Document:

exv10w5

EXHIBIT 10.5

ESCROW AGREEMENT

Legacy Bank of Texas

5000 Legacy Drive

Plano, Texas 75024

     Re:     United Development Funding IV

Ladies and Gentlemen:

     United Development Funding IV, a Maryland real estate investment trust (the “Trust”),
will issue in a public offering (the “Offering”) common shares of beneficial interest (the
“Shares”) pursuant to a Registration Statement on Form S-11 filed by the Trust with the
Securities and Exchange Commission and a Prospectus included therein, as may be amended or
supplemented from time to time (the “Prospectus”). The Shares will be offered by select
members of the Financial Industry Regulatory Authority (FINRA) on a “best efforts” basis (each
being referred to herein as a “Dealer” and collectively as the “Dealers”). The
Trust is entering into this Escrow Agreement (the “Agreement”) to set forth the terms on
which Legacy Bank of Texas (the “Escrow Agent”), will hold and disburse the proceeds from
subscriptions for the purchase of the Shares in the Offering until such time as (i) in the case of
subscriptions received from all nonaffiliates of the Trust, the Trust has received and accepted
subscriptions for Shares resulting in total minimum capital raised of $1,000,000 (the “Required
Capital”) and, thereafter, until otherwise directed by the Trust; and (ii) in the case of
subscriptions received from residents of Pennsylvania (“Pennsylvania Subscribers”), the
Trust has received subscriptions for Shares from nonaffiliates of the Trust resulting in total
minimum capital raised of $35,000,000 (the “Pennsylvania Required Capital”); and (iii) in
the case of subscriptions received from residents of New York (“New York Subscribers”), the Trust
has received subscriptions for Shares from nonaffiliates of the Trust resulting in total minimum
capital raised of $2,500,000 (the “New York Required Capital”).

     The Trust hereby appoints Legacy Bank of Texas as Escrow Agent for purposes of holding the
proceeds from the subscriptions for the Shares, on the terms and conditions hereinafter set forth:

     1. Until such time as the Trust has received subscriptions for Shares resulting in total
minimum capital raised equal to the Required Capital and such funds are disbursed from the Escrow
Account, as hereinafter defined, in accordance with paragraph 3(a) hereof, persons subscribing to
purchase the Shares (the “Subscribers”) will be instructed by the Dealers to remit the
purchase price in the form of checks, drafts, wires, Automated Clearing House (ACH) or money orders
(hereinafter referred to as “Instruments of Payment”) payable to the order of “United
Development Funding IV Escrow Account.” After subscriptions are received resulting in total
minimum capital raised equal to the Required Capital and such funds are disbursed from the Escrow
Account in accordance with paragraph 3(a) hereof, subscriptions shall continue to be so submitted
unless otherwise instructed by the Trust. Any Instruments of Payment made payable to a party other
than the Escrow Agent shall be returned to the Dealer who submitted such Instrument of Payment.
After receipt of any Instruments of Payment, a Dealer will send to the Trust such Instruments of
Payment along with all other subscription documentation by noon of the next business day following
receipt of the Instruments of Payment and other subscription documentation. The Trust then
undertakes to send each Subscriber’s name, address, executed IRS Form W-9, number of Shares
purchased and purchase price remitted (the “Subscription Materials”) and the Instrument of
Payment to the Escrow Agent on the same day it is received by the Trust from the Dealer. The
Dealer shall insure that any such submissions of Subscription Materials and

 

 

Instruments of Payment by the Trust to the Escrow Agent occur in accordance with the
provisions of the previous sentence. The Escrow Agent shall notify the Trust from time to time
during the term of this Agreement of the names of any Subscribers for whom the Escrow Agent has not
received a properly executed IRS Form W-9. The Escrow Agent will deposit the Instruments of
Payment from such Subscribers into an interest-bearing deposit account entitled “Escrow Account for
the Benefit of Subscribers for Shares of United Development Funding IV” or such similar designation
as the parties may agree (the “Escrow Account”) until such Escrow Account has closed
pursuant to paragraph 3(a) hereof. Instruments of Payment received from Pennsylvania Subscribers
(as identified as such by the Trust) shall be accounted for separately in a subaccount entitled
“Escrow Account for the Benefit of Pennsylvania Subscribers” (the “Pennsylvania Escrow
Account”), until such Pennsylvania Escrow Account has closed pursuant to paragraph 3(a) hereof.
Instruments of Payment received from New York Subscribers (as identified as such by the Trust)
shall be accounted for separately in a subaccount entitled “Escrow Account for the Benefit of New
York Subscribers” (the “New York Escrow Account”), until such New York Escrow Account has
closed pursuant to paragraph 3(a) hereof. Each of the Escrow Account, the Pennsylvania Escrow
Account and the New York Escrow Account will be established and maintained in such a way as to
permit the interest income calculations described in paragraph 6.

