Exhibit 10.1

 

Execution Version

 

LOAN AGREEMENT

 

THIS LOAN AGREEMENT (“Agreement”) is made and entered into as of July 2, 2014,
by and between WATERFALL FINANCE 4, LLC (“Lender”) and UNITED DEVELOPMENT
FUNDING IV, a Maryland real estate investment trust (“Borrower”).

 

RECITALS

 

A.           Borrower has requested that Lender extend credit to Borrower as
described in this Agreement.

 

B.           Subject to and upon the provisions, terms and conditions of this
Agreement, Lender is willing to make such credit available to Borrower and has
agreed to lend to Borrower the amounts herein described for the purposes set
forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises, the covenants,
representations, warranties and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby covenant and agree as follows:

 

ARTICLE 1
CERTAIN DEFINITIONS

 

1.1           Definitions. As used in this Agreement, all exhibits and schedules
hereto and in any note, certificate, report or other Loan Documents made or
delivered pursuant to this Agreement, the following terms will have the meanings
given such terms in Article One.

 

“Accounts” has the meaning assigned to that term in the Security Agreement.

 

“Advisor” means UMTH General Services, L.P., a Delaware limited partnership, and
any successor thereto.

 

“Affiliate” means, as to any Person, any other Person (a) that directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person, (b) that directly or indirectly
beneficially owns or holds ten percent (10%) or more of any class of voting
stock of such Person, or (c) ten percent (10%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term “control” means the possession, directly or indirectly, of
the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by control, or
otherwise; provided, however, in no event shall Lender be deemed an Affiliate of
Borrower.

 

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“Agreement” means this Loan Agreement, as the same may, from time to time, be
amended, supplemented, or replaced.

 

“Approved Purposes” means (i) Borrower’s acquisition of Common Shares pursuant
to the Tender Offer, (ii) Borrower’s use in the ordinary course of business, and
(iii) any other purpose approved in writing by Lender, in its sole discretion.

 

“Article” and “Articles” have the meanings set forth in Section 11.2.

 

“Asset Manager” means UMTH Land Development, L.P., a Delaware limited
partnership, and any successor thereto.

 

“Assignment of Notes and Liens” means a Collateral Assignment of Notes and Liens
and Security Agreement duly executed by Borrower assigning to Lender and
granting Lender a first priority security interest in certain Mortgage Paper
relating to a Mortgage Loan, in recordable form, and all like intervening
instruments that have been executed with respect to such Mortgage Loan and which
is in form and substance similar to Exhibit C hereto, as the same may be
amended, supplemented and modified from time to time.

 

“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”
as now or hereafter in effect, or as successor thereto or any other present or
future bankruptcy or insolvency statute.

 

“Borrower” means the Person identified as such in the introductory paragraph
hereof, and its successors and assigns. Notwithstanding anything herein to the
contrary, “Borrower” shall not include any Subsidiary of Borrower, whether or
not such Subsidiary is or would be consolidated with Borrower for tax purposes.

 

“Business Day” means a day other than a Saturday, Sunday or a day on which
commercial banks in Dallas, Texas or New York, New York, are authorized to be
closed. Unless otherwise provided, the term “days” means calendar days.

 

“Capital Lease Obligation” means, with respect to any Person, the amount of Debt
under a lease of property by such Person that would be shown as a liability on a
balance sheet of such Person prepared for financial reporting purposes in
accordance with GAAP, or other method of accounting acceptable to Lender.

 

“Closing Date” means July 2, 2014.

 

“Code” means the Uniform Commercial Code of the State of Texas or other
applicable jurisdiction as it may be amended from time to time.

 

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“Collateral” means all (i) Mortgage Loans and the Mortgage Paper executed in
connection therewith, wherever located, in which Borrower now has or hereafter
acquires any right or interest, (ii) Accounts, Books and Records, Chattel Paper,
Commercial Tort Claims, Documents, Equipment, Financial Assets, Fixtures,
General Intangibles, Instruments, Intellectual Property, Inventory, Investment
Property, Letter of Credit Rights, Stock Rights and Other Collateral,, wherever
located, in which Borrower now has or hereafter acquires any right or interest,
and (iii) Proceeds of the foregoing, including, without limitation, insurance
proceeds and products thereof, and any accessories thereto, substitutions
therefor and replacements thereof, together with all books and records, customer
lists, credit files, computer files, programs, printouts and other computer
materials and records related thereto.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Commitment” means the obligation of Lender to make the Loan hereunder.

 

“Committed Sum” means Thirty Five Million and No/100 Dollars ($35,000,000.00).

 

“Common Share” means a common share of beneficial interest, par value $0.01 per
share, in the Borrower.

 

“Compliance Certificate” means a certificate, substantially in the form of
Exhibit A attached hereto, prepared and executed by Borrower.

 

“Consolidated Total Assets” means, at any date of determination, all cash,
receivables, property and other assets that would be reflected as assets on a
balance sheet of the Borrower prepared at such date, determined on a
consolidated basis in accordance with GAAP or any other method of accounting
acceptable to Lender.

 

“Consolidated Total Debt” means, at any date of determination, the aggregate
principal amount of all Debt of the Borrower outstanding at such date, in the
amount that would be reflected on a balance sheet prepared at such date,
determined on a consolidated basis in accordance with GAAP or any other method
of accounting acceptable to Lender.

 

“Consolidated Total Debt to Total Equity Ratio” means, in respect of the
Borrower and as of any date of computation, the ratio of (a) Consolidated Total
Debt to (b) Total Equity.

 

“Debt” means with respect to any Person at any time (without duplication), (a)
all obligations of such Person for borrowed money; (b) all obligations of such
Person evidenced by bonds, notes, debentures, or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable of such Person arising in the ordinary
course of business that are not past due by more than ninety (90) days; (d) all
Capital Lease Obligations of such Person; (e) all Debt or other obligations of
others guaranteed by such Person; (f) all obligations secured by a Lien existing
on property owned by such Person, whether or not the obligations secured thereby
have been assumed by such Person or are non-recourse to the credit of such
Person; (g) any other obligation for borrowed money or other financial
accommodations which in accordance with GAAP, or other method of accounting
acceptable to Lender, would be shown as a liability on the balance sheet of such
Person; (h) any repurchase obligation or liability of a Person with respect to
accounts, chattel paper or notes receivable sold by such Person; (i) any
liability under a sale and leaseback transaction that is not a Capital Lease
Obligation; (j) any obligation arising with respect to any other transaction
that is the functional equivalent of borrowing but which does not constitute a
liability on the balance sheets of a Person; (k) all payment and reimbursement
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, bankers’ acceptances, surety or other bonds and similar
instruments; and (l) all obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any equity interests in such
Person or any other Person, valued, in the case of redeemable preferred stock
interests, at the greater of its voluntary or involuntary liquidation preference
plus all accrued and unpaid dividends.

 

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“Debtor Relief Laws” means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement, insolvency,
reorganization, or similar debtor relief Laws affecting the rights of creditors
generally from time to time in effect.

 

“Default Interest Rate” has the meaning assigned to that term in the Note.

 

“Development Loan” means a loan made by Borrower to a Development Loan Obligor
to enable such Development Loan Obligor to construct and develop Entitled Land
into a single-family residential subdivision, upon completion to consist of
Finished Lots, situated in the State of Texas.

 

“Development Loan Obligors” means each Person who is or becomes obligated for
Debt under the terms of a Development Loan.

 

“Development Project” means the development of Entitled Land into a
single-family residential subdivision and related infrastructure, situated in
the State of Texas.

 

“Entitled Land” means land zoned for single-family residential development and
which has received all requisite approvals from the city, county, and district
for use of the land for single family residential development.

 

“Entitled Land Loan” means a loan made by Borrower to an Entitled Land Loan
Obligor to enable such Entitled Land Loan Obligor to hold Entitled Land entitled
for single family residential use as inventory, situated in a subdivision
located in the State of Texas.

 

“Entitled Land Loan Obligors” means each Person who is or becomes obligated for
Debt under the terms of an Entitled Land Loan.

 

“Environmental Laws” means any and all federal, state, and local laws,
regulations, judicial decisions, orders, decrees, plans, rules, permits,
licenses, and other governmental restrictions and requirements pertaining to
health, safety, or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. § 9601, et seq., the Resource Conservation and Recovery Act of 1976, 42
U.S.C. § 6901, et seq., the Occupational Safety and Health Act, 29 U.S.C. § 651,
et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Clean Water Act, 33
U.S.C. § 1251, et seq., and the Toxic Substances Control Act, 15 U.S.C. § 2601,
et seq., as the same may be amended or supplemented from time to time.

 

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“Environmental Liabilities” means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs, and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions, and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability, criminal or civil statute, including any
Environmental Law, permit, order or agreement with any Governmental Authority or
other Person, arising from environmental, health or safety conditions or the
Release or threatened Release of a Hazardous Material into the environment,
resulting from the past, present, or future operations of such Person or its
Affiliates.

 

“Equipment” has the meaning assigned that term in the Security Agreement.

 

“Event of Default” has the meaning set forth in Article Nine of this Loan
Agreement.

 

“Extended Maturity Date” has the meaning assigned to that term in the Note.

 

“Extension Term” has the meaning assigned to that term in the Note.

 

“Finished Lot” means an entire unimproved but fully developed and platted single
family residential lot.

 

“Finished Lot Loan” means a loan by Borrower to a Finished Lot Loan Obligor to
enable such Finished Loan Obligor to acquire or finance one or more Finished
Lots in a subdivision located in the State of Texas.

 

“Finished Lot Loan Obligors” means each Person who is or becomes obligated for
Debt under the terms of a Finished Lot Loan.

 

“GAAP” means generally accepted accounting principles, applied on a consistent
basis, set forth in Opinions of the Accounting Principles Board of the American
Institute of Certified Public Accountants and/or in statements of the Financial
Accounting Standards Board which are applicable under the circumstances and in
effect as of the date in question; provided, that the phrase “applied on a
consistent basis” means that the accounting principles applied in the current
period be comparable in all material respects to those applied in preceding
periods, except to the extent that a deviation therefrom is expressly permitted
by this Agreement.

 

“Governmental Authority” means the United States, the state, the county, the
city or any other political subdivision in which the Collateral is located, and
any court or political subdivision, agency, or instrumentality having
jurisdiction over Borrower, any guarantor or any of the Collateral.

 

“Hazardous Material” means any substance, product, waste, pollutant, material,
chemical, contaminant, constituent, or other material which is or becomes
listed, regulated, or addressed under any Environmental Law, including, without
limitation, asbestos, petroleum, and polychlorinated biphenyls.

 

“Inchoate Lien” means any Tax Lien for Taxes not yet due and payable and any
mechanic’s Lien and materialman’s Lien for services or materials for which
payment is not yet due.

 

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“Indebtedness” means all present and future indebtedness, obligations, and
liabilities of Borrower to Lender, including all direct and contingent
obligations arising under letters of credit, banker’s acceptances, bank
guaranties and similar instruments, overdrafts, Automated Clearing House
obligations, and all other financial accommodations which could be considered a
liability under GAAP, or other method of accounting acceptable to Lender, and
all renewals, extensions, and modifications thereof, or any part thereof, now or
hereafter owed to Lender by Borrower, and all interest accruing thereon and
costs, expenses, and reasonable attorneys’ fees incurred in the enforcement or
collection thereof, regardless of whether such indebtedness, obligation, and
liabilities are direct, indirect, fixed, contingent, liquidated, unliquidated,
joint, several, or joint and several, including, but not limited to, the
indebtedness, obligations, and liabilities evidenced, secured, or arising
pursuant to any of the Loan Documents and all renewals and extensions thereof,
or any part thereof, and all present and future amendments thereto.

 

“Inventory” has the meaning assigned that term in the Security Agreement.

 

“Investment Property” has the meaning assigned that term in the Security
Agreement.

 

“Laws” means all statutes, laws, ordinances, regulations, orders, writs,
injunctions, or decrees of the United States, any city or municipality, state,
commonwealth, nation, country, territory, possession, or any Tribunal.

 

“Leases” means those certain lease agreements between the owners of the real
property on which any part of Borrower’s business is operated, as landlord, and
Borrower, as tenant, pertaining to the lease of such real property.

 

“Lender” means Waterfall Finance 4, LLC and its successors and assigns.

 

“Lien” means any lien, security interest, Tax lien, mechanic’s lien,
materialman’s lien, or other encumbrance, whether arising by contract or under
Law.

 

“Litigation” means any proceeding, claim, lawsuit, and/or investigation
conducted or threatened by or before any Tribunal, including, but not limited
to, proceedings, claims, lawsuits, and/or investigations under or pursuant to
any environmental, occupational safety and health, antitrust, unfair
competition, securities, Tax, or other Law, or under or pursuant to any
agreement, document, or instrument.

 

“Loan Documents” mean this Agreement, the Note, the Security Documents, and any
and all other agreements, documents, and instruments executed and delivered
pursuant to the terms of this Agreement, and any future amendments hereto, or
restatements hereof, or pursuant to the terms of any of the other loan
documents, together with any and all renewals, extensions, and restatements of,
and amendments and modifications to, any such agreements, documents, and
instruments.

 

“Loans” has the meaning set forth in Section 2.1.

 

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“Material Adverse Effect” means any set of circumstances or events which with
respect to Borrower or any other Obligated Party which (a) could reasonably be
expected to have a material adverse effect upon the validity, performance, or
enforceability of any Loan Document against Borrower or any other Obligated
Party, (b) is or could reasonably be expected to have a material adverse effect
upon the condition (financial or otherwise), properties, liabilities (actual or
contingent), business operations or prospects of Borrower or any other Obligated
Party, (c) could reasonably be expected to materially impair the ability of
Borrower or any other Obligated Party to pay the Indebtedness or to fulfill the
Obligations under the Loan Documents, (d) could reasonably be expected to cause
an Event of Default, or (e) could reasonably be expected to have any material
adverse effect on the priority of the Liens under any of the Loan Documents.

