ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction

UnitedDevelopmentFunding(UDF)

OnDecember14,2015,UnitedDevelopmentFunding(UDF)managementfiledaForm8Kandpressreleasewith
managements rambling response attempting to further lull investors with the old saw, they just dont
understand our business. Management has been misleading investors for years, and its response continues
further down the path of deception. Not only were managements responses deceptive; in some cases, the
responses were comical. Certain responses have already been debunked on the Harvest Exchange, posted
subsequenttothefilingoftheForm8K.Otherhollowresponseswillbediscreditedinthispostandmorewill
followinthecomingdays,weeksandmonths.
However,therewasatleastonematerialomissionfrommanagementsresponsesDeficiencyNotesthatneeds
tobehighlighted:
Managementfailedtodiscussthemillionsofdollarsthatinsiderslostonbehalfofpublicshareholders.TheUDF
affiliatedcompaniesatissuearegenerallyinthebusinessofnonregulated,nonbanklending.Prefinancialcrisis,
theinsidersissuedloansfrompublicentities(whichtheymanagedbutDIDNOTown)totheirownprivateentities
(whichtheynotonlymanagedbutalsoowned).Managementsufferedtremendouslossesontheloansissuedto
their own private entities and have been deceiving new unsuspecting investors regarding the reality of their
spectaculartrackrecordeversince.Thelossesthatresultedfrompoorinvestmentdecisionsbymanagement
eightyearsagoarestillshownasassetsofthepubliccompany.Managementcallsthemdeficiencynotesand
recourseobligations.Inreality,thesearejustIOWEYOUsthatmanagementhasneverrepaid.

DeficiencyNotesTheCheckIsInTheMail,ForTheLastEightYears
UDFsmanagementbegandeceivingitsfundinvestorsessentiallyfromthebeginning.UnitedMortgageTrust
(UMT),aUDFaffiliatewithpublicshareholdersandUDFmanagedentity,providestheearliestexample.Predating
thefinancialcrisis,managementcausedUDFmanagedentitiestoissueloanstoinsiders,includingentitiesowned
byHollisGreenlawandToddEtter,CEOandChairmanrespectively,andtheseinsidersinturnloanedthesefunds
tothirdpartiesthatturnedouttonotbecreditworthy.Whentheseloanswentbadduringandsubsequentto
thefinancialcrisis,theinsidershadtoforecloseonthecollateralwhichresultedinconsiderablerealizedlossesto
theinsidersandtheirprivateentities.Todate,theselosseshaveneverbeenrecognizedbyUMT,thepublicentity.
Historicallossesbytheinsidersprivateentities($73millioninIOWEYOUsneverrecognized)andotherloansto
insiders($80million)intheirentiretymakeupforawhopping$153million,or84%ofUMTsassets.
In an attempt to cover up these losses, management has issued to themselves opaque and official sounding
instrumentscalledunsecureddeficiencynotesandrecourseobligations(DeficiencyNotes)intheamountof
approximately $73 million bearing interest at a rate of 1.75% (apparently, insiders and management believe,
despitetherealizedlosses,thattheyaremorecreditworthythantheU.S.government).Thisbalanceremains
unpaidanduncollectedforthelast8yearsfollowingthefinancialcrisis,despitethenonmarketinterestrateof
1.75%.Whyhasmanagementnotmovedtocollectonthe$73millionDeficienyNotebalance?Theobviousanswer
isbecauseHollisGreenlawandhisinsiderfriendswouldbeforcedtocollectonthemselves.Giveuptheprivate
jets,countryclubs,fancycarsandmansions?Nah,WereGood.
ADeficiencyNoteiseffectivelyanIOUthatmanagementandinsidershavenotbeenabletorepay.Hereishow
UMTdescribestheminitslatestForm10QforthequarterendedSeptember30,2015:
Whenprincipalandinterestonanunderlyingloanisdueinfull,atmaturityorotherwise,the
correspondingobligationowedbytheoriginatingcompanyto[UMT]isalsodueinfull.Ifthe
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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

borroweror[UMT]foreclosesonpropertysecuringanunderlyingloan,orif[UMT]forecloses
onpropertysecuringapurchasedloan,andtheproceedsfromthesaleareinsufficienttopay
theloaninfull,theoriginatingcompanyhastheoptionof(1)repayingtheoutstandingbalance
owedto[UMT]associatedwiththeunderlyingloanorpurchasedloan,asthecasemaybe,or(2)
deliveringto[UMT]anunsecureddeficiencynoteintheamountofthedeficiency.
ADeficiencyNoteisbetterdefinedasamulliganissuedbymanagementtoitself.UMTHoldings(UMTH)isthe
management entity that ultimately owes a considerable amount of these Deficiency Notes to UDFmanaged
entitiesandisownedby10managementinsiders,includingHollisGreenlawandToddEtterwhocombinetoown
60%ofUMTH.UMTHistheexternalmanagerofallfourpublicUDFaffiliatedprograms,andaccordingly,UMTHs
primaryassetisthefeestreamfromUDFspublicaffiliates.ShouldinvestorsinUDFlosefaithinmanagementand
replace them,the externalmanagerdoesnothave anyapparentmeans torepaytheDeficiency Notes, which
representrealizedbutneverrecognized(orcollected)losses.Ifanyreasonable,nonconflictedfiduciarywere
appointedtomanageUMT,thatfiduciarywouldmoveswiftlytodemandpaymentandcollectontheDeficiency
Notes.
Leadingtofurtherquestionsaboutmanagementcredibility,theinterestratesonDeficiencyNotesowedbyHollis
Greenlaw and his management crew of insiders (1.75%) are significantly lower than the interest rates on
Deficiency Notes owed by nonrelated parties (14.0%). Does management pretend that insider Deficiency
Noteswhichbearinterestataratedramaticallybelowamarketratearearmslengthtransactions?
Whenlossesarerealized,(i)whyismanagementrewardedwith1.75%interestloans(ii)whyistheresuchalarge
disparity in rates between Deficiency Notes owed by insiders (Hollis Greenlaw and Todd Etter, et al.) and
DeficiencyNotesowedbynonrelatedparties,(iii)whydoUDFmanagedentitiesnotrecognizedthelossesfrom
itspriorfailures,and(iv)whywouldpublicshareholdersofUDFmanagedentitiespayatrustadministrationfee
tomanagementascompensationtomanagetheirhistoricallosses?
Collectively,insiders,includingHollisGreenlawandToddEtter,CEOandChairmanrespectively,owe$153million
topublicshareholdersintheformofIOWEYOUsandotherloans.TheseobligationsshowupasassetsofUDF
managedentitiesandaccountfor84%oftotalUMTassets.

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

WHILE A SMALL GROUP OF INSIDERS, INCLUDING CEO HOLLIS GREENLAW, OWE $73
MILLIONINIOWEYOUSTOPUBLICSHAREHOLDERS,WHYISHEFLYINGAROUNDINA
PRIVATEJET?

ANDWHYHASTHECEOOFUDF(HOLLISGREENLAW)OWNEDAPRIVATEJETWITHTHE
CEO OF UDFS LARGEST BORROWER (MEHRDAD MOAYEDI)? THE RELATIONSHIP IS
MUCHDEEPER

ANDAPPEARSTOBEINSTARKCONTRASTTOUDFSDISCLOSURETHATTHEREARE
NOTANYMATERIALCONFLICTSOFINTERESTBETWEENOUREXECUTIVESANDOUR
LARGESTGROUPOFRELATEDBORROWERSORITSPRINCIPAL.
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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

THE RELATIONSHIP BETWEEN GREENLAW AND MOAYEDI GOES BEYOND JUST THE
COMMONOWNERSHIPOFAPRIVATEJETANDFARBEYONDTHATOFALENDERAND
BORROWER; NUMEROUS OTHER EXAMPLES EXIST. MANAGEMENT MUST HAVE A
DIFFERENTDEFINITIONOFMATERIALTHANSHAREHOLDERS.

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

OtherManagementResponsesDiscredited
ManagementsresponsedisclosedforthefirsttimethatthelargestborrowerforUDFIII,UDFIV,andUDFVisone
andthesame,MerhdadMoayediandhisaffiliatedentitiesdoingbusinessasCenturionAmerican(Centurion).
Why was this information not disclosed previously? Managements response detailed exactly the contention
made in the Harvest Exchange post (http://hvst.co/1IQPULr). However, rather than address the pertinent
questions,managementdeceptivelytriedtomakeitseemlikeithadalreadydisclosedtoeachshareholdergroup
(UDFIII,UDFIVandUDFV)thatthelargestborrowerofeachwasalsothelargestborrowerofallthreecompanies.
ManagementhadneverdisclosedthisatanytimeinUDFshistory.Period.ShouldashareholderofUDFIVbe
requiredtoreadUDFIIIandUDFVsfinancialdisclosuresinordertolearnmaterialomittedfactsaboutthe
lending relationship between its largest borrower and its affiliates. Management did not address the
consequencesofthisrevelation:theexistenceofaninherentdefaultriskacrossthefundsassociatedwiththis
concentrationinasingleborrower.
Howdoesmanagementjustifytheinherentdefaultriskacrossthefundscreatedbythelackoflendingdiversity?
Accordingtomanagement,UDFconcentrate[s][its]lendingtoseasonedandaccomplishedbuildersand
developers.[UDFs]largestgroupofrelatedborrowersrepresentsoneofthelargestsinglefamilydevelopersin
NorthTexas.Managementwouldhaveinvestorsbelievethatitslargestborrower,Centurion,isaseasoned
andaccomplisheddeveloper.Ifso,whydoesaseasonedandaccomplisheddeveloperborrowcapitalto
financeresidentialdevelopmentat13%interest?Consideringthe$585millionofdebtowedtoUDFby
Centurion/MehrdadMoayedi,UDFslargestindividualborrower,thishighinterestrateresultsinapproximately
$75millionincontractuallyobligatedannualinterestexpense.Actual,seasonedandaccomplisheddevelopers
inDallasFortWorth(oneofthehottestsubmarketsinthecountry)financedevelopmentswithacombination
ofdebtwithinterestratesbelow5%andequityequitywhichCenturiondoesnotappeartohave.
ManagementassertsthatthepostsonHarvestExchangeclearlydemonstratealackofunderstandingofthe
residentialdevelopmentprojectlifecycle.Itappearsthatmanagementdemonstratesalackofunderstanding
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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

ofthecreditqualityofrealestatedevelopersthatborrowerat13%asaprimaryfinancingsource.Mezzanine
financing,whileutilizedinrealestate,israrelyaprimarysourceofprojectfinanceexceptforUDFslargest
borrower,Centurion,whohappenstoborrowat13%mezzaninelevelsasaprimarysourceofprojectfinance.
ManagementacknowledgesthatCenturiondoesnotactuallypaycashinterestinmanycases,whichhelps
explainhowCenturionfundsthe13%interestcost:[m]ostofourloansallowforinterestaccrual,whichcauses
theloanbalancetoincrease.Someprojectsmaystartdevelopmentrightaway[.]Mostloansaccruelargerand
largerbalances.Managementfailstoaddresstheconsequenceofthisstatement.Ifitisaccruingnoncash
interestincomeonamaterialnumberofloans,howisitfinancingthedistributionsrequiredinordertomaintain
itstaxablestatusasaREITrelatedtothatnoncashcurrentincome?Everybodyunderstandsthenegativecarry
natureofrealestatedevelopmentandtheconceptsofinterestreservesandnoncashinterestaccrual;UDFis
recognizingnoncashincomeandhavingtofunddistributionsbysourcingnewcapital,giventheincomeisby
definition,notcash.Managementfailstoexplainhowtheuniteconomicscanpossiblyworkgiventhesignificant
timemismatchbetweenincomeearnedvs.cashinterestgenerated.
Andhowdoesmanagementassessandjustifytheaccruedbalancesoftheloans?Well,management
evaluate[s]eachloananditsunderlyingcollateralorbusinesspurposeonaquarterlybasis.Seebackgroundon
insiderDeficiencyNotesandmanagementsaccountingtreatmentthereof.Despitethepoortrackrecord,
managementdefendedthebusinessmodelanditsabilitytoaccrueinterest(andaccuratelymark)loansupto
muchlargerandlargeraccruedbalances.Managementdeceptivelycharacterizesthepracticeoftransferring
loanswithyearsofaccruedinterestfromfundtofundandprovidingliquidityfromonetoanotherasthe
advantageofinvestinginprojectspreviouslyunderwrittenandactivelymonitoredbyUDF.Managementomits
anymentionofthe1015%inbrokerfeesandoriginationfeesinorderforthenextUDFinvestorstoinvestin
existingUDFloans,capitalwhichwasalreadysubjectedtothe1015%infees.Managementfurtherfailsto
explainhowitcouldpossiblyjustifythefrictionofincurringsuchhighfeesmultipletimesifaloancouldreally
standonitsownandserviceitself.HollisGreenlawandhismanagementcrewpreyonmomandpopinvestors
byusingthecomplexityofhundredsofentitiestoobscurethefactthattheyraisecapitalfromnewfundsin
ordertopayoffoldfunds.
UnfortunatelyforUDFinvestors,thereareamaterialnumberofinstancesinwhichmanagementhasusedfunds
fromthenextfundtoacquireaccruedup(i.e.UNPAID)loansfromapriorfund,includingcasesinwhichloans
issuedbyUDFtoCenturionarecollateralizedbylandthathasneverbeendeveloped(foryears,notquarters).
Oneexample,ShahanPrairie,hasalreadybeenmadepubliclyavailable:(http://hvst.co/1IQPYL6).This
UNDEVELOPEDlandhasbeenownedbyCenturionandfinancedbyvariousUDFfundsforover10years.Intheir
response,managementdidnotrefutethisbalancesheetparalyzingfact,butinsteadmadethepreposterious
claimthatitwasallpartofthelifecycleofasinglefamilyresidentialdevelopment,fromlandacquisitionand
developmenttothesaleoffinishedlotstohomebuilders.Thisclaimispurecomedythereissimplyno
development.AsevidencedbythephotographsfromNovember2015,ShahanPrairiecontinuestoconsistof
undevelopedlandand,byitsownadmission,hasnotgeneratedanyrevenueinthepast10years.
Managementprovidesnoexplanation(becauseitcannot)astohowitmakeseconomicsensetofinancethis
projectata13%interestratefor10yearswithoutevergeneratinganyincome.Nosanedeveloperwould
seriouslyarguethata10yeardevelopmentlifecycleforundevelopedlandthathasnotgeneratedanyincome
allthewhileaccruinginterestat13%makesanysensewhatsoever.Well,thatswhatUDFsmanagement
wouldhaveshareholdersbelieve.The10yearlifecycleincludesalotofbobbingandweaving,about
everythingexceptroads,utilities,houses,people,andcashgenerated.VisitShahanPrairie.Seeforyourself.
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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

ShahanPrairieisjustoneexampleofmanytocome.LoanstoCenturionregularly(i)donotgenerateanycash
(principalorinterest),(ii)areextendedwithoutanyextensionfees(trythatonewithabank),and(iii)accrue
largerandlargerbalances(yearafteryear).Allwhilethelandremainsundevelopedforyears(somenow
approachingadecade).Areinvestors(andtheauthorities)reallygoingtobelievethatloansthatbehavein
thismannerarearmslength?
Managementssocalledresponseincludesapartialexplanationthat[b]ecauseextensionsareanormalpartof
ourbusiness,wegenerallydonotchargeanextensionfee.Extensionsarealsoanormalpartofbanklending.
Whenabankgrantsanextension,ittypicallydoessoforafee.
Theoldsayingifyouowethebank$100that'syourproblem.Ifyouowethebank$100million,that'sthe
bank'sproblemprobablybestsumsuptherelationshipbetweenUDFandCenturion.Shareholders(andthe
authorities)havetoaskthemselveswhetherloanstoCenturionbehavethiswaybecausetheyare,infact,not
armslengthtransactions?OrisitbecauseCenturionowesamountainofdebttoUDF($585million)that
Centurioncannotrepay?OrisitbecauseMoayedicoownedaprivatejetwithUDFsCEOHollisGreenlaw?Oris
itbecauseMoayediandGreenlawhaveotherfinancialrelationships?
Staytuned.Additionaldetailisintheappendix.
MORERESPONSESTOCOMEWHILEOTHERDETAILEDRESPONSESTOMANAGEMENTCANBEVIEWEDAT:
(http://hvst.co/1IQPXXr/http://hvst.co/1IQQ2KN).

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

TosubmitatiptotheSECsOfficeoftheWhistleblower:https://www.sec.gov/about/offices/owb/owb
tips.shtml.
SECOfficeoftheWhistleblower
100FStreetNE
MailStop5553
Washington,DC20549
Fax:(703)8139322

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

APPENDIXIDETAILONDEFICIENCYNOTES,RELATEDPARTY
ThefinancialtableincludedbelowisthebalancesheetforUMTHoldings(UMTH)fortheperiodended
December31,2014whichwasattachedasExhibit99.1toUMTsForm10KfortheperiodendedDecember31,
2014.TheholeinUMTHsbalancesheetisprimarilyduetothedeficiencynoteowedtoUMTHwhichisclassified
asNotespayablerelatedparties.

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

BelowisanorganizationchartthatshowshowUMTHfitsintothecomplexwebofaffiliates.

BelowisadisclosurefromUDFIVs10KfiledfortheperiodendedDecember31,2014thatshowsexactlywho
ownsUMTH,noticetheinsiders.

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

BelowisUMTsdisclosureonwhatadeficiencynoteactuallyis:arealizedloss.Thisdisclosureissourcedfrom
UMTsForm10QforthequarterendedSeptember30,2015:

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

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

BelowisacomplexwebofotheraffiliatedrelationshipsinvolvingUMTHandUMTthatfurtherquestion
managementscredibility.NotethatUMTisowedarevolvinglineofcreditbyUDFIandnotethatUDFIIIowns
anequityinterestinfouraffiliatesownedbyinsiders:RAFC,SCMI,CRC,andWFI.Alsonotethatthesefour
entitiesallowerecourseobligationstoUMT.Whatisarecourseobligation?Itisthesamethingasa
deficiencynote,arealizedlossthatwasnotrecognizedbyUMT.AndwhydoesUDFIIIownequityinentities
thatareunabletorepayrecourseobligationstoUMT?

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ReachingAcrosstheAisleofYourPrivateJetDoesNotEqualanArmsLengthTransaction
UnitedDevelopmentFunding(UDF)

APPENDIXIIEXAMPLESOFLOANPATTERNSFORCENTURION
AROLLINGLOANGATHERSNOLOSS.
ThetablesbelowwerecreatedbyreviewinguptotwelveSECfilingsforeachindividualUDFIVloans(Forms10
QandForms10K).TheinformationinthetablesbelowissourceddirectlyfromUDFIVtabulardisclosures.
Unfortunately,UDFIVdoesnotmakeitthiseasytoseethetrendsandtoseeexactlywhatishappeningfrom
periodtoperiod.AtypicalinvestorofUDF(retailmomsandpops)isnotproficientinreviewingSECfilingsand
combingthroughnumerousdifferentfilingstounderstandwhatishappeningwhichispartlywhytheissueswith
UDFarehardtorecognize.
EachloandetailedbelowisowedbyUDFslargestgroupofrelatedborrowers.Thefollowingelevenloans
accountforanoutstandingbalanceof$166millionatSeptember30,2015,accordingtoUDFIVsForm10Q,
representing26%oftheoutstandingbalanceofallUDFIVloansand40%ofallloansissuedtoUDFIVslargest
borrower.Whilesignificantlymoreloansalsodemonstrateirregularities,thissamplesetisrepresentativeof
loanstothisdeveloper.Asdiscussedpreviously,loanstothisdeveloperregularly(i)donotgenerateanycash
(principalorinterest),(ii)areextendedwithoutfees,and(iii)accruelargerandlargerbalances.Allwhile,in
numerousinstances,landremainsundevelopedforyears,innumerousinstances.

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