Document:

ex10_3.htm

SECURED LINE OF CREDIT PROMISSORY NOTE

U.S. $8,000,000.00 February 5, 2010

FOR VALUE RECEIVED, the undersigned, UNITED DEVELOPMENT FUNDING IV, a real estate investment trust organized under the laws of the state of Maryland (“Borrower”), hereby makes this Secured Line of Credit Promissory Note (as it may be amended, modified, renewed, extended, increased, supplemented, or replaced from time to time, this “Note”) and promises to pay to the order of RALEY HOLDINGS, LLC, a Nevada limited liability company or its assigns (“Lender”), the sum of U.S. Eight Million and NO/100 Dollars ($8,000,000.00), or, if greater or less, the aggregate outstanding principal amount of this Note, together with accrued, unpaid interest thereon, pursuant to the terms and conditions set forth in this Note.  All amounts are payable to Lender in lawful money of the United States of America at the address for Lender provided for in this Note, or at such other address as from time to time may be designated by Lender.

1.           Definitions.  In addition to the terms defined elsewhere in this Note, the following terms have the meanings set forth below for purposes of this Note:

“Accrued Interest Payments” means the monthly interest payments equal to the amount of accrued interest on the outstanding principal balance of this Note, calculated at the applicable rate of interest provided herein, and payable as provided herein.

“Advance Request” shall mean Lender’s standard form of Advance Request in effect from time to time, which includes means a certificate executed by the Principal Officer certifying that (i) no Event of Default has occurred and is continuing under this Note, (ii) all representations and warranties made by Borrower in this Note and the other Loan Documents are true and correct in all respects, and (iii) Borrower has complied with and performed, in all respects, all covenants, conditions and agreements which are then required by this Note and the other Loan Documents to have been complied with or performed.

“Base Rate” shall mean the lesser of (i) eight and one-half percent (8.5%), accrued monthly and compounded annually, or (ii) the Highest Lawful Rate.

“Collateral” shall have the meaning given to such term in the Security Agreement.

“Collateral Documents” has the meaning given to such term in Section 3.

“Collateral Note” has the meaning given to such term in the Security Agreement.

“Commitment” shall mean the aggregate amount of up to U.S. Eight Million and NO/100 Dollars ($8,000,000.00).

“Default Rate” shall mean the lesser of (i) the Base Rate plus two percent (2%), accrued monthly and compounded annually, or (ii) the Highest Lawful Rate.

“Effective Date” shall mean February 5, 2010.

“Highest Lawful Rate” means the maximum lawful rate of interest which may be contracted for, charged, taken, received or reserved by Lender in accordance with the applicable laws of the State of Texas (or applicable United States federal law, to the extent that it permits Lender to contract or charge, take, receive or reserve a greater amount of interest than under Texas law), taking into account all fees and expenses contracted for, charged, received, taken or reserved by Lender in connection with the transaction relating to this Note and the indebtedness evidenced hereby or by the other Loan Documents which are treated as interest under applicable law.

  

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“Investments” shall mean the Borrower’s investments in secured loans and in residential real estate.

“Lien” shall mean any lien, security interest, charge, tax lien, pledge, encumbrance, conditional sales or other title retention arrangement or any other interest in property designed to secure the repayment of indebtedness or the satisfaction of any other obligation, whether arising by agreement or under any statute or law, or otherwise.

“Loan” shall mean the amount of principal outstanding under this Note from time to time, together with unpaid accrued interest thereon.

“Loan Documents” has the meaning given to such term in Section 3.

	
  

	
“Maturity Date” shall mean February 5, 2011.

“Security Agreement” has the meaning given to such term in Section 3.

2.           Revolver.  This Note is a revolver and thus, Borrower may borrow, repay and then re-borrow the available amount of the Commitment; provided,  however, that notwithstanding anything else to the contrary contained herein, Lender has no obligation to make any advance of principal to Borrower under this Note unless each of the conditions precedent in Section 9 have been satisfied and/or fulfilled as determined by Lender in its sole discretion, at such time.

3.           Security; Loan Documents.  This Note is secured by, and entitled to the benefits of, (a) that certain Collateral Assignment of Notes and Liens and Security Agreement executed by Borrower in favor of Lender dated as of the Effective Date (as it may be amended, modified, renewed, extended, superseded, or replaced from time to time, the “Security Agreement”) pursuant to which Borrower has granted to Lender, a security interest in the Collateral, and (b) for each Collateral Note covered by the Security Agreement, an allonge in the form attached to the Security Agreement, and a Collateral Assignment of Note, Deed of Trust and Loan Documents and Assumption in the form attached to the Security Agreement, and such other documents, agreements, assignments and instruments as Lender shall require in order to evidence, acknowledge or perfect its security interest in the Collateral, as determined by Lender in its sole discretion (collectively, as each may be amended, modified, renewed, extended, superseded, or replaced from time to time, the “Collateral Documents”).  This Note, the Security Agreement, the Collateral Documents, all UCC financing statements, amendments thereto and continuation statements (collectively, “Financing Statements”) filed by or in favor of Lender, all Advance Requests, and all other instruments, agreements, certificates, assignments and other agreements and documents executed, entered into or delivered by any party in connection with this Note, whether prior to, on or after the Effective Date, are collectively referred to in this Note as the “Loan Documents”.

  

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4.           Loan Expenses.   To the extent not prohibited by applicable law, Borrower will pay all reasonable costs and expenses and reimburse Lender for any and all expenditures of every character incurred or expended from time to time, regardless of whether an Event of Default shall have occurred, in connection with  the preparation, negotiation, documentation, closing, renewal, revision, modification, increase, review or restructuring of the loan represented by or secured by the Loan Documents, Lender’s evaluating, monitoring, administering and protecting the Collateral or any other collateral granted or pledged as security for the Loan,; and Lender’s creating, perfecting and realizing upon Lender’s security interest in, and the Liens on, the Collateral or any other collateral granted or pledged as security for the Loan, and all costs and expenses relating to Lender’s exercising any of its rights and remedies under any Loan Document or at law.

5.           Advance Procedures.

(a)           Advances.  Subject to the other terms and conditions of this Note, including, without limitation, Section 9, Lender agrees to make advances to Borrower prior to the Maturity Date in an aggregate amount not to exceed the available amount of the Commitment.  Notwithstanding anything else to the contrary contained herein, Lender shall have no obligation to make any advance of Commitment to Borrower under this Note unless each of the conditions precedent in Section 9 have been satisfied and/or fulfilled as determined by Lender in its sole discretion.  Any obligation of Lender to fund any amount of the Commitment shall terminate upon the earlier of (i) the permitted acceleration of this Note after an Event of Default, or (ii) the Maturity Date.

