Korth Direct Mortgage MSNs: $313M of Notes, Late Filings, REO

Who owes what: the note, the loan, KDM and its broker

KDM originates commercial real estate loans it calls “CM Loans”, aimed at what it calls “Middle-Money”: borrowers between banks and hard-money lenders. It funds most of them by issuing a Mortgage Secured Note against each loan, sold through its wholly owned broker-dealer, J. W. Korth & Company, “through exemptions from registration available under Rule 144A, Regulation D, and other exemptions from registration”. The 10-K lists the earlier deals as private placements, SEC-registered deals and 144A offerings. The structure matters more than the brand, so here it is layer by layer.

Two protections are worth knowing and one risk is easy to miss. Borrower payments go into a segregated “In Trust For 2” account and the indenture trustee has a first lien on it. But the 10-K warns that in a KDM bankruptcy “general creditors of KDM may assert a claim” on funds in the segregated accounts, which could delay payments even if the court later sided with noteholders. That is a risk disclosure, not an allegation that anything has gone wrong.

The $313.1 million: where the balance sits and when it falls due

A headline of “$313.1 million of notes” is true at June 30, 2026 and describes a balance that has been falling for 18 months. The table sets the notes next to the loans they are meant to match.

Over the 18 months, notes payable fell $137.1 million (30.5%) and mortgages owned fell $187.5 million (41.5%), while property and equipment rose $37.4 million (our arithmetic). The 10-K gives the reason in two lines: loans of about $125 million paid off in 2025 and were not replaced because “the MSN market stalled for 2025”, and “$50,800,000 moved out of the mortgage book and into REO at fair value”. In the first half of 2026 the 10-Q cites “two large loan payoffs of $97,500,000”.

Notes payable are higher than mortgages owned. At June 30, 2026 the gap was $48,680,734 (our arithmetic). The program totals in the 10-Q give a related figure: $609,495,250 of MSNs issued since inception less $345,039,198 redeemed is $264,456,052, the same number as mortgages owned to the dollar (our arithmetic). The filing does not itemize the difference to the $313.1 million on the balance sheet; it says only that “a portion of these participations are included in the Mortgages Owned number and Mortgage Secured Notes Payable”, with $37,850,456 of $59,557,200 of participations still outstanding. Redemptions in the quarter were $14.3 million ($345,039,198 less $330,777,142) and no new MSNs were added: the issued-since-inception total was $609,495,250 at both March 31 and June 30, 2026 (our arithmetic).

The maturity wall

The remainder of 2026 plus 2027 is $148.9 million, 47.6% of the June 30 balance (our arithmetic). The shape changed between the two reports: the 2026 bucket fell $33.4 million while the total fell only $6.5 million, and the “thereafter” bucket rose $23.4 million (our arithmetic). The 10-Q for the March and June quarters says that bondholders “can expect” KDM to extend performing loans “for additional full 5 year terms” where a borrower could not otherwise refinance. The filings do not say which notes moved, so a holder should check the maturity of their own note rather than assume the table applies to it.

The real estate KDM took back

KDM now owns buildings that used to secure notes. The 10-K says that “four out of the five properties owned as of December 31, 2025” were owned “on behalf of our MSN holders”, to be managed “in the best interests of the MSN holders until we can maximize recovery by stabilizing or selling them”.

The St. Louis case is the clearest picture of what “non-recourse” means in practice. The 10-K says KDM told all bondholders that capital would need to be raised to pay taxes, insurance and ground rent, and that “the bondholders elected not to retain ownership of the property”. The loan table lists the note, KDM2021-N022, with an original balance of $18,000,000 and status “Charge-Off”, and the text says the loan “was a total loss”. Holders of that note were told more capital would be needed, and chose not to provide it.

The properties are not yet earning their keep. The asset management segment had rental income of $5,826,870 and a net loss of $700,327 in 2025, and a net loss of $1,070,144 in the first half of 2026 against income of $246,683 a year earlier, after $656,714 of mortgage interest. Scheduled future rents under the leases were $41,256,766 at June 30, 2026, of which $29,183,525 falls after 2030.

What the $2.34 million loss is, and what it is not

The number most often quoted is the bottom line of the 2025 income statement. It is real, but it is after two deductions that have nothing to do with the notes.

The filing’s own wording is that KDM “pared Net Loss from $3,618,907 for the year ended December 31, 2024 to $2,344,108”, which it calls 49% lower. Several items inside it are non-cash: a $3,151,470 unrealized loss on mortgage servicing rights, a $3,199,104 gain on foreclosed real estate and $1,807,068 of depreciation. Cash used in operations was $14,272,132 in 2025 against $5,448,106 in 2024, with the largest single line an $11,167,832 fall in escrow payable (our reading of the cash-flow statement).

