S-4/A 1 v170912_s4a.htm

As filed with the Securities and Exchange Commission on January 15, 2010

Registration No. 333-164087

 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



 

AMENDMENT NO. 1 TO

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

IMH FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Governing Instrument)

   
Delaware   6162   81-0624254
(State or Other Jurisdiction of
incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)

4900 N. Scottsdale Rd #5000
Scottsdale, Arizona 85251
(480) 840-8400

(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant’s Principal Executive Offices)



 

Shane C. Albers
Chief Executive Officer
IMH Financial Corporation
4900 N. Scottsdale Rd #5000
Scottsdale, Arizona 85251
(480) 840-8400

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)



 

Copy to:
Peter T. Healy, Esq.
O’Melveny & Myers LLP
Two Embarcadero Center, 28th Floor
San Francisco, CA 94111
(415) 984-8833



 

Approximate Date of Commencement of Proposed Sale of the Securities to the Public: As soon as practicable after the effective date of this Registration Statement.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer x (Do not check if a smaller reporting company)   Smaller reporting company o


 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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The information in this consent solicitation/prospectus is not complete and may be changed. IMH Financial Corporation may not distribute or issue the securities being registered pursuant to the registration statement of which this consent solicitation/prospectus is a part until the registration statement that is filed with the Securities and Exchange Commission is effective. This consent solicitation/prospectus is not an offer to distribute these securities and we are not soliciting offers to receive these securities in any jurisdiction where such offer or distribution is not permitted.

 
Consent Solicitation/Prospectus   SUBJECT TO COMPLETION, DATED JANUARY 15, 2010

[GRAPHIC MISSING]

Strategic Transaction Proposed — Your Vote is Important

Dear IMH Secured Loan Fund, LLC Member:

On behalf of IMH Secured Loan Fund, LLC, or the Fund, it is my pleasure to request your written consent to a series of proposed transactions, or the Conversion Transactions, that will restructure the Fund’s financial and operational affairs. The manager of the Fund, Investors Mortgage Holdings Inc., or the Manager, believes these transactions will:

position the Fund to become a publicly traded corporation listed on the New York Stock Exchange, or NYSE;
create the opportunity for liquidity for members;
cause the Fund to be internally managed, which would eliminate conflicts and more fully align the interests of the Fund, the Manager and IMH Holdings, LLC, which is a holding company for other affiliates of the Manager;
create the opportunity for us to raise additional capital in the public markets, thereby enabling us to better acquire and originate commercial mortgage loans and other real estate related investment opportunities;
create the opportunity to achieve long term value for our stockholders through dividends and capital appreciation; and
create a board of directors comprised of a majority of independent directors, which will enhance our corporate governance.

The Conversion Transactions involve (i) the merger of the Fund, which is currently a Delaware limited liability company, into a newly-formed Delaware corporation named IMH Financial Corporation, and (ii) the acquisition by IMH Financial Corporation of all of the outstanding shares of the Manager, as well as all of the outstanding membership interests of IMH Holdings, LLC, or Holdings. In connection with the Conversion Transactions, the Manager has also approved a stock incentive plan, which we refer to as the 2010 IMH Financial Corporation Stock Incentive Plan, or the 2010 Stock Incentive Plan. Upon the consummation of the Conversion Transactions, we intend to raise capital through an initial public offering of IMH Financial Corporation common stock and to list our common stock on the NYSE; however, the initial public offering and listing of our common stock are not conditions to the consummation of the Conversion Transactions.

Enclosed you will find the notice of consent solicitation, consent solicitation/prospectus and consent to approve (i) the Conversion Transactions, including an agreement and plan of merger to implement the Conversion Transaction by and among the Fund, IMH Financial Corporation, the Manager and its stockholders, and Holdings and its members, which we refer to as the merger agreement, and (ii) the 2010 Stock Incentive Plan. The Manager has approved the Conversion Transactions and the 2010 Stock Incentive Plan, has determined that they are advisable and in the best interests of the Fund and its members, and recommends that you vote “FOR” their approval.

As a result of the merger of the Fund into IMH Financial Corporation, your membership units will be exchanged, at your election, for shares of Class B or Class C common stock of IMH Financial Corporation, or a combination thereof. The Class B common stock will be held by a custodian and divided into three separate series of Class B common stock, which will become convertible into common stock, and subject to restrictions on transfer that lapse, at predetermined intervals of six, nine or 12 months following the consummation


 
 

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of an initial public offering. All shares of Class B common stock not previously converted to common stock and still outstanding on the 12-month anniversary of the consummation of an initial public offering will be entitled to a special dividend of $0.95 per share of Class B common stock, or the Special Dividend, subject to the availability of legally distributable funds at that time and representation to the custodian that the holder has complied with the applicable transfer restrictions. At any time after the expiration of the applicable transfer restriction period, any holder of Class B common stock may convert its Class B common stock into common stock by submitting a notice of conversion to the custodian and representing to the custodian that the holder has complied with the applicable transfer restrictions. Following the 12-month anniversary of the consummation of an initial public offering, each remaining outstanding share of Class B common stock will automatically convert into one share of common stock of IMH Financial Corporation.

There will be one series of Class C common stock which will also be held by the custodian and will either be redeemed for cash or converted into Class B common stock, as discussed below. Following the consummation of an initial public offering, we intend, in our sole discretion, to use up to 30% of the net proceeds from the offering (up to an aggregate of $50 million) to effect a pro rata redemption of Class C common stock (based upon the number of shares of Class C common stock held by each stockholder) at the initial public offering price, less selling commissions and discounts paid or allowed to the underwriters in the initial public offering. In the event that you elect to receive shares of Class C common stock and any of those shares of Class C common stock are redeemed, we expect that the amount you will receive per share will be less than the amount of your original investment in the Fund per unit and less than the current net asset value of the Fund per unit held by you. All shares of Class C common stock that are not so redeemed will automatically convert into shares of Class B common stock.

As a result of the Conversion Transactions, the current executive officers of the Manager will become the executive officers of IMH Financial Corporation. In addition, IMH Financial Corporation will purchase the ownership interests of the Manager and Holdings from the stockholders of the Manager and the members of Holdings in exchange for an aggregate of 995,750 shares of Class B common stock of IMH Financial Corporation, which will represent approximately 5.2% of the fully-diluted common stock of IMH Financial Corporation and will not be eligible to convert into common stock of IMH Financial Corporation for 12 months following the consummation of an initial public offering. We believe the Class B common stock held by the executive officers will more fully align their interests with IMH Financial Corporation in an internally managed structure.

Based on the number of outstanding membership units of the Fund as of December 31, 2009, we expect that IMH Financial Corporation will issue an aggregate of approximately 19 million shares of Class B and Class C common stock in the Conversion Transactions.

Pursuant to this consent solicitation/prospectus, the Fund is asking you to approve:

(i) the Conversion Transactions, including the adoption of the merger agreement, and
(ii) the adoption of the 2010 Stock Incentive Plan.

At least a majority of the issued and outstanding membership units of the Fund entitled to vote must cast votes in favor of these proposals in order for them to be approved. The Manager (i) has approved the Conversion Transactions, the merger agreement and the 2010 Stock Incentive Plan, (ii) has determined that the Conversion Transactions, the merger agreement and the 2010 Stock Incentive Plan


 
 

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are advisable and in the best interests of the Fund and its members, and (iii) recommends that you vote “FOR” the approval of the Conversion Transactions, the merger agreement and the 2010 Stock Incentive Plan.

It is very important that your membership units in the Fund be represented in the consent solicitation. Therefore, you should complete and sign the enclosed consent and return it as soon as possible, and in any event no later than the date which is 30 days from the mailing date of this consent solicitation/prospectus in the enclosed postage-paid envelope, or vote by telephone by calling 1-800-966-8932 or via the Internet by visiting www.dfking.com/imh. This will ensure that your membership units in the Fund are represented in the tabulation of the votes.

The accompanying consent solicitation/prospectus contains important details about the Conversion Transactions and our business plans in the future. We encourage you to read carefully this entire consent solicitation/prospectus, including all of its annexes, and the section entitled “Risk Factors” beginning on page 34.

Sincerely,
  
/s/ Shane C. Albers

Shane C. Albers
Chief Executive Officer
Investors Mortgage Holdings Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities or passed upon the accuracy or adequacy of the disclosures contained in this consent solicitation/prospectus. Any representation to the contrary is a criminal offense.

This consent solicitation/prospectus is dated       , 2010, and is being first mailed to members on or about       , 2010.


 
 

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IMH Secured Loan Fund, LLC



 

NOTICE OF CONSENT SOLICITATION



 

NOTICE IS HEREBY GIVEN that the members of IMH Secured Loan Fund, LLC are being requested to consider and vote on the following matters:

1. a proposal to approve the Conversion Transactions, including the adoption of an agreement and plan of merger, by and among IMH Secured Loan Fund, LLC, IMH Financial Corporation, Investors Mortgage Holdings Inc. and its stockholders, and IMH Holdings, LLC and its members, or the merger agreement; and
2. a proposal to adopt the 2010 IMH Financial Corporation Stock Incentive Plan.

The proposed Conversion Transactions are (i) the merger of IMH Secured Loan Fund, LLC with and into IMH Financial Corporation, with IMH Financial Corporation as the surviving entity, and (ii) the acquisition by IMH Financial Corporation of all of the outstanding shares of Investors Mortgage Holdings Inc. and all of the outstanding membership interests of IMH Holdings, LLC, in each case in exchange for shares of Class B common stock of IMH Financial Corporation. IMH Secured Loan Fund, LLC, through its manager, Investors Mortgage Holdings Inc., reserves the right to cancel or defer the Conversion Transactions even if the members of the Fund vote to approve the Conversion Transactions and the other conditions to the consummation of the Conversion Transactions are satisfied or waived.

Investors Mortgage Holdings Inc., the manager of IMH Secured Loan Fund, LLC, has (i) approved the Conversion Transactions, the merger agreement and adoption of the 2010 Stock Incentive Plan, and (ii) determined that the Conversion Transactions, the merger agreement and the 2010 Stock Incentive Plan are advisable and in the best interests of IMH Secured Loan Fund, LLC and its members, and (iii) recommends that the members of IMH Secured Loan Fund, LLC vote “FOR” the proposals to approve the Conversion Transactions and adopt the 2010 Stock Incentive Plan.

To ensure that your membership units in IMH Secured Loan Fund, LLC are represented, please complete, sign and date the enclosed consent and mail the consent promptly and in any event no later than       , 2010 in the enclosed, postage-paid envelope, or vote by telephone by calling 1-800-966-8932 or via the Internet by visiting www.dfking.com/imh. Any executed but unmarked consents will be voted “FOR” the proposals to approve the Conversion Transactions and adopt the 2010 Stock Incentive Plan. A member of IMH Secured Loan Fund, LLC may generally revoke a returned consent until it is tabulated. If your broker holds your membership units in IMH Secured Loan Fund, LLC in street name, you must either direct your broker on how to vote your membership units in the Fund or obtain a proxy from your broker to vote your membership units by completing the enclosed consent. Please check the voting form used by your broker for information on how to submit your instructions for membership units held in street name.

THE ADOPTION OF THESE PROPOSALS REQUIRES THAT THEY ARE APPROVED BY THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING MEMBERSHIP UNITS IN IMH SECURED LOAN FUND, LLC ENTITLED TO VOTE THEREON.


 
 

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Important details concerning the matters upon which you are being asked to vote are set forth in the accompanying consent solicitation/prospectus for your inspection.

Investors Mortgage Holdings Inc. has fixed the close of business on           , 2010 as the record date for the determination of members of the Fund entitled to vote upon the proposals. Only the holders of record of membership units in IMH Secured Loan Fund, LLC as of the close of business on           , 2010, are entitled to notice of, and to vote on, the proposals.

Members of IMH Secured Loan Fund, LLC are encouraged to carefully read the accompanying consent solicitation/prospectus and complete the accompanying consent.

Your vote is important, no matter how many or how few membership units you own in IMH Secured Loan Fund, LLC.

By Order of the Board of Directors of
Investors Mortgage Holdings Inc.,
  
/s/ Steven Darak
Corporate Secretary

          , 2010
Scottsdale, Arizona


 
 

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ADDITIONAL INFORMATION

This document, which is sometimes referred to as this consent solicitation/prospectus, constitutes a consent solicitation of IMH Secured Loan Fund, LLC, or the Fund, with respect to the solicitation of votes by the Fund for the proposals described within, and a prospectus of IMH Financial Corporation for the Class B and Class C common stock of IMH Financial Corporation to be issued in the Conversion Transactions. See the section entitled “Where You Can Find Additional Information” beginning on page 250. You may also obtain copies of the documents that we file with the Securities and Exchange Commission, or SEC, without charge, from the Fund by writing or calling:

IMH Secured Loan Fund, LLC
4900 N. Scottsdale Rd Suite 5000
Scottsdale, Arizona 85251
Attention: Investor Relations
(480) 840-8400

You also may obtain any documents incorporated by reference into this consent solicitation/prospectus by requesting them in writing or by telephone from the consent solicitor for the Conversion Transactions at the following address and telephone number:

D.F. King & Co., Inc.
48 Wall Street
New York, New York 10005
(800) 966-8932

To receive timely delivery of requested documents in advance of the voting deadline, you should make your request no later than           , 2010.

VOTING

The members of record of the Fund as of the close of business on the record date may submit their votes by completing the enclosed consent, signing and dating the consent and returning the consent in the enclosed, postage-paid envelope. You may also vote by telephone by calling 1-800-966-8932 or via the Internet by visiting www.dfking.com/imh.

If your membership units in the Fund are held in the name of a broker, bank or other nominee, then you are not the member of record and you must either direct your broker on how to vote your membership units in the Fund or obtain a proxy, executed in your favor, from the record holder. Please note that members who hold their membership units in the Fund in “street-name” (i.e., through a bank, broker or other nominee) may also be able to provide voting instructions to their street name holders by telephone or via the Internet by following the instructions provided by such nominee. The votes entitled to be cast by the holders of membership units in the Fund represented by properly authorized consents will be cast as indicated or, if no instruction is given on a properly authorized consent, it will be voted in favor of the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan.


 
 

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QUESTIONS AND ANSWERS ABOUT THE CONSENT SOLICITATION AND THE CONVERSION TRANSACTIONS     1  
SUMMARY     16  
General     16  
Our Company     17  
Structure of the Conversion Transactions     19  
Board of Directors of IMH Financial Corporation; Manager of IMH Financial Corporation     21  
Recommendation of the Manager     21  
Interests of Certain Persons in the Conversion Transactions     22  
Special Dividend     23  
Distribution Policy Following the Consummation of the Conversion
Transactions
    23  
Proposed Initial Public Offering of Our Common Stock Following the Consummation of the Conversion Transactions     24  
NYSE Listing     24  
Redemption of Class C Common Stock in Connection with an Initial Public Offering     24  
Exchange of Class C Common Stock for Common Stock if the Board of Directors Decides Not to Pursue an Initial Public Offering     24  
Material U.S. Federal Income Tax Consequences of the Conversion Transactions and of Holding IMH Financial Corporation Common Stock     24  
Section 362(e) Tax Election     24  
Members Entitled to Vote     25  
Votes Required to Approve the Conversion Transactions and the Adoption of the 2010 Stock Incentive Plan; No Dissenters’ Rights     25  
Regulatory Approvals     25  
Comparison of Rights of Holders of Membership Units in the Fund and Stockholders of IMH Financial Corporation     26  
Comparison of Rights of the Holders of Common Stock, Class B Common Stock and Class C Common Stock of IMH Financial Corporation     26  
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION     27  
IMH Secured Loan Fund, LLC Selected Historical Financial Information     27  
Investors Mortgage Holdings Inc. and IMH Holdings, LLC Selected Historical Financial Information     30  
IMH Financial Corporation Summary Unaudited Pro Forma Condensed Combined Financial Information     31  
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS     32  
RISK FACTORS     34  
Risks Related to the Conversion Transactions     34  
Risks Related to Our Investment Strategy Following the Consummation of Conversion Transactions     42  
Other Risks Related to Our Operations     53  
Other Risk Factors     64  

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VOTING AND CONSENTS     69  
Date and Time to Tabulate Consents     69  
Matters to be Considered     69  
Recommendation of the Manager     69  
Who May Vote     70  
Vote Required     70  
How to Vote Your Membership Units in the Fund     70  
Absence of Dissenter’s Rights     70  
Revocation of Consents     71  
Consent Solicitation and Tabulation of Votes     71  
Other Matters     71  
PROPOSAL NO. 1: THE CONVERSION TRANSACTIONS     72  
General     72  
Our Company     72  
Structure of the Conversion Transactions     75  
BACKGROUND OF THE CONVERSION TRANSACTIONS     77  
OUR REASONS FOR THE CONVERSION TRANSACTIONS     79  
INTERESTS OF CERTAIN PERSONS IN THE CONVERSION TRANSACTIONS     86  
TERMS OF THE CONVERSION TRANSACTIONS     88  
Structure and Consummation of the Conversion Transactions     88  
Issuance of Stock Certificates     89  
Terms of the IMH Financial Corporation Common Stock Exchanged in the Conversion Transactions     90  
Restrictions on Sales of IMH Financial Corporation Shares Issued to Affiliates Pursuant to the Conversion Transactions     92  
Conditions to Consummation of the Conversion Transactions     92  
Termination of the Merger Agreement     93  
DIVIDEND AND DISTRIBUTION POLICY     94  
Dividend and Distribution Policy of IMH Financial Corporation     94  
Historical Distribution Policy of IMH Secured Loan Fund, LLC     95  
OUR BUSINESS     97  
Our Company     97  
Information Regarding Our Current Portfolio     99  
Industry Dynamics and Market Opportunities     100  
Our Competitive Strengths     101  
Our Investment Strategy     103  
Our Target Assets     104  
Current Portfolio Disposition Strategy     106  
Acquisition and Origination Policy     107  
Resolution of Potential Conflicts of Interest in Allocation of Investment Opportunities     108  
Investment Sourcing     109  
Investment Process     110  

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Properties     112  
Competition     113  
Employees     114  
Regulation     114  
Legal Proceedings     116  
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION     118  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF IMH SECURED LOAN FUND, LLC     128  
Our Company     128  
Selected Financial Data     130  
Factors Affecting our Financial Results     132  
Results of Operations for the Nine and Three Months Ended September 30, 2008 and 2009     136  
Results of Operations for the Years Ended December 31, 2006, 2007 and 2008     146  
Important Relationships Between Capital Resources and Results of Operations     155  
Off-Balance Sheet Arrangements     166  
Contractual Obligations     166  
Liquidity and Capital Resources     166  
Critical Accounting Policies     173  
Quantitative and Qualitative Disclosures About Market Risk of IMH Secured Loan Fund, LLC     177  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF INVESTORS MORTGAGE HOLDINGS INC. AND IMH HOLDINGS, LLC     183  
Overview of the Business     183  
Selected Financial Data     185  
Results of Operations for the Nine Months Ended September 30, 2008 and 2009     185  
Results of Operations for the Years Ended December 31, 2006, 2007 and 2008     189  
Liquidity and Capital Resources     192  
Critical Accounting Policies     193  
Recent Accounting Pronouncements     195  
Quantitative and Qualitative Disclosures About Market Risk     197  
OUR OFFICERS     198  
General     198  
The Manager     198  
Removal of Investors Mortgage Holdings Inc. as Manager     198  
Officers and Key Employees     199  
Investment Committee     200  

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BOARD OF DIRECTORS OF OUR MANAGER     202  
Directors of the Manager     202  
Compensation of Directors     202  
CORPORATE GOVERNANCE     203  
Committees of the Board     203  
Audit Committee     203  
Compensation Committee     203  
Compensation Committee Interlocks and Insider Participation     204  
Nominating and Corporate Governance Committee     204  
Corporate Governance Guidelines     204  
Communications with the Board of Directors     205  
Director Attendance at Annual Meeting     205  
Code of Business Conduct and Ethics     205  
EXECUTIVE COMPENSATION     206  
Compensation Discussion and Analysis     206  
Current Compensation of the Manager     206  
Discussion and Analysis of Current Compensation Program     208  
IMH Financial Corporation’s Intended Compensation Programs Following Consummation of the Conversion Transactions     211  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS     215  
DESCRIPTION OF IMH FINANCIAL CORPORATION’S CAPITAL STOCK     216  
General     216  
Capital Stock     216  
Delaware Law     222  
Certificate of Incorporation and Bylaws     223  
COMPARISON OF RIGHTS OF HOLDERS OF IMH SECURED LOAN FUND, LLC AND IMH FINANCIAL CORPORATION     225  
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS     238  
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS     240  
PROPOSAL NO. 2: APPROVAL OF THE 2010 IMH FINANCIAL CORPORATION EMPLOYEE STOCK INCENTIVE PLAN     244  
LEGAL MATTERS     250  
EXPERTS     250  
MEMBER PROPOSALS     250  
OTHER MATTERS     250  
WHERE YOU CAN FIND ADDITIONAL INFORMATION     250  
INDEX TO FINANCIAL STATEMENTS OF IMH SECURED LOAN FUND, LLC     F-1  
INDEX TO FINANCIAL STATEMENTS OF INVESTORS MORTGAGE HOLDINGS INC.     F-69  

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ANNEXES

 
ANNEX A   Agreement and Plan of Merger, by and among IMH Secured Loan Fund, LLC, IMH Financial Corporation, Investors Mortgage Holdings, Inc. and its Stockholders, IMH Holdings, LLC and its Members (to be filed by amendment).
ANNEX B   Form of Amended and Restated Certificate of Incorporation of IMH Financial Corporation.
ANNEX C   Form of Bylaws of IMH Financial Corporation.
ANNEX D   Form of 2010 IMH Financial Corporation Employee Stock Incentive Plan.
ANNEX E   Form of Notice of Conversion (to be filed by amendment).
ANNEX F   Fairness Opinion of Sutter Securities Incorporated (to be filed by amendment).

