10-Q 1 liberty10q_2ndq.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended June 30, 2002 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------------- -------------------- Commission file number 0-13520 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-2828131 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 Second Avenue, Needham, MA 02494 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (781) 444-5251 -------------------------------------------------------------------- Former address, if changed from last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Page 1 of 20 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) INDEX Page Part I: Financial Information Item 1. Financial Statements: Statements of Net Assets in Liquidation, June 30, 2002 and December 31, 2001 3 Statements of Changes of Net Assets in Liquidation for the Six months ended June 30, 2002 and June 30, 2001 4 Notes to Financial Statements 5-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-18 Item 3. Quantitative and Qualitative Disclosure about Market Risk - Disclosure not applicable Part II: Other Information Item 1. Legal Proceedings 19 Item 3. Defaults Upon Senior Securities 19 Item 6. Exhibits and Reports on Form 8-K 19 2

4 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. Organization and Liquidation of the Partnership Organization Liberty Housing Partners Limited Partnership (the "Partnership") was formed under the Massachusetts Uniform Limited Partnership Act on March 20, 1984 for the primary purpose of investing in other limited partnerships which own and operate government assisted multi-family rental housing complexes (the "Local Limited Partnerships"). Liquidation and Sale of Investments in Local Limited Partnerships In April 2002, the Partnership entered into agreements with the holders of the Purchase Money Notes relating to Surry and Glendale assigning to them the Partnership's 98% investor limited partnership interests in the respective Local Limited Partnership in exchange for cancellation of the notes. On March 22, 2002, the Properties owned by Brierwood and Meadowwood Apartments were sold to purchasers affiliated with the local general partner in these partnerships. These Partnerships were subsequently dissolved. The carrying value of these properties had been adjusted at December 31, 2001 to reflect the actual sales transactions. On December 31, 2001, the Properties owned by Brierwood II and Pine Forest were sold to purchasers affiliated with the local general partner in these partnerships. These Partnerships were subsequently dissolved. The carrying value of these properties had been adjusted at December 31, 2000 to reflect the actual sales transactions. On March 30, 2001, the Partnership sold its 98% limited partnership interests in Fuquay-Varina, Oxford Homes and Williamston Homes to the general partner of these partnerships or his affiliate for $148,485 plus the assumption of the related Purchase Money Note obligations. The carrying value of these properties had been adjusted at December 31, 2000 to reflect the actual sales transactions. In February 2000, the Partnership sold its interest in Osuna Apartments Company and the holders of the Purchase Money Notes released the Partnership from all liabilities in connection with the Notes. In July 1999, the Partnership sold its interest in Linden Park Associates. Linden Park Associates refinanced their existing debt and also paid in full the principal and accrued and unpaid interest due the Partnership on their notes. In May 1999, the Partnership sold its interest in Fiddlers Creek Apartments and the purchaser assumed the Partnership's obligations under the related Purchase Money Notes. The Linden GP was engaged in September, 1998 to assist the general partner review the Partnership's portfolio, develop a strategy for maximizing the value of the portfolio and implementing the strategy. The agreement provides for fees based on the successful implementation of all or part of the strategy developed which will be paid from funds segregated at the time of the sale of the Partnership's investment in Linden Park. The remaining balance of the segregated funds was $16,950 as of June 30, 2002. In the first six 5 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 1. Organization and Plan of Liquidation of the Partnership, continued Liquidation and Sale of Investments in Local Limited Partnerships, continued months of 2002, the Partnership paid consulting fees of $9,427 in respect of the Brierwood II and Pine Forest investments and $15,707 in respect of the Brierwood and Meadowwood investments. The Partnership accrued fees due the Linden GP totaling $16,950 in respect of the Surry and Glendale Manor Investments. This was paid to the Linden GP on July 2, 2002. Interest earned in the first six months on these funds totaled $235. $17,100 of these funds was transferred to the Partnership's operating account on July 2, 2002 and reclassified from restricted cash on June 30, 2002. The Linden GP waived further payment of this amount under this agreement. In July 2002, these bank accounts are being closed and the consulting agreement has ended. In 2001, the Partnership paid $71,723 in consulting fees to the Linden GP in respect of the successful sales of its interests in Fuqua-Varina, Oxford Homes and Williamston Homes and fees totaling $18,018 in respect of the Austintown investment. The Partnership entered into an agreement with the local general partner of Austintown to sell the Partnership's 98% limited partnership interest, subject, among other things, to the consent of the related Purchase Money Note holders. The Partnership