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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction

UnitedDevelopmentFunding(UDF)

1

OnDecember14,2015,UnitedDevelopmentFunding(UDF)managementfiledaForm8Kandpressreleasewith

managements rambling response attempting to further lull investors with the old saw, they just dont

understandourbusiness.Managementhasbeenmisleading investors for years, and its response continues

furtherdown thepathofdeception.Notonlyweremanagements responsesdeceptive; in some cases, the

responseswere

comical.

Certain

responses

have

already

been

debunked

on

the

Harvest

Exchange,

posted

subsequenttothefilingoftheForm8K.Otherhollowresponseswillbediscredited inthispostandmorewill

followinthecomingdays,weeksandmonths.

However,therewasatleastonematerialomissionfrommanagementsresponsesDeficiencyNotesthatneeds

tobehighlighted:

Managementfailedtodiscussthemillionsofdollarsthatinsiderslostonbehalfofpublicshareholders.TheUDF

affiliatedcompaniesatissuearegenerallyinthebusinessofnonregulated,nonbanklending.Prefinancialcrisis,

theinsidersissuedloansfrompublicentities(whichtheymanagedbutDIDNOTown)totheirownprivateentities

(whichtheynotonlymanagedbutalsoowned).Managementsufferedtremendouslossesontheloansissuedto

theirownprivateentities andhavebeendeceivingnewunsuspecting investors regarding the realityof their

spectaculartrack

record

ever

since.

The

losses

that

resulted

from

poor

investment

decisions

by

management

eightyearsagoarestillshownasassetsofthepubliccompany.Managementcallsthemdeficiencynotesand

recourseobligations.Inreality,thesearejustIOWEYOUsthatmanagementhasneverrepaid.

DeficiencyNotesTheCheckIsInTheMail,ForTheLastEightYears

UDFsmanagementbegandeceiving its fund investorsessentially fromthebeginning. UnitedMortgageTrust

(UMT),aUDFaffiliatewithpublicshareholdersandUDFmanagedentity,providestheearliestexample.Predating

thefinancialcrisis,managementcausedUDFmanagedentitiestoissueloanstoinsiders,includingentitiesowned

byHollisGreenlawandToddEtter,CEOandChairmanrespectively,andtheseinsidersinturnloanedthesefunds

tothirdpartiesthatturnedouttonotbecreditworthy. Whentheseloanswentbadduringandsubsequentto

thefinancialcrisis,theinsidershadtoforecloseonthecollateralwhichresultedinconsiderablerealizedlossesto

theinsidersandtheirprivateentities.Todate,theselosseshaveneverbeenrecognizedbyUMT,thepublicentity.

Historicallossesbytheinsidersprivateentities($73millioninIOWEYOUsneverrecognized)andotherloansto

insiders($80million)intheirentiretymakeupforawhopping$153million,or84%ofUMTsassets.

Inanattempt to coverup these losses,managementhas issued to themselvesopaqueandofficial sounding

instrumentscalledunsecureddeficiencynotesandrecourseobligations (DeficiencyNotes) intheamountof

approximately$73millionbearing interestata rateof1.75% (apparently, insidersandmanagementbelieve,

despitetherealized losses,thattheyaremorecreditworthythantheU.S.government).Thisbalanceremains

unpaidanduncollectedforthelast8yearsfollowingthefinancialcrisis,despitethenonmarketinterestrateof

1.75%.Whyhasmanagementnotmovedtocollectonthe$73millionDeficienyNotebalance?Theobviousanswer

isbecauseHollisGreenlawandhisinsiderfriendswouldbeforcedtocollectonthemselves.Giveuptheprivate

jets,countryclubs,fancycarsandmansions?Nah,WereGood.

ADeficiencyNoteiseffectivelyanIOUthatmanagementandinsidershavenotbeenabletorepay.Hereishow

UMTdescribestheminitslatestForm10QforthequarterendedSeptember30,2015:

Whenprincipaland interestonanunderlyingloan isdue infull,atmaturityorotherwise,the

correspondingobligationowedbytheoriginatingcompanyto[UMT] isalsodue in full. Ifthe

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borroweror[UMT]foreclosesonpropertysecuringanunderlyingloan,orif[UMT]forecloses

onpropertysecuringapurchasedloan,andtheproceedsfromthesaleareinsufficienttopay

theloaninfull,theoriginatingcompanyhastheoptionof(1)repayingtheoutstandingbalance

owedto[UMT]associatedwiththeunderlyingloanorpurchasedloan,asthecasemaybe,or(2)

deliveringto

[UMT]

an

unsecured

deficiency

note

in

the

amount

of

the

deficiency.

