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	v377208_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - UNITED MORTGAGE TRUST	v377208_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, 2014

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission file number: 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, 2014 was 6,433,908.

UNITED MORTGAGE TRUST

INDEX

PART I - FINANCIAL INFORMATION

		Page
ITEM 1.	Financial Statements

	Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	3
	Consolidated Statements of Income for the three months ended March 31, 2014 and 2013 (unaudited)	4
	Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	28
ITEM 4T.	Controls and Procedures	29

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	29
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
ITEM 3.	Defaults Upon Senior Securities	30
ITEM 4.	Mine Safety Disclosures	30
ITEM 5.	Other Information	30
ITEM 6.	Exhibits	31
	Signatures	33

UNITED MORTGAGE TRUST

CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(unaudited)			(audited)
Assets
Cash and cash equivalents	$	488,501		$	1,108,300

Mortgage Investments:
Investment in trust receivable		622,342			653,736
Investment in residential mortgages		111,249			65,335
Interim mortgages, related party		16,098,574			16,282,339
Allowance for loan losses		(129,878	)		(128,053	)
Total mortgage investments		16,702,287			16,873,357

Lines of credit receivable, related parties		86,151,485			86,151,485
Lines of credit receivable		9,755,248			8,961,704
Accrued interest receivable		1,946,016			1,882,012
Accrued interest receivable, related parties		13,598,606			10,968,042
Reserves – accrued interest receivable		(4,050,978	)		(3,693,244	)
Recourse obligations, related parties		20,248,348			20,094,279
Real estate owned, net		4,845,798			5,287,857
Deficiency notes		4,976,199			4,976,199
Deficiency notes, related parties		29,175,409			29,295,567
Allowance for loan losses – deficiency notes		(1,921,306	)		(1,736,306	)
Other assets		571,467			1,959,363

Total assets	$	182,487,080		$	182,128,615

Liabilities and Shareholders’ Equity
Liabilities:
Dividends payable	$	311,000		$	311,000
Lines of credit payable		7,998,441			7,682,920
Accounts payable and accrued liabilities		559,271			820,321
Accounts payable and accrued liabilities, related parties		2,888,420			1,939,695
Participation payable, related parties		70,835,104			70,835,104
Notes payable		6,380,656			6,190,656
Total liabilities		88,972,892			87,779,696

Commitments and contingencies
Shareholders’ equity
Shares of beneficial interest; $.01 par value; 100,000,000 share authorized; 8,364,250 and 8,360,463 share issued in 2014 and 2013, respectively; and 6,435,945 and 6,436,767 outstanding in 2014 and 2013, respectively		83,643			83,605
Additional paid-in capital		147,804,188			147,748,315
Cumulative distributions in excess of earnings		(17,233,937	)		(16,411,341	)
		130,653,894			131,420,579
Less treasury stock of 1,928,305 and 1,923,695 shares in 2014 and 2013, respectively, at cost		(37,139,706	)		(37,071,660	)
Total shareholders’ equity		93,514,188			94,348,919

Total liabilities and shareholders’ equity	$	182,487,080		$	182,128,615

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended March 31,
	2014		2013
Interest Income:
Interest on loans – related parties	$	854,384	$	1,110,550
Interest on loans		353,796		227,745
Total interest income		1,208,180		1,338,295

Interest Expense:
Long term debt – related parties		41,960		28,284
Long term debt		255,268		166,767
Total interest expense		297,228		195,051
Net interest income		910,952		1,143,244

Provision for loan losses		475,842		520,083
Net interest income after provision for loan losses		435,110		623,161

Noninterest Expense:
Trust administration fee – related parties		250,000		250,000
Loan servicing fee – related arties		146		1,703
General and administrative – related parties		21,876		19,032
General and administrative		52,958		269,854
Total noninterest expense		324,980		540,589

Net income	$	110,130	$	82,572

Net income per share of beneficial interest	$	0.02	$	0.01

Weighted average shares outstanding		6,436,065		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,
	2014			2013
Operating Activities
Net income	$	110,130		$	82,572
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses		475,842			520,083
Depreciation and amortization		4,125			7,950
Changes in assets and liabilities:
Accrued interest receivable, net		(15,046	)		88,596
Accrued interest receivable, related parties		(706,165	)		(520,762	)
Other assets		1,383,771			42,454
Accounts payable and accrued liabilities		(261,050	)		(171,197	)
Accounts payable and accrued liabilities, related parties		33,500			(213,983	)
Net cash provided by (used in) operating activities		1,025,107			(164,287	)

Investing Activities
Principal receipts on trust receivables		31,394			31,121
Principal receipts on residential mortgages		1,835			1,883,422
Principal receipts on interim mortgages and deficiency notes		1,825			-
Principal receipts on interim mortgages and deficiency notes, related parties		152,011			359,062
Investments in recourse obligations, related parties		(2,157	)		(269	)
Principal receipts from recourse obligation, related parties		-			53,483
Principal investments in lines of credit receivable, related parties, net		-			(5,000	)
Principal receipts from investments in lines of credit receivable, net		(1,493,941	)		(2,230,956	)
Investments in real estate owned		-			(11,225	)
Proceeds from sale of real estate owned		103,467			261,350
Net cash (used in) provided by investing activities		(1,205,566	)		340,988

Financing Activities
Proceeds from issuance of shares of beneficial interest		55,911			57,813
Net borrowings on lines of credit payable		315,521			316,828
Proceeds from notes payable		190,000			1,420,000
Principal payments on notes payable		-			(275,065	)
Purchase of treasury stock		(68,046	)		(88,500	)
Dividends		(932,726	)		(933,123	)
Net cash (used in) provided by financing activities		(439,340	)		497,953

Net (decrease) increase in cash and cash equivalents		(619,799	)		674,654
Cash and cash equivalents at beginning of period		1,108,300			236,213
Cash and cash equivalents at end of period	$	488,501		$	910,867

See accompanying notes to consolidated financial statements.