did not receive unanimous consent of the Purchase Money Note holders and the agreement expired on April 1, 2000. On September 15, 2000 certain of the Purchase Money Note holders commenced an action in the Court of Common Pleas Mahoning County, Ohio seeking, among other things, to foreclose upon the Partnership's pledge of its 98% limited partnership interest in Austintown. The Partnership did not contest the proceeding and, on February 26, 2001, the Court entered a default judgment and order appointing a receiver to sell the Partnership's interest in Austintown to satisfy the judgment. On November 28, 2001, Mr. Manchi, the local general partner of Austintown, and his associate, Mr. Baker, were the highest bidders for a portion of the limited partnership interest (representing the portion - approximately 94% of the Partnership's 98% interest - securing certain of the Purchase Money Notes) at public auction by the receiver at the Mahoning County Courthouse. Their bids totaled $1,300. A 25% deposit was required and paid by Messrs. Manchi and Baker. Their purchases will be finalized upon final approval by the Department of Housing and Urban Development to the sale, Messrs. Manchi and Baker furnishing a "sophisticated investor letter" and the payment of the balance of the purchase price. The sale proceeds, after the costs of sale, will be paid to the holders of the Purchase Money Note for which the collateral was sold. On July 10, 2002 a complaint for declaratory judgment was filed in the court of Common Pleas Mahoning County, Ohio by the Partnership and Austintown Associates, Ltd. against the remaining Purchase Money Note holders seeking to transfer the Partnership's remaining Limited Partnership Interests in Austintown Associates, Ltd., the sole collateral for these non-recourse notes, to the holders in satisfaction of the Partnership's obligations to the holders. The Partnership will recognize the disposition of its limited partnership interest as the sales and judgements are finalized. The estimated liquidation value has been adjusted to reflect these latest estimated realizable values. All conditions necessary to recognize the sale of the Partnership's interest have not been met as of June 30, 2002. 6 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 1. Organization and Plan of Liquidation of the Partnership, continued Liquidation and Sale of Investments in Local Limited Partnerships, continued The carrying values of the investments in the Local Limited Partnerships and the Purchase Money Notes and related accrued interest were adjusted to their estimated fair values and settlement amounts, respectively, upon adopting the liquidation basis of accounting (See Note 2). As discussed above, the disposition of the Partnership's interest in the remaining Local Limited Partnership, Austintown, is in progress. If the Partnership is successful in completely disposing of its remaining investment, management presently intends to wind up the Partnership's operations in the third quarter of 2002. No assurance can be given that the Partnership will be able to successfully conclude any of the above transactions. Consequently, the completion of the liquidation of the Partnership may be different than currently anticipated. The net amount, if any, ultimately available for distribution from the liquidation of the Partnership depends on many unpredictable factors, such as the amounts realized on the disposition of the remaining Local Limited Partnership investment, carrying costs of the assets prior to sale, settlement of claims and commitments, the amount of revenue and expenses of the Partnership until completely liquidated and other uncertainties. 2. Significant Accounting Policies Basis of Presentation In the opinion of the General Partner, the accompanying unaudited financial statements contain all normal recurring adjustments necessary to present fairly the financial statements of the Partnership for the periods presented. Changes of net assets in liquidation in any interim period are not necessarily indicative of the changes that may be expected for a full year. The financial statements do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the Partnership's audited financial statements and notes thereto included in the Partnership's annual report on Form 10-K for the year ended December 31, 2001. Basis of Accounting Effective December 31, 2000, the Partnership adopted the liquidation basis of accounting. Prior to that date, the Partnership recorded results of operations using the going concern basis of accounting. The accompanying statements of net assets in liquidation and statements of changes of net assets in liquidation, reflect the transactions of the Partnership utilizing liquidation accounting concepts as required by accounting principles generally accepted in the United States of America. Under the liquidation basis of 7 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS 2. Significant Accounting Policies, continued accounting, assets are stated at their estimated net realizable values and liabilities are stated at their anticipated payable amounts. The valuation of assets and liabilities necessarily requires estimates and assumptions, and there are uncertainties in carrying out the dissolution of the Partnership. The actual values upon dissolution and costs associated therewith could be higher or lower than the amounts recorded. Investment in Local Limited Partnerships Investments in Local Limited Partnerships at June 30, 2002 consists of the investment in one Local Limited Partnership which is stated at estimated liquidation value. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 3. Contingencies As of June 30, 2002 the remaining series of the Purchase Money Notes was in default. The Purchase Money Notes relating to Austintown Associates, Ltd., matured on October 30, 1999. The sale or other disposition by the Partnership of its interests in the Local Limited Partnerships, including in connection with a foreclosure of the pledged security, is likely to result in recapture of previously claimed tax losses to the Partnership and may have other adverse tax consequences to the Partnership and to the Limited Partners. Such recapture may cause some or all of the Limited Partners to have taxable income from the Partnership without cash distributions from the Partnership with which to satisfy the tax liability resulting therefrom. As discussed in Note 1 above, the disposition of the Partnership's interest in the remaining Local Limited Partnership is in progress. If the Partnership is successful in completely disposing of its remaining investment, management presently intends to wind up the Partnership's operations in the third quarter of 2002. No assurance can be given that the Partnership will be able to successfully conclude any of the above transactions. Consequently, the completion of the liquidation of the Partnership may be different than currently anticipated. 8 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) 3. Contingencies, continued As a result of its investment in the Local Limited Partnership, the Partnership is affected by certain risks and uncertainties associated with the operations of the Properties owned by the Local Limited Partnership. The rents of the Property, many of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"), are subject to specific laws, regulations and agreements with federal and state agencies. The subsidy agreement relating to the remaining investment expires in October 2004. Under the Multifamily Assisted Housing and Reform and Affordability Act (MAHRAA) of 1997, as amended, Congress set forth the legislation for a permanent "mark-to-market" program and provided for permanent authority for the renewal of Section 8 Contracts. In February 2001, HUD issued a new Section 8 contract renewal GuideBook, which replaced HUD notice 99-36. The GuideBook provides project owners with several options for Section 8 contract renewals. The Local Limited Partnership which has Section 8 contracts will not be affected by these guidelines until early 2004. The Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income and debt structure of certain Local Limited Partnerships currently receiving such subsidy or similar subsidies. 4. Investments in Local Limited Partnerships The Partnership acquired Local Limited Partnership interests in thirteen Local Limited Partnerships which owned and operated government assisted multi-family housing complexes. As discussed in Note 1 above, the Partnership has sold or otherwise disposed of twelve of its investments as of June 30, 2002. The Partnership, as Investor Limited Partner pursuant to Local Limited Partnership Agreements, acquired interests ranging from 94% to 98% in the profit or losses from operations and cash from operations of each of the Local Limited Partnerships. As discussed above, the Partnership is currently in the process of liquidating the Partnership and disposing of its remaining investment in the Local Limited Partnerships, a process presently estimated to continue through the third quarter of 2002. No assurance can be given that management will be able to complete its liquidation of Partnership's investments within this time period. 9 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) 4. Investments in Local Limited Partnerships, continued The following is a summary of cumulative activity for investments in Local Limited Partnerships since their dates of acquisition:

10 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Limited Partnership) NOTES TO FINANCIAL STATEMENTS (Unaudited) 4. Investments in Local Limited Partnerships, continued Summarized financial information from the combined financial statements of the three and ten Local Limited Partnerships in which the Partnership held investments during the three months and six months ended June 30, 2002 and 2001, respectively, are as follows:

11 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 5. Transactions with Affiliates In connection with the adoption of the liquidation basis of accounting, an adjustment to record estimated liabilities through the liquidation of $100,000 was recorded at December 31, 2000. This amount included $50,000 of partnership management fees and $50,000 of reimbursable administration expenses. In the first six months of 2002, estimated management fees to the General Partner through liquidation were reduced by $27,500 compared to a reduction of $45,000 in 2001 and estimated administrative expenses through liquidation were reduced by $2,000. In the second quarter of 2002, management revised its estimate of management fees due and increased the estimated fees payable by $17,500. As a result, the original estimate of management fees due through liquidation has been reduced a net of $27,500. In the first six months of 2002, $17,500 of management fees to the General Partner were recognized and adjusted the Net Assets in Liquidation. In the first six months of 2001, there were no management fees or reimbursable expenses to the General Partner recognized. At June 30, 2002, accounts payable to affiliates totaling $356,771 represents amounts owed for reimbursements of Partnership administrative expenses and management fees of $209,500 and $147,271, respectively. At December 31, 2001, accounts payable to affiliates totaling $339,271 represents amounts owed for reimbursements of Partnership administrative expenses and management fees of $192,000 and $147,271, respectively. 6. Statement of Distributable Cash from Operations Distributable Cash From Operations for the six months ended June 30, 2002 and 2001, as defined in Section 17 of the Partnership Agreement, is as follows:

12 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Because of the progress which had been made during 2000 in connection with the Partnership's efforts to liquidate its portfolio of investments in Local Limited Partnerships, effective December 31, 2000, the Partnership adopted the liquidation basis of accounting. Prior to that date, the Partnership recorded results of operations using the going concern basis of accounting. Under the liquidation basis of accounting, assets are stated at their estimated net realizable values and liabilities are stated at their anticipated settlement amounts. The valuation of assets and liabilities necessarily requires many estimates and assumptions, and there are substantial uncertainties in carrying out the liquidation of the Partnership's assets. The actual values upon liquidation and costs associated therewith could be higher or lower than the amounts recorded. In connection with the liquidation, the Partnership has recorded an accrual for additional expenses to reflect the Partnership's best estimate of the costs associated with the liquidation. Liquidity and Capital Resources The Partnership The Partnership is liable for the amount of the Purchase Money Notes delivered to purchase its interests in the Local Limited Partnerships (as hereinafter described), and for the Partnership's day-to-day administrative and operating expenses. The Partnership acquired its interests in two Local Limited Partnerships for cash. The Partnership acquired its interests in eleven other Local Limited Partnerships by delivery of cash, short-term promissory notes (all of which have been paid in full) and purchase money promissory notes which bear interest at the rate of 9% per annum (the "Purchase Money Notes"). The payment of each Purchase Money Note is secured by a pledge of the Partnership's interest in the Local Limited Partnership to which the note relates. Recourse on each Purchase Money Note is limited to the pledged partnership interest. Each note had an initial term of 15 to 17 years. The Partnership's interests in these Local Limited Partnerships were pledged as security for the Partnership's obligations under the respective Purchase Money Notes. 13 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources, continued The Partnership, continued The terms of each Purchase Money Note permit interest to accrue to the extent cash distributions to the Partnership from the applicable Local Limited Partnership are insufficient to enable the Partnership to pay the Purchase Money Note on a current basis. Generally, the amount of such cash distributions have not been sufficient in any year to pay the full amount of interest accrued for that year on the Purchase Money Notes. The Purchase Money Notes do not require payment of any portion of the principal amount of the note prior to maturity (except that the Purchase Money Notes require immediate payment following a default (as defined therein) by the Partnership thereunder). Accordingly, each Purchase Money Note requires a substantial balloon payment at maturity. In connection with the adoption of the liquidation basis of accounting, the value shown for the Purchase Money Notes was adjusted to the anticipated settlement amount. The sale or other disposition by the Partnership of its interests in the Local Limited Partnerships, including in connection with a foreclosure of the pledged security, is likely to result in recapture of previously claimed tax losses to the Partnership and may have other adverse tax consequences to the Partnership and to the Unit holders. Such recapture may cause some or all of the Unit holders to have taxable income from the Partnership without cash distributions from the Partnership with which to satisfy the tax liability resulting therefrom. At June 30, 2002, the remaining series of the Purchase Money Notes, relating to Austintown Associates, Ltd., had matured and were in default. None of the series of Purchase Money Notes is cross-defaulted to the others, nor are the series of Purchase Money Notes cross-collateralized in any manner. In April 2002, the Partnership entered into agreements with the holders of the Purchase Money Notes relating to Surry and Glendale assigning to them the Partnership's 98% investor limited partnership interests in the respective Local Limited Partnership in exchange for cancellation of the notes. On March 22, 2002, the Properties owned by Brierwood and Meadowwood Apartments were sold to purchasers affiliated with the local general partner in these partnerships. These Partnerships were subsequently dissolved. The carrying value of these properties had been adjusted at December 31, 2001 to reflect the actual sales transactions. On December 31, 2001, the Properties owned by Brierwood II and Pine Forest were sold to purchasers affiliated with the local general partner in these partnerships. These Partnerships were subsequently dissolved. The carrying value of these properties had been adjusted at December 31, 2000 to reflect the actual sales transactions. 