----

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|   | x |  ANNUAL REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE |
|--------|---|-----------------------------------------------------------------|

|   | SECURITIES EXCHANGE ACT OF    1934 |
|--------|------------------------------------|

|   | o     TRANSITION REPORT PURSUANT TO      SECTION 13 OR 15(d) OF THE |
|--------|-----------------------------------------------------------------------------------------|

|   | SECURITIES EXCHANGE ACT OF    1934 |
|--------|------------------------------------|

| Delaware                                                            |   | 20-3269195                                |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) |   | (I.R.S.      Employer Identification No.) |

----

|             | PART      I                                                                                                                   |   |
|------------------|-------------------------------------------------------------------------------------------------------------------------------|--------|
|             |                                                                                                                          | Page   |
| Item      1.     | Business.                                                                                                                     | 3      |
| Item      1A.    | Risk      Factors.                                                                                                            | 10     |
| Item      1B.    | Unresolved      Staff Comments.                                                                                               | 36     |
| Item      2.     | Properties.                                                                                                                   | 36     |
| Item      3.     | Legal      Proceedings.                                                                                                       | 36     |
| Item      4.     | Submission      of Matters to a Vote of Security Holders.                                                                     | 36     |
|             |                                                                                                                          |   |
|             | PART      II                                                                                                                  |   |
|             |                                                                                                                          |   |
| Item      5.     | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities. | 37     |
| Item      6.     | Selected      Financial Data.                                                                                                 | 42     |
| Item      7.     | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations.                        | 43     |
| Item      7A.    | Quantitative      and Qualitative Disclosures About Market Risk.                                                              | 55     |
| Item      8.     | Financial      Statements and Supplementary Data.                                                                             | 55     |
| Item      9.     | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure.                               | 55     |
| Item      9A(T). | Controls      and Procedures.                                                                                                 | 56     |
| Item      9B.    | Other      Information.                                                                                                       | 56     |
|             |                                                                                                                          |   |
|             | PART      III                                                                                                                 |   |
|             |                                                                                                                          |   |
| Item      10.    | Directors,      Executive Officers and Corporate Governance.                                                                  | 57     |
| Item      11.    | Executive      Compensation.                                                                                                  | 60     |
| Item      12.    | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters.                     | 60     |
| Item      13.    | Certain      Relationships and Related Transactions, and Director      Independence.                                          | 61     |
| Item      14.    | Principal      Accounting Fees and Services.                                                                                  | 67     |
|             |                                                                                                                          |   |
|             | PART      IV                                                                                                                  |   |
|             |                                                                                                                          |   |
|             |                                                                                                                          |   |
| Item      15.    | Exhibits,      Financial Statement Schedules.                                                                                 | 68     |
|             | Signatures.                                                                                                                   | 69     |
|             |                                                                                                                          |   |
|             |                                                                                                                          |   |

----

PARTI

----

----

|   | · | to      make, originate or acquire a participation interest in mortgage loans      (secured by first priority or junior priority liens against real property      or liens against equity interests of entities that hold real property)      typically in the range of $500,000 to $10 million, and to provide credit      enhancements to real estate developers and regional and national      homebuilders who acquire real property, subdivide such real property into      single-family residential lots and sell such lots to homebuilders or build      homes on such lots; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | to      produce net interest income from the interest on loans that we originate      or purchase or in which we acquire a participation    interest; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | to      produce a profitable fee from our credit enhancement      transactions; |
|--------|--------|---------------------------------------------------------------------------------|

|   | · | to      produce income through origination, commitment and credit enhancement fees      charged to borrowers; |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | · | to      maximize distributable cash to investors;and |
|--------|--------|------------------------------------------------------|

|   | · | to      preserve, protect and return capital  contributions. |
|--------|--------|--------------------------------------------------------------|

----

|                                     |   | As      of December 31, |       |   |   |   |
|------------------------------------------|--------|-------------------------|------------|--------|--------|--------|
|                                     |   | 2008                    |       |   |   |   |   | 2007 |   |   |   |   |
| General      Partner                     |   | $                       | 2,764,000  |   |   |   |   |   | $ | 677,000 |   |   |   |   |
| Limited      Partners                    |   |                    | 23,099,000 |   |   |   | (1 | ) |   |   | 4,997,000 |   |   |   | (2 | ) |
| Retained      Earnings Reserve           |   |                    | 600,000    |   |   |   |   |   |   |   | 900,000 |   |   |   |   |   |
| Retained      Earnings Surplus (Deficit) |   |                    | (2,168,000 | )      |   |   |   |   |   |   | 189,000 |   |   |   |   |   |

|   | · | the      parcels of land to be developed; |
|--------|--------|-------------------------------------------|

|   | · | in      certain cases, a pledge of some or all of the equity interests in the      developer entity; |
|--------|--------|------------------------------------------------------------------------------------------------------|

|   | · | in      certain cases, additional assets of the developer, including parcels of      undeveloped and developed real property;and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | · | in      certain cases, personal guaranties of the principals of the developer      entity. |
|--------|--------|--------------------------------------------------------------------------------------------|

----

|   | · | Liens.  All      loans and investments made by us must be evidenced by a note and must be      secured (1) by a first or second lien that is insured by a title insurance      company, (2) by a pledge of the partnership interests in the special      purpose entity holding the property or by both a subordinate lien position      and a pledge of the partnership interests in the special purpose entity,      or (3) by a commitment as to the priority of the loan or the condition of      title; in addition, our loans and investments may be secured by a pledge      of additional ownership interests of the developer and its affiliates in      other development projects. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Interest      Rate.  We seek to originate loans bearing interest at      rates ranging from 10% to 16% perannum. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

|   | · | Term and      Amortization.  We currently do not have a policy that      establishes a minimum or maximum term for the loans we may make, nor do we      intend to establish one.  Loans typically are structured as      interest-only notes with balloon payments or reductions to principal tied      to net cash from the sale of developed lots and the release formula      created by the senior lender, i.e., the conditions      under which principal is repaid to the senior lender, if    any. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Geographical      Boundaries.  We may buy or originate loans in any of the      48 contiguous United States.  As of December 31, 2008, we have      originated loans in Texas, Colorado, Arizona and New    Mexico. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | acquire      or make mortgage loans; |
|--------|--------|--------------------------------------|

|   | · | prevent      defaults under senior loans or discharge them entirely if that becomes      necessary to protect our interests;or |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | assist      in the development or sale of any real property that we have taken over as      a result of default. |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

----

|   | · | acquire      assets in exchange for units of limited partnership    interest; |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | issue      units of limited partnership interest after the termination of the      Offering; or |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | make      loans to our general partner or its affiliates except as permitted by our      Partnership Agreement and the NASAA Mortgage Program      Guidelines.  Such loans are permitted under our Partnership      Agreement and the NASAA Mortgage Program Guidelines if an independent      advisor issues an opinion to the effect that the proposed loan is fair and      at least as favorable to us as a loan to an unaffiliated borrower in      similar circumstances. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

| ·   | employment      levels and job growth; |
|--------------------|----------------------------------------|

| ·   | demographic      trends, including population increases and decreases and household      formation; |
|--------------------|-----------------------------------------------------------------------------------------------------|

| ·   | availability      of financing for homebuyers; |
|--------------------|------------------------------------------------|

| ·   | interest      rates; |
|--------------------|----------------------|

| ·   | affordability      of homes; |
|--------------------|------------------------------|

| ·   | consumer      confidence; |
|--------------------|---------------------------|

| ·   | levels      of new and existing homes for sale, including foreclosed      homes; and |
|--------------------|-------------------------------------------------------------------------------------------|

| ·   | housing      demand.   |
|--------------------|-----------------------------|

