**Exhibit3.138(b)**

**FIRSTAMENDMENTTOOPERATING AGREEMENT OFKIMBALL HILL HOMES HOUSTON INVESTMENTS, L.L.C.**

This FirstAmendment to Operating Agreement of Kimball Hill Homes Houston Investments,L.L.C. (“First Amendment”) is made as of July 1, 2006, by Kimball Hill HomesIllinois, LLC (“KHH IL”), which is the sole member of Kimball Hill HomesHouston Investments, L.L.C. (the “Company”).

KHH IL wishes toamend the Operating Agreement dated May 23, 2002 in order to set out themanagement structure of the Company.

KHH IL herebyamends Section V of the Agreement by deleting Section V in its entirety andreplacing it with the following Section V:

**Section VManagement: Rights, Powers, and Duties**

5.1.                              *Manager*.

5.1.1.                     *Manager*. The Company has one Member, which is KHH IL, andshall be managed by the Member as Manager of the Company. The Member shallgenerally manage all the operations of the Company through a ManagementCommittee, to be appointed as provided for in Section 5.2 below. The ManagementCommittee shall appoint officers to carry out the duties and responsibilitiesas provided in Section 5.3 below. All persons acting at any time as ManagementCommittee Members and/or as officers of the Company are acting for the Companyand not individually as members of the Company.

5.1.2.                     *General Powers*. The Member shall have full, exclusive, andcomplete discretion, power, and authority, subject in all cases to the otherprovisions of the Agreement and the requirements of applicable law, to manage,control, administer, and operate the business and affairs of the Company forthe purposes herein stated, and to make all decisions affecting such businessand affairs, and the power to delegate any and all such functions, includingwithout limitation, for Company purposes, the power to:

5.1.2.1.            acquire by purchase,lease, or otherwise, any real or personal property, tangible or intangible;

5.1.2.2.            construct, operate,maintain, finance, and improve, and to own, sell, convey, assign, mortgage, orlease any real estate and any personal property;

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5.1.2.3.          sell, dispose, trade, orexchange Company assets in the ordinary course of the Company’s business;

5.1.2.4.            enter into agreementsand contracts and to give receipts, releases and discharges;

5.1.2.5.            purchase liability andother insurance to protect the Company’s properties and business;

5.1.2.6.            borrow money for andon behalf of the Company, and, in connection therewith, execute and deliverinstruments authorizing the confession of judgment against the Company;

5.1.2.7.            execute or modifyleases with respect to any part or all of the assets of the Company;

5.1.2.8.            prepay, in whole or inpart, refinance, amend, modify, or extend any mortgages, trust deeds orsecurity agreements which may affect any asset of the Company and in connectiontherewith to execute for and on behalf of the Company any extensions, renewals,or modifications of such mortgages, trust deeds or security agreements;

5.1.2.9.            execute any and allother instruments and documents which may be necessary or in the opinion of theMember desirable to carry out the intent and purpose of the Agreement,including, but not limited to, documents whose operation and effect extendbeyond the term of the Company;

5.1.2.10.      make any and allexpenditures which the Member, in its sole discretion, or in the discretion ofthe parties to whom the Member has delegated the authority to act for theCompany as provided for above, deems necessary or appropriate in connectionwith the management of the affairs of the Company and the carrying out of itsobligations and responsibilities under this Agreement, including, withoutlimitation, all legal, accounting and other related expenses incurred inconnection with the organization and financing and operation of the Company;

5.1.2.11.      enter into any kind ofactivity necessary to, in connection with, or incidental to, the accomplishmentof the purposes of the Company;

5.1.2.12.      invest and reinvest Companyreserves in short-term instruments or money market funds; and

5.1.2.13.      delegate any or all of itsauthority and powers as manager of the Company to the Management Committee.

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5.2.                              *Management Committee*.

5.2.1.                     *Powers of Management Committee*. The Member herebyestablishes a management committee (the “Management Committee”) and delegatesto the Management Committee the Member’s full power and authority as manager ofthe Company to represent the Company, to act in the name of the Company and tomanage the business of the Company, including without limitation the powers andauthorities set forth in Section 5.1.2 of the Agreement. Further, the Memberhereby authorizes the Management Committee to delegate its powers andauthorities to the officers and other managers of the Company. The officers ofthe Company described in Section 5.3 shall have the powers and authorities setforth therein. The officers of the Company shall conduct the businessoperations and activities of the Company in a manner consistent with thepolicies adopted from time to time by the Management Committee.

