Filed pursuant to Rule 424(b)(3)
Registration No. 333-211251

JOINT PROXY STATEMENT/PROSPECTUS

To the Stockholders of ZAIS Financial Corp. and the Stockholders of Sutherland Asset Management Corporation:

The board of directors of ZAIS Financial Corp., which we refer to as ZAIS Financial, and the board of directors of Sutherland Asset Management Corporation, which we refer to as Sutherland, each have approved an agreement and plan of merger, dated as of April 6, 2016, as amended as of May 9, 2016 and August 4, 2016, which we refer to as the merger agreement, by and among ZAIS Financial, ZAIS Financial Partners, L.P., which we refer to as ZAIS operating partnership, ZAIS Merger Sub, LLC, which we refer to as merger sub, Sutherland and Sutherland Partners, L.P., which we refer to as Sutherland operating partnership. Pursuant to the merger agreement, ZAIS Financial and Sutherland will combine through a merger of Sutherland with and into merger sub, which we refer to as the Sutherland merger, with merger sub continuing as the surviving entity and a wholly owned subsidiary of ZAIS Financial. In connection with the Sutherland merger, the Sutherland operating partnership will also merge with and into the ZAIS operating partnership, which we refer to as the partnership merger, with ZAIS operating partnership continuing as the surviving entity. We refer to the Sutherland merger and the partnership merger, together, as the mergers.

The combined company will change its name to “Sutherland Asset Management Corporation” and will continue to trade on the New York Stock Exchange, or NYSE, under the symbol “SLD.” Thomas E. Capasse, the current chairman of the board and chief executive officer of Sutherland, will be appointed to serve as the chairman of the board and chief executive officer of the combined company and four other designees of Sutherland and one designee of ZAIS Financial will be elected to the combined company’s board of directors following the mergers.

The obligations of ZAIS Financial and Sutherland to effect the mergers are subject to the satisfaction or waiver of certain conditions set forth in the merger agreement (including the approvals of each company’s stockholders).

ZAIS Financial and Sutherland each will be holding a special meeting of their respective stockholders. While both common stockholders and preferred stockholders of Sutherland are entitled to notice of the Sutherland special meeting, only common stockholders of Sutherland are entitled to vote at the Sutherland special meeting. At the ZAIS Financial special meeting, ZAIS Financial stockholders will be asked to vote on (i) a proposal to approve the issuance of shares of ZAIS Financial common stock to Sutherland stockholders pursuant to the merger agreement, which we refer to as the share issuance proposal, and (ii) a proposal to approve the adjournment of the ZAIS Financial special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal, which we refer to as the ZAIS Financial adjournment proposal. At the Sutherland special meeting, Sutherland common stockholders will be asked to vote on (i) a proposal to approve the Sutherland merger and the other transactions contemplated by the merger agreement, which we refer to as the merger proposal, and (ii) a proposal to approve the adjournment of the Sutherland special meeting to a later date or dates, if necessary or appropriate, as determined in the sole discretion of the chairman of the Sutherland special meeting to solicit additional proxies if there are not sufficient votes to approve the merger proposal, which we refer to as the Sutherland adjournment proposal.

If the mergers are completed pursuant to the merger agreement, each outstanding share of Sutherland common stock immediately prior to the effective time of the Sutherland merger will be cancelled and automatically converted into the right to receive a number of shares of common stock of the combined company, which we refer to as combined company common stock, based on an exchange ratio that will be determined in accordance with the terms of the merger agreement, which we refer to as the exchange ratio. The exchange ratio will be based on the adjusted book value per share of ZAIS Financial and Sutherland as of a determination date, which the parties have agreed will be July 31, 2016. The exchange ratio will be announced at least five business days before each of the ZAIS Financial special meeting and the Sutherland special meeting.

If the ZAIS Financial stockholders approve the issuance of the shares of ZAIS Financial common stock to be issued in connection with the Sutherland merger, and the Sutherland stockholders approve the Sutherland merger and the other transactions contemplated by the merger agreement, then, following the special meetings and prior to the closing of the mergers, ZAIS Financial will commence a tender offer for a number of outstanding shares of ZAIS Financial common stock having an aggregate value of up to $64,331,094 at a price per share determined in accordance with the merger agreement. The price per share to be paid in the tender offer will be equal to 95% of a further adjusted per share value, which is calculated by reducing the ZAIS Financial adjusted book value by ZAIS Financial’s pro rata share of (i) the $8,000,000 termination payment due to ZAIS Financial’s advisor, (ii) an additional agreed adjustment of $4,064,000 and (iii) expenses and reserves associated with certain litigation relating to the mergers, if any, with such price per share rounded to the nearest whole cent.

Based on the number of shares of Sutherland common stock outstanding on July 18, 2016, the record date for the ZAIS Financial special meeting of stockholders, and an assumed exchange ratio of 0.8567 based on the adjusted book value per share of ZAIS Financial common stock and Sutherland common stock as of June 30, 2016 calculated in accordance with the merger agreement, we expect approximately 26.5 million shares of ZAIS Financial common stock will be issued in connection with the Sutherland merger. Further, based on these assumptions, we anticipate that, after giving effect to the mergers, continuing ZAIS Financial common stockholders will own between approximately 14% and 24% of the diluted common equity of the combined company, and former Sutherland stockholders will own between approximately 86% and 76% of the diluted common equity of the combined company, depending on whether the contemplated tender offer to be made to current ZAIS Financial common stockholders is fully subscribed.

The record date for determining the stockholders entitled to receive notice of, and to vote at, the ZAIS Financial special meeting and for determining the common and preferred stockholders entitled to receive notice of, and the common stockholders entitled to vote at, the Sutherland special meeting is the close of business on July 18, 2016. The mergers cannot be completed unless the ZAIS Financial stockholders approve the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement by the affirmative vote of a majority of the votes cast on the matter by holders of outstanding shares of ZAIS Financial common stock and the Sutherland stockholders approve the Sutherland merger and the other transactions contemplated by the merger agreement by the affirmative vote of the holders of a majority of the outstanding shares of Sutherland common stock entitled to vote at the Sutherland special meeting.

The ZAIS Financial board of directors, which we refer to as the ZAIS Financial board, has unanimously (i) determined that the merger agreement, the mergers and the other transactions contemplated by the merger agreement are advisable, fair to, and in the best interests of ZAIS Financial and the ZAIS Financial stockholders, (ii) approved the merger agreement and (iii) subject to approval by ZAIS Financial stockholders, authorized the issuance of the shares of ZAIS Financial common stock pursuant to the merger agreement. The ZAIS Financial board unanimously recommends that ZAIS Financial stockholders vote FOR the share issuance proposal, and FOR the ZAIS Financial adjournment proposal.

The Sutherland board of directors, which we refer to as the Sutherland board, has unanimously (i) determined that the terms of the mergers and the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of Sutherland and its stockholders, (ii) approved and declared advisable the mergers, and (iii) approved and adopted the merger agreement. The Sutherland board unanimously recommends that Sutherland stockholders vote FOR the merger proposal and FOR the Sutherland adjournment proposal.

This joint proxy statement/prospectus contains important information about ZAIS Financial, Sutherland, the mergers, the merger agreement and the special meetings. We encourage you to read this joint proxy statement/prospectus carefully before voting, including the section entitled “Risk Factors” beginning on page 32.

Your vote is very important, regardless of the number of shares you own. Whether or not you plan to attend the ZAIS Financial special meeting or the Sutherland special meeting, as applicable, please submit a proxy to vote your shares as promptly as possible to make sure that your shares are represented at the applicable special meeting. Please note that the failure to vote your shares of Sutherland common stock is the equivalent of a vote against the merger, as described herein.

Sincerely,
Michael Szymanski Chief Executive Officer, President, Secretary and Director ZAIS Financial Corp.	Thomas E. Capasse Chairman and Chief Executive Officer Sutherland Asset Management Corporation

Neither the Securities and Exchange Commission nor any state securities regulatory authority has approved or disapproved of the mergers or the securities to be issued under this joint proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated August 26, 2016, and is first being mailed to ZAIS Financial stockholders and Sutherland stockholders on or about August 29, 2016.

ZAIS FINANCIAL CORP.
Two Bridge Avenue, Suite 322
Red Bank, New Jersey 07701-1106

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 27, 2016

To the Stockholders of ZAIS Financial Corp.:

You are invited to attend a special meeting of stockholders of ZAIS Financial Corp., a Maryland corporation that has elected to be treated as a real estate investment trust, or “REIT,” for federal income tax purposes, which we refer to as ZAIS Financial. The meeting will be held on Tuesday, September 27, 2016, at 10:00 a.m., Eastern Time, at Oyster Point Hotel, 146 Bodman Place, Red Bank, NJ 07701. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in the accompanying joint proxy statement under “The Merger Agreement — Merger Consideration; Effects of the Mergers”, the ZAIS Financial special meeting will be postponed or adjourned to at least five business days following the exchange ratio announcement. At the meeting, stockholders will consider and vote upon the following matters:

• a proposal to approve the issuance of shares of ZAIS Financial common stock, par value $0.0001 per share, which we refer to as ZAIS Financial common stock, to the stockholders of Sutherland Asset Management Corporation, a Maryland corporation that has elected to be treated as a REIT for federal income tax purposes, which we refer to as Sutherland, pursuant to the Agreement and Plan of Merger, dated as of April 6, 2016, as amended as of May 9, 2016 and August 4, 2016, as it may be further amended or modified from time to time (a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice), which we refer to as the merger agreement, by and among ZAIS Financial, ZAIS Financial Partners, L.P., which we refer to as ZAIS operating partnership, ZAIS Merger Sub, LLC, which we refer to as merger sub, Sutherland and Sutherland Partners, L.P., which we refer to as Sutherland operating partnership, pursuant to which Sutherland will merge with and into merger sub, with merger sub continuing as the surviving entity and a wholly owned subsidiary of ZAIS Financial, which we refer to as the Sutherland merger, and Sutherland operating partnership will merge with and into ZAIS operating partnership, with ZAIS operating partnership continuing as the surviving entity, which we refer to as the partnership merger and which, together with the Sutherland merger, we refer to as the mergers; and

• a proposal to approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the proposal to approve the issuance of ZAIS Financial common stock to Sutherland stockholders pursuant to the merger agreement, which we refer to as the share issuance proposal.

THE ZAIS FINANCIAL BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT, THE MERGERS AND THE OTHER TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE SHARE ISSUANCE PROPOSAL, ARE ADVISABLE, FAIR TO, AND IN THE BEST INTERESTS OF ZAIS FINANCIAL AND THE ZAIS FINANCIAL STOCKHOLDERS, HAS APPROVED THE MERGER AGREEMENT AND, SUBJECT TO APPROVAL BY ZAIS FINANCIAL STOCKHOLDERS, AUTHORIZED THE ISSUANCE OF THE SHARES OF ZAIS FINANCIAL COMMON STOCK PURSUANT TO THE MERGER AGREEMENT. THE ZAIS FINANCIAL BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR BOTH PROPOSALS.

ZAIS Financial stockholders of record at the close of business on July 18, 2016, are entitled to receive this notice and vote at the ZAIS Financial special meeting and any postponements or adjournments thereof.

The proposal to approve the issuance of shares of ZAIS Financial common stock to Sutherland stockholders pursuant to the merger agreement requires the affirmative vote of a majority of the votes cast on this proposal by holders of outstanding shares of ZAIS Financial common stock. The issuance of ZAIS Financial common stock to Sutherland stockholders cannot occur, and therefore the merger cannot be completed, without the approval of this proposal by ZAIS Financial stockholders.

Please refer to the attached joint proxy statement/prospectus for further information with respect to the business to be transacted at the ZAIS Financial special meeting. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in the accompanying joint proxy statement under “The Merger Agreement — Merger Consideration; Effects of the Mergers”, the ZAIS Financial special meeting will be postponed to at least five business days following the exchange ratio announcement.

Your vote is important. Whether or not you expect to attend the ZAIS Financial special meeting in person, we urge you to authorize a proxy to vote your shares of ZAIS Financial common stock as promptly as possible by (1) accessing the internet website specified on your proxy card, (2) calling the toll-free number specified on your proxy card, or (3) signing and returning the enclosed proxy card in the postage-paid envelope provided, so that your shares of ZAIS Financial common stock may be represented and voted at the ZAIS Financial special meeting. If your shares of ZAIS Financial common stock are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished by the record holder of your shares of ZAIS Financial common stock.

By Order of the Board of Directors of
 
ZAIS Financial Corp.
Michael Szymanski
Secretary

Red Bank, New Jersey
August 26, 2016

SUTHERLAND ASSET MANAGEMENT CORPORATION
1140 Avenue of the Americas, 7^th Fl.
New York, NY 10036

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 27, 2016

To the Stockholders of Sutherland Asset Management Corporation:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders, which we refer to as the Sutherland special meeting, of Sutherland Asset Management Corporation, a Maryland corporation, which we refer to as Sutherland, will be held at the offices of Clifford Chance US LLP, 31 West 52^nd Street, New York, NY 10019 on September 27, 2016 at 10:00 a.m., Eastern Time, to consider and vote on the following matters:

1. a proposal to approve the merger of Sutherland with and into ZAIS Merger Sub, LLC, a Delaware limited liability company, which we refer to as merger sub, and a wholly owned subsidiary of ZAIS Financial Corp., a Maryland corporation, which we refer to as ZAIS Financial, with merger sub surviving the merger, which we refer to as the Sutherland merger, pursuant to the Agreement and Plan of Merger dated as of April 6, 2016, as amended as of May 9, 2016 and August 4, 2016, among ZAIS Financial, merger sub, ZAIS Financial Partners, L.P., Sutherland and Sutherland Partners, L.P., which we refer to as the merger agreement, and the other transactions contemplated by the merger agreement, which we refer to as the merger proposal; and

2. a proposal to approve the adjournment of the Sutherland special meeting to a later date or dates, if necessary or appropriate, as determined in the sole discretion of the chairman of the Sutherland special meeting, to solicit additional proxies if there are not sufficient votes to approve the merger proposal, which we refer to as the Sutherland adjournment proposal.

Details concerning those matters to come before the Sutherland special meeting are set forth in the accompanying joint proxy statement for your inspection and Sutherland urges you to read the entire joint proxy statement carefully, including all documents incorporated by reference and annexes thereto, so that you may be informed about the proposals to be addressed at the Sutherland special meeting. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in the accompanying joint proxy statement under “The Merger Agreement — Merger Consideration; Effects of the Mergers”, the Sutherland special meeting will be postponed or adjourned to at least five business days following the exchange ratio announcement.

Sutherland’s board of directors unanimously recommends that Sutherland’s stockholders vote (1) “FOR” the merger proposal and (2) “FOR” the Sutherland adjournment proposal. The Sutherland merger and the other transactions contemplated by the merger agreement cannot be completed without the approval by Sutherland’s stockholders of the merger proposal. The merger proposal requires the affirmative vote of the holders of a majority of outstanding shares of Sutherland common stock entitled to vote at the Sutherland special meeting on such proposal. The Sutherland adjournment proposal requires the affirmative vote of the holders of a majority of the votes cast at the Sutherland special meeting on such proposal, assuming a quorum is present.

The Sutherland board has fixed July 18, 2016 as the record date for the Sutherland special meeting. Only the holders of record of Sutherland common stock as of the close of business on July 18, 2016 are entitled to notice of and to vote at the Sutherland special meeting and any adjournment or postponement thereof.

YOUR VOTE IS IMPORTANT

Whether or not you plan to attend the Sutherland special meeting in person, please authorize a proxy to vote your shares as promptly as possible. To authorize a proxy, complete, sign, date and mail your proxy card in the pre-addressed postage-paid envelope provided. Authorizing a proxy will assure that your vote is counted at the Sutherland special meeting if you do not attend in person. If your shares of Sutherland common stock are held in “street name” by your broker or other nominee, only your broker or other nominee can vote your shares of Sutherland common stock and the vote cannot be cast unless you provide instructions to your broker or other nominee on how to vote or obtain a legal proxy from your broker or other nominee. You should follow the directions provided by your broker or other nominee regarding how to instruct your broker or other nominee to vote your shares of Sutherland common stock. You may revoke your proxy at any time before it is exercised. Please review the joint proxy statement accompanying this notice for more complete information regarding the Sutherland merger and the Sutherland special meeting.

By Order of the Board of Directors,
 
Frederick C. Herbst
Secretary

Dated: August 26, 2016
 
New York, New York

ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about ZAIS Financial and Sutherland from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus by requesting them from ZAIS Financial’s proxy solicitor or from Sutherland:

If you are a ZAIS Financial stockholder: Okapi Partners LLC 1212 Avenue of the Americas, 24th Floor New York, New York 10036 (212) 297-0720 (Main) (877) 285-5990 (Toll Free) info@okapipartners.com	If you are a Sutherland stockholder: Sutherland Asset Management Corporation 1140 Avenue of the Americas, 7th Floor NewYork, NY 10036 Attention: Frederick C. Herbst, Secretary (212) 257-4600

Investors may also consult ZAIS Financial’s website for more information concerning the mergers described in this joint proxy statement/prospectus. ZAIS Financial’s website is www.zaisfinancial.com. ZAIS Financial’s public filings are also available at www.sec.gov. Information included on these websites is not incorporated by reference into this joint proxy statement/prospectus.

If you would like to request copies of any documents, please do so by September 19, 2016 in order to receive them before the special meetings.

For more information, see “Where You Can Find More Information and Incorporation by Reference” beginning on page 342.

ABOUT THIS DOCUMENT

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed by ZAIS Financial (File No. 333-211251) with the Securities and Exchange Commission, which we refer to as the SEC, constitutes a prospectus of ZAIS Financial for purposes of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of ZAIS Financial common stock to be issued in connection with the merger of Sutherland with and into ZAIS Financial pursuant to the Agreement and Plan of Merger, dated as of April 6, 2016, as amended as of May 9, 2016 and August 4, 2016, by and among ZAIS Financial, ZAIS operating partnership, merger sub, Sutherland and Sutherland operating partnership, as such agreement may be amended or modified from time to time and which we refer to as the merger agreement. This joint proxy statement/prospectus also constitutes a proxy statement for each of ZAIS Financial and Sutherland for purposes of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. In addition, it constitutes a notice of meeting with respect to the ZAIS Financial special meeting and a notice of meeting with respect to the Sutherland special meeting.

This joint proxy statement/prospectus also relates to the resale of the shares of the combined company common stock received by the former holders of shares of Sutherland common stock and any of their pledgees, donees, transferees, assignees and successors-in-interest, which we refer to as the selling stockholders, by using a “shelf” registration process. Using this shelf registration process, the selling stockholders may offer, at any time and from time to time, in one or more offerings, the combined company common stock that this joint proxy statement/prospectus describes. Following the mergers, the selling stockholders may, from time to time, resell any or all of their shares of common stock on the NYSE or other market or trading platform on which our shares are traded or quoted or in private transactions. These sales may be at fixed or negotiated prices. We will not be involved in any of the selling efforts of the selling stockholders. We will not receive any of the proceeds from the sale of the shares of the selling stockholders. The joint proxy statement/prospectus may also be supplemented from time to time to add to, update or change the information contained herein. Please carefully read this joint proxy statement/prospectus and any prospectus supplement in addition to the information contained in the documents we refer to under the headings “Where You Can Find More Information and Incorporation by Reference.”

You should rely only on the information contained or incorporated by reference in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated August 26, 2016. You should not assume that the information contained in, or incorporated by reference into, this joint proxy statement/prospectus is accurate as of any date other than that date. Neither our mailing of this joint proxy statement/prospectus to ZAIS Financial stockholders and Sutherland stockholders nor the issuance by ZAIS Financial of shares of its common stock to Sutherland stockholders pursuant to the merger agreement will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or to any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding ZAIS Financial has been provided by ZAIS Financial and information contained in this joint proxy statement/prospectus regarding Sutherland has been provided by Sutherland.

TABLE OF CONTENTS

QUESTIONS AND ANSWERS		1
SUMMARY		12
The Companies		12
The Mergers		14
The Tender Offer		16
Other Agreements		17
Recommendation of the ZAIS Financial Board		18
Recommendation of the Sutherland Board		18
Risk Factors Related to the Mergers		18
The ZAIS Financial Special Meeting		19
The Sutherland Special Meeting		19
Directors and Executive Officers of the Combined Company After the Mergers		20
Interests of ZAIS Financial’s Directors and Executive Officers in the Mergers		20
Interests of Sutherland’s Directors and Executive Officers in the Mergers		20
No Dissenters’ or Appraisal Rights in the Mergers		20
Conditions to Completion of the Mergers		21
Regulatory Approvals Required for the Mergers		21
No Solicitation of Alternative Transactions		21
Termination of the Merger Agreement		23
Termination Fees and Expenses		24
Listing of Shares of ZAIS Financial Common Stock		24
Material U.S. Federal Income Tax Consequences of the Mergers		24
Accounting Treatment of the Mergers		25
Opinion of Financial Advisor to ZAIS Financial		25
Opinion of Financial Advisor to Sutherland		26
Distribution Arrangements		26
Summary Selected Historical Financial Information of ZAIS Financial		27
Summary Selected Historical Financial Information of Sutherland		28
Summary Unaudited Pro Forma Condensed Combined Financial Information		30
Unaudited Comparative Pro Forma Per Share Information		31
RISK FACTORS		32
Risks Related to the Mergers		32
Risks Related to the Combined Company Following the Mergers		35
Risks Relating to an Investment in the Combined Company’s Common Stock Following the Mergers		36
Risks Relating to the Combined Company’s Business		37
Risks Related to Financing and Hedging		55
Risks Relating to an Investment in the Combined Company’s Common Stock		79
Legal Risks Related to the Mergers		80
General Tax Risks		82
Other Risks		95

i

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS		96
THE COMPANIES		98
ZAIS Financial Corp.		98
Sutherland Asset Management Corporation		98
The Combined Company Following the Mergers		99
THE ZAIS FINANCIAL SPECIAL MEETING		101
Date, Time and Place		101
Purpose of the ZAIS Financial Special Meeting		101
Recommendation of the ZAIS Financial Board		101
ZAIS Financial Record Date; Who Can Vote at the ZAIS Financial Special Meeting		101
Quorum		102
Vote Required for Approval		102
Failure to Vote; Abstentions and Broker Non-Votes		102
Voting by ZAIS Financial Directors, Executive Officers and Significant Stockholders		103
Manner of Voting and Authorizing a Proxy		103
Delivery and Householding of Proxy Materials		104
Revocation of Proxies or Voting Instructions		104
Tabulation of Votes		105
Solicitation of Proxies; Payment of Solicitation Expenses		105
Adjournment		105
Assistance		105
PROPOSALS SUBMITTED TO ZAIS FINANCIAL STOCKHOLDERS		106
Approval of Share Issuance Pursuant to the Merger Agreement		106
The ZAIS Financial Adjournment Proposal		106
Other Business		106
THE SUTHERLAND SPECIAL MEETING		107
Date, Time and Place		107
Purpose of the Sutherland Special Meeting		107
Recommendation of the Sutherland Board		107
Sutherland Record Date; Who Can Vote at the Sutherland Special Meeting		107
Quorum		107
Vote Required for Approval		108
Failure to Vote; Abstentions and Broker Non-Votes		108
Voting by Sutherland Directors, Executive Officers and Their Affiliates		108
Manner of Voting and Authorizing a Proxy		109
Delivery and Householding of Proxy Materials		109
Revocation of Proxies or Voting Instructions		110
Tabulation of Votes		110
Solicitation of Proxies; Payment of Solicitation Expenses		110
Adjournment		110
Assistance		111

ii

PROPOSALS SUBMITTED TO SUTHERLAND STOCKHOLDERS		112
Merger Proposal		112
Sutherland Adjournment Proposal		112
Other Business		112
THE MERGERS		113
General		113
Background of the Mergers		113
Recommendation of the ZAIS Financial Board and its Reasons for the Mergers		124
Recommendation of the Sutherland Board and Its Reasons for the Mergers		129
Opinion of Financial Advisor to ZAIS Financial		130
Certain ZAIS Financial Unaudited Prospective Financial Information		141
Opinion of Financial Advisor to Sutherland		143
Certain Financial Projections Utilized by the Sutherland Board and Sutherland’s Financial Advisor		150
The Tender Offer		152
Directors and Executive Officers of the Combined Company After the Mergers		153
Interests of ZAIS Financial Directors and Executive Officers in the Mergers		159
Interests of Sutherland Directors and Executive Officers in the Mergers		160
Regulatory Approvals Required for the Mergers		160
Accounting Treatment		160
No Dissenters’ or Appraisal Rights in the Sutherland Merger		161
Exchange of Shares and Units in the Mergers		161
Dividends		162
Listing of Shares of ZAIS Financial Common Stock		162
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS		163
Material U.S. Federal Income Tax Consequences of the Mergers		164
Taxation of the Combined Company		167
Taxation of REITs in General		168
Requirements for Qualification as a REIT		170
Failure to Qualify as a REIT		189
Taxation of Taxable U.S. Stockholders		189
Taxation of Tax-Exempt U.S. Stockholders		192
Taxation of Non-U.S. Stockholders		192
Backup Withholding and Information Reporting		195
Foreign Accounts		196
Tax Shelter Regulations		196
State, Local and Foreign Taxes		196
Legislative or Other Actions Affecting REITs		196
THE MERGER AGREEMENT		197
Form, Effective Time and Closing of the Mergers		197
Merger Consideration; Effects of the Mergers		198
Organizational Documents of the Surviving Entities		200

iii

Officers of the Combined Company		200
Board of Directors of the Combined Company		200
Representations and Warranties		200
Covenants and Agreements		203
Conditions to Completion of the Mergers		216
Termination of the Merger Agreement and Termination Fees		219
Miscellaneous Provisions		222
OTHER AGREEMENTS		223
ZAIS Financial Advisor Termination Agreement		223
Sutherland Termination Agreement		223
Management Agreement and Side Letter		223
Surviving Partnership Agreement		234
SELECTED HISTORICAL FINANCIAL INFORMATION OF ZAIS FINANCIAL		239
SELECTED HISTORICAL FINANCIAL INFORMATION OF SUTHERLAND		241
SUTHERLAND MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		243
UNAUDITED COMPARATIVE PRO FORMA PER SHARE INFORMATION		275
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION		276
BUSINESS OF SUTHERLAND		291
COMPARATIVE STOCK PRICES AND DIVIDENDS		314
Market Prices and Dividend Data		314
DESCRIPTION OF CAPITAL STOCK		316
Shares Authorized		316
Shares Outstanding		316
Common Stock		316
Power to Classify and Reclassify Shares and Issue Additional Shares of Common Stock or Shares of Preferred Stock		317
Certain Provisions of Maryland Law and the ZAIS Financial Charter and Bylaws		317
Restrictions on Ownership and Transfer		322
REIT Qualification		325
Transfer Agent		325
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ZAIS FINANCIAL AND STOCKHOLDERS OF SUTHERLAND		326
General		326
Certain Differences Between the Rights of ZAIS Financial Stockholders and Sutherland Stockholders		326
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT		334
STOCKHOLDER PROPOSALS		338
ZAIS Financial 2016 Annual Meeting of Stockholders and Stockholder Proposals		338
DISTRIBUTION ARRANGEMENTS		339
LEGAL MATTERS		341
EXPERTS		341

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WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE		342
FINANCIAL STATEMENTS OF SUTHERLAND ASSET MANAGEMENT CORPORATION		F-1
Annex A — Agreement and Plan of Merger		A-1
Amendment No. 1 to the Agreement and Plan of Merger, dated May 9, 2016		A-141
Amendment No. 2 to the Agreement and Plan of Merger, dated August 4, 2016		A-230
Annex B — Opinion of Houlihan Lokey Capital, Inc.		B-1
Annex C — Opinion of BofA Merrill Lynch		C-1

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QUESTIONS AND ANSWERS

The following are answers to some questions that ZAIS Financial stockholders and Sutherland stockholders may have regarding the proposed transaction between ZAIS Financial and Sutherland and the other proposals being considered at the ZAIS Financial special meeting and the Sutherland special meeting. ZAIS Financial and Sutherland urge you to read carefully this entire joint proxy statement/prospectus, including the Annexes, and the documents incorporated by reference into this joint proxy statement/prospectus, because the information in this section does not provide all the information that might be important to you.

