Document:

_

Exhibit 4.1

Global Fixed Rate Note

REGISTERED NO.

MADISON GAS AND ELECTRIC COMPANY

Fixed Rate

Medium-Term Note

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to the Company or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co., or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

The following summary of terms is subject to the provisions set forth below:

	CUSIP:                                               557497AQ7

ORIGINAL ISSUE DATE(S):          December 29, 2006

PRINCIPAL AMOUNT:                   $30,000,000

MATURITY DATE:                          January 15, 2017

INTEREST RATE:                            5.25%

INTEREST PAYMENT DATES:       January 15 and

                                                              July 15

RECORD DATES:                             January 1 and July 1

OPTIONAL REDEMPTION:                þYes       ̈ No

INITIAL REDEMPTION DATE:      December 29, 2006

                    

AMORTIZING NOTE:                          ̈ Yes     þ No

                                                   

OPTION TO ELECT

        REPAYMENT:                               ̈ Yes     þ No

                                                  

OPTIONAL EXTENSION OF

       ORIGINAL MATURITY DATE:   ̈ Yes     þ No

                                                  

	EXTENSION PERIOD:                            N/A

NUMBER OF EXTENSION PERIODS: N/A

FINAL MATURITY DATE:                   January 15, 2017

OPTIONAL INTEREST RESET:              ̈ Yes    þ No

                                                  

OPTIONAL INTEREST RESET              N/A

       DATES:

ORIGINAL ISSUE DISCOUNT

        NOTE:                                                 ̈ Yes    þ No

                                      

ISSUE PRICE (percentage of principal):  99.727%

YIELD TO MATURITY:                          5.285%

RENEWABLE AT OPTION OF

        HOLDER:                                            ̈ Yes   þ No

                                     

ANNEX ATTACHED (and

      incorporated by reference

      herein):                                                  þ Yes   ̈  No

Madison Gas and Electric Company, a Wisconsin corporation (herein called the “Company”, which term includes any successor Person under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to Cede & Co. or registered assigns the principal sum specified above, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, on the Maturity date specified above and to pay interest thereon, in such coin or currency, from and including the Original Issue Date (or if this Global Note has two or more Original Issue Dates, interest shall, beginning on each such Original Issue Date, begin to accrue for that part of the principal amount to which such Original Issue Date is applicable) specified above, or from and including the most recent Interest Payment Date specified above to which interest has been paid or duly provided for, as the case may be.  Interest shall be paid in arrears semiannually on each Interest Payment Date in each year commencing on (a) the first such Interest Payment Date next succeeding the earliest Original Issue Date or Dates, or (b) if such Original Issue Date is after a Record Date and prior to the first Interest Payment Date, on the second Interest Payment Date, at the per annum Interest Rate set forth above until Maturity and the principal hereof is paid or made available for payment.  The interest so payable and punctually paid or duly provided for on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note is registered at the close of business on the Record Date specified above next preceding such Interest Payment Date; provided, however, that if an Original Issue Date falls between a Record Date and the next Interest Payment Date, the first payment of interest with respect to such Original Issue Date will be paid on the second Interest Payment Date subsequent to such Original Issue Date to the Person in whose name this Note is registered at the close of business on the Record Date for such second Interest Payment Date; and provided, further, that interest payable on the Maturity date or, if applicable, upon redemption, shall be payable to the Person to whom principal shall be payable.  Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Record Date and shall be paid to the Person in whose name this Note is registered at the close of business on a Record Date for the payment of such defaulted interest to be fixed by the Company, notice whereof shall be given to Noteholders not less than fifteen days prior to such Record Date.  Payment of the principal of and any premium and interest on this Note shall be made on or before 10:30 A.M., New York City time or such other time as shall be agreed upon between the Trustee and the Depositary, of the day on which such payment is due, by wire transfer into the account specified by the Depositary; provided, however, that as a condition to the payment at the Maturity date of any part of the principal and any applicable premium of this Global Note, the Depositary shall surrender, or cause to be surrendered, this Global Note to the Trustee.  The Company will pay any administrative costs imposed by banks in connection with making payments by wire transfer, but not any tax, assessment or governmental charge imposed on the Holder of this Note.

Under certain circumstances, this Global Note is exchangeable in whole or from time to time in part for a definitive individual Note or Notes, with the same Original Issue Date or Dates, Maturity date, Interest Rate and redemption and other provisions as provided herein or in the Indenture.

REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS GLOBAL NOTE SET FORTH IN FULL ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH IN FULL AT THIS PLACE.

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Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof, directly or through an Authenticating Agent, by manual signature of an authorized signatory, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed.

Dated:  December 29, 2006

MADISON GAS AND ELECTRIC COMPANY

By:  /s/ Terry A. Hanson

Terry A. Hanson

Vice President, Chief Financial Officer and Secretary

By:  /s/ Jeffrey C. Newman

Jeffrey C. Newman

Vice President and Treasurer

TRUSTEE’S CERTIFICATE

    OF AUTHENTICATION

This is one of the Notes referred

to in the within-mentioned Indenture.

The Bank of New York Trust Company, N.A.,

     as Trustee

By:  /s/ Janice Ott Rotunno

Authorized Signatory

[Signature Page to Note]

MADISON GAS AND ELECTRIC COMPANY

MEDIUM-TERM NOTE

This Global Note is one of, and a global security which represents Notes which are part of, the duly authorized Notes of the Company (herein called the “Notes”), issued and to be issued under an Indenture dated as of September 1, 1998 (herein called the “Indenture”) between the Company and The Bank of New York Trust Company, N.A. (as successor to Bank One, N.A.), as Trustee (herein called the “Trustee”, which term includes any successor Trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Noteholders, and of the terms upon which the Notes are, and are to be, authenticated and delivered.

Each Note shall be dated the date of its authentication by the Trustee.  Each Note shall also bear an Original Issue Date or Dates which with respect to this Global Note (or any portion thereof) shall mean the date or dates of the original issue of the Notes represented hereby as specified on the face hereof, and such Original Issue Date or Dates shall remain the same for all Notes subsequently issued upon transfer, exchange or substitution of such original Note (or such subsequently issued Notes) regardless of their dates of authentication.  The Notes may bear different dates, mature at different times, bear interest at different rates, be subject to different redemption provisions, if any, and may otherwise vary, all as provided in the Indenture.     

Interest on this Note will be payable on the Interest Payment Date or Interest Payment Dates as specified on the face hereof and, in either case, at Maturity.  Unless otherwise specified on the face hereof, payments on this Note with respect to any particular Interest Payment Date or the Maturity date will include interest accrued from and including the applicable Original Issue Date, or from and including the most recent Interest Payment Date to which interest has been paid or duly provided for, to but excluding the particular Interest Payment Date or the Maturity date.  Interest on this Note will be computed and paid on the basis of a 360-day year of twelve 30-day months.

Unless otherwise specified on the face hereof, if this Note is an Amortizing Note, payments with respect to this Note will be applied first to interest due and payable hereon and then to the reduction of the unpaid principal amount hereof.  If this Note is an Amortizing Note, a table setting forth the schedule of dates and amounts of payments of principal of and interest on this Note or the formula for the amortization of principal and/or interest is set forth in an annex attached to this Note.

All percentages resulting from any calculation with respect to this Note will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with five one-millionths of a percentage point rounded upward) and all dollar amounts used in or resulting from any such calculation with respect to this Note will be rounded to the nearest cent (with one-half cent being rounded upward).

“Business Day” means, unless otherwise specified on the face hereof or in the Annex attached hereto, any Monday, Tuesday, Wednesday, Thursday or Friday that in The City of New York is not a day on which banking institutions are authorized or obligated by law, regulation or executive order to close.  If an Interest Payment Date or Maturity for this Note falls 

4

on a day that is not a Business Day, payment of principal, premium, if any, and interest to be made on such day with respect to this Note will be made on the next day that is a Business Day with the same force and effect as if made on the due date, and no additional interest will be payable on the date of payment for the period from and after the due date as a result of such delayed payment.