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QUESTIONS AND ANSWERS ABOUT THE CONSENT SOLICITATION
AND THE CONVERSION TRANSACTIONS

Q: Why am I receiving this consent solicitation/prospectus?
A: Investors Mortgage Holdings Inc., the manager of IMH Secured Loan Fund, LLC, or the Manager, has approved a plan to merge IMH Secured Loan Fund, LLC, or the Fund, a Delaware limited liability company, with and into a newly incorporated Delaware corporation named IMH Financial Corporation, and to internalize the management of the Fund by acquiring all of the outstanding shares of common stock of the Manager, and all of the membership interests of IMH Holdings, LLC, or Holdings, a holding company for other affiliates of the Manager, as a result of which the Manager and Holdings would become wholly-owned subsidiaries of IMH Financial Corporation. We refer to these transactions as the Conversion Transactions. This document is a consent solicitation because it is being used by the Fund to solicit consents from the members of the Fund to approve the Conversion Transactions and the 2010 Stock Incentive Plan. It is a prospectus because IMH Financial Corporation is offering shares of Class B and Class C common stock in exchange for membership units in the Fund if the Conversion Transactions are consummated. The Fund is seeking approval from the holders of membership units in the Fund necessary to approve the Conversion Transactions.
Q: What am I being asked to vote on?
A: You are being asked to vote to approve (i) the Conversion Transactions, including adoption of the related merger agreement, as described below, and (ii) the 2010 Stock Incentive Plan.
Q: Why are we undertaking the Conversion Transactions?
A: The Manager’s reasons for undertaking the Conversion Transactions include, without limitation, the following:
to position the Fund to become a publicly traded corporation listed on the New York Stock Exchange, or NYSE:
to create the opportunity for liquidity for members of the Fund, who are currently restricted from redeeming their membership units in the Fund and have significant restrictions on their ability to transfer their membership units in the Fund;
to cause the Fund to be internally managed, which would eliminate conflicts and more fully align the interests of the Fund, the Manager and Holdings;
to create the opportunity for us to raise additional capital in the public markets, thereby enabling us to better acquire and originate commercial real estate mortgage loans and other real estate related investment opportunities;
to create the opportunity to achieve long term value for our stockholders through dividends and capital appreciation;
to create a board of directors comprised of a majority of independent directors, which will enhance our corporate governance;
to allow the members of the Fund to benefit from potential management fees, origination fees and points associated with the origination of new commercial mortgage loans, penalty fee, gains pertaining to portfolio assets and other income historically retained by the Manager and its affiliates;

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to provide holders electing to receive Class C common stock in the Conversion Transactions with the potential to be redeemed in whole or in part if sufficient net proceeds are raised in an initial public offering; and
to provide the members of the Fund with what we believe to be a more efficient corporate structure within which to operate our business going forward.
Q: What are the primary steps in the Conversion Transactions?
A: The Conversion Transactions will be implemented through the following:
the merger of the Fund with and into IMH Financial Corporation, its newly-formed, wholly-owned subsidiary, with IMH Financial Corporation as the surviving entity, pursuant to which each membership unit you hold in the Fund will be exchanged, at your election, for approximately 246.45 shares of Class B common stock or approximately 246.45 shares of Class C common stock of IMH Financial Corporation or a combination thereof; and
the acquisition by IMH Financial Corporation of all of the outstanding shares of the Manager and all of the outstanding membership interests in Holdings, in exchange for an aggregate of 995,750 shares of Class B-3 common stock in IMH Financial Corporation, as a result of which the Manager and Holdings will become wholly-owned subsidiaries of IMH Financial Corporation.

We have attached a copy of an agreement and plan of merger, by and among IMH Secured Loan Fund, LLC, IMH Financial Corporation, Investors Mortgage Holdings Inc. and its stockholders, and IMH Holdings, LLC and its members, or the merger agreement, as Annex A. Copies of the forms of IMH Financial Corporation’s amended and restated certificate of incorporation and bylaws are attached as Annex B and Annex C, respectively, to this consent solicitation/prospectus.

Q: What happens to the outstanding assets, liabilities and business of the Fund, the Manager and Holdings pursuant to the Conversion Transactions?
A: Pursuant to the Conversion Transactions, the Fund’s assets, liabilities and business will become the assets, liabilities and business of IMH Financial Corporation. The assets, liabilities and business of the Manager and Holdings remain the respective assets, liabilities and business of the Manager and Holdings, but as a result of the Conversion Transactions, the Manager and Holdings will become wholly-owned subsidiaries of IMH Financial Corporation.
Q: Are there other events and transactions expected to occur in connection with the Conversion Transactions?
A: Yes. Following the consummation of the Conversion Transactions, we contemplate, among other things, that:
IMH Financial Corporation will apply to have its common stock listed on the NYSE;
after the consummation of an initial public offering, IMH Financial Corporation intends, in its sole discretion, to use up to 30% of the net proceeds from the initial public offering (up to an aggregate of $50 million) to effect a pro rata redemption of Class C common stock (based upon the number of shares of Class C common stock held by each stockholder) at the initial public offering price, less selling commissions and discounts paid or allowed to the underwriters in the initial public offering; all shares of Class C common stock that are not so redeemed will automatically be converted into shares of Class B common stock;

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IMH Financial Corporation will seek to raise capital through an initial public offering of its common stock;
IMH Financial Corporation will adopt an investment policy that we believe will be more reflective of the current and anticipated opportunities and market conditions relevant to IMH Financial Corporation;
the executive officers of the Manager will become the executive officers of IMH Financial Corporation and enter into employment agreements with IMH Financial Corporation;
IMH Financial Corporation will appoint a seven-person board of directors, which we expect will be comprised of the two existing directors of the Manager, Shane Albers and William Meris, and as soon as practicable, five new directors who are expected to be considered independent under the rules of the New York Stock Exchange, or NYSE, and the Securities and Exchange Commission, or SEC.
the 2010 Stock Incentive Plan will be approved by the members of the Fund and implemented;
subject to the discretion of the board, IMH Financial Corporation will set a dividend policy that will provide for the payment of a quarterly dividend beginning after the first full quarter after the consummation of the Conversion Transactions and an initial public offering; and
IMH Financial Corporation will seek to pay a Special Dividend of $0.95 per share of Class B Common Stock outstanding on the one year anniversary of the consummation of an initial public offering, subject to availability of legally distributable funds at that time.

The consummation of an initial public offering is not a condition to the Conversion Transactions. If we do not raise additional capital through the consummation of an initial public offering or otherwise, however, we may not be able to acquire or originate new loans or invest in other real estate related opportunities as contemplated, institute a dividend policy, or pay the Special Dividend.

Q: What will I receive in connection with the Conversion Transactions?
A: If the Conversion Transactions are consummated as contemplated, you will receive, at your election, approximately 246.45 shares of Class B or Class C common stock of IMH Financial Corporation, or a combination thereof, in exchange for each membership unit in the Fund that you own on the record date. You may choose any combination of Class B or Class C common stock. If you elect to receive shares of Class B common stock in the Conversion Transactions, 25% will be shares of Class B-1 common stock, 25% will be shares of Class B-2 common stock, and 50% will be shares of Class B-3 common stock. No fractional shares of IMH Financial Corporation Class B or Class C common stock will be issued in the Conversion Transactions and no certificate for any fractional shares will be issued. After aggregating all fractional share amounts of a particular holder in the Conversion Transactions into one or more whole shares of Class B-3 common stock, any remaining fractional share interest will either be (i) rounded up to the nearest whole share if the fractional interest is equal to or greater than 0.5 of a share, or (ii) rounded down to the nearest whole share if the fractional interest is less than 0.5 of a share.

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Q: In general, what are the key terms of the Class B and Class C common stock in IMH Financial Corporation that will be issued in the Conversion Transactions?
A: In general, the key terms of the IMH Financial Corporation Class B and Class C common stock to be issued in the Conversion Transactions include, without limitation, the following:
each share of Class B-1, Class B-2, Class B-3 and Class C common stock will be initially issued to a custodian for the benefit of the respective holders, each share of Class C common stock will be non-transferable, and each share of Class B common stock will be subject to certain restrictions on transfer or sale for six, nine or 12 months following the earlier of (i) the consummation of an initial public offering, and (ii) the 90th day after the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, as described below;
after the consummation of an initial public offering, IMH Financial Corporation may, in its sole discretion, use up to 30% of the net proceeds of the initial public offering (up to an aggregate of $50 million) to effect a pro rata redemption of Class C common stock (based upon the number of shares of Class C common stock held by each stockholder) at the initial public offering price, less selling commissions and discounts paid or allowed to the underwriters in the initial public offering; no fractional shares will be redeemed; all shares of Class C common stock that are not so redeemed will automatically be converted into shares of Class B common stock as follows: 25% of the outstanding shares of Class C common stock will convert into shares of Class B-1 common stock; 25% will convert into shares of Class B-2 common stock; and 50% will convert into shares of Class B-3 common stock.
at any time after the six-month anniversary of the earlier of (i) the consummation of an initial public offering, and (ii) the 90th day after the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, all shares of Class B-1 common stock will be eligible to convert, at the option of the respective holders, into freely transferable shares of IMH Financial Corporation common stock, and may be so converted by a holder of Class B-1 common stock by sending a notice of conversion to the custodian and representing to the custodian that the holder has complied with the applicable transfer restrictions;
at any time after the nine-month anniversary of the earlier of (i) the consummation of an initial public offering, and (ii) the 90th day after the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, all shares of Class B-2 common stock will be eligible to convert, at the option of the respective holders, into freely transferable shares of IMH Financial Corporation common stock, and may be so converted by a holder of Class B-2 common stock by sending a notice of conversion to the custodian and representing to the custodian that the holder has complied with the applicable transfer restrictions;
following the earlier of the twelve-month anniversary of the earlier of (i) the consummation of an initial public offering, and (ii) the 90th day after the board of directors of IMH Financial Corporation determines not to pursue an initial public offering, all outstanding shares of Class B-1, Class B-2 and Class B-3 common stock will automatically convert into freely transferable shares of IMH Financial Corporation common stock;
if, at any time after the five-month anniversary of the consummation of an initial public offering, our common stock price is greater than or equal to 125% of the offering price in an initial public offering for 20 consecutive trading days, all shares of Class B common stock, other than those

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shares held by our directors and executive officers, will be eligible to convert, at the option of the respective holders, into freely transferable shares of IMH Financial Corporation common stock if the holder has submitted a notice to the custodian that the holder has complied with the applicable transfer restrictions;
the shares of Class B and Class C common stock will also automatically convert into unrestricted and freely transferable shares of IMH Financial Corporation common stock upon consummation of any “change in control” transaction, which generally includes (i) a merger of IMH Financial Corporation in which the IMH Financial Corporation’s holders of record do not immediately after such merger hold a majority of the voting power of the surviving corporation, (ii) any transaction in which 50% or more of IMH Financial Corporation’s voting power is transferred, or (iii) a sale of all or substantially all of the assets of IMH Financial Corporation, except to one or more affiliates of IMH Financial Corporation;
on the twelve-month anniversary of an initial public offering, we intend to pay, subject to the availability of legally distributable funds at that time, a one-time dividend equal to $0.95 per share of for each share of Class B common stock then outstanding, which we refer to as the “Special Dividend” (the Special Dividend will not be payable if we do not consummate an initial public offering);
if any holder of Class B common stock submits a notice of conversion to the custodian but does not represent to the custodian that the holder has complied with the applicable transfer restrictions, the conversion will not be effected, and if the holder represents that it has not complied with the applicable transfer restrictions, all of the shares of Class B common stock owned by the holder will be automatically converted into Class D common stock and will not be entitled to the Special Dividend and will not be convertible into common stock until the 12 month anniversary of the consummation of the Conversion Transactions, and then, only if the holder submits a representation to the custodian that the holder has complied with the applicable transfer restrictions for the 90 days prior to such representation and is not currently in violation of those transfer restrictions;
similarly, if a holder’s shares of Class B common stock have been automatically converted into common stock on the 12 month anniversary as described above, then to withdraw or transfer those shares, the holder must provide a representation to the custodian that the holder has complied with the applicable transfer restrictions, and if the holder represents to the custodian that it has not complied with the applicable transfer restrictions then the custodian (i) will not release the shares for a period of 90 days thereafter, and then, only upon receipt of a representation that the holder has complied with the restrictions for the 90 days prior to such representation and is not currently in violation, and (ii) will return to IMH Financial Corporation the Special Dividend (if it has been declared and paid); and
if the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, it may, beginning 90 days after that determination, convert up to 20% of the outstanding shares of Class C common stock into shares of freely tradeable common stock, with the remaining shares of Class C common stock automatically converting into shares of Class B common stock on the following basis: 25% would convert into Class B-1 common stock, 25%

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would convert into Class B-2 common stock and 50% would convert into Class B-3 common stock. The restrictions on transfer of the Class B Shares will continue for six, nine or 12 months following the 90th day after the board of directors makes the determination not to pursue an initial public offering.
Q: How do the shares of Class B and Class C common stock differ from the common stock that we intend to issue in an initial public offering or other financing?
A: IMH Financial Corporation Class B and Class C common stock will generally have the same powers, preferences, limitations and restrictions as IMH Financial Corporation common stock. However, while it is anticipated that shares of IMH Financial Corporation common stock will become listed and traded on a national securities exchange, we do not plan to list the Class B or Class C common stock on any exchange, nor do we intend to include the Class B or Class C common stock in any automated quotation system. Therefore, we anticipate that no trading market for Class B and Class C common stock will develop. Rather, Class B common stock will become eligible for conversion to common stock at periodic intervals over a twelve-month period following consummation of an initial public offering. Unlike Class B common stock, the Class C common stock will be subject to redemption, in our discretion, following an initial public offering and will not be eligible for the Special Dividend, as discussed under the section entitled “Description of IMH Financial Corporation’s Capital Stock.” Our intent by establishing Class B and Class C common stock is to differentiate those stockholders who wish to become eligible to have all or a portion of their shares of common stock redeemed by us following consummation of the initial public offering, as compared to those who wish to hold their position, as well as become eligible for the Special Dividend.
Q: Can members of the Fund choose to receive either Class B or Class C common stock in the Conversion Transactions?
A: Yes. In connection with the consent solicitation, the members of the Fund may designate the percentage of whole shares of Class B and Class C common stock they wish to receive in exchange for their membership units. The members of the Fund may choose to receive any combination of Class B and Class C common stock by indicating in the consent attached to this consent solicitation/prospectus, subject to the limitation that each member will receive approximately 246.45 aggregate shares of Class B or Class C common stock in exchange for each membership unit in the Fund they hold.
Q: What happens if a member fails to elect to receive either Class B or Class C common stock?
A: If the Conversion Transactions are consummated, the members who do not specify whether to receive any shares of Class B or Class C common stock will automatically receive shares of Class B common stock in exchange for their membership units in the Fund.
Q: Why do the shares of Class B common stock and Class C common stock have transfer restrictions?
A: Because member redemptions have been suspended since October 1, 2008, absent such transfer restrictions, we are concerned that the sudden potential liquidity resulting from the Conversion Transactions could prevent the orderly marketing of our shares of common stock in an initial public offering and prevent the development of a sustainable trading market thereafter. Accordingly, we have adopted a conversion schedule, whereby all shares of Class B common stock will systematically become eligible to convert to common stock at predetermined intervals over a 12 month period. To reward

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owners of Class B common stock for their patience, we propose to declare and pay, subject to the availability of legally distributable funds, a Special Dividend of $0.95 for each share of then outstanding Class B common stock to the holders of record on the one-year anniversary of the consummation of an initial public offering.
Q: Once the transfer restrictions no longer apply to my shares of Class B common stock, how can I convert them into shares of common stock of IMH Financial Corporation?
A: Once the applicable six or nine month transfer restrictions lapse, a holder of shares of Class B common stock may convert some or all of its shares of Class B common stock into freely transferable shares of IMH Financial Corporation common stock by sending a notice of conversion to the custodian and representing to the custodian that the applicable holder has complied with the transfer restrictions. Any shares of Class B common stock converted prior to the record date for the Special Dividend will not be eligible for the Special Dividend. If any holder of Class B common stock submits a notice of conversion to the custodian, but represents to the custodian that the holder has not complied with the applicable transfer restrictions, all shares of Class B common stock owned by the applicable holder will be converted into Class D common stock which may not be transferred or converted until the 12 month anniversary of the Conversion Transactions, and then, only if the applicable holder submits a representation to the custodian that the applicable holder has complied with the applicable transfer restrictions for the 90 days prior to such representation and is not currently in violation.
Q: If my shares of Class B common stock automatically convert to shares of common stock, how do I transfer them from the custodian?
A: If a holder’s shares of Class B common stock have been automatically converted into common stock as described above, then to withdraw or transfer those shares, the holder must provide a representation to the custodian that the holder has complied with the applicable transfer restrictions; if the holder represents that it has not complied with the applicable transfer restrictions then the custodian (i) will not release the shares for a period of 90 days thereafter, and then only upon receipt from the holder of a representation that the holder has complied with the transfer restrictions for the 90 days prior to such representation and is not currently in violation, and (ii) will return to IMH Financial Corporation the Special Dividend (if it has been declared and paid).
Q: What are some of the risks associated with the Conversion Transactions?
A: The risks associated with the Conversion Transactions include, without limitation, the following:
the potential conflicts of interest between the Fund and the Manager in approving the Conversion Transactions and valuing the Fund, the Manager and Holdings in the Conversion Transactions;
the absence of any arm’s length negotiation among the parties involved regarding the value or terms applicable to the Conversion Transactions;
the costs associated with seeking to effect the Conversion Transactions, whether or not the Conversion Transactions are consummated as contemplated;
the risk that the Conversion Transactions may not be consummated, which could harm the value of your membership units in the Fund;

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the continued lack of liquidity in your investment in the membership units in the Fund and the stock of IMH Financial Corporation for a period of time, because of the limits on transferability and conversion after the consummation of the Conversion Transactions;
the potential volatility in the trading price of IMH Financial Corporation’s common stock following consummation of the Conversion Transactions;
as of the date of the consummation of the Conversion Transactions, the value of IMH Financial Corporation’s Class B or Class C common stock that you receive upon consummation of the Conversion Transactions in exchange for your membership units in the Fund will likely be less than your original investment in the membership units and the current net asset value per unit;
the possibility that the Conversion Transactions may not qualify for non-recognition treatment under the Internal Revenue Code of 1986, as amended, or the Code;
the expectation that the per-share price of an initial public offering will be less than both your original investment amount per unit in the Fund and the current net asset value per unit of the Fund;
the potential inability of IMH Financial Corporation to pay the Special Dividend to holders of Class B common stock that hold Class B common stock on the one-year anniversary of the consummation of an initial public offering;
the possibility that an initial public offering is not consummated on a timely basis, or at all, and the possibility that the initial public offering price or offering size may be unattractive to the holders of shares of common stock in IMH Financial Corporation;
there are important differences between your rights as an IMH Financial Corporation stockholder and your rights as a holder of membership units in the Fund as discussed under the section entitled “Comparison of the Rights of Holders of IMH Secured Loan Fund, LLC and IMH Financial Corporation”;
the raising of additional capital through the sale by IMH Financial Corporation of shares of its common stock will be dilutive to you; and
certain other risks described in this consent solicitation/prospectus under the section entitled “Risk Factors” beginning on page 34.

For more information regarding risks associated with the Conversion Transactions and IMH Financial Corporation, see the section entitled “Risk Factors” beginning on page 34.

Q: Will the Conversion Transactions change the Fund’s business plan?
A: Yes. As we have communicated to the members of the Fund, the Manager has recently sought to manage the assets of the Fund with an aim to preserve capital and potentially distribute cash to the members. As part of the proposed Conversion Transactions, the Manager intends to continue to manage the assets to preserve capital and liquidity in order to pursue IMH Financial Corporation’s revised investment policy. Under this policy, we expect to continue to focus on generating revenues and capital gains through the acquisition, origination and management of commercial real estate mortgage loans and real estate related investments. However, as soon as reasonably practicable after the consummation of the Conversion Transactions, we expect the board of directors to consider opportunities to make distributions to stockholders, subject to legally available funds and liquidity requirements. We also believe the consummation of the Conversion Transactions will more favorably position IMH Financial Corporation to take advantage of new and developing commercial real estate mortgage loan acquisition and

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origination opportunities in the current economic environment. We believe our current structure limits our ability to do so by making it more difficult for us to raise capital and, thus, limiting the number of attractive opportunities we may pursue. We also believe that the Conversion Transactions, together with the financing from an initial public offering, will better position us financially and operationally to pursue our strategies of maximizing liquidity from our commercial mortgage loan portfolio as well as generating income through future investments in, and the active management of, a diversified investment portfolio of performing, distressed and non-performing commercial mortgage loans and other attractively priced real estate related investments that we believe are attractively priced. By doing so, we believe we can better reposition our portfolio assets to create the ability to pay regular dividends and increase our stockholder value. If we consummate the Conversion Transactions, but not an initial public offering, we may not be able to acquire or originate commercial mortgage loans or invest in other real estate related investment opportunities as contemplated without selling some or all of our existing portfolio assets, which may result in a loss in the event of a sale at this time or at some future time.
Q: How does the Manager expect IMH Financial Corporation to benefit from management and other fees?
A: Historically, the Manager and Holdings have operated independently of the Fund and revenue from both entities have specifically not benefitted the members of the Fund. In addition to the management fee that the Manager receives from the Fund, the Manager is also entitled to receive 100% of all origination fees and points associated with the origination of new mortgage loans and the modification or extension of existing mortgage loans, as well as 25% of all penalty fees and gains pertaining to the portfolio assets. The Fund paid the Manager $430,000, $968,000 and $1.1 million, respectively, in management fees for each of the three years ended December 31, 2006, 2007, and 2008, and $481,000 in management fees for the nine months ended September 30, 2009. The Manager also recorded gains totaling $0, $101,000 and $401,000 for its 25% share of gains during the years ended December 31, 2006, 2007 and 2008, respectively, and no gains for the nine months ended September 30, 2009. In addition, the Manager received origination and other fees and points in each of these periods. The Conversion Transactions are designed so that the fees the Fund currently pays to the Manager will instead be retained solely by IMH Financial Corporation following the consummation of the Conversion Transactions. Additionally, consummation of the Conversion Transactions also provides that 100% of the fees associated with loan origination, acquisition and modification, previously paid solely to the Manager, will instead inure to the sole benefit of IMH Financial Corporation following the consummation of the Conversion Transactions. Furthermore, Holdings, through subsidiaries, collects management fees from, and has rights to participate in profits generated by, the Strategic Wealth Income fund, or SWI Fund. Similarly, the Conversion Transactions ensure that all revenue otherwise payable to Holdings will inure to the sole benefit of IMH Financial Corporation.
Q: How do you intend to manage the Fund between the date of this consent solicitation/prospectus and the vote on the consummation of the Conversion Transactions?
A: We intend to continue to manage the Fund in a manner designed to preserve the Fund’s liquidity and to position the Fund to consummate the Conversion Transactions. In the event that we sell any of our portfolio assets during this period, we contemplate retaining the net proceeds from those dispositions to address the Fund’s liquidity needs and to position the Fund to implement the investment strategies contemplated by this consent solicitation/prospectus pending the vote of the members on the Conversion Transactions. We do not anticipate making distributions or offering redemptions to the members of the Fund during this period.

