Document:

exv10w16

Exhibit 10.16

CONSTRUCTION LOAN AGREEMENT

     This Construction Loan Agreement is made and entered into effective as of this the
30th day of April, 2010 (the “Effective Date”) by and between UNITED DEVELOPMENT FUNDING
IV, a real estate investment trust organized under the laws of the State of Maryland (together with
its successors and assigns, “Lender”), and BUFFINGTON SIGNATURE HOMES, LLC, a Texas limited
liability company, successor-by-merger to Buffington Capital Homes, Ltd., a Texas limited
partnership (“Borrower”).

RECITALS:

     A. Borrower has requested that Lender extend credit to Borrower as described in this
Agreement. Lender is willing to make such credit available to Borrower upon and subject to the
provisions, terms and conditions hereinafter set forth.

     B. Subject to and upon the terms and conditions of this Agreement, Lender has agreed to lend
to Borrower the amounts herein described for the purposes set forth below.

AGREEMENT:

     NOW, THEREFORE, in consideration of the premises, the covenants, representations, warranties
and agreements contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as
follows:

ARTICLE I

DEFINITIONS

     1.1 Certain Definitions. Certain capitalized terms which are defined in the text of
this Agreement shall have the respective meanings given to such terms herein. The following
initially capitalized or fully capitalized terms shall have the following meanings:

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

     “Advance” shall mean an advance by Lender under a Loan to or for the benefit of
Borrower including, without limitation, a Loan Advance or a Discretionary Advance.

     “Advance Conditions” has the meaning given to such term in Section 7.1.

     “Advance Request” means a request for Advance duly executed by a Principal Officer on
behalf of Borrower, appropriately completed and in the form of Exhibit “D” attached
hereto.

     “Affidavit of Commencement” has the meaning given to such term in Section 9.27.

     “Affidavit of Completion” has the meaning given to such term in Section 9.28.

     “Affiliate” shall mean an individual or legal entity that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under common control
with, another

 

 

Person. The term “Control” as utilized herein means the possession, directly or
indirectly, of the power to direct or cause direction of the management and policies of a
Person, whether through management, ownership, by contract, or otherwise; provided,
however, in no event shall any Lender be deemed an Affiliate of Borrower.

     “Agreement” means this Construction Loan Agreement together with all exhibits and
schedules hereto, as it may be amended, modified, renewed, extended, increased, superseded,
or replaced from time to time.

     “Appraisal” means an appraisal of a Home prepared by a third party appraiser reasonably
approved by Lender, which is reasonably acceptable to Lender in form and substance, and
which includes all possible construction upgrades that Borrower intends to make available
for the Home.

     “Approved Budget” means a budget that has been agreed to and accepted by Lender for the
acquisition of the Lot and the construction, marketing, administration, carrying and sale of
the Home on such Lot. Each Approved Budget must be in form and content acceptable to Lender
in Lender’s sole and absolute discretion and can only be amended with the written consent of
Lender.

     “Approved Purposes” means the use by Borrower of a Loan to acquire Lots that are
located in Approved Subdivisions and the construction, marketing, administration, carrying
and sale of Homes thereon for the purpose of ultimate resale to third parties. Borrower may
not acquire a Loan for the purpose of buying a Lot for inventory.

     “Approved Sales Contract” means a bona fide, legally binding, enforceable contract for
the sale of a Project, between Borrower, as seller, and a third party unrelated to Borrower,
as buyer, with respect to which an earnest money deposit has been delivered to Borrower, the
Title Company or a reputable title company reasonably acceptable to Lender in the amount of
the lesser of (1) three percent (3%) of the sales price of the Home, and (2) Two Thousand
and No/100 Dollars ($2,000.00), and with respect to which a Homeowner Financing Approval
Letter has been issued;

     “Approved Subdivision” means a residential subdivision located in Texas in which
Borrower is actively engaged in the construction of single-family residences and which is
otherwise acceptable to Lender in all respects, as determined by Lender in its sole
discretion.

     “Architect Agreement” means, collectively, (i) that certain Agreement:
Architectural Services and License between Kipp Flores Architects, L.L.C. and Borrower dated
as of February 8, 2008, and (ii) that certain Agreement, Architectural Services and License
dated August 28, 2007, as such agreements may be amended, modified, renewed, extended,
increased, superseded, or replaced from time to time.

     “Architect Consent” means a duly executed written consent of Kipp, Flores Architects,
L.L.C. to the assignment of the Architect Agreement to Lender, which is acceptable in form
and substance to Lender.

     “Assignment of Distributions” means that certain assignment of the Distributions of
Borrower, being executed and delivered to Lender by the Sole Member of Borrower to Lender
pursuant to the requirements hereof, which Assignment of Distributions is effective
automatically upon an Event of Default.

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     “Available Liquidity” means, collectively, (i) cash, currency, and credit balances in
Deposit Accounts, and (ii) Temporary Certificates of Deposit.

     “Base Rate” means the lesser of (a) thirteen percent (13.0%) per annum, accrued monthly
and compounded annually, or (b) the Highest Lawful Rate.

     “Borrower” means Buffington Signature Homes, LLC, a Texas limited liability company,
successor-by-merger to Buffington Capital Homes, Ltd., a Texas limited partnership.

     “Borrower-Related Parties” means, collectively, the Guarantors, the Sole Member,
Holdings General Partner and any other Person who becomes a guarantor of the Loans or the a
member or manager of the Borrower.

     “Buffington Land Event of Default” means any event of default occurring under the loan
documents evidencing a Buffington Land Loan (after giving effect to any applicable notice
and cure periods in such loan documents).

     “Buffington Land Loan” means a loan from a member of the UDF Group as the lender to
Buffington Land, Ltd., a Texas limited partnership, and/or any subsidiary of Buffington
Land, Ltd., as the borrower(s).

     “Business Day” means any day other than a Saturday, Sunday, or other day on which
Lender is closed for business.

     “Claims” shall have the meaning given to such term in Section 12.2.

     “Closing Deliveries” has the meaning given to such term in Section 6.1.

     “Collateral” means, collectively, all property, assets and rights in which a lien,
security interest, assignment, pledge or other encumbrance in favor of Lender is or has been
granted or arises or has arisen or may hereafter be granted or arise, under or in connection
with any Loan Document or otherwise, to secure payment of all or any part of the Debt or
performance of the Obligations. Without limitation of the foregoing, the term “Collateral”
includes, without limitation, the Projects and all “Mortgaged Property” as such term is
defined and used in the Deeds of Trust.

     “Commitment” means the obligation of Lender, subject to the terms and conditions of
this Agreement and the Loan Documents, to make the Loans to Borrower in an amount not to
exceed at any one time, in the aggregate, the Maximum Commitment.

     “Company Certificate” means a certificate certifying the existence, good standing,
formation and organizational documents, and authorizing resolutions, of a Person that is an
entity.

     “Completion Survey” means a survey of the Project dated after the completion of the
Home showing that the Home and other improvements on the Lot do not encroach on, across, or
into any property line, easement, building setback line, septic tank field, or other
restricted area, in form and content reasonably acceptable to Lender.

     “Compliance Certificate” means Lender’s form of compliance certificate duly completed
and executed by an officer of Borrower acting in such capacity, relating to the covenants
contained in Section 9.39, in the form attached hereto as Exhibit “G”.

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     “Construction Contracts” has the meaning given to such term in Section 10.1.

     “Covenant Breach” has the meaning given to such term in Section 11.1(c).

     “Debt” means all debt (principal, interest or other) evidenced by the Notes and all
debt (principal, interest or other) to Lender incurred under or evidenced by the other Loan
Documents. The Debt includes interest and other obligations accruing or arising after
(a) commencement of any case under any bankruptcy or similar laws by or against Borrower or
any Borrower-Related Party or (b) the obligations of Borrower or any Borrower-Related Party
shall cease to exist by operation of law or for any other reason. The Debt also includes
all reasonable attorneys’ fees and any other reasonable expenses incurred by Lender in
enforcing any of the Loan Documents.

     “Deed of Trust” shall mean each Master Deed of Trust, Assignment of Leases and Rents,
Security Agreement, and Fixture Filing and each Short Form Deed of Trust recorded or to be
recorded in the real property records of the appropriate county of the state of Texas,
naming Borrower as the grantor and Lender as the grantee and beneficiary thereunder,
granting Lender a security interest in and creating a Lien on and against all or any of the
Property or any part or parcel thereof, or any one or more Lot(s) included in all or any of
the Property, subject only to Permitted Exceptions and being superior in priority and in
payment over all other Liens, as each may be amended, modified, renewed, extended,
increased, superseded, or replaced from time to time.

     “Default Rate” means the lesser of (a) eighteen percent (18.0%) per annum, accrued
monthly and compounded annually, or (b) the Highest Lawful Rate.

     “Deposit Account” means a demand, time, savings, and passbook or like account with a
United States depository institution insured by the Federal Deposit Insurance Corporation.

     “Discretionary Advance” has the meaning given to such term in Section 3.9.

     “Disposition” means any sale, lease, transfer, assignment, exchange or conveyance in
whole or in part.

     “Distribution” means all proceeds, products, cash, securities, dividends, increases,
distributions and profits received from or on the partnership interests in Borrower or
distributable to the partners of Borrowers, including distributions or payments in partial
or complete liquidation or redemption, or as a result of reclassifications, readjustments,
reorganizations or changes in the capital structure of Borrower.

     “Effective Date” means the 30th day of April, 2010.

     “Environmental Indemnity Agreement” shall mean that certain Environmental Indemnity
Agreement to be executed by Borrower and Guarantor in favor of Lender, pursuant to which,
among other things, Borrower and Guarantor agree to indemnify Lender from environmental
liabilities associated with the Property, as it may be amended, modified, renewed, extended,
increased, superseded, or replaced from time to time.

     “Environmental Laws” means all statutes and ordinances of any Governmental Authority
having jurisdiction over all or any of the Property, in whole or in part, or any user or
occupant of all or any of the Property, in whole or in part, and relating to the protection
of human health and

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the environment, now existing or hereafter adopted, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
(42 U.S.C. § 9601, et seq.), the Solid Waste Disposal Act, as amended (42 U.S.C. § 6901,
et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. § 1801,
et seq.), the Clean Air Act, as amended (42 U.S.C. § 7401, et seq.), the Federal Water
Pollution Control Act, as amended (33 U.S.C. § 1251, et seq.), the Toxic Substances Control
Act, as amended (15 U.S.C. § 2601, et seq.), the Safe Drinking Water Act, as amended
(42 U.S.C. § 300f, et seq.), the Atomic Energy Act, as amended (42 U.S.C. § 2014, et seq.),
the Federal Insecticide, Fungicide and Rodenticide Act, as amended (7 U.S.C. § 136,
et seq.), the Oil Pollution Act of 1990, as amended (33 U.S.C. § 2701, et seq.), the
Emergency Planning and Community Right-to-Know Act of 1986, as amended (42 U.S.C. § 11001,
et seq.), the Occupational Safety and Health Act, as amended (29 U.S.C. § 651, et seq.), the
Endangered Species Act, the Texas Water Code, as amended, and the Texas Health and Safety
Code, as amended, and the regulations adopted and publications promulgated pursuant thereto.

     “Equity Interests” shall mean, collectively, all management rights, membership
interests, capital stock, equity interests, options, warrants, convertible securities, and
all other similar rights thereto, and shall include any and all rights to receive dividends,
distributions, capital accounts, cash flow, profits, surplus, liquidation distributions or
proceeds, sums due or owing as distributions of cash or property, whether or not such
distributions are in the nature of profits, reimbursements, repayments, return of capital,
return on capital, or fees.

     “Errors Agreement” means that certain errors and omissions agreement executed by
Borrower and the Borrower-Related Parties in favor of Lender dated as of the Effective Date.

     “Event of Default” has the meaning given to such term in Section 11.1.

     “Expense Cap” has the meaning given to such term in Section 2.2.

     “Extension” shall have the meaning given to such term in Section 3.12(a).

     “Financial Statement Certifications” means those certain certifications by the Borrower
and the Borrower-Related Parties attesting to the accuracy and completeness of their
financial statements and in the form of Exhibit “F” attached hereto.

     “Finished Lot” shall mean an unimproved (but fully developed) single-family residential
lot located in an Approved Subdivision having all necessary improvements, being eligible for
a housing building permit, and as to which the development work has been completed.

     “Foundation Survey” means prior to the foundation of a Home being poured, Borrower will
obtain a form set survey or other evidence reasonably acceptable to Lender, showing (i) the
location of the foundation form boards on the Lot, (ii) that the foundation form boards are
entirely within the property lines of the Lot, (iii) that the foundation form boards do not
encroach on, across, or into any easement, building setback line, septic tank field, or
other restricted area, (iv) that the foundation form boards are located in accordance with
the Plans and Specifications and the plot plan, (v) that the foundation form boards do not
violate any Legal Requirements, and (vi) no state of facts reasonably objectionable to
Lender.

     “Good Accounting Practice” shall mean such accounting practice as, in the opinion of
independent certified public accountants satisfactory to Lender, conforms at the time to
generally accepted accounting principles or, with the express prior written consent of
Lender in any

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applicable case, cash basis of accounting or the federal income tax basis of accounting,
consistently applied. Each accounting term not defined in this Agreement shall have the
meaning given to it under Good Accounting Practice.

     “Governmental Authority” shall mean the United States, the State of Texas, the counties
where any or all of the Property, in whole or in part, is located, the city, if any, where
any or all of the Property, in whole or in part, is located, the district where any or all
of the Property, in whole or in part, is located, the Texas Commission for Environmental
Quality, the Texas Water Development Board, the Texas Water Quality Board, the Department of
Housing and Urban Development, the Environmental Protection Agency, any political
subdivision of any of the foregoing and any agency, department, commission, board, bureau,
court or instrumentality of any of them which now or hereafter has jurisdiction over Lender,
Borrower, any Borrower-Related Party, or any part of the Property.

     “Guarantor” means each of Thomas Blake Buffington Sr., James M. Giddens, Patrick James
Starley, Tim B. Agee and Buffington Homebuilding Group, Ltd. a Texas limited partnership.

     “Guaranty” means each of those certain joint and several Guaranty Agreements dated as
of the Effective Date executed by each Guarantor in favor of Lender, as each may be amended,
modified, renewed, superseded, or replaced from time to time.

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

     “Holdings General Partner” means Buffington Homebuilding Group Management, LLC, a Texas
limited liability company, which is the general partner of the Sole Member of Borrower.

     “Home” means a single family residence constructed or to be constructed by Borrower
upon a Lot; provided however, no more than one residence may be constructed on each Lot. As
the context requires, the term “Home” includes the Lot upon which it is located.

     “Homeowner Financing Approval Letter” means an approval letter from a reliable third
party lender that is reasonably acceptable to Lender and which provides that the buyer under
the Approved Sales Contract is approved (subject only to reasonable, ordinary and customary
exceptions and conditions that are reasonably acceptable to Lender) for a mortgage loan to
acquire the Home upon completion of the Home in accordance with the Approved Sales Contract.

     “Indebtedness” shall mean and include (a) all items which in accordance with Good
Accounting Practice would be included on the liability side of a balance sheet on the date
as of which indebtedness is to be determined (excluding capital stock, surplus, surplus
reserves and deferred credits), (b) guaranties, endorsements and other contingent
obligations in respect of indebtedness of others, or any obligations to purchase or
otherwise acquire any such indebtedness of others, and (c) indebtedness secured by any
mortgage, pledge, security interest or lien existing

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on property owned subject to or burdened by such mortgage, pledge, security interest or lien
whether or not the indebtedness secured thereby shall have been assumed; provided, however,
that such term shall not mean or include any indebtedness for which monies sufficient to
fully pay and discharge such indebtedness (either on its stated final maturity date or on
such earlier date as such indebtedness may be duly called for redemption and payment) are on
deposit with a depositary, agency or trustee in trust for the payment of such indebtedness.

     “Initial Loan Closing” means the first Loan Closing occurring on or after the Effective
Date.

     “Inventory Reports” has the meaning given to such term in Section 9.36.

     “Investor Letters of Credit” means letters of credit that Borrower’s limited partners
have caused to be issued on behalf of Borrower in accordance with the terms and conditions
of Borrower’s Organizational Agreement for the purpose of supporting Borrower Indebtedness.

     “Legal Requirements” means any law, ordinance, order, rule or regulation of a
Governmental Authority and any requirements, terms or conditions contained in any
restrictions or restrictive covenants affecting a Lot.

     “Lender” has the meaning given to such term in the introductory paragraph of this
Agreement.

     “Lender Representatives” has the meaning given to such term in Section 9.13.

     “Lender’s Inspector” means an inspector selected by Lender, in Lender’s sole
discretion.

     “Liabilities and Costs” has the meaning given to such term in Section 12.2.

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

     “Loan” and “Loans” have the meanings given to such terms in Section 3.1.

     “Loan Administration Fee” shall mean a $250 fee charged by the Loan Servicer in
consideration of administrative costs and expenses incurred by it in connection with each
Loan Closing.

     “Loan Advance” means any full or partial advance of a Loan made by Lender to or for the
benefit of Borrower.

     “Loan Closing” means the closing of a Loan.

     “Loan Conditions” has the meaning given to such term in Section 3.5.

     “Loan Documents” means, collectively, together with all exhibits and schedules thereto:
this Agreement, the Notes, the Guaranty, the Deeds of Trust, the Environmental Indemnity
Agreement, the Assignment of Distributions, all Officer’s Certificates, all Loan Requests,
all Advance Requests, the Errors Agreement, the Architect Consent, all IRS tax disclosure
forms, the

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Company Certificates and all other documents, instruments, agreements, assignments and
certificates relating thereto, including, without limitation, any and all loan or credit
agreements, promissory note, deeds of trust, mortgages, pledge agreements, financing
statements, security agreements, assignments of rents, assignments of leases, assignments of
contracts, environmental indemnities, guaranties, contractor’s consent agreements, lender’s
title insurance policies, opinions of counsel, evidences of authorization or incumbency,
escrow instructions, and architect’s and/or engineer’s consent agreements, letters of
credit, each of which is to be executed (and acknowledged where applicable) by Borrower, the
Borrower-Related Parties and/or Lender (as and where applicable) in connection with Lender
making the Loan to Borrower, as the same may be amended, modified, renewed, superseded, or
replaced from time to time.

     “Loan Expenses” has the meaning given to such term in Section 2.1.

     “Loan Maturity Date” means, for each Loan, the date that is nine (9) months after the
date that the Loan closes; provided, however, that if an Extension is granted by Lender with
respect to such Loan, the Loan Maturity Date for such Loan shall be the ninetieth
(90th) day following the original Loan Maturity Date for such Loan. The Lender’s
records of the date of Loan Closing for each Loan and the Loan Maturity Date for such Loan
shall be conclusive evidence of the date of such Loan Closing and the Loan Maturity Date for
such Loan, absent manifest error.

     “Loan Quarter” means each quarterly period during the Term (prorated for partial
quarters) ending September 30, December 31, March 31, or June 30.

     “Loan Request” means a request for a Loan duly executed by a Principal Officer on
behalf of Borrower, appropriately completed and in the form of Exhibit “C” attached
hereto.

     “Loan Servicer” means UMTH Land Development, L.P., a Delaware limited partnership.

     “Lot” means a Finished Lot in an Approved Subdivision to be used by Borrower for
Approved Purposes and that is otherwise eligible for funding under a Loan as provided in
this Agreement.

     “Maximum Commitment” means the aggregate amount of up to U.S. Three Million Seven
Hundred Fifty Thousand and No/100 Dollars ($3,750,000.00).

     “Member Loans” means, collectively, loans from members or the managing member of
Borrower, or their Affiliates, made in accordance with the terms of the Organizational
Agreement of Borrower, which are subordinate both in payment and priority of Liens to the
Loan and the Loan Documents pursuant to a subordination agreement in favor of Lender binding
upon such Person.

     “Model Home” means a single family residence built or to be built by Borrower in an
Approved Subdivision for the purpose of marketing Borrower’s home inventory to prospective
purchasers and not for immediate sale, whether or not the construction thereof is financed
by Lender. For Model Homes financed by Lender hereunder, the term “Model Home” includes the
Lot upon which such Home is located.

     “New Lender” has the meaning given to such term in Section 9.4.

     “New Loan Documents” has the meaning given to such term in Section 9.4.

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     “Note” means each Secured Promissory Note executed by Borrower to evidence a Loan, as
it may be amended, modified, renewed, extended, increased, superseded, or replaced from time
to time. The form of each Note shall be substantially in the form attached hereto as
Exhibit “A”.

     “Obligations” means any and all of the covenants, conditions, warranties,
representations and other obligations (other than to repay the Debt) made or undertaken by
Borrower or any Borrower-Related Party to Lender as set forth in the Loan Documents.

     “Officer’s Certificate” means a certificate executed by a Principal Officer certifying,
among other things, that (a) no Event of Default has occurred and is continuing under this
Agreement, (b) all representations and warranties made by Borrower and the Borrower-Related
Parties, respectively, in this Agreement and the other Loan Documents are true and correct
in all respects, and (c) Borrower and the Borrower-Related Parties have complied with and
performed, in all material respects, all covenants, conditions and agreements which are then
required by this Agreement and the other Loan Documents to have been complied with or
performed.

     “Operating Expenses” means the Borrower’s monthly recurring operating costs and
expenses (whether expensed or capitalized) including, without limitation, salaries, rent,
leased equipment, and other fixed costs which cannot be terminated by Borrower within sixty
(60) days. Two months of Operating Expenses have been determined by Borrower to be
$175,000.

     “Organizational Agreement” shall mean (a) in respect of a corporation, the Articles of
Incorporation certified to a current date by the Secretary of State in which such
corporation is incorporated and the Bylaws of a corporation certified to a current date as
true and correct by the secretary or assistant secretary of a corporation; (b) in respect of
a general partnership, a partnership agreement; (c) in respect of a joint venture, a joint
venture agreement; (d) in respect of a limited partnership, a partnership agreement and the
certificate of limited partnership certified to a current date by an appropriate
Governmental Authority of the state in which the limited partnership is organized; (e) in
respect of a trust, a trust agreement; and (f) in respect of a limited liability company,
the certificate of organization certified to a current date by the Secretary of State in
which such limited liability company is organized and the regulations of a limited liability
company certified to a current date as true and correct by the manager of a limited
liability company; and any and all future modifications thereof which are consented to by
Lender.

     “Origination Fee” means, for each Loan funded by Lender hereunder, a fee in an amount
equal to one-half of one percent (0.5%) of the Loan amount, to be paid to the Loan Servicer
at the Loan Closing for such Loan.

     “Other Contracts” has the meaning given to such term in Section 10.3.

     “Other Homes” has the meaning given to such term in Section 9.36.

     “Partial Release Amount” means the amount that must be paid to Lender for the release
of Lender’s Liens against a Lot as stated in the Deed of Trust for such Lot.

     “Permitted Exceptions” has the meaning given to such term in each Deed of Trust.

     “Person” means a corporation, limited liability company, general partnership, limited
partnership, trust, or other entity, or any individual.

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     “Plans and Specifications” means the plans and specifications for each Home prepared by
Borrower or Borrower’s architect that have been approved by Lender and all applicable
Governmental Authorities and all amendments and modifications to the Plans and
Specifications that are subsequently approved in writing by Lender and applicable
Governmental Authorities.

     “Pre-Sold Home” means a Home which is the subject of an Approved Sales Contract.

     “Principal Officer” means Thomas Blake Buffington Sr., James M. Giddens and/or Patrick
James Starley.

     “Project” means Borrower’s acquisition of a Lot and construction of a Home thereon,
financed in part by a Loan.

     “Projected Cost Shortfall” means the amount of equity, if any, required to be funded by
Borrower towards the cost of a Project to fully complete the Project based on the Budget,
after taking into consideration the amount that Lender will fund towards the Project
calculated in accordance with Section 3.3 subject to the terms and conditions of
this Agreement.

     “Property” means all “Mortgaged Property” as such term is defined and used in the Deeds
of Trust.

     “Purchase Contracts” means all of Borrower’s right, title, and interest in, to, and
under (a) all contracts for the purchase and sale of any portion of a Lot or Home secured by
the Loans (including without limitation, Approved Sales Contracts), whether such Purchase
Contracts are now or at any time hereafter existing, (b) all amendments, renewals, and
extensions of the Purchase Contracts, (c) all payments, earnings, income, and profits
arising from the sale of any part of a Lot or Home or from the Purchase Contracts and all
other sums due or to become due pursuant to the Purchase Contracts, and (d) all earnest
money, security, letters of credit, or other deposits under any of the Purchase Contracts.

     “Reimbursement Contract” has the meaning given to such term in Section 9.23.

     “Released Party” has the meaning given to such term in Section 9.18.

     “Required Documents” means all documents described on Exhibit “B”, all of which
must be satisfactory to Lender in form and substance (however, to the extent that a Required
Document has been previously submitted to Lender in connection with a prior Loan or Advance
and such Required Document has not been subsequently modified, supplemented, or replaced,
then re-submittal of such Required Document is not required absent Lender’s specific request
therefor).

     “Retainage” means an amount equal to the aggregate of all amounts, if any, retained or
withheld by Borrower from its contractors pursuant to mechanic’s and materialman’s liens
laws or any similar laws of Texas.

     “Revolving Principal Balance” means the aggregate unpaid principal balance of the
outstanding Notes at the time in question.

     “Short Form Deed of Trust” means, for each Loan financed by Lender hereunder, a Short
Form Deed of Trust executed by Borrower, as the grantor thereunder for the benefit of

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Lender, as the beneficiary thereunder, incorporating the terms and conditions of the
Lender’s Master Deed of Trust, Assignment of Leases and Rents, Security Agreement, and
Fixture Filing, which Short Form Deed of Trust is to be recorded in the Official Public
Records of the county in which the Lot is located at the closing of the related Loan. The
form of each Short Form Deed of Trust shall be in substantially the form attached hereto as
Exhibit “E”.

     “Sole Member” means Buffington Homebuilding Group, Ltd., a Texas limited partnership,
which is the sole member of Borrower.

     “Spec Home” means a single family residence constructed or to be constructed in an
Approved Subdivision which is not the subject of an Approved Sales Contract, whether or not
the construction thereof is funded by Lender, including a Model Home. With respect to Spec
Homes financed hereunder, the term “Spec Home” includes the Lot upon which such Home is
located.

     “Special Damages” has the meaning given to such term in Section 12.18.

     “Subdivision” shall mean all phases of a subdivision or addition in which a Project is
located.

     “Tangible Net Worth” means the sum of (x) the face value of Investor Letters of Credit,
plus (y) (1) the gross book value of Borrower’s assets determined in accordance with
Good Accounting Practice less (2) total liabilities determined in accordance with
Good Accounting Practice and including, without limitation, accrued and deferred income
taxes, and any reserves against assets.

     “Temporary Certificates of Deposit” shall mean certificates of deposit that (a) are
issued by a United States depository institution insured by the Federal Deposit Insurance
Corporation and (b) mature within sixty (60) days from the date of issuance thereof.

     “Term” means the period of time from the Effective Date through and including the one
(1) year anniversary of the Effective Date.

     “Termination Date” means October 28, 2010.

     “Title Binder” shall mean each Mortgagee Title Policy Binder on Interim Construction
Loan and all endorsements thereto requested by Lender, in the total amount of the applicable
Loan, issued in favor of Lender and naming Lender and its assigns as the proposed insured
mortgagee by the Title Company and committing to insure that title to the Property described
in the applicable Deed of Trust is vested in Borrower, free and clear of any Lien,
objection, exception or requirement other than the Permitted Exceptions, and that such Deed
of Trust creates a first lien on the Property, subject only to Permitted Exceptions and
committing to issue such endorsements as Lender may require, along with all extensions
required to keep such Title Binder in full force and effect, and if Lender believes at any
time there is or will be a dispute concerning the validity or priority of Lender’s Lien on
any Lot or Home, a mortgagee title insurance policy reasonably required by Lender.

     “Title Commitment” means a commitment binding upon the Title Company to issue a Title
Binder to Lender meeting Lender’s requirements with respect thereto.

     “Title Company” means North American Title Company, Gracy Title Company, Alamo Title
Company or another title company acceptable to Lender in its sole discretion.

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     “UDF Group” means, collectively, United Development Funding, L.P., a Delaware limited
partnership, United Development Funding III, L.P., a Delaware limited partnership, Lender,
and their respective Affiliates.

     “UMT Group” means , collectively, United Mortgage Trust, a real estate investment trust
organized under the laws of the state of Maryland, UMT Home Finance, L.P., a Delaware
limited partnership, and their respective Affiliates.

ARTICLE II

LOAN EXPENSES, FEES

     2.1 Loan Expenses. To the extent not prohibited by applicable law, Borrower will pay
all reasonable costs and expenses and reimburse Lender for any and all reasonable expenditures of
every character incurred or expended from time to time, regardless of whether an Event of Default
shall have occurred, in connection with any of the following (collectively, “Loan Expenses”):

     (a) the preparation, negotiation, documentation, closing, renewal, revision,
modification, increase, review or restructuring of any loan or credit facility represented
by or secured by the Loan Documents, including legal, accounting, auditing, architectural,
engineering, due diligence, title company, and inspection services and disbursements, and
other costs and expenses of Lender incurred in connection with the Loans, or in connection
with collecting or attempting to enforce or collect pursuant to any Loan Document;

     (b) Lender’s evaluating, monitoring, administering and protecting the Collateral or
employing others to do so or to perform due diligence for Lender with respect thereto; and

     (c) Lender’s creating, perfecting and realizing upon Lender’s security interest in, and
the Liens on, the Collateral, and all costs and expenses relating to Lender’s exercising any
of its rights and remedies under any Loan Document or at law, including all appraisal fees,
consulting fees, filing fees, taxes, brokerage fees and commissions, title review and
abstract fees, litigation report fees, UCC search fees, other fees and expenses incident to
title searches, reports and security interests, escrow fees, attorneys’ fees, legal
expenses, court costs, other fees and expenses incurred in connection with any complete or
partial liquidation of the Collateral, and all fees and expenses for any professional
services or any operations conducted in connection therewith. Notwithstanding the
foregoing, no right or option granted by Borrower to Lender or otherwise arising pursuant to
any provision of any Loan Document shall be deemed to impose or admit a duty on Lender to
supervise, monitor or control any aspect of the character or condition of the Collateral or
any operations conducted in connection with it for the benefit of Borrower or any other
Person other than Lender.

     2.2 Expense Cap. Lender agrees that Loan Expenses charged to Borrower shall not
exceed the aggregate sum of $30,000 annually (the “Expense Cap”); provided,
however, that the Expense Cap on Loan Expenses shall not apply (a) upon the occurrence and
during the continuance of any Event of Default, including, without limitation, to Loan Expenses
incurred in connection with collection efforts or exercise of Lender’s remedies under the Loan
Documents or otherwise, (b) to Loan Expenses incurred in connection with any amendment or
modification of the Loan Documents, including, without limitation, any workout or restructure of
this Agreement and the Loan Documents, (c) to Loan Expenses incurred in connection with the
drafting, negotiation and closing of this Agreement and the other Loan Documents,

12

 

(d) to Loan Expenses incurred in connection with Loan Closings, and (e) to costs incurred in
connection with any audit permitted by Section 9.13 of this Agreement or otherwise
permitted by the Loan Documents.

     2.3 Origination Fee. For each Loan funded by Lender hereunder, Borrower agrees to pay
the Origination Fee for such Loan to the Lender at on or prior to the Loan Closing for such Loan.
The Origination Fee for each Loan is fully earned and nonrefundable at the Loan Closing for such
Loan.

     2.4 Loan Administration Fee. Borrower agrees to pay a Loan Administration Fee to the
Loan Servicer at the Closing of each Loan. The Loan Administration Fee for each Loan is fully
earned at the Loan Closing. Upon Borrower’s request, the Loan Administration Fee for the
applicable Loan may be funded by Lender under the Loan at the Loan Closing and upon disbursement,
such amount shall automatically constitute principal outstanding under the Note evidencing such
Loan.

     2.5 Usury Savings Clause Applies. Borrower and the Borrower-Related Parties agree
that Lender has provided, and shall provide, separate and distinct consideration to Borrower for
the Loan Expenses, and any other fees, expenses or charges provided for in this Agreement or any
Loan Document and that the Loan Expenses and the Loan Administration Fee represent bona fide, third
party fees and expenses. Borrower, the Borrower-Related Parties and Lender further agree that the
Loan Expenses, the Loan Administration Fee and all other fees, expenses and charges provided for in
this Agreement or any Loan Document are not, are not intended to be, and shall not be characterized
as, interest or as compensation for the use, forbearance or detention of money. Despite the
foregoing and notwithstanding anything else in this Agreement and the other Loan Documents to the
contrary, if any Loan Expenses, Loan Administration Fees or other fees, expenses or charges
provided for in this Agreement or any Loan Document or charged or chargeable to Borrower are
determined to constitute interest that, when added to the interest charged under the Notes, would
cause the aggregate interest charged under the Notes to exceed the Highest Lawful Rate, then
Section 12.1 of this Agreement shall automatically apply to reduce the interest charged
under the Notes so as not to exceed the Highest Lawful Rate.

     2.6 Advance of Fees, Expenses and Charges. Loan Expenses, Loan Administration Fees
and other fees, expenses or charges may be advanced under a Loan if requested by Borrower and
approved by Lender, as determined by Lender in its sole discretion.

ARTICLE III

LOANS

     3.1 Loans. Subject to and upon the terms, covenants, and conditions of this
Agreement, Lender agrees to make loans (hereinafter called, individually, a “Loan” and,
collectively, the “Loans”) to Borrower prior to the Termination Date for Approved Purposes in
connection with one or more Projects in an aggregate principal amount at any one time outstanding
up to but not exceeding the Maximum Commitment. Within the limit of the Maximum Commitment,
Borrower may borrow, repay, and reborrow at any time and from time to time from the Effective Date
to the earlier of (a) the Termination Date or (b) the termination of Lender’s Commitment hereunder.
NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THE LOAN DOCUMENTS, ALL LOANS SHALL BE MADE ONLY
AT THE SOLE DISCRETION OF LENDER AND LENDER SHALL NOT BE OBLIGATED TO PROVIDE ANY PARTICULAR LOAN
AND/OR ACCOMMODATE ANY RENEWAL AND EXTENSION REQUEST RELATING TO ANY LOAN.

     3.2 Notes. Each Loan shall be evidenced by, and be repayable in accordance with, a
separate Note executed and delivered by Borrower to Lender at the Loan Closing for such Loan. Each
Note shall

13

 

be issued and dated on a date on or after the Effective Date but before the Termination Date
and shall mature on or before nine (9) months from the date of such Note; provided, however,
that if an Extension is granted by Lender with respect to such Note, the Loan Maturity Date for
such Note shall be the ninetieth (90th) day following the original Loan Maturity Date
for such Note. Notwithstanding the termination of this Agreement, subject to the terms and
provisions of this Agreement, Lender will fund Advances under the Notes that do not mature until
after the Termination Date.

