**Exhibit3.12(b)**

**FIRSTAMENDMENTTOOPERATING AGREEMENT OFCACTUS HILLS, LLC**

This FirstAmendment to Operating Agreement of Cactus Hills, LLC (“First Amendment”) ismade as of July 1, 2006, by Kimball Hill Homes Nevada, Inc. (“KHH Nevada”),which is the sole member of Cactus Hill, LLC (the “Company”).

KHH Nevadaexecuted the Operating Agreement of Cactus Hills, LLC (the “Agreement”) as ofJuly 11, 2001.  KHH Nevada wishes toamend the Agreement in order to set out the management structure of theCompany.

KHH Nevada herebyamends Section 2.11 and Article VI of the Agreement by deleting Section 2.11and Article VI in their entirety and replacing them with the following:

2.11**Managers**.  The Company has one Member, which is KHHNevada, and shall be managed by the Member as Manager of the Company.  The Member shall generally manage all theoperations of the Company through a Management Committee, to be appointed asprovided for in Article VI.  TheManagement Committee shall appoint officers to carry out the duties andresponsibilities as provided in Section 6.3 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.

**ARTICLE VI. MANAGEMENT**

6.1.2.                     **General Powers**.  TheMember shall have full, exclusive, and complete discretion, power, andauthority, subject in all cases to the other provisions of the Agreement andthe requirements of applicable law, to manage, control, administer, and operatethe business and affairs of the Company for the purposes herein stated, and tomake all decisions affecting such business and affairs, and the power todelegate any and all such functions, including without limitation, for Companypurposes, the power to:

6.1.2.1.                                 acquireby purchase, lease, or otherwise, any real or personal property, tangible orintangible;

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

6.1.2.3.                              sell,dispose, trade, or exchange Company assets in the ordinary course of theCompany’s business;

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6.1.2.4.                                 enterinto agreements and contracts and to give receipts, releases and discharges;

6.1.2.5.                                 purchaseliability and other insurance to protect the Company’s properties and business;

6.1.2.6.                                 borrowmoney for and on behalf of the Company, and, in connection therewith, executeand deliver instruments authorizing the confession of judgment against theCompany;

6.1.2.7.                                 executeor modify leases with respect to any part or all of the assets of the Company;

6.1.2.8.                                 prepay,in whole or in part, refinance, amend, modify, or extend any mortgages, trustdeeds or security agreements which may affect any asset of the Company and inconnection therewith to execute for and on behalf of the Company anyextensions, renewals, or modifications of such mortgages, trust deeds orsecurity agreements;

6.1.2.9.                                 executeany and all other instruments and documents which may be necessary or in theopinion of the Member desirable to carry out the intent and purpose of theAgreement, including, but not limited to, documents whose operation and effectextend beyond the term of the Company;

6.1.2.10.                           makeany and all expenditures which the Member, in its sole discretion, or in thediscretion of the parties to whom the Member has delegated the authority to actfor the Company as provided for above, deems necessary or appropriate inconnection with the management of the affairs of the Company and the carryingout of its obligations and responsibilities under this Agreement, including,without limitation, all legal, accounting and other related expenses incurredin connection with the organization and financing and operation of the Company;

6.1.2.11.                           enterinto any kind of activity necessary to, in connection with, or incidental to,the accomplishment of the purposes of the Company;

6.1.2.12.                           investand reinvest Company reserves in short-term instruments or money market funds;and

6.1.2.13.                           delegateany or all of its authority and powers as manager of the Company to theManagement Committee.

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6.2.                              **Management Committee**.

6.2.1.                     **Powers of Management Committee**.  The Member hereby establishes a managementcommittee (the “Management Committee”) and delegates to the Management Committeethe Member’s full power and authority as manager of the Company to representthe Company, to act in the name of the Company and to manage the business ofthe Company, including without limitation the powers and authorities set forthin Section 6.1.2 of the Agreement. Further, the Member hereby authorizes the Management Committee todelegate its powers and authorities to the officers and other managers of theCompany.  The officers of the Companydescribed in Section 6.3 shall have the powers and authorities set forththerein.  The officers of the Companyshall conduct the business operations and activities of the Company in a mannerconsistent with the policies adopted from time to time by the ManagementCommittee.

6.2.2.                     **Composition of Management Committee**.  Effective as of the date of this FirstAmendment, the Management Committee shall consist of three persons (“ManagementCommittee Members”), who shall be appointed from time to time by theMember.  The Member hereby appoints DavidK. Hill, Eugene K. Rowehl and Hal H. Barber as the Management CommitteeMembers, effective as of the date of this First Amendment.  Each Management Committee Member shall holdoffice until 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 theManagement Committee shall be filled by the Member.  The Management Committee from time to timeshall appoint officers of the Company to act for and on behalf of the Company.