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Q: Will the Manager continue to manage the business following the consummation of the Conversion Transactions?
A: Pursuant to the Conversion Transactions, the Manager will become internalized and the same persons who currently manage our business for the Manager will manage our business following the consummation of the Conversion Transactions in their new capacities as executive officers and employees of IMH Financial Corporation. In connection with the consummation of the Conversion Transactions, the Manager will become a wholly-owned subsidiary of IMH Financial Corporation and the Manager’s directors, Shane Albers and William Meris, will become directors of IMH Financial Corporation, the Manager’s executive officers will become the executive officers of IMH Financial Corporation, and the operating agreement between the Fund and the Manager will be terminated. We also plan to appoint as soon as practicable five additional directors, who we expect will be considered independent under NYSE and SEC rules.
Q: How will competition with the SWI Fund be addressed following the consummation of the Conversion Transactions and an initial public offering?
A: Following the consummation of the Conversion Transactions, Holdings will become a wholly-owned subsidiary of IMH Financial Corporation, and Holdings will continue to own SWI Management, LLC, or SWIM, the manager of the SWI Fund. The SWI Fund is a real estate investment fund with target classes of investment that are substantially similar to ours. At December 31, 2009, the SWI Fund had $10.5 million under management. Upon consummation of the Conversion Transactions, any benefit SWIM receives from managing the SWI Fund, including receipt of management fees, will inure to the sole benefit of IMH Financial Corporation. SWIM will have obligations to the SWI Fund and its members pursuant to the operating agreement between SWIM and the SWI Fund. In order to mitigate conflicts of interest between IMH Financial Corporation and the SWI Fund, upon the consummation of an initial public offering of IMH Financial Corporation common stock, SWIM will cease raising capital on behalf of the SWI Fund. Thereafter, SWIM will invest capital on behalf of the SWI Fund in the ordinary course. The independent members of the board of directors of IMH Financial Corporation (or a subcommittee) will decide, in its sole discretion, whether prospective asset acquisitions or origination opportunities that are suitable for both IMH Financial Corporation and the SWI Fund will be acquired or originated by IMH Financial Corporation or the SWI Fund. These decisions are expected to be based on various factors established by the independent members of the board of directors of IMH Financial Corporation (or a subcommittee) from time to time and may include factors such as the following:
whether the investments fall within our investment objectives, policies and strategies and/or those of the SWI Fund;
whether we have, and/or the SWI Fund has sufficient cash and purchasing power;
whether the terms of any necessary financing are appropriate for us and/or the SWI Fund;
whether the investment satisfies our portfolio needs and/or those of the SWI Fund;
whether the investment’s liquidity meets our cash flow requirements and/or those of the SWI Fund;
whether a similar type of investment (i.e., a geographic location, size of loan, quality of borrower, quality of guarantor, loan to value criteria, risk profile or type of collateral, among other factors) has recently been allocated to us and/or the SWI Fund;

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whether the investment meets regulatory or legal requirements applicable to us or the SWI Fund; and
what impact the investment has on our portfolio diversification, and/or that of the SWI Fund.
Q: How much common stock does IMH Financial Corporation contemplate issuing in exchange for all of the outstanding shares in the Manager and all the outstanding membership interests in Holdings, and by what process was that number determined?
A: IMH Financial Corporation contemplates paying an aggregate of 995,750 shares of Class B-3 common stock to the stockholders of the Manager in exchange for purchasing all of their shares in the Manager and to the members of Holdings in exchange for all of their membership interests in Holdings. The aggregate purchase price being paid by IMH Financial Corporation for the Manager and Holdings is based upon the Manager’s assessment of reasonable compensation based on assets under management, management fees and termination fees paid in other internalization transactions, and will be subject to the receipt by the Manager, on behalf of the members of the Fund, of a fairness opinion from Sutter Securities Incorporated, or Sutter Securities, that the acquisitions of Manager and Holdings are fair from a financial point of view to IMH Financial Corporation and to the stockholders of IMH Financial Corporation (other than the owners of the Manager and Holdings). A copy of the fairness opinion is attached as Annex F to this consent solicitation/prospectus. The fairness opinion is subject to various assumptions, qualifications and limitations, and does not constitute a recommendation to members of the Fund in the Conversion Transactions as to how they should vote on the Conversion Transactions.
Q: When will the Conversion Transactions be consummated and what are the conditions to consummating the Conversion Transactions?
A: We expect the Conversion Transactions will be consummated in the first quarter of 2010. Prior to consummation of the Conversion Transactions, we must satisfy or waive all of the closing conditions set forth in the merger agreement, including, without limitation, the following:
approval of the Conversion Transactions and adoption of the merger agreement by the requisite vote of the members of the Fund;
confirmation that no stop order has been issued, and no proceedings seeking a stop order have been initiated, by the SEC with respect to IMH Financial Corporation’s registration statement on Form S-4 registering the shares of Class B, Class C and Class D common stock to be issued in the Conversion Transactions, of which this consent solicitation/prospectus is a part;
receipt of all governmental and third party consents to the Conversion Transactions, except for consents which, if not obtained, would not reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of IMH Financial Corporation and its subsidiaries taken as a whole; and
Mr. Albers shall have been either released from guarantees provided to the Manager’s landlord and the Manager’s lender for the benefit of the Fund and the Manager, or in the absence of such releases, shall have received an indemnity from IMH Financial Corporation for any losses thereunder.

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The Manager reserves the right, in its sole discretion, to cancel or defer the Conversion Transactions even if the members of the Fund vote to approve the Conversion Transactions and the other conditions to the consummation of the Conversion Transactions are satisfied or waived.

Q: What are the material U.S. federal income tax considerations related to the Conversion Transactions?
A: The Conversion Transactions are intended to qualify, and the Fund expects them to qualify, for nonrecognition treatment under Section 351(a) of the Code. Except as described below under the heading entitled “Material U.S. Federal Income Tax Considerations,” the Conversion Transactions generally should be tax-free to the Holders, except to the extent that a Holder’s share of the Fund’s liabilities (adjusted to take account of the Conversion Transactions as described more fully below) exceeds the Holder’s tax basis in its interest in its membership units. Please see the section of this consent solicitation/prospectus entitled “Material U.S. Federal Income Tax Considerations” for a more detailed discussion of the tax considerations to you as a result of the Conversion Transactions. You should consult with your own tax adviser for a full understanding of the tax considerations to you of the Conversion Transactions in light of your particular situation.
Q: Why is the Fund making an election that will result in a member having a lower tax basis in the shares of IMF Financial Corporation received in the Conversion Transactions?
A: The Fund intends to make an election that will result in a member of the Fund having a lower tax basis in the IMH Financial Corporation common stock that the member receives in connection with the Conversion Transactions than the tax basis the member would have had if the election had not been made. The election will allow IMH Financial Corporation to retain substantial additional tax basis in the assets received in the Conversion Transactions. However, the reduced stock basis for the member will result in increased gain (or reduced loss) upon a later disposition of IMH Financial Corporation common stock by the member. The additional tax basis in the assets of IMH Financial Corporation is expected to reduce the amount of taxable income or gain generated by IMH Financial Corporation with respect to such assets and could also result in tax losses to offset other income or gain generated by IMH Financial Corporation following the consummation of the Conversion Transactions. It is possible that IMH Financial Corporation will not be able to use the expected losses to offset other income or gains.
Q: What would be the terms of an initial public offering and when do you expect that it would occur?
A: The exact timing and size of an initial public offering of IMH Financial Corporation will depend on the regulatory process and market conditions at the time of an initial public offering. If we consider the market to be unfavorable at the time of an initial public offering, we may reduce the size of an initial public offering, delay an initial public offering or cancel it altogether or supplement an initial public offering with other financings, which may include debt. Accordingly, we cannot assure you as to the actual size of an initial public offering or the actual amount of net proceeds to be raised from any initial public offering, or whether it will be commenced or completed.
Q: How would you use the net proceeds of an initial public offering of the common stock of IMH Financial Corporation?
A: We expect that we would use the net proceeds of an initial public offering for the acquisition of existing commercial mortgage loans and the investment in real estate related assets, and the origination

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of new short to medium term commercial mortgage loans. Additionally, a portion of the proceeds would be used to satisfy professional, advisory and consulting fees related to an initial public offering, accumulated real estate taxes and general working capital purposes. We may need a significant amount of time to fully invest the available net proceeds of any initial public offering in our intended investments and to implement fully our strategy to increase the total amount of our investments to our desired level. In addition, as described above, after the consummation of an initial public offering, IMH Financial Corporation may, in its sole discretion, pay up to 30% of the net proceeds of the initial public offering (up to an aggregate of $50 million) to redeem shares of IMH Financial Corporation Class C common stock.
Q: What if the board of directors of IMH Financial Corporation determines not to effect an initial public offering?
A: If the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, it may, beginning 90 days after that determination, convert up to 20% of the outstanding shares of Class C common stock into shares of freely tradeable common stock, with the remaining shares of Class C common stock automatically converting into shares of Class B common stock on the following basis: 25% would convert into Class B-1 common stock, 25% would convert into Class B-2 common stock and 50% would convert into Class B-3 common stock. The restrictions on transfer of the Class B Shares will continue for six, nine or 12 months following the 90th day after the board of directors makes the determination not to pursue an initial public offering. Additionally, the Special Dividend will not be payable if we do not consummate an initial public offering.
Q: What is the current net asset value of my membership units in the Fund?
A: As of December 31, 2009, the Fund had a net asset value of $     million, 73,038 outstanding membership units, and a net per membership unit asset value of approximately $    .
Q: When will I start receiving dividends or other distributions?
A: Assuming the consummation of the Conversion Transactions and an initial public offering, IMH Financial Corporation currently intends to pay regular dividends to its stockholders subject to various considerations. We currently anticipate that our initial aggregate annual distributions per share will depend on a number of factors, including our financial performance, and must be approved by, and remain subject to the sole discretion of, our board of directors. Additionally, on the twelve-month anniversary of the consummation of the Conversion Transactions, we intend to pay, subject to the availability of legally distributable funds at that time, the Special Dividend on any shares of Class B common stock that remain outstanding on that date. See the section entitled “Dividend and Distribution Policy.”
Q: Who may return a consent and what vote is required to approve the Conversion Transactions and adoption of the 2010 IMH Financial Corporation Employee Stock Incentive Plan?
A: Holders of record of membership units in the Fund at the close of business on         , 2010, may vote in this consent solicitation. The approval of the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan by the holders of membership units in the Fund requires the affirmative vote of the holders of a majority of the issued and outstanding membership units in the Fund entitled to cast votes on the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan. As of         , 2010, the record date for the vote, there were 73,038 membership units in the Fund

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outstanding and entitled to vote. Each membership unit in the Fund entitles the holder to one vote on the proposals described in this consent solicitation/prospectus.
Q: How does the Manager of the Fund recommend I vote on the proposals?
A: The Manager believes that the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan are advisable and in the best interests of the Fund and its members and recommends that you vote “FOR” the approval of the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan. In considering the Manager’s recommendation, please note that in connection with the Conversion Transactions, among other things, the stockholders of the Manager and the members of Holdings will receive shares of Class B-3 common stock in IMH Financial Corporation in exchange for their shares of the Manager and their membership interests in Holdings, the executive officers of the Manager will enter into employment agreements with IMH Financial Corporation for which they will receive compensation for their services to IMH Financial Corporation. Therefore, the interests of the principals of the Manager differ from yours in important ways as discussed under the section entitled “Interests of Certain Persons in the Conversion Transactions.”
Q: How will my consent be counted?
A: If you complete, sign, date and return your consent, your consent will be voted in accordance with your instructions.

If you submit your consent, but do not indicate how you want to vote, your membership units in the Fund will be voted “FOR” the proposals to approve the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan.

Q: If my membership units in the Fund are held in “street name” by my broker, will my broker vote my membership units in the Fund for me?
A: If your membership units in the Fund are held in the name of a broker, bank or other nominee, then you are not the holder of record and you must provide voting instructions to your street name holders by telephone or via the Internet by following the instructions provided by the nominee. We urge you to contact your nominee to confirm the best way to have your voting instruction properly reflected. Alternately, you may obtain a proxy, executed in your favor, from the record holder.
Q: What do I need to do now?
A: You should carefully read and consider the information contained in this consent solicitation/prospectus including its Annexes. It contains important information about what the Manager considered in evaluating the Conversion Transactions, including adoption of the merger agreement, and the adoption of the 2010 Stock Incentive Plan and the pursuit of a new business plan.

If you are a holder of record, you should then complete, sign and date your consent and return it in the enclosed envelope as soon as possible and in any event no later than       , 2010, the date which is 30 days after the mailing date of this consent solicitation/prospectus so that your membership units in the Fund will be represented. You may also vote your membership units in the Fund by calling 1-800-966-8932 or by visiting www.dfking.com/imh.

If you hold your membership units in the Fund in “street name,” you should provide voting instructions to your street name holders by telephone or via the Internet by following the instructions provided by your broker, bank or other nominee.

Q: Can I change my vote after I have mailed my signed consent?
A: Yes. A member of IMH Secured Loan Fund, LLC may generally revoke a returned consent and change its vote until the consent is tabulated. See the section entitled “Voting and Consents” beginning on page 69.

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Q: Whom should I call with questions?
A: If you have any questions about the consent solicitation or the Conversion Transactions, or you would like additional copies of the consent solicitation/prospectus, or you need assistance with voting your membership units in the Fund, please call D.F. King, our consent solicitor, at 1-800-966-8932.

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SUMMARY

This summary highlights selected information contained in this consent solicitation/prospectus and may not contain all of the information that is important to you. You should carefully read this entire consent solicitation/prospectus, including the section entitled “Risk Factors” and our financial statements and related notes, and the other documents to which this consent solicitation/prospectus refers in order to understand in greater detail the Conversion Transactions proposal. In particular, you should read the Annexes attached to this consent solicitation/prospectus, including the merger agreement, which is attached hereto as Annex A. You also should read the form of articles of incorporation of IMH Financial Corporation, which are attached hereto as Annex B, because this document governs many of your rights as a holder of common stock in IMH Financial Corporation following the consummation of the Conversion Transactions. References to “our investments” are to the commercial real estate mortgage loans that we originate or acquire; or to other real estate investments which we may own from time to time, all of which we intend to sell for a gain in the ordinary course of business.

The information contained in this consent solicitation/prospectus, unless otherwise indicated, assumes the Conversion Transactions and all the transactions related thereto will occur. Unless we specify otherwise, when used in this consent solicitation/prospectus (i) the term “Fund” refers to IMH Secured Loan Fund, LLC prior to the consummation of the Conversion Transactions, and (ii) the terms “we,” “our” and “us” refer to the Fund and its subsidiaries with respect to the period prior to the consummation of the Conversion Transactions, and IMH Financial Corporation and its subsidiaries with respect to the period after the consummation of the Conversion Transactions.

General

Investors Mortgage Holdings Inc., the Manager of the Fund, has approved a plan to internalize the management of the Fund, currently a Delaware limited liability company, by merging the Fund into a publicly-traded Delaware corporation through the following steps which we refer to as the Conversion Transactions:

the merger of the Fund with and into IMH Financial Corporation, its wholly-owned subsidiary, with IMH Financial Corporation as the surviving entity, pursuant to which each membership unit you hold in the Fund will be exchanged, at your election, for approximately 246.45 shares of Class B common stock or Class C common stock of IMH Financial Corporation, or some combination thereof; and
the acquisition, by IMH Financial Corporation, of all of the outstanding shares of the Manager and all of the outstanding membership interests in Holdings, in exchange for an aggregate of 995,750 shares of Class B-3 common stock in IMH Financial Corporation, as a result of which the Manager and Holdings will become wholly-owned subsidiaries of IMH Financial Corporation;

In connection with the Conversion Transactions, IMH Financial Corporation will appoint a seven person board of directors, including the two existing directors of the Manager, and as soon as practicable, five new directors who we expect to be considered independent under the rules of the New York Stock Exchange, or NYSE, and the Securities and Exchange Commission, or SEC. The executive officers of the Manager immediately prior to the consummation of the Conversion Transactions will become the executive officers of IMH Financial Corporation immediately after the consummation of the Conversion Transactions. Following consummation of the Conversion Transactions, we intend to implement the 2010 Stock Incentive Plan, subject to approval by the members of the Fund.

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Upon the consummation of the Conversion Transactions, subject to then prevailing market conditions and regulatory review, we plan to conduct an initial public offering of common stock and we contemplate that the shares of common stock of IMH Financial Corporation will become publicly traded on the New York Stock Exchange, or NYSE. We do not plan to list the shares of the Class B or Class C common stock on any securities exchange or include the shares of Class B or Class C common stock in any automated quotation system, and no trading market for the shares of these classes of common stock is expected to develop. Consummation of an initial public offering or listing on the NYSE is not a condition to the consummation of the Conversion Transactions.

The Manager reserves the right to cancel or defer the Conversion Transactions even if the members of the Fund vote to approve the Conversion Transactions and the other conditions to the consummation of the Conversion Transactions are satisfied or waived.

We estimate that one-time transaction costs incurred or to be incurred in connection with the Conversion Transactions will be approximately $        .

Our Company

We are a commercial real estate lender based in the southwest United States with over 12 years of experience in many facets of the real estate investment process, including origination, underwriting, documentation, servicing, construction, enforcement, development, marketing and disposition. We focus on a niche segment of the real estate market that we believe is underserved by community, regional and national banks: high yield, short-term, senior secured commercial real estate mortgage loans. The intense level of underwriting analysis required in this segment of the market necessitates personnel and expertise that many small community banks lack, yet the requisite localized market knowledge of the underwriting process and the size of the loans we seek often precludes the regional and national banks from efficiently entering this market.

IMH Secured Loan Fund, LLC

The Fund was organized in Delaware in May 2003 to originate, acquire and manage commercial real estate mortgage loan investments, consisting primarily of short-term commercial mortgage loans collateralized by first mortgages on real property, and to perform all functions reasonably related thereto, including developing, managing and either holding for investment and resale or disposing of real property acquired through foreclosure or other means. On October 1, 2008, as a result of the unprecedented disruptions in the general real estate and related markets and the rapid decline in the global and U.S. economies in recent periods, the Manager, among other things, ceased originating and funding new commercial real estate mortgage loans for the Fund’s portfolio. We now believe that attractive opportunities are emerging from the repricing of commercial mortgage loans resulting from the current economic downturn and corresponding credit crisis. We plan to pursue these emerging opportunities upon the consummation of the Conversion Transactions. The Fund also has existing wholly-owned subsidiaries that hold real estate acquired through foreclosure.

IMH Financial Corporation

IMH Financial Corporation is a newly-formed Delaware corporation formed to effect the conversion of the Fund into a corporation. Upon the consummation of the Conversion Transactions, we will be an internally managed real estate finance company formed through the combination of the Fund, the Manager and Holdings.

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Investors Mortgage Holdings Inc.

The Manager was incorporated in the State of Arizona in June 1997 as a licensed mortgage broker, and in 2009 became licensed as a mortgage banker by the State of Arizona. Prior to the consummation of the Conversion Transactions, we paid management fees to the Manager to serve as the Fund’s external manager and the Manager was also entitled to receive 100% of all origination fees and points associated with the origination of new mortgage loans and the modification or extension of existing mortgage loans, as well as 25% of all penalty fees and gains pertaining to the portfolio assets. The Manager is responsible for managing every aspect of the Fund’s operations, including identifying and funding new commercial mortgage loans, evaluating and acquiring commercial mortgage loans held by third parties, and periodically analyzing the composition of the Fund’s portfolio. The current directors of the Manager are Shane Albers and William Meris. The Manager has a wholly-owned subsidiary, Investors Mortgage Holdings California, Inc., which is licensed as a real estate broker by the California Department of Real Estate. The Manager does not manage any other private or public funds similar to the Fund, however, the principals of the Manager manage the SWI Fund through a wholly-owned subsidiary of Holdings, as described below. After the consummation of the Conversion Transactions, IMH Financial Corporation will assume the duties previously performed by the Manager, and the Fund will no longer pay management fees to the Manager.

IMH Holdings, LLC

IMH Holdings, LLC, or Holdings, is an Arizona limited liability company organized in 2008. Holdings is a holding company for two wholly-owned subsidiaries, IMH Management Services, LLC, an Arizona limited liability company, and SWI Management, LLC, an Arizona limited liability company. IMH Management Services, LLC provides the Fund and affiliates of the Manager with human resources and administrative services, including the supply of employees, and SWI Management, LLC, or SWIM, is engaged in a variety of real estate and real estate-related activities, including, among others, acting as the manager for the Strategic Wealth & Income Fund, LLC, or the SWI Fund. The SWI Fund is a Delaware limited liability company with investment strategies and objectives substantially similar to ours, who seeks to generate attractive risk-adjusted returns by making privately negotiated, high yielding, real estate-based investments. At December 31, 2009, the SWI Fund had $10.5 million under management. In order to mitigate potential conflicts of interest between us and the SWI Fund, upon the consummation of an initial public offering of IMH Financial Corporation common stock, SWIM will cease raising capital on behalf of the SWI Fund. Thereafter, the SWI Fund expects to continue to purchase and originate, in the ordinary course, commercial mortgage loans, individually or in pools, at a discount to par, and originate commercial mortgage loans collateralized by real property in the United States. The independent members of the board of directors of IMH Financial Corporation (or a subcommittee) will decide, in its sole discretion, whether prospective asset acquisitions or origination opportunities that are suitable for both IMH Financial Corporation and the SWI Fund will be acquired or originated by IMH Financial Corporation or the SWI Fund. These decisions are expected to be based upon various factors established by the independent members of the board of directors of IMH Financial Corporation from time to time and may include factors such as the following:

whether the investments fall within our investment objectives, policies and strategies and/or those of the SWI Fund;
whether we have, and/or the SWI Fund has sufficient cash and purchasing power;
whether the terms of any necessary financing are appropriate for us and/or the SWI Fund;
whether the investment satisfies our portfolio needs and/or those of the SWI Fund;

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whether the investment’s liquidity meets our cash flow requirements and/or those of the SWI Fund;
whether a similar type of investment (i.e., a geographic location, size of loan, quality of borrower, quality of guarantor, loan to value criteria, risk profile or type of collateral, among other factors) has recently been allocated to us and/or the SWI Fund;
whether the investment meets regulatory or legal requirements applicable to us or the SWI Fund; and
what impact the investment has on our portfolio diversification, and/or that of the SWI Fund.

