rmiviii-20131231

10-K 1 rmiviii-20131231_10k.htm rmiviii-20131231_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

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

For the Year Ended December 31, 2013

[ ]	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: 000-27816

REDWOOD MORTGAGE INVESTORS VIII,

a California Limited Partnership

(Exact name of registrant as specified in its charter)

California	94-3158788
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)


1825 South Grant Street, Suite 250, 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:	Limited Partnership Units

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[ ] YES [X] 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 [X] 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.

[X] YES [ ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] 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. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[ ] YES [X] NO

The registrant’s limited partnership units are not publicly traded and therefore have no market value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Prospectus, dated August 4, 2005, and Supplement No. 6 dated April 28, 2008, included as part of the Post Effective Amendment No. 8 to the Registration Statement on Form S-11 (SEC File No. 333-125629) are incorporated in the following sections of this report:

·	Part II – Item 5 – Market for the Registrant’s “Limited Partnership Units,” Related Unitholder Matters and Issuer Purchases of Equity Securities

·	Part III – Item 11 –Executive Compensation

·	Part III – Item 13 – Certain Relationships and Related Transactions, and Director Independence”

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Index to Form 10-K

December 31, 2013

	Part I
		Page No.
Item 1	– Business	4
Item 1A	– Risk Factors (Not included as smaller reporting company)	10
Item 1B	– Unresolved Staff Comments (Not applicable)	10
Item 2	– Properties	10
Item 3	– Legal Proceedings	10
Item 4	– Mine Safety Disclosures	10

	Part II

Item 5	– Market for the Registrant’s “Limited Partnership Units,” Related Unitholder Matters and
	Issuer Purchases of Equity Securities	11
Item 6	– Selected Financial Data (Not included as smaller reporting company)	11
Item 7	– Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A	– Quantitative and Qualitative Disclosures About Market Risk (Not included as smaller reporting company)	23
Item 8	– Consolidated Financial Statements and Supplementary Data	24
Item 9	– Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	64
Item 9A	– Controls and Procedures	64
Item 9B	– Other Information	64

	Part III

Item 10	– Directors, Executive Officers and Corporate Governance	65
Item 11	– Executive Compensation	66
Item 12	– Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	67
Item 13	– Certain Relationships and Related Transactions, and Director Independence	67
Item 14	– Principal Accountant Fees & Services	67

	Part IV

Item 15	– Exhibits and Financial Statement Schedules	68

Signatures		69

Certifications		71

Part 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, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, estimates as to the allowance for loan losses, estimates of future limited partner withdrawals, 2014 annualized yield estimates, additional foreclosures in 2014, expectations regarding the level of loan delinquencies, plans to develop or sell certain properties, the anticipated costs to complete certain property developments, beliefs relating to the impact on the partnership from current economic conditions and trends in the financial and credit markets, expectations as to when liquidations will resume, the anticipated growth of profits and distributions, beliefs regarding the partnership’s ability to recover its investment in certain properties, beliefs regarding the effect of borrower foreclosures on liquidity, the use of excess cash flow and the intention not to sell the partnership’s loan portfolio. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include unexpected changes in economic conditions and interest rates, the impact of competition and competitive pricing and downturns in the real estate markets in which the partnership has made loans. 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.

Item 1 – Business

Overview

Redwood Mortgage Investors VIII, a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993 to engage in business as a mortgage lender for the primary purpose of making loans secured by deeds of trust on California real estate. The general partners of the partnership are Redwood Mortgage Corp. (“RMC”) and its wholly-owned subsidiary, Gymno LLC (“Gymno”), a California limited liability company, and Michael R. Burwell (“Burwell”), an individual. The mortgage loans the company invests in are arranged and are generally serviced by RMC. Michael Burwell is the president and majority shareholder (through his holdings and beneficial interests in certain trusts) of RMC. The general partners are required to contribute to capital 1/10 of 1% of the aggregate capital contributions of the limited partners. As of December 31, 2013, the general partners had contributed capital in accordance with Section 4.1 of the partnership agreement.

The rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15900 et seq. of the California Corporations Code.

The general partners are solely responsible for managing the partnership business, subject to the rights of the limited partners to vote on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership.

A majority of the outstanding limited partnership interests may, without the consent of the general partners, vote to: (i) terminate the partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the partnership and (iv) remove or replace one or all of the general partners.

The approval of the majority of limited partners is required to elect a new general partner to continue the partnership business where there is no remaining general partner after a general partner ceases to be a general partner other than by removal.

Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after one percent of the profits and losses are allocated to and among the general partners. The limited partners elect, at the time of their subscription for units, to (a) receive a monthly, quarterly or annual cash distributions of their pro-rata share of profits or (b) have profits credited to their capital accounts and used to invest in partnership activities. The election to receive cash distributions is irrevocable. Subject to certain limitations, a compounding investor may subsequently change his election. Monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Income taxes – federal and state – are the obligation of the partners, if and when income taxes apply, other than for the minimum annual California franchise tax paid by the partnership. Investors should not expect the partnership to provide tax benefits of the type commonly associated with limited partnership tax shelter investments.

There are substantial restrictions on transferability of units and accordingly an investment in the partnership is non-liquid. Limited partners have no right to withdraw from the partnership or to obtain the return of their capital account for at least one year from the date of purchase of partnership units. In order to provide a certain degree of liquidity to the limited partners after the one-year period, limited partners may withdraw all or part of their capital accounts from the partnership in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable to the amount withdrawn as stated in the notice of withdrawal and will be deducted from the capital account. Once a limited partner has been in the partnership for the minimum five-year period, no penalty is imposed if the withdrawal is made in twenty quarterly installments or longer. Notwithstanding the minimum withdrawal period, the general partners, at their discretion, may liquidate all or part of a limited partner’s capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to when such sums could have been withdrawn without penalty.

The partnership does not establish a reserve from which to fund withdrawals and, accordingly, the partnership’s capacity to return a limited partner’s capital account is restricted to the availability of partnership cash flow. Furthermore, no more than 20% of the total limited partners’ capital accounts outstanding at the beginning of any year may be liquidated during any calendar year.

In March 2009, in response to economic conditions then existing, the partnership suspended capital liquidations. In the fourth quarter of 2009 the partnership entered into a forbearance agreement with its banks and subsequently entered into an amended and restated loan agreement (dated October 2010) which included additional restrictions on liquidations and distributions of partners’ capital. The bank loan was paid off in September 2012. As the partnership’s three most recently completed quarters have been profitable, starting January 1, 2014, the partnership will be considering liquidation requests on a limited basis. For the first quarter, which ends March 31, 2014, those investors that had a liquidation payment pending as of March 31, 2009 will resume liquidation payments based on their current capital balance, subject to available cash flow, and in the priority order detailed in the partnership agreement. For those limited partners that request liquidation between January 1, 2014 and prior to March 31, 2014, we will add their liquidation requests to those previously existing and they will be scheduled to commence June 30, 2014. Each quarter, the partnership will allocate a specific amount of cash for liquidation payments. In the event that the cash allocated is insufficient to meet the liquidation requests of all limited partners requesting liquidations, then liquidation requests will be disbursed based upon the priority schedule set forth in the partnership agreement and then on a pro-rata basis. The partnership intends to continue to accept liquidation requests in future quarters and these requests will be added to previously existing requests and be subject to the same priorities and pro-rata allocation of distributable cash as described in the partnership agreement.

Principal Investment Objectives and General Standards for Mortgage Loans

Principal Investment Objectives

The partnership’s primary objectives are to make investments which will:

(i)	yield a high rate of return from mortgage lending and;

(ii)	preserve and protect the partners’ capital

General Standards for Mortgage Loans

The partnership is engaged in the business of making loans with first and second deeds of trust on real property located in California, including:

·	single-family property includes owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes,

·	multi-family residential property (such as apartment buildings),

·	commercial property (such as stores, shops and offices), and

·	undeveloped land.

As of December 31, 2013, of the partnership’s outstanding loan portfolio, 65% is secured by 1 to 4 unit single family residences, inclusive of condominiums, 32% commercial properties, 2% multifamily properties and 1% undeveloped land. The partnership may also make loans secured by promissory notes which are secured by deeds of trust and are assigned to the partnership.

Loans are arranged and serviced by RMC, one of the general partners. 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. For loans secured by real property used commercially, such considerations though 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 our 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 loan-to-value ratio generally will not exceed 80% for residential properties (including multi-family), 70% for commercial properties, and 50% for land. The excess of the value of the collateral securing the loan over the total debt owing on the property, including the partnership’s loan, is the “protective equity”.

We believe our LTV policy gives 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 partnership may have a higher level of loan-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.

Recently enacted federal legislation impacts the lending to non-commercial residential borrowers by requiring the lender to consider a borrower’s ability to meet payment obligations specified in the loan documents. The Dodd-Frank Act imposes significant new regulatory restrictions on the origination of residential mortgage loans, under sections concerning "Mortgage Reform and Anti-Predatory Lending." For example, these provisions require that when a consumer loan is made, the lender must make a reasonable and good faith determination, based on verified and documented information concerning the consumer’s financial situation, 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 general partners are monitoring developments and, if and when applicable, will adjust underwriting and lending practices accordingly. Residential lending on owner occupied properties that would be subject to the legislation and regulations generally has not been a significant portion of the loans made by the partnership’s general partners.

Other Recent Developments

The year 2013 marked the first full year since the 2008 financial crisis that the partnership operated in normally functioning (i.e. not distressed) markets and without severe constraints imposed by its lenders The partnership is reporting full year net income for 2013 (the first since 2008), and the transition from crisis management, focused on cash management, to a focus on re-building the partnership’s profitability.

The combination of general economic conditions of low growth with continuing high unemployment following the 2008 financial crisis and the resultant Great Recession that began in 2009, the constrained credit markets, the distressed real estate markets, and the terms and the conditions of the amended and restated loan agreement with our banks resulted in significant changes to the lending and business operations of the partnership, as well as to its balance sheet, results of operations and cash flows.

Beginning in 2009 and continuing until the fourth quarter of 2012 the partnership was severely limited in its capacity to originate loans by economic conditions, market constraints and the terms and conditions of the amended and restated loan agreement. The partnership’s net interest income (interest income less interest expense) declined from $30,500,000 in 2008 to $(1,573,000) in 2012. Since the repayment of the bank loan in late September 2012, the partnership’s ability to originate loans has increased, resulting in a net interest income for 2013 of $(285,000).

As to the balance sheet of the partnership subsequent to the financial crisis and during the Great Recession, the asset mix has migrated from predominantly performing loans to Real Estate Owned (REO) and impaired loans. Total assets, the sum of all assets owned by the partnership, decreased from $424,873,000 at December 31, 2008, to $245,221,000 at December 31, 2013 (a decline of $179,652,000 or 42%). Net loans, the total of secured loans (principal, advances, accrued interest), unsecured loans, less the allowance for losses, declined over the same dates from $386,589,000 to $44,422,000, respectively (a decline of $342,167,000 or 89%) resulting from a decrease in loan balances (principal declined from $363,037,000 at December 31, 2008, to $51,890,000 at December 31, 2013). This reduction in loan balances reflected the decline during 2009 to 2011 in the fair value of the real estate collateral securing impaired loans, the repayment of loans, and the migration of loans to REO. REO increased from $25,693,000 at December 31, 2008, to $179,115,000 at December 31, 2013, as a consequence of the loan collection efforts undertaken by the general partners.

Cash received during the three year period of October 2009 to September 2012, from loan payments, loan payoffs, the sale of real estate owned and third-party mortgages obtained on stabilized properties that we own and are included in REO was predominantly used to pay down the amount outstanding on the bank loan, to make the periodic interest and principal payments on the loan, to protect the security interest in the collateral securing the loans from senior debt and claims, to maintain and develop REO, to meet the operating expenses of the partnership, and to fund periodic payments to limited partners that elected monthly, quarterly and annual distributions.

Secured Loan Portfolio

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 Los Angeles metropolitan area 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 in California is highly competitive, and the company will compete with numerous established entities, some of which have more financial resources and experience in the mortgage lending business. Major competitors in providing mortgage loans include banks, savings and loan associations, thrifts, conduit lenders, mortgage bankers, mortgage brokers, and other entities both larger and smaller than the company.

Regulations

We are subject to various federal, state and local laws, rules and regulations that affect our business. Following is a brief description of certain laws and regulations which are applicable to our business. The description of these laws and regulations, as well as descriptions of laws and regulations contained elsewhere in this Form 10-K, do not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.

Regulations Applicable to Mortgage Lenders and Servicers

The partnership and Redwood Mortgage Corp., 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 are regularly being introduced.

These laws and regulations to which the partnership and Redwood Mortgage Corp. are subject include those pertaining to:

·	real estate settlement procedures;

·	fair lending;

·	truth in lending;

·	compliance with federal and state disclosure requirements;

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

·	loan servicing procedures

·	secured transactions and foreclosure proceedings; and

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

Some of the key federal and state laws affecting our business include:

Real Estate Settlement Procedures Act (RESPA). RESPA primarily regulates settlement procedures for real estate purchase and refinance transactions on residential (1-4 unit) properties. It prohibits lenders from requiring the use of specified third party providers for various settlement services, such as appraisal or escrow services. RESPA also governs the format of the good faith estimate of loan transaction charges and the HUD-1 escrow settlement statement.

Truth in Lending Act. This federal act was enacted in 1968 for the purpose of regulating consumer financing and is implemented by the Consumer Financial Protection Bureau (CFPB). For real estate lenders, this act requires, among other things, advance disclosure of certain loan terms, calculation of the costs of the loan as demonstrated through an annual percentage rate (APR), and the right of a consumer in a refinance transaction on their primary residence to rescind their loan within three days following signing.

Home Ownership and Equity Protection Act (HOEPA) and California Covered Loan Law. HOEPA was passed in 1994 to provide additional disclosures for certain closed-end home mortgages. In 1995, the Federal Reserve Board issued final regulations governing “high cost” closed-end home mortgages 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. The failure to comply with the regulations will render the loan rescindable for up to three years. Lenders can also be held liable for attorneys’ fees, finance charges and fees paid by the borrower and certain other money damages. Similarly in California, Assembly Bill 489, which was signed into law in 2001 and became effective as of July 1, 2002, as Financial Code Section 4970, et. seq., provides for state regulation of “high cost” residential mortgage and consumer loans secured by liens on real property, which equal or exceed the Fannie Mae/Freddie Mac conforming loan limits or less, with interest rates and fees exceeding a certain percentage or amount threshold. 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.

·	Mortgage Disclosure Improvement Act. Enacted in 2008, this act amended the Truth in Lending Act regulating the timing and delivery of loan disclosures for all mortgage loan transactions governed under RESPA.

Home Mortgage Disclosure Act. This act was enacted to provide for public access to statistical information on a lenders’ loan activity. It requires lenders to disclose certain information about the mortgage loans it originates and acquires, such as the race and gender of its customers, the disposition of mortgage applications, income levels and interest rate (i.e. annual percentage rate) information.

·	Red Flags Rule. Enacted in 2009, the Red Flags Rule 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.

Graham-Leach-Bliley Act. This act 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.

Dodd-Frank Act. The Dodd-Frank Act enhanced regulatory requirements on banking entities and other organizations considered significant to U.S. financial markets. The act also 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. The act imposes significant new 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, 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 also established the CFPB, giving it regulatory authority over most federal consumer lending laws, including those relating to residential mortgage lending.

Recent or Pending Legislation and Regulatory Proposals.