----

----

----

----

| ·   | poor      economic conditions may result in a slowing of new home sales and      corresponding lot purchases by builders resulting in defaults by borrowers      under our mortgage loans; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | job      transfers and layoffs may cause new home sales to  decrease; |
|--------------------|-----------------------------------------------------------------------|

| ·   | lack      of liquidity in the secondary mortgagemarket; |
|--------------------|---------------------------------------------------------|

| ·   | tighter      credit standards for home buyers; |
|--------------------|------------------------------------------------|

| ·   | general      unavailability of commercial credit;and |
|--------------------|------------------------------------------------------|

| ·   | illiquidity      of financial institutions.  |
|--------------------|---------------------------------------------------|

----

|   | · | identify      and acquire investments that further our investment    strategy; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | increase      awareness of the United Development Funding name within the investment      products market; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | establish      and maintain our network of licensed securities brokers and other      agents; |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | attract,      integrate, motivate and retain qualified personnel to manage our      day-to-day operations; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | respond      to competition both for investment opportunities and potential investors      in us; and |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | continue      to build and expand our operations structure to support our      business. |
|--------|--------|------------------------------------------------------------------------------------------|

----

----

----

|   | · | the      possibility that our co-venturer or partner in an investment might become      bankrupt, in which case our investment might become subject to the rights      of the co-venturer or partner’s creditors and we may be forced to      liquidate our investment before we otherwise would choose to do      so; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | that      such co-venturer or partner may at any time have economic or business      interests or goals that are or that become inconsistent with our business      interests or goals, which may cause us to disagree with our co-venturer or      partner as to the best course of action with respect to the investment and      which disagreements may not be resolved to our    satisfaction; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | that      such co-venturer or partner may be in a position to take action contrary      to our instructions or requests or contrary to our policies or objectives,      which may cause us not to realize the return anticipated from our      investment; or, |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | that      it may be difficult for us to sell our interest in any such co-venture or      partnership. |
|--------|--------|-------------------------------------------------------------------------------------------------------|

----

|   | · | to      amend our Partnership Agreement; |
|--------|--------|------------------------------------------|

|   | · | to      dissolve and terminate UDF III; |
|--------|--------|-----------------------------------------|

|   | · | to      remove our general partner; and |
|--------|--------|-----------------------------------------|

|   | · | to      authorize a merger or a consolidation of UDF  III. |
|--------|--------|------------------------------------------------------------|

----

|   | · | limitations      on capital structure; |
|--------|--------|----------------------------------------|

|   | · | restrictions      on specified investments; |
|--------|--------|---------------------------------------------|

|   | · | prohibitions      on transactions with affiliates;and |
|--------|--------|-------------------------------------------------------|

|   | · | compliance      with reporting, record keeping, voting, proxy disclosure and other rules      and regulations that would significantly change our      operations. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

Risks Related to theMortgage Lending Business

|   | · | failure      by a borrower to repay loans or interest on loans will reduce our income      and consequentially, distributions to our limited  partners; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | we      are required to pay loan servicing fees to our general partner on      delinquent loans; |
|--------|--------|--------------------------------------------------------------------------------------------------|

|   | · | we      may not be able to resolve the default prior to foreclosure of the      property securing the loan; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | we      may be required to expend substantial funds for an extended period to      develop foreclosed properties; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | the      subsequent income and sale proceeds we receive from the foreclosed      properties may be less than competing investments;  and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      proceeds from sales of foreclosed properties may be less than our      investments in the properties. |
|--------|--------|----------------------------------------------------------------------------------------------------------------|

|   | · | the      application of the loan proceeds to the development project must be      assured; |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | during      development, the property does not generate income for the borrower to      make loan payments; |
|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | · | the      completion of the planned development may require additional development      financing by the borrower and may not be  available; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | depending      on the sale of lots to homebuilders, demand for lots may decrease, causing      the price of the lots to decrease; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | · | there      is no assurance that we will be able to sell unimproved land promptly if      we are forced to foreclose upon it;and |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------|

|   | · | lot      sale contracts are generally not “specific performance” contracts, and the      developer may have no recourse if a homebuilder elects not to purchase      lots. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|   | · | less      income and reduced cash flows on foreclosed properties than could be      earned and received on mortgageloans; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

|   | · | selling      the lots to homebuilders; |
|--------|--------|----------------------------------------|

|   | · | controlling      development and holding expenses; |
|--------|--------|----------------------------------------------------|

|   | · | coping      with general and local marketconditions; |
|--------|--------|------------------------------------------------------|

|   | · | complying      with changes in laws and regulations pertaining to taxes, use, zoning and      environmental protections; and |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | possible      liability for injury to persons andproperty. |
|--------|--------|------------------------------------------------------------|

----

General Risks Relatedto Investments in Real Estate

|   | · | changes      in interest rates and availability of permanent mortgage      funds; |
|--------|--------|-----------------------------------------------------------------------------------|

|   | · | changes      in general economic or localconditions; |
|--------|--------|------------------------------------------------------|

|   | · | changes      in tax, real estate, environmental and zoning laws;  and |
|--------|--------|-----------------------------------------------------------------------|

|   | · | periods      of high interest rates and tight moneysupply. |
|--------|--------|------------------------------------------------------------|

----

----

Federal Income TaxRisks

----

|   | · | the      complex nature of the Internal Revenue Service safe    harbors; |
|--------|--------|--------------------------------------------------------------------------|

|   | · | the      lack of interpretive guidance with respect to such provisions;      and |
|--------|--------|----------------------------------------------------------------------------------|

|   | · | the      fact that any determination in this regard will necessarily be based upon      facts that have not yet occurred. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------|

----

|   | · | their      investment is consistent with their fiduciary obligations under the      Employee Retirement Income Security Act of 1974, as amended, or ERISA, and      the Internal Revenue Code; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | their      investment is made in accordance with the documents and instruments      governing their plan or IRA, including their plan’s investment      policy; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | their      investment satisfies the prudence and diversification requirements of      ERISA; |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | their      investment will not impair the liquidity of the plan or    IRA; |
|--------|--------|----------------------------------------------------------------------------|

|   | · | their      investment will not produce UBTI for the plan or  IRA; |
|--------|--------|-------------------------------------------------------------------|

|   | · | they      will be able to value the assets of the plan annually in accordance with      ERISA requirements; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | their      investment will not constitute a prohibited transaction under Section 406      of ERISA or Section 4975 of the Internal Revenue  Code. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | compel      a termination and dissolution of UDF III;or |
|--------|--------|---------------------------------------------------------|

|   | · | restructure      our activities to the extent necessary to comply with any exemption in the      Department of Labor regulations or any prohibited transaction exemption      granted by the Department of Labor or any condition that the Department of      Labor might impose as a condition to granting a prohibited transaction      exemption. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | the      estimated value per unit would actually be realized by limited partners      upon liquidation, because these estimates do not necessarily indicate that      all loans will be paid in full; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | our      limited partners would be able to realize estimated net asset values if      they were to attempt to sell their units, because no public market for our      units exists or is likely to develop;or |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | that      the value, or method used to establish value, would comply with ERISA or      the Internal Revenue Coderequirements. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| 2008     |   |  Total      number of units of limited partnership interest redeemed                                                                  |   | Average      price paid per unit of limited partnership interest                                 |   | Total      number of units of limited partnership interest redeemed as part of      publicly announced programs                                                          |   | Maximum      number of units of limited partnership interest that may yet be purchased      under the programs |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|
| October  |   |                       18,063 |   |  $              18.53 |   |                            18,063 |   | (1)                                                                                                            |
| November |   |                       18,427 |   |  $              18.79 |   |                            18,427 |   | (1)                                                                                                            |
| December |   |                       10,910 |   |  $              19.57 |   |                            10,910 |   | (1)                                                                                                            |
| Total    |   |                       47,400 |   |  $              18.87 |   |                            47,400 |   | (1)                                                                                                            |

