Company: ADAMM
Filing Date: 2025-02-21
Form Type: 10-K
Source: 0001273685-25-000028
Chunk: 165

Company: ADAMAS TRUST, INC.
Filing Date: 2025-02-21
Form: 10-K
Item: Item 1A
Chunk 165
---
 tax payments, environmental hazards and other liabilities. In some cases, these liabilities may be "recourse liabilities" or may otherwise lead to losses in excess of the purchase price of the related mortgage or property.

Our investments in a mortgage loan originator exposes us to additional risks.

As of December 31, 2024, we owned a 50% equity interest in an entity that originates residential loans. Unlike our investments in residential mortgage loans and mortgage-backed securities (“MBS”), our investments in the loan originator are unsecured and not collateralized by any property of the originator. In addition, we do not manage the loan originator in which we have made investments, and because none of our investments give us a controlling stake in the loan originator, our ability to influence the business and operations of the originator is limited, in some instances significantly so. Also, because the loan originator is a private closely-held enterprise, there are significant restrictions on our ability to sell or otherwise transfer our investments (which are generally illiquid). In the event that the loan originator in which we have made investments should experience a significant decline in its business and operations or otherwise not be able to respond adequately to managerial, compliance or operational challenges that it may encounter, we may be required to write-down all or a portion of the applicable investment, which could have a material adverse impact on our results of operations and our book value.

Our portfolio of business purpose loans exposes us to risks that are different from the risks involved with our traditional investments in residential mortgage loans.

As of December 31, 2024, approximately 25.9% of the asset value of our total investment portfolio is comprised of business purpose loans.  Business purpose loans are directly exposed to losses resulting from default and foreclosure. Therefore, the value of the underlying property, the creditworthiness and financial position of the borrower and the priority and enforceability of the lien will significantly impact the value of such mortgages. Whether or not a loan is originated in accordance with our underwriting standards for such loans, there can be no assurance as to the adequacy of the protection of the terms of the loan, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, claims may be asserted that might interfere with enforcement of our rights. In the event of a foreclosure, we may assume direct ownership of the underlying real estate. The liquidation proceeds upon sale of such real estate may not be sufficient to recover our cost basis in the