Common use of ESTIMATED USE OF PROCEEDS Clause in Contracts

ESTIMATED USE OF PROCEEDS. The Partnership will use the proceeds from the sale of its Units to make Mortgage Investments and pay expenses relating to the organization and operation of the Partnership. Initially, upon the formation of the Partnership, a minimum of 84% of each dollar invested will be available for investment in Mortgage Investments if 300,000 Units ($30,000,000) are sold. If total sales commissions payable to participating Broker Dealers are less than 9%, as anticipated, the amount of the Formation Loan will correspondingly be reduced and the amount of proceeds available for Mortgage Investments will be increased. If the offering is not fully funded, the amount available for investment will be less. As Redwood Mortgage repays the Formation Loan, approximately ninety-six percent (96%), if 300,000 Units ($30,000,000) are sold, will be available for investment in Mortgage Investments. However, because of the time value of money, the amount of proceeds available for Mortgage Investments (ninety-six percent (96%) if 300,000 Units ($30,000,000) are sold) upon repayment of the Formation Loan, are not indicative of the actual amount of proceeds that will be available for investment over the life of the Partnership. Additionally, as the Formation Loan is unsecured, there can be no assurance, other than the fiduciary obligations of the General Partners, that the Formation Loan will be repaid on a timely basis, if ever. To date, the average size of the Mortgage Investments is approximately $50,000 to $250,000 on single family homes and $300,000 to $750,000 on commercial property. The General Partners anticipate that the average size of the Mortgage Investments will continue to remain approximately the same. No Mortgage Investments, whether residential or commercial, shall exceed the greater of $50,000 or ten percent (10%) of the Partnership's assets at the time the Mortgage Investment is made. The foregoing amounts are based upon historical experience and are subject to change. (See "ESTIMATED USE OF PROCEEDS" and "INVESTMENT OBJECTIVES AND CRITERIA"). Compensation of the General Partners and Affiliates. The General Partners and their Affiliates have received and will continue to receive substantial compensation in connection with the Offering and the investment and management of the Partnership's assets which is not the result of arms length negotiations (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"). The amount of compensation to be paid to the General Partners and their Affiliates, as set forth below, are estimates and actual amounts paid may vary. Except as noted, there is no limit on the dollar amount of compensation and fees to be paid to the General Partners and their Affiliates. The most significant items of compensation assuming the Maximum Offering is raised, are as follows: In connection with the selection and arrangement of the Mortgage Investments, Redwood Mortgage will receive Loan Brokerage Commissions which amounts are negotiated with prospective borrowers on a case by case basis. Based upon the historical experience of the General Partners, it is estimated that such commissions will be approximately three percent (3%) to six percent (6%) of the principal amount of each Mortgage Investment made during that year (approximately $285,000 per year). Redwood Mortgage will receive processing and escrow fees for services in connection with notary, document preparation, credit investigation and escrow fees in an amount equal to the fees customarily charged by Redwood Mortgage for comparable services in the geographical area where the property securing the Mortgage Investments are located, which amounts are paid by the borrower and estimated to be approximately $19,200 per year. Redwood Mortgage is entitled receive a monthly servicing fee of up to one-eighth of one percent (.125%) or one and one-half percent (1 and 1/2%) per year of the total unpaid principal balance of each Mortgage Investment, except for the Formation Loan, serviced in connection with their collection efforts. However, Redwood Mortgage has elected at this time only to receive Monthly Servicing Fees equal to one percent (1%) per year, estimated to be approximately $310,000 per year. The General Partners will receive a monthly fee for managing the Partnership's Loan portfolio and general business operations in an amount up to 1/32 of one percent (.03125%) of the "net asset value" of the Partnership which equals the Partnership's assets less its liabilities, estimated to be approximately $119,000 per year. The General Partners will receive one percent (1%) of the Cash Available for Distribution, estimated to be approximately $28,000 per year. There are a number of other, lesser