Exhibit 10.3
SECURITY AGREEMENT

This Security Agreement (this “Agreement”) dated the 20th day of August, 2008,
is made by United Development Funding, L.P., a Delaware limited partnership,
formerly a Nevada limited partnership (the “Borrower”), in favor of United
Development Funding III, L.P., a Delaware limited partnership (the “Lender”).

RECITALS

A.           Borrower has executed and delivered to Lender that certain Secured
Line of Credit Promissory Note in the principal amount of $45,000,000.00, dated
the date of this Agreement (the “Note”).

B.           It is a condition precedent to Lender’s advancing of funds under
the Note that Borrower shall have granted the security interests contemplated by
this Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the premises and in order to induce Lender
to advance funds under the Note, and for other good and valuable consideration,
the receipt and sufficiency of which are acknowledged, Borrower and Lender agree
as follows:

1.           Grant of Security;
Subordination.                                                                           This
Agreement is hereby made subject to the Note and all of its terms and
conditions.  All capitalized terms used but not defined in this Agreement shall
have the respective meanings given to such terms in the Note.  This Agreement
hereby is made subordinate to the Senior Debt.  Subject to the foregoing,
Borrower hereby assigns, pledges and grants to Lender for its benefit, a
continuing security interest in all of Borrower’s right, title and interest in
and to the following (collectively, the “Collateral”), wherever located and
whether now owned or hereafter acquired:

(a)           all promissory notes, mortgages and contracts for deed and/or
installment contracts in which Borrower owns a full or partial interest,
including, without limitation, all related loan documents evidencing such
promissory notes, mortgages, and contracts for deed and/or installment
contracts, all deeds of trust or other instruments creating a mortgage lien on
an estate in fee simple in real property and the improvements thereon, all
guarantees, all security agreements, all assignments and all title policies,
insurance policies, and security interests related to any of the foregoing and
the rights to receive payment thereon (all such interests and documents
evidencing such interests are referred to herein collectively as the
“Mortgages”).

(b)           all cash on hand, including, without limitation, cash held in bank
accounts, brokerage accounts, certificates of deposit, and other depositories,
all accounts receivable owing to Borrower by any person or entity, including all
such amounts due Borrower under the Mortgages, and all security for payment
thereof, and in and to all the proceeds, monies, income, instruments,
securities, accounts, benefit, collections, tax refunds, insurance proceeds, and
products thereof and thereon and attributable or accruing thereto;

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(c)           all of Borrower’s interest in all equipment, inventory, materials,
computer software and records, goods, and other personal property owned by
Borrower now or in the future, and all documents and receipts covering such
property, and all licenses and permits used or held for use in connection with
such property;

(d)           all patents, trademarks, service marks, copyrights, licenses, and
all other intellectual property owned by Borrower (collectively, the
“Intellectual Property”), and all agreements and contracts to which Borrower is
a party regarding the use and exploitation of any  of the Intellectual Property
and applications therefor, now owned or hereafter acquired by Borrower;

(e)           all of Borrower’s contract rights and other general intangibles
relating to any of the Collateral, including, without limitation, all license
agreements;

(f)           all of Borrower’s interest in any subsidiary company, and all
capital stock, equity interests, partnership interests, and membership interests
and all warrants, options and other rights to purchase any such interests, in
any other corporation, partnership, limited liability company or other business
entity;

(g)           all books and records (including electronic records, computer
disks, tapes, printouts and other storage media) relating to any of the
foregoing; and

(h)           all of Borrower’s interest in the proceeds of any sale or
disposition of any of the foregoing, and in and to any and all money, documents,
instruments, securities, or accounts owned or belonging to Borrower.

Borrower shall be deemed to have possession of any of the Collateral in transit
to it or set apart for it or for any of its agents, affiliates or
correspondents.