Unless stated otherwise, all references in this joint proxy statement/prospectus to:

• “ZAIS Financial,” “we,” or “our” are to ZAIS Financial Corp., a Maryland corporation that has elected to be treated as a REIT for federal income tax purposes;

• “ZAIS operating partnership” are to ZAIS Financial Partners, L.P., a Delaware limited partnership and the operating partnership of ZAIS Financial;

• “ZAIS Financial common stock” are to the shares of common stock, $0.0001 par value per share, of ZAIS Financial;

• “ZAIS operating partnership units” are the limited partnership interests of the ZAIS operating partnership;

• “merger sub” are to ZAIS Merger Sub, LLC, a Delaware limited liability company and a wholly owned subsidiary of the ZAIS Financial;

• “Sutherland” are to Sutherland Asset Management Corporation, a Maryland corporation that has elected to be treated as a REIT for federal income tax purposes;

• “Sutherland operating partnership” are to Sutherland Partners, L.P., a Delaware limited partnership;

• “Sutherland common stock” are to the shares of common stock, $0.01 par value per share, of Sutherland;

• “Sutherland operating partnership units” are to the limited partnership interests of the Sutherland operating partnership;

• “Sutherland operating partnership special unit” are to the Class A Special Unit of the Sutherland operating partnership;

• “Class A special unit” are to the Class A Special Unit of ZAIS operating partnership as the surviving entity of the partnership merger;

• the “ZAIS Financial board” are to the board of directors of ZAIS Financial;

• the “Sutherland board” are to the board of directors of Sutherland;

• the “merger agreement” are to the Agreement and Plan of Merger, dated as of April 6, 2016, as amended as of May 9, 2016 and August 4, 2016, by and among ZAIS Financial, ZAIS operating partnership, merger sub, Sutherland and Sutherland operating partnership, as it may be further amended or modified from time to time, a copy of which is attached as Annex A to this joint proxy statement/prospectus and is incorporated herein by reference;

• the “Sutherland merger” are to the merger of Sutherland with and into merger sub, with merger sub continuing as the surviving entity and a wholly owned subsidiary of ZAIS Financial pursuant to the terms of the merger agreement;

• the “partnership merger” are to the merger of Sutherland operating partnership with and into ZAIS operating partnership, with ZAIS operating partnership continuing as the surviving entity;

• the “mergers” are to the Sutherland merger and the partnership merger, collectively;

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• the “combined company” or “SLD” are to ZAIS Financial and its subsidiaries after the effective time of the merger, at which time ZAIS Financial will change its name to Sutherland Asset Management Corporation;

• the “NYSE” are to the New York Stock Exchange; and

• “REIT” are to a real estate investment trust for federal income tax purposes.

Q: What is the proposed transaction?

A: ZAIS Financial and Sutherland are proposing to combine through the merger of Sutherland with and into merger sub, with merger sub continuing as the surviving entity and a wholly owned subsidiary of ZAIS Financial, and the merger of Sutherland operating partnership with and into ZAIS operating partnership, with ZAIS operating partnership continuing as the surviving entity, each pursuant to the terms of the merger agreement. The combined company will change its name to “Sutherland Asset Management Corporation” and the combined company’s shares of common stock will continue to be listed and traded on the NYSE under the symbol “SLD.”

Q: What will holders of Sutherland common stock and Sutherland operating partnership units receive in connection with the mergers? What are the conditions to the mergers?

A: At the effective time of the Sutherland merger, each share of Sutherland common stock outstanding immediately prior to the effective time of the Sutherland merger will be automatically cancelled and retired and converted into the right to receive (upon the proper surrender of the certificate representing such share or the proper surrender of a book-entry share) a number of shares of combined company common stock equal to the exchange ratio. At the effective time of the partnership merger, each Sutherland operating partnership unit outstanding immediately prior to the effective time of the partnership merger will be automatically cancelled and retired and converted into the right to receive a number of ZAIS operating partnership units equal to the exchange ratio, and the Sutherland operating partnership special unit will be automatically cancelled and retired and converted into the right to receive the Class A special unit of the surviving partnership. The exchange ratio will be equal to the quotient (rounded to the nearest one ten-thousandth of a share) determined by dividing (i) the Sutherland adjusted book value per share by (ii) the ZAIS Financial adjusted book value per share as of a determination date, which the parties have agreed will be July 31, 2016. ZAIS Financial and Sutherland will publicly announce the exchange ratio at least five business days prior to the stockholder meetings.

To the extent that a Sutherland stockholder or a Sutherland operating partnership unit holder would otherwise be entitled to receive a fraction of a share of the combined company or unit of the surviving partnership, computed on the basis of the aggregate number of shares of Sutherland common stock held by such holder or the aggregate number of Sutherland operating partnership units held by such holder, as applicable, such holder shall instead receive a cash payment in lieu of a fractional share or unit in an amount equal to such fraction multiplied by the per share closing price on the NYSE of ZAIS Financial common stock on the date immediately preceding the date on which the effective time of the mergers occurs.

The mergers are subject to the approvals of the ZAIS Financial stockholders and the Sutherland stockholders and to other customary conditions, as described herein. See “The Merger Agreement —  Conditions to Completion of the Merger” beginning on page 216.

Q: When are the mergers expected to be completed?

A: ZAIS Financial and Sutherland expect to complete the mergers as soon as reasonably practicable following satisfaction or waiver of all of the required conditions. If the stockholders of ZAIS Financial approve the issuance of shares of ZAIS Financial common stock in connection with the Sutherland merger and the stockholders of Sutherland approve the Sutherland merger and the other transactions contemplated by the merger agreement, and if the other conditions to closing the merger are satisfied or waived, it is expected that the mergers will be completed in the fourth quarter of 2016. However, there is no assurance that the conditions to the mergers will be satisfied or that the mergers will close by then or ever.

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Q: How will ZAIS Financial stockholders be affected by the mergers and the issuance of shares of ZAIS Financial common stock to Sutherland stockholders in the Sutherland merger?

A: After the mergers, each ZAIS Financial stockholder will continue to own the shares of ZAIS Financial common stock that such stockholder held immediately prior to the mergers. As a result, each ZAIS Financial stockholder will continue to own shares of combined company common stock, which will be a larger company with more assets. However, because ZAIS Financial will be issuing new shares of ZAIS Financial common stock to Sutherland stockholders in the Sutherland merger, each outstanding share of ZAIS Financial common stock immediately prior to the mergers will represent a smaller percentage of the aggregate number of shares of combined company common stock outstanding after the mergers.

Upon completion of the mergers, assuming an exchange ratio of 0.8567 shares of ZAIS Financial common stock for each share of Sutherland common stock, based on the adjusted book value per share of ZAIS Financial common stock and Sutherland common stock as of June 30, 2016 (calculated in accordance with the merger agreement), we anticipate that continuing ZAIS Financial common stockholders will own between approximately 14% and 24% of the diluted common equity of the combined company, and former Sutherland stockholders will own between approximately 86% and 76% of the diluted common equity of the combined company, depending on whether the contemplated tender offer to be made to current ZAIS Financial common stockholders is fully subscribed.

Q: What are the terms of the proposed ZAIS Financial tender offer and when will the tender offer occur?

A: Following the special meetings and prior to the closing of the mergers, ZAIS Financial will commence a tender offer for a number of outstanding shares of ZAIS Financial common stock having an aggregate value of up to $64,331,094 at a price per share determined in accordance with the merger agreement, assuming the ZAIS Financial stockholders approve the issuance of the shares of ZAIS Financial common stock to be issued in connection with the Sutherland merger, and the Sutherland stockholders approve the Sutherland merger and the other transactions contemplated by the merger agreement.

The price per share to be paid in the tender offer will be based on a further adjusted ZAIS Financial adjusted book value per share. Additional information regarding the calculation of the ZAIS Financial adjusted book value per share can be found in the section of this joint proxy statement/prospectus entitled “The Merger — Merger Consideration.” The price per share to be paid in the tender offer will be equal to 95% of a further adjusted per share value, which is calculated by reducing the ZAIS Financial adjusted book value by ZAIS Financial’s pro rata share of (i) the $8,000,000 termination payment due to ZAIS Financial’s advisor, (ii) an additional agreed adjustment of $4,064,000 and (iii) expenses and reserves associated with certain litigation relating to the mergers, if any, with such price per share rounded to the nearest whole cent.

Q: Who will compose the board of the combined company if the mergers are completed?

A: The ZAIS Financial board has agreed to increase the number of directors to six and to elect Thomas E. Capasse, Jack J. Ross, Frank P. Filipps, Todd M. Sinai, J. Mitchell Reese (each of which is a Sutherland designee) and David L. Holman (the ZAIS Financial designee) to the combined company board, and appoint Thomas E. Capasse as chairman of the board. The resignation of the other current directors of the ZAIS Financial board will be effective at the closing of the mergers.

Q: Who will manage the combined company if the mergers are completed?

A: ZAIS REIT Management, LLC will be terminated as ZAIS Financial’s external advisor, and Waterfall Asset Management, LLC, which we refer to as Waterfall, will be appointed as the combined company’s manager, as of the effective time of the mergers. For a more complete description of the termination of ZAIS Financial’s advisor and the appointment of Waterfall, see “Other Agreements — ZAIS Financial Advisor Termination Agreement” beginning on page 223 and “Other Agreements — Management Agreement and Side Letter” beginning on page 223.

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Q: Are there risks associated with the mergers that I should consider in deciding how to vote?

A: Yes. There are a number of risks related to the mergers that are discussed in this joint proxy statement under “Risk Factors.”

Q: Why am I receiving this joint proxy statement/prospectus?

A: The Sutherland board is using this joint proxy statement/prospectus to solicit proxies of Sutherland stockholders in connection with a special meeting to approve the Sutherland merger and the other transactions contemplated by the merger agreement. The ZAIS Financial board is using this joint proxy statement/prospectus to solicit proxies of ZAIS Financial stockholders in connection with a special meeting to approve the issuance of shares of ZAIS Financial common stock to Sutherland stockholders pursuant to the merger agreement. In addition, ZAIS Financial is using this joint proxy statement/prospectus as a prospectus for Sutherland stockholders because ZAIS Financial is offering its shares of common stock in exchange for shares of Sutherland common stock in the Sutherland merger. The mergers cannot be completed unless:

• the holders of a majority of votes cast by ZAIS Financial common stockholders on the matter vote to approve the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement; and

• the holders of a majority of the outstanding shares of Sutherland common stock vote to approve the Sutherland merger and the other transactions contemplated by the merger agreement.

ZAIS Financial and Sutherland will hold separate meetings of their respective stockholders to obtain these approvals and to consider other proposals as described elsewhere in this joint proxy statement/prospectus.

This joint proxy statement/prospectus contains important information about the mergers and the other proposals being voted on at the stockholder meetings and you should read it carefully. The enclosed voting materials allow you to authorize a proxy to vote your shares of ZAIS Financial common stock and/or Sutherland common stock, as applicable, without attending your company’s special meeting.

Your vote is important. You are encouraged to submit your proxy as promptly as possible.

Q: What proposals am I being asked to vote on at the stockholder meetings?

A: ZAIS Financial.  At the ZAIS Financial special meeting, ZAIS Financial stockholders will be asked to consider and vote upon the following proposals:

• a proposal to approve the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement; and

• a proposal to approve the adjournment of the ZAIS Financial special meeting to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the share issuance proposal.

Sutherland.  At the Sutherland special meeting, Sutherland stockholders will be asked to consider and vote upon the following proposals:

• a proposal to approve the Sutherland merger and the other transactions contemplated by the merger agreement; and

• a proposal to approve the adjournment of the Sutherland special meeting to a later date or dates, if necessary or appropriate, as determined in the sole discretion of the chairman of the Sutherland special meeting, to solicit additional proxies if there are not sufficient votes to approve the Sutherland merger and the other transactions contemplated by the merger agreement.

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Q: Will ZAIS Financial and Sutherland continue to pay distributions prior to the effective time of the merger?

A: Yes, the companies intend to pay distributions prior to the effective time of the merger. The merger agreement permits ZAIS Financial to continue to pay regular quarterly dividends in accordance with past practice, at an annualized rate not to exceed $1.60 per share of common stock, plus any distribution that is reasonably necessary to maintain its REIT qualification and/or to avoid the imposition of U.S. federal income or excise tax. The merger agreement also permits Sutherland to continue to pay regular monthly dividends in accordance with past practice, at an annualized rate not to exceed $1.25 per share of common stock, plus any distribution that is reasonably necessary to maintain its REIT qualification and/or to avoid the imposition of U.S. federal income or excise tax.

Q: When and where are the special meetings?

A: The ZAIS Financial special meeting will be held at Oyster Point Hotel, 146 Bodman Place, Red Bank, NJ 07701, on September 27, 2016, commencing at 10:00 a.m., Eastern Time. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in “The Merger Agreement — Merger Consideration; Effects of the Merger”, the ZAIS Financial special meeting will be postponed or adjourned to at least five business days following the exchange ratio announcement.

The Sutherland special meeting will be held at the offices of Clifford Chance US LLP, 31 West 52^nd Street, New York, NY 10019, on September 27, 2016, commencing at 10:00 a.m., Eastern Time. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in “The Merger Agreement — Merger Consideration; Effects of the Merger”, the Sutherland special meeting will be postponed or adjourned to at least five business days following the exchange ratio announcement.

Q: Who can vote at the special meetings and how many votes do I have?

A: ZAIS Financial.  All ZAIS Financial common stockholders of record as of the close of business on July 18, 2016, the record date for determining stockholders entitled to notice of and to vote at the ZAIS Financial special meeting, are entitled to receive notice of and to vote at the ZAIS Financial special meeting. As of July 18, 2016, there were 8,836,902 shares of ZAIS Financial common stock outstanding, held by approximately 13 holders of record. Each share of ZAIS Financial common stock is entitled to one vote on each proposal presented at the ZAIS Financial special meeting.

Sutherland.  All Sutherland common stockholders of record as of the close of business on July 18, 2016, the record date for determining stockholders entitled to notice of and to vote at the Sutherland special meeting, are entitled to receive notice of and to vote at the Sutherland special meeting. As of July 18, 2016, there were 30,960,370 shares of Sutherland common stock outstanding, held by approximately 32 holders of record. Each share of Sutherland common stock is entitled to one vote on each proposal presented at the Sutherland special meeting.

Q: What constitutes a quorum?

A: ZAIS Financial.  A quorum of ZAIS Financial stockholders is necessary to hold a valid special meeting. The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum. On the record date, there were 8,836,902 shares of ZAIS Financial common stock outstanding and entitled to vote. Thus, 4,418,452 shares of ZAIS Financial common stock must be represented by stockholders present in person or by proxy at the ZAIS Financial special meeting to have a quorum for the ZAIS Financial special meeting.

Sutherland.  A quorum of Sutherland stockholders is necessary to hold a valid special meeting. The presence in person or by proxy of stockholders entitled to cast a majority of all the votes entitled to be cast at such meeting shall constitute a quorum. On the record date, there were 30,960,370 shares of Sutherland common stock outstanding and entitled to vote. Thus, 15,480,166 shares of Sutherland common stock must be represented by stockholders present in person or by proxy at the Sutherland special meeting to have a quorum for the Sutherland special meeting.

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Shares that are voted, in person or by proxy, shares present in person or by proxy and abstaining from voting and broker non-votes, if any, are treated as present at each of the ZAIS Financial special meeting and the Sutherland special meeting, respectively, for purposes of determining whether a quorum is present.

Q: What vote is required to approve the proposals?

A: ZAIS Financial.

• Approval of the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement requires the affirmative vote of a majority of votes cast on the matter by holders of outstanding shares of ZAIS Financial common stock.

• Approval of one or more adjournments of the ZAIS Financial special meeting requires the affirmative vote of a majority of the votes cast on the matter at a meeting at which a quorum is present. If a quorum is not established, the chairman of the ZAIS Financial special meeting has the power to adjourn the ZAIS Financial special meeting to a date not more than 120 days after the original record date without notice other than announcement at the meeting.

Sutherland.

• Approval of the Sutherland merger and the other transactions contemplated by the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Sutherland common stock entitled to vote at the Sutherland special meeting on such proposal.

• Approval of one or more adjournments of the Sutherland special meeting requires the affirmative vote of the holders of a majority of the votes cast at the Sutherland special meeting on such proposal, assuming a quorum is present. If a quorum is not established, the chairman of the Sutherland special meeting has the power to adjourn the Sutherland special meeting to a date not more than 120 days after the original record date without notice other than the announcement of the meeting.

Q: How does the ZAIS Financial board recommend that ZAIS Financial stockholders vote on the proposals?

A: After careful consideration, the ZAIS Financial board has unanimously (i) determined that the merger agreement, the mergers and the other transactions contemplated thereby are advisable, fair to, and in the best interests of ZAIS Financial and its stockholders, (ii) approved the merger agreement and (iii) authorized, subject to ZAIS Financial stockholder approval, the issuance of the shares of ZAIS Financial common stock pursuant to the merger agreement. The ZAIS Financial board unanimously recommends that ZAIS Financial stockholders vote FOR the proposal to approve the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement and FOR the ZAIS Financial adjournment proposal.

For a more complete description of the recommendation of the ZAIS Financial board, see “The Mergers — Recommendation of the ZAIS Financial Board and its Reasons for the Mergers” beginning on page 124.

Q: How does the Sutherland board recommend that Sutherland stockholders vote on the proposals?

A: After careful consideration, the Sutherland board has unanimously (i) determined that the terms of the mergers and the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of Sutherland and its stockholders, (ii) approved and declared advisable the mergers, and (iii) approved and adopted the merger agreement. The Sutherland board unanimously recommends that Sutherland stockholders vote FOR the proposal to approve the Sutherland merger and the other transactions contemplated by the merger agreement and FOR the Sutherland adjournment proposal.

For a more complete description of the recommendation of the Sutherland board, see “The Mergers —  Recommendation of the Sutherland Board and its Reasons for the Mergers” beginning on page 129.

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Q: Have any stockholders already agreed to approve the Sutherland merger?

A: No.

Q: If my shares of ZAIS Financial common stock or Sutherland common stock are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee vote my shares of ZAIS Financial common stock or Sutherland common stock for me?

A: No. Unless you instruct your broker, bank or other nominee how to vote your shares of ZAIS Financial common stock or Sutherland common stock held in street name, your shares will NOT be voted. If you hold your shares of ZAIS Financial common stock or Sutherland common stock in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in street name), you must provide your broker, bank or other nominee with instructions on how to vote your shares.

Q: What happens if I do not vote for a proposal?

A: ZAIS Financial.  If you are a ZAIS Financial stockholder and fail to vote or fail to instruct your broker, bank or nominee to vote, it will have no effect on the result of the vote on any proposal. Banks, brokers and other nominees that hold their customers’ shares in street name do not have discretion to vote on any of the ZAIS Financial proposals. As a result, if you fail to provide your broker, bank or other nominee with any instructions regarding how to vote your shares of ZAIS Financial common stock, your shares of ZAIS Financial common stock will not be considered present at the ZAIS Financial special meeting and will not be voted on any of the proposals.

Abstentions with respect to either proposal will be treated as “votes cast” on such proposal. Therefore, if you are a ZAIS Financial stockholder and you abstain from voting on a proposal, it will have the same effect as a vote “AGAINST” such proposal. Abstentions will also be considered present for the purpose of determining the presence of a quorum.

A broker non-vote will only occur with respect to a proposal in the event that a broker receives voting instructions for one proposal, but not with respect to another proposal. Broker non-votes will have no effect on the result of the vote on either proposal. Please see “The ZAIS Financial Special Meeting —  Failure to Vote; Abstentions and Broker Non-Votes” for more information.

Sutherland.  The Sutherland proposals are considered “non-routine” proposals. A broker non-vote occurs when a broker, bank or other nominee returns a valid proxy but does not vote on a non-routine proposal because such nominee does not have discretionary authority from the holder of such Sutherland common stock in street name to do so. A broker non-vote will only occur with respect to a proposal in the event that a broker receives voting instructions for one proposal, but not with respect to another proposal.

If you are a Sutherland stockholder and fail to vote or fail to instruct your broker, bank or nominee to vote, it will have the same effect as an “Against” vote on the merger proposal, and it will have no effect on the result of the vote on the Sutherland adjournment proposal.

Abstentions will have the same effect as votes cast “Against” the merger proposal, but will have no effect on the Sutherland adjournment proposal. Abstentions will be considered present for the purpose of determining the presence of a quorum. Please see “The Sutherland Special Meeting — Failure to Vote; Abstentions and Broker Non-Votes” for more information.

Q: Do I need to do anything with my stock certificates or book-entry shares now?

A: No. If you are a Sutherland stockholder, you should not submit or attempt to exchange your stock certificates or book-entry shares at this time. After the Sutherland merger is completed, if you held shares of Sutherland common stock, the exchange agent for the combined company will send you a letter of transmittal and instructions for exchanging your shares of Sutherland common stock for shares of combined company common stock pursuant to the terms of the merger agreement. Upon surrender of a certificate or book-entry share for cancellation along with the executed letter of transmittal and other required documents described in the instructions, a Sutherland stockholder will receive shares of

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combined company common stock pursuant to the terms of the merger agreement. The value of any fractional shares of combined company common stock to which a holder would otherwise be entitled will be paid in cash.

If you are a ZAIS Financial stockholder, you are not required to take any action with respect to your shares of ZAIS Financial common stock. Such shares will continue to represent shares of the combined company after the Sutherland merger.

Q: What are the anticipated U.S. federal income tax consequences to me of the proposed Sutherland merger?

A: The Sutherland merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, and the closing of the Sutherland merger is conditioned on the receipt by each of ZAIS Financial and Sutherland of an opinion from its respective counsel to that effect.

Assuming that the Sutherland merger qualifies as a reorganization, U.S. holders of shares of Sutherland common stock generally will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of the combined company common stock in exchange for shares of Sutherland common stock in connection with the Sutherland merger, except with respect to cash received in lieu of fractional shares.

A holder of Sutherland common stock generally will recognize gain or loss with respect to cash received in lieu of a fractional share of the combined company common stock in the Sutherland merger measured by the difference, if any, between the amount of cash received for such fractional share and the holder’s tax basis in such fractional share Holders of shares of Sutherland common stock should read the discussion under the heading “Material U.S. Federal Income Tax Considerations — Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page 164 and consult their tax advisors to determine the tax consequences to them (including the application and effect of any state, local or non-U.S. income and other tax laws) of the merger in their particular circumstances.

Q: Are ZAIS Financial stockholders or Sutherland stockholders entitled to dissenters’ or appraisal rights?

A: No. Neither holders of ZAIS Financial common stock nor holders of Sutherland stock are entitled to dissenters’ or appraisal rights in connection with the mergers or the other transactions contemplated by the merger agreement.

Q: What do I need to do now?

A: After you have carefully read this joint proxy statement/prospectus, please respond by completing, signing and dating your proxy card or voting instruction card forwarded by your broker, bank or other nominee and returning it in the enclosed pre-addressed postage-paid envelope or, if available, by submitting your proxy by one of the other methods specified in your proxy card or voting instruction card as promptly as possible so that your shares of ZAIS Financial common stock and/or your shares of Sutherland common stock will be represented and voted at the ZAIS Financial special meeting or the Sutherland special meeting, as applicable.

Please refer to your proxy card or voting instruction card to see which voting options are available to you.

