1、UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K(Mark One)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,2024OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 193
2、4 For the transition period from to 001-36844(Commission file number)RITHM PROPERTY TRUST INC.(Exact name of registrant as specified in its charter)Maryland46-5211870State or other jurisdictionof incorporation or organization(I.R.S.EmployerIdentification No.)799 BroadwayNew York,NY 10003(Address of
3、principal executive offices and Zip Code)646-868-5483Registrants telephone number,including area codeSecurities registered pursuant to Section 12(b)of the Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredCommon stock,par value$0.01 per shareRPTNew York Stock ExchangeS
4、ecurities registered pursuant to Section 12(g)of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.YesNoIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of t
5、he Act.YesNoIndicate 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 shorterperiod that the registrant was required to file such reports),and(2)has been subject t
6、o such filing requirements for the past 90 days.YesNoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405)during the preceding 12months(or for such shorter period that the regist
7、rant was required to submit such files).YesNoIndicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,or a smaller reporting company.See definition of“large accelerated filer,”“acceleratedfiler,”“smaller reporting company”and emerging gr
8、owth company in Rule 12b-2 of the Exchange Act.(check one):Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging Growth CompanyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the extended transition period for com
9、plying with any new or revised financial accounting standardsprovided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting u
10、nder Section404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the registrant included in the fil
11、ing reflect the correction of an error topreviously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officersduring the relevant re
12、covery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).YesNo The aggregate market value of the shares of common stock held by non-affiliates of the registrant as of June 30,2024(the last business day of th
13、e registrants most recently completed second fiscal quarter)was approximately$135.5 million based on the price per share of$3.57,the closing price on June 30,2024.As of February 12,2025,47,489,988 shares of the registrants common stock,par value$0.01 per share,were outstanding.DOCUMENTS INCORPORATED
14、 BY REFERENCEThe information required by Part III(Items 10,11,12,13 and 14)will be incorporated by reference from the registrants Definitive Proxy Statement for its 2025 Annual Meeting of Stockholders to be filedwith the Securities and Exchange Commission pursuant to Regulation 14A.TABLE OF CONTENTS
15、PART ICautionary Statement Regarding Forward-Looking Statements1Summary Risk Factors1Item 1.Business3Item 1A.Risk Factors11Item 1B.Unresolved Staff Comments41Item 1C.Cybersecurity41Item 2.Properties42Item 3.Legal Proceedings42Item 4.Mine Safety Disclosures42PART IIItem 5.Market for Registrants Commo
16、n Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities43Item 6.Reserved44Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations45Item 7A.Quantitative and Qualitative Disclosures about Market Risk63Item 8.Consolidated Financial Statements a
17、nd Supplementary Data64Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure65Item 9A.Controls and Procedures65Item 9B.Other Information66Item 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections66PART IIIItem 10.Directors,Executive Officers an
18、d Corporate Governance66Item 11.Executive Compensation66Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters66Item 13.Certain Relationships and Related Transactions,and Director Independence66Item 14.Principal Accountant Fees and Services66PART IVIte
19、m 15.Exhibits and Consolidated Financial Statement Schedules67Item 16.Form 10-K Summary68In this Annual Report on Form 10-K(“Annual Report”),unless the context indicates otherwise,references to“Rithm Property Trust,”“we,”the“Company,”“our”and“us”refer to the activities of and the assets and liabilit
20、ies of the business and operations of Rithm Property Trust Inc.(formerly Great Ajax Corp.);references to“Rithm”refer to Rithm Capital Corp.,together with its subsidiaries.References to“Operating Partnership”refers to Great Ajax Operating Partnership L.P.,a Delawarelimited partnership;“RCM GA”or the“
21、New Manager”refers to RCM GA Manager LLC,an affiliate of Rithm;“Former Manager”refers to Thetis Asset ManagementLLC,a Delaware limited liability company;“Aspen Capital”refers to the Aspen Capital group of companies;“Aspen”and“Aspen Yo”refer to Aspen Yo LLC,anOregon limited liability company that is
22、part of Aspen Capital;“the Servicer”or“Newrez”refers to Newrez LLC,a Delaware limited liability company,and an affiliateof RCM GA;and the“Former Servicer”and“Gregory”refer to Gregory Funding LLC,an Oregon limited liability company,and an indirect subsidiary of Aspen Yo.PART I.CAUTIONARY STATEMENT RE
23、GARDING FORWARD-LOOKING STATEMENTSThis report contains certain“forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995,which statements involvesubstantial risks and uncertainties.Such forward-looking statements relate to,among other things,the performanc
24、e of our investments,expected results,our financingneeds and the size and attractiveness of market opportunities.Forward-looking statements are generally identifiable by use of forward-looking terminology such as“may,”“will,”“plan,”“should,”“potential,”“intend,”“expect,”“endeavor,”“seek,”“anticipate
25、,”“estimate,”“overestimate,”“underestimate,”“believe,”“could,”“project,”“predict,”“continue”or other similar words or expressions.Forward-looking statements are based on certain assumptions,discuss future expectations,describe future plans and strategies,contain projections of results of operations,
26、cash flows or financial condition or state other forward-looking information.Our abilityto predict results or the actual outcome of future plans or strategies is inherently limited.Although we believe that the expectations reflected in such forward-lookingstatements are based on potentially accretiv
27、e opportunities,our new investment strategy and our reasonable assumptions,our actual results,activities and performancecould differ materially from those set forth in the forward-looking statements.These forward-looking statements involve risks,uncertainties and other factors that maycause our actu
28、al results in future periods to differ materially from forecasted results.Summary Risk FactorsOur ability to implement our business strategy is subject to numerous risks,and the following is only a summary of the principal risks that may materially adverselyaffect our business,financial condition,re
29、sults of operations and cash flows.The following should be read in conjunction with the more complete discussion of riskfactors we face,which are set forth under Part I,Item 1A.“Risk Factors”of this Annual Report.These risks include,among others:changes to our business strategy to invest in commerci
30、al mortgage backed securities(“CMBS”)and commercial mortgage loans as a result of the StrategicTransaction(as defined below),and the risk that we may not successfully execute the new strategy;Rithms ability to effectively conduct our investment activities;Rithms ability to manage and address potenti
31、al conflicts of interest relating to our investment objectives,which may overlap with the investment objectives ofRithm or one of its operating companies;the expectation that we will continue to incur increasing and significant consolidated net losses from our residential mortgage holdings;difficult
32、ies in consummating sales of our non-performing loans(“NPLs”)and re-performing loans(“RPLs”)loans at attractive prices and on a prompt timelineor at all and adverse market developments negatively impacting the value of,and the returns expected from,such assets;the impact of changes in interest rates
33、 and the market value of the collateral underlying our NPLs,RPLs and residential mortgage-backed securities(“RMBS”)real estate assets;the risk of delinquency,foreclosure and loss associated with commercial real estate-related investments that are secured by commercial real property;the non-recourse
34、nature of our investments in commercial mortgage loans and the limited options for financial recovery in the event of default;the impact of adverse weather conditions,man-made or natural disasters,including wildfires and flooding events,and climate change;general risks of commercial real estate inve
35、stments,including,but not limited to,the risk of delinquency and foreclosure,the risks of loss,the dependenceupon the successful operation of,and the net income from,real property,and the risks that may be specific to a particular type or use of a particular property;risks associated with the servic
36、ers of commercial real estate loans;the risks associated with investments in CMBS,including,but not limited to,interest shortfalls,the regulation of commercial real estate loans and the results ofbankruptcy or insolvency claims which could invalidate the debt;the impact of conditions,including adver
37、se changes,in the real estate,mortgage or housing markets and changes in the general economy;our share price has been and may continue to be volatile;the broader impacts of interest rates,inflation,and potential for a global economic recession;.1general volatility of the capital markets;the impact o
38、f adverse legislative or regulatory tax changes;our ability to control our costs;our ability to obtain financing arrangements on favorable terms or at all;we use leverage in executing our business strategy,which may adversely affect the return on our assets and may reduce cash available for distribu
39、tion to ourstockholders and increase losses when economic conditions are unfavorable;our failure to comply with the covenants under our borrowing arrangements;our ability to retain our engagement of our New Manager;the Servicers ability to perform its obligations under the Servicing Agreements(as de
40、fined below);our failure to qualify or maintain qualification as a real estate investment trust(“REIT”);andour failure to maintain our exemption from registration under the Investment Company Act of 1940,as amended(the“Investment Company Act”).We also direct readers to other risks and uncertainties
41、referenced in this report,including those set forth under Part I,Item 1A.“Risk Factors”.We caution that youshould not place undue reliance on any of our forward-looking statements.Further,any forward-looking statement speaks only as of the date on which it is made.Newrisks and uncertainties arise fr
42、om time to time,and it is impossible for us to predict those events or how they may affect us.Except as required by law,we are under noobligation(and expressly disclaim any obligation)to update or alter any forward-looking statement,whether written or oral,that we may make from time to time,whether
43、as a result of new information,future events or otherwise.2Item 1.BusinessOverviewRithm Property Trust,formerly Great Ajax Corp,a Maryland corporation,is an externally managed REIT formed on January 30,2014,and capitalized on March 28,2014,by its then sole stockholder,Aspen,an affiliate of Aspen Cap
44、ital.The Company operates as a mortgage REIT.Historically,the Company primarily targetedacquisitions of(i)RPLs,which are residential mortgage loans on which at least five of the seven most recent payments have been made,or the most recent payment hasbeen made and accepted pursuant to an agreement,or
45、 the full dollar amount,to cover at least five payments has been paid in the last seven months and(ii)NPLs,whichare residential mortgage loans on which the most recent three payments have not been made.We acquired RPLs and NPLs either directly or in joint ventures withinstitutional accredited invest
46、ors.The joint ventures were structured as securitization trusts,from which the Company acquired debt securities and beneficial interests.On June 11,2024,we completed our previously announced strategic transaction with Rithm(such transactions together,the“Strategic Transaction”).The StrategicTransact
47、ion included(i)the entry into a Securities Purchase Agreement,dated as of February 26,2024,by and among the Company,the Operating Partnership,theFormer Manager and Rithm(the“Securities Purchase Agreement”),which provided for,among other things,upon the approval of our stockholders on May 20,2024,the
48、 sale of$14.0 million of our common stock,par value$0.01(“Common Stock”),at a price of$4.87 per share(which represents the trailing five-day average closingprice of our Common Stock on the New York Stock Exchange(“NYSE”)as of the date of the Securities Purchase Agreement,and(ii)upon the approval of
