Exhibit 10.96

EXHIBIT A

LEGAL DESCRIPTION OF PROPERTY

CONSTRUCTION LOAN AGREEMENT

THIS CONSTRUCTION LOAN AGREEMENT (this “Agreement”) dated as of the 11th day of
February, 2011, between CARDINAL BANK, a banking corporation organized under the
laws of the Commonwealth of Virginia (“Lender”), having an office at 8270
Greensboro Drive, Suite 500, McLean, Virginia 22102, and COMSTOCK CASCADES II,
L.C., a Virginia limited liability company (“Borrower”), having an office at
11465 Sunset Hills Road, 4th Floor, Reston Virginia 20190.

R E C I T A L S:

R-1. Pursuant to the provisions of that certain commitment letter dated
November 18, 2010 issued by Lender to Borrower (the “Commitment”), Lender agreed
to make a construction loan to Borrower in an amount not to exceed Eleven
Million Dollars ($11,000,000) (the “Loan”).

R-2. The proceeds of the Loan are to be used to pay a portion of the cost of
constructing, furnishing and equipping a two building 103 unit apartment project
(the “Project”) on land located in Potomac Falls, Loudoun County, Virginia more
particularly described in Exhibit A attached hereto (the “Land”) together with
all other approved and budgeted related costs as approved by Lender in its sole
discretion for the Project pursuant to the budget attached hereto and
incorporated herein as Exhibit B (the “Budget”).

R-3. Lender is willing to make the Loan to Borrower upon the terms and
conditions set forth in the Commitment and this Agreement.

 

1

--------------------------------------------------------------------------------

NOW, THEREFORE, in consideration of the mutual promises and agreements herein
contained, Lender and Borrower agree as follows:

1. Recitals. The recitals set forth above are incorporated herein by reference
as if set forth in full.

2. Loan. On the basis of the representations, warranties and covenants made by
Borrower herein and subject to satisfaction of the conditions herein set forth,
Lender agrees to make, and Borrower agrees to accept, the Loan to be evidenced
by Borrower’s Credit Line Deed of Trust Note (as the same may be amended from
time to time, the “Note”) to Lender of even date herewith, a Limited Payment
Guaranty Agreement executed by Christopher D. Clemente (“Clemente”) of even date
herewith, a Limited Payment Guaranty Agreement of even date herewith of Gregory
V. Benson (“Benson”), and a Guaranty Agreement of Comstock Homebuilding
Companies, Inc., a Delaware corporation (“Comstock Homebuilding”; Clemente,
Benson and Comstock Homebuilding are hereinafter individually referred to as a
“Guarantor” and collectively referred to as the “Guarantors”; the two Limited
Payment Guaranty Agreements executed by Clemente and Benson and the Guaranty
Agreement executed by Comstock Homebuilding are hereinafter referred to
individually as a “Guaranty” and collectively as the “Guaranties”). Said
documents, and all other documents evidencing, securing and guaranteeing the
Loan, as the same may be amended from time to time, are sometimes hereinafter
referred to collectively as the “Loan Documents.” The Loan shall mature, bear
interest and be payable as to principal and interest as provided in the Note.
Advances of the Loan (hereinafter “Advances”) shall be made in accordance with
the Budget . Any costs approved by Lender for which sums are to be advanced
hereunder are referred to as the “Costs.”

3. Loan Advances Generally. Except as expressly set forth below, advances
hereunder shall be made not more frequently than once monthly by Lender, upon at
least five (5) business days’ prior written notice to Lender, at Lender’s
principal office or at such other place as Lender may designate. For the
purposes of this Agreement, the term “Initial Advance” of proceeds of the Loan
shall mean the initial Advance made by Lender on the date hereof to fund both
closing costs and reimbursement of certain direct and indirect construction
costs relating to the Project. All Advances shall be subject to the Loan’s
continuing compliance after the Initial Advance with the loan to value ratios
specified in Section 10 below. The Lender agrees to make a second monthly
advance of Loan proceeds in the month of the Initial Advance or the month after
the Initial Advance, if the Borrower did not request a second advance in the
month of the Initial Advance, and in the month that the Borrower needs Loan
proceeds for the payment of the issuance costs for the building permit for the
second building to be constructed within the Project.

No Advances shall be made after the date that is eighteen (18) months after the
date hereof for direct Costs relating to the Project, unless such date is
extended by Lender in its sole discretion. Soft costs such as the Interest
Reserve and marketing costs will be funded until the maximum loan amount is
reached. In no event shall the Lender be obligated to make Advances which would
result in the loan to value ratio herein set forth being exceeded.

 

2

--------------------------------------------------------------------------------

Each request for an Advance shall be in the form of a requisition, in form and
substance reasonably satisfactory to and approved by Lender, and shall be
accompanied by, and shall itself constitute, a certification by Borrower to the
effect that Borrower has paid or incurred Costs in the amount of the requested
Advance, that such Costs have not been the basis for any other request for an
advance of Loan proceeds under this Agreement, that all representations and
warranties of Borrower herein are true in all material respects as of the time
of such request, and that no material adverse change in Borrower’s or
Guarantors’ respective financial condition has occurred since the immediately
preceding Advance. Borrower shall only be entitled to payment in the amount and
for such items as are approved by Lender in respect to each request for an
Advance in accordance with the Budget or otherwise with the exercise of Lender’s
discretion.

