1
                                    UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION

                               Washington, D.C. 20549

                                      FORM 10-Q


                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                         THE SECURITIES EXCHANGE ACT OF 1934

                    For the quarterly period ended MARCH 31, 1998

                          Commission File Number: 0-19822 


                          LITCHFIELD FINANCIAL CORPORATION 
               (Exact name of registrant as specified in its charter)


                      MASSACHUSETTS       
04-3023928            
                                  (State or other jurisdiction
(I.R.S. Employer Identification No.)
                            of incorporation or organization)


                      430 MAIN STREET, WILLIAMSTOWN, MA 01267 
                                     (Address of principal executive
offices)                         (Zip Code)


         Registrant's telephone number, including area code: (413) 458-1000

                                 789 MAIN ROAD, STAMFORD VT 05352 
                (Former name, former address and former fiscal year,
                            if changed since last report)

Indicate by check mark whether the registrant  (1) has filed all reports  
required to be filed by Section 13 or 15(d) of the Securities  Exchange  Act of
1934  during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports), and (2) has been subject to such
filing  requirements  for the past 90 days.

                                      Yes X No 


As of May 12, 1998, there were 5,667,751 shares of common stock of  Litchfield
Financial Corporation  outstanding.


                                                                      FORM 10-Q

                                          1

                          LITCHFIELD FINANCIAL CORPORATION
                                      FORM 10-Q

                            QUARTER ENDED MARCH 31, 1998

                                        INDEX

                                                                        PAGE
PART I - FINANCIAL INFORMATION

     Item 1.   Financial Statements                                       3

     Item 2.   Management's Discussion and Analysis of
               Financial Condition and Results of Operations              13


PART II - OTHER INFORMATION
 
     Item 1.   Legal Proceedings                                          18

     Item 2.   Changes in Securities                                      18

     Item 3.   Defaults Upon Senior Securities                            18

     Item 4.   Submission of Matters to a Vote of Security Holders        18

     Item 5.   Other Information                                          18

     Item 6.   Exhibits and Reports on Form 8-K                           18


SIGNATURES                                                                20


                           PART I - FINANCIAL INFORMATION
                            Item 1. Financial Statements

                          LITCHFIELD FINANCIAL CORPORATION
                             Consolidated Balance Sheets
                 (In thousands, except share and per share amounts)
<TABLE>
<S>                                                              <C>            <C>
                                                                 March 31,      December 31,
                                                                   1998           1997     
                                                               (unaudited)

                                       ASSETS
Cash and cash equivalents.................................      $  11,429      $  19,295
Restricted cash ..........................................         24,381         23,496
Loans held for sale, net of allowance for loan losses of
   $1,273 in 1998 and $1,388 in 1997......................         16,246         16,366
Other loans, net of allowance for loan losses of
   $2,312 in 1998 and $2,044 in 1997......................        116,816         86,307
Retained interests in loan sales..........................         29,937         30,299
Other.....................................................         11,367         11,027
      Total assets........................................       $210,176       $186,790

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Lines of credit........................................      $  23,222        $   177
   Term note payable......................................          4,428          5,210
   Accounts payable and accrued liabilities...............          5,730          6,479
   Dealer/developer reserves..............................         10,616         10,655
   Deferred income taxes..................................          7,190          6,851
                                                                   51,186         29,372

   9.3% Notes ............................................         20,000         20,000
   8.45% Notes due 2002...................................         51,750         51,750
   8.875% Notes due 2003..................................         15,317         15,317
   10% Notes due 2004.....................................         18,280         18,280
                                                                  105,347        105,347

Stockholders' equity:
   Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued
      and outstanding.....................................           ---            ---
   Common stock, $.01 par value; authorized 8,000,000 shares, 5,660,790
      shares issued and outstanding in 1998 and 5,656,609 shares issued
      and outstanding in 1997.............................             56             56
   Additional paid in capital.............................         36,727         36,681
   Net unrealized gain on retained interests in loan sales          1,047          1,071
   Retained earnings .....................................         15,813         14,263
      Total stockholders' equity..........................         53,643         52,071
      Total liabilities and stockholders' equity..........       $210,176       $186,790




       See accompanying notes to unaudited consolidated financial statements.
</TABLE>

                          LITCHFIELD FINANCIAL CORPORATION
<TABLE>

                          Consolidated Statements of Income
                 (In thousands, except share and per share amounts)
                                      Unaudited

<S>                                                            <C>              <C>
                                                              Three Months Ended March 31,
                                                                 1998           1997
Revenues:
   Interest and fees on loans..........................         $5,233          $4,546
   Gain on sale of loans...............................          2,227           1,504
   Servicing and other fee income......................            493             357
                                                                 7,953           6,407

Expenses:
   Interest expense....................................          2,997           2,394
   Salaries and employee benefits......................          1,133             813
   Other operating expenses............................            953             903
   Provision for loan losses...........................            350             435
                                                                 5,433           4,545

Income before income taxes.............................          2,520           1,862
Provision for income taxes.............................            970             717
Net income.............................................         $1,550          $1,145



Earnings per common share:
   Basic...............................................       $    .27        $    .21
   Diluted.............................................       $    .26        $    .20

Weighted average number of shares:
   Basic...............................................       5,659,756       5,446,679
   Diluted.............................................       6,020,158       5,792,078
















       See accompanying notes to unaudited consolidated financial statements.



</TABLE>




                          LITCHFIELD FINANCIAL CORPORATION
                   Consolidated Statements of Comprehensive Income
                                   (In thousands)
                                      Unaudited











<TABLE>


<S>                                                             <C>              <C>

                                                              Three Months Ended March 31,
                                                                  1998             1997 

Net income............................................           $1,550          $1,145

Other comprehensive income, net of tax:
   Net unrealized (loss) gain on retained
      interests in loan sales.........................              (24)            235

Comprehensive income..................................            $1,526         $1,380




















 

       See accompanying notes to unaudited consolidated financial statements.
</TABLE>




                          LITCHFIELD FINANCIAL CORPORATION
                   Consolidated Statement of Stockholders' Equity
                        (In thousands, except share amounts)
                                      Unaudited





<TABLE>






<S>                                <C>      <C>             <C>          <C>         <C>

                                                        Net Unrealized
                                                        Gain (Loss) on
                                             Additional    Retained
                                   Common     Paid In    Interests in    Retained
                                   Stock      Capital     Loan Sales     Earnings     Total  

Balance, December 31, 1997.....     $56       $36,681        $1,071       $14,263     $52,071

   Issuance of 4,181 shares of common
     stock ....................     ---            46           ---           ---          46

   Net unrealized loss on retained
     interests in loan sales...     ---           ---           (24)          ---         (24)

   Net income..................     ---           ---           ---         1,550       1,550

Balance, March 31, 1998........     $56        $36,727        $1,047      $15,813     $53,643














       See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>

                          LITCHFIELD FINANCIAL CORPORATION

                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                      Unaudited
<S>                                                                <C>            <C>
                                                               Three Months Ended March 31,
                                                                     1998          1997   
Cash flows from operating activities:
    Net income...........................................          $ 1,550       $ 1,145
    Adjustments to reconcile net income to net cash provided by
    operating activities:
       Gain on sale of loans.............................           (2,227)       (1,504)
       Amortization and depreciation.....................              223           129
       Amortization of retained interests in loan sales..            1,436         1,014
       Provision for loan losses.........................              350           435
       Deferred income taxes.............................              339           392
       Net changes in operating assets and liabilities:
          Restricted cash................................             (885)       (1,904)
          Loans held for sale............................              994          (547)
          Retained interests in loan sales...............             (563)         (132)
          Dealer/developer reserves......................              (39)            3
          Net change in other assets and liabilities.....             (647)        2,110
       Net cash provided by operating activities.........              531         1,141

Cash flows from investing activities:
    Net originations and principal payments on other loans         (30,777)      (10,973)
    Collections on retained interests in loan sales......              931         1,499
    Capital expenditures and other assets................             (860)          (32)
        Net cash used in investing activities............          (30,706)       (9,506)

Cash flows from financing activities:
    Net borrowings on lines of credit....................           23,045        11,230
    Payments on term note................................             (782)         (525)
    Net proceeds from issuance of common stock...........               46           689
       Net cash provided by financing activities.........           22,309        11,394

Net (decrease) increase in cash and cash equivalents.....           (7,866)        3,029
Cash and cash equivalents, beginning of period...........           19,295         5,557
Cash and cash equivalents, end of period.................          $11,429      $  8,586

Supplemental Schedule of Noncash Financing and Investing Activities:
    Exchange of loans for retained interests in loan sales          $  447      $   ---
    Transfers from loans to real estate acquired through foreclosure$  797      $   447

Supplemental Cash Flow Information:
    Interest paid........................................         $  3,255      $  2,300
    Income taxes paid....................................         $     31      $    325






       See accompanying notes to unaudited consolidated financial statements.
</TABLE>

                                                                      FORM 10-Q

                          LITCHFIELD FINANCIAL CORPORATION
                NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
                                         1






                                                                      FORM 10-Q

                          LITCHFIELD FINANCIAL CORPORATION
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     Unaudited

A. Basis of Presentation


     The accompanying unaudited consolidated interim financial statements as of
March 31,  1998 and  for the three month  periods ended March 31, 1998 and 1997
have been prepared in accordance with generally accepted accounting  principles
for interim  financial  information  and with  the  instructions  to Form  10-Q
and Rule 10-01 of Regulation  S-X.  Accordingly,  they do not include all of the
information and footnotes required by generally accepted accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of  normal  accruals) considered necessary for a fair  presentation
have  been included.  Operating  results for the three month period ended March
31, 1998,  are not  necessarily indicative of the results  expected for the year
ending  December 31, 1998. For further  information,  refer to  the consolidated
financial  statements  and  footnotes thereto  included in Litchfield  Financial
Corporation's annual report on Form 10-K for the year ended December 31, 1997.

     In  1997,  the  Financial   Accounting  Standards  Board  issued  Statement
of Financial  Accounting  Standard  No.  130,  "Reporting Comprehensive Income."
The Company adopted the requirements  of this  statement  in the first  quarter.
This statement  established   standards  for  reporting   comprehensive  income
and  its components  and requires this  disclosure be added as a new item in the
financial statements.


B.  Gain on Sale of  Loans and Retained Interests in Loan Sales


     Gains on sales of loans are based on the difference between the  allocated
cost basis of the assets sold and the proceeds received, which includes the fair
value of any assets or liabilities that are  newly created  as a result  of the
transaction.  Newly created interests which consist primarily of interest  only
strips and recourse obligations  are initially  recorded  at  fair  value.  The
previous carrying  amount is allocated  between the assets sold and any retained
interests based on their relative fair values at the date of transfer.  Retained
interests in transferred assets consist primarily of subordinate portions of the
principal balance of transferred assets and interest only strips.

     The Company estimates fair value using discounted cash flow analysis (using
a  discount rate  commensurate with the  risks involved),  because quoted market
prices are not available.  The Company's analysis incorporates assumptions  that
market participants would be expected to use in their estimates of future  cash
flows including  assumptions about interest, defaults and prepayment  rates. The
Company considers  retained  interests  in loan  sales,  such as  subordinated
pass-through certificates  and  interest  only  strips,  as  available  for sale
because such assets are subject to prepayment.

     There is generally  no servicing  asset or liability  because  the  Company
estimates that the benefits  of  servicing  are  offset  by  the  related  costs
associated with its servicing responsibilities.

      Since its inception, the Company has sold  $366,700,000  of loans at face
value ($348,198,000 through  December 31, 1997). The principal amount remaining
on  the  loans  sold  was  $184,157,000  at March 31,  1998 and  $179,790,000 at
December 31, 1997.  In connection with certain loan sales, the

                                                                 FORM 10-Q

                          LITCHFIELD FINANCIAL CORPORATION
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
Company guarantees, through replacement or  repayment, loans in default up to a
specified percentage of loans  sold.   Dealer/developer   guaranteed  loans  are
secured  by  repurchase or   replacement  guarantees in  addition  to,  in  most
instances, dealer/developer reserves.

     The Company's exposure to loss on loans sold in the event of nonperformance
by the consumer, default by  the  dealer/developer on its  guarantee,  and  the
determination  that the  collateral  is of no value was  $9,940,000 at March 31,
1998 ($9,238,000  at December 31, 1997).  Such amounts have not been discounted.
The Company  repurchased  $118,000  and  $335,000 of  loans under  the recourse
provisions of loan sales during the three  months ended March 31, 1998 and 1997,
respectively, and  $740,000  during  the year  ended  December  31,  1997.  In
addition,  when the Company sells  loans through  securitization  programs, the
Company commits either to replace or repurchase any loans that do not conform to
the  requirements  thereof in the  operative loan  sale documents.  As of March
31,  1998,   $22,751,000  of the Company's  cash  was  restricted   as   credit
enhancements  in connection  with certain securitization programs.

     The Company's  Serviced  Portfolio is  geographically   diversified   with
collateral  and  consumers  located  in 45  and 50  states,  respectively.  The
Serviced Portfolio consists  of the  principal  amount of loans  serviced by or
on behalf of the Company.  At March 31, 1998,  18.2% of the  Serviced  Portfolio
by  collateral location was located in Texas (19.1% at December 31,  1997),  and
18.2% and 17.1% of the  Serviced Portfolio by  borrower  location  was  located
in Texas and  Florida (19.1% and 12.9% at December  31,  1997),  respectively.
No other  state  accounted for more than 10.0% of the total by either collateral
or borrower location.

<TABLE>

C. Allowance for loan losses and recourse obligations


The total allowance for loan losses consists of the following:
    <S>                                                      <C>            <C>
                                                              March 31,     December 31,
                                                                1998            1997     
     Allowance for losses on loans held for sale...          $1,273,000      $1,388,000
     Allowance for losses on other loans...........           2,312,000       2,044,000
     Recourse obligation on retained interests in loan sales  2,579,000       2,445,000
                                                             $6,164,000      $5,877,000

</TABLE>

D.  Debt


     As of March 31, 1998 and  December  31, 1997, the Company had no unsecured
lines of credit.
 
     In January 1997, the Company amended a line of credit,  secured by consumer
receivables  and other secured loans, to increase the line from  $5,000,000  to
$8,000,000. This line of  credit   matures  in  January  1999.   There  were  no
outstanding borrowings at March 31, 1998 or December 31, 1997.

     In March 1997, the Company entered into an additonal  $25,000,000  secured
line of credit. The outstanding  borrowings under this line of credit at March
31, 1998 were $13,327,000 and there were no outstanding  borrowings  at December
31, 1997. The facility is secured by loans to developers of vacation  ownership
interest resorts ("VOI resorts"), popularly known as timeshare resorts, for the
acquisition and development of VOI resorts  ("Facility  A")  and   the  related
financing  of consumer purchases of VOIs ("Facility  B").  Although the maximum
amount  that  can be borrowed  on each facility  is $15,000,000,  the  aggregate
outstanding borrowings cannot exceed $25,000,000. This facility expires in March
2000.

     In May 1997, the Company renewed and amended an additional secured line of
credit to increase the line from $30,000,000  to  $50,000,000  and  extend  the
maturity to April 2000.  The outstanding borrowings under this line of credit at
March 31, 1998 were $6,200,000. There were no outstanding borrowings at December
31, 1997.  This line of credit is  secured  by  consumer  receivables  and other
secured loans.

     In December 1997, the Company  amended  an  additional  line of  credit  to
increase the line from $20,000,000 to $30,000,000. Outstanding borrowings under
this  line  of  credit at  March 31,  1998,  were $3,100,000. There  were   no
outstanding borrowings at December 31, 1997. This facility is secured by certain
retained interests in loan sales, cash collateral  accounts  and  certain  other
loans and matures in September 1999.

     In March 1998, the Company renewed an additional $3,000,000  line of credit
which is secured by consumer receivables and other secured loans.  This line of
credit matures in March 1999.  There were no outstanding borrowings  under this
line of credit at March 31, 1998 and December 31, 1997.

     In March 1998, the Company  amended  the  $1,500,000 construction  mortgage
secured by certain assets of the Company extending  the  maturity  date to March
2009. Outstanding borrowings under this construction mortgage were $498,000 and
$8,000 at March 31, 1998 and December 31, 1997, respectively.

     Interest rates on the above lines of credit range  from the  Eurodollar  or
LIBOR rates plus 2% to the prime rate plus 1.25%. The Company is not required to
maintain compensating balances or forward sales commitments  under the terms of
these lines of credit.

     The Company has a revolving line of credit and sale facility as part of an
asset  backed  commercial paper  facility with a  multi-seller  commercial paper
issuer ("Conduit  A").  In November  1997,  the  Company  amended the  facility
to increase the  facility  to  $125,000,000,  subject  to  certain  terms  and
conditions.  The facility expires  in June 1998. The Company expects  to extend
the term of the facility to June 2001 prior to its expiration  and to  increase
the amount of the  facility  to $150,000,000 subject to  substantially the  same
terms and conditions.

     In connection with  the  facility,  the  Company  formed  a  wholly  owned
subsidiary,   Litchfield  Mortgage  Securities  Corporation  1994 ("LMSC"),  to
purchase loans from the Company.  LMSC either pledges the loans on a  revolving
line of credit with Conduit  A  or  sells  the  loans  to  Conduit  A.  Conduit
A  issues commercial  paper or other  indebtedness  to  fund  the  purchase  or
pledge of loans from LMSC.  Conduit A is not affiliated  with the Company or its
affiliates.  As of March 31,  1998 and  December  31,  1997,  the  outstanding
balance  of the sold or pledged loans securing this facility  was  $116,597,000
and   $108,625,000, respectively.  Outstanding  borrowings  under  the line  of
credit at March 31,  1998 and  December  31, 1997  were  $97,000  and  $169,000,
respectively.  Interest is payable on the line of credit  at an  interest  rate
based on  certain  commercial paper rates.

     In March 1997, the Company  closed an additional  revolving line of credit
and sale facility of $25,000,000  with another  multi-seller of commercial paper
conduit ("Conduit  B"). The facility, which expires in March 2000, is subject to
certain terms  and  conditions,   credit  enhancement   requirements  and  loan
eligibility criteria.  The outstanding aggregate  balance of the loans  pledged
and sold under the facility at any time cannot exceed $25,000,000.

     In connection  with the  facility,  the  Company  formed  a  wholly  owned
subsidiary, Litchfield Capital Corporation 1996 ("LCC"), to purchase loans from
the Company. LCC either pledges the loans on a  revolving  line of credit  with
Conduit B or sells the loans to Conduit B.  Conduit B issues commercial paper or
other indebtedness to fund the purchase or pledge of loans from LCC.  Conduit B
is not affiliated with the Company or its affiliates.  As of March  31, 1998 and
December 31, 1997, the outstanding aggregate balance of the loans sold under the
facility  was  $13,276,000  and  $12,517,000,  respectively.  There  were   no
outstanding borrowings under the line of credit as of March 31, 1998 or December
31, 1997. Interest is payable on the line of credit at an  interest  rate  based
on certain commercial paper rates.

