CONTINUING UNCONDITIONAL GUARANTY

This Continuing Unconditional Guaranty (this “Guaranty”) dated as of the 19th
day of December, 2006 (the “Effective Date”), is made by Buffington Hidden Lakes
GP, Inc., a Texas corporation (the “Guarantor”), for the benefit of United
Development Funding III, L.P., a Delaware limited partnership and its successors
and assigns (“Lender”).

R E C I T A L S:

A. Lender has agreed to advance funds to Buffington Hidden Lakes, Ltd., a Texas
limited partnership (“Borrower”) as borrower under that certain Secured
Promissory Note dated as of the Effective Date in the original principal amount
of U.S. $4,484,077.00 (the “Note”).

B. Guarantor is an affiliate of, and the general partner of, Borrower and shall
benefit, directly or indirectly, from the loan made to Borrower under the Note.

C. Guarantor is willing to execute this Guaranty in favor of Lender and hereby
agree to be bound by its terms and conditions.

A G R E E M E N T:

NOW, THEREFORE, for good and valuable consideration, and intending to be legally
bound hereby, Guarantor agrees and covenants with Lender as follows:

1. Definitions. Capitalized terms not defined in this Guaranty shall have the
respective meanings given to such terms in the Note.

2. Guaranty and Surety. Guarantor hereby absolutely and unconditionally,
guarantees, and becomes surety for, the full, timely and complete payment when
due, whether by lapse of time, by acceleration of payment, or otherwise, of all
indebtedness, liabilities and obligations of every kind and nature of Borrower
to Lender, whether now existing or hereinafter arising, including, without
limitation, all indebtedness, liabilities and obligations arising under or
related to (a) the Note and the other Loan Documents and all amounts due
thereunder, pursuant to or in connection therewith, (b) all costs reasonably
incurred by Lender to obtain, preserve, perfect and enforce the security
interests granted by the Loan Documents and to maintain, preserve and collect
any collateral, and all taxes, assessments, insurance premiums, repairs,
reasonable attorneys’ fees and legal expenses, rent, storage charges,
advertising costs, brokerage fees and expenses of sale related thereto, and
(c) all renewals, extensions, modifications and substitutions of all or any part
of the indebtedness and obligations described in the foregoing clauses (a)
through (b) (collectively, the “Guaranteed Obligations”). Guarantor’s
obligations under this Guaranty are unconditional, absolute and enforceable,
irrespective of (a) the validity or enforceability of the Guaranteed Obligations
in whole or in part or of the Note and the other Loan Documents or any provision
thereof, (b) whether recovery against Borrower with respect to the Guaranteed
Obligations in whole or in part is prevented by bankruptcy, the operation of
law, or otherwise, and (c) any other circumstance that might otherwise cause a
legal or equitable discharge or defense of Guarantor.

 
 

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3. Subsequent Acts by Lender. Lender may, in its sole discretion and without
notice, take or refrain from taking any action that might otherwise be deemed a
legal or equitable release or discharge of Guarantor’s obligations under this
Guaranty, without either impairing or affecting the joint and several liability
of Guarantor for the full, timely and complete payment of the Guaranteed
Obligations, which actions might include, by way of illustration and not
limitation:

(a) the renewal or extension of any of the Guaranteed Obligations or any
payments thereunder, or the acceleration or change of time for payment of the
Guaranteed Obligations, any increase in the principal amount of any promissory
note or other instrument comprising a part of the Guaranteed Obligations and/or
any additional funds advanced under the Guaranteed Obligations;

(b) the modification, amendment or change in any of the terms relating to any
promissory note or other agreement, document or instrument executed by Borrower
at any time in the past, present or future in favor of Lender, including,
without limitation, the Note and the other Loan Documents;

(c) the absence of any attempt to collect the Guaranteed Obligations from
Borrower or any other person or entity primarily or secondarily liable for the
Guaranteed Obligations or any other action to enforce Lender's rights with
respect to the Guaranteed Obligations;