49、ourstockholders on May 20,2024,the entry into a new Management Agreement,dated as of June 11,2024(as amended by that First Amendment to the ManagementAgreement,dated as of October 18,2024 and as may be further amended,modified or supplemented from time to time,the“Management Agreement”),by and betwe
50、enRCM GA and the Company,under which,RCM GA became our new external manager.Additionally,on February 26,2024,we entered into a term loan with asubsidiary of Rithm(the“Credit Agreement”),for which the draw period has expired.Pursuant to the Securities Purchase Agreement,the entry into the CreditAgree
51、ment was accompanied by the entry into a Warrant Agreement,dated as of April 23,2024,by and between the Company and Equiniti Trust Company,pursuant towhich the Company issued warrants to Rithm to purchase 6.5 million of shares with an exercise price of$5.36 per share(the“2024 Warrants”).See Note 7 C
52、ommitments and Contingencies to our consolidated financial statements included in this Annual Report for additional information.On February 26,2024,we issued atermination notice to our Former Manager,and,on June 11,2024,we terminated our existing management contract with the Former Manager in exchan
53、ge forapproximately 3.2 million shares of our Common Stock and$0.6 million in cash.For a full description of the components of the Strategic Transaction,see ourDefinitive Proxy Statement filed with the Securities and Exchange Commission(the“SEC”)on April 10,2024.In addition,in connection with the St
54、rategicTransaction,we changed our principal place of business and corporate headquarters to 799 Broadway,8th Floor,New York,NY 10003.On December 2,2024,werebranded and changed our name to Rithm Property Trust Inc.from Great Ajax Corp.In connection with the Strategic Transaction,we terminated our loa
55、n servicing agreement with the Former Servicer,and disposed of our interest in Great Ajax FS LLC,the parent company of Gregory.On June 1,2024,Gregory assigned all of the servicing agreements for its mortgage loans and real property(the“ServicingAgreements”)to Newrez,an affiliate of Rithm through a S
56、ervicing Transfer Agreement dated June 1,2024,by and between Gregory and Newrez(the“ServicingTransfer Agreement”).The terms of the Servicing Agreements remain unchanged.Prior to the Strategic Transaction,Rithm Property Trusts investment strategy focused on:(i)owning a portfolio of residential RPLs a
57、nd small balance commercial loans(“SBC Loans”)at discounts to the unpaid principal balance(“UPB”)and significant discounts to underlying property values;(ii)expanding acquisitions of RPLs,SBCLoans,and limited acquisitions of NPLs through joint ventures;(iii)working,through a licensed mortgage servic
58、er,to(a)support the continued performance of RPLs;(b)convert a portion of the Companys NPLs to performing status;(c)determining the optimal loss mitigation strategy on an asset-by-asset basis;and(d)managing theprocess timelines for converting NPLs to real estate properties(“REO”)held-for-sale;(iv)se
59、curitizing the Companys RPL portfolio to create long-term,fixed rate,non-recourse financing,while retaining one or more tranches of any subordinated securities created;(v)mitigating the Companys interest rate and prepayment risk;and(vi)working through joint ventures with third party investors to acq
60、uire pools of mortgage loans and other mortgage related assets,which may create value additiveopportunities for the Company.We believe the Strategic Transaction creates a number of benefits for our stockholders,including the opportunity to benefit from a shift in our strategic direction and theoppor
61、tunity for Rithm Property Trust to benefit from Rithms real estate,financial services and capital markets expertise,as well as Rithms industry relationships.Inconnection with the Strategic Transaction,we have shifted our investment focus to a flexible commercial real estate strategy.We believe inves
62、tments in the commercialreal estate sector offer an attractive investment opportunity given market dynamics that are creating significant refinancing challenges and funding gaps in the sector.3As of June 11,2024,although we will evaluate all potentially accretive opportunities,our new investment str
63、ategy is focused on originating and/or acquiring loans andsecurities collateralized by various commercial real estate assets and investing in certain target assets,including senior loans,subordinated debt,mezzanine loanssecured by pledges of equity interests in entities that own commercial real esta
64、te or other forms of subordinated debt in connection with commercial real estate,preferred equity or debt instruments secured by mortgages on commercial real estate,SBC Loans,as well as commercial mortgage servicing rights,commercial realestate properties and operating businesses in the commercial r
65、eal estate sector.Under RCM GAs management,we have started to shift our strategic direction towardsthe commercial real estate sector through investments in CMBS and have been selling residential mortgage loans and RMBS.We do not anticipate investing further inRPLs,NPLs or RMBS.Through our New Manage
66、r,we have access to Rithms extensive expertise and network,creating opportunities to source,underwrite,andstructure credit investments in the commercial real estate sector.We will seek to attain strong risk-adjusted returns for our investors over the long term by sourcing and managing a diversified
67、portfolio of target assets,financed in amanner that is designed to deliver attractive returns across a variety of market conditions and economic cycles.Further detail on the target assets is included below:Senior Mortgage Loans These loans are typically secured by commercial real estate assets and m
68、ay include construction loans.In some cases,first lienmortgages may be divided into an A-Note and a B-Note.The A-Note is typically a privately negotiated loan that is secured by a first mortgage on acommercial property or group of related properties that is senior to a B-Note secured by the same fir
69、st mortgage property or group.Subordinated Debt These loans may include structurally subordinated first mortgage loans and junior participations in first mortgage loans or participationsin these types of assets.As noted above,a B-Note is typically a privately negotiated loan that is secured by a fir
70、st mortgage on commercial real estate and issubordinate to an A-Note secured by the same first mortgage property or group.The subordination of a B-Note or junior participation typically is evidenced byparticipations or intercreditor agreements with other holders of interests in the note.B-Notes are
71、subject to more credit risk with respect to the underlyingmortgage collateral than the corresponding A-Note.Mezzanine Loans Like B-Notes,these loans are also subordinated commercial real estate loans,but are usually secured by a pledge of the borrowers equityownership in the entity that owns the pro
72、perty or by a second lien mortgage on the property.In a liquidation,these loans are generally junior to any mortgageliens on the underlying property,but senior to any preferred equity or common equity interests in the entity that owns the property.Investor rights are usuallygoverned by intercreditor
73、 agreements.Preferred Equity Real estate preferred equity investments are subordinate to first mortgage loans and are not collateralized by the property underlying theinvestment.In the event we are a holder of preferred equity,we may seek to enhance our position with covenants that limit the activit
74、ies of the entity in whichit has an interest and protect its equity by obtaining an exclusive right to control the underlying property after an event of default,should such a default occur.SBC Loans loans that generally have a principal balance of up to$5.0 million and are secured by multi-family re
75、sidential and commercial mixed useretail/residential propertiesOther Securities Other loans and securities including but not limited to CMBS,loans to real estate or hospitality companies,debtor-in-possession loans andequity interests in commercial real estate properties that generate stable current
76、returns,increase the duration of our investment portfolio and provide potentialfor capital appreciation,such as triple net lease equity.Commercial Mortgage Servicing Rights These rights originate when the original mortgage lender sells the right to service a mortgage to an entity whichspecializes in
77、 specific mortgage servicing functions.We may invest in such servicing rights and utilize the Rithm network for servicing.Commercial Real Estate Properties Structuring and financing each transaction in a manner that reflects the risk of the underlying assets cash flow streamand credit risk profile,a
78、nd efficiently managing and maintaining the transactions interest rate and currency exposures at levels consistent with its riskobjectives.4CRT and SRT Transactions Transactions where,for a premium,we may acquire first loss positions in commercial mortgage loans where we expect thepremium will outwe
79、igh any potential defaults.Operating Businesses Businesses which we believe may be acquired and may improve or reorient the management of to deliver attractive returns across avariety of market conditions and economic cycles.We anticipate financing this strategy by accessing a variety of financing o
80、ptions,including borrowing under credit facilities,issuing commercial real estatecollateralized loan obligations or single-asset securitizations,and corporate financing,depending on our view of the most prudent financing option available for eachinvestment.We expect to draw on Rithms real estate exp
81、erience and capital markets expertise,in transaction sourcing,financing,underwriting,execution,assetoperation,management and disposition to execute on the investment strategy.As part of the investment strategy,we may,from time to time,engage in discussions withcounterparties with respect to various
82、potential strategic transactions,including potential investments in,and acquisitions of,other real estate or asset portfolios.As market conditions evolve over time,we expect our investment strategy to adapt as appropriate.RCM GA believes its current investment strategy will producesignificant opport
83、unities for us to make investments with attractive risk-return profiles.However,to capitalize on the investment opportunities that may be present atvarious other points of an economic cycle,we may expand or refocus our investment strategy by emphasizing investments in different parts of the capital
84、structure anddifferent sectors of real estate.We believe that our ability to actively manage investments,and the flexibility of our strategy,should position the Company to generate attractive returns forstockholders in a variety of market conditions over the long-term horizon.Investment GuidelinesWe
85、 make decisions about our investments in accordance with broad investment guidelines adopted by our board of directors(“Board of Directors”)on June 11,2024.Accordingly,we may,without a stockholder vote,change our target asset classes and acquire a variety of assets that may differ from,and are possi
86、bly riskier than,ourcurrent portfolio.Our Board of Directors has adopted a broad set of investment guidelines to evaluate specific investments.Our general investment guidelines prohibit any investmentthat would cause us to fail to qualify as a REIT and any investment that would cause us to be regula
87、ted as an“investment company”under the Investment CompanyAct.These investment guidelines additionally provide that investments will be predominated made in the types of assets described under“Proposal 4ManagementProposalStrategy of Rithm,”in the Companys Proxy Stated filed on April 10,2024.However,t
88、hese investment guidelines may be changed by our Board ofDirectors at any time and from time to time without the approval of our stockholders.If our Board of Directors materially changes any of our investment guidelines,wewill disclose such changes in our next required periodic report or as otherwis
89、e required by applicable law.All of our investment activities are currently conducted by our New Manager on our behalf pursuant to the Management Agreement,which is in effect until June 11,2027(at which time such Management Agreement will automatically renew for two year periods,subject to certain t
90、ermination rights as described therein).Ourprincipal objective is to generate attractive risk-adjusted returns for our stockholders over the long-term through dividends and capital appreciation.5Financing StrategyOur objective is to generate attractive risk-adjusted returns for our stockholders,whic
91、h at times incorporates the use of leverage.The amount of leverage we deploy fora particular investment depends upon an assessment of a variety of factors,which may include the anticipated liquidity and price volatility of our assets;the gapbetween the duration of assets and liabilities,including he
92、dges;the availability and cost of financing the assets;our opinion of the creditworthiness of financingcounterparties;the health of the U.S.economy and the residential and commercial mortgage and real estate markets;our outlook on interest rates;the credit quality ofthe loans underlying our investme
