ex10_4.htm


    Exhibit
10.4

    SECURITY
AGREEMENT

    


    This Security Agreement (this “Agreement”)
dated as of the 20th day of
August, 2008 (the “Effective
Date”), is made by UNITED DEVELOPMENT FUNDING LAND OPPORTUNITY FUND,
L.P., a Delaware limited partnership (“Borrower”
or the “Debtor”),
in favor of UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited partnership
(“Lender”).

    


    R
E C I T A L S:

    


    A.           Lender
has committed to loan up to U.S. Twenty Five Million and NO/100 Dollars
($25,000,000.00) (the “Loan”) to
Borrower pursuant to the terms and conditions of that certain Secured Line of
Credit Promissory Note (the “Note”)
executed by Borrower and payable to the order of Lender dated the Effective
Date, the proceeds of which shall be used by Borrower for business
purposes.

    


    B.           It
is a condition precedent to Lender’s willingness to accept the Note and advance
funds to Borrower thereunder that Debtor enter into this Agreement with Lender,
pursuant to which Debtor grants Lender a security interest in and lien on all of
its assets, and Debtor is willing to enter into this Agreement and agree to be
bound by its terms and conditions.

    


    AGREEMENT:

    


    NOW, THEREFORE, in consideration of the
foregoing premises and in order to induce Lender to accept the Note and advance
funds to Borrower thereunder, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Debtor covenants and agrees
with Lender as follows:

    


    1.           Definitions.  All
capitalized terms used but not defined in this Agreement shall have the
respective meanings given to such terms in the Note.  Notwithstanding
the foregoing sentence, terms used in Article 9 of the Uniform Commercial Code
(the “Code”) in
the State of Texas, when used in this Agreement, have the definitions given to
such terms as therein defined.

    


    2.           Grant of Security
Interest.  Debtor hereby assigns, pledges and grants to Lender
for its benefit, a continuing security interest in all of Debtor’s right, title
and interest in and to all of its assets, whether now owned or hereafter
acquired, and including, without limitation, all full and partial interests in
the following (collectively, the “Collateral”):

    


    (a)           all
promissory notes payable to the order of Borrower issued by clients of Borrower
(“Client
Notes”) and all mortgages, deeds of trust to secure debt and deeds of
trust on real or personal property, and contracts for deed and/or installment
contracts, and all full or partial interests therein, and all related loan
documents, guarantees, security agreements, leases, pledge agreements,
assignments of interests, assignments of proceeds, assignments of securities,
and all title policies, insurance policies, and security interests related to
any of the foregoing and the rights to receive payment thereon and other
agreements and property which secure or relate to any receivable or other asset
(all such interests and documents evidencing such interests are referred to
herein collectively as the “Client Loan
Documents”);

    


    
      
         

      

      
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    (b)           all
accounts receivable, receivables, rights to payment, promissory notes, and all
guarantees, security agreements, insurance policies, and security interests and
the rights to receive payment thereon, including, without limitation, all rights
to payment under the Client Notes and the Client
Loan  Documents;

    


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

    


    (d)           all
equipment, inventory, materials, computer software and records, goods, and other
personal property, and all documents and receipts covering such property, and
all licenses and permits used or held for use in connection with such
property;

    


    (e)           all
patents, trademarks, service marks, copyrights, licenses, and all other
intellectual property (collectively, the “Intellectual
Property”), and all agreements and contracts regarding the use and
exploitation of any of the Intellectual Property and applications
therefor;

    


    (f)           all
contract rights and other general intangibles, including, without limitation,
all contract and other rights to receive proceeds and reimbursements, and all
license agreements;

    


    (g)           all
interests in all subsidiaries, and all capital stock, equity interests,
partnership interests, and membership interests and all warrants, options and
other rights to purchase any such capital stock, equity interests, partnership
interests, and membership interests, in any corporation, partnership, limited
liability company or other entity;

    


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

    


    (i)           any
and all products and proceeds of the foregoing (including, but not limited to,
any claim to any item referred to in this definition, and any claim against any
third party for loss of, damage to or destruction of any or all of, the
Collateral or for proceeds payable under, or unearned premiums with respect to,
policies of insurance) in whatever form, including, but not limited to, cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements and other documents.