     2. The Escrow Agent will promptly process for collection the Instruments of Payment upon
deposit into the Escrow Account, Pennsylvania Escrow Account, or New York Escrow Account, as
applicable. Deposits will be held in the Escrow Account, the Pennsylvania Escrow Account, and the
New York Escrow Account until such funds are disbursed in accordance with paragraph 3 hereof.
Prior to disbursement of the funds deposited in the Escrow Account, the Pennsylvania Escrow
Account, or the New York Escrow Account, such funds will not be subject to claims by creditors of
the Trust, any Dealer or any of their affiliates. If any of the Instruments of Payment are
returned to the Escrow Agent for nonpayment prior to receipt of the Required Capital or, in
connection with subscriptions from Pennsylvania Subscribers, the Pennsylvania Required Capital or,
in connection with subscriptions from New York Subscribers, the New York Required Capital, the
Escrow Agent shall promptly notify the Trust in writing via mail, email or facsimile of such
nonpayment, and is authorized to debit the Escrow Account, the Pennsylvania Escrow Account, or the
New York Escrow Account, as applicable, in the amount of such returned payment as well as any
interest earned on the amount of such payment.

     3. (a) Subject to the provisions of paragraphs 3(b)-3(i) below:

          (i) Once collected funds in the Escrow Account are an amount equal to or greater than
the Required Capital, the Escrow Agent shall promptly notify the Trust and, upon receiving
written instruction from the Trust, (A) provide to the Trust for delivery to the Director of
Banking and Finance of the State of Nebraska an affidavit in substantially the form attached
hereto as Exhibit A (the “Escrow Agent Affidavit”) which states that all of the conditions
of this Agreement relating to the Escrow Account have been met, (B) disburse to the Trust,
by check, ACH or wire transfer, the funds in the Escrow Account representing the gross
purchase price for the Shares, and (C) disburse to the Subscribers or the Trust, as
applicable, any interest thereon pursuant to the provisions of paragraph 3(f). For purposes
of this Agreement, the term “collected funds” shall mean all funds received by the Escrow
Agent that have cleared normal banking channels and are in the form of cash or a cash
equivalent. After such time, the Escrow Account shall remain open and the Trust shall
continue to cause subscriptions for the Shares that are not to be deposited in the
Pennsylvania Escrow Account or the New York Escrow Account to be deposited therein until the
Trust informs the Escrow Agent in writing to close the Escrow Account, and thereafter any
Subscription Materials and Instruments of Payment received by the Escrow Agent from
Subscribers other than Pennsylvania Subscribers and New York Subscribers shall be forwarded
directly to the Trust.

          (ii) Regardless of any release of funds from the Escrow Account, the Trust shall
continue to forward Instruments of Payment and Subscription Materials received from New

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York Subscribers for deposit into the New York Escrow Account to the Escrow Agent until
such time as the Trust notifies the Escrow Agent in writing that total subscription proceeds
(including the amount then in the New York Escrow Account) equal or exceed the New York
Required Capital. Upon the receipt of such written instruction from the Trust, the Escrow
Agent shall (A) disburse to the Trust, by check, ACH or wire transfer, the funds then in the
New York Escrow Account representing the gross purchase price for the Shares, and (B)
disburse to the New York Subscribers or the Trust, as applicable, any interest thereon
pursuant to the provisions of paragraph 3(f). Following such disbursements, the Escrow
Agent shall close the New York Escrow Account, and thereafter any Subscription Materials and
Instruments of Payment received by the Escrow Agent from New York Subscribers shall be
deposited directly to the Escrow Account (or to the Trust, if it has closed the Escrow
Account, as instructed in writing by the Trust).

          (iii) Regardless of any release of funds from the Escrow Account or the New York Escrow
Account, the Trust shall continue to forward Instruments of Payment and Subscription
Materials received from Pennsylvania Subscribers for deposit into the Pennsylvania Escrow
Account to the Escrow Agent until such time as the Trust notifies the Escrow Agent in
writing that total subscription proceeds (including the amount then in the Pennsylvania
Escrow Account) equal or exceed the Pennsylvania Required Capital. Upon the receipt of such
written instruction from the Trust, the Escrow Agent shall (A) disburse to the Trust, by
check, ACH or wire transfer, the funds then in the Pennsylvania Escrow Account representing
the gross purchase price for the Shares, and (B) disburse to the Pennsylvania Subscribers or
the Trust, as applicable, any interest thereon pursuant to the provisions of paragraph 3(f).
Following such disbursements, the Escrow Agent shall close the Pennsylvania Escrow Account,
and thereafter any Subscription Materials and Instruments of Payment received by the Escrow
Agent from Pennsylvania Subscribers shall be deposited directly to the Escrow Account (or to
the Trust, if it has closed the Escrow Account, as instructed in writing by the Trust).

          (b) At the close of business on the date that is one year following commencement of the
Offering (the “Expiration Date”) (such commencement date shall be promptly provided to the
Escrow Agent by the Trust after the commencement of the Offering), the Escrow Agent shall promptly
notify the Trust (the “Expiration Notice”) if it is not in receipt of Subscription
Materials received on or before the Expiration Date and Instruments of Payment dated not later than
the Expiration Date for the purchase of Shares providing for total purchase proceeds that equal or
exceed the Required Capital (from all sources but exclusive of any funds received from
subscriptions for Shares from entities for which the Trust has notified the Escrow Agent are
affiliated with the Trust). Following the tenth calendar day after the date of the Expiration
Notice, the Escrow Agent shall promptly return directly to each Subscriber the collected funds
deposited in the Escrow Account, the Pennsylvania Escrow Account and the New York Escrow Account on
behalf of such Subscriber, or shall return the Instruments of Payment delivered, but not yet
processed for collection prior to such time, together with interest in the amounts calculated
pursuant to paragraph 6 for each Subscriber at the address provided in the Subscription Materials.
However, the Escrow Agent shall not be required to remit any payments until funds represented by
such payments have been collected.