93、nts;and our outlook for asset spreads relative to financing costs.See Note 8-Debt,to our consolidated financial statements includedin this Annual Report for further details about our debt obligations.We currently do not hedge the risk associated with our investment portfolio.However,we may undertake
94、 risk mitigation activities with respect to our debt financinginterest rate obligations.We expect that our debt financing may at times be based on a floating rate of interest calculated on a fixed spread over the relevant index,asdetermined by the particular financing arrangement.A significantly ris
95、ing interest rate environment could have an adverse effect on the cost of our financing.Tomitigate this risk,we may use derivative financial instruments such as interest rate swaps and interest rate options in an effort to reduce the variability of earningscaused by changes in the interest rates we
96、pay on our debt.We may also fund floating rate investments with floating rate debt.These derivative transactions will be entered into solely for risk management purposes,not for investment purposes.When undertaken,these derivative instrumentslikely will expose us to certain risks such as price and i
97、nterest rate fluctuations,timing risk,volatility risk,credit risk,counterparty risk and changes in the liquidity ofmarkets.Therefore,although we expect to transact in these derivative instruments purely for risk management,they may not adequately protect us from fluctuations inour financing interest
98、 rate obligations.No such derivative instruments are currently in use.Policies with Respect to Certain Other ActivitiesSubject to the approval of our Board of Directors,we have the authority to offer our Common Stock or other equity or debt securities in exchange for property and torepurchase or oth
99、erwise reacquire our shares or any other securities and may engage in such activities in the future.We also may make loans to,or provide guarantees of certain obligations of,our subsidiaries.Subject to the percentage ownership and gross income and asset tests necessary for REIT qualification,we may
100、invest in securities of other REITs,other entitiesengaged in real estate activities or securities of other issuers,including for the purpose of exercising control over such entities.We may engage in the purchase and saleof investments.Our officers and directors may change any of these policies or ou
101、r investment guidelines without a vote of our stockholders.In the event that we decide to raiseadditional equity capital,our Board of Directors has the authority,without stockholder approval(subject to certain NYSE)requirements),to issue additional CommonStock or preferred stock in any manner and on
102、 such terms and for such consideration it deems appropriate,including in exchange for property.Decisions regarding the form and other characteristics of the financing for our investments are made by our officers subject to the general investment guidelinesadopted by our Board of Directors.Management
103、 AgreementNew Management AgreementOn June 11,2024,we entered into the Management Agreement,as amended on October 18,2024.The Management Agreement shall be in effect until June 11,2027,and shall be automatically renewed for a successive two-year term each anniversary date thereafter unless terminated
104、 by a party.Under the Management Agreement,RCM GA implements our business strategy and manages our business and investment activities and day-to-day operations subject to oversight by our Board ofDirectors.Among other services,RCM GA provides us with a management team and necessary administrative an
105、d support personnel.We do not currently have anyemployees and do not expect to have any employees in the foreseeable future.Each of our executive officers is an officer,employee,consultant,or contractor of RCMGA(or its affiliates).Under the Management Agreement,the New Manager is entitled to a base
106、management fee and an incentive fee calculated and payable quarterly with respect to eachcalendar quarter(or partial quarter that the agreement is in effect)in arrears in cash or,at the election of the New Manager,in shares of Common Stock of the Company.The base management fee equals 1.5%of our sto
107、ckholders equity,including equity equivalents such as our issuance of convertible senior notes per annum.Also,underthe6Management Agreement,our quarterly base management fee includes,in its computation of equity managed,its unsecured debt securities to the extent the proceedswere used to repurchase
108、our preferred stock.The New Manager is entitled to an incentive fee,which is payable quarterly in arrears in cash,or,at the election of the New Manager,in shares of Common Stock of theCompany,in an amount equal to 20%of the dollar amount by which(i)Earnings Available for Distribution(as defined belo
109、w)exceeds the product of(A)the averagecommon book value per share(excluding fair value marks,impairments,transaction/deal expenses and associated tax impact and such other items that in the judgmentof our officers should be excluded)of the Common Stock of the Company during such calendar quarter and
110、(B)8%.Notwithstanding either of the foregoing,noincentive fee will be payable to the New Manager with respect to any period unless our cumulative Earnings Available for Distribution is greater than zero for the mostrecently completed four calendar quarters(which cumulative Earnings Available for Dis
111、tribution shall be reset at the completion of every fourth quarter following thedate hereof and each subsequent fourth quarter thereafter(each,a“Reset Date”)so as not to take into account prior calendar quarters),or,if less,(i)the number ofcompleted calendar quarters since the date hereof or(ii)the
112、number of completed calendar quarters since the last Reset Date.“Earnings Available for Distribution”is a non-GAAP financial measure and is defined as net income(loss)as determined according to GAAP,excluding tax-effected,non-cash equity compensation expense and any unrealized gains or losses from m
113、ark-to-market valuation changes(including impairments)that are included in netincome for the applicable period.The amount will be adjusted to exclude on a tax-effected basis(A)one-time events pursuant to changes in GAAP,(B)transaction anddeal expenses that in the opinion of the New Manager should be
114、 excluded for purposes of calculating Earnings Available for Distribution and be amortized over the lifeof the related investment/transaction,and(C)non-cash items(including depreciation and amortization)that in the judgment of our officers should not be included inEarnings Available for Distribution
115、,which adjustments in clauses(A),(B)and(C)shall only be excluded after discussions between the New Manager and theCompanys Independent Directors and after approval by a majority of the Companys Independent Directors.Book value per share of our Common Stock shall be as setforth in our consolidated fi
116、nancial statements prepared in accordance with GAAP.In addition to the base management fee and the incentive fee described above,we also pay all of the New Managers costs and expenses and reimburse the NewManager(to the extent incurred by the New Manager)on a monthly basis for the costs and expenses
117、 of providing services under the Management Agreement,includingreimbursing the New Manager or its affiliates,as applicable,for our allocable share of the compensation(whether paid in cash,stock or other forms),including annualbase salary,bonus,any related withholding taxes and employee benefits,paid
118、 to(i)the New Managers personnel serving as our chief financial officer based on thepercentage of his or her time spent managing the Companys affairs and(ii)other corporate finance,tax,accounting,middle office,internal audit,legal,riskmanagement,operations,compliance and other non-investment personn
119、el of the New Manager and its affiliates who spend all or a portion of their time managing ouraffairs.We will be required to pay the New Manager a termination fee in the event that the Management Agreement is terminated as a result of(i)a termination without cause,(ii)a decision not to renew the Man
120、agement Agreement upon the determination of at least two-thirds of our independent directors for reasons including the failure toagree on revised compensation,(iii)a termination by the New Manager as a result of our becoming regulated as an“investment company”under the InvestmentCompany Act(other th
121、an as a result of the acts or omissions of the New Manager in violation of investment guidelines approved by our Board of Directors),or(iv)atermination by the New Manager if we default in the performance of any material term of the Management Agreement(subject to a notice and cure period).Thetermina
122、tion fee will be equal to three times the base fee plus the higher of(i)three times the incentive fees payable to the New Manager during the 12-month periodended as of the end of the most recently completed fiscal quarter prior to the date of termination and(ii)the total amount of inventive fee that
123、 the New Manager wouldhave earned based on the total unrealized gain calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.Former Management AgreementWe were historically a party to that certain Third Amended and Restated Management Agreement,dated a
124、s of April 28,2020(as amended by that First Amendment,dated as of March 1,2023,the“Former Management Agreement”),by and between us and the Former Manager.Under the Former Management Agreement,the FormerManager implemented our business strategy and managed our business and investment activities and d
125、ay-to-day operations subject to oversight by our Board ofDirectors.Among other services,the Former Manager provided us with a management team and necessary administrative and support personnel.Additionally,we paiddirectly for the internal audit function that reported directly to the Audit Committee
126、and the Board of Directors.Under the Former Management Agreement,we paid a quarterly base management fee based on our stockholders equity,including equity equivalents such as ourissuance of convertible senior notes.Also,under the First Amendment to the Third7Amended and Restated Management Agreement
127、 with the Former Manager,which had an effective date of March 1,2023,our quarterly base management fee included,in its computation of equity managed,its unsecured debt securities to the extent the proceeds were used to repurchase our preferred stock.We were periodicallyrequired to pay a quarterly in
128、centive management fee based on cash distributions to its stockholders and the change in book value and had the option to pay up to 100%of the base and incentive fees in cash or in shares of our Common Stock.Management fees were expensed in the quarter incurred and the portion payable in CommonStock
129、,if any,was accrued at quarter end.On February 26,2024,we issued a termination notice to the Former Manager,in connection with the Strategic Transaction,and on June 11,2024,we terminated the Former Management Agreement,entered into a termination and release agreement with the Former Manager and issu
130、edapproximately 3.2 million shares of Common Stock and paid$0.6 million in cash to the Former Manager in connection with the termination.Servicing AgreementsUntil June 1,2024,we were party to various Servicing Agreements with the Former Servicer.We owned a 9.72%interest in the Former Servicer which
131、was disposed ofin the quarter ended June 30,2024.On June 1,2024,the Former Servicer transferred the Servicing Agreements to Newrez,an affiliate of the New Manager,pursuant tothe Servicing Transfer Agreement.The terms of the Servicing Agreements remain substantially the same.Servicing fees for mortga
132、ge loans range from 0.42%to 1.25%annually of UPB at acquisition(or the fair market value or purchase price of REO)and are paid monthly.The servicing fee is based upon the status of the loan at acquisition.A change in status from RPL to NPL does not cause a change in the servicing fee rate.Servicing
133、fees for our real property assets that are not held in joint ventures are the greater of(i)the servicing fee applicable to the underlying mortgage loan prior toforeclosure and,(ii)1.00%annually of the fair market value of the REO or 1.00%annually of the purchase price of any REO otherwise purchased
134、by the Company.Newrez is reimbursed for all customary,reasonable and necessary out-of-pocket costs and expenses incurred in the performance of its obligations,including the actualcost of any repairs and renovations to foreclosed property undertaken on our behalf.The total fees we incur for these ser
135、vices are dependent upon the following:(i)forfees based on mortgage loans,the total fees will be dependent upon the UPB and the type of mortgage loans that the Servicer services;and(ii)for fees based on REOproperties,property values,previous UPB of the relevant loan,and the number of REO properties.