This Note will be redeemable at the option of the Company prior to its Stated Maturity only if an Initial Redemption Date is specified on the face hereof.  If so specified, this Note will be subject to redemption at the option of the Company on any date on and after such Initial Redemption Date in whole or from time to time in part in increments of $1,000 or integral multiples thereof, at the redemption prices specified in an annex attached to this Note, plus accrued and unpaid interest to but excluding the date of redemption, but payments due with respect to this Note prior to the date of redemption will be payable to the Holder of this Note of record at the close of business on the relevant Record Date specified on the face hereof, all as provided in the Indenture.  The Company may exercise such option by causing the Trustee to mail a notice of such redemption, at least 30 but not more than 60 calendar days prior to the date of redemption, in accordance with the provisions of the Indenture.  In the event of redemption of this Note in part only, this Note will be cancelled and a new Note or Notes representing the unredeemed portion hereof will be issued in the name of the Holder hereof.  This Note is not subject to a sinking fund unless otherwise specified in an annex attached hereto.

If so specified on the face of this Note, (i) this Note shall be subject to repayment, in whole or in part, prior to Stated Maturity at the option of the Holder on a certain date or dates and at a certain price or prices, plus accrued and unpaid interest to but excluding the date of payment; (ii) the Stated Maturity of this Note may be extended at the option of the Company for one or more Extension Periods of from one to five years, as specified on the face hereof, up to but not beyond the Final Maturity Date specified on the face hereof; (iii) the interest rate specified on the face hereof may be reset by the Company in accordance with a formula or otherwise on the Optional Interest Reset Date or Dates specified on the face hereof; and/or (iv) this Note shall be renewable at the option of the Holder, in each case in accordance with the provisions of the Indenture applicable thereto and/or as specified in an annex attached to this Note.

Notwithstanding anything herein to the contrary, if this Note is an Original Issue Discount Note as specified on the face hereof, the amount payable in the event the principal amount hereof is declared to be due and payable immediately by reason of an Event of Default or in the event of redemption or repayment hereof prior to the Stated Maturity hereof, in lieu of the principal amount due at the Stated Maturity hereof, shall be the Amortized Face Amount of this Note as of the date of declaration, redemption or repayment, as the case may be.  The “Amortized Face Amount” of this Note shall be the amount equal to the principal amount of this Note multiplied by the Issue Price specified on the face hereof plus (b) the portion of the difference between the dollar amount thus obtained and the principal amount hereof that has accreted at the Yield to Maturity specified on the face hereof (computed in accordance with generally accepted United States bond yield computation principles) to such date of declaration, redemption or repayment but in no event shall the Amortized Face Amount of this Note exceed the principal amount stated on the face hereof.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the 

5

rights of the Noteholders to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding that would be affected thereby.  The Indenture also contains provisions permitting the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding, on behalf of the Holders of all Notes, to waive compliance by the Company with certain covenants in the Indenture.  The Indenture also provides that the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding may waive certain past defaults and their consequences on behalf of the Holders of all Notes.  Any such consent or waiver by the Holder of this Global Note (if not timely revoked in accordance with the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders of this Global Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Global Note or such Note.

As set forth in, and subject to, the provisions of the Indenture, no Holder of any Notes will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing default with respect to the Notes, the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding as Trustee, and the Trustee shall have failed to institute such proceeding within 60 days; provided, however, that such limitations do not apply to a suit instituted by the Holder hereof for the enforcement of payment of the principal of and any premium or interest on this Global Note on or after the respective due dates expressed herein.

THIS NOTE IS A GLOBAL NOTE REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL NOTES REPRESENTED HEREBY, THIS GLOBAL NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY.

If at any time the Depositary for this Global Note notifies the Company that it is unwilling or unable to continue as Depositary for this Global Note or if at any time the Depositary for this Global Note shall no longer be registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or any successor statute or regulation, the Company may appoint a successor Depositary with respect to this Global Note.  If (A) a successor Depositary for this Global Note is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, or (B) any Notes are represented by this Global Note at a time when an Event of Default with respect to the Notes shall have occurred and be continuing, then in each case the Company’s election to issue this Note in global form shall no longer be effective with respect to this Global Note and the Company will execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of individual Notes in exchange for this Global Note, shall authenticate and make available for delivery, individual Notes of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of this Global Note in exchange for this Global Note.

6

If agreed by the Company and the Depositary with respect to Notes issued in the form of this Global Note, the Depositary for such Global Note shall surrender this Global Note in exchange in whole or in part for individual Notes of like tenor and terms in definitive form on such terms as are acceptable to the Company and such Depositary.  Thereupon the Company shall execute, and the Trustee shall authenticate and make available for delivery, without a service charge, (1) to each Person specified by such Depositary, a new Note or Notes of like tenor and terms, and of any authorized denominations as requested by such Person in aggregate principal amount equal to and in exchange for the beneficial interest of such Person in this Global Note, and (2) to such Depositary a new Global Note of like tenor and terms and in a denomination equal to the difference, if any, between the principal amount of this Global Note and the aggregate principal amount of Notes delivered to Holders thereof.

Under certain circumstances specified in the Indenture, the Depositary may be required to surrender any two or more Global Notes which have identical terms (but which may have differing Original Issue Dates) to the Trustee, and the Company shall execute and the Trustee shall authenticate and deliver to, or at the direction of, the Depositary a Global Note in principal amount equal to the aggregate principal amount of, and with all terms identical to, the Global Notes surrendered to the Trustee, and such new Global Note shall indicate each applicable Original Issue Date and the principal amount applicable to each such Original Issue Date.

No reference herein to the Indenture and no provision of this Global Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Global Note at the times, places and rates, and in the coin or currency, herein prescribed.

The Indenture contains provisions for the satisfaction and discharge of the Indenture upon compliance by the Company with certain conditions specified therein, which provisions apply to this Note.

Prior to due presentment of this Global Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Global Note is registered as the owner hereof for all purposes, whether or not this Global Note is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

The Indenture and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.

All terms used in the Note which are defined in the Indenture but are not defined in this Note shall have the meanings assigned to them in the Indenture.

7

ABBREVIATIONS

The following abbreviations, when used in the inscription of the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM - as tenants in common

UNIT GIFT

MIN ACT - _____Custodian_____

TEN ENT - as tenants by the

     

        (Cust)               (Minor)

entireties

Under Uniform Gifts to 

Minors Act

JT TEN - as joint tenants with

right of survivorship and

not as tenants in common

    

 

     State

Additional abbreviations may also be used though not in the above list.

______________________

FOR VALUE RECEIVED the undersigned hereby sell(s),

assign(s) and transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR

OTHER IDENTIFYING NUMBER OF ASSIGNEE

               

 

               

 

Please print or typewrite name and address

including postal zip code of assignee

the within note and all rights thereunder, hereby irrevocably constituting and appointing ___________________________________________ attorney to transfer said note on the books of the Company, with full power of substitution in the premises.

Dated:____________________

NOTICE:  The signature(s) to this assignment must correspond with the name(s) as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever. The signature(s) must be guaranteed by an “eligible guarantor institution” that is a member or participant in the Securities Transfer Agents Medallion Program, the Stock Exchange Medallion Program or the New York Stock Exchange, Inc. Medallion Program.

8

ANNEX

REDEMPTION PRICE

The Company may, at its option, redeem the Notes in whole or in part at any time at a redemption price equal to the greater of:

(1)

100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest on those Notes to the redemption date, or

(2)

as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed (not including any portion of payments of interest accrued as of the redemption date) discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate plus 15 basis points, plus accrued and unpaid interest on those Notes to the redemption date.

The redemption price will be calculated assuming a 360-day year consisting of twelve 30-day months.  For purposes of this Annex, the following definitions shall apply:

“Adjusted Treasury Rate” means, with respect to any redemption date, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for the redemption date.

