Document:

March 29, 2000

Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225

     Re:  Modification of an existing $80,000,000.00 guidance line from Guaranty
          Federal  Bank,  F.S.B.  ("Lender") to  Legacy/Monterey  Homes L.P., an
          Arizona  corporation  ("Borrower");  such loan and other  indebtedness
          being  guaranteed  by Meritage  Corporation,  a Maryland  corporation,
          MTH-Texas GP, Inc., an Arizona  corporation and MTH-Texas LP, Inc., an
          Arizona corporation (collectively referred to as "Guarantor").

Gentlemen:

     Reference is made to that certain Master Loan Agreement dated as of January
31, 1993 (and all amendments  thereto,  if any) (the "Loan  Agreement")  between
Lender and Borrower governing a $80,000,000.00  loan (as increased) (the "Loan")
for the acquisition  and/or  refinancing of residential  lots located in certain
counties in the State of Texas as described  therein,  and the  construction  of
single-family  residences  thereon.  Unless otherwise  expressly defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Loan Agreement. As used in this letter agreement,  the
term "Loan  Instruments"  shall mean and include (i) the "Loan  Instruments"  as
defined in the Loan Agreement, (ii) the Fifth Modification Agreement dated as of
even date herewith,  executed by and between the parties hereto,  and (iii) this
letter agreement and all other documents  executed in conjunction  herewith (and
all amendments thereto, if any).

     Borrower  and  Lender  desire to  decrease  the Loan  Amount to the  stated
principal  amount of  $65,000,000.00  and to-amend and modify  certain terms and
provisions of the Loan and the Loan Instruments as follows: .

     1.  The  Loan   Amount  is  hereby   decreased   from   $80,000,000.00   to
$65,000,000.00.  All  references  in  the  Loan  Instruments  to the  amount  of
$80,000,000.00 are hereby decreased to $65,000,000.00.

     2.  PARAGRAPH 8 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:

          8. REVOLVING LOAN. All or any portion of the principal of the Loan may
     be borrowed,  paid, prepaid,  repaid and reborrowed from time to time prior

<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 2

     to maturity in accordance with the provisions of the Loan Instruments.  The
     excess of  borrowing  (advances  and  re-advances)  over  repayments  shall
     evidence  the  principal  balance  of the Loan from time to time and at any
     time.  The aggregate  amount of all advances  under the Loan may exceed the
     Loan Amount, but neither the outstanding  principal balance of the Loan nor
     the outstanding  aggregate amount of the Loan Allocations shall ever exceed
     the Loan Amount. The Loan shall not be governed by or be subject to Chapter
     15 of the Texas  Credit  Code Title 79,  Revised  Civil  Statutes of Texas,
     1925, as amended.

     The maximum total Loan  Allocations and Letters of Credit under the Loan at
     any time shall be limited to  $110,000,000.00,  which sum shall  consist of
     the following:

          (a)  the  total  of all  Loan  Allocations  for  Property  secured  by
               Mortgages, plus;

          (b)  the amount of any Letters of Credit (when issued, if any);

     provided,  however, that the $110,000,000.00 Loan Allocation limitation set
     forth in this  sentence  shall be  increased by an amount equal to any cash
     deposits  made by Borrower  with  Lender as security  for the Loan and as a
     Borrower's  Deposit under PARAGRAPH 5 of the Loan Agreement (with each such
     deposit to be advanced by Lender to Borrower prior to the  disbursement  of
     loan proceeds upon the  satisfaction  of conditions for advances under this
     Loan  Agreement).  Borrower  shall  execute  and  deliver  to  Lender  such
     documents as may be necessary to establish such account and to grant Lender
     a security interest in the same.

     Notwithstanding  any provision in the Loan Instruments to the contrary,  in
     no event  shall the sum of (i) the  aggregate  amounts  advanced  under the
     Note,  and (ii) the amount of any Letters of Credit (when  issued,  if any)
     exceed a total of  $65,000,000.00,  notwithstanding  that the maximum total
     Loan  Allocations  and  Letters of Credit  under the Loan may  exceed  such
     $65,000,000.00 total; and consequently,  Lender shall have no obligation to
     disburse additional funds in the event the sum of (i) the aggregate amounts
     advanced or to be advanced (including all Loan Allocations) under the Note,
     and (ii) the amount of any Letters of Credit (when issued, if any) exceed a
     total of $65,000,000.00.

     Notwithstanding any provisions in the Loan Instruments to the contrary,  if
     at anytime the aggregate disbursed and unpaid principal balance of the Loan
     (together  with the  aggregate  amount of any  Letters of Credit  under the
     Loan) exceed  $65,000,000.00,  then Borrower shall  immediately  (following
     written  demand by Lender)  deliver to Lender a cash  amount  equal to such
     excess,  which cash amount shall be applied to the principal balance of the
     Loan  in  order   that  such   aggregate   amount   shall  be   reduced  to
     $65,000,000.00.
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 3

     3.  EXHIBIT A to the Loan  Agreement  is hereby  modified by deleting  such
exhibit in its entirety and replacing it with EXHIBIT A attached hereto.

     4. All  Loan  Instruments  hereby  are  amended  and  modified  in a manner
consistent with the  modifications,  terms and/or  provisions  contained herein.
Except as modified hereby, all the terms,  provisions and conditions of the Loan
Instruments shall remain in full force and effect.

     5. This letter agreement  constitutes the "Letter Agreement" referred to in
the Fifth  Modification  Agreement of even date herewith executed by and between
the parties hereto.

     6. The terms and  provisions of this letter  agreement may not be modified,
amended,  altered or otherwise affected except by instrument in writing executed
by Lender and Borrower.

     7. Each  Guarantor  by its  execution  hereof agree to the  amendments  and
modifications  to the  Loan  Instruments  set  forth  herein  and  in the  prior
amendments and  modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive, release or iii any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.

             (The balance of this page is intentionally left blank.)
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 4

     If this letter  agreement  correctly  sets forth our  understanding  of the
subject matter contained  herein,  please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed  copy to
the undersigned.

                                        Very truly yours,

                                        BORROWER:

                                        LEGACY/MONTEREY HOMES L.P.,
                                        an Arizona limited partnership

                                        BY: MTH-TEXAS GP, INC.,
                                            an Arizona corporation,
                                            General Partner

                                            By: /s/ Rick Morgan
                                                --------------------------------
                                                Name: Rick Morgan
                                                Title: Vice President
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 5

                                        GUARANTOR:

                                        MERITAGE CORPORATION,
                                        a Maryland corporation

                                        By: /s/ John R. Landon
                                            ------------------------------------
                                            Name: John R. Landon
                                            Title: CO-CEO

                                        MTH-TEXAS GP, INC.,
                                        an Arizona corporation,

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President

                                        MTH-TEXAS LP, Inc.,
                                        an Arizona corporation

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 6

ACCEPTED AND AGREED TO:

LENDER:

GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank

By: /s/ Sam A. Meade
    -------------------------------
    Name: Sam A. Meade
    Title: Senior Vice President
<PAGE>
                                    EXHIBIT A

                                TO LOAN AGREEMENT

1.   Introductory  Paragraph.  RESIDENCE AND INVENTORY LOT  LIMITATIONS.  At any
     given time,  Residences and Inventory Lots financed under the Loan shall be
     limited to the following numbers, unless modified by Lender in writing:

     Total Residences:  Seven Hundred Seventy-five (775).
     Specs:             One Hundred Twelve (112).
     Models:            Sixty-three (63).
     Inventory Lots:    One Thousand One Hundred Twenty-five (1,125).

     Borrower may increase the number of Specs  allowed above by the same number
     by which Borrower is short of Models allowed above.  Borrower covenants and
     agrees not to allow,  and is prohibited  from  allowing,  any more than ten
     (10) Specs,  three (3) Models or one hundred fifty (150)  Inventory Lots to
     exist in any Approved Subdivision (as hereinafter defined).

     The outstanding  aggregate amount of the Loan Allocations for all Specs and
     Models at any time shall never exceed $16,800,000.00.

     The outstanding  aggregate amount of the Loan Allocations for all Inventory
     Lots at any time shall never exceed $18,000,000.00.

     The term  "SPECS"  means a Residence  which is not a Model and is not Under
     Contract.  The term "MODEL" means a Residence specifically utilized for the
     purposes  of  marketing  other  residential  products.  The  term  ".'UNDER
     CONTRACT" shall mean Residences under written contract to sell to bona fide
     third parties  unrelated to Borrower,  having no  contingency  or any other
     conditions not reasonably  susceptible  to being  satisfied,  providing for
     earnest  money  deposits of at least  $2,000.00,  and for which  Lender has
     received  preliminary loan approval from a bona fide residential  permanent
     lender.

     The term "INVENTORY RESIDENCE" means any Residence which is not a Model.

2.   Introductory Paragraph.  APPROVED SUBDIVISIONS.  The following subdivisions
     and  any  additional  subdivisions  approved  in  writing  by  Lender  (the
     "APPROVED  SUBDIVISIONS")  are  approved by Lender for the  Residences  and
     Inventory Lots:

     Subdivision                                  County
     -----------                                  ------
     Stone Canyon (Fern Bluff)                    Williamson
     Oakmont Forest                               Williamson
     Settlers Ridge/Creekside                     Travis
     Round Rock Ranch                             Williamson
     The Meadows (Thunderbird Est.)               Collin
     Brighton Estates - Arlington                 Tarrant
     Bristol Park (Fountain Creek)                Collin
     Chase-Oaks                                   Collin
     Cottonwood Bend                              Collin
     Country Club Park                            Dallas
     Creekwood Estates                            Denton
     Crestwood                                    Collin
     Cross Creek West                             Collin
     Eden Road Estates                            Tarrant
     El Dorado Heights                            Collin
     Heritage Park - Allen                        Collin
     Highland Parkway                             Collin
     Hillcrest Estates                            Collin

EXHIBIT A, - Page 1
<PAGE>
     Hunters Glen                                 Collin
     Independence Hill                            Collin
     Meadow Glen PH IIB                           Denton
     Oakwood Glen                                 Collin
     Orchard Valley Estates                       Denton
     Parkdale - Plano                             Collin
     Shadow Lakes                                 Collin
     Shadow Lakes North                           Collin
     Lakes of Valley Ranch                        Dallas
     Vista Ridge Estates                          Denton
     Windhaven Farms (Carelle Custom)             Collin
     Ravenglass Estates                           Collin
     Frankford Meadows                            Dallas
     Hunter Trail                                 Tarrant
     Fossil Beach                                 Tarrant

3.   Introductory  Paragraph.  APPROVED PRICE RANGE.  The Residences shall be in
     the $70,000.00 to $350,000.00 price range.