The method by which you submit a proxy will in no way limit your right to vote at the ZAIS Financial special meeting or the Sutherland special meeting, as applicable, if you later decide to attend the meeting in person. However, if your shares of ZAIS Financial common stock or Sutherland common stock are held in the name of a broker, bank or other nominee, you must obtain a legal proxy, executed in your favor, from your broker, bank or other nominee, to be able to vote in person at the ZAIS Financial special meeting or the Sutherland special meeting, as applicable.

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Q: How will my proxy be voted?

A: ZAIS Financial.  All shares of ZAIS Financial common stock entitled to vote and represented by properly completed proxies received prior to the ZAIS Financial special meeting, and not revoked, will be voted at the ZAIS Financial special meeting as instructed on the proxies. If you properly sign, date and return a proxy card, but do not indicate how your shares of ZAIS Financial common stock should be voted on a matter, the shares of ZAIS Financial common stock represented by your proxy will be voted as the ZAIS Financial board recommends and therefore FOR the proposal to approve the issuance of shares of ZAIS Financial common stock to Sutherland stockholders pursuant to the merger agreement and FOR the proposal to adjourn the ZAIS Financial special meeting, if necessary or appropriate in the view of the ZAIS Financial board, to solicit additional proxies in favor of the share issuance proposal if there are not sufficient votes at the time of such adjournment to approve such proposal. If your shares are held in “street name” with a broker, bank or other nominee, and you do not provide voting instructions to your broker, bank or other nominee, your shares of ZAIS Financial common stock will NOT be voted at the ZAIS Financial special meeting.

Sutherland.  All shares of Sutherland common stock entitled to vote and which are represented by properly completed proxies received prior to the Sutherland special meeting that are not revoked, will be voted at the Sutherland special meeting as instructed on the proxies. If you properly submit a proxy card, but do not indicate how your shares of Sutherland common stock should be voted on a proposal, the shares of Sutherland common stock represented by your proxy card will be voted as the Sutherland board unanimously recommends and therefore (1) FOR the merger proposal and (2) FOR the Sutherland adjournment proposal.

If you hold your shares of Sutherland common stock in a stock brokerage account or if your shares of Sutherland common stock are held by a broker, bank or other nominee (that is, in street name), you must provide your broker, bank or other nominee with instructions on how to vote your shares. If you do not provide such voting instructions to your broker, bank or other nominee, your shares of Sutherland common stock will NOT be voted at the Sutherland special meeting for or against the merger proposal or the Sutherland adjournment proposal because they are “non-routine” matters, as discussed above. Please follow the voting instructions provided by your broker, bank or other nominee on the enclosed voting instruction card. You may not vote shares of Sutherland common stock held in street name by returning a proxy card directly to Sutherland or by voting in person at the Sutherland special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.

Q: Can I revoke my proxy or change my vote after I have delivered my proxy?

A: Yes. You may revoke your proxy or change your vote at any time before your proxy is exercised at the ZAIS Financial special meeting or the Sutherland special meeting, as applicable. If you are a holder of record, you can do this in any of the three following ways:

• by sending a written notice to the Secretary of ZAIS Financial or the Secretary of Sutherland, as applicable, in time to be received before the ZAIS Financial special meeting or the Sutherland special meeting, as applicable, stating that you would like to revoke your proxy;

• by completing, signing and dating another proxy card and returning it by mail in time to be received before the ZAIS Financial special meeting or the Sutherland special meeting, as applicable;

• in the case of ZAIS Financial stockholders, by submitting a later dated proxy by the Internet or telephone in which case your later-submitted proxy will be recorded and your earlier proxy revoked; or

• by attending the ZAIS Financial special meeting or the Sutherland special meeting, as applicable, and voting in person — simply attending the ZAIS Financial special meeting or the Sutherland special meeting, as applicable, without voting will not revoke your proxy or change your vote.

If your shares of ZAIS Financial common stock are held in “street name” by a broker, bank or other nominee and you desire to change your vote or vote in person, you should contact your broker, bank or other nominee for instructions on how to do so.

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Q: What does it mean if I receive more than one set of voting materials for the ZAIS Financial special meeting or the Sutherland special meeting?

A: You may receive more than one set of voting materials for the ZAIS Financial special meeting and/or the Sutherland special meeting, as applicable, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. If you hold your shares of ZAIS Financial common stock or Sutherland common stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares of ZAIS Financial common stock or Sutherland common stock. If you are a holder of record and your shares of ZAIS Financial common stock or shares of Sutherland common stock are registered in more than one name, you may receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive or, in the case of ZAIS Financial stockholders, if available, please submit your proxy by telephone or over the Internet.

Q: What happens if I am a stockholder of both ZAIS Financial and Sutherland?

A: You will receive separate proxy cards for each company and must complete, sign and date each proxy card and return each proxy card in the appropriate preaddressed postage-paid envelope or, if available, by submitting a proxy by one of the other methods specified in your proxy card or voting instruction card for each company.

Q: Do I need identification to attend the ZAIS Financial or Sutherland special meeting in person?

A: Yes. Please bring proper identification, together with proof that you are a record owner of shares of ZAIS Financial common stock or Sutherland common stock, as applicable. If your shares of ZAIS Financial common stock or Sutherland common stock are held in street name, please bring acceptable proof of ownership, such as a letter from your broker or an account statement showing that you beneficially owned shares of ZAIS Financial common stock or Sutherland common stock on the applicable record date.

Q: Who is paying for this proxy solicitation?

A. Each of ZAIS Financial and Sutherland will bear the cost of soliciting proxies from its respective stockholders. In addition to this mailing of the joint proxy statement/prospectus, certain of ZAIS Financial’s or Sutherland’s directors or officers may, and certain officers, managers or members of ZAIS Financial’s advisor or Sutherland’s manager also may, solicit proxies by telephone, by facsimile, by mail, over the Internet or in person. Each of ZAIS Financial and Sutherland may make arrangements with brokerage firms and other custodians, nominees and fiduciaries to forward proxy solicitation, at such company’s expense, to the beneficial owners of ZAIS Financial common stock and Sutherland common stock held of record by such persons.

In addition, ZAIS Financial has engaged Okapi Partners LLC, which we refer to as Okapi, to assist in the solicitation of proxies for the ZAIS Financial special meeting and will pay Okapi a fee not to exceed $34,000, along with fees for calls to certain individual members plus reimbursement of out-of-pocket expenses and will indemnify Okapi and its affiliates against certain claims, liabilities, losses, damages and expenses.

Q: How can I find out the results of the voting at the special meetings?

A: Preliminary voting results will be announced at each special meeting. Final voting results will be published in a Current Report on Form 8-K filed by ZAIS Financial with the SEC within four business days after the ZAIS Financial special meeting.

Q: What happens if a special meeting is postponed or adjourned?

A: If the ZAIS Financial special meeting or Sutherland special meeting is postponed or adjourned, your proxy will still be in effect and will be voted at such postponed or adjourned meeting. You will be able to change or revoke your proxy until it is exercised.

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Q: Who can answer my questions?

A: If you have any questions about the mergers or the other matters to be voted on at the special meetings or how to submit your proxy or need additional copies of this joint proxy statement/prospectus, the enclosed proxy card or voting instructions, you should contact:

If you are a ZAIS Financial stockholder:	If you are an Sutherland stockholder:
Okapi Partners, LLC 1212 Avenue of the Americas, 24th Floor New York, New York 10036 (212) 297-0720 (Main) (877) 285-5990 (Toll Free) info@okapipartners.com	Sutherland Asset Management Corporation 1140 Avenue of the Americas, 7th Floor New York, NY 10036 Attention: Frederick C. Herbst, Secretary (212) 257-4600

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SUMMARY

The following summary highlights some of the information contained in this joint proxy statement/prospectus. This summary may not contain all the information that is important to you. For a more complete description of the merger agreement, the mergers and the other transactions contemplated by the merger agreement, ZAIS Financial and Sutherland encourage you to read carefully this entire joint proxy statement/prospectus, including the attached Annexes and the other documents to which we have referred you, because this section does not provide all the information that might be important to you with respect to the mergers and the other matters being considered at the applicable special meeting. See also the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 342. We have included page references to direct you to a more complete description of the topics presented in this summary.

The Companies

ZAIS Financial Corp. (See page 98)

ZAIS Financial is a Maryland corporation that invests in residential mortgage loans. In October 2014, ZAIS Financial acquired GMFS, LLC, a mortgage banking platform, which we refer to as GMFS. GMFS originates, sells and services residential mortgage loans and ZAIS Financial acquires performing, re-performing and newly originated loans through other channels. ZAIS Financial also invests in, finances and manages residential mortgage-backed securities, which we refer to as RMBS, that are not issued or guaranteed by a federally chartered corporation, such as the Federal National Mortgage Association, or Fannie Mae, the Federal Home Loan Mortgage Corporation, or Freddie Mac, or an agency of the U.S. Government, such as the Government National Mortgage Association, or Ginnie Mae, which we collectively refer to as Agencies, with an emphasis on securities that, when originally issued, were rated in the highest rating category by one or more of the nationally recognized statistical rating organizations and mortgage servicing rights, which we refer to as MSRs. ZAIS Financial also has the discretion to invest in RMBS that are issued or guaranteed by a federally chartered corporation or a U.S. Government agency, including through “to-be-announced” contracts, and in other real estate-related and financial assets, such as interest only strips created from RMBS. ZAIS Financial refers collectively to its assets as its “target assets”. At June 30, 2016, ZAIS Financial held a diversified portfolio of mortgage loans, RMBS assets and MSRs with an aggregate fair value of $565.4 million, comprised of: (i) residential mortgage investments, including (a) newly originated loans with a fair value of $43.6 million and (b) RMBS assets with a fair value of $84.6 million, consisting primarily of senior tranches of RMBS that are not issued or guaranteed by a federally chartered corporation, such as the Agencies, which we refer to as non-Agency RMBS, that were originally highly rated but subsequently downgraded and (ii) residential mortgage banking assets, including (a) mortgage loans originated by the GMFS mortgage banking platform and held for sale with a fair value of $113.9 million, and (b) MSRs with a fair value of $44.5 million. On May 26, 2016, ZAIS Financial sold certain seasoned, re-performing mortgage loans with an unpaid principal balance of $430.7 million to Citigroup Global Markets Realty Corporation for $362.0 million. The unpaid principal balance of $430.7 million includes $27.0 million of non-interest bearing unpaid principal balance, with a carrying value of zero.

ZAIS Financial’s common stock is listed on the NYSE, trading under the symbol “ZFC.”

ZAIS Financial was incorporated in Maryland on May 24, 2011, and has elected to be taxed and to qualify as REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2011. ZAIS Financial is organized in a format pursuant to which it serves as the sole general partner of, and conducts substantially all of its business through, ZAIS operating partnership. ZAIS Financial is externally managed by ZAIS REIT Management, LLC, and has no employees other than those employed by GMFS, a wholly owned subsidiary of the ZAIS operating partnership. GMFS had 242 employees at June 30, 2016. ZAIS Financial’s principal executive offices are located at Two Bridge Avenue, Suite 322, Red Bank, New Jersey 07701-1106, and its telephone number is (732) 978-7518.

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Merger sub, a wholly owned subsidiary of ZAIS Financial, is a Delaware limited liability company formed on March 28, 2016, for the purpose of effecting the Sutherland merger. Upon completion of the Sutherland merger, Sutherland will be merged with and into merger sub, with merger sub continuing as the surviving entity and a wholly owned subsidiary of ZAIS Financial. Merger sub has not conducted any activities other than those incidental to its formation and the matters contemplated by the merger agreement.

Sutherland Asset Management Corporation (See page 98)

Sutherland is a real estate finance company that acquires, originates, manages, services and finances primarily small balance commercial loans, or SBC loans. SBC loans generally range in original principal amount of between $500,000 and $10 million and are used by small businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties. Sutherland also invests in asset-backed securities where the underlying pool of assets consists primarily of SBC loans, or SBC ABS, and other real estate related investments. As of June 30, 2016, Sutherland held a diversified portfolio of assets with an aggregate unpaid principal balance, or UPB, of approximately $2.0 billion and a carrying value of approximately $1.8 billion. Sutherland’s objective is to provide attractive risk adjusted returns to its stockholders, primarily through dividends and secondarily through capital appreciation. In order to achieve this objective, Sutherland intends to continue to grow its investment portfolio by acquiring SBC loans and related investments and originating new SBC loans.

Sutherland was incorporated in Maryland on November 5, 2013 and has elected to be taxed and to qualify as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2013. Sutherland serves as the general partner of, and conducts substantially all of its business through, the Sutherland operating partnership. Sutherland is externally managed by Waterfall Asset Management, LLC, which we refer to as Waterfall, and has no employees other than 134 employees of its subsidiary, ReadyCap Holdings, LLC, or ReadyCap, and its subsidiaries. All of Sutherland’s officers have been and will continue to be executives of Waterfall. As of August 15, 2016, Waterfall had 80 employees.

Sutherland’s principal executive offices are located at 1140 Avenue of the Americas, 7^th Floor, New York, New York 10036, and its telephone number is (212) 257-4600.

The Combined Company Following the Mergers (See page 99)

Following the mergers, the name of the combined company will be “Sutherland Asset Management Corporation.” The combined company’s common stock will continue to be listed on the New York Stock Exchange, under the symbol “SLD.” The primary focus of the combined company will be small balance commercial lending with approximately 10% target equity allocation to residential mortgage assets. In addition, the combined company will have significant scale and operating density, with a stockholders’ equity base in excess of $550 million which is expected to enhance operational efficiencies, substantially increase the liquidity in the combined company common stock and meaningfully reduce operating costs. Sutherland management believes that stockholders of the combined company will benefit from lower base management fees and that the incentive fee structure will further align stakeholder interests.

The combined company will be externally managed by Waterfall, Sutherland’s current external manager. All the officers of the combined company will be employees of Waterfall or its affiliates.

The combined company intends to operate and to be taxed as a REIT for U.S. federal income tax purposes. The combined company generally will not be subject to U.S. federal income taxes on its REIT taxable income to the extent that it annually distributes all of its REIT taxable income to stockholders, maintains its qualification as a REIT and does not engage in prohibited transactions. The combined company’s subsidiaries with which it has made a joint election to treat such subsidiaries as taxable REIT subsidiaries, will be treated as U.S. corporations and will pay U.S. federal, state and local income tax at regular corporate tax rates on their income.

The combined company’s principal executive offices will be located at 1140 Avenue of the Americas, 7^th Floor, New York, New York 10036, and its telephone number will be (212) 257-4600.

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The Mergers

The Merger Agreement (See page 197)

ZAIS Financial, ZAIS operating partnership, merger sub, Sutherland and Sutherland operating partnership have entered into the merger agreement attached as Annex A to this joint proxy statement/prospectus, which is incorporated herein by reference. ZAIS Financial and Sutherland encourage you to read the merger agreement carefully in its entirety because it is the principal document governing the mergers and the other transactions contemplated by the merger agreement.

Sutherland Merger (See page 198)

Subject to the terms and conditions of the merger agreement, at the effective time of the Sutherland merger, Sutherland will merge with and into merger sub, with merger sub continuing as the surviving entity and a wholly owned subsidiary of ZAIS Financial. The shares of combined company common stock, including the shares of ZAIS Financial common stock to be issued in the Sutherland merger, are expected to be listed and traded on the NYSE under the symbol “SLD.”

Upon completion of the mergers, at an assumed exchange ratio of 0.8567 shares of ZAIS Financial common stock for each share of Sutherland common stock (based on the adjusted book value per share of ZAIS Financial common stock and Sutherland common stock as of June 30, 2016, calculated in accordance with the merger agreement), we anticipate that continuing ZAIS Financial common stockholders will own between approximately 14% and 24% of the diluted common equity of the combined company, and former Sutherland stockholders will own between approximately 86% and 76% of the diluted common equity of the combined company, depending on whether the contemplated tender offer to be made to current ZAIS Financial common stockholders is fully subscribed.

Partnership Merger (See page 199)

Subject to the terms and conditions of the merger agreement, at the effective time of the partnership merger, the Sutherland operating partnership will merge with and into the ZAIS operating partnership, with the ZAIS operating partnership continuing as the surviving entity and a subsidiary of ZAIS Financial. The partnership merger will become effective on the date and at the time set forth in the certificate of merger filed with the Delaware Secretary of State, which the parties have agreed will be on the same date as the closing of the Sutherland merger, but immediately prior to the effective time of the Sutherland merger.

Merger Consideration (See page 198)

Sutherland Merger

At the effective time of the Sutherland merger, each share of Sutherland common stock outstanding immediately prior to the effective time of the Sutherland merger will be automatically cancelled and retired and converted into the right to receive (upon the proper surrender of the certificate representing such share or the proper surrender of a book-entry share) a number of shares of combined company common stock equal to the exchange ratio and cash in lieu of any fractional shares (as described below). The exchange ratio will be equal to the quotient (rounded to the nearest one ten-thousandth of a share) determined by dividing (i) the Sutherland adjusted book value per share by (ii) the ZAIS Financial adjusted book value per share.

The ZAIS Financial adjusted book value per share will be determined by calculating ZAIS Financial’s total consolidated stockholders’ equity as of July 31, 2016, which we refer to as the determination date, and deducting estimated unpaid transaction expenses that have not already been taken into account in determining book value and an additional $15 million. That amount will then be divided by the number of shares of ZAIS Financial common stock issued and outstanding (including any shares of ZAIS Financial common stock issuable upon the redemption of outstanding units of limited partnership interest in ZAIS operating partnership, which we refer to as the ZAIS operating partnership units, or upon conversion or exchange of any outstanding securities that are convertible into or exchangeable for shares of ZAIS Financial common stock). Similarly, the Sutherland adjusted book value per share will be determined by calculating Sutherland’s total consolidated stockholders’ equity as of the determination date and deducting estimated unpaid transaction expenses that have not already been taken into account in determining the book value and the amount required

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to be paid for the redemption of the outstanding Sutherland preferred stock. That amount will then be divided by the number of shares of Sutherland common stock issued and outstanding (including any shares of Sutherland common stock issuable upon the redemption of outstanding units of limited partnership interest in the Sutherland operating partnership, which we refer to as the Sutherland operating partnership units, or upon conversion or exchange of any outstanding securities that are convertible into or exchangeable for shares of Sutherland common stock). These amounts will be calculated in accordance with accounting principles generally accepted in the United States, which we refer to as U.S. GAAP, subject to certain agreed upon calculation principles and after giving pro forma effect to any anticipated dividends.

For example, as shown in the table below, assuming the determination date had been June 30, 2016, ZAIS Financial’s total consolidated stockholders’ equity was $166.2 million, and ZAIS Financial’s adjusted book value was $149.4 million, which would be divided by 8,897,800, the total number of shares of ZAIS Financial common stock issued and outstanding (including shares of ZAIS Financial common stock issuable upon the redemption of outstanding ZAIS operating partnership units), resulting in a ZAIS Financial adjusted book value per share of $16.79. On June 30, 2016, Sutherland’s total consolidated stockholders’ equity was $487.9 million, and Sutherland’s adjusted book value was $484.7 million, which would be divided by 33,699,318, the total number of shares of Sutherland common stock issued and outstanding (including any shares of Sutherland common stock issuable upon the redemption of outstanding Sutherland operating partnership units), resulting in a Sutherland adjusted book value per share of $14.38. Based on these assumptions, and without taking into account any provision for anticipated dividends, if the determination date was June 30, 2016, the exchange ratio would have been 0.8567. The actual exchange ratio may be higher or lower than this example depending upon the actual adjusted book values of ZAIS Financial and Sutherland on the determination date.

	June 30, 2016
(in thousands except share and per share amounts)	ZAIS Financial			Sutherland
Total consolidated stockholder’s equity	$	166,163		$	487,864
Adjustments(1)	$	(16,765	)	$	(3,125	)
Adjusted book value	$	149,398		$	484,739
Shares of common stock		7,970,886			30,960,370
Operating partnership units		926,914			2,738,948
Total fully diluted shares		8,897,800			33,699,318
Adjusted book value per share	$	16.79		$	14.38

(1) Reflects, (a) for ZAIS Financial, deduction of the agreed $15,000 adjustment and $1,765 of estimated transaction expenses and (b) for Sutherland, the redemption of its outstanding 12.5% Series A cumulative preferred stock for $125 and $3,000 of estimated transaction expenses. These adjustments do not include any provision for anticipated dividends.

Exchange Ratio

$14.38/$16.79 = 0.8567

Pursuant to the merger agreement, the parties have agreed that July 31, 2016 will be the determination date.

Each of Sutherland and ZAIS Financial will submit to the other party their proposed calculation of adjusted book value per share within 30 days after the determination date. If the parties are unable to agree upon their respective calculations of adjusted book value per share within a specified period of time, the parties will request that certain third parties specified in the merger agreement make a binding determination with respect to any items upon which the parties are unable to agree.

None of ZAIS Financial, any ZAIS Financial subsidiary, Sutherland, or any Sutherland subsidiary will receive any merger consideration for any share of Sutherland common stock owned by them.

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Partnership Merger

At the effective time of the partnership merger, each Sutherland operating partnership unit outstanding immediately prior to the partnership merger effective time will be automatically cancelled and retired and converted into the right to receive (upon proper surrender of such Sutherland operating partnership unit) the exchange ratio of surviving partnership units and cash in lieu of any fractional units (as described below). At the effective time of partnership merger, each Sutherland operating partnership unit held by Sutherland or any of its wholly owned subsidiaries will be automatically cancelled and retired and converted into the right to receive the exchange ratio of surviving partnership units. Additionally, at the effective time of the partnership merger, the Sutherland OP special unit held by Sutherland’s investment advisor, Waterfall, will be automatically cancelled and retired and converted into the right of Waterfall to receive a Class A special unit of the surviving partnership, the terms of which are set forth in the limited partnership agreement of the surviving partnership.

Fractional Shares

To the extent that a Sutherland stockholder or Sutherland operating partnership unitholder would otherwise be entitled to receive a fraction of a share of combined company common stock or fraction of a unit of the surviving partnership, computed on the basis of the aggregate number of shares of Sutherland common stock or Sutherland operating partnership units held by such holder, such holder shall instead receive a cash payment (without interest) in lieu of a fractional share or unit in an amount equal to such fraction multiplied by the per share closing price on the NYSE of ZAIS Financial common stock (as reported on the NYSE Composite Transactions Tape as such tape is reported in Bloomberg Professional Service or another recognized business publication) on the date immediately preceding the date on which the effective time of the Sutherland merger occurs.

The Tender Offer (See page 152)

If the ZAIS Financial stockholders approve the issuance of the shares of ZAIS Financial common stock in connection with the Sutherland merger, and the Sutherland stockholders approve the Sutherland merger and the other transactions contemplated by the merger agreement, then, following the special meetings and prior to the closing of the mergers, ZAIS Financial will commence a tender offer to purchase a number of outstanding shares of ZAIS Financial common stock having an aggregate value of up to $64,331,094 at a price per share determined in accordance with the merger agreement.

The price per share to be paid in the tender offer will be based on the ZAIS Financial adjusted book value per share used to calculate the exchange ratio, subject to certain additional adjustments. Additional information regarding the calculation of the ZAIS Financial adjusted book value per shares can be found in the section of this joint proxy statement/prospectus entitled “The Merger Agreement — Merger Consideration.” The price per share to be paid in the tender offer will be equal to 95% of a further adjusted per share value, which is calculated by reducing the ZAIS Financial adjusted book value by ZAIS Financial’s pro rata share of (i) the $8,000,000 termination payment due to ZAIS Financial’s advisor, (ii) an additional agreed adjustment of $4,064,000 and (iii) expenses and reserves, if any, associated with certain litigation relating to the mergers, if any, with such price per share rounded to the nearest whole cent. ZAIS Financial’s pro rata share of these amounts will be determined by multiplying the sum of the items in (i) – (iii) of the preceding sentence by the quotient obtained by dividing the number of issued and outstanding shares of ZAIS Financial common stock (without regard for the effects of the tender offer), calculated on a fully diluted basis, by the sum of:

• the number of issued and outstanding shares of ZAIS Financial common stock (without regard for the effects of the tender offer), calculated on a fully diluted basis, plus

• the number of shares of ZAIS Financial common stock expected to be issued in the Sutherland merger (without regard for the effects of the tender offer), calculated on a fully diluted basis.

Additional information regarding the calculation of the ZAIS Financial adjusted book value per share can be found in the section of this joint proxy statement/prospectus entitled “The Merger Agreement — Merger Consideration.”

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For additional information regarding the tender offer, see “The Mergers — The Tender Offer” beginning on page 152.

Other Agreements

ZAIS Financial Advisor Termination Agreement (See page 223)

Concurrently with the execution of the merger agreement, ZAIS Financial’s advisor entered into a termination agreement with ZAIS Financial, ZAIS operating partnership, certain other subsidiaries of ZAIS Financial, and Sutherland, which we refer to as the ZAIS Financial advisor termination agreement. The ZAIS Financial advisor termination agreement provides for the termination of the existing advisory agreement between ZAIS Financial’s advisor and ZAIS Financial, ZAIS operating partnership and certain other subsidiaries of ZAIS Financial, without any further liability or obligation, effective upon the closing of the mergers and the payment by ZAIS Financial to ZAIS Financial’s advisor of a termination fee in the amount of $8,000,000. In the event that the merger agreement is terminated prior to the closing of the mergers, the ZAIS Financial advisor termination agreement will automatically terminate and be of no further effect.

For additional information on the ZAIS Financial advisor termination agreement, see “Other Agreements — ZAIS Financial Advisor Termination Agreement” beginning on page 223.