“Business Day” means any day that is not a day on which banking institutions in New York City are authorized or required by law or regulation to close.

“Comparable Treasury Issue” means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes that would be used, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Notes.

“Comparable Treasury Price” means, with respect to any redemption date:

(i)

the average of the Reference Treasury Dealer Quotations for that redemption date, after excluding the highest and lowest of the Reference Treasury Dealer Quotations; or

(ii)

if the Trustee obtains fewer than three Reference Treasury Dealer Quotations, the average of all Reference Treasury Dealer Quotations so received.

“Quotation Agent” means the Reference Treasury Dealer appointed by the Company.

“Reference Treasury Dealer” means (1) J.P. Morgan Securities Inc. and its successors, unless it ceases to be a primary U.S. Government securities dealer in the United States (“Primary Treasury Dealer”), in which case the Company shall substitute another Primary Treasury Dealer; and (2) any other Primary Treasury Dealer selected by the Company.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by that Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding that redemption date.

A-1Exhibit 10.1 - Secured Promissory Note

    
      

        SECURED
          PROMISSORY NOTE

        

        U.S.
          $6,927,610.00    

        Dallas,
          Texas   

        December
          29, 2006

        

        FOR
          VALUE RECEIVED UNITED DEVELOPMENT FUNDING, L.P.,
          a
          Nevada limited partnership (“Borrower”)
          hereby
          makes and issues this Secured Promissory Note (this “Note”),
          and
          promises to pay to the order of UNITED
          DEVELOPMENT FUNDING III, L.P.,
          a
          Delaware limited partnership (together with its successors and assigns,
          “Lender”)
          the
          principal sum of U.S. Six Million Nine Hundred Twenty- Seven Thousand Six
          Hundred Ten and NO/100 Dollars ($6,927,610.00) or, if greater or less,
          the
          aggregate amount of all funds advanced to Borrower under this Note, together
          with accrued, unpaid interest thereon, and all other amounts due to Lender
          hereunder. Lender and Borrower hereby agree to the terms and conditions
          of this
          Note, as further set forth below. 

         

        1. Certain
          Definitions.
          Certain
          capitalized terms which are defined in the text of this Note shall have
          the
          respective meanings given to such terms herein. The following capitalized
          terms
          shall have the following meanings:

        

        (a) “Assignment”
shall
          mean that certain Assignment of Deed of Trust pursuant to which Borrower
          assigns
          the Deed of Trust to Lender, dated as of even date herewith.

        

        (b) “Base
          Rate”
shall
          mean the lesser of (i) twelve percent (12.0%) per annum, or (ii) the Highest
          Lawful Rate.

        

        (c) “Commitment”
shall
          mean an aggregate amount of U.S. Six Million Nine Hundred Twenty-Seven
          Thousand
          Six Hundred Ten and NO/100 ($6,927,610.00).

        

        (d) “Commitment
          Advance”
          shall
          mean the advance of the Commitment made to Borrower at the closing of this
          Note
          in accordance with the provisions hereof.

        

        (e) “Deed
          of Trust”
means
          that certain Deed of Trust, Security Agreement, and Fixture Filing (Financing
          Statement) with UDF Tx One as the grantor and with Borrower as the grantee,
          covering UDF Tx One’s interests in the Property, which Deed of Trust shall be
          assigned, transferred and conveyed from Borrower to Lender pursuant to
          the
          Assignment.

        

        (f) “Default
          Rate”
shall
          mean the lesser of (i) eighteen percent (18%) per annum, or (ii) the Highest
          Lawful Rate.

        

        (g) “Event
          of Default”
shall
          have the meaning given to such term in Section 10
          of this
          Note.

        

        (h) “Governmental
          Regulations”
shall
          mean any and all (i) present and future laws, ordinances, rules, regulations,
          directions and requirements of every duly constituted governmental or
          quasi-governmental authority or agency including, without limitation, the
          rules,
          regulations and ordinances of all state and municipal governments and of
          all
          applicable federal, state and local agencies and bureaus; and (ii) similarly
          applicable orders, rules and regulations of any regulatory, licensing,
          accrediting, insurance underwriting or rating organization or other body
          exercising similar functions. 

        

        (i) “Highest
          Lawful Rate”
shall
          mean 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. 

        

        (j) “Loan
          Documents”
shall
          mean this Note, the Deed of Trust, the Assignment, the error and omissions
          letter executed by Borrower in favor of Lender and all other documents,
          certificates, instruments, and agreements executed, entered into or delivered
          by
          Borrower, UDF Tx One or any of their respective affiliates in connection
          with
          this Note, as each such document may be amended from time to time. 

        

        (k) “Maturity
          Date”
means
          June 21, 2007.

        

        (l) “Partnership
          Agreement”
means
          the Agreement of Limited Partnership for United Development Funding, L.P.,
          as it
          may be amended from time to time.

        

        (m) “Property”
shall
          mean that certain real property located in Adams county, Colorado and more
          particularly on Exhibit
          “A”
          attached
          to the Deed of Trust. 

        

        (n) “UDF
          Tx
          One”
shall
          mean UDF Tx One, L.P., a Texas limited partnership and a subsidiary of
          Borrower.

        

        2. Loan
          Expenses; Fees.

        

        (a) Loan
          Expenses.
          Borrower shall pay Lender, the full amount of all fees and expenses incurred
          by
          Lender (collectively, the “Loan
          Expenses”)
          in
          connection with the loan made pursuant to this Note and the preparation
          of the
          Note and the other Loan Documents, including, without limitation, attorneys
          fees, accountants fees, closing costs, due diligence costs and expenses,
          recording fees, courier and delivery fees, document preparation fees, wire
          transfer and bank fees, title company fees, and all other fees and costs
          incurred by Lender. 

         

        (b) Usury
          Savings Clause Applies.
          Borrower and Lender agree that Lender has provided, and shall provide,
          separate
          and distinct consideration for the fees described in Section
          2(a)
          above or
          that such expenses represent bona fide expenses incurred by Lender, and
          that
          such fees are not intended to be characterized as interest or as compensation
          for the use, forbearance or detention of money. Despite the foregoing and
          notwithstanding anything else in the Loan Documents to the contrary, if
          any fees
          or expenses charged hereunder are determined to constitutes interest and
          such
          fees and expenses, when added to the interest charged hereunder, would
          cause the
          aggregate interest charged hereunder to exceed the Highest Lawful Rate,
          then
Sections
          4(b)
          and
11
          of this
          Note shall automatically apply to reduce the interest charged hereunder
          so as
          not to exceed the Highest Lawful Rate.

        

        (c) Assignment.
          All
          Loan Expenses are assignable by Lender to any affiliate or third
          party.

        

        3. Commitment;
          Commitment Advance; Discretionary Advances.

        

        (a) Commitment
          Advance.
          Subject
          to the terms and conditions of this Note, Lender agrees to make a Commitment
          Advance in the amount of $6,328,010.14 at
          the
          closing of this Note, the proceeds of which shall be used by Borrower to
          refinance the source of funds used by Borrower to fund the loan from Borrower
          to
          UDF Tx One in connection with the acquisition of the Property. The remainder
          of
          the Commitment shall be advanced by Lender from time to time upon Borrower’s
          request, provided that no Event of Default has occurred and is continuing
          and
          Borrower is otherwise in compliance with the provisions of this Note. This
          Note
          is not a revolver and thus, the portion of the Commitment borrowed may
          not be
          repaid to Lender and subsequently reborrowed under this Note. Notwithstanding
          the foregoing, Lender shall have no obligation to advance the Commitment
          unless
          each of the conditions precedent set forth in Section
          6
          have
          been satisfied.

