INVESTMENTS

Park City, Utah Lakeside Investment

In January 2017, Lakeside DV Holdings, LLC (“LDV Holdings”), a wholly-owned subsidiary of the Company, purchased the interest held in Lakeside JV by Park City Development, LLC (“PCD”) for $0.7 million and terminated PCD as manager. Upon purchase of PCD’s interest, LDV Holdings became the sole owner of Lakeside JV. As a result, Lakeside JV became a consolidated entity of the Company. The Company’s investment in Lakeside JV was previously accounted for under the equity method.

Equity Interests Acquired through Guarantor Recoveries

In 2015, the Company acquired certain real estate assets and equity interests in a number of limited liability companies and limited partnerships with various real estate holdings and related assets as a result of enforcement and collection efforts. Prior to September 29, 2017, certain of these entities were consolidated in the accompanying condensed consolidated financial statements while others were accounted for under the equity method of accounting, depending on the extent of the Company’s financial interest in and level of control over each such entity.

Effective September 29, 2017, the Company began to consolidate the accounts of various corporate entities, the full ownership of which was initially granted to the Company under a previous judgment award against a guarantor under certain legacy mortgage loans. The value of the corporate entities was not recorded as a recovery at the time of award since the ownership of those entities remained under the control of a court-appointed receiver from the date the judgment was awarded. The assets of the corporate entities consist primarily of general and limited partnership interests in, and various receivables from (and liabilities to), several of the previously consolidated and unconsolidated entities, as well amounts for other entities pertaining to the guarantor that were administratively dissolved by court order in a receivership wind-up motion. As a result, the Company began to consolidate into its financial statements the accounts of various unconsolidated variable interest entities, whose assets are comprised of real estate holdings, rights to develop water and receivables from other related entities, and liabilities which consist primarily of various amounts payable to related entities.

The consolidation of the aforementioned entities occurred as a result of the termination of a court-appointed receivership over the corporate entities which maintained the general partner interests and thereby controlled the activities of such entities through that date. On September 29, 2017, the receiver assigned and delivered to the Company the stock certificates of the corporate entities, including the underlying interest in partnerships. As a result, as of that date, the Company received full possession, custody and control of its interests in the corporate entities and related interest in partnerships. The Company’s ownership interests in the consolidated entities range from 3.8% to 100.0% and were determined to be variable interest entities. The Company determined the partnerships are deemed to be variable interest entities and that through its general and limited partnership interests, the Company is the primary beneficiary of such entities because 1) it has the power to direct the activities of the entities that most significantly impact the economic performance of such entities, and 2) with the financial assistance provided to such entities, the Company has the risk of absorbing losses or rights to receive benefits that could be potentially significant to the entities; as such, they should be consolidated. Intercompany receivables and liabilities have been eliminated in consolidation in the accompanying condensed consolidated financial statements.

Financial data presented for previous periods have not been restated to reflect the consolidation of the entities. The assets and liabilities of the newly consolidated entities were recorded at their preliminary estimated fair values. As a result of the assignment of the corporate entity and related general partner interests and recording of assets and liabilities at fair value for the affected entities, and after elimination of intercompany balances, the Company recorded the elimination of the investment in unconsolidated entities of $4.0 million, and recorded a decrease in mortgage loans of $0.4 million, a decrease in other receivables of $2.4 million, an increase in other real estate owned of $17.8 million, an increase in other assets of $1.1 million, an increase in liabilities of $0.2 million, and non-controlling interests of $6.5 million as of September 30, 2017. In addition, the Company recorded net recovery income of $6.1 million during the period ended September 30, 2017.

In 2016, a subsidiary of the Company entered into a series of promissory notes and related agreements with five of the partnerships to advance a total of up to $0.7 million for the purposes of funding various operating costs and repair and maintenance costs in connection with a damaged well affecting the partnerships. The partnership notes are secured by the assets of the respective partnerships, bear interest rates ranging from the JP Morgan Chase Prime rate plus 2.0% (6.25% at September 30, 2017) to 8% and mature no later than July 31, 2018. During the three months ended September 30, 2017, the notes were amended to increase the maximum loan amount to $1.0 million per entity, or $5.0 million in total, and to cross-collateralize the notes. During the nine months ended September 30, 2017, a total of $0.8 million was advanced to five partnerships under the terms of the note agreements. The outstanding principal and interest of such notes totaled $1.3 million as of September 30, 2017. Upon consolidation of the related entities on September 30, 2017, the notes receivable and notes payable and related interest amounts were eliminated.

In April 2017, the court-appointed receiver over the general partner of one of the partnerships made a capital call of all partners to fund various operating and capital requirements. While the Company met its obligation under this request, none of the remaining partners did so, at which point the Company funded those portions as well totaling $1.1 million to the partnership. As a result of the other partners’ failure to make the required contributions, the general partner declared a default by such limited partners under the terms of the partnership agreement and assigned those limited partner interests to the Company’s limited partner subsidiary. Upon transfer of the general partner interest at termination of the receivership on September 29, 2017, the Company has full authority to act on behalf of the partnership. Accordingly, we have recorded the effects of the ownership of those additional limited partner interests upon consolidation as of September 30, 2017.

The Company’s consolidated financial statements include the assets, liabilities and results of operations of variable interest entities ("VIEs") for which the Company is the primary beneficiary. The other equity holders’ interests are reflected in net income (loss) attributable to noncontrolling interests in the condensed consolidated statements of operations and noncontrolling interest in the condensed consolidated balance sheets. For certain of the consolidated entities, the Company previously recorded only its proportionate interest in related assets and liabilities at that time, rather than recording the gross assets and liabilities and non-controlling interest portion. For the applicable entities, it was determined that the Company should have recorded additional other REO assets and a corresponding non-controlling interest in the amount of $3.2 million. We have recorded out of period adjustments to reflect the proper amount of assets, liabilities and non-controlling interests as of September 30, 2017. The Company concluded that these out of period adjustments were not material to any of the prior period balance sheets and they had no impact on prior period statements of operations and cash flows.

The following table summarizes the carrying amounts of these entities’ assets and liabilities included in the Company’s consolidated balance sheets at September 30, 2017 (in thousands, net of intercompany eliminations):



Assets and Liabilities of Consolidated VIE's	September 30, 2017

Cash and Cash Equivalents	$	1,948
Real Estate and related assets	23,423
Other Assets	1,143
Total Assets	$	26,514

Current Liabilities	$	215
Total Liabilities	$	215

The Company’s maximum exposure to loss consists of its combined equity in the corporate entities and partnerships which totaled $19.7 million as of September 30, 2017.

Summarized Financial Information of Unconsolidated Entities (unaudited)

As of September 30, 2017, we no longer hold investments that are recorded on the equity method as a result of the aforementioned consolidation.

Prior to consolidation, during each of the nine months ended September 30, 2017 and 2016, the equity loss recorded on these equity method investments in the accompanying condensed consolidated statements of operations was $0.2 million. During the three months ended September 30, 2017 and 2016, the equity loss recorded on these equity method investments in the accompanying condensed consolidated statements of operations was $68.0 thousand and $48.0 thousand, respectively.