In no event will Lender be required to make Advances hereunder if (a) an event
shall have occurred which, with the passage of time or the giving of notice, or
both, would constitute a default under (i) the Note or under any of the other
Loan Documents; or (ii) any loan document evidencing or securing a loan secured
by the Project, or (b) Lender at any time determines, in its reasonable
discretion, that the proceeds of the Loan remaining to be advanced, together
with Borrower’s equity contributions to the Project, are insufficient to
complete the Project in accordance with the Plans (as hereinafter defined). If
at any time during the term of the Loan, Lender notifies Borrower that the
remaining balance of the Budget when combined with the Borrower’s equity
contributions to the Project, will be insufficient to pay all expected remaining
Project Costs for the completed Project as determined by Lender in its
commercially reasonable discretion, Borrower and/or the Guarantors shall cause
additional cash equity to be contributed to Borrower in an amount equal to the
difference between said amounts (the “Cost Shortfall”) within thirty (30) days
of Lender’s notice to Borrower and the Guarantors of the amount of such Cost
Shortfall.

4. Representations and Warranties. Borrower represents and warrants to Lender
that:

(a) Borrower is a limited liability company duly formed and validly existing and
in good standing under the laws of the Commonwealth of Virginia and fully
qualified to do business in the Commonwealth of Virginia, with full power and
authority to consummate the transactions contemplated by the Loan Documents;

(b) Borrower has been duly authorized by all action required of its members and
managers to execute and deliver the Loan Documents;

(c) The Land does not now, and will not at any time after commencement,
completion and occupancy of the Project, violate any applicable environmental,
zoning, subdivision or building laws, ordinances, rules or regulations of any
governmental authority or agency, contractual arrangements with third parties,
or any covenants or restrictions of record. All consents, licenses and permits
required with respect to the contemplated construction of the Project have been
obtained or will be obtained in due course as appropriate for the stage of
construction to which the Project has progressed;

 

3

--------------------------------------------------------------------------------

(d) The consummation of the transactions contemplated hereby and the performance
of this Agreement and the Loan Documents will not result in any breach of, or
constitute a default under, any order, writ, injunction or decree of any court
or governmental department, commission, board, bureau, agency or
instrumentality, mortgage, deed of trust, lease, bank loan or credit agreement,
corporate charter, by-laws, partnership agreement, operating agreement,
partnership certificate or other instrument to which Borrower or any of the
Guarantors is a party or by which any of them may be bound or affected;

(e) The information contained in this Agreement and in all documents, financial
statements, reports, notices, schedules, certificates, statements or other
writings required herein to be furnished to Lender by Borrower or Guarantors
that were prepared by (i) Borrower or Guarantors is true and correct in all
material respects as of the respective dates thereof and complete insofar as
completeness may be necessary to give Lender a true and accurate knowledge of
the subject matter and to make the same not misleading, and (ii) third parties
is, to the best of Borrower’s and Guarantors’ knowledge, true and correct in all
material respects as of the respective dates thereof and complete insofar as
completeness may be necessary to give Lender a true and accurate knowledge of
the subject matter and to make the same not misleading; and

(f) There are no material actions, suits or proceedings pending or, to the
knowledge of Borrower, threatened against or affecting it, the Guarantors or the
Project before any court or before or by any governmental, administrative,
regulatory, adjudicatory, or arbitrational body or agency of any kind which will
or are reasonably likely to materially and adversely affect performance by
Borrower or Guarantors of their respective obligations pursuant to and as
contemplated by the terms and provisions of this Agreement or any of the other
Loan Documents.

5. Covenants of Borrower. Borrower hereby covenants with Lender that it will:

(a) Commence construction of the Project within ninety (90) days after the date
hereof, and thereafter continue diligently with the construction of the Project
in order to complete the physical construction of the Project on or before the
date that is eighteen (18) months after the date hereof. The deadlines specified
in this subparagraph (a) are absolute and the Lender is not obligated to provide
notice of the Borrower’s failure to meet such deadlines nor shall the Borrower
have any cure or grace periods relating to such deadlines;

(b) Pay promptly when due all claims for labor and materials in respect of the
Project and prevent the filing of liens therefor against the Land or the
Project, provided that Borrower need not pay such claims or prevent such liens
so long as the validity thereof is being contested in good faith and provision
for the payment thereof is made by Borrower in form and manner satisfactory to
Lender or such claim or lien has been bonded off within forty-five (45) days of
filing;

 

4

--------------------------------------------------------------------------------

(c) Use proceeds of the Loan solely for the payment of Costs approved by Lender;

(d) Permit Lender, its representatives and construction consultant, to (i) enter
upon the Project at reasonable times, (ii) inspect the Project and all materials
used in connection with the construction of the Project and (iii) examine all
related plans, specifications and shop drawings for all architectural,
structural, mechanical, plumbing, electrical, site development and other work
for or in connection with the Project (the “Plans”). It will reasonably
cooperate and also use its good faith efforts to cause the Contractors (as
hereinafter defined) to cooperate with Lender’s construction consultant to
enable him to perform his functions hereunder;

(e) Upon the reasonable demand of Lender or Lender’s construction consultant,
correct (i) any defects in the construction of the Project, and (ii) any work
which materially and adversely varies from the Plans and which shall not have
theretofore been approved in writing by Lender or Lender’s construction
consultant or which varies from any applicable governmental requirement
affecting the Land or the Project;

(f) Not permit the construction of the Project pursuant to the Plans, the
subcontracts or otherwise until Lender or Lender’s construction consultant shall
have approved the same, which approval shall be provided by Lender prior to the
commencement of construction of the Project, and any amendments thereto shall be
approved by Lender or Lender’s construction consultant prior to making any
material changes thereto;