 

“Maturity Date” has the meaning assigned to that term in the Note.

 

“Maximum Rate” means the maximum non-usurious rate of interest (or, if the
context so requires, an amount calculated at such rate) which Lender is allowed
to contract for, charge, take, reserve, or receive in this transaction under
applicable federal or state (whichever is higher) Law from time to time in
effect after taking into account, to the extent required by applicable federal
or state (whichever is higher) Law from time to time in effect, any and all
relevant payments or charges under the Loan Documents.

 

“Mortgage” means a deed of trust, on standard form and in form and substance
satisfactory to Lender, securing a Mortgage Note and granting a perfected first
priority lien on a Finished Lot or Entitled Land.

 

“Mortgage Assignment” means an instrument duly executed by Borrower and in
recordable form assigning to Lender or its designee the Mortgage Paper related
to a Mortgage Loan, and all like intervening instruments that have been executed
with respect to such Mortgage Loan and which is in form and substance similar to
Exhibit D hereto.

 

“Mortgage Collateral” all Mortgage Notes (a) which are made payable to the order
of Borrower or have been endorsed (without restriction or limitation) payable to
the order of Borrower, (b) in which Lender has been granted and continues to
hold a perfected first priority security interest, (c) which are in form and
substance acceptable to Lender in its reasonable discretion, (d) and which are
secured by Mortgages.

 

“Mortgage Loan” means a Finished Lot Loan, an Entitled Land Loan or a
Development Loan which, in each instance, is evidenced by a Mortgage Note and
secured by a Mortgage, together with the rights of a holder thereof and payments
thereon and proceeds therefrom.

 

“Mortgage Loan Obligors” means the Entitled Land Loan Obligors, Finished Lot
Loan Obligors and Development Loan Obligors.

 

“Mortgage Note” means a promissory note or other evidence of indebtedness
evidencing the indebtedness of a Mortgage Loan Obligor under a Mortgage Loan.

 

“Mortgage Paper” with respect to each Mortgage Loan, the Mortgage Note, the
Mortgage, any guaranty agreements, and all other documents, instruments and
agreements relating to such Mortgage Loan, including, without limitation, the
loan policy of title insurance and the appraisal relating to such Mortgage Loan.

 

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“Note” means the Promissory Note, dated the Closing Date, in the original
principal amount of the Committed Sum executed by Borrower and payable to the
order of Lender, in form and substance satisfactory to Lender, and all renewals,
amendments, extensions, replacements, increases and modifications thereof.

 

“Obligated Party” means Borrower or any other Person who is or becomes party to
any agreement that guarantees or secures payment and performance of the
Indebtedness and/or the Obligations or any part thereof. Notwithstanding
anything herein to the contrary, “Obligated Party” shall not include any
Subsidiary of Borrower, whether or not such Subsidiary is or would be
consolidated with Borrower for tax purposes

 

“Obligations” means any and all of the covenants, conditions, warranties,
representations and other obligations (other than to repay the Indebtedness)
made or undertaken by Borrower or any other Obligated Party to Lender as set
forth in the Loan Documents.

 

“Other Collateral” has the meaning assigned that term in the Security Agreement.

 

“Organizational Documents” means (a) in the case of a corporation, its articles
or certificate of incorporation and bylaws, (b) in the case of a general
partnership, its partnership agreement, (c) in the case of a limited
partnership, its certificate of limited partnership and partnership agreement,
(d) in the case of a limited liability company, its articles of organization and
operating agreement or regulations, and (e) in the case of any other entity, its
organizational and governance documents and agreements.

 

“Permitted Liens” means all (a) Inchoate Liens, (b) Liens created by or pursuant
to the Loan Documents in favor of Lender, and (c) all renewals and extensions of
the foregoing.

 

“Person” means any individual, firm, corporation, limited liability company,
association, partnership, joint venture, trust, other entity, or a Tribunal.

 

“Principal Balance” means the aggregate unpaid principal balance of the Note on
any date of determination.

 

“Proceeds” has the meaning assigned that term in the Security Agreement.

 

“Release” means, as to any Person, any release, spill, emissions, leaking,
pumping, injection, deposit, disposal, disbursement, leaching, or migration of
Hazardous Materials into the indoor or outdoor environment or into or out of
property owned by such Person, including, without limitation, the movement of
Hazardous Materials through or in the air, soil, surface water, ground water, or
property.

 

“Remedial Action” means all actions required to (a) clean up, remove, treat, or
otherwise address Hazardous Materials in the indoor or outdoor environment, (b)
prevent the Release or threat of Release or minimize the further Release of
Hazardous Materials so that they do not migrate or endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment, or (c)
perform pre-remedial studies and investigations and post-remedial monitoring and
care.

 

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“Rights” mean any remedies, powers, and privileges exercisable by Lender under
the Loan Documents, at Law, equity, or otherwise.

 

“Section” and “Sections” have the meanings set forth in Section 11.2.

 

“Securitization” means any transaction (i) sponsored by the Borrower or any of
its Subsidiaries under which any such Person has sold or pledged loans or
receivables in a securitization in which securities backed by, or other
interests in or secured by, such loans or receivables were sold to one or more
third party investors in transactions registered or exempt from registration
under the Securities Act or (ii) pursuant to which the Borrower or any of its
Subsidiaries serve as servicer of loans or receivables and with respect to which
securities or other interests in the serviced assets remain outstanding.

 

“Security Agreement” means the Security Agreement dated as of the Closing Date,
executed by Borrower in favor of Lender, in form and substance satisfactory to
Lender, as the same may be amended, restated, supplemented or modified from time
to time.

 

“Security Documents” means this Agreement, the Security Agreement, and each
other security agreement or similar agreement or document required by or
delivered to Lender from time to time that purports to create a Lien in favor of
any of Lender to secure payment or performance of Indebtedness and/or
Obligations or any portion thereof.

 

“Stock Rights” has the meaning assigned that term in the Security Agreement.

 

“Subsection” and “Subsections” have the meanings set forth in Section 11.2.

 

“Subsidiary(ies)” means any entity more than fifty percent (50%) of whose
ownership, equity or voting interest now or hereafter is owned directly or
indirectly by Borrower or any Subsidiary or may be voted by Borrower or any
Subsidiary.

 

“Tangible Net Worth” means, at any date of determination, (i) Consolidated Total
Assets, less (ii) Consolidated Total Debt, less (iii) all assets of the Borrower
which are properly classified as intangible assets under GAAP or any other
method of accounting acceptable to Lender.

 

“Taxes” means all taxes (including withholding), assessments, fees, levies,
imposts, duties, deductions, withholdings, or other charges of any nature
whatsoever from time to time or at any time imposed by any Laws or by any
Tribunal, excluding state and local sales and use taxes.

 

“Tender Offer” means the offer by the Borrower to purchase for cash up to
1,707,317 Common Shares of the Borrower at a price of $20.50 per Common Share
upon the terms and subject to the conditions described in the Offer to Purchase,
dated June 4, 2014, a copy of which is filed as Exhibit (a)(1)(A) to the
Borrower’s Schedule TO as filed with the Commission on June 4, 2014.

 

“Total Equity” means, at any date of determination, the Borrower’s total
shareholders’ equity at such date, in the amount that would be reflected on a
balance sheet prepared at such date, determined on a consolidated basis in
accordance with GAAP or any other method of accounting acceptable to Lender.

 

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“Tribunal” means any state, commonwealth, federal, foreign, territorial, or
other court or governmental department, commission, board, bureau, agency, or
instrumentality.

 

“Tribunal Proceedings” has the meaning set forth in Section 5.4.

 

1.2           Accounting Matters. Any accounting term used in this Agreement or
the other Loan Documents shall have, unless otherwise specifically provided
therein, the meaning customarily given such term in accordance with GAAP, or
other method of accounting acceptable to Lender, and all financial computations
thereunder shall be computed, unless otherwise specifically provided therein, in
accordance with GAAP, or other method of accounting acceptable to Lender,
consistently applied. That certain items or computations are explicitly modified
by the phrase “in accordance with GAAP, or other method of accounting acceptable
to Lender” shall in no way be construed to limit the foregoing.

 

1.3           Headings. The headings, captions, and arrangements used in any of
the Loan Documents are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify, or modify the terms of the Loan Documents
no to affect the meaning thereof.

 

1.4           Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include each other gender where appropriate. Reference herein to
Borrower shall mean, jointly and severally, each Person comprising same.

 

1.5           Articles, Sections and Exhibits. All references herein to
“Articles” and “Sections” are, unless specified otherwise, references to
articles and sections of this Agreement. All references herein to an “Exhibit”
or “Schedule” are references to exhibits or schedules attached hereto, all of
which are made a part hereof for all purposes, the same as if set forth herein
verbatim, it being understood that if any exhibit or schedule attached hereto
which is to be executed and delivered, contains blanks, the same shall be
completed correctly and in accordance with the terms and provisions contained
and as contemplated herein prior to or at the time of the execution and delivery
thereof. The words “herein,” “hereof,” “hereunder” and other similar compounds
of the word “here” when used in this Agreement shall refer to the entire
Agreement and not to any particular provision or section.

 

ARTICLE 2
TERM LOAN; COMMITMENT TO LEND; TERMS OF PAYMENT

 

2.1           Term Loan. Subject to the terms and conditions and in reliance
upon the representations and warranties of the Borrower set forth in this
Agreement, the Lender may make one or more loans (collectively, the “Loan”) to
the Borrower for Approved Purposes in an aggregate principal amount at any one
time outstanding up to but not exceeding the Committed Sum. The Loan, including
all renewals, extensions, amendments and restatements thereof, shall be
evidenced by a Note which shall set forth the interest rate, repayment and other
provisions, the terms of which are incorporated into this Agreement by
reference. The Loan is not a revolving loan and may not be drawn, repaid and
redrawn and any repayments or prepayments of principal on the Loan shall
permanently reduce the principal amount of the Loan.

 

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2.2           Note. The Loan shall be evidenced by, be repayable, and accrue
interest in accordance with, the Note. Subject to the terms and conditions in
this Agreement, the Note, and the other Loan Documents, Borrower may borrow,
repay, and reborrow under the Note. The unpaid principal balance of the Note
shall be repaid as provided therein.

 

2.3           Borrowing Procedure. Subject to the satisfaction of the conditions
precedent set forth in Article 4, the Lender shall fund the Loan on the Closing
Date or such date thereafter upon which such conditions precedent have been
satisfied.

 

2.4           Reserved.

 

2.5           Purpose of Loans. Borrower represents that the proceeds of the
Loans will be used only for Approved Purposes.

 

2.6           Sale of Participations. Lender may, from time to time and without
notice to Borrower, sell or offer to sell the Indebtedness, or interests
therein, to one or more assignees or participants and Lender is hereby
authorized to disseminate and disclose any information (whether or not
confidential or proprietary in nature) Lender now has or may hereafter obtain
pertaining to Borrower, the Indebtedness or the Loan Documents (including,
without limitation, any credit or other information regarding Borrower, any of
its principals, or any other person or entity liable, directly or indirectly,
for any part of the Loan, to (a) any assignee or participant or any prospective
assignee or prospective participant, (b) any regulatory body having jurisdiction
over Lender or the Indebtedness, and (c) any other persons or entities as may be
necessary or appropriate in Lender’s reasonable judgment). Lender, as a courtesy
to Borrower, will endeavor to notify Borrower of any such assignees or
participants, or prospective assignees or participants, to which Lender
disseminates any of the information described above.

 

2.7           Order of Application. Except as otherwise provided in the Loan
Documents or otherwise agreed by Lender, all payments and prepayments of the
Indebtedness, including proceeds from the exercise of any Rights under the Loan
Documents or proceeds of any of the Collateral, shall be applied to the
Indebtedness in the following order, any instructions from Borrower to the
contrary notwithstanding: (a) to the expenses for which Lender shall not have
been reimbursed under the Loan Documents, and then to all indemnified amounts
due under the Loan Documents; (b) to fees then owed Lender under the Loan
Documents; (c) to accrued interest on the portion of the Indebtedness being paid
or prepaid; (d) to the portion of the principal being paid or prepaid; (e) to
the remaining accrued interest on the Indebtedness; (f) to the remaining
principal; and (g) to the remaining Indebtedness. All amounts remaining after
the foregoing application of funds shall be paid to Borrower.

 

2.8           Reserved.

 

2.9           Reserved.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 11

 

 

2.10         Lockbox and Account Collections. Upon the occurrence of Default and
written request from Lender, Borrower will maintain under such written
agreements as Lender requires, as security for the Indebtedness, a lockbox
(“Lockbox”) and depository account in the name of Lender (“Depository Account”)
at a financial institution acceptable to the Lender in its sole discretion (the
“Lockbox Bank”). All payments from the Mortgage Loan Obligors with respect to
Mortgage Loans and for all other account debtors of Borrower will be deposited
directly into the Depository Account. Borrower agrees that Lender will have all
right, title and interest in and to all items and funds from time to time in the
Depository Account. Checks received into the Depository Account will not be
considered good funds until Lender has effected final settlement with respect
thereto. After an Event of Default has occurred, Lender is authorized to apply
any and all funds in the Depository Account at any time, and from time to time,
to the Indebtedness (to the extent then due and payable) in any order Lender may
elect.

 

Upon written notice to Borrower from Lender, Borrower will advise the Mortgage
Loan Obligors and all of its other account debtors to direct their payments to
the Lockbox, at the address established by the Lockbox arrangements. All
payments received into the Lockbox will be deposited into the Depository Account
for disposition as set forth above in this Section.

 

ARTICLE 3
COLLATERAL

 

3.1           Security Interests. Borrower hereby pledges, assigns and grants to
Lender a continuing first priority security interest in and to all of the
Collateral to secure the prompt and complete payment and performance when due of
all of the Indebtedness and all of the Obligations.