136、If any Servicing Agreement has been terminated other than for cause and/or the Servicer terminates the Servicing Agreement,we will be required to pay a terminationfee equal to the aggregate servicing fees payable under the applicable Servicing Agreement for the immediately preceding 12-month period.
137、RegulationThe Servicer must comply with a wide array of United States(“U.S.”)federal,state and local laws and regulations that regulate,among other things,the manner inwhich it services our mortgage loans and manages our real property in accordance with the Servicing Agreements,including,but not lim
138、ited to,Consumer FinancialProtection Bureau(“CFPB”)mortgage servicing regulations promulgated pursuant to the Dodd-Frank Frank Wall Street Reform and Consumer Protection Act(including the rules promulgated thereunder,the“Dodd-Frank Act”)and various state licensing,supervisory and administrative agen
139、cies.The Servicer is also subject toperiodic reviews and audits from such agencies.Additionally,the Servicer must comply with a large number of federal,state and local consumer protection laws including,among others,the Dodd-Frank Act,theGramm-Leach-Bliley Act,the Fair Debt Collection Practices Act,
140、the Real Estate Settlement Procedures Act,the Truth in Lending Act,the Fair Credit Reporting Act,the Servicemembers Civil Relief Act,the Homeowners Protection Act,the Federal Trade Commission Act,the Telephone Consumer Protection Act and the Equal CreditOpportunity Act,as well as individual state li
141、censing,privacy,foreclosure laws and federal and local bankruptcy rules.These requirements can and will change asstatutes and regulations are enacted,promulgated,amended,interpreted and enforced.The legal and regulatory environment in which the Servicer operates is constantly evolving as statutes,re
142、gulations and practices,and interpretations thereof,that are inplace may be amended or otherwise change,and new statutes,regulations and practices may be enacted,adopted or implemented.These laws and regulations cover awide range of topics.The laws and regulations are complex and vary greatly among
143、the states and localities.In addition,these laws and regulations often contain vaguestandards or requirements,which make compliance efforts challenging.Further,the current presidential administration has indicated that it plans to significantly reducethe regulatory burden on businesses.The implicati
144、ons and any actual changes to current regulatory processes are currently unknown,creating additional uncertainty.From time to time,the Servicer may become party to certain regulatory inquiries or proceedings,which,even if unrelated to the residential mortgage servicing8operation,may result in advers
145、e findings,fines,penalties or other assessments and may affect adversely the Servicers reputation.CompetitionIn acquiring our assets,we compete with other mortgage and hybrid REITs,hedge funds,specialty finance companies,savings and loan associations,banks,mortgagebankers,insurance companies,mutual
146、funds,investment banking firms,financial institutions,governmental bodies and other entities.Most of our competitors aresignificantly larger than us,have greater access to capital and other resources and may have other advantages over us.In addition to existing companies,othercompanies may be organi
147、zed for similar purposes,including companies focused on investments in the commercial real estate sector.A proliferation of such companiesmay increase the competition for equity capital and thereby adversely affect the price of our shares of common stock.In addition,some of our competitors may haveh
148、igher risk tolerances or different risk assessments,which could allow them to consider a wider variety of assets and establish more business relationships than us.We may not be able to achieve our business objectives due to the competitive risks that we face.Operating and Regulatory StructureTax Req
149、uirementsWe have elected and intend to qualify to be taxed as a REIT for U.S.federal income tax purposes.Our qualification as a REIT will depend upon our ability to meet,ona continuing basis,various complex requirements under the Internal Revenue Code of 1986,as amended,(the“Internal Revenue Code”),
150、relating to,among otherthings,the sources of our gross income,the composition and values of our assets,our distribution levels to our stockholders and the concentration of ownership of ourcapital stock.We believe that,commencing with our initial taxable year ended December 31,2014,we have been organ
151、ized in conformity with the requirements forqualification and taxation as a REIT under the Internal Revenue Code and that our manner of operation will enable us to meet the requirements for qualification andtaxation as a REIT.As a REIT,we generally pay no federal,state or local income tax on income
152、that is currently distributed to our stockholders if we distribute at least 90%of our currenttaxable income each year.Investment Company Act ExclusionWe conduct our operations so that neither we nor any of our subsidiaries is required to register as an investment company under the Investment Company
153、 Act.Section3(a)(1)(A)of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business ofinvesting,reinvesting or trading in securities.Section 3(a)(1)(C)of the Investment Company Act defines an investment company as any
154、 issuer that is engaged orproposes to engage in the business of investing,reinvesting,owning,holding or trading in securities and owns or proposes to acquire investment securities having avalue exceeding 40%of the value of the issuers total assets(exclusive of U.S.government securities and cash item
155、s)on an unconsolidated basis,which we refer to asthe 40%test.Excluded from the term investment securities,among other things,are securities issued by majority-owned subsidiaries that are not themselvesinvestment companies and are not relying on the exclusion from the definition of investment company
156、 set forth in Section 3(c)(1)or Section 3(c)(7)of the InvestmentCompany Act.This exclusion applies to our majority-owned subsidiaries that are excepted from the definition of investment company pursuant to Section 3(c)(5)(C)or Section 3(c)(6).Section 3(c)(5)(C),as interpreted by the staff of the SEC
157、,requires an entity to invest at least 55%of its assets in“mortgages and other liens on and interests in realestate,”which we refer to as“qualifying real estate interests,”and at least 80%of its assets in qualifying real estate interests plus“real estate-related assets”(together,the“3(c)(5)(C)Real E
158、state Assets Tests”).Section 3(c)(6)generally excludes from the definition of investment company any company that is directly or throughsubsidiaries primarily engaged in Section 3(c)(5)(C)real estate and/or other banking/finance businesses excepted from the definition of“investment company”pursuantt
159、o Sections 3(c)(3),3(c)(4)or 3(c)(5)of the Investment Company Act.9We are organized as a holding company and conduct our businesses primarily through wholly owned subsidiaries of our Operating Partnership.Our OperatingPartnership holds certain real estate and real estate-related assets,directly and
160、through subsidiaries.Neither we nor our Operating Partnership nor Great Ajax FundingLLC(“Great Ajax Funding”)is an investment company under Section 3(a)(1)(C)or is excluded from the definition of investment company pursuant to Section 3(c)(5)(C)or Section 3(c)(6)of the Investment Company Act.In addi
161、tion,we conduct our operations so that we,our Operating Partnership and Great Ajax Funding(i)do notcome within the definition of an investment company,by ensuring that less than 40%of the value of our total assets on an unconsolidated basis consists of“investmentsecurities”;or(ii)meet the 3(c)(5)(C)
162、Real Estate Assets Test or the Section 3(c)(6)primarily engaged test.We monitor our compliance with the aforementioned tests and the holdings of our subsidiaries to ensure that each of our subsidiaries is in compliance with anapplicable exemption or exclusion from registration as an investment compa
163、ny under the Investment Company Act.Our 19.8%equity interest in our Former Manager is owned by GA-TRS LLC(“GA-TRS”),which is a special purpose subsidiary of our Operating Partnership.GA-TRS may rely on Section 3(c)(1)or 3(c)(7)for its Investment Company Act exclusion and,therefore,our interest in su
164、ch subsidiary would constitute an investmentsecurity for purposes of determining whether we pass the 40%test.We also may form certain other wholly owned or majority-owned subsidiaries that will invest,subject to our investment guidelines,in other real estate-related assets.These subsidiaries may rel
165、y upon the exclusion from the definition of investment company underthe Investment Company Act pursuant to Section 3(c)(1)or 3(c)(7)of the Investment Company Act.The securities issued by any wholly owned or majority-ownedsubsidiary that we may form and that are excluded from the definition of“invest
166、ment company”based on Section 3(c)(1)or 3(c)(7)of the Investment Company Act,together with any other investment securities we may own,would not have a value in excess of 40%of the value of our total assets on an unconsolidated basis or wouldmeet the 3(c)(5)(C)Real Estate Assets Test or the Section 3
167、(c)(6)test.On August 31,2011,the SEC published a concept release entitled“Companies Engaged in the Business of Acquiring Mortgages and Mortgage Related Instruments”(Investment Company Act Rel.No.29778).This release notes that the SEC is reviewing the Section 3(c)(5)(C)exclusion relied upon by compan
168、ies similar to us thatinvest in mortgage loans.There can be no assurance that the laws and regulations governing the Investment Company Act status of companies similar to ours,or theguidance from the SEC or its staff regarding the treatment of assets as qualifying real estate assets or real estate-r
169、elated assets,will not change in a manner thatadversely affects our operations as a result of this review.To the extent that the SEC or its staff provides more specific guidance regarding any of the matters bearingupon our exclusion from the need to register under the Investment Company Act,we may b
170、e required to adjust our strategy accordingly.Any additional guidance fromthe SEC staff could provide additional flexibility to us,or it could further inhibit our ability to pursue the strategies that we have chosen.The loss of our exemption from regulation pursuant to the Investment Company Act cou
171、ld require us to restructure our operations,sell certain of our assets or abstainfrom the purchase of certain assets,which could have an adverse effect on our financial condition and results of operations.See“Item 1A.Risk Factors RisksRelated to Our Organizational Structure Maintenance of our exclus
172、ion from regulation as an investment company under the Investment Company Act imposessignificant limitations on our operations.”Commodity Pool Operator ExemptionUnder the Dodd-Frank Act,any investment fund that trades in swaps may be considered a“commodity pool,”which would cause its operators to be
173、 regulated as a“commodity pool operator,”or(“CPO”).We have relied on no-action relief from registration from the Commodity Futures Trading Commission(“CFTC”)and filedour claim with the CFTC to perfect the use of the no-action relief from registration.In order to be exempt from registration as a CPO
174、under the no-action relief,wemust,among other non-operation requirements:(1)limit our initial margin and premiums required to establish our swap or futures positions to no more than 5%of thefair market value of our total assets;and(2)limit our net income derived annually from our swaps and futures p
175、ositions that are not“qualifying hedging transactions”toless than 5%of our gross income.The need to operate within these parameters could limit the use of swaps by us below the level that we would otherwise consideroptimal or may lead to the registration of our company or our directors as CPOs.See“I
