Document:

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                                                                   EXHIBIT 10.12

[HANOVER CAPITAL MORTGAGE HOLDINGS, INC. LOGO]

                                EMPLOYMENT LETTER

April 14, 2005

Harold McElraft
34 Meyersville Road
Chatham, NJ 07928

Dear Mr. McElraft:

Please allow this letter to serve as the entire agreement between Hanover
Capital Mortgage Holdings, Inc. (the "Company") and you, Harold McElraft (the
"Employee") with respect to certain aspects of your employment with the Company.
The Company acknowledges and agrees that the Employee is and will remain a
partner of, and has and will retain an interest in, Tatum CFO Partners, LLP
("Tatum"), which will benefit the Company in that the Employee will have access
to certain Tatum resources.

                                 Beginning Date

The Employee will work for the Company as a full-time employee beginning on
April 14, 2005.

                                  Compensation

SALARY: $240,000 annually ("Salary"). Employee's Salary may be increased from
time to time, by the Company as determined by annual reviews and performance
evaluations consistent with the policies of the Company for its executive
management.

CASH BONUS: As determined from time to time and approved by the compensation
committee of the Company's Board of Directors.

EQUITY: Subject to future considerations.

During the course of the Employee's engagement hereunder, the Employee will
remain a partner of Tatum. As a partner of Tatum, Employee will share with Tatum
a portion of his or her economic interest in any stock options or equity bonus
that the Company may grant the Employee and may also share with Tatum a portion
of any cash bonus and severance the Company may pay the Employee, to the extent
specified in the Full-Time Permanent Engagement Resources Agreement between the
Company and Tatum (the "Resources Agreement"). The Company acknowledges and
consents to such arrangement.

                                    Benefits

The Employee will be eligible to participate in any Company employee benefits
programs (including but not limited to personal days, vacation days and
holidays), insurance and retirement plans (e.g., 401K) consistent with the
Company's policy and plan provisions as it applies to executive management, and
the Employee will be exempt from any delay periods required for eligibility, if
allowable under the plans.

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In lieu of the Employee participating in the Company-sponsored employee
healthcare (i.e., medical, dental and vision) benefits plans, the Employee will
remain on his or her current Tatum medical plan. The Company will reimburse the
Employee for amounts paid by the Employee for such medical insurance for himself
and (where applicable) his family of up to $1,500 per month upon presentation of
reasonable documentation of premiums paid by the Employee to Tatum. If
permissible under the U.S. federal tax law, such amount will not be considered
reportable W-2 income, but instead as a non-taxable benefits expense.

The Employee must receive written evidence that the Company maintains directors'
and officers' insurance in an amount comparable to other executive officers of
the Company at no additional cost to the Employee, and the Company will maintain
such insurance at all times while this agreement remains in effect.

Furthermore, the Company will maintain such insurance coverage with respect to
occurrences arising during the term of this agreement for at least three years
following the termination or expiration of this agreement or will purchase a
directors' and officers' extended reporting period, or "tail," policy to cover
the Tatum Partner.

The Company agrees to execute an Indemnification Agreement with the Employee so
as to indemnify the Employee to the full extent permitted by law for any losses,
costs, damages, and expenses, including reasonable attorneys' fees, as they are
incurred, in connection with any cause of action, suit, or other proceeding
arising in connection with the Employee's employment with the Company.

                                   Termination

The Company may terminate the Employee's employment for any reason upon at least
30 days' prior written notice to the Employee, such termination to be effective
on the date specified in the notice, provided that such date is no earlier than
30 days from the date of delivery of the notice. Likewise, the Employee may
terminate his or her employment for any reason upon at least 30 days' prior
written notice to the Company, such termination to be effective on the date 30
days following the date of the notice. The Employee will continue to render
services and to be paid during such 30-day period, regardless of who gives such
notice. The Employee may terminate this agreement immediately if the Company has
not remained current in its obligations under this letter or the Full-Time
Permanent Engagement Resources Agreement between the Company and Tatum or if the
Company engages in or asks the Employee to engage in or to ignore any illegal or
unethical conduct.