4.   Paragraph  1(c).  GUARANTOR.  Guarantor  of the  Loan  shall  be:  Meritage
     Corporation,  am Maryland  corporation  (formerly  known as "Monterey Homes
     Corporation");  MTH-Texas G.P., Inc., an Arizona corporation; and MTH-Texas
     L.P., Inc., an Arizona corporation.

5.   Paragraph 2(h). LOAN FINANCE CHARGE. None.

6.   Paragraph  2(k) and 6(g).  INSPECTION  FEE. An inspection fee of $30.00 per
     Residence  shall be paid to Lender on the day the  Mortgage  pertaining  to
     such Residence is recorded in the Real Property Records.

7.   Paragraph 4(c). LOAN RATIOS. With respect to Residences Under Contract, the
     Loan  Allocation  shall not exceed the  lesser of (1) one  hundred  percent
     (100%) of the direct costs of a Property,  as  determined by Lender or, (2)
     eighty  percent  (80%) of the lowest of the values as provided in PARAGRAPH
     4(C) (I) (II) AND III) of this Loan Agreement.

     With respect to Specs, Models and Inventory Lots, the Loan Allocation shall
     not exceed the lesser of (1) one hundred percent (100%) of the direct costs
     of a Property,  as determined by Lender or, (2) seventy-five  percent (75%)
     of the lowest of the values as  provided  in  PARAGRAPH  4(C) (I ,~(II) AND
     (III) of this Loan Agreement.

8.   Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
     other  indebtedness  now or  hereafter  owed by the  following  entities to
     Lender: None.

9.   Paragraph  6(s).  REQUIRED  RELEASES.  Borrower shall cause:  (a) Inventory
     Residences to be released from a Mortgage nine (9) months from the day such
     Mortgage  is  recorded  in the Real  Property  Records,  (b)  Models  to be
     released from a Mortgage twenty-four (24) months from the day such Mortgage
     is recorded in the Real  Property  Records,  and (c)  Inventory  Lots to be
     released  from a Mortgage  twelve (12) months from the day such Mortgage is
     recorded in the Real Property  Records;  provided,  however,  if no default
     then exists under any Loan Instruments,  Lender may, at its option,  extend
     the Required  Release  Date for periods of three (3) months (the  "EXTENDED
     RELEASE DATE");  provided,  such Extended Release Date shall in no event go
     beyond the Stated  Maturity Date (as  hereinafter  defined) or the Extended
     Maturity Date (as hereinafter defined), if applicable.

10.  Paragraph 7. REQUIRED PRINCIPAL  REDUCTIONS.  Prior to the date that Lender
     gives Borrower the notice  described in PARAGRAPH 4(F) above, the following
     shall apply:  in the event a Property has been granted an Extended  Release
     Date (as provided in PARAGRAPH 9 of this EXHIBIT A) and a Mortgage  remains
     covering  such  Property  beyond the  following  periods from the date such
     Mortgage is recorded,  then Borrower shall make a principal  payment of the
     Note in an amount equal to ten percent  (10%) of the Loan  Allocation  with

EXHIBIT A, - Page 2
<PAGE>
     respect to such Property (and the Loan  Allocation  for such Property shall
     be reduced by the same amount), as determined by Lender:

     Inventory Residences:    Fifteen (15) months.
     Models:                  Twenty-four (24) months.
     Inventory Lots:          Twelve (12) months.

     From and after the date that Lender gives Borrower the notice  described in
     PARAGRAPH 4(FL of the Loan  Agreement,  the following  shall apply:  in the
     event a Property has been granted an Extended  Release Date, as provided in
     PARAGRAPH 9 of this EXHIBIT A, Borrower  shall make a principal  payment on
     the Note of ten  percent  (10%) of that  portion  of the Loan  advanced  by
     Lender for such  Property,  within the  following  periods  from the date a
     Mortgage covering such Property is recorded in the Real Property Records:

     Inventory Residences:    Fifteen (15) months.
     Models:                  Twenty-four (24) months.
     Inventory Lots:          Twelve (12) months.

11.  Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
     the later of the maturity date as provided in the Note (July 31, 2000) (the
     "STATED MATURITY DATE"), or nine (9) months after the recording in the Real
     Property  Records  of the last  Mortgage  (the  "EXTENDED  MATURITY  DATE")
     approved  by Lender  and  recorded  prior to the  expiration  of the Stated
     Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
     be recorded.

12.  Paragraph  10.  ADDITIONAL  DEFAULTS.  In addition to the events of default
     stipulated in the Loan  Instruments,  it shall be a default under this Loan
     Agreement if Borrower fails to comply with any of the following: None.

13.  Paragraph 11.  ADDITIONAL LOAN COVENANTS.  Borrower shall fully perform and
     satisfy the following "ADDITIONAL LOAN COVENANTS":

     (a)  The aggregate  net worth of Borrower  (determined  in accordance  with
          generally accepted accounting principles,  consistently applied) shall
          not fall below $25,000,000.00.

     (b)  The ratio of total  liabilities  to equity (as  determined  by Lender)
          shall not exceed 3.0 to 1.0.

     (c)  John Landon shall at all times retain management control of Borrower.

     (d)  In no event shall Meritage Corporation, a Maryland corporation,  be in
          default under any secured indebtedness.

     If Borrower or Guarantor (if  applicable to Guarantor)  breaches any of the
     Additional  Loan  Covenants  then,  at  Lender's  election,  no  additional
     Mortgages  shall  be  recorded  in the  Real  Property  Records;  provided,
     however,  that a breach  of any  Additional  Loan  Covenants  shall  not be
     considered a default under the Loan Instruments.

14.  Paragraph  16(d).  RELEASE PRICE. The partial release price shall be a cash
     amount  equal to the Loan  Allocation  for the Property  multiplied  by the
     Stage  (expressed  as a percentage)  of the Property,  all as determined by
     Lender;  provided,  however, if Lender shall have given Borrower the notice
     described in PARAGRAPH 4(F) of the Loan Agreement, then the partial release
     price  shall be an  amount in cash  equal to one  hundred  and one  hundred
     percent  (100%) of the  outstanding  balance of the Loan advanced by Lender
     for the Property.

15.  Paragraph  16(e).  EXTENSION  FEE. If Lender  extends the Required  Release
     Date, as provided in PARAGRAPH 9 of this EXHIBIT A,  Borrower  shall pay to
     Lender an  extension  fee of one percent (1 %) of that  portion of the Loan
     advanced by Lender for each such Property  times a fraction,  the numerator
     of which is the number of days the  Required  Release  Date is extended and
     the denominator of which is 365.

EXHIBIT A, - Page 3
<PAGE>
                          FIFTH MODIFICATION AGREEMENT

     This FIFTH  MODIFICATION  AGREEMENT (this  "Agreement") is made and entered
into as of March 29, 2000, by and between LEGACY/MONTEREY HOMES L.P., an Arizona
limited  partnership and GUARANTY  FEDERAL BANK,  F.S.B., a federal savings bank
organized and existing under the laws of the United States ("Lender").

                                   WITNESSETH:

     WHEREAS,   pursuant  to  a  certain   Master  Loan   Agreement  (the  "LOAN
AGREEMENT':) dated as of January 31, 1993,  between Lender and Borrower,  Lender
made  a  loan  (the  "LOAN")  to  Borrower,  evidenced  by a  certain  Revolving
Promissory Note (the "NOTE") dated as of January 31, 1993,  payable to Lender in
the stated principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00)
(as increased), with interest and principal payable as set forth therein; and

     WHEREAS,  to secure the Note and Loan,  Master Form  Deed(s) of Trust (With
Security Agreement and Assignment of Rents and Leases) (hereinafter collectively
referred to as the "MASTER DEEDS OF TRUST,"  whether one or more),  which Master
Deeds of Trust have been  recorded in certain  counties in the State of Texas as
more particularly described on EXHIBIT A attached hereto; and which Master Deeds
of Trust are  incorporated by reference  pursuant to the terms and provisions of
certain  Deeds of Trust  Incorporating  by Reference a Master Form Deed of Trust
(With  Security  Agreement  and  Assignment  of  Rents  and  Leases)  (hereafter
collectively  referred to as the  "SUPPLEMENTAL  DEEDS OF TRUST," whether one or
more) recorded in such counties and encumbering  certain real and other property
(the "Pro a ") described in such Supplemental  Deeds of Trust (such Master Deeds
of Trust and Supplemental Deeds of Trust hereafter  collectively  referred to as
the "DEEDS OF TRUST," whether one or more); and

     WHEREAS,  the  Deeds of Trust  were  modified  pursuant  to a  Modification
Agreement (the "FIRST MODIFICATION"), and recorded in various counties in Texas,
which First  Modification  modified  certain terms and provisions of the Loan as
set forth therein; and

     WHEREAS,  the Deeds of Trust were further pursuant to a Second Modification
Agreement (the "SECOND  MODIFICATION") dated as of May 19, 1998, and recorded in
various counties in Texas, which Second Modification  modified certain terms and
provisions of the Loan as set forth therein; and

     WHEREAS,  the Deeds of Trust were further pursuant to a Third  Modification
Agreement (the "THIRD  MODIFICATION")  dated as of March , 1999, and recorded in
various counties in Texas, which Third  Modification  modified certain terms and
provisions of the Loan as set forth therein; and

     WHEREAS,  the Deeds of Trust were further pursuant to a Fourth Modification
Agreement (the "FOURTH MODIFICATION") dated as of July 31, 1999, and recorded in
various counties in Texas, which Fourth Modification  modified certain terms and
provisions of the Loan as set forth therein; and

     WHEREAS,  the Note and the Loan are  guaranteed  pursuant  to that  certain
Guaranty  Agreement  dated as of June 30,  1997 (the  "GUARANTY"),  executed  by
MTH-Texas  GP, Inc.,  an Arizona  corporation,  MTH-Texas  LP, Inc.,  an Arizona
corporation, and Meritage Corporation, a Maryland corporation (formerly known as
"Monterey Homes Corporation") ("GUARANTOR," whether one or more); and

FIFTH MODIFICATION AGREEMENT - Page 1
<PAGE>
     WHEREAS, the Loan Agreement,  the Note, the First Modification,  the Second
Modification,  the Third  Modification,  the Fourth  Modification,  the Deeds of
Trust  and  all  other  documents   evidencing  and/or  securing  the  Loan  are
hereinafter collectively called the "LOAN INSTRUMENTS"; and

     WHEREAS,  Lender,  the owner and  holder of the Note and the Deeds of Trust
and all rights and titles evidenced thereby,  and Borrower,  the record owner of
the Property  and being  liable for the payment of the Note and Loan,  desire to
modify the Loan Instruments as herein provided.