    


    
      
         

      

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

    


    3.           Security for
Obligations.  This Agreement and the security interest created
and evidenced hereby secure the following obligations and liabilities (all such
obligations and liabilities are referred to herein as the “Obligations”):

    


    (a)           the
prompt and complete payment, observance and performance of all duties,
liabilities, obligations and indebtedness of Borrower arising under the Note and
the other Loan Documents;

    


    (b)           all
costs reasonably incurred by Lender to obtain, preserve, perfect and enforce the
security interest evidenced hereby and by the other Loan Documents and to
maintain, preserve and collect the Collateral, and all taxes, assessments,
insurance premiums, repairs, reasonable attorneys’ fees and legal expenses,
rent, storage charges, advertising costs, brokerage fees and expenses of sale;
and

    


    (c)           all
modifications, extensions, renewals, replacements, and increases of each of the
foregoing described in clauses (a) through
(b), or any part thereof.

    


    4.           Debtor Remains
Liable.  Notwithstanding anything to the contrary contained in
this Agreement: (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral and obligated to perform all duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Lender of any of its rights hereunder shall not
release Debtor from any duties or obligations under the contracts and agreements
included in the Collateral, and (c) Lender shall have no obligation or liability
under the contracts and agreements included in the Collateral by reason of this
Agreement, nor shall Lender be obligated to perform any of the obligations or
duties of either Debtor thereunder or to take any action to collect or enforce
any claim for payment assigned hereunder.

    


    5.           Representations and
Warranties.  Debtor represents and warrants as
follows:

    


    (a)           Debtor
owns the Collateral free and clear of any lien, security interest, charge or
encumbrance of any kind whatsoever (collectively, “Liens”)
except for (i) the security interest created hereby in favor of Lender, (ii)
Liens in favor of any person or entity that Lender has agreed in writing shall
have priority over the Collateral (the “Senior
Liens”), (iii) Liens approved by Lender pursuant to a written consent or
agreement executed by Lender, (iv) Liens explicitly permitted by the Loan
Documents, and (v) Liens for taxes not yet due and payable (collectively,
the Liens described in clauses (i) through
(v) above are referred to herein as the “Permitted
Liens”).  A schedule of the Senior Liens shall be attached
hereto as Schedule
1.  No effective financing statement, continuation statement or
amendment thereto promulgated under the Uniform Commercial Code of any state
(collectively, “Financing
Statements”) or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office, except such as may
have been filed in favor of Lender or in favor of the holder(s) of the Permitted
Liens.  The validity of the Collateral in whole or in part, and
Debtor’s title thereto is not currently being questioned in any litigation or
regulatory proceeding to which Debtor is a party, nor is any such litigation or
proceeding threatened.

    


    
      
         

      

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

    


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

    


    (d)           Debtor’s
principal place of business is at the address for Borrower set forth in Section 1 of the Note
(the “Principal Place
of Business”).  All Collateral and books of account and records
relating to the Collateral are located at Debtor’ Principal Place of
Business.

    


    6.           Covenants and Further
Assurances.

    


    (a)           Debtor
agrees that from time to time, at its own expense, it will promptly execute and
deliver all further instruments and documents, and take all further action, that
may be reasonably necessary or desirable, or that Lender may reasonably request,
in order to perfect and protect any security interest granted or purported to be
granted hereby or to enable Lender to exercise and enforce rights and remedies
hereunder with respect to any Collateral.  Without limiting the
generality of the foregoing, Debtor will, subject to the priority rights, if
any, of the holders of the Senior Liens:  (i) mark conspicuously
each document included in the Collateral and each of its records pertaining to
the Collateral, with a legend, in form and substance satisfactory to Lender,
indicating that such document or Collateral is subject to the security interest
granted hereby; (ii) transfer, register or otherwise put any of the Collateral
in the name of Lender or its nominee; and (iii) execute and file such Financing
Statements, and such other instruments or notices, as may be necessary or
desirable, or as Lender may request, in order to perfect and preserve the
security interest granted or purported to be granted hereby.

    


    (b)           Debtor
hereby authorizes Lender to file one or more Financing Statements relative to
all or any part of the Collateral without the signature of Debtor where
permitted by law.  A carbon, photographic or other reproduction of
this Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a Financing Statement where permitted by
law.  Debtor acknowledges and agrees that any Financing Statement
filed by or on behalf of Lender against Debtor, whether such filing is or was
made prior to or after the date of this Agreement, is hereby deemed to include
the security interest granted by this Agreement, regardless of whether such
Financing Statement is or was filed in connection with the Loan or some other
indebtedness owed to Lender.

    


    
      
         

      

      
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    (c)           Debtor
will take all actions and pay all costs to keep and maintain the validity,
enforceability, security, priority and collectibility of the Client Notes and
the Client Loan Documents and will pay all other amounts which may be necessary
or desirable to preserve, maintain and protect Lender's interest in the Client
Notes and the Client Loan Documents.

    


    (d)           Debtor
shall at all times maintain the Collateral and its books of account and records
relating to the Collateral at its Principal Place of Business, and shall not
relocate such books of account and records and Collateral unless it delivers to
Lender, prior written notice of such relocation and the new location thereof
(which must be within the United States).  Debtor will furnish to
Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as Lender may reasonably request, all in reasonable
detail.

    


    (e)           Promptly,
but in any event, within three (3) business days following the closing of any
Client Note, Borrower agrees to execute and deliver to Lender, for each such
Client Note, (i) an allonge duly endorsing the Client Note to Lender, in the
form attached to this Agreement as Exhibit “A”, together
with the original Client Note, which shall be held by Lender for so long as the
Note is outstanding or Lender has any obligation to Borrower thereunder, and
(ii) a Collateral Assignment of Note and Liens, assigning the Client Notes and
the related Client Loan Documents to Lender, in the form attached to this
Agreement as Exhibit
“B”.

    


    7.           Insurance.

    


    (a)           Debtor
shall, at Debtor’s own expense, maintain insurance with respect to the
Collateral in such amounts, against such risks, in such form and with such
insurers, as shall be reasonably satisfactory to Lender from time to
time.  Debtor shall ensure that the Collateral and the real properties
securing the Client Notes and the Client Loan Documents are, and remain, insured
against loss by fire and other casualty.  Each policy for property
damage insurance shall provide for all losses to be paid to Lender as holder of
the security interest created hereby, subject to the priority rights, if any, of
the holders of the Senior Liens.  Each such policy shall in addition
(i) contain the agreement (if available) by the insurer that any loss thereunder
shall be payable to Lender notwithstanding any action, inaction or breach of
representation or warranty by Debtor, subject to the priority rights, if any, of
the holders of the Senior Liens, (ii) provide that there shall be no recourse
against Lender for payment of premiums or other amounts with respect thereto,
and (iii) provide that at least ten (10) days prior written notice of
cancellation or of lapse shall be given to Lender by the
insurer.  Debtor shall, if so requested by Lender, deliver to Lender
original or duplicate policies of such insurance and, as often as Lender may
reasonably request, a report of a reputable insurance broker selected by Debtor
with respect to such insurance.  Further, Debtor shall, at the request
of Lender, duly execute and deliver instruments of assignment of such insurance
policies to comply with the foregoing requirements and cause the respective
insurers to acknowledge notice of such assignment.

    


    
      
         

      

      
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    (b)           Reimbursement
under any liability insurance maintained by Debtor may be paid directly to the
person who shall have incurred liability covered by such
insurance.  All insurance payments to Lender in respect of Collateral
shall be applied by Lender to reduce the indebtedness evidenced by the
Note.

    


    8.           Transfers and Other
Liens.  Debtor shall not sell, assign (by operation of law or
otherwise) or otherwise dispose of any of the Collateral, other than the sale or
assignment of Client Notes and Client Loan Documents in the ordinary course of
business if (i) Lender has provided its prior written consent to such sale or
assignment, or (ii) the proceeds of the sale or assignment are used to pay down
the Note.  Debtor shall not create or suffer to exist any Lien upon or
with respect to any of the Collateral to secure debt of any person, except for
Permitted Liens.

    


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

    


    (a)           to
obtain insurance required to be maintained by Debtor and to settle and adjust
claims under any insurance policy including, without limitation, any such policy
related to a Client Note;

    


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

    


    (c)           to
file any claims or take any action or institute any proceedings which Lender may
deem necessary or desirable to enforce the rights of Lender with respect to any
of the Collateral including, without limitation, the Client Notes and the Client
Loan Documents;

    


    (d)           to
commence and prosecute any actions in any court for the purposes of collecting
amounts owed to Debtor under the Client Notes and Client Loan Documents, and
otherwise, and enforcing any other rights in respect thereof, and to defend,
settle or compromise any action brought and, in connection therewith, and to
give such discharge or release as Lender may deem appropriate;

    


    (e)           to
receive, open and dispose of mail addressed to Debtor and endorse checks, notes,
drafts, acceptances, money orders, bills of lading, warehouse receipts or other
instruments or documents evidencing payment made on account of or funds paid on
behalf of and in the name of Debtor including, without limitation, payment of
Client Notes;

    


    
      
         

      

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

    


    (g)           to
execute Financing Statements or any other documents or writing deemed necessary
by Lender to evidence or perfect Lender's  security interest in the
Collateral including, without limitation, the Client Notes and the Client Loan
Documents; provided that Lender agrees to furnish copies of any document
executed hereunder to Debtor;

    


    (h)           to
enter on the premises of Debtor in order to exercise any of Lender's rights and
remedies;

    


    (i)           to
receive, endorse, and collect any drafts or other instruments, documents,
assignments, and chattel paper; and

    


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

    


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

    


    10.           Rights Prior to Event of
Default; Termination.

    


    (a)           Rights Prior to Event of
Default.  So long as no Event of Default shall have occurred
and be continuing, Debtor shall be entitled to exercise any and all rights and
powers relating or pertaining to the Collateral for any purpose not inconsistent
with the terms of this Agreement.

    


    (b)           Termination of
Rights. Debtor understands and agrees that during any period when an
Event of Default shall have occurred and be continuing, and after Lender has
given written notice to Debtor that Lender has exercised its rights hereunder,
all rights of Debtor to exercise power with respect to the Collateral, which
Debtor was previously entitled to exercise shall cease and all such rights shall
become vested in Lender, which shall have the sole and exclusive right and
authority to exercise such power immediately upon such written
notice.  All amounts, if any, representing principal prepayment or
payoffs and all amounts, if any, collected by Debtor after the occurrence of any
Event of Default represents trust funds which are assigned and belong to Lender
and which are to be immediately delivered to Lender, and any retention of such
funds by Lender before and after the occurrence of an Event of Default shall be
deemed to be a conversion of Lender's property, ipso
facto.  Further,
Lender shall have the right, during the continuance of any Event of Default, to
notify and direct the obligors on the Client Notes to make all payments in
respect thereof directly to Lender.  The obligor making any payment to
Lender under this Agreement shall be fully protected in relying on the written
statement of Lender that it then holds a security interest which entitles Lender
to receive such payments.  Any and all money and other property paid
over to or received by Lender pursuant to the provisions hereof shall be
retained by Lender as additional Collateral under this Agreement.

    


    
      
         

      

      
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    11.           Lender May
Perform.  If Debtor fails to perform any covenant or agreement
contained in this Agreement, Lender may itself perform, or cause performance of,
such covenant or agreement, and the expenses of Lender incurred in connection
therewith shall be payable by Debtor and/or payable under the Note as a
Discretionary Advance.