The first half of 2026 reads differently. Revenue was $6,442,463 against $8,854,882 (down 27%), servicing revenue fell from $2,263,827 to $1,407,393 and origination revenue from $1,578,779 to $594,248. Net income attributable to KDM was $215,541, but after $962,500 of preferred dividends the figure to common stockholders was a loss of $746,959, against income of $3,022,660 a year earlier that included a $5,557,032 gain on foreclosure. The March quarter alone was income of $177,448 to common stockholders, so the June quarter was a loss of $924,407 (our arithmetic).

The calendar: late notices, late filings, one auditor change

The days are our arithmetic from the dates on EDGAR. In each 2026 notice the stated reason was the same: “management requires additional time to compile and verify the data required to be included in the Report”. Each notice answered “No” to whether a significant change in results was expected. The notices promised filings within the extension periods; the reports arrived after them.

The auditor. An 8-K filed January 21, 2026 (Item 4.01) says Carr, Riggs & Ingram, LLC acquired “certain assets related to the capital markets practice” of Berkowitz Pollack Brant Advisors + CPAs, LLP effective January 1, 2026, that on January 13, 2026 the company “received notification from BPB that they were resigning”, and that the board approved the new firm on January 20, 2026. The 8-K states that BPB’s reports on 2024 and 2023 “did not contain an adverse opinion or a disclaimer of opinion”. The 10-K adds that “there were no disagreements” with either firm in 2025 and 2024. The new firm’s report, dated June 1, 2026, is unqualified, notes no critical audit matters and does not mention going-concern doubt. Audit fees were $240,798 for 2025 against $205,261 for 2024, including $25,000 for the broker-dealer. Management reported internal control over financial reporting as effective at December 31, 2025 and at June 30, 2026, and disclosure controls as effective at December 31, 2025.

An auditor change is often read as a warning sign. This one was a transfer of the engagement after a practice sale, with an unqualified opinion and no reported disagreement. The late filings are the more relevant signal, and the filings give one reason for them, the one quoted above.

Voluntary filer. The 10-K cover answers “Yes” to “not required to file reports pursuant to Section 13 or 15(d)” and both the 10-K and 10-Q say the registrant “voluntarily files Exchange Act Reports”. The filings do not say KDM intends to stop. But noteholders rely on these reports for information: the 10-K carries the only loan-level list in the filings, and KDM says it discloses borrowers’ payment performance on its own site “at least annually”.

Where the 10-K needs a careful read

Management’s own description of results to date is also in the 10-K: of about $673.6 million originated, $322,769,453 of principal had been returned (48%) and $114,103,957 of MSN interest paid, so $463,874,410 in all had been returned to investors. These figures describe the program, not any one note.

What a reader can do with this

• Find your note’s name and maturity. Each MSN has a series ticker such as KDM2021-N011, which appears on your statement and in the 10-K loan table. The table is dated March 31, 2025, so ask the servicer for the current status of that loan, not only the table’s “Performing”.
• Compare your maturity with the table above. If your note falls in the last six months of 2026 or in 2027, the 10-Q says KDM may extend performing loans for additional five-year terms. What the indenture and the term sheet for your series say about extensions is a document question, not one these filings answer.
• Remember what you own. The note is secured by KDM’s interest in one loan and is non-recourse to KDM, so the 10-K’s balance sheet, its audit opinion and its equity figure tell you about KDM the servicer, not about your repayment.
• Add up your exposure. Check whether you also hold KDM’s preferred stock or other products from the same sponsor; the preferred is serviced from the same fee income.
• Watch the next report. The 10-Q for the quarter ended September 30, 2026 is due around November 14, 2026, a Saturday, so the next business day applies. A fourth late filing would extend the pattern above; our email alert at the foot of the page covers it.
• If you were sold these notes and think the material was misleading, you can complain to the SEC, your state securities regulator and, where a broker-dealer was involved, FINRA. Time limits apply and a lawyer can tell you which.
• Compare with other note and bond issuers in our guide to real estate notes, the real estate bonds census, the Red Oak Capital bond review, the Terra Property Trust notes review and Groundfloor notes versus LROs, each read from its own filings.

Sources: Korth Direct Mortgage Inc. (CIK 1695963) Form 10-K for 2025, accession 0001214659-26-006969, filed June 1, 2026; Form 10-Q for the quarter ended June 30, 2026, 0001214659-26-012510, October 2, 2026; Form 10-Q for March 31, 2026, 0001214659-26-008039, July 1, 2026; Form 10-Q for September 30, 2025, 0001214659-25-016397, November 13, 2025; Form 8-K, 0001214659-26-000675, January 21, 2026; Forms 12b-25 (NT 10-K 0001214659-26-004061, NT 10-K/A 0001214659-26-004354, NT 10-Q 0001214659-26-006409 and 0001214659-26-010329); EDGAR submissions index retrieved October 31, 2026. Day counts, percentages, differences and the notes-versus-mortgages comparison are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.