Note 2 - Loans Secured by Trust Deeds

3 Months Ended

Mar. 31, 2012

NOTE 2 - LOANS SECURED BY TRUST DEEDS

Loans secured by trust deeds as of March 31, 2012 and December 31, 2011 are as follows:

	2012		2011
By Property Type:
Commercial	$	25,964,160	$	29,552,531
Condominiums		10,129,631		10,369,534
Single family homes (1-4 Units)		250,000		250,000
Improved and unimproved land		29,249,811		29,249,811
	$	65,593,602	$	69,421,876
By Deed Order:
First mortgages	$	51,290,254	$	48,710,380
Second and third mortgages		14,303,348		20,711,496
	$	65,593,602	$	69,421,876

Scheduled maturities of loans secured by trust deeds as of March 31, 2012 and the interest rate sensitivity of such loans are as follows:

	Fixed		Variable
	Interest		Interest
	Rate		Rate		Total
Year ending March 31:
2012 (past maturity)	$	48,255,382	$	—	$	48,255,382
2013		3,506,263		—		3,506,263
2014		1,400,000		2,000,000		3,400,000
2015		—		9,000,000		9,000,000
Thereafter (through Mar. 2022)		111,957		1,320,000		1,431,957
	$	53,273,602	$	12,320,000	$	65,593,602

Variable rate loans may use as indices the one-year, five-year and 10-year Treasury Constant Maturity Index (0.19%, 1.04% and 2.23%, respectively, as of March 31, 2012), the prime rate (3.25% as of March 31, 2012) or the weighted average cost of funds index for Eleventh District savings institutions (1.16% as of March 31, 2012) or include terms whereby the interest rate is adjusted at a specific later date. Premiums over these indices have varied from 2.0% to 6.5% depending upon market conditions at the time the loan is made.

The following is a schedule by geographic location of loans secured by trust deeds as of March 31, 2012 and December 31, 2011:

	March 31, 2012		Portfolio	December 31, 2011		Portfolio
	Balance		Percentage	Balance		Percentage
Arizona	$	7,535,000	11.48%	$	7,535,000	10.86%
California		45,715,761	69.70%		50,624,132	72.92%
Hawaii		2,000,000	3.05%		2,000,000	2.88%
Louisiana		1,320,000	2.01%		—	—%
Pennsylvania		4,021,946	6.13%		4,021,946	5.79%
Utah		2,594,632	3.96%		2,834,535	4.08%
Washington		2,406,263	3.67%		2,406,263	3.47%
	$	65,593,602	100.00%	$	69,421,876	100.00%

As of March 31, 2012 and December 31, 2011, the Partnership’s loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 70% ($45,716,000) and 73% ($50,624,000), respectively, of the loan portfolio. The Northern California region (which includes Monterey, Fresno, Kings, Tulare and Inyo counties and all counties north) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate. In addition, as of March 31, 2012 approximately 81% of the Partnership’s mortgage loans were secured by real estate located in the states of California and Arizona, which have experienced dramatic reductions in real estate values over the past four years.

During the three months ended March 31, 2012, the Partnership extended to December 31, 2013 the maturity date of one loan with a principal balance of $800,000. During the three months ended March 31, 2011, the Partnership extended to April 30, 2011 the maturity date of one loan with a principal balance of approximately $1,088,000.

During the three months ended March 31, 2012, the Partnership recognized $805,000 in deferred gain related to the sale of the Bayview Gardens property in 2006 as the carry back note with a remaining principal balance of approximately $4,891,000 was repaid in full by the buyer/borrower during the quarter ended March 31, 2012.

As of March 31, 2012 and December 31, 2011, approximately $65,482,000 (99.8%) and $64,402,000 (92.8%) of Partnership loans are interest-only and require the borrower to make a “balloon payment” on the principal amount upon maturity of the loan. To the extent that a borrower has an obligation to pay mortgage loan principal in a large lump sum payment, its ability to satisfy this obligation may be dependent upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial cash amount. As a result, these loans involve a higher risk of default than fully amortizing loans. Borrowers occasionally are not able to pay the full amount due at the maturity date. The Partnership may allow these borrowers to continue making the regularly scheduled monthly interest payments for certain periods of time to assist the borrower in meeting the balloon payment obligation without formally filing a notice of default. These loans for which the principal is due and payable, but the borrower has failed to make such payment of principal are referred to as “past maturity loans”. As of March 31, 2012 and December 31, 2011, the Partnership had sixteen past maturity loans totaling approximately $48,255,000 and $46,666,000, respectively.

As of March 31, 2012 and December 31, 2011, the Partnership had eighteen loans that were impaired, delinquent in monthly payments greater than ninety days and/or in the process of foreclosure totaling approximately $52,084,000 (79%) and $52,327,000 (75%), respectively. This included fifteen and fourteen past maturity loans totaling $47,565,000 (73%) and $45,176,000 (65%), respectively. In addition, one and two loans totaling approximately $690,000 (1%) and $1,490,000 (2%), respectively, were past maturity but current in monthly payments as of March 31, 2012 and December 31, 2011, respectively (combined total of impaired and past maturity loans of $52,774,000 (80%) and $53,817,000 (78%), respectively). Of the impaired and past maturity loans, approximately $27,623,000 (42%) and $8,050,000 (12%), respectively, were in the process of foreclosure and $4,630,000 (7%) and $24,203,000 (35%), respectively, involved borrowers who were in bankruptcy as of March 31, 2012 and December 31, 2011.

During the quarter ended March 31, 2012, the Partnership received a partial payoff of $240,000 on one delinquent and past maturity loan with a principal balance prior to the payoff of approximately $2,835,000. In addition, in April 2012 (subsequent to quarter end), one delinquent and past maturity loan with a principal balance of $430,000 was paid off in full by the borrower. In addition, in April 2012 (subsequent to quarter end), the borrower on two delinquent loans secured by the same property with an aggregate principal balance totaling $1,863,000 filed for bankruptcy protection.

The Partnership foreclosed on no loans during the three months ended March 31, 2012. The Partnership foreclosed on four loans during the three months ended March 31, 2011 with aggregate principal balances totaling $34,832,000 and obtained the properties via the trustee’s sales (see Notes 5 and 6 for further details).