2.           Security for Obligations.  This Agreement and the security interest
created hereby secures the prompt and complete payment, observance and
performance of all duties, liabilities, obligations and Indebtedness of every
kind, nature and description owing by Borrower to Lender, fixed or contingent,
joint or several, whether as principal, surety, endorser, guarantor, or
otherwise, now existing or hereafter arising, and all modifications, extensions,
renewals, replacements, and increases of each of the foregoing, including,
without limitation, those arising under this Agreement, the Note and the other
Loan Documents (all such obligations and liabilities of Borrower being the
“Obligations”).

3.           Borrower Remains Liable.  Notwithstanding anything to the contrary
contained in this Agreement: (a) Borrower shall remain liable under the
contracts and agreements included in the Collateral and obligated to perform all
of its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by Lender of any of its rights hereunder
shall not release Borrower from any of its duties or obligations under the
contracts and agreements included in the Collateral, and (c) Lender shall have
no obligation or liability under 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 thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.

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4.           Representations and Warranties.  In addition to any representations
and warranties set forth in any other Loan Document, from the date hereof and
until the Indebtedness hereunder is fully paid and Lender has no further
obligation to extend any Advances hereunder, Borrower represents and warrants as
follows:

(a)           Borrower’s interest in the Collateral is free and clear of any
lien, security interest, charge or encumbrance of any kind whatsoever
(collectively, “Liens”) except for the security interest created hereby in favor
of Lender and for security interests securing the Senior Debt.  No effective
financing statement, continuation statement or amendment thereto promulgated
under the Uniform Commercial Code of any state (collectively, “Financing
Statements”) or other instrument similar in effect covering all or any part of
the Collateral is on file in any recording office, except such as may have been
filed in favor of Lender or as may be filed in evidence of the Senior Debt.  The
validity of the Collateral in whole or in part, and Borrower’s title thereto is
not currently being questioned in any litigation or regulatory proceeding to
which Borrower is a party, nor is any such litigation or proceeding threatened.

(b)           This Agreement creates a valid and perfected security interest in
the Collateral, securing the payment of the Obligations, and all filings and
other actions of Borrower necessary or desirable to perfect and protect such
security interest have been, or will be upon request, duly taken by Borrower.

(c)           Except for any approvals required by the holders of the Senior
Debt, no authorization, approval or other action by, and no notice to or other
filing with, any governmental authority or regulatory body is required, either
(i) for the grant by Borrower of the security interest granted hereby or for the
execution, delivery or performance of this Agreement by Borrower, or (ii) for
the perfection of or the exercise by Lender of its rights and remedies hereunder
(other than the filing of Financing Statements and Assignments of Notes and
Liens by Lender).

(d)           Set forth on Exhibit “A” attached to this Agreement is a list of
(i) Borrower’s principal place of Business and all other places of business and
offices of Borrower, and (ii) all places where Borrower’s books of account and
records are kept, and all places where the Collateral is stored or located.

(e)           Concurrently with execution and delivery of this Agreement to
Lender, Borrower has duly executed and delivered to Lender, the Assignment of
Notes and Liens in the form attached to this Agreement as Exhibit “B” for each
county in which the Mortgages are located.  Such Assignments of Notes and Liens
shall be held by Lender and not recorded for so long as no Event of Default
exists.

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5.           Covenants and Further Assurances.  In addition to any covenants set
forth in any other Loan Document, from the date hereof and until the
Indebtedness hereunder is fully paid and Lender has no further obligation to
extend any Advances hereunder, Borrower covenants and agrees as follows:

(a)           Borrower agrees that from time to time, at the expense of
Borrower, Borrower will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary or
desirable, or that Lender may reasonably request, in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable Lender to exercise and enforce rights and remedies hereunder with respect
to any Collateral.  Without limiting the generality of the foregoing, Borrower
will:  (i) within five (5) business days of a request by Lender, mark
conspicuously each document included in the Collateral and each of its records
pertaining to the Collateral, with a legend, in form and substance satisfactory
to Lender, indicating that such document or Collateral is subject to the
security interest granted hereby; (ii) within five (5) business days of a
request by Lender, provide Lender with certified copies of any or all Mortgages
included in the Collateral; (iii) within five (5) business days of a request by
Lender, and subject to the rights of the holders of Senior Debt, if any,
transfer to Lender actual possession of the original Mortgages, to the extent
same are in possession or control of Borrower; (iv) within five (5) business
days of a request by Lender, transfer, register or otherwise put any of the
Collateral in the name of Lender or its nominee; and (v) execute and file such
Financing Statements, and such other instruments or notices, as may be necessary
or desirable, or as Lender may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.

(b)           Borrower shall file or cause to be filed Financing Statements,
assignments and all other instruments and documents as may be required to
perfect Lender’s security interest in the Collateral and shall provide prompt
evidence of having done the same to Lender.  To further secure Lender hereunder,
Borrower hereby authorizes Lender to file one or more Financing Statements
relative to all or any part of the Collateral without the signature of Borrower
where permitted by law in form satisfactory to Lender in such office(s) as
Lender deems appropriate.  A carbon, photographic or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.  Debtor
will pay the cost of filing financing statement(s) in all public offices
wherever filing is deemed desirable by Lender.  This Agreement shall be
terminated only by Lender’s filing of a termination statement in accordance with
the applicable law of the office in which any financing statement is filed.

(c)           Borrower will take all actions and pay all costs to keep and
maintain the validity, enforceability, security, priority and collectability of
the Mortgages and will pay all other amounts which may be necessary or desirable
to preserve, maintain and protect Lender’s interest in the Mortgages.

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(d)           Borrower shall at all times maintain its books of account and
records relating to the Collateral at its principal place of business and its
Collateral at the locations set forth on Exhibit “A”, and shall not relocate
such books of account and records and Collateral unless it delivers to Lender,
prior written notice of such relocation and the new location thereof (which must
be within the United States).  Borrower will furnish to Lender from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Lender may reasonably
request, all in reasonable detail.

(e)           Borrower shall not conduct business under any name other than as
appears in this Agreement nor change or reorganize the type of Borrower’s
business entity, nor change the location of any of the Collateral without the
prior written consent of Lender.  Borrower shall not transfer, sell or assign
(by operating of law or otherwise) all or substantially all of Borrower’s assets
or property without the prior written consent of Lender, except for in the
ordinary course of Borrower’s business.

(f)           Borrower shall continue to conduct its business in the ordinary
course and shall continue to collect and enforce all present and future payments
due to Borrower, including without limitation, those payments due under the
Mortgages.

6.           Insurance.

(a)           Borrower shall, at its own expense, maintain insurance with
respect to the Collateral in such amounts, against such risks, in such form and
with such insurers, as shall be reasonably satisfactory to Lender from time to
time.  Borrower shall ensure that each of the Mortgages is, and remains, insured
against loss by fire and other casualty in the full amount of the indebtedness
secured by such Mortgage.   Each policy for property damage insurance shall
provide for all losses to be paid on behalf of Lender and Borrower as their
respective interests may appear.  Each such policy shall in addition (i) contain
the agreement (if available) by the insurer that any loss thereunder shall,
subject to the rights of the holders of the Senior Debt, be payable to Lender
notwithstanding any action, inaction or breach of representation or warranty by
Borrower, (ii) provide that there shall be no recourse against Lender for
payment of premiums or other amounts with respect thereto, and (iii) provide
that at least 10 days prior written notice of cancellation or of lapse shall be
given to Lender by the insurer.  Borrower shall, if so requested by Lender,
deliver to Lender original or duplicate policies of such insurance and, as often
as Lender may reasonably request, a report of a reputable insurance broker
selected by Borrower with respect to such insurance.  Further, subject to the
rights of the holders of the Senior Debt, Borrower shall, at the request of
Lender, duly execute and deliver instruments of assignment of such insurance
policies to comply with the requirements of this Section 6(a) and cause the
respective insurers to acknowledge notice of such assignment.