This agreement will terminate immediately upon the death or disability of the
Employee. For purposes of this agreement, disability will be as defined by the
applicable policy of disability insurance or, in the absence of such insurance,
by the Company's Board of Directors acting in good faith.

The Employee's salary will be prorated for the final pay period based on the
number of days in the final pay period up to the effective date of termination
or expiration.

                                    Severance

If the termination of this agreement is within 90 days of the Beginning date,
the employee will be entitled to receive a payment as severance equal to three
months salary. If this agreement is terminated by the Company without cause or
the required notice, or by the employee for cause, the Employee will be entitled
to receive a payment as severance equal to three months salary.

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                                  Miscellaneous

This agreement contains the entire agreement between the parties with respect to
the matters contained herein, superseding any prior oral or written statements
or agreements.

The provisions in this agreement concerning the payment of salary and bonuses
will survive any termination or expiration of this agreement.

The terms of this agreement are severable and may not be amended except in a
writing signed by the parties. If any portion of this agreement is found to be
unenforceable, the rest of this agreement will be enforceable except to the
extent that the severed provision deprives either party of a substantial portion
of its bargain.

This agreement will be governed by and construed in all respects in accordance
with the laws of the State of New Jersey without giving effect to
conflicts-of-laws principles.

Each person signing below is authorized to sign on behalf of the party
indicated, and in each case such signature is the only one necessary.

Please sign below and return a signed copy of this letter to indicate your
agreement with its terms and conditions.

Sincerely yours,

Hanover Capital Mortgage Holdings, Inc.

By: /s/ John A. Burchett
    -------------------------------------
    (Signature)

John A. Burchett, President and Chief Executive Officer

Acknowledged and agreed by:

                       EMPLOYEE:

                       /s/  Harold F. McElraft
                       ---------------------------------
                       (Signature)

                       Harold F. McElraft

                       Date: April 15, 2005<PAGE>

                                                                EXHIBIT 10.36.17

                            INDEMNIFICATION AGREEMENT

      THIS INDEMNIFICATION AGREEMENT is to be effective as of April 14, 2005
(this "Agreement") by and between Hanover Capital Mortgage Holdings, Inc., a
Maryland corporation, (the "Company") and Harold F. McElraft, Chief Financial
Officer and Treasurer of the Company (together with such person's legal
representatives or other successors, "Indemnitee").

      WHEREAS, in order to induce Indemnitee to serve, or continue to serve, as
Chief Financial Officer and Treasurer of the Company or to accept, or continue
to accept, the duties, responsibilities and burdens associated with such
service, the Company desires, and the board of directors of the Company have
resolved to provide the Indemnitee with the indemnification arrangements set
forth herein; and

      WHEREAS, Indemnitee is willing to serve or continue to serve as Chief
Financial Officer and Treasurer of the Company on the terms set forth herein;

      NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

      1.    DEFINITIONS; INTERPRETIVE PRINCIPLES.

            (a)   Definitions

            For purposes of this Agreement:

                  "Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.

                  "Company Entity" shall mean the Company or any Subsidiary of
the Company.

                  "Corporate Status" describes the status of a Person who is or
was a director, officer, partner, employee, trustee, agent or fiduciary of any
Company Entity or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise which such Person is or was serving at
the request of any Company Entity.

                  "Disinterested Director" means a member of the board of
directors of the Company who is not and was not a party to the Proceeding in
respect of which indemnification is sought by Indemnitee.

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                  "Expenses" shall include all attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, participating or being or preparing to be a
witness in any Proceeding or other proceeding of the type described in the
definition of "Proceeding" set forth below.

                  "Including" means including but not limited to.

                  "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past three years has been, retained to represent: (i) any Company
Entity or Indemnitee in any matter (other than with respect to matters
concerning Indemnitee under this Agreement); or (ii) any other party to the
Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "Independent Counsel" shall not include any Person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing any Company Entity or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.

