Note 7 - Transactions with Affiliates (Restated)

9 Months Ended

Sep. 30, 2011

Related Party Transactions Disclosure [Text Block]

NOTE 7 - TRANSACTIONS WITH AFFILIATES (RESTATED)

In consideration of the management services rendered to the Partnership, Owens Financial Group, Inc. (“OFG”), the General Partner, is entitled to receive from the Partnership a management fee payable monthly, subject to a maximum of 2.75% per annum of the average unpaid balance of the Partnership’s mortgage loans.

All of the Partnership’s loans are serviced by OFG, in consideration for which OFG receives up to 0.25% per annum of the unpaid principal balance of the loans.

OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. Even though the fees for a month may exceed 1/12 of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the 12 months must be equal to or less than the stated limits. Management fees amounted to approximately $544,000 and $658,000 for the three months ended September 30, 2011 and 2010, respectively, and $1,830,000 and $1,713,000 for the nine months ended September 30, 2011 and 2010, respectively, and are included in the accompanying consolidated statements of operations. Servicing fees amounted to approximately $63,000 and $122,000 for the three months ended September 30, 2011 and 2010, respectively, and $218,000 and $382,000 for the nine months ended September 30, 2011 and 2010, respectively, and are included in the accompanying consolidated statements of operations. As of September 30, 2011 and December 31, 2010, the Partnership owed management and servicing fees to OFG in the amount of approximately $420,000 and $157,000, respectively.

The maximum servicing fees were paid to the General Partner during the three and nine months ended September 30, 2011 and 2010. If the maximum management fees had been paid to the General Partner during the three and nine months ended September 30, 2011, the management fees would have been $688,000 (increase of $143,000) and $2,403,000 (increase of $572,000), respectively, which would have increased net loss allocated to limited partners by approximately 2.8% and 8.6%, respectively, and net loss allocated to limited partners per weighted average limited partner unit by the same percentages to a loss of $.019 and $.025, respectively, from a loss of $.018 and $.023, respectively. If the maximum management fees had been paid to the General Partner during the three and nine months ended September 30, 2010, the management fees would have been $1,339,000 (increase of $681,000) and $4,197,000 (increase of $2,483,000), respectively, which would have decreased net income allocated to limited partners by approximately 38% and 317%, respectively, and net income allocated to limited partners per weighted average limited partner unit by the same percentages to income (loss) of $.004 and $(.006), respectively, from income of $.006 and $.003, respectively.

In determining the yield to the partners and hence the management fees, OFG may consider a number of factors, including current market yields, delinquency experience, un-invested cash and real estate activities. OFG expects that the management fees it receives from the Partnership will vary in amount and percentage from period to period, and while it is possible that OFG will again receive less than the maximum management fees in the future, OFG could decide to receive the maximum management fees at its discretion. The likelihood of OFG receiving the maximum management fees will increase in 2012 and beyond as the average balance of the loan portfolio decreases further with loan foreclosures and payoffs. If OFG chooses to take the maximum allowable management fees in the future, the yield paid to limited partners may be reduced.

Pursuant to the Partnership Agreement, OFG receives all late payment charges from borrowers on loans owned by the Partnership, with the exception of loans participated with outside entities. The amounts paid to or collected by OFG for such charges totaled approximately $4,000 and $2,000 for the three months ended September 30, 2011 and 2010, respectively, and $778,000 and $129,000 for the nine months ended September 30, 2011 and 2010, respectively. In addition, the Partnership remits other miscellaneous fees to OFG, which are collected from loan payments, loan payoffs or advances from loan principal (i.e. funding, demand and partial release fees). Such fees remitted to OFG totaled approximately $0 and $3,000 for the three months ended September 30, 2011 and 2010, respectively, and $8,000 and $10,000 for the nine months ended September 30, 2011 and 2010, respectively.

OFG originates all loans the Partnership invests in and receives loan origination and extension fees from borrowers. Such fees paid to OFG amounted to approximately $168,000 and $32,000 on loans originated or extended of approximately $10,240,000 and $800,000 for the nine months ended September 30, 2011 and 2010, respectively. A loan fee paid to OFG in the amount of $78,000 during the nine months ended September 30, 2011 was collected from the borrower upon payoff of the related loan in December 2010 and remitted to OFG in January 2011.

OFG is reimbursed by the Partnership for the actual cost of goods, services and materials used for or by the Partnership and obtained from unaffiliated entities and the salary and related salary expense of OFG’s non-management and non-supervisory personnel performing services for the Partnership which could be performed by independent parties (subject to certain limitations in the Partnership Agreement). The amounts reimbursed to OFG by the Partnership were $160,000 and $16,000 during the three months ended September 30, 2011 and 2010, respectively, and $477,000 and $47,000 during the nine months ended September 30, 2011 and 2010, respectively.

The General Partner is required to contribute capital to the Partnership in the amount of 0.5% of the limited partners’ aggregate capital accounts and, together with its carried interest; the General Partner has an interest at least equal to 1% of the limited partners’ capital accounts. The carried interest of the General Partner of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the General Partner’s capital account as additional compensation. As of September 30, 2011, the General Partner has made cash capital contributions of $1,496,000 to the Partnership ($88,000 of which was distributed to the General Partner along with limited partner capital distributions in July 2011). The General Partner is required to continue cash capital contributions to the Partnership in order to maintain its minimum required capital balance.There was no carried interest expense charged to the Partnership for the three and nine months ended September 30, 2011 and 2010, respectively.

As of December 31, 2010, the General Partner held second (junior to the Partnership’s first deed of trust due to an intercreditor agreement between the parties causing the Partnership to have a senior interest) and fourth deeds of trust in the total amount of approximately $853,000 secured by the same property (and to the same borrower) on which the Partnership had a first deed of trust in the amount of $2,200,000 at an interest rate of 12% per annum.  Approximately $517,000 of the General Partner’s second deed of trust was an exit fee included in the deed of trust at the time of loan origination in 2006. The Partnership foreclosed on its first deed of trust during the quarter ended September 30, 2011 and obtained the property via the trustee’s sale (see Note 6).