          (c) Notwithstanding subparagraphs 3(a) and 3(b) above, if the Escrow Agent is not in receipt
of evidence of subscriptions accepted on or before the close of business on such date that is 120
days after commencement of the Offering (the “Initial Escrow Period”) (such commencement
date shall be promptly provided to the Escrow Agent by the Trust after the commencement of the
Offering), and Instruments of Payment dated not later than that date, for the purchase of Shares
providing for total purchase proceeds from all nonaffiliated sources that equal or exceed the
Pennsylvania Required Capital, the Escrow Agent shall promptly notify the Trust. Thereafter, the
Trust shall send to each Pennsylvania Subscriber by certified mail within ten (10) calendar days
after the end of the Initial Escrow period a notification in the form of Exhibit B. If, pursuant
to such notification, a Pennsylvania Subscriber requests the return of his or her subscription
funds within ten (10) calendar days after receipt of the notification

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(the “Request Period”), the Escrow Agent shall promptly refund directly to each
Pennsylvania Subscriber the collected funds deposited in the Pennsylvania Escrow Account on behalf
of such Pennsylvania Subscriber or shall return the instruments of payment delivered, but not yet
processed for collection prior to such time, to the address provided by the Trust, together with
interest income in the amounts calculated pursuant to paragraph 6. However, the Escrow Agent shall
not be required to remit such payments until the Escrow Agent has collected funds represented by
such payments.

          (d) The subscription funds of Pennsylvania Subscribers who do not request the return of their
subscription funds within the Request Period shall remain in the Pennsylvania Escrow Account for
successive 120-day escrow periods (a “Successive Escrow Period”), each commencing
automatically upon the termination of the Initial Escrow Period or prior Successive Escrow Period,
as applicable, and the Trust and Escrow Agent shall follow the notification and payment procedure
set forth in paragraph 3(c) above with respect to the Initial Escrow Period for each Successive
Escrow Period until the occurrence of the earliest of (i) the Expiration Date, (ii) the receipt and
acceptance by the Trust of subscriptions for the purchase of Shares with total purchase proceeds
that equal or exceed the Pennsylvania Required Capital and the disbursement of the Pennsylvania
Escrow Account on the terms specified herein, or (iii) all funds held in the Pennsylvania Escrow
Account having been returned to the Pennsylvania Subscribers in accordance with the provisions
hereof.

          (e) If the Trust notifies the Escrow Agent that it rejects any subscription for which the
Escrow Agent has collected funds, the Escrow Agent shall promptly issue a refund to the rejected
Subscriber. If the Trust rejects any subscription for which the Escrow Agent has not yet collected
funds but has submitted the Subscriber’s check for collection, the Escrow Agent shall promptly
return the funds in the amount of the Subscriber’s check to the rejected Subscriber after such
funds have been collected. If the Escrow Agent has not yet submitted a rejected Subscriber’s check
for collection, the Escrow Agent shall promptly remit the Subscriber’s check directly to the
Subscriber.

          (f) At any time after funds are disbursed upon the Trust’s instructions pursuant to paragraph
3(a) above, on the tenth day following the date of receipt of such instruction, the Escrow Agent
shall promptly provide directly to each Subscriber the amount of the interest payable to the
Subscribers. However, the Escrow Agent shall not be required to remit any payments until the
Escrow Agent has collected funds represented by such payments. The forgoing notwithstanding,
interest, if any, earned on accepted subscription proceeds will be payable to a Subscriber only if
the Subscriber’s funds have been held in escrow by the Escrow Agent for at least 35 days.
Interest, if any, earned on accepted subscription proceeds of Subscribers’ funds held less than 35
days will be paid to the Trust. The Escrow Agent may use such reasonable allocation methods as it
determines to be equitable in allocating interest income among Subscribers and as between the
Subscribers and the Trust if the funds bear interest at multiple rates during the escrow period.

          (h) Any disbursement of funds by the Escrow Agent to Subscribers shall be made to the persons
named in the Subscription Materials at the address stated therein by cashiers’ check mailed by
United States mail.

          (i) If at the time of any required disbursement of interest to a Subscriber, the Escrow Agent
has not received a properly executed IRS Form W-9, the Escrow Agent shall withhold from any
interest distribution such amount as may be required to be withheld by law and remit such withheld
amounts to the Internal Revenue Service in timely fashion.

     4. Prior to the disbursement of funds deposited in the Escrow Account, the Pennsylvania Escrow
Account, or the New York Escrow Account in accordance with the provisions of paragraph 3 hereof,
the Escrow Agent shall invest all of the funds deposited as well as earnings and interest derived
therefrom in the Escrow Account, the Pennsylvania Escrow Account, or the New York Escrow Account,
as applicable, in the “Short-Term Investments” specified below, unless the costs to the Trust for
the

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making of such investment are reasonably expected to exceed the anticipated interest earnings
from such investment, in which case the funds and interest thereon shall remain in the respective
escrow account until the balance in the respective escrow account reaches the minimum amount
necessary for the anticipated interest earnings from such investment to exceed the costs to the
Trust for the making of such investment, as determined by the Trust based upon applicable interest
rates.