14 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources, continued The Partnership, continued On March 30, 2001, the Partnership sold its 98% limited partnership interests in Fuquay-Varina, Oxford Homes and Williamston Homes to the general partner of these partnerships or his affiliate for $148,485 plus the assumption of the related Purchase Money Note obligations. The carrying value of these properties had been adjusted at December 31, 2000 to reflect the actual sales transactions. In May 1999, the Partnership sold its interest in Fiddlers Creek Apartments and the purchaser assumed the Partnership's obligations under the related Purchase Money Notes. In July 1999, the Partnership sold its interest in Linden Park Associates. Linden Park Associates refinanced their existing debt and also paid in full the principal and accrued and unpaid interest due the Partnership on their notes. In February 2000, the Partnership sold its interest in Osuna Apartments Company and the holders of the Purchase Money Notes released the Partnership from all liabilities in connection with the Notes. The Partnership entered into an agreement with the local general partner of Austintown to sell the Partnership's 98% limited partnership interest, subject, among other things, to the consent of the related Purchase Money Note holders. The Partnership did not receive unanimous consent of the Purchase Money Note holders and the agreement expired on April 1, 2000. On September 15, 2000 certain of the Purchase Money Note holders commenced an action in the Court of Common Pleas Mahoning County, Ohio seeking, among other things, to foreclose upon the Partnership's pledge of its 98% limited partnership interest in Austintown. The Partnership did not contest the proceeding and, on February 26, 2001, the Court entered a default judgment and order appointing a receiver to sell the Partnership's interest in Austintown to satisfy the judgment. On November 28, 2001, Mr. Manchi, the local general partner of Austintown, and his associate, Mr. Baker, were the highest bidders for a portion of the limited partnership interest (representing the portion - approximately 94% of the Partnership's 98% interest - securing certain of the Purchase Money Notes) at public auction by the receiver at the Mahoning County Courthouse. Their bids totaled $1,300. A 25% deposit was required and paid by Messrs. Manchi and Baker. Their purchases will be finalized upon final approval by the Department of Housing and Urban Development to the sale, Messrs. Manchi and Baker furnishing a "sophisticated investor letter" and the payment of the balance of the purchase price. The sale proceeds, after the costs of sale, will be paid to the holders of the Purchase Money Note for which the collateral was sold. On July 10, 2002 a complaint for declaratory judgment was filed in the court of Common Pleas Mahoning County, Ohio by the Partnership and Austintown Associates, Ltd. against the remaining Purchase Money Note holders seeking to transfer the Partnership's remaining Limited Partnership Interests in Austintown Associates, Ltd., the sole collateral for these non-recourse notes, to the holders in satisfaction of the Partnership's obligations to the holders. The Partnership will recognize the disposition of its limited partnership interest as the sales and judgements are finalized. The estimated liquidation value has been adjusted to reflect these latest estimated realizable values. All conditions necessary to recognize the sale of the Partnership's interest have not been met as of June 30, 2002. 15 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources, continued The Partnership, continued As discussed above, the disposition of the Partnership's interest in the remaining Local Limited Partnership is in progress. If the Partnership is successful in completely disposing of its remaining investment, management presently intends to wind up the Partnership's operations in the third quarter of 2002. No assurance can be given that the Partnership will be able to successfully conclude any of the above transactions. Consequently, the completion of the liquidation of the Partnership may be different than currently anticipated. The net amount, if any, ultimately available for distribution from the liquidation of the Partnership depends on many unpredictable factors, such as the amounts realized on the disposition of the remaining Local Limited Partnership investment, carrying costs of the assets prior to sale, settlement of claims and commitments, the amount of revenue and expenses of the Partnership until completely liquidated and other uncertainties. In light of the Partnership's adoption of the liquidation basis of accounting, the Partnership's net asset values as of June 30, 2002 and December 31, 2001 reflect the net realizable values for the Investments in Local Limited Partnerships after giving effect to the estimated closing costs upon sale or disposal of the investments. In addition, an estimated liability was recorded for estimates of costs to be incurred in carrying out the dissolution and liquidation of the Partnership. These costs include estimated legal fees, accounting fees, tax return preparation and partnership administration. Actual costs could vary significantly from these estimated costs due to uncertainties related to the length of time required to complete the liquidation and dissolution of the Partnership and unanticipated events which may arise in disposing of the Partnership's remaining assets. At June 30, 2002, the Partnership had total cash and cash equivalents of $474,025 including cash reserves of $457,075 and restricted cash of $16,950 as compared to total cash at December 31, 2001 of $521,798, including cash reserves of $462,849 and restricted cash of $58,949. Restricted cash decreased as a result of costs paid relating to the sale of the Partnership's investments totaling $25,134, the transfer of $17,100 to cash reserves and interest earned of $235. Accounts payable and accrued expenses decreased $63,336 to a total of $114,388 at June 30, 2002 from $177,724 at December 31, 2001. The decrease was the result of payment of consulting fees relating to the sale of the Partnership's investments of $25,134, the reduction of $17,100 in estimated consulting fees and accrued audit fees paid totaling $15,500, transfers agent fees paid totaling $6,000 and a net increase in other operating costs of $398. 