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Real Estate Owned (REO) and Mortgages Payable

12 Months Ended

Dec. 31, 2020

Real Estate Owned (REO) and Mortgages Payable

NOTE 5 – REAL ESTATE OWNED (REO) AND MORTGAGES PAYABLE

REO transactions and valuation adjustments are summarized in the following table ($ in thousands).

	2020									2019
	REO			Valuation Allowance			REO, net			REO			Valuation Allowance⁽³⁾			REO, net
Balance, beginning of period	$	6,491		$	(3,239	)	$	3,252		$	7,700		$	(3,547	)	$	4,153
Acquisitions from foreclosure⁽¹⁾		5,787			—			5,787			—			—			—
Valuation allowance adjustment⁽⁴⁾		—			—			—			—			(631	)		(631	)
Dispositions⁽²⁾⁽³⁾		(234	)		—			(234	)		(1,209	)		939			(270	)
Balance, end of period	$	12,044		$	(3,239	)	$	8,805		$	6,491		$	(3,239	)	$	3,252

(1)

In June 2020 the partnership acquired – in Los Angeles County (Hollywood Hills) – by foreclosure sale, two single-family residences on separate adjoining parcels. The larger parcel and residence are 0.31 acres and approximately 5,200 square feet, respectively. The other parcel and residence are 0.12 acres and approximately 3,100 square feet, respectively. The properties were acquired subject to mortgages payable and other liabilities.

(2)

In 2020, the partnership sold – in San Francisco County – two of the remaining units in a condominium complex for approximately $368,000 resulting in a gain of approximately $134,000.

(3)

In 2019, the partnership sold 13 acres zoned for residential development in Marin County, the net proceeds for which approximated $270,000. The valuation reserve was increased by $210,000 prior to its sale.

(4)

In 2019, the valuation allowance on two REO properties was increased by $421,000 as new appraisals coupled with analysis by the manager indicated a decline in the estimated net realizable value of the properties.

REO at December 31, 2020 was comprised of five properties with a carrying value of approximately $8,805,000. REO is recorded at fair value less costs to sell at acquisition, and subsequently adjusted to the lower of the recorded cost or fair value less costs to sell based on appraisals and analysis by RMC:

•

In Los Angeles County (Hollywood Hills), two single-family residences on separate adjoining parcels to be marketed for sale upon resolution of a legal dispute with the former owner/borrower.

•

In San Francisco County, 1 residential unit in a condominium complex, to be marketed as an affordable-unit to qualifying buyers upon receipt of a listing approved by the City of San Francisco.

•

In Fresno County, a partially completed home subdivision; the manager is considering marketing alternatives in this inactive market.

•

In Stanislaus County, approximately 14 acres of undeveloped land zoned commercial, the manager is considering marketing alternatives in this inactive market.

•

In San Francisco County, a real estate interest comprised of a condominium unit/storage lockers and signage rights on an exterior façade of the building.

In June 2020, the REO acquisitions by foreclosure sale (Hollywood Hills) were made subject to two first mortgages, with aggregate principal of approximately $2,449,000, and mortgage interest, property taxes, and other liabilities totaling approximately $175,000. The interest rates on the mortgages payable are deemed to be at market for the type and location of the securing property and the remaining term on the mortgage note, the other terms and conditions are deemed to be customary. The mortgages payable were 201 and 242 days delinquent at the date of the foreclosures sale, with accrued interest in arrears of approximately $33,000 and $40,000, and delinquent property taxes of approximately $23,000 and $47,000 (advanced by the first mortgage lender), respectively. Interest in arrears and delinquent property taxes at acquisition are included in accounts payable on the consolidated balance sheet.

Mortgages payable at December 31, 2020 are summarized in the following table ($ in thousands).

Lender - summary of terms	2020
Wells Fargo Bank - secured by a first trust deed on a single family residence located in Los Angeles County, matures November 1, 2044, monthly payment $7,754.40, and interest at 4.125% until October 31, 2024; thereafter interest at LIBOR plus 2.25%, Wells Fargo submitted a payoff statement in July 2020.	$	1,453
East West Bank - secured by a first trust deed on a single family residence located in Los Angeles County, matures January 14, 2035, with interest at Prime plus 1% or 4.25% at June 30, 2020. Subsequent to foreclosure, East West Bank submitted a demand to be paid in full in July 2020.		996
Total mortgages payable	$	2,449

Since acquisition, accrued interest of approximately $59,000, and property taxes of approximately $35,000 have been recorded in accrued liabilities on the consolidated balance sheet. The borrower has contested the foreclosure sale, and at December 31, 2020 had not vacated the residences.

REO, net in operations expense is comprised of the following for the years ended December 31 ($ in thousands).

	2020			2019
Holding costs, net of other income	$	164		$	53
(Gains)/losses on sales		(133	)		(14	)
Valuation adjustments		—			631
REO, net	$	31		$	670

Other income netted in holding costs include month-to-month occupancy rents received (i.e., excluding storage and sign rents) of approximately $55,000 and $58,000 and storage and sign rents of approximately $39,000 and $56,000 in 2020 and 2019, respectively are included in the table above as holding costs, net of other income.