The recent credit crisis has led to an increased focus by federal, state and local legislators and regulatory authorities on entities engaged in the financial-services industry generally, principally banks, and on the mortgage industry specifically, principally with respect to residential lending to borrowers who intend to occupy the residence. A broad variety of legislative and regulatory proposals are continually being considered and such proposals cover mortgage loan products, loan terms and underwriting standards, risk management practices, foreclosure procedures and consumer protection, any or all of which could significantly affect the mortgage industry. These actions are intended to make it possible for qualified borrowers to obtain mortgage financing to purchase homes, refinance existing loans, avoid foreclosure on their homes, and to curb perceived lending abuses. It is too early to tell whether these legislative and regulatory initiatives, actions and proposals will achieve their intended effect or how they will affect our business and the mortgage industry generally.

Proposed Amendments to the U.S. Bankruptcy Code. Since 2008, proposed legislation has been introduced before the U.S. Congress for the purpose of amending Chapter 13 in order to permit bankruptcy judges to modify certain terms in certain mortgages in bankruptcy proceedings, a practice commonly known as cramdown. Presently, Chapter 13 does not permit bankruptcy judges to modify mortgages of bankrupt borrowers. While the breadth and scope of the terms of the proposed amendments to Chapter 13 differ greatly, some commentators have suggested that such legislation could have the effect of increasing mortgage borrowing costs and thereby reducing the demand for mortgages throughout the industry. It is too early to tell when or if any of the proposed amendments to Chapter 13 may be enacted as proposed and what effect any such enacted amendments to Chapter 13 would have on the mortgage industry. Some local and state governmental authorities have taken, and others are contemplating taking, regulatory action to require increased loss mitigation outreach for borrowers, including the imposition of waiting periods prior to the filing of notices of default and the completion of foreclosure sales and, in some cases, moratoriums on foreclosures altogether.

Consumer Financial Protection Bureau’s Proposed QM and QRM Rules. Under the Dodd-Frank Act, the Consumer Finance Protection Bureau is charged with writing rules to implement two new underwriting standards, Qualified Mortgages (QM) and Qualified Residential Mortgages (QRM). Although these two regulations affect different areas of lending, they have similar definitions under Dodd-Frank, and their implementation will most likely have a similar effect within the mortgage lending industry. Under Dodd-Frank, securitizers will be required to retain a 5% interest in any securities they issue, unless 100% of the securities in the offering meet the Qualified Residential Mortgage standard. The Qualified Mortgage will provide a safe harbor to lenders in meeting the “ability to pay” requirements in Dodd-Frank. If a residential loan is underwritten under the to-be-determined QM guidelines, it will be presumed to be in compliance. To limit their liability, most institutional lenders will only be interested in writing loans that fall within the QM and QRM standards. If the rules are written with very narrow standards, it could have the possible effect of constricting the availability of credit to real property.

State of California Homeowner’s Bill of Rights. State of California Attorney General Kamala Harris introduced legislation in the first half of 2012 simultaneously to the State Assembly and the State Senate, consisting of eight bills and co-sponsored by the leadership in both houses. This proposed legislation is intended to set industry standards on how loan modifications and delinquent loans are handled and to provide homeowners with assurances that they will be treated fairly by their lenders under these distressed circumstances. Two key pieces of this legislation have been fast-tracked to a joint conference committee, with a final vote expected in the near future. If passed as proposed, this key legislation will provide a private right of action by borrowers against their lenders, which could result in lengthy and costly delays in processing home loan foreclosures in the state.

Item 1A – Risk Factors (Not included as smaller reporting company)

Item 1B – Unresolved Staff Comments

Because the partnership is not an accelerated filer, a large accelerated filer or a well-seasoned issuer, the information required by Item 1B is not applicable.

Item 2 - Properties

Properties generally are acquired by foreclosure on impaired loans, and may be classified as “real estate held for sale” or “real estate held as investment”. See Notes 5 (Real Estate Held) to the financial statements included in Part II, Item 8 of this report for a detailed presentation of the properties/real estate owned (“REO”), which presentation is incorporated by this reference into this Item 2.

Item 3 – Legal Proceedings

In the normal course of business, the partnership may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes, or to protect, or recoup its investment from the real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership is 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

Part II

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

There is no established public trading market for the units, and we do not anticipate that one will develop.

As of December 31, 2013, approximately 8,400 limited partners had an aggregate capital balance set forth in the consolidated Balance Sheet included in Item 8 of this report. A description of the units, transfer restrictions and withdrawal provisions is described under the section of the prospectus entitled “Description of Units” and “Summary of Limited Partnership Agreement,” on pages 81 through 84 of the prospectus, a part of the referenced registration statement, which is incorporated herein by reference, and which pages are included in Exhibit 99.1 to this report.

Partners have the option to elect to have distributed to them amounts equal to current-period profits on a monthly, quarterly, or annual basis or to elect compounding the profits by foregoing the distribution to them of current-period profits. Limited partners may withdraw from the partnership in accordance with the terms of the limited partnership agreement subject to possible early withdrawal penalties.

Please refer to the Statement of Operations in the consolidated financial statements and the Notes thereto included in Part II, Item 8 of this report for information on the 2013 and 2012 net income per $1,000 invested by limited partners, which presentation is incorporated by this reference into this Item 5.

Item 6 – Selected Financial Data (Not included as smaller reporting company)

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

Critical Accounting Policies

See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part II, Item 8 of this report for a detailed presentation of critical accounting policies, which presentation is incorporated by this reference into this Item 7.

General Partners and Other Related Parties

See Notes 1 (General) and 3 (General Partners and Other Related Parties) to the financial statements included in Part II, Item 8 of this report for a detailed presentation of various partnership activities for which the general partners and related parties are compensated, and other related-party transactions, including the formation loan, which presentation is incorporated by this reference into this Item 7.

Results of Operations

The partnership’s results of operations are discussed below for the years ended December 31, 2013 and 2012 ($ in thousands).

	Changes for the years ended December 31,
	2013					2012
	Dollars			Percent		Dollars			Percent
Revenues, net
Interest income
Loans	$	605		44	%	$	(624	)	(31	)%
Imputed interest on formation loan		182		88			(263	)	(56	)
Other interest income		—		—			(4	)	(80	)
Total interest income		787		49			(891	)	(36	)

Interest expense
Mortgages
Rental REO		(134	)	(6	)		82		4
Non-rental REO		(3	)	(100	)		1		50
Total mortgage interest expense		(137	)	(6	)		83		4
Bank loan, secured		(560	)	(100	)		(1,738	)	(76	)
Amortization of discount on formation loan		182		88			(263	)	(56	)
Other interest expense		14		1,400			(89	)	(99	)
Total interest expense		(501	)	(16	)		(2,007	)	(39	)

Net interest income/(expense)		1,288		(82	)		1,116		(42	)

Late fees		(6	)	(40	)		(22	)	(59	)
Other		850		85,000			183		(101	)
Total revenues/(expense), net		2,132		(137	)		1,277		(45	)

Provision for loan losses		(1,899	)	(221	)		(5,254	)	(86	)

Operating expenses
Mortgage servicing fees		(133	)	(18	)		(1,882	)	(72	)
Asset management fees		(75	)	(9	)		(98	)	(10	)
Costs from Redwood Mortgage Corp.		292		22			126		11
Professional services		(608	)	(51	)		251		27
REO
Rental operations, net		(284	)	10			(1,073	)	59
Holding costs		(442	)	(63	)		(599	)	(46	)
Loss/(gain) on disposal		(482	)	1,236			482		(93	)
Impairment loss/(gain)		(249	)	(20	)		(8,464	)	(87	)
Other		(75	)	(52	)		96		204
Total operating expenses, net		(2,056	)	(63	)		(11,161	)	(78	)

Net income (loss)	$	6,087		(108	)%	$	17,692		(76	)%

Please refer to the above table and the Statement of Operations in the financial statements included in Part II, Item 8 of this report throughout the discussion of Results of Operations.

Overview and General Economic Conditions

The partnership’s net income for the year ended December 31, 2013 was $433,000, the first full year of profitability since 2008, and a positive change of $6,087,000 from the $(5,654,000) net loss of 2012. The change in net income is due to several factors: 1) $22,285,000 of new performing loans were created during 2013, 2) recoveries in the real estate markets in our lending area aided collection efforts yielding cash recoveries from three borrowers, and helped loan collateral values to recover, thereby reducing the required allowance for loan losses, 3) improving REO operations and 4) gains on the sale of REO.

The year 2013 marked the first full year since the 2008 financial crisis the partnership has operated without severe constraints imposed by its lenders and in a normally operating (i.e. not distressed) markets. For the first time since 2008, the partnership is reporting full year net income for 2013, and the transition from crisis management, focused on cash management to a focus on re-building the business’ profitability.

Since the beginning to the financial crisis (2008) and the resultant Great Recession (2009) the partnership has continuously adjusted to the historically volatile and challenging conditions of the economic environment. The combination of general economic conditions, constrained credit, depressed financial markets, distressed real estate markets, and the terms and conditions of the Amended and Restated Loan Agreement (the “Bank Loan”) dated October 2010, resulted in significant changes in the lending and business operations of the partnership.

Certain terms and conditions of the Amended and Restated Loan Agreement prevented the partnership from making any new mortgage loans unless the new loan was a by-product of the sale of one of the partnership’s REO and funneled the majority of cash flows to the repayment of the bank loan. The repayment of the bank loan was completed in September 2012. These circumstances resulted in a bifurcation in the mortgage loan portfolio as of December 31, 2013. The loans made after the bank loan was repaid (“Ongoing”) have borrowers underwritten to today’s standards and have significantly higher equity in their properties than the loans created before the bank loan was repaid. The loans created before the bank loan was repaid (“Legacy loans”), have many borrowers that continue to struggle with the effects of the financial crisis and the resultant loss of equity in their properties.

The partnership has been concentrating its Ongoing lending efforts in the three counties of San Francisco, Los Angeles and San Diego. These three counties have shown the greatest recoveries in the real estate markets as well as their respective local economies.

As noted in the “California Economic Outlook: March 2014” published by Wells Fargo’s Economics Group: “The Golden State’s Economy continues to grow at a pace slightly ahead of the nation’s, although gains have been heavily weighted toward the state’s larger metropolitan areas along the coast. Technology, tourism and retail trade have led the recovery in job growth in recent years, which has helped trim the unemployment rate and revive housing demand.” The report states in its Summary and Outlook Section: “California’s economy continues to gradually gain momentum. While the recovery has been slower than in the past, the state has methodically made progress working through a number of major impediments, most notably the overhang of foreclosures and distressed homes left over from the housing bust.” Further contained in that section: “The biggest headlines and strongest job gains continue to be in California’s tech sector, much of which is centered in the Bay Area.”

Other published reports indicate that real estate prices and rents are increasing in the California communities in which we lend. Median condominium resale prices increased 9.3% in San Francisco, 21.2% in the Silicon Valley and 18% in the Greater Los Angeles Area in 2013. During the year, rents in San Francisco increased 11.5% and 10.1% in the Silicon Valley.

Quoting again from the Wells publication: “We remain optimistic about California’s prospects in 2014 and look for job growth to pick up in construction and manufacturing. Overall nonfarm payrolls should rise 2.3% this year, producing a net gain of at least 330,000 new jobs. The Golden State’s unemployment rate is expected to fall by at least a percentage point and average 7.6% for the year.”

The Ongoing portfolio has an average interest rate of 7.42% compared to 5.87% for the Legacy portfolio. The difference is primarily due to reducing interest rates from collection efforts through loan modifications and workout agreements over the past several years on legacy loans.

The tables below show the 2013 activity and various characteristics of the loan portfolio by Ongoing and Legacy groupings as of December 31, 2013 ($ in thousands).

Transactions	Ongoing			Legacy			Total
Principal, January 1, 2013	$	10,500		$	50,370		$	60,870
Loans funded or acquired		21,209			1,076			22,285
Principal collected		(2,200	)		(7,731	)		(9,931	)
Loans sold to affiliates		(2,107	)		—			(2,107	)
Foreclosures		—			(18,975	)		(18,975	)
Other-loans charged off		—			(252	)		(252	)
Principal, December 31, 2013	$	27,402		$	24,488		$	51,890

Portfolio characteristics
Number of secured loans		14			22			36
Average secured loan-principal		1,957			1,113			1,441
Largest secured loan-principal		10,500			16,312
Smallest secured loan-principal		350			79
Number of counties		7			15			17
Average interest rate		7.42	%		5.87	%		6.69	%
Number of loans with workout agreements		—			3			3
Aggregate workout principal balance		—			1,097			1,097
Number of loans with active modifications		—			5			5
Aggregate modifications principal balance		—			3,947			3,947

As of December 31, 2013, the partnership’s largest Ongoing loan, in the unpaid principal balance of $10,500,000 (representing 38.32% of outstanding secured Ongoing principal balance and 4.28% of total partnership assets) has an interest rate of 4.00% and is secured by a commercial developmental property located in San Francisco County, California. This loan matures on June 4, 2015. The loan was made to facilitate the sale of a previously held REO.

As of December 31, 2013, the partnership’s largest Legacy loan, in the unpaid principal balance of $16,312,000 (representing 66.61% of outstanding secured Legacy principal balance and 6.65% of total partnership assets) has an interest rate of 5.00% and is secured by 75 units in a 128 unit condominium complex located in Contra Costa County, California. This loan matured April 1, 2012. A court appointed receiver is overseeing the management of the property and exploring the market for the disposition of the remaining units.

	Loans		Principal		Percent
Geographic distribution
Ongoing
San Francisco		6	$	21,075		77	%
San Francisco Bay Area(1)		2		1,495		5
Northern California(1)		—		—		—
Southern California		6		4,832		18
Total ongoing loans		14	$	27,402		100	%

Legacy
San Francisco		3	$	552		2	%
San Francisco Bay Area(1)		9		21,971		90
Northern California(1)		5		785		3
Southern California		5		1,180		5
Total legacy loans		22	$	24,488		100	%

Total
San Francisco		9		21,627		41	%
San Francisco Bay Area(1)		11		23,466		45
Northern California(1)		5		785		2
Southern California		11		6,012		12
Total		36	$	51,890		100	%

Lien position
Ongoing
First trust deeds		10	$	18,427		67	%
Second trust deeds		4		8,975		33
Third trust deeds		—		—		—
Total ongoing loans		14	$	27,402		100	%

Legacy
First trust deeds		9	$	18,389		75	%
Second trust deeds		12		5,809		24
Third trust deeds		1		290		1
Total legacy loans		22	$	24,488		100	%

Total
First trust deeds		19	$	36,816		71	%
Second trust deeds		16		14,784		28
Third trust deeds		1		290		1
Total loans		36	$	51,890		100	%

(1)	Excludes line(s) above

	Ongoing			Legacy			Total

Scheduled maturities
2014	$	10,405		$	349		$	10,754
2015		13,165			1,319			14,484
2016		1,950			3,500			5,450
2017		—			1,391			1,391
2018		350			235			585
Thereafter		1,532			—			1,532
Total future maturities		27,402			6,794			34,196
Matured at December 31, 2013		—			17,694			17,694
Total secured loans	$	27,402		$	24,488		$	51,890

Matured loans
Number of loans		—			5			5
Principal	$	—		$	17,694		$	17,694
Advances		—			683			683
Accrued interest		—			63			63
Loan balance	$	—		$	18,440		$	18,440
Percent of principal		—	%		72	%		34	%

Delinquency
Past due
30-89 days	$	—		$	665		$	665
90-179 days		—			17,197			17,197
180 or more days		—			474			474
Total past due		—			18,336			18,336
Current		27,402			6,152			33,554
Total secured loans	$	27,402		$	24,448		$	51,890

Secured loans in nonaccrual status
Number of loans		—			8			8
Principal	$	—		$	18,361		$	18,361
Advances		—			688			688
Accrued interest		—			63			63
Loan balance	$	—		$	19,112		$	19,112

Loans designated impaired
Principal	$	—			21,499		$	21,499
Recorded investment(2)	$	—			22,249		$	22,249
Impaired loans without allowance	$	—			4,149		$	4,149
Impaired loans with allowance	$	—			18,100		$	18,100

Allowance for loan losses
Provision/(Recovery) for loan losses, 2013	$	—		$	(1,040	)	$	(1,040	)
Allowance for loan losses	$	—		$	8,790		$	8,790

(2)

Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

Revenue – Interest income – Loans

Interest income on loans increased for 2013 as a result of the partnership adding approximately $22,285,000 of new performing loans to the loan portfolio throughout the year. The interest on loans decreased for 2012 due to a decrease in the average secured loan portfolio balance, and the decrease in the related average yield rate (the partnership has modified many of the performing loans to lower interest rates which reflect current market rates). Foregone interest (not recorded for financial reporting purposes on loans designated non-accrual status) in 2013, 2012, and 2011, was approximately $2,018,000, $4,199,000, and $11,600,000, respectively. The tables below recap the yearly averages and the effect of the foregone interest on the average yield rate for the Ongoing and Legacy groups of loans ($ in thousands).