| (1) | A      description of the maximum number of units that may be purchased      under our redemption program is included in the narrative preceding this      table. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | As      of December 31, |       |   |   |   |
|-----------------------------------------------------|--------|-------------------------|------------|--------|--------|--------|
|                                                |   | 2008                    |       |   |   |   |   | 2007 |   |   |   |   |
| General      Partner                                |   | $                       | 2,764,000  |   |   |   |   |   | $ | 677,000 |   |   |   |   |
| Limited      Partners                               |   |                    | 23,099,000 |   |   |   | (1 | ) |   |   | 4,997,000 |   |   |   | (2 | ) |
| Retained      Earnings Reserve                      |   |                    | 600,000    |   |   |   |   |   |   |   | 900,000 |   |   |   |   |   |
| Retained      Earnings Surplus  (Deficit) |   |                    | (2,168,000 | )      |   |   |   |   |   |   | 189,000 |   |   |   |   |   |

|   | ___________________ |
|--------|---------------------|

| (1) | approximately      $14.8 million paid in cash and approximately $8.3 million reinvested in      415,660 units of limited partnership interest under the    DRIP. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | approximately      $3.4 million paid in cash and approximately $1.6 million reinvested in      79,614 units of limited partnership interest under the    DRIP. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                                                            |   |
|-----------------------------------------------------------------|--------|
|                                                            |   | Year      EndedDecember      31,2008 |   |   | Year      EndedDecember      31,2007 |   |   | Year      EndedDecember      31,2006 |   |   | Period      fromJune      13, 2005 (Inception) through December 31, 2005 |   |
|  OPERATING      DATA                                       |   |   |   |   |   |   |   |   |   |   |   |   |
|  Revenues                                                  |   | $ | 25,806,038 |   |   | $ | 9,071,315 |   |   | $ | 512,011 |   |   | $ | - |   |
|  Expenses                                                  |   |   | 4,217,748 |   |   |   | 1,846,020 |   |   |   | 183,612 |   |   |   | - |   |
|  Net      Income                                           |   | $ | 21,588,290 |   |   | $ | 7,225,295 |   |   | $ | 328,399 |   |   | $ | - |   |
|  Earnings      per limited partnership unit,               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    basic      and diluted                        |   | $ | 1.94 |   |   | $ | 2.25 |   |   | $ | 2.27 |   |   | $ | - |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                            |   | As      of December 31, |   |
|                                                            |   | 2008 |   |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|  BALANCE      SHEET DATA                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Mortgage      notes receivable, net                       |   | $ | 169,825,653 |   |   | $ | 76,858,885 |   |   | $ | 11,422,063 |   |   | $ | - |   |
|  Mortgage      notes receivable – related party, net |   |   | 43,311,599 |   |   |   | 23,190,872 |   |   |   | 6,328,010 |   |   |   | - |   |
|  Participation      interest – related party         |   |   | 39,259,006 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|  Deferred      offering costs                              |   |   | 612,292 |   |   |   | 2,605,788 |   |   |   | 2,047,133 |   |   |   | 447,765 |   |
|  Other      assets                                         |   |   | 19,712,862 |   |   |   | 2,436,888 |   |   |   | 1,434,448 |   |   |   | 1,000 |   |
|  Total      assets                                         |   | $ | 272,721,412 |   |   | $ | 105,092,433 |   |   | $ | 21,231,654 |   |   | $ | 448,765 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Line-of-credit                                            |   | $ | - |   |   | $ | 2,325,028 |   |   | $ | 6,436,402 |   |   | $ | - |   |
|  Accrued      liabilities – related party            |   |   | 3,346,306 |   |   |   | 2,892,774 |   |   |   | 2,238,805 |   |   |   | 447,765 |   |
|  Other      liabilities                                    |   |   | 934,151 |   |   |   | 789,095 |   |   |   | 657,856 |   |   |   | - |   |
|  Total      liabilities                                    |   |   | 4,280,457 |   |   |   | 6,006,897 |   |   |   | 9,333,063 |   |   |   | 447,765 |   |
|  Partners'      capital                                    |   |   | 268,440,955 |   |   |   | 99,085,536 |   |   |   | 11,898,591 |   |   |   | 1,000 |   |
|  Total      liabilities and partners' capital              |   | $ | 272,721,412 |   |   | $ | 105,092,433 |   |   | $ | 21,231,654 |   |   | $ | 448,765 |   |

----

----

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| Name                    |   | Age    |   |   | Position      with Our General Partner                                                                                                                                     |
|-------------------------|--------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |   |   |   |   |                                                                                                                                                                       |
| Todd      F. Etter      |   | 58     |   |   | Executive      Vice President of our general partner and Director and Chairman of UMT      Services, its general partner                                                   |
| Hollis      M. Greenlaw |   | 44     |   |   | President      and Chief Executive Officer of our general partner and President,       Chief Executive Officer and Director of UMT Services, its general      partner |
| Michael      K. Wilson  |   | 46     |   |   | Director      of UMT Services, its general partner                                                                                                                         |
| Ben      Wissink        |   | 27     |   |   | Chief      Operating Officer                                                                                                                                               |
| Cara      D. Obert      |   | 39     |   |   | Chief      Financial Officer                                                                                                                                               |

----

----

----

Item 11.  Executive Compensation.

----

|                                                                                                                                                                                                                                                          |                                                                                                                                                                 | Limited                                                                                                                                                              |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                                                                                                          |                                                                                                                                                                 | Partnership                                                                                                                                                          |    |
|                                                                                                                                                                                                                                                          |                                                                                                                                                                 | Units                                                                                                                                                                | Percent |
|                                                                                                                                                                                                                                                          |                                                                                                                                                                 | Beneficially                                                                                                                                                         | Of      |
| Title      of Class                                                                                                                                                                                                                                           | Beneficial      Owner                                                                                                                                                | Owned                                                                                                                                                                | Class   |
| Limited      partner interest                                                                                                                                                                                                                                 | Todd      F. Etter (1) (2) (3)                                                                                                                                       |  2,429.55                                                                                                                                                       | *       |
| Limited      partner interest                                                                                                                                                                                                                                 | Hollis      M. Greenlaw (1) (2) (3)                                                                                                                                  |                                3,352.00 | *       |
| Limited      partner interest                                                                                                                                                                                                                                 | Michael      K. Wilson (1) (3)                                                                                                                                       |                                1,135.20 | *       |
| Limited      partner interest                                                                                                                                                                                                                                 | Ben      L. Wissink (1) (2) (3)                                                                                                                                      | -                                                                                                                                                                    | *       |
| Limited      partner interest                                                                                                                                                                                                                                 | Cara      D. Obert (1) (2)                                                                                                                                           | -                                                                                                                                                                    | *       |
| General      partner interest                                                                                                                                                                                                                                 | UMTH      Land Development, L.P. (4)                                                                                                                                 | -                                                                                                                                                                    | 100%    |
|  All      directors, executive officers and the general partner as a group (6      persons)                                                                                                                                                              |                                6,916.75 | *                                                                                                                                                                    |
| *  Denotes      less than 1%                                                                                                                                                                                                                        |                                                                                                                                                                 |                                                                                                                                                                 |    |
|                                                                                                                                                                                                                                                          |                                                                                                                                                                 |                                                                                                                                                                 |    |
| (1)The      address of Messrs. Etter, Greenlaw, Wilson and Wissink and Ms. Obert is      1301 Municipal Way, Suite 100, Grapevine, Texas 76051.                                                                                                               |                                                                                                                                                                 |
| (2)Executive      officers of UMTH Land Development, L.P., our general    partner                                                                                                                                                                             |                                                                                                                                                                 |
| (3)Executive      officers and/or directors of UMT Services, Inc., general partner of      UMTH                                                                                                                                                               |                                                                                                                                                                 |
| Land      Development, L.P.                                                                                                                                                                                                                                   |                                                                                                                                                                 |                                                                                                                                                                 |    |
| (4)The      address of UMTH Land Development, L.P. is 1301 Municipal Way, Suite 100,      Grapevine, Texas 76051.  UMTH Land Development, L.P. had an      initial $100 capital contribution, but has not purchased limited      partnership units. |
|                                                                                                                                                                                                                                                          |                                                                                                                                                                 |                                                                                                                                                                 |    |
| None      of the above units has been pledged as security.                                                                                                                                                                                                    |                                                                                                                                                                 |                                                                                                                                                                 |