     NOW,  THEREFORE,  in  consideration  of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration,  the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:

     1. The Loan is hereby decreased from $80,000,000.00 to $65,000,000.00.  All
references in the Loan  Instruments to the amount of  $80,000,000.00  are hereby
decreased to $65,000,000.00.

     2. Borrower shall execute and deliver to Lender a letter agreement (in form
and  substance  satisfactory  to Lender  in its sole  discretion)  (the  "LETTER
AGREEMENT")  dated  as of the date  hereof  amending  certain  other  terms  and
provisions of the Loan  Instruments.  (Hereafter,  this Agreement and the Letter
Agreement shall be included in the defined term "LOAN INSTRUMENTS.")

     3. Borrower  acknowledges and agrees, that as an accommodation to Borrower,
EXHIBIT A hereto  (which  exhibit  describes the  recording  information  of the
Master Deeds of Trust) shall be attached to this  Agreement  (and to any and all
other  documents  which may  require  the  attachment  of a  description  of the
recording  information of the Master Deeds of Trust) after Borrower's  execution
of same.  Accordingly,  Borrower hereby  authorizes and directs Lender to attach
such EXHIBIT A to this Agreement.

     4. Notwithstanding anything to the contrary in any of the Loan Instruments,
Borrower  acknowledges and agrees,  that to the extent that Lender is relying on
Chapter 303 of the Texas  Finance  Code .to  determine  the Maximum  Lawful Rate
(hereafter  defined)  payable  on  the  Note  and/or  the  Related  Indebtedness
(hereafter  defined) Lender will utilize the weekly ceiling from time to time in
effect as provided in such Chapter 303, as amended.  To the extent United States
federal law permits Lender to contract for, charge,  take,  receive or reserve a
greater  amount of  interest  than under  Texas law,  Lender will rely on United
States  federal law instead of such  Chapter 303 for the purpose of  determining
the Maximum Lawful Rate.  Additionally to the extent permitted by applicable law
now or  hereafter  in effect,  Lender  may, at its option and from time to time,
utilize any other  method of  establishing  the  Maximum  Lawful Rate under such
Chapter 303 or under other  applicable  law by giving  notice,  if required,  to
Borrower as provided  by  applicable  law now or  hereafter  in effect.  As used
herein,  the term  "MAXIMUM  LAWFUL RATE" shall mean the maximum  lawful rate of
interest which may be contracted for,  charged,  taken,  received or reserved by
Lender  in  accordance  with the  applicable  laws of the  State  of  Texas  (or
applicable  United  States  federal law to the extent that it permits  Lender to
contract for, charge, take, receive or reserve a greater amount of interest than
under Texas law), taking into account all Charges (as hereafter defined) made in
connection  with  the  transaction  evidenced  by the Note  and the  other  Loan
Instruments.  As used herein,  the term "CHAR YES" shall mean all fees,  charges
and/or any other things of value,  if any,  contracted for,  charged,  received,
taken or reserved by Lender in connection with the transactions  relating to the
Note and the  other  Loan  Instruments,  which are  treated  as  interest  under
applicable law. As used herein, the term "RELATED  INDEBTEDNESS"  shall mean any
and all  debt  paid or  payable  by  Borrower  to  Lender  pursuant  to the Loan
Instruments  or any other  communication  or writing by or between  Borrower and
Lender related to the transaction or transactions  that are the subject mater of
the Loan  Instruments,  except  such debt  which has been paid or is  payable by
Borrower to Lender.

FIFTH MODIFICATION AGREEMENT - Page 2
<PAGE>
     5. Notwithstanding anything to the contrary contained in the Deeds of Trust
or other Loan Instruments,  with respect to any amendment to the Master Deeds of
Trust, the following terms and provisions shall apply;

     With respect to any amendment or  modification of the Master Deeds of Truth
     now or hereafter  executed by Borrower (or any future owner of the Property
     if different from Borrower) and duly recorded in the  appropriate  official
     public  records,  Borrower  acknowledges  and agrees that such amendment or
     modification of the Master Deeds of Trust shall  constitute an amendment or
     modification to the terms and provisions of any such Supplemental  Deeds of
     Trust (and shall be incorporated into any such Supplemental  Deeds of Trust
     and made a part  thereof  for all  purposes,  as though such  amendment  or
     modification  of the Master  Deeds of Trust  specifically  referred to such
     Supplemental  Deeds  of  Trust)  without  the  necessity  of  any  specific
     reference in such amendment or modification to any such Supplemental  Deeds
     of Trust;  and no such  amendment  or  modification  of the Master Deeds of
     Trust shall impair the obligations of Borrower under any such  Supplemental
     Deeds of Trust or any other of the Loan Instruments.

     6. Borrower hereby  expressly  promises to pay to the order of Lender,  the
principal  amount of the Note (as  modified and  increased)  and all accrued and
unpaid  interest now or hereafter to become due and payable under the Note,  and
Borrower hereby expressly promises to perform all of the obligations of Borrower
under the Loan Instruments (as modified and increased).

     7. The liens of the Deeds of Trust are hereby  acknowledged  by Borrower to
be good,  valid and  subsisting  liens,  and such liens are hereby  renewed  and
extended  so as to secure  the  payment  of the Note and Loan (as  modified  and
increased).

     8. Borrower  hereby  represents and warrants to Lender that (a) Borrower is
the sole legal and beneficial  owner of the Property;  (b) Borrower has the full
power and authority to make the agreements  contained in this Agreement  without
joinder  or  consent  of any  other  party;  (c)  the  execution,  delivery  and
performance  of this  Agreement will not contravene or constitute an event which
itself or which  with the  passing  of time or  giving  of notice or both  would
constitute a default under any deed of trust, loan agreement, indenture or other
agreement to which  Borrower or Guarantor is a party or by which Borrower or any
of its  property  is bound;  and (d)  there  exists  no  default  under the Loan
Instruments  (as modified).  BORROWER HEREBY AGREES TO INDEMNIFY AND HOLD LENDER
HARMLESS  AGAINST  ANY LOSS,  CLAIM,  DAMAGE,  LIABILITY  OR EXPENSE  (INCLUDING
WITHOUT LIMITATION,  ATTORNEYS' FEES) INCURRED AS A RESULT OF ANY REPRESENTATION
OR  WARRANTY  MADE BY  BORROWER  HEREIN  PROVING  TO BE UNTRUE  IN ANY  MATERIAL
RESPECT.

     9. The terms and conditions hereof may not be modified, amended, altered or
otherwise  affected  except by  instrument  in  writing  executed  by Lender and
Borrower.

     10.  All Loan  Instruments  are hereby  amended  and  modified  in a manner
consistent with the  modifications,  terms and/or  provisions  contained herein.
Except as  expressly  modified  hereby,  the terms  and  conditions  of the Loan
Instruments are and shall remain in full force and effect.

     11. Borrower agrees to pay to Lender,  contemporaneously with the execution
and delivery  hereof,  all costs and expenses  incurred in connection  with this
transaction,  title insurance endorsement premiums,  reasonable fees of Lender's
counsel and recording fees.

     12.  Borrower  hereby  agrees to execute and deliver to Lender such further
documents and instruments  evidencing or pertaining to the Loan, as modified and
increased hereby, as may be reasonably  requested by Lender from time to time so
as to evidence the terms and conditions hereof.

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

FIFTH MODIFICATION AGREEMENT - Page 3
<PAGE>
     EXECUTED  on the  date(s)  set forth in the  acknowledgment(s)  below to be
EFFECTIVE as of the date first above written.

                                        BORROWER:

                                        LEGACY/MONTEREY HOMES L.P.,
                                        an Arizona limited partnership

                                        BY:  MTH-TEXAS GP, INC.,
                                             an Arizona corporation,
                                             General Partner

                                             By: /s/ Rick Morgan
                                                 -------------------------------
                                                 Name: Rick Morgan
                                                 Title: Vice President

                                        LENDER:

                                        GUARANTY FEDERAL BANK, F.S.B.,
                                        a federal savings lank

                                        By: /s/ Sam A. Meade
                                            ------------------------------------
                                            Name: Sam A. Meade
                                            Title: Senior Vice President

STATE OF TEXAS     ss.
                   ss.
COUNTY OF COLLIN   ss.

     This  instrument  was  ACKNOWLEDGED  before me on March 28,  2000,  by Rick
Morgan, Vice President of MTH-TEXAS GP, C., an Arizona  corporation,  as General
Partner of LEGACY/MONTEREY  HOMES L.P., AN ARIZONA limited partnership on behalf
of said limited partnership.,

[SEAL]
                                        /s/ Amy C. Kirkpatrick
                                        ----------------------------------------
                                        Notary Public

My Commission on Expires

       2/24/2001                        Amy C. Kirkpatrick
------------------------                ----------------------------------------
                                        Printed Name of Notary Public

FIFTH MODIFICATION AGREEMENT - Page 4
<PAGE>
STATE OF TEXAS    ss.
                  ss.
COUNTY OF DALLAS  ss.

     This instrument was acknowledged  before me on the 29th day of March, 2000,
by Sam A. Meade,  Senior Vice  President of GUARANTY  FEDERAL  BANK,  F.S.B.,  a
federal savings bank, on behalf of said federal savings bank.

[Seal]                                  /s/ Leslie Ruth Reynolds
                                        ----------------------------------------
                                        Notary Public in and for the
                                        above county and state

My Commission Expires:
                                        Leslie Ruth Reynolds
     02/04/2001                         ----------------------------------------
----------------------                  Printed Name of Notary

FIFTH MODIFICATION AGREEMENT - Page 5
<PAGE>
                              CONSENT OF GUARANTOR

     Each of the undersigned,  as a guarantor ("GUARANTOR," whether one or more)
of the loan (the  "LOAN"),  evidenced  by the Note and  secured  by the Deeds of
Trust described in the foregoing Fifth Modification  Agreement (the "Agreement")
to which this Consent is attached,  hereby  acknowledge and consent (jointly and
severally) to the terms of the Agreement and agree (jointly and severally)  that
the  execution  and  delivery of the  Agreement  will in no way change or modify
Guarantor's  respective  obligations under their respective Guaranty (as defined
in the  Agreement);  and each  Guarantor  acknowledges  and agrees  (jointly and
severally)  that the  Indebtedness  (as  defined in the  respective  instruments
comprising  the  Guaranty)  includes the Loan,  together  with any and all other
Indebtedness now or at any time hereafter owing by Guarantor to Lender; and each
Guarantor  (jointly  and  severally)  hereby   unconditionally   and  absolutely
guarantees  to Lender  the  payment  when due of such  Indebtedness,  and hereby
acknowledge  and agree  that  their  respective  Guaranty  is in full  force and
effect,  and that there are no claims,  counterclaims,  offsets or  defenses  to
their respective Guaranty; and each Guarantor acknowledges and consents (jointly
and severally) to the terms of any and all prior  modifications  to the terms of
the Loan  (including,  without  limitation,  any and all  extensions of the term
thereof and  increases in the  principal  thereof  prior to the date hereof,  if
any).