(b)           Procedure for Borrowing.  Each advance of Commitment  shall be made pursuant to Borrower’s delivery of an Advance Request and shall specify, in addition to any information requested on Lender’s standard form of Advance Request, (i) the amount of the advance of Commitment so requested, (ii) the requested funding date, and (iii) the use of proceeds.  Each advance of Commitment made for the purpose of funding an Investment shall be accompanied by Borrower’s due diligence materials with respect to the Investment proposed to be funded and other documentation supporting the advance of Commitment.  For each Investment being financed by Lender hereunder, Borrower agrees to subject such Investment to the Security Agreement so that such Investment becomes Collateral for the Loan and to provide the relevant Collateral Documents required by the Security Agreement for such Investment together with all information, documents and agreements as may be requested by Lender in connection with each such Investment.

(c)           Making of Advances upon Approval of Advance Request.  Subject to the other terms and conditions of this Note, after receipt of an Advance Request and upon approval by Lender of such Advance Request, Lender shall make available to Borrower, the amount of the requested advance of Commitment (or such lesser amount than the requested amount that Lender has approved to be funded); provided, however, that Lender shall have no obligation to make any advance of Commitment unless each of the conditions precedent in Section 9 have been satisfied and/or fulfilled as determined by Lender in its sole discretion.

6.           Interest; Payment.

(a)           Interest Rate.  The outstanding principal amount of this Note shall bear interest on each day outstanding at the Base Rate in effect on such day, unless the Default Rate shall apply.  Subject to the other provisions of this Note, upon the occurrence and during the continuation of an Event of Default, the outstanding principal amount of this Note shall, at Lender’s option, automatically and without the necessity of notice, bear interest from the date of such Event of Default at the Default Rate, until all such delinquent amounts are paid and such Event of Default has been cured to Lender’s satisfaction as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing the Event of Default so cured, and or waived by Lender as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing the Event of Default so waived.

  

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(b)           Payments.  Except earlier upon any acceleration of this Note:

(i)           Borrower promises to pay to Lender monthly Accrued Interest Payments on the tenth (10th) day of each month for interest accrued during the immediately prior month; and

(ii)           In addition to the payments required by the provisions of clause (i) above, Borrower promises to pay to Lender, the outstanding principal balance of this Note, together with all accrued, unpaid interest thereon, unpaid Loan Expenses and other unpaid amounts due hereunder, on or prior to the Maturity Date.

(c)           Application of Payments.  Payments made on this Note will be applied first to any unpaid collection costs, fees and other charges permitted under this Note, next to unpaid, accrued interest, and last, to reduce the principal outstanding under this Note, subject, however, to any adjustments required or permitted by this Note or applicable law.

(d)           General.  Borrower will make each payment that it owes under this Note to Lender (interest, any applicable fees and charges, and outstanding principal) in full and in lawful money of the United States, without set-off, deduction or counterclaim.  All payments shall be made by check or wire transfer of immediately available funds.  Should any such payment become due and payable on a day other than a business day, the date for such payment shall be extended to the next succeeding business day, and, in the case of a payment of principal or past-due interest, interest shall accrue and be payable on such amount for the period of such extension.  Each such payment must be received by Lender not later than 3:00 p.m., Grapevine, Texas time on the date such payment becomes due and payable.  Any payment received by Lender after such time will be deemed to have been made on the next succeeding business day.

7.           Prepayment; Lender's Rights.  Borrower may prepay this Note, or any portion of this Note, at any time and from time to time, without the payment of any fee or penalty.

8.           Representations and Warranties.  Borrower represents and warrants to Lender as follows:

(a)           Organization and Good Standing.  Borrower is a real estate investment trust, duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, having all powers required to carry on its business and to enter into and carry out the transactions contemplated by this Note and the other Loan Documents.  Borrower has taken all appropriate actions and complied in all material respects with all laws applicable to it in each jurisdiction within and without outside the United States where Borrower owns or leases any properties or conducts any business.

(b)           Authorization; Validity.  Borrower has the power, authority and legal right to execute, deliver and perform its obligations under, this Note and the other Loan Documents.  The execution and delivery by Borrower of the Loan Documents and the performance of its obligations under each such Loan Document have been duly authorized by proper limited partnership proceedings.  The Loan Documents to which Borrower is a party constitute the legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.

  

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(c)           Usury.  Borrower has been involved in the structure and negotiation of the Note and the other Loan Documents.  It is the intention of Borrower that all aspects of the Note and the other Loan Documents, and any related transaction, comply with all laws, including, specifically, any applicable usury laws.  If for any reason, it is determined by a governing authority that the loan made pursuant to the Note and the other Loan Documents is usurious in any manner, Borrower hereby represents that, as to Borrower, such result was unintentional and the result of a bona fide mistake.

9.           Conditions Precedent to Advances of Commitment.  Borrower agrees that, notwithstanding anything to the contrary contained herein or in the other Loan Documents, Lender’s obligation to fund each advance of Commitment shall be conditioned upon the satisfaction and/or fulfillment of each of the following conditions, on and as of the funding date for the applicable advance of Commitment:

(a)           the representations and warranties made in this Note and the other Loan Documents by Borrower and in all certificates and other documents delivered pursuant thereto, shall be true and correct in all material respects on and as of the date of funding, as determined by Lender in its sole discretion;

(b)           all of the covenants and agreements contained in this Note and the other Loan Documents to be complied with and performed as of the date hereof by Borrower have been duly complied with and performed on and as of the date of funding, as determined by Lender in its sole discretion;

(c)           no event constituting an Event of Default (without giving effect to any grace or cure periods for such Event of Default provided herein or in the other Loan Documents), shall have occurred and be continuing, as determined by Lender in its sole discretion;

(d)           a duly authorized officer on behalf of Borrower shall have duly executed and delivered to Lender, an Advance Request;

(e)           on and as of the date of funding, all statements contained in all Loan Documents and all other certificates, statements and data furnished to Lender by or on behalf of Borrower or in connection with the transactions contemplated by this Note or any of the other Loan Documents (including all of the documents and information delivered to Lender in connection with an Advance Request) shall be true and complete in all material respects, and there are no facts or events known to Borrower which, if disclosed to Lender, would make such statements, certificates or date untrue in any material respect;

(f)            the requested advance of Commitment, if made, would not cause the aggregate outstanding principal amount of this Note to exceed the Commitment;

(g)           as of the date of any such advance of Commitment, all of the Loan Documents shall have been executed and delivered (including, without limitation, all Collateral Documents with respect to the Investment being funded by Lender with the proceeds of the advance), and shall be valid, enforceable and in full force and effect;

  

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(h)           Lender shall have approved the Advance Request; and

(i)           Borrower shall have complied with each other request of Lender made in connection with the advance of Commitment.