     “Short-Term Investments” include obligations of, or obligations guaranteed by,
the United States government or bank money-market accounts or certificates of deposit of
national or state banks that have deposits insured by the Federal Deposit Insurance
Corporation (including certificates of deposit of any bank acting as a depository or
custodian for any such funds) that mature on or before the Expiration Date, unless such
instrument cannot be readily sold or otherwise disposed of for cash by the Expiration Date
without any dissipation of the offering proceeds invested. Without limiting the generality
of the foregoing, Exhibit C hereto sets forth specific Short-Term Investments that shall be
deemed permissible investments hereunder.

     The following securities are not permissible investments:

          (a)     money market mutual funds;

          (b)     corporate equity or debt securities;

          (c)     repurchase agreements;

          (d)     bankers’ acceptances;

          (e)     commercial paper; and

          (f)     municipal securities.

     It is hereby expressly agreed and stipulated by the parties hereto that the Escrow Agent shall
not be required to exercise any discretion hereunder and shall have no investment or management
responsibility and, accordingly, shall have no duty to, or liability for its failure to, provide
investment recommendations or investment advice to the parties hereto. It is the intention of the
parties hereto that the Escrow Agent will never be required to use, advance or risk its own funds
or otherwise incur financial liability in the performance of any of its duties or the exercise of
any of its rights and powers hereunder.

     5. The Escrow Agent is entitled to rely upon written instructions received from the Trust,
unless the Escrow Agent has actual knowledge that such instructions are not valid or genuine;
provided that, if in the Escrow Agent’s opinion, any instructions from the Trust are unclear, the
Escrow Agent may request clarification from the Trust prior to taking any action, and if such
instructions continue to be unclear, the Escrow Agent may rely upon written instructions from the
Trust’s legal counsel in distributing or continuing to hold any funds. However, the Escrow Agent
shall not be required to disburse any funds attributable to Instruments of Payment that have not
been processed for collection, until such funds are collected, and then shall disburse such funds
in compliance with the disbursement instructions from the Trust.

     6. If the Offering terminates prior to receipt of the Required Capital,, or one or more
Pennsylvania Subscribers elects to have his or her subscription returned in accordance with
paragraph 3, interest income earned on subscription proceeds deposited in the Escrow Account (the
“Escrow Income”), the Pennsylvania Escrow Account (the “Pennsylvania Escrow
Income”), and the New York Escrow Account (the “New York Escrow Income”), as
applicable, shall be remitted to Subscribers, or to the Trust if the applicable Subscriber’s funds
have been held in escrow by the Escrow Agent for less than 35 days in accordance with paragraph 3
and without any deductions for escrow expenses. For each Subscriber who has invested funds that
have been held in escrow by the Escrow Agent for at least 35 days, such Subscriber’s pro rata
portion of Escrow Income shall be determined as follows: the total amount of Escrow Income minus
interest earned on accepted subscription proceeds held by the Escrow Agent for less than 35 days
shall be multiplied by a fraction, (a) the numerator of which is determined by multiplying the
number of Shares purchased by the Subscriber times the number of days the Subscriber’s

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proceeds were held in the Escrow Account prior to the date of disbursement, and (b) the
denominator of which is the total of the numerators for all Subscribers in such account who have
invested funds that have been held in escrow by the Escrow Agent for at least 35 days. The Escrow
Agent shall remit all such Escrow Income, Pennsylvania Escrow Income, and New York Escrow Income in
accordance with paragraph 3. If the Trust chooses to leave the Escrow Account open after receiving
the Required Capital, then it shall make regular acceptances of subscriptions therein, but no less
frequently than monthly, and the Escrow Income from the last such acceptance shall be calculated
and remitted to the Subscribers or the Trust, as applicable, pursuant to the provisions of
paragraph 3(f).

     7. Unless otherwise provided in this Agreement, the Escrow Agent shall not receive any
compensation or reimbursement of expenses from the Trust.

     8. The Escrow Agent will be liable as a depository only and will not be responsible for the
sufficiency or accuracy of the form, execution or validity of any check or any other document
delivered to the Escrow Agent hereunder or any description of the property or other thing contained
therein or the identity, authority or rights of the persons executing or delivering or purporting
to execute or deliver any such document. The Escrow Agent’s duties hereunder are limited to the
safekeeping of the assets, instruments or other documents received and the delivery of the same in
accordance with this Agreement. The Escrow Agent will not be liable for any act or omission done
in good faith, or for any claim, demand, loss or damage made or suffered by any party to this
Agreement, excepting such as may arise through or be caused by the Escrow Agent’s willful
misconduct, breach of trust or gross negligence. The Escrow Agent is authorized to rely on any
document believed by the Escrow Agent to be authentic in making any delivery of funds or property
hereunder.