176、tem 1A.Risk Factors Risks Related to Regulatory and Legislative Actions We may be unable to operate within the parameters that allow us to be excluded from regulation as a commodity pool operator,which would subject us to additionalregulation and compliance requirements,and could materially adversel
177、y affect our business and financial condition.”10Environmental MattersTo the extent we own or acquire real estate,we are subject to various U.S.federal,state and local environmental laws,regulations and ordinances and also could beliable to third parties resulting from environmental contamination or
178、 noncompliance with environmental laws at any such properties.Environmental laws can imposeliability on an owner or operator of real property for the investigation and remediation of contamination at or migrating from such real property,without regard towhether the owner or operator knew of or was r
179、esponsible for the presence of the contaminants.The costs of any required investigation or cleanup of these substancescould be substantial.The liability is generally not limited under such laws and could exceed the propertys value and the aggregate assets of the liable party.Thepresence of contamina
180、tion or the failure to remediate contamination at our properties also may expose us to third-party liability for personal injury or property damageor adversely affect our ability to sell,lease or renovate the real estate or to borrow using the real estate as collateral.See also“Item 1A.Risk Factors.
181、”EmployeesExclusive of certain incentive stock grants,we do not currently have any employees who are paid directly by us,and,excluding incentive stock grants,do not expect tohave any employees paid directly by us in the foreseeable future.Each of our executive officers is an officer,employee or cont
182、ractor of our New Manager(or itsaffiliates)and they are paid by our New Manager(or its affiliates);however,we reimburse the New Manager or its affiliates,as applicable,for our allocable share of thecompensation(whether paid in cash,stock or other forms),including annual base salary,bonus,any related
183、 withholding taxes and employee benefits,paid to(i)theNew Managers personnel serving as our chief financial officer based on the percentage of his or her time spent managing the Companys affairs and(ii)other corporatefinance,tax,accounting,middle office,internal audit,legal,risk management,operation
184、s,compliance and other non-investment personnel of the New Manager and itsaffiliates who spend all or a portion of their time managing our affairs.Available InformationOur web address is .Our annual reports on Form 10-K,quarterly reports on Form 10-Q,current reports on Form 8-K,and amendments tothos
185、e reports filed or furnished pursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,as amended(the“Exchange Act”)are available to the publicfrom the SECs internet site at http:/www.sec.gov and are made available on our website as soon as reasonably practicable after we electronicall
186、y file such materialwith,or furnish it to,the SEC.Also posted on our website in the“Company InfoCorporate Governance”section are charters for our Audit Committee,Compensation Committee and Nominatingand Corporate Governance Committee,as well as our Corporate Governance Guidelines and policies,includ
187、ing our Code of Ethics governing our directors,officers andemployees.The information on our website does not constitute a part of this Annual Report and is not incorporated by reference.Our reference to the URL for our website isintended to be an inactive textual reference only.Item 1A.Risk FactorsI
188、nvesting in our Common Stock involves a high degree of risk.You should carefully consider those risks described,the information included under the caption“Cautionary Statement Regarding Forward-Looking Statements”and the other information included in this Annual Report.Our business,financial conditi
189、on or resultsof operations could be adversely affected by any of these risks.The risk factors below are categorized as follows:(i)Risks Related to Our Business,(ii)Risks Related toLeverage and Hedging,(iii)Risks Related to Regulatory and Legislative Actions,(iv)Risks Related to Our Management and Ou
190、r Relationship with Our New Managerand the Servicer,(v)Risks Related to Our Organizational Structure,and(vi)Risks Related to Our Common Stock.11Risks Related to Our BusinessWe depend on a manager to run our business.If the New Manager is unable to conduct our investment activities properly,there cou
191、ld be a material adverse effecton our business.All of our investment activities are conducted by the New Manager.The New Manager has great latitude in determining the types of assets that are appropriateinvestments for us,as well as the individual investment decisions.Thus,our success will depend on
192、 our relationship with,and the performance of the New Manager.Should the New Manager fail to allocate sufficient resources or select appropriate investments,we may be unable to achieve our objectives.Further,if the NewManager or Rithm are unable to retain its key personnel,it may be difficult for th
193、e New Manager to manage our business.Changing our manager from the FormerManager to the New Manager could have a material adverse effect on our business,financial condition and results of operations.We expect to continue to incur consolidated net losses from our mortgage asset holdings.For the year
194、ended December 31,2024,we incurred a net loss attributable to common stockholders of$92.2 million.In addition,the market value of our RPLs,NPLsand SBC Loans have significantly deteriorated and we have incurred substantial operating losses on loans we have sold or intend to sell.We expect to continue
195、 to incuroperating losses for the foreseeable future given the current market conditions for our mortgage asset holdings.In particular,higher historical interest rates are expected to continue to have significant negative effects on our loan assets.Increases in interest rates,theinterrelationships b
196、etween various rates and interest rate volatility have had,and are expected to continue to have,negative effects on our earnings because it hasextended duration.This has resulted in,and is expected to continue to result in,significant decreases in the fair market value of performing loans.It also ma
197、y impactadversely our ability to securitize,re-securitize or sell our assets on attractive terms.Higher interest rates may reduce the ability or desire of borrowers to refinance theirloans.Mortgage related assets may become more illiquid during periods of interest rate volatility.As a result,we also
198、 may encounter difficulties refinancing oursecuritizations and it increases the costs of our repurchase facility financings.Higher interest rates also generally increase our financing costs as we seek to renew orreplace borrowing facilities.The lack of liquidity of our assets has adversely affected
199、our business,including our ability to sell our assets.We previously acquired,and may in the future acquire,assets,securities or other instruments that are not liquid or publicly traded,and recent market conditions havesignificantly and negatively affected the liquidity of our assets.As a result of t
200、he unfavorable market conditions,we have identified certain mortgage loans that we haveeither agreed to sell or may propose to market for sale under certain circumstances in the near future.These assets are held at fair value but it is possible that we willrecord a loss in connection with any loans
201、we ultimately sell.Any delay or inability to consummate any loan sale on attractive terms or at all could materially adverselyaffect our business,financial results and prospects and/or our stock price.In addition,mortgage-related assets generally experience periods of illiquidity,including periods o
202、f delinquencies and defaults with respect to residential andcommercial mortgage loans.Further,validating third-party pricing for illiquid assets may be more subjective than for liquid assets.Any illiquidity of our assets maymake it difficult for us to sell such assets if the need or desire arises.In
203、 addition,if we are required to liquidate all or a portion of our portfolio quickly,we may realizesignificantly less than the value at which we previously recorded our assets.We may also face other restrictions on our ability to liquidate any assets for which we haveor could be attributed with mater
204、ial non-public information.If we are unable to sell our assets at favorable prices or at all,it could materially adversely affect ourbusiness,financial condition and results of operations and our ability to make distributions to our stockholders.Assets that are illiquid are more difficult to finance
205、,andto the extent that we use leverage to finance assets that become illiquid,we may lose that leverage or have it reduced.Assets tend to become less liquid during times offinancial stress,which is often the time that liquidity is most needed.As a result,our ability to sell assets or vary our portfo
206、lio in response to changes in economic andother conditions may be limited by liquidity constraints,which could adversely affect our results of operations and financial condition.12Commercial real estate-related investments that are secured by commercial real property are subject to delinquency,forec
207、losure and loss,which could result inlosses.Following the consummation of the Strategic Transaction,under RCM GAs management,we have started to shift our strategic direction to include investing inmortgages,subordinated debt,preferred and other investments in commercial real estate.Commercial real e
208、state debt instruments(e.g.,mortgages and mezzanineloans)that are secured by commercial property are subject to risks of delinquency and foreclosure and risks of loss that are arguably greater than similar risks associatedwith a pool of loans secured by single-family residential properties.The abili
209、ty of a borrower to repay a loan secured by an income-producing property is typicallyprimarily dependent upon the successful operation of the property,rather than upon the existence of independent income or assets of the borrower.If the net operatingincome of the property is reduced,the borrowers ab
210、ility to repay the loan may be impaired.Net operating income of an income producing property can be affected by,among other things:customer mix,success of customer businesses,property managementdecisions,property location and condition,competition from comparable types of properties,changes in laws
211、that increase operating expenses or limit rents that may becharged,any need to address environmental contamination at the property,the occurrence of any uninsured casualty at the property,changes in national,regional orlocal economic conditions and/or specific industry segments,current and potential
212、 future capital markets uncertainty,declines in regional or local real estate values,declines in regional or local rental or occupancy rates,increases in interest rates,real estate tax rates and other operating expenses,changes in governmental rules,regulations and fiscal policies,including environm
213、ental legislation,natural disasters,terrorism,social unrest and civil disturbances.In the event of the bankruptcy of a mortgage loan borrower,the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of theunderlying collateral at the time of bankruptcy(as deter
214、mined by the bankruptcy court)and the lien securing the mortgage loan will be subject to the avoidance powersof the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.Foreclosure of a mortgage loan can be an expensive and lengthyprocess,which could hav
215、e a substantial adverse effect on our anticipated return on the foreclosed mortgage loan.In addition,if we foreclose on a particular property,wecould become,as owner of the property,subject to liabilities associated with such property,including liabilities related to taxes and environmental matters.