	Average							Stated
	Secured				Effective			Average
	Loan		Interest		Yield			Yield
Year	Balance		Income		Rate			Rate
Ongoing
2013	$	17,573	$	1,063		6.05	%		6.05	%
2012	$	4,275	$	203		4.00	%		4.00	%
2011	$	—	$	—		—	%		—	%

Legacy
2013	$	41,149	$	929		2.26	%		6.65	%
2012	$	67,063	$	1,184		1.77	%		8.07	%
2011	$	160,820	$	2,011		1.25	%		8.44	%

Total
2013	$	58,722	$	1,992		3.39	%		6.83	%
2012	$	71,338	$	1,387		1.94	%		7.83	%
2011	$	160,820	$	2,011		1.25	%		8.44	%

Revenue – Interest expense

The partnership incurred interest expense during 2013, 2012 and 2011, on borrowings under mortgage payable secured by REO acquired through foreclosure and under its secured bank loan. Total interest expense (excluding imputed interest on the formation loan) by source is summarized in the following table ($ in thousands).

			Bank
	Mortgages		Loan		Total
	Interest		Interest		Interest
Year	Expense		Expense		Expense
2013	$	2,263	$	—	$	2,263
2012	$	2,400	$	560	$	2,960
2011	$	2,317	$	2,298	$	4,615

Mortgages – The decreased interest expense on mortgages for 2013 is primarily due to the reduction of the weighted average interest rate resulting from a full year of the mortgage originated in August 2012 with an interest rate of 3.52%, the mortgage originated in June 2013 with an interest rate of 3.95%, and minor reductions in the interest rates of several variable interest rate mortgages, offset by an increase in the average mortgage loan balance, primarily due to the previously mentioned new mortgage. The increased interest expense on mortgages for 2012 was due to a combination of changes in the weighted average interest rate and to the partnership either obtaining a mortgage on a piece of owned property or foreclosing upon property subject to an existing mortgage. The table below recaps the yearly averages ($ in thousands).

	Average				Weighted
	Mortgage				Average
	Loan		Interest		Interest
Year	Balance		Expense		Rate
2013	$	49,362	$	2,263		4.38	%
2012	$	44,869	$	2,400		4.87	%
2011	$	40,500	$	2,317		5.23	%

Bank loan, secured – The decrease in interest expense for 2013 was due to the complete repayment of the bank loan in September, 2012. The decrease in interest expense for 2012 was due to the decline of the average daily loan balance outstanding from $35,400,000 for 2011 to $6,345,000 for 2012. The table below recaps the yearly averages ($ in thousands).

	Average				Weighted
	Bank				Average
	Loan		Interest		Interest
Year	Balance		Expense		Rate
2013	$	—	$	—		—	%
2012	$	6,345	$	560		5.88	%
2011	$	35,400	$	2,298		6.48	%

Provision for Losses on Loans/Allowance for Loan Losses

The provision for loan losses (recoveries), net is primarily driven by the specific reserves maintained in the allowance for loan losses, associated with impaired loans as analyzed each year. During 2013, the partnership recorded a recovery of approximately $3,959,000 per an agreement with a borrower pledging certain future cash flows to the partnership and also pursuant to three separate cash settlements with former borrowers of, $120,000, $471,000 and $38,000. All Ongoing loans are performing and are deemed well collateralized and the improving real estate markets in our lending areas is increasing the fair values of the underlying collateral of the legacy loans.

The number of borrower defaults declined in 2012, in correlation to the reduction in the number and amount of loans outstanding and the aforementioned stabilization in real estate values.

See Note 4 (Loans) to the consolidated financial statements included in Item 8 of this report for detailed presentations of loan balances, activity, and characteristics, and the corresponding data regarding the allowance for loan losses.

Operating Expenses

- Mortgage servicing fees

The decrease in mortgage servicing fees for 2013 and 2012 of ($133,000) and ($1,882,000), respectively, is consistent with the decreases in the average daily secured loan portfolio of ($12,616,000) and ($89,482,000) for 2013 and 2012, respectively, noted above in Revenue – Interest on loans, at the annual rate of 1.5%, less the waived annual rate of 0.5%. RMC at its sole discretion has waived 0.5% for 2013 and 2012. There is no guarantee RMC will waive any portion of this fee in the future.

- Asset management fees

The decrease in asset management fees for 2013 and 2012 was due to the reduction in the total capital under management. Total capital at December 31, 2013, 2012 and 2011 was $194,528,000, $196,755,000 and $206,579,000, respectively.

- Costs from RMC

The increase in costs from RMC for 2013 and 2012 was due to reimbursement of qualifying charges permitted in the partnership agreement some of which RMC chose not to request reimbursement for in 2012 and 2011, which it may do from time to time in its sole discretion.

- Professional services

The decrease in professional services for 2013 was primarily due to above normal operating costs in 2012 related to complex workout agreements, legal costs, and tax and accounting matters regarding the loan and REO portfolios’ stabilization and rental operations. Fees for auditing and tax services decreased approximately $385,000, legal fees decreased $15,000 and consultants fees decreased $219,000. The increase in professional services for 2012 was primarily due to increases for audit and tax services of approximately $152,000 and consultants of $278,000, offset by a reduction in legal fees of approximately $169,000.

REO – Rental operations, net

The table below summarizes the rental operations, net for the years ended December 31, ($ in thousands).

	2013		2012
Rental income	$	11,125	$	11,557
Operating expenses, rentals
Administration and payroll		1,394		1,431
Homeowner association fees		857		865
Professional services		275		296
Utilities and maintenance		1,223		1,238
Advertising and promotions		136		128
Property taxes		1,171		1,849
Other		225		280
Total operating expenses, rentals		5,281		6,087
Net operating income		5,844		5,470
Depreciation		2,597		2,328
Receiver fees		60		239
Rental operations, net		3,187		2,903
Interest on mortgages		1,683		2,395
Rental operations, net, less related mortgage interest	$	1,504	$	508

Rental operations are comprised of residential and commercial properties. There were 16 residential properties at December 31, 2013 with a net book value of $138,621,000, and three commercial properties with a net book value of $3,191,000. Rental financial highlights by property type are presented in the table below for the year ended December 31, 2013, ($ in thousands).

														Rental
														Operations,
														net, less
					Net									Related
	Rental		Operating		Operating					Receiver		Mortgage		Mortgage
	Income		Expenses		Income			Depreciation		Fees		Interest		Interest
Property type
Residential
Single family	$	49	$	46	$	3		$	23	$	—	$	—	$	(20	)
Condominiums and
apartments		4,257		1,818		2,439			1,121		—		776		542
Fractured condominiums		6,420		3,004		3,416			1,416		60		907		1,033
Total residential		10,726		4,868		5,858			2,560		60		1,683		1,555
Commercial		399		413		(14	)		37		—		—		(51	)
Total	$	11,125	$	5,281	$	5,844		$	2,597	$	60	$	1,683	$	1,504

The increase in rental operations for 2013 was due to the stabilization of the properties post-acquisition and the ongoing efforts to increase rental income and reduce operating expenses. Major areas of change from 2012 to 2013 are summarized in the following table, ($ in thousands).

																			Rental
																			Operations,
																			net, less
							Net												Related
	Rental			Operating			Operating						Receiver			Mortgage			Mortgage
	Income			Expenses			Income			Depreciation			Fees			Interest			Interest
2013 results	$	11,125		$	5,281		$	5,844		$	2,597		$	60		$	1,683		$	1,504
2012 results		11,557			6,087			5,470			2,328			239			2,395			508
Change	$	(432	)	$	(806	)	$	374		$	269		$	(179	)	$	(712	)	$	996

Explanation of difference
REO sold or assigned
held for sale	$	(1,234	)	$	(262	)	$	(972	)	$	(115	)	$	—		$	(655	)	$	(202	)
REO acquired		20			13			7			6			—			—			1
Rents to market rates		630			—			630			—			—			—			630
Increased occupancy		107			—			107			—			—			—			107
Completed deferred
maintenance		—			(724	)		724			—			—			—			724
Deferred maintenance		—			231			(231	)		—			—			—			(231	)
Receiver contract complete		—			—			—			—			(203	)		—			203
Depreciation catchup adjust		—			—			—			288			—			—			(288	)
New mortgages		—			—			—			—			—			113			(113	)
Mortgage refinanced		—			—			—			—			—			(209	)		209
Other		45			(64	)		109			90			24			39			(44	)
Change	$	(432	)	$	(806	)	$	374		$	269		$	(179	)	$	(712	)	$	996

The increase in rental operations for 2012 was due to the stabilization of the properties post-acquisition and the ongoing efforts to increase rental income and reduce operating expenses. Major areas of change from 2011 to 2012 are summarized in the following table, ($ in thousands).

																			Rental
																			Operations,
																			net, less
							Net												Related
	Rental			Operating			Operating						Receiver			Mortgage			Mortgage
	Income			Expenses			Income			Depreciation			Fees			Interest			Interest
2012 results	$	11,557		$	6,087		$	5,470		$	2,328		$	239		$	2,395		$	508
2011 results		8,200			4,129			4,071			1,831			410			1,675			155
Change	$	3,357		$	1,958		$	1,399		$	497		$	(171	)	$	720		$	353

Explanation of difference
REO sold or assigned
held for sale		(283	)		(150	)		(133	)		(41	)		(73	)		(189	)		170
REO acquired		249			99			150			22			—			139			(11	)
Rents to market rates		67			—			67			—			—			—			67
Increased occupancy		101			—			101			—			—			—			101
New mortgages		—			—			—			—			—			64			(64	)
Full year of operations		3,128			1,883			1,245			478			—			645			123
Other		95			126			(31	)		38			(98	)		61			(33	)
Change	$	3,357		$	1,958		$	1,399		$	497		$	(171	)	$	720		$	353

Rental income – residential rental occupancy and lease rates – Of the nine properties with 10 or more units (93% of the total units) occupancy was 92% and 93% for 2013 and 2012, respectively. The partnership continues to increase rents in the generally rising rental market which creates slightly higher vacancy as units turn over. Despite higher vacancy compared to each prior year, gross rents have increased as the rental rate increases have more than offset the lower occupancy rates.

Rental income – commercial rental occupancy and lease rates – At December 31, 2013 three of the four properties have been leased, with the fourth property undergoing rehabilitation work, due to be completed in the first quarter of 2014. All of the leases are at market rates with scheduled annual rent increases. At December 31, 2012 the three properties had all been leased at market rates.

-	Operating expenses – residential – property taxes decreased in 2013 due to the elimination of all penalties and interest related to delinquent amounts owed.

-	Operating expenses – commercial – No major differences to report year over year.

-	Receiver fees – residential – decreased due to the receivers completing their work by September 30, 2013.

At management’s direction starting in early 2012, the property management companies have worked to improve net operating income by executing the strategy of increasing occupancy (which topped 94% in 2012) while achieving market rent growth. According to the Mercury News of the Silicon Valley, rents in the Bay Area have seen double digit increases during 2012 and 2013 with a 6 to 8 percent increase in the first quarter of 2013. In the second quarter of 2012, Los Angeles Times predicted rents in Los Angeles Metro would soar nearly 10% by the end of 2013. We manage market rents across our portfolio by reviewing market surveys and by communicating with property managers. Additionally, as tenants vacate units we anticipate moving rents to the currently existing higher market rents. Management is also reviewing administrative cost such as management fees and operating costs. Our goal is to reduce costs by negotiating lower fees and service contracts.

REO - Holding costs

The decrease in holding costs in 2013 and 2012 was primarily due to the sale of five properties during 2012 (two properties were sold in the 1st quarter, and one in each of the other three quarters).

REO - Loss/(gain) on disposal

The increase in the REO gain on disposal in 2013 is due to the sale of a commercial property. The reduction in the gain on disposal of REO in 2012 is due to several large gains achieved in 2011. The gain on disposal in 2011 was due primarily to the partnership evaluating its properties and positioning them to transact at optimum prices. Management through repairs and improvements, stabilization of rental rolls, improvements in income producing properties financial performance, and elimination of deterrents to sale, increased our properties appeal, finance ability, and value to buyers.

REO - Impairment loss/(gain)

The decrease in impairment losses on REO in 2013 was primarily due to the continuing improvement in real estate markets and property values in our lending area. The decrease in impairment losses on REO in 2012 was primarily due to the improving stability in real estate values and the completed repayment of the bank loan. Impairment losses on real estate for 2011 were due to the necessity to transact sales of properties in a challenging market in order to meet the repayment schedule of the amended and restated bank loan agreement. Property sales were completed at prices which while, commercially reasonable, were likely less than that which could have been attained had the partnership had more time to offer the properties for sale or been able to continue to hold the properties for future sales. Occasionally, properties which the partnership held as investment, received unsolicited offers which given the partnership’s cash flow requirements and bank repayment dynamics were compelling to accept, although they necessitated taking an impairment loss. Since the bank loan obligation has been repaid the partnership intends to hold the majority of its remaining properties until a more robust real estate market and a normal credit market exist. While these two factors develop, management intends to continue to improve held properties’ financial performance and desirability. The impairment loss taken in 2011 on a southern California multi-family property was due to a delay in repairs, which resulted in weaker operating results than anticipated. As the property is now completed, significantly improved operating results and value is being achieved as the property stabilizes into normal operations.

Loans/Allowance for Loan Losses

See Note 4 (Loans) to the financial statements included in Part II, Item 8 of this report for detailed presentations of loan balances, activity, and characteristics, and the corresponding data regarding the allowance for loan losses, which presentations are incorporated by this reference into this Item 7.

Real Estate Owned/Mortgages

See Notes 5 (Real Estate Owned) and 6 (Borrowings) to the financial statements included in Part II, Item 8, of this report for detailed presentations of real estate owned and mortgages thereon, which presentations are incorporated by this reference into this Item 7.

Liquidity and Capital Resources

The partnership relies upon loan payoffs, borrowers’ mortgage payments, the sale and financing of real estate owned and to a lesser degree, retention of income when profitable for the source of funds for new loans.