10.           Covenants.

(a)           Financial Statements.  Borrower shall deliver to Lender, the following financial statements:  (i) within sixty (60) days after the end of each fiscal quarter, the unaudited financial statements of Borrower, prepared in accordance with GAAP and combined or consolidated as appropriate, including all notes related thereto; and (ii) within one hundred twenty (120) days after the end of each fiscal year, the audited financial statements of Borrower, prepared in accordance with GAAP and combined or consolidated as appropriate, including all notes related thereto.  All financial statements provided to Lender shall be certified as to accuracy and completeness by Borrower’s general partner acting in such capacity.

(b)           Use of Proceeds.  The proceeds of this Note shall be used solely to acquire Investments approved by Lender and for business and commercial purposes approved by Lender that are related to Investments.  In no event shall any funds advanced under this Note be used, directly or indirectly, by any person for personal, family, household or agricultural purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any “margin stock” (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System).

11.           Default.

(a)           For purposes of this Note, the following events shall constitute an “Event of Default”:

(i)           the default by Borrower in any payment required by this Note by the fifth (5th) day following the date when due, whether on or prior to the Maturity Date; or

(ii)           Borrower breaches any representation or warranty contained in this Note or any other Loan Document, or fails to perform or observe any covenant or agreement that is set forth in this Note or any other Loan Document, and such breach if capable of being cured, is not cured within ten (10) days after written notice of such breach is received from Lender; or

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

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

  

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(v)

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

(vi)           Borrower is liquidated or winds up its affairs; or

(vii)           any Loan Document ceases to become valid, binding and enforceable for any reason other than its release by Lender; or

(viii)           the sale or liquidation of all or substantially all of the assets of Borrower, without the prior written consent of Lender or the payment in full of the indebtedness of Borrower owing to Lender under this Note.

(b)           Upon the occurrence of an Event of Default described in subsection (a)(iii), (iv) or (v) above, all obligations under this Note and the other Loan Documents shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and any and all sureties, guarantors and endorsers of this Note.  During the continuance of any other Event of Default, then and in every such case Lender may do any or all of the following: (i) declare the principal of this Note together with all accrued and unpaid interest on the unpaid principal balance, and Loan Expenses and other amounts due to Lender under this Note or the other Loan Documents, to be due and payable immediately, and the same shall become and be due and payable, without notices, demands for payment, presentations for payment, notices of payment default, notices of intention to accelerate maturity, protest and notice of protest, and any other notices of any kind, all of which are expressly waived by Borrower and any and all sureties, guarantors and endorsers of this Note, and/or (ii) exercise any or all of its rights under all or any of the Loan Documents, and/or (iii) refuse to advance any additional funds hereunder, and/or (iv) exercise any or all other rights and remedies available to Lender at law and at equity, including, without limitation, such rights existing under the Uniform Commercial Code.  No delay on the part of Lender in exercising any power under this Note shall operate as a waiver of such power or right nor shall any single or partial exercise of any power or right preclude further exercise of that power or right.

(c)           If this Note is placed in the hands of an attorney for collection after an Event of Default or failure to pay under this Note, or if all or any part of the indebtedness represented hereby is proved, established or collected in any court or in any bankruptcy, receivership, debtor relief, probate or other court proceedings, Borrower and all endorsers, sureties and guarantors of this Note, jointly and severally, agree to pay reasonable attorneys' fees and collection costs to Lender in addition to the principal and interest payable under this Note.

  

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12.           Interest Provisions.  It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply strictly with the applicable Texas law governing the maximum rate or amount of interest payable on the indebtedness evidenced by this Note  (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to this Note or any other communication or writing by or between Borrower and Lender related to the transaction or transactions that are the subject matter of this Note, (ii) contracted for, charged, taken, reserved or received by reason of Lender’s exercise of the option to accelerate the maturity of this Note  , or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this Note, then it is Borrower’s and Lender’s express intent that all amounts charged in excess of the Highest Lawful Rate shall be automatically canceled, ab initio, and all amounts in excess of the Highest Lawful Rate theretofore collected by Lender shall be credited on the principal balance of this Note   (or, if this Note   have been or would thereby be paid in full, refunded to Borrower), and the provisions of this Note shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if this Note has been paid in full before the end of the stated term of this Note, then Borrower and Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Highest Lawful Rate, either refund such excess interest to Borrower and/or credit such excess interest against this Note then owing by Borrower to Lender. Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against this Note   then owing by Borrower to Lender. All sums contracted for, charged, taken, reserved or received by Lender for the use, forbearance or detention of any debt evidenced by this Note   shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of this Note   (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of this Note does not exceed the Highest Lawful Rate from time to time in effect and applicable to this Note for so long as debt is outstanding. In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving tri-party accounts) apply to this Note. Notwithstanding anything to the contrary in this Note, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

13.           Further Assurances.  Borrower will, at its expense, to promptly execute and deliver to Lender, all such other and further documents, agreements and instruments, and shall deliver all such supplementary information, including, without limitation, information with respect to Investments, as Lender may request from time to time.

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

15.           Notice.  All notices and other communications under this Note will be in writing and will be mailed by registered or certified mail, postage prepaid, sent by facsimile, delivered personally by hand, or delivered by nationally recognized overnight delivery service addressed to Borrower and Lender, respectively, at the addresses set forth on the signature page to this Note, or, with respect to Borrower or Lender, to such other address as may have delivered by one to the other for purposes of notice.  Each notice or other communication will be treated as effective and as having been given and received (a) if sent by mail, at the earlier of its receipt or three (3) business days after such notice or other communication has been deposited in a regularly maintained receptacle for deposit of United States mail, (b) if sent by facsimile, upon written or electronic confirmation of facsimile transfer, (c) if delivered personally by hand, upon written or electronic confirmation of delivery from the Person delivering such notice or other communication, or (d) if sent by nationally recognized overnight delivery service, upon written or electronic confirmation of delivery from such service.