(g) Obtain all authorizations, consents, licenses and permits required to
commence, pursue and complete the construction of the Project approved by Lender
and promptly comply with all laws, ordinances or other governmental regulations
affecting the Land or the Project;

(h) Not change any Budget or any line item thereof without the Lender’s prior
written approval;

(i) Not finance the construction of the Project except through the Loan
proceeds, equity contributions and the provisions of this Loan Agreement;

(j) On or before the date that is twenty-four (24) months after the date hereof,
the Project shall be generating revenue sufficient to maintain a minimum Debt
Service Coverage Ratio (hereinafter defined) of not less than 1.0 to 1.0 on a
trailing ninety (90) day basis, unless waived by Lender, such waiver to be made
in the sole and absolute discretion of Lender. On or before the date that is
thirty-six (36) months after the date hereof, the Project shall be generating
revenue sufficient to maintain a minimum Debt Service Coverage Ratio of not less
than 1.15 to 1.0 on a trailing ninety (90) day basis, unless waived by Lender,
such waiver to be made in the sole and absolute discretion of Lender. On or
before the date that is forty-eight (48) months after the date hereof, the

 

5

--------------------------------------------------------------------------------

Project shall be generating revenue sufficient to maintain a minimum Debt
Service Coverage Ratio of not less than 1.25 to 1.0 on a trailing ninety
(90) day basis, unless waived by Lender, such waiver to be made in the sole and
absolute discretion of Lender. “Debt Service Coverage Ratio” means the sum of
total income received by the Borrower on a cash basis from Project operations
less all costs incurred on a cash basis in the operation of the Project (but
costs shall not include debt service on the Loan and other non-cash expenses
attributable to the Project) calculated on an annualized basis, divided by the
sum of the Borrower’s interest expense and current maturities of long-term debt
calculated on an annualized basis;

(k) Contribute the Land free and clear of any liens as the Borrower’s equity
capital contribution into the Project;

(l) On or before May 31 of each year of the Loan term, Borrower and Guarantor
shall deliver to Lender annual internally prepared financial statements
(including a certified true annual rent roll for the Project commencing on
completion of the Project) and their respective federal income tax returns for
the previous fiscal year;

(m) Once the Borrower has commenced leasing efforts for the Project, the
Borrower shall deliver to Lender a monthly leasing status report until the
Project has reached a 1.0 to 1.0 Debt Service Coverage Ratio on an annualized
trailing ninety (90) day basis, and a quarterly leasing status report on a
calendar basis thereafter; and

(n) During the term of the Loan, Borrower shall open and maintain all of its
operating accounts for this Project with the Lender.

6. Conditions Precedent to Initial Advance. Lender’s obligations under this
Agreement to make the Initial Advance as specified in the HUD-1 Settlement
Statement shall be conditioned upon, unless Lender otherwise agrees:

(a) Borrower’s delivery to Lender at least five (5) business days prior to the
Initial Advance (or such shorter period as Lender may agree to), and Lender’s
approval of the following:

(i) Certificates of Insurance showing workers’ compensation insurance, public
liability insurance and builder’s risk insurance from a company or companies and
in form and amounts satisfactory to Lender, together with written evidence, in
form and substance satisfactory to Lender, that all fees and premiums due on
account thereof have been paid in full;

(ii) an appraisal of the Project on an “as if completed” basis indicating a fair
market value that satisfies the minimum loan to value ratios set forth herein
and which is in form and substance satisfactory to Lender performed by an
independent licensed appraiser selected by Lender;

(iii) an opinion of counsel for Borrower and Guarantors;

 

6

--------------------------------------------------------------------------------

(iv) authorizing resolutions, copies of the Borrower’s Articles of Organization
and Operating Agreement and all amendments thereto, copies of Comstock
Homebuilding’s Certificate of Incorporation and Bylaws, a current Certificate of
Fact for Borrower issued by the Commonwealth of Virginia, and a current
certificate for Comstock Homebuilding issued by the State of Delaware;

(v) written evidence that the Project has been zoned, beyond any possibility of
appeal, for purposes consistent with the completion of the construction of the
Project and consistent with the uses contemplated by Lender, this Agreement and
the Loan Documents;

(vi) to the extent available, a list of the names of all major contractors and
materialmen (the “Contractors”) who will perform work or supply materials in
connection with the construction of the Project, together, to the extent
available, with copies of all major contracts or subcontracts for such
construction (“Contracts”) which shall be subject to Lender’s approval in its
reasonable discretion; and

(vii) payment to Lender of a fully earned non-refundable Loan fee in the amount
of $55,000 together with the payment of all third party expenses incurred by
Lender in making the Loan, including, but not limited to, attorneys fees,
environmental reports, credit reports, pre-construction inspections, appraisals
and flood hazard certifications; and

(viii) a separate policy of flood insurance in the face amount of the Note or
the maximum limit of coverage available with respect to the Project, whichever
is the lesser, from a company or companies satisfactory to Lender and written in
strict conformity with the Flood Disaster Protection Act of 1973, as amended,
and all applicable regulations adopted pursuant thereto; provided, however, that
in the alternative Borrower may supply Lender with written evidence, in form and
substance satisfactory to Lender, to the effect that such flood insurance is not
available with respect to the Land, or Borrower may provide to Lender the
certificate of a professional engineer that the Land is not within a flood
hazard area;