SWIM, which will become a wholly-owned indirect subsidiary of IMH Financial Corporation following the consummation of the Conversion Transactions, holds less than 1% of the equity in the SWI Fund. However, SWIM is entitled to (i) an organization fee of 0.5% of all equity and debt capital raised by the SWI Fund, (ii) a monthly asset management fee equal to 1.75% of the cost basis of the aggregate assets of the SWI Fund, determined on a month-end basis, divided by twelve, less half of the origination fees received by SWIM (or, beginning in 2013, if greater, the average monthly asset management fee paid over the preceding 12 months), (iii) origination fees, (iv) acquisition fees equal to up to 2.0% of the acquisition price of certain eligible investments, less origination fees, (v) 20% of the SWI Fund’s earnings after the SWI Fund members earn an 8% return on equity and until the SWI Fund members earn a 20% return on equity, and (vi) 30% of the SWI Fund’s earnings after the SWI Fund members earn a 30% return on equity. Following the consummation of the Conversion Transactions, the SWI Fund will remain independent of us but the benefits of managing the SWI Fund will inure to us.

Structure of the Conversion Transactions

In order to help you better understand the Conversion Transactions and how they will affect the Fund, the Manager and IMH Holdings, LLC, the charts below illustrate, in summary form (i) the organizational structure of the Fund, Investors Mortgage Holdings Inc., and IMH Holdings, LLC, immediately before the consummation of the Conversion Transactions and; (ii) the organizational structure of IMH Financial Corporation and its subsidiaries, immediately after the consummation of the Conversion Transactions and certain other related transactions.

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Note: Dotted lines in the charts below denote a management agreement. Solid lines denote equity ownership.

Structure BEFORE the consummation of the Conversion Transactions

[GRAPHIC MISSING]

* The Manager acts as the manager of the Fund, but holds no equity interest in the Fund.
** SWIM acts as the manager of the SWI Fund, but holds less than a 1% equity interest in the SWI Fund.

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Structure AFTER the consummation of the Conversion Transactions

[GRAPHIC MISSING]

* SWIM acts as the manager of the SWI Fund, but holds less than a 1% equity interest in the SWI Fund.

Board of Directors of IMH Financial Corporation; Manager of IMH Financial Corporation

We expect that the two existing directors of Investors Mortgage Holdings Inc., the Manager of the Fund, in addition to five newly-appointed directors who we expect will be considered independent under NYSE and SEC rules, will comprise the initial board of directors of IMH Financial Corporation after the consummation of the Conversion Transactions. For further information, see the section entitled “Our Directors.”

Recommendation of the Manager

The Manager has approved the Conversion Transactions, the merger agreement and the adoption of the 2010 Stock Incentive Plan, and determined that the Conversion Transactions, the merger agreement and the adoption of the 2010 Stock Incentive Plan are advisable and in the best interests of the Fund and its members, and recommends that you vote “FOR” the approval of the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan. In the Conversion Transactions, the principals of the Manager and Holdings will be receiving shares of Class B-3 common stock in IMH Financial Corporation in

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exchange for their shares of the Manager and their membership interests in Holdings, and entering into new compensation agreements with IMH Financial Corporation. Accordingly, their interests may differ from yours as discussed under the section entitled “Interests of Certain Persons in the Conversion Transactions.”

Interests of Certain Persons in the Conversion Transactions (See page 86)

In considering the recommendation of the Manager to vote for the approval of the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan, you should be aware that some of the Manager’s directors and executive officers have interests in the Conversion Transactions and the adoption of the 2010 Stock Incentive Plan that are different from, and in addition to, the interests of other holders of membership units in the Fund.

Ownership by Affiliates and Officers of the Manager.  The Manager does not own any of the outstanding membership units in the Fund. However, Shane Albers, the chief executive officer of the Manager and a member of Holdings, owns 75% of the outstanding common stock of the Manager, and William Meris, the president of the Manager and a member of Holdings, owns 25% of the outstanding common stock of the Manager. Currently, Mr. Albers and Mr. Meris hold 67.5% and 22.5% of the outstanding membership interests of Holdings, respectively. Steven Darak, the chief financial officer of the Manager, owns 5% of the membership interests of Holdings, and two other senior employees of a subsidiary of Holdings each own 2.5% of the membership interests of Holdings.

As of the date of this consent solicitation/prospectus, Mr. Albers, Mr. Meris and Mr. Darak, and the executive officers of the Manager as a group, beneficially own, individually and in the aggregate, less than 1% of the outstanding membership units in the Fund. Immediately following the consummation of the Conversion Transactions, however, Mr. Albers, Mr. Meris and Mr. Darak, and the executive officers as a group, are expected to beneficially own approximately 3.5%, 1.2%, 0.3%, and 5.0%, respectively, of the common stock of IMH Financial Corporation on a fully diluted basis without giving effect to an initial public offering or any other public offering of shares of common stock of IMH Financial Corporation. Additionally, in connection with the Conversion Transactions, each of Messrs. Albers, Meris and Darak will enter into employment agreements with IMH Financial Corporation. The Manager, on behalf of the members of the Fund, has engaged Sutter Securities Incorporated, or Sutter Securities, to provide an opinion as to whether, as of the date thereof and based upon and subject to certain procedures, assumptions, qualifications and limitations the acquisitions of Manager and Holdings are fair from a financial point of view to IMH Financial Corporation and to the stockholders of IMH Financial Corporation (other than the owners of the Manager and Holdings). The fairness opinion, attached as Annex F to this consent solicitation/prospectus, does not constitute a recommendation to members of the Fund as to how they should vote on the Conversion Transactions. For purposes of computing the percentage of shares of IMH Financial Corporation to be beneficially owned by any person or persons on a fully diluted basis immediately following the consummation of the Conversion Transactions, we have based that calculation on the membership units in the Fund outstanding as of December 29, 2009.

2010 Stock Incentive Plan.  IMH Financial Corporation will enter into employment agreements with its executive officers. It is also anticipated that IMH Financial Corporation will adopt the 2010 Stock Incentive Plan, which will benefit its employees, including the executive officers and directors. Approximately two-thirds of the awards under the 2010 Stock Incentive Plan are expected to be issued to the executive officers of IMH Financial Corporation; however, the amount, structure and vesting requirements applicable to any awards to be granted under the 2010 Stock Incentive Plan will be determined by our

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Compensation Committee (or the board of directors of IMH Financial Corporation) following the consummation of the Conversion Transactions.

Indemnification.  IMH Financial Corporation will enter into indemnification agreements with its directors and officers.

Merger Agreement.  The merger agreement provides limited representations and warranties made by each of the Manager, Holdings and their respective stockholders and members, and does not provide indemnification rights in favor of the Fund or the members of the Fund in the event of any inaccuracy in, or breach of, those representations and warranties.

Operating Agreement.  In connection with the Conversion Transactions, the operating agreement between the Fund and Investors Mortgage Holdings Inc. will be terminated and IMH Financial Corporation will be governed by a board of directors, as provided by IMH Financial Corporation’s amended and restated certificate of incorporation, attached to this consent solicitation/prospectus as Annex B. The directors and executive officers of the Manager will become the directors and executive officers of IMH Financial Corporation.

Landlord and Lender Releases.  For the benefit of the Fund and the Manager, Mr. Albers guaranteed promissory notes (i) in favor of the landlord for the Fund’s headquarters, which was security for the tenant’s rental obligations to the landlord, and (ii) in favor of a lender as security for loans the lender made to the Manager. As of December 31, 2009, the outstanding balance under the promissory note to the landlord was $392,969, and the outstanding balance under the promissory note to the lender was $1.6 million. In connection with the Conversion Transactions, Mr. Albers will either be released from the guarantees provided to the Manager’s landlord and lender for the benefit of the Fund, or receive an indemnity from IMH Financial Corporation for any losses thereunder.

As a result of the conflicts of interests described above, certain of the directors and officers of the Manager may be more likely to recommend approval of the Conversion Transactions by the Manager than the members of the Fund generally.

Special Dividend (See page 220)

We intend to pay holders of Class B common stock of IMH Financial Corporation a one-time dividend equal to $0.95 per share of Class B common stock outstanding on the twelve-month anniversary of the consummation of an initial public offering, subject to the availability of legally distributable funds at that time. The Special Dividend will not be payable if we do not consummate an initial public offering.

Distribution Policy Following the Consummation of the Conversion Transactions (See page 94)

During the quarter ended June 30, 2009, the Fund suspended distributions to its members. If the Conversion Transactions are consummated as contemplated and IMH Financial Corporation raises additional capital in an initial public offering, IMH Financial Corporation currently intends to provide dividends to its stockholders subject to various considerations, including, without limitation, liquidity requirements, distribution restrictions contained in current or future financing facilities, IMH Financial Corporation’s distribution yield relative to its peers, and other relevant factors identified and considered by the board of directors of IMH Financial Corporation from time to time. We currently anticipate that our aggregate annual distributions per share will be no less than historical amounts made by the Fund, prior to the suspension of such distributions during the quarter ended June 30, 2009, although all future distributions will depend on a number of factors, including our financial performance, and must be approved by, and remain subject to the sole discretion of, our board of directors.

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Proposed Initial Public Offering of Our Common Stock Following the Consummation of the Conversion Transactions

After consummation of the Conversion Transactions, IMH Financial Corporation contemplates undertaking an initial public offering of common stock. We expect that we would use the net proceeds from an initial public offering to pursue our investment strategies and for working capital purposes. We may also choose to use some of the net proceeds from an initial public offering to redeem some or all of the shares of Class C common outstanding immediately following the consummation of an initial public offering.

NYSE Listing

If we pursue an initial public offering as contemplated, we expect that IMH Financial Corporation shares of common stock will be listed and traded upon consummation of the offering on the NYSE. We do not plan to list the Class B, Class C or Class D common stock on any securities exchange or include the shares of Class B, Class C or Class D common stock in any automated quotation system, and no trading market for Class B or Class C common stock is expected to develop. The membership units in the Fund are not currently publicly traded.

Redemption of Class C Common Stock in Connection with an Initial Public Offering

After the consummation of an initial public offering, IMH Financial Corporation may, in its sole discretion, use up to 30% of the net proceeds of the initial public offering (up to an aggregate of $50 million) to effect a pro rata redemption of Class C common stock (based upon the number of shares of Class C common stock held by each stockholder) at the initial public offering price, less selling commissions and discounts paid or allowed to the underwriters in an initial public offering; all shares of Class C common stock that are not so redeemed will automatically be converted into shares of Class B common stock as follows: 25% of the outstanding shares of Class C common stock will convert into shares of Class B-1 common stock; 25% will convert into shares of Class B-2 common stock; and 50% will convert into shares of Class B-3 common stock.

Exchange of Class C Common Stock for Common Stock if the Board of Directors Determines Not to Pursue an Initial Public Offering

If the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, it may, beginning 90 days after that determination, redeem up to 20% of the outstanding shares of Class C common stock for shares of common stock, with the remaining shares of Class C common stock automatically converting into shares of Class B common stock.

Material U.S. Federal Income Tax Consequences of the Conversion Transactions and of Holding IMH Financial Corporation Common Stock (See page 240)

Please see the section entitled “Material U.S. Federal Income Tax Considerations.” You should consult your own tax adviser for a full understanding of the tax considerations to you of the Conversion Transactions and of holding IMH Financial Corporation common stock in light of your particular situation.

Section 362(e) Tax Election (See page 240)

Under Section 362(e) of the Internal Revenue Code of 1986, as amended, or the Code, if the aggregate fair market value of the assets transferred to IMH Financial Corporation as a result of the Conversion Transactions is less than their aggregate tax basis at the time of the transfer, IMH Financial Corporation would generally be required to reduce its basis in those assets to their fair market value. In order to avoid this result, the Fund intends to make an election under Section 362(e) to reduce the tax basis of the shares of common stock in IMH Financial Corporation deemed to be received by the Fund in the transaction

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(instead of reducing the corresponding portion of the basis of the assets of IMH Financial Corporation). This election will result in a member of the Fund having a lower tax basis in the IMH Financial Corporation common stock that the member receives in connection with the Conversion Transactions than the tax basis the member would have had if the election had not been made. The election will allow IMH Financial Corporation to retain substantial additional tax basis in the assets received in the Conversion Transactions. However, the reduced stock basis will result in increased gain (or reduced loss) upon a later disposition of IMH Financial Corporation common stock by the member. The additional tax basis in the assets of IMH Financial Corporation is expected to reduce the amount of taxable income or gain generated by IMH Financial Corporation with respect to such assets and could also result in tax losses to offset other income or gain generated by IMH Financial Corporation following the consummation of the Conversion Transactions. It is possible that IMH Financial Corporation will not be able to use the expected losses to offset other income or gains.

Members Entitled to Vote

The Manager has fixed the close of business on         , 2010, as the record date for the determination of the members of the Fund entitled to receive notice of, and to vote in, the consent solicitation. As of December 28, 2009, there were 73,038 membership units in the Fund outstanding and entitled to vote and 4,735 holders of membership units in the Fund of record. At the close of business on the record date, the directors and executive officers of the Manager as a group owned and were entitled to vote less than 1% of the outstanding voting power of the Fund. All of the directors and executive officers of the Manager that are entitled to vote have indicated that they currently intend to vote their membership units in the Fund in favor of approving the Conversion Transactions.

Votes Required to Approve the Conversion Transactions and the Adoption of the 2010 Stock Incentive Plan; No Dissenters’ Rights

The affirmative vote of a majority of the outstanding membership units in the Fund entitled to cast votes on the Conversion Transactions is required to approve the Conversion Transactions. Under Delaware law and the Restated Limited Liability Company Operating Agreement of the Fund, or the operating agreement, you will not be entitled to dissenters’ rights of appraisal as a result of the Conversion Transactions.

Regulatory Approvals

We are not aware of any federal, state or local regulatory requirements that must be complied with or approvals that must be obtained prior to consummation of the Conversion Transactions pursuant to the merger agreement, other than compliance with applicable federal and state securities laws, the filing of the certificate of incorporation as required under the Delaware General Corporation Law, or DGCL, and various state governmental authorizations, including those pertaining to a change of ownership of the Manager with regards to the Manager’s mortgage banking license in the State of Arizona and Investors Mortgage Holdings California, Inc.’s mortgage broker’s license in the State of California.

The Manager’s mortgage banking license in the State of Arizona is not transferrable and control of a license may not be acquired, through a merger agreement or otherwise, without the prior written consent of the Department of Financial Institutions of the State of Arizona. We will file the required application and seek approval from the Department of Financial Institutions to effect a change of ownership of the Manager with regards to the Manager’s mortgage banking license to IMH Financial Corporation or one of its wholly-owned subsidiaries. We expect to receive that approval prior to the consummation of the Conversion Transactions.

Investors Mortgage Holdings California, Inc.’s real estate broker’s license in the State of California is not transferrable without the prior approval of the Department of the Real Estate of the State of California.

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Prior to the consummation of the Conversion Transactions, we will file the required application to notify the Department of Real Estate of the contemplated change of control of the Manager pursuant to the Conversion Transactions.

Comparison of Rights of Holders of Membership Units in the Fund and Stockholders of IMH Financial Corporation (See page 225)

The rights of IMH Financial Corporation’s stockholders under the Delaware General Corporation Law will be different from the rights of holders of membership units in the Fund under the Delaware Limited Liability Company Act. There will be additional differences in the rights of IMH Financial Corporation’s stockholders and holders of membership units in the Fund under the provisions of the organizational documents of each company. For example, IMH Financial Corporation’s stockholders will enjoy broader voting rights than are provided to the members in the Fund under the Fund’s operating agreement. Additionally, while there is only one class of membership units in the Fund, the IMH Financial Corporation certificate of incorporation authorizes the IMH Financial Corporation board of directors to classify and reclassify any of the unissued shares of capital stock into a class or series, or classes or series, of preferred stock or other type of stock, and there will initially be the following classes of authorized stock: common stock; Class B-1; Class B-2; Class B-3; Class C; and Class D common stock.

Comparison of Rights of the Holders of Common Stock, Class B Common Stock and Class C Common Stock of IMH Financial Corporation (See page 216)

IMH Financial Corporation common stock, which we anticipate would be the security we would issue in an initial public offering, is expected to be freely transferable and, in general, would not be convertible pursuant to their terms into any other security of IMH Financial Corporation. However, the shares of Class B and Class C common stock to be issued to the members of the Fund, stockholders of the Manager and the members of Holdings as consideration in the Conversion Transactions are subject to various redemption, conversion and transfer restrictions, and the shares of Class B common stock are entitled to payment of a Special Dividend under certain circumstances. The rights, preferences and privileges of the shares of Class B and Class C common stock are otherwise substantially identical to the shares of common stock.

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA

IMH Secured Loan Fund, LLC Selected Historical Financial Information

The tables that follow set forth certain financial data of the Fund. The summary financial data are derived from our audited and unaudited consolidated financial statements and other financial records.

         
  As of and for the Year Ended December 31,
     2004   2005   2006   2007   2008
     (in thousands, except percentages, per unit and unit data)
Summary balance sheet items
                                            
Cash and cash equivalents   $ 3,569     $ 12,089     $ 12,159     $ 73,604     $ 23,815  
Mortgage loan principal outstanding   $ 28,045     $ 92,945     $ 258,615     $ 510,797     $ 613,854  
Allowance for credit losses   $     $     $     $ (1,900 )    $ (300,310 ) 
Mortgage loans, net   $ 28,045     $ 92,945     $ 258,615     $ 508,897     $ 313,544  
Real estate owned   $     $     $     $     $ 62,781  
Total assets   $ 31,761     $ 105,981     $ 273,374     $ 590,559     $ 414,804  
Total liabilities   $ 1,186     $ 8,145     $ 13,193     $ 13,726     $ 6,753  
Retained earnings (accumulated deficit)   $ 84     $ 852     $ 1,426     $ 49     $ (322,332 ) 
Members’ capital, net of redemptions   $ 30,490     $ 96,983     $ 258,754     $ 576,784     $ 730,383  
Total owners' equity   $ 30,574     $ 97,835     $ 260,181     $ 576,833     $ 408,051  
Summary income statement
                                            
Mortgage loan interest   $ 1,607     $ 7,846     $ 20,547     $ 47,929     $ 65,497  
Total revenue   $ 1,614     $ 7,961     $ 21,145     $ 49,763     $ 67,420  
Operating expenses   $ 51     $ 166     $ 430     $ 968     $ 2,454  
Valuation provision for loss   $     $     $     $ 1,900     $ 323,175  
Total expenses   $ 51     $ 542     $ 1,043     $ 4,088     $ 325,707  
Net earnings (loss)   $ 1,563     $ 7,419     $ 20,102     $ 45,675     $ (258,287 ) 
Member Related items
                                            
Number of member accounts     185       491       1,376       3,472       4,735  
Average Member account balance   $ 165     $ 199     $ 189     $ 166     $ 86  
Member investments (excluding reinvestments)   $ 23,979     $ 68,661     $ 176,101     $ 349,523     $ 250,871  
Member distributions reinvested   $ 883     $ 4,303     $ 12,307     $ 26,165     $ 23,191  
Distributions to members (including distributions reinvested)   $ 1,479     $ 6,651     $ 19,379     $ 46,920     $ 64,051  
% of total distributions reinvested     56.52 %      58.00 %      63.51 %      55.77 %      36.21 % 
Redemptions   $ 402     $ 6,471     $ 26,786     $ 57,790     $ 120,506  
Redemptions as % of new investment
(including reinvestments)
    1.62 %      8.87 %      14.22 %      15.38 %      43.97 % 
Loan Related items
                                            
Note balances originated   $ 26,560     $ 139,354     $ 266,101     $ 428,777     $ 329,952  
Number of notes originated     76       48       37       38       23  
Average note balance originated   $ 349     $ 2,903     $ 7,192     $ 11,284     $ 14,346  
Number of loans outstanding     54       41       44       61       62  
Average loan carrying value   $ 519     $ 2,267     $ 5,878     $ 8,343     $ 5,057  
% of portfolio principal – fixed interest rate     100.0 %      84.4 %      69.0 %      30.3 %      31.3 % 
Weighted average interest rate – fixed     11.64 %      12.56 %      12.26 %      12.26 %      11.71 % 
% of portfolio principal – variable interest rate           15.6 %      31.0 %      69.6 %      68.7 % 
Weighted average interest rate – variable           11.64 %      12.49 %      12.52 %      12.39%  

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  As of and for the Year Ended December 31,
     2004   2005   2006   2007   2008
     (in thousands, except percentages, per unit and unit data)
Principal balance % by state:
                                            
Arizona     93.1 %      81.5 %      57.9 %      44.8 %      47.9 % 
California     6.9 %      18.5 %      37.4 %      33.7 %      28.9 % 
Texas     %      %      4.4 %      6.3 %      9.1 % 
Idaho     %      %      %      9.6 %      8.1 % 
Other     %      %      0.3 %      5.6 %      6.0 % 
Total     100.0 %      100.0 %      100.0 %      100.0 %      100.0 % 
Credit Quality
                                            
Interest payments over 30 days delinquent   $     $     $     $ 2,741     $ 1,134  
Loans past scheduled maturity                 3       15       24  
Carrying value of loans past scheduled maturity   $     $     $ 13,901     $ 133,532     $ 210,198  
Number of loans in non accrual status                       10       11  
Carrying value of loans in non accrual status   $     $     $     $ 73,346     $ 95,624  
Allowance for credit losses   $     $     $     $ (1,900 )    $ (300,310 ) 
Allowance for credit losses as % of loan carrying value     0.0 %      0.0 %      0.0 %      0.4 %      48.9 % 

         
  As of and for the Year Ended December 31, 2008   As of and for the Nine Months Ended
September 30,
  As of and for the Three Months Ended
September 30,
     2008   2009   2008   2009
     (in thousands, except percentages, per unit and unit data)
          (Unaudited)   (Unaudited)
Summary balance sheet items
                                            
Cash and cash equivalents   $ 23,815     $ 57,766     $ 2,463     $ 57,766     $ 2,463  
Mortgage loan principal outstanding   $ 613,854     $ 596,755     $ 553,356     $ 596,755     $ 553,356  
Allowance for credit losses   $ (300,310 )    $ (45,440 )    $ (337,000 )    $ (45,440 )    $ (337,000 ) 
Mortgage loans, net   $ 313,544     $ 551,315     $ 216,356     $ 551,315     $ 216,356  
Real estate owned   $ 62,781     $ 88,178     $ 90,213     $ 88,178     $ 90,213  
Total assets   $ 414,804     $ 709,120     $ 334,577     $ 709,120     $ 334,577  
Total liabilities   $ 6,753     $ 20,720     $ 13,406     $ 20,720     $ 13,406  
Retained earnings (accumulated deficit)   $ (322,332 )    $ (41,984 )    $ (409,212 )    $ (41,984 )    $ (409,212 ) 
Total members’ equity   $ 730,383     $ 730,384     $ 730,383     $ 730,384     $ 730,383  
Total owners' equity   $ 408,051     $ 688,400     $ 321,171     $ 688,400     $ 321,171  
Summary income statement
                                            