----

----

----

----

----

|   | · | set      forth the specific conditions under which we may own mortgages jointly or      in a partnership with an affiliate of      the general partner; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | prohibit      us from purchasing mortgages or leasing investment properties from our      general partner or its affiliates      except under certain limitedcircumstances; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | prohibit      the commingling of partnership funds (except in the case of making capital      contributions to joint ventures      and to the limited extent permissible under the NASAA Mortgage Program      Guidelines); and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | require      us to obtain an independent appraisal of the property securing each      mortgage loan that we purchase. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------|

----

|                        |   | 2008   |    |   | 2007   |   |
|-----------------------------|--------|--------|---------|--------|--------|--------|
| Audit      Fees (1)         |   | $      | 133,000 |   |   | $      | 102,000 |   |
| Audit-Related      Fees (2) |   |   | -       |   |   |   | - |   |
| Tax      Fees (3)           |   |   | 23,000  |   |   |   | 15,000 |   |
| All      Other Fees         |   |   | -       |   |   |   | - |   |
|   Total      Fees |   | $      | 156,000 |   |   | $      | 117,000 |   |

|   | (1) | Audit      fees consisted of professional services performed in connection with the      audit of our financial statements and review of our financial statements      included in our Forms 10-Q, our Form 10-K and our Registration Statement      on Form S-11. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Fees      related to consultations concerning financial accounting and reporting      standards. |
|--------|-----|--------------------------------------------------------------------------------------------------|

|   | (3) | Tax      fees consisted principally of assistance with matters relating to tax      preparation and tax advice. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------|

----

|   | (a) | List      of Documents Filed. |
|--------|-----|-------------------------------|

|   | 1. | Financial      Statements. |
|--------|----|----------------------------|

|   | 2. | Financial      Statement Schedules. |
|--------|----|-------------------------------------|

|   | 3. | Exhibits. |
|--------|----|-----------|

|   | (b) | Exhibits. |
|--------|-----|-----------|

|   | (c) | Financial      Statement Schedules. |
|--------|-----|-------------------------------------|

----

----

| Report      of Independent Registered Public Accounting Firm | F-2    |
|--------------------------------------------------------------|--------|
|                                                         |   |
| Audited      Financial Statements:                           |   |
|                                                         |   |
| Balance Sheets                                               | F-3    |
|                                                         |   |
| Statements of      Operations                                | F-4    |
|                                                         |   |
| Statements of Changes in      Partners’ Capital        | F-5    |
|                                                         |   |
| Statements of Cash      Flows                                | F-6    |
|                                                         |   |
| Notes to Financial      Statements                           | F-7    |

----

----

BALANCE SHEETS

|                                                                          |   | December      31, 2008 |        |   | December      31, 2007 |   |
|-------------------------------------------------------------------------------|--------|------------------------|-------------|--------|------------------------|--------|
| Assets                                                                        |   |                   |        |   |                   |   |
| Cash      and cash equivalents                                                |   | $                      | 15,505,910  |   |                   | $      | 586,642 |   |
| Restricted      cash                                                          |   |                   | 1,205,190   |   |                   |   | 665,174 |   |
| Accrued      interest receivable                                              |   |                   | 2,301,525   |   |                   |   | 437,324 |   |
| Accrued      interest receivable –      related party              |   |                   | 683,529     |   |                   |   | 676,716 |   |
| Mortgage      notes receivable, net                                           |   |                   | 169,825,653 |   |                   |   | 76,858,885 |   |
| Mortgage      notes receivable – related party, net                     |   |                   | 43,311,599  |   |                   |   | 23,190,872 |   |
| Participation      interest – related party                             |   |                   | 39,259,006  |   |                   |   | - |   |
| Deferred      offering costs                                                  |   |                   | 612,292     |   |                   |   | 2,605,788 |   |
| Other      assets                                                             |   |                   | 16,708      |   |                   |   | 71,032 |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Total      assets                                                             |   | $                      | 272,721,412 |   |                   | $      | 105,092,433 |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Liabilities      and Partners’ Capital                                  |   |                   |        |   |                   |   |   |   |
| Liabilities:                                                                  |   |                   |        |   |                   |   |   |   |
| Accounts      payable                                                         |   | $                      | -           |   |                   | $      | 37,253 |   |
| Accrued      liabilities                                                      |   |                   | 416,961     |   |                   |   | 86,668 |   |
| Accrued      liabilities – related party                                |   |                   | 3,346,306   |   |                   |   | 2,892,774 |   |
| Escrow      payable                                                           |   |                   | 517,190     |   |                   |   | 665,174 |   |
| Line-of-credit                                                                |   |                   | -           |   |                   |   | 2,325,028 |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Total      liabilities                                                        |   |                   | 4,280,457   |   |                   |   | 6,006,897 |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Commitments      and contingencies                                            |   |                   |        |   |                   |   |   |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Partners’      Capital:                                                 |   |                   |        |   |                   |   |   |   |
| Limited      partners’ capital:  17,500,000 units authorized; |   |                   |        |   |                   |   |   |   |
| 15,019,292      units issued and outstanding at                               |   |                   |        |   |                   |   |   |   |
| December      31, 2008 and 5,509,316 units issued and                         |   |                   |        |   |                   |   |   |   |
| outstanding      at December 31, 2007                                         |   |                   | 268,179,990 |   |                   |   | 98,978,590 |   |
| General      partner’s capital                                          |   |                   | 260,965     |   |                   |   | 106,946 |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Total      partners’ capital                                            |   |                   | 268,440,955 |   |                   |   | 99,085,536 |   |
|                                                                          |   |                   |        |   |                   |   |   |   |
| Total      liabilities and partners’ capital                            |   | $                      | 272,721,412 |   |                   | $      | 105,092,433 |   |

|   | See      accompanying notes to financialstatements. |
|--------|-----------------------------------------------------|

