UNITED MORTGAGE TRUST - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - UNITED MORTGAGE TRUST	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - UNITED MORTGAGE TRUST	v409682_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - UNITED MORTGAGE TRUST	v409682_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number: 000-32409

UNITED MORTGAGE TRUST

(Exact name of registrant as specified in its charter)

Maryland	75-6493585
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1301 Municipal Way, Suite 220

Grapevine, Texas 76051

(Address of principal executive offices)(Zip Code)

(214) 237-9305

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

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

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

x Smaller Reporting Company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x

The number of shares outstanding of the Registrant’s shares of beneficial interest, par value $0.01 per share, as of the close of business on May 15, 2015 was 6,427,821.

UNITED MORTGAGE TRUST

INDEX

PART I - FINANCIAL INFORMATION

		Page
ITEM 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2015 (unaudited) and December 31, 2014 (audited)	3
	Consolidated Statements of Operations for the three months ended March 31, 2015 and March 31, 2014 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and March 31, 2014 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	32
ITEM 4T.	Controls and Procedures	33

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	33
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3.	Defaults Upon Senior Securities	35
ITEM 4.	Mine Safety Disclosures	35
ITEM 5.	Other Information	35
ITEM 6.	Exhibits	35
	Signatures	37

UNITED MORTGAGE TRUST

CONSOLIDATED BALANCE SHEETS

	March 31, 2015			December 31, 2014
	(unaudited)			(audited)
Assets:
Cash and cash equivalents	$	68,370		$	984,841

Mortgage investments:
Investment in trust receivable		486,561			536,084
Investment in residential mortgages		159,375			159,375
Interim mortgages, related party		15,830,254			15,830,254
Allowance for loan losses		(105,462	)		(105,462	)
Total mortgage investments, net		16,370,728			16,420,251

Lines of credit receivable, related parties		80,972,684			90,844,122
Lines of credit receivable		18,741,952			15,706,986
Accrued interest receivable		2,739,819			4,234,105
Accrued interest receivable, related parties		1,827,808			13,025,687
Reserves – accrued interest receivable		(1,620,749	)		(5,027,174	)
Recourse obligations, related parties		20,916,389			20,190,990
Real estate owned, net		4,429,165			4,439,004
Deficiency notes		3,235,770			3,258,330
Deficiency note, related party		42,944,601			28,739,855
Allowance for loan losses – deficiency notes		(801,447	)		(591,447	)
Other assets		299,146			394,783

Total assets	$	190,124,236		$	192,620,333

Liabilities and Shareholders’ Equity
Liabilities:
Dividends payable	$	311,000		$	311,000
Lines of credit payable		14,194,246			13,805,860
Accounts payable and accrued liabilities		649,849			616,341
Accounts payable and accrued liabilities, related parties		874,624			526,431
Participation payable, related parties		72,208,302			74,686,618
Notes payable		7,370,156			7,420,156
Total liabilities		95,608,177			97,366,406

Commitments and contingencies

Shareholders’ Equity:
Shares of beneficial interest; $.01 par value; 100,000,000 shares authorized; 8,378,688 and 8,375,363 shares issued in 2015 and 2014, respectively; and 6,430,547 and 6,431,960 shares outstanding in 2015 and 2014, respectively		83,787			83,754
Additional paid-in capital		148,014,168			147,965,964
Cumulative distributions in excess of earnings		(20,669,598	)		(19,523,383	)
		127,428,357			128,526,335
Less treasury stock of 1,948,141 and 1,943,403 shares of beneficial interest in 2015 and 2014, respectively, at cost		(37,428,568	)		(37,359,812	)
Total United Mortgage Trust shareholders’ equity		89,999,789			91,166,523
Noncontrolling interest		4,516,270			4,087,404
Total equity		94,516,059			95,253,927
Total liabilities and shareholders’ equity	$	190,124,236		$	192,620,333

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended March 31,
	2015			2014
Interest Income:
Interest on loans – related parties	$	584,707		$	854,384
Interest on loans		599,411			353,796
Total interest income		1,184,118			1,208,180

Interest Expense:
Long term debt – related parties		60,973			41,960
Long term debt		342,767			255,268
Total interest expense		403,740			297,228
Net interest income		780,378			910,952

Provision for loan losses		210,000			475,842
Net interest income after provision for loan losses		570,378			435,110

Noninterest Expense:
Trust administration fee – related parties		250,000			250,000
Loan servicing fee – related parties		133			146
General and administrative – related parties		184,618			21,876
General and administrative		238,781			52,958
Total noninterest expense		673,532			324,980

Net income (loss)	$	(103,154	)	$	110,130
Less: net income attributable to noncontrolling interest		(111,284	)		-
Net income (loss) attributable to holders of shares of beneficial interest	$	(214,438	)	$	110,130
Net income (loss) per share of beneficial interest	$	(0.03	)	$	0.02

Weighted average shares outstanding		6,430,649			6,438,493

Distributions per weighted average shares outstanding	$	0.14		$	0.14

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three Months Ended March 31,
	2015			2014
Operating Activities
Net income (loss)	$	(103,154	)	$	110,130
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for loan losses		210,000			475,842
Depreciation and amortization		4,125			4,125
Changes in assets and liabilities:
Accrued interest receivable		70,602			(15,046	)
Accrued interest receivable, related parties		(293,705	)		(706,165	)
Other assets		91,512			1,383,771
Accounts payable and accrued liabilities		20,112			(261,050	)
Accounts payable and accrued liabilities, related parties		456,733			33,500
Net cash provided by operating activities		456,225			1,025,107

Investing Activities
Principal receipts on trust receivables		49,523			31,394
Principal receipts on residential mortgages		-			1,835
Principal receipts on deficiency notes		22,560			1,825
Principal receipts on interim mortgages and deficiency notes, related parties		504,348			152,011
Investments in recourse obligations, related parties		-			(2,157	)
Principal receipts from recourse obligations, related parties		22,695			-
Principal investments in lines of credit receivable		(4,605,032	)		(1,493,941	)
Principal receipts from lines of credit receivable		2,906,303			-
Proceeds from sale of real estate owned		9,839			103,467
Net cash used in investing activities		(1,089,764	)		(1,205,566	)

Financing Activities
Proceeds from issuance of shares of beneficial interest		48,237			55,911
Borrowings on lines of credit payable		1,545,408			1,444,064
Repayments on lines of credit payable		(1,157,022	)		(1,128,543	)
Proceeds from notes payable		-			190,000
Principal payments on notes payable		(50,000	)		-
Purchase of treasury stock		(68,756	)		(68,046	)
Distributions to shareholders of beneficial interest		(931,776	)		(932,726	)
Distributions to noncontrolling interest		(44,023	)		-
Proceeds from noncontrolling interest preferred equity units		375,000			-
Net cash used in financing activities		(282,932	)		(439,340	)

Net decrease in cash and cash equivalents		(916,471	)		(619,799	)
Cash and cash equivalents at beginning of period		984,841			1,108,300
Cash and cash equivalents at end of period	$	68,370		$	488,501

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

	Three Months Ended March 31,
	2015			2014
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	284,600		$	216,013
Supplemental Disclosure of Noncash Activity:
Increase in residential mortgages	$	-		$	47,749
Decrease in participation receivable, related parties	$	2,478,316		$	-
Increase in participation payable, related parties	$	(2,478,316	)	$	-
(Increase) decrease in participation accrued interest receivable, related parties	$	(108,540	)	$	(1,615,623	)
Increase in participation accrued interest payable, related parties	$	108,540		$	1,615,623
Decrease in accrued interest receivable, related parties	$	11,415,330		$	-
(Increase) in lines of credit receivable	$	(1,336,237	)	$	-
Decrease in accrued interest receivable	$	1,483,176		$	-
(Increase) decrease in interim mortgages and deficiency notes, related parties	$	(14,709,094	)	$	317,754
(Increase) in recourse obligations, related parties	$	(4,246,297	)	$	(151,912	)
(Decrease) in real estate owned	$	-		$	(213,592	)
Decrease lines of credit receivable, related parties	$	7,393,122		$	-

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Nature of Business

United Mortgage Trust (the “Company”) is a Maryland real estate investment trust that qualifies as a real estate investment trust (a “REIT”) under federal income tax laws. The Company’s principal investment objectives are to invest our financing proceeds, proceeds from the repayment of our loans, capital transaction proceeds and retained earnings in the following types of investments: (i) lines of credit and secured loans for the acquisition and development of single-family home lots, referred to as “Land Development Loans;” (ii) lines of credit and loans secured by developed single-family lots, referred to as “Finished Lot Loans;” (iii) lines of credit and loans secured by completed model homes, referred to as “Model Home Loans;” (iv) lines of credit and loans, with terms of 18 months or less, secured by single family lots and homes constructed thereon, referred to as “Construction Loans;” (v) to provide credit enhancements to real estate developers, homebuilders, land bankers and other real estate investors who acquire real property, subdivide real property into single-family residential lots, acquire finished lots and/or build homes on such lots referred to as “Credit Enhancements;” (vi) discounted cash flows secured by assessments levied on real property; and (vii) senior or subordinate securities backed by finished lot loans and/or development loans referred to as “Securitizations.” We collectively refer to the above listed loans as “Mortgage Investments.” Additionally, our portfolio includes obligations of affiliates of our Advisor, which we refer to as “Recourse Obligations” and “Deficiency Notes.”

The Company has no employees. The Company pays a monthly trust administration fee to UMTH General Services, L.P. (“UMTHGS” or “Advisor”), a subsidiary of UMT Holdings, L.P. (“UMTH”), a Delaware real estate finance company and affiliate, for its services as our advisor. The Company’s offices are located in Grapevine, Texas.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries, in which the Company wholly owns, has a controlling financial interest or both: UMT Home Finance, L.P. (“UMT HF”), UMT Home Finance II, L.P. (“UMT HF II”), UMT Home Finance III, L.P. (“UMT HF III”), United Residential Home Finance, L.P. (“URHF”), UMT LT Trust, UMT Properties, LP and UMT 15^th Street, LP. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2014, included in our Annual Report on Form 10-K filed with the SEC on March 31, 2015. Operating results for the three months ended March 31, 2015, are not necessarily indicative of the results that may be expected for the year ended December 31, 2015.

Recent Accounting Standards and Pronouncements

In May 2014, the 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 core principle of UAS 2014-09 is to 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 and, in doing so, more judgment and estimates may be required 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). 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 2017.

Loan Modification Related Parties – UMTHLC Deficiency Note and Recourse Obligations

Loan Modification

Certain of UMT’s affiliates are indebted to UMT pursuant to certain loan arrangements including (i) Deficiency Notes owing from UMTH Lending Company, L.P. (“UMTHLC”), (ii) Recourse Obligations owing from Capital Reserve Group, Inc., South Central Mortgage, Inc. and Ready America Funding Corp. (“RAFC”) and (iii) certain payment obligations of UMT Holdings, L.P. (“UMTH”) in favor of UMT in connection with an indemnification agreement dated December 31, 2005 (the “Indemnification Agreement”) originally executed by UMTH in favor of RAFC, which Indemnification Agreement secures deficiency obligations owing to RAFC by Wonder Funding Corp., an affiliate of RAFC (“Wonder”).