                  "Losses" means judgments, penalties, liabilities, losses,
claims, damages, fines and amounts, including amounts paid in settlement.

                  "Person" shall mean any person or entity of any nature
whatsoever, specifically including an individual, a firm, a company, a
corporation, a limited liability company, a partnership, a trust or other
entity.

                  "Proceeding" includes any actual, threatened, pending or
completed action, suit, litigation, claim, arbitration, mediation, alternate
dispute resolution mechanism, investigation, inquiry, administrative hearing or
any other actual, threatened, pending or completed proceeding arising on or
after the date hereof, whether brought by or in the right of any Company Entity
or otherwise and whether civil, criminal, administrative or investigative, in
which Indemnitee was, is or will be involved as a party or otherwise, by reason
of the fact that he is or was a director, officer, employee, trustee, agent,
attorney-in-fact or fiduciary of any Company Entity at any time on or after the
date hereof, or is or was serving at the request of any Company Entity as a
director, officer, partner, employee, trustee, agent, attorney-in-fact or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action taken by him or of any inaction on his
part, on or after the date hereof, while acting as director, officer, partner,
employee, trustee, agent, attorney-in-fact or fiduciary of any Company Entity,
or while serving at the request of any Company Entity as a director, officer,
partner, employee, trustee, agent, attorney-in-fact or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, in each case
whether or not he is acting or serving in any such capacity at the time any
Expense, Loss or other amount for which indemnification can be provided under
this Agreement is incurred or imposed.

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                  "Subsidiary" shall mean with respect to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
that Person.

            (b)   Interpretive Principles

            For purposes of this Agreement, (i) the terms defined in this
Section include the plural as well as the singular, (ii) the use of any gender
herein shall be deemed to include the other genders; and (iii) references herein
to Sections without reference to a document are to designated Sections in this
Agreement.

      2.    SCOPE OF INDEMNIFICATION.

      The obligations of the Company to indemnify Indemnitee in the manner set
forth in this Agreement shall continue in full force and effect, consistent with
the terms of Section 10, notwithstanding any termination or resignation of the
Indemnitee.

      3.    INDEMNITY.

            (a)   If an Indemnitee was, is, or is threatened to be made a party
to or participant in any Proceeding whether such Proceeding is by or in the
right of any Company Entity, any third party or any other Person, the Company
hereby agrees to hold harmless and indemnify from and against any and all
Expenses and Losses incurred by Indemnitee or incurred on his behalf to the
fullest extent authorized or permitted by applicable law, by the Charter of the
Company and by the By-Laws of the Company as the foregoing may be amended from
time to time, and including any and all Expenses and Losses arising out of or
relating to the actual or alleged acts, omissions, negligence or active or
passive wrongdoing of Indemnitee. The only limitation that shall exist upon the
indemnification obligations of the Company pursuant to this Agreement is that
the Company shall not be obligated to make any indemnity-related payment to
Indemnitee that is finally determined (pursuant to the procedures and subject to
the presumptions set forth in Sections 7 and 8) to be unlawful under Maryland
law.

            (b)   Notwithstanding any other provision of this Agreement to the
contrary, to the extent that Indemnitee is a party to and is successful, on the
merits or otherwise, in any Proceeding, he shall be indemnified pursuant to
subsection (a) above to the maximum extent permitted by law. However, if (i)
Indemnitee is not wholly successful in a Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, and (ii) it is determined that it is unlawful for
Indemnitee to be indemnified with respect to such unsuccessful claims, issues or
matters, in such instance the Company shall indemnify Indemnitee against all
Expenses and Losses incurred by Indemnitee, or incurred on his behalf in
connection with each successfully resolved claim, issue or matter. For purposes
of this Section and without limitation, the termination of any claim, issue or
matter in a Proceeding by dismissal, with or without prejudice, shall be deemed
to be successful on the merits or otherwise as to such claim, issue or matter.

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      4.    CONTRIBUTION IN THE EVENT OF JOINT LIABILITY.

