United Development Funding IV 10Q 2014 Q1 Quarterly report

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 quarterly period ended March 31, 2014

¨	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: 000-54383

United Development Funding IV

(Exact Name of Registrant as Specified in Its Charter)

Maryland		26-2775282
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1301 Municipal Way, Suite 100, Grapevine, Texas 76051

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (214) 370-8960

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 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. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filerx(Do not check if a smaller reporting company)	Smaller reporting company¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares outstanding of the Registrant’s common shares of beneficial interest, par value $0.01 per share, as of the close of business on May 5, 2014 was 32,227,496.

UNITED DEVELOPMENT FUNDING IV

FORM 10-Q

Quarter Ended March 31, 2014

PART I
FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements.

	Consolidated Balance Sheets (Unaudited) as of March 31, 2014 and December 31, 2013	3

	Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2014 and 2013	4

	Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2014 and 2013	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	50

Item 4.	Controls and Procedures.	51

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings.	52

Item 1A.	Risk Factors.	52

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	56

Item 3.	Defaults Upon Senior Securities.	57

Item 4.	Mine Safety Disclosures.	57

Item 5.	Other Information.	57

Item 6.	Exhibits.	57

Signatures.		58

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2014			December 31, 2013
Assets
Cash and cash equivalents	$	8,566,234		$	33,565,191
Restricted cash		2,386,711			2,385,535
Accrued interest receivable		20,725,408			12,747,047
Accrued receivable – related parties		2,037,993			2,607,292
Loan participation interest – related parties, net		34,542,019			32,909,958
Notes receivable, net		468,837,593			444,720,197
Notes receivable – related parties, net		34,076,234			30,854,000
Real estate owned		10,096,953			8,236,953
Other assets		2,713,561			2,836,044
Total assets	$	583,982,706		$	570,862,217

Liabilities and Shareholders’ Equity
Liabilities:
Accrued liabilities	$	2,552,897		$	3,241,009
Accrued liabilities – related parties		4,665,125			3,339,143
Distributions payable		2,679,935			2,653,450
Lines of credit		40,819,896			30,519,056
Total liabilities		50,717,853			39,752,658

Commitments and contingencies

Shareholders’ equity:
Shares of beneficial interest; $0.01 par value; 400,000,000 shares authorized; 32,455,182 shares issued and 32,138,757 shares outstanding at March 31, 2014, and 32,115,232 shares issued and 31,902,325 shares outstanding at December 31, 2013		324,552			321,152
Additional paid-in-capital		567,726,641			562,442,028
Accumulated deficit		(28,520,883	)		(27,395,968	)
Shareholders’ equity before treasury stock		539,530,310			535,367,212
Less: Treasury stock, 316,425 shares at March 31, 2014 and 212,907 shares at December 31, 2013, at cost		(6,265,457	)		(4,257,653	)
Total shareholders’ equity		533,264,853			531,109,559
Total liabilities and shareholders’ equity	$	583,982,706		$	570,862,217

See accompanying notes to consolidated financial statements (unaudited).

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,
	2014		2013
Interest income:
Interest income	$	14,990,373	$	8,385,076
Interest income – related parties		2,143,189		1,895,259
Total interest income		17,133,562		10,280,335

Interest expense:
Interest expense		363,031		474,381

Net interest income		16,770,531		9,805,954
Provision for loan losses		705,201		415,699
Net interest income after provision for loan losses		16,065,330		9,390,255

Noninterest income:
Commitment fee income		754,662		218,895
Commitment fee income – related parties		46,345		55,631
REO property sales income		2,190,000		-
Total noninterest income		2,991,007		274,526

Noninterest expense:
Advisory fee – related party		2,699,882		1,641,566
REO property sales cost		2,190,000		-
General and administrative		1,099,477		261,830
General and administrative – related parties		1,266,059		920,013
Total noninterest expense		7,255,418		2,823,409

Net income	$	11,800,919	$	6,841,372

Net income per weighted average share outstanding	$	0.37	$	0.36

Weighted average shares outstanding		32,003,112		18,833,062

Distributions per weighted average share outstanding	$	0.40	$	0.42

See accompanying notes to consolidated financial statements (unaudited).

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Operating Activities
Net income	$	11,800,919		$	6,841,372
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		705,201			415,699
Amortization expense		222,879			95,738
Share-based compensation		51,506			-
Changes in assets and liabilities:
Accrued interest receivable		(7,978,361	)		(4,192,675	)
Accrued receivable – related parties		569,299			156,370
Other assets		(100,395	)		(128,725	)
Accounts payable and accrued liabilities		267,734			46,231
Net cash provided by operating activities		5,538,782			3,234,010

Investing Activities
Investments in loan participation interest – related parties		(4,214,264	)		(1,224,504	)
Principal receipts from loan participation interest – related parties		2,582,202			3,727,390
Investments in notes receivable		(58,474,785	)		(35,722,916	)
Principal receipts from notes receivable		33,652,187			8,515,633
Investments in notes receivable – related parties		(4,014,331	)		(5,200,346	)
Principal receipts from notes receivable – related parties		792,095			4,337,045
Investment in real estate owned		(3,244,050	)		-
Receipts from real estate owned		1,754,190			-
Net cash used in investing activities		(31,166,756	)		(25,567,698	)

Financing Activities
Proceeds from issuance of shares of beneficial interest		-			58,454,241
Investor subscriptions receivable		-			(577,477	)
Purchase of treasury shares		(1,921,990	)		(599,623	)
Net borrowings on lines of credit		10,300,840			(634,185	)
Payments on notes payable		-			(760,000	)
Distributions, net of shareholders’ distribution reinvestment		(7,748,657	)		(5,287,983	)
Restricted cash		(1,176	)		-
Payments of offering costs		-			(7,585,502	)
Deferred offering costs		-			1,863,818
Accrued liabilities – related parties		-			(2,367,444	)
Net cash provided by financing activities		629,017			42,505,845

Net (decrease) increase in cash and cash equivalents		(24,998,957	)		20,172,157
Cash and cash equivalents at beginning of period		33,565,191			23,225,858
Cash and cash equivalents at end of period	$	8,566,234		$	43,398,015
Supplemental Cash Flow Information:
Cash paid for interest	$	285,443		$	476,731
Supplemental Cash Flow Information – non-cash activity:
Shareholders’ distribution reinvestment	$	5,150,692		$	2,800,309
Real estate purchased – earnest money	$	370,140		$	-

See accompanying notes to consolidated financial statements (unaudited).

UNITED DEVELOPMENT FUNDING IV

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A. Nature of Business

United Development Funding IV (which may be referred to as the “Trust,” “we,” “our,” or “UDF IV”) was organized on May 28, 2008 (“Inception”) as a Maryland real estate investment trust. The Trust is the sole general partner of and owns a 99.999% partnership interest in United Development Funding IV Operating Partnership, L.P. (“UDF IV OP”), a Delaware limited partnership. UMTH Land Development, L.P. (“UMTH LD”), a Delaware limited partnership and the affiliated asset manager of the Trust, is the sole limited partner and owner of 0.001% (minority interest) of the partnership interests in UDF IV OP. At March 31, 2014 and December 31, 2013, UDF IV OP had no assets, liabilities or equity.

As of March 31, 2014, the Trust owns a 100% limited partnership interest in UDF IV Home Finance, LP (“UDF IV HF”), UDF IV Finance I, LP (“UDF IV FI”), UDF IV Finance II, LP (“UDF IV FII”), UDF IV Acquisitions, LP (“UDF IV AC”), UDF IV Finance III, LP (“UDF IV FIII”), UDF IV Finance IV, L.P. (“UDF IV Fin IV”), UDF IV Finance V, L.P. (“UDF IV Fin V”), UDF IV Finance VI, L.P. (“UDF IV Fin VI”), UDF IV Finance VII, L.P. (“UDF IV Fin VII”) and UDF IV Finance VIII, L.P. (“UDF IV Fin VIII”), all Delaware limited partnerships.

As of March 31, 2014, the Trust is the sole member of (i) UDF IV HF Manager, LLC (“UDF IV HFM”), a Delaware limited liability company, the general partner of UDF IV HF; (ii) UDF IV Finance I Manager, LLC (“UDF IV FIM”), a Delaware limited liability company, the general partner of UDF IV FI; (iii) UDF IV Finance II Manager, LLC (“UDF IV FIIM”), a Delaware limited liability company, the general partner of UDF IV FII; (iv) UDF IV Acquisitions Manager, LLC (“UDF IV ACM”), a Delaware limited liability company, the general partner of UDF IV AC; (v) UDF IV Finance III Manager, LLC (“UDF IV FIIIM”), a Delaware limited liability company, the general partner of UDF IV FIII; (vi) UDF IV Finance IV Manager, LLC (“UDF IV FIVM”), a Delaware limited liability company, the general partner of UDF IV Fin IV; (vii) UDF IV Finance V Manager, LLC (“UDF IV FVM”), a Delaware limited liability company, the general partner of UDF IV Fin V; (viii) UDF IV Finance VI Manager, LLC (“UDF IV FVIM”), a Delaware limited liability company, the general partner of UDF IV Fin VI; (ix) UDF IV Finance VII Manager, LLC (“UDF IV FVIIM”), a Delaware limited liability company, the general partner of UDF IV Fin VII; and (x) UDF IV Finance VIII Manager, LLC (“UDF IV FVIIIM”), a Delaware limited liability company, the general partner of UDF IV Fin VIII.

As of March 31, 2014, the Trust owns 100% of the outstanding shares of (i) UDF IV LB I, Inc. (“UDF IV LBI”), a Delaware corporation; (ii) UDF IV LB II, Inc. (“UDF IV LBII”), a Delaware corporation; (iii) UDF IV Woodcreek, Inc. (“UDF IV Woodcreek”), a Delaware corporation; (iv) UDF IV LB III, Inc. (“UDF IV LBIII”), a Delaware corporation; and (v) UDF IV LB IV, Inc. (“UDF IV LBIV”), a Delaware corporation.

As of March 31, 2014 and December 31, 2013, UDF IV HFM, UDF IV FIM, UDF IV FIIM, UDF IV ACM, UDF IV FIIIM, UDF IV FIVM, UDF IV FVM, UDF IV FVIM, UDF IV FVIIM and UDF IV FVIIIM had no assets, liabilities, or equity.

The Trust originates, purchases, participates in and holds for investment secured loans made directly by the Trust or indirectly through its affiliates to persons and entities for the acquisition and development of parcels of real property as single-family residential lots or mixed-use master planned residential communities, for the construction of single-family homes and for completed model homes. The Trust also makes direct investments in land for development into single-family lots, home construction and portfolios of finished lots and model homes; provides credit enhancements to real estate developers, home builders, land bankers and other real estate investors; and purchases participations in, or finances for other real estate investors the purchase of, securitized real estate loan pools and discounted cash flows secured by state, county, municipal or other similar assessments levied on real property. The Trust also may enter into joint ventures with unaffiliated real estate developers, home builders, land bankers and other real estate investors, or with other United Development Funding-sponsored programs, to originate or acquire, as the case may be, the same kind of secured loans or real estate investments the Trust may originate or acquire directly.

UMTH General Services, L.P. (“UMTH GS” or “Advisor”), a Delaware limited partnership, is the Trust’s advisor and is responsible for managing the Trust’s affairs on a day-to-day basis. UMTH GS has engaged UMTH LD as the Trust’s asset manager. The asset manager oversees the investing and financing activities of the affiliated programs managed and advised by the Advisor and UMTH LD as well as provides recommendations to the Trust’s board of trustees regarding investments and finance transactions, management, policies and guidelines. The asset manager reviews for each investment the transaction structure and terms, underwriting, collateral, performance and risk management and also manages the Trust’s capital structure at both the entity and asset level.

The Trust’s sole employee is its Chief Operating Officer, who was appointed on February 17, 2014. The Trust does not maintain any physical properties. The Trust’s operations are conducted at the corporate offices of the Trust’s Advisor at 1301 Municipal Way, Grapevine, Texas 76051.

B. Summary of Significant Accounting Policies

A summary of our significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

Basis of Presentation

The accompanying consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information, with the instructions to Form 10-Q and with Regulation S-X. They do not include all information and footnotes required by GAAP for complete financial statements. However, except as disclosed herein, there has been no material change to the information disclosed in our 2013 Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the Securities and Exchange Commission on April 15, 2014 (the “2013 10-K”). The accompanying interim consolidated financial statements should be read in conjunction with the consolidated financial statements filed in our 2013 10-K. In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting solely of normal recurring adjustments, considered necessary to present fairly our financial position as of March 31, 2014 and December 31, 2013, operating results for the three months ended March 31, 2014 and 2013, and cash flows for the three months ended March 31, 2014 and 2013. Operating results and cash flows for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Principles of Consolidation

The consolidated financial statements include the accounts of the Trust and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Loan Participation Interest – Related Parties

As of March 31, 2014, the participations have terms ranging from 12 to 31 months and bear interest at rates ranging from 12%to 15%.

Notes Receivable and Notes Receivable – Related Parties

As of March 31, 2014, the notes have terms ranging from 5 to 48 months and bear interest at rates ranging from 11% to 15%.

Real Estate Owned

Real estate owned is stated at cost, which includes costs associated with the acquisition of the real estate, unless it is determined that the value has been impaired, in which case the real estate owned would be reduced to fair value.

Real estate owned consists of finished single-family residential lots purchased by UDF IV LBI, UDF IV LBII, UDF IV LBIII and UDF IV LBIV (collectively, the “UDF IV LB Entities”) from third party builders. The UDF IV LB Entities have entered into lot option agreements with each builder whereby the builder will reacquire the lots in accordance with a takedown schedule for a pre-determined lot price (the “base lot price”) identified in the lot option agreement. In consideration for the right to repurchase the lots from the UDF IV LB Entities, each builder provided the UDF IV LB Entities a non-refundable earnest money deposit, a portion of which will be applied to the purchase price of each lot, as it is repurchased. In addition, the builders have agreed to pay the UDF IV LB Entities a monthly option fee equal to one twelfth of 13% of the base lot price of the lots the builder has not yet reacquired from the UDF IV LB Entities. If the builder does not perform in accordance with the terms of the lot option agreement, the builder will forfeit the remaining earnest money deposit and the lots can be sold to another builder. As of March 31, 2014, the lot option agreements have terms ranging from 18 to 24 months.

Interest Income and Non-Interest Income Recognition

As of March 31, 2014 and December 31, 2013, we were accruing interest on all loan participation interest – related parties, notes receivable and notes receivable – related parties.

Commitment fee income and commitment fee income – related parties include non-refundable fees charged to borrowers for entering into an obligation that commits us to make or acquire a loan or to satisfy a financial obligation of the borrower when certain conditions are met within a specified time period. As of March 31, 2014 and December 31, 2013, approximately $2.6 million and $2.5 million, respectively, of unamortized commitment fees are included as an offset of notes receivable. Approximately $211,000 and $164,000 of unamortized commitment fees are included as an offset of notes receivable – related parties as of March 31, 2014 and December 31, 2013, respectively.

Acquisition and Origination Fees

We incur acquisition and origination fees, payable to UMTH LD, our asset manager, equal to 3% of the net amount available for investment in secured loans and other real estate assets (“Acquisition and Origination Fees”); provided, however, that we will not incur Acquisition and Origination Fees with respect to any asset level indebtedness we incur. Acquisition and Origination Fees are expensed as incurred.

Income Taxes

We file income tax returns in the United States federal jurisdiction. At March 31, 2014, tax returns related to fiscal years ended December 31, 2010 through December 31, 2013 remain open to possible examination by the tax authorities. No tax returns are currently under examination by any tax authorities. We did not incur any penalties or interest during the three months ended March 31, 2014 or 2013.

Guarantees

Share-Based Compensation

We value all share-based payments to employees at the estimated fair value on the date of grant and we expense these payments over the applicable vesting period.

Reclassifications

Certain reclassifications have been made to prior period amounts in order to conform with the current year presentation.

C. Registration Statement

On November 12, 2009, the Trust’s Registration Statement on Form S-11, covering an initial public offering (the “Offering”) of up to 25,000,000 common shares of beneficial interest to be offered in the primary offering at a price of $20 per share (the “Primary Offering”), was declared effective under the Securities Act of 1933, as amended. The Offering also initially covered up to 10,000,000 common shares of beneficial interest to be issued pursuant to our distribution reinvestment plan (the “DRIP”) for $20 per share. We had the right to reallocate the common shares of beneficial interest registered in the Offering between the Primary Offering and the DRIP, and pursuant to Supplement No. 6 to our prospectus regarding the Offering, which was filed with the Securities and Exchange Commission (“SEC”) on May 3, 2013, we reallocated the shares being offered to be 34,000,000 shares offered pursuant to the Primary Offering and 1,000,000 shares offered pursuant to the DRIP. The shares were offered to investors on a reasonable best efforts basis, which means the dealer manager used its reasonable best efforts to sell the shares offered, but was not required to sell any specific number or dollar amount of shares and did not have a firm commitment or obligation to purchase any of the offered shares. The Offering terminated on May 13, 2013.

On April 19, 2013, we registered 7,500,000 additional common shares of beneficial interest to be offered pursuant to the DRIP in a Registration Statement on Form S-3 (File No. 333-188045) (the “Secondary DRIP”) for $20 per share. We ceased offering common shares of beneficial interest under the DRIP portion of the Offering upon the termination of the Offering on May 13, 2013, and concurrently began offering our common shares of beneficial interest to our shareholders pursuant to the Secondary DRIP.

On May 5, 2014, we announced the suspension of the DRIP, effective May 24, 2014. For further discussion of the suspension of the DRIP, see Note P – Subsequent Events.

D. Loans and Allowance for Credit Losses

Our aggregate loan portfolio is comprised of loan participation interest – related parties, notes receivable, net and notes receivable – related parties and is recorded at the lower of cost or estimated net realizable value.

	March 31, 2014		December 31, 2013
Loan participation interest – related parties	$	34,542,000	$	32,910,000
Notes receivable, net		468,838,000		444,720,000
Notes receivable – related parties		34,076,000		30,854,000
Total	$	537,456,000	$	508,484,000

Our loans are classified as follows:

	March 31, 2014			December 31, 2013
Real Estate:
Construction, acquisition and land development	$	544,808,000		$	514,993,000
Allowance for loan losses		(4,533,000	)		(3,828,000	)
Unamortized commitment fees		(2,819,000	)		(2,681,000	)
Total	$	537,456,000		$	508,484,000

As of March 31, 2014, we had originated or purchased 149 loans, including 29 loans that have been repaid in full by the respective borrower or have matured and have not been renewed. As of December 31, 2013, we had originated or purchased 139 loans, including 25 loans that have either been repaid in full by the respective borrower or have matured and have not been renewed.

The following table represents the scheduled maturity dates of the 120 loans outstanding as of March 31, 2014:

	Related Party							Non-related party							Total
Maturity Date	Amount		Loans		% of Total			Amount		Loans		% of Total			Amount		Loans		% of Total
Matured	$	-		-		-		$	-		-		-		$	-		-		-
2014		11,658,000		8		17	%		223,145,000		29		47	%		234,803,000		37		43	%
2015		42,530,000		7		62	%		111,998,000		26		24	%		154,528,000		33		28	%
2016		11,891,000		3		17	%		109,876,000		33		23	%		121,767,000		36		22	%
2017		-		-		-			30,960,000		13		6	%		30,960,000		13		6	%
2018		2,750,000		1		4	%		-		-		-			2,750,000		1		1	%
Total	$	68,829,000		19		100	%	$	475,979,000		101		100	%	$	544,808,000		120		100	%

The following table represents the scheduled maturity dates of the 114 loans outstanding as of December 31, 2013:

	Related Party							Non-related party							Total
Maturity Date	Amount		Loans		% of Total			Amount		Loans		% of Total			Amount		Loans		% of Total
Matured	$	-		-		-		$	-		-		-		$	-		-		-
2014		34,129,000		12		53	%		255,599,000		35		57	%		289,728,000		47		56	%
2015		16,987,000		3		27	%		73,007,000		21		16	%		89,994,000		24		17	%
2016		12,812,000		3		20	%		98,824,000		32		22	%		111,636,000		35		22	%
2017		-		-		-			23,635,000		8		5	%		23,635,000		8		5	%
Total	$	63,928,000		18		100	%	$	451,065,000		96		100	%	$	514,993,000		114		100	%

A loan is placed on non-accrual status and income recognition is suspended at the date at which, in the opinion of management, a full recovery of income and principal becomes more likely than not, but is no longer probable, based upon our review of economic conditions, the estimated value of the underlying collateral, the guarantor, adverse situations that may affect the borrower’s ability to pay or the value of the collateral and other relevant factors. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed. Any payments received on loans classified as non-accrual status are typically applied first to outstanding loan amounts and then to the recovery of lost interest. As of March 31, 2014 and December 31, 2013, we have not placed any loans on non-accrual status.

Loans are considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is generally evaluated on an individual loan basis for each loan in the portfolio. If an individual loan is considered impaired, a specific valuation allowance may be allocated, if necessary, so that the individual loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from collateral. Loans that are not individually considered impaired are collectively and qualitatively measured as a portfolio for general valuation allowance. In reviewing our portfolio for this valuation analysis, we use cash flow estimates from the disposition of finished lots, paper lots (residential lots shown on a plat that has been accepted by the city or county, but which is currently undeveloped or under development) and undeveloped land as well as cash flow received from the issuance of bonds from municipal reimbursement districts. These estimates are based on current market metrics, including, without limitation, the supply of finished lots, paper lots and undeveloped land; the supply of homes and the rate and price at which land and homes are sold; historic levels and trends; executed contracts, appraisals and discussions with third party market analysts and participants, including homebuilders. We base our valuations on current and historic market trends and on our analysis of market events and conditions, including activity within our portfolio, and on the analysis of third-party services such as Metrostudy and Residential Strategies, Inc. Cash flow forecasts also are based on executed purchase contracts which provide base prices, escalation rates, and absorption rates on an individual project basis. For projects deemed to have an extended time horizon for disposition, we consider third-party appraisals to provide a valuation in accordance with guidelines set forth in the Uniform Standards of Professional Appraisal Practice. In addition to cash flows from the disposition of property, cost analysis is performed based on estimates of development and senior financing expenditures provided by developers and independent professionals on a project-by-project basis. These amounts are reconciled with our best estimates to establish the net realizable value of the portfolio.

