As of July 31, 1999


Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225

     Re:  Modification of an existing $70,000,000.00 guidance line from Guaranty
          Federal  Bank,  F.S.B.  ("Lender") to  Legacy/Monterey  Homes L.P., an
          Arizona  corporation  ("Borrower");  such loan and other  indebtedness
          being  guaranteed  by Meritage  Corporation,  a Maryland  corporation,
          MTH-Texas GP, Inc., an Arizona  corporation and MTH-Texas LP, Inc., an
          Arizona corporation (collectively referred to as "Guarantor")

Gentlemen:

     Reference is made to that certain Master Loan Agreement dated as of January
31, 1993 (and all amendments  thereto,  if any) (the "Loan  Agreement")  between
Lender and Borrower governing a $70,000,000.00  loan (as increased) (the "Loan")
for the acquisition  and/or  refinancing of residential  lots located in certain
counties in the State of Texas as described  therein,  and the  construction  of
single-family  residences  thereon.  Unless otherwise  expressly defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Loan Agreement. As used in this letter agreement,  the
term "Loan  Instruments"  shall mean and include (i) the "Loan  instruments"  as
defined in the Loan Agreement,  (ii) the Fourth Modification  Agreement dated as
of even date  herewith,  executed by and between the parties  hereto,  and (iii)
this letter agreement and all other documents  executed in conjunction  herewith
(and all amendments thereto, if any).

     Borrower  and  Lender  desire to  increase  the Loan  Amount to the  stated
principal  amount of  $80,000,000.00  and to amend and modify  certain terms and
provisions of the Loan and the Loan Instruments as follows:

     1.  The  Loan   Amount  is  hereby   increased   from   $70,000,000.00   to
$80,000,000.00.  All  references  in  the  Loan  Instruments  to the  amount  of
$70,000,000.00 are hereby increased to $80,000,000.00.

     2. The stated maturity date of the Note is hereby extended to and including
July 31, 2000, when the entire unpaid  principal  balance of the Note,  together
with  all  accrued  and  unpaid  interest  shall be due and  payable;  provided,
however,  such  date may be  extended  as set forth in  Paragraph  9 of the Loan
Agreement (as amended hereby).
<PAGE>
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 2


     3.  Exhibit A to the Loan  Agreement  is hereby  modified by deleting  such
exhibit in its entirety and replacing it with Exhibit A attached hereto.

     4. All  Loan  Instruments  hereby  are  amended  and  modified  in a manner
consistent with the  modifications,  terms and/or  provisions  contained herein.
Except as modified hereby, all the terms,  provisions and conditions of the Loan
Instruments shall remain in full force and effect.

     5. This letter agreement  constitutes the "Letter Agreement" referred to in
the Fourth Modification  Agreement of even date herewith executed by and between
the parties hereto.

     6. The terms and  provisions of this letter  agreement may not be modified,
amended,  altered or otherwise affected except by instrument in writing executed
by Lender and Borrower.

     7. Each  Guarantor  by its  execution  hereof agree to the  amendments  and
modifications  to the  Loan  Instruments  set  forth  herein  and  in the  prior
amendments and  modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive,  release or in any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.

             (The balance of this page is intentionally left blank.)
<PAGE>
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 3


     If this letter  agreement  correctly  sets forth our  understanding  of the
subject matter contained  herein,  please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed  copy to
the undersigned.

                                        Very truly yours,

                                        BORROWER:

                                        LEGACY/MONTEREY HOMES L.P.,
                                        an Arizona limited partnership

                                        BY:  MTH-TEXAS GP, INC.,
                                             an Arizona corporation,
                                             General Partner


                                             By: /s/ Rick Morgan
                                                 -------------------------------
                                                 Name: Rick Morgan
                                                 Title: Vice President
<PAGE>
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 4


                                        GUARANTOR:

                                        MERITAGE CORPORATION,
                                        a Maryland corporation


                                        By: /s/ John London
                                            ------------------------------------
                                            Name: John London
                                            Title: Co-CEO


                                        MTH-TEXAS GP, INC.,
                                        an Arizona corporation,


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President


                                        MTH-TEXAS LP, INC.,
                                        an Arizona corporation


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President
<PAGE>
Guaranty Federal Bank, F.S.B.
As of July 31, 1999
Page 5


ACCEPTED AND AGREED TO:

LENDER:

GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank


By: /s/ Sam A. Meade
    ------------------------------------
    Name: Sam A. Meade
    Title: Senior Vice President
<PAGE>
                                    EXHIBIT A

                                TO LOAN AGREEMENT


1.   Introductory  Paragraph.  RESIDENCE AND INVENTORY LOT  LIMITATIONS.  At any
     given time,  Residences and Inventory Lots financed under the Loan shall be
     limited to the following numbers, unless modified by Lender in writing:

     Total Residences:             Seven Hundred Seventy-five (775).
     Specs:                        One Hundred Twelve (112).
     Models:                       Sixty-three (63).
     Inventory Lots:               Six Hundred Twenty-Five (625).

     Borrower may increase the number of Specs  allowed above by the same number
     by which Borrower is short of Models allowed above.  Borrower covenants and
     agrees not to allow,  and is prohibited  from  allowing,  any more than ten
     (10) Specs,  three (3) Models or one hundred fifty (150)  Inventory Lots to
     exist in any Approved Subdivision (as hereinafter defined).

     The outstanding  aggregate amount of the Loan Allocations for all Specs and
     Models at any time shall never exceed $16,800,000.00.

     The outstanding  aggregate amount of the Loan Allocations for all Inventory
     Lots at any time shall never exceed $10,000,000.00.

     The term  "SPECS"  means a Residence  which is not a Model and is not Under
     Contract.  The term "MODEL" means a Residence specifically utilized for the
     purposes of marketing other residential products. The term "UNDER CONTRACT"
     shall mean  Residences  under  written  contract to sell to bona fide third
     parties  unrelated  to  Borrower,   having  no  contingency  or  any  other
     conditions not reasonably  susceptible  to being  satisfied,  providing for
     earnest  money  deposits of at least  $2,000.00,  and for which  Lender has
     received  preliminary loan approval from a bona fide residential  permanent
     lender.

     The term "INVENTORY RESIDENCE" means any Residence which is not a Model.

2.   Introductory Paragraph.  APPROVED SUBDIVISIONS.  The following subdivisions
     and  any  additional  subdivisions  approved  in  writing  by  Lender  (the
     "APPROVED  SUBDIVISIONS")  are  approved by Lender for the  Residences  and
     Inventory Lots:

     Subdivision                        County
     -----------                        ------
     Stone Canyon (Fern Bluff)          Williamson
     Oakmont Forest                     Williamson
     Settlers Ridge/Creekside           Travis
     Round Rock Ranch                   Williamson
     The Meadows (Thunderbird Est.)     Collin
     Brighton Estates - Arlington       Tarrant
     Bristol Park (Fountain Creek)      Collin
     Chase-Oaks                         Collin
     Cottonwood Bend                    Collin
     Country Club Park                  Dallas
     Creekwood Estates                  Denton
     Crestwood                          Collin
     Cross Creek West                   Collin
     Eden Road Estates                  Tarrant
     El Dorado Heights                  Collin
     Heritage Park - Allen              Collin
     Highland Parkway                   Collin
     Hillcrest Estates                  Collin


EXHIBIT A, - Page 1
<PAGE>
     Hunters Glen                       Collin
     Independence Hill                  Collin
     Meadow Glen PH IIB                 Denton
     Oakwood Glen                       Collin
     Orchard Valley Estates             Denton
     Parkdale - Plano                   Collin
     Shadow Lakes                       Collin
     Shadow Lakes North                 Collin
     Lakes of Valley Ranch              Dallas
     Vista Ridge Estates                Denton
     Windhaven Farms (Carelle Custom)   Collin
     Ravenglass Estates                 Collin
     Frankford Meadows                  Dallas
     Hunter Trail                       Tarrant
     Fossil Beach                       Tarrant

3.   Introductory  Paragraph.  APPROVED PRICE RANGE.  The Residences shall be in
     the $70,000.00 to $350,000.00 price range.

4.   Paragraph  1(c).  GUARANTOR.  Guarantor  of the  Loan  shall  be:  Meritage
     Corporation,  a, Maryland  corporation  (formerly  known as "Monterey Homes
     Corporation");  MTH-Texas G.P., Inc., an Arizona corporation; and MTH-Texas
     L.P., Inc., an Arizona corporation.

5.   Paragraph 2(h). LOAN FINANCE CHARGE. None.

6.   Paragraph  2(k) and 6(g).  INSPECTION  FEE. An inspection fee of $30.00 per
     Residence  shall be paid to Lender on the day the  Mortgage  pertaining  to
     such Residence is recorded in the Real Property Records.

7.   Paragraph  4(c).  LOAN  RATIOS.  The Loan  Allocation  shall not exceed the
     lesser of (1) one hundred percent (100%) of the direct costs of a Property,
     as determined by Lender or, (2) seventy  percent (70%) of the lowest of the
     values  as  provided  in  Paragraph  4(c)(i),(ii)  and  (iii) of this  Loan
     Agreement.

8.   Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
     other  indebtedness  now or  hereafter  owed by the  following  entities to
     Lender: None.

9.   Paragraph  6(s).  REQUIRED  RELEASES.  Borrower shall cause:  (a) Inventory
     Residences to be released from a Mortgage nine (9) months from the day such
     Mortgage  is  recorded  in the Real  Property  Records,  (b)  Models  to be
     released from a Mortgage twenty-four (24) months from the day such Mortgage
     is recorded in the Real  Property  Records,  and (c)  Inventory  Lots to be
     released  from a Mortgage  twelve (12) months from the day such Mortgage is
     recorded in the Real Property  Records;  provided,  however,  if no default
     then exists under any Loan Instruments,  Lender may, at its option,  extend
     the Required  Release  Date for periods of three (3) months (the  "EXTENDED
     RELEASE DATE");  provided,  such Extended Release Date shall in no event go
     beyond the Stated  Maturity Date (as  hereinafter  defined) or the Extended
     Maturity Date (as hereinafter defined), if applicable.

10.  Paragraph 7. REQUIRED PRINCIPAL  REDUCTIONS.  Prior to the date that Lender
     gives Borrower the notice  described in Paragraph 4(f) above, the following
     shall apply:  in the event a Property has been granted an Extended  Release
     Date (as provided in Paragraph 9 of this Exhibit A) and a Mortgage  remains
     covering  such  Property  beyond the  following  periods from the date such
     Mortgage is recorded,  then Borrower shall make a principal  payment of the
     Note in an amount equal to ten percent  (10%) of the Loan  Allocation  with
     respect to such Property (and the Loan  Allocation  for such Property shall
     be reduced by the same amount), as determined by Lender:

     Inventory Residences:         Fifteen (15) months.
     Models:                       Twenty-four (24) months.
     Inventory Lots:               Twelve (l2) months.


EXHIBIT A, - Page 2
<PAGE>
     From and after the date that Lender gives Borrower the notice  described in
     Paragraph 4(f) of the Loan  Agreement,  the following  shall apply:  in the
     event a Property has been granted an Extended  Release Date, as provided in
     Paragraph 9 of this Exhibit A, Borrower  shall make a principal  payment on
     the Note of ten  percent  (10%) of that  portion  of the Loan  advanced  by
     Lender for such  Property,  within the  following  periods  from the date a
     Mortgage covering such Property is recorded in the Real Property Records:

     Inventory Residences:         Fifteen (15) months.
     Models:                       Twenty-four (24) months.
     Inventory Lots:               Twelve (12) months.

11.  Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
     the later of the maturity date as provided in the Note (July 31, 2000) (the
     "STATED MATURITY DATE"), or nine (9) months after the recording in the Real
     Property  Records  of the last  Mortgage  (the  "EXTENDED  MATURITY  DATE")
     approved  by Lender  and  recorded  prior to the  expiration  of the Stated
     Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
     be recorded.

12.  Paragraph  10.  ADDITIONAL  DEFAULTS.  In addition to the events of default
     stipulated in the Loan  Instruments,  it shall be a default under this Loan
     Agreement if Borrower fails to comply with any of the following: None.