Sutherland Termination Agreement (See page 223)

Concurrently with the execution of the merger agreement and in light of the management agreement entered into between Waterfall and ZAIS Financial as described below, Waterfall entered into a termination agreement with Sutherland, Sutherland operating partnership, certain other subsidiaries of Sutherland, and ZAIS Financial, which we refer to as the Sutherland termination agreement. The Sutherland termination agreement provides for the termination of the existing management agreement between Waterfall and Sutherland, Sutherland operating partnership and certain other subsidiaries of Sutherland, without any further liability or obligation, effective upon the closing of the mergers. No termination fee is payable in connection with this termination. In the event that the merger agreement is terminated prior to the closing of the mergers, the Sutherland termination agreement will automatically terminate and be of no further effect.

For additional information on the Sutherland advisor termination agreement, see “Other Agreements — Sutherland Termination Agreement” beginning on page 223.

Management Agreement (See page 223)

Concurrently with the execution of the merger agreement, ZAIS Financial, ZAIS operating partnership, merger sub and certain subsidiaries of ZAIS Financial and Sutherland entered into a management agreement with Waterfall, which was subsequently amended on May 9, 2016, which we refer to as the management agreement, pursuant to which, effective upon the consummation of the mergers, Waterfall will provide for the day-to-day management of the combined company’s operations. The combined company will pay Waterfall a base management fee in an amount calculated and payable quarterly in arrears equal to (i) 1.50% per annum of the combined company’s stockholders’ equity, as defined in the management agreement, up to $500 million; and (ii) 1.00% per annum of the combined company’s stockholders’ equity in excess of $500 million. Waterfall, as holder of the Class A special unit in the combined company’s operating partnership, will also be entitled to receive an incentive distribution as provided in the management agreement. The combined company will pay all operating expenses, except those specifically required to be borne by Waterfall under the management agreement. In the event that the merger agreement is terminated prior to the closing of the mergers, the management agreement will automatically terminate and be of no further effect.

For additional information on the management agreement, see “Other Agreements — Management Agreement and Side Letter” beginning on page 223.

Side Letter (See page 223)

Concurrently with the execution of the merger agreement, ZAIS Financial and Waterfall entered into a side letter agreement, which we refer to as the side letter agreement, to be effective upon closing of the mergers, to address certain potential conflicts arising from the combined company’s relationship with Waterfall or its affiliates. The side letter will terminate at such time as either the management agreement is terminated for any reason or Waterfall ceases to be the manager of the combined company for any reason.

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For additional information on the side letter agreement, see “Other Agreements — Management Agreement and Side Letter” beginning on page 223.

Surviving Partnership Agreement (See page 234)

Under the merger agreement, at the closing of the mergers, the ZAIS operating partnership agreement will be amended and restated in the form attached as Exhibit F to the merger agreement as the limited partnership agreement of the surviving partnership, which we refer to as the surviving partnership agreement. The combined company will conduct substantially all of its business through its operating partnership. The combined company will be the general partner of its operating partnership.

The combined company’s operating partnership will be structured to make distributions with respect to operating partnership units that will be equivalent to the distributions made to its common stockholders, and to permit limited partners in the operating partnership to exchange their operating partnership units for shares of its common stock on a one-for-one basis (in a taxable transaction) and, if its shares are then listed, achieve liquidity for their investment.

For additional information on the surviving partnership agreement, see “Other Agreements — Surviving Partnership Agreement” beginning on page 234.

Recommendation of the ZAIS Financial board (See page 124)

After careful consideration, the ZAIS Financial board has unanimously (i) determined that the merger agreement, the mergers and the other transactions contemplated thereby are advisable, fair to, and in the best interests of ZAIS Financial and its stockholders, (ii) approved the merger agreement and (iii) subject to approval by the ZAIS Financial stockholders, authorized the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement. Certain factors considered by the ZAIS Financial board in reaching its decision to approve the merger agreement and make this recommendation can be found in the section of this joint proxy/statement/prospectus entitled “The Mergers — Recommendation of the ZAIS Financial Board and Its Reasons for the Merger” beginning on page 124.

The ZAIS Financial board unanimously recommends that ZAIS Financial stockholders vote FOR the proposal to approve the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement and FOR the ZAIS Financial adjournment proposal.

Recommendation of the Sutherland board (See page 129)

After careful consideration, the Sutherland board has unanimously (i) determined that the terms of the mergers and the merger agreement and the transactions contemplated thereby are advisable, fair to and in the best interests of Sutherland and its stockholders, (ii) approved and declared advisable the mergers, and (iii) approved and adopted the merger agreement. The Sutherland board unanimously recommends that Sutherland stockholders vote FOR the proposal to approve the Sutherland merger and the other transactions contemplated by the merger agreement and FOR the Sutherland adjournment proposal.

Risk Factors Related to the Mergers (See page 32)

You should consider carefully all of the risk factors, together with all of the other information included in this joint proxy statement/prospectus, before deciding how to vote. The risks related to the mergers and the related transactions are described under the section “Risk Factors — Risks Related to the Mergers” beginning on page 32.

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The ZAIS Financial Special Meeting (See page 101)

The ZAIS Financial special meeting will be held at the Oyster Point Hotel, 146 Bodman Place, Red Bank, NJ 07701, on Tuesday, September 27, 2016, at 10:00 a.m., Eastern Time. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in “The Merger Agreement — Merger Consideration; Effects of the Merger”, the ZAIS Financial special meeting will be postponed or adjourned to at least five business days following the exchange ratio announcement.

At the ZAIS Financial special meeting, ZAIS Financial stockholders will be asked to consider and vote upon the following matters:

• a proposal to approve the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement; and

• a proposal to approve one or more adjournments of the special meeting, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the share issuance proposal.

Approval of the issuance of shares of ZAIS Financial common stock pursuant to the merger agreement requires the affirmative vote of a majority of the votes cast on the matter by holders of outstanding shares of ZAIS Financial common stock.

Approval of one or more adjournments of the ZAIS Financial special meeting requires the affirmative vote of a majority of the votes cast on the matter at a meeting at which a quorum is present. If a quorum is not established, the chairman of the ZAIS Financial special meeting has the power to adjourn the ZAIS Financial special meeting to a date not more than 120 days after the original record date without notice other than announcement at the meeting.

ZAIS Financial stockholders of record at the close of business on July 18, 2016, are entitled to receive this notice and vote at the ZAIS Financial special meeting and any adjournments or postponements thereof.

At the close of business on the record date, directors and executive officers of ZAIS Financial and their affiliates were entitled to vote 221,208 shares of ZAIS Financial common stock, or approximately 2.50% of the ZAIS Financial common stock issued and outstanding on that date. ZAIS Financial currently expects that the ZAIS Financial directors and executive officers will vote their shares of ZAIS Financial common stock in favor of the share issuance proposal and the ZAIS Financial adjournment proposal to be considered at the ZAIS Financial special meeting, although none of them is obligated to do so.

Your vote as a ZAIS Financial stockholder is important. Accordingly, please promptly submit your proxy whether or not you plan to attend the ZAIS Financial special meeting in person.

The Sutherland Special Meeting (See page 107)

The Sutherland special meeting will be held at the offices of Clifford Chance US LLP, 31 West 52^nd Street, New York, NY 10019, on September 27, 2016, at 10:00 a.m., Eastern Time. In the event that September 27, 2016 is less than five business days following the exchange ratio announcement described in “The Merger Agreement — Merger Consideration; Effects of the Mergers”, the Sutherland special meeting will be postponed to at least five business days following the exchange ratio announcement.

At the Sutherland special meeting, Sutherland stockholders will be asked to consider and vote upon the following matters:

• a proposal to approve the Sutherland merger and the other transactions contemplated by the merger agreement, which we refer to as the merger proposal; and

• a proposal to approve the adjournment of the Sutherland special meeting to a later date or dates, if necessary or appropriate, as determined in the sole discretion of the chairman of the Sutherland special meeting, to solicit additional proxies if there are not sufficient votes to approve the merger proposal, which we refer to as the Sutherland adjournment proposal.

Approval of the merger proposal requires the affirmative vote of a majority of outstanding shares of Sutherland common stock entitled to vote at the Sutherland special meeting on such proposal.

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Approval of the Sutherland adjournment proposal requires the affirmative vote of a majority of the votes cast on the matter at a meeting at which a quorum is present. If a quorum is not established, the chairman of the Sutherland special meeting has the power to adjourn the Sutherland special meeting to a date not more than 120 days after the original record date without notice other than announcement at the meeting.

Sutherland stockholders of record at the close of business on July 18, 2016, are entitled to receive this notice and vote at the Sutherland special meeting and any adjournments or postponements thereof.

At the close of business on the record date, directors and executive officers of Sutherland and their affiliates were entitled to vote 631,493 shares of Sutherland common stock, or approximately 1.9% of the Sutherland common stock issued and outstanding on that date. Sutherland currently expects that the Sutherland directors and executive officers will vote their shares of Sutherland common stock in favor of the merger proposal and the Sutherland adjournment proposal to be considered at the Sutherland special meeting, although none of them is obligated to do so.

Your vote as a Sutherland stockholder is important. Accordingly, please promptly submit your proxy whether or not you plan to attend the Sutherland special meeting in person.

Directors and Executive Officers of the Combined Company After the Mergers (See page 153)

The combined company will have six directors consisting of Thomas E. Capasse, Jack J. Ross, Frank P. Filipps, Todd M. Sinai, J. Mitchell Reese (each of which is a Sutherland designee) and David L. Holman (the ZAIS Financial designee). Thomas E. Capasse will act as chairman of the board of the combined company. Officers of the combined company will consist of Thomas E. Capasse, as Chief Executive Officer, Jack J. Ross, as President, Thomas Buttacavoli, as Chief Investment Officer, and Frederick C. Herbst, as Chief Financial Officer.

Interests of ZAIS Financial’s Directors and Executive Officers in the Mergers (See page 159)

In considering the recommendation of the ZAIS Financial board to approve the proposal to issue shares of ZAIS Financial common stock in the Sutherland merger, ZAIS Financial stockholders should be aware that some of the executive officers and directors of ZAIS Financial have financial interests in the mergers that are different from, or in addition to, the interests of ZAIS Financial stockholders generally. The ZAIS Financial board was aware of these interests and considered them, among other matters, in making its recommendation. For additional information, see “The Mergers — Interests of ZAIS Financial Directors and Executive Officers in the Mergers” beginning on page 159.

Interests of Sutherland’s Directors and Executive Officers in the Mergers (See page 160)

In considering the recommendation of the Sutherland board to approve the Sutherland merger and the other transactions contemplated by the merger agreement, Sutherland stockholders should be aware that some of the directors and executive officers of Sutherland have financial interests in the mergers that are different from, or in addition to, the interests of Sutherland stockholders generally. The Sutherland board was aware of these interests and considered them, among other matters, in making its recommendation. For additional information, see “The Mergers — Interests of Sutherland Directors and Executive Officers in the Mergers” beginning on page 160.

No Dissenters’ or Appraisal Rights in the Mergers (See page 161)

Neither holders of ZAIS Financial common stock nor holders of Sutherland stock are entitled to dissenters’ or appraisal rights in connection with the mergers or the other transactions contemplated by the merger agreement.

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Conditions to Completion of the Mergers (See page 216)

As more fully described in this joint proxy statement/prospectus and the merger agreement, the obligation of each of ZAIS Financial and Sutherland to complete the mergers and the other transactions contemplated by the merger agreement is subject to the satisfaction or, to the extent permitted by law, waiver by each of the parties, at or prior to the effective time of the Sutherland merger, of a number of closing conditions. These conditions include, among others:

• all consents, authorizations, orders or approvals of certain governmental authorities and agencies necessary for the consummation of the mergers and the other transactions contemplated by the merger agreement shall have been obtained and any applicable waiting periods in respect thereof shall have expired or been terminated;

• approval by the ZAIS Financial stockholders of the issuance of the shares of ZAIS Financial common stock in connection with the Sutherland merger;

• approval by the Sutherland stockholders of the Sutherland merger, the merger agreement and the other transactions contemplated by the merger agreement;

• the absence of any judgment, injunction, order or decree issued by any governmental authority of competent jurisdiction prohibiting the consummation of the mergers, and the absence of any law that has been enacted, entered, promulgated or enforced by any governmental authority after the date of the merger agreement that prohibits, restrains, enjoins or makes illegal the consummation of the merger or the other transactions contemplated by the merger agreement;

• the registration statement of which this joint proxy statement/prospectus is a party having been declared effective by the SEC, no stop order suspending the effectiveness of such registration statement having been issued by the SEC and no proceeding for that purpose shall have been initiated by the SEC and not withdrawn;

• the shares of ZAIS Financial common stock to be issued in connection with the Sutherland merger and the shares of ZAIS Financial common stock that may be issued to holders of ZAIS operating partnership units to be issued in connection with the partnership merger upon exchange thereof having been approved for listing on the NYSE, subject to official notice of issuance; and

• the commencement of the ZAIS Financial tender offer and either the acceptance for payment of any shares tendered or the withdrawal of the tender offer shall have occurred.

Neither ZAIS Financial nor Sutherland can give any assurance as to when or if all of the conditions to the consummation of the mergers will be satisfied or waived or that the mergers will occur.

Regulatory Approvals Required for the Mergers (See page 160)

As a condition to closing of the mergers, ZAIS Financial will seek regulatory approvals from certain Agencies and state regulators. As a condition to closing of the mergers, Sutherland will seek regulatory approvals from certain states that have licensed Sutherland’s ReadyCap Commercial, LLC and ReadyCap Lending, LLC subsidiaries. Neither ZAIS Financial nor Sutherland is aware of any regulatory approvals that are expected to prevent the closing of the mergers.

No Solicitation of Alternative Transactions (See page 210)

Prior to the closing of the merger, each of ZAIS Financial and Sutherland shall not, nor shall it permit any of its subsidiaries to, and shall instruct its, and its subsidiaries’, directors, officers, employees, advisors, agents or other representatives not to, directly or indirectly:

• solicit, initiate or knowingly encourage or facilitate any inquiry, proposal or offer with respect to, or the announcement, making or completion of, any Acquisition Proposal (as defined below), or any inquiry, proposal or offer that is reasonably likely to lead to any Acquisition Proposal;

• enter into, continue or otherwise participate in any negotiations regarding, or furnish to any person (other than Sutherland, ZAIS Financial or their respective representatives) any non-public information or data in furtherance of, any Acquisition Proposal;

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• enter into any definitive acquisition agreement, merger agreement, share exchange agreement, consolidation agreement, option agreement, joint venture agreement or partnership agreement (including any letter of intent or agreement in principle) relating to any Acquisition Proposal (other than certain confidentiality agreements);

• grant any waiver, amendment or release under any standstill or confidentiality agreement or any takeover statute (unless the ZAIS Financial board or the Sutherland board determines after consultation with legal counsel, that not doing so would be inconsistent with its duties under applicable law, in which case ZAIS Financial or Sutherland, respectively, may waive any provision of any standstill or confidentiality agreement that prohibits a confidential proposal being made to such board (directly or indirectly through its representatives) so long as (1) such waiver, amendment or release is limited only to permitting such a confidential proposal and (2) such party promptly notifies the other party of the granting such waiver, amendment or release prior thereto); or

• agree, approve, recommend or propose to do any of the foregoing.

Additionally, each of ZAIS Financial and Sutherland shall, and shall cause each of its subsidiaries and shall use its commercially reasonable efforts to cause its, or any of its subsidiaries’, directors, officers, employees, advisors, agents and other representatives to (i) immediately cease and cause to be terminated all existing negotiations with any person and its representatives (other than Sutherland or any of its representatives) with respect to any Acquisition Proposal, (ii) enforce any confidentiality or standstill provisions or provisions of similar effect to which ZAIS Financial or Sutherland, as applicable, or any of their subsidiaries is a party or of which ZAIS Financial or Sutherland, as applicable, or any of their subsidiaries is a beneficiary and (iii) request the prompt return or destruction, to the extent required by any confidentiality agreement, of all confidential information previously furnished to any person and its representatives and immediately terminate all physical and electronic data room access previously granted to any such person, its subsidiaries or any of their respective representatives.

Notwithstanding the restrictions set forth above, the merger agreement provides that, at any time prior to obtaining the applicable approval of their stockholders at their respective stockholder meetings, each of Sutherland and ZAIS Financial may, in response to a written Acquisition Proposal (that did not result from a breach of the no solicitation provisions described above), (i) furnish non-public information with respect to it and its subsidiaries to the person making such Acquisition Proposal (and its representatives), pursuant to a confidentiality agreement containing provisions that are no less favorable in the aggregate than those contained in the confidentiality agreement between ZAIS Financial and Waterfall and so long as all such information is provided to the Sutherland or ZAIS Financial, as applicable, prior to or concurrently with the time that such information is provided to such third party if it has not been provided previously, and (ii) participate in negotiations with the person making the Acquisition Proposal (and such person’s representatives) regarding such Acquisition Proposal, in each case, so long as the Sutherland board or the ZAIS Financial board, as applicable, has determined in good faith (after consultation with outside counsel and its financial advisor) that the Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal (as defined below) and the failure to take such actions would be inconsistent with the applicable board’s duties under applicable law. ZAIS Financial and Sutherland, or their respective representatives, may also contact any person submitting an Acquisition Proposal (that did not result from a breach of the merger agreement) to clarify and understand the terms of an Acquisition Proposal in order to determine whether such Acquisition Proposal constitutes or is reasonably likely to lead to a Superior Proposal.

Each of Sutherland and ZAIS Financial must notify the other party promptly (and in any event within one business day) after receipt of any Acquisition Proposal or inquiry, proposal or offer to enter into or seeking to have discussions or negotiations relating to a possible Acquisition Proposal or the initial request for non-public information relating to such party or any of its subsidiaries. Such notice to the other party must indicate the identity of the person making such request and include the material terms and conditions of such Acquisition Proposal, inquiry, proposal or offer (including a complete copy of the Acquisition Proposal if in writing and any related documents or correspondence). Following the date merger agreement, each party must keep the other party reasonably informed orally and in writing on a current basis (and in any event, within one business day) of any material developments, discussions or negotiations regarding any Acquisition

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Proposal (whether made before or after the date of the merger agreement) including providing a copy of all material documentation (including drafts) or material correspondence with respect thereto and, upon the request of the other party, must apprise the other party of the status and details of such Acquisition Proposal. Each party has agreed that it and its subsidiaries will not enter into any agreement with any person subsequent to the date of the merger agreement which prohibits such party from providing any information to other party in accordance with, or from otherwise complying with the terms of, these provisions contained in the merger agreement.

For more information regarding what constitutes an “Acquisition Proposal” and what constitutes a “Superior Proposal,” see “The Merger Agreement — Covenants and Agreements —  No Solicitation of Alternative Transactions” beginning on page 210.

Termination of the Merger Agreement (See page 219)

The merger agreement may be terminated at any time before the effective time of the Sutherland merger by the mutual written consent of ZAIS Financial and Sutherland.

The merger agreement may also be terminated prior to the effective time of the Sutherland merger by either ZAIS Financial or Sutherland if:

• the Sutherland merger has not occurred on or before 11:59 p.m. New York time on December 31, 2016 (provided that this termination right will not be available to a party whose failure to perform or comply in all material respects with the obligations, covenants or agreements of such party set forth in the merger agreement has been the cause of, or resulted in, the failure of the Sutherland merger to be consummated by such date);

• any governmental authority of competent jurisdiction has issued a judgment, injunction, order or decree permanently restraining or otherwise prohibiting the transactions contemplated by the merger agreement, and such judgment, injunction, order or decree has become final and non-appealable (provided that this termination right will not be available to a party if the issuance of such judgment, injunction, order or decree was primarily due to the failure of such party to perform any of its obligations, covenants or agreements under the merger agreement); or

• stockholders of ZAIS Financial have failed to approve the issuance of shares of ZAIS Financial common stock in connection with the Sutherland merger, or stockholders of Sutherland have failed to approve the Sutherland merger and the other transactions contemplated by the merger agreement, as applicable (provided that this termination right will not be available to a party if the failure to obtain that party’s stockholder approval was primarily due to the failure of such party to perform any of its obligations, covenants or agreements under the merger agreement).

The merger agreement may also be terminated prior to the effective time of the Sutherland merger by ZAIS Financial under the following circumstances:

• Sutherland or any of its related parties has breached or failed to perform any of its representations, warranties, obligations, covenants or agreements set forth in the merger agreement, which breach or failure to perform, either individually or in the aggregate, if continuing at the effective time for the Sutherland merger, would result in the failure of certain closing conditions to be satisfied and cannot be cured or waived by December 31, 2016 (provided that this termination right will not be available if ZAIS Financial is in breach of any of its own representations, warranties, obligations, covenants or agreements set forth in the merger agreement such that certain closing conditions are not satisfied); or

• at any time prior to the approval of the Sutherland merger by the Sutherland stockholders, if Sutherland or the Sutherland board (i) has made an Adverse Recommendation Change (as defined below) and ZAIS Financial terminates the merger agreement within 30 days of the date of the Adverse Recommendation Change, (ii) fails to recommend to Sutherland’s stockholders the approval

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of the Sutherland merger and the other transactions contemplated by the merger agreement in its proxy statement or (iii) approves, adopts, publicly endorses or recommends, or enters into or allows Sutherland or any of its subsidiaries to enter into a definitive agreement for, any Acquisition Proposal.

Sutherland has reciprocal termination rights with respect to the merger agreement with respect to ZAIS Financial as those described above.

For more information regarding what constitutes an “Adverse Recommendation Change,” see “The Merger Agreement — Covenants and Agreements — Changes in Recommendation.”

Termination Fees and Expenses (See page 219)

Generally, all fees and expenses incurred in connection with the mergers and the other transactions contemplated by the merger agreement will be paid by the party incurring those fees and expenses, except that ZAIS Financial and Sutherland will share equally all expenses related to the filing of the registration statement of which this joint proxy statement/prospectus is a part. See “The Merger Agreement — Miscellaneous Provisions — Payment of Expenses” beginning on page 222. However, in certain circumstances, ZAIS Financial may be obligated to pay to Sutherland, or Sutherland may be obligated to pay to ZAIS Financial, a termination fee of $4 million. For further discussion of the termination fees, see “The Merger Agreement — Termination of the Merger Agreement and Termination Fees — Termination Fee Payable by Sutherland to ZAIS Financial” beginning on page 221 and “The Merger Agreement — Termination of the Merger Agreement and Termination Fees — Termination Fee Payable by ZAIS Financial to Sutherland” beginning on page 220.

Listing of Shares of ZAIS Financial Common Stock (See page 162)

It is a condition to the completion of the mergers that the shares of ZAIS Financial common stock to be issued in connection with the Sutherland merger and the shares of ZAIS Financial common stock that may be issued to holders of units of ZAIS operating partnership to be issued in connection with the partnership merger upon exchange thereof, in each case, be approved for listing on the NYSE, subject to official notice of issuance.

Material U.S. Federal Income Tax Consequences of the Mergers (See page 163)

The Sutherland merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Code. Provided that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the holders of Sutherland common stock generally will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Sutherland common stock for shares of the combined company common stock in the merger, except with respect to any cash received in lieu of fractional shares of the combined company common stock. A holder of Sutherland common stock generally will recognize gain or loss with respect to cash received in lieu of a fractional share of the combined company common stock in the merger measured by the difference, if any, between the amount of cash received for such fractional share and the holder’s tax basis in such fractional share. The holders of ZAIS Financial common stock generally will not recognize any gain or loss for U.S. federal income tax purposes. It is a condition to the completion of the Sutherland merger that ZAIS Financial and Sutherland each receive an opinion from its respective counsel to the effect that the Sutherland merger will constitute a reorganization within the meaning of Section 368(a) of the Code.

The partnership merger will be treated for U.S. federal income tax purposes as a contribution of assets by the ZAIS operating partnership to the Sutherland operating partnership in return for Sutherland operating partnership units, followed by a liquidation of the ZAIS operating partnership and a distribution of the Sutherland operating partnership units held by the ZAIS operating partnership to the holders of the ZAIS operating partnership units. Section 721(a) of the Code provides that a transferor will not recognize gain or loss upon the contribution of property to a partnership in exchange for an interest in such partnership. Whether the contribution of assets under the partnership merger qualifies as a tax-deferred exchange under Section 721(a) of the Code depends on the application of rules under Section 721(b) of the Code, under which gain (but not loss) is recognized on property transfers to a partnership classified as an “investment company”

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which result in “diversification” of the transferors’ interests. This exception is designed to prevent tax-deferred diversification of a concentrated investment portfolio of securities. For purposes of the Section 721(b) rules, the surviving partnership would likely be considered an investment company. However, Treasury Regulations applicable to Section 721(b) provide that a contribution to an investment company will not be treated as resulting in diversification if each transferor transfers a diversified portfolio of stocks and securities to the partnership. The Treasury Regulations further provide that a portfolio of stocks and securities will generally be treated as diversified for this purpose if no more than 25% of the value of the portfolio consists of stocks and securities of a single issuer and no more than 50% of the value of the portfolio consists of stocks and securities of five or fewer issuers. While it is not yet clear, it is expected that the ZAIS operating partnership will not be treated as transferring assets that qualify as a diversified portfolio of stocks and securities for this purpose. Accordingly, the parties expect the partnership merger to be treated as a transaction in which gain (but not loss) is recognized by the ZAIS operating partnership, with such gain being allocated to the holders of ZAIS operating partnership units, including ZAIS Financial.

For further discussion of the material U.S. federal income tax consequences of the mergers and the ownership of common stock of the ZAIS Financial, see “Material U.S. Federal Income Tax Considerations —  Material U.S. Federal Income Tax Consequences of the Mergers” beginning on page 164.