In September 2012, the partnership paid the remaining amount owing under the Bank Loan. The Bank Loan balance was $16,789,000, at December 31, 2011.

Contractual Obligations

A summary of the contractual obligations of the partnership as of December 31, 2013 is set forth below ($ in thousands).

Contractual Obligation	Total		Less than 1 Year		1-3 Years		3-5 Years
Mortgages	$	48,938	$	1,326	$	25,009	$	22,603
Construction contracts		300		300		—		—
Construction loans		—		—		—		—
Rehabilitation loans		—		—		—		—

Total	$	49,238	$	1,626	$	25,009	$	22,603

The partnership has one property in San Francisco, California with a carrying value of $5,776,000 in construction with remaining construction costs of approximately $300,000.

Distributions to limited partners

At the time of their subscription to the partnership, limited partners must elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound profits in their capital account. If an investor initially elects to receive monthly, quarterly or annual distributions, such election, once made, is irrevocable. If the investor initially elects to compound profits in their capital account, in lieu of cash distributions, the investor may, after three (3) years, change the election and receive monthly, quarterly or annual cash distributions. Profits allocable to limited partners, who elect to compound profits in their capital account, will be retained by the partnership for making further loans or for other proper partnership purposes and such amounts will be added to such limited partners’ capital accounts. The percentage of limited partners electing distribution of allocated net income, if any, by weighted average to total partners’ capital was 56 percent for 2013 and 2012. In 2013 and 2012, $2,277,000 and $2,459,000, respectively, was distributed to limited partners. Any amounts distributed which exceeded net income/(loss) are a return of capital.

The partnership will continue to emphasize cash flow improvement to continue the partnership’s resumed lending business operations and provide consistent profitability. The partnership does not currently anticipate an increase in distribution amounts in 2014. As with the recovery of the real estate market and the economy generally, it is anticipated rebuilding profits and cash flows will continue to be a slow process. It is not anticipated limited partners will see a quick or large increase in the profits or distributions. Rather, such increases, if any, are anticipated to grow slowly over time as the economy and the state of the partnership improves.

In some cases in order to satisfy broker-dealers and other reporting requirements, the general partners have valued the limited partners’ interest in the partnership on a basis which utilizes a per unit system of calculation, rather than based upon the investors’ capital account. This information has been reported in this manner in order to allow the partnership to integrate with certain software used by the broker-dealers and other reporting entities. In those cases, the partnership will report to broker-dealers, trust companies and others a “reporting” number of units based upon a $1.00 per unit calculation. The number of reporting units provided will be calculated based upon the limited partner’s capital account value divided by $1.00. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The reporting units are solely for broker-dealers requiring such information for their software programs and do not reflect actual units owned by a limited partner or the limited partners’ right or interest in cash flow or any other economic benefit in the partnership. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The amount of partnership profits each investor is entitled to receive is determined by the ratio each investor’s capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any FINRA member client account statement in providing a per unit estimated value of the client’s investment in the partnership in accordance with NASD Rule 2340.

While the general partners have set an estimated value for the Units, such determination may not be representative of the ultimate price realized by an investor for such Units upon sale. No public trading market exists for the Units and none is likely to develop. Thus, there is no certainty the Units can be sold at a price equal to the stated value of the capital account. Furthermore, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the partnership, which may include early withdrawal penalties (See the section of the Prospectus entitled “Risk Factors – Purchase of Units is a long term investment”).

Item 7A – Quantitative and Qualitative Disclosures About Market Risk (Not included as smaller reporting company)

Item 8 – Financial Statements and Supplementary Data

A – Consolidated Financial Statements

The following consolidated financial statements of Redwood Mortgage Investors VIII are included in Item 8:

·	Report of Independent Registered Public Accounting Firm
·	Consolidated Balance Sheets for December 31, 2013 and 2012
·	Consolidated Statements of Operations for the years ended December 31, 2013 and 2012
·	Consolidated Statements of Changes In Partners’ Capital for the years ended December 31, 2013 and 2012
·	Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
·	Notes to Consolidated Financial Statements

B – Consolidated Financial Statement Schedules

No financial statement schedules are required to be filed because Redwood Mortgage Investors VIII is a smaller reporting company.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners

Redwood Mortgage Investors VIII

Redwood City, California

We have audited the accompanying consolidated balance sheets of Redwood Mortgage Investors VIII (a California limited partnership) as of December 31, 2013 and 2012 and the related consolidated statements of operations, changes in partners' capital and cash flows for each of the years in the two-year period ended December 31, 2013. These consolidated financial statements are the responsibility of Redwood Mortgage Investors VIII's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Redwood Mortgage Investors VIII is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Redwood Mortgage Investors VIII's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Redwood Mortgage Investors VIII as of December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

/s/ Armanino LLP

_____________________________

Armanino LLP

San Ramon, California

March 31, 2014

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Balance Sheets

December 31, 2013 and 2012

($ in thousands)

ASSETS

	2013			2012
Cash and cash equivalents	$	16,393		$	18,943

Loans
Secured by deeds of trust
Principal balances		51,890			60,870
Advances		708			5,035
Accrued interest		222			182
Unsecured		112			8
Allowance for loan losses		(8,790	)		(19,815	)
Net loans		44,142			46,280

Receivable from affiliate		33			—

Real estate held for sale, net		16,552			—

Real estate held as investment		162,563			181,333

Other assets, net		5,258			1,119

Total assets	$	244,941		$	247,675

LIABILITIES AND CAPITAL

Liabilities
Mortgages payable	$	48,938		$	47,293
Accounts payable		980			3,062
Payable to affiliate		495			565
Total liabilities		50,413			50,920

Capital
Partners’ capital
Limited partners’ capital, subject to redemption, net of unallocated
syndication costs of $0 and $318 for 2013 and 2012,
respectively; and net of formation loan receivable of $7,627
for 2013 and 2012		194,236			196,081

General partners’ capital (deficit), net of unallocated syndication costs of
$0 and $3 for 2013 and 2012, respectively		(1,024	)		(1,025	)
Total partners’ capital		193,212			195,056

Non-controlling interest		1,316			1,699
Total capital		194,528			196,755

Total liabilities and capital	$	244,941		$	247,675

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

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Operations

For the Years Ended December 31, 2013 and 2012

($ in thousands, except for per limited partner amounts)

	2013			2012
Revenues, net
Interest income
Loans	$	1,992		$	1,387
Imputed interest on formation loan		389			207
Other interest income		1			1
Total interest income		2,382			1,595

Interest expense
Mortgages
Rental REO		2,263			2,397
Non-rental REO		—			3
Total mortgage interest expense		2,263			2,400
Bank loan, secured		—			560
Amortization of discount on formation loan		389			207
Other interest expense		15			1
Total interest expense		2,667			3,168

Net interest income/(expense)		(285	)		(1,573	)

Late fees		9			15
Other		851			1
Total revenues/(expense), net		575			(1,557	)

Provision for (recovery of) loan losses		(1,040	)		859

Operating Expenses
Mortgage servicing fees		589			722
Asset management fees		765			840
Costs from Redwood Mortgage Corp.		1,613			1,321
Professional services		590			1,198
REO
Rental operations, net		(3,187	)		(2,903	)
Holding costs		256			698
Loss/(gain) on disposal		(521	)		(39	)
Impairment loss/(gain)		1,009			1,258
Other		68			143
Total operating expenses		1,182			3,238

Net income (loss)	$	433		$	(5,654	)

Net income (loss)
General partners (1%)	$	4		$	(57	)
Limited partners (99%)		429			(5,597	)
	$	433		$	(5,654	)

Net income (loss) per $1,000 invested by limited
partners for entire period
Where income is reinvested	$	2		$	(24	)
Where partner receives income in monthly distributions	$	2		$	(24	)

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

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Changes in Partners’ Capital

For the Years Ended December 31, 2013 and 2012

($ in thousands)

	Limited Partners

				Unallocated
				Syndication			Formation
	Capital			Costs			Loan			Capital, net

Balances at December 31, 2011	$	212,431		$	(667	)	$	(7,627	)	$	204,137
Formation loan payments received		—			—			—			—
Net income (loss)		(5,597	)		—			—			(5,597	)
Allocation of syndication costs		(349	)		349			—			—
Partners’ withdrawals		(2,459	)		—			—			(2,459	)
Early withdrawal penalties		—			—			—			—

Balances at December 31, 2012	$	204,026		$	(318	)	$	(7,627	)	$	196,081
Formation loan payments received		—			—			—			—
Net income (loss)		429			—			—			429
Allocation of syndication costs		(315	)		318			—			3
Partners’ withdrawals		(2,277	)		—			—			(2,277	)
Early withdrawal penalties		—			—			—			—

Balances at December 31, 2013	$	201,863		$	—		$	(7,627	)	$	194,236

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

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Changes in Partners’ Capital (continued)

For the Years Ended December 31, 2013 and 2012

($ in thousands)

	General Partners
				Unallocated						Total
				Syndication						Partners’
	Capital			Costs			Capital, net			Capital

Balances at December 31, 2011	$	(961	)	$	(7	)	$	(968	)	$	203,169
Formation loan payments received		—			—			—			—
Net income (loss)		(57	)		—			(57	)		(5,654	)
Allocation of syndication costs		(4	)		4			—			—
Partners’ withdrawals		—			—			—			(2,459	)

Balances at December 31, 2012	$	(1,022	)	$	(3	)	$	(1,025	)	$	195,056
Formation loan payments received		—			—			—			—
Net income (loss)		4			—			4			433
Allocation of syndication costs		(6	)		3			(3	)		—
Partners’ withdrawals		—			—			—			(2,277	)

Balances at December 31, 2013	$	(1,024	)	$	—		$	(1,024	)	$	193,212

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

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013 and 2012

($ in thousands)

	2013			2012
Cash flows from operating activities
Net income (loss)	$	433		$	(5,654	)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Amortization of borrowings-related origination fees		97			302
Imputed interest on formation loan		(389	)		(207	)
Amortization of discount on formation loan		389			207
Provision for loan losses		(1,040	)		859
REO – depreciation, rental properties		2,781			2,328
REO – depreciation, other properties		22			11
REO – loss/(gain) on disposal		(521	)		(39	)
REO – impairment loss		1,038			1,114

Change in operating assets and liabilities
Accrued interest		(45	)		2,264
Advances on loans		1,985			1,625
Allowance for loan losses		1,227			21
Receivable from affiliate		(161	)		—
Other assets		(725	)		(741	)
Accounts payable		(2,097	)		(4,607	)
Payable to affiliate		(70	)		(160	)
Net cash provided by (used in) operating activities		2,924			(2,677	)

Cash flows from investing activities
Loans originated		(22,285	)		(10,522	)
Principal collected on loans		9,931			17,401
Loans sold to affiliates		2,107			1,189
Unsecured loan originated		(104	)		36
Payments for development of real estate		(4,070	)		(3,372	)
Proceeds from disposition of real estate		9,962			30,035
Net cash provided by (used in) investing activities		(4,459	)		34,767

Cash flows from financing activities
Payments on bank loan		—			(16,789	)
Mortgages taken		5,000			5,160
Payments on mortgages		(3,355	)		(1,548	)
Partners’ withdrawals		(2,277	)		(2,459	)
Increase/(decrease) in non-controlling interest		(383	)		(1,711	)
Net cash provided by (used in) financing activities		(1,015	)		(17,347	)

Net increase (decrease) in cash and cash equivalents		(2,550	)		14,743

Cash and cash equivalents, January 1		18,943			4,200

Cash and cash equivalents, December 31	$	16,393		$	18,943

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

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013 and 2012

($ in thousands)

	2013		2012
Supplemental disclosures of cash flow information
Non-cash investing activities
Real estate acquired through foreclosure/settlement on loans,
net of liabilities assumed	$	6,979	$	1,524

Cash paid for interest	$	2,263	$	2,960

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

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 1 – ORGANIZATIONAL AND GENERAL

Redwood Mortgage Investors VIII, a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993 to engage in business as a mortgage lender for the primary purpose of making loans secured by deeds of trust on California real estate. The general partners of the partnership are Redwood Mortgage Corp. (“RMC”) and its wholly-owned subsidiary, Gymno LLC (“Gymno”), a California limited liability company, and Michael R. Burwell (“Burwell”), an individual. The address of the partnership and the general partners is 1825 South Grant Street, Suite 250, San Mateo, CA 94402. The mortgage loans the company invests in are arranged and are generally serviced by RMC. Michael Burwell is the president and majority shareholder (through his holdings and beneficial interests in certain trusts) of RMC. The general partners are required to contribute to capital 1/10 of 1% of the aggregate capital contributions of the limited partners. As of December 31, 2013, the general partners had contributed capital in accordance with Section 4.1 of the partnership agreement.

The partnership completed its sixth offering stage in 2008. No additional offerings are contemplated at this time. Sales commissions owed to securities broker/dealers in conjunction with the offerings, are not paid directly out of the offering proceeds by the partnership. These commissions are paid by RMC as consideration for the exclusive right to originate loans for RMI VIII. To fund the payment of these commissions, during the offering periods, the partnership lent amounts to RMC to pay all sales commissions and amounts payable in connection with unsolicited orders to invest (formation loan).

The rights, duties and powers of the general and limited partners of the partnership are governed by the limited partnership agreement and Sections 15900 et seq. of the California Corporations Code.

The general partners are solely responsible for partnership business, subject to the voting rights of the limited partners on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership.

A majority of the outstanding limited partnership interests may, without the permission of the general partners, vote to: (i) terminate the partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the partnership and (iv) remove or replace one or all of the general partners.

The approval of all the limited partners is required to elect a new general partner to continue the partnership business where there is no remaining general partner after a general partner ceases to be a general partner other than by removal.

On the mortgage loans originated for RMI VIII, RMC may collect loan brokerage commissions (points) limited to an amount not to exceed four percent per year of the total partnership assets. The loan brokerage commissions are paid by the borrowers and thus, are not an expense of the partnership. The proceeds from loan brokerage commissions and other fees earned are the source of funds for the repayment of the formation loans by RMC.

Profits and losses are allocated among the limited partners according to their respective capital accounts after one percent of profits and losses is allocated to the general partners, and are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting.

RMC, Gymno, and Burwell, as the general partners, are entitled to one percent of the profits and losses of RMI VIII. Beginning with calendar year 2010, and continuing until January 1, 2020, Gymno and RMC each assigned its right to one-third of one percent of profits and losses to Burwell in exchange for Burwell assuming one hundred percent of the general partners’ equity deficit.

Limited partners should refer to the company's operating agreement for a more complete description of the provisions.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 1 – ORGANIZATIONAL AND GENERAL (continued)

Election to receive monthly, quarterly or annual distributions

At the time of their subscription for units, partners elect to have distributed to them their monthly, quarterly or annual allocation of profits, or to have profits allocated to their capital accounts to compound. Subject to certain limitations, those electing compounding may subsequently change their election. A partner’s election to have cash distributions is irrevocable.

Liquidity, capital withdrawals and early withdrawals

In order to provide a certain degree of liquidity to the limited partners after the one-year period, limited partners may withdraw all or part of their capital accounts from the partnership in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable to the amount withdrawn as stated in the notice of withdrawal and will be deducted from the capital account.

Once a limited partner has been in the partnership for the minimum five-year period, no penalty is imposed if withdrawal is made in twenty quarterly installments or longer. Notwithstanding the minimum withdrawal period, the general partners, at their discretion may liquidate all or part of a limited partner’s capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to the time when such sums could have been withdrawn without penalty.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 1 – ORGANIZATIONAL AND GENERAL (continued)

Partnership offerings

At December 31, 2008, the partnership had completed its sixth offering stage. Of approved aggregate offerings of $300,000,000, total partnership units sold were $299,813,000.