  

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16.           Enforcement and Waiver by Lender.  Lender shall have the right at all times to enforce the provisions of this Note and the other Loan Documents in strict accordance with their respective terms, notwithstanding any conduct or custom on the part of Lender in refraining from so doing at any time or times.  The failure of Lender at any time or times to enforce its rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom or in any way or manner modified or waived the same.

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

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

19.           Counterparts.  This Note and each other Loan Document may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument.

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

21.           Amendments; Waivers.  No amendment or waiver of any provision of this Note nor consent to any departure herefrom, shall in any event be effective unless the same shall be in writing and signed by Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

  

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22.           Binding Effect; Assignment. This Note and the other Loan Documents shall be binding on Borrower and its successors and assigns, including, without limitation, any receiver, trustee or debtor in possession of or for Borrower, and shall inure to the benefit of Lender and its successors and assigns.  Borrower shall not be entitled to transfer or assign this Note and the other Loan Documents in whole or in part without the prior written consent of Lender. This Note and the other Loan Documents are freely assignable and transferable by Lender without the consent of Borrower.  Should the status, composition, structure or name of Borrower change, this Note and the other Loan Documents shall continue to be binding upon such person and also cover such person under the new status composition, structure or name according to the terms hereof and thereof.

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

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

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

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37104.2/316973v1                                                                     

  

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This Note has been executed by Borrower on this the 5th day of February, 2010, effective for all purposes as of the Effective Date.

BORROWER:

UNITED DEVELOPMENT FUNDING IV

a real estate trust organized under the laws of

the state of Maryland

By:           /s/ Hollis M. Greenlaw

Name:       Hollis M. Greenlaw

Its:            Chairman and Chief Executive Officer

Address for Notice:

United Development Funding IV

1301 Municipal Way, Suite 200

Grapevine, Texas 76051

ATTN:  Hollis M. Greenlaw

_______________________________________

The terms of this Note are hereby accepted by Lender.

LENDER:

RALEY HOLDINGS, LLC

a Nevada limited liability company

By:          /s/ Richard Raley 

Name:      Richard Raley    

Its:           President and Chief Financial Officer

 

Address for Notice:

Raley Holdings, LLC

1301 Municipal Way, Suite 160

Grapevine, Texas 76051

ATTN:  Frank Howard

37104.2/316973v1                                                                     

  

11ex10_4.htm

LOAN PARTICIPATION AGREEMENT – BUFFINGTON SIGNATURE HOMES, LLC

(UDF III $2,500,000 Lot Inventory Loan to Buffington Signature Homes, LLC)

This Loan Participation Agreement (this “Agreement”) is entered into effective as of the 24th day of March, 2010 (the “Effective Date”) by and between UNITED DEVELOPMENT FUNDING III, LP, a Delaware limited partnership as lender, agent and assignor (the “Agent”), and UNITED DEVELOPMENT FUNDING IV, a Maryland real estate investment trust as assignee and participant (the “Participant”).

R E C I T A L S:

A.           The Agent is the lender of that certain $2,500,000 revolving lot inventory loan (the “Loan”) to Buffington Signature Homes, LLC, a Texas limited liability company, as successor-by-merger to Buffington Signature Homes, Ltd., a Texas limited partnership (“Borrower”).

B.           The Loan is evidenced and secured by the following: (i) that certain Loan Agreement between Lender and Borrower dated effective as of August 12, 2008 (the “Loan Agreement”), (ii) that certain Secured Promissory Note in the principal amount of $2,500,000 executed by Borrower and payable to the order of the Agent and its assigns, dated as of even date with the Loan Agreement (the “Note”), (iii) those certain Master Deeds of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filings executed by Borrower to Todd Etter, trustee for the benefit of the Agent, and recorded in of various counties in the State of Texas in which Borrower does business (collectively, as previously amended, supplemented, assumed and assigned, the “Master Deed of Trust”), (iv) each Short Form Deed of Trust executed by Borrower to Todd Etter, trustee for the benefit of the Agent, which are recorded (or which will, in the future, be recorded) in the Real Property Records of various counties in the State of Texas in which Borrower does business (collectively, the “Short Form Deeds of Trust”; the Master Deed of Trust and the Short Form Deeds of Trust are referred to herein collectively as the “Deeds of Trust”), and (v) all other guaranties, security agreements, assignments, certificates and other agreements or documents, evidencing, securing, or otherwise documenting or giving notice of the Loan and any performance or payment obligations with respect thereto, described on Exhibit “A” including, without limitation, all modifications, restructurings, extensions, consolidations and amendments of the foregoing (collectively with the Loan Agreement, the Note, and the Deeds of Trust, the “Loan Documents”).

C.           On the Effective Date, the outstanding balance of the Note is $466,213.62, consisting of $461,800.09 in principal, and $4,413.53 in accrued, unpaid interest.

D.           The Participant desires to purchase a 100% participation interest in the Loan and the Loan Documents during the Participation Period (as hereinafter defined) (the “Participation Interest”), and the Agent has agreed to sell and assign the Participation Interest to the Participant.

E.           The Participant, as owner of the Participation Interest, desires to appoint the Agent as its agent in connection with all rights and duties under the Note and the Loan Documents, and the Agent has agreed to act as the Participant’s agent with respect to the foregoing transactions.

A G R E E M E N T:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Agent and the Participant agree as follows:

  

1

  

1.           Assignment.  For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Agent hereby agrees to sell, transfer, assign, and convey, and does hereby sell, transfer, assign, and convey to the Participant, and the Participant hereby agrees to purchase, accept and receive, and does hereby purchase, accept and receive from the Agent, the Participation Interest, in consideration for the payment of the Purchase Price (as defined in Section 4 below).

2.           Participation Period.  The Participation Period shall commence on the Effective Date and shall terminate on the earliest of (i) August 12, 2010, which is the maturity date of the Loan (or, if maturity date of the Loan is extended, to such date to which the Participation Period is extended as referenced in a written extension agreement executed by the Participant and the Agent), (ii) the date of an Agent Foreclosure Event (as hereinafter defined), or (iii) the date of a Buyback Event (as hereinafter defined).  The Participant shall be entitled to 100% of any interest accrued on the Note during the Participation Period, but the Participant shall not be entitled to any interest accrued on the Note during any period other than the Participation Period, except for component of the Purchase Price (as hereinafter defined) attributable to accrued interest.