     The term note is payable monthly based on collections from the  underlying
collateral.  The note is currently redeemable only  with  the  approval  of the
noteholder.  The note is collateralized  by certain  of the Company's  retained
interests in loan sales and  cash.  The  balance  outstanding  on the  note  was
$4,428,000 and $5,210,000 at March 31, 1998 and December 31, 1997, respectively.

     In April 1997, the Company issued unsecured notes with an initial principal
balance of $20,000,000. Interest is payable at 9.3% semiannually in arrears. The
notes require principal reductions of  $7,500,000, $6,000,000,  $6,000,000  and
$500,000 in March 2001, 2002, 2003 and 2004, respectively.

     In November 1997, the Company completed a public offering of $51,750,000 of
8.45%  Notes  due 2002  ("1997  Notes"),  which are unsecured obligations of the
Company.  The proceeds were used to repay the outstanding balance on certain of
the Company's lines of credit and to retire  the 10% Notes  due 2002.  The 1997
Notes allow for a maximum  annual redemption at the election of the noteholders
of $2,588,000 and contain certain restrictions regarding the payment  of  cash
dividends and require the maintenance of certain financial ratios.

     Previously, the Company completed public debt offerings of $17,570,000 in
May 1993 ("1993 Notes") and $18,400,000 in March 1995 ("1995  Notes").  The 1993
Notes and the 1995 Notes bear interest at 8 7/8% and 10%, respectively, and are
due 2003 and 2004, respectively. The 1993 Notes and the 1995 Notes are unsecured
obligations of the Company and each such issuance  allows for a maximum  annual
redemption by noteholders of 5% of the original principal amount thereof. In
June 1997, the noteholders redeemed, and the Company paid $613,000 of the 1993
Notes.


E. Derivative financial instruments held for purposes other than trading

     The Company's objective in managing interest rate exposure is to match its
proportion of fixed versus variable  rate  assets, liabilities  and  loan  sale
facilities. In June 1997,  the Company entered  into  two  interest  rate  swap
agreements.  The swap agreements involve   the  payment  of  interest  to  the
counterparty at the prime rate on a notional  amount  of  $110,000,000  and the
receipt  of interest at the  commercial paper  rate plus a spread and the LIBOR
rate  plus a spread on  notional  amounts  of  $80,000,000   and  $30,000,000,
respectively. The swap  agreements  expire in June, 2000.  There is no exchange
of the  notional amounts upon which the interest payments are based.

     The differential to be paid or received as interest rates change is accrued
and recognized as an adjustment to interest expense on outstanding  debt,  (the
accrual accounting method.) The related amount receivable from or payable to the
counterparty is included in other assets or other liabilities.  The fair values
of the swap  agreements  are not  recognized in the financial  statements.  The
Company intends to keep the contracts in effect until they mature in June 2000.

     In June, 1994, the Company entered into an interest rate cap agreement with
a bank in order to manage its exposure to certain  increases in interest  rates.
The interest  rate  cap entitles  the  Company  to  receive  an  amount,  based
on an amortizing notional amount,  when  commercial  paper rates  exceed 8%. If
payments were to be  received as a result of the cap  agreement,  they would be
accrued as a reduction of interest expense. This agreement expires in July 2003.

     The Company is exposed to credit loss in the  event of non-performance  by
the swap counterparty or cap provider.


F. Subsequent Events

     At the Company's Annual Meeting held on April 24,  1998,  the stockholders
voted to increase the authorized shares  of common  stock of the  Company  from
8,000,000 to 12,000,000.


                                                                      FORM 10-Q

                                         1

Item  2.   MANAGEMENT'S DISCUSSION AND ANALYSIS  OF  FINANCIAL   CONDITION  AND
        RESULTS OF OPERATIONS

Forward-looking Statements

    Except for the historical information contained or incorporated by reference
in this Form 10-Q, the matters discussed or  incorporated  by reference  herein
are forward-looking statements.  Such forward-looking statements  involve known
and unknown  risks, uncertainties  and other factors  that may cause the  actual
results, performance or achievements of the Company, or industry results, to be
materially  different from  any  future  results,  performance or  achievements
expressed or implied by such forward-looking statements.  Such factors include,
among others,  the risk factors set forth under "Risk  Factors" as well as the
following: general economic and business conditions; industry trends;   changes
in  business  strategy  or  development  plans;   availability  and quality  of
management;  and availability,  terms and  deployment   of   capital.   Special
attention   should   be   paid  to such forward-looking  statements  including,
but not  limited to,  statements  relating  to (i) the  Company's  ability  to
execute  its growth  strategies  and to realize  its growth objectives and (ii)
the Company's  ability to obtain  sufficient  resources to finance its working
capital  needs and provide for its known  obligations.  Refer to form 10-K for
the year ended 1997 for a complete  list of factors as discussed  under
"Risk Factors".


Overview

     Litchfield Financial Corporation (the  "Company") is  a  specialty finance
company  that  provides financing to  creditworthy  borrowers for  assets  not
typically financed by banks. The Company provides such financing by  purchasing
consumer loans and by making loans to businesses secured by consumer receivables
or other assets.

     The Company purchases consumer loans (the  "Purchased  Loans")  consisting
primarily of loans to purchasers of rural and vacation properties ("Land Loans")
and vacation ownership interests popularly known as timeshare  interests  ("VOI
Loans"). Land Loans are typically secured by one to twenty  acre rural  parcels.
VOI Loans  typically finance  the purchase  of ownership interests  ("VOIs") in
fully furnished vacation properties.

     The Company also provides financing to rural land dealers, timeshare resort
developers and others secured by  receivables ("Hypothecation  Loans")  and  to
dealers and developers for the acquisition  and development  of rural  land and
timeshare resorts ("A&D Loans"). In addition, the Company provides financing to
other businesses secured by consumer and other receivables ("Other Loans").

    The principal sources of the Company's revenues are (i) interest and fees on
loans, (ii) gains on sales of loans and (iii) servicing  and  other fee  income.
Gains on sales of loans are based on the difference between the allocated  cost
basis of the  assets sold  and the proceeds  received, which includes  the fair
value of any assets or liabilities that are newly  created as a result  of  the
transaction.  Because  a significant  portion  of the   Company's  revenues  is
comprised of gains  realized  upon sales of loans,  the timing of such sales has
a significant effect on the Company's results of operations.


Results of Operations

     The following table sets forth the percentage  relationship  to  revenues,
unless  otherwise  indicated,  of  certain items  included  in the  Company's 
statements of income.
<TABLE>
    <S>                                                           <C>             <C>            
                                                                    Three months ended
                                                                          March 31,       
                                                                   1998             1997  

     Revenue
         Interest and fees on loans..............                  65.8%            70.9%
         Gain on sale of  loans..................                  28.0             23.5
         Servicing and other fee income..........                   6.2              5.6
                                                                  100.0            100.0
     Expenses:
         Interest expense........................                  37.7             37.3
         Salaries and employee benefits..........                  14.2             12.7
         Other operating expenses................                  12.0             14.1
         Provision for loan losses...............                   4.4              6.8
                                                                   68.3             70.9



                                                                           FORM 10-Q

                                         1
     Income before income taxes..................                  31.7             29.1
     Provision for income taxes..................                  12.2             11.2
     Net income..................................                  19.5%            17.9%
</TABLE>
 
     Revenues increased 24.1% to $7,953,000 for the three months ended March 31,
1998, from $6,407,000 for the same period  in 1997.  Net income  for the  three
months ended March 31, 1998 increased 35.4% to $1,550,000 compared to $1,145,000
for the same period in 1997. Loan originations grew 87.2% to $67,493,000 for the
three months ended March 31, 1998 from $36,063,000 for the same period in 1997.
The Serviced Portfolio increased 32.1% to $338,502,000 at March 31,  1998 from
$256,192,000 at March 31, 1997.

     Interest  and fees on loans  increased 15.1% to  $5,233,000 for the  three
months  ended  March 31, 1998  from  $4,546,000  for the  same period  in  1997,
primarily as the result of the higher average balance of other loans during the
1998 period.  The  average rate  earned on the  Serviced Portfolio  decreased to
12.0% at March 31, 1998 from  12.4%  at March  31,  1997,  primarily  due to the
effect  of the growth in Hypothecation Loans as a percentage  of the  portfolio.
Hypothecation  Loan yields are usually less  than Land Loan or VOI Loan yields,
but  Hypothecation  Loan servicing costs  and loan losses are generally  less as
well.

    Gain on the sale of loans increased 48.1% to $2,227,000 for the three months
ended March 31, 1998 from $1,504,000 in the same period in 1997.  The volume of
loans sold increased 53.6% to $18,502,000 for the three  months  ended March 31,
1998 from  $12,043,000 during the corresponding  period in 1997 primarily due to
the growth in originations.

     Servicing and other fee income increased  38.1% to $493,000  for the three
months ended  March 31, 1998, from  $357,000 for the same period in 1997 mostly
due to the increase in the other  fee  income  resulting  from  the  collection
of a significant  prepayment penalty from a Hypothecation Loan.  Although loans
serviced for others  increased 40.4% to  $184,157,000 as of March 31, 1998 from
$131,162,000 at March 31, 1997, servicing income remained  relatively  constant
due  to an increase in  Hypothecation  Loans  serviced for others and a decrease
in the average servicing fee per loan.
     
    Interest expense increased 25.2% to $2,997,000 during the three months ended
March 31, 1998 from $2,394,000 for the same  period in 1997.  The  increase  in
interest expense primarily  reflects an increase in average  borrowings.  During
the three months ended March 31, 1998, borrowings  averaged  $119,122,000 at an
average rate of 8.9% as compared to  $98,952,000  at an average rate of 8.9%
during the same period  in 1997.  Interest  expense  includes  the  amortization
of  deferred  debt issuance costs.

     Salaries and employee  benefits increased 39.4% $1,133,000  for the  three
months ended March 31, 1998 from $813,000 for the same period in 1997 because of
an increase in the number of  employees in 1998  and,  to a lesser  extent,  an
increase in salaries.  Personnel costs as a percentage of revenues increased to
14.2% for the three months ended March 31, 1998 compared  to 12.7% for the same
period in 1997.  As a percentage of  the  Serviced Portfolio,  personnel  costs
increased to 1.34% for the three months ended  March 31, 1998 from 1.27% for the
same period in 1997.

     Other operating expenses  increased 5.5% to $953,000 for the three  months
ended March 31, 1998 from $903,000 for the same period in 1997.  As a percentage
of  revenues, other operating expenses decreased  to 12.0% for the three months
ended March 31, 1998 compared to 14.1% for the corresponding period in 1997. As
a percentage of the Serviced  Portfolio,  other operating  expenses decreased to
1.13% for the three months ended March 31, 1998 from 1.41% for the same period
in 1997.

     During the three months ended March 31, 1998, the provision for loan losses
decreased 19.5% to $350,000 from $435,000 for the  same  period  in  1997.  The
provision for loan losses decreased because of the growth in Hypothecation Loans
as a percentage of the Serviced Portfolio.  Hypothecation Loans have experienced
significantly lower delinquency and default rates than Purchased Loans.


Liquidity and Capital Resources

     The Company's business requires continued access  to short  and  long-term
sources of  debt financing and  equity capital.  The Company's  principal  cash
requirements  arise from  loan  originations, repayment  of  debt  on maturity,
payments of operating and interest expenses and loan repurchases.  The Company's
primary sources of liquidity are loan sales, short-term borrowings under secured
lines  of credit,  long-term debt  and equity  offerings and  cash  flows  from
operations.

   Since its inception, the Company has sold $366,700,000 of loans at face value
($348,198,000 through December 31, 1997).  The principal amount remaining on the
loans sold was $184,157,000 at March 31, 1998 and  $179,790,000 at  December 31,
1997.  In connection with certain loan sales, the Company commits to repurchase
from investors any loans that become 90 days or more past due.  This obligation
is subject to various terms and conditions, including, in  some  instances,  a
limitation on the amount of loans that may be required to be repurchased.  There
were approximately $9,940,000 of loans at March 31, 1998 which the Company could
be required to repurchase  in the future  should  such loans  become  90 days or
more past due.  The Company repurchased $118,000 and $335,000 of loans under the
recourse provisions of loan sales during the three months ended  March 31, 1998
and 1997, respectively.  As of March 31, 1998, $22,751,000 of the Company's cash
was restricted  as credit  enhancement  for certain  securitization  programs.
To date, the Company has participated $8,388,000 of A&D and Other Loans without
recourse to the Company ($6,936,000 through December 31, 1997).


     The Company funds its loan purchases in part with borrowings under  various
lines of credit.  Lines are paid down when the Company  receives the  proceeds
from the sale of the loans or when cash is otherwise available.  These lines of
credit totaled  $116,000,000  at  March  31,  1998  and  December  31,  1997.
Outstanding borrowings on these lines of credit  were $22,627,000 at March  31,
1998.  At March 31, 1998 and December 31, 1997, lines of credit  also  included
outstanding borrowings of $498,000 and $8,000, respectively, on the  $1,500,000
construction mortgage.  Interest rates on these lines of credit  range from the
Eurodollar  or LIBOR rate plus 2% to the prime rate plus 1.25%.  The Company is
not  required  to maintain  compensating balances or forward sales  commitments
under the terms of these lines of credit.

     The Company also finances its loan purchases  with two  revolving  line of
credit and sale facilities as part of asset backed commercial paper  facilities
with multi-seller commercial paper issuers. Such facilities totaled $150,000,000
at March 31, 1998 and December 31, 1997.  As of March 31, 1998 and December 31,
1997, the outstanding balances of loans sold or pledged  under  these facilities
were $129,873,000 and $121,142,000, respectively.  Outstanding  borrowings under
these lines of credit were $97,000 at March 31, 1998  and $169,000  at  December
31, 1997.  Interest  is  payable  on these  lines of  credit based  on  certain
commercial paper rates.

     The  Company  also  finances   its  liquidity needs  with  long-term  debt.
Long-term debt totaled $105,347,000 at March 31, 1998 and December 31, 1997.

     The Company also has a term note  payable monthly based on  the collection
of the underlying collateral. The note is redeemable only with the approval of
the noteholder.  The  note  is  collateralized  by  certain  of the  Company's
retained interests  in  loan  sales and  cash.  The balance  outstanding  on the
note  was $4,428,000 and  $5,210,000 at March 31, 1998 and  December 31, 1997,
respectively.

     In June 1997, the Company entered into two interest  rate swap  agreements.
The swap agreements involve the payment of interest to the counterparty  at the
prime rate on a notional amount of $110,000,000 and the receipt of interest at
the commercial  paper rate plus a spread  and the LIBOR  rate plus a spread on
notional  amounts  of $80,000,000  and $30,000,000,  respectively.  The  swap
agreements  expire in June 2000.  There is no exchange of the notional  amounts
upon which  interest payments are based.

     Historically, the Company has not required  major capital expenditures  to
support its operations.


Credit Quality and Allowances for Loan Losses

     The Company maintains allowances for loan losses and recourse  obligations
on retained   interests  in loan sales  at levels  which,  in the  opinion  of
management, provide adequately for current and estimated future losses  on such
assets. Past-due  loans  (loans  30  days  or  more  past  due  which  are  not
covered  by dealer/developer reserves  and guarantees) as a percentage  of  the
Serviced  Portfolio as of March 31,  1998, remained constant  from December 31,
1997, at 1.20% and decreased from 1.34% at March 31, 1997. Management evaluates
the adequacy of the  allowances  on a  quarterly  basis  by  examining  current
delinquencies, the characteristics of the accounts, the value of the underlying
collateral,  and general  economic  conditions  and  trends.  Management   also
evaluates the extent to which dealer/developer reserves and guarantees  can be
expected  to absorb loan losses. When the Company does not receive   guarantees
on  loan   portfolios purchased,  it adjusts  its  purchase  price to reflect
anticipated losses and its required yield. This purchase adjustment is recorded
as an  increase  in  the allowance for loan  losses  and is used  only  for  the
respective portfolio.  A provision for loan  losses is  recorded  in an  amount
deemed  sufficient by management to maintain the allowances at adequate  levels.
Total  allowances  for loan losses and  recourse   obligations  on   retained
interests  in  loan  sales  increased  to $6,164,000 at March 31, 1998 compared
to  $5,877,000  at December  31,  1997.  The allowance  ratio  (the  allowances
for loan  losses  divided  by the amount of the Serviced Portfolio) at March 31,
1998  decreased  slightly to 1.82% from 1.93% at December 31, 1997.

     As part of the Company's financing of Purchased  Loans,  arrangements  are
entered  into  with  dealers  and  resort  developers, whereby  reserves  are
established to protect the Company from potential losses  associated  with such
loans.  As  part of the  Company's  agreement  with the  dealers  and  resort
developers,  a portion of the amount payable to each dealer and resort developer
for a Purchased Loan is retained by the Company and is available to the Company
to absorb loan losses for those loans.  The Company negotiates the amount of the
reserves  with the dealers and  developers based upon various criteria,  two of
which are the financial strength of the dealer or  developer  and  credit  risk
associated with the loans being purchased. Dealer/developer reserves amounted to
$10,616,000  and  $10,655,000  at  March 31,  1998 and  December  31,  1997,
respectively.   The  Company  generally  returns  any  excess reserves to  the
dealer/developer  on a quarterly  basis as the  related loans  are  repaid  by
borrowers.


Impact of Year 2000

     As the year 2000 approaches, an issue impacting all companies  has emerged
regarding how existing application software programs and operating  systems can
accommodate this date value. Substantially  all  of  the  Company's   operating
systems are already year 2000  compliant.  The  Company does not expect to incur
any significant additional costs to make its remaining applications  year  2000
compliant.


Inflation

     Inflation  has not  had a  significant  effect  on the Company's  operating
results to date.


 

PART II - OTHER INFORMATION


Item 1.  Legal Proceedings

         None

Item 2.  Changes in Securities

         None

Item 3.  Defaults Upon Senior Securities

         None

Item 4.  Submission of Matters to a Vote of Security Holders

    At the  Company's  Annual  Meeting of  Stockholders  held on April 24, 1998,
   John A. Costa was  elected to serve as a director  of the Company for a term
   of three years by a vote of  4,935,548  shares  voting for his  election and
   131,432  shares  withheld.  The  stockholders  also  voted to  increase  the
   authorized  shares  of  common  stock  of  the  Company  from  8,000,000  to
   12,000,000  by a vote of 4,991,829  shares for,  33,199  shares  against and
   41,952 shares  abstaining.  The  stockholders  voted to ratify,  confirm and
   approve  the Sixth  Amendment  to the 1990  Stock  Option  Plan by a vote of
   3,062,746 shares for, 774,323 shares against,  21,984 shares  abstaining and
   1,207,927  shares  were  not  voted.  Finally,  the  stockholders  voted  to
   ratify,  confirm and approve the First  Amendment  to the 1995 Stock  Option
   Plan  for  Non-Employee  Directors  of the  Company  by a vote of  4,202,603
   shares for, 807,644 shares against and 56,733 shares abstaining.

