Risk Factors

An investment in Mortgage Secured Notes involves a number of significant risks. The risk factors set forth below are those that Korth Direct Mortgage deem to be the most significant. The following is not intended to be a complete description or an exhaustive list of risks. Other factors ultimately may affect an investment in the Notes in a manner and to a degree not now foreseen. Prospective investors should carefully consider the factors discussed below. An investment in MSNs should form only a part of a complete investment program, and investors must be able to bear a loss on their investment. Prospective investors should consult with their own tax and legal advisors regarding this investment.

General Risks

Each MSN is an investment in a single loan to a single entity that is secured by a single property. While individuals affiliated with the KDM have significant experience in this type of lending, unforeseen factors could adversely affect the Borrower, the Property and its value.

Default by the Borrower Could Delay Return of Principal and Interest Payments

The principal risk of this investment is a default by the Borrower under the terms of the Note and Mortgage. If a default occurs, KDM will be required to enforce the Note through either an out of court settlement or foreclosure. Foreclosure requires legal action, will result in additional expenses, and will be time consuming. It is likely that no interest or principal payments will be made during this period of default. In addition, the principal balance of the Loan will not be paid until the foreclosure process is completed and the Property is sold. Although the Property's appraised value will is expected to exceed the Loan amount at the time of its origination, no assurances can be given that the sale of the Property upon foreclosure will result in an amount sufficient to cover the principal of the Loan, accrued (and default) interest, and the additional expenses incurred in the foreclosure process, including legal fees. Accordingly, it is possible that in certain instances, investors could suffer a loss.

Reliance on the Korth Direct Mortgage

Investors will not be able to participate in any decisions regarding the enforcement of the Note if the Borrower defaults and must rely upon KDM to effectively manage this process and act in the best interests of all the investors. Although KDM will escrow a portion of the Servicing Fees (up to $10,000) to be used for costs and expenses (including legal fees) in the event of a Borrower default, no assurances can be given that such funds will be adequate and that KDM would not need to satisfy further ongoing costs and expenses through the foreclosure process. The failure to effectively foreclose on the Property in the event of a default could result in a material loss to investors. Further, to the extent that costs and expenses are derived from the proceeds of a foreclosure or settlement, these costs and expenses could diminish the proceeds available to investors.

Illiquid Investment

Since the Notes are linked to a first mortgage on a single property, the offering sizes are smaller than other registered security offerings. This results in there being little trading in the individual Notes. It may be hard to sell them at the time you desire to sell them. Although the Underwriter intends to make a market in the Notes, it does not guarantee it will do so. There may be no buyers at the time an investor wishes to sell. Accordingly, the MSNs should be considered an illiquid investment. Potential investors should not acquire an MSNs if it is likely that they will need these funds prior to the maturity date of the Note.

Potential Conflicts of Interest

Potential conflicts of interest may exist between the Lender, KDM and Underwriter. Certain entities involved in a specific Note offering may be related parties and/or limited partners in such a transaction.

Not an Exhaustive List of Risks

Please see the Registration Statement for the Notes for a full Risk disclosure.