----

STATEMENTS OFOPERATIONS

|                                                     |   | Year      EndedDecember      31, 2008 |       |   | Year      EndedDecember      31, 2007 |   |      | Year      Ended December 31, 2006 |   |
|----------------------------------------------------------|--------|---------------------------------------|------------|--------|---------------------------------------|--------|-----------|-----------------------------------|--------|
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |
| Revenues:                                                |   |                                  |       |   |                                  |   |      |                              |   |
|  Interest      income                               |   | $                                     | 23,928,290 |   |                                  | $      | 7,770,250 |                              |   | $ | 370,250 |   |
|  Credit      enhancement fees – related party |   |                                  | -          |   |                                  |   | 595,587   |                              |   |   | 75,571 |   |
|  Mortgage      and transaction service revenues     |   |                                  | 1,877,748  |   |                                  |   | 705,478   |                              |   |   | 66,190 |   |
| Total      revenues                                      |   |                                  | 25,806,038 |   |                                  |   | 9,071,315 |                              |   |   | 512,011 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Expenses:                                                |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Interest      expense                                    |   |                                  | 1,500      |   |                                  |   | 256,495   |                              |   |   | 4,425 |   |
| General      and administrative                          |   |                                  | 4,216,248  |   |                                  |   | 1,589,525 |                              |   |   | 179,187 |   |
| Total      expenses                                      |   |                                  | 4,217,748  |   |                                  |   | 1,846,020 |                              |   |   | 183,612 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Net      income                                          |   | $                                     | 21,588,290 |   |                                  | $      | 7,225,295 |                              |   | $ | 328,399 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Earnings      allocated to limited partners              |   | $                                     | 19,347,360 |   |                                  | $      | 6,475,262 |                              |   | $ | 294,310 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Earnings      per limited partnership unit,              |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
|   basic      and diluted                       |   | $                                     | 1.94       |   |                                  | $      | 2.25      |                              |   | $ | 2.27 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Weighted      average limited partnership                |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
|   units      outstanding                       |   |                                  | 9,961,083  |   |                                  |   | 2,875,815 |                              |   |   | 129,608 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
| Distributions      per weighted average limited          |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |
|   partnership      units outstanding           |   | $                                     | 1.82       |   |                                  | $      | 1.70      |                              |   | $ | 0.77 |   |
|                                                     |   |                                  |       |   |                                  |   |      |                              |   |   |   |   |

|   | See      accompanying notes to financialstatements. |
|--------|-----------------------------------------------------|

----

| UNITED      DEVELOPMENT FUNDING III, L.P.                 |   |
|-----------------------------------------------------------|--------|
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| STATEMENTS      OF CHANGES IN PARTNERS' CAPITAL           |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| For      the Years Ended December 31, 2006, 2007 and 2008 |   |
|                                                      |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   | General |   |   | Limited |   |   | Limited |   |   | Total |   |
|                                                      |   | Partner's |   |   | Partners' |   |   | Partners' |   |   | Partners' |   |
|                                                      |   | Capital |   |   | Units |   |   | Capital |   |   | Capital |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2005                         |   | $ | 100 |   |   |   | - |   |   | $ | 900 |   |   | $ | 1,000 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contributions,      net of offering costs of $1,538,599   |   |   | - |   |   |   | 659,476 |   |   |   | 11,650,926 |   |   |   | 11,650,926 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redemption      of initial limited partner's interest     |   |   | - |   |   |   | - |   |   |   | (900 | ) |   |   | (900 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions                                             |   |   | (15,441 | ) |   |   | - |   |   |   | (99,698 | ) |   |   | (115,139 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distribution      reinvestment                            |   |   | - |   |   |   | 1,715 |   |   |   | 34,305 |   |   |   | 34,305 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                           |   |   | 34,089 |   |   |   | - |   |   |   | 294,310 |   |   |   | 328,399 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2006                         |   |   | 18,748 |   |   |   | 661,191 |   |   |   | 11,879,843 |   |   |   | 11,898,591 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contributions,      net of offering costs of $11,441,818  |   |   | - |   |   |   | 4,770,226 |   |   |   | 83,962,948 |   |   |   | 83,962,948 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions                                             |   |   | (661,835 | ) |   |   | - |   |   |   | (4,897,445 | ) |   |   | (5,559,280 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distribution      reinvestment                            |   |   | - |   |   |   | 77,899 |   |   |   | 1,557,982 |   |   |   | 1,557,982 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                           |   |   | 750,033 |   |   |   | - |   |   |   | 6,475,262 |   |   |   | 7,225,295 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2007                         |   |   | 106,946 |   |   |   | 5,509,316 |   |   |   | 98,978,590 |   |   |   | 99,085,536 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Contributions,      net of offering costs of $22,364,347  |   |   | - |   |   |   | 9,309,555 |   |   |   | 163,947,885 |   |   |   | 163,947,885 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distributions                                             |   |   | (2,086,911 | ) |   |   | - |   |   |   | (18,102,253 | ) |   |   | (20,189,164 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Distribution      reinvestment                            |   |   | - |   |   |   | 336,046 |   |   |   | 6,720,917 |   |   |   | 6,720,917 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Redemption      of limited partners’ interest       |   |   | - |   |   |   | (135,625 | ) |   |   | (2,712,509 | ) |   |   | (2,712,509 | ) |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                           |   |   | 2,240,930 |   |   |   | - |   |   |   | 19,347,360 |   |   |   | 21,588,290 |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2008                         |   | $ | 260,965 |   |   |   | 15,019,292 |   |   | $ | 268,179,990 |   |   | $ | 268,440,955 |   |

|   | See      accompanying notes to financialstatements. |
|--------|-----------------------------------------------------|