   The  Company   solicited   proxies  for  the  Annual  Meeting   pursuant  to
   Regulation  14 under  the  Securities  Exchange  Act of 1934.  There  was no
   solicitation  in opposition to the Company's  nominee for director,  and the
   nominee was elected.

Item 5.  Other Information

         None

Item 6.   Exhibits

         The following exhibits are filed herewith:
 
             10.167Amendment No. 4 to Loan Agreement dated September 13, 1996,
                   dated  December  16,  1997,  between  the Company and Bank of
                   Scotland.

             10.168Amendment  No. 3 to Security  Agreement  dated  September 13,
                   1996,  dated December 16, 1997,  between the Company and Bank
                   of Scotland.

             10.169Loan and Security Agreement, dated December 12, 1997, between
                   the Company and Berkshire Bank.

             10.170Promissory Note, dated December 12, 1997, from the Company to
                   Berkshire Bank

             10.171Loan Modification Agreement to Loan and Security  Agreement
                   dated December 12, 1997, dated March 23,  1998 between  the
                   Company and Berkshire Bank.
 
             11.1 Statement re: computation of earnings per share

             27.1   Financial Data Schedule









































                                     SIGNATURES

Pursuant to the requirements of  the Securities   Exchange  Act  of  1934,  the
registrant has duly caused this report  to be  signed  on  its  behalf  by  the
undersigned thereunto duly authorized.


                                       LITCHFIELD FINANCIAL CORPORATION




DATE:  May 12, 1998                          /s/ Richard A. Stratton       
        
                                       RICHARD A. STRATTON
                                       Chief Executive Officer,
                                       President and Director





DATE:  May 12, 1998                          /s/ Ronald E. Rabidou         
         
                                       RONALD E. RABIDOU
                                       Chief Financial Officer
 








                                                                Exhibit 10.167
Amendment No.4 to Loan Agreement


    AMENDMENT, dated as of December 16, 1997, between Litchfield Financial
Corporation, a Massachusetts corporation (the "Borrower"), and Bank of Scotland
(the "Bank") to the Loan Agreement dated as of September 13, 1996 between the
Borrower and the Bank, as amended by Amendment No. 1 to Loan Agreement dated as
of December 20, 1996, Amendment No. 2 to Loan Agreement dated as of January 10,
1997 and Amendment No. 3 to Loan Agreement dated as of June 18, 1997 (the "Loan
Agreement").  Capitalized terms used but not defined herein shall have the
meanings provided for such terms in the Loan Agreement.

    WHEREAS, the Borrower desires to have the Loan Agreement amended to increase
the maximum aggregate principal amount  of Loans available to  be outstanding at
any one time thereunder to $30,000,000; and

    WHEREAS, on and subject to the terms hereof, the Bank is willing to execute
this Amendment and, subject to the terms and conditions of the Loan Agreement as
amended hereby, so increase the maximum aggregate amount of Loans available
under the Loan Agreement;

    NOW, THEREFORE, the parties hereto agree as follows:

    1.  Sections.  All references to Sections in this Amendment shall be deemed
references to Sections of the Loan Agreement unless otherwise specified.

    2.  Effect of Amendment. As used in the Loan Agreement (including all
Exhibits thereto) and the other Loan Documents and all other instruments and
documents executed in connection with any of the foregoing, any reference to the
Loan Agreement shall mean the Loan Agreement as amended hereby.

    3.  Amendments. Subject to the occurrence of the Amendment Closing Date, the
Loan Agreement is amended as follows:

        (A)    Section 2.3(b) of the Loan Agreement is amended by deleting the
amount "$20,000,000" therein and inserting in its place "$30,000,000".

        (B)    Section 2.6 of the Loan Agreement is amended by deleting
subsections 2.6(b), 2.6(c) and 2.6(d).

        (C)    Section 3.1 of the Loan Agreement is restated in its entirety as
follows:

                           "3.1  Rate of Interest.  The Borrower agrees to
      pay interest in respect of the unpaid principal amount of the
      Revolving Credit Loans from time to time outstanding (x) from the
      Closing Date through and including the FAD, at a rate per annum equal
      (subject to the provisions of Section 3.3) to the sum of (A) the Base
      Rate,
      which interest rate shall change as and when the Base Rate changes,
      plus (B) 1% per annum; and (y) from and after the FAD until maturity
      (whether by acceleration or otherwise), at a rate per annum equal
      (subject to the provisions of Section 3.3) to the Base Rate, which
      interest rate shall change as and when the Base Rate changes.

         (D)   Section 4.1 of the Loan Agreement is amended by deleting the
proviso to the first sentence of such Section.

         (E)   Section 4.2 of the Loan Agreement is restated in its entirety as
follows:

                           "4.2  Arrangement Fee.  The Borrower agrees to
      pay to the Bank an arrangement fee for establishing its Commitment, as
      follows:  $25,000 on the Closing Date; $25,000 on the first
      anniversary of the Closing Date; $12,500 on the FAD; and $37,500 on
      the second anniversary of the Closing Date; provided that if prior to
      either anniversary date specified above the Commitment shall have been
      terminated and no Loans are outstanding and all other obligations of
      the Borrower under this Agreement and the other Loan Documents have
      been paid in full, the Borrower's obligation to pay the arrangement
      fee on such anniversary date (and the succeeding anniversary date, if
      any) shall be terminated.

         (F)   Section 6A.5 of the Loan Agreement is restated in its entirety as
follows:

                           "6A.5  Assignment Assets - On the date of such
      Loan the Bank shall  have received an Assignment Asset Certificate
      dated the date of such Loans."

         (G)   Section 7.1 of the Loan Agreement is amended by deleting the word
"and" at the end of subsection (h) thereof and deleting subsection (i) thereof,
and by inserting the following subsections (i), (j) and (k) following
subsection (h) thereof:

                           "(i)  Copies of each notice and each other
      material communication sent by the Borrower to Ironwood, Palo Verde,
      the TLC Custodian or any other Person pursuant to, in connection with,
      or relating in any way to, the Ironwood Credit Agreement or any
      Collateral, at the same time such notice or other communication is
      sent by the Borrower;

                           (j)   Copies of (x) each notice and each other
      communication received by Borrower from Ironwood, Palo Verde, the TLC
      Custodian or any other Person pursuant to, in any way relating to, or
      in connection with, the Ironwood Credit Agreement or any Collateral,
      within one Business Day after Borrower's receipt thereof; and (y) each
      financial statement and all other financial information of or with
      respect to Ironwood or Palo Verde received by Borrower, within one
      Business Day after Borrower's receipt
            thereof; and

                           (k)   with reasonable promptness, such other
      information respecting the business, properties, operations, prospects
      or condition (financial or otherwise) of the Consolidated Group or any
      member thereof, or of Ironwood, Palo Verde or the TLC Custodian, or
      relating to any Collateral, as the Bank may from time to time
      reasonably request."

         (H)   Section 7.2 of the Loan Agreement is amended by adding the
following sentence at the end thereof:

      "Borrower will give written notice to the Bank of the following
      promptly after obtaining knowledge thereof:  (i) any action,
      proceeding or claim commenced or asserted, or reasonably likely to be
      commenced or asserted, against Ironwood, Palo Verde or the TLC
      Custodian; (ii) any dispute which may exist between Ironwood, Palo
      Verde or any Governmental Authority (including, without limitation,
      any audit by the IRS); or (iii) any dispute which may substantially
      affect the normal business operations or expected services to be
      provided by Ironwood, Palo Verde or the TLC Custodian."

         (I)   Section 7.8 of the Loan Agreement is amended by adding the
following subsections (c) and (d) thereto:

               "(c)  Upon three Business Days' notice, the Borrower shall
      cause each of Ironwood, Palo Verde and the TLC Custodian to allow the
      Bank or any representative, officer, accountant or other auditor of or
      for the Bank to visit and inspect any of the property of any such
      Person, to examine such Person's books of record and account, and to
      discuss its affairs and procedures relating to Tax Certificates or any
      Collateral; provided however, that if no Default or Event of Default
      then exists, the Borrower shall not be obligated to cause such Person
      to permit such visits and inspections more than once per year; and
      provided further, that, if Borrower requests, Borrower shall be
      permitted to accompany Bank on such visits.

               (d)   In connection with any visit or inspection referred to
      in subsection (a) or (c) above, the Bank or its representatives,
      officers, accountants or other auditors shall be permitted to make
      such verifications and tests of the Collateral as the Bank shall deem
      appropriate."

         (J) Section 7.14 is amended by adding the following sentence at the end
thereof:

      "In addition, the Borrower will give the Bank prompt notice of any
      Environmental Claim relating to any Collateral, any property which
      secures any Collateral or any property to which any Tax Certificate
      relates, of the discovery of any contaminant or release on, in or
      emanating from any Collateral or any such other property, or any other
      liability or potential liability under any Environmental Law which in
      any way relates to, or could be imposed on, the owner of the
      Collateral or any such other property, in each case, promptly
      obtaining knowledge thereof."

         (K)  Section 7 is further amended by adding a new Section 7.24 thereto
as follows:

                           "7.24.  Administration of Ironwood Documents.
      Subject to the other provisions relating thereto contained in this
      Agreement and in the Security Agreement, the Borrower shall administer
      and enforce the Ironwood Credit Agreement and Ironwood Security
      Documents in a commercially reasonable manner and in compliance with
      all applicable laws and take all action required or permitted
      thereunder which, in the reasonable opinion of the Company, is
      necessary to protect the interests of the Company and the Bank therein
      and in the Collateral covered thereby."

         (L) Section 8.3 of the Loan Agreement is amended by inserting in clause
(iv) of subsection (a) thereof the words "by the Borrower or its Subsidiaries
(other than LMSC)" after the words "other Indebtedness incurred".

         (M)   Section 8.12 of the Loan Agreement is amended by adding a new
clause (c) thereto as follows:

                           "(c)  The Borrower will not (and will not permit
      any Subsidiary to) (i) enter into any transaction with Ironwood or any
      Affiliate of Ironwood, other than the transactions evidenced by the
      Ironwood Credit Agreement and the Ironwood Equity Documents, on more
      favorable terms to Ironwood or an Ironwood Affiliate than if such
      transaction was with a totally unrelated Person, or (ii) make any
      payments to Ironwood or any Affiliate of Ironwood (other than loans
      required by the Ironwood Credit Agreement or payments contemplated by
      the Ironwood Equity Documents), except pursuant to a transaction
      permitted by clause (i) above."

         (N)   Section 8.23 of the Loan Agreement is amended by adding a new
clause (c) immediately before the period at the end thereof as follows:

      "or (c)(i) without the prior written consent of the Bank, (x) amend,
      supplement or otherwise modify, waive, terminate, or agree to or
      otherwise permit there to be any amendment, supplement, modification,
      waiver or termination of, the Ironwood Credit Agreement or the
      Ironwood Security Documents, (y) consent to any action or deviation
      from any covenant or agreement contained in, or otherwise grant any
      consent or approval under, the Ironwood Credit Agreement or any
      Ironwood Security Document (whether or not any such consent or
      approval is in any way contemplated by the Ironwood Credit Agreement
      or by any Ironwood Security Document) or (ii) subordinate its rights
      with respect to any obligations of Ironwood to it or with respect to
      any security therefor unless it shall have given the Bank 20 Business
      Days prior written notice of its intention so to do and unless it
      shall be in compliance with all provisions of this Agreement on the
      date such subordination becomes effective (including, without
      limitation, its obligations under Section 2.4(b) hereof) provided,
      that (A) in the case of clause (i) above, Borrower shall be permitted,
      without the prior written consent of the Bank, to amend, supplement or
      otherwise modify or waive any provision of the Ironwood Credit
      Agreement which relates only to Tax Certificates issued by Taxing
      Authorities in a particular State (a "Permitted Amendment") if (1) the
      Borrower gives Bank written notice thereof on or prior to the date the
      same becomes effective, (2) no Default shall have occurred and be
      continuing at the time such Permitted Amendment is made or entered
      into and (3) prior to the time any such Permitted Amendment is made or
      entered into all Tax Certificates issued by Taxing Authorities in such
      state are removed from the Borrowing Base Collateral (it being
      understood, as set forth in the definition of "Qualifying State", that
      no Tax Certificate issued by any Taxing Authority in such state shall
      thereafter be included as Borrowing Base Collateral unless and until
      the Bank (in its sole discretion) shall have consented to such
      Permitted Amendment).

 

         (O)   Section 8.25 of the Loan Agreement is deleted.
 
         (P)   Section 10 of the Loan Agreement is amended by adding a new
section, Section 10.22, thereto as follows:

                           "10.22  Ironwood Documents.  On the FAD, and at
      all times thereafter when any Tax Certificate is included or proposed
      to be included in the Borrowing Base, the Borrower makes the following
      representations, covenants and warranties:

                                       (a)   To the best of Borrower's
            knowledge, each representation made by Ironwood and Palo Verde
            in the Ironwood Credit Agreement or any Ironwood Security
            Document is true and correct;

                                       (b)   To the best of Borrower's
            knowledge, Ironwood has and will have good and marketable title
            to each Eligible TLC;

                                       (c)   On the date that any Eligible
            TLC is included in the computation of the Borrowing Base, all
            necessary and appropriate recordings and filings shall have been
            made in all necessary and appropriate public offices, and all
            other necessary and appropriate action shall have been taken
            (including, without limitation, delivery of all Tax Certificates
            to the Custodian) such that the Borrower shall have assigned to
            the Bank a perfected, first priority security interest in all of
            Ironwood and Palo
                        Verde's right, title and interest in and to such
            Eligible TLC;

                                       (d)   Each Eligible TLC creates in
            favor of the owner thereof (i) the right to be paid the amount
            of taxes shown thereon plus interest at not less than the Coupon
            Rate, and (ii) the right to foreclose on the real property in
            respect of which such taxes were assessed upon expiration of the
            statutory redemption period applicable thereto;

                                       (e)   Under law applicable to each
            Tax Certificate, each of Ironwood and Palo Verde has the
            unqualified right to collaterally assign its rights to and under
            each Eligible TLC to any Person and Palo Verde has the
            unqualified right to mortgage its interest in any Real Property
            or Acquired Real Property to any Person, and any such assignee
            or mortgagee has the unqualified right to collaterally assign
            the rights so assigned to it, in each case without notice to,
            recordation or filing with, or approval from any Governmental
            Authority except, in the case of interests in Real Property or
            Acquired Real Property, recordations required for mortgages in
            the jurisdiction where such real property is located; and

                                       (f)   Each of the Ironwood Credit
            Agreement and each Ironwood Security Document is in full force
            and effect."

 

         (Q)   Section 11.3 of the Loan Agreement is amended by deleting the
portion of the final sentence thereof beginning with the words "provided
however" and replacing such deleted portion with the following:

      "provided however, that unless the Bank otherwise consents in writing,
       no such redesignation, removal or deletion of such asset
       shall occur if after giving effect to such redesignation, removal or
       deletion, the aggregate principal amount of outstanding Loans would
       exceed the amount of the Borrowing Base."

         (R)   Annex I to the Loan Agreement is amended as follows:

                           (a)   The following defined terms are deleted:

                           (1)   "Book Value Increase"

                           (2)   "Commitment Reduction Amount"

                           (3)   "Permitted Reduction Commitment"

                           (b)   The definitions of the following defined terms
      are amended as follows:

                           (1)   The definition of the term "Borrowing Base" is
                  restated in its entirety as follows:

                                 "Borrowing Base" shall mean at a particular
                        time the product of (x) 0.60 and (y) the Security
                        Value of the Borrowing Base Collateral.

                           (2)   The definition of the term "Borrowing Base 
                  Collateral" is restated in its entirety as follows:

                                 "Borrowing Base Collateral" shall mean,
                        collectively, (a) the Class B Certificate, (b) the
                        Uncertificated Residual Rights, (c) the Primary
                        Assignment Assets, and (d) from and after the TLC
                        Effective Date (if such date occurs), the Eligible
                        TLCs."

                           (3)   The definition of the term "Commitment" is
restated in its entirety as follows:

                                 "Commitment" shall mean $30,000,000, as
                        such amount may from time to time be reduced or
                        terminated pursuant to Section 2.6(a), Section 9 or
                        any other section of this Agreement.

                           (4)  The definition of the term "Portfolio Amount" is
                 amended by deleting the period at the end thereof and replacing
                 said period with a semi-colon, and adding the following clause
                 after said semi-colon:

                                "provided, however that for purposes of this
                       definition, the term "Receivables" shall not include any
                       amount payable by Ironwood, or by any successor or assign
                       of Ironwood."

                           (5)   The definition of the term "REO Property" is
                 amended by deleting the period at the end thereof and replacing
                 said period with a semi- colon, and adding the following clause
                 after said semi-colon:

                                 "provided, however that for purposes of Section
                        8.21 of this Agreement, no Real Property which becomes
                        Acquired Real Property pursuant to the Ironwood Credit
                        Agreement shall constitute REO Property."

                         (6)  The definition of "Security Value" is restated in
                       its entirety as follows:

                                 "Security Value" shall mean (i) with
                        respect to the Class B Certificate and the
                        Uncertificated Residual Rights, the value of such
                        item of Borrowing Base Collateral as specified in
                        the most recent certificate delivered pursuant to
                        Section 6.16, 6A.4 or 7.16 hereof (or, if less, as
                        then reflected on the books of the Borrower, LMSC or
                        LTSC, as the case may be); (ii) with respect to the
                        Primary Assignment Assets, the Primary Assignment
                        Asset Book Value, as specified in the most recent
                        certificate delivered pursuant to Section 6A.4,
                        6A.5, or 7.16; provided, however, that
                        notwithstanding the aggregate value at any time of
                        the Primary Assignment Assets, the Security Value of
                        the Primary Assignment Assets shall be capped at,
                        and the portion of the Borrowing Base allocable to
                        the Security Value of Primary Assignment Assets
                        shall in no event exceed, (A) $10,000,000 at any
                        time prior to April 28, 1998,  and (B) unless the
                        Bank otherwise consents in writing, $5,000,000 at
                        any time on or after April 28, 1998; and (iii) with
                        respect to the Eligible TLCs, the TLC Amount as
                        specified in the most recent certificate delivered
                        pursuant to Section 6A.4 or 7.16; provided that the
                        Security Value of the TLC Amount shall be zero (x)
                        unless and until TLC Effective Date occurs; and (y)
                        after the TLC Effective Date, if (i) any of
                        Borrower's rights under the Ironwood Credit
                        Agreement or Ironwood Security Documents shall have
                        been subordinated or (ii) any action referred to in
                        clause (B) to the first proviso to Section 8.23(c)
                        has been taken and the Bank shall not have consented
                        in writing (in its sole discretion) to such action;
                        provided, further, that (A) if any certificate
                        referred to in clause (i), (ii), or (iii) above has
                        not been delivered as required on any date, the
                        Security Value of the Class B Certificate, the
                        Uncertificated Residual Rights, the Primary
                        Assignment Assets and/or the Eligible TLCs shall be
                        the value of such items as reasonably determined by
                        the Bank; and (B) if at any time the Bank reasonably
                        determines that any of the most recently delivered
                        certificates referred to in clause (i), (ii) or
                        (iii) above, overstates the value of any such item
                        (whether due to what the Bank has determined to be a
                        mistake in valuation by the Borrower, due to any
                        property related to any item of Borrowing Base
                        Collateral ceasing to provide the basis for
                        valuation of such item reflected in such
                        certificate, due to a mistake by the Borrower in
                        treating an item as eligible for inclusion in the
                        Borrowing Base, or otherwise), the Security Value of
                        such item shall be such amount as the Bank shall
                        reasonably determine or such item shall be
                        eliminated from the computation of Security Value,
                        as appropriate.

