MORTGAGE INVESTMENTS AND LOAN SALES

Lending Activities

The Company did not originate any loans during the three and nine months ended September 30, 2016 or 2015. During the nine months ended September 30, 2016, the Company collected mortgage loan payoffs for two loans and sold one loan. During the nine months ended September 30, 2015, the Company received $0.3 million related to the loan payoff of one loan.

A roll-forward of loan activity for the nine months ended September 30, 2016 is as follows (in thousands):



	Principal Outstanding			Interest Receivable			Valuation Allowance			Carrying Value
Balance, December 31, 2015	$	23,592		$	447		$	(12,892	)	$	11,147
Additions:
Accrued interest revenue	—			257			—			257
Reductions:
Mortgage loan payoffs	(7,843		)	(114		)	210			(7,747		)
Sale of mortgage loans	(3,148		)	(139		)	—			(3,287		)
Balance, September 30, 2016	$	12,601		$	451		$	(12,682	)	$	370

As of September 30, 2016, the Company had three loans outstanding with an average principal and interest balance of $4.3 million, as compared to an average principal and interest balance of $3.9 million for six loans at December 31, 2015. Of the three outstanding loans at September 30, 2016, one of the loans with an outstanding principal and interest balance of $0.4 million and an interest rate of 11.0% was performing. Of the six outstanding loans at December 31, 2015, there were four performing loans with an average outstanding principal and interest balance of $2.8 million and a weighted average interest rate of 10.5%. As of September 30, 2016 and December 31, 2015, the valuation allowance represented 97.2% and 53.6%, respectively, of the total outstanding loan principal and interest balances. The majority of the valuation allowance at September 30, 2016 and December 31, 2015 relates to two legacy loans which have been fully reserved and have a zero carrying value.

Loan Sales

During the nine months ended September 30, 2016, the Company sold one loan with a carrying value of $3.1 million for a net loss of $0.1 million. During the three months ended September 30, 2015, the Company sold a mortgage note in the amount of $11.0 million at face value to SREOF II Holdings, LLC, an affiliate of one of the Company’s directors. During the nine months ended September 30, 2015, we sold four loans with a carrying value of $27.4 million for a net loss of $0.1 million.

Scheduled Loan Maturities

The outstanding principal and interest balance of mortgage investments, net of the valuation allowance, as of September 30, 2016, have scheduled maturity dates as follows (in thousands):



Quarter	Outstanding Balance			Percent		#
Matured	$	12,682		97.2	%	2
2020 and thereafter	370			2.8	%	1
Total Principal and Interest	13,052			100.0	%	3
Less: Valuation Allowance	(12,682		)
Net Carrying Value	$	370

From time to time, the Company may extend a mortgage loan’s maturity date in the normal course of business. In this regard, the Company has modified certain loans, extending maturity dates in some cases by two or more years, and the Company may modify additional loans in the future in an effort to preserve collateral. Accordingly, repayment dates of the loans may vary from their currently scheduled maturity date. If the maturity date of a loan is not extended, the loans are classified and reported as matured and in default.

During the nine months ended September 30, 2016, we collected mortgage loan payoffs totaling $7.6 million. This amount represented the negotiated payoffs of two of our performing loans at a collective discount of $0.2 million. The discounted payoffs on these loans did not represent troubled debt restructuring because the loans were fully performing and the Company initiated the discounted payoffs in order to generate liquidity. We recorded an adjustment as of December 31, 2015 to provide for this discount.

Given the non-performing status on a majority of our legacy loans, we do not expect to receive any loan payoffs on loans that are past their respective maturity dates. We may find it necessary to foreclose, modify, extend, make protective advances or sell such loans in order to protect collateral, maximize return or generate additional liquidity.

Summary of Loans in Default

The Company’s portfolio loan defaults were attributed to, among other reasons, loan balances that exceeded the fair value of the underlying collateral and the absence of takeout financing in the marketplace. The two loans that were in default and in non-accrual status at December 31, 2015, remained in default status as of September 30, 2016 with an aggregate principal balance of $12.3 million and an aggregate interest balance of $0.4 million, all of which have been fully reserved. The completion and/or timing of foreclosure on the Company’s remaining portfolio loans is dependent on several factors, including, but not limited to, applicable state statutes, potential bankruptcy filings by the borrowers, the nature and extent of other liens secured by the underlying real estate.

No interest income was recognized on any non-accrual loans on a cash or accrual basis during the periods ended September 30, 2016 or 2015. Borrower concentrations, geographic concentrations of our loan portfolio, related loan classifications and end-user categories have not materially changed since December 31, 2015, except as a result of loan payoffs.