            (a)   Irrespective of whether the indemnification rights granted
pursuant to Section 3 are available in any given instance, it is agreed by the
parties that with respect to any Proceeding in which any Company Entity is
jointly liable with Indemnitee (or would be liable if joined in such
Proceeding), the Company shall pay, in the first instance, the entire amount of
any and all Expenses and Losses relating to or incurred in connection with such
Proceeding, without requiring Indemnitee to contribute to such payment, and the
Company hereby waives and relinquishes any right of contribution it may have
against Indemnitee. The Company shall not enter into any settlement of any
Proceeding in which any Company Entity is jointly liable with Indemnitee (or
would be liable if joined in such Proceeding) unless such settlement provides
for a full and final release of all claims asserted against Indemnitee.

            (b)   Without diminishing or impairing the obligations of the
Company set forth in subsection (a) above, if, for any reason, Indemnitee should
elect or be required by any relevant judicial or administrative authority to pay
all or any portion of any Expenses and Losses relating to or incurred in
connection with any Proceeding in which any Company Entity is jointly liable
with Indemnitee (or would be liable if joined in such Proceeding), the Company
shall contribute to the amount of Expenses and Losses incurred and paid or
payable by Indemnitee. The contribution by the Company shall be in an amount
proportional to (i) on the one hand, the relative benefits received or enjoyed
from the transaction to which the Proceeding relates by any Company Entity and
all directors, officers, partners, employees, trustees, agents,
attorneys-in-fact or fiduciaries of any Company Entity (other than Indemnitee)
who are jointly liable with Indemnitee (or would be liable if joined in such
Proceeding), and (ii) the relative benefits received or enjoyed from the
transaction to which the Proceeding relates by Indemnitee provided, however,
that such proportional calculation, to the extent necessary to conform to
applicable law, may be further adjusted: (i) by reference to the relative fault
of any Company Entity and all directors, officers, partners, employees,
trustees, agents, attorneys-in-fact or fiduciaries of any Company Entity (other
than Indemnitee) who are jointly liable with Indemnitee (or would be if joined
in such Proceeding) on the one hand and Indemnitee on the other hand in
connection with the events that resulted in such Expenses and Losses; and/or
(ii) by any other equitable considerations which the law may require to be
considered. The relative fault of any Company Entity and all directors,
officers, partners, employees, trustees, agents, attorneys-in-fact or
fiduciaries of any Company Entity (other than Indemnitee) who are jointly liable
with him (or would be liable if joined in such Proceeding) on the one hand, and
Indemnitee, on the other hand, shall be determined by taking into account, among
other factors, the degree to which their respective actions were motivated by
intent to gain personal profit or advantage, the degree to which their liability
is primary or secondary and the degree to which their conduct is active or
passive.

            (c)   The Company hereby agrees to fully indemnify and hold
Indemnitee harmless from and against any and all claims of contribution which
may be brought by any director, officer, employee, trustee, agent,
attorney-in-fact or fiduciary of any Company Entity who may be jointly liable
with Indemnitee in connection with any given Proceeding.

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      5.    INDEMNIFICATION FOR EXPENSES INCURRED AS A WITNESS.

      Notwithstanding any other provision of this Agreement to the contrary, to
the extent that Indemnitee is, by reason of his Corporate Status, a witness in
any Proceeding to which Indemnitee is not a party, the Company shall indemnify
Indemnitee for and against all Expenses actually incurred by Indemnitee or
incurred on his behalf in connection therewith.