13.  Paragraph 11.  ADDITIONAL LOAN COVENANTS.  Borrower shall fully perform and
     satisfy the following "ADDITIONAL LOAN COVENANTS":

     (a)  The aggregate  net worth of Borrower  (determined  in accordance  with
          generally accepted accounting principles,  consistently applied) shall
          not fall below $15,000,000.00.

     (b)  The ratio of total  liabilities  to equity (as  determined  by Lender)
          shall not exceed 4.0 to 1.0.

     (c)  John Landon shall at all times retain management control of Borrower.

     (d)  In no event shall Monterey Homes Corporation,  a Maryland corporation,
          be in default under any secured indebtedness.

     If Borrower or Guarantor (if  applicable to Guarantor)  breaches any of the
     Additional  Loan  Covenants  then,  at  Lender's  election,  no  additional
     Mortgages  shall  be  recorded  in the  Real  Property  Records;  provided,
     however,  that a breach  of any  Additional  Loan  Covenants  shall  not be
     considered a default under the Loan Instruments.

14.  Paragraph  16(d).  RELEASE PRICE. The partial release price shall be a cash
     amount  equal to the Loan  Allocation  for the Property  multiplied  by the
     Stage  (expressed  as a percentage)  of the Property,  all as determined by
     Lender;  provided,  however, if Lender shall have given Borrower the notice
     described in Paragraph 4(f) of the Loan Agreement, then the partial release
     price  shall be an  amount in cash  equal to one  hundred  and one  hundred
     percent  (100%) of the  outstanding  balance of the Loan advanced by Lender
     for the Property.

15.  Paragraph  16(e).  EXTENSION  FEE. If Lender  extends the Required  Release
     Date, as provided in Paragraph 9 of this Exhibit A,  Borrower  shall pay to
     Lender an  extension  fee of one percent  (1%) of that  portion of the Loan
     advanced by Lender for each such Property  times a fraction,  the numerator
     of which is the number of days the  Required  Release  Date is extended and
     the denominator of which is 365.


EXHIBIT A, - Page 3
<PAGE>
                          FOURTH MODIFICATION AGREEMENT

     This FOURTH  MODIFICATION  AGREEMENT (this "AGREEMENT") is made and entered
into as of July 31, 1999, by and between  LEGACY/MONTEREY HOMES L.P., an Arizona
limited partnership  ("BORROWER"),  and GUARANTY FEDERAL BANK, F.S.B., a federal
savings  bank  organized  and  existing  under  the  laws of the  United  States
("LENDER").

                                   WITNESSETH:

     WHEREAS, pursuant to a certain Master Loan Agreement (the "LOAN AGREEMENT")
dated as of January 31, 1993,  between  Lender and Borrower,  Lender made a loan
(the "LOAN") to Borrower,  evidenced by a certain Revolving Promissory Note (the
"NOTE") dated as of January 31, 1993,  payable to Lender in the stated principal
amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) (as increased), with
interest and principal payable as set forth therein; and

     WHEREAS,  to secure the Note and Loan,  Master Form  Deed(s) of Trust (With
Security Agreement and Assignment of Rents and Leases) (hereinafter collectively
referred to as the "MASTER DEEDS OF TRUST,"  whether one or more),  which Master
Deeds of Trust have been  recorded in certain  counties in the State of Texas as
more particularly described on Exhibit A attached hereto; and which Master Deeds
of Trust are  incorporated by reference  pursuant to the terms and provisions of
certain  Deeds of Trust  Incorporating  by Reference a Master Form Deed of Trust
(With  Security  Agreement  and  Assignment  of  Rents  and  Leases)  (hereafter
collectively  referred to as the  "SUPPLEMENTAL  DEEDS OF TRUST," whether one or
more) recorded in such counties and encumbering  certain real and other property
(the  "PROPERTY")  described  in such  Supplemental  Deeds of Trust (such Master
Deeds of Trust and Supplemental Deeds of Trust hereafter  collectively  referred
to as the "DEEDS OF TRUST," whether one or more); and

     WHEREAS,  the  Deeds of Trust  were  modified  pursuant  to a  Modification
Agreement (the "FIRST  MODIFICATION") dated ____________,  1997, and recorded in
various counties in Texas, which First  Modification  modified certain terms and
provisions of the Loan as set forth therein; and

     WHEREAS,  the Deeds of Trust were further pursuant to a Second Modification
Agreement (the "SECOND  MODIFICATION") dated as of May 19, 1998, and recorded in
various counties in Texas, which Second Modification  modified certain terms and
provisions of the Loan as set forth therein; and

     WHEREAS,  the Deeds of Trust were further pursuant to a Third  Modification
Agreement  (the  "THIRD  MODIFICATION")  dated as of  March  ______,  1999,  and
recorded in various counties in Texas, which Third Modification modified certain
terms and provisions of the Loan as set forth therein; and

     WHEREAS,  the Note and the Loan are  guaranteed  pursuant  to that  certain
Guaranty  Agreement  dated as of June 30,  1997 (the  "GUARANTY"),  executed  by
MTH-Texas  GP, Inc.,  an Arizona  corporation,  MTH-Texas  LP, Inc.,  an Arizona
corporation, and Meritage Corporation, a Maryland corporation (formerly known as
"MONTEREY HOMES CORPORATION") ("GUARANTOR," whether one or more); and

     WHEREAS, the Loan Agreement,  the Note, the First Modification,  the Second
Modification, the Third Modification Agreement, the Deeds of Trust and all other
documents  evidencing  and/or  securing  the Loan are  hereinafter  collectively
called the "LOAN INSTRUMENTS"; and


FOURTH MODIFICATION AGREEMENT - Page 1
<PAGE>
     WHEREAS,  Lender,  the owner and  holder of the Note and the Deeds of Trust
and all rights and titles evidenced thereby,  and Borrower,  the record owner of
the Property  and being  liable for the payment of the Note and Loan,  desire to
modify the Loan Instruments as herein provided.

     NOW,  THEREFORE,  in  consideration  of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

     1. The stated maturity date of the Note is hereby extended to and including
July 31, 2000, when the entire unpaid  principal  balance of the Note,  together
with  all  accrued  and  unpaid  interest  shall be due and  payable;  provided,
however, such date may be extended as set forth in the Loan Agreement.

     2. The Loan is hereby increased from $70,000,000.00 to $80,000,000.00.  All
references in the Loan  Instruments to the amount of  $70,000,000.00  are hereby
increased to $80,000,000.00.

     3. Borrower shall execute and deliver to Lender a letter agreement (in form
and  substance  satisfactory  to Lender  in its sole  discretion)  (the  "LETTER
AGREEMENT")  dated  as of the date  hereof  amending  certain  other  terms  and
provisions of the Loan  Instruments.  (Hereafter,  this Agreement and the Letter
Agreement shall be included in the defined term "LOAN INSTRUMENTS.")

     4. Borrower  acknowledges and agrees, that as an accommodation to Borrower,
Exhibit A hereto  (which  exhibit  describes the  recording  information  of the
Master Deeds of Trust) shall be attached to this  Agreement  (and to any and all
other  documents  which may  require  the  attachment  of a  description  of the
recording  information of the Master Deeds of Trust) after Borrower's  execution
of same.  Accordingly,  Borrower hereby  authorizes and directs Lender to attach
such Exhibit A to this Agreement.

     5. Notwithstanding anything to the contrary contained in the Deeds of Trust
or other Loan Instruments,  with respect to any amendment to the Master Deeds of
Trust, the following terms and provisions shall apply:

     With respect to any amendment or  modification of the Master Deeds of Trust
     now or hereafter  executed by Borrower (or any future owner of the Property
     if different from Borrower) and duly recorded in the  appropriate  official
     public  records,  Borrower  acknowledges  and agrees that such amendment or
     modification of the Master Deeds of Trust shall  constitute an amendment or
     modification to the terms and provisions of any such Supplemental  Deeds of
     Trust (and shall be incorporated into any such Supplemental  Deeds of Trust
     and made a part  thereof  for all  purposes,  as though such  amendment  or
     modification  of the Master  Deeds of Trust  specifically  referred to such
     Supplemental  Deeds  of  Trust)  without  the  necessity  of  any  specific
     reference in such amendment or modification to any such Supplemental  Deeds
     of Trust;  and no such  amendment  or  modification  of the Master Deeds of
     Trust shall impair the obligations of Borrower under any such  Supplemental
     Deeds of Trust or any other of the Loan Instruments.

     6. Borrower hereby  expressly  promises to pay to the order of Lender,  the
principal  amount of the Note (as  modified and  increased)  and all accrued and
unpaid  interest now or hereafter to become due and payable under the Note,  and
Borrower hereby expressly promises to perform all of the obligations of Borrower
under the Loan Instruments (as modified and increased).

     7. The liens of the Deeds of Trust are hereby  acknowledged  by Borrower to
be good,  valid and  subsisting  liens,  and such liens are hereby  renewed  and
extended  so as to secure  the  payment  of the Note and Loan (as  modified  and
increased).

     8. Borrower  hereby  represents and warrants to Lender that (a) Borrower is
the sole legal and beneficial  owner of the Property;  (b) Borrower has the full
power and authority to make the agreements  contained in this Agreement  without
joinder or consent of any other party; (c) the


FOURTH MODIFICATION AGREEMENT - Page 2
<PAGE>
execution,  delivery and  performance  of this  Agreement will not contravene or
constitute  an event which itself or which with the passing of time or giving of
notice  or both  would  constitute  a  default  under  any deed of  trust,  loan
agreement,  indenture  or other  agreement  to which  Borrower or Guarantor is a
party or by which Borrower or any of its property is bound; and (d) there exists
no default under the Loan  Instruments (as modified).  BORROWER HEREBY AGREES TO
INDEMNIFY AND HOLD LENDER HARMLESS AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR
EXPENSE (INCLUDING WITHOUT LIMITATION,  ATTORNEYS' FEES) INCURRED AS A RESULT OF
ANY  REPRESENTATION  OR WARRANTY MADE BY BORROWER HEREIN PROVING TO BE UNTRUE IN
ANY MATERIAL RESPECT.

     9. The terms and conditions hereof may not be modified, amended, altered or
otherwise  affected  except by  instrument  in  writing  executed  by Lender and
Borrower.

     10.  All Loan  Instruments  are hereby  amended  and  modified  in a manner
consistent with the  modifications,  terms and/or  provisions  contained herein.
Except as  expressly  modified  hereby,  the terms  and  conditions  of the Loan
Instruments are and shall remain in full force and effect.

     11. Borrower agrees to pay to Lender,  contemporaneously with the execution
and delivery  hereof,  all costs and expenses  incurred in connection  with this
transaction,  title insurance endorsement premiums,  reasonable fees of Lender's
counsel and recording fees.

     12.  Borrower  hereby  agrees to execute and deliver to Lender such further
documents and instruments  evidencing or pertaining to the Loan, as modified and
increased hereby, as may be reasonably  requested by Lender from time to time so
as to evidence the terms and conditions hereof.

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


FOURTH MODIFICATION AGREEMENT -Page 3
<PAGE>
     EXECUTED  on the  date(s)  set forth in the  acknowledgment(s)  below to be
EFFECTIVE as of the date first above written.

                                        BORROWER:

                                        LEGACY/MONTEREY HOMES L.P.,
                                        an Arizona limited partnership

                                        BY: MTH-TEXAS GP, INC., an
                                            Arizona corporation,
                                            General Partner


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President

                                        LENDER:

                                        GUARANTY FEDERAL BANK, F.S.B.,
                                        a federal savings bank

                                        By: /s/ Sam A. Meade
                                            ------------------------------------
                                            Name: Sam A. Meade
                                            Title: Senior Vice President

STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLIN    ss.

     This  instrument  was  ACKNOWLEDGED  before  me on July 26,  1999,  by Rick
Morgan, Vice President of MTH-TEXAS GP, INC., an Arizona corporation, as General
Partner of LEGACY/MONTEREY HOMES L.P., an Arizona limited partnership, on behalf
of said limited partnership.

[SEAL]                                  /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public

My Commission Expires:

                                        ------------------------------------
                                        Printed Name of Notary Public


FOURTH MODIFICATION AGREEMENT - Page 4
<PAGE>
STATE OF TEXAS      ss.
                    ss.
COUNTY OF DALLAS    ss.