     EXECUTED  on the  date(s)  set forth in the  acknowledgment(s)  below to be
EFFECTIVE as of the 29th day of March, 2000.

                                        GUARANTOR:

                                        MERITAGE CORPORATION,
                                        a Maryland corporation

                                        By: /s/ John R Landon
                                            ------------------------------------
                                            Name: John R. Landon
                                            Title Co-CEO

                                        MTH-TEXAS GP, INC.,
                                        an Arizona corporation

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President

                                        MTH-TEXAS LP, INC.,
                                        an Arizona corporation

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President

FIFTH MODIFICATION AGREEMENT - Page 6
<PAGE>
STATE OF TEXAS     ss.
                   ss.
COUNTY OF COLLIN   ss.

     This  instrument was  ACKNOWLEDGED  before me on March 28, 2000, by John R.
Landon,  Co-CEO of MERITAGE CORPORATION,  a Maryland  corporation,  on behalf of
said corporation.

                                        /s/ Amy C. Kirkpatrick
                                        ----------------------------------------
                                        Notary Public

My Commission expires:

      2/24/2001                         Amy C. Kirkpatrick
----------------------                  ----------------------------------------
                                        Printed Name of Notary Public

STATE OF TEXAS     ss.
                   ss.
COUNTY OF COLLIN   ss.

     This  instrument  was  ACKNOWLEDGED  before me on March 28,  2000,  by Rick
Morgan,  Vice  President of MERITAGE  CORPORATION,  a Maryland  corporation,  on
behalf of said corporation.

                                        /s/ Amy C. Kirkpatrick
                                        ----------------------------------------
                                        Notary Public

My Commission expires:

      2/24/2001                         Amy C. Kirkpatrick
----------------------                  ----------------------------------------
                                        Printed Name of Notary Public

STATE OF TEXAS     ss.
                   ss.
COUNTY OF COLLIN   ss.

     This  instrument  was  ACKNOWLEDGED  before me on March 28,  2000,  by Rick
Morgan,  Vice  President of MERITAGE  CORPORATION,  a Maryland  corporation,  on
behalf of said corporation.

                                        /s/ Amy C. Kirkpatrick
                                        ----------------------------------------
                                        Notary Public

My Commission expires:

      2/24/2001                         Amy C. Kirkpatrick
----------------------                  ----------------------------------------
                                        Printed Name of Notary Public

FIFTH MODIFICATION AGREEMENT - Page 7
<PAGE>
                                    EXHIBIT A

                       DESCRIPTION OF THE DEED(S) OF TRUST

LEGACY/MONTEREY, L.P.

Collin County       Recorded September 4, 1996, Clerk File 96-0075977

Dallas              Recorded September 5, 1996, Volume 96175 Page 00192

Denton              Recorded September 5, 1996, Clerk File 96-80061921

Fort Bend           Recorded January 28, 1999, Clerk File 199900703

Harris              Recorded August 6, 1997, Clerk File No. 5579911

Rockwall            Recorded August 19, 1997, Clerk File No. 176219

Tarrant             Recorded September 5, 1996, Clerk File D196175179

Travis              Recorded September 6, 1996, Volume 12766, Page 1157.

Williamson          Recorded September 9, 1996, Clerk File 9648096

EXHIBIT A, DESCRIPTION OF THE DEEDS OF TRUST - Page I
<PAGE>
                                                             LOAN NO.___________

                            REVOLVING PROMISSORY NOTE
                          (Fourth Amended and Restated)

$65,000,000.00                                                As of May 31, 1993

     FOR  VALUE  RECEIVED,  the  undersigned  (sometimes  referred  to herein as
"MAKER"), jointly and severally if more than one, promise to pay to the order of
GUARANTY  FEDERAL BANK,  F.S.B.,  a federal  savings bank organized and existing
under the laws of the United States  (sometimes  referred to herein as "PAYEE"),
at its principal offices at 8333 Douglas Avenue, Dallas, Texas 75225, or at such
other place as the holder hereof may from time to time designate,  the principal
sum of  SIXTY-FIVE  MILLION  AND NO/ 100  DOLLARS  ($65,000,000.00),  or so much
thereof as may be advanced,  with interest on the principal balance from time to
time  remaining  unpaid  prior to default or  maturity  at the rate  hereinafter
provided,  interest only being payable on the first day of each month commencing
June,  1993, and  continuing  until and including  July 31, 2000,  when,  unless
extended pursuant to the terms of Loan Agreement (hereafter defined), the unpaid
principal  balance of this Note,  together with all accrued and unpaid interest,
shall be due and payable.  The principal of this Note shall otherwise be payable
in accordance with the Loan Agreement. All payments due under this Note shall be
delivered  to the holder  hereof not later than twelve  o'clock,  noon,  Dallas,
Texas time,  on the date such  payment  becomes due and payable (or the date any
voluntary prepayment of this Note is made), in immediately  available funds. Any
payment  received  by the holder  hereof  after such time will be deemed to have
been made on the next following business day.

     As herein provided, the unpaid Principal Amount (hereafter defined) of this
Note (or portions  thereof)  from time to time  outstanding  shall bear interest
prior to maturity at a varying rate per annum equal to, at Maker's  option,  (i)
the Commercial Base Rate (hereafter defined),  or (ii) the applicable LIBOR Base
Rate  (hereafter  defined)  (as elected in the manner  specified  in this Note),
provided that in- no event shall the Applicable Rate (hereafter  defined) exceed
the Maximum Rate (hereafter defined).  Notwithstanding the foregoing,  if at any
time the Applicable Rate exceeds the Maximum Rate, the rate of interest  payable
under  this Note  shall be  limited  to the  Maximum  Rate,  but any  subsequent
reductions in the  Commercial  Base Rate or the LIBOR Base Rate, as the case may
be, shall not reduce the. Applicable Rate below the Maximum Rate until the total
amount of  interest  accrued on this Note  equals the total  amount of  interest
which would have accrued at the Applicable  Rate if the  Applicable  Rate had at
all times been in effect.  Interest on this Note shall be  calculated at a daily
rate equal to 1/360 of the annual  percentage rate stated above,  subject to the
provisions hereof specifying the maximum amount of interest which may be charged
or collected hereunder.

     As used in this Note, the following terms shall have the meanings indicated
opposite them:

     "ADDITIONAL COSTS" -- Any costs, losses or expenses incurred by Payee which
it determines are  attributable to its making or maintaining the Loan (hereafter
defined),  or its obligation to make any Loan advances,  or any reduction in any
amount receivable by Payee under the Loan or this Note.

     "APPLICABLE  RATE  -- The  Commercial  Base  Rate  (as to that  portion  of
 .Principal  Amount  bearing  interest at the  Commercial  Base Rate);  provided,
however  from and after May 15, 1998 , the  Applicable  Rate shall be either the
Commercial  Base  Rate  (as to that  portion  of the  Principal  Amount  bearing
interest  at the  Commercial  Base  Rate)  or the  LIBOR  Base  Rate (as to each
Euro-Dollar Amount) as elected in the manner specified in this Note.

     "ASSESSMENTS"  -- Any  impositions  and  assessments  imposed on Payee with
respect to any Euro-Dollar  Amount for insurance or other fees,  assessments and
surcharges.

                                       -1-
<PAGE>
     "COMMERCIAL BASE RATE" -- One percent (I %) per annum in excess of the base
rate announced or published from time to time by Guaranty Federal Bank,  F.S.B.,
which rate may not be the lowest rate charged by Guaranty Federal Bank,  F.S.B.;
it being  understood aril agreed that the Commercial Base Rate shall increase or
decrease, as the case may be, from time to time as of the effective date of each
change in such rate;  provided,  however,  from and after  August 1,  1995,  the
"Commercial  Base Rate" shall be the base rate  announced or published from time
to time by Guaranty Federal Bank, F.S.B.

     "EURO-DOLLAR  AMOUNT"  -- Each  portion  of the  Principal  Amount  bearing
interest  at the  applicable  LIBOR Base Rate  pursuant  to a  Euro-Dollar  Rate
Request.  There shall be no more than seven (7) portions of the Principal Amount
bearing  interest at an applicable LIBOR Base Rate outstanding at any time, each
such portion shall be in amounts of not less than  $1,000,000.00  each and in no
event shall the total portions of the Principal  Amount bearing  interest at the
LIBOR Base Rate exceed seventy percent (70%) of the Principal Amount of the time
of any Euro-Dollar Rate Request.

     "EURO-DOLLAR  BUSINESS DAY" -- Any day on which  commercial  banks are open
for domestic  and  international  business  (including  dealings in U.S.  Dollar
deposits) in New York City and Dallas, Texas.

     "EURO-DOLLAR  RATE  REQUEST" -- Maker's  telephonic  notice (to be promptly
confirmed  in a written  notice  which must be  received  by Payee  before  such
Euro-Dollar  Rate Request  will be put into effect by Payee),  to be received by
Payee by twelve o'clock noon (Dallas, Texas time) three (3) Euro-Dollar Business
Days prior to the  Euro-Dollar  Business Day specified in the  Euro-Dollar  Rate
Request for the  commencement  of the Interest  Period,  of (a) its intention to
have  (1) all or any  portion  of the  Principal  Amount  which  is not then the
subject  of  an  Interest  Period  (other  than  an  Interest  Period  which  is
terminating on such Euro-Dollar  Business Day), and/or (2) all or any portion of
any advance of Loan proceeds  which is to be made on such  Euro-Dollar  Business
Day, bear interest at the LIBOR Base Rate,  and (b) the Interest  Period desired
by Maker in respect of the amount  specified.  There shall be no more than three
(3) such requests for an election outstanding at any time.