ADeficiencyNoteisbetterdefinedasamulliganissuedbymanagementtoitself. UMTHoldings(UMTH)isthe

managemententity thatultimatelyowes a considerable amountof theseDeficiencyNotes toUDFmanaged

entitiesandisownedby10managementinsiders,includingHollisGreenlawandToddEtterwhocombinetoown

60%ofUMTH. UMTHistheexternalmanagerofallfourpublicUDFaffiliatedprograms,andaccordingly,UMTHs

primaryassetisthefeestreamfromUDFspublicaffiliates. ShouldinvestorsinUDFlosefaithinmanagementand

replace them,theexternalmanagerdoesnothaveanyapparentmeans torepaytheDeficiencyNotes,which

representrealizedbutneverrecognized(orcollected) losses. Ifanyreasonable,nonconflictedfiduciarywere

appointedtomanageUMT,thatfiduciarywouldmoveswiftlytodemandpaymentandcollectontheDeficiency

Notes.

Leadingto

further

questions

about

management

credibility,

the

interest

rates

on

Deficiency

Notes

owed

by

Hollis

Greenlaw and his management crew of insiders (1.75%) are significantly lower than the interest rates on

DeficiencyNotesowedby nonrelatedparties (14.0%).Doesmanagementpretend that insiderDeficiency

Noteswhichbearinterestataratedramaticallybelowamarketratearearmslengthtransactions?

Whenlossesarerealized,(i)whyismanagementrewardedwith1.75%interestloans(ii)whyistheresuchalarge

disparity in rates between Deficiency Notes owed by insiders (Hollis Greenlaw and Todd Etter, et al.) and

DeficiencyNotesowedbynonrelatedparties,(iii)whydoUDFmanagedentitiesnotrecognizedthelossesfrom

itspriorfailures,and(iv)whywouldpublicshareholdersofUDFmanagedentitiespayatrustadministrationfee

tomanagementascompensationtomanagetheirhistoricallosses?

Collectively,insiders,

including

Hollis

Greenlaw

and

Todd

Etter,

CEO

and

Chairman

respectively,

owe

$153

million

topublicshareholdersintheformofIOWEYOUsandotherloans. TheseobligationsshowupasassetsofUDF

managedentitiesandaccountfor84%oftotalUMTassets.


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WHILEASMALLGROUPOF INSIDERS, INCLUDINGCEOHOLLISGREENLAW,OWE$73

MILLIONINIOWEYOUSTOPUBLICSHAREHOLDERS,WHYISHEFLYINGAROUNDINA

PRIVATEJET?

ANDWHYHASTHECEOOFUDF(HOLLISGREENLAW)OWNEDAPRIVATEJETWITHTHE

CEO OF UDFS LARGEST BORROWER (MEHRDAD MOAYEDI)? THE RELATIONSHIP IS

MUCHDEEPER

ANDAPPEARSTOBEINSTARKCONTRASTTOUDFSDISCLOSURETHATTHEREARE

NOTANYMATERIALCONFLICTSOFINTERESTBETWEENOUREXECUTIVESANDOUR

LARGESTGROUPOFRELATEDBORROWERSORITSPRINCIPAL.


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THE RELATIONSHIP BETWEEN GREENLAW AND MOAYEDI GOES BEYOND JUST THE

COMMONOWNERSHIPOFAPRIVATEJETANDFARBEYONDTHATOFALENDERAND

BORROWER; NUMEROUS OTHER EXAMPLES EXIST. MANAGEMENT MUST HAVE A

DIFFERENTDEFINITIONOFMATERIALTHANSHAREHOLDERS.


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OtherManagementResponsesDiscredited

ManagementsresponsedisclosedforthefirsttimethatthelargestborrowerforUDFIII,UDFIV,andUDFVisone

andthesame,MerhdadMoayediandhisaffiliatedentitiesdoingbusinessasCenturionAmerican(Centurion).