Accounting Treatment of the Mergers (See page 160)

Because both Sutherland and ZAIS Financial have significant pre-combination activities, the mergers will be accounted for as a business combination by the combined company in accordance with Accounting Standards Codification Topic 805, “Business Combinations,” which we refer to as ASC 805. In applying the acquisition method specified by ASC 805, it is necessary to identify the accounting acquirer, which may be different from the legal acquirer. Factors considered in identifying an accounting acquirer include, but are not limited to, the relative size of the merging companies, the relative voting interests of the respective stockholders after consummation of a merger, and the composition of senior management and the board after consummation of a merger. Based upon consideration of those factors, Sutherland has been designated as the accounting acquirer, resulting in a reverse acquisition of ZAIS Financial. The assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of ZAIS Financial will be recorded at their respective fair values at the date of mergers. While consideration transferred in a business combination is typically measured by reference to the fair value of equity issued or other assets transferred by the accounting acquirer, Sutherland is not issuing any consideration in the mergers. Accordingly, the fair value of the consideration transferred will be measured based on the number of shares of common stock Sutherland would have to issue to give the stockholders of ZAIS Financial the same percentage interest in the combined company that results from the reverse acquisition. Because Sutherland’s common stock is not publicly traded, the fair value of consideration transferred may differ from the amount that would otherwise be determined solely by reference to the trading price of ZAIS Financial common stock. If the fair value of the consideration transferred exceeds the fair value of the net assets and liabilities acquired, the excess will be recorded as goodwill. Alternatively, if the fair value of the net assets and liabilities acquired exceeds the fair value of consideration transferred, the transaction could result in a bargain purchase gain. Consolidated financial statements of the combined company issued after the mergers will reflect these fair value adjustments and the combined results of operations subsequent to the effective date of the mergers. Because Sutherland is designated as the accounting acquirer, its historical financial statements will become the historical financial statements of the combined company upon consummation of the mergers. See “The Mergers — Accounting Treatment” on page 160.

Opinion of Financial Advisor to ZAIS Financial (See page 130)

On April 6, 2016, Houlihan Lokey Capital, Inc., which we refer to as Houlihan Lokey, orally rendered its opinion to the ZAIS Financial board (which was confirmed by delivery of Houlihan Lokey’s written opinion, dated April 6, 2016, to the ZAIS Financial board) as to the fairness, from a financial point of view and as of such date, to ZAIS Financial of the exchange ratio in the mergers, which opinion was based on and subject to the procedures followed, assumptions made and limitations and qualifications on the review undertaken and other matters considered by Houlihan Lokey in connection with its opinion. For purposes of rendering its opinion, Houlihan Lokey calculated the exchange ratio based upon the book values of various assets of Sutherland and ZAIS Financial as of December 31, 2015 and Houlihan Lokey’s opinion does not reflect any changes to the exchange ratio which may result from changes in such book values after such date.

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Houlihan Lokey’s opinion was directed to the ZAIS Financial board (in its capacity as such), addressed only the fairness, from a financial point of view and as of April 6, 2016, to ZAIS Financial of the exchange ratio in the mergers and did not address any other portion, aspect or implication of the mergers, the related transactions or otherwise or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of Houlihan Lokey’s written opinion, which is attached as Annex B to this joint proxy statement/prospectus and describes the procedures followed, assumptions made and limitations and qualifications on the review undertaken and other matters considered by Houlihan Lokey in connection with its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this joint proxy statement/prospectus are intended to be, and do not constitute, advice or a recommendation to the ZAIS Financial board, any security holder or any other party as to how to act or vote with respect to any matter relating to the mergers, any related transactions or otherwise (including whether or not to tender into the tender offer). See “The Mergers — Opinion of Financial Advisor to ZAIS Financial.”

Houlihan Lokey’s opinion was rendered in connection with the execution of the original merger agreement on April 6, 2016 and did not take into account any amendments to the merger agreement following the date of the original merger agreement.

Opinion of Financial Advisor to Sutherland (See page 143)

In connection with the Sutherland merger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as BofA Merrill Lynch, Sutherland’s financial advisor, delivered to the Sutherland board a written opinion, dated April 5, 2016, as to the fairness, from a financial point of view and as of the date of the opinion, of the exchange ratio to the holders of Sutherland common stock (other than ZAIS Financial and its affiliates). The full text of the written opinion, dated April 5, 2016, of BofA Merrill Lynch, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations on the review undertaken, is attached as Annex C to this joint proxy statement/prospectus and is incorporated by reference herein in its entirety. BofA Merrill Lynch provided its opinion to the Sutherland board in its capacity as such) for the benefit and use of the Sutherland board in connection with and for purposes of its evaluation of the exchange ratio from a financial point of view. BofA Merrill Lynch’s opinion does not address any other aspect of the mergers and no opinion or view was expressed as to the relative merits of the mergers in comparison to other strategies or transactions that might be available to Sutherland or in which Sutherland might engage or as to the underlying business decision of Sutherland to proceed with or effect the mergers. BofA Merrill Lynch’s opinion does not address any other aspect of the mergers and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed mergers or any related matter. See “The Mergers — Opinion of Financial Advisor to Sutherland.”

BofA Merrill Lynch’s opinion was rendered in connection with the execution of the original merger agreement on April 6, 2016 and did not take into account any amendments to the merger agreement following the date of the original merger agreement.

Distribution Arrangements (See page 339)

This joint proxy statement/prospectus also relates to the resale of the shares of the combined company common stock received by the former holders of shares of Sutherland common stock and any of their pledgees, donees, transferees, assignees and successors-in-interest, which we refer to as the selling stockholders, by using a “shelf” registration process. Using this shelf registration process, the selling stockholders may offer, at any time and from time to time, in one or more offerings, the combined company common stock that this joint proxy statement/prospectus describes. Following the mergers, the selling stockholders may, from time to time, resell any or all of their shares of common stock on the NYSE or other market or trading platform on which our shares are traded or quoted or in private transactions. These sales may be at fixed or negotiated prices. We will not be involved in any of the selling efforts of the selling stockholders. We will not receive any of the proceeds from the sale of the shares of the selling stockholders. The joint proxy statement/prospectus may also be supplemented from time to time to add to, update or change the information contained herein. See “Distribution Arrangements” on page 339.

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Summary Selected Historical Financial Information of ZAIS Financial (See page 239)

The following table sets forth selected consolidated financial information for ZAIS Financial. The selected consolidated financial data for each of the years in the five-year period ended December 31, 2015 and the selected consolidated balance sheet data as of December 31 for each of the years in the five-year period ended December 31, 2015 have been derived from ZAIS Financial’s audited consolidated financial statements. The unaudited selected consolidated financial data for the six months ended June 30, 2016 and 2015 and unaudited selected consolidated balance sheet data as of June 30, 2016 and 2015 have been derived from ZAIS Financial’s unaudited condensed consolidated financial statements and related notes. The following information should be read together with ZAIS Financial’s historical consolidated financial statements and notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in ZAIS Financial’s Annual Report on Form 10-K for the year ended December 31, 2015 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, all of which are contained in the reports of ZAIS Financial filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information and Incorporation by Reference” beginning on page 342.

	Six Months Ended June 30, 2016			Six Months Ended June 30, 2015			Year Ended December 31, 2015			Year Ended December 31, 2014(1)			Year Ended December 31, 2013			Year Ended December 31, 2012			For the period July 29, 2011 (date of the Company’s inception) to December 31, 2011
	(dollars in thousands, except share and per share data)
Operating Data:
Total interest income	$	13,892		$	19,249		$	37,803		$	41,593		$	26,418		$	9,398		$	3,618
Total interest expense		8,911			9,473			18,850			17,260			7,095			1,387			296
Net interest income		4,981			9,776			18,953			24,333			19,323			8,011			3,322
Mortgage banking activities, net		27,232			23,255			45,857			5,439			—			—			—
Loan servicing fee income, net of direct costs		4,109			3,305			7,092			930			—			—			—
Change in fair value of mortgage servicing rights		(14,249	)		223			(4,128	)		(1,684	)		—			—			—
Other (losses)/gains		2,333			(799	)		(13,978	)		18,931			(2,166	)		16,436			(7,678	)
Total expenses		30,486			25,902			50,855			18,994			9,604			4,181	(2)		779
Net (loss)/income attributable to ZAIS Financial Corp. common stockholders		(4,077	)		6,428			(1,261	)		26,742			6,658			19,434			(5,134	)
Net (loss)/income per share applicable to common stockholders:
Basic	$	(0.51	)	$	0.81		$	(0.16	)	$	3.35		$	0.92		$	7.13		$	(1.70	)
Diluted	$	(0.51	)	$	0.79		$	(0.16	)	$	3.08		$	0.92		$	7.13		$	(1.70	)
Weighted average number of shares of common stock outstanding:
Basic		7,970,886			7,970,886			7,970,886			7,970,886			7,273,366			2,724,252			3,022,617
Diluted		8,897,800			10,677,360			8,897,800			10,677,360			8,200,280			2,773,845			3,022,617
Dividends declared per share of common stock	$	0.80		$	0.80		$	1.60		$	1.60		$	2.12		$	4.11		$	—
Balance Sheet Data:
Total assets	$	565,353			782,645		$	775,139		$	792,399		$	620,081		$	201,648		$	154,105
Total liabilities		399,190			589,203			597,361			599,015			442,312			136,507	(3)		98,787
Total ZAIS Financial Corp. stockholders’ equity		148,771			173,289			159,224			173,238			159,250			45,042			55,318
Total non-controlling interests		17,392			20,153			18,554			20,145			18,519			20,099			—
Stockholders’ equity per share of common stock and OP Units		18.66			21.74			19.98			21.73			19.98			21.68	(4)		18.30

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(1) On October 31, 2014 ZAIS Financial completed the acquisition of GMFS. ZAIS Financial has recognized the revenues and earnings related to its investment in GMFS for the period from the acquisition date to December 31, 2014 in its consolidated statements of operations.

(2) Includes interest on common stock repurchase liability of $1.8 million.

(3) Includes $11.2 million in common stock repurchase liability which, as of December 31, 2012, ZAIS Financial had expected to pay in January 2013 for the repurchase of 515,035 shares of its common stock from one of ZAIS Financial’s institutional stockholders. In January 2013, ZAIS Financial agreed with this institutional stockholder to repurchase only 265,245 of its shares (rather than 515,035 shares).

(4) The shares of common stock outstanding for purposes of this stockholders’ equity per share calculation do not include 515,035 shares of common stock that ZAIS Financial agreed to repurchase from one of its institutional stockholders in January 2013 at a price per share equal to the book value per share as of December 31, 2012. In January 2013, ZAIS Financial agreed with this institutional stockholder to repurchase only 265,245 of its shares (rather than 515,035 shares).

Summary Selected Historical Financial Information of Sutherland (See page 241)

The following table sets forth selected consolidated financial information for Sutherland. The table sets forth selected consolidated statements of income data for the six months ended June 30, 2016 and June 30, 2015, the year ended December 31, 2015, the year ended December 31, 2014, the three months ended December 31, 2014, the nine months ended September 30, 2014, the three months ended December 31, 2013, the nine months ended September 30, 2013 and the year ended December 31, 2012. Additionally, the table sets forth the selected consolidated balance sheet data as of December 31, 2015, 2014, 2013 and 2012, which have been derived from Sutherland’s audited consolidated financial statements. Additionally, the table sets forth the selected consolidated balance sheet as of June 30, 2016, which is unaudited and has been derived from Sutherland’s unaudited consolidated financial statements contained in this joint proxy statement/prospectus. Interim results for the six months ended June 30, 2016 are not necessarily indicative of, and are not projections for, the results to be expected for the fiscal year ending December 31, 2016 or of the combined company following the mergers. The following information should be read together with Sutherland’s historical consolidated financial statements and notes thereto and the section titled “Sutherland Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 243.

The following historical financial information should be read in conjunction with “Sutherland Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and related notes thereto and Sutherland’s audited consolidated financial statements included elsewhere in this joint proxy statement/prospectus. Sutherland’s historical consolidated balance sheets and consolidated income statement information have been derived from the historical audited consolidated financial statements and related notes appearing elsewhere in this joint proxy statement/prospectus.

Sutherland prepared the consolidated financial statements utilizing the specialized accounting principles of Accounting Standards Codification Topic 946, Financial Services — Investment Companies (ASC Topic 946) from its inception through September 30, 2013. In accordance with this specialized accounting guidance, Sutherland carried its investments at fair value, did not consolidate loan securitizations on its consolidated financial statements and recorded investments in subsidiary entities as investments or using the equity method of accounting. Following the conversion from investment company to operating company accounting, Sutherland did not prepare its consolidated financial statements utilizing the specialized accounting guidance for investment companies, and, therefore, Sutherland no longer reflected the SBC loan assets that were held in its securitization trusts as MBS, but instead consolidated the SBC loans held in these trusts and the associated notes on its consolidated balance sheet and included both the interest income from such SBC loans and the associated interest expense on the notes in Sutherland’s consolidated statement of operations.

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	Operating Company Accounting(a)																					Investment Company Accounting(b)(c)
(in thousands, except share data)	For the Six Months Ended June 30, 2016			For the Six Months Ended June 30, 2015			For the Year Ended De- cember 31, 2015			For the Year Ended De- cember 31, 2014			For the Quarter Ended De- cember 31, 2014			For the Nine Months Ended Sep- tember 30, 2014			For the Quarter Ended De- cember 31, 2013			For the Nine Months Ended Sep- tember 30, 2013			For the Year Ended De- cember 31, 2012
Interest income
Loans, held-for- investment	$	63,109		$	57,087		$	120,664		$	76,078		$	27,888		$	48,190		$	4,797		$	—		$	—
Loans, held at fair value		6,022			7,394			16,210			12,040			2,135			9,905			1,353			6,941			8,664
Mortgage backed securities, at fair value		3,237			6,017			12,081			4,829			2,353			2,476			—			4,148			9,738
Total interest income		72,368			70,498			148,955			92,947			32,376			60,571			6,150			11,089			18,402
Interest expense
Borrowings under credit facilities		(4,030	)		(5,519	)		(8,194	)		(8,858	)		(1,931	)		(6,927	)		(464	)		—			—
Promissory note payable		(67	)		—
Securitized debt obligations		(9,071	)		(4,265	)		(11,018	)		(3,857	)		(1,837	)		(2,020	)		(1,719	)		—			—
Borrowings under repurchase agreements		(7,546	)		(8,017	)		(16,287	)		(4,254	)		(3,206	)		(1,048	)		—			—			—
Guaranteed loan financing		(7,363	)		(3,286	)		(12,307	)		(2,276	)		(1,814	)		(462	)		—			—			—
Total interest expense		(28,077	)		(21,087	)		(47,806	)		(19,245	)		(8,788	)		(10,457	)		(2,183	)		—			—
Net interest income before provision for loan losses		44,291			49,411			101,149			73,702			23,588			50,114			3,967			11,089			18,402
Provision for loan losses		(4,201	)		(11,747	)		(19,643	)		(11,797	)		(3,775	)		(8,022	)		(1,749	)		—			—
Net interest income after provision for loan losses		40,090			37,664			81,506			61,905			19,813			42,092			2,218			11,089			18,402
Other income (expense)
Servicing and other income		6,367			10,368			19,564			10,537			5,418			5,119			883			90			—
Employee compensation and benefits		(10,982	)		(10,295	)		(22,124	)		(15,155	)		(4,603	)		(10,552	)		(2,125	)		(381	)		(1,232	)
Professional fees		(5,453	)		(4,260	)		(6,954	)		(6,339	)		(1,388	)		(4,951	)		(827	)		(438	)		(738	)
Management and incentive fees –  related party		(3,671	)		(3,976	)		(8,225	)		(7,019	)		(1,712	)		(5,307	)		(672	)		(796	)		(7,605	)
Loan servicing and operating expenses		(9,742	)		(7,821	)		(16,449	)		(21,137	)		(7,368	)		(13,769	)		(2,330	)		(10,419	)		(11,612	)
Total other income (expense)		(23,481	)		(15,984	)		(34,188	)		(39,113	)		(9,653	)		(29,460	)		(5,071	)		(11,944	)		(21,187	)
Realized gain (loss)		1,266			(621	)		181			7,037			4,233			2,804			2,758			12,237			40,144
Unrealized gain (loss)		2,266			3,180			5,732			6,461			760			5,701			(819	)		(8,754	)		(5,926	)
Net income from continuing operations before provision for income taxes		20,141			24,239			53,231			36,290			15,153			21,137			(914	)		2,668			43,285
Provisions for income taxes		(2,029	)		(2,497	)		(7,810	)		(897	)		(463	)		(434	)		—			—			—
Net income from continuing operations		18,112			21,742			45,421			35,393			14,690			20,703			(914	)		2,668			43,285
Gain (loss) on discontinued operations		(351	)		721			(653	)		(2,671	)		(867	)		(1,804	)		(1,294	)		—			—
Net Income	$	17,761		$	22,463		$	44,768		$	32,722		$	13,823		$	18,899		$	(2,208	)	$	2,668		$	43,285
Less: Net income attributable to non-controlling interest		1,440			2,308			4,385			3,385			1,508			1,877			(376	)		40			—
Net income attributable to common shareholders	$	16,321		$	20,155		$	40,383		$	29,337		$	12,315		$	17,022		$	(1,832	)	$	2,628		$	43,285
Earnings per common share:
Continuing operations	$	0.54		$	0.66		$	1.36		$	1.09		$	0.42		$	0.58		$	(0.04	)		N/A			N/A
Discontinued operations		(0.01	)		0.02			(0.02	)		(0.09	)								(0.05	)
Basic weighted average common shares outstanding		30,960,370			29,552,878			30,262,419			29,434,178			29,434,178			29,434,178			20,353,796

(in thousands, except share data)	June 30, 2016		December 31, 2015		December 31, 2014		December 31, 2013		December 31, 2012
Total Assets	$	2,147,305	$	2,329,781	$	1,680,896	$	621,659	$	160,941
Total Liabilities		1,659,441		1,849,568		1,206,205		150,752		27,136
Total Sutherland Asset Management Corporation Stockholders’ Equity		448,204		441,321		425,560		420,980		136,630
Total Non-controlling interests		39,660		38,892		49,131		49,927		175
Stockholders’ Equity per Share of Common Stock and OP Unit		14.47		14.32		14.45		14.42		N/A

(a) Non-investment Company Accounting applying other U.S. GAAP. See Note 2 to Consolidated Financial Statements.

(b) Investment Company Accounting applying specialized industry-specific accounting guidance contained in ASC Topic 946.

(c) Prior to the REIT formation transaction of Sutherland, no shares had been issued.

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Summary Unaudited Pro Forma Condensed Combined Financial Information (See page 276)

The following summary unaudited pro forma condensed combined financial information is based on the historical financial statements of ZAIS Financial and Sutherland after giving effect to the mergers and the assumptions described in the section “Unaudited Pro Forma Condensed Combined Financial Information.” The Unaudited Pro Forma Condensed Combined Financial Information is presented for informational purposes only and are not necessarily indicative of the future financial position or results of operations of the combined company or the combined financial position or results of operations that would have been realized had the mergers been consummated during the period or as of the dates for which the Unaudited Pro Forma Condensed Combined Financial Information is presented.

Pro Forma Condensed Combined Balance Sheet

(in thousands)	Pro Forma Combined as of June 30, 2016
Total Assets	$	2,621,253
Total Liabilities	$	2,058,631
Total Common Stockholders’ Equity	$	523,399
Total Equity	$	562,622

Pro Forma Condensed Combined Income Statement

(in thousands, except share data)	Pro Forma Combined for the Six Months Ended June 30, 2016			Pro Forma Combined for the Year Ended December 31, 2015
Interest income	$	77,767		$	161,174
Interest expense		(33,319	)		(57,551	)
Provision for loan losses		(4,201	)		(19,643	)
Net interest income after provision for loan losses		40,247			83,980
Other expenses		(20,305	)		(27,760	)
Realized gain/(loss)		606			46
Unrealized gain/(loss)		(12,203	)		(3,817	)
Net income before provision for income taxes		8,345			52,449
Provision for income taxes		(481	)		(12,225	)
Net income from continuing operations		7,864			40,224
Less: Net income attributable to non-controlling interest		548			2,750
Net income from continuing operations attributable to common shareholders	$	7,316		$	37,474
Earnings per common share:
Continuing operations	$	0.23		$	1.26
Basic weighted average fully diluted shares outstanding		33,657,391			31,999,125

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Unaudited Comparative Pro Forma per Share Information (See page 275)

The following table summarizes per share information for Sutherland and ZAIS Financial on a historical basis and pro forma basis.

The pro forma per share information gives effect to the mergers as if the mergers had occurred on the dates presented, in the case of book value data, as if the mergers had occurred on June 30, 2016, and in the case of earnings per share data, as if the mergers had occurred on January 1, 2015. The pro forma per share information assumes that the mergers are accounted for using the acquisition method of accounting. As explained in more detail in the “NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION” beginning on page 284, the pro forma financial adjustments record the assets and liabilities acquired from ZAIS Financial at their estimated fair value at the acquisition date and are subject to adjustments as additional information becomes available.

The following historical and pro forma per share information is derived from and should be read in conjunction with the historical financial statements and related notes of Sutherland which are included on pages F-1 through F-175 and of ZAIS Financial which are available through the SEC’s website at https://www.sec.gov. The pro forma per share information presented below is presented for illustrative purposes only and is not necessarily indicative of the income per share and book value per share that would have occurred if the merger had been completed at the beginning of the periods presented, nor is it necessarily indicative of the future operating results or financial position of the combined company.

	Accounting Acquirer (Sutherland)		Accounting Acquiree (ZAIS Financial)			Pro Forma Combined
Earnings (loss) Per Common Share:
Basic: For the six months ended June 30, 2016	$	0.54	$	(0.51	)	$	0.23
Diluted: For the six months ended June 30, 2016		0.54		(0.51	)		0.23
Basic: For the year ended December 31, 2015		1.34		(0.16	)		1.26
Diluted: For the year ended December 31, 2015		1.34		(0.16	)		1.26
Book Value per Common Share:
June 30, 2016	$	14.47	$	18.66		$	16.72
Dividends per share of common stock
For the six months ended June 30, 2016	$	0.38	$	0.80		$	N/A
For the year ended December 31, 2015		1.49		1.60			N/A

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RISK FACTORS

In addition to the other information included in this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Concerning Forward-Looking Statements,” whether you are a ZAIS Financial stockholder or a Sutherland stockholder, you should carefully consider the following risks before deciding how to vote. In addition, you should read and consider the risks associated with each of the businesses of ZAIS Financial and Sutherland because these risks will also affect the combined company. A description of the risks associated with the business of ZAIS Financial can be found in the Annual Report on Form 10-K for the year ended December 31, 2015 of ZAIS Financial and other reports subsequently filed with the SEC, which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information and Incorporation by Reference” beginning on page 342.

Risks Related to the Mergers

The value of the ZAIS Financial common stock that Sutherland stockholders will receive in the Sutherland merger will fluctuate based on the trading price of ZAIS Financial common stock.

At the effective time of the Sutherland merger, each share of Sutherland common stock outstanding immediately prior to the effective time of the Sutherland merger will be cancelled and automatically converted into the right to receive a number of shares of ZAIS Financial common stock based on an exchange ratio that will be determined in accordance with the terms of the merger agreement. That exchange ratio will also be used to determine the number of ZAIS operating partnership units that will be issued to holders of Sutherland operating partnership units. The exchange ratio will be based on the adjusted book value of ZAIS Financial and Sutherland as of a determination date, which the parties have agreed will be July 31, 2016.

After the determination date, the exchange ratio will be fixed, except for certain adjustments on account of changes in the capitalization of ZAIS Financial or Sutherland. However, because of fluctuations in the price of ZAIS Financial common stock, the market value of shares of ZAIS Financial common stock that Sutherland stockholders will be entitled to receive in the Sutherland merger, or that holders of Sutherland operating partnership units will be entitled to receive in the partnership merger, will continue to fluctuate depending on the trading price of the shares of ZAIS Financial common stock prior to the closing of the mergers. These variances may arise due to, among other things:

• market reaction to the announcement of the mergers;

• changes in the respective businesses, operations, assets, liabilities and prospects of ZAIS Financial and Sutherland;

• changes in market assessments of the business, operations, financial position and prospects of ZAIS Financial, Sutherland or the combined company;

• market assessments of the likelihood that the mergers will be completed;

• interest rates, general market and economic conditions and other factors generally affecting the market prices of shares of ZAIS Financial and Sutherland common stock;

• federal, state and local legislation, governmental regulation and legal developments in the businesses in which ZAIS Financial and Sutherland operate; and

• other factors beyond the control of ZAIS Financial and Sutherland, including those described or referred to elsewhere in this “Risk Factors” section.

Sutherland does not have the right to terminate the merger agreement based on a decline in the market price of ZAIS Financial common stock.

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The mergers and related transactions are subject to certain approvals by stockholders of both ZAIS Financial and Sutherland.

The merger cannot be completed unless (i) the Sutherland stockholders approve the Sutherland merger and the other transactions contemplated by the merger agreement by the affirmative vote of the holders of a majority of the outstanding shares of Sutherland common stock, and (ii) the ZAIS Financial stockholders approve the issuance of shares of ZAIS Financial common stock to Sutherland stockholders pursuant to the merger agreement by the affirmative vote of a majority of the votes cast on the matter by holders of outstanding shares of ZAIS Financial common stock.

The voting power of ZAIS Financial stockholders and Sutherland stockholders will be diluted by the mergers.

The Sutherland merger will dilute the ownership position of the ZAIS Financial stockholders and result in Sutherland stockholders having an ownership stake in the combined company that is smaller than their current stake in Sutherland. Based on the number of shares of Sutherland common stock outstanding on July 18, 2016, the record date for the ZAIS Financial special meeting of stockholders, and an assumed exchange ratio of 0.8567 shares of ZAIS Financial common stock for each share of Sutherland common stock (based on the adjusted book value per share of ZAIS Financial common stock and Sutherland common stock as of June 30, 2016, calculated in accordance with the merger agreement), upon completion of the Sutherland merger, we estimate that continuing ZAIS Financial common stockholders will own between approximately 14% and 24% of the issued and outstanding combined company common stock, and former Sutherland stockholders will own between approximately 86% and 76% of the issued and outstanding combined company common stock, depending on whether the contemplated tender offer to be made to current ZAIS Financial common stockholders is fully subscribed. Consequently, ZAIS Financial stockholders and Sutherland stockholders, as a general matter, will have less influence over the management and policies of the combined company after the effective time of the mergers than they currently exercise over the management and policies of ZAIS Financial and Sutherland, respectively.