     "EURO-DOLLAR  RATE REQUEST AMOUNT" -- The amount,  to be specified by Maker
in each  Euro-Dollar  Rate Request and stated in  increments  of  $1,000,000.00,
which Maker desires to bear interest at the LIBOR Base Rate; provided,  however,
in no event shall an such amount be less than $1,000,000.00 in each instance.

     "EURO-DOLLAR  REFERENCE  SOURCE"  --  The  display  for  Euro-Dollar  rates
provided on The Bloomberg (a data service),  viewed by accessing Page One (I) of
the global  deposits  segment of  money-market  rates (or such other page as may
replace Page One [ 1 ] for the purposes of displaying Euro-Dollar rates); or, at
the option of Payee the  display  for  Euro-Dollar  rates on such other  service
selected from time to time by Payee and  determined by Payee to be comparable to
The  Bloomberg,  which other  service may include  Reuters  Monitor  Money Rates
Service.

     "INTEREST  PERIOD" -- The period  during  which  interest at the LIBOR Base
Rate, determined as provided in this Note, shall be applicable to the applicable
Euro-Dollar Rate Request Amount; provided,  however, that each such period shall
be either  thirty (30),  ninety (90),  or one hundred  eighty (180) days,  which
shall be measured  from the date  specified  by Maker in each  Euro-Dollar  Rate
Request for the  commencement  of the  computation of interest at the LIBOR Base
Rate, to the numerically  corresponding  day in the calendar month in which such
period terminates (or, if there be no numerical  correspondent in such month, or
if the date  selected  by Maker for such  commencement  is the last  Euro-Dollar
Business Day of a calendar month, then the last Euro-Dollar  Business Day of the
calendar  month  in  which  such  period  terminates,  or,  if  the  numerically
corresponding  day is not a Euro-Dollar  Business Day, then the next  succeeding
Euro-Dollar  Business Day, unless such next succeeding  Euro-Dollar Business Day
enters a new  calendar  month,  in which case such period  shall end on the next
preceding  Euro-Dollar  Business  Day); and in no event shall any such period be
elected which extends beyond the Maturity Date.

                                       -2-
<PAGE>
     "LIBOR BASE RATE" -- With respect to any Euro-Dollar  Amount,  the rate per
annum (expressed as a percentage)  determined by Payee to be equal to the sum of
(a) the quotient of the LIBOR Rate for the applicable Euro-Dollar Amount and the
applicable  Interest  Period,   divided  by  (1  minus  the  applicable  Reserve
Requirement),  rounded up to the nearest  1/100 of I%,  PLUS (b) the  applicable
Assessments,  plus (c) two and one-half percent (2.5%);  provided,  however from
and after March ___,  1999, the LIBOR Base Rate shall be equal to the sum of (a)
the  quotient of the LIBOR Rate for the  applicable  Euro-Dollar  Amount and the
applicable  Interest  Period,   divided  by  (1  minus  the  applicable  Reserve
Requirement),  rounded up to the nearest  1/100 of 1%,  PLUS (b) the  applicable
Assessments,  PLUS (c) two and  one-quarter  percent (2.25%)  provided,  further
however  from and after March _-_,  2000,  the LIBOR Base Rate shall be equal to
the sum of (a) the  quotient  of the LIBOR Rate for the  applicable  Euro-Dollar
Amount and the applicable  Interest  Period,  divided by (1 minus the applicable
Reserve  Requirement),  rounded  up to the  nearest  1/100  of 1%,  plus (b) the
applicable Assessments, plus (c) two percent (2.0%);

     "LIBOR RATE" -- The rate determined by Payee (rounded upward, if necessary,
to the nearest  1/16 of 1%) equal to the offered rate (and not the bid rate) for
deposits in U.S.  Dollars of amounts  comparable to the Euro-Dollar Rate Request
Amount for the same period of time as the Interest  Period  selected by Maker in
the Euro-Dollar Rate Request,  as set forth on the Euro-Dollar  Reference Source
at  approximately  10:00  a.m.  (Dallas,  Texas  time) on the  first  day of the
applicable Interest Period.

     "LOAN" -- The $65,000,000.00 loan evidenced hereby.

     "MATURITY DATE" -- July 31, 2000,  being the date this Note becomes due and
payable  in its  entirety,  unless  extended  pursuant  to the terms of the Loan
Agreement.

     "MAXIMUM RATE" -- The maximum interest rate permitted under applicable law.

     "PRINCIPAL  AMOUNT" -- That portion of the Loan evidenced hereby as is from
time to time outstanding.

     "REGULATION  D" --  Regulation  D of the Board of  Governors of the Federal
Reserve System, as from time to time amended or supplemented.

     "REGULATION"  -- With respect to the charging and collecting of interest at
the LIBOR Base Rate, any United States federal, state or foreign laws, treaties,
rules or regulations whether now in effect or hereinafter enacted or promulgated
(including Regulation D) or any interpretations, directives or requests applying
to a class of depository  institutions  including  Payee under any United States
federal,  state or foreign laws or regulations  (whether or not having the force
of law) by any court or  governmental  or monetary  authority  charged  with the
interpretation  or  administration  thereof,  excluding any change the effect of
which is determined by Payee to be reflected in a change in the LIBOR Base Rate.

     "RESERVE  REQUIREMENT"  -- The  average  maximum  rate  at  which  reserves
(including any marginal,  supplemental or emergency reserves) are required to be
maintained  under  Regulation D by member banks of the Federal Reserve System in
New  York  City  with  deposits  exceeding  one  billion  U.S.  Dollars  against
"Eurocurrency Liabilities," as such quoted term is used in Regulation D. Without
limiting the effect of the foregoing,  the Reserve Requirement shall reflect any
other  reserves  required to be maintained by such member banks by reason of any
regulatory  change  against  (a) any  category  of  liabilities  which  includes
deposits by reference to which the LIBOR Rate is to be determined as provided in
this Note,  or (b) any category of  extensions  of credit or. other assets which
includes  loans the interest  rate on which is  determined on the basis of rates
referred to in the definition of "LIBOR Rate" set forth above.

     If Maker desires the  application of the LIBOR Base Rate, it shall submit a
Euro-Dollar  Rate Request to Payee.  Such Euro-Dollar Rate Request shall specify
the Interest Period and the Euro-Dollar Amount and shall be irrevocable, subject
to Payee's right to convert the rate of interest payable  hereunder with respect
to any  Euro-Dollar  Amount from the LIBOR Base Rate to the Commercial Base Rate

                                       -3-
<PAGE>
as hereinafter  provided.  In the event that Maker fails to submit a Euro-Dollar
Rate  Request  with  respect to an  existing  Euro-Dollar  Amount not later than
twelve o'clock noon (New York time) three (3) Euro-Dollar Business Days prior to
the last day of the relevant  Interest Period,  then the applicable  Euro-Dollar
Amount shall bear interest,  commencing at the end of such Interest  Period,  at
the Commercial Base Rate.

     In no event shall Maker have more than seven (7) Interest Periods involving
Euro-Dollar Amounts in effect at any one time, whether or not any portion of the
Principal Amount is then bearing interest at the Commercial Base Rate.

     Any portion of the Principal Amount to which the LIBOR Base Rate is not (or
pursuant to the terms hereof  cannot be)  applicable  shall bear interest at the
Commercial Base Rate.

     Maker  shall  pay to Payee,  promptly  upon  demand,  such  amounts  as are
necessary to compensate Payee for Additional Costs resulting from any Regulation
which (i)  subjects  Payee to any tax,  duty or other charge with respect to the
Loan or this Note,  or changes the basis of  taxation of any amounts  payable to
Payee under the Loan or this Note  (other than taxes  imposed on the overall net
income of Payee or of its applicable lending office by the jurisdiction in which
Payee's  principal  office or such applicable  lending office is located),  (ii)
imposes,  modifies or deems  applicable any reserve,  special deposit or similar
requirements  relating to any  extensions  of credit or other  assets of, or any
deposits with or other  liabilities  of, Payee,  or (iii) imposes on Payee or on
the interbank  Euro-Dollar market any other condition affecting the Loan or this
Note,  or any of such  extensions  of credit or  liabilities.  Payee will notify
Maker of any event which would  entitle Payee to  compensation  pursuant to this
paragraph as promptly as practicable  after Payee obtains  knowledge thereof and
determines to request such compensation.

     Without limiting the effect of the immediately preceding paragraph,  in the
event that, by reason of any Regulation, (i) Payee incurs Additional Costs based
on or measured by the amount of (1) a category of deposits or other  liabilities
of Payee  which  includes  deposits  by  reference  to which the  LIBOR  Rate is
determined  as  provided in this Note  and/or (2) a category  of  extensions  of
credit or other  assets of Payee which  includes  loans the interest on which is
determined on the basis of rates  referred to in the  definition of "LIBOR Rate"
set forth above,  (ii) Payee becomes  subject to  restrictions  on the amount of
such a category of liabilities or assets which it may hold, or (iii) it shall be
unlawful or  impractical  for Payee to make or maintain the Loan (or any portion
thereof) at the LIBOR Base Rate, then Payee's obligation to make or maintain the
Loan (or portions  thereof) at the LIBOR Base Rate (and Maker's right to request
the same) shall be suspended  and Payee shall give notice  thereof to Maker and,
upon the giving of such  notice,  interest  payable  hereunder at the LIBOR Base
Rate shall be converted to the Commercial  Base Rate,  unless Payee may lawfully
continue to maintain the Loan (or any portion  thereof) then bearing interest at
the LIBOR Base Rate to the end of the current Interest Period(s),  at which time
the interest rate shall  convert to the  Commercial  Base Rate. If  subsequently
Payee determines that such Regulation has ceased to be in effect,  Payee will so
advise Maker and Maker may convert the rate of interest  payable  hereunder with
respect to those  portions  of the  Principal  Amount  bearing  interest  at the
Commercial  Base Rate to the LIBOR Base Rate by  submitting a  Euro-Dollar  Rate
Request in respect  thereof and otherwise  complying with the provisions of this
Note with respect thereto.

     Determinations by Payee of the existence or effect of any Regulation on its
costs of making or maintaining the Loan, or portions thereof,  at the LIBOR Base
Rate, or on amounts  receivable by it in respect thereof,  and of the additional
amounts  required to compensate  Payee with respect to  Additional  Costs and/or
Assessments,  shall be conclusive;  provided,  however, that such determinations
are made without manifest error.