UNITED MORTGAGE TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	216,013		$	149,808
Supplemental Disclosure of Noncash Activity:
Transfers of loans to foreclosed properties or recourse obligations	$	-		$	308,132
Increase (decrease) trust receivables	$	-		$	(111,176	)
Increase (decrease) residential mortgages	$	47,749		$	(47,749	)
(Increase) decrease participation receivable, related parties	$	-		$	(26,440	)
Increase (decrease) participation payable, related parties	$	-		$	26,440
(Increase) decrease participation accrued interest receivable, related parties	$	(1,615,623	)	$	(2,578,681	)
Increase (decrease) participation accrued interest payable, related parties	$	1,615,623		$	2,578,681
(Increase) decrease in accrued interest receivable, related parties	$	-		$	83,732
(Increase) decrease interim mortgages and deficiency notes, related parties	$	317,754		$	(1,235,315	)
(Increase) decrease interim mortgages and deficiency notes, related parties	$	-		$	(47,988	)
(Increase) decrease recourse notes, related parties	$	(151,912	)	$	-
Increase (decrease) in real estate owned	$	(213,592	)	$	1,050,363

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 proceeds from our dividend reinvestment plan, 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) loans provided to entities that have recently filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code, secured by a priority lien over pre-bankruptcy secured creditors, referred to as “Debtor in Possession Loans;” (v) 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;” (vi) 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;” (vii) discounted cash flows secured by assessments levied on real property; and (viii) 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.”

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 the services relating to its daily operations. The Company’s offices are located in Grapevine, Texas.

Basis of Presentation

The Company follows the accounting for subsidiaries as set forth in the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 810 Consolidations. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, in which the Company has a controlling financial interest: 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”), UMT United Residential Home Finance, L.P. (“UMT 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. 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, 2013, included in our Annual Report on Form 10-K filed with the SEC on March 31, 2014. Operating results for the three months ended March 31, 2014, are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. Certain prior period amounts have been reclassified to conform to current period presentation.

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 2014, the Company had two deficiency notes with non-related parties in the total amount of approximately $4,976,000. One note in the amount of approximately $1,725,000 bears interest at a rate of 14% per annum. The second note is in the amount of approximately $3,251,000 with a loss reserve of approximately $1,921,000. 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, 2013, the Company had two deficiency notes with non-related parties in the aggregate amount of approximately $4,976,000. One note in the amount of approximately $1,725,000 bears interest at a rate of 14% per annum. The second note is in the amount of approximately $3,251,000 with a reserve of approximately $1,736,000. 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, 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 March 31, 2014 and December 31, 2013 was approximately $29,175,000 and $29,296,000, respectively. The principal balance will fluctuate from time to time based on the underlying loan activity and the amount of deficiencies realized by the related party. The note bears interest at 6% and requires quarterly principal and interest payments based on a ten-year (10) amortization for the outstanding principal balance. The Company is negotiating an extension of this loan with UMTHLC with similar terms. The note is secured by a limited guaranty by UMTHGS, the Advisor, equal to a monthly amount not to exceed 33% of the advisory fee received by UMTHGS under the terms of its Advisory Agreement with the Company.

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., (“UMTH LD”), 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 UMTH Land Development, L.P., 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 to 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 Company is negotiating a further extension of this loan with UMTHLC on similar terms. The outstanding balance on this line of credit at March 31, 2014 and December 31, 2013 was approximately $7,577,000 for both periods, respectively.

See Note 3 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, 2014 and December 31, 2013 was approximately $16,099,000 and $16,282,000, 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, 2014 and December 31, 2013, 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 up to the maximum amounts shown below 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, 2014		Promissory Note principal amount (2)		Units/ indemnification pledged as security	C Units distributed during 2014		Units/ indemnification remaining	Estimated Collateral Value (3)
CRG	$	2,725,442	$	4,504,544	$	4,300,000	4,984 Class C and 2,710 Class D		-	2,399 Class C and 2,710 Class D	$	4,786,000
RAFC	$	3,243,369	$	10,324,266	$	7,100,000	11,228 Class C & 6,659 Class D		-	8,694 Class C & 6,659 Class D	$	10,465,000
SCMI	$	3,295,422	$	3,448,002	$	3,488,643	4,545 Class C and 3,000 Class D		-	985 Class C and 3,000 Class D	$	3,872,481
RAFC / Wonder(1)	$	1,348,464	$	1,971,536	$	1,400,000	1,657 Class C		-	1,482 Class C	$	1,482,000
Wonder Indemnification (1)		n/a		n/a		n/a	$1,134,000		-	n/a	$	822,000
Totals	$	10,612,697	$	20,248,348	$	16,288,643					$	21,427,000

(1)

Wonder is collateralized by an indemnification agreement from RMC in the original amount of $1,134,000, of which $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 and Wonder balances at March 31, 2014 exceeded the stated principal amount per their variable Secured Notes by approximately $205,000, $3,224,000 and $572,000, 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 we originally anticipated and outpaced the minimum principal reductions scheduled for the loans.