                           (c)   The following defined terms are added to Annex
                  I in their appropriate alphabetical place:

                           (1)   "Acquired Real Property" shall have the meaning
                  assigned to such term in the Ironwood Credit Agreement.

                           (2)   "Adverse Claim" shall mean a lien, security
                interest, charge, encumbrance or other right or claim of any
                Person (other than the Bank) in another Person's assets, other
                than, in the case of a Purchased Tax Certificate, a lien
                evidenced by a Third Party Tax Certificate (as defined in the
                Ironwood Credit Agreement) or one in favor of a Taxing Authority
                for prior or subsequent taxes or assessments owed on the Real
                Property related to such Purchased Tax Certificate.

                           (3)   "Collection Event" shall have the meaning
                  assigned to such term in the Ironwood Credit Agreement.

                           (4)   "Colorado Auction Letter Agreement" shall mean
                  the Colorado Auction Letter Agreement dated October 20, 1997,
                  between Borrower and Ironwood.

                         (5)   "Coupon Rate" shall mean, with respect to any Tax
                Certificate, the rate of interest assessed by a Taxing Authority
                  on its Tax Certificates or, if less, the rate of interest
                  payable on such Tax Certificate.

                           (6)   "Custodial Agreement" shall mean the Custodial
                 Agreement dated as of September 10, 1997 between Borrower,
                 Ironwood, and Yavapai Court Messenger Service, Inc., as such as
                 agreement may be amended, supplemented, restated or otherwise
                 modified from time to time.

                           (7)   "Defaulted Tax Certificate" means a Tax
                Certificate with respect to which (i) Ironwood has not
                instituted Foreclosure within 90 days (or 31 days, in the case
                of a Tax Certificate issued by a Taxing Authority of or in
                Indiana) following the expiry of the statutory redemption period
                applicable thereto, (ii) the Real Property related thereto has
                not become subject to a Collection Event within 180 days after
                interest at the Coupon Rate ceases to accrue thereon, (iii) the
                Bank, the Borrower or Ironwood has determined in its reasonable
                judgment is either uncollectible or cannot be sold on the
                secondary market for a price at least equal to (x) all amounts
                related thereto included as part of the TLC Amount, or, if
                greater (y) its Outstanding Amount (as defined in the Ironwood
                Credit Agreement) or (iv) a Collection Event has occurred.

                           (8)   "Eligible TLC" shall mean a Purchased Tax
                  Certificate:

                     (i) which is not a Defaulted Tax Certificate;

                     (ii) which, if the Real Property related thereto has
                  not become subject to a Collection Event within 120 days
                  after interest at the Coupon Rate ceases to accrue
                  thereon, when combined with the aggregate Purchase Price
                  of all such Purchased Tax Certificates, does not exceed
                  twenty percent (20%) of the TLC Basis;

                     (iii) which is not a Tax Certificate with respect to
                  which the Bank or Borrower reasonably believes (based on
                  reasonable evidence requested by the Bank from time to
                  time and provided by Borrower at Borrower's expense) that
                  the Real Property is, was, could be, or could have been
                  subject to Environmental Problems;

                     (iv) which is not a Tax Certificate with respect to
                  which Ironwood or Palo Verde has failed to commence
                  Foreclosure or apply for a tax deed in the full names of
                  Ironwood and/or Palo Verde and the Borrower, within the
                  time period permitted by the Taxing Authority which issued
                  such Tax Certificate;

                     (v) (x) which is subject to a sole first priority
                  security interest in favor of the Bank, as determined by
                  the Bank based on advice of local counsel in the
                  applicable jurisdictions and (y) which is not a Tax
                  Certificate in respect of which any act, filing or other
                  measure listed in any local counsel opinion delivered to
                  Bank pursuant to this Agreement as necessary or desirable
                  in order for the Bank to have and maintain a first
                  priority perfected Lien has not been taken or made;

                     (vi) which is denominated and payable only in United
                  States Dollars in the United States of America;

                     (vii) (x) which has not been compromised, adjusted or
                  modified by tax appeal or otherwise, and (y) the Real
                  Property related to which has not been subject of a
                  condemnation order or other taking other than as a result
                  of a partial taking by the applicable Taxing Authority if
                  such Taxing Authority has repaid a pro rata portion of
                  such Tax Certificate and all accrued interest thereon,
                  based on the fair market value of the portion of the Real
                  Property which has been taken, and the fair market value
                  of the Real Property before the taking;

                     (viii) which does not contravene in any material
                  respect any laws, rules or regulations applicable thereto
                  and which no party thereto is in violation of any such
                  law, rule or regulation in any material respect;

                     (ix) which, subject to clause (x) of this definition,
                  does not have an LTV greater than ten percent (10%) for
                  residential properties (including without limitation,
                  large scale residential properties such as apartment
                  houses and condominiums, and agricultural properties) and
                  fifteen percent (15%) for commercial properties or any
                  other properties unless the Bank shall have given its
                  prior written approval;

                     (x) (1) which, with respect to any Eligible TLCs
                  purchased in Indiana other than Eligible TLCs described in
                  clause (2) below and with application only until
                  [March 19, 1998], if the LTV is in excess of the amounts
                  prescribed in clause (ix) of this definition, does not
                  have an LTV greater than fifty (50%) and, when combined
                  with the aggregate Purchase Price all such Purchased Tax
                  Certificates in Indiana, does not exceed 25% of the TLC
                  Basis and (2) with respect only to Purchased Tax
                  Certificates purchased in 1997 auctions in Indiana which
                  are referred to in the Indiana Auction Letter Agreement
                  and permitted to be purchased thereunder, does not have an
                  LTV in excess of 75%;

                     (xi) the Coupon Rate for which is not less than the
                  Prime Rate (as defined in the Ironwood Credit Agreement)
                  plus two percent (2%) per annum;

                     (xii) if the acquisition of which from a Taxing
                  Authority would require a bid on the price that Ironwood
                  would pay for the Real Property in Foreclosure, Borrower
                  shall have approved a bidding strategy proposed by
                  Ironwood;

                     (xiii) which is not a Tax Certificate relating to Real
                  Property for which there has already been sold to other
                  parties three or more other Tax Certificates;

                     (xiv) which does not relate to Real Property with
                  respect to which there are real property taxes which, as
                  of any date of determination, are more than five years
                  delinquent since that date of determination, provided,
                  however, if the applicable Tax Certificate related to such
                  delinquent real property taxes has not been previously
                  offered for sale by a Taxing Authority, then such real
                  property taxes may be no more than six years delinquent
                  since that date of determination, unless the Bank shall
                  have given its prior written approval;

                     (xv) relating to Real Property (1) on which, to
                  Ironwood's and Borrower's best knowledge an Adverse Claim
                  has not been filed by the United States Internal Revenue
                  Service, or (2) the owner or operator of which, to
                  Ironwood's and Borrower's best knowledge has not become
                  the subject of any proceeding by or against such owner of
                  a type described in Section 6.01(b)(i) of the Ironwood
                  Credit Agreement nor has the owner or operator authorized
                  any such action;

                     (xvi) the Purchase Price of which does not exceed the
                  lesser of (1) five percent (5%) of the outstanding
                  principal amount of Advances under the Ironwood Credit
                  Agreement or (2) $500,000;

                     (xvii) if the Purchase Price of which exceeds $250,000
                  but is less than or equal to the maximum Purchase Price
                  permitted pursuant to clause (xvi), the sum of such
                  Purchase Price and the aggregate Purchase Price of all
                  Eligible TLC's with a Purchase Price of more than $250,000
                  does not exceed the greater of (1) $1,000,000 or (2) ten
                  percent (10%) of the TLC Basis (but not exceeding
                  $2,000,000) on the date that such Tax Certificate is
                  proposed to be included in the Borrowing Base Collateral;

                     (xviii) if related to a non-residential property (as
                  determined pursuant to clause (ix)), when combined with
                  the aggregate Purchase Price of all Purchased Tax
                  Certificates relating to non-residential properties, does
                  not exceed forty percent (40%) of the TLC Basis;

                     (xix) which is issued by a Taxing Authority in a
                  Qualifying State;

                     (xx) which is not a void Tax Certificate;

                     (xxi) with respect to which, the Fair Market Value is
                  at least equal to (1) $30,000 for residential properties
                  and (2) $50,000 for commercial properties;

                     (xxii) which relates to Real Property which has been
                  viewed by an employee of Ironwood;

                     (xxiii) which was acquired by Ironwood in conformity
                  with its underwriting policies attached as Schedule 1 to
                  the Ironwood Credit Agreement as in effect on the FAD;

                     (xxiv) which, except with respect to Original Eligible
                  Tax Certificates, has a Purchase Price of at least $500
                  or, for Tax Certificates the purchase of which is
                  permitted by the Colorado Auction Letter Agreement, $300;

                     (xxv) which, if it relates to any Real Property (or
                  portion thereof) in respect of which Borrower, Ironwood,
                  Palo Verde or any other Person has acquired any fee
                  interest upon or following Foreclosure, (1) such Tax
                  Certificate constituted an Eligible TLC prior to such
                  Foreclosure and (2) the Real Property to which it relates
                  is covered by a mortgage (or deed of trust), satisfactory
                  to the Bank, made by Palo Verde in favor of Ironwood,
                  which has been collaterally assigned to Borrower and in
                  turn collaterally assigned to the Bank pursuant to
                  collateral assignments satisfactory to the Bank, which
                  mortgage (or deed of trust) and collateral assignments
                  have been recorded in accordance with law applicable to
                  the perfection and priority of a secured party's rights in
                  the subject property and in compliance with the
                  requirements thereof; provided, that if the collateral
                  assignment of such mortgage (or deed of trust) to the Bank
                  is not so recorded and the sum of the Purchase Price of
                  such Tax Certificate plus the aggregate Purchase Price of
                  all other Eligible TLCs in respect of which fee interests
                  in the related Real Property have been so acquired and
                  collateral assignments of the mortgages (or deeds of
                  trust) in favor of Bank not so recorded does not exceed
                  the  greater of (x) $500,000 or (y) 7.5% of the
                  outstanding principal amount of Advances under the
                  Ironwood Credit Agreement on the date such fee interest is
                  acquired (which amount shall not exceed $1,000,000), the
                  collateral assignment to the Bank of such mortgage (or
                  deed of trust) shall not be required to be so recorded in
                  order for such Tax Certificate to comply with the criteria
                  set forth in this clause (xxv);

                     (xxvi)  which constitutes an "Eligible Tax Certificate"
                  under the Ironwood Credit Agreement; and

                     (xxvii)  which does not constitutes a tax deed or Deed
                  Certificate (as defined in the Ironwood Credit Agreement)
                  unless the inclusion of such tax deed or Deed Certificate
                  as an Eligible TLC has been specifically approved in
                  writing by the Bank (in its sole discretion);

provided, however, that no Tax Certificate shall constitute an Eligible TLC at
any time when an "Event of Default" (as defined in the Ironwood Credit
Agreement) or "Potential Event of Default" (as defined in the Ironwood Credit
Agreement) shall have occurred and be continuing.


                           (9)   "Environmental Problems" shall have the meaning
                  assigned as such term in the Ironwood Credit Agreement.

                           (10)  "FAD" shall mean the Fourth Amendment Date.

                           (11)  "Fair Market Value" shall have the meaning
                  assigned to such term in the Ironwood Credit Agreement.

                           (12)  "Foreclosure" shall have the meaning assigned
                  to such term in the Ironwood Credit Agreement.

                           (13)  "Fourth Amendment" shall mean the amendment to
                  this Agreement (as then in effect) designated as Amendment No.
                  4 to Loan Agreement and dated as of December 16, 1997.


                           (14)  "Fourth Amendment Date" shall have the same
                  meaning as the term "Amendment Closing Date" in the Fourth
                  Amendment.

                           (15)  "Indiana Auction Letter Agreement" shall mean
                  the Indiana Auction Letter Agreement dated September 16, 1997
                  between Borrower and Ironwood.

                           (16)  "Ironwood" shall mean Ironwood Acceptance
                  Corporation, L.L.C., an Arizona limited liability company.

                           (17)  "Ironwood Credit Agreement" shall mean the
                 Revolving Credit Agreement dated as of August 22, 1997 between
                 Ironwood and Borrower, as amended by the Indiana Auction Letter
                 Agreement, as further amended by the Colorado Auction Letter
                 Agreement and as such agreement may be further amended,
                 supplemented, restated or otherwise modified from time to time.

                           (18)  "Ironwood Equity Documents" shall mean
                collectively, Warrant No.  1 (Warrant to Purchase Membership
                Interests of Ironwood) with Original Issue Date of September 11,
                1997; the Owners Agreement dated as of September 11, 1997 among
                  Peter Reardon, Richard Miller, William Crisp, Borrower and
                  Ironwood; and the Warrant Purchase Agreement dated as of
                  September 11, 1997 between Ironwood and Borrower.

                           (19)  "Ironwood Security Documents" shall mean,
                collectively, the Security Agreement dated as of September 11,
                1997 executed by Ironwood and Palo Verde in favor of Borrower,
                and the Limited Liability Company Pledge Agreement made as of
                September 11, 1997 by Ironwood, Palo Verde and Borrower, as
                either such agreement may be amended, supplemented, restated or
                otherwise modified from time to time.

                           (20)  "LTV" shall have the meaning assigned to such
                  term in the Ironwood Credit Agreement.

                           (21)  "Original Eligible Tax Certificates" shall have
                  the meaning assigned to such term in the Ironwood Credit
                  Agreement.

                           (22)  "Palo Verde" shall mean Palo Verde Trading
                  Company, L.L.C., an Arizona limited liability company.

                           (23)  "Permitted Amendment" - Section 8.23.

                        (24)  "Primary Assignment Asset Book Value" shall mean,
                at any time, the Book Value of the Assignment Assets
                constituting (without duplication) portions of the Primary
                Assignment Assets at such time, but shall in no event exceed (x)
                the aggregate Book Value of such Assignment Assets, as the Book
                Value of such Assignment Assets is reduced pursuant to the terms
                of this Agreement or (y) if less, the aggregate outstanding
                principal amount of the notes constituting part of the Primary
                Assignment Assets then listed on Schedule 2 to the Security
                Agreement.

                           (25)  "Purchase Price" shall mean, at any time, with
                respect to any Purchased Tax Certificate, the purchase price
                paid by Ironwood for such Purchased Tax Certificate minus the
                sum of (i) the amount (if any) by which the principal amount of
                the Lien on the related Real Property evidenced by such
                Purchased Tax Certificate on the date of purchase by Ironwood
                has been reduced by any Governmental Authority and (ii) the
                amount (if any) paid on or with respect to such Purchased Tax
                Certificate or the related real property by any Governmental
                Authority or any other Person at any time after such Purchased
                Tax Certificate was acquired by Ironwood, and (iii) if such
                purchase price paid by Ironwood exceeded the principal amount of
                the Lien on the related real property evidenced by such
                Purchased Tax Certificate on the date of such purchase and the
                Borrower has not delivered to the Bank an opinion of counsel
                satisfactory to the Bank that in all circumstances such excess
                will be paid to Ironwood and its direct and indirect assigns
                (including collateral assigns) by the issuer of the Purchased
                Tax Certificate upon redemption thereof or Foreclosure thereof,
                the amount of such excess.

                           (26)  "Purchased Tax Certificate" shall have the
                 meaning assigned to such term in the Ironwood Credit Agreement.

                           (27)  "Qualifying State" shall mean a state (i) that
                Bank has notified Borrower constitutes a "Qualifying State" for
                purposes of this Agreement and in respect of which Bank has
                received a copy of the opinion (which shall be satisfactory to
                Bank) addressed to Borrower from counsel to Ironwood as to the
                Borrower's obtaining a first priority, perfected security
                interest in Tax Certificates issued by Taxing Authorities in
                such state and certain other matters, (ii) in respect of which
                following receipt of the opinion referred to in clause (i) above
                either (x) Bank has notified Borrower that it has determined
                that the criteria set forth in the definition of "Eligible TLCs"
                are acceptable for purposes of Tax Certificates issued by Taxing
                Authorities of or in such jurisdiction or (y) additional
                eligibility criteria for Tax Certificates issued by Taxing
                Authorities of or in such jurisdiction have been agreed in
                writing by Borrower and the Bank in form and substance
                satisfactory to Bank, and (iii) which is not a State in respect
                of the Tax Certificates issued by Taxing Authorities thereof or
                therein that a Non-Qualifying Specific Amendment has been made
                or entered into unless the Bank (in its sole discretion) has
                consented thereto in writing.

                           (28)  "Real Property" shall have the meaning assigned
                  to such term in the Ironwood Credit Agreement.

                           (29)  "Taxing Authority" shall have the meaning
                  assigned to such term in the Ironwood Credit Agreement.

                         (30)  "Tax Certificate" shall have the meaning assigned
                  to such term in the Ironwood Credit Agreement.

                         (31)  "TLC Amount" shall mean, as of any date, the sum
               of (i) the TLC Basis; and (ii) accrued and unpaid interest on
               the TLC Basis at the applicable Coupon Rate; provided, however,
               that such accrued and unpaid interest shall not exceed 25% of
               the TLC Basis (any amount above such 25% level being disregarded
               for purposes of determining the TLC Amount); and provided
               further, that with respect to any Eligible TLC relating to any
               property on or in respect of which Ironwood, Palo Verde or any
               other Affiliate of Ironwood has initiated Foreclosure, interest
               shall be deemed to have ceased to accrue on the portion of the
               TLC Basis applicable thereto not later than the time in the
               Foreclosure process mandated under local or other applicable law
               and, provided further that the TLC Amount shall at no time
               exceed the "Borrowing
               Base" as defined in the Ironwood Credit Agreement.