Failure to complete the mergers could negatively affect the value of the shares and the future business and financial results of both ZAIS Financial and Sutherland.

If the mergers are not completed, the ongoing businesses of ZAIS Financial and Sutherland could be adversely affected and each of ZAIS Financial and Sutherland will be subject to a variety of risks associated with the failure to complete the mergers, including the following:

• ZAIS Financial being required, under certain circumstances, to pay to Sutherland a termination fee of $4 million;

• Sutherland being required, under certain circumstances, to pay to ZAIS Financial a termination fee of up to $4 million;

• ZAIS Financial may have taken certain actions, including the sale of its seasoned, re-performing mortgage loans from its residential mortgage investments segment, which we refer to as the whole loan portfolio sale and the unwinding of its mortgage conduit business, in anticipation of completing the mergers;

• if ZAIS Financial completes the sale of its whole loan portfolio, it will result in a reduction of ZAIS Financial’s investment income and, if the mergers are not completed, may therefore result in a decision to curtail dividends in the future;

• incurrence of substantial costs by both companies in connection with the proposed mergers, such as legal, accounting, financial advisor, filing, printing and mailing fees;

• diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the mergers; and

• reputational harm due to the adverse perception of any failure to successfully complete the mergers.

Additionally, in order to reduce market risk in its investment portfolio, prior to entering into the definitive merger agreement, ZAIS Financial had begun the process of selling its seasoned, re-performing mortgage

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loans from its residential mortgage investments segment, which we refer to as the whole loan portfolio. The merger agreement requires ZAIS Financial to complete the sale of its whole loan portfolio as a condition to closing of the mergers. If completed, the sale of the whole loan portfolio is likely to result in a reduction of ZAIS Financial’s investment income and, if the mergers are not completed, may therefore result in a decision to curtail dividends in the future. Also, as part of ZAIS Financial’s strategic review, ZAIS Financial had made the decision to cease the purchase of newly originated residential mortgage loans as part of its mortgage conduit purchase program and will began the unwinding of its mortgage conduit business. The merger agreement requires ZAIS Financial to complete the process of unwinding its mortgage conduit business prior to closing.

Furthermore, if the mergers are not completed, Sutherland stockholders will continue to hold shares of Sutherland common stock that are not publicly traded and have limited liquidity, and ZAIS Financial stockholders may not have the opportunity to sell their shares through the tender offer and the ZAIS Financial board will continue to review other liquidity alternatives, which may not occur in the near term or on terms as attractive as the terms of the proposed tender offer or the other transactions contemplated by the merger agreement.

If the mergers are not completed, these risks could materially affect the business, financial results and stock prices of both ZAIS Financial and Sutherland.

The pendency of the mergers could adversely affect the business and operations of ZAIS Financial.

Prior to the effective time of the mergers, some vendors and other counterparties of ZAIS Financial may delay or defer decisions, and ZAIS Financial may take certain actions, including the sale of its whole loan portfolio, in anticipation of the mergers, which could negatively affect the revenues, earnings, cash flows and expenses of ZAIS Financial, regardless of whether the mergers are completed. Additionally, current and prospective employees of ZAIS Financial’s advisor or GMFS may experience uncertainty about their future roles following the mergers, which may materially adversely affect the ability of ZAIS Financial’s advisor or GMFS to attract and retain key personnel during the pendency of the mergers. In addition, due to operating restrictions in the merger agreement, ZAIS Financial and Sutherland may be unable, during the pendency of the mergers, to undertake certain investments or financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.

The merger agreement contains provisions that could discourage a potential competing acquirer of either ZAIS Financial or Sutherland or could result in any competing acquisition proposal being at a lower price than it might otherwise be.

The merger agreement contains provisions that, subject to limited exceptions, restrict the ability of each of ZAIS Financial and Sutherland to solicit, initiate, knowingly encourage or facilitate any Acquisition Proposal. With respect to any written, bona fide Acquisition Proposal received by either ZAIS Financial or Sutherland, the other party generally has an opportunity to offer to modify the terms of the merger agreement in response to such proposal before the ZAIS Financial board or the Sutherland board, as the case may be, or committee thereof, may withdraw or modify its recommendation to their respective stockholders in response to such Acquisition Proposal. In the event that either party’s board of directors withdraws or modifies its recommendation, the other party may terminate the merger agreement, in which case a substantial termination fee would be payable by the party whose board withdrew or modified its recommendation. Similarly, a substantial termination fee may be payable in certain circumstances if the merger agreement is terminated because of a failure to obtain stockholder approval following the announcement of a competing acquisition proposal. See “The Merger Agreement — Covenants and Agreements — No Solicitation of Alternative Transactions” beginning on page 210 and “The Merger Agreement — Termination of the Merger Agreement and Termination Fees” beginning on page 219.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of ZAIS Financial or Sutherland from considering or making a competing acquisition proposal, even if the potential competing acquirer was prepared to pay consideration with a higher per share cash value than that market value proposed to be received or realized in the mergers, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay

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because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the merger agreement.

The mergers are subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the mergers or adversely impact the companies’ ability to complete the transactions.

The completion of the mergers is subject to certain conditions, including, among others, the (i) closing of the whole loan portfolio sale, (ii) receipt of the requisite approvals of ZAIS Financial stockholders and Sutherland stockholders, and (iii) other customary closing conditions set forth in the merger agreement. While it is currently anticipated that the mergers will be completed during the fourth quarter of 2016, there can be no assurance that such conditions will be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied. Accordingly, there can be no guarantee with respect to the timing of the closing of the mergers, whether the mergers will be completed at all and when Sutherland stockholders and holders of Sutherland operating partnership units would receive the merger consideration, if at all.

If the mergers are not consummated by December 31, 2016, either ZAIS Financial or Sutherland may terminate the merger agreement.

Either ZAIS Financial or Sutherland may terminate the merger agreement if the Sutherland merger has not been consummated by December 31, 2016. However, this termination right will not be available to a party if that party failed to fulfill its obligations under the merger agreement and that failure was the cause of, or resulted in, the failure to consummate the mergers. See “The Merger Agreement — Termination of the Merger Agreement and Termination Fees” beginning on page 219.

Some of the directors and executive officers of ZAIS Financial and Sutherland have interests in seeing the merger completed that are different from, or in addition to, those of the other ZAIS Financial and Sutherland stockholders.

Some of the directors and executive officers of ZAIS Financial and Sutherland have arrangements that provide them with interests in the mergers that are different from, or in addition to, those of the stockholders of ZAIS Financial and Sutherland generally. These interests relate to, among other things, affiliations between certain directors and executive officers of ZAIS Financial and Sutherland and ZAIS Financial’s advisor and Waterfall, respectively. These interests, among other things, may influence or may have influenced the directors and executive officers of ZAIS Financial and Sutherland to support or approve the mergers. See “The Mergers — Interests of ZAIS Financial Directors and Executive Officers in the Mergers” beginning on page 159, and “The Mergers — Interests of Sutherland Directors and Executive Officers in the Mergers” beginning on page 160.

Risks Related to the Combined Company Following the Mergers

We expect to incur substantial expenses related to the mergers.

We will incur substantial expenses in connection with completing the mergers, paying the termination fee to ZAIS Financial’s advisor and integrating ZAIS Financial and Sutherland’s business, operations, networks, systems, technologies, policies and procedures. While we expect to incur a certain level of transaction and integration expenses, factors beyond our control could affect the total amount or the timing of its integration expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the transaction and integration expenses associated with the mergers could, particularly in the near term, exceed the savings that we expect to achieve from the elimination of the management and duplicative expenses and the realization of economies of scale and cost savings related to the businesses of Sutherland and ZAIS Financial following the closing of the mergers. If the expenses we incur as a result of the mergers are higher than anticipated, our net income per share would be adversely affected.

The future results of the combined company will suffer if we do not effectively manage our expanded portfolio and operations.

The mergers are expected to result in certain benefits to the combined company, including, among others, those described in “The Mergers — Recommendation of the ZAIS Financial Board and its Reasons for the

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Mergers” and “The Mergers — Recommendation of the Sutherland Board and its Reasons for the Mergers.” There can be no assurance, however, regarding when or the extent to which the combined company will be able to realize these benefits, which may be difficult, unpredictable and subject to delays. The mergers involve the combination of two companies, which currently operate as independent companies. We will be required to devote significant management attention and resources to integrating the business practices and operations of Sutherland and ZAIS Financial. It is possible that the integration process could result in the distraction of the combined company’s management, the disruption of our ongoing business or inconsistencies in our operations, services, standards, controls, procedures and policies, any of which could adversely affect the ability of the combined company to maintain relationships with operators, vendors and employees or to fully achieve the anticipated benefits of the mergers. There may also be potential unknown or unforeseen liabilities, increased expenses, delays or regulatory conditions integrating Sutherland’s portfolio into ZAIS Financial’s.

Following the mergers, the combined company will have an expanded portfolio and operations and likely will continue to expand our operations through additional acquisitions and other strategic transactions, some of which may involve complex challenges. The future success of the combined company will depend, in part, upon its ability to manage its expansion opportunities, integrate new operations into its existing business in an efficient and timely manner, successfully monitor its operations, costs, regulatory compliance and service quality, and maintain other necessary internal controls. There can be no assurance that the combined company’s expansion or acquisition opportunities will be successful, or that it will realize revenue enhancements or other benefits.

The mergers will result in changes to the board of directors and management that may affect the strategy and operations of the combined company.

If the mergers are completed, the composition of the board of directors and management team will change. Upon the effective time of the mergers, the combined company’s board will consist of the current directors of Sutherland and one current director of ZAIS Financial, David Holman, and the resignations of ZAIS Financial’s other directors will become effective. The management team of the combined company will consist of the current management of Sutherland, and Waterfall will be the manager of the combined company. This new composition of the combined company’s board and management team may affect the business strategy and operating decisions following the closing of the mergers.

Risks Relating to an Investment in the Combined Company’s Common Stock Following the Mergers

The market price of the combined company’s common stock may decline as a result of the mergers or the issuance of shares of common stock.

The market price of the combined company’s common stock may decline as a result of the mergers for a number of reasons, including if the combined company does not achieve the perceived benefits of the mergers as rapidly or to the extent anticipated by financial or industry analysts, or the effect of the mergers on the combined company’s financial results is not consistent with the expectations of financial or industry analysts. In addition, if the mergers are completed, stockholders of the combined company will own interests in a company operating an expanded business with a different mix of properties, risks and liabilities. Current stockholders may not wish to continue to invest in the combined company if the mergers are completed, or for other reasons may wish to dispose of some or all of their combined company common stock. If, following the closing of the mergers, there is selling pressure on combined company common stock that exceeds demand at the market price, the price of combined company common stock could decline.

Sutherland cannot assure you that the combined company will be able to continue paying distributions at the rate currently paid by Sutherland.

As noted elsewhere in this joint proxy statement/prospectus, we expect to continue Sutherland’s current distribution practices following the mergers. However, common stockholders of the combined company may not receive distributions following the mergers equivalent to those currently paid by Sutherland for various reasons, including the following:

• as a result of the mergers and the issuance of shares in connection with the mergers, the total amount of cash required for the combined company to pay dividends at its current rate will increase;

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• the combined company may not have enough cash to pay such distributions due to changes in its cash requirements, capital spending plans, cash flows or financial position or as a result of unknown or unforeseen liabilities incurred in connection with the mergers;

• decisions on whether, when and in what amounts to make any future distributions will remain at all times entirely at the discretion of the board of directors, which reserves the right to change the combined company’s dividend practices at any time and for any reason;

• the combined company may desire to retain cash to maintain or improve its credit ratings; and

• the combined company’s declaration and payment of distributions will be subject to compliance with restrictions contained in its debt instruments and may be subject to restrictions in similar instruments and agreements governing future debt that the combined company may incur.

Sutherland’s existing and future stockholders have no contractual or other legal right to distributions that have not been declared.

Risks Relating to the Combined Company’s Business

We anticipate that a significant portion of the combined company’s investments will be in the form of SBC loans which are subject to increased risks.

Sutherland acquired sub-performing and non-performing loans represented in the aggregate 2.9% of the carrying value and 4.8% of the unpaid principal balance, or UPB, of Sutherland’s total loan portfolio as of June 30, 2016. As of June 30, 2016, Sutherland’s 559 sub-performing and non-performing loans had a current unpaid principal balance of $88.5 million and a carrying value of $49.2 million. Sutherland considers a loan to be performing if the borrower is current on 100% of the contractual payments due for principal and interest during the most recent quarter or if the borrower’s contractual status is current and the borrower has made at least 66% of contractual payments due for principal and interest in the most recent quarter. Sutherland considers a loan to be sub-performing or non-performing if the borrower does not meet the criteria of a performing loan. Sub-performing and non-performing SBC loans are subject to increased risks of credit loss for a variety of reasons, including, because the underlying property is too highly-leveraged or the borrower has experienced financial distress. Whatever the reason, the borrower may be unable to meet its contractual debt service obligation to Sutherland or the combined company. Sub-performing and non-performing SBC loans may require a substantial amount of workout negotiations and/or restructuring, which may divert the combined company’s attention from other activities and entail, among other things, a substantial reduction in the interest rate or capitalization of past due interest. However, even if restructurings are successfully accomplished, risks still exist that borrowers will not be able or willing to maintain the restructured payments or refinance the restructured mortgage upon maturity. Additional risks inherent in the acquisition of sub-performing and non-performing SBC loans include undisclosed claims, undisclosed tax liens that may have priority, higher legal costs and greater difficulties in determining the value of the underlying property.

As of June 30, 2016 the average loan-to-value, or LTV, of ReadyCap’s originated portfolio was 65.2%. The weighted LTV of Sutherland’s acquired loans was 55.1% as of June 30, 2016. If such SBC loans with higher LTV ratios become delinquent, the combined company may experience greater credit losses compared to lower-leveraged properties. Additional risks inherent in the acquisition of delinquent SBC loans include undisclosed claims, undisclosed tax liens that may have priority, higher legal costs and greater difficulties in determining the value of the underlying property.

The lack of liquidity of the combined company’s assets may adversely affect its business, including the combined company’s ability to value and sell its assets.

A portion of the SBC loans and asset-backed securities, or ABS, the combined company will own or may acquire may be subject to legal and other restrictions on resale or will otherwise be less liquid than publicly-traded securities. The illiquidity of the combined company’s assets may make it difficult for the combined company to sell such assets if the need or desire arises. In addition, if the combined company is required to liquidate all or a portion of its portfolio quickly, it may realize significantly less value than the value at which it has previously recorded its assets. As a result, the combined company’s ability to vary its

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portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect its results of operations and financial condition.

Waterfall’s due diligence of potential SBC loans and ABS assets may not reveal all of the liabilities associated with such SBC loans and ABS assets and may not reveal other the combined weaknesses in such SBC loans and ABS assets, which could lead to investment losses.

Before making an investment, Waterfall calculates the level of risk associated with the SBC loan to be acquired or originated based on several factors which include the following: a complete review of seller’s data files, including data integrity, compliance review and custodial file review; rent rolls and other property operating data; personal credit reports of the borrower and owner and/or operator; property valuation review; environmental review; and tax and title search. In making the assessment and otherwise conducting customary due diligence, the combined company will employ standard documentation requirements and require appraisals prepared by local independent third party appraisers it selects. Additionally, the combined company will seek to have sellers provide representations and warranties on SBC loans it acquires, and if the combined company is unable to obtain representations and warranties, it will factor the increased risk into the price it pays for such loans. Despite the combined company’s review process, there can be no assurance that its due diligence process will uncover all relevant facts or that any investment will be successful.

If Waterfall underestimates the credit analysis and the expected risk adjusted return relative to other comparable investment opportunities, the combined company may experience losses.

Waterfall expects to value the combined company’s SBC and SBC ABS investments based on an initial credit analysis and the investment’s expected risk adjusted return relative to other comparable investment opportunities available to the combined company, taking into account estimated future losses on the mortgage loans, and the estimated impact of these losses on expected future cash flows. Waterfall’s loss estimates may not prove accurate, as actual results may vary from estimates. In the event that Waterfall underestimates the losses relative to the price the combined company pays for a particular SBC or SBC ABS investment, the combined company may experience losses with respect to such investment.

The failure of a third party servicer or the failure of the combined company’s own internal servicing system to effectively service its portfolio of mortgage loans would materially and adversely affect the combined company.

Most mortgage loans and securitizations of mortgage loans require a servicer to manage collections for each of the underlying loans. The combined company will service its loan portfolio under a “component servicing” model (which includes the use of primary servicing by nationally recognized servicers and sub-servicing by participants in its Qualified Partner Program, or QPP, who specialize in assets for the particular region in which the asset sits), which allows for highly customized loss mitigation strategies for sub-performing, non-performing and performing loans. Performing SBC loans (either loans purchased with historical activity, i.e., not originated, purchased in the secondary market or ReadyCap originations) will be securitized with the combined company retaining the subordinate tranches. KeyBank Real Estate Capital, or KeyBank, performs both primary and special servicing with all loss mitigation decisions directed by Waterfall (which also maintains an option to purchase delinquent loans from the securitization trust). Non-performing and sub-performing SBC loans are serviced either through an approved SBC primary servicer providing both primary and special servicing or providing only primary servicing with special servicing contracted to smaller regionally focused SBC operators and servicers who gain eligibility to participate in its QPP. Servicers’ responsibilities include providing collection activities, loan workouts, modifications and refinancings, foreclosures, short sales, sales of foreclosed real estate and financings to facilitate such sales. Both default frequency and default severity of loans may depend upon the quality of the servicer. If a servicer is not vigilant in encouraging the borrowers to make their monthly payments, the borrowers may be far less likely to make these payments, which could result in a higher frequency of default. If a servicer takes longer to liquidate non-performing assets, loss severities may be higher than originally anticipated. Higher loss severity may also be caused by less competent dispositions of real estate owned, or REO, properties.

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The combined company will seek to increase the value of non-performing and sub-performing loans through special servicing activities that will be performed by its participating special servicers. Servicer quality is of prime importance in the default performance of SBC loans and SBC ABS. Many servicers have gone out of business in recent years, requiring a transfer of loan servicing to another servicer. Should the combined company have to transfer loan servicing to another servicer, the transfer of loans to a new servicer could result in more loans becoming delinquent because of confusion or lack of attention. Servicing transfers involve notifying borrowers to remit payments to the new servicer, and these transfers could result in misdirected notices, misapplied payments, data input errors and other problems. Industry experience indicates that mortgage loan delinquencies and defaults are likely to temporarily increase during the transition to a new servicer and immediately following the servicing transfer. Further, when loan servicing is transferred, loan servicing fees may increase, which may have an adverse effect on the credit support of assets held by the combined company.

Effectively servicing the combined company’s portfolio of SBC loans is critical to its success, particularly given its strategy of maximizing the value of its portfolio with its loan modifications, loss mitigation, restructuring and other special servicing activities, and therefore, if one of the combined company’s servicers fails to effectively service the portfolio of mortgage loans, it could have a material and adverse effect on the combined company’s business, results of operations and financial condition.

The bankruptcy of a third party servicer would adversely affect the combined company’s business, results of operation and financial condition.

Depending on the provisions of the agreement with the servicer of any of the combined company’s SBC loans, the servicer may be allowed to commingle collections on the mortgage loans owned by the combined company with its own funds for certain periods of time (usually a few business days) after the servicer receives them. In the event of a bankruptcy of a servicer, the combined company may not have a perfected interest in any collections on the mortgage loans owned by the combined company that are in that servicer’s possession at the time of the commencement of the bankruptcy case. The servicer may not be required to turn over to the combined company any collections on mortgage loans that are in its possession at the time it goes into bankruptcy. To the extent that a servicer has commingled collections on mortgage loans with its own funds, the combined company may be required to return to that servicer as preferential transfers all payments received on the mortgage loans during a period of up to one year prior to that servicer’s bankruptcy.

If a servicer were to go into bankruptcy, it may stop performing its servicing functions (including any obligations to advance moneys in respect of a mortgage loan) and it may be difficult to find a third party to act as that servicer’s successor. Alternatively the servicer may take the position that unless the amount of its compensation is increased or the terms of its servicing obligations are otherwise altered it will stop performing its obligations as servicer. If it were to be difficult to find a third party to succeed the servicer, the combined company may have no choice but to agree to a servicer’s demands. The servicer may also have the power, with the approval of the bankruptcy court, to assign its rights and obligations to a third party without the combined company’s consent, and even over its objections, and without complying with the terms of the applicable servicing agreement. The automatic stay provisions of Title 11 of the United States Code, or the Bankruptcy Code, would prevent (unless the permission of the bankruptcy court were obtained) any action by the combined company to enforce the servicer’s obligations under its servicing agreement or to collect any amount owed to the combined company by the servicer. The Bankruptcy Code also prevents the removal of the servicer as servicer and the appointment of a successor without the permission of the bankruptcy court or the consent of the servicer.

Any costs or delays involved in the completion of a foreclosure or liquidation of the underlying property may further reduce proceeds from the property and may increase the loss.

In the future, it is possible that the combined company may find it necessary or desirable to foreclose on some, if not many, of the SBC loans the combined company acquires, and the foreclosure process may be lengthy and expensive. Borrowers may resist mortgage foreclosure actions by asserting numerous claims, counterclaims and defenses against the combined company including, without limitation, numerous lender liability claims and defenses, even when such assertions may have no basis in fact, in an effort to prolong the foreclosure action and force the combined company into a modification of the SBC loan or a favorable

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buy-out of the borrower’s position. In some states, foreclosure actions can sometimes 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 decrease in its value. Even if the combined company is successful in foreclosing on a SBC loan, the liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover its cost basis in the SBC loan, resulting in a loss to the combined company. Furthermore, any costs or delays involved in the completion of a foreclosure of the SBC loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss. Any such reductions could materially and adversely affect the value of the commercial SBC loans in which the combined company invests and, therefore, could have a material and adverse effect on the combined company’s business, results of operations and financial condition.

Inaccurate and/or incomplete information received in connection with the combined company’s due diligence and underwriting process could have a negative impact on its financial condition and results of operation.

The combined company’s credit and underwriting philosophy for both acquired and originated SBC loans will encompass individual borrower and property diligence, taking into consideration several factors, including (i) the seller’s data files, including data integrity, compliance review and custodial file review; (ii) rent rolls and other property operating data; (iii) personal credit reports of the borrower, owner and/or operator; (iv) property valuations; (v) environmental reviews; and (vi) tax and title searches. The combined company will also ask sellers to provide representations and warranties on SBC loans the combined company acquires, and if the combined company is unable to obtain representations and warranties, it will factor the increased risk into the price it pays for such loans. The combined company’s financial condition and results of operations could be negatively impacted to the extent it relies on information that is misleading, inaccurate or incomplete.

The use of underwriting guideline exceptions in the SBC loan origination process may result in increased delinquencies and defaults.

Although SBC loan originators generally underwrite mortgage loans in accordance with their pre-determined loan underwriting guidelines, from time to time and in the ordinary course of business, originators, including the combined company, will make exceptions to these guidelines. On a case by case basis, the combined company’s underwriters may determine that a prospective borrower that does not strictly qualify under the combined company’s underwriting guidelines warrants an underwriting exception, based upon compensating factors. Compensating factors may include a lower LTV ratio, a higher debt coverage ratio, experience as a real estate owner or investor, borrower net worth or liquidity, stable employment, longer length of time in business and length of time owning the property. Loans originated with exceptions may result in a higher number of delinquencies and defaults, which could have a material and adverse effect on the combined company’s business, results of operations and financial condition.

Deficiencies in appraisal quality in the mortgage loan origination and acquisition process may result in increased principal loss severity.

During the mortgage loan underwriting process, appraisals are generally obtained on the collateral underlying each prospective mortgage. The quality of these appraisals may vary widely in accuracy and consistency. The appraiser may feel pressure from the broker or lender to provide an appraisal in the amount necessary to enable the originator to make the loan, whether or not the value of the property justifies such an appraised value. Inaccurate or inflated appraisals may result in an increase in the severity of losses on the mortgage loans, which could have a material and adverse effect on the combined company’s business, results of operations and financial condition.

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The combined company may be exposed to environmental liabilities with respect to properties to which the combined company takes title, which may in turn decrease the value of the underlying properties.

In the course of the combined company’s business, the combined company may take title to real estate, and, if it does take title, it could be subject to environmental liabilities with respect to these properties. In such a circumstance, the combined company may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or it may be required to investigate or clean up hazardous or toxic substances or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. If the combined company ever becomes subject to significant environmental liabilities, its business, financial condition, liquidity, and results of operations could be materially and adversely affected. In addition, an owner or operator of real property may become liable under various federal, state and local laws, for the costs of removal of certain hazardous substances released on its property. Such 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 adversely affect an owner’s ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of an underlying property becomes liable for removal costs, the ability of the owner to make debt payments may be reduced, which in turn may adversely affect the value of the relevant mortgage-related assets held by the combined company.

Waterfall will utilize analytical models and data in connection with the valuation of the combined company’s SBC loans and SBC ABS, and any incorrect, misleading or incomplete information used in connection therewith would subject the combined company to potential risks.

