal metropolitan regions of Southern California weakens than would be the case if our loans were spread throughout California or the U.S. The San Francisco Bay Area or the coastal metropolitan regions of Southern California economy and/or real estate market conditions could be weakened by: •an extended economic slowdown or recession in the area; •overbuilding of commercial and residential properties; •relocation of businesses outside of the area due to economic factors such as high cost of living and of doing business within the region; •increased interest rates, thereby weakening the general real estate market; and •reductions in the availability of credit.
		Increased risk of default and expected cash returns from mortgage lending can be disrupted by events and/or conditions such as: •changes in national, regional or local economic, demographic or real estate market conditions; •changes in supply of, or demand for, similar properties in an area; •increased competition for real estate assets targeted by our investment strategy; •bankruptcies, financial difficulties or lease defaults by property ownersand tenants; •changes in interest rates and availability of financing; and •changes in government rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws. These types of events are difficult to predict and can occur unexpectedly. If the economy were to weaken, it is possible that there would be more property available for sale, values would fall and lending opportunities would decrease. In addition, a weak economy and increased unemployment could adversely affect borrowers, resulting in an increase in the number of loans in default. Should a significant economic deterioration occur in the San Francisco Bay Area or the coastal metropolitan regions of southern California, or on a more wide scale basis, regionally or nationally, we could suffer increases in loan delinquencies and declines in cash flows as was experienced by mortgage lenders in general during the period of financial crisis which began in 2009.
You will be bound by the actions taken by the majority voting power.	Subject to certain limitations, members holding a majority of units may vote to, among other things: •dissolve and terminate the company; •amend the operating agreement, subject to certain limitations; •approve or disapprove the sale of all or substantially all of our assets; and •remove or replace our manager or elect additional or new managers. If you do not vote with the majority in interest of the other members, you nonetheless will be bound by the majority vote.

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If payments are not made on the formation loan under certain circumstances, such as our manager’s removal, it may reduce your rate of return or affect our capital available to fund new loans.	We have and will continue to advance to our manager funds in an amount equal to the sales commissions for our units and premiums paid to investors in connection with unsolicited sales of our units. The principal balance of the formation loan will increase as additional sales of units are made. The formation loan is an unsecured loan that will not bear interest and will be repaid in annual installments. If our manager was removed or unable to repay the formation loan when due, we would incur a significant loss in the amount of the formation loan then owing. See “Investment Risks – Our manager has various conflicts of interests.” A portion of the amount we receive from redeeming members as early redemption penalties may first be applied to reduce the principal balance of the formation loan. This will have the effect of reducing the amount owed by our manager to us. If our manager is removed as a manager by the vote of a majority in interest of the members and a successor or additional manager, which is elected without the concurrence of the manager, begins using any other loan brokerage firm for the placement of loans or loan servicing, our manager will be immediately released from any further payment obligation under the formation loan. If the manager is removed, no other manager is elected, the company is liquidated or our manager is no longer receiving payments for services rendered, we will forgive the debt on the formation loan and our manager will be immediately released from any further obligations under the formation loan. In addition, if we and our manager agree to suspend formation loan payments for a period of time, then as a result of such suspended payments we would have less capital to invest in loans during that period, which could adversely affect our profitability.
Upon liquidation, you may experience delays in receiving distributions, you may not be able to fully recover your investment or you may not receive any distributions.	Under our operating agreement, we will continue to operate until October 8, 2028, unless our term is extended by the vote of a majority in interest of the members. We do not currently intend to cease operations prior to the end of our term. We could be dissolved and terminated earlier by operation of law or upon the occurrence of various events described in our operating agreement. Upon our dissolution, our manager will seek to promptly liquidate our assets for the best price reasonably obtainable, to use any proceeds to satisfy our debts and to distribute any remaining proceeds to our members and manager in accordance with the terms of our operating agreement. Accordingly, your ability to recover all or any portion of your investment under such circumstances will depend on the amount of funds so realized and claims to be satisfied from those proceeds. Our manager may not be successful in liquidating us regardless of whether it occurs on our anticipated termination date or on an earlier dissolution date. Delays in liquidation could arise due to market conditions and other factors beyond the control of our manager. In the event we are unable to liquidate on or prior to the end of our anticipated term and depending on the amount of liquidation proceeds the manager is able to obtain, you and other members may not receive distributions of remaining proceeds, if any, in a timely manner or at all.
We cannot precisely determine compensation to be paid to our manager that may not be commensurate with your rate of return.	Our manager is unable to predict the amounts of its compensation to be paid to it. Any such prediction would necessarily involve assumptions of future events and operating results which cannot be made at this time. As a result, there is a risk that members will not have the opportunity to judge ahead of time whether the compensation realized by our manager is commensurate with the return generated by the loans.

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Payment of fees to our manager will reduce cash available for investment and distribution.	Our manager performs services for us in connection with the offer and sale of units, the selection and acquisition of our investments, the servicing of loans and the administration of our investments. It is paid substantial fees for these services, which will reduce the amount of cash available for investment in loans or distribution to members.
We cannot predict the amounts of compensation to be paid to the manager.	Because the fees that we pay to the manager are based in part on the level of our business activity and whether the manager decides to waive part or all of the fees owed to it, it is not possible to predict the amounts of compensation that we will be required to pay the manager. In addition, because key employees of the manager are given broad discretion to determine when to consummate a transaction, we will rely on these key persons to dictate the level of our business activity. Fees paid to the manager reduce funds available for payment of distributions.
Insufficient working capital reserves may require borrowings or liquidating our loans which, if not possible, may adversely affect us.	We intend to maintain a working capital reserve to meet our obligations, including our carrying costs and operating expenses. Our manager believes such reserves are reasonably sufficient for our contingencies. If for any reason those reserves are insufficient, we will have to borrow the required funds or liquidate some or all of our loans. In the event our manager deems it necessary to borrow funds, such borrowings may not be on acceptable terms or even available to us which could materially adversely affect our business.
We may be required to forego more favorable investments to avoid regulation under the Investment Company Act of 1940.	Our manager intends to conduct our operations so that we will not be subject to regulation under the Investment Company Act of 1940. Among other things, our manager will monitor the proportions of our funds which are placed in various investments and the form of such investments so that we do not come within the definition of an investment company under such law. As a result, we may have to forego certain investments which could produce a more favorable return.
Conflicts or limitations may arise as a result of our manager’s legal and financial obligations to itself and other mortgage programs.	Our manager and its affiliates are currently involved with one other active mortgage program with investment objectives similar to ours. Our manager may also organize other mortgage programs in the future with investment objectives similar to ours. Our manager has legal and financial obligations with respect to the other mortgage program that are similar to its obligations with respect to us. These obligations may at times conflict or require our manager to limit the resources allocated to us and the other program.
Conflicts may arise regarding the financial condition of our manager.	Our manager must maintain a sufficient net worth and cash flow in order to continue to provide services to us. This may require our manager to make decisions regarding investments and other aspects of our business to allow it to collect fees and expense reimbursements, which actions could negatively affect our net income and cash available from operations. The manager must be able to maintain a sufficient cash flow so that it can: •repay the formation loan; •keep its key employees as discussed in “– If our manager loses or is unable to maintain key personnel, our ability to implement our strategic plans could be impaired”; and •receive cash flow to maintain sufficient capital in the manager. See Item 7 – Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Results of Operations – Secured Loans.

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Conflicts may arise from our manager’s allocation of time between us and others and loan brokerage services.	Our manager has conflicts of interest in allocating the time of its personnel between us and other activities in which it is involved. Our manager also provides loan brokerage services to investors other than us. Since our manager originates loans or arranges for the purchase of loans for our loan portfolio, a conflict of interest may exist as to the loans our manager allocates to us and to other mortgage programs it manages or investors with which it is affiliated at such time.
Conflicts may arise if we participate in loans with other programs organized by our manager.	In certain limited circumstances and subject to compliance with applicable regulations or guidelines, we may participate in loans or joint ventures with other programs organized by our manager, where we purchase a direct or indirect partial interest in a loan. Our portion of the total loan may be smaller or greater than the portion of the loan made by the other programs. Participating in loans or joint ventures with other programs organized by our manager could result in a conflict of interest between us and our manager as well as between us and such other programs, in the event that the borrower defaults on the loan and our manager protects the interests of other programs, which it has organized, in the loan and in the underlying security.
Conflicts may arise if we participate in loans with other unaffiliated lenders.		We may participate in loans with other unaffiliated lenders, where we purchase a fractional undivided interest or other direct participation in a loan. Our portion of the total loan may be smaller or greater than the portion of the loan made by the other lender(s). Such investments may involve risks not otherwise present with other methods of investment, such as reliance on underwriting, due diligence and/or document preparation conducted primarily by a co-lender, which could subject us to liabilities and thus reduce our returns on our investment. In addition, disagreements or disputes between us and our co-lender(s) regarding certain major decisions, such as loan workouts, foreclosure, protective advances or the sale of the property, could result in litigation and/or a loss of control over the management of the investment.
The amount of loan brokerage commissions and other compensation of our manager may adversely affect the rate of return to you.	None of the compensation payable to our manager was determined by arm’s-length negotiations. We anticipate that the loan brokerage commissions charged to borrowers by our manager, which are paid to our manager and not us, will average approximately 2% to 5% of the principal amount of each loan, but may be higher or lower depending upon market conditions. Any increase in the loan brokerage commission charged on loans may have a direct, adverse effect on the interest rates we charge on loans by reducing the interest rate we receive and thus the overall rate of return to you. This conflict of interest will exist in connection with every loan transaction and all compensation paid to our manager, and you must rely upon our manager to protect your interests.
If our manager loses or is unable to maintain key personnel, our ability to implement our strategic plans could be impaired.	We depend on the diligence, experience and skills of certain executive officers and other key personnel of our manager for the selection, acquisition, structuring and monitoring of our lending and investment activities. These individuals are not bound by employment agreements with the manager or with us. If any of our manager’s key personnel were to cease their employment with the manager or its affiliates, our operating results could suffer. We also believe that our future success depends, in large part, upon the ability of our manager or its affiliates to hire and retain highly skilled managerial, operational and marketing personnel. The manager may not be successful in attracting and retaining such personnel. The loss of key personnel and the inability of our manager to hire any key person could harm our business, financial condition, cash flow and results of operations. We do not intend to provide key-person insurance for our manager’s key personnel. Notwithstanding, we do not expect that its key personnel will cease their employment during the offering period.

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Certain officers and other key personnel of our manager will face competing demands relating to their time and this may cause our operations and our investors’ investments to suffer.	We rely on the executive officers and key personnel of our manager to provide services to us for the day-to-day operation of our business. In particular, as to Mr. Michael Burwell, President, Director, and Secretary/Treasurer of RMC, if he was to terminate his employment the manager’s capacity/capability to continue  business operations and maintain loan origination volumes could be impacted adversely. As a result of executive officers’ and key personnel’s interests in other programs, their obligations to other investors and the fact that they engage in and will continue to engage in other business activities on behalf of themselves and others, these individuals face conflicts of interest in allocating their time between us and other programs sponsored by our manager and other business activities in which they are involved. Should our manager devote insufficient time or resources to our business, our returns on our direct or indirect investments, and the value of our units, may decline.
We will rely on independent broker-dealers to sell units in the offering in order to raise sufficient funds to enable us to successfully grow our business.	We are offering the units through participating broker-dealers that are not affiliated with our manager and are members of FINRA.  Because we do not have a captive or affiliated broker-dealer that will be exclusively or primarily focused on selling our units, our ability to successfully complete the offering will depend, in large part, on our ability to develop and maintain relationships with a sufficient number of unaffiliated participating broker-dealers. In addition, the offering is being made on a “best efforts” basis, which means the broker-dealers participating in the offering are only required to use their best efforts to sell our units and have no firm commitment or obligation to purchase any of the units. These broker-dealers are engaged in the sale of various securities and investment products beyond those offered by us, including those of competing mortgage programs. In the event we are unable to enter into selling agreements with a sufficient number of qualified participating broker-dealers, or if those participating broker-dealers engaged by us fail to devote sufficient time and attention to the marketing of our units, we may be unable to raise a sufficient amount of funds in the offering as may be necessary to enable us to grow our business. In such event, the likelihood of our profitability being affected by the performance of any one of our investments may increase. In addition, our fixed operating expenses as a percentage of gross income would be higher, and the amount of distributions could be adversely affected.
Because our offering is not underwritten, you will not have the benefit of an independent due diligence review in connection with this offering	Because our offering is not underwritten, an investor does not have the benefit of the independent due diligence review and investigation of the type performed in connection with a securities offering, except to the extent of the due diligence performed by broker dealers or their agents.

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We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition or results of operations.	Our business is dependent on third party communications and information systems. Any failure or interruption of those systems, including as a result of the termination of an agreement with any third party service providers, could cause delays or other problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. There could be: •sudden electrical or telecommunications outages; •natural disasters such as earthquakes, tornadoes and hurricanes; •disease pandemics; •events arising from local or larger scale political or social matters, including terrorist acts; and •cyber attacks. These events, in turn, could have a material adverse effect on our operating results and negatively affect the value of our units and our ability to pay distributions.
Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.	A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include: •disrupted operations; •misstated or unreliable financial data; •liability for stolen assets or information; •increased cybersecurity protection and insurance costs; •litigation; and •damage to our investor relationships. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those we have outsourced. Third parties with which we do business (including those that provide services to us) also may be targets of cyber-attacks or sources of other technological risks. We outsource certain functions and these relationships allow for the storage and processing of our information and assets, as well as certain investor, counterparty, employee and borrower information. While we engage in actions to reduce our exposure resulting from outsourcing, ongoing threats may result in unauthorized access, loss, exposure or destruction of data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. Privacy and information security laws and regulation changes, and compliance with those changes, may also result in cost increases due to system changes and the development of new administrative processes.
Our processes and controls to mitigate cyber security risks may not be efficient in preventing a cyber incident.	We have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that our financial results, operations, business relationships or confidential information will not be negatively impacted by such an incident.

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As a public company, we are subject to regulations not applicable to private companies, such as provisions of the Sarbanes-Oxley Act. Efforts to comply with such regulations have and will involve significant expenditures.

As a public company, we are subject to regulations not applicable to private companies, including provisions of the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC. Our management will be required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder. We are required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis, to evaluate and disclose changes in our internal control over financial reporting. In the past, we have identified material weaknesses in our internal control over financial reporting, and while we remediated those material weaknesses as of September 30, 2017, we may be unable in future periods to maintain an effective system of internal controls and maintain compliance with the Sarbanes-Oxley Act and related rules. If we identify material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or to assert that our internal controls over financial reporting is effective investors may lose confidence in the accuracy and completeness of our financial reports, and we could become subject to investigations by the SEC, or other regulatory authorities, which could require additional financial and management resources. In addition, we have incurred significant expenses to comply with the Sarbanes-Oxley Act and other regulations and may be required to spend significant amounts in the future to remain in compliance. Such expenditures may reduce amounts available for distribution and may have a material adverse effect on our financial condition and results of operations.

We cannot predict far-reaching consequences and market distortions that may stem from governmental intervention in the economic and financial system or from regulatory reform of the oversight of financial markets.

In July 2010, the U.S. Congress enacted the Dodd-Frank Act, in part to impose significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial markets. For instance, the Dodd-Frank Act has imposed significant restrictions on the proprietary trading activities of certain banking entities and subject other systemically significant organizations regulated by the U.S. Federal Reserve to increase capital requirements and quantitative limits for engaging in such activities. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the mortgage backed securities, or MBS, market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. The Dodd-Frank Act also imposes significant regulatory restrictions on the origination and securitization of commercial mortgage loans. Also, the significant changes to Regulation AB could lead to sweeping changes to commercial and residential mortgage loan securitization markets as well as to the market for the re-securitization of MBS. The Dodd-Frank Act also created a new regulator, the Consumer Financial Protection Bureau, or the CFPB, which oversees many of the core laws which regulate the mortgage industry, including the Real Estate Settlement Procedures Act and the Truth in Lending Act. While the full impact of the Dodd-Frank Act and the role of the CFPB cannot be assessed until all implementing regulations are released, the Dodd-Frank Act’s extensive requirements may have a significant effect on the financial markets, and may affect the availability or terms of our targeted loans, which may have an adverse effect on our financial condition and results of operations. From time to time, there may be other governmental intervention in the economic and financial system or regulatory reform measures relating to the oversight of financial markets and other laws that may be enacted which could have an adverse impact on our financial condition and results of operations.

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MORTGAGE LENDING AND REAL ESTATE RISKS

A weak economy or real estate market could adversely affect us and your rate of return.	Our manager receives referrals from a variety of sources but will only originate or arrange loans that satisfy our investment criteria. The ability to find suitable loans is more difficult when the economy is weaker and there is less activity in the real estate market. For example, in the past the residential and commercial real estate markets experienced a significant downturn in investment and purchase activity and less demand for mortgage loans. From time to time a similar decline in demand for loans may occur, and we may be unable to find a sufficient number of suitable loans, which could leave us with excess cash. In such event, we will make short-term, interim investments in government obligations, certificates of deposit, money market or other liquid-asset accounts, with the offering proceeds pending investment in suitable loans. Interest returns on these investments are usually lower than on mortgage loans, which would reduce our profits and return to members.
Changing market conditions may make it more difficult for us to analyze potential loans and our loan portfolio.	Our success depends, in part, on our ability to effectively analyze origination opportunities in order to assess the level of risk-adjusted returns that we should expect from any particular loan. To the extent that we use historical assumptions that are inappropriate under current market conditions, we may make a loan that we otherwise might not originate, which could have a material and adverse effect on our results of operations and or ability to make distributions.
Our lending decisions are based on the  real estate securing the loans. Significant decline in the fair value of the collateral may impact the performance of the loans and their ultimate collectability.	For loans secured by real property other than owner-occupied personal residences, our lending decisions are based primarily on a determination that the value of the real property is sufficient, in and of itself, as a source of repayment. Other considerations such as the cash flow and the income generated by the real property that is to secure the loan and the general creditworthiness, experience and reputation of the borrower are secondary considerations. This may result in a higher incidence of loan payment delinquencies that would be experienced by conventional lenders. For any loan, the amount of the loan combined with the outstanding debt and claims secured by a senior deed of trust on the real property generally will not exceed the specified percentage (per the Operating Agreement) of the appraised value of the property as determined by an independent written appraisal at the time the loan is made. The LTV generally will not exceed 80% for residential properties (including multi-family), 75% for commercial properties, and 50% for land. The excess of the value of the collateral securing the loan over our debt and any senior debt owing on the property is the “protective equity.” Significant declines in real estate values may reduce the protective equity provided by the collateral securing our outstanding loans and were we to foreclose on loans with respect to properties that have declined in value, we may ultimately recover less than the amount of such loans.

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If borrowers default, and/or economic circumstances increase defaults, we may have to foreclose on the loan beginning the legal process of acquiring the collateral property. Foreclosure proceedings and/or workout agreements may slow our collection efforts and delay ultimate satisfaction of the loan.

We are engaged in the business of lending and, as such, we are subject to the risk that borrowers may be unable to repay the loans we have made to them in accordance with the terms of the loan agreement. Mortgage loans are secured by commercial and residential real property and are subject to risks of delinquency, foreclosure and loss. The ability of a borrower to repay a loan secured by commercial real property is dependent on the income of the real property. The ability of a borrower to repay a loan secured by a residential property is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, natural disasters, terrorism, social unrest and civil disturbances, may impair borrowers’ abilities to repay their loans. Our loans are not insured by the Federal Housing Administration or guaranteed by the Veterans Administration or otherwise guaranteed or insured by a government agency. Our loans require monthly interest-only payments or monthly payments of interest and principal. This means: •Some loans are structured to provide for relatively small monthly payments, typically interest-only, with a large “balloon” payment of principal due at the end of the term. These borrowers may be unable to repay such loans at maturity out of their own funds and may be compelled to refinance or sell their property. •Defaults and foreclosures may increase if the economy weakens or if interest rates increase, which may make it more difficult for borrowers to refinance their loans at maturity or sell their property. •If a borrower is unable to repay the loan and defaults, we may be forced to acquire the property at a foreclosure sale, or we may be forced to sell the property for less than the amount owed on the loan. If we cannot quickly sell or refinance such property, and the property does not produce income in excess of expenses, our profitability will be adversely affected. •Recently enacted consumer protection laws, both Federal and in California, impose additional notice and disclosure requirements on lenders which may slow or limit a lender’s ability to exercise remedies against residential real property collateral (principally 1-4 units), including rights to sell the property in a foreclosure sale and certain rights of tenants residing in the properties. Additional federal and state legislation may be proposed in the future which, if enacted, may further limit a lender’s ability to exercise remedies against residential real property collateral following a borrower’s default in the performance of its loan obligations. In addition, any litigation instituted by a defaulting borrower or the operation of the federal bankruptcy laws may have the effect of delaying enforcement of the lien on a defaulted loan and may in certain circumstances reduce the amount realizable from the sale of a foreclosed property. A “lien” is a charge against the property of which the holder may cause the property to be sold and use the proceeds in satisfaction of the lien. In the event our right to foreclose is contested, the legal proceedings necessary to resolve the issue can be time-consuming and costly. A judicial foreclosure may be subject to most of the delays and expenses of other litigation, sometimes requiring up to several years to complete. If we acquire a property from a borrower, there many factors that are beyond our control that affect the real estate market and could affect our ability to sell properties for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. Further, before we can sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions and could reduce the value of our units. We may periodically enter into workout agreements with borrowers who are past maturity or delinquent in their regular payments. Typically, a workout allows the borrower to extend the due date of the balloon payment and/or defer past-due payments, often while continuing to make current monthly payments, which allows the borrower time to seek alternative means of paying the loan in full.

We rely on appraisals to determine the fair market value (FMV) of the underlying property securing our loans. These appraisals may be inaccurate or not reflect subsequent events affecting FMV which could increase our risk of loss.

We will rely on appraisals prepared by unrelated third parties to determine the fair market value of real property used to secure our loans. We rely on such appraisals for, among other matters, determining our loan-to-value ratio (“LTV”). In the case of a loan made in connection with a pending property purchase, an appraisal may, for various reasons, reflect a higher or lower value than the purchase amount; we may nevertheless base our LTV on the appraised value, rather than on such purchase amount. We cannot guarantee that such appraisals will, in any or all cases, be accurate or that the appraisals will reflect the actual amount buyers will pay for the property. If an appraisal is not accurate, our loan may not be as secure as we anticipated. In the event of foreclosure, we may not be able to recover our entire investment. Additionally, since an appraisal fixes the value of real property at a given point in time, subsequent events could adversely affect the value of the real property used to secure a loan. For example, if the value of the property declines to a value below the amount of the loan, the loan could become under-collateralized. This would result in a risk of loss for us if the borrower defaults on the loan.