      6.    ADVANCEMENT OF EXPENSES.

      Notwithstanding any other provision of this Agreement to the contrary, the
Company shall advance or directly pay all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding, within ten days after the receipt
by the Company of any statement from Indemnitee requesting such advances or
payments from time to time, whether prior to or after final disposition of such
Proceeding. Such statement shall reasonably evidence the Expenses incurred by,
or on behalf of, or charged to Indemnitee. In connection herewith, as a
condition to any advancement or direct payment of any Expenses incurred by or on
behalf of Indemnitee in connection with any Proceeding, Indemnitee hereby agrees
and undertakes to repay any Expenses advanced or paid hereunder, and Indemnitee
shall, at the request of the Company, execute one or more agreements and
undertakings in reasonable form, in favor of the Company or any insurer or other
Person reasonably selected by the Company, to repay any Expenses advanced or
paid if ultimately it is determined that Indemnitee is not entitled to be
indemnified or reimbursed for such Expenses in any given instance, in accordance
with applicable law and the Charter and By-laws of the Company, as the foregoing
may be amended from time to time. The foregoing undertaking to repay such
Expenses by Indemnitee shall be unsecured and interest-free. Notwithstanding the
foregoing, the obligation of the Company to advance Expenses pursuant to this
Section 6 shall be subject to the condition that if, when and to the extent that
the Company reasonably determines that Indemnitee would not be permitted to be
indemnified under applicable law (subject to the terms and conditions of Section
7) the Company shall be entitled to reimbursement within 30 days of such
determination by Indemnitee for all such amounts theretofore paid; provided,
however, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination that
he should be indemnified under applicable law any determination made by the
Company that Indemnitee is not entitled to indemnification under applicable law
in a given instance shall not be binding, and Indemnitee shall not be required
to reimburse the Company for any advance or payment of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or have lapsed).

      7.    PROCEDURES AND PRESUMPTIONS FOR DETERMINATION OF ENTITLEMENT TO
            INDEMNIFICATION.

      It is the intent of this Agreement to secure for Indemnitee rights of
indemnity that are as favorable and as broad as permitted under the law and
public policy of Maryland. Accordingly, the parties hereby agree that the
following procedures and presumptions shall apply if any question or dispute as
to whether Indemnitee is entitled to indemnification under this Agreement.

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<PAGE>

            (a)   To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
as may be reasonably necessary to enable the Company to determine whether and to
what extent Indemnitee is entitled to indemnification. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification
advise the Company board of directors of such request in writing. Indemnitee's
failure to strictly comply with the procedural requirements set forth in this
Section, however, shall not relieve the Company of any obligation it may have to
indemnify hereunder and shall not alter or waive any presumptions for
determination of entitlement to indemnification contained herein.

            (b)   Upon each submission of a written request by Indemnitee for
indemnification pursuant to subsection (a) above, a determination with respect
to Indemnitee's entitlement thereto shall be made in accordance with one of the
following methods, the selection of which method shall be at Indemnitee's
discretion: (i) by a majority vote of the Disinterested Directors even if such
Disinterested Directors constitute less than a quorum; or (ii) by Independent
Counsel in a written opinion pursuant to the procedures and selection processes
set forth in subsection (c) below.

            (c)   If Indemnitee elects for the determination of entitlement to
indemnification to be made by Independent Counsel pursuant to subsection (b)
above, the Independent Counsel shall be selected as provided in this subsection
(c). The Independent Counsel shall be selected by Indemnitee (unless he requests
that the selection be made by the Company board of directors) with the approval
of the Company (which approval may not be unreasonably withheld). The Company
shall pay any and all Expenses of such Independent Counsel relating to its
performance of services in connection herewith, and the Company shall pay all
Expenses incident to the procedures contained in this subsection (c)
irrespective of the manner in which such Independent Counsel was selected or
appointed.

            (d)   In making a determination with respect to Indemnitee's
entitlement to indemnification hereunder, the Person(s) making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if he has submitted a request for indemnification in accordance
with subsection (a) above. Anyone seeking to overcome this presumption shall
have the burden of proof and the burden of persuasion, by clear and convincing
evidence. In addition, if the Person(s) making a determination pursuant to
subsection (b) above shall determine that Indemnitee is not entitled to
indemnification hereunder, such determination shall not create a presumption
against Indemnitee's entitlement to indemnification in any later action, suit or
proceeding initiated by Indemnitee to enforce his rights under this Agreement.