Whywas this informationnotdisclosedpreviously? Managements responsedetailedexactly thecontention

made in theHarvest Exchange post (http://hvst.co/1IQPULr). However, rather than address the pertinent

questions,managementdeceptivelytriedtomakeitseemlikeithadalreadydisclosedtoeachshareholdergroup

(UDFIII,UDFIVandUDFV)thatthelargestborrowerofeachwasalsothelargestborrowerofallthreecompanies.

Managementhad

never

disclosed

this

at

any

time

in

UDFs

history.

Period.

Should

ashareholder

of

UDF

IV

be

requiredtoreadUDF IIIandUDFVsfinancialdisclosures inorderto learnmaterialomittedfactsaboutthe

lending relationship between its largest borrower and its affiliates. Management did not address the

consequencesofthisrevelation:theexistenceofan inherentdefaultriskacrossthefundsassociatedwiththis

concentrationinasingleborrower.

Howdoesmanagementjustifytheinherentdefaultriskacrossthefundscreatedbythelackoflendingdiversity?

Accordingtomanagement,UDFconcentrate[s][its]lendingtoseasonedandaccomplishedbuildersand

developers.[UDFs]largestgroupofrelatedborrowersrepresentsoneofthelargestsinglefamilydevelopersin

NorthTexas.Managementwouldhaveinvestorsbelievethatitslargestborrower,Centurion,isaseasoned

andaccomplisheddeveloper. Ifso,whydoesaseasonedandaccomplisheddeveloperborrowcapitalto

financeresidential

development

at

13%

interest?

Considering

the

$585

million

of

debt

owed

to

UDF

by

Centurion/MehrdadMoayedi,UDFslargestindividualborrower,thishighinterestrateresultsinapproximately

$75millionincontractuallyobligatedannualinterestexpense. Actual,seasonedandaccomplisheddevelopers

inDallasFortWorth(oneofthehottestsubmarketsinthecountry)financedevelopmentswithacombination

ofdebtwithinterestratesbelow5%andequityequitywhichCenturiondoesnotappeartohave.

ManagementassertsthatthepostsonHarvestExchangeclearlydemonstratealackofunderstandingofthe

residentialdevelopmentprojectlifecycle.Itappearsthatmanagementdemonstratesalackofunderstanding


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ofthecreditqualityofrealestatedevelopersthatborrowerat13%asaprimaryfinancingsource. Mezzanine

financing,whileutilizedinrealestate,israrelyaprimarysourceofprojectfinanceexceptforUDFslargest

borrower,Centurion,whohappenstoborrowat13%mezzaninelevelsasaprimarysourceofprojectfinance.

ManagementacknowledgesthatCenturiondoesnotactuallypaycashinterestinmanycases,whichhelps

explainhow

Centurion

funds

the

13%

interest

cost:

[m]ost

of

our

loans

allow

for

interest

accrual,

which

causes

theloanbalancetoincrease.Someprojectsmaystartdevelopmentrightaway[.]Mostloansaccruelargerand

largerbalances.Managementfailstoaddresstheconsequenceofthisstatement.Ifitisaccruingnoncash

interestincomeonamaterialnumberofloans,howisitfinancingthedistributionsrequiredinordertomaintain

itstaxablestatusasaREITrelatedtothatnoncashcurrentincome?Everybodyunderstandsthenegativecarry

natureofrealestatedevelopmentandtheconceptsofinterestreservesandnoncashinterestaccrual;UDFis

recognizingnoncashincomeandhavingtofunddistributionsbysourcingnewcapital,giventheincomeisby

definition,notcash.Managementfailstoexplainhowtheuniteconomicscanpossiblyworkgiventhesignificant

timemismatchbetweenincomeearnedvs.cashinterestgenerated.

Andhowdoesmanagementassessandjustifytheaccruedbalancesoftheloans?Well,management

evaluate[s]each

loan

and

its

underlying

collateral

or

business

purpose

on

aquarterly

basis.