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Increased competition and new entrants in the market for mortgage loan originations could adversely impact our ability to originate and acquire real estate-related loans at attractive risk-adjusted returns.	New entrants in our target markets for mortgage loan originations could adversely impact our ability to execute our investment strategy on terms favorable to us. In originating our loans, we may compete with REITs, numerous regional and community banks, specialty finance companies, savings and loan associations, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders and other entities, and we expect that others may be organized in the future. The effect of the existence of other institutions may be an increase in competition for the available supply of loans suitable for investment by us, which may cause us to reduce the interest rate that can be charged on our loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of real estate-related loans and establish more relationships than us. We cannot assure you that the competitive pressures we may face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, desirable loans may be limited in the future and we may not be able to take advantage of attractive lending opportunities from time to time, as we can provide no assurance that we will be able to identify and make loans that are consistent with our investment objectives.
Some of our loans are junior in priority to first and second liens that may make it more difficult and costly to protect our junior security interest.	We anticipate that our loans will eventually be diversified as to priority approximately as follows: •first mortgages – 40 to 60%; •second mortgages (junior to first mortgages) – 40 to 60%; and •third mortgages (junior to other two mortgages) – 0 to 10%. There is no assurance that we will be able to diversify our loans as set forth above or that this diversification strategy, if successfully implemented, will provide us with the best risk adjusted returns and/or decrease our risk of loss. The lien securing each loan will not be junior to more than two other encumbrances (a first and, in some cases, a second deed of trust) on the real property which is to be used as security for the loan. In the event of foreclosure under a second or third deed of trust, the debt secured by a senior deed(s) of trust must be satisfied before any proceeds from the sale of the property can be applied toward the debt owed to us. As a result, we may not recover some or all of our investment. To protect our junior security interest, we may be required to make substantial cash outlays for such items as loan payments to senior lien holders to prevent their foreclosure, property taxes, insurance, repairs, maintenance and any other expenses associated with the property. These expenditures could have an adverse effect on our profitability.
Our commercial loans are dependent on the ability of the commercial property owner to generate net income from operating the property, which may result in the inability of such property owner to repay a loan, as well as the risk of foreclosure.	Our commercial loans may be secured by office, retail, mixed use, warehouse, and other types of commercial properties and are subject to risks of delinquency, foreclosure and of loss that may be greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower's ability to repay the loan may be impaired.

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Loans to small businesses involve a high degree of business and financial risk, which can result in substantial losses that would adversely affect our business, results of operation and financial condition.

Our operations and activities may include loans to small, privately owned businesses to purchase or refinance real estate used in their operations or by investors seeking to acquire or refinance small office, retail, mixed use or warehouse properties. Often, there is little or no publicly available information about these businesses. Accordingly, we must rely on our own due diligence to obtain information in connection with our investment decisions. Our borrowers may not meet net income, cash flow and other coverage tests typically imposed by banks. A borrower's ability to repay its loan may be adversely impacted by numerous factors, including a downturn in its industry or other negative local or more general economic conditions. Deterioration in a borrower's financial condition and prospects may be accompanied by deterioration in the collateral for the loan. In addition, small businesses typically depend on the management talents and efforts of one person or a small group of people for their success. The loss of services of one or more of these persons could have a material and adverse impact on the operations of the small business. Small companies are typically more vulnerable to customer preferences, market conditions and economic downturns and often need additional capital to expand or compete. These factors may have an impact on loans involving such businesses. Loans to small businesses, therefore, involve a higher degree of business and financial risk, which can result in substantial losses.

We may make construction loans which may subject us to greater risks.

Construction loans are those loans made to borrowers constructing entirely new structures or dwellings, whether residential, commercial or multi-family properties. We may make construction loans up to a maximum of 10% of our then gross offering proceeds. Investing in construction loans subjects us to greater risk than loans related to properties with operating histories. If we foreclose on property under construction, construction generally will have to be completed before the property can begin to generate an income stream or be sold. We may not have adequate cash reserves on hand with respect to junior encumbrances and/or construction loans at all times to protect our security. If we have inadequate cash reserves, we could suffer a loss of our investment. Additionally, we may be required to obtain permanent financing of the property in addition to the construction loan which could involve the payment of significant fees and additional cash obligations for us. As of December 31, 2018, we did not have any construction loans.

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We may make rehabilitationloans which may subject us to greater risks.

In addition to construction loans, we may make “rehabilitation loans.” Rehabilitation loans are those loans made to borrowers remodeling, adding to and/or rehabilitating existing structures or dwellings, whether residential, commercial or multi-family properties. Investing in rehabilitation loans subjects us to greater risk than standard acquisition loans for properties. We may make rehabilitation loans up to a maximum of 15% of our total loan portfolio. If we foreclose on a property undergoing remodeling or rehabilitation, such remodeling or rehabilitation generally will have to be completed before the property can realize the anticipated increase in value from such remodeling or rehabilitation. We may not have adequate cash reserves on hand with respect to junior encumbrances and/or rehabilitation loans at all times to protect our security. If we have inadequate cash reserves, we could suffer a loss of our investment. Additionally, we may be required to obtain permanent financing of the property in addition to the rehabilitation loan, which could involve the payment of significant fees and additional cash obligations for us. As of December 31, 2018, we did not have any rehabilitation loans.

Owning real estate following foreclosure will subject us to additional risks.

If a borrower is unable to pay our loan or refinance it when it is due, it may be in our best interest to institute foreclosure proceedings against the borrower, and we may sometimes be required to own the property for a period of time. We will be subject to certain economic and liability risks attendant to property ownership which may affect our profitability. The risks of ownership will include the following: •If the property is a rental property we will be required to find and keep tenants. •We will be required to maintain and oversee and control operating expenses of the property. •We will be subject to general and local real estate and economic market conditions which could adversely affect the value of the property. •We will be subject to any change in laws or regulations regarding taxes, use, zoning and environmental protection and hazards. •We will be required to maintain insurance for property and liability exposures such as environmental risks and potential liability for any injury that occurs on or to the property. •We will be subject to state and federal laws and local municipal codes and penalties relating to tenant retention and the maintenance and upkeep of lender-owned properties. •We may be subject to federal and state tax laws and regulations with respect to the tax treatment of items of our income, gain, loss or deductions for real estate held for investment, rental and/or sale, which in turn may result in federal and state tax payment and filing exposure for our members. •We will be subject to municipal ordinances, where they have been enacted, applicable to foreclosed and/or distressed properties which require the payment of additional costs and registration fees and may obligate us to secure and maintain, at our expense, real property securing our loans upon the filing of a notice of default or after we acquire ownership of real property through foreclosure.

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If we decide to develop property acquired by us, we will face many additional risks.

If we have acquired property through foreclosure or otherwise, there may be circumstances in which it would be in our best interest not to immediately sell the property, but to develop it ourselves. Depending upon the location of the property and market conditions, the development done by us could be either residential (single or multi- family) or commercial. Development of any type of real estate involves risks including the following: •We will be required to rely on the skill and financial stability of third-party developers and contractors. •Any development or construction will involve obtaining local government permits. We will be subject to the risk that our project does not meet the requirements necessary to obtain those permits. •Any type of development and construction is subject to delays and cost overruns. •There can be no guarantee that upon completion of the development that we will be able to sell the property or realize a profit from the sale. •Economic factors and real estate market conditions could adversely affect the value of the property.

Bankruptcy and legal limitations on personal judgments may affect our ability to enforce the loans and increase our costs.

Any borrower has the ability to delay a foreclosure sale by us for a period ranging from several months to several years or more by filing a petition in bankruptcy. The filing of a petition in bankruptcy automatically stops or “stays” any actions to enforce the terms of the loan. The length of this delay and the costs associated with it will generally have an adverse impact on our profitability. We also may not be able to obtain a personal judgment against a borrower.

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If we make high-cost mortgage loans, we will be required to comply with additional federal and state regulations and our non-compliance could adversely affect us.   Although we anticipate making relatively few loans that would qualify as “high-cost mortgages,” as defined by regulations, the failure to comply with these regulations could adversely affect us. Section 1026.32 of Regulation Z defines a “high-cost mortgage” as any consumer loan secured by a primary residence where either (i) the annual percentage rate (“APR”), measured as of the date the rate is set, exceeds the average prime offer rate (“APOR”) for a comparable transaction on that date by more than 6.5% on a first mortgage or 8.5% on a junior mortgage; or (ii) the total fees payable by the consumer exceed 5% for a loan of more than or equal to $20,000, or 8.5% or $1,000 (whichever is less) on a loan of less than $20,000. The high-cost mortgage regulations primarily focus on:   •additional disclosure requirements with respect to the terms of the loan to the borrower; •the timing of such disclosures; and •the prohibition of certain terms in the loan including balloon payments and negative amortization. The failure to comply with the regulations, even if the failure was unintended, will render the loan rescindable for up to three years. If the loan is rescinded, interest and fees paid by the borrower must be refunded by the lender. The lender could also be held liable for attorneys’ fees, finance charges and fees paid by the borrower and certain other money damages.   In addition, under California law consumer loans secured by liens on primary residences in amounts less than the Fannie Mae/Freddie Mac conforming loan limit are considered to be “high-cost loans” if they have (i) an annual percentage rate at least 8% above the interest rate on U.S. Treasury securities of a comparable maturity, or (ii) points and fees in excess of 6% of the loan amount, exclusive of the points and fees. While it is unlikely that we would make many high-cost loans, the failure to comply with California law regarding such loans could have significant adverse effects on us. The law prohibits certain lending practices with respect to high-cost loans, including the making of a loan without regard to the borrower’s income or obligations. When making such loans, lenders must provide borrowers with a consumer disclosure and provide for an additional rescission period prior to closing the loan. The reckless or willful failure to comply with any provision of this law, including the mandatory disclosure provisions, could result in, among other penalties, the imposition of administrative penalties of $25,000, loss or suspension of the offending broker’s license, as well as exposure to civil liability to the consumer/borrower (including the imposition of actual and punitive damages).  

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We operate in a heavily regulated industry and compliance with regulations could increase our costs and lower your return.	The mortgage business has traditionally been heavily regulated. The costs of complying with these regulations could adversely affect our profitability, and violations of these regulations could materially adversely affect our business and financial results. For example, the company’s lending activity is subject to regulations promulgated by the Consumer Finance Protection Bureau (“CFPB”), and further, the company may be subject to examination by the CFPB, as well as the California Department of Real Estate and the California Department of Business Oversight. Such examinations, as well as regulations that may be issued in the future, could ultimately increase our administrative burdens and our costs and could adversely affect the return to our members.
Since we are not regulated as a bank, our members and borrowers may have fewer protections.	Although we are engaged in mortgage lending, we and our affiliates are not banks and, accordingly, are not generally subject to the federal and state banking regulations, policies and oversight applicable to banks. For example, banks are subject to federal regulation and examination by the Federal Deposit Insurance Corporation, which insures bank deposits up to applicable limits. The operations of banks are also subject to the regulation and oversight of the Federal Reserve Board and state banking regulators. Banks are required to maintain a minimum level of regulatory capital in accordance with stringent guidelines established by federal law. Federal and state banking agencies also regulate the lending practices, capital structure, investment practices and dividend policy of banks, among other things. Because we and our affiliates are generally not subject to the capital requirements and other regulations and oversight applicable to banks, our members and borrowers may not have the same level of protections and safeguards afforded to owners and customers of banks.
The implementation of changes to investor account statements described in Financial Industry Regulatory Authority Regulatory Notice 15-02 may impact our ability to raise funds.	The SEC has approved amendments to the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) applicable to securities of direct participation programs and non-listed REITs which may affect our ability to raise investor capital. The amendments, which became effective on April 11, 2016, provide, among other things, that (i) FINRA members must include in customer account statements the per share estimated value of the non-listed entity, which must be developed using a methodology reasonably designed to ensure the per share estimated value’s reliability; and (ii) per share estimated value disclosed from and after 150 days following the second anniversary of the admission of stockholders of the non-listed entity’s public offering must be based on an appraised valuation methodology developed by, or with the material assistance of, a third-party expert and updated on at least an annual basis. The rule changes also provide that account statements must include additional disclosure regarding the sources of distributions to stockholders of unlisted entities.
Larger loans or concentration of loans to one borrower may result in less diversity and may increase risk.	Investing in fewer, larger loans generally decreases diversification of the portfolio and may increase the risk of credit losses and the possible resultant reduction in profits and yield to our members. However, since larger loans generally will carry a somewhat higher interest rate, our manager may determine, from time to time, that a relatively larger loan is advisable for us. Our maximum investment in a loan will not exceed 10% of our then total gross offering proceeds. We may invest in multiple secured loans that share a common borrower or principal. The aggregate of our loans, however, to any one borrower may not exceed 10% of the then total gross offering proceeds. The more concentrated our portfolio is with one or a few borrowers, the greater the credit risk we face.

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Use of borrowed money to fund loans may reduce our profitability.   We are permitted to borrow funds for the purpose of making loans, for increased liquidity, reducing cash reserve needs, or developing or refinancing property that we acquired through foreclosure or for any other proper purpose on any terms commercially available. We may assign all or a portion of our loan portfolio and/or all or a portion of real estate that we own as security for such loans. Our manager may not leverage more than, and our total indebtedness may not at any time exceed, 50% of members’ capital.   If we have borrowed money to fund loans, increases in the prevailing rate may have an adverse effect. If borrowed money bears interest at a variable rate, and we are making fixed rate loans, a rise in the prevailing rate could result in our having to pay more in interest on the borrowed money than we make on loans to our borrowers. This may reduce our profitability, and, should we default on our debt, may result in additional losses through forced liquidation of loans. In addition, if rising interest rates cause us to need additional capital to repay indebtedness in accordance with its terms or otherwise, we may need to liquidate one or more of our investments at times that may not permit realization of the maximum return on such investments. In addition, financing arrangements that we may enter into in the future may require us to make a lump-sum or “balloon” payment at maturity. At the time the balloon payment is due, we may not be able to refinance the balloon payment on terms as favorable as the original loan or sell investments at a price sufficient to make the balloon payment, either of which could increase our risk of default on the loan. The effect of a refinancing or sale could affect the rate of return to investors. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay distributions. Any of these results would have a significant negative impact on your investment.   Borrowing money also entails possible adverse tax consequences.  

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Changes in interest rates may affect your return on your investment.	Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control. Rising interest rates generally reduce the demand for mortgage loans due to the higher cost of borrowing. Also, rising interest rates reduce the value of our existing loans that do not have adjustable rates. A reduction in the volume of mortgage loans originated may affect the amount of our distributions. Conversely, we expect that the majority of our loans will not include prepayment penalties for a borrower paying off a loan prior to maturity. The absence of a prepayment penalty in our loans may lead borrowers to refinance higher-interest rate loans in a market of falling interest rates. This would then require us to reinvest the prepayment proceeds in loans or alternative short-term investments with lower interest rates and a corresponding lower yield to members. The values of our loans may decline without any general increase in interest rates for a number of reasons, such as increases or expected increases in defaults, or increases or expected increases in voluntary prepayments for those loans that are subject to prepayment risk or widening of credit spreads. We expect that our loans will typically have fixed rates and the majority of our loans will be for terms of one to five years. Consequently, due to the terms of our loans, if interest rates rapidly increase, such interest rates may exceed the average interest rate earned by our loan portfolio. If prevailing interest rates rise above the average interest rate being earned by our loan portfolio, you may be unable to quickly redeem your units, as our unit redemption program is subject to significant restrictions and limitations, in order to take advantage of higher returns available from other investments. In addition, an increase in interest rates accompanied by a tight supply of mortgage funds may make refinancing by borrowers with balloon payments difficult or impossible. This is true regardless of the market value of the underlying property at the time such balloon payments are due. In such event, the property may be foreclosed upon.
We may experience fluctuations in our quarterly results.	We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make loans that meet our investment criteria, the interest rate on loans in our portfolio, the level of our expenses, the volume and timing of loan sales to third parties, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions, As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods.
Marshaling of assets could delay or reduce recovery of loans.	As security for a single loan, we may require a borrower to execute deeds of trust on other properties owned by the borrower in addition to the property the borrower is purchasing or refinancing. In the event of a default by the borrower, we may be required to “marshal” the assets of the borrower. Marshaling is an equitable doctrine used to protect a junior lienholder with a security interest in a single property from being “squeezed out” by a senior lienholder, such as us, with a security interest not only in the property, but in one or more additional properties. Accordingly, if another creditor of the borrower forced us to marshal the borrower’s assets, foreclosure and eventual recovery of the loan could be delayed or reduced, and our costs associated therewith could be increased because we are required to seek recourse in the borrower’s other assets for payment on the loan.

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We may face potential liabilityfor toxic or hazardous substances as a result of our lending activities or as a result of foreclosure on properties that secure loans we make.

If we take an equity interest in, management control of, or foreclose on any of the loans, we may be considered the owner of the real property securing such loans. Under current federal and state law, the owner of real property contaminated with toxic or hazardous substances (including a mortgage lender that has acquired title through foreclosure) may be liable for all costs associated with any remedial action necessary to bring the property into compliance with applicable environmental laws and regulations. This liability may arise regardless of who caused the contamination or when it was caused. In the event of any environmental contamination, there can be no assurance that we would not incur full recourse liability for the entire cost of any such removal and cleanup, even if we did not know about or participate in the contamination. Full recourse liability means that any of our property, including the contaminated property, could be sold in order to pay the costs of cleanup in excess of the value of the property at which such contamination occurred. In addition, we could incur liability to tenants and other users of the affected property, or users of neighboring property, including liability for consequential damages. Consequential damages are damages that are a consequence of the contamination but are not costs required to clean up the contamination, such as lost profits of a business. We would also be exposed to risk of lost revenues during any cleanup and to the risk of lower lease rates or decreased occupancy if the existence of such substances or sources on the property becomes known. If we fail to remove the substances or sources and clean up the property, federal, state, or local environmental agencies could perform such removal and cleanup. Such agencies would impose and subsequently foreclose liens on the property for the cost thereof. We may find it difficult or impossible to sell the property prior to or following any such cleanup. If such substances are discovered after we sell the property, we could be liable to the purchaser thereof if our manager knew or had reason to know that such substances or sources existed. In such case, we could also be subject to the costs described above. If we are required to incur such costs or satisfy such liabilities, this could have a material adverse effect on our profitability. Additionally, if a borrower is required to incur such costs or satisfy such liabilities, this could result in the borrower’s inability to repay its loan from us.

Our manager’s selection of loans for sale to third parties may involve conflicts of interest between us and our manager.

We may, on occasion, subject to applicable laws and regulations and our operating agreement, sell some of our loans. If we sell loans, we may be required to make customary representations and warranties about such loans to the loan purchaser. Our loan sale agreements may require us to repurchase or substitute loans in the event we breach a representation or warranty given to the loan purchaser. In addition, we may be required to repurchase loans as a result of borrower fraud. The remedies available to a purchaser of loans are generally broader than those available to us. Also, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the borrowers. If we are required to make a significant amount of repurchases, our cash flow, results of operations, financial condition and business prospects could be materially adversely affected. Also, there is a conflict of interest between us and our manager as to what loans will be sold. For example, the manager may select loans of a higher credit quality or having higher interest rates than the loans funded with the proceeds from the sale. The sale of loans may result in a reduced overall yield of our portfolio. Loans the manager may sell to third parties will enable the manager to re-lend proceeds from the loans sales generating loan origination revenue and fees under the operating agreement, which increases the managers capital and ability to repay the formation loan.

TAX RISKS

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We intend to be treated as a partnership for federal income tax purposes but no assurance can be given that we would not face a challenge to such characterization.

We intend to be treated as a partnership (other than a publicly traded partnership) for federal income tax purposes and not as a corporation. Although we have received an opinion from legal counsel to the effect that we will be treated as a partnership (other than a publicly traded partnership) for federal income tax purposes, we will not seek a ruling from the Internal Revenue Service (“IRS”) on the tax treatment of us or our members. Counsel’s opinion represents only its best legal judgment based upon existing law and, among other things, factual representations provided by our manager. The opinion of counsel has no binding effect on the IRS or any court, and no assurance can be given that the conclusions reached in said opinion would be sustained by a court if challenged by the IRS.

Your ability to offset income with our losses may be limited.

We are engaged in mortgage lending. We take the position that we are engaged in the active conduct of equity-financed lending. Under the applicable Treasury regulations, each member is required to report separately on his income tax return all or a portion of the member’s distributive share of our income as nonpassive income. Each member’s distributive share of our losses, if any, will be reported as passive losses. Passive losses may be used to offset passive income. To the extent that passive losses do not offset passive income, they may be carried forward to offset passive income in future years. It is possible, however, that the IRS could assert that our income is properly treated as portfolio income for purposes of those limitations. Such treatment is subject to the interpretation of complex Treasury regulations, and is dependent upon a number of factors, such as whether we are engaged in a trade or business, the extent to which we incur liabilities in connection with our activities, and the proper matching of the allocable expenses incurred in the production of income. There can be no assurance that an IRS challenge to our characterization of our income will not succeed. It also is possible that members may be subject to other limitations on the deductibility of our expenses and losses.

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Your tax liability may exceed the cash you receive.	Your tax liabilities associated with an investment in the units for a given year may exceed the amount of cash we distribute to you during such year. As a member, you will be taxed on your allocable share of our taxable income whether or not you actually receive cash distributions from us. Your taxable income could exceed cash distributions you receive, for example, if you elect to reinvest into additional units the cash distributions you would otherwise have received. Taxable income in excess of cash distributions also could result if we were to generate so-called “phantom income” (taxable income without an associated receipt of cash). Phantom income could be recognized from a number of sources, including, without limitation, any established loan loss reserves or fluctuation thereof, repayment of principal on loans incurred by the company as well as imputed income due to original issue discount, market discount, imputed interest and significant modifications to existing loans. Under very limited circumstances, you could receive a special distribution to enable you to pay taxes on specified types of income. We take the position that we are engaged in a lending trade or business, as a result of which all or a portion of the income earned by members with respect to their investment in our units will be treated as ordinary income.
We expect to generate unrelated business taxable income.	Tax-exempt investors (such as an employee pension benefit plan or an IRA) may be subject to tax to the extent that income from the units is treated as unrelated business taxable income, or UBTI. We may realize UBTI from the sale of loans if we are deemed to be a “dealer” in the business of selling loans to customers in the ordinary course of our trade or business and a particular loan or loans are deemed to be “dealer property.” In addition, we borrow funds on a limited basis, which can cause a portion of our income to be treated as UBTI. We may also receive income from services rendered in connection with making or securing loans, which is likely to constitute UBTI. Furthermore, any rental income that we receive from a lease of personal property would constitute UBTI unless the personal property is leased along with real property and the rents received from the personal property are an incidental amount of the total rents received under the lease.  While we do not currently intend to own and lease personal property, it is possible we may do so as a result of a foreclosure upon a default. Although we will use reasonable efforts to prevent any borrowings and leases of personal property from causing any significant amount of income from the units to be treated as UBTI, we expect that some portion of our income will be UBTI. Prospective investors that are tax-exempt entities are urged to consult their own tax advisors regarding the suitability of an investment in units. In particular, an investment in units may not be suitable for charitable remainder trusts.
Tax audits could result in adjustments to your tax returns.	The IRS and state tax authorities could challenge certain federal and state income tax positions, respectively, taken by us if we are audited. Any adjustment to our return resulting from an audit by a tax authority would result in adjustments to your tax returns and might result in an examination of items in such returns unrelated to your investment in the units or an examination of tax returns for prior or later years. Moreover, we and our members could incur substantial legal and accounting costs in contesting any challenge by a tax authority, regardless of the outcome. Our manager generally will have the authority and power to act for, and bind the company in connection with, any such audit or adjustment for administrative or judicial proceedings in connection therewith.
You may be subject to state and local tax laws.	The state in which you reside may impose an income tax upon your share of our taxable income. Furthermore, states such as California, in which we will own property, generally impose income tax upon a member’s share of the company’s taxable income considered allocable to such states, whether or not a member resides in that state. As a result, a nonresident member may be required to file a tax return in California and any other such state. Differences may exist between federal income tax laws and state and local income tax laws. We may be required to withhold state taxes from distributions to members in certain instances. You are urged to consult with your own tax advisers with respect to state and local tax consequences of an investment in our units.