                           (32)  "TLC Basis", at any time, means the sum of (i)
                the aggregate Purchase Price of Eligible TLCs at such time owned
                by Ironwood or Palo Verde relating to properties not in
                Foreclosure plus (ii) the aggregate Purchase Price of Eligible
                TLCs at such time owned by Ironwood or Palo Verde relating to
                properties on which Ironwood or an Affiliate of Ironwood has
                initiated Foreclosure.

                           (33)  "TLC Custodian" shall mean Yavapai Court
                  Messenger Service, Inc., an Arizona corporation, or such other
                  company as discharges the functions of the Custodian described
                  in the Custodial Agreement.

                        (34)  "TLC Effective Date" shall mean the date when
               each of the following conditions has been fulfilled to the
               satisfaction of the Bank (or waived in writing by the Bank);
               provided that the TLC Effective Date shall not occur unless each
               of the following conditions have been so fulfilled (or so waived
               by the Bank) on or before the close of business (New York time)
               on March 31, 1998 (or such later date as may be specified by the
               Bank in writing).

                           (a)   The Bank shall have received (i) legal opinions
                 from Arizona counsel to Ironwood (addressed to the Bank or
                 addressed to the Borrower accompanied by a reliance letter
                 addressed to the Bank) in form and substance (and from counsel)
                 satisfactory to Bank stating, inter alia, (without other than
                 customary qualifications), that upon possession of Tax
                 Certificates by the TLC Custodian and the filing of UCC-3
                 Financing Statements naming the Bank as Secured Party and the
                 Borrower as Debtor, the Bank will have a perfected security
                 interest in all Tax Certificates and (ii) such opinions of
                 counsel to the Borrower as the Bank shall reasonably request.

                         (b)   The Bank shall have received UCC-1 and UCC-3
                financing statements executed by the Borrower with respect to
                all Tax Certificates and other collateral described in Amendment
                No. 3 to Security Agreement, in form appropriate for filing in
                all relevant jurisdictions and otherwise in form and substance
                satisfactory to the Bank;


                         (c)   The legal fees of the Bank's New York counsel
                shall (to the extend demand for payment thereof shall have been
                made) have been paid in full;

                          (d)   The Bank shall have received an acknowledgment
                and agreement from the TLC Custodian with respect to the TLC
                Custodian acting as the Bank's agent and certain other matters,
                executed by the Borrower, the TLC Custodian, Ironwood and Palo
                Verde in the form of Exhibit A hereto;

                         (e)   The Bank shall have received deposit account
                agreements in the form of Exhibit B hereto from the financial
                institutions at which the "Reserve Account" (as defined in the
                Ironwood Credit Agreement) and "Lock-Box Account" (as defined in
                the Ironwood Credit Agreement) are maintained, executed by such
                financial institutions, the Borrower, Ironwood and Palo Verde;

                           (f)   The Bank shall have received an acknowledgment
                  from Palo Verde of the Borrower's assignment to it of the
                  interests in Palo Verde pledged to the Borrower;

                        (g)   The Bank shall have received the "Revolving Loan
               Note" and each "Intracompany Note" (in each case, as defined in
               the Ironwood Credit Agreement) endorsed in blank by Ironwood and
               the Borrower;

                        (h)   The Borrower shall have received a consent to
               assignment, executed by each of the Ironwood and Palo Verde
               (which consent shall include, in addition to a consent to
               Borrower's assignments and pledges to the Bank, each of Ironwood
               and Palo Verde's agreement as to the Bank's rights to visit and
               inspect their premises and verify the Collateral) in the form of
               Exhibit C hereto;

                        (i)   The Bank shall have received from Borrower copies
               of all financial statements referred to in Section 5.01 of the
               Ironwood Credit Agreement and all other material  communications
               received by Borrower or sent by Borrower to Ironwood with
               respect or pursuant to the Ironwood Credit Agreement since the
               date it was executed;

                         (j)   The Bank shall have received copies of the
                Ironwood Credit Agreement, Ironwood Security Documents and
                Ironwood Equity Documents, certified by an authorized senior
                officer of the Borrower as complete and correct and as
                constituting all agreements relating to Borrower's arrangements
                with Ironwood;

                         (k)   The Bank shall have received copies of all legal
                  opinions delivered to the Borrower in connection with the
                  Ironwood Credit Agreement;

 
                        (l)   The Bank shall have received copies of the UCC
               searches conducted by the Borrower with respect to Ironwood  and
               Palo Verde and copies of the UCC-1 financing statements filed by
               Borrower as Secured Party and naming Ironwood or Palo Verde as
               Debtor, certified as complete and correct by  an authorized
               senior officer of Borrower and such search results and financing
               statements shall evidence that Borrower has a first priority
               Lien on all assets of Ironwood and Palo Verde.

                        (m)   The Bank shall have received the delegation of
               Power of Attorney substantially in the form of Exhibit D hereto.

                          (n)   The Bank shall have received and approved a
                 revised form of Exhibit E to the Loan Agreement (showing the
                 60%, advance rate (which in any event shall have become
                 effective as of the Initial Amendment Closing Date), providing
                 information as to Primary Assignment Assets and providing
                 information and representations as to Tax Certificates).

                        (o)   The Bank shall have received a certificate from a
               senior officer of the Borrower that the representations and
               warranties set forth in Section 6 of this Amendment are true and
               correct as of the TLC Effective Date as if made on and as of
               such date.

                        (p)   All of the opinions, documents, statements,
               agreements and papers referred to in clauses (a) - (o)  shall be
               in form and substance satisfactory to the Bank.

     4. Effectiveness Date. This Amendment shall become effective when and as of
the date that each of the following conditions have been fulfilled to the
satisfaction of the Bank (or waived in writing by the Bank).  The first date on
which all of the following conditions have been so satisfied (or so waived by
the Bank) is herein referred to as the "Amendment Closing Date".  If the
Amendment Closing Date shall not have occurred by the close of business (New
York time) on [January 15, 1998,], this Amendment shall be deemed rescinded,
null and void.

                    (a) The Borrower and the Bank shall have executed a copy of
            this Agreement and the Borrower shall have delivered the same to the
            Bank in New York, New York;

                     (b)   The Bank shall have received legal opinions from New
           York and Massachusetts counsel to the Borrower in form and substance
            satisfactory to it;

                    (c) The Bank shall have received certificates of authorized
            officers of the Borrower in the form of Exhibit E hereto certifying
            the corporate resolutions of the Borrower relating to the entering
            into and performance of this Amendment and of Amendment No. 3 to
            Security Agreement ("Amendment No. 3 to Security Agreement") between
            Bank and Borrower dated as of the date hereof;

                    (d) The legal fees of the Bank's New York counsel shall (to
           the extent demand for payment thereof shall have been made) have been
           paid in full;

                     (e)   The Bank shall have received a restated Revolving
            Credit Note in the principal amount of $30,000,000 in the form of
            Exhibit F hereto; and

                    (f)   Amendment No. 3 to Security Agreement in the form of
           Exhibit G hereto shall have been executed and delivered by the
           Borrower to the Bank and, in connection therewith, appropriate UCC-1
           financing statements (in form and substance satisfactory to the Bank)
           shall have been executed and delivered by Borrower to the Bank;

                    (g)   The Bank shall have received (i) a release and form
         UCC-3 financing statements executed by First National Bank of Boston
        ("Bank of Boston"), in each case, in form and substance satisfactory to
        the Bank, terminating such bank's security interests in certain
        property specified by the Bank, including Borrower's rights under the
        Ironwood Credit Agreement, all Tax Certificates and property relating
        thereto, the Revolving Loan Note, the Reserve Account, Lockbox Account
        and each Intracompany Note (in each case, as defined in the Ironwood
        Credit Agreement), all interests in Palo Verde and in Borrower's
        rights under the Ironwood Equity Documents, or (ii) evidence
        satisfactory to the Bank that amendments to existing Bank of Boston
        financing statements effecting the release the result described in
        clause (i) above have been duly filed in all relevant jurisdictions;

                   (h)  The $12,500 arrangement fee payable pursuant to Section
            4.2 of the Credit Agreement (after giving effect to this Amendment
            No. 4) shall have been paid to the Bank.
 

     5.  Exhibit E to Loan Agreement. Upon the occurrence of the TLC Effective
Date, the form of Exhibit E referred to in clause (n) of said definitions shall
be substituted for the existing Exhibit E to the Loan Agreement (and,
thereafter, all references to "Exhibit E" in the Loan Documents shall be deemed
to refer to such revised form of Exhibit E).

     6.  Representations and Warranties.  The Borrower represents and warrants
to the Bank that as of the date hereof, as of the Amendment Effective Date and
as of the TLC Effective Date, both before and after giving effect to the
amendments contained in Section 3 hereof, (A)the representations and warranties
contained in the Loan Agreement and the other Loan Documents are true and
correct with the same force and effect as if made on and as of such times (or,
if any such representation or warranty is expressly stated to have been made as
of a specific date, as of such specific date), (B)no Default of Event of Default
has occurred and is continuing or will occur as a result of such amendments and
(C) without limiting the foregoing, each of the Loan Agreement and each other
Loan Document constitutes the legal, valid and binding obligation of the
Borrower, and is enforceable against the Borrower in accordance with its
respective terms.  The Borrower further represents and warrants to the Borrower
that (i) its execution and delivery of this Amendment has been duly authorized
by all necessary corporate action and (ii) its obligations under each Loan
Document remain in full force and effect, without release, diminution or
impairment, notwithstanding, without limitation, the execution and delivery of
this Amendment.

     7.  Miscellaneous.  The Borrower will reimburse the Bank for its reasonable
legal fees and disbursements of counsel incurred in connection with this
Amendment.  The amendments set forth herein are limited precisely as written
shall not be deemed to (a) modify any other term or condition of the Loan
Agreement or any other Loan Document or (b) prejudice any right which the Bank
may have now or in the future under or in connection with the Loan Agreement or
any other Loan Document. Except as expressly amended hereby, the Loan Agreement
shall remain unchanged and in full force and effect. This Amendment constitutes
a Loan Document.  This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same amendatory
instrument and either of the parties hereto may execute this Amendment by
signing any such counterpart.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
EXECUTED WHOLLY WITHIN THE STATE OF NEW YORK (REGARDLESS OF THE PLACE WHERE THE
LOAN AGREEMENT OR THIS AMENDMENT IS OR WAS EXECUTED).



     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective duly authorized officers as of
the date first above written.

LITCHFIELD FINANCIAL CORPORATION


By:
   /s/ Heather A. 
Sica                                          
   HEATHER A. SICA
   Executive Vice President

BANK OF SCOTLAND


By:
   /s/ Annie Chin Tat                  
   ANNIE CHIN TAT
   Vice President



                                                               Exhibit 10.168

Amendment No. 3 to Security Agreement


       AMENDMENT, dated as of December 16, 1997, between Litchfield Financial
Corporation, a Massachusetts corporation (the "Debtor"), and Bank of Scotland
(the "Secured Party"), to the Security Agreement between the Debtor and Secured
Party dated as of September 13, 1996, as amended by Amendment No. 1 to Security
Agreement dated as of December 20, 1996 and Amendment No.2 to Security Agreement
dated as of January 10, 1997 (the "Security Agreement"). Capitalized terms used
but not defined herein shall have the meanings provided for such terms in the
Security Agreement.  Capitalized terms used herein but not defined herein or in
the Security Agreement shall have the meanings provided for such terms in the
Loan Agreement (as defined below).

       WHEREAS, the Debtor and the Secured Party are parties to a Loan Agreement
dated as of September 13, 1996, as amended by Amendment No. 1 to Loan Agreement
dated as of December 20, 1996, Amendment No. 2 to Loan Agreement dated as of
January 10, 1997, Amendment No. 3 to Loan Agreement dated as of June 18, 1997
and Amendment No. 4 to Loan Agreement ("Amendment No. 4 to Loan Agreement")
dated as of the date hereof (the "Loan Agreement");

       WHEREAS, pursuant to Amendment No. 4 to Loan Agreement, on and subject to
the terms and conditions of the Loan Agreement and said Amendment No. 4 to Loan
Agreement, the maximum amount of credit available to the Debtor under the Loan
Agreement would be increased;

       WHEREAS, a condition to the effectiveness of  Amendment No. 4 to Loan
Agreement is the execution and delivery by Debtor of this Amendment No. 4 to
Security Agreement;

       NOW THEREFORE, the parties hereto agree as follows:

       1.Sections.  All references to Sections in this Amendment shall be deemed
references to Sections in the Security Agreement unless otherwise specified.

       2.Effect of Amendment.  As used in the Security Agreement and the other
Loan Documents and all other instruments and documents executed in connection
with any of the foregoing, any reference to the Security Agreement shall mean
the Security Agreement as amended hereby.

       3.Amendments.  The following Sections of the Security Agreement are
amended as follows:

         (A)   Section 1 of the Security Agreement is amended by adding a new
definition thereto (in its appropriate alphabetical place) as follows:

               "Assigned Ironwood Interest" means each of the following:
      the Ironwood Credit Agreement; the Revolving Loan Note issued to
      Debtor under the Ironwood Credit Agreement and each other promissory
      note of Ironwood which may be delivered to Debtor thereunder; each
      Ironwood Security Document and all of Debtor's right, title and
      interest in or to any collateral or other security provided thereby
      (including, without limitation, each Tax Certificate, each tax deed,
      all Real Property, all Acquired Real Property, all membership and
      other interests in Palo Verde and each deposit or other bank account
      established to receive collections on Tax Certificates, providing
      support for Ironwood's obligations to Debtor or otherwise provided to
      Debtor as collateral for Ironwood's obligations to Debtor, including,
      without limitation, each lock box account and reserve account) or to
      support Ironwood's obligations under the Ironwood Credit Agreement;
      each Tax Certificate; each tax deed; all Real Property; all Acquired
      Real Property; all membership and other interests in Palo Verde; the
      Lock- Box Account (as defined in the Ironwood Credit Agreement) and
      each other lock-box account maintained pursuant to the Ironwood Credit
      Agreement; the Reserve Account (as defined in the Ironwood Credit
      Agreement); each Intracompany Promissory Note (as defined in the
      Ironwood Credit Agreement); each power of attorney provided by
      Ironwood or Palo Verde to Debtor; the Custodial Agreement; and each
      and every bond, indemnity, warranty, guaranty and other similar
      document relating to the performance by any party (except the Debtor)
      of any of the foregoing; as each of the foregoing agreements, notes,
      documents or other items may be amended, supplemented, restated or
      otherwise modified from time to time, including, without limitation,
      (i) all rights of the Debtor to receive moneys due and to become due
      under or pursuant to any of the foregoing items, (ii) all rights of
      the Debtor to receive proceeds of any insurance, bond, indemnity,
      warranty or guaranty with respect to any of the foregoing items,
      (iii) all claims of the Debtor for damages arising out of or for breach
      of or default under any of the foregoing items and (iv) all rights of
      the Debtor to enforce, terminate, amend, supplement, modify or waive
      performance under any of the foregoing items, to perform thereunder
      and to compel performance and otherwise to exercise all remedies
      thereunder (all the foregoing being collectively referred to herein as
      the "Assigned Ironwood Interests").

         (B)   Section 1 of the Security Agreement is further amended by
deleting clause (vi) of the definition of "Collateral" and inserting in such
definition new clauses (vi) and (vii) as follows:

         "(vi)  each and every present and future Assigned Ironwood
      Interest, including, without limitation, each general intangible,
      account, chattel paper, note, instrument, security, good, mortgage,
      deed of trust, document, guaranty, letter of credit, other support
      arrangement, insurance policy and right to proceeds of each insurance
      policy (whether casualty insurance, liability insurance, life
      insurance or otherwise) and all other
            collateral and property comprising all or any portion of, or
      securing, providing support for, relating to, or in which Debtor has
      been given any right or interest to support the obligations under, any
      Assigned Ironwood Interest, all property acquired by Debtor through
      foreclosure or deed-in-lieu of foreclosure of any Assigned Ironwood
      Interest, and all proceeds of, and other payments made on and rights
      to amounts payable in respect of, each and every present and future
      Assigned Ironwood Interest; and

         (vii)  All additions, accessions, replacements, substitutions or
      improvements and all products and proceeds, including, without
      limitation, proceeds of insurance, of any and all of the Collateral
      described in clauses (i) through (vi) above."

         (C)   Section 1 of the Security Agreement is further amended by
restating the definition of "Designated Assignment Asset" in its entirety as
follows:

 
    "Designated Assignment Asset" means (i) each note (other than any note
    constituting an Assigned Ironwood Interest, a Pledged Interest (as defined
    in the Pledge Agreement), a Receivables Loan Right or a Receivables Purchase
    Right) delivered by Debtor to Secured Party and (ii) each Assignment Asset
    and other asset the loan number in respect of which is listed on Schedule 2
    hereto or which is otherwise identified as a Designated Assignment Asset on
    Schedule 2 hereto, as such Schedule may be modified from time to time, and
    together (in each case) with all of the following (the following property
    and rights being collectively referred to as the "Related Rights"):  all
    property securing or providing security for such note, Assignment Asset or
    other asset (including without limitation, each Mortgage and security
    agreement relating to any of the foregoing), all of Debtor's rights under
    each and every Assignment Asset Agreement, other agreement, Mortgage Note,
    other note, instrument, account, general intangible, document, security,
    good, guaranty, letter of credit, other support arrangement and insurance
    policy relating to or provided to Debtor in connection with any such note,
    Assignment Asset or other asset or any of the other foregoing property, and
    all other property relating to or forming a part of such note, Assignment
    Asset or other asset.

         (D)   Section 3(c) of the Security Agreement is amended by inserting
after the words "Designated Assignment Asset" (and before the comma immediately
following such words), the words "or any Assigned Ironwood Interest".

         (E)   Section 5A of the Security Agreement is amended by restating the
introductory clause thereof as follows:

               (a)   As at the time when any Assignment Asset, other property or
               Related Right becomes a Designated Assignment Asset, the Debtor
               shall be deemed to have warranted as to each such Designated
               Assignment Asset as follows:
 
         (F)   Section 5A of the Security Agreement is further amended by (x)
deleting from the beginning thereof the clause "Notwithstanding any provision to
the contrary contained in this Agreement or any other Loan Document : (i) on or
before the date that any asset becomes a Designated Assignment Asset,"; (y)
deleting the words "such Designated Assignment Asset" from clause (A) thereof
and replacing such words with the words "each Designated Assignment Asset"; and
(z) deleting the words "Debtor shall deliver to Secured Party, in New York, with
respect to such Designated Assignment Asset" from the beginning of clause (B)
thereof, and replacing such words with the words "Debtor shall deliver to
Secured Party, in New York, with respect to each Designated Assignment Asset."