3.           Assumption.  The Participant hereby assumes all funding obligations of the Agent under the Loan Documents during the Participation Period.

4.           Purchase Price.  The Purchase Price (herein so called) to be paid by the Participant for the Participation Interest shall be equal to the sum of (x) $466,213.62, which is the outstanding balance of the Note on the Effective Date, plus (y) the Participant’s assumption of all funding obligations of the Agent under the Loan Documents during the Participation Period.  Absent manifest error, the Participant’s books and records relating to the amounts so funded by the Participant shall be conclusive evidence of the Purchase Price.

5.           Loan Funding Procedures.  Each time during the Participation Period that the Agent receives an Advance Request (as such term is defined in the Loan Agreement) from Borrower, the Agent shall deliver the Advance Request to the Participant together with such other documents and information as is requested by the Participant with respect to the Advance Request.  Upon receiving all documents and information requested with respect to the Advance Request, the Participant shall fund the principal amount of the Advance Request directly to the title company closing the take down relating to such Advance Request upon the Agent’s request.

6.           Payment of  Interest and Principal.  During the Participation Period, the Agent shall cause Borrower to pay the Participant 100% of all payments of principal and interest made by or on behalf of Borrower on the Note or in respect of the Loan.  The Agent shall make cause all payments due to the Participant under this Section 6 to be made promptly upon receipt of payment from Borrower.  At any time upon the Participant’s request, the Agent shall cause all payments made on the Note or in respect of the Loan to be paid directly to the Participant.  All payments shall be made by wire transfer or such other method as specified by the Participant.

7.           Appointment of the Agent.  The Participant hereby appoints the Agent as its agent with respect to its Participation Interest, and hereby authorizes the Agent on its behalf, and as deemed advisable by the Agent, to monitor and administrate the Note and the Loan Documents, and to do any and all acts and to make any and all decisions required, contemplated or advisable in connection with the Note and the Loan Documents; provided, however, that the Agent shall not take any action or make any decision without the prior written consent of the Participant with respect to the following matters (the “Major Decisions”):  (i) modification or amendment of the Note and the Loan Documents, including, without limitation, extension of the maturity date of the Loan or any increase in the amount of the Loan, (ii) the acceleration of the Note upon the occurrence of an Event of Default (as such term is defined in the Note and the Loan Documents), and (iii) enforcement of the rights and remedies available to the holder of the Note and the Loan Documents.  The Agent’s powers to act on behalf of the Participant shall be limited solely by the foregoing limitations and by the terms and conditions of the Note and the Loan Documents.  Subject to the obligation of the Agent to obtain the prior written consent of the Participant with respect to Major Decisions, the Participant shall rely solely upon the Agent with respect to its Participation Interest and the enforcement of its rights under the Note and the Loan Documents, and shall not have any rights separate from the Agent to take any action, make any decision, or enforce any right under the Note and the Loan Documents.

  

2

  

8.           Agreement to be Bound.  Each of the Participant and the Agent hereby accepts, assumes and agrees to be bound by, and to perform in accordance with, all of the terms and provisions of the Note and the Loan Documents, as they may be modified or amended from time to time.

9.           Collateral Matters.

 

 

(a)           The Loan Documents are collateral for that certain Loan and Security Agreement executed by the Agent in favor of Wesley J. Brockhoeft (“Brockhoeft”), as lender to the Agent, dated as of September 21, 2009 or any new loan documents evidencing a new or replacement line of credit to the Agent from Brockhoeft or any new or substitute lender providing the Agent with a line of credit (as such may be amended, modified, renewed, extended, superseded or replaced from time to time, collectively, the “Agent Loan Agreement”).   Nothing herein shall effect or impede the obligations of the Agent under the Agent Loan Agreement.  Subject to the Agent’s obligation to repurchase the Participation Interest upon an Agent Foreclosure Event (as hereinafter defined) as further set forth in Section 11 below, the Participant accepts, assumes and agrees to be bound by, all of the terms and provisions of the Agent Loan Agreement as they relate to the Note and the Loan Documents (which are collateral for the Agent’s obligations under the Agent Loan Agreement); provided, however, that such agreement of the Participant shall not be deemed to create privity between the Participant and Brockhoeft and his assigns, or any new or substitute lender providing the Agent with a line of credit.

(b)           The Participation Interest is collateral for that certain Loan and Security Agreement executed by the Participant in favor of Raley Holdings, LLC (“Raley”), as lender to the Participant, dated as of March 8, 2010, or any new loan documents evidencing a new or replacement line of credit to the Participant from Raley or any new or substitute lender providing the Participant with a line of credit (as such may be amended, modified, renewed, extended, superseded or replaced from time to time, collectively, the “Participant Loan Agreement”).   Nothing herein shall effect or impede the obligations of the Participant under the Participant Loan Agreement.  The Agent hereby accepts, assumes and agrees to be bound by, all of the terms and provisions of the Participant Loan Agreement as they relate to the Participation Interest (which is collateral for the Participant’s obligations under the Participant Loan Agreement); provided, however, that such agreement of the Agent shall not be deemed to create privity between the Participant and Raley and his assigns, or any new or substitute lender providing the Participant with a line of credit.

10.           Indemnification by the Participant.  The Agent shall not be liable or responsible for, and shall be saved, indemnified and held harmless by the Participant, from and against any and all claims and damages of every kind relating to (a) its performance as the Agent hereunder and under the Note and the Loan Documents; (b) the performance or nonperformance of any act by the Agent hereunder and under the Note and the Loan Documents, (c) Borrower’s failure to pay the Note  in full or to comply with any of its obligations under the Note and the Loan Documents, or any "default" or "event of default" by Borrower under the Note and the Loan Documents, or any breach by Borrower of any representation, warranty, covenant or agreement contained in the Note and the Loan Documents, (d) the Agent’s enforcement, or lack of enforcement of any right it may have individually or on behalf of the Participant arising under the Note and the Loan Documents; and (e) the Participant’s loss of its investment in the Participation Interest, in whole or in part, should such loss occur for any reason; provided, however, that the Participant shall have no indemnity obligations under this Section 10 to the extent that any claims or damages arise from (1) the gross negligence or willful misconduct of the Agent in the following matters: (x) its performance as the Agent hereunder, (y) the performance or nonperformance of any act by the Agent hereunder and under the Note and the Loan Documents, or (z) the Agent’s enforcement, or lack of enforcement of any right it may have individually or on behalf of the Participant arising under the Note and the Loan Documents, (2) the foreclosure by Brockhoeft or his assigns, or any new or substitute lender providing the Agent with a line of credit, of the Note and the Loan Documents or any collateral therefor, or the performance or nonperformance of any act by the Agent or Brockhoeft or his assigns, or any new or substitute lender providing the Agent with a line of credit, under or in connection with the Loan Agreement (any such event is referred to herein as an “Agent Foreclosure Event”), or (3) the breach by the Agent of its obligations under Sections 11 and 13 of this Agreement.