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The IRS may argue that our allocations to you do not have substantial economic effect.	For U.S. federal income tax purposes, allocations to you of our items of income, gain, loss, deduction and credit will be governed by our operating agreement if such allocations have “substantial economic effect.” Because our operating agreement generally allocates profits and losses (and taxable items) in the same manner as cash distributions are made, we believe these allocations should be respected. However, there can be no assurance that the IRS will not challenge the allocations and will not attempt to reallocate profits and losses (and taxable items) among the members. Any successful challenge by the IRS to such allocations could have a material adverse effect on your investment in our units.
Recent tax legislation may have unanticipated effects on us.	On December 22, 2017, the tax legislation commonly referred to as the Tax Cuts and Jobs Act was signed into law and contains significant changes to the Internal Revenue Code generally applying in taxable years beginning after December 31, 2017.  In addition to reducing corporate and individual tax rates, the Tax Cuts and Jobs Act eliminates or restricts various deductions for taxable years beginning after December 31, 2017 and before January 1, 2026.  The reduction or limitation of these tax deductions could adversely affect the real estate prices in California which has high state and local taxes and higher property values. In addition, changes in the tax deductions could increase taxes payable by certain borrowers, thereby reducing their available cash and adversely impacting their ability to make payment on the loans, which in turn, could cause a rise in delinquencies. The impact of these changes has yet to be determined, but the limitations on these deductions could have an adverse impact on the California real estate market which could negatively impact our business or financial results.
Changes in tax laws could have an adverse effect on your investment.	Changes in federal, state or local tax law could have an adverse effect on the rate of return on your investment in our units or on the market value of our assets. You are urged to consult with your own tax advisor with respect to the impact of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our units.

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ERISA RISKS

Risks of investment by benefit plan investors and other tax-exempt investors. If you elect to participate in the DRIP, you should consider the same factors that you had to consider when considering an investment in the units initially, including if you are a Benefit Plan Investor subject to the requirements of the Employee Retirement Income Security Act (“ERISA”), you should consider, among other things, (i) whether the investment satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA; (ii) whether the investment is prudent, since it is not expected that there will be a market created in which you can sell or otherwise dispose of the units. In addition if you are a Benefit Plan Investor that is a tax-qualified pension or 401(k) plan, an IRA or a similar plan, you should consider (i) whether a distribution of units in kind from the plan or IRA would be accepted as a rollover by a trustee or custodian of a successor plan or IRA, and if not accepted, whether the automatic 20% income tax withholding would create the need to effectuate the rollover using assets other than the units; and (ii) whether a required distribution from a tax-qualified pension or 401(k) plan or IRA commencing on the April 1 following the calendar year in which the beneficiary attains age 70 1⁄2 (or if later with respect to a tax-qualified plan distribution, the date the beneficiary retires) could cause the beneficiary to become subject to income tax that the beneficiary would need to satisfy out of assets other than the units if such beneficiary were not able to transfer the units for cash. Finally, all Benefit Plan Investors, including tax-qualified pension and 401(k) plans and IRAs, should consider (i) whether the investment will impair the liquidity of your plan, IRA or other entity; and (ii) whether interests in us or the underlying assets owned by us constitute “plan assets” for purposes of Section 406 of ERISA or Section 4975 of the Code which could cause certain transactions with us to constitute non-exempt prohibited transactions. ERISA requires that the assets of a plan be valued at their fair market value as of the close of the plan year, and it may not be possible to adequately value the units from year to year, since there will not be a market for those units and the appreciation of any property may not be shown in the value of the units until we sell or otherwise dispose of our investments. If you are an employee benefit plan subject to federal, state or local law that is substantially similar to ERISA, you should consider whether an investment in the units would satisfy the requirements of such similar law.  

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The U.S. Department of Labor’s regulation expanding the definition of fiduciary investment advice under ERISA could adversely affect our ability to raise funds. On April 6, 2016, the U.S. Department of Labor (the “DOL”) issued its final regulation redefining “investment advice fiduciary” under ERISA and the Internal Revenue Code. The final regulation significantly expands the class of advisers and the scope of investment advice that are subject to fiduciary standards, imposing the same fiduciary standards on advisers to individual retirement accounts that have historically only applied to plans covered by ERISA. The DOL also finalized certain prohibited transaction exemptions that allow investment advisers to receive compensation for providing investment advice under arrangements that would otherwise be prohibited due to conflicts of interest. Part of the DOL regulations took effect on April 10, 2017, but due to continuing actions on the part of the federal executive branch and the DOL, and also due to decisions of courts which have adjudicated the validity and continuing effect of the DOL regulations, there is substantial uncertainty regarding the general impact of the DOL regulations and the applicability of the DOL regulations to specific transactions. Because the changes required by the DOL regulations are triggering significant changes in the operations of financial advisors and broker-dealers and because of the uncertainties surrounding the DOL regulations, the status of the DOL regulations may impact our ability to raise funds.

Item 1B – Unresolved Staff Comments

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 2 – Properties

We have not owned any real property since inception.

Item 3 – Legal Proceedings

In the normal course of business, we 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 our 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, we are not involved in any legal proceedings other than those that would be considered part of the normal course of business.

Item 4 – Mine Safety Disclosures

Not Applicable.

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Part II

Item 5 – Market for the Registrant’s Units, Related Unitholder Matters and Issuer Purchases of Equity Securities

Investors will have limited ability to sell their units. Our units are not listed on an exchange or quoted through a quotation system, and there is no secondary market nor do we expect that any will develop in the foreseeable future. Units are not freely transferable, and they may not be acceptable by a lender as security for borrowing. Our operating agreement also imposes substantial restrictions upon your ability to transfer units. Therefore, an investment in our units is not suitable for investors who expect to require short-term liquidity from their investments.  See “Liquidity and unit redemptions program” in Part I of this Report. As of February 28, 2019, we had approximately 1,400 unit holders, who held 80,340,505 units.  

Recent sales of unregistered securities

All sales of our units within the past three years were registered under the Securities Act.

Ongoing public offerings of units/ SEC registrations

Since October 2009, we have offered and sold units pursuant to registration statements on Form S-11. 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 distribution reinvestment plan (DRIP) became effective and continues in effect for up to three (3) years thereafter. As of December 31, 2018, the company had sold approximately 85,941,000 units– 39,407,000 units under previous registration statements and approximately 46,534,000 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 $46,534,000, respectively.

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 June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 will cease due to the company electing not to update its S-11 filing prior to April 30, 2019, as doing so would not be cost effective. Redwood Mortgage Corp. (RMC) is considering a registration statement to be filed in the second quarter of 2019 to continue to offer units pursuant to the DRIP.

Proceeds from sales of units from inception (October 2009) through December 31, 2018 are summarized below.

	Proceeds
From investors - admitted	$	76,938,987
From members under our DRIP		8,653,123
From premiums paid by RMC(1)		349,199
Total proceeds from unit sales	$	85,941,309

(1) If a member acquired units through an unsolicited sale (i.e., without a 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.

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The ongoing sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:

• sale of members’ units net of reimbursement to RMC of organization and offering expenses (“O&O expenses”) and net of amounts advanced for the formation loan to RMC;

• units sold pursuant to our DRIP;

• payments from RMC on the outstanding balance of the formation loan;

• borrowers’ monthly principal and interest payments;

• loan payoffs;

• loan sales to unaffiliated 3^rd parties and loan transfers by executed assignment to affiliated mortgage funds; 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.

Redemptions are made once a quarter, on the last business day of the quarter. 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 including, but limited to, the company will not:

• in any calendar year, redeem more than 5%; or

• in any calendar quarter, redeem more than 1.25%, of the weighted average number of units outstanding during the twelve (12) month period immediately prior to the date of the redemption.

In addition, the manager may, in its sole discretion, further limit the percentage of the total members’ units that may be redeemed or may adjust the timing of scheduled redemptions (including deferring withdrawals indefinitely), to the extent that such redemption would cause the company to be treated as a “publicly traded partnership” within the meaning of Section 7704 of the Code or any Treasury Regulations promulgated thereunder (determined without reference to Code Section 469(i)).

In the event that redemption requests in excess of the foregoing limitations are received by the managers, such redemption requests will be honored in the following order of priority:

• first, to redemptions upon the death of a member; and

• next, to other redemption requests until all other requests for redemption have been met.

All redemption requests shall be honored on a pro rata basis, based on the amount of redemption requests received in the preceding quarter plus unfulfilled redemption requests that the company was unable to honor in prior quarter(s).

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.

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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 the 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.

Commissions for unit sales to be paid to broker-dealers (B/D sales commissions) and premiums paid to certain investors upon the purchase of units are paid by RMC and are not paid directly by us 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 December 31, 2018, such advances totaled $5,439,910, of which $4,179,344 remains outstanding.   Please refer to the information under “—Unit sales commissions paid to broker-dealers/formation loan” in Note 1 (Organization and General) and “—Reimbursement and allocation of organization and offering expenses” in Note 3 (Manager and Related Parties) to the financial statements included in Part II, Item 8 of this report for a discussion of the formation loan and organization and offering expenses, which discussions are incorporated herein by this reference.

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.

Distributions

Distributions totaled $4,462,623 and $3,596,449 in 2018 and 2017, respectively. See “Distribution policy” under Item 1- Business in Part I of this annual report, which discussion is incorporated by reference herein.

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. During 2018 and 2017, 2,420,528 and 1,987,151 units, respectively, were distributed to members under the DRIP.

Liquidity and unit redemption program

Units redeemed in 2018 and 2017 by quarter are presented in the following table.

Units Redeemed	2018		2017
Q1	$	403,400	$	400,310
Q2		299,240		53,152
Q3		787,524		346,800
Q4		1,243,607		478,884
Total	$	2,733,771	$	1,279,146

All redemptions are made on the last business day of the quarter, and valued at $1 per unit.

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Fair market value / unit value

In compliance with FINRA Rule 2310 concerning direct-participation-program value per unit estimates, RMC obtained information regarding fair market valuations of the net assets and unit value as of December 31, 2018, for RMI IX. The valuations were performed with the assistance of an independent valuation firm that provides asset valuations to retirement plan sponsors, plan administrators, banking and trust companies, and ERISA plans. The fair values of the individual properties were taken from appraisals which referenced the most current available market information such as listing agreements, offers, and pending and closed sales. Industry standard valuation approaches, including the Income Approach, were utilized in deriving the fair values, as appropriate. There is no assurance that this estimated fair value of the membership units is or will remain accurate, and it does not determine the amount that a member is entitled to receive upon redemption of units. The redemption amount is determined by the applicable provisions of the Operating Agreement.

The fair value of a unit of RMI IX was determined to be $1.00, after consideration of the fair values of the net assets held, the restrictions in the unit redemption program in the Operating Agreement and the restrictions on transferability of units with consideration to the expected net distribution rate on the units.

The fair value of loan balances secured by deeds of trust, per the Market Approach, is deemed to approximate the recorded amount (per the financial statements) as our loans:

• are of shorter terms at origination than commercial real estate loans by institutional lenders;

• are written without a prepayment penalty causing uncertainty/a lack of predictability as to the expected duration of the loan; and

• have limited marketability and are not yet sellable into an established secondary market.

The two loan sales in 2018 were negotiated between our manager and the buyer who was not yet willing to pay a significant premium commensurate with the interest rate premium of the loans and the low loan to value ratios, the location (i.e. San Francisco Bay Area and Los Angeles, coastal Southern California) and other characteristics of the underlying collateral.

For 2017 and prior year ends, the portfolio of secured loans was valued based on the application of the discounted cash flow approach as comparable loan sales were not available. Companies or individuals originating loans similar to those originated by RMC on behalf of the company typically intend to hold the loans until maturity as the average contractual term of the loans is shorter than conventional mortgages, substantially all of which have a prepayment-penalty provision.

Market Approach - The market approach measures value based on what other purchasers in the market have paid for assets that can be considered reasonably similar to those being valued. When the market approach is utilized, data are collected on the prices paid for reasonably comparable assets. Adjustments are made to the comparable assets to compensate for differences between those assets and the asset being valued. In the case of real estate for example, adjustments might be made for location, quality or construction, and/or building amenities. The application of the market approach results in an estimate of the price reasonably expected to be realized from the sale of the property.

Income Approach - The income approach is a valuation technique that provides an estimation of the fair value of an asset, such as RMI IX’s loans, based on the cash flows that an asset can be expected to generate over its estimated remaining economic term. This approach begins with an estimation of the annual cash flows a prudent investor would expect the subject asset to generate over a discrete projection period. The estimated cash flows for each of the years in the discrete projection period are then converted to their present value equivalent using a rate of return appropriate for the risk of achieving the asset’s projected cash flows.

Item 6 – Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

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Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the audited financial statements and notes thereto, which are included in Part II, Item 8 of this report.

Manager and Other Related Parties

See Notes 1 (Organization and General) and 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 of this report for a detailed presentation of the company activities for which related parties are compensated and related transactions, including the formation loan to RMC, which presentation is incorporated by this reference into this Item 7.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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:

• 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 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).

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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.

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. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds 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 property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. 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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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 dependent significantly on economic activity and employment conditions in the California.  Wells Fargo’s Economics Group periodically provides timely, relevant information and analysis in its reports and commentary regarding California’s employment and economic conditions.  Highlights from a recently issued report from Wells Fargo Securities Economics Group is presented below.

In the publication “A Modest Start to 2019 for California Payrolls” dated March 12, 2019:

Nonfarm employers added just 3,000 net new jobs during January. Strong gains in professional & business services (4,200) and healthcare (5,600) were nearly wiped out by a sharp 7,200 decline in the trade, transportation & utilities sector.

Through the monthly volatility, hiring has moderated recently. Job gains have averaged 15,200 over the past three months, below the 35,800 averaged over the same period last year.

The unemployment rate ticked up to 4.2% during the month as a 0.3% gain the labor force out-paced a 0.2% rise in household employment. The number of unemployed increased to 817,600.

January's data include annual benchmark revisions, which reflect actual employment counts from the QCEW and updated seasonal factors. Employment growth was 1.6% in 2018, just a touch slower than the initial estimate of 1.7%.

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Key performance indicators

Key performance indicators are presented in the following table for 2018 and 2017.

	2018			2017
Secured loans – end of period balance	$	62,115,713		$	54,768,689
Secured loans – average daily balance	$	61,069,000		$	47,410,000
Portfolio interest rate(1)		8.50	%		8.52	%
Interest on loans, gross	$	5,206,579		$	4,031,706
Effective yield rate(2)		8.53	%		8.52	%
Amortization of loan administrative fees, net(7)	$	5,878		$	—
Interest on loans, net	$	5,200,702		$	4,031,706
Percent of average daily balance(2)		8.52	%		8.50	%
Provision for loan losses	$	—		$	—
Percent of average daily balance(2)		0.00	%		0.00	%
Total operations expense(7)	$	457,848		$	185,599
Net Income(7)	$	4,790,272		$	3,869,045
Percent of average members’ capital(3)(4)		6.40	%		6.96	%
Member Distributions, net	$	4,462,623		$	3,596,449
Percent of average members’ capital(3)(4)(5)		5.95	%		6.54	%
Members’ capital, gross – end of period balance	$	79,198,453		$	66,450,424
Members’ capital, gross – average daily balance	$	74,469,000		$	55,007,000
Member Redemptions(6)	$	2,733,771		$	1,279,146

(1) Stated note interest rate of secured loans - weighted daily average

(2) Percent of secured loans – average daily balance

(3) Percent of members’ capital, gross – average daily balance

(4) Percent based on the net income available to members (excluding 1% allocated to the manager)

(5) Members Capital Distributed during 2018 is net of O&O costs allocated to members during the year.

(6) Scheduled member redemptions as of December 31, 2018 were $1,253,669, payable in 2019. Scheduled member redemptions as of December 31, 2017 were $584,149.

(7) See Note 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 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 7.

Secured loans

The secured loan balance at December 31, 2018 of $62,115,713 was an increase of approximately 13.4% ($7.3 million) over 2017’s $54,768,689.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 expand the opportunity for new loans. Secured loans as a percent of member’s capital (based on average balances) was 82.0% and 86.2% for 2018 and 2017, respectively.

45

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 December 31, 2018, 77 of the company’s 83 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 December 31, 2018, 60 loans outstanding (representing 62% 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 December 31, 2018 was approximately 54.5%. Thus, per the appraisal-based valuations at the time of loan inception, borrowers have, in the aggregate, equity of 45.5% in the property, and we as lenders have lent in the aggregate 54.5% (including other senior liens on the property) against the properties we hold as collateral for the repayment of our loans.

On June 27, 2018 and December 12, 2018, the company closed on the sales of whole loans (servicing released) comprising a combined principal of $21,995,851 and interest owing of $102,658 to an unaffiliated bank pursuant to an Asset Sale Agreement.  The Asset Sale Agreement contains customary representations, warranties, and covenants. The loan sale transactions were arranged by a third-party, unaffiliated national firm engaged by RMC. The transactions generated an immaterial gain (net of expenses). Loan sales do provide the opportunity to redeploy the proceeds, possibly on better terms than the loans that were sold. Further, the loan originations generate fees to RMC under the Operating Agreement, which could 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 the company’s capital, to pay unreimbursed O&O expenses, and to have RMC’s cash flow exceed the carrying value of its intangible assets.

At December 31, 2018 and 2017 the company held no loans classified as held-for-sale. The determination that loans would be classified as held-for-sale in compliance with GAAP criteria and the completion of the sale occurred within the same reporting periods in 2018.

See Note 4 (Loans) to the financial statements included in Part II, Item 8 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 7.

Performance overview

Revenue from the interest on loans, net in 2018 increased by approximately $1,169,000, over 2017, due to the increased average loan balance of the secured loan portfolio. Operations expense for 2018 increased by approximately $272,000, over 2017 due primarily to the termination of financial support from RMC of our direct operating expenses (e.g., professional services and other direct operating expenses) beginning April 1, 2018, and an increase in mortgage servicing fee expense due to an increased loan portfolio. The net distribution rate, as an annualized percentage of members’ capital, at December 31, 2018 was 5.70%. The net distribution rate for the twelve months ending December 31, 2018 was 5.95%. In all periods presented, the manager, at its sole discretion, provided financial support that increased net income and the return to investors.

46

For the years ended December 31, 2018 and 2017 financial support from RMC totaled approximately $2,031,000 and $1,646,000, respectively. The total financial support increased year over year, however the amount of direct cash support in the form of expenses absorbed by RMC decreased from approximately $370,000 in 2017 to approximately $157,000 in 2018. The amount of support in the form of waived fees, such as loan administrative fees, asset management fees, and costs from RMC, increased during the same period due to increased loan and capital balances. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC.  The decision to waive all or a portion of these fees is made by RMC, in its sole discretion. RMC had communicated in March 2018 its intent, for the company to be paying RMC in full the fees and reimbursements for the qualifying costs attributable to the company entitled to the manager under the Operating Agreement by July 2019. As of March 2019, while reserving its right to collect the amounts owing to it under Operating Agreement, RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) during 2019, such that the full chargeable amount of the asset management fee will be collected in the 4^th quarter of 2019, and there will be a similar incremental phase in of the collection of the cost reimbursements in 2020. See Note 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 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 7.

Analysis and discussion of income from operations 2018 v. 2017

Significant changes to revenue and expenses during 2018 and 2017 are summarized in the following table.

	Interest on loans, net		Provision For Loan Losses		Operations Expense			Net Income
For the years ended
December 31, 2018	$	5,200,702		—		457,848			4,790,272
December 31, 2017		4,031,706		—		185,599			3,869,045
Change	$	1,168,996		—		272,249			921,227
Change
Loan balance increase	$	1,158,649		—		35,168			1,123,481
Loan portfolio effective yield rate		10,347		—		—			10,347
Gain on sale, loans		—		—		—			27,133
Late fees		—		—		—			(2,653	)
Capital balance increase		—		—		315,931			(315,931	)
RMC fees/costs waived		—		—		(315,931	)		315,931
Reduced support from RMC		—		—		212,620			(212,620	)
Other		—		—		24,461			(24,461	)
Change	$	1,168,996		—		272,249			921,227

 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 II, Item 8 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 7. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.

47

Interest on loans, net

Interest on loans increased due to growth of the secured loan portfolio. The portfolio has a strong payment history, with two loans (representing 0.9% of the aggregate principal balance of the company’s loan portfolio) currently designated as in non-accrual status. The Secured loans – average daily balance at December 31, 2018 increased approximately $13.7 million, or approximately 28.8%, over the average daily balance at December 31, 2017.

Provision for loan losses

At December 31, 2018 and 2017, the company had not recorded an allowance for loan losses as all loans had protective equity such that at December 31, 2018 and 2017, collection was deemed probable for amounts owed by the borrower.

Total principal amounts past due more than 90 days at December 31, 2018 and 2017 were $565,685 and $139,643 (representing 0.9% and 0.3% of the aggregate principal balance), respectively.

Operations expense

Operations expense as a percent of interest on loans, net was approximately 8.8% and 4.6% during 2018, and 2017, respectively. The increase in 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), and an increase in the mortgage servicing fees due to an increased average daily loan balance in the secured loan portfolio.