216、Moreover,inthe event of any default under a mortgage loan held directly by us,we will bear a risk of loss of principal to the extent of any realized deficiency between the value ofthe collateral and the principal and accrued interest of the mortgage loan,which could have a material adverse effect on
217、 our cash flow and limit amounts available fordistribution to our stockholders.In addition,we may be exposed to the risk of judicial proceedings with borrowers and other entities we invest in,including bankruptcy or other litigation,as a strategyto avoid foreclosure or enforcement of other rights by
218、 us as a lender or investor.In the event that any of the properties or entities underlying or collateralizing our loansor investments experiences any of the foregoing events or occurrences,the value of,and return on,such investments could be reduced,which would adversely affectour results of operati
219、ons and financial condition.We invest in commercial mortgage loans which are non-recourse in nature and include limited options for financial recovery in the event of default;an event ofdefault may adversely affect our results of operations and financial condition.Following the consummation of the S
220、trategic Transaction,under RCM GAs management,we invest in commercial mortgage loans,including mezzanine loans and B-notes,which are secured by commercial or other properties and are subject to risks of delinquency and foreclosure and risks of loss.Commercial real estate loans arenot fully amortizin
221、g,meaning that they may have a significant principal balance or balloon payment due on maturity.Full satisfaction of the balloon payment by acommercial borrower is heavily dependent on the availability of subsequent financing or a functioning sales market,as well as other factors such as the value o
222、f theproperty,the level of prevailing mortgage rates,the borrowers equity in the property and the financial condition and operating history of the property and the borrower.In certain situations,and during periods of credit distress,the unavailability of real estate financing may lead to default by
223、a commercial borrower.In addition,in theabsence of any such takeout financing,the ability of a borrower to repay a loan secured by an income-producing property will depend upon the successful operation ofsuch property rather than upon the existence of independent income or assets of the borrower.If
224、the net operating income of the property is reduced,the borrowersability to repay the loan may be impaired.Furthermore,we may not have the same access to information in connection with investments in commercial mortgage loans,either when investigating a potential investment or after making an invest
225、ment,as compared to publicly traded securities.13Commercial mortgage loans are usually non-recourse in nature.Therefore,if a commercial borrower defaults on the commercial mortgage loan,then the options forfinancial recovery are limited in nature.To the extent the underlying default rates with respe
226、ct to the pool or tranche of commercial real estate loans in which wedirectly or indirectly invest increase,the performance of our investments related thereto may be adversely affected.Default rates and losses on commercial mortgageloans will be affected by a number of factors,including global,regio
227、nal and local economic conditions in the area where the mortgage properties are located,theborrowers equity in the mortgage property and the financial circumstances of the borrower.A continued decline in specific commercial real estate markets and propertyvaluations may result in higher delinquencie
228、s and defaults and potentially foreclosures.In the event of default,the lender will have no right to assets beyond collateralattached to the commercial mortgage loan.The overall level of commercial mortgage loan defaults remains significant and market values of the underlying commercialreal estate r
229、emain distressed in many cases.It has also become increasingly difficult for lenders to dispose of foreclosed commercial real estate without incurringsubstantial investment losses,ultimately leading to a decline in the value of such investments.Investments in commercial real estate companies are sub
230、ject to the specific risks relating to the particular company and to the general risks of investing in realestate-related loans and securities,which may result in significant losses.Following the consummation of the Strategic Transaction,we may invest a portion of our assets in preferred and/or debt
231、 securities of commercial real estate operatingor finance companies.These investments involve special risks relating to the particular company,including our financial condition,liquidity,results of operations,business and prospects.In particular,such debt securities are often non-collateralized and
232、may also be subordinated to our other obligations.These investments alsosubject us to the risks inherent with real estate-related investments,including:risks of delinquency and foreclosure,and risks of loss in the event thereof;the dependence upon the successful operation of,and net income from,real
233、 property;risks generally incident to interests in real property;and risks specific to the type and use of a particular property.These risks may adversely affect the value of our investments in commercial real estate operating and finance companies and the ability of the issuers thereof to makeprinc
234、ipal and interest payments in a timely manner,or at all,and could result in significant losses.We are subject to risks of loss from weather conditions,man-made or natural disasters and climate change.Weather conditions and man-made or natural disasters such as hurricanes,tornadoes,earthquakes,floods
235、,droughts,fires and other environmental conditions candamage properties that we own or that collateralize our loans.If properties collateralizing our mortgage loans incur damages that reduce the value of the collateral to anamount below the UPB of our loan,borrowers may cease making payments to us o
236、n those loans,and any foreclosure efforts may recover substantially less value thanthe amount we are due or no value at all.Because we seek to build concentrations of mortgage loans and real properties in certain markets,we may be particularlyvulnerable to the impact of a localized weather condition
237、,man-made or natural disaster,including wildfire and flooding events,or effects of climate change.Any ofthese events could adversely impact the demand for,and value of,our assets and could also directly impact the value of our assets through damage,destruction or loss,and could thereafter materially
238、 impact the availability or cost of insurance to protect against these events.Although we believe the properties collateralizing ourmortgage loans and our remaining owned real estate are adequately covered by insurance,we cannot predict if we or our borrowers will be able to obtain appropriatecovera
239、ge at a reasonable cost in the future,or if we will be able to continue to pass along all of the costs of insurance to our tenants.Any weather conditions,man-madeor natural disasters,including wildfire and flooding events,or effects of climate change,whether or not insured,could have a material adve
240、rse effect on our financialperformance,the market price of our common shares and our ability to pay dividends.In addition,there is a risk that one or more of our property insurers may not beable to fulfill their obligations with respect to claims payments due to deterioration in their financial cond
241、ition driven by such events.14There are certain risks associated with the servicers of commercial real estate loans.The exercise of remedies and successful realization of liquidation proceeds relating to commercial real estate loans may be highly dependent on the performance of theservicer or specia
242、l servicer.The servicer may not be appropriately staffed or compensated to immediately address issues or concerns with the underlying loans.Suchservicers may exit the business and need to be replaced,which could have a negative impact on the portfolio due to lack of focus during a transition.Special
243、 servicersfrequently are affiliated with investors who have purchased the most subordinate bond classes,and certain servicing actions,such as a loan extension instead of forcinga borrower pay off,may benefit the subordinate bond classes more so than the senior bonds.There may be a limited number of
244、special servicers available,particularlythose which do not have conflicts of interest.In addition,to the extent any such servicers fail to effectively perform their obligations pursuant to the applicable servicingagreements,such failure may adversely affect our investments.There are certain risks as
245、sociated with an investment in CMBS.CMBS investments may be subject to interest shortfalls due to interest collected from the underlying loans not being sufficient to pay accrued interest to all of themortgage-backed securities(“MBS”)interest holders.Interest shortfalls to the CMBS trust will occur
246、when the servicer does not advance full interest payments ondefaulted loans.The servicer in a CMBS trust is required to advance monthly principal and interest payments due on a delinquent loan.Once a loan is delinquent for aperiod of time(generally 60 days),the servicer is required to obtain a new a
247、ppraisal to determine the value of the property securing the loan.The servicer is onlyrequired to advance interest based on the lesser of the loan amount or 90%,generally,of the appraised value.Interest shortfalls occur when 90%,generally,of theappraised value is less than the loan amount and the se
248、rvicer does not advance interest on the full loan amount.The resulting interest shortfalls impact interest paymentson the most junior class in the trust first.As interest shortfalls increase,more senior classes may be impacted.Over time,senior classes may be reimbursed foraccumulated shortfalls if t
249、he delinquent loans are resolved,but there is no guarantee that shortfalls will be collected.Interest shortfalls to the CMBS trust may alsooccur as a result of accumulated advances and expenses on defaulted loans.When a defaulted loan or foreclosed property is liquidated,the servicer will be reimbur
250、sedfor accumulated advances and expenses prior to payments to CMBS bond holders.If proceeds are insufficient to reimburse the servicer or if a defaulted loan ismodified and not foreclosed,the servicer is able to make a claim on interest payments that is senior to the bond holders to cover accumulate
251、d advances and expenses.Ifthe claim is greater than interest collected on the loans,interest shortfalls could impact one or more bond classes in a CMBS trust until the servicers claim is satisfied.Additionally,the real estate loans backing the CMBS and other investments may be subject to various law
252、s enacted in the jurisdiction or state of the borrower for theprotection of creditors.If an unpaid creditor files a lawsuit seeking payment,the court may invalidate all or part of the borrowers debt as a fraudulent conveyance,subordinate such indebtedness to existing or future creditors of the borro
253、wer or recover amounts previously paid by the borrower in satisfaction of such indebtedness,based on certain tests for borrower insolvency and other facts and circumstances,which may vary by jurisdiction.There can be no assurance as to what standard a courtwould apply in order to determine whether t
254、he borrower was“insolvent”after giving effect to the incurrence of the indebtedness constituting the mortgage backing theCMBS and other investments,or that regardless of the method of valuation,a court would not determine that the borrower was“insolvent”after giving effect to suchincurrence.In addit