(d) the waiver, consent, or delay in enforcement by Lender with respect to any
provision of any instrument evidencing the Guaranteed Obligations, including,
without limitation, the Note and the other Loan Documents;

(e) any failure by Lender to take any steps to perfect and maintain its security
interest in, or to preserve its rights to, any security or collateral given for
the Guaranteed Obligations, or the release or compromise of any lien or security
held by Lender as security for the Guaranteed Obligations;

(f) the compounding, rearrangement or consolidation by Lender of all or any part
of the Guaranteed Obligations;

(g) the release from liability of Borrower or any other guarantor or person or
entity primarily or secondary liable for the Guaranteed Obligations who may
guarantee or provide security for the Guaranteed Obligations in whole or in
part; or

(h) the settlement, release, compromise or cancellation of all or any part of
the Guaranteed Obligations, or the acceptance of partial payment of all or any
part of the Guaranteed Obligations.

4. Expenses. Guarantor agrees to pay all costs and expenses, including, without
limitation, all court costs and reasonable attorneys' fees paid or incurred by
Lender in

 
 

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endeavoring to collect all or any part of the Guaranteed Obligations, or in
enforcing or pursuing its remedies with respect to the Guaranteed Obligations.

5. Payment by Guarantor. Guarantor agrees to pay on demand, all of the
Guaranteed Obligations and all other costs, expenses and other amounts payable
under this Guaranty. Lender shall not be required to liquidate any lien or any
other form of security, instrument, or note held by Lender prior to making such
demand. THIS IS A GUARANTY OF PAYMENT AND NOT OF COLLECTION, and Guarantor
specifically agrees that Lender shall not be required to assert any claim, file
suit, or proceed to obtain a judgment against Borrower or any other guarantor,
endorser or surety for the Guaranteed Obligations, or make any effort at
collection of the Guaranteed Obligations, or foreclose against or seek to
realize upon any security or collateral now or hereafter existing for the
Guaranteed Obligations, or exercise or assert any other right or remedy to which
Lender is or may be entitled in connection with the Guaranteed Obligations,
before or as a condition of enforcing the liability of Guarantor under this
Guaranty or requiring payment of the Guaranteed Obligations under this Guaranty.
Guarantor agrees, to the full extent it may legally do so, that suit may be
brought against Guarantor with or without making Borrower or any other person or
entity a party to such suit, as Lender may elect. Guarantor agrees that he shall
remain fully liable under this Guaranty regardless of whether Borrower is held
to be not liable on the Guaranteed Obligations and regardless of whether all or
any portion of the Guaranteed Obligations are “non-recourse” or “limited
recourse” to Borrower.

6. Application of Payments. Lender shall have the exclusive right to determine
the time and manner of application of any payments or credits to the Guaranteed
Obligations, whether received from Borrower or any other source, and such
determination shall be binding on Guarantor. All such payments and credits may
be applied, reversed and reapplied, in whole or in part, to any of the
Guaranteed Obligations as Lender shall determine in its sole discretion without
affecting the validity or enforceability of this Guaranty.

7. Guarantor’s Responsibilities. Guarantor hereby assumes responsibility for
keeping himself informed of the financial condition of Borrower, and any and all
endorsers and/or other guarantors of any instrument or document evidencing all
or any part of the Guaranteed Obligations and of all other circumstances bearing
upon the risk of nonpayment of the Guaranteed Obligations. Guarantor further
agrees that Lender shall have no duty to advise Guarantor of any information
known to Lender regarding such condition or circumstances or to undertake any
investigation. If Lender, in its sole discretion, undertakes at any time or from
time to time to provide any information to Guarantor, Lender shall be under no
obligation to update any such information or to provide any such information to
Guarantor on any subsequent occasion.

8. Reinstatement. Guarantor agrees that, to the extent any payment or payments
are made to Lender or Lender receives any proceeds of collateral, which payments
or proceeds are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to Borrower or any other
party under applicable law, then Guarantor's obligations under this Guaranty to
the extent of such repayment, shall immediately and automatically be reinstated
and continued in full force and effect.
 