     This instrument w s acknowledged  before me on the 29th day of July,  1999,
by Sam A. Meade,  Senior Vice  President of GUARANTY  FEDERAL  BANK,  F.S.B.,  a
federal savings bank, on behalf of said federal savings bank.


                                        /s/ Leslie Ruth Reynolds
                                        ------------------------------------
                                        Notary Public in and for the
[SEAL]                                  Above country and state

My Commission Expires:

     02/04/2001                         Leslie Ruth Reynolds
----------------------                  ------------------------------------
                                        Printed Name of Notary


FOURTH MODIFICATION AGREEMENT -Page 5
<PAGE>
                              CONSENT OF GUARANTOR

     Each of the undersigned,  as a guarantor ("Guarantor," whether one or more)
of the loan (the  "Loan"),  evidenced  by the Note and  secured  by the Deeds of
Trust described in the foregoing Fourth Modification Agreement (the "Agreement")
to which this Consent is attached,  hereby  acknowledge and consent (jointly and
severally) to the terms of the Agreement and agree (jointly and severally)  that
the  execution  and  delivery of the  Agreement  will in no way change or modify
Guarantor's  respective  obligations under their respective Guaranty (as defined
in the  Agreement);  and each  Guarantor  acknowledges  and agrees  (jointly and
severally)  that the  Indebtedness  (as  defined in the  respective  instruments
comprising  the  Guaranty)  includes the Loan (as increased and set forth in the
Agreement),  together  with any and all  other  Indebtedness  now or at any time
hereafter  owing by  Guarantor  to  Lender;  and  each  Guarantor  (jointly  and
severally)  hereby  unconditionally  and  absolutely  guarantees  to Lender  the
payment when due of such  Indebtedness,  and hereby  acknowledge  and agree that
their  respective  Guaranty is in full force and  effect,  and that there are no
claims,  counterclaims,  offsets or defenses to their respective  Guaranty;  and
each Guarantor acknowledges and consents (jointly and severally) to the terms of
any and all prior  modifications  to the terms of the Loan  (including,  without
limitation,  any and all  extensions  of the term  thereof and  increases in the
principal thereof prior to the date hereof, if any).

     EXECUTED  on the  date(s)  set forth in the  acknowledgment(s)  below to be
EFFECTIVE as, of the 31st day of July, 1999.

                                        GUARANTOR:

                                        MERITAGE CORPORATION,
                                        a Maryland co oration

                                        By: /s/ John R. Landon
                                            ------------------------------------
                                            Name: John R. Landon
                                            Title: Co-CEO


                                        MTH-TEXAS GP, INC.,
                                        an Arizona corporation

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President


                                        MTH-TEXAS LP, INC.,
                                        an Arizona corporation

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President


FOURTH MODIFICATION AGREEMENT -Page 6
<PAGE>
STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLIN    ss.

     This  instrument  was  ACKNOWLEDGED  before me on July 27, 1999,  by John R
Landon,  Co-CEO of MERITAGE CORPORATION,  a Maryland  corporation,  on behalf of
said corporation.

[SEAL]                                  /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public

My Commission Expires:


----------------------                  ------------------------------------
                                        Printed Name of Notary Public

STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLIN    ss.

     This  instrument  was  ACKNOWLEDGED  before  me on July 26,  1999,  by Rick
Morgan, Vice President of MTH-TEXAS GP, 1NC., an Arizona corporation,  on behalf
of said corporation.


[SEAL]                                  /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public

My Commission Expires:


----------------------                  ------------------------------------
                                        Printed Name of Notary Public

STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLIN    ss.

     This  instrument  was  ACKNOWLEDGED  before  me on July 26,  1999,  by Rick
Morgan, Vice President of MTH-TEXAS LP, IN , an Arizona  corporation,  on behalf
of said corporation.

[SEAL]

                                        /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public

My Commission Expires:


----------------------                  ------------------------------------
                                        Printed Name of Notary Public


FOURTH MODIFICATION AGREEMENT - Page 7
<PAGE>
                                    EXHIBIT A

                       Description of the Deed(s) of Trust

LEGACY/MONTEREY, L.P.

COLLIN COUNTY  Recorded September 4, 1996, Clerk File 96-0075977

DALLAS         Recorded September 5, 1996, Volume 96175 Page 00192

DENTON         Recorded September 5, 1996, Clerk File 96-80061921

HARRIS         Recorded August 6, 1997, Clerk File No. S579911

ROCKWALL       Recorded August 19, 1997, Clerk File No. 176219

TARRANT        Recorded September 5, 1996, Clerk File D196175179

TRAVIS         Recorded September 6, 1996,Volume 12766, Page 1157

WILLIAMSON     Recorded September 9, 1996, Clerk File 9648096

Fort Bend sent to Legacy for sig. Today (1-26-99)


EXHIBIT A, Description of the Deeds of Trust - Page 1
<PAGE>
                           CERTIFICATE OF RESOLUTIONS
                                       OF
                              MERITAGE CORPORATION

     I, Rick Morgan,  Assistant  Secretary of MERITAGE  CORPORATION,  a Maryland
corporation (the "Company"), do hereby certify as follows:

     (i)   that I am the duly elected and qualified  Assistant  Secretary of the
           Company and the custodian of the Company's records;

     (ii)  that a meeting  of the Board of  Directors  of the  Company  was duly
           called and held on July 27, 1999, and at such meeting a quorum of the
           Directors was present and acting throughout;

     (iii) that set forth  below is a true and  correct  restatement  of certain
           resolutions  adopted by the  Directors of the Company at such meeting
           held on July 27, 1999;

     RESOLVED, that the President or any Vice President of the Company be and is
hereby  authorized  and  directed to do any and all things  deemed  necessary or
advisable and in the best interest of the Company,  at his sole  discretion,  in
connection with the obtainment by LEGACY/MONTEREY HOMES L.P., an Arizona limited
partnership (the  "Partnership") of a loan in the amount of $80,000,000.00  (the
"Loan"),  to be obtained from GUARANTY FEDERAL BANK,  F.S.B.  ("Lender") for the
purpose of the Partnership  acquiring,  developing and/or  constructing  various
residential   subdivisions   (herein  collectively  and  singularly  called  the
"Project"),  to be located in certain  counties in Texas; to execute and deliver
appropriate  loan  instruments in the name of and on behalf of the Company,  and
all documents, certificates and agreements in this connection required by Lender
including,  without  limitation,  guaranties  which guarantee the Loan, the Loan
being reasonably expected to benefit, directly or indirectly, the Company;

     FURTHER  RESOLVED,  that the seal of the Company and the attestation of the
signature  of the  President  or any  Vice  President  by  the  Secretary  or an
Assistant  Secretary  of the Company will not be  necessary,  but if the seal or
such  attestation  is required by any party in connection  with the  transaction
contemplated by these  resolutions,  the Secretary or an Assistant  Secretary of
the Company is hereby  authorized  to attest,  for and on behalf of the Company,
the  signature  of the  President  or any Vice  President  upon any  instrument,
document or other writing  executed on behalf of the Company by the President or
any Vice President thereof and to affix the seal of the Company thereto;

     FURTHER  RESOLVED,  that the  officers of the Company are hereby  severally
authorized  to (a) sign,  execute,  certify to,  verify,  acknowledge,  deliver,
accept, file and record any and all instruments and documents,  and (b) take, or
cause to be  taken,  any and all such  action  in the name and on  behalf of the
Company or otherwise,  as in any such officer's judgment is necessary, desirable


CERTIFICATE OF RESOLUTIONS, Page 1
<PAGE>
or  appropriate  in order to  consummate  the  transactions  contemplated  by or
otherwise to effect the purposes of the foregoing resolutions;

     FURTHER RESOLVED, that all actions heretofore taken by the incorporators or
the  directors  or the  officers  of the  Company,  and all things done by their
authority,  with respect to the  organization  of the Company and in  connection
with the  acquisition  of lands for and the  financing and  construction  of the
Project as aforesaid, be and the same are hereby ratified,  approved and adopted
as the acts of the Company;

     FURTHER  RESOLVED,  that said  officers  are  authorized  and  empowered to
perform  all acts and  execute  and.  deliver  all  instruments,  documents  and
agreements required by Lender to carry out the purposes of this resolution.

     (i)   that none of the  resolutions  set  forth  above  have been  amended,
           modified,  revoked or rescinded;  and each such resolution is in full
           force and effect on the date hereof; and

     (ii)  that  the  following  are the duly  elected,  qualified  and  serving
           officers  of the  Company,  that  their  addresses  are as  stated in
           connection  with each,  and that the  signature  set out opposite the
           name of each officer is the genuine signature of such person, to wit:

NAME AND ADDRESS              SIGNATURE
----------------              ---------

President:

/s/ John R. Landon
------------------------------------


Vice President:

/s/ Rick Morgan
------------------------------------


Secretary:

------------------------------------


CERTIFICATE OF RESOLUTIONS, Page 2
<PAGE>
Assistant Secretary:

/s/ Rick Morgan
------------------------------------


     (iii) that (a) all  franchise  and other taxes  required  to  maintain  the
           Company's  corporate  existence  have  been paid when due and that no
           such taxes are  delinquent;  (b) no  proceedings  are pending for the
           forfeiture  of the  Company's  Certificate  of  Incorporation  or the
           Company's dissolution,  voluntary or involuntary;  (c) the Company is
           duly  qualified  to do  business  in the State of Texas and any other
           states in which it is doing business, and is in good standing in such
           states; (d) there is no provision of the Articles of Incorporation or
           Bylaws of the Company limiting the power of the Board of Directors to
           pass the Resolutions set out above,  and that such Resolutions are in
           conformity with the provisions of said Articles of Incorporation  and
           Bylaws.

             (The balance of this page is intentionally left blank.)


CERTIFICATE OF RESOLUTIONS, Page 3
<PAGE>
     IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company
this 27th day of July 1999.


                                        /s/ Rick Morgan
                                        ------------------------------------
                                        Rick Morgan, Assistant Secretary

(Corporate Seal)


STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLIN    ss.

     SWORN TO AND  SUBSCRIBED  BEFORE ME, this 26 day of July,  1999, to certify
which witness my hand and seal of office.

                                        /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public in and for
                                        __________ County, ___________

My Commission Expires:


----------------------                  ------------------------------------
                                        (Printed Name of Notary)


CERTIFICATE OF RESOLUTIONS, Page 4
<PAGE>
                           CERTIFICATE OF RESOLUTIONS
                                       OF
                               MTH-TEXAS LP, INC.

     I, Rick  Morgan,  Assistant  Secretary of  MTH-TEXAS  LP, INC.,  an Arizona
corporation (the "Company"), do hereby certify as follows:

     (i)   that I am the duly elected and qualified  Assistant  Secretary of the
           Company and the custodian of the Company's records;

     (ii)  that a meeting  of the Board of  Directors  of the  Company  was duly
           called and held on July 27, 1999, and at such meeting a quorum of the
           Directors was present d acting throughout;

     (iii) that set forth  below is a true and  correct  restatement  of certain
           resolutions  adopted by he  Directors  of the Company at such meeting
           held on July 27, 1999;

     RESOLVED, that the President or any Vice President of the Company be and is
hereby  authorized  and  directed to do any and all things  deemed  necessary or
advisable and in the best interest of the Company,  at his sole  discretion,  in
connection  with the  obtainment  by  LEGACY/MONTEREY  HOMES,  L.P.,  an Arizona
limited   partnership   (the   "Partnership")   of  a  loan  in  the  amount  of
$80,000,000.00  (the "Loan"),  to be obtained from GUARANTY FEDERAL BANK, F.S.B.
("Lender")  for the  purpose of the  Partnership  acquiring,  developing  and/or
constructing   various  residential   subdivisions   (herein   collectively  and
singularly called the "Proiect"), to be located in certain counties in Texas; to
execute and deliver appropriate loan instruments in the name of and on behalf of
the Company,  and all documents,  certificates and agreements in this connection
required by Lender including, without limitation, guaranties which guarantee the
Loan, the Loan being reasonably expected to benefit, directly or indirectly, the
Company;

     FURTHER  RESOLVED,  that the seal of the Company and the attestation of the
signature  of the  President  or any  Vice  President  by  the  Secretary  or an
Assistant  Secretary  of the Company will not be  necessary,  but if the seal or
such  attestation  is required by any party in connection  with the  transaction
contemplated by these  resolutions,  the Secretary or an Assistant  Secretary of
the Company is hereby  authorized  to attest,  for and on behalf of the Company,
the  signature  of the  President  or any Vice  President  upon any  instrument,
document or other writing  executed on behalf of the Company by the President or
any Vice President thereof and to affix the seal of the Company thereto;

     FURTHER  RESOLVED,  that the  officers of the Company are hereby  severally
authorized  to (a) sign,  execute,  certify to,  verify,  acknowledge,  deliver,
accept, file and record any and all instruments and documents,  and (b) take, or
cause to be taken, any and all such action in the name


CERTIFICATE OF RESOLUTIONS, Page 1
<PAGE>
and on behalf of the Company or otherwise,  as in any such officer's judgment is
necessary,  desirable or  appropriate  in order to consummate  the  transactions
contemplated   by  or  otherwise  to  effect  the  purposes  of  the   foregoing
resolutions;

     FURTHER RESOLVED, that all actions heretofore taken by the incorporators or
the  directors  or the  officers  of the  Company,  and all things done by their
authority,  with respect to the  organization  of the Company and in  connection
with the  acquisition  of lands for and the  financing and  construction  of the
Project as aforesaid, be and the same are hereby ratified,  approved and adopted
as the acts of the Company;

     FURTHER  RESOLVED,  that said  officers  are  authorized  and  empowered to
perform  all acts  and  execute  and  deliver  all  instruments,  documents  and
agreements required by Lender to carry out the purposes of this resolution.

