Company: RWT-PA
Filing Date: 2025-01-16
Form Type: 424B5
Source: 0001104659-25-004099
Chunk: 103

Company: REDWOOD TRUST INC
Filing Date: 2025-01-16
Form: 424B5
Chunk 103
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in question will be made, with consequences similar to those described in the previous paragraph if all payments on the securities are
not made.

In addition, in the event
that any debt instruments or other securities we acquire are delinquent as to mandatory principal and interest payments, or in the event
payments with respect to a particular debt instrument are not made when due, we may nonetheless be required to continue to recognize
the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed
securities at the stated rate regardless of whether corresponding cash payments are received.

We may also be required under
the terms of indebtedness that we borrow from private lenders to use cash received from interest payments to make principal payments
on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution
to our stockholders.

Finally, we are required
to recognize certain items of income for U.S. federal income tax purposes no later than when we would report such items on our financial
statements. This requirement generally applies to taxable years beginning after December 31, 2017, but applies with respect to income
from a debt instrument having original issue discount for U.S. federal income tax purposes only for taxable years beginning after December 31,
2018.

Due to each of these potential
timing differences between income recognition or expense deduction and the related cash receipts or disbursements, there is a risk that
we may have taxable income in excess of cash available for distribution. In that event, we may need to borrow funds or take other action
to satisfy the REIT distribution requirements for the taxable year in which this “phantom income” is recognized. See “Material
U.S. Federal Income Tax Considerations—Taxation of the Company—Annual Distribution Requirements.”

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Prohibited Transaction Income

Any gain that we realize
on the sale of an asset (other than foreclosure property, as described below) held as inventory or otherwise held primarily for sale
to customers in the ordinary course of business, either directly or through any qualified REIT subsidiaries or subsidiary partnerships,
or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us, will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax, unless certain safe harbor exceptions apply. This prohibited transaction income may
also adversely affect our ability to satisfy the gross income tests for qualification as a REIT