Mortgage loan interest   $ 65,497     $ 49,420     $ 20,256     $ 17,069     $ 2,697  
Total revenue   $ 67,420     $ 51,208     $ 20,750     $ 17,536     $ 3,155  
Operating expenses   $ 2,454     $ 1,526     $ 5,707     $ 855     $ 2,431  
Valuation provision for loss   $ 323,175     $ 42,430     $ 90,000     $ 42,430     $ 90,000  
Total expenses   $ 325,707     $ 44,034     $ 95,924     $ 43,285     $ 92,546  
Net earnings (loss)   $ (258,287 )    $ 7,174     $ (75,174 )    $ (25,749 )    $ (89,391 ) 
Member Related items
                                            
Number of member accounts     4,735       4,732       4,735       4,732       4,735  
Average member account balance   $ 86     $ 145     $ 68     $ 145     $ 68  
Member investments (excluding reinvestments)   $ 250,871     $ 250,941     $     $ 84,070     $  
Member distributions reinvested   $ 23,191     $ 23,192     $     $ 6,127     $  
Net distributions to members   $ 64,051     $ 49,163     $ 11,706     $ 16,627     $  

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  As of and for the Year Ended December 31, 2008   As of and for the Nine Months Ended
September 30,
  As of and for the Three Months Ended
September 30,
     2008   2009   2008   2009
     (in thousands, except percentages, per unit and unit data)
          (Unaudited)   (Unaudited)
% of total distributions reinvested     36.21 %      47.17 %      N/A       36.85 %      N/A  
Redemptions   $ 120,506     $ 120,533     $     $ 36,640     $  
Redemptions as % of new investment
(including reinvestments)
    43.97 %      43.97 %      N/A       40.6 %      N/A  
Loan related items
                                            
Note balances originated   $ 329,952     $ 327,662     $ 392     $ 92,394     $  
Number of notes originated     23       22       1       11        
Average note balance originated   $ 14,346     $ 14,894     $ 392     $ 8,399     $  
Number of loans outstanding     62       63       58       63       58  
Average loan carrying value   $ 5,057     $ 8,751     $ 3,730     $ 8,751     $ 3,730  
% of portfolio principal – fixed interest rate     31.3 %      30.5 %      50.1 %      30.5 %      50.1 % 
Weighted average interest rate – fixed     11.71 %      11.03 %      10.26 %      11.03 %      10.26 % 
% of portfolio principal – variable interest rate     68.7 %      69.5 %      49.9 %      69.5 %      49.9 % 
Weighted average interest rate – variable     12.39 %      12.37 %      12.87 %      12.37 %      12.87 % 
Principal balance % by state:
                                            
Arizona     47.9 %      48.4 %      53.0 %      48.4 %      53.0 % 
California     28.9 %      27.7 %      31.1 %      27.7 %      31.1 % 
Texas     9.1 %      9.8 %      3.1 %      9.8 %      3.1 % 
Idaho     8.1 %      7.6 %      4.9 %      7.6 %      4.9 % 
Other     6.0 %      6.5 %      7.9 %      6.5 %      7.9 % 
Total     100.0 %      100.0 %      100.0 %      100.0 %      100.0 % 
Credit Quality
                                            
Interest payments over 30 days delinquent   $ 1,134     $ 41     $ 7,687     $ 41     $ 7,687  
Loans past scheduled maturity     24       15       36       15       36  
Principal balance of loans past scheduled maturity   $ 210,198     $ 94,529     $ 370,255     $ 94,529     $ 370,255  
Number of loans in non accrual status     11       7       43       7       43  
Principal balance of loans in non accrual status   $ 95,624     $ 64,631     $ 450,568     $ 64,631     $ 450,568  
Allowance for credit losses   $ (300,310 )    $ (45,440 )    $ (337,000 )    $ (45,440 )    $ (337,000 ) 
Allowance for credit losses as % of loan principal outstanding     48.9 %      8.2 %      60.9 %      8.2 %      60.9 % 

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Investors Mortgage Holdings Inc. and IMH Holdings, LLC Selected Historical Financial Information

The following tables present selected financial and operating data for the Manager and Holdings for the periods indicated. The Manager has a variable interest in Holdings as the Manager potentially has the obligation to absorb the majority of the losses of Holdings. Therefore, the Manager has been deemed to be the primary beneficiary of Holdings, a variable interest entity, and has consolidated Holdings in its consolidated financial statements. The summary financial data was derived from our audited and unaudited consolidated financial statements and other financial records. All dollar amounts are expressed in thousands, except unit and per unit data.

           
  As of and for the Years Ended
December 31,
  As of and for the
Nine Months Ended
September 30,
     2005   2006   2007   2008   2008   2009
                         (Unaudited)
Summary balance sheet items:
                                                     
Cash and cash equivalents   $ 1,901     $ 3,584     $ 221     $ 2,588     $ 6,428     $ 89  
Due from IMH Secured Loan Fund, LLC   $ 20     $ 4,502     $ 316     $ 780     $ 696     $ 7,332  
Total assets   $ 2,656     $ 10,300     $ 6,266     $ 7,258     $ 11,450     $ 10,650  
Line of credit   $     $ 3,335     $ 500     $     $ 1,000     $ 2,520  
Total liabilities   $ 1,689     $ 7,018     $ 2,874     $ 5,858     $ 7,219     $ 6,036  
Total equity   $ 967     $ 3,282     $ 3,392     $ 1,400     $ 4,231     $ 4,614  
Summary income statement items:
                                                     
Loan origination fees   $ 10,182     $ 18,608     $ 28,595     $ 21,315     $ 20,328     $ 9,456  
Total revenue   $ 10,452     $ 19,272     $ 30,231     $ 23,159     $ 21,805     $ 10,342  
Operating expenses   $ 3,012     $ 3,410     $ 6,152     $ 7,287     $ 5,973     $ 3,520  
Broker dealer commissions   $ 434     $ 2,220     $ 6,145     $ 5,389     $ 4,941     $  
Origination and related costs   $ 3,115     $ 6,370     $ 9,318     $ 6,854     $ 6,172     $ 1,148  
Total expenses   $ 6,596     $ 12,394     $ 22,651     $ 22,601     $ 19,001     $ 6,664  
Net earnings   $ 3,797     $ 6,727     $ 7,157     $ 214     $ 2,565     $ 3,296  
Distributions to stockholders   $ 1,875     $ 4,412     $ 7,047     $ 2,206     $ 1,727     $ 132  

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SUMMARY — UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following table of unaudited pro forma condensed combined financial information has been presented to give effect to and show the pro forma impact of the Conversion Transactions on the condensed combined balance sheets of IMH Financial Corporation as of September 30, 2009 and the condensed combined statements of operations of IMH Financial Corporation for the nine months ended September 30, 2009 and the year ended December 31, 2008. All dollar amounts are expressed in thousands, except share and per share data.

The unaudited pro forma condensed combined financial information for the Conversion Transactions assumes that each of the adjustments described below that are directly attributable to the Conversion Transactions and factually supportable had occurred as of September 30, 2009 for the unaudited pro forma condensed combined balance sheet, and as of the beginning of the period for the unaudited pro forma condensed combined statements of operations.

The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial position or results that would have been realized had the Conversion Transactions been completed as of the dates indicated or that will be realized in the future when and if the Conversion Transactions are consummated. Additionally, no effect is given to the other capital enhancement and capital raising objectives of IMH Financial Corporation, including any possible new investments. Accordingly, no assurances can be made that possible new equity investments or the Conversion Transactions will be completed. The selected unaudited pro forma condensed combined financial information is based on assumptions that we believe are reasonable and has been derived from, and should be read in conjunction with, the summary historical combined financial information included elsewhere in this consent solicitation/prospectus and the historical consolidated financial statements of IMH Secured Loan Fund, LLC, or the Fund, and Investors Mortgage Holdings Inc., or the Manager, included in this consent solicitation/prospectus beginning on page F-1.

 
Balance Sheet Data   As of
September 30,
2009
Cash and cash equivalents   $ 2,552  
Mortgage loans, net of allowance for credit loss   $ 215,898  
Real estate owned and equipment, net   $ 99,547  
Total assets   $ 356,014  
Total owners' equity   $ 341,086  

   
Statement of Operations Data   Year Ended
December 31,
2008
  Nine Months
Ended
September 30,
2009
Interest income and fees   $ 81,503     $ 31,607  
Interest expense   $ 422     $ 382  
Valuation provision for loss   $ 323,175     $ 90,000  
Net loss   $ (276,154 )    $ (58,341 ) 
Average shares outstanding     15,800,257       17,054,615  
Net loss per share   $ (17.48 )    $ (3.42 ) 

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This consent solicitation/prospectus contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “potential,” “should” and “would” or the negative of these terms or other comparable terminology.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks, along with the following factors that could cause actual results to vary from our forward-looking statements.

The decline in economic conditions and disruptions to markets may not improve for the foreseeable future, which could cause us to suffer continuing operating losses, adversely affect our liquidity and create other business problems for us.
We are subject to the risk that, despite recent actions and proposals by the U.S. government and governments around the world, the economy and real estate and other markets will not improve, which could continue to harm our ability to sell or dispose of the assets we own and the ability of our borrowers to pay obligations under, or repay our commercial mortgage loans on maturity or obtain take-out financing in a timely manner, on reasonable terms, or at all, which would harm our liquidity and operating results.
As a result of the suspension of certain of our activities, the Manager believes that both our and the Manager’s ability to continue as a “going concern” for the next 12 months is predicated on the successful completion of one or more initiatives that are being evaluated, including, without limitation, those pertaining to the Conversion Transactions, and an initial public offering.
The suspension of certain of our activities resulting from current market conditions and our liquidity status may persist for an extended period of time, and we may not resume historical levels of activities, or at all.
If our liquidity continues to dissipate and we are unable to meet our obligations, we may be forced to sell certain of our assets for a price at or below the current book value of the assets, which could result in a loss to us.
We intend to apply for listing of our common stock on the NYSE following the consummation of the Conversion Transactions, however, even if our common stock is approved for listing, there can be no assurance that an established and liquid trading market for our common stock will develop or that it will continue if it does develop.
We are subject to risks generally associated with the lending to, and ownership of, real estate related assets, including changing economic conditions, environmental risks, unforeseen statutory and regulatory changes, the cost of and ability to obtain insurance and risks related to developing and leasing of properties.

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Real estate assets we may acquire in foreclosure or through other means are generally non-earning assets that would correspondingly reduce the distributable yield to our investors, if any. Moreover, the ultimate disposition and liquidation of such assets may not occur for an extended period of time or at prices we seek, which would harm our liquidity.
As a commercial real estate mortgage lender, we are subject to a variety of external forces that could harm our operations and results, including, without limitation, fluctuations in interest rates, fluctuations in economic conditions (which are exacerbated by our limited geographic diversity), and the effect that regulators or bankruptcy courts could have on our operations and rights as a secured commercial real estate mortgage lender.
Our commercial real estate mortgage loans, which are not guaranteed by any government agency, are risky and are not sold on any secondary market, and the underwriting standards that we previously utilized may not be sufficient to protect stockholders from our borrowers’ loan defaults or to ensure that sufficient collateral, including collateral pledged by guarantors, will exist to protect our stockholders from any such defaults in the context of the continued market stress currently applicable in the real estate sector.
Our directors and executive officers may have conflicts of interest, including, without limitation, competing demands upon their time and their involvement with other activities, all of which could result in less time spent developing and managing our business.
There are material income tax risks associated with the ownership of our common stock and the Conversion Transactions.
The shares of Class B and Class C common stock to be issued in the Conversion Transactions are subject to certain transfer restrictions, and will be illiquid until the expiration of such transfer restrictions.
As a publicly reporting company, we will continue to incur significant increased costs and our management will be required to devote substantial time to new compliance initiatives.

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the events described by our forward-looking statements might not occur. We qualify any and all of our forward-looking statements by these cautionary factors. Please keep this cautionary note in mind as you read this consent solicitation/prospectus and the documents incorporated by reference into this consent solicitation/prospectus.

This consent solicitation/prospectus contains market data, industry statistics and other data that have been obtained from, or compiled from, information made available by third parties. We have not independently verified their data.

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RISK FACTORS

Our business involves a high degree of risk. You should carefully consider the following information about risks, together with the other information contained in this consent solicitation/prospectus in determining whether or not to vote for approval of the Conversion Transactions and the 2010 Stock Incentive Plan. The risks described below are those that we believe are the material risks relating to the Conversion Transactions or that we will face upon consummation of the Conversion Transactions. If any of the circumstances or events described below, or others that we did not anticipate, actually arise or occur, our business, prospects, financial condition, results of operations, and cash flows could be harmed. In any such case, the market price of our shares of common stock could decline, and you could lose all or part of your investment. References to “we,” “our,” or “us” generally refer to (i) IMH Secured Loan Fund, LLC and its subsidiaries prior to the consummation of the Conversion Transactions, and (ii) to IMH Financial Corporation and its subsidiaries after the consummation of the Conversion Transactions. The term “Fund” refers only to IMH Secured Loan Fund, LLC and its subsidiaries, unless the context requires otherwise.

Risks Related to the Conversion Transactions

The Manager and its stockholders, directors and executive officers have conflicts of interest with you and the other members of the Fund that you should be aware of in considering the Conversion Transactions and the 2010 Stock Incentive Plan.

You should be aware that the Manager and its stockholders, directors and officers, and Holdings and its members have interests that differ from those of the members of the Fund in important ways. If the Conversion Transactions and the 2010 Stock Incentive Plan are approved by the members of the Fund, consummated and adopted:

the stockholders of the Manager and the members of Holdings will receive an aggregate of      995,750 shares of IMH Financial Corporation Class B-3 common stock, which represents 5.2% of the fully-diluted common stock to be outstanding immediately after the consummation of the Conversion Transactions, in exchange for their shares of common stock in the Manager and their membership interests in Holdings;
the stockholders of the Manager and the members of Holdings will become the officers and directors of IMH Financial Corporation, with Shane Albers serving as its chief executive officer and director, William Meris serving as its president and director, and Steven Darak serving as its chief financial officer;
we expect that the stockholders of the Manager and the members of Holdings will enter into employment agreements with IMH Financial Corporation pursuant to which they would be entitled to receive salaries and additional compensation, including awards under the 2010 Stock Incentive Plan as described below under the section entitled “Executive Compensation”; and
we expect that either (i) Mr. Albers will be released from guarantees provided for the benefit of the Fund and the Manager, to the Manager’s landlord, which was security for the tenant’s rental obligations to the landlord, and to the Manager’s lender, which was security for loans the lender made to the Manager, or (ii) absent such a release, Mr. Albers will receive an indemnity from IMH Financial Corporation to protect him from any losses.

The terms of the Conversion Transactions and the 2010 Stock Incentive Plan were determined and approved solely by the stockholders of the Manager and the members of Holdings. The Manager does not have any independent directors or special committee and, thus, the terms of the Conversion Transactions

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and the related merger agreement, are not the result of any arm’s length negotiations. You should carefully consider these conflicts in considering how you may vote on the Conversion Transactions.

Any procedural protections or policy that we adopt to address conflicts of interest may not adequately address all conflicts of interest that may arise with respect to our investment activities and also may limit the allocation of investments to us.

We may face conflicts of interest with other funds managed by us. For example, following the consummation of the Conversion Transactions, Holdings will become a wholly-owned subsidiary of IMH Financial Corporation, and Holdings will continue to own SWI Management, LLC, or SWIM, the manager of the SWI Fund. The SWI Fund is a real estate investment fund with target classes of investment that are substantially similar to ours. At December 31, 2009, the SWI Fund had $10.5 million under management. Upon consummation of the Conversion Transactions, any benefit SWIM receives from managing the SWI Fund, including receipt of management fees, will inure to the sole benefit of IMH Financial Corporation. SWIM will have obligations to the SWI Fund and its members pursuant to the operating agreement between SWIM and the SWI Fund. In order to mitigate conflicts of interest between IMH Financial Corporation and the SWI Fund, upon an initial public offering of IMH Financial Corporation common stock, SWIM will cease raising capital on behalf of the SWI Fund. Thereafter, the SWI Fund expects to continue to purchase and originate, in the ordinary course, commercial mortgage loans, individually or in pools, at a discount to par, and originate commercial mortgage loans collateralized by real property in the United States. The independent members of the board of directors of IMH Financial Corporation (or a subcommittee) will decide, in its sole discretion, whether prospective asset acquisitions or origination opportunities that are suitable for both IMH Financial Corporation and the SWI Fund will be acquired or originated by IMH Financial Corporation or the SWI Fund. These decisions are expected to be based upon various factors established by the independent members of the board of directors of IMH Financial Corporation from time to time and may include factors such as the following:

whether the investments fall within our investment objectives, policies and strategies and/or those of the SWI Fund;
whether we have, and/or the SWI Fund has sufficient cash and purchasing power;
whether the terms of any necessary financing are appropriate for us and/or the SWI Fund;
whether the investment satisfies our portfolio needs and/or those of the SWI Fund;
whether the investment’s liquidity meets our cash flow requirements and/or those of the SWI Fund;
whether a similar type of investment (i.e., a geographic location, size of loan, quality of borrower, quality of guarantor, loan to value criteria, risk profile or type of collateral, among other factors) has recently been allocated to us and/or the SWI Fund;
whether the investment meets regulatory or legal requirements applicable to us or the SWI Fund; and
what impact the investment has on our portfolio diversification, and/or that of the SWI Fund.

There is no assurance that this arrangement or any policy or procedural protections we adopt will adequately address all of the conflicts that may arise or will address such conflicts in a manner that results in the allocation of a particular investment opportunity to us or is otherwise favorable to us. Since our executive officers are also executive officers of SWIM, subject to oversight from our independent directors (or a committee thereof), the same personnel may determine the price and terms of the investments for

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both us and other entities managed by SWIM or affiliated with our executive officers, and there can be no assurance that any procedural protections, such as obtaining market prices or other reliable indicators of value, will prevent the consideration we pay for these investments from exceeding the fair market value or ensure that we receive terms for a particular investment that are as favorable as those available to a third party.

The merger agreement is not the product of arm’s length negotiations and provides limited protections for the members of the Fund.

The merger agreement was not negotiated or drafted by competing parties with divergent interests. Rather, the principals of the Manager and Holdings, including Messrs. Albers, Meris and Darak, acted on behalf of the Fund and the members thereof in the course of negotiating the merger agreement and the terms of the Conversion Transactions, even though these principals have different interests than the members of the Fund. Moreover, the merger agreement provides limited representations and warranties made by each of the Manager, Holdings and their respective stockholders and members, and does not provide indemnification rights in favor of the Fund or the members of the Fund in the event of any inaccuracy in, or breach of, those representations and warranties.

You will not be able to sell, short sell, pledge or transfer the shares of Class B and Class C common stock that you receive in the Conversion Transactions, or the common stock into which they are convertible, for a significant period of time.

Neither shares of Class B and Class C common stock that you receive in the Conversion Transactions, nor the shares of common stock into which they are convertible, may be sold, short sold, pledged or transferred for a period of time following the consummation of an initial public offering, subject to limited exceptions. The shares of Class C common stock will be non-transferable and will automatically be redeemed for cash or converted into Class B common stock upon consummation of an initial public offering. The shares of Class B-l, B-2 and B-3 common stock generally will be non-transferable until six, nine and 12 months, respectively, after the earlier of (i) the consummation of an initial public offering, and (ii) the 90th day after the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering.

These transfer restrictions will be enforced by us through a custodian, who will have physical possession of your shares of Class C common stock until we redeem those shares or those shares are converted into shares of Class B common stock. The custodian will also have physical possession of your shares of Class B common stock during and after the restriction period until you convert those shares into IMH Financial Corporation common stock.

Before you can convert your shares of Class B common stock into common stock of IMH Financial Corporation, you must send a notice of conversion to the custodian and represent that you have complied with all of the transfer restrictions. If you submit a notice of conversion to the custodian and represent that you have not complied with the applicable transfer restrictions, then all of your shares of Class B common stock will be automatically converted into Class D common stock, which is not entitled to the Special Dividend and is ineligible to be withdrawn for 12 month from the earlier of (i) the consummation of an initial public offering and (ii) the 90th day after the board of directors of IMH Financial Coporation determines not to pursue an initial public offering, and then only if the holder provides a representation to the custodian that it has complied with the applicable transfer restrictions.

The shares of Class B, Class C and Class D common stock will not be listed on any securities exchange or included in any automated quotation system, which will further restrict your ability to sell, short sell,

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pledge or transfer your shares of Class B, Class C or Class D common stock. As a result of the various restrictions above, the shares of Class B, Class C and Class D common stock will be illiquid and there will be no active market for those shares.

We cannot assure you that we will successfully complete an initial public offering.

We currently intend to conduct an initial public offering of IMH Financial Corporation common stock following the consummation of the Conversion Transactions. However, the exact timing and size of an initial public offering of IMH Financial Corporation common stock will depend on market conditions at the time of an initial public offering and completion of a regulatory review, among other factors. If we consider the market to be unfavorable to an initial public offering, we may reduce the size of the offering, delay the offering, cancel it altogether or supplement it with other public or private financings, which may include the offering of debt. Accordingly, we cannot assure you of the actual amount of net proceeds to be raised from an initial public offering, the timing of an offering or even whether an offering will occur.

We cannot assure you that we will redeem any shares of Class C common stock.

If we successfully complete an initial public offering of our common stock, we intend, in our sole discretion, to redeem some or all of the shares of Class C common stock. In the event we effect a redemption, we will redeem shares of Class C common stock at a price per share equal to the initial public offering price of our common stock, less selling commissions and discounts paid or allowed to the underwriters in an initial public offering. However, we may choose whether to redeem any shares of Class C common stock in our sole discretion. Even if we choose to redeem shares of Class C common stock, the redemption will be limited to the number of shares we can redeem using the lesser of $50 million or 30% of the net proceeds to us from an initial public offering. Any limitation on the number of shares we redeem will be applied to all holders of Class C common stock pro rata based upon the number of shares of Class C common stock held by each holder. Any unredeemed shares of Class C common stock will automatically convert into shares of Class B common stock. If the board of directors of IMH Financial Corporation determines that it will not pursue an initial public offering, it may, but is not required to, beginning 90 days after that determination, convert up to 20% of the outstanding shares of Class C common stock into common stock pro rata based on the number of shares of Class C common stock held by all holders, with the remaining shares of Class C common stock automatically converting into shares of Class B common stock.

