United Development Funding IV 10Q 2014 Q3 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 September 30, 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: 001-36472

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. Yesx 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). Yesx 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¨ Nox

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 November 10, 2014 was 30,620,636.

UNITED DEVELOPMENT FUNDING IV

FORM 10-Q

Quarter Ended September 30, 2014

		Page
	PART I
	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements.

	Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013	3

	Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2014 and 2013	4

	Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2014 and 2013	5

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the nine months ended September 30, 2014 and 2013	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	56

Item 4.	Controls and Procedures.	56

	PART II
	OTHER INFORMATION

Item 1.	Legal Proceedings.	58

Item 1A.	Risk Factors.	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	64

Item 3.	Defaults Upon Senior Securities.	65

Item 4.	Mine Safety Disclosures.	65

Item 5.	Other Information.	65

Item 6.	Exhibits.	65

Signatures.		66

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED BALANCE SHEETS

	September 30, 2014 (Unaudited)			December 31, 2013
Assets
Cash and cash equivalents	$	12,016,005		$	33,565,191
Restricted cash		8,153,116			2,385,535
Accrued interest receivable		22,319,165			12,747,047
Accrued receivable – related parties		2,084,471			2,607,292
Loan participation interest – related parties, net		40,199,606			32,909,958
Notes receivable, net		506,159,575			444,720,197
Notes receivable – related parties, net		47,035,731			30,854,000
Lot inventory		13,590,316			8,236,953
Other assets		3,004,896			2,836,044
Total assets	$	654,562,881		$	570,862,217

Liabilities and Shareholders’ Equity
Liabilities:
Accrued liabilities	$	7,190,383		$	3,241,009
Accrued liabilities – related parties		1,165,356			3,339,143
Distributions payable		-			2,653,450
Note payable		35,000,000			-
Lines of credit		107,348,486			30,519,056
Total liabilities		150,704,225			39,752,658

Commitments and contingencies

Shareholders’ equity:
Shares of beneficial interest; $0.01 par value; 400,000,000 shares authorized; 32,647,892 shares issued and 30,617,439 shares outstanding at September 30, 2014, and 32,115,232 shares issued and 31,902,325 shares outstanding at December 31, 2013		326,479			321,152
Additional paid-in-capital		571,783,888			562,442,028
Accumulated deficit		(26,849,925	)		(27,395,968	)
Shareholders’ equity before treasury stock		545,260,442			535,367,212
Less: Treasury stock, 2,030,453 shares at September 30, 2014 and 212,907 shares at December 31, 2013, at cost		(41,401,786	)		(4,257,653	)
Total shareholders’ equity		503,858,656			531,109,559
Total liabilities and shareholders’ equity	$	654,562,881		$	570,862,217

See accompanying notes to consolidated financial statements (unaudited).

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2014		2013		2014			2013
Interest income:
Interest income	$	16,554,881	$	11,597,420	$	47,228,062		$	29,575,272
Interest income – related parties		2,672,045		1,899,165		7,290,717			5,653,989
Total interest income		19,226,926		13,496,585		54,518,779			35,229,261

Interest expense:
Interest expense		1,909,455		95,251		2,885,557			951,928

Net interest income		17,317,471		13,401,334		51,633,222			34,277,333
Provision for loan losses		773,820		549,130		2,214,607			1,429,891
Net interest income after provision for loan losses		16,543,651		12,852,204		49,418,615			32,847,442

Noninterest income:
Commitment fee income		754,067		408,732		2,275,605			881,049
Commitment fee income – related parties		79,767		38,797		173,451			143,817
Lot inventory sales income		2,976,000		195,000		6,864,137			195,000
Total noninterest income		3,809,834		642,529		9,313,193			1,219,866

Noninterest expense:
Management fees – related party		2,325,276		2,177,262		7,629,346			5,653,507
Lot inventory sales cost		2,976,000		195,000		6,864,137			195,000
Listing expenses		77,028		-		5,115,229			-
General and administrative		1,217,717		622,093		3,934,933			1,289,658
General and administrative – related parties		382,431		2,820,065		(1,376,394	)		6,272,763
Total noninterest expense		6,978,452		5,814,420		22,167,251			13,410,928

Net income	$	13,375,033	$	7,680,313	$	36,564,557		$	20,656,380

Net income per weighted average share outstanding	$	0.44	$	0.24	$	1.16		$	0.80

Weighted average shares outstanding		30,632,925		31,526,561		31,616,870			25,672,294

Distributions per weighted average share outstanding	$	0.34	$	0.41	$	1.14		$	1.26

See accompanying notes to consolidated financial statements (unaudited).

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2014			2013
Operating Activities
Net income	$	36,564,557		$	20,656,380
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,214,607			1,429,891
Amortization expense		955,686			520,697
Share-based compensation		557,531			-
Changes in assets and liabilities:
Accrued interest receivable		(9,909,085	)		(5,896,243	)
Accrued receivable – related parties		859,788			(1,101,453	)
Other assets		(1,124,539	)		(2,190,684	)
Accrued liabilities		711,314			29,729
Net cash provided by operating activities		30,829,859			13,448,317

Investing Activities
Investments in loan participation interest – related parties		(16,212,677	)		(13,248,659	)
Principal receipts from loan participation interest – related parties		17,265,709			11,982,205
Investments in notes receivable		(169,294,765	)		(213,648,400	)
Principal receipts from notes receivable		97,298,100			65,636,539
Investments in notes receivable – related parties		(20,092,790	)		(11,605,997	)
Principal receipts from notes receivable – related parties		3,911,059			8,150,005
Investments in lot inventory		(9,786,217	)		(6,588,225	)
Proceeds from sales of lot inventory		5,497,128			156,195
Net cash used in investing activities		(91,414,453	)		(159,166,337	)

Financing Activities
Proceeds from issuance of shares of beneficial interest		-			272,879,903
Investor subscriptions receivable		-			1,137,357
Purchase of treasury shares		(37,058,319	)		(1,447,045	)
Proceeds from borrowings on lines of credit		85,992,416			60,762
Payments on lines of credit		(9,162,986	)		(25,157,181	)
Proceeds from notes payable		35,000,000			-
Payments on notes payable		-			(5,095,523	)
Distributions, net of shareholders’ distribution reinvestment		(29,968,122	)		(19,892,973	)
Restricted cash		(5,767,581	)		-
Payments of offering costs		-			(35,309,772	)
Deferred offering costs		-			5,050,715
Accrued liabilities – related parties		-			(5,372,771	)
Net cash provided by financing activities		39,035,408			186,853,472

Net (decrease) increase in cash and cash equivalents		(21,549,186	)		41,135,452
Cash and cash equivalents at beginning of period		33,565,191			23,225,858
Cash and cash equivalents at end of period	$	12,016,005		$	64,361,310
Supplemental Cash Flow Information:
Cash paid for interest	$	2,450,728		$	1,030,442
Supplemental Cash Flow Information – Non-Cash Investing and Financing Activities:
Shareholders’ distribution reinvestment	$	8,703,842		$	11,739,952
Assignment of loans	$	8,342,680		$	-
Lot inventory purchased – earnest money	$	1,064,274		$	1,597,970

See accompanying notes to consolidated financial statements (unaudited).

UNITED DEVELOPMENT FUNDING IV

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

	Shares of				Additional
	Beneficial Interest				Paid-in			Treasury		Treasury			Accumulated
	Shares		Amount		Capital			Shares		Stock			Deficit			Total

BALANCE – December 31, 2012		17,624,839	$	176,248	$	308,069,721			124,531	$	(2,490,138	)	$	(11,455,079	)	$	294,300,752

Proceeds from shares issued		13,645,956		136,460		272,743,443			-		-			-			272,879,903

Redemption of shares		-		-		44,066			74,555		(1,491,111	)		-			(1,447,045	)

Net income		-		-		-			-		-			20,656,380			20,656,380

Cash distributions declared		-		-		-			-		-			(2,562,161	)		(2,562,161	)

Distributions		-		-		-			-		-			(29,676,699	)		(29,676,699	)

Shareholders’ distribution reinvestment		587,020		5,870		11,734,081			-		-			-			11,739,951

Shares issuance costs		-		-		(35,309,772	)		-		-			-			(35,309,772	)

BALANCE – September 30, 2013		31,857,815	$	318,578	$	557,281,539			199,086	$	(3,981,249	)	$	(23,037,559	)	$	530,581,309


BALANCE – December 31, 2013		32,115,232	$	321,152	$	562,442,028			212,907	$	(4,257,653	)	$	(27,395,968	)	$	531,109,559

Redemption of shares		-		-		85,814			1,817,546		(37,144,133	)		-			(37,058,319	)

Share-based compensation		97,410		974		556,557			-		-			-			557,531

Net income		-		-		-			-		-			36,564,557			36,564,557

Distributions		-		-		-			-		-			(36,018,514	)		(36,018,514	)

Shareholders’ distribution reinvestment		435,250		4,353		8,699,489			-		-			-			8,703,842


BALANCE – September 30, 2014		32,647,892	$	326,479	$	571,783,888			2,030,453	$	(41,401,786	)	$	(26,849,925	)	$	503,858,656

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 September 30, 2014 and December 31, 2013, UDF IV OP had no assets, liabilities or equity.

As of September 30, 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 September 30, 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 September 30, 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; (v) UDF IV LB IV, Inc. (“UDF IV LBIV”), a Delaware corporation; (vi) UDF IV LB V, Inc. (“UDF IV LBV”), a Delaware corporation; and (vii) UDF IV TRS-BR1, Inc. (“UDF IV BR1”), a Delaware corporation.

As of September 30, 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 primarily 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.

On June 4, 2014, we listed our common shares of beneficial interest (the “Listing”) on The NASDAQ Global Select Market (“NASDAQ”) under the symbol “UDF” and concurrently commenced an offer to purchase up to 1,707,317 common shares of beneficial interest at a price of $20.50 per common share of beneficial interest (the “Tender Offer”). See Note C – Shareholders’ Equity for additional discussion of our Tender Offer, which was completed in July 2014.

On July 25, 2014, at the 2014 Annual Meeting of Shareholders of United Development Funding IV, the shareholders approved an amendment and restatement of our declaration of trust. The amended and restated declaration of trust became effective on July 30, 2014, upon the Trust’s filing of the Third Articles of Amendment and Restatement of Declaration of Trust with the Maryland State Department of Assessments and Taxation. A summary of the changes in the amended and restated declaration of trust is described in the Trust’s definitive proxy statement for the 2014 Annual Meeting of Shareholders filed with the SEC on May 29, 2014.

In connection with our Listing and the amendment and restatement of the declaration of trust, our board of trustees approved an amendment and restatement of our bylaws, effective on July 30, 2014, in order to ensure that our bylaws are consistent with other REITs that are listed on a national securities exchange.

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 (“SEC”) 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, results of operations and cash flows as of and for the interim period. Operating results for the three and nine months ended September 30, 2014 and cash flows for the nine months ended September 30, 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 September 30, 2014, the participations have terms ranging from 3 to 32 months and bear interest at rates ranging from 12%to 15%.

Notes Receivable and Notes Receivable – Related Parties

Notes receivable and notes receivable – related parties are recorded at the lower of cost or net realizable value. Although we may enter into unsecured loans, the notes are typically collateralized by one or more of the following: first or second lien deeds of trust, a pledge of ownership interests in the borrower, assignments of lot sale contracts, or reimbursements of development costs due to the borrower under contracts with districts and cities. None of such notes are insured or guaranteed by a federally owned or guaranteed mortgage agency. The notes may be paid off prior to maturity; however, we intend to hold all notes for the life of the notes. As of September 30, 2014, the notes have terms ranging from 3 to 84 months and bear interest at rates ranging from 11% to 15%.

Lot Inventory

Lot inventory 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 lot inventory would be reduced to fair value less estimated costs to sell the lots.

Lot inventory consists of finished single-family residential lots purchased by UDF IV LBI, UDF IV LBII, UDF IV LBIII, UDF IV LBIV and UDF IV LBV (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 September 30, 2014, the lot option agreements have terms ranging from 18 to 30 months.

Interest Income and Non-Interest Income Recognition

As of September 30, 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 September 30, 2014 and December 31, 2013, approximately $1.9 million and $2.5 million, respectively, of unamortized commitment fees are included as an offset of notes receivable. Approximately $153,000 and $164,000 of unamortized commitment fees are included as an offset of notes receivable – related parties as of September 30, 2014 and December 31, 2013, respectively.

Organizational and Offering Compensation

Various parties received compensation as a result of our initial public offering from December 2009 through May 2013, 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 (the “O&O Reimbursement”) less any offering costs paid by the Trust directly (except that no organization and offering expenses were reimbursed with respect to sales under our distribution reinvestment plan). Payments to the dealer manager included selling commissions (6.5% of gross offering proceeds, except that no commissions were paid with respect to sales under our distribution reinvestment plan) and dealer manager fees (up to 3.5% of gross offering proceeds, except that no dealer manager fees were paid with respect to sales under our distribution reinvestment plan). All Offering costs are reflected as a reduction of additional paid-in-capital in the consolidated statement of changes in shareholders’ equity.

Advisor Fees

Pre-Listing Advisory Agreement

In connection with the advisory agreement dated November 12, 2009, between the Trust and its Advisor, as amended by the first amendment dated June 2, 2010 (the “Pre-Listing Advisory Agreement”), the Trust was required to pay certain fees to its Advisor or an affiliate of its Advisor, as described below.

An amount equal to 3% of the net amount available for investment in secured loans and other real estate assets (after payment of selling commissions, dealer manager fees and O&O Reimbursement) (“Acquisition and Origination Fees”); provided, however, that we did not incur Acquisition and Origination Fees with respect to any asset-level indebtedness we incurred. Acquisition and Origination Fees were payable to UMTH LD, our asset manager. Acquisition and Origination Fees were expensed as incurred as we entered into new loan commitments and were paid to UMTH LD as we raised capital through our initial public offering and our distribution reinvestment plan, both of which are discussed further in Note C below. Acquisition and Origination Fees incurred are included in general and administrative – related parties expense on the accompanying consolidated statements of operations. Acquisition and Origination Fees payable to UMTH LD are included in accrued liabilities – related parties on the accompanying consolidated balance sheets.

An amount equal to 2% per annum of the average of invested assets, including secured loan assets (“Advisory Fees”); provided, however, that no Advisory Fees were paid with respect to any asset-level indebtedness the Trust incurred. Advisory Fees were payable monthly to our Advisor 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. Advisory Fees associated with the Pre-Listing Advisory Agreement were expensed as incurred and are included in management fees – related party expense on the accompanying consolidated statements of operations.

An amount equal to 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 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”) was paid if such line of credit or other debt financing continued to be outstanding on such date, or a prorated portion of such additional fee was paid for the portion of such year that the financing was outstanding. Debt Financing Fees associated with the Pre-Listing Advisory Agreement were amortized into expense over the life of the related line of credit. Such expense is included in general and administrative – related parties expense on the accompanying consolidated statements of operations.

In addition to the fees described above, the Pre-Listing Advisory Agreement would have required the Trust to pay the following fees and expenses to its Advisor under certain circumstances, although due to the entry of a new advisory agreement, as described below, the Trust did not incur any costs or make any payments to its Advisor in connection with these fees during the term of the Pre-Listing Advisory Agreement:

The Trust would have been required to reimburse expenses incurred by the Advisor in connection with its provision of services to the Trust, including the Trust’s allocable share of the Advisor’s overhead, such as rent, personnel costs, utilities and IT costs, although the Trust was not required to reimburse the Advisor for personnel costs in connection with services for which the Advisor or its affiliates received other fees.

Upon termination of the Pre-Listing Advisory Agreement, the Trust would have been required to make an annual payment equal to 15% of the amount by which the Trust’s net income for the immediately preceding year exceeded a 10% annual cumulative, non-compounded return on aggregate capital contributions, as adjusted to reflect prior cash distributions to shareholders which constituted a return of capital.

Upon successful sales by the Trust of securitized loan pool interests, the Trust would have been required to pay an amount equal to 2% of the net proceeds realized by the Trust, provided the Advisor or an affiliate of the Advisor 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 would have been required to pay an amount equal to 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 would the disposition fees paid to the Advisor, its affiliates and unaffiliated third parties exceed 6% of the contracted sales price.

Upon listing the Trust’s common shares of beneficial interest on a national securities exchange, the Advisor would have been 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, exceeded (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.

Advisory Agreement

On May 29, 2014, the Trust and the Advisor entered into a new advisory agreement, effective upon the completion of the Listing (the “Advisory Agreement”). The Pre-Listing Advisory Agreement automatically terminated upon completion of the Listing.

The Advisory Agreement changed the compensation arrangement with the Advisor. Pursuant to the Advisory Agreement, the Trust is required to pay the following fees to its Advisor or an affiliate of its Advisor:

An amount equal to one-twelfth of 1.5% of the equity of the Trust (the “Base Management Fee”). The Base Management Fee is payable monthly in arrears and is expensed as incurred. The expense associated with the Base Management Fee is included in management fees – related party expense on the accompanying consolidated statements of operations.

An amount equal to 20% of the amount by which the Trust’s core earnings (as defined in the Advisory Agreement) for the preceding 12 months exceeds the product of 8% and the weighted average shares outstanding for the preceding 12 months multiplied by the weighted average share price for the preceding 12 months (as defined in the Advisory Agreement) (the “Incentive Management Fee”), provided that no Incentive Management Fee is payable with respect to any quarter unless the amount of the Trust’s core earnings for the 12 preceding quarters is greater than zero. Prior to the completion of a 12 month period during the term of the Advisory Agreement, core earnings will be calculated on the basis of the number of days the Advisory Agreement has been in effect on an annualized basis. The Incentive Management Fee is payable in arrears in quarterly installments. The expense associated with the Incentive Management Fee is included in management fees – related party expense on the accompanying consolidated statements of operations.

Debt Financing Fees equal to 0.5% 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 provided a substantial amount of services as determined by a majority of the Trust’s independent trustees. This amount was reduced from 1.0%, per the terms of the Pre-Listing Advisory Agreement. On each anniversary date of the origination of any such line of credit or other debt financing, the Trust will continue to pay an additional fee of 0.25% of the primary loan amount if such line of credit or other debt financing continues to be outstanding on such date, or a prorated portion of such additional fee was paid for the portion of such year that the financing was outstanding. Debt Financing Fees are amortized into expense over the life of the related line of credit. Such expense is included in general and administrative – related parties expense on the accompanying consolidated statements of operations.

An amount equal to 1% of the par amount of the securities sold by the Trust in connection with the securitization and placement of any secured loans (as defined in the Advisory Agreement) (“Securitized Loan Pool Placement Fees”), if the Advisor or an affiliate of the Advisor provided a substantial amount of services as determined by the Trust’s independent trustees. No Securitized Loan Pool Placement Fees are included on the accompanying consolidated financial statements.

An amount equal to 15% of the amount by which (i) the market value of the Trust’s outstanding common shares of beneficial interest (measured by taking the average closing price for a single common share of beneficial interest over a period of thirty consecutive trading days commencing 180 days after Listing and multiplying that number by the total outstanding common shares of beneficial interest upon Listing) plus distributions paid by the Trust prior to listing exceeds (ii) the sum of (A) the total amount of capital raised from investors (after reduction of distributions attributable to net sales proceeds and amounts paid by the Trust to repurchase shares) and (B) the amount equal to a 10% annual cumulative, non-compounded return to investors from inception through Listing (the “Listing Fee”). The Listing Fee will be paid as follows: 50% will be payable in cash and 50% will be payable in the form of a three-year promissory note bearing interest at the applicable federal rate established by the Internal Revenue Service on the date of issuance, payable quarterly in arrears. If the promissory note has not been paid in full within three years from the date of issuance, then the Advisor, or its successors or assigns, may elect to convert the unpaid balance, including accrued but unpaid interest, into common shares of the Trust at a price per share equal to the average closing price of the shares over the ten trading days immediately preceding the date of such election. No Listing Fees are included on the accompanying consolidated financial statements.

In addition to the fees described above, pursuant to the terms of the Advisory Agreement, the Trust will reimburse the Advisor and its affiliates for expenses they incur on behalf of the Trust, including expenses incurred by the Advisor in employing the Trust’s Chief Financial Officer, Treasurer, Chief Compliance Officer, Chief Operating Officer and General Counsel (the “Advisor Expense Reimbursement”). The Trust will pay the Advisor Expense Reimbursement on a monthly basis, and costs incurred by the Trust in connection with the Advisor Expense Reimbursement will be expensed by the Trust as incurred.

Listing

The Trust incurred certain costs in connection with its Listing and Tender Offer. These listing costs consisted primarily of legal, investment banking, NASDAQ fees, share-based compensation, consulting and other third-party service provider costs incurred by us in connection with our Listing and Tender Offer. We expensed Listing costs totaling approximately $77,000 and $5.1 million during the three and nine months ended September 30, 2014, respectively. We did not expense Listing costs during the three and nine months ended September 30, 2013. Of the $5.1 million of listing expenses incurred through September 30, 2014, approximately $300,000 was attributable to share-based compensation, as discussed further in Note C.

Income Taxes

We file income tax returns in the United States federal jurisdiction. As of September 30, 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 nine months ended September 30, 2014 or 2013.

Impact of Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The objective of ASU 2014-09 is to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP. The core principle of ASU 2014-09 is that an entity should recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle, which may require more judgment and estimates within the revenue recognition process than are required under existing GAAP.

The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In June 2014, the FASB issued Accounting Standards UpdateNo.2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (“ASU 2014-12”). The update requires that a performance target that affects vesting and could be achieved after the requisite service period be treated as a performance condition and, as a result, should not be included in the grant-date fair value of the award. ASU 2014-12is effective for annual reporting periods beginning after December 15, 2015, and interim periodstherein. Earlyadoption is permitted. The Company does not expect the adoption of ASU 2014-12 to havea material impact on its consolidated financial statements.

Guarantees

Share-Based Compensation

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

Reclassifications

We have renamed our real estate owned balance to lot inventory to more appropriately describe the nature of this asset. In addition, certain reclassifications have been made to prior period amounts in order to conform with the current year presentation.

C. Shareholders’ Equity

Offering

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. 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.

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 (the “Primary DRIP Offering”).We had the right to reallocate the common shares of beneficial interest registered in the Offering between the Primary Offering and the Primary DRIP Offering, 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 Primary DRIP Offering. 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) for $20 per share (the “Secondary DRIP Offering”). We ceased offering common shares of beneficial interest under the Primary DRIP 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 Offering. Effective May 24, 2014, in contemplation of the Listing, we terminated our DRIP and ceased offering common shares of beneficial interest pursuant to the Secondary DRIP Offering.

On August 4, 2014, we filed a Registration Statement on Form S-3 with theSEC that allows us to publicly offer and sell common shares of beneficial interest, preferred shares of beneficial interest and debt securities, from time to time, in one or more future offerings, up to a maximum aggregate offering price of $750 million (the “Shelf Registration”). The Shelf Registration was declared effective by the SEC on August 27, 2014. As of September 30, 2014, no offerings have been commenced pursuant to the Shelf Registration.

On August 4, 2014, we filed Post-Effective Amendment No. 1 (the “Amended Secondary DRIP Offering”) to our Registration Statement on Form S-3 filed on April 19, 2013, in which we originally registered 7,500,000 common shares of beneficial interest to be offered pursuant to our DRIP. Pursuant to our Amended Secondary DRIP Offering, we began offering common shares of beneficial interest pursuant to our new distribution reinvestment plan (the “New DRIP”) in August 2014. The purchase price for shares under the New DRIP will be equal to the current market value of our shares, calculated based upon the average of the open and close prices per share on the distribution payment date, as reported by NASDAQ.

As of September 30, 2014, the Trust had issued an aggregate of 32,550,482 common shares of beneficial interest pursuant to the Primary Offering, Primary DRIP Offering, Secondary DRIP Offering and Amended Secondary DRIP Offering, 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 Primary DRIP Offering in exchange for gross proceeds of approximately $14.5 million, 1,087,543 common shares of beneficial interest in accordance with our Secondary DRIP Offering in exchange for gross proceeds of approximately $21.7 million and 3,509 common shares of beneficial interest in accordance with our Amended Secondary DRIP Offering in exchange for gross proceeds of approximately $0.1 million. As of September 30, 2014, the Trust had redeemed an aggregate of 2,030,453 common shares of beneficial interest at a cost of approximately $41.4 million, including shares repurchased pursuant to our Tender Offer, as discussed further below.

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 of 1986, as amended (the “Internal Revenue Code”). In accordance with this requirement, we pay monthly distributions to our shareholders. 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. Our distribution rate and any special distributions are approved by our board of trustees and are 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.

On May 30, 2014, in contemplation of the Listing, we announced the termination of our DRIP, effective ten days from the notice of such termination, pursuant to the terms of the DRIP. Upon termination of the DRIP, we ceased offering common shares of beneficial interest pursuant to the Secondary DRIP Offering. On August 4, 2014, we created our New DRIP and began offering common shares of beneficial interest pursuant to our Amended Secondary DRIP Offering.

Our board of trustees authorized distributions payable to our shareholders on a monthly basis commencing on December 18, 2009. For distributions declared for each record date in the July 2011 through May 2014 periods, our daily distribution rate was $0.0044932 per common share of beneficial interest, which is equal to an annualized distribution rate of $1.64 per share. These daily distributions were aggregated and paid monthly in arrears on or about the 25th day of each month. Distributions for shareholders participating in our distribution reinvestment plan were reinvested into our shares on the payment date of each distribution prior to the termination of our DRIP.

From June 2014 through September 2014, our board of trustees authorized distributions of $0.1367 per common share of beneficial interest to be paid on or about the 25th day of each month to shareholders of record on or about the 15th day of each month, which is equal to an annual distribution rate of $1.64 per share. On October 2, 2014, our board of trustees authorized monthly distributions of $0.1367 per common share of beneficial interest (which is equal to an annual distribution rate of $1.64 per share) for the period from October 2014 through December 2014. See Note K – Subsequent Events for further discussion. All distributions are paid in cash and New DRIP shares as of September 30, 2014.

Our board of trustees did not authorize any special distributions to be paid during the nine months ended September 30, 2014. In addition to the monthly distributions discussed above, the following table represents all special distributions authorized by our board of trustees that were paid during the nine months ended September 30, 2013:

Authorization Date (1)	Record Date (2)	Rate Per Share (3)		Payment Date (4)
October 10, 2012	December 14, 2012	$	0.05	February 15, 2013
March 6, 2013	April 15, 2013	$	0.05	May 17, 2013

(1)

Represents the date the distribution was authorized by our board of trustees.

(2)

All outstanding common shares of beneficial interest as of the record date received the distribution.

(3)

Represents the distribution rate per common share of beneficial interest on the record date.

(4)

Represents the date the special distribution was paid in cash and Secondary DRIP Offering shares.

The distributions paid for the nine months ended September 30, 2014 and 2013, along with the amount of distributions reinvested pursuant to our Primary DRIP Offering and Secondary DRIP Offering and the sources of our distributions are reflected in the table below.

	Nine Months Ended September 30,
	2014				2013
Distributions paid in cash	$	29,968,000			$	19,893,000
Distributions reinvested		8,704,000				11,740,000
Total distributions	$	38,672,000			$	31,633,000
Source of distributions:
Cash from operations	$	29,107,000	75	%	$	13,448,000	43	%
Borrowings under credit facilities		9,565,000	25	%		-	-
Proceeds from Offering		-	-			18,185,000	57	%
Total sources	$	38,672,000	100	%	$	31,633,000	100	%

For the nine months ended September 30, 2014 and 2013, we paid distributions of approximately $38.7 million ($30.0 million in cash and $8.7 million in our common shares of beneficial interest pursuant to our Secondary DRIP Offering and our Amended Secondary DRIP Offering) and $31.6 million ($19.9 million in cash and $11.7 million in our common shares of beneficial interest pursuant to our Primary DRIP Offering and Secondary DRIP Offering), respectively. For the nine months ended September 30, 2014 and 2013, respectively, we issued 435,250 and 587,020 common shares of beneficial interest pursuant to distributions that were reinvested.

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 various 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.

The following tables reconcile the total distributions paid to our calculation of distributions per weighted average share outstanding for the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013

Distributions paid (1)	$	12,554,000		$	12,914,000		$	38,672,000		$	31,633,000
Add: current period distribution accrual (2)		-			2,562,000			-			2,562,000
Less: previous period accrual reversal (2)		(2,209,000	)		(2,513,000	)		(2,653,000	)		(1,956,000	)
Distributions	$	10,345,000		$	12,963,000		$	36,019,000		$	32,239,000

Weighted average shares outstanding		30,632,925			31,526,561			31,616,870			25,672,294

Distributions paid per weighted average share outstanding	$	0.41		$	0.41		$	1.22		$	1.23

Distributions per weighted average share outstanding	$	0.34		$	0.41		$	1.14		$	1.26

(1)

Represents total cash and DRIP distributions paid during the period indicated.

(2)

Represents impact of accruals/accrual reversals during the period indicated for distributions declared, but not paid.

Share Redemption Program

Prior to its suspension and ultimate termination, our share redemption program enabled our shareholders to sell their shares back to us in limited circumstances. On May 30, 2014, we announced the termination of our share redemption program, effective upon Listing. For the nine months ended September 30, 2014, we received valid redemption requests relating to 183,166 shares of beneficial interest and 106,018 shares were redeemed for an aggregate purchase price of $2.0 million (an average redemption price of $18.60 per share). For the nine months ended September 30, 2013, we received valid redemption requests relating to 74,556 shares of beneficial interest, all of which were redeemed for an aggregate purchase price of approximately $1.4 million (an average redemption price of $19.41 per share). Shares redeemed are included in treasury stock in the consolidated balance sheet.

Tender Offer

Pursuant to our Tender Offer, on July 9, 2014, we purchased 1,707,317 common shares of beneficial interest at a purchase price of $20.50 per share, for an aggregate cost of $35.0 million, excluding fees and expenses related to the Tender Offer. In addition, on July 9, 2014, in connection with our Tender Offer, we eliminated 4,211 fractional common shares of beneficial interest (the “Fractional Shares”) for an aggregate cost of approximately $86,000 by paying each holder of a Fractional Share an amount in cash equal to the fraction of a share being repurchased multiplied by $20.50 per share. Shares purchased pursuant to our Tender Offer and Fractional Shares purchased in connection with our Tender Offer are included in treasury stock in the consolidated balance sheet.

Adoption of Equity Incentive Plans

In connection with the Listing, on May 29, 2014, the Board, including a majority of the independent trustees, approved the adoption of equity incentive plans for its Advisor (the “Advisor Equity Plan”), its trustees, officers, advisors and consultants (the “Equity Plan”) and its non-executive trustees (the “Non-Executive Trustee Stock Plan”). These equity incentive plans (collectively, the “Equity Incentive Plans”) will be overseen by the Board’s compensation committee, which consists solely of non-executive trustees. Shares issued pursuant to the Equity Incentive Plans are subject to an aggregate limitation of 2,423,284 shares of beneficial interest (7.5% of the number of shares that are issued and outstanding immediately following the approval for listing and trading of the shares on NASDAQ).

The Advisor Equity Plan provides for the grant of stock options, restricted common shares, restricted stock units, stock appreciation rights and other equity-based awards to the Advisor. The Advisor may in turn issue such awards to its officers, employees or other consultants in order to promote the success of the Trust.

The Equity Plan provides for the grant of stock options, restricted common shares, restricted stock units, dividend equivalent rights and other equity-based awards to the trustees, officers and other employees and independent contractors, including employees or trustees of the Advisor and its affiliates who are providing services to the Trust.

The Non-Executive Trustee Stock Plan provides for the issuance of restricted common shares, restricted stock units, or other equity-based awards to the Trust’s non-executive trustees in order to provide incentives to such trustees to promote the success of the Trust.

Share Based Compensation

On February 3, 2014, our board of trustees appointed Stacey H. Dwyer as our Chief Operating Officer, effective February 17, 2014. 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. Compensation expense will be recognized on a straight-line basis over the vesting period of each grant. In connection with Restricted Shares granted to Ms. Dwyer, approximately $103,000 and $258,000, respectively, in share-based compensation is included in general and administrative expense in the accompanying consolidated statements of operations for the three and nine months ended September 30, 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 nine months ended September 30, 2014.

	Restricted Shares		Grant Date Fair Value Per Share		Total
Outstanding as of January 1, 2014		-	$	-	$	-
Granted		82,410		20.00		1,648,200
Vested		-		-		-
Forfeited		-		-		-

Outstanding as of September 30, 2014		82,410	$	20.00	$	1,648,200

As a result of the Listing on June 4, 2014, a total of 15,000 common shares, with a grant date fair value of $20.00 per share, were awarded to members of our board of trustees and a consultant providing services to us pursuant to our Equity Incentive Plans. These shares vested immediately upon issuance. In connection with these shares, $300,000 of share-based compensation is included in listing expense in the accompanying consolidated statements of operations for the three and nine months ended September 30, 2014.

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, net and is recorded at the lower of cost or estimated net realizable value.

	September 30, 2014		December 31, 2013
Loan participation interest – related parties	$	40,200,000	$	32,910,000
Notes receivable, net		506,159,000		444,720,000
Notes receivable – related parties, net		47,036,000		30,854,000
Total	$	593,395,000	$	508,484,000

Our loans are classified as follows:

	September 30, 2014			December 31, 2013
Real Estate:
Construction, acquisition and land development	$	601,469,000		$	514,993,000
Provision for loan losses		(6,043,000	)		(3,828,000	)
Unamortized commitment fees		(2,031,000	)		(2,681,000	)
Total	$	593,395,000		$	508,484,000

As of September 30, 2014, we had originated or purchased 164 loans, including 33 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 131 loans outstanding as of September 30, 2014:

	Related Party							Non-related party							Total
Maturity Date	Amount		Loans		% of Total			Amount		Loans		% of Total			Amount		Loans		% of Total
Matured	$	564,000		1		1	%	$	-		-		-		$	564,000		1		*
2014		16,922,000		6		19	%		105,245,000		15		21	%		122,167,000		21		20	%
2015		40,060,000		8		46	%		217,988,000		37		42	%		258,048,000		45		43	%
2016		9,176,000		3		10	%		119,818,000		36		23	%		128,994,000		39		21	%
2017		4,201,000		1		5	%		71,030,000		22		14	%		75,231,000		23		13	%
2018		4,965,000		1		6	%		-		-		-			4,965,000		1		1	%
2019		-		-		-			-		-		-			-		-		-
2020		-		-		-			-		-		-			-		-		-
2021		11,500,000		1		13	%		-		-		-			11,500,000		1		2	%
Total	$	87,388,000		21		100	%	$	514,081,000		110		100	%	$	601,469,000		131		100	%

* Less than 1%

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 September 30, 2014 and December 31, 2013, we had not placed any loans on non-accrual status.

We evaluate our portfolio of notes receivable, notes receivable – related parties, and loan participation interest – related parties on a loan-by-loan basis quarterly or as circumstances or events arise that warrant more frequent review. In conjunction with this evaluation, we apply the guidance in FASB ASC 310-10-35,Receivables – Overall – Subsequent Measurement(“ASC 310-10-35”) in determining whether it is probable that we will be unable to collect all of the contractual principal and interest payments as scheduled in our loan agreements (i.e., whether the loan is impaired). In assessing the collectability of each portfolio loan, we conduct our detailed review on three levels: an economic fundamentals review, a submarket analysis, and active portfolio monitoring. 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. 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 September 30, 2014, we had one matured loan with an unpaid principal balance of approximately $564,000. This loan was not considered impaired as the loan matured in September 2014 and payment in full on the unpaid principal balance was received in October 2014. As of December 31, 2013, we had no matured loans. For the three and nine months ended September 30, 2014 and 2013, 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, but 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:

	September 30, 2014		December 31, 2013
Level 1	$	601,469,000	$	514,993,000
Level 2		-		-
Level 3		-		-
Total	$	601,469,000	$	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 nine months ended September 30, 2014 and the year ended December 31, 2013, which is offset against notes receivable:

	For the Nine Months Ended September 30, 2014		For the Year Ended December 31, 2013
Balance, beginning of year	$	3,828,000	$	1,766,000
Provision for loan losses		2,215,000		2,062,000
Charge-offs		-		-
Balance, end of period	$	6,043,000	$	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 September 30, 2014 and December 31, 2013, we have no loan modifications that are classified as troubled debt restructurings.

E. Lot Inventory

Lot inventory 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 nine months ended September 30, 2014 and the year ended December 31, 2013.

	September 30, 2014			December 31, 2013
Lot inventory, beginning of period	$	8,237,000		$	-
Purchases of lots		12,217,000			9,017,000
Sales of lots		(6,864,000	)		(780,000	)
Lot inventory, end of period	$	13,590,000		$	8,237,000

F. Notes Payable and Lines of Credit

In connection with the credit facilities described below, we have agreed to pay Debt Financing Fees to the Advisor. See Note I – Related Party Transactions, for further discussion of fees paid to related parties.

Notes Payable

Credit Facility

On February 5, 2010, 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.

Waterfall 4 Loan

On July 2, 2014, we entered into a loan agreement (the “Waterfall 4 Loan”) with Waterfall Finance 4, LLC (“Waterfall 4”) for a $35 million term loan to fund our Tender Offer. The loan bears interest at a rate of LIBOR plus 9.00%, with a LIBOR floor of 1% (10.0% as of September 30, 2014). All accrued and unpaid interest is payable on the fifth day of each calendar month during the term of the loan. Principal is due at maturity. The Waterfall 4 Loan matures on July 2, 2015. However, if the Trust is in compliance with all financial covenants, the Trust may choose to extend the Waterfall 4 Loan to December 31, 2015, with monthly principal payments payable by the Trust during the extension period. The Waterfall 4 Loan is secured by a first priority lien on the mortgage loans and other assets of the Trust.

The Waterfall 4 Loan is subject to customary events of default provisions, including failure to pay indebtedness, breaches of covenants and bankruptcy or other insolvency events. The Waterfall 4 Loan is also subject to compliance with certain financial covenants, including a maximum ratio of consolidated total debt to total equity and a minimum tangible net worth. If any event of default exists, interest will accrue at a rate of LIBOR (with a LIBOR floor of 1%) plus 11.5%. Upon the occurrence of an event of default, as set forth in the Waterfall 4 Loan, and at any time during the continuance thereafter, Waterfall 4 has the right to accelerate the payment of the loan and declare the loan to be immediately due and payable.

Lines of Credit

UDF IV HF CTB Revolver

On May 19, 2010, UDF IV HF obtained a revolving credit facility in the maximum principal amount, as of December 31, 2013, of $10.0 million (the “UDF IV HF CTB Revolver”) with Community Trust Bank of Texas (“CTB”). The UDF IV HF CTB Revolver 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. Effective June 3, 2014, the UDF IV HF CTB Revolver was amended resulting in an increase in the maximum principal amount to $30.0 million.

In consideration for its guarantee of the UDF IV HF CTB Revolver, UDF IV HF 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 HF CTB Revolver at the end of each month. See Note I – Related Party Transactions, for further discussion of fees paid to related parties.

As of September 30, 2014, the UDF IV HF CTB Revolver bears interest at a rate of 4.25% and is scheduled to mature on July 30, 2015.

CTB Revolver

Effective August 19, 2010, UDF IV AC obtained a revolving credit facility in the maximum principal amount, as of December 31, 2013, of $15.0 million (the “CTB Revolver”) from CTB pursuant to a Revolving Loan Agreement (the “Revolver Loan Agreement”). The CTB Revolver is guaranteed by us and by UDF III. Effective April 11, 2014, the CTB Revolver was amended resulting in an increase in the maximum principal amount to $25.0 million.

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 I – Related Party Transactions, for further discussion of fees paid to related parties.

As of September 30, 2014, the CTB Revolver bears interest at a rate of 4.25% and is scheduled to mature on July 30, 2015.

UTB Revolver

Effective September 29, 2010, UDF IV FI obtained a revolving credit facility in the maximum principal amount, as subsequently amended, of $4.0 million (the “UTB Revolver”) with United Texas Bank (“UTB”). 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.

Prosperity Revolver

On December 14, 2010, UDF IV FII obtained a revolving credit facility in the maximum principal amount, as of September 30, 2014, of $15.0 million (the “Prosperity Revolver”) from F&M Bank and Trust Company (“F&M”). F&M was subsequently acquired by Prosperity Bancshares, Inc. (“Prosperity”). The Prosperity Revolver is guaranteed by us and by UDF III.

In consideration for UDF III guaranteeing the Prosperity Revolver, 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 Prosperity Revolver at the end of each month. See Note I – Related Party Transactions, for further discussion of fees paid to related parties.

As of September 30, 2014, the Prosperity Revolver bears interest at a rate of 5.0% and is scheduled to mature on December 14, 2014.

Legacy Revolver

Effective November 1, 2011, UDF IV FIII obtained a revolving credit facility in the maximum principal amount, as of September 30, 2014, of $5.0 million (the “Legacy Revolver”) from LegacyTexas Bank (“Legacy”) pursuant to a loan agreement.

As of September 30, 2014, the Legacy Revolver bears interest at a rate of 5.5% and is scheduled to mature on January 12, 2015.

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, as of December 31, 2013, of $5.3 million pursuant to a loan agreement (the “Veritex Revolver”). Effective June 30, 2014, the Veritex Revolver was amended resulting in an increase in the maximum principal amount to $14.5 million.

As of September 30, 2014, the Veritex Revolver bears interest at a rate of 4.5% and is scheduled to mature on July 31, 2017.

Affiliated Bank Revolver

On July 23, 2013, UDF IV Fin V obtained a revolving credit facility from Affiliated Bank (“Affiliated Bank”) in the maximum principal amount, as of December 31, 2013, of $5.5 million pursuant to a loan agreement (the “Affiliated Bank Revolver”). Effective June 5, 2014, the Affiliated Bank Revolver was amended resulting in an increase in the maximum principal amount to $7.5 million.

As of September 30, 2014, the Affiliated Bank Revolver bears interest at a rate of 5.0% and is scheduled to mature on July 23, 2016.

UDF IV Fin VII Legacy Revolver

On August 5, 2013, UDF IV Fin VII obtained a revolving credit facility from Legacy in the maximum principal amount, as of September 30, 2014, of $10.0 million pursuant to a loan agreement (the “UDF IV Fin VII Legacy Revolver”).

As of September 30, 2014, the UDF IV Fin VII Legacy Revolver bears interest at a rate of 5.0% and is scheduled to mature on August 5, 2015.

UDF IV Fin VI CTB Revolver

On August 19, 2013, UDF IV Fin VI obtained a revolving credit facility from CTB in the maximum principal amount, as of December 31, 2013, of $25.0 million pursuant to a loan agreement (the “UDF IV Fin VI CTB Revolver”). The UDF IV Fin VI CTB Revolver is guaranteed by us and by UDF III. Effective April 11, 2014, the UDF IV Fin VI CTB Revolver was amended resulting in a reduction in the maximum principal amount to $15.0 million.

In consideration for UDF III guaranteeing the UDF IV Fin VI CTB Revolver, 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 Revolver at the end of each month. See Note I – Related Party Transactions, for further discussion of fees paid to related parties.

As of September 30, 2014, the UDF IV Fin VI CTB Revolver is scheduled to mature on August 19, 2015, bears interest at a rate of 4.25% and is subject to an unused line fee of 0.25% per annum on the average daily unused portion of the loan commitment.

Independent Bank Revolver

On December 6, 2013, UDF IV Fin VIII obtained a revolving credit facility from Independent Bank (“Independent Bank”) in the maximum principal amount, as of September 30, 2014, of $15.0 million pursuant to a loan agreement (the “Independent Bank Revolver”).

As of September 30, 2014, the Independent Bank Revolver is scheduled to mature on December 6, 2015, bears interest at a rate of 4.125% and is subject to an unused line fee of 0.5% per annum on the average daily unused portion of the loan commitment.

Summary Information

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

Facility	September 30, 2014		December 31, 2013
UDF IV HF CTB Revolver	$	17,510,000	$	10,000,000
CTB Revolver		23,614,000		14,556,000
Prosperity Revolver		15,000,000		-
Legacy Revolver		4,679,000		-
Veritex Revolver		10,006,000		-
Affiliated Bank Revolver		5,404,000		-
UDF IV Fin VII Legacy Revolver		7,515,000		-
UDF IV Fin VI CTB Revolver		13,620,000		5,963,000
Independent Bank Revolver		10,000,000		-
Waterfall 4 Loan		35,000,000		-
Total	$	142,348,000	$	30,519,000

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

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Facility	2014		2013		2014		2013
Credit Facility	$	-	$	-	$	-	$	165,000
UDF IV HF CTB Revolver		180,000		-		406,000		147,000
CTB Revolver		179,000		-		484,000		190,000
UTB Revolver		-		52,000		-		155,000
Prosperity Revolver		157,000		11,000		233,000		153,000
Legacy Revolver		66,000		1,000		139,000		4,000
Veritex Revolver		99,000		31,000		130,000		138,000
Affiliated Bank Revolver		70,000		-		139,000		-
UDF IV Fin VII Legacy Revolver		82,000		-		87,000		-
UDF IV Fin VI CTB Revolver		96,000		-		196,000		-
Independent Bank Revolver		105,000		-		197,000		-
Waterfall 4 Loan		875,000		-		875,000		-
Total interest expense	$	1,909,000	$	95,000	$	2,886,000	$	952,000

G. 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.

Related Party Guarantees

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 September 30, 2014 and December 31, 2013, the outstanding balance on the line of credit was $4.3 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 agreed to 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. The Stoneleigh Construction Loan would have matured on December 31, 2014, but was paid in full on October 1, 2014. 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 September 30, 2014 and December 31, 2013, approximately $4.0 million and $7.6 million, respectively, was outstanding under the Stoneleigh Construction Loan. For the three months ended September 30, 2014 and 2013, approximately $10,000 and $15,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan. For the nine months ended September 30, 2014 and 2013, approximately $36,000 and $68,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan. As of September 30, 2014 and December 31, 2013, approximately $13,000 and $15,000, respectively, is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the Stoneleigh Guaranty.

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 matures on July 22, 2016. 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 September 30, 2014 and December 31, 2013, approximately $4.9 million and $1.2 million, respectively, was outstanding under the URHF Southwest Loan. For the three and nine months ended September 30, 2013, we did not recognize any commitment fee income – related parties in connection with the credit enhancement fee associated with the URHF Southwest Loan. For the three and nine months ended September 30, 2014, approximately $12,000 and $24,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the URHF Southwest Loan. As of September 30, 2014, approximately $4,000 is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the URHF Guaranty.

Effective July 18, 2014, we entered into a guaranty agreement (the “Rowe Lane Guaranty”) pursuant to which we guaranteed all amounts due associated with a $6.0 million revolving credit facility (the “RL Commerce Bank Loan”) entered into between Rowe Lane 285, L.P., an affiliated Texas limited partnership (“Rowe Lane”), and Commerce National Bank (“Commerce Bank”). Rowe Lane is a wholly owned subsidiary of UDF I. The general partner of our Advisor is the general partner of UMTH LD, our asset manager, and UMTH LD also serves as the asset manager of UDF I. The RL Commerce Bank Loan is secured by a first lien deed of trust on a 71.388 acre project. The RL Commerce Bank Loan matures on July 18, 2018. In consideration of us entering into the Rowe Lane Guaranty, we entered into a letter agreement with Rowe Lane which provides for Rowe Lane to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the RL Commerce Bank Loan at the end of each month. As of September 30, 2014, approximately $3.2 million was outstanding under the RL Commerce Bank Loan. For both the three and nine months ended September 30, 2014, approximately $8,000 is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Rowe Lane Guaranty. As of September 30, 2014, approximately $8,000 is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the Rowe Lane Guaranty.

Effective August 29, 2014, we entered into a credit enhancement in the form of a guarantee (the “BRHG Guaranty”) pursuant to which we guaranteed all amounts due associated with a $25.0 million loan (the “BRHG Sovereign Loan”) entered into between BRHG TX-I, LLC, an affiliated Delaware limited liability company (“BRHG”), and Sovereign Bank (“Sovereign”) in connection with BRHG’s acquisition of Scott Felder Homes. BRHG is a wholly owned subsidiary of BR Homebuilding Group, L.P., a Delaware limited partnership (“BR Homebuilding”). John R. (“Bobby”) Ray, a trustee of UDF IV, Hollis Greenlaw, our Chief Executive Officer and a trustee of UDF IV, and Todd Etter, Chairman and partner of UMT Holdings, L.P. (“UMTH”), each own approximately 25% of the common equityofBR Homebuilding and direct the management of BR Homebuilding. UMTH owns all of the limited partnership interests of UMTH LD, our asset manager. The Sovereign Guarantee was approved by a majority of our independent trustees on August 26, 2014. The BRHG Sovereign Loan matures on August 29, 2015, but may be extended under certain circumstances to August 27, 2020. The BRHG Sovereign Loan is secured by a pledge of all of BR Homebuilding’s interests in BRHG. In consideration of us entering into the BRHG Guaranty, we entered into a letter agreement with BRHG which provides for BRHG to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the BRHG Sovereign Loan at the end of each month. As of September 30, 2014, $25.0 million was outstanding under the BRHG Sovereign Loan. For both the three and nine months ended September 30, 2014, approximately $21,000 is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the BRHG Guaranty. As of September 30, 2014, approximately $21,000 is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the BRHG Guaranty.

Summary

As of September 30, 2014, including the related party guarantees described above, we had 11 outstanding repayment guarantees and letters of credit with total credit risk to us of approximately $86.8 million, of which approximately $47.0 million had been borrowed against by the debtor. As of December 31, 2013, including the related party guarantees described above, we had 9 outstanding repayment guarantees with total credit risk to us of approximately $65.7 million, of which approximately $19.9 million had been borrowed against by the debtor.

H. 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.

I. Related Party Transactions

Guarantees

From time to time, we enter into guarantees of our affiliates’ borrowings. For further discussion of related party guarantees, see Note G above.

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 B) 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.

Management Fees

Prior to the Listing, we incurred monthly Advisory Fees payable to our Advisor. Subsequent to the Listing, we incur monthly Base Management Fees and potentially Incentive Management Fees payable to our Advisor. The Advisory Fees, Base Management Fees and Incentive Management Fees (collectively, “Management Fees”) are discussed further in Note B above. For the three months ended September 30, 2014 and 2013, approximately $2.3 million and $2.2 million, respectively, is included in management fees – related party expense for Management Fees payable to our Advisor. For the nine months ended September 30, 2014 and 2013, approximately $7.6 million and $5.7 million, respectively, is included in management fees – related party expense for Management Fees payable to our Advisor. As of September 30, 2014 and December 31, 2013, approximately $1.0 million and $842,000, respectively, is included in accrued liabilities – related parties associated with Management Fees payable to our Advisor.

Acquisition and Origination Fees

Prior to the Listing, we incurred Acquisition and Origination Fees equal to 3% of the net amount available for investment in secured loans and other real estate assets (after payment of selling commissions, dealer manager fees and O&O Reimbursement) (as discussed in Note B); provided, however, that no such fees were paid with respect to any asset-level indebtedness we incurred. The fees were 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. These fees, including estimated fees on the entire registered amount of our Secondary DRIP Offering when it was established, were accrued and expensed as we entered into new loan commitments. Acquisition and Origination Fees were paid to UMTH LD, our asset manager, as we raised capital through our Primary Offering, Primary DRIP Offering and Secondary DRIP Offering. The general partner of our Advisor is also the general partner of UMTH LD.

In connection with our Listing, we ceased offering common shares of beneficial interest pursuant to our Secondary DRIP Offering and concurrently reversed approximately $3.2 million in unpaid Acquisition and Origination Fees that remained in accrued liabilities – related parties. Since we ceased offering common shares of beneficial interest pursuant to our Secondary DRIP Offering, the Acquisition and Origination Fees which had previously been accrued and expensed related to estimated Secondary DRIP Offering proceeds will not be paid.

For the three months ended September 30, 2014 we do not have any general and administrative – related parties expense associated with Acquisition and Origination Fees payable to UMTH LD. For the three months ended September 30, 2013, approximately $2.7 million is included in general and administrative – related parties expense associated with Acquisition and Origination Fees payable to UMTH LD. For the nine months ended September 30, 2014 and 2013, approximately $(2.2) million and $5.9 million, respectively, is included in general and administrative – related parties expense associated with Acquisition and Origination Fees payable to UMTH LD. As of December 31, 2013, approximately $2.4 million is included in accrued liabilities – related parties associated with Acquisition and Origination Fees payable to UMTH LD. In accordance with the terms of the Advisory Agreement entered into on May 29, 2014, we do not pay Acquisition and Origination Fees to our Advisor. Therefore, as of September 30, 2014, there were no 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 Debt Financing Fees to our Advisor, as described in Note B. 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 September 30,				For the Nine Months Ended September 30,
Facility	2014		2013		2014		2013
Credit Facility	$	-	$	7,000	$	-	$	13,000
UDF IV HF CTB Revolver		56,000		17,000		93,000		35,000
CTB Revolver		15,000		25,000		24,000		106,000
UTB Revolver		-		3,000		-		8,000
Prosperity Revolver		16,000		5,000		49,000		16,000
Legacy Revolver		-		-		-		4,000
Veritex Revolver		13,000		6,000		26,000		15,000
Affiliated Bank Revolver		10,000		5,000		25,000		5,000
UDF IV Fin VII Legacy Revolver		17,000		8,000		42,000		8,000
UDF IV Fin VI CTB Revolver		38,000		21,000		100,000		21,000
Independent Bank Revolver		19,000		-		56,000		-
Waterfall 4 Loan		44,000		-		44,000		-
Total	$	228,000	$	97,000	$	459,000	$	231,000

As of both September 30, 2014 and December 31, 2013, no amount is included in accrued liabilities – related parties associated with Debt Financing Fees payable to our Advisor.

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 F. 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 appraiser, 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 September 30,				For the Nine Months Ended September 30,
Facility	2014		2013		2014		2013
UDF IV HF CTB Revolver	$	42,000	$	16,000	$	97,000	$	48,000
CTB Revolver		47,000		-		119,000		33,000
Prosperity Revolver		34,000		-		53,000		28,000
UDF IV Fin VI CTB Revolver		26,000		-		48,000		-
Total	$	149,000	$	16,000	$	317,000	$	109,000

As of September 30, 2014 and December 31, 2013, approximately $111,000 and $17,000, respectively, is included in accrued liabilities – related parties associated with Credit Enhancement Fees payable to our Advisor or its affiliates.

Advisor Expense Reimbursement

For the three and nine months ended September 30, 2014, approximately $6,000 and $8,000, respectively, is included in general and administrative – related parties expense in connection with the Advisor Expense Reimbursement discussed further in Note B above, $4,000 of which is included in accrued liabilities – related parties as of September 30, 2014.

Summary of Payments to Related Parties

The table below summarizes the approximate payments to related parties for the nine months ended September 30, 2014 and the year ended December 31, 2013:

Payee	Purpose	For the Nine Months Ended September 30, 2014				For the Year Ended December 31, 2013
UMTH GS
	O&O Reimbursement	$	-	-		$	8,167,000	33	%
	Management Fees		7,422,000	88	%		7,819,000	32	%
	Debt Financing Fees		601,000	7	%		361,000	1	%
	Advisor Expense Reimbursement		4,000	*			-	-

UMTH LD
	Acquisition and Origination Fees		259,000	3	%		7,953,000	33	%

UDF III
	Credit Enhancement Fees		193,000	2	%		132,000	1	%

Total Payments		$	8,479,000	100	%	$	24,432,000	100	%

* Less than 1%

The table below summarizes the approximate expenses associated with related parties for the three months ended September 30, 2014 and 2013:

	For the Three Months Ended September 30,
Purpose	2014				2013

Management Fees	$	2,325,000	100	%	$	2,177,000	100	%

Total Management Fees – related party	$	2,325,000	100	%	$	2,177,000	100	%

Amortization of Debt Financing Fees	$	227,000	60	%	$	97,000	3	%

Acquisition and Origination Fees		-	-			2,707,000	96	%
						��
Credit Enhancement Fees		149,000	39	%		16,000	1	%

Advisor Expense Reimbursement		6,000	1	%		-	-

Total General and administrative – related parties	$	382,000	100	%	$	2,820,000	100	%

The table below summarizes the approximate expenses associated with related parties for the nine months ended September 30, 2014 and 2013:

	For the Nine Months Ended September 30,
Purpose	2014					2013

Management Fees	$	7,629,000		100	%	$	5,654,000	100	%

Total Management fees – related party	$	7,629,000		100	%	$	5,654,000	100	%

Amortization of Debt Financing Fees	$	459,000		(33	)%	$	231,000	4	%

Acquisition and Origination Fees (1)		(2,160,000	)	157	%		5,933,000	95	%

Credit Enhancement Fees		317,000		(23	)%		109,000	1	%

Advisor Expense Reimbursement		8,000		(1	)%		-	-

Total General and administrative – related parties	$	(1,376,000	)	100	%	$	6,273,000	100	%

(1) Includes approximately $3.2 million in Acquisition and Origination Fees that were reversed in June 2014 associated with estimated Secondary DRIP Offering proceeds. In connection with our Listing, we ceased offering common shares of beneficial interest pursuant to our Secondary DRIP Offering.

Loan Participation Interest – Related Parties

A majority of our trustees (including a majority of our independent trustees) who are not otherwise interested in the transactions listed below 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 Agreement

On December 18, 2009, we entered into a participation agreement (the “Buffington Participation Agreement”) with UMT Home Finance, LP (“UMTHF”), an affiliated Delaware limited partnership, pursuant to which we purchased a participation interest in UMTHF’s construction loan to Buffington Texas Classic Homes, LLC (“Buffington Classic”), an affiliated Texas limited liability company. 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 Buffington Classic. The Buffington Participation Agreement matured and was not renewed on October 28, 2014, at which point there was no outstanding balance.

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. We received payment in full for the Buffington Classic Participation Agreement on August 8, 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. Our asset manager, UMTH LD, is also the general partner of UDF III. 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. 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, 2015.

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 December 23, 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.

URHF Glenmore Participation

On May 6, 2014, we entered into a participation agreement (the “URHF Glenmore Participation”) with URHF pursuant to which we purchased a participation interest in URHF’s $4.2 million loan (the “URHF Glenmore Loan”) to CADG Glenmore, LLC (“Glenmore”), a Texas limited liability company. Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in URHF. The URHF Glenmore Loan provides financing to Glenmore to acquire and develop 61 paper lots located in Texas. The URHF Glenmore Loan is evidenced by a secured promissory note and secured by a first lien deed of trust on the lots and is guaranteed by principals of the borrower.

The URHF Glenmore Participation gives us the right to receive payment from URHF of principal and accrued interest relating to amounts funded by us under the URHF Glenmore Participation. The interest rate under the URHF Glenmore Loan is the lower of 13% or the highest rate allowed by law. Our interest will be repaid as Glenmore repays the URHF Glenmore Loan. Glenmore is required to make loan payments upon the sale of lots covered by the deed of trust. The URHF Glenmore Loan and our participation in this loan are due and payable in full on January 10, 2015.

URHF Gateway Participation

On May 6, 2014, we entered into a participation agreement (the “URHF Gateway Participation”) with URHF pursuant to which we purchased a participation interest in URHF’s $7.6 million loan (the “URHF Gateway Loan”) to CADG Gateway, LLC (“Gateway”), a Texas limited liability company. Our Advisor also serves as the advisor for UMT, which owns 100% of the interests in URHF. The URHF Gateway Loan provides financing to Gateway to acquire and develop 39 paper lots located in Texas. The URHF Gateway Loan is evidenced by a secured promissory note and secured by a first lien deed of trust on the lots and is guaranteed by principals of the borrower.

The URHF Gateway Participation gives us the right to receive payment from URHF of principal and accrued interest relating to amounts funded by us under the URHF Gateway Participation. The interest rate under the URHF Gateway Loan is the lower of 13% or the highest rate allowed by law. Our interest will be repaid as Gateway repays the URHF Gateway Loan. Gateway is required to make loan payments upon the sale of lots covered by the deed of trust. The URHF Gateway Loan and our participation in this loan are due and payable in full on January 15, 2017.

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	September 30, 2014		December 31, 2013
Buffington Participation Agreement	$	-	$	2,826,000
Buffington Classic Participation Agreement		-		279,000
TR Finished Lot Participation		671,000		3,346,000
TR Paper Lot Participation		14,821,000		12,617,000
Pine Trace Participation Agreement		3,864,000		6,646,000
Northpointe Participation Agreement		1,145,000		1,585,000
Northpointe II Participation Agreement		7,039,000		3,000,000
UMTHF Megatel Participation		4,515,000		-
URHF Buckingham Participation		105,000		1,425,000
URHF Bratton Hill Participation		-		1,186,000
URHF Glenmore Participation		3,839,000		-
URHF Gateway Participation		4,201,000		-
Total	$	40,200,000	$	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	September 30, 2014		December 31, 2013
Buffington Participation Agreement	$	-	$	47,000
Buffington Classic Participation Agreement		-		16,000
TR Finished Lot Participation		-		66,000
TR Paper Lot Participation		42,000		197,000
Pine Trace Participation Agreement		76,000		562,000
Northpointe Participation Agreement		47,000		-
Northpointe II Participation Agreement		31,000		-
UMTHF Megatel Participation		34,000		-
URHF Buckingham Participation		1,000		91,000
URHF Bratton Hill Participation		-		64,000
URHF Glenmore Participation		128,000		-
URHF Gateway Participation		51,000		-
Total	$	410,000	$	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 September 30,				For the Nine Months Ended September 30,
Loan Name	2014		2013		2014		2013
Buffington Participation Agreement	$	-	$	33,000	$	122,000	$	341,000
Buffington Classic Participation Agreement		1,000		12,000		20,000		45,000
TR Finished Lot Participation		41,000		136,000		225,000		403,000
TR Paper Lot Participation		502,000		418,000		1,451,000		1,218,000
Carrollton Participation Agreement		-		-		-		28,000
165 Howe Participation Agreement		-		12,000		-		80,000
Pine Trace Participation Agreement		165,000		177,000		607,000		520,000
Northpointe Participation Agreement		35,000		49,000		124,000		93,000
Northpointe II Participation Agreement		198,000		107,000		414,000		151,000
UMTHF Megatel Participation		188,000		-		408,000		-
URHF Buckingham Participation		2,000		-		55,000		-
URHF Bratton Hill Participation		-		-		40,000		-
URHF Glenmore Participation		126,000		-		203,000		-
URHF Gateway Participation		136,000		-		221,000		-
Total	$	1,394,000	$	944,000	$	3,890,000	$	2,879,000

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 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. Our obligation to originate loans to Buffington Classic under the Buffington Classic CL terminated and was not renewed on October 28, 2014, at which point there was no outstanding balance.

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, 2015.

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 was due and payable in full on September 20, 2014. The UDF TX Two Loan was paid in full on October 9, 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. Rowe Lane is a wholly owned subsidiary of UDF I. The general partner of our Advisor is the general partner of UMTH LD, our asset manager, and 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.

BRHG Loan

On August 29, 2014, we entered into an $11.5 million loan (the “BRHG Loan”) with BRHG. BRHG is a wholly owned subsidiary of BR Homebuilding. John R. (“Bobby”) Ray, a trustee of UDF IV, Hollis Greenlaw, our Chief Executive Officer and a trustee of UDF IV, and Todd Etter, Chairman and partner of UMTH, each own approximately 25% of the common equity of BR Homebuilding and direct the management of BR Homebuilding. UMTH owns all of the limited partnership interests of UMTH LD, our asset manager. The BRHG Loan was approved by a majority of our independent trustees on August 26, 2014. The BRHG Loan provides BRHG with a portion of the acquisition financing required to support its acquisition of Scott Felder Homes, a homebuilder with operations in Austin and San Antonio, Texas. The BRHG Loan bears interest at 13% and is unsecured. As partial consideration for making the BRHG Loan, BR Homebuilding has delivered to us a warrant to purchase up to 25 Series A-1 Tracking Units in BR Homebuilding for $11.5 million (the “Warrant”). UDF IV has contributed the Warrant to a taxable REIT subsidiary that is wholly-owned by UDF IV. As principal is repaid on the BRHG Loan, the equity interest that can be acquired under the Warrant will be proportionately reduced. The BRHG Loan matures and becomes due and payable in full on August 29, 2021.

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	September 30, 2014		December 31, 2013
Buffington Classic CL	$	-	$	-
HLL II Highland Farms Loan		1,596,000		1,572,000
HLL Hidden Meadows Loan		11,193,000		10,643,000
Ash Creek Loan		1,530,000		1,756,000
UDF TX Two Loan		564,000		502,000
UDF PM Loan		4,369,000		3,822,000
HLL IS Loan		2,401,000		2,522,000
One KR Loan		9,071,000		10,201,000
Rowe Lane Loan		4,965,000		-
BRHG Loan		11,500,000		-
Total	$	47,189,000	$	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	September 30, 2014		December 31, 2013
Buffington Classic CL	$	-	$	-
HLL II Highland Farms Loan		110,000		-
HLL Hidden Meadows Loan		271,000		1,028,000
Ash Creek Loan		57,000		22,000
UDF TX Two Loan		2,000		16,000
UDF PM Loan		484,000		83,000
HLL IS Loan		2,000		12,000
One KR Loan		151,000		-
Rowe Lane Loan		81,000		-
BRHG Loan		119,000		-
Total	$	1,277,000	$	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 September 30,				For the Nine Months Ended September 30,
Loan Name	2014		2013		2014		2013
HLL Indian Springs Loan	$	-	$	-	$	-	$	8,000
Buffington Classic CL		-		-		-		5,000
HLL II Highland Farms Loan		51,000		46,000		148,000		136,000
HLL Hidden Meadows Loan		368,000		330,000		1,079,000		956,000
Ash Creek Loan		50,000		68,000		158,000		223,000
UDF TX Two Loan		16,000		18,000		49,000		189,000
UDF PM Loan		142,000		105,000		404,000		205,000
HLL IS Loan		88,000		130,000		252,000		350,000
One KR Loan		296,000		258,000		903,000		703,000
Rowe Lane Loan		148,000		-		289,000		-
BRHG Loan		119,000		-		119,000		-
Total	$	1,278,000	$	955,000	$	3,401,000	$	2,775,000

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 September 30,				For the Nine Months Ended September 30,
Loan Name	2014		2013		2014		2013
HLL II Highland Farms Loan	$	-	$	-	$	-	$	2,000
HLL Hidden Meadows Loan		6,000		6,000		19,000		19,000
HLL IS Loan		5,000		5,000		16,000		16,000
One KR Loan		13,000		13,000		38,000		38,000
Rowe Lane Loan		5,000		-		12,000		-
Total	$	29,000	$	24,000	$	85,000	$	75,000

J. Concentration of Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk are primarily cash and cash equivalents, accrued interest receivable, loan participation interest – related parties, notes receivable and notes receivable – 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.

As of September 30, 2014, over 98% of our real property loans and investments are secured by properties located in Texas and approximately 1% of our real property loans and investments are secured by properties located in Florida. In addition, we have one real property loan secured by property in South Carolina which represents less than 1% of our real property loans and investments.

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 September 30, 2014. Our largest individual borrower and its affiliates comprised approximately 63% of the outstanding balance of our portfolio.

K. Subsequent Events

On October 2, 2014, our board of trustees authorized monthly distributions of $0.1367 per share for the fourth quarter of 2014 payable on October 27, November 25 and December 26, 2014 to shareholders of record at the close of business on October 17, November 14 and December 16, 2014, respectively.

On October 14, 2014, we entered into a loan agreement (the “Waterfall 3 Loan”) with Waterfall Finance 3, LLC (“Waterfall 3”) for a $15 million term loan. The loan bears interest at a rate of LIBOR plus 9.00%, with a LIBOR floor of 1%. All accrued and unpaid interest is payable on the fifth day of each calendar month during the term of the loan. Principal is due at maturity. The Waterfall 3 Loan matures on October 14, 2015. However, if the Trust is in compliance with all financial covenants, it may choose to extend the Waterfall 3 Loan to March 31, 2016, with monthly principal payments payable by the Trust during the extension period. The Waterfall 3 Loan is secured by a first priority lien on the mortgage loans and other assets of the Trust.

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 the following:

changes in general economic conditions, the real estate market and the credit market;

increases in development costs that may exceed estimates;

development delays;

increases in interest rates, decreases in residential lot take down or purchase rates;

our borrowers’ inability to sell residential lots;

potential need to fund development costs not completed by the initial borrower or other capital expenditures out of operating cash flows;

economic fluctuations in Texas, where our investments are geographically concentrated;

retention of our senior management team;

changes in property taxes;

legislative and regulatory changes, including changes to laws governing the taxation of REITs;

the availability of capital and financing;

restrictive covenants in our credit facilities; and

our ability to remain qualified as a REIT.

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 SEC.

Overview

United Development Funding IV is an externally-managed Maryland real estate investment trust formed on May 28, 2008 primarily to generate current interest income by investing in loans secured by residential real estate and by producing profits from investments in residential real estate. On May 30, 2014, in contemplation of the Listing, we announced the termination of our DRIP, effective ten days from the notice of such termination, pursuant to the terms of the DRIP. Upon termination of the DRIP, we ceased offering common shares of beneficial interest pursuant to the Secondary DRIP Offering. On June 4, 2014, we listed our common shares of beneficial interest on NASDAQ under the ticker symbol “UDF” and concurrently commenced our Tender Offer. On August 4, 2014, we established our New DRIP and filed a $750 million Shelf Registration. For further discussion of our DRIP, Secondary DRIP Offering, New DRIP and our Shelf Registration, see Note C to the accompanying consolidated financial statements.

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, although we are subject to U.S. federal income tax on income earned through our taxable REIT subsidiaries. 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 we operate in a manner that will enable us to remain qualified as a REIT for federal income tax purposes.

We primarily 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 the same kind of secured loans or real estate investments we may originate or acquire directly.

As of September 30, 2014, substantially all of our investments, including 128 loans, are in Texas. In addition, we have 2 loans in Florida and 1 loan in South Carolina. We monitor the fundamentals of supply and demand, such as demographics, job creation, home prices, rents and median incomes, in the markets and submarkets in which we make loans and where we may expand our operations in the future. 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 homes 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 overall housing market continues to recover and strengthen, and that the recovery will vary by market, led by those housing markets with stronger demand fundamentals and more balanced supplies of land and housing inventory relative to demand. We believe that the 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. We believe consumers remain cautious due to the uncertainty still present in many economic indicators, such as elevated unemployment and under-employment, low wage growth, slow economic growth and events associated with tightened federal fiscal policy.

We believe that our continued revenue growth and improved financial performance will come from a greater presence in our established markets and from our entry into new markets. While the pace of improvement in those markets may be uneven, we expect demand to continue to rise at a moderate rate over an extended period of time, driven by economic improvement, job creation, historically low interest rates, attractive housing affordability levels, slow relaxation of the mortgage underwriting environment, low production of single-family homes and an expected rise in the number of household formations. We believe that we are well positioned to benefit from the opportunities arising from the diminished supply of debt capital and the substantial demand for new financings in the residential real estate sector. Nevertheless, the pace of the housing recovery and our future results could be negatively affected by weakening economic conditions, increases in unemployment or underemployment, decreases in housing demand or home affordability, significant increases in mortgage interest rates or tightening of mortgage lending standards. In some instances, the loans we make will be junior in the right of repayment to senior lenders. As senior lenders reengage or interest rates and advance rates available to our borrowers increase, demand for our mortgage loans may decrease, and vice versa.

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. If interest rates increase or if mortgage financing underwriting criteria become more restrictive, demand for single-family residences may decrease, and developers and builders may be unable to generate sufficient cash flow from the sale of land parcels, finished lots or homes to repay loans from us.

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 $593.4 million as of September 30, 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 $774,000 and $549,000 for the three months ended September 30, 2014 and 2013, respectively, and approximately $2.2 million and $1.4 million for the nine months ended September 30, 2014 and 2013, respectively.

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.Our cash balances were approximately $12.0 million and $33.6 million as of September 30, 2014 and December 31, 2013, respectively.

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 September 30, 2014 and December 31, 2013, we do not have any asset-level indebtedness. Interest expense associated with fund-level indebtedness was approximately $1.9 million and $95,000 for the three months ended September 30, 2014 and 2013, respectively, and approximately $2.9 million and $952,000 for the nine months ended September 30, 2014 and 2013, respectively. The increase in interest expense is a result of an increase in our aggregate borrowings to approximately $142.3 million as of September 30, 2014, from approximately $3.6 million as of September 30, 2013.

Net income was approximately $13.4 million and $7.7 million for the three months ended September 30, 2014 and 2013, respectively, and approximately $36.6 million and $20.7 million for the nine months ended September 30, 2014 and 2013, respectively. Net income per share of beneficial interest was approximately $0.44 and $0.24 for the three months ended September 30, 2014 and 2013, respectively, and approximately $1.16 and $0.80 for the nine months ended September 30, 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.

As of September 30, 2014, we had originated or purchased 164 loans, including 33 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 $1.1 billion. Of the 131 loans outstanding as of September 30, 2014, 10 loans totaling approximately $47.2 million and 11 loans totaling approximately $40.2 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. 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 September 30, 2014, the participations have terms ranging from 3 to 32 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 September 30, 2014, the notes have terms ranging from 3 to 84 months and bear interest at rates ranging from 11% to 15%. The notes may be paid off prior to maturity; however, we intend to hold all notes for the life of the notes.

Determination of the Allowance for Loan Losses

As of September 30, 2014 and December 31, 2013, the allowance for loan losses had a balance of $6.0 million and $3.8 million, respectively, offset against notes receivable (see Note D to the accompanying consolidated financial statements).

Organization and Offering Expenses

Offering costs related to raising capital from equity reduce equity and are reflected as shares issuance costs in shareholders’ equity. Further, offering costs related to raising capital from debt are amortized over the term of such debt. Certain offering costs were paid by our Advisor and, as discussed in Note I 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 Notes B and I to the accompanying consolidated financial statements, we reimbursed UMTH LD, our asset manager, for Acquisition and Origination Fees; provided, however, that no Acquisition and Origination Fees were paid with respect to any asset-level indebtedness we incurred. These fees, including estimated fees on the entire registered amount of our Secondary DRIP Offering when it was established, were accrued and expensed as we entered into new loan commitments. Acquisition and Origination Fees were paid to UMTH LD, our asset manager, as we raised capital through our Primary Offering, Primary DRIP Offering and Secondary DRIP Offering.

In connection with our Listing, we ceased offering common shares of beneficial interest pursuant to our Secondary DRIP Offering and concurrently reversed approximately $3.2 million in unpaid Acquisition and Origination Fees that remained in accrued liabilities – related parties. Since we ceased offering common shares of beneficial interest pursuant to our Secondary DRIP Offering, the Acquisition and Origination Fees which had previously been accrued and expensed related to the estimated Secondary DRIP Offering proceeds will not be paid.

For the nine months ended September 30, 2014 and the year ended December 31, 2013, we reimbursed UMTH LD approximately $259,000 and $8.0 million, respectively, for Acquisition and Origination Fees.

Revenue Recognition

As of September 30, 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 September 30, 2014 and December 31, 2013, approximately $1.9 million and $2.5 million, respectively, of unamortized commitment fees are included as an offset of notes receivable. Approximately $153,000 and $164,000 of unamortized commitment fees are included as an offset of notes receivable – related parties as of September 30, 2014 and December 31, 2013, respectively.

Lot Inventory and Loan Portfolio

Lot Inventory

Our lot inventory 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 September 30, 2014, we have 116 finished single-family residential lots included in our lot inventory balance of approximately $13.6 million. We have option agreements in place to sell these lots with terms ranging from 18 to 30 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 at origination, 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 also 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 September 30, 2014, we had purchased or entered into 17 participation agreements with related parties (6 of which were repaid in full) with aggregate, maximum loan amounts of approximately $91.3 million (with an unfunded balance of approximately $17.4 million) and 13 related party note agreements (3 of which were repaid in full and one of which matured and was not renewed) with aggregate, maximum loan amounts totaling approximately $81.1 million (with an unfunded balance of approximately $4.7 million). Additionally, we had purchased or entered into 134 note agreements with third parties (24 of which were repaid in full) with aggregate, maximum loan amounts of approximately $906.6 million, of which approximately $175.2 million has yet to be funded.

The participation agreements outstanding as of September 30, 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 principal 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 September 30, 2014 are secured by properties located in the Dallas, Fort Worth, Austin, Houston, San Antonio and Lubbock greater metropolitan markets in Texas as well as Tampa and Orlando, Floridaand Fort Mill, South Carolina. 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.

89 of the 131 loans outstanding as of September 30, 2014, representing approximately 62% of the aggregate principal amount of the outstanding loans, are secured by a first lien on the respective property; 41 loans, representing approximately 42% of the aggregate principal amount of the outstanding loans, are secured by a second lien on the respective property; 24 loans, representing approximately 18% 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; 34 loans, representing approximately 43% 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 110 loans, representing approximately 78% 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 September 30, 2014, we did not have any individual loans to borrowers that accounted for over 10% of the outstanding balance of our portfolio. As of September 30, 2014, our largest individual borrower and its affiliates comprised approximately 63% of the outstanding balance of our portfolio.

As of September 30, 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 3 to 32 months, while the notes receivable have terms ranging from 3 to 84 months.

The following table summarizes our real property loans as of September 30, 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		1,596,264		85,913		101,404		125,678		-
HLL Land Acquisitions of Texas, LP	UDF IV	Houston, TX	1st lien and reimbursements; 8 finished lots, 651 paper lots		13	%	2/17/2011	1/21/2015			11,670,522		11,193,020		1,015,179		-		-		-
UDF Ash Creek, LP	UDF IV	Dallas, TX	1st and 2nd lien; 9 finished lots; 1 townhome; 28 paper lots		13	%	4/20/2011	10/20/2014			3,000,000		1,529,646		306,908		934,197		75,711		153,538
UDF PM, LLC	UDF IV	Lubbock, TX	Reimbursements		13	%	10/17/2012	10/17/2015			5,087,250		4,368,968		-		-				718,282
HLL Land Acquisitions of Texas, LP	UDF IV FII	San Antonio, TX	1st lien; 12 finished lots; 41 paper lots		13	%	11/29/2012	11/29/2015			6,414,410		2,400,448		779,135		1,751,811		-		1,483,016
One KR Venture, LP	UDF IV	San Antonio, TX	1st lien and pledge of equity; 22 finished lots; 36 paper lots; 276.631 acres		13	%	12/14/2012	6/14/2016			15,295,897		9,070,884		1,607,699		4,866,556		-		-
Rowe Lane 285, LP	UDF IV	Travis County, TX; Williamson County, TX	2nd lien and reimbursements; 285 paper lots		13	%	2/18/2014	2/18/2018			7,457,000		4,965,084		116,226		-		-		2,375,691
BRHG TX-1, LLC	UDF IV	Austin, TX	Unsecured		13	%	8/29/2014	8/29/2021			11,500,000		11,500,000		-		-		-		-
UDF TX Two, LP	UDF IV	Austin, TX	1st lien; 1 lot		13	%	9/20/2012	9/20/2014	(4)		3,500,000		564,465		-		3,152,213		49,102		-

Subtotal - Notes Receivable - Related Parties										$	73,279,279	$	47,188,779	$	3,911,059	$	11,205,007	$	4,278,517	$	4,730,526

Notes Receivable - Non-Related Parties
CTMGT Granbury, LLC	UDF IV FI	Hood County, TX	1st lien and 2nd lien and reimbursements; 3,231 paper lots, 1,541 acres		13	%	5/21/2010	5/21/2015		$	16,000,000	$	12,323,386	$	-	$	-	$	-	$	3,676,614
Crescent Estates Custom Homes, LP	UDF IV FII	Dallas/Ft. Worth, TX	1st lien; 8 homes		13	%	6/10/2010	6/10/2015			4,000,000		885,620		2,132,510		4,109,611		3,343,663		-
CTMGT Land Holdings, LP	UDF IV	Rockwall County, TX	2nd lien and reimbursements; 807 acres		14	%	7/23/2010	1/28/2015			25,012,000		19,826,293		-		-		-		3,249,845
Megatel Homes II, LLC	UDF IV HF	Dallas/Ft. Worth, TX; Austin, TX; San Antonio, TX; Houston, TX; Lubbock, TX	1st lien; 194 homes		13	%	8/24/2011	8/24/2015			40,000,000		36,156,209		30,704,313		34,987,757		7,627,536		-
Nuway Homes Texas, LP/Lexington 26, LP	UDF IV HF	Harris County, TX	1st lien; 8 homes		13	%	6/13/2014	6/13/2015			3,000,000		335,401		-		-		-		-
165 Howe, LP	UDF IV	Denton and Tarrant County, TX	Reimbursements		13	%	11/22/2010	11/22/2014			2,575,000		1,404,958		-		-		591,534		-
BHM Highpointe, LTD	UDF IV FIV	Austin, TX	1st lien; 27 finished lots		13	%	11/16/2010	11/30/2014			2,858,309		2,222,185		480,499		254,421		11,635		-
The Resort at Eagle Mountain Lake, LP	UDF IV	Tarrant County, TX	Reimbursements and pledge of equity		13	%	12/21/2010	12/21/2014			8,715,000		4,830,255		-		3,667,751		-		216,994
FH 295 LLC/CTMGT	UDF IV AC	Denton County, TX	1st and 2nd lien, reimbursements and pledge of equity; 10 finished lots; 518 paper lots		15	%	10/5/2010	10/5/2014			22,342,515		15,296,289		466,773		8,406,785		-		-
CTMGT Williamsburg, LLC	UDF IV FII	Rockwall County, TX	1st lien and reimbursements; 24 finished lots; 220 paper lots		13	%	11/30/2011	10/31/2014			24,500,000		17,882,722		4,670,333		1,431,964		388,995		125,986
UDF Sinclair, LP	UDF IV AC	San Antonio, TX	1st lien; 5 finished lots		13	%	2/16/2011	12/31/2014			1,479,000		38,976		205,484		99,772		598,997		22,396
Buffington Land, LTD	UDF IV	Austin, TX	1st lien and reimbursements; 4 finished lots		13	%	1/26/2011	1/26/2015			18,000,000		16,490,521		1,960,794		6,596,690		7,285,835		-
Shale-114, LP	UDF IV	Denton and Wise County, TX	2nd lien and reimbursements; 9.92 acres; 422 paper lots		13	%	3/28/2011	3/28/2015			3,968,135		3,342,874		106,965		2,840,080		-		-
Woods Chin Chapel, LTD	UDF IV	Denton County, TX	2nd lien; 118 paper lots		13	%	6/30/2011	1/31/2015			12,725,327		10,584,339		1,427,070		-		-		-
High Trophy Development, LLC	UDF IV AC	Tarrant County, TX	1st lien and pledge of equity; 44 lots; 107 paper lots		13	%	11/7/2011	7/29/2015			10,500,000		4,517,591		948,480		6,003,317		-		-
CTMGT Montalcino, LLC	UDF IV	Denton County, TX	2nd lien and reimbursements; 34 finished lots; 125 paper lots		13	%	12/13/2011	12/13/2014			32,808,176		25,221,928		-		-		-		7,586,248
CTMGT Williamsburg, LLC	UDF IV FV	Rockwall County, TX	1st lien; 803 paper lots		13	%	2/7/2012	2/7/2015			5,653,700		4,986,931		-		-		-		666,769
CTMGT Valley Ridge, LLC	UDF IV FV	Tarrant County, TX	1st lien; 65 finished lots		13	%	3/2/2012	3/2/2015			3,613,000		2,643,533		742,911		-		-		226,555
Crescent Estates Custom Homes, LP	UDF IV AC	Dallas, TX	1st lien; 18 homes; 30 lots		13	%	4/27/2012	4/27/2015			19,848,712		17,396,109		6,366,788		6,215,403		669,913		-
PH SLII, LP	UDF IV FII	Austin, TX	1st lien and reimbursements; 29 finished lots		13	%	6/12/2012	12/31/2014			4,727,016		926,489		1,287,288		2,044,850		-		468,389
CTMGT Barcelona, LLC	UDF IV	Collin County, TX	2nd lien and pledge of equity; 81 lots and 44.2 acres		13	%	6/6/2012	6/6/2015			5,362,876		5,155,579		250		-		-		207,047
PH SPM2B, LP	UDF IV FII	Austin, TX	1st lien; 24 finished lots		13	%	6/26/2012	6/30/2015			3,738,507		680,145		2,123,552		796,257		-		138,553
CTMGT Alpha Ranch, LLC	UDF IV	Tarrant County, TX	2nd lien, pledge of equity and reimbursements; 3,026 paper lots		13	%	7/31/2012	10/31/2014			17,803,554		17,423,383		-		-		-		380,171
CTMGT Frisco 113, LLC	UDF IV	Collin County, TX	2nd lien; 23.21 acres; 195 paper lots		13	%	7/31/2012	7/31/2015			5,850,000		5,828,734		-		-		-		21,266
BHM Highpointe, LTD	UDF IV FIII	Austin, TX	1st lien and reimbursements; 22 finished lots		13	%	8/7/2012	12/31/2014			3,809,735		151,985		2,081,802		1,299,120		-		276,828
287 Waxahachie, LP	UDF IV	Ellis County, TX	1st lien and reimbursements; 478 acres		13	%	8/10/2012	8/10/2015	(4)		9,732,500		6,630,082		-		1,192,693		-		1,909,725
UDF Sinclair, LP	UDF IV FII	San Antonio, TX	1st lien; 26 finished lots		13	%	8/28/2012	6/30/2015			1,323,404		550,450		541,848		768,783		-		-
SH 161 Acquisitions, LP	UDF IV FVII	Dallas County, TX	1st lien; 7 finished lots		13	%	9/7/2012	9/7/2015			1,301,248		67,542		774,830		1,116,223		-		-
Megatel Homes II, LLC	UDF IV FIII	Austin, TX; San Antonio, TX	1st lien; 20 lots		13	%	3/27/2012	11/27/2014			1,500,000		1,400,885		426,562		904,123		-		-
CTMGT AR II, LLC	UDF IV	Denton County, TX	2nd lien and pledge of equity; 501 paper lots		13	%	11/14/2012	11/14/2015			2,880,000		1,224,140		-		-		-		1,655,860
Pine Trace Village, LLC	UDF IV FV	Houston, TX	1st lien and reimbursements; 3 finished lots		13	%	11/16/2012	11/16/2015			1,953,432		793,582		528,404		575,441		-		56,006
CTMGT Legends, LLC	UDF IV	Denton County, TX	2nd lien; 91 paper lots		13	%	11/16/2012	11/16/2015			2,425,000		2,042,170		-		-		-		382,830
CTMGT Erwin Farms, LLC	UDF IV	Collin County, TX	2nd lien; 565 paper lots		13	%	12/6/2012	9/30/2016			7,400,000		5,320,212		-		-		-		2,079,788

														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

BLG Plantation, LLC	UDF IV FV	Houston, TX	1st lien; 33 finished lots; 50 paper lots		13	%	11/26/2012	11/26/2015		$	4,095,000	$	1,901,219	$	847,180	$	108,837	$	-	$	1,237,764
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			8,351,100		7,900,630		-		-		-		450,470
CTMGT Rancho Del Lago, LLC	UDF IV FIV	San Antonio, TX	1st and 2nd lien; 284.899 acres and 341 acres		13	%	12/31/2012	12/31/2016			24,048,798		21,425,059		3,894,103		-		-		-
CTMGT Rockwall 38, LLC	UDF IV	Rockwall County, TX	2nd lien; 72 finished lots		13	%	2/4/2013	2/4/2016			1,800,000		1,578,401		-		-		-		221,599
BLG Hawkes, LLC	UDF IV	Austin, TX	2nd lien and pledge of equity; 312 paper lots		13	%	1/25/2013	1/25/2016			10,565,880		3,925,480		30,530		-		-		6,609,869
CTMGT Verandah, LLC	UDF IV AC	Hunt County, TX	1st lien; 84 finished lots		13	%	4/15/2013	4/15/2015			3,084,300		2,434,998		650,438		-		-		-
BLD Scenic Loop, LLC	UDF IV AC	San Antonio, TX	1st lien and pledge of equity; 35 finished lots		13	%	4/19/2013	4/19/2016			4,603,900		3,681,009		-		-		-		922,891
Buffington Mason Park, Ltd	UDF IV	Houston, TX	1st lien and reimbursements; 4 finished lots; 116 paper lots		13	%	4/26/2013	4/26/2016	(4)		6,650,000		1,516,768		480,058		397,922		-		4,255,253
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		3,771,747		8,322		1,294,274		-		-
PH Park at BC, LP	UDF IV FVII	Austin, TX	1st lien; 9 finished lots		11	%	5/3/2013	12/30/2014	(4)		1,540,200		444,760		486,396		430,798		-		178,246
CTMGT Brookside, LLC	UDF IV	Denton County, TX	2nd lien; 36 paper lots		13	%	5/24/2013	5/24/2015			1,253,847		933,342		-		-		-		320,505
CTMGT Frisco 122, LLC	UDF IV	Denton County, TX	2nd lien; 350 paper lots		13	%	5/30/2013	2/28/2015			4,633,964		4,591,528		-		-		-		42,436
Buffington Westpointe, LLC	UDF IV AC	San Antonio, TX	1st lien; 7 finished lots; 37 paper lots		13	%	5/31/2013	5/31/2016			4,850,000		2,385,347		2,053,467		53,313		-		357,874
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		2,147,934		-		-		-		1,367,066
CTMGT Valley Ridge II, LLC	UDF IV	Tarrant County, TX	2nd lien; 103 paper lots		13	%	7/18/2013	7/18/2016			1,603,700		1,233,987		-		-		-		369,713
BLD Gosling, LLC	UDF IV FII	Houston, TX	1st lien and pledge of equity; 95 paper lots		13	%	6/28/2013	6/28/2016			9,582,400		4,289,952		-		-		-		5,292,448
BLD SPM 2A, LLC	UDF IV FIII	Austin, TX	1st lien; 43 paper lots		13	%	6/28/2013	6/28/2016			2,650,000		1,483,755		-		-		-		1,166,245
BLD SPM 3A, LLC	UDF IV FIII	Austin, TX	1st lien; 32 paper lots		13	%	6/28/2013	6/28/2016			2,375,000		1,484,244		-		-		-		890,756
BLD PBC 4A, LLC	UDF IV FIV	Austin, TX	1st lien and pledge of equity; 25 finished lots		13	%	6/28/2013	6/28/2016			3,467,600		1,507,776		806,465		-		-		1,153,359
BLD Crystal Springs, LLC	UDF IV FVIII	Austin, TX	1st lien; 261 paper lots		13	%	7/15/2013	12/31/2014			14,500,000		12,832,791		-		485,885		-		1,181,324
CTMGT CR 2C, LLC	UDF IV FIII	Collin County, TX	1st lien; 93 finished lots		13	%	7/24/2013	7/24/2016			5,550,000		3,147,644		379,682		-		-		2,022,674
CTMGT Riverwalk Villas, LLC	UDF IV	Denton County, TX	2nd lien; 97 paper lots		13	%	8/1/2013	8/1/2016			5,237,300		3,246,522		-		-		-		1,990,778
CTMGT Lewisville 14, LLC	UDF IV	Denton County, TX	2nd lien; 62 paper lots		13	%	8/15/2013	8/15/2016			2,800,000		1,574,409		-		664,368		-		561,223
CTMGT Hickory Creek 13, LLC	UDF IV FII	Denton County, TX	2nd lien; 38 paper lots		13	%	8/30/2013	8/30/2016			1,630,000		883,273		-		-		-		746,727
CTMGT Lucas 238, LLC	UDF IV	Collin County, TX	2nd lien; 120 paper lots		13	%	8/30/2013	8/30/2016			12,574,000		3,666,990		2,920,703		-		-		5,986,307
CTMGT Frontier 80, LLC	UDF IV	Collin County, TX	2nd lien; 288 paper lots		13	%	9/6/2013	2/18/2017			32,600,000		12,452,679		559		-		-		20,146,762
CTMGT Glenmere, LLC	UDF IV	Denton County, TX	2nd lien; 30 paper lots		13	%	9/12/2013	9/12/2016			1,010,000		864,986		-		-		-		145,014
CTMGT Frisco Hills 1A, 1B, 1C FL-2, LLC	UDF IV AC	Denton County, TX	1st lien and reimbursements; 99 finished lots		13	%	11/13/2013	11/13/2016			10,027,896		6,777,160		3,942,986		-		-		-
CTMGT Frisco Hills 4B FL-2, LLC	UDF IV AC	Denton County, TX	1st lien and reimbursements; 30 finished lots		13	%	10/9/2013	10/9/2016			4,654,111		2,006,962		1,510,459		-		-		1,136,690
BHM HP 5.3, LLC	UDF IV	Hays County, TX	1st lien and reimbursements; 53 paper lots		13	%	10/1/2013	10/1/2016			4,776,300		2,493,803		-		-		-		2,282,497
CTMGT Turbeville, LLC	UDF IV	Denton County, TX	2nd lien and reimbursements; 131 paper lots; 19.23 acres		13	%	4/8/2014	4/8/2017			18,200,000		9,555,042		-		-		-		8,644,958
CTMGT Williamsburg 1B FL-2, LLC	UDF IV FII	Rockwall County, TX	1st lien; 141 paper lots		13	%	10/31/2013	10/31/2016			7,838,300		2,191,638		-		-		-		5,646,662
CTMGT Travis Ranch 3G FL-2, LLC	UDF IV FII	Kaufman County, TX	1st lien and reimbursements; 144 paper lots		13	%	11/21/2013	11/21/2016			14,936,200		3,602,407		-		-		-		11,333,793
CTMGT Craig Ranch, LLC	UDF IV FVIII	Collin County, TX	1st lien; 74 paper lots		13	%	11/19/2013	11/19/2016			6,415,000		2,691,054		-		-		-		3,723,946
CTMGT Dominion Estates, LLC	UDF IV	Dallas County, TX	2nd lien; 137 paper lots		13	%	12/6/2013	12/6/2016			9,610,000		2,800,466		968,985		-		-		5,840,549
CTMGT Pine Trace Village FL-1, LLC	UDF IV FII	Houston, TX	1st lien and reimbursements; 27 finished lots and 32.693 acres		13	%	1/29/2014	1/29/2017			3,825,800		1,478,831		262,025		-		-		2,084,944
CTMGT Creekside Estates, LLC	UDF IV	Collin County, TX	2nd lien; 27 paper lots		13	%	2/12/2014	8/12/2017			3,420,000		1,345,976		1,610,930		-		-		463,094
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		1,028,890		-		-		-		1,241,110
CTMGT Southlake Houston, LLC	UDF IV	Galveston County, TX	1st lien collateral assignment; 1,220 paper lots		13	%	12/27/2013	12/27/2014	(4)		5,406,873		5,084,086		-		-		-		322,786
BDMR Development, LLC	UDF IV	Kaufman County, TX	1st lien; 1,236 paper lots		13	%	1/9/2014	1/9/2015			8,052,964		7,640,800		-		-		-		412,165
Scofield 46, LLC	UDF IV	Travis County, TX	2nd lien; 46 paper lots		15	%	1/31/2014	1/31/2017			1,525,000		1,265,341		-		-		-		259,659
CTMGT Huntington Estates, LLC	UDF IV	Tarrant County, TX	1st lien; 79 paper lots		13	%	2/25/2014	2/25/2017			2,560,000		971,080		-		-		-		1,588,920
CTMGT Plano 17, LLC	UDF IV	Collin County, TX	2nd lien; 65 paper lots		13	%	3/20/2014	3/20/2017			5,400,000		2,065,158		-		-		-		3,334,842
K. Hovnanian Terra Bella, LLC	UDF IV FVI	Pasco County, FL	1st lien; 45 finished lots		12	%	3/19/2014	1/19/2016			2,602,935		2,136,911		466,024		-		-		-
Maguire Partners-Solana Land, LP	UDF IV	Tarrant County, TX	2nd lien; 84 paper lots		13	%	5/2/2014	5/2/2017			5,280,000		4,099,237		-		-		-		1,180,763
CTMGT Spring Creek PH 2, LLC	UDF IV	Tarrant County, TX	1st lien; 94 paper lots; 4 finished lots		13	%	5/14/2014	5/14/2017			1,770,000		918,288		-		-		-		851,712
CTMGT, LLC	UDF IV	Hunt County, TX	1st lien collateral assignment; 374 acres; 10 finished lots		13	%	6/30/2014	6/30/2017			11,182,000		9,112,379		83,325		-		-		1,986,295
Classic Neighborhood Alternate Holdings, LLC	UDF IV FVIII	Travis County, TX	1st lien; 38 paper lots		13	%	7/10/2014	7/10/2016			2,305,000		661,085		-		-		-		1,643,915
Megatel Capital, LLC	UDF IV	Dallas County, TX	Pledge of equity		15	%	7/8/2014	7/8/2017			10,000,000		-		-		-		-		10,000,000

														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

Summerlake Properties, LLC	UDF IV FVI	York County, SC	1st lien; 45 townhomes		13	%	7/24/2014	10/24/2015		$	1,487,900	$	1,137,788	$	351,712	$	-	$	-	$	-
CTMGT Travis Ranch 2B-1 FL-2, LLC	UDF IV	Kaufman County, TX	1st lien; 78 paper lots		13	%	8/18/2014	8/18/2017			3,753,000		939,481		-		-		-		2,813,519
East Red Bug Road Development, LLC	UDF IV AC	Seminole County, FL	1st lien; 96 paper lots		13	%	9/30/2014	9/30/2017			10,197,000		5,556,970		-		-		-		4,640,030
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 Mtn Lake FL-1, LLC	UDF IV	Tarrant County, TX	1st lien; 129 finished lots		13	%	11/4/2013	11/4/2017			9,410,000		8,567,383		842,617		-		-		-
CTMGT Saddlebrook Estates FL-1, LLC	UDF IV FVII	Ellis County, TX	1st lien; 73 finished lots		13	%	11/5/2013	11/5/2017			2,566,400		2,004,009		482,020		70,371		-		10,000
CTMGT Waterview Estates FL-1, LLC	UDF IV FVIII	Tarrant County, TX	1st lien; 37 finished lots		13	%	9/27/2013	9/27/2017			1,620,000		975,336		600,714		45,732		-		-
CTMGT Terracina FL-1, LLC	UDF IV FVIII	Denton County, TX	1st lien; 9 finished lots		13	%	4/2/2014	8/2/2017			1,550,905		1,186,072		335,448		-		-		29,385
CTMGT Lakeshore, LLC	UDF IV FII	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 FII	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 FVII	Denton County, TX	1st lien; 9 finished lots		13	%	11/26/2013	3/26/2017			2,400,000		180,689		1,485,631		698,840		-		34,840
CTMGT Bear Creek FL-1, LLC	UDF IV FVII	Dallas County, TX	1st lien; 310 finished lots		13	%	12/27/2013	4/27/2017			4,440,000		4,299,392		140,608		-		-		-
Megatel Bedford VDL, LLC	UDF IV FVI	Tarrant County, TX	1st lien; 30 finished lots		13	%	5/9/2014	5/9/2016			2,103,000		2,093,116		-		-		-		9,884
High Trophy Development, LLC	UDF IV FIII	Denton County, TX	1st lien and pledge of equity; 7 finished lots		13	%	7/26/2011	7/31/2015			3,900,000		17,955		279,254		64,618		1,846,606		122,834
CTMGT Lots Holdings, LLC	UDF IV FIII	Denton County, TX	1st lien and pledge of equity; 21 finished lots; 152 lots		13	%	7/29/2011	9/29/2015			2,905,000		872,285		1,382,808		44,534		-		605,373
CTMGT Lots Holdings, LLC	UDF IV	Tarrant County, TX	Pledge of equity; 152 lots		13	%	7/29/2011	10/31/2014			605,000		83,326		-		-		426,597		4,590
One Creekside, LP	UDF IV	Tarrant County, TX	2nd lien; 118.85 acres		13	%	11/30/2011	4/25/2015	(4)		2,830,000		690,648		221,441		859,015		-		1,058,896
Hidden Lakes Investments, LP	UDF IV FIV	Galveston County, TX	1st lien and reimbursements; 113 finished lots		13	%	1/30/2012	4/30/2015	(4)		9,986,762		6,069,899		1,902,355		1,943,092		153,912		-
One Windsor Hills, LP	UDF IV	Ellis County, TX	2nd lien, reimbursements and pledge of equity; 575.371 acres		13	%	5/9/2012	5/9/2015			9,490,397		8,405,378		-		-		-		1,085,019
One Windsor Hills, LP	UDF IV	Ellis County, TX	2nd lien, reimbursements and pledge of equity; 128.78 acres		13	%	5/25/2012	5/25/2015			1,858,666		1,745,896		-		-		-		112,770
One Windsor Hills, LP	UDF IV	Ellis County, TX	2nd lien, reimbursements and pledge of equity; 841.68 acres		13	%	10/16/2012	10/16/2015			10,450,000		10,126,962		-		-		-		323,038
CTMGT Regatta	UDF IV	Denton County, TX	2nd lien and reimbursements; 1,870 paper lots		13	%	10/25/2012	10/25/2015			9,785,000		5,600,134		-		-		-		4,184,866
BLD LAMP Section 3, LLC	UDF IV FII	Houston, TX	1st lien; 20 finished lots		13	%	5/7/2013	5/7/2016			1,809,600		382,420		428,235		477,523		-		521,422
BLD LAMP Section 4, LLC	UDF IV FII	Houston, TX	1st lien; 12 finished lots		13	%	5/7/2013	5/7/2016			1,582,000		285,480		920,225		-		-		376,295
BLD VOHL 6A-1, LLC	UDF IV FII	Austin, TX	1st lien and pledge of equity; 49 finished lots		13	%	5/20/2013	5/20/2016			2,934,000		1,724,505		-		-		-		1,209,495
BLD VOHL 6B-2, LLC	UDF IV FII	Austin, TX	1st lien and pledge of equity; 27 finished lots		13	%	5/20/2013	5/20/2016			3,377,000		1,338,881		904,073		-		-		1,134,046
Southstar Woodcreek Developer, LLC	UDF IV FVIII	Rockwall County, TX	1st lien and reimbursements; 809.316 acres		13	%	9/27/2013	9/27/2016			30,000,000		18,467,688		-		-		-		11,532,312
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		5,456,935		-		-		-		360,065

Subtotal - Notes Receivable - Non-Related Parties										$	789,479,644	$	514,080,763	$	89,657,231	$	90,950,162	$	22,945,221	$	175,140,843

Total Notes Receivable										$	862,758,922	$	561,269,541	$	93,568,290	$	102,155,169	$	27,223,738	$	179,871,369

Loan Participation Interests - Related Parties
UMT Home Finance, LP	UDF IV	Austin, TX	Participation in 1st lien		13	%	12/18/2009	10/28/2014		$	3,500,000	$	-	$	1,999,552	$	10,123,914	$	5,728,845	$	-
UDF III, LP	UDF IV	Rockwall County, TX	Participation in 1st lien and pledge of equity; 29 finished lots		15	%	6/30/2010	1/28/2015			3,735,750		670,931		2,685,903		431,439		-		-
UDF III, LP	UDF IV	Rockwall, TX	Participation in pledge of equity; 472 acres and 9 finished lots		15	%	6/30/2010	1/28/2015			14,863,622		14,820,986		-		719,432		-		-
UMT Home Finance III, LP	UDF IV	Houston, TX	Participation in 1st lien; 4 finished lots		13	%	5/31/2012	3/29/2015			7,535,000		3,863,922		294,929		-		1,149,157		2,226,992
UDF III, LP	UDF IV	Collin County, TX	Participation in 1st lien and pledge of equity		12	%	6/11/2012	6/4/2015			1,700,000		1,145,335		439,676		36,994		1,490,089		-
UDF III, LP	UDF IV	Collin County, TX	Participation in 1st lien and pledge of equity; 14 finished lots		12	%	5/2/2013	12/28/2014			15,000,000		7,038,755		458,666		1,490,405		-		6,012,174
UMT Home Finance, LP	UDF IV	Dallas County, TX	Participation in 1st lien		13	%	10/3/2013	12/23/2014			10,000,000		4,514,609		3,864,839		-		-		1,620,552
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		104,903		2,210,527		-		-		2,552,770
United Residential Home Finance, LP	UDF IV	Travis County, TX	Participation in 1st lien; 56 paper lots		13	%	12/16/2013	7/31/2016			3,026,000		-		1,315,467		-		-		1,710,533
United Residential Home Finance, LP	UDF IV	Tarrant County, TX	Participation in 1st lien; 61 paper lots		13	%	5/6/2014	10/10/2014			4,244,000		3,838,607		119,011		-		-		286,382
United Residential Home Finance, LP	UDF IV	Tarrant County, TX	Participation in 1st lien; 39 paper lots		13	%	5/6/2014	1/15/2017			7,602,000		4,201,557		392,605		-		-		3,007,837

Total Loan Participation Interests - Related Parties										$	76,074,572	$	40,199,606	$	13,781,175	$	12,802,184	$	8,368,091	$	17,417,240

Grand Total										$	938,833,494	$	601,469,147	$	107,349,466	$	114,957,353	$	35,591,829	$	197,288,609

(1) Represents lender as of September 30, 2014. In some cases, loans may be assigned between UDF IV and its wholly-owned subsidiaries.

(2) Reflects remaining collateral as of September 30, 2014.

(3) Reflects most current amendment to loan as of September 30, 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 September 30, 2014, over 98% of our real property loans and investments are secured by properties located in Texas and approximately 1% are secured by properties located in Florida. In addition, we have one real property loan secured by property in South Carolina 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 September 30, 2014:

Location	% of Balance
Dallas, Texas area		69	%
Austin, Texas area		13	%
Houston, Texas area		7	%
San Antonio, Texas area		9	%
Lubbock, Texas area		1	%
Tampa and Orlando, Florida area		1	%
Fort Mill, South Carolina		*
Total		100	%

*Less than 1%

Results of Operations

The three months ended September 30, 2014 as compared to the three months ended September 30, 2013

Revenues

Interest income (including interest income – related parties) for the three months ended September 30, 2014 and 2013 was approximately $19.2 million and $13.5 million, respectively. The increase in interest income for the three months ended September 30, 2014 is primarily the result of our increased notes receivable, notes receivable – related parties and loan participation interest – related parties portfolio of approximately $593.4 million as of September 30, 2014, compared to approximately $448.5 million as of September 30, 2013 as proceeds raised from our Offering, combined with increased amounts of leverage, continued to be invested in revenue-generating real estate investments.

Commitment fee income (including commitment fee income – related parties) for the three months ended September 30, 2014 and 2013 was approximately $834,000 and $448,000, respectively. The increase in commitment fee income for the three months ended September 30, 2014 is primarily the result of an increase in loan commitment fees and option fees associated with our lot inventory as proceeds raised from our Offering, combined with increased amounts of leverage, continued to be invested in revenue-generating real estate investments.

We expect revenues to increase as we grow our portfolio with capital from additional debt or possible future equity offerings and as we reinvest proceeds from loans that are repaid.

Expenses

Interest expense related to our notes payable and lines of credit totaled approximately $1.9 million and $95,000 for the three months ended September 30, 2014 and 2013, respectively. The increase in interest expense for the three months ended September 30, 2014 is primarily the result of the increase in our aggregate borrowings to approximately $142.3 million as of September 30, 2014, from approximately $3.6 million as of September 30, 2013. We increased our aggregate borrowings as of September 30, 2014 to fund the growth of our portfolio as well as our Tender Offer. 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 lines of credit. We expect interest expense to increase as we add additional debt to our balance sheet to grow our portfolio.

Management fees – related party expense represents the expense associated with the Management Fees discussed in Note I to our accompanying consolidated financial statements and was approximately $2.3 million and $2.2 million for the three months ended September 30, 2014 and 2013, respectively. In connection with the Listing, we terminated the Pre-Listing Advisory Agreement and adopted the Advisory Agreement, which became effective upon our Listing on June 4, 2014. Management Fees incurred during the three months ended September 30, 2014 include a combination of the Base Management Fees and Incentive Management Fees paid pursuant to the Advisory Agreement, while Management Fees incurred during the three months ended September 30, 2013 include Advisory Fees paid pursuant to the Pre-Listing Advisory Agreement. See Note B to the consolidated financial statements for a discussion of Advisory Fees under the Pre-Listing Advisory Agreement and Base Management Fees and Incentive Management Fees under the Advisory Agreement. We expect management fees – related party expense to increase as we grow our shareholders’ equity and as our returns increase, resulting in an increase to the Incentive Management Fees. The Incentive Management Fee may cause significant fluctuations in management fees – related party expense in the future.

We incurred listing expenses totaling approximately $77,000 during the three months ended September 30, 2014, which were primarily for legal fees, consulting and other third-party service provider costs incurred by us in connection with our Listing and Tender Offer.

General and administrative expense for the three months ended September 30, 2014 and 2013 was approximately $1.2 million and $622,000, respectively. General and administrative expense consisted 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 was primarily associated with an increase in compensation expense associated with our chief operating officer, who was hired in February 2014, and an increase in amortization of debt financing costs corresponding to an increase in borrowings on our note payable and lines of credit. We expect general and administrative expense to increase as our portfolio grows, although quarterly amounts may fluctuate significantly.

General and administrative – related parties expense for the three months ended September 30, 2014 and 2013 was approximately $382,000 and $2.8 million, respectively. General and administrative – related parties expense consists of Acquisition and Origination Fees, amortization of Debt Financing Fees, expense associated with Credit Enhancement Fees and the Advisor Expense Reimbursement. The decrease in general and administrative – related parties expense is primarily due to the fact that we no longer incur Acquisition and Origination Fees in accordance with the terms of the Advisory Agreement entered into on May 29, 2014. We expect general and administrative – related parties expense will decline from the historical run rate since we will no longer incur Acquisition and Origination Fees under the Advisory Agreement. Other components of general and administrative expense – related parties are expected to increase as our portfolio grows.

Comparison Charts

The table below summarizes the approximate expenses associated with related parties for the three months ended September 30, 2014 and 2013. We believe that these fees and reimbursements are reasonable and customary for comparable mortgage REITs.

	For the Three Months Ended September 30,
Purpose	2014				2013

Management Fees	$	2,325,000	100	%	$	2,177,000	100	%

Total Management Fees – related party	$	2,325,000	100	%	$	2,177,000	100	%


Amortization of Debt Financing Fees	$	227,000	60	%	$	97,000	3	%

Acquisition and Origination Fees		-	-			2,707,000	96	%

Credit Enhancement Fees		149,000	39	%		16,000	1	%

Advisor Expense Reimbursement		6,000	1	%		-	-

Total General and administrative – related parties	$	382,000	100	%	$	2,820,000	100	%

The table below summarizes the approximate payments to related parties for the three months ended September 30, 2014 and the year ended December 31, 2013:

		For the Three Months Ended				For the Year Ended
Payee	Purpose	September 30, 2014				December 31, 2013
UMTH GS
	O&O Reimbursement	$	-	-		$	8,167,000	38	%
	Management Fees		2,019,000	82	%		7,819,000	26	%
	Debt Financing Fees		376,000	15	%		361,000	1	%
	Advisor Expense Reimbursement		4,000	*			-	-

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

UDF III
	Credit Enhancement Fees		73,000	3	%		132,000	1	%

Total Payments		$	2,472,000	100	%	$	24,432,000	100	%

* Less than 1%

The nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013

Revenues

Interest income (including interest income – related parties) for the nine months ended September 30, 2014 and 2013 was approximately $54.5 million and $35.2 million, respectively. The increase in interest income for the nine months ended September 30, 2014 is primarily the result of our increased notes receivable, notes receivable – related parties and loan participation interest – related parties portfolio of approximately $593.4 million as of September 30, 2014, compared to approximately $448.5 million as of September 30, 2013 as proceeds raised from our Offering, combined with increased amounts of leverage, continued to be invested in revenue-generating real estate investments.

Commitment fee income (including commitment fee income – related parties) for the nine months ended September 30, 2014 and 2013 was approximately $2.4 million and $1.0 million, respectively. The increase in commitment fee income for the nine months ended September 30, 2014 is primarily the result of an increase in loan commitments and option fees associated with our lot inventory as proceeds raised from our Offering, combined with increased amounts of leverage, continued to be invested in revenue-generating real estate investments.

We expect revenues to increase as we grow our portfolio with capital from additional debt or potential future equity offerings and as we reinvest proceeds from loans that are repaid.

Expenses

Interest expense related to our notes payable and lines of credit totaled approximately $2.9 million and $952,000 for the nine months ended September 30, 2014 and 2013, respectively. The increase in interest expense for the nine months ended September 30, 2014 is primarily the result of the increase in our aggregate borrowings to approximately $142.3 million as of September 30, 2014, from approximately $3.6 million as of September 30, 2013. We increased our aggregate borrowings as of September 30, 2014 to fund the growth of our portfolio as well as our Tender Offer. 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 lines of credit. We expect interest expense to increase as we add additional debt to our balance sheet to grow our portfolio.

Management fees – related party expense represents the expense associated with the Management Fees discussed in Note I to our accompanying consolidated financial statements and was approximately $7.6 million and $5.7 million for the nine months ended September 30, 2014 and 2013, respectively. The increase in management fees – related party expense is primarily 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, offset by a change in the calculation of management fees under the Advisory Agreement. In connection with the Listing, we terminated the Pre-Listing Advisory Agreement and adopted the Advisory Agreement, which became effective upon our Listing on June 4, 2014. Management Fees incurred during the nine months ended September 30, 2014 include a combination of Advisory Fees paid pursuant to the Pre-Listing Advisory Agreement and Base Management Fees and Incentive Management Fees paid pursuant to the Advisory Agreement. See Note B to the consolidated financial statements for a discussion of Advisory Fees under the Pre-Listing Advisory Agreement and Base Management Fees and Incentive Management Fees under the Advisory Agreement. We expect management fees – related party expense to increase as we grow our shareholders’ equity and as our returns increase, resulting in an increase in the Incentive Management Fees. The Incentive Management Fee may cause significant fluctuations in management fees – related party expense in the future.

We incurred listing expenses totaling approximately $5.1 million during the nine months ended September 30, 2014, which were primarily for legal, investment banking, NASDAQ fees, share-based compensation, consulting and other third-party service provider costs incurred by us in connection with our Listing and Tender Offer.

General and administrative expense for the nine months ended September 30, 2014 and 2013 was approximately $3.9 million and $1.3 million, respectively. General and administrative expense consisted 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 was primarily associated with an increase in legal and consulting fees, compensation expense associated with our chief operating officer, who was hired in February 2014, and an increase in amortization of debt financing costs corresponding to an increase in borrowings on our note payable and lines of credit. We expect general and administrative expense to increase as our portfolio grows, although quarterly amounts may fluctuate significantly.

General and administrative – related parties expense for the nine months ended September 30, 2014 and 2013 was approximately $(1.4) million and $6.3 million, respectively. General and administrative – related parties expense consists of Acquisition and Origination Fees, amortization of Debt Financing Fees, expense associated with Credit Enhancement Fees and the Advisor Expense Reimbursement. The decrease in general and administrative – related parties expense is primarily due to the fact that we no longer incur Acquisition and Origination Fees in accordance with the terms of the Advisory Agreement entered into on May 29, 2014 and, in connection with the Listing, we reversed approximately $3.2 million in unpaid Acquisition and Origination Fees, as discussed further in Note I to the accompanying consolidated financial statements. We expect general and administrative – related parties expense will decline from the historical run rate since we will no longer incur Acquisition and Origination Fees under the Advisory Agreement. Other components of general and administrative expense – related parties are expected to increase as our portfolio grows.

Comparison Charts

The table below summarizes the approximate expenses associated with related parties for the nine months ended September 30, 2014 and 2013. We believe that these fees and reimbursements are reasonable and customary for comparable mortgage REITs.

	For the Nine Months Ended September 30,
Purpose	2014					2013

Management Fees	$	7,629,000		100	%	$	5,654,000	100	%

Total Management fees – related party	$	7,629,000		100	%	$	5,654,000	100	%


Amortization of Debt Financing Fees	$	459,000		(33	%)	$	231,000	4	%

Acquisition and Origination Fees (1)		(2,160,000	)	157	%		5,933,000	95	%

Credit Enhancement Fees		317,000		(23	%)		109,000	1	%

Advisor Expense Reimbursement		8,000		(1	%)		-	-

Total General and administrative – related parties	$	(1,376,000	)	100	%	$	6,273,000	100	%

The table below summarizes the approximate payments to related parties for the nine months ended September 30, 2014 and the year ended December 31, 2013:

		For the Nine Months Ended				For the Year Ended
Payee	Purpose	September 30, 2014				December 31, 2013
UMTH GS
	O&O Reimbursement	$	-	-		$	8,167,000	33	%
	Management Fees		7,422,000	88	%		7,819,000	32	%
	Debt Financing Fees		601,000	7	%		361,000	1	%
	Advisor Expense Reimbursement		4,000	*			-	-

UMTH LD
	Acquisition and Origination Fees		259,000	3	%		7,953,000	33	%

UDF III
	Credit Enhancement Fees		193,000	2	%		132,000	1	%

Total Payments		$	8,479,000	100	%	$	24,432,000	100	%

* less than 1%

Cash Flow Analysis

Cash flows provided by operating activities for the nine months ended September 30, 2014 and 2013 were approximately $30.8 million and $13.4 million, respectively, and primarily comprised net income offset partially by accrued interest receivable.

Cash flows used in investing activities for the nine months ended September 30, 2014 and 2013 were approximately $91.4 million and $159.2 million, respectively, and primarily comprised 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 nine months ended September 30, 2014 were approximately $39.0 million and primarily comprised proceeds from notes payable and net borrowings on lines of credit offset by distributions to shareholders, purchases of treasury shares and an increase in restricted cash. Cash flows provided by financing activities for the nine months ended September 30, 2013 were approximately $186.9 million and primarily comprised proceeds from the issuance of common shares of beneficial interest pursuant to the Offering and shareholders’ distribution reinvestment, offset by payments of offering costs, net repayments of lines of credit, cash distributions to shareholders, a decrease in accrued liabilities – related parties and payments on notes payable.

Our cash and cash equivalents were approximately $12.0 million as of September 30, 2014, compared to approximately $64.4 million at September 30, 2013.

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, (5) cash distributions (which have increased in connection with the termination of our DRIP, as discussed further in Note C to the accompanying consolidated financial statements) and (6) the completion of our Tender Offer. We expect that our liquidity will be provided by (1) loan interest, transaction fees and the receipt of credit enhancement fee payments, (2) loan principal payments, (3) sales of finished single-family residential lots, (4) credit lines available to us and (5) the Shelf Registration described further in Note K to the accompanying consolidated financial statements.

There may be a delay in deploying cash on our balance sheet into real estate-related investments, which could result in a delay in our ability to make distributions to our shareholders. 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.

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. 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 either be 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 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, undistributed funds from operations and proceeds from the Shelf Registration described further in Note K to the accompanying consolidated financial statements. 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 funds through additional debt or equity offerings or other means.

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.

Related Party Guarantees

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 CTB 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 September 30, 2014 and December 31, 2013, the outstanding balance on the line of credit was $4.3 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. 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. The Stoneleigh Construction Loan would have matured on December 31, 2014, but was paid in full on October 1, 2014. 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^thof 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 September 30, 2014 and December 31, 2013, approximately $4.0 million and $7.6 million, respectively, was outstanding under the Stoneleigh Construction Loan. For the three months ended September 30, 2014 and 2013, approximately $10,000 and $15,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan. For the nine months ended September 30, 2014 and 2013, approximately $36,000 and $68,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Stoneleigh Construction Loan. As of September 30, 2014 and December 31, 2013, approximately $13,000 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. The URHF Southwest Loan matures on July 22, 2016. 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 September 30, 2014 and December 31, 2013, approximately $4.9 million and $1.2 million, respectively, was outstanding under the URHF Southwest Loan. For the three and nine months ended September 30, 2013, we did not recognize any commitment fee income – related parties in connection with the credit enhancement fee associated with the URHF Southwest Loan. For the three and nine months ended September 30, 2014, approximately $12,000 and $24,000, respectively, is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the URHF Southwest Loan. As of September 30, 2014, approximately $4,000 is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the URHF Guaranty.

Effective July 18, 2014, we entered into the Rowe Lane Guaranty pursuant to which we guaranteed all amounts due associated with the RL Commerce Bank Loan entered into between Rowe Lane and Commerce Bank. Rowe Lane is a wholly owned subsidiary of UDF I. The general partner of our Advisor is the general partner of UMTH LD, our asset manager, and UMTH LD also serves as the asset manager of UDF I. The RL Commerce Bank Loan is secured by a first lien deed of trust on a 71.388 acre project. The RL Commerce Bank Loan matures on July 18, 2018. In consideration of us entering into the Rowe Lane Guaranty, we entered into a letter agreement with Rowe Lane which provides for Rowe Lane to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the RL Commerce Bank Loan at the end of each month. As of September 30, 2014, approximately $3.2 million was outstanding under the RL Commerce Bank Loan. For both the three and nine months ended September 30, 2014, approximately $8,000 is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the Rowe Lane Guaranty. As of September 30, 2014, approximately $8,000 is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the Rowe Lane Guaranty.

Effective August 29, 2014, we entered into the BRHG Guaranty pursuant to which we guaranteed all amounts due associated with the BRHG Sovereign Loan entered into between BRHG and Sovereign in connection with BRHG’s acquisition of Scott Felder Homes. BRHG is a wholly owned subsidiary of BR Homebuilding. John R. (“Bobby”) Ray, a trustee of UDF IV, Hollis Greenlaw, our Chief Executive Officer and a trustee of UDF IV, and Todd Etter, Chairman and partner of UMTH, each own approximately 25% of the common equityofBR Homebuilding and direct the management of BR Homebuilding. UMTH owns all of the limited partnership interests of UMTH LD, our asset manager. The Sovereign Guarantee was approved by a majority of our independent trustees on August 26, 2014. The BRHG Sovereign Loan matures on August 29, 2015, but may be extended under certain circumstances to August 27, 2020. The BRHG Sovereign Loan is secured by a pledge of all of BR Homebuilding’s interests in BRHG. In consideration of us entering into the BRHG Guaranty, we entered into a letter agreement with BRHG which provides for BRHG to pay us a monthly credit enhancement fee equal to 1/12th of 1% of the outstanding principal balance on the BRHG Sovereign Loan at the end of each month. As of September 30, 2014, approximately $25.0 million was outstanding under the BRHG Sovereign Loan. For both the three and nine months ended September 30, 2014, approximately $21,000 is included in commitment fee income – related parties in connection with the credit enhancement fee associated with the BRHG Guaranty. As of September 30, 2014, approximately $21,000 is included in accrued receivable – related parties in connection with the credit enhancement fee associated with the BRHG Guaranty.

Summary

As of September 30, 2014, including the related party guarantees described above, we had 11 outstanding repayment guarantees with total credit risk to us of approximately $86.8 million, of which approximately $47.0 million had been borrowed against by the debtor. As of December 31, 2013, including the related party guarantees described above, we had 9 outstanding repayment guarantees with total credit risk to us of approximately $65.7 million, of which approximately $19.9 million had been borrowed against by the debtor.

Contractual Obligations

For the three months ended September 30, 2014, we had no material changes to contractual obligations, other than loan commitments discussed above in “Lot Inventory and Loan Portfolio” and lines of credit discussed in Note F 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 might 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 UMTH LD 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 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 September 30, 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 September 30, 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 September 30, 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.

As a result of the termination of the Offering and the listing of our shares on NASDAQ, the following risk factors, which are included in our Annual Report on Form 10-K or our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, are no longer material and are hereby deleted:

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.

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

There is no public trading market for our shares; therefore, it will be difficult for shareholders to sell their shares. If a shareholder is able to sell their shares, the shareholder may have to sell them at a substantial discount from the public offering price. In addition, we do not have a fixed liquidation date, and the shareholder may have to hold their shares indefinitely.

Shareholders are limited in their ability to sell their shares pursuant to our redemption program.

If shareholders are able to resell their shares to us pursuant to our redemption program, they will likely receive substantially less than the fair market value for their shares.

A shareholder’s interest in us may be diluted if the price we pay in respect of shares redeemed under our share redemption program exceeds the net asset value of our shares.

We will have broad discretion in how we use the net proceeds of the Offering.

Our Advisor’s subordinated incentive fee may create an incentive for our Advisor to make speculative investments.

Our declaration of trust includes a provision that may discourage a person from launching a tender offer for our shares.

If our shareholders fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our common shares of beneficial interest, they could be subject to criminal and civil penalties.

There have been no material changes to the remaining risk factors included in our Annual Report on Form 10-K or our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 except for the following:

Our share price may be volatile, and investors may be unable to sell their shares at or above the current public offering price.

The market price of our common shares of beneficial interest has been and could be subject to wide fluctuations in response to, among other things, the following:

variations in our quarterly operating results;

decreases in market valuations of similar companies;

the failure of securities analysts to cover our common shares or changes in financial estimates by analysts who cover us, our competitors or our industry;

failure by us or our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market; and

fluctuations in stock market prices and volumes.

Furthermore, the stock markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes and international currency fluctuations, may negatively affect the market price of our common shares.

In the past, many companies that have experienced volatility in the market price of their securities have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. All of these factors could cause the market price of our shares to decline, and shareholders may lose some or all of their investment.

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 September 30, 2014, our 21 loans to related parties have an outstanding balance of approximately $87.4 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 September 30, 2014, we have not entered into any joint ventures. As of September 30, 2014, we are participating in 11 loans originated by affiliates, with an outstanding balance of approximately $40.2 million.

Investment opportunities may not be allocated equitably among us and the other United Development Funding programs.

Our Advisor and our asset manager are affiliates of the other United Development Funding programs (UDF I, UDF II, UDF III, UDF LOF and United Development Funding Income Fund V, a Maryland real estate investment trust that intends to qualify as a real estate investment trust under federal income tax laws (“UDF V”)), all of which engage in the same or similar businesses in which we engage. Our Advisor and our asset manager seek to equitably allocate among us and these other United Development Funding programs all investment opportunities of which they become aware. We have entered into an Allocation Policy Agreement pursuant to which we may invest in the same loans and transactions as the other United Development Funding programs, except that UDF V will not invest with us or other affiliates in the same loans. However, pursuant to the Allocation Policy Agreement, investment opportunities may be allocated among the United Development Funding programs based upon each fund’s risk profile and the cash available for investment in each fund. Circumstances may arise, due to availability of capital or other reasons, when our Advisor and our asset manager are not able to equitably allocate investments to us. Our Advisor and our asset manager may determine that we will not invest in otherwise suitable investments in which one or more of the other United Development Funding programs invest, in order for us to avoid unrelated business taxable income, or “UBTI,” which is generally defined as income derived from any unrelated trade or business carried on by a tax-exempt entity or by a partnership of which it is a member, and which is generally subject to taxation. We cannot assure our shareholders that we will be able to invest in all suitable opportunities of which our Advisor and our asset manager become aware.

Our Advisor, our asset manager and their affiliates may form other companies that will engage in the same businesses as we do, and investment opportunities may not be allocated equitably among us, the other United Development Funding programs and such other companies.

Our Advisor, our asset manager and their affiliates may engage in additional real estate-related activities in the future, including the activities in which we engage, and may form new entities to engage in these activities. When new companies are formed for the purpose of engaging in the businesses in which we engage, our Advisor and our asset manager intend to equitably allocate among us, the other United Development Funding programs, and such other companies all investment opportunities of which they become aware. We cannot assure our shareholders that the allocation of investment opportunities will be equitable.

Our Advisor faces additional conflicts of interest relating to management relationships 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 other United Development Funding programs, all of which engage in the same businesses as us. Our asset manager also serves as the asset manager for the other United Development Funding programs, but does not serve as the asset manager for UMT. Because our Advisor or our asset manager have advisory and management arrangements with UMT and the 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 UMT or one of the United Development Funding programs, but not others. Our Advisor or our asset manager may make decisions to finance certain properties, which decisions might disproportionately benefit UMT or another 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, UDF V 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 September 30, 2014, we are participating in 11 loans originated by affiliates, with an outstanding balance of approximately $40.2 million.

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

We may invest in loans to purchase unimproved real property. As of September 30, 2014, we have invested 0% of our assets in such loans. Unimproved real property is generally 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 42% of our outstanding loans as of September 30, 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 our outstanding loans as of September 30, 2014; (c) mezzanine loans (which are secured by pledges), which investments represent approximately 2% of our outstanding loans as of September 30, 2014; and (d) wraparound mortgage loans, which investments represent 0% of our outstanding loans as of September 30, 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 September 30, 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 September 30, 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 September 30, 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 September 30, 2014, we have invested approximately 63% of the outstanding balance of our portfolio in 76 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.

We have made a loan which is not secured by real estate or pledges of equity interests, and we may make additional unsecured loans in the future.

On August 29, 2014, we made an $11.5 million unsecured subordinate loan to BRHG, an affiliated party, for the purpose of partially financing the acquisition by BRHG of Scott Felder Homes, a homebuilder operating in the Austin and San Antonio, Texas markets. Our loan is not secured by real estate or by a pledge of the equity interest in the borrower. Loans that are not secured are inherently riskier than secured loans. In the event that Scott Felder Homes performs poorly, the borrower may be unable to repay our loan, and our results of operations and our ability to pay distributions to our shareholders could be adversely affected.

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 September 30, 2014, the highest interest rate we have charged on an annualized basis has not exceeded 18%). 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.

Our rights and the rights of our shareholders to recover claims against our independent trustees are limited, which could reduce our and our shareholders’ recovery against them if they negligently cause us to incur losses.

Maryland law provides that a trustee has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust provides for indemnification of our directors to the maximum extent permitted by Maryland law. As a result, we and our shareholders may have more limited rights against our independent trustees than might otherwise exist under common law, which could reduce our and our shareholders’ recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent trustees (as well as by our other trustees, officers, employees of our Advisor and agents) in some cases, which would decrease the cash otherwise available for distributions to our shareholders.

Shareholders have limited control over changes in our policies and operations.

Our board of trustees determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of trustees may amend or revise these and other policies without a vote of the shareholders. Under our declaration of trust, the Maryland REIT Law and the Maryland General Corporation Law, our shareholders currently have a right to vote only on the following matters:

the election or removal of trustees;

the amendment of our declaration of trust, except that our board of trustees may amend our declaration of trust without shareholder approval to:

change our name;

increase or decrease the aggregate number of shares;

increase or decrease the number of the shares of any class or series that we have the authority to issue;

effect certain reverse stock splits; or

qualify as a real estate investment trust under the Internal Revenue Code or the Maryland REIT Law;

our termination; and

certain mergers, consolidations and sales or other dispositions of all or substantially all of our assets.

All other matters are subject to the discretion of our board of trustees.

The market price for our common shares varies, and investors should view our common shares only as a long-term investment.

Although our common shares are listed on the NASDAQ, our common shares may not be actively traded. We cannot assure our shareholders that there will be an active trading market for our common shares at any time in the future. Even if there is an active trading market for our common shares, we cannot assure our shareholders that they will be able to sell all of their common shares at one time or at a favorable price, if at all.

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.

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. All Restricted Shares were issued in a private transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

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 nine months ended September 30, 2014.

	Restricted Shares		Grant Date Fair Value		Total
Outstanding as of January 1, 2014		-	$	-	$	-
Granted		82,410		20.00		1,648,200
Vested		-		-		-
Forfeited		-		-		-

Outstanding as of September 30, 2014		82,410	$	20.00	$	1,648,200

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:November 14, 2014	By:	/s/ Hollis M. Greenlaw
		Hollis M. Greenlaw
		Chief Executive Officer Principal Executive Officer

Dated:November 14, 2014	By:	/s/ Cara D. Obert
		Cara D. Obert
		Chief Financial Officer
		Principal Financial Officer

Index to Exhibits

Exhibit Number		Description

3.1		Third Articles of Amendment and Restatement of Declaration of Trust of United Development Funding IV, effective July 30, 2014 (previously filed in and incorporated by reference to Exhibit 3.1 to Form 10-Q filed on August 13, 2014)

3.2		Amended and Restated Bylaws of United Development Funding IV, effective July 30, 2014 (previously filed in and incorporated by reference to Exhibit 3.2 to Form 8-K filed on July 31, 2014)

4.1		Distribution Reinvestment Plan (previously filed in and incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No. 1 to Registration Statement on Form S-3, Commission File No. 333-188045, filed on August 4, 2014)

4.2		Form of Senior Indenture (previously filed in and incorporated by reference to Exhibit 4.5 to Registration Statement on Form S-3, Commission File No. 333-197841, filed on August 4, 2014)

4.3		Form of Subordinated Indenture (previously filed in and incorporated by reference to Exhibit 4.6 to Registration Statement on Form S-3, Commission File No. 333-197841, filed on August 4, 2014)

10.1		Loan Agreement by and between Waterfall Finance 4, LLC and United Development Funding IV, dated July 2, 2014 (previously filed in and incorporated by reference to Exhibit 10.6 to Form 10-Q filed on August 13, 2014)

10.2		Promissory Note by United Development Funding IV in favor of Waterfall Finance 4, LLC, dated July 2, 2014 (previously filed in and incorporated by reference to Exhibit 10.7 to Form 10-Q filed on August 13, 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 Q3 Quarterly report

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