In late 2013 and early 2014, the foregoing affiliates approached UMT with the proposal to modify the existing loans to:

accelerate the repayment schedule and set repayment amounts on an aggregate indebtedness and reduction basis;

provide additional security on the indebtedness; and

reduce the interest rate to a market rate which would automatically adjust up to 6% upon the failure to make a scheduled payment.

Following an analysis of the proposal, our Board of Trustees approved the proposed modification of the loans effective as of January 1, 2015.

On March 25, 2015, and effective as of January 1, 2015, United Mortgage Trust (“UMT”, “us” or “we”) entered into loan modification agreements (“Agreements”) with certain of its affiliated entities which are indebted to UMT under the above-referenced outstanding loan arrangements.

Summary of Modified Loans

As modified, each of the existing notes evidencing the indebtedness has been amended and the outstanding indebtedness divided into and evidenced by two new notes – Note No. 1, which matures on December 31, 2017, provided that such date shall be extended by one year for each annual transfer of principal made from Note No. 2, and Note No. 2 which matures on December 31, 2017. The forms of the notes, which are identical for each obligor, except for the principal balances, were included as exhibits to the Report on Form 8-K filed on March 30, 2015.

Quarterly, such portion of the outstanding principal balance of Note No. 2 as is necessary to restore the outstanding principal balance of Note No. 1 to its initial principal balance shall be transferred from Note No. 2 to Note No. 1 and such transferred principal balance shall become part of the outstanding principal balance of Note No. 1, payable in accordance with, and subject to all of the terms and conditions of Note No. 1. This process will be repeated for each note until all of the indebtedness has been paid.

The interest rate of all Notes No. 1 is equal to the higher of: (a) 1.75% or (b) the imputed interest/applicable federal rate rules set forth in Sections 483 or 1274 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (“AFR”) and the interest rate on all Notes No. 2 is equal to the higher of: (a) 2.70% or (b) the AFR.

The modified notes require the payment of a minimum cumulative quarterly payment and a minimum cumulative annual payment from all of the obligors. The failure to make the minimum cumulative annual payment within 30 days after notice of such failure or the commission of any act of bankruptcy, general assignment for the benefit of creditors, or any existence of a proceeding under any insolvency or bankruptcy law by or against any obligor constitutes a default under all of the notes. Upon the occurrence of an event of default, the interest rate is automatically increased to 6% per annum from the date of such default until the entire outstanding balance of principal and interest is paid.

Security

Previously, the security for the Deficiency Notes from UMTHLC consisted of the limited guaranty of our Advisor, UMTH General Services, L.P. (“UMTHGS”), including the pledge of up to 33% of the advisory fee received by UMTHGS. Previously, the security for the Recourse Obligations consisted of a pledge of each related party’s respective Class C and Class D ownership units in UMTH and in the case of Wonder, secured by a limited indemnification agreement between UMTH and the Company. This collateral represents capital shares in UMTH and is eligible for, and receives, quarterly distributions from UMTH.

The new cross-collateralized security provided for the modified loans consists of:

The same security as provided earlier plus:

pledge by the limited partners of UMTH of the distributions of previously unencumbered UMTH Series D Units;

assignment by UMTH of certain fees to which UMTH is entitled under certain securitization transactions;

assignment general partnership distributions by UMTH as the general partner of United Residential Home Finance, L.P.

assignment of general partnership distributions by UMT HF GP Manager, LLC as the general partner of UMT Home Finance III, L.P.;

assignment of general partnership distributions by UMT HF GP Manager, LLC as the General Partner of UMT Home Finance II, LP;

assignment of general partnership distributions by UMT HF Manager, LLC as the General Partner of UMT Home Finance, LP;

assignment of general partner distributions by UMT HF GP MANAGER, LP as the General Partner of UMT Residential Home Finance, L.P.;

assignment by UMTH Land Development, L.P. (“UMTHLD”) of all loan origination and servicing fees payable to UMTHLD with respect to construction loans originated by UMTHLD in which loans the Obligors take an invested interest; and

assignment by UMTHGS of all advisory and debt placement fees payable to it under the Advisory Agreement dated effective January 1, 2009 between UMT and UMTHGS.

Application of the proceeds from foreclosure upon the security on the modified notes will be applied to the outstanding indebtedness of the various affiliates in a specified order of priority as described in the summary of security provided below.

The assignments of fees and assignments of limited and general partnership distributions are respectively essentially identical, for each assignee except as regards the entity involved, specific fees and the number of units being assigned. Forms of those assignments, charts summarizing the modified loans and the security on the modified loans are included in the exhibits to our Report on Form 8-K filed on March 30, 2015.

Deficiency Notes – Related Party and Non Related Party

The Company has made loans in the normal course of business to related parties and non-related parties, the proceeds from which have been used to originate underlying loans that are pledged to the Company as security for such obligations. When principal and interest on an underlying loan is due in full, at maturity or otherwise, the corresponding obligation owed by the originating company to the Company is also due in full. If the borrower or the Company foreclosed on property securing an underlying loan, or if the Company foreclosed on property securing a purchased loan, and the proceeds from the sale were insufficient to pay the loan in full, the originating company had the option of (1) repaying the outstanding balance owed to the Company associated with the underlying loan or purchased loan, as the case may be, or (2) delivering to the Company an unsecured deficiency note in the amount of the deficiency.

As of March 31, 2015, the Company had two deficiency notes with non-related parties totaling approximately $3,236,000. One note in the amount of approximately $1,703,000 bears interest at a rate of 14% per annum. The second note in the amount of approximately $1,533,000 had a reserve of approximately $801,000. The Company does not accrue interest on this note as the underlying collateral value approximates the note balance, net of reserves.

As of December 31, 2014, the Company had two deficiency notes with non-related parties totaling of approximately $3,258,000. One note in the amount of approximately $1,725,000 bears interest at a rate of 14% per annum. The second note in the amount of approximately $1,533,000 had a reserve of approximately $591,000. The Company does not accrue interest on this note as the underlying collateral value approximates the note balance, net of reserves.

As of December 31, 2007, UMTH Lending Company, L.P. (“UMTHLC”) issued to the Company a variable amount promissory note in the amount of $5,100,000 to evidence its deficiency obligations to the Company. The initial principal amount of the note was approximately $1,848,000. The principal balance as of December 31, 2014 was approximately $28,740,000. Effective January 1, 2015, UMT entered into a loan modification agreement (“Agreement”) with UMTH in which the UMTHLC indebtedness is evidenced by two notes – Note 1 which bears interest at the rate of 1.75% and Note 2 which bears interest at the rate of 2.70%. Both notes mature on December 31, 2017. Under the terms of the modification agreement the following amounts were rolled into the modified UMTHLC Deficiency Note: (1) accrued interest of approximately $3,333,000, (2) the principal balance and related accrued interest of the UMTHLC Promissory Note of approximately $11,376,000. As of March 31, 2015, the total outstanding principal balance of the modified UMTHLC Deficiency Notes was approximately $42,945,000. From December 31, 2007 through March 31, 2015 the Company has received approximately $9,814,000 in aggregate principal and interest payments under the UMTHLC Promissory Note. Please see Note 4 above for additional information regarding the Agreement.

On a quarterly basis, the Company conducts a review of the underlying borrowers and third party guarantors in order to assess their ability to perform their obligations under the terms of the Deficiency Notes based on updated five year forecasts of future cash flows of the underlying borrowers and guarantors. Such ability to perform is principally dependent upon the borrower’s and obligor’s ability to realize cash flows from distributions derived from the pledged collateral sufficient to meet their respective current operational needs, as well as to provide liquidity to fund the debt service requirements under the Company’s notes. Such review includes, but is not limited to the following related to the guarantor: analyzing current financial statements and operating results, analyzing projected future operating results and validating the assumptions used to generate such projections, forecasting future cash flows and assessing the adequacy of these cash flows to service the Company’s notes, conducting discussions with and obtaining representations from the guarantors’ management with respect to their current and projected operating results. Based on such reviews, the Company has concluded that the guarantor has the ability to perform under their repayment obligations and that the Deficiency Note balance is fully realizable over their terms. Accordingly, the Company has not recorded any reserves on these loans.

Related Party Transactions

1) UMTH is a Delaware limited partnership which is in the real estate finance business. UMTH holds a 99.9% limited partnership interest in UMTHLC, which originated interim loans that were assigned to the Company, UMTH Land Development, L.P., (“UMTHLD”), a Texas limited partnership which holds a 50% profit interest in United Development Funding, L.P., (“UDF”) a Nevada limited partnership that is affiliated with the Company’s Advisor, UMTHGS and acts as UDF's asset manager, and Prospect Service Corp. (“PSC”), which services the Company’s residential mortgages and contracts for deed and manages the Company’s real estate owned (“REO”). In addition, UMTH has a limited guarantee of the obligations of Capital Reserve Group (“CRG”), Ready America Funding Corp (“RAFC”), and South Central Mortgage, Incorporated (“SCMI”), a Texas corporation that sold mortgage investments to the Company, under the Secured Notes (see the discussion under “Recourse Obligations” below). United Development Funding III, L.P., a Delaware limited partnership, (“UDF III”) which is managed by UMTHLD, has previously provided a limited guarantee of the line of credit extended by the Company to UDF and has purchased an economic participation in a revolving credit facility the Company provided to UDF.

2) UMTHLC is a Delaware limited partnership, and subsidiary of UMTH. The Company has loaned money to UMTHLC so it can make loans to its borrowers. The loans are collaterally assigned to the Company as security for the promissory note between UMTHLC and the Company. On March 26, 2009, the Company executed a secured line of credit promissory note with UMTHLC in the amount of $8,000,000. The note bears interest at 12.50% per annum, matured on September 26, 2012 and is secured by first lien mortgage interests in single family residential properties. The outstanding principal balance on this line of credit at December 31, 2014 was approximately $7,577,000. Effective January 1, 2015, the outstanding principal balance on this line of credit and related accrued interest of approximately $3,800,000 was rolled into the UMTHLC Deficiency Note in accordance with the Agreement described in Note 4 above.

See Note 5 above for discussion of additional related party transactions with UMTHLC.

3) CRG is a Texas corporation that is 50% owned by Todd Etter and William Lowe, partners of UMTH, which owns the Advisor. CRG was in the business of financing home purchases and renovations by real estate investors. The Company loaned money to CRG to make loans to other borrowers. During 2006 the Company took direct assignment of the remaining loans from CRG with full recourse.

4) RAFC is a Texas corporation that is 50% owned by SCMI, which is owned by Todd Etter. RAFC is in the business of financing interim loans for the purchase of land and the construction of modular and manufactured single-family homes placed on the land by real estate investors. The Company continues to directly fund obligations under one existing RAFC loan, which was collaterally assigned to the Company, but does not fund new originations and the Company is in the process of foreclosing on the collateral in California. The unpaid principal balance of the loans at March 31, 2015 and December 31, 2014 was approximately $15,830,000, respectively.