You will not know the redemption price for the Class C common stock at the time you elect to receive shares of Class C common stock, and the ultimate redemption price, if any, may be less than the market price of our common stock at the time of redemption.

You must elect to receive shares of either Class C or Class B common stock in conjunction with the Conversion Transactions by completing and returning the enclosed consent no later than        , 2010, which is thirty days after the mailing date of this consent solicitation/prospectus. At that time, we will not know the redemption price, if any, that we will pay to redeem shares of Class C common stock. If we choose to make a redemption, those shares will be redeemed at the initial public offering price of our common stock, less selling commissions and discounts paid or allowed to the underwriters in the initial public offering.

The initial public offering price and selling commissions and discounts will depend upon negotiations between the Manager and the underwriters for an initial public offering. Before the Conversion Transactions and an initial public offering are consummated, there will be no public market for our common stock. The Manager and the underwriters for an initial public offering will determine the initial public offering price based on a number of factors, including, without limitation, prevailing market conditions,

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market valuation of companies in related businesses, historical financial results, estimates of our businesses potential and earnings prospect, perceived supply and demand for the stock of similarly situated companies, and other factors. The ultimate redemption price may be higher or lower than what you expect it will be.

We cannot predict the prevailing market price of our common stock following the initial public offering, which may be lower or higher than the initial public offering price. As a result, if the Class C common stock is redeemed, the redemption price may be lower than the market price of our common stock if that price increases above the initial public offering price.

If you do not properly complete and sign the enclosed consent and indicate that you want to receive shares of Class C common stock in exchange for your membership units in the Fund, then you will automatically receive shares of Class B common stock in exchange for your membership units in the Fund if the Conversion Transactions are consummated.

In this consent solicitation/prospectus, we ask each member of the Fund to elect to receive shares of Class B or Class C common stock, of a combination thereof, in exchange for their membership units in the Fund upon the consummation of the Conversion Transactions. Any member of the Fund that does not submit a properly completed and signed consent, and elect in the consent to receive shares of Class C common stock, will automatically receive shares of Class B common stock in exchange for all of its membership units in the Fund. As a result, you will lose the opportunity to choose between shares of Class B and Class C common stock, you will become ineligible for any redemption of shares of Class C common stock that may occur upon consummation of an initial public offering or conversion into common stock following a board determination not to pursue an initial public offering, and any shares of Class B common stock you receive will have significant transfer restrictions.

If you submit a notice to the custodian that you have not complied with the transfer restrictions on the Class B common stock, all of your shares of Class B common stock will be converted into shares of Class D common stock, which are not entitled to the Special Dividend and which are subject to additional transfer restrictions.

If you attempt to convert the Class B common stock and represent that you have violated the transfer restrictions that apply to shares of Class B common stock, all of your shares of Class B common stock will be automatically converted into shares of Class D common stock. As a result, you will no longer be eligible for the Special Dividend and will not be able to convert into common stock until the 12 month anniversary of the consummation of the Conversion Transactions, and, then, only if you submit a representation to the custodian that you have complied with the applicable transfer restrictions for the 90 days prior to this representation and you are currently not in violation of those restrictions.

If you submit a notice to the custodian that you have not complied with the transfer restrictions on the shares of Class B common stock after your shares of Class B common stock have automatically converted into common stock, your shares of common stock will be subject to additional transfer restrictions.

Similarly, if a holder’s shares of Class B common stock have been automatically converted into common stock as described above, then to withdraw or transfer those shares of common stock, the holder must provide a representation to the custodian that the holder has complied with the applicable transfer restrictions; if the holder represents that it has not complied with those restrictions, then the custodian (i) will not release the shares for a period of 90 days thereafter and, then, only upon receipt of a representation that

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the holder has complied with the restrictions for the 90 days prior to the representation and is not currently in violation thereof, and (ii) will return to IMH Financial Corporation the Special Dividend (if it has been declared and paid).

We may not be able to pay the contemplated Special Dividend to holders of shares of Class B common stock on the one-year anniversary of the consummation of an initial public offering.

Any dividends that we declare and pay, including the Special Dividend, are limited by Delaware law. We cannot assure you that we will have sufficient legally distributable funds on the one-year anniversary of the consummation of an initial public offering to enable us to declare and pay the contemplated Special Dividend of $0.95 per share of Class B common stock outstanding at that time. As a result, if you choose to continue to hold shares of the Class B common stock until the one-year anniversary of the consummation of an initial public offering, we cannot assure you that we will be able to pay the Special Dividend. Further, the Special Dividend will not be payable if we do not consummate an initial public offering.

We may not be able to obtain the licenses necessary to conduct our business following the consummation of the Conversion Transactions.

As the holder of a mortgage banking license in the State of Arizona, the Manager is regulated by the Department of Financial Institutions of the State of Arizona. Investors Mortgage Holdings California, Inc., which is a subsidiary of the Manager, holds a real estate broker’s license in the State of California and is regulated by the Department of Real Estate of the State of California. Both licenses are necessary for us to conduct our business in the ordinary course. Neither license is transferable, and control of a license may not be acquired through a merger such as the one contemplated in the Conversion Transactions without notice to, or the prior written consent of, the applicable regulatory agency. We intend to file the required applications to provide notice or seek approval from the applicable regulatory agencies to effect the transfer of the licenses to IMH Financial Corporation or one of its wholly-owned subsidiaries. We cannot conduct any business that requires such licenses, including making or arranging commercial real estate mortgage loans in jurisdictions requiring such licensure, until we receive approval from the respective regulatory authorities. Conducting business without a license would be unauthorized, could expose us to fines and penalties, and may result in a loan being declared void or voidable. If we do not receive approval to transfer such licenses prior to the consummation of the Conversion Transactions, we could not make or arrange commercial real estate mortgage loans and our revenue and prospects would be harmed.

The fairness opinion relating to the acquisitions of the Manager and Holdings is subject to certain assumptions, qualifications and limitations, and does not reflect subsequent changes.

At the request of the Fund, Sutter Securities Incorporated, or Sutter Securities, has provided an opinion as to whether, as of the date thereof, and based upon and subject to certain procedures, assumptions, qualifications and limitations, the acquisitions of the Manager and Holdings are fair from a financial point of view to IMH Financial Corporation and to the stockholders of IMH Financial Corporation (other than the owners of the Manager and Holdings). This opinion, which is attached as Annex F to this consent solicitation/prospectus, is not a recommendation on how the members of the Fund should vote on the Conversion Transactions, and does not reflect changes that may occur or may have occurred since January     , 2010, the date of the opinion, including changes to the operations and prospects of the Fund, the Manager or Holdings, changes in general market and economic conditions or regulatory or other factors. Any such changes, or other factors on which the opinion is based, may materially alter or affect the relative values of the Fund, the Manager and Holdings.

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We cannot be sure that a public trading market for our common stock will develop or be maintained.

In connection with the Conversion Transactions, we intend to apply for listing on the NYSE of our common stock, but not our shares of Class B or Class C common stock. However, even if our common stock is approved for listing, we cannot assure you that an established and liquid trading market for our common stock will develop or that it will continue if it does develop. If no liquid market develops, your investment in our shares of Class B or Class C common stock will continue to be illiquid, even after those shares are converted into our common stock. In that event, you would not be able to minimize any losses or realize any gains from the decrease or increase in the market price of our common stock.

Following the consummation of the Conversion Transactions, we will directly bear expenses that the Manager historically paid.

Currently, the operating agreement of the Fund provides that the Manager may, but is not required to, pay for our overhead or operating expenses, including costs associated with our commercial real estate mortgage loan originations, member development and operations, and other general overhead costs. For the years ended December 31, 2006, 2007, and 2008, the Manager paid $11.2 million, $19.9 million and $18.2 million, respectively, of those expenses. Following the consummation of the Conversion Transactions, responsibility for these types of costs will be borne directly by us. These expenses include various professional fees, valuation services, and legal and accounting services related to public reporting expenses. Additionally, we will be required to pay direct expenses or costs, which include salaries paid to our employees, expenses or costs related to defaulted commercial real estate mortgage loans in our portfolio, foreclosure activities, property acquired through foreclosure, and interest expense paid on mortgage loans that we have sold or participated. As defaults and foreclosures of commercial mortgage loans in our portfolio have increased, the costs related to these activities have also significantly increased and are expected to continue to increase. These costs are material and are expected to reduce our cash flow and liquidity, which would reduce the stockholders’ return on their investment in us.

We have incurred and will continue to incur significant increased costs as a result of operating as a publicly-reporting company, and our management will be required to devote substantial time to new compliance initiatives.

As a publicly-reporting company, we have incurred and will continue to incur significant accounting, legal and other expenses that we did not incur prior to becoming a publicly-reporting company. Although the Manager has historically paid our expenses, effective October 1, 2008, the Manager discontinued paying certain of our direct expenses, including public reporting costs. As a result, our liquidity has been harmed as we are required to bear the burden of the increased costs resulting from being a publicly-reporting company. Following the consummation of the Conversion Transactions, we will continue to bear the financial burden of being a publicly-reporting company, including the costs associated with filing periodic reports with the SEC.

In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the Exchange Act, and the rules and regulations promulgated thereunder, impose additional requirements on publicly-reporting companies. For example, the Exchange Act requires, among other things, that the Fund file annual, quarterly and current reports with respect to the Fund’s business and financial condition. Moreover, the Sarbanes-Oxley Act requires, among other things, that the Fund maintain effective disclosure controls and procedures and maintain, test and report on internal control over financial reporting. While we have historically been a non-accelerated filer, we expect to become an accelerated filer following the consummation of the Conversion Transactions. As a result, we expect to incur an additional expense to have our

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auditors attest to management’s evaluation of the effectiveness of its internal controls over financial reporting in accordance with Section 404(b) of the Sarbanes-Oxley Act.

Moreover, we expect these and related costs to increase as a result of listing our shares of common stock on the NYSE, becoming subject to NYSE rules and complying with additional corporate governance requirements, including the retention of independent directors and the formation of additional board committees.

The Manager has devoted and, upon consummation of the Conversion Transactions, we will continue to devote, a substantial amount of time to these compliance initiatives, which will divert management from otherwise focusing on our day-to-day business activities. These events could harm our business, financial condition and results of operations.

The Conversion Transactions involve complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available, and which are subject to potential change, possibly on a retroactive basis. Any change could result in adverse consequences to the Fund or the members.

The U.S. federal income tax treatment of the Fund and its members depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. The members of the Fund should be aware that the U.S. federal income tax rules are constantly under review by the Internal Revenue Service, resulting in revised interpretations of established concepts. The Fund and its members could be harmed by any change in, or any new, tax law, regulation or interpretation.

IMH Financial Corporation may not be able to use losses generated on a sale of the assets received in the Conversion Transactions to offset other income or gain.

The Fund intends to make an election that will result in a member of the Fund having a lower tax basis in the IMH Financial Corporation common stock that the member receives in connection with the Conversion Transactions than the tax basis the member would have had if the election had not been made. The election will allow IMH Financial Corporation to retain substantial additional tax basis in the assets received in the Conversion Transactions. However, the reduced stock basis for the member will result in increased gain (or reduced loss) upon a later disposition of IMH Financial Corporation common stock by the member. The additional tax basis in the assets of IMH Financial Corporation is expected to reduce the amount of taxable income or gain generated by IMH Financial Corporation with respect to such assets and could also result in tax losses to offset other income or gain generated by IMH Financial Corporation following the consummation of the Conversion Transactions. It is possible that IMH Financial Corporation will not be able to use the expected losses to offset other income or gains.

Members could recognize gain on the Conversion Transactions.

It is intended that the Conversion Transactions will qualify for non-recognition treatment under Section 351(a) of the Code. However, the members could recognize gain in connection with the Conversion Transactions even if they so qualify. Please see in this consent solicitation/prospectus the section entitled “Material U.S. Federal Income Tax Considerations” regarding the potential for recognizing gain in connection with the Conversion Transactions.

The Conversion Transactions may fail to qualify for non-recognition treatment.

As a result of the Conversion Transactions, the Fund will be deemed to transfer its assets to a newly formed corporation, IMH Financial Corporation, in exchange for shares of Class B and Class C common stock of IMH Financial Corporation followed by a liquidation of the Fund and a distribution of the Class B common stock and the Class C common stock to its members. It is intended that this deemed transfer will

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qualify for non-recognition treatment under Section 351(a) of the Code. However, no ruling will be sought from the Internal Revenue Service. If the deemed exchange fails to qualify for non-recognition treatment under Section 351(a) of the Code, IMH Financial Corporation’s tax bases in the assets formerly held by the Fund would be reduced to their fair market value at the time of the deemed exchange, which could eliminate a significant tax benefit to IMH Financial Corporation. In addition, it is likely that the losses realized by the Fund in this situation would be disallowed under Section 267 of the Code.

A member’s basis in its shares of common stock in IMH Financial Corporation received in the Conversion Transactions may be subject to certain reductions as a result of the Fund’s tax election.

The members generally will have a tax basis in their IMH Financial Corporation shares equal to their tax basis in their membership units in the Fund prior to the consummation of the Conversion Transactions, reduced by their share of the Fund’s liabilities and increased by the amount of any gain recognized in the Conversion Transactions. Under Section 362(e) of the Code, if the aggregate fair market value of the assets deemed transferred to IMH Financial Corporation as a result of the consummation of the Conversion Transactions is less than their aggregate tax basis at the time of the deemed transfer, the Fund would be required to reduce its basis in those assets to their fair market value. However, as discussed in more detail in the section entitled “Material U.S. Federal Income Tax Considerations,” in order to avoid this result, the Fund intends to make an election under Section 362(e) to reduce the basis of certain of the shares of common stock in IMH Financial Corporation received by the Fund (instead of the corresponding portion of the basis of the assets of IMH Financial Corporation).

While there is currently no statute, final regulation or published ruling addressing whether a reduction in the basis of the common stock deemed to be received by the Fund as a result of the above-described election would result in a reduction in the members’ basis in their membership units in the Fund, proposed Treasury regulations provide that a partnership’s reduction, pursuant to an election under Section 362(e), of its basis in stock it holds results in a corresponding reduction of certain partners’ basis in their partnership interests. Any such reduction to a member’s tax basis in its membership units in the Fund would carry over to the IMH Financial Corporation common stock that the member received in connection with the Conversion Transactions. The reduced basis would result in increased gain (or reduced loss) upon disposition of IMH Financial Corporation common stock by the member.

Members are strongly urged to review carefully the discussion under the section entitled “Material U.S. Federal Income Tax Considerations” beginning on page 240 and to seek advice from their tax advisers based on their own particular circumstances.

Risks Related to our Investment Strategy Following the Consummation of the Conversion Transactions

We have recorded losses for the year ended December 31, 2008 and for the nine months ended September 30, 2009 and may continue to do so following the consummation of the Conversion Transactions.

We reported a net loss of $258.3 million for the year ended December 31, 2008, and a net loss of $75.2 million for the nine months ended September 30, 2009. In each case, the net loss was primarily attributable to the recording of a valuation provision relating to our commercial mortgage loan portfolio. As of September 30, 2009, our accumulated deficit aggregated $409.2 million. Our historical business model relies on the availability of third-party capital to our borrowers to re-finance short-term bridge loans that we provided to the borrowers to facilitate real estate entitlement and development. However, the

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erosion of the U.S. and global credit markets in 2008 and 2009, including a significant and rapid deterioration of the commercial mortgage lending and related real estate markets, has substantially curtailed the availability of traditional sources of take-out financing. As a result, we have experienced increased default and foreclosure rates on the commercial mortgage loans in our portfolio. In addition, as a result of these changes, the Manager has modified certain commercial mortgage loans, including modifications to the applicable periodic repayment rates and extended maturity dates by two years or longer. The Manager may also modify loans in the future in an effort to, among other things, protect our collateral from a borrower’s default. We cannot assure you that we will become profitable or that our results of operations will improve following the consummation of the Conversion Transactions.

We anticipate that a significant portion of our portfolio will continue to be in the form of non-performing and distressed commercial mortgage loans, or loans that may become non-performing and distressed, which are subject to increased risks relative to performing mortgage loans.

As is the case with our current portfolio, we anticipate that a significant portion of our future investment portfolio will continue to be in the form of whole loan commercial real estate mortgages that we originate or acquire, including non-performing and distressed commercial mortgage loans, which are subject to increased risks of loss. These loans may already be, or may become, non-performing or distressed for a variety of reasons, including, without limitation, because the underlying property is too highly leveraged or the borrower becomes financially distressed, in either case, resulting in the borrower being unable to meet its debt service or repayment obligations to us. These non-performing or distressed commercial mortgage loans may require a substantial amount of workout negotiations or restructuring, which may divert the attention of our management from other activities and entail, among other things, a substantial reduction in the interest rate, capitalization of interest payments, and a substantial write-down of the principal of our loans. However, even if we successfully accomplish these restructurings, our borrowers may not be able or willing to maintain the restructured payments or refinance the restructured mortgages upon maturity.

In addition, certain non-performing or distressed commercial mortgage loans that we acquire may have been originated by financial institutions that are or may become insolvent or suffer from serious financial stress or are no longer in existence. As a result, the recourse to the selling institution, or the standards by which these loans are being serviced or operated may be adversely affected. Further, loans on properties operating under the close supervision of a mortgage lender are, in certain circumstances, subject to certain additional potential liabilities that may exceed the value of our investment.

As with our current commercial mortgage loan portfolio, we may find it necessary or desirable to foreclose on many of the mortgage loans we originate or acquire, and the foreclosure process may be lengthy and expensive. Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against us, including, without limitation, lender liability claims and defenses, even when the assertions may have no basis in fact, in an effort to prolong the foreclosure action and seek to force the lender into a modification of the loan or a favorable buy-out of the borrower’s position in the loan. In some states, foreclosure actions can take several years or more to litigate. At any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure actions and further delaying the foreclosure process. Foreclosure may create a negative public perception of the related mortgaged property, resulting in a diminution of its value. Even if we are successful in foreclosing on a loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to us. Furthermore, any costs or delays

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involved in the foreclosure of the loan or a liquidation of the underlying property will further reduce the net proceeds and, thus, increase the loss. Any reductions could harm the value of the commercial mortgage loans in which we intend to invest.

Whether or not we have participated in the negotiation of the terms of any such commercial mortgage loans, we cannot assure you as to the adequacy of the protection of the terms of the applicable loan, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, claims may be asserted by lenders or borrowers that might interfere with enforcement of our rights. In the event of a foreclosure, we may assume direct ownership of the underlying real estate.

Whole commercial loan mortgages are also subject to “special hazard” risk (property damage caused by hazards, harm such as earthquakes or environmental hazards, not covered by standard property insurance policies), and to bankruptcy risk (reduction in a borrower’s mortgage debt by a bankruptcy court). In addition, claims may be assessed against us on account of our position as mortgage holder or property owner, including responsibility for tax payments, environmental hazards and other liabilities, which could harm our results of operations, financial condition and our ability to make distributions to our stockholders.

Recent market conditions may make it more difficult for us to analyze potential investment opportunities or our portfolio of assets.

Our success will depend, in part, on our ability to analyze effectively potential investment opportunities in order to assess the level of risk-adjusted returns that we should expect from any particular investment. To estimate the value of a particular asset, we or our affiliates may use historical assumptions that may or may not be appropriate during the current unprecedented downturn in the real estate market and general economy. To the extent that we or our affiliates use historical assumptions that are inappropriate under current market conditions, we may lend on a real estate asset that we might not otherwise lend against, overpay for an asset or acquire an asset that we otherwise might not acquire, which may harm our results of operations and our ability to make distributions to our stockholders.

In addition, as part of our overall portfolio risk management, we intend to analyze interest rate changes and prepayment trends separately and collectively to assess their effects on our portfolio of assets. In conducting our analysis, we may depend on certain assumptions based upon historical trends with respect to the relationship between interest rates and prepayments under normal market conditions. Recent dislocations in the real estate mortgage market or other developments may change the way that prepayment trends have historically responded to interest rate changes, which may harm our ability to (i) assess the market value of our portfolio of assets, (ii) implement any hedging strategies we may decide to pursue, and (iii) implement techniques to reduce our prepayment rate volatility. If our estimates prove to be incorrect or our hedges do not adequately mitigate the impact of changes in interest rates or prepayments, we may incur losses that could harm our financial condition, results of operations and our ability to make distributions to our stockholders.

The supply of commercial mortgage loans available at significant discounts will likely decrease as the economy improves, which may cause us to adjust our investment strategies.

We anticipate that our investment criteria will focus on distressed real estate assets. However, when the current conditions in the commercial mortgage market, the financial markets and the economy stabilize or improve, the availability of borrowers and projects that meet our underwriting criteria, or commercial mortgage loans that meet our investment objectives and strategies will likely decrease, which could prevent

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us from implementing our business strategies. At that time, we intend to reevaluate our investment strategies, however, we cannot assure you that any of our current or future strategies will be successful. Additionally, the manner in which we compete and the types of assets in which we seek to invest will be affected by sudden changes in our industry, the regulatory environment, the role of government-sponsored entities, the role of credit rating agencies or their rating criteria or process, or the U.S. and global economies generally. If we do not effectively respond to these changes, or if our strategies to respond to these changes are not successful, our financial condition and results of operations may be harmed. In addition, we cannot assure you that we will be successful in executing our business strategies or that, even if we successfully implement our business strategies, we will ever generate revenues or profits.

If we are required to fund the entire amount of unfunded loans in process, our liquidity may be harmed.

We have contractual commitments on unfunded commercial mortgage loans to our borrowers in process and interest reserves totaling $7.2 million at September 30, 2009, of which we estimate we will fund no more than $6.7 million. The latter amount excludes amounts of previous commitments that we are no longer obligated to fund because the borrowers are in default, the loans have been modified to lower the funding amount, or the loan funding was contingent on various project milestones which were not met. If we are required to fund any of the unfunded contractual commitments to our borrowers for unfunded commercial mortgage loans in process, this could harm our liquidity.

We do not have a dedicated loan workout department.