(ix) a paid policy of title insurance (ALTA Standard Form “B” Loan
Policy - Current Edition) or a valid and enforceable commitment to issue the
same, together with such reinsurance agreements and direct access agreements as
may be required by Lender, from a company or companies satisfactory to Lender in
the amount of the Loan and which may be endorsed or assigned to the successors
and assigns of Lender without additional cost, insuring the lien of the Deed of
Trust to be a valid first lien on the Project, free and clear of all defects,
exceptions and encumbrances except such as Lender and its counsel shall have
approved, and which contains affirmative coverage for unrecorded mechanics’ and
materialmens’ liens;

 

7

--------------------------------------------------------------------------------

(x) copies of the recorded subdivision plat of the Land and/or a current survey
of the Land, certified to Lender by a registered land surveyor of the
jurisdiction in which the Land is located, which plat of survey shall clearly
designate at least (i) the location of the perimeter of the Land by courses and
distances; (ii) the location of all easements, rights-of-way, alleys, streams,
waters, paths and encroachments; (iii) the location of all building restriction
lines and set-backs, however established; (iv) the location of any streets or
roadways abutting the Land; and (v) the then “as-built” location of any
improvements and the relation of the improvements by courses and distances to
the perimeter of the Land, building restriction lines and set-backs, all in
conformity with the most recent Minimum Standard Detail Requirements for
Property Title Surveys adopted by the American Congress on Surveying and Mapping
(including any optional items required by Lender acting reasonably);

(xi) a soil report which shall (i) demonstrate that the soil conditions of the
Land are suitable for the construction of the Project, and (ii) evidence to
Lender’s reasonable satisfaction that there are no Hydric Soils on the Land
(Hydric Soils are any soil category upon which construction of Improvements
would be prohibited or restricted under applicable governmental requirements,
including, without limitation, those imposed by the U. S. Army Corp of
Engineers);

(xii) a satisfactory Phase I environmental site assessment report for the Land;

(xiii) written evidence satisfactory to Lender of the availability of sanitary
sewer, water and other public utilities adequate in Lender’s judgment to serve
the completed Project;

(xiv) certified true financial statements and tax returns of the Borrower and
the Guarantors for the past three fiscal periods;

(xv) the standard form of lease agreement that the Borrower will require all
tenants to sign in form and substance satisfactory to the Lender;

(xvi) the current detailed draw schedule for Project in form and substance
satisfactory to the Lender;

(xvii) the current complete and detailed Plans for the Project; and

(xviii) an independent cost review of the entire Project budget and Plans by an
engineer or architect selected by the Lender verifying the sufficiency of the
Project budget to complete the Project as planned, which cost review shall be at
the Borrower’s sole cost.

(b) The Loan Documents shall each have been duly executed by the respective
parties thereto and delivered to Lender.

 

8

--------------------------------------------------------------------------------

(c) Financing statements, and any modifications thereto, shall have each been
duly filed in all public offices necessary to provide public notice or protect
the validity and effectiveness thereof, and all taxes, fees and other charges in
connection therewith shall have been paid, or appropriate provisions shall have
been made with respect thereto.

(d) The representations and warranties set forth in Section 4 are all true and
correct in all material respects.

7. Conditions to Advances after the Initial Advance. The obligation of Lender to
make the Advances after the Initial Advance shall be conditioned upon the
satisfaction of the conditions set forth in this Agreement, including the
satisfaction of the conditions set forth in Section 6(a)(ii) and Section 6(d)
above, and, as requested by Lender, delivery of any updates to the documents
required to be delivered in Sections 6(a)(i), (vi), (xiv), (xv), (xvi) and
(xvii) above, and of the following additional conditions:

(a) Lender shall have received and approved, in addition to such other opinions,
documents, instruments and assurances as are set forth herein, the following:

(i) evidence to the reasonable satisfaction of Lender that all work performed on
or about the Project has been performed in a good and workmanlike manner and
that all materials and fixtures generally furnished or installed at that stage
have been furnished and installed, and that all such work, materials and
fixtures have been paid in full, will be paid in full using the proceeds of the
Advance, or are scheduled to be paid using payments for future Advances, as
applicable;

(ii) written evidence, in form and substance satisfactory to Lender, from all
governmental authorities having or claiming jurisdiction to the effect that all
grading, building, construction and other permits and licenses necessary or
required in connection with the construction of the Project at that stage have
been validly issued; that all fees and bonds required in connection therewith
have been paid in full or posted, as the circumstances may require;

(iii) final fully approved site plan for the Project;

(iv) copies of all existing inspection and test reports requested by Lender, if
any;

(v) reasonably satisfactory evidence that all work in place has been approved by
all applicable governmental authorities to the extent, if any, such approval is
required;

(vi) a satisfactory status report from Lender’s construction consultant;

 

9

--------------------------------------------------------------------------------

(vii) a notice of title continuation indicating that, since the date of the last
preceding Advance, there has been no change in the state of title not
theretofore approved by Lender.

(b) In the case of the final Advance hereunder, Lender shall also have received
and approved a final lien release for all work performed from each of the
Contractors.