 

3.2           Borrower Remains Liable. Notwithstanding anything to the contrary
contained herein, (a) Borrower and each other Obligated Party shall remain
liable under the contracts and agreements to which such Person is a party and
which are included in the Collateral and shall perform all of their respective
duties and obligations thereunder to the same extent as if this Agreement had
not been executed, and (b) Lender shall not have any obligation or liability
under any of the contracts and agreements included in the Collateral by reason
of this Agreement, nor shall Lender be obligated to perform any of the
obligations or duties of Borrower or any other Obligated Party thereunder or to
take any action to collect or enforce any claim for payment assigned hereunder.

 

3.3           Authorization to File Financing Statements. Borrower hereby
irrevocably authorizes Lender at any time and from time to time to prepare and
file one or more financing statements (and any continuation statements and
amendments thereto) describing the Collateral whether or not the Borrower’s
signature appears thereon.

 

ARTICLE 4
CONDITIONS PRECEDENT TO LENDING

 

4.1           Conditions Precedent to Extension of Credit. The obligation of
Lender to make the Loan is subject to the condition precedent that Lender shall
have received on or before the Closing Date all of the following, each dated (as
applicable and unless otherwise indicated) on or as of the Closing Date, in form
and substance satisfactory to Lender:

 

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(a)          Resolutions. Resolutions of the Board of Directors (or other
governing body) of Borrower and each other Obligated Party certified by the
Secretary (or other custodian of records) of Borrower and each other Obligated
Party which authorize the execution, delivery, and performance by Borrower or
any such Obligated Party of this Agreement and the other Loan Documents to which
Borrower or any such Obligated Party is or is to be a party;

 

(b)          Incumbency Certificate. A certificate of incumbency certified by an
authorized officer or representative certifying the names of the individuals or
other Persons authorized to sign this Agreement and the other Loan Documents to
which Borrower or any other Obligated Party is or is to be a party on behalf of
Borrower or any such Obligated Party together with specimen signatures of such
Persons;

 

(c)          Organizational Documents. The Organizational Documents for Borrower
and each other Obligated Party as of a date acceptable to Lender;

 

(d)          Governmental Certificates. Certificates of the appropriate
government officials of the state of incorporation or organization of Borrower
and each other Obligated Party as to the existence and good standing of Borrower
or any such Obligated Party, each dated within ten (10) days prior to the
Closing Date;

 

(e)          Note. The Note, executed by Borrower;

 

(f)           Loan Agreement. This Agreement, executed by Borrower;

 

(g)          Insurance Matters. Copies of insurance certificates describing all
insurance policies required to be maintained by the Borrower pursuant to this
Agreement and the other Loan Documents;

 

(h)          Reserved;

 

(i)           Reserved;

 

(j)           Security Documents. The Security Documents executed by each party
thereto;

 

(k)          Other Loan Documents. Each other Loan Document, duly executed by
each Obligated Party which is a party thereto;

 

(l)           UCC Search. The results of a UCC search showing all financing
statements and other documents or instruments on file against Borrower in the
offices of the Department of Assessments and Taxation of the State of Maryland;

 

(m)         Attorneys’ Fees and Expenses. Evidence that the costs and expenses
(including reasonable attorneys’ fees) referred to in Section 6.5, to the extent
incurred, shall have been paid in full by Borrower; and

 

(n)          Additional Items. The additional items set forth on Schedule One.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 13

 

 

4.2         Additional Conditions for the Loan. In addition to the conditions
precedent stated elsewhere herein, Lender shall not be obligated to make the
Loan unless:

 

(a)          Representations and Warranties. The representations and warranties
made by Borrower and each Obligated Party in the Loan Documents are true and
correct at and as of the Closing Date.

 

(b)          No Event of Default. On the Closing Date, no Event of Default, and
no event which, with the lapse of time or notice or both, could reasonably be
expected to become an Event of Default, shall have occurred and be continuing.

 

(c)          Additional Documentation. Lender shall have received such
additional approvals or documents as Lender may reasonably request.

 

ARTICLE 5
REPRESENTATIONS AND WARRANTIES

 

Borrower continuously represents and warrants to Lender, until payment and
performance in full of all of the Indebtedness and Obligations, as follows:

 

5.1           Existence. Borrower is a real estate investment trust duly
organized, validly existing, and in good standing under the laws of the State of
Maryland, and is duly qualified to transact business as a foreign trust in each
jurisdiction where the nature and extent of its business and property requires
the same. Borrower does not conduct business under any tradename other than as
described on Schedule Two attached hereto.

 

5.2           Authorization. Borrower possesses all requisite authority, power,
licenses, permits, and franchises to conduct its business and execute, deliver,
and comply with the terms of the Loan Documents. The execution and delivery of
this Agreement, the consummation of the transactions herein contemplated and
compliance with the terms and provisions hereof, the making of the Loans, and
the execution, issuance, and delivery of the Loan Documents have been duly
authorized and approved by all necessary entity action on the part of Borrower.
No consent or approval of any Tribunal or any other Person is required in order
for Borrower to legally execute, deliver, and comply with the terms of the Loan
Documents.

 

5.3           Properties; Permitted Liens. Borrower has good and indefeasible
title to all of its real properties and good and marketable title to all of its
other properties and assets and to the Collateral, in each case free and clear
of any Liens except the Permitted Liens. Borrower has full power and authority
to grant to Lender the security interest in the Collateral pursuant to the Loan
Documents. When financing statements have been filed in the appropriate offices
against Borrower with respect to any Collateral, Lender will have a fully
perfected first priority security interest in that portion of the Collateral in
which a security interest may be perfected by filing, subject only to any
Permitted Liens.

 

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5.4           Compliance with Laws and Documents. Borrower is not, nor will the
execution, delivery, and performance of and compliance with the terms of the
Loan Documents cause Borrower to be, in violation of any Laws or in default (nor
has any event occurred which, with the giving of notice or lapse of time or
both, could constitute such a default) under any contract in any respect which
could have a Material Adverse Effect. During the past five (5) years, there have
been no proceedings, claims, or (to the best of Borrower’s knowledge)
investigations against or involving Borrower by any Tribunal under or pursuant
to any environmental, occupational safety and health, antitrust, unfair
competition, securities, or other Laws which could have a Material Adverse
Effect, except those described on Schedule Two attached hereto (the “Tribunal
Proceedings”).

 

5.5           Litigation. Borrower is not involved in, nor is Borrower aware of
the threat of, any Litigation which could reasonably be expected to have a
Material Adverse Effect, and there are no outstanding or unpaid judgments
against Borrower.

 

5.6           Taxes. All federal, state, foreign, and other Tax returns of
Borrower required to be filed have been filed, all federal, state, foreign, and
other Taxes imposed upon Borrower which are due and payable have been paid, and
no material amounts of Taxes not reflected on such returns are payable by
Borrower, other than Taxes being contested in good faith by appropriate legal
proceedings.

 

5.7           Enforceability of Loan Documents. All Loan Documents when duly
executed and delivered by Borrower will constitute legal, valid, and binding
obligations of Borrower enforceable against Borrower in accordance with their
terms subject to Debtor Relief Laws and except that the availability of
equitable remedies may be limited.

 

5.8           Financial Statements. All financial statements of Borrower
heretofore and hereafter to be delivered to Lender have been and shall continue
to be prepared in accordance with GAAP, or other method of accounting acceptable
to Lender (subject to the absence of notes for interim financial statements),
and do and shall fairly represent the financial condition of Borrower as of the
date of each such financial statement (subject to reasonable year-end
adjustments for interim financial statements). There are and shall be no
material liabilities, direct or indirect, fixed or contingent, as of the date of
each such financial statement which are not reflected therein or in the notes
thereto. Except for transactions directly related to, or specifically
contemplated by, this Agreement and transactions heretofore disclosed in writing
to Lender, there has been no material adverse change in the financial condition
of Borrower as shown by the Current Financial Statements for Borrower between
the date of such Current Financial Statements and the date hereof, nor has
Borrower incurred any material liability, direct or indirect, fixed, or
contingent, except as otherwise disclosed to and approved in writing by Lender.
Neither Borrower nor any of its Subsidiaries has any material Debt, other
contingent liabilities, liabilities for taxes, any long-term lease obligations
or unusual forward or long-term commitments, or is party to any Hedge Agreement
or other transaction or obligation in respect of derivatives, that are not
reflected in the most recent financial statements referred to in this paragraph.

 

5.9           Regulation U. The proceeds of the Loan are not and will not be
used directly or indirectly for the purpose of purchasing or carrying, or for
the purpose of extending credit to others for the purpose of purchasing or
carrying, any “margin stock” as that term is defined in Regulation U of the
Board of Governors of the Federal Reserve System.

 

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5.10         Subsidiaries. The Subsidiaries of the Borrower as of the date of
this Agreement are described on Schedule Two. There are no outstanding
subscriptions, options, warrants, calls, rights or other agreements or
commitments of any nature relating to any equity interests of the Borrower or
any Obligated Party, except as described on Schedule Two.

 

5.11         Other Debt. Except as set forth on Schedule Two attached hereto,
Borrower is not directly, indirectly, or contingently obligated with respect to
any Debt as of the Closing Date. To the best of Borrower’s knowledge and belief,
Borrower is not in default in the payment of the principal of or interest on any
such Debt.

 

5.12         Regulatory Acts. Borrower is not an “investment company” or
“controlled” by an “investment company” within the meaning of the Investment
Company Act of 1940, as amended, or is subject to regulation under the Federal
Power Act, the Interstate Commerce Act, or any other Law (other than Regulation
X of the Board of Governors of the Federal Reserve System) which regulates the
incurring by Borrower, including, but not limited to, Laws regulating common or
contract carriers or the sale of electricity, gas, steam, water, or other public
utility serves. All Inventory of Borrower, if any, has been and will hereafter
be produced in compliance with all applicable Laws.

 

5.13       Environmental Matters. To the best knowledge of Borrower after due
inquiry:

 

(a)          Borrower and all of its properties, assets, and operations are in
full compliance with all Environmental Laws. Borrower is not aware of nor has
Borrower received notice of any past, present, or future conditions, events,
activities, practices or incidents which may interfere with or prevent the
compliance or continued compliance of Borrower and the Subsidiaries with all
Environmental Laws;

 

(b)          Borrower has obtained all permits, licenses, and authorizations
that are required under applicable Environmental Laws, and all such permits are
in good standing and Borrower is in compliance with all of the terms and
conditions of such permits;

 

(c)          No Hazardous Materials (except in nominal amount) exist on, about,
or within or have been used, generated, stored, transported, disposed of on, or
Released from any of the properties or assets of Borrower. The use which
Borrower makes and intends to make of its properties and assets will not result
in the use, generation, storage, transportation, accumulation, disposal, or
Release of any Hazardous Material on, in, or from any of their properties or
assets;

 

(d)          Neither Borrower nor any of its currently or previously owned or
leased properties or operations is subject to any outstanding or threatened
order from or agreement with any Tribunal or other Person or subject to any
judicial or docketed administrative proceeding with respect to (i) failure to
comply with Environmental Laws, (ii) Remedial Action, or (iii) any Environmental
Liabilities arising from a Release or threatened Release;

 

(e)          There are no conditions or circumstances associated with the
currently or previously owned or leased properties or operations of Borrower
that could reasonably be expected to give rise to any Environmental Liabilities;

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 16

 

 

(f)          Borrower has not filed or failed to file any notice required under
applicable Environmental Law reporting a Release; and

 

(g)          No Lien arising under any Environmental Law has attached to any
property or revenues of Borrower.

 

5.14       Locations. The location of Borrower’s chief executive office and all
other locations where Borrower conducts its business are disclosed in Schedule
Two.

 

5.15       General. There is no significant material fact or condition relating
to the financial condition and business of Borrower, any Obligated Party or the
Collateral which has not been disclosed in writing to Lender, and all writings
heretofore or hereafter exhibited, made, or delivered to Lender by or on behalf
of Borrower are and will be genuine and in all respects what they purport and
appear to be.

 

5.16       Intellectual Property. All material Intellectual Property owned or
used by the Borrower, or any Subsidiary is listed, together with application or
registration numbers, where applicable, in Schedule Two. Each Person identified
on Schedule Two owns, or is licensed to use, all Intellectual Property necessary
to conduct its business as currently conducted except for such Intellectual
Property the failure of which to own or license could not reasonably be expected
to have a material adverse effect. Each Person identified on Schedule Two will
maintain the patenting and registration of all Intellectual Property with the
United States Patent and Trademark Office, the United States Copyright Office,
or other appropriate Governmental Authority and each Person identified on
Schedule Two will promptly patent or register, as the case may be, all new
Intellectual Property and notify the Lender in writing five (5) Business Days
prior to filing any such new patent or registration.

 

5.17       Solvency. Borrower and each Obligated Party is solvent and generally
able to pay its debts as they come due.

 

5.18       Individual Mortgage Loans. Borrower hereby continuously represents
and warrants with respect to each Mortgage Note and Mortgage Loan that is or
becomes part of the Collateral:

 

(a)          Borrower has good and marketable title to each Mortgage Note and
Mortgage, is the sole owner thereof and has full right to pledge the Mortgage
Loan to Lender free and clear of any other Lien, except any such Lien which has
been disclosed to Lender in writing and which is permitted hereunder;

 

(b)          To the best knowledge of Borrower, there is no default, breach,
violation or event of acceleration existing under any Mortgage Paper and there
is no event which, with the passage of time or with notice and/or the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration and no such default, breach, violation or event of
acceleration has been waived;

 

(c)          To the best knowledge of Borrower, the physical condition of the
real property, improvements, and personal property subject to each Mortgage has
not deteriorated since the date of origination of the related Mortgage Loan
(normal wear and tear excepted) and there is no proceeding pending for the total
or partial condemnation of any of the related mortgaged property;

 

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(d)          Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the related real property, improvements, and personal
property subject to the Mortgage of the benefits of the security provided
thereby, including, (i) in the case of a Mortgage, by trustee’s sale, and (ii)
otherwise, by judicial foreclosure.