Significant changes to operations expense during 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 years ended
December 31, 2018	$	151,457		—			—			289,053		17,338			457,848
December 31, 2017		116,289		—			—			63,053		6,257			185,599
Change	$	35,168		—			—			226,000		11,081			272,249
Change
Loan balance increase	$	35,168		—			—			—		—			35,168
Capital balance increase		—		112,716			203,215			—		—			315,931
RMC fees/costs waived		—		(112,716	)		(203,215	)		—		—			(315,931	)
Reduced support from RMC		—		—			—			192,151		20,469			212,620
Other		—		—			—			33,849		(9,388	)		24,461
Change	$	35,168		—			—			226,000		11,081			272,249

See Note 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 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 7. 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 $35,168 was consistent with the increase in the average daily secured loan portfolio to $61,069,000, 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 $419,820 and $307,104 for the years ended December 31, 2018 and 2017, respectively. The increase in asset management fees chargeable was due to the increase in total capital. Total members capital at December 31, 2018 and 2017 was approximately $79,198,000 and $66,450,000. Of the total amount chargeable, RMC, at its sole discretion, waived all asset management fees for the years ended December 31, 2018 and 2017, respectively.

48

The asset management fee is chargeable 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.

Costs from RMC, net

Cost incurred by RMC, for which reimbursement could have been requested were $744,901 and $541,686 for the years ended December 31, 2018 and 2017, respectively. RMC, at its sole discretion, waived all reimbursements for the years ended December 31, 2018 and 2017. The increase in costs from RMC, net chargeable was due primarily to an increase to the average daily balance of members’ capital.

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.

Professional services

Professional services consist primarily of legal, audit and tax-compliance expenses. Professional service expense incurred during the years ended December 31, 2018 and 2017 was $432,205 and $398,356, respectively. The increase in professional service expense incurred of $33,849 was due primarily to an increase in audit and legal expenses relating to regulatory compliance. Beginning April 1, 2018, RMI IX paid for all professional service expenses directly. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services. During the years ended December 31, 2018 and 2017, RMC, in its sole discretion, reimbursed $143,152 and $335,303 of professional services, respectively.  

Summary comparison – 4th quarter v. 3rd quarter

Significant changes to income or expense items for the three-month period ended December 31, 2018 compared to the three-month period ended September 30, 2018 is summarized in the following table.

	Interest on loans, net		Provision For Loan Losses		Operations Expense			Net Income
For the three months ended
December 31, 2018	$	1,402,011		—		157,910			1,262,258
September 30, 2018		1,305,044		—		128,665			1,181,152
Change	$	96,967		—		29,245			81,106
Change
Loan balance increase	$	85,331		—		5,047			80,284
Loan Portfolio Effective Yield Rate		11,636		—		—			11,636
Gain on sale, loans		—		—		—			12,887
Late fees		—		—		—			497
Capital balance increase		—		—		9,848			(9,848	)
RMC fees/costs waived		—		—		(9,848	)		9,848
Other		—		—		24,198			(24,198	)
Change	$	96,967		—		29,245			81,106

      The table above displays only significant changes to net income for the period, and is not intended to cross foot.

49

Members’ capital, cash flows and liquidity

Cash flows by business activity are presented in the following table for 2018 and 2017.

	2018			2017
Members’ capital
Contributions by members	$	10,479,930		$	22,214,654
Organization and offering costs, net		(510,692	)		(876,620	)
Formation loan, net		(434,325	)		(1,274,451	)
Distributions and redemptions, net		(4,814,556	)		(2,914,528	)
Cash – members’ capital, net		4,720,357			17,149,055
Loan principal/advances/interest
Principal collected	$	41,506,194		$	27,081,592
Loans sold to non-affiliate, net		22,128,128			—
Loans transferred to affiliates		—			999,995
Interest received, net		5,042,952			3,930,881
Other loan income		18,499			23,038
Loan funding & advances, net		(64,966,301	)		(42,716,323	)
Loans transferred from affiliates		(5,889,819	)		—
Cash – loans, net		(2,160,347	)		(10,680,817	)
Operations expense		(394,909	)		(155,640	)
Deposit on line of credit		—			2,400
Net change in cash	$	2,165,101		$	6,314,998

Distributions breakout by type are presented in the following table for 2018 and 2017.

	2018			2017
DRIP	$	2,420,528		$	1,987,151
Cash		2,042,095			1,609,298
Total	$	4,462,623		$	3,596,449
Percent of members’ capital, electing cash distribution		46	%		45	%

Unit redemptions subject to penalty are presented in the following table for 2018 and 2017.

	2018		2017
Capital redemptions-without penalty	$	1,923,685	$	747,234
Capital redemptions-subject to penalty		810,086		531,912
Total	$	2,733,771	$	1,279,146

Scheduled redemptions at December 31, 2018 were $1,253,669, to be paid in 2019.

The ongoing sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:

• sale of members’ units net of reimbursement to RMC of O&O expenses and net of amounts advanced for the formation loan to RMC;

• units sold pursuant to the DRIP;

• payments from RMC on the outstanding balance of the formation loan;

• borrowers’ monthly principal and interest payments;

• loan payoffs;

• loan sales to unaffiliated 3^rd parties and loan transfers by executed assignment to affiliated mortgage funds; and

50

• a line of credit, if obtained.

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

Scheduled redemptions of members' capital as of December 31, 2018 are presented in the following table.

2019	$	1,253,669
2020		—
2021		—
2022		—
Total	$	1,253,669

The company is obligated, per the Operating agreement, to reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales. As of December 31, 2018, RMC had incurred $3,510,299 of O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC contingent upon the proceeds of future unit sales and future O&O expenses incurred by RMC.

At December 31, 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.

51

Item 7A – Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 8 – Financial Statements and Supplementary Data

A – Financial Statements

The following financial statements of Redwood Mortgage Investors IX, LLC at and for the years ended December 31, 2018 and 2017 are included in Item 8:

Report of Independent Registered Public Accounting Firm	53
Balance Sheets	54
Statements of Income	55
Statements of Changes in Members’ Capital	56
Statements of Cash Flows	57
Notes to Financial Statements	58

B – Financial Statement Schedules

None.

52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members

Redwood Mortgage Investors IX, LLC

San Mateo, California

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Redwood Mortgage Investors IX, LLC (a Delaware Limited Liability Company) (the “Company”) as of December 31, 2018 and 2017, the related statements of income, changes in members’ capital, and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Emphasis of a Matter

As discussed in Note 3, in 2018 and 2017 Redwood Mortgage Corp (the “Manager”), at its sole discretion, provided financial support to the Company that improved net income and the return to investors in the form of waived fees, and by the decision not to seek reimbursement for certain operating costs incurred by the Manager for which reimbursement is allowable under the operating agreement.  Collectively, these actions increased net income to the Company during the years ended December 31, 2018 and 2017 by approximately $2,030,610 and $1,646,077, respectively.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2015.

San Francisco, California

April 1, 2019

53

REDWOOD MORTGAGE INVESTORS IX, LLC

Balance Sheets

December 31, 2018 and 2017

	2018			2017
ASSETS
Cash and cash equivalents	$	10,674,953		$	8,509,852
Loans
Principal		62,115,713			54,768,689
Advances		21,041			13,989
Accrued interest		473,966			409,867
Loan balances secured by deeds of trust		62,610,720			55,192,545
Loan administrative fees, net		—			9,008
Total assets	$	73,285,673		$	63,711,405
LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL
Liabilities - Accounts payable and accrued liabilities	$	9,321		$	180
Commitments and contingencies  (Note 5)
Investors in applicant status		651,500			3,270,312
Members’ capital, net		76,804,195			64,218,001
Receivable from manager (formation loan)		(4,179,343	)		(3,777,088	)
Members’ capital, net, less formation loan		72,624,852			60,440,913
Total liabilities, investors in applicant status and members’ capital	$	73,285,673		$	63,711,405

The accompanying notes are an integral part of these financial statements.

54

REDWOOD MORTGAGE INVESTORS IX, LLC

Statements of Income

For the Years Ended December 31, 2018 and 2017

	2018		2017
Revenues, net
Interest income		5,200,702	$	4,031,706
Late fees		20,285		22,938
Gain on sale, loans		27,133		—
Total revenues		5,248,120		4,054,644
Provision for loan losses		—		—
Operations expense
Mortgage servicing fees		151,457		116,289
Asset management fees, net (Note 3)		—		—
Costs from Redwood Mortgage Corp., net (Note 3)		—		—
Professional services, net (Note 3)		289,053		63,053
Other		17,338		6,257
Total operations expense		457,848		185,599
Net income	$	4,790,272	$	3,869,045
Members (99%)		4,742,369		3,830,355
Managers (1%)		47,903		38,690
	$	4,790,272	$	3,869,045

The accompanying notes are an integral part of these financial statements.

55

REDWOOD MORTGAGE INVESTORS IX, LLC

Statements of Changes in Members’ Capital

For the Years Ended December 31, 2018 and 2017

				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		10,413,923			—			—			—			—
Contributions admitted to members' capital		(13,025,630	)		13,025,630			13,085			—			13,038,715
Premiums paid on application by RMC		52,990			—			—			—			—
Premiums admitted to members' capital		(60,095	)		60,095			—			—			60,095
Net income		—			4,742,369			47,903			—			4,790,272
Earnings distributed to members		—			(4,462,623	)		(38,690	)		—			(4,501,313	)
Earnings distributed used in DRIP		—			2,420,528			—			—			2,420,528
Members’ redemptions		—			(2,733,771	)		—			—			(2,733,771	)
Organization and offering expenses		—			—			—			(591,907	)		(591,907	)
Organization and offering expenses allocated		—			(304,199	)		—			304,199			—
Organization and offering expenses rebated by RMC		—			—			—			81,215			81,215
Early withdrawal penalties		—			—			—			22,360			22,360
Balance at December 31, 2018	$	651,500		$	79,198,453		$	125,200		$	(2,519,458	)	$	76,804,195

				Members' Capital, net
	Investors In Applicant Status			Members’ Capital			Manager’s Capital			Unallocated Organization and Offering Expenses			Members’ Capital, net
Balance at December 31, 2016	$	1,408,185		$	45,405,776		$	69,965		$	(1,698,731	)	$	43,777,010
Contributions on application		22,061,531			—			—			—			—
Contributions admitted to members' capital		(20,204,759	)		20,204,759			20,332			—			20,225,091
Premiums paid on application by RMC		132,699			—			—			—			—
Premiums admitted to members' capital		(127,344	)		127,344			—			—			127,344
Net income		—			3,830,355			38,690			—			3,869,045
Earnings distributed to members		—			(3,596,449	)		(26,085	)		—			(3,622,534	)
Earnings distributed used in DRIP		—			1,987,151			—			—			1,987,151
Members’ redemptions		—			(1,279,146	)		—			—			(1,279,146	)
Organization and offering expenses		—			—			—			(919,870	)		(919,870	)
Organization and offering expenses allocated		—			(229,366	)		—			229,366			—
Organization and offering expenses rebated by RMC		—			—			—			43,252			43,252
Early withdrawal penalties		—			—			—			10,658			10,658
Balance at December 31, 2017	$	3,270,312		$	66,450,424		$	102,902		$	(2,335,325	)	$	64,218,001

The accompanying notes are an integral part of these financial statements.

56

REDWOOD MORTGAGE INVESTORS IX, LLC

Statements of Cash Flows

For the Years Ended December 31, 2018 and 2017

	2018			2017
Operations
Interest received	$	5,039,822		$	3,909,607
Other loan income		18,499			23,038
Loan administrative fee reimbursed (paid)		3,130			21,274
Operations expense		(394,909	)		(155,640	)
Total cash provided by (used in) operations		4,666,542			3,798,279
Investing – loan principal/advances
Principal collected on loans		41,506,194			27,081,592
Loans originated		(64,959,250	)		(42,726,883	)
Loans sold to non-affiliate, net		22,128,128			—
Loans transferred to affiliates		—			999,995
Loans transferred from affiliates		(5,889,819	)		—
Advances (made) received on loans		(7,051	)		10,560
Total cash provided by (used in) investing		(7,221,798	)		(14,634,736	)
Financing – members’ capital
Deposit on line of credit		—			2,400
Contributions by members, net
Contributions by members		10,479,930			22,214,654
Organization and offering expenses paid, net		(510,692	)		(876,620	)
Formation loan funding		(779,964	)		(1,509,594	)
Formation loan collected		345,639			235,143
Total cash provided by members, net		9,534,913			20,063,583
Distributions to members
Earnings distributed		(2,080,785	)		(1,635,382	)
Redemptions		(2,733,771	)		(1,279,146	)
Cash distributions to members		(4,814,556	)		(2,914,528	)
Total cash provided by (used in) financing		4,720,357			17,151,455
Net increase (decrease) in cash		2,165,101			6,314,998
Cash, beginning of period		8,509,852			2,194,854
Cash, December 31,	$	10,674,953		$	8,509,852

	2018			2017
Net income	$	4,790,272		$	3,869,045
Adjustments to reconcile net income to net cash provided by    (used in) operating activities
(Gain) on sale, loans		(27,133	)		—
Amortization of loan administrative fees		5,878			—
Change in operating assets and liabilities
Accrued interest		(166,758	)		(122,101	)
Loan administrative fees reimbursed (paid)		3,130			21,274
Accounts payable		3,419			—
Other		57,734			30,061
Total adjustments		(123,730	)		(70,766	)
Total cash provided by (used in) operations	$	4,666,542		$	3,798,279

The accompanying notes are an integral part of these financial statements.

57

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

NOTE 1 – ORGANIZATION AND GENERAL

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 is externally managed by Redwood Mortgage Corp (“RMC” or “the manager”). 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 company to conduct its business as the company has no employees of its own. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC.

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.

The following is a summary of certain provisions of the Operating Agreement and is qualified in its entirety by the terms of the agreement itself. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions.

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 (net of redemption of members’ capital and operating expenses) from

• sale of members’ units net of reimbursement to RMC of organization and offering expenses (“O&O expenses”) and net of amounts advanced for the formation loan to RMC, including units sold by reinvestment of distributions;

• payments from RMC on the outstanding balance of the formation loan;

• borrowers’ monthly principal and interest payments;

• loan payoffs;

• loan sales to unaffiliated 3^rd parties and loan transfers by executed assignment to affiliated mortgage funds; and

• a line of credit, if obtained.

Net income or loss is allocated among the members according to their respective capital accounts monthly after one percent (1%) of net income or loss is allocated to the manager. RMC’s allocated one percent (1%) of the net income was $47,903 and $38,690 for the years ended December 31, 2018 and 2017, respectively. 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.

58

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’ accounts for the applicable period pursuant to the company’s reimbursement to RMC and allocation to members’ accounts 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.

See Note 3 (Manager and Other Related Parties) to the financial statements for a detailed discussion on the allocation of O&O to members’ accounts.

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.

To determine the amount of cash to be distributed in any specific month, the company relies in part on its forecast of full year 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 December 31, 2018 cumulative year to date earnings (estimated) allocated to members’ accounts was $4,766,822 and net income available to members (actual) was $4,742,369. The difference between earnings allocated to members’ account and net income available to members of $24,453 is expected to be offset by future earning in excess of the net distribution rate in 2019.

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;

• the amount and timing of other operating expenses, including expenses for professional services;

• financial support, if any, from RMC; and

• payments from RMC on the outstanding balance of the formation loan.

Financial Support from RMC

Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:

• 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, and in certain periods, all of the company’s direct expenses, such as professional fees.

59

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Such fee and cost-reimbursement waivers and the absorption 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 Operating Agreement 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.

Financial support from RMC maintained the company’s annual 6.5% net distribution rate for periods prior to February 28, 2018.  In March 2018, RMC communicated to the members’ planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly.  

In March 2018 the net distribution rate as an annualized percentage of members’ capital decreased from 6.5% to 6.0%. In April 2018, the company commenced paying in full its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.).

RMC had communicated in March 2018 its intent, for the company to be paying RMC in full the fees and reimbursements for the qualifying costs attributable to the company entitled to the manager under the Operating Agreement by July 2019.  While reserving its right to collect the amounts owing to it under Operating Agreement, RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) during 2019, such that the full chargeable amount of the asset management fee will be collected for and in the 4^th quarter and to similarly phase in collection of the cost reimbursements in 2020.

The net distribution rate, as an annualized percentage of members’ capital, for December 2018 was 5.70%. The net distribution rate for the year ended December 2018 was 5.95%.

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

There are substantial restrictions on transferability of units, and 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 maximum number of units which may be redeemed per quarter per individual member shall not exceed the greater of (i) 100,000 units, or (ii) 25% of the member’s total outstanding units. 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.

60

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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. As provided in the Operating Agreement, 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. In the event unit withdrawal requests exceed 5% in any calendar year, units will be redeemed in the priority provided in the Operating Agreement.

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 units 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 December 31, 2018 the company had made advances totaling $5,439,910, of which $4,179,344 remain outstanding on the formation loan.

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

Proceeds from sales of units from inception (October, 2009) through December 31, 2018 are summarized below.

	Proceeds
From investors - admitted	$	76,938,987
From members under our DRIP		8,653,123
From premiums paid by RMC(1)		349,199
Total proceeds from unit sales	$	85,941,309

(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.

61

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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 December 31, 2018, the company had sold approximately 85,941,000 units– 39,407,000 units under previous registration statements and approximately 46,534,000 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 $46,534,000, respectively.

The June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 will cease due to the company electing not to update its S-11 filing prior to April 30, 2019 as doing so would not be cost effective. RMC is considering a registration statement to be filed in the second quarter of 2019 to continue to offer units pursuant to the DRIP.

Use of Proceeds from sale of units

The proceeds from the sale of the units will be used 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.

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.

62

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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 December 31, 2018, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating.

Loans and interest income

Performing loans are carried at amortized costs which is generally equal to 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.

63

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent 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.

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. 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.

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.

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 delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. 

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. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds 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.

64

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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 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. The manager expects to adopt the ASU for interim and annual reporting in 2020.

RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral.  The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position.

-Accounting and Financial Reporting for Revenue Recognition

On May 28, 2014, the FASB issued a final ASU 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 was effective January 1, 2018, and has been adopted using the modified retrospective approach.

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 is entitled to 1% of the net income or loss of the company. See Note 1 (Organization and General).

65

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Manager financial support (RMC support)

RMC support provided, as detailed below, totaled approximately $2,031,000 and $1,646,000 for the years ended December 31, 2018 and 2017, respectively. The total financial support increased year over year, however the amount of direct cash support in the form of expenses absorbed by RMC decreased from approximately $370,000 in 2017 to approximately $157,000 in 2018. The amount of support in the form of waived fees, such as loan administrative, asset management fees, and costs from RMC, increased during the same period due to increased loan and capital balances. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC.  The decision to waive all or a portion of these fees is made by RMC, in its sole discretion.

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC for the year ended December 31, 2018 is presented in the following table.

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee			Costs from RMC			Professional Services			Other			Total
2018
Chargeable/reimbursable	$	708,491		$	151,457	$	419,820		$	744,901		$	432,205		$	31,584		$	2,488,458
RMC support
Waived		(708,491	)		—		(419,820	)		(744,901	)		—			—			(1,873,212	)
Expenses absorbed by RMC		—			—		—			—			(143,152	)		(14,246	)		(157,398	)
Total RMC support		(708,491	)		—		(419,820	)		(744,901	)		(143,152	)		(14,246	)		(2,030,610	)
Net charged	$	—		$	151,457	$	—		$	—		$	289,053		$	17,338		$	457,848

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC for the year ended December 31, 2017 is presented in the following table

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee                         (as Revised)			Costs from RMC			Professional Services			Other			Total
2017
Chargeable/reimbursable	$	427,269		$	116,289	$	307,104		$	541,686		$	398,356		$	40,972		$	1,831,676
RMC support
Waived		(427,269	)		—		(307,104	)		(541,686	)		—			—			(1,276,059	)
Expenses absorbed by RMC		—			—		—			—			(335,303	)		(34,715	)		(370,018	)
Total RMC support		(427,269	)		—		(307,104	)		(541,686	)		(335,303	)		(34,715	)		(1,646,077	)
Net charged	$	—		$	116,289	$	—		$	—		$	63,053		$	6,257		$	185,599

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. Loan administrative fees collected prior to August 2015 were amortized over the contractual life of the loan. The loan administrative fees were fully amortized at December 31, 2018. 

66

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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. 

Asset management fees

RMC is entitled to receive a monthly asset management fee for managing the business affairs of 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 asset management fee waivers by the first quarter of 2019. 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 was $408,535 for the year ended December 31, 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 through 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 beginning in 2019 or 2020.

Professional Services

Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses.

Beginning April 1, 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).

67

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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.

During 2018 and 2017 certain performing loans were transferred by an executed assignment between the affiliated mortgage funds in-full at par. Specifically, during 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, transferred to the company two performing loans in-full at par value, which approximates fair 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. During 2017, the company transferred one loan at par value of approximately $1,000,000 to Redwood Mortgage Investors VIII, LP.

Formation loan

Formation loan transactions are presented in the following table.

	For the twelve months ended			Since Inception
Balance, beginning of period	$	3,777,088		$	—
Formation loan advances to RMC		779,964			5,439,910
Payments received from RMC		(345,639	)		(1,199,716	)
Early withdrawal penalties applied		(32,070	)		(60,851	)
Balance, December 31, 2018	$	4,179,343		$	4,179,343
Subscription proceeds since inception				$	77,590,487
Formation loan advance rate					7	%

The future minimum payments on the formation loan of December 31, 2018 are presented in the following table.

2019	$	417,934
2020		417,934
2021		417,934
2022		417,934
2023		417,934
Thereafter		2,089,673
Total	$	4,179,343

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.

68

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

The table below presents the company’s unit redemptions for the years ended December 31, 2018 and 2017.

	2018		2017
Capital redemptions-without penalty	$	1,923,685	$	747,234
Capital redemptions-subject to penalty		810,086		531,912
Total	$	2,733,771	$	1,279,146

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 rebated to the company by the manager.

O&O expenses are summarized in the following table.

	2018			Since Inception
Balance, January 1	$	2,335,325		$	—
O&O expenses reimbursed to RMC		591,907			3,486,521
Early withdrawal penalties applied (1)		(22,360	)		(40,875	)
O&O expenses allocated(2)		(304,199	)		(686,356	)
O&O expenses rebated by RMC (3)		(81,215	)		(239,832	)
Balance, December 31	$	2,519,458		$	2,519,458

(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 rebates the company for  any yet unallocated O&O expenses attributed to units redeemed prior to the 40 quarters.

Per the Operating Agreement, RMI IX reimburses RMC for O&O expenses at 4.5% gross proceeds from future unit sales. At December 31, 2018, RMC had incurred $3,510,299 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. Any O&O expenses with respect to a member’s units that remain unallocated upon redemption of such units shall be rebated to the company by the manager. As of December 31, 2018, the company estimated future rebates on scheduled redemptions to be $42,000.