     9. In accepting any funds or documents delivered hereunder, it is agreed and understood by the
undersigned that the Escrow Agent will not be called on to construe any contract or instrument
deposited herewith, and in the event of a dispute will be required to act in respect to the deposit
herein made only on the consent in writing of the undersigned. In the failure of such consent, the
Escrow Agent reserves the right to hold any money in its possession, and all papers in connection
with or concerning this escrow, until a mutual agreement in writing has been reached between all of
said parties and delivered to the Escrow Agent or until delivery is legally authorized and ordered
by final judgment or decree of a court of competent jurisdiction. If the Escrow Agent obeys or
complies with any judgment, order or decree of a court of competent jurisdiction, the Escrow Agent
will not be liable to any of the parties hereto nor to any other person, firm or corporation by
reason of such compliance, notwithstanding any such judgment, order or decree being subsequently
reversed, modified, annulled, set aside or vacated.

     10. In addition to Escrow Agent’s other rights herein, in the event any contest, dispute or
litigation arises or exists between the Escrow Agent and the Trust, then in such event, Escrow
Agent may, in its discretion, continue to retain the funds as Escrow Agent during the pendency of
any such contest, dispute or litigation, provided that the Trust consents to Escrow Agent retaining
such funds. However, if the Trust does not consent to Escrow Agent retaining the Escrow Funds
during the pendency of any contest, dispute or litigation, then in such event, Escrow Agent may, in
its discretion, interplead the Escrow Funds into the office of the court clerk of Dallas County,
State of Texas, in which event, Escrow Agent shall be entitled to be repaid its expenses, including
court costs and attorney fees that it incurs as a result thereof, and in which event this Escrow
Agreement shall be deemed terminated. The Trust consents and agrees to the jurisdiction of the
District Court of Dallas County, Texas for such purpose.

     11. All communications and notices required or permitted by this Agreement shall be in writing
and shall be deemed to have been given when delivered personally or by messenger or by overnight
delivery service or when received via telecopy or other electronic transmission, in all cases
addressed to the person for whom it is intended at such person’s address set forth below or to such
other address as a party shall have designated by notice in writing to the other party in the
manner provided by this paragraph:

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(a) if to the Trust:

United Development Funding IV

The United Development Funding Building

Suite 100

1301 Municipal Way

Grapevine, Texas 76051

Attention: Cara Obert

(b) if to the Escrow Agent:

Legacy Bank of Texas

5000 Legacy Drive

Plano, Texas 75024

Attention: Corporate Services

Each party hereto may, from time to time, change the address to which notices to it are to be
delivered or mailed hereunder by notice in accordance herewith to the other parties.

     12. This Agreement shall be governed by the laws of the State of Texas as to both
interpretation and performance without regard to the conflict of laws rules thereof.

     13. The provisions of this Agreement shall be binding upon the legal representatives,
successors, and assigns of the parties hereto.

     14. The Trust hereby acknowledges that Legacy Bank of Texas. is serving as Escrow Agent only
for the limited purposes herein set forth, and hereby agrees that it will not represent or imply
that, by serving as Escrow Agent hereunder or otherwise, it has investigated the desirability or
advisability of investment in the Trust or has approved, endorsed or passed upon the merits of the
Shares or the Trust or has in any way reviewed or endorsed any disclosures made by the Trust
relating thereto, nor shall the Trust use the name of the Escrow Agent in any manner whatsoever in
connection with the offer or sale of the Shares other than by acknowledgment that it has agreed to
serve as Escrow Agent for the limited purposes herein set forth.

     15. This Agreement and any amendment hereto may be executed by the parties hereto in one or
more counterparts, each of which shall be deemed to be an original.

     16. The Escrow Agent shall be bound only by the terms of this Agreement and shall not be bound
by or incur any liability with respect to any other agreements or understanding between any other
parties, whether or not the Escrow Agent has knowledge of any such agreements or understandings.

     17. Indemnification provisions set forth herein shall survive the termination of this
Agreement.

     18. In the event that any part of this Agreement is declared by any court or other judicial or
administrative body to be null, void, or unenforceable, said provision shall survive to the extent
it is not so declared, and all of the other provisions of this Agreement shall remain in full force
and effect.

     19. Unless otherwise provided in this Agreement, final termination of this Agreement shall
occur on the date that all funds held in the Escrow Account, the Pennsylvania Escrow Account, and
the New York Escrow Account are distributed either (a) to the Trust or to Subscribers and the Trust
has informed the Escrow Agent in writing to close the Escrow Account, the Pennsylvania Escrow
Account, and the New York Escrow Account pursuant to paragraph 3 hereof or (b) to a successor
escrow agent upon written instructions from the Trust.

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     20. This Agreement shall not be modified, revoked, released or terminated unless reduced to
writing and signed by all parties hereto, unless otherwise provided herein.

     21. The Escrow Agent may resign at any time from its obligations under this Agreement by
providing written notice to the Trust. Such resignation shall be effective on the date specified
in such notice, which shall be not less than thirty days after such written notice has been given.
The Escrow Agent shall have no responsibility for the appointment of a successor escrow agent.

     22. The Escrow Agent may be removed for cause by the Trust by written notice to the Escrow
Agent effective on the date specified in such written notice.

     23. The Trust will provide the Escrow Agent a copy of the final Prospectus and any amendments
or supplements thereto, in each case within 5 days of first use by the Trust.

[Signature page follows]

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     Agreed to as of the            day of                     , 200  .