items of compensation and expense reimbursements that the General Partners and their Affiliates may receive during the operation of the Partnership, including reimbursement of the actual costs to General Partners or their Affiliates of goods and materials, provided such reimbursement will be lesser of (i) the actual costs to the General Partners or their Affiliates of providing such services; or (ii) ninety percent (90%) of the amount the Partnership would be required to pay to non-affiliated persons rendering similar services in the same or comparable geographical location (as determined by the General Partners based on an analysis of the costs incurred by similar lenders, data collected from trade association meetings, relevant periodicals and conversations with other professionals in the industry), a reconveyance fee to be paid to Gymno Corporation in an amount equal to approximately $65 per deed of trust, and an assumption fee and/or extension fee all payable by the borrower as a percentage of the loan balance, which amounts are not determinable, and any interest earned, if any, between the date of deposit of the borrowers funds into Redwood Mortgage's trust account and the date of payment of such funds by Redwood Mortgage, which amount is not determinable at this time. The following table summarizes compensation and reimbursements paid to the General Partners for the year ended December 31, 1995, and the period of January 1, 1996 to June 30, 1996 showing approximate actual amounts and the maximum allowable amounts for management and servicing fees: Year Ended Period End December 31, 1995 January 1, 1996 to June 30, 1996 Maximum Maximum Amount Amount Allowable Form Actual Allowable Actual for Period ------------------------------------------------ ------------------- ------------------ -------------------- ------------------ PAID BY PARTNERSHIP Servicing Fee (1) $ 85,457 $128,186 $ 67,389 $101,084 Management Fee (2) $ 11,587 $ 34,773 $ 7,760 $ 23,280 Reimbursement of Operating Expenses $ 22,769 $ 22,769 $ 17,647 $ 17,647 1% interest in profits, losses and $ 8,368 $ 8,368 $ 5,606 $ 5,606 distributions PAID BY BORROWERS Loan Brokerage Fees (3) $265,890 $265,890 $236,435 $236,435 Processing and Servicing Fees $ 7,957 $ 7,957 $ 6,950 $ 6,950 ________________________ (footnotes to table)

ESTIMATED USE OF PROCEEDS. The Partnership will use the proceeds from the sale of its Units to make Mortgage Investments and pay expenses relating to the organization and operation of the Partnership. Initially, upon the formation of the Partnership, a minimum of 84% of each dollar invested will be available for investment in Mortgage Investments if 300,000 Units ($30,000,000) are sold. If total sales commissions payable to participating Broker Dealers are less than 9%, as anticipated, the amount of the Formation Loan will correspondingly be reduced and the amount of proceeds available for Mortgage Investments will be increased. If the offering is not fully funded, the amount available for investment will be less. As Redwood Mortgage repays the Formation Loan, approximately ninety-six percent (96%), if 300,000 Units ($30,000,000) are sold, will be available for investment in Mortgage Investments. However, because of the time value of money, the amount of proceeds available for Mortgage Investments (ninety-six percent (96%) if 300,000 Units ($30,000,000) are sold) upon repayment of the Formation Loan, are not indicative of the actual amount of proceeds that will be available for investment over the life of the Partnership. Additionally, as the Formation Loan is unsecured, there can be no assurance, other than the fiduciary obligations of the General Partners, that the Formation Loan will be repaid on a timely basis, if ever. To date, the average size of the Mortgage Investments is approximately $50,000 to $250,000 on single family homes and $300,000 to $750,000 on commercial property. The General Partners anticipate that the average size of the Mortgage Investments will continue to remain approximately the same. No Mortgage Investments, whether residential or commercial, shall exceed the greater of $50,000 or ten percent (10%) of the Partnership's assets at the time the Mortgage Investment is made. The foregoing amounts are based upon historical experience and are subject to change. (See "ESTIMATED USE OF PROCEEDS" and "INVESTMENT OBJECTIVES AND CRITERIA"). Compensation of the General Partners and Affiliates. The General Partners and their Affiliates have received and will continue to receive substantial compensation in connection with the Offering and the investment and management of the Partnership's assets which is not the result of arms length negotiations (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"). The amount of