     3.3 Amount of Loan; Appraisals; Approved Subdivisions.

     (a) If Lender approves a Loan Request, Lender shall advance to Borrower, or for
Borrower’s benefit, the lesser of (i) eighty-five percent (85%) of the value of the
completed Projects described in the Loan Request, as determined by Lender in its sole
discretion, which value may be equal to or less than, but shall not exceed, the appraised
value of such completed Projects, in which event Borrower shall pay the Projected Cost
Shortfall, if any, towards the cost of the Projects at or prior to the first Loan Advance
after the Loan Closing, (ii) eighty-five percent (85%) of the sales price of the Projects as
defined in the Approved Sales Contract relating to such Projects, in which event Borrower
shall pay the Projected Cost Shortfall, if any, towards the cost of the Projects at or prior
to the first Loan Advance at the Loan Closing, or (iii) one hundred percent (100%) of the
cost of the Project set forth in the Approved Budget; provided, however, that the Revolving
Principal Balance shall not exceed the Maximum Commitment at any time. For example only and
not necessarily the numbers to be used in real transactions consummated hereunder: if a Home
appraises for $100,000 and Lender determines the value of the completed Project to be
$100,000, the sales price of the Project as defined in the Approved Sales Contract is
$100,000, and the cost of the Project as set forth in the Approved Budget is $90,000, then
(i) the maximum amount that Lender will fund towards the Project is $85,000, and (ii) the
Projected Cost Shortfall required to be funded by Borrower is $5,0000.

     (b) In each Approved Subdivision funded by Lender, Borrower shall obtain an Appraisal
for the Homes to be built in the Approved Subdivision based on the Plans and Specifications
of the Homes to be build in the Approved Subdivision that itemizes the various components of
upgrades to the Homes. An Appraisal of a particular Home to be constructed in an Approved
Subdivision shall be used as the Appraisal for other Homes in the same Approved Subdivision
that are to be built based on the same Plans and Specifications used to construct the Home
that was appraised; provided, however, such Appraisal shall be no more than twelve (12)
months old at the time a Loan is made to Borrower, otherwise a new Appraisal shall be made
for the type of Home in question. Notwithstanding the foregoing, a new Appraisal for a
Project may be required sooner than twelve (12) months in Lender’s sole discretion. Such
new Appraisal shall be at Borrower’s cost pursuant to Section 2.1(c).

     (c) Borrower may submit a residential subdivision to Lender for pre-approval as an
Approved Subdivision.

     3.4 Approval of Loans. Borrower shall provide to Lender a Loan Request for each
proposed Loan. Lender will not consider Loan Requests for principal amounts less than $75,000. In
connection with each such Loan Request, Borrower shall provide Lender with the Required Documents,
all of which must be satisfactory in form and content to Lender. The Loan Request will not be
considered by Lender unless and until the Loan Request and all Required Documents are submitted to
Lender. Loan Requests will be considered no more often than once per month. Each Loan Request and
all Required Documents must be received by Lender in order for the proposed Loan to be considered
for approval. Lender shall have ten (10) days (or the next Business Day following the tenth day,
if such date is not a Business Day) following the date that the fully completed Loan Request and
all Required Documents are delivered to

14

 

Lender to determine whether Lender will approve or disapprove the proposed Loan. Each
proposed Loan may be approved or disapproved by Lender in its sole discretion, for any reason or
for no reason. Lender will notify Borrower as to whether the proposed Loan is approved or
disapproved.

     3.5 Conditions for Each Loan. No Loan shall be approved by Lender unless each of the
following conditions (“Loan Conditions”) is satisfied:

     (a) the representations and warranties made in this Agreement and the other Loan
Documents by Borrower and the Borrower-Related Parties and in all certificates and other
documents delivered pursuant thereto are true and correct at and as of the time the Loan is
to be made;

     (b) on the date of, and upon receipt of, the Loan, no Event of Default, and no event
which, with the lapse of time or notice or both, could become an Event of Default, shall
have occurred and be continuing;

     (c) the Loan will not contravene any applicable Governmental Requirement;

     (d) Lender has received a Loan Request for the Loan, as well as all Required Documents
in such form as Lender may reasonably request, and Lender has approved the Loan Request in
Lender’s sole discretion;

     (e) The Revolving Principal Balance prior to such Loan plus the amount of the requested
Loan will not exceed the Maximum Commitment in effect on the date of the requested Loan;

     (f) Lender has received evidence satisfactory to Lender that the Liens created by the
Loan Documents are, collectively, first and prior as to all of the Collateral;

     (g) Lender has received evidence satisfactory to Lender that Borrower’s equity
contribution to the Project as required by the Lender has been made or will be made
simultaneous with the subject Loan;

     (h) All proceeds of previous Loans shall have been spent or used only for Approved
Purposes;

     (i) The proceeds of the Loan shall not be used to build Spec Homes or Model Homes that
would violate the limitation on number of Spec Homes and Model Homes in Section 3.6;
and

     (j) Borrower has paid Lender all Loan Expenses and other fees, charges and expenses
required to be paid by Borrower under the Loan Documents.

     3.6 Limitations on Number of Spec Homes and Model Homes. Notwithstanding whether Loan
proceeds are used to acquire or construct a Spec Home, the number of Spec Homes that are not Model
Homes (whether or not the construction thereof is financed by Lender) owned by Borrower in a
particular section, division, phase or other portion of an Approved Subdivision (as determined by
Lender) shall not exceed five (5). In addition, notwithstanding whether Loan proceeds are used to
acquire or construct a Model Home, the number of Model Homes (whether or not the construction
thereof is financed by Lender) owned by Borrower in a particular section, division, phase or other
portion of an Approved Subdivision (as determined by Lender) shall not exceed two (2). Borrower
further agrees that

15

 

if a Spec Home is financed by Lender hereunder and purchased pursuant to an Approved Sales
Contract, then upon delivery to Lender of the Approved Sales Contract and such other supporting
documents and evidence satisfactory to Lender in its sole discretion, such Home shall no longer be
designated as a Spec Home and shall instead be designated as a standard Home. Borrower further
agrees that if any Approved Sales Contract with respect to a Project is terminated for any reason
or otherwise ceases to be a valid and binding obligation of the parties thereto for any reason,
then Borrower shall immediately inform Lender of such fact in writing and such Project shall be
deemed to be a Spec Home unless and until such Project becomes subject to a subsequent Approved
Sales Contract and Borrower has delivered to Lender the Approved Sales Contract and such other
supporting documents and evidence reasonably required by Lender.

     3.7 Advances. After a Loan is approved, Borrower shall apply for an Advance under
such Loan by providing Lender with an Advance Request under such Loan. Advance Requests will be
considered no more often than once per month. Each Advance Request and all required attachments
must be received by Lender by the fifteenth (15th) day of the month in order for the
proposed Advance to be considered for funding in that month. Provided that Borrower has fully
complied with all Advance Conditions required by Section 7.1 of this Agreement to Lender’s
satisfaction, Lender will fund the applicable Advance Request by the last day of the month in which
the Advance was requested or as soon thereafter as is reasonably practical; provided, however, that
if the Advance Request and all required attachments were not timely delivered to Lender on or
before the 15th of the month, then Lender may, in its sole discretion, fund the Advance
in the following month. At Lender’s option, all or any Advances shall be made by and through the
Title Company.

     3.8 No Obligation. Lender has no obligation to make a Loan Advance to Borrower under a
Loan until such time as such Loan is approved by Lender, in its sole and absolute discretion,
pursuant to the terms of this Agreement. Notwithstanding any provision to the contrary in any Loan
Document, once a Loan has been approved, Lender shall have no obligation to make any Advance under
any Loan, unless and until Borrower has fully complied with all Advance Conditions required by
Section 7.1 of this Agreement to Lender’s satisfaction.

     3.9 Discretionary Advances. During (a) the occurrence of an Event of Default or
(b) upon request by Borrower, Lender is authorized to make Advances under any Loan that Lender, in
its sole discretion, desires to fund at Borrower’s request or deems necessary or desirable to pay
any Loan Expense or other amount chargeable to Borrower pursuant to the terms of this Agreement or
any other Loan Document (an advance made for the foregoing purposes are referred to herein as a
“Discretionary Advance”). Each Discretionary Advance made under a Note shall, upon disbursement,
automatically constitute principal outstanding under such Note and shall cause a corresponding
increase in the aggregate outstanding principal amount of such Note (even if such Discretionary
Advance causes the aggregate amount outstanding under the Note to exceed the face amount of such
Note or causes the Revolving Principal Balance to exceed the Maximum Commitment). Borrower agrees
that each Discretionary Advance shall automatically reduce the amount of availability under the
Maximum Commitment. The making by Lender of any Discretionary Advance shall not cure or waive any
Event of Default (except only for an Event of Default that has been cured to Lender’s satisfaction
as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing
the Event of Default so cured, or for an Event of Default that has been waived by Lender as
confirmed by Lender’s execution of a written agreement specifically acknowledging and describing
the Event of Default so waived).

     3.10 Maximum Commitment. Should the unpaid Revolving Principal Balance at any time
exceed the Maximum Commitment, Lender’s obligation to fund any Advances shall immediately cease.
After Lender notifies Borrower in writing of the deficiency, Borrower shall, within ten (10)
Business

16

 

Days from and after the giving of such notice, prepay the Debt in an amount sufficient to reduce
the Revolving Principal Balance to an amount equal to or less than the Maximum Commitment.

     3.11 Termination Date. No Loan Requests will be considered by Lender after the
Termination Date.

     3.12. Extension of Notes.

     (a) Extension Request. Provided that no Event of Default has occurred (except
only for an Event of Default that has been cured to Lender’s satisfaction as confirmed by
Lender’s execution of a written agreement specifically acknowledging and describing the
Event of Default so cured, or for an Event of Default that has been waived by Lender as
confirmed by Lender’s execution of a written agreement specifically acknowledging and
describing the Event of Default so waived), upon satisfaction of the conditions precedent
set forth in Section 3.12(b) below, with respect to each Note issued by Borrower
under this Agreement, Lender agrees to a one-time extension of the Loan Maturity Date for
such Note for a period of ninety (90) days (the “Extension”) so that, if the Extension is
granted with respect to a Note, the Loan Maturity Date for such Note would be extended to,
and such Note shall become due and payable in full on, the ninetieth (90th) day
following the original Loan Maturity Date for such Note.

     (b) Conditions Precedent to Extension. Borrower shall not be entitled to an
Extension of the Loan Maturity Date for any Note unless Borrower and the Borrower-Related
Parties have complied in all respects with each of the following to Lender’s satisfaction
with respect to the Note for which the Extension is requested:

     (i) Borrower shall have executed and delivered to Lender a written request for
an Extension of such Note describing the reason for the request, the status of the
construction of the Home and the status of any sales contract for the Home;

     (ii) Borrower shall have paid an extension fee to Lender in an amount equal to
one quarter of one percent (0.25%) of the principal amount of such Note;

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

     (iv) on and as of the date of the Extension, the Principal Officer shall have
executed and delivered to Lender an Officer’s Certificate dated the Extension date,
certifying all matters in the Officer’s Certificate to be true and correct in all
respects;

     (v) on and as of the date of the Extension, all of the Loan Documents shall be
valid, enforceable and in full force and effect;

     (vi) on and as of the date of any such Extension, all Loan Expenses and any
other fees, charges and expenses owed under any of the Loan Documents shall have
been paid in full;

     (vii) on and as of the date of the Extension, Lender’s security interests in
all Collateral must be duly perfected and in the Lien position stated therein; and

17

 

     (viii) Borrower and the Borrower-Related Parties shall have complied with each
other reasonable request of Lender made in connection with the Extension.

ARTICLE IV

INTEREST; LOAN PAYMENTS

     4.1 Interest Rate. Unless the Default Rate shall apply, interest shall accrue on the
principal balance from day to day outstanding under each Loan at a rate equal to the Base Rate.
Interest on the outstanding principal amount of each Loan shall be computed on the basis of a three
hundred sixty-five (365) day year and shall accrue on the actual number of days elapsed for any
whole or partial month in which interest is being calculated. Upon the occurrence and during the
continuation of an Event of Default, the outstanding principal amount of each Loan shall, at
Lender’s option, automatically and without the necessity of notice to Borrower, bear interest from
the date of such Event of Default at the Default Rate, unless and until all delinquent amounts are
paid and all Events of Default have been cured to Lender’s satisfaction as confirmed by Lender’s
execution of a written agreement specifically acknowledging and describing the Event of Default so
cured, and/or waived by Lender as confirmed by Lender’s execution of a written agreement
specifically acknowledging and describing the Event of Default so waived.

     4.2 Interest and Principal Payments. Except earlier upon any acceleration of the
Notes, the Loans shall be due and payable as follows:

     (a) on a monthly basis, Borrower promises to pay to Lender, Accrued Interest Payments
calculated on the outstanding principal balance of each Loan, which are due and payable
beginning on the last day of the month of the Loan Closing for such Loan, and continuing
monthly thereafter on the last day of each month for so long as such Loan is outstanding;

     (b) in addition to the payments required by the provisions of clause (a) above,
concurrently with each Disposition of one or more Project(s), Borrower promises to pay
Lender, the Partial Release Amount for the Project(s) released from Lender’s Lien thereon,
which is due and payable prior to Lender providing to Borrower (or releasing from escrow
with the Title Company) its partial release of Lien on such Project(s); and

     (c)
in addition to the payments required by the provisions of clauses (a) and
(b) above, for each Loan funded by Lender hereunder, Borrower promises to pay to
Lender, the full outstanding principal amount of such Loan and all accrued but unpaid
interest thereon on or prior to the earlier of (i) the Loan Maturity Date for such Loan, or
(ii) if an Event of Default occurs (after the running of any required notice and cure
periods, but only if applicable to the Event of Default in question), the date such Loan is
declared by Lender to be immediately due and payable.

     4.3 Order of Application. Except as otherwise provided in the Loan Documents, all
payments and prepayments of the Debt shall be applied to the Debt in the following order, any
instructions from Borrower to the contrary notwithstanding: (a) to Loan Expenses for which Lender
shall not have been reimbursed under the Loan Documents, (b) to all indemnified amounts due under
the Loan Documents; (c) to fees and charges (other than Loan Expenses) then owed Lender under the
Loan Documents, including, without limitation, including, without limitation, Loan Administration
Fees; (d) to accrued interest on the portion of the Indebtedness being paid or prepaid; (e) to the
portion of the principal being paid or prepaid; (f) to the remaining accrued interest on the Debt;
and (g) to the remaining

18

 

principal of the Debt. Notwithstanding the foregoing sentence, if any Event of Default occurs and
is continuing, Lender shall have the right to apply payments as Lender determines in its sole
discretion.

     4.4 Payments. All amounts are payable to Lender in lawful money of the United States
of America at the address for Lender provided in or pursuant to Section 12.7 of this
Agreement. Payments shall be made in lawful money of the United States, without set-off, deduction
or counterclaim. Under no circumstance may Borrower offset any amount owing by Borrower to Lender
with an amount owed by Lender to Borrower under any arrangement. All payments shall be made in
cash or cash equivalents in 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 interest shall accrue and be payable for the period of such extension.
Each such payment must be received by Lender not later than 3:00 p.m., Grapevine, Texas time on
the date such payment becomes due and payable. Any payment received by Lender after such time will
be deemed to have been made on the next succeeding Business Day and interest shall accrue and be
payable for the interim period. Any payment, whether a regularly scheduled installment, a
prepayment or otherwise, shall be applied in the order of payment set forth in Section 4.3
of this Agreement. Borrower hereby agrees to accept Lender’s calculation of principal and interest
payable under the Notes absent mathematical error.

     4.5 Prepayment. Subject to the order of payment provisions of Section 4.3,
Borrower may prepay the Notes 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 outstanding
principal balance of any principal prepayment through the date of such prepayment.

ARTICLE V

LIENS; PARTIAL RELEASES

     5.1 Liens. In order to secure payment of the Debt and performance of the Obligations,
Borrower shall, at each Loan Closing, grant to Lender a Lien on each Project that is included in
the Loan Request for the applicable Loan by executing and delivering to Lender a Deed of Trust for
each such Project. Borrower further agrees to execute and deliver to Lender from time to time such
other Deeds of Trust and assignments and other similar documents covering the Collateral or any
part thereof to secure the payment of the Debt and the performance of the Obligations as Lender may
reasonably require. Borrower agrees to take all action and execute all documents necessary in
order for the Lien of Lender to be properly created and perfected for each Project. Each Project
shall secure all Debt and Obligations then existing and thereafter arising. Borrower hereby
authorizes the filing of any financing statement and all amendments thereto in favor of Lender to
secure the Loans.

     5.2 Partial Release Amount. Borrower shall be entitled to obtain a partial release
from Lender’s Lien on one or more Project(s) covered by a Deed of Trust for the payment in cash to
Lender of the Partial Release Amount for such Project. Upon receipt by Lender of Borrower’s
request for a release under this Section 5.2, and upon Lender’s receipt of the Partial
Release Amount for the particular Project and Lien to be released, Lender, at Borrower’s expense,
will release its Lien against such Lot subject to, and in accordance with, the provisions of
Section 8.9 of the applicable Deed of Trust.

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ARTICLE VI

CLOSING DELIVERIES

     6.1 Closing Deliveries. At or prior to the Initial Loan Closing, Borrower shall
deliver or cause to be delivered to Lender, all of the following items (collectively, the “Closing
Deliveries”), each of which shall be satisfactory in form and substance to Lender:

     (a) originals duly executed by Borrower and each Borrower-Related Party who is a
signatory thereto, of this Agreement, the Environmental Indemnity Agreement, the Assignment
of Distributions, the Guaranty, the error and omissions agreement, the Company Certificates
for Borrower, and each Borrower-Related Party that is an entity, and IRS tax disclosure
forms for Borrower and Guarantor;

     (b) the most recent financial statements of Borrower and Borrower-Related Party, in the
form specified in Section 9.7, and accompanied by the certification required by
Section 9.7;

     (c) a certified copy of the Organizational Agreements of Borrower and each
Borrower-Related Party that is an entity;

     (d) certificates of existence and good standing for Borrower and each Borrower-Related
Party that is an entity, issued by the appropriate state authorities;

     (e) resolutions of the board of directors, managers or other governing authority of
Borrower and each Borrower-Related Party that is an entity authorizing the execution,
delivery, and performance of this Agreement and the other Loan Documents, and the
transactions contemplated hereby and thereby, which resolutions shall include the
authorization of any one of the Principal Officers to request Loans and Advances under a
Loan on behalf of Borrower during the term of this Agreement;

     (f) copies of the liability insurance and casualty insurance policies covering
Borrower, evidence of payment of the premiums therefor through at least one year and
endorsements of such policies to Lender (in accordance with and meeting the requirements of
Section 9.15(a) hereof);

     (g) a duly executed Officer’s Certificate, dated as of the date of the Initial Loan
Closing;

     (h) all written consents that are required with respect to or necessitated by this
Agreement and the other Loan Documents and the transactions contemplated hereby and thereby
including, without limitation, the Architect Consent;

     (i) an opinion of counsel for Borrower and Borrower-Related Party and satisfactory in
all respects to Lender and its counsel containing customary opinions as to the validity and
enforceability of the Loan Documents, the authority of Borrower and the Borrower-Related
Parties to enter into the Loan Documents, and an opinion that the Loan Documents do not
violate the usury laws of the State of Texas; and

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

     6.2 No Waiver. No waiver by Lender of the timely delay of any Closing Delivery will
constitute a waiver of any condition precedent to any obligation of Lender to make any Advance on
any Loan or to require delivery of any Closing Delivery prior to the funding of any Advance.

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ARTICLE VII

ADVANCE CONDITIONS

     7.1 Conditions Precedent to Advances. Borrower agrees that, notwithstanding anything
to the contrary contained herein or in the other Loan Documents, Lender’s obligation to fund each
Advance shall be conditioned upon the satisfaction by Borrower of each of the following conditions,
on and as of the funding date for the applicable Advance (the “Advance Conditions”):

     (a) no event constituting a Buffington Land Event of Default under a Buffington Land
Loan shall have occurred and be continuing;

     (b) Lender (or the Title Company, acting at Lender’s direction) shall have received the
original Deed of Trust covering the Projects being funded by the Loan, duly executed by
Borrower for the benefit of Lender and Lender shall have received the original Note for the
Loan, duly executed by Borrower;

     (c) Lender shall have received all Required Documents relating to the Loan and all
Closing Deliveries required to be delivered to Lender as further described in Section
6.1;

     (d) Lender shall have received an Advance Request properly completed and duly executed
by a Principal Officer, accompanied by all required attachments;

     (e) the representations and warranties made in this Agreement and the other Loan
Documents by Borrower and the Borrower-Related Parties and in all certificates and other
documents delivered pursuant thereto, shall be true and correct in all material respects on
and as of the date of funding;

     (f) all of the covenants and agreements contained in this Agreement and the other Loan
Documents to be complied with and performed as of the date hereof by Borrower and the
Borrower-Related Parties have been duly complied with and performed on and as of the date of
funding;

     (g) no event constituting an Event of Default, shall have occurred and be continuing,
as determined by Lender pursuant to Section 11.1;

     (h) a Principal Officer shall have executed and delivered to Lender an Officer’s
Certificate dated the date of the Advance, and all matters certified in the Officer’s
Certificate shall be true and correct in all respects;

     (i) on and as of the date of funding, all statements contained in all Loan Documents
and all other certificates, statements and data furnished to Lender by or on behalf of
Borrower or in connection with the transactions contemplated by this Agreement or any of the
other Loan Documents (including all of the documents and information required to be
delivered to Lender by Section 6.1 and Section 7.1) shall be true and
complete in all material respects, and there are no facts or events actually known to
Borrower that, if disclosed to Lender, would make such statements, certificates or date
untrue in any material respect;

     (j) the amount of the requested Advance, when added to the outstanding principal
amount of all Loans then outstanding, would not exceed the Maximum Commitment;

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     (k) as of the date of any such Advance, all of the Loan Documents shall have been
executed and delivered, and shall be valid, enforceable and in full force and effect;

     (l) as of the date of any such Advance, all Loan Expenses and other fees, charges and
expenses owed under any of the Loan Documents as of the date of the requested Advance shall
have been paid in full (or Lender shall have agreed to fund such Loan Expenses, fees,
charges and expenses out of the proceeds of such Advance);

     (m) as of the date of any such Advance, Lender’s security interests in all Collateral
shall be duly perfected and in the Lien position stated therein;

     (n) the title agent shall have delivered to Lender the Title Company’s Title Binder to
the Lender pursuant to a Title Commitment, in form and content satisfactory to Lender,
wherein the Title Company agrees to provide a Title Policy covering the Lots being funded by
such Advance to Lender, obtained at Borrower’ expense;

     (o) Borrower and the Borrower-Related Parties shall have complied with each other
reasonable request of Lender made in connection with the then-requested Advance that Lender
determines is reasonably related to such Advance;

     (p) the Project has not been destroyed or materially damaged by fire or other casualty;

     (q) the Project is not the subject of a condemnation proceeding or litigation;

     (r) the building pad site for the Home is not located in flood zone A or V unless
Lender gives its advance written consent thereto, which may be withheld for any reason in
Lender’s sole and absolute discretion;

     (s) if requested by Lender, Borrower will also do the following: (i) deliver copies of
recorded Affidavits of Commencement to Lender and the Title Company; (ii) deliver updated
Title Binder to Lender showing title to the Lot or Home to be vested in Borrower and no
stated facts objectionable to Lender, including without limitation, mechanic’s liens filings
for unpaid bills for labor or materials; (iii) furnish Lender and Title Company with a list
of the names and addresses of all contractors, subcontractors, laborers, and suppliers who
have furnished labor or materials for any Home; (iv) furnish Lender and Title Company with
copies of the contracts, bills of sale, receipted vouchers, and agreements under which
Borrower claims title to the materials, articles, fixtures, and other personal property used
or to be used in the construction or operation of any Home; and/or (v) furnish Lender and
Title Company with lien waivers or lien subordination agreements from all contractors,
subcontractors, laborers, or suppliers, who have furnished labor, services or material for
any Home certifying that they have been fully paid for all labor, services and material
furnished by them through the date of the immediately prior Advance Request;

     (t) Lender and Title Company have received a report from Lender’s Inspector indicating
(i) whether the Approved Budget is sufficient to complete the Project in substantial
accordance with the Plans and Specifications and if not, specifying the amount in excess of
the Approved Budget which is necessary to complete the Project in substantial accordance
with the Plans and Specifications, which amount Borrower shall, at Lender’s request, place
in escrow with Title Company to be released to Borrower upon Lender’s unilateral request
therefor; provided, that upon Borrower’s request to Lender for release of such funds, if no
Event of Default has

22

 

occurred and is continuing, Lender will request the Title Company to release the funds to
Borrower upon completion of the Project; and further provided, that Borrower agrees that the
released funds will be used solely for the purpose of paying Project costs unless all
Project costs have been paid in full, (ii) the progress of the work on such Home, (iii) the
conformity of the work with the Plans and Specifications, (iv) the sufficiency of the Loan
proceeds to fund the work remaining to be completed on such Home, (v) whether the work can
be completed in a timely manner, (vi) the Plans and Specifications are in compliance in all
material respects with all applicable legal Requirements for the full completion of the
Project, and (vii) any other matters that Lender reasonably requests to be reviewed by
Lender’s Inspector;

     (u) Lender shall have received sales and marketing reports reasonably requested by
Lender;

     (v) Lender and Title Company shall have received a Foundation Survey upon completion of
the foundation of each Home to be reviewed and approved prior to subsequent Advances for
work performed after completion of the foundation, and a Completion Survey upon the
completion of the Home to be reviewed and approved prior to the final Advance in connection
with such Home;

     (w) the use of proceeds of such Advance will comply in all respects with Section
7.4;

     (x) if the Advance is a first Loan Advance after the related Loan Closing and a
Projected Cash Shortfall exists, Borrower shall pay the Projected Cash Shortfall at the time
of the Loan Advance or provide Lender evidence that the Projected Cash Shortfall has been
paid prior to the Loan Advance; and

     (y) Borrower shall have obtained all necessary permits to construct the Home on the Lot
(including, without limitation, the building permit, if any) and shall have paid all taxes
and fees to applicable Governmental Authorities (including, without limitation, all
permitting and impact fees, if any) and to any homeowner association that are due prior to
the date of the Advance.

     7.2 Advance Not A Waiver. No Advance will constitute a waiver of any condition
precedent to any obligation of Lender to make any further Advances or preclude Lender from
thereafter declaring the failure of Borrower to satisfy the condition precedent to be an Event of
Default.

     7.3 Conditions for Benefit of Lender. All conditions precedent to the obligation of
Lender to make any Advance are imposed solely for the benefit of Lender and may be waived in by
Lender in writing only as to one or more Advances in Lender’s sole and absolute discretion without
waiving them as to others, and no other party may require satisfaction of any condition precedent
or be entitled to assume that Lender will refuse to make any Advance in the absence of strict
compliance with these conditions precedent. All requirements of this Agreement may be waived by
Lender in writing only, in whole or in part, at any time. Borrower shall have no right to rely on
any investigations, inspections, or reviews preformed by Lender pursuant to the terms of this
Agreement or any other procedures employed by Lender under the terms of this Agreement. All such
investigations, inspections, or reviews preformed by Lender pursuant to the terms of this Agreement
or any other procedures employed by Lender under the terms of this Agreement are solely for the
Lender’s own protection. Borrower acknowledges and agrees that Borrower has sole responsibility for
constructing the Homes and paying for work done and materials furnished in their construction and
that Borrower has solely, on Borrower’s own behalf, selected or approved each contractor, each
subcontractor, each materialman, and each supplier and that Lender has no responsibility for any
such persons or entities or for the quality of their materials or workmanship.

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     7.4 Limitations on Advances. Lender will only make Advances for the acquisition of
Lots and other costs and expenses specified in the Approved Budget, and then only (i) in the case
of soft costs payable to Affiliates of Borrower, for those soft costs that are specifically
approved by Lender, (ii) in the case of soft costs payable to Persons other than Affiliates of
Borrower, for work performed, services rendered or materials furnished, and (iii) in the case of
hard costs, for work performed, services rendered or materials furnished. Advances for payment of
construction costs will only be made after actual commencement of construction of the Home and may
not exceed the aggregate of (a) the costs of labor, materials and services incorporated into the
Project in a manner acceptable to Lender not to exceed the Approved Budget, plus (b) if approved by
Lender, the purchase price of uninstalled materials to be used in the construction of the Home that
are stored on the Lot or in the Home not to exceed the Approved Budget, or elsewhere with the
written consent of and in a manner acceptable to Lender, and less (c) any Retainage, if applicable,
and less (d) all prior Advances for payment of costs of labor, materials and services for the
construction of the Home. Lender shall have no obligation: (i) to make any Advance for a line item
in excess of the sums for such line item in the Approved Budget, (ii) to consider an Advance
Request unless and until Borrower has complied with this Agreement, and (iii) to make any Advance
which would cause the aggregate of all Advances to be greater than the amount of the Maximum
Commitment. If the aggregate amount of Advances for any Home is insufficient to pay for all labor
and materials necessary to complete the construction of the Home, Borrower shall pay all excess
costs immediately with funds from sources other than the Loan.

     7.5 Direct Payment to Contractors and Others. After the occurrence of an Event of
Default, Lender shall have the right, but not the obligation, to pay any amount of any Advance
directly to any contractor, Title Company, any design professional or other Person instead of
advancing that money to Borrower, and will notify Borrower in advance and in writing when it has
exercised that election on each occasion it does. Any Advance by Lender for such purpose shall be
part of the Loan and shall be secured by the Loan Documents. Borrower hereby authorizes Lender to
hold, use, disburse, and apply each Loan for payment of costs of construction of the improvements
after an Event of Default, expenses incident to such Loan and the Lot or Home, and the payment or
performance of any obligation of Borrower hereunder, including, without limitation, interest on the
Loans, any reasonable Loan fees owing to Lender, reasonable legal fees of Lender’s attorneys which
are payable by Borrower, and such other reasonable sums as may be owing from time to time by
Borrower to Lender with respect to the Loan. No further direction or authorization from Borrower
shall be necessary to warrant such direct Advances and all such Advances shall satisfy pro
tanto the obligations of Lender hereunder and shall be secured by the Loan Documents as
fully as if made directly to Borrower. Notwithstanding the other provisions of this paragraph,
nothing in this Agreement is intended to be for the benefit of, nor may be enforced by, nor should
be relied upon by, any Person other than Borrower.

     7.6 Retainage. If Borrower withholds Retainage with regard to any contractor engaged
in work on a Home, Lender shall not be obligated to advance the amount reserved as Retainage by
Borrower unless Lender shall have received evidence that either (i) Borrower is releasing the
Retainage to the contractor or (ii) all work with respect to such Project is complete.

     7.7 Off-site Materials. Lender shall not be obligated to approve, and Lender shall
not be obligated to fund, any Advance covering in whole or in part any equipment or materials not
stored at the Project without the prior approval of Lender, which approval shall be in Lender’s
sole discretion.

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ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into this Agreement and make each Loan and Advance, Borrower and
each Borrower-Related Party (where applicable below) represents and warrants to Lender, as of the
date of this Agreement and as of the date of each Loan Closing and Advance, that:

     8.1 Due Organization, Existence and Authority. Borrower and each Borrower-Related
Party that is an entity (a) is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and (b) has full power and authority to own its properties,
carry on its business as presently conducted and as proposed to be conducted, and to enter into and
perform its Obligations under this Agreement and the other Loan Documents to which it is a party.

     8.2 Loan Documents Authorized. The execution and delivery by Borrower and the
Borrower-Related Parties of this Agreement and the other Loan Documents to which they are parties,
and the full and timely payment of the Debt and the performance of all Obligations under the Loan
Documents, have been duly authorized by all necessary action under the Organizational Agreement of
Borrower, the Organizational Agreement of each Borrower-Related Party, and otherwise.

     8.3 Loan Documents Valid, Binding and Enforceable. This Agreement and the other Loan
Documents have been duly and validly executed, issued and delivered by Borrower and the
Borrower-Related Parties and constitute the valid and legally binding obligations of Borrower and
the Borrower-Related Parties, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency, reorganization or other similar laws relating to or affecting
enforcement of creditor’s rights.

     8.4 Other Agreements Not Violated. Compliance by Borrower and the Borrower-Related
Parties with this Agreement and the Loan Documents will not violate any law, the Organizational
Agreement of Borrower, the Organizational Agreement of any Borrower-Related Party or any other
instrument or agreement binding upon Borrower or any Borrower-Related Party.

     8.5 Suits. There are no actions, suits or proceedings pending, or to the knowledge of
Borrower or any Borrower-Related Party, threatened, against or affecting Borrower or any
Borrower-Related Party, any Collateral, or any of the Property or involving the validity or
enforceability of the Loan Documents or the priority of the Liens created or evidenced thereby at
law or in equity, or before or by any Governmental Authority.

     8.6 Financial Statements, Loan Requests and Advance Requests Complete and Accurate.
All information supplied and statements made to Lender by or on behalf of Borrower or any
Borrower-Related Party in any financial statement, Loan Request, or Advance Request furnished or
application for credit made prior to, contemporaneously with or subsequent to the execution of this
Agreement are and shall be true, correct, complete, valid and genuine; such financial statements,
Loan Requests, Advance Requests and applications for credit have been prepared in accordance with
Good Accounting Practice and fully and accurately present the financial condition of the subject
thereof as of the date thereof and no material adverse change has occurred in the financial
condition reflected therein since the respective dates thereof; and no additional borrowings have
been made by Borrower or any Borrower-Related Party since the respective dates thereof other than
(a) the Debt, (b) with respect to Borrower-Related Parties, borrowings disclosed to Lender to the
extent required pursuant to the Loan Documents, (c) other borrowings from Lender, other members of
the UDF Group, or members of the UMT Group, or (d) other borrowings approved by Lender’s prior
written consent.

     8.7 Environmental Liability. To the current, actual knowledge of Borrower and the
Borrower-Related Parties, no hazardous substances or solid wastes have been disposed of or
otherwise released on the Property in violation of Environmental Laws, nor to the current, actual
knowledge of Borrower, is the Property including the Property’s soil, ground, water, air and other
elements,

25

 

contaminated by hazardous substances or solid wastes in violation of Environmental Laws except as
set forth in a Phase 1 Environmental Report dated on or before the Effective Date and certified to
Lender (provided, that such certification may be obtained and provided to Lender within sixty (60)
days following the Effective Date). The terms “hazardous substance” and release” shall have the
meanings specified in the Comprehensive Environmental Response Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601 et. seq.) (“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 (42 U.S.C. Section 6901 et. seq.) (“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.

     8.8 Tax Liabilities. Borrower and each Borrower-Related Party has filed all tax
returns required to be filed, or has obtained an extension which is currently valid and in effect,
for all federal, state, county, local, and foreign tax returns and reports required to be filed,
including, without limitation, taxes on the Collateral and all applicable income, payroll, personal
property, real property, employee withholding, social security, unemployment, franchise, excise,
use and sales taxes. Borrower and each Borrower-Related Party have paid in full all taxes that
have become due as reflected on all such returns and reports including any interest and penalties,
expect for taxes being contested in good faith and for which such taxpayer has set aside adequate
reserves for the payment thereof. Borrower and each Borrower-Related Party have 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 or any Borrower-Related Party’s
knowledge, threatened against Borrower or any Borrower-Related Party.

     8.9 Compliance With Legal Requirements. Borrower is in substantial compliance with
all Legal Requirements in respect of the conduct of its business and the ownership of its assets.
Borrower owns or will obtain the continuing right to use all permits, licenses, patents, patent
rights or licenses, trademarks, trademark rights, trade names, trade name rights and copyrights
which are required to conduct its business.

     8.10 Full Disclosure. None of the representations, warranties, covenants, agreements
or statements contained in any Loan Document or any exhibit, report, statement or certificate
furnished to Lender by or on behalf of Borrower or any Borrower-Related Party in connection with
the Loan contains or will contain any untrue statement of a material fact, or omits or will omit
any material fact required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading.