(3)

Estimated collateral value reflects the pledge of D units of limited partnership interest of UMTH held by WLL, Ltd., RAFC and KLA, Ltd. 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 have been extended through December 31, 2014. 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 D ownership units of UMT Holdings, L.P. These units represent capital shares in UMT Holdings, L.P. and are eligible for, and receive, quarterly distributions from UMT Holdings, L.P. 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 under their repayment obligations 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:

UMT Holdings. This guaranty is limited to a maximum of $3,203,549 of all amounts due under the Secured Notes.

WLL, Ltd., 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 UMT Holdings.

KLA, Ltd. 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 is secured by an assignment of 3,000 of Guarantor’s Class D units of partnership interest in UMT Holdings, L.P. (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 is secured by a pledge of 1,355 of Guarantor’s Class D units of partnership interest in UMTH.

In addition, WLL, Ltd. has obligations to UMT Holdings under an indemnification agreement between UMT Holdings, WLL, Ltd. and William Lowe, under which UMT Holdings is indemnified for certain losses on loans and advances made to William Lowe by UMT Holdings. That indemnification agreement allows UMT Holdings to offset any amounts subject to indemnification against distributions made to WLL, Ltd. with respect to the Class C and Class D units of limited partnership interest held by WLL, Ltd. Because WLL, Ltd. 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, UMT Holdings and the Company entered into an Intercreditor and Subordination Agreement under which UMT Holdings has agreed to subordinate its rights to offset amounts owed to it by WLL, Ltd. 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, 2014.

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 Delaware limited partnership that is affiliated with the Company's Advisor, UMTHGS. The Amendment increased an existing revolving line of credit facility ("Loan") to $45,000,000. 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 December 31, 2012, the loan was extended for a second time for a period of one year and the loan amount was increased from $75,000,000 to $82,000,000. Effective October 1, 2013 the loan was extended for a period of one year and matures on December 31, 2014.

The 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%.

UDF may use the 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 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 $45,000,000 revolving credit facility (“Loan”) from UMT to UDF I and (ii) a purchase option to acquire a full ownership participation interest in the Loan (the “Option”). 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 December 31, 2012, the loan was extended for a second time for a period of one year and the loan amount was increased from $75,000,000 to $82,000,000. Effective October 1, 2013, the loan was extended to December 31, 2014.

Pursuant to the Economic Interest Agreement, each time UDF requests an advance of principal under the UMT Loan, UDF III will fund the required amount to UMT and UDF III’s economic interest in the UMT 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 UMT 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 UMT 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 UMT 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 UMT Loan and the Security Agreement, including participation in the management and control of the UMT Loan. UMT will continue to manage and control the UMT Loan while UDF III owns an economic interest in the UMT 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 UMT Loan. UDF III had funded approximately $70,835,000 to UDF under the Economic Interest Participation Agreement at both March 31, 2014 and December 31, 2013. UMT had funded approximately $7,739,000 to UDF under this agreement at both March 31, 2014 and December 31, 2013.

On June 21, 2010, UDF entered into a new promissory note agreement with a private investor, the proceeds from which were used to pay off in full an existing credit facility that UDF had with Textron Financial Corporation. Pursuant with this transaction, the Company entered into a second amendment to our subordination and intercreditor agreement which subordinates the UMT loan to the new loan from the private investor, reducing the amount subject to subordination from $30,000,000 to $15,000,000

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 $15,000,000 revolving credit facility in which the Company agrees to pay UDF IV a monthly credit enhancement fee equal to 1/12^th of 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, 2014 and December 31, 2013:

	2014		2013
UDF I	$	7,739,000	$	7,739,000
UDF III Economic Interest Participation Agreement		70,835,000		70,835,000
UMTH LC		7,577,000		7,577,000
Balance, end of period	$	86,151,000	$	86,151,000

8) Loans made to related parties of the Advisor. Below is a table of the aggregate principal amount of mortgages funded during the quarters ended March 31, 2014 and 2013, respectively, to the companies affiliated with the Advisor, and named in the table and the aggregate amount of draws made by UMTHLC under the line of credit, during the three quarters indicated:

Related Party Company	2014		2013
RAFC		-		-
UMTHLC		-	$	15,000
UDF		-		-

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, 2014 and March 31, 2013, the expenses for the Company’s Advisor were approximately $250,000 for both periods, respectively, and actual payments were approximately, $250,000, and $319,000, 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 $34,000 and $19,000, during the three months ending March 31, 2014 and March 31, 2013, and expensed approximately $19,000 in both the three months ending March 31, 2014 and March 31, 2013, 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 2014 or 2013. 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, 2014, 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, 2014 and March 31, 2013, respectively, and expensed approximately $20,000 and $8,000, during the three months ending March 31, 2014 and March 31, 2013, respectively. These fees are amortized monthly, as an adjustment to interest expense, over the term of the credit facility agreements described in Note 6.