     (i)   that none of the  resolutions  set  forth  above  have been  amended,
           modified,  revoked or rescinded;  and each such resolution is in full
           force and effect on the date hereof; and

     (ii)  that  the  following  are the duly  elected,  qualified  and  serving
           officers  of the  Company,  that  their  addresses  are as  stated in
           connection  with each,  and that the  signature  set out opposite the
           name of each officer is the genuine signature of such person, to wit:

NAME AND ADDRESS              SIGNATURE
----------------              ---------

President

/s/ John R. Landon
------------------------------------


Vice President:

/s/ RICK MORGAN
------------------------------------


Secretary:

------------------------------------


CERTIFICATE OF RESOLUTIONS, Page 2
<PAGE>
Assistant Secretary:

/s/ Rick Morgan
------------------------------------


     (iii) that (a) all  franchise  and other taxes  required  to  maintain  the
           Company's  corporate  existence  have  been paid when due and that no
           such taxes are  delinquent;  (b) no  proceedings  are pending for the
           forfeiture  of the  Company's  Certificate  of  Incorporation  or the
           Company's dissolution,  voluntary or involuntary;  (c) the Company is
           duly  qualified  to do  business  in the State of Texas and any other
           states in which it is doing business, and is in good standing in such
           states; (d) there is no provision of the Articles of Incorporation or
           Bylaws of the Company limiting the power of the Board of Directors to
           pass the Resolutions set out above,  and that such Resolutions are in
           conformity with the provisions of said Articles of Incorporation  and
           Bylaws.

             (The balance of this page is intentionally left blank.)


CERTIFICATE OF RESOLUTIONS, Page 3
<PAGE>
     IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company
this 27th day of July 1999.

                                        /s/ Rick Morgan
                                        ------------------------------------
                                        Rick Morgan, Assistant Secretary

(Corporate Seal)

STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLIN    ss.

     SWORN TO AND SUBSCRIBED  BEFORE ME, this 26th day of July, 1999, to certify
which witness my hand and seal of office.

                                        /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public in and for
                                        Collin County, Texas

My Commission Expires:

8-28-99
----------------------                  ------------------------------------
                                        (Printed Name of Notary)


CERTIFICATE OF RESOLUTIONS, Page 4
<PAGE>
                           CERTIFICATE OF RESOLUTIONS
                                       OF
                               MTH-TEXAS GP, INC.

     I, Rick  Morgan,  Assistant  Secretary of  MTH-TEXAS  GP, INC.,  an Arizona
corporation (the "Company"), do hereby certify as follows:

     (i)   that I am the duly elected and qualified  Assistant  Secretary of the
           Company and the custodian of the Company's records;

     (ii)  that a meeting  of the Board of  Directors  of the  Company  was duly
           called and held on July 27, 1999, and at such meeting a quorum of the
           Directors was present and acting throughout;

     (iii) that set forth  below is a true and  correct  restatement  of certain
           resolutions  adopted by the  Directors of the Company at such meeting
           held on July 27, 1999;

     RESOLVED, that the President or any Vice President of the Company be and is
hereby  authorized  and  directed to do any and all things  deemed  necessary or
advisable and in the best interest of the Company,  at his sole  discretion,  in
connection  with (a) the  formation of  LEGACY/MONTEREY  HOMES L.P.,  an Arizona
limited partnership (the "Partnership"); (b) the acquisition by the Company of a
general partnership  interest in the Partnership;  and (c) the obtainment by the
Partnership  of a loan in the  amount  of  $80,000,000.00  (the  "Loan"),  to be
obtained from GUARANTY  FEDERAL BANK,  F.S.B.  ("Lender") for the purpose of the
Partnership acquiring, developing and/or constructing various single family lots
and\or residential  subdivisions  (herein collectively and singularly called the
"Project"),  to be located in certain  counties in Texas; to execute and deliver
appropriate  loan  instruments in the name of end on behalf of the Company,  and
all documents, certificates and agreements in this connection required by Lender
including,  without  limitation,  guaranties  which guarantee the Loan, the Loan
being reasonably expected to benefit, directly or indirectly, the Company;

     FURTHER  RESOLVED,  that the seal of the Company and the attestation of the
signature  of the  President  or any  Vice  President  by  the  Secretary  or an
Assistant  Secretary  of the Company will not be  necessary,  but if the seal or
such  attestation  is required by any party in connection  with the  transaction
contemplated by these  resolutions,  the Secretary or an Assistant  Secretary of
the Company is hereby  authorized  to attest,  for and on behalf of the Company,
the  signature  of the  President  or any Vice  President  upon any  instrument,
document or other writing  executed on behalf of the Company by the President or
any Vice President thereof and to affix the seal of the Company thereto;

     FURTHER  RESOLVED,  that the  officers of the Company are hereby  severally
authorized  to (a) sign,  execute,  certify to,  verify,  acknowledge,  deliver,
accept, file and record any and all instruments and documents,  and (b) take, or
cause to be  taken,  any and all such  action  in the name and on  behalf of the


CERTIFICATE OF RESOLUTIONS, Page 1
<PAGE>
Company or otherwise, as in any such officer's judgment is necessary,  desirable
or  appropriate  in order to  consummate  the  transactions  contemplated  by or
otherwise to effect the purposes of the foregoing resolutions;

     FURTHER RESOLVED, that all actions heretofore taken by the incorporators or
the  directors  or the  officers  of the  Company,  and all things done by their
authority,  with respect to the  organization  of the Company and in  connection
with the  acquisition  of lands for and the  financing and  construction  of the
Project as aforesaid, be and the same are hereby ratified,  approved and adopted
as the acts of the Company;

     FURTHER  RESOLVED,  that said  officers  are  authorized  and  empowered to
perform  all acts  and  execute  and  deliver  all  instruments,  documents  and
agreements required by Lender to carry out the purposes of this resolution.

     (i)   that none of the  resolutions  set  forth  above  have been  amended,
           modified,  revoked or rescinded;  and each such resolution is in full
           force and effect on the date hereof; and

     (ii)  that  the  following  are the duly  elected,  qualified  and  serving
           officers  of the  Company,  that  their  addresses  are as  stated in
           connection  with each,  and that the  signature  set out opposite the
           name of each officer is the genuine signature of such person, to wit:

NAME AND ADDRESS              SIGNATURE
----------------              ---------

President

/s/ John R. Landon
------------------------------------


Vice President:

/s/ Rick Morgan
------------------------------------


Secretary:

------------------------------------


CERTIFICATE OF RESOLUTIONS, Page 2
<PAGE>
Assistant Secretary:

/s/ Rick Morgan
------------------------------------


     (iii) that (a) all  franchise  and other taxes  required  to  maintain  the
           Company's  corporate  existence  have  been paid when due and that no
           such taxes are  delinquent;  (b) no  proceedings  are pending for the
           forfeiture  of the  Company's  Certificate  of  Incorporation  or the
           Company's dissolution,  voluntary or involuntary;  (c) the Company is
           duly  qualified  to do  business  in the State of Texas and any other
           states in which it is doing business, and is in good standing in such
           states; (d) there is no provision of the Articles of Incorporation or
           Bylaws of the Company limiting the power of the Board of Directors to
           pass the Resolutions set out above,  and that such Resolutions are in
           conformity with the provisions of said Articles of Incorporation  and
           Bylaws.

     IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Company
this 27th day of July, 1999.

                                        /s/ Rick Morgan
                                        ------------------------------------
                                        Rick Morgan, Assistant Secretary

(Corporate Seal)


STATE OF TEXAS      ss.
                    ss.
COUNTY OF COLLINS   ss.

     SWORN TO AND  SUBSCRIBED  BEFORE ME, this 26 day of July,  1999, to certify
which witness my hand and seal of office.

                                        /s/ Ana Patterson
                                        ------------------------------------
                                        Notary Public in and for
                                        _________ County, __________


My Commission Expires:


----------------------                  ------------------------------------
                                        (Printed Name of Notary)


CERTIFICATE OF RESOLUTIONS, Page 3
<PAGE>
                               CONSENT OF PARTNERS

     The   undersigned,   being  all  the  general   and  limited   partners  of
MONTEREY/LEGACY  HOMES L.P., an Arizona limited partnership (the "Partnership"),
to induce GUARANTY FEDERAL BANK,  F.S.B., a federal savings bank ("Lender"),  to
make a loan or loans to the Partner  ship in the  original  principal  amount of
$80,000,000.00  (the "Loan"), do hereby,  jointly and severally,  certify to and
agree with Lender as follows:

          (i) That the  undersigned  constitute  all of the  general and limited
     partners of the Partnership;

          (ii)  That  the  undersigned  are the  custodians  of the  Partnership
     records  and have full and  complete  knowledge  of the  matters  set forth
     herein;

          (iii)  That the  Partnership  is  evidenced  and  constituted  by that
     certain Limited Partnership Agreement, dated as of June - 1997, a photocopy
     of which is  attached  hereto as  Exhibit  A, and that such  document  (the
     "Partnership  Agreement") is the only document constituting the Partnership
     Agreement;

          (iv) That the President,  Vice President or CFO of MTH-TEXAS GP, INC.,
     an Arizona  cdrporation is authorized and directed to do any and all things
     deemed  necessary or advisable and in the best interest of the Partnership,
     in his sole discretion, in connection with the Loan, to execute and deliver
     in the name of the  Partnership  instruments  of mortgage and deed of trust
     and all instruments, documents, certificates and

          agreements  required by Lender in connection  with the Loan; and to do
     and perform all acts and things that may be deemed necessary or proper,  in
     the sole  discretion of the  President,  Vice President or CFO of MTH-TEXAS
     GP,  INC.,  an  Arizona   corporation,   regarding  the   negotiation   and
     consummation of the Loan;

          (v) That the  provisions of the  Partnership  Agreement  have not been
     amended, modified or rescinded; the Partnership has been neither terminated
     nor dissolved;  both the Partnership  and the Partnership  Agreement are in
     full force and effect and in existence  on the date hereof;  there exist no
     restrictions  or  limitations  on the  authority  of any one or more of the
     undersigned  partners  of  the  Partnership  to  consummate  the  financing
     contemplated by this Consent; and that such financing will be in conformity
     with the terms,  provisions and requirements of the Partnership  Agreement;
     and

          (vi) Further, to induce Lender to extend the financing contemplated by
     this  Consent,  the  undersigned  agree  that  in  the  event  any  dispute
     whatsoever  arises  among any or all of the  undersigned,  the  undersigned
     jointly  and  severally   will   indemnify   Lender  and  any   corporation
     controlling,  controlled  by or under  common  control  with Lender and any
     officer,  director or employee of Lender of any such corporation,  and will
     hold Lender and such corporation and any such officer, director or employee
     harmless  from and against  all  expenses,  including  (but not limited to)
     legal  fees,   damages  and  other   liabilities  of  any  type  whatsoever
<PAGE>
     (including,  but not limited to, any liabilities  arising out of demands by
     any of the undersigned for undisbursed  loan funds) suffered or incurred as
     a result of or in connection with any such dispute. The foregoing indemnity
     agreement  shall be governed by and construed  according to the laws of the
     State of Texas  unless any such  indemnity  obligation  shall be invalid or
     unenforceable  under such laws, in which event the laws of that state whose
     laws can apply to and validate the obligation hereunder shall apply.