A substantial portion of the mortgage commercial mortgage loans in our portfolio are in default, and currently performing loans may default in the future. However, we currently do not have a dedicated loan workout department solely designed to renegotiate and manage non-performing or distressed loans. Rather, we typically engage a team of consultants who are physically located at our premises to assist us in managing such activities. Some of these consultants are also employed by other unrelated clients to whom the consultant is obligated to provide time and attention and, thus, these consultants may be unavailable to us from time to time. If employees or consultants are not available to assist us in negotiating and managing non-performing or distressed loans, our rights as a lender or creditor could be compromised and we may not be able to realize the full potential value of these loans.

Because our investments are generally illiquid and we do not expect a secondary market to develop for our loans, we may not be able to vary our portfolio in response to changes in economic and other conditions, and we will be forced to bear the risk of deteriorating real estate markets, which could increase the borrower’s defaults on our loans and cause the Fund and IMH Financial Corporation to experience losses.

Investments in commercial mortgage loan related assets generally experience periods of illiquidity, including during the current period of delinquencies and defaults with respect to commercial mortgage loans. In addition, we do not expect a secondary market to develop for our portfolio loans. As a result, we will generally bear all the risk of our investments until the loans mature and are repaid. The lack of liquidity may result from the absence of a willing buyer or an established market for these assets, as well as legal or contractual restrictions on resale or the unavailability of financing for these assets. In addition, certain of our target assets, such as bridge loans and other commercial real estate mortgage loans are also particularly illiquid investments due to their short life, their potential unsuitability for securitization and the greater difficulty of recovery in the event of a borrower’s default. The illiquidity of our investments may make it difficult for us to sell such investments at advantageous times or at favorable prices if the need or desire arises, including, if necessary, to maintain our exemption from the Investment Company Act. Moreover,

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turbulent market conditions, such as those currently in effect, could harm the liquidity of our assets. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which may cause us to incur losses. If we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our assets. This will limit our ability to mitigate our risk in changing real estate markets and may result in reduced returns to our stockholders.

Our access to public capital markets and private sources of financing may be limited and, thus, our ability to make additional investments may be limited.

Our access to public capital markets and private sources of financing will depend upon a number of factors over which we have little or no control, including, among others, the following:

general market conditions;
the market’s view of the quality of our assets;
the market’s view of our management;
our performance prior to and after the consummation of the Conversion Transactions;
the market’s perception of our growth potential;
our eligibility to participate in, and access capital from, programs established by the U.S. Government;
our current and potential future earnings and cash distributions;
the consummation of an initial public offering; and
the market price of our common stock.

The current dislocations and weaknesses in the capital and credit markets could adversely affect one or more private lenders and could cause one or more lenders to be unwilling or unable to provide us with financing or to increase the costs of such financing to us. In addition, several banks and other institutions that historically have been reliable sources of financing have gone out of business, which has reduced significantly the number of lending institutions and the availability of credit. Moreover, the return on our assets and cash available for distribution to our stockholders may be reduced to the extent that market conditions prevent us from leveraging our assets or cause the cost of our financing to increase relative to the income that can be derived from the assets acquired. If we are unable to obtain financing on favorable terms or at all, we may have to curtail our investment activities, which could limit our growth prospects, and we may be forced to dispose of assets at inopportune times in order to maintain our Investment Company Act exemption.

Under current market conditions, structured financing arrangements are generally unavailable, which has also limited borrowings under warehouse and repurchase agreements that are intended to be refinanced by such financings. Consequently, depending on market conditions at the relevant time, we may have to rely more heavily on additional equity issuances, which may be dilutive to our stockholders, or on more expensive forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities, cash distributions to our stockholders and other purposes. We cannot assure you that we will have access to such equity or debt capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities or to dispose of assets at inopportune times, and could harm our results of operations and growth prospects.

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We are not currently eligible to obtain any TALF loans, and we cannot assure you that we will ever be eligible to obtain such loans.

We are not currently eligible to obtain loans pursuant to the Term Asset-Backed Securities Loan Facility, or TALF, which is operated by the Federal Reserve Bank of New York, or FRBNY. The FRBNY has complete discretion regarding the extension of credit under the TALF and is under no obligation to make any loans to us even if we meet all of the applicable criteria. Requests for TALF loans may surpass the amount of funding authorized by the FRBNY and the U.S. Treasury, resulting in an early termination of the TALF. Depending on the demand for TALF loans and the general state of the credit markets, the FRBNY and the U.S. Treasury may decide to modify the terms and conditions of the TALF, including asset and borrower eligibility, including credit rating requirements, at any time. Any such modifications may adversely affect the market value of any of our assets financed through the TALF or our ability to obtain additional TALF financing. If the TALF is prematurely discontinued or reduced while our assets financed through the TALF are still outstanding, there may be no market for these assets and the market value of these assets would be harmed.

We may lack control over mortgage loans that we participate in with other lenders, which could limit our ability to manage such mortgage loans in a manner we deem advisable.

From time to time, we may invest in, or purchase mortgage loans jointly with other lenders, or participate in our existing mortgage loans with other lenders. If we are not the lead lender for the mortgage loans in which we participate, we will be relying on the decisions and judgment of third parties that do not owe the same duties to our stockholders as we do. These decisions and judgments may be different than those we would make and may be adverse to us.

Short-term loans that we may originate or acquire may involve a greater risk of loss than traditional investment-grade mortgage loans with fully insured borrowers.

We have historically, and may continue to, originate or acquire bridge loans secured by first lien mortgages on properties of borrowers who are typically seeking short-term capital to be used in the acquisition, construction or rehabilitation of properties. The typical borrower under a short-term loan has usually identified what they believe is an undervalued asset that may have been under-managed or located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the short-term loan, and we bear the risk that we may not recover some or all of our loan amount.

In addition, borrowers under a bridge loan usually use the proceeds of a conventional mortgage to repay a short-term loan. Therefore, bridge loans are subject to the risk of a borrower’s inability to obtain permanent financing to repay the short-term loan. Short-term loans are also subject to the risk of borrower defaults, bankruptcies, fraud, losses and “special hazard” losses that are not covered by standard hazard insurance. In the event of any default under short-term loans held by us as lenders, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the short-term loan. To the extent we suffer such losses with respect to our short-term loans, the value of our company and the price of our shares of common stock may be harmed.

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The subordinated loan assets that we may acquire will involve greater risks of loss than senior loans secured by income-producing properties.

We may acquire subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property, because the loan may become unsecured as a result of foreclosure by the senior lender. In addition, these loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. If a borrower defaults on our subordinated loan or debt senior to our loan, or in the event of a borrower bankruptcy, our subordinated loan will be satisfied only after the senior debt is paid in full. Where debt senior to our portfolio loan exists, the presence of intercreditor arrangements between the holder of the mortgage loan and us, as the subordinated lender, may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings relating to borrowers. As a result, we may not recover some or all of our investment, which could result in losses to us. In addition, even if we are able to foreclose on the underlying collateral following a borrower’s default on a subordinated loan, we may assume the rights and obligations of the defaulting borrower under the loan and, to the extent income generated on the underlying property is insufficient to meet outstanding debt obligations on the property, we may need to commit substantial additional capital to stabilize the property and prevent additional defaults to lenders with existing liens on the property. Significant losses related to our subordinated loans could harm our results of operations and our ability to make distributions to our stockholders.

Our due diligence may not reveal all of a borrower's or asset’s liabilities and may not reveal other investment risks.

Before investing in an asset or making a loan to a borrower, we assess the strength and skills of the asset or potential borrower and other factors that we believe are material to the performance of the investment. In making this assessment and otherwise conducting customary due diligence, we rely on numerous resources reasonably available to us and, in some cases, an investigation by third parties. This process is particularly subjective, and of lesser value than would otherwise be the case, with respect to newly organized entities because there may be little or no information publicly available about those entities. There can be no assurance that our due diligence processes will uncover all relevant facts or problems, or that any particular investment will be successful.

We may enter into hedging transactions that could expose us to contingent liabilities in the future.

Part of our strategy may involve entering into hedging transactions that could require us to fund cash payments in certain circumstances such as the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the hedging instrument. The amount due upon early termination or as the result of a request for margin securities would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges. These economic losses would be reflected in our results of operations. Our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time. The need to fund these obligations could harm our financial condition. We also may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates. Our hedging activity will vary in scope based on the level and

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volatility of interest rates, the type of assets held and other changing market conditions. Interest rate hedging could harm or fail to protect us because, among other things:

interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;
available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;
the duration of the hedge may not match the duration of the related liability;
the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and
the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.

In addition, hedging instruments involve risk since they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in its default. Default by a party with whom we enter into a hedging transaction may result in unrealized losses or the loss of unrealized profits and force us to cover our commitments, if any, at the then current market price. It may not always be possible to dispose of, close out or terminate a hedging position without the consent of the hedging counterparty, and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot assure you that a liquid secondary market will exist for any hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses to us. The risks above relating to any of our hedging transactions may harm our results of operations and limit our ability to make distributions to our stockholders.

Any repurchase agreements and bank credit facilities that we may use in the future to finance our assets may require us to provide additional collateral or pay down debt.

We have and may continue to utilize repurchase agreements and bank credit facilities (including term loans and revolving facilities) to finance our assets if such financing becomes available to us on acceptable terms. In the event we utilize such financing arrangements, they would involve the risk that the market value of the loans pledged or sold by us to the repurchase agreement counterparty or provider of the bank credit facility may decline in value, in which case the lender may require us to provide additional collateral or to repay all or a portion of the funds advanced. We may not have the funds available to repay our debt at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all. A lender’s requirement that we post additional collateral would reduce our liquidity and limit our ability to leverage our assets. If we cannot meet these requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from them, which could harm our financial condition and ability to implement our business plan. In addition, in the event that a lender to us files for bankruptcy or becomes insolvent, the loans to us may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict

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our access to bank credit facilities and increase our cost of capital. The providers of repurchase agreement financing and bank credit facilities may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose which could reduce our return on assets. In the event that we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate rapidly.

Currently, we have no repurchase agreements or bank credit facilities in place, and we cannot assure you that we will be able to obtain one or more such facilities on favorable terms, or at all.

In the future, we may use leverage to execute our business strategy, which may reduce the return on our assets, reduce cash available for distribution to our stockholders and increase losses when economic conditions are unfavorable.

In the future, subject to market conditions and availability, we may use leverage to finance our assets through borrowings from a number of sources, including repurchase agreements, resecuritizations, securitizations, warehouse facilities and bank credit facilities (including term loans and revolving facilities). Given current market conditions, we may also seek to take advantage of available borrowings, if any, under government sponsored debt programs, such as the TALF, to acquire all types of commercial real estate mortgage loans and other real estate-related assets, to the extent such assets are eligible for funding under such programs. Although we are not required to maintain any particular assets-to-equity leverage ratio, the amount of leverage we may deploy for particular assets will depend on our available capital, our ability to access financing arrangements, our estimated stability of cash flows generated from the assets in our portfolio and our assessment of the risk-adjusted returns associated with those assets. The percentage of leverage will vary over time depending on our ability to enter into repurchase agreements, resecuritizations, securitizations, warehouse facilities and bank credit facilities (including term loans and revolving facilities), our ability to participate in and obtain funding under programs established by the U.S. government, available credit limits and financing rates, type or amount of collateral required to be pledged and our assessment of the appropriate amount of leverage for the particular assets we are funding.

To the extent that we use leverage to finance our assets, our financing costs will reduce cash available for distribution to our stockholders. We may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy our obligations. We may leverage certain of our assets through repurchase agreements. A decrease in the value of these assets may lead to margin calls which we will have to satisfy. We may not have the funds available to satisfy any such margin calls and may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses to us. The satisfaction of such margin calls may reduce cash flow available for distribution to our stockholders. Any reduction in distributions to our stockholders may cause the value of our common stock to decline.

Any borrowing by us will increase our risk and may harm our operations and reduce the amount we have available to distribute to our stockholders.

We anticipate that from time to time we may borrow funds to generate additional liquidity for the payment of operating expenses, costs relative to the ownership of real estate owned, and obligations under our loans to borrowers or for purposes of making investments. During the nine months ended September 30, 2009, we repaid principal of $3.5 million of the $6.0 million we had previously borrowed from the Manager secured by certain of our portfolio loans. We expect that additional borrowings may be necessary or advisable from time to time. Any borrowings will require us to carefully manage our cost of funds and we cannot assure you that we will be successful in this effort. If we are unable to repay any indebtedness we

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incur or make interest payments on any loans we incur, our lenders would likely declare us in default and could require that we repay all amounts owing under our loan facilities or take possession of the collateral. Even if we are repaying the indebtedness in a timely manner, interest payments owing on the borrowed funds may reduce our income and any distributions to our stockholders. We may borrow funds from several sources, and the terms of any indebtedness we incur may vary.

Borrowing subjects us to a number of other risks, including, among others, the following:

if we are unable to repay any indebtedness or make interest payments on any loans we incur, our lenders would likely declare us in default and could require that we repay all amounts outstanding under our loan facilities;
acceleration of debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all;
our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on our borrowings under those arrangements;
the loss of some or all of our assets securing the loans to foreclosure or sale;
even if we are repaying the indebtedness in a timely manner, interest payments owing by us on the borrowed funds may reduce our income and any distributions to our stockholders;
our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs;
we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions or other purposes;
we may not be able to refinance debt that matures prior to the investment it was used to finance on favorable terms, or at all; and
some lenders may require as a condition of making a loan to us that the lender receive a priority on mortgage repayments received by us on our mortgage portfolio, thereby requiring the first dollars we collect to go to our lenders.

Any of these risks could harm our business and financial condition.

We cannot predict the effect of recent legislative and regulatory initiatives.

The U.S., state and foreign governments have taken or are considering extraordinary actions in an attempt to address the worldwide financial crisis and the severe decline in the global economy. To the extent adopted, many of these actions have been in effect for only a limited time, and have produced limited or no relief to the capital, credit and real estate markets. We cannot assure you that these actions or other actions under consideration will ultimately be successful or beneficial to us.

In the U.S., the federal government has adopted, among other things, the Emergency Economic Stabilization Act of 2008 (enacted on October 3, 2008) and the American Recovery and Reinvestment Act of 2009 (enacted on February 17, 2009). With authority granted under these laws, the United States Department of the Treasury has proposed a financial stability plan that is intended to, among other things, invest additional capital into banks and provide for various forms of economic stimulus. Other laws, regulations, and programs at the federal, state and local levels are under consideration that seek to address the economic climate and real estate and other markets. We cannot predict the effect that these or other actions will have

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on our business, results of operations and financial condition. Further, the failure of these or other actions and the financial stability plan to stabilize the economy could harm our business, results of operations and financial condition.

The Investment Company Act may limit our ability to generate returns for our stockholders.

If we become subject to the Investment Company Act, we would be required to comply with numerous additional regulatory requirements and restrictions, any or all of which could harm the sustainability of our operations and our ability to make distributions, and force us to discontinue the business. The Manager believes that we have qualified for the real estate exemption under the Investment Company Act since the inception of the Fund. If the market value or income potential of our real estate-related investments declines as a result of increased interest rates, prepayment rates or other factors, we may need to increase our real estate investments and income or liquidate our non-qualifying assets in order to maintain our exemption from the Investment Company Act. In view of the illiquid nature of certain of our real estate and real estate-related investments, we cannot assure you that we would be able to liquidate our non-qualifying assets at opportune times or prices, if at all, in order to maintain our Investment Company Act exemption. Similarly, we cannot assure you that we would have sufficient capital or access to capital at favorable prices, if at all, if we were required to increase our qualifying real estate assets in order to maintain our Investment Company Act exemption. If the value of our assets fluctuates dramatically, our ability to maintain compliance may be particularly difficult, which may cause us to make investment decisions that we otherwise would not make absent Investment Company Act considerations. Moreover, as the real estate market evolves, we may determine that the commercial real estate market does not offer the potential for attractive risk-adjusted returns pursuant to an investment strategy that is consistent with our intention to operate in a manner to maintain our exemption from registration under the Investment Company Act. For example, if we believe the maintenance of our exemption under the Investment Company Act imposes undue limitations on our ability to generate attractive risk-adjusted returns to our investors, our board of directors may approve the wind down of our assets and liquidation of our business.

If we were required to register as an investment company under the Investment Company Act but failed to do so, the SEC could bring an action to enjoin us from further violating the Investment Company Act. Also, we cannot assure you that the laws and regulations governing investment companies, including the interpretations of the Division of Investment Management of the SEC regarding the treatment of assets as qualifying real estate assets or real estate-related assets, will not change in a manner that harms our operations. As a result, the Investment Company Act may limit our ability to generate returns for our stockholders.

To the extent that we obtain debt financing as a borrower, we expect that certain of our financing facilities may contain restrictive covenants relating to our operations, which could harm our business, results of operations, ability to make distributions to our stockholders and the market value of our common stock.

If or when we obtain debt financing as a borrower, lenders (especially in the case of bank credit facilities) may impose restrictions on us that would affect our ability to incur additional debt, make certain investments or acquisitions, reduce liquidity below certain levels, make distributions to our stockholders, redeem debt or equity securities and impact our flexibility to determine our operating policies and investment strategies. For example, such loan documents could contain negative covenants that limit, among other things, our ability to repurchase shares of our common stock, distribute more than a certain amount of our net income or funds from operations to our stockholders, hold portfolio mortgage loans for longer than

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established time periods, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to declare loans outstanding to us due and payable, terminate their commitments, require the posting of additional collateral and enforce their respective interests against existing collateral from us. We also may be subject to cross-default and acceleration rights and, with respect to collateralized debt, requirements for us to post additional collateral, and foreclosure rights upon default. A default also could limit significantly our financing alternatives, which could cause us to curtail our investment activities or prematurely dispose of assets.

We may seek to utilize non-recourse long-term securitizations in the future, and such structures may expose us to risks, which could result in losses to us.

In the future, we may seek to utilize non-recourse long-term securitizations of our investments in mortgage loans, especially loan originations, if and when they become available and to the extent consistent with the maintenance of our exemption from the Investment Company Act, in order to generate cash for funding new investments. This would involve conveying a pool of assets to a special purpose vehicle (or the issuing entity) which would issue one or more classes of non-recourse promissory notes pursuant to the terms of an indenture. The notes would be secured by the pool of assets. In exchange for the transfer of assets to the issuing entity, we would receive the cash proceeds on the sale of the non-recourse notes and a 100% interest in the equity of the issuing entity. The securitization of our portfolio investments might magnify our exposure to losses on those portfolio investments because any equity interest we retain in the issuing entity would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to a securitized pool of assets before the owners of the notes experience any losses. Moreover, we cannot assure you that we will be able to access the securitization market, or be able to do so at favorable rates. The inability to consummate securitizations of our portfolio to finance our investments on a long-term basis could require us to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could harm our performance and our ability to grow our business.

Any warehouse facilities that we may obtain in the future may limit our ability to acquire or originate assets, and we may incur losses if the collateral is liquidated.

We may utilize, if available, warehouse facilities pursuant to which we would accumulate mortgage loans, which assets would be pledged as collateral for such facilities. In order to borrow funds to originate or acquire assets under any future warehouse facilities, we expect that our lenders thereunder would have the right to review the potential assets for which we are seeking financing. We may be unable to obtain the consent of a lender to acquire assets that we believe would be beneficial to us and we may be unable to obtain alternate financing for such assets. The lender could liquidate the warehoused collateral and we would then have to pay any amount by which the original purchase price of the collateral assets exceeds its sale price, subject to negotiated caps, if any, on our exposure. Currently, we have no warehouse facilities in place, and we cannot assure you that we will be able to obtain one or more warehouse facilities on favorable terms, or at all.

Risks Related to Our Current Operations

Our independent registered public accounting firm has expressed substantial doubt about the Fund’s ability to continue as a going concern.

The Fund’s independent registered public accounting firm included a qualifying paragraph in its audit opinion included with this consent solicitation/prospectus indicating that we have experienced increasing default rates and foreclosures on our portfolio of mortgage loans that raise substantial doubt about the

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Fund’s ability to continue as a going concern. In this regard, the dislocations and uncertainty in the economy, and real estate, credit and other markets, have created an extremely challenging environment that will likely continue in some respects for the foreseeable future, and we cannot assure you that the Fund will have sufficient liquidity to continue as a going concern. By including an explanatory paragraph in its opinion stating that there is substantial doubt about the Fund’s ability to continue as a going concern, our auditors have indicated that they are uncertain as to whether we have the capability to continue our operations without an infusion of additional funds. We cannot assure you that measures we take to improve our liquidity will be completed in a timely manner or at all, or that if such measures are completed, that they will yield sufficient liquidity to assure the Fund’s continued ability to operate as a going concern.

If we do not resume our mortgage lending activities, we will not be able to grow our business and our financial results and financial condition will be harmed.

Effective October 1, 2008, the Manager elected to suspend certain of our activities, including, among other things, the funding and origination of any new commercial mortgage loans. This election was made in order to preserve our capital and to seek to stabilize our operations and liquid assets in order to assist us in our efforts to meet our future obligations, including those pursuant to current loan commitments we have made to borrowers. Even if we consummate the Conversion Transactions, we may not consummate an initial public offering or raise alternative financing, and there is a risk that we may not resume lending for an extended period of time, or that we may not resume lending at historical levels. The inability to fund new loans prevents us from capitalizing on interest or other fee paying investments, and managing interest rate and other portfolio risk as our existing investments are sold, restructured or refinanced. Any one or more of the foregoing could harm our results and financial condition.

Defaults on our mortgage loans will decrease our revenue and may harm our business.

We are in the business of acquiring and originating commercial mortgage loan investments and, as such, we are at risk of default by borrowers. Any failure of a borrower to repay the mortgage loans in our portfolio or to pay interest on such loans will reduce our (i) revenue and distributions, if any, to stockholders, and (ii) potentially, the trading price of our common stock. At September 30, 2009, 48 of our portfolio loans with principal balances totaling $473.9 million were in default, and we had commenced foreclosure proceedings on 16 of these 48 loans. The Manager anticipates that it will commence foreclosure actions on additional loans in our portfolio, and the Fund is negotiating with the borrowers and assessing the possibility of modifying the loan terms of any remaining loans in default. In addition, during the nine months ended September 30, 2009, we acquired five real estate assets through foreclosure of the related mortgage loans with an estimated fair value of $41.2 million. We cannot assure you that the actual net realizable value of such properties will exceed the carrying value of the Fund’s investment in these properties at September 30, 2009.

Our borrowers are exposed to risks associated with owning real estate, and unexpected expenses or liabilities resulting from such ownership could reduce the likelihood that our borrowers will be able to develop or sell the real estate that serves as collateral for our loans, which will increase the likelihood that our borrowers will default on the loans that we fund or acquire.