A recap of the offerings by the partnership follows.

·	A minimum of $250,000 and a maximum of $15,000,000 in partnership units were initially offered through qualified broker-dealers. This initial offering closed in October 1996.

·	December 1996, commenced offering of $30,000,000 (closed August 2000)

·	August 2000, commenced offering of $30,000,000 (closed April 2002)

·	October 2002, commenced offering of $50,000,000 (closed October 2003)

·	October 2003, commenced offering of $75,000,000 (closed August 2005)

·	August 2005, commenced offering of $100,000,000 (closed November 2008)

No additional offerings are contemplated at this time.

Sales commissions - formation loans

Sales commissions are not paid directly by the partnership out of the offering proceeds. Instead, the partnership loans to RMC, one of the general partners, amounts to pay all sales commissions and amounts payable in connection with unsolicited orders. This loan is unsecured and non-interest bearing and is referred to as the “formation loan,” and is being repaid equally over a ten year period commencing the year after the close of a partnership offering. The formation loan has been deducted from limited partners’ capital in the consolidated balance sheets. As payments on the formation loan are received from RMC, the deduction from capital will be reduced. Interest has been imputed at the market rate of interest in effect in the years the offering closed. If the general partners are removed and RMC is no longer receiving payments for services rendered, the formation loan is forgiven.

RMC acts as the broker in originating mortgage loans for RMI VIII. The corresponding brokerage commissions paid by borrowers from mortgage loans made by these funds are the primary source of cash used to repay the formation loans. RMI VIII was prohibited by its lending banks from originating new loans under the terms of an Amended and Restated Loan Agreement dated October 2010, and a preceding forbearance agreement that was in effect in the fourth quarter of 2009, until the bank loan was repaid in full, September 2012. The amended loan and forbearance agreements were the result of a technical (i.e. non-payment) covenant default under the original loan. As a result, RMC was deprived of the opportunity to receive brokerage commissions on loans by RMI VIII for the period from the fourth quarter of 2009 continuing through September 30, 2012, a period of almost three years. During that period, despite receiving no loan brokerage commissions, RMC continued to make the annual formation loan payments of approximately $1.8 million per year (or $5.4 million for the three years) from its own cash reserves that existed as of the date of the forbearance agreement. RMC believes it would have had a reasonable argument that the annual formation loan payments should be suspended until such time as lending by RMI VIII was permitted to resume and brokerage commissions could be earned, but RMC elected not to take such an approach and, instead, continued to make annual formation loan payments due to concerns that the lending banks would view nonpayment of the formation loan as another technical loan default that might have led to a “distressed sale” liquidation of RMI VIII’s assets, resulting in substantial loss of limited partners’ capital.

As the bank loan was fully repaid as of September 2012, RMC has temporarily suspended annual formation loan payments, beginning with the payment due December 31, 2012, for the three-year period then beginning, which is a period commensurate with the period during which lending by RMI VIII was prohibited and RMC was deprived of loan brokerage commissions.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 1 – ORGANIZATIONAL AND GENERAL (continued)

The formation loans made in conjunction with the offerings are as follows.

·	For the initial offering ($15,000,000) totaled $1,075,000, which was 7.2% of limited partners’ contributions of $14,932,000, and was repaid in 2006.

·	For the 1996 offering ($30,000,000) totaled $2,272,000, which was 7.6% of limited partners’ contributions of $29,993,000, and was repaid in 2010.

·	For the 2000 offering ($30,000,000) totaled $2,218,000, which was 7.4% of the limited partners’ contributions of $29,999,000, and is to be repaid, without interest, in ten annual installments of $221,800, which commenced in 2003.

·	For the 2002 offering ($50,000,000) totaled $3,777,000, which was 7.6% of the limited partners’ contributions of $49,985,000, and is to be repaid, without interest, in ten annual installments of $377,700, which commenced in 2004.

·	For the 2003 offering ($75,000,000) totaled $5,661,000, which was 7.6% of the limited partners’ contributions of $74,904,000, and is to be repaid, without interest, in ten annual installments of $566,000, which commenced in 2007.

·	For the 2005 offering ($100,000,000) totaled $7,564,000 as of December 31, 2008, which was 7.6% of the limited partners’ contributions of $100,000,000, and is to be repaid, without interest, in ten annual installments of $756,400, which commenced in 2009.

For the offerings, sales commissions paid to brokers ranged from 0% (units sold by general partners) to 9% of gross proceeds. The partnership had anticipated the sales commissions would approximate 7.6% based on the assumption that 65% of investors will elect to reinvest profits, thus generating full 9% commissions. The actual sales commission percentage for all six offerings combined was 7.5%.

Income taxes and Partners’ capital – tax basis

Income taxes – federal and state – are the obligation of the partners, if and when taxes apply, other than for the minimum annual California franchise tax paid by the partnership.

A reconciliation of partners’ capital in the consolidated financial statements to the tax basis of partners’ capital at December 31 is presented in the following table ($ in thousands).

	2013			2012
Partners’ capital per consolidated financial statements	$	193,212		$	195,056
Unallocated syndication costs		—			321
Allowance for loan losses		8,790			19,815
Book vs. tax basis-real estate owned		(15,475	)		(11,721	)
Formation loans receivable		7,627			7,627
Partners’ capital - tax basis	$	194,154		$	211,098

Term of the partnership

The partnership is scheduled to terminate in 2032, unless sooner terminated as provided in the partnership agreement.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The partnership’s consolidated financial statements include the accounts of the partnership, its wholly-owned subsidiaries, and its 72.5%-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain reclassifications, not affecting previously reported net income or total partner capital, have been made to the previously issued consolidated financial statements to conform to the current year presentation.

Management estimates

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.

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.

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.

Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the arithmetic difference between the fair value of the collateral, net of any senior liens, and the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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. In some years (notably 2009, 2010 and to a lesser extent 2011 and 2012) due to low levels of real estate transactions, and an increased number of transactions that were distressed (i.e., executed by an unwilling seller – often compelled by lenders or other claimants – and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property types was required.

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). In some prior years, as has been previously noted, the appraisal process, was further complicated by the low transaction volumes of which a very high percentage were considered to be distressed sales, and other poor market conditions.

Management has the requisite familiarity with the 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 partnership considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. Periodically, partnership cash balances in banks exceed federally insured limits.

Loans and interest income

Loans generally are stated at the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the partnership’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 unpaid principal balance and accrue interest until repaid by the borrower.

The partnership may fund a specific loan origination net of an interest reserve to insure timely interest payments at the inception (one to two years) of the loan. As monthly interest payments become due, the partnership funds the payments into the affiliated trust account.

If based upon current information and events, it is probable the partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement, then a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. If a valuation allowance had been established on an impaired loan, any subsequent payments on impaired loans are applied to late fees and then to reduce first the accrued interest, then advances, and then unpaid principal.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

From time to time, the partnership negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. In the normal course of the partnership’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 matured loan was previously designated as impaired.

Interest is accrued daily based on the unpaid principal balance of the loans. An impaired loan continues to accrue as long as the loan is in the process of collection and is considered to be well-secured. Loans are placed on non-accrual status 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.

Allowance for loan losses

Loans and the related accrued interest and advances are analyzed on a periodic basis for ultimate recoverability. Delinquencies are identified and followed as part of the loan system. Delinquencies are determined based upon contractual terms. For impaired loans, a provision is made for loan losses to adjust the allowance for loan losses to an amount considered by management to be adequate, with due consideration to collateral values, such that the net carrying amount (unpaid principal balance, plus advances, plus accrued interest less the specific allowance) is reduced to the present value of future cash flows discounted at the loan’s effective interest rate, or, if a loan is collateral dependent, to 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 if planned disposition of the asset securing a loan is by way of sale.

The fair value estimates are derived from information available in the real estate markets including similar property, and may require the experience and judgment of third parties such as commercial real estate appraisers and brokers.

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.

Based on its knowledge of the borrowers and their historical (and expected) performance, and the exposure to loss as indicated in the analysis, management estimates an appropriate reserve by property type for probable credit losses in the portfolio. Because the partnership is an asset-based lender, except as to owner-occupied residences, and because specific regions, neighborhoods and even properties within the same neighborhoods, vary significantly as to real estate values and transaction activity, general market trends, which may be indicative of a change in the risk of a loss, and a borrower’s credit worthiness are secondary to the condition of the property, the property type and the neighborhood/region in which the property is located, and do not enter substantially into the determination of the amount of the non-specific (i.e. general) reserves.

The partnership charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Real estate owned (REO) held for sale

REO, held for sale includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is being marketed for sale. REO, held for sale is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. Any excess of the recorded investment in the loan over the net realizable value is charged against the allowance for loan losses. 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, held for sale is analyzed periodically for changes in fair values and any subsequent write down is charged to operating expenses. Any recovery in the fair value subsequent to such a write down is recorded – not to exceed the net realizable value at acquisition – as an offset to operating expenses. Gains or losses on sale of the property are included in REO - operating expense in the consolidated statements of operations. 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.

Real estate owned (REO), held as investment, net

REO, held as investment, net includes real estate acquired in full or partial settlement of loan obligations generally through foreclosure that is not being marketed for sale and is either being operated, such as rental properties; is being managed through the development process, including obtaining appropriate and necessary entitlements, permits and construction; or are idle properties awaiting more favorable market conditions. REO, held as investment, net is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s estimated fair value, net. After acquisition, costs incurred relating to the development and improvement of the property are capitalized, whereas costs relating to operating or holding the property are expensed. Subsequent to acquisition, management periodically compares the carrying value of real estate to expected undiscounted future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future undiscounted cash flows, the assets are reduced to estimated fair value.

Rental income

Rental income is recognized when earned in accordance with the lease agreement. For commercial leases, the costs associated with originating the lease are amortized over the lease term. Residential lease terms generally range from month-to-month to one year, and the expenses of originating the lease are expensed as incurred.

Depreciation

Real estate owned held as investment that is being operated is depreciated on a straight-line basis over the estimated useful life of the property once the asset is placed in service.

Net income per $1,000 invested

Amounts reflected in the statements of operations as net income per $1,000 invested by limited partners for the entire period are amounts allocated to limited partners who held their investment throughout the period and have elected to either leave their profits to compound or have elected to receive periodic distributions of their net income. Individual income is allocated each month based on the limited partners’ pro rata share of partners’ capital. Because the net income percentage varies from month to month, amounts per $1,000 will vary for those individuals who made or withdrew investments during the period, or selected other options.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 3 – GENERAL PARTNERS AND OTHER RELATED PARTIES

The general partners are entitled to one percent of the profits and losses, which amounted to approximately $4,000 and $(57,000) for the years ended December 31, 2013 and 2012, respectively.

Formation loan

The formation loan transactions are summarized in the following table at December 31, 2013 ($ in thousands).

	Initial			1996			2000			2002			2003			2005
	Offering of			Offering of			Offering of			Offering of			Offering of			Offering of
		$15,000			$30,000			$30,000			$50,000			$75,000			$100,000		Total
Limited Partner
contributions	$	14,932		$	29,993		$	29,999		$	49,985		$	74,904		$	100,000		$	299,813

Formation Loan	$	1,075		$	2,272		$	2,218		$	3,777		$	5,661		$	7,564		$	22,567
Unamortized discount on
Formation loan		—			—			(23	)		(80	)		(414	)		(1,317	)		(1,834	)
Formation Loan, net		1,075			2,272			2,195			3,697			5,247			6,247			20,733
Repayments		(991	)		(2,099	)		(1,883	)		(2,948	)		(3,414	)		(2,962	)		(14,297	)
Early withdrawal penalties		(84	)		(173	)		(137	)		(100	)		(142	)		(7	)		(643	)
Formation Loan, net at
December 31, 2013		—			—			175			649			1,691			3,278			5,793
Unamortized discount on
Formation loan		—			—			23			80			414			1,317			1,834
Balance,
December 31, 2013	$	—		$	—		$	198		$	729		$	2,105		$	4,595		$	7,627

Percent loaned		7.2	%		7.6	%		7.4	%		7.6	%		7.6	%		7.6	%		7.5	%

Interest has been imputed at the market rate of interest in effect at the date the offerings closed which ranged from 4.00% to 9.50%. During 2013 and 2012, $389,000 and $207,000, respectively, were recorded related to amortization of the discount on imputed interest.

The future minimum payments on the formation loan are presented in the following table ($ in thousands).

2014	$	—
2015		1,898
2016		1,674
2017		1,323
2018		1,163
Thereafter		1,569
Total	$	7,627

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 3 – GENERAL PARTNERS AND OTHER RELATED PARTIES (continued)

Formation loan (continued)

The following commissions and/or fees are paid by the borrowers to the general partners and their affiliates and are not an expense of the partnership.

Brokerage commissions, loan originations

For fees in connection with the review, selection, evaluation, negotiation and extension of loans, the general partners may collect loan brokerage commissions (points) limited to an amount not to exceed 4% of the total partnership assets per year. In 2013 and 2012, loan brokerage commissions paid to the general partners by the borrowers were $431,000 and $116,000, respectively.

Other fees

The partnership agreement provides for other fees such as reconveyance, mortgage assumption and mortgage extension fees. Such fees are incurred by the borrowers and are paid to the general partners. In 2013 and 2012, these fees totaled $21,641 and $1,826, respectively.

The following commissions and fees are paid by the partnership to RMC.

Mortgage servicing fees

RMC may earn mortgage servicing fees of up to 1.5% annually of the unpaid principal 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 from RMI VIII. Historically, RMC charged one percent annually, and at times waived additional amounts to improve the partnership’s earnings. Such fee waivers were not made for the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor were such waivers made in order to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 3 – GENERAL PARTNERS AND OTHER RELATED PARTIES (continued)

Mortgage servicing fees (continued)

Mortgage servicing fees paid to RMC by the partnership are presented in the following table for the years ended December 31, ($ in thousands).

	2013			2012
Chargeable by RMC	$	884		$	1,083
Waived by RMC		(295	)		(361	)
Charged	$	589		$	722

Asset management fees

The general partners receive monthly fees for managing the partnership’s loan portfolio and operations of up to 1/32 of 1% of the “net asset value” (3/8 of 1% annually). At times, the general partners have charged less than the maximum allowable rate to enhance the partnership’s earnings. Such fee waivers were not made with the purpose of providing the partnership with sufficient funds to satisfy withdrawal requests, nor to meet any required level of distributions, as the partnership has no such required level of distributions. RMC does not use any specific criteria in determining the exact amount of fees, if any, to be waived. The decision to waive fees and the amount, if any, to be waived, is made by RMC in its sole discretion.

Asset management fees for the years ended December 31, 2013 and 2012 were $765,000 and $840,000, respectively. No asset management fees were waived during any period reported.

Costs from Redwood Mortgage Corp.

RMC is reimbursed by the partnership for operating expenses incurred on behalf of the partnership, including without limitation, accounting and audit fees, legal fees and expenses, postage and preparation of reports to limited partners, and out-of-pocket general and administration expenses. The decision to request reimbursement of any qualifying charges is made by RMC in its sole discretion. During 2013 and 2012, operating expenses totaling $1,613,000 and $1,321,000, respectively, were reimbursed to RMC. RMC did not waive its right to request reimbursement of any qualifying charges during 2013 and 2012.

