Common use of Loan Defaults And Foreclosures By Borrowers May Adversely Affect Partnership Clause in Contracts

Loan Defaults And Foreclosures By Borrowers May Adversely Affect Partnership. The Partnership is in the business of lending money and, as such, takes the risk of defaults by borrowers. Most Mortgage Investments will be interest only or partially amortizing Mortgage Investments providing for relatively small monthly payments with a large "balloon" payment of principal due at the end of the term. Many borrowers are unable to repay such loans out of their own funds and are compelled to refinance or sell their property. Fluctuations in interest rates and the unavailability of mortgage funds could adversely affect the ability of borrowers to refinance their loans at maturity or sell their property. If the borrower defaults, the Partnership may be forced to purchase the property at a foreclosure sale. If the Partnership cannot quickly sell or refinance such property, and the property does not produce any significant income, the Partnership's profitability will be adversely affected. As of June 30, 1996, the Partnership's Mortgage Investment portfolio included two (2) loans delinquent over 90 days representing 2.49% of the total portfolio. These same two loans are in foreclosure.