AMENDMENT NO. 2 TO
                             NOTE PURCHASE AGREEMENT


         THIS AMENDMENT NO. 2 TO NOTE PURCHASE AGREEMENT, executed this 12th day
of November, 1996, effective July 31, 1996, by and among FAC REALTY, INC.,
formerly known as Factory Stores of America, a Delaware corporation with offices
at 230 North Equity Drive, Smithfield North Carolina 27577 (the "Borrower"),
BLACKACRE BRIDGE CAPITAL, LLC, a Delaware limited liability company with offices
at 950 Third Avenue, New York, New York 10022 ("Blackacre"), and GILDEA
MANAGEMENT COMPANY, a Delaware corporation with offices at 115 E. Putnam Avenue,
Greenwich, Connecticut 06830 ("Gildea").

                              PRELIMINARY STATEMENT

         Pursuant to that certain Note Purchase Agreement dated April 2, 1996,
as amended by Amendment No. I dated as of April 12, 1996, by and among Borrower,
Blackacre and Gildea (collectively, the "Note Purchase Agreement"), Borrower
agreed to sell and issue to designees of Blackacre and Gildea, and Blackacre and
Gildea agreed to cause their designees to purchase from Borrower Exchangeable
Subordinate Notes in an aggregate principal amount of up to $25 million and
Senior Notes in an aggregate principal amount of $5 million from the Borrower.

         Borrowed has issued and sold to designees of Blackacre and Gildea
Exchangeable Notes in an aggregate amount equal to $20 million, and such
Exchangeable Notes have been exchanged for Series A Preferred Stock of the
Borrower (the "Preferred Stock"), as contemplated by the Note Purchase
Agreement.

         Borrower has issued and sold to Blackacre Senior Notes in an amount
equal to $5 million.

         Borrower, Blackacre and Gildea have agreed to extend the final
Subsequent Funding Date (the "Final Funding") with respect to the remaining
amounts to be funded to Borrower, and to extend the date for Borrower's filing
of the Registration Statement for the Preferred Stock.

         Borrower, Blackacre and Gildea have further agreed to reduce the amount
of the Final Funding to $2.5 million, such amount to he funded with additional
Senior Notes in lieu of Exchangeable Notes.

         NOW, THEREFORE, in consideration of the mutual promises, contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:

1.       DEFINITIONS

         Unless otherwise specified, all capitalized terms shall have the
meanings ascribed to them in the Note Purchase Agreement.



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2.       EXCHANGEABLE NOTES/PREFERRED STOCK

         The parties agree that the sum of $20 million has been funded to the
Borrower by the issuance of Exchangeable Notes and that the Exchangeable Notes
have been exchanged for Series A Preferred Stock of the Borrower, as provided in
the Note Purchase Agreement. Upon the funding of the new Senior Notes as
contemplated hereby, Borrower agrees that neither Blackacre nor Gildea shall
have any further obligations with respect to funding additional Exchangeable
Notes. The Borrower shall file the Registration Statement for the Preferred
Stock as soon as practicable, but in no event later than November 30, 1996.

3.       ADDITIONAL SENIOR NOTES

         In lieu of funding the remaining $5 million of Exchangeable Notes,
Borrower shall sell and issue to Blackacre and Gildea, and Blackacre and Gildea
shall purchase from Borrower, additional Senior Notes (the "Additional Senior
Notes") in the aggregate amount of $2.5 million, such Additional Senior Notes to
be purchased at par without discount. The form of the Additional Senior Notes is
attached hereto as Exhibit A.

4.       CONSIDERATION

         Blackacre and Gildea acknowledge that they received a commitment fee
for the Additional Senior Notes in the amount of $100,000 in connection with the
Initial Funding. In addition, Borrower shall give 100,000 warrants of the
Borrower, exercisable into of common stock of the Borrower to designees of
Blackacre and Gildea. The forms of the Warrant Agreement and Warrant Certificate
are attached hereto as Exhibit B and Exhibit C, respectively.

5.        FUNDING SCHEDULE

         Schedule 4.1 to the Note Purchase Agreement shall be substituted and
replaced in its entirety by the replacement Schedule 4.1 attached hereto and
Exhibit D.

6.       USE OF PROCEEDS FOR FINAL FUNDING

         Section 5.9(e) of the Note Purchase Agreement shall be substituted and
replaced in its entirety by the replacement Section 5.9(e) set forth below:

         "(e) with respect to the Final Funding, Borrower shall have certified
to Blackacre and Gildea in a certificate of the President or any Vice President
of the Borrower that the Borrower will use the proceeds of the Final Funding for
one or more of the use of proceeds identified on Exhibit 5.9(e) hereto."

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7.       NOTICES

         Section 16 of the Note Purchase Agreement shall be amended to change
the Borrower's notice addresses, effective December 7, 1 996, as follows:




                  FAC Realty Trust Inc.
                  11000 Regency Parkway, Suite 300
                  Cary, North Carolina 27511
                  Attention:        President

         with copies to:

                  FAC Realty Trust, Inc.
                  1095 Old Cedar Road
                  McLean, Virginia 22102
                  Attention:        Michaela M. Twomey, Esq.

         and

                  Gibson, Dunn & Crutcher LLP
                  1050 Connecticut Avenue N W
                  Washington, D.C. 20036-5306
                  Attention:        Stephanie Tsacoumis, Esq.


8.       NOTE PURCHASE AGREEMENT IN EFFECT

         Except as amended hereby, all terms and provisions of the Note Purchase
Agreement shall remain in full force and effect.


         IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2
to Note Purchase Agreement as of the date first written above.




                                                     FAC REALTY, INC.



                                                     By:   /s/ C. Cammack Morton
                                                           C. Cammack Morton
                                                           President


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                       BLACKACRE BRIDGE CAPITAL, LLC

                       By:      Blackacre Capital Management Corp.,
                                its managing member



                                By:      /s/ Jeffrey B. Citrin
                                         Jeffrey B. Citrin
                                         President




                       GILDEA MANAGEMENT COMPANY



                       By: /s/ William P. O'Donnell
                           William P. O'Donnell
                             Vice President


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