         (G)   The Security Agreement is further amended by inserting therein a
new section, Section 5B, immediately following Section 5A of the Security
Agreement, as follows:

               "Section 5B.  Special Provisions Concerning Assigned Ironwood 
      Interests.

                           (a)   Without the prior written consent of the
      Secured Party, the Debtor will not rescind or cancel any indebtedness
      evidenced by any Assigned Ironwood Interest or modify any term thereof
      or make any adjustment with respect thereto, or extend or renew the
      same, or compromise or settle any dispute, claim, suit or legal
      proceeding relating thereto, or sell any Assigned Ironwood Interest or
      interest therein, or suffer or permit any such rescission,
      cancellation, modification, adjustment, extension, renewal,
      compromise, settlement or sale to occur.

                           (b)   The Debtor will duly fulfill all
      obligations on its part to be fulfilled under or in connection with
      each Assigned Ironwood Interest and will do nothing to impair the
      rights of the Secured Party therein.

                           (c)   If any Assigned Ironwood Interest becomes
      evidenced by an instrument or chattel paper (in each case, as defined
      in the UCC), the Debtor will notify the Secured Party thereof, and
      deliver such instrument or chattel paper to Secured Party or, if such
      instrument or chattel paper is a Tax Certificate, deliver such Tax
      Certificate to the TLC Custodian.

                           (d)   Upon request of the Secured Party, the
      Debtor shall promptly notify (in manner, form and substance
      satisfactory to the Secured Party) all Persons who are at any time
      obligated under any Assigned Ironwood Interest that the Secured Party
      possesses a security interest in such Assigned Ironwood Interest and
      that all payments in respect thereof are to be made to such account as
      the Secured Party directs.

                           (e)   At the sole cost and expense of Debtor, the
      Debtor shall cause each insurance company which has issued any
      insurance policy in respect of or relating to any Assigned Ironwood
      Interest to name Secured Party as loss payee with respect to such
      insurance policy and to promptly deliver to Secured Party a customary
      insurance certificate evidencing the foregoing.

                           (f)   At the sole cost and expense of Debtor, the
      Debtor will enforce or secure the performance of each and every
      obligation, covenant, condition and agreement contained in, or
      relating to, each Ironwood Assigned Interest and agreement relating
      thereto.

                           (g)   Unless an Event of Default shall have
      occurred and Secured Party otherwise instructs, Debtor will appear in
      and defend every action or proceeding arising under, growing out of or
      in any manner connected with any Ironwood Assigned Asset or the
      obligations, duties, liabilities, or rights of Debtor or any assignee
      thereunder.

                           (h)   Should the Debtor fail to make any payment
      or fail to do any act as herein provided, the Secured Party may (but
      without any obligation on the Secured Party's part to do so and
      without notice to or demand on the Debtor and without release, the
      Debtor from any obligation hereunder) make or do the same in such
      manner and to the extent the Secured Party may deem necessary to
      protect the security interests provided hereby or its rights in the
      Assigned Ironwood Interests, including specifically, without limiting
      the general powers, the right to appear in and defend any action or
      proceeding purporting to effect the security interests provided hereby
      or the Assigned Ironwood Interests, and the Secured Party may also
      perform and discharge each or any obligation, covenant or agreement of
      Debtor relating to any Assigned Ironwood Interest and, in exercising
      any such powers, pay necessary costs and expenses, employ counsel and
      incur and pay reasonable attorneys' fees."

                           (i)   Debtor hereby represents, warrants and
      covenants to the Secured Party that the Reserve Account (as defined in
      the Ironwood Credit Agreement) is account no. 4278-0041 (Litchfield
      Financial Corp. - Tax Lien Reserve) maintained at BancOne Arizona and
      that the Lock-Box Account (as defined in the Ironwood Credit
      Agreement) is account no. 2237-5542 (Litchfield Financial Corp. - Tax
      Lien Collection) maintained at BancOne Arizona.  Debtor hereby
      covenants and agrees that it will establish no other reserve account
      or lock-box account with respect to the Ironwood Credit Agreement or
      the obligations of Ironwood thereunder unless it shall (i) have given
      Secured Party 30 days advance written notice of its intention so to
      do, and executed such agreements and instruments, and caused the
      depositary institution where such new account will be maintained to
      execute such instruments and agreements, as may be reasonably
      requested by Secured Party to ensure that Secured Party will hold a
      first priority perfected security interest in such new account and
      (ii) taken, and caused such depository institution to take, such other
      action in connection therewith as may be reasonably requested by
      Secured Party.

         (H)    Section 11(c) of the Security Agreement is amended by inserting,
after the words "other Assignment Asset" the words "or any Assigned Ironwood
Interest".

         (I)   Section 12 of the Security Agreement is amended by deleting the
subsection (a) thereof and inserting in lieu of the text of said subsection (a)
the words "Intentionally Omitted".

     4.  Representations and Warranties.  The Debtor represents and warrants to
the Secured Party that as of the date hereof and both before and after giving
effect to the amendments contained in Section 3 hereof, (A) the representations
and warranties contained in the Loan Agreement and the other Loan Documents are
true and correct with the same force and effect as if made on and as of such
times (or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date), (b) no Default or
Event of Default has occurred and is continuing or will occur as a result of
such amendments, and (C) without limiting the foregoing, each of the Loan
Agreement and each other Loan Document constitutes the legal, valid and binding
obligation of the Debtor, and is enforceable against the Debtor in accordance
with its respective terms.  The Debtor further represents and warrants to the
Secured Party that (i) its execution and delivery of this Amendment has been
duly authorized by all necessary corporate action and (ii) its obligations under
each Loan Document remain in full force and effect, without release, diminution
or impairment, notwithstanding, without limitation, the execution and delivery
of this Amendment.

     5.  Miscellaneous.  The Debtor will reimburse the Secured Party for its
reasonable legal fees and disbursements of counsel incurred in connection with
this Amendment.  The amendments set forth herein are limited precisely as 
written and shall not be deemed to (a) modify any other term or condition of the
Security Agreement or any other Loan Document or (b) prejudice any right which
the Secured Party may have now or in the future under or in connection with the
Security Agreement or any other Loan Document.  Except as expressly amended
hereby, the Security Agreement shall remain unchanged and in full force and
effect.  This Amendment constitutes a Loan Document.  This Amendment may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and either of the parties
hereto may execute this Amendment by signing any such counterpart.  THIS
AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED WHOLLY WITHIN THE STATE OF
NEW YORK (REGARDLESS OF THE PLACE WHERE THE SECURITY AGREEMENT OR THIS AMENDMENT
IS OR WAS EXECUTED).



     IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
Security Agreement to be duly executed and delivered by their respective duly
authorized officers as of the date first above written.

                           LITCHFIELD FINANCIAL CORPORATION, as Debtor


                           By:
                                 /s/ Heather A. Sica
                                 HEATHER A. SICA
                                 Executive Vice President


                              BANK OF SCOTLAND, as Secured Party


                              By:
                                 /s/ Annie Chin Tat
                                 ANNIE CHIN TAT
                                 Vice President
 
 
            Exhibit 10.169
                               LOAN AND SECURITY AGREEMENT

       THIS LOAN AND SECURITY  AGREEMENT (this  "Agreement") is made as of the
12th day of December,   1997  by  and  between LITCHFIELD FINANCIAL CORPORATION,
a  Massachusetts corporation,  with a mailing  address for the purposes  hereof
at P.O.  Box 488,  Route 2, Williamstown, Massachusetts  01267 (the "Borrower")
and BERKSHIRE BANK, a Massachusetts banking  corporation  with its principal
office and place of business at 24 North Street, P. 0. Box 1308, Pittsfield,
Massachusetts 01202 ("Lender").

                                   W I T N E S S E T H:

       FOR  CONSIDERATION  PAID and to secure  payment of that  certain  loan
(the "Loan") from the Lender to the Borrower  evidenced by that  certain
promissory  note of even date herewith between Borrower, as Maker,  and Lender,
as Payee (the "Note") in the original principal amount of ONE MILLION FIVE
HUNDRED  THOUSAND AND N0/100 DOLLARS  ($1,500,000.00) and to secure the full
performance by the Borrower of the terms and conditions  herein and in the Note
together with any and all other  obligations  and  liabilities of the Borrower
to the Lender including,  but not limited to, any future advances which may be
made by the Lender to the  Borrower,  with  interest  thereon and with the
provisions  for payment of principal and interest as provided in the Note, and
to secure  payment of any other value extended  to  Borrower  from time to time
by the Lender  including,  but not  limited  to, reasonable  expenses  incurred
by the Lender in the protection,  enforcement,  collection, realization or
disposition of the Collateral,  as hereinafter defined, the Borrower hereby
grants to the Lender a first priority security interest in and to the Collateral
defined below);

       PROVIDED THAT if the Borrower shall well and truly pay the Indebtedness,
 as hereinafter  defined,  in  accordance  with  the  terms  of  the  Note  or
 any  renewal, modification or extension thereof, and shall also pay, when due,
 all other indebtedness of the  Borrower to the Lender  existing  at  any  time
 prior  to  the  full  payment, satisfaction  and  discharge hereof,  and shall
 well and truly  perform and observe all covenants, agreements, obligations and
 conditions on the Borrower's part to be performed or observed herein and in the
 Note,  then this Agreement shall cease,  determine and be void; otherwise this
 Agreement shall remain in full force and effect for all purposes.

       1.  Definitions.  Borrower  and Lender  agree  that, unless the context.
 otherwise specifies or requires, the  following  terms shall have the meanings
 herein  specified, such  definitions to be applicable  equally to the singular
 and the plural forms of such terms:

           (a)   "Collateral" shall mean and include the following property of
 the Borrower, whether now owned or hereafter acquired all Personalty (all as
 defined herein), and all proceeds thereof, including personal property of the
 foregoing type purchased with cash.

           (b)     "Indebtedness" shall mean (i) the outstanding principal
balance of the Note together with the interest thereon as provided in the Note
and (ii) all other amounts, payments and other consideration due on account of
the Note and/or this Agreement or the other Loan Documents, as hereinafter
defined.

           (c)  "Interest Rate" shall mean the Interest Rate as defined in the
                Note.

           (d)  "Loan Documentsof shall mean this Agreement,  the Note, Uniform
Commercial Code Financing Statements issued by Borrower of even date  herewith,
the  mortgage and security  agreements from  the  Borrower  to  the  Lender  of
even  date  herewith, the assignments of rents and leases from the Borrower to
the Lender of even date  herewith, together with all other documentation
collateral thereto or which may now or hereafter be given to the Lender by
Borrower  evidencing,  securing or further  securing  the Loan,  it being
understood that to the extent that any of the terms of the Commitment Letter are
in conflict with the terms of this Agreement, the terms of this Agreement shall
prevail.

           (e)  "Obligations" shall mean any  of  the covenants,  promises  and
other obligations made or owing by the Borrower to or due to the Lender pursuant
to or as otherwise  set forth herein or in the Note or in any other  documents,
instruments or agreements to which Borrower is a party or to which Borrower is
bound.

           (f)  "Personalty" shall mean all of the right, title, interest,
estate, claim or  demand  of the  Borrower  in and to any and  all  furniture,
furnishings,  equipment, leasehold  improvements, and any and all such property
which is at any time installed in, affixed to, placed upon or used in connection
with the Borrower's  properties at 789 Main Road, Stamford, Vermont and at Route
2, Williamstown,  Massachusetts,  now in existence or hereafter  created,  and
all  replacements  thereof,  additions  and  accessions  thereto, substitutions
therefor,  and all proceeds and products  from the sale,  exchange or other
disposition of the foregoing.

           (g)  "UCC" shall mean the Uniform Commercial Code as adopted and
amended from time to time by the Commonwealth of Massachusetts.

       2.  Representations and Warranties.  Borrower warrants and represents to
the Lender that (i) Borrower will pay the  Indebtedness in the manner described
in the Note or in any modification, renewal or extension,  supplementation or
replacement thereof, (ii) the Loan Documents  have been  duly  authorized,
executed  and  delivered  by and on behalf of the Borrower, (iii) the Borrower
is duly  existing  and in good  standing  with all  power, authority, and legal
right  to  engage  in the  transactions  contemplated  by the Loan Documents,
(iv) the execution and delivery of the Loan  Documents and the  consumation of
the  transactions  contemplated  thereby will not conflict with or result in
breach of the terms of any agreement to which the Borrower, any endorser of the
Note or any guarantor is a party and will not conflict with any law or order of
any  court,  agency  or other governmental  body,  (v) there are no actions,
suits or proceedings  pending,  or, to the knowledge  of the  Borrower,
threatened  before  any  court,  any  agency  or  any  other governmental  body
which  could  adversely  affect  the  Collateral,   Borrower, or the Borrower's
ability to pay the  Indebtedness  and/or perform the obligations in accordance
with the terms of the Loan  Documents,  (vi) the  Collateral is in good working
order and free from defects,  (vii) the Borrower's  title to the Collateral is
good and  marketable, free from defects, liens or encumbrances, except the lien
created by this Agreement,  and such defects, liens or encumbrances approved by
Lender, if any, and listed on Exhibit A attached hereto and made a part hereof
for all purposes (the "Permitted Encumbrances"), (viii) the Borrower's name set
forth above is the  Borrower's correct legal name and the Borrower has no other
trade name,  and the Borrower will not change ita legal,  trade, or style name
without Lender's prior written consent,  (ix) neither the financial  statements
or any other  document  furnished  by the  Borrower to the Lender in connection
with the transaction contemplated by the Loan Documents contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained  therein misleading, and (x) there is no fact known to
the  Borrower  which  materially  adversely affects, nor, so far as the Borrower
can reasonably  foresee,  will materially  adversely affect the Borrower's
business,  business prospects,  financial  condition,  operations or properties
or  the  Borrower's  ability  to  pay  the  Indebtedness  and/or  perform  the
Obligations in accordance with the terms of the Loan Documents.

      3.   UCC  Representations.  The  Borrower  warrants  that  its  principal
place  of business inMassachusetts is at Route 2, Williamstown,  Massachusetts.
The Borrower agrees to maintain  complete and accurate  records  listing and
describing the Collateral and the location of the Collateral and to deliver such
records to the Lender upon request of the Lender.


       4.  Affirmative Covenants. Until the Loan is paid in full, the  Borrower
shall: (a) keep the Collateral in good  order  and  working  condition,  damage
from  casualty expressle not excepted;  (b) pay promptly when due all taxes and
assessments  of whatever nature imposed upon the  Collateral;  (c) maintain
insurance at all times with respect to the  Collateral  against such risks,  in
such  amounts,  in such form and written by such companies as the Lender may
require,  naming the Lender and its successors and assigns, as their  interests
may appear,  as  additional  insureds and providing for twenty (20) days prior
notice of cancellation or amendment to the Lender;  (d)  deliver all insurance
policies  covering  the  Collateral  or  certificates   evidencing  appropriate
insurance coverages to the Lender on the closing date of the transaction
contemplated  by the Loan Documents; and (e)  reimburse Lender for all fees and
expenses for filing all  financing statements and continuation statements (and
any other necessary filings) relating thereto.

       5   Neg tive  Covenants.  Until the Loan is paid in full,  the Borrower
shall not: (a) directly or indirectly, create, incur, assume, or suffer to exist
any lien, charge, or encumbrance (except for Permitted Encumbrances) on or with
respect to the whole or any part of the Collateral;  (b) lease or lend any
Collateral except in the ordinary course of Borrower's  business  without  the
express  written  consent of the  Lender;  (c) sell or otherwise  transfer the
Collateral  outside the ordinary  course of  Borrower's  business and/or for
sums less than the cost thereof without the written consent of the Lender;  and
(d)  permit or suffer  anything  to be done  which  shall  have the  effect of
materially impairing the value of the security given by the Borrower to the
Lender for the Loan.

       6.  Inspection of Collateral.  The Borrower agrees that the Lender or its
agents or representatives, may, at reasonable times, enter upon the  Borrower's
premises  and inspect the condition of the Collateral.

       7.  Casualty and Condemnation-Award.  If the whole or a material part of
the Collateral shall be damaged or destroyed  byfire or other hazard insured
against,  or if the  Collateral  or any  portion  thereof or interest  therein
shall be taken by eminent domain, the Borrower  shall  promptly  give  written
notice  thereof to the Lender and promptly take such action as is required to
collect any applicable  insurance proceeds or any eminent  domain award.  No
settlement on account of any loss,  damage or taking shall be made  without the
prior  written consent of the Lender, which  consent shall not be unreasonably
withheld.  If,  in  the  Lender's  sole  judgement,  the  Borrower  is  not
proceeding  promptly to settle such claims in a manner  satisfactory  to the
Lender or if an Event of Default (hereinafter defined) has occurred hereunder or
under the Note which has not been waived in writing by the  Lender,  the Lender
may settle any claims with the insurers  or the  taking  authority  and  the
Lender  is  hereby  irrevocably  appointed attorney- in- fact for the Borrower,
which  appointment is  acknowledged by the parties hereto to be coupled with an
interest, to settle such claims and to collect and endorse any checks issued in
the name of the Borrower. Any and all proceeds from insurance or eminent domain
awards,  as the case may be, shall be paid to the Lender.  The Lender,  in the
exercise  of  its  sole  discretion,   may apply any such proceeds against the
Indebtedness  or release  all or a portion of such  proceeds  to the  Borrower
upon such terms and conditions as the Lender deems appropriate,  and apply the
balance thereof, if any, to the Indebtedness.  Application of the proceeds  of
casualty or eminent  domain awards  against the  Indebtedness  shall be done in
such a manner and order as the in the exercise of its sole discretion, shall
determine.

       8.  Lender Right To Cure And Expenses.  The Lender shall be entitled to,
but not obligated  to,  cure  any  failure  of  the  Borrower  under  the  Loan
Documents  in the performance of the obligations an to commence, intervene in or
otherwise  participate in  any legal   or equitable  proceeding which,  in  the
Lender's  sole  judgement,  affects the Collateral or any rights or obligations
created or secured by the Loan Documents.  If the Lender shall become  involved
in any action or course of conduct with respect to the Loan Documents or the
Collateral  in order to cure any default of the Borrower  under the Loan
Documents or to protect its interest in the  Collateral,  the Borrower shall
reimburse the Lender  for  all charges, costs  and  expenses  incurred  by the
Lender  in  connection therewith, including, without limitation,  reasonable
attorneys' fees. Such charges, costs and expenses described above shall be
payable by the Borrower upon demand of the Lender.