5.2.2.                     *Composition of Management Committee*. Effective as of thedate of this First Amendment, the Management Committee shall consist of threepersons (“Management Committee Members”), who shall be appointed from time totime by the Member. The Member hereby appoints David K. Hill, Eugene K. Rowehland Hal H. Barber as the Management Committee Members, effective as of the dateof this First Amendment. Each Management Committee Member shall hold officeuntil his successor shall have been appointed by the Member. ManagementCommittee Members need not be residents of the state in which the Company isorganized. Any vacancy occurring in the Management Committee shall be filled bythe Member. The Management Committee from time to time shall appoint officersof the Company to act for and on behalf of the Company.

5.2.3.                     *Meetings of the Management Committee*. The ManagementCommittee shall meet at such times and places as a majority of the ManagementCommittee Members may designate from time to time. Notice of any meeting shallbe given at least five days previous thereto by written notice mailed ortelefaxed to each Management Member at his business address, unless the givingof such notice is waived by such Management Committee Member. The attendance ofa Management Committee Member at any meeting shall constitute a waiver ofnotice of such meeting. Neither the business to be transacted at, nor thepurpose of, any meeting of the Management Committee need be specified in thenotice or waiver of notice of such meeting.

A majority of theManagement Committee shall constitute a quorum for transaction of business atany meeting of the Management Committee. The act of the majority of theManagement Committee Members present at a meeting at which a quorum is presentshall be the act of the Management Committee. Any action which may be taken ata meeting of the Management Committee may be taken without a meeting if awritten consent, setting forth the action so taken, shall be signed by all theManagement Committee Members. Any written consent signed by all the ManagementCommittee Members shall have the same effect as a unanimous vote, and may bestated as such in any document reflecting action taken by the ManagementCommittee.

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5.3.                              *Officers of the Company*. The officers of the Company shallbe a chairman and chief executive officer, one or more vice-chairmen, apresident, one or more vice-presidents, a treasurer, a secretary, and suchother officers as may be elected or appointed from time to time by theManagement Committee. Any two or more offices may be held by the same person. Eachofficer shall hold office until his successor shall have been duly elected oruntil his death or until he shall resign or shall have been removed by theManagement Committee. Election of an officer shall not of itself create contractrights.

5.3.1.                     *Chairman and Chief Executive Officer*.Subject to the direction and control of the Management Committee, the chairmanshall be the chief executive officer and shall have the following generalduties and responsibilities: be in charge of the business of the Company; seethat the resolutions and directions of the Management Committee are carriedinto effect except in those instances in which that responsibility isspecifically assigned to some other person by the Management Committee; and, ingeneral, discharge all duties incident to the office of chairman and such otherduties as may be prescribed by the Management Committee from time to time. Thechairman shall preside at all meetings of the Management Committee. Except inthose instances in which the authority to execute is expressly delegated toanother officer or agent of the Company or a different mode of execution isexpressly prescribed by the Management Committee, the chairman may execute forthe Company any contracts, deeds, mortgages, bonds, or other instruments whichthe Management Committee has authorized to be executed.

5.3.2.                     *Vice Chairman*. The ViceChairman (or Chairmen) shall assist the chairman and chief executive officer inthe discharge of his duties as the chairman may direct and shall perform suchother duties as from time to time may be assigned to him by the chairman or bythe Management Committee. Except in those instances in which the authority toexecute is expressly delegated to another officer or agent of the Company or adifferent mode of execution is expressly prescribed by the ManagementCommittee, each Vice Chairman may execute for the Company any contracts, deeds,mortgages, bonds or other instruments which the Management Committee hasauthorized to be executed.

5.3.3.                     *President*. The presidentshall assist the chairman and chief executive officer in the discharge of thechairman’s duties as the chairman may direct and shall perform such otherduties as from time to time may be assigned to him by the chairman or by theManagement Committee. In the absence of the chairman or in the event of hisinability or refusal to act, the president shall perform the duties of thechairman, and when so acting, shall have all the powers of the chairman. Exceptin those instances in which the authority to execute is expressly delegated toanother officer or agent of the Company or a different mode of execution isexpressly prescribed by the Management Committee, the president may execute forthe Company any contracts, deeds, mortgages, bonds or other instruments whichthe Management Committee has authorized to be executed.

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5.3.4.                     *Vice Presidents*. Each of thevice-presidents shall assist the president in the discharge of the president’sduties as the president may direct and shall perform such other duties as fromtime to time may be assigned to him by the chairman and chief executiveofficer, the president or the Management Committee. In the absence of thepresident or in the event of his inability or refusal to act, the vice-presidentsin the order of seniority of tenure as vice-president shall perform the dutiesof the president, and when so acting, shall have all the powers of thepresident. Except in those instances in which the authority to execute isexpressly delegated to another officer or agent of the Company or a differentmode of execution is expressly prescribed by the Management Committee, each ofthe vice-presidents may execute for the Company any contracts, deeds,mortgages, bonds or other instruments which the Management Committee hasauthorized to be executed.

5.3.5.                     *Treasurer*. The treasurershall be the chief financial officer and principal accounting officer of theCompany. He shall have charge of and be responsible for the maintenance ofadequate books of account for the Company, have charge and custody of all fundsand securities of the Partnership and be responsible for the receipt anddisbursement thereof, and perform all duties incident to the office oftreasurer and such other duties as from time to time may be assigned to him bythe chairman and chief executive officer, the president or the ManagementCommittee.

5.3.6.                     *Secretary*. The secretaryshall record the minutes of Management Committee meetings or actions taken byunanimous consent of the Management Committee, be custodian of the Company’srecords, sign with the chairman and chief executive officer or the president ora vice-president or any other officer authorized by the Management Committeeany contracts, deeds, mortgages, bonds or other instruments which theManagement Committee has authorized to be executed, except when a differentmode of execution is expressly prescribed by the Management Committee, andperform all duties incident to the office of secretary and such other duties asfrom time to time may be assigned to him by the chairman, the president or theManagement Committee.

5.3.7.                     *Assistant Treasurers and Assistant Secretaries*.The assistant treasurers and assistant secretaries shall perform such duties asshall be assigned to them by the treasurer or the secretary, respectively, orby the chairman and chief executive officer, the president or the ManagementCommittee.

5.4.                              *Authority of Officers and Managers*. In addition to thepowers and authorities granted to officers as provided in Section 5.3 above,the Member or the Management Committee from time to time may grant additionalpowers and authorities to the officers and managers of the Company. TheManagement Committee may authorize any officer, manager or employee of theCompany to enter into any contract, including without limitation contracts toborrow money, and to execute and deliver any instrument, including withoutlimitation contracts to borrow money, and to execute and deliver anyinstrument, including without limitation promissory notes and other evidencesof indebtedness, in the name of and on behalf of the Partnership, and such

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authority may be generalor confined to specific instances. The officers and managers of the Companyshall have authority to delegate any or all of their respective powers andauthorities to subordinate managers and employees of the Company.

5.5.                              *Action by Member*. Since there is only one Member, any actionof the Member can be taken unilaterally by written consent or by any othermeans deemed appropriate by the Member.

5.6.                              *Personal Services*.

5.6.1.                     The Member isnot required to perform services for the Company solely by virtue of being aMember.

5.6.2.                     Uponsubordination of the amount and purpose thereof, the Member shall be entitledto compensation and to reimbursement for expenses reasonably incurred inconnection with the activities of the Company.

5.7.                              *Duties of Member*.

5.7.1.                     The Membershall devote such time to the business and affairs of the Company as it deemsnecessary to carry out the Member’s duties set forth in the Agreement.

5.7.2.                     Nothing inthe Agreement shall be deemed to restrict in any way the rights of the Memberto conduct any other business or activity whatsoever, and the Member shall notbe accountable to the Company with respect to that business or activity even ifthe business or activity competes with the Company’s business. The organizationof the Company shall be without prejudice to its rights to maintain, expand ordiversify such other interests and activities and to receive and enjoy profitsor compensation therefrom.

5.8.                              *Liability and Indemnification*.

5.8.1.                     The Member,the Management Committee Members and the officers appointed by the ManagementCommittee shall not be liable, responsible, or accountable, in damages orotherwise, to the Company for any act performed by them within the scope of theauthority conferred on them by the Agreement or for any actions for which theymay be indemnified as provided for below in this Section 5.8.