(b)           Reimbursement under any liability insurance maintained by Borrower
may be paid directly to the person who shall have incurred liability covered by
such insurance.

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(c)           Subject to the rights of the holders of the Senior Debt, all
insurance payments in respect of Collateral shall be paid to and applied by
Lender as specified in the Note.

7.           Transfers and Other Liens.  Borrower shall not:

(a)           sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral, other than obsolete or worn out property, or
the sale or assignment of Mortgages in the ordinary course of business; or

(b)           create or suffer to exist any Lien upon or with respect to any of
the Collateral to secure debt of any person, except for the security interest
created by this Agreement and for security interests securing the Senior Debt.

8.           Lender Appointed Attorney-in-Fact.  Borrower hereby irrevocably
appoints Lender as Borrower’s attorney-in-fact, with full authority in the place
and stead of  Borrower and in the name of Borrower or otherwise, from time to
time in Lender’s discretion at any time after the occurrence of an Event of
Default (as defined in Section 12), to take any action and to execute any
instrument which Lender may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation:

(a)           to obtain and adjust insurance required to be paid to Lender
pursuant to Section 6;

(b)           to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral, including, without limitation, moneys due and
to become due under the Mortgages;

(c)           to file any claims or take any action or institute any proceedings
which Lender may deem necessary or desirable to enforce the rights of Lender
with respect to any of the Collateral;

(d)           with respect to any Mortgage, demand, collect, receive, settle,
compromise, adjust, foreclose and resell and/or give discharges and releases,
all as Lender may determine;

(e)           to commence and prosecute any actions in any court for the
purposes of collecting amounts owed on Mortgages and enforcing any other rights
in respect thereof, and to defend, settle or compromise any action brought and,
in connection therewith, and to give such discharge or release as Lender may
deem appropriate;

(f)           to receive, open and dispose of mail addressed to Borrower and
endorse checks, notes, drafts, acceptances, money orders, bills of lading,
warehouse receipts or other instruments or documents evidencing payment made on
account of or funds paid relating to Mortgages on behalf of and in the name of
Borrower;

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(g)           sell, assign, transfer, make any agreement in respect of, or
otherwise deal with or exercise rights in respect of, any Mortgage as fully and
completely as though Lender were the absolute owner thereof for all purposes;

(h)           to adjust and settle claims under any insurance policy related to
any of the Mortgages;

(i)           to execute Financing Statements or any other documents or writing
deemed necessary by Lender to evidence or perfect Lender’s  security interest in
the Mortgages; provided that Lender agrees to furnish copies of any document
executed hereunder to Borrower upon request; and

(j)           to enter on the premises of Borrower in order to exercise any of
Lender’s rights and remedies.

(k)           to receive, endorse, and collect any drafts or other instruments,
documents, assignments, and chattel paper in connection with clause (a) or (b)
above; and

(l)           to file any claims or take any action or institute any proceedings
which Lender may deem necessary or desirable to enforce the rights of Lender
with respect to any of the Collateral.

The foregoing appointment of Lender as attorney-in-fact is coupled with an
interest and is irrevocable.

9.           Rights Prior to Default; Termination.

(a)           Rights Prior to Default.  Until such time as Lender provides
Borrower with the notice described in Section 9(b) hereof, Borrower shall be
entitled to exercise any and all rights and powers relating or pertaining to the
Collateral, including, without limitation, the Mortgages, for any purpose not
inconsistent with the terms of the Note or this Agreement.