     8.11 No Known Material Adverse Fact. Borrower and the Borrower-Related Parties know
of no fact which materially and adversely affects the business, operations, prospects or condition,
financial or otherwise, of Borrower or any Borrower-Related Party.

     8.12 Survival of Representations and Warranties. All representations and warranties
made by or on behalf of Borrower or any Borrower-Related Party herein or in any other Loan Document
shall survive the delivery of this Agreement and the making of the Loan and any investigation at
any time made by or on behalf of Lender shall not diminish its rights to rely thereon.

     8.13 Statements Are Representations. All statements contained in a Loan Document by
or on behalf of Borrower, any Borrower-Related Party or any of their representatives or officers
under or pursuant to this Agreement and the other Loan Documents in connection with the
transactions contemplated hereby shall constitute representations and warranties.

26

 

     8.14 Property and Lots. Borrower will have good and indefeasible fee simple title to
the Property and each Lot, free and clear of any Liens except the Permitted Exceptions.

     8.15 No Work Performed. No labor or services will be performed on, and no materials
will be furnished or delivered to, any Lot by or on behalf of Borrower prior to recording the Deed
of Trust covering that Lot, which could give rise to a Lien on the Lot with priority equal to or
greater than the Liens and security interests of the Deed of Trust or other Loan Documents. No
contracts (or memorandum or affidavit thereof) for the supplying of labor, materials, or services
for the construction of improvements on a Lot shall have been recorded in the mechanic’s lien or
other appropriate records in the county where the Lot is located.

     8.16 No Partnership, Joint Venture or Agency Intended. Nothing in this Agreement or
the other Loan Documents is intended or shall in any way be construed so as to create any form of
partnership, joint venture or agency relationship between the Borrower and the Borrower-Related
Parties, on the one hand, and the Lender, on the other hand, the parties hereto having expressly
disclaimed any intention of any kind to create any partnership or agency relationship between them
resulting from or arising out of the Loan Documents.

     8.17 Plans and Specifications. To the actual knowledge of Borrower, the Plans and
Specifications comply with all Governmental Requirements. To the extent required by applicable law
or applicable restrictive covenants pertaining to the Lot, the Plans and Specifications have been
approved by the applicable Governmental Authorities and the architectural control committee or
other persons empowered to do so by any restrictive covenants.

     8.18 Utility Services. To the actual knowledge of Borrower, all applicable utility
services (including without limitation, potable water storm and sanitary sewer facilities, gas,
electric, and telephone facilities) necessary for the construction of a Home and its operation as a
single family residence are, or will be prior to completion of the Home, available at the
boundaries of each Lot in adequate sizes and capacities and that Borrower has the right to connect
each Home to such utility services.

     8.19 Access. To the actual knowledge of Borrower, all roads necessary for the full
utilization of the Lot for its intended purposes have been, or will be before completion of the
Home, completed and have been, or will be before completion of the Home, accepted by the
appropriate Governmental Authority.

     8.20 Disclaimer of Permanent Financing. Lender has not made any representations,
warranties, guarantees, commitments, or other agreements of any kind whatsoever, either express or
implied, that Lender, any subsidiary of Lender, or any other party affiliated with Lender will
extend the term of any Loan past its stated maturity date or provide permanent financing for
Borrower or any person purchasing any Home from Borrower.

     8.21 Interstate Land Sales Act. Borrower’s development of the Lot and the sale of
each Home by Borrower are exempt from registration under and any requirements of the Interstate
Land Sales Full Disclosure Act and the regulations promulgated pursuant to it.

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ARTICLE IX

COVENANTS AND AGREEMENTS

     So long as Lender is committed to make Loans hereunder, and thereafter until payment and
performance in full of the Indebtedness and Obligations, Borrower covenants and agrees that:

     9.1 Payment; Performance. Borrower shall promptly pay all Debt when due or declared
due pursuant to this Agreement and the Loan Documents. Borrower shall perform and comply with all
of its Obligations under this Agreement and the other Loan Documents.

     9.2 Use of Proceeds. Borrower shall use the proceeds of this Agreement solely for the
benefit of Borrower. In no event shall the proceeds of this Agreement be used, directly or
indirectly, 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). Borrower agrees that the purpose of the Loans is, and that the proceeds of the Loans will
only be used, for Approved Purposes.

     9.3 Indebtedness to be Paid. Borrower will pay punctually and discharge when due, or
renew or extend, any Indebtedness incurred by it and will discharge, perform and observe the
covenants, provisions and conditions to be performed, discharged and observed on the part of
Borrower in connection therewith, or in connection with any agreement or other instrument relating
thereto or in connection with any Lien existing at any time upon any of the property or assets of
Borrower; provided, however, that nothing contained in this Section shall require Borrower to pay,
discharge, renew or extend any such Indebtedness or to discharge, perform or observe any such
covenants, provisions and conditions so long as such Person in good faith shall be actively
contesting any claims which may be asserted against it with respect to any such Indebtedness or any
such covenants, provisions and conditions and shall set aside on its books reserves with respect
thereto deemed adequate by Lender.

     9.4 Limitation of Indebtedness. Excluding the Debt, loans from members of the UDF
Group, loans from members of the UMT Group, Member Loans and Indebtedness for borrowed money
described on Schedule 9.4, Borrower shall not incur any borrowed money obligation, guaranty
or provide security for any Indebtedness of another Person or enter into or issue any agreement
providing for Borrower to incur or guaranty Indebtedness for borrowed money without the prior
written consent of Lender, which may be withheld for any reason or no reason. Notwithstanding the
foregoing, Borrower may incur ordinary trade debt to vendors, and suppliers and providers of
services without violation of this Section 9.4. Borrower shall give Lender prior written
notice of any proposed Indebtedness for borrowed money and Lender shall inform Borrower in writing
of whether it approves or disapproves such proposed Indebtedness for borrowed money within ten (10)
days after receipt of Borrower’s written notice. If Lender consents to Borrower incurring or
guaranteeing any Indebtedness for borrowed money, as a condition of Lender granting such consent,
Borrower and the other lender (“New Lender”) shall, unless otherwise agreed by Lender in writing,
enter into a written agreement with Lender, which shall be satisfactory to Lender in all respects,
providing that (a) the priority of the payment of the Debt always shall be superior to the priority
of the payment of such other Indebtedness for borrowed money, (b) no Liens securing such
Indebtedness for borrowed money shall be placed on the assets of Borrower or the Property or on the
economic or legal interests in Borrower without Lender’s express prior written consent, which may
be withheld for any reason or for no reason, (c) the priority of Lender’s Liens and security
interest against the Property and the assets of Borrower always shall be superior to the priority
of any Liens or security interests, if any, in favor of the New Lender, (d) Lender shall be given
written notice by the New Lender of any material default or event of default occurring under the
loan documents evidencing Indebtedness owed to the New Lender (“New Loan Documents”), (e) upon any
Event of

28

 

Default under this Agreement or upon any default or event of default under the New Loan Documents,
Lender shall have the right, but not the obligation, to cure the default thereunder prior to
acceleration and/or, at Lender’s alternative, to purchase the New Loan Documents and the
Indebtedness evidenced thereby upon terms satisfactory to Lender, and (f) the terms of the New Loan
Documents providing for the principal amount of the Indebtedness evidenced by such New Loan
Documents, the interest rate and charges, and the payment terms (including payment dates, payment
amounts, and the maturity date for payment of principal and interest, the amount of proceeds to be
paid for release or partial release of any Lien) and all other provisions of such New Loan
Documents shall be acceptable to Lender and shall not be materially modified without Lender’s prior
written consent. Borrower agrees that it shall not enter into any agreement, or permit
Borrower-Related Party to enter into any agreement, that is inconsistent with or would cause
Borrower to violate the provisions of this Section 9.4. Notwithstanding the foregoing,
Lender acknowledges and agrees that its execution of an intercreditor agreement with a New Lender
shall be deemed to be Lender’s written consent to any variance contained in such intercreditor
agreement from the requirements of this Section 9.4.

     9.5 Termination of Existence. Until Lender’s obligations hereunder have terminated
and the Debt is paid in full, Borrower shall not cause or permit, or enter into any agreement to
cause or permit, the dissolution or termination of the existence of Borrower. Until Lender’s
obligations hereunder have terminated and the Debt is paid in full, without Lender’s prior written
consent, Borrower shall not permit or enter into any agreement to cause or permit, the merger,
consolidation, or reorganization of Borrower with or into any other entity, whether or not such
party would be the surviving entity.

     9.6 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, (a) a material adverse effect on the operations or financial condition of Borrower, the
Property or the Collateral, (b) the occurrence of any Event of Default under this Agreement or any
“event of default” or “default” under any other Loan Document, or (c) any material default by
Borrower or a Borrower-Related Party or the acceleration of the maturity of any Indebtedness owed
by Borrower or a Borrower-Related Party under any loan agreement, indenture, mortgage, promissory
note, contract, guaranty or instrument to which Borrower or any Borrower-Related Party is a party
or by which any material asset or property of Borrower or any Borrower-Related Party is bound. In
addition, Borrower agrees to notify Lender in writing at least twenty (20) Business Days prior to
the date that Borrower or any Borrower-Related Party changes its name or address, the location of
its chief executive office or principal place of business, and the place where it keeps its books
and records.

     9.7 Financial Statements; Tax Returns. Borrower shall deliver or cause to be
delivered to Lender, the following (all financial statements provided to Lender shall be certified
as to accuracy and completeness by the senior financial officer of Borrower):

     (a) within thirty (30) days after the end of each month, the unaudited financial
statements of Borrower for such month, prepared in accordance with Good Accounting Practice,
and combined or consolidated as appropriate, including all notes related thereto,
accompanied by a duly executed Financial Statement Certification and a duly completed and
executed Compliance Certificate;

     (b) within sixty (60) days after the end of each fiscal quarter, the unaudited
financial statements of Borrower for such fiscal quarter, prepared in accordance with Good
Accounting Practice, and combined or consolidated as appropriate, including all notes
related thereto, accompanied by a duly executed Financial Statement Certification;

29

 

     (c) within one hundred twenty (120) days after the end of each fiscal year, the
reviewed financial statements of Borrower for such fiscal year, prepared in accordance with
Good Accounting Practice, and combined or consolidated as appropriate, including all notes
related thereto, accompanied by a duly executed Financial Statement Certification;

     (d) copies of all federal and state tax returns prepared with respect to Borrower
within ten (10) days of such documents being filed with the Internal Revenue Service or
applicable state authority; and

     (e) such other information relating to the financial condition and affairs of Borrower,
the Property or the Collateral, as Lender may from time to time reasonably request or as may
be required by the Loan Documents.

     9.8 Taxes. Borrower shall pay or cause to be paid all federal, state and local taxes
levied against them and their respective properties and assets, including the Property, as they
become due and payable and before the same become delinquent. Borrower shall furnish to Lender
evidence that all such taxes are paid within ten (10) days following the date of payment (prior to
such payment being late). Borrower shall have the right to pay such tax under protest or to
otherwise contest any such tax or assessment, but only if (a) 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, (b) Borrower has notified Lender of its intent to contest such
taxes, and (c) adequate reserves for the liability associated with such tax have been established
in accordance with Good Accounting Practice.

     9.9 Liens. Borrower shall not create, incur, assume, or suffer to exist, or permit
Borrower-Related Party to create, incur, assume or suffer to exist, directly or indirectly, any
Lien on, against or with respect to the Collateral, except as expressly permitted by the Loan
Documents.

     9.10 Efficient and Lawful Management. Borrower shall maintain sufficient qualified
personnel for the operations of their businesses, and shall conduct its business in an efficient
manner and in accordance with all applicable Legal Requirements.

     9.11 Prohibition on Distributions. While any Event of Default has occurred and is
continuing, Borrower shall not declare, pay, make, or authorize any Distributions of any kind to
its respective partners, other than tax distributions made to the partners of Borrower in
accordance with the terms of Borrower’s Organizational Agreement. Further, while any Event of
Default has occurred and is continuing, Borrower shall not make any payments or distribute any Loan
proceeds to Affiliates (even if such payments are included in the Approved Budget) such as for soft
costs, general contractor services, administration, overhead, and similar services.

     9.12 Borrower and Property Documents. In addition to the information otherwise
required to be provided to Lender pursuant to this Agreement, Borrower shall, within five (5) days
after Lender’s request, furnish to Lender, all of the following documents, to the extent in the
possession and control of Borrower (and if such documents are not in the possession or control of
Borrower, then Borrower shall notify Lender of such fact within such five (5) day period):

     (a) all documents, certificates, agreements, contracts and other materials required to
be delivered to Lender by Section 6.1 and Section 7.1 of this Agreement
including those coming into effect or existence after the Effective Date, and all
amendments, modifications, and supplements thereto;

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     (b) all capital expenditure and expense reports, invoices and documentation of expenses
and capital expenditures, bank account information and records, and other material financial
and operational information related to Borrower, the Collateral, and the Property;

     (c) minutes of the meetings of Borrower, the Sole Member and Holdings General Partner,

     (d) all promissory notes, loan documents, contracts and agreements evidencing
Indebtedness for borrowed money of Borrower, and all amendments, modifications and
supplements thereto;

     (e) all financial statements, progress reports, and notices delivered by Borrower to
their respective partners or relating to the Property;

     (f) all notices delivered to Borrower from any other lenders to Borrower;

     (g) any new documents or information, and any updates, supplements, or replacements for
any documents or information, required to be delivered to Lender pursuant to this Agreement
and the other Loan Documents; and

     (h) all other information with respect to the Property, the Collateral and/or Borrower
that Lender may reasonably request from time to time.

     9.13 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 (a) audit all books
and records related to Borrower, and all Collateral granted or pledged as security for the Loan,
and (b) visit and inspect the offices of Borrower, to inspect and make copies of all books and
records, and to write down and record any information Lender Representatives obtain. Borrower
agrees to cooperate fully with Lender in connection with such audits and inspections.

     9.14 Approved Sales Contracts. Borrower shall deliver to Lender each Approved Sales
Contract entered into by Borrower for sale of a Home promptly upon execution, but in any event,
within thirty (30) days following execution. If an Approved Sales Contract is entered into by
Borrower for the sale of one or more Homes, Borrower (a) shall comply in all respects with its
obligations under such Approved Sales Contract, (b) shall not create a default under such Approved
Sales Contract, and (c) shall not terminate any such Approved Sales Contract except for default by
the proposed purchaser without first obtaining Lender’s prior written consent.

     9.15 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,
except in any jurisdictions where the failure to maintain such existence and good standing would
not have a material adverse effect individually or in the aggregate, on its financial condition or
operations. Borrower shall obtain, maintain and keep current, all consents, licenses, permits,
authorizations, permissions and certificates which may be required or imposed by any Governmental
Authority or which are required by applicable federal, state or local laws, regulations and
ordinances. Borrower shall obtain home warranties for the benefit of the purchasers of the Homes.

     9.16 Limitation on Loan Modifications. Without the prior written consent of Lender,
Borrower shall not consent to or approve, or enter into any extension, increase, or material
modification

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of the loan documents evidencing the Indebtedness described on Schedule 9.4, or any New
Loan Documents.

     9.17 New Entities. Borrower owns no equity interests in any partnership, limited
liability company, corporations or other entity. Until Lender’s obligations hereunder have
terminated and the Debt is paid in full, Borrower agrees that it shall not create, organize or
acquire any interest in any limited partnership, limited liability company, corporation or other
entity (collectively, a “New Entity”) without complying with each of the following requirements:

     (a) Borrower shall give Lender prior written notice of its intent to create, organize
or acquire a New Entity;

     (b) if the New Entity will receive or benefit from any Advance hereunder, such new
Entity shall become a new co-borrower under this Agreement and in connection therewith,
shall execute all agreements, counterparts and joinders to the Loan Documents required by
Lender in connection therewith promptly upon the formation of the New Entity, but in any
event, no later than the earlier of (i) thirty (30) days after formation or acquisition, or
(ii) the closing of the first Advance to the New Entity;

     (c) RESERVED; and

     (d) Borrower shall provide Lender with all information and documents required to be
delivered to Lender by Section 6.1 and Section 7.1 of this Agreement or
otherwise requested by Lender in relation to the New Entity and its assets, any real
property owned or to be acquired by the New Entity, and the owners of the New Entity.

     9.18 Communications. Borrower hereby consents to and agrees that Lender and its
representatives, employees, project managers, and consultants may communicate with (verbally and in
writing, in person and via electronic communications), and exchange information among and between,
(a) all contractors, subcontractors, engineers, design professionals and all others who have
performed or have contracted to provide work and/or services for the Property or any portion
thereof, together with their respective principals, employees and agents, and (b) any New Lenders,
any other holders of Indebtedness owed by Borrower, and their respective partners, managers,
members, stockholders, officers, directors, shareholders, representatives, employees, and agents.
Borrower hereby releases and holds harmless, and agrees to indemnify, Lender, its general partner
and their respective partners, managers, members, stockholders, officers, directors, shareholders,
representatives, employees, and agents (each, a “Released Party”), from and against any and all
damages, claims, liabilities and expenses related to, associated with or in respect of any such
communications or exchanges of information, WHETHER OR NOT THEY SHALL BE CAUSED IN WHOLE OR IN PART
BY THE NEGLIGENCE OF A RELEASED PARTY, EXCLUDING LENDER’S INTENTIONAL MISCONDUCT OR GROSS
NEGLIGENCE.

     9.19 Change in Management; Equity Interests. Until Lender’s obligations hereunder
have terminated and the Debt is paid in full, Borrower will not allow any individual other than the
Principal Officers to have day-to-day management and control of Borrower, the Sole Member and
Holdings General Partner. Furthermore, until Lender’s obligations hereunder have terminated and
the Debt is paid in full, Borrower and the Borrower-Related Parties will not permit (i) any Person,
other than Holdings General Partner, to serve as the general partner of the Sole Member or
otherwise manage or control the Sole Member, (ii) any Person, other than the Sole Member, to serve
as the member or manager of Borrower or otherwise manage or control Borrower, (iii) Borrower to
issue or agree to issue (conditionally or otherwise) any Equity Interests or rights thereto to any
Person other than the Sole

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Member, or (iv) the Sole Member to pledge or grant a security interest in the Equity Interests of
Borrower to any Person.

     9.20 Budget; Sales Report.

     (a) Approved Budget. Borrower shall not modify the Approved Budget for any
Project (except for changes in line items that do not increase the overall amount of the
Approved Budget) without Lender’s prior written consent.

     (b) Sales Report. Within ten (10) days after the end of each month, Borrower
shall deliver to Lender, a sales report which will include the sales status of each Lot.

     9.21 Consultants. Borrower agrees that Lender may engage one or more consultants and
whenever consent or approval by Lender is required under this Agreement, the consent or approval
may be conditioned upon consent or approval by such consultants. All reasonable costs of the
consultants shall be borne by Borrower. Borrower shall cooperate with the consultants and will use
commercially reasonable efforts to cause the design professionals, engineers, developers,
contractors, project engineers and the employees of each of them to cooperate with the consultants
and, upon request, will furnish the consultants whatever they may consider reasonably necessary or
useful in connection with the performance of their duties. Borrower acknowledge and agree that the
duties of the consultants run solely to Lender and that the consultants shall have no obligations
or responsibilities whatsoever to Borrower or to any other Person.

     9.22 Direct Payment to Contractors and Others. Borrower agrees that Lender shall have
the right, but not the obligation, to pay any amount of any Advance directly to any contractor,
title company, project engineer, developer, engineer, design professional or other Person instead
of advancing that money to Borrower. No further direction or authorization from Borrower shall be
necessary to warrant such direct advances and all such advances shall satisfy pro
tanto the obligations of Lender hereunder and shall be secured by the Loan Documents as
fully as if made directly to Borrower. Notwithstanding the other provisions of this paragraph,
nothing in this Agreement is intended to be for the benefit of, nor may be enforced by, nor should
be relied upon by, any Person other than Borrower.

     9.23 Reimbursement Contract. Borrower shall obtain Lender’s written consent not to be
unreasonably withheld, conditioned or delayed prior to entering into, consenting to, approving or
voting in favor of any contract or agreement with any Governmental Authority providing for the
sharing, payment and/or reimbursement of the costs of planning and/or construction with respect to
the Property such as, but not limited to, a municipal utility district or public improvement
district reimbursement agreement (each, a “Reimbursement Contract”) or prior to becoming an
assignee of, or otherwise becoming entitled to receive proceeds under, any such Reimbursement
Contract. Notwithstanding anything else to the contrary contained herein or in any other Loan
Document, in no event shall any Reimbursement Contract require or result in a subordination of any
of Lender’s Liens against the Collateral. Borrower shall not enter into, consent to, approve, or
vote in favor of any material amendment or modification of any Reimbursement Contract without
Lender’s prior written consent not to be unreasonably withheld, conditioned or delayed; provided,
however, that any such amendment shall be deemed to be material if such amendment could reasonably
be expected to delay, hinder or impede Borrower’s payment of the Debt or any portion thereof or
performance of any of its Obligations under the Loan Documents.

     9.24 Agreements related to the Property. Borrower shall not enter into, amend, modify
or terminate any agreement related to the Property or the Collateral that reasonably would be
expected to

33

 

hinder, delay or impair the payment of the Debt or any portion thereof or performance by Borrower
of any of its Obligations under the Loan Documents, without the prior written consent of Lender.

     9.25 Notice of Event of Default, Suits. Upon discovery, Borrower will promptly notify
Lender of any breach of any of the covenants contained in Article Six and Article
Seven of this Agreement and of the occurrence of any Event of Default hereunder, or of the
filing of any claim, action, suit or proceeding before any Governmental Authority against Borrower
and advise Lender from time to time of the status thereof. Borrower shall promptly notify Lender if
any Project will not be completed in accordance the Approved Budget.

     9.26 Commencement and Completion. Borrower shall commence construction of each Home
within thirty (30) days after the applicable Deed of Trust is recorded in the appropriate records
of the county where such Home is located and diligently pursue its completion without cessation
until the Home is fully completed except due to acts of God.

     9.27 Affidavit of Commencement. If requested by Lender in connection with any Home,
Borrower will record an affidavit of commencement (“Affidavit of Commencement”) in the appropriate
records of the county where the Home is located, in a form reasonably acceptable to Lender. The
Affidavit of Commencement must not state a commencement date or be recorded before the applicable
Deed of Trust is recorded.

     9.28 Affidavit of Completion. If requested by Lender in connection with any Home,
Borrower will record an affidavit of completion (“Affidavit of Completion”) stating the date
construction was completed in the appropriate records of the county where the Lot is located, and
otherwise in a form reasonably acceptable to Lender.

     9.29 Building Permits; Construction According to Plans and Specifications. Borrower
shall obtain the building permit, if one is required, for the construction of the Home within
thirty (30) days after the Loan for such Home is initially closed. For each Home funded by Lender
hereunder, Borrower shall deliver the following items to Lender promptly upon receipt: (i) if
applicable, the application for the building permit, (ii) the issued building permit, if one is
required, (iii) all other applications for permits and issued permits, if any, required with
respect to the construction of the Home, and (iv) evidence that all fees have been paid in
connection with the applications and permits referenced in clauses (i), (ii) and (iii) above.
Borrower will construct each Home in a good and workmanlike manner and in accordance with its Plans
and Specifications approved by Lender for such Home and all Governmental Requirements in all
material respects. Furthermore, Borrower will not materially amend, alter, or change the Plans and
Specifications unless the changes have been approved in writing by Lender in advance and, if
necessary, by all applicable Governmental Authorities and any architectural control committee or
other party empowered to do so by any restrictive covenants.

     9.30 Correction of Defects. Borrower will correct (a) any defect in the construction
of the Homes and any material departure from the Plans and Specifications not approved in writing
by Lender and (b) all violations of any Governmental Requirements or restrictive covenants. An
Advance will not constitute a waiver of Lender’s right to require compliance with this covenant
with respect to any such defects or violations not previously discovered by Lender, or otherwise.

     9.31 Reports and Notices. Borrower shall furnish promptly to Lender such information
as Lender may reasonably require concerning costs, progress of construction, marketing, and such
other factors as Lender may reasonably require. Borrower shall notify Lender promptly of (i) any
litigation instituted or threatened against Borrower or any Lot, (ii) any deficiencies asserted or
liens filed by the Internal Revenue Service against Borrower or any Lot, (iii) any audits of any
federal or state tax returns

34

 

of Borrower and the results of any such audit, (iv) any condemnation or similar proceedings with
respect to any Lot, (v) any proceeding seeking to enjoin the intended use of any Lot, (vi) any
changes of legal Requirements, utility availability, or anticipated costs of completion of a Home
that would cause the Project to exceed the Approved Budget, and (vii) any other matters which could
reasonably be expected to adversely affect Borrower’s ability to perform its obligations under this
Agreement.

     9.32 Identify Property. Borrower shall display the Borrower’s name and the street
address of each Lot in a prominent place on the Lot that is visible from the street.

     9.33 Personalty and Fixtures. Borrower will deliver to Lender, on demand, any
contracts, bills of sale, statements, receipted vouchers, or agreements under which Borrower claims
title to any materials, fixtures, or other personal property incorporated into or located within
any of the Homes located on any of the Lots.

     9.34 Insurance.

     (a) General Requirements. Borrower will, at Borrower’s own expense, obtain and
maintain in full force and effect insurance upon and relating to the Lot or Home with such
insurers, in such amounts, and covering such risks as are requested by and satisfactory to
Lender, from time to time, including but not limited to: (i) the broadest available form of
builder’s risk insurance (utilizing the then prevailing “ISO causes of loss-special forms”
and “reporting forms” of builder’s risk insurance form or equivalent forms acceptable to
Lender) covering all Homes during their construction for their full replacement cost; (ii)
the broadest available form of “all risks” or “special form” property insurance (utilizing
the then prevailing “ISO Special Form” property insurance form or an equivalent form
reasonably acceptable to Lender), covering all Homes within the Lot or Home after their
construction is complete for their full replacement cost, with no exclusions permitted for
vandalism or malicious mischief; (iii) worker’s compensation insurance to the statutory
limit; (iv) a commercial general liability insurance policy providing coverage against
(among other things) bodily injury and disease, including death resulting therefrom,
personal injury and property damage, written on an “occurrence” basis in connection with the
business or other activities conducted on or from the Lot or Home; (v) flood insurance
covering all Homes located within Flood Zone A or V, both during construction and after
construction is complete for their full replacement cost or the maximum amount available
under the federal flood insurance program, whichever is the most; and (vi) such other
insurance with other coverages or increased coverages, if any, as Lender may require from
time to time. No umbrella liability insurance policy will be required unless the costs of
such policy is reasonable as reasonably determined by Borrower in its good faith business
judgment. Each insurance policy issued pursuant to this Section must be issued by good and
solvent insurance companies satisfactory to Lender and all such policies must provide, by
way of endorsements, riders, or as otherwise applicable, that: (1) the builder’s risk and
property insurance policies must contain a standard “Mortgagee clause” and must be payable
to Lender as a mortgagee and not as a co-insured, and with respect to all policies and
insurance carried by Borrower for the benefit of Lender, such insurance must be payable to
Lender as Lender’s interest may appear; (2) with respect to the commercial general liability
policy and all other liability insurance, such insurance must name Lender as an “Additional
Insured” (using the applicable ISO form, or an equivalent form reasonably acceptable to
Lender, without modification, and which policy must contain standard commercial general
liability “other insurance” wording, unmodified in any way that would make it excess over or
contributory with the additional insured’s own commercial general liability coverage); (3)
Lender’s coverage under the policies must not be terminated, reduced, or affected in any
manner regardless of any breach or violation by Borrower of any warranties, declarations, or
conditions in the policies; (4) no policies will be canceled, endorsed, altered, or

35

 

reissued to effect a change in coverage for any reason and to any extent whatsoever
unless the insurer has first given Lender no less than thirty (30) days’ prior written
notice; and (5) Lender must be permitted, but not be obligated, to make premium payments to
prevent any cancellation, endorsement, alteration, or reissuance of the policies, and such
payments must be accepted by the insurer to prevent same. Lender must be furnished with the
original of each such initial policy when this Agreement is executed and the original of
each renewal policy not less than thirty (30) days before the expiration of the initial
policy or each immediately preceding renewal policy, and Lender must additionally be
concurrently furnished with receipts or other evidence that the premiums on all the policies
have been paid for at least one (1) year. Borrower shall furnish to Lender, on or before
thirty (30) days after the close of each of Borrower’s fiscal years while this Deed of Trust
is in force and effect, a statement certified by Borrower or a duly authorized officer of
Borrower of the amounts of insurance maintained in compliance with this Section, of the
risks covered by such insurance, and of the insurance companies which carry the insurance.
For purposes of this Section, the term “ISO” shall mean Insurance Services Office.

     (b) Texas Collateral Protection Insurance Notice. According to Section 307.052
of the Texas Finance Code the following notice is given to Borrower by Lender:

          (i) Borrower is required to (A) keep the Lot or Home insured against damage in the
amount the Lender specifies; (B) purchase the insurance from an insurer that is authorized
to do business in Texas or an eligible surplus lines insurer; and (C) name Lender as the
person to be paid under the policy in the event of a loss;

          (ii) Borrower must, if required by Lender, deliver Lender a copy of the policy and
proof of the payment of premiums; and

          (iii) If Borrower fails to meet any requirement listed in paragraph (b)(i) or
(b)(ii) above, Lender may obtain collateral protection insurance on behalf of Lender at
Borrower’s expense.

     9.35 Storage of Materials and Equipment. Borrower will cause all equipment, supplies
and materials acquired or furnished in connection with the construction of each Home but not
affixed to or incorporated into the Project to be stored on the Lot or at other locations
reasonably approved by Lender in writing, in each case under adequate safeguard to minimize the
possibility of loss, theft, damage or commingling with other property. Upon request of Lender,
Borrower will furnish an inventory of all such equipment, supplies and materials stored off-site,
specifying the location thereof. Borrower agrees that it will take all reasonable steps required
by Lender in order to perfect a security interest in such equipment, supplies and materials.

     9.36 Inventory and Sales Reports. Borrower agrees to deliver inventory reports (the
“Inventory Reports”) to Lender on the fifth (5th) day of each month during the term of
the Loans. All Inventory Reports must be in form and content satisfactory to Lender, in Lender’s
sole and absolute discretion, and must specify the following: (i) the number and location
(subdivision and street address with city) of homes (“Other Homes”) that Borrower has under
construction that are not the subject of a Loan categorizing them as vacant lots, spec homes,
pre-sold homes, or model homes; (ii) the number and location (subdivision and street address with
city) of Homes that Borrower has under construction that are the subject of the Loans approved
hereunder categorizing them as Pre-Sold Homes, Spec Homes or Model Homes, (iii) the number and
location (subdivision and street address with city) of Homes that have been fully completed
(subject to minor customer selection items) and a description of which completed Homes are Pre-Sold
Homes, Spec Homes or Model Homes, and (iv) sales reports showing whether such

36

 

Home or Other Home is under contract or sold, including the contract closing date or the date of
the sale if already sold.

     9.37 Approved Sales Contracts; Homeowner Financing Approval Letter. Borrower agrees
that if any Approved Sales Contract with respect to a Project is terminated for any reason or
otherwise ceases to be a valid and binding obligation of the parties thereto for any reason or if
any party thereto is in default thereunder, or if a Homeowner Financing Approval Letter for a
Project is withdrawn or terminated for any reason. then Borrower shall immediately inform Lender of
such fact in writing.

     9.38 Transactions with Affiliates. Borrower shall not enter into or be a party to any
agreement or transaction with any Affiliate except in the ordinary course of and pursuant to the
reasonable requirements of Borrower’s business and upon fair and reasonable terms that are no less
favorable to Borrower than it would obtain in a comparable arms length transaction with a Person
not an Affiliate of such Borrower, and on terms consistent with the business relationship of such
Borrower and such Affiliate prior to the Effective Date, and fully disclosed to Lender.

     9.39 Financial Covenants. Borrower shall maintain and comply with the following
financial covenants at all times during the term of the Loan:

     (a) Minimum Available Liquidity. Borrower shall maintain a minimum Available
Liquidity equal to at least $175,000, based on the monthly financial statements of Borrower
for such month delivered to Lender in accordance with Section 9.7(a) and accompanied
by a duly executed Financial Statement Certification and a duly completed and executed
Compliance Certificate. The amount of minimum Available Liquidity will be reviewed by the
Borrower and Lender on a periodic basis, not more frequently than quarterly and adjusted as
necessary to reflect changes in Borrower’s Operating Expenses, operations and liquidity
needs as mutually determined by Borrower and Lender acting in good faith. Any such
adjustments to the minimum Available Liquidity shall be documented in a written agreement
executed by Borrower and Lender.

     (b) Minimum Tangible Net Worth. Borrower will maintain a minimum Tangible Net
Worth that is equal to or greater than $4,500,000, calculated based on the monthly financial
statements of Borrower for such month delivered to Lender in accordance with Section
9.7(a) and accompanied by a duly executed Financial Statement Certification and a duly
completed and executed Compliance Certificate.

ARTICLE X

CONSTRUCTION AND OTHER CONTRACTS

     10.1 Assignment of Construction Contracts. As additional security for the payment of
the Debt and the performance of Borrower’s Obligations, Borrower hereby transfers and assigns to
Lender for the benefit of Lender, all of Borrower’s rights and interest, but not its obligations,
in, under and to all contracts, subcontracts and agreements, written or oral, between Borrower and
any other party, and between parties other than Borrower, in any way relating to the development of
the Property and/or the construction of improvements on the Property, or the supplying of material
(specially fabricated or otherwise), labor, supplies, or other services therefor (collectively, the
“Construction Contracts”) upon the following terms and conditions:

     (a) Borrower represents and warrants to Lender that the copy of each Construction
Contract that Borrower has furnished or will furnish to Lender is or will be a true and
complete

37

 

copy thereof, including all amendments thereto, if any, and that Borrower’s interest therein
is not subject to any claim, setoff or encumbrance;

     (b) neither this assignment nor any action by Lender shall constitute an assumption by
Lender of any obligations under any Construction Contract, and Borrower shall continue to be
liable for all obligations of Borrower thereunder; and Borrower hereby agrees to perform all
of its obligations under each Construction Contract. Borrower hereby agrees to indemnify
and hold Lender harmless against and from any loss, cost, liability or expense (including,
but not limited to, consultants’ fees and expenses and attorneys’ fees and expenses)
incurred in connection with Borrower’s failure to perform any such Construction Contract or
any action taken by Lender, except for matters arising as a result of the gross negligence
or willful misconduct by Lender;

     (c) upon the occurrence of an Event of Default, and during the continuance thereof,
Lender shall have the right at any time (but shall have no obligation) to take in its name
or in the name of Borrower such action as Lender may at any time determine to be necessary
or advisable to cure any default under any Construction Contract or to protect the rights of
Borrower or Lender thereunder. Lender shall incur no liability if any action so taken by it
or in its behalf shall prove to be inadequate or invalid, and Borrower agrees to indemnify
and hold Lender harmless against and from any loss, cost, liability or expense (including
but not limited to reasonable attorneys’ fees) incurred in connection with any such action,
except for matters arising as a result of the gross negligence or willful misconduct of
Lender;

     (d) Borrower hereby irrevocably constitutes and appoints Lender as Borrower’s
attorney-in-fact, in Borrower’s or Lender’s name, to enforce all rights of Borrower under
each Construction Contract; provided, however, that Lender agrees not to exercise such
appointment until the occurrence of an Event of Default, and during the continuance thereof.
Such appointment is coupled with an interest and is therefore irrevocable;

     (e) prior to the occurrence of an Event of Default, Borrower shall have the right to
exercise its rights as owner under each Construction Contract, provided that Borrower shall
not cancel or amend any Construction Contract or do or suffer to be done any act which would
impair the security constituted by this assignment without the prior written consent of
Lender;

     (f) this assignment shall inure to the benefit of Lender and its successors and
assigns, any purchaser upon foreclosure of the Liens against the Property, any receiver in
possession of the Property or any portion thereof and any entity affiliated with Lender
which assumes Lender’s rights and obligations under this Agreement; and

     (g) Borrower, in its capacity as general contractor for the Projects, hereby consent to
the foregoing assignment and the terms of this Section 10.1.