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, 2014 and paid loan servicing fees of approximately $2,000 in the three month period ending March 31, 2013.

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 ending March 31, 2014 and March 31, 2013 the credit enhancement expenses were approximately $22,000 and $20,000, and the Company paid approximately $18,000, and $21,000 in the three months ending March 31, 2014 and March 31, 2013, respectively.

12) Affiliates of the Company, UDF LOF, UDF IV and UDF X, are reimbursed for their 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, 2014 and March 31, 2013 of approximately $1,058,000 and $342,000, respectively.

13) The Company pays UMTH LD 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 UMTH LD. In the three months ended March 31, 2014 and March 31, 2013, payments were made for the above administrative and origination fees of approximately $92,000, and $91,000, respectively.

The table below summarizes the approximate payments associated with related parties for the three months ended March 31, 2014 and 2013:

Related Party Payments:
		For Three Months Ended
Payee	Purpose	March 31, 2014				March 31, 2013
UMTHGS	Trust administration fees	$	250,000	88	%	$	319,000	94	%
UMTHGS	General & administrative - shareholder relations		34,000	12	%		19,000	6	%
		$	284,000	100	%	$	338,000	100	%

PSC	Loan servicing fee	$	-	-		$	2,000	100	%

UDF III	Credit enhancement fees	$	18,000	100	%	$	21,000	100	%

UDF IV	Participation Interest Paid	$	1,058,000	100	%	$	342,000	100	%

UMTH LD	Admin and origination fees paid	$	92,000	100	%	$	91,000	100	%

The table below summarizes the approximate expenses associated with related parties for the three months ended March 31, 2014 and 2013:

Related Party Expenses:
		For Three Months Ended
Payee	Purpose	March 31, 2014				March, 31, 2013
UMTHGS	Trust administration fees	$	250,000	93	%	$	250,000	93	%
UMTHGS	General & administrative - shareholder relations		19,000	7	%		19,000	7	%
		$	269,000	100	%	$	269,000	100	%

PSC	Loan servicing fee	$	-	-		$	2,000	100	%
PSC	General & administrative – Misc	$	3,000	100	%		-	-
		$	3,000	100	%	$	2,000	100	%

UMTH	Debt placement fees	$	20,000	100	%	$	8,000	100	%

UDF III	Credit enhancement fees	$	22,000	100	%	$	20,000	100	%

Fair Value of Financial Instruments

In accordance with the reporting requirements of ASC 825, Disclosures About 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 related parties and accounts payable and accrued liabilities (including related parties) approximate the carrying value due to the relatively short maturity of these instruments. The carrying value of investments in residential mortgages, interim mortgages (including related parties), lines of credit (including related parties), recourse obligations from related parties, notes payable, deficiency notes (including related parties) 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

In August 2009, the Company entered into a term line of credit facility with a 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 was due at maturity, August 29, 2012. Effective September 2012, the line was renewed under the same terms and matures on September 5, 2015. All other terms remain the same. 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 $5,000,000 and $4,376,000 at March 31, 2014 and December 31, 2013, respectively.

On May 27, 2011, the Company entered into a revolving line of credit facility with a 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 is May 27, 2014. 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, 2014 and December 31, 2013 was approximately $994,000, and $1,593,000, respectively.

On October 26, 2011, the Company entered into a term line of credit facility with a 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 will be due at maturity which is October 26, 2014. 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, 2014 and December 31, 2013, was approximately $837,000, and $546,000, respectively.

On July 22, 2013, the Company entered into a revolving line of credit facility with a 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 will be due at maturity which is July 22, 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 March 31, 2014 and December 31, 2013 was approximately $1,167,000.

The Company was in compliance with all of its debt covenants as of March 31, 2014 and December 31, 2013.

Notes Payable

On April 21, 2010, the Company entered into a term loan credit facility with a bank for $1,600,000. The loan 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, 2013, the maturity date was extended to December 18, 2014. 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, 2014 and December 31, 2013, was approximately $567,000.

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, as amended. As of March 31, 2014 and December 2013, approximately $4,275,000 was outstanding and approximately $100,000, $200,000, $265,000, $200,000, $187,500, $100,000, $2,347,500, $50,000, $175,000, $500,000, $100,000 and $50,000 matures on March 2016, April 2016, February 2017, March 2017, October 2017, November 2017, February 2018, March 2018, April 2018, May 2018, July 2018, and September 2018, respectively.

As of March 31, 2014, the Company had fourteen Notes Payable to various non-related parties totaling approximately $1,537,000. As of December 31, 2013, the Company had ten notes payable to various non-related parties totaling approximately $1,347,000. 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 and mature on April 2018, June 2018, July 2018, August 2018, and January 2019.

Private Equity Offering

On February 24, 2014, the Company initiated a private offering of equity units (“Equity Units”) to accredited investors (“Equity Unit Holders”). The Equity Units to accredited investors (“Equity Unit Holders”) are being offered by UMT United Residential Home Finance, L.P. (“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 Equity Unit Holders who will become Limited Partners in URHF. The offering of the 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, 2014 no Equity Units had been issued or sold. Through May 15, 2014 $500,000 of Equity Units has been sold.