 

(e)          Each Mortgage Loan has been underwritten by the Borrower in
accordance with Borrower’s then current underwriting guidelines;

 

(f)          The origination practices used by Borrower and the collection
practices used by Borrower with respect to each Mortgage Loan have been in all
material respects legal, proper, prudent and customary in the loan origination
and servicing business;

 

(g)          To the best knowledge of Borrower, each Mortgage Loan was
originated in compliance with all applicable laws and no fraud or
misrepresentation was committed by any Person in connection therewith;

 

(h)          To the best knowledge of Borrower, all real property taxes and
assessments due and owing have been paid current and are not delinquent or
past-due in all material respects with respect to the real properties serving as
collateral security for each of the Mortgage Loans;

 

(i)          Reserved;

 

(j)          To the best knowledge of Borrower, without inquiry other than a
review of any existing Phase I and/or Phase II environmental assessments in
respect of each Mortgage Loan:

 

(i)          All of the real property securing the Mortgage Loan, including
without limitation, the Entitled Land or Finished Lots, as the case may be, is
in full compliance with all Environmental Laws in all material respects.
Borrower is not aware of nor has Borrower received notice of any past, present,
or future conditions, events, activities, practices or incidents which may
interfere with or prevent the compliance or continued compliance with the
Environmental Laws of any of such real property or of any Mortgage Loan Obligor;

 

(ii)         Each Mortgage Loan Obligor has obtained all permits, licenses, and
authorizations that are required under applicable Environmental Laws, and all
such permits are in good standing and each Mortgage Loan Obligor is in
compliance with all of the terms and conditions of such permits;

 

(iii)        No Hazardous Materials (except in nominal amount) exist on, about,
or within or have been used, generated, stored, transported, disposed of on, or
Released from any of the real properties collateral securing the Mortgage Loans.
The use which each Mortgage Loan Obligor makes and intends to make of its
respective real properties which serve as collateral for a Mortgage Loan, will
not result in the use, generation, storage, transportation, accumulation,
disposal, or Release of any Hazardous Material on, in, or from any of such real
properties;

 

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(iv)        No Mortgage Loan Obligor or any of the real properties serving as
collateral for a Mortgage Loan is subject to any outstanding or threatened order
from or agreement with any Tribunal or other Person or subject to any judicial
or docketed administrative proceeding with respect to (a) failure to comply with
Environmental Laws, (b) Remedial Action, or (c) any Environmental Liabilities
arising from a Release or threatened Release;

 

(v)         There are no conditions or circumstances associated with any real
properties serving as collateral for a Mortgage Loan that could reasonably be
expected to give rise to any Environmental Liabilities;

 

(vi)        No Mortgage Loan Obligor has filed or failed to file any notice
required under applicable Environmental Law reporting a Release; and

 

(vii)       No Lien arising under any Environmental Law has attached to any real
property serving as collateral for a Mortgage Loan.

 

ARTICLE 6
AFFIRMATIVE COVENANTS

 

Until payment and performance in full of all of the Indebtedness and
Obligations, Borrower covenants and agrees that:

 

6.1         Reporting Requirements. Borrower shall provide to Lender.

 

(a)          Annual Financial Statements of Borrower. Within ninety (90) days
after the last day of each fiscal year of Borrower, beginning with the fiscal
year that ends December 31, 2014, financial statements (included in Borrower’s
Form 10-K reports filed with the Commission) of Borrower and its consolidated
subsidiaries prepared by an independent certified public accountant acceptable
to Lender, including, but not necessarily limited to, balance sheets and related
statements of income, cash flow and retained earnings, showing the financial
position and results of operations of Borrower and its consolidated Subsidiaries
as of, and for the year ended on, such last day, together with the certificate
of Borrower that all of such financial statements present fairly the financial
position of Borrower and its consolidated Subsidiaries as of the last day of
such fiscal year and the results of the operations and the cash flow of Borrower
and its consolidated Subsidiaries for the fiscal year then ended in conformity
with GAAP, or other method of accounting acceptable to Lender (except as to
reasonable year-end adjustments and the absence of notes with respect to interim
financial statements);

 

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(b)          Quarterly Financial Statements of Borrower. Within forty-five (45)
days after the last day of each fiscal quarter, financial statements (included
in Borrower’s Form 10-Q reports filed with the Commission) of Borrower and its
consolidated subsidiaries prepared by an independent certified public accountant
acceptable to Lender, including, but not necessarily limited to, balance sheets
and related statements of income, cash flow and retained earnings, showing the
financial position and results of operations of Borrower and its consolidated
subsidiaries as of and for such fiscal quarter and for the period from the
beginning of the current fiscal year to the last day of such fiscal quarter,
together with a certificate executed by Borrower certifying that such financial
statements present fairly the financial position of Borrower and its
consolidated subsidiaries as of the last day of such periods in conformity with
GAAP, or other method of accounting acceptable to Lender (except as to
reasonable year-end adjustments and the absence of notes with respect to interim
financial statements);

 

(c)          Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in Sections 6.1(b) and (b), a certificate
of the Chief Financial Officer of the Borrower (i) stating that to the best of
such Person’s knowledge, no Event of Default has occurred and is continuing, or
if an Event of Default has occurred and is continuing, a statement as to the
nature thereof and the action which is proposed to be taken with respect
thereto, and (ii) showing in reasonable detail the calculations demonstrating
compliance with Article Eight;

 

(d)          Notice of Material Adverse Effect. As soon as possible and in any
event within five (5) business days after the occurrence thereof, written notice
of the occurrence of any event or condition that has had a Material Adverse
Effect; and

 

(e)          General Information. Promptly, such other information concerning
Borrower or any Obligated Party as Lender may from time to time reasonably
request;

 

6.2         Insurance. Borrower will maintain insurance with financially sound
and reputable insurance companies in such amounts and covering such risks as is
usually carried by similar entities engaged in similar businesses and owning
similar properties in the same general areas in which Borrower operates,
provided that in any event Borrower will maintain comprehensive general
liability insurance reasonably satisfactory to Lender. Upon the occurrence and
during the continuance of an Event of Default, Borrower shall, upon the request
of Lender, cause each insurance policy covering the Collateral to name the
Lender as loss payee and to provide that such policy will not be canceled or
reduced without thirty (30) days prior written notice to Lender.

 

6.3        Payment of Debts. Borrower will pay or cause to be paid all of its
Debt prior to the date on which penalties attach thereto (except to the extent
and so long as the payment thereof is being properly contested in good faith by
appropriate proceedings and adequate reserves have been established therefor).

 

6.4        Taxes. Borrower will promptly pay or cause to be paid when due (for
the account of Lender, where appropriate) any and all Taxes due by Borrower,
including, without limitation, all taxes, duties, fees, levies and other charges
of whatsoever nature which have been or may be imposed by any government or by
any department, agency, state, other political subdivision or taxing authority
thereof or therein; provided that Borrower shall not be required to pay and
discharge any such Taxes or charges so long as the validity thereof shall be
contested in good faith by appropriate proceedings and Borrower shall set aside
on its books adequate reserves with respect thereto and shall pay any such Taxes
or charge before the property subject thereto shall be sold to satisfy any lien
which has attached as security therefor.

 

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6.5           Expenses of Lender. Borrower will reimburse Lender for all
reasonable out-of-pocket costs, fees, and expenses incident to the Loan
Documents or any transactions contemplated thereby, including, without
limitation, all recording fees, all recording taxes, and the reasonable fees and
disbursements of special counsel for Lender for negotiation and preparation of
the Loan Documents, preparation and review of other documents, and providing of
other legal services, from time to time, in connection herewith up through the
Closing Date, and thereafter for services (a) in connection with or in
anticipation of an Event of Default or otherwise in the enforcement of the Loan
Documents, (b) in connection with any amendment or waiver to any of the Loan
Documents, or (c) in connection with any request or action initiated by
Borrower, all of which shall be and become a part of the Indebtedness.

 

6.6           Maintenance of Entity Existence, Assets and Business; Continuance
of Present Business. Borrower will preserve and maintain its existence and all
of its leases, licenses, permits, franchises, qualifications, and rights that
are necessary or desirable in the ordinary conduct of its business. Borrower
will conduct its business in an orderly and efficient manner in accordance with
good business practices. Borrower will keep or cause to be kept all of
Borrower’s assets which are useful and necessary in their respective businesses
in good repair, working order and condition, and will make or cause to be made
all necessary repairs, renewals and replacements as may be reasonably required.
Borrower will carry on and conduct its business in accordance with its
Organizational Documents.

 

6.7           Books and Records. Borrower will maintain proper books of record
and account in which full, true and correct entries in conformity with GAAP, or
other method of accounting acceptable to Lender, shall be made of all dealings
and transactions in relation to its business and activities.

 

6.8           Compliance with Applicable Laws and with Contracts. Borrower will
comply with the requirements of all applicable material Laws, rules, regulations
and orders of any governmental authority, except where contested in good faith
and by proper proceedings. Borrower will comply in all material respects with
all agreements, contracts, and instruments binding on it or affecting its
properties or business.

 

6.9           Comply with Agreement. Borrower will fully comply with the terms,
provisions and conditions of this Agreement and of all documents executed
pursuant hereto.

 

6.10         Notice of Event of Default, Suits, and Material Adverse Effect.
Upon discovery, Borrower will promptly notify Lender of any breach of any of the
covenants contained in any of the Loan Documents and of the occurrence of any
Default or Event of Default under any of the Loan Documents, or of the filing of
any claim, action, suit or proceeding before any Tribunal agency against
Borrower or any other Obligated Party which could reasonably be expected to have
a Material Adverse Effect and advise Lender from time to time of the status
thereof.

 

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6.11       Information and Inspection. To the extent applicable, Borrower will
furnish to Lender as soon as available copies of all of the following pertaining
to Borrower (a) materials filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, or 1934, as amended, (b) reports to
holders of the Common Shares, and (c) at any reasonable time any other
information pertinent to any provision of this Agreement or to the business of
Borrower which Lender may reasonably request. Borrower shall permit an
authorized representative of Lender to visit and inspect at reasonable times any
of the properties of Borrower and offices of Borrower, and to discuss the
affairs, finances, and accounts of Borrower with the officers and employees of
Borrower (including officers and employees of the Advisor and the Asset
Manager).

 

6.12       Additional Information. Borrower will promptly furnish or cause to be
furnished to Lender such other information not otherwise required herein
respecting the business affairs, assets and liabilities of Borrower, the
Subsidiaries and the Collateral as Lender shall from time to time reasonably
request.

 

6.13       Asset Audit. Borrower shall permit representatives of Lender at the
expense of Borrower to inspect and conduct an audit of all of Borrower’s assets
and properties (both real and personal, including Mortgage Loans, Loan
Participations, Accounts and Inventory); provided, however, if such audit is
conducted by Lender more than once during any fiscal year, and such additional
audit is not the result of the occurrence and continuation of an Event of
Default, Lender shall be responsible for the fee payable to the Person that
performed such additional audit.

 

6.14       Assignment and Pledge of Mortgage Paper. Upon the occurrence and
during the continuance of an Event of Default, Borrower shall, upon the request
of Lender, assign and pledge to Lender all Mortgage Paper with respect to the
Mortgage Loans as follows:

 

(a)          All Mortgage Paper shall be assigned and pledged to Lender, in form
and substance satisfactory to Lender, including, without limitation, the
execution and delivery by Borrower to Lender of the Assignment of Notes and
Liens and a Mortgage Assignment;

 

(b)          All Mortgage Notes relating to Mortgage Loans shall be properly
endorsed by Borrower to Lender with full recourse against Borrower with such
endorsement being evidenced by an Allonge affixed to each Mortgage Note, and
executed by Borrower in form/content acceptable to Lender; and

 

(c)          The Mortgage Paper relating to the Mortgage Loans shall be
delivered to Lender.

 

6.15       Recorded Mortgages and Title Insurance. Upon request of Lender,
Borrower shall deliver to Lender within thirty (30) days after any Mortgage
Paper is assigned and pledged to Lender by Borrower as provided in Section 6.14:

 

(a)          the recorded Mortgage or Mortgages related to such Mortgage Paper;
and

 

(b)          the loan policy of title insurance with respect to each Eligible
Mortgage Loan, issued by the title company in connection with each recorded
Mortgage related to such Mortgage Paper together with such endorsements thereto
as Lender may deem necessary which evidences that each Mortgage so assigned and
pledged to Lender is an insured first lien.

 

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6.16         Insurance. Upon request of Lender, Borrower shall deliver to Lender
at the time any Mortgage Paper is assigned and pledged to Lender by Borrower as
provided in Section 6.14, all insurance policies and certificates of insurance
necessary to evidence that the improvements described in each Mortgage have been
insured against loss by fire and other casualty in the full amount of the
Mortgage Loan secured by such Mortgage and Lender is shown as a loss payee in
such policies, as its interests may appear.

 

6.17         Environmental. Upon request of Lender, Borrower shall deliver to
Lender at the time any Mortgage Paper is assigned and pledged to Lender by
Borrower as provided in Section 6.14, any and all documents, reports and
assessments Borrower has received that evidence the environmental safety and
soundness of the real property relating to such Mortgage Paper.

 

6.18         Appraisals. Upon request of Lender, Borrower shall deliver to
Lender at the time any Mortgage Paper is assigned and pledged to Lender by
Borrower as provided in Section 6.14, all appraisals in Borrower’s possession or
control relating to the property described in the related Mortgage. If any other
appraisal is required or desired by Lender with respect to any property covered
by a Mortgage which constitutes part of the Mortgage Paper, Borrower shall,
within thirty (30) days following a request therefor by Lender, furnish to
Lender (at Borrower’s sole cost and expense) an appraisal with respect to such
property in form, substance and by an appraising firm acceptable to Lender.

 

6.19         Lot Contracts and Other Purchase Contracts. Upon request of Lender,
Borrower shall deliver to Lender at the time any Mortgage Paper is assigned to
Lender by Borrower as provided in Section 6.14, true and correct copies of any
and all lot purchase contracts or other purchase contracts relating to the
purchase and sale of all or any part of the real property serving as collateral
security for such Mortgage Loan, together with true and correct copies of any
modifications or amendments to such purchase contracts. Thereafter, Borrower
shall promptly provide to Lender with true and correct copies of any new lot
purchase contract or other purchase contract relating to any part of the real
property serving as collateral security for a Mortgage Loan, and true and
correct copies of any later modification or amendment of any lot purchase
contract or other purchase contract.