See

background

on

insiderDeficiencyNotesandmanagementsaccountingtreatmentthereof.Despitethepoortrackrecord,

managementdefendedthebusinessmodelanditsabilitytoaccrueinterest(andaccuratelymark)loansupto

muchlargerandlargeraccruedbalances.Managementdeceptivelycharacterizesthepracticeoftransferring

loanswithyearsofaccruedinterestfromfundtofundandprovidingliquidityfromonetoanotherasthe

advantageofinvestinginprojectspreviouslyunderwrittenandactivelymonitoredbyUDF.Managementomits

anymentionofthe1015%inbrokerfeesandoriginationfeesinorderforthenextUDFinvestorstoinvestin

existingUDFloans,capitalwhichwasalreadysubjectedtothe1015%infees.Managementfurtherfailsto

explainhowitcouldpossiblyjustifythefrictionofincurringsuchhighfeesmultipletimesifaloancouldreally

standonitsownandserviceitself.HollisGreenlawandhismanagementcrewpreyonmomandpopinvestors

byusing

the

complexity

of

hundreds

of

entities

to

obscure

the

fact

that

they

raise

capital

from

new

funds

in

ordertopayoffoldfunds.

UnfortunatelyforUDFinvestors,thereareamaterialnumberofinstancesinwhichmanagementhasusedfunds

fromthenextfundtoacquireaccruedup(i.e.UNPAID)loansfromapriorfund,includingcasesinwhichloans

issuedbyUDFtoCenturionarecollateralizedbylandthathasneverbeendeveloped(foryears,notquarters).

Oneexample,ShahanPrairie,hasalreadybeenmadepubliclyavailable: (http://hvst.co/1IQPYL6). This

UNDEVELOPEDlandhasbeenownedbyCenturionandfinancedbyvariousUDFfundsforover10years. Intheir

response,managementdidnotrefutethisbalancesheetparalyzingfact,butinsteadmadethepreposterious

claimthatitwasallpartofthelifecycleofasinglefamilyresidentialdevelopment,fromlandacquisitionand

developmenttothesaleoffinishedlotstohomebuilders. Thisclaimispurecomedythereissimplyno

development.As

evidenced

by

the

photographs

from

November

2015,

Shahan

Prairie

continues

to

consist

of

undevelopedlandand,byitsownadmission,hasnotgeneratedanyrevenueinthepast10years.

Managementprovidesnoexplanation(becauseitcannot)astohowitmakeseconomicsensetofinancethis

projectata13%interestratefor10yearswithoutevergeneratinganyincome. Nosanedeveloperwould

seriouslyarguethata10yeardevelopmentlifecycleforundevelopedlandthathasnotgeneratedanyincome

allthewhileaccruinginterestat13%makesanysensewhatsoever. Well,thatswhatUDFsmanagement

wouldhaveshareholdersbelieve.The10yearlifecycleincludesalotofbobbingandweaving,about

everythingexceptroads,utilities,houses,people,andcashgenerated.VisitShahanPrairie.Seeforyourself.


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ShahanPrairieisjustoneexampleofmanytocome. LoanstoCenturionregularly(i)donotgenerateanycash

(principalorinterest),(ii)areextendedwithoutanyextensionfees(trythatonewithabank),and(iii)accrue

largerandlargerbalances(yearafteryear). Allwhilethelandremainsundevelopedforyears(somenow

approachingadecade).Areinvestors(andtheauthorities)reallygoingtobelievethatloansthatbehavein

thismanner

are

arms

length?

Managementssocalledresponseincludesapartialexplanationthat[b]ecauseextensionsareanormalpartof

ourbusiness,wegenerallydonotchargeanextensionfee.Extensionsarealsoanormalpartofbanklending.

Whenabankgrantsanextension,ittypicallydoessoforafee.

Theoldsayingifyouowethebank$100that'syourproblem.Ifyouowethebank$100million,that'sthe

bank'sproblemprobablybestsumsuptherelationshipbetweenUDFandCenturion. Shareholders(andthe

authorities)havetoaskthemselveswhetherloanstoCenturionbehavethiswaybecausetheyare,infact,not

armslengthtransactions? OrisitbecauseCenturionowesamountainofdebttoUDF($585million)that

Centurioncannotrepay? OrisitbecauseMoayedicoownedaprivatejetwithUDFsCEOHollisGreenlaw? Oris

itbecauseMoayediandGreenlawhaveotherfinancialrelationships?