     10.2 Assignment of Plans and Specifications. As additional security for the payment
of the Loans and Borrower’s other Obligations under the Loan Documents, and the performance of the
covenants and agreements under the Loan Documents, Borrower hereby transfers and assigns to Lender
for the benefit of Lender all of Borrower’s right, title and interest in and to the Plans and
Specifications for each Project (subject, in the case of the Architect Agreement, to the
Architect’s Consent), and hereby represents and warrants to and agrees with Lender as follows:

     (a) each schedule of the Plans and Specifications delivered or to be delivered to
Lender for a Project is and shall be a complete and accurate description of the Plans and
Specifications for such Project;

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     (b) the Plans and Specifications for each Project are and shall be complete and
adequate for the construction of the Project and there have been no modifications thereof
except as described in such schedule. The Plans and Specifications shall not be materially
modified without the prior written consent of Lender, which shall not be unreasonably
withheld or delayed;

     (c) Lender may use the Plans and Specifications for any purpose relating to the
Project, including but not limited to inspections of construction and the completion of the
Project;

     (d) Lender’s acceptance of this assignment shall not constitute approval of the Plans
and Specifications by Lender. Lender has no liability or obligation in connection with the
Plans and Specifications and no responsibility for the adequacy thereof or for the
construction of the Project contemplated by the Plans and Specifications. Lender has no duty
to inspect the Improvements, and if Lender should inspect the Improvements, Lender shall
have no liability or obligation to Borrower, Lender or any other party arising out of such
inspection. No such inspection nor any failure by Lender to make objections after any such
inspection shall constitute a representation by Lender that the Improvements are in
accordance with the Plans and Specifications or any other requirement or constitute a waiver
of Lender’s right thereafter to insist that the Project be constructed in accordance with
the Plans and Specifications or any other requirement; and

     (e) this assignment shall inure to the benefit of Lender and its successors and
assigns, any purchaser upon foreclosure of any Deed of Trust, any receiver in possession of
the Property or any part thereof and any entity affiliated with Lender which assumes
Lender’s rights and obligations under this Agreement.

     10.3 Assignment of Purchase Contracts. As additional security for the Loans, Borrower
transfers and assigns the Purchase Contracts to Lender. In connection with this assignment Borrower
irrevocably appoints Lender as Borrower’s agent and attorney-in-fact with full power of
substitution to, after an Event of Default, exercise every right granted to Borrower under the
Purchase Contracts and to do all things Borrower could do under or in connection with the Purchase
Contracts. Borrower agrees that this power of attorney is coupled with an interest and cannot be
revoked. Lender’s rights under this Section are in addition to all other rights and remedies Lender
may have under this Agreement or any of the other Loan Documents. This assignment will inure to the
benefit of Lender, its successors and assigns, any purchaser upon foreclosure of the Deed of Trust,
and any receiver in possession of the Lot or Home.

     10.4 Assignment of Other Contracts. As additional security for the payment of the
Loans and Borrower’s other Obligations under the Loan Documents, and the performance of the
covenants and agreements under the Loan Documents, Borrower hereby transfers and collaterally
assigns to Lender all of Borrower’s rights, titles and interests, but not its obligations, in,
under and to any all other contracts and agreements between Borrower and any Persons pertaining to
the construction of the Home and each Project (the “Other Contracts”), whether now existing or
hereafter entered into, upon the following terms and conditions:

     (a) Borrower represents and warrants that the copy of any Other Contracts it has
furnished to Lender is a true and complete copy thereof and that Borrower’s interest therein
is not subject to any claim, setoff, or encumbrance.

     (b) neither this assignment nor any action by Lender shall constitute an assumption by
Lender of any obligations under any Other Contracts, and Borrower shall continue to be
liable for all obligations of Borrower thereunder, Borrower hereby agreeing to perform all
of its

39

 

obligations under any Other Contracts. Borrower indemnifies and holds Lender harmless
against and from any loss, cost, liability, or expense (including, but not limited to,
reasonable attorneys’ fees) resulting from any failure of Borrower to so perform, except for
matters as a result of the gross negligence or willful misconduct of Lender;

     (c) during the existence and continuance of an Event of Default, Lender shall have the
right at any time (but shall have no obligation) to take in its name or in the name of
Borrower such action as Lender may at any time reasonably determine to be necessary or
advisable to cure any default under any Other Contracts or to protect the rights of
Borrower, Lender thereunder. Lender shall incur no liability if any action so taken by it
shall prove to be inadequate or invalid, and Borrower agrees to hold Lender free and
harmless against and from any loss, cost, liability or expense (including, but not limited
to, reasonable attorneys’ fees) incurred in connection with any such action, except for a
loss, cost, liability or expense resulting solely from Lender’s intentional actions or gross
negligence;

     (d) during the existence and continuance of an Event of Default, Borrower hereby
irrevocably constitutes and appoints Lender as Borrower’s attorney-in-fact, in Borrower’s
name or in Lender’s name, to enforce all rights of Borrower under any Other Contracts;

     (e) except during the existence of an Event of Default, Borrower shall have the right
to exercise its rights as owner under any Other Contracts, provided that Borrower shall not
cancel or amend such Other Contracts or do or suffer to be done any act which would impair
the security constituted by this assignment without the prior written consent of Lender,
which shall not be unreasonably withheld or delayed; and

     (f) upon the request of Lender, Borrower shall use its best efforts to cause each
Person that is a party to any Other Contract to deliver to Lender, a consent to the
foregoing assignment in form and substance satisfactory to Lender.

     10.5 INDEMNITY MATTERS. WITHOUT LIMITATION, THE FOREGOING INDEMNITIES CONTAINED IN
SECTIONS 10 SHALL APPLY TO LENDER WITH RESPECT TO MATTERS WHICH IN WHOLE OR IN PART ARE CAUSED BY
OR ARISE OUT OF, OR ARE CLAIMED TO BE CAUSED BY OR ARISE OUT OF, THE NEGLIGENCE (WHETHER SOLE,
COMPARATIVE OR CONTRIBUTORY) OR STRICT LIABILITY OF LENDER. HOWEVER, SUCH INDEMNITIES SHALL NOT
APPLY TO LENDER TO THE EXTENT THAT THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER.

ARTICLE XI

DEFAULT

     11.1 Default. For purposes of this Agreement, the following events shall constitute an “Event
of Default”:

     (a) the failure of Borrower to make any payment required by this Agreement or any Note
in full on or before the tenth (10th) day following the date such payment is due
(or declared due pursuant to the terms of this Agreement or such Note); or

     (b) any financial statement, representation, warranty, or certificate made or furnished
by or with respect to Borrower or any Borrower-Related Party contained in this Agreement or
any

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other Loan Document or made in connection herewith or therewith, shall be materially
false, incorrect, or incomplete when made; or

     (c) Borrower or any Borrower-Related Party shall fail to perform or observe any
covenant or agreement contained in this Agreement or any other Loan Document that is not
separately listed in this Section 11.1 as an Event of Default (collectively, a
“Covenant Breach”), and the same remains unremedied for thirty (30) days after Lender’s
written notice to Borrower; provided, however, that if Borrower or any Borrower-Related
Party has actual notice of an event that gives rise to Borrower’s obligation to provide
Lender notice of such event in accordance with Section 9.6, and Borrower fails to
provide timely notice of such event to Lender accordance with Section 9.6 and such
event constitutes a Covenant Breach, then Lender shall not be required to give Borrower
written notice of such Covenant Breach and such Covenant Breach shall become an Event of
Default under this Section 11.1(c) if such Covenant Breach remains unremedied for
thirty (30) days after the occurrence thereof; or

     (d) any “event of default” or “default” occurs under any Loan Document other than this
Agreement that is not separately listed in this Section 11.1, and the same remains
unremedied for thirty (30) days after Lender’s written notice to Borrower; provided,
however, that if Borrower or any Borrower-Related Party has actual notice of an “event of
default” or “default” occurring under any Loan Document thereby giving rise to Borrower’s
obligation to provide Lender notice of such “event of default” or “default” in accordance
with Section 9.6, and Borrower fails to provide timely notice of such “event of
default” or “default” to Lender accordance with Section 9.6, then Lender shall not
be required to give Borrower written notice of such “event of default” or “default” and such
“event of default” or “default” shall become an Event of Default under this
Section 11.1(d) if such “event of default” or “default” remains unremedied for
thirty (30) days after the occurrence thereof; or

     (e) the entry of a decree or order for relief by a court having jurisdiction in respect
of Borrower or any Borrower-Related Party 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 any Borrower-Related Party for any substantial
part of their respective properties or the Property, or ordering the winding up or
liquidation of such person’s affairs; or

     (f) the commencement by Borrower or any Borrower-Related Party 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 any Borrower-Related
Party for any substantial part of their respective properties or the Property, or the making
by Borrower or any Borrower-Related Party of any assignment for the benefit of creditors, or
the admission by Borrower or any Borrower-Related Party in writing of its inability to pay
its debts generally as they become due; or

     (g) the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of all or a substantial part of the
assets of Borrower or any Borrower-Related Party or the Property in a proceeding brought
against or initiated by Borrower or any Borrower-Related Party or the Property;

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     (h) if Borrower or any Borrower-Related Party that is an entity is liquidated or
dissolved or winds up their affairs, or the sale or liquidation of all or substantially all
of the assets of Borrower or any Borrower-Related Party that is an entity; or

     (i) any Disposition of any Lot occurs without payment in full to Lender of the Partial
Release Amount related to such Lot, or the Principal Officers cease to have day-to-day
control and management of the Borrower, the Sole Member and Holdings General Partner; or

     (j) any “default” or “event of default” not cured within the grace period, if any, for
such default or event of default (the terms “default” and “event of default” have the
meaning given to such terms in the agreements and documents described below), shall occur
under (i) any credit agreement, loan agreement, promissory note or other document evidencing
Indebtedness for borrowed money to which Borrower is a party as a borrower, debtor,
guarantor or other obligor, (ii) any subordination agreement, security agreement, pledge
agreement, guaranty, deed of trust, or other agreement providing guaranty of or security or
collateral for Indebtedness, executed by or binding upon Borrower, (iii) 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 is a party, if any of Lender, any member of the UDF Group or any member of
the UMT Group is also a party to such agreement; or

     (k) the death or disability at any time while the Debt is outstanding of both Patrick
James Starley and Thomas Blake Buffington, Sr.; or

     (l) in Lender’s opinion, any material adverse change occurs in the financial condition
or business of Borrower or any Borrower-Related Party; or

     (m) Borrower alleges that any Loan Document is invalid or is not binding upon Borrower
for any reason; or

     (n) Borrower or any Borrower-Related Party suffers the entry against it of a final
judgment for the payment of money in excess of $50,000 which is not covered by insurance
which is not paid in full within ten (10) days thereafter; or

     (o) Borrower or any Borrower-Related Party suffers a writ or warrant of attachment or
any similar process to be issued by any tribunal against all or any substantial part of its
properties or the Collateral, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty (30) days after the entry or levy thereof or after
any stay is vacated or set aside; or

     (p) in Lender’s opinion, the prospect for payment or the prospect for performance with
respect to this Agreement or any other agreement that Borrower or any Borrower-Related Party
may have with Lender is impaired and Lender so notifies Borrower in writing; or

     (q) Borrower or any Borrower-Related Party fails to comply with any covenant or
agreement in any of Sections 9.1, 9.2, 9.4, 9.5, 9.9, 9.11, 9.16, 9.19, 9.20, 9.22
or 9.38 in any respect; or

     (r) Borrower fails to maintain the minimum Available Liquidity for a given month as set
forth in Section 9.39(a) and fails to increase its minimum Available Liquidity to
the amount required by Section 9.39(a) by the 15th day of the following month; or

42

 

     (s) Borrower fails to maintain the minimum Tangible Net Worth for a given month as set
forth in Section 9.39(b) and fails to increase its minimum Tangible Net Worth to the
amount required by Section 9.39(b) by the 15th day of the following month; or

     (t) Borrower fails to deliver the monthly financial statements, the Financial Statement
Certification, or the Compliance Certificate by the date required by Section 9.7(a)
and such failure remains unremedied by the fifteenth day thereafter; or

     (u) If any Lien for labor, services or materials performed or furnished in connection
with the construction of any improvements is filed against any Lot or Home and it is not
paid or released or bonded within thirty (30) days after it is filed. Notwithstanding the
foregoing, the filing of such a Lien will not be an Event of Default if within thirty (30)
days after such Lien filing, Borrower pays all accrued interest and unpaid principal balance
of the applicable Loan so that the Home which is the subject of said Lien is eligible to be
released from the liens of the Deed of Trust securing repayment of Loan; or

     (v) If the building permit for any Home is revoked or if any Home violates a
Governmental Requirement in such a manner that it cannot be occupied as a single family
residence. Notwithstanding the foregoing, such revocation or violation will not be an Event
of Default if within thirty (30) days after such revocation or violation, Borrower pays all
accrued interest and unpaid principal balance of the applicable Loan so that the Home which
is the subject of said revocation or violation is eligible to be released from the liens of
the Deed of Trust securing repayment of Loan; or

     (w) If Borrower executes any conditional bill of sale, chattel mortgage, or other
security instrument covering any materials, fixtures, or articles of personal property
intended to be incorporated into the Lot, or covering articles of personal property placed
in any of the Homes, or if Borrower files a financing statement publishing notice of such
security interest, or if any of such materials, fixtures, or articles of personal property
are not purchased in such a manner that their ownership vests unconditionally in Borrower,
free from encumbrances, on delivery at the Lot.

     11.2 Occurrence of Event of Default. Upon the occurrence of an Event of Default,
Lender shall have the immediate right, at the sole discretion of Lender and without notice,
presentment for payment, demand, notice of nonpayment or nonperformance, protest, notice of
protest, notice of intent to accelerate, notice of acceleration or any other notice or any other
action (ALL OF WHICH BORROWER AND THE BORROWER-RELATED PARTIES HEREBY EXPRESSLY WAIVE AND
RELINQUISH) (i) to declare the entire unpaid balance of the Debt (including the outstanding
principal balance hereof, including all sums advanced or accrued hereunder or under any other Loan
Document, and all accrued but unpaid interest thereon) at once immediately due and payable (and
upon such declaration, the same shall be at once immediately due and payable) and may be collected
forthwith, whether or not there has been a prior demand for payment and regardless of the
stipulated date of maturity, (ii) to foreclose any liens and security interests securing payment
hereof or thereof (including any liens and security interests covering all or any portion of the
Mortgaged Property (as defined in the Deeds of Trust)), (iii) refuse to make any Loan or Advance to
Borrower, even if Lender had previously agreed to make such Loan or Advance, and (iv) to exercise
any of Lender’s other rights, powers, recourses and remedies under this Agreement, under any other
Loan Document or at law or in equity, and the same (A) shall be cumulative and concurrent, (B) may
be pursued separately, singly, successively or concurrently against Borrower, any Borrower-Related
Party or others obligated for the repayment of the Debt or any part hereof, or against any one or
more of them, or against all or any portion of the

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Mortgaged Property, at the sole discretion of Lender, (C) may be exercised as often as
occasion therefor shall arise, it being agreed by Borrower and the Borrower-Related Parties that
the exercise, discontinuance of the exercise of or failure to exercise any of the same shall in no
event be construed as a waiver or release thereof or of any other right, remedy or recourse, and
(D) are intended to be, and shall be, nonexclusive. All rights and remedies of Lender hereunder
and under the other Loan Documents shall extend to any period after the initiation of foreclosure
proceedings, judicial or otherwise, with respect to all or any portion of the Mortgaged Property.
No delay on the part of Lender in exercising any power or right shall operate as a waiver of such
power or right nor shall any single or partial exercise of any power or right further preclude
exercise of that power or right.

     11.3 Attorneys Fees. If Lender retains an attorney-at-law in connection with any
Event of Default or at maturity or to collect, enforce, or defend the Notes or any part hereof, or
any of the other Loan Documents, in any lawsuit or in any probate, reorganization, bankruptcy or
other proceeding, or otherwise, Borrower agrees to pay all reasonable costs and expenses of
collection, including but not limited to, Lender’s reasonable attorneys’ fees, whether or not any
legal action shall be instituted.

     11.4. Limitation on Cross-Default. Notwithstanding any other provision to the Loan
Documents to the contrary other than the immediately following sentence, the existence of a
Buffington Land Event of Default under a Buffington Land Loan will not, in and of itself, be an
Event of Default under Section 11.1 of this Agreement. The foregoing sentence
notwithstanding, if Lender reasonably believes that any fraud, intentional misrepresentation,
material omission or intentional wrongful conduct on the part of Guarantor, its subsidiaries,
and/or their respective general partners, officers, directors, or managers has given rise to a
Buffington Land Event of Default under a Buffington Land Loan, then such Buffington Land Event of
Default may, in Lender’s sole discretion, be determined by Lender to be an Event of Default under
Section 11.1 of this Agreement.

     11.5 Complete Construction. In addition to the remedies set forth in Section
11.2(i) through (iv), Lender may enter into possession of the Lot and Home and, at Lender’s
option, in the name and on behalf of Borrower, do anything in connection with the construction of
the Homes that Borrower could do in its own behalf, including without limitation, any one or more
of the following: (a) perform all work necessary to complete construction of the Homes then under
construction or discontinue any such work, whether commenced by Borrower or Lender, (b) assume
Borrower’s rights, and powers under any contract Borrower has entered into in connection with the
Lot or the construction of the Homes, (c) execute all certificates and applications that are
required under any construction contract, (d) make any additions, changes, and corrections in the
Plans and Specifications which in Lender’s judgment are necessary or desirable to complete
construction of the Homes in substantially the same manner as contemplated by the Plans and
Specifications, (e) employ architects, contractors, subcontractors, engineers, inspectors, and
security guards, and other persons to perform services or furnish materials or equipment in
connection with any action Lender takes under this Section, (f) continue any existing construction
contracts or subcontracts, (g) pay, settle, or comprise any existing bills or claims which are or
may become liens against the Lot or Home or may be necessary or desirable for the completion of the
work or the clearing of title, (h) prosecute and defend all actions or proceedings in connection
with the Lot or Home or the construction of the Homes; and (i) use any funds which remain
unadvanced on the Loans for the purposes described in this Section. All amounts expended by Lender
pursuant to this Section will be deemed to have been disbursed to Borrower as Advances and be
secured by the Deed of Trust. For the purposes described in this Section and the enforcement of the
terms and conditions of this Agreement, Borrower irrevocably appoints Lender as Borrower’s agent
and attorney-in-fact with full power of substitution to exercise all of the rights and remedies
granted to Lender by this Section. Borrower agrees that this power of attorney is coupled with an
interest and cannot be revoked.

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ARTICLE XII

MISCELLANEOUS

     12.1 Usury Laws. Notwithstanding anything to the contrary contained in this Agreement
or any other Loan Document:

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

     (b) To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to
determine the Highest Lawful Rate payable on the Notes or any other part of the Debt,
Lender will utilize the weekly ceiling from time to time in effect as provided in such
Chapter 303, as amended. To the extent United States federal law permits Lender to contract
for, charge, take, receive or reserve a greater amount of interest than under Texas law,
Lender will rely on United

45

 

States federal law instead of such Chapter 303 for the purpose of determining the Highest
Lawful Rate. Additionally, to the extent permitted by applicable law now or hereafter in
effect, Lender may, at its option and from time to time, utilize any other method of
establishing the Highest Lawful Rate under such Chapter 303 or under other applicable law
by giving notice, if required, to Borrower as provided by such applicable law now or
hereafter in effect.

     12.2 Indemnity; Release. Borrower and the Borrower-Related Parties jointly and
severally agree 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 in its capacity as lender hereunder growing out of, resulting from or in any other way
associated with (a) this Agreement 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 Loans evidenced hereby are 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 any Borrower-Related Party. Notwithstanding anything herein or in any other Loan
Document to the contrary, nothing in this Section 12.2 shall be deemed to provide for or
require any Borrower-Related Party not otherwise the Borrower or Guarantor hereunder to be liable
for the repayment of the Debt or performance of any of the obligations of Borrower or a Guarantor
under the Loan Documents unless expressly set forth herein or therein.

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 the Borrower-Related Parties) 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 Agreement and it successors and assigns 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 AND THE OTHER LOAN
DOCUMENTS, EACH BORROWER AND EACH BORROWER-RELATED PARTY HEREBY RELEASES AND FOREVER DISCHARGES,
AND COVENANTS NOT TO SUE OR FILE ANY CHARGES OR CLAIMS AGAINST, LENDER FOR ANY AND ALL EXISTING OR
FUTURE CLAIMS, DEMANDS AND CAUSES OF ACTION, IN CONTRACT OR IN TORT, AT LAW OR IN EQUITY, KNOWN OR
UNKNOWN, PENDING OR THREATENED (COLLECTIVELY, “CLAIMS”), FOR ALL EXISTING AND FUTURE DAMAGES AND
REMEDIES ARISING OUT OF OR IN ANY WAY ASSOCIATED WITH THIS AGREEMENT AND THE OTHER LOAN

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DOCUMENTS AND THE LOANS MADE PURSUANT HERETO AND THERETO (NOTWITHSTANDING ANYTHING CONTAINED HEREIN
TO THE CONTRARY, IN NO EVENT SHALL THIS WAIVER BE DEEMED TO BE INCLUDE A WAIVER OF ANY CLAIM
AGAINST LENDER ARISING DIRECTLY OUT OF LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, WHETHER
ARISING OUT OF TORT OR CONTRACT).

     12.3 Mutual Understanding. Borrower and the Borrower-Related Parties jointly and
severally represent and warrant to Lender that they have read and fully understand the terms and
provisions hereof, have had an opportunity to review this Agreement and the other Loan Documents
with legal counsel and have executed this Agreement and the other Loan Documents based on their own
judgment and advice of counsel. If an ambiguity or question of intent or interpretation arises,
this Agreement will be construed as if drafted jointly by Borrower, the Borrower-Related Parties
and Lender and no presumption or burden of proof will arise favoring or disfavoring any party
because of authorship of any provision of this Agreement.

     12.4 Set-Off. Borrower hereby gives and confirms to Lender a right of set-off of all
moneys, securities and other property of Borrower (whether special, general or limited) and the
proceeds thereof, now or hereafter delivered to remain with or in transit in any manner to Lender,
its correspondents or its agents from or for Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise or coming into possession of Lender in any way, and also, of
all other liabilities and obligations now or hereafter owed by Borrower to Lender, contracted with
or acquired by Lender, whether joint, several, absolute, contingent, secured, unsecured, matured or
unmatured, hereby authorizing Lender at any time after an Event of Default has occurred and is
continuing, without prior notice, to apply such balances, credits of claims or any part thereof, to
such liabilities in such amounts as it may select, whether contingent, unmatured or otherwise, and
whether any collateral security therefor is deemed adequate or not. The rights described herein
shall be in addition to any collateral security described in any separate agreement executed by
Borrower.

     12.5 Cumulative Remedies. All rights and remedies that Lender is afforded by reason
of this Agreement are separate and cumulative with respect to Borrower and the Borrower-Related
Parties or any of them 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.

     12.6 No Third Party Beneficiaries. The benefits of this Agreement will not inure to
any third party. This Agreement will not be construed to make or render Lender liable to any
materialmen, subcontractors, contractors, laborers, or others for goods and materials supplied or
labor performed in connection with any construction of any of the Homes. Lender is not liable for
the manner in which any Advances under this Agreement may be applied by Borrower or any of
Borrower’s contractors or subcontractors. Notwithstanding anything contained in the Loan Documents
or any conduct or course of conduct by Borrower or Lender, before or after the date of this
Agreement, this Agreement will not be construed as creating any rights, claims, or causes of action
against Lender, or any of its officers, directors, agents or employees, in favor of any contractor,
subcontractor, supplier of labor or materials, or any of their respective creditors, or any other
person or entity other than Borrower. Without limiting the generality of the foregoing, Advances
made to any Person other than Borrower (including, without limitation, any contractor,
subcontractor or supplier of labor or materials) will not be deemed recognition by Lender of any
third-party beneficiary status claimed by any such person or entity.

47

 

     12.7 Notice. Any notice, request or other communication required or given hereunder
or under any other Loan Document shall be given in writing by any of the following methods: (a)
registered or certified mail, (b) facsimile, (c) delivered personally by courier service, or (d)
delivered by nationally recognized overnight delivery service; in each case, addressed to the
respective parties as follows:

If to Borrower:

Buffington Signature Homes, LLC

3600 N. Capital of Texas Hwy

Bldg. B, Suite 170

Austin, Texas 78746

Facsimile No. (512) 732-2826

Attention: James M. Giddens

If to the Borrower-Related Parties:

James M. Giddens

Patrick James Starley

Thomas B. Buffington, Sr.

Tim B. Agee

Buffington Homebuilding Group, Ltd.

Buffington Homebuilding Group Management, LLC

3600 N. Capital of Texas Hwy

Bldg. B, Suite 170

Austin, Texas 78746

Facsimile No. (512) 732-2826

If to Lender:

United Development Funding IV

1301 Municipal Way

Suite 100

Grapevine, TX 76051

Facsimile No. (817) 835-0650

Attention: Ben Wissink

Each notice or other communication will be treated as effective and as having been given and
received (a) if sent by certified mail, or registered mail, three (3) Business Days after deposit
in a regularly maintained receptacle for deposit of United States mail, (b) if sent by facsimile,
upon written or electronic confirmation of facsimile transfer, (c) if delivered by courier, upon
written or electronic confirmation of delivery from such service, or (d) if sent by
nationally-recognized overnight delivery service, upon written or electronic confirmation of
delivery from such service. Borrower’s and the Borrower-Related Parties’ respective addresses for
notice may be changed at any time and from time to time, but only after thirty (30) days’ advance
written notice to Lender and shall be the most recent such address furnished in writing by them to
Lender. Lender’s address for notice may be changed at any time and from time to time, but only
after written notice to Borrower and the Borrower-Related Parties and shall be the most recent such
address furnished in writing by Lender to them. Actual notice, however and from whomever given or
received, shall always be effective when received.

     12.8 Enforcement and Waiver by Lender. Lender shall have the right at all times to
enforce the provisions of this Agreement and the other Loan Documents in strict accordance with
their respective

48

 

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.

     12.9 CHOICE OF LAW. EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF SECURITY
INTERESTS OR REMEDIES IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS, THIS AGREEMENT 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.

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

     12.11 Counterparts. This Agreement 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.

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

     12.13 Amendments; Waivers. No amendment or waiver of any provision of this Agreement
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.

     12.14 Binding Effect; Assignment. This Agreement and the other Loan Documents shall be
binding on Borrower and the Borrower-Related Parties and their respective successors and assigns,
including, without limitation, any receiver, trustee or debtor in possession of or for Borrower or
any Borrower-Related Party, and shall inure to the benefit of Lender and its successors and
assigns. Neither Borrower nor any Borrower-Related Party shall be entitled to transfer or assign
this Agreement and the other Loan Documents in whole or in part without the prior written consent
of Lender. This Agreement

49

 

and the other Loan Documents are freely assignable and transferable by Lender without the consent
of Borrower and the Borrower-Related Parties. Should the status, composition, structure or name of
Borrower or any Borrower-Related Party change, this Agreement and the other Loan Documents shall
continue to be binding upon such Person and also cover such Person under the new status
composition, structure or name according to the terms hereof and thereof.

     12.15 Time of the Essence. Time is of the essence in this Agreement and the other
Loan Documents.

     12.16 Captions; Number or Gender of Words. The captions in this Agreement are for the
convenience of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof. 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.

     12.17. Further Assurances. Borrower and the Borrower-Related Parties will, at their
expense, promptly execute and deliver to Lender, all such other and further documents, agreements
and instruments, and shall deliver all such supplementary information, of Borrower and the
Borrower-Related Parties or with respect to the Property and the Collateral in compliance with or
accomplishment of the agreements of Borrower and the Borrower-Related Parties under the Loan
Documents upon Lender’s request from time to time.

     12.18 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. BORROWER AND EACH BORROWER-RELATED
PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT SUCH PARTY 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 AGREEMENT OR THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR
THEREBY OR ASSOCIATED HEREWITH OR THEREWITH; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT SUCH PARTY 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 LENDER 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 AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BASED UPON, 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.

     12.19 ENTIRE AGREEMENT. THIS AGREEMENT 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
AGREEMENT AND THE OTHER LOAN DOCUMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
AND THIS AGREEMENT

50

 

AND THE OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     12.20 No Obligation by Lender to Construct. Lender has no liability or obligation in
connection with the Lot or its development or construction of Homes. Lender is not obligated to
inspect the work in progress. Lender is not liable for (i) the performance or default of any
contractor or subcontractor, (ii) any failure to construct, complete, protect, or insure a Home,
(iii) the payment of any cost or expense incurred in connection therewith, or (iv) the performance
or nonperformance of any obligation of Borrower or any Borrower-Related Party to Lender or to any
other Person.

     12.21 No Obligation by Lender to Operate. Notwithstanding anything contained in the
Loan Documents to the contrary, Lender shall not have, and by its execution and acceptance of this
Agreement hereby expressly disclaims, any obligation or responsibility for the management, conduct,
or operation of the business and affairs of Borrower or any Borrower-Related Party. Any term or
condition of the Loan Documents which permits Lender to disburse funds, whether from the proceeds
of the Loans or otherwise, or to take or refrain from taking any action with respect to Borrower,
any Borrower-Related Party, a Lot or Home, or any other collateral for repayment of the Loans,
shall be deemed to be solely to permit Lender to audit and review the management, operation, and
conduct of the business and affairs of Borrower and any Borrower-Related Party, and to maintain and
preserve the security given by Borrower to Lender for the Loans, and may not be relied upon by any
other person. Further, Lender shall not have, has not assumed and by its execution and acceptance
of this Agreement expressly disclaims any liability or responsibility for the payment or
performance of any indebtedness or obligation of Borrower or any Borrower-Related Party and no term
or condition of the Loan Documents, should be construed otherwise. Further, Lender shall have no
obligation under any Approved Sales Contract or other agreement for the sale of any Home or Lot.
Borrower expressly acknowledges that no term or condition of the Loan Documents should be construed
to deem the relationship between Borrower, the Borrower-Related Parties, and Lender to be other
than that of debtor and creditor relationship. Borrower shall at all times represent that the
relationship between Borrower, Borrower-Related Parties, and Lender is solely that of borrower,
obligated party, and lender. BORROWER AGREES TO DEFEND, INDEMNIFY, AND HOLD LENDER HARMLESS FROM
ANY COST, EXPENSE, OR LIABILITY INCURRED BY LENDER ARISING OUT OF ANY CLAIM THAT LENDER HAS ANY
OBLIGATION OR IS RESPONSIBLE FOR THE MANAGEMENT, OPERATION, OR CONDUCT OF THE BUSINESS AND AFFAIRS
OF BORROWER OR ANY BORROWER-RELATED PARTY OR AS A RESULT OF ANY CLAIM THAT LENDER HAS ANY
OBLIGATION OR IS RESPONSIBLE FOR THE PAYMENT OR PERFORMANCE OF ANY INDEBTEDNESS OR OBLIGATION OF
BORROWER OR ANY BORROWER-RELATED PARTY.

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

51

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

	 	 	 	 	 	 	 	 	 

	BORROWER:	 	BUFFINGTON SIGNATURE HOMES, LLC,	 	 
	 	 	a Texas limited liability company	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Buffington Homebuilding Group, Ltd.,	 	 
	 	 	 	 	a Texas limited partnership,	 	 
	 	 	Its:	 	Sole Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Buffington Homebuilding Group Management, LLC,	 	 
	 	 	
Its:	 	a Texas limited liability company,

General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:

Name:
	 	/s/ James M. Giddens
 

James M. Giddens
	 	 
	 

	 	 	 	Title:
	 	Chief Operating Officer	 	 

52

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for
all purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Buffington Homebuilding Group, Ltd., a Texas limited partnership, hereby executes this Agreement
for the sole purpose of acknowledging and agreeing to the representations, warranties, covenants
and agreements as same relate to it, specifically in its capacity as the Sole Member, and as a
Borrower-Related Party, under this Agreement.

	 	 	 	 	 	 	 	 	 

	 	 	BUFFINGTON HOMEBUILDING GROUP, LTD.,	 	 
	 	 	a Texas limited partnership	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Buffington Homebuilding Group Management, LLC,	 	 
	 	 	
Its:	 	a Texas limited liability company,

General Partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:

Name:
	 	/s/ James M. Giddens
 

James M. Giddens
	 	 
	 

	 	 	 	Title:
	 	Chief Operating Officer	 	 

53

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Buffington Homebuilding Group Management, LLC, a Texas limited liability company, hereby executes
this Agreement for the sole purpose of acknowledging and agreeing to the representations,
warranties, covenants and agreements as same relate to it, specifically in its capacity as Holdings
General Partner, and as a Borrower-Related Party, under this Agreement.

	 	 	 	 	 	 	 

	 	 	BUFFINGTON HOMEBUILDING GROUP MANAGEMENT, LLC,	 	 
	 	 	a Texas limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ James M. Giddens
 

James M. Giddens
	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

54

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Thomas Blake Buffington, Sr., an individual, hereby executes this Agreement for the sole purpose of
acknowledging and agreeing to the representations, warranties, covenants and agreements as same
relate to it, specifically in its capacity as a Guarantor and a Borrower-Related Party under this
Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ Thomas Blake Buffington, Sr.
 	 
	 	THOMAS BLAKE BUFFINGTON, SR. 	 
	 	 	 

55

 

	 	 	 	 	 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Patrick James Starley, an individual, hereby executes this Agreement for the sole purpose of
acknowledging and agreeing to the representations, warranties, covenants and agreements as same
relate to it, specifically in its capacity as a Guarantor and a Borrower-Related Party under this
Agreement.

	 	 	 	 	 
	 	 	 
	 	           /s/ Patrick Starley
 	 
	 	PATRICK JAMES STARLEY 	 
	 	 	 

56

 

	 	 	 	 	 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

James M. Giddens, an individual, hereby executes this Agreement for the sole purpose of
acknowledging and agreeing to the representations, warranties, covenants and agreements as same
relate to it, specifically in its capacity as a Guarantor and a Borrower-Related Party under this
Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ James M. Giddens
 	 
	 	JAMES M. GIDDENS 	 
	 	 	 

57

 

	 	 	 	 	 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Tim B. Agee, an individual, hereby executes this Agreement for the sole purpose of acknowledging
and agreeing to the representations, warranties, covenants and agreements as same relate to it,
specifically in its capacity as a Guarantor and a Borrower-Related Party under this Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ Tim B. Agee
 	 
	 	TIM B. AGEE 	 
	 	 	 

58

 

	 	 	 	 	 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

	 	 	 	 	 	 	 

	LENDER:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	UNITED DEVELOPMENT FUNDING IV	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ David Hanson
 

David Hanson
	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

59exv10w17

Exhibit 10.17

CONSTRUCTION LOAN AGREEMENT

     This Construction Loan Agreement is made and entered into effective as of this the
30th day of April, 2010 (the “Effective Date”) by and between UNITED DEVELOPMENT FUNDING
IV, a real estate investment trust organized under the laws of the State of Maryland (together with
its successors and assigns, “Lender”), and BUFFINGTON TEXAS CLASSIC HOMES, LLC, a Texas limited
liability company, successor-by-merger to Buffington Texas Classic Homes, Ltd., a Texas limited
partnership (“Borrower”).