     Anything  herein  to the  contrary  notwithstanding,  if, at the time of or
prior to the  determination of the LIBOR Base Rate in respect of any Euro-Dollar
Rate Request Amount as herein provided,  Payee determines  (which  determination
shall be conclusive  [provided that such  determination  is made on a reasonable
basis] absent manifest error) that (i) by reason of circumstances  affecting the
interbank  Euro-Dollar market generally,  adequate and fair means do not or will
not exist for determining the LIBOR Base Rate applicable to an Interest  Period,
or (ii) the LIBOR Rate, as determined by Payee, will not accurately  reflect the

                                       -4-
<PAGE>
cost to Payee of making or maintaining the Loan (or any portion  thereof) at the
LIBOR Base Rate,  then Payee shall give Maker  prompt  notice  thereof,  and the
applicable  Euro-Dollar Rate Request Amount shall bear interest,  or continue to
bear interest,  as the case may be, at the Commercial  Base Rate. If at any time
subsequent  to the giving of such  notice,  Payee  determines  that because of a
change  in  circumstances  the  LIBOR  Base  Rate is  again  available  to Maker
hereunder,  Payee  shall so  advise  Maker and  Maker  may  convert  the rate of
interest payable  hereunder from the Commercial Base Rate to the LIBOR Base Rate
by submitting a Euro-Dollar  Rate Request to Payee and otherwise  complying with
the provisions of this Note with respect thereto.

     Maker shall pay to Payee,  immediately  upon  request  and  notwithstanding
contrary  provisions  contained in the Deeds of Trust (as hereafter  defined) or
other Loan  Instruments  (as hereafter  defined),  such amounts as shall, in the
conclusive  judgment of Payee  reasonably  exercised,  compensate  Payee for any
loss,  cost  or  expense  incurred  by it as a  result  of (i)  any  payment  or
prepayment,  under any circumstances whatsoever, of any portion of the Principal
Amount bearing interest at the LIBOR Base Rate on a date other than the last day
of  an  applicable  Interest  Period,  (ii)  the  conversion,   for  any  reason
whatsoever,  of the rate of interest payable  hereunder from the LIBOR Base Rate
to the Commercial Base Rate with respect to any portion of the Principal  Amount
then  bearing  interest at the LIBOR Base Rate on a date other than the last day
of an applicable  Interest  Period,  (iii) the failure of all or a portion of an
advance,  which was to have borne  interest at the LIBOR Base Rate pursuant to a
Euro-Dollar  Rate  Request,  to be made  under the Loan  Agreement,  or (iv) the
failure  of Maker to  borrow  in  accordance  with a  Euro-Dollar  Rate  Request
submitted by it to Payee, which amounts shall include, without limitation,  lost
profits.

     Maker shall have the right to prepay,  in whole or in part,  the  Principal
Amount of this Note  accruing  interest  at the  Commercial  Base Rate,  without
premium  or  penalty  upon the  payment of all  accrued  interest  on the amount
prepaid  (and any  interest  which has  accrued at the Default  Rate  (hereafter
defined) and other sums that may be payable hereunder);  provided, however, that
any  Euro-Dollar  Amount may be prepaid  only on the last day of the  applicable
Interest Period.

     All payments of principal shall be credited first against principal amounts
bearing  interest  at the  Commercial  Base Rate and then  toward the payment of
Euro-Dollar  Amounts.  Payments of Euro-Dollar  Amounts shall be applied in such
manner as Maker  shall  select;  provided,  however,  that  Maker  shall  select
Euro-Dollar  Amounts to be repaid in a manner  designed to  minimize  any losses
incurred  by  virtue  of  such  payment.  If  Maker  shall  fail to  select  the
Euro-Dollar  Amounts to which such payments are to be applied, or if an event of
default has occurred and is continuing at the time of payment,  then Payee shall
be entitled to apply the  payment to such  Euro-Dollar  Amounts in the manner it
deems  appropriate.  Maker  shall  compensate  Payee for any losses  incurred by
virtue of any  payment of those  portions of the Loan  accruing  interest at the
LIBOR Base Rate prior to the last day of the  relevant  Interest  Period,  which
compensation  shall be determined in accordance with the provisions set forth in
this Note, and any payment received  pursuant to this paragraph shall be applied
first to losses incurred by Payee by reason of such payment.

     If a  default  shall  occur  under  the  Deeds of  Trust,  interest  on the
Principal  Amount shall, at the option of Payee,  immediately and without notice
to Maker,  be converted to the Commercial  Base Rate.  The foregoing  provisions
shall not be  construed  as a waiver  by Payee of its right to pursue  any other
remedies  available  to it under  the  Deeds of  Trust or any  other  instrument
evidencing  or securing the Loan,  nor shall it be construed to limit in any way
the application of the Default Rate.

     Maker hereby agrees that it shall be bound by any  agreement  extending the
time or  modifying  the above terms of  payment,  made by Payee and the owner or
owners of tic Property, whether with or without notice to Maker, and Maker shall
continue liable to pay the amount due hereunder,  but with interest at a rate no
greater than the LIBOR Base Rate or the  Commercial  Base Rate,  as the case may
be, according to the terms of any such agreement of extension or modification.

     ALL OR ANY PORTION OF THE  PRINCIPAL  OF THIS NOTE MAY BE  BORROWED,  PAID,
PREPAID,  REPAID  AND  REBORROWED,  FROM  TIME TO TIME  PRIOR  TO  MATURITY,  IN
ACCORDANCE  WITH THE PROVISIONS OF THIS NOTE AND THE OTHER LOAN  INSTRUMENTS (AS
HEREAFTER  DEFINED).  THE EXCESS OF BORROWING  (ADVANCES  AND  READVANCES)  OVER

                                       -5-
<PAGE>
REPAYMENTS SHALL EVIDENCE THE PRINCIPAL BALANCE DUE HEREON FROM TIME TO TIME AND
AT ANY TIME.  THE  AGGREGATE OF ALL ADVANCES MADE UNDER THIS NOTE MAY EXCEED THE
FACE AMOUNT OF THIS NOTE, BUT THE OUTSTANDING  PRINCIPAL BALANCE OF THIS NOTE AT
ANY TIME SHALL NEVER EXCEED THE FACE AMOUNT OF THIS NOTE.

     At the  option of the  holder  hereof,  the entire  principal  balance  and
accrued interest owing hereon shall,  subject to applicable laws, at once become
due and payable  without notice or demand upon the occurrence at any time of any
of the following events ("EVENTS OF DEFAULT"):

     1.   Default in the payment of any  installment  of principal,  interest or
          any  other  sum  due  hereunder  or  under  any  document  evidencing,
          governing,   securing  or  guaranteeing  the  Loan  (individually  and
          collectively,  the "LOAN  INSTRUMENTS")  and the  continuation of such
          default  or a period of  fifteen  (.15)  days  following  the due date
          thereof;  or defaults in the  performance  of any of the  covenants or
          provisions of any of the Loan  Instruments  other than those covenants
          or  provisions  involving  the  payment of the sums  described  in the
          preceding clause in this PARAGRAPH 1.

     2.   The   liquidation,   termination,   dissolution  or  (if  any  of  the
          undersigned is a natural  person) the death of any of the  undersigned
          or any guarantor hereof.

     3.   The  bankruptcy or insolvency  of, the  assignment  for the benefit of
          creditors by, or the appointment of a receiver for any of the property
          of any party  liable for the  payment of this Note,  whether as maker,
          endorser, guarantor, surety or otherwise.

     4.   Default  in the  payment  of any  other  indebtedness  due the  holder
          hereof,  or default in the performance of any other  obligation to the
          holder  hereof by the  undersigned  or any other party  liable for the
          payment hereof, whether as endorser,  guarantor,  surety or otherwise,
          it being reasonably  contemplated by the undersigned that it may incur
          additional indebtedness owing to the holder hereof, from time to time,
          subsequent to the date hereof.

     5.   Notice of default given by any other lender or third party (the "OTHER
          LENDERS") to the undersigned or the  acceleration of any  indebtedness
          owed by the  undersigned  to the Other Lenders  under any  instruments
          evidencing, governing, guaranteeing or securing any other indebtedness
          or obligation,  now or hereafter owed by the  undersigned to the Other
          Lenders.

     The failure to exercise the option to accelerate  the maturity of this Note
upon the happening of any one or more of the events of default  hereunder  shall
not  constitute a waiver of the right of the holder  hereof to exercise the same
or any other option at that time or at any subsequent  time with respect to such
uncured  default or any other event of uncured  default  hereunder  or under any
other of the Loan Instruments. The remedies of the holder hereof, as provided in
this  Note and in any other of the Loan  Instruments,  shall be  cumulative  and
concurrent and may be pursued separately,  successively or together, as often as
occasion therefor shall arise, at the sole discretion of the holder hereof.  The
acceptance  by the holder  hereof of any  payment  under this Note which is less
than  payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of or impair, reduce, release or extinguish any of
the rights or remedies of the holder hereof to exercise the foregoing  option or
any  other  option  granted  to the  holder  hereof  or in any other of the Loan
Instruments,  at that  time or at any  subsequent  time,  or  nullify  any prior
exercise of any such option.

     The unpaid  principal of and, to the extent  permitted by  applicable  law,
unpaid interest on this Note from time to time  outstanding  shall bear interest
from and after  maturity at the rate  (hereafter  called the "DEFAULT  RATE") of
five  percent  (5%) per annum above the  Commercial  Base Rate (as such rate may
change from time to time as  provided  above),  provided  that in no event shall
such interest rate be more than the Maximum  Rate.  Notwithstanding  anything to
the contrary contained in this Note, at the option of the holder hereof and upon
notice to the  undersigned  at any time after the  occurrence  of a default,  as
defined  in the Deeds of Trust,  from and  after  such  notice  and  during  the
continuance of such default, the unpaid principal of this Note from time to time

                                       -6-
<PAGE>
outstanding  and all past due  installments  of  interest  shall,  to the extent
permitted by applicable law, bear interest at the Default Rate (as such rate may
change from time to time with each change in the Commercial Base Rate), provided
that in no event shall such interest rate be more than the Maximum Rate.

     The  undersigned  and all other  parties  now or  hereafter  liable for the
payment hereof, whether as endorser,  guarantor, surety or otherwise,  severally
waive demand, presentment, notice of dishonor, notice of intention to accelerate
the indebtedness  evidenced  hereby,  notice of the acceleration of the maturity
hereof,  diligence in collecting,  grace, notice and protest, and consent to all
extensions  which from time to time may be  granted by the holder  hereof and to
all partial payments hereon, whether before or after maturity.