          (vii)  This   Consent  may  be  executed  in  a  number  of  identical
     counterparts, each of which for all purposes is deemed an original, and all
     of which constitute  collectively one (1) Consent;  but, in making proof of
     this Consent, it shall not be necessary to produce or account for more than
     one (1) such counterpart.

     IN WITNESS  WHEREOF,  the undersigned  general and limited  partners of the
Partnership executed this Consent as of the 27th day of July, 1999.

                                        GENERAL PARTNER:

                                        MTH-TEXAS GP, INC.,
                                        an Arizona corporation


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President


                                        LIMITED PARTNER:

                                        MTH-TEXAS LP, INC.,
                                        an Arizona corporation


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President
<PAGE>
                                    EXHIBIT A

         (A copy of the Partnership Agreement follows this cover page.)
<PAGE>
                        LIMITED PARTNERSHIP AGREEMENT OF
                           LEGACY/MONTEREY HOMES L.P.


     This  Agreement is  effective  as of June 13, 1997,  is entered into by and
among MTH-TEXAS GP, Inc., an Arizona  corporation,  as the General Partner,  and
MTH-TEXAS LP, Inc., an Arizona corporation as the Limited Partner.

     In consideration of the mutual covenants hereinafter set forth, the parties
hereto hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

     1.1 As used in this Agreement,  the following terms shall have the meanings
set forth below:

          "ACQUISITION AGREEMENT" means as defined in Section 2.3.

          "ACT" means Chapter 3 of Title 29 of the Arizona Revised Statutes,  as
          amended.

          "ADJUSTED  CAPITAL ACCOUNT BALANCE" means as defined in Section A.1 of
          Appendix A.

          "AGREEMENT"   means  this   Agreement   of  Limited   Partnership   of
          Legacy/Monterey   Homes  L.P.,  as  amended  from  time  to  time,  if
          applicable.

          "AVAILABLE CASH FLOW" means, for any period,  the Partnership's  gross
          cash  receipts  derived  from any  source  whatsoever  (excluding  the
          receipts  associated  with  a  sale  or  other  disposition  of all or
          substantially  all of  the  Partnership's  assets)  less  the  portion
          thereof  used  to  pay  or  establish   reasonable  reserves  for  all
          Partnership  expenses,  debt,  payments,  asset acquisitions,  capital
          improvements,  expansions, repairs, replacements,  contingencies,  and
          any  other  proper  cash  expenditure  of  the  Partnership,   whether
          contingent or absolute, as determined from time to tune by the General
          Partner.

          "CAPIAL ACCOUNT" means as defined in Section A. I of Appendix A.

          "CAPITAL  CONTRIBUTIONS" means the contributions  required pursuant to
          Section 3.1.
<PAGE>
          "CODE" means the Internal  Revenue Code of 1986,  as amended from time
          to time (or any corresponding provisions of succeeding law).

          "FISCAL YEAR" means the  Partnership's  fiscal year,  which shall be a
          calendar year except as otherwise required by law.

          "GENERAL PARTNER" means MTH-TEXAS GP, Inc., an Arizona corporation, or
          any other Person that becomes a General Partner in accordance with the
          terms of this Agreement, until such time as such Person ceases to be a
          General Partner pursuant to the terms of this Agreement.

          "LIMITED PARTNER" means MTH-TEXAS LP, Inc., an Arizona corporation.

          "LOSSES" means as defined in Section A.1 of Appendix A.

          "PARTNER"  means  any  Person  who is a  General  Partner  or  Limited
          Partner.

          "PARTNERSHIP" means Legacy/Monterey Homes L.P.

          "PERCENTAGE  INTERESTS" means the percentage interests of the Partners
          from time to time and shall be determined with respect to a particular
          Partner at any  particular  time by dividing the number of Units owned
          by such Partner by the aggregate number of outstanding Units.

          "PERSON"  means  any  individual,  trust,  partnership,   corporation,
          association, or other legal entity.

          "REGULATIONS"  means the regulations issued by the Treasury Department
          under the Code.

          "TRANSFER"  means when used as a noun,  any  voluntary or  involuntary
          sale,  assignment,  gift, transfer, or other disposition and when used
          as a  verb,  voluntarily  or  involuntarily  to  sell,  assign,  gift,
          transfer, or otherwise dispose of.

          "UNIT"  means an interest in the capital,  Profits,  and Losses of the
          Partnership  originally issued to the Partners in exchange for Capital
          Contributions.

          "WITHDRAWAL  EVENT" means,  with respect to the General  Partner,  the
          occurrence of any of those events and circumstances  listed in Section
          29-323  of  the  Act,  including,   without  limitation,  the  General
          Partner's withdrawal from the Partnership, dissolution, or bankruptcy.

                                       -2-
<PAGE>
                                    ARTICLE 2
                          FORMATION, PURPOSES AND TERM

     2.1 FORMATION.  The parties hereto hereby form the Partnership as a limited
partnership  pursuant to the Act and in accordance  with the  provisions of this
Agreement.

     2.2 NAME AND OFFICE.  The name of the Partnership shall be  Legacy/Monterey
Homes L.P. The principal  office of the Partnership  (and the office required to
be  maintained  for keeping  Partnership  records  under  Arizona  law) shall be
located at 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona, 85250, or
such other place in the State of Arizona as the General Partner may from time to
time determine with written notice to the other Partners.

     2.3.  PURPOSES.  The  purposes of the  Partnership  shall be (a) to acquire
certain home building and related assets currently owned by Legacy Homes,  Ltd.,
a Texas limited partnership,  pursuant to the terms of that certain Agreement of
Purchase  and Sale of Assets  dated May 29, 1997,  by and among  Monterey  Homes
Corporation,  a Maryland  corporation,  Legacy Homes, Ltd., Legacy  Enterprises,
Inc., a Texas corporation,  and John Landon and Eleanor Landon (the "Acquisition
Agreement"),  (b) to own a home building  business in the State of Texas, (c) to
engage in such other businesses (related to the home building business specified
in clause (b) or otherwise) and purposes in such place or places, if any, as the
General  Partner shall  determine,  and (d) to engage in any and all  activities
necessary,  convenient,  or  incidental,  in the sole  discretion of the General
Partner, to accomplish any of the foregoing purposes.

     2.4 TERM.  The term of the  Partnership  shall  begin  upon the filing of a
certificate of limited  partnership  for the  Partnership in accordance with the
Act, and shall continue,  unless earlier dissolved in accordance with Article IX
until December 31, 2099.

     2.5 AGENT FOR  SERVICE OF  PROCESS.  The  initial  statutory  agent for the
Partnership and the address of such agent shall be CT Corporation  System,  3225
N. Central Ave.,  Phoenix,  Arizona  85012.  The General  Partner may change the
Partnership's statutory agent from time to time in accordance with Arizona law.

                                    ARTICLE 3
                              CAPITAL CONTRIBUTIONS

     3.1 CAPITAL  CONTRIBUTIONS  OF THE PARTNERS.  Not later than June 30, 1997,
the Limited  Partner shall  contribute to the capital of the  Partnership all of
the  assets  acquired  by the  Limited  Partner  pursuant  to the  terms  of the
Acquisition Agreement and the General Partner shall contribute to the capital of
the  Partnership  cash and/or in kind assets the aggregate  value of which shall
equal 1.01 % of the  aggregate  value of the assets  contributed  by the Limited
Partner  pursuant to the  preceding  provisions  of this  sentence.  In exchange
therefor,  the General  Partner shall be issued 10 Units and the Limited Partner
shall be issued 990 Units. Except as set forth in this Section 3.1, the Partners
shall  be  under no  obligation  to make  contributions  to the  capital  of the
Partnership.

                                       -3-
<PAGE>
     3.2 RETURN OF CAPITAL.  Except as otherwise provided in this Agreement,  no
Partner shall be entitled to the return of the Partner's  Capital  Contributions
to the Partnership.  Further,  it is expressly provided that the General Partner
shall have no personal liability for the repayment of the Capital  Contributions
made by any Partner,  it being agreed that any return of capital or Profits made
pursuant  to this  Agreement  shall  be  made  solely  from  the  assets  of the
Partnership.

                                    ARTICLE 4
                                   MANAGEMENT

     4.1 GENERAL PARTNER.  The General Partner shall have the sole and exclusive
right to manage the business of the  Partnership  and to accomplish the purposes
of the  Partnership  set  forth  in  Section  2.3  with  all  powers  necessary,
incidental,  or convenient to the exercise of such management rights,  including
all of the rights and powers that may be possessed by general partners under the
Act. The General Partner shall be authorized to delegate all or a portion of its
management authority to any Person.

     4.2 RELIANCE UPON ACTIONS BY GENERAL  PARTNER.  Any Person dealing with the
Partnership  may rely upon any action taken by the General  Partner on behalf of
the Partnership and, accordingly,  any and all contracts or instruments executed
by the General  Partner on behalf of the  Partnership  shall be binding upon the
Partnership.  All of the  Partners  agree that a copy of this  Agreement  may be
shown to the appropriate  parties in order to confirm the same. Without limiting
the generality of the foregoing,  any person  dealing with the  Partnership  may
rely upon a certificate or written  statement  signed by the General  Partner as
to:

          (a) The identity of the General Partner or any Limited Partner;

          (b) The existence or nonexistence of any fact or facts that constitute
a condition  precedent  to acts by the General  Partner or that are in any other
manner germane to the affairs of the Partnership;

          (c)  The  Persons  who are  authorized  to  execute  and  deliver  any
instrument or documents of the Partnership; or

          (d) Any act or failure to act by the  Partnership  on any other matter
whatsoever involving the Partnership, to the extent applicable.

     4.3 DEVOTION OF TIME TO PARTNERSHIP  ACTIVITIES.  The General Partner shall
devote so much of its time to  activities  on behalf of the  Partnership  as the
General  Partner  determines to be necessary for the business and affairs of the
Partnership.

                                       -4-
<PAGE>
     4.4 REIMBURSEMENT OF EXPENSES OF GENERAL PARTNER. The Partnership shall pay
or reimburse the General Partner (or any Person providing  services on behalf of
the General Partner) for all expenses reasonably incurred in connection with the
business and purposes of the Partnership.

                                    ARTICLE 5
                          PRE-LIQUIDATION DISTRIBUTIONS

     5.1 INTERIM DISTRIBUTIONS OF AVAILABLE CASH FLOW. The General Partner shall
have  the  sole  discretion  to  determine  the  time,  amount,  and  manner  of
distributions of Available Cash Flow to the Partners prior to the liquidation of
the Partnership;  provided,  however,  that any  distributions of Available Cash
Flow to the  Partners  shall be made pro rata to all  Partners  of record on the
date of distribution in accordance with the Partners' Percentage Interests.

     5.2   DISTRIBUTIONS  OF  CASH  FLOW  DURING   LIQUIDATION.   Following  the
dissolution of the  Partnership  and the  commencement  of the winding up of its
business  and  affairs,  the  Available  Cash Flow and  remaining  assets of the
Partnership shall be distributed in accordance with Section 9.2 hereof.

     5.3  AMOUNTS  WITHHELD.  All amounts  withheld  pursuant to the Code or any
provision of any state or local tax law with respect to any  distribution by the
Partnership  to the  Partners or any  allocation  of income  shall be treated as
amounts  distributed to the Partners pursuant to this Article V for all purposes
under this Agreement.