5.8.2.                     The Companyshall indemnify any person who was or is a party or is threatened to be made aparty to any threatened, pending or completed action, suit or proceeding,whether civil, criminal, administrative or investigative (other than an actionby or in the right of the Company) by reason of the fact that he is or was aMember, Management Committee Member, officer, employee or agent of the Company(collectively, an “Action”), against expenses (including attorneys’ fees),judgments, fines and amounts paid in settlement actually and reasonably incurredby him in connection

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with such Action if heacted in good faith and in a manner he reasonably believed to be in or notopposed to the best interests of the Company, and, with respect to any criminalaction or proceeding, had no reasonable cause to believe his conduct wasunlawful. The termination of any Action by judgment or settlement, convictionor upon a plea of *nolo contendere*or its equivalentshall not, of itself, create a presumption that the person did not act in goodfaith and in a manner which he reasonably believed to be in or not opposed tothe best interests of the Company, and with respect to any criminal action orproceeding, had reasonable cause to believe that his conduct was unlawful.

5.8.3.                     Anyindemnification under Section 5.8.2 shall be made by the Company only asauthorized in the specific case upon a determination that indemnification isproper in the circumstances because the person requesting indemnification hasmet the applicable standard of conduct set forth therein. Such determinationshall be made (a) by the Management Committee by a majority vote of a quorumconsisting of Management Committee Members who are not parties to such Action,or (b) if directed by the Management Committee, by independent legal counsel ina written opinion. Notwithstanding the foregoing, to the extent that a Member,Management Committee Member, officer, employee or agent of the Company has beensuccessful on the merits or otherwise in defense of any Action, or in defenseof any claim, issue or matter therein, he shall be indemnified against expenses(including attorneys’ fees) actually and reasonably incurred by him inconnection therewith.

5.8.4.                     Expenses(including attorneys’ fees) actually and reasonably incurred by a Member,Management Committee Member, officer, employee or agent of the Company inconnection with the defense or disposition of any Action may be paid from timeto time by the Company in advance of the final disposition thereof upon receiptof (a) an affidavit by such person of his good faith belief that he has met thestandard of conduct necessary for indemnification under Section 5.8.2, and (b)an undertaking by such person to repay to the Company the amounts so paid if itis ultimately determined that he is not entitled to indemnification asauthorized in Section 5.8.2, which undertaking may be accepted by the Companywithout reference to the financial ability of such person to make repayment. Anypayment of expenses under this Section 5.8.4 shall be made in the solediscretion of the Company and on such terms and conditions as the Company, inits sole discretion, deems appropriate.

5.8.5.                     If both theCompany and any person to be indemnified are parties to an Action, legalcounsel representing the Company therein may, at the request of such person,also represent such person (unless such dual representation would involve suchlegal counsel in a conflict of interest in violation of applicable law orprinciples of professional ethics), and the Company shall pay all fees andexpenses of such legal counsel incurred during the period of dualrepresentation other than those, if any, that would not have been incurred iflegal counsel were representing only the Company. Any allocation of fees andexpenses between the Company and such person made by legal counsel shall befinal and binding upon the Company and such person.

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5.8.6.                     Theindemnification and advancement of expenses provided by this article shall notbe deemed exclusive of any rights to which a Member, Management CommitteeMember, officer, employee or agent of the Company may be entitled under anycontract, agreement or otherwise, both as to action in his official capacityand as to action in another capacity while holding such position or office, andshall continue as to a person who has ceased to be a Member, ManagementCommittee Member, officer, employee or agent and shall inure to the benefit ofthe heirs, executors and administrators of such person.

5.8.7.                     The Companyshall have power to purchase and maintain insurance on behalf of any person whois or was a Member, Management Committee Member, officer, employee or agent ofthe Company, or is or was serving at the request of the Partnership as adirector, officer, employee or agent of another corporation, partnership, jointventure, trust or other enterprise against any liability asserted against himand incurred by him in any such capacity, or arising out of his status as such,whether or not the Company would have the power to indemnify him against suchliability under the provisions of this article.

As so amended, theAgreement shall continue in full force and effect in accordance with its terms.

IN WITNESSWHEREOF, KHSC has executed this First Amendment to Operating Agreement as ofthe date first written above.
|   | KIMBALL HILL HOMES ILLINOIS,  LLC                  |
|--------|----------------------------------------------------|
|   |   an  Illinois limited liability company |
|   |                                               |
|   |                                               |
|   | By:                                                | /s/       Hal H.  Barber |   |
|   |                                               | Hal H. Barber |
|   |                                               | Vice President |

 

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