     If this Note is not paid when due,  whether at maturity or by acceleration,
or if it is collected  through a  bankruptcy,  probate or other  court,  whether
before or after maturity, the undersigned agrees to pay all costs of collection,
including but not limited to reasonable  attorneys' fees and expenses,  incurred
by the holder hereof.

     This Note is  executed  pursuant to a Master  Loan  Agreement,  dated as of
January 31, 1993,  between the undersigned and the payee named herein (the "LOAN
AGREEMENT"),  which Loan Agreement  contains  provisions for acceleration of the
maturity  hereof upon the  happening of certain  events,  and all advances  made
hereunder shall be made pursuant to the Loan Agreement.  This Note is secured by
one or more Deeds of Trust (With Security  Agreement and Assignment of Rents and
Leases) (collectively,  the "DEEDS OF TRUST") covering certain property situated
in  various  Counties  in Texas.  The  proceeds  of this Note are to be used for
business,  commercial,  investment  or other  similar  purposes  and no  portion
thereof will be used for personal, family or household use.

     This Note is given in renewal,  replacement and  rearrangement,  and not in
extinguishment  of, the  indebtedness  evidenced by that  certain (i)  Revolving
Promissory Note in the amount of $17,000,000.00, dated May 31, 1993, as executed
by Maker and payable to Payee,  (ii)  Revolving  Promissory  Note  (Amended  and
Restated) in the amount of  $40,000,000.00  (as increased),  dated as of May 31,
1993, as executed by Maker and payable to Payee, and (iii) Revolving  Promissory
Note (Second Amended and Restated) in the amount of $50,000,000.00,  dated as of
May 31, 1993, as executed by Maker and payable to Payee,  and (iv) and Revolving
Promissory Note (Third Amended and Restated) in the amount of $80,000,000.00 (as
increased), dated as of May 31, 1993, as executed by Maker and payable to Payee.

     All agreements  between the undersigned and the holder hereof,  whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of acceleration of the maturity hereof
or otherwise,  shall the interest  contracted for,  charged,  received,  paid or
agreed to be paid to the holder  hereof  exceed the  Maximum  Rate.  If from any
circumstance  the holder  hereof  shall ever  receive  anything of value  deemed
interest by applicable law in excess of the Maximum Rate, an amount equal to any
excessive interest shall be applied to the reduction of the principal hereof and
not to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal  hereof,  such excess shall be refunded to the undersigned.
All interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by  applicable  law, be  amortized,  prorated,  allocated,  and spread
throughout  the full period until  payment in full of the  principal so that the
interest  hereon for such full period  shall not exceed the Maximum  Rate.  This
paragraph  shall control all agreements  between the  undersigned and the holder
hereof.

     The  undersigned  acknowledges  and agrees that the holder hereof may, from
time  to  time,  sell or  offer  to sell  interests  in the  Loan to one or more
participants.  The  undersigned  authorizes the holder hereof to disseminate any
information  it has  pertaining  to the  Loan,  including,  without  limitation,
complete  and  current  credit  information  on  the  undersigned,  any  of  its
principals  and  any  guarantor  of  this  Note,  to  any  such  participant  or
prospective participant.

                                       -7-
<PAGE>
     EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING,  WITHOUT LIMITATION, ANY
FEDERAL  USURY  CEILING  OR OTHER  FEDERAL  LAW  WHICH,  FROM  TIME TO TIME,  IS
APPLICABLE TO THE  INDEBTEDNESS  EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS),  THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS,  AND THE LAWS OF THE UNITED  STATES  APPLICABLE TO  TRANSACTIONS  IN SUCH
STATE.  THE  UNDERSIGNED  ACKNOWLEDGES  THAT  THE  LIEN OF THE  DEEDS  OF  TRUST
CONSTITUTES A FIRST LIEN ON RESIDENTIAL REAL PROPERTY WITHIN THE MEANING OF PART
A, TITLE V, OF THE DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT
OF 1980, AND THE REGULATIONS PROMULGATED THEREUNDER.

                                        MAKER:

                                        LEGACY/MONTEREY HOMES L.P.,
                                        an Arizona limited partnership

                                        BY:  MTH-TEXAS GP, INC.,
                                             an Arizona corporation,
                                             General Partner

                                             By: /s/ Rick Morgan
                                                 -------------------------------
                                                 Name: Rick Morgan
                                                 Title: Vice President

                                       -8-COMPASS BANK
                                                                      HULEN PARK

                           CONSTRUCTION LOAN AGREEMENT

     THIS AGREEMENT, made this 10th day of February, 2000, by and between, HULEN
PARK VENTURE,  LLC, a Texas limited liability  company (the "BORROWER",  whether
one or more) and COMPASS BANK, (the "LENDER");

                                   WITNESSETH:

     WHEREAS, the Borrower is, or  contemporaneously  herewith shall become, the
owner and holder of the fee simple  title to the  property  described in EXHIBIT
"A" attached hereto and made a part hereof by reference (the Property;  together
with the  improvements,  buildings and fixtures now or hereafter  located on the
Property,  and  other  personal  property  located  or  to be  located  thereon,
collectively, the "Premises"); and

     WHEREAS,  the Borrower has applied to the Lender for a  construction  first
mortgage  loan of THREE  MILLION  THREE  HUNDRED  THOUSAND  AND  NO/100  DOLLARS
($3,300,000.00) (the "Loan"), to be advanced as hereinafter provided,  and to be
evidenced by a promissory  note  executed and delivered of even date herewith by
the Borrower  (the  "Note"),  which Note is secured by a first  priority Deed of
Trust,  Assignment  of Rents and Leases and  Security  Agreement on the Premises
executed  and  delivered  of even date  herewith by the  Borrower  (the "Deed of
Trust"); and

     WHEREAS,  the Borrower has  represented to the Lender that the Premises are
to be  improved  in the manner set forth in certain  documents  heretofore  made
available to the Lender by the Borrower, a schedule of which are attached hereto
as EXHIBIT "B",  which  scheduled  documents are made a part hereof by reference
(the Premises as so improved are hereinafter referred to as the "Project"); and

     WHEREAS,  the Lender has agreed to provide  construction  financing for the
Project, upon and subject to the terms,  covenants,  and conditions  hereinafter
set forth.

     NOW,  THEREFORE,  in  consideration  of the premises,  the mutual  promises
hereinafter contained,  and other good and valuable  consideration,  the receipt
and sufficiency of which are hereby acknowledged,  the parties,  intending to be
legally bound hereby, agree as follows:

                                    ARTICLE I

                           THE LOAN AND THE COLLATERAL

     SECTION  1.01 THE LOAN AND THE  COLLATERAL.  The  Lender  shall make to the
Borrower, and the Borrower shall accept from the Lender, the Loan in the maximum
principal  amount of THREE  MILLION THREE  HUNDRED  THOUSAND AND NO/100  DOLLARS
($3,300,000.00).  The Loan shall be evidenced by the Note,  shall bear  interest
and be  payable  as set forth in the Note,  and shall be  secured by the Deed of

CONSTRUCTION LOAN AGREEMENT - PAGE 1
<PAGE>
Trust and all the other  documents  and  instruments  executed or  delivered  in
connection  with,  or  otherwise  relating  to,  the  Loan,  including,  without
limitation,  the documents and instruments,  if any, set forth in subsection (b)
below.  The proceeds of the Loan shall be disbursed in accordance with the terms
and provisions of this Agreement,  the disbursement  schedule attached hereto as
EXHIBIT "C" and made a part hereof by reference (the  "Disbursement  Schedule"),
and the project budget  heretofore  submitted to and approved by the Lender (the
"Project Budget").

     (a) The Note shall be endorsed by the  following  persons or entities  (the
"Endorsers"):-None

     (b) In  addition  to the Deed of Trust,  the Loan  shall be  secured by the
following (the "Additional Security"): -None

     (c) The Loan shall be guaranteed,  jointly and severally,  by the following
persons or  entities  (the  "Guarantors"),  pursuant  to  continuing,  unlimited
guaranty   agreements  in  form  and  substance   satisfactory  to  Lender  (the
"Guaranties"),  such Guaranties to be secured by the security, if any, listed in
EXHIBIT "D", attached hereto (the "Guaranty Security"):

     MTH-Texas GP, Inc., an Arizona corporation
     MTH-LP, Inc., an Arizona corporation
     Legacy/Monterey Homes, L.P., an Arizona Limited Partnership
     Meritage Corporation, a Maryland corporation

This  Agreement,  the Note,  the Deed of Trust,  the  Additional  Security,  the
Guaranties,  the Guaranty  Security,  and all other  documents  and  instruments
evidencing,  securing,  guaranteeing,  relating  to, or executed or delivered in
connection  with the Loan are  collectively  referred  to  herein  as the  "Loan
Documents".

     SECTION  1.02  COMMITMENT  FEE AND  OTHER  INFORMATION.  The  amount of the
commitment  fee, the name of the architect of the Project (if any),  the name of
the engineer for the Project (if any),  the name of the general  contractor  for
the Project, and information  regarding the term loan commitment for the Project
(if term financing is not being provided by the Lender) are set forth below:

     (a) Commitment Fee of Lender:  $8,250 (Such fee shall be considered  earned
and  non-refundable  and shall be due and  payable  upon the  acceptance  of the
Lender's commitment to make the Loan,  regardless whether the Loan is funded. An
additional fee may be required for a renewal.)

     (b) Architect:

     (c) Engineer:

     (d) General Contractor:

     SECTION  1.03 USE OF  PROCEEDS.  The  proceeds  of this Loan  shall be used
solely to (a) acquire the Premises if the Premises are not already  owned by the
Borrower,  (b) equip and develop and/or construct the Project on the Property in
accordance  with the Plans (as defined below),  and (c) pay expenses  associated
therewith,  as set forth in the  Disbursement  Schedule and the Project  Budget.
Such proceeds may be commingled  with other funds of Borrower only to the extent
records are kept  sufficient in the opinion of the Lender to trace the proceeds.
The proceeds will not be used for any other work or project of the Borrower. Any

CONSTRUCTION LOAN AGREEMENT - PAGE 2
<PAGE>
disbursements  hereunder  which  are  made  directly  to the  Borrower  shall be
received by the  Borrower as a trust fund to be used by the Borrower as provided
herein.

     SECTION  1.04   COMMENCEMENT   AND  CONTINUITY  OF  WORK.   Development  or
construction  of the Project shall be carried on  continuously,  diligently  and
with dispatch until completed, and shall be completed by SEPTEMBER 30, 2000 (the
"Completion  Date") (the period between the Commencement Date and the Completion
Date shall be hereinafter referred to as the "Construction Period").