        

        (b) Discretionary
          Advances.
          Lender
          hereby is authorized by Borrower to make advances hereunder that Lender,
          in its
          sole discretion, deems necessary or desirable to pay any Loan Expense or
          other
          amount chargeable to Borrower pursuant to the terms of this Note or any
          other
          Loan Document (such advances made for the foregoing purposes are referred
          to
          herein as the “Discretionary
          Advances”),
          provided Lender has notified Borrower in writing of such Loan Expense and
          provided Borrower with invoices and other supporting documents and Borrower
          has
          failed to timely pay such Loan Expense or provide Lender with written objections
          thereto. Each Discretionary Advance shall, upon disbursement, automatically
          constitute principal outstanding hereunder and cause a corresponding increase
          in
          the aggregate amount of Borrower’s obligations hereunder (even if such
          Discretionary Advance causes the aggregate amount outstanding hereunder
          to
          exceed the face amount of this Note). The making by Lender of any Discretionary
          Advance shall not cure any Event of Default hereunder, unless Lender provides
          Borrower with a written waiver of such Event of Default. 

        

        4. Interest;
          Payments.
          

        

        (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, accrued and compounded
          monthly, unless the Default Rate shall apply. Upon the occurrence and during
          the
          continuation of an Event of Default, the outstanding principal amount of
          this
          Note shall, automatically and without the necessity of notice, bear interest
          from the date of such Event of Default at the Default Rate, accrued and
          compounded monthly, until all such delinquent amounts are paid or such
          breach or
          Event of Default is otherwise cured to the satisfaction of Lender or waived
          by
          Lender in writing. 

        

        (b) Highest
          Lawful Rate.
          Notwithstanding anything to the contrary contained in this Note or any
          other
          Loan Document, (i) this Note shall never bear interest in excess of the
          Highest
          Lawful Rate, and (ii) if at any time the rate at which interest is payable
          on
          this Note is limited by the Highest Lawful Rate by the foregoing clause
          (i) or
          by reference to the Highest Lawful Rate in the definitions of Base Rate
          and
          Default Rate, then this Note shall bear interest at the Highest Lawful
          Rate and
          shall continue to bear interest at the Highest Lawful Rate until such time
          as
          the total amount of interest accrued on this Note equals (but does not
          exceed)
          the total amount of interest which would have accrued on this Note, had
          there
          been no Highest Lawful Rate applicable to this Note. 

        

        (c) Interest
          Payments; Interest Reserve Advances.
          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 (each, an “Accrued
          Interest Payment”),
          shall
          be due and payable on the first day of each month while this Note is
          outstanding. Notwithstanding the foregoing sentence, on each date that
          an
          Accrued Interest Payment becomes due and payable, Lender shall make an
          advance
          under this Note in the amount of such Accrued Interest Payment (collectively,
          the “Interest
          Reserve Advances”),
          which
          shall be applied to the Accrued Interest Payment then due and payable.
          Subject
          to the other provisions of this Note, each time Lender funds an Interest
          Reserve
          Advance for a given month, Borrower’s requirement to make the Accrued Interest
          Payment for such month shall be satisfied, and each Interest Reserve Advance
          funded by Lender hereunder shall automatically become principal outstanding
          under this Note upon such funding. The Interest Reserve Advances may be
          funded
          by Lender even if such funding causes the outstanding principal balance
          of this
          Note to exceed its face amount. Notwithstanding anything else to the contrary
          contained herein, (i) if at any time an Event of Default has occurred and
          is
          continuing under this Note, Lender shall not be obligated to make any further
          Interest Reserve Advances, and thereafter, shall do so only in its sole
          discretion, unless and until the Event of Default is cured to Lender’s
          satisfaction as evidenced in writing, and (ii) in no event shall Lender
          be
          obligated to make any Interest Reserve Advance after the expiration of
          the
          Interest Reserve Period.

        

        (d) Payments.
          Subject
          to the other provisions of this Note: 

        

        (i) Accrued
          Interest Payments shall be due and payable as provided in Section
          4(c)
          of this
          Note; and

        

        (ii) the
          outstanding principal balance of this Note, together with all accrued,
          unpaid
          interest thereon, unpaid Loan Expenses and other unpaid amounts due hereunder,
          shall be due and payable on the Maturity Date. 

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        5. Terms
          and Conditions of Payment.

        

        (a) Application
          of Payments.
          Subject
          to the application of Interest Reserve Advances to Accrued Interest Payments
          as
          provided in Section
          4(c)
          of the
          Note, all payments on this Note shall be applied first, to unpaid Loan
          Expenses
          due hereunder, next, to unpaid accrued interest, and last, to principal
          outstanding under this Note. Notwithstanding the foregoing sentence, if
          any
          Event of Default occurs and is existing under this Note or any other Loan
          Document, Lender shall have the right to apply payments toward amounts
          due under
          this Note as Lender determines in its sole discretion. 

        

        (b) General.
          All
          amounts are payable to Lender in lawful money of the United States of America
          at
          the address for Lender provided in this Note, or at such other address
          as from
          time to time may be designated by Lender. Borrower will make each payment
          which
          it owes under this Note and the other Loan Documents to Lender in full
          and in
          lawful money of the United States, without set-off, deduction or counterclaim.
          Under no circumstance may Borrower offset any amount owed by Borrower to
          Lender
          under this Note with an amount owed by Lender to Borrower under any other
          arrangement. All payments shall be made by cashier's 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 required payment
          of
          principal, interest or Loan Expenses or other amounts then due, 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., Dallas, 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. 

        

        (c) Prepayment.
          Borrower may prepay this Note in whole or in part at any time and from
          time to
          time without incurring any prepayment fee or penalty; provided, that interest
          shall accrue on the portion of this Note so prepaid through the date of
          such
          prepayment. 

        

        6. Loan
          Deliveries.
          At or
          prior to the closing of the loan made pursuant to this Note, Borrower shall
          deliver or cause to be delivered to Lender, the following items (unless
          Lender
          agrees, with respect to any delivery, that such item may be delayed until
          a
          reasonable time post-closing, not to exceed thirty (30) days after the
          closing)
          each of which shall be satisfactory in form and substance to Lender:

        

        (a) this
          Note
          and each other Loan Document, duly executed by Borrower and, if applicable,
          each
          other party thereto;

        

        (b) Borrower’s
          most recent consolidated financial statements, in the form specified in
          Section
          8(f)
          of this
          Note, and accompanied by the certification required by Section
          8(f)
          of this
          Note; 

        

        (c) a
          certified copy of the formation documents and all amendments thereto, of
          Borrower and Borrower’s general partner and all other documents filed with the
          secretary of state of the state of organization of Borrower and Borrower’s
          general partner, respectively; 

        

        (d) a
          certificate of existence for Borrower, and certificates of existence and
          good
          standing for Borrower’s general partner, issued by the secretary of state of the
          state of organization of Borrower and Borrower’s general partner,
          respectively;

        

        (e) resolutions
          of Borrower’s general partner authorizing Borrower’s execution, delivery, and
          performance of this Note and the other Loan Documents, and the transactions
          contemplated hereby and thereby; 

        

        (f) certificates
          evidencing general liability and hazard insurance policies covering Borrower
          and
          the Property and an endorsement to each such policy naming Lender as an
          additional insured to such policies and also containing a clause requiring
          at
          least thirty (30) days written notice to Lender as a condition precedent
          to any
          cancellation thereof, and reasonably satisfactory to Lender of payment
          of the
          premiums therefor at least one year from the date of this Note;

        

        (g) a
          certificate (the “Officer’s
          Certificate”)
          executed by Borrower’s general partner on behalf of Borrower certifying that (i)
          no Event of Default has occurred and is continuing under the 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; 

        

        (h) the
          Partnership Agreement, fully executed by all parties thereto;

        

        (i) a
          title
          commitment for a mortgagee title policy (or an assignment of borrower’s
          mortgagee policy to Lender) to be issued in favor of Lender in the principal
          amount of the Note insuring the Lender’s lien position against the Property as
          first in priority, and otherwise satisfactory to Lender in all respects
          (the
“Lender
          Title Policy”);
          

        

        (j) all
          due
          diligence documents related to the Property requested by Lender, including,
          without limitation, a Phase I Environmental Report certifying that no recognized
          environmental conditions exist, an original survey of the Property certified
          as
          to accuracy by the surveyor, a recorded plat of the Property, an appraisal
          of
          the Property and all engineering due diligence reports, materials and
          documentation, each of which shall be dated as of a recent date acceptable
          to
          Lender;

        

        (k) satisfactory
          evidence (including but not limited to certificates of appropriate governmental
          officials) that UDF Tx One has obtained, for the Property, all land use,
          zoning,
          subdivision, grading, municipal district, environmental, and other governmental
          permits, approvals, authorizations and maps necessary to develop the Property
          in
          compliance with Governmental Regulations; 

        

        (l) a
          copy of
          the Option Agreement between Borrower and Lennar Colorado, LLC, a Colorado
          limited liability company, executed by all parties thereto (which may be
          entered
          into concurrently with the closing of this Note); and

        

        (m) such
          other and further documents, agreements and certificates as are reasonably
          required by Lender.