Staytuned.Additionaldetailisintheappendix.

MORERESPONSESTOCOMEWHILEOTHERDETAILEDRESPONSESTOMANAGEMENTCANBEVIEWEDAT:

(http://hvst.co/1IQPXXr/http://hvst.co/1IQQ2KN).

*******************************

TosubmitatiptotheSECsOfficeoftheWhistleblower: https://www.sec.gov/about/offices/owb/owb

tips.shtml.

SECOfficeoftheWhistleblower

100FStreetNE

MailStop5553

Washington,DC20549

Fax:(703)8139322


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8

APPENDIXIDETAILONDEFICIENCYNOTES,RELATEDPARTY

ThefinancialtableincludedbelowisthebalancesheetforUMTHoldings(UMTH)fortheperiodended

December31,2014whichwasattachedasExhibit99.1toUMTsForm10KfortheperiodendedDecember31,

2014.TheholeinUMTHsbalancesheetisprimarilyduetothedeficiencynoteowedtoUMTHwhichisclassified

asNotes

payable

related

parties.


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BelowisanorganizationchartthatshowshowUMTHfitsintothecomplexwebofaffiliates.

Belowis

adisclosure

from

UDF

IVs

10

Kfiled

for

the

period

ended

December

31,

2014

that

shows

exactly

who

ownsUMTH,noticetheinsiders.


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BelowisUMTsdisclosureonwhatadeficiencynoteactuallyis:arealizedloss.Thisdisclosureissourcedfrom

UMTsForm10QforthequarterendedSeptember30,2015:


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UMTHowns99.9%ofUMTHLendingCompany,L.P.(UMTHLC)whichdirectlyfacesUMTwhichiswhythe

deficiencynoteisconsolidatedinUMTHsfinancialstatements.

BelowisacomplexwebofotheraffiliatedrelationshipsinvolvingUMTHandUMTthatfurtherquestion

managementscredibility. NotethatUMTisowedarevolvinglineofcreditbyUDFIandnotethatUDFIIIowns

anequityinterestinfouraffiliatesownedbyinsiders:RAFC,SCMI,CRC,andWFI.Alsonotethatthesefour

entitiesallowerecourseobligationstoUMT.Whatisarecourseobligation?Itisthesamethingasa

deficiencynote,arealizedlossthatwasnotrecognizedbyUMT.AndwhydoesUDFIIIownequityinentities

thatareunabletorepayrecourseobligationstoUMT?


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APPENDIXIIEXAMPLESOFLOANPATTERNSFORCENTURION

AROLLINGLOANGATHERSNOLOSS.

ThetablesbelowwerecreatedbyreviewinguptotwelveSECfilingsforeachindividualUDFIVloans(Forms10

Qand

Forms

10

K).

The

information

in

the

tables

below

is

sourced

directly

from

UDF

IV

tabular

disclosures.

Unfortunately,UDFIVdoesnotmakeitthiseasytoseethetrendsandtoseeexactlywhatishappeningfrom

periodtoperiod.AtypicalinvestorofUDF(retailmomsandpops)isnotproficientinreviewingSECfilingsand

combingthroughnumerousdifferentfilingstounderstandwhatishappeningwhichispartlywhytheissueswith

UDFarehardtorecognize.

EachloandetailedbelowisowedbyUDFslargestgroupofrelatedborrowers.Thefollowingelevenloans

accountforanoutstandingbalanceof$166millionatSeptember30,2015,accordingtoUDFIVsForm10Q,

representing26%oftheoutstandingbalanceofallUDFIVloansand40%ofallloansissuedtoUDFIVslargest

borrower.Whilesignificantlymoreloansalsodemonstrateirregularities,thissamplesetisrepresentativeof

loanstothisdeveloper.Asdiscussedpreviously,loanstothisdeveloperregularly(i)donotgenerateanycash

(principalor

interest),

(ii)

are

extended

without

fees,

and

(iii)

accrue

larger

and

larger

balances.

All

while,

in

numerousinstances,landremainsundevelopedforyears,innumerousinstances.


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Documents

UDF-1