16 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources, continued The Local Limited Partnerships The rents of the Properties, many of which receive rental subsidy payments, including payments under Section 8 of Title II of the Housing and Community Development Act of 1974 ("Section 8"), are subject to specific laws, regulations and agreements with federal and state agencies. The subsidy agreement on the remaining investment expires in October 2004. Under the Multifamily Assisted Housing and Reform and Affordability Act (MAHRAA) of 1997, as amended, Congress set forth the legislation for a permanent "mark-to-market" program and provided for permanent authority for the renewal of Section 8 Contracts. In February 2001, HUD issued a new Section 8 contract renewal GuideBook, which replaced HUD notice 99-36. The GuideBook provides project owners with several options for Section 8 contract renewals. The Local Limited Partnership which has Section 8 contracts will not be affected by these guidelines until early 2004. The Partnership cannot reasonably predict legislative initiatives and governmental budget negotiations, the outcome of which could result in a reduction in funds available for the various federal and state administered housing programs including the Section 8 program. Such changes could adversely affect the future net operating income and debt structure of certain Local Limited Partnerships currently receiving such subsidy or similar subsidies. The Local Limited Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally reflecting the impact of higher operating and replacement costs. Inflation also affects the Local Limited Partnerships adversely by increasing operating costs such as utilities and salaries. As discussed above, the disposition of the Partnership's remaining Local Limited Partnership is in progress. If the Partnership is successful in completely disposing of its remaining investment, management presently intends to wind up the Partnership's operations in the third quarter of 2002. Partnership Operations Because the Partnership adopted the liquidation basis of accounting, the results of operations for the three months and six month periods ended June 30, 2002 are not presented. Instead, the Partnership's operating results have been reflected on the statement of changes of net assets in liquidation and reflect changes from the estimated net realizable values of assets and anticipated payable amounts of liabilities previously recorded. Net assets in liquidation decreased to $2,025 at June 30, 2002 from $3,962 at December 31, 2001. The change was the result of operating activities, an increase in accounts payable and accrued expenses totaling $5,635 net of interest income earned of $3,698. Both the liquidation values and the related Purchase Money Note Obligations for Surry and Glendale Manor were reduced from $263,930 to zero in the first quarter of 2002. 17 LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP (A Massachusetts Partnership) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources, continued Partnership Operations, continued Net assets in liquidation increased to $2,734 at June 30, 2001 from $2,358 at December 31, 2000. The change was primarily the result of operating activities, interest income earned of $9,877 net of an increase in accounts payable and accrued expenses totaling $9,486. 18 PART II Other Information Item 1. Legal Proceedings. On July 10, 2002 a complaint for declaratory judgment was filed in the court of Common Pleas Mahoning County, Ohio by the Partnership and Austintown Associates, Ltd. against the holders of the remaining Purchase Money Note secured by the Partnership's interest in Austintown Associates, Ltd., seeking to transfer the Partnership's remaining Limited Partnership Interests in Austintown Associates, Ltd., the sole collateral for these non-recourse notes, to the holders in satisfaction of the Partnership's obligations to the holders. Item 3. Defaults Upon Senior Securities. As of June 30, 2002 the remaining series of the Purchase Money Notes were in default. The Purchase Money Notes relating to Austintown Associates, Ltd., matured on October 30, 1999. The amounts due at maturity under these non-recourse obligations consisted of $1,600,000 in aggregate principal amount and $2,000,067 in accrued and unpaid interest. As of July 31, 2002, the aggregate arrearages under the Purchase Money Notes relating to Austintown Associates amounted to $3,991,437. Item 6: Exhibits and Reports Form 8-K a) The following exhibits are included herewith; 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer of the general partner of the Partnership. 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer of the general partner of the Partnership. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LIBERTY HOUSING PARTNERS LIMITED PARTNERSHIP By: TNG Properties Inc. Managing General Partner By: /s/ Michael A. Stoller Michael A. Stoller President and CEO By: TNG Properties Inc. Managing General Partner By: /s/ Wilma R. Brooks Wilma R. Brooks Chief Financial Officer Date: 8/6/02 20

LIBERTY HOUSING PARTNERS LTD PARTNERSHIP 10-Q