----

STATEMENTS OF CASHFLOWS

|                                                                                                 |   | Year      Ended   |         |   | Year      Ended   |   |        | Year      Ended   |   |
|------------------------------------------------------------------------------------------------------|--------|-------------------|--------------|--------|-------------------|--------|-------------|-------------------|--------|
|                                                                                                 |   | December      31, |         |   | December      31, |   |        | December      31, |   |
|                                                                                                 |   | 2008              |         |   | 2007              |   |        | 2006              |   |
| Operating      Activities                                                                            |   |              |         |   |              |   |        |              |   |
|  Net      income                                                                                |   | $                 | 21,588,290   |   |              | $      | 7,225,295   |              |   | $ | 328,399 |   |
|  Adjustment      to reconcile net income to net cash                                            |   |              |         |   |              |   |        |              |   |   |   |   |
|  provided      by operating activities:                                                         |   |              |         |   |              |   |        |              |   |   |   |   |
| Provision      for loan losses                                                                       |   |              | 239,819      |   |              |   | 77,702      |              |   |   | - |   |
| Amortization                                                                                         |   |              | 56,323       |   |              |   | 59,801      |              |   |   | - |   |
|  Changes      in operating assets and liabilities:                                              |   |              |         |   |              |   |        |              |   |   |   |   |
| Accrued      interest receivable                                                                |   |              | (1,864,201   | )      |              |   | (437,324    | )                 |   |   | - |   |
| Accrued      interest receivable –      related party                                     |   |              | (6,813       | )      |              |   | (670,475    | )                 |   |   | (6,241 | ) |
| Other      assets                                                                                    |   |              | (1,999       | )      |              |   | 36,751      |              |   |   | (167,484 | ) |
| Accounts      payable                                                                                |   |              | (37,253      | )      |              |   | 34,840      |              |   |   | 2,413 |   |
| Accrued      liabilities                                                                             |   |              | 330,293      |   |              |   | 19,741      |              |   |   | 66,927 |   |
|          Net      cash provided by operating activities |   |              | 20,304,459   |   |              |   | 6,346,331   |              |   |   | 224,014 |   |
|                                                                                                 |   |              |         |   |              |   |        |              |   |   |   |   |
|  Investing      Activities                                                                      |   |              |         |   |              |   |        |              |   |   |   |   |
|  Investments      in mortgage notes receivable                                                  |   |              | (149,299,275 | )      |              |   | (88,386,449 | )                 |   |   | (11,422,063 | ) |
|  Investments      in mortgage notes receivable – related party                            |   |              | (65,094,176  | )      |              |   | (26,360,001 | )                 |   |   | (6,328,010 | ) |
|  Investments      in participation interest –  related party                    |   |              | (39,343,407  | )      |              |   | -           |              |   |   | - |   |
|  Receipts      from mortgage notes receivable                                                   |   |              | 62,547,885   |   |              |   | 22,871,925  |              |   |   | - |   |
|  Receipts      from mortgage notes receivable – related party                             |   |              | 38,518,252   |   |              |   | 9,497,139   |              |   |   | - |   |
|  Receipts      from participation interest – related party                                |   |              | 84,401       |   |              |   | -           |              |   |   | - |   |
|          Net      cash used in investing activities     |   |              | (152,586,320 | )      |              |   | (82,377,386 | )                 |   |   | (17,750,073 | ) |
|                                                                                                 |   |              |         |   |              |   |        |              |   |   |   |   |
| Financing      Activities                                                                            |   |              |         |   |              |   |        |              |   |   |   |   |
|  Net      proceeds from (payments on) line-of-credit                                            |   |              | (2,325,028   | )      |              |   | (4,111,374  | )                 |   |   | 6,436,402 |   |
|  Limited      partner contributions                                                             |   |              | 186,312,232  |   |              |   | 95,404,766  |              |   |   | 13,189,525 |   |
|  Limited      partner distributions                                                             |   |              | (18,102,253  | )      |              |   | (4,897,445  | )                 |   |   | (99,698 | ) |
|  Limited      partner distribution reinvestment                                                 |   |              | 6,720,917    |   |              |   | 1,557,982   |              |   |   | 34,305 |   |
|  Limited      partner redemptions                                                               |   |              | (2,712,509   | )      |              |   | -           |              |   |   | - |   |
|  General      partner distributions                                                             |   |              | (2,086,911   | )      |              |   | (661,835    | )                 |   |   | (16,341 | ) |
|  Partnership      interest subscriptions receivable                                             |   |              | -            |   |              |   | -           |              |   |   | 900 |   |
|  Escrow      payable                                                                            |   |              | (147,984     | )      |              |   | 76,658      |              |   |   | 588,516 |   |
|  Restricted      cash                                                                           |   |              | (540,016     | )      |              |   | (76,658     | )                 |   |   | (588,516 | ) |
|  Payments      of offering costs                                                                |   |              | (22,364,347  | )      |              |   | (11,441,818 | )                 |   |   | (1,538,599 | ) |
|  Deferred      offering costs                                                                   |   |              | 1,993,496    |   |              |   | (558,655    | )                 |   |   | (1,599,368 | ) |
|  Accrued      liabilities – related party                                                 |   |              | 453,532      |   |              |   | 653,969     |              |   |   | 1,791,040 |   |
|        Net      cash provided by financing activities             |   |              | 147,201,129  |   |              |   | 75,945,590  |              |   |   | 18,198,166 |   |
|                                                                                                 |   |              |         |   |              |   |        |              |   |   |   |   |
|  Net      increase (decrease) in cash and cash equivalents                                      |   |              | 14,919,268   |   |              |   | (85,465     | )                 |   |   | 672,107 |   |
|  Cash      and cash equivalents at beginning of period                                          |   |              | 586,642      |   |              |   | 672,107     |              |   |   | - |   |
|  Cash      and cash equivalents at end of period                                                |   | $                 | 15,505,910   |   |              | $      | 586,642     |              |   | $ | 672,107 |   |
|                                                                                                 |   |              |         |   |              |   |        |              |   |   |   |   |
| Supplemental      Disclosure of Cash Flow Information                                                |   |              |         |   |              |   |        |              |   |   |   |   |
|  Cash      paid during the period for interest                                                  |   | $                 | -            |   |              | $      | 258,067     |              |   | $ | - |   |

----

----

|                            |   | 2008   |    |   | 2007   |   |
|---------------------------------|--------|--------|---------|--------|--------|--------|
| Balance,      beginning of year |   | $      | 77,700  |   |   | $      | - |   |
| Provision      for loan losses  |   |   | 239,800 |   |   |   | 77,700 |   |
| Loans      charged off          |   |   | -       |   |   |   | - |   |
| Balance,      end of year       |   | $      | 317,500 |   |   | $      | 77,700 |   |

----

----

----

----

----

|                    |   | For      the Years Ended |      |
|-------------------------|--------|--------------------------|-----------|
|                    |   | December      31,        |      |
| Category                |   | 2008                     |      |   | 2007 |   |   | 2006 |   |
| Placement      fees     |   | $                        | 2,500,000 |   |   | $ | 1,000,000 |   |   | $ | 52,000 |   |
| Service      fees       |   |                     | 400,000   |   |   |   | 100,000 |   |   |   | 8,000 |   |
| Loan      loss reserve  |   |                     | 300,000   |   |   |   | 100,000 |   |   |   | - |   |
| Investor      relations |   |                     | 600,000   |   |   |   | 100,000 |   |   |   | 6,000 |   |
| Professional      fees  |   |                     | 300,000   |   |   |   | 200,000 |   |   |   | 78,000 |   |
| Other                   |   |                     | 100,000   |   |   |   | 100,000 |   |   |   | 35,000 |   |
| Total                   |   | $                        | 4,200,000 |   |   | $ | 1,600,000 |   |   | $ | 179,000 |   |

----

|                  |                                           |   | For      the Years Ended |      |
|-----------------------|------------------------------------------------|--------|--------------------------|-----------|
|                  |                                           |   | December      31,        |      |
| Payee                 | Purpose                                        |   | 2008                     |      |   | 2007 |   |
| Land      Development |                                           |   |                     |      |   |   |   |
|                  | Organization      &                        |   |                     |      |   |   |   |
|                  |     Offering      Expenses |   | $                        | 2,800,000 |   |   | $ | 1,430,000 |   |
|                  | Bona      Fide Due Diligence Fees              |   |                     | 930,000   |   |   |   | 477,000 |   |
|                  | Wholesaler      Reimbursement                  |   |                     | 257,000   |   |   |   | 213,000 |   |
|                  | Acquisition      & Origination             |   |                     |      |   |   |   |   |   |
|                  |     Expenses      and Fees |   |                     | 5,100,000 |   |   |   | 2,900,000 |   |
|                  | Promotional      Interest                      |   |                     | 1,800,000 |   |   |   | 590,000 |   |
|                  | Carried      Interest                          |   |                     | 267,000   |   |   |   | 87,000 |   |
|                  | Mortgage      Servicing Fee                    |   |                     | 414,000   |   |   |   | 140,000 |   |
| Funding      Services |                                           |   |                     |      |   |   |   |   |   |
|                  | Marketing      Support Fees                    |   |                     | 2,300,000 |   |   |   | 1,200,000 |   |
|                  | Operating      Reimbursement Expense           |   |                     | 430,000   |   |   |   | 100,000 |   |