 
 

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9. Subordination. Guarantor agrees that any and all claims of Guarantor against
Borrower, any endorser or any other guarantor of all or any part of the
Guaranteed Obligations, or against any of Borrower’s assets and properties,
whether arising by reason of any payment by Guarantor to Lender pursuant to the
provisions of this Guaranty or otherwise, shall be subordinate and subject in
right of payment to the prior payment, in full, to Lender of all of the
Guaranteed Obligations.
 

10. Waivers by Guarantor. Guarantor hereby waives to the extent permissible by
law: (a) notice of acceptance of this Guaranty and of creation of the Guaranteed
Obligations, (b) presentment, notice of non-payment, and demand for payment of
the Guaranteed Obligations, (c) protest, notice of protest, and notice of
dishonor or default to Guarantor or to any other party with respect to any of
the Guaranteed Obligations, and (d) all other notices to which Guarantor might
otherwise be entitled.

11. Continuation. This Guaranty shall continue in full force and effect with
respect to Guarantor, and Lender shall be entitled to make loans and advances
and extend financial accommodations to Borrower on the faith of this Guaranty,
until Lender delivers to Guarantor, a written revocation of this Guaranty
executed by Lender.

12. Mutual Understanding. Guarantor represents and warrants to Lender that
Guarantor has read and fully understands the terms and provisions hereof, has
had an opportunity to review this Guaranty with legal counsel and has executed
this Guaranty based on Guarantor’s own judgment and advice of counsel. If an
ambiguity or question of intent or interpretation arises, this Guaranty will be
construed as if drafted jointly by Guarantor and Lender and no presumption or
burden of proof will arise favoring or disfavoring any party because of
authorship of any provision of this Guaranty.

13. Further Assurances. Guarantor at Guarantor’s expense will promptly (a)
execute and deliver to Lender on Lender’s request, all such other and further
documents, agreements and instruments as may be requested by Lender, and (b)
deliver all such supplementary information as may be requested by Lender, in
compliance with or accomplishment of the agreements of Guarantor under this
Guaranty.

14. Cumulative Remedies. Guarantor hereby agrees that all rights and remedies
that Lender is afforded by reason of this Guaranty are separate and cumulative
with respect to Guarantor and otherwise and may be pursued separately,
successively, or concurrently, as Lender deems advisable. In addition, all such
rights and remedies of Lender are non-exclusive and shall in no way limit or
prejudice Lender's ability to pursue any other legal or equitable rights or
remedies that may be available to Lender.

15. Notice. All notices and other communications under this Guaranty will be in
writing and will be mailed by registered or certified mail, postage prepaid,
sent by facsimile, delivered personally by hand, or delivered by nationally
recognized overnight delivery service addressed to Lender and Guarantor at the
addresses provided in the Note (Guarantor having executed the Note not as a
borrower thereunder, but as the general partner of Borrower for

 
 

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certain limited purposes described therein), or to such other address as a party
may have delivered to the other parties for purposes of notice. Each notice or
other communication will be treated as effective and as having been given and
received (a) if sent by mail, at the earlier of its receipt or three business
days after such notice or other communication has been deposited in a regularly
maintained receptacle for deposit of United States mail, (b) if sent by
facsimile, upon confirmation of facsimile transfer, (c) if delivered personally
by hand, upon written confirmation of delivery from the person delivering such
notice or other communication, or (d) if sent by nationally recognized overnight
delivery service, upon written confirmation of delivery from such service.
 
16. Enforcement and Waiver by Lender. Lender shall have the right at all times
to enforce the provisions of this Guaranty and the other Loan Documents in
strict accordance with their respective terms, notwithstanding any conduct or
custom on the part of Lender in refraining from so doing at any time or times.
The failure of Lender at any time or times to enforce its rights under such
provisions strictly in accordance with the same, shall not be construed as
having created a custom or in any way or manner modified or waived the same. All
rights and remedies of Lender are cumulative and concurrent and the exercise of
one right or remedy shall not be deemed a waiver or release of any other right
or remedy.