 

ARTICLE 7
NEGATIVE COVENANTS

 

Until payment and performance in full of all of the Indebtedness and all of the
Obligations, Borrower covenants and agrees that, without the prior written
consent of Lender:

 

7.1           Amendment of Organizational Documents. Borrower will not amend its
Organizational Documents without the prior written consent of Lender unless any
such amendment could not reasonably be expected to have a Material Adverse
Effect.

 

7.2           Reserved.

 

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7.3         Limitation on Liens. Borrower will not, directly or indirectly,
incur, create, assume, or permit to exist any Lien upon any of its property,
assets, or revenues, whether now owned or hereafter acquired, except:

 

(a)          The Permitted Liens;

 

(b)          Encumbrances consisting of minor easements, zoning restrictions, or
other restrictions on the use of real property that do not (individually or in
the aggregate) materially affect the value of the assets encumbered thereby or
materially impair the ability of Borrower to use such assets in its business,
and none of which is violated in any material respect by existing or proposed
structures or land use;

 

(c)          Liens for taxes, assessments, or other governmental charges which
are being contested diligently and in good faith and for which adequate reserves
have been established; and

 

(d)          Liens resulting from good faith deposits to secure payments of
workmen’s compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids, or
contracts (other than for payment of Debt), or leases made in the ordinary
course of business.

 

7.4         Mergers, Etc. Borrower will not, directly or indirectly, without the
prior written consent of Lender, (a) become a party to a merger or
consolidation, (b) purchase or otherwise acquire all or any part of the assets
or shares or other evidence of beneficial ownership of any Person (other than
pursuant to the Tender Offer), or (c) wind-up, dissolve, or liquidate.

 

7.5         Restricted Payments. Borrower will not, directly or indirectly,
declare or pay any dividends or make any other payment or distribution (in cash,
property, or obligations) on account of its Common Shares, or redeem, purchase,
retire, or otherwise acquire any of its Common Shares, or set apart any money
for a sinking or other analogous fund for any dividend or other distribution on
its equity interests or for any redemption, purchase, retirement, or other
acquisition of any of its Common Shares, or undertake any new obligation
(contingent or otherwise) to do any of the foregoing; provided, however,
Borrower may purchase or otherwise acquire its Common Shares pursuant to the
Tender Offer and may declare and pay cash distributions to holders of its Common
Shares provided that at the time of acquisition of such Common Shares or payment
of such distributions no Default exists or would result immediately after giving
effect to such acquisition or distribution.

 

7.6         Loans and Investments. Borrower will not, directly or indirectly,
make any advance, loan, extension of credit, or capital contribution to or
investment in, or purchase, any stock, bonds, notes, debentures, or other
securities of, any Person, except:

 

(a)          readily marketable direct obligations of the United States of
America or any agency thereof with maturities of one year or less from the date
of acquisition;

 

(b)          fully insured depository accounts maintained at a commercial bank
operating in the United States of America;

 

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(c)          loans to Mortgage Loan Obligors, provided that the Mortgagee Paper
evidencing and securing each Mortgage Loan shall have been collaterally assigned
to Lender, in form, scope and substance satisfactory to Lender; and

 

(d)          loans otherwise permitted under the Borrower’s Organizational
Documents.

 

7.7         Reserved.

 

7.8         Transactions with Affiliates. Borrower will not, directly or
indirectly, enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service or the
payment of any management, advisory or similar fees, with any Affiliate of
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of Borrower’s business and Organizational Documents, pursuant to a
transaction which is otherwise expressly permitted under this Agreement, and
upon fair and reasonable terms no less favorable to Borrower than would be
obtained in a comparable arm’s-length transaction with a Person not an Affiliate
of Borrower.

 

7.9         Disposition of Collateral. Borrower will not, directly or
indirectly, sell, lease, assign, transfer, or otherwise dispose of any of the
Collateral, except (a) dispositions of Inventory in the ordinary course of
business, dispositions, for fair value, of worn-out and obsolete equipment not
necessary to the conduct of its business, (b) dispositions of Mortgage Loans and
the Mortgage Paper relating thereto which have been paid in full and no longer
constitute Collateral, (c) dispositions of Mortgage Loans and Mortgage Paper in
connection with a Securitization, or (d) sale of participation interests in
Mortgage Loans and Mortgage Paper in the ordinary course of business; provided,
however, that nothing in this Section 7.9 shall prohibit Borrower from granting
a release or partial release of lien of any Mortgage if such release or partial
release is conducted in the Borrower’s ordinary course of business and for fair
value.

 

7.10       Nature of Business. Borrower will not engage in any business other
than as permitted under its Organizational Documents.

 

7.11       Environmental Protection. Borrower will not, directly or indirectly,
(a) use (or permit any tenant to use) any of its properties or assets for the
handling, processing, storage, transportation, or disposal of any Hazardous
Material, (b) generate any Hazardous Material, (c) conduct any activity that is
likely to cause a Release or threatened Release of any Hazardous Material, or
(d) otherwise conduct any activity or use any of its respective properties or
assets in any manner that is likely to violate any Environmental Law or create
any Environmental Liabilities for which Borrower would be responsible.

 

7.12       No Negative Pledge. Borrower will not enter into or permit to exist
any arrangement or agreement, other than pursuant to this Agreement or any Loan
Document, which directly or indirectly prohibits or limits the ability of
Borrower to or from creating or incurring a Lien on any of its assets, whether
now owned or hereafter acquired.

 

7.13       Judgments. Borrower will not allow any judgment for the payment of
money in excess of $500,000.00 rendered against it to remain undischarged or
unsuperseded for a period of thirty (30) days during which execution shall not
be effectively stayed.

 

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7.14         Reserved.

 

7.15         Prepayment of Indebtedness. The Borrower will not prepay the
Indebtedness prior to the Maturity Date. During the Extension Period, if any,
the Borrower may the Indebtedness without fee or penalty.

 

7.16         Servicing Rights. Except to Advisor and/or Asset Manager, Borrower
will not sell, assign, transfer or pledge its servicing rights to any of the
Mortgage Paper that constitutes Collateral hereunder.

 

ARTICLE 8
FINANCIAL COVENANTS

 

Borrower covenants and agrees that, as long as any Indebtedness or Obligations
or any part thereof is outstanding, Borrower will, at all times, observe and
perform the following financial covenants:

 

8.1           Consolidated Total Debt to Total Equity Ratio. Borrower will
maintain a Consolidated Total Debt to Total Equity Ratio of not greater than
1.00 to 1.00, tested quarterly, as of the end of each fiscal quarter.

 

8.2           Minimum Tangible Net Worth. Borrower will at all times maintain a
minimum Tangible Net Worth of $450,000,000.

 

ARTICLE 9
EVENTS OF DEFAULT

 

The term “Event of Default” as used herein shall mean the occurrence of any one
or more of the following events:

 

9.1           Payment of Indebtedness. The failure of Borrower to pay the
Indebtedness, or any part thereof, within five (5) Business Days after the date
on which the same becomes due and payable in accordance with the terms of the
Loan Documents, including, without limitation, the failure or refusal of
Borrower to pay the principal of or the accrued and unpaid interest on any Loan
within five (5) Business Days after the date on which the same becomes due and
payable;

 

9.2           Negative and Financial Covenants. Borrower shall breach any
provision of Article VII or Article VIII of this Agreement;

 

9.3           Misrepresentation. Any statement, representation, or warranty
heretofore or hereafter made by Borrower or any other Obligated Party in this
Agreement or in any other Loan Document or in any writing, or any statement or
representation made in any certificate or report delivered to Lender pursuant to
the Loan Documents, is incorrect in any material respect at the time made, and
such incorrectness (a) adversely affects the Lender and (b) continues unremedied
for a period of ten (10) Business Days after the earlier of written notice
thereof from Lender or actual knowledge of the Borrower;

 

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9.4           Other Covenants. The failure or refusal of Borrower or any other
Obligated Party to perform, observe, and comply with any covenant or agreement
contained in any of the Loan Documents (other than as covered by Section 9.1 and
Section 9.2 above) and such breach (a) adversely affects the Lender and (b)
continues uncured for ten (10) Business Days after the earlier of written notice
thereof from Lender or actual knowledge of the Borrower;

 

9.5           Voluntary Debtor Relief. Borrower or any other Obligated Party
shall (a) execute an assignment for the benefit of creditors, or (b) become or
be adjudicated as bankrupt or insolvent, or (c) generally not, or be unable to,
or admit in writing its inability to, pay its debts generally as they become
due, or (d) apply for or consent to the appointment of a conservator, receiver,
trustee, liquidator, custodian or other similar official of it or all or a
substantial part of its assets, or (e) file a voluntary petition, or commence
any other proceeding, or other action, seeking liquidation, reorganization or
dissolution, conservatorship, or seek any other arrangement with creditors or to
take advantage or seek any other relief under any Debtor Relief Law now or
hereafter existing, or (f) file an answer admitting the material allegations of
or consenting to, or default in, a petition filed against it in any liquidation,
conservatorship, bankruptcy, reorganization, rearrangement, debtor’s relief, or
other insolvency proceedings, or (g) institute or voluntarily be or become a
party to any other judicial proceedings intended to effect a discharge of its
debts, in whole or in part, or a postponement of the maturity or the collection
thereof, or a suspense on of any of the Rights or powers of Lender granted in
any of the Loan Documents;

 

9.6           Involuntary Proceedings. Borrower or any other Obligated Party
shall involuntarily (a) have an order, judgment, or decree entered against it by
any Tribunal pursuant to any Debtor Relief Law that could suspend or otherwise
affect any of the Rights granted to Lender in any of the Loan Documents, and
such order, judgment, or decree is not permanently stayed, vacated, or reversed
within thirty (30) days after the entry thereof, or (b) have a petition filed
against it or any of its property seeking the benefit or benefits provided for
by any Debtor Relief Law that would suspend or otherwise affect any of the
Rights granted to Lender in any of the Loan Documents, and such petition is not
discharged within thirty (30) days after the filing thereof;

 

9.7           Attachment. The failure to have discharged within a period of
thirty (30) days after the commencement thereof any attachment, sequestration,
or similar proceedings against any of the material assets of Borrower or any
other Obligated Party;

 

9.8           Other Debt. Borrower or any other Obligated Party shall default in
the due and punctual payment of the principal of or the interest on any Debt
(other than the Loans made hereunder) with Lender secured or unsecured, or in
the due performance or observance of any covenant or condition of any agreement
executed in connection therewith, and such default shall have continued beyond
any period of grace or cure provided with respect thereto;

 

9.9           Dissolution. The dissolution of Borrower or any other Obligated
Party for any reason whatsoever;

 

9.10         Loan Documents. Any of the Loan Documents cease to be in full force
and effect, or be enforceable by Lender in accordance with their terms;

 

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9.11       Maturity Date. All or any portion of any Loan remains unpaid on the
Maturity Date or the Extended Maturity Date, as applicable; or

 

9.12       Financial Statements Qualified. The Borrower’s external auditor’s
opinion or the Borrower’s annual audited financial statements are qualified in
any manner.

 

ARTICLE 10
CERTAIN RIGHTS AND REMEDIES OF LENDER

 

10.1       Rights Upon Event of Default. If any Event of Default shall occur and
be continuing, Lender may, without notice, declare the Indebtedness or any part
thereof to be immediately due and payable, and the same shall thereupon become
immediately due and payable, without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by Borrower; provided, however, that upon the occurrence
of an Event of Default under Section 9.5 or Section 9.6, the Indebtedness shall
become immediately due and payable without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, notice of
intent to demand, protest, or other formalities of any kind, all of which are
hereby expressly waived by the Borrower. If any Event of Default shall occur and
be continuing, Lender may exercise all rights and remedies available to it in
law or in equity, under the Loan Documents, or otherwise.

 

10.2       Rights Relating to Collateral.

 

10.2.1   Application of Proceeds. If any Event of Default shall have occurred
and be continuing, Lender may at its discretion, in accordance and as provided
in the Code and other applicable law, apply or use any cash held by Lender as
Collateral and any cash proceeds received by Lender in respect of any sale or
other disposition of, collection from, or other realization upon, all or any
part of the Collateral as follows in such order and manner as Lender may elect:

 

(a)          To the repayment or reimbursement of the reasonable costs and
expenses (including, without limitation, reasonable attorneys’ fees and
expenses) incurred by Lender in connection with (i) the administration of the
Loan Documents, (ii) the custody, preservation, use or operation of, or the sale
of, collection from, or other realization upon, the Collateral, and (iii) the
exercise or enforcement of any of the rights and remedies of Lender hereunder;

 

(b)          To the payment or other satisfaction of any Liens upon the
Collateral;

 

(c)          To the satisfaction of the Indebtedness;

 

(d)          To the payment of any other amounts required by applicable law; and

 

(e)          By delivery to Borrower or any other party lawfully entitled to
receive such cash or proceeds whether by direction of a court of competent
jurisdiction or otherwise.

 

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10.2.2     Deficiency. In the event that the proceeds of any sale of, collection
from, or other realization upon, all or any part of the Collateral by Lender are
insufficient to pay all amounts to which Lender is legally entitled, Borrower
and any Obligated Party shall be liable for the deficiency, together with
interest thereon as provided in the Loan Documents.

 

10.2.3     Non-Judicial Remedies. In granting to Lender the power to enforce its
rights hereunder without prior judicial process or judicial hearing, Borrower
expressly waives, renounces and knowingly relinquishes any legal right which
might otherwise require Lender to enforce its rights by judicial process.
Borrower recognizes and concedes that non-judicial remedies are consistent with
the usage of trade, are responsive to commercial necessity and are the result of
a bargain at arm’s length. Nothing herein is intended to prevent Lender or
Borrower from resorting to judicial process at either party’s option.