  

3

  

11.           Agent Foreclosure Event.  Upon an Agent Foreclosure Event, the Participation Period shall terminate automatically and the Agent shall repurchase the Participant’s Interest in accordance with Section 13 below.

12.           Buyback Event.  The Participant shall have the option to terminate the Participation Period at any time by giving the Agent thirty (30) days written notice of its intent to require the Agent to repurchase the Participation Interest (a “Buyback Event”).

13.           Termination of Participation Interest.  Upon termination of the Participation Period for any reason, the Agent shall pay the Participant an amount equal to (x) the outstanding principal amount of the Note, on the date of termination, together with all accrued interest due thereon, plus (y) any amounts due to the Participant under Section 6 which were not previously paid to the Participant, but only to the extent such amounts are not duplicative of the amounts owed to the Participant under clause (x) above (collectively, the “Buyback Price”). Upon receipt of the Buyback Price, the Participant shall execute and deliver to the Agent, an assignment and release of the Participation Interest assigning the Participation Interest to the Agent and relinquishing all right of the Participant in the Loan and the Loan Documents, in a form agreed to by the Agent and the Participant.

14.           Successors and Assigns.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, representatives, administrators, successors and assigns; provided, however, that (i) the Agent may assign this Agreement and its rights and obligations hereunder to any entity acquiring the Note and Loan Documents with the prior written consent of the Participant, and (ii) the Participant may not assign or transfer all or any portion of this Agreement and its rights and obligations hereunder without the prior written consent of the Agent.

15.           Governing Law.  This Agreement and the rights of the Agent and the Participant shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to its rules regarding conflict of laws.

16.           Headings.  The headings of the sections in this Agreement are for convenience of reference only and shall have no application in the interpretation of this Agreement.

  

4

  

17.           Exhibits.  The exhibits hereto are incorporated by reference to the same extent as if fully set forth herein.

18.           Severability.  If any provision of this Agreement or application to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law.

19.           Further Assurances.  The parties agree to execute such other and further documents as may be reasonably necessary or appropriate to consummate the transactions contemplated by this Agreement.

20.           Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall constitute an original.

21.           Entire Agreement; Amendment.  This Agreement together with its exhibits contain the entire understanding and agreement of the Agent and the Participant regarding the subject matter hereof and may not in any way be altered, amended or modified except by an instrument in writing signed by the Agent and the Participant.

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

 

37104.9/319539v1

UDF IV Participation Agreement

UDF III – Buff Signature Lot Inventory Line

  

5

  

IN WITNESS WHEREOF, this Agreement has been executed on this the ______ day of March, 2010, effective for all purposes as of the Effective Date.

AGENT:

 

UNITED DEVELOPMENT FUNDING III, LP

 

By:           UMTH Land Development, L.P.

Its:           General Partner

By:           UMT Services, Inc.

Its:           General Partner

 

	
  

	
                     By:          /s/ Ben Wissink

	 	 

	
                          

	
Name:      Ben Wissink

	 

	
                          

	
Title:        Chief Operating Officer

	 

PARTICIPANT:

 

UNITED DEVELOPMENT FUNDING IV

a Maryland real estate investment trust

	
   

	
                      By:        /s/ David Hanson

	 	 

	
  

	
                        Name:

	    David Hanson

	
  

	
                        Title:

	      Chief Operating Office

 

37104.9/319539v1

UDF IV Participation Agreement

UDF III – Buff Signature Lot Inventory Line

  

6

  

EXHIBIT A

LOAN DOCUMENTS

(see attached)

 

37104.9/319539v1

UDF IV Participation Agreement

UDF III – Buff Signature Lot Inventory Line

  

7

  

LOAN PARTICIPATION AGREEMENT – BUFFINGTON TEXAS CLASSIC HOMES, LLC

(UDF III $2,000,000 Lot Inventory Loan to Buffington Texas Classic Homes, LLC)

This Loan Participation Agreement (this “Agreement”) is entered into effective as of the 24th day of March, 2010 (the “Effective Date”) by and between UNITED DEVELOPMENT FUNDING III, LP, a Delaware limited partnership as lender, agent and assignor (the “Agent”), and UNITED DEVELOPMENT FUNDING IV, a Maryland real estate investment trust as assignee and participant (the “Participant”).

R E C I T A L S:

A.           The Agent is the lender of that certain $2,000,000 revolving lot inventory loan (the “Loan”) to Buffington Texas Classic Homes, LLC, a Texas limited liability company, as successor-by-merger to Buffington Texas Classic Homes, Ltd., a Texas limited partnership (“Borrower”).

B.           The Loan is evidenced and secured by the following: (i) that certain Loan Agreement between Lender and Borrower dated effective as of August 21, 2008 (the “Loan Agreement”), (ii) that certain Secured Promissory Note in the principal amount of $2,000,000 executed by Borrower and payable to the order of the Agent and its assigns, dated as of even date with the Loan Agreement (the “Note”), (iii) those certain Master Deeds of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filings executed by Borrower to Todd Etter, trustee for the benefit of the Agent, and recorded in of various counties in the State of Texas in which Borrower does business (collectively, as previously amended, supplemented, assumed and assigned, the “Master Deed of Trust”), (iv) each Short Form Deed of Trust executed by Borrower to Todd Etter, trustee for the benefit of the Agent, which are recorded (or which will, in the future, be recorded) in the Real Property Records of various counties in the State of Texas in which Borrower does business (collectively, the “Short Form Deeds of Trust”; the Master Deed of Trust and the Short Form Deeds of Trust are referred to herein collectively as the “Deeds of Trust”), and (v) all other guaranties, security agreements, assignments, certificates and other agreements or documents, evidencing, securing, or otherwise documenting or giving notice of the Loan and any performance or payment obligations with respect thereto, described on Exhibit “A” including, without limitation, all modifications, restructurings, extensions, consolidations and amendments of the foregoing (collectively with the Loan Agreement, the Note, and the Deeds of Trust, the “Loan Documents”).