8. Interest Reserve and Additional Interest Reserve Account. Once the Project
begins generating rental revenue, the Borrower shall apply the gross rental
revenue generated by the Project minus the Borrower’s reasonable expenses to
operate the Project as approved by the Lender (the “Rental Revenue”) to the
interest expense on the Note on a monthly basis. Commencing on the date hereof,
the Lender shall disburse funds directly out of the Interest Reserve set forth
in the Budget in the amount that the monthly interest payment exceeds the
monthly Rental Revenue and apply those funds to the payment of interest on the
Loan as it becomes due. On the earlier of (i) the date that is twelve
(12) months after the date hereof, and (ii) the date on which the remaining
balance in the Interest Reserve is $25,000 or less, the Borrower shall deposit
Five Hundred Thousand Dollars ($500,000) (the “Additional Interest Reserve”)
into a secured escrow reserve account maintained by the Lender (the “Additional
Interest Reserve Account”). Once the Interest Reserve has been exhausted, the
Lender shall automatically draw Additional Interest Reserve funds from the
Additional Interest Reserve Account in the amount by which the monthly interest
due on the Loan exceeds the Rental Revenue and apply that amount against the
interest due on the Note when it is due. The provisions of Exhibit B relating to
the Lender’s Contingency are incorporated herein by reference.

9. Limitations on Advances. In addition to the limitations contained in this
Agreement, Lender shall in no event be obligated to disburse proceeds of the
Loan (i) exceeding the Costs set forth in the Budget approved by Lender,
including the individual line items but subject to the Lender’s agreement to
allow reallocation among line items under certain circumstances in Exhibit B,
(ii) which would result in the loan to value ratios set forth in Section 10
hereof being exceeded, (iii) if a petition is filed or other proceeding is
commenced under any bankruptcy, insolvency, reorganization or similar laws or
statutes (including, without limitation, the Federal Bankruptcy Code, as now or
hereafter in effect, or any state insolvency statute or the laws of any
jurisdiction) by or against Borrower or any of the Guarantors; (iv) if a
receiver, custodian, trustee or liquidator is applied for or appointed for
Borrower or any of the Guarantors, (v) if a writ or order of attachment, levy or
garnishment in excess of $100,000 is issued against Borrower or any of the
Guarantors or the property, assets, or income of any of them and the same is not
appealed, discharged or bonded to Lender’s satisfaction within sixty (60) days
of the date said Borrower or Guarantor receives notice thereof; or (vi) if
Borrower shall fail to perform or observe any of the covenants or agreements to
be performed or observed by it hereunder and such failure continues for a period
of ten (10) days after written notice of such failure from Lender to Borrower.

10. Loan to Value Ratio. The unpaid principal amount of the Loan shall not
exceed a loan to value ratio of sixty-eight percent (68%) of the “as if
completed” appraised value of the

 

10

--------------------------------------------------------------------------------

completed Project, as determined by the most recent appraisal obtained by Lender
from a third-party appraiser selected by Lender. Following notice from Lender to
Borrower that any such loan to value ratio has been exceeded, Borrower shall,
within ten (10) days of such notice, make a principal payment on the Loan in an
amount sufficient to cause the above-referenced loan to value ratios to be in
compliance.

11. [Intentionally omitted]

12. Defaults. Each of the following shall constitute a default hereunder:

(a) if Borrower shall fail to perform or observe any of the covenants or
agreements to be performed or observed by it hereunder and such failure
continues for a period of thirty (30) days after the date of written notice of
such failure from Lender to Borrower, provided that if such failure is capable
of being cured within a reasonable period of time but, in Lender’s judgment,
cannot be cured within said thirty (30) day period, then, notwithstanding the
foregoing, an event of default shall not be deemed to have occurred at the
expiration of said thirty (30) day period if the Borrower (i) commences the cure
of such failure within said thirty (30) day period, (ii) thereafter diligently
and expeditiously to Lender’s satisfaction proceeds to cure such failure, and
(iii) completes the cure of such failure within a reasonable period of time not
exceeding ninety (90) days after the date that such written notice is sent; or

(b) if any representation or warranty made by Borrower herein shall prove to be
false or misleading in any material respect; or

(c) the dissolution of Borrower or any Guarantor; or

(d) the death of any Guarantor unless the obligations of such Guarantor under
the Guaranties are assumed by his executor or personal representative within
sixty (60) days of the death of such Guarantor, or Lender reasonably determines
that the prospect of full repayment of the Loan are not materially impaired
thereby; or

(e) the occurrence of a default (and the expiration of any applicable cure
period) under the Note, this Agreement, the Guaranties or any other Loan
Document; or

(f) if Borrower, at any time prior to the completion of the construction of the
Project, abandons the same or ceases work thereon for a period of more than
thirty (30) days for any reason other than a stoppage imposed by a governmental
authority with jurisdiction over the Project; or

(g) the filing of any mechanic’s or judgment lien against the Land or the
Project, or any part thereof, or the failure to pay (or provide for payment in a
manner satisfactory to Lender acting reasonably) any firm, person or corporation
entitled to payment, which firm, person or corporation has a right to file a
mechanic’s lien against the Land or the Project; provided, however, that the
filing of a mechanic’s or judgment lien affecting the Land or the Project shall
not be deemed to be an event of default

 

11

--------------------------------------------------------------------------------

provided that either (i) such lien is bonded off by Borrower within sixty
(60) days after Borrower’s receipt of notice of the filing thereof, or
(ii) Borrower posts security for or makes other arrangements for protection of
Lender reasonably satisfactory to Lender, within thirty (30) days after
Borrower’s receipt of notice of the filing of such lien. Notwithstanding the
foregoing, if any such lien is filed, Lender shall not be required to make any
further Advances hereunder until Borrower has either bonded off the lien as
described in (i) above, or has posted security or made other arrangements to the
satisfaction of Lender as described in (ii) above; or

(h) the failure of Borrower to permit a representative of Lender to enter the
Project and inspect the same at reasonable times; or

(i) failure by Borrower to disclose to Lender or its agents or employees, upon
reasonable request, the names of all persons with whom Borrower has contracted
or intends to contract for the construction of the Project or for the furnishing
of labor or materials therefor, or to obtain the approval of such persons by
Lender when required by this Agreement; or

(j) any order or decree is entered by any court of competent jurisdiction
directly or indirectly enjoining or prohibiting Borrower from performing any of
their obligations under this Agreement or commencing, continuing or completing
construction of the Project, and such order or decree is not vacated, and the
proceedings out of which such order or decree arose are not dismissed, within
twenty (20) days after the granting of such decree or order.