Share Redemption Program

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 (see below for a further description of the plan), 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, 2014 and December 31, 2013, the NAV was $14.53 and $14.66 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. Previously, there was no hardship exemption. Shares will be redeemed quarterly in the order that they are presented. Any shares not redeemed in any quarter will be carried forward to the subsequent quarter unless the redemption request is withdrawn by the shareholder. Previously, shares were redeemed monthly. Repurchases are subject to cash availability and Trustee discretion. Previously, the SRP provided that repurchases were subject to the availability of cash from the Company’s Dividend Reinvestment Plan (“DRP”) or the Company’s credit line. We have also purchased a limited number of shares outside of our SRP from shareholders with special hardship considerations.

Share repurchases have been at prices between $14.76 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, 2014 and December 31, 2013, was $14.53 and $14.66 per share, respectively.

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. As of March 31, 2014, the Company had no approved redemption requests included in our liabilities.

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		1,795	$	14.76		1,795		-
February		2,188	$	14.76		2,188		-
March		627	$	14.76		627		-
Totals		4,610	$	14.76		4,610		-

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; economic trends affecting the real estate industry generally and the current conditions in the housing and mortgage industries including the impact thereof on the homebuilding industry, current high unemployment rates and changes in economic and credit market conditions, federal and state legislative action and actions of regulatory agencies, changes in interest rates, our ability to adapt to changing circumstances, the concentration of our credit risks particularly with related parties, the continued financial viability of related parties to whom we have extended loans, the ability of counterparties to perform their obligations to us, the level of reinvestment of dividends by our shareholders in our dividend reinvestment plan and the requirement to maintain 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, 2013, 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 proceeds from our dividend reinvestment plan, financing proceeds, 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)

loans provided to entities that have recently filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code, secured by a priority lien over pre-bankruptcy secured creditors, referred to as “Debtor in Possession Loans;”

(v)

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;”

(vi)

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;”

(vii)

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

(viii)

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 invest in Interim Loans or Residential Mortgages. We plan to continue to invest in Land Development Loans, Finished Lot Loans, Construction Loans and Model Home Loans because, 1) Land Development Loans and Finished Lot Loans have provided us with suitable collateral positions, well capitalized borrowers and attractive yields; and, 2) Model Home Loans and Construction Loans are expected to provide us with suitable collateral positions, well capitalized borrowers and attractive yields. Model Home and Construction Loans are expected to produce higher yields commensurate with Land Development Loans, Finished Lot. As we phased out of Interim Loans we increased the percentage of our portfolio invested in Land Development Loans, Finished Lot Loans, Model Home Loans, Debtor in Possession Loans, and Construction Loans.

The following table illustrates the percentage of our mortgage portfolio dedicated to each mortgage loan category as of March 31, 2014 and December 31, 2013:

Mortgage Category:	March 31, 2014			December 31, 2013
First lien secured interim mortgages 12 months or less and residential mortgages		15	%		15	%
Secured line of credit to UMTHLC		7	%		7	%
Land development loans		70	%		70	%
Finished lot loans		0	%		1	%
Construction loans		8	%		7	%

The following table summarizes mortgage loans by type and original loan amount held by United Mortgage Trust at March 31, 2014.

Description	No. of Loans	Interest Rate	Final Maturity Date	Periodic Payment Terms	Prior Liens	Face amount 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	0	n/a	n/a	n/a	n/a		-		-		-
Original balance $50,000 - $99,999	67	8.5% - 12.75%	05/01/14 – 3/1/39	n/a	n/a		362,660		298,454		27,279
Original balance $20,000 - $49,999	125	9% - 14.5%	04/01/17 – 5/19/36	n/a	n/a		360,371		296,569		26,665
Original balance under $20,000	2	9% - 14.5%	6/01/14 – 9/1/31	n/a	n/a		10,560		8,690		290

First Lien secured interim mortgages
Ready America Funding (4)	9	14.0%	n/a	n/a	n/a		16,098,574		16,098,574		-

Secured LOC to UMTH Lending Co., L.P. (4), (5)	1	12.5%	n/a	n/a	n/a		7,576,966		7,576,966		-

Land Development Loans
UDF III Economic Interest Participation	2	9.25%	12/31/14	n/a	n/a		78,574,519		78,574,519		-

Construction Loans	7	13.0%	04/18/14-07/31/16	n/a	n/a		9,755,248		9,755,248		-
Totals	213					$	112,738,898	$	112,609,020	$	54,234

(1)

Current book value of loans.

(2)

Net of allowance for loan losses on mortgage loans of $129,878 at March 31, 2014.

(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 9 and 1 loans, 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, 2014.

Balance at beginning of period	$	111,986,546
Additions during period:
Investments in (collections of) principal		728,461
Deductions during period:
Other decreases		(104,162	)
Other (net change in allowance for loan loss)		(1,825	)
Balance at close of period	$	112,609,020

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 the southwest sections of the United States, particularly 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 over the past four years, 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.

We monitor the fundamentals of supply and demand in the markets and submarkets in which we make loans and where we may expand our operations in the future. Those fundamentals include demographics, jobs and housing affordability. We also monitor movements in home prices and the presence of market disruption activity, such as investor or speculator activity. Further, we study new home starts, new home closings, finished home inventories, finished lot inventories, existing home sales, foreclosures, absorption, finished lots and land prices and changes in the levels of sales incentives and discounts in a market.