C.           On the Effective Date, the outstanding balance of the Note is $268,045.78, consisting of $265,704.47 in principal, and $2,341.31 in accrued, unpaid interest.

D.           The Participant desires to purchase a 100% participation interest in the Loan and the Loan Documents during the Participation Period (as hereinafter defined) (the “Participation Interest”), and the Agent has agreed to sell and assign the Participation Interest to the Participant.

E.           The Participant, as owner of the Participation Interest, desires to appoint the Agent as its agent in connection with all rights and duties under the Note and the Loan Documents, and the Agent has agreed to act as the Participant’s agent with respect to the foregoing transactions.

A G R E E M E N T:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Agent and the Participant agree as follows:

  

8

  

1.           Assignment.  For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Agent hereby agrees to sell, transfer, assign, and convey, and does hereby sell, transfer, assign, and convey to the Participant, and the Participant hereby agrees to purchase, accept and receive, and does hereby purchase, accept and receive from the Agent, the Participation Interest, in consideration for the payment of the Purchase Price (as defined in Section 4 below).

2.           Participation Period.  The Participation Period shall commence on the Effective Date and shall terminate on the earliest of (i) August 21, 2010, which is the maturity date of the Loan (or, if maturity date of the Loan is extended, to such date to which the Participation Period is extended as referenced in a written extension agreement executed by the Participant and the Agent), (ii) the date of an Agent Foreclosure Event (as hereinafter defined), or (iii) the date of a Buyback Event (as hereinafter defined).  The Participant shall be entitled to 100% of any interest accrued on the Note during the Participation Period, but the Participant shall not be entitled to any interest accrued on the Note during any period other than the Participation Period, except for component of the Purchase Price (as hereinafter defined) attributable to accrued interest.

3.           Assumption.  The Participant hereby assumes all funding obligations of the Agent under the Loan Documents during the Participation Period.

4.           Purchase Price.  The Purchase Price (herein so called) to be paid by the Participant for the Participation Interest shall be equal to the sum of (x) $268,045.78, which is the outstanding balance of the Note on the Effective Date, plus (y) the Participant’s assumption of all funding obligations of the Agent under the Loan Documents during the Participation Period.  Absent manifest error, the Participant’s books and records relating to the amounts so funded by the Participant shall be conclusive evidence of the Purchase Price.

5.           Loan Funding Procedures.  Each time during the Participation Period that the Agent receives an Advance Request (as such term is defined in the Loan Agreement) from Borrower, the Agent shall deliver the Advance Request to the Participant together with such other documents and information as is requested by the Participant with respect to the Advance Request.  Upon receiving all documents and information requested with respect to the Advance Request, the Participant shall fund the principal amount of the Advance Request directly to the title company closing the take down relating to such Advance Request upon the Agent’s request.

6.           Payment of  Interest and Principal.  During the Participation Period, the Agent shall cause Borrower to pay the Participant 100% of all payments of principal and interest made by or on behalf of Borrower on the Note or in respect of the Loan.  The Agent shall make cause all payments due to the Participant under this Section 6 to be made promptly upon receipt of payment from Borrower.  At any time upon the Participant’s request, the Agent shall cause all payments made on the Note or in respect of the Loan to be paid directly to the Participant.  All payments shall be made by wire transfer or such other method as specified by the Participant.

7.           Appointment of the Agent.  The Participant hereby appoints the Agent as its agent with respect to its Participation Interest, and hereby authorizes the Agent on its behalf, and as deemed advisable by the Agent, to monitor and administrate the Note and the Loan Documents, and to do any and all acts and to make any and all decisions required, contemplated or advisable in connection with the Note and the Loan Documents; provided, however, that the Agent shall not take any action or make any decision without the prior written consent of the Participant with respect to the following matters (the “Major Decisions”):  (i) modification or amendment of the Note and the Loan Documents, including, without limitation, extension of the maturity date of the Loan or any increase in the amount of the Loan, (ii) the acceleration of the Note upon the occurrence of an Event of Default (as such term is defined in the Note and the Loan Documents), and (iii) enforcement of the rights and remedies available to the holder of the Note and the Loan Documents.  The Agent’s powers to act on behalf of the Participant shall be limited solely by the foregoing limitations and by the terms and conditions of the Note and the Loan Documents.  Subject to the obligation of the Agent to obtain the prior written consent of the Participant with respect to Major Decisions, the Participant shall rely solely upon the Agent with respect to its Participation Interest and the enforcement of its rights under the Note and the Loan Documents, and shall not have any rights separate from the Agent to take any action, make any decision, or enforce any right under the Note and the Loan Documents.

  

9

  

8.           Agreement to be Bound.  Each of the Participant and the Agent hereby accepts, assumes and agrees to be bound by, and to perform in accordance with, all of the terms and provisions of the Note and the Loan Documents, as they may be modified or amended from time to time.

9.           Collateral Matters.

 

 

(a)           The Loan Documents are collateral for that certain Loan and Security Agreement executed by the Agent in favor of Wesley J. Brockhoeft (“Brockhoeft”), as lender to the Agent, dated as of September 21, 2009 or any new loan documents evidencing a new or replacement line of credit to the Agent from Brockhoeft or any new or substitute lender providing the Agent with a line of credit (as such may be amended, modified, renewed, extended, superseded or replaced from time to time, collectively, the “Agent Loan Agreement”).   Nothing herein shall effect or impede the obligations of the Agent under the Agent Loan Agreement.  Subject to the Agent’s obligation to repurchase the Participation Interest upon an Agent Foreclosure Event (as hereinafter defined) as further set forth in Section 11 below, the Participant accepts, assumes and agrees to be bound by, all of the terms and provisions of the Agent Loan Agreement as they relate to the Note and the Loan Documents (which are collateral for the Agent’s obligations under the Agent Loan Agreement); provided, however, that such agreement of the Participant shall not be deemed to create privity between the Participant and Brockhoeft and his assigns, or any new or substitute lender providing the Agent with a line of credit.