69

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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 December 31, 2018, 77 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 provision. As of December 31, 2018, 60 loans outstanding (representing 62% of the aggregate principal balance of the company’s loan portfolio) provide from monthly payments of principal and interest, typically calculated on a 30-year amortization schedule, 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 2018 and 2017.

	2018			2017
Principal, beginning of period	$	54,768,689		$	40,123,393
Loans originated		64,959,250			40,346,883
Loans transferred from affiliates		5,889,819			2,380,000
Loans transferred to affiliates		—			(999,995	)
Loans sold to non-affiliate		(21,995,851	)		—
Principal payments received		(41,506,194	)		(27,081,592	)
Principal, December 31, 2018	$	62,115,713		$	54,768,689

For the years ended December 31, 2018 and 2017, the company renewed eight and six loans respectively, at then market terms, with an aggregate principal balance of $5,004,614 and $1,823,000, which are not included in the activity shown in the table above. See Note 3 (Manager and Other Related Parties) for a description of loans transferred by executed assignments between affiliates. The company originates loans with the intent to hold the loans until maturity. From time to time the company may sell certain loans.  Loans are classified as held-for-sale once a decision has been made to sell loans and loans held-for-sale have been identified.

On June 27, 2018 and December 12, 2018, the company closed on the sales of whole loans (servicing released) comprising a combined principal of $21,995,851 and interest owing of $102,658 to an unaffiliated bank pursuant to an Asset Sale Agreement.  The Asset Sale Agreement contains customary representations, warranties, and covenants.  The loan sale transaction was arranged by a third-party, unaffiliated national firm engaged by RMC. The transaction generated an immaterial gain (net of expenses).

At December 31, 2018 and 2017 the company held no loans classified as held-for-sale. The determination that loans would be classified as held-for-sale in compliance with GAAP criteria and the completion of the sale occurred within the same reporting periods in 2018.

70

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Loan characteristics

	December 31,			December 31,
	2018			2017
Number of secured loans		83			93
Secured loans – principal	$	62,115,713		$	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	$	748,382		$	588,911
Average principal as percent of total principal		1.2	%		1.1	%
Average principal as percent of members’ capital, net		1.0	%		0.9	%
Average principal as percent of total assets		1.0	%		0.9	%
Largest secured loan – principal	$	4,000,000		$	3,239,124
Largest principal as percent of total principal		6.4	%		5.9	%
Largest principal as percent of members’ capital, net		5.2	%		5.0	%
Largest principal as percent of total assets		5.5	%		5.1	%
Smallest secured loan – principal	$	74,390		$	52,562
Smallest principal as percent of total principal		0.1	%		0.1	%
Smallest principal as percent of members’ capital, net		0.1	%		0.1	%
Smallest principal as percent of total assets		0.1	%		0.1	%
Number of California counties where security is located		15			16
Largest percentage of principal in one California county		25.0	%		22.6	%
Number of secured loans with filed notice of default		2			1
Secured loans in foreclosure – principal	$	565,685		$	139,643
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

As of December 31, 2018, the company’s largest loan with principal of $4,000,000 represents 6.4% of outstanding secured loans and 5.5% of company assets. The loan is secured by a multi-family property located in San Diego county, bears an interest rate of 8.9% and matures on September 1, 2021. As of December 31, 2018, the company had 2 loans with filed notices of default. As of December 31, 2018, the company had no construction loans outstanding and had no rehabilitation loans outstanding. As of December 31, 208, the company had no commitments to fund construction or rehabilitation loans.

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 December 31, 2018, the trust held a balance relating to the company’s loan portfolio of $67,214 consisting of both principal and interest payments from borrowers, all of which were disbursed by January 17, 2019.

71

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Lien position

Secured loans had the lien positions in the following table.

	December 31, 2018								December 31, 2017
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		41	$	29,699,888			48	%		60	$	37,032,195			68	%
Second trust deeds		42		32,415,825			52			33		17,736,494			32
Total principal, secured loans		83		62,115,713			100	%		93		54,768,689			100	%
Liens due other lenders at loan closing				65,941,118								31,545,806
Total debt			$	128,056,831							$	86,314,495
Appraised property value at loan closing			$	240,307,000							$	181,018,000
Percent of total debt to appraised values    (LTV) at loan closing(1)				54.5	%							53.5	%

(1) based on appraised values and liens due to 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 included 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 as of December 31, 2018 and 2017.

	December 31, 2018							December 31, 2017
	Loans		Principal		Percent			Loans		Principal		Percent
Single family(2)		60	$	42,967,253		69	%		67	$	37,615,216		69	%
Multi-family		8		8,210,970		13			5		2,164,861		4
Commercial		15		10,937,490		18			21		14,988,612		27
Total principal, secured loans		83	$	62,115,713		100	%		93		54,768,689		100	%

(2) single family property type as of December 31, 2018 consists of 14 loans with principal of $11,398,869 that are owner occupied and 46 loans with principal of $31,568,384 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 $31,306,180 that are non-owner occupied.

72

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Distribution of loans in California

The distribution of secured loans by counties is presented in the following table as of December 31, 2018 and 2017.

	December 31, 2018					December 31, 2017
	Principal		Percent			Principal		Percent
San Francisco Bay Area(3)
Santa Clara	$	11,756,695		18.9	%		5,461,084		10.0	%
San Mateo		9,619,609		15.5			7,800,549		14.2
Alameda		7,306,779		11.8			9,869,036		18.0
San Francisco		5,238,008		8.4			8,338,720		15.1
Sonoma		1,300,000		2.1			—		—
Contra Costa		725,771		1.2			1,511,195		2.8
Marin		575,000		0.9			—		—
Solano		—		—			109,443		0.2
		36,521,862		58.8			33,090,027		60.3
Other Northern California
Sacramento		822,500		1.3			850,000		1.6
Placer		637,354		1.0			642,913		1.2
Monterey		322,716		0.5			—		—
Yolo		—		—			174,758		0.3
San Joaquin		—		—			157,039		0.3
		1,782,570		2.8			1,824,710		3.4
Northern California Total		38,304,432		61.6			34,914,737		63.7
Los Angeles & Coastal
Los Angeles		15,514,789		25.0			12,357,456		22.6
San Diego		5,563,635		9.0			2,192,746		4.0
Orange		1,177,446		1.9			1,487,747		2.7
Santa Barbara		—		—			996,768		1.8
Ventura		—		—			350,000		0.6
		22,255,870		35.9			17,384,717		31.7
Other Southern California
San Bernardino		1,200,000		1.9			2,110,000		3.9
Riverside		355,411		0.6			359,235		0.7
		1,555,411		2.5			2,469,235		4.6
Southern California Total		23,811,281		38.4			19,853,952		36.3
Total principal, secured loans	$	62,115,713		100.0	%	$	54,768,689		100.0	%

(3) Includes Silicon Valley

73

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table as of December 31, 2018.

	Loans		Principal		Percent
2019		36	$	33,004,666		53	%
2020		19		13,918,222		23
2021		16		11,315,211		18
2022		5		1,425,710		2
2023		3		839,097		1
Thereafter		1		200,000		1
Total future maturities		80		60,702,906		98
Matured as of December 31, 2018(4)		3		1,412,807		2
Total principal, secured loans		83	$	62,115,713		100	%

(4) One loan with a principal balance of approximately $136,900, was 609 days past maturity, designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019, resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, and were 91 days past maturity and designated as impaired as of December 31, 2018, paid off in-full in March 2019.

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 December 31, 2018 and 2017.

	December 31, 2018				December 31, 2017
	Loans		Principal		Loans		Principal
Past Due
30-89 days		5	$	3,828,975		3	$	1,259,100
90-179 days		—		—		—		—
180 or more days(5)		2		565,685		1		139,643
Total past due		7		4,394,660		4		1,398,743
Current		76		57,721,053		89		53,369,946
Total principal, secured loans		83	$	62,115,713		93	$	54,768,689

(5) One loan with a principal balance of approximately $136,900, was 609 days delinquent and past maturity, designated as impaired and as in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

74

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Loan in non-accrual status

	December 31, 2018		December 31, 2017
Number of loans(6)	$	2	$	1
Principal		565,685		139,643
Advances		10,688		969
Accrued Interest		19,831		11,025
Total recorded investment	$	596,204	$	151,637
Foregone interest	$	33,410	$	4,306

(6) One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

No loans were 90 or more days delinquent as to principal or interest and not in non-accrual status at December 31, 2018 or 2017.

Impaired loans/allowance for loan losses

	December 31, 2018		December 31, 2017
Principal	$	3,841,148	$	139,643
Recorded investment		3,950,157		151,637
Impaired loans without allowance		3,950,157		151,637
Impaired loans with allowance		—		—
Allowance for loan losses, impaired loans		—		—
Number of loans(7)		6		1

(7) One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, were designated as impaired as of December 31, 2018, paid off in-full in March 2019

Six and one loans were designated as impaired at December 31, 2018 and 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) such that collection is reasonably assured for all amounts owing.

Impaired loans had average balances and interest income recognized received in cash as presented in the following tables as of and for the years ending December 31, 2018 and 2017.

	December 31, 2018		December 31, 2017
Average recorded investment	$	2,050,897	$	536,934
Interest income recognized		23,848		8,602
Interest income received in cash		21,670		4,342

Modifications and troubled debt restructurings

No loan payment modifications were made during 2018 or 2017 and no modifications were in effect at December 31, 2018 or 2017.

Fair Value

The company does not record its performing loans at fair value on a recurring basis as it is the intention of the company to hold loans until maturity. In 2018, certain performing loans were sold, at an immaterial gain (net of expenses), in the same reporting period as when they would have been classified as held-for-sale. Therefore, the recorded amount of the preforming 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 foregone interest, if any).

75

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis when the net realizable value of the real property collateral is determined to be less than the loan balance. No impaired loans were measured at fair value on a non-recurring basis at and for the periods ending December 31, 2018 or 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. The fair value of loan balances secured by deeds of trust is deemed to approximate the recorded amount (per the financial statements) as our loans:

• are of shorter terms at origination than commercial real estate loans by institutional lenders;

• are written without a prepayment penalty causing uncertainty/a lack of predictability as to the expected duration of the loan; and

• have limited marketability and are not yet sellable into an established secondary market.

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.

76

REDWOOD MORTGAGE INVESTORS IX, LLC

(A Delaware Limited Liability Company)

Notes to Financial Statements

December 31, 2018 and 2017

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

Scheduled redemptions of members’ capital as of December 31, 2018 are presented in the following table.

2019	$	1,253,669
2020		—
2021		—
2022		—
Total	$	1,253,669

The company is obligated, per the Operating Agreement, to reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales. As of December 31, 2018, RMC had incurred $3,510,299 of O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC contingent upon the proceeds of future unit sales and the future O&O expenses incurred by RMC.

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, other than the loan transactions described in Note 4 – Loans to the financial statements of this report.

77

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A – 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.

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 and as of the year ended December 31, 2018. Based upon that evaluation, RMC's principal executive officer/principal financial officer concluded that the manager's disclosure controls and procedures were effective.

Manager’s Report on Internal Control over Financial Reporting

RMC, as the manager, is responsible for establishing and maintaining adequate internal control over financial reporting; as such term is defined in the Exchange Act Rule 13a-15(f). The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

RMC, with the participation of RMC's principal executive officer/principal financial officer, conducted an evaluation of the effectiveness of the manager's internal control over financial reporting based on the Internal Control - Integrated Framework (1992 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, management concluded that its internal control over financial reporting was effective as of December 31, 2018.

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.

Item 9B – Other Information

None.

78

Part III

Item 10 – Directors, Executive Officers and Corporate Governance

The company is externally managed by Redwood Mortgage Corp. (or RMC or the manager). 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.

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 company’s 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 manager, vote to:

• dissolve the company;

• amend the Operating Agreement, subject to certain limitations;

• approve or disapprove the sale of all or substantially all of the assets of the company; or

• remove or replace the manager.

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.

The Manager

Redwood Mortgage Corp.   Redwood Mortgage Corp. is a licensed real estate broker incorporated in 1978 under the laws of the State of California, and is engaged primarily in the business of arranging and servicing mortgage loans. Redwood Mortgage Corp. will act as the loan broker and servicing agent in connection with loans, as it has done on behalf of several other affiliate of mortgage funds formed by the manager.

Officers and Directors

Michael R. Burwell. Michael R. Burwell, age 62, President, Secretary/Treasurer and, Director, Redwood Mortgage Corp. (1979-present); Director, Secretary and Treasurer A & B Financial Services, Inc. (1980-2009); President, Director, Chief Financial Officer and Secretary of Gymno Corporation (1986-September 2011) and, the manager of Gymno LLC, the entity into which Gymno Corporation was converted (September 2011- June 30, 2015); President, Director, Secretary and Treasurer of The Redwood Group, Ltd. (1979-September 2011); past member of Board of Trustees and Treasurer, Mortgage Brokers Institute (1984-1986). Mr. Burwell is licensed as a real estate sales person. Mr. Burwell was a general partner of each of the RMI, RMI II, RMI III, RMI IV, RMI V, RMI VI, and RMI VII limited partnerships. Mr. Burwell is a general partner of RMI VIII limited partnership. Mr. Burwell attended the University of California, at Davis from 1975-1979, playing NCAA soccer for three seasons.

Lorene A. Randich. Lorene A. Randich, age 61, Executive Vice President of Lending Operations, joined Redwood Mortgage Corp. in 1991, and has served as a Director since November 2011. Ms. Randich has held the real estate broker’s license of record for Redwood Mortgage Corp. since November 2011. Ms. Randich has been a licensed real estate broker since 1996. She is a member of the National Association of Realtors, the California Mortgage Bankers Association, the California Association of Mortgage Professionals (Board Member–San Francisco/Peninsula Chapter) and the California Mortgage Association (Board Member and Education Committee Chairperson). Ms. Randich received a BA from UC Berkeley in 1980.

79

Thomas R. Burwell. Thomas R. Burwell, age 51, joined Redwood Mortgage Corp. in 2007 and has served as Marketing and Sales Director since 2012; Loan Officer-Builder Division Wells Fargo Bank, N.A (Westwood, CA 2005-2007); Loan Officer, Wells Fargo Bank, N.A. (Beverly Hills 2004-2005); Loan Officer Wells Fargo Bank, N.A. (New York, NY 2002-2004). Mr. Burwell is a member of the Financial Planning Association, San Francisco, CA. Mr. Burwell received a BA from the University of California at Davis in 1990. Mr. Burwell is a former ATP (Association of Tennis Professionals) world tour professional and was a NCAA Team and Individual Finalist, Team Captain, (Three-time) All-American, #1 Singles and #1 Doubles Player for University of California at Davis. Thomas R Burwell is the brother of Michael R. Burwell.

Financial Oversight by Manager

The company does not have a board of directors or an audit committee. Accordingly, the manager serves the equivalent function of an audit committee for, among other things, the following purposes: appointment, compensation, review and oversight of the work of our independent public accountants, and establishing the enforcing of the Code of Ethics. However, since the company does not have an audit committee and the manager is not independent of the company, the company does not have an “audit committee financial expert.”

Code of Ethics

The manager has adopted a Code of Ethics applicable to the manager and to any agents, employees or independent contractors engaged by the manager to perform the functions of a principal financial officer, principal accounting officer or controller of the company, if any. You may obtain a copy of this Code of Ethics, without charge, upon request by calling our Investor Services Department at (650) 365-5341, option 5.

Item 11 – Executive Compensation

The company does not pay any compensation to the officers and directors of our manager for the services they provide to RMC.

As indicated above in Item 10, the company is externally managed and has no officers or directors. 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.

RMC is the manager of the company. The mortgage loans the company invests in are arranged and are generally serviced by RMC. Michael R. Burwell is the president and majority shareholder (through his holdings and beneficial interests in certain trusts) of RMC.

Compensation of the Manager

The company’s Operating Agreement permits certain fees and cost reimbursements to be paid to the manager. See Note 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 of this report for a presentation of fees and cost reimbursements to the Manager, which presentation is incorporated herein by reference.

In addition to the fees and reimbursements paid by the company, RMC receives compensation directly from the borrowers, including brokerage commissions on loan originations. In 2018, RMC received brokerage commissions of approximately $1,344,000 related to loan originations made by the company.

Item 12 – Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters

No person or entity owns beneficially more than five percent (5%) of the units. The manager does not own any units, but has, per the provisions of the company’s Operating Agreement, made capital contributions of one-tenth of one percent (0.1%) of the aggregate capital accounts of the members, and is allocated one percent (1%) of the net income and losses of the company.

80

Item 13 – Certain Relationships and Related Transactions, and Director Independence

See Note 1 (Organization and General) and Note 3 (Manager and Other Related Parties) to the Financial Statements in Part II item 8, which describes certain relationships and related transactions and related party fees.

The company is managed externally and does not have the equivalent of independent directors.

See Note 3 (Manager and Other Related Parties) to the financial statements included in Part II, Item 8 of this report for amounts received by the manager in fiscal years 2018 and 2017. The tables in Note 3 also include certain professional service fees that the manager paid on behalf of the company.

Item 14 – Principal Accountant Fees and Services

Fees for services performed for the company by the principal accountant for 2018 and 2017 are as follows:

Audit Fees. The aggregate fees during 2018 and 2017 for professional services rendered for the audit of the company’s annual financial statements included in the company’s Annual Report on Form 10-K, review of financial statements included in the company’s Quarterly Reports on Form 10-Q and for services provided in connection with regulatory filings were approximately $144,100 and $193,600, respectively.

Audit Related Fees. There were no fees during 2018 and 2017 for audit-related services.

Tax fees. There were no fees during 2018 and 2017 for tax related services

All Other Fees. There were no other fees during 2018 and 2017.

All audit and non-audit services are approved by the manager prior to the accountant being engaged by the company.

81

Part IV

Item 15 – Exhibits and Financial Statement Schedules

A. Documents filed as part of this report are incorporated:

1. In Part II, Item 8 under A – Financial Statements.

2. None.

3. Exhibits.

Exhibit No.	Description of Exhibits
3.2	Certificate of Formation*
3.3	First Amendment to Ninth Amended and Restated Limited Liability Company Operating Agreement of Redwood Mortgage Investors IX, LLC dated June 20, 2018 (incorporated by reference the form 8-k filed with the SEC on June 22, 2018)
4.1	Subscription Agreement and Power of Attorney, including Special Notice for California Residents*
10.1	Form of Distribution Reinvestment Plan*
10.2	Loan Servicing Agreement*
10.3	Form of Note*
10.4	Form of Deed of Trust*
10.5	Form of Participating Broker-Dealer Agreement*
10.6	Form of Advisory Agreement**
10.7	Form of Formation Loan Promissory Note*
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	Report by Redwood Mortgage Corp. of the estimated fair value at December 31, 2018 of a unit of Redwood Mortgage Investors IX, LLC
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

* Incorporated by reference to the item under the corresponding exhibit number in the registrant’s annual report on Form 10-K for the fiscal year ended December 31, 2015 (File no. 000-55601).

** Incorporated by reference to Exhibit 10.7 in the registrant’s quarterly report on Form 10-Q for the nine months ended September 30, 2016 (File no. 000-55601).

Item 16 – Form 10-K Summary

None.

82

SIGNATURES

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: April 1, 2019	By:	Redwood Mortgage Corp., Manager
		By:	/s/ Michael R. Burwell
		Name:	Michael R. Burwell
		Title:	President, Secretary/Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity indicated on the 1st day of April, 2019.

Signature	Title
/s/ Michael R. Burwell	President, Secretary/Treasurer Redwood Mortgage Corp.
Michael R. Burwell	(Principal Executive, Financial and Accounting Officer); Director of Redwood Mortgage Corp.
/s/ Lorene A. Randich	Director of Redwood Mortgage Corp.
Lorene A. Randich
/s/ Thomas R. Burwell	Director of Redwood Mortgage Corp.
Thomas R. Burwell

83

EX-31.1

Exhibit 31.1

PRESIDENT’S CERTIFICATION

I, Michael R. Burwell, certify that:

1. I have reviewed this annual report on Form 10-K 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

Michael R. Burwell, President,

(principal executive officer and principal financial officer)

Redwood Mortgage Corp.,

Manager

April 01, 2019

EX-32.1

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 Annual Report of Redwood Mortgage Investors IX, LLC (the “Company”) on Form 10-K for the period ended December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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

April 01, 2019

EX-99.1

Exhibit 99.1

Redwood Mortgage Corp., Manager                     March 28, 2019

Redwood Mortgage Investors IX, a Delaware Limited Liability Company

Fair Value per Unit at December 31, 2018

Background

Redwood Mortgage Corp. (RMC or the manager) obtained information regarding the fair value of a unit of member’s interest and of net assets at December 31, 2018 (the valuation date) for Redwood Mortgage Investors IX, a Delaware Limited Liability Company (RMI IX or the company). An independent valuation firm that provides asset valuations to retirement plan sponsors, plan administrators, banking and trust companies, and ERISA plans performed the unit value 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 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.  The market approach was utilized in deriving the fair values, net of costs to sell. The cost approach was utilized in the valuation of cash, loan advances, accrued interest and other short term assets and liabilities that turnover and/or reprice frequently.

As of the valuation date, RMI IX had total assets with a book value of approximately $73.3 million, the primary components of which were $10.7 million in cash and $62.1 million in principal in 83 secured loans.  Partners’ capital was $72.6 million, net of the formation loan of $4.2 million at December 31, 2018.  The fair value of the loan portfolio approximates the book value.

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 $1.00.

RMI IX membership units have restrictions on transferability and redemptions, including a minimum investment period of five years and a maximum total annual redemption of five percent (5%) of beginning members’ capital. The company’s operating agreement provides that members may withdraw all or a portion of their capital accounts in quarterly installments or longer, as determined by RMC in light of the company’s cash flow and subject to the 5% annual maximum for the company.  There is also a limited right of liquidation for an investor’s heirs upon an investor’s death. The company has established a cash reserve but it is not specifically allocated to fund withdrawals and, accordingly, the company’s capacity to return capital is subject to the availability of cash. A members’ capital account continues to receive distributions equal to its pro-rata share of the company’s net income in the period during which the balance is being redeemed.

The asset value of the $1 per unit redemption price considering the redemption restrictions and the characteristics of the investment assets and the projected net income therefrom (including during the period the members’ capital is being redeemed) was determined to be $1.08. As redemptions are capped at $1.00 per unit, the determined fair value per unit is $1.00.