5) Wonder Funding, LP (“Wonder”) is a Delaware limited partnership that is owned by RMC. RMC is beneficially owned by Craig Pettit, a partner of UMTH and the sole proprietor of two companies that own 50% of RAFC. Wonder is in the business of financing interim loans for the purchase of land and the construction of single family homes and the purchase and renovation of single family homes. The Company has ceased funding any new originations. As of March 31, 2015 and December 31, 2014, respectively, all remaining obligations owed by Wonder to the Company are included in the recourse obligations discussed below.

6) Recourse Obligations. The Company has made recourse loans to (a) CRG, which is a Texas corporation that is 50% owned by Todd Etter (a UMTH partner) and William Lowe (a former UMTH partner), which owns the Advisor, (b) RAFC, which is owned by SCMI and two companies owned by Craig Pettit, Eastern Intercorp, Inc. and RMC, and (c) SCMI, which is owned by Todd Etter, (these companies are referred to as the "originating companies"). In addition to the originating companies discussed above, the Company made loans with recourse to Wonder. Each of these entities used the proceeds from such loans to originate loans, that are referred to as "underlying loans," that are pledged to the Company as security for such originating company's obligations to the Company. When principal and interest on an underlying loan are due in full, at maturity or otherwise, the corresponding obligation owed by the originating company to the Company is also due in full.

In addition, some of the originating companies have sold loans to the Company, referred to as the "purchased loans," and entered into recourse agreements under which the originating company agreed to repay certain losses the Company incurred with respect to purchased loans.

If the originating company forecloses on property securing an underlying loan, or the Company forecloses on property securing a purchased loan, and the proceeds from the sale are insufficient to pay the loan in full, the originating company has the option of (1) repaying the outstanding balance owed to the Company associated with the underlying loan or purchased loan, as the case may be, or (2) delivering an unsecured Deficiency Note in the amount of the deficiency to the Company.

On March 30, 2006, but effective December 31, 2005, the Company and each originating company agreed to consolidate (1) all outstanding amounts owed by such originating company to the Company under the loans made by the Company to the originating company and under the Deficiency Notes described above and (2) the estimated maximum future liability to the Company under the recourse arrangements described above, into secured promissory notes (“Recourse Obligations”). Each originating company issued to the Company a secured variable amount promissory note dated December 31, 2005 (the “Secured Notes”) in the principal amounts shown below, which amounts represent all principal and accrued interest owed as of such date. The initial principal amounts are subject to increase if the Company incurs losses upon the foreclosure of loans covered by recourse arrangements with the originating company. The Secured Notes (including related guaranties discussed below) are secured by an assignment of the distributions on the Class C units and Class D units of limited partnership interest of UMT Holdings held by each originating company.

Name	Initial principal amount		Balance at March 31, 2015		Promissory Note principal amount (2)		Units/ indemnification pledged as security	C Units distributed during 2015	Units/ indemnification remaining	Estimated Collateral Value (3)
CRG	$	2,725,442	$	4,847,503	$	4,300,000	4,984 Class C and 2,710 Class D	23	2,452 Class C and 2,710 Class D	$	5,027,000
RAFC	$	3,243,369	$	10,182,018	$	7,100,000	11,228Class C & 6,659 Class D	81	8,148 Class C & 6,659 Class D	$	10,560,000
SCMI	$	3,295,422	$	3,785,037	$	3,488,643	4,545 Class C and 3,000 Class D	9	1,254 Class C and 3,000 Class D	$	3,656,000
RAFC / Wonder(1)	$	1,348,464	$	2,101,831	$	1,400,000	1,657 Class C	14	1,456 Class C	$	1,471,000
Wonder Indemnification (1)		n/a		n/a		n/a	$1,134,000	-	n/a	$	822,000
Totals	$	10,612,697	$	20,916,389	$	16,288,643				$	21,536,000

(1)

Wonder is collateralized by an indemnification agreement from RMC in the original amount of $1,134,000, of which approximately $822,000 remains, and the pledge of 3,870 C Units. 2,213 of the pledged C Units also cross-collateralize the RAFC obligation.

(2)

The CRG, RAFC, SCMI and Wonder balances at March 31, 2015, exceeded the stated principal amount per their variable Secured Notes by approximately $547,000, $3,082,000, $296,000 and $702,000, respectively. Per the terms of the Secured Notes, the unpaid principal balance may be greater or less than the initial principal amount of the note and is not considered an event of default. The rapid rate of liquidation of the remaining portfolio of properties caused a more rapid increase in the Unpaid Principal Balance (“UPB”) than originally anticipated and outpaced the minimum principal reductions scheduled for the loans.

(3)

Estimated collateral value reflects pledge of C and D units of limited partnership interest of UMTH held by WLL, Ltd. (“WLL”), RAFC and KLA, Ltd. (“KLA”) UMTH D units represent equity interests in UMT Holdings, LP. Pledge of the UMTH D units entitles the beneficiary to a pro-rata share of UMTH partnership D unit cash distributions.

Through September 2007, the Secured Notes incurred interest at a rate of 10% per annum. The CRG, RAFC, and RAFC/Wonder Secured Notes amortize over 15 years. The SCMI Secured Note amortizes over approximately 22 years, which was the initial amortization of the deficiency notes from SCMI that were consolidated. The Secured Notes required the originating company to make monthly payments equal to the greater of (1) principal and interest amortized over 180 months and 264 months, respectively, or (2) the amount of any distributions paid to the originating company with respect to the pledged Class C units. Effective October 2007, the recourse loans were modified to accommodate the anticipated increases in principal balances throughout the remaining liquidation periods of the underlying assets, modify the amortization schedules for the period of July 2007 through June 2009, and reduce the interest rate from 10% to 6%. The above modifications were extended through December 31, 2014.

Effective January 1, 2015, UMT entered into loan modification agreements with certain of its affiliated entities which are indebted to UMT under certain outstanding loan arrangements including Recourse Obligations owing from Capital Reserve Group, Inc., South Central Mortgage, Inc., Ready America Funding Corp. (“RAFC”) and (iii) certain payment obligations of UMT Holdings, L.P. (“UMTH”) in favor of UMT in connection with an indemnification agreement dated December 31, 2005 (the “Indemnification Agreement”) originally executed by UMTH in favor of RAFC, which Indemnification Agreement secures deficiency obligations owing to RAFC by Wonder Funding Corp., an affiliate of RAFC (“Wonder”). The total principal balance of all Recourse Obligations at December 31, 2014 was approximately $20,191,000. Effective January 1, 2015, UMT entered into loan modification agreements (“Agreements”) with certain of its affiliated entities which are indebted to UMT under certain outstanding loan arrangements including Recourse Obligations owing from Capital Reserve Group, Inc., South Central Mortgage, Inc., Ready America Funding Corp. (“RAFC”). Under the terms of the Agreements, the Recourse Obligation indebtedness, owed by each affiliated entity, is evidenced by two notes – Note 1 which bears interest at the rate of 1.75% and Note 2 which bears interest at the rate of 2.70%. Both notes mature on December 31, 2017. Under the terms of the Agreements, net accrued interest of approximately $748,000 was added to the principal balance of the Recourse Obligations. As of March 31, 2015, the total outstanding principal balance of the Recourse Obligations was approximately $20,916,000. From December 31, 2005 through March 31, 2015 the Company has received approximately $5,733,000 in aggregate principal and interest payments under the Recourse Obligations. Please see Note 4 above for additional information regarding the Agreements.

Management has accounted for these as loan modifications in the normal course of business, and not as a troubled debt restructuring, as the underlying collateral value exceeds the outstanding loan amounts, the modifications did not include an extension of the debt’s original contractual maturity or expected duration, the borrowers and guarantors have obtained third party financing at current market rates, the modified rate represents a premium over current market rates and the risk characteristics of the third party debt obtained is similar to the modified debt. The Company expects to receive full repayment under the loans.

On a quarterly basis, the Company conducts a review of the collateral pledged by the underlying borrowers and third party guarantors in order to assess their ability to perform their obligations under the terms of the Recourse Obligations. The collateral pledged consists of Class C and Class D ownership units of UMTH. These units represent capital shares in UMTH and are eligible for, and receive, quarterly distributions from UMTH. Such ability to perform is principally dependent upon the forecasted cash distributions associated with the pledged collateral and the ability of the distributions to meet the debt service requirements under the Secured Notes. The review includes analyzing projected future distribution sources and amounts, validating the assumptions used to generate such projections, assessing the ability to execute on the business plan, conducting discussions with and obtaining representations from the guarantors’ management with respect to their current and projected distribution amounts. The value of the pledged collateral is estimated using a discounted cash flow model that is reviewed and updated each quarter. Based on such reviews, the Company has concluded that the guarantors have the ability to perform their obligations under the guaranties and that the Recourse Obligations are fully realizable. Accordingly, the Company has not recorded any reserves on these loans.

The Secured Notes have also been guaranteed by the following entities under the arrangements described below, all of which are dated effective December 31, 2005:

UMTH. This guaranty is limited to a maximum of $1,153,426 of all amounts due under the Secured Notes.

WLL, a related party of CRG. This guaranty is of all amounts due under Secured Note from CRG, is non-recourse and is secured by an assignment of 2,492 Class C Units and 1,355 Class D units of limited partnership interest of UMT Holdings held by WLL, Ltd.

RMC. This guaranty is non-recourse, is limited to 50% of all amounts due under the Secured Note from RAFC and is secured by an assignment of 3,870 Class C units of limited partnership interest of UMT Holdings.

Wonder. Wonder Funding obligations are evidenced by a note from RAFC (RAFC/Wonder Note) and are secured by a pledge of a certain Indemnification Agreement given by UMTH to RAFC and assigned to UMT in the amount of $1,134,000, which amount is included in the UMTH limited guarantee referenced above.

SCMI. This guaranty is limited to a maximum of $2,213,000 due under the Secured Note from RAFC and is secured by an assignment of 2,213 Class C units of limited partnership interest of UMTH.

KLA. KLA has given the following limited guaranties: (1) Guaranty of obligations of SCMI under the First Amended and Restated Secured Variable Amount Promissory Note to the Company dated as of October 1, 2007 with a then current principal balance of $3,472,073 and secured by an assignment of 3,000 of Guarantor’s Class D units of partnership interest in UMTH (2) Guaranty of obligations of CRG under the First Amended and Restated Secured Variable Amount Promissory Note dated as of October 1, 2007 with a then current principal balance of $4,053,799 and secured by a pledge of 1,355 of Guarantor’s Class D units of partnership interest in UMTH.

In addition, WLL has obligations to UMTH under an indemnification agreement between UMTH, WLL and William Lowe, under which UMTH is indemnified for certain losses on loans and advances made to William Lowe by UMTH. That indemnification agreement allows UMTH to offset any amounts subject to indemnification against distributions made to WLL with respect to the Class C and Class D units of limited partnership interest held by WLL. Because WLL has pledged these Class C and Class D units to the Company to secure its guaranty of Capital Reserve Corp.'s obligations under its Secured Note, UMTH and the Company entered into an Intercreditor and Subordination Agreement under which UMTH has agreed to subordinate its rights to offset amounts owed to it by WLL to the Company’s lien on such units.

These loans were reviewed by management and no loss reserves on principal amounts are deemed necessary at March 31, 2015.

7) On June 20, 2006, the Company entered into a Second Amended and Restated Secured Line of Credit Promissory Note as modified by an amendment effective September 1, 2006 (the "Amendment") with UDF; a Nevada limited partnership that is a related party of the Company's Advisor, UMTHGS. The Amendment increased an existing revolving line of credit facility ("Loan") to $45 million. The purpose of the Loan is to finance UDF's loans and investments in real estate development projects. On July 29, 2009, our trustees approved an amendment to increase the revolving line of credit facility to an amount not to exceed $60,000,000. Effective December 31, 2010, the loan was extended for a period of one year and the loan amount was increased from $60,000,000 to $75,000,000. Effective September 30, 2014, the line of credit was increased from $82,000,000 to $84,674,672 and effective December 31, 2014, the line of credit was extended and matures on December 31, 2015.

The UDF I Loan is secured by the pledge of all of UDF's Land Development Loans and equity investments pursuant to the First Amended and Restated Security Agreement dated as of September 30, 2004, executed by UDF in favor of UMT (the “Security Agreement”). Those UDF loans may be first lien loans or subordinate loans.

The Loan interest rate is the lower of 15% or the highest rate allowed by law, further adjusted with the addition of a credit enhancement to a minimum of 14%. Effective October 1, 2013, the loan was extended to December 31, 2014 and the base interest rate was decreased to a rate of 9.25%. Effective December 31, 2014, the line of credit was extended and matures on December 31, 2015.

UDF may use the UDF I Loan proceeds to finance indebtedness associated with the acquisition of any assets to seek income that qualifies under the Real Estate Investment Trust provisions of the Internal Revenue Code to the extent such indebtedness, including indebtedness financed by funds advanced under the UDF I Loan and indebtedness financed by funds advanced from any other source, including Senior Debt, is no more than 85% of 80% (68%) of the appraised value of all subordinate loans and equity interests for land development and/or land acquisition owned by UDF and 75% for first lien secured loans for land development and/or acquisitions owned by UDF.

On September 19, 2008, UMT entered into an Economic Interest Participation Agreement with UDF III pursuant to which UDF III purchased (i) an economic interest in the UDF I Loan.

Pursuant to the Economic Interest Agreement, each time UDF requests an advance of principal under the UDF I Loan, UDF III will fund the required amount to UMT and UDF III’s economic interest in the UDF I Loan increases proportionately. Because these advances are funded by UDF III and UMT recognizes an offsetting participation payable amount to UDF III, the Company does not earn any net interest income on the advances made under the Economic Interest Participation Agreement. UDF III’s economic interest in the UDF I Loan gives UDF III the right to receive payment from UMT of principal and accrued interest relating to amounts funded by UDF III to UMT which are applied towards UMT’s funding obligations to UDF under the UDF I Loan. UDF III may abate its funding obligations under the Economic Participation Agreement at any time for a period of up to twelve months by giving UMT notice of the abatement.

The Option gives UDF III the right to convert its economic interest into a full ownership participation interest in the UDF I Loan at any time by giving written notice to UMT and paying an exercise price of $100. The participation interest includes all rights incidental to ownership of the UDF I Loan and the Security Agreement, including participation in the management and control of the UMT Loan. UMT will continue to manage and control the UDF I Loan while UDF III owns an economic interest in the UDF I Loan. If UDF III exercises its Option and acquires a participation interest in the UMT Loan, UMT will serve as the loan administrator but both UDF III and UMT will participate in the control and management of the UDF I Loan. UDF III had funded approximately $72,209,000 and $74,687,000 to UDF under the Economic Interest Participation Agreement at March 31, 2015 and December 31, 2014, respectively. UMT had funded approximately $8,764,000 and $8,580,000 to UDF under this agreement at March 31, 2015 and December 31, 2014, respectively.

On July 22, 2013, the Company entered into a guaranty agreement (the “URHF Guaranty”) pursuant to which UDF IV guaranteed all amounts due associated with the URHF $15,000,000 revolving credit facility. The Company agreed to pay UDF IV a monthly credit enhancement fee equal to 1/12^thof 1% of the outstanding principal balance on the above term line of credit facility at the end of each month.

The following table summarizes the related party lines of credit receivable as of March 31, 2015 and December 31, 2014:

	2015		2014
UDF I	$	8,764,000	$	8,580,000
UDF III Economic Interest Participation Agreement		72,209,000		74,687,000
UMTHLC		-		7,577,000
Balance, end of period	$	80,973,000	$	90,844,000

8) Loans made to affiliates of the Advisor. The table below sets forth the aggregate principal amount of mortgages funded during the three months ended March 31, 2015 and 2014, respectively, to the companies affiliated with the Advisor, named in the table and aggregate amount of draws made by UDF under the line of credit, during the quarter indicated:

Related Party Company		2015				2014
UDF		$	184,000				-

9) As of August 1, 2006, (now subject to an Advisory Agreement effective January 1, 2009) the Company entered into an Advisory Agreement with UMTHGS. Under the terms of the agreement, UMTHGS is paid a monthly trust administration fee. The fee is calculated monthly depending on the Company’s annual distribution rate, ranging from 1/12th of 1% up to 1/12th of 2% of the amount of average invested assets per month. During the three months ended March 31, 2015 and March 31, 2014, the expenses for the Company’s Advisor were approximately $250,000 for both periods and actual payments were approximately, $88,000, and $250,000, respectively. The Advisor and its related parties are also entitled to reimbursement of costs of goods, materials and services obtained from non-related third parties for the Company’s benefit, except for note servicing and for travel and expenses incurred in connection with efforts to acquire investments for the Company or to dispose of any of its investments. The Company paid the Advisor approximately $19,000 and $34,000, during the three months ended March 31, 2015 and March 31, 2014, respectively, and expensed approximately $19,000 in both the three months ended March 31, 2015 and March 31, 2014, associated with providing shareholder relations activities.

The agreement also provides for a subordinated incentive fee equal to 25% of the amount by which the Company’s net income for a year exceeds a 10% per annum non-compounded cumulative return on its adjusted contributions. No incentive fee was paid during 2015 or 2014. In addition, for each year in which it receives a subordinated incentive fee, the Advisor will receive a 5-year option to purchase 10,000 Shares at a price of $20.00 per share (not to exceed 50,000 shares). As of March 31, 2015, the Advisor has not received options to purchase shares under this arrangement.

The Advisory Agreement provides for the Advisor to pay all of the Company’s expenses and for the Company to reimburse the Advisor for any third-party expenses that should have been paid by the Company but which were instead paid by the Advisor. However, the Advisor remains obligated to pay: (1) the employment expenses of its employees, (2) its rent, utilities and other office expenses and (3) the cost of other items that are part of the Advisor's overhead that is directly related to the performance of services for which it otherwise receives fees from the Company.

The Advisory Agreement also provides for the Company to pay to the Advisor, or a related party of the Advisor, a debt placement fee. The Company may engage the Advisor, or an Affiliate of the Advisor, to negotiate lines of credit on behalf of the Company. UMT shall pay a negotiated fee, not to exceed 1% of the amount of the line of credit secured, upon successful placement of the line of credit. The Company paid no debt placement fees during the three months ended March 31, 2015 and March 31, 2014, respectively, and expensed approximately $21,000 and $20,000, during the three months ended March 31, 2015 and March 31, 2014, respectively. These fees are amortized monthly, as an adjustment to interest expense, over the term of the credit facility agreements described in Note 7.

10) The Company pays loan servicing fees to PSC, a subsidiary of UMTH, under the terms of a Mortgage Servicing Agreement. The Company paid no loan servicing fees in the three month period ended March 31, 2015 and 2014, respectively.

11) The Company pays “guarantee” credit enhancement fees to UDF III, as specified under the terms of the UDF Guarantee agreement. In the three months ended March 31, 2015 and March 31, 2014 the credit enhancement expenses were approximately $40,000 and $22,000, respectively, and the Company paid approximately $16,000, and $18,000 in the three months ending March 31, 2015 and March 31, 2014, respectively.

12) UDF IV, a related party, is reimbursed for its degree of invested “participatory” interest in the Company’s construction loans, the degree of invested interest is not to exceed $2,000,000. The Company made payments of such participation interest, as a net amount against the construction loan interest, in the three months ended March 31, 2015 and March 31, 2014 of approximately $352,000 and $1,058,000, respectively.

13) The Company pays UMTHLD administrative and origination fees for the Construction Loans in which UDF affiliates take an invested interest in. The fees are withheld from construction draws funded to the borrower and are in turn paid directly to UMTHLD. In the three months ended March 31, 2015 and March 31, 2014, payments were made for the above administrative and origination fees of approximately $9,000, and $92,000, respectively.

The table below summarizes the approximate payments associated with related parties for the three months ended March 31, 2015 and 2014:

Related Party Payments:
		For Three Months Ended
Payee	Purpose	March 31, 2015				March 31, 2014
UMTHGS	Trust administration fees	$	88,000	82	%	$	250,000	88	%
UMTHGS	General & administrative - Shareholder Relations		19,000	18	%		34,000	12	%
		$	107,000	100	%	$	284,000	100	%

UDF III	Credit Enhancement Fees		16,000	100	%		18,000	100	%

UDF IV	Participation Interest Paid		352,000	100	%		1,058,000	100	%

UMTHLD	Admin and Origination Fees Paid		9,000	100	%		92,000	100	%

The table below summarizes the approximate expenses associated with related parties for the three months ended March 31, 2015 and 2014:

Related Party Expenses:
		For Three Months Ended
Payee	Purpose	March 31, 2015				March 31, 2014
UMTHGS	Trust administration fees	$	250,000	93	%	$	250,000	93	%
UMTHGS	General & administrative - Shareholder Relations		19,000	7	%		19,000	7	%
UMTHGS	General & administrative - Misc.		-	0	%		-	-
		$	269,000	100	%	$	269,000	100	%

PSC	General & administrative - Misc.		-	-			3,000	100	%
		$	-	-		$	3,000	100	%

UMTH	Debt Placement Fees		21,000	100	%		20,000	100	%

UDF III	Credit Enhancement Fees		40,000	100	%		22,000	100	%

Fair Value of Financial Instruments

The Company calculates the fair value of its assets and liabilities that qualify as financial instruments under this statement and includes additional information in notes to the Company’s consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of accrued interest receivable, accrued interest receivable affiliates and accounts payable and accrued liabilities (including affiliates) approximate the carrying value due to the relatively short maturity of these instruments. The carrying value of investments in residential mortgages, interim mortgages (including affiliates), lines of credit (including affiliates), recourse obligations from affiliates, notes payable, deficiency notes (including affiliates) and the Company’s line of credit payable also approximate fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes.

Lines of Credit Payable

During August 2009, the Company entered into a revolving line of credit facility with Texas Capital Bank for $5,000,000. The line of credit bears interest at prime plus one percent, with a floor of 5.50% and requires monthly interest payments. Principal and all unpaid interest were due at maturity, which was August 2012. Effective September 2012, the line was renewed under the same terms and matures on September 5, 2015. The line is collateralized by a first lien security interest in the underlying real estate financed by the line of credit. The outstanding balance on this line of credit was approximately $4,998,000 and $4,454,000 at March 31, 2015 and December 31, 2014, respectively. This credit facility contains financial covenants that require UMT HF to maintain a leverage ratio, tangible net worth and net income within certain bounds as proscribed in the loan agreement. As of March 31, 2015, the Company was in compliance with all of its debt covenants and none of these covenants restrict the Company’s ability to obtain future financing from other lenders.

On May 27, 2011, the Company entered into a revolving line of credit facility with Veritex Community Bank for $4,300,000. The loan bears interest at prime plus one percent, with a floor of 5.0%, and requires monthly interest payments. Principal and all unpaid interest will be due at maturity which was May 27, 2014. Effective May 27, 2014 this term line of credit facility was renewed with the lender, the loan commitment was increased to $5,000,000 and principal and all unpaid interest will be due at maturity, May 27, 2017. All other terms remain the same. The loan is collateralized by a first lien security interest in the underlying real estate financed by the loan. The outstanding balance on this loan at March 31, 2015 and December 31, 2014 was approximately $3,106,000 and $3,618,000, respectively. This credit facility contains a financial covenant that requires UMTHF III to maintain a leverage ratio within certain bounds as prescribed in the loan agreement. As of March 31, 2015, the Company was in compliance with all of its debt covenants and none of these covenants restrict the Company’s ability to obtain future financing from other lenders.

On October 26, 2011, the Company entered into a revolving line of credit facility with Green Bank for $5,000,000. The loan bears interest at prime plus one percent, with a floor of 5.0%, and requires monthly interest payments. Principal and all unpaid interest was due at maturity on October 26, 2014. The loan was extended to May 31, 2015. The Company is pursuing refinancing this loan with another bank under the same terms. The loan is collateralized by a first lien security interest in the underlying real estate financed by the loan. The outstanding balance on this loan at March 31, 2015 and December 31, 2014 was approximately $381,000 and $697,000, respectively. This credit facility contains financial covenants that require HF II to maintain a leverage ratio, tangible net worth and total liabilities to tangible net worth within certain bounds as proscribed in the loan agreement. As of March 31, 2015, the Company was in compliance with all of its debt covenants and none of these covenants restrict the Company’s ability to obtain future financing from other lenders.

On July 22, 2013, the Company entered into a revolving line of credit facility with Southwest Bank for $15,000,000. The loan bears interest at prime plus one percent, with a floor of 4.75%, and requires monthly interest payments. Principal and all unpaid interest was due at maturity which was January 16, 2015 for approximately $3,200,000 and May 6, 2017 for the remaining $2,509,000 of the outstanding balance. The loan balance that matured on January 16, 2015 was renewed under the same terms with a new maturity date of January 16, 2018. The loan is collateralized by a first lien security interest in the underlying real estate financed by the loan. The outstanding balance on this loan at March 31, 2015 and December 31, 2014 was approximately $5,709,000 and $5,037,000, respectively. This credit facility contains financial covenants that require URHF to maintain an interest coverage ratio, tangible net worth and leverage ratio within certain bounds as proscribed in the loan agreement. As of March 31, 2015, the Company was in compliance with all of its debt covenants and none of these covenants restrict the Company’s ability to obtain future financing from other lenders.

Below is a Five Year Maturity Schedule of all lines of credit payable:

Lines of Credit Payable Maturity	Amount
2015	$	5,379,000
2016		-
2017		5,615,000
2018		3,200,000
2019		-
Thereafter		-
Total	$	14,194,000

Notes Payable

On April 21, 2010, the Company entered into a term loan credit facility with Community Trust Bank for $1,600,000. The note payable bears interest at prime plus one percent, with a floor of 7.0%, and requires monthly interest payments. Principal and all unpaid interest were due at maturity which was October 21, 2012. The term loan credit facility was extended effective December 21, 2012 with an amended maturity date of December 19, 2013, and an interest rate reduction from 7.0% to 5.5%. Effective February 19, 2014, a modification extended the maturity date to February 19, 2015. Effective February 18, 2015, a modification was executed extending the maturity date to July 30, 2016. The loan is collateralized by a first lien security interest in the underlying real estate financed by the loan. The outstanding balance on this loan at both March 31, 2015 and December 31, 2014 was approximately $569,000.

On January 27, 2011, the Company initiated a private offering of Secured Subordinated Notes (“Notes,” to accredited investors “Note Holders”). The Notes are being offered through a wholly - owned subsidiary, UMT Home Finance II, L.P. (“HF II”). HF II is a Delaware limited partnership that was formed on November 29, 2010 as a Special Purpose Entity, for the purpose of originating and holding loans made to fund the acquisition of finished lots and the construction of single-family homes on the subject lots (“Loans”). HF II will issue up to $5 million in 7.5% Notes. The Notes will be secured by an undivided security interest on the pool of loans owned by HF II. The offering of the Notes is not registered under the Securities Act, in reliance upon the exemption from registration for non-public offerings provided by Rule 506 of Regulation D promulgated under the Securities Act of 1933. Periodic payments are due and payable through December 2019. As of March 31, 2015 and December 31, 2014, approximately $4,749,000 was outstanding.

As of March 31, 2015 and December 31, 2014, the Company had twenty-three notes payable to various non-related parties totaling approximately $2,052,000 and $2,102,500, respectively. These Notes bear interest at the rate of 7.5% per annum and require interest only payments on a monthly basis. These Notes are secured by an undivided security interest in the pool of construction loans funded for the construction of single-family homes by UMT Home Finance, L.P. a wholly-owned and consolidated subsidiary of United Mortgage Trust.

Below is a Five Year Maturity Schedule of all notes payable:

Notes Payable Maturity	Amount
2015	$	-
2016		569,000
2017		300,000
2018		305,000
2019		4,697,000
Thereafter		1,499,000
Total	$	7,370,000

10.

URHF Preferred Equity Offering

On February 24, 2014, the Company initiated a private offering of Preferred Limited Partner Equity Units (“Preferred Equity Units”) to accredited investors (“Preferred Equity Unit Holders”). The Preferred Equity Units to Preferred Equity Unit Holders are being offered by URHF. URHF is a Delaware limited partnership formed for the purpose of investing in loans made to fund the acquisition of land and development of single family lots, loans for the acquisition of finished lots, loans secured by model homes and loans for the construction of new homes (“Loans”). URHF will issue up to $15.5 million in 5.5% Preferred Limited Partner Equity Units to Preferred Equity Unit Holders who will become Limited Partners in URHF. Each Preferred Equity Unit represents a 0.3225% ownership interest in the Partnership based upon a total of three hundred ten (310) Preferred Units. Preferred Equity Unit ownership interest does not include a General Partner Interest or a Limited Partner Interest owned by the Original Limited Partner, United Mortgage Trust. The offering of the Preferred Equity Units is not registered under the Securities Act, in reliance upon the exemption from registration for non-public offerings provided by Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. As of March 31, 2015 and December 31, 2014, 91 and 84 Preferred Units had been sold for $4,569,000 and $4,194,000, respectively. The Preferred Equity Units are reflected as Noncontrolling Interest on the consolidated financial statements.

11.

Share Redemption Program and Dividend Reinvestment Plan

There is currently no established public trading market for our shares. As an alternative means of providing limited liquidity for our shareholders, we maintain a Share Redemption Plan, (“SRP”). Our trustees have the discretion to modify or terminate the SRP upon 30 days’ notice. Under the terms of our plan as modified and effective on May 1, 2009, shareholders who have held their shares for at least one year are eligible to request that we repurchase their shares. In any consecutive 12 month period we may not repurchase more than 5% of the outstanding shares at the beginning of the 12 month period. The repurchase price is based on the “Net Asset Value” (NAV) as of the end of the month prior to the month in which the redemption is made. The NAV will be established by our Board of Trustees no less frequently than each calendar quarter. For reference, at March 31, 2015 and December 31, 2014, the NAV was $14.70 and $14.81 per share, respectively. The Company will waive the one-year holding period ordinarily required for eligibility for redemption and will redeem shares for hardship requests. A “hardship” redemption is (i) upon the request of the estate, heir or beneficiary of a deceased shareholder made within two years of the death of the shareholder; (ii) upon the disability of a shareholder or such shareholder’s need for long-term care, providing that the condition causing such disability or need for long term care was not pre-existing at the time the shareholder purchased the shares and that the request is made within 270 days after the onset of disability or the need for long term care; and (iii) in the discretion of the Board of Trustees, due to other involuntary exigent circumstances of the shareholder, such as bankruptcy, provided that the request is made within 270 days after of the event giving rise to such exigent circumstances. Shares are redeemed quarterly in the order that they are presented. Any shares not redeemed in any quarter are carried forward to the subsequent quarter unless the redemption request is withdrawn by the shareholder. Repurchases are subject to cash availability and Trustee discretion. We have also purchased a limited number of shares outside of our SRP from shareholders pursuant to hardship requests. The Board received redemption requests for 26,383 shares and 4,738 shares were approved and redeemed during the three months ended March 31, 2015.

Share repurchases have been at prices between $14.51 and $20 per share. Shares repurchased at the lower price were 1) shares held by shareholders for less than 12 months or 2) shares purchased outside of our SRP. Our stated NAV at March 31, 2015 and December 31, 2014, was $14.70 and $14.81 per share, respectively.

The Company complies with Distinguishing Liabilities from GAAP, which requires, among other things, that financial instruments that represent a mandatory obligation of the Company to repurchase shares be classified as liabilities and reported at settlement value. We believe that shares tendered for redemption by shareholders under the Company’s share redemption program do not represent a mandatory obligation until such redemptions are approved at the discretion of our board of trustees. At such time, we will reclassify such obligations from equity to an accrued liability based upon their respective settlement values.

For the three months ended March 31, 2015, we have made the following distributions to our shareholders of beneficial interest:

Period Ended	Date Paid	Distribution Amount
December 31, 2014	January 30, 2015	$	310,634
January 31, 2015	March 2, 2015		310,570
February 28, 2015	March 27, 2015		310,572
		$	931,776

For the three months ended March 31, 2015, we have made the following distributions to our preferred limited partners of URHF:

Period Ended	Date Paid	Distribution Amount
December, 2014	January 22, 2015	$	44,023
		$	44,023

For the three months ended March 31, 2015, we paid total distributions of $975,799 ($927,562 in cash and $48,237 in shares of beneficial interest pursuant to our DRP), as compared to cash flows from operations of $456,226. For the three months ended March 31, 2014, we paid distributions of $932,726 ($876,815 in cash and $55,911 in shares of beneficial interest pursuant to our DRP), as compared to cash flows from operations of $1,025,107. For the period from our inception through March 31, 2015, we paid distributions of approximately $105.8 million (approximately $82.7 million in cash and approximately $23.1 million in shares of beneficial interest pursuant to our DRP), as compared to cumulative cash flows from operations of approximately $83.8 million and cumulative net income of approximately $85.2 million.

The distributions to our shareholders paid during the three months ended March 31, 2015 and 2014, along with the amount of distributions reinvested pursuant to our DRP and the sources of our distributions were as follows:

	For the Three Months Ended March 31,
	2015				2014
Distributions paid in cash	$	927,562			$	876,815
Distributions reinvested		48,237				55,911
Total distributions	$	975,799			$	932,726

Source of distributions:
Cash flow from operations	$	456,226	47	%	$	1,025,107		110	%
Proceeds from issuance of shares		48,237	5	%		55,911		6	%
Borrowing under credit facilities and notes payable		471,336	48	%		(148,292	)	-16	%
Total sources	$	975,799	100	%	$	932,726		100	%

The following table sets forth information relating to shares of beneficial interest repurchased into treasury during the period covered by this report.

Month	Total number of shares repurchased		Average Purchase Price		Total number of shares purchased as part of a publicly announced plan		Total number of shares purchased outside of plan
January		2,422	$	14.51		2,422		-
February		2,316	$	14.51		2,316		-
March		-		-		-		-
Totals		4,738	$	14.51		4,738		-

Effective April 15, 2015, pursuant to the terms of our Dividend Reinvestment Plan (“DRP”), the Board of Trustees elected to suspend the DRP until further notice. Please refer to our Report on Form 8-K filed on March 3, 2015 for further information about the suspension of the DRP.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the availability of and our ability to find suitable mortgage investments; changes in general conditions in the housing and mortgage financing markets including the impact thereof on the homebuilding industry, changes in U.S. and global economic and credit market conditions, the impact of changes to tax and other laws affecting our industry, changes in interest rates, the availability of financing, our ability to adapt to changing circumstances, the continued financial viability of affiliates to whom we have extended loans, and the requirement to maintain our qualification as a real estate investment trust. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore we cannot give assurance that such statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or by any other person that the results or conditions described in such statements or in our objectives and plans will be realized. Readers should carefully review our financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2014, as well as those statements contained in this report, and in our other filings with the Securities and Exchange Commission.

In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-Q may not occur. We undertake no obligation to update or revise our forward-looking statements, whether as a result of new information, future events or otherwise.

General Investment Information

United Mortgage Trust (the “Company”) is a Maryland real estate investment trust that qualifies as a real estate investment trust (a “REIT”) under federal income tax laws. Our principal investment objectives are to invest our financing proceeds, proceeds from the repayment of our loans, capital transaction proceeds and retained earnings in following types of investments:

(i)

lines of credit and secured loans for the acquisition and development of single-family home lots, referred to as “Land Development Loans;”

(ii)

lines of credit and loans secured by developed single-family lots, referred to as “Finished Lot Loans;”

(iii)

lines of credit and loans secured by completed model homes, referred to as “Model Home Loans;”

(iv)

lines of credit and loans, with terms of 18 months or less, secured by single family lots and homes constructed thereon, referred to as “Construction Loans;”

(v)

to provide credit enhancements to real estate developers, homebuilders, land bankers and other real estate investors who acquire real property, subdivide real property into single-family residential lots, acquire finished lots and/or build homes on such lots referred to as “Credit Enhancements;”

(vi)

discounted cash flows secured by assessments levied on real property; and

(vii)

senior or subordinate securities backed by finished lot loans and/or development loans referred to as “Securitizations.”

We collectively refer to the above listed loans as “Mortgage Investments”. Additionally, our portfolio includes obligations of affiliates of our Advisor, which we refer to as “recourse loans” and deficiency notes. Loans are originated by others to the Company’s specifications or to specifications approved by the Company. Most, if not all, of such loans are not insured or guaranteed by a federally owned or guaranteed mortgage agency.

We no longer purchase interim loans. We continue to invest in Land Development Loans, Finished Lot Loans, Construction Loans and Model Home Loans because, 1) Land Development Loans, Construction Loans and Finished Lot Loans have provided us with suitable collateral positions, well capitalized borrowers and attractive yields; and, 2) Model Home Loans are expected to provide us with suitable collateral positions, well capitalized borrowers and attractive yields; and 3) Securitizations offer us the ability to leverage our investment in finished lot and development loans. As we phase out of Interim Loans and our secured, subordinated line of credit to UMTH Lending Company, L.P., we are increasing the percentage of our portfolio invested in Land Development Loans, Finished Lot Loans, Model Home Loans, Construction Loans and Securitizations, until market conditions indicate the need for an adjustment of the portfolio mix.

The following table illustrates the percentage of our mortgage portfolio dedicated to each mortgage loan category as of March 31, 2015 and December 31, 2014:

Mortgage Category:	March 31, 2015			December 31, 2014
Land Development Loans		70	%		67	%
First lien secured Interim Loans 12 months or less and residential mortgages		14	%		14	%
Finished Lot Loans		9	%		7	%
Construction Loans		7	%		6	%
Secured Line of Credit to UMTHLC		0	%		6	%

The following table summarizes mortgage loans by type and original loan amount held by United Mortgage Trust at March 31, 2015.

Description	No. of Loans		Interest Rate			Final Maturity Date	Periodic Payment Terms		Prior Liens		Outstanding Balance of Mortgage (1)		Carrying amount of Mortgage (2)		Past Due Amounts (3)
Single family residential 1^st mortgages and interim loans (5):
Original balance > $100,000		1		7.0	%	01/01/2016		n/a		n/a	$	159,376	$	133,355
Original balance $50,000 - $99,999		64		7.0% - 12.75%		12/3/15 – 5/19/36		n/a		n/a		162,657		136,100
Original balance $20,000 - $49,999		121		9.0% - 12.75%		4/1/17 – 7/01/32		n/a		n/a		322,165		269,565		-
Original balance under $20,000		1		11.0% - 14.5%		9/1/31		n/a		n/a		1,738		1,454		-

First Lien secured Interim Loans
Ready America Funding (4)		1		14.0	%	n/a		n/a		n/a		15,830,254		15,830,254		-

Land Development Loans
UDF III Economic Interest Participation		2		9.25	%	12/31/15		n/a		n/a		80,972,684		80,972,684		-

Construction Loans		8		13.0	%	04/18/15-1/15/2017		n/a		n/a		18,741,952		18,741,952		-
Totals		198									$	116,190,826	$	116,085,364		-

(1)

Current book value of loans.

(2)

Net of allowance for loan losses on mortgage loans of $105,462 at March 31, 2015.

(3)

Principal amounts greater than thirty (30) days past due.

(4)

Lines of credit with Ready America Funding and UMTH Lending Co., L.P. are collateralized by 10 loans and 1 loan, respectively. Principal amounts due upon disposition of assets.

(5)

The Company has a first lien collateral position in these loans funded by the originator. The advances to the originator do not have specific maturity dates.

Below is a reconciliation and walk forward of mortgage loans, net of allowance for loan losses, for the three months ended March 31, 2015.

	Amount
Balance at beginning of period	$	122,971,369
Additions during period:
Increases in construction and lot banking loans, net		1,336,236
Other increases – UDF LOC		183,843
Deductions during period:
Decrease in UDF III EIA Participation		(2,478,316	)
Collections of principal, net		(1,649,207	)
Other decreases		(4,278,561	)
Other (net change in allowance for loan loss)		-
Balance at close of period	$	116,085,364

Material Trends Affecting Our Business

We are a real estate investment trust and derive a substantial portion of our income from loans secured by single-family homes (both finished homes and homes under construction), single-family home lots, and entitled land under development into single-family home lots. We continue to concentrate our investment activities in Texas. We believe these areas continue to experience demand for new construction of single-family homes, however the U.S. housing market suffered declines from 2007 through 2009, particularly in geographic areas that had experienced rapid growth, steep increases in property values and speculation. However, we expect to see continued healthy demand for our products as the supply of new homes, finished lots and land is once again aligned with our market demand.

Housing Industry

During 2014, the U.S. housing market recovery that began in 2012 continued, with annual increases in the volume of new home sales, single-family starts and single-family permits. Housing affordability remains strong compared to historical levels, even as home prices continued to increase in 2014. We believe the main drivers of housing demand are the continued improvement in job creation and wages which have contributed to the highest consumer confidence levels since 2007. Household formations, a housing metric that had been lagging in the housing recovery, increased significantly during 2014. We believe that demand for new homes will strengthen further in 2015 as the U.S. economy continues to improve, although the improvement may be uneven from market to market based on local economic conditions. We also believe that the Federal Housing Finance Agency’s (“FHFA”) recent lowering of down payment requirements for Fannie Mae and Freddie Mac mortgage programs and the Federal Housing Administration’s decrease in mortgage insurance premiums are incremental positives for housing demand in 2015.

Competition

Real estate financing is a very competitive industry. Our principal competitors are mortgage banks and other lenders. We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, real estate investment trusts, other real estate limited partnerships and other entities engaged in real estate investment activities, many of which have greater resources than we do. Banks and larger real estate programs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the proliferation of the Internet as a tool for loan origination has made it very inexpensive for new competitors to participate in the real estate finance industry. We believe that the demand for development loans is increasing, which may cause more lenders and equity participants to enter this market. Our ability to make or purchase a sufficient number of loans and investments to meet our objectives will depend on the extent to which we can compete successfully against these other lenders, including lenders that may have greater financial or marketing resources, greater name recognition or larger customer bases than we have. Our competitors may be able to undertake more effective marketing campaigns or adopt more aggressive pricing policies than we can, which may make it more difficult for us to attract customers. Increased competition could result in lower revenues and higher expenses, which would reduce our profitability.

Regulations

All real property and the operations conducted on real property are subject to federal, state and local laws, ordinances and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Under limited circumstances, a secured lender, in addition to the owner of real estate, may be liable for clean-up costs or have the obligation to take remedial actions under environmental laws, including, but not limited to, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. Some of these laws and regulations may impose joint and several liability for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell such property or to use the property as collateral for future borrowing.

In addition, as a non-bank lender of commercial loans, we are subject to various state and federal regulations regarding usury laws. State and federal usury laws limit the interest that lenders are entitled to receive on a mortgage loan. In determining whether a given transaction is usurious, courts may include charges in the form of “points” and “fees” as “interest,” but may exclude payments in the form of “reimbursement of foreclosure expenses” or other charges found to be distinct from “interest.” While we contract for interest at a rate that is less than or equal to the applicable maximum amount of non-usurious interest and our loan documents and Texas law provide us with an opportunity to cure usurious charges, if the amount charged for the use of the money loaned is found to exceed a statutorily established maximum rate (under Texas law, the current maximum amount of non-usurious interest is 18% per annum) and we fail to cure, the form employed and the degree of overcharge are both immaterial to the determination that the loan is usurious. Statutes differ in their provision as to the consequences of a usurious loan. One group of statutes requires the lender to forfeit the interest above the applicable limit or imposes a specified penalty. Under this statutory scheme, the borrower may have the recorded mortgage or deed of trust cancelled upon paying its debt with lawful interest, or the lender may foreclose, but only for the debt plus lawful interest. Under a second, more severe type of statute, a violation of the usury law results in the invalidation of the transaction, thereby permitting the borrower to have the recorded mortgage or deed of trust cancelled without any payment (thus prohibiting the lender from foreclosing).

We are not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate and interest rates generally, that we reasonably anticipate to have a material impact on either the income to be derived from our investments in mortgage loans or entities that make mortgage loans, other than those referred to in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K.

Outlook

In summary, we believe that demand for new homes will strengthen further in 2015 as the U.S. economy continues to improve, although the improvement may be uneven from market to market based on local economic conditions. We also believe that the Federal Housing Finance Agency’s (“FHFA”) recent lowering of down payment requirements for Fannie Mae and Freddie Mac mortgage programs and the Federal Housing Administration’s decrease in mortgage insurance premiums are incremental positives for housing demand in 2015. We believe that United Mortgage Trust has been active in monitoring current market conditions and in implementing various measures to manage our risk and protect our return on our investments by shifting our portfolio to investments that are less directly sensitive to the adverse market conditions and that produce higher yields and by aggressively liquidating non-performing loans. Based on that assessment, we do not anticipate a significant disruption to our normal business operations. Nevertheless, our assessments inherently involve predicting future events and we cannot be sure of the strength of the national and regional economic recovery and its impact on the housing and mortgage lending market could cause us to suffer a higher level of delinquencies and losses than we are currently predicting and result in a material adverse impact on our business.

Interim Loan Portfolio Overview

We believe that a pragmatic and pro-active approach to managing our interim loan credits will allow us to maximize repayments and properly report asset values. In consideration of the above, we have:

ceased the origination of, and reduced our investment in, interim loans dependent on sub-prime and Alt-A mortgage products for repayment of our loan.

accepted a secured note from UMTHLC for shortfalls from foreclosed properties to enable UMTHLC to efficiently manage past due and foreclosed accounts throughout the duration of the credit crisis.

increased loss reserves for certain deficiency loans where full collection of the indebtedness is not assured.

re-evaluated collateral values on specific loans deemed to be affected by current mortgage and housing environments and reserved for unsecured deficiencies.

Portfolio Mix

Our portfolio concentrations have shifted over the years, as we have sought adequate supplies of suitable loans in a changing real estate finance market. The chart below demonstrates the transition from a portfolio with a concentration on long term, 1^st lien single family loans to one comprised primarily of first lien interim loans of 12 months or less in term for the purchase and renovation of single family homes and subsequently to loans secured by 1^st lien and subordinate single family lot development loans, finished lot loans, model home loans and construction loans. We intend to continue to adapt to changes in the real estate finance market and thus the composition of our loan portfolio is likely to continue to evolve over time based on factors such as interest rates paid under various types of real estate loans, our assessment of the level of risk of the different types of loans, availability of loans, regulatory considerations and other factors.

Results of Operations for the Three Months Ended March 31, 2015 and March 31, 2014

Revenues

Revenues for the three months ended March 31, 2015, were approximately $1,184,000 compared to approximately $1,208,000 for the comparable period in the prior year. The decrease of approximately $24,000 was due primarily to a decrease of approximately $237,000 of interest income earned on the UMTHLC line of credit, a decrease of approximately $178,000 of interest income earned on the UMTHLC deficiency note and a decrease of approximately $3,000 of interest income earned on the residential mortgage portfolio. These amounts were partially offset by an increase in interest income earned on the construction and finished lot loans portfolio of approximately $248,000, an increase of approximately $126,000 of interest income received and earned on the recourse notes, and an increase of approximately $21,000 earned on the UDF I Loan. The decreases in residential mortgage loan interest income was due to lower outstanding balances during the three months ended March 31, 2015 compared to the same period in the prior year. The decrease in interest on the UMTHLC deficiency note and line is due to the loan modification that occurred on January 1, 2015. Revenues from interim loans accounted for approximately 0% of revenues for the three months ended March, 2015 compared to 20% in the same period in the prior year.

During the three months ended March 31, 2015 and March 31, 2014, approximately 66% and 42%, respectively, of our revenues were derived from lines of credit and lot banking transactions, (these secured loans for the acquisition and development of single-family home lots are referred to as “land development loans”, “construction loans” and “lot banking transactions”). At March 31, 2015, our investment in the lines of credit to our affiliate, UDF, through the Economic Interest Agreement, and lot banking transactions, was approximately $81 million. We anticipate our investment in construction loans will increase during the remainder of 2015, facilitated by the Company’s lines of credit and continued emphasis on this type of investment activity.

During the three months ended March 31, 2015 and 2014, respectively, approximately 11% and 0% of our revenues were derived from secured promissory notes issued by related parties pursuant to their accrued obligations to reimburse UMT for any defaulted loans that we acquired from them, which notes we refer to as “Recourse Obligations.”

Expenses

Noninterest operating expenses for the three months ended March 31, 2015 and March 31, 2014, were approximately $674,000 and $325,000, respectively. The increase of approximately $349,000 for the three months ended March 31, 2015 from the prior year is due primarily to the resolution of a dispute with Mortgage Trust Advisors, Inc. (“MTA”), a Texas corporation that provided certain services to the Company in the past which was resolved by a Mutual Settlement and Release Agreement between the Company and MTA executed on January 1, 2014, under which UMT began paying to MTA a total of $145,000, in quarterly payments on April 1, 2014. The Company had accrued approximately $397,000 for this settlement and reduced the accrual by $220,000 in the quarter ended March 31, 2014. Other fluctuations in operating expense line items are discussed below for the three month periods ended March 31, 2015 and 2014:

Trust administration fees – Trust administration fees paid during the three months ended March 31, 2015 and 2014 were approximately $250,000. The trust administration fees increase and decrease as our invested assets increase or decrease as we draw on or pay down the credit facility that we use to acquire mortgage investments. Trust administration fees paid in 2015 and 2014 are limited to the lesser of i) 1% of our average invested assets or ii) $1,000,000.

Interest Expenses including related and unrelated party - $404,000 and $297,000 (36% increase) for the comparable three month periods ended March 31, 2015 and 2014, respectively. The unrelated party interest increase was primarily due to an increase in the total outstanding lines of credit for funding the new construction and finished lot loan portfolios, and the increase in the balance of the outstanding private notes.

Provision for loan losses - The Company recorded a provision for loan losses for the three months ended March 31, 2015 and 2014 of approximately $210,000 and $476,000, respectively. The Company realized actual loan losses of approximately $45,000 and $166,000 during the comparable three-month periods of 2015 and 2014, respectively. Loss reserves are estimates of future losses based on historical default rates, estimated losses on the sale of real estate owned and expectations of future economic conditions and activity. The Company continually re-evaluates collateral value on specific loans deemed to be affected by current mortgage and housing environments and intends to establish loss reserves for any expected deficiencies that are not otherwise secured. From inception through March 31, 2015, the Company has acquired approximately $977 million of loans. The Company has experienced a three-year loss rate of approximately 0.24% of those assets to date. The Company anticipates loan losses to continue, primarily in our long-term and non-related party residential loan portfolio, and therefore continues to assess the adequacy of our loan loss reserves.

General and administrative expenses(including related party) - $423,000 and $75,000 (464% increase) for the comparable three month periods ended March 31, 2015 and 2014, respectively. The increase was primarily due to the adjustment of approximately $220,000 to reduce G&A expenses in the quarter ended March 31, 2014 related to the settlement with MTA discussed above and approximately $165,000 of performance obligation expense, during the quarter ended March 31, 2015, related to the Loan Modification agreement executed with UMT Holdings, L.P. effective January 1, 2015. See Note 4 above for additional information regarding the loan modification agreements. These expense increases were partially offset by lower REO and other administrative expenses of approximately $40,000.

Net (loss) income attributable to shareholders of beneficial interest was approximately ($214,000) and $110,000 for the three months ended March 31, 2015 and 2014, respectively. Specific variances are explained in more detail above. (Loss) earnings per share of beneficial interest for the three months ended March 31, 2015 and 2014 were ($0.03) and $0.02 per share, respectively.

Distributions

The Company’s dividend rate is fixed quarterly by our trustees, based on earnings projections. As such, the dividend rate may fluctuate up or down. Earnings are affected by various factors including use of leverage, current yield on investments, loan losses, general and administrative operating expenses and amount of non-income producing assets. Distributions per weighted average share of beneficial interest to shareholders were $0.14 per share for the three months ended March 31, 2015 and 2014, respectively. The dividend portion of the distribution was $0.00 for the three months ended March 31, 2015 and $0.01 for the three months ended March 31, 2014. The portion of these distributions that did not represent a dividend represented a return of capital.

LIQUIDITY AND CAPITAL RESOURCES FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

Sources and Uses of Funds

Cash flows from operating activities are generally the result of net income adjusted for provision for loan losses, depreciation and amortization expense and (increases) decreases in accrued interest receivable (including related parties), other assets and accounts payable and accrued liabilities (including related parties). Cash provided by operations was approximately $456,000 during the three months ended March 31, 2015, driven primarily by adding back Provision for loan losses and a decrease in accounts payable and accrued liabilities, related parties. Cash provided by operations was approximately $1,025,000 during the three months ended March 31, 2014.

Cash flows used in investing activities generally reflect fundings and payments received from lending activities. Cash used in investing activities was approximately $1,090,000 and $1,206,000 during the three months ended March 31, 2015 and March 31, 2014, respectively, primarily from advances in lines of credit receivable from non-related parties, partially offset by receipts from related party deficiency notes, trust receivables and real estate owned.

Cash flows used in financing activities generally reflect proceeds from the issuance of shares, borrowings or repayments on the lines of credit, the purchase of treasury stock and the payment of dividends. Cash used in financing activities was approximately $283,000 and $439,000 during the three months ended March 31, 2015 and March 31, 2014, respectively. The primary sources are the proceeds from the issuance of shares of beneficial interest, draws on lines of credit, preferred equity contributions and proceeds from notes payable. The primary uses are the purchase of treasury stock and the payment of distributions.

Credit Facilities

On May 27, 2011, the Company entered into a revolving line of credit facility with Veritex Community Bank for $4,300,000. The loan bears interest at prime plus one percent, with a floor of 5.0%, and requires monthly interest payments. Principal and all unpaid interest will be due at maturity which was May 27, 2014. Effective May 27, 2014 this term line of credit facility was renewed with the lender, the loan commitment was increased to $5,000,000 and principal and all unpaid interest will be due at maturity, May 27, 2017. All other terms remain the same. The loan is collateralized by a first lien security interest in the underlying real estate financed by the loan. The outstanding balance on this loan at March 31, 2015 December 31, 2014 was approximately $3,106,000 and $3,618,000, respectively. This credit facility contains a financial covenant that requires UMTHF III to maintain a leverage ratio within certain bounds as prescribed in the loan agreement. As of March 31, 2015, the Company was in compliance with all of its debt covenants and none of these covenants restrict the Company’s ability to obtain future financing from other lenders.

Below is a Five Year Maturity Schedule of all lines of credit payable:

Lines of Credit Payable Maturity	Amount
2015	$	5,379,000
2016		-
2017		5,615,000
2018		3,200,000
2019		-
Thereafter		-
Total	$	14,194,000

Below is a Five Year Maturity Schedule of all notes payable:

Notes Payable Maturity	Amount
2015	$	-
2016		569,000
2017		300,000
2018		305,000
2019		4,697,000
Thereafter		1,499,000
Total	$	7,370,000

Our primary sources of funds for liquidity consist of our dividend reinvestment plan, repayments of principal on our loans made to purchase mortgage investments, preferred equity contributions, and bank lines of credit. The table below summarizes certain liquidity sources and uses for the three-month periods ended March 31, 2015 and March 31, 2014:

	2015			2014
Shares issued		3,325			3,787
Proceeds from issuance of shares of beneficial interest	$	48,000		$	56,000
Number of shares returned to treasury		4,738			4,610
Purchase of treasury stock	$	(69,000	)	$	(68,000	)
Principal receipts
First lien mortgage notes and trust receivables	$	50,000		$	33,000
Real estate owned (investments)	$	10,000		$	103,000
Interim loans and deficiency notes	$	23,000			-
Interim loans and deficiency notes, related parties	$	504,000		$	152,000
Lines of credit receivable (investments)	$	(1,699,000	)	$	(1,494,000	)
Recourse Obligations	$	23,000			-
Sale of preferred equity units in URHF	$	375,000			-
Borrowings – lines of credit payable	$	388,000		$	316,000
Borrowings (repayments) – notes payable	$	(50,000	)	$	190,000

We are not currently offering shares in the public markets. Effective April 1, 2015, our Trustees suspended our dividend reinvestment plan.

Shares issued in the aggregate, as of March 31, 2015 and December 31, 2014, were 8,378,688 and 8,375,363, respectively. Shares retired to treasury through our share redemption plan in the aggregate were 1,948,141 and 1,943,403 through March 31, 2015 and December 31, 2014, respectively. Total shares outstanding were 6,430,547 and 6,431,960, at March 31, 2015 and December 31, 2014, respectively. As of March 31, 2015, inception to date gross offering proceeds from all public offerings were approximately $166,742,000 and net proceeds after fees, marketing reallowance and commissions were approximately $148,015,000.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to accrual of interest income, loan loss reserves and valuation of foreclosed properties. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Significant accounting policies are described in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. The following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Interest is accrued monthly on outstanding principal balances. Payments are either received monthly for interest or at payoff. Any deficiencies in unpaid interest are either charged off to the reserve for loan losses or charged against the related interest reserve.

We maintain a reserve for loan losses for estimated losses resulting from the inability of our borrowers to make required payments resulting in property foreclosure and losses from the sale of foreclosed property. If the financial condition of our borrowers was to deteriorate, resulting in an impairment of their ability to make payments or, if the market value of the properties securing our loans decreases additional reserves may be required.

We record foreclosed properties at an estimated net realizable value based on our assessment of real estate market conditions and historical discount percentages on the sale of foreclosed properties. Should market conditions deteriorate or loss percentages increase, additional valuation adjustments may be required.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to interest rate changes primarily as a result of the method by which our bank credit facilities are calculated at a fixed percentage over bank prime lending rate.

We provide a line of credit to UDF. UDF is a real estate finance limited partnership which derives a substantial portion of its income by originating, purchasing, participating in and holding for investment mortgage loans made directly by UDF to persons and entities for the acquisition and development of real property as single-family residential lots that will be marketed and sold to home builders. Changes in interest rates may impact both demand for UDF’s real estate finance products and the rate of interest on the loans UDF makes. In some instances, the loans UDF will make will be junior in the right of repayment to senior lenders who will provide loans representing 70% to 80% of total project costs. As senior lender interest rates available to our borrowers increase, demand for UDF mortgage loans may decrease, and vice versa.

Developers to whom UDF makes mortgage loans use the proceeds of such loans to develop raw land into residential home lots. The developers obtain the money to repay these development loans by selling the residential home lots to home builders or individuals who will build single-family residences on the lots, and by obtaining replacement financing from other lenders. If interest rates increase, the demand for single-family residences may decrease. Also, if mortgage financing underwriting criteria become more strict, demand for single-family residences may decrease. In such an interest rate and/or mortgage financing climate, developers may be unable to generate sufficient income from the sale of single-family residential lots to repay loans from UDF, and developers’ costs of funds obtained from lenders in addition to us may increase, as well. Accordingly, increases in single-family mortgage interest rates or decreases in the availability of mortgage financing could increase the number of defaults on development loans made by UDF, and correspondingly impact UDF’s ability to make payments under its line of credit.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed by the Company’s management, consisting of the individual who serves as our President, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of March 31, 2015. Based on such evaluation, management has concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting. The Company does not control the financial reporting process, and is solely dependent on UMTHGS, its Advisor, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Advisor’s disclosure controls and procedures were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the first fiscal quarter of 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company complies with Distinguishing Liabilities from Equity topic of FASB Accounting Standards Codification, which requires, among other things, that financial instruments that represent a mandatory obligation of the Company to repurchase shares be classified as liabilities and reported at settlement value. We believe that shares tendered for redemption by the shareholder under the Company’s share redemption program do not represent a mandatory obligation until such redemptions are approved at the discretion of our board of trustees. At such time, we will reclassify such obligations from equity to an accrued liability based upon their respective settlement values.

The following table sets forth information relating to shares of beneficial interest repurchased into treasury during the period covered by this report.

Month	Total number of shares repurchased		Average Purchase Price		Total number of shares purchased as part of a publicly announced plan		Total number of shares purchased outside of plan
January		2,422	$	14.51		2,422		-
February		2,316	$	14.51		2,316		-
March		-		-		-		-
Totals		4,738	$	14.51		4,738		-

Effective April 15, 2015, pursuant to the terms of the DRP, the Board of Trustees elected to suspend the DRP until further notice. Please refer to our Report on Form 8-K filed on March 3, 2015 for further information about the modification to the DRP.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

(a)

There has been no material default with respect to any of our indebtedness.

(b)

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

3.1	Form of Second Amended Restated Declaration of Trust	*
3.2	Bylaws of the Company	*
3.3	Consulting Agreement between the Company and Stuart Ducote (incorporated by reference from the Company’s Current Report on Form 10-K filed March 31, 2015)
4.1	Form of certificate representing the shares	*
4.2	Dividend Reinvestment Plan (incorporated by reference from the prospectus to the Company's Registration Statement on Form S-3POS (File no, 333-136107), that became effective October 16, 2006)	**
4.3	Description of Share Repurchase Program (incorporated by reference from the prospectus to the Company's Registration Statement on Form S-3POS (File no, 333-136107), that became effective October 16, 2006)	**
4.4	Amended Share Redemption Plan and Dividend Reinvestment Plan (filed as Exhibit 99.1 to Form 8-K filed June 1, 2010 and incorporated herein by reference)
10.1	Second Amended and Restated Subordination and Intercreditor Agreement entered into as of June 21, 2010, by and between the Company, UDF and a private investor (filed as Exhibit 10.1 to Form 10-Q for the Quarter Ended June 30, 2010 and incorporated herein by reference)
10.2	Amended and Restated Variable Amount Promissory Note between the Company and UMTH Lending Company, L.P. dated July 1, 2010 (filed as Exhibit 10.2 to Form 10-Q for the Quarter Ended June 30, 2010 and incorporated herein by reference)
10.3	Economic Interest Participation Agreement and Purchase Option between United Mortgage Trust and United Development Funding III, L.P. dated September 19, 2008 (filed as Exhibit 10.1 to Form 10-Q for the Quarter Ended September 30, 2008 and incorporated herein by reference)

10.4	Participation Agreement between United Mortgage Trust and United Development Funding III, L.P., dated September 30, 2008 (filed as Exhibit 10.2 to Form 10-Q for the Quarter Ended September 30, 2008 and incorporated herein by reference)
10.5	Advisory Agreement dated August 14, 2006 between the Company and UMTH General Services, L.P. (incorporated by reference from Form 8-K filed August 16, 2006)
10.6	Form of Mortgage Servicing Agreement between the Company and South Central Mortgage, Inc. at a later date assigned to Prospect Service Corp.	*
10.7	Second Amended Secured Line of Credit Promissory Note and Security Agreement between the Company and United Development Funding, L.P. dated June 20, 2006 (incorporated by reference from Form 8-K filed June 21, 2006)
10.8	Secured Variable Amount Promissory Note dated December 31, 2005 issued by Capital Reserve Group, Inc. (incorporated by reference from Form 8-K filed March 31, 2006)
10.9	Secured Variable Amount Promissory Note dated December 31, 2005 issued by South Central Mortgage, Inc. (incorporated by reference from Form 8-K filed March 31, 2006)
10.10	Secured Variable Amount Promissory Note dated December 31, 2005 issued by Ready America Funding Corp. (incorporated by reference from Form 8-K filed March 31, 2006)
10.11	Form of Assignment of Limited Partnership Interest as Collateral Dated December 31, 2005 between the Company and Capital Reserve Group, Inc., South Central Mortgage, Inc., Ready America Funding Corp. and WLL, L.P. (incorporated by reference from Form 8-K filed March 31, 2006)
10.12	Guaranty dated December 31, 2005 between the Company and Ready Mortgage Corp. (incorporated by reference from Form 8-K filed March 31, 2006)
10.13	Guaranty dated December 31, 2005 between the Company and WLL, L.P. (incorporated by reference from Form 8-K filed March 31, 2006)
10.14	Guaranty dated December 31, 2005 between the Company and UMT Holdings, L.P. (incorporated by reference from Form 8-K filed March 31, 2006)
10.15	Intercreditor and Subordination Agreement dated December 31, 2005 between the Company and UMT Holdings, L.P. (incorporated by reference from Form 8-K filed March 31, 2006)
10.16	Loan Modification Agreement dated January 1, 2015 between the Company and UMTH Lending Company, L.P., Capital Reserve Group, Inc., South Central Mortgage, Inc., Ready America Funding Corp. and WLL, L.P. (incorporated by reference from the Company’s Current Report on Form 8-K filed March 30, 2015)
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

The exhibits marked with “*” are incorporated by reference from the Company's Registration Statement on Form S-11 (File No. 333-10109) that was declared effective on March 5, 1997. The exhibit marked with “**” is incorporated by reference from the Company's registration statement on Form S-11 (File No. 333-56520) that was declared effective on June 4, 2001.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

	UNITED MORTGAGE TRUST

Date: May 15, 2015	By	/s/ Stuart Ducote
		President and Chief Financial Officer

UNITED MORTGAGE TRUST - FORM 10-Q - May 15, 2015

Attached files

UNITED MORTGAGE TRUST Reports