(b)           Termination of Rights. Subject to the rights of the holders of any
Senior Debt, Lender may, at any time and from time to time for so long as
Borrower’s Obligations are outstanding and until Lender’s obligations to make
Advances under the Note expire, give written notice to Borrower that Lender has
exercised its rights under this Section 9(b), and that all rights of Borrower to
exercise its power with respect to Mortgages, which Borrower was previously
entitled to exercise pursuant to Section 9(a) shall cease and all such rights
shall become vested in Lender, which shall have the sole and exclusive right and
authority to exercise such power.  Further, Lender shall have the right to
notify and direct the obligors on the Mortgages to make all payments in respect
thereof directly to Lender.  The obligor making any payment to Lender under this
Agreement shall be fully protected in relying on the written statement of Lender
that it then holds a security interest which entitles Lender to receive such
payments.  Any and all money and other property paid over to or received by
Lender pursuant to the provisions of this Section 9(b) shall be retained by
Lender as additional collateral under this Agreement.  Borrower shall not enter
into any agreements with any persons that will be in conflict with or prevent
the exercise of Lender’s rights under this Section 9(b).

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10.           Lender May Perform.  If Borrower fails to perform any covenant or
agreement contained in this Agreement, Lender may itself perform, or cause
performance of, such covenant or agreement, and the expenses of Lender incurred
in connection therewith shall be payable by Borrower under Section 15(b).

11.           Lender’s Duties.  The powers conferred on Lender under this
Agreement are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers.  Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Lender shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or  any other rights pertaining to any Collateral.

12.           Events of Default.  Each of the following events constitutes an
Event of Default (herein so called) under this Agreement:

(a)           Borrower fails to timely pay any amount due and owing it under the
Note when due and payable, whether at a date for the payment of a fixed
installment or as a contingent or other payment becomes due and payable or as a
result of acceleration or otherwise;

(b)           Any “default” or “event of default” occurs under any Loan Document
that defines either such term with respect to Borrower, and the same is not
remedied within the applicable period of grace (if any) provided in such Loan
Document;

(c)           Borrower breaches any representation or warranty contained in this
Agreement or any other Loan Document, or fails to perform or observe any
covenant or agreement that is set forth in this Agreement or any other Loan
Document, and such breach is not cured within 30 days after written notice of
such breach is received from Lender; or

(d)           Any representation or warranty previously, presently or hereafter
made in writing by or on behalf of Borrower in connection with any Loan Document
shall prove to have been false or incorrect in any material respect on any date
on or as of when made, or any Loan Document at any time ceases to be valid,
binding and enforceable for any reason other than its release or subordination
by Lender.

Upon the occurrence of an Event of Default and during the continuance thereof,
Lender at any time and from time to time may, without notice to Borrower,
declare any or all of the Obligations immediately due and payable, and all such
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower.

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13.           Remedies.  If any Event of Default shall occur and be continuing,
subject to the rights of the holders of the Senior Debt, Lender may protect and
enforce its rights under this Agreement and the other Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and Lender may enforce the
payment of any Obligations due it or enforce any other legal or equitable right
which it may have.  All rights, remedies and powers conferred upon Lender under
the Loan Documents shall be deemed cumulative and not exclusive of any other
rights, remedies or powers available under the Loan Documents or at law or in
equity.  Subject to the rights of the holders of the Senior Debt, Lender’s
authority and rights shall include, without limitation, the following:

(a)           Lender may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the Uniform
Commercial Code (the “Code”) (whether or not the Code applies to the affected
Collateral) and also may (i) require Borrower to, and Borrower hereby agrees
that it will at its expense and upon request of Lender forthwith, assemble all
or part of the Collateral as directed by Lender and make it available to Lender
at a place to be designated by Lender which is reasonably convenient to it, and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of Lender’s
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as Lender may deem commercially reasonable.  Borrower agrees that,
to the extent notice of sale shall be required by law, at least ten (10)
business days’ notice to Borrower of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification.  Lender shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given.  Lender may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.

(b)           All cash proceeds received by Lender in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of Lender, be held by Lender as collateral for, and/or
then or at any time thereafter applied in whole or in part by Lender against all
or any part of the Obligations in such order as Lender shall elect, subject to
any mandatory provisions of this Agreement or applicable law.  Any surplus of
such cash or cash proceeds held by Lender and remaining after payment in full of
all the Obligations shall be paid over to Borrower or to whomsoever may be
lawfully entitled to receive such surplus.