	 	 	 	 	 
	 	UNITED DEVELOPMENT FUNDING IV

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

The terms and conditions contained above are hereby accepted and agreed to by:

	 	 	 	 	 
	LEGACY BANK OF TEXAS, as Escrow Agent

 	 	 
	By:  	 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 

[Signature Page to Escrow Agreement]

 

 

EXHIBIT A

FORM OF ESCROW AGENT AFFIDAVIT FOR NEBRASKA

	 	 	 	 	 
	STATE OF

	 	 
	 	 
	 

	 	 	 	 
	COUNTY OF
	 	 	 	 
	 

	 	 	 	 

ESCROW AGENT AFFIDAVIT

                                    (the “Affiant”), being duly sworn, deposes and says:

     That the Affiant is a duly appointed and authorized representative of Legacy Bank of Texas
(the “Escrow Agent”);

     That the Escrow Agent is the duly appointed and authorized escrow agent for the public
offering of the securities (the “Offering”) of United Development Funding IV. (the “Trust”);

     That all of the conditions of that certain Escrow Agreement entered into by and between the
Escrow Agent and the Trust in connection with the Offering and
effective as of the ___ day of
___, 200_ (the “Agreement”) have been met.

     Affiant makes this Affidavit to the State of Nebraska Department of Banking and Finance
pursuant to Nebraska regulations Chapter 25, Section 003.01C1 promulgated under §8-1120(3) of the
Securities Act of Nebraska.

     IN WITNESS WHEREOF, the undersigned has duly executed this document this            day of
                    , 20     .

	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 
	Sworn to and subscribed before me

this
           day of                     , 20     .

	 	 
	 
	 	 
	 
	 	 
	 

Notary Public
	 	 
	 
	 	 
	My commission expires:
 

	 	 
	 
	 	 
	(NOTARIAL SEAL)
	 	 

A-1

 

EXHIBIT B

FORM OF NOTICE TO PENNSYLVANIA SUBSCRIBERS

     You have tendered a subscription to purchase common shares of beneficial interest of United
Development Funding IV (the “Trust”). Your subscription is currently being held in escrow. The
guidelines of the Pennsylvania Securities Commission do not permit the Trust to accept
subscriptions from Pennsylvania residents until an aggregate of $35,000,000 of gross offering
proceeds have been received by the Trust. The Pennsylvania guidelines provide that until this
minimum amount of offering proceeds is received by the Trust, every 120 days during the offering
period Pennsylvania Subscribers may request that their subscription be returned.

     If you wish to continue your subscription in escrow until the Pennsylvania minimum
subscription amount is received, nothing further is required.

     If you wish to terminate your subscription for the Trust’s shares and have your subscription
returned, please so indicate below, sign, date, and return to the Escrow Agent at Legacy Bank of
Texas,                               , Attn:                     .

     I hereby terminate my prior subscription to purchase common shares of beneficial interest of
United Development Funding IV and request the return of my subscription funds. I certify to United
Development Funding IV that I am a resident of Pennsylvania.

	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 
	 	Signature:
	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(please print)	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Please send the
subscription refund to:
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

B-1

 

EXHIBIT C

PERMISSIBLE ESCROW INVESTMENTS

	(i)	 	bank accounts;
	 
	(ii)	 	bank money market accounts;
	 
	(iii)	 	short-term certificates of deposit or time deposits or other interest-bearing deposits
of banks or trust companies, organized under the laws of the United States or any state; or
	 
	(iv)	 	obligations issued or guaranteed by the United States or by any person controlled or
supervised by or acting as an instrumentality of the United States pursuant to authority
granted by Congress, or an investment fund consisting of such obligations.

C-1exv10w6

     EXHIBIT 10.6

PARTICIPATION AGREEMENT

BY AND AMONG

UNITED DEVELOPMENT FUNDING, L.P.,

UNITED DEVELOPMENT FUNDING II, L.P.,

UNITED DEVELOPMENT FUNDING III, L.P.,

UNITED DEVELOPMENT FUNDING LAND OPPORTUNITY FUND, L.P.,

UNITED DEVELOPMENT FUNDING IV AND

UMTH LAND DEVELOPMENT, L.P.

     This
Participation Agreement (the “Agreement”) is executed this ___ day of                     , 200_,
by and among United Development Funding, L.P., a Delaware limited partnership, (“UDF I”), United
Development Funding II, L.P., a Delaware limited partnership (“UDF II”), United Development Funding
III, L.P., a Delaware limited partnership (“UDF III”), United Development Funding Land Opportunity
Fund, L.P., a Delaware limited partnership (“UDF LOF”), United Development Funding IV, a Maryland
real estate investment trust (“UDF IV,” and together with UDF I, UDF II, UDF III and UDF LOF, the
“UDF Funds”), and UMTH Land Development, L.P., a Delaware limited partnership (“UMTH LD”).

FACTUAL BACKGROUND

     1. The UDF Funds invest, or will invest, in the acquisition of land and development of
single-family lots, construction of single-family homes and model homes, and the acquisition of
model homes and finished lots utilizing a diverse range of capital structures such as equity
investments, joint venture participations, mezzanine loans, subordinated loans and senior loans.

     2. The lifecycle of single-family lot development and home construction generally begins with
the acquisition of land for development of single-family lots, followed by the entitlement and
engineering of the subject property, followed by the development of raw land into a finished lot,
followed by the construction and sale of a single-family home. There are differing levels of
capital appreciation, cash flow, loan-to-value ratios, development risk, market risk and investment
yields over the course of the development lifecycle.