     SECTION 1.05 DEVELOPMENT  AND/OR  CONSTRUCTION OF THE PROJECT.  The Project
shall comply with all restrictions,  conditions, ordinances, codes, regulations,
and laws of the governmental entities, departments and agencies having direction
or  jurisdiction  over or an  interest  in the  Project.  The  Project  shall be
developed and/or constructed in accordance with the plans and specifications, as
approved  by Lender and all  governmental  authorities  having  jurisdiction  in
respect  thereof (the  "Plans").  THIS LOAN IS FOR  DEVELOPMENT OF A RESIDENTIAL
SUBDIVISION,  THE  NATURE  OF THE  PROJECT  AND  ANY  ADDITIONAL  AGREEMENTS  OR
OBLIGATIONS  SHALL BE SET FORTH IN EXHIBIT  "E",  WHICH IS MADE A PART HEREOF BY
REFERENCE.  No significant extra work or materials nor change in the Plans shall
be ordered or  authorized  by the  Borrower  without the written  consent of the
Lender.  The term  "significant"  in the preceding  sentence means extra work or
materials or changes in the Plans that exceed  $250,000 in the  aggregate,  when
added to all prior extra work or materials or changes in the Plans.

     The Borrower shall comply with every condition, requirement, regulation, or
other restrictions that may be imposed upon the buildings and improvements being
erected  hereunder  by the Federal  Housing  Administration  ("FHA"),  Veterans'
Administration  ("VA"),  or any  lending  institution  which may have  committed
itself to make or guarantee a long-term  first  mortgage loan on the Premises or
any portion thereof being improved under this  Agreement.  If inspections of the
Project are made by the FHA,  VA, or any other such lender,  the Borrower  shall
furnish the Lender with a copy of each such inspection report.

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

     In order to induce the Lender to enter into this  Agreement and to make the
Loan for which  provision  is made herein,  the  Borrower and the other  parties
hereto make the following warranties and representations:

     SECTION 2.01 FINANCIAL AND OTHER  INFORMATION.  The documents  furnished in
support of the Loan  request  are true and correct  and  accurately  set out the
facts contained  therein.  The financial  statements  provided in support of the
Loan request were prepared in accordance with good  accounting  practice and are
correct and complete and fairly present the financial  position of the person or
entity which each  purports to reflect,  and there has been no material  adverse
change in the financial  positions of such persons or entities since the date of
the last financial statements furnished to the Lender.

CONSTRUCTION LOAN AGREEMENT - PAGE 3
<PAGE>
     SECTION  2.02  LITIGATION.  Except as disclosed in writing to the Lender on
EXHIBIT "F" hereto,  there are no actions,  suits or proceedings  pending or, to
the knowledge of the Borrower,  threatened  against or affecting (a) the Project
or the  Borrower,  or (b) any  Guarantor,  or any Endorser or any  properties or
rights of any Guarantor or any Endorser and such actions,  suits or  proceedings
materially  and  adversely  affect  such  Guarantor's  or  Endorser's  financial
condition or ability to pay and perform its obligations under the Loan. A matter
involving  $50,000 or more shall be deemed  material.  Borrower is not currently
affected by any strike or other labor disturbance,  and there are no outstanding
and unpaid judgments or arbitration awards against the Borrower,  any Guarantor,
or any Endorser  which would have a materially  adverse  effect on the financial
condition or business or  properties  of the  Borrower,  any  Guarantor,  or any
Endorser.  Neither the Borrower nor any Guarantor or Endorser is in default with
respect to any regulation, order, writ or decree of any court or governmental or
municipal department, commission, board, bureau, agency or instrumentality.

     SECTION 2.03  ORGANIZATION AND AUTHORITY.  If the Borrower or any Guarantor
or any Endorser is a corporation, partnership, or other entity, the Borrower and
any such Guarantor or Endorser are duly organized,  validly existing and in good
standing under the laws of the state of their organization and are qualified and
in good standing in all  jurisdictions  where  qualification  is necessary.  The
Borrower and any such  Guarantor or Endorser  have all  corporate,  partnership,
association,  trust,  or  other  power  and  authority,  and have  obtained  all
authorizations of directors,  stockholders,  partners, members, or beneficiaries
and other such authorizations as are necessary to enable them to own and operate
the Project, to carry on their respective businesses,  and to execute,  deliver,
and  perform  this  Agreement,  the Note,  the Deed of Trust and the other  Loan
Documents.  The disbursements  and method for securing the disbursements  herein
provided for are within the corporate, partnership, association, trust, or other
powers of the Borrower and have been duly authorized by all necessary and proper
corporate,  partnership,   association,  trust,  or  other  proceedings  of  the
Borrower. This Agreement,  the Note, the Deed of Trust, the Guaranties,  and the
other Loan Documents have each been duly executed and delivered by the Borrower,
the  Guarantors,  the Endorsers,  and the other parties hereto and thereto,  and
each is in full force and effect and  constitutes  the legal,  valid and binding
obligation of the Borrower, the Guarantors, the Endorsers, and the other parties
hereto and thereto, enforceable in accordance with their respective terms.

     SECTION  2.04 NO  VIOLATIONS.  Neither the  Borrower  nor any  Guarantor or
Endorser is in default in any material respect under any agreement or instrument
to which it is a party or by which  it is or may be  bound.  The  execution  and
delivery  of this  Agreement,  the Note,  the Deed of Trust,  and the other Loan
Documents  and the  consummation  of the  transactions  contemplated  hereby and
thereby  do  not  conflict  with  and  will  not  result  in the  breach  of any
regulation,  order,  writ,  injunction or decree of any court or governmental or
municipal  instrumentality to which the Borrower, any Guarantor, or any Endorser
is  subject,  or in the  breach of or  default  under any  indenture,  contract,
agreement or other  instrument  to which the  Borrower,  any  Guarantor,  or any
Endorser is a party or by which any one of them is or may be bound.

     SECTION 2.05 TITLE TO COLLATERAL.  The Borrower has, and at all times shall
have,  good and  indefeasible  title in fee  simple to the  Premises.  Except as
described on Exhibit "A" hereto,  the Premises are subject to no liens,  charges
or encumbrances.

CONSTRUCTION LOAN AGREEMENT - PAGE 4
<PAGE>
     SECTION 2.06 NO COMMENCEMENT OF WORK. Except for certain grading work which
has been disclosed to Lender,  prior to the  recordation of the Original Deed of
Trust as defined in  Paragraph  5.13  hereafter  and Exhibit "E", no work of any
kind incident to the proposed improvements on the Property shall have commenced,
no  equipment  or  material  shall  have been  delivered  to or stored  upon the
Property for any purpose whatsoever, and no contract (or memorandum or affidavit
thereof) for the  supplying of labor or materials  for the  construction  of the
proposed  improvements  nor any affidavit of commencement of construction  shall
have been executed or recorded in the real property  records in the county where
the Property is located.

     SECTION 2.07 LICENSES AND PERMITS. The Borrower possesses such licenses and
permits as are required for the conduct of its business.  No approval,  consent,
or  authorization  of any  governmental  authority which has not heretofore been
obtained is  necessary  for the  execution  or delivery by the  Borrower of this
Agreement,  the Note, or the other Loan Documents or for the  performance by the
Borrower of any of the terms or conditions hereof or thereof.

     SECTION  2.08  PAYMENT  OF  TAXES.  The  Borrower  and,  if  Borrower  is a
partnership,  each of Borrower's  general  partners,  have filed or caused to be
filed all federal,  state and local tax returns, which are required to be filed,
and have paid or caused to be paid all taxes as shown on said  returns or on any
assessment  received  by them,  to the extent  that such taxes have  become due,
except as otherwise  permitted  by the  provisions  hereof.  The Borrower has no
reason to believe that any additional taxes are due for prior calendar tax years
that have not been audited by the respective tax authorities  beyond the amounts
provided in the financial statements heretofore furnished to Lender.

     SECTION  2.09  ENVIRONMENTAL  MATTERS.  Borrower  represents,  warrants and
covenants as follows:

     (a) No Hazardous Materials (hereinafter defined) have been, are, or will be
while any part of the indebtedness  secured by the Deed of Trust remains unpaid,
contained in, treated, stored, handled, located on, discharged from, or disposed
of on, or constitute a part of, the Project. As used herein, the term "HAZARDOUS
MATERIALS"  include without  limitation,  any asbestos,  urea  formaldehyde foam
insulation,  flammable explosives,  radioactive materials,  hazardous materials,
hazardous  wastes,  hazardous  or toxic  substances,  or  related  or  unrelated
substances or materials defined, regulated, controlled, limited or prohibited in
the Comprehensive  Environmental Response Compensation and Liability Act of 1980
(CERCLA), as amended (42 U.S.C. Sections 9601, ET SEQ.), the Hazardous Materials
Transportation  Act, as amended (49 U.S.C.  Sections 1801 ET SEQ.), the Resource
Conservation  and Recovery Act (RCRA),  as amended (42 U.S.C.  Sections 6901, ET
SEQ.),  the Clean Water Act, as amended (33 U.S.C.  Sections 1251, ET SEQ.), the
Clean Air Act,  as  amended  (42  U.S.C.  Sections  7401,  ET  SEQ.),  the Toxic
Substances Control Act, as amended (15 U.S.C.  Sections 2601 ET SEQ.), the Texas
Solid Waste  Disposal  Act, as amended,  the Texas Water Code,  as amended,  the
Texas Clean Air Act, as amended,  and in the rules and  regulations  adopted and
publications  promulgated  pursuant thereto, and in the rules and regulations of
the  Occupational  Safety  and  Health   Administration   (OSHA)  pertaining  to
occupational exposure to asbestos, as amended, or in any other federal, state or
local  environmental  law,  ordinance,  rule, or regulation  now or hereafter in
effect;

CONSTRUCTION LOAN AGREEMENT - PAGE 5
<PAGE>
     (b) No underground storage tanks, whether in use or not in use, are located
in, on or under any part of the Property;

     (c) All of the  Project  complies  and will  comply  in all  respects  with
applicable environmental laws, rules,  regulations,  and court or administrative
orders;

     (d) There  are no  pending  claims or  threats  of  claims  by  private  or
governmental or administrative authorities relating to environmental impairment,
conditions, or regulatory requirements with respect to the Property; and

     (e) The Borrower shall give immediate oral and written notice to the Lender
of its  receipt  of any notice of a  violation  of any law,  rule or  regulation
covