UNITED MORTGAGE TRUST

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. On September 14, 2015 the Company foreclosed on the real estate securing the one remaining RAFC loan. The estimated value of the real estate is $5,135,000 and is included in Real estate owned, net on the balance sheet. The deficiency of $10,695,254 is guaranteed by RAFC and was added to the RAFC Recourse Obligation balance. The unpaid principal balance of the loan at December 31, 2014 was approximately $15,830,000.

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. Under the terms of the Agreements, any remaining deficiency resulting from foreclosure and liquidation of the RAFC interim loan is to be added to the RAFC Recourse Obligation. On September 14, 2015 the Company foreclosed on the real estate securing the one remaining RAFC loan. The estimated value of the real estate is $5,135,000 and is included in Real estate owned, net on the balance sheet. The deficiency of $10,695,254 is guaranteed by RAFC and was added to the RAFC Recourse Obligation balance. As of September 30, 2015, the total outstanding principal balance of the Recourse Obligations was approximately $31,589,000. From December 31, 2005 through September 30, 2015 the Company has received approximately $5,956,000 in aggregate principal and interest payments under the Recourse Obligations. Please see Note 4 above for additional information regarding the Agreements.

Effective with the July distribution paid to shareholders of beneficial interest, the distribution rate was set at $0.40 per share annualized. Our Trustees review and determine our distribution rate no less than quarterly. Please refer to our Report on Form 8-K filed on June 12, 2015 for further information about the distribution rate.

Revenues for the nine months ended September 30, 2015, were approximately $3,423,000 compared to approximately $3,819,000 for the comparable period in the prior year. The decrease was due primarily to a decrease of approximately $1,265,000 of interest income related to the UMTHLC Deficiency Note and line of credit due to the Loan Modification agreement executed with UMT Holdings, L.P. effective January 1, 2015. This decrease was partially offset by an increase of approximately $326,000 of interest income related to the Recourse Obligations, an increase of approximately $67,000 of interest income related to the UDF I LOC and an increase of approximately $476,000 of interest income related to the construction and land development loans to non-related parties due to higher outstanding loan balances during the nine months ended September 30, 2015 compared to the same period in the prior year. Revenues from interim loans accounted for 0% of revenues for the nine months ended September 30, 2015 compared to 19% in the same period in the prior year.

The Company’s distribution is fixed quarterly by our trustees, based on revenue projections. As such, the distribution may fluctuate up or down. Revenues 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. The annual distribution rate was reduced from 2.90% to 2.0% Effective July 1, 2015. Distributions, per weighted average share of beneficial interest, to shareholders were $0.10 per share for the three months ended September 30, 2015 and $0.14 per share for the three months ended September 30, 2014. Distributions, per weighted average share of beneficial interest, to shareholders were $0.39 per share for the nine months ended September 30, 2015 and $0.43 per share for the nine months ended September 30, 2014. The dividend portion of the distribution was $0.00 for the three months ended September 30, 2015 and $0.01 for the three months ended September 30, 2014. The dividend portion of the distribution was $0.00 and $0.04 for the nine months ended September 30, 2015 and 2014, respectively. The portion of these distributions that did not represent a dividend represented a return of capital.