As part of the risk management process Waterfall intends to use detailed proprietary models, including loan level non-performing loan models, to evaluate collateral liquidation timelines and price changes by region, along with the impact of different loss mitigation plans. Additionally, Waterfall intends to use information, models and data supplied by third parties. Models and data will be used to value potential target assets. In the event models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon expose the combined company to potential risks. For example, by relying on incorrect models and data, especially valuation models, Waterfall may be induced to buy certain target assets at prices that are too high, to sell certain other assets at prices that are too low or to miss favorable opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful.

Any disruption in the availability and/or functionality of the combined company’s technology infrastructure and systems and any failure of the combined company’s security measures related to these systems could adversely impact its business.

The combined company’s ability to acquire and originate SBC loans and manage any related interest rate risks and credit risks is critical to its success and is highly dependent upon the efficient and uninterrupted operation of its computer and communications hardware and software systems. For example, the combined company will rely on its proprietary database to track and maintain all loan performance and servicing activity data for loans in its portfolio. This data is used to manage the portfolio, track loan performance, develop and execute asset disposition strategies. In addition, this data is used to evaluate and price new investment opportunities. Some of these systems will be located at the combined company’s facility and some will be maintained by third party vendors. Any significant interruption in the availability and functionality of these systems could harm the combined company’s business. In the event of a systems failure or interruption by the combined company’s third party vendors, the combined company will have limited ability to affect the timing and success of systems restoration. If such interruptions continue for a prolonged period of time, it could have a material and adverse impact on the combined company’s business, results of operations and financial condition.

The combined company’s security measures may not effectively prohibit others from obtaining improper access to its information. If a person is able to circumvent the combined company’s security measures, he or she could destroy or misappropriate valuable information or disrupt the combined company’s operations. Any security breach could expose the combined company to risks of data loss, litigation and liability and could seriously disrupt the combined company’s operations and harm its reputation.

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Difficult conditions in the mortgage, residential and commercial real estate markets may cause the combined company to experience market losses related to its holdings, and there is no assurance that these conditions will improve in the near future.

The combined company’s results of operations are materially affected by conditions in the mortgage market, the residential and commercial real estate markets, the financial markets and the economy generally. Continuing concerns about the mortgage market and a declining real estate market, as well as inflation, energy costs, geopolitical issues, unemployment and the availability and cost of credit, have contributed to increased volatility and diminished expectations for the economy and markets going forward. In particular, the U.S. mortgage market has been severely affected by changes in the lending landscape and has experienced defaults, credit losses and significant liquidity concerns, and there is no assurance that these conditions have fully stabilized or that they will not worsen. This is especially true in the SBC loan sector. Based on publicly available data from Boxwood Means Inc., a real estate research and consulting firm, as of March 31, 2016, while commercial property prices have almost recovered to their 2007 peak SBC property prices have increased only 16.3% from the 2012, trough. Sutherland believes this trend suggests continued tight credit in SBC lending. Disruptions in mortgage markets negatively impact new demand for real estate. A deterioration of the SBC or SBC ABS markets may cause the combined company to experience losses related to its assets and to sell assets at a loss. The combined company’s profitability may be materially adversely affected if it is unable to obtain cost effective financing. A continuation or increase in the volatility and deterioration in the SBC and SBC ABS markets as well as the broader financial markets may adversely affect the performance and fair market values of the combined company’s SBC loan and SBC ABS assets and may adversely affect the combined company’s results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to the combined company’s stockholders.

New entrants in the market for SBC loan acquisitions and originations could adversely impact the combined company’s ability to acquire SBC loans at attractive prices and originate SBC loans at attractive risk-adjusted returns.

Although Sutherland believes that Sutherland is currently one of only a handful of active market participants in the secondary SBC loan market, new entrants in this market could adversely impact the combined company’s ability to acquire and originate SBC loans at attractive prices. In acquiring and originating the combined company’s target assets, the combined company may compete with numerous regional and community banks, specialty finance companies, savings and loan associations, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, other lenders and other entities, and the combined company expects that others may be organized in the future. The effect of the existence of additional REITs and other institutions may be increased competition for the available supply of SBC assets suitable for purchase, which may cause the price for such assets to rise, which may limit the combined company’s ability to generate desired returns. Additionally, origination of SBC loans by the combined company’s competitors may increase the availability of SBC loans which may result in a reduction of interest rates on SBC loans. Some competitors may have a lower cost of funds and access to funding sources that may not be available to the combined company. Many of the combined company’s competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the Investment Company Act of 1940, or the 1940 Act. In addition, some of the combined company’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of SBC loan and ABS assets and establish more relationships than the combined company.

The combined company cannot assure you that the competitive pressures it may face will not have a material adverse effect on its business, financial condition and results of operations. Also, as a result of this competition, desirable investments in the combined company’s target assets may be limited in the future and the combined company may not be able to take advantage of attractive investment opportunities from time to time, as the combined company can provide no assurance that it will be able to identify and make investments that are consistent with its investment objectives.

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The combined company cannot predict the unintended consequences and market distortions that may stem from far-ranging regulatory reform of the oversight of financial markets.

In response to the financial issues affecting the banking system and financial markets and ongoing concerns of, and threats to, commercial banks, investment banks and other financial institutions, the Emergency Economic Stabilization Act, or EESA, was enacted by the U.S. Congress in 2008. There can be no assurance that the EESA or any other U.S. Government actions will have a beneficial impact on the financial markets. To the extent the markets do not respond favorably to any such actions by the U.S. Government or such actions do not function as intended, the combined company’s business may not receive the anticipated positive impact from the legislation and such result may have broad adverse market implications.

In July 2010, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, in part to impose significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial markets. For instance, the Dodd-Frank Act has imposed significant restrictions on the proprietary trading activities of certain banking entities and subject other systemically significant organizations regulated by the U.S. Federal Reserve to increase capital requirements and quantitative limits for engaging in such activities. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the MBS market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. The Dodd-Frank Act also imposes significant regulatory restrictions on the origination and securitization of commercial mortgage loans. Also, the SEC has proposed significant changes to Regulation AB, which, if adopted in their present form, could have sweeping changes to commercial and residential mortgage loan securitization markets as well as to the market for the re-securitization of MBS. The Dodd-Frank Act also created a new regulator, the Consumer Financial Protection Bureau, or the CFPB, which oversees many of the core laws which regulate the mortgage industry, including the Real Estate Settlement Procedures Act and the Truth in Lending Act. While the full impact of the Dodd-Frank Act and the role of the CFPB cannot be assessed until all implementing regulations are released, the Dodd-Frank Act’s extensive requirements may have a significant effect on the financial markets, and may affect the availability or terms of financing from the combined company’s lender counterparties and the availability or terms of SBC loans and MBS, both of which may have an adverse effect on the combined company’s financial condition and results of operations.

In addition, the U.S. Government, Federal Reserve, U.S. Treasury, the SEC and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis that began in 2007. The combined company cannot predict whether or when such actions may occur or what effect, if any, such actions could have on the combined company’s business, results of operations and financial condition. In addition, because the programs are designed, in part, to provide liquidity to restart the market for certain of the combined company’s targeted assets, the establishment of these programs may result in increased competition for opportunities in its targeted assets. It is also possible that the combined company’s competitors may utilize the programs which would provide them with debt and equity capital funding from the U.S. government.

The increasing number of proposed United States federal, state and local laws may affect certain mortgage-related assets in which the combined company intends to invest and could materially increase the combined company’s cost of doing business.

Various bankruptcy legislation has been proposed that, among other provisions, could allow judges to modify the terms of residential mortgages in bankruptcy proceedings, could hinder the ability of the servicer to foreclose promptly on defaulted mortgage loans or permit limited assignee liability for certain violations in the mortgage loan origination process, any or all of which could adversely affect the combined company’s business or result in the combined company being held responsible for violations in the mortgage loan origination process even where it was not the originator of the loan. The combined company does not know what impact this type of legislation, which has been primarily, if not entirely, focused on residential mortgage originations, would have on the SBC loan market. The combined company is unable to predict whether United States federal, state or local authorities, or other pertinent bodies, will enact legislation, laws, rules,

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regulations, handbooks, guidelines or similar provisions that will affect its business or require changes in its practices in the future, and any such changes could materially and adversely affect its cost of doing business and profitability.

Failure to obtain or maintain required approvals and/or state licenses necessary to operate the combined company’s mortgage-related activities may adversely impact its investment strategy.

The combined company may be required to obtain and maintain various approvals and/or licenses from federal or state governmental authorities, government sponsored entities or similar bodies in connection with some or all of its activities. There is no assurance that the combined company can obtain and maintain any or all of the approvals and licenses that it desires or that it will avoid experiencing significant delays in seeking such approvals and licenses. Furthermore, the combined company will be subject to various disclosure and other requirements to obtain and maintain these approvals and licenses, and there is no assurance that it will satisfy those requirements. The combined company’s failure to obtain or maintain licenses will restrict its options and ability to engage in desired activities, and could subject the combined company to fines, suspensions, terminations and various other adverse actions if it is determined that the combined company has engaged without the requisite approvals or licenses in activities that required an approval or license, which could have a material and adverse effect on its business, results of operation and financial condition.

Some of the combined company’s SBC loans will have interest rate features that adjust over time, and any interest rate caps on these loans may reduce the combined company’s income or cause it to suffer a loss during periods of rising interest rates.

The combined company’s adjustable rate mortgages, or ARMs, are subject to periodic and lifetime interest rate caps. Periodic interest rate caps limit the amount an interest rate can increase during any given period. Lifetime interest rate caps limit the amount an interest rate can increase through maturity of a loan. The combined company’s borrowings, including its repurchase agreement and securitizations, are not subject to similar restrictions. Accordingly, in a period of rapidly increasing interest rates, the interest rates paid on the combined company’s borrowings could increase without limitation while interest rate caps would limit the interest rates on the combined company’s ARMs. This problem is magnified for the combined company’s ARMs that are not fully indexed. Further, some ARMs may be subject to periodic payment caps that result in a portion of the interest being deferred and added to the principal outstanding. As a result, the combined company could receive less cash income on ARMs than it needs to pay interest on its related borrowings. These factors could lower the combined company’s net interest income or cause it to suffer a loss during periods of rising interest rates.

The combined company’s inability to manage future growth effectively could have an adverse impact on its financial condition and results of operations.

The combined company’s ability to achieve its investment objectives will depend on its ability to grow, which will depend, in turn, on Waterfall’s ability to identify, acquire, originate and invest in SBC loans and ABS that meet the combined company’s investment criteria. The combined company’s ability to grow its business will depend in large part on its ability to expand its SBC loan origination activities. Any failure to effectively manage the combined company’s future growth, including a failure to successfully expand its SBC loan origination activities could have a material and adverse effect on the combined company’s business, financial condition and results of operations.

Accounting rules for certain of the combined company’s transactions are highly complex and involve significant judgment and assumptions, and changes in such rules, accounting interpretations or the combined company’s assumptions could adversely impact the combined company’s ability to timely and accurately prepare its consolidated financial statements.

The combined company is subject to Financial Accounting Standards Board, or FASB, standards and interpretations that can result in significant accounting changes that could have a material and adverse impact on its results of operations and financial condition. Accounting rules for financial instruments, including the acquisition and sales or securitization of mortgage loans, investments in ABS, derivatives, investment consolidations and other aspects of the combined company’s anticipated operations are highly complex and

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involve significant judgment and assumptions. For example, the combined company estimates and judgments are based on a number of factors, including projected cash flows from the collateral securing the combined company’s SBC loans, the likelihood of repayment in full at the maturity of a loan, potential for a SBC loan refinancing opportunity in the future and expected market discount rates for varying property types. These complexities could lead to a delay in the preparation of financial information and the delivery of this information to the combined company’s stockholders.

Changes in accounting rules, interpretations or the combined company’s assumptions could also undermine the combined company’s ability to prepare timely and accurate financial statements, which could result in a lack of investor confidence in the combined company’s financial information and could materially and adversely affect the market price of the combined company’s common stock.

The combined company will depend on Waterfall and its key personnel for its success. The combined company may not find a suitable replacement for Waterfall if the management agreement with Waterfall is terminated, or if key personnel leave the employment of Waterfall or otherwise become unavailable to the combined company.

The combined company will be dependent on Waterfall for its day-to-day management. Frederick Herbst, who is employed by Waterfall and serves as Sutherland’s Chief Financial Officer, is dedicated exclusively to Sutherland, and four of Waterfall’s accounting professionals are also dedicated primarily to Sutherland, and such persons are expected to be dedicated to the combined company. In addition, Waterfall or the combined company may in the future hire additional personnel that may be dedicated to the combined company. Waterfall is not, however, obligated under the management agreement to dedicate any of its personnel exclusively to the combined company, nor is it or its personnel obligated to dedicate any specific portion of its or their time to the combined company’s business. The combined company will also be responsible for the costs of its own employees. However, with the exception of the combined company’s ReadyCap and GMFS subsidiaries, which will employ their own personnel, the combined company does not expect to have its own employees. Accordingly, Sutherland believes that the combined company’s success will depend to a significant extent upon the efforts, experience, diligence, skill and network of business contacts of the executive officers and key personnel of Waterfall. The executive officers and key personnel of Waterfall will evaluate, negotiate, structure, close and monitor the combined company’s acquisitions of assets, and the combined company’s success will depend on its continued service. The departure of any of the executive officers or key personnel of Waterfall could have a material adverse effect on the combined company’s performance. In addition, the combined company offers no assurance that Waterfall will remain the combined company’s manager or that the combined company will continue to have access to Waterfall’s principals and professionals. The initial term of the combined company’s management agreement with Waterfall only extends for three years from the closing of the mergers, with automatic one-year renewal terms starting on the third anniversary of the closing of the mergers. If the management agreement is terminated and no suitable replacement is found to manage the combined company, the combined company may not be able to execute its business plan.

Should one or more of Waterfall’s key personnel leave the employment of Waterfall or otherwise become unavailable to the combined company, Waterfall may not be able to find a suitable replacement and the combined company may not be able to execute certain aspects of its business plan.

There are various conflicts of interest in the combined company’s relationship with Waterfall which could result in decisions that are not in the best interests of the combined company’s stockholders.

The combined company is subject to conflicts of interest arising out of its relationship with Waterfall and its affiliates. Frederick Herbst, who is employed by Waterfall and will serve as the combined company’s Chief Financial Officer, will be dedicated exclusively to the combined company and four of Waterfall’s accounting professionals also are expected to be dedicated primarily to the combined company. With the exception of the combined company’s ReadyCap and GMFS subsidiaries, which will employ their own personnel, the combined company does not expect to have its own employees. In addition, the combined company expects that the Chief Executive Officer, President, portfolio managers and any other appropriate personnel of Waterfall will devote such portion of their time to the combined company’s affairs as is necessary to enable the combined company to effectively operate its business. Waterfall and the combined company’s officers may have conflicts between their duties to the combined company and their duties to, and interests in, Waterfall

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and its affiliates. Waterfall is not required to devote a specific amount of time or the services of any particular individual to the combined company’s operations. Waterfall manages or provides services to other clients, and the combined company will compete with these other clients for Waterfall’s resources and support. The ability of Waterfall and its officers and personnel to engage in other business activities may reduce the time they spend advising the combined company.

There may also be conflicts in allocating assets that are suitable for the combined company and other clients of Waterfall and its affiliates. Waterfall manages a series of funds and a limited number of separate accounts, which focus on a range of ABS other credit strategies. With the exception of the Olympic Fund, discussed below, none of these other funds or separate accounts focus on SBC loans as their primary business strategy.

To address certain potential conflicts arising from the combined company’s relationship with Waterfall or its affiliates, Waterfall has agreed in the side letter agreement that, for so long as the management agreement is in effect, neither it nor any of its affiliates will (i) sponsor or manage any additional investment vehicle where the combined company does not participate as an investor whose primary investment strategy will involve SBC mortgage loans, unless Waterfall obtains the prior approval of a majority of the combined company’s board (including a majority of the combined company’s independent directors), or (ii) acquire a portfolio of assets, a majority of which (by value or UPB) are SBC mortgage loans on behalf of another investment vehicle (other than acquisitions of SBC ABS), unless the combined company is first offered the investment opportunity and a majority of the combined company board (including a majority of the combined company’s independent directors) decide not to acquire such assets.

In March 2014, due to the size of SBC mortgage loan opportunities, which exceeded Sutherland’s financing capacity at that time, Waterfall sponsored the Olympic Fund. The Olympic Fund was established to invest in assets that may not be qualifying assets for REIT purposes or to invest in SBC loan assets that Sutherland declines to purchase for any reason. The Olympic Fund purchased SBC mortgage loans for $431.1 million over 16 transactions and SBC ABS for $83.0 million over four transactions from March 31, 2014 through June 30, 2016. These opportunities were first presented to Sutherland and a majority of Sutherland’s board of directors (including a majority of Sutherland’s independent directors) decided not to acquire such assets and consented to the formation of the Olympic Fund. Waterfall will continue to seek the consent of the combined company board (including a majority of the combined company’s independent directors) before allocating asset opportunities to the Olympic Fund, and anticipates that as the combined company’s debt and equity financing sources continue to grow, Waterfall will only allocate asset opportunities to the Olympic Fund that are not qualifying REIT assets.

The side letter agreement does not cover SBC ABS acquired in the market and non-real estate secured loans and the combined company may compete with other existing clients of Waterfall and its affiliates, including the Olympic Fund, other funds managed by Waterfall which focus on a range of ABS and other credit strategies and separately managed accounts, and future clients of Waterfall and its affiliates in acquiring SBC ABS, non-real estate secured loans and portfolios of assets less than a majority of which (by value or UPB) are SBC loans, and in acquiring other target assets that do not involve SBC loans. As of June 30, 2016, the Olympic Fund, these other funds and the separately managed accounts had funds available for investment of $90.8 million, $367.0 million and $127.9 million, respectively.

There is no assurance that the side letter agreement or the allocation policy that addresses some of the conflicts relating to the combined company’s assets, which is described under “The Mergers — Interests of Sutherland’s Directors and Executive Officers in the Mergers,” will be adequate to address all of the conflicts that may arise.

The combined company will pay Waterfall substantial management fees regardless of the performance of its portfolio. Waterfall’s entitlement to a base management fee, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for the combined company’s portfolio. This in turn could hurt both the combined company’s ability to make distributions to its stockholders and the market price of the combined company’s common stock.

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The management agreement was negotiated between related parties and their terms, including fees payable, may not be as favorable to the combined company as if they had been negotiated with unaffiliated third parties.

The termination of the management agreement may be difficult and require payment of a substantial termination fee or other amounts, including in the case of termination for unsatisfactory performance, which may adversely affect the combined company’s inclination to end its relationship with Waterfall.

Termination of the management agreement without cause is difficult and costly. The combined company’s independent directors will review Waterfall’s performance and the management fees annually and, following the initial term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of the combined company’s independent directors, or by a vote of the holders of at least a majority of the outstanding shares of the combined company common stock (other than shares held by members of the combined company’s senior management team and affiliates of Waterfall), based upon: (i) Waterfall’s unsatisfactory performance that is materially detrimental to the combined company, or (ii) a determination that the management fees or incentive distribution payable to Waterfall are not fair, subject to Waterfall’s right to prevent termination based on unfair fees by accepting a reduction of management fees or incentive distribution agreed to by at least two-thirds of the combined company’s independent directors. The combined company must provide Waterfall with 180 days prior notice of any such termination. Additionally, upon such a termination without cause, the management agreement provides that the combined company will pay Waterfall a termination fee equal to three times the average annual base management fee earned by Waterfall during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination, except upon an internalization. Additionally, if the management agreement is terminated under circumstances in which the combined company is obligated to make a termination payment to Waterfall, the combined company’s operating partnership shall repurchase, concurrently with such termination, the Class A special unit for an amount equal to three times the average annual amount of the incentive distribution paid or payable in respect of the Class A special unit during the 24-month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination. These provisions may increase the cost to the combined company of terminating the management agreement and adversely affect the combined company’s ability to terminate Waterfall without cause.

Waterfall is only contractually committed to serve the combined company until three years from the closing of the mergers, with automatic one-year renewal terms starting on the third anniversary of the closing of the mergers. If the management agreement is terminated and no suitable replacement is found to manage the combined company, the combined company may not be able to execute its business plan.

If the combined company internalizes its management functions or if Waterfall is internalized by another sponsored program, the combined company may be unable to obtain key personnel, and the consideration the combined company pays for any such internalization could exceed the amount of any termination fee, either of which could have a material and adverse effect on the combined company’s business, financial condition and results of operations.

The combined company may engage in an internalization transaction and, become self-managed and if this were to occur, certain key employees may not become the combined company’s employees but may instead remain employees of Waterfall or its affiliates. An inability to manage an internalization transaction effectively could thus result in the combined company incurring excess costs and suffering deficiencies in its disclosure controls and procedures or its internal control over financial reporting. Such deficiencies could cause the combined company to incur additional costs, and the combined company’s management’s attention could be diverted from most effectively managing its investments. Additionally, if another program sponsored by Waterfall internalizes Waterfall, key personnel of Waterfall, who also are key personnel of the other sponsored program, would become employees of the other program and would no longer be available to the combined company. Any such loss of key personnel could adversely impact the combined company’s ability to execute certain aspects of its business plan. Furthermore, in the case of any internalization transaction, the combined company expects that it would be required to pay consideration to compensate Waterfall for the internalization in an amount that the combined company will negotiate with Waterfall in good faith and which

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will require approval of at least a majority of the combined company’s independent directors. It is possible that such consideration could exceed the amount of the termination fee that would be due to Waterfall if the conditions for terminating the management agreement without cause are satisfied and the combined company elected to terminate the management agreement and payment of such consideration could have a material and adverse effect on the combined company’s business, financial condition and results of operations.

Waterfall and its affiliates have limited prior experience operating a REIT and therefore may have difficulty in successfully and profitably operating the combined company’s business or complying with regulatory requirements, including the REIT provisions of the Code, which may hinder their ability to achieve the combined company’s objectives or result in loss of the combined company’s qualification as a REIT.

Prior to the completion of the 2013 private placement of Sutherland, Waterfall and its affiliates had no experience operating a REIT or complying with regulatory requirements, including the REIT provisions of the Code. The REIT rules and regulations are highly technical and complex, and the failure to comply with the income, asset, and other limitations imposed by these rules and regulations could prevent the combined company from qualifying as a REIT or could force the combined company to pay unexpected taxes and penalties. Waterfall and its affiliates have limited experience operating a business in compliance with the numerous technical restrictions and limitations set forth in the Code or the 1940 Act, applicable to REITs. The combined company cannot assure you that Waterfall or the combined company’s management team will perform on the combined company’s behalf as they have in their previous endeavors. The inexperience of Waterfall and its affiliates described above may hinder its ability to achieve the combined company’s objectives or result in loss of the combined company’s qualification as a REIT or payment of taxes and penalties. As a result, the combined company cannot assure you that it will be able to successfully operate as a REIT, execute its business strategies or comply with regulatory requirements applicable to REITs.

Waterfall’s base management fee may reduce its incentive to devote its time and effort to seeking attractive assets for the combined company’s portfolio because the fee is payable regardless of the combined company’s performance.

The combined company will pay Waterfall a base management fee regardless of the performance of the combined company’s portfolio. Waterfall’s entitlement to non-performance-based compensation might reduce its incentive to devote its time and effort to seeking assets that provide attractive risk-adjusted returns for the combined company’s portfolio. This in turn could hurt both the combined company’s ability to make distributions to its stockholders and the market price of combined company’s common stock.

The Class A special unit entitling Waterfall to an incentive distribution may induce Waterfall to make certain investments that may not be favorable to the combined company, including speculative investments.

Under the surviving partnership agreement of the combined company operating partnership, Waterfall, the holder of the Class A special unit, will be entitled to receive an incentive distribution that may cause Waterfall to place undue emphasis on the maximization of the combined company’s “core earnings” at the expense of other criteria, such as preservation of capital, to achieve a higher incentive distribution. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of the combined company’s portfolio.

The combined company’s board will not approve each investment and financing decision made by Waterfall unless required by the combined company’s investment guidelines.

The combined company expects to authorize Waterfall to follow broad investment guidelines established by the combined company’s board. The combined company’s board will periodically review the combined company’s investment guidelines and investment portfolio but will not, and will not be required to, review all of the combined company’s proposed investments. These investment guidelines may be changed from time to time by the combined company’s board without the approval of the combined company’s stockholders. To the extent that the combined company’s board approves material changes to the investment guidelines, the combined company will inform stockholders of such changes through disclosure in its periodic reports and other filings required under the Exchange Act. In addition, in conducting its periodic reviews, the combined company’s board may rely primarily on information provided to them by Waterfall. Furthermore, Waterfall

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may use complex strategies, and transactions entered into may be costly, difficult or impossible to unwind by the time they are reviewed by the combined company’s board. Accordingly, Waterfall will have great latitude in determining the types and amounts of target assets it may decide are attractive investments for the combined company, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect the combined company’s business operations and results.

The combined company is highly dependent on information systems and communication systems; systems failures and other operational disruptions could significantly affect its business, which may, in turn, negatively affect its operating results and its ability to pay dividends to its stockholders.

The combined company’s business is highly dependent on the communications and information systems of the combined company and GMFS, which may interface with or depend on systems operated by third parties, including market counterparties, loan originators and other service providers. Any failure or interruption of these systems could cause delays or other problems in the combined company’s activities, including in its target asset origination or acquisition activities, which could have a material adverse effect on the combined company’s operating results and negatively affect the value of its common stock and its ability to pay dividends to its stockholders.

Additionally, the combined company relies heavily on financial, accounting and other data processing systems and operational risks arising from mistakes made in the confirmation or settlement of transactions, from transactions not being properly booked, evaluated or accounted for or other similar disruption in the combined company’s operations may cause it to suffer financial loss, the disruption of its business, liability to third parties, regulatory intervention or reputational damage.

The combined company may be subject to liability in connection with its residential mortgage loans for potential violations of consumer protection laws and regulations.