We believe that the housing market continues to recover and strengthen. We also believe that this recovery is in its early stages and will continue to vary by market, led by those housing markets with stronger demand fundamentals and more balanced supplies of land and housing inventory relative to demand. Nationally, the housing recovery has strengthened as excess inventories of new and existing homes have been absorbed, home prices have begun to recover and consumer demand continues to improve. As interest rates and home prices increase, we have seen housing affordability trend lower in many markets. We believe that continued strengthening of the recovery depends on adequate supplies of both finished lots and homes available for purchase, as well as the continued recovery of the consumer. Nationally, we believe consumers remain cautious due to uncertainty present in many economic sectors, particularly with regards to elevated unemployment and under-employment, low wage growth, slow economic growth and events associated with tightened federal fiscal policy, including tax rates, spending and federal policies.

Easing policies of the Federal Reserve, coupled with extensive price correction over the past several years, have contributed to restoring housing affordability across the country. Our measurement of housing affordability is determined as the ratio of median family income to the income required to qualify for a 90 percent, 30-year fixed-rate mortgage to purchase the median-priced new home, based on the average interest rate in 2013 and assuming an annual mortgage insurance premium of 70 basis points for private mortgage insurance, plus a cost that includes estimated property taxes and insurance for the home. Over the recent quarter, average interest rates for a conventional fixed-rate 30-year mortgage decreased slightly, but remained above the record lows experienced in the second half of 2012. The rise in interest rates, from the record lows combined with home price appreciation has reduced affordability. However, we believe that home affordability in many markets remains high relative to historical standards, and that the median income-earning family can still comfortably afford the median-priced home. In the short term, we believe that the recent stabilization in the 30-year fixed mortgage rate may quicken the return of consumer demand for new homes in anticipation of further increases in mortgage rates. Over the longer term, significant increases in mortgage rates may cause homebuyers to reduce the size of the home that they purchase, but will likely not reduce the overall demand for new homes.

From a national perspective, ongoing credit constriction, a less robust economic recovery, continued elevated unemployment and housing price instability in the recent downturn have made potential new home purchasers and real estate lenders cautious. As a result of these factors, the national housing market experienced a protracted decline, and the time necessary to correct the market likely means a corresponding slower recovery for the housing industry relative to historical trends. However, improving fundamentals such as the return of home price inflation and continued high home affordability relative to historical levels, indicate to us that the recovery will continue to gain strength

The U.S. Census Bureau estimates that sales of new single-family residential homes in March 2014 were at a seasonally adjusted annual rate of 384,000 units, a 13.3% decrease from the March 2013 estimate of 443,000 units. We believe the drop in sales pace is due to an increase in home prices in many markets and the rise in interest rates, which likely caused some consumers to pause or adjust their home purchases in light of decreased affordability. However, national fundamentals that drive home sales continue to improve in most markets and home affordability remains high relative to historical levels, so we expect demand will resume in an uneven, protracted recovery.

Single-family permits and starts have improved significantly since bottoming in early 2009. According to the U.S. Census Bureau, single-family homes authorized by building permits in March 2014 were at a seasonally adjusted annual rate of 592, 000 units. This was a slight decrease year-over-year of approximately 1.7% from the rate of 599, 000 units in March 2013. Single-family home starts for March2014 stood at a seasonally adjusted annual rate of 635,000 units. This pace is up approximately 1.9% from the March 2013 estimate of 623, 000 units. The increased levels from the lows experienced in early 2009, suggest to us that the homebuilding industry now anticipates continued demand for new homes in coming months relative to the demand evident at the bottom of the new homebuilding cycle.

The seasonally adjusted estimate of new homes for sale at the end of March 2014 was 193,000. The number of new homes for sale increased by 6, 000 units during the first quarter of 2014. The current level of 6.0 months as of March 2014 is considered a healthy housing market. However, limited supplies of finished lot inventory may become a headwind to demand in the near term by constraining the ability of potential home purchasers to find acceptable options or by prompting greater home price increases due to the imbalance between supply and demand. As the overall economy improves and housing demand increases, this imbalance will become more pronounced.

The primary factors affecting new home sales are home price stability, home affordability, and housing demand. Housing supply may affect both new home prices and the demand for new homes. When the supply of new homes exceeds new home demand, new home prices may generally be expected to decline. Also, home foreclosures cause the inventory of existing homes to increase, which may add additional downward price pressure on home prices. Declining new home prices may result in diminished new home demand as people postpone a new home purchase until they are comfortable that stable price levels have been reached. Conversely, when new home demand exceeds new home supply, new home prices may generally be expected to increase. Rising new home prices, particularly at or near the bottom of the housing cycle, may result in increased new home demand as people become confident in home prices and accelerate their timing of a new home purchase. We believe this point has been reached, and we expect the housing recovery to continue to accelerate over the coming quarters.

We face a risk of loss resulting from adverse changes in interest rates. Changes in interest rates may impact demand for our real estate finance products, the rate of interest we receive on our loans receivable and the rate of interest we pay on outstanding loans. In some instances, the loans we make will be junior in the right of repayment to senior lenders, who will provide loans representing 60% to 75% of total project costs. As senior lender interest rates or advance rates available to our borrowers increase, demand for our mortgage loans may decrease, and vice versa.

Developers and homebuilders to whom we make loans and with whom we enter into subordinate debt positions use the proceeds of our loans and investments to develop raw real estate into residential home lots and to construct homes. The developers obtain the money to repay our development loans by reselling the residential home lots to homebuilders or individuals who build single-family residences on the lots by obtaining reimbursement from bond sales or by obtaining replacement financing from other lenders. Homebuilders obtain the money to repay our loans by selling the homes they construct or by obtaining replacement financing from other lenders. If interest rates increase or if mortgage financing underwriting criteria become more restrictive, demand for single-family residences may decrease. In such an interest rate and/or mortgage financing climate, developers and builders may be unable to generate sufficient income from the resale of single-family residential lots and homes to repay loans from us, and developers’ and builders’ costs of funds obtained from other lenders may also increase. Accordingly, increases in single-family mortgage interest rates or decreases in the availability of mortgage financing could increase the risk of defaults on our loans receivable.

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 or in our Annual Report on Form 10-K. The disruption of mortgage markets, in combination with a significant amount of negative national press discussing constriction in mortgage markets and the decline of the national housing industry over the last five years, including declining home prices, have made potential new home purchasers and real estate lenders very cautious. The economic downturn, the failure of highly respected financial institutions, significant volatility in equity markets around the world, unprecedented administrative and legislative actions in the United States, and actions taken by central banks around the globe to stabilize the economy have further caused many prospective home purchasers to postpone their purchases. In summary, we believe there is a general lack of urgency to purchase homes in these times of economic uncertainty. We believe that this has slowed the sales of new homes and finished lots developed in certain markets; however, we do not anticipate the prices of those lots changing materially. We also expect that the decrease in the availability of replacement financing may increase the number of defaults on real estate loans made by us or extend the time period anticipated for the repayment of our loans. Our future results could be negatively impacted by prolonged weakness in the economy, high levels of unemployment, a significant increase in mortgage interest rates or further tightening of mortgage lending standards.

Outlook

In summary, we believe there is a general lack of buyer urgency to purchase homes in these times of economic uncertainty. We believe that this has further slowed the sales of new homes and expect that this will result in a slowing of the sales of finished lots developed by our borrowers in certain markets; however, we continue to believe that the prices of those lots should not change materially. We also anticipate that the decrease in the availability of replacement financing may increase the number of defaults on development loans we invest in or extend the time period anticipated for the repayment of loans. 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 length or extent of the current credit crisis and if it continues over an extended period of time, or if its severity increases, its impact on the economy as a whole and 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

Overall recovery of the single family housing industry is likely to be prolonged. 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 reducing 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 reserving 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 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, 2014 AND MARCH 31, 2013

Revenues

Revenues for the three months ended March 31, 2014, were approximately $1,208,000 compared to approximately $1,338,000 for the comparable period in the prior year. This decrease of approximately $130,000 was due primarily to a decrease of approximately $180,000 of interest income received and earned on the recourse notes in the first quarter of 2014 compared to the first quarter of 2013, a decrease of approximately $54,000 of interest income earned on the UDF line of credit due to the lower interest rate of 9.25% during the quarter ended March 31, 2014 compared to an interest rate of 14% earned during the quarter ended March 31, 2013, a decrease of approximately $22,000 of interest income earned on the UMTHLC deficiency note and a decrease of approximately $31,000 of interest income earned on the residential mortgage portfolio, compared to the same period in the prior year. These amounts were partially offset by an increase in interest income earned on the construction and finished lot loans portfolio of approximately $156,000. The decreases were due to lower outstanding balances in these loan categories during the three months ended March 31, 2014 compared to the same period in the prior year. Revenues from interim loans accounted for approximately 20% of revenues for the three months ended March 31, 2014 compared to 18% in the same period in the prior year. The decline in our interim portfolio was a function of our intention to cease the origination of and reduce our investment in interim loans.

During the three months ended March 31, 2014 and March 31, 2013, approximately 42% and 31% 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, 2014, our investment in the lines of credit to our related party, UDF, through the Economic Interest Agreement, and lot banking transactions, was approximately $79,000,000. We anticipate our investment in construction loans will increase during the remainder of 2014, facilitated by the Company’s lines of credit and continued emphasis on this type of investment activity.

During the three months ended March 31, 2014 and 2013, respectively, approximately 0% and 13% 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, 2014 and March 31, 2013, were approximately $325,000 and $541,000, respectively. The decrease of approximately $216,000 for the three months ended March 31, 2014 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 will pay to MTA a total of $145,000, in quarterly payments beginning 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, 2014 and 2013:

Trust administration fees – Trust administration fees paid during the three months ended March 31, 2014 and 2013 were approximately $250,000. The trust administration fee increases and decreases 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 2014 and 2013 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) - $297,000 and $195,000 (52% increase) for the comparable three month periods ended March 31, 2014 and 2013, 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 outstanding HF II private notes.

Provision for loan losses - The Company recorded a provision for loan losses for the three months ended March 31, 2014 and 2013 of approximately $476,000 and $520,000, respectively. The Company realized actual loan losses of approximately $166,000 and $310,000 during the comparable three-month periods of 2014 and 2013, 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, 2014, the Company has acquired approximately $962 million of loans. The Company has experienced a three-year loss rate of approximately 0.54% 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) - $75,000 and $289,000 (74% decrease) for the comparable three month periods ended March 31, 2014 and 2013, respectively. The decrease was primarily due to the adjustment related to the settlement with MTA discussed above.