----

----

----

----

|                |   |     |       |   |       |   |       |              |   |   | Net      Income Per |   |   |        |   |
|---------------------|--------|----------|------------|--------|------------|--------|------------|-------------------|--------|--------|---------------------|--------|--------|-------------|--------|
|                |   |     |       |   |       |   |       | Net      Income   |   |   | Limited             |   |   | Weighted    |   |
|                |   |     |       |   |       |   |       | Allocated      to |   |   | Partnership         |   |   | Average     |   |
|                |   |     |       |   |       |   |       | Limited           |   |   | Unit                |   |   | Units       |   |
|                |   | Revenues |       |   | Net Income |   |       | Partners          |   |   | Basic/Diluted       |   |   | Outstanding |   |
| 2008                |   |     |       |   |       |   |       |              |   |   |                |   |   |        |   |
| First      quarter  |   | $        | 4,204,746  |   |       | $      | 3,520,392  |              |   | $      | 3,156,308           |   |   | $           | 0.51   |   |   |   | 6,193,417 |   |
| Second quarter |   |     | 5,603,576  |   |       |   | 4,534,757  |              |   |   | 4,062,688           |   |   |        | 0.48   |   |   |   | 8,518,469 |   |
| Third      quarter  |   |     | 7,294,141  |   |       |   | 6,195,170  |              |   |   | 5,552,100           |   |   |        | 0.50   |   |   |   | 11,189,937 |   |
| Fourth      quarter |   |     | 8,703,575  |   |       |   | 7,337,971  |              |   |   | 6,576,264           |   |   |        | 0.47   |   |   |   | 13,940,452 |   |
| For      the year   |   | $        | 25,806,038 |   |       | $      | 21,588,290 |              |   | $      | 19,347,360          |   |   | $           | 1.94   |   |   |   | 9,961,083 |   |
|                |   |     |       |   |       |   |       |              |   |   |                |   |   |        |   |   |   |   |   |   |
| 2007                |   |     |       |   |       |   |       |              |   |   |                |   |   |        |   |   |   |   |   |   |
| First      quarter  |   | $        | 1,042,189  |   |       | $      | 772,591    |              |   | $      | 692,394             |   |   | $           | 0.69   |   |   |   | 1,001,588 |   |
| Second      quarter |   |     | 1,827,913  |   |       |   | 1,400,179  |              |   |   | 1,254,829           |   |   |        | 0.58   |   |   |   | 2,157,755 |   |
| Third      quarter  |   |     | 2,574,989  |   |       |   | 2,122,462  |              |   |   | 1,902,140           |   |   |        | 0.54   |   |   |   | 3,497,625 |   |
| Fourth      quarter |   |     | 3,626,224  |   |       |   | 2,930,063  |              |   |   | 2,625,899           |   |   |        | 0.55   |   |   |   | 4,797,741 |   |
| For      the year   |   | $        | 9,071,315  |   |       | $      | 7,225,295  |              |   | $      | 6,475,262           |   |   | $           | 2.25   |   |   |   | 2,875,815 |   |
|                |   |     |       |   |       |   |       |              |   |   |                |   |   |        |   |   |   |   |   |   |