(b)           The Participation Interest is collateral for that certain Loan and Security Agreement executed by the Participant in favor of Raley Holdings, LLC (“Raley”), as lender to the Participant, dated as of March 8, 2010, or any new loan documents evidencing a new or replacement line of credit to the Participant from Raley or any new or substitute lender providing the Participant with a line of credit (as such may be amended, modified, renewed, extended, superseded or replaced from time to time, collectively, the “Participant Loan Agreement”).   Nothing herein shall effect or impede the obligations of the Participant under the Participant Loan Agreement.  The Agent hereby accepts, assumes and agrees to be bound by, all of the terms and provisions of the Participant Loan Agreement as they relate to the Participation Interest (which is collateral for the Participant’s obligations under the Participant Loan Agreement); provided, however, that such agreement of the Agent shall not be deemed to create privity between the Participant and Raley and his assigns, or any new or substitute lender providing the Participant with a line of credit.

10.           Indemnification by the Participant.  The Agent shall not be liable or responsible for, and shall be saved, indemnified and held harmless by the Participant, from and against any and all claims and damages of every kind relating to (a) its performance as the Agent hereunder and under the Note and the Loan Documents; (b) the performance or nonperformance of any act by the Agent hereunder and under the Note and the Loan Documents, (c) Borrower’s failure to pay the Note  in full or to comply with any of its obligations under the Note and the Loan Documents, or any "default" or "event of default" by Borrower under the Note and the Loan Documents, or any breach by Borrower of any representation, warranty, covenant or agreement contained in the Note and the Loan Documents, (d) the Agent’s enforcement, or lack of enforcement of any right it may have individually or on behalf of the Participant arising under the Note and the Loan Documents; and (e) the Participant’s loss of its investment in the Participation Interest, in whole or in part, should such loss occur for any reason; provided, however, that the Participant shall have no indemnity obligations under this Section 10 to the extent that any claims or damages arise from (1) the gross negligence or willful misconduct of the Agent in the following matters: (x) its performance as the Agent hereunder, (y) the performance or nonperformance of any act by the Agent hereunder and under the Note and the Loan Documents, or (z) the Agent’s enforcement, or lack of enforcement of any right it may have individually or on behalf of the Participant arising under the Note and the Loan Documents, (2) the foreclosure by Brockhoeft or his assigns, or any new or substitute lender providing the Agent with a line of credit, of the Note and the Loan Documents or any collateral therefor, or the performance or nonperformance of any act by the Agent or Brockhoeft or his assigns, or any new or substitute lender providing the Agent with a line of credit, under or in connection with the Loan Agreement (any such event is referred to herein as an “Agent Foreclosure Event”), or (3) the breach by the Agent of its obligations under Sections 11 and 13 of this Agreement.

  

10

  

11.           Agent Foreclosure Event.  Upon an Agent Foreclosure Event, the Participation Period shall terminate automatically and the Agent shall repurchase the Participant’s Interest in accordance with Section 13 below.

12.           Buyback Event.  The Participant shall have the option to terminate the Participation Period at any time by giving the Agent thirty (30) days written notice of its intent to require the Agent to repurchase the Participation Interest (a “Buyback Event”).

13.           Termination of Participation Interest.  Upon termination of the Participation Period for any reason, the Agent shall pay the Participant an amount equal to (x) the outstanding principal amount of the Note, on the date of termination, together with all accrued interest due thereon, plus (y) any amounts due to the Participant under Section 6 which were not previously paid to the Participant, but only to the extent such amounts are not duplicative of the amounts owed to the Participant under clause (x) above (collectively, the “Buyback Price”). Upon receipt of the Buyback Price, the Participant shall execute and deliver to the Agent, an assignment and release of the Participation Interest assigning the Participation Interest to the Agent and relinquishing all right of the Participant in the Loan and the Loan Documents, in a form agreed to by the Agent and the Participant.

14.           Successors and Assigns.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, representatives, administrators, successors and assigns; provided, however, that (i) the Agent may assign this Agreement and its rights and obligations hereunder to any entity acquiring the Note and Loan Documents with the prior written consent of the Participant, and (ii) the Participant may not assign or transfer all or any portion of this Agreement and its rights and obligations hereunder without the prior written consent of the Agent.

15.           Governing Law.  This Agreement and the rights of the Agent and the Participant shall be governed by and construed in accordance with the laws of the State of Texas, without giving effect to its rules regarding conflict of laws.

16.           Headings.  The headings of the sections in this Agreement are for convenience of reference only and shall have no application in the interpretation of this Agreement.

  

11

  

17.           Exhibits.  The exhibits hereto are incorporated by reference to the same extent as if fully set forth herein.

18.           Severability.  If any provision of this Agreement or application to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law.

19.           Further Assurances.  The parties agree to execute such other and further documents as may be reasonably necessary or appropriate to consummate the transactions contemplated by this Agreement.

20.           Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall constitute an original.

21.           Entire Agreement; Amendment.  This Agreement together with its exhibits contain the entire understanding and agreement of the Agent and the Participant regarding the subject matter hereof and may not in any way be altered, amended or modified except by an instrument in writing signed by the Agent and the Participant.

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

 

37104.9/319509v1

UDF IV Participation Agreement

UDF III – Buff TX Classic Lot Inventory Line

  

12

  

IN WITNESS WHEREOF, this Agreement has been executed on this the ______ day of March, 2010, effective for all purposes as of the Effective Date.

AGENT:

 

UNITED DEVELOPMENT FUNDING III, LP

 

By:           UMTH Land Development, L.P.

Its:           General Partner

By:           UMT Services, Inc.

Its:           General Partner

 

	
  

	
                 By:        /s/ Ben Wissink

	 	 

	
                         

	
 Name:    Ben Wissink

	 

	
  

	
                       Title:      Chief Operating Officer

	 

PARTICIPANT:

 

UNITED DEVELOPMENT FUNDING IV

a Maryland real estate investment trust

	
  

	
                      By:        /s/ David Hanson

	 	 

	
  

	
                        Name:

	    David Hanson

	
  

	
                        Title:

	      Chief Operating Officer

 

37104.9/319509v1

UDF IV Participation Agreement

UDF III – Buff TX Classic Lot Inventory Line

  

13

  

EXHIBIT A

LOAN DOCUMENTS

(see attached)

 

37104.9/319509v1

UDF IV Participation Agreement

UDF III – Buff TX Classic Lot Inventory Line

  

14

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