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Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 1 of 8IN THE UNITED STATES BANKRUPTCY COURTFOR THE NORTHERN DISTRICT OF TEXASDALLAS DIVISIONIn re:§ Chapter 11 Cases§R.E. LOANS, LLC, §R.E. FUTURE, LLC§ Case No. 11-35865-BJHCAPITAL SALVAGE, A CALIFORNIA §CORPORATION§ JOINTLY ADMINISTERED§Debtors. §SECOND QUARTERLY REPORT OFDENNIS S. FAULKNER, LIQUIDATING TRUSTEE,FOR THE PERIOD ENDING DECEMBER 31, 2012Date Submitted: January 22, 2013203324093 v2Page 1 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 2 of 8Dennis Faulkner, as liquidating trustee (the “Liquidating Trustee”) of the RELLiquidating Trust, hereby files this Second Quarterly Report of Dennis S. Faulkner, LiquidatingTrustee, for the Period Ending December 31, 2012 (the “Second Report”). 1 This report isintended to be cumulative of the Liquidating Trustee’s prior quarterly reports, and should be readin conjunction with them.A. BackgroundI.INTRODUCTIONOn September 13, 2011, the above-captioned debtors and debtors-in-possession (the“Debtors”) commenced these cases by filing voluntary petitions for relief under chapter 11 oftitle 11 of the United States Code (the “Bankruptcy Code”). 2 On September 22, 2011, the Officeof the United States Trustee appointed the Official Committee of Noteholders (the“Committee”).On May 15, 2012, the Debtors filed the fourth amended plan of reorganization [Dkt. No.845] (as modified or amended, the “Plan”) and an amended disclosure statement [Dkt. No. 843](the “Disclosure Statement”), which Disclosure Statement was approved by order of this Courton May 16, 2012 [Dkt. No. 847]. The Plan was subsequently modified on June 1, 2012 [Dkt.No. 905] and confirmed by Order of the Court on June 26, 2012 [Dkt. No. 968] (the“Confirmation Order”). The Plan became effective on June 29, 2012 (the “Effective Date”), atwhich time Reorganized R.E. Loans, LLC; Reorganized Capital Salvage, a CaliforniaCorporation; and Reorganized R.E. Future, LLC (collectively “Reorganized Debtors”) emergedfrom chapter 11.On the Effective Date, the Reorganized Debtors executed the Liquidating TrustAgreement and Declaration of Trust (the “Trust Agreement”), which, among other things,provided for the formation of the REL Liquidating Trust (the “Trust”) and the appointment ofDennis Faulkner as Liquidating Trustee. Pursuant to the terms of the Trust Agreement, theLiquidating Trustee is vested with the authority and power to:• administer the Liquidating Trust, including the authority to convey, transfer orassign any Trust Assets;• administer, investigate, prosecute, settle and abandon all Causes of Action in thename of, and for the benefit of, the Estates; and• make Distributions provided for in the Plan.The Liquidating Trustee also has standing to monitor and seek to enforce theperformance of obligations under the Plan and the performance of other provisions of the Plan1 Capitalized terms not otherwise defined herein have the definitions described in the Plan (as defined below).2 Unless otherwise noted, all section (§) references are to the Bankruptcy Code.203324093 v2Page 2 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 3 of 8that have an effect upon the treatment of Claims. The Liquidating Trustee is the sole member ofReorganized R.E. Loans.B. Trust CommitteePursuant to the Trust Agreement, the Liquidating Trustee consults with a committee (the“Trust Committee”) presently comprised of seven individuals holding Beneficial Interests in theTrust. The current members of the Trust Committee are Linda Reilly, Pearl Tom, Dixon Collins,Ron Lavelle, Steve Fong, Elliott Abrams, and Susan Uecker (the trustee of the Mortgage Fund’08 LLC Liquidating Trust (the “MF08 Trust”)). In addition, the Trust Committee appointedone nonvoting ex officio member, Allan Cone. Mr. Cone and the other members of the TrustCommittee (excluding Ms. Uecker) are all former members of the Noteholder Committee thatrepresented the interests of Noteholders during the chapter 11 case.C. Prior Reports203324093 v2To date, the Liquidating Trustee has filed the following quarterly reports:• First Quarterly Report of Dennis S. Faulkner, Liquidating Trustee, for the PeriodEnding September 30, 2012 (the “First Report”), dated October 19, 2012 [Dkt.Nos. 1169, 1170].A. Status of Trust AssetsII.REPORTPursuant to the Plan and the Trust Agreement, the Trust was vested on the Effective Datewith ownership of all Trust Assets, including:• all Causes of Action belonging to any of the Debtors as of the Effective Date;• 100% of the newly issued membership interests in Reorganized R.E. Loans; and• the sum of $500,000, which was funded as a contribution by Reorganized R.E.Loans to the Trust.Attached hereto as “Exhibit 1” is the Summary of Cash Transactions through December31, 2012, which reflects all cash receipts and disbursements, including all cash currently onhand.B. Fully Repaid Exchange NotesSince filing the First Report, the Liquidating Trustee has continued to negotiatesettlements with the holders of Fully Repaid Exchange Notes. On or about November 8, 2012,the Liquidating Trustee sent out a second letter to the holders of Fully Repaid Exchange Notesextending the settlement offer described in the Plan. As of December 31, 2012, the LiquidatingPage 3 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 4 of 8Trustee had settled claims on approximately one-third of the Fully Repaid Exchange Notes,resulting in the payment of settlement proceeds to the Trust in the aggregate amount of$497,025.50. The Liquidating Trustee anticipates that the next step in the monetization of theseclaims will be to initiate avoidance actions as appropriate against the remaining holders of FullyRepaid Exchange Notes who did not choose to accept the settlement proposal.C. Other Causes of ActionThe Liquidating Trustee, through special litigation counsel, continues to activelyinvestigate the other Causes of Action retained by the Trust pursuant to the Plan, includingpotential claims and causes of action against the following:• Walter Ng • Cushman Wakefield• Bruce Horwitz • George Smith Partners• Kelly Ng • Greenberg Traurig, LLP• Barney Ng • Armanino McKenna LLP• B-4 Partners, LLC • Stutman, Triester & Glatt• Bar-K, Inc. • Mackinac Partners, LLCThis investigation involves not only third-party discovery under Federal Rule ofBankruptcy Procedure 2004, but also a review of the voluminous records maintained by theDebtors. To facilitate that review, the Liquidating Trustee entered into a cost-sharing agreementwith various parties, including lead counsel for the Noteholders in the pending class-actionlawsuit (“Class Counsel”), 3 whereby those parties will help fund the costs of converting theDebtors’ records into searchable electronic format in exchange for shared access to the records.In addition, the Liquidating Trustee has engaged in ongoing discussions with Class Counselregarding a more formal cooperation and sharing agreement with respect to litigation matters.Such an agreement would inure to the benefit of Noteholders through increased coordination andsharing of expenses and information between the Liquidating Trust’s special litigation counseland Class Counsel in their respective litigation efforts. Based upon the results of theinvestigation by special litigation counsel, the Liquidating Trustee will determine how to proceedwith respect to the Causes of Action.D. Asset Disposition by Reorganized DebtorsIn conjunction with Confirmation, the Reorganized Debtors entered into exit financingwith Wells Fargo (the “Wells Fargo Exit Facility”) which is secured by first-priority, perfectedliens on all assets of the Reorganized Debtors. By its terms, the Wells Fargo Exit Facility must3 While the Liquidating Trustee has made efforts to coordinate and share certain costs with those involved in thepending class-action lawsuit, the Liquidating Trustee has no direct involvement in the prosecution of that lawsuit.203324093 v2Page 4 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 5 of 8be repaid in full by September 30, 2013, with mandatory quarterly payments due in the interim.After Wells Fargo has been fully repaid, the proceeds from the liquidation of remaining propertyare transferred to the Trust net of costs of the Reorganized Debtors.As of December 31, 2012, a total of $50.8 million in net proceeds had been generatedfrom the sale of assets by the Debtors and directed to repayment of the Debtors’ obligationsowed to Wells Fargo, satisfying both the December 31, 2012 and March 31, 2013 mandatoryquarterly payment thresholds.E. Pending Substantial Contribution Claim of Mortgage Fund ‘08On July 19, 2012, Susan Uecker, as liquidating trustee of the MF08 Trust, filed anapplication [Dkt. No. 1010] in the R.E. Loans bankruptcy case requesting allowance of anadministrative expense in the amount of $102,787.61 for legal fees and expenses incurred by theMF08 Trust in making an alleged “substantial contribution” to the R.E. Loans cases. 4 Theapplication was vigorously opposed by both the Liquidating Trustee and the ReorganizedDebtors, both of whom took the position that Ms. Uecker’s claim was not permitted under theapplicable statute and, in any event, was resolved and extinguished in connection with thecompromise and settlement of Mortgage Fund ’08’s other claims in the R.E. Loans bankruptcycase.Following a contested hearing on the merits on October 30, 2012, the Bankruptcy Courtentered an order [Dkt. No. 1186] denying the application in its entirety.F. Creditor Claims AnalysisThe Liquidating Trustee has transitioned the electronic database containing bothliabilities to creditors as set forth in Schedules filed by the Reorganized Debtors and claims filedby Creditors. All of the records have been reconciled and Creditor claims requiring objectionhave been identified. Pursuant to the Plan, objections to the allowance of claims were originallyrequired in the Plan to be filed by the Liquidating Trustee no later than October 27, 2012 (the“Claims Objection Deadline”), which is 120 days after the Effective Date. 5 By order enteredOctober 24, 2012 [Dkt. No. 1176], the Claims Objection Deadline was extended to January 28,2013.Based on his analysis of the claims register, the Liquidating Trustee identified a numberof claims that should be disallowed, either on procedural grounds (e.g., duplicate claims) or moresubstantive grounds (e.g., claims asserted against the wrong legal entity). To that end, onOctober 19, 2012, the Liquidating Trustee filed objections to approximately 54 proofs of claim.In most instances, the Liquidating Trustee’s objection was founded in some discrepancy betweenthe proof of claim and the Debtor’s books and records as reflected on the Schedules of Assets andLiabilities. In those cases, the Liquidating Trustee sought only the disallowance of the asserted4 Section 503(b) of the Bankruptcy Code permits a party to seek reimbursement for actual, necessary expensesincurred in making “a substantial contribution in a case” under the Bankruptcy Code. 11 U.S.C. § 503(b).5 Pursuant to the Plan, the Claims Objection Deadline may be extended by order of the Bankruptcy Court.203324093 v2Page 5 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 6 of 8proof of claim, while preserving the corresponding claim described on the Schedules of Assetsand Liabilities. In cases where a proof of claim described a claim properly asserted against anentity other than the Debtors, the Liquidating Trustee sought disallowance of the claim in itsentirety.Since the filing of the claim objections, one claim objection was withdrawn by theLiquidating Trustee and a second was continued to a later date to permit the Noteholderadditional time to investigate the objection. Following a hearing on January 3, 2013, theBankruptcy Court entered orders sustaining all of the remaining claim objections filed by theLiquidating Trustee.The Liquidating Trustee has identified approximately 10 remaining claims as potentiallyobjectionable on the grounds that, among other things, their allowance may ultimately beimpacted by the outcome of pending and contemplated litigation or trigger setoff rights againstclaims the Liquidating Trustee may have against the respective claimants. The LiquidatingTrustee may also seek subordination or disallowance of another 35 claims held by insiders.Pursuant to 11 U.S.C. § 108(a), the Liquidating Trustee has until September 13, 2013 tocommence any such litigation. For strategic reasons, the Liquidating Trustee believes it to be inthe best interests of the Liquidating Trust and its beneficiaries for any remaining claim objectionsto be filed, if at all, only in concert with related litigation. Accordingly, the Liquidating Trusteefiled a motion with the Bankruptcy Court on January 3, 2013 requesting a second extension ofthe Claims Objection Deadline to September 13, 2013. A hearing on that motion is scheduledfor February 5, 2013.203324093 v2Page 6 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 7 of 8Dated: January 22, 2013Respectfully Submitted,DENNIS S. FAULKNER, LIQUIDATINGTRUSTEEBy:/s/ Dennis S. Faulkner- and –AKIN GUMP STRAUSS HAUER & FELDLLPBy:/s/ Michael P. CooleyCharles R. Gibbs (SBN 07846300)Michael P. Cooley (SBN 24034388)1700 Pacific Avenue, Suite 4100Dallas, Texas 75201Telephone: (214) 969-2723Facsimile: (214) 969-4343Attorneys for Liquidating Trustee203324093 v2Page 7 of 7

Case 11-35865-bjh11 Doc 1248 Filed 01/22/13 Entered 01/22/13 16:33:16 DescMain Document Page 8 of 8REL Liquidating TrustSummary of Cash Transactions12/31/12Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12CUMULATIVETRANSACTIONS@ 12/31/12Transfer from Debtor 500,000.00 500,000.00Settlement Receipts:Fully Repaid Exchange Notes 64,195.55 314,442.24 24,937.85 43,833.88 49,615.98 497,025.50Interest 17.76 44.10 65.72 67.97 51.55 47.43 294.53TOTAL RECEIPTS 500,017.76 64,239.65 314,507.96 25,005.82 43,885.43 49,663.41 997,320.03Administrative Costs (2,950.63) (2,806.97) (5,757.60)Committee Expenses (827.36) (827.36)Bank Service Charge (158.12) (12.00) (170.12)Professional Fees:Akin Gump Strauss Hauer & Feld, LLP (5,364.50) (57,658.38) (150,296.45) (213,319.33)Alix Partners LLP (5,657.75) (5,657.75)Dennis Faulkner, Trustee (16,908.84) (5,000.00) (5,000.00) (26,908.84)Diamond McCarthy, LLP (1,634.75) (1,634.75)FTI Consulting (29,113.00) (3,252.00) (584.00) (32,949.00)Lain, Faulkner & Co. - Accounting (57,885.63) (31,610.04) (11,567.20) (101,062.87)TOTAL DISBURSEMENTS (158.12) - - (120,342.46) (97,520.42) (170,266.62) (388,287.62)NET CASH FLOW 499,859.64 64,239.65 314,507.96 (95,336.64) (53,634.99) (120,603.21) 609,032.41L:\Data\CLIENT\RE1205\Banking\Cash Summary December 2012.xlsx