RECITALS:

     A. Borrower has requested that Lender extend credit to Borrower as described in this
Agreement. Lender is willing to make such credit available to Borrower upon and subject to the
provisions, terms and conditions hereinafter set forth.

     B. Subject to and upon the terms and conditions of this Agreement, Lender has agreed to lend
to Borrower the amounts herein described for the purposes set forth below.

AGREEMENT:

     NOW, THEREFORE, in consideration of the premises, the covenants, representations, warranties
and agreements contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as
follows:

ARTICLE I

DEFINITIONS

     1.1 Certain Definitions. Certain capitalized terms which are defined in the text of
this Agreement shall have the respective meanings given to such terms herein. The following
initially capitalized or fully capitalized terms shall have the following meanings:

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

     “Advance” shall mean an advance by Lender under a Loan to or for the benefit of
Borrower including, without limitation, a Loan Advance or a Discretionary Advance.

     “Advance Conditions” has the meaning given to such term in Section 7.1.

     “Advance Request” means a request for Advance duly executed by a Principal Officer on
behalf of Borrower, appropriately completed and in the form of Exhibit “D” attached
hereto.

     “Affidavit of Commencement” has the meaning given to such term in Section 9.27.

     “Affidavit of Completion” has the meaning given to such term in Section 9.28.

     “Affiliate” shall mean an individual or legal entity that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under common control
with, another

 

 

Person. The term “Control” as utilized herein means the possession, directly or
indirectly, of the power to direct or cause direction of the management and policies of a
Person, whether through management, ownership, by contract, or otherwise; provided,
however, in no event shall any Lender be deemed an Affiliate of Borrower.

     “Agreement” means this Construction Loan Agreement together with all exhibits and
schedules hereto, as it may be amended, modified, renewed, extended, increased, superseded,
or replaced from time to time.

     “Appraisal” means an appraisal of a Home prepared by a third party appraiser reasonably
approved by Lender, which is reasonably acceptable to Lender in form and substance, and
which includes all possible construction upgrades that Borrower intends to make available
for the Home.

     “Approved Budget” means a budget that has been agreed to and accepted by Lender for the
acquisition of the Lot and the construction, marketing, administration, carrying and sale of
the Home on such Lot. Each Approved Budget must be in form and content acceptable to Lender
in Lender’s sole and absolute discretion and can only be amended with the written consent of
Lender.

     “Approved Purposes” means the use by Borrower of a Loan to acquire Lots that are
located in Approved Subdivisions and the construction, marketing, administration, carrying
and sale of Homes thereon for the purpose of ultimate resale to third parties. Borrower may
not acquire a Loan for the purpose of buying a Lot for inventory.

     “Approved Sales Contract” means a bona fide, legally binding, enforceable contract for
the sale of a Project, between Borrower, as seller, and a third party unrelated to Borrower,
as buyer, with respect to which an earnest money deposit has been delivered to Borrower, the
Title Company or a reputable title company reasonably acceptable to Lender in the amount of
the lesser of (1) three percent (3%) of the sales price of the Home, and (2) Five Hundred
and No/100 Dollars ($500.00), and with respect to which a Homeowner Financing Approval
Letter has been issued;

     “Approved Subdivision” means a residential subdivision located in Texas in which
Borrower is actively engaged in the construction of single-family residences and which is
otherwise acceptable to Lender in all respects, as determined by Lender in its sole
discretion.

     “Architect Agreement” means, collectively, (i) that certain Agreement:
Architectural Services and License between Kipp Flores Architects, L.L.C. and Borrower dated
as of February 8, 2008, and (ii) that certain Agreement, Architectural Services and License
dated August 28, 2007, as such agreements may be amended, modified, renewed, extended,
increased, superseded, or replaced from time to time.

     “Architect Consent” means a duly executed written consent of Kipp, Flores Architects,
L.L.C. to the assignment of the Architect Agreement to Lender, which is acceptable in form
and substance to Lender.

     “Assignment of Distributions” means that certain assignment of the Distributions of
Borrower, being executed and delivered to Lender by the Sole Member of Borrower to Lender
pursuant to the requirements hereof, which Assignment of Distributions is effective
automatically upon an Event of Default.

2

 

     “Available Liquidity” means, collectively, (i) cash, currency, and credit balances in
Deposit Accounts, and (ii) Temporary Certificates of Deposit.

     “Base Rate” means the lesser of (a) thirteen percent (13.0%) per annum, accrued monthly
and compounded annually, or (b) the Highest Lawful Rate.

     “Borrower” means Buffington Texas Classic Homes, LLC, a Texas limited liability
company, successor-by-merger to Buffington Texas Classic Homes, Ltd., a Texas limited
partnership.

     “Borrower-Related Parties” means, collectively, the Guarantors, the Sole Member,
Holdings General Partner and any other Person who becomes a guarantor of the Loans or the a
member or manager of the Borrower.

     “Buffington Land Event of Default” means any event of default occurring under the loan
documents evidencing a Buffington Land Loan (after giving effect to any applicable notice
and cure periods in such loan documents).

     “Buffington Land Loan” means a loan from a member of the UDF Group as the lender to
Buffington Land, Ltd., a Texas limited partnership, and/or any subsidiary of Buffington
Land, Ltd., as the borrower(s).

     “Business Day” means any day other than a Saturday, Sunday, or other day on which
Lender is closed for business.

     “Claims” shall have the meaning given to such term in Section 12.2.

     “Closing Deliveries” has the meaning given to such term in Section 6.1.

     “Collateral” means, collectively, all property, assets and rights in which a lien,
security interest, assignment, pledge or other encumbrance in favor of Lender is or has been
granted or arises or has arisen or may hereafter be granted or arise, under or in connection
with any Loan Document or otherwise, to secure payment of all or any part of the Debt or
performance of the Obligations. Without limitation of the foregoing, the term “Collateral”
includes, without limitation, the Projects and all “Mortgaged Property” as such term is
defined and used in the Deeds of Trust.

     “Commitment” means the obligation of Lender, subject to the terms and conditions of
this Agreement and the Loan Documents, to make the Loans to Borrower in an amount not to
exceed at any one time, in the aggregate, the Maximum Commitment.

     “Company Certificate” means a certificate certifying the existence, good standing,
formation and organizational documents, and authorizing resolutions, of a Person that is an
entity.

     “Completion Survey” means a survey of the Project dated after the completion of the
Home showing that the Home and other improvements on the Lot do not encroach on, across, or
into any property line, easement, building setback line, septic tank field, or other
restricted area, in form and content reasonably acceptable to Lender.

3

 

     “Compliance Certificate” means Lender’s form of compliance certificate duly completed
and executed by an officer of Borrower acting in such capacity, relating to the covenants
contained in Section 9.39, in the form attached hereto as Exhibit “G”.

     “Construction Contracts” has the meaning given to such term in Section 10.1.

     “Covenant Breach” has the meaning given to such term in Section 11.1(c).

     “Debt” means all debt (principal, interest or other) evidenced by the Notes and all
debt (principal, interest or other) to Lender incurred under or evidenced by the other Loan
Documents. The Debt includes interest and other obligations accruing or arising after
(a) commencement of any case under any bankruptcy or similar laws by or against Borrower or
any Borrower-Related Party or (b) the obligations of Borrower or any Borrower-Related Party
shall cease to exist by operation of law or for any other reason. The Debt also includes
all reasonable attorneys’ fees and any other reasonable expenses incurred by Lender in
enforcing any of the Loan Documents.

     “Deed of Trust” shall mean each Master Deed of Trust, Assignment of Leases and Rents,
Security Agreement, and Fixture Filing and each Short Form Deed of Trust recorded or to be
recorded in the real property records of the appropriate county of the state of Texas,
naming Borrower as the grantor and Lender as the grantee and beneficiary thereunder,
granting Lender a security interest in and creating a Lien on and against all or any of the
Property or any part or parcel thereof, or any one or more Lot(s) included in all or any of
the Property, subject only to Permitted Exceptions and being superior in priority and in
payment over all other Liens, as each may be amended, modified, renewed, extended,
increased, superseded, or replaced from time to time.

     “Default Rate” means the lesser of (a) eighteen percent (18.0%) per annum, accrued
monthly and compounded annually, or (b) the Highest Lawful Rate.

     “Deposit Account” means a demand, time, savings, and passbook or like account with a
United States depository institution insured by the Federal Deposit Insurance Corporation.

     “Discretionary Advance” has the meaning given to such term in Section 3.9.

     “Disposition” means any sale, lease, transfer, assignment, exchange or conveyance in
whole or in part.

     “Distribution” means all proceeds, products, cash, securities, dividends, increases,
distributions and profits received from or on the partnership interests in Borrower or
distributable to the partners of Borrowers, including distributions or payments in partial
or complete liquidation or redemption, or as a result of reclassifications, readjustments,
reorganizations or changes in the capital structure of Borrower.

     “Effective Date” means the 30th day of April, 2010.

     “Environmental Indemnity Agreement” shall mean that certain Environmental Indemnity
Agreement to be executed by Borrower and Guarantor in favor of Lender, pursuant to which,
among other things, Borrower and Guarantor agree to indemnify Lender from environmental
liabilities associated with the Property, as it may be amended, modified, renewed, extended,
increased, superseded, or replaced from time to time.

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     “Environmental Laws” means all statutes and ordinances of any Governmental Authority
having jurisdiction over all or any of the Property, in whole or in part, or any user or
occupant of all or any of the Property, in whole or in part, and relating to the protection
of human health and the environment, now existing or hereafter adopted, including without
limitation, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. § 9601, et seq.), the Solid Waste Disposal Act, as amended
(42 U.S.C. § 6901, et seq.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. § 1801, et seq.), the Clean Air Act, as amended (42 U.S.C. § 7401, et seq.), the
Federal Water Pollution Control Act, as amended (33 U.S.C. § 1251, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. § 2601, et seq.), the Safe Drinking Water Act,
as amended (42 U.S.C. § 300f, et seq.), the Atomic Energy Act, as amended (42 U.S.C. § 2014,
et seq.), the Federal Insecticide, Fungicide and Rodenticide Act, as amended (7 U.S.C. §
136, et seq.), the Oil Pollution Act of 1990, as amended (33 U.S.C. § 2701, et seq.), the
Emergency Planning and Community Right-to-Know Act of 1986, as amended (42 U.S.C. § 11001,
et seq.), the Occupational Safety and Health Act, as amended (29 U.S.C. § 651, et seq.), the
Endangered Species Act, the Texas Water Code, as amended, and the Texas Health and Safety
Code, as amended, and the regulations adopted and publications promulgated pursuant thereto.

     “Equity Interests” shall mean, collectively, all management rights, membership
interests, capital stock, equity interests, options, warrants, convertible securities, and
all other similar rights thereto, and shall include any and all rights to receive dividends,
distributions, capital accounts, cash flow, profits, surplus, liquidation distributions or
proceeds, sums due or owing as distributions of cash or property, whether or not such
distributions are in the nature of profits, reimbursements, repayments, return of capital,
return on capital, or fees.

     “Errors Agreement” means that certain errors and omissions agreement executed by
Borrower and the Borrower-Related Parties in favor of Lender dated as of the Effective Date.

     “Event of Default” has the meaning given to such term in Section 11.1.

     “Expense Cap” has the meaning given to such term in Section 2.2.

     “Extension” shall have the meaning given to such term in Section 3.12(a).

     “Financial Statement Certifications” means those certain certifications by the Borrower
and the Borrower-Related Parties attesting to the accuracy and completeness of their
financial statements and in the form of Exhibit “F” attached hereto.

     “Finished Lot” shall mean an unimproved (but fully developed) single-family residential
lot located in an Approved Subdivision having all necessary improvements, being eligible for
a housing building permit, and as to which the development work has been completed.

     “Foundation Survey” means prior to the foundation of a Home being poured, Borrower will
obtain a form set survey or other evidence reasonably acceptable to Lender, showing (i) the
location of the foundation form boards on the Lot, (ii) that the foundation form boards are
entirely within the property lines of the Lot, (iii) that the foundation form boards do not
encroach on, across, or into any easement, building setback line, septic tank field, or
other restricted area, (iv) that the foundation form boards are located in accordance with
the Plans and Specifications and the plot plan, (v) that the foundation form boards do not
violate any Legal Requirements, and (vi) no state of facts reasonably objectionable to
Lender.

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     “Good Accounting Practice” shall mean such accounting practice as, in the opinion of
independent certified public accountants satisfactory to Lender, conforms at the time to
generally accepted accounting principles or, with the express prior written consent of
Lender in any applicable case, cash basis of accounting or the federal income tax basis of
accounting, consistently applied. Each accounting term not defined in this Agreement shall
have the meaning given to it under Good Accounting Practice.

     “Governmental Authority” shall mean the United States, the State of Texas, the counties
where any or all of the Property, in whole or in part, is located, the city, if any, where
any or all of the Property, in whole or in part, is located, the district where any or all
of the Property, in whole or in part, is located, the Texas Commission for Environmental
Quality, the Texas Water Development Board, the Texas Water Quality Board, the Department of
Housing and Urban Development, the Environmental Protection Agency, any political
subdivision of any of the foregoing and any agency, department, commission, board, bureau,
court or instrumentality of any of them which now or hereafter has jurisdiction over Lender,
Borrower, any Borrower-Related Party, or any part of the Property.

     “Guarantor” means each of Thomas Blake Buffington Sr., James M. Giddens, Patrick James
Starley, Tim B. Agee and Buffington Homebuilding Group, Ltd. a Texas limited partnership.

     “Guaranty” means each of those certain joint and several Guaranty Agreements dated as
of the Effective Date executed by each Guarantor in favor of Lender, as each may be amended,
modified, renewed, superseded, or replaced from time to time.

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

     “Holdings General Partner” means Buffington Homebuilding Group Management, LLC, a Texas
limited liability company, which is the general partner of the Sole Member of Borrower.

     “Home” means a single family residence constructed or to be constructed by Borrower
upon a Lot; provided however, no more than one residence may be constructed on each Lot. As
the context requires, the term “Home” includes the Lot upon which it is located.

     “Homeowner Financing Approval Letter” means an approval letter from a reliable third
party lender that is reasonably acceptable to Lender and which provides that the buyer under
the Approved Sales Contract is approved (subject only to reasonable, ordinary and customary
exceptions and conditions that are reasonably acceptable to Lender) for a mortgage loan to
acquire the Home upon completion of the Home in accordance with the Approved Sales Contract.

     “Indebtedness” shall mean and include (a) all items which in accordance with Good
Accounting Practice would be included on the liability side of a balance sheet on the date
as of which indebtedness is to be determined (excluding capital stock, surplus, surplus
reserves and

6

 

deferred credits), (b) guaranties, endorsements and other contingent obligations in respect
of indebtedness of others, or any obligations to purchase or otherwise acquire any such
indebtedness of others, and (c) indebtedness secured by any mortgage, pledge, security
interest or lien existing on property owned subject to or burdened by such mortgage, pledge,
security interest or lien whether or not the indebtedness secured thereby shall have been
assumed; provided, however, that such term shall not mean or include any indebtedness for
which monies sufficient to fully pay and discharge such indebtedness (either on its stated
final maturity date or on such earlier date as such indebtedness may be duly called for
redemption and payment) are on deposit with a depositary, agency or trustee in trust for the
payment of such indebtedness.

     “Initial Loan Closing” means the first Loan Closing occurring on or after the Effective
Date.

     “Inventory Reports” has the meaning given to such term in Section 9.36.

     “Investor Letters of Credit” means letters of credit that Borrower’s limited partners
have caused to be issued on behalf of Borrower in accordance with the terms and conditions
of Borrower’s Organizational Agreement for the purpose of supporting Borrower Indebtedness.

     “Legal Requirements” means any law, ordinance, order, rule or regulation of a
Governmental Authority and any requirements, terms or conditions contained in any
restrictions or restrictive covenants affecting a Lot.

     “Lender” has the meaning given to such term in the introductory paragraph of this
Agreement.

     “Lender Representatives” has the meaning given to such term in Section 9.13.

     “Lender’s Inspector” means an inspector selected by Lender, in Lender’s sole
discretion.

     “Liabilities and Costs” has the meaning given to such term in Section 12.2.

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

     “Loan” and “Loans” have the meanings given to such terms in Section 3.1.

     “Loan Administration Fee” shall mean a $250 fee charged by the Loan Servicer in
consideration of administrative costs and expenses incurred by it in connection with each
Loan Closing.

     “Loan Advance” means any full or partial advance of a Loan made by Lender to or for the
benefit of Borrower.

     “Loan Closing” means the closing of a Loan.

     “Loan Conditions” has the meaning given to such term in Section 3.5.

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     “Loan Documents” means, collectively, together with all exhibits and schedules thereto:
this Agreement, the Notes, the Guaranty, the Deeds of Trust, the Environmental Indemnity
Agreement, the Assignment of Distributions, all Officer’s Certificates, all Loan Requests,
all Advance Requests, the Errors Agreement, the Architect Consent, all IRS tax disclosure
forms, the Company Certificates and all other documents, instruments, agreements,
assignments and certificates relating thereto, including, without limitation, any and all
loan or credit agreements, promissory note, deeds of trust, mortgages, pledge agreements,
financing statements, security agreements, assignments of rents, assignments of leases,
assignments of contracts, environmental indemnities, guaranties, contractor’s consent
agreements, lender’s title insurance policies, opinions of counsel, evidences of
authorization or incumbency, escrow instructions, and architect’s and/or engineer’s consent
agreements, letters of credit, each of which is to be executed (and acknowledged where
applicable) by Borrower, the Borrower-Related Parties and/or Lender (as and where
applicable) in connection with Lender making the Loan to Borrower, as the same may be
amended, modified, renewed, superseded, or replaced from time to time.

     “Loan Expenses” has the meaning given to such term in Section 2.1.

     “Loan Maturity Date” means, for each Loan, the date that is nine (9) months after the
date that the Loan closes; provided, however, that if an Extension is granted by Lender with
respect to such Loan, the Loan Maturity Date for such Loan shall be the ninetieth
(90th) day following the original Loan Maturity Date for such Loan. The Lender’s
records of the date of Loan Closing for each Loan and the Loan Maturity Date for such Loan
shall be conclusive evidence of the date of such Loan Closing and the Loan Maturity Date for
such Loan, absent manifest error.

     “Loan Quarter” means each quarterly period during the Term (prorated for partial
quarters) ending September 30, December 31, March 31, or June 30.

     “Loan Request” means a request for a Loan duly executed by a Principal Officer on
behalf of Borrower, appropriately completed and in the form of Exhibit “C” attached
hereto.

     “Loan Servicer” means UMTH Land Development, L.P., a Delaware limited partnership.

     “Lot” means a Finished Lot in an Approved Subdivision to be used by Borrower for
Approved Purposes and that is otherwise eligible for funding under a Loan as provided in
this Agreement.

     “Maximum Commitment” means the aggregate amount of up to U.S. Three Million Seven
Hundred Fifty Thousand and No/100 Dollars ($3,750,000.00).

     “Member Loans” means, collectively, loans from members or the managing member of
Borrower, or their Affiliates, made in accordance with the terms of the Organizational
Agreement of Borrower, which are subordinate both in payment and priority of Liens to the
Loan and the Loan Documents pursuant to a subordination agreement in favor of Lender binding
upon such Person.

     “Model Home” means a single family residence built or to be built by Borrower in an
Approved Subdivision for the purpose of marketing Borrower’s home inventory to prospective
purchasers and not for immediate sale, whether or not the construction thereof is financed
by Lender. For Model Homes financed by Lender hereunder, the term “Model Home” includes the
Lot upon which such Home is located.

8

 

     “New Lender” has the meaning given to such term in Section 9.4.

     “New Loan Documents” has the meaning given to such term in Section 9.4.

     “Note” means each Secured Promissory Note executed by Borrower to evidence a Loan, as
it may be amended, modified, renewed, extended, increased, superseded, or replaced from time
to time. The form of each Note shall be substantially in the form attached hereto as
Exhibit “A”.

     “Obligations” means any and all of the covenants, conditions, warranties,
representations and other obligations (other than to repay the Debt) made or undertaken by
Borrower or any Borrower-Related Party to Lender as set forth in the Loan Documents.

     “Officer’s Certificate” means a certificate executed by a Principal Officer certifying,
among other things, that (a) no Event of Default has occurred and is continuing under this
Agreement, (b) all representations and warranties made by Borrower and the Borrower-Related
Parties, respectively, in this Agreement and the other Loan Documents are true and correct
in all respects, and (c) Borrower and the Borrower-Related Parties have complied with and
performed, in all material respects, all covenants, conditions and agreements which are then
required by this Agreement and the other Loan Documents to have been complied with or
performed.

     “Operating Expenses” means the Borrower’s monthly recurring operating costs and
expenses (whether expensed or capitalized) including, without limitation, salaries, rent,
leased equipment, and other fixed costs which cannot be terminated by Borrower within sixty
(60) days. Two months of Operating Expenses have been determined by Borrower to be
$125,000.

     “Organizational Agreement” shall mean (a) in respect of a corporation, the Articles of
Incorporation certified to a current date by the Secretary of State in which such
corporation is incorporated and the Bylaws of a corporation certified to a current date as
true and correct by the secretary or assistant secretary of a corporation; (b) in respect of
a general partnership, a partnership agreement; (c) in respect of a joint venture, a joint
venture agreement; (d) in respect of a limited partnership, a partnership agreement and the
certificate of limited partnership certified to a current date by an appropriate
Governmental Authority of the state in which the limited partnership is organized; (e) in
respect of a trust, a trust agreement; and (f) in respect of a limited liability company,
the certificate of organization certified to a current date by the Secretary of State in
which such limited liability company is organized and the regulations of a limited liability
company certified to a current date as true and correct by the manager of a limited
liability company; and any and all future modifications thereof which are consented to by
Lender.

     “Origination Fee” means, for each Loan funded by Lender hereunder, a fee in an amount
equal to one-half of one percent (0.5%) of the Loan amount, to be paid to the Loan Servicer
at the Loan Closing for such Loan.

     “Other Contracts” has the meaning given to such term in Section 10.3.

     “Other Homes” has the meaning given to such term in Section 9.36.

     “Partial Release Amount” means the amount that must be paid to Lender for the release
of Lender’s Liens against a Lot as stated in the Deed of Trust for such Lot.

9

 

     “Permitted Exceptions” has the meaning given to such term in each Deed of Trust.

     “Person” means a corporation, limited liability company, general partnership, limited
partnership, trust, or other entity, or any individual.

     “Plans and Specifications” means the plans and specifications for each Home prepared by
Borrower or Borrower’s architect that have been approved by Lender and all applicable
Governmental Authorities and all amendments and modifications to the Plans and
Specifications that are subsequently approved in writing by Lender and applicable
Governmental Authorities.

     “Pre-Sold Home” means a Home which is the subject of an Approved Sales Contract.

     “Principal Officer” means Thomas Blake Buffington Sr., James M. Giddens and/or Patrick
James Starley.

     “Project” means Borrower’s acquisition of a Lot and construction of a Home thereon,
financed in part by a Loan.

     “Projected Cost Shortfall” means the amount of equity, if any, required to be funded by
Borrower towards the cost of a Project to fully complete the Project based on the Budget,
after taking into consideration the amount that Lender will fund towards the Project
calculated in accordance with Section 3.3 subject to the terms and conditions of
this Agreement.

     “Property” means all “Mortgaged Property” as such term is defined and used in the Deeds
of Trust.

     “Purchase Contracts” means all of Borrower’s right, title, and interest in, to, and
under (a) all contracts for the purchase and sale of any portion of a Lot or Home secured by
the Loans (including without limitation, Approved Sales Contracts), whether such Purchase
Contracts are now or at any time hereafter existing, (b) all amendments, renewals, and
extensions of the Purchase Contracts, (c) all payments, earnings, income, and profits
arising from the sale of any part of a Lot or Home or from the Purchase Contracts and all
other sums due or to become due pursuant to the Purchase Contracts, and (d) all earnest
money, security, letters of credit, or other deposits under any of the Purchase Contracts.

     “Reimbursement Contract” has the meaning given to such term in Section 9.23.

     “Released Party” has the meaning given to such term in Section 9.18.

     “Required Documents” means all documents described on Exhibit “B”, all of which
must be satisfactory to Lender in form and substance (however, to the extent that a Required
Document has been previously submitted to Lender in connection with a prior Loan or Advance
and such Required Document has not been subsequently modified, supplemented, or replaced,
then re-submittal of such Required Document is not required absent Lender’s specific request
therefor).

     “Retainage” means an amount equal to the aggregate of all amounts, if any, retained or
withheld by Borrower from its contractors pursuant to mechanic’s and materialman’s liens
laws or any similar laws of Texas.

10

 

     “Revolving Principal Balance” means the aggregate unpaid principal balance of the
outstanding Notes at the time in question.

     “Short Form Deed of Trust” means, for each Loan financed by Lender hereunder, a Short
Form Deed of Trust executed by Borrower, as the grantor thereunder for the benefit of
Lender, as the beneficiary thereunder, incorporating the terms and conditions of the
Lender’s Master Deed of Trust, Assignment of Leases and Rents, Security Agreement, and
Fixture Filing, which Short Form Deed of Trust is to be recorded in the Official Public
Records of the county in which the Lot is located at the closing of the related Loan. The
form of each Short Form Deed of Trust shall be in substantially the form attached hereto as
Exhibit “E”.

     “Sole Member” means Buffington Homebuilding Group, Ltd., a Texas limited partnership,
which is the sole member of Borrower.

     “Spec Home” means a single family residence constructed or to be constructed in an
Approved Subdivision which is not the subject of an Approved Sales Contract, whether or not
the construction thereof is funded by Lender, including a Model Home. With respect to Spec
Homes financed hereunder, the term “Spec Home” includes the Lot upon which such Home is
located.

     “Special Damages” has the meaning given to such term in Section 12.18.

     “Subdivision” shall mean all phases of a subdivision or addition in which a Project is
located.

     “Tangible Net Worth” means the sum of (x) the face value of Investor Letters of Credit,
plus (y) (1) the gross book value of Borrower’s assets determined in accordance with
Good Accounting Practice less (2) total liabilities determined in accordance with
Good Accounting Practice and including, without limitation, accrued and deferred income
taxes, and any reserves against assets.

     “Temporary Certificates of Deposit” shall mean certificates of deposit that (a) are
issued by a United States depository institution insured by the Federal Deposit Insurance
Corporation and (b) mature within sixty (60) days from the date of issuance thereof.

     “Term” means the period of time from the Effective Date through and including the one
(1) year anniversary of the Effective Date.

     “Termination Date” means October 28, 2010.

     “Title Binder” shall mean each Mortgagee Title Policy Binder on Interim Construction
Loan and all endorsements thereto requested by Lender, in the total amount of the applicable
Loan, issued in favor of Lender and naming Lender and its assigns as the proposed insured
mortgagee by the Title Company and committing to insure that title to the Property described
in the applicable Deed of Trust is vested in Borrower, free and clear of any Lien,
objection, exception or requirement other than the Permitted Exceptions, and that such Deed
of Trust creates a first lien on the Property, subject only to Permitted Exceptions and
committing to issue such endorsements as Lender may require, along with all extensions
required to keep such Title Binder in full force and effect, and if Lender believes at any
time there is or will be a dispute concerning the validity or priority of Lender’s Lien on
any Lot or Home, a mortgagee title insurance policy reasonably required by Lender.

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     “Title Commitment” means a commitment binding upon the Title Company to issue a Title
Binder to Lender meeting Lender’s requirements with respect thereto.

     “Title Company” means North American Title Company, Gracy Title Company, Alamo Title
Company or another title company acceptable to Lender in its sole discretion.

     “TM Armstrong Loan” means that certain $266,917.21 lot inventory loan made by TM
Armstrong, LLC to Borrower pursuant to the TM Armstrong Loan Documents.

     “TM Armstrong Loan Documents” means, collectively, that certain Commercial Loan
Agreement between TM Armstrong, LLC and Borrower dated on or about August 15, 2008 providing
for a $266,917.21 lot inventory loan to be provided by TM Armstrong, LLC to Borrower, and
all other agreements, instruments, mortgages, deeds of trust and other loan documents
entered into in connection therewith.

     “UDF Group” means, collectively, United Development Funding, L.P., a Delaware limited
partnership, United Development Funding III, L.P., a Delaware limited partnership, Lender,
and their respective Affiliates.

     “UMT Group” means , collectively, United Mortgage Trust, a real estate investment trust
organized under the laws of the state of Maryland, UMT Home Finance, L.P., a Delaware
limited partnership, and their respective Affiliates.

ARTICLE II

LOAN EXPENSES, FEES

     2.1 Loan Expenses. To the extent not prohibited by applicable law, Borrower will pay
all reasonable costs and expenses and reimburse Lender for any and all reasonable expenditures of
every character incurred or expended from time to time, regardless of whether an Event of Default
shall have occurred, in connection with any of the following (collectively, “Loan Expenses”):

     (a) the preparation, negotiation, documentation, closing, renewal, revision,
modification, increase, review or restructuring of any loan or credit facility represented
by or secured by the Loan Documents, including legal, accounting, auditing, architectural,
engineering, due diligence, title company, and inspection services and disbursements, and
other costs and expenses of Lender incurred in connection with the Loans, or in connection
with collecting or attempting to enforce or collect pursuant to any Loan Document;

     (b) Lender’s evaluating, monitoring, administering and protecting the Collateral or
employing others to do so or to perform due diligence for Lender with respect thereto; and

     (c) Lender’s creating, perfecting and realizing upon Lender’s security interest in, and
the Liens on, the Collateral, and all costs and expenses relating to Lender’s exercising any
of its rights and remedies under any Loan Document or at law, including all appraisal fees,
consulting fees, filing fees, taxes, brokerage fees and commissions, title review and
abstract fees, litigation report fees, UCC search fees, other fees and expenses incident to
title searches, reports and security interests, escrow fees, attorneys’ fees, legal
expenses, court costs, other fees and expenses incurred in connection with any complete or
partial liquidation of the Collateral, and all fees and expenses for any professional
services or any operations conducted in connection

12

 

therewith. Notwithstanding the foregoing, no right or option granted by Borrower to
Lender or otherwise arising pursuant to any provision of any Loan Document shall be deemed
to impose or admit a duty on Lender to supervise, monitor or control any aspect of the
character or condition of the Collateral or any operations conducted in connection with it
for the benefit of Borrower or any other Person other than Lender.

     2.2 Expense Cap. Lender agrees that Loan Expenses charged to Borrower shall not
exceed the aggregate sum of $30,000 annually (the “Expense Cap”); provided,
however, that the Expense Cap on Loan Expenses shall not apply (a) upon the occurrence and
during the continuance of any Event of Default, including, without limitation, to Loan Expenses
incurred in connection with collection efforts or exercise of Lender’s remedies under the Loan
Documents or otherwise, (b) to Loan Expenses incurred in connection with any amendment or
modification of the Loan Documents, including, without limitation, any workout or restructure of
this Agreement and the Loan Documents, (c) to Loan Expenses incurred in connection with the
drafting, negotiation and closing of this Agreement and the other Loan Documents, (d) to Loan
Expenses incurred in connection with Loan Closings, and (e) to costs incurred in connection with
any audit permitted by Section 9.13 of this Agreement or otherwise permitted by the Loan
Documents.

     2.3 Origination Fee. For each Loan funded by Lender hereunder, Borrower agrees to pay
the Origination Fee for such Loan to the Lender at on or prior to the Loan Closing for such Loan.
The Origination Fee for each Loan is fully earned and nonrefundable at the Loan Closing for such
Loan.

     2.4 Loan Administration Fee. Borrower agrees to pay a Loan Administration Fee to the
Loan Servicer at the Closing of each Loan. The Loan Administration Fee for each Loan is fully
earned at the Loan Closing. Upon Borrower’s request, the Loan Administration Fee for the
applicable Loan may be funded by Lender under the Loan at the Loan Closing and upon disbursement,
such amount shall automatically constitute principal outstanding under the Note evidencing such
Loan.

     2.5 Usury Savings Clause Applies. Borrower and the Borrower-Related Parties agree
that Lender has provided, and shall provide, separate and distinct consideration to Borrower for
the Loan Expenses, and any other fees, expenses or charges provided for in this Agreement or any
Loan Document and that the Loan Expenses and the Loan Administration Fee represent bona fide, third
party fees and expenses. Borrower, the Borrower-Related Parties and Lender further agree that the
Loan Expenses, the Loan Administration Fee and all other fees, expenses and charges provided for in
this Agreement or any Loan Document are not, are not intended to be, and shall not be characterized
as, interest or as compensation for the use, forbearance or detention of money. Despite the
foregoing and notwithstanding anything else in this Agreement and the other Loan Documents to the
contrary, if any Loan Expenses, Loan Administration Fees or other fees, expenses or charges
provided for in this Agreement or any Loan Document or charged or chargeable to Borrower are
determined to constitute interest that, when added to the interest charged under the Notes, would
cause the aggregate interest charged under the Notes to exceed the Highest Lawful Rate, then
Section 12.1 of this Agreement shall automatically apply to reduce the interest charged
under the Notes so as not to exceed the Highest Lawful Rate.

     2.6 Advance of Fees, Expenses and Charges. Loan Expenses, Loan Administration Fees
and other fees, expenses or charges may be advanced under a Loan if requested by Borrower and
approved by Lender, as determined by Lender in its sole discretion.

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ARTICLE III

LOANS

     3.1 Loans. Subject to and upon the terms, covenants, and conditions of this
Agreement, Lender agrees to make loans (hereinafter called, individually, a “Loan” and,
collectively, the “Loans”) to Borrower prior to the Termination Date for Approved Purposes in
connection with one or more Projects in an aggregate principal amount at any one time outstanding
up to but not exceeding the Maximum Commitment. Within the limit of the Maximum Commitment,
Borrower may borrow, repay, and reborrow at any time and from time to time from the Effective Date
to the earlier of (a) the Termination Date or (b) the termination of Lender’s Commitment hereunder.
NOTWITHSTANDING ANY PROVISION TO THE CONTRARY IN THE LOAN DOCUMENTS, ALL LOANS SHALL BE MADE ONLY
AT THE SOLE DISCRETION OF LENDER AND LENDER SHALL NOT BE OBLIGATED TO PROVIDE ANY PARTICULAR LOAN
AND/OR ACCOMMODATE ANY RENEWAL AND EXTENSION REQUEST RELATING TO ANY LOAN.

     3.2 Notes. Each Loan shall be evidenced by, and be repayable in accordance with, a
separate Note executed and delivered by Borrower to Lender at the Loan Closing for such Loan. Each
Note shall be issued and dated on a date on or after the Effective Date but before the Termination
Date and shall mature on or before nine (9) months from the date of such Note; provided,
however, that if an Extension is granted by Lender with respect to such Note, the Loan Maturity
Date for such Note shall be the ninetieth (90th) day following the original Loan
Maturity Date for such Note. Notwithstanding the termination of this Agreement, subject to the
terms and provisions of this Agreement, Lender will fund Advances under the Notes that do not
mature until after the Termination Date.