Syndication costs

The partnership bears its own syndication costs, other than certain sales commissions, including legal and accounting expenses, printing costs, selling expenses and filing fees. Syndication costs are charged against partners’ capital and are being allocated to individual partners consistent with the partnership agreement.

Through December 31, 2013, syndication costs of $5,010,000 had been incurred by the partnership with the following distribution ($ in thousands).

Costs incurred	$	5,010
Early withdrawal penalties applied		(190	)
Allocated to date		(4,820	)

December 31, 2013 balance	$	—

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 3 – GENERAL PARTNERS AND RELATED PARTIES (continued)

Syndication costs (continued)

The syndication costs associated with the offerings is as follows.

For the initial offering ($15,000,000) were limited to the lesser of 10% of the gross proceeds or $600,000 with any excess being paid by the general partners. Applicable gross proceeds were $14,932,000. Related expenditures totaled $582,000 ($570,000 syndication costs plus $12,000 organization expense) or 3.9% of gross proceeds.

·	For the 1996 offering ($30,000,000) were limited to the lesser of 10% of the gross proceeds or $1,200,000 with any excess being paid by the general partners. Gross proceeds of the offering were $29,993,000. Syndication costs totaled $598,000 or 2% of gross proceeds.

·	For the 2000 offering ($30,000,000) were limited to the lesser of 10% of the gross proceeds or $1,200,000 with any excess being paid by the general partners. Gross proceeds of the offering were $29,999,000. Syndication costs totaled $643,000 or 2.1% of gross proceeds.

·	For the 2002 offering ($50,000,000) were limited to the lesser of 10% of the gross proceeds or $2,000,000 with any excess to be paid by the general partners. Gross proceeds of the offering were $49,985,000. Syndication costs totaled $658,000 or 1.3% of gross proceeds.

·	For the 2003 offering ($75,000,000) were limited to the lesser of 10% of the gross proceeds or $3,000,000 with any excess to be paid by the general partners. Gross proceeds of the offering were $74,904,000. Syndication costs totaled $789,000 or 1.1% of gross proceeds.

·	For the 2005 offering ($100,000,000) were limited to the lesser of 10% of the gross proceeds or $4,000,000 with any excess to be paid by the general partners. Gross proceeds of the offering were $100,000,000. Syndication costs totaled $1,752,000 or 1.75% of gross proceeds.

NOTE 4 – LOANS

The partnership generally funds loans with a fixed interest rate and a five-year term. As of December 31, 2013, approximately 50% of the partnership’s loans (representing 54% of the aggregate principal balance of the partnership’s loan portfolio) have a five year term or less from loan inception. The remaining loans have terms longer than five years.

As of December 31, 2013, approximately 47% of the loans outstanding (representing 84% of the aggregate principal balance of the partnership’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity. The remaining loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

The partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception. The partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents and would be funded from available cash balances and future cash receipts. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded. As of December 31, 2013, there were no such loans.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table for the years ended December 31, ($ in thousands).

	2013			2012
Principal, January 1	$	60,870		$	73,386
Loans funded or acquired		22,285			10,522
Principal collected		(9,931	)		(17,401	)
Loans sold to affiliates		(2,107	)		(1,189	)
Foreclosures		(18,975	)		(3,728	)
Other – loans charged off against allowance		(252	)		(720	)
Principal, December 31	$	51,890		$	60,870

During 2013 and 2012, the partnership renewed two and four loans, respectively, with an aggregate principal of approximately $349,000 and $967,000, respectively that were not included in the activity shown on the table above.

Loan characteristics

Secured loans had the characteristics presented in the following table ($ in thousands).

	2013			2012
Number of secured loans		36			39
Secured loans – principal	$	51,890		$	60,870
Secured loans – lowest interest rate (fixed)		4.00	%		3.00	%
Secured loans – highest interest rate (fixed)		12.00	%		12.00	%

Average secured loan – principal	$	1,441		$	1,561
Average principal as percent of total principal		2.78	%		2.56	%
Average principal as percent of partners’ capital		0.75	%		0.80	%
Average principal as percent of total assets		0.59	%		0.63	%

Largest secured loan – principal	$	16,312		$	16,697
Largest principal as percent of total principal		31.44	%		27.43	%
Largest principal as percent of partners’ capital		8.44	%		8.56	%
Largest principal as percent of total assets		6.65	%		6.74	%

Smallest secured loan – principal	$	79		$	87
Smallest principal as percent of total principal		0.15	%		0.14	%
Smallest principal as percent of partners’ capital		0.04	%		0.04	%
Smallest principal as percent of total assets		0.03	%		0.04	%

Number of counties where security is located (all California)		17			19
Largest percentage of principal in one county		41.68	%		46.18	%

Number of secured loans in foreclosure status		2			6
Secured loans in foreclosure – principal	$	16,689		$	1,910

Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Loan characteristics (continued)

As of December 31, 2013, the partnership’s largest loan, in the unpaid principal balance of $16,312,000 (representing 31.44% of outstanding secured loans and 6.65% of partnership assets) has an interest rate of 5.00% and is secured by 75 units in a 128 unit condominium complex located in Contra Costa County, California. This loan matured April 1, 2012. A court appointed receiver is overseeing the management of the property and exploring the market for the disposition of the remaining units.

Larger loans sometimes increase above 10% of the secured loan portfolio or partnership assets as these amounts decrease due to limited partner withdrawals and loan payoffs and due to restructuring of existing loans.

Lien position

At funding secured loans had the following lien positions and are presented in the following table ($ in thousands).

	2013						2012
	Loans	Principal			Percent		Loans	Principal			Percent
First trust deeds	19	$	36,816		71	%	17	$	33,785		56	%
Second trust deeds	16		14,784		28		21		26,789		44
Third trust deeds	1		290		1		1		296		—
Total secured loans	36		51,890		100	%	39		60,870		100	%
Liens due other lenders at loan closing			53,098						80,875

Total debt		$	104,988					$	141,745

Appraised property value at loan closing		$	148,215					$	199,392

Percent of total debt to appraised
values (LTV) at loan closing (1)			70.83	%					71.10	%

(1)

Based on appraised values and liens due other lenders at loan closing. The loan to value computation does not take into account subsequent increases or decreases in security property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any. Property values likely have changed, particularly over the last four years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.

Property type

Secured loans summarized by property type are presented in the following table ($ in thousands).

	2013					2012
	Loans	Principal		Percent		Loans	Principal		Percent
Single family	27	$	33,771	65	%	31	$	46,295	76	%
Multi-family	1		1,000	2		2		2,557	4
Commercial(2)	8		17,119	33		6		12,018	20
Total secured loans	36	$	51,890	100	%	39	$	60,870	100	%

(2)	Includes one loan with a principal balance of approximately $532,000, secured by an improved land lot, with plans to be developed as a five-unit townhouse by the borrower.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Property type

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes. From time to time, loan originations in one sector or property type become more active due to prevailing market conditions. The current concentration of the partnership’s loan portfolio in condominium properties may pose additional or increased risks. Recovery of the condominium sector of the real estate market is generally expected to lag behind that of single-family residences. In addition, availability of financing for condominium properties has been, and will likely continue to be, constricted and more difficult to obtain than other property types. As of December 31, 2013 and 2012, $16,312,000 and $36,855,000, respectively, of the partnership’s loans were secured by condominium properties.

Condominiums may create unique risks for the partnership that are not present for loans made on other types of properties. In the case of condominiums, a board of managers generally has discretion to make decisions affecting the condominium building, including regarding assessments to be paid by the unit owners, insurance to be maintained on the building, and the maintenance of that building, which may have an impact on the partnership loans that are secured by such condominium property.

The partnership may have less flexibility in foreclosing on the collateral for a loan secured by condominiums upon a default by the borrower. Among other things, the partnership must consider the governing documents of the homeowners association and the state and local laws applicable to condominium units, which may require an owner to obtain a public report prior to the sale of the units.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Distribution by California counties

The distribution of secured loans outstanding by the California county in which the primary collateral is located is presented in the following table at December 31, 2013 ($ in thousands).

	December 31, 2013				December 31, 2012
	Unpaid Principal Balance		Percent		Unpaid Principal Balance		Percent

San Francisco	$	21,627	41.68	%	$	28,115	46.18	%

San Francisco Bay Area(1)
Contra Costa		16,647	32.08			17,927	29.44
Santa Clara		3,208	6.18			3,182	5.23
San Mateo		1,765	3.40			665	1.09
Alameda		1,260	2.43			1,682	2.76
Solano		—	—			1,641	2.70
Napa		406	0.78			411	0.68
Marin		180	0.35			180	0.30
		23,466	45.22			25,688	42.20

Other Northern California
Sacramento		249	0.48			2,518	4.14
Calaveras		182	0.35			196	0.32
Monterey		178	0.34			183	0.30
San Benito		97	0.19			98	0.16
Butte		79	0.15			115	0.19
		785	1.51			3,110	5.11

Northern California Total		45,878	88.41			56,913	93.49

Southern California
Riverside		—	—			2,140	3.52
Los Angeles		2,511	4.84			817	1.34
San Diego		1,680	3.24			95	0.16
Orange		1,354	2.61			588	0.97
Ventura		350	0.67			—	—
San Bernardino		—	—			196	0.32
Kern		117	0.23			121	0.20
Southern California Total		6,012	11.59			3,957	6.51

Total Secured Loans	$	51,890	100	%		60,870	100	%

(1)	Includes Silicon Valley

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table ($ in thousands).

Scheduled maturities at December 31, 2013	Loans	Principal		Percent
2014	6	$	10,754	21	%
2015	10		14,484	28
2016	6		5,450	10
2017	4		1,391	3
2018	2		585	1
Thereafter	3		1,532	3
Total future maturities	31		34,196	66
Matured at December 31, 2013	5		17,694	34
Total secured loans	36	$	51,890	100	%

It is the partnership’s experience loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the partnership 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.

The partnership reports maturity data based upon the most recent contractual agreement with the borrower. The table above includes two loans with an aggregate principal of $349,000 which are renewals.

Matured loans

Secured loans past maturity are summarized in the following table ($ in thousands).

	2013			2012
Number of loans(3)(4)		5			14
Principal	$	17,694		$	36,486
Advances		683			5,014
Accrued interest		63			61
Loan balance	$	18,440		$	41,561
Percent of principal		34	%		60	%

(3)

The secured loans past maturity include 5 and 12 loans as of December 31, 2013 and 2012, respectively, also included in the secured loans in non-accrual status.

(4)

The secured loans past maturity include 5 and 10 loans as of December 31, 2013 and 2012, respectively, also included in the secured loans delinquency.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Delinquency

Secured loans summarized by payment delinquency are presented in the following table ($ in thousands).

	2013		2012
Past due
30-89 days	$	665	$	783
90-179 days		17,197		2,062
180 or more days		474		19,033
Total past due		18,336		21,878
Current		33,554		38,992
Total secured loans	$	51,890	$	60,870

At December 31, 2013, the partnership had three workout agreements in effect with an aggregate principal of $1,097,000. All three borrowers had made all required payments under the workout agreements and the loans were included in the above table as current. All three of the loans were designated impaired and were in non-accrual status.

At December 31, 2012, the partnership had four workout agreements in effect with an aggregate principal of $1,126,000. Of the four borrowers, three, with an aggregate principal of $709,000 had made all required payments under the workout agreements and the loans were included in the above table as current. All of the loans with a workout agreement in effect were designated impaired and three of the four impaired loans with an aggregate principal of $866,000 were in non-accrual status.

Interest income accrued on loans contractually past due 90 days or more as to principal or interest payments during the years ended December 31, 2013 and 2012 was $62,000 and $50,000, respectively. Accrued interest on loans contractually past due 90 days or more as to principal or interest payments at December 31, 2013 and 2012 was $81,000 and $14,000, respectively.

Modifications, workout agreements and troubled debt restructurings

Modified secured loan transactions are summarized in the following table for the years ended December 31, ($ in thousands).

	2013					2012
	Active		Principal			Active	Principal
Balance, January 1	5		$	6,085		3	$	908
New modifications	1			325		2		5,225
Paid off/Foreclosed	(1	)		(2,140	)	—		—
Principal collected	—			(323	)	—		(48	)
Ending, December 31	5		$	3,947		5	$	6,085

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Modifications, workout agreements and troubled debt restructurings (continued)

Workout agreements on secured loan transactions are summarized in the following table for the years ended December 31, ($ in thousands).

	2013						2012
	Active			Principal			Active			Principal
Balance, January 1		4		$	1,126			8		$	4,255
New agreements		2			847			2			613
Paid off/Foreclosed		(1	)		(417	)		—			—
Expired/Voided		(2	)		(449	)		(6	)		(3,735	)
Principal collected		—			(10	)		—			(7	)
Ending, December 31		3		$	1,097			4		$	1,126

Modifications and workout agreements may cause a loan to qualify as a troubled debt restructuring (TDR) under GAAP, and may result in a provision for loan losses being recorded. TDRs on secured loans transactions are summarized in the following table for the years ended December 31, ($ in thousands).

	2013					2012
	Active		Principal			Active	Principal
Balance, January 1	6		$	8,042		4	$	6,625
New agreements	2			990		2		3,281
Paid off/Foreclosed	(3	)		(4,507	)	—		—
Principal collected	—			(297	)	—		(1,864	)
Ending, December 31	5		$	4,228		6	$	8,042

Provision for loan losses			$	—			$	—

Loans in non-accrual status

Secured loans in nonaccrual status are summarized in the following table ($ in thousands).

	2013		2012
Secured loans in nonaccrual status
Number of loans		8		18
Principal	$	18,361	$	43,352
Advances		688		5,028
Accrued interest		63		11
Loan balance	$	19,112	$	48,391
Foregone interest	$	887	$	3,255

At December 31, 2013 and 2012, there was a loan with a loan balance of $425,000 and $99,000, respectively, that was contractually 90 or more days past due as to principal or interest and not in non-accrual status.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Loans designated impaired

Impaired loans had the balances shown and the associated allowance for loan losses presented in the following table ($ in thousands).

	2013		2012
Principal	$	21,499	$	45,964
Recorded investment(5)	$	22,249	$	51,054
Impaired loans without allowance	$	4,149	$	9,611
Impaired loans with allowance	$	18,100	$	41,443
Allowance for loan losses, impaired loans	$	8,740	$	19,560

(5)

Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

Impaired loans had the average balances and interest income recognized and received in cash as presented in the following table for the years ended December 31, ($ in thousands).

	2013		2012
Average recorded investment	$	36,652	$	66,898
Interest income recognized	$	156	$	195
Interest income received in cash	$	378	$	612

Allowance for loan losses

Activity in the allowance for loan losses is presented in the following table for the years ended December 31 ($ in thousands).

	2013			2012
Balance, January 1	$	19,815		$	22,035

Provision for loan losses		(1,040	)		859

Charge-offs, net
Charge-offs		(14,623	)		(3,100	)
Recoveries		4,638			21
Charge-offs, net		(9,985	)		(3,079	)

Balance, December 31	$	8,790		$	19,815

Ratio of charge-offs, net during the period to average
secured loans outstanding during the period		17.00	%		4.32	%

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 4 – LOANS (continued)

Allowance for loan losses (continued)

The composition of the allowance for loan losses and the percentage of unpaid principal balance for each property type are presented in the following table for the years ended December 31, ($ in thousands).