         

        7. Representations
          and Warranties.
          Borrower represents and warrants to Lender that: 

        

        (a) Organization
          and Good Standing; Authorization.
          Borrower (i) is duly organized, validly existing and in good standing under
          the
          laws of its jurisdiction of organization, and (ii) has full power and authority
          to own its assets and properties, carry on its business and to perform
          the
          transactions contemplated by this Note and the other Loan Documents. All
          necessary partnership, limited liability company, partnership, member,
          partner
          and other actions required to be taken on behalf of Borrower to approve
          this
          Note and the other Loan Documents and the transactions contemplated hereby
          and
          thereby, have been duly taken. Borrower is in compliance in all material
          respects with all laws applicable to it in each jurisdiction within and
          without
          outside the United States where it owns or leases any properties or conducts
          any
          business. 

        

        (b) Authority;
          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 this Note and the other Loan documents,
          and the performance of its obligations hereunder and thereunder, will not
          (i) violate the certificate of formation of Borrower or its Partnership
          Agreement,
          (ii)
          violate any law or result in a default under any contract, agreement, or
          instrument to which Borrower is a party or by which Borrower is bound,
          or (iii)
          result in the creation or imposition of any security interest in, or lien
          or
          encumbrance upon the Property or any of its other assets or properties.
          The Loan
          Documents constitute the legal, valid and binding obligations of Borrower
          and
          are 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. 

        

        (c) Litigation.
          There
          is no pending order, notice, claim, litigation, proceeding or investigation
          against or affecting Borrower, UDF Tx One, the Property or any of their
          other
          respective assets or properties, whether or not covered by insurance, that
          could
          adversely affect the financial condition or business prospects or Borrower,
          if
          adversely determined.

        

        (d) Indebtedness.
          Borrower has no material indebtedness of any nature, or to the extent disclosed
          in the latest financial statements delivered to Lender or otherwise disclosed
          in
          writing to Lender and approved by Lender.

        

        (e) Environmental
          Liability.
          To the
          best of Borrower’s knowledge, no hazardous substances or solid wastes have been
          disposed of or otherwise released on or to the Property or any properties
          owned
          or operated by Borrower or UDF Tx One. The terms “hazardous substance” and
“release” shall have the meanings specified in the Comprehensive Environmental
          Response Compensation and Liability Act of 1980, as amended, (“CERCLA”),
          and
          the terms “solid waste” and “disposal” (or “disposed”) shall have the meanings
          specified in the Resource Conservation and Recovery Act of 1976, as amended,
          (“RCRA”);
          provided, to the extent that the laws of the State of Texas establish a
          meaning
          for “hazardous substance”, “release”, “solid waste”, or “disposal” or
“disposed”) that is broader than that specified in either CERCLA or RCRA, such
          broader meaning shall apply. 

        

        (f) Usury.
          Borrower and its general partner have been involved in the structure and
          negotiation of the Note and the other Loan Documents. It is the intention
          of the
          parties hereto that all aspects of this Note and the other Loan Documents,
          and
          the transactions contemplated hereby and thereby, comply with all laws,
          including, specifically, any applicable usury laws. If for any reason it
          is
          determined that the loan made pursuant to this Note and the other Loan
          Documents
          is usurious in any manner, each of Borrower and Lender hereby represents
          that
          such result was unintentional and the consequence of a bona fide
          mistake.

        

        (g) Tax
          Liabilities.
          Borrower has filed all federal, state, county, local, and foreign tax returns
          and reports required to have been filed by them (or has obtained valid
          extensions with respect to such returns and reports), including but not
          limited
          to such returns and reports with respect to income, payroll, property,
          employee
          withholding, social security, unemployment, franchise, excise, use and
          sales
          taxes. Borrower has paid in full all taxes that have become due as reflected
          on
          all such returns and reports (including any interest and penalties) and
          has
          established adequate reserves for all taxes payable but not yet due. No
          governmental claim for additional taxes, interest, or penalties is pending
          or,
          to Borrower’s knowledge, threatened against Borrower or any of their respective
          properties or assets.

         

        8. Covenants.
          Borrower covenants and agrees with Lender that it will comply with each
          of the
          following covenants below:

        

        (a) Payment;
          Performance.
          Borrower shall promptly pay all amounts due and owing to Lender under this
          Note.
          Borrower shall timely perform and comply with each agreement and covenant
          made
          under this Note and the other Loan Documents.

        

        (b) Use
          of
          Proceeds.
          The
          proceeds of this Note shall be used solely to refinance the source of funds
          used
          by Borrower to fund the loan from Borrower to UDF Tx One in connection
          with the
          acquisition of the Property. In no event shall the proceeds of 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).

        

        (c) Other
          Loans.
          Termination
          of Existence.
          Borrower shall not cause, or enter into any agreement to cause, the dissolution
          or termination of the existence of Borrower or the merger, consolidation,
          or
          reorganization of Borrower with or into any other entity, whether or not
          such
          person would be the surviving entity. 

        

        (d) Notice
          of Certain Events.
          Borrower shall promptly notify Lender in writing of the occurrence of any
          event
          or series of events causing, or that could be expected to cause or has
          caused
          (i) a material adverse effect on the operations or financial condition
          of
          Borrower, UDF Tx One or the Property, (ii) the occurrence of any Event
          of
          Default (without giving effect to any cure period applicable thereto),
          or (iii)
          any event of default by Borrower or the acceleration of the maturity of
          any
          indebtedness owed by Borrower under any indenture, mortgage, agreement,
          promissory note, contract or other instrument to which Borrower is a party
          or by
          which the Property any material asset or property of Borrower is bound.
          Borrower
          shall notify Lender in writing at least twenty (20) business days prior
          to the
          date that it changes its name, address, the location of its chief executive
          office or principal place of business, and the place where it keeps its
          books
          and records.

        

        (e) 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.

        

        (f) Taxes.
          Borrower shall pay or cause to be paid all federal, state and local taxes
          levied
          against Borrower, UDF Tx One, the Property and their other respective assets
          and
          properties as they become due and payable and before the same become delinquent.
          Borrower shall have the right to pay such tax under protest or to otherwise
          contest any such tax or assessment, but only if (i) such contest has the
          effect of preventing the collection of such taxes so contested and also
          of
          preventing the sale or forfeiture of any property subject thereto,
          (ii) Borrower has notified Lender of its intent to contest such taxes, and
          (iii) adequate reserves for the liability associated with such tax have
          been
          established in accordance with GAAP. Borrower shall furnish to Lender evidence
          that all such taxes are paid at least five (5) days prior to the last date
          for
          payment of such taxes.

         

        (g) Indebtedness.
          Borrower shall not incur any indebtedness for borrowed money, other than
          indebtedness that is otherwise approved by Lender’s prior written consent.

