Quarterly Update - 2012 Q4

January 2013

Dear Rubicon Mortgage Fund Investor:

Management at Rubicon Mortgage Fund, LLC (“the Fund”) is pleased to announce that the annualized return for the Fund in 2012 was 7.825% (this figure assumes investors compounded their returns monthly). 

The Fund currently has 29 loans in its portfolio. The Fund also holds three REO properties. During the fourth quarter of 2012, management remained true to its commitment to only fund loans which met its high criteria thereby fundingonly two new loans totaling approximately $1,500,000.During this timeframe, the Fund received two pay offs from current borrowers. The Fund’s portfolio of loans currently consists solely of first trust deeds. The portfolio of loans remains strong and as a whole management is pleased with the Fund’s overall position.

Troubled Loan and REO Status Updates:

Emigrant Gap (REO):
The Emigrant Gap loans totaled $300,000 in principal that was collateralized by seven separate parcels of land.  The Fund has taken ownership of all seven parcels via foreclosure and has successfully sold six parcels; thus far collecting $258,000 net of expenses. An offer was submitted for the final parcel and we expect to sell the final remaining parcel in First Quarter of 2013 resulting in a small loss for the Fund.

Sierra Valley Lodge (REO):
The Sierra Valley Lodge located in Calpine, CA was a 1st Deed of Trust loan secured by a 7,200 square foot Lodge that includes a fully operable bar, restaurant, great room and two bedroom apartment. The collateral for this loan also includes a 12 room motel with a one bedroom apartment and separate studio.  The Fund had made a “seller carry back” loan for $515,000.  As you may recall, following the sale of the Lodge in 2011 significant renovation was completeddue to flooding from an internal broken water pipe.  Unfortunately, after almost a year of managing this under-performing note, the Fund again had to foreclose on the property.   Prior to this foreclosure, the borrower completed a significant remodel of the lodge by investing over $100,000 in improvements. Management decided to further renovate the motel and apartments units for the purpose of maximizing its sale price, as well as making the property more desirable to lease.  The most recent remodel is completed and the property is showing well in its newly refurbished condition.  Management has declined two separate lease offers, due to lack of financial strength of the proposed tenants.

Nehalem, Oregon (NOD):
The Fund made a loan in June of 2009 secured by two rental properties along the Nehalem River just off the coast south of Cannon Beach, Oregon. After three years of consistent monthly interest payments, one of the properties was sold with the proceeds paying the loan down to $235,000. The remaining property has been on the market priced from $365,000-$400,000. The borrower has been unable to make his payments despite some rental income on the property.  Therefore we may be forced to foreclose unless the borrower either brings us current or sells the property. We believe the sale proceeds of property will be sufficient to return 100% of the note principal and accrued interest. The property was purchased for $400,000 with an additional $100,000 invested in improvements just prior to The Fund financing the original loan.

Fund Growth:

As of result of the Fund’s consistently strong rates of return and our investors’ referrals, the Fund’s capital base almost double in 2012!  Management is very thankful to all its investors for the continued support, and looks forward to more opportunities in 2013. This increase in size will allow us to fund additional loans creating greaterloan diversification and hopefully reduced risk to our investors.

Outlook for 2013:

As we have communicated in our prior quarterly letters,interest rates and fees have dropped in all sectors of our Industry. Our loan underwriting criteria continues to focus on only quality deals.  However by focusing on quality (and subsequently reducing ourrisk), our rate of return to investors may be lower.  Our targeted rate for the Fund in 2013 is 7.75% assuming monthly compounding.

Please note that our best sources of referrals come from our current stable of Investors.  Please feel free to give our contact information to any interested colleagues, and as always, contact us directly with any questions.


Rubicon Management