Redwood Mortgage Investors IX Per Unit Fair Value                                                                                      Page | 2

Valuation of the Commercial Mortgage Loan Portfolio

The fair value of the loan portfolio approximates the book value as evidenced by the nominal gain on sale net of the cost to sell for the two loan sales as RMI IX’s loans:

- Are of shorter terms at origination than commercial real estate loans by institutional lenders;

- Are written without a prepayment penalty causing uncertainty/ lack of predictability as the expected duration of the loan; and

- Have limited marketability and are not yet sellable into an established secondary market.

The two loan sales in 2018 were negotiated between our manager and the buyer who was not yet willing to pay a significant premium commensurate with the interest rate premium of the loans and the low loan to value ratios, the location (i.e. San Francisco Bay Area and Los Angeles, coastal Southern California) and other characteristics of the underlying collateral.

At December 31, 2018, RMI IX had a loan portfolio with a principal balance of $62.115 million. These commercial mortgage loans were secured by single-family residences (69%), multi-family (13%), and commercial properties (18%). The primary collateral is located in the San Francisco Bay Area (59%), Los Angeles/coastal southern California (36%) and other regions in California (5%).

RMC projects credit losses at the time of loan funding to be zero dollars due to the low LTV’s at origination and the location of the collateral in favorable real estate markets. Management reviews the values of collateral periodically to validate the “protective equity.”  

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, 2018, 2017 and 2016

° Historical capital contributions and redemptions

° Detailed loan trial balance as of December 31, 2018

° The 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

° Various industry sources regarding the general economic and mortgage industry outlook

° 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 methodologies used to estimate the fair value of the loan portfolio;

Redwood Mortgage Investors IX Per Unit Fair Value                                                                                      Page | 3

° Obtained the loan sales data required to calculate the fair value of the commercial mortgages; 


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 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.

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2018	Feb. 28, 2019
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Trading Symbol	CK0001448038
Entity Registrant Name	Redwood Mortgage Investors IX
Entity Central Index Key	0001448038
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		80,340,505
Entity Public Float	$ 0

XML

Balance Sheets - USD ($)	Dec. 31, 2018	Dec. 31, 2017
ASSETS
Cash and cash equivalents	$ 10,674,953	$ 8,509,852
Loans
Principal	62,115,713	54,768,689
Advances	21,041	13,989
Accrued interest	473,966	409,867
Loan balances secured by deeds of trust	62,610,720	55,192,545
Loan administrative fees, net		9,008
Total assets	73,285,673	63,711,405
LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL
Liabilities - Accounts payable and accrued liabilities	9,321	180
Commitments and contingencies (Note 5)
Investors in applicant status	651,500	3,270,312
Members’ capital, net	76,804,195	64,218,001
Receivable from manager (formation loan)	(4,179,343)	(3,777,088)
Members’ capital, net, less formation loan	72,624,852	60,440,913
Total liabilities, investors in applicant status and members’ capital	$ 73,285,673	$ 63,711,405

XML

Statements of Income - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Revenues, net
Interest income	$ 5,200,702	$ 4,031,706
Late fees	20,285	22,938
Gain on sale, loans	27,133
Total revenues	5,248,120	4,054,644
Operations expense
Mortgage servicing fees	151,457	116,289
Professional services, net (Note 3)	289,053	63,053
Other	17,338	6,257
Total operations expense	457,848	185,599
Net income	4,790,272	3,869,045
Members (99%)	4,742,369	3,830,355
Managers (1%)	$ 47,903	$ 38,690

XML

Statements of Income (Parenthetical)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Managers investment	1.00%	1.00%
Redwood Mortgage Investors IX [Member]
Members investment	99.00%	99.00%

XML

Statements of Changes in Members' Capital - USD ($)		12 Months Ended		111 Months Ended
		Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2018
Beginning balance		$ 60,440,913
Net income		4,790,272	$ 3,869,045
Early withdrawal penalties	[1]	22,360		$ 40,875
Ending balance		72,624,852	60,440,913	72,624,852
Investors In Applicant Status [Member]
Beginning balance		3,270,312	1,408,185
Early withdrawal penalties		0	0
Ending balance		651,500	3,270,312	651,500
Investors In Applicant Status [Member] | Contributions On Application [Member]
Partners capital accounts		10,413,923	22,061,531
Investors In Applicant Status [Member] | Contributions Admitted To Members Capital [Member]
Partners capital accounts		(13,025,630)	(20,204,759)
Investors In Applicant Status [Member] | Premiums Paid On Application By RMC [Member]
Partners capital accounts		52,990	132,699
Investors In Applicant Status [Member] | Premiums Admitted To Members Capital [Member]
Partners capital accounts		(60,095)	(127,344)
Capital Members [Member]
Beginning balance		66,450,424	45,405,776
Net income		4,742,369	3,830,355
Organization and offering expenses allocated		(304,199)	(229,366)
Early withdrawal penalties		0	0
Ending balance		79,198,453	66,450,424	79,198,453
Capital Members [Member] | Contributions Admitted To Members Capital [Member]
Partners capital accounts		13,025,630	20,204,759
Capital Members [Member] | Premiums Admitted To Members Capital [Member]
Partners capital accounts		60,095	127,344
Capital Members [Member] | Earnings Distributed To Members [Member]
Partners capital accounts		(4,462,623)	(3,596,449)
Capital Members [Member] | Earnings Distributed Used In DRIP [Member]
Partners capital accounts		2,420,528	1,987,151
Capital Members [Member] | Member's Redemptions [Member]
Partners capital accounts		(2,733,771)	(1,279,146)
Managers Capital Net [Member]
Beginning balance		102,902	69,965
Net income		47,903	38,690
Early withdrawal penalties		0	0
Ending balance		125,200	102,902	125,200
Managers Capital Net [Member] | Contributions Admitted To Members Capital [Member]
Partners capital accounts		13,085	20,332
Managers Capital Net [Member] | Earnings Distributed To Members [Member]
Partners capital accounts		(38,690)	(26,085)
Unallocated Organization and Offering Expenses [Member]
Beginning balance		(2,335,325)	(1,698,731)
Organization and offering expenses		(591,907)	(919,870)
Organization and offering expenses allocated		304,199	229,366
Early withdrawal penalties		22,360	10,658
Ending balance		(2,519,458)	(2,335,325)	(2,519,458)
Unallocated Organization and Offering Expenses [Member] | RMC [Member]
Organization and offering expenses rebated by RMC		81,215	43,252
Members Capital, Net [Member]
Beginning balance		64,218,001	43,777,010
Net income		4,790,272	3,869,045
Organization and offering expenses		(591,907)	(919,870)
Early withdrawal penalties		22,360	10,658
Ending balance		76,804,195	64,218,001	$ 76,804,195
Members Capital, Net [Member] | RMC [Member]
Organization and offering expenses rebated by RMC		81,215	43,252
Members Capital, Net [Member] | Contributions Admitted To Members Capital [Member]
Partners capital accounts		13,038,715	20,225,091
Members Capital, Net [Member] | Premiums Admitted To Members Capital [Member]
Partners capital accounts		60,095	127,344
Members Capital, Net [Member] | Earnings Distributed To Members [Member]
Partners capital accounts		(4,501,313)	(3,622,534)
Members Capital, Net [Member] | Earnings Distributed Used In DRIP [Member]
Partners capital accounts		2,420,528	1,987,151
Members Capital, Net [Member] | Member's Redemptions [Member]
Partners capital accounts		$ (2,733,771)	$ (1,279,146)

[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.

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Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Operations
Interest received	$ 5,039,822	$ 3,909,607
Other loan income	18,499	23,038
Loan administrative fee reimbursed (paid)	3,130	21,274
Operations expense	(394,909)	(155,640)
Total cash provided by (used in) operations	4,666,542	3,798,279
Investing – loan principal/advances
Principal collected on loans	41,506,194	27,081,592
Loans originated	(64,959,250)	(42,726,883)
Loans sold to non-affiliate, net	22,128,128
Loans transferred to affiliates		999,995
Loans transferred from affiliates	(5,889,819)	(2,380,000)
Advances (made) received on loans	(7,051)	10,560
Total cash provided by (used in) investing	(7,221,798)	(14,634,736)
Financing – members’ capital
Deposit on line of credit		2,400
Contributions by members, net
Organization and offering expenses paid, net	(510,692)	(876,620)
Formation loan funding	(779,964)	(1,509,594)
Formation loan collected	345,639	235,143
Total cash provided by members, net	9,534,913	20,063,583
Distributions to members
Distributions to Member	(4,814,556)	(2,914,528)
Total cash provided by (used in) financing	4,720,357	17,151,455
Net increase (decrease) in cash	2,165,101	6,314,998
Cash, beginning of period	8,509,852	2,194,854
Cash, December 31,	10,674,953	8,509,852
Net income	4,790,272	3,869,045
Adjustments to reconcile net income to net cash provided by (used in) operating activities
(Gain) on sale, loans	(27,133)
Amortization of loan administrative fees	5,878
Change in operating assets and liabilities
Accrued interest	(166,758)	(122,101)
Loan administrative fees reimbursed (paid)	3,130	21,274
Accounts payable	3,419
Other	57,734	30,061
Total adjustments	(123,730)	(70,766)
Total cash provided by (used in) operations	4,666,542	3,798,279
Members Equity Contributions [Member]
Contributions by members, net
Contributions by members/manager	10,479,930	22,214,654
Earnings Distributed To Members [Member]
Distributions to members
Distributions to Member	(2,080,785)	(1,635,382)
Member's Redemptions [Member]
Distributions to members
Distributions to Member	$ (2,733,771)	$ (1,279,146)

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Organization and General

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Organization and General

NOTE 1 – ORGANIZATION AND GENERAL

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 is externally managed by Redwood Mortgage Corp (“RMC” or “the manager”). 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 company to conduct its business as the company has no employees of its own. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC.

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.

The following is a summary of certain provisions of the Operating Agreement and is qualified in its entirety by the terms of the agreement itself. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions.

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 (net of redemption of members’ capital and operating expenses) from

• sale of members’ units net of reimbursement to RMC of organization and offering expenses (“O&O expenses”) and net of amounts advanced for the formation loan to RMC, including units sold by reinvestment of distributions;

• payments from RMC on the outstanding balance of the formation loan;

• borrowers’ monthly principal and interest payments;

• loan payoffs;

• loan sales to unaffiliated 3^rd parties and loan transfers by executed assignment to affiliated mortgage funds; and

• a line of credit, if obtained.

Net income or loss is allocated among the members according to their respective capital accounts monthly after one percent (1%) of net income or loss is allocated to the manager. RMC’s allocated one percent (1%) of the net income was $47,903 and $38,690 for the years ended December 31, 2018 and 2017, respectively. 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.

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’ accounts for the applicable period pursuant to the company’s reimbursement to RMC and allocation to members’ accounts 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.

See Note 3 (Manager and Other Related Parties) to the financial statements for a detailed discussion on the allocation of O&O to members’ accounts.

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.

To determine the amount of cash to be distributed in any specific month, the company relies in part on its forecast of full year 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 December 31, 2018 cumulative year to date earnings (estimated) allocated to members’ accounts was $4,766,822 and net income available to members (actual) was $4,742,369. The difference between earnings allocated to members’ account and net income available to members of $24,453 is expected to be offset by future earning in excess of the net distribution rate in 2019.

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;

• the amount and timing of other operating expenses, including expenses for professional services;

• financial support, if any, from RMC; and

• payments from RMC on the outstanding balance of the formation loan.

Financial Support from RMC

Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:

• 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, and in certain periods, all of the company’s direct expenses, such as professional fees.

Such fee and cost-reimbursement waivers and the absorption 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 Operating Agreement 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.

Financial support from RMC maintained the company’s annual 6.5% net distribution rate for periods prior to February 28, 2018.  In March 2018, RMC communicated to the members’ planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly.  

In March 2018 the net distribution rate as an annualized percentage of members’ capital decreased from 6.5% to 6.0%. In April 2018, the company commenced paying in full its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.).

RMC had communicated in March 2018 its intent, for the company to be paying RMC in full the fees and reimbursements for the qualifying costs attributable to the company entitled to the manager under the Operating Agreement by July 2019.  While reserving its right to collect the amounts owing to it under Operating Agreement, RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) during 2019, such that the full chargeable amount of the asset management fee will be collected for and in the 4^th quarter and to similarly phase in collection of the cost reimbursements in 2020.

The net distribution rate, as an annualized percentage of members’ capital, for December 2018 was 5.70%. The net distribution rate for the year ended December 2018 was 5.95%.

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

There are substantial restrictions on transferability of units, and 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 maximum number of units which may be redeemed per quarter per individual member shall not exceed the greater of (i) 100,000 units, or (ii) 25% of the member’s total outstanding units. 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. As provided in the Operating Agreement, 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. In the event unit withdrawal requests exceed 5% in any calendar year, units will be redeemed in the priority provided in the Operating Agreement.

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 units 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 December 31, 2018 the company had made advances totaling $5,439,910, of which $4,179,344 remain outstanding on the formation loan.

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

Proceeds from sales of units from inception (October, 2009) through December 31, 2018 are summarized below.

	Proceeds
From investors - admitted	$	76,938,987
From members under our DRIP		8,653,123
From premiums paid by RMC(1)		349,199
Total proceeds from unit sales	$	85,941,309

(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 December 31, 2018, the company had sold approximately 85,941,000 units– 39,407,000 units under previous registration statements and approximately 46,534,000 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 $46,534,000, respectively.

The June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 will cease due to the company electing not to update its S-11 filing prior to April 30, 2019 as doing so would not be cost effective. RMC is considering a registration statement to be filed in the second quarter of 2019 to continue to offer units pursuant to the DRIP.

Use of Proceeds from sale of units

The proceeds from the sale of the units will be used 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.

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Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

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:

• 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 December 31, 2018, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating.

Loans and interest income

Performing loans are carried at amortized costs which is generally equal to 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.

For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent 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.

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. 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.

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.

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 delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. 

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. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds 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 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. The manager expects to adopt the ASU for interim and annual reporting in 2020.

RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral.  The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position.

-Accounting and Financial Reporting for Revenue Recognition

On May 28, 2014, the FASB issued a final ASU 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 was effective January 1, 2018, and has been adopted using the modified retrospective approach.

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

12 Months Ended

Dec. 31, 2018

Related Party Transactions [Abstract]

Manager and Other Related Parties

NOTE 3 – MANAGER AND OTHER RELATED PARTIES

RMC is entitled to 1% of the net income or loss of the company. See Note 1 (Organization and General).

Manager financial support (RMC support)

RMC support provided, as detailed below, totaled approximately $2,031,000 and $1,646,000 for the years ended December 31, 2018 and 2017, respectively. The total financial support increased year over year, however the amount of direct cash support in the form of expenses absorbed by RMC decreased from approximately $370,000 in 2017 to approximately $157,000 in 2018. The amount of support in the form of waived fees, such as loan administrative, asset management fees, and costs from RMC, increased during the same period due to increased loan and capital balances. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC.  The decision to waive all or a portion of these fees is made by RMC, in its sole discretion.

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC for the year ended December 31, 2018 is presented in the following table.

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee			Costs from RMC			Professional Services			Other			Total
2018
Chargeable/reimbursable	$	708,491		$	151,457	$	419,820		$	744,901		$	432,205		$	31,584		$	2,488,458
RMC support
Waived		(708,491	)		—		(419,820	)		(744,901	)		—			—			(1,873,212	)
Expenses absorbed by RMC		—			—		—			—			(143,152	)		(14,246	)		(157,398	)
Total RMC support		(708,491	)		—		(419,820	)		(744,901	)		(143,152	)		(14,246	)		(2,030,610	)
Net charged	$	—		$	151,457	$	—		$	—		$	289,053		$	17,338		$	457,848

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC for the year ended December 31, 2017 is presented in the following table

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee                         (as Revised)			Costs from RMC			Professional Services			Other			Total
2017
Chargeable/reimbursable	$	427,269		$	116,289	$	307,104		$	541,686		$	398,356		$	40,972		$	1,831,676
RMC support
Waived		(427,269	)		—		(307,104	)		(541,686	)		—			—			(1,276,059	)
Expenses absorbed by RMC		—			—		—			—			(335,303	)		(34,715	)		(370,018	)
Total RMC support		(427,269	)		—		(307,104	)		(541,686	)		(335,303	)		(34,715	)		(1,646,077	)
Net charged	$	—		$	116,289	$	—		$	—		$	63,053		$	6,257		$	185,599

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. Loan administrative fees collected prior to August 2015 were amortized over the contractual life of the loan. The loan administrative fees were fully amortized at December 31, 2018. 

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. 

Asset management fees

RMC is entitled to receive a monthly asset management fee for managing the business affairs of 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 asset management fee waivers by the first quarter of 2019. 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 was $408,535 for the year ended December 31, 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 through 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 beginning in 2019 or 2020.

Professional Services

Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses.

Beginning April 1, 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.

During 2018 and 2017 certain performing loans were transferred by an executed assignment between the affiliated mortgage funds in-full at par. Specifically, during 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, transferred to the company two performing loans in-full at par value, which approximates fair 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. During 2017, the company transferred one loan at par value of approximately $1,000,000 to Redwood Mortgage Investors VIII, LP.

Formation loan

Formation loan transactions are presented in the following table.

	For the twelve months ended			Since Inception
Balance, beginning of period	$	3,777,088		$	—
Formation loan advances to RMC		779,964			5,439,910
Payments received from RMC		(345,639	)		(1,199,716	)
Early withdrawal penalties applied		(32,070	)		(60,851	)
Balance, December 31, 2018	$	4,179,343		$	4,179,343
Subscription proceeds since inception				$	77,590,487
Formation loan advance rate					7	%

The future minimum payments on the formation loan of December 31, 2018 are presented in the following table.

2019	$	417,934
2020		417,934
2021		417,934
2022		417,934
2023		417,934
Thereafter		2,089,673
Total	$	4,179,343

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.

The table below presents the company’s unit redemptions for the years ended December 31, 2018 and 2017.

	2018		2017
Capital redemptions-without penalty	$	1,923,685	$	747,234
Capital redemptions-subject to penalty		810,086		531,912
Total	$	2,733,771	$	1,279,146

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 rebated to the company by the manager.

O&O expenses are summarized in the following table.

	2018			Since Inception
Balance, January 1	$	2,335,325		$	—
O&O expenses reimbursed to RMC		591,907			3,486,521
Early withdrawal penalties applied (1)		(22,360	)		(40,875	)
O&O expenses allocated(2)		(304,199	)		(686,356	)
O&O expenses rebated by RMC (3)		(81,215	)		(239,832	)
Balance, December 31	$	2,519,458		$	2,519,458

(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 rebates the company for  any yet unallocated O&O expenses attributed to units redeemed prior to the 40 quarters.

Per the Operating Agreement, RMI IX reimburses RMC for O&O expenses at 4.5% gross proceeds from future unit sales. At December 31, 2018, RMC had incurred $3,510,299 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. Any O&O expenses with respect to a member’s units that remain unallocated upon redemption of such units shall be rebated to the company by the manager. As of December 31, 2018, the company estimated future rebates on scheduled redemptions to be $42,000.

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Loans

12 Months Ended

Dec. 31, 2018

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 December 31, 2018, 77 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 provision. As of December 31, 2018, 60 loans outstanding (representing 62% of the aggregate principal balance of the company’s loan portfolio) provide from monthly payments of principal and interest, typically calculated on a 30-year amortization schedule, 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 2018 and 2017.

	2018			2017
Principal, beginning of period	$	54,768,689		$	40,123,393
Loans originated		64,959,250			40,346,883
Loans transferred from affiliates		5,889,819			2,380,000
Loans transferred to affiliates		—			(999,995	)
Loans sold to non-affiliate		(21,995,851	)		—
Principal payments received		(41,506,194	)		(27,081,592	)
Principal, December 31, 2018	$	62,115,713		$	54,768,689

For the years ended December 31, 2018 and 2017, the company renewed eight and six loans respectively, at then market terms, with an aggregate principal balance of $5,004,614 and $1,823,000, which are not included in the activity shown in the table above. See Note 3 (Manager and Other Related Parties) for a description of loans transferred by executed assignments between affiliates. The company originates loans with the intent to hold the loans until maturity. From time to time the company may sell certain loans.  Loans are classified as held-for-sale once a decision has been made to sell loans and loans held-for-sale have been identified.

On June 27, 2018 and December 12, 2018, the company closed on the sales of whole loans (servicing released) comprising a combined principal of $21,995,851 and interest owing of $102,658 to an unaffiliated bank pursuant to an Asset Sale Agreement.  The Asset Sale Agreement contains customary representations, warranties, and covenants.  The loan sale transaction was arranged by a third-party, unaffiliated national firm engaged by RMC. The transaction generated an immaterial gain (net of expenses).

At December 31, 2018 and 2017 the company held no loans classified as held-for-sale. The determination that loans would be classified as held-for-sale in compliance with GAAP criteria and the completion of the sale occurred within the same reporting periods in 2018.

Loan characteristics

	December 31,			December 31,
	2018			2017
Number of secured loans		83			93
Secured loans – principal	$	62,115,713		$	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	$	748,382		$	588,911
Average principal as percent of total principal		1.2	%		1.1	%
Average principal as percent of members’ capital, net		1.0	%		0.9	%
Average principal as percent of total assets		1.0	%		0.9	%
Largest secured loan – principal	$	4,000,000		$	3,239,124
Largest principal as percent of total principal		6.4	%		5.9	%
Largest principal as percent of members’ capital, net		5.2	%		5.0	%
Largest principal as percent of total assets		5.5	%		5.1	%
Smallest secured loan – principal	$	74,390		$	52,562
Smallest principal as percent of total principal		0.1	%		0.1	%
Smallest principal as percent of members’ capital, net		0.1	%		0.1	%
Smallest principal as percent of total assets		0.1	%		0.1	%
Number of California counties where security is located		15			16
Largest percentage of principal in one California county		25.0	%		22.6	%
Number of secured loans with filed notice of default		2			1
Secured loans in foreclosure – principal	$	565,685		$	139,643
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

As of December 31, 2018, the company’s largest loan with principal of $4,000,000 represents 6.4% of outstanding secured loans and 5.5% of company assets. The loan is secured by a multi-family property located in San Diego county, bears an interest rate of 8.9% and matures on September 1, 2021. As of December 31, 2018, the company had 2 loans with filed notices of default. As of December 31, 2018, the company had no construction loans outstanding and had no rehabilitation loans outstanding. As of December 31, 208, the company had no commitments to fund construction or rehabilitation loans.

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 December 31, 2018, the trust held a balance relating to the company’s loan portfolio of $67,214 consisting of both principal and interest payments from borrowers, all of which were disbursed by January 17, 2019.

Lien position

Secured loans had the lien positions in the following table.