            (e)   Indemnitee shall be presumed to have acted in good faith if
his action is based on the records or books of account of any Company Entity or
any other Person, including financial statements, or on information supplied to
Indemnitee by the officers of any Company Entity or such other Person, in the
course of their duties or on the advice of legal counsel for any Company Entity,
or on information or records given or reports made to any Company Entity by an
independent certified public accountant, by a financial advisor or by an
appraiser or other

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<PAGE>

expert selected by any Company Entity. In addition, the knowledge and/or
actions, or failure to act, of any director, officer, partner, agent, trustee or
employee of any Company Entity or any other Person, shall not be imputed to
Indemnitee for purposes of determining his right to indemnification under this
Agreement. Irrespective of whether the foregoing provisions of this subsection
(e) are satisfied, it shall be presumed in any event that each Indemnitee has at
all times acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of any Company Entity. Anyone seeking to
overcome this presumption shall have the burden of proof and the burden of
persuasion, by clear and convincing evidence.

            (f)   The Company acknowledges that a settlement or other
disposition of a Proceeding short of final judgment may be desirable if it
permits a party to avoid expense, delay, distraction, disruption and
uncertainty. If any Proceeding to which Indemnitee is a party is resolved in any
manner other than by adverse judgment against Indemnitee (including settlement
of such Proceeding with or without payment of money or other consideration) it
shall be presumed that Indemnitee has been successful on the merits or otherwise
in such Proceeding. Anyone seeking to overcome this presumption shall have the
burden of proof and the burden of persuasion by clear and convincing evidence.

            (g)   If the Person(s) empowered or selected under subsection (b)
above to determine whether Indemnitee is entitled to indemnification shall not
have made a determination within 30 days after receipt by the Company of the
request therefore, the requisite determination of entitlement to indemnification
shall be deemed to have been made in favor of the Indemnitee, and he shall be
entitled to such indemnification, absent (i) an intentional misstatement by
Indemnitee of a material fact, or an intentional omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification; or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day period
may be extended for a reasonable time, not to exceed an additional 15 days, if
the Person(s) making such determination reasonably and in good faith requires
such additional time to complete the obtaining or evaluation of documentation
and/or information relating thereto.

            (h)   Indemnitee shall reasonably cooperate with the Person(s)
making the determination regarding his entitlement to indemnification, including
providing to such Person(s) upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any Independent Counsel or member of the board of directors of
the Company shall act reasonably and in good faith in making a determination of
Indemnitee's entitlement to indemnification hereunder. Any Expenses incurred by
Indemnitee in so cooperating with the Person(s) making such determination shall
be borne by the Company (irrespective of the determination as to Indemnitee's
entitlement to indemnification), and the Company hereby agrees to indemnify and
hold harmless Indemnitee therefrom.

      8.    REMEDIES.

            (a)   If: (i) a determination is made pursuant to Section 7 that
Indemnitee is not entitled to indemnification under this Agreement; (ii)
advancement of Expenses is not timely

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<PAGE>

made pursuant to Section 6; (iii) contribution is not made pursuant to Section
4; (iv) no determination of entitlement to indemnification is made pursuant to
Section 7 within 90 days after receipt by the Company of the request for
indemnification; (v) payment of indemnification pursuant to this Agreement is
not made within ten days of the receipt by the Company of a written request
therefore; (vi) payment of indemnification is not made within ten days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 7; or (vii)
the Company has not complied with any other term of this Agreement intended for
the benefit of Indemnitee, then in any such event, Indemnitee shall be entitled
to an adjudication of the foregoing in an appropriate court in Maryland, or in
any other court of competent jurisdiction. The Company shall not oppose
Indemnitee's right to seek any such adjudication.

            (b)   If a determination shall have been made pursuant to Section 7
that Indemnitee is not entitled to indemnification, any judicial proceeding
commenced pursuant to this Section 8 shall be conducted in all respects as a de
novo trial, on the merits, and Indemnitee shall not be prejudiced by reason of
that adverse determination.

            (c)   If a determination shall have been made pursuant to Section 7
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination in any judicial proceeding commenced pursuant to this Section
8, absent a prohibition of such indemnification under applicable law.

