I'm not sure that the ultimate hero mod works with kbmaster, the default mod folder is data\mods\, and yes, it has to be created. The mod files must be extracted, a kfs archive will work but a zip archive will not. Moreover, some mods might require you to rename them, or some of the files, in case the game doesn't detect them, the most common nomenclature for mods is mod_[gameversion]_[localization]_[modname].kfs but I don't think the game actually checks any of that except perhaps the mod_ prefix.
The KBMaster mod is usually what's causing problems for people because it might need a little fiddling to make things work. I suggest trying a few mods that don't require it first, just to see if things work as they should.
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