13. Remedies. In the event of a default hereunder, the Lender may exercise any
and all of the remedies set forth in the Loan Documents including, but not
limited to, its refusal to make any Advances to Borrower.

14. General Conditions. The following conditions shall be applicable throughout
the term of this Agreement.

(a) Borrower hereby indemnifies Lender against and covenants and agrees to hold
Lender harmless from and against all loss, cost and liability resulting from the
actions of Borrower or relating to the Project, including, but not limited to,
any and all claims of brokers or others arising by reason of the execution of
this Agreement or the Note or by reason of the consummation of the transactions
contemplated hereby or thereby. The foregoing indemnity, covenant and agreement
of Borrower shall survive the repayment of the Note. Lender represents and
warrants that no brokers or other persons providing similar services have been
retained by Lender in connection with the execution of this Agreement or the
Note or the consummation of the transactions contemplated hereby or thereby.

(b) No Advance in respect of the Loan shall constitute a waiver of any of the
conditions of Lender’s obligation to make a further Advance. No failure or delay
by Lender in exercising any right or privilege hereunder or under any other
instrument

 

12

--------------------------------------------------------------------------------

contemplated hereby shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.

(c) All instruments and documents required hereby or affecting the Project, or
relating to Borrower’s capacity and authority to make the Loan and to execute
the Loan Documents and such other documents, instruments, opinions and
assurances as required under the Loan Documents and all procedures in connection
herewith shall be subject to the approval, as to form and substance, of Lender
and its counsel, R. Kevin Kennedy, PLC (with respect to the initial closing
documents). All persons or entities responsible for the preparation or execution
of the instruments specifically required hereby and all obligors thereunder
shall be reasonably satisfactory to Lender.

(d) All notices hereunder shall be in writing and shall be deemed to have been
delivered and to have been sufficiently given or served for all purposes when
presented personally or on the third business day after being sent by certified
or registered mail or by overnight express courier with signed receipts to the
party hereto to whom the same is to be given, at its address stated above or at
such other address of which it shall have notified the party giving such notice
in writing.

(e) Advances may be made by Lender to Borrower directly or through a title
insurance company, and all reasonable third-party costs associated therewith
shall be borne by Borrower. Additionally, the Lender may make Advances to
Borrower or directly to any of the Contractors or other payee as Lender may
elect with prior written notice to Borrower.

(f) Lender shall have the right at any reasonable time, and from time to time,
but shall be under no obligation, to examine invoices and statements for labor
and material costs in connection with the construction of the Project. Further,
Lender and its agents shall, (x) at all reasonable times, have the right of
entry and free access to the Project and, (y) at all reasonable times upon
reasonable prior notice, have the right to inspect all books, contracts and
records of Borrower pertaining to the Project. Said inspection shall be for the
sole benefit of Lender.

(g) Lender may employ, at Borrower’s expense (but not to exceed $500.00 per
inspection), an independent construction inspector who shall review and verify
the proposed costs of construction, the progress schedule, inspect and certify
the stage(s) of completion of the construction of the Project, and approve each
requisition for an Advance prior to the funding thereof.

(h) Lender may announce and publicize the source of the Loan in such manner as
Lender may elect. At Lender’s request and expense, Borrower shall place a sign
or signs at a location or locations on the Land reasonably satisfactory to
Lender and Borrower, which signs shall recite, among other things, that Lender
is financing the construction of the Project.

 

13

--------------------------------------------------------------------------------

(i) Neither Lender’s review or approval of the Plans, nor any subsequent
inspection or review of the Project shall constitute a representation or
warranty by Lender, or its agents, employees, representatives or designees, as
to the technical sufficiency or adequacy of the construction or the physical
condition or any other aspect of the Project.

15. Applicable Law. This Loan Agreement shall be governed by and construed,
interpreted and enforced in accordance with and pursuant to the laws of the
Commonwealth of Virginia. In the event that the “choice of law” rules of the
Commonwealth of Virginia can be construed or interpreted to require the laws of
another jurisdiction to govern, the “choice of law” rules of the Commonwealth of
Virginia shall not apply.

16. Time of Essence. Time shall be of the essence of each and every provision of
this Loan Agreement of which time is an element.

17. [Intentionally Deleted]

18. Captions and Headings. The captions and headings contained in this Loan
Agreement are included herein for convenience of reference only and shall not be
considered a part hereof and are not in any way intended to limit or enlarge the
terms hereof.

19 No Warranty by Lender. By accepting or approving anything required to be
observed, performed or fulfilled by Borrower or to be given to Lender pursuant
to this Loan Agreement, including, without limitation, any certificate, balance
sheet, statement of profit and loss or other financial statement, survey,
receipt, appraisal or insurance policy, Lender shall not be deemed to have
warranted or represented the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision or condition thereof, and any such
acceptance or approval thereof shall not be or constitute any warranty or
representation with respect thereto by Lender.