     3. Each of the UDF Funds invests, or will invest, in substantially similar land development
opportunities, although such investments may be made at different points in the development
lifecycle in accordance with the investment criteria, yield requirements, cash flow expectations,
investment horizon and risk tolerances of the respective UDF Fund at the time the investment is
made. In addition, the UDF Funds will determine to exit investments in land development and home
construction projects at different points in the development lifecycle in accordance with the
investment criteria, yield requirements, cash flow expectations, investment horizon and risk
tolerances of the respective UDF Fund at the time the exit is made.

     4. Subject to the respective limitations set forth in the organizational and operational
documents of each of the UDF Funds, investments may be entered into as co-investments or joint
ventures between two or more UDF Funds, and may be sold to or refinanced by other UDF Funds in
accordance with the investment criteria, yield requirements, cash flow expectations, investment
horizon and risk tolerances of the respective UDF Funds.

 

 

     5. UMTH LD is the asset manager of UDF I, UDF II, UDF LOF and UDF IV and the general partner
of UDF III. In exercising its duties to each of the UDF Funds, UMTH LD will manage each investment
in accordance with the investment criteria, yield requirements, cash flow expectations, investment
horizon and risk tolerances of the respective UDF Fund as each investment progresses.

     6. The UDF Funds each recognize that, in exercising its duties to each of them, UMTH LD will
encounter conflicts of interest. Thus, each of the UDF Funds and UMTH LD seeks to equitably
apportion investment opportunities among and between such entities in accordance with each fund’s
investment criteria, yield requirements, cash flow expectations, investment horizon and risk
tolerances at the time each transaction opportunity is presented by UMTH LD.

AGREEMENT

     NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the
parties hereto agree as follows:

     1. In each case in which there is an opportunity to participate in a transaction, including
any investment, co-investment, joint venture, participation, refinancing or sale, that qualifies
for the investment criteria, yield requirements, cash flow expectations, investment horizon and
risk tolerances of any two or more UDF Funds, which are described generally in Appendix A
hereto, the amount that each respective entity will invest in such transaction shall be determined
as follows:

     A. First, each UDF Fund which is presented the transaction opportunity will be
allocated a percentage of the transaction opportunity determined as the ratio of the total
amount of Equity Invested in such entity over the Total Combined Equity Invested, such
percentage being the “Investment Percentage.” For purposes of this Agreement, “Equity
Invested” shall include both direct investment and retained earnings as determined by the
Most Recent Financial Statements, and the “Most Recent Financial Statements” shall mean the
most recently available audited or unaudited financial statements prepared by the respective
entities with respect to the most recent calendar quarter. For purposes of this paragraph
1.A., “Total Combined Equity Invested” shall mean the sum of the Equity Invested in each of
the UDF Funds to which the opportunity is presented.

     Each UDF Fund which is presented the transaction opportunity will invest in such
transaction opportunity an amount equal to the Investment Percentage multiplied by the
amount of Required Cash. For purposes of this Agreement, “Required Cash” means the
aggregate amount of cash required to be invested by the respective UDF Funds in the
transaction opportunity.

     B. Second, if, after allocating Available Cash (as defined in paragraph 1.D. below)
pursuant to paragraph 1.A. above, the full amount of the Required Cash has not been
invested, the remaining transaction opportunity shall be allocated amongst and between the
entities with remaining Available Cash as the ratio of the total amount of Equity Invested
in each such entity over the Total Combined Equity Invested, such percentage being the
“Remaining Investment Percentage.” For the purposes of this paragraph 1.B., “Total Combined
Equity Invested” shall mean the sum of the Equity Invested in each of the entities with
remaining Available Cash.

     Each such UDF Fund will invest in the remaining transaction opportunity an amount equal
to the Remaining Investment Percentage multiplied by the amount of Required Cash.

-2-

 

     C. Third, if, after allocating Available Cash pursuant to paragraphs 1.A. and 1.B.
above, the full amount of the Required Cash has not been invested, the remaining transaction
opportunity shall be allocated amongst and between the entities with remaining Available
Cash by repeating the process set forth in paragraph 1.B. above until the full amount of
Required Cash has been invested.

     D. “Available Cash” shall mean all cash of the respective entity available for
investment, not including lines of credit or other borrowing facilities, as determined by
UMTH LD, taking into consideration the projected sources and uses of cash for that
respective entity.

     2. In each case in which a transaction opportunity is presented to a UDF Fund, the transaction
opportunity shall be structured in compliance with the investment limitations and requirements set
forth in the applicable organizational and operational documents of the respective UDF Fund and any
applicable prospectus or offering memorandum relating to the respective UDF Fund. Unless the
organizational and operational documents of the respective UDF Fund are more restrictive, the
following terms apply:

     A. No loan shall be sold between funds for an amount in excess of the outstanding loan
balance, including accrued interest, at the time of the sale. This does not prohibit the
acquiring entity from subsequently restructuring the loan in any way, including an increase
in the loan amount; and

     B. No asset shall be sold between funds for an amount in excess of its fair market
value as determined by an independent expert. This does not prohibit the financing of the
investment by another UDF Fund.