255、ion,in the event of the insolvency of a borrower,payments made on such mortgage loans could be subject to avoidance as a“preference”if madewithin a certain period of time(which may be as long as one year and one day)before insolvency.Difficult conditions in the mortgage,residential real estate and c
256、ommercial real estate markets as well as general market concerns,have adversely affected thevalue of the assets in which we invest and these conditions continue to persist for the foreseeable future.Our business has historically been,and may in the future be,materially affected by conditions in the
257、residential mortgage market,the residential real estate market,thecommercial real estate market,including the smaller commercial real estate market,the financial markets and the economy in general.Concerns about inflation,energycosts,geopolitical issues,the stability of the global banking system,une
258、mployment levels and the availability and cost of credit have contributed to volatility in theeconomy and markets.In particular,the residential mortgage market in the U.S.has in the past experienced a variety of difficulties and changed economic conditions,including defaults,credit losses and liquid
259、ity concerns and this may occur in the future.The smaller commercial real estate mortgage market also may face increaseddefaults,losses,or liquidity concerns due to economic conditions.15Certain commercial banks,investment banks and insurance companies continue to announce losses from exposure to th
260、e residential mortgage market.These factorshave affected investor perception of the risk associated with mortgage-backed securities,other real estate-related securities and various other asset classes in which wemay invest.As a result,values of certain of our assets and the asset classes in which we
261、 intend to invest have experienced volatility.Further deterioration of themortgage market and investor perception of the risks associated with MBS we may retain as part of our securitizations,as well as other assets that we acquire couldadversely affect our business,financial condition and results o
262、f operations and our ability to make distributions to our stockholders.A significant portion of our residential mortgage loans may become NPLs,which could further increase the significant losses we have incurred to date.We previously acquired residential mortgage loans where the borrower has failed
263、to make timely payments of principal and/or interest currently or in the past.Undercurrent market conditions,many of these loans may have current loan-to-value ratios in excess of 100%,meaning the amount owed on the loan exceeds the value of theunderlying real estate.Although we purchased loans at s
264、ignificant discounts to UPB and underlying property value,if actual results are different from our assumptionsin determining the prices for such loans,particularly if the market value of the underlying property decreases significantly,we have previously and may continue toincur significant losses.We
265、 own higher risk loans,which are more expensive to service than conventional mortgage loans.A percentage of the mortgage loans we own are higher risk loans,meaning that the loans are made to less creditworthy borrowers or for properties the value of whichhas decreased.These loans are more expensive
266、to service because they require more frequent interaction with customers and greater monitoring and oversight.Additionally,in connection with mortgage market reforms and recent and possible future regulatory developments,servicers of higher risk loans may be subject toincreased scrutiny by U.S.state
267、 and federal regulators or may experience higher compliance costs,which could result in a further increase in servicing costs.Throughthe Servicing Agreement,the Servicer currently passes along to us many of the additional third-party expenses incurred by it in servicing these higher risk loans.Thegr
268、eater cost of servicing higher risk loans,which may be further increased through regulatory changes,could adversely affect our business,financial condition andresults of operations.A change in delinquencies for the loans we own could adversely affect our business,financial condition and results of o
269、perations.A percentage of the mortgage loans we own are higher risk loans,which tend to have higher delinquency and default rates than government sponsored entity(“GSEs”)and government agency-insured mortgage loans.These higher risk loans,combined with decreases in property values,have caused increa
270、ses in loan-to-value ratios,resulting in borrowers having little or negative equity in their property,which may provide an incentive to borrowers to strategically default on their loans.Recent lawsdelay the initiation or completion of foreclosure proceedings on specified types of residential mortgag
271、e loans or otherwise limit the ability of mortgage servicers to takeactions that may be essential to preserve the value of the mortgage loans.Any such limitations are likely to cause delayed or reduced collections from mortgagors.The principal and interest payments on our MBS are not guaranteed by a
272、ny entity and,therefore,are subject to increased risks,including credit risk.We historically created and retained residential and commercial MBS that are backed by residential and commercial mortgage loans that do not conform to the FederalNational Mortgage Association(“Fannie Mae”)and the Federal H
273、ome Loan Mortgage Corporation(“Freddie Mac”)underwriting guidelines.Consequently,theprincipal and interest on those MBS are not guaranteed by GSEs such as Fannie Mae and Freddie Mac,or securitized through Government National MortgageAssociation(“Ginnie Mae”).Our MBS are and will be subject to many o
274、f the risks of the respective underlying mortgage loans.Mortgage loans are typically securedby a single-family residential or commercial property and are subject to risks of delinquency and foreclosure and risks of loss.The ability of a borrower to repay a loansecured by a property depends upon the
275、income or assets of the borrower.A number of factors,including the impact of a prolonged economic downturn,unemployment,acts of God,climate disasters,such as wildfire and flooding events,terrorism,social unrest and civil disturbances,may impair borrowers abilities to repay theirmortgage loans.In per
276、iods following home price declines,“strategic defaults”(decisions by borrowers to default on their mortgage loans despite having the ability topay)also may become more prevalent.16In the event of defaults under mortgage loans backing any of our MBS,we will bear a risk of loss of principal to the ext
277、ent of any deficiency between the value of thecollateral and the principal and accrued interest of the mortgage loan.Additionally,in the event of the bankruptcy of a borrower,the mortgage loan to such borrowermay be deemed to be secured only to the extent of the value of the underlying collateral at
278、 the time of bankruptcy(as determined by the bankruptcy court),and the liensecuring the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under statelaw.Foreclosure of a mortgage loan can be an expensive an
279、d lengthy process which could have a substantial negative effect on our anticipated return on the foreclosedmortgage loan.If borrowers default on the mortgage loans backing our MBS and we are unable to recover any resulting loss through the foreclosure process,ourbusiness,financial condition and res
280、ults of operations and our ability to make distributions to our stockholders could be adversely affected.The commercial real estate loans we expect to acquire will be subject to the ability of the commercial property owner to generate net income from operating theproperty as well as the increased ri
281、sks of delinquency and foreclosure.The ability of a commercial mortgage borrower to repay a commercial real estate loan secured by an income-producing property,such as a multi-family residential andcommercial mixed use retail/residential property,typically is dependent primarily upon the successful
282、operation of such property rather than upon the existence ofindependent income or assets of the borrower.If the net operating income of the property is reduced,the borrowers ability to repay the commercial real estate may beimpaired.Net operating income of an income producing property can be affecte
283、d by,among other things,tenant mix,success of tenant businesses,propertymanagement decisions,property location and condition,competition from comparable types of properties,changes in laws that increase operating expense,limit rentsthat may be charged,or that restrict eviction and replacement of non
284、paying tenants,any need to address environmental contamination at the property,the occurrence ofany uninsured casualty at the property,changes in national,regional or local economic conditions or specific industry segments,declines in regional or local real estatevalues,declines in regional or local
285、 rental or occupancy rates,increases in interest rates,real estate tax rates and other operating expenses,changes in governmentalrules,regulations and fiscal policies,including environmental legislation,acts of God,terrorism,social unrest and civil disturbances.In particular,the number ofcommercial
286、property delinquencies and foreclosures has increased.In the event of the bankruptcy of a commercial mortgage loan borrower,the commercial real estateloan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy(as determine
287、d by thebankruptcy court),and the lien securing the SBC loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien isunenforceable under state law.Foreclosure of a commercial real estate loan can be an expensive and lengthy process,which cou
288、ld have a substantial negative effect onour anticipated return on the foreclosed commercial real estate loan.Our commercial real estate loans in respect of smaller multi-family residential properties or smaller mixed use retail/residential properties may be subject todefaults,foreclosure timeline ex
289、tension,fraud,commercial price depreciation and unfavorable modification of loan principal amount,interest rate andamortization of principal.Our commercial real estate loans secured by multi-family or commercial property may be subject to risks of delinquency and foreclosure,and risk of loss that ma
290、y begreater than similar risks associated with loans made on the security of single-family residential property.The ability of a borrower to repay a loan secured by anincome-producing property typically depends primarily upon the successful operation of such property rather than upon the existence o
291、f independent income or assetsof the borrower.If the net operating income of the property is reduced,the borrowers ability to repay the loan may be impaired.Net operating income of an income-producing property can be affected by,among other things:tenant mix;success of tenant businesses;property man
292、agement decisions;property location and condition;competition from comparable types of properties;changes in laws that increase operating expenses or limit rents that may be charged;any need to address environmental contamination at the property or the occurrence of any uninsured casualty at the pro
293、perty;changes in national,regional or local economic conditions and/or specific industry segments;17declines in regional or local real estate values;declines in regional or local rental or occupancy rates;increases in interest rates;real estate tax rates and other operating expenses;changes in gover
294、nmental rules,regulations and fiscal policies,including environmental legislation;andacts of God,terrorist attacks,social unrest and civil disturbances.We may be materially and adversely affected by risks affecting borrowers in which our investments may be concentrated at any given time,as well as f