 

10.2.4     Other Recourse. Borrower waives any right to require Lender to
proceed against any third party, exhaust any Collateral or other security for
the Indebtedness, or to have any third party joined with Borrower in any suit
arising out of the Indebtedness or any of the Loan Documents, or pursue any
other remedy available to Lender. Borrower further waives any and all notice of
acceptance of this Agreement. Borrower further waives any defense arising by
reason of any disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.

 

10.2.5     Disclaimer of Warranties and Sales on Credit. In connection with any
foreclosure sale of the Collateral, Lender may specifically disclaim any
warranties of title or the like. This procedure will not be considered to
adversely affect the commercial reasonableness of any sale of the Collateral. If
Lender sells any of the Collateral upon credit, Borrower will be credited only
with payments actually made by the purchaser, received by Lender and applied to
the indebtedness of the purchaser. In the event the purchaser fails to pay for
the Collateral, Lender may resell the Collateral and Borrower shall be credited
with the proceeds of the sale.

 

10.2.6     License. Lender is hereby granted a license or other right to use,
following the occurrence and during the continuance of an Event of Default,
without charge, Borrower’s labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks, customer lists and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale, and selling any
Collateral, and, following the occurrence and during the continuance of any
Event of Default, Borrower’s rights under all licenses and all franchise
agreements shall inure to Lender’s benefit.

 

10.3       Setoff. At any time an Event of Default exists, Lender shall be
entitled to exercise the Rights of setoff and/or banker’s lien against the
interests of Borrower in and to each and every account and other property of
Borrower which are in the possession or control of Lender to the extent of the
full amount of the Indebtedness, whether or not any such Indebtedness is then
due or matured. The rights and remedies of Lender hereunder are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) which Lender may have.

 

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10.4         Performance by Lender. Should any covenant, duty, or agreement of
Borrower fail to be performed in accordance with the terms of the Loan
Documents, Lender may, at its option, perform or attempt to perform such
covenant, duty, or agreement on behalf of Borrower. In such event, or if Lender
expends any sum pursuant to the exercise of any Right provided herein, Borrower
shall, at the request of Lender, promptly pay to Lender any amount expended by
Lender in such performance or attempted performance, together with interest
thereon at the Maximum Rate from the date of such expenditure by Lender until
paid. Notwithstanding the foregoing, it is expressly understood that Lender does
not assume any liability or responsibility for the performance of any duties of
Borrower hereunder or in connection with all or any part of the Collateral.

 

10.5         Diminution in Collateral Value. Lender does not assume, and shall
never have, any liability or responsibility for any loss or diminution in the
value of all or any part of the Collateral.

 

10.6         Lender Not In Control. None of the covenants or other provisions
contained in this Agreement shall, or shall be deemed to, give Lender the Right
to exercise control over the affairs and/or management of Borrower, the power of
Lender being limited to the Right to exercise the remedies provided in the other
Sections of this Article; provided that, if Lender becomes the owner of any
ownership interest of any Person, whether through foreclosure or otherwise,
Lender shall be entitled to exercise such legal Rights as it may have by virtue
of being an owner of such Person.

 

10.7         Waivers. The acceptance of Lender at any time and from time to time
of part payment on the Indebtedness shall not be deemed to be a waiver of any
Event of Default then existing. No waiver by Lender of any Event of Default
shall be deemed to be a waiver of any other then-existing or subsequent Event of
Default. No waiver by Lender of any of its Rights hereunder, in the other Loan
Documents, or otherwise shall be considered a waiver of any other or subsequent
Right of Lender. No delay or omission by Lender in exercising any Right under
the Loan Documents shall impair such Right or be construed as a waiver thereof
or any acquiescence therein, nor shall any single or partial exercise of any
such Right preclude other or further exercise thereof, or the exercise of any
other Right under the Loan Documents or otherwise.

 

10.8         Cumulative Rights. All Rights available to Lender under the Loan
Documents shall be cumulative of and in addition to all other Rights granted to
Lender at Law or in equity, whether or not the Obligations be due and payable
and whether or not Lender shall have instituted any suit for collection,
foreclosure, or other action under or in connection with the Loan Documents.

 

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10.9         INDEMNIFICATION OF LENDER. BORROWER SHALL INDEMNIFY LENDER, EACH
AFFILIATE OF LENDER AND EACH OF ITS AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS, AND AGENTS FROM, AND HOLD EACH OF THEM HARMLESS AGAINST,
ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS’ FEES) TO WHICH ANY OF
THEM MAY BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A)
THE NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION, OR
ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS, (B) ANY OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY BORROWER OR ANY OTHER
OBLIGATED PARTY OF ANY REPRESENTATION, WARRANTY, COVENANT, OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE PRESENCE, RELEASE, THREATENED
RELEASE, DISPOSAL, REMOVAL, OR CLEANUP OF ANY HAZARDOUS MATERIAL LOCATED ON,
ABOUT, WITHIN OR AFFECTING ANY OF THE PROPERTIES OR ASSETS OF THE BORROWER OR
ANY SUBSIDIARY, (E) THE USE OR PROPOSED USE OF ANY LETTER OF CREDIT, (F) ANY AND
ALL TAXES, LEVIES, DEDUCTIONS, AND CHARGES IMPOSED ON LENDER OR ANY OF LENDER’S
CORRESPONDENTS IN RESPECT OF ANY LETTER OF CREDIT, (G) ANY INVESTIGATION,
LITIGATION, OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING, RELATING TO ANY OF THE
FOREGOING, OR (H) ANY HEDGE AGREEMENT. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE
INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES,
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES
(INCLUDING ATTORNEYS’ FEES) ARISING OUT OF OR RESULTING FROM THE SOLE
CONTRIBUTORY OR ORDINARY NEGLIGENCE OF SUCH PERSON; PROVIDED, HOWEVER, THE
INDEMNITIES PROVIDED IN THIS SECTION 10.9 DO NOT EXTEND TO LOSSES, LIABILITIES,
CLAIMS, OR DAMAGES CAUSED BY LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

10.10       Limitation of Liability. Neither Lender nor any Affiliate, officer,
director, employee, attorney, or agent of Lender shall have any liability with
respect to, and Borrower hereby waives, releases, and agrees not to sue any of
them upon, any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by the Borrower in connection with, arising out of,
or in any way related to, this Agreement or any of the other Loan Documents, or
any of the transactions contemplated by this Agreement or any of the other Loan
Documents. Borrower hereby waives, releases, and agrees not to sue Lender or any
of Lender’s Affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or any
of the transactions contemplated by this Agreement or any of the other Loan
Documents.

 

10.11       Servicing Rights. Upon the occurrence of an Event of Default, Lender
will have the ability to take over and control all servicing rights for the
Mortgage Paper assigned and pledged to the Lender.

 

ARTICLE 11
MISCELLANEOUS

 

11.1        Headings. The headings, captions, and arrangements used in any of
the Loan Documents are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify, or modify the terms of the Loan
Documents, nor affect the meaning thereof.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 31

 

 

11.2         Articles, Sections, and Exhibits. All references to “Article,”
“Articles,” “Section,” “Sections,” “Subsection,” or “Subsections” contained
herein are, unless specifically indicated otherwise, references to articles,
sections, and subsections of this Agreement. All references to “Exhibits”
contained herein are references to exhibits attached hereto, all of which are
made a part hereof for all purposes, the same as if set forth herein verbatim,
it being understood that if any exhibit attached hereto, which is to be executed
and delivered, contains blanks, the same shall be completed correctly and in
accordance with the terms and provisions contained and as contemplated herein
prior to or at the time of the execution and delivery thereof.

 

11.3         Number and Gender of Words. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and vice versa; and
words of any gender shall include each other gender where appropriate.

 

11.4         Notices. Unless otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing and mailed,
or delivered, to the address or facsimile number specified for notices on the
signature page below or to such other address as shall be designated by such
party in a notice to the other parties. All such other notices and other
communications shall be deemed to have been given or made upon the earliest to
occur of (a) actual receipt by the intended recipient or (b) (i) if delivered by
hand or courier, when signed for by the designated recipient; or (ii) if
delivered by mail, three (3) business days after deposit in the mail, postage
prepaid.

 

11.5         Form and Number of Documents. Each agreement, document, instrument,
or other writing to be furnished to Lender under any provision of this Agreement
must be in form and substance and in such number of counterparts as may be
satisfactory to Lender and its counsel.

 

11.6         Survival. All covenants, agreements, undertakings, representations,
and warranties made in any of the Loan Documents shall survive all closings
under the Loan Documents and shall continue in full force and effect so long as
any part of the Indebtedness remains outstanding and, except as otherwise
indicated, shall not be affected by any investigation made by any party.
Notwithstanding anything contained herein to the contrary, the covenants,
agreements, undertakings, representations, and warranties made in Section 6.5
and Section 10.9 shall survive the expiration or termination of this Agreement,
regardless of the means of such expiration or termination.

 

11.7         GOVERNING LAW; VENUE. THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR
DISPUTE ARISING UNDER OR RELATED TO OR IN CONNECTION WITH THIS AGREEMENT, THE
RELATIONSHIP OF THE PARTIES HERETO AND/OR THE INTERPRETATION AND ENFORCEMENT OF
THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO ITS
CONFLICT OF LAWS PROVISIONS (OTHER THAN §5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW)). EACH OF THE PARTIES HERETO HEREBY AGREES TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, LOCATED IN THE BOROUGH OF
MANHATTAN AND THE FEDERAL COURTS LOCATED WITHIN THE STATE OF NEW YORK IN THE
BOROUGH OF MANHATTAN. EACH OF THE PARTIES HERETO HEREBY WAIVES ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 32

 

 

11.8         WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE BETWEEN
THE PARTIES HERETO ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP BETWEEN ANY OF THEM IN CONNECTION WITH THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. INSTEAD, ANY SUCH DISPUTE RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.

 

11.9         Maximum Interest. It is expressly stipulated and agreed to be the
intent of Borrower and Lender at all times to comply strictly with the
applicable New York law governing the maximum rate or amount of interest payable
on the indebtedness evidenced by any Note or any Loan Document, and the Related
Indebtedness (as hereinafter defined) (or applicable United States federal law
to the extent that it permits Lender to contract for, charge, take, reserve or
receive a greater amount of interest than under New York law). If the applicable
law is ever judicially interpreted so as to render usurious any amount (a)
contracted for, charged, taken, reserved or received pursuant to any Note, any
of the other Loan Documents or any other communication or writing by or between
Borrower and Lender related to the transaction or transactions that are the
subject matter of the Loan Documents, (b) contracted for, charged, taken,
reserved or received by reason of Lender’s exercise of the option to accelerate
the maturity of any Note and/or any and all indebtedness paid or payable by
Borrower to Lender pursuant to any Loan Document other than any Note (such other
indebtedness being referred to in this Section as the “Related Indebtedness”),
or (c) Borrower will have paid or Lender will have received by reason of any
prepayment by Borrower of any Note or Related Indebtedness, then it is
Borrower’s and Lender’s express intent that all amounts charged in excess of the
Maximum Rate shall be automatically canceled, ab initio, and all amounts in
excess of the Maximum Rate theretofore collected by Lender shall be credited on
the principal balance of any Note and/or the Related Indebtedness (or, if any
Note and the Related Indebtedness have been or would thereby be paid in full,
refunded to Borrower), and the provisions of any Note and the other Loan
Documents shall immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the applicable law, but so
as to permit the recovery of the fullest amount otherwise called for hereunder
and thereunder; provided, however, if any Note has been paid in full before the
end of the stated term of any such Note, then Borrower and Lender agree that
Lender shall, with reasonable promptness after Lender discovers or is advised by
Borrower that interest was received in an amount in excess of the Maximum Rate,
either refund such excess interest to Borrower and/or credit such excess
interest against such Note and/or any Related Indebtedness then owing by
Borrower to Lender. Borrower hereby agrees that as a condition precedent to any
claim or counterclaim (in which event such proceeding shall be abated for such
time period) seeking usury penalties against Lender, Borrower will provide
written notice to Lender, advising Lender in reasonable detail of the nature and
amount of the violation, and Lender shall have sixty (60) days after receipt of
such notice in which to correct such usury violation, if any, by either
refunding such excess interest to Borrower or crediting such excess interest
against the Note to which the alleged violation relates and/or the Related
Indebtedness then owing by Borrower to Lender. All sums contracted for, charged,
taken, reserved or received by Lender for the use, forbearance or detention of
any debt evidenced by any Note and/or the Related Indebtedness shall, to the
extent permitted by applicable law, be amortized or spread, using the actuarial
method, throughout the stated term of such Note and/or the Related Indebtedness
(including any and all renewal and extension periods) until payment in full so
that the rate or amount of interest on account of any Note and/or the Related
Indebtedness does not exceed the Maximum Rate from time to time in effect and
applicable to such Note and/or the Related Indebtedness for so long as debt is
outstanding. Notwithstanding anything to the contrary contained herein or in any
of the other Loan Documents, it is not the intention of Lender to accelerate the
maturity of any interest that has not accrued at the time of such acceleration
or to collect unearned interest at the time of such acceleration.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 33

 

 

11.10       Invalid Provisions. If any provision of any of the Loan Documents is
held to be illegal, invalid, or unenforceable under present or future Laws
effective during the term thereof, such provision shall be fully severable, the
appropriate Loan Document shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part thereof, and the
remaining provisions thereof shall remain in full force and effect and shall not
be effected by the illegal, invalid, or unenforceable provision or by its
severance therefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of such
Loan Document a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.

 

11.11       Entirety and Amendments. This instrument embodies the entire
agreement between the parties relating to the subject matter hereof (except
documents, agreements and instruments delivered or to be delivered in accordance
with the express terms hereof), supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof, and may be
amended only by an instrument in writing executed jointly by Borrower and Lender
and supplemented only by documents delivered or to be delivered in accordance
with the express terms hereof.