                                    ARTICLE 6
                        ALLOCATION OF PROFITS AND LOSSES

     6.1 PROFIT ALLOCATIONS. After making any special allocations required under
Appendix A,  Profits for each Fiscal Year (and each item of income,  gain,  loss
and deduction  entering into the  computation  thereof) shall be allocated among
the  Partners  (and  credited  to  their  respective  Capital  Accounts)  in the
following order and priority:

          (a)  First,  to the  General  Partner  until  the  cumulative  Profits
allocated pursuant to this Section 6.1(a) are equal to the cumulative Losses, if
any, previously  allocated to the General Partner pursuant to Section 6.2(c) for
all prior periods;

          (b) Second,  to the Partners  until the cumulative  Profits  allocated
pursuant to this  Section 6.1 (b) are equal to the  cumulative  Losses,  if any,
previously  allocated to the Partners  pursuant to Section  6.2(b) for all prior
periods in  proportion to the  Partners'  respective  shares of the Losses being
offset; and

          (c)  Third,  to the  Partners  in  accordance  with  their  Percentage
Interests.

                                       -5-
<PAGE>
     6.2 LOSS ALLOCATIONS.  After making any special allocations  required under
Appendix A, Losses for each Fiscal Year (and each item of income, gain, loss and
deduction  entering into the  computation  thereof) shall be allocated among the
Partners  (and charged to their  respective  Capital  Accounts) in the following
order and priority:

          (a) First,  to the extent that Profits have  previously been allocated
to the Partners for prior,  periods  pursuant to Section 6.1 (c) hereof,  Losses
shall be allocated to the Partners to offset such Profits in  proportion  to the
Partners' respective shares of the Profits being offset; provided, however, that
in no event shall any  allocation  pursuant  to this  Section  6.2(a)  create or
increase a Partner's deficit in such Partner's Capital Account.

          (b) Second, to the Partners in proportion to their respective  Capital
Account  balances until the Adjusted Capital Account balance of each Partner has
been reduced to zero; and

          (c) Third, the balance, if any, to the General Partner.

     6.3 TAX ALLOCATIONS.

          (a) Except as otherwise  provided in Section A.2(a) of Appendix A, for
income tax purposes,  all items of income,  gain, loss,  deduction and credit of
the  Partnership  for any tax period  shall be  allocated  among the Partners in
accordance with the allocations of Profit and Loss prescribed in this Article VI
and in Appendix A.

          (b) The  Partners  are aware of the  income  tax  consequences  of the
allocations trade by this Article VI and Appendix A and hereby agree to be bound
by  the  provisions  of  this  Article  VI and  Appendix  A in  reporting  their
distributive  shares of  Partnership  taxable  income  and loss for  income  tax
purposes.

     6.4 MODIFICATION IN ALLOCATIONS. The General Partner shall be authorized to
modify the method of  allocating  Profits and Losses to the Partner upon receipt
of advice from counsel that such change is required by applicable law.

                                    ARTICLE 7
                            RESTRICTIONS ON TRANSFERS
                            OF PARTNERSHIP INTERESTS

     7.1 GENERAL. No Partner shall be authorized to Transfer all or a portion of
such Person's Units. Any purported  Transfer of Units shall be null and void and
of no force and effect whatsoever.

     7.2 LEGENDS.  Each  Partner  agrees that the  restrictions  on Transfer set
forth in Section 7.1 may be placed upon any counterpart of this Agreement or any
other instrument or document evidencing ownership of Units.

                                       -6-
<PAGE>
                                    ARTICLE 8
                                BOOKS AND RECORDS
                                   TAX MATTERS

     8.1  BOOKS  AND  RECORDS.  The  General  Partner,  at  the  expense  of the
Partnership,  shall  maintain  the  records of the  Partnership  required  to be
maintained   pursuant  to  A.R.S.   29-305.   Any  Partner  or  its   designated
representative  shall have the right, at any reasonable  time, to have access to
and may inspect and copy the contents of such books o: records.

     8.2 TAX INFORMATION.  The General Partner shall instruct the  Partnership's
accountants to prepare and deliver all necessary tax returns and  information to
each Partner within a reasonable  period  following the end of each Fiscal Year.
The General Partner shall have sole authority  relating to matters pertaining to
the  preparation  of tax  returns  and the  administration  of the  tax  affairs
relating to the Partnership and, in connection therewith, shall be authorized:

          (a) To make any and all  elections  for  federal,  state and local tax
purposes,   including,   without  limitation,  any  election,  if  permitted  by
applicable  law, to adjust the basis of  Partnership  property  pursuant to Code
Sections 754, 734(b) and 743(b), or comparable provisions of state or local law,
in connection with the transfers or liquidations of Partnership interests;

          (b) To act as the "tax matters partner" of the Partnership (within the
meaning of Section 6231 of the Code) and in any similar capacity with respect to
the Partnership under state or local law;

          (c) To  extend  the  statute  of  limitations  for  assessment  of tax
deficiencies  against Partners with respect to adjustments to the  Partnership's
federal, state or local tax returns;

          (d) To  represent  the  Partnership  and the  Partners  before  taxing
authorities  or courts of competent  jurisdiction  in tax matters  affecting the
Partnership  and the Partners in their capacity as Partners,  and to execute any
agreements  or other  documents  relating  to or  affecting  such  tax  matters,
including  agreements or other  documents that bind the Partners with respect to
such tax matters.

                                    ARTICLE 9
                           DISSOLUTION AND WINDING UP

     9.1 DISSOLUTION.  The Partnership shall dissolve upon the first to occur of
any of the following events:

          (a) The unanimous written agreement of all of the Partners;

          (b) The expiration of the term set forth in Section 2.4;

                                       -7-
<PAGE>
          (c) The entry of a decree of  dissolution  under  Section  8.02 of the
Act;

          (d) The sale or other  disposition of all or substantially  all of the
assets of the Partnership; or

          (e) The failure of the Limited Partner,  within ninety (90) days after
a  Withdrawal  Event with  respect to the sole  remaining  General  Partner,  to
unanimously elect a new General Partner and to continue the Partnership  without
dissolution pursuant to Section 10.3.

     9.2 WINDING UP. Upon a dissolution of the Partnership,  the General Partner
(or, if there is no General Partner,  the Limited Partner or a Person designated
by the Limited Partner) shall take full account of the Partnership's liabilities
and assets,  and the Partnership's  assets shall be liquidated as promptly as is
consistent  with obtaining the fair value thereof.  The proceeds of liquidation,
to the extent  sufficient  therefor,  shall be applied  and  distributed  in the
following order:

          (a) First,  to the payment and  discharge of all of the  Partnership's
debts  and  liabilities  owed or owing to  creditors  other  than the  Partners,
including the establishment of any necessary reserves;

          (b) Second,  to the payment and discharge of all of the  Partnership's
debts and liabilities owed to the Partners;

          (c) Third, to the Partners in accordance with the positive  balance of
each  Partner's  Capital  Account as  determined  after  taking into account all
Capital Account adjustments for the Partnership's  taxable year during which the
liquidation  occurs.  Any such distributions to the Partners in respect of their
Capital  Accounts  shall  be  made  within  the  time  requirements  of  Section
1.704-1(b)(3)(ii)(b)(2) of the Regulations.

     9.3. COMPLIANCE WITH REGULATIONS.

          (a)  Distributions  required  by Section 9.2 may be  distributed  to a
trust  established  for  the  benefit  of  the  Partners  for  the  purposes  of
liquidating  Partnership  property,  collecting amounts owed to the Partnership,
and paying any  contingent  or  unforeseen  liabilities  or  obligations  of the
Partnership or of the General  Partner  arising out of or in connection with the
Partnership.  The assets of any such trust shall be  distributed to the Partners
from  time to  time,  in the  discretion  of the  General  Partner,  in the same
proportions  as the amount  distributed to such trust by the  Partnership  would
otherwise have been distributed to the Partners pursuant to this Agreement.

          (b) If any  General  Partner  whose  interest  in the  Partnership  is
liquidated    within   the    meaning    of    Treasury    Regulation    Section
1.704-1(b)(2)(ii)(g)  has a negative  balance in the General  Partner's  Capital
Account  after  such  liquidation,   such  General  Partner  shall  pay  to  the

                                       -8-
<PAGE>
Partnership an amount equal to such negative  Capital  Account  balance no later
than the end of the Partnership  taxable year in which such  liquidation  occurs
(or,  if later,  within  ninety  (90) days after the date of such  liquidation);
provided,  however,  that if such  Person  is and  remains  obligated  after the
liquidation  to contribute  additional  funds to the  Partnership  in the manner
described in  Regulation  Section  1.704-1(b)(2)(ii)(c),  such Partner  shall be
required to pay to the Partnership, within the time period set forth above, only
the amount,  if any, by which the Partner's  negative  Capital  Account  balance
exceeds the amount of funds the Partner is so  obligated to  contribute.  If any
Limited Partner has a negative  balance in such Partner's  Capital Account after
such  liquidation,  such Limited  Partner  shall have no  obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit  shall not be considered a debt owed to the  Partnership  or to any
other Person for any purpose whatsoever.

     9.4  CERTIFICATE OF  CANCELLATION.  When all of the remaining  property and
assets have been applied and  distributed  in  accordance  with Section 9.2, the
General Partner (or, if there is no General  Partner,  the Limited Partners or a
Person  designated by the Limited Partners) shall cause to be executed and filed
a certificate of cancellation in accordance with the Act.

     9.5 In Kind  Distributions.  A Partner  shall  have no right to demand  and
receive  any  distribution  from the  Partnership  in any form  other than cash.
However, a Partner may be compelled to accept a distribution of an asset in kind
if the Partnership is unable to dispose of all of its assets for cash.

                                   ARTICLE 10
                        EVENTS AFFECTING GENERAL PARTNER

     10.1  CESSATION.  A Person  shall  cease to be a General  Partner  upon the
occurrence  of a Withdrawal  Event  affecting  such Person.  Except as otherwise
provided  herein,  upon the  occurrence of any  Withdrawal  Event  affecting the
General  Partner,  such Person or its  transferee  shall  maintain  the right to
receive  distributions and allocations with respect to Units held by the General
Partner prior to the occurrence of the Withdrawal but shall not be authorized to
exercise any additional management rights.

     10.2 RIGHT OF REMAINING  GENERAL  PARTNER.  Following any Withdrawal  Event
affecting a General  Partner  under  Section  10.1 hereof,  a remaining  General
Partner  (if any) may  elect to  continue  the  Partnership's  business  without
dissolution in conformity with the provisions of this Agreement.

     10.3  ELECTION  OF NEW  GENERAL  PARTNER.  If no  General  Partner  remains
following a Withdrawal  Event  affecting a General  Partner  under  Section 10.1
hereof or the Act,  any Limited  Partner may  nominate  one or more  Persons for
election as General  Partner(s)  to continue the  Partnership  business  without
dissolution.  No Person so  nominated  shall  become a  General  Partner  unless
elected  by all of the  Limited  Partners  within  ninety  (90)  days  after the
Withdrawal Event affecting the sole General Partner.

                                       -9-
<PAGE>
                                   ARTICLE 11
                                  MISCELLANEOUS

     11.1 BINDING EFFECT.  Except as otherwise provided in this Agreement and by
applicable law, every  covenant,  term, and provision of this Agreement shall be
binding  upon and inure to the  benefit  of the  Partners  and their  respective
heirs, legatees, legal representatives, successors, transferees, and assigns.

     11.2  CREDITORS  AND OTHER THIRD  PARTIES.  None of the  provisions of this
Agreement  shall be for the benefit of or  enforceable  by any  creditors of the
Partnership or by other third parties.

     11.3  SECTION  AND OTHER  REFERENCES.  Except as  otherwise  provided,  any
reference herein to the term "Section,"  "Article," or "Appendix" shall refer to
the corresponding section, article, or appendix of this Agreement.

     11.4 HEADINGS.  Section and other headings  contained in this Agreement are
for reference purposes only and are not intended to describe, interpret, define,
or limit the  scope,  extent or  interest  of this  Agreement  or any  provision
hereof.

     11.5  SEVERABILITY.  Every  provision  of this  Agreement is intended to be
severable.  If any term or provision hereof is illegal or invalid for any reason
whatsoever,  such  illegality  or  invalidity  shall not affect the  validity or
legality of the remainder of this Agreement.