6.2.3.                     **Meetings of the Management Committee**.  The Management Committee shall meet at suchtimes and places as a majority of the Management Committee Members maydesignate from time to time.  Notice ofany meeting shall be given at least five days previous thereto by writtennotice mailed or telefaxed to each Management Member at his business address,unless the giving of such notice is waived by such Management CommitteeMember.  The attendance of a ManagementCommittee Member at any meeting shall constitute a waiver of notice of suchmeeting.  Neither the business to betransacted at, nor the purpose of, any meeting of the Management Committee needbe specified in the notice 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 the Management Committee Members present at ameeting at which a quorum is present shall be the act of the Management Committee.  Any action which may be taken at a meeting ofthe Management Committee may be taken without a meeting if a written consent,setting forth the action so taken, shall be signed by all the ManagementCommittee Members.  Any written consentsigned by all the Management Committee Members shall have the same effect as aunanimous vote, and may be stated as such in any document reflecting actiontaken by the Management Committee.

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6.3.                              **Officers of the Company**. The officers of the Company shall be a chairman and chief executiveofficer, one or more vice-chairmen, a president, one or more vice-presidents, atreasurer, a secretary, and such other officers as may be elected or appointedfrom time to time by the Management Committee. Any two or more offices may be held by the same person.  Each officer shall hold office until hissuccessor shall have been duly elected or until his death or until he shallresign or shall have been removed by the Management Committee.  Election of an officer shall not of itself createcontract rights.

6.3.1.                     **Chairman and Chief Executive Officer**.  Subject to the direction and control of theManagement Committee, the chairman shall be the chief executive officer andshall have the following general duties and responsibilities:  be in charge of the business of the Company;see that 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.  The chairman shall preside at all meetings ofthe Management Committee.  Except in thoseinstances in which the authority to execute is expressly delegated to anotherofficer or agent of the Company or a different mode of execution is expresslyprescribed by the Management Committee, the chairman may execute for theCompany any contracts, deeds, mortgages, bonds, or other instruments which theManagement Committee has authorized to be executed.

6.3.2.                     **Vice Chairman**.  The Vice Chairman (or Chairmen) shall assistthe chairman and chief executive officer in the discharge of his duties as thechairman may direct and shall perform such other duties as from time to timemay be assigned to him by the chairman or by the Management Committee.  Except in those instances in which theauthority to execute is expressly delegated to another officer or agent of theCompany or a different mode of execution is expressly prescribed by theManagement Committee, each Vice Chairman may execute for the Company anycontracts, deeds, mortgages, bonds or other instruments which the ManagementCommittee has authorized to be executed.

6.3.3.                     **President**.  The president shall assist the chairman andchief executive officer in the discharge of the chairman’s duties as thechairman may direct and shall perform such other duties as from time to timemay be assigned to him by the chairman or by the Management Committee.  In the absence of the chairman or in theevent of his inability or refusal to act, the president shall perform theduties of the chairman, and when so acting, shall have all the powers of thechairman.  Except in those instances inwhich the authority to execute is expressly delegated to another officer oragent of the Company or a different mode of execution is expressly prescribedby the Management Committee, the president may execute for the Company any contracts,deeds, mortgages, bonds or other instruments which the Management Committee hasauthorized to be executed.

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6.3.4.                     **Vice Presidents**.  Each of the vice-presidents shall assist thepresident in the discharge of the president’s duties as the president maydirect and shall perform such other duties as from time to time may be assignedto him by the chairman and chief executive officer, the president or theManagement Committee.  In the absence ofthe president or in the event of his inability or refusal to act, thevice-presidents in the order of seniority of tenure as vice-president shallperform the duties of the president, and when so acting, shall have all thepowers of the president.  Except in thoseinstances in which the authority to execute is expressly delegated to anotherofficer or agent of the Company or a different mode of execution is expresslyprescribed by the Management Committee, each of the vice-presidents may executefor the Company any contracts, deeds, mortgages, bonds or other instrumentswhich the Management Committee has authorized to be executed.

6.3.5.                     **Treasurer**.  The treasurer shall be the chief financialofficer and principal accounting officer of the Company.  He shall have charge of and be responsiblefor the maintenance of adequate books of account for the Company, have chargeand custody of all funds and securities of the Partnership and be responsiblefor the receipt and disbursement thereof, and perform all duties incident tothe office of treasurer and such other duties as from time to time may beassigned to him by the chairman and chief executive officer, the president orthe Management Committee.