 

11.12       Multiple Counterparts. This Agreement has been executed in a number
of identical counterparts, each of which constitutes an original and all of
which constitute, collectively, one agreement; but in making proof of this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart.

 

11.13       Parties Bound. This Agreement shall be binding upon and inure to the
benefit of Borrower, Lender and their respective successors and assigns;
provided that Borrower may not, without the prior written consent of Lender,
assign any of its Rights, duties, or obligations hereunder. No term or provision
of this Agreement shall inure to the benefit of any Person other than Borrower
and Lender and their respective successors and assigns; consequently, no Person
other than Borrower and Lender and their respective successors and assigns,
shall be entitled to rely upon, or to raise as a defense, in any manner
whatsoever, the failure of Borrower or Lender to perform, observe, or comply
with any such term or provision.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 34

 

 

11.14       Lender’s Consent or Approval. Except where otherwise expressly
provided in the Loan Documents, in any instance where the approval, consent or
the exercise of judgment of Lender is required, the granting or denial of such
approval or consent and the exercise of such judgment shall be (a) within the
sole discretion of Lender, and (b) deemed to have been given only by a specific
writing intended for the purpose and executed by Lender. Each provision for
consent, approval, inspection, review, or verification by Lender is for Lender’s
own purposes and benefit only.

 

11.15       Loan Agreement Governs. In the event of any conflict between the
terms of this Agreement and any terms of any other Loan Document, the terms of
this Agreement shall govern. All of the Loan Documents are by this reference
incorporated into this Agreement.

 

11.16       Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default if such action is taken or such condition exists.

 

11.17       USA Patriot Act. Lender is subject to the requirements of the USA
Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001))
(the “Act”) and hereby notifies the Borrower that pursuant to the requirements
of the Act, it is required to obtain, verify, and record information that
identifies the Borrower, which information includes the name and address of the
Borrower and other information that will allow such Lender to identify the
Borrower in accordance with the Act.

 

11.18       STATUTE OF FRAUDS NOTICE. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

 

11.19       Securitization Right of First Refusal. Borrower shall provide not
less than thirty (30) days prior written notice (each, a “Securitization
Notice”) to Lender of its intention to securitize all or a portion of the
Mortgage Loans pursuant to a term securitization (a “Proposed Securitization”),
which Securitization Notice shall include a summary of the terms of such
Proposed Securitization. Within fifteen (15) days of its receipt of a
Securitization Notice, Lender shall have the right to commit to acquire any or
all of the securities to be issued in connection with such Proposed
Securitization (the “Subject Securities”) by providing a notice of its intention
to commit to acquire the Subject Securities to Borrower upon the terms set forth
in the Securitization Notice (the “Lender Notice”). Subject to the next
sentence, if Lender timely delivers a Lender Notice, the Borrower agrees on its
own behalf and on behalf of its Affiliates to sell the Subject Securities to the
Lender or its designee upon the closing of the Proposed Securitization. Failure
by the Lender to issue a Lender Notice within fifteen (15) days of receipt of a
Securitization Notice shall constitute waiver by Lender of its rights under this
Section 11.19 with regard to the Proposed Securitization specified in the
related Securitization Notice only, and shall not constitute a waiver of
Lender’s rights with respect to any securities issued in connection with another
Proposed Securitization. From and after any such waiver, the Borrower and its
Affiliates will be free to sell any of the securities issued in connection with
the Proposed Securitization specified in the related Securitization Notice to
any other Person.

 

REMAINDER OF PAGE LEFT BLANK — SIGNATURE PAGE FOLLOWS

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 35

 

 

EXECUTED to be effective as of the date first written above.

 

  LENDER:       WATERFALL FINANCE 4, LLC         By:       Kenneth Nick    
Authorized Person         Address for Notices:   1140 Avenue of the Americas,
7th Floor   New York, New York  10036   Attention:  Kenneth Nick, Managing
Director and   General Counsel         BORROWER:       UNITED DEVELOPMENT
FUNDING IV,   a real estate investment trust organized   under the laws of the
State of Maryland         By:       Hollis M. Greenlaw,     Chief Executive
Officer           Address for Notices:     1301 Municipal Way, Suite 200    
Grapevine, Texas 76051     Attn: UMTH Land Development, L.P,     Ben Wissink,
President

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 36

 

 

INDEX TO EXHIBITS

 

Exhibit Description of Exhibit     A Compliance Certificate     B Collateral
Assignment of Note and Liens     C Mortgage Assignment     D Allonge

 

INDEX TO SCHEDULES

 

Description of Schedules

 

Schedule One – Additional Conditions Precedent

Schedule Two – Disclosure Schedule

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 37

 

 

EXHIBIT A

 

COMPLIANCE CERTIFICATE

 

[To be attached.]

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 1

 

 

EXHIBIT B

 

COLLATERAL ASSIGNMENT OF NOTE AND LIENS

 

WHEN RECORDED MAIL TO:

Waterfall Finance 4, LLC

1140 Avenue of the Americas, 7th Floor

New York, New York 10036

Attn: __________________

 

SPACE ABOVE THIS LINE FOR RECORDER’S USE

Note to Clerk: Cross reference to Document Nos.

__________ (Deed of Trust), and

__________ (Assignment), Official Public Records,

__________ County, Texas

 

 

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S
LICENSE NUMBER.

 

COLLATERAL ASSIGNMENT OF NOTES AND LIENS AND SECURITY AGREEMENT

 

THIS COLLATERAL ASSIGNMENT of Notes and Liens and Security Agreement is dated as
of ____________, by UNITED DEVELOPMENT FUNDING IV, a Maryland real estate
investment trust (“Assignor”) to WATERFALL FINANCE 4, LLC (“Lender”).

 

WITNESSETH:

 

The Assignor for good and valuable consideration, the receipt whereof is hereby
acknowledged, hereby grants to Lender a security interest or an assignment, as
the case may be, in and to the promissory notes more particularly described in
Exhibit “A” attached hereto and made a part hereof for all purposes,
(hereinafter called the “Collateral Notes”), any and all documents now or
hereafter executed in connection with the Collateral Notes and all liens,
security interests, assignments, mortgages and guaranties accruing or to accrue
to the benefit of Assignor with respect to the Collateral Notes (hereinafter
collectively called the “Collateral Security”) covering the real property more
particularly described in Exhibit “B” attached hereto and made a part hereof
(the “Property”); and together with all rights, powers, privileges benefits and
remedies arising under the Collateral Notes and the related Collateral Security,
including without limitation, all casualty insurance policies, and all moneys,
income, proceeds and benefits attributable or accruing to the Collateral Notes
or Collateral Security (the “Related Instruments” and together with the
Collateral Notes and the Collateral Security, hereinafter sometimes called the
“Collateral”).

 

1.          Secured Indebtedness. This Collateral Assignment is executed,
acknowledged and delivered as security for and to secure the full, prompt and
complete payment as and when the same becomes due and payable of all sums owing
and to be owing on and under the following, together with any renewals,
extensions or rearrangements thereof (hereinafter collectively called the
“Indebtedness”):

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 1

 

 

(a)          The payment of the “Indebtedness”, as defined in that certain Loan
Agreement dated of even date herewith between Lender and Assignor (as may be
amended, modified or restated from time to time, the “Loan Agreement”)
including, without limitation, the payment of the Note (as defined in the Loan
Agreement);

 

(b)          Payment of all other sums with interest thereon, if any, becoming
due and payable to Lender under the Loan Agreement, this Collateral Assignment
or any document executed in connection therewith or relating thereto; and

 

(c)          The performance and discharge of each and every obligation,
covenant and agreement of the Assignor contained herein or in the Loan Agreement
or in any agreement now or hereafter entered into by Assignor, as security for
or in connection with this Collateral Assignment or the Loan Agreement.

 

If Assignor fully pays the Indebtedness as the same becomes due and payable,
this conveyance shall become null and void, and Lender will reassign to
Assignor, without recourse, the Collateral Notes and all rights and liens
conveyed hereby and Lender agrees to execute all documents necessary to reassign
the Collateral Notes to Assignor. Otherwise, this conveyance is to remain in
full force and effect.

 

2.            Representations and Warranties of Assignor. Assignor hereby
represents and warrants to Lender that:

 

(a)          Assignor is the legal owner and holder of the Collateral Notes;

 

(b)          The Collateral Notes, Collateral Security and Related Instruments
are valid and enforceable and have not been altered, modified or amended in any
manner whatsoever;

 

(c)          Assignor has not assigned, mortgaged or hypothecated any Collateral
Note, the indebtedness evidenced thereby or any of the liens or security
interests securing same or any guaranty therefor, except to Lender pursuant to
this Collateral Assignment;

 

(d)          The unpaid principal amount of each Collateral Note shown on
Exhibit “A” is still owing and unpaid on such Collateral Note;

 

(e)          Assignor has the full right and unqualified authority to transfer
and convey the Collateral Notes, the indebtedness evidenced thereby and the
Collateral Security and Related Instruments in the manner and for the purposes
herein set forth;

 

(f)          The Collateral Notes are current and in good standing in all
respects;

 

(g)          No default exists under the Collateral Security or any other
instrument securing or guaranteeing the payment of the Collateral Notes;

 

(h)          The Collateral Notes are not subject to any credits or offsets not
shown by proper endorsement on the Collateral Notes; and

 

 

 

 

(i)          Assignor has or shall notify the maker of each Collateral Note and
any assumptor of any Collateral Note of this Collateral Assignment.

 

3.           Covenants of Assignor. Assignor hereby covenants and agrees that:

 

(a)          Assignor will not enter into any other assignment, pledge, or
security agreement covering the Collateral so long as any of the Indebtedness
remains unpaid, except any such security agreement in favor of Lender. Assignor
will not sell or offer to sell or transfer the Collateral or any interest
therein as long as the Indebtedness remains unpaid.

 

(b)          Assignor will defend the Collateral against the claims and demands
of all persons or entities claiming the same or any part thereof or interest
therein.

 

(c)          Until the full and complete payment of all of the Indebtedness,
Lender is hereby fully authorized and empowered upon the occurrence of any Event
of Default under the Loan Agreement:

 

(i)          to receive, collect and demand payment directly from the maker of
each Collateral Note of all sums and amounts payable on or with respect to the
Collateral Notes; and

 

(ii)         to exercise and enforce all of the other rights, powers and
remedies of the holder of the Collateral Notes, including (but not by way of
limitation) the right to demand payment of the Collateral Notes in the event of
any default thereunder and to enforce the Collateral Security and Related
Instruments, including without limitation, the foreclosure of any deed of trust
comprising part of the Collateral Security.

 

In the event Lender forecloses the liens securing any of the Collateral Notes
and Lender becomes the owner of the property foreclosed, then Lender and
Assignor shall execute an appropriate instrument evidencing a lien for the
benefit of Lender covering such property and securing the Indebtedness. In the
event Lender, at its option and in writing, authorizes Assignor to enforce the
collection of any of the Collateral Notes and to foreclose the liens securing
same, then Assignor shall immediately pay over to Lender all sums received from
the enforcement of such liens and in the event Assignor becomes owner of the
property pledged as security for any such Collateral Note, then Lender shall
automatically have a lien or security interest covering such property to secure
the Indebtedness and Assignor shall immediately execute an appropriate
instrument evidencing same.

 

(d)          After the occurrence of an Event of Default, Assignor will hold all
monies, income, payments, or benefits attributable or accruing to the Collateral
Notes in trust for Lender and will not commingle with any other property or
moneys of Assignor and will promptly deliver the same to Lender in the form
received.

 

(e)          Lender is under no obligation to enforce the collection of the
Collateral Notes and shall not be liable for any neglect or failure to take
action with reference to the Collateral Notes; and none of the rights, powers,
or liens hereunder shall be prejudiced or affected by any neglect, failure or
omission as to any such matters.

 

 

 

 

(f)          Assignor will:

 

(i)          perform or cause to be performed all of the terms, covenants and
conditions on its part to be performed under the Collateral Notes and each of
the Collateral Security and Related Instruments;

 

(ii)         promptly notify Lender in writing of (x) the occurrence of any
event of default (after the lapse of any applicable grace period) in the
observance or performance of any of the terms, covenants and conditions to be
performed under any of the Collateral Notes or under any of the Collateral
Security and Related Instruments, and (y) the giving of any notice of any such
default or event of default; and

 

(iii)        whenever required by Lender, at the sale cost and expense of
Assignor, take all such action as may be so requested to enforce or secure the
performance of any term, covenant or condition of any of the Collateral Security
and Related Instruments and to exercise any right of Assignor under any of the
Collateral Security and Related Instruments.

 

(g)         Assignor will not, without the prior written consent of Lender:

 

(i)          reduce any payment required to be made to Assignor and/or Lender
under any of the Collateral Notes;

 

(ii)         revise, alter, modify, amend or change any of the Collateral Notes
in any way, either orally or in writing;

 

(iii)        waive any condition in respect of, or release any person with
respect to, any of the Collateral Notes, the Collateral Security and Related
Instruments or the performance or observance of any material obligation or
condition thereunder including, without limitation, any waiver or deferral of
any scheduled payments thereunder;

 

(iv)        amend, modify or waive any of the terms of any of the Collateral
Security and Related Instruments or release any collateral for any of the
Collateral Notes, either orally or in writing; or

 

(v)         if Lender shall consent to any renewal, modification, extension or
rearrangement of any of the Collateral Notes, Assignor shall immediately endorse
any note given in renewal, modification, extension or rearrangement of or
substitution for the Collateral Note payable to the order of Lender and shall
immediately deposit such note with Lender. Thereafter, such note shall be
considered part of such Collateral Note for all purposes of this Collateral
Agreement.

