Note 3 - General Partners and Other Related Parties

12 Months Ended

Dec. 31, 2014

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

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 $38,000 and $4,000 for the years ended December 31, 2014 and 2013, respectively.

Formation loan

The formation loan transactions are summarized in the following table at December 31, 2014 ($ in thousands).

Formation loan made	$	22,567
Unamortized discount on formation loan		(2,164	)
Formation loan made, net		20,403
Repayments to date		(14,297	)
Early withdrawal penalties applied		(686	)
Formation loan, net		5,420
Unamortized discount on formation loan		2,164
Balance, December 31, 2014	$	7,584

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 2014 and 2013, $421,000 and $389,000, respectively, were recorded related to amortization of the discount on imputed interest.

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 earn and receive loan 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. Per Section 10 of the RMI VIII partnership agreement which references the repayment of the formation loan from loan brokerage commissions, RMC believes it had a reasonable position for suspending the annual formation loan payments during the period of prohibited lending, but RMC elected not to suspend payments during the time period referred to above 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.

The bank loan was fully repaid as of September 2012 and RMC in December 2012, temporarily suspended annual formation loan payments, for the three-year period then beginning, which is a period commensurate with the period during which lending by RMI VIII was prohibited by the Amended and Restated Loan Agreement and RMC was deprived of loan brokerage commissions. The temporary suspension resulted in an extension of the repayment terms equal to the suspension period.

Beginning with the 2015 payment (due December 2015) and continuing thereafter, as lending activities resume in RMI VIII and as loan brokerage commissions are earned, RMC and the other general partners are monitoring the amounts of loan brokerage commissions and other fees they earn and receive with respect to RMI VIII loan fundings. Based on the amount of the loan brokerage commission earned and received, a determination will be made regarding the amount of the payment to be made on the RMI VIII formation loan. This process will continue until loan brokerage commissions are sufficient for RMC to resume formation loan payments as originally scheduled.

The future minimum payments on the formation loan – as proposed by RMC and the general partners - are presented in the following table ($ in thousands).

2015	$	650
2016		650
2017		650
2018		650
2019		650
Thereafter		4,334
Total	$	7,584

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 2014 and 2013, loan brokerage commissions paid to the general partners by the borrowers were $892,000 and $431,000, 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 2014 and 2013, these fees totaled $34,608 and $21,641, 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.

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).

	2014			2013
Chargeable by RMC	$	897		$	884
Waived by RMC		(63	)		(295	)
Charged	$	834		$	589

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, 2014 and 2013 were $752,000 and $765,000, 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 2014 and 2013, operating expenses totaling $1,766,000 and $1,613,000, respectively, were reimbursed to RMC. RMC did not waive its right to request reimbursement of any qualifying charges during 2014 and 2013.

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 were allocated to individual partners consistent with the partnership agreement.

Through December 31, 2014, 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, 2014 balance	$	—

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.