Real Estate Owned (REO) and Mortgages Payable

12 Months Ended

Dec. 31, 2021

Real Estate [Abstract]

Real Estate Owned (REO) and Mortgages Payable

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

REO transactions and valuation adjustments for 2021 and 2020 are summarized in the following tables ($ in thousands).

	2021
	REO			Valuation Allowance			REO, net
Balance, beginning of period	$	12,044		$	(3,239	)	$	8,805
Valuation allowance adjustment		—			(294	)		(294	)
Dispositions		(1,586	)		1,333			(253	)
Balance, December 31, 2021	$	10,458		$	(2,200	)	$	8,258

	2020
	REO			Valuation Allowance			REO, net
Balance, beginning of period	$	6,491		$	(3,239	)	$	3,252
Acquisitions from foreclosure		5,787			—			5,787
Dispositions		(234	)		—			(234	)
Balance, December 31, 2020	$	12,044		$	(3,239	)	$	8,805

The fair value of the REO is adjusted on a nonrecurring basis. When it is determined that the fair value of REO is less than the original cost basis in the property based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions (Level 3 inputs) or if an offer deemed likely to result in a sale is received a write down is charged to operations expense. Any recovery in the fair value subsequent to such a write down is recorded, not to exceed the value recorded at acquisition.

The following transactions occurred during the year ended December 31, 2021.

•The valuation allowance on REO properties was increased by $294,000 based on pending sales data on transactions expected in the second half of 2021.

•The partnership sold - in Fresno County, a partially completed home subdivision. The net realized amount approximated the adjusted carrying value taking into account previously recorded valuation allowances.

The following transactions occurred during the year ended December 31, 2020.

•The partnership acquired – in Los Angeles County (Hollywood Hills) – by two foreclosure sales, two single-family residences on separate adjoining parcels with a shared driveway. The larger parcel and residence are 0.31 acres and approximately 5,200 square feet, respectively. The other parcel and residence are 0.12 acres and approximately 3,100 square feet, respectively. The aggregate estimated net realizable value of the two properties based on recent appraisals was $5,787,000 (see below for mortgages payable and other liabilities assumed at foreclosure).

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

A gain on sale of REO was recognized in 2021, related to a seller carryback on an REO property sold in 2016. The borrower paid the seller carryback note in-full in June 2021, and the previously deferred gain of $79,000 was recognized. The gain was deferred until the uncertainty associated with the variable consideration was subsequently resolved which is when the loan was fully paid.

REO at December 31, 2021 was comprised of four properties with a carrying value of approximately $8,258,000. REO is recorded at fair value less costs to sell at acquisition, and subsequently adjusted to the lower of the recorded cost or fair value less estimated cost to sell based on appraisals and analysis by RMC:

•In Los Angeles County (Hollywood Hills) two single-family residences on separate adjoining parcels.

•In San Francisco County, 1 residential unit in a condominium complex.

•In Stanislaus County, approximately 14 acres of undeveloped land zoned commercial.

•In San Francisco County, a real estate interest comprised of a condominium unit composed of storage lockers and signage rights for the exterior façade of the building.

The two Hollywood Hills single-family residences were acquired in June 2020 by foreclosure sales subject to two first mortgages, with aggregate principal outstanding of approximately $2,449,000, and mortgage interest, property taxes, and other liabilities totaling approximately $175,000. The mortgages were 201 and 242 days delinquent at the date of foreclosure sale, with accrued interest in arrears of approximately $33,000 and $40,000, and delinquent property taxes of approximately $23,000 and $47,000 (advanced by the first mortgage lender), respectively. Interest in arrears and delinquent property taxes at acquisition are included in accounts payable on the consolidated balance sheet. In August 2021, the partnership paid in-full the outstanding principal balance of approximately $996,000 due on one of the mortgages, as well as the outstanding mortgage interest, late fees and other fees of approximately $96,000.

At December 31, 2021, accrued liabilities on the consolidated balance sheet include accrued interest of approximately $94,000, and property taxes of approximately $69,000. The borrower has contested the foreclosure sale, and as of December 31, 2021, possession of the residences has not been established.

Mortgages payable at December 31, 2021 and 2020 are summarized in the following table ($ in thousands).

Lender - summary of terms	December 31, 2021		December 31, 2020
Wells Fargo Bank - secured by a first trust deed on a single family residence located in Los Angeles County, matures November 1, 2044, monthly payment $7,754.40, and interest at 4.125% until October 31, 2024; thereafter interest at LIBOR plus 2.25%, Wells Fargo submitted a payoff statement in July 2020.	$	1,453	$	1,453
East West Bank - secured by a first trust deed on a single family residence located in Los Angeles County, matures January 14, 2035, with interest at Prime plus 1% or 4.25% at June 30, 2020. Subsequent to foreclosure, the mortgage was paid in-full in August 2021.		—		996
Total mortgages payable	$	1,453	$	2,449

REO, net

REO, net in operations expense on the consolidated income statements is comprised of the following for 2021 and 2020 ($ in thousands).

	2021			2020
Holding costs, net of other income	$	(299	)	$	(164	)
Gain on sales		79			133
Valuation adjustments		(294	)		—
REO, net	$	(514	)	$	(31	)

Holding costs, net of other income includes month-to-month rents received of approximately $77,000 and $94,000 for the years ended December 31, 2021 and 2020, respectively, for the homes in Fresno County, which were sold in July 2021, and the unit-storage lockers and signage in San Francisco county.