14.           No Impairment.  The execution and delivery of this Agreement in no
manner shall impair or affect any other security (by endorsement or otherwise)
for the payment of the Obligations and no security taken hereafter as security
for payment of the Obligations shall impair in any manner or affect this
Agreement, all such present and further additional security to be considered as
cumulative security.  Any of the Collateral for, or any obligor on, any of the
Obligations may be released without altering, varying or diminishing in any way
the force, effect, lien, security interest, or charge of this Agreement as to
the Collateral not expressly released, and this Agreement shall continue as a
security interest and charge on all of the Collateral not expressly released
until all the Obligations secured hereby have been paid in full and until
Lender’s obligations to make further Advances under the Note have expired.  This
Agreement shall not be construed as relieving Borrower or any Guarantor from
full recourse liability on the Obligations and any and all further and other
indebtedness secured hereby and for any deficiency thereon.

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15.           Indemnity and Expenses.

(a)           Borrower agrees to indemnify Lender from and against any and all
claims, losses and liabilities growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement or any other Loan
Document).

(b)           Borrower will upon demand pay to Lender the amount of any and all
reasonable expenses, including the actual fees and disbursements of its counsel
and of any experts and agents, which Lender may incur in connection with (i) the
administration of this Agreement or any other Loan Document, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Lender hereunder or under any other Loan Document, or (iv)
the failure by Borrower to perform or observe any of the provisions hereof or
any other Loan Document.

16.           Security Interest Absolute.  All rights of Lender and security
interests hereunder, and all obligations of Borrower hereunder, shall be
absolute and unconditional, irrespective of:

(a)           any lack of validity or enforceability of the Note or any other
Loan Document or instrument relating thereto;

(b)           any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations or any other amendment or waiver of
or any consent to any departure from the Note;

(c)           any exchange, release or non-perfection of any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; or

(d)           any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Borrower, or a third party holder of a security
interest.

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

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18.           Addresses for Notices.  Unless otherwise provided herein, all
notices, requests, consents, demands and other communications shall be in
writing and shall be mailed, certified mail with return receipt requested,
postage prepaid, telecopied, delivered by nationally recognized overnight
delivery service, or otherwise physically delivered to their respective
addresses as set forth on the signature page to this Agreement, or, as to any
party, to such other address as may be designated by it in written notice to all
other parties.  All notices, requests, consents and demands hereunder will be
effective, if addressed to Lender or Borrower as aforesaid, when mailed by
certified mail, postage prepaid, return receipt requested, or upon delivery if
telecopied, delivered by nationally recognized overnight delivery service or
otherwise physically delivered, addressed as aforesaid, with receipt confirming
delivery.

19.           Continuing Security Interest; Transfer of Note.  This Agreement
shall create a continuing security interest in the Collateral and shall (i) be
binding upon Borrower, its successors and assigns, and (ii) inure, together with
the rights and remedies of Lender hereunder, to the benefit of Lender, its
successors, transferees and assigns.  Upon the payment in full of the
Obligations, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to Borrower.  Upon any such termination, Lender
will, at Borrower’s expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.

20.           Governing Law; Terms.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the State of Texas.  Terms used in Article 9
of the Uniform Commercial Code in the State of Texas, when used in this
Agreement, have the definitions given to such terms as therein defined.

21.           Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, and all of which shall
constitute one and the same agreement.

22.           Severability.  If any term or provision of this Agreement shall be
determined to be illegal or unenforceable, all other terms and provisions of
this Agreement shall nevertheless remain effective and shall be enforced to the
fullest extent permitted by applicable law.

23.           WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC.  BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT 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 AGREEMENT OR THE LOAN DOCUMENTS
OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED HEREWITH OR
THEREWITH, BEFORE OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT 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 ENTER INTO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY
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.