     11.6 ADDITIONAL  DOCUMENTS.  Each Partner,  upon the request of the General
Partner,  agrees to perform all further  acts and to execute,  acknowledge,  and
deliver  any  documents  that  may  be  reasonably  necessary,  appropriate,  or
desirable-to carry out the provisions of this Agreement.

     11.7  GOVERNING  LAW.  The  laws of the  State of Texas  shall  govern  the
validity  of  this  Agreement,   the   construction   of  its  terms,   and  the
interpretation of the rights and duties of the Partners.

     11.8  WAIVER OF ACTION  FOR  PARTITION.  Each of the  Partners  irrevocably
waives any right that it tray have to  maintain  any action for  partition  with
respect to any of the Partnership's assets and properties.

     11.9 SOLE AND ABSOLUTE  DISCRETION.  Except as  otherwise  provided in this
Agreement,  all actions that the General Partner may take and all determinations
that the General  Partner may make  pursuant to this  Agreement may be taken and
trade at the sole and absolute discretion of the General Partner.

                                      -10-
<PAGE>
     11.10  INVESTMENT  REPRESENTATIONS.  By execution of this Agreement  below,
each Limited Partner represents and covenants as follows:

          (a) The Partner has full legal right,  power,  and  authority to enter
into this  Agreement  and to  perform  the  obligations  under  this  Agreement,
including the obligation to make the Capital  Contributions set forth in Article
III;

          (b) The Agreement constitutes the legal, valid, and binding obligation
of  the  Partner  enforceable  in  accordance  with  its  terms,  except  as the
enforcement  thereof  may be  limited  by  bankruptcy  and other laws of general
application relating to creditors' rights or general principles of equity;

          (c) The Agreement does not violate,  conflict with, result in a breach
of the terms,  conditions or provisions  of, or constitute a default or an event
of default under any other agreement of which the Partner is a party; and

          (d) The  acquisition  of  Units  in the  Partnership  is made  for the
Partner's  own account for  investment  purposes only and not with a view to the
resale or distribution of such Units.

     11.11  NOTICES.  All notices under this  Agreement  shall be in writing and
shall  be  effective  upon  personal  delivery,  or,  if sent by  registered  or
certified mail, postage repaid,  addressed to the party at the address set forth
with respect to such party as reflected in the records of the  Partnership n the
deposit of such notice in the United States mail.

     11.12 COUNTERPART  EXECUTION.  This Agreement may be executed in any number
of  counterparts  with the same effect as if all of the  Partners had signed the
same document. All counterparts shall be construed together and shall constitute
one agreement.

                                      -11-
<PAGE>
                                   APPENDIX A


                                      -12-
<PAGE>
     IN WITNESS WHEREOF,  the parties have entered into this Agreement as of the
day first above set forth.

                                        MTH-TEXAS GP, Inc.,
                                        an Arizona corporation


                                        By: /s/ William W. Cleverly
                                            ------------------------------------
                                            Name: William W. Cleverly
                                            Its: Chairman and Co-Chief Executive
                                                 Officer

                                        and

                                        By: /s/ Steven J. Hilton
                                            ------------------------------------
                                            Name: Steven J. Hilton
                                            Its: President and Co-Chief
                                                 Executive Officer


                                        MTH-TEXAS LP, Inc.,
                                        an Arizona corporation


                                        By: /s/ William W. Cleverly
                                            ------------------------------------
                                            Name: William W. Cleverly
                                            Its: Chairman and Co-Chief Executive
                                                 Officer

                                        and

                                        By: /s/ Steven J. Hilton
                                            ------------------------------------
                                            Name: Steven J. Hilton
                                            Its: President and Co-Chief
                                                 Executive Officer

                                      -13-
<PAGE>
                                   Appendix A

                      SPECIAL TAX AND ACCOUNTING PROVISIONS


     A.1  ACCOUNTING   DEFINITIONS.   The  following   terms,   which  are  used
predominantly  in this  Appendix A, shall have the  meanings set forth below for
all purposes under this Agreement:

          "ADJUSTED CAPITAL ACCOUNT BALANCE" means, with respect to any Partner,
the  balance of such  Partner's  Capital  Account as of the end of the  relevant
Fiscal Year, after giving effect to the following adjustments:

          (a) Credit to such Capital  Account any amounts  which such Partner is
obligated to restore  pursuant to this  Agreement or as  determined  pursuant to
Regulations  Section  1.704-1(b)(2)(ii)(Q),  or is  deemed  to be  obligated  to
restore   pursuant  to  the  penultimate   sentences  of  Regulations   Sections
1.704-2(g)(1) and 1.704-2(i)(5); and

          (b) Debit to such Capital  Account the items described in clauses (4),
(5) and (6) of Section 1.704-1(b)(2)(ii)(d) of the Regulations.

The foregoing  definition  of Adjusted  Capital  Account  Balance is intended to
comply with the provisions of Section  1.704-1(b)(2)(ii)(d)  of the  Regulations
and shall be interpreted consistently therewith.

          "BOOK VALUE" means,  with respect to any asset,  the asset's  adjusted
basis for federal income tax purposes, except as follows:

          (a)  The  initial   Book  Value  for  any  asset  (other  than  money)
contributed by a Partner to the  Partnership  shall be the value as set forth in
this Agreement or, if not set forth in this Agreement,  as reasonably determined
by the General Partner;

          (b) The Book Value of all  Partnership  assets  shall be  adjusted  to
equal their respective gross fair market values, as reasonably determined by the
General  Partner as of the following  times:  (i) the  acquisition of additional
Units in the  Partnership  by any new or existing  Partner in exchange  for more
than a de minimis Capital Contribution; (ii) the distribution by the Partnership
to a  Partner  of  more  than  a de  minimis  amount  of  cash  or  property  as
consideration  for  Units  in  the  Partnership,  if (m  any  such  event)  such
adjustment  is  necessary  or  appropriate,  in the  reasonable  judgment of the
General Partner,  to reflect the relative economic  interests of the Partners in
the Partnership;  or (iii) the liquidation of the Partnership for federal income
tax purposes pursuant to Regulations Section 1.704-1(b)(2)(ii)(g);
<PAGE>
          (c) The Book Value of any Partnership asset distributed to any Partner
shall  be  adjusted  to  equal  its  gross  fair  market  value  on the  date of
distribution, as reasonably determined by the General Partner;

          (d) The Book Values of the Partnership's assets shall be increased (or
decreased)  to reflect  any  adjustments  to the  adjusted  basis of such assets
pursuant to Code Section 734(b) or Code Section  743(b),  but only to the extent
that such  adjustments  are taken into account in determining  Capital  Accounts
pursuant to Regulation Section  1.704-1(b)(2)(iv)(m)  and Section A.2(g) hereof;
provided,  however,  that Book  Values  shall not be  adjusted  pursuant to this
subsection  (d) to the extent that an adjustment  pursuant to subsection  (b) of
this  definition is necessary or  appropriate  in connection  with a transaction
that would  otherwise  result in an adjustment  pursuant to this subsection (d);
and

          (e) If the Book  Value of an asset  has been  determined  or  adjusted
pursuant to subsection (a), (b) or (d) above,  such Book Value shall  thereafter
be  adjusted  by the  Depreciation  taken  into  account  from time to time with
respect to such asset for purposes of computing Profits and Losses.

          "CAPITAL ACCOUNT" means, with respect to any Partner or other owner of
Units in the  Partnership,  the Capital  Account  maintained  for such Person in
accordance with the following provisions:

          (a) To each such Person's Capital Account, there shall be credited the
amount of cash  contributed  to the capital of the  Partnership  and the initial
Book Value of any noncash assets  contributed to the capital of the  Partnership
by such Person, such Person's distributive share of Profits and any items in the
nature of income or gain that are specially  allocated  pursuant to Sections A.2
and A.3 hereof,  and the amount of any Partnership  liabilities  assumed by such
person  (excluding  assumed  liabilities  that have been taken  into  account in
computing  the  Book  Value  of any  Partnership  property  distributed  to such
Person);

          (b) To each such Person's  Capital  Account there shall be debited the
amount of cash and the Book Value of any  Partnership  property  distributed  to
such  Person  pursuant  to  any  provision  of  this  Agreement,  such  person's
distributive  share of Losses, and any items in the nature of expenses or losses
that are specially  allocated  pursuant to Sections A.2 and A.3 hereof,  and the
amount of any liabilities of such Person assumed by the Partnership;

          (c) In the event  any  Units in the  Partnership  are  transferred  in
accordance with the terms of this.  Agreement,  the transferee  shall succeed to
the  Capital  Account  of  the  transferor  to  the  extent  it  relates  to the
transferred interest;

          (d)  Section  752(c) of the Code shall be applied in  determining  the
amount of any liabilities  taken into account for purposes of this definition of
"Capital Account"; and

                                       -2-
<PAGE>
          (e)  The  foregoing  provisions  and  the  other  provisions  of  this
Agreement relating to the maintenance of Capital Accounts are intended to COMPLY
with Sections 1.704-1(b) and 1.704-2 of the Regulations and shall be interpreted
and applied in a manner  consistent with such  Regulations.  The General Partner
may modify the manner of computing the Capital Accounts or any debits or credits
thereto (including debits or credits relating to liabilities that are secured by
contributed  or distributed  property or that are assumed by the  Partnership or
any Partner) in order to comply with such  Regulations,  provided  that any such
modification   is  not  likely  to  have  a  material   effect  on  the  amounts
distributable  to any Partner upon the dissolution of the  Partnership.  Without
limiting the  generality of the preceding  sentence,  the General  Partner shall
make any  adjustments  that are necessary or  appropriate  to maintain  equality
between  the  aggregate  sum of the Capital  Accounts  and the amount of capital
reflected  on the  balance  sheet of the  Partnership,  as  determined  for book
purposes in accordance with Section 1.704-1(b)(2)(iv)(g) of the Regulations. The
General Partner shall also make any appropriate  modifications  if unanticipated
events (for example, the availability of investment tax credits) might otherwise
cause this Agreement not to comply with Regulations Section 1.704-1(b).

          "PARTNERSHIP   MINIMUM   GAIN"  has  the  same  meaning  as  the  term
"partnership   minimum  gain"  under  Regulations   Section  1.704-2(d)  of  the
Regulations.

          "DEPRECIATION"  means, for each Fiscal Year or other period, an amount
equal  to the  depreciation,  amortization  or  other  cost  recovery  deduction
allowable with respect to an asset for such year or other period, except that if
the Book Value of an asset  differs from its adjusted  basis for federal  income
tax purposes at the beginning of such year or other period,  Depreciation  shall
be an amount  that  bears the same  ratio to such  beginning  Book  Value as the
federal income tax depreciation,  amortization or other cost recovery  deduction
for such  year or other  period  bears to such  beginning  adjusted  tax  basis;
provided,  however,  that if  such  depreciation,  amortization  or  other  cost
recovery  deductions  with  respect  to any such  asset for  federal  income tax
purposes is zero for any Fiscal  Year,  Depreciation  shall be  determined  with
reference  to the  asset's  BOOK Value at the  beginning  of such year using any
reasonable method selected by the General Partner.

          "PARTNER  NONRECOURSE  DEBT" has the same meaning as the term "partner
nonrecourse debt" under Section 1.704-2(b)(4) of the Regulations.

          "PARTNER  NONRECOURSE  DEBT MINIMUM  GAIN" has the same meaning as the
term "partner nonrecourse debt minimum gain" under Section  1.704-2(i)(2) of the
Regulations and shall be determined in accordance with Section  1.704-2(i)(3) of
the Regulations.

          "PARTNER  NONRECOURSE  DEDUCTIONS"  has the same  meaning  as the term
"partner nonrecourse  deductions" under Regulations Section  1.704-2(i)(1).  The
amount of Partner  Nonrecourse  Deductions with respect to a Partner Nonrecourse
Debt for each Fiscal Year of the  Partnership  equals the excess (if any) of the
net  increase  (if any) in the amount of Partner  Nonrecourse  Debt Minimum Gain
attributable to such Partner  Nonrecourse  Debt during such Fiscal Year over the
aggregate  amount  of  any  distributions during such Fiscal Year to the Partner

                                       -3-
<PAGE>
that bears the economic  risk of loss for such Partner  Nonrecourse  Debt to the
extent that such distributions are from the proceeds of such Partner Nonrecourse
Debt which are allocable to an increase in Partner Nonrecourse Debt Minimum Gain
attributable  to such Partner  Nonrecourse  Debt,  determined in accordance with
Section 1.704-2(i)(2) of the Regulations.