Net income was approximately $110,000 and $83,000 for the three months ended March 31, 2014 and 2013, respectively. Specific variances are explained in more detail above. Earnings per share of beneficial interest for the three months ended March 31, 2014 and 2013, were $0.02 and $0.01 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, 2014 and 2013, respectively. The dividend portion of the distribution was $0.02 for the three months ended March 31, 2014 and $0.01 for the three months ended March 31, 2013. 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, 2014 AND 2013

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 and accounts payable and accrued liabilities (including related parties). Cash provided by operations was approximately $1.0 million in the three months ended March 31, 2014 and cash used in operations was approximately $164,000 in the three months ended March 31, 2013.

Cash flows provided by investing activities generally reflect fundings and payments received from lending activities. Cash used in investing activities was approximately $1.2 million and cash provided by investing activities was approximately $341,000 during the three months ended March 31, 2014 and 2013, respectively. The primary uses were investments in lines of credit receivable. The primary sources were from principal receipts from residential mortgages, interim mortgages - related parties and deficiency notes - related parties.

Cash flows from 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 $439,000, and cash provided by financing activities was approximately $498,000 during the three months ended March 31, 2014 and 2013, respectively. The primary uses were the payment of dividends and the purchase of shares under our Share Redemption Plan. The primary sources were from the proceeds from notes payable, net borrowings on lines of credit payable and proceeds from the issuance of shares of beneficial interest. The decrease in cash used by financing activities during the three months ended March 31, 2014, compared to the prior period was primarily due to higher net borrowings from notes payable.

Credit Facilities

Our primary sources of funds for liquidity consist of our dividend reinvestment plan, repayments of principal on our loans made to purchase mortgage investments, and bank lines of credit. The table below summarizes certain liquidity sources and uses for the three-month periods ended March 31, 2014 and March 31, 2013:

	2014			2013
Shares issued		3,787			3,817
Proceeds from issuance of shares of beneficial interest	$	56,000		$	58,000
Number of shares returned to treasury		4,610			5,826
Purchase of treasury stock	$	(68,000	)	$	(89,000	)
Principal receipts:
First lien mortgage notes and trust receivables	$	33,000		$	1,915,000
Real estate owned, net	$	103,000		$	250,000
Interim loans, related parties	$	152,000		$	359,000
Lines of credit	$	(1,494,000	)	$	(2,231,000	)
Lines of credit, related parties	$	-		$	(5,000	)
Net borrowings - lines of credit payable	$	316,000		$	317,000
Net borrowings - notes payable	$	190,000		$	1,145,000

We are not currently offering shares in the public markets except to existing shareholders through our dividend reinvestment plan. In July 2006, we registered an additional 1,000,000 shares to be offered through our dividend reinvestment plan.

On March 18, 2009, the Board approved certain modifications to the Company’s Share Repurchase Plan (“SRP”) and Dividend Reinvestment Plan (“DRP”), which modifications were disclosed in a report on Form 8-K which we filed with the SEC on March 19, 2009. Pursuant to the requirements of the SRP and DRP, the Company sent its shareholders notice of amendment of the SRP and the DRP, both of which were effective on May 1, 2009.

Shares issued in the aggregate, as of March 31, 2014 and 2013, were 8,364,250 and 8,349,198, respectively. Shares retired to treasury through our SRP in the aggregate were 1,928,305 and 1,911,676 through March 31, 2014 and 2013, respectively. Total shares outstanding were 6,435,945 and 6,437,522, at March 31, 2014 and 2013, respectively. As of March 31, 2014, inception to date gross offering proceeds from all public offerings were approximately $166,533,000 and net proceeds after fees, marketing reallowance and commissions were approximately $147,805,000.

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, 2013. 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 of 1.0% 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 most 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 real estate 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 resale 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 amended) as of March 31, 2014. 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 2014, 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

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”). 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, 2014 and December 31, 2013, the NAV was $14.53 and $14.66 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. Previously, there was no hardship exemption. Shares will be redeemed quarterly in the order that they are presented. Any shares not redeemed in any quarter will be carried forward to the subsequent quarter unless the redemption request is withdrawn by the shareholder. Previously, shares were redeemed monthly. Repurchases are subject to cash availability and Trustee discretion. Previously, the SRP provided that repurchases were subject to the availability of cash from the DRIP or the Company’s credit line. We have also purchased a limited number of shares outside of our SRP from shareholders with special hardship considerations.

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. As of March 31, 2014 we had no approved redemption requests included in our liabilities.

Share repurchases have been at prices between NAV, which is calculated and adjusted as necessary on a quarterly basis, 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, 2014 and December 31, 2013 was $14.53 and $14.66 per share, respectively.

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		795	$	14.76		795		-
February		2,188	$	14.76		2,188		-
March		627	$	14.76		627		-
Totals		4,610	$	14.76		4,610		-

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	*

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 t o 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)

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.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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, 2014	By	/s/ Stuart Ducote
		President

UNITED MORTGAGE TRUST - FORM 10-Q - May 15, 2014

Attached files

UNITED MORTGAGE TRUST Reports