            (d)   If Indemnitee, pursuant to this Section 8, seeks a judicial
adjudication of his rights under, or to recover damages for breach of, this
Agreement, or to recover under any directors' and officers' liability insurance
policies maintained by the Company, the Company shall pay on his behalf, in
advance, any and all Expenses incurred by him in such judicial adjudication,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advancement of expenses or insurance recovery.

            (e)   The Company shall be precluded from asserting in any judicial
proceeding commenced pursuant to this Section 8 that the procedures and
presumptions of this Agreement are not valid, binding and enforceable and shall
stipulate in any such court that the Company are bound by all the provisions of
this Agreement.

      9.    NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.

            (a)   The rights of indemnification, advancement or contribution set
forth in this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the Charter
of the Company, the By-Laws of the Company or any other agreement to which the
Indemnitee, the Company or any Affiliates of the Company is a party. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
limit or restrict any right of Indemnitee under this Agreement in respect of any
action taken or omitted by Indemnitee as a function of his Corporate Status
prior to such amendment, alteration or repeal. To the extent that a change in
the law, whether by statute or judicial decision, permits greater
indemnification, advancement or contribution rights than

                                        8
<PAGE>

currently are afforded under the Charter of the Company, the By-Laws of the
Company and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy conferred herein is intended to be exclusive of
any other right or remedy of Indemnitee, and every other right or remedy shall
be cumulative and in addition to every other right or remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder shall not prevent the concurrent
assertion or employment of any other right or remedy.

            (b)   To the extent that the Company maintains an insurance policy
or policies providing liability insurance for a director, officer, partner,
employee, trustee, agent, attorney-in-fact or fiduciary of any Company Entity or
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Person serves at the request of any Company
Entity, Indemnitee shall be covered by such policy or policies in accordance
with its or their terms to the maximum extent of the coverage available for any
such director, officer, partner, employee, trustee, agent, attorney-in-fact or
fiduciary under such policy or policies. If, at the time of a request for
indemnification under this Agreement, the Company has such a policy or policies
in effect, the Company shall give prompt notice of the commencement of a
Proceeding to the insurers in accordance with the procedures set forth in the
respective policy or policies. The Company shall thereafter take all necessary
or desirable action to cause such insurers to pay, on behalf of the Indemnitee,
all amounts payable as a result of such Proceeding in accordance with the
provisions of such policy or policies.

            (c)   In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.

            (d)   The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee otherwise and actually has received such payment under any
insurance policy, contract, agreement or otherwise.

      10.   DURATION OF AGREEMENT.

      All agreements and obligations of the Company contained herein shall
continue with respect to Indemnitee during the period in which he serves as a
director, officer, partner, employee, trustee, agent, attorney-in-fact or
fiduciary of any Company Entity (or is or was serving at the request of any
Company Entity as a director, officer, partner, employee, trustee, agent,
attorney-in-fact or fiduciary of another corporation, partnership, joint
venture, trust or other enterprise), whether or not such service occurred prior
to or after the date this Agreement was effective, and shall continue in
perpetuity thereafter, whether or not Indemnitee is acting or serving in any
such capacity at the time any Expenses or Losses are incurred for which
indemnification, advancement or contribution can be provided under this
Agreement. This Agreement shall be binding upon, shall inure to the benefit of
and shall be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by

                                        9
<PAGE>

purchase, merger, consolidation or otherwise to all or substantially all of the
business or assets of the Company), assigns, spouses, heirs, executors and
personal and legal representatives.

      11.   SECURITY.

      To the extent requested by Indemnitee and approved by the Company board of
directors, the Company may at any time and from time to time provide security to
Indemnitee for the obligations of the Company hereunder through an irrevocable
bank line of credit, funded trust or other collateral or by other means. Any
such security, once provided to Indemnitee, may not be revoked or released
without the prior written consent of such Indemnitee.