20. Liability of Lender. Lender shall not be liable for any act or omission by
it pursuant to the provisions of this Loan Agreement in the absence of fraud,
gross negligence or willful misconduct. Lender shall incur no liability to
Borrower or any other party in connection with the acts or omissions of Lender
in reliance upon any certificate or other paper believed by Lender to be genuine
or with respect to any other thing which Lender may do or refrain from doing,
unless such act or omission amounts to fraud, gross negligence or willful
misconduct. In connection with the performance of its duties pursuant to this
Loan Agreement, Lender may consult with counsel of its own selection, and
anything which Lender may do or refrain from doing, in good faith, in reliance
upon the opinion of such counsel shall be full justification and protection to
Lender, except in cases of fraud, gross negligence or willful misconduct.

21. No Partnership. Nothing contained in this Loan Agreement shall be construed
in a manner to create any relationship between Borrower and Lender other than
the relationship of borrower and lender, and Borrower and Lender shall not be
considered partners or co-venturers for any purpose.

 

14

--------------------------------------------------------------------------------

22. Severability. In the event any one or more of the provisions of this Loan
Agreement shall for any reason be held to be invalid, illegal or unenforceable,
in whole or in part or in any respect, or in the event any one or more of the
provisions of the Note or the Loan Documents operate or would prospectively
operate to invalidate this Loan Agreement, then and in either of those events,
at the option of Lender, such provision or provisions only shall be held for
naught and shall not affect any other provision of the Note or the Loan
Documents or the validity of the remaining Obligations, and the remaining
provisions of the Note and the Loan Documents shall remain operative and in full
force and effect and shall in no way be affected, prejudiced or disturbed
thereby.

23. Successors and Assigns. Each and every of the covenants, terms, provisions
and conditions of this Loan Agreement, the Note and the Loan Documents shall
apply to, bind and inure to the benefit of Borrower, its successors and those
assigns of Borrower consented to in writing by Lender, and shall apply to, bind
and inure to the benefit of Lender and the endorsees, transferees, successors
and assigns of Lender, and all persons claiming under or through any of them.
Lender covenants that upon any participation of the Loan, Lender shall retain
complete authority to negotiate with Borrower, including any amendments or
modifications to the Loan Documents.

24. Modification - Waiver. None of the terms or provisions of this Loan
Agreement may be changed, waived, modified, discharged or terminated except by
instrument in writing executed by the party or parties against which enforcement
of the change, waiver, modification, discharge or termination is asserted. None
of the terms or provisions of this Loan Agreement shall be deemed to have been
abrogated or waived by reason of any failure or failures to enforce the same.

25. Third Parties - Benefit. All conditions of the obligations of Lender to make
advances hereunder are imposed solely and exclusively for the benefit of Lender
and its assigns, and no other persons shall have standing to require
satisfaction of such conditions in accordance with their terms or be entitled to
assume that Lender will refuse to make advances in the absence of strict
compliance with any or all thereof and no other person shall, under any
circumstances, be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender at any time in the sole
and absolute exercise of its discretion. The terms and provisions of this Loan
Agreement are for the benefit of the parties hereto and, except as herein
specifically provided, no other person shall have any right or cause of action
on account thereof. Lender shall in no event be responsible or liable to any
person other than to Borrower or Guarantors for any advance of or failure to
advance the proceeds of the Loan or any part thereof, and no contractor,
subcontractor, materialman or other person shall have any right or claim against
Lender pursuant to this Loan Agreement or the administration thereof.

26. Conditions - Verification. Any condition of this Loan Agreement which
requires the submission of evidence of the existence or non-existence of a
specified fact or facts implies as a condition the existence or non-existence,
as the case may be, of such fact or facts and Lender shall, at all times, be
free independently to establish to its satisfaction and in its absolute
discretion such existence or non-existence.

 

15

--------------------------------------------------------------------------------

27. Counterparts. This Loan Agreement may be executed in any number of
counterparts, each of which shall be considered an original for all purposes;
provided, however, that all such counterparts shall together constitute one and
the same instrument.

28. Condominium Documentation. The Borrower shall submit all proposed
documentation (the “Condominium Documents”) intended or necessary to convert the
Project into a multi-unit condominium regime (the “Condominium Regime”) to the
Lender for the Lender’s review and approval prior to the Borrower’s submission
of the Condominium Documents to any governmental authority required to review
and approve the Condominium Documents as a pre-condition to the creation of the
Condominium Regime. Once the Lender has approved the Condominium Documents,
which approval shall not be unreasonably conditioned, delayed or withheld, the
Lender shall consent to and/or execute such Condominium Documents as are
required of the Lender, in its capacity as the holder of a security interest in
the Land, to facilitate the Borrower’s conversion of the Project into a
condominium regime under the laws of the Commonwealth of Virginia.

IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
executed the day and year first above written.

 

LENDER: CARDINAL BANK, a banking corporation organized under the laws of the
Commonwealth of Virginia By:                                
                                                (SEAL)       Richard F. Schoen  
    Senior Vice President BORROWER: COMSTOCK CASCADES II, L.C., a Virginia
limited liability company

 

Address:       By:      

Comstock Homebuilding Companies, Inc.,

its manager

c/o Comstock Homebuilding Companies, Inc.     11465 Sunset Hills Road, 4th Floor
    Reston, Virginia 20190     Christopher D. Clemente   By:  
                                                                       
      (SEAL)   Chief Executive Officer

 

16

--------------------------------------------------------------------------------

EXHIBIT A

Legal Description

All those certain lots, pieces or parcels of land situate, lying and being in
Loudoun County, Virginia, being more particularly described as follows:

BEGINNING AT A POINT ON THE NORTHERLY RIGHT OF WAY OF HARRY BYRD HIGHWAY, ROUTE
7, 110 FEET WIDE, SAID POINT BEING THE SOUTHWESTERLY CORNER OF THE PROPERTY OF
THE COMMONWEALTH OF VIRGINIA (STATE BOARD FOR COMMUNITY COLLEGES) AS ACQUIRED IN
DEED BOOK 474 AT PAGES 181 AND 183 AND DEED BOOK 596 AT PAGE 523 AMONG THE LAND
RECORDS OF LOUDOUN COUNTY, VIRGINIA; THENCE RUNNING WITH SAID ROUTE 7

NORTH 57° 00’ 05” WEST, 277.34 FEET TO A POINT; THENCE DEPARTING ROUTE 7 AND
RUNNING WITH THE EASTERLY LINES OF THE COMMONS ON POTOMAC SQUARE CONDOMINIUM,
PHASE TWO

NORTH 32° 59’ 55” EAST, 131.50 FEET TO A POINT; THENCE

NORTH 57° 00’ 05” WEST, 2.00 FEET TO A POINT; THENCE

NORTH 32° 59’ 55” EAST, 126.00 FEET TO A POINT; THENCE

SOUTH 57° 00’ 05” EAST, 64.06 FEET TO A POINT; THENCE

NORTH 32° 59’ 55” EAST, 42.72 FEET TO A POINT; THENCE

NORTH 19° 09’ 09” EAST, 137.65 FEET TO A POINT; THENCE

NORTH 70° 50’ 51” WEST, 209.69 FEET TO A POINT; THENCE

NORTH 77° 26’ 27” WEST, 27.17 FEET TO A POINT;

NORTH 57° 00’ 05” WEST, 31.56 FEET TO A POINT; THENCE RUNNING WITH THE EASTERLY
LINES OF THE COMMONS ON POTOMAC SQUARE CONDOMINIUM, PHASE ONE

NORTH 32° 59’ 55” EAST, 53.15 FEET TO A POINT; THENCE

NORTH 01°35’ 08” EAST, 102.44 FEET TO A POINT ON A SOUTHERLY LINE OF COURTLANDS
AT CASCADES A CONDOMINIUM, DEED BOOK1792 PAGE 2065; THENCE RUNNING WITH SAID
COURTLANDS AT CASCADES A CONDOMINIUM

SOUTH 70° 50’ 51” EAST, 42.21 FEET TO A POINT; THENCE

NORTH 33° 54’ 44” EAST, 20.92 FEET TO A POINT; THENCE

SOUTH 83° 01’ 16” EAST, 93.77 FEET TO A POINT; THENCE

NORTH 19° 09’ 09” EAST, 25.00 FEET TO A POINT; THENCE

SOUTH 70° 50’ 51” EAST, 165.00 FEET TO A POINT; THENCE

NORTH 19° 09’ 09” EAST, 25.00 FEET TO A POINT; THENCE

SOUTH 70° 50’ 51” EAST, 118.50 FEET TO A POINT ON THE WESTERLY LINE OF SAID
PROPERTY OF THE COMMONWEALTH OF VIRGINIA; THENCE RUNNING WITH SAID WESTERLY LINE

SOUTH 19° 09’ 09” WEST, 724.37 FEET TO THE POINT OF BEGINNING, CONTAINING
177,297 SQUARE FEET OR 4.0702 ACRES, MORE OR LESS.

--------------------------------------------------------------------------------

EXHIBIT B

Loan Budget

 

Closing/Acq. Costs

   $ 130,000   

Direct Construction

     8,810,000   

Indirect Construction 1

     1,060,000   

Interest Reserve

     500,000            

Sub-Total Loan Proceeds

   $ 10,500,000   

Lender’s Contingency 2

     500,000            

Total Loan Proceeds

   $ 11,000,000   

 

  1. Indirect construction shall include draws for general contracting fee,
corporate franchise taxes, utilities, marketing, and grounds & maintenance
expenses.

 

  2. The Lender may advance, in its sole discretion, Loan proceeds out of the
Lender’s Contingency for future interest costs on the Loan on a monthly basis
but only after all Loan proceeds in the $500,000 Interest Reserve included in
the Budget and all funds that the Borrower deposits into the Additional Interest
Reserve Account pursuant to Section 8 hereof have been disbursed for the payment
of interest on the Loan. The maximum amount that the Lender shall advance out of
the Lender’s Contingency will be the amount by which interest on the Loan
exceeds rental revenue generated by the Project on a month-by-month basis.

 

  3. Advances under the Loan will be disbursed in accordance with the draw
schedule attached hereto as Exhibit B-1 (the “Draw Schedule”). The Draw Schedule
is based on final bids received by Borrower but Lender acknowledges there could
be additional cost savings or cost overruns on the Project. In such event,
Lender, in its sole but reasonable discretion, shall allow Borrower to
reallocate individual items in the Loan Budget or from the Contingency line
item.

--------------------------------------------------------------------------------

EXHIBIT B-1

Draw Schedule

[Copy attached]