6.3.6.                     **Secretary**.  The secretary shall record the minutes ofManagement Committee meetings or actions taken by unanimous consent of theManagement Committee, be custodian of the Company’s records, sign with thechairman and chief executive officer or the president or a vice-president orany other officer authorized by the Management Committee any contracts, deeds,mortgages, bonds or other instruments which the Management Committee hasauthorized to be executed, except when a different mode of execution isexpressly prescribed by the Management Committee, and perform all dutiesincident to the office of secretary and such other duties as from time to timemay be assigned to him by the chairman, the president or the ManagementCommittee.

6.3.7.                     **Assistant Treasurers and Assistant Secretarie***s*.  The assistant treasurers and assistantsecretaries shall perform such duties as shall be assigned to them by thetreasurer or the secretary, respectively, or by the chairman and chiefexecutive officer, the president or the Management Committee.

6.4.                              **Authority of Officers and Managers**.  In addition to the powers and authoritiesgranted to officers as provided in Section 6.3 above, the Member or theManagement Committee from time to time may grant additional powers andauthorities to the officers and managers of the Company.  The Management Committee may authorize anyofficer, manager or employee of the Company to enter into any contract,including without limitation contracts to borrow money, and to execute anddeliver any instrument, including without limitation contracts to borrow money,and to execute and deliver any instrument, including without limitationpromissory notes and other evidences of indebtedness, in the name of and onbehalf of the Partnership, and such

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authority may be generalor confined to specific instances.  Theofficers and managers of the Company shall have authority to delegate any orall of their respective powers and authorities to subordinate managers andemployees of the Company.

6.5.                              **Action by Member**. Since there is only one Member, any action of the Member can be takenunilaterally by written consent or by any other means deemed appropriate by theMember.

6.6.                              **Personal Services**.

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

6.6.2.                     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.

6.7.                              **Duties of Member**.

6.7.1.                     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.

6.7.2.                     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 organization of the Company shall bewithout prejudice to its rights to maintain, expand or diversify such otherinterests and activities and to receive and enjoy profits or compensationtherefrom.

6.8.                              **Liability and Indemnification**.

6.8.1.                     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 6.8.

6.8.2.                     The Company shallindemnify any person who was or is a party or is threatened to be made a partyto any threatened, pending or completed action, suit or proceeding, whethercivil, criminal, administrative or investigative (other than an action by or inthe right of the Company) by reason of the fact that he is or was a Member,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 reasonablyincurred  by 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 Actionby judgment or settlement, conviction or upon a plea of *nolocontendere*or its equivalent shall not, of itself, create apresumption that the person did not act in good faith and in a manner which hereasonably believed to be in or not opposed to the best interests of theCompany, and with respect to any criminal action or proceeding, had reasonablecause to believe that his conduct was unlawful.

6.8.3.                     Anyindemnification under Section 6.8.2 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 determination shall be made (a) by theManagement Committee by a majority vote of a quorum consisting of ManagementCommittee Members who are not parties to such Action, or (b) if directed by theManagement Committee, by independent legal counsel in a written opinion.  Notwithstanding the foregoing, to the extentthat a Member, Management Committee Member, officer, employee or agent of theCompany has been successful on the merits or otherwise in defense of anyAction, or in defense of any claim, issue or matter therein, he shall beindemnified against expenses (including attorneys’ fees) actually andreasonably incurred by him in connection therewith.

6.8.4.                     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 6.8.2, 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 6.8.2, which undertaking may be accepted by the Companywithout reference to the financial ability of such person to makerepayment.  Any payment of expenses underthis Section 6.8.4 shall be made in the sole discretion of the Company and onsuch terms and conditions as the Company, in its sole discretion, deemsappropriate.

6.8.5.                     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 and expenses betweenthe Company and such person made by legal counsel shall be final and bindingupon the Company and such person.

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6.8.6.                     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.

6.8.7.                     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, KHH Nevada has executed this First Amendment to Operating Agreement asof the date first written above.
|   |   | KIMBALL HILL HOMES NEVADA,  INC.,   |
|--------|--------|-------------------------------------|
|   |   | a Nevada limited  liability company |
|   |   |                                |
|   |   |                                |
|   |   | By:                                 | /s/  Hal H.  Barber |   |
|   |   |                                | Hal H. Barber |
|   |   |                                | Vice President |

 

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