     3. Notwithstanding anything contained herein to the contrary, UMTH LD shall exercise its best
efforts to reasonably allocate transaction opportunities amongst the UDF Funds as set forth herein,
provided, however, that UMTH LD may use approximations and rounding. UMTH LD will rely on its
Investment Committee to apply each UDF Fund’s investment criteria, yield requirements, cash flow
expectations, investment horizon and risk tolerances to recommend an investment, co-investment,
joint venture, participation, refinancing or sale by the respective UDF Funds. Further,
notwithstanding anything contained herein to the contrary, UMTH LD and its agents cannot give
assurance that they will recommend investment in all transaction opportunities of which they become
aware that are suitable for one or more UDF Fund on an equal allocation amongst such entities.

     4. This Agreement shall be governed and construed under the laws of the State of Texas.

-3-

 

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

	 	 	 	 	 
	 	 	 
	 	By:  	

UMTH Land Development, L.P.,
 	 
	 	 	a Delaware limited partnership 	 
	 	 	 
	 	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	 	 
	 	By:  	United Development Funding, L.P.,
 	 
	 	 	a Delaware limited partnership 	 
	 	 	 
	 	 	By:  	United Development Funding, Inc.,
 	 
	 	 	 	its general partner 	 

	 	 	 	 	 
	 	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

	 	 	 	 	 
	 	By:  	United Development Funding II, L.P.,

a Delaware limited partnership 
 	 
	 	 	 
	 	 	By:      	              United Development Funding II, Inc.,
 	 
	 	 	 	its general partner 	 

	 	 	 	 	 
	 	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

	 	 	 	 	 
	 	By:  	     United Development Funding III, L.P.,
 	 
	 	 	a Delaware limited partnership 	 
	 	 	 
	 	 	By:      	UMTH Land Development, L.P.,
 	 
	 	 	 	a Delaware limited partnership 	 

	 	 	 	 	 
	 	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

-4-

 

	 	 	 	 	 
	 	 	 
	 	By:  	                                              United Development Funding Land Opportunity Fund, L.P.,
 	 
	 	 	a Delaware limited partnership 	 
	 
	 	 	By:      	                                UDF Land GenPar, L.P.,
 	 
	 	 	 	a Delaware limited partnership 	 

	 	 	 	 	 
	 	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

	 	 	 	 	 
	 	 	 
	 	By:  	

United Development Funding IV
 	 
	 	 	a Maryland real estate investment trust 	 
	 	 	 	 
	 
	 	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 

-5-

 

APPENDIX A

Investment Criteria, Yield Requirements, Cash Flow Expectations,

Investment Horizons and Risk Tolerances of the UDF Funds

UDF I:

UDF I provides asset level and fund level leverage and generally seeks to invest in land
acquisition and development loans and participation agreements, provide equity as an investment in
entities that acquire and develop single-family residential properties, and provide credit
enhancements to developers and entities in connection with third-party financing of land
acquisition and development loans.

UDF I generally seeks capital appreciation through value enhancement, higher yields and internal
rates of return and lower-to-more-moderate cash flow from loans and equity investments with a mid-
to long-term investment horizon and high risk tolerances.

UDF II:

UDF II provides asset level and fund level leverage and generally seeks to invest in land
acquisition and development loans and participation agreements, provide equity as an investment in
entities that acquire and develop single-family residential properties, and provide credit
enhancements to developers and entities in connection with third-party financing of land
acquisition and development loans.

UDF II generally seeks capital appreciation through value enhancement, higher yields and internal
rates of return and lower-to-more-moderate cash flow from loans and equity investments with a mid-
to long-term investment horizon and high risk tolerances.

UDF III:

UDF III does not make equity investments and does not utilize permanent leverage and generally
seeks to (i) invest in secured real estate loans made to persons and entities for the acquisition
of parcels of real property to be developed as single-family residential lots that will be marketed
and sold to home builders, (ii) secure such loans by a first lien or a second lien on real property
or a pledge of the borrowing entities’ ownership interest, and (iii) provide credit enhancements to
developers, homebuilders and other real estate entities in connection with third-party financing of
home construction loans and land acquisition and development loans.

UDF III does not seek capital appreciation and generally seeks moderate yield and higher cash flow
from loans with a mid-term investment horizon and a moderate risk tolerance.

UDF LOF:

UDF LOF generally seeks to invest in and finance finished lots, paper lots and land to be developed
into residential lots and model and finished new home inventory.

UDF LOF generally seeks capital appreciation, high yields and low-to-moderate cash flow from loans
and equity investments with a mid-to-long-term investment horizon and a high risk tolerance.

-6-

 

UDF IV:

UDF IV generally seeks to (i) invest in land acquisition and development loans, finished lot loans,
model and new home inventory, loans for the construction of new homes and participation agreements,
(ii) secure such loans by either a first lien or a second lien on real property or a pledge of the
borrowing entities’ ownership interest, (iii) invest in the equity of entities that acquire and
develop single-family residential properties, (iv) invest in discounted cash flows secured by
municipal assessments levied on real property and (v) provide credit enhancements to developers and
entities in connection with third-party financing of land acquisition and development loans.

UDF IV generally seeks moderate yields and moderate-to-high cash flow from loans and capital
appreciation from equity investments with a mid-term investment horizon and a low risk tolerance.

-7-

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