compensation to be paid to the General Partners and their Affiliates, as set forth below, are estimates and actual amounts paid may vary. Except as noted, there is no limit on the dollar amount of compensation and fees to be paid to the General Partners and their Affiliates. The most significant items of compensation assuming the Maximum Offering is raised, are as follows: In connection with the selection and arrangement of the Mortgage Investments, Redwood Mortgage will receive Loan Brokerage Commissions which amounts are negotiated with prospective borrowers on a case by case basis. Based upon the historical experience of the General Partners, it is estimated that such commissions will be approximately three percent (3%) to six percent (6%) of the principal amount of each Mortgage Investment made during that year (approximately $285,000 per year). Redwood Mortgage will receive processing and escrow fees for services in connection with notary, document preparation, credit investigation and escrow fees in an amount equal to the fees customarily charged by Redwood Mortgage for comparable services in the geographical area where the property securing the Mortgage Investments are located, which amounts are paid by the borrower and estimated to be approximately $19,200 per year. Redwood Mortgage is entitled receive a monthly servicing fee of up to one-eighth of one percent (.125%) or one and one-half percent (1 and 1/2%) per year of the total unpaid principal balance of each Mortgage Investment, except for the Formation Loan, serviced in connection with their collection efforts. However, Redwood Mortgage has elected at this time only to receive Monthly Servicing Fees equal to one percent (1%) per year, estimated to be approximately $310,000 per year. The General Partners will receive a monthly fee for managing the Partnership's Loan portfolio and general business operations in an amount up to 1/32 of one percent (.03125%) of the "net asset value" of the Partnership which equals the Partnership's assets less its liabilities, estimated to be approximately $119,000 per year. The General Partners will receive one percent (1%) of the Cash Available for Distribution, estimated to be approximately $28,000 per year. There are a number of other, lesser items of compensation and expense reimbursements that the General Partners and their Affiliates may receive during the operation of the Partnership, including reimbursement of the actual costs to General Partners or their Affiliates of goods and materials, provided such reimbursement will be lesser of (i) the actual costs to the General Partners or their Affiliates of providing such services; or (ii) ninety percent (90%) of the amount the Partnership would be required to pay to non-affiliated persons rendering similar services in the same or comparable geographical location (as determined by the General Partners based on an analysis of the costs incurred by similar lenders, data collected from trade association meetings, relevant periodicals and conversations with other professionals in the industry), a reconveyance fee to be paid to Gymno Corporation in an amount equal to approximately $65 per deed of trust, and an assumption fee and/or extension fee all payable by the borrower as a percentage of the loan balance, which amounts are not determinable, and any interest earned, if any, between the date of deposit of the borrowers funds into Redwood Mortgage's trust account and the date of payment of such funds by Redwood Mortgage, which amount is not determinable at this time. The following table summarizes compensation and reimbursements paid to the General Partners for the year ended December 31, 1995, and the period of January 1, 1996 to June 30, 1996 showing approximate actual amounts and the maximum allowable amounts for management and servicing fees: Year Ended Period End December 31, 1995 January 1, 1996 to June 30, 1996 Maximum Maximum Amount Amount Allowable Form Actual Allowable Actual for Period ------------------------------------------------ ------------------- ----------------------- ------------------ -------------------- ------------------ PAID BY PARTNERSHIP Servicing Fee (1) ...................................... $ 85,457 $128,186 $ 67,389 $101,084 Management Fee (2) ..................................... $ 11,587 $ 34,773 $ 7,760 $ 23,280 Reimbursement of Operating Expenses .................... $ 22,769 $ 22,769 $ 17,647 $ 17,647 1% interest in profits, losses and ..................... $ 8,368 $ 8,368 $ 5,606 $ 5,606 distributions PAID BY BORROWERS Loan Brokerage Fees (3) ................................ $265,890 $265,890 $236,435 $236,435 Processing and Servicing Fees .......................... $ 7,957 $ 7,957 $ 6,950 $ 6,950 _________________________ (footnotes to table)