	2013				2012
	Amount		Percent		Amount		Percent
Allowance for loan losses

Secured loans by property type
Single family	$	8,790	65	%	$	19,255	76	%
Multi-family		—	2			60	4
Commercial		—	33			500	20
Total for secured loans	$	8,790	100	%	$	19,815	100	%

Unsecured loans	$	—	100	%	$	—	100	%

Total allowance for loan losses	$	8,790	100	%	$	19,815	100	%

NOTE 5 – REAL ESTATE OWNED (REO)

REO held for sale

Periodically, management reviews the status of the owned properties to evaluate among other things, their asset classification. Properties generally are acquired through foreclosure. Several factors are considered in determining the classification of owned properties as “real estate held for sale” or “real estate held as investment.” These factors include, but are not limited to, real estate market conditions, status of any required permits, repair, improvement or development work to be completed, rental and lease income and investment potential. Real estate owned is classified as held for sale in the period in which the GAAP required criteria are met. As a property’s status changes, reclassifications may occur.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 5 – REAL ESTATE OWNED (REO) (continued)

REO held for sale (continued)

Transactions and activity, including changes in the net book values, if any, and the property types are presented in the following table for the years ended December 31, ($ in thousands).

	2013			2012
Balance, January 1	$	—		$	48,406
Acquisitions		3,895			—
Dispositions		(7,745	)		(30,003	)
Improvements/betterments		11			447
Designated from REO held as investment		20,594			—
Designated to REO held as investment		—			(18,337
Change in net book value		(160	)		(513	)
Depreciation		(43	)		—
Balance, December 31	$	16,552		$	—

Property type
Rental	$	10,541			—
Development		6,011			—
Total REO, held for sale	$	16,552			—

Number of properties, December 31		3			—

The following transactions closed during 2013, all within the fourth quarter:

-	Acquired through foreclosure four units in a multi-family building located in San Francisco County. All units were sold in the fourth quarter for approximately their carrying value.

-	Designated from REO held as investment an eight unit multi-family rental property located in San Francisco County. This property sold in December with a gain of approximately $521,000.

-	Designated from REO held as investment a commercial rental property located in San Francisco County. The general partners expect this property to sell in the first half of 2014.

-	Designated from REO held as investment the remaining three units of a tenant-in-common building located in San Francisco County, California. One unit’s sale closed in early 2014 for approximately its carrying value.

-	Designated from REO held as investment a six unit apartment building located in Solano County. This property sold in early 2014 for approximately its carrying value.

The net rental income for the two designated properties, and any other REO held for sale rental results, has been reclassified from REO – Rental Operations, to Revenues – Other for all periods presented in the financial statements and the Results of Operations in Item 7 of this report. The rental operations, net for REO held for sale properties for the years ended December 31, 2013 and 2012 was $532,000 and ($6,000), respectively. Interest expense on the mortgages securing the rental properties was $580,000 and $2,000 for the years ended December 31, 2013 and 2012, respectively.

During 2012, the partnership designated four properties to REO held as investment. Of the properties listed in the tables as dispositions in 2012, the partnership recorded an aggregate investment gain of approximately $39,000.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 5 – REAL ESTATE OWNED (REO) (continued)

REO held for sale (continued)

During the fourth quarter of 2012 the partnership sold the following property.

-	A commercial property located in San Francisco County, California. The property was sold for its carrying value after taking into account any previously recorded valuation reserve.

-	A tenant-in-common unit located in San Francisco County, California. The unit had a gain on sale of approximately $4,000.

During the third quarter of 2012 the partnership sold a single-family residence located in Humboldt County, California. The sale resulted in a recovery of approximately $14,000 to an impairment recorded in the second quarter of 2012.

During the second quarter of 2012 the partnership sold the following properties.

-	A commercial property/development site located in San Francisco, County, California. The sale resulted in a gain of approximately $168,000. As part of the sale, the partnership took back a loan of $10,500,000 secured by the property.

-	A tenant-in-common unit located in San Francisco County, California. The unit had a loss on sale of approximately $127,000.

During the first quarter of 2012 the partnership sold the following properties.

-	1 condominium unit and 3 tenants-in-common units, all located in San Francisco County, California. The units had an aggregate loss on sale of approximately $6,000.

-	A mixed-use property consisting of a single-family residence, winery and vineyard, located in Napa County, California. The property was sold for its carrying value after taking into account any previously recorded valuation reserve.

REO held as investment, net

For REO, held as investment, the activity in net book value (NBV) and changes in the impairment reserves are summarized in the following table for the years ended December 31 ($ in thousands).

	NBV						Accumulated Depreciation
	2013			2012			2013			2012
Balance, January 1	$	181,333		$	161,402		$	5,926		$	3,594
Acquisitions		3,099			1,649			—			—
Dispositions		(1,696	)		7			—			(7	)
Improvements/betterments		4,059			2,925			—			—
Designated from REO held for sale		—			18,337			—			—
Designated to REO held for sale		(20,594	)		—			(411	)		—
Changes in net book values (NBV)		(878	)		(648	)		—			—
Depreciation		(2,760	)		(2,339	)		2,760			2,339
Balance, December 31	$	162,563		$	181,333		$	8,275		$	5,926

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 5 – REAL ESTATE OWNED (REO), (continued)

REO held as investment, net (continued)

During 2013, the partnership’s REO held as investment transactions are summarized below.

Acquired through foreclosure a commercial office property located in Contra Costa County. The recorded investment was approximately $1,500,000. The partnership placed its interest in the title to the property in a single asset entity named San Pablo Dam Road Property Company, LLC. Upon completion of rehabilitation work, the property will be rented.

Acquired through foreclosure a multi-family complex located in Solano County. The recorded investment was approximately $1,200,000. The partnership placed its interest in the title to the property in a single asset entity named Willow Street Property Company, LLC. Rehabilitation work has been complete and the property is now being rented.

-	Sold a tenant-in-common unit located in San Francisco County. The unit sold for approximately its carrying value after taking into account a previously recorded valuation reserve.

-	Sold a portion of a land parcel located in Stanislaus County. The parcel sold for approximately its carrying value after taking into account a previously recorded valuation reserve.

-	Acquired through foreclosure a six unit apartment building located in Solano County. The recorded investment was approximately $399,000. The partnership placed its interest in the title to the property in a single asset entity named 515 Louisiana Property Company, LLC.

-	Designated three properties as REO held for sale in December 2013.

During the second quarter of 2012, the partnership acquired through foreclosure a partially completed home subdivision in Fresno County, California. The recorded investment was approximately $1,649,000.

REO, held as investment, summarized by property classification is presented in the following table ($ in thousands).

	December 31, 2013			December 31, 2012
	Properties	NBV		Properties	NBV
Property classification
Rental	19	$	141,812	19	$	154,566
Development	5		20,751	6		26,767
Total REO, held as investment, net	24	$	162,563	25	$	181,333

Rental properties include single-family residences (1-4 units), multi-family buildings, wholly-owned condominium complexes, fractured condominium complexes and commercial property.

Development properties consist of the following five properties at December 31, 2013 and five of the six properties at December 31, 2012:

-	A property under construction consisting of two condominium units, with a carrying value of $5,776,000 and cost to complete of approximately $300,000.

-	A property located in Los Angeles County, presently zoned and entitled as commercial, being developed and re-entitled to residential.

-	Approximately 14 and 15 acres at December 31, 2013 and 2012, respectively, located in Stanislaus County zoned commercial.

-	Approximately 13 acres located in Marin County, zoned for residential development.

-	A partially completed home subdivision located in Fresno County. The property has rental operations of five single-family residences.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 5 – REAL ESTATE OWNED (REO), (continued)

REO held as investment, net (continued)

REO, held as investment, summarized by geographic area is presented in the following table as of December 31, ($ in thousands).

	2013								2012
	Rental				Non-Rental				Rental				Non-Rental
County	No.		NBV		No.		NBV		No.		NBV		No.		NBV
San Francisco		3	$	3,915		1	$	5,776		5	$	17,962		2	$	11,398

San Francisco Bay Area(1)(2)
Alameda		3		8,515		—		—		3		8,310		—		—
Contra Costa		4		13,985		—		—		3		12,651		—		—
Marin		—		—		1		1,209		—		—		1		1,210
Napa		1		1,491		—		—		1		1,592		—		—
Solano		1		1,149		—		—		—		—		—		—
		9		25,140		1		1,209		7		22,553		1		1,210

Northern California(1)
Amador		1		1,551		—		—		1		1,603		—		—
Fresno		—		—		1		1,612		—		—		1		1,635
Sacramento		1		40,165		—		—		1		40,515		—		—
San Joaquin		2		3,235		—		—		2		2,878		—		—
Stanislaus		—		—		1		2,790		—		—		1		3,700
Sutter		1		475		—		—		1		484		—		—
		5		45,426		2		4,402		5		45,480		2		5,335

Southern California
Los Angeles		2		67,331		1		9,364		2		68,571		1		8,824
		2		67,331		1		9,364		2		68,571		1		8,824
Total REO Held as investment		19	$	141,812		5	$	20,751		19	$	154,566		6	$	26,767

(1)	Excluding line(s) above.

(2)	Includes Silicon Valley

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 5 – REAL ESTATE OWNED (REO) (continued)

Held as investment, net (continued)

REO, held as investment, summarized by property type is presented in the following table as of December 31, ($ in thousands).

	2013			2012
	Properties	NBV		Properties	NBV
Property type
Residential
Single family	3	$	8,879	4	$	14,624
Apartments	1		527	1		376
Condominiums(3)	4		65,014	4		68,448
Fractured Condominiums(4)	10		71,588	10		72,292
Commercial(5)	6		16,555	6		25,593
Total REO, held as investment, net	24	$	162,563	25	$	181,333

(3) Includes units in condominium complexes wholly-owned by the partnership.

(4) Includes units in condominium complexes where some units had been sold prior to the partnership’s acquisition.

(5) Includes two parcels of land of 14 and 13 acres respectively.

The earnings/(loss) from rental operations of the real estate owned, held as investment is presented in the following table for the years ended December 31 ($ in thousands).

	2013		2012
Rental income	$	11,125	$	11,557
Operating expenses, rentals
Administration and payroll		1,394		1,431
Homeowner association fees		857		865
Professional services		275		296
Utilities and maintenance		1,223		1,238
Advertising and promotions		136		128
Property taxes		1,171		1,849
Other		225		280
Total operating expenses, rentals		5,281		6,087
Net operating income		5,844		5,470
Depreciation		2,597		2,328
Receiver fees		60		239
Rental operations, net		3,187		2,903
Interest on mortgages		1,683		2,395
Rental operation, net, less related mortgage interest	$	1,504	$	508

Leases on residential properties are all one year lease terms or month to month. One commercial property has a short term lease, due to the cancellation clause at lessee’s option.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 6 – BORROWINGS

Mortgages payable

Mortgages payable transactions are summarized in the following table for the years ended December 31, ($ in thousands).

	2013			2012
Principal, January 1	$	47,293		$	43,681
New mortgages taken		5,000			5,160
Principal repaid		(3,355	)		(1,548	)
Principal, December 31	$	48,938		$	47,293

Mortgages payable are summarized in the following table as of December 31, (mortgage balance $ in thousands).

Lender – summary of terms	2013		2012
NorthMarq Capital – Secured by a condominium complex,	$	18,170	$	18,607
located in Los Angeles County, matures July 1, 2015,
interest rate (2.90%) varies monthly (LIBOR plus 2.73%),
monthly payment(1)(2) $119,758
East West Bank – Secured by a fractured condominium project		13,391		13,578
located in Sacramento County, matures June 1, 2017,
interest rate varies monthly (greater of Prime plus 1% or 5.50%),
monthly payment(2) $78,283
Business Partners – Secured by a commercial property located		6,721		7,100
in San Francisco County, matures May 1, 2015,
interest rate varies monthly (greater of 5-year Treasuries
plus 2.33% or 6.53%),
monthly payment(1)(2) $79,155
Chase Bank – Secured by a condominium complex		5,036		5,136
located in Contra Costa County, matures September 1, 2042,
interest rate variable (fixed until September 1, 2017 at 3.52%),
monthly payment $23,228
CapitalSource – Secured by a condominium complex,		4,952		—
located in Los Angeles County, matures July 1, 2023,
interest rate variable (fixed until June 1, 2016 at 3.95%),
monthly payment(1)(2) $42,258
First National Bank of Northern California – Secured by eight		—		2,179
condominium units located in San Francisco County, matures
November 1, 2016,
interest rate varies monthly (greater of Prime plus 2.35% or 5.70%),
monthly payment(2) $12,856
Wells Fargo Bank – Secured by a condominium unit located in		351		365
San Francisco County, matures October 1, 2032,
interest rate (2.88%) varies annually (LIBOR plus 2.75%),
monthly payment $2,014
Wells Fargo Bank – Secured by a condominium unit located in		317		328
San Francisco County, matures September 15, 2032,
interest rate (4.03%) varies annually (bank rate plus 3.10%),
monthly payment $2,174
Total mortgages payable	$	48,938	$	47,293

(1) Monthly payments include amounts for various impounds such as property taxes, insurance, and repairs.

(2) Monthly payments based upon a 30 year amortization, with a balloon payment due at maturity.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 6 – BORROWINGS (continued)

Mortgages payable (continued)

During 2013, significant transactions to mortgages payable were as follows.

-	In June 2013, the partnership obtained a mortgage loan of $5,000,000 from CapitalSource, secured by the multi-family complex held by Altura Property Company, LLC.

-	In December 2013, the mortgage held by First National Bank of Northern California was paid in full upon the sale of the eight condominium units securing the loan.

During 2012, significant transactions to mortgages payable were as follows.

-	In June 2012 the partnership and East West bank finalized negotiations and executed a loan agreement to succeed the maturing note. The maturing loan had a balance of $13,681,000, an interest rate of 7.50% and matured on May 5, 2012.

-	In August 2012, the partnership obtained a mortgage loan of $5,160,000 from Chase Bank, secured by the multi-family complex held by Diablo Villas, LLC.

-	In August 2012, the partnership sold a non-rental property secured by a mortgage of $107,000. The interest expense incurred for 2012 was approximately $3,000.

-	The Chase Bank and GMAC mortgages shown in the above table with zero balances at December 31, 2012, were paid off in full when the properties securing the loans were sold during 2012.

The future minimum payments of principal on the above mortgages at December 31, 2013 are presented in the following table ($ in thousands).

2014	$	1,326
2015		24,506
2016		503
2017		13,012
2018		292
Thereafter		9,299
Total	$	48,938

Bank loan, secured

In September 2012, the partnership paid all remaining amounts owing under the Bank Loan. The Bank Loan balance was $16,789,000, at December 31, 2011.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 7 – FAIR VALUE

The partnership does not record loans, REO, nor mortgages payable at fair value on a recurring basis.

Certain assets and liabilities are measured at fair value on a non-recurring basis.

- Loans designated impaired (i.e. that are collateral dependent).

- REO held for sale.

- REO held as investment.

- Loans designated impaired which were acquired through foreclosure or deed in lieu of foreclosure during the year.

- Loans designated impaired which were acquired through foreclosure or deed in lieu of foreclosure and sold during the year.

Assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2013 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable		Total
	Identical Assets		Inputs		Inputs		as of
Item	(Level 1)		(Level 2)		(Level 3)		12/31/2013
Impaired loans with allowance, net(1)	$	—	$	9,360	$	—	$	9,360
REO held for sale	$	—	$	16,552	$	—	$	16,552
REO held as investment(2)	$	—	$	4,868	$	1,551	$	6,419
Impaired loans with allowance, net
foreclosed upon during 2013(1)(3)	$	—	$	2,662	$	—	$	2,662
Impaired loans with allowance, net
foreclosed and sold during 2013(1)	$	—	$	3,895	$	—	$	3,895

Assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2012 are presented in the following table ($ in thousands).