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24.           Subordination.  Notwithstanding anything contained herein to the
contrary, Lender agrees that this Agreement and all liens and security interests
granted herein are and shall be subordinate in right, priority and payment to
the Senior Debt (as defined in the Note).

[The remainder of this page is intentionally left blank.]
 
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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be duly
executed and delivered as of the date first above written.

LENDER:

UNITED DEVELOPMENT FUNDING III, L.P.

By:           UMTH Land Development, L.P.
Its:           General Partner

By:           UMT Services, Inc.
Its:           General Partner

By:           /s/ Ben Wissink
Name:       Ben Wissink
Title:         Chief Operating Officer

Address:               1812 Cindy Lane, Suite 200
Bedford, Texas 76021
Fax:                         (817) 835-0383

BORROWER:

UNITED DEVELOPMENT FUNDING, L.P.

By:           United Development Funding, Inc.
Its:           General Partner

By:           /s/ Hollis M. Greenlaw
Name:       Hollis M. Greenlaw
Title:         President

Address:               1812 Cindy Lane, Suite 200
Bedford, Texas 76021
Fax:                         (817) 835-0383
 
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EXHIBIT A

BORROWER’S LOCATIONS

1.           Borrower’s Principal Place of Business

1812 Cindy Lane, Suite 200
Bedford, Texas  76021

2.           All other Offices and Places of Business of Borrower

None

3.           Places where Borrower’s books and records and Collateral are
located

1812 Cindy Lane, Suite 200
Bedford, Texas  76021

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EXHIBIT B

ASSIGNMENT OF NOTES AND LIENS

FOR VALUE RECEIVED, UNITED DEVELOPMENT FUNDING, L.P., a Delaware  limited
partnership (the “Assignor”) does hereby sell, assign, transfer, convey and
deliver unto UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited
partnership (the “Assignee”), and its successors and assigns, all of the
Assignor’s right, title and interest in and to the Mortgages (as such term is
defined in the Security Agreement between Assignor and Assignee dated as of
August 20, 2008), and as further described on the attached Schedule 1, intending
hereby to convey all of the right, title and interest, legal or equitable,
contingent, deferred or otherwise, of Assignor in and to the Mortgages.

Assignor hereby covenants and agrees to and with Assignee, its successors and
assigns, to execute and deliver such instruments of conveyance and assignment
and to take such action as Assignee, its successors or assigns may reasonably
request to more effectively transfer to and vest in Assignee, and to put
Assignee in possession of the Mortgages, free and clear of any and all liens,
prior assignments, security interests, charges, pledges, claims or encumbrances
whatsoever.

The intent of this instrument is to transfer to Assignee and to confer upon
Assignee all of the interest of Assignor in and to the Mortgages and all of the
attendant privileges and obligations represented by such Mortgages pursuant to
the mortgage documents evidencing the Mortgages.

This instrument, and the rights and obligations of the parties hereto, shall be
governed by and construed and enforced in accordance with the substantive laws
of the State of Texas, without regard to its principles of conflicts of laws.

Dated this the ____ day of ______________, 20______.

ASSIGNOR:

UNITED DEVELOPMENT FUNDING, L.P.

By:           United Development Funding, Inc.
Its:           General Partner

By:           
Name:                      
Title:                      

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STATE OF TEXAS                                                              §
§
COUNTY OF DALLAS                                                       §

This instrument was acknowledged before me on the ____ day of ______________,
2008, by ____________________, the _____________ of United Development Funding,
Inc., a Delaware corporation, the general partner of United Development Funding,
L.P., a Delaware limited partnership, on behalf thereof.

Given under my hand and the seal of office this ______ day of ___________
20____.

Notary Public, State of Texas

(SEAL)

After recording return to:
__________________________
__________________________
__________________________

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SCHEDULE 1

DESCRIPTION OF MORTGAGES