 

(h)          Lender shall not be responsible in any way for any depreciation in
the value of the Collateral Notes or Collateral Security and Related
Instruments, nor shall any duty or responsibility whatsoever rest upon Lender to
take any steps to preserve rights against prior parties or to enforce collection
of the Collateral Notes or Security Instruments by legal proceedings or
otherwise, the sale duty of Lender, its successors and assigns, being to receive
collections, remittances and payments on the Collateral Notes or Collateral
Security and Related Instruments as and when made and received by Lender, and,
at Lender’s option, to apply the amount or amounts so received, after deduction
of any collection costs incurred, as payment upon any of the Indebtedness or to
hold the same for the account and order of Assignor.

 

 

 

 

(i)          Regardless of any of the provisions contained in the Collateral
Notes, this Collateral Assignment, or any other instrument had and to be had in
connection with or as security for the payment of the Indebtedness, the
Indebtedness shall be promptly paid in accordance with the provisions of the
Note and the Loan Agreement, and the Indebtedness in all events is and shall be
the firm and absolute obligation of Assignor to pay in the amounts, at the
times, and in the manner provided therein not contingent upon or limited to any
revenues or proceeds payable and to be payable to Lender under the provisions
hereof.

 

(j)          Assignor shall pay the reasonable fees and expenses of counsel for
the Lender in connection with this Collateral Assignment and all transactions
pursuant hereto. Assignor will, upon request, promptly reimburse the Lender for
all amounts expended, advanced or incurred by the Lender to satisfy any
obligation of the Assignor under this Collateral Assignment, or to collect the
Indebtedness, or to enforce the rights of the Lender under this Collateral
Assignment or any other instrument referred to or mentioned herein or executed
or to be executed in connection herewith, together with interest thereon at the
rate provided in the Note for past due principal and interest on each such
amount from the date that the same is expended, advanced or incurred by the
Lender until the date it is repaid to the Lender.

 

4.           Events of Default. Assignor shall be in default under this
Collateral Assignment upon the occurrence of any Event of Default under the Loan
Agreement.

 

5.           Remedies.

 

(a)          Upon the occurrence of an Event of Default, Lender may elect to
declare the Indebtedness immediately due and payable in full, Assignor hereby
expressly waiving, demand, presentment, notice of non-payment, protest, notice
of dishonor, notice of intent to accelerate, notice of acceleration or any other
notice whatsoever.

 

(b)          Upon the occurrence of an Event of Default, and at any time
thereafter, Lender shall have the right to sell the Collateral Notes and the
other Collateral, together with the security therefor, at any private or public
sale or exercise any other rights or remedies permitted by the Texas Business
and Commerce Code or otherwise available to Lender at law or in equity, all of
which shall be deemed cumulative, and Lender shall transfer to the purchaser at
any such sale the Collateral Notes and the other Collateral, together with the
security therefor, and the recitals in such transfer shall be prima facie
evidence of the truth of the matters therein stated and all prerequisites to
such sale required hereunder and under applicable laws shall be presumed to have
been performed.

 

 

 

 

In this connection, Lender is and shall be fully subrogated to all rights and
liens existing unto and in favor of the Assignor and the provisions of the
Collateral Security and Related Instruments and in the event of a default
hereinabove mentioned, Lender shall be entitled to continue to collect the
amounts owing under the Collateral Notes and Collateral Security and Related
Instrument and to foreclose said rights and liens and to have the properties
covered by said instruments sold, in whole or in part, or to exercise any other
remedies in the manner and under the terms and conditions provided in said
instruments.

 

All of the collections or proceeds from the exercise of the rights and remedies
referred to in this Paragraph 5 will be applied by Lender, first to the payment
of the expenses of said sale, including reasonable attorneys’ fees, if any, and
then to the payment of the accrued but unpaid interest on the Indebtedness and
then to the unpaid principal of the Note and the Indebtedness and the balance,
if any, to the person or persons legally entitled thereto under applicable laws.

 

(c)          The requirement of reasonable notice to Assignor shall be met if
such notice is mailed, postage prepaid, to: United Development Funding IV

 

1301 Municipal Way, Suite 200

Grapevine, Texas 76051

Attn: Melissa Youngblood

 

at least ten (10) days before the date of any public sale or at least ten (10)
days before the time after which any private sale or other disposition is to be
made.

 

(d)          The security interest and liens herein created shall not be
affected by, or affect any other security taken for, payment and performance of
the Indebtedness, or any part thereof, and the holder of the Indebtedness shall
not be limited by any election of remedies if such holder chooses to foreclose
this security interest and lien by suit. The right to sell under the terms
hereof also shall exist cumulative with any such suit, and one method shall not
bar the other, but both maybe exercised at the same or different times, nor
shall one be a defense to the other.

 

(e)          Lender shall have the power to endorse and hereby is appointed
Assignor’s agent and attorney-in-fact for the purpose of doing any and every act
which Assignor is obligated to do by this Collateral Assignment and to exercise
all rights of Assignor relating to the Collateral Security or the Related
Instruments, including endorsing in the name of Assignor any of the Collateral
Notes or any instrument securing payment thereof or relating thereto, or
exercising, signing, transferring or delivering in the name of Assignor any
instruments or documents which may be received in payment or on account of the
Indebtedness or necessary to evidence, perfect or realize upon the security
interest and lien or obligations created by this Collateral Assignment and to do
all other acts necessary to preserve and protect the Collateral or to protect
Lender’s security interest in the Collateral.

 

 

 

 

6.            Miscellaneous.

 

(a)          All rights, liens, privileges, powers, remedies and securities
existing and to exist under this and in any and all instruments had and to be
had in connection with any of the Indebtedness, in law and/or in equity, are and
shall be cumulative one of the other and not exclusive. In the event any portion
or provisions hereof be found, held or declared to be unenforceable or invalid
for any reason by a court of competent jurisdiction, the same shall not affect
any of the other provisions hereof.

 

(b)          The provisions hereof shall extend to and be binding upon the
respective successors and assigns of Assignor and the Lender.

 

(c)          This Collateral Assignment shall be governed by, construed and
interpreted in accordance with the laws of the State of Texas and applicable law
of the United States of America.

 

REMAINDER OF PAGE LEFT BLANK- SIGNATURE PAGE FOLLOWS

 

 

 

 

WITNESS THE EXECUTION HEREOF as of the date set forth above.

 

  ASSIGNOR:       UNITED DEVELOPMENT FUNDING IV,   a real estate investment
trust organized under   the laws of the State of Maryland         By:      
David A. Hanson,     Chief Operating Officer

 

* * * * * * *

STATE OF TEXAS §     §   COUNTY OF __________________ §  

 

This instrument was acknowledged before me on the day of _________, 20__, by
David A. Hanson, Chief Operating Officer of UNITED DEVELOPMENT FUNDING IV, a
real estate investment trust organized under the laws of the State of Maryland,
known to me to be the person who executed this agreement in the capacity and for
the purposes therein stated.

 

      Notary Public, State of Texas           My Commission Expires

 

List of Exhibits:

 

A - Collateral Security and Related Documents B - Property Description

 

 

 

 

EXHIBIT “A” TO COLLATERAL ASSIGNMENT

 

COLLATERAL SECURITY AND RELATED DOCUMENTS

 

$ ___________ Loan: all documents are dated as of __________, 20__ unless
indicated otherwise:

 

1.Loan Agreement dated as of ________, by and among United Development Funding
IV, a Maryland real estate investment trust (“UDF IV”), ___________, a
___________ (“Borrower”), ___________ (“___________”), ___________, ___________,
a ___________(“___________”) and ___________ (“ ___________”).

 

2.Secured Promissory Note dated effective as of ___________ , 20__, executed by
Borrower, and payable to the order of UDF IV, in the original principal amount
of ___________ and No/100 Dollars ($___________).

 

3.Deed of Trust, Assignments of Leases and Rents, Security Agreement and Fixture
Filing dated effective as of ___________, 20__, executed by Borrower, in favor
of ___________ as the trustee, for the benefit of UDF IV, recorded on
___________, 20 ___, as Instrument No. ___________ in the Official Public
Records of County, Texas.

 

4.UCC-1 Financing Statement naming UDF IV, as the secured party, and Borrower as
the debtor, filed on ___________, 20__, as Instrument No. ___________, with the
Texas Secretary of State.

 

5.All title insurance policies, fire and extended coverage and general public
liability insurance policies, surveys, plans, engineering reports, environmental
reports, soil studies, appraisals, payment histories, payment ledgers and all
documents, studies, reports, certificates, affidavits, agreements delivered in
connection with the loan evidenced by the Note.

 

 

 

 

EXHIBIT C

 

MORTGAGE ASSIGNMENT

 

STATE OF TEXAS )   COUNTY     OF ____________ )  

 

THAT UNITED DEVELOPMENT FUNDING IV, a Maryland real estate investment trust
(“Assignor”), for and in consideration of the sum of Ten and 00/100 Dollars
($10.00) in hand paid to Assignor by WATERFALL FINANCE 4, LLC (“Assignee”), the
receipt and sufficiency of which are hereby acknowledged and confessed, has,
with full recourse and warranty, SOLD, ASSIGNED, TRANSFERRED, ENDORSED and
DELIVERED, and by these presents does hereby, with recourse, SELL, ASSIGN,
TRANSFER, ENDORSE, and DELIVER unto Assignee the certain promissory note(s) (as
subsequently renewed, extended and modified, the “Notes”) described as follows:

 

See Exhibit “A” attached hereto and made part hereof by reference, secured by,
among other things, a deed of trust lien affecting the real property described
on Exhibit A attached hereto and made a part hereof by reference.

 

For the same consideration, Assignor has BARGAINED, SOLD, ASSIGNED, TRANSFERRED
and CONVEYED, and does hereby BARGAIN, SELL, ASSIGN, TRANSFER and CONVEY unto
Assignee, all right, title and interest in and to any and all guarantees,
mortgages, deeds of trust, security agreements, liens, mortgagee title insurance
policies and equities existing and to exist in connection with or as security
for the said promissory notes, including, without limitation, those certain deed
of trust and mortgage instruments described on Exhibit “A” attached hereto and
made part hereof by reference (the “Collateral Security”).

 

This Assignment incorporates all of the covenants, representations and
warranties with respect to the Notes and the Collateral Security contained in
that certain Collateral Assignment of Notes and Liens and Security Agreement
dated as of ___________, 20__ executed by Assignor in favor of Assignee which
shall inure to the benefit of Assignee and Assignee’s successors and assigns.

 

REMAINDER OF PAGE LEFT BLANK – SIGNATURE PAGE FOLLOWS

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 1

 

 

IN WITNESS WHEREOF, Assignor has caused this instrument to be executed as of
(although not necessarily on) the day of ___, 201_.

 

  ASSIGNOR:       UNITED DEVELOPMENT FUNDING IV,   a real estate investment
trust organized under   the laws of the State of Maryland         By:      
David A. Hanson,     Chief Operating Officer

 

* * * * * * *

 

 

 

 

STATE OF TEXAS §   § COUNTY OF §

 

This instrument was acknowledged before me on the ____ day of ___________, 20___
, by David A. Hanson, Chief Operating Officer of UNITED DEVELOPMENT FUNDING IV,
a real estate investment trust organized under the laws of the State of
Maryland, known to me to be the person who executed this agreement in the
capacity and for the purposes therein stated.

 

      Notary Public, State of Texas           My Commission Expires

 

[SEAL]

 

List of Exhibits:

 

A - Description of Mortgage Paper B - Description of Real Property

 

 

 

 

EXHIBIT D

 

FORM OF ALLONGE TO PROMISSORY NOTE

 

ALLONGE TO PROMISSORY NOTE

 

Allonge attached to Promissory Note dated ________, 20__, executed by
_____________________, payable to the order of UNITED DEVELOPMENT FUNDING IV, a
Maryland real estate investment trust, in the original principal amount of
$____________.

 

PAY TO THE ORDER OF: Waterfall Finance 4, LLC

 

  UNITED DEVELOPMENT FUNDING IV,   a real estate investment trust organized
under   the laws of the State of Maryland         By:       David A. Hanson,    
Chief Operating Officer

 

 

 

 

SCHEDULE ONE

 

ADDITIONAL CONDITIONS PRECEDENT

 

None.

 

Loan Agreement - WATERFALL FINANCE 4, LLC/UDF IVPage 1

 

 

SCHEDULE TWO

 

DISCLOSURE SCHEDULE

 

Permitted Liens Not Otherwise Disclosed: None.

 

Trade names (Sections 5.1): None.

 

Tribunal Proceedings (Section 5.4): None.

 

Subsidiaries (Section 5.10):

 

a.UDF IV Finance I, L.P., a Delaware limited partnership

b.UDF IV Finance I Manager, LLC, a Delaware limited liability company

c.UDF IV Finance II, L.P., a Delaware limited partnership

d.UDF IV Finance II Manager, LLC, a Delaware limited liability company

e.UDF IV Finance III, L.P., a Delaware limited partnership

f.UDF IV Finance III Manager, LLC, a Delaware limited liability company

g.UDF IV Finance IV, L.P., a Delaware limited partnership

h.UDF IV Finance IV Manager, LLC, a Delaware limited liability company

i.UDF IV Finance V, L.P., a Delaware limited partnership

j.UDF IV Finance V Manager, LLC, a Delaware limited liability company

k.UDF IV Finance VI, L.P., a Delaware limited partnership

l.UDF IV Finance VI Manager, LLC, a Delaware limited liability company

m.UDF IV Finance VII, L.P., a Delaware limited partnership

n.UDF IV Finance VII Manager, LLC, a Delaware limited liability company

o.UDF IV Finance VIII, L.P., a Delaware limited partnership

p.UDF IV Finance VIII Manager, LLC, a Delaware limited liability company

q.UDF IV LB I, Inc., a Delaware corporation

r.UDF IV LB II, Inc., a Delaware corporation

s.UDF IV LB III, Inc., a Delaware corporation

t.UDF IV LB IV, Inc., a Delaware corporation

u.UDF IV Woodcreek, Inc., a Delaware corporation

 

Other Debt (Section 5.11): None.

 

Environmental Matters (Section 5.13): None.

 

Locations (Section 5.14): 1301 Municipal Way, Suite 200, Grapevine, TX 76051.

 

Intellectual Property (Section 5.16): None.