Interest is recognized on an accrual basis for impaired loans in which the collectability of the unpaid principal amount is deemed probable. Any payments received on such loans are first applied to outstanding accrued interest receivable and then to outstanding unpaid principal balance. Unpaid principal balance is materially the same as recorded investments. Any payments received on impaired loans in which the collectability of the unpaid principal amount is less than probable are typically applied to outstanding unpaid principal and then to the recovery of lost interest on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

As of March 31, 2014 and December 31, 2013, we had no matured loans.

For the three months ended March 31, 2014 and 2013, we did not have any impaired loans and we did not recognize any interest income associated with impaired loans.

As part of the ongoing monitoring of the credit quality of the loan portfolio, we periodically, no less than quarterly, perform a detailed review of our portfolio of mortgage notes and other loans. The following is a general description of the credit levels used:

Level 1 – Full collectability of loans in this category is considered probable.

Level 2 – Full collectability of loans in this category is deemed more likely than not, but not probable, based upon our review of economic conditions, the estimated value of the underlying collateral, the guarantor, adverse situations that may affect the borrower’s ability to pay or the value of the collateral and other relevant factors. Interest income is suspended on Level 2 loans.

Level 3 – For loans in this category, it is probable that we will be unable to collect all amounts due.

As of the dates indicated, our loans were classified as follows:

	March 31, 2014		December 31, 2013
Level 1	$	544,808,000	$	514,993,000
Level 2		-		-
Level 3		-		-
Total	$	544,808,000	$	514,993,000

The allowance for loan losses is our estimate of incurred losses in our portfolio of notes receivable, notes receivable – related parties and loan participation interest – related parties. We periodically perform a detailed review of our portfolio of notes and other loans to determine if impairment has occurred and to assess the adequacy of the allowance for loan losses. We charge additions to the allowance for loan losses to current period earnings through a provision for loan losses. Amounts determined to be uncollectible are charged directly against (and decrease) the allowance for loan losses (“charged off”), while amounts recovered on previously charged off amounts increase the allowance for loan losses. The following table summarizes the change in the reserve for loan losses during the three months ended March 31, 2014 and the year ended December 31, 2013, which is offset against notes receivable:

	For the Three Months Ended March 31, 2014		For the Year Ended December 31, 2013
Balance, beginning of year	$	3,828,000	$	1,766,000
Provision for loan losses		705,000		2,062,000
Charge-offs		-		-
Balance, end of period	$	4,533,000	$	3,828,000

We have adopted the provisions of ASU No. 2011-02,A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.In accordance with ASU 2011-02, the restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. As of March 31, 2014 and December 31, 2013, we have no loan modifications that are classified as troubled debt restructurings.

E. Shareholders’ Equity

Offering

On December 18, 2009, the Trust’s initial public subscribers were accepted as shareholders pursuant to the Offering and the subscription proceeds from such initial public subscribers were released to the Trust from escrow.

As of March 31, 2014, the Trust had issued an aggregate of 32,372,772 common shares of beneficial interest pursuant to the Primary Offering, DRIP and Secondary DRIP, consisting of 30,735,813 common shares of beneficial interest pursuant to the Primary Offering in exchange for gross proceeds of approximately $614.7 million (approximately $535.0 million, net of costs associated with the Primary Offering), 723,617 common shares of beneficial interest in accordance with our DRIP in exchange for gross proceeds of approximately $14.5 million and 913,341 common shares of beneficial interest in accordance with our Secondary DRIP in exchange for gross proceeds of approximately $18.2 million. As of March 31, 2014, the Trust had redeemed an aggregate of 316,425 common shares of beneficial interest at a cost of approximately $6.0 million.

As of December 31, 2013, the Trust had issued an aggregate of 32,115,232 common shares of beneficial interest pursuant to the Primary Offering, DRIP and Secondary DRIP, consisting of 30,735,813 common shares of beneficial interest pursuant to the Primary Offering in exchange for gross proceeds of approximately $614.7 million (approximately $535.0 million, net of costs associated with the Primary Offering), 723,617 common shares of beneficial interest in accordance with our DRIP in exchange for gross proceeds of approximately $14.5 million and 655,802 common shares of beneficial interest in accordance with our Secondary DRIP in exchange for gross proceeds of approximately $13.1 million. As of December 31, 2013, the Trust had redeemed an aggregate of 212,907 common shares of beneficial interest at a cost of approximately $4.1 million.

Restricted Shares

On February 3, 2014, our board of trustees appointed Stacey H. Dwyer as our Chief Operating Officer, effective February 17, 2014, and in connection with this appointment, we entered into an employment agreement with Ms. Dwyer effective as of February 17, 2014.

Pursuant to her employment agreement, Ms. Dwyer’s compensation includes (a) an initial equity award of 82,410 common shares, one-quarter of which will vest annually over four years, subject to Ms. Dwyer’s continued employment with us through such date and (b) an annual equity grant of 12,500 common shares on each anniversary date of the effective date of the employment agreement, with each annual equity grant vesting five years after the applicable grant date, subject to Ms. Dwyer’s continued employment with us through such date. From the date of grant until such time as they become vested and payable (the “Restricted Period”), the shares granted to Ms. Dwyer pursuant to her employment agreement (the “Restricted Shares”) may not be sold, assigned, transferred or otherwise disposed of.

The following table reflects Restricted Shares that have been granted to Ms. Dwyer and shares that have vested or have been forfeited by Ms. Dwyer for the three months ended March 31, 2014.

	Restricted Shares
Outstanding at January 1, 2014		-
Granted		82,410
Vested		-
Forfeited		-

Outstanding at March 31, 2014		82,410

Based on a share price of $20, which we have determined to be the best indication of fair value as this was the price of shares sold pursuant to our Offering, the Restricted Shares granted to Ms. Dwyer during the three months ended March 31, 2014 had a value of approximately $1.6 million. For the three months ended March 31, 2014, we recognized compensation expense of approximately $52,000 in connection with Restricted Shares granted to Ms. Dwyer.

Distributions

We must distribute to our shareholders at least 90% of our taxable income each year in order to meet the requirements for being treated as a REIT under the Internal Revenue Code. In accordance with this requirement, we pay monthly distributions to our shareholders. Our distribution rate is determined quarterly by our board of trustees and is dependent on a number of factors, including funds available for payment of distributions, our financial condition, loan funding commitments and annual distribution requirements needed to maintain our status as a REIT under the Internal Revenue Code. In addition to the monthly distributions, in an effort to ensure we distribute at least 90% of our taxable income, our board of trustees has periodically authorized additional, special distributions. All distributions are paid in cash and DRIP shares as of March 31, 2014.

Our board of trustees has authorized distributions for our shareholders of record as of the close of business on each day for the period commencing on December 18, 2009 and ending on June 30, 2014. For distributions declared for each record date in the December 2009 through June 2011 periods, our distribution rate was $0.0043836 per common share of beneficial interest, which is equal to an annualized distribution rate of 8%, assuming a purchase price of $20.00 per share. For distributions declared for each record date in the July 2011 through June 2014 periods, our distribution rate is $0.0044932 per common share of beneficial interest, which is equal to an annualized distribution rate of 8.2%, assuming a purchase price of $20.00 per share. These distributions are aggregated and paid monthly in arrears. Distributions are paid on or about the 25th day of the respective month. Distributions for shareholders participating in our DRIP and Secondary DRIP are reinvested into our shares on the payment date of each distribution as of March 31, 2014.

We have made the following distributions to our shareholders for the three months ended March 31, 2014:

Period Ended	Date Paid	Distribution Amount
December 31, 2013	January 15, 2014	$	4,435,000
January 31, 2014	February 24, 2014		4,444,000
February 28, 2014	March 24, 2014		4,020,000
		$	12,899,000

For the three months ended March 31, 2014, we paid distributions of approximately $12.9 million ($7.7 million in cash and $5.2 million in our common shares of beneficial interest pursuant to our DRIP), as compared to cash flows provided by operations of approximately $5.5 million. From May 28, 2008 (Date of Inception) through March 31, 2014, we paid cumulative distributions of approximately $86.9 million. As of March 31, 2014, we had approximately $2.7 million of cash distributions declared that were paid subsequent to period end.

The distributions paid for the three months ended March 31, 2014 and 2013, along with the amount of distributions reinvested pursuant to our DRIP and the sources of our distributions are reflected in the table below.

	Three months ended March 31,
	2014				2013
Distributions paid in cash	$	7,748,000			$	5,300,000
Distributions reinvested		5,151,000				2,800,000
Total distributions	$	12,899,000			$	8,100,000
Source of distributions:
Cash from operations	$	5,539,000	43	%	$	3,200,000	40	%
Borrowings under credit facilities		7,360,000	57	%		4,900,000	60	%
Total sources	$	12,899,000	100	%	$	8,100,000	100	%

In our initial quarters of operations, and from time to time thereafter, we did not generate enough cash flow to fully fund distributions declared. Therefore, some or all of our distributions are paid from sources other than operating cash flow, such as borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow. Distributions in excess of our operating cash flows have been funded via financing activities, specifically borrowings under our credit facilities, consistent with our intent to use our credit facilities to meet our investment and distribution cash requirements throughout our initial period of operations.

We utilize cash to fund operating expenses, make investments, service debt obligations and pay distributions. We receive cash from operations (which includes interest payments) as well as cash from investing activities (which includes repayment of principal on loans we have made) and financing activities (which includes borrowing proceeds and additional capital from the sale of our shares). We have secured a note payable and lines of credit to manage the timing of our cash receipts and funding requirements. Over the long term, we expect that substantially all of our distributions will be funded from operating cash flow.

F. Share Redemption Program

We have adopted a share redemption program that enables our shareholders to sell their shares back to us in limited circumstances. Generally, this program permits shareholders to sell their shares back to us after they have held them for at least one year. Except for redemptions upon the death of a shareholder (in which case we may waive the minimum holding periods), the purchase price for the redeemed shares, for the period beginning after a shareholder has held the shares for a period of one year, will be (1) 92% of the purchase price actually paid for any shares held less than two years, (2) 94% of the purchase price actually paid for any shares held for at least two years but less than three years, (3) 96% of the purchase price actually paid for any shares held at least three years but less than four years, (4) 98% of the purchase price actually paid for any shares held at least four years but less than five years and (5) for any shares held at least five years, the lesser of the purchase price actually paid or the then-current fair market value of the shares as determined by the most recent annual valuation of our shares. The purchase price for shares redeemed upon the death of a shareholder will be the lesser of (1) the purchase price the shareholder actually paid for the shares or (2) $20.00 per share.

We reserve the right in our sole discretion at any time and from time to time to (1) waive the one-year holding period in the event of the death or bankruptcy of a shareholder or other exigent circumstances, (2) reject any request for redemption, (3) change the purchase price for redemptions, or (4) terminate, suspend and/or reestablish our share redemption program. In respect of shares redeemed upon the death of a shareholder, we will not redeem in excess of 1% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption, and the total number of shares we may redeem at any time will not exceed 5% of the weighted average number of shares outstanding during the trailing twelve-month period prior to the redemption date. Our board of trustees will determine from time to time whether we have sufficient excess cash from operations to repurchase shares. Generally, the cash available for redemption will be limited to 1% of the operating cash flow from the previous fiscal year, plus any net proceeds from our DRIP and Secondary DRIP.

On May 5, 2014, we announced the suspension of the share redemption program, effective June 6, 2014. For further discussion of the suspension of the share redemption program, see Note P – Subsequent Events.

The Trust complies with FASB ASC 480-10,Distinguishing Liabilities from Equity, which requires, among other things, that financial instruments that represent a mandatory obligation of the Trust to repurchase shares be classified as liabilities and reported at settlement value. We believe that shares tendered for redemption by the shareholder under the Trust’s share redemption program do not represent a mandatory obligation until such redemptions are approved at our discretion. At such time, we will reclassify such obligations from equity to an accrued liability based upon their respective settlement values. As of March 31, 2014, we did not have any approved redemption requests included in our liabilities.

The following table summarizes the redemption activity for the three months ended March 31, 2014 and the year ended December 31, 2013. The amounts presented are in total shares:

	March 31, 2014			December 31, 2013
Balance, beginning of year		-			-
Redemption requests received		103,518			88,376
Shares redeemed		(103,518	)		(88,376	)
Balance, end of period		-			-

Shares redeemed are included in treasury stock in the consolidated balance sheet.

G. Organizational and Offering Compensation

Various parties received compensation as a result of the Offering, including the Advisor, affiliates of the Advisor, the dealer manager and soliciting dealers. The Advisor or an affiliate of the Advisor funded organization and offering costs on the Trust’s behalf and our Advisor has been paid by the Trust for such costs in an amount equal to 3% of the gross offering proceeds raised by the Trust in the Offering (the “O&O Reimbursement”) less any offering costs paid by the Trust directly (except that no organization and offering expenses will be reimbursed with respect to sales under the DRIP and Secondary DRIP). Payments to the dealer manager included selling commissions (6.5% of gross offering proceeds, except that no commissions are paid with respect to sales under the DRIP and Secondary DRIP) and dealer manager fees (up to 3.5% of gross offering proceeds, except that no dealer manager fees are paid with respect to sales under the DRIP and Secondary DRIP).

H. Operational Compensation

The Advisor or its affiliates will receive Acquisition and Origination Fees as described in Note B. Acquisition and Origination Fees will not be paid with respect to any asset level indebtedness the Trust incurs. Acquisition and Origination Fees incurred by the Trust will be reduced by the amount of any acquisition and origination fees and expenses paid by borrowers or investment entities to the Advisor or affiliates of the Advisor with respect to the investment. The Trust will not incur any Acquisition and Origination Fees with respect to any participation agreement the Trust enters into with its affiliates or any affiliates of the Advisor for which the Advisor or affiliates of the Advisor previously has received acquisition and origination fees and expenses from such affiliate with respect to the same secured loan or other real estate asset.

The Advisor will receive advisory fees of 2% per annum of the average of invested assets (“Advisory Fees”), including secured loan assets; provided, however, that no Advisory Fees will be paid with respect to any asset level indebtedness the Trust incurs. The fee will be payable monthly in an amount equal to one-twelfth of 2% of the Trust’s average invested assets, including secured loan assets, as of the last day of the immediately preceding month.

The Advisor will receive 1% of the amount made available to the Trust pursuant to the origination of any line of credit or other debt financing, provided that the Advisor has provided a substantial amount of services as determined by the Trust’s independent trustees and, on each anniversary date of the origination of any such line of credit or other debt financing, an additional fee of 0.25% of the primary loan amount (collectively, “Debt Financing Fees”) will be paid if such line of credit or other debt financing continues to be outstanding on such date, or a prorated portion of such additional fee will be paid for the portion of such year that the financing was outstanding.

The Trust will reimburse the expenses incurred by the Advisor in connection with its provision of services to the Trust (the “Advisor Expense Reimbursement”), including the Trust’s allocable share of the Advisor’s overhead, such as rent, personnel costs, utilities and IT costs. The Trust will not reimburse the Advisor for personnel costs in connection with services for which the Advisor or its affiliates receive other fees.

The Advisor will receive 15% of the amount by which the Trust’s net income for the immediately preceding year exceeds a 10% per annum return on aggregate capital contributions, as adjusted to reflect prior cash distributions to shareholders which constitute a return of capital. This fee will be paid annually and upon termination of the advisory agreement.

I. Disposition/Liquidation Compensation

Upon successful sales by the Trust of securitized loan pool interests, the Advisor will be paid a securitized loan pool placement fee equal to 2% of the net proceeds realized by the Trust, provided the Advisor or an affiliate of the Advisor has provided a substantial amount of services as determined by the Trust’s independent trustees.

For substantial assistance in connection with the sale of properties, the Trust will pay the Advisor or its affiliates disposition fees of the lesser of one-half of the reasonable and customary real estate or brokerage commission or 2% of the contract sales price of each property sold; provided, however, in no event may the disposition fees paid to the Advisor, its affiliates and unaffiliated third parties exceed 6% of the contract sales price. The Trust’s independent trustees will determine whether the Advisor or its affiliate has provided substantial assistance to the Trust in connection with the sale of a property. Substantial assistance in connection with the sale of a property includes the Advisor’s preparation of an investment package for the property (including a new investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or such other substantial services performed by the Advisor in connection with a sale.

Upon listing the Trust’s common shares of beneficial interest on a national securities exchange, the Advisor will be entitled to a fee equal to 15% of the amount, if any, by which (1) the market value of the Trust’s outstanding shares plus distributions paid by the Trust prior to listing, exceeds (2) the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate a 10% annual cumulative, non-compounded return to investors. On April 28, 2014, we announced our intent to list our common shares of beneficial interest on a national securities exchange. For further discussion, see Note P – Subsequent Events.

J. Real Estate Owned

Real estate owned consists of finished single-family residential lots purchased by the UDF IV LB Entities from third party builders. The following table summarizes the purchase and sale activity associated with these lots for the three months ended March 31, 2014 and the year ended December 31, 2013.

	March 31, 2014			December 31, 2013
Real estate owned, beginning of period	$	8,237,000		$	-
Purchases of lots		4,050,000			9,017,000
Sales of lots		(2,190,000	)		(780,000	)
Real estate owned, end of period	$	10,097,000		$	8,237,000

K. Notes Payable and Lines of Credit

Credit Facility

On February 5, 2010, during the credit crisis in which financial institutions severely reduced the number of loans made to entities involved in real estate, we obtained a revolving credit facility in the maximum principal amount, as subsequently amended, of $20.0 million (the “Credit Facility”) from Raley Holdings, LLC, an unaffiliated company (“Raley Holdings”). The Credit Facility was paid in full and terminated in June 2013.

In connection with this Credit Facility, we agreed to pay Debt Financing Fees to UMTH GS. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

UDF IV HF CTB LOC

On May 19, 2010, UDF IV HF entered into a $6.0 million revolving line of credit (the “UDF IV HF CTB LOC”) with Community Trust Bank of Texas (“CTB”). Pursuant to an amendment entered into on July 31, 2013, the maturity date of the UDF IV HF CTB LOC was extended from February 19, 2014 to July 30, 2015, the interest rate was modified to prime plus 1%, subject to a floor of 4.25% (4.25% at March 31, 2014) and the revolving line was increased to $10.0 million. The UDF IV HF CTB LOC is guaranteed by us and by United Development Funding III, L.P. (“UDF III”), an affiliated and publicly registered Delaware limited partnership. UMTH LD, our asset manager, is the general partner for UDF III.

UDF IV HF has agreed to pay Debt Financing Fees to UMTH GS associated with the UDF IV HF CTB LOC and, in consideration for its guarantee of the UDF IV HF CTB LOC, UDF IV HF agreed to pay an annual credit enhancement fee equal to 1% of the line of credit amount to UDF III. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

CTB Revolver

Effective August 19, 2010, UDF IV AC obtained a three-year revolving credit facility in the maximum principal amount of $8.0 million (the “CTB Revolver”) from CTB pursuant to a Revolving Loan Agreement (the “Revolver Loan Agreement”). Pursuant to an amendment entered into on April 11, 2013, CTB increased its commitment under the CTB Revolver from $8.0 million to $15.0 million. Effective August 19, 2013, UDF IV AC entered into the Loan Modification Agreement with CTB, pursuant to which the maturity date of the CTB Revolver was extended to July 30, 2015 and the interest rate was modified to prime plus 1%, subject to a floor of 4.25% (4.25% at March 31, 2014). The CTB Revolver is guaranteed by us and by UDF III. Effective April 11, 2014, the CTB Revolver was increased to $25.0 million. See Note P – Subsequent Events, for further discussion.

UDF IV AC agreed to pay Debt Financing Fees to UMTH GS in connection with the CTB Revolver and, in consideration for UDF III guaranteeing the CTB Revolver, UDF IV AC agreed to pay UDF III a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance of the CTB Revolver at the end of each month. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

UTB Revolver

Effective September 29, 2010, UDF IV FI entered into a $3.4 million revolving line of credit (as amended, the “UTB Revolver”) with United Texas Bank (“UTB”). Pursuant to the First Loan Modification and Extension Agreement, effective August 18, 2011 (the “First UTB Extension Agreement”), UTB increased its commitment under the UTB Revolver to $4.0 million. The UTB Revolver matured on September 30, 2013 and the balance of this loan and all accrued interest were paid in full on November 7, 2013, at which point this loan was terminated.

UDF IV FI agreed to pay Debt Financing Fees to UMTH GS in connection with the UTB Revolver. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

F&M Loan

On December 14, 2010, UDF IV FII obtained a revolving credit facility from F&M Bank and Trust Company (“F&M”) in the maximum principal amount of $5.0 million pursuant to a loan agreement (as amended, the “F&M Loan”). Pursuant to the First Amendment to the F&M Loan, F&M increased its commitment to $7.5 million, effective September 1, 2011. The interest rate on the F&M Loan is equal to the greater of prime plus 1.5% or 5.0% per annum (5.0% at March 31, 2014). Pursuant to an amendment entered into on October 31, 2013, F&M increased its commitment associated with the F&M Loan to $15.0 million. The F&M Loan is guaranteed by us and by UDF III. The full outstanding principal balance of the F&M Loan was paid in July 2013, although UDF IV FII retains the right to draw under the F&M Loan until it matures on December 14, 2014.

