Commitments and Contingencies

9 Months Ended

Sep. 30, 2024

Commitments and Contingencies

Commitments and Contingencies

12.   Commitments and Contingencies

Origination, Modification, and Construction Servicing Fees

Loan origination and modification fees generally range from 1% - 3% each of the original loan principal or the modified loan balance and, generally, are payable at the time the loan is funded or modified. The unamortized portion is recorded as deferred revenue on the consolidated balance sheet. At September 30, 2024, deferred revenue was $3.4 million, which will be recorded as income as follows:

Years ending December 31,	Amount
	(in thousands)
Remainder of 2024	$	1,635
2025		1,631
2026		100
2027		3
Total	$	3,369

In instances in which mortgages are repaid before their maturity date, the balance of any unamortized deferred revenue is recognized in full at the time of repayment.

Employment Agreements and Arrangements

In February 2017, the Company entered into an employment agreement with John Villano, the material terms of which are as follows: (i) the employment term is five years with extensions for successive one-year periods unless either party provides written notice at least 180 days prior to the next anniversary date of its intention to not renew the agreement; (ii) a base salary of $260,000, which was increased in April 2018, April 2021 and April 2022 to $360,000, $500,000 and $750,000, respectively; (iii) incentive compensation in such amount as determined by the Compensation Committee of the Company’s Board of Directors; (iv) participation in the Company’s employee benefit plans; (v) full indemnification to the extent permitted by law; (vi) a two-year non-competition period following the termination of employment without cause; and (vii) payments upon termination of employment or a change in control. In April 2021, the Company granted 89,928 restricted common shares (having a market value of $500,000) to Mr. Villano. One-third of such shares vested on each of January 1, 2022 and 2023, and the remaining one-third will vest on January 1, 2024. In April 2022, the Company granted 98,425 restricted common shares (having a market value of $500,000) to Mr. Villano. One-third of such shares vested on January 1, 2023, and an additional one-third will vest on each of January 1, 2024 and 2025. In February 2023, the Company granted 130,890 restricted common shares (having a market value of $500,000) to Mr. Villano. One-third of such shares vested as of January 1, 2024 and one-third of such shares will vest on each of January 1, 2025 and 2026. In March 2024, the Company granted 111,857 restricted common shares (having a market value of $500,000) to Mr. Villano. One-third of such shares will vest on each of January 1, 2025, 2026 and 2027. All shares granted under John Villano’s employment contract are restricted until the respective vesting periods lapse. As of September 30, 2024, 231,926 restricted common shares remain unvested.

Effective as of September 1, 2024, the Company entered into a new employment arrangement with Nicholas M. Marcello, the Company’s Chief Financial Officer, the material terms of which are as follows: (i) an annual base salary of $300,000; (ii) a one - time payment of $20,000; (iii) entitlement to an annual time - based equity award of $125,000, payable in restricted common shares, commencing on January 1, 2025 and on January 1st of each year thereafter; (iii) he will be entitled to an annual cash bonus of up to 50% of his base salary, the exact amount to be determined by the Compensation Committee of the Company’s Board of Directors; and (iv) he has continued eligibility to participate in the Company’s health insurance plan and the perquisites and other fringe benefits in accordance with prevailing Company policy.

Unfunded Commitments

At September 30, 2024, the Company had future funding obligations totaling $71.9 million, which can be drawn by the borrowers when the conditions relating thereto have been satisfied. The unfunded commitments will be funded from loan payoffs and additional drawdowns under existing and future credit facilities and proceeds from sale of debt and equity securities.

Liquidity

The Company incurred a net loss attributable to common shareholders of $6.6 million during the nine months ended September 30, 2024. The loss was driven primarily from the increase in non-accrual loans which had significant increases in provisions for credit losses related to loans. In addition, as of September 30, 2024, the Company breached its covenant related to the Needham Credit Facility (see Note 8 - Line of Credit – Needham Bank), and has unsecured, unsubordinated notes payable due of $34.5 million coming due in December 30, 2024 and another tranche of $56.4 million due in September 2025. These factors raised economic uncertainty from a liquidity standpoint.

Management believes the ability to utilize the Company’s existing $200 million Churchill Facility (see Note 8 - Churchill MRA Funding I LLC Repurchase Financing Facility), cash and cash equivalents of $5.9 million, investment securities at fair value of $1.6 million, continued cash flows from operations, sales of Series A Preferred Stock through the Company’s at-the-market offering facility, and proceeds from the potential sale of mortgage loans in the secondary market (see Note 19 - Subsequent Events) would alleviate the uncertainty.

Other

In the normal course of its business, the Company is named as a party-defendant in connection with tax foreclosure proceedings against properties on which it holds a first mortgage lien. The Company actively monitors these actions and, in all cases, believes there remains sufficient value in the subject property to assure that no loan impairment exists. At September 30, 2024, there were two such properties. The unpaid principal balance on the properties that are subject to these proceedings was $1.9 million.

In accordance with the asset purchase agreement with Urbane New Haven, LLC (“Urbane”) in October 2022, under certain circumstances the Company will be required to pay Urbane 20% of the net proceeds, as defined, of certain real estate development projects completed by the Company until such time that the former principal owner of Urbane, who is currently employed by the Company, is no longer employed by the Company. Any future payments will be expensed.