	December 31, 2018								December 31, 2017
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		41	$	29,699,888			48	%		60	$	37,032,195			68	%
Second trust deeds		42		32,415,825			52			33		17,736,494			32
Total principal, secured loans		83		62,115,713			100	%		93		54,768,689			100	%
Liens due other lenders at loan closing				65,941,118								31,545,806
Total debt			$	128,056,831							$	86,314,495
Appraised property value at loan closing			$	240,307,000							$	181,018,000
Percent of total debt to appraised values    (LTV) at loan closing(1)				54.5	%							53.5	%

(1) based on appraised values and liens due to 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 included 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 as of December 31, 2018 and 2017.

	December 31, 2018							December 31, 2017
	Loans		Principal		Percent			Loans		Principal		Percent
Single family(2)		60	$	42,967,253		69	%		67	$	37,615,216		69	%
Multi-family		8		8,210,970		13			5		2,164,861		4
Commercial		15		10,937,490		18			21		14,988,612		27
Total principal, secured loans		83	$	62,115,713		100	%		93		54,768,689		100	%

(2) single family property type as of December 31, 2018 consists of 14 loans with principal of $11,398,869 that are owner occupied and 46 loans with principal of $31,568,384 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 $31,306,180 that are non-owner occupied.

Distribution of loans in California

The distribution of secured loans by counties is presented in the following table as of December 31, 2018 and 2017.

	December 31, 2018					December 31, 2017
	Principal		Percent			Principal		Percent
San Francisco Bay Area(3)
Santa Clara	$	11,756,695		18.9	%		5,461,084		10.0	%
San Mateo		9,619,609		15.5			7,800,549		14.2
Alameda		7,306,779		11.8			9,869,036		18.0
San Francisco		5,238,008		8.4			8,338,720		15.1
Sonoma		1,300,000		2.1			—		—
Contra Costa		725,771		1.2			1,511,195		2.8
Marin		575,000		0.9			—		—
Solano		—		—			109,443		0.2
		36,521,862		58.8			33,090,027		60.3
Other Northern California
Sacramento		822,500		1.3			850,000		1.6
Placer		637,354		1.0			642,913		1.2
Monterey		322,716		0.5			—		—
Yolo		—		—			174,758		0.3
San Joaquin		—		—			157,039		0.3
		1,782,570		2.8			1,824,710		3.4
Northern California Total		38,304,432		61.6			34,914,737		63.7
Los Angeles & Coastal
Los Angeles		15,514,789		25.0			12,357,456		22.6
San Diego		5,563,635		9.0			2,192,746		4.0
Orange		1,177,446		1.9			1,487,747		2.7
Santa Barbara		—		—			996,768		1.8
Ventura		—		—			350,000		0.6
		22,255,870		35.9			17,384,717		31.7
Other Southern California
San Bernardino		1,200,000		1.9			2,110,000		3.9
Riverside		355,411		0.6			359,235		0.7
		1,555,411		2.5			2,469,235		4.6
Southern California Total		23,811,281		38.4			19,853,952		36.3
Total principal, secured loans	$	62,115,713		100.0	%	$	54,768,689		100.0	%

(3) Includes Silicon Valley

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table as of December 31, 2018.

	Loans		Principal		Percent
2019		36	$	33,004,666		53	%
2020		19		13,918,222		23
2021		16		11,315,211		18
2022		5		1,425,710		2
2023		3		839,097		1
Thereafter		1		200,000		1
Total future maturities		80		60,702,906		98
Matured as of December 31, 2018(4)		3		1,412,807		2
Total principal, secured loans		83	$	62,115,713		100	%

(4) One loan with a principal balance of approximately $136,900, was 609 days past maturity, designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019, resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, and were 91 days past maturity and designated as impaired as of December 31, 2018, paid off in-full in March 2019.

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 December 31, 2018 and 2017.

	December 31, 2018				December 31, 2017
	Loans		Principal		Loans		Principal
Past Due
30-89 days		5	$	3,828,975		3	$	1,259,100
90-179 days		—		—		—		—
180 or more days(5)		2		565,685		1		139,643
Total past due		7		4,394,660		4		1,398,743
Current		76		57,721,053		89		53,369,946
Total principal, secured loans		83	$	62,115,713		93	$	54,768,689

(5) One loan with a principal balance of approximately $136,900, was 609 days delinquent and past maturity, designated as impaired and as in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

Loan in non-accrual status

	December 31, 2018		December 31, 2017
Number of loans(6)	$	2	$	1
Principal		565,685		139,643
Advances		10,688		969
Accrued Interest		19,831		11,025
Total recorded investment	$	596,204	$	151,637
Foregone interest	$	33,410	$	4,306

(6) One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

No loans were 90 or more days delinquent as to principal or interest and not in non-accrual status at December 31, 2018 or 2017.

Impaired loans/allowance for loan losses

	December 31, 2018		December 31, 2017
Principal	$	3,841,148	$	139,643
Recorded investment		3,950,157		151,637
Impaired loans without allowance		3,950,157		151,637
Impaired loans with allowance		—		—
Allowance for loan losses, impaired loans		—		—
Number of loans(7)		6		1

(7) One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, were designated as impaired as of December 31, 2018, paid off in-full in March 2019

Six and one loans were designated as impaired at December 31, 2018 and 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) such that collection is reasonably assured for all amounts owing.

Impaired loans had average balances and interest income recognized received in cash as presented in the following tables as of and for the years ending December 31, 2018 and 2017.

	December 31, 2018		December 31, 2017
Average recorded investment	$	2,050,897	$	536,934
Interest income recognized		23,848		8,602
Interest income received in cash		21,670		4,342

Modifications and troubled debt restructurings

No loan payment modifications were made during 2018 or 2017 and no modifications were in effect at December 31, 2018 or 2017.

Fair Value

The company does not record its performing loans at fair value on a recurring basis as it is the intention of the company to hold loans until maturity. In 2018, certain performing loans were sold, at an immaterial gain (net of expenses), in the same reporting period as when they would have been classified as held-for-sale. Therefore, the recorded amount of the preforming 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 foregone interest, if any).

Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis when the net realizable value of the real property collateral is determined to be less than the loan balance. No impaired loans were measured at fair value on a non-recurring basis at and for the periods ending December 31, 2018 or 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. The fair value of loan balances secured by deeds of trust is deemed to approximate the recorded amount (per the financial statements) as our loans:

• are of shorter terms at origination than commercial real estate loans by institutional lenders;

• are written without a prepayment penalty causing uncertainty/a lack of predictability as to the expected duration of the loan; and

• have limited marketability and are not yet sellable into an established secondary market.

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.

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Commitments and Contingencies, Other Than Loan Commitments

12 Months Ended

Dec. 31, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies, Other Than Loan Commitments

NOTE 5 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS

Commitments

Scheduled redemptions of members’ capital as of December 31, 2018 are presented in the following table.

2019	$	1,253,669
2020		—
2021		—
2022		—
Total	$	1,253,669

The company is obligated, per the Operating Agreement, to reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales. As of December 31, 2018, RMC had incurred $3,510,299 of O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC contingent upon the proceeds of future unit sales and the future O&O expenses incurred by RMC.

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

12 Months Ended

Dec. 31, 2018

Subsequent Events [Abstract]

Subsequent Events

NOTE 6 – SUBSEQUENT EVENTS

None, other than the loan transactions described in Note 4 – Loans to the financial statements of this report.

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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 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”).

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.

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:

• 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

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 December 31, 2018, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating.

Loans and Interest Income

Loans and interest income

Performing loans are carried at amortized costs which is generally equal to 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.

For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent 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.

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. 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.

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.

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 delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. 

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. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds 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 (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 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

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. The manager expects to adopt the ASU for interim and annual reporting in 2020.

RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral.  The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position.

-Accounting and Financial Reporting for Revenue Recognition

On May 28, 2014, the FASB issued a final ASU 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 was effective January 1, 2018, and has been adopted using the modified retrospective approach.

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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Organization and General (Tables)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Summary of Proceeds from Sales of Units

Proceeds from sales of units from inception (October, 2009) through December 31, 2018 are summarized below.

	Proceeds
From investors - admitted	$	76,938,987
From members under our DRIP		8,653,123
From premiums paid by RMC(1)		349,199
Total proceeds from unit sales	$	85,941,309

(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.

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Manager and Other Related Parties (Tables)

12 Months Ended

Dec. 31, 2018

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 year ended December 31, 2018 is presented in the following table.

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee			Costs from RMC			Professional Services			Other			Total
2018
Chargeable/reimbursable	$	708,491		$	151,457	$	419,820		$	744,901		$	432,205		$	31,584		$	2,488,458
RMC support
Waived		(708,491	)		—		(419,820	)		(744,901	)		—			—			(1,873,212	)
Expenses absorbed by RMC		—			—		—			—			(143,152	)		(14,246	)		(157,398	)
Total RMC support		(708,491	)		—		(419,820	)		(744,901	)		(143,152	)		(14,246	)		(2,030,610	)
Net charged	$	—		$	151,457	$	—		$	—		$	289,053		$	17,338		$	457,848

Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC for the year ended December 31, 2017 is presented in the following table

				Operating Expenses
	Loan Admin Fees			Mortgage Servicing Fees		Asset Management Fee                         (as Revised)			Costs from RMC			Professional Services			Other			Total
2017
Chargeable/reimbursable	$	427,269		$	116,289	$	307,104		$	541,686		$	398,356		$	40,972		$	1,831,676
RMC support
Waived		(427,269	)		—		(307,104	)		(541,686	)		—			—			(1,276,059	)
Expenses absorbed by RMC		—			—		—			—			(335,303	)		(34,715	)		(370,018	)
Total RMC support		(427,269	)		—		(307,104	)		(541,686	)		(335,303	)		(34,715	)		(1,646,077	)
Net charged	$	—		$	116,289	$	—		$	—		$	63,053		$	6,257		$	185,599

Schedule of Accounts, Notes, Loans and Financing Receivable

Formation loan transactions are presented in the following table.

	For the twelve months ended			Since Inception
Balance, beginning of period	$	3,777,088		$	—
Formation loan advances to RMC		779,964			5,439,910
Payments received from RMC		(345,639	)		(1,199,716	)
Early withdrawal penalties applied		(32,070	)		(60,851	)
Balance, December 31, 2018	$	4,179,343		$	4,179,343
Subscription proceeds since inception				$	77,590,487
Formation loan advance rate					7	%

Formation Loan, Future Minimum Payments

The future minimum payments on the formation loan of December 31, 2018 are presented in the following table.

2019	$	417,934
2020		417,934
2021		417,934
2022		417,934
2023		417,934
Thereafter		2,089,673
Total	$	4,179,343

Schedule of Unit Redemptions

The table below presents the company’s unit redemptions for the years ended December 31, 2018 and 2017.

	2018		2017
Capital redemptions-without penalty	$	1,923,685	$	747,234
Capital redemptions-subject to penalty		810,086		531,912
Total	$	2,733,771	$	1,279,146

Summary of Organization and Offering Expenses

O&O expenses are summarized in the following table.

	2018			Since Inception
Balance, January 1	$	2,335,325		$	—
O&O expenses reimbursed to RMC		591,907			3,486,521
Early withdrawal penalties applied (1)		(22,360	)		(40,875	)
O&O expenses allocated(2)		(304,199	)		(686,356	)
O&O expenses rebated by RMC (3)		(81,215	)		(239,832	)
Balance, December 31	$	2,519,458		$	2,519,458

(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 rebates the company for  any yet unallocated O&O expenses attributed to units redeemed prior to the 40 quarters.

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Loans (Tables)

12 Months Ended

Dec. 31, 2018

Secured Loan Principal Transactions

Secured loan transactions are summarized in the following table for the 2018 and 2017.

	2018			2017
Principal, beginning of period	$	54,768,689		$	40,123,393
Loans originated		64,959,250			40,346,883
Loans transferred from affiliates		5,889,819			2,380,000
Loans transferred to affiliates		—			(999,995	)
Loans sold to non-affiliate		(21,995,851	)		—
Principal payments received		(41,506,194	)		(27,081,592	)
Principal, December 31, 2018	$	62,115,713		$	54,768,689

Secured Loans Characteristics

	December 31,			December 31,
	2018			2017
Number of secured loans		83			93
Secured loans – principal	$	62,115,713		$	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	$	748,382		$	588,911
Average principal as percent of total principal		1.2	%		1.1	%
Average principal as percent of members’ capital, net		1.0	%		0.9	%
Average principal as percent of total assets		1.0	%		0.9	%
Largest secured loan – principal	$	4,000,000		$	3,239,124
Largest principal as percent of total principal		6.4	%		5.9	%
Largest principal as percent of members’ capital, net		5.2	%		5.0	%
Largest principal as percent of total assets		5.5	%		5.1	%
Smallest secured loan – principal	$	74,390		$	52,562
Smallest principal as percent of total principal		0.1	%		0.1	%
Smallest principal as percent of members’ capital, net		0.1	%		0.1	%
Smallest principal as percent of total assets		0.1	%		0.1	%
Number of California counties where security is located		15			16
Largest percentage of principal in one California county		25.0	%		22.6	%
Number of secured loans with filed notice of default		2			1
Secured loans in foreclosure – principal	$	565,685		$	139,643
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

Secured Loans by Lien Position in the Collateral

Secured loans had the lien positions in the following table.

	December 31, 2018								December 31, 2017
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		41	$	29,699,888			48	%		60	$	37,032,195			68	%
Second trust deeds		42		32,415,825			52			33		17,736,494			32
Total principal, secured loans		83		62,115,713			100	%		93		54,768,689			100	%
Liens due other lenders at loan closing				65,941,118								31,545,806
Total debt			$	128,056,831							$	86,314,495
Appraised property value at loan closing			$	240,307,000							$	181,018,000
Percent of total debt to appraised values    (LTV) at loan closing(1)				54.5	%							53.5	%

(1) based on appraised values and liens due to 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 included decreases or increases of the amount owing on senior liens to other lenders.

Secured Loans by Property Type of the Collateral

Secured loans summarized by property type are presented in the following table as of December 31, 2018 and 2017.

	December 31, 2018							December 31, 2017
	Loans		Principal		Percent			Loans		Principal		Percent
Single family(2)		60	$	42,967,253		69	%		67	$	37,615,216		69	%
Multi-family		8		8,210,970		13			5		2,164,861		4
Commercial		15		10,937,490		18			21		14,988,612		27
Total principal, secured loans		83	$	62,115,713		100	%		93		54,768,689		100	%

(2) single family property type as of December 31, 2018 consists of 14 loans with principal of $11,398,869 that are owner occupied and 46 loans with principal of $31,568,384 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 $31,306,180 that are non-owner occupied.

Secured Loans Distributed in California

The distribution of secured loans by counties is presented in the following table as of December 31, 2018 and 2017.

	December 31, 2018					December 31, 2017
	Principal		Percent			Principal		Percent
San Francisco Bay Area(3)
Santa Clara	$	11,756,695		18.9	%		5,461,084		10.0	%
San Mateo		9,619,609		15.5			7,800,549		14.2
Alameda		7,306,779		11.8			9,869,036		18.0
San Francisco		5,238,008		8.4			8,338,720		15.1
Sonoma		1,300,000		2.1			—		—
Contra Costa		725,771		1.2			1,511,195		2.8
Marin		575,000		0.9			—		—
Solano		—		—			109,443		0.2
		36,521,862		58.8			33,090,027		60.3
Other Northern California
Sacramento		822,500		1.3			850,000		1.6
Placer		637,354		1.0			642,913		1.2
Monterey		322,716		0.5			—		—
Yolo		—		—			174,758		0.3
San Joaquin		—		—			157,039		0.3
		1,782,570		2.8			1,824,710		3.4
Northern California Total		38,304,432		61.6			34,914,737		63.7
Los Angeles & Coastal
Los Angeles		15,514,789		25.0			12,357,456		22.6
San Diego		5,563,635		9.0			2,192,746		4.0
Orange		1,177,446		1.9			1,487,747		2.7
Santa Barbara		—		—			996,768		1.8
Ventura		—		—			350,000		0.6
		22,255,870		35.9			17,384,717		31.7
Other Southern California
San Bernardino		1,200,000		1.9			2,110,000		3.9
Riverside		355,411		0.6			359,235		0.7
		1,555,411		2.5			2,469,235		4.6
Southern California Total		23,811,281		38.4			19,853,952		36.3
Total principal, secured loans	$	62,115,713		100.0	%	$	54,768,689		100.0	%

(3) Includes Silicon Valley

Secured Loans Scheduled Maturities

Secured loans are scheduled to mature as presented in the following table as of December 31, 2018.

	Loans		Principal		Percent
2019		36	$	33,004,666		53	%
2020		19		13,918,222		23
2021		16		11,315,211		18
2022		5		1,425,710		2
2023		3		839,097		1
Thereafter		1		200,000		1
Total future maturities		80		60,702,906		98
Matured as of December 31, 2018(4)		3		1,412,807		2
Total principal, secured loans		83	$	62,115,713		100	%

(4) One loan with a principal balance of approximately $136,900, was 609 days past maturity, designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019, resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, and were 91 days past maturity and designated as impaired as of December 31, 2018, paid off in-full in March 2019.

Past Due Financing Receivables

Secured loans summarized by payment delinquency are presented in the following table as of December 31, 2018 and 2017.

	December 31, 2018				December 31, 2017
	Loans		Principal		Loans		Principal
Past Due
30-89 days		5	$	3,828,975		3	$	1,259,100
90-179 days		—		—		—		—
180 or more days(5)		2		565,685		1		139,643
Total past due		7		4,394,660		4		1,398,743
Current		76		57,721,053		89		53,369,946
Total principal, secured loans		83	$	62,115,713		93	$	54,768,689

(5) One loan with a principal balance of approximately $136,900, was 609 days delinquent and past maturity, designated as impaired and as in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

Secured Loans in Non-Accrual Status

	December 31, 2018		December 31, 2017
Number of loans(6)	$	2	$	1
Principal		565,685		139,643
Advances		10,688		969
Accrued Interest		19,831		11,025
Total recorded investment	$	596,204	$	151,637
Foregone interest	$	33,410	$	4,306

(6) One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

Impaired Loans [Member]

Impaired Financing Receivables

Impaired loans/allowance for loan losses

	December 31, 2018		December 31, 2017
Principal	$	3,841,148	$	139,643
Recorded investment		3,950,157		151,637
Impaired loans without allowance		3,950,157		151,637
Impaired loans with allowance		—		—
Allowance for loan losses, impaired loans		—		—
Number of loans(7)		6		1

(7) One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, were designated as impaired as of December 31, 2018, paid off in-full in March 2019

Average Balances and Interest Income [Member]

Impaired Financing Receivables

Impaired loans had average balances and interest income recognized received in cash as presented in the following tables as of and for the years ending December 31, 2018 and 2017.

	December 31, 2018		December 31, 2017
Average recorded investment	$	2,050,897	$	536,934
Interest income recognized		23,848		8,602
Interest income received in cash		21,670		4,342

XML

Commitments and Contingencies, Other Than Loan Commitments (Tables)

12 Months Ended

Dec. 31, 2018

Scheduled Redemptions Of Members Capital [Abstract]

Scheduled Redemptions of Members' Capital

Scheduled redemptions of members’ capital as of December 31, 2018 are presented in the following table.

2019	$	1,253,669
2020		—
2021		—
2022		—
Total	$	1,253,669

XML

Organization and General - Additional Information (Details)		1 Months Ended		12 Months Ended
	Feb. 27, 2018	Mar. 31, 2018	Feb. 28, 2018	Dec. 31, 2018 USD ($) Unit $ / shares shares	Dec. 31, 2017 USD ($)	Dec. 31, 2019	Jun. 30, 2016 USD ($) shares
Organization and General (Details) [Line Items]
Ownership interest held by the manager				1.00%	1.00%
Managers share of net income or loss				1.00%
Managers (1%), Net income				$ 47,903	$ 38,690
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%
Estimated cumulative earnings allocated to members accounts				$ 4,766,822
Members (99%)				4,742,369	3,830,355
Cash available for distribution				$ 24,453
Annualized net distribution rate	6.50%			5.95%
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 Total 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				$ 779,964	1,509,594
Receivable from affiliate (formation loan)				$ 4,179,343	$ 3,777,088
Capital Unit Sold in Public Offering, Shares | shares							120,000,000
Capital Unit Sold in Public Offering, Value							$ 120,000,000
Maximum [Member]
Organization and General (Details) [Line Items]
Percentage of offering proceeds				7.00%
Formation Loan [Member]
Organization and General (Details) [Line Items]
Formation loan, advances				$ 5,439,910
Receivable from affiliate (formation loan)				$ 4,179,344
Member Units [Member]
Organization and General (Details) [Line Items]
Annualized net distribution rate				5.70%
Capital Unit Sold in Public Offering, Shares | shares				46,534,000			20,000,000
Capital Unit Sold in Public Offering, Value				$ 46,534,000			$ 20,000,000
Limited partners capital account sales per unit from gross proceeds of unit sales | $ / shares				$ 1
Member Units [Member] | Maximum [Member] | Capital Units Issued Under Previous Registration Statements [Member]
Organization and General (Details) [Line Items]
Capital Unit Sold in Public Offering, Shares | shares				85,941,000
Member Units [Member] | Minimum [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
Capital Unit Sold in Public Offering, Value				$ 39,407,000
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%
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%
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%
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%
Redemption After Five Years [Member]
Organization and General (Details) [Line Items]
Redemption Value Percentage of Purchase Price or Capital Account Balance					100.00%
RMC [Member]
Organization and General (Details) [Line Items]
Ownership interest held by the manager				0.10%
Percentage of net income or loss allocated to manager				1.00%	1.00%
Managers (1%), Net income				$ 47,903	$ 38,690
Management Fee, Percentage				0.75%
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%
RMC [Member] | Scenario, Forecast [Member]
Organization and General (Details) [Line Items]
Management Fee, Percentage						0.75%

XML

Organization and General - Summary of Proceeds from Sales of Units (Details)	111 Months Ended
	Dec. 31, 2018 USD ($)
Limited Partners' Capital Account [Line Items]
Total proceeds from unit sales	$ 85,941,309
Contributions Admitted To Members Capital [Member]
Limited Partners' Capital Account [Line Items]
Total proceeds from unit sales	76,938,987
DRIP [Member]
Limited Partners' Capital Account [Line Items]
Total proceeds from unit sales	8,653,123
Premiums Admitted To Members Capital [Member]
Limited Partners' Capital Account [Line Items]
Total proceeds from unit sales	$ 349,199	[1]

[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.