     3.3 Amount of Loan; Appraisals; Approved Subdivisions.

     (a) If Lender approves a Loan Request, Lender shall advance to Borrower, or for
Borrower’s benefit, the lesser of (i) eighty-five percent (85%) of the value of the
completed Projects described in the Loan Request, as determined by Lender in its sole
discretion, which value may be equal to or less than, but shall not exceed, the appraised
value of such completed Projects, in which event Borrower shall pay the Projected Cost
Shortfall, if any, towards the cost of the Projects at or prior to the first Loan Advance
after the Loan Closing, (ii) eighty-five percent (85%) of the sales price of the Projects as
defined in the Approved Sales Contract relating to such Projects, in which event Borrower
shall pay the Projected Cost Shortfall, if any, towards the cost of the Projects at or prior
to the first Loan Advance at the Loan Closing, or (iii) one hundred percent (100%) of the
cost of the Project set forth in the Approved Budget; provided, however, that the Revolving
Principal Balance shall not exceed the Maximum Commitment at any time. For example only and
not necessarily the numbers to be used in real transactions consummated hereunder: if a Home
appraises for $100,000 and Lender determines the value of the completed Project to be
$100,000, the sales price of the Project as defined in the Approved Sales Contract is
$100,000, and the cost of the Project as set forth in the Approved Budget is $90,000, then
(i) the maximum amount that Lender will fund towards the Project is $85,000, and (ii) the
Projected Cost Shortfall required to be funded by Borrower is $5,0000.

     (b) In each Approved Subdivision funded by Lender, Borrower shall obtain an Appraisal
for the Homes to be built in the Approved Subdivision based on the Plans and Specifications
of the Homes to be build in the Approved Subdivision that itemizes the various components of
upgrades to the Homes. An Appraisal of a particular Home to be constructed in an Approved
Subdivision shall be used as the Appraisal for other Homes in the same Approved Subdivision
that are to be built based on the same Plans and Specifications used to construct the Home
that was appraised; provided, however, such Appraisal shall be no more than twelve (12)
months old at the time a Loan is made to Borrower, otherwise a new Appraisal shall be made
for the type of Home in question. Notwithstanding the foregoing, a new Appraisal for a
Project may

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be required sooner than twelve (12) months in Lender’s sole discretion. Such new Appraisal
shall be at Borrower’s cost pursuant to Section 2.1(c).

     (c) Borrower may submit a residential subdivision to Lender for pre-approval as an
Approved Subdivision.

     3.4 Approval of Loans. Borrower shall provide to Lender a Loan Request for each
proposed Loan. Lender will not consider Loan Requests for principal amounts less than $75,000. In
connection with each such Loan Request, Borrower shall provide Lender with the Required Documents,
all of which must be satisfactory in form and content to Lender. The Loan Request will not be
considered by Lender unless and until the Loan Request and all Required Documents are submitted to
Lender. Loan Requests will be considered no more often than once per month. Each Loan Request and
all Required Documents must be received by Lender in order for the proposed Loan to be considered
for approval. Lender shall have ten (10) days (or the next Business Day following the tenth day,
if such date is not a Business Day) following the date that the fully completed Loan Request and
all Required Documents are delivered to Lender to determine whether Lender will approve or
disapprove the proposed Loan. Each proposed Loan may be approved or disapproved by Lender in its
sole discretion, for any reason or for no reason. Lender will notify Borrower as to whether the
proposed Loan is approved or disapproved.

     3.5 Conditions for Each Loan. No Loan shall be approved by Lender unless each of the
following conditions (“Loan Conditions”) is satisfied:

     (a) the representations and warranties made in this Agreement and the other Loan
Documents by Borrower and the Borrower-Related Parties and in all certificates and other
documents delivered pursuant thereto are true and correct at and as of the time the Loan is
to be made;

     (b) on the date of, and upon receipt of, the Loan, no Event of Default, and no event
which, with the lapse of time or notice or both, could become an Event of Default, shall
have occurred and be continuing;

     (c) the Loan will not contravene any applicable Governmental Requirement;

     (d) Lender has received a Loan Request for the Loan, as well as all Required Documents
in such form as Lender may reasonably request, and Lender has approved the Loan Request in
Lender’s sole discretion;

     (e) The Revolving Principal Balance prior to such Loan plus the amount of the requested
Loan will not exceed the Maximum Commitment in effect on the date of the requested Loan;

     (f) Lender has received evidence satisfactory to Lender that the Liens created by the
Loan Documents are, collectively, first and prior as to all of the Collateral;

     (g) Lender has received evidence satisfactory to Lender that Borrower’s equity
contribution to the Project as required by the Lender has been made or will be made
simultaneous with the subject Loan;

     (h) All proceeds of previous Loans shall have been spent or used only for Approved
Purposes;

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     (i) The proceeds of the Loan shall not be used to build Spec Homes or Model Homes that
would violate the limitation on number of Spec Homes and Model Homes in Section 3.6;
and

     (j) Borrower has paid Lender all Loan Expenses and other fees, charges and expenses
required to be paid by Borrower under the Loan Documents.

     3.6 Limitations on Number of Spec Homes and Model Homes. Notwithstanding whether Loan
proceeds are used to acquire or construct a Spec Home, the number of Spec Homes that are not Model
Homes (whether or not the construction thereof is financed by Lender) owned by Borrower in a
particular section, division, phase or other portion of an Approved Subdivision (as determined by
Lender) shall not exceed five (5). In addition, notwithstanding whether Loan proceeds are used to
acquire or construct a Model Home, the number of Model Homes (whether or not the construction
thereof is financed by Lender) owned by Borrower in a particular section, division, phase or other
portion of an Approved Subdivision (as determined by Lender) shall not exceed two (2). Borrower
further agrees that if a Spec Home is financed by Lender hereunder and purchased pursuant to an
Approved Sales Contract, then upon delivery to Lender of the Approved Sales Contract and such other
supporting documents and evidence satisfactory to Lender in its sole discretion, such Home shall no
longer be designated as a Spec Home and shall instead be designated as a standard Home. Borrower
further agrees that if any Approved Sales Contract with respect to a Project is terminated for any
reason or otherwise ceases to be a valid and binding obligation of the parties thereto for any
reason, then Borrower shall immediately inform Lender of such fact in writing and such Project
shall be deemed to be a Spec Home unless and until such Project becomes subject to a subsequent
Approved Sales Contract and Borrower has delivered to Lender the Approved Sales Contract and such
other supporting documents and evidence reasonably required by Lender.

     3.7 Advances. After a Loan is approved, Borrower shall apply for an Advance under
such Loan by providing Lender with an Advance Request under such Loan. Advance Requests will be
considered no more often than once per month. Each Advance Request and all required attachments
must be received by Lender by the fifteenth (15th) day of the month in order for the
proposed Advance to be considered for funding in that month. Provided that Borrower has fully
complied with all Advance Conditions required by Section 7.1 of this Agreement to Lender’s
satisfaction, Lender will fund the applicable Advance Request by the last day of the month in which
the Advance was requested or as soon thereafter as is reasonably practical; provided, however, that
if the Advance Request and all required attachments were not timely delivered to Lender on or
before the 15th of the month, then Lender may, in its sole discretion, fund the Advance
in the following month. At Lender’s option, all or any Advances shall be made by and through the
Title Company.

     3.8 No Obligation. Lender has no obligation to make a Loan Advance to Borrower under a
Loan until such time as such Loan is approved by Lender, in its sole and absolute discretion,
pursuant to the terms of this Agreement. Notwithstanding any provision to the contrary in any Loan
Document, once a Loan has been approved, Lender shall have no obligation to make any Advance under
any Loan, unless and until Borrower has fully complied with all Advance Conditions required by
Section 7.1 of this Agreement to Lender’s satisfaction.

     3.9 Discretionary Advances. During (a) the occurrence of an Event of Default or
(b) upon request by Borrower, Lender is authorized to make Advances under any Loan that Lender, in
its sole discretion, desires to fund at Borrower’s request or deems necessary or desirable to pay
any Loan Expense or other amount chargeable to Borrower pursuant to the terms of this Agreement or
any other Loan Document (an advance made for the foregoing purposes are referred to herein as a
“Discretionary Advance”). Each Discretionary Advance made under a Note shall, upon disbursement,
automatically

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constitute principal outstanding under such Note and shall cause a corresponding increase in the
aggregate outstanding principal amount of such Note (even if such Discretionary Advance causes the
aggregate amount outstanding under the Note to exceed the face amount of such Note or causes the
Revolving Principal Balance to exceed the Maximum Commitment). Borrower agrees that each
Discretionary Advance shall automatically reduce the amount of availability under the Maximum
Commitment. The making by Lender of any Discretionary Advance shall not cure or waive any Event of
Default (except only for an Event of Default that has been cured to Lender’s satisfaction as
confirmed by Lender’s execution of a written agreement specifically acknowledging and describing
the Event of Default so cured, or for an Event of Default that has been waived by Lender as
confirmed by Lender’s execution of a written agreement specifically acknowledging and describing
the Event of Default so waived).

     3.10 Maximum Commitment. Should the unpaid Revolving Principal Balance at any time
exceed the Maximum Commitment, Lender’s obligation to fund any Advances shall immediately cease.
After Lender notifies Borrower in writing of the deficiency, Borrower shall, within ten (10)
Business Days from and after the giving of such notice, prepay the Debt in an amount sufficient to
reduce the Revolving Principal Balance to an amount equal to or less than the Maximum Commitment.

     3.11 Termination Date. No Loan Requests will be considered by Lender after the
Termination Date.

     3.12. Extension of Notes.

     (a) Extension Request. Provided that no Event of Default has occurred (except
only for an Event of Default that has been cured to Lender’s satisfaction as confirmed by
Lender’s execution of a written agreement specifically acknowledging and describing the
Event of Default so cured, or for an Event of Default that has been waived by Lender as
confirmed by Lender’s execution of a written agreement specifically acknowledging and
describing the Event of Default so waived), upon satisfaction of the conditions precedent
set forth in Section 3.12(b) below, with respect to each Note issued by Borrower
under this Agreement, Lender agrees to a one-time extension of the Loan Maturity Date for
such Note for a period of ninety (90) days (the “Extension”) so that, if the Extension is
granted with respect to a Note, the Loan Maturity Date for such Note would be extended to,
and such Note shall become due and payable in full on, the ninetieth (90th) day
following the original Loan Maturity Date for such Note.

     (b) Conditions Precedent to Extension. Borrower shall not be entitled to an
Extension of the Loan Maturity Date for any Note unless Borrower and the Borrower-Related
Parties have complied in all respects with each of the following to Lender’s satisfaction
with respect to the Note for which the Extension is requested:

     (i) Borrower shall have executed and delivered to Lender a written request for
an Extension of such Note describing the reason for the request, the status of the
construction of the Home and the status of any sales contract for the Home;

     (ii) Borrower shall have paid an extension fee to Lender in an amount equal to
one quarter of one percent (0.25%) of the principal amount of such Note;

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

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     (iv) on and as of the date of the Extension, the Principal Officer shall have
executed and delivered to Lender an Officer’s Certificate dated the Extension date,
certifying all matters in the Officer’s Certificate to be true and correct in all
respects;

     (v) on and as of the date of the Extension, all of the Loan Documents shall be
valid, enforceable and in full force and effect;

     (vi) on and as of the date of any such Extension, all Loan Expenses and any
other fees, charges and expenses owed under any of the Loan Documents shall have
been paid in full;

     (vii) on and as of the date of the Extension, Lender’s security interests in
all Collateral must be duly perfected and in the Lien position stated therein; and

     (viii) Borrower and the Borrower-Related Parties shall have complied with each
other reasonable request of Lender made in connection with the Extension.

ARTICLE IV

INTEREST; LOAN PAYMENTS

     4.1 Interest Rate. Unless the Default Rate shall apply, interest shall accrue on the
principal balance from day to day outstanding under each Loan at a rate equal to the Base Rate.
Interest on the outstanding principal amount of each Loan shall be computed on the basis of a three
hundred sixty-five (365) day year and shall accrue on the actual number of days elapsed for any
whole or partial month in which interest is being calculated. Upon the occurrence and during the
continuation of an Event of Default, the outstanding principal amount of each Loan shall, at
Lender’s option, automatically and without the necessity of notice to Borrower, bear interest from
the date of such Event of Default at the Default Rate, unless and until all delinquent amounts are
paid and all Events of Default have been cured to Lender’s satisfaction as confirmed by Lender’s
execution of a written agreement specifically acknowledging and describing the Event of Default so
cured, and/or waived by Lender as confirmed by Lender’s execution of a written agreement
specifically acknowledging and describing the Event of Default so waived.

     4.2 Interest and Principal Payments. Except earlier upon any acceleration of the
Notes, the Loans shall be due and payable as follows:

     (a) on a monthly basis, Borrower promises to pay to Lender, Accrued Interest Payments
calculated on the outstanding principal balance of each Loan, which are due and payable
beginning on the last day of the month of the Loan Closing for such Loan, and continuing
monthly thereafter on the last day of each month for so long as such Loan is outstanding;

     (b) in addition to the payments required by the provisions of clause (a) above,
concurrently with each Disposition of one or more Project(s), Borrower promises to pay
Lender, the Partial Release Amount for the Project(s) released from Lender’s Lien thereon,
which is due and payable prior to Lender providing to Borrower (or releasing from escrow
with the Title Company) its partial release of Lien on such Project(s); and

     (c)
in addition to the payments required by the provisions of clauses (a) and
(b) above, for each Loan funded by Lender hereunder, Borrower promises to pay to
Lender, the full outstanding principal amount of such Loan and all accrued but unpaid
interest thereon on or prior

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to the earlier of (i) the Loan Maturity Date for such Loan, or (ii) if an Event of
Default occurs (after the running of any required notice and cure periods, but only if
applicable to the Event of Default in question), the date such Loan is declared by Lender to
be immediately due and payable.

     4.3 Order of Application. Except as otherwise provided in the Loan Documents, all
payments and prepayments of the Debt shall be applied to the Debt in the following order, any
instructions from Borrower to the contrary notwithstanding: (a) to Loan Expenses for which Lender
shall not have been reimbursed under the Loan Documents, (b) to all indemnified amounts due under
the Loan Documents; (c) to fees and charges (other than Loan Expenses) then owed Lender under the
Loan Documents, including, without limitation, including, without limitation, Loan Administration
Fees; (d) to accrued interest on the portion of the Indebtedness being paid or prepaid; (e) to the
portion of the principal being paid or prepaid; (f) to the remaining accrued interest on the Debt;
and (g) to the remaining principal of the Debt. Notwithstanding the foregoing sentence, if any
Event of Default occurs and is continuing, Lender shall have the right to apply payments as Lender
determines in its sole discretion.

     4.4 Payments. All amounts are payable to Lender in lawful money of the United States
of America at the address for Lender provided in or pursuant to Section 12.7 of this
Agreement. Payments shall be made in lawful money of the United States, without set-off, deduction
or counterclaim. Under no circumstance may Borrower offset any amount owing by Borrower to Lender
with an amount owed by Lender to Borrower under any arrangement. All payments shall be made in
cash or cash equivalents in 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 interest shall accrue and be payable for the period of such extension.
Each such payment must be received by Lender not later than 3:00 p.m., Bedford, 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 and interest shall accrue and be
payable for the interim period. Any payment, whether a regularly scheduled installment, a
prepayment or otherwise, shall be applied in the order of payment set forth in Section 4.3
of this Agreement. Borrower hereby agrees to accept Lender’s calculation of principal and interest
payable under the Notes absent mathematical error.

     4.5 Prepayment. Subject to the order of payment provisions of Section 4.3,
Borrower may prepay the Notes 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 outstanding
principal balance of any principal prepayment through the date of such prepayment.

ARTICLE V

LIENS; PARTIAL RELEASES

     5.1 Liens. In order to secure payment of the Debt and performance of the Obligations,
Borrower shall, at each Loan Closing, grant to Lender a Lien on each Project that is included in
the Loan Request for the applicable Loan by executing and delivering to Lender a Deed of Trust for
each such Project. Borrower further agrees to execute and deliver to Lender from time to time such
other Deeds of Trust and assignments and other similar documents covering the Collateral or any
part thereof to secure the payment of the Debt and the performance of the Obligations as Lender may
reasonably require. Borrower agrees to take all action and execute all documents necessary in
order for the Lien of Lender to be properly created and perfected for each Project. Each Project
shall secure all Debt and Obligations then existing and thereafter arising. Borrower hereby
authorizes the filing of any financing statement and all amendments thereto in favor of Lender to
secure the Loans.

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     5.2 Partial Release Amount. Borrower shall be entitled to obtain a partial release
from Lender’s Lien on one or more Project(s) covered by a Deed of Trust for the payment in cash to
Lender of the Partial Release Amount for such Project. Upon receipt by Lender of Borrower’s
request for a release under this Section 5.2, and upon Lender’s receipt of the Partial
Release Amount for the particular Project and Lien to be released, Lender, at Borrower’s expense,
will release its Lien against such Lot subject to, and in accordance with, the provisions of
Section 8.9 of the applicable Deed of Trust.

ARTICLE VI

CLOSING DELIVERIES

     6.1 Closing Deliveries. At or prior to the Initial Loan Closing, Borrower shall
deliver or cause to be delivered to Lender, all of the following items (collectively, the “Closing
Deliveries”), each of which shall be satisfactory in form and substance to Lender:

     (a) originals duly executed by Borrower and each Borrower-Related Party who is a
signatory thereto, of this Agreement, the Environmental Indemnity Agreement, the Assignment
of Distributions, the Guaranty, the error and omissions agreement, the Company Certificates
for Borrower, and each Borrower-Related Party that is an entity, and IRS tax disclosure
forms for Borrower and Guarantor;

     (b) the most recent financial statements of Borrower and Borrower-Related Party, in the
form specified in Section 9.7, and accompanied by the certification required by
Section 9.7;

     (c) a certified copy of the Organizational Agreements of Borrower and each
Borrower-Related Party that is an entity;

     (d) certificates of existence and good standing for Borrower and each Borrower-Related
Party that is an entity, issued by the appropriate state authorities;

     (e) resolutions of the board of directors, managers or other governing authority of
Borrower and each Borrower-Related Party that is an entity authorizing the execution,
delivery, and performance of this Agreement and the other Loan Documents, and the
transactions contemplated hereby and thereby, which resolutions shall include the
authorization of any one of the Principal Officers to request Loans and Advances under a
Loan on behalf of Borrower during the term of this Agreement;

     (f) copies of the liability insurance and casualty insurance policies covering
Borrower, evidence of payment of the premiums therefor through at least one year and
endorsements of such policies to Lender (in accordance with and meeting the requirements of
Section 9.15(a) hereof);

     (g) a duly executed Officer’s Certificate, dated as of the date of the Initial Loan
Closing;

     (h) all written consents that are required with respect to or necessitated by this
Agreement and the other Loan Documents and the transactions contemplated hereby and thereby
including, without limitation, the Architect Consent;

     (i) an opinion of counsel for Borrower and Borrower-Related Party and satisfactory in
all respects to Lender and its counsel containing customary opinions as to the validity and

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enforceability of the Loan Documents, the authority of Borrower and the Borrower-Related
Parties to enter into the Loan Documents, and an opinion that the Loan Documents do not
violate the usury laws of the State of Texas; and

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

     6.2 No Waiver. No waiver by Lender of the timely delay of any Closing Delivery will
constitute a waiver of any condition precedent to any obligation of Lender to make any Advance on
any Loan or to require delivery of any Closing Delivery prior to the funding of any Advance.

ARTICLE VII

ADVANCE CONDITIONS

     7.1 Conditions Precedent to Advances. Borrower agrees that, notwithstanding anything
to the contrary contained herein or in the other Loan Documents, Lender’s obligation to fund each
Advance shall be conditioned upon the satisfaction by Borrower of each of the following conditions,
on and as of the funding date for the applicable Advance (the “Advance Conditions”):

     (a) no event constituting a Buffington Land Event of Default under a Buffington Land
Loan shall have occurred and be continuing;

     (b) Lender (or the Title Company, acting at Lender’s direction) shall have received the
original Deed of Trust covering the Projects being funded by the Loan, duly executed by
Borrower for the benefit of Lender and Lender shall have received the original Note for the
Loan, duly executed by Borrower;

     (c) Lender shall have received all Required Documents relating to the Loan and all
Closing Deliveries required to be delivered to Lender as further described in Section
6.1;

     (d) Lender shall have received an Advance Request properly completed and duly executed
by a Principal Officer, accompanied by all required attachments;

     (e) the representations and warranties made in this Agreement and the other Loan
Documents by Borrower and the Borrower-Related Parties and in all certificates and other
documents delivered pursuant thereto, shall be true and correct in all material respects on
and as of the date of funding;

     (f) all of the covenants and agreements contained in this Agreement and the other Loan
Documents to be complied with and performed as of the date hereof by Borrower and the
Borrower-Related Parties have been duly complied with and performed on and as of the date of
funding;

     (g) no event constituting an Event of Default, shall have occurred and be continuing,
as determined by Lender pursuant to Section 11.1;

     (h) a Principal Officer shall have executed and delivered to Lender an Officer’s
Certificate dated the date of the Advance, and all matters certified in the Officer’s
Certificate shall be true and correct in all respects;

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     (i) on and as of the date of funding, all statements contained in all Loan Documents
and all other certificates, statements and data furnished to Lender by or on behalf of
Borrower or in connection with the transactions contemplated by this Agreement or any of the
other Loan Documents (including all of the documents and information required to be
delivered to Lender by Section 6.1 and Section 7.1) shall be true and
complete in all material respects, and there are no facts or events actually known to
Borrower that, if disclosed to Lender, would make such statements, certificates or date
untrue in any material respect;

     (j) the amount of the requested Advance, when added to the outstanding principal
amount of all Loans then outstanding, would not exceed the Maximum Commitment;

     (k) as of the date of any such Advance, all of the Loan Documents shall have been
executed and delivered, and shall be valid, enforceable and in full force and effect;

     (l) as of the date of any such Advance, all Loan Expenses and other fees, charges and
expenses owed under any of the Loan Documents as of the date of the requested Advance shall
have been paid in full (or Lender shall have agreed to fund such Loan Expenses, fees,
charges and expenses out of the proceeds of such Advance);

     (m) as of the date of any such Advance, Lender’s security interests in all Collateral
shall be duly perfected and in the Lien position stated therein;

     (n) the title agent shall have delivered to Lender the Title Company’s Title Binder to
the Lender pursuant to a Title Commitment, in form and content satisfactory to Lender,
wherein the Title Company agrees to provide a Title Policy covering the Lots being funded by
such Advance to Lender, obtained at Borrower’ expense;

     (o) Borrower and the Borrower-Related Parties shall have complied with each other
reasonable request of Lender made in connection with the then-requested Advance that Lender
determines is reasonably related to such Advance;

     (p) the Project has not been destroyed or materially damaged by fire or other casualty;

     (q) the Project is not the subject of a condemnation proceeding or litigation;

     (r) the building pad site for the Home is not located in flood zone A or V unless
Lender gives its advance written consent thereto, which may be withheld for any reason in
Lender’s sole and absolute discretion;

     (s) if requested by Lender, Borrower will also do the following: (i) deliver copies of
recorded Affidavits of Commencement to Lender and the Title Company; (ii) deliver updated
Title Binder to Lender showing title to the Lot or Home to be vested in Borrower and no
stated facts objectionable to Lender, including without limitation, mechanic’s liens filings
for unpaid bills for labor or materials; (iii) furnish Lender and Title Company with a list
of the names and addresses of all contractors, subcontractors, laborers, and suppliers who
have furnished labor or materials for any Home; (iv) furnish Lender and Title Company with
copies of the contracts, bills of sale, receipted vouchers, and agreements under which
Borrower claims title to the materials, articles, fixtures, and other personal property used
or to be used in the construction or operation of any Home; and/or (v) furnish Lender and
Title Company with lien waivers or lien subordination agreements from all contractors,
subcontractors, laborers, or suppliers, who have

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furnished labor, services or material for any Home certifying that they have been fully paid
for all labor, services and material furnished by them through the date of the immediately
prior Advance Request;

     (t) Lender and Title Company have received a report from Lender’s Inspector indicating
(i) whether the Approved Budget is sufficient to complete the Project in substantial
accordance with the Plans and Specifications and if not, specifying the amount in excess of
the Approved Budget which is necessary to complete the Project in substantial accordance
with the Plans and Specifications, which amount Borrower shall, at Lender’s request, place
in escrow with Title Company to be released to Borrower upon Lender’s unilateral request
therefor; provided, that upon Borrower’s request to Lender for release of such funds, if no
Event of Default has occurred and is continuing, Lender will request the Title Company to
release the funds to Borrower upon completion of the Project; and further provided,
that Borrower agrees that the released funds will be used solely for the purpose of paying
Project costs unless all Project costs have been paid in full, (ii) the progress of the work
on such Home, (iii) the conformity of the work with the Plans and Specifications, (iv) the
sufficiency of the Loan proceeds to fund the work remaining to be completed on such Home,
(v) whether the work can be completed in a timely manner, (vi) the Plans and Specifications
are in compliance in all material respects with all applicable legal Requirements for the
full completion of the Project, and (vii) any other matters that Lender reasonably requests
to be reviewed by Lender’s Inspector;

     (u) Lender shall have received sales and marketing reports reasonably requested by
Lender;

     (v) Lender and Title Company shall have received a Foundation Survey upon completion of
the foundation of each Home to be reviewed and approved prior to subsequent Advances for
work performed after completion of the foundation, and a Completion Survey upon the
completion of the Home to be reviewed and approved prior to the final Advance in connection
with such Home;

     (w) the use of proceeds of such Advance will comply in all respects with Section
7.4;

     (x) if the Advance is a first Loan Advance after the related Loan Closing and a
Projected Cash Shortfall exists, Borrower shall pay the Projected Cash Shortfall at the time
of the Loan Advance or provide Lender evidence that the Projected Cash Shortfall has been
paid prior to the Loan Advance; and

     (y) Borrower shall have obtained all necessary permits to construct the Home on the Lot
(including, without limitation, the building permit, if any) and shall have paid all taxes
and fees to applicable Governmental Authorities (including, without limitation, all
permitting and impact fees, if any) and to any homeowner association that are due prior to
the date of the Advance.

     7.2 Advance Not A Waiver. No Advance will constitute a waiver of any condition
precedent to any obligation of Lender to make any further Advances or preclude Lender from
thereafter declaring the failure of Borrower to satisfy the condition precedent to be an Event of
Default.

     7.3 Conditions for Benefit of Lender. All conditions precedent to the obligation of
Lender to make any Advance are imposed solely for the benefit of Lender and may be waived in by
Lender in writing only as to one or more Advances in Lender’s sole and absolute discretion without
waiving them as to others, and no other party may require satisfaction of any condition precedent
or be entitled to

23

 

assume that Lender will refuse to make any Advance in the absence of strict compliance with
these conditions precedent. All requirements of this Agreement may be waived by Lender in writing
only, in whole or in part, at any time. Borrower shall have no right to rely on any investigations,
inspections, or reviews preformed by Lender pursuant to the terms of this Agreement or any other
procedures employed by Lender under the terms of this Agreement. All such investigations,
inspections, or reviews preformed by Lender pursuant to the terms of this Agreement or any other
procedures employed by Lender under the terms of this Agreement are solely for the Lender’s own
protection. Borrower acknowledges and agrees that Borrower has sole responsibility for constructing
the Homes and paying for work done and materials furnished in their construction and that Borrower
has solely, on Borrower’s own behalf, selected or approved each contractor, each subcontractor,
each materialman, and each supplier and that Lender has no responsibility for any such persons or
entities or for the quality of their materials or workmanship.

     7.4 Limitations on Advances. Lender will only make Advances for the acquisition of
Lots and other costs and expenses specified in the Approved Budget, and then only (i) in the case
of soft costs payable to Affiliates of Borrower, for those soft costs that are specifically
approved by Lender, (ii) in the case of soft costs payable to Persons other than Affiliates of
Borrower, for work performed, services rendered or materials furnished, and (iii) in the case of
hard costs, for work performed, services rendered or materials furnished. Advances for payment of
construction costs will only be made after actual commencement of construction of the Home and may
not exceed the aggregate of (a) the costs of labor, materials and services incorporated into the
Project in a manner acceptable to Lender not to exceed the Approved Budget, plus (b) if approved by
Lender, the purchase price of uninstalled materials to be used in the construction of the Home that
are stored on the Lot or in the Home not to exceed the Approved Budget, or elsewhere with the
written consent of and in a manner acceptable to Lender, and less (c) any Retainage, if applicable,
and less (d) all prior Advances for payment of costs of labor, materials and services for the
construction of the Home. Lender shall have no obligation: (i) to make any Advance for a line item
in excess of the sums for such line item in the Approved Budget, (ii) to consider an Advance
Request unless and until Borrower has complied with this Agreement, and (iii) to make any Advance
which would cause the aggregate of all Advances to be greater than the amount of the Maximum
Commitment. If the aggregate amount of Advances for any Home is insufficient to pay for all labor
and materials necessary to complete the construction of the Home, Borrower shall pay all excess
costs immediately with funds from sources other than the Loan.

     7.5 Direct Payment to Contractors and Others. After the occurrence of an Event of
Default, Lender shall have the right, but not the obligation, to pay any amount of any Advance
directly to any contractor, Title Company, any design professional or other Person instead of
advancing that money to Borrower, and will notify Borrower in advance and in writing when it has
exercised that election on each occasion it does. Any Advance by Lender for such purpose shall be
part of the Loan and shall be secured by the Loan Documents. Borrower hereby authorizes Lender to
hold, use, disburse, and apply each Loan for payment of costs of construction of the improvements
after an Event of Default, expenses incident to such Loan and the Lot or Home, and the payment or
performance of any obligation of Borrower hereunder, including, without limitation, interest on the
Loans, any reasonable Loan fees owing to Lender, reasonable legal fees of Lender’s attorneys which
are payable by Borrower, and such other reasonable sums as may be owing from time to time by
Borrower to Lender with respect to the Loan. No further direction or authorization from Borrower
shall be necessary to warrant such direct Advances and all such Advances shall satisfy pro
tanto the obligations of Lender hereunder and shall be secured by the Loan Documents as
fully as if made directly to Borrower. Notwithstanding the other provisions of this paragraph,
nothing in this Agreement is intended to be for the benefit of, nor may be enforced by, nor should
be relied upon by, any Person other than Borrower.

     7.6 Retainage. If Borrower withholds Retainage with regard to any contractor engaged
in work on a Home, Lender shall not be obligated to advance the amount reserved as Retainage by
Borrower

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unless Lender shall have received evidence that either (i) Borrower is releasing the Retainage
to the contractor or (ii) all work with respect to such Project is complete.

     7.7 Off-site Materials. Lender shall not be obligated to approve, and Lender shall
not be obligated to fund, any Advance covering in whole or in part any equipment or materials not
stored at the Project without the prior approval of Lender, which approval shall be in Lender’s
sole discretion.

ARTICLE VIII

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into this Agreement and make each Loan and Advance, Borrower and
each Borrower-Related Party (where applicable below) represents and warrants to Lender, as of the
date of this Agreement and as of the date of each Loan Closing and Advance, that:

     8.1 Due Organization, Existence and Authority. Borrower and each Borrower-Related
Party that is an entity (a) is duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and (b) has full power and authority to own its properties,
carry on its business as presently conducted and as proposed to be conducted, and to enter into and
perform its Obligations under this Agreement and the other Loan Documents to which it is a party.

     8.2 Loan Documents Authorized. The execution and delivery by Borrower and the
Borrower-Related Parties of this Agreement and the other Loan Documents to which they are parties,
and the full and timely payment of the Debt and the performance of all Obligations under the Loan
Documents, have been duly authorized by all necessary action under the Organizational Agreement of
Borrower, the Organizational Agreement of each Borrower-Related Party, and otherwise.

     8.3 Loan Documents Valid, Binding and Enforceable. This Agreement and the other Loan
Documents have been duly and validly executed, issued and delivered by Borrower and the
Borrower-Related Parties and constitute the valid and legally binding obligations of Borrower and
the Borrower-Related Parties, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency, reorganization or other similar laws relating to or affecting
enforcement of creditor’s rights.

     8.4 Other Agreements Not Violated. Compliance by Borrower and the Borrower-Related
Parties with this Agreement and the Loan Documents will not violate any law, the Organizational
Agreement of Borrower, the Organizational Agreement of any Borrower-Related Party or any other
instrument or agreement binding upon Borrower or any Borrower-Related Party.

     8.5 Suits. There are no actions, suits or proceedings pending, or to the knowledge of
Borrower or any Borrower-Related Party, threatened, against or affecting Borrower or any
Borrower-Related Party, any Collateral, or any of the Property or involving the validity or
enforceability of the Loan Documents or the priority of the Liens created or evidenced thereby at
law or in equity, or before or by any Governmental Authority.

     8.6 Financial Statements, Loan Requests and Advance Requests Complete and Accurate.
All information supplied and statements made to Lender by or on behalf of Borrower or any
Borrower-Related Party in any financial statement, Loan Request, or Advance Request furnished or
application for credit made prior to, contemporaneously with or subsequent to the execution of this
Agreement are and shall be true, correct, complete, valid and genuine; such financial statements,
Loan Requests, Advance Requests and applications for credit have been prepared in accordance with
Good Accounting Practice and fully and accurately present the financial condition of the subject
thereof as of the date thereof and no

25

 

material adverse change has occurred in the financial condition reflected therein since the
respective dates thereof; and no additional borrowings have been made by Borrower or any
Borrower-Related Party since the respective dates thereof other than (a) the Debt, (b) with respect
to Borrower-Related Parties, borrowings disclosed to Lender to the extent required pursuant to the
Loan Documents, (c) other borrowings from Lender, other members of the UDF Group, or members of the
UMT Group, or (d) the TM Armstrong Loan or (e) other borrowings approved by Lender’s prior written
consent.

     8.7 Environmental Liability. To the current, actual knowledge of Borrower and the
Borrower-Related Parties, no hazardous substances or solid wastes have been disposed of or
otherwise released on the Property in violation of Environmental Laws, nor to the current, actual
knowledge of Borrower, is the Property including the Property’s soil, ground, water, air and other
elements, contaminated by hazardous substances or solid wastes in violation of Environmental Laws
except as set forth in a Phase 1 Environmental Report dated on or before the Effective Date and
certified to Lender (provided, that such certification may be obtained and provided to Lender
within sixty (60) days following the Effective Date). The terms “hazardous substance” and release”
shall have the meanings specified in the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601 et. seq.) (“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 (42 U.S.C. Section 6901 et. seq.) (“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.

     8.8 Tax Liabilities. Borrower and each Borrower-Related Party has filed all tax
returns required to be filed, or has obtained an extension which is currently valid and in effect,
for all federal, state, county, local, and foreign tax returns and reports required to be filed,
including, without limitation, taxes on the Collateral and all applicable income, payroll, personal
property, real property, employee withholding, social security, unemployment, franchise, excise,
use and sales taxes. Borrower and each Borrower-Related Party have paid in full all taxes that
have become due as reflected on all such returns and reports including any interest and penalties,
expect for taxes being contested in good faith and for which such taxpayer has set aside adequate
reserves for the payment thereof. Borrower and each Borrower-Related Party have 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 or any Borrower-Related Party’s
knowledge, threatened against Borrower or any Borrower-Related Party.

     8.9 Compliance With Legal Requirements. Borrower is in substantial compliance with
all Legal Requirements in respect of the conduct of its business and the ownership of its assets.
Borrower owns or will obtain the continuing right to use all permits, licenses, patents, patent
rights or licenses, trademarks, trademark rights, trade names, trade name rights and copyrights
which are required to conduct its business.

     8.10 Full Disclosure. None of the representations, warranties, covenants, agreements
or statements contained in any Loan Document or any exhibit, report, statement or certificate
furnished to Lender by or on behalf of Borrower or any Borrower-Related Party in connection with
the Loan contains or will contain any untrue statement of a material fact, or omits or will omit
any material fact required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading.