          "NONRECOURSE DEBT" or "NONRECOURSE  LIABILITY" has the same meaning as
the term "nonrecourse liability" under Section 1.704-2(b)(3) of the Regulations.

          "NONRECOURSE   DEDUCTIONS"  has  the  meaning  set  forth  in  Section
1.704-2(b)(1)  of the  Regulations.  The amount of Nonrecourse  Deductions for a
Partnership  Fiscal Year equals the excess (if any) of the net increase (if any)
in the amount of  Partnership  Minimum  Gain  during  that  Fiscal Year over the
aggregate amount of any  distributions  during that Fiscal Year of proceeds of a
Nonrecourse Debt that are allocable to an increase in Partnership  Minimum Gain,
determined according to the provisions of Section 1.704-2(c) of the Regulations.

          "PROFITS" or "LOSSES" means, for each Fiscal Year or other period, the
taxable  income or taxable  loss of the  Partnership  as  determined  under Code
Section  703(x)  (including in such taxable  income or taxable loss all items of
income,  gain, loss or deduction  required to be stated  separately  pursuant to
Section 703(a)(1) of the Code) with the following adjustments:

          (a) All items of gain or loss  resulting  from any  disposition of the
Partnership's  property shall be determined  upon the basis of the Book Value of
such property rather than the adjusted tax basis thereof;

          (b) Any income of the  Partnership  that is exempt from federal income
tax shall be added to such taxable income or loss;

          (c) Any  expenditures  of the  Partnership  that are described in Code
Section  705(a)(2)(B),  or  treated  as such  pursuant  to  Regulations  Section
1.704-1(b)(2)(iv)(j),  and that are not  otherwise  taken  into  account  in the
computation of taxable income or loss of the  Partnership,  shall be deducted in
the determination of Profits or Losses;

          (d) If the Book Value of any Partnership asset is adjusted pursuant to
subsection  (b) or (c) of the  definition  of "Book  Value"-  set  forth in this
Appendix A, the amount of such adjustment shall be taken into account as gain or
loss from the  disposition  of such asset for purposes of  computing  Profits or
Losses unless such gain or loss is specially  allocated  pursuant to Section A.2
hereof;

          (e) In lieu of the depreciation, amortization, and other cost recovery
deductions  taken into account in determining such taxable income or loss, there
shall be deducted  Depreciation,  computed in accordance  with the definition of
such term in this Appendix A; and

                                       -4-
<PAGE>
          (f)  Notwithstanding any of the foregoing  provisions,  any items that
are specially allocated pursuant to Section A.2 or A.3 hereof shall not be taken
into account in computing Profits or Losses.

     A.2  SPECIAL  ALLOCATIONS.  The  allocation  of Profits and Losses for each
Fiscal Year shall be subject to the following  special  allocations in the order
set forth below:

          (a) Section  704(c) In  accordance  with Code  Section  704(c) and the
Regulations  thereunder,  income,  gain,  loss and deduction with respect to any
in-kind property  contributed to the capital of the Partnership,  shall,  solely
for tax purposes,  be allocated  among the Partners so as to take account of any
variation  between the adjusted  basis of such property to the  Partnership  for
federal  income tax purposes  and its initial Book Value.  In the event the Book
Value of any  Partnership  asset is adjusted  pursuant to subsection  (b) of the
definition  of "Book  Value" in Section  A.1 of  Appendix  A to this  Agreement,
subsequent  allocations of income, gain, loss and deduction with respect to such
asset shall take account of any  variation  between the  adjusted  basis of such
asset for federal  income tax  purposes and its Book Value in the same manner as
under Code Section 704(c) and the Regulations thereunder. Any elections or other
decisions relating to such allocations shall be made by the General Partner.  in
any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations  pursuant to this Section are solely for purposes of federal,  state
and local  taxes and shall not  affect,  or in any way be taken into  account in
computing,  any person's  Capital  Account or share of Profits,  Losses or other
items or distributions pursuant to any provision of this Agreement.

          (b) Partner  Minimum  Gain  Chargeback.  If there is a net decrease in
Partnership  Minimum Gain for any Fiscal Year,  each Partner  shall be specially
allocated  items of  income  and gain for such  year  (and,  if  necessary,  for
subsequent years) in an amount equal to such Partner's share of the net decrease
in  Partnership  Minimum Gain during such year,  determined in  accordance  with
Regulations  Section  1.704-2(g)(2).   Allocations  pursuant  to  the  preceding
sentence  shall be made  among the  Partners  in  proportion  to the  respective
amounts  required to be allocated to each of them  pursuant to such  Regulation.
The items to be so allocated shall be determined in accordance with  Regulations
Section 1.704-2(f)(6). Any special allocation of items of Partnership income and
gain pursuant to this Section  A.2(a) shall be made before any other  allocation
of items under this  Appendix A. This Section  A.2(a) is intended to comply with
the "minimum gain chargeback"  requirement in Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.

          (c) Partner  Nonrecourse Debt. Minimum Gain Chargeback.  If there is a
net decrease during a Fiscal Year in the Partner  Nonrecourse  Debt Minimum Gain
attributable  to a Partner  Nonrecourse  Debt, then each Partner with a share of
the Partner Nonrecourse Debt Minimum Gain attributable to such debt,  determined
in  accordance  with  Regulations  Section  1.704-2(i)(5),  shall  be  specially
allocated items of income and gain for such year (and, if necessary,  subsequent
years)  an  amount  equal to such  Partner's  share of the net  decrease  in the
Partner  Nonrecourse Debt Minimum Gain attributable to such Partner  Nonrecourse
Debt,   determined  in  accordance  with  Regulations   Section   1.704-2(i)(4).

                                       -5-
<PAGE>
Allocations  pursuant to the preceding sentence shall be made among the Partners
in proportion to the respective amounts to be allocated to each of them pursuant
to such Regulation.  Any special allocation of items of income and gain pursuant
to this  Section  A.2(b)  for a Fiscal  Year  shall  be made  before  any  other
allocation of  Partnership  items under this Appendix A, except only for special
allocations  required under Section A.2(a) hereof.  The items to be so allocated
shall be determined in accordance with Regulations Section  1.704-2(i)(4).  This
Section A.2(b) is intended to comply with the provisions of Regulations  Section
1.704-2(i)(4) and shall be interpreted consistently therewith.

          (d)  QUALIFIED  INCOME  OFFSET.  If any Partner other than the General
Partner receives any  adjustments,  allocations,  or distributions  described in
clauses (4), (5) or (6) of Regulations  Section  1.704-1(b)(2)(ii)(d),  items of
income and gain shall be  specially  allocated to each such Partner in an amount
and  manner  sufficient  to  eliminate  as quickly  as  possible,  to the extent
required by such  Regulation,  any deficit in such  Partner's  Adjusted  Capital
Account  Balance,  such  balance to be  determined  after all other  allocations
provided for under this Appendix A have been tentatively made as if this Section
A.2(d) were not in this Agreement.

          (e) GROSS INCOME  ALLOCATION.  In the event any Partner  other' than a
General  Partner  has a deficit  Capital  Account at the end of any Fiscal  Year
which is in  excess  of the sum of (i) the  amount  (if  any)  such  Partner  is
obligated to restore  pursuant to any provision of this Agreement,  and (ii) the
amount  such  Partner  is deemed to be  obligated  to  restore  pursuant  to the
penultimate  sentences  of  Sections  1.704-2(g)(1)  and  1.704-2(i)(5)  of  the
Regulations,  each such Partner shall be specially allocated items of income and
gain in the  amount of such  excess as  quickly as  possible,  provided  that an
allocation  pursuant  to this  Section  A.2(e)  shall be made only if and to the
extent that such Partner would have a deficit  Capital Account in excess of such
sum after all other  allocations  provided for in this Appendix A have been made
as if Section A.2(d) hereof and this Section A.2(e) were not in this Agreement.

          (t) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Fiscal Year
or other period shall be specially  allocated to the Partners in  proportion  to
their Percentage Units.

          (g) PARTNER NONRECOURSE DEDUCTIONS. Partner Nonrecourse Deductions for
any Fiscal Year or other period shall be specially allocated, in accordance with
Regulations  Section  1.704-2(i)(1),  to the  Partner or  Partners  who bear the
economic risk of loss for the Partner  Nonrecourse Debt to which such deductions
are attributable.

          (h) CODE SECTION 754  ADJUSTMENTS.  To the extent an adjustment to the
adjusted tax basis of any.Partnership  asset under Code Section 734(b) or 743(b)
is required to be taken into account in determining Capital Accounts pursuant to
Regulations Section  1.704-1(b)(2)(iv)(m),  the amount of such adjustment to the
Capital  Accounts  shall  be  treated  as an  item of  gain  (if the  adjustment
increases  the basis of the  asset) or loss (if the  adjustment  decreases  such
basis), and such gain or loss shall be specially  allocated to the Partners in a
manner  consistent with the manner in which their Capital  Accounts are required
to be adjusted pursuant to such section of the Regulations.

                                       -6-
<PAGE>
     A.3 CURATIVE  ALLOCATIONS.  The  allocations  set forth in subsections  (b)
through (h) of Section A.2 hereof  ("Regulatory  Allocations")  are  intended to
comply with certain requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding  any  other  provisions  of this  Appendix  A  (other  than  the
Regulatory  Allocations  and the next two following  sentences),  the Regulatory
Allocations shall be taken into account in allocating other Profits,  Losses and
items of income,  gain,  loss and  deduction  among the Partners so that, to the
extent possible, the net amount of such allocations of other Profits, Losses and
other items and the Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the Regulatory
Allocations had not occurred.  For purposes of applying the preceding  sentence,
Regulatory   Allocations  of  Nonrecourse  Deductions  and  Partner  Nonrecourse
Deductions shall be offset by subsequent allocations of items of income and gain
pursuant to this Section A.3 only if (and to the extent)  that:  (a) the General
Partner reasonably determines that such Regulatory Allocations are not likely to
be offset by  subsequent  allocations  under  Section  A.2(a) or Section  A.2(b)
hereof,  and (b) there has been a net decrease in  Partnership  Minimum Gain (in
the  case of  allocations  to  offset  prior  Nonrecourse  Deductions)  or a net
decrease in Partner  Nonrecourse  Debt  Minimum Gain  attributable  to a Partner
Nonrecourse Debt (in the case of allocations to offset prior Partner Nonrecourse
Deductions). The General Partner shall apply the provisions of this Section A.3,
and shall divide the allocations hereunder among the Partners, in such manner as
will minimize the economic  distortions  upon the  distributions to the Partners
that might otherwise result from the Regulatory Allocations.

     A.4 GENERAL ALLOCATION RULES.

          (a) Generally,  all Profits and Losses allocated to the Partners shall
be allocated among them in proportion to their Percentage  Interests,  except as
otherwise  specifically  provided under the terms of this Agreement In the event
Partners are admitted to the  Partnership  on different  dates during any Fiscal
Year,   additional  Units  are  issued  during  a  Fiscal  Year,  or  Units  are
re-allocated  during a Fiscal  Year,  the Profits (or Losses)  allocated  to the
Partners  for each such Fiscal  Year shall be  allocated  among the  Partners in
proportion to the Percentage Interests that each Partner holds from time to time
during  such  Fiscal  Year in  accordance  with  Code  Section  706,  using  any
convention permitted by law and selected by the General Partner.

          (b) For purposes of determining the Profits, Losses or any other items
allocable  to any  period,  Profits,  Losses and any such other  items  shall be
determined  on a daily,  monthly or other basis,  as  determined  by the General
Partner using any method  permissible under Code Section 706 and the Regulations
thereunder.

          (c) For purposes of determining the Partners'  proportionate shares of
the "excess  nonrecourse  liabilities" of the Partnership  within the meaning of
Regulations Section 1.752-3(a)(3), their respective interests in Partner profits
shall be in the same proportions as their Percentage Interests.

                                       -7-