17. CHOICE OF LAW; JURISDICTION; VENUE. EXCEPT TO THE EXTENT THAT THE VALIDITY
OR PERFECTION OF SECURITY INTERESTS OR REMEDIES IN RESPECT OF ANY PARTICULAR
COLLATERAL IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
TEXAS, THIS GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO ITS CONFLICTS OF LAWS PROVISIONS. JURISDICTION FOR ALL MATTERS
ARISING OUT OF THIS GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE EXCLUSIVELY
IN THE STATE AND FEDERAL COURTS SITTING IN DALLAS COUNTY, TEXAS, AND GUARANTOR
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF SUCH STATE AND FEDERAL COURTS
AND AGREES AND CONSENTS NOT TO ASSERT IN ANY PROCEEDING, THAT ANY SUCH PROCESS
IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND
FURTHER AGREES TO A TRANSFER OF SUCH PROCEEDING TO THE COURTS SITTING IN DALLAS
COUNTY, TEXAS.

18. Severability. If any provision of this Guaranty or any other Loan Document
shall be held invalid under any applicable laws, then all other terms and
provisions of this Guaranty and the Loan Documents shall nevertheless remain
effective and shall be enforced to the fullest extent permitted by applicable
law.

19. Amendments; Waivers. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by Guarantor herefrom shall in any event
be effective unless the same shall be in writing and signed by Lender and
Guarantor, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which

 
 

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given. Guarantor may not be released from Guarantor’s obligations hereunder,
except pursuant to a written agreement executed by Lender.

20. Binding Effect; Assignment. This Guaranty shall be binding on Guarantor and
Guarantor’s administrators, other legal representatives, successors, heirs and
assigns, including, without limitation, any receiver, trustee or debtor in
possession of or for Guarantor, and shall inure to the benefit of Lender and its
successors and assigns. No Guarantor shall be entitled to transfer or assign
this Guaranty in whole or in part without the prior written consent of Lender.
This Guaranty is freely assignable and transferable by Lender without the
consent of Guarantor. Should the status, composition, structure or name of any
Guarantor change, this Guaranty shall continue and also cover the Guaranteed
Obligations under the new status composition, structure or name according to the
terms of this Guaranty.

21. Captions. The captions in this Guaranty are for the convenience of reference
only and shall not limit or otherwise affect any of the terms or provisions
hereof.

22. Number of Gender of Words. Except where the context indicates otherwise,
words in the singular number will include the plural and words in the masculine
gender will include the feminine and neutral, and vice versa, when they should
so apply.

23. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT HE OR IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY OR THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED HEREWITH OR THEREWITH,
BEFORE OR AFTER MATURITY OF THE NOTE; (B) WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT HE OR IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY “SPECIAL DAMAGES”, AS DEFINED BELOW, (C) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OF LENDER OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D)
ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO MAKE THE LOAN AND ACCEPT THE NOTE
AND, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION. AS USED IN THIS SECTION, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT
DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY
PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.

  24. ENTIRE AGREEMENT. THIS GUARANTY TOGETHER WITH THE NOTE AND THE OTHER LOAN
DOCUMENTS TOGETHER CONSTITUTE THE

 
 

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ENTIRE AGREEMENT AMONG THE PARTIES CONCERNING THE SUBJECT MATTER HEREOF, AND ALL
PRIOR DISCUSSIONS, AGREEMENTS AND STATEMENTS, WHETHER ORAL OR WRITTEN, ARE
MERGED INTO THIS GUARANTY, THE NOTE AND THE OTHER LOAN DOCUMENTS. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES. THIS GUARANTY, THE NOTE AND THE
OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

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IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty on the _____ day
of ________________, 2006, effective for all purposes as of the Effective Date.

GUARANTOR:

       
BUFFINGTON HIDDEN LAKES GP, INC.,
a Texas corporation
 
   
   
    By:   /s/ Patrick Starley  

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Patrick Starley   Vice President