       9.  Events of Default. The Indebtedness shall become immediately due and
payable by the Borrower, at the option of Lender, if any of the following events
(each an "Event of Default")  shall occur under any of the Loan Documents
(including  this agreement) and shall continue beyond applicable grace and cure
periods contained therein, if any:

       (a) Borrower fails to pay any interest or principal when due in
           accordance with the terms an conditions of the Note;

       (b) breach  of  any other  covenant,   condition or  agreement contained
           herein or in the Note or in any of the other Loan Documents remaining
           uncured for a period in excess of ten (10) days after  Lender has
           provided  Borrower  with  written notice  of  such breach, provided
           that  in  case  of  any  breach  which  is susceptible  to cure but
           cannot be cured  within  ten (10) days  through.  the exercise of
           reasonable  diligence,  so long as the Borrower commences such cure
           within  ten (10)  days,  such  breach  remains  susceptible to cure,
           and the Borrower  diligently  pursues  such cure, such  breach shall
           not be deemed to create an Event of Default hereunder;

       (c) failure of the Borrower to cause to be dismissed  any   proceeding
           against the Borrower,  and, if applicable,  any holder of a general
           partnership interest in the Borrower,  any  guarantor of any of the
           Borrower's  obligations  under the Loan Documents or any endorser of
           the Note (the  Borrower, and, if  applicable, any such  general
           partner,  guarantor or endorser  hereinafter referred to as an
           "Obligor") under any law relating to bankruptcy, reorganization,
           insolvency or relief  of  debtors within  sixty (60) days  from the
           date  upon  which  such proceeding  is filed or  instituted,  or the
           filing or other  institution  of a proceeding by any obligor under
           any such law;

       (d) failure  of  an  Obligor  to cause  to  be  dismissed  a  proceeding
           for  the enforcement of a money judgement  instituted against said
           Obligor within thirty (30) days from the date  upon  which  such
           proceeding  is filed or  instituted unless such  proceeding is
           contested in good faith by the Obligor and bonded or otherwise
           secured to Lender's satisfaction;

       (e) the liquidation,  termination,  dissolution,  merger/ transfer of a
           controlling interest in, or a consolidation of, any Obligor which is
           not an  individual, the insolvency of any  Obligor or the  inability
           of any  Obligor to pay such Obligor's debts when due;

       (f) material inaccuracy of any statement, representation or warranty made
           by the Borrower to the Lender in the Loan Documents or in any
           instrument,  document or statement heretofore or hereafter submitted
           to the Lender by an obligor; and

       (g) the loss, theft, substantial damage, destruction, or encumbrance of
           any substantial part of the Collateral.

       If an Event of Default shall occur, then, at the option of the Lender,
without any further  notice to the Borrower,  the  Indebtedness,  together with
all other charges due under the Loan  Documents  shall be due and  payable, and
the Lender shall be entitled to exercise any and all of the rights and remedies
provided for in the Loan Documents or available at law or in equity, including,
but not limited  to, all rights and remedies available to a secured party under
the UCC.  The  Borrower  shall,  upon  request of the Lender,  assemble  the
Collateral not already in the Lender's possession and make it available to the
Lender at a place to be designated by the Lender and reasonably convenient to
both the Borrower and the Lender.

       10. Application Of Deposits After Default. If the Borrower shall default
in the performance or observance of any covenant or agreement under the Loan
Documents, the Lender may apply any deposit, payment or any sum due from the
Lender to any Obligor toward the Indebtedness in such manner or order as the
Lender, in the exercise of its sole discretion, shall determine, without first
enforcing any other rights of the Lender against any obligor or against the
Collateral.

       11. Separate Foreclosure Sales and Waiver of Marshalling. If the Borrower
shall default in the performance or observance of any covenant or agreement
under the Loan Documents, the Lender may sell the Collateral and any other
security given by the Borrower for the payment of the Indebtedness and the
performance of the obligations in one lot or in parts or parcels. such sales may
be held from time to time by public or private sale and the power of sale herein
given to the Lender shall not be fully executed until all of the Collateral and
other security not previously sold shall have been sold. The Lender may apply
the net proceeds of any sale, lease or other disposition of the Collateral to
the payment of the Indebtedness and the performance of the obligations in such
manner and order as the Lender, in the exercise of its sole discretion, shall
determine, after deducting all costs and expenses of every kind incurred therein
or incidental to the retaking, holding, preparing for sale, selling, leasing or
other disposition of the Collateral or in any way relating to the protection
and/or enforcement of the rights of the Lender hereunder, including, but not
limited to, reasonable attorney's fees. If the amount realized from such sale,
lease or other disposition of the Collateral is insufficient to satisfy and
discharge the Indebtedness and other charges due and owing by Borrower to
Lender, the Borrower shall remain liable to Lender for the payment of any such
deficiency and interest shall accrue thereon, until paid, at the Default Rate,
as defined in the Note. If surplus proceeds are realized from such a sale,
lease, or other disposition of the Collateral, the Lender shall not be liable
for any interest thereon pending distribution of such proceeds to the Borrower.
Any separate items of property sold together for a single price may be accounted
for in one account without distinction between the items of security or without
assigning to them any proportion of such proceeds. The Borrower hereby waives
the application of any doctrine of marshalling of assets.

       The  Borrower  agrees  that the  requirement of the UCC with  respect to
personal property  that a secured  party give a debtor reasonable notice of any
proposed sale or disposition of collateral shall be met if such notice is given
to Borrower at least five (5) days before such time of sale or  disposition.
No such notice need be given by Lender with respect to collateral  which is
perishable or threatens to decline  speedily in value or is of a type
customarily sold on a recognized market.

       12. Intentionally Omitted.

       13. Effect of Releases and Waivers. Any failure by Lender to insist upon
the strict performance by Borrower of any of the Obligations shall not be deemed
to be a waiver of the strict performance of any of the Obligations and Lender,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by Borrower of any and all of the Obligations. Neither
Borrower nor any other person or entity now or hereafter obligated for the
payment of the whole or any part of the Indebtedness shall be relieved of such
obligation by reason of (i) the failure of Lender to comply with any request of
Borrower, or of any other person or entity so obligated; (ii) the failure of
Lender to take action in collection or protection of the Collateral or to
otherwise enforce the performance of any of the Obligations; (iii) the release,
regardless of consideration, of the whole or any part of the security held for
the payment of the Indebtedness and the performance of the obligations, or (iv)
any agreement or stipulation between the Lender and any subsequent owner or
owners of the equity of redemption in the Collateral modifying the covenants,
terms and provisions of this Loan Agreement and of the Loan Documents without
first having obtained the consent of Borrower or such other person or entity.
In the last mentioned event, Borrower and all such other persons or entities
shall continue to be liable to make such payments according to the terms and
provisions of the Loan Documents, as amended, unless expressly released and
discharged of record by Lender. Lender may release, regardless of consideration,
any part of the security held for payment of the Indebtedness and the
performance of the obligations without, as to the remainder of the security, in
any way impairing or affecting the lien created by this Agreement or the
priority of such lien over any subordinate  lien.  Lender may resort for the
payment of the  Indebtedness  and the performance of the Obligations to any
other security therefor held by Lender, in such manner and order as Lender may
elect.

       14. Waiver of Jury Trial. The Borrower and Lender waive trial by jury in
 any litigation in any court with respect to, in connection with, or arising out
 of this Agreement, any other LoanDocument, or the Indebtedness, or the
 validity, protection, interpretation, collection or enforcement thereof,or the
 relationship between Borrower and Lender as borrower and lender, or any other
 claim or dispute however arising between the Borrower and Lender.

        15. Interest To Accrue.  If the Indebtedness shall become due and
 payable because of an acceleration by the Lender of the Borrower's  obligation
 to repay the  Indebtedness caused by an Event of Default  hereunder or if the
 Indebtedness  shall mature and become due, then interest on the  Indebtedness
 shall continue to accrue at the Default Rate, as defined in the Note, until
 paid in full.

        16.No  Set-Off, Counterclaim, etc. The Borrower's obligation to pay the
 Indebtedness shall be absolute and unconditional and shall not be affected  by
 any circumstance, including, without limitation:

           (a) Any set-off, counterclaim, recoupment, defense, or other right
       which the Borrower may have against the Lender or anyone else;

           (b)    Any defect in title, condition, design, fitness for use, or
        operation of, damage to, or loss or destruction of the Collateral, or
        any  interruption or cessation in the use or possession thereof  by the
        Borrower  for  any  reason whatsoever;

           (c)     Any insolvency,  bankruptcy,  reorganization, or similar
        proceedings by or against the Borrower or any guarantor; or

           (d)Any other circumstance, happening, or event whatsoever, whether or
           not similar to any of the foregoing.

       17.  Remedies  Cumulative.  The rights and  remedies  afforded to Lender
under the Loan  Documents  shall be cumulative and  supplementary  to and not
exclusive of any other rights and remedies which the Lender may have at law or
in equity.

       18. Further Assurances. The Borrower agrees to execute and cause to be
filed or recorded, and hereby appoints the Lender its duly authorized attorney-
in- fact, which appointment is acknowledged by the parties hereto to be coupled
with an interest, with full power of substitution and with authority to execute,
file and record on behalf of the Borrower all instruments from time to time
deemed by the Lender to be necessary or appropriate to evidence further the
Indebtedness and/or the obligations or to secure further to the Lender the
security intended to be provided by this Agreement. Borrower shall pay, upon
demand of the Lender, all costs, expenses and fees, including, without
limitation, reasonable attorneys' fees, incurred as a result of the operation of
this paragraph.

       19.  Statement  of Amount Due.  Borrower,  within five (5) days after
receipt of a written request from the Lender, shall furnish a written statement
duly  acknowledged of the amount due on the Note to the Lender.

       20. Notices. Any notices required or permitted to be given hereunder
shall be: (i) personally delivered or (ii) given by registered or certified
mail, postage prepaid, return receipt requested, or (iii) forwarded by overnight
courier service, in each instance addressed to the addressee at the address for
such party set forth herein, or such other address as each may designate in
writing to the other. All notices given hereunder shall be in writing and shall
be deemed given, in the case of notice by personal delivery, upon actual
delivery, and in the case of mail or courier service, upon deposit with the U.S.
Postal Service or deliver to the courier service.

       21. Assignment by Lender. The Lender shall have the right at any time to
assign any or all of its right, title, and interest in and to the Loan Documents
and all or any part of the Collateral. Upon any such assignment, the Lender
shall not be deemed the assignee's agent for any purpose and the Lender may
deliver all or any part of the Collateral held by it to the assignee which
shall thereupon become vested with all rights, powers, and privileges of the
Lender in respect thereto, and the Lender shall thereupon be forever and
released and fully discharged from all future liabilit and responsibility for
the whole or any part of the Collatera transferred. With respect to any
Collateral not transferred, Lender shall retain all powers and rights hereby
given to Lender. This Agreement shall not be assignable by the Borrower without
the prior written consent of the Lender.

       22.  Interpretation  And  Binding  Effect.   This  Agreement  and  the
other  Loan Documents  constitute the entire agreement  between Borrower and
Lender and, to the extent that any writings not signed by the Lender or oral
statements  at any time made or had by either party hereto are inconsistent
with the provisions of this Agreement,  the unsigned writings and oral
statements  shall be null and void and of no force or effect.  The Loan
Documents  shall  be  governed  by and  construed  in  accordance  with  the 
laws  of the Commonwealth  of  Massachusetts.  If any  provision  of  this
Agreement  shall  be  found unenforceable  or invalid for any reason,  such
provision  shall be deemed modified to the extent  necessary to be enforceable
or, if such  modification  is not  practicable,  such provision shall be deemed
deleted from this  Agreement  without  otherwise  affecting any other provision
of this  Agreement.  The headings of sections  and  paragraphs shall be ignored
in interpreting  this Agreement.  The word "Borrower",  as used herein,  means
the Borrower named herein and also means any subsequent  owner or owners of all
or any part of the equity of redemption  in the  Collateral.  All of the
covenants and  agreements of the Borrower  herein  contained  shall be binding
upon the Borrower,  and (if  applicable) its heirs,  executors, administrators,
successors and assigns and shall be joint and several if more than one person
constitute the Borrower.  The word "Lender", as used herein, means the Lender
named herein and any  subsequent  holder or holders of one or both of the Note
and this Agreement.



       IN WITNESS  WHEREOF,  Borrower has caused this instrument to be executed
by Ronald E. Rabidou, its duly authorized Chief Financial Officer, and Lender
has caused this instrument to be executed by James W. Reid, its duly authorized
Vice President, and their corporate seals to be hereunto affixed as of the date
first above written.

                                                          LITCHFIELD FINANCIAL
    CORPORATION

                                                           By:
_________________________________________
                                                    Ronald E. Rabidou, Chief
    Financial officer

                                                             BERKSHIRE BANK
                                                           By:
_________________________________________
                                                       James W. Reid, Vice
    President


                      COMMONWEALTH OF MASSACHUSETTS

BERKSHIRE, ss.
December 12, 1997

       Then personally appeared the above-named Ronald E. Rabidou, Chief
Financial officer, who acknowledged the foregoing instrument to be the free act
and  deed of Litchfield Financial Corporation, before me,

                                   __________________________________________
                                   Notary Public
                                   My Commission Expires:

 


 
                                                                 Exhibit 10.170
 

                                                                 Approved
                                                                  by:
 
___________
                               PROMISSORY NOTE
  
 $1,500,000.00                                       Pittsfield, Massachusetts
                                                       Date: December 12, 1997

       FOR VALUE RECEIVED,  LITCHFIELD FINANCIAL CORPORATION, a Massachusetts
corporation, with a mailing  address for the purposes  hereof at P.O. Box 488,
Route 2,  Williamstown, Massachusetts  01267 (the  "Borrower")  promises to pay
to the order of BERKSHIRE  BANK, a Massachusetts banking  corporation  with its
principal office and place of business at 24 North Street,  P. 0. Box 1308,
Pittsfield,  Massachusetts  01202 ("Lender") the principal sum of ONE MILLION
FIVE HUNDRED  THOUSAND AND NO/100  DOLLARS  ($1,500,000.00)  or so much thereof
as may be advanced  from time to time (the "Loan") as  hereinafter  set forth 
with interest on the unpaid principal balance of such amount from the date of
this Note or such advance, as the case may be, at the Interest Rate (hereinafter
defined) . This Note is secured by mortgage and security agreements
(collectively,  the "Mortgage") dated even date  herewith  which create  first
priority  mortgage and security  interests on certain parcels of real property
located in  Williamstown,  Massachusetts  and Stamford,  Vermont (collectively,
the "Real Property") , and certain personal property;  a loan and security
agreement and financing statements (the "Security Agreement")  evidencing a
first priority security interest in certain personal property  (the  "Personal
Property")  more particularly  described  therein;  assignments  of rents  and
leases  (collectively,  the "Assignment")  which will conditionally  assign all
rents and absolutely assign all leases applicable  to the  Real  Property  to
Lender;  and  such  other  security  as may now or hereafter be given to Lender
as collateral for the Loan.  This Note, the Mortgage, the Security Agreement,
the Assignment,  and all other documents evidencing,  securing and/or relating
to the Loan, are hereinafter collectively referred to as the "Loan Documents".

                                        I

                                  DEFINITIONS

       (a)  "PRIME RATE" shall mean the rate of interest  set,  determined or
 announced on a periodic basis, and published in the Money Rate Section of The
 Wall Street Journal (the "Journal"), or in its successor, as the highest
 "prime rate" charged for commercial loans at large U.S. Money Center Commercial
 Banks.  If the Journal,  or its successor, shall no longer  publish the "prime
 rate",  then "Prime Rate"  hereunder  shall mean the highest prime rate set,
 determined or announced on a periodic  basis by Chase  Manhattan Bank, N.A.,
 of New York, New York, or its successor, for commercial loans.

       (b)  "INTEREST RATE" shall mean the rate of interest to be paid by
Borrower on any outstanding principal due under this Note and shall be equal to
8.50 percent  (8.50%) per annum up to and through the payment due hereunder on
December 12, 1998.  The interest rate charged  hereunder  shall be reviewed by
Lender on each December 12th  hereafter (each an "Anniversary  Date") and shall
be equal to the Prime Rate in effect on each Anniversary Date, which rate shall
be set on each  Anniversary  Date occurring during the term of the Loan
commencing with said Anniversary Date and shall remain in effect until midnight
on the calendar day immediately preceding the next Anniversary Date.

       (c) "LOAN YEAR" shall mean the period between the date hereof and
December 12, 1998 for the first Loan Year and each succeeding twelve (12)
month period until the Maturity Date.

       (d) "MATURITY DATE" shall mean December 12, 2008.

                                       II

                                   INTEREST

       (a) COMPUTATION OF INTEREST.  Interest on the outstanding principal
balance of this Note  shall be computed on the basis of "a 360-day year for the
actual  number of days elapsed" (such  phrase, as used  throughout  this  Note,
shall mean that in computing interest for the subject period, the interest rate
shall be multiplied by a fraction,  the denominator  of which is 360 and the
numerator  of which  is the  actual number of days elapsed from the date of the
first  disbursement  of the Loan or the date of the preceding interest  and/or
principal due date, as the case may be, to the date of the next interest and/or
principal due date). Interest shall accrue until the date of receipt of payment.

       (b) INTEREST CHANGE PROCEDURES. Any change in the Prime Rate shall effect
 a corresponding change in the Interest Rate without notice to the Borrower,
 such change to take effect on each and shall thereafter be fixed for that Loan
 Year.

                                      III

                     PAYMENT OF PRINCIPAL AND INTEREST

       (a) Borrower shall pay monthly installments of interest at the Interest
 Rate on the sums advanced hereunder commencing on January 12, 1998 and
 continuing on the 12th day of each month thereafter until December, 1998;

       (b) Commencing on January 12, 1999, and continuing on the 12th day of
 each month thereafter until December 12, 1999, Borrower shall pay twelve (12)
 equal consecutive monthly installments of principal and interest at the
 Interest Rate in the amount sufficient to amortize the then outstanding
 principal balance due hereunder over the period ending on the Maturity Date
 (the "Amortization Period"). On each Anniversary Date, the required monthly 
 payments for the next succeeding twelve (12) months shall be recalculated by
 Lender to an amount sufficient, at the Interest Rate in effect on such
 Anniversary Date, to amortize the then outstanding principal balance hereunder
 over the Amortization Period, and said payments shall continue until the
 Maturity Date (or such earlier date in the event Lender accelerates Borrower's
 obligations hereunder pursuant to its rights under the Loan Documents), when
 the full outstanding balance of principal remaining plus accrued interest shall
 be fully due and payable.

                                       IV

                             GENERAL CONDITIONS

       (a) METHOD OF PAYMENT. All payments under this Note are payable at 24
North Street, P.O. Box 1308, Pittsfield, Massachusetts 01202 or at such other
place as Lender shall notify Borrower in writing. Lender reserves the right to
require any payment on this Note, whether such payment is of a regular
installment or represents a prepayment, to be by wired federal funds or other
immediately available funds or to be paid at a place other than the above
address.