295、romunfavorable changes in the related geographic regions.Our assets are not subject to any geographic,diversification or concentration limitations.Accordingly,our investment portfolio may be concentrated by geographyand/or borrower demographics,increasing the risk of loss to us if the particular con
296、centration in our portfolio is subject to greater risks or undergoing adversedevelopments.In addition,adverse conditions in the areas where the properties securing or otherwise underlying our investments are located(including business layoffsor downsizing,industry slowdowns,changing demographics and
297、 other factors)and local real estate conditions(such as oversupply or reduced demand)may have anadverse effect on the value of our investments.A material decline in the demand for single-family housing or rentals in these or other areas where we own assets maymaterially and adversely affect us.Lack
298、of diversification can increase the correlation of non-performance and foreclosure risks among our investments.Historically,our mortgage and real estate assets have been concentrated in Florida and the western and southwestern U.S.Changes in the underwriting standards by Freddie Mac,Fannie Mae or FH
299、A could make it more difficult to refinance our purchased mortgage loans.Stricter underwriting standards by Freddie Mac,Fannie Mae or the FHA could affect our ability to refinance mortgage loans and the terms on which mortgage loansmay be refinanced,which may adversely affect our business and result
300、s of operations.For example,in 2010,Freddie Mac and Fannie Mae announced tighterunderwriting guidelines,particularly for adjustable rate mortgages,(“ARMs”),and hybrid interest-only ARMs(“Hybrid ARMs”).Specifically,Freddie Mac announcedthat it would no longer purchase interest-only mortgages and Fann
301、ie Mae changed its eligibility criteria for purchasing and securitizing ARMs to protect consumersfrom potentially dramatic payment increases.If Freddie Mac,Fannie Mae,or the FHA were to adopt other restrictive underwriting standards,that could affect ourability to refinance loans and the terms of th
302、ose loans.The whole residential mortgage loans and other residential mortgage assets in which we have invested are subject to risk of default,among other risks.We historically acquired mortgage loans and other mortgage-related assets which may be subject to defaults(including re-default for RPLs),fo
303、reclosure moratoria ortimeline extensions,fraud,residential price depreciation and unfavorable modification of loan principal amount,interest rate and amortization of principal,orgovernment-mandated payment forbearances,among other factors,which could result in losses to us.Residential mortgage loan
304、s are secured by single-familyresidential property and,are subject to risks of delinquency and foreclosure and risks of loss.The payment of the principal and interest on the mortgage loans weacquire would not typically be guaranteed by any GSE,such as Fannie Mae and Freddie Mac,or securitized throug
305、h Ginnie Mae or any other governmental agency.Additionally,by directly acquiring whole mortgage loans,we do not receive the structural credit enhancements that can benefit senior tranches of MBS.A wholemortgage loan is directly exposed to losses resulting from nonpayment or other default.Therefore,t
306、he value of the underlying property,the creditworthiness andfinancial position of the borrower and the priority and enforceability of the lien will significantly affect the value of such mortgage.The ability of a borrower to repay aloan secured by a residential property typically depends upon the in
307、come or assets of the borrower.A number of factors,including a general economic downturn,acts ofnature,terrorism,social unrest and civil disturbances,may impair a borrowers ability to repay a mortgage loan.Foreclosure of a mortgage loan can be an expensiveand lengthy process,which could have a subst
308、antial negative effect on our anticipated return on a foreclosed mortgage loan.In the event of a foreclosure,we mayassume direct ownership of the underlying real estate.The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the loan,and any costs or
309、 delays involved in the foreclosure or liquidation process may increase losses.18Whole mortgage loans are also subject to“special hazard”risk such as property damage caused by hazards,such as earthquakes,wildfires or floods or otherenvironmental hazards,not covered by standard property insurance pol
310、icies.In the event of the bankruptcy of a mortgage loan borrower,the mortgage loan to suchborrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy(as determined by the bankruptcy court),andthe lien securing the mortgage loan will be
311、 subject to the avoidance powers of the bankruptcy trustee or debtor in possession to the extent the lien is unenforceableunder state law.In addition,claims may be assessed against us on account of our position as a mortgage holder or property owner,including assignee liability,responsibility for ta
312、x payments,environmental hazards and other liabilities.In some cases,these liabilities may be“recourse liabilities”or may otherwise lead to lossesin excess of the purchase price of the related mortgage or property.Although we historically acquired mortgage loans at significant discounts from their U
313、PB andunderlying property value,in the event of any default under a mortgage loan held directly by us,we bear a risk of loss of the principal to the extent of any deficiencybetween the value of the collateral and the principal and accrued interest of the mortgage loan,which could have a material adv
314、erse effect on our cash flow fromoperations and results of operations.The MBS we retained from our own securitizations evidence interests in,or are secured by,pools of residential mortgage loans.Accordingly,the MBS that we hold is subject to all of the risks of the respective underlying mortgage loa
315、ns.For certain residential mortgage loans,the Dodd-Frank Act established,through amendment to the Truth in Lending Act(“TILA”),life-of-loan liability on any holder ofa residential mortgage loan that takes action on the loan following default(including foreclosure).This liability is premised upon vio
316、lation of the Ability-to-Repay/Qualified Mortgage Rule(as promulgated under the Dodd-Frank Act),as well as violation of the loan originator compensation rule.Borrower remedies,available by way of recoupment or set-off,include statutory damages and attorneys fees.If we fail to develop,enhance and imp
317、lement strategies to adapt to changing conditions in the commercial real estate industry and capital markets,our financialcondition and results of operations may be materially and adversely affected by our acquisition of commercial real estate loans.The manner in which we compete and the types of co
318、mmercial real estate loans we are able to acquire will be affected by changing conditions resulting from suddenchanges in the commercial real estate industry,regulatory environment,the role of credit rating agencies or their rating criteria or process,or the U.S.and globaleconomies generally.If we d
319、o not effectively respond to these changes,or if our strategies to respond to these changes are not successful,our financial condition andresults of operations may be adversely affected.In addition,we can provide no assurances that we will be successful in executing our business strategy in successf
320、ullyacquiring commercial real estate loans.If we acquire and subsequently re-sell any whole mortgage loans,we may be required to repurchase such loans or indemnify investors if we breach representationsand warranties.If we acquire and subsequently re-sell any whole mortgage loans,we would generally
321、be required to make customary representations and warranties about such loans tothe loan purchaser.Our mortgage loan sale agreements and terms of any securitizations into which we have previously sold loans and may in the future sell loans willgenerally require us to repurchase or substitute loans i
322、n the event we breach a representation or warranty given to the loan purchaser.In addition,we may be required torepurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan.Repurchased loans are typically worth only a fraction of theoriginal price.Signif
323、icant repurchase activity could materially adversely affect our business,financial condition and results of operations and our ability to makedistributions to our stockholders.Further,depending on the level of repurchase and resale activities,we may determine to conduct any such activities through a
324、 taxableREIT subsidiary(“TRS”).We are subject to counterparty risk and may be unable to seek indemnity or require our counterparties to repurchase mortgage loans if they breach representationsand warranties,which could cause us to suffer losses.When selling mortgage loans,sellers typically make cust
325、omary representations and warranties about such loans.Our mortgage loan purchase agreements may entitle usto seek indemnity or demand repurchase or substitution of the loans in the event our counterparty breaches a representation or warranty given to us.However,there canbe no assurance that our mort
326、gage loan purchase agreements will contain appropriate representations and warranties,that we will be able to enforce our contractualright to repurchase or substitution,or that our counterparty will remain solvent or otherwise be able to honor its obligations under its mortgage loan purchaseagreemen
327、ts.Our inability to obtain indemnity or require repurchase of a significant number of loans could harm our business,financial condition,liquidity,results ofoperations and our ability to make distributions to our stockholders.19Certain investments in portfolios of whole mortgage loans and other mortg
328、age assets may require us to purchase less desirable mortgage assets as part of anotherwise desirable pool of mortgage assets,which could subject us to additional risks relating to the less desirable mortgage assets.If we acquire portfolios of whole mortgage loans and other mortgage assets,the portf
329、olio may contain some assets that we would not otherwise seek to acquire on theirown.These other assets may subject us to additional risks,including impaired performance and reduce the return on our investments.To the extent that due diligence is conducted on potential assets,such due diligence may
330、not reveal all of the risks associated with such assets and may not revealother weaknesses in such assets,which could lead to losses.Before making an investment,we conduct(either directly or using third parties)certain due diligence.There can be no assurance that we will conduct any specific levelof
331、 due diligence,or that,among other things,our due diligence processes will uncover all relevant facts or that any purchase will be successful,which could result inlosses on these assets,which,in turn,could adversely affect our business,financial condition and results of operations and our ability to
332、 make distributions to ourstockholders.The failure of a seller of mortgage loans to provide all the necessary documentation to us could adversely affect our ability to leverage our assets or otherwiseservice the mortgage loans that we will own.Pursuant to customary provisions in the purchase agreeme
333、nts governing our loan acquisitions,we also generally have the right to cause the sellers to repurchase certainloans if they do not provide proper documentation to evidence ownership or first lien status with respect to such loans within a specified time period.Any delay orinability to obtain such documentation could adversely affect our ability to leverage such loans,and could adversely affect th
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