      12.   ENFORCEMENT; ENTIRE AGREEMENT.

            (a)   The Company expressly confirms and agrees that it has entered
into this Agreement and has assumed the obligations imposed on it hereby in
order to induce Indemnitee to serve or continue to serve as a director, officer,
partner, employee, trustee, agent, attorney-in-fact or fiduciary of any Company
Entity, and the Company acknowledges that Indemnitee is relying upon this
Agreement in agreeing to serve as a director, officer, partner, employee,
trustee, agent, attorney-in-fact or fiduciary of any Company Entity.

            (b)   Subject to Section 9, this Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral, written and
implied, between the parties hereto with respect to the subject matter hereof,
except to the extent referenced in Section 9 hereof.

      13.   SEVERABILITY.

      If any provision of this Agreement shall be held by a court of competent
jurisdiction to be invalid, void, illegal or otherwise unenforceable for any
reason whatsoever: (i) the validity, legality and enforceability of the
remaining provisions of this Agreement (including each portion of any section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable that is not itself invalid, illegal or unenforceable) shall not be
affected or impaired in any way thereby and shall remain enforceable to the
fullest extent permitted by law; and (ii) to the fullest extent possible, the
provisions of this Agreement (including each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable that is not itself invalid, illegal or unenforceable) shall be
construed so as to give effect to the intent manifested thereby.

      14.   MODIFICATION AND WAIVER.

      No supplement, modification, waiver, termination or amendment of all or
any portion of this Agreement shall be binding unless expressed in a written
instrument executed by the parties hereto. No waiver of any term or provision of
this Agreement shall be deemed or shall constitute a waiver of any other term or
provision hereof (whether or not similar), and any such waiver shall be
effective only in the specific instance, for the specific duration and for the
express purpose for which it is given. Any waiver or failure to insist upon
strict compliance with any

                                       10
<PAGE>

term or provision of this Agreement shall not operate as a waiver of, or an
estoppel with respect to, any subsequent or other failure to comply.

      15.   NOTICE OF SERVICE BY INDEMNITEE.

      Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment or other
document relating to any Proceeding or matter which may be subject to
indemnification covered hereunder. The failure to so notify the Company shall
not relieve the Company of any obligations which it may have to Indemnitee under
this Agreement or otherwise.

      16.   NOTICES.

      All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if (i) delivered by and
receipted for by the party to whom said notice or other communication shall have
been directed; (ii) mailed by certified or registered mail with postage prepaid,
on the third business day after the date on which it is so mailed; or (iii) sent
by facsimile, the successful transmission and receipt of which is confirmed in a
written report; in each instance to the addresses and/or facsimile numbers set
forth below:

      (a)   If to Indemnitee, to:  Harold F. McElraft
                                   34 Meyersville Rd
                                   Chatham, NJ 07928
                                   Facsimile: (973) 635-4234

      (b)   If to the Company, to: Hanover Capital Mortgage Holdings, Inc.
                                   379 Thornall Street
                                   Edison, New Jersey 08837
                                   Attention: General Counsel
                                   Facsimile: (732) 548-0286

or to such other address or facsimile number as may have been furnished to
Indemnitee by the Company, as the case may be.

      17.   IDENTICAL COUNTERPARTS.

      This Agreement may be executed in one or more counterparts, each of which
shall for all purposes be deemed to be an original but all of which together
shall constitute one and the same agreement. Only one such counterpart signed by
the party against whom enforceability is sought needs to be produced to evidence
the existence of this Agreement.

      18.   HEADINGS.

      The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction or interpretation thereof.

                                       11
<PAGE>

      19.   GOVERNING LAW.

      The parties agree that this Agreement shall be governed by, and construed
and enforced in accordance with, the laws of Maryland without application of the
conflict of laws principles thereof.

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

                                           HANOVER CAPITAL MORTGAGE
                                           HOLDINGS, INC.

                                           By: /s/ John A. Burchett
                                               -------------------------------
                                               John A. Burchett
                                               President and CEO

                                           INDEMNITEE

                                           /s/ Harold F. McElraft
                                           -----------------------------------
                                           Harold F. McElraft

                                       12

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