Among other matters, our borrowers are subject to risks, expenses and liabilities associated with owning real estate, including, among others:

the expense of maintaining, operating, developing and protecting the real estate that serves as collateral for our loans;

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the risk of a decline in value of such real estate due to market or other forces;
the absence of financing for development and construction activities, if financing is required;
the risk of default by tenants who occupy such real estate and have rental obligations to the owners of such real estate;
the risks of zoning, rezoning, and many other regulatory matters affecting such real estate;
acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses;
acts of war or terrorism;
adverse changes in national and local economic and market conditions;
changes in, related costs of compliance with, or fines or private damage awards for failure to comply with existing or future federal, state and local laws and regulations, fiscal policies and zoning ordinances;
costs of remediation and liabilities associated with environmental conditions;
the potential for uninsured or under-insured property losses;
the impact of economic, market, environmental and political conditions on the ability to market or develop properties;
financial and tort liability risks, including construction defect claims, associated with the ownership, development and construction on such real estate; and
market risk and the possibility that they will not be able to develop, sell or operate such real estate to generate the income expected from such real estate.

Any or all of these risks, if not properly managed by the borrower, could impose substantial costs or other burdens on our borrower or such real estate, or result in a reduction in the value of such real estate, thereby increasing the likelihood of default by the borrower on our portfolio loan and reducing or eliminating our ability to make distributions to our stockholders. In addition, to the extent we foreclose on any such real estate securing our portfolio loans, we become directly subject to these same risks.

By becoming the owner of property, we become subject to the various risks of owning real property and we could incur unexpected costs and expenses, which could harm our business.

We have acquired real property in connection with foreclosures of commercial mortgage loans in our portfolio in which we have invested, and we may acquire additional real property in this manner in the future. As of November 30, 2009, we owned 18 properties with an aggregate net carrying value of $97.7 million. As an owner of real property, we will incur some of the same obligations and be exposed to some of the same risks as our applicable borrower was prior to our foreclosure on the applicable portfolio loan. See the risk factor above starting with “Our borrowers are exposed to risks associated with owning real estate”.

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The commercial mortgage loans we acquire are subject to the ability of the commercial property owner to generate net income from operating the property as well as the risks of delinquency and foreclosure.

The ability of a commercial mortgage loan borrower to repay a loan secured by an income-producing property, such as a multi-family or commercial property, typically is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s 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 management 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, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions or specific industry segments, 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 environmental legislation, acts of God, terrorism, social unrest and civil disturbances.

Most commercial mortgage loans are effectively nonrecourse obligations of the borrower, meaning that there is no recourse against the borrower’s assets other than the underlying collateral. In the event of any default under a non-recourse commercial mortgage loan held directly by us in our portfolio, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral (or our ability to realize such value through foreclosure) and the principal and accrued interest on the mortgage loan, which could harm our results of operations and cash flow from operations and limit amounts available for distribution to our stockholders. In the event of the bankruptcy of a commercial mortgage loan borrower, the mortgage loan 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 determined by the bankruptcy court), and the lien securing the commercial 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 state law. Foreclosure of a commercial mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed commercial mortgage loan.

We rely on the value of our real estate collateral to protect our commercial mortgage loans, and that real estate collateral is subject to appraisal errors and the collateral’s realizable value is subject to decrease based on events beyond our control.

We depend upon the value of our real estate collateral to protect the commercial mortgage loans that we make or acquire. We depend upon the skill of independent appraisers and other techniques to value the collateral of the commercial mortgage loans we hold. However, notwithstanding the experience of the appraisers selected or approved by the Manager, they may make mistakes or may err in their judgment. Also, the realizable value of the real estate securing our portfolio loans may decrease due to subsequent events, such as the precipitous decline in value experienced as a result of the real estate market downturn. As a result, there may be less collateral than anticipated at the time the applicable commercial mortgage loan was originated or acquired. In this regard, in recent periods, the real estate markets across the United States have declined. If the value of the collateral supporting our commercial mortgage loans declines and a foreclosure sale occurs, we may not recover the full amount of our commercial mortgage loan, thus reducing the amount of our cash available, if any, and may harm our business.

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Our underwriting standards and procedures may not have protected us from loan defaults, which could harm our business.

Due to the nature of our business model, we believe the underwriting standards and procedures used by the Manager are different from conventional lenders. While several procedures in the Manager’s underwriting process are similar to those of traditional lenders, there are also some differences that provide the Manager with more flexibility in underwriting and closing loans. Due to the nature of our loan approval process, there is a risk that the underwriting the Manager performed did not, and the underwriting we perform will not, reveal all material facts pertaining to the borrower and the collateral, and there may be a greater risk of default by our borrowers which, as described above, could harm our business.

Guarantors of our portfolio loans may not have sufficient assets to support their guarantees, which could make enforcing such guarantees difficult and costly, and could harm our operations.

Our commercial mortgage loans are not insured or guaranteed by any federal, state or local government agency. Our loans may be guaranteed by individuals or entities which are typically affiliated with the borrower. These guarantors may not have sufficient assets to back up their guarantees in whole or in part, and collections pursuant to any such guarantees may be difficult and costly. Consequently, if there is a default on a particular commercial mortgage loan and the guarantee, our only recourse may be to foreclose upon the mortgaged real property. The value of the foreclosed property may have decreased and may not be equal to the amount outstanding under the corresponding loan, resulting upon sale in a decrease of the amount of our cash available, if any, and may harm our business.

We have limited experience in managing and developing real estate and, following a foreclosure, we may not be able to manage the real estate we foreclose upon or develop the underlying projects in a timely or cost-effective manner, or at all, which could harm our results of operations.

We have limited experience in managing and developing real estate. When we acquire real estate through foreclosure on one of our portfolio loans or otherwise, we may seek to complete the underlying projects, either alone or through joint ventures. We cannot assure you that we will be able to manage the development process in a timely or cost-effective manner or at all.

If we require third party assistance in managing or developing projects, either through joint ventures or selling the rights to manage or develop projects in whole, we may be unable to find such assistance at an attractive cost or at all. Even if we are able to locate such assistance, we may be exposed to the risks associated with the failure of the other party to complete the development of the project as expected or desired. These risks include the risk that the other party would default on its obligations, necessitating that we complete the other components ourselves (including providing any necessary financing).

If we enter into joint ventures to manage or develop projects, such joint ventures involve certain risks, including, without limitation, that:

we may not have voting control over the joint venture;
we may not be able to maintain good relationships with the joint venture partners;
the joint venture partner may have economic or business interests that are inconsistent with our interests;

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the joint venture partner may fail to fund its share of operations and development activities, or to fulfill its other commitments, including providing accurate and timely accounting and financial information to us; and
the joint venture or venture partner could lose key personnel.

Any one or more of these risks could harm our results of operations.

We may experience a decline in the fair value of our assets, which could harm our results of operations, financial condition and our ability to make distributions to our stockholders.

A decline in the fair market value of our assets may require us to recognize an impairment charge against such assets under accounting principles generally accepted in the United States, or GAAP, if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the amortized cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. For example, we recorded a valuation adjustment of $90 million and $42.4 million for nine months ended September 30, 2009 and September 30, 2008, respectively. For further information, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of IMH Secured Loan Fund, LLC — Results of Operations for the Nine and Three Months Ended September 30, 2008 and 2009 — Revenues — Valuation Provision.” We could be required to record additional valuation adjustments in the future. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we experience a decline in the fair value of our assets, our results of operations, financial condition and our ability to make distributions to stockholders could be harmed.

Some of our portfolio investments are and will be recorded at fair value and, as a result, there will be uncertainty as to the value of these investments.

The fair value of assets in our portfolio that are not publicly traded may not be readily determinable, requiring us to make certain estimates and adjustments. Depending on whether these securities and other investments are classified as available-for-sale or held-to-maturity, we will value certain of these investments quarterly at fair value, as determined in accordance with applicable accounting guidance, which may include unobservable inputs. Because such valuations are subjective, the fair value of certain of our assets may fluctuate over short periods of time and our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. The value of our common stock could be harmed if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

Valuations of certain assets in which we may invest may be difficult to obtain or unreliable. In general, third-party dealers and pricing services heavily disclaim their valuations. Dealers may claim to furnish valuations only as an accommodation and without special compensation, and so they may disclaim any and all liability for any direct, incidental or consequential damages arising out of any inaccuracy or incompleteness in valuations, including any act of negligence or breach of any warranty. Depending on the complexity and illiquidity of an asset, valuations of the same asset can vary substantially from one dealer or pricing service to another. Therefore, conflicts of interest exist to the extent that the Manager is involved in the determination of the fair value of our investments. Additionally, our results of operations for a given period

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could be harmed if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal. The valuation process has been particularly challenging recently as market events have made valuations of certain assets more difficult, unpredictable and volatile.

We may refinance existing loans at rates lower than those currently available to us.

Substantially all of our variable rate loans contain provisions for interest rate floors, which has allowed us to benefit from interest rate terms in excess of the current Prime rate. However, given current market conditions and the likely necessity to extend loans to 24-month terms, or longer, we have negotiated in the past, and expect to continue to renegotiate in the future, certain of the commercial mortgage loans in our portfolio at terms that are more reflective of current market rates, which is expected to result in lower mortgage income for us.

Increases in interest rates could adversely affect the value of our investments and cause our interest expense to increase, which could result in reduced earnings or losses and negatively affect our profitability as well as the cash available for distribution to our stockholders.

Our investment in certain assets will generally decline in value if long-term interest rates increase. Declines in market value may ultimately reduce earnings or result in losses to us, which may negatively affect cash available for distribution to our stockholders. A significant risk associated with our target assets is the risk that both long-term and short-term interest rates will increase significantly. If long-term rates increased significantly, the market value of these investments would decline, and the duration and weighted average life of the investments would increase.

In addition, in a period of rising interest rates, our operating results will depend in large part on the difference between the income from our assets and financing costs. We anticipate that, in most cases, the income from such assets will respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence our net interest income, which is the difference between the interest income we earn on our interest-earning investments and the interest expense we incur in financing these investments. Increases in these rates will tend to decrease our net income and market value of our assets.

Rising interest rates may also cause our target assets that were originated or acquired prior to an interest rate increase to provide yields that are below prevailing market interest rates. If rising interest rates cause us to be unable to acquire a sufficient volume of our target assets with a yield that is above our borrowing cost, our ability to satisfy our investment objectives and to generate income and pay dividends may be harmed. An increase in interest rates may cause a decrease in the volume of certain of our target assets, which could harm our ability to acquire target assets that satisfy our investment objectives and to generate income and make distributions to our stockholders.

The relationship between short-term and longer-term interest rates is often referred to as the “yield curve.” Ordinarily, short-term interest rates are lower than longer-term interest rates. If short-term interest rates rise disproportionately relative to longer-term interest rates (a flattening of the yield curve), our borrowing costs may increase more rapidly than the interest income earned on our assets. Because we expect our investments, on average, generally will bear interest based on longer-term rates than our borrowings, a flattening of the yield curve would tend to decrease our net income and the market value of our net assets. Additionally, to the extent cash flows from investments that return scheduled and unscheduled principal are reinvested, the spread between the yields on the new investments and available borrowing rates may decline, which would likely decrease our net income. It is also possible that short-term interest rates may

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exceed longer-term interest rates (a yield curve inversion), in which event our borrowing costs may exceed our interest income and we could incur operating losses. As a result of the foregoing, significant fluctuations in interest rates could harm affect our results of operations, financial conditions and our ability to make distributions to our stockholders.

Prepayment on our investments may harm the value of our portfolio of assets.

The value of our assets may be harmed by prepayment rates on mortgage loans. If we purchase assets at a premium to par value, when borrowers prepay their mortgage loans faster than expected, the corresponding prepayments on the mortgage loans may reduce the expected yield on such loans because we will have to amortize the related premium on an accelerated basis. As of the date of this consent solicitation/prospectus, our portfolio loans did not provide for any prepayment penalties or fees. Conversely, if we purchase assets at a discount to par value, when borrowers prepay their mortgage loans slower than expected, the decrease in corresponding prepayments on the mortgage assets may reduce the expected yield on such loans because we will not be able to accrete the related discount as quickly as originally anticipated. Prepayment rates on loans may be affected by a number of factors, including, without limitation, the availability of mortgage credit, the relative economic vitality of the geographic area in which the related properties are located, the servicing of the mortgage loans, possible changes in tax laws, other opportunities for investment, and other economic, social, geographic, demographic, legal and other factors beyond our control. Consequently, such prepayment rates cannot be predicted with certainty and no strategy can completely insulate us from prepayment or similar risks. In periods of declining interest rates, prepayment rates on mortgage loans generally increase. If general interest rates decline at the same time, we are likely to reinvest the proceeds of such prepayments received during such periods in assets yielding less than the yields on the assets that were prepaid. In addition, as a result of the risk of prepayment, the market value of the prepaid assets may benefit less than other fixed income assets from declining interest rates.

Our loans generally contain provisions for balloon payments upon maturity, which are riskier than loans with fully amortized payments and which increases the likelihood that a borrower may default on the loan.

As of the date of this consent solicitation/prospectus, substantially all of our portfolio loans provide for monthly payment of interest only with a “balloon” payment of principal payable in full upon maturity of the loan. To the extent that a borrower has an obligation to pay us mortgage loan principal in a large lump sum payment, its ability to repay the loan may depend upon its ability to sell the property, obtain suitable refinancing or otherwise raise a substantial amount of cash. We cannot assure you that a borrower will have sufficient resources available to make a balloon payment when it becomes due. As a result, these loans may involve a higher risk of default than amortizing loans.

Competition for buyers of real estate that we own, or for take-out financing for our borrowers, places severe pressure on asset values, and we may not be able to realize the full value of any of our investments as a result.

The industry in which we operate is serviced primarily by conventional mortgage lenders and loan investors, which include commercial banks, insurance companies, mortgage brokers, pension funds, and private and other institutional lenders. There are also a relatively smaller number of non-conventional lenders that are similar to us. If we resume lending operations, we expect to compete with these same lenders as well as new entrants to the competitive landscape who are also focused on originating and acquiring commercial mortgage loans for investment.

We expect to compete with many market participants after the consummation of the Conversion Transactions. Additionally, as we seek to locate purchasers for real estate we have acquired, or for takeout financing

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for our borrowers, we are competing with a large number of persons and entities that have acquired real estate, whether through foreclosure or otherwise, and that have originated commercial mortgage loans, in the past few years. Many of these persons and entities utilized leverage to purchase the real estate or fund the loans, and many are selling collateral or accepting takeout financing worth less than the original principal investment in order to generate liquidity and satisfy margin calls or other regulatory requirements. If we are not able to compete successfully, our ability to realize value from our existing loan portfolio may be harmed or delayed, and we may not be able to grow our asset portfolio.

Our business is subject to regulation by several government agencies and a disciplinary or civil action that occurs as a result of an actual or alleged violation of any rules or regulations to which we are subject could harm our business.

The Manager and its affiliates are subject to extensive regulation and oversight by various state and federal regulatory authorities, including, without limitation, the Arizona Corporation Commission or the ACC, the Arizona Department of Revenue, the Arizona Department of Financial Institutions (Banking) and the SEC. Many of these authorities have generally increased their scrutiny of the entities they regulate following recent events in the homebuilding, finance and capital markets sectors. We and the Manager are also subject to various federal and state securities laws regulating the issuance and sale of securities. In the event that we or the Manager do not adhere to these and other laws and regulations which apply to us, we could face potential disciplinary or other civil action that could harm our business.

In December 2004, and pursuant to several supplemental requests thereafter, the ACC requested certain information pertaining to the operations of the Fund and the Manager, and the Manager responded to all requests made by the ACC. Neither the Manager nor the Fund had any communication from the ACC from November 2005 until July 2009. In July 2009, the ACC requested from the Manager information concerning certain affiliates of the Manager. Following a response by the Manager to this request, and a meeting by certain of the Manager’s representatives with the ACC in October 2009, we were notified by a representative of the ACC in December 2009 that the ACC did not have any further information requests and, thereafter, that the ACC had ceased its inquiry.

In addition, following the suspension of certain of our activities, including the suspension of our willingness to execute redemption requests from holders of membership units in the Fund who are seeking liquidity, certain of the members have requested that their redemption requests be honored due to financial hardships or other reasons. In each instance, we have responded that we will not grant such requests and are treating all of the members uniformly. While neither the Manager nor we have been served with any lawsuits from any of the members, certain of the members have filed grievances with the SEC and possibly other regulatory agencies related to the Manager’s administration of the Fund, and we are unable to predict the outcome of any such grievances.

We invest in construction loans, which may expose us to an increased risk of loss.

We have historically originated and invested in construction loans. If we fail to fund our entire commitment on a construction loan, or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences to us associated with the loan, including: a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; a borrower assets or claims against us for failure to perform our obligations as a lender under the loan documents; increased costs to the borrower that the borrower is unable to pay; a bankruptcy filing by the borrower; and abandonment by the borrower of the collateral for our loan.

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Risks of cost overruns and non-completion of renovation of the properties underlying rehabilitation loans may result in significant losses.

We originate and invest in rehabilitation loans. The renovation, refurbishment or expansion by a borrower of a mortgaged property involves risks of cost overruns and non-completion. Estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. Other risks may include: rehabilitation costs exceeding original estimates, possibly making a project uneconomical; environmental risks; and rehabilitation and subsequent leasing of the property not being completed on schedule. If such renovation is not completed in a timely manner, or if renovation costs more than expected, the borrower may experience a prolonged impairment of net operating income and may not be able to make payments to us on our loan, which could result in significant losses to us.

The Manager has taken various actions to seek to manage us through the recession, however, we cannot assure you that these or future actions will be successful, in part or at all, and a failure of any one or more of these actions could harm us.

The Manager, on our behalf, has taken various actions to seek to manage us through the recession, including, among other things, marketing certain of our whole loans and participation interests for sale, and disposing of real estate owned that was acquired by us upon foreclosure. The Manager is also continuously evaluating other options for us. Many of the challenges being faced by us are beyond the control of the Manager, including a lack of adequate lender credit availability in the marketplace, the general illiquidity in financial markets in the United States, and the decline in real estate prices and the prices of real-estate related assets. We cannot assure you that these or other actions by the Manager will be successful, in part or at all, and a failure of any one or more of these actions could harm us.

Our loan and real estate portfolio is concentrated geographically and a further downturn in the economies or markets in which we operate could harm our loan portfolio.

As of the date of this consent solicitation/prospectus, we have commercial mortgage loan investments and real property in Arizona, California, Texas, New Mexico, Idaho, Minnesota, Utah and Nevada. Because we are generally not diversified geographically and are not required to observe any specific geographic diversification criteria, a further downturn in the economies of the states in which we own real estate or have commercial mortgage loan investments in our portfolio, or a further deterioration of the real estate market in these states, could harm our loan and real estate portfolio.

We may have difficulty protecting our rights as a secured lender, which could reduce the value or amount of collateral available to us upon foreclosure and harm our business.

We believe that our loan documents enable us to enforce our rights thereunder with our borrowers. However, the rights of borrowers and the rights of other secured lenders may limit our practical realization of those benefits. For example:

Foreclosure is subject to the delays of the legal processes involved. Judicial foreclosure could involve protracted litigation. Although we expect to generally use non-judicial foreclosure, which is generally quicker, our collateral may deteriorate and decrease in value during any delay in the foreclosure process.
The borrower’s right of redemption following foreclosure proceedings can delay or deter the sale of our collateral and can, for practical purposes, require us to own and manage any property acquired through foreclosure for an extended period of time.

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Unforeseen environmental hazards may subject us to unexpected liability and procedural delays in exercising our rights.
The rights of junior secured creditors in the same property can create procedural hurdles for us when we foreclose on collateral.
We may not be able to obtain a deficiency judgment after we foreclose on collateral. Even if a deficiency judgment is obtained, it may be difficult or impossible to collect on such a judgment.
State and federal bankruptcy laws can temporarily prevent us from pursuing any actions against a borrower or guarantor, regardless of the progress in any suits or proceedings and can, at times, permit our borrowers to incur liens with greater priority than the liens held by the Fund.
Lawsuits alleging lender liabilities, regardless of the merit of the claims, may delay or preclude foreclosure.

We may be subject to lender liability claims.

A number of judicial decisions have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories, collectively termed “lender liability.” Generally, lender liability is founded on the premise that a lender has either violated a duty, whether implied or contractual, of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in the creation of a fiduciary duty by the lender to the borrower or its other creditors or stockholders. We cannot assure prospective investors that such claims will not arise or that we will not be subject to significant liability if a claim of this type did arise.

Potential losses may not be covered by insurance.

We carry comprehensive liability, fire, extended coverage, earthquake, business interruption and rental loss insurance covering all of the properties in our portfolio under various insurance policies. Furthermore, we maintain title insurance to protect us against defects in security interests in our loans. We select policy specifications and insured limits which we believe to be appropriate given the perceived relative risk of loss, the cost of the coverage and our understanding of industry practice. We do not carry insurance for generally uninsured losses such as loss from riots, war or nuclear reactions. Our policies are insured subject to certain limitations, including, among others, large deductibles or co-payments and policy limits which may not be sufficient to cover losses. In addition, we may discontinue certain policies on some or all of our properties in the future if the cost of premiums for any of these policies exceeds, in our judgment, the value of the coverage relative to the perceived risk of loss. If we or one or more of our borrowers experiences a loss which is uninsured or which exceeds policy limits or which our carriers cannot cover, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties.

We may be exposed to liabilities for risks associated with the use of hazardous substances on any of our properties.

Under various U.S. federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances may harm an owner’s ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of a property underlying one of our portfolio loans becomes liable for removal costs, the ability of the owner to make payments to us may be reduced, which in turn may diminish the value of the relevant mortgage asset held by us and our ability to make distributions to our stockholders. If we acquire a property through foreclosure or otherwise, the

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presence of hazardous substances on such property may harm our ability to sell the property and we may incur substantial remediation costs, which could harm our results of operations, financial condition and our ability to make distributions to our stockholders.

Other Risk Factors

The decline in economic conditions and disruptions to markets may not improve for the foreseeable future, which could cause us to suffer continuing operating losses, adversely affect our liquidity, and create other business problems for us.

The global and U.S. economies experienced a rapid decline in 2008 and 2009. The real estate and other markets suffered unprecedented disruptions, causing many major institutions to fail or require government intervention to avoid failure, which has placed severe pressure on liquidity and asset values. These conditions were brought about largely by the erosion of U.S. and global credit markets, including a significant and rapid deterioration of the mortgage lending and related real estate markets.