    


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

    


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

    


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

    


    (c)           the
entry of a decree or order for relief by a court having jurisdiction in respect
of Borrower in an involuntary case under the federal bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, which is not vacated or dismissed within thirty
(30) days, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of Borrower for any substantial part of
Borrower’s property, or ordering the winding up or liquidation of such person's
affairs; or

    


    (d)           the
commencement by Borrower of a voluntary case under the federal bankruptcy laws,
as now constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar law, or the consent by it to the
appointment to or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of Borrower for any
substantial part of its property, or the making by Borrower of any assignment
for the benefit of creditors, or the admission by Borrower in writing of
Borrower’s inability to pay its debts generally as they become due;
or

    


    (e)           the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of all or a substantial
part of its assets or of any part of the Collateral in a proceeding brought
against or initiated by Borrower.

    


    
      
         

      

      
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    Upon the occurrence of an Event of
Default described in subsection (c), (d) or
(e) of this Section 12, all of
the Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower.  During the continuance of any
other Event of Default, Lender at any time and from time to time may, without
notice to Borrower, declare any or all of the Obligations immediately due and
payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
kind, all of which are hereby expressly waived by Borrower.

    


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

    


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

    


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

    


    
      
         

      

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

    


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

    


    16.           Indemnity and
Expenses.

    


    (a)           
Debtor agrees to indemnify Lender from and against any and all claims, losses
and liabilities growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), except claims, losses or
liabilities resulting from Lender's gross negligence or willful
misconduct.

    


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

    


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

    


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

    


    
      
         

      

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

    


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

    


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

    


    18.           Notice.  Any
notice, request, demand or other communication required or permitted hereunder,
will be in writing and will be mailed by registered or certified mail, postage
prepaid, sent by facsimile, delivered personally by hand, or delivered by
nationally recognized overnight delivery service addressed at the addresses
provided in the Note for purposes of notice or with respect to any party, to
such other address or facsimile number as a party may have delivered to the
other parties for purposes of notice pursuant to the provisions of the
Note.  Each notice or other communication will be treated as effective
and as having been given and received (a) if sent by mail, at the earlier of its
receipt or three (3) business days after such notice or other communication has
been deposited in a regularly maintained receptacle for deposit of United States
mail, (b) if sent by facsimile, upon electronic or written confirmation of
facsimile transfer, (c) if delivered personally by hand, upon electronic or
written confirmation of delivery from the person delivering such notice or other
communication, or (d) if sent by nationally recognized overnight delivery
service, upon electronic or written confirmation of delivery from such
service.

    


    19.           Continuing Security
Interest.  This Agreement shall create a continuing security
interest in the Collateral.  Upon the payment in full of the
Obligations and termination of the Note as determined by Lender in its sole
discretion, the security interest granted hereby shall
terminate.  Upon any such termination, Lender will, at Debtor’s
expense, execute and deliver to Debtor such documents as Debtor shall reasonably
request to evidence such termination.

    


    20.           Further
Assurances.  Debtor at Debtor’s expense will promptly execute
and deliver to Lender on Lender’s request, all such other and further documents,
agreements and instruments, and shall deliver all such supplementary
information, including, without limitation, with respect to the Client Notes,
the Client Loan Documents and the loans made pursuant thereto, and the
Collateral, as Lender may request from time to time.

    


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

    


    22.           Enforcement and Waiver by
Lender.  Lender shall have the right at all times to enforce
the provisions of this Agreement in strict accordance with their respective
terms, notwithstanding any conduct or custom on the part of Lender in refraining
from so doing at any time or times.  The failure of Lender at any time
or times to enforce its rights under such provisions, strictly in accordance
with the same, shall not be construed as having created a custom or in any way
or manner modified or waived the same. All rights and remedies of Lender are
cumulative and concurrent and the exercise of one right or remedy shall not be
deemed a waiver or release of any other right or remedy.

    


    
      
         

      

      
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    23.           CHOICE OF
LAW.  EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF SECURITY INTERESTS OR REMEDIES
IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE
LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS OF LAWS
PROVISIONS.