       (b)  APPLICATION OF PAYMENTS RECEIVED. Except as otherwise
       provided in this Note, all payments received by Lender on this Note
       shall be applied by Lender as follows:

           FIRST, to accrued and unpaid interest then due and owing; and

           SECOND, to the reduction of principal of this Note; and

           THIRD, to any unpaid Late Payment Charges (herein below defined).

       If an Event of Default (hereinbelow defined) occurs,  or an event which,
 but for the passage of time, the giving of notice, or both would constitute an
 Event of Default, Lender may apply any payments  received to any sums due
 hereunder or under any other Loan Document in such manner as it deems
 appropriate.

       (c)  LATE PAYMENT CHARGES.  If Borrower fails to pay any amount of
principal and/or interest  on this Note for ten (10) days  after  such  payment
becomes  due, whether by acceleration or otherwise, Lender may, at its option,
whether immediately or at the time of final payment of the amounts evidenced by
this Note, impose a late payment charge (the "Late  Payment  Charge")  computed
by  multiplying  the amount of each past due payment by five percent (5.00%).
Until any and all Late Payment Charges are paid in full, the amount thereof
shall be added to the indebtedness secured by any of the Loan Documents.  The
Late Payment  Charge is not a penalty  and is deemed to be  liquidated  damages
for the purpose ofompensating  Lender  for the  difficulty  in  computing  the
actual  amount of damages incurred by Lender as a result of the late payment by
Borrower.

       (d) DEFAULT RATE. Principal and any accrued interest not paid when due,
whether at the Maturity Date or resulting from the acceleration of the Maturity
Date upon the occurrence of an Event of Default (as such term is defined
herein), and any advances which are made by the holder pursuant to any provision
of any other instruments or agreements securing this Note from the date of any
such advance shall bear interest at a rate of four percent (4.00%) above the
Prime Rate, but in no event at an annual interest rate greater than the maximum
amount permitted by applicable law.

       (e) PREPAYMENT. The principal balance may be prepaid in whole or in part
at any time without the payment of any prepayment consideration.

           In the event Lender receives  partial  prepaymeno,  or in the event
that Lender shall receive proceeds of condemnation or insurance  proceeds for
application  against the Loan,  such  prepayments and proceeds shall be applied
to installments of principal in the inverse order of maturity and no prepayment
consideration  shall be deducted  from such prepayments or such condemnation or
insurance proceeds.

       (f)   ACCELERATION. If:

                (i) Borrower shall fail to pay any sum due on this Note within
       ten (10) days of the date the same is due; or

                (ii) Borrower  shall fail to perform any other  obligation
       required to be performed by Borrower under this Note, or any other Loan
       Document, for thirty (30) days after Lender has given written notice of
       such  failure to Borrower  provided that in the case of any such failure
       which is  susceptible  to cure but cannot be cured within  thirty (30)
       days through the  exercise of due  diligence,  so long as the Borrower
       commences such cure within such thirty (30) day period,  such failure
       remains  susceptible to cure, and the Borrower  diligently  pursues such
       cure, such failure shall not be deemed to create an Event of Default
       hereunder; or

                (iii) Any warranty, representation  or other statement by or on
       behalf of Borrower in any instrument furnished in compliance  with or in
       reference to this Note be false or misleading in any material respect; or

                (iv)  Borrower shall generally not be paying debts as they
       become due or file a petition or seek relief under or take advantage of
       any insolvency law; make an assignment for  the  benefit  of  creditors;
       commence  a  proceeding  for the appointment  of a  receiver,  trustee,
       liquidator,  custodian  or  conservator  of Borrower  or of the whole or
       substantially  all of  Borrower's  property or of any collateral pledged
       AL security for this Note; or if Borrower shall file a petition under any
       chapter  of the  Bankruptcy  Reform  Act of 1994,  as  amended  (or any
       successor  statute  thereto)  , or file a  petition or seek relief under
       or take advantage of any other similar law or statute of the United
       States of America, any State thereof, or any foreign country or
       subdivision thereof; or

                (v) A court of competent  jurisdiction  shall enter an order,
       judgment or decree  appointing or  authorizing a receiver,  trustee,
       liquidator,  custodian or conservator  of  Borrower or of the  whole  or
       substantially  all  of  Borrower's property,  or any portion of the
       collateral  pledged as security for this Note, or enter an order for
       relief against  Borrower in any case commenced under any chapter of the
       Bankruptcy  Reform  Act of  1994,  as amended (or any successor statute
       thereto) , or grant relief under any other similar law or statute of the
       United States of America, any State thereof, or any foreign  country  or
       subdivision thereof and the same is not stayed or discharged within sixty
       (60) days of entry; or

                (vi) Under the  provisions of any law for the  reliefor aid  of
       debtors,  a court of competent jurisdiction or a receiver,  trustee,
       liquidator, custodian or conservator shall assume  custody or control or
       take possession from Borrower of all or substantially  all of Borrower's
       property or any portion of any collateral pledged as security for this
       Note; or

                (vii) There shall be commenced  against Borrower any proceeding
       for any of the foregoing  relief or if a petition is filed against
       Borrower under any chapter of the  Bankruptcy  Reform  Act of  1994,  as
       amended (or any successor statute thereto), or under any other  similar
       law or statute of the United States of America, any State thereof, or any
       foreign  country or subdivision thereof, and such proceeding or petition
       remains  undismissed for a period of sixty (60) days or if Borrower by
       any act indicates  consent to,  approval of or  acquiescence in any such
       proceeding or petition; or

                (viii)  Lender shall  receive a notice to creditors with regard
       to a bulk transfer by Borrower  pursuant to Article VI of any applicable
       Uniform  commercial Code; or

                (ix) A judgement shall enter or a tax lien be filed against the
       Borrower or the property of the  Borrower  and  shall  not be  satisfied
       or bonded to the satisfaction  of the Lender  within sixty (60) days of
       entry or  recording,  as the case may be; or

                (x) the liquidation or dissolution of the Borrower shall occur;
                    or

                (xi)  Borrower  sham  fail to  comply  with the  terms of or an
       "event of default" occurs under any other loan transaction or credit
       arrangement of any kind with Lender; or

                (xii) an "Event of  Default",  as said term is  defined  in any
       other Loan Document, shall occur;

then,  and in any such event (an "Event of  Default"), the Lender  may,  at its
option, refuse to make any further advances of loan proceeds  and  declare the
entire  unpaid balance  of this Note together  with  interest  accrued  thereon
and any other sums due hereunder or under the Loan  Documents, to be immediately
due and payable and Lender may proceed to exercise any rights or remedies  that
it may have under this Note or any other Loan Documents,  or such other rights
and remedies which Lender may have at law, equity or otherwise. In the event of
such  acceleration,  Borrower may discharge its obligations to Lender by paying:

                (i) accrued interest computed in the manner set forth above,
       plus

                (ii) the unpaid principal balance hereof as at the date of such
       payment, plus

                (iii) any Late Payment Charge computed in the manner set forth
       above, plus

                (iv) any other sum due and owing Lender under this Note or any
       other Loan Document.

       (g) COSTS AND  EXPENSES  ON DEFAULT.  After  default,  in  addition  to
principal, interest  and any Late Payment  Charge,  Lender shall be entitled to
collect all costs of collection,  including,  but not  limited  to,  reasonable
attorneys'  fee,  incurred  in connection with the protection or realization of
collateral or in connection  with any of Lender's  collection  efforts, whether
or not  suit  on  this  Note  or any  foreclosure proceeding'is  filed, and all
such costs and expenses shall be added to the principal due hereunder and shall
be  payable  on demand  and until  paid  shall be secured by the Loan Documents
and by  all  other  collateral  held  by  Lender  as  security  for  Borrower's
obligations to Lender.

       (h)  NO WAIVER BY LENDER.  No failure on the part of Lender or other
holder  hereof to exercise any right or remedy  hereunder,  whether  before or
after the  happening of an Event of Default, shall constitute a waiver thereof,
and no waiver of any past right, remedy,  or Event of Default  shall constitute
a waiver of any future default or of any other default.  No failure to
accelerate  the Loan  evidenced  hereby by reason of default hereunder,  or
acceptance of a past due  installment,  or indulgence granted from time to time
shall be  construed  to be a waiver  of the right to insist upon prompt payment
thereafter,  or shall be deemed to be a novation of this Note or as a
reinstatement of the Loan evidenced  hereby or as a waiver of such right of
acceleration or any other right, or be construellso asRo prec~lude The exercise
of any right which Lender may have,  whether by the laws of the state governing
this Note, by agreement or otherwise;  and Borrower and each endorser  hereby
expressly waive the benefit of any statute or rule of law or equity which would
produce a result contrary to or in conflict with the foregoing.  This Note may
not be changed  orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.

       (i)  FINANCIAL  INFORMATION.  Borrower will at all times keep proper
books  of records and accounts in which full, true and correct entries shall be
made in accordance with generally accepted accounting principles and will
deliver to Lender by April 15th of each year a copy of  Borrower's  income  tax
returns  for such  prior  year and copies of Borrower's  financial statement in
such form as shall be  acceptable  to the Lender, and from time to time, at the
request of the Lender,  such other  financial  information  with respect to
Borrower as the Lender may request.

       (j) COMPLIANCE WITH USURY LAWS. It is the intention of the parties to
conform strictly to the usury laws, whether state or federal, that are
applicable to this Note. All agreements between Borrower and Lender, whether
now existing or hereafter arising and whether oral or written, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
acceleration of maturity hereof or otherwise, shall the amount paid or agreed to
be paid to Lender or the holder hereof, or collected by Lender or such holder,
for the use, forbearance or detention of the money to be loaned hereunder or
otherwise, or for the payment or performance of any covenant or obligation
contained herein, or in any of the Loan Documents, exceed the maximum amount
permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or of the Loan
Documents, at the time performance of such provision shall be due, shall involve
exceeding the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances Lender or other holder hereof shall ever receive an amount deemed
interest by applicable law, which would exceed the highest lawful rate, such
amount that would be excessive interest under applicable usury laws shall be
applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the Loan Documents and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of principal and such
other indebtedness, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the indebtedness of Borrower
evidenced hereby, outstanding from time to time shall, to the extent permitted
by applicable law, and to the extent necessary to preclude exceeding the limit
of validity prescribed by law, be amortized, pro-rated, allocated and spread
from the date of disbursement of the proceeds of this Note until payment in full
of the Loan evidenced hereby and thereby so that the actual rate of interest on
account of such indebtedness is uniform throughout the term hereof and thereof.
The terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between Borrower, any endorser and Lender.

       (k) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note shall be
governed by and construed under the laws of the Commonwealth of Massachusetts
and shall have the effect of a sealed instrument. Borrower and each endorser
hereby submits to personal jurisdiction in Berkshire County in said
Commonwealth for the enforcement of Borrower's obligations hereunder or under
any other Loan Document and waives any and all personal rights under the law of
any other state to object to jurisdiction within such Commonwealth for the
purposes of litigation to enforce such obligations of Borrower.

       (1) WAIVER OF JURY TRIAL. Lender and the Borrower hereby waive trial by
jury in any litigation in any court with respect to, in connection with, or
arising out of this Note, any other Loan Document or the Loan, or any instrument
or document delivered in connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other claim or dispute
howsoever arising between the Borrower and Lender.

       (m)  AUTHORITY OF LENDER.  Borrower  authorizes  Lender to date this Note
as of the day when the Loan is made and to complete or correct this  Note as to
any terms of the Loan not set forth herein at the time of delivery hereof.

       (n)  NOTICES.  Any notices  required or permitted to be given  hereunder
shall be: (i) personally delivered or (ii) given by registered or certified
mail,  postage prepaid, return  receipt  requested,  or (iii)  forwarded by
overnight  courier  service,  in each instance addressed to the  addresses  set
forth at the head of this Note,  or such other addresses as the parties may for
themselves designate in writing as provided herein for the purpose of receiving
notices  hereunder.  All notices shall be in writing and shall be deemed given,
in the case of notice by personal  delivery,  upon actual  delivery, and in the
case of mail or courier service, upon deposit with the U.S. Postal Service  or
delivery to the courier service.

       (o) LIABILITY IF MORE THAN ONE BORROWER. If more than one person or
entity executes this Note as a Borrower, all of said persons or entities are
jointly and severally liable hereunder.

       (p) ENTIRE AGREEMENT.  This Note and the other Loan Documents constitute
the entire understanding between Borrower and Lender and to the extent that any
writings not signed by  Lender  or  oral  statements  or  conversations  at any
time  made  or had  shall  be inconsistent with the provisions of this Note and
the other  Loan  Documents,  the same shall be null and void.

       (q) "BUSINESS PURPOSE" WARRANTY.  The undersigned covenants and warrants
that the proceeds of this Loan shall be used solely for business  purposes and
that the transaction evidenced hereby is not a consumer transaction  subject to
MGL c.140D,  Federal  Reserve Board Regulation Z or other "consumer protection"
statutes,  regulations or restrictions, without exception.

       (r) RIGHTS OF SET OFF. Borrower grants to the Lender a continuing lien
for the amount of this Note upon any and all monies, securities and other
property of Borrower and the proceeds thereof, now or hereafter held or received
by or in transit to the Lender from or for Borrower whether for safekeeping,
custody, pledge, transmission, collection or otherwise, and also upon any and
all deposits (general or special) and credits of Borrower with, any and all
claims of Borrower against the Lender at any time is authorized at any time and
from time to time, without notice to Borrower, to set off, appropriate and apply
any and all items hereinabove referred to against the outstanding indebtedness
evidenced by this Note.




       IN WITNESS WHEREOF, Borrower has caused this instrument to be executed by
Ronald E. Rabidou, its duly authorized Chief Financial Officer and its corporate
seal to be hereunto affixed as of the date first above written.

                               LITCHFIELD FINANCIAL CORPORATION

                            By:  _______________________________________
                               Ronald E. Rabidou, Chief Financial Officer

                      COMMONWEALTH OF MASSACHUSETTS

BERKSHIRE, ss.
December 12, 1997

       Then personally appeared the above-named Ronald E. Rabidou,  Chief
Financial Officer, who acknowledged the foregoing instrument to be the free act
and  deed of Litchfield Financial Corporation, before me,

 
_______________________________________
                                Notary Public
                                My Commission Expires:


 
                                      Exhibit 10.171
                               LOAN MODIFICATION AGREEMENT
                                         60104506
                                         LOAN NUMBER
Agreement made as of this 23rd day of march, 1998 effective by and between
Litchfield Financial Corporation, with a mailing address, for the purposes
hereof, at P.O. Box 488, Route 2, Williamstown,  MA 01267 ("Borrower") and
Berkshire Bank, a Massachusetts banking corporation  with its principal  office
and place of business at The  PopCorner,  24 North Street, Pittsfield,
Massachusetts 01201 ("Lender").

1.   Preliminary Statement

     1.1    Borrower  is indebted to Lender by virtue of a  promissory  note
            ("The  Note") date  December 12, 1997,  in the original  amount of
            $ 1,500,000.00, having due on this date here of the principal sum of
            $498,339.50.

     1.2     The parties now desire to revise the terms of said note.

Now, Therefore, the Borrower Agrees with the Lender as Follows:

2.1  To extend the maturity date from December 12, 2008 to March 12, 2009.

     2.2    To defer principal repayment on the loan for three months from
            January 12, 1999 through March 12, 1999.  To pay accrued interest
            monthly during this period.

2.3  To change the date for the annual rate and payment adjustment from December
        12 reflecting in the January 12 billing to adjusting annually March  12
        to be reflected in the April 12 billing.  The next annual rate and
        payment  adjustment shall be for the April 12, 1999 billing.

     2.4    To change the interest rate from Wall Street  Journal  Prime rate
            floating daily, currently at 8.50% to be fixed at 8.00 % from March
            23, 1998 through March 12, 1999, when the interest rate will revert
            to the Wall Street Journal Prime rate floating daily as stated in
            the loan note.

2.5  Commencing with the April 12, 1999 billing,  the loan shall be reamortized
            over the remaining 120 month term of the loan.

     2.6    All terms, covenants and conditions of the Note and all other
            documents and security  shall  remain in full force and  effect in
            their  original  tenor, except as provided for herein, and not
            otherwise. This Agreement shall be incorporated by reference within
            the Note as if stated therein.
 
                                             Initials of Borrower(s):_______



Continuation of Loan Modification Agreement

  to Litchfield Financial Corporation
Loan# 60104506
Page 2 of 2 Pages

     2.7    Except for the modifications  made  hereby,  this Agreement is  in
            addition to or an extension of other previous modifications and not
            in substitution of the Note or any security instrument.

3.   Consideration

     The Borrower hereby acknowledges that the making of this Agreement by
     Lender constitutes, and Borrower has received,  full,  complete and new
     consideration for making this Loan Modification Agreement.

4.   Ratification and Incorporation

     4.1     Except as modified hereby, Borrower hereby ratifies  the terms and
             conditions of the NOTE  described in paragraph as amended  hereby,
             and the terms and conditions of said NOTE are fully incorporated
             herein by reference.

     4.2     Borrower agrees to perform each and all of the terms,covenants and
             conditions of the said NOTE, as amended hereby.

5.   Construction

     This agreement shall be deemed to have been entered into in the
     Commonwealth of  Massachusetts,  and the laws of the  Commonwealth  of
     Massachusetts shall govern  the construction of  this  Agreement  and the
     rights and duties of the parties hereto.  It is agreed and understood that,
     as this form of agreement may be used by persons of either sex, and for one
     or more  corporations,  and also where there are several parties,  in such
     cases, the masculine and plural, as herein used, shall be instead of and
     shall stand for the feminine or neuter gender of the single number, as the
     context may require.

WITNESS OUR HAND(S) AND SEAL(S) W23RD DAY OF MARCH, 1998.

LITCHFIELD FINANCIAL CORPORATION

_______________________________
________________________
RONALD E. RABIDOU, CHIEF FINANCIAL OFFICER                       WITNESS

BERKSHIRE BANK

BY:____________________________
      JAMES W. REID, VICE PRESIDENT


<TABLE>

                                                                 Exhibit 11.1
                          Litchfield Financial Corporation
                         Computation of Earnings Per Share
<S>                                                <C>              <C>
                                                         Three months ended         
                                                             March 31,                     
                                                       1998            1997    
Basic:
    Weighted average number of  common
        shares outstanding......................     5,659,756       5,446,679

    Net income..................................    $1,550,000      $1,145,000

    Net income per common share.................         $ .27           $ .21

Diluted:
    Weighted average number of  common
        shares outstanding......................     5,659,756       5,446,679
    Weighted average number of common
       stock equivalents outstanding:
       Stock options............................       360,402         345,399

    Weighted average common
        and common equivalent shares
        outstanding.............................     6,020,158       5,792,078

    Net income..................................    $1,550,000      $1,145,000

    Net income per common share.................         $ .26           $ .20


</TABLE>