UDF IV FII agreed to pay Debt Financing Fees to UMTH GS in connection with the F&M Loan and, in consideration for UDF III guaranteeing the F&M Loan, UDF IV FII agreed to pay UDF III a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance of the F&M Loan at the end of each month. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

Legacy Revolver

Effective November 1, 2011, UDF IV FIII obtained a credit facility in the maximum principal amount of $5.0 million (the “Legacy Revolver”) from LegacyTexas Bank (“Legacy”) pursuant to a loan agreement. As amended, the interest rate on the Legacy Revolver is equal to the greater of prime plus 1% or 5.5% per annum (5.5% at March 31, 2014), provided that the interest rate associated with advances related to development loans is 5.875% until substantial completion of the development project. The Legacy Revolver matures and becomes due and payable in full on January 12, 2015.

UDF IV FIII agreed to pay Debt Financing Fees to UMTH GS in connection with the Legacy Revolver. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

Veritex Revolver

On July 31, 2012, UDF IV Fin IV obtained a revolving credit facility from Veritex Community Bank, National Association (“Veritex”) in the maximum principal amount of $5.3 million pursuant to a loan agreement (the “Veritex Revolver”). Effective August 21, 2013, UDF IV Fin IV entered into a loan modification agreement with Veritex, pursuant to which the interest rate associated with the Veritex Revolver was modified to prime plus 1%, subject to a floor of 4.5% (4.5% at March 31, 2014). The Veritex Revolver matures and becomes due and payable in full on July 31, 2015.

UDF IV Fin IV agreed to pay Debt Financing Fees to UMTH GS in connection with the Veritex Revolver. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

Affiliated Bank Loan

On July 23, 2013, UDF IV Fin V obtained a revolving credit facility from Affiliated Bank (“Affiliated Bank”) in the maximum principal amount of $5.5 million pursuant to a loan agreement (the “Affiliated Bank Loan”). The interest rate under the Affiliated Bank Loan is equal to the greater of prime plus 1% or 5% per annum (5% at March 31, 2014). The Affiliated Bank Loan matures and becomes due and payable in full on July 23, 2015.

UDF IV Fin V has agreed to pay Debt Financing Fees to UMTH GS in connection with the Affiliated Bank Loan. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

UDF IV Fin VII Legacy LOC

On August 5, 2013, UDF IV Fin VII obtained a revolving credit facility from Legacy in the maximum principal amount of $10.0 million pursuant to a loan agreement (the “UDF IV Fin VII Legacy LOC”). The interest rate under the UDF IV Fin VII Legacy LOC is equal to the greater of prime plus 1% or 5% per annum (5% at March 31, 2014). The UDF IV Fin VII Legacy LOC matures and becomes due and payable in full on August 5, 2015.

UDF IV Fin VII has agreed to pay Debt Financing Fees to UMTH GS in connection with the UDF IV Fin VII Legacy LOC. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

UDF IV Fin VI CTB LOC

On August 19, 2013, UDF IV Fin VI obtained a revolving credit facility from CTB in the maximum principal amount of $25.0 million pursuant to a loan agreement (the “UDF IV Fin VI CTB LOC”). The interest rate under the UDF IV Fin VI CTB LOC is equal to the greater of prime plus 1% or 4.25% per annum (4.25% at March 31, 2014). In addition, on a quarterly basis, UDF IV Fin VI is required to pay an unused line fee to CTB of 0.25% per annum on the average daily unused portion of the $25.0 million loan commitment. The UDF IV Fin VI CTB LOC matures and becomes due and payable in full on August 19, 2015. The UDF IV Fin VI CTB LOC is guaranteed by us and by UDF III. Effective April 11, 2014, the UDF IV Fin VI CTB LOC was reduced to $15.0 million. See Note P – Subsequent Events, for further discussion.

UDF IV Fin VI has agreed to pay Debt Financing Fees to UMTH GS in connection with the UDF IV Fin VI CTB LOC and, in consideration for UDF III guaranteeing the UDF IV Fin VI CTB LOC, UDF IV Fin VI agreed to pay UDF III a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance of the UDF IV Fin VI CTB LOC at the end of each month. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

Independent Bank Loan

On December 6, 2013, UDF IV Fin VIII obtained a revolving credit facility from Independent Bank (“Independent Bank”) in the maximum principal amount of $15.0 million pursuant to a loan agreement (the “Independent Bank Loan”). The interest rate under the Independent Bank Loan is equal to the greater of prime plus 0.875% or 4.125% per annum (4.125% at March 31, 2014). In addition, on a quarterly basis, UDF IV Fin VIII is required to pay an unused line fee to Independent Bank of 0.5% per annum on the average daily unused portion of the $15.0 million loan commitment. The Independent Bank Loan matures and becomes due and payable in full on December 6, 2015.

UDF IV Fin VIII has agreed to pay Debt Financing Fees to UMTH GS in connection with the Independent Bank Loan. See Note N – Related Party Transactions, for further discussion of fees paid to related parties.

Summary Information

The chart below summarizes the approximate outstanding balance of our note payable and each of our lines of credit as of the date indicated:

Facility	March 31, 2014		December 31, 2013
Credit Facility	$	-	$	-
UDF IV HF CTB LOC		10,000,000		10,000,000
CTB Revolver		14,350,000		14,556,000
UTB Revolver		-		-
F&M Loan		-		-
Legacy Revolver		2,500,000		-
Veritex Revolver		2,000,000		-
Affiliated Bank Loan		2,500,000		-
UDF IV Fin VII Legacy LOC		-		-
UDF IV Fin VI CTB LOC		4,470,000		5,963,000
Independent Bank Loan		5,000,000		-
Total	$	40,820,000	$	30,519,000

The following table represents the approximate interest expense incurred associated with our note payable and lines of credit for the period indicated:

	For the three months ended March 31,
Facility	2014		2013
Credit Facility	$	-	$	98,000
UDF IV HF CTB LOC		106,000		83,000
CTB Revolver		154,000		110,000
UTB Revolver		-		51,000
F&M Loan		-		71,000
Legacy Revolver		13,000		2,000
Veritex Revolver		-		59,000
Affiliated Bank Loan		12,000		-
UDF IV Fin VII Legacy LOC		-		-
UDF IV Fin VI CTB LOC		58,000		-
Independent Bank Loan		20,000		-
Total interest expense	$	363,000	$	474,000

L. Commitments and Contingencies

Litigation

In the ordinary course of business, the Trust may become subject to litigation or claims. There are no material pending or threatened legal proceedings known to be contemplated against the Trust.

Off-Balance Sheet Arrangements

From time to time, we enter into guarantees of debtor’s borrowings and provide credit enhancements for the benefit of senior lenders in connection with our debtors and investments in partnerships (collectively referred to as “guarantees”), and account for such guarantees in accordance with FASB ASC 460-10Guarantees. Guarantees generally have fixed expiration dates or other termination clauses and may require payment of a fee by the debtor. A guarantee involves, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss in the event of non-performance by the other party to the instrument is represented by the contractual notional amount of the guarantee.

In connection with the funding of some of our organization costs, on June 26, 2009, UMTH LD entered into a $6.3 million line of credit (as amended, the “UMTH LD CTB LOC”) with CTB. Effective February 26, 2012, UMTH LD entered into a second loan modification agreement with CTB, which resulted in an extension of the maturity date on the UMTH LD CTB LOC to December 26, 2014. UMTH LD has a receivable from our Advisor for organization costs funded by UMTH LD on behalf of the Trust. UMTH LD has assigned this receivable to the bank as security for the UMTH LD CTB LOC. In addition, the UMTH LD CTB LOC is secured by a collateral assignment of a first priority note and deed of trust held by a subsidiary of UMTH LD against a residential real estate project. As a condition to the modification entered into effective as of February 26, 2012, the Trust agreed to guaranty all obligations under the UMTH LD CTB LOC. As of March 31, 2014 and December 31, 2013, the outstanding balance on the line of credit was $4.9 million and $5.1 million, respectively.

Effective December 30, 2011, we entered into a Guaranty of Payment and Guaranty of Completion (collectively, the “Stoneleigh Guaranty”) for the benefit of Babson Mezzanine Realty Investors II, L.P. (“Babson”) as agent for a group of lenders pursuant to which we guaranteed all amounts due associated with a $25.0 million construction loan agreement (the “Stoneleigh Construction Loan”) entered into between Maple Wolf Stoneleigh, LLC, an affiliated Delaware limited liability company (“Stoneleigh”), and Babson. Pursuant to the Stoneleigh Construction Loan, Babson will provide Stoneleigh with up to approximately $25.0 million to finance the construction associated with a condominium project located in Dallas, Texas.United Development Funding Land Opportunity Fund, L.P., an affiliated Delaware limited partnership (“UDF LOF”), owns a 75% interest in Stoneleigh. Our asset manager, UMTH LD, also serves as the asset manager of UDF LOF. The general partner of our Advisor also serves as the general partner of UMTH LD. UMTH LD controls 100% of the partnership interests of the general partner of UDF LOF. In consideration of us entering into the Stoneleigh Guaranty, we entered into a letter agreement with Stoneleigh which provides for Stoneleigh to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the Stoneleigh Construction Loan at the end of each month. As of March 31, 2014 and December 31, 2013, approximately $3.9 million and $7.6 million, respectively, was outstanding under the Stoneleigh Construction Loan. For the three months ended March 31, 2014 and 2013, approximately $16,000 and $29,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan. As of March 31, 2014 and December 31, 2013, approximately $10,000 and $15,000, respectively, is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan.

Effective July 22, 2013, we entered into a guaranty agreement (the “URHF Guaranty”) pursuant to which we guaranteed all amounts due associated with a $15.0 million revolving credit facility (the “URHF Southwest Loan”) entered into between United Residential Home Finance, L.P. (“URHF”), an affiliated Delaware limited partnership, and Southwest Bank (“Southwest”). Our Advisor also serves as the advisor for United Mortgage Trust (“UMT”), a Maryland real estate investment trust, which owns 100% of the interests in URHF. The URHF Southwest Loan is secured by a first priority collateral assignment and lien on certain mortgage notes and loans held by URHF. In consideration of us entering into the URHF Guaranty, we entered into a letter agreement with URHF which provides for URHF to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the URHF Southwest Loan at the end of each month. As of both March 31, 2014 and December 31, 2013, approximately $1.2 million was outstanding under the URHF Southwest Loan. For the three months ended March 31, 2014, approximately $3,000 is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the URHF Southwest Loan, all of which is also included in accrued receivable – related parties.

As of March 31, 2014, including the guarantees described above, we had 9 outstanding repayment guarantees with total credit risk to us of approximately $65.7 million, of which approximately $14.2 million had been borrowed against by the debtor. As of December 31, 2013, including the guarantees described above, we had 9 outstanding repayment guarantees with total credit risk to us of approximately $65.7 million, of which approximately $18.7 million had been borrowed against by the debtor.

M. Economic Dependency

Under various agreements, the Trust has engaged or will engage the Advisor and its affiliates to provide certain services that are essential to the Trust, including asset management services, asset acquisition and disposition decisions, the sale of the Trust’s common shares of beneficial interest available for issue, as well as other administrative responsibilities for the Trust. As a result of these relationships, the Trust is dependent upon the Advisor and its affiliates. In the event that these entities were unable to provide the Trust with the respective services, the Trust would be required to find alternative providers of these services.

N. Related Party Transactions

O&O Reimbursement

We paid our Advisor an O&O Reimbursement equal to 3% of the gross offering proceeds raised by the Trust in the Offering (as discussed in Note G) for reimbursement of organization and offering expenses funded by our Advisor or its affiliates. The Offering terminated on May 13, 2013. For the year ended December 31, 2013, we reimbursed our Advisor approximately $8.2 million in accordance with the O&O Reimbursement.

Advisory Fees

We incur monthly Advisory Fees, payable to our Advisor, equal to 2% per annum of our average invested assets (as discussed in Note H). For the three months ended March 31, 2014 and 2013, approximately $2.7 million and $1.6 million, respectively, is included in advisory fee – related party expense for Advisory Fees payable to our Advisor. As of March 31, 2014 and December 31, 2013, approximately $1.0 million and $842,000, respectively, is included in accrued liabilities – related parties associated with Advisory Fees payable to our Advisor.

Acquisition and Origination Fees

We incur Acquisition and Origination Fees equal to 3% of the net amount available for investment in secured loans and other real estate assets (as discussed in Note B and Note H); provided, however, that no such fees will be paid with respect to any asset level indebtedness we incur. The fees are further reduced by the amount of any acquisition and origination expenses paid by borrowers or investment entities to our Advisor or affiliates of our Advisor with respect to our investment. Such costs are expensed as incurred and are payable to UMTH LD, our asset manager. The general partner of our Advisor is also the general partner of UMTH LD. For the three months ended March 31, 2014 and 2013, approximately $1.1 million and $829,000, respectively, is included in general and administrative – related parties expense associated with Acquisition and Origination Fees payable to UMTH LD. As of March 31, 2014 and December 31, 2013, approximately $3.3 million and $2.4 million, respectively, is included in accrued liabilities – related parties associated with Acquisition and Origination Fees payable to UMTH LD.

Debt Financing Fees

Pursuant to the origination of any line of credit or other debt financing, we pay our Advisor Debt Financing Fees, as discussed in Note H. These Debt Financing Fees are expensed on a straight line basis over the life of the financing arrangement.

The following table represents the approximate amount included in general and administrative – related parties expense for the period indicated associated with Debt Financing Fees paid to our Advisor in connection with our credit facility and lines of credit:

	For the three months ended March 31,
Facility	2014		2013
Credit Facility	$	-	$	4,000
UDF IV HF CTB LOC		13,000		7,000
CTB Revolver		5,000		14,000
UTB Revolver		-		3,000
F&M Loan		16,000		5,000
Legacy Revolver		-		4,000
Veritex Revolver		6,000		5,000
Affiliated Bank Loan		7,000		-
UDF IV Fin VII Legacy LOC		12,000		-
UDF IV Fin VI CTB LOC		31,000		-
Independent Bank Loan		19,000		-
Total	$	109,000	$	42,000

As of March 31, 2014 and December 31, 2013, no amounts are included in accrued liabilities – related parties associated with unpaid Debt Financing Fees.

Credit Enhancement Fees

We and our wholly-owned subsidiaries will occasionally enter into financing arrangements that require guarantees from entities affiliated with us. These guarantees require us to pay fees (“Credit Enhancement Fees”) to our affiliated entities as consideration for their guarantees. These Credit Enhancement Fees are either expensed as incurred or recorded as a prepaid asset and amortized, based on the terms of the guarantee agreements.

The following table represents the approximate amount included in general and administrative – related parties expense for the periods indicated associated with Credit Enhancement Fees paid to UDF III for its guarantees of our lines of credit, as discussed in Note H. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD is the general partner of UDF III. UDF III has received an opinion from Jackson Claborn, Inc., an independent advisor, that these credit enhancements are fair and at least as reasonable as credit enhancements with unaffiliated entities in similar circumstances.

	For the three months ended March 31,
Facility	2014		2013
UDF IV HF CTB LOC	$	25,000	$	15,000
CTB Revolver		36,000		20,000
F&M Loan		-		14,000
UDF IV Fin VI CTB LOC		13,000		-
Total	$	74,000	$	49,000

As of March 31, 2014 and December 31, 2013, approximately $16,000 and $17,000, respectively, is included in accrued liabilities – related parties associated with Credit Enhancement Fees payable to our Advisor or its affiliates.

The table below summarizes the approximate payments to related parties for the three months ended March 31, 2014 and the year ended December 31, 2013:

		For the Three Months Ended				For the Year Ended
Payee	Purpose	March 31, 2014				December 31, 2013
UMTH GS
	O&O Reimbursement	$	-	-		$	8,167,000	33	%
	Advisory Fees		2,501,000	92	%		7,819,000	32	%
	Debt Financing Fees		-	-			361,000	1	%

UMTH LD
	Acquisition and Origination Fees		155,000	6	%		7,953,000	33	%

UDF III
	Credit Enhancement Fees		59,000	2	%		132,000	1	%

Total Payments		$	2,715,000	100	%	$	24,432,000	100	%

The table below summarizes the approximate expenses associated with related parties for the three months ended March 31, 2014 and 2013:

	For the Three Months Ended March 31,
Purpose	2014				2013

Advisory Fees	$	2,700,000	100	%	$	1,642,000	100	%

Total Advisory fee – related party	$	2,700,000	100	%	$	1,642,000	100	%


Amortization of Debt Financing Fees	$	109,000	9	%	$	42,000	5	%

Acquisition and Origination Fees		1,083,000	85	%		829,000	90	%

Credit Enhancement Fees		74,000	6	%		49,000	5	%

Total General and administrative – related parties	$	1,266,000	100	%	$	920,000	100	%

Loan Participation Interest – Related Parties

A majority of our trustees (including a majority of our independent trustees) who are not otherwise interested in these transactions have approved the following loan participation interest – related parties agreements as being fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

Buffington Participation Agreements

On December 18, 2009, we entered into two participation agreements (collectively, the “Buffington Participation Agreements”) with UMT Home Finance, LP (“UMTHF”), an affiliated Delaware limited partnership, pursuant to which we purchased a participation interest in UMTHF’s construction loans (the “Construction Loans”) to Buffington Texas Classic Homes, LLC (“Buffington Classic”), an affiliated Texas limited liability company, and Buffington Signature Homes, LLC (“Buffington Signature”), an affiliated Texas limited liability company (collectively, “Buff Homes”). Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in UMTHF. UMTH LD has a minority limited partnership interest in Buffington Homebuilding Group, Ltd., which is the parent of Buff Homes. The Buffington Participation Agreements are due and payable in full on October 28, 2014.

Buffington Classic Participation Agreement

On March 24, 2010, we entered into a participation agreement (the “Buffington Classic Participation Agreement”) with UDF III pursuant to which we purchased a 100% participation interest in UDF III’s lot inventory line of credit loan facility with Buffington Classic (the “Buffington Classic Line”). The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD is the general partner of UDF III, and UMTH LD has a minority limited partnership interest in Buffington Homebuilding Group, Ltd., which is the parent of Buffington Classic. The Buffington Classic Participation Agreement is due and payable in full on August 21, 2014.

TR Finished Lot Participation

On June 30, 2010, we purchased a participation interest (the “TR Finished Lot Participation”) in a finished lot loan (the “Travis Ranch II Finished Lot Loan”) made by UDF III to CTMGT Travis Ranch II, LLC, an unaffiliated Texas limited liability company. UMTH LD is the general partner of UDF III. The Travis Ranch II Finished Lot Loan is secured by a subordinate, second lien deed of trust recorded against finished residential lots in the Travis Ranch residential subdivision located in Kaufman County, Texas. The Travis Ranch II Finished Lot Loan is guaranteed by the limited liability company owners of the borrower and by the principal of the borrower. The TR Finished Lot Participation is due and payable in full on January 28, 2015.

TR Paper Lot Participation

On June 30, 2010, we purchased a participation interest (the “TR Paper Lot Participation”) in a “paper” lot loan (the “Travis Ranch Paper Lot Loan”) from UDF III to CTMGT Travis Ranch, LLC, an unaffiliated Texas limited liability company. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD is the general partner of UDF III. A “paper” lot is a residential lot shown on a plat that has been accepted by the city or county, but which is currently undeveloped or under development. The TR Paper Lot Participation is due and payable in full on January 28, 2015.

Carrollton Participation Agreement

On June 10, 2011, we entered into a participation agreement (the “Carrollton Participation Agreement”) with UMT Home Finance III, LP (“UMTHFIII”), an affiliated Delaware limited partnership, pursuant to which we purchased a participation interest in UMTHFIII’s finished lot loan (the “Carrollton Lot Loan”) to Carrollton TH, LP (“Carrollton TH”), an unaffiliated Texas limited partnership. Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in UMTHFIII. We received payment in full for the Carrollton Participation Agreement on May 31, 2013.

165 Howe Participation Agreement

On October 4, 2011, we entered into a participation agreement (the “165 Howe Participation Agreement”) with UMT Home Finance III, LP (“UMTHFIII”), an affiliated Delaware limited partnership, pursuant to which we purchased a participation interest in UMTHFIII’s finished lot loan (the “165 Howe Lot Loan”) to 165 Howe, L.P., an unaffiliated Texas limited partnership, and Allen Partners, L.P., an unaffiliated Texas limited partnership (collectively, “165 Howe”). Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in UMTHFIII. We received payment in full for the 165 Howe Participation Agreement on November 6, 2013.

Pine Trace Participation Agreement

On May 31, 2012, we entered into a participation agreement (the “Pine Trace Participation Agreement”) with UMTHFIII pursuant to which we purchased a participation interest in UMTHFIII’s loan (the “Pine Trace Loan”) to Pine Trace Village, LLC an unaffiliated Texas limited liability company (“Pine Trace”). Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in UMTHFIII. The Pine Trace Participation Agreement is due and payable in full on March 29, 2015.

Northpointe Participation Agreement

On June 11, 2012, we entered into a participation agreement (the “Northpointe Participation Agreement”) with UDF III pursuant to which we purchased a participation interest in UDF III’s loan (the “Northpointe Loan”) to UDF Northpointe, LLC, an unaffiliated Texas limited liability company (“Northpointe”). The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD is the general partner of UDF III. The Northpointe Participation Agreement is due and payable in full on June 4, 2014.

Northpointe II Participation Agreement

On May 2, 2013, we entered into a participation agreement (the “Northpointe II Participation Agreement”) with UDF III pursuant to which we purchased a participation interest in UDF III’s loan (the “Northpointe II Loan”) to UDF Northpointe II, LLC (“Northpointe II”). The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD is the general partner of UDF III. The Northpointe II Participation Agreement is due and payable in full on December 28, 2014.

UMTHF Megatel Participation

On October 3, 2013, we entered into a participation agreement (the “UMTHF Megatel Participation”) with UMTHF pursuant to which we purchased a participation interest in UMTHF’s construction loan (the “UMTHF Megatel Loan”) to Megatel Homes II, LLC (“Megatel”). Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in UMTHF. The UMTHF Megatel Participation is due and payable in full on October 3, 2014.

URHF Buckingham Participation

On December 16, 2013, we entered into a participation agreement (the “URHF Buckingham Participation”) with URHF pursuant to which we purchased a participation interest in URHF’s $4.9 million loan (the “URHF Buckingham Loan”) to CTMGT Buckingham, LLC (“Buckingham”), a Texas limited liability company. Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in URHF. The URHF Buckingham Participation is due and payable in full on June 28, 2016.

URHF Bratton Hill Participation

On December 16, 2013, we entered into a participation agreement (the “URHF Bratton Hill Participation”) with URHF pursuant to which we purchased a participation interest in URHF’s $3.0 million loan (the “URHF Bratton Hill Loan”) to BLD Bratton Hill, LLC (“Bratton Hill”), a Texas limited liability company. Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in URHF. The URHF Bratton Hill Participation is due and payable in full on July 31, 2016.

Summary Information

The table below summarizes the approximate outstanding balance of each of our loans included in loan participation interest – related parties as of the date indicated:

Loan Name	March 31, 2014		December 31, 2013
Buffington Participation Agreements	$	1,263,000	$	2,826,000
Buffington Classic Participation Agreement		280,000		279,000
TR Finished Lot Participation		2,765,000		3,346,000
TR Paper Lot Participation		12,816,000		12,617,000
Carrollton Participation Agreement		-		-
165 Howe Participation Agreement		-		-
Pine Trace Participation Agreement		7,346,000		6,646,000
Northpointe Participation Agreement		1,585,000		1,585,000
Northpointe II Participation Agreement		2,597,000		3,000,000
UMTHF Megatel Participation		3,805,000		-
URHF Buckingham Participation		1,197,000		1,425,000
URHF Bratton Hill Participation		888,000		1,186,000
Total	$	34,542,000	$	32,910,000

The table below summarizes the approximate accrued interest included in accrued receivable – related parties associated with each of our loans included in loan participation interest – related parties as of the date indicated:

Loan Name	March 31, 2014		December 31, 2013
Buffington Participation Agreements	$	16,000	$	47,000
Buffington Classic Participation Agreement		24,000		16,000
TR Finished Lot Participation		52,000		66,000
TR Paper Lot Participation		665,000		197,000
Carrollton Participation Agreement		-		-
165 Howe Participation Agreement		-		-
Pine Trace Participation Agreement		8,000		562,000
Northpointe Participation Agreement		47,000		-
Northpointe II Participation Agreement		4,000		-
UMTHF Megatel Participation		24,000		-
URHF Buckingham Participation		29,000		91,000
URHF Bratton Hill Participation		24,000		64,000
Total	$	893,000	$	1,043,000

The following table summarizes the approximate income included in interest income – related parties associated with each of our loans included in loan participation interest – related parties for the periods indicated:

	For the Three Months Ended March 31,
Loan Name	2014		2013
Buffington Participation Agreements	$	92,000	$	216,000
Buffington Classic Participation Agreement		10,000		17,000
TR Finished Lot Participation		111,000		133,000
TR Paper Lot Participation		467,000		393,000
Carrollton Participation Agreement		-		23,000
165 Howe Participation Agreement		-		36,000
Pine Trace Participation Agreement		214,000		167,000
Northpointe Participation Agreement		47,000		9,000
Northpointe II Participation Agreement		84,000		-
UMTHF Megatel Participation		24,000		-
URHF Buckingham Participation		35,000		-
URHF Bratton Hill Participation		29,000		-
Total	$	1,113,000	$	994,000

Notes Receivable – Related Parties

A majority of our trustees (including a majority of our independent trustees) who are not otherwise interested in these transactions have approved the following notes receivable – related parties agreements as being fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties.

HLL Indian Springs Loan

On January 18, 2010, we made a finished lot loan (the “HLL Indian Springs Loan”) of approximately $1.8 million to HLL Land Acquisitions of Texas, L.P., an affiliated Texas limited partnership (“HLL”). HLL is a wholly owned subsidiary of United Development Funding, L.P. (“UDF I”), an affiliated Delaware limited partnership. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The HLL Indian Springs Loan was paid in full in May 2013.

Buffington Classic CL

On April 30, 2010, we entered into a construction loan agreement with Buffington Classic (the “Buffington Classic CL”) through which we agreed to provide an interim construction loan facility to Buffington Buffington Classic. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD owns an investment in Buffington Homebuilding Group, Ltd., which is the parent of Buffington Classic. The Buffington Classic CL is due and payable in full on October 28, 2014.

HLL II Highland Farms Loan

Effective December 22, 2010, we made a finished lot loan (the “HLL II Highland Farms Loan”) of approximately $1.9 million to HLL II Land Acquisitions of Texas, L.P., an affiliated Texas limited partnership (“HLL II”). HLL II is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The HLL II Highland Farms Loan is due and payable in full on March 22, 2015.

In connection with the HLL II Highland Farms Loan, HLL II agreed to pay us an origination fee of approximately $19,000, which was funded at the closing of the loan. Revenue associated with this origination fee is included in commitment fee income – related parties and is recognized over the life of the loan.

HLL Hidden Meadows Loan

Effective February 17, 2011, we entered into a Loan Agreement providing for a $9.9 million loan (the “HLL Hidden Meadows Loan”) to be made to HLL. HLL is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The HLL Hidden Meadows Loan is due and payable in full on January 21, 2015.

In connection with the HLL Hidden Meadows Loan, HLL agreed to pay a $99,000 origination fee to us, which was funded at the closing of the HLL Hidden Meadows Loan. Revenue associated with this origination fee is included in commitment fee income – related parties and is recognized over the life of the loan.

Ash Creek Loan

Effective April 20, 2011, we entered into a $3.0 million loan agreement (the “Ash Creek Loan”) with UDF Ash Creek, LP (“UDF Ash Creek”), an affiliated Delaware limited partnership. UDF Ash Creek is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The Ash Creek Loan is due and payable in full on October 20, 2014.

UDF TX Two Loan

On September 20, 2012, we entered into a loan purchase agreement with a third party to acquire a loan obligation (the “UDF TX Two Loan”) owing from UDF TX Two, L.P., an affiliated Texas limited partnership (“UDF TX Two”), for approximately $2.9 million. UDF I has a 50% partnership interest in UDF TX Two. Our asset manager, UMTH LD, also serves as the asset manager of UDF I. The general partner of our Advisor is also the general partner of UMTH LD. The UDF TX Two Loan is due and payable in full on September 20, 2014.

UDF PM Loan

Effective October 17, 2012, we entered into a $5.1 million loan agreement (the “UDF PM Loan”) with UDF PM, LLC (“UDF PM”), an affiliated Texas limited liability company. UDF PM is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The UDF PM Loan is due and payable in full on October 17, 2015.

HLL IS Loan

Effective November 29, 2012, we entered into a $6.4 million loan agreement (the “HLL IS Loan”) with HLL. HLL is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The HLL IS Loan is due and payable in full on November 29, 2015.

In connection with the HLL IS Loan, HLL agreed to pay a $64,000 origination fee to us, which was funded at the closing of the HLL IS Loan. Revenue associated with this origination fee is included in commitment fee income – related parties and is recognized over the life of the loan.

One KR Loan

Effective December 14, 2012, we entered into a $15.3 million loan agreement (the “One KR Loan”) with One KR Venture, L.P., an affiliated Texas limited partnership (“One KR”). One KR is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The One KR Loan is due and payable in full on June 14, 2016.

In connection with the One KR Loan, One KR agreed to pay a $153,000 origination fee to us, which was funded at the closing of the One KR Loan. Revenue associated with this origination fee is included in commitment fee income – related parties and is recognized over the life of the loan.

Rowe Lane Loan

Effective February 18, 2014, we entered into a $7.5 million loan agreement (the “Rowe Lane Loan”) with Rowe Lane 285, L.P., an affiliated Texas limited partnership (“Rowe Lane”). Rowe Lane is a wholly owned subsidiary of UDF I. The general partner of our Advisor is also the general partner of UMTH LD, our asset manager. UMTH LD also serves as the asset manager of UDF I. The Rowe Lane Loan provides Rowe Lane with funding to acquire and develop 71.388 acres of land into approximately 285 single family lots. The Rowe Lane Loan was initially evidenced and secured by a first lien deed of trust recorded against approximately 28 acres, as well as a second lien deed of trust recorded against approximately 43 acres, and other loan documents. The interest rate under the Rowe Lane Loan is the lower of 13% per annum, or the highest rate allowed by law. The Rowe Lane Loan matures and becomes due and payable in full on February 18, 2018. The Rowe Lane Loan provides Rowe Lane with an interest reserve of approximately $2.5 million, pursuant to which we will fund Rowe Lane’s monthly interest payments and add the payments to the outstanding principal balance of the Rowe Lane Loan.

In connection with the Rowe Lane Loan, Rowe Lane agreed to pay an origination fee of approximately $75,000 to us, which was funded at the closing of the Rowe Lane Loan. Revenue associated with this origination fee is included in commitment fee income – related parties and is recognized over the life of the loan.

Summary Information

The table below summarizes the approximate outstanding balance of each of our loans included in notes receivable – related parties as of the date indicated:

Loan Name	March 31, 2014		December 31, 2013
HLL Indian Springs Loan	$	-	$	-
Buffington Classic CL		-		-
HLL II Highland Farms Loan		1,489,000		1,572,000
HLL Hidden Meadows Loan		11,218,000		10,643,000
Ash Creek Loan		1,627,000		1,756,000
UDF TX Two Loan		501,000		502,000
UDF PM Loan		4,133,000		3,822,000
HLL IS Loan		2,763,000		2,522,000
One KR Loan		9,806,000		10,201,000
Rowe Lane Loan		2,750,000		-
Total	$	34,287,000	$	31,018,000

The table below summarizes the approximate accrued interest included in accrued receivable – related parties associated with each of our loans included in notes receivable – related parties as of the date indicated:

Loan Name	March 31, 2014		December 31, 2013
HLL Indian Springs Loan	$	-	$	-
Buffington Classic CL		-		-
HLL II Highland Farms Loan		11,000		-
HLL Hidden Meadows Loan		172,000		1,028,000
Ash Creek Loan		14,000		22,000
UDF TX Two Loan		32,000		16,000
UDF PM Loan		208,000		83,000
HLL IS Loan		96,000		12,000
One KR Loan		197,000		-
Rowe Lane Loan		38,000		-
Total	$	768,000	$	1,161,000

The following table summarizes the approximate income included in interest income – related parties associated with each of our loans included in notes receivable – related parties for the period indicated:

	For the Three Months Ended March 31,
Loan Name	2014		2013
HLL Indian Springs Loan	$	-	$	6,000
Buffington Classic CL		-		5,000
HLL II Highland Farms Loan		49,000		45,000
HLL Hidden Meadows Loan		350,000		301,000
Ash Creek Loan		55,000		81,000
UDF TX Two Loan		16,000		106,000
UDF PM Loan		125,000		35,000
HLL IS Loan		83,000		103,000
One KR Loan		314,000		219,000
Rowe Lane Loan		38,000		-
Total	$	1,030,000	$	901,000

Commitment Fee Income

We and our wholly-owned subsidiaries will occasionally enter into loan agreements with affiliated entities that require origination fees to be funded to us at the closing of the loan. These origination fees are recognized as revenue over the life of the resulting loan and this revenue is included in commitment fee income – related parties.

The following table represents the approximate origination fees included in commitment fee income – related parties associated with each loan for the periods indicated:

	For the Three Months Ended March 31,
Loan	2014		2013
HLL II Highland Farms Loan	$	-	$	2,000
HLL Hidden Meadows Loan		6,000		6,000
HLL IS Loan		5,000		5,000
One KR Loan		13,000		13,000
Rowe Lane Loan		3,000		-
Total	$	27,000	$	26,000

O. Concentration of Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk are primarily temporary cash equivalent and loan participation interest – related parties. We maintain deposits in financial institutions that may at times exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”). We have not experienced any losses related to amounts in excess of FDIC limits.

At March 31, 2014, our real estate investments were secured by property located in Texas.

We may invest in multiple secured loans that share a common borrower. The bankruptcy, insolvency or other inability of any borrower that is the subject of multiple loans to pay interest or repay principal on its loans would have adverse consequences on our income and reduce the amount of funds available for distribution to investors. The more concentrated our portfolio is with one or a few borrowers, the greater credit risk we face. The loss of any one of these borrowers would have a material adverse effect on our financial condition and results of operations.

We did not have any individual loans to borrowers that accounted for over 10% of the outstanding balance of our portfolio as of March 31, 2014. Our largest individual borrower and its affiliates comprised approximately 65% of the outstanding balance of our portfolio.

P. Subsequent Events

On April 28, 2014, we issued a press release announcing that our board of trustees has determined that it is in the best interest of the Trust and its shareholders to list the common shares of beneficial interest, par value $0.01 per share, of the Trust on the NASDAQ Global Select Market (“NASDAQ”), under the symbol “UDF.” The Trust anticipates that its common shares of beneficial interest will be listed on NASDAQ in 2014 (the “Listing”). However, the completion of the listing is subject to certain conditions, including approval by NASDAQ, and no assurance can be given that our common shares will be listed on NASDAQ in 2014 or at all. If our common shares are listed on NASDAQ, the Advisor may be entitled to certain fees as described in Note I – Disposition/Liquidation Compensation.

On May 5, 2014, the Trust issued a press release announcing the suspension of its DRIP, effective May 24, 2014, and its share redemption program, effective June 6, 2014, in contemplation of the Listing. The effect of these suspensions is that, as of May 24, 2014, participants in the DRIP will receive their distributions in cash instead of in the form of common shares of beneficial interest, and as of June 6, 2014, holders of the common shares of beneficial interest will no longer be able to present their shares to the Trust for redemption. Subject to applicable rules and regulations, the Trust expects to adopt a new distribution reinvestment plan following the Listing.

Pursuant to an amendment entered into on April 11, 2014, CTB increased its commitment under the CTB Revolver from $15.0 million to $25.0 million.

Pursuant to an amendment entered into on April 11, 2014, CTB reduced its commitment under the UDF IV Fin VI CTB LOC from $25.0 million to $15.0 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes thereto:

Forward-Looking Statements

This section of the quarterly report contains forward-looking statements, including discussion and analysis of us, our financial condition, amounts of anticipated cash distributions to common shareholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on their knowledge and understanding of our business and industry. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guaranties of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution you not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this quarterly report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this quarterly report on Form 10-Q include changes in general economic conditions, changes in real estate conditions, development costs that may exceed estimates, development delays, increases in interest rates, residential lot take down or purchase rates or inability to sell residential lots experienced by our borrowers, and the potential need to fund development costs not completed by the initial borrower or other capital expenditures out of operating cash flows. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of this quarterly report on Form 10-Q and our 2013 10-K, as filed with the Securities and Exchange Commission.

Overview

On November 12, 2009, the Trust’s Registration Statement on Form S-11, covering the Offering of up to 25,000,000 common shares of beneficial interest to be offered in the Primary Offering at a price of $20 per share, was declared effective under the Securities Act of 1933, as amended. The Offering also initially covered up to 10,000,000 common shares of beneficial interest to be issued pursuant to our DRIP at a price of $20 per share. We had the right to reallocate the common shares of beneficial interest registered in the Offering between the Primary Offering and the DRIP, and pursuant to Supplement No. 6 to our prospectus regarding the Offering, which was filed with the SEC on May 3, 2013, we reallocated the shares being offered to be 34,000,000 shares offered pursuant to the Primary Offering and 1,000,000 shares offered pursuant to the DRIP. The Offering terminated on May 13, 2013.

On April 19, 2013, we registered 7,500,000 additional common shares of beneficial interest to be offered pursuant to our Secondary DRIP for $20 per share. We ceased offering common shares of beneficial interest under the DRIP portion of the Offering upon the termination of the Offering on May 13, 2013 and concurrently began offering our common shares of beneficial interest to our shareholders pursuant to the Secondary DRIP.

On May 5, 2014, we announced the suspension of the DRIP, effective May 24, 2014. For further discussion of the suspension of the DRIP, see Note P to the accompanying consolidated financial statements.

We use substantially all of the net proceeds from the Primary Offering, the DRIP and the Secondary DRIP to originate, purchase, participate in and hold for investment secured loans made directly by us or indirectly through our affiliates to persons and entities for the acquisition and development of parcels of real property as single-family residential lots or mixed-use master planned residential communities, for the construction of single-family homes and for completed model homes. We also make direct investments in land for development into single-family lots, home construction and portfolios of finished lots and model homes; provide credit enhancements to real estate developers, home builders, land bankers and other real estate investors; and purchase participations in, or finance for other real estate investors the purchase of, securitized real estate loan pools and discounted cash flows secured by state, county, municipal or other similar assessments levied on real property. We also may enter into joint ventures with unaffiliated real estate developers, home builders, land bankers and other real estate investors, or with other United Development Funding-sponsored programs, to originate or acquire, as the case may be, the same kind of secured loans or real estate investments we may originate or acquire directly.

Until required in connection with the funding of loans or other investments, substantially all of the net proceeds of the Offering and, thereafter, our working capital reserves, may be invested in short-term, highly-liquid investments including, but not limited to, government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts.

We made an election under Section 856(c) of the Internal Revenue Code to be taxed as a REIT, beginning with the taxable year ended December 31, 2010, which was the first year in which we had material operations. As a REIT, we generally are not subject to federal income tax on income that we distribute to our shareholders. If we later fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and may not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which our qualification is denied, unless we are entitled to relief under certain statutory provisions. Such an event could materially and adversely affect our net income. However, we believe that we are organized and operated in a manner that will enable us to remain qualified as a REIT for federal income tax purposes.

Our loan portfolio, consisting of notes receivable, notes receivable – related parties and loan participation interest – related parties, grew from approximately $297.2 million as of December 31, 2012, to approximately $508.5 million as of December 31, 2013, to approximately $537.5 million as of March 31, 2014. With the increase in our loan portfolio, our revenues, the majority of which is from recognizing interest income associated with our loan portfolio, also increased. Our expenses related to the portfolio also increased, including the provision for loan losses, which was approximately $705,000 and $416,000 for the three months ended March 31, 2014 and 2013, respectively.

Our cash balances were approximately $8.6 million and $33.6 million as of March 31, 2014 and December 31, 2013, respectively. These balances have fluctuated since the Offering began with the raise of gross proceeds and the deployment of funds available.

We may use debt as a means of providing additional funds for the acquisition or origination of secured loans, acquisition of properties and the diversification of our portfolio. We may also use, when appropriate, leverage at the asset level. As of both March 31, 2014 and December 31, 2013, we do not have any asset-level indebtedness. Interest expense associated with fund-level indebtedness was approximately $363,000 and $474,000 for the three months ended March 31, 2014 and 2013, respectively. The decrease in interest expense is a result of fluctuation in the outstanding balances of our line of credit and notes payable as we deploy funds raised through our Offering.

Net income was approximately $11.8 million and $6.8 million for the three months ended March 31, 2014 and 2013, respectively. Net income per share of beneficial interest was approximately $0.37 and $0.36 for the three months ended March 31, 2014 and 2013, respectively. Our net income per share of beneficial interest is calculated based on net income divided by the weighted average shares of beneficial interest outstanding. Such net income per share of beneficial interest has fluctuated since the Offering began with the raise of gross proceeds and the deployment of funds available.

As of March 31, 2014, we had originated or purchased 149 loans, including 29 loans that have either been repaid in full by the respective borrower or have matured and have not been renewed, with maximum loan amounts totaling approximately $938.7 million. Of the 120 loans outstanding as of March 31, 2014, 9 loans totaling approximately $34.3 million and 10 loans totaling approximately $34.5 million are included in notes receivable – related parties, net and loan participation interest – related parties, net, respectively, on our balance sheet.

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform to GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. If management’s judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the consolidated financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses.

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. GAAP consists of a set of standards issued by the FASB and other authoritative bodies in the form of FASB Statements, Interpretations, FASB Staff Positions, Emerging Issues Task Force consensuses and American Institute of Certified Public Accountants Statements of Position, among others. The FASB recognized the complexity of its standard-setting process and embarked on a revised process in 2004 that culminated in the release on July 1, 2009 of the ASC. The ASC does not change how the Trust accounts for its transactions or the nature of related disclosures made. Rather, the ASC results in changes to how the Trust references accounting standards within its reports. This change was made effective by the FASB for periods ending on or after September 15, 2009. The Trust has updated references to GAAP in this quarterly report on Form 10-Q to reflect the guidance in the ASC. The preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates, including investment impairment. These estimates are based on management’s historical industry experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Loan Participation Interest – Related Parties

As of March 31, 2014, the participations have terms ranging from 12 to 31 months and bear interest at rates ranging from 12% to 15%. The participation interests may be paid off prior to maturity; however, we intend to hold all participation interests for the life of the loans.

Notes Receivable and Notes Receivable – Related Parties

As of March 31, 2014, the notes have terms ranging from 5 to 48 months and bear interest at rates ranging from 11% to 15%. The notes may be paid off prior to maturity; however, the Trust intends to hold all notes for the life of the notes.

Determination of the Allowance for Loan Losses

As of March 31, 2014 and December 31, 2013, the allowance for loan losses had a balance of $4.5 million and $3.8 million, respectively, offset against notes receivable (see Note B to the accompanying consolidated financial statements).

Organization and Offering Expenses

Organization costs will be expensed as incurred in accordance with Statement of Position 98-5,Reporting on the Costs of Start-up Activities,currently within the scope of FASB ASC 720-15. Offering costs related to raising capital from debt will be capitalized and amortized over the term of such debt. Offering costs related to raising capital from equity reduce equity and are reflected as shares issuance costs in shareholders’ equity. Certain offering costs were paid by our Advisor and, as discussed in Note H to the accompanying consolidated financial statements, our Advisor has been paid by the Trust for such costs in an amount equal to 3% of the gross proceeds raised by the Trust in the Offering (the “O&O Reimbursement”) less any offering costs paid by the Trust directly. The Offering terminated on May 13, 2013.

Acquisition and Origination Fees

As discussed in Note H to the accompanying consolidated financial statements, we reimburse UMTH LD, our asset manager, for Acquisition and Origination Fees; provided, however, that no Acquisition and Origination Fees will be paid with respect to any asset level indebtedness we incur. Such fees are expensed as incurred. For the three months ended March 31, 2014 and the year ended December 31, 2013, the Trust reimbursed UMTH LD approximately $155,000 and $8.0 million, respectively, for Acquisition and Origination Fees.

Revenue Recognition

As of March 31, 2014 and December 31, 2013, we were accruing interest on all loan participation interest – related parties, notes receivable and notes receivable – related parties.

As of March 31, 2014 and December 31, 2013, approximately $2.6 million and $2.5 million, respectively, of unamortized commitment fees are included as an offset of notes receivable. Approximately $211,000 and $164,000 of unamortized commitment fees are included as an offset of notes receivable – related parties as of March 31, 2014 and December 31, 2013, respectively.

Real Estate Owned and Loan Portfolio

Real Estate Owned

Our real estate owned consists of finished single-family residential lots purchased from third party builders. In some cases, we may use our lines of credit to finance these lots. For lots we intend to finance under a line of credit, a UDF IV subsidiary has originated a first lien on the lots which is assigned to the holder of the line of credit.

As of March 31, 2014, we have 116 finished single-family residential lots included in our real estate owned balance of approximately $10.1 million. We have option agreements in place to sell these lots with terms ranging from 18 to 24 months.

Loan Portfolio

For loans in which we are a subordinate lender, we are generally second in lien priority behind the third party financing. In some cases, we permit builders to file performance deeds of trust in second priority behind the third party financing. In such cases, we are generally third in lien priority behind the third party financing and the builder performance deeds of trust. For loans in which we are a subordinate lender, the aggregate of all loan balances, senior and subordinated, divided by the value of the collateral is 85% or less, unless substantial justification to exceed an 85% loan-to-value ratio exists because of the presence of other underwriting criteria.

We may secure our loans with pledges of equity interests in lieu of, or in addition to, real property liens. Pledges of equity interests are documented by pledge agreements, assignments of equity interests, and uniform commercial code (“UCC”) financing statements. In some cases, we also secure assignments of distributions to secure our pledges of equity interests. Should a loan secured by a pledge of equity interests default, we may foreclose on the pledge of equity interests through a personal property foreclosure under the terms of the pledge agreement and the UCC.

We may secure our loans with assignments of reimbursement rights in lieu of, or in addition to, real property liens. Assignments of reimbursement rights are documented by deeds of trust or by assignments and UCC financing statements. Should a loan secured by an assignment of reimbursement rights default, we may foreclose on the reimbursement rights either in conjunction with a real property foreclosure or through a personal property foreclosure under the terms of the UCC.

As of March 31, 2014, we had purchased or entered into 15 participation agreements with related parties (five of which were repaid in full) with aggregate, maximum loan amounts of approximately $77.5 million (with an unfunded balance of approximately $22.5 million) and 12 related party note agreements (two of which were repaid in full and one of which matured and was not renewed) with aggregate, maximum loan amounts totaling approximately $69.6 million (with an unfunded balance of approximately $8.3 million). Additionally, we had purchased or entered into 122 note agreements with third parties (21 of which were repaid in full) with aggregate, maximum loan amounts of approximately $791.6 million, of which approximately $155.5 million has yet to be funded.

The participation agreements outstanding as of March 31, 2014 are made to borrower entities which may hold ownership interests in projects in addition to the project funded by us and/or may be secured by multiple single-family residential communities. Certain participation agreements are secured by a personal guarantee of the borrower in addition to a lien on the real property or the equity interests in the entity that holds the real property. The outstanding aggregate principal amount of mortgage notes originated by us as of March 31, 2014 are secured by properties located in the Dallas, Fort Worth, Austin, Houston, San Antonio and Lubbock metropolitan markets in Texas. Security for such loans takes the form of either a direct security interest represented by a first or second lien on the respective property and/or an indirect security interest represented by a pledge of the ownership interests of the entity which holds title to the property.

87 of the 120 loans outstanding as of March 31, 2014, representing approximately 70% of the aggregate principal amount of the outstanding loans, are secured by a first lien on the respective property; 33 loans, representing approximately 35% of the aggregate principal amount of the outstanding loans, are secured by a second lien on the respective property; 22 loans, representing approximately 25% of the aggregate principal amount of the outstanding loans, are secured by a pledge of some or all of the equity interests in the developer entity or other parent entity that owns the borrower entity; 28 loans, representing approximately 36% of the aggregate principal amount of the outstanding loans, are secured by reimbursements of development costs due to the developer under contracts with districts and cities; and 100 loans, representing approximately 84% of the aggregate principal amount of the outstanding loans, are secured by a guarantee of the principals or parent companies of the borrower in addition to the other collateral for the loan.

As of March 31, 2014, we did not have any individual loans to borrowers that accounted for over 10% of the outstanding balance of our portfolio. As of March 31, 2014, our largest individual borrower and its affiliates comprised approximately 65% of the outstanding balance of our portfolio.

As of March 31, 2014, interest rates range from 12% to 15% on the outstanding participation agreements and from 11% to 15% on the outstanding notes receivable, including notes receivable from related parties. The participation agreements have terms ranging from 12 to 31 months, while the notes receivable have terms ranging from 5 to 48 months.

The following table summarizes our real property loans as of March 31, 2014:

														2014		2013		2012
				Interest			Original Note	Maturity		Maximum Loan		Principal		Cash		Cash		Cash		Unfunded
Borrower	Lender (1)	Location	Collateral (2)	Rate			Date	Date (3)		Amount (3)		Balance		Receipts		Receipts		Receipts		Balance

Notes Receivable - Related Parties
Buffington Texas Classic Homes, LLC	UDF IV HF	Austin, TX	1st lien; no homes		13	%	4/30/2010	10/28/2014		$	7,500,000	$	-	$	-	$	398,826	$	4,028,025	$	-
HLL II Land Acquisitions of Texas, LP	UDF IV AC	San Antonio, TX	1st lien; 18 finished lots, 148 paper lots		13	%	12/22/2010	3/22/2015			1,854,200		1,488,784		85,913		101,404		125,678		-
HLL Land Acquisitions of Texas, LP	UDF IV	Houston, TX	1st lien and reimbursements; 66 finished lots, 190 paper lots; 92.8 acres		13	%	2/17/2011	1/21/2015			11,670,522		11,218,296		-		-		-		452,226
UDF Ash Creek, LP	UDF IV	Dallas, TX	1st and 2nd lien; 9 finished lots; 2 townhomes; 28 paper lots		13	%	4/20/2011	10/20/2014			3,000,000		1,626,743		143,105		934,197		75,711		220,244
UDF PM, LLC	UDF IV	Lubbock, TX	Reimbursements		13	%	10/17/2012	10/17/2015			5,087,250		4,133,265		-		-		-		953,985
HLL Land Acquisitions of Texas, LP	UDF IV FII	San Antonio, TX	1st lien; 23 finished lots; 41 paper lots		13	%	11/29/2012	11/29/2015			6,414,410		2,762,525		-		1,751,811		-		1,900,074
One KR Venture, LP	UDF IV	San Antonio, TX	1st lien and pledge of equity interest; 36 finished lots; 36 paper lots; 290 acres		13	%	12/14/2012	6/14/2016			15,295,897		9,806,174		563,077		4,866,556		-		60,091
Rowe Lane 285, LP	UDF IV	Travis County, TX; Williamson County, TX	1st lien and 2nd lien; 285 paper lots		13	%	2/18/2014	2/18/2018			7,457,000		2,750,032		-		-		-		4,706,968
UDF TX Two, LP	UDF IV	Austin, TX	1st lien; 1 lot		13	%	9/20/2012	9/20/2014	(4)		3,500,000		501,357		-		3,152,213		49,102		-

Subtotal - Notes Receivable - Related Parties										$	61,779,279	$	34,287,176	$	792,095	$	11,205,007	$	4,278,516	$	8,293,588

Notes Receivable - Non-Related Parties
CTMGT Granbury, LLC	UDF IV FI	Austin, TX	1st lien; 552 acres		13	%	5/21/2010	5/21/2014		$	11,960,000	$	9,510,523	$	-	$	-	$	-	$	2,449,477
Crescent Estates Custom Homes, LP	UDF IV FII	Dallas/Ft. Worth, TX; Austin, TX	1st lien; 9 homes		13	%	6/10/2010	6/10/2014			4,000,000		1,876,102		242,809		4,109,611		3,343,663		-
CTMGT Land Holdings, LP	UDF IV	Rockwall, TX	2nd lien and reimbursements; 807 acres		14	%	7/23/2010	1/28/2015			18,691,537		17,121,209		-		-		-		-
Megatel Homes II, LLC	UDF IV HF	Dallas/Ft. Worth, TX; Austin, TX; San Antonio, TX; Houston, TX; Lubbock, TX	1st lien; 197 homes		13	%	8/24/2011	8/24/2014			40,000,000		36,352,084		7,575,247		34,987,757		7,627,536		-
165 Howe, LP	UDF IV	Denton and Tarrant County, TX	Reimbursements		13	%	11/22/2010	11/22/2014			2,170,000		1,403,526		-		-		591,534		-
BHM Highpointe, LTD	UDF IV FI	Austin, TX	1st lien; 31 finished lots		13	%	11/16/2010	11/30/2014			2,858,309		2,456,759		217,304		254,421		11,635		-
The Resort at Eagle Mountain Lake, LP	UDF IV	Tarrant County, TX	Reimbursements		13	%	12/21/2010	12/21/2014			8,715,000		4,829,884		-		3,667,751		-		217,365
FH 295 LLC/CTMGT	UDF IV AC	Denton County, TX	1st and 2nd lien, reimbursements and pledge of equity; 14 finished lots; 154.737 acres		15	%	10/5/2010	10/5/2014			22,342,515		14,964,585		466,773		8,406,785		-		-
CTMGT Williamsburg, LLC	UDF IV FII	Fate, TX	1st lien and reimbursements; 38 finished lots		13	%	11/30/2011	10/31/2014			24,500,000		21,800,671		438,382		1,431,964		388,995		439,989
UDF Sinclair, LP	UDF IV AC	San Antonio, TX	1st lien; 10 finished lots		13	%	2/16/2011	12/31/2014			1,479,000		137,968		104,750		99,772		598,997		24,138
Buffington Land, LTD	UDF IV	Austin, TX	1st lien and reimbursements; 10 finished lots		13	%	1/26/2011	1/26/2015			18,000,000		13,420,027		1,856,146		6,596,690		7,285,835		-
Shale-114, LP	UDF IV	Denton County, TX	2nd lien; 507 paper lots		13	%	3/28/2011	3/28/2015			3,968,135		3,219,677		106,965		2,840,080		-		-
Woods Chin Chapel, LTD	UDF IV	Denton County, TX	2nd lien; 37.929 acres; 13 finished lots		13	%	6/30/2011	6/30/2014			12,725,327		11,645,874		-		-		-		127,778
High Trophy Development, LLC	UDF IV AC	Trophy Club, TX	1st lien and pledge of equity; 62 lots; 31.742 acres		13	%	11/7/2011	7/29/2014			10,500,000		5,081,411		192,611		6,003,317		-		-
CTMGT Montalcino, LLC	UDF IV	Flower Mound, TX	2nd lien, pledge of equity and reimbursements; 36 finished lots; 129 paper lots		13	%	12/13/2011	12/13/2014			32,808,176		31,828,627		-		-		-		979,549
CTMGT Williamsburg, LLC	UDF IV FV	Fate, TX	1st lien; 244 acres		13	%	2/7/2012	2/7/2015			5,061,426		4,967,653		-		-		-		93,773
CTMGT Valley Ridge, LLC	UDF IV FV	Fort Worth, TX	1st lien; 78 finished lots		13	%	3/2/2012	3/2/2015			3,613,000		2,925,239		424,073		-		-		263,688
Crescent Estates Custom Homes, LP	UDF IV	Dallas, TX	1st lien; 19 homes; 30 lots		13	%	4/27/2012	4/27/2014			19,848,712		17,150,239		5,552,891		6,215,403		669,913		-
PH SLII, LP	UDF IV FII	Austin, TX	1st lien and reimbursements; 47 finished lots		13	%	6/12/2012	12/31/2014			4,727,016		1,743,762		393,654		2,044,850		-		544,749
CTMGT Barcelona, LLC	UDF IV	McKinney, TX	2nd lien and pledge of equity; 71.44 acres		13	%	6/6/2012	6/6/2015			4,125,000		3,689,584		250		-		-		435,166
PH SPM2B, LP	UDF IV FII	Austin, TX	1st lien; 34 paper lots; 10 finished lots		13	%	6/26/2012	6/30/2015			3,738,507		1,699,644		903,807		796,257		-		338,799
CTMGT Alpha Ranch, LLC	UDF IV	Fort Worth, TX	2nd lien and pledge of equity; 1,122 acres		13	%	7/31/2012	7/31/2014			17,152,500		14,647,153		-		-		-		2,505,347
CTMGT Frisco 113, LLC	UDF IV	Frisco, TX	2nd lien; 113 acres		13	%	7/31/2012	7/31/2014			5,850,000		5,063,720		-		-		-		786,280
BHM Highpointe, LTD	UDF IV FIII	Austin, TX	1st lien and reimbursements; 37 finished lots		13	%	8/7/2012	12/31/2014			3,809,735		1,248,719		982,156		1,299,120		-		279,741
287 Waxahachie, LP	UDF IV	Waxahachie, TX	1st lien and reimbursements; 476 acres		13	%	8/10/2012	8/10/2014	(4)		9,732,500		5,862,394		-		1,192,693		-		2,677,413
UDF Sinclair, LP	UDF IV FII	San Antonio, TX	1st lien; 47 finished lots		13	%	8/28/2012	6/30/2015			1,323,404		971,710		59,363		768,783		-		-
SH 161 Acquisitions, LP	UDF IV FVII	Irving, TX	1st lien; 13 finished lots		13	%	9/7/2012	9/7/2015			1,301,248		380,313		408,261		1,116,223		-		-
Megatel Homes II, LLC	UDF IV	Austin, TX; San Antonio, TX	1st lien; 19 lots		13	%	3/27/2012	11/27/2014			1,500,000		1,241,202		127,500		904,123		-		-
CTMGT AR II, LLC	UDF IV	Denton County, TX	2nd lien and pledge of equity; 161 acres		13	%	11/14/2012	11/14/2015			2,880,000		905,658		-		-		-		1,974,342
Pine Trace Village, LLC	UDF IV FV	Houston, TX	1st lien and reimbursements; 12 finished lots		13	%	11/16/2012	11/16/2015			1,953,432		951,389		293,915		575,441		-		132,688
CTMGT Legends, LLC	UDF IV	Denton County, TX	2nd lien; 20 acres		13	%	11/16/2012	11/16/2015			2,425,000		1,837,592		-		-		-		587,408
CTMGT Erwin Farms, LLC	UDF IV	Collin County, TX	2nd lien; 565 paper lots		13	%	12/6/2012	12/6/2015			6,550,000		3,995,631		-		-		-		2,554,369
BLG Plantation, LLC	UDF IV FV	Houston, TX	1st lien; 62 finished lots; 50 paper lots		13	%	11/26/2012	11/26/2015			4,095,000		2,503,115		148,648		108,837		-		1,334,401
CTMGT Regatta II, LLC	UDF IV	Denton County, TX	1st and 2nd lien and reimbursements; 10.97 acres and 516 acres		13	%	12/27/2012	10/25/2015			7,830,000		7,766,713		-		-		-		63,287
CTMGT Rancho Del Lago, LLC	UDF IV	San Antonio, TX	1st and 2nd lien; 350 acres and 341 acres		13	%	12/31/2012	12/31/2016			21,523,651		20,917,631		-		-		-		606,020
CTMGT Rockwall 38, LLC	UDF IV	Denton County, TX	2nd lien; 76 paper lots		13	%	2/4/2013	2/4/2016			1,800,000		1,302,551		-		-		-		497,449
BLG Hawkes, LLC	UDF IV	Austin, TX	2nd lien and pledge of equity; 317 paper lots		13	%	1/25/2013	1/25/2016			10,565,880		2,936,289		-		-		-		7,629,591
CTMGT Verandah, LLC	UDF IV AC	Rockwall County, TX	1st lien; 110 paper lots		13	%	4/15/2013	4/15/2015			3,084,300		2,157,767		-		-		-		926,533
Megatel Capital, LLC	UDF IV	Dallas, TX; Fort Worth, TX	Pledge of equity		15	%	4/10/2013	4/10/2014			10,000,000		-		-		-		-		10,000,000
BLD Scenic Loop, LLC	UDF IV AC	Austin, TX	1st lien and pledge of equity; 35 paper lots		13	%	4/19/2013	4/19/2016			4,603,900		2,463,094		-		-		-		2,140,806
Buffington Mason Park, Ltd	UDF IV	Houston, TX	1st lien and reimbursements; 4 finished lots; 120 paper lots		13	%	4/26/2013	4/26/2016	(4)		6,650,000		1,398,357		480,058		397,922		-		4,373,663
Buffington VOHL 5A 6A 6B, Ltd	UDF IV	Austin, TX	1st lien and reimbursements; 51.71 acres		13	%	4/26/2013	4/26/2016	(4)		4,500,000		3,684,249		8,322		1,294,274		-		-
PH Park at BC, LP	UDF IV	Austin, TX	1st lien; 12 finished lots		11	%	5/3/2013	12/30/2014	(4)		1,540,200		542,000		389,156		430,798		-		178,246
CTMGT Brookside, LLC	UDF IV	Dallas, TX; Fort Worth, TX	2nd lien; 40 paper lots		13	%	5/24/2013	5/24/2015			1,253,847		1,033,180		-		-		-		220,667
CTMGT Frisco 122, LLC	UDF IV	Denton County, TX	2nd lien; 350 paper lots		13	%	5/30/2013	2/28/2015			3,700,000		3,338,579		-		-		-		361,421
Buffington Westpointe, LLC	UDF IV AC	San Antonio, TX	1st lien; 75 paper lots		13	%	5/31/2013	5/31/2016			4,850,000		3,589,255		-		53,313		-		1,207,432
CTMGT Five Oaks Crossing, LLC	UDF IV	Tarrant County, TX	2nd lien; 134 paper lots		13	%	6/5/2013	6/5/2016			3,515,000		1,765,667		-		-		-		1,749,333
CTMGT Valley Ridge II, LLC	UDF IV	Dallas, TX; Fort Worth, TX	2nd lien; 103 paper lots		13	%	7/18/2013	7/18/2016			1,603,700		1,022,291		-		-		-		581,409
BLD Gosling, LLC	UDF IV FII	Houston, TX	1st lien and pledge of equity; 87 paper lots		13	%	6/28/2013	6/28/2016			9,582,400		3,405,562		-		-		-		6,176,838
BLD SPM 2A, LLC	UDF IV	Austin, TX	1st lien; 43 paper lots		13	%	6/28/2013	6/28/2016			2,650,000		1,187,569		-		-		-		1,462,431
BLD SPM 3A, LLC	UDF IV	Austin, TX	1st lien; 32 paper lots		13	%	6/28/2013	6/28/2016			2,375,000		1,265,953		-		-		-		1,109,047
BLD PBC 4A, LLC	UDF IV	Austin, TX	1st lien and pledge of equity; 55 paper lots		13	%	6/28/2013	6/28/2016			3,467,600		2,252,734		-		-		-		1,214,866
BLD Crystal Springs, LLC	UDF IV	Austin, TX	1st lien; 261 paper lots		13	%	7/15/2013	12/31/2014			14,500,000		12,210,560		-		485,885		-		1,803,555
CTMGT CR 2C, LLC	UDF IV FIII	Dallas, TX; Fort Worth, TX	1st lien; 103 paper lots		13	%	7/24/2013	7/24/2016			5,550,000		2,068,575		-		-		-		3,481,425
CTMGT Riverwalk Villas, LLC	UDF IV	Dallas, TX; Fort Worth, TX	2nd lien; 97 paper lots		13	%	8/1/2013	8/1/2016			5,237,300		2,597,486		-		-		-		2,639,814
CTMGT Lewisville 14, LLC	UDF IV	Dallas, TX; Fort Worth, TX	2nd lien; 62 paper lots		13	%	8/15/2013	8/15/2016			2,800,000		1,399,695		-		664,368		-		735,937
CTMGT Hickory Creek 13, LLC	UDF IV	Dallas, TX; Fort Worth, TX	1st lien; 38 paper lots		13	%	8/30/2013	8/30/2016			1,630,000		847,798		-		-		-		782,202

														2014		2013		2012
				Interest			Original Note	Maturity		Maximum Loan		Principal		Cash		Cash		Cash		Unfunded
Borrower	Lender (1)	Location	Collateral (2)	Rate			Date	Date (3)		Amount (3)		Balance		Receipts		Receipts		Receipts		Balance

CTMGT Lucas 238, LLC	UDF IV	Dallas, TX; Fort Worth, TX	1st lien; 120 paper lots		13	%	8/30/2013	8/30/2016		$	12,574,000	$	6,511,717	$	-	$	-	$	-	$	6,062,283
CTMGT Frontier 80, LLC	UDF IV	Dallas, TX; Fort Worth, TX	1st lien; 288 paper lots		13	%	9/6/2013	9/6/2014			9,242,000		8,267,525		-		-		-		974,475
CTMGT Glenmere, LLC	UDF IV	Dallas, TX; Fort Worth, TX	2nd lien; 30 paper lots		13	%	9/12/2013	9/12/2016			1,010,000		753,874		-		-		-		256,126
CTMGT Frisco Hills 1A, 1B, 1C FL-2, LLC	UDF IV AC	Denton County, TX	1st lien and reimbursements; 159 paper lots		13	%	11/13/2013	11/13/2016			9,476,800		7,357,899		1,507,137		-		-		611,764
CTMGT Frisco Hills 4B FL-2, LLC	UDF IV	Denton County, TX	1st lien and reimbursements; 67 paper lots		13	%	10/9/2013	10/9/2016			4,654,111		2,801,062		-		-		-		1,853,049
BHM HP 5.3, LLC	UDF IV	Hays County, TX	1st lien and reimbursements; 20.078 acres		13	%	10/1/2013	10/1/2016			4,776,300		2,484,186		-		-		-		2,292,114
CTMGT Williamsburg 1B FL-2, LLC	UDF IV	Rockwall County, TX	1st lien; 43.747 acres		13	%	10/31/2013	10/31/2016			7,838,300		2,157,268		-		-		-		5,681,032
CTMGT Travis Ranch 3G FL-2, LLC	UDF IV	Kaufman County, TX	1st lien and reimbursements; 144 paper lots		13	%	11/21/2013	11/21/2016			14,936,200		3,239,811		-		-		-		11,696,389
CTMGT Craig Ranch, LLC	UDF IV	Collin County, TX	1st lien; 14.656 acres		13	%	11/19/2013	11/19/2016			6,415,000		2,522,107		-		-		-		3,892,893
CTMGT Dominion Estates, LLC	UDF IV	Dallas County, TX	1st lien; 23.92 acres		13	%	12/6/2013	12/6/2016			9,610,000		3,748,203		-		-		-		5,861,797
CTMGT Pine Trace Village FL-1, LLC	UDF IV	Harris County, TX	1st lien and reimbursements; 35 paper lots and 32.693 acres		13	%	1/29/2014	1/29/2017			3,825,800		887,007		-		-		-		2,938,793
CTMGT Creekside Estates, LLC	UDF IV	Collin County, TX	1st lien; 27 paper lots		13	%	2/12/2014	8/12/2014			3,420,000		2,914,106		-		-		-		505,894
CTMGT Bear Creek, LLC	UDF IV	Dallas County, TX	2nd lien and reimbursements; 367.983 acres		13	%	12/27/2013	6/27/2016			2,270,000		640,995		-		-		-		1,629,005
CTMGT Southlake Houston, LLC	UDF IV	Galveston County, TX	1st lien collateral assignment; 438.34 acres		13	%	12/27/2013	12/27/2014	(4)		5,003,900		4,073,660		-		-		-		930,240
BDMR Development, LLC	UDF IV	Kaufman County, TX	1st lien; 1,236 paper lots		13	%	1/9/2014	1/9/2015			6,267,000		2,592,110		-		-		-		3,674,890
CADG Glenmore, LLC	UDF IV	Tarrant County, TX	1st lien; 61 paper lots		13	%	1/10/2014	7/10/2014			4,244,000		3,957,404		-		-		-		286,596
CADG Gateway Lakes, LLC	UDF IV	Tarrant County, TX	1st lien; 39 paper lots		13	%	1/15/2014	1/15/2017			7,602,000		4,367,489		-		-		-		3,234,511
Scofield 46, LLC	UDF IV	Travis County, TX	2nd lien; 46 paper lots		15	%	1/31/2014	1/31/2017			1,525,000		1,265,250		-		-		-		259,750
CTMGT Huntington Estates, LLC	UDF IV	Tarrant County, TX	1st lien; 79 paper lots		13	%	2/25/2014	2/25/2017			2,560,000		860,869		-		-		-		1,699,131
CTMGT Plano 17, LLC	UDF IV	Collin County, TX	2nd lien; 65 paper lots		13	%	3/20/2014	3/20/2017			5,400,000		1,485,029		-		-		-		3,914,971
K. Hovnanian Terra Bella, LLC	UDF IV	Pasco County, FL	1st lien; 51 finished lots		12	%	3/19/2014	1/19/2016			2,602,935		2,602,935		-		-		-		-
CTMGT Bridges at Preston Crossing FL-1, LLC	UDF IV	Grayson County, TX	1st lien; 55 finished lots		13	%	6/19/2013	6/19/2017			1,500,000		1,500,000		-		-		-		-
CTMGT Resort at Eagle Mnt Lake FL-1, LLC	UDF IV	Tarrant County, TX	1st lien; 147 finished lots		13	%	11/4/2013	11/4/2017			9,410,000		9,173,157		236,843		-		-		-
CTMGT Saddlebrook Estates FL-1, LLC	UDF IV	Ellis County, TX	1st lien; 89 finished lots		13	%	11/5/2013	11/5/2017			2,566,400		2,361,195		124,834		70,371		-		10,000
CTMGT Waterview Estates FL-1, LLC	UDF IV	Rockwall County, TX	1st lien; 56 finished lots		13	%	9/27/2013	9/27/2017			1,620,000		1,458,777		117,273		45,732		-		-
CTMGT Lakeshore, LLC	UDF IV	Collin County, TX	1st lien; 54 finished lots		13	%	6/26/2013	6/26/2017			2,114,900		2,094,468		-		-		-		20,433
CTMGT Canyon West FL-1, LLC	UDF IV	Parker County, TX	1st lien; 25 finished lots		13	%	6/27/2013	6/27/2017			469,600		462,343		-		-		-		7,257
Megatel Artesia VDL, LLC	UDF IV	Denton County, TX	1st lien; 15 finished lots		13	%	11/26/2013	3/26/2017			2,400,000		604,267		1,062,053		698,840		-		34,840
CTMGT Bear Creek FL-1, LLC	UDF IV	Dallas County, TX	1st lien; 349 finished lots		13	%	12/27/2013	4/27/2017			4,440,000		4,440,000		-		-		-		-
High Trophy Development, LLC	UDF IV FIII	Denton County, TX	1st lien; 1 finished lot		13	%	7/26/2011	7/31/2014			3,900,000		16,795		279,254		64,618		1,846,606		123,995
CTMGT Lots Holdings, LLC	UDF IV FIII	Denton County, TX	1st lien; 109 finished lots		13	%	7/29/2011	9/29/2014			2,905,000		2,244,656		-		44,534		-		615,810
CTMGT Lots Holdings, LLC	UDF IV	Fort Worth, TX	Pledge of equity		13	%	7/29/2011	10/31/2014			605,000		73,487		-		-		426,597		14,429
One Creekside, LP	UDF IV	Fort Worth, TX	1st and 2nd lien; 224 acres		13	%	11/30/2011	4/25/2015	(4)		2,830,000		821,104		90,984		859,015		-		1,058,896
Hidden Lakes Investments, LP	UDF IV FIV	Houston, TX	1st lien and reimbursements; 137 finished lots		13	%	1/30/2012	4/30/2015	(4)		9,986,762		6,428,818		791,664		1,943,092		153,912		669,277
One Windsor Hills, LP	UDF IV	Grand Prairie, TX	2nd lien, reimbursements and pledge of equity; 576 acres		13	%	5/9/2012	5/9/2015			9,490,397		7,108,718		-		-		-		2,381,679
One Windsor Hills, LP	UDF IV	Grand Prairie, TX	2nd lien, reimbursements and pledge of equity; 128 acres		13	%	5/25/2012	5/25/2015			1,858,666		1,513,745		-		-		-		344,921
One Windsor Hills, LP	UDF IV	Grand Prairie, TX	2nd lien, reimbursements and pledge of equity; 879 acres		13	%	10/16/2012	10/16/2015			10,450,000		9,824,108		-		-		-		625,892
CTMGT Regatta	UDF IV	Denton County, TX	2nd lien and reimbursements; 346 acres		13	%	10/25/2012	10/25/2015			9,785,000		5,444,909		-		-		-		4,340,091
BLD LAMP Section 3	UDF IV FII	Houston, TX	1st lien; 60 paper lots		13	%	5/7/2013	5/7/2016			1,809,600		320,414		428,235		477,523		-		583,428
BLD LAMP Section 4	UDF IV FII	Houston, TX	1st lien; 48 paper lots		13	%	5/7/2013	5/7/2016			1,582,000		828,826		-		-		-		753,174
BLD VOHL 6A-1	UDF IV FII	Austin, TX	1st lien and pledge of equity; 45 paper lots		13	%	5/20/2013	5/20/2016			2,934,000		862,827		-		-		-		2,071,173
BLD VOHL 6B-2	UDF IV FII	Austin, TX	1st lien and pledge of equity; 48 paper lots		13	%	5/20/2013	5/20/2016			3,377,000		1,784,683		-		-		-		1,592,317
Southstar Woodcreek Developer, LLC	UDF IV FVIII	Rockwall County, TX	1st lien; 846.173 acres		13	%	9/27/2013	9/27/2016			30,000,000		17,153,862		-		-		-		12,846,138
One Windsor Hills, LP	UDF IV	Ellis County, TX	2nd lien, reimbursements and pledge of equity; 406.638 acres		13	%	10/17/2013	5/25/2015			5,817,000		5,379,918		-		-		-		437,082

Subtotal - Notes Receivable - Non-Related Parties										$	696,321,928	$	475,978,782	$	26,011,318	$	90,950,163	$	22,945,223	$	155,474,967

Total Notes Receivable										$	758,101,207	$	510,265,958	$	26,803,413	$	102,155,170	$	27,223,739	$	163,768,555

Loan Participation Interests - Related Parties
UMT Home Finance, LP	UDF IV	Austin, TX	Participation in 1st lien; 12 homes		13	%	12/18/2009	10/28/2014		$	3,500,000	$	1,263,270	$	736,282	$	10,123,914	$	5,728,845	$	-
UDF III, LP	UDF IV	Rockwall, TX	Participation in 1st lien; 89 finished lots		15	%	6/30/2010	1/28/2015			3,735,750		2,764,993		584,966		431,439		-		-
UDF III, LP	UDF IV	Rockwall, TX	Participation in pledge of equity; 472 acres and 10 finished lots		15	%	6/30/2010	1/28/2015			12,863,610		12,815,485		-		719,432		-		-
UDF III, LP	UDF IV	Austin, TX	Participation in 1st lien; 7 lots		14	%	3/24/2010	8/21/2014			2,000,000		279,509		-		226,105		389,836		838,845
UMT Home Finance III, LP	UDF IV	Houston, TX	Participation in 1st lien and reimbursements; 4 finished lots		13	%	5/31/2012	3/29/2015			7,535,000		7,346,422		-		-		1,149,157		-
UDF III, LP	UDF IV	Anna, TX	Participation in 1st lien and pledge of equity; 30 lots		12	%	6/11/2012	6/4/2014			1,700,000		1,585,011		-		36,994		1,490,089		-
UDF III, LP	UDF IV	Dallas, TX; Fort Worth, TX	Participation in 1st lien and pledge of equity; 36 finished lots		12	%	5/2/2013	12/28/2014			15,000,000		2,597,317		428,438		1,490,405		-		10,483,841
UMT Home Finance, LP	UDF IV	Dallas County, TX	Participation in 1st lien		13	%	10/3/2013	10/3/2014			10,000,000		3,805,448		-		-		-		6,194,552
United Residential Home Finance, LP	UDF IV	Dallas County, TX	Participation in 1st lien; 81 paper lots		13	%	12/16/2013	6/28/2016			4,868,200		1,196,601		502,617		-		-		3,168,982
United Residential Home Finance, LP	UDF IV	Travis County, TX	Participation in 1st lien; 52 paper lots		13	%	12/16/2013	7/31/2016			3,026,000		887,963		329,899		-		-		1,808,138

Total Loan Participation Interests - Related Parties										$	64,228,560	$	34,542,019	$	2,582,202	$	13,028,289	$	8,757,927	$	22,494,358

Grand Total										$	822,329,767	$	544,807,977	$	29,385,615	$	115,183,459	$	35,981,666	$	186,262,913

(1)

Represents lender as of March 31, 2014. In some cases, loans may be assigned between UDF IV and its wholly-owned subsidiaries.

(2)

Reflects remaining collateral as of March 31, 2014.

(3)

Reflects most current amendment to loan as of March 31, 2014, if applicable.

(4)

Loan acquired from a senior lender. Original Note Date represents date of acquisition.

Location of Real Property Loans and Investments

As of March 31, 2014, approximately 100% of our real property loans and investments are secured by properties located in Texas; however we have one real property loan secured by property in Florida which represents less than 1% of our real property loans and investments. The following table summarizes the location of our real property loans and investments as of March 31, 2014:

Location	% of Balance
Dallas, Texas area		68	%
Austin, Texas area		13	%
Houston, Texas area		9	%
San Antonio, Texas area		9	%
Lubbock, Texas area		1	%
Tampa, Florida area		*
Total		100	%

*Less than 1%

Results of Operations

The three months ended March 31, 2014 as compared to the three months ended March 31, 2013

Revenues

Interest income (including interest income – related parties) for the three months ended March 31, 2014 and 2013 was approximately $17.1 million and $10.3 million, respectively. The increase in interest income for the three months ended March 31, 2014 is primarily the result of our increased notes receivable, notes receivable – related parties and loan participation interest – related parties portfolio of approximately $537.5 million as of March 31, 2014, compared to approximately $322.3 million as of March 31, 2013 as proceeds raised from our Offering continued to be invested in revenue-generating real estate investments.

Commitment fee income (including commitment fee income – related parties) for the three months ended March 31, 2014 and 2013 was approximately $801,000 and $275,000, respectively. The increase in commitment fee income for the three months ended March 31, 2014 is primarily the result of an increase in loan commitments and option fees associated with our real estate owned as proceeds raised from our Offering continue to be invested in revenue-generating real estate investments.

We expect revenues to increase commensurate with our continued deployment of available funds to borrowers and markets in which we have experience and as markets dictate in accordance with economic factors conducive for a stable residential market, and commensurate with our reinvestment of proceeds from loans that are repaid.

Expenses

Interest expense related to our notes payable and lines of credit totaled approximately $363,000 and $474,000 for the three months ended March 31, 2014 and 2013, respectively. Interest expense will fluctuate based on the timing of leverage introduced to the fund as well as the timing of draws and payments on our notes payable and lines of credit.

Advisory fee – related party expense represents the expense associated with the Advisory Fees discussed in NoteHto our accompanying consolidated financial statements and was approximately $2.7 million and $1.6 million for the three months ended March 31, 2014 and 2013, respectively. The increase in advisory fee – related party expense is associated with the increase in our average invested assets as proceeds raised from our Offering continued to be invested in revenue-generating real estate investments.

General and administrative expense for the three months ended March 31, 2014 and 2013 was approximately $1.1 million and $262,000, respectively. General and administrative expense consists primarily of legal and accounting fees, transfer agent fees, insurance expense, compensation expense and amortization of deferred financing costs. The increase in general and administrative expense is primarily associated with an increase in transfer agent fees commensurate with an increase in shareholders, an increase in consulting fees and compensation expense associated with our chief operating officer, who was hired in February 2014.

General and administrative – related parties expense for the three months ended March 31, 2014 and 2013 was approximately $1.3 million and $920,000, respectively. General and administrative – related parties expense consists of Acquisition and Origination Fees, amortization of Debt Financing Fees and expense associated with Credit Enhancement Fees. The increase in general and administrative – related parties expense is primarily a result of an increase in Acquisition and Origination Fees commensurate with the increase in our investment portfolio over the same period.

We expect interest expense, general and administrative expense, and advisory fee – related party expense to increase commensurate with the growth of our portfolio as we continue to deploy funds available to the borrowers and markets in which we have experience and as markets dictate in accordance with economic factors conducive for a stable residential market.

Other Information

On May 12, 2014, our board of trustees met to discuss expenses associated with our operations for the quarter ended March 31, 2014. According to our declaration of trust, we shall not reimburse our advisor at the end of any fiscal quarter for total operating expenses that, in the four consecutive fiscal quarters then ended, exceed the greater of 2% of our average invested assets (as defined in our declaration of trust) or 25% of our net income (as defined in our declaration of trust) (the “2%/25% Guidelines”) for such year, unless our independent trustees find that, based on such unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified.

We incurred total operating expenses that exceeded the 2%/25% Guidelines by approximately $361,000 for the four quarters ended March 31, 2014 (the “Excess Amount”), which amount represents approximately 3.6% of the total operating expenses incurred by us during the four quarters ended March 31, 2014. Our board of trustees, including all of our independent trustees, determined that the Excess Amount was due to factors associated with (i) our search for a new executive officer, including but not limited to consulting fees related to compensation studies, direct search fees, and other related activities; (ii) legal, accounting and consulting fees associated with a non-recurring review of financial reporting; (iii) the significant cash balances pending investment associated with the close of our public offering; and (iv) the effect of the restatement of our previously issued financial statements to expense our acquisition and origination fees as incurred, rather than capitalizing and amortizing them into expense over the life of the loan. Our board of trustees, including all of our independent trustees, determined that these expenses were unusual and non-recurring, but provide long-term value to us. Therefore, our board of trustees, including all of our independent trustees, deemed the circumstances surrounding the Excess Amount to be justified.

Comparison Charts

The table below summarizes the approximate expenses associated with related parties for the three months ended March 31, 2014 and 2013. We believe that these fees and reimbursements are reasonable and customary for comparable mortgage REITs.

	For the Three Months Ended March 31,
Purpose	2014				2013

Advisory Fees	$	2,700,000	100	%	$	1,642,000	100	%

Total Advisory fee – related party	$	2,700,000	100	%	$	1,642,000	100	%

Amortization of Debt Financing Fees	$	109,000	9	%	$	42,000	5	%

Acquisition and Origination Fees		1,083,000	85	%		829,000	90	%

Credit Enhancement Fees		74,000	6	%		49,000	5	%

Total General and administrative – related parties	$	1,266,000	100	%	$	920,000	100	%

The table below summarizes the approximate payments to related parties for the three months ended March 31, 2014 and the year ended December 31, 2013:

		For the Three Months Ended				For the Year Ended
Payee	Purpose	March 31, 2014				December 31, 2013
UMTH GS
	O&O Reimbursement	$	-	-		$	8,167,000	38	%
	Advisory Fees		2,501,000	92	%		7,819,000	26	%
	Debt Financing Fees		-	-			361,000	1	%

UMTH LD
	Acquisition and Origination Fees		155,000	6	%		7,953,000	34	%

UDF III
	Credit Enhancement Fees		59,000	2	%		132,000	1	%

Total Payments		$	2,715,000	100	%	$	24,432,000	100	%

Cash Flow Analysis

Cash flows provided by operating activities for the three months ended March 31, 2014 were approximately $5.5 million and were comprised primarily of net income offset partially by accrued interest receivable. Cash flows provided by operating activities for the three months ended March 31, 2013 were approximately $3.2 million and were comprised primarily of net income offset partially by accrued interest receivable.

Cash flows used in investing activities for the three months ended March 31, 2014 and 2013 were approximately $31.2 million and $25.6 million, respectively, and were comprised primarily of originations of notesreceivable (including related party transactions) and loan participation interest – related parties, offset byreceipts from notes receivable (including related party transactions) and loan participation interest – related parties.

Cash flows provided by financing activities for the three months ended March 31, 2014 were approximately $629,000 and were comprised primarily of net borrowings on lines of credit offset by distributions to shareholders and purchases of treasury shares. Cash flows provided by financing activities for the three months ended March 31, 2013 were approximately $42.5 million and were comprised primarily of proceeds from the issuance of common shares of beneficial interest pursuant to the Offering and shareholders’ distribution reinvestment, offset by payments on notes payable, cash distributions to shareholders and payments of offering costs.

Our cash and cash equivalents were approximately $8.6 million as of March 31, 2014, compared to approximately $43.4 million at March 31, 2013.

Funds from Operations and Modified Funds from Operations

Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (the “White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property and asset impairment write-downs, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO. Our FFO calculation complies with NAREIT’s policy described above.

Loans are considered impaired and disregarded from FFO calculations when, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is generally evaluated on an individual loan basis for each loan in the portfolio. If an individual loan is considered impaired, this would lead us to evaluate whether the carrying value exceeds the fair market value requiring an impairment for excess carrying value. A specific valuation allowance may be allocated, if necessary, so that the individual loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from collateral. Loans that are not individually considered impaired are collectively and qualitatively measured as a portfolio for general valuation allowance. Investors should note that in reviewing our portfolio for this valuation analysis, we use cash flow estimates from the disposition of finished lots, paper lots (residential lots shown on a plat that has been accepted by the city or county, but which is currently undeveloped or under development) and undeveloped land, as well as cash flow received from the issuance of bonds from municipal reimbursement districts. These estimates are based on current market metrics, including, without limitation, the supply of finished lots, paper lots and undeveloped land; the supply of homes and the rate and price at which land and homes are sold; historic levels and trends; executed purchase contracts; appraisals and discussions with third-party market analysts and participants, including homebuilders. We base our valuations on current and historic market trends, on our analysis of market events and conditions, including activity within our portfolio, and on the analysis of third-party services such as Metrostudy and Residential Strategies, Inc. Cash flow forecasts are also based on executed purchase contracts which provide base prices, escalation rates, and absorption rates on an individual project basis. For projects deemed to have an extended time horizon for disposition, we consider third-party appraisals to provide a valuation in accordance with guidelines set forth in the Uniform Standards of Professional Appraisal Practice. In addition to cash flows from the disposition of property, cost analysis is performed based on estimates of development and senior financing expenditures provided by developers and independent professionals on a project-by-project basis. These amounts are reconciled with our best estimates to establish the net realizable value of the portfolio. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on factors described above and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual disposition of the collateral. We have not had any impairment charges and, therefore, no such adjustments to FFO.

However, changes in the accounting and reporting promulgations under GAAP (including changes that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) have impacted the reporting of operating income for all industries. Additionally, publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation as compared to later years and therefore require additional adjustments to FFO in evaluating performance. Due to these and other unique features of publicly registered, non-listed REITs, the Investment Program Association (the “IPA”), an industry trade group, has standardized a measure known as modified funds from operations (“MFFO”), which we believe to be another appropriate supplemental measure to reflect the operating performance of a REIT. The use of MFFO is recommended by the IPA as a supplemental performance measure for publicly registered, non-listed REITs. MFFO is a metric used by management to evaluate sustainable performance and dividend policy. MFFO is not equivalent to our net income or loss as determined under GAAP and MFFO may not be a useful measure of the impact of long-term operating performance or may not be useful as a comparative measure to other publicly registered, non-traded REITs, unless we continue to operate with a limited life and targeted exit strategy, as currently intended.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (Practice Guideline), issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items included in the determination of GAAP net income or loss: acquisition and origination fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income or loss; gains or losses included in net income or loss from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Mark-to-market and fair value adjustments to calculate MFFO may be reflective of on-going operations or reflect unrealized operational impacts, since such adjustments may be based upon current operational issues relating to our portfolio, industry or general market conditions. Mark-to-market and fair value adjustments represent a continuous process, analyzed on a quarterly and/or annual basis in accordance with GAAP. Our MFFO calculation complies with the IPA’s Practice Guideline described above. In calculating MFFO, we adjust for acquisition related expenses. Acquisition and Origination Fees paid to our Advisor or its affiliates in connection with the origination of notes receivables are expensed as incurred. Such acquisition related expenses are paid in cash to our Advisor or its affiliates that would otherwise be available to distribute to our shareholders. The origination and acquisition of secured loans, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our shareholders. We may be required to pay Acquisition and Origination Fees and expenses due to our Advisor or its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, principal repayments, or ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Such fees will not be reimbursed by our Advisor or its affiliates. Acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. Management believes that acquisition related expenses are non-operating and do not affect our long-term operating performance; therefore, excluding acquisition and origination costs from MFFO provides investors with supplemental performance information that is consistent with the performance models used by management, and provides investors with a view of our portfolio over time, independent of direct costs associated with the timing of acquisition activity. MFFO would only be comparable to other publicly registered, non-listed REITs that have completed their acquisition activity and have similar operating characteristics to us.

With respect to loan loss provisions, management does not include these expenses in our evaluation of the operating performance of our real estate loan portfolio, as we believe these costs will be reflected in our reported results from operations if and when we actually realize a loss on a real estate investment. As many other publicly registered, non-listed REITs exclude such charges in reporting their MFFO, we believe that our calculation and reporting of MFFO will assist investors and analysts in comparing our performance versus other publicly registered, non-listed REITs. The other adjustments included in the IPA’s Practice Guideline are not applicable to us for the three months ended March 31, 2014 and 2013.

Presentation of this information is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income or loss as an indication of our performance, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our shareholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. FFO and MFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss or in its applicability in evaluating our operating performance. MFFO has limitations as a performance measure in an offering such as ours where the price of a common share of beneficial interest is a stated value and there is no net asset value determination during the offering and for a period thereafter. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance and our current distribution policy in future operating periods, and in particular, after the time when we cease to make investments on a frequent and regular basis and net asset value is disclosed. FFO and MFFO are not useful measures in evaluating net asset value because impairment write-downs are taken into account in determining net asset value but not in determining FFO and MFFO. In addition, because MFFO excludes the effect of acquisition and origination costs, which are an important component in an analysis of the historical performance of an asset, MFFO should not be construed as a historic performance measure. Our FFO and MFFO reporting complies with NAREIT’s policy described above.

Neither the SEC, NAREIT, nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the publicly registered, non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.

The following is a reconciliation of net income to FFO and MFFO for the three months ended March 31, 2014 and 2013:

	For the three months ended March 31,
Funds From Operations	2014		2013
Net Income, as reported	$	11,801,000	$	6,841,000
FFO		11,801,000		6,841,000
Other Adjustments:
Amortization expense		223,000		96,000
Provision for loan losses (a)		705,000		416,000
Acquisition costs (b)		1,083,000		829,000
MFFO (c)	$	13,812,000	$	8,182,000

(a) With respect to loan loss provisions, management does not include these expenses in our evaluation of the operating performance of our real estate loan portfolio, as we believe these costs will be reflected in our reported results from operations if and when we actually realize a loss on a real estate investment. As many other publicly registered, non-listed REITs exclude such charges in reporting their MFFO, we believe that our calculation and reporting of MFFO will assist investors and analysts in comparing our performance versus other publicly registered, non-listed REITs.

(b) Acquisition and Origination Fees paid to our Advisor or its affiliates in connection with the origination of notes receivables are expensed as incurred. Such acquisition related expenses are paid in cash to our Advisor or its affiliates that would otherwise be available to distribute to our shareholders. The origination and acquisition of secured loans, and the corresponding expenses associated with that process, is a key operational feature of our business plan in order to generate operating revenues and cash flows to make distributions to our shareholders. We may be required to pay Acquisition and Origination Fees and expenses due to our Advisor or its affiliates, or a portion thereof, with net proceeds from borrowed funds, operational earnings or cash flows, principal repayments, or ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Such fees will not be reimbursed by our Advisor or its affiliates. Changes in the accounting and reporting promulgations under GAAP (including changes that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) have impacted the reporting of operating income for all industries. Acquisition related expenses under GAAP are considered operating expenses and as expenses included in the determination of net income (loss) and income (loss) from continuing operations, both of which are performance measures under GAAP. Management believes that acquisition related expenses are non-operating and do not affect our long-term operating performance; therefore, excluding acquisition and origination costs from MFFO provides investors with supplemental performance information that is consistent with the performance models used by management, and provides investors with a view of our portfolio over time, independent of direct costs associated with the timing of acquisition activity.

(c) MFFO would only be comparable to other publicly registered, non-listed REITs that have completed their acquisition activity and have similar operating characteristics to us.

Net Operating Income

We are disclosing net operating income and intend to disclose net operating income in future filings, because we believe that net operating income provides an accurate measure of the operating performance of our operating assets because net operating income excludes certain items that are not directly associated with our investments. Net operating income is a non-GAAP financial measure that is defined as net income, computed in accordance with GAAP, generated from properties before interest expense, general and administrative expense, depreciation, amortization and interest and dividend income. Additionally, we believe that net operating income is a widely accepted measure of comparative operating performance in the real estate community. However, our use of the term net operating income may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

To facilitate understanding of this financial measure, the following is a reconciliation of net income to net operating income for the three months ended March 31, 2014 and 2013:

	For the three months ended March 31,
Net Operating Income	2014			2013
Net Income, as reported	$	11,801,000		$	6,841,000
Add:
Interest expense (1)		363,000			474,000
General and administrative expense (2)		7,738,000			3,144,000
Amortization expense (3)		223,000			96,000
Less:
Other interest and dividend income		(3,000	)		(6,000	)
Net operating income	$	20,122,000		$	10,549,000

(1)

We did not incur any interest expense associated with asset-level indebtedness for the three months ended March 31, 2014 or 2013. Any such interest expense associated with asset level debt used to acquire or originate a secured loan would be included with net operating income.

(2)

Includes advisory fee – related party expense, provision for loan losses expense, REO property sales cost, general and administrative expense, net of amortization expense, and general and administrative – related party expense, net of amortization expense. REO property sales cost represents the cost of finished lots sold back to third-party builders in connection with lot option agreements, as described in Note B to the accompanying consolidated financial statements.

(3)

Represents amortization expense associated with capitalized debt financing costs. We did not incur any amortization expense associated with asset-level indebtedness for the three months ended March 31, 2014 or 2013. Any such amortization expense associated with asset level debt used to acquire or originate a secured loan would be included in net operating income.

	For the three months ended March 31,
	2014		2013
Net operating income	$	20,122,000	$	10,549,000
Other interest and dividend income		3,000		6,000
Interest expense – asset-level		-		-
Amortization expense – asset-level		-		-
Total interest and non-interest income	$	20,125,000	$	10,555,000

Net operating income does not reflect approximately $363,000 and $474,000 of interest expense incurred for the three months ended March 31, 2014 and 2013 associated with fund-level indebtedness as interest expense related to fund-level indebtedness is not considered directly associated with the operation of the fund as such indebtedness is not used to acquire and originate secured loans. Net operating income also does not reflect $8.0 million and $3.2 million of general and administrative expenses (including advisory fee – related party, provision for loan losses, REO property sales cost, general and administrative, and general and administrative – related parties) incurred for the three months ended March 31, 2014 and 2013. Acquisition and Origination Fees are included in general and administrative – related parties expense, which is excluded from net operating income. Management believes that acquisition related expenses are non-operating and do not affect our long-term operating performance; therefore, excluding Acquisition and Origination Fees from net operating income provides investors with supplemental performance information that is consistent with the performance models used by management, and provides investors with a view of our portfolio over time, independent of direct costs associated with the timing of acquisition activity. The funds used to pay interest expense and general and administrative expenses will not be available to generate future net operating income, net income as defined by GAAP or cash flows from operations, nor be available to fund future distributions to shareholders.

Liquidity and Capital Resources

Our liquidity requirements will be affected by (1) outstanding loan funding obligations, (2) purchases of finished single-family residential lots, (3) our administrative expenses, (4) debt service on fund level and asset level indebtedness required to preserve our collateral position and (5) cash distributions (which will increase in connection with the suspension of our DRIP, as discussed further in Note P to the accompanying consolidated financial statements) and redemptions to shareholders. For further discussion of the suspension of our share redemption program, see Note P to the accompanying notes to the consolidated financial statements. We expect that our liquidity will be provided by (1) loan interest, transaction fees and credit enhancement fee payments, (2) loan principal payments, (3) sales of finished single-family residential lots and (4) credit lines available to us.

There may be a delay in making real estate-related investments, which could result in a delay in our ability to make distributions to our shareholders. However, we have not established any limit on the amount of proceeds from the Offering that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would (1) cause us to be unable to pay our debts as they become due in the usual course of business; or (2) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences, if any. In addition, to the extent our investments are in development projects or in other properties that have significant capital requirements and/or delays in their ability to generate income, our ability to make distributions may be negatively impacted, especially during our early periods of operation.

We may use debt as a means of providing additional funds for the acquisition or origination of secured loans, acquisition of properties and the diversification of our portfolio. There is no limitation on the amount we may borrow for the purchase or origination of a single secured loan, the purchase of any individual property or other investment. Under our declaration of trust, the maximum amount of our indebtedness shall not exceed 300% of our net assets as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent trustees and disclosed in our next quarterly report to shareholders, along with justification for such excess. In addition to our declaration of trust limitation, our board of trustees has adopted a policy to generally limit our fund level borrowings to 50% of the aggregate fair market value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. We may also use, when appropriate, leverage at the asset level. Asset level leverage is determined by the anticipated term of the investment and the cash flow expected by the investment. Asset level leverage is expected to range from 0% to 90% of the asset value.

Indebtedness will be either interest only or be amortized over the expected life of the asset. Our current typical indebtedness is a term loan or revolving credit facility permitting us to borrow up to an agreed-upon outstanding principal amount from senior commercial lenders who lend against a percentageof the fair market value of the assets which collateralize the loan. Indebtedness may be secured by a first priority lien upon specified assets or all of our existing and future acquired assets.

Our Advisor may, but is not required to, establish capital reserves from gross offering proceeds, out of cash flow generated from interest income from loans and income from other investments or out of non-liquidating net sale proceeds from the sale of our loans, properties and other investments. Alternatively, a lender may require its own formula for escrow of capital reserves.

Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from the repayment of loans, sale of assets and undistributed funds from operations. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. Although we believe that the resources stated above will be sufficient to satisfy our operating requirements for the near future, depending on market conditions and other factors, we may choose to raise additional funds through debt or equity offerings or other means.

Material Trends Affecting Our Business

We are organized as a Maryland real estate investment trust and we used substantially all of the net proceeds from our Offering of common shares of beneficial interest to originate, purchase, participate in and hold for investment secured loans made directly by us or indirectly through our affiliates to persons and entities for the acquisition and development of parcels of real property as single-family residential lots, and the construction of model and new single-family homes, including development of mixed-use master planned residential communities. We also make direct investments in land for development into single-family lots, new and model homes and portfolios of finished lots and homes; provide credit enhancements to real estate developers, home builders, land bankers and other real estate investors; and purchase participations in, or finance for other real estate investors the purchase of, securitized real estate loan pools and discounted cash flows secured by state, county, municipal or other similar assessments levied on real property.

Currently, a substantial majority of our portfolio relates to property located in the state of Texas; however we have one real property loan secured by property in Florida, and we intend to invest in markets that demonstrate similarly sound economic and demand fundamentals.

We monitor the fundamentals of supply and demand in the markets and submarkets in which we make loans and where we may expand our operations in the future. Those fundamentals include demographics, jobs and housing affordability. We also monitor movements in home prices and the presence of market disruption activity, such as investor or speculator activity. Further, we study new home starts, new home closings, finished home inventories, finished lot inventories, existing home sales, foreclosures, absorption, finished lots and land prices and changes in the levels of sales incentives and discounts in a market.

We believe that the housing market continues to recover and strengthen. We also believe that this recovery is in its early stages and will continue to vary by market, led by those housing markets with stronger demand fundamentals and more balanced supplies of land and housing inventory relative to demand. Nationally, the housing recovery has strengthened as excess inventories of new and existing homes have been absorbed, home prices have begun to recover and consumer demand continues to improve. As interest rates and home prices increase, we have seen housing affordability trend lower in many markets. We believe that continued strengthening of the recovery depends on adequate supplies of both finished lots and homes available for purchase, as well as the continued recovery of the consumer. Nationally, we believe consumers remain cautious due to uncertainty present in many economic sectors, particularly with regards to elevated unemployment and under-employment, low wage growth, slow economic growth and events associated with tightened federal fiscal policy, including tax rates, spending and federal policies.

Easing policies of the Federal Reserve, coupled with extensive price correction over the past several years, have contributed to restored housing affordability across the country. Our measurement of housing affordability is determined as the ratio of median family income to the income required to qualify for a 90 percent, 30-year fixed-rate mortgage to purchase the median-priced new home, based on the average interest rate in 2013 and assuming an annual mortgage insurance premium of 70 basis points for private mortgage insurance, plus a cost that includes estimated property taxes and insurance for the home. Over the recent quarter, average interest rates for a conventional fixed-rate 30-year mortgage decreased slightly, but remained above the record lows experienced in the second half of 2012. The rise in interest rates from the record lows combined with home price appreciation has reduced affordability. However, we believe that home affordability in many markets remains high relative to historical standards, and that the median income-earning family can still comfortably afford the median-priced home. In the short term, we believe that the recent stabilization in the 30-year fixed mortgage rate may quicken the return of consumer demand for new homes in anticipation of further increases in mortgage rates. Over the longer term, significant increases in mortgage rates may cause homebuyers to reduce the size of the home that they purchase, but will likely not reduce the overall demand for new homes.

From a national perspective, ongoing credit constriction, a less robust economic recovery, continued elevated unemployment and housing price instability in the recent downturn have made potential new home purchasers and real estate lenders cautious. As a result of these factors, the national housing market experienced a protracted decline, and the time necessary to correct the market likely means a corresponding slower recovery for the housing industry relative to historical trends. However, improving fundamentals, such as the return of home price inflation and continued high home affordability relative to historical levels, indicate to us that the recovery will continue to gain strength.

The U.S. Census Bureau estimates that sales of new single-family residential homes in March 2014 were at a seasonally adjusted annual rate of 384,000 units, a 13.3% decrease from the March 2013 estimate of 443,000 units. We believe the drop in sales pace is due to an increase in home prices in many markets and the rise in interest rates, which likely caused some consumers to pause or adjust their home purchases in light of decreased affordability. However, national fundamentals that drive home sales continue to improve in most markets and home affordability remains high relative to historical levels, so we expect demand will resume in an uneven, protracted recovery.

Single-family permits and starts have improved significantly since bottoming in early 2009. According to the U.S. Census Bureau, single-family homes authorized by building permits in March 2014 were at a seasonally adjusted annual rate of 592,000 units. This was a slight decrease year-over-year of approximately 1.7% from the rate of 599,000 units in March 2013. Single-family home starts for March 2014 stood at a seasonally adjusted annual rate of 635,000 units. This pace is up approximately 1.9% from the March 2013 estimate of 623,000 units. The increased levels from the lows experienced in 2009 suggest to us that the homebuilding industry now anticipates continued demand for new homes in coming months relative to the demand evident at the bottom of the new homebuilding cycle.

The seasonally adjusted estimate of new homes for sale at the end of March 2014 was 193,000. The number of new homes for sale increased by 6,000 units during the first quarter of 2014. The current level of 6.0 months as of March 2014 is considered a healthy housing market. However, limited supplies of finished lot inventory may become a headwind to demand in the near term by constraining the ability of potential home purchasers to find acceptable options or by prompting greater home price increases due to the imbalance between supply and demand. As the overall economy improves and housing demand increases, this imbalance will become more pronounced.

The primary factors affecting new home sales are home price stability, home affordability, and housing demand. Housing supply may affect both new home prices and the demand for new homes. When the supply of new homes exceeds new home demand, new home prices may generally be expected to decline. Also, home foreclosures cause the inventory of existing homes to increase, which may add additional downward price pressure on home prices. Declining new home prices may result in diminished new home demand as people postpone a new home purchase until they are comfortable that stable price levels have been reached. Conversely, when new home demand exceeds new home supply, new home prices may generally be expected to increase. Rising new home prices, particularly at or near the bottom of the housing cycle, may result in increased new home demand as people become confident in home prices and accelerate their timing of a new home purchase. We believe this point has been reached, and we expect the housing recovery to continue to accelerate over the coming quarters.

We face a risk of loss resulting from adverse changes in interest rates. Changes in interest rates may impact demand for our real estate finance products, the rate of interest we receive on our loans receivable and the rate of interest we pay on outstanding loans. In some instances, the loans we make will be junior in the right of repayment to senior lenders, who will provide loans representing 60% to 75% of total project costs. As senior lender interest rates or advance rates available to our borrowers increase, demand for our mortgage loans may decrease, and vice versa.

Developers and homebuilders to whom we make loans and with whom we enter into subordinate debt positions use the proceeds of our loans and investments to develop raw real estate into residential home lots and to construct homes. The developers obtain the money to repay our development loans by reselling the residential home lots to homebuilders or individuals who build single-family residences on the lots by obtaining reimbursement from bond sales or by obtaining replacement financing from other lenders. Homebuilders obtain the money to repay our loans by selling the homes they construct or by obtaining replacement financing from other lenders. If interest rates increase or if mortgage financing underwriting criteria become more restrictive, demand for single-family residences may decrease. In such an interest rate and/or mortgage financing climate, developers and builders may be unable to generate sufficient income from the resale of single-family residential lots and homes to repay loans from us, and developers’ and builders’ costs of funds obtained from other lenders may also increase. Accordingly, increases in single-family mortgage interest rates or decreases in the availability of mortgage financing could increase the risk of defaults on our loans receivable.

We are not aware of any favorable or unfavorable material trends or uncertainties that we reasonably expect to materially impact either the income to be derived from our investments in mortgage loans or entities that make mortgage loans, other than those referred to in this quarterly report on Form 10-Q.

Off-Balance Sheet Arrangements

From time to time, we enter into guarantees of debtor’s or affiliates’ borrowings and provide credit enhancements for the benefit of senior lenders in connection with our debtors and investments in partnerships (collectively referred to as “guarantees”), and account for such guarantees in accordance with FASB ASC 460-10Guarantees. Guarantees generally have fixed expiration dates or other termination clauses and may require payment of a fee by the debtor. A guarantee involves, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss in the event of non-performance by the other party to the instrument is represented by the contractual notional amount of the guarantee.

In connection with the funding of some of our organization costs, on June 26, 2009, UMTH LD entered into the UMTH LD CTB LOC with CTB. Effective February 26, 2012, UMTH LD entered into a second loan modification agreement with CTB, which resulted in an extension of the maturity date on the UMTH LD CTB LOC to December 26, 2014. UMTH LD has a receivable from our Advisor for such costs. UMTH LD has assigned this receivable to the bank as security for the UMTH LD CTB LOC. In addition, the UMTH LD CTB LOC is secured by a collateral assignment of a first priority note and deed of trust held by a subsidiary of UMTH LD against a residential real estate project. As a condition to the modification entered into effective as of February 26, 2012, the Trust agreed to guaranty all obligations under the UMTH LD CTB LOC. As of March 31, 2014 and December 31, 2013, the outstanding balance on the line of credit was $4.9 million and $5.1 million, respectively.

Effective December 30, 2011, we entered into the Stoneleigh Guaranty for the benefit of Babson pursuant to which we guaranteed all amounts due associated with the Stoneleigh Construction Loan entered into between Stoneleigh and Babson. The Stoneleigh Construction Loan matures on January 1, 2015. Pursuant to the Stoneleigh Construction Loan, Babson will provide Stoneleigh with up to approximately $25.0 million to finance the construction associated with a condominium project located in Dallas, Texas.UDF LOF owns a 75% interest in Stoneleigh. Our asset manager, UMTH LD, also serves as the asset manager of UDF LOF. The general partner of our Advisor also serves as the general partner of UMTH LD. UMTH LD controls 100% of the partnership interests of the general partner of UDF LOF. In consideration of us entering into the Stoneleigh Guaranty, we entered into a letter agreement with Stoneleigh which provides for Stoneleigh to pay us a monthly credit enhancement fee equal to 1/12^th of 1% of the outstanding principal balance on the Stoneleigh Construction Loan at the end of each month as long as the Stoneleigh Guaranty remains outstanding. As of March 31, 2014 and December 31, 2013, approximately $3.9 million and $7.6 million, respectively, was outstanding under the Stoneleigh Construction Loan. For the three months ended March 31, 2014 and 2013, approximately $16,000 and $29,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan. As of March 31, 2014 and December 31, 2013, approximately $10,000 and $15,000, respectively, is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan.

Effective July 22, 2013, we entered into the URHF Guaranty pursuant to which we guaranteed all amounts due associated with the URHF Southwest Loan entered into between URHF and Southwest. Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in URHF. Pursuant to the URHF Southwest Loan, Southwest will provide URHF with up to $15.0 million to finance the origination or acquisition of finished lot loans. In consideration of us entering into the URHF Guaranty, we entered into a letter agreement with URHF which provides for URHF to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the URHF Southwest Loan at the end of each month. As of both March 31, 2014 and December 31, 2013, approximately $1.2 million was outstanding under the URHF Southwest Loan. For the three months ended March 31, 2014, approximately $3,000 is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the URHF Southwest Loan, all of which is also included in accrued receivable – related parties.

For the three months ended March 31, 2014, we had no material changes to contractual obligations, other than loan commitments discussed above in “Real Estate Owned and Loan Portfolio” and lines of credit discussed in Note K to the accompanying consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the exposure to loss resulting from adverse changes in market prices, interest rates, foreign currency exchange rates, commodity prices and equity prices. A significant market risk to which we are exposed is interest rate risk, which is sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors beyond our control. Changes in interest rates may impact both demand for our real estate finance products and the rate of interest on the loans we make. Another significant market risk is the market price of finished homes and lots. The market price of finished homes or lots is driven by the demand for new single-family homes and the supply of unsold homes and finished lots in a market. The change in one or both of these factors can have a material impact on the cash realized by our borrowers and resulting collectability of our loans and interest.

Demand for our secured loans and the amount of interest we collect with respect to such loans depends on the ability of borrowers of real estate construction and development loans to sell single-family lots to homebuilders and the ability of homebuilders to sell homes to homebuyers.

The single-family lot and residential homebuilding market is highly sensitive to changes in interest rate levels. As interest rates available to borrowers increase, demand for secured loans decreases, and vice versa. Housing demand is also adversely affected by increases in housing prices and unemployment and by decreases in the availability of mortgage financing. In addition, from time to time, there are various proposals for changes in the federal income tax laws, some of which would remove or limit the deduction for home mortgage interest. If effective mortgage interest rates increase and/or the ability or willingness of prospective buyers to purchase new homes is adversely affected, the demand for new homes may also be negatively affected. As a consequence, demand for and the performance of our real estate finance products may also be adversely impacted.

We seek to mitigate our single-family lot and residential homebuilding market risk by closely monitoring economic, project market, and homebuilding fundamentals. We review a variety of data and forecast sources, including public reports of homebuilders, mortgage originators and real estate finance companies; financial statements of developers; project appraisals; proprietary reports on primary and secondary housing market data, including land, finished lot, and new home inventory and prices and concessions, if any; and information provided by government agencies, the Federal Reserve Bank, the National Association of Home Builders, the National Association of Realtors, public and private universities, corporate debt rating agencies, and institutional investment banks regarding the homebuilding industry and the prices of and supply and demand for single-family residential homes.

In addition, we further seek to mitigate our single-family lot and residential homebuilding market risk by having our asset manager assign an individual asset manager to each secured note or equity investment. This individual asset manager is responsible for monitoring the progress and performance of the builder or developer and the project as well as assessing the status of the marketplace and value of our collateral securing repayment of our secured loan or equity investment.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of March 31, 2014, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of March 31, 2014, to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to, and none of our assets are subject to, any material pending legal proceedings.

Item 1A. Risk Factors.

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2014, except as noted below.

The anticipated listing of our shares on NASDAQ is subject to certain conditions, and no assurance can be given that our shares will be listed. Until such time that our shares are listed, if ever, there is no public trading market for our shares.

On April 28, 2014, we issued a press release announcing that our board of trustees anticipates listing our shares on NASDAQ in 2014. However, the completion of the listing is subject to certain conditions, including approval by NASDAQ, and no assurance can be given that our common shares will be listed on NASDAQ in 2014 or at all. Until such time that our shares are listed on a national securities exchange, if ever, there will not be a public market for our shares, and we cannot guarantee that one will ever develop. It will, therefore, be difficult for shareholders to sell their shares promptly, or at all, before our shares are listed. In addition, even if our shares are listed on a national securities exchange, we cannot assure shareholders a public trading market will develop. Furthermore, we cannot assure shareholders that the price they would receive in a sale on a national securities exchange would be representative of the value of the assets we own or that it would equal or exceed the amount they paid for the shares.

We have suspended our redemption program, which limits our shareholders’ ability to sell their shares.

On May 5, 2014, we issued a press release announcing the suspension of our share redemption program, effective June 6, 2014, in contemplation of the listing of our common shares on NASDAQ. The effect of this suspension is that, as of June 6, 2014, holders of our common shares will no longer be able to present their shares to us for redemption. Until such time that our shares are listed on a national securities exchange, if ever, there will not be a public market for our shares. As a result of the suspension of our redemption program, it will therefore be difficult for shareholders to sell their shares until our shares are listed, if ever.

Our Advisor and its affiliates will have equity interests and/or profit participations in developments we finance and may have a greater incentive to make loans with respect to such developments and/or provide credit enhancements to preserve and/or enhance their economic interest in such development.

We expect to make loans and/or provide credit enhancement transactions to affiliates of our Advisor or asset manager. In connection with making such loans or providing such credit enhancements, we will obtain an appraisal concerning the underlying property from an independent expert who is in the business of rendering opinions regarding the value of assets of the type held by us and who is qualified to perform such work. In addition, a majority of the trustees, including a majority of the independent trustees, who are not otherwise interested in the transaction must approve all transactions with our Advisor or its affiliates as being fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties. We also will obtain a mortgagee’s or owner’s title insurance policy or a commitment as to the priority of the secured loan as part of our underwriting process. If an affiliate of our Advisor has an equity interest or participation interest in a development that requires a loan or credit enhancement, our Advisor may have a greater incentive to make a loan with respect to such development to preserve and/or enhance its economic interest in such development. As of March 31, 2014, our 19 loans to related parties have an outstanding balance of approximately $68.8 million.

We will face risks relating to joint ventures with our affiliates and third parties that are not present with other methods of investing in properties and secured loans.

We may enter into joint ventures with certain of our affiliates, as well as third parties, for the funding of loans or the acquisition of properties. We may also purchase loan participation interests or loans through joint ventures or in partnerships or other co-ownership arrangements with our affiliates, the sellers of the loans, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with other methods of investment in secured loans, including, for example:

that such affiliate, co-venturer or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals, which may cause us to disagree with our affiliate, co-venturer or partner as to the best course of action with respect to the investment and which disagreement may not be resolved to our satisfaction;

that such affiliate, co-venturer or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, which may cause us not to realize the return anticipated from our investment; or

that it may be difficult for us to sell our interest in any such participation, co-venture or partnership.

Moreover, in the event we determine to foreclose on the collateral underlying a non-performing investment, we may be required to obtain the cooperation of our affiliate, co-venturer or partner to do so. We anticipate that we will participate with our affiliates in certain development projects where we and our affiliates make loans to the borrower, in which case we expect to enter into an inter-creditor agreement that will define our rights and priority with respect to the underlying collateral. Our inability to foreclose on a property acting alone may cause significant delay in the foreclosure process, in which time the value of the property may decline.

As of March 31, 2014, we have not entered into any joint ventures. As of March 31, 2014, we are participating in 10 loans originated by affiliates, with an outstanding balance of approximately $34.5 million.

Our Advisor will face additional conflicts of interest relating to loan participations with affiliated entities and may make decisions that disproportionately benefit one or more of our affiliated entities instead of us.

Our Advisor also serves as the advisor for UMT and is an affiliate of the general partners of UDF I, UDF II, UDF III and UDF LOF, all of which engage in the same businesses as us. Because our Advisor or its affiliates will have advisory and management arrangements with these other United Development Funding programs, it is likely that they will encounter opportunities to invest in or acquire interests in secured loans, participations and/or properties to the benefit of one of the United Development Funding programs, but not others. Our Advisor or its affiliates may make decisions to finance certain properties, which decisions might disproportionately benefit a United Development Funding program other than us. In such event, our results of operations and ability to pay distributions to our shareholders could be adversely affected.

Because our Advisor and its affiliates are affiliated with UMT, UDF I, UDF II, UDF III and UDF LOF, agreements and transactions among the parties with respect to any loan participation among two or more of such parties will not have the benefit of arm’s length negotiation of the type normally conducted between unrelated co-venturers. Under these loan participation arrangements, we may not have a first priority position with respect to the underlying collateral. In the event that a co-venturer has a right of first refusal to buy out the other co-venturer, it may be unable to finance such buy-out at that time. In addition, to the extent that our co-venturer is an affiliate of our Advisor, certain conflicts of interest will exist. As of March 31, 2014, we are participating in 10 loans originated by affiliates, with an outstanding balance of approximately $34.5 million.

Investments in land development loans present additional risks compared to loans secured by operating properties.

We may invest up to 10% of the gross offering proceeds in loans to purchase unimproved real property, and as of March 31, 2014, we have invested 0% of the gross offering proceeds in such loans. For purposes of this limitation, “unimproved real property” is defined as real property which has the following three characteristics: (a) an equity interest in real property which was not acquired for the purpose of producing rental or other income; (b) has no development or construction in process on such land; and (c) no development or construction on such land is planned in good faith to commence within one year. Land development mortgage loans may be riskier than loans secured by improved properties, because:

until disposition, the property does not generate separate income for the borrower to make loan payments;

the completion of planned development may require additional development financing by the borrower, which may not be available;

depending on the velocity or amount of lot sales to homebuilders, demand for lots may decrease, causing the price of the lots to decrease;

depending on the velocity or amount of lot sales to developers or homebuilders, demand for land may decrease, causing the price of the land to decrease;

there is no assurance that we will be able to sell unimproved land promptly if we are forced to foreclose upon it; and

lot sale contracts are generally not “specific performance” contracts, and the borrower may have no recourse if a homebuilder elects not to purchase lots.

Investments in second, mezzanine and wraparound mortgage loans present additional risks compared to loans secured by first deeds of trust.

We expect that we will be the junior lender with respect to some of our loans. We may invest in (a) second mortgage loans (some of which are also secured by pledges), which investments represent approximately 29% of the gross offering proceeds as of March 31, 2014; (b) co-investment loans (which are secured by pledges and collateral-sharing arrangements permitting us to share in the proceeds of second liens held by affiliates), which investments represent 0% of the gross offering proceeds as of March 31, 2014; (c) mezzanine loans (which are secured by pledges), which investments represent approximately 2% of the gross offering proceeds as of March 31, 2014; and (d) wraparound mortgage loans, which investments represent 0% of the gross offering proceeds as of March 31, 2014. A wraparound, or all-inclusive, mortgage loan is a loan in which the lender combines the remainder of an old loan with a new loan at an interest rate that blends the rate charged on the old loan with the current market rate. In a second mortgage loan and in a mezzanine loan, our rights as a lender, including our rights to receive payment on foreclosure, will be subject to the rights of the prior mortgage lender. In a wraparound mortgage loan, our rights will be similarly subject to the rights of any prior mortgage lender, but the aggregate indebtedness evidenced by our loan documentation will be the prior mortgage loans in addition to the new funds we invest. Under a wraparound mortgage loan, we would receive all payments from the borrower and forward to any senior lender its portion of the payments we receive. Because all of these types of loans are subject to the prior mortgage lender’s right to payment on foreclosure, we incur a greater risk when we invest in each of these types of loans.

Many of our loans will require balloon payments, which are riskier than loans with fully amortized payments.

We anticipate that substantially all of our loans will have balloon payments or reductions to principal tied to net cash from the sale of developed lots and the release formula created by the senior lender (i.e., the conditions under which principal is repaid to the senior lender, if any), and as of March 31, 2014, 100% of our loans have balloon payments or reductions to principal tied to net cash. A balloon payment is a large principal balance that is payable after a period of time during which the borrower has repaid none or only a small portion of the principal balance. Loans with balloon payments are riskier than loans with even payments of principal over an extended time period, such as 15 or 30 years, because the borrower’s repayment often depends on its ability to refinance the loan or sell the developed lots profitably when the loan comes due. There are no specific criteria used in evaluating the credit quality of borrowers for mortgage loans requiring balloon payments. Furthermore, a substantial period of time may elapse between the review of the financial statements of the borrower and the date when the balloon payment is due. As a result, there is no assurance that a borrower will have sufficient resources to make a balloon payment when due.

The interest-only loans we make or acquire may be subject to greater risk of default and there may not be sufficient funds or assets remaining to satisfy our loans, which may result in losses to us.

We will make and acquire interest-only loans or loans requiring reductions to accrued interest tied to net cash, and as of March 31, 2014, 100% of the loans we have made and acquired are interest-only loans or loans requiring reductions to accrued interest tied to net cash. Interest-only loans typically cost the borrower less in monthly loan payments than fully-amortizing loans which require a payment on principal as well as interest. This lower cost may enable a borrower to acquire a more expensive property than if the borrower was entering into a fully-amortizing mortgage loan. Borrowers utilizing interest-only loans are dependent on the appreciation of the value of the underlying property, and the sale or refinancing of such property, to pay down the interest-only loan since none of the principal balance is being paid down with the borrowers’ monthly payments. If the value of the underlying property declines due to market or other factors, it is likely that the borrower would hold a property that is worth less than the mortgage balance on the property. Thus, there may be greater risk of default by borrowers who enter into interest-only loans. In addition, interest-only loans include an interest reserve in the loan amount. If such reserve is required to be funded due to a borrower’s non-payment, the loan-to-value ratio for that loan will increase, possibly above generally acceptable levels. In the event of a defaulted interest-only loan, we would acquire the underlying collateral which may have declined in value. In addition, there are significant costs and delays associated with the foreclosure process. Any of these factors may result in losses to us.

Larger loans result in less portfolio diversity and may increase risk, and the concentration of loans with a common borrower may increase our risk.

We intend to invest in loans that individually constitute an average amount equal to the lesser of (a) 1% to 3% of the total amount raised in the Offering, or (b) $2.5 million to $15 million. However, we may invest in larger loans depending on such factors as our performance and the value of the collateral. These larger loans are riskier because they may reduce our ability to diversify our loan portfolio. Our largest loan to a single borrower will not exceed an amount equal to 20% of the total capital contributions raised in the Offering, and as of March 31, 2014, our largest loan to a single borrower is equal to approximately 6% of the total capital contributions raised in the Offering.

The concentration of loans with a common borrower may increase our risks.

We may invest in multiple mortgage loans that share a common borrower or loans to related borrowers. As of March 31, 2014, we have invested approximately 55% of our offering proceeds in 72 loans to our largest group of related borrowers. The bankruptcy, insolvency or other inability of any borrower that is the subject of multiple loans to pay interest or repay principal on its loans would have adverse consequences on our income and reduce the amount of funds available for distribution to investors. In addition, we expect to be dependent on a limited number of borrowers for a large portion of our business. The more concentrated our portfolio is with one or a few borrowers, the greater credit risk we face. The loss of any one of these borrowers would have a material adverse effect on our financial condition and results of operations.

If we were found to have violated applicable usury laws, we would be subject to penalties and other possible risks.

Usury laws generally regulate the amount of interest that may lawfully be charged on indebtedness. Each state has its own distinct usury laws. We believe that our loans will not violate applicable usury laws (as of March 31, 2014, the highest interest rate we have charged on an annualized basis is 15%). There is a risk, however, that a court could determine that our loans do violate applicable usury laws. If we were found to have violated applicable usury laws, we could be subject to penalties, including fines equal to three times the amount of usurious interest collected and restitution to the borrower. Additionally, usury laws often provide that a loan that violates usury laws is unenforceable. If we are subject to penalties or restitution or if our loan agreements are adjudged unenforceable by a court, it would have a material, adverse effect on our business, financial condition and results of operations and we would have difficulty making distributions to our shareholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

On February 3, 2014, our board of trustees appointed Stacey H. Dwyer as our Chief Operating Officer, effective February 17, 2014 and in connection with this appointment, we entered into an employment agreement with Ms. Dwyer effective as of February 17, 2014.

The following table reflects Restricted Shares that have been granted to Ms. Dwyer and shares that have vested or have been forfeited by Ms. Dwyer for the three months ended March 31, 2014.

	Restricted Shares
Outstanding at January 1, 2014		-
Granted		82,410
Vested		-
Forfeited		-

Outstanding at March 31, 2014		82,410

Share Redemption Program

The following table sets forth information relating to our common shares of beneficial interest that have been repurchased during the quarter ended March 31, 2014:

2014	Total number of common shares of beneficial interest repurchased	Average price paid per common share of beneficial interest		Total number of common shares of beneficial interest repurchased as part of publicly announced plan	Maximum number of common shares of beneficial interest that may yet be purchased under the plan
January	94,619	$	18.43	94,619		(1	)
February	8,899	$	20.00	8,899		(1	)
March	-	$	-	-		(1	)
	103,518	$	18.57	103,518

(1)

A description of the maximum number of common shares of beneficial interest that may be purchased under our redemption program is included in the narrative preceding this table.

For the three months ended March 31, 2014, we received valid redemption requests relating to 156,641 shares of beneficial interest, 103,518 of which were redeemed for an aggregate purchase price of approximately $1.9 million (an average redemption price of $18.57 per share). For the year ended December 31, 2013, we had received valid redemption requests relating to 88,376 shares of beneficial interest, all of which were redeemed for an aggregate purchase price of approximately $1.7 million (an average redemption price of approximately $19.33 per share). Such shares are included in treasury stock in the accompanying consolidated financial statements included in this Form 10-Q. A valid redemption request is one that complies with the applicable requirements and guidelines of our current share redemption program set forth in the prospectus relating to the Offering. We have funded all share redemptions using funds from operations.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Index to Exhibits attached hereto.

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.

	United Development Funding IV

Dated: May 15, 2014	By:	/s/ Hollis M. Greenlaw
		Hollis M. Greenlaw
		Chief Executive Officer
		Principal Executive Officer

Dated: May 15, 2014	By:	/s/ Cara D. Obert
		Cara D. Obert
		Chief Financial Officer
		Principal Financial Officer

Index to Exhibits

Exhibit Number	Description

3.1	Second Articles of Amendment and Restatement of United Development Funding IV (previously filed in and incorporated by reference to Registrant’s Pre-Effective Amendment No. 2 to Registration Statement on Form S-11, Commission File No. 333-152760, filed on December 16, 2008)

3.2	Bylaws of United Development IV (previously filed in and incorporated by reference to Registrant’s Registration Statement on Form S-11, Commission File No. 333-152760, filed on August 5, 2008)

4.1	Form of Subscription Agreement (previously filed in and incorporated by reference to Exhibit B to prospectus dated April 27, 2012 filed pursuant to Rule 424(b)(3), Commission File No. 333-152760, filed on April 30, 2012)

4.2	Distribution Reinvestment Plan (previously filed in and incorporated by reference to Exhibit C to prospectus dated April 27, 2012 filed pursuant to Rule 424(b)(3), Commission File No. 333-152760, filed on April 30, 2012)

4.3	Share Redemption Program (previously filed in and incorporated by reference from the description under “Description of Shares – Share Redemption Program” in the prospectus dated April 27, 2012 filed pursuant to Rule 424(b)(3), Commission File No. 333-152760, filed on April 30, 2012)

10.1	Employment Agreement between United Development Funding IV and Stacey H. Dwyer, dated February 21, 2014 (previously filed in and incorporated by reference to Exhibit 10.1 to Form 8-K/A filed on February 24, 2014)

10.2	Restricted Stock Award Agreement between United Development Funding IV and Stacey H. Dwyer, dated February 21, 2014 (previously filed in and incorporated by reference to Exhibit 10.33 to Form 10-K filed on April 15, 2014)

31.1*	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2*	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1**	Section 1350 Certifications

101.INS*	XBRL Instance Document

101.SCH*	XBRL Taxonomy Extension Schema Document

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*	XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

Filed herewith.

Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

United Development Funding IV (UDFI) 10-Q2014 Q1 Quarterly report

Content analysis