    


    24.           JURISDICTION;
VENUE.  DEBTOR IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING IN
RESPECT OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE BROUGHT IN THE
DISTRICT COURTS OF TARRANT COUNTY, TEXAS OR THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF TEXAS, FORT WORTH DIVISION (THE “SPECIFIED
COURTS”).  DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE SPECIFIED COURTS.  EACH DEBTOR HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
DEBTOR MAY NOW OR HEREAFTER HAVE THAT THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH SPECIFIED COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM AND SUCH DEBTOR HEREBY IRREVOCABLY AGREES TO A TRANSFER OF
ALL SUCH PROCEEDINGS TO THE SPECIFIED COURTS.  NOTHING HEREIN SHALL
AFFECT THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST EITHER DEBTOR IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER
PERMITTED BY APPLICABLE LAW.

    


    25.           Counterparts.  This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all of them together shall constitute one and the
same agreement.

    


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

    


    27.           Amendments;
Waivers.  No amendment or waiver of any provision of this
Agreement nor consent to any departure herefrom, shall in any event be effective
unless the same shall be in writing and signed by the affected party, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.  Debtor will not be released
from its obligations hereunder, except pursuant to a written instrument executed
by Lender.

    


    
      
         

      

      
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    28.           Binding Effect;
Assignment. This Agreement shall be binding on Debtor and its successors
and assigns, including, without limitation, any receiver, trustee or debtor in
possession of or for Debtor, and shall inure to the benefit of Lender and its
successors and assigns.  Debtor shall not be entitled to transfer or
assign this Agreement in whole or in part without the prior written consent of
Lender. This Agreement is freely assignable and transferable by Lender without
the consent of Debtor.  Should the status, composition, structure or
name of either Debtor change, this Agreement shall continue and also cover
Debtor under the new status composition, structure or name according to the
terms of this Agreement.

    


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

    


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

    


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

    


    32.           ACKNOWLEDGEMENT AND CONSENT
TO PLEDGE.  THIS AGREEMENT IS SUBJECT TO A SECURITY INTEREST IN
FAVOR OF, AND PLEDGED AS COLLATERAL TO, PREMIER BANK AND ITS ASSIGNS (“PREMIER”).  BY
EXECUTION HEREOF, DEBTOR HEREBY CONSENTS TO SUCH SECURITY INTEREST AND PLEDGE OF
THIS AGREEMENT TO PREMIER, AND CONSENTS TO THE ASSIGNMENT OF THIS AGREEMENT TO
PREMIER IN ACCORDANCE THEREWITH.

    


    
      
         

      

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

    


    


    [The
remainder of this page is left blank intentionally.]

    


    
      
         

      

      
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    IN WITNESS WHEREOF, Debtor has caused
this Agreement to be duly executed and delivered on the ____ day of ___________,
2008, effective for all purposes as of the Effective Date.

    


    DEBTOR:

    


    UNITED
DEVELOPMENT FUNDING LAND OPPORTUNITY FUND, L.P.

    


    By:           UDF
Land GenPar, L.P.

    Its:           General
Partner

    


    By:           UDF
Land GP, LLC

    Its:           General
Partner

    


    By:           UMTH
Land Development, L.P.

    Its:           Managing
Member

    


    By:           UMT
Services, Inc.

    Its:           General
Partner

    


    


    By:           /s/ Hollis
Greenlaw

    Name:   
  Hollis M. Greenlaw

    Its:           President

    


    


    


    


    


    


    


    
      
         

      

      
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    SCHEDULE
1

    


    SENIOR
LIENS

    


    


    NONE.

    


    


    


    


    


    


    


    
      
         

      

      
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    EXHIBIT
A

    


    FORM OF
ALLONGE

    


    


    (see
attached)

    


    
      
         

      

      
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    EXHIBIT
B

    


    FORM OF COLLATERAL
ASSIGNMENT OF NOTE AND LIENS

    


    


    (see
attached)