        

        (h) Payment
          for Labor and Materials.
          Borrower agrees to cause UDF Tx One to timely pay, as the work progresses,
          all
          bills for labor and materials going into the development of the Property
          into
          finished Lots (as such term is defined in Section
          9
          of this
          Note) and the construction and/or installation of improvements thereon,
          including, without limitation, all landscaping, streets, sidewalks, driveways,
          curbs and other infrastructure serving the same or otherwise associated
          therewith, and all other improvements constructed or installed on the Property
          by or on behalf of UDF Tx One (the “Improvements”),
          except for any such bills being contested in good faith and for which adequate
          reserves are maintained in accordance with generally accepted accounting
          principles. Borrower shall cause UDF Tx One to timely pay and discharge
          any and
          all sums owing to contractors, subcontractors, suppliers and vendors concerning
          the Property, except for any such sums being contested in good faith and
          for
          which adequate reserves are maintained in accordance with generally accepted
          accounting principles. 

        

        (i) Quality
          of Improvements; Governmental Regulations.
          Borrower shall ensure that UDF Tx One causes the Improvements to be completed
          in
          a diligent, good and workmanlike fashion, and in compliance with all applicable
          Governmental Regulations and in accordance with any applicable plans and
          specifications. From time to time Borrower and UDF Tx One shall, upon the
          reasonable request of Lender, deliver to Lender such evidence as Lender
          may
          reasonably request of Borrower’s and UDF Tx One’s compliance with any
          Governmental Regulations.

        

          (j) Certain
          Liens.
          Borrower shall (i) pay and discharge promptly and fully all claims for
          labor
          done and materials and services furnished in connection with the construction
          of
          the Improvements, except for any such claims being contested in good faith
          and
          for which adequate reserves are maintained in accordance with generally
          accepted
          accounting principles, (ii) to diligently file or procure the filing of
          a valid
          notice of completion upon completion of each stage of construction,
          (iii) to diligently file or procure the filing of a notice of cessation
          upon a cessation of labor on the construction of the Improvements, or any
          particular portion thereof, for a continuous period of thirty (30) days
          or more,
          and (iv) to take all other commercially reasonable steps to forestall the
          assertion of claims of lien against the Property or any part thereof and/or
          of
          claims or stop notices filed against the Property or Lender. Other than
          the
          Permitted Encumbrances (as such term is defined in the Deed of Trust),
          Borrower
          and UDF Tx One shall not, without the prior written consent of Lender,
          create,
          place or permit to be created or placed, or through any act or failure
          to act,
          acquiesces in the placing of any deed of trust, mortgage, voluntary or
          involuntary lien, whether statutory, constitutional or contractual, security
          interest, encumbrance or charge, or conditional sale or other title retention
          document, against or covering the Property, or any part thereof, regardless
          of
          whether the same are expressly or otherwise subordinate to the lien created
          by
          the applicable Deed of Trust.

        

        (k) Consents;
          Licenses.
          Borrower shall timely obtain or cause to be obtained and, upon Lender’s request,
          furnish to Lender, at Borrower’s expense, all consents, licenses, permits,
          authorizations, permissions and certificates which may be required or imposed
          by
          any governmental or quasi-governmental agency, authority or body with
          jurisdiction over Borrower, UDF Tx One or the Property or any part thereof,
          or
          which may be required under the terms of this Note, or which may otherwise
          be
          necessary to complete construction of or occupy and use the Improvements
          as
          provided herein.

        

        (l) Property
          Reports; Contracts.
          Promptly upon execution or receipt thereof, Borrower shall promptly provide
          to
          Lender, true and complete copies, with respect to the Property, of (i)
          all
          appraisals, assessments, inspections and environmental reports, (ii) upon
          commencement of development or construction of the Property, all certificates
          of
          developer or builder liability insurance covering Borrower, the developer,
          and
          all contractors and subcontractors; (iii) all development reimbursement
          agreements with any city, municipality or other government official, and
          (iv) all Lot purchase contracts, and all other contracts and agreements
          related to any Property or the development of the Property.

        

        (m) Lender
          Title Policy.
          Within
          thirty (30) days after the closing, Borrower shall cause to be provided
          to
          Lender, the Lender Title Policy being issued pursuant to the title commitment
          for the Property (or pursuant to an assignment of Borrower’s mortgagee title
          policy to Lender).

        

        (n) Audit.
          Borrower shall permit Lender and its employees, representatives, auditors,
          collateral verification agents, attorneys and accountants (collectively,
          the
“Lender
          Representatives”),
          at
          any time and from time to time, at Borrower’s expense, to (i) audit all books
          and records related to Borrower, the Property and its other properties
          and
          assets, and (ii) visit and inspect any of its offices or the Property and
          to
          inspect and make copies of all books and records, and to write down and
          record
          any information the Lender Representatives obtain. Borrower agrees to cooperate
          fully in connection with such audits and inspections.

        

        (o) Insurance.
          Borrower shall, at all times, maintain or cause to be maintained, hazard
          insurance on the Property with coverage amounts that are normal and customary
          for similarly-situated properties in the same or similar stage of development.
          Each such hazard insurance policy shall provide that Lender be given at
          least
          thirty (30) days written notice as a condition precedent to any cancellation
          thereof or material change therein. Borrower shall obtain or cause to be
          obtained, an endorsement to each such policy naming Lender as an additional
          insured to each such policy, and provide Lender annually with the insurance
          certificate, evidencing such coverage, the endorsement of each such policy
          to
          Lender, and evidence of payment of the premium for each such policy.

        

        (p) Operation
          of Business.
          Borrower shall operate its business in compliance with all applicable federal,
          state and local laws, rules, regulations, and ordinances. Borrower shall
          maintain its existence and good standing in each state where it operates
          or does
          any business. Borrower shall obtain all consents, licenses, permits,
          authorizations, permissions and certificates which may be required or imposed
          by
          any governmental or quasi-governmental agency, authority or body which
          are
          required by applicable federal, state or local laws, regulations and
          ordinances.

        

        9. Releases
          of Property; Mandatory Payment of Proceeds.
          The
          Property has been subdivided and shall be resold in single family residential
          lots (each, a “Lot”)
          in
          bulk pursuant to the Option Agreement between UDF Tx One and the builder,
          Lennar
          Homes. At such time as the Property is resold (whether pursuant to the
          Option
          Agreement or otherwise), UDF Tx One will request that the Lots be released
          from
          Lender’s security interest on and lien against such Property. Lender
          agrees that it shall release each Lot from Lender’s security interest and lien
          upon such Lot upon Borrower’s or UDF Tx One’s request, provided that each of the
          following conditions is fulfilled to the satisfaction of Lender, unless
          waived
          by Lender: (i) Borrower pays or caused to be paid to Lender, all proceeds
          received from UDF Tx One resulting from the sale of such Lot, which proceeds
          received by Lender shall be applied to reduce Borrower’s obligations under this
          Note; (ii) all Governmental Regulations relating to such Property and the
          division of such Property into Lots shall have been fully complied with
          in all
          material respects, and (iii) no default or Event of Default exists and
          is
          continuing under this Note or the other Loan Documents. Borrower shall
          bear all
          of Lender’s reasonable, out-of-pocket costs of preparing and recording any
          release obtained hereunder.