	Fair Value Measurement at Report Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable		Total
	Identical Assets		Inputs		Inputs		as of
Item	(Level 1)		(Level 2)		(Level 3)		12/31/2012
Impaired loans with allowance, net(1)	$	—	$	21,883	$	—	$	21,883
REO held for sale	$	—	$	—	$	—	$	—
REO held as investment(2)	$	—	$	12,022	$	1,603	$	13,625
Impaired loans with allowance, net
foreclosed upon during 2012(1)(3)	$	—	$	1,634	$	—	$	1,634
Impaired loans with allowance, net
foreclosed and sold during 2012(1)	$	—	$	—	$	—	$	—

(1)	Sum of principal, advances, interest accrued, less the related specific allowance for financial reporting purposes.

(2)	Only includes properties with a valuation change during the year.

(3)	Excludes any properties included in the REO lines above.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 7 – FAIR VALUE (continued)

In 2012, in line with improving volumes of transactions and fewer distressed sales it was determined that sufficient market transactions were occurring to reclassify impaired loans with allowance, net to Level 2 from Level 3.

Amounts shown as level 3 in 2012 for REO held as investment have been reclassified to level 2 in light of the improved real estate markets in 2012 which have continued to improve during 2013.

The following methods and assumptions are used when estimating fair value.

(a)

Secured loans (Level 2) – The recorded amount of the performing loans (i.e. the loan balance) is deemed to approximate the fair value. Each loan is reviewed for its delinquency, protective equity (LTV) adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. Also considered is the very limited resale market for the loans. Most companies or individuals making similar loans as the partnership intend to hold the loans until maturity as the average contractual term of the loans (and the historical experience of the time the loan is outstanding due to pre-payments) is shorter than conventional mortgages. Further there are no prepayment penalties to be collected and any loan buyers would be unwilling to risk paying above par. Due to these factors sales of the loans are infrequent and an active market does not exist.

(b)

Secured loans (Level 2) – 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 are used depending upon the property type of the collateral of the secured loans.

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.

Where sufficient, applicable sale comps are not available, management will seek additional information in the form of broker’s opinions of value or appraisals.

Multi-family residential – The company’s multi-family residential assets consist of either multiple owned units at fractured condominium projects and wholly owned apartment complexes with condominium overlays, management’s fair market value analysis compares the aggregate retail value of the units as for-sale condominiums against the asset’s value as an income-producing rental property in determining its most favorable market.

Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method for the individual condominium units. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com 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, amenities and year built. For fractured condominium projects, sales of units within the same community are preferred.

Management compiles the list of the most relevant sale comps and derives an average price per square foot, which is then applied to the average square footage of company-owned units at the subject property to determine the average price per unit and the gross square footage of all company units to determine the aggregate retail value of the units as for-sale condominiums.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 7 – FAIR VALUE (continued)

Where adequate sale comps are not available, management will seek additional information in the form of broker’s opinions of value or appraisals.

Management’s preferred method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method when rental operations are consistent and rental income and expenses have been normalized. In order to determine market cap rates, management refers to published data from reliable 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 project. When 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.

Where such information is available, management may also determine the asset’s value as an income-producing rental project via the sale comparison method by comparing the value of similar multifamily assets sold recently. This method typically applies only to wholly owned apartment complexes.

Management compares the aggregate retail value to the value as an income-producing rental project to determine the property’s current highest and best use/ most favorable market, setting the fair market value accordingly.

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 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 of stabilized properties performing at market, less any cost to improve.

Supplemental, and particularly when reliable net operating income is not available or the project is under development, management will seek additional information in the form of a sale comparison analysis (where adequate sale comps are available), broker’s 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.

(c)	Unsecured loans (Level 3). Unsecured loans are valued at their principal less any discount or loss reserves established by management after taking into account the borrower’s creditworthiness and ability to repay the loan.

(d)

Real estate owned (REO), net (Level 2). Real estate acquired in full or partial settlement of loan obligations, generally through foreclosure, is recorded at acquisition at the lower of the recorded investment in the loan, plus any senior indebtedness, or at the property’s fair value less estimated costs to sell, as applicable. The fair value estimates are derived as above in secured loans for similar property types. In rare instances where no market comps are available, the fair value of the property will be computed using internal analytics that are expected to be indicative of the value that would be ascribed by a buyer/investor.

REDWOOD MORTGAGE INVESTORS VIII

(A California Limited Partnership)

Notes to Consolidated Financial Statements

December 31, 2013 and 2012

NOTE 7 – FAIR VALUE (continued)

(e)

Mortgages payable (Level 2). The partnership has mortgages payable (see Note 6 Borrowings for details). The interest rates are deemed to be at market rates for the type and location of the securing property, the length of the mortgage, and the other terms and conditions are deemed to be customary. All of the partnership’s mortgages are deemed to be at fair value as they are either, with variable interest rates which have adjusted within the past twelve months, or were refinanced/extended within the past twelve months with terms and conditions deemed customary for the collateral property.

NOTE 8 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS

Legal proceedings

Commitments

At December 31, 2013, there was one property with a carrying value of $5,776,000 in construction with remaining construction costs of approximately $300,000.

NOTE 9 – SUBSEQUENT EVENTS

None

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

There were no changes in or disagreements with the partnership’s independent registered public accounting firm during the years ended December 31, 2013 and 2012.

Item 9A – Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The partnership carried out an evaluation, under the supervision and with the participation of the general partners of the effectiveness of the design and operation of the partnership’s disclosure controls and procedures (as defined in Rule 13a-15 of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the general partners concluded the partnership’s disclosure controls and procedures were effective.

General Partners’ Report on Internal Control Over Financial Reporting

The general partners are 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.

The general partners and their respective managements conducted an evaluation of the effectiveness of the partnership’s internal control over financial reporting based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, the general partners concluded the partnership’s internal control over financial reporting was effective as of December 31, 2013.

This annual report does not include an attestation report of the partnership’s independent registered public accounting firm regarding internal control over financial reporting because current law and SEC rules require such attestation reports only for large accelerated filers and accelerated filers (and the partnership, as a smaller reporting company, is not subject to that requirement).

Changes to Internal Control Over Financial Reporting

There have not been any changes in the partnership’s internal control over financial reporting in 2013 that have materially affected, or are reasonably likely to materially affect, the partnership’s internal control over financial reporting.

Item 9B – Other Information

None

Part III

Item 10 – Directors, Executive Officers and Corporate Governance

The partnership has no officers or directors. The general partners are RMC, RMC’s wholly-owned subsidiary Gymno LLC, and Michael R. Burwell, an individual. The general partners are solely responsible for managing the partnership business, subject to the rights of the limited partners to vote on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. A majority of the outstanding limited partnership interests may, without the consent of the general partners, vote to: (i) terminate the partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the partnership and (iv) remove or replace one or all of the general partners. The approval of all of the limited partners is required to elect a new general partner to continue the partnership business where there is no remaining general partner after a general partner ceases to be a general partner other than by removal.

The General Partners

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. acts as the loan broker and servicing agent in connection with loans.

Gymno LLC. Gymno LLC is a California limited liability company formed in 1986 as Gymno Corporation for the purpose of acting as a general partner of this partnership and of other limited partnerships formed by the individual general partners. Gymno is a wholly owned subsidiary of Redwood Mortgage Corp. and Michael R. Burwell is the Manager of Gymno.

Michael R. Burwell. Michael R. Burwell, age 57, Director, Chief Financial Officer, Redwood Mortgage Corp. (1979-present); past member of Board of Trustees and Treasurer, Mortgage Brokers Institute (1984-1986); President, Director, Secretary and Treasurer A & B Financial Services, Inc. (1980-2009); and President, Director, Chief Financial Officer, Secretary and Manager of Gymno LLC (1986-present).

Financial Oversight by General Partners

The partnership does not have a board of directors or an audit committee. Accordingly, the general partners serve 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 partnership does not have an audit committee and the general partners are not independent of the partnership, the partnership does not have an “audit committee financial expert.”

Code of Ethics

The general partners have adopted a Code of Ethics applicable to the general partners and to any agents, employees or independent contractors engaged by the general partners to perform the functions of a principal financial officer, principal accounting officer or controller of the partnership, 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.

Item 11 – Executive Compensation

COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

As indicated above in Item 10, the partnership has no officers or directors. The partnership is managed by the general partners. There are certain fees and other items paid to management and related parties.

A more complete description of management compensation is found in the partnership’s prospectus dated August 4, 2005, under the section “Compensation of the General Partners and the Affiliates” (pages 23 through 28), which is herein incorporated by reference. Such compensation is summarized below.

I. THE FOLLOWING COMPENSATION HAS BEEN PAID TO THE GENERAL PARTNERS AND/OR THEIR AFFILIATES FOR SERVICES RENDERED DURING THE YEAR ENDED DECEMBER 31, 2013. ALL SUCH COMPENSATION IS IN COMPLIANCE WITH THE GUIDELINES AND LIMITATIONS SET FORTH IN THE PARTNERSHIP AGREEMENT.

Entity Receiving Compensation	Description of Compensation and Services Rendered		Amount
RMC (General Partner)	Mortgage Servicing Fee for servicing loans…………..	$	589,000

General Partners &/or Affiliates	Asset Management Fee for managing assets………….	$	765,000

General Partners	1% interest in profits (loss)……………………………	$	4,000
	Less allocation of syndication costs…………………...		(3,000	)
		$	1,000

General Partners &/or Affiliates	Portion of early withdrawal penalties applied to
	reduce Formation Loan………………………………..	$	—

II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY COMPANIES RELATED TO THE GENERAL PARTNERS DURING THE YEAR ENDED DECEMBER 31, 2013 (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)

RMC	Mortgage Brokerage Commissions for services in
	connection with the review, selection, evaluation,
	negotiation, and extension of the loans paid by the
	borrowers and not by the partnership…………………….	$	431,000

RMC	Processing and Escrow Fees for services in connection
	with notary, document preparation, credit investigation,
	and escrow fees payable by the borrowers and not by the
	partnership……………………………………………….	$	21,011

Gymno	Reconveyance Fee……………………………………….	$	630

III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE CONSOLIDATED STATEMENTS OF INCOME DURING THE YEAR ENDED DECEMBER 31, 2013 . . . . . . . . . . . . . . . . . . . . . $1,613,000

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

The general partners own an aggregate total of (0.44)% of the partnership and are allocated 1% of income and losses.

No person or entity owns beneficially more than five percent (5%) of the limited partnership interest.

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

See Note 3 (General Partners and Related Parties) to the financial statements in Part II, item 8, of this report for detailed presentations of transactions and agreements with related parties, which presentations are incorporated by this reference into this Item 13.

Also refer to the partnership’s prospectus, dated August 4, 2005, under the section “Compensation of General Partners and Affiliates” (pages 23 through 28), which is incorporated herein by reference.

For a description of the partnership’s policies and procedures for the review, approval or ratification of related party transactions, refer also to the partnership’s prospectus, dated August 4, 2005 for the discussion under the caption “Compensation of the General Partners and affiliates” beginning on page 23, the discussion under the caption “Conflicts of Interest” beginning on page 28 and the discussion under the captions “Investment Objectives and Criteria – Loans to General Partners and Affiliates” and “Investment Objectives and Criteria – Purchase of Loans From Affiliates and Other Third Parties” on page 42, which is incorporated herein by reference.

Since the partnership does not have a board of directors and since the general partners are not considered independent of the partnership, the partnership does not have the equivalent of independent directors.

Item 14 – Principal Accountant Fees and Services

Fees for services performed for the partnership by the principal accountant for 2013 and 2012 are as follows:

Audit Fees. The aggregate fees billed and accrued during the years ended December 31, 2013 and 2012 for professional services rendered for the audit of the partnership’s annual financial statements included in the partnership’s Annual Report on Form 10-K, review of financial statements included in the partnership’s Quarterly Reports on Form 10-Q and for services provided in connection with regulatory filings were $232,625 and $514,179, respectively.

Audit Related Fees. There were no fees billed during the years ended December 31, 2013 and 2012 for audit-related services.

Tax fees. The aggregate fees billed for tax services for the years ended December 31, 2013 and 2012 were $30,000 and $63,286, respectively. These fees relate to professional services rendered primarily for tax compliance.

All Other Fees. There were no other fees billed during the years ended December 31, 2013 and 2012.

All audit and non-audit services are approved by the general partners prior to the accountant being engaged by the partnership.

Part IV

Item 15 – Exhibits and Financial Statement Schedules

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

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

No financial statement schedules are required to be filed because Redwood Mortgage Investors VIII, LP is a smaller reporting company.

Exhibits.

Exhibit No.

Description of Exhibits

3.1		Limited Partnership Agreement
3.2		Form of Certificate of Limited Partnership Interest
3.3		Certificate of Limited Partnership
10.1		Escrow Agreement
10.2		Servicing Agreement
10.3	(a)	Form of Note secured by Deed of Trust for Construction Loans, which provides for principal and interest payments
	(b)	Form of Note secured by Deed of Trust for Commercial and Multi-Family loans which provides for principal and interest payments
	(c)	Form of Note secured by Deed of Trust for Commercial and Multi-Family loans which provides for interest only payments
	(d)	Form of Note secured by Deed of Trust for Single Family Residential Loans, which provides for interest and principal payments
	(e)	Form of Note secured by Deed of Trust for Single Family Residential loans, which provides for interest only payments
10.4	(a)	Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing to accompany Exhibits 10.3 (a), and (c)
	(b)	Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing to accompany Exhibit 10.3 (b)
	(c)	Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing to accompany Exhibit 10.3 (c)
10.5		Promissory Note for Formation Loan
10.6		Agreement to Seek a Lender
10.7		Sixth Amended and Restated Loan Agreement. Certain schedules and exhibits to this agreement have not been filed herewith. The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.
21.1		Subsidiaries of Redwood Mortgage Investors VIII
31.1		Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.3		Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.3		Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Selected Portions of the Prospectus, dated August 4, 2005 and Supplement No. 6 dated April 28, 2008
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

All of the above exhibits, other than exhibits 21.1, 31.1, 31.2, 31.3, 32.1, 32.2, 32.3, 99.1 and 101 exhibits were previously filed as the exhibits to Registrant’s Registration Statement on Form S-11 (Registration No. 333-106900, and incorporated by reference herein), except Exhibit 10.7 is incorporated by reference herein from Exhibit 10.7 to our Form 10-K filed on April 14, 2011.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized on the 31st day of March, 2014.

REDWOOD MORTGAGE INVESTORS VIII

By:	Redwood Mortgage Corp.

	By:	/s/ Michael R. Burwell
		Michael R. Burwell, President,
		Secretary/Treasurer

By:	Gymno LLC, General Partner

	By:	/s/ Michael R. Burwell
		Michael R. Burwell, Manager


By:	/s/ Michael R. Burwell
	Michael R. Burwell, General Partner

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 31st day of March, 2014.

Signature

Title

Date

/s/ Michael R. Burwell
Michael R. Burwell		President, Secretary/Treasurer of Redwood Mortgage Corp. (Principal Financial and Accounting Officer); Director of Redwood Mortgage Corp.		March 31, 2014

/s/ Michael R. Burwell
Michael R. Burwell		Manager of Gymno LLC		March 31, 2014

/s/ Michael R. Burwell
Michael R. Burwell		General Partner		March 31, 2014