A Recap Of Recent Posts On United Development Funding by Harvest
Also see United Development Funding UDF lawsuit
United Development Funding Kyle Bass short
Below you will find abstracts to the 5 referenced PDF attachments along with their original publish date on United Development Funding
1 – A Texas Sized Scheme – Introduction to United Development Funding (Posted 12/10/15)
“Only when the tide goes out do you discover who’s been swimming naked.” Six years ago, the Federal Reserve set in motion one of the greatest financial experiments on record: setting interest rates at zero and seeing what happens. To this point, the result has been massive asset reflation. While what happens next is still the great unknown, low interest rates and rising asset values have provided great cover for many mistakes made over the past six years across all asset classes. The Fed has truly been the rising tide that has lifted almost all boats. Amid this rising tide, an asset class best known as public non?traded REITs emerged as a prominent retirement product sold almost exclusively to retail investors. When the tide goes out, public non?traded REITs will be exposed for the terribly flawed economics on which the $100 billion dollar business was built.
A public non?traded REIT is public because it has the minimum number of shareholders required to be public; it is non?traded because it is not listed or traded on a major stock exchange. This product is sold to retirees as a lowrisk, long?term income?producing asset that is not subject to stock market volatility – pedaled as a fixed?income product without exposure to interest rates. In reality, an investment in a public non?traded REIT is typically an investment in an illiquid ”start?up” real estate company that must accumulate assets quickly and is subject to the same market risks (or greater market risks) as its publicly traded, more liquid peers which benefit from lower costs of capital.
When boiled down to the least common denominator, public non?traded REITs exist because of high upfront commissions that provide the incentive for financial advisers to sacrifice their client’s best interest for their own personal greed. Prior to a non?traded REIT ever purchasing an asset which may or may not generate future positive returns, ten to fifteen percent of an investor’s capital is consumed by upfront offering fees, broker commissions and asset origination fees. While the high upfront fee load incents “investment advisers” to push the product and is a primary reason why public non?traded REITs exist, it is also why so many are set to fail from the beginning.
See full United Development Funding PDF below.
2 – Letter Sent to United Development Funding Auditor (Posted 12/10/15)
December 4, 2015
Mr. Larry Autrey
Whitley Penn LLP
8343 Douglas Avenue, Suite 400
Dallas, Texas 75225
Mr. James Penn
Mr. B. Glen Whitley
1400 West 7th Street, Suite 400
Fort Worth, Texas 76102
On November 24, 2015, United Development Funding III, L.P. (“UDF III”), United Development Funding IV (“UDF IV”), United Development Funding Income Fund V (“UDF V”), and United Mortgage Trust (“UMT”) (collectively, the “Companies”) each filed an 8?K with the Securities and Exchange Commission (“SEC”) stating that Whitley Penn, LLP “has declined to stand for reappointment as the Company’s independent registered public accounting firm,” and its declination was “accepted by the Company’s audit committee.” These 8?Ks further state that
(i) there were no disagreements between the [Companies] and Whitley Penn on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Whitley Penn, would have caused Whitley Penn to make reference to the subject matter of the disagreement in its report on the [Company]’s consolidated financial statements, and (ii) there were no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S?K.
Whitley Penn acknowledged the filings and agreed “with the statements concerning our firm contained therein.”
As you know, the Companies are affiliates of each other, externally managed or advised by the same principal group of related individuals, and generally engage in the business of unregulated lending to residential real estate developers, primarily in North Texas and to the same, small group of developers. A review of the Companies’ periodic filings (Forms 10?K, 10?Q, 8?K, proxy statements and offering documents, collectively, the “Filings”) filed with the SEC, a review of county property records (central appraisal districts and deed recordings) and visits to numerous project and development sites raises a number of serious questions about (i) the legitimacy of the financial and other relationships between affiliated entities and individuals and (ii) apparent accounting irregularities. In addition to potentially significant issues regarding the adequacy of the disclosures in the Filings, it also appears that there may be material misstatements in the audited financial statements for the fiscal years ending 2012, 2013 and 2014, as well as the interim quarterly filings for the same periods. These issues raise serious concerns about Whitley Penn’s prior audit work, but, more importantly, Whitley Penn’s specific representations to shareholders and the public market that there were no “disagreements between the [Companies] and Whitley Penn” and no “reportable events.” As discussed below, there are a number of apparent irregularities that give rise to questions as to (i) whether Whitley Penn had a reasonable basis for making the representations contained in the Companies’ Forms 8?K (which shareholders and the market have clearly relied upon) and (ii) whether Whitley Penn intentionally, recklessly or negligently ignored obvious red flags.
See full United Development Funding letter below.
3 – How the Scheme Works – United Development Funding Shahan Prairie Case Study (Posted 12/11/15)
But First….United Development Funding Company Response – Huh?
United Development Funding s statement DOES NOT refute any allegations and instead discloses the SHOCKING REVELATION that UDF has been under investigation by the SEC since April 2014.
While the Company attempts to down play the seriousness of the investigation, we note that Enron, Madoff, and Stanford all started as non?public SEC fact?finding investigations
Now How it Works…Disclosure About Not Lending to Affiliates
- UDF V, the newest fund in the UDF family of funds, “will not participate in any investments with our advisor entities or any of their affiliates, including any prior program sponsored by affiliates of UDFH”
- Unlike UDF III or UDF IV, UDF V will not directly loan money to affiliates nor will it acquire participation interests in related party / affiliate originated loans, according to its prospectus.
- While UDF V, technically, has not lent to an affiliated program, it indirectly and effectively has by lending to an entity that previously received had a 2nd lien loan from an affiliate (UDF III); this entity used the loan from UDF V to repay the loan issued 8 years ago by UDF III.
See full United Development Funding PDF below.
4 – Lawsuit Referenced in Letter to UDF Auditor and Commentary (Posted 12/14/15)
COMES NOW, Hanna/Magee LP. #1 (“Plaintiff”), and files this its Original Petition complaining of BHM Highpointe Ltd., BHM Highpointe Management, LLC, Buffington Land, Group Ltd., United Development Funding IV, Thomas Buffington and Patrick Starley (“Defendants”) and in support of their complaint would