Federal consumer protection laws and regulations have been enacted and promulgated that are designed to regulate residential mortgage loan underwriting and originators’ lending processes, standards, and disclosures to borrowers. These laws and regulations include the ATR/Qualified Mortgage Rule and the Servicing Rules. In addition, there are various other federal, state, and local laws and regulations that are intended to discourage predatory lending practices by residential mortgage loan originators. For example, the federal Home Ownership and Equity Protection Act of 1994 prohibits inclusion of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination. Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and requirements greater than those in place under federal laws and regulations. In addition, under the anti-predatory lending laws of some states, the origination of certain residential mortgage loans, including loans that are not classified as “high cost” loans under applicable law, must satisfy a net tangible benefits test with respect to the borrower. This test, as well as certain standards set forth in the ATR/Qualified Mortgage Rule, may be highly subjective and open to interpretation. As a result, a court may determine that a residential mortgage loan did not meet the standard or test even if the originator reasonably believed such standard or test had been satisfied.

Mortgage loans also are subject to various other federal laws, including:

• the Equal Credit Opportunity Act of 1974, as amended and Regulation B promulgated thereunder, which prohibit discrimination on the basis of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of any right under the Consumer Credit Protection Act of 1968, as amended, in the extension of credit;

• the Truth in Lending Act, or TILA, and Regulation Z promulgated under TILA, which both require certain disclosures to the mortgagors regarding the terms of residential loans;

• the Real Estate Settlement Procedures Act, or RESPA, and Regulation X promulgated under RESPA, which (among other things) prohibit the payment of referral fees for real estate settlement services (including mortgage lending and brokerage services) and regulate escrow accounts for taxes and insurance and billing inquiries made by mortgagors;

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• the Americans with Disabilities Act of 1990, as amended which, among other things, prohibits discrimination on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages or accommodations of any place of public accommodation;

• the Fair Credit Reporting Act of 1970, as amended, which regulates the use and reporting of information related to the borrower’s credit experience;

• the Consumer Financial Protection Act, enacted as part of the Dodd-Frank Act, which (among other things) created the CFPB and gave it broad rulemaking, supervisory and enforcement jurisdiction over mortgage lenders and servicers, and proscribes any unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service;

• the Home Equity Loan Consumer Protection Act of 1988, which requires additional disclosures and limits changes that may be made to the loan documents without the mortgagor’s consent, and restricts a mortgagee’s ability to declare a default or to suspend or reduce a mortgagor’s credit limit to certain enumerated events;

• the Depository Institutions Deregulation and Monetary Control Act of 1980, which preempts certain state usury laws;

• the Dodd-Frank Act, including as described above under “— The combined company cannot predict the unintended consequences and market distortions that may stem from far-ranging regulatory reform of the oversight of financial markets”; and

• the Service members Civil Relief Act, as amended, which provides relief to borrowers who enter into active military service or who were on reserve status but are called to active duty after the origination of their mortgage loans; and

• the Alternative Mortgage Transaction Parity Act of 1982, which preempts certain state lending laws which regulate alternative mortgage transactions.

Failure of the combined company, residential mortgage loan originators, mortgage brokers or servicers to comply with these laws and regulations, could subject the combined company to monetary penalties and defenses to foreclosure, including by recoupment or setoff of finance charges and fees collected, and could result in rescission of the affected residential mortgage loans, which could adversely impact the combined company’s business and financial results.

GMFS is a seller/servicer approved to sell residential mortgage loans to Freddie Mac and Fannie Mae and failure to maintain its status as an approved seller/servicer could harm the combined company’s business.

GMFS is an approved Fannie Mae Seller-Servicer, Freddie Mac Seller-Servicer, Ginnie Mae issuer, Department of Housing and Urban Development/Federal Housing administration, which we refer to as FHA, mortgagee, U.S. Department of Agriculture, which we refer to as USDA, approved originator and, U.S. Department of Veteran’s Affairs, which we refer to as VA, lender. As an approved seller/servicer, GMFS is required to conduct certain aspects of its operations in accordance with applicable policies and guidelines published by these entities and GMFS is required to pledge a certain amount of cash to them to collateralize potential obligations to these entities. Failure to maintain GMFS’s status as an approved seller/servicer would mean it would not be able to sell mortgage loans to these entities, could result in it being required to re-purchase loans previously sold to these entities, or could otherwise restrict the its business and investment options and could harm its business and expose it to losses or other claims. Fannie Mae, Freddie Mac or these other entities may, in the future, require GMFS to hold additional capital or pledge additional cash or assets in order to maintain approved seller/servicer status, which, if required, would adversely impact the combined company’s financial results.

GMFS operates within a highly regulated industry on a federal, state and local level and the business results of GMFS are significantly impacted by the laws and regulations to which GMFS is subject.

As a mortgage loan originator, GMFS is subject to extensive and comprehensive regulation under federal, state and local laws in the United States. These laws and regulations significantly affect the way that GMFS conducts its business and restrict the scope of the existing business of GMFS and limit the ability of GMFS to

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expand its product offerings or can make the cost to originate and service mortgage loans higher, which could impact the combined company’s financial results.

The CFPB issued proposed changes to its Servicing Rules in November 2014. The proposed changes, if adopted, may increase the costs of loss mitigation and increase foreclosure timelines. Other new regulatory requirements or changes to existing requirements that the CFPB may promulgate could require changes in the business of GMFS, result in increased compliance costs and impair the profitability of such business. In addition, as a result of the Dodd-Frank Act’s potential expansion of the authority of state attorneys general to bring actions to enforce federal consumer protection legislation, GMFS could be subject to state lawsuits and enforcement actions, thereby further increasing the legal and compliance costs relating to GMFS. The proposed amendments to the Servicing Rules will increase the complexity of the loss mitigation and foreclosure processes and an inadvertent failure to comply with these rules could lead to losses in the value of the mortgage loans, be an event of default under various servicing agreements or subject GMFS to fines and penalties. The cumulative effect of these changes could result in a material impact on the combined company’s earnings.

Additionally, the Dodd-Frank Act directed the CFPB to integrate certain mortgage loan disclosures under the TILA and RESPA, and effective October 3, 2015, new disclosure rules went into effect for newly originated residential mortgage loans. These rules include new consumer disclosure document forms, new processes for determining when disclosures must be updated and new timelines for providing disclosure documents to borrowers. These new rules have created the need for substantial system and process changes at GMFS and new training for its employees. Failure to comply with these new requirements may result in penalties for disclosure violations under the TILA and RESPA.

GMFS could be subject to additional regulatory requirements or changes under the Dodd Frank Act beyond those currently proposed, adopted or contemplated, particularly given the ongoing heightened regulatory environment in which financial institutions operate. The ongoing implementation of the Dodd Frank Act, including the implementation of the Servicing Rules and the rules related to mortgage loan disclosures by the CFPB, could increase the regulatory compliance burden and associated costs of GMFS and place restrictions on the operations of GMFS, which could in turn adversely affect the combined company’s, financial condition and results of operations.

Mortgage loan modification and refinance programs as well as future legislative action may adversely affect the value of, and the returns on, the target assets in which the combined company invests.

The U.S. Government, through the Federal Reserve, the FHA and the FDIC, commenced implementation of programs designed to provide homeowners with assistance in avoiding residential or commercial mortgage loan foreclosures, including the Home Affordable Modification Program, which provides homeowners with assistance in avoiding residential mortgage loan foreclosures, and the Home Affordable Refinance Program, which we refer to as HARP, which allows borrowers who are current on their mortgage payments to refinance and reduce their monthly mortgage payments at loan-to-value ratios without new mortgage insurance. The programs may involve, among other things, the modification of mortgage loans to reduce the principal amount of the loans or the rate of interest payable on the loans, or to extend the payment terms of the loans.

Loan modification and refinance programs may adversely affect the performance of residential mortgage loans, Agency RMBS and non-Agency RMBS. Especially with non-Agency RMBS, a significant number of loan modifications with respect to a given security, including those related to principal forgiveness and coupon reduction, could negatively impact the realized yields and cash flows on such security. These loan modification programs, future legislative or regulatory actions, including possible amendments to the bankruptcy laws, which result in the modification of outstanding residential mortgage loans, as well as changes in the requirements necessary to qualify for refinancing mortgage loans with Fannie Mae, Freddie Mac or Ginnie Mae, may adversely affect the value of, and the returns on, residential mortgage loans, non-Agency RMBS, Agency RMBS and the combined company’s other target assets that it may purchase.

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Reverse mortgages have payment terms which are different from traditional forward mortgages, and if the actual rate and timing of payoffs of these loans differ significantly from the combined company’s expectations, the market value of its reverse mortgage loans may be materially adversely affected.

In addition to traditional forward mortgage loans, GMFS also originates and acquires home equity conversion mortgage loans, which we refer to as HECM loans, which are reverse mortgage loans that are insured by the FHA. With a reverse mortgage loan, unlike a traditional forward mortgage loan, the borrower does not make ongoing cash payments of principal or interest. Rather, with a reverse mortgage loan, payment of interest and repayment of principal is not triggered until a maturity event — such as death, non-occupancy, sale of the property or other conveyance of title to the property, or a failure to perform certain obligations which remain uncured under the loan. The loan balance of a reverse mortgage loan accrues at a fixed or floating rate of interest and, similar to a traditional forward mortgage loan, the borrower continues to own and live in the home and remains responsible only for maintaining the home in good repair and paying real estate taxes and property insurance premiums for the life of the loan.

HECM loans are generally assignable to the FHA at par when the loan balance reaches 98% of its maximum claim amount. The maximum claim amount is the maximum dollar amount that the FHA will pay on a claim for insurance benefits with respect to a HECM loan or on assignment of a HECM loan to the FHA. This amount is the lowest of the appraised value of the property at the time of loan origination, the sale price of the property being purchased or the national mortgage limit as determined by FHA guidelines, which is currently $625,500.

The timing of any payment of principal and interest is uncertain and will be made in respect of the combined company’s HECM loans only upon (i) a maturity event, (ii) a borrower voluntary prepayment event which can occur at any time or (iii) the assignment of a HECM loan to the FHA when the loan balance reaches 98% of its maximum claim amount. The rate of principal payments (including prepayments or partial payments) of the HECM loans depends on a variety of economic, social, geographic, demographic, legal and other factors, including changes in home prices, prevailing market interest rates, borrower mortality, and FHA guidelines regarding the HECM loans, and will affect the weighted average lives and the yields the combined company realizes on its HECM loans. HECM loans may respond differently than traditional forward mortgage loans to the factors that influence prepayment. There is variability when any amounts might be paid on HECM loans because it is uncertain: (i) when any maturity event might occur, (ii) whether a HECM loan borrower will choose to prepay amounts advanced in whole or in part and (iii) in the case of an adjustable-rate HECM loan, when amounts owed on a HECM loan will equal or exceed 98% of the maximum claim amount. If the actual rate and timing of maturity events, borrower prepayments and assignments to the FHA differ significantly from the combined company’s expectations, the market value of its HECM loans may be materially adversely affected.

The combined company may be affected by alleged or actual deficiencies in servicing and foreclosure practices of third parties, as well as related delays in the foreclosure process.

Allegations of deficiencies in servicing and foreclosure practices among several large sellers and servicers of residential mortgage loans that surfaced in 2010 raised various concerns relating to such practices, including the improper execution of the documents used in foreclosure proceedings (“robo signing”), inadequate documentation of transfers and registrations of mortgages and assignments of loans, improper modifications of loans, violations of representations and warranties at the date of securitization and failure to enforce put-backs.

As a result of alleged deficiencies in foreclosure practices, a number of servicers temporarily suspended foreclosure proceedings beginning in the second half of 2010 while they evaluated their foreclosure practices. In late 2010, a group of state attorneys general and state bank and mortgage regulators representing nearly all 50 states and the District of Columbia, along with the U.S. Justice Department and HUD, began an investigation into foreclosure practices of banks and servicers. The investigations and lawsuits by several state attorneys general led to a settlement agreement in March 2012 with five of the nation’s largest banks, pursuant to which the banks agreed to pay more than $25 billion to settle claims relating to improper foreclosure practices. The settlement does not prohibit the states, the federal government, individuals or investors in RMBS from pursuing additional actions against the banks and servicers in the future.

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The integrity of the servicing and foreclosure processes are critical to the value of the residential mortgage loans and the RMBS collateralized by residential mortgage loans in which the combined company will invest, and the combined company’s financial results could be adversely affected by deficiencies in the conduct of those processes. For example, delays in the foreclosure process that have resulted from investigations into improper servicing practices may adversely affect the values of, and the combined company’s losses on, the residential mortgage loans and non-Agency RMBS the combined company owns or may originate or acquire. Foreclosure delays may also increase the administrative expenses of any securitization trusts that the combined company may sponsor for non-Agency RMBS, thereby reducing the amount of funds available for distribution to the combined company’s stockholders. In addition, the subordinate classes of securities issued by any such securitization trusts may continue to receive interest payments while the defaulted loans remain in the trusts, rather than absorbing the default losses. This may reduce the amount of credit support available for the senior classes the combined company may own, thus possibly adversely affecting these securities.

In addition, in these circumstances, the combined company may be obligated to fund any obligation of the servicer to make advances on behalf of a delinquent loan obligor. To the extent that there are significant amounts of advances that need to be funded in respect of loans where the combined company owns the servicing right, it could have a material adverse effect on the combined company’s business and financial results.

While ZAIS Financial believes that the sellers and servicers would be in violation of their servicing contracts to the extent that they have improperly serviced mortgage loans or improperly executed documents in foreclosure or bankruptcy proceedings, or do not comply with the terms of servicing contracts when deciding whether to apply principal reductions, it may be difficult, expensive and time consuming for the combined company to enforce its contractual rights.

The combined company will continue to monitor and review the issues raised by the alleged improper foreclosure practices. While the combined company cannot predict exactly how the servicing and foreclosure matters or the resulting litigation or settlement agreements will affect its business, there can be no assurance that these matters will not have an adverse impact on the combined company’s consolidated results of operations and financial condition.

Homeowner association super priority liens, special assessments and energy efficiency liens may take priority over the mortgage lien.

Homeowner association super priority liens may take priority over the mortgage lien. In some jurisdictions it is possible that the first lien of a mortgage may be extinguished by super priority liens of homeowners associations, which we refer to as HOAs, potentially resulting in a loss of the outstanding principal balance of the mortgage loan. In a number of states, HOA or condominium association assessment liens can take priority over first lien mortgages in certain circumstances. The number of these so called superlien jurisdictions has increased in the past few decades and may increase further. Recent rulings by the highest courts in Nevada and the District of Columbia have held that the superlien statute provides the HOA or condominium association with a true lien priority rather than a payment priority from the proceeds of the sale, creating the ability to extinguish the existing senior mortgage and greatly increasing the risk of losses on mortgage loans secured by homes whose owners fail to pay HOA or condominium fees. If an HOA, or a purchaser of an HOA superlien, completes a foreclosure in respect of an HOA superlien on a mortgaged property, the related mortgage loan may be extinguished. In those circumstances, a loan owner could suffer a loss of the entire principal balance of such mortgage loan. A servicer might be able to attempt to recover, on an unsecured basis, by suing the related mortgagor personally for the balance, but recovery in these circumstances will be problematic if the related mortgagor has no meaningful assets against which to recover. Special assessments and energy efficiency liens may take priority over the mortgage lien. Mortgaged properties securing mortgage loans may be subject to the lien of special property taxes and/or special assessments. These liens may be superior to the liens securing the mortgage loans, irrespective of the date of the mortgage. In some instances, individual mortgagors may be able to elect to enter into contracts with governmental agencies for property assessed clean energy or similar assessments that are intended to secure the payment of energy and water efficiency and distributed energy generation improvements that are permanently affixed to their properties, possibly without notice to or the consent of the mortgagee. These

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assessments may also have lien priority over the mortgages securing mortgage loans. No assurance can be given that a mortgaged property so assessed will increase in value to the extent of the assessment lien. Additional indebtedness secured by the assessment lien would reduce the amount of the value of a mortgaged property available to satisfy the affected mortgage loan. Such actions could have a dramatic impact on the combined company’s business, results of operations and financial condition, and the cost of complying with any additional laws and regulations could have a material adverse effect on the combined company’s business, financial condition, results of operations, the market price of its common stock and its ability to pay dividends to its stockholders.

The combined company’s MSRs will expose it to significant risks.

Fannie Mae and Freddie Mac generally require mortgage servicers to be paid a minimum servicing fee that significantly exceeds the amount a servicer would charge in an arm’s-length transaction. The minimum servicing fee required by the agencies is therefore made up of the normal arm’s-length servicing fee and the excess mortgage servicing amount.

The combined company’s MSRs will be recorded at fair value on the combined company’s balance sheet based upon significant estimates and assumptions, with changes in fair value included in the combined company’s consolidated results of operations. Such estimates and assumptions would include, without limitation, estimates of future cash flows associated with MSRs based upon assumptions involving interest rates as well as the prepayment rates, delinquencies and foreclosure rates of the underlying serviced mortgage loans.

The ultimate realization of the value of MSRs, which are measured at fair value on a recurring basis, may be materially different than the fair values of such MSRs as may be reflected in the combined company’s balance sheet as of any particular date. The use of different estimates or assumptions in connection with the valuation of these assets could produce materially different fair values for such assets, which could have a material adverse effect on the combined company’s consolidated financial position, results of operations and cash flows. Accordingly, there may be material uncertainty about the fair value of the combined company’s MSRs.

Changes in interest rates are a key driver of the performance of MSRs. Historically, the value of MSRs has increased when interest rates rise and decreased when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. The combined company may pursue various hedging strategies to seek to reduce its exposure to adverse changes in interest rates. The combined company’s hedging activity will vary in scope based on the level and volatility of interest rates, the type of assets held and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect the combined company. To the extent the combined company does not utilize derivatives to hedge against changes in the fair value of MSRs, the combined company’s balance sheet, consolidated results of operations and cash flows would be susceptible to significant volatility due to changes in the fair value of, or cash flows from, MSRs as interest rates change.

Prepayment speeds significantly affect excess mortgage servicing fees. Prepayment speed is the measurement of how quickly borrowers pay down the unpaid principal balance of their loans or how quickly loans are otherwise brought current, modified, liquidated or charged off. The combined company will base the price it pays for MSRs and the rate of amortization of those assets on factors such as the combined company’s projection of the cash flows from the related pool of mortgage loans. The combined company’s expectation of prepayment speeds will be a significant assumption underlying those cash flow projections. If prepayment speeds are significantly greater than expected, the carrying value of MSRs could exceed their estimated fair value. If the fair value of MSRs decreases, the combined company would be required to record a non-cash charge, which would have a negative impact on its financial results. Furthermore, a significant increase in prepayment speeds could materially reduce the ultimate cash flows the combined company receives from MSRs, and the combined company could ultimately receive substantially less than what it paid for such assets.

Moreover, delinquency rates have a significant impact on the valuation of any excess mortgage servicing fees. An increase in delinquencies will generally result in lower revenue because typically the combined company will only collect servicing fees from agencies or mortgage owners for performing loans. If delinquencies are significantly greater than the combined company expects, the estimated fair value of the

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MSRs could be diminished. When the estimated fair value of MSRs is reduced, the combined company could suffer a loss, which could have a negative impact on the combined company’s financial results.

Furthermore, MSRs are subject to numerous U.S. federal, state and local laws and regulations and may be subject to various judicial and administrative decisions imposing various requirements and restrictions on the combined company’s business. The combined company’s failure to comply, or the failure of the servicer to comply, with the laws, rules or regulations to which the combined company or the servicer are subject by virtue of ownership of MSRs, whether actual or alleged, could expose the combined company to fines, penalties or potential litigation liabilities, including costs, settlements and judgments, any of which could have a material adverse effect on the combined company’s business, financial condition, consolidated results of operations or cash flows.

Risks Related to Financing and Hedging

The combined company will use leverage as part of its investment strategy but the combined company will not have a formal policy limiting the amount of debt it may incur. The combined company’s board may change the combined company’s leverage policy without stockholder consent.

The combined company will use prudent leverage to increase potential returns to the combined company’s stockholders. Sutherland has completed seven securitizations of SBC loan and SBA 7(a) loan assets since January 2011, issuing bonds with an aggregate face value of $844.5 million. As of June 30, 2016, Sutherland’s committed and outstanding financing arrangements included:

• one committed credit facility and three master repurchase agreements to finance Sutherland’s SBC loans with $444.0 million of borrowings outstanding;

• $407.2 million of securitized debt obligations outstanding from six ABS which financed Sutherland’s whole loan acquisitions and SBC originations;

• master repurchase agreements with four counterparties to fund Sutherland’s acquisitions of SBC ABS and short term investments with $325.0 million of borrowings outstanding; and

• one promissory note to finance Sutherland’s SBC loans with $9.2 million of borrowings outstanding.

For further information on these funding sources see “Sutherland Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” Over time, as market conditions change, the combined company plans to use these and other borrowings.

The return on the combined company’s assets and cash available for distribution to the combined company’s stockholders may be reduced to the extent that market conditions prevent the combined company from leveraging its assets or cause the cost of the combined company’s financing to increase relative to the income that can be derived from the assets acquired. The combined company’s financing costs will reduce cash available for distribution to stockholders. The combined company may not be able to meet its financing obligations and, to the extent that it cannot, the combined company risks the loss of some or all of its assets to liquidation or sale to satisfy the obligations. A decrease in the value of the combined company’s assets that are subject to repurchase agreement financing may lead to margin calls which the combined company will have to satisfy. The combined company 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. The satisfaction of any such margin calls may reduce cash flow available for distribution to the combined company’s stockholders. Any reduction in distributions to the combined company’s stockholders may cause the value of its common stock to decline.

The combined company may not be able to successfully complete additional securitization transactions, which could limit potential future sources of financing and could inhibit the growth of the combined company’s business.

The combined company may use its existing credit facilities or repurchase agreements or, if the combined company is successful in entering into definitive documentation in respect of its other potential financing facilities, other borrowings to finance the origination and/or acquisition of SBC loans until a sufficient quantity

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of eligible assets has been accumulated, at which time the combined company would refinance these short-term facilities or repurchase agreements through the securitization market which could include the creation of commercial mortgage-backed securities, or CMBS, collateralized debt obligations, or CDOs, or the private placement of loan participations or other long-term financing. When the combined company employs this strategy, the combined company is subject to the risk that it would not be able to obtain, during the period that its short-term financing arrangements are available, a sufficient amount of eligible assets to maximize the efficiency of a CMBS, CDO or private placement issuance. The combined company is also subject to the risk that it will not able to obtain short-term financing arrangements or will not able to renew any short-term financing arrangements after they expire should the combined company find it necessary to extend such short-term financing arrangements to allow more time to obtain the necessary eligible assets for a long-term financing.

The inability to consummate securitizations of the combined company’s portfolio to finance its SBC loan and ABS assets on a long-term basis could require the combined company to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price, which could have a material and adverse effect on the combined company’s business, financial condition and results of operations.

The combined company may be required to repurchase mortgage loans or indemnify investors if it breaches representations and warranties, which could harm the combined company’s earnings.

ZAIS Financial and Sutherland have sold and, on occasion, consistent with the combined company’s qualification as a REIT and its desire to avoid being subject to the “prohibited transaction” penalty tax, the combined company may sell some of its loans in the secondary market or as a part of a securitization of a portfolio of its loans. When the combined company sells loans, it is required to make customary representations and warranties about such loans to the loan purchaser. The combined company’s mortgage loan sale agreements may require it to repurchase or substitute loans in the event it breaches a representation or warranty given to the loan purchaser. In addition, the combined company may be required to repurchase loans as a result of borrower fraud or in the event of early payment default on a mortgage loan. Likewise, the combined company may be required to repurchase or substitute loans if it breaches a representation or warranty in connection with its securitizations, if any.

The remedies available to a purchaser of mortgage loans are generally broader than those available to the combined company against the originating broker or correspondent. Further, if a purchaser enforces its remedies against the combined company, the combined company may not be able to enforce the remedies it has against the sellers. The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also typically sold at a significant discount to the UPB. Significant repurchase activity could harm the combined company’s cash flow, results of operations, financial condition and business prospects.

The combined company’s financing arrangements will contain financial covenants that could restrict the combined company’s borrowings or subject it to additional risks.

The combined company’s financing arrangements will contain various financial and other restrictive covenants, including covenants that require the combined company to maintain a certain interest coverage ratio and net asset value and that create a maximum balance sheet leverage ratio. For further information on these covenants see “Sutherland Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” If the combined company fails to satisfy any of the financial or other restrictive covenants, or otherwise defaults under these agreements, the lender has the right to accelerate repayment and terminate the facility. Accelerating repayment and terminating the facility would require immediate repayment by the combined company of the borrowed funds, which may require the combined company to liquidate assets at a disadvantageous time, causing the combined company to incur further losses and adversely affecting its results of operations and financial condition, which may impair the combined company’s ability to maintain its current level of distributions.

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Certain financing arrangements and any debt securities the combined company may issue could restrict its operations and expose it to additional risk.

The existing financing arrangements of ZAIS Financial and Sutherland and the future financing arrangements of the combined company, and any debt securities the combined company may issue in the future, are or will be governed by a credit agreement, indenture or other instrument containing covenants restricting the combined company’s operating flexibility. Additionally, any convertible or exchangeable securities that the combined company issues in the future may have rights, preferences and privileges more favorable than those of the combined company’s common stock. The combined company will bear the cost of issuing and servicing such credit facilities, arrangements or securities.

These restrictive covenants and operating restrictions could have a material adverse effect on the combined company’s operating results, cause the combined company to lose its REIT status, restrict the combined company’s ability to finance or securitize new originations and acquisitions, force the combined company to liquidate collateral and negatively affect the market price of the combined company’s common stock and its ability to pay dividends. For further information on these covenants see “Sutherland Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”