XML

Summary of Significant Accounting Policies - Additional Information (Details)	12 Months Ended
	Dec. 31, 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
Impaired loans maximum days of delinquent	180 days
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
Maximum [Member]
Summary of Significant Accounting Policies [Line Items]
Federal Insurance Limit	$ 250,000

XML

Manager and Other Related Parties - Additional Information (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) MortgageLoan	Dec. 31, 2017 USD ($) MortgageLoan	Dec. 31, 2016 USD ($)
Managers and Other Related Parties (Details) [Line Items]
Managers Share of Net Income or Loss	1.00%
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	83	93
Principal	$ 62,115,713	$ 54,768,689	$ 40,123,393
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%
RMC incurred cumulative O&O expenses in excess of 4.5% cap and reimbursed to RMC	$ 3,510,299
Estimated future rebates on scheduled redemptions	$ 42,000
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	$ 1,000,000
Maximum [Member]
Managers and Other Related Parties (Details) [Line Items]
Annual mortgage servicing fees, percentage	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]
Related Party Transaction, Amounts of Transaction	$ 2,031,000	1,646,000
Expenses absorbed by RMC	$ 157,398	370,018
Administrative Fees, Percentage	1.00%
Management Fee, Percentage	0.75%
Working Capital Reserve, Percentage	2.00%
Asset management fees	$ 2,030,610	1,646,077
Loan Brokerage Commission Percent Minimum	1.50%
Loan Brokerage Commission Percent Maximum	5.00%
Loan Brokerage Commissions, Maximum Percent of Assets	4.00%
RMC [Member] | Asset Management Fee [Member]
Managers and Other Related Parties (Details) [Line Items]
Asset management fees	$ 419,820	307,104
RMC [Member] | Asset Management Fee [Member] | Scenario Previously Reported [Member]
Managers and Other Related Parties (Details) [Line Items]
Asset management fees		$ 408,535

XML

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 ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	$ 2,488,458	$ 1,831,676
Waived	(1,873,212)	(1,276,059)
Expenses absorbed by RMC	(157,398)	(370,018)
Total RMC support	(2,030,610)	(1,646,077)
Net charged	457,848	185,599
Loan Admin Fees [Member]
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	708,491	427,269
Waived	(708,491)	(427,269)
Total RMC support	(708,491)	(427,269)
Mortgage Servicing Fees [Member]
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	151,457	116,289
Net charged	151,457	116,289
Asset Management Fee [Member]
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	419,820	307,104
Waived	(419,820)	(307,104)
Total RMC support	(419,820)	(307,104)
Costs from RMC [Member]
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	744,901	541,686
Waived	(744,901)	(541,686)
Total RMC support	(744,901)	(541,686)
Professional Services [Member]
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	432,205	398,356
Expenses absorbed by RMC	(143,152)	(335,303)
Total RMC support	(143,152)	(335,303)
Net charged	289,053	63,053
Other [Member]
Managers and Other Related Parties (Details) [Line Items]
Chargeable/reimbursable	31,584	40,972
Expenses absorbed by RMC	(14,246)	(34,715)
Total RMC support	(14,246)	(34,715)
Net charged	$ 17,338	$ 6,257

XML

Manager and Other Related Parties - Formation Loan Transactions (Details) - USD ($)	12 Months Ended	111 Months Ended
	Dec. 31, 2018	Dec. 31, 2018
Formation Loan Transactions [Abstract]
Balance, beginning of period	$ 3,777,088
Formation loan advances to RMC	779,964	$ 5,439,910
Payments received from RMC	(345,639)	(1,199,716)
Early withdrawal penalties applied	(32,070)	(60,851)
Balance, December 31, 2018	$ 4,179,343	4,179,343
Subscription proceeds since inception		$ 77,590,487
Formation loan advance rate		7.00%

XML

Manager and Other Related Parties - Formation Loan, Future Minimum Payments (Details)	Dec. 31, 2018 USD ($)
Formation Loan Future Minimum Payments [Abstract]
2019	$ 417,934
2020	417,934
2021	417,934
2022	417,934
2023	417,934
Thereafter	2,089,673
Total	$ 4,179,343

XML

Manager and Other Related Parties - Schedule of Unit Redemptions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Managers and Other Related Parties (Details) [Line Items]
Total, Capital redemptions	$ 1,253,669
RMC [Member]
Managers and Other Related Parties (Details) [Line Items]
Total, Capital redemptions	2,733,771	$ 1,279,146
RMC [Member] | Capital Redemptions-without Penalty [Member]
Managers and Other Related Parties (Details) [Line Items]
Total, Capital redemptions	1,923,685	747,234
RMC [Member] | Capital Redemptions-subject to Penalty [Member]
Managers and Other Related Parties (Details) [Line Items]
Total, Capital redemptions	$ 810,086	$ 531,912

XML

Manager and Other Related Parties - Summary of Organization and Offering Expenses (Details) - USD ($)		12 Months Ended	111 Months Ended
		Dec. 31, 2018	Dec. 31, 2018
Related Party Transactions [Abstract]
Balance, January 1		$ 2,335,325
O&O expenses reimbursed to RMC		591,907	$ 3,486,521
Early withdrawal penalties applied	[1]	(22,360)	(40,875)
O&O expenses allocated	[2]	(304,199)	(686,356)
O&O expenses rebated by RMC	[3]	(81,215)	(239,832)
Balance, December 31		$ 2,519,458	$ 2,519,458

[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 rebates the company for any yet unallocated O&O expenses attributed to units redeemed prior to the 40 quarters.

XML

Manager and Other Related Parties - Summary of Organization and Offering Expenses (Parenthetical) (Details)	12 Months Ended
	Dec. 31, 2018
Related Party Transactions [Abstract]
O&O expenses reimbursed period to RMC	120 months
Unallocated O&O expenses on units rebates period	120 months

XML

Loans - Additional Information (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) MortgageLoan Loan	Dec. 31, 2017 USD ($) MortgageLoan Loan	Dec. 31, 2016 USD ($)
Loans (Details) [Line Items]
Loans Receivable, Term	5 years
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	83	93
Loans Receivable, Number of Principal and Interest Loans | Loan	60
Loans Receivable, Amortization Term	30 years
Mortgage Loans on Real Estate Renewed, Number of Loans | MortgageLoan	8	6
Loans - principal renewed (in Dollars)	$ 5,004,614	$ 1,823,000
Loans sold to non-affiliates	21,995,851
Mortgage loans on real estate interest owned	102,658
Loans Receivable Largest Loan (in Dollars)	$ 4,000,000	$ 3,239,124
Loans Receivable, Percent	100.00%	100.00%
Loans - principal (in Dollars)	$ 62,115,713	$ 54,768,689	$ 40,123,393
Balance relating to loan portfolio held in bank trust account	67,214
Financing receivable, recorded investment, 90 days past due and still accruing	$ 0	$ 0
Financing Receivable, Modifications, Number of Contracts | Loan	0	0
Fair Value on Non-recurring [Member]
Loans (Details) [Line Items]
Impaired loans measured at fair value on non-recurring basis	$ 0	$ 0
Impaired Loans [Member]
Loans (Details) [Line Items]
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	6	1
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%
Interest Only [Member]
Loans (Details) [Line Items]
Loans Receivable, Percent of Aggregate Principal	62.00%
Largest Loan [Member]
Loans (Details) [Line Items]
Loans Receivable, Percent	6.40%
Loans Receivable, Percent of Assets	5.50%
Loans Receivable, Yield of Loan Acquired	8.90%
Loans Receivable Maturity Date	Sep. 01, 2021
Largest Loan [Member] | Filed Notice Of Sale [Member]
Loans (Details) [Line Items]
Mortgage Loans on Real Estate, Number of Loans | Loan	2
Construction Loans [Member]
Loans (Details) [Line Items]
Loans outstanding	$ 0
Rehabilitation Loans [Member]
Loans (Details) [Line Items]
Loans outstanding	0
Construction Or Rehabilitation Loans [Member]
Loans (Details) [Line Items]
Loans - principal (in Dollars)	$ 0
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	Jan. 17, 2019

XML

Loans - Secured Loan Principal Transactions (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Receivables [Abstract]
Principal, beginning of period	$ 54,768,689	$ 40,123,393
Loans originated	64,959,250	40,346,883
Loans transferred from affiliates	5,889,819	2,380,000
Loans transferred to affiliates		(999,995)
Loans sold to non-affiliate	(21,995,851)
Principal payments received	(41,506,194)	(27,081,592)
Principal, December 31, 2018	$ 62,115,713	$ 54,768,689

XML

Loans - Secured Loans Characteristics (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) MortgageLoan Country	Dec. 31, 2017 USD ($) MortgageLoan Country	Dec. 31, 2016 USD ($)
Secured Loan Transactions [Line Items]
Number of secured loans | MortgageLoan	83	93
Secured loans - principal (in Dollars)	$ 62,115,713	$ 54,768,689	$ 40,123,393
Average secured loan - principal (in Dollars)	$ 748,382	$ 588,911
Average principal as percent of total principal	1.20%	1.10%
Average principal as percent of members’ capital, net	1.00%	0.90%
Average principal as percent of total assets	1.00%	0.90%
Largest secured loan - principal (in Dollars)	$ 4,000,000	$ 3,239,124
Largest principal as percent of total principal	6.40%	5.90%
Largest principal as percent of members’ capital, net	5.20%	5.00%
Largest principal as percent of total assets	5.50%	5.10%
Smallest secured loan – principal (in Dollars)	$ 74,390	$ 52,562
Smallest principal as percent of total principal	0.10%	0.10%
Smallest principal as percent of members’ capital, net	0.10%	0.10%
Smallest principal as percent of total assets	0.10%	0.10%
Number of California counties where security is located | Country	15	16
Largest percentage of principal in one California county	25.00%	22.60%
Secured loans in foreclosure - principal (in Dollars)	$ 565,685	$ 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	2	1

XML

Loans - Secured Loans by Lien Position in the Collateral (Details)		12 Months Ended
		Dec. 31, 2018 USD ($) MortgageLoan	Dec. 31, 2017 USD ($) MortgageLoan	Dec. 31, 2016 USD ($)
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items]
Loans | MortgageLoan		83	93
Loans - principal (in Dollars)		$ 62,115,713	$ 54,768,689	$ 40,123,393
Liens due other lenders at loan closing		65,941,118	31,545,806
Total debt		128,056,831	86,314,495
Appraised property value at loan closing		$ 240,307,000	$ 181,018,000
Percent of total debt to appraised values (LTV) at loan closing	[1]	54.50%	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		41	60
Loans - principal (in Dollars)		$ 29,699,888	$ 37,032,195
Loans - percent		48.00%	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)		$ 32,415,825	$ 17,736,494
Loans - percent		52.00%	32.00%

[1] based on appraised values and liens due to 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 included decreases or increases of the amount owing on senior liens to other lenders.

XML

Loans - Secured Loans by Property Type (Details)		12 Months Ended
		Dec. 31, 2018 USD ($) MortgageLoan	Dec. 31, 2017 USD ($) MortgageLoan	Dec. 31, 2016 USD ($)
Loans (Details) - Secured Loans by Property Type [Line Items]
Loans | MortgageLoan		83	93
Loans - principal (in Dollars) | $		$ 62,115,713	$ 54,768,689	$ 40,123,393
Loans - percent		100.00%	100.00%
Single Family [Member]
Loans (Details) - Secured Loans by Property Type [Line Items]
Loans | MortgageLoan	[1]	60	67
Loans - principal (in Dollars) | $	[1]	$ 42,967,253	$ 37,615,216
Loans - percent	[1]	69.00%	69.00%
Multifamily [Member]
Loans (Details) - Secured Loans by Property Type [Line Items]
Loans | MortgageLoan		8	5
Loans - principal (in Dollars) | $		$ 8,210,970	$ 2,164,861
Loans - percent		13.00%	4.00%
Commercial [Member]
Loans (Details) - Secured Loans by Property Type [Line Items]
Loans | MortgageLoan		15	21
Loans - principal (in Dollars) | $		$ 10,937,490	$ 14,988,612
Loans - percent		18.00%	27.00%

[1] single family property type as of December 31, 2018 consists of 14 loans with principal of $11,398,869 that are owner occupied and 46 loans with principal of $31,568,384 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 $31,306,180 that are non-owner occupied.

XML

Loans - Secured Loans by Property Type (Parenthetical) (Details)	12 Months Ended
	Dec. 31, 2018 USD ($) MortgageLoan	Dec. 31, 2017 USD ($) MortgageLoan	Dec. 31, 2016 USD ($)
Loans (Details) - Secured Loans by Property Type [Line Items]
Number of secured loans | MortgageLoan	83	93
Principal | $	$ 62,115,713	$ 54,768,689	$ 40,123,393
Single Family Property-Owner Occupied [Member]
Loans (Details) - Secured Loans by Property Type [Line Items]
Number of secured loans | MortgageLoan	14	10
Principal | $	$ 11,398,869	$ 6,309,036
Single Family Property-NonOwner Occupied [Member]
Loans (Details) - Secured Loans by Property Type [Line Items]
Number of secured loans | MortgageLoan	46	57
Principal | $	$ 31,568,384	$ 31,306,180

XML

Loans - Secured Loans Distributed in California (Details) - USD ($)		Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 62,115,713	$ 54,768,689	$ 40,123,393
Loans - percent		100.00%	100.00%
Santa Clara [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 11,756,695	$ 5,461,084
Loans - percent	[1]	18.90%	10.00%
San Mateo [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 9,619,609	$ 7,800,549
Loans - percent	[1]	15.50%	14.20%
Alameda [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 7,306,779	$ 9,869,036
Loans - percent	[1]	11.80%	18.00%
San Francisco [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 5,238,008	$ 8,338,720
Loans - percent	[1]	8.40%	15.10%
Sonoma [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 1,300,000
Loans - percent	[1]	2.10%
Contra Costa [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 725,771	$ 1,511,195
Loans - percent	[1]	1.20%	2.80%
Marin [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)	[1]	$ 575,000
Loans - percent	[1]	0.90%
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]	$ 36,521,862	$ 33,090,027
Loans - percent	[1]	58.80%	60.30%
Sacramento [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 822,500	$ 850,000
Loans - percent		1.30%	1.60%
Placer [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 637,354	$ 642,913
Loans - percent		1.00%	1.20%
Monterey [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 322,716
Loans - percent		0.50%
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)		$ 1,782,570	$ 1,824,710
Loans - percent		2.80%	3.40%
Northern California [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 38,304,432	$ 34,914,737
Loans - percent		61.60%	63.70%
Los Angeles [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 15,514,789	$ 12,357,456
Loans - percent		25.00%	22.60%
San Diego [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 5,563,635	$ 2,192,746
Loans - percent		9.00%	4.00%
Orange [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 1,177,446	$ 1,487,747
Loans - percent		1.90%	2.70%
Santa Barbara [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)			$ 996,768
Loans - percent			1.80%
Ventura [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)			$ 350,000
Loans - percent			0.60%
Los Angeles & Coastal [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 22,255,870	$ 17,384,717
Loans - percent		35.90%	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		1.90%	3.90%
Riverside [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 355,411	$ 359,235
Loans - percent		0.60%	0.70%
Other Southern California [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 1,555,411	$ 2,469,235
Loans - percent		2.50%	4.60%
Southern California [Member]
Loans (Details) - Secured Loans Distributed Within California [Line Items]
Loans - principal (in Dollars)		$ 23,811,281	$ 19,853,952
Loans - percent		38.40%	36.30%

[1] Includes Silicon Valley

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Loans - Secured Loans Scheduled Maturities (Details)		12 Months Ended
		Dec. 31, 2018 USD ($) MortgageLoan	Dec. 31, 2017 USD ($) MortgageLoan	Dec. 31, 2016 USD ($)
Secured Loans Scheduled Maturities [Abstract]
2019, Loans | MortgageLoan		36
2020, Loans | MortgageLoan		19
2021, Loans | MortgageLoan		16
2022, Loans | MortgageLoan		5
2023, Loans | MortgageLoan		3
Thereafter, Loans | MortgageLoan		1
Total future maturities, Loans | MortgageLoan		80
Matured as of December 31, 2018, Loans | MortgageLoan		3
Number of secured loans | MortgageLoan		83	93
2019, Principal | $		$ 33,004,666
2020, Principal | $		13,918,222
2021, Principal | $		11,315,211
2022, Principal | $		1,425,710
2023, Principal | $		839,097
Thereafter, Principal | $		200,000
Total future maturities, Principal | $		60,702,906
Matured as of December 31, 2018, Principal | $		1,412,807
Total principal, secured loans, Principal | $		$ 62,115,713	$ 54,768,689	$ 40,123,393
2019, Percent		53.00%
2020, Percent		23.00%
2021, Percent		18.00%
2022, Percent		2.00%
2023, Percent		1.00%
Thereafter, Percent		1.00%
Total future maturities, Percent		98.00%
Matured as of December 31, 2018, Percent	[1]	2.00%
Total principal, secured loans, Percent		100.00%	100.00%

[1] One loan with a principal balance of approximately $136,900, was 609 days past maturity, designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019, resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, and were 91 days past maturity and designated as impaired as of December 31, 2018, paid off in-full in March 2019.

XML

Loans - Secured Loans Scheduled Maturities (Parenthetical) (Details)	Dec. 31, 2018 USD ($) MortgageLoan
Loans (Details) [Line Items]
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	3
Impaired Loans [Member]
Loans (Details) [Line Items]
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	1
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $	$ 136,900
Financing Receivable, Recorded Investment, Impaired (in Dollars) | $	$ 1,275,900
Impaired Loans [Member] | Past Maturity 1 to 609 Days [Member]
Loans (Details) [Line Items]
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	1
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $	$ 136,900
Impaired Loans [Member] | Past Maturity 1 to 91 Days [Member]
Loans (Details) [Line Items]
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan	2
Financing Receivable, Recorded Investment, Impaired (in Dollars) | $	$ 1,275,900

XML

Loans - Past Due Financing Receivables (Details)		Dec. 31, 2018 USD ($) Loan	Dec. 31, 2017 USD ($) Loan
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of loans | Loan		83	93
Principal | $		$ 62,115,713	$ 54,768,689
Past Due 30-89 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of loans | Loan		5	3
Principal | $		$ 3,828,975	$ 1,259,100
Past Due 180 Or More Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of loans | Loan	[1]	2	1
Principal | $	[1]	$ 565,685	$ 139,643
Total Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of loans | Loan		7	4
Principal | $		$ 4,394,660	$ 1,398,743
Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of loans | Loan		76	89
Principal | $		$ 57,721,053	$ 53,369,946

[1] One loan with a principal balance of approximately $136,900, was 609 days delinquent and past maturity, designated as impaired and as in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

XML

Loans - Past Due Financing Receivables (Parenthetical) (Details)	Dec. 31, 2018 USD ($) MortgageLoan
Financing Receivable, Recorded Investment, Past Due [Line Items]
Mortgage Loans on Real Estate, Number of Loans	3
Impaired Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Mortgage Loans on Real Estate, Number of Loans	1
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $	$ 136,900
Impaired Loans [Member] | Past Maturity 1 to 609 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Mortgage Loans on Real Estate, Number of Loans	1
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $	$ 136,900

XML

Loans - Secured Loan in Non-Accrual Status (Details)		12 Months Ended
		Dec. 31, 2018 USD ($) MortgageLoan	Dec. 31, 2017 USD ($) MortgageLoan	Dec. 31, 2016 USD ($)
Loans Details Secured Loans In Nonaccrual Status [Line Items]
Number of secured loans | MortgageLoan		83	93
Loans - principal (in Dollars)		$ 62,115,713	$ 54,768,689	$ 40,123,393
Accrued interest		$ 473,966	$ 409,867
Non-Accrual Status [Member]
Loans Details Secured Loans In Nonaccrual Status [Line Items]
Number of secured loans | MortgageLoan	[1]	2	1
Loans - principal (in Dollars)		$ 596,204	$ 151,637
Accrued interest		19,831	11,025
Foregone interest		33,410	4,306
Principal [Member] | Non-Accrual Status [Member]
Loans Details Secured Loans In Nonaccrual Status [Line Items]
Loans - principal (in Dollars)		565,685	139,643
Advances [Member] | Non-Accrual Status [Member]
Loans Details Secured Loans In Nonaccrual Status [Line Items]
Loans - principal (in Dollars)		$ 10,688	$ 969

[1] One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain.

XML

Loans - Secured Loan in Non-Accrual Status (Parenthetical) (Details)	Dec. 31, 2018 USD ($) MortgageLoan
Loans Details Secured Loans In Nonaccrual Status [Line Items]
Mortgage Loans on Real Estate, Number of Loans	3
Impaired Loans [Member]
Loans Details Secured Loans In Nonaccrual Status [Line Items]
Mortgage Loans on Real Estate, Number of Loans	1
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $	$ 136,900

XML

Loans - Schedule of Impaired Loans/Allowance for Loan Losses (Details)		12 Months Ended
		Dec. 31, 2018 USD ($) Loan	Dec. 31, 2017 USD ($) Loan
Secured Loans Designated as Impaired Loans [Abstract]
Principal		$ 3,841,148	$ 139,643
Recorded investment		3,950,157	151,637
Impaired loans without allowance		$ 3,950,157	$ 151,637
Number of loans | Loan	[1]	6	1

[1] One loan with a principal balance of approximately $136,900 which was designated as impaired and in non-accrual status as of December 31, 2018, was sold to an unaffiliated third party in March 2019 resulting in an immaterial gain. Two loans with an aggregate principal balance of approximately $1,275,900, were designated as impaired as of December 31, 2018, paid off in-full in March 2019

XML

Loans - Schedule of Impaired Loans/Allowance for Loan Losses (Parenthetical) (Details)	Dec. 31, 2018 USD ($) MortgageLoan
Impaired Loans/Allowance for Loan Losses [Line Items]
Mortgage Loans on Real Estate, Number of Loans	3
Impaired Loans [Member]
Impaired Loans/Allowance for Loan Losses [Line Items]
Mortgage Loans on Real Estate, Number of Loans	1
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $	$ 136,900
Mortgage Loans on Real Estate, Number of Loans Impaired	2
Financing Receivable, Recorded Investment, Impaired (in Dollars) | $	$ 1,275,900

XML

Loans - Impaired Loans - Average Balances and Interest Income (Details) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017
Impaired Loans - Average Balances and Interest Income [Abstract]
Average recorded investment	$ 2,050,897	$ 536,934
Interest income recognized	23,848	8,602
Interest income received in cash	$ 21,670	$ 4,342

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Commitments and Contingencies, Other Than Loan Commitments - Scheduled Redemptions of Members' Capital (Details)	12 Months Ended
	Dec. 31, 2018 USD ($)
Scheduled Redemptions Of Members Capital [Abstract]
2019	$ 1,253,669
Total	$ 1,253,669

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Commitment and Contingencies, Other Than Loan Commitments - Additional Information (Details)	12 Months Ended
	Dec. 31, 2018 USD ($)
Commitments And Contingencies Disclosure [Abstract]
Percentage of reimbursement of organization and offering expenses	4.50%
RMC incurred O&O expenses in excess of 4.5% cap and reimbursed to RMC	$ 3,510,299