        

        10. Default.

        

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

        

        (i) the
          failure of Borrower to make any payment required by this Note in full on
          or
          before the date such payment is due (or declared due pursuant to the terms
          of
          this Note), whether on or prior to the Maturity Date; or

        

        (ii) any
          financial statement, representation, warranty, or certificate made or furnished
          by or with respect to Borrower or UDF Tx One contained in this Note or
          any other
          Loan Document or made in connection herewith or therewith, shall be materially
          false, incorrect, or incomplete when made; or

        

        (iii) Borrower
          or UDF Tx One shall fail to perform or observe any covenant or agreement
          contained in this Note or any other Loan Document that is not separately
          listed
          in this Section
          10(a)
          as an
          Event of Default, and the same remains unremedied for ten (10) days after
          written notice of such failure is given by Lender to Borrower or UDF Tx
          One, as
          applicable; or

        

        (iv) any
          “event of default” or “default” occurs under any Loan Document other than this
          Note and the same remains unremedied for ten (10) days after written notice
          is
          given by Lender to Borrower; or 

        

        (v) the
          entry
          of a decree or order for relief by a court having jurisdiction in respect
          of
          Borrower or UDF Tx One 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
          or UDF
          Tx One for any substantial part of their property, or ordering the winding
          up or
          liquidation of such person’s affairs; or

        

        (vi) the
          commencement by Borrower or UDF Tx One 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 or UDF Tx One for any substantial part of its property,
          or
          the making by Borrower or UDF Tx One of any assignment for the benefit
          of
          creditors, or the admission by Borrower or UDF Tx One in writing of their
          inability to pay their debts generally as they become due; or

        

        (vii) the
          appointment of or taking possession by a receiver, liquidator, assignee,
          custodian, trustee, sequestrator or similar official of all or a substantial
          part of Borrower’s or UDF Tx One’s assets or of any part of the Property in a
          proceeding brought against or initiated by Borrower or UDF Tx One;
          or

        

        (viii) if
          Borrower or UDF Tx One is liquidated or dissolved or winds up its affairs,
          or
          the sale or liquidation of all or substantially all of the assets of Borrower
          or
          UDF Tx One; or

        

        (ix) any
          “default” or “event of default” not cured within the grace period, if any, for
          such default or event of default, shall occur under (A) the loan documents
          representing any credit agreement, loan agreement, promissory note, or
          other
          document evidencing indebtedness for borrowed money incurred by Borrower
          or UDF
          Tx One, or (B) any subordination agreement, security agreement, pledge
          agreement, guaranty, deed of trust, or other agreement providing security
          or
          collateral for indebtedness, executed by Borrower or UDF Tx One, or (C)
          any
          joint venture agreement, revenue or profits sharing or participation agreement,
          partnership agreement, shareholders agreement, securities purchase agreement
          or
          any other agreement governing to which Borrower or UDF Tx One is a party,
          if
          Lender or any of its affiliates is also a party to such agreement (the
          terms
“default” and “event of default” having the meaning given to such terms in any
          of the agreements described above).

        

        (b) Upon
          the
          occurrence of an Event of Default described in subsection
          (a)(v), (vi)
          or
(vii)
          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 endorsers or guarantors 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, UDF Tx One and any and all sureties, guarantors and endorsers
          of this
          Note, (ii) exercise its rights under any of the Loan Documents, and (iii)
          exercise all other rights and remedies available to Lender under this Note
          and
          the other Loan Documents and at law and at equity, including, without
          limitation, such rights existing under the Texas Uniform Commercial Code
          as in
          effect from time to time. 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.

        

        11. Usury
          Laws.
           It
          is the
          intention of the parties to this Note to comply with all applicable laws,
          including, without limitation, usury laws. In furtherance thereof, Borrower
          and
          Lender stipulate and agree that none of the terms and provisions contained
          in
          this Note or the other Loan Documents shall ever be construed to create
          a
          contract to pay for the use, forbearance, or detention of money, or interest,
          in
          excess of the maximum amount of interest permitted to be charged by applicable
          law in effect from time to time. Neither Borrower nor any present or future
          guarantors, endorsers, or other persons or entities hereafter becoming
          liable
          for payment of Borrower’s obligations hereunder and under the other Loan
          Documents shall ever be liable for unearned interest thereon or shall ever
          be
          required to pay interest thereon in excess of the maximum amount that may
          be
          lawfully charged under applicable law from time to time in effect, and
          the
          provisions of this Section
          11
          shall
          control over all other provisions of the Loan Documents that may be in
          conflict
          or apparent conflict herewith. Lender expressly disavows any intention
          to charge
          or collect excessive unearned interest or finance charges in the event
          the
          maturity of this Note is accelerated. If (a) the maturity of this Note
          is
          accelerated for any reason, (b) this Note is prepaid and as a result any
          amounts
          held to constitute interest are determined to be in excess of the legal
          maximum,
          or (c) Lender or any other holder of the Note shall otherwise collect moneys
          which are determined to constitute interest which would otherwise increase
          the
          interest hereon to an amount in excess of that permitted to be charged
          by
          applicable law, then all sums determined to constitute interest in excess
          of
          such legal limit shall, without penalty, be promptly applied to reduce
          the then
          outstanding principal of this Note or, at Lender's or such holder's option,
          promptly returned to Borrower or the other payor thereof upon such
          determination. In determining whether or not the interest paid or payable,
          under
          any specific circumstance, exceeds the maximum amount permitted under applicable
          law, Lender and Borrower (and any other payors of this Note) shall to the
          greatest extent permitted under applicable law, (a) characterize any
          non-principal payment as an expense, fee or premium rather than as interest,
          (b)
          exclude voluntary prepayments and the effects thereof, and (c) amortize,
          prorate, allocate, and spread the total amount of interest throughout the
          entire
          contemplated term of this Note in accordance with the amounts outstanding
          from
          time to time hereunder and the maximum legal rate of interest from time
          to time
          in effect under applicable law in order to lawfully charge the maximum
          amount of
          interest permitted under applicable law. In the event applicable law provides
          for an interest ceiling under Chapter 303 of the Texas Finance Code (the
          “Texas
          Finance Code”)
          as
          amended, for that day, the ceiling shall be the “weekly ceiling” as defined in
          the Texas Finance Code. As used in this section the term “applicable law” means
          the laws of the State of Texas or the laws of the United States of America,
          whichever laws allow the greater interest, as such laws now exist or may
          be
          changed or amended or come into effect in the future.

        

        12. Indemnity;
          Release.
          Each of
          Borrower and UDF Tx One agrees to indemnify Lender, upon demand, from and
          against any and all liabilities, obligations, claims, losses, damages,
          penalties, fines, actions, judgments, suits, settlements, costs, expenses
          or
          disbursements (including reasonable, documented fees of attorneys, accountants,
          experts and advisors) of any kind or nature whatsoever, now existing (in
          this
          section, collectively called “Liabilities
          and Costs”)
          to the
          extent actually imposed on, incurred by, or asserted against Lender growing
          out
          of, resulting from or in any other way associated with (a) this Note and
          the
          other Loan Documents or any of the transactions and events (including the
          enforcement or defense thereof) at any time associated therewith or contemplated
          therein, (b) any claim that the loan evidenced hereby is contractually
          usurious,
          and (c) any use, handling, storage, transportation, or disposal of hazardous
          or
          toxic materials on or about the Property or any part thereof or any real
          properties owned, managed or operated by Borrower or UDF Tx One. 

        

        THE
          FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
          COSTS
          ARE IN ANY WAY OR TO ANY EXTENT OWED IN WHOLE OR IN PART UNDER ANY CLAIM
          OR
          THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR IN PART, BY ANY NEGLIGENT
          ACT OR OMISSION OF ANY KIND BY LENDER;

        

        provided
          only that Lender shall not be entitled under this section to receive
          indemnification for that portion, if any, of any Liabilities and Costs
          which is
          proximately caused by its own individual gross negligence or willful misconduct,
          as determined in a final judgment. If any person (including Borrower and
          UDF Tx
          One) ever alleges such gross negligence or willful misconduct by Lender,
          the
          indemnification provided for in this section shall nonetheless be paid
          upon
          demand, subject to later adjustment or reimbursement, until such time as
          a court
          of competent jurisdiction enters a final judgment as to the extent and
          effect of
          the alleged gross negligence or willful misconduct. As used in this section,
          the
          term “Lender” shall refer not only to the person designated as such in this Note
          but also to each partner, director, officer, attorney, employee, representative
          and affiliate of such person.

         

        FOR
          GOOD AND VALUABLE CONSIDERATION SET FORTH HEREIN, INCLUDING THE PROMISES,
          AGREEMENTS, COVENANTS, REPRESENTATIONS AND OBLIGATIONS SET FORTH IN THIS
          AGREEMENT, EACH OF BORROWER AND UDF TX ONE
          HEREBY
          RELEASES AND FOREVER DISCHARGES, AND COVENANT NOT TO SUE OR FILE ANY CHARGES
          OR
          CLAIMS AGAINST, LENDER FOR ANY AND ALL EXISTING CLAIMS, DEMANDS AND CAUSES
          OF
          ACTION, IN CONTRACT OR IN TORT, AT LAW OR IN EQUITY, KNOWN OR UNKNOWN,
          PENDING
          OR THREATENED, FOR ALL EXISTING AND FUTURE DAMAGES AND REMEDIES ARISING
          OUT OF
          OR IN ANY WAY ASSOCIATED WITH THE NOTE AND THE OTHER LOAN DOCUMENTS AND
          THE LOAN
          MADE PURSUANT HERETO AND THERETO. 

         

        

        13. Mutual
          Understanding.
          Each of
          Borrower and UDF Tx One represents and warrants to Lender that it and its
          principals have read and fully understands the terms and provisions hereof,
          has
          had an opportunity to review this Note with legal counsel and has executed
          this
          Note based on its own judgment and advice of counsel. If an ambiguity or
          question of intent or interpretation arises, this Note will be construed
          as if
          drafted jointly by Borrower, UDF Tx One and Lender and no presumption or
          burden
          of proof will arise favoring or disfavoring any party because of authorship
          of
          any provision of this Note.

        

        14. Further
          Assurances.
          Borrower and UDF Tx One, at their expense, will promptly execute and deliver
          to
          Lender on Lender’s request, all such other and further documents, agreements and
          instruments, and shall deliver all such supplementary information, in compliance
          with or accomplishment of the agreements of Borrower and UDF Tx One under
          this
          Note and the other Loan Documents. 

        

        15. Cumulative
          Remedies.
          Borrower hereby agrees that all rights and remedies that Lender is afforded
          by
          reason of this Note are separate and cumulative with respect to Borrower
          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.

        

        16. 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 at 1812 Cindy Lane, Suite 200, Bedford,
          Texas 76021, Facsimile No. (817) 835-0383 or, with respect to Lender, to
          Lender
          at 5740 Prospect Ave, Dallas, TX 75206, Facsimile No. 972-889-0162 or with
          respect to any party, to such other address as a party may have delivered
          to the
          other parties 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 confirmation
          of
          facsimile transfer, (c) if delivered personally by hand, upon written
          confirmation of delivery from the person delivering such notice or other
          communication, or (d) if sent by nationally recognized overnight delivery
          service, upon written confirmation of delivery from such service.

        

        17. 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. All rights and remedies of Lender are cumulative
          and concurrent and the exercise of one right or remedy shall not be deemed
          a
          waiver or release of any other right or remedy. 

        

        18. CHOICE
          OF LAW; JURISDICTION;
          VENUE.
          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.
          JURISDICTION FOR ALL MATTERS ARISING OUT OF THIS NOTE AND THE OTHER LOAN
          DOCUMENTS SHALL BE EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING
          IN DALLAS
          COUNTY, TEXAS, AND BORROWER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE
          JURISDICTION OF SUCH STATE AND FEDERAL COURTS AND AGREES AND CONSENTS NOT
          TO
          ASSERT IN ANY PROCEEDING, THAT ANY SUCH PROCESS IS BROUGHT IN AN INCONVENIENT
          FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREES TO A TRANSFER
          OF
          SUCH PROCEEDING TO THE COURTS SITTING IN DALLAS COUNTY, TEXAS.

        

        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 the affected person, and then such waiver or consent
          shall be effective only in the specific instance and for the specific purpose
          for which given. 

        

        22. Binding
          Effect; Assignment.
          This
          Note and the other Loan Documents shall be binding on Borrower and their
          respective administrators, other legal representatives, successors, heirs
          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. Neither Borrower nor Borrower’s general partner shall 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. Should
          the
          status, composition, structure or name of Borrower change, this Note and
          the
          other Loan Documents shall continue and also cover Borrower under the new
          status
          composition, structure or name according to the terms of this Note and
          the other
          Loan Documents. 

        

        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 of 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. WAIVER
          OF JURY TRIAL, PUNITIVE DAMAGES, ETC.
          BORROWER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY
          (A)
          WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
          TO A
          TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR
          INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
          NOTE OR
          THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR
          ASSOCIATED HEREWITH OR THEREWITH, BEFORE OR AFTER MATURITY OF THIS NOTE;
          (B)
          WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE
          TO
          CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY “SPECIAL DAMAGES”, AS DEFINED BELOW,
          (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OF LENDER OR
          COUNSEL
          FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED
          THAT
          SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
          WAIVERS, AND (D) ACKNOWLEDGES THAT LENDER HAS BEEN INDUCED TO ENTER INTO
          THIS
          NOTE AND THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY
          AND
          THEREBY BY AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED
          IN THIS
          SECTION. AS USED IN THIS SECTION, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL,
          CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED),
          BUT
          DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY
          PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.

        

        26. 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.

        

        27. ACKNOWLEDGEMENT
          AND CONSENT TO PLEDGE.
          THIS NOTE IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF, AND PLEDGED AS
          COLLATERAL TO, PREMIER BANK AND ITS SUCCESSORS AND ASSIGNS. BY EXECUTION
          HEREOF,
          BORROWER CONSENTS TO SUCH SECURITY INTEREST AND PLEDGE OF THIS NOTE TO
          PREMIER
          BANK AND ITS SUCCESSORS AND ASSIGNS AND CONSENTS TO THE ASSIGNMENT OF THIS
          NOTE
          TO PREMIER BANK AND ITS SUCCESSORS AND ASSIGNS IN ACCORDANCE THEREWITH.
          

        

        

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

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        This
          Note
          has been executed on and as of the date first set forth above. 

         

         

        
          	 	 	 
	 BORROWER:	
                  UNITED
                    DEVELOPMENT FUNDING, L.P.

                      a
                    Nevada
                    limited partnership

                
	 
 	 
 By:	
                  
 United
                    Development Funding, Inc.,

                      a
                    Nevada
                    corporation

                      Its:
                    General
                    Partner

                
	 	 	 
	 	By:  	/s/ Jeff
                  Shirley
	 	
                  

                  Jeff Shirley
	 	Its: 
                  President

        

         

        
          	 	 	 
	 LENDER:	
                  UNITED
                    DEVELOPMENT FUNDING III, L.P.

                      a
                    Delaware limited partnership

                
	 
 	 
 	 
 
	 	By:	
                   UMTH
                    Land Development, L.P.

                      Its: 
                    General Partner

                
	 	 	 
	 	By:	 UMT Services, Inc., 
                      Its: 
                    General Partner

                
	 	 	 
	 	By:  	/s/ Jeff
                  Shirley
	 	
                  

                  Jeff Shirley
	 	Its: 
                  Executive Vice President

        

         

        
          UDF
            TX ONE:

           

          UDF
            Tx
            One, L.P., a Texas limited partnership, hereby (i) agrees with and accepts
            all
            of the terms and conditions of this Note which are applicable to the
            UDF Tx One
            (as such term is defined in the Note), and (ii) makes the representations,
            warranties, covenants and agreements in the Note which are, by their
            terms,
            applicable to UDF Tx One. 

        

        

        
          	 	 	 
	 	 
	 
 	 
By:	
                  
 United
                    Development Funding II, L.P.

                      Its: 
General
                    Partner

                
	 	 	 
	 	By:  	/s/ Jeff
                  Shirley
	 	
                  

                  Jeff Shirley
	 	Its: 
                  President

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