     8.11 No Known Material Adverse Fact. Borrower and the Borrower-Related Parties know
of no fact which materially and adversely affects the business, operations, prospects or condition,
financial or otherwise, of Borrower or any Borrower-Related Party.

26

 

     8.12 Survival of Representations and Warranties. All representations and warranties
made by or on behalf of Borrower or any Borrower-Related Party herein or in any other Loan Document
shall survive the delivery of this Agreement and the making of the Loan and any investigation at
any time made by or on behalf of Lender shall not diminish its rights to rely thereon.

     8.13 Statements Are Representations. All statements contained in a Loan Document by
or on behalf of Borrower, any Borrower-Related Party or any of their representatives or officers
under or pursuant to this Agreement and the other Loan Documents in connection with the
transactions contemplated hereby shall constitute representations and warranties.

     8.14 Property and Lots. Borrower will have good and indefeasible fee simple title to
the Property and each Lot, free and clear of any Liens except the Permitted Exceptions.

     8.15 No Work Performed. No labor or services will be performed on, and no materials
will be furnished or delivered to, any Lot by or on behalf of Borrower prior to recording the Deed
of Trust covering that Lot, which could give rise to a Lien on the Lot with priority equal to or
greater than the Liens and security interests of the Deed of Trust or other Loan Documents. No
contracts (or memorandum or affidavit thereof) for the supplying of labor, materials, or services
for the construction of improvements on a Lot shall have been recorded in the mechanic’s lien or
other appropriate records in the county where the Lot is located.

     8.16 No Partnership, Joint Venture or Agency Intended. Nothing in this Agreement or
the other Loan Documents is intended or shall in any way be construed so as to create any form of
partnership, joint venture or agency relationship between the Borrower and the Borrower-Related
Parties, on the one hand, and the Lender, on the other hand, the parties hereto having expressly
disclaimed any intention of any kind to create any partnership or agency relationship between them
resulting from or arising out of the Loan Documents.

     8.17 Plans and Specifications. To the actual knowledge of Borrower, the Plans and
Specifications comply with all Governmental Requirements. To the extent required by applicable law
or applicable restrictive covenants pertaining to the Lot, the Plans and Specifications have been
approved by the applicable Governmental Authorities and the architectural control committee or
other persons empowered to do so by any restrictive covenants.

     8.18 Utility Services. To the actual knowledge of Borrower, all applicable utility
services (including without limitation, potable water storm and sanitary sewer facilities, gas,
electric, and telephone facilities) necessary for the construction of a Home and its operation as a
single family residence are, or will be prior to completion of the Home, available at the
boundaries of each Lot in adequate sizes and capacities and that Borrower has the right to connect
each Home to such utility services.

     8.19 Access. To the actual knowledge of Borrower, all roads necessary for the full
utilization of the Lot for its intended purposes have been, or will be before completion of the
Home, completed and have been, or will be before completion of the Home, accepted by the
appropriate Governmental Authority.

     8.20 Disclaimer of Permanent Financing. Lender has not made any representations,
warranties, guarantees, commitments, or other agreements of any kind whatsoever, either express or
implied, that Lender, any subsidiary of Lender, or any other party affiliated with Lender will
extend the

27

 

term of any Loan past its stated maturity date or provide permanent financing for Borrower or any
person purchasing any Home from Borrower.

     8.21 Interstate Land Sales Act. Borrower’s development of the Lot and the sale of
each Home by Borrower are exempt from registration under and any requirements of the Interstate
Land Sales Full Disclosure Act and the regulations promulgated pursuant to it.

ARTICLE IX

COVENANTS AND AGREEMENTS

     So long as Lender is committed to make Loans hereunder, and thereafter until payment and
performance in full of the Indebtedness and Obligations, Borrower covenants and agrees that:

     9.1 Payment; Performance. Borrower shall promptly pay all Debt when due or declared
due pursuant to this Agreement and the Loan Documents. Borrower shall perform and comply with all
of its Obligations under this Agreement and the other Loan Documents.

     9.2 Use of Proceeds. Borrower shall use the proceeds of this Agreement solely for the
benefit of Borrower. In no event shall the proceeds of this Agreement be used, directly or
indirectly, 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). Borrower agrees that the purpose of the Loans is, and that the proceeds of the Loans will
only be used, for Approved Purposes.

     9.3 Indebtedness to be Paid. Borrower will pay punctually and discharge when due, or
renew or extend, any Indebtedness incurred by it and will discharge, perform and observe the
covenants, provisions and conditions to be performed, discharged and observed on the part of
Borrower in connection therewith, or in connection with any agreement or other instrument relating
thereto or in connection with any Lien existing at any time upon any of the property or assets of
Borrower; provided, however, that nothing contained in this Section shall require Borrower to pay,
discharge, renew or extend any such Indebtedness or to discharge, perform or observe any such
covenants, provisions and conditions so long as such Person in good faith shall be actively
contesting any claims which may be asserted against it with respect to any such Indebtedness or any
such covenants, provisions and conditions and shall set aside on its books reserves with respect
thereto deemed adequate by Lender.

     9.4 Limitation of Indebtedness. Excluding the Debt, the TM Armstrong Loan, loans from
members of the UDF Group, loans from members of the UMT Group, Member Loans and Indebtedness for
borrowed money described on Schedule 9.4, Borrower shall not incur any borrowed money
obligation, guaranty or provide security for any Indebtedness of another Person or enter into or
issue any agreement providing for Borrower to incur or guaranty Indebtedness for borrowed money
without the prior written consent of Lender, which may be withheld for any reason or no reason.
Notwithstanding the foregoing, Borrower may incur ordinary trade debt to vendors, and suppliers and
providers of services without violation of this Section 9.4. Borrower shall give Lender
prior written notice of any proposed Indebtedness for borrowed money and Lender shall inform
Borrower in writing of whether it approves or disapproves such proposed Indebtedness for borrowed
money within ten (10) days after receipt of Borrower’s written notice. If Lender consents to
Borrower incurring or guaranteeing any Indebtedness for borrowed money, as a condition of Lender
granting such consent, Borrower and the other lender (“New Lender”) shall, unless otherwise agreed
by Lender in writing, enter into a written agreement with Lender, which shall be satisfactory to
Lender in all respects, providing that (a) the priority of the payment of the Debt always shall be
superior to the priority of the payment of such other Indebtedness for

28

 

borrowed money, (b) no Liens securing such Indebtedness for borrowed money shall be placed on the
assets of Borrower or the Property or on the economic or legal interests in Borrower without
Lender’s express prior written consent, which may be withheld for any reason or for no reason, (c)
the priority of Lender’s Liens and security interest against the Property and the assets of
Borrower always shall be superior to the priority of any Liens or security interests, if any, in
favor of the New Lender, (d) Lender shall be given written notice by the New Lender of any material
default or event of default occurring under the loan documents evidencing Indebtedness owed to the
New Lender (“New Loan Documents”), (e) upon any Event of Default under this Agreement or upon any
default or event of default under the New Loan Documents, Lender shall have the right, but not the
obligation, to cure the default thereunder prior to acceleration and/or, at Lender’s alternative,
to purchase the New Loan Documents and the Indebtedness evidenced thereby upon terms satisfactory
to Lender, and (f) the terms of the New Loan Documents providing for the principal amount of the
Indebtedness evidenced by such New Loan Documents, the interest rate and charges, and the payment
terms (including payment dates, payment amounts, and the maturity date for payment of principal and
interest, the amount of proceeds to be paid for release or partial release of any Lien) and all
other provisions of such New Loan Documents shall be acceptable to Lender and shall not be
materially modified without Lender’s prior written consent. Borrower agrees that it shall not
enter into any agreement, or permit Borrower-Related Party to enter into any agreement, that is
inconsistent with or would cause Borrower to violate the provisions of this Section 9.4.
Notwithstanding the foregoing, Lender acknowledges and agrees that its execution of an
intercreditor agreement with a New Lender shall be deemed to be Lender’s written consent to any
variance contained in such intercreditor agreement from the requirements of this
Section 9.4.

     9.5 Termination of Existence. Until Lender’s obligations hereunder have terminated
and the Debt is paid in full, Borrower shall not cause or permit, or enter into any agreement to
cause or permit, the dissolution or termination of the existence of Borrower. Until Lender’s
obligations hereunder have terminated and the Debt is paid in full, without Lender’s prior written
consent, Borrower shall not permit or enter into any agreement to cause or permit, the merger,
consolidation, or reorganization of Borrower with or into any other entity, whether or not such
party would be the surviving entity.

     9.6 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, (a) a material adverse effect on the operations or financial condition of Borrower, the
Property or the Collateral, (b) the occurrence of any Event of Default under this Agreement or any
“event of default” or “default” under any other Loan Document, or (c) any material default by
Borrower or a Borrower-Related Party or the acceleration of the maturity of any Indebtedness owed
by Borrower or a Borrower-Related Party under any loan agreement, indenture, mortgage, promissory
note, contract, guaranty or instrument to which Borrower or any Borrower-Related Party is a party
or by which any material asset or property of Borrower or any Borrower-Related Party is bound. In
addition, Borrower agrees to notify Lender in writing at least twenty (20) Business Days prior to
the date that Borrower or any Borrower-Related Party changes its name or address, the location of
its chief executive office or principal place of business, and the place where it keeps its books
and records.

     9.7 Financial Statements; Tax Returns. Borrower shall deliver or cause to be
delivered to Lender, the following (all financial statements provided to Lender shall be certified
as to accuracy and completeness by the senior financial officer of Borrower):

     (a) within thirty (30) days after the end of each month, the unaudited financial
statements of Borrower for such month, prepared in accordance with Good Accounting Practice,
and combined or consolidated as appropriate, including all notes related thereto,
accompanied by a duly executed Financial Statement Certification and a duly completed and
executed Compliance Certificate;

29

 

     (b) within sixty (60) days after the end of each fiscal quarter, the unaudited
financial statements of Borrower for such fiscal quarter, prepared in accordance with Good
Accounting Practice, and combined or consolidated as appropriate, including all notes
related thereto, accompanied by a duly executed Financial Statement Certification;

     (c) within one hundred twenty (120) days after the end of each fiscal year, the
reviewed financial statements of Borrower for such fiscal year, prepared in accordance with
Good Accounting Practice, and combined or consolidated as appropriate, including all notes
related thereto, accompanied by a duly executed Financial Statement Certification;

     (d) copies of all federal and state tax returns prepared with respect to Borrower
within ten (10) days of such documents being filed with the Internal Revenue Service or
applicable state authority; and

     (e) such other information relating to the financial condition and affairs of Borrower,
the Property or the Collateral, as Lender may from time to time reasonably request or as may
be required by the Loan Documents.

     9.8 Taxes. Borrower shall pay or cause to be paid all federal, state and local taxes
levied against them and their respective properties and assets, including the Property, as they
become due and payable and before the same become delinquent. Borrower shall furnish to Lender
evidence that all such taxes are paid within ten (10) days following the date of payment (prior to
such payment being late). Borrower shall have the right to pay such tax under protest or to
otherwise contest any such tax or assessment, but only if (a) 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, (b) Borrower has notified Lender of its intent to contest such
taxes, and (c) adequate reserves for the liability associated with such tax have been established
in accordance with Good Accounting Practice.

     9.9 Liens. Borrower shall not create, incur, assume, or suffer to exist, or permit
Borrower-Related Party to create, incur, assume or suffer to exist, directly or indirectly, any
Lien on, against or with respect to the Collateral, except as expressly permitted by the Loan
Documents.

     9.10 Efficient and Lawful Management. Borrower shall maintain sufficient qualified
personnel for the operations of their businesses, and shall conduct its business in an efficient
manner and in accordance with all applicable Legal Requirements.

     9.11 Prohibition on Distributions. While any Event of Default has occurred and is
continuing, Borrower shall not declare, pay, make, or authorize any Distributions of any kind to
its respective partners, other than tax distributions made to the partners of Borrower in
accordance with the terms of Borrower’s Organizational Agreement. Further, while any Event of
Default has occurred and is continuing, Borrower shall not make any payments or distribute any Loan
proceeds to Affiliates (even if such payments are included in the Approved Budget) such as for soft
costs, general contractor services, administration, overhead, and similar services.

     9.12 Borrower and Property Documents. In addition to the information otherwise
required to be provided to Lender pursuant to this Agreement, Borrower shall, within five (5) days
after Lender’s request, furnish to Lender, all of the following documents, to the extent in the
possession and control of Borrower (and if such documents are not in the possession or control of
Borrower, then Borrower shall notify Lender of such fact within such five (5) day period):

30

 

     (a) all documents, certificates, agreements, contracts and other materials required to
be delivered to Lender by Section 6.1 and Section 7.1 of this Agreement
including those coming into effect or existence after the Effective Date, and all
amendments, modifications, and supplements thereto;

     (b) all capital expenditure and expense reports, invoices and documentation of expenses
and capital expenditures, bank account information and records, and other material financial
and operational information related to Borrower, the Collateral, and the Property;

     (c) minutes of the meetings of Borrower, the Sole Member and Holdings General Partner,

     (d) all promissory notes, loan documents, contracts and agreements evidencing
Indebtedness for borrowed money of Borrower, and all amendments, modifications and
supplements thereto;

     (e) all financial statements, progress reports, and notices delivered by Borrower to
their respective partners or relating to the Property;

     (f) all notices delivered to Borrower from any other lenders to Borrower;

     (g) any new documents or information, and any updates, supplements, or replacements for
any documents or information, required to be delivered to Lender pursuant to this Agreement
and the other Loan Documents; and

     (h) all other information with respect to the Property, the Collateral and/or Borrower
that Lender may reasonably request from time to time.

     9.13 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 (a) audit all books
and records related to Borrower, and all Collateral granted or pledged as security for the Loan,
and (b) visit and inspect the offices of Borrower, to inspect and make copies of all books and
records, and to write down and record any information Lender Representatives obtain. Borrower
agrees to cooperate fully with Lender in connection with such audits and inspections.

     9.14 Approved Sales Contracts. Borrower shall deliver to Lender each Approved Sales
Contract entered into by Borrower for sale of a Home promptly upon execution, but in any event,
within thirty (30) days following execution. If an Approved Sales Contract is entered into by
Borrower for the sale of one or more Homes, Borrower (a) shall comply in all respects with its
obligations under such Approved Sales Contract, (b) shall not create a default under such Approved
Sales Contract, and (c) shall not terminate any such Approved Sales Contract except for default by
the proposed purchaser without first obtaining Lender’s prior written consent.

     9.15 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,
except in any jurisdictions where the failure to maintain such existence and good standing would
not have a material adverse effect individually or in the aggregate, on its financial condition or
operations. Borrower shall obtain, maintain and keep current, all consents, licenses, permits,
authorizations, permissions and certificates which may be required or imposed by any Governmental
Authority or which are required by

31

 

applicable federal, state or local laws, regulations and ordinances. Borrower shall obtain home
warranties for the benefit of the purchasers of the Homes.

     9.16 Limitation on Loan Modifications. Without the prior written consent of Lender,
Borrower shall not consent to or approve, or enter into any extension, increase, or material
modification of the TM Armstrong Loan Documents, the loan documents evidencing the Indebtedness
described on Schedule 9.4, or any New Loan Documents.

     9.17 New Entities. Borrower owns no equity interests in any partnership, limited
liability company, corporations or other entity. Until Lender’s obligations hereunder have
terminated and the Debt is paid in full, Borrower agrees that it shall not create, organize or
acquire any interest in any limited partnership, limited liability company, corporation or other
entity (collectively, a “New Entity”) without complying with each of the following requirements:

     (a) Borrower shall give Lender prior written notice of its intent to create, organize
or acquire a New Entity;

     (b) if the New Entity will receive or benefit from any Advance hereunder, such new
Entity shall become a new co-borrower under this Agreement and in connection therewith,
shall execute all agreements, counterparts and joinders to the Loan Documents required by
Lender in connection therewith promptly upon the formation of the New Entity, but in any
event, no later than the earlier of (i) thirty (30) days after formation or acquisition, or
(ii) the closing of the first Advance to the New Entity;

     (c) RESERVED; and

     (d) Borrower shall provide Lender with all information and documents required to be
delivered to Lender by Section 6.1 and Section 7.1 of this Agreement or
otherwise requested by Lender in relation to the New Entity and its assets, any real
property owned or to be acquired by the New Entity, and the owners of the New Entity.

     9.18 Communications. Borrower hereby consents to and agrees that Lender and its
representatives, employees, project managers, and consultants may communicate with (verbally and in
writing, in person and via electronic communications), and exchange information among and between,
(a) all contractors, subcontractors, engineers, design professionals and all others who have
performed or have contracted to provide work and/or services for the Property or any portion
thereof, together with their respective principals, employees and agents, and (b) any New Lenders,
any other holders of Indebtedness owed by Borrower, and their respective partners, managers,
members, stockholders, officers, directors, shareholders, representatives, employees, and agents.
Borrower hereby releases and holds harmless, and agrees to indemnify, Lender, its general partner
and their respective partners, managers, members, stockholders, officers, directors, shareholders,
representatives, employees, and agents (each, a “Released Party”), from and against any and all
damages, claims, liabilities and expenses related to, associated with or in respect of any such
communications or exchanges of information, WHETHER OR NOT THEY SHALL BE CAUSED IN WHOLE OR IN PART
BY THE NEGLIGENCE OF A RELEASED PARTY, EXCLUDING LENDER’S INTENTIONAL MISCONDUCT OR GROSS
NEGLIGENCE.

     9.19 Change in Management; Equity Interests. Until Lender’s obligations hereunder
have terminated and the Debt is paid in full, Borrower will not allow any individual other than the
Principal Officers to have day-to-day management and control of Borrower, the Sole Member and
Holdings General Partner. Furthermore, until Lender’s obligations hereunder have terminated and
the Debt is paid

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in full, Borrower and the Borrower-Related Parties will not permit (i) any Person, other than
Holdings General Partner, to serve as the general partner of the Sole Member or otherwise manage or
control the Sole Member, (ii) any Person, other than the Sole Member, to serve as the member or
manager of Borrower or otherwise manage or control Borrower, (iii) Borrower to issue or agree to
issue (conditionally or otherwise) any Equity Interests or rights thereto to any Person other than
the Sole Member, or (iv) the Sole Member to pledge or grant a security interest in the Equity
Interests of Borrower to any Person.

9.20 Budget; Sales Report.

     (a) Approved Budget. Borrower shall not modify the Approved Budget for any
Project (except for changes in line items that do not increase the overall amount of the
Approved Budget) without Lender’s prior written consent.

     (b) Sales Report. Within ten (10) days after the end of each month, Borrower
shall deliver to Lender, a sales report which will include the sales status of each Lot.

     9.21 Consultants. Borrower agrees that Lender may engage one or more consultants and
whenever consent or approval by Lender is required under this Agreement, the consent or approval
may be conditioned upon consent or approval by such consultants. All reasonable costs of the
consultants shall be borne by Borrower. Borrower shall cooperate with the consultants and will use
commercially reasonable efforts to cause the design professionals, engineers, developers,
contractors, project engineers and the employees of each of them to cooperate with the consultants
and, upon request, will furnish the consultants whatever they may consider reasonably necessary or
useful in connection with the performance of their duties. Borrower acknowledge and agree that the
duties of the consultants run solely to Lender and that the consultants shall have no obligations
or responsibilities whatsoever to Borrower or to any other Person.

     9.22 Direct Payment to Contractors and Others. Borrower agrees that Lender shall have
the right, but not the obligation, to pay any amount of any Advance directly to any contractor,
title company, project engineer, developer, engineer, design professional or other Person instead
of advancing that money to Borrower. No further direction or authorization from Borrower shall be
necessary to warrant such direct advances and all such advances shall satisfy pro
tanto the obligations of Lender hereunder and shall be secured by the Loan Documents as
fully as if made directly to Borrower. Notwithstanding the other provisions of this paragraph,
nothing in this Agreement is intended to be for the benefit of, nor may be enforced by, nor should
be relied upon by, any Person other than Borrower.

     9.23 Reimbursement Contract. Borrower shall obtain Lender’s written consent not to be
unreasonably withheld, conditioned or delayed prior to entering into, consenting to, approving or
voting in favor of any contract or agreement with any Governmental Authority providing for the
sharing, payment and/or reimbursement of the costs of planning and/or construction with respect to
the Property such as, but not limited to, a municipal utility district or public improvement
district reimbursement agreement (each, a “Reimbursement Contract”) or prior to becoming an
assignee of, or otherwise becoming entitled to receive proceeds under, any such Reimbursement
Contract. Notwithstanding anything else to the contrary contained herein or in any other Loan
Document, in no event shall any Reimbursement Contract require or result in a subordination of any
of Lender’s Liens against the Collateral. Borrower shall not enter into, consent to, approve, or
vote in favor of any material amendment or modification of any Reimbursement Contract without
Lender’s prior written consent not to be unreasonably withheld, conditioned or delayed; provided,
however, that any such amendment shall be deemed to be material if such amendment could reasonably
be expected to delay, hinder or impede

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Borrower’s payment of the Debt or any portion thereof or performance of any of its Obligations
under the Loan Documents.

     9.24 Agreements related to the Property. Borrower shall not enter into, amend, modify
or terminate any agreement related to the Property or the Collateral that reasonably would be
expected to hinder, delay or impair the payment of the Debt or any portion thereof or performance
by Borrower of any of its Obligations under the Loan Documents, without the prior written consent
of Lender.

     9.25 Notice of Event of Default, Suits. Upon discovery, Borrower will promptly notify
Lender of any breach of any of the covenants contained in Article Six and Article
Seven of this Agreement and of the occurrence of any Event of Default hereunder, or of the
filing of any claim, action, suit or proceeding before any Governmental Authority against Borrower
and advise Lender from time to time of the status thereof. Borrower shall promptly notify Lender if
any Project will not be completed in accordance the Approved Budget.

     9.26 Commencement and Completion. Borrower shall commence construction of each Home
within thirty (30) days after the applicable Deed of Trust is recorded in the appropriate records
of the county where such Home is located and diligently pursue its completion without cessation
until the Home is fully completed except due to acts of God.

     9.27 Affidavit of Commencement. If requested by Lender in connection with any Home,
Borrower will record an affidavit of commencement (“Affidavit of Commencement”) in the appropriate
records of the county where the Home is located, in a form reasonably acceptable to Lender. The
Affidavit of Commencement must not state a commencement date or be recorded before the applicable
Deed of Trust is recorded.

     9.28 Affidavit of Completion. If requested by Lender in connection with any Home,
Borrower will record an affidavit of completion (“Affidavit of Completion”) stating the date
construction was completed in the appropriate records of the county where the Lot is located, and
otherwise in a form reasonably acceptable to Lender.

     9.29 Building Permits; Construction According to Plans and Specifications. Borrower
shall obtain the building permit, if one is required, for the construction of the Home within
thirty (30) days after the Loan for such Home is initially closed. For each Home funded by Lender
hereunder, Borrower shall deliver the following items to Lender promptly upon receipt: (i) if
applicable, the application for the building permit, (ii) the issued building permit, if one is
required, (iii) all other applications for permits and issued permits, if any, required with
respect to the construction of the Home, and (iv) evidence that all fees have been paid in
connection with the applications and permits referenced in clauses (i), (ii) and (iii) above.
Borrower will construct each Home in a good and workmanlike manner and in accordance with its Plans
and Specifications approved by Lender for such Home and all Governmental Requirements in all
material respects. Furthermore, Borrower will not materially amend, alter, or change the Plans and
Specifications unless the changes have been approved in writing by Lender in advance and, if
necessary, by all applicable Governmental Authorities and any architectural control committee or
other party empowered to do so by any restrictive covenants.

     9.30 Correction of Defects. Borrower will correct (a) any defect in the construction
of the Homes and any material departure from the Plans and Specifications not approved in writing
by Lender and (b) all violations of any Governmental Requirements or restrictive covenants. An
Advance will not constitute a waiver of Lender’s right to require compliance with this covenant
with respect to any such defects or violations not previously discovered by Lender, or otherwise.

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     9.31 Reports and Notices. Borrower shall furnish promptly to Lender such information
as Lender may reasonably require concerning costs, progress of construction, marketing, and such
other factors as Lender may reasonably require. Borrower shall notify Lender promptly of (i) any
litigation instituted or threatened against Borrower or any Lot, (ii) any deficiencies asserted or
liens filed by the Internal Revenue Service against Borrower or any Lot, (iii) any audits of any
federal or state tax returns of Borrower and the results of any such audit, (iv) any condemnation
or similar proceedings with respect to any Lot, (v) any proceeding seeking to enjoin the intended
use of any Lot, (vi) any changes of legal Requirements, utility availability, or anticipated costs
of completion of a Home that would cause the Project to exceed the Approved Budget, and (vii) any
other matters which could reasonably be expected to adversely affect Borrower’s ability to perform
its obligations under this Agreement.

     9.32 Identify Property. Borrower shall display the Borrower’s name and the street
address of each Lot in a prominent place on the Lot that is visible from the street.

     9.33 Personalty and Fixtures. Borrower will deliver to Lender, on demand, any
contracts, bills of sale, statements, receipted vouchers, or agreements under which Borrower claims
title to any materials, fixtures, or other personal property incorporated into or located within
any of the Homes located on any of the Lots.

     9.34 Insurance.

     (a) General Requirements. Borrower will, at Borrower’s own expense, obtain and
maintain in full force and effect insurance upon and relating to the Lot or Home with such
insurers, in such amounts, and covering such risks as are requested by and satisfactory to
Lender, from time to time, including but not limited to: (i) the broadest available form of
builder’s risk insurance (utilizing the then prevailing “ISO causes of loss-special forms”
and “reporting forms” of builder’s risk insurance form or equivalent forms acceptable to
Lender) covering all Homes during their construction for their full replacement cost; (ii)
the broadest available form of “all risks” or “special form” property insurance (utilizing
the then prevailing “ISO Special Form” property insurance form or an equivalent form
reasonably acceptable to Lender), covering all Homes within the Lot or Home after their
construction is complete for their full replacement cost, with no exclusions permitted for
vandalism or malicious mischief; (iii) worker’s compensation insurance to the statutory
limit; (iv) a commercial general liability insurance policy providing coverage against
(among other things) bodily injury and disease, including death resulting therefrom,
personal injury and property damage, written on an “occurrence” basis in connection with the
business or other activities conducted on or from the Lot or Home; (v) flood insurance
covering all Homes located within Flood Zone A or V, both during construction and after
construction is complete for their full replacement cost or the maximum amount available
under the federal flood insurance program, whichever is the most; and (vi) such other
insurance with other coverages or increased coverages, if any, as Lender may require from
time to time. No umbrella liability insurance policy will be required unless the costs of
such policy is reasonable as reasonably determined by Borrower in its good faith business
judgment. Each insurance policy issued pursuant to this Section must be issued by good and
solvent insurance companies satisfactory to Lender and all such policies must provide, by
way of endorsements, riders, or as otherwise applicable, that: (1) the builder’s risk and
property insurance policies must contain a standard “Mortgagee clause” and must be payable
to Lender as a mortgagee and not as a co-insured, and with respect to all policies and
insurance carried by Borrower for the benefit of Lender, such insurance must be payable to
Lender as Lender’s interest may appear; (2) with respect to the commercial general liability
policy and all other liability insurance, such insurance must name Lender as an “Additional
Insured” (using the applicable ISO form, or an equivalent form reasonably acceptable to
Lender, without modification, and which policy must contain

35

 

standard commercial general liability “other insurance” wording, unmodified in any way
that would make it excess over or contributory with the additional insured’s own commercial
general liability coverage); (3) Lender’s coverage under the policies must not be
terminated, reduced, or affected in any manner regardless of any breach or violation by
Borrower of any warranties, declarations, or conditions in the policies; (4) no policies
will be canceled, endorsed, altered, or reissued to effect a change in coverage for any
reason and to any extent whatsoever unless the insurer has first given Lender no less than
thirty (30) days’ prior written notice; and (5) Lender must be permitted, but not be
obligated, to make premium payments to prevent any cancellation, endorsement, alteration, or
reissuance of the policies, and such payments must be accepted by the insurer to prevent
same. Lender must be furnished with the original of each such initial policy when this
Agreement is executed and the original of each renewal policy not less than thirty (30) days
before the expiration of the initial policy or each immediately preceding renewal policy,
and Lender must additionally be concurrently furnished with receipts or other evidence that
the premiums on all the policies have been paid for at least one (1) year. Borrower shall
furnish to Lender, on or before thirty (30) days after the close of each of Borrower’s
fiscal years while this Deed of Trust is in force and effect, a statement certified by
Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in
compliance with this Section, of the risks covered by such insurance, and of the insurance
companies which carry the insurance. For purposes of this Section, the term “ISO” shall mean
Insurance Services Office.

     (b) Texas Collateral Protection Insurance Notice. According to Section 307.052
of the Texas Finance Code the following notice is given to Borrower by Lender:

          (i) Borrower is required to (A) keep the Lot or Home insured against damage in the
amount the Lender specifies; (B) purchase the insurance from an insurer that is authorized
to do business in Texas or an eligible surplus lines insurer; and (C) name Lender as the
person to be paid under the policy in the event of a loss;

          (ii) Borrower must, if required by Lender, deliver Lender a copy of the policy and
proof of the payment of premiums; and

          (iii) If Borrower fails to meet any requirement listed in paragraph (b)(i) or
(b)(ii) above, Lender may obtain collateral protection insurance on behalf of Lender at
Borrower’s expense.

     9.35 Storage of Materials and Equipment. Borrower will cause all equipment, supplies
and materials acquired or furnished in connection with the construction of each Home but not
affixed to or incorporated into the Project to be stored on the Lot or at other locations
reasonably approved by Lender in writing, in each case under adequate safeguard to minimize the
possibility of loss, theft, damage or commingling with other property. Upon request of Lender,
Borrower will furnish an inventory of all such equipment, supplies and materials stored off-site,
specifying the location thereof. Borrower agrees that it will take all reasonable steps required
by Lender in order to perfect a security interest in such equipment, supplies and materials.

     9.36 Inventory and Sales Reports. Borrower agrees to deliver inventory reports (the
“Inventory Reports”) to Lender on the fifth (5th) day of each month during the term of
the Loans. All Inventory Reports must be in form and content satisfactory to Lender, in Lender’s
sole and absolute discretion, and must specify the following: (i) the number and location
(subdivision and street address with city) of homes (“Other Homes”) that Borrower has under
construction that are not the subject of a Loan categorizing them as vacant lots, spec homes,
pre-sold homes, or model homes; (ii) the number and location (subdivision and street address with
city) of Homes that Borrower has under construction that are

36

 

the subject of the Loans approved hereunder categorizing them as Pre-Sold Homes, Spec Homes or
Model Homes, (iii) the number and location (subdivision and street address with city) of Homes that
have been fully completed (subject to minor customer selection items) and a description of which
completed Homes are Pre-Sold Homes, Spec Homes or Model Homes, and (iv) sales reports showing
whether such Home or Other Home is under contract or sold, including the contract closing date or
the date of the sale if already sold.

     9.37 Approved Sales Contracts; Homeowner Financing Approval Letter. Borrower agrees
that if any Approved Sales Contract with respect to a Project is terminated for any reason or
otherwise ceases to be a valid and binding obligation of the parties thereto for any reason or if
any party thereto is in default thereunder, or if a Homeowner Financing Approval Letter for a
Project is withdrawn or terminated for any reason. then Borrower shall immediately inform Lender of
such fact in writing.

     9.38 Transactions with Affiliates. Borrower shall not enter into or be a party to any
agreement or transaction with any Affiliate except in the ordinary course of and pursuant to the
reasonable requirements of Borrower’s business and upon fair and reasonable terms that are no less
favorable to Borrower than it would obtain in a comparable arms length transaction with a Person
not an Affiliate of such Borrower, and on terms consistent with the business relationship of such
Borrower and such Affiliate prior to the Effective Date, and fully disclosed to Lender.

     9.39 Financial Covenants. Borrower shall maintain and comply with the following
financial covenants during the term of the Loan:

     (a) Minimum Available Liquidity. Borrower shall maintain a minimum Available
Liquidity equal to at least $125,000, based on the monthly financial statements of Borrower
for such month delivered to Lender in accordance with Section 9.7(a) and accompanied
by a duly executed Financial Statement Certification and a duly completed and executed
Compliance Certificate. The amount of minimum Available Liquidity will be reviewed by the
Borrower and Lender on a periodic basis, not more frequently than quarterly and adjusted as
necessary to reflect changes in Borrower’s Operating Expenses, operations and liquidity
needs as mutually determined by Borrower and Lender acting in good faith. Any such
adjustments to the minimum Available Liquidity shall be documented in a written agreement
executed by Borrower and Lender.

     (b) Minimum Tangible Net Worth. Borrower will maintain a minimum Tangible Net
Worth that is equal to or greater than $2,500,000, calculated based on the monthly financial
statements of Borrower for such month delivered to Lender in accordance with Section
9.7(a) and accompanied by a duly executed Financial Statement Certification and a duly
completed and executed Compliance Certificate.

ARTICLE X

CONSTRUCTION AND OTHER CONTRACTS

     10.1 Assignment of Construction Contracts. As additional security for the payment of
the Debt and the performance of Borrower’s Obligations, Borrower hereby transfers and assigns to
Lender for the benefit of Lender, all of Borrower’s rights and interest, but not its obligations,
in, under and to all contracts, subcontracts and agreements, written or oral, between Borrower and
any other party, and between parties other than Borrower, in any way relating to the development of
the Property and/or the construction of improvements on the Property, or the supplying of material
(specially fabricated or

37

 

otherwise), labor, supplies, or other services therefor (collectively, the “Construction
Contracts”) upon the following terms and conditions:

     (a) Borrower represents and warrants to Lender that the copy of each Construction
Contract that Borrower has furnished or will furnish to Lender is or will be a true and
complete copy thereof, including all amendments thereto, if any, and that Borrower’s
interest therein is not subject to any claim, setoff or encumbrance;

     (b) neither this assignment nor any action by Lender shall constitute an assumption by
Lender of any obligations under any Construction Contract, and Borrower shall continue to be
liable for all obligations of Borrower thereunder; and Borrower hereby agrees to perform all
of its obligations under each Construction Contract. Borrower hereby agrees to indemnify
and hold Lender harmless against and from any loss, cost, liability or expense (including,
but not limited to, consultants’ fees and expenses and attorneys’ fees and expenses)
incurred in connection with Borrower’s failure to perform any such Construction Contract or
any action taken by Lender, except for matters arising as a result of the gross negligence
or willful misconduct by Lender;

     (c) upon the occurrence of an Event of Default, and during the continuance thereof,
Lender shall have the right at any time (but shall have no obligation) to take in its name
or in the name of Borrower such action as Lender may at any time determine to be necessary
or advisable to cure any default under any Construction Contract or to protect the rights of
Borrower or Lender thereunder. Lender shall incur no liability if any action so taken by it
or in its behalf shall prove to be inadequate or invalid, and Borrower agrees to indemnify
and hold Lender harmless against and from any loss, cost, liability or expense (including
but not limited to reasonable attorneys’ fees) incurred in connection with any such action,
except for matters arising as a result of the gross negligence or willful misconduct of
Lender;

     (d) Borrower hereby irrevocably constitutes and appoints Lender as Borrower’s
attorney-in-fact, in Borrower’s or Lender’s name, to enforce all rights of Borrower under
each Construction Contract; provided, however, that Lender agrees not to exercise such
appointment until the occurrence of an Event of Default, and during the continuance thereof.
Such appointment is coupled with an interest and is therefore irrevocable;

     (e) prior to the occurrence of an Event of Default, Borrower shall have the right to
exercise its rights as owner under each Construction Contract, provided that Borrower shall
not cancel or amend any Construction Contract or do or suffer to be done any act which would
impair the security constituted by this assignment without the prior written consent of
Lender;

     (f) this assignment shall inure to the benefit of Lender and its successors and
assigns, any purchaser upon foreclosure of the Liens against the Property, any receiver in
possession of the Property or any portion thereof and any entity affiliated with Lender
which assumes Lender’s rights and obligations under this Agreement; and

     (g) Borrower, in its capacity as general contractor for the Projects, hereby consent to
the foregoing assignment and the terms of this Section 10.1.

     10.2 Assignment of Plans and Specifications. As additional security for the payment
of the Loans and Borrower’s other Obligations under the Loan Documents, and the performance of the
covenants and agreements under the Loan Documents, Borrower hereby transfers and assigns to Lender
for the benefit of Lender all of Borrower’s right, title and interest in and to the Plans and
Specifications

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for each Project (subject, in the case of the Architect Agreement, to the Architect’s Consent), and
hereby represents and warrants to and agrees with Lender as follows:

     (a) each schedule of the Plans and Specifications delivered or to be delivered to
Lender for a Project is and shall be a complete and accurate description of the Plans and
Specifications for such Project;

     (b) the Plans and Specifications for each Project are and shall be complete and
adequate for the construction of the Project and there have been no modifications thereof
except as described in such schedule. The Plans and Specifications shall not be materially
modified without the prior written consent of Lender, which shall not be unreasonably
withheld or delayed;

     (c) Lender may use the Plans and Specifications for any purpose relating to the
Project, including but not limited to inspections of construction and the completion of the
Project;

     (d) Lender’s acceptance of this assignment shall not constitute approval of the Plans
and Specifications by Lender. Lender has no liability or obligation in connection with the
Plans and Specifications and no responsibility for the adequacy thereof or for the
construction of the Project contemplated by the Plans and Specifications. Lender has no duty
to inspect the Improvements, and if Lender should inspect the Improvements, Lender shall
have no liability or obligation to Borrower, Lender or any other party arising out of such
inspection. No such inspection nor any failure by Lender to make objections after any such
inspection shall constitute a representation by Lender that the Improvements are in
accordance with the Plans and Specifications or any other requirement or constitute a waiver
of Lender’s right thereafter to insist that the Project be constructed in accordance with
the Plans and Specifications or any other requirement; and

     (e) this assignment shall inure to the benefit of Lender and its successors and
assigns, any purchaser upon foreclosure of any Deed of Trust, any receiver in possession of
the Property or any part thereof and any entity affiliated with Lender which assumes
Lender’s rights and obligations under this Agreement.

     10.3 Assignment of Purchase Contracts. As additional security for the Loans, Borrower
transfers and assigns the Purchase Contracts to Lender. In connection with this assignment Borrower
irrevocably appoints Lender as Borrower’s agent and attorney-in-fact with full power of
substitution to, after an Event of Default, exercise every right granted to Borrower under the
Purchase Contracts and to do all things Borrower could do under or in connection with the Purchase
Contracts. Borrower agrees that this power of attorney is coupled with an interest and cannot be
revoked. Lender’s rights under this Section are in addition to all other rights and remedies Lender
may have under this Agreement or any of the other Loan Documents. This assignment will inure to the
benefit of Lender, its successors and assigns, any purchaser upon foreclosure of the Deed of Trust,
and any receiver in possession of the Lot or Home.

     10.4 Assignment of Other Contracts. As additional security for the payment of the
Loans and Borrower’s other Obligations under the Loan Documents, and the performance of the
covenants and agreements under the Loan Documents, Borrower hereby transfers and collaterally
assigns to Lender all of Borrower’s rights, titles and interests, but not its obligations, in,
under and to any all other contracts and agreements between Borrower and any Persons pertaining to
the construction of the Home and each Project (the “Other Contracts”), whether now existing or
hereafter entered into, upon the following terms and conditions:

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     (a) Borrower represents and warrants that the copy of any Other Contracts it has
furnished to Lender is a true and complete copy thereof and that Borrower’s interest therein
is not subject to any claim, setoff, or encumbrance.

     (b) neither this assignment nor any action by Lender shall constitute an assumption by
Lender of any obligations under any Other Contracts, and Borrower shall continue to be
liable for all obligations of Borrower thereunder, Borrower hereby agreeing to perform all
of its obligations under any Other Contracts. Borrower indemnifies and holds Lender
harmless against and from any loss, cost, liability, or expense (including, but not limited
to, reasonable attorneys’ fees) resulting from any failure of Borrower to so perform, except
for matters as a result of the gross negligence or willful misconduct of Lender;

     (c) during the existence and continuance of an Event of Default, Lender shall have the
right at any time (but shall have no obligation) to take in its name or in the name of
Borrower such action as Lender may at any time reasonably determine to be necessary or
advisable to cure any default under any Other Contracts or to protect the rights of
Borrower, Lender thereunder. Lender shall incur no liability if any action so taken by it
shall prove to be inadequate or invalid, and Borrower agrees to hold Lender free and
harmless against and from any loss, cost, liability or expense (including, but not limited
to, reasonable attorneys’ fees) incurred in connection with any such action, except for a
loss, cost, liability or expense resulting solely from Lender’s intentional actions or gross
negligence;

     (d) during the existence and continuance of an Event of Default, Borrower hereby
irrevocably constitutes and appoints Lender as Borrower’s attorney-in-fact, in Borrower’s
name or in Lender’s name, to enforce all rights of Borrower under any Other Contracts;

     (e) except during the existence of an Event of Default, Borrower shall have the right
to exercise its rights as owner under any Other Contracts, provided that Borrower shall not
cancel or amend such Other Contracts or do or suffer to be done any act which would impair
the security constituted by this assignment without the prior written consent of Lender,
which shall not be unreasonably withheld or delayed; and

     (f) upon the request of Lender, Borrower shall use its best efforts to cause each
Person that is a party to any Other Contract to deliver to Lender, a consent to the
foregoing assignment in form and substance satisfactory to Lender.

     10.5 INDEMNITY MATTERS. WITHOUT LIMITATION, THE FOREGOING INDEMNITIES CONTAINED IN
SECTIONS 10 SHALL APPLY TO LENDER WITH RESPECT TO MATTERS WHICH IN WHOLE OR IN PART ARE CAUSED BY
OR ARISE OUT OF, OR ARE CLAIMED TO BE CAUSED BY OR ARISE OUT OF, THE NEGLIGENCE (WHETHER SOLE,
COMPARATIVE OR CONTRIBUTORY) OR STRICT LIABILITY OF LENDER. HOWEVER, SUCH INDEMNITIES SHALL NOT
APPLY TO LENDER TO THE EXTENT THAT THE SUBJECT OF THE INDEMNIFICATION IS CAUSED BY OR ARISES OUT OF
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LENDER.

ARTICLE XI

DEFAULT

     11.1 Default. For purposes of this Agreement, the following events shall constitute an “Event
of Default”:

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     (a) the failure of Borrower to make any payment required by this Agreement or any Note
in full on or before the tenth (10th) day following the date such payment is due
(or declared due pursuant to the terms of this Agreement or such Note); or

     (b) any financial statement, representation, warranty, or certificate made or furnished
by or with respect to Borrower or any Borrower-Related Party contained in this Agreement or
any other Loan Document or made in connection herewith or therewith, shall be materially
false, incorrect, or incomplete when made; or

     (c) Borrower or any Borrower-Related Party shall fail to perform or observe any
covenant or agreement contained in this Agreement or any other Loan Document that is not
separately listed in this Section 11.1 as an Event of Default (collectively, a
“Covenant Breach”), and the same remains unremedied for thirty (30) days after Lender’s
written notice to Borrower; provided, however, that if Borrower or any Borrower-Related
Party has actual notice of an event that gives rise to Borrower’s obligation to provide
Lender notice of such event in accordance with Section 9.6, and Borrower fails to
provide timely notice of such event to Lender accordance with Section 9.6 and such
event constitutes a Covenant Breach, then Lender shall not be required to give Borrower
written notice of such Covenant Breach and such Covenant Breach shall become an Event of
Default under this Section 11.1(c) if such Covenant Breach remains unremedied for
thirty (30) days after the occurrence thereof; or

     (d) any “event of default” or “default” occurs under any Loan Document other than this
Agreement that is not separately listed in this Section 11.1, and the same remains
unremedied for thirty (30) days after Lender’s written notice to Borrower; provided,
however, that if Borrower or any Borrower-Related Party has actual notice of an “event of
default” or “default” occurring under any Loan Document thereby giving rise to Borrower’s
obligation to provide Lender notice of such “event of default” or “default” in accordance
with Section 9.6, and Borrower fails to provide timely notice of such “event of
default” or “default” to Lender accordance with Section 9.6, then Lender shall not
be required to give Borrower written notice of such “event of default” or “default” and such
“event of default” or “default” shall become an Event of Default under this
Section 11.1(d) if such “event of default” or “default” remains unremedied for
thirty (30) days after the occurrence thereof; or

     (e) the entry of a decree or order for relief by a court having jurisdiction in respect
of Borrower or any Borrower-Related Party 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 any Borrower-Related Party for any substantial
part of their respective properties or the Property, or ordering the winding up or
liquidation of such person’s affairs; or

     (f) the commencement by Borrower or any Borrower-Related Party 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 any Borrower-Related
Party for any substantial part of their respective properties or the Property, or the making
by Borrower or any Borrower-Related Party of any assignment for the benefit of creditors, or
the admission by Borrower or any Borrower-Related Party in writing of its inability to pay
its debts generally as they become due; or

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     (g) the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of all or a substantial part of the
assets of Borrower or any Borrower-Related Party or the Property in a proceeding brought
against or initiated by Borrower or any Borrower-Related Party or the Property;

     (h) if Borrower or any Borrower-Related Party that is an entity is liquidated or
dissolved or winds up their affairs, or the sale or liquidation of all or substantially all
of the assets of Borrower or any Borrower-Related Party that is an entity; or

     (i) any Disposition of any Lot occurs without payment in full to Lender of the Partial
Release Amount related to such Lot, or the Principal Officers cease to have day-to-day
control and management of the Borrower, the Sole Member and Holdings General Partner; or

     (j) any “default” or “event of default” not cured within the grace period, if any, for
such default or event of default (the terms “default” and “event of default” have the
meaning given to such terms in the agreements and documents described below), shall occur
under (i) any credit agreement, loan agreement, promissory note or other document evidencing
Indebtedness for borrowed money to which Borrower is a party as a borrower, debtor,
guarantor or other obligor, (ii) any subordination agreement, security agreement, pledge
agreement, guaranty, deed of trust, or other agreement providing guaranty of or security or
collateral for Indebtedness, executed by or binding upon Borrower, and (iii) 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 is a party, if any of Lender, any member of the UDF Group or any
member of the UMT Group is also a party to such agreement; or

     (k) the death or disability at any time while the Debt is outstanding of both Patrick
James Starley and Thomas Blake Buffington, Sr.; or

     (l) in Lender’s opinion, any material adverse change occurs in the financial condition
or business of Borrower or any Borrower-Related Party; or

     (m) Borrower alleges that any Loan Document is invalid or is not binding upon Borrower
for any reason; or

     (n) Borrower or any Borrower-Related Party suffers the entry against it of a final
judgment for the payment of money in excess of $50,000 which is not covered by insurance
which is not paid in full within ten (10) days thereafter; or

     (o) Borrower or any Borrower-Related Party suffers a writ or warrant of attachment or
any similar process to be issued by any tribunal against all or any substantial part of its
properties or the Collateral, and such writ or warrant of attachment or any similar process
is not stayed or released within thirty (30) days after the entry or levy thereof or after
any stay is vacated or set aside; or

     (p) in Lender’s opinion, the prospect for payment or the prospect for performance with
respect to this Agreement or any other agreement that Borrower or any Borrower-Related Party
may have with Lender is impaired and Lender so notifies Borrower in writing; or

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     (q) Borrower or any Borrower-Related Party fails to comply with any covenant or
agreement in any of Sections 9.1, 9.2, 9.4, 9.5, 9.9, 9.11, 9.16, 9.19, 9.20, 9.22
or 9.38 in any respect; or

     (r) Borrower fails to maintain the minimum Available Liquidity for a given month as set
forth in Section 9.39(a) and fails to increase its minimum Available Liquidity to
the amount required by Section 9.39(a) by the 15th day of the following month; or

     (s) Borrower fails to maintain the minimum Tangible Net Worth for a given month as set
forth in Section 9.39(b) and fails to increase its minimum Tangible Net Worth to the
amount required by Section 9.39(b) by the 15th day of the following month; or

     (t) Borrower fails to deliver the monthly financial statements, the Financial Statement
Certification, or the Compliance Certificate by the date required by Section 9.7(a)
and such failure remains unremedied by the fifteenth day thereafter; or

     (u) If any Lien for labor, services or materials performed or furnished in connection
with the construction of any improvements is filed against any Lot or Home and it is not
paid or released or bonded within thirty (30) days after it is filed. Notwithstanding the
foregoing, the filing of such a Lien will not be an Event of Default if within thirty (30)
days after such Lien filing, Borrower pays all accrued interest and unpaid principal balance
of the applicable Loan so that the Home which is the subject of said Lien is eligible to be
released from the liens of the Deed of Trust securing repayment of Loan; or

     (v) If the building permit for any Home is revoked or if any Home violates a
Governmental Requirement in such a manner that it cannot be occupied as a single family
residence. Notwithstanding the foregoing, such revocation or violation will not be an Event
of Default if within thirty (30) days after such revocation or violation, Borrower pays all
accrued interest and unpaid principal balance of the applicable Loan so that the Home which
is the subject of said revocation or violation is eligible to be released from the liens of
the Deed of Trust securing repayment of Loan; or

     (w) If Borrower executes any conditional bill of sale, chattel mortgage, or other
security instrument covering any materials, fixtures, or articles of personal property
intended to be incorporated into the Lot, or covering articles of personal property placed
in any of the Homes, or if Borrower files a financing statement publishing notice of such
security interest, or if any of such materials, fixtures, or articles of personal property
are not purchased in such a manner that their ownership vests unconditionally in Borrower,
free from encumbrances, on delivery at the Lot.

     11.2 Occurrence of Event of Default. Upon the occurrence of an Event of Default,
Lender shall have the immediate right, at the sole discretion of Lender and without notice,
presentment for payment, demand, notice of nonpayment or nonperformance, protest, notice of
protest, notice of intent to accelerate, notice of acceleration or any other notice or any other
action (ALL OF WHICH BORROWER AND THE BORROWER-RELATED PARTIES HEREBY EXPRESSLY WAIVE AND
RELINQUISH) (i) to declare the entire unpaid balance of the Debt (including the outstanding
principal balance hereof, including all sums advanced or accrued hereunder or under any other Loan
Document, and all accrued but unpaid interest thereon) at once immediately due and payable (and
upon such declaration, the same shall be at once immediately due and payable) and may be collected
forthwith, whether or not there has been a prior demand for payment and regardless of the
stipulated date of maturity, (ii) to foreclose any liens and security interests securing payment
hereof or thereof (including

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any liens and security interests covering all or any portion of the Mortgaged Property (as
defined in the Deeds of Trust)), (iii) refuse to make any Loan or Advance to Borrower, even if
Lender had previously agreed to make such Loan or Advance, and (iv) to exercise any of Lender’s
other rights, powers, recourses and remedies under this Agreement, under any other Loan Document or
at law or in equity, and the same (A) shall be cumulative and concurrent, (B) may be pursued
separately, singly, successively or concurrently against Borrower, any Borrower-Related Party or
others obligated for the repayment of the Debt or any part hereof, or against any one or more of
them, or against all or any portion of the Mortgaged Property, at the sole discretion of Lender,
(C) may be exercised as often as occasion therefor shall arise, it being agreed by Borrower and the
Borrower-Related Parties that the exercise, discontinuance of the exercise of or failure to
exercise any of the same shall in no event be construed as a waiver or release thereof or of any
other right, remedy or recourse, and (D) are intended to be, and shall be, nonexclusive. All
rights and remedies of Lender hereunder and under the other Loan Documents shall extend to any
period after the initiation of foreclosure proceedings, judicial or otherwise, with respect to all
or any portion of the Mortgaged Property. No delay on the part of Lender in exercising any power
or right shall operate as a waiver of such power or right nor shall any single or partial exercise
of any power or right further preclude exercise of that power or right.

     11.3 Attorneys Fees. If Lender retains an attorney-at-law in connection with any
Event of Default or at maturity or to collect, enforce, or defend the Notes or any part hereof, or
any of the other Loan Documents, in any lawsuit or in any probate, reorganization, bankruptcy or
other proceeding, or otherwise, Borrower agrees to pay all reasonable costs and expenses of
collection, including but not limited to, Lender’s reasonable attorneys’ fees, whether or not any
legal action shall be instituted.

     11.4. Limitation on Cross-Default. Notwithstanding any other provision to the Loan
Documents to the contrary other than the immediately following sentence, the existence of a
Buffington Land Event of Default under a Buffington Land Loan will not, in and of itself, be an
Event of Default under Section 11.1 of this Agreement. The foregoing sentence
notwithstanding, if Lender reasonably believes that any fraud, intentional misrepresentation,
material omission or intentional wrongful conduct on the part of Guarantor, its subsidiaries,
and/or their respective general partners, officers, directors, or managers has given rise to a
Buffington Land Event of Default under a Buffington Land Loan, then such Buffington Land Event of
Default may, in Lender’s sole discretion, be determined by Lender to be an Event of Default under
Section 11.1 of this Agreement.

     11.5 Complete Construction. In addition to the remedies set forth in Section
11.2(i) through (iv), Lender may enter into possession of the Lot and Home and, at Lender’s
option, in the name and on behalf of Borrower, do anything in connection with the construction of
the Homes that Borrower could do in its own behalf, including without limitation, any one or more
of the following: (a) perform all work necessary to complete construction of the Homes then under
construction or discontinue any such work, whether commenced by Borrower or Lender, (b) assume
Borrower’s rights, and powers under any contract Borrower has entered into in connection with the
Lot or the construction of the Homes, (c) execute all certificates and applications that are
required under any construction contract, (d) make any additions, changes, and corrections in the
Plans and Specifications which in Lender’s judgment are necessary or desirable to complete
construction of the Homes in substantially the same manner as contemplated by the Plans and
Specifications, (e) employ architects, contractors, subcontractors, engineers, inspectors, and
security guards, and other persons to perform services or furnish materials or equipment in
connection with any action Lender takes under this Section, (f) continue any existing construction
contracts or subcontracts, (g) pay, settle, or comprise any existing bills or claims which are or
may become liens against the Lot or Home or may be necessary or desirable for the completion of the
work or the clearing of title, (h) prosecute and defend all actions or proceedings in connection
with the Lot or Home or the construction of the Homes; and (i) use any funds which remain
unadvanced on the Loans for the purposes described in this Section. All amounts expended by Lender
pursuant to this

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Section will be deemed to have been disbursed to Borrower as Advances and be secured by the
Deed of Trust. For the purposes described in this Section and the enforcement of the terms and
conditions of this Agreement, Borrower irrevocably appoints Lender as Borrower’s agent and
attorney-in-fact with full power of substitution to exercise all of the rights and remedies granted
to Lender by this Section. Borrower agrees that this power of attorney is coupled with an interest
and cannot be revoked.

ARTICLE XII

MISCELLANEOUS

     12.1 Usury Laws. Notwithstanding anything to the contrary contained in this Agreement
or any other Loan Document:

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

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     (b) To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to
determine the Highest Lawful Rate payable on the Notes or any other part of the Debt,
Lender will utilize the weekly ceiling from time to time in effect as provided in such
Chapter 303, as amended. To the extent United States federal law permits Lender to contract
for, charge, take, receive or reserve a greater amount of interest than under Texas law,
Lender will rely on United States federal law instead of such Chapter 303 for the purpose
of determining the Highest Lawful Rate. Additionally, to the extent permitted by applicable
law now or hereafter in effect, Lender may, at its option and from time to time, utilize
any other method of establishing the Highest Lawful Rate under such Chapter 303 or under
other applicable law by giving notice, if required, to Borrower as provided by such
applicable law now or hereafter in effect.

     12.2 Indemnity; Release. Borrower and the Borrower-Related Parties jointly and
severally agree 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 in its capacity as lender hereunder growing out of, resulting from or in any other way
associated with (a) this Agreement 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 Loans evidenced hereby are 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 any Borrower-Related Party. Notwithstanding anything herein or in any other Loan
Document to the contrary, nothing in this Section 12.2 shall be deemed to provide for or
require any Borrower-Related Party not otherwise the Borrower or Guarantor hereunder to be liable
for the repayment of the Debt or performance of any of the obligations of Borrower or a Guarantor
under the Loan Documents unless expressly set forth herein or therein.

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 the Borrower-Related Parties) 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 Agreement and it successors and assigns 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 AND THE OTHER LOAN
DOCUMENTS, EACH BORROWER AND EACH BORROWER-RELATED PARTY HEREBY RELEASES AND

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FOREVER DISCHARGES, AND COVENANTS NOT TO SUE OR FILE ANY CHARGES OR CLAIMS AGAINST, LENDER FOR ANY
AND ALL EXISTING OR FUTURE CLAIMS, DEMANDS AND CAUSES OF ACTION, IN CONTRACT OR IN TORT, AT LAW OR
IN EQUITY, KNOWN OR UNKNOWN, PENDING OR THREATENED (COLLECTIVELY, “CLAIMS”), FOR ALL EXISTING AND
FUTURE DAMAGES AND REMEDIES ARISING OUT OF OR IN ANY WAY ASSOCIATED WITH THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS AND THE LOANS MADE PURSUANT HERETO AND THERETO (NOTWITHSTANDING ANYTHING
CONTAINED HEREIN TO THE CONTRARY, IN NO EVENT SHALL THIS WAIVER BE DEEMED TO BE INCLUDE A WAIVER OF
ANY CLAIM AGAINST LENDER ARISING DIRECTLY OUT OF LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT,
WHETHER ARISING OUT OF TORT OR CONTRACT).

     12.3 Mutual Understanding. Borrower and the Borrower-Related Parties jointly and
severally represent and warrant to Lender that they have read and fully understand the terms and
provisions hereof, have had an opportunity to review this Agreement and the other Loan Documents
with legal counsel and have executed this Agreement and the other Loan Documents based on their own
judgment and advice of counsel. If an ambiguity or question of intent or interpretation arises,
this Agreement will be construed as if drafted jointly by Borrower, the Borrower-Related Parties
and Lender and no presumption or burden of proof will arise favoring or disfavoring any party
because of authorship of any provision of this Agreement.

     12.4 Set-Off. Borrower hereby gives and confirms to Lender a right of set-off of all
moneys, securities and other property of Borrower (whether special, general or limited) and the
proceeds thereof, now or hereafter delivered to remain with or in transit in any manner to Lender,
its correspondents or its agents from or for Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise or coming into possession of Lender in any way, and also, of
all other liabilities and obligations now or hereafter owed by Borrower to Lender, contracted with
or acquired by Lender, whether joint, several, absolute, contingent, secured, unsecured, matured or
unmatured, hereby authorizing Lender at any time after an Event of Default has occurred and is
continuing, without prior notice, to apply such balances, credits of claims or any part thereof, to
such liabilities in such amounts as it may select, whether contingent, unmatured or otherwise, and
whether any collateral security therefor is deemed adequate or not. The rights described herein
shall be in addition to any collateral security described in any separate agreement executed by
Borrower.

     12.5 Cumulative Remedies. All rights and remedies that Lender is afforded by reason
of this Agreement are separate and cumulative with respect to Borrower and the Borrower-Related
Parties or any of them 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.

     12.6 No Third Party Beneficiaries. The benefits of this Agreement will not inure to
any third party. This Agreement will not be construed to make or render Lender liable to any
materialmen, subcontractors, contractors, laborers, or others for goods and materials supplied or
labor performed in connection with any construction of any of the Homes. Lender is not liable for
the manner in which any Advances under this Agreement may be applied by Borrower or any of
Borrower’s contractors or subcontractors. Notwithstanding anything contained in the Loan Documents
or any conduct or course of conduct by Borrower or Lender, before or after the date of this
Agreement, this Agreement will not be construed as creating any rights, claims, or causes of action
against Lender, or any of its officers, directors, agents or employees, in favor of any contractor,
subcontractor, supplier of labor or materials, or

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any of their respective creditors, or any other person or entity other than Borrower. Without
limiting the generality of the foregoing, Advances made to any Person other than Borrower
(including, without limitation, any contractor, subcontractor or supplier of labor or materials)
will not be deemed recognition by Lender of any third-party beneficiary status claimed by any such
person or entity.

     12.7 Notice. Any notice, request or other communication required or given hereunder
or under any other Loan Document shall be given in writing by any of the following methods: (a)
registered or certified mail, (b) facsimile, (c) delivered personally by courier service, or (d)
delivered by nationally recognized overnight delivery service; in each case, addressed to the
respective parties as follows:

If to Borrower:

Buffington Texas Classic Homes, LLC

3600 N. Capital of Texas Hwy

Bldg. B, Suite 170

Austin, Texas 78746

Facsimile No. (512) 732-2826

Attention: James M. Giddens

If to the Borrower-Related Parties:

James M. Giddens

Patrick James Starley

Thomas B. Buffington, Sr.

Tim B. Agee

Buffington Homebuilding Group, Ltd.

Buffington Homebuilding Group Management, LLC

3600 N. Capital of Texas Hwy

Bldg. B, Suite 170

Austin, Texas 78746

Facsimile No. (512) 732-2826

If to Lender:

United Development Funding IV

1301 Municipal Way

Suite 100

Grapevine, TX 76051

Facsimile No. (817) 835-0650

Attention: Ben Wissink

Each notice or other communication will be treated as effective and as having been given and
received (a) if sent by certified mail, or registered mail, three (3) Business Days after deposit
in a regularly maintained receptacle for deposit of United States mail, (b) if sent by facsimile,
upon written or electronic confirmation of facsimile transfer, (c) if delivered by courier, upon
written or electronic confirmation of delivery from such service, or (d) if sent by
nationally-recognized overnight delivery service, upon written or electronic confirmation of
delivery from such service. Borrower’s and the Borrower-Related Parties’ respective addresses for
notice may be changed at any time and from time to time, but only after thirty (30) days’ advance
written notice to Lender and shall be the most recent such address furnished in writing by them to
Lender. Lender’s address for notice may be changed at any time and from time to time, but only
after written notice to Borrower and the Borrower-Related Parties and shall be the most

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recent such address furnished in writing by Lender to them. Actual notice, however and from
whomever given or received, shall always be effective when received.

     12.8 Enforcement and Waiver by Lender. Lender shall have the right at all times to
enforce the provisions of this Agreement 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.

     12.9 CHOICE OF LAW. EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF SECURITY
INTERESTS OR REMEDIES IN RESPECT OF ANY PARTICULAR COLLATERAL IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF TEXAS, THIS AGREEMENT 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.

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

     12.11 Counterparts. This Agreement 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.

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

     12.13 Amendments; Waivers. No amendment or waiver of any provision of this Agreement
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.

49

 

     12.14 Binding Effect; Assignment. This Agreement and the other Loan Documents shall be
binding on Borrower and the Borrower-Related Parties and their respective successors and assigns,
including, without limitation, any receiver, trustee or debtor in possession of or for Borrower or
any Borrower-Related Party, and shall inure to the benefit of Lender and its successors and
assigns. Neither Borrower nor any Borrower-Related Party shall be entitled to transfer or assign
this Agreement and the other Loan Documents in whole or in part without the prior written consent
of Lender. This Agreement and the other Loan Documents are freely assignable and transferable by
Lender without the consent of Borrower and the Borrower-Related Parties. Should the status,
composition, structure or name of Borrower or any Borrower-Related Party change, this Agreement and
the other Loan Documents shall continue to be binding upon such Person and also cover such Person
under the new status composition, structure or name according to the terms hereof and thereof.

     12.15 Time of the Essence. Time is of the essence in this Agreement and the other
Loan Documents.

     12.16 Captions; Number or Gender of Words. The captions in this Agreement are for the
convenience of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof. 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.

     12.17. Further Assurances. Borrower and the Borrower-Related Parties will, at their
expense, promptly execute and deliver to Lender, all such other and further documents, agreements
and instruments, and shall deliver all such supplementary information, of Borrower and the
Borrower-Related Parties or with respect to the Property and the Collateral in compliance with or
accomplishment of the agreements of Borrower and the Borrower-Related Parties under the Loan
Documents upon Lender’s request from time to time.

     12.18 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. BORROWER AND EACH BORROWER-RELATED
PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT SUCH PARTY 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 AGREEMENT OR THE LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR
THEREBY OR ASSOCIATED HEREWITH OR THEREWITH; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT SUCH PARTY 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 LENDER 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 AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BASED UPON, 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.

50

 

     12.19 ENTIRE AGREEMENT. THIS AGREEMENT 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
AGREEMENT AND THE OTHER LOAN DOCUMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
AND THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     12.20 No Obligation by Lender to Construct. Lender has no liability or obligation in
connection with the Lot or its development or construction of Homes. Lender is not obligated to
inspect the work in progress. Lender is not liable for (i) the performance or default of any
contractor or subcontractor, (ii) any failure to construct, complete, protect, or insure a Home,
(iii) the payment of any cost or expense incurred in connection therewith, or (iv) the performance
or nonperformance of any obligation of Borrower or any Borrower-Related Party to Lender or to any
other Person.

     12.21 No Obligation by Lender to Operate. Notwithstanding anything contained in the
Loan Documents to the contrary, Lender shall not have, and by its execution and acceptance of this
Agreement hereby expressly disclaims, any obligation or responsibility for the management, conduct,
or operation of the business and affairs of Borrower or any Borrower-Related Party. Any term or
condition of the Loan Documents which permits Lender to disburse funds, whether from the proceeds
of the Loans or otherwise, or to take or refrain from taking any action with respect to Borrower,
any Borrower-Related Party, a Lot or Home, or any other collateral for repayment of the Loans,
shall be deemed to be solely to permit Lender to audit and review the management, operation, and
conduct of the business and affairs of Borrower and any Borrower-Related Party, and to maintain and
preserve the security given by Borrower to Lender for the Loans, and may not be relied upon by any
other person. Further, Lender shall not have, has not assumed and by its execution and acceptance
of this Agreement expressly disclaims any liability or responsibility for the payment or
performance of any indebtedness or obligation of Borrower or any Borrower-Related Party and no term
or condition of the Loan Documents, should be construed otherwise. Further, Lender shall have no
obligation under any Approved Sales Contract or other agreement for the sale of any Home or Lot.
Borrower expressly acknowledges that no term or condition of the Loan Documents should be construed
to deem the relationship between Borrower, the Borrower-Related Parties, and Lender to be other
than that of debtor and creditor relationship. Borrower shall at all times represent that the
relationship between Borrower, Borrower-Related Parties, and Lender is solely that of borrower,
obligated party, and lender. BORROWER AGREES TO DEFEND, INDEMNIFY, AND HOLD LENDER HARMLESS FROM
ANY COST, EXPENSE, OR LIABILITY INCURRED BY LENDER ARISING OUT OF ANY CLAIM THAT LENDER HAS ANY
OBLIGATION OR IS RESPONSIBLE FOR THE MANAGEMENT, OPERATION, OR CONDUCT OF THE BUSINESS AND AFFAIRS
OF BORROWER OR ANY BORROWER-RELATED PARTY OR AS A RESULT OF ANY CLAIM THAT LENDER HAS ANY
OBLIGATION OR IS RESPONSIBLE FOR THE PAYMENT OR PERFORMANCE OF ANY INDEBTEDNESS OR OBLIGATION OF
BORROWER OR ANY BORROWER-RELATED PARTY.

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

51

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

	 	 	 	 	 	 	 

	BORROWER:	 	BUFFINGTON TEXAS CLASSIC HOMES, LLC,	 	 
	 	 	a Texas limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Buffington Homebuilding Group, Ltd.,

a Texas limited partnership,	 	 
	 

	 	Its:
	 	Sole Member	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Buffington Homebuilding Group Management, LLC,

a Texas limited liability company,	 	 
	 

	 	Its:
	 	General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James M. Giddens	 	 
	 

	 	Name:
	 	 

James M. Giddens
	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

52

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Buffington Homebuilding Group, Ltd., a Texas limited partnership, hereby executes this Agreement
for the sole purpose of acknowledging and agreeing to the representations, warranties, covenants
and agreements as same relate to it, specifically in its capacity as the Sole Member, and as a
Borrower-Related Party, under this Agreement.

	 	 	 	 	 	 	 

	 	 	BUFFINGTON HOMEBUILDING GROUP, LTD.,

a Texas limited partnership	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	Buffington Homebuilding Group Management, LLC,

a Texas limited liability company,	 	 
	 

	 	Its:
	 	General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James M. Giddens	 	 
	 

	 	Name:
	 	 

James M. Giddens
	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

53

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Buffington Homebuilding Group Management, LLC, a Texas limited liability company, hereby executes
this Agreement for the sole purpose of acknowledging and agreeing to the representations,
warranties, covenants and agreements as same relate to it, specifically in its capacity as Holdings
General Partner, and as a Borrower-Related Party, under this Agreement.

	 	 	 	 	 	 	 

	 	 	BUFFINGTON HOMEBUILDING GROUP MANAGEMENT, LLC,

a Texas limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James M. Giddens	 	 
	 

	 	Name:
	 	 

James M. Giddens
	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

54

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Thomas Blake Buffington, Sr., an individual, hereby executes this Agreement for the sole purpose of
acknowledging and agreeing to the representations, warranties, covenants and agreements as same
relate to it, specifically in its capacity as a Guarantor and a Borrower-Related Party under this
Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ Thomas Blake Buffington, Sr.
 	 
	 	THOMAS BLAKE BUFFINGTON, SR. 	 
	 	 	 
	 

55

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Patrick James Starley, an individual, hereby executes this Agreement for the sole purpose of
acknowledging and agreeing to the representations, warranties, covenants and agreements as same
relate to it, specifically in its capacity as a Guarantor and a Borrower-Related Party under this
Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ Patrick James Starley
 	 
	 	PATRICK JAMES STARLEY 	 
	 	 	 
	 

56

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

James M. Giddens, an individual, hereby executes this Agreement for the sole purpose of
acknowledging and agreeing to the representations, warranties, covenants and agreements as same
relate to it, specifically in its capacity as a Guarantor and a Borrower-Related Party under this
Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ James M. Giddens
 	 
	 	JAMES M. GIDDENS 	 
	 	 	 
	 

57

 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

BORROWER-RELATED PARTIES:

Tim B. Agee, an individual, hereby executes this Agreement for the sole purpose of acknowledging
and agreeing to the representations, warranties, covenants and agreements as same relate to it,
specifically in its capacity as a Guarantor and a Borrower-Related Party under this Agreement.

	 	 	 	 	 
	 	 	 
	 	            /s/ Tim B. Agee
 	 
	 	TIM B. AGEE 	 
	 	 	 

58

 

	 	 	 	 	 

     This Agreement has been executed on this the 30th day of April, 2010, effective for all
purposes as of the Effective Date.

LENDER:

UNITED DEVELOPMENT FUNDING IV

	 	 	 	 	 	 	 

	 

	 	By:
	 	/s/ David Hanson	 	 
	 

	 	Name:
	 	 

David Hanson
	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

59

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