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REDWOOD MORTGAGE INVESTORS VII
(a California Limited Partnership)
Index to Form 10-K
December 31, 2000
Part I
Page No.
Item 1 - Business 3
Item 2 - Properties 4-5
Item 3 - Legal Proceedings 6
Item 4 - Submission of Matters to a Vote of Security Holders (Partners) 6
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units" and
Relate Unitholder Matters 6
Item 6 - Selected Financial Data 6-8
Item 7 - Management's Discussion and Analysis of Financial condition
and Results of Operations 9-13
Item 8 - Financial Statements and Supplementary Data 13-33
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 34
Part III
Item 10 - Directors and Executive Officers of the Registrant 34
Item 11 - Executive Compensation 35
Item 12 - Security Ownership of Certain Beneficial Owners and Management 36
Item 13 - Certain Relationships and Related Transactions 36
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8- K. 36-37
Signatures 38
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the year ended December 31, 2000 Commission file number 33-30427
- --------------------------------------------------------------------------------
REDWOOD MORTGAGE INVESTORS VII
(Exact name of registrant as specified in its charter)
California 94-3094928
- ----------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
650 El Camino Real Suite G, Redwood City, CA 94063
- ---------------------------------------------- ----------------
(address of principal executive offices) (zip code)
Registrant's telephone number including area code (650) 365-5341
- ------------------------------------------------- ----------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------------------- -----------------------------------------
Limited Partnership Units None
- ------------------------------- -----------------------------------------
Securities registered pursuant to
Section 12(g) of the Act: Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 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.
YES XXXX NO
- ------------------------ -------------------
Through December 31, 2000, the limited partnership units purchased by
non-affiliates was 119,983.59 units computed at $100.00 a unit for $11,998,359.
The offering was closed on September 30, 1992.
Documents incorporated by reference:
Portions of the Prospectus dated October 20, 1989, and Supplement #5 dated
February 14, 1992, filed on form S-11, are incorporated in Parts II, III, and
IV. Exhibits filed as part of Form S-11 Registration Statement #33-30427 are
incorporated in part IV.
Part I
Item 1 - Business
Redwood Mortgage Investors VII, a California limited partnership (the
"Partnership"), was organized in 1989 of which D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation, are the General
Partners. The address of the Partnership and the General Partners is 650 El
Camino Real, Suite G, Redwood City, California 94063. The Partnership is
organized to engage in business as a mortgage lender, for the primary purpose of
making loans secured by deeds of trust on California real estate. Loans are
arranged and serviced by Redwood Mortgage Corp., an affiliate of the General
Partners. The Partnership's objectives are to make investments, as referred to
above, which will: (i) provide the maximum possible cash returns which Limited
Partners may elect to (a) receive as monthly, quarterly or annual cash
distributions or (b) have credited to their capital accounts and applied to
Partnership activities; and (ii) preserve and protect the Partnership's capital.
The Partnership's general business is more fully described under the section
entitled "Investment Objectives and Criteria" pages 26-31 of the Prospectus
which is incorporated by reference.
Originally, 60,000 Units were offered on a "best efforts" basis through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus, the General Partners increased
the number of units for sale from 60,000 to 120,000 and elected to continue the
offering until September 30, 1992. The offering closed on September 30, 1992,
and the Limited Partners contributed capital totaled $11,998,359 of an approved
$12,000,000 issue, in units of $100 each. At that date all the applicants had
been admitted into the Partnership with none left in the applicant status. The
final SR report (Report of Sales of Securities and use of proceeds therefrom),
was filed on September 21, 1992.
The Partnership began selling units in October 1989 and began investing in
mortgages in December 1989. At December 31, 2000, the Partnership had a balance
in its loans portfolio totaling $12,794,297 with interest rates thereon ranging
from 6.50% to 14.50%.
Currently, loans secured by First Trust Deeds comprise 68.16% of the amount of
funds in the loan portfolio followed by Second Trust Deeds of 31.27% and Third
Trust Deeds of 0.57%. Owner-occupied homes, combined with non-owner occupied
homes total 14.57% of the loans. Commercial loans origination decreased from
last year, now comprising 65.19% of the portfolio, a decrease of 8.74%. Loans to
apartments totaled 20.24%. The past year brought many outstanding low loan to
value lending opportunities in the commercial segment of the market. 66.38% of
the total loans, are in five counties of the Bay Area. The County of Stanislaus
makes up 21.80% of the loans. Stanislaus County is an adjacent county to the San
Francisco Bay Area, located approximately 65 miles from San Francisco. The
balance of loans are primarily in Northern California. Loan size increased the
past year, and is now averaging $336,692 per loan, an increase of $74,510. Some
of the larger loans invested in by the Partnership are fractionalized between
other affiliated partnerships with objectives similar to those of the
Partnership to further reduce risk. Average equity per loan transaction stood at
39.31%. A 40% equity average on loan origination is generally considered very
conservative. Generally, the more equity, the more protection for the lender.
The Partnership's loan portfolio is in good condition with no property in
foreclosure as of December 2000.
Item 2 - Properties
A summary of the Partnership's loan portfolio as of December 31, 2000 is set
forth below.
Loans as a Percentage of Total Loans
First Trust Deeds $8,720,985.58
Appraised Value of Properties 15,179,235.00
Total Investment as a % of Appraisal 57.45%
First Trust Deeds $8,720,985.58
Second Trust Deed Loans 4,000,140.40
Third Trust Deed Loans 73,170.73
-------------------
12,794,296.71
Priority positions:
First Trust Deeds due other Lenders 7,761,363.00
Second Trust Deeds due other Lenders 1,000,000.00
Total Debt $21,555,659.71
Appraised Property Value $35,518,467.00
Total Investments as a % of Appraisal 60.69%
Number of Loans Outstanding 38
Average Investment 336,692.02
Average Investment as a % of Net Assets 3.33%
Largest Investment Outstanding 1,995,451.75
Largest Investment as a % of Net Assets 19.74%
Loans as a Percentage of Total Loans
First Trust Deeds 68.16%
Second Trust Deeds 31.27%
Third Trust Deeds 0.57%
-------------------
Total 100.00%
Loans by Amount Percent
Type of Property
Owner Occupied Homes $218,941.63 1.71%
Non-Owner Occupied Homes 1,644,636.22 12.86%
Apartments 2,590,022.29 20.24%
Commercial 8,340,696.57 65.19%
------------------ ------------------
Total $12,794,296.71 100.00 %
The following is a distribution of loans outstanding as of December 31, 2000 by
Counties.
Total Mortgage
County Investments Percent
San Francisco 3,769,959.58 29.47%
Stanislaus 2,789,455.34 21.80%
Contra Costa 2,115,418.47 16.53%
Alameda 1,027,809.79 8.03%
San Mateo $901,599.29 7.05%
Placer 837,967.10 6.55%
Santa Clara 678,388.30 5.30%
Santa Cruz 474,294.01 3.71%
Sacramento 96,716.11 0.76%
Shasta 79,538.11 0.62%
Sonoma 23,150.61 0.18%
------------------ ------------
Total $12,794,296.71 100.00%
Statement of Condition of Loans
Number of Loans in Foreclosure -0-
Scheduled maturity dates of loans as of December 31, 2000 are as follows:
Year Ending
December 31, Amount
------------------- --------------------
2001 $10,100,308
2002 1,317,339
2003 557,348
2004 130,010
2005 514,419
Thereafter 174,873
--------------------
Total $12,794,297
====================
The scheduled maturities for 2001 include approximately $1,664,181 in seven
loans which are past maturity at December 31, 2000. Interest payments on most of
these loans are current. $753,320 of these loans were categorized as delinquent
over 90 days. This represents only 5.89% of the Partnership's loan portfolio.
Five loans with principals outstanding of $890,597 had interest payments overdue
in excess of 90 days. Which is only 6.96% of the Partnership's loan balance as
of December 31, 2000.
Five loans with principals outstanding of $890,597 were considered impaired at
December 31, 2000. That is interest accruals are no longer recorded thereon.
Item 3 - Legal Proceedings
In the normal course of business the Partnership may become involved in various
types of legal proceedings such as assignments of rents, bankruptcy proceedings,
appointments of receivers, unlawful detainers, judicial foreclosures, etc., to
enforce the provisions of the deeds of trust, collect the debt owed under the
promissory notes or to protect/recoup its investment from the real property
secured by the deeds. 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. Management anticipates that the ultimate result of
these cases will not have a material adverse effect on the net assets of the
Partnership, with due consideration having been given in arriving at the
allowance for doubtful accounts. Also refer to a more precise discussion under
Note 6 of the Financial Statements on Page 27 of this report.
Item 4 - Submission of Matters to a Vote of Security Holders (Partners).
No matters have been submitted to a vote of the Partnership.
Part II
Item 5 - Market for the Registrant's "Limited Partnership Units" and Related
Unitholder Matters.
120,000 units at $100 each (minimum 20 units) were offered through broker-dealer
member firms of the National Association of Securities Dealers on a "best
efforts" basis (as indicated in Part I item 1). Investors have the option of
withdrawing earnings on a monthly, quarterly, or annual basis or reinvesting and
compounding the earnings. Limited Partners may withdraw from the Partnership in
accordance with the terms of the Partnership Agreement subject to possible early
withdrawal penalties. There is no established public trading market.
A description of the Partnership units, transfer restrictions and withdrawal
provisions is more fully described under the section entitled "Description of
Units" and summary of Limited Partnership Agreement, pages 47 to 50 of the
Prospectus, a part of the referenced Registration Statement, which is
incorporated by reference.
Item 6 - Selected Financial Data
Redwood Mortgage Investors VII began operations in December 1989. Financial
results for years 1984 to 1989 for prior partnerships are incorporated by
reference to the Prospectus (S-11) dated October 20, 1989, Table III pages 7
through 11 and Supplement No. 3 dated October 2, 1990 to Prospectus dated
October 20, 1989, Table III pages 27 through 33.
Financial condition and results of operation for the Partnership for five years
to December 31, 2000 were:
Balance Sheet
Assets
December 31,
------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- --------------- --------------- -------------- ---------------
Cash $269,000 $388,770 $461,544 $520,837 $755,089
Accounts receivable:
Loans secured by deeds of trust 12,794,297 11,011,660 13,209,186 13,449,741 12,036,293
Accrued interest and other fees 363,321 357,177 442,350 427,952 264,495
Advances on loans 29,825 31,669 39,733 33,154 41,203
Other receivables - unsecured 188,421 163,085 242,493 252,422 337,242
Less allowance for losses (850,548) (828,563) (787,042) (424,738) (228,647)
Real estate owned ("REO")
acquired through foreclosure at
estimated
net realizable value 816,094 307,931 397,396 687,139 1,468,345
Real estate owned in process 0 525,510 0 0 0
Partnership interest 0 0 0 346,017 242,394
-------------- --------------- --------------- -------------- ---------------
$13,610,410 $11,957,239 $14,005,660 $15,292,524 $14,916,414
-------------- --------------- --------------- -------------- ---------------
Liabilities and Partners Capital
December 31
-------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- -------------- --------------- --------------- ---------------
Liabilities:
Note payable - bank $3,500,000 $800,000 $1,912,663 $2,341,816 $1,175,000
Accounts payable and
accrued expenses 4,102 32,234 12,547 1,845 1,472
Deferred interest 0 115,709 131,743 0 0
Discount of loans 0 0 0 69,316 154,598
--------------- --------------- -------------- -------------- ----------------
3,504,102 947,943 2,056,953 2,412,977 1,331,070
Partners' capital:
General partners 11,978 11,978 11,978 11,978 11,978
Limited partners subject to
redemption 10,094,330 10,997,318 11,936,729 12,867,569 13,573,366
--------------- --------------- -------------- -------------- ----------------
Total partners capital 10,106,308 11,009,296 11,948,707 12,879,547 13,585,344
--------------- --------------- -------------- -------------- ----------------
$13,610,410 $11,957,239 $14,005,660 $15,292,524 $14,916,414
=============== =============== ============== ============== ================
Statement of Income
Gross revenue $1,437,964 $1,663,245 $1,657,728 $1,623,863 $1,580,500
Expenses 537,818 753,664 811,157 796,984 721,401
------------- --------------- -------------- -------------- ----------------
Net Income 900,146 909,581 846,571 826,879 859,099
------------- --------------- -------------- -------------- ----------------
Net income to general
partners (1%) 9,001 9,096 8,466 8,269 8,591
============= =============== ============== ============== ================
Net income to limited
partners (99%) 891,145 900,485 838,105 818,610 850,508
============= =============== ============== ============== ================
Net income per $1,000 invested by
limited
Partners for entire period:
- where income is
reinvested and compounded $85 $79 $67 $61 $60
============= =============== ============== ============== ================
- where partner receives
income in monthly
distributions $82 $76 $65 $59 $59
============= =============== ============== ============== ================
Net income in 1998 averaged at an annualized yield of 6.69%, in 1999 the
annualized yield was 7.86% and in 2000 the annualized yield was 8.52%. Average
annualized yield since inception through December 31, 2000, was 7.85%.
ITEM 7 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On September 30, 1992, the Partnership had sold 119,983.59 units and its
contributed capital totaled $11,998,359 of the approved $12,000,000 issue, in
units of $100 each. As of that date, the offering was formally closed. At
December 31, 2000, Partners' Capital totaled $10,106,308.
At December 31, 2000, the Partnership loans outstanding totaled $12,794,297.
This represents a decline of $414,889 from the December 31, 1998 loans balance.
This reduction in loans outstanding as of December 31, 2000 was chiefly due to
cash proceeds from Mortgage Investment repayments being used to fund withdrawals
to the Limited Partners of $3,811,803, during 1999 and 2000. This was offset by
an increase in Note Payable-Bank of $2,700,000 reinvestment of earnings of
$846,403, reduction in accrued interest, other receivables and investment of
cash. Loans decreased from $13,449,741 from 1997 to $13,209,186 in 1998, a
decrease of $240,555 chiefly due to the ability of the General Partners to
reduce amounts of real estate owned by $289,743, reinvestment of earnings of
$390,213, offset by payments to withdrawing Limited Partners $1,856,833, a
reduction of outstanding Note Payable - Bank of $1,112,663 and investment of
cash. The Partnership began funding loans on December 27, 1989, and as of
December 31, 2000, had credited the Partners accounts with income at an average
annualized (compounded) yield of 7.85%.
Since the fall of 1999, mortgage interest rates have been rising due primarily
to economic forces and by the Federal Reserve raising its core interest rates.
However, in 2001 the Federal Reserve has reversed its policy towards higher
rates and is lowering its core interest rates. This will have the effect of
lowering interest rates in the marketplace. New loans will be originated at then
existing interest rates. In the future, interest rates likely will change from
their current levels. The General Partners cannot at this time predict at what
levels interest rates will be in the future. Although the rates charged by the
Partnership are influenced by the level of interest rates in the market, the
General Partners do not anticipate that rates charged by the Partnership to its
borrowers will change significantly from the beginning of 2001 over the next 12
months. As of December 31, 2000 the Partnership Real Estate Owned account and
the investment in Partnership account had a combined balance of $816,094. These
accounts had combined balances of $397,396 and $307,931 for the years ended
December 31, 1998 and 1999, respectively. The increase in the Partnership Real
Estate Owned account is the result of the acquisition of one property through
foreclosure. The General Partners anticipate that the annualized yield for the
new year, 2001, will be higher than the previous year.
The Partnership has a line of credit with a commercial bank secured by its loans
to a limit of $3,500,000, at a variable interest rate set at one-quarter percent
above the prime rate. As of December 31, 2000, the prime rate was 9.50% and the
line of credit rate was 9.75%. As of December 31, 2000, December 31, 1999 and
December 31, 1998, the balances were $3,500,000, $800,000 and $1,912,663,
respectively. This line of credit expires on May 01, 2003. This added source of
funds helped in maximizing the Partnership yield by allowing the Partnership to
minimize the amount of funds in lower yield investment accounts when appropriate
loans are not currently available. Since most of the loans made by the
Partnership bear interest at a rate in excess of the rate payable to the bank
which extended the line of credit, once the required principal and interest
payments on the line of credit are paid to the bank, the loans funded using the
line of credit generate revenue for the Partnership. As of December 31, 2000,
the Partnership is current with its interest payments on the line of credit. For
the years ended December 31, 1998, 1999 and 2000, interest paid was $170,867,
$182,350 and $257,390, respectively.
The Partnership's income and expenses, accruals and delinquencies are within the
normal range of the General Partners' expectations, based upon their experience
in managing similar Partnerships over the last twenty-three years. Mortgage
Servicing Fees in 1998 were $128,493, in 1999 were $127,440 and in 2000 were
$110,713. These Mortgage Servicing Fees were declining as the outstanding
mortgage loan portfolio balances declined. Asset Management Fees increased to
$16,141 in 1998, and to $44,524 in 1999. For the year 2000, Management Fees paid
was $38,400. In 1997, the General Partners waived or partially waived this fee
to the Partnership and increased the Asset Management Fee to its allowed amount
of 3/8 of 1% in 1999 and 2000. All other expenses fluctuated in a very close
range except for Interest on Note Payable - bank and Provision for Doubtful
Accounts and losses on Real Estate Acquired Through -Foreclosure each discussed
elsewhere in this Management Discussion and Analysis of Financial Condition and
Results of Operations. Borrower foreclosures, as set forth under Results of
Operations, are a normal aspect of Partnership operations and the General
Partners anticipate that they will not have a material effect on liquidity. As
of December 31, 2000, there were no properties in foreclosure. Cash is
constantly being generated from interest earnings, late charges, pre-payment
penalties, amortization of loans and pay-off on notes. Currently, cash flow
exceeds Partnership expenses, earnings and capital payout requirements. Excess
cash flow will be invested in new loan opportunities when available, used to
reduce the Partnership credit line or other Partnership business.
The General Partners regularly review the loan portfolio, examining the status
of delinquencies, the underlying collateral securing these properties, the REO
expenses and sales activities, borrowers payment records, etc. Data on the local
real estate market and on the national and local economy are studied. Based upon
this information and other data, loss reserves are increased or decreased.
Because of the number of variables involved, the magnitude of the possible
swings and the General Partners inability to control many of these factors,
actual results may and do sometimes differ significantly from estimates made by
the General Partners. Management provided $423,054, $329,057 and $65,664, as
provision for doubtful accounts for the years ended December 31, 1998, 1999 and
2000, respectively. The provision for doubtful accounts was decreased $11,441 to
$423,054 in 1998, by $93,997 to $329,057 in 1999, and by $263,393 to $65,664 in
2000. These decreases reflect reduced expected REO anticipated losses and
improved collections of secured and unsecured receivables.
The much publicized California energy crises has not only affected the hi-tech,
manufacturing, service and agro based industries, the professional and
commercial businesses, transportation and utilities sectors, but every household
and individual as a whole. The crises, which means higher cost to the consumers,
could adversely affect the economy, employment and the Partnership's lending in
its commercial sector. On the real estate scene, The San Mateo Times February
22, 2001 issue, reported that despite the energy crises and talk of recession,
the median price of a San Mateo County home soared to near record levels in
January. "The median price of a single-family home jumped 4 percent over
December to $651,000, nearing the record $653,000 of last May, during the spring
price-soaring frenzy. Realtors insist the hysteria of last spring, causing real
estate values to soar, is over and the market has plateaued. But prices are not
reflecting that yet.
For example, the median price of a home in East Palo Alto jumped 25 percent in
January to $736,000. This is especially shocking, considering East Palo Alto's
median was well under $200,000 in January 1998, with fixer-uppers in the low
$100,000s. While a few high price homes can skew median home prices, it is an
indication that the real estate market has not completely plateaued.
Popular three-bedroom, two-bath homes settled in between $600,000 and $800,000.
Many two-bedroom, one-bath homes are selling for $500,000 and up.
Sales slowed in January, as usual, to 269 from 362 in December countywide. They
were off from 315 sales in January 2000.
"There are still plenty of buyers wanting to buy, and now there are more people
wanting to sell," said Denise Aquila, a real estate agent at ReMax in San
Carlos. Despite the stock market's recent tanking and many dot-com failures,
Aquila and other realtors see a strong market this year countywide with prices
holding their own. Part of the reason for the resilience is that entry-level
homes are in the $500,000 to $700,000 range countywide, and "they aren't making
any more of them," Aquila said. The County's median price for January climbed 21
percent over the same period last year. Although the article focuses on
single-family residences only, corresponding increase in values had similar
impact on commercial, industrial and apartment buildings in general.
To the Partnership, these sales statistics indicate a strong real estate market
that is beginning to slow down from the rapid appreciation that has occurred
over the last 3 years. The real estate market appears to be coming more into
balance with similar numbers of buyers and sellers which will allow buyers more
opportunity to negotiate and be selective in their real estate purchases.
The California energy crisis is a longer-term problem, which the Partnership
cannot affect. Creative and pragmatic solutions will need to be developed by
Industry and Government so as not to stifle the business growth in California.
The crises which means higher cost to the consumers in the near term could
adversely affect the economy, employment and the Partnership's lending in its
residential and commercial loans by lowering real estate values.
Bank discount rate fell from 6.00% in May 2000 to 4.5% in March 2001. The price
hike in real estate properties means more equity to the homeowners, which
increases equity on the existing portfolio. Lower interest rates mean cutting
the cost of capital, improving profit margins and encouraging expansion. It also
helps to induce consumer spending, sparking home sales and mortgage refinancing.
This all translates into more loan activity, which, of course, is healthy for
the Partnership's lending activity.
The Partnership's interest in land located in East Palo Alto, CA, was acquired
through foreclosure. The investment was previously classified as Investment in
Partnership in the Financial Statements and has been reclassified into Real
Estate Owned. The Partnership's basis of $38,238, $9,039, and $ 0, for the years
ended December 31, 2000, December 31, 1999 and 1998, respectively, has been
invested with that of two other Partnerships. The Partnership is continuing to
explore remediation options available to mitigate the pesticide contamination,
which affects the property. This pesticide contamination appears to be the
result of agricultural operations by prior owners, and is unrelated to the
Arsenic Contamination for which a major chemical company remains responsible.
The General Partners do not believe at this time that remediation of the
pesticide contaminants will have a material adverse effect on the financial
condition of the Partnership. The General Partners are attempting to subdivide
this land into two parcels and exploring the ability to obtain new zoning for
this property.
At the time of subscription to the Partnership, Limited Partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound earnings in their capital account. For the years
ended December 31, 1998, 1999 and 2000, the Partnership made distributions of
earnings to Limited Partners after allocation of syndication costs of $456,358,
$490,841 and $454,386, respectively. Distribution of Earnings to Limited
Partners after allocation of syndication costs for the years ended December 31,
1998, 1999 and 2000 to Limited Partners' capital accounts and not withdrawn was
$381,747, $409,644 and $436,759, respectively. As of December 31 1998, December
31, 1999 and December 31, 2000, Limited Partners electing to withdraw earnings
represented 53%, 54% and 49% of the Limited Partners capital.
The Partnership also allows the Limited Partners to withdraw their capital
account subject to certain limitations (see liquidation provisions of
Partnership Agreement). For the years ended December 31, 1998, 1999 and 2000,
$381,458, $231,025 and $179,343, were liquidated subject to the 10% penalty for
early withdrawal. These withdrawals are within the normally anticipated range
that the General Partners would expect in their experience in this and other
partnerships. The General Partners expect that a small percentage of Limited
Partners will elect to liquidate their capital accounts over one year with a 10%
early withdrawal penalty. In originally conceiving the Partnership, the General
Partners wanted to provide Limited Partners needing their capital returned a
degree of liquidity. Generally, Limited Partners electing to withdraw over one
year need to liquidate their investment to raise cash. The trend the Partnership
is experiencing in withdrawals by Limited Partners electing a one year
liquidation program represents a small percentage of Limited Partner capital as
of December 31, 1998, December 31, 1999 and December 31, 2000, respectively and
is expected by the General Partners to commonly occur at these levels.
Additionally, for the years ended December 31, 1998, December 31, 1999 and
December 31, 2000, $1,019,017, $1,205,917 and $1,250,291, respectively, were
liquidated by Limited Partners who have elected a liquidation program over a
period of five years or longer. This ability to withdraw after five years by
Limited Partners has the effect of providing Limited Partner liquidity, which
the General Partners then expect, a portion of the Limited Partners to avail
themselves of. This has the anticipated effect of the Partnership growing,
primarily through reinvestment of earnings in years one through five. The
General Partners expect to see increasing numbers of Limited Partner withdrawals
in years five through eleven, at which time the bulk of those Limited Partners
who have sought withdrawal have been liquidated. After year eleven, liquidation
generally subsides and the Partnership capital again tends to increase.
Actual liquidation of both capital and earnings from year five (1994) through
year eleven (2000) is shown hereunder; which confirms the General Partners
theory on the liquidation habits of the Limited Partners:
Years ended December 31,
1994 1995 1996 1997
--------------- -------------- -------------- ----------------
Earnings $263,206 $270,760 $336,341 $399,379
Capital *$340,011 *$184,157 *$722,536 *$1,212,916
--------------- -------------- -------------- ----------------
Total $603,217 $454,917 $1,058,877 $1,612,295
=============== ============== ============== ================
1998 1999 2000
--------------- -------------- --------------
Earnings $456,358 $490,841 $454,386
Capital *$1,400,475 *$1,436,942 *1,429,634
--------------- -------------- --------------
Total $1,856,833 $1,927,783 $1,884,020
=============== ============== ==============
* These amounts represent gross of early withdrawal penalties.
The Year 2000 was considered by most to be a challenge for the entire world with
respect to the conversion of existing computerized operations. The Partnership
relied on Redwood Mortgage Corp., third parties and various software vendors for
its hardware and software needs. The year 2000 has come and gone and we have not
experienced any computer hardware breakdowns. We assume that our testing and
upgrading of computer hardware prior to year 2000 identified all hardware areas
of concern. Computer software programs are all operational with only minor
problems being experienced with some programs. These problems have been
addressed by the appropriate software vendors or software programmers. All
annual computerized functions have been run, and testing of the operations has
taken place. We do not expect any problems hereafter.
The costs of updating our computer systems were substantially borne by the
non-affiliated software vendors and the in house system conversion costs to the
Partnership were marginal.
Year 2000 issues do not appear to have affected, in any significant manner, any
industries or businesses in the marketplace in which the Partnership places its
loans. We believe that year 2000 issues were a non-event and will have little,
if any, future effect on the Partnership, its affiliates or the people and
businesses with which it associates.
With this report we hereby conclude our discussion on the Y2K issue.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership has decided to
retire effective September 30, 2001. "Russ" has enjoyed a long and successful
career. His original business model, upon which our Partnership has its roots,
has withstood the test of time through varying economic cycles. Collectively,
the various Redwood Mortgage Investors Partnerships (I-VIII) have grown from an
idea to over $110,000,000 in assets and produced excellent results for the
Limited Partners under Russ's stewardship in Redwood Mortgage Investor's VII.
This Partnership originally raised $11,998,359 in Limited Partner Capital
contributions and at December 31, 2000 had $10,094,330 in remaining Limited
Partner Capital.
Over the last few years, Russ has been passing along his duties and
responsibilities to the remaining General Partners. The remaining General
Partners are Mr. Michael Burwell and Gymno Corporation, a California
Corporation. Mr. Michael Burwell has been a General Partner of Redwood Mortgage
Investors VII since its inception and has been employed by Redwood Mortgage
Corp, an affiliate of the Partnership, since 1979. The Partnership through the
remaining General Partners and the employees of its affiliate Redwood Mortgage
Corp., is well prepared for Russ's departure and looks forward to emulating the
steady consistent returns that the Limited Partners have enjoyed during Russ'
tenure.
Mr. D. Russell Burwell is providing this notification pursuant to Article 8
Section 8.02 of the Limited Partnership Agreement.The remaining General Partners
have elected to continue the business of the Partnership as described in Article
9 Section 9.01(d) of the Limited Partnership Agreement.
The General Partners have determined that for purposes of establishing a value
for reporting purposes, including brokerage and trustee account statements, the
estimated value of the limited partnership interests on a per unit basis is
equal to the capital account balance of each investor 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 earnings each
investor is entitled to receive is determined by the ratio that 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 NASD 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 Partnership
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 Partnership's units and none is likely to develop. Thus, 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 8 - Financial Statements and Supplementary Data
Redwood Mortgage Investors VII, a California Limited Partnership's list of
Financial Statements and Financial Statement schedules:
A-Financial Statements
The following financial statements of Redwood Mortgage Investors VII are
included in Item 8:
o Independent Auditors' Report
o Balance Sheets - December 31, 2000, and December 31, 1999
o Statements of Income for the three years ended December 31, 2000
o Statements of Changes in Partners' Capital for the three years
ended December 31, 2000
o Statements of Cash Flows for the three years ended December 31, 2000
o Notes to Financial Statements
B-Financial Statement Schedules
The following financial statement schedules of Redwood Mortgage Inventors VII
are included in Item 8.
o Schedule II Valuation and Qualifying Accounts
o Schedule IV Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
FINANCIAL STATEMENTS
DECEMBER 31, 2000
(With Auditors' Report Thereon)
ARMANINO McKENNA LLP
CERTIFIED PUBLIC ACCOUNTANTS
1855 Olympic Blvd., Suite 225
Walnut Creek, CA 94596
(925) 939-8500
INDEPENDENT AUDITOR'S REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
REDWOOD CITY, CALIFORNIA
We have audited the accompanying balance sheet of REDWOOD MORTGAGE INVESTORS VII
(a California Limited Partnership) and the related statements of income, changes
in partners' capital and cash flows as of and for the year ended December 31,
2000. Our audit also included the financial statement schedules listed in the
Index at Item 8. These financial statements and schedules are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements as of
December 31, 1999 and the two years then ended, were audited by other auditors
whose report dated March 15, 2000, expressed an unqualified opinion on these
financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of REDWOOD MORTGAGE INVESTORS VII
as of December 31, 2000, and the results of its operations and cash flows for
the year ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statements schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ARMANINO McKENNA LLP
Walnut Creek, California
February 23, 2001
Caporicci, Cropper & Larson, LLP
CERTIFIED PUBLIC ACCOUNTANTS
1575 Treat Blvd., Suite 208
Walnut Creek, CA 94598
(925) 932-3860
INDEPENDENT AUDITOR'S REPORT
THE PARTNERS
REDWOOD MORTGAGE INVESTORS VII
We have audited the financial statements and related schedules of REDWOOD
MORTGAGE INVESTORS VII (A California Limited Partnership) listed in Item 8 on
form 10-K including balance sheets as of December 31, 1999 and 1998 and the
statements of income, changes in partners' capital and cash flows for the three
years ended December 31, 1999. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of REDWOOD MORTGAGE INVESTORS VII
as of December 31, 1999 and 1998, and the results of its operations and cash
flows for the three years ended December 31, 1999 in conformity with generally
accepted accounting principles. Further, it is our opinion that the schedules
referred to above present fairly the information set forth therein in compliance
with the applicable accounting regulations of the Securities and Exchange
Commission.
/s/ A. Bruce Cropper
Caporicci, Cropper & Larson, LLP
Walnut Creek, California
March 15, 2000
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
----------- ----------
Cash $269,000 $388,770
----------- ----------
Accounts receivable:
Loans, secured by deeds of trust 12,794,297 11,011,660
Accrued Interest on loans 363,321 357,177
Advances on loans 29,825 31,669
Accounts receivables, unsecured 188,421 163,085
----------- ----------
13,375,864 11,563,591
Less allowance for doubtful accounts 850,548 828,563
----------- ----------
12,525,316 10,735,028
----------- ----------
Real estate in process of acquisition,
to be sold - 525,510
Real estate owned, held for sale 816,094 307,931
----------- ----------
$13,610,410 $11,957,239
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Notes payable - bank line of credit $3,500,000 $800,000
Accounts payable and accrued expenses 4,102 32,234
Deferred interest - 115,709
---------- ----------
3,504,102 947,943
---------- ----------
Partners' capital
Limited partners' capital, subject to redemption
Net of formation loan receivable
of $75,612 and $165,499 for 2000
and 1999, respectively 10,094,330 10,997,318
General partners' capital 11,978 11,978
----------- ----------
Total partners' capital 10,106,308 11,009,296
----------- ----------
Total liabilities and partners'capital $13,610,410 $11,957,239
=========== ==========
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 2000
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998
------------- ------------- -------------
Revenues:
Interest on loans $1,406,098 $1,634,416 $1,625,573
Interest on bank deposits 4,725 6,813 7,465
Late charges 11,219 14,367 13,632
Other 15,922 7,649 11,058
------------- ------------- -------------
1,437,964 1,663,245 1,657,728
------------- ------------- -------------
Expenses:
Mortgage servicing fees 110,713 127,440 128,493
Interest on note payable - bank 257,640 182,350 170,867
Clerical costs through Redwood Mortgage Corp. 27,032 30,367 34,173
Asset management fee 38,400 44,524 16,141
Provision for bad debts and losses
on real estate acquired through foreclosure 65,664 329,057 423,054
Professional services 22,068 21,521 19,983
Printing, supplies and postage 10,293 12,554 12,326
Other 6,008 5,851 6,120
------------- ------------- -------------
537,818 753,664 811,157
------------- ------------- -------------
Net income $900,146 $909,581 $846,571
============= ============= =============
Net income: To General Partners (1%) $9,001 $9,096 $8,466
To Limited Partners (99%) 891,145 900,485 838,105
------------- ------------- -------------
$900,146 $909,581 $846,571
============= ============= =============
Net income per $1,000 invested by Limited Partners
for entire period:
-where income is reinvested and compounded $85 $79 $67
============= ============= =============
-where partner receives income in monthly distributions $82 $76 $65
============= ============= =============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000
PARTNERS' CAPITAL
-----------------------------------------------------
LIMITED PARTNERS' CAPITAL
-----------------------------------------------------
Capital
Account- Formation
Limited Loan
Partners Receivable Total
--------------- --------------- --------------
Balances at January 1, 1998 $13,208,844 $(341,275) $12,867,569
Formation loan collections 0 66,908 66,908
Net income 838,105 0 838,105
Early withdrawal penalties (30,529) 20,980 (9,549)
Partners' withdrawals (1,826,304) 0 (1,826,304)
--------------- --------------- --------------
Balances at December 31, 1998 $12,190,116 $(253,387) $11,936,729
Formation loan collections 0 75,138 75,138
Net income 900,485 0 900,485
Early withdrawal penalties (18,553) 12,750 (5,803)
Partners' withdrawals (1,909,231) 0 (1,909,231)
--------------- --------------- --------------
Balances at December 31, 1999 $11,162,817 $(165,499) $10,997,318
Formation loan collections 0 79,505 79,505
Net income 891,145 0 891,145
Early withdrawal penalties (15,107) 10,382 (4,725)
Partners' withdrawals (1,868,913) 0 (1,868,913
--------------- --------------- --------------
Balances at December 31, 2000 $10,169,942 $(75,612) $10,094,330
=============== =============== ==============
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE THREE YEARS ENDED DECEMBER 31, 2000
PARTNERS' CAPITAL
----------------------------------------------
GENERAL PARTNERS' CAPITAL
----------------------------------------------
Capital Account Total Partners'
General Partners Capital
------------------ ----------------
Balances at January 1, 1998 $11,978 $12,879,547
Formation loan collections 0 66,908
Net income 8,466 846,571
Early withdrawal penalties 0 (9,549)
Partners' withdrawals (8,466) (1,834,770)
------------------ ----------------
Balances at December 31, 1998 $11,978 $11,948,707
Formation loan collections 0 75,138
Net income 9,096 909,581
Early withdrawal penalties 0 (5,803)
Partners' withdrawals (9,096) (1,918,327)
------------------ ----------------
Balances at December 31, 1999 $11,978 $11,009,296
Formation loan collections 0 79,505
Net income 9,001 900,146
Early withdrawal penalties 0 (4,725)
Partners' withdrawals (9,001) (1,877,914)
------------------ ----------------
------------------ ----------------
Balances at December 31, 2000 $11,978 $10,106,308
================== ================
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 2000
YEARS ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998
-------------- --------------- --------------
Cash flows from operating activities:
Net income $900,146 $909,581 $846,571
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for doubtful accounts 25,160 332,013 362,304
Provision for losses on real estate held for sale 40,504 (2,956) 60,750
Early withdrawal penalty credited to income (4,725) (5,803) (9,549)
Change in operating assets and liabilities:
Accrued interest & advances (33,072) (62,310) (20,977)
Accounts payable and accrued expenses (28,132) 19,687 10,702
Deferred interest on loans (115,709) (16,034) 62,427
-------------- --------------- --------------
Net cash provided by operating activities 784,172 1,174,178 1,312,228
-------------- --------------- --------------
Cash flows from investing activities:
Principal collected on loans 5,324,620 9,314,140 6,529,324
Loans made (7,112,078) (7,716,617) (6,398,769)
Payments for Real Estate held for sale (87,392) (14,111) 323,720
Proceeds from of Real Estate held for sale 64,235 106,532 (55,532)
Proceeds from Partnership 0 0 522,212
Investment in Partnership 0 0 (105,390)
Proceeds from unsecured Accounts Receivable 5,082 18,956 9,929
-------------- --------------- --------------
Net cash provided by (used in) investing activities (1,805,533) 1,708,900 825,494
-------------- --------------- --------------
Cash flows from financing activities:
Net increase (decrease) in note payable-bank 2,700,000 (1,112,663) (429,153)
Formation loan collections 79,505 75,138 66,908
Partners withdrawals (1,877,914) (1,918,327) (1,834,770)
-------------- --------------- --------------
Net cash provided by (used in) financing activities 901,591 (2,955,852) (2,197,015)
-------------- --------------- --------------
Net increase in cash (119,770) (72,774) (59,293)
Cash - beginning of period 388,770 461,544 520,837
-------------- --------------- --------------
Cash - end of period $269,000 $388,770 $461,544
============== =============== ==============
Cash payments for interest $257,640 $182,350 $170,867
The accompanying notes are an integral part of these financial statements.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - ORGANIZATION AND GENERAL
Redwood Mortgage Investors VII, (the "Partnership") is a California Limited
Partnership, of which the General Partners are D. Russell Burwell, Michael R.
Burwell and Gymno Corporation, a California corporation owned and operated by
the individual General Partners. The Partnership was organized to engage in
business as a mortgage lender for the primary purpose of making loans secured by
Deeds of Trust on California real estate. Loans are being arranged and serviced
by Redwood Mortgage Corp., an affiliate of the General Partners. At September
30, 1992, the offering had been closed with contributed capital totaling
$11,998,359 for limited partners.
A minimum of 2,500 units ($250,000) and a maximum of 120,000 units ($12,000,000)
were offered through qualified broker-dealers. As loans were identified,
partners were transferred from applicant status to admitted partners
participating in loan operations. Each month's income is allocated to partners
based upon their proportionate share of partners capital. Some partners have
elected to withdraw income on a monthly, quarterly or annual basis.
A. Sales Commissions - Formation Loan
Sales commissions ranging from 0% (Units sold by General Partners) to 10% of the
gross proceeds were paid by Redwood Mortgage Corp., an affiliate of the General
Partners that arranges and services the loans. To finance the sales commissions,
the Partnership was authorized to loan to Redwood Mortgage Corp. an amount not
to exceed 8.3% of the gross proceeds invested in the Partnership, provided that
the formation loan for the minimum offering period could be 10% of the gross
proceeds for the minimum offering period. The formation loan is unsecured and is
being repaid, without interest, in ten installments of principal, over a
ten-year period commencing January 1, 1992. At December 31, 1992, Redwood
Mortgage Corp. had borrowed $914,369 from the Partnership to cover sales
commissions relating to $11,998,359 limited partner contributions (7.62%).
Through December 31, 2000, $838,757 including $147,254 in early withdrawal
penalties had been repaid leaving a balance of $75,612. The Formation Loan,
which is due from an affiliate of the General Partners', has been deducted from
Limited Partners' capital in the balance sheet. As amounts are collected from
Redwood Mortgage Corp., the deduction from capital will be reduced.
B. Other Organizational and Offering Expenses
Organizational and offering expenses, other than sales commissions, (including
printing costs, attorney and accountant fees, and other costs), were paid by the
Partnership. Such costs were limited to 10% of the gross proceeds of the
offering or $500,000 whichever was less. The General Partners were to pay any
amount of such expenses in excess of 10% of the gross proceeds or $500,000.
Organization costs of $10,102 and syndication costs of $415,692 were incurred by
the Partnership. The sum of organization and syndication costs, $425,794,
approximated 3.55% of the gross proceeds contributed by the Partners. Both the
Organization and Syndication Costs have been fully amortized and allocated to
the Partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Accrual Basis
Revenues and expenses are accounted for on the accrual basis of accounting
wherein income is recognized as earned and expenses are recognized as incurred.
Once a loan is categorized as impaired, interest is no longer accrued thereon.
B. Management Estimates
In preparing the financial statements, management is required to make estimates
based on the information available that affect the reported amounts of assets
and liabilities as of the balance sheet date and revenues and expenses for the
related periods. Such estimates relate principally to the determination of the
allowance for doubtful accounts, including the valuation of impaired loans, and
the valuation of real estate acquired through foreclosure. Actual results could
differ significantly from these estimates.
C. Loans, Secured by Deeds of Trust
The Partnership has both the intent and ability to hold the loans to maturity,
i.e., held for long-term investment. They are therefore valued at cost for
financial statement purposes with interest thereon being accrued by the
effective interest method.
Financial Accounting Standards Board Statements (SFAS) 114 and 118 provide that
if the probable ultimate recovery of the carrying amount of a loan, with due
consideration for the fair value of collateral, is less than the recorded
investment, and related amount due and the impairment is considered to be other
than temporary, the carrying amount of the investment (cost) shall be reduced to
the present value of future cash flows.
At December 31, 2000 and 1999, reductions in the cost of loans categorized as
impaired by the Partnership totaled $137,175 and $152,231, respectively. The
reduction in stated value was accomplished by increasing the allowance for
doubtful accounts.
As presented in Note 10 to the financial statements as of December 31, 2000, the
average loan to appraised value of security at the time the loans were
consummated was 60.69%. When a loan is valued for impairment purposes, an
updating is made in the valuation of collateral security. However, such a low
loan to value ratio tends to minimize reductions for impairment.
D. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents include
interest bearing and non-interest bearing bank deposits.
E. Real Estate Owned, Held for Sale
Real estate owned, held for sale, includes real estate acquired through
foreclosure, and is stated at the lower of the recorded investment in the
property, net of any senior indebtedness, or at the property's estimated fair
value, less estimated costs to sell.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
The following schedule reflects the costs of real estate acquired through
foreclosure and the recorded reductions to estimated fair values, less estimated
costs to sell as of December 31, 2000 and 1999, not including real estate in
process of acquisition at December 31, 1999:
December 31,
----------------------------------
2000 1999
--------- ---------
Costs of properties $1,258,966 $1,182,701
Reduction in value (442,872) (349,260)
REO prior lien 0 0
------------ ------------
Fair value reflected in financial statements $816,094 $833,441
============ ============
F. Income Taxes
No provision for Federal and State income taxes is made in the financial
statements since income taxes are the obligation of the partners if and when
income taxes apply.
G. Organization and Syndication Costs
The Partnership bears its own organization and syndication costs (other than
certain sales commissions and fees described above) including legal and
accounting expenses, printing costs, selling expenses, a 1% wholesale brokerage
fee and filing fees. Organizational costs of $10,102 were capitalized and were
amortized over a five-year period. Syndication costs of $415,692 were charged
against partners' capital and were allocated to individual partners consistent
with the Partnership Agreement.
H. Allowance for Doubtful Accounts
Loans and the related accrued interest, fees and advances are analyzed on a
continuous basis for recoverability. Delinquencies are identified and followed
as part of the loan system. A provision is made for bad debt to an amount
considered by management to be adequate, with due consideration to collateral
value, to provide for unrecoverable accounts receivable, including impaired
loans, other loans, accrued interest and advances on loans, and other accounts
receivable (unsecured). The composition of the allowance for doubtful accounts
as of December 31, 2000 and 1999 was as follows:
December 31,
--------------------------------
2000 1999
--------- ---------
Impaired loans $137,175 $152,231
Unspecified loans 569,612 598,803
Accounts receivable, unsecured 143,761 77,529
--------- ---------
$850,548 $828,563
========= =========
I. Net Income Per $1,000 Invested
Amounts reflected in the statements of income as net income per $1,000 invested
by Limited Partners for the entire period are actual amounts allocated to
Limited Partners who had their investment throughout the period and have elected
to either leave their earnings to compound or have elected to receive monthly
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
select other options.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 3 - GENERAL PARTNERS AND RELATED PARTIES
The following are commissions and/or fees which will be paid to the General
Partners and/or related parties.
A. Mortgage Brokerage Commissions
Redwood Mortgage Corp. receives mortgage brokerage commissions for services in
connection with the review, selection, evaluation, negotiation and extension of
loans in an amount up to 12% of the principal amount of the loans through the
period ending 6 months after the termination date of the offering. Thereafter,
commissions are limited to an amount not to exceed 4% of the total Partnership
assets per year. Such commissions are paid by the borrowers, and are not an
expense to the Partnership. Loan brokerage fees for 2000, 1999, and 1998,
totaled $130,487, $207,739 and $166,752, respectively.
B. Mortgage Servicing Fees
Redwood Mortgage Corp. also receives monthly mortgage servicing fees of up to
1/8 of 1% (1.5% annual) of the unpaid principal, or such lesser amount as is
reasonable and customary in the geographic area where the property securing the
loan is located. Mortgage servicing fees of $110,713, $127,440 and $128,493 were
incurred for the years ended December 31, 2000, 1999 and 1998, respectively.
C. Asset Management Fee
The General Partners receive a monthly fee 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%
annual). Asset management fees were $38,400, $44,524 and $16,141 during the
years ended December 31, 2000, 1999 and 1998, respectively.
D. 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 parties related to the General Partners.
E. Income and Losses
All income and losses are credited or charged to partners in relation to their
respective partnership interests. The partnership interest of the General
Partners (combined) is a total of 1%.
F. Operating Expenses
The General Partners or their affiliate (Redwood Mortgage Corp.) are reimbursed
by the Partnership for all operating expenses actually incurred by them on
behalf of the Partnership, including without limitation, out-of-pocket general
and administration expenses of the Partnership, accounting and audit fees, legal
fees and expenses, postage and preparation of reports to Limited Partners. Such
reimbursements are reflected as expenses in the Statements of Income.
G. General Partners Contributions
The General Partners collectively or severally were to contribute 1/10 of 1% in
cash contributions as proceeds from the offering were admitted to limited
Partner capital. As of December 31, 1992 a General Partner, GYMNO Corporation,
had contributed $11,998, 1/10 of 1% of limited partner contributions in
accordance with Section 4.02(a) of the Partnership Agreement.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 4 - OTHER PARTNERSHIP PROVISIONS
A. Applicant Status
Subscription funds received from purchasers of units were not admitted to the
Partnership until appropriate lending opportunities were available. During the
period prior to the time of admission, which ranged between 1-120 days,
purchasers' subscriptions remained irrevocable and earned interest at money
market rates, which were lower than the return on the Partnership's loan
portfolio.
Interest earned prior to admission was credited to partners in applicant status.
As loans were made, applicant subscriptions were transferred to Limited Partner
status to begin sharing in income from loans secured by deeds of trust. The
interest earned prior to admission was either paid to the investors or
transferred to Partners' Capital along with the original investment.
B. Term of the Partnership
The term of the Partnership is approximately 40 years, unless sooner terminated
as provided. The provisions provide for no capital withdrawal for the first five
years, subject to the penalty provision set forth in (E) below. Thereafter,
investors have the right to withdraw over a five-year period, or longer.
C. Election to Receive Monthly, Quarterly or Annual Distributions
Upon subscriptions, investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations, or to allow earnings to compound.
D. Profits and Losses
Profits and losses are allocated among the Limited Partners according to their
respective capital accounts after 1% is allocated to the General Partners.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
E. Liquidity, Capital Withdrawals and Early Withdrawals
There are substantial restrictions on transferability of Units and accordingly
an investment in the Partnership is not liquid. Limited Partners had 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 Units which in all instances
had occurred as of December 31, 2000. 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 early and will be deducted from the Capital Account. Withdrawal after
the one-year holding period and before the five-year holding period was
permitted only upon the terms set forth above.
After five years from the date of purchase of the Units, Limited Partners have
the right to withdraw from the Partnership, on an installment basis, generally
this is done over a five-year period in twenty (20) quarterly installments. Once
a Limited Partner has been in the Partnership for the minimum five-year period,
no penalty will be imposed if withdrawal is made in twenty (20) quarterly
installments or longer. Notwithstanding the five-year (or longer) withdrawal
period, the General Partners 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. This withdrawal is 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.
The Partnership will 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, shall be liquidated during any calendar year.
F. Guaranteed Interest Rate For Offering Period
During the period commencing with the day a Limited Partner was admitted to the
Partnership and ending 3 months after the offering termination date, the General
partners guaranteed an interest rate equal to the greater of actual earnings
from mortgage operations or 2% above The Weighted Average cost of Funds Index
for the Eleventh District Savings Institutions (Savings & Loan & Thrift
Institutions) as computed by the Federal Home Loan Bank of San Francisco
monthly, up to a maximum interest rate of 12%. The guarantee amounted to $12,855
and $5,195 in 1990 and 1991, respectively. In 1992 and 1993, actual realization
exceeded the guaranteed amount each month. Beginning with fiscal years after
1993, the guarantee no longer applies.
NOTE 5 - LEGAL PROCEEDINGS
Legal actions against borrowers and other involved parties have been initiated
by the Partnership to help assure payments against unsecured accounts receivable
totaling $188,421 at December 31, 2000. The Partnership is a defendant, along
with numerous other defendants including a developer, contractor and other
lenders, in a lawsuit involving the Partnership's attempt to recover it's
investment in Real Estate acquired through foreclosure.
Management anticipates that the ultimate results of these cases will not have a
material adverse effect on the net assets of the Partnership, with due
consideration having been given in arriving at the allowance for doubtful
accounts.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 6 - NOTE PAYABLE BANK - LINE OF CREDIT
The Partnership has a bank line of credit secured by its loan portfolio of up to
$3,500,000 at .25% over prime. The balances outstanding as of December 31, 2000
and 1999 were $3,500,000, and $800,000, respectively, and the interest rate was
9.75% (9.50% prime + .25%) at December 31, 2000. This line of credit expires May
1, 2003.
NOTE 7 - INCOME TAXES
The following reflects a reconciliation from net assets (Partners' Capital)
reflected in the financial statements to the tax basis of those net assets:
December 31,
------------------------
2000 1999
------- -------
Net assets - Partners' Capital
per financial statements $10,106,308 $11,009,296
Formation loan receivable 75,612 165,499
Allowance for doubtful accounts 850,548 828,563
----------- ----------
Net assets tax basis $11,032,468 $12,003,358
=========== ==========
In 2000 and 1999, approximately 70% and 69%, respectively, of taxable income was
allocated to tax exempt organizations i.e., retirement plans. Such plans do not
have to file income tax returns unless their "unrelated business income" exceeds
$1,000. Applicable amounts become taxable when distribution is made to
participants.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
financial instruments:
(a) Cash and Cash Equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.
(b) Mortgage Investments (see note 2 (c) had a carrying value of $12,794,297 at
December 31, 2000. The fair value of these investments of $12,792,716 was
estimated based upon projected cash flows discounted at the estimated current
interest rates at which similar loans would be made. The applicable amount of
the allowance for doubtful accounts along with accrued interest and advances
related thereto should also be considered in evaluating the fair value versus
the carrying value.
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 9 - ASSET CONCENTRATIONS AND CHARACTERISTICS
The loans are secured by recorded deeds of trust. At December 31, 2000, there
were 38 loans outstanding with the following characteristics:
Number of loans outstanding 38
Total loans outstanding $12,794,297
Average loan outstanding $336,692
Average loan as percent of total 2.63%
Average loan as percent of Partners' Capital 3.33%
Largest loan outstanding $1,995,452
Largest loan as percent of total 15.60%
Largest loan as percent of Partners' Capital 19.74%
Number of counties where security is located (all California) 11
Largest percentage of loans in one county 29.47%
Average loan to appraised value of security at time
loan was consummated 60.69%
Number of loans in foreclosure 0
The following categories of loans are pertinent at December 31, 2000 and 1999:
December 31,
-------------------
2000 1999
-------- --------
First Trust Deeds $8,720,986 $6,077,532
Second Trust Deeds 4,000,140 4,272,714
Third Trust Deeds 73,171 661,414
----------- ----------
Total loans 12,794,297 11,011,660
Prior liens due other lenders 8,761,363 10,389,233
------------ ----------
Total debt $21,555,660 $21,400,893
============ ==========
Appraised property value at time of loan $35,518,467 $34,223,193
============ ==========
Total investments as a percent of appraisals 60.69% 62.53%
============ ==========
Investments by Type of Property
Owner occupied homes $218,942 $340,864
Non-Owner occupied homes 1,644,636 2,347,394
Apartments 2,590,022 182,675
Commercial 8,340,697 8,140,727
------------ ----------
$12,794,297 $11,011,660
============ ==========
REDWOOD MORTGAGE INVESTORS VII
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
Scheduled maturity dates of loans as of December 31, 2000 are as follows:
Year Ending
December 31, Amount
-------------------- -------------------
2001 $10,100,308
2002 1,317,339
2003 557,348
2004 130,010
2005 514,419
Thereafter 174,873
------------
Total $12,794,297
============
The scheduled maturities for 2001 above include approximately $1,664,181 in
seven loans which are past maturity at December 31, 2000. Although interest
payments on most of these loans are current, $753,320 of these loans were
categorized as delinquent over 90 days.
Five loans with interest overdue in excess of 90 days and principal outstanding
of $890,597 were considered impaired at December 31, 2000. That is, interest
accruals are no longer recorded thereon.
The cash balance at December 31, 2000 of $269,000 was in two banks with interest
bearing balances totaling $107,578. The balances exceeded FDIC insurance limits
(up to $100,000 per bank) by $69,000. The Partnership's main bank is the same
financial institution that has provided the Partnership with the $3,500,000
limit line of credit. At December 31, 2000, draw down against this facility was
$3,500,000. As and when deposits in the Partnership's bank accounts increase
significantly beyond the insured limit, the funds are either placed in new loans
or used to pay-down on the line of credit balance.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REDWOOD MORTGAGE INVESTORS VII
Column A Column B Column C Column D Column E
Description Balance at Additions Deductions Balance at
--------------------------------------
beginning of (1) (2) Describe End of Period
of period Charged to Charged to (a)
Costs & Expenses Other accounts -
Describe
Year Ended
12/31/00
Deducted from
Asset accounts:
Allowance for
Doubtful accts $828,563 $25,160 $0 $(3,175) $850,548
Cumulative
write-down of
Real Estate held
For sale (REO) (b) $349,260 $40,504 $0 $53,108 $442,872
-------------- -------------- ---------- ----------- ----------
Total $1,177,823 $65,664 $0 $49,933 $1,293,420
============== ============== ========== =========== ==========
(a) Represents net loss or net (gain) on loans and real estate held for sale.
(b) The beginning balance of REO includes actual REO of $119,220 and $230,040
for REO in process at 12/31/99 which became REO in year 2000.
SCHEDULE IV
LOANS ON REAL ESTATE
RULE 12-29 MORTGAGE LOANS ON REAL ESTATE
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J
Descp. Int. Final Periodic Prior Liens Face Amt. of Carrying Principal Type Geographic
Rate % Maturity Payment Loans (original amount of Loans amt of of County
Date Terms amount) Loans Lien Location
subject to
Delinq.
Prin. or
Int.
=========== ======== =========== ============= ================= ================= ================ ============= ======= ==========
Res 12.00 01/10/04 $150.00 $208,000.00 $15,000.00 $646.71 $0.00 2nd San Mateo
Apts 6.50 05/01/06 $540.83 $89,904.00 $75,000.00 $96,716.11 $21,092.37 2nd Sacramnto
Res 12.75 07/01/08 $370.90 $236,164.00 $29,700.00 $21,589.46 $0.00 2nd San Mateo
Res 8.00 05/01/09 $753.50 $0.00 $81,825.00 $56,566.84 $0.00 1st Alameda
Comm 10.00 12/01/98 $3,619.98 $0.00 $412,500.00 $405,682.17 $83,259.54 1st Alameda
Comm 7.00 12/01/03 $575.74 $281,250.00 $49,586.38 $40,560.78 $16,696.46 2nd Alameda
Comm 12.00 02/01/99 $3,420.76 $0.00 $335,638.30 $335,638.30 $66,134.56 1st S Clara
Apts 7.00 02/10/05 $234.06 $80,250.00 $40,125.00 $40,125.00 $0.00 2nd San Fran
Comm 9.00 05/10/02 $670.52 $0.00 $83,333.33 $79,538.11 $0.00 1st Shasta
Res 8.00 09/18/03 $87.56 $0.00 $11,932.83 $11,422.21 $0.00 1st Sonoma
Res 8.00 09/30/03 $89.71 $0.00 $12,225.92 $11,728.40 $0.00 1st Sonoma
Comm 12.00 02/01/99 $124.00 $312,000.00 $12,000.00 $12,000.00 $3,446.09 2nd S Clara
Res 14.00 01/01/98 $1,983.34 $0.00 $340,000.00 $170,000.00 $0.00 1st Alameda
Comm 7.00 07/01/02 $1,131.11 $0.00 $146,666.66 $138,418.47 $0.00 1st Con Costa
Land 11.50 09/01/99 $3,833.33 $0.00 $400,000.00 $400,000.00 $0.00 1st Stanislas
Land 11.50 02/01/00 $4,791.67 $0.00 $500,000.00 $267,689.91 $0.00 1st Stanislas
Comm 10.50 04/01/99 $14,000.00 $1,464,790 $1,600,000.00 $750,000.00 $0.00 2nd San Mateo
Land 11.00 01/01/01 $9,166.67 $201,686.00 $1,000,000.00 $800,112.32 $0.00 2nd Stanislas
Land 11.00 07/01/01 $9,166.67 $137,737.00 $1,000,000.00 $1,000,000.00 $0.00 2nd Stanislas
Res 12.00 05/01/01 $2,782.54 $0.00 $800,000.00 $738,509.95 $0.00 1st Placer
Land 11.00 11/01/00 $782.52 $1,141,690.00 $85,365.85 $73,170.73 $0.00 3rd Stanislas
Res 11.00 11/01/04 $1,238.02 $553,179.00 $130,000.00 $129,363.12 $0.00 2nd San Mateo
Comm 10.25 12/01/01 $10,121.87 $0.00 $1,185,000.00 $829,500.00 $0.00 1st Con Costa
Res 11.00 01/01/05 $4,535.44 $0.00 $476,250.00 $474,294.01 $0.00 1st Santa Crz
Comm 11.50 03/01/02 $4,165.48 $0.00 $434,659.10 $434,659.10 $0.00 1st San Fran
Comm 11.50 03/01/02 $4,156.03 $434,659.00 $565,340.92 $441,994.30 $0.00 2nd San Fran
Land 11.50 07/01/01 $1,753.05 $1,000,000.00 $182,926.83 $182,926.83 $0.00 2nd Stanislas
Res 12.00 05/01/01 $994.57 $800,000.00 $99,457.15 $99,457.15 $0.00 2nd Placer
Res 11.00 04/01/01 $1,375.00 $986,950.00 $150,000.00 $150,000.00 $0.00 2nd Alameda
Apts 12.00 05/01/01 $19,680.91 $0.00 $2,010,689.63 $1,995,451.75 $0.00 1st San Fran
Comm 12.00 12/01/01 $11,475.00 $0.00 $1,147,500.00 $1,147,500.00 $0.00 1st Co Costa
Comm 11.00 07/01/01 $3,666.66 $0.00 $500,000.00 $400,000.00 $0.00 1st San Fran
Apts 12.00 08/01/03 $4,400.00 $0.00 $720,000.00 $440,000.00 $0.00 1st San Fran
Apts 12.50 04/01/02 $119.83 $440,000.00 $31,884.05 $17,729.43 $0.00 2nd San Fran
Comm 13.00 11/01/02 $2,220.84 $310,381.00 $205,000.00 $205,000.00 $0.00 2nd Alameda
Comm 10.00 12/01/03 $470.70 $0.00 $53,636.36 $53,636.36 $0.00 1st Stanislas
Comm 10.00 12/01/01 $104.60 $82,723.00 $11,919.19 $11,919.19 $0.00 2nd Stanislas
Land 12.00 12/01/01 $3,307.50 $0.00 $330,750.00 $330,750.00 $0.00 1st S Clara
------------- ----------------- ----------------- ---------------- -------------
132,060.91 8,761,363.00 15,265,912.50 12,794,296.71 190,629.02
============= ================= ================= ================ =============
Notes:
Loans classified as `impaired loans' had principal balances totaling
$890,597 at December 31, 2000. Impaired loans are defined as loans
where the costs of related balances exceeds the anticipated fair value
less costs to collect. Accrued interest is no longer recorded thereon.
Amounts reflected in column G (carrying amount of loans) represents
both costs and the tax basis of the loans.
Schedule IV
Reconciliation of carrying amount (cost) of loans at close of periods
Year ended December 31,
---------------------------------------
2000 1999 1998
---------- ------- -------
Balance at beginning of year $11,011,660 $13,209,186 $13,449,741
------------- ----------- -----------
Additions during period:
New loans 7,112,078 7,716,617 6,398,769
Other 0 0 0
------------- ----------- -----------
Total Additions 7,112,078 7,716,617 6,398,769
------------- ----------- -----------
Deduction during period:
Collections of principal 5,324,620 9,314,140 6,529,324
Foreclosures 400,002 110,000
Cost of loans sold 0 0
Amortization of Premium 0 0
Other 4,821 200,001 0
------------- ------------ -----------
Total Deductions 5,329,441 9,914,143 6,639,324
------------- ------------ -----------
Balance at close of year $12,794,297 $11,011,660 $13,209,186
============= ============ ===========
Item 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Bruce and/or John Cropper (the Croppers) have been providing audit and
accounting services to the General Partners of the Partnership and their
affiliates for over 16 years through the following CPA firms: 1993-1998- Parodi
& Cropper, CPA's; 1999 - Caporicci, Cropper & Larson, LLP; 2000 - Armanino
McKenna LLP.
Bruce and John Cropper were shareholders in Cropper Accountancy Corp. through
December 31, 2000.
Cropper Accountancy was a partner in the firm of Parodi & Cropper from 1993
until April of 1998. In May of 1998, Cropper Accountancy Corp., formed a
partnership with Caporicci & Larson creating a new firm, Caporicci, Cropper &
Larson, LLP with offices in Irvine and Walnut Creek, California. The Parodi &
Cropper firm was dissolved.
Effective January 1, 2001, Cropper Accountancy Corp., withdrew from Caporicci,
Cropper & Larson, LLP partnership. John Cropper joined the larger regional firm
of Armanino McKenna, LLP as a partner and Bruce Cropper continues to provide
services through Cropper Accountancy. The Croppers continue to perform audit and
accounting services to the General Partners of the partnership and their
affiliates.
As a result, the Partnership has retained the firm of Armanino McKenna, LLP, to
provide its audit and financial services. Thus, although there has been a change
in accounting firms, there has not been a change in accountants and there have
not been any disagreement on any matter of accounting principles, practices or
financial status disclosures.
Part III
Item 10 - Directors and Executive Officers of the Registrant
The Partnership has no Officers or Directors. Rather, the activities of the
Partnership are managed by the three General Partners of which two individuals
are D. Russell Burwell and Michael R. Burwell. The third General Partner is
Gymno Corporation, a California corporation, formed in 1986. The Burwells are
the two shareholders of Gymno Corporation, a California corporation, on an equal
(50-50) basis.
After 25 years of active participation in the mortgage business, D. Russell
Burwell, our founder and a General Partner of the Partnership has decided to
retire effective September 30, 2001. "Russ" has enjoyed a long and successful
career. His original business model, upon which our Partnership has its roots,
has withstood the test of time through varying economic cycles. Collectively,
the various Redwood Mortgage Investors Partnerships (I-VIII) have grown from an
idea to over $110,000,000 in assets and produced excellent results for the
Limited Partners under Russ's stewardship in Redwood Mortgage Investor's VII.
This Partnership originally raised $11,998,359 in Limited Partner Capital
contributions and at December 31, 2000 had $10,094,330 in remaining Limited
Partner Capital.
Over the last few years, Russ has been passing along his duties and
responsibilities to the remaining General Partners. The remaining General
Partners are Mr. Michael Burwell and Gymno Corporation, a California
Corporation. Mr. Michael Burwell has been a General Partner of Redwood Mortgage
Investors VII since its inception and has been employed by Redwood Mortgage
Corp, an affiliate of the Partnership, since 1979. The Partnership through the
remaining General Partners and the employees of its affiliate Redwood Mortgage
Corp., is well prepared for Russ's departure and looks forward to emulating the
steady consistent returns that the Limited Partners have enjoyed during Russ'
tenure.
Mr. D. Russell Burwell is providing this notification pursuant to Article 8
Section 8.02 of the Limited Partnership Agreement. The remaining General
Partners have elected to continue the business of the Partnership as described
in Article 9 Section 9.01(d) of the Limited Partnership Agreement.
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
Prospectus, pages 12-13, under the section "Compensation of the General partners
and the Affiliates", which is incorporated by reference. Such compensation is
summarized below.
The following compensation has been paid to the General Partners and Affiliates
for services rendered during the year ended December 31, 2000. All such
compensation is in compliance with the guidelines and limitations set forth in
the Prospectus.
Entity Receiving Description of Compensation
Compensation and Services Rendered Amount
- ----------------------- ----------------------------------- -----------
I. Redwood Mortgage Mortgage Servicing Fee
Corp. for servicing loans $ 110,713
General Partners &/or Asset Management Fee
Affiliates managing assets......................... $38,400
General Partners 1% interest in profits.................. $9,001
General Partners &/or Portion of early withdrawal penalties
Affiliates applied to reduce Formation Loan........ $10,382
II. FEES PAID BY BORROWERS ON LOANS PLACED BY COMPANIES RELATED TO THE GENERAL
PARTNERS WITH THE PARTNERSHIP (EXPENSES OF BORROWERS NOT OF THE PARTNERSHIP)
Redwood Mortgage Mortgage Brokerage Commissions for services in connection
Corp. with the review, selection, evaluation, negotiation, and
extension of the loans paid by the borrowers and not by
the Partnership............................... $130,487
Redwood Mortgage Processing and Escrow Fees for services in connection with
Corp. notary, document preparation, credit investigation, and
escrow fees payable by the borrowers and not by the
Partnership................................... $4,498
Gymno Corporation
Inc. Reconveyance Fee.............................. $816
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 STATEMENT OF INCOME $27,032
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The General Partners are to own a combined total of 1% of the Partnership
including a 1% portion of income and losses.
Item 13 - Certain Relationships and Related Transactions
Refer to footnote 3 of the notes to financial statements in Part II item 8 which
describes related party fees and data.
Also refer to the Prospectus dated October 20, 1989 (incorporated herein by
reference) on page 12 "Compensation of General Partners and Affiliates" and page
14 "Conflicts of Interest".
Part IV
Item 14 - Exhibits, Financial Statements and Schedules, and Reports on Form 8-K.
A. Documents filed as part of this report are incorporated:
1. In Part II, Item 8 under A - Financial Statements.
2. The Financial Statement Schedules are listed in Part II - Item 8
under B - Financial Statement Schedules.
3. 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 which
provides for principal and interest payments
(b) Form of Note secured by Deed of Trust which
provides principal and interest payments and
right of assumption
(c) Form of Note secured by Deed of Trust which
provides for interest only payments
(d) Form of Note
10.4 (a) Deed of Trust and Assignment of Rents to
accompany Exhibits 10.3 (a), and (c)
(b) Deed of Trust and Assignment of Rents to
accompany Exhibit 10.3 (b)
(c) Deed of Trust to accompany Exhibit 10.3 (d)
10.5 Promissory Note for Formation Loan
10.6 Agreement to Seek a Lender
24.1 Consent of Caporicci, Cropper & Larson, LLP
24.3 Consent of McCutchen, Doyle, Brown & Enersen, LLP
All of these exhibits were previously filed as the exhibits to Registrant's
Statement on Form S-11 (Registration No. 33-30427 and incorporated by reference
herein).
B. Reports of Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report. A Form 8-K was filed on February 7, 2000
relating to a change in accounting firm. Another Form 8-K was filed on
February 13, 2001, relating to the subsequent change in accounting firm
(see Item 9 above).
C. See A (3) above.
D. See A (2) above. Additional reference is made to the prospectus (S-11
filed as part of the Registration Statement) dated October 20, 1989 to
pages 65 through 67 and Supplement #5 dated February 14, 1992 for
financial data related to Gymno Corporation, a General Partner.
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 29th day of March
2001.
REDWOOD MORTGAGE INVESTORS VII
By: /S/ D. Russell Burwell
-----------------------------------
D. Russell Burwell, General Partner
By: /S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell, General Partner
By: Gymno Corporation, General Partner
By: /S/ D. Russell Burwell
-----------------------------
D. Russell Burwell, President
By: /S/ Michael R. Burwell
--------------------------------------
Michael R. Burwell, Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity indicated on the 29th day of March 2001.
Signature Title Date
/S/ D. Russell Burwell
- ----------------------
D. Russell Burwell General Partner March 29, 2001
/S/ Michael R. Burwell
- ----------------------
Michael R. Burwell General Partner March 29, 2001
/S/ D. Russell Burwell
- ----------------------
D. Russell Burwel President of Gymno Corpor March 29, 2001
(Principal Executive Officer);
Director of Gymno Corporation
/S/ Michael R. Burwell
- ----------------------
Michael R. Burwell Secretary/Treasurer of Gymno March 29, 2001
Corporation (Principal Financial
and Accounting Officer);
Director of Gymno Corporation