----

|                                          Exhibit Number |  Description                                                                                                                                                                                                                                                                                                                                                                                                          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                                                                                                                                                                                                                                    | Second      Amended and Restated Agreement of Limited Partnership of Registrant      (previously filed in and incorporated by reference to Exhibit B to      prospectus of the Registrant filed pursuant to Rule 424(b)(3) on May 18,      2006)                                                                                                                                                                           |
| 3.2                                                                                                                                                                                                                                    | Certificate      of Limited Partnership of Registrant (previously filed in and incorporated      by reference to Registrant’s Registration Statement on Form S-11,      Commission File No. 333-127891, filed on August 26,  2005)                                                                                                                                                                                   |
| 3.3                                                                                                                                                                                                                                    | First      Amendment to Second Amended and Restated Agreement of Limited Partnership      of Registrant (previously filed in and incorporated by reference to      Exhibit B to Supplement No. 6 to prospectus dated May 15, 2006, contained      within Post-Effective Amendment No. 3 to Registrant’s Registration      Statement on Form S-11, Commission File No. 333-127891, filed on      April 29, 2008) |
| 4.1                                                                                                                                                                                                                                    | Subscription      Agreement (previously filed in and incorporated by reference to Exhibit C      to Supplement No. 6 to prospectus dated May 15, 2006, contained within      Post-Effective Amendment No. 3 to Registrant’s Registration Statement on      Form S-11, Commission File No. 333-127891, filed on April 29,      2008)                                                                             |
| 10.1                                                                                                                                                                                                                                   | Form      of Escrow Agreement between United Development Funding III, L.P. and      Coppermark Bank (previously filed in and incorporated by reference to      Pre-Effective Amendment No. 4 to Registrant’s Registration Statement on      Form S-11, Commission File No. 333-127891, filed on February 10,      2006)                                                                                              |
| 10.2                                                                                                                                                                                                                                   | Distribution      Reinvestment Plan (previously filed in and incorporated by reference to      Exhibit D to prospectus of the Registrant filed pursuant to Rule      424(b)(3), filed on May 18, 2006)                                                                                                                                                                                                                     |
| 10.3                                                                                                                                                                                                                                   | Form      of Participation Agreement by and between the Registrant, UMTH Land      Development, L.P., United Development Funding, L.P. and United Development      Funding II, L.P. (previously filed in and incorporated by reference      to Pre-Effective Amendment No. 1 to Registrant’s Registration Statement on      Form S-11, Commission File No. 333-127891, filed on November 18,      2005)         |
| 10.4                                                                                                                                                                                                                                   | Form      of Marketing Support Agreement (previously filed in and incorporated by      reference to Pre-Effective Amendment No. 3 to Registrant’s Registration      Statement on Form S-11, Commission File No. 333-127891, filed on February      1, 2006)                                                                                                                                                          |
| 10.5                                                                                                                                                                                                                                   | Limited      Guaranty by United Development Funding III, L.P. for the benefit of United      Mortgage Trust (previously filed in and incorporated by reference to Form      8-K filed on October 20, 2006)                                                                                                                                                                                                                 |
| 10.6                                                                                                                                                                                                                                   | Letter      agreement with respect to the Limited Guaranty between United Development      Funding III, L.P. and United Mortgage Trust for the benefit of United      Development Funding, L.P. (previously filed in and incorporated by      reference to Form 8-K filed on October 20, 2006)                                                                                                                             |
| 10.7                                                                                                                                                                                                                                   | Fairness      opinion with respect to Limited Guaranty by United Development Funding      III, L.P. for the benefit of United Mortgage Trust and letter agreement      with respect to the Limited Guaranty between Registrant and United      Mortgage Trust for the benefit of United Development Funding, L.P.      (previously filed in and incorporated by reference to Form 8-K filed on      October 20, 2006)      |
| 10.8                                                                                                                                                                                                                                   | Secured      Promissory Note by Centurion Acquisitions, L.P. for the benefit of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2006)                                                                                                                                                                                                 |
| 10.9                                                                                                                                                                                                                                   | Secured      Promissory Note by Midlothian Longbranch, L.P. for the benefit of United      Development Funding, III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2006)                                                                                                                                                                                                 |
| 10.10                                                                                                                                                                                                                                  | Environmental      Indemnity Agreement by Midlothian Longbranch, L.P., Centurion      Acquisitions, L.P., Pars Investments, Inc. and Mehrdad Moayedi in favor of      United Development Funding III, L.P. (previously filed in and incorporated      by reference to Form 10-Q filed on November 14, 2006)                                                                                                                |
| 10.11                                                                                                                                                                                                                                  | Secured      Promissory Note by Arete Real Estate and Development Company, Modern      Modular Home Rental Corp., and Creative Modular Housing Inc. for the      benefit of United Development Funding III, L.P. (previously filed in and      incorporated by reference to Form 10-Q filed on November 14,      2006)                                                                                                     |
| 10.12                                                                                                                                                                                                                                  | Security      Agreement by Arete Real Estate and Development Company, Creative Modular      Housing Inc. and Modern Modular Home Rental Corp. in favor of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2006)                                                                                                                       |
| 10.13                                                                                                                                                                                                                                  | Continuing      Unconditional Guaranty by Joe Fogarty, Nancy Fogarty and the Fogarty      Family Trust for the benefit of United Development Funding III, L.P.      (previously filed in and incorporated by reference to Form 10-Q filed on      November 14, 2006)                                                                                                                                                       |
| 10.14                                                                                                                                                                                                                                  | Secured      promissory note by Centurion Acquisitions, L.P. for the benefit of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 8-K filed on November 21, 2006)                                                                                                                                                                                                  |
| 10.15                                                                                                                                                                                                                                  | Security      Agreement by Centurion Acquisitions, L.P. and Pars Investment Inc., for      the benefit of United Development Funding III, L.P. (previously filed in      and incorporated by reference to Form 8-K filed on November 21,      2006)                                                                                                                                                                        |
| 10.16                                                                                                                                                                                                                                  | Continuing      Unconditional Guaranty by Pars Investment Inc. for the benefit of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 8-K filed on November 21, 2006)                                                                                                                                                                                                |
| 10.17                                                                                                                                                                                                                                  | Loan      and Security Agreement between United Development Funding III, L.P., as      borrower, and Premier Bank, as lender (previously filed in and      incorporated by reference to Form 8-K filed on January 3,      2007)                                                                                                                                                                                            |
| 10.18                                                                                                                                                                                                                                  | Revolving      Note from United Development Funding III, L.P. for the benefit of Premier      Bank (previously filed in and incorporated by reference to Form 8-K filed      on January 3, 2007)                                                                                                                                                                                                                           |
| 10.19                                                                                                                                                                                                                                  | Secured      Promissory Note by United Development Funding, L.P. for the benefit of      United Development Funding III, L.P. (previously filed in and incorporated      by reference to Form 8-K filed on January 4, 2007)                                                                                                                                                                                                |
| 10.20                                                                                                                                                                                                                                  | Fairness      opinion with respect to Secured Promissory Note by United Development      Funding, L.P. for the benefit of United Development Funding III, L.P.      (previously filed in and incorporated by reference to Form 8-K filed on      January 4, 2007)                                                                                                                                                          |
| 10.21                                                                                                                                                                                                                                  | Secured      Promissory Note by Buffington Hidden Lakes, Ltd. for the benefit of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-K filed on April 2, 2007)                                                                                                                                                                                                    |
| 10.22                                                                                                                                                                                                                                  | Continuing      Unconditional Guaranty by Buffington Hidden Lakes GP, Inc. for the benefit      of United Development Funding III, L.P. (previously filed in and      incorporated by reference to Form 10-K filed on April 2,    2007)                                                                                                                                                                                    |
| 10.23                                                                                                                                                                                                                                  | Letter      of engagement between UMTH Funding Services, L.P. and United Development      Funding III, L.P. regarding arrangement of financing and financial      advising (previously filed in and incorporated by reference to      Post-Effective Amendment No. 1 to Registrant’s Registration Statement on      Form S-11, Commission File No. 333-127891, filed on April 30,      2007)                    |
| 10.24                                                                                                                                                                                                                                  | Note      Purchase, Assignment and Assumption Agreement by and between McDougal      Family Partnership, Ltd. and United Development Funding III, L.P.      (previously filed in and incorporated by reference to Form 10-Q filed      on May 15, 2007)                                                                                                                                                               |
| 10.25                                                                                                                                                                                                                                  | Secured      Line of Credit Promissory Note by United Development Funding X, L.P.      (previously filed in and incorporated by reference to Form 10-Q filed      on November 14, 2007)                                                                                                                                                                                                                               |
| 10.26                                                                                                                                                                                                                                  | Security      Agreement by United Development Funding X, L.P. in favor of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2007)                                                                                                                                                                                                  |
| 10.27                                                                                                                                                                                                                                  | Continuing      Unconditional Guaranty by UMT Holdings, L.P. for the benefit of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2007)                                                                                                                                                                                            |
| 10.28                                                                                                                                                                                                                                  | Fairness      opinion with respect to Secured Line of Credit Promissory Note by United      Development Funding X, L.P. for the benefit of United Development Funding      III, L.P. (previously filed in and incorporated by reference to      Form 10-Q filed on November 14, 2007)                                                                                                                            |
| 10.29                                                                                                                                                                                                                                  | Secured      Line of Credit Promissory Note by United Development Funding, L.P. for the      benefit of United Development Funding III, L.P. (previously filed in and      incorporated by reference to Form 10-Q filed on November 14,      2008)                                                                                                                                                                         |
| 10.30                                                                                                                                                                                                                                  | Secured      Line of Credit Promissory Note by United Development Funding Land      Opportunity Fund, L.P. for the benefit United Development Funding III,      L.P. (previously filed in and incorporated by reference to Form 10-Q filed      on November 14, 2008)                                                                                                                                                      |
| 10.31                                                                                                                                                                                                                                  | Security      Agreement by United Development Funding, L.P. in favor of United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2008)                                                                                                                                                                                                         |
| 10.32                                                                                                                                                                                                                                  | Security      Agreement by United Development Funding Land Opportunity Fund, L.P. in      favor of United Development Funding III, L.P. (previously filed in and      incorporated by reference to Form 10-Q filed on November 14,      2008)                                                                                                                                                                              |
| 10.33                                                                                                                                                                                                                                  | First      Amendment to Secured Line of Credit Promissory Note by United Development      Funding X, L.P. for the benefit of United Development Funding III, L.P.      (previously filed in and incorporated by reference to Form 10-Q filed on      November 14, 2008)                                                                                                                                                    |
| 10.34                                                                                                                                                                                                                                  | Economic      Interest Participation Agreement and Purchase Option between United      Mortgage Trust and United Development Funding III, L.P. (previously filed      in and incorporated by reference to Form 10-Q filed on November 14,      2008)                                                                                                                                                                       |
| 10.35                                                                                                                                                                                                                                  | Fairness      Opinion with respect to Secured Line of Credit Promissory Note by United      Development Funding, L.P. for the benefit of United Development Funding      III, L.P. (previously filed in and incorporated by reference to Form 10-Q      filed on November 14, 2008)                                                                                                                                        |
| 10.36                                                                                                                                                                                                                                  | Fairness      Opinion with respect to Economic Interest Participation Agreement and      Purchase Option between United Mortgage Trust and United Development      Funding III, L.P. (previously filed in and incorporated by reference to      Form 10-Q filed on November 14, 2008)                                                                                                                                      |
| 10.37                                                                                                                                                                                                                                  | Fairness      Opinion with respect to First Amendment to Secured Line of Credit      Promissory Note by United Development Funding X, L.P. for the benefit of      United Development Funding III, L.P. (previously filed in and incorporated      by reference to Form 10-Q filed on November 14, 2008)                                                                                                                   |
| 10.38                                                                                                                                                                                                                                  | Fairness      Opinion with respect to Secured Line of Credit Promissory Note by United      Development Funding Land Opportunity Fund, L.P. for the benefit United      Development Funding III, L.P. (previously filed in and incorporated by      reference to Form 10-Q filed on November 14, 2008)                                                                                                                     |
| 31.1      (1)                                                                                                                                                                                                                          | Rule      13a-14(a)/15d-14(a) Certification of Principal Executive      Officer                                                                                                                                                                                                                                                                                                                                            |
| 31.2      (1)                                                                                                                                                                                                                          | Rule      13a-14(a)/15d-14(a) Certification of Principal Financial      Officer                                                                                                                                                                                                                                                                                                                                            |
| 32.1      (2)                                                                                                                                                                                                                          | Section      1350 Certifications                                                                                                                                                                                                                                                                                                                                                                                           |

|   | _________________ |
|--------|-------------------|

| (1) | Filed      herewith. |
|-----|----------------------|

| (2) | Furnished herewith.  In accordance with      Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for      purposes of Section 18 of the Exchange Act or otherwise subject to the      liabilities of that section.  Such certifications will not be      deemed incorporated by reference into any filing under the Securities Act      of 1933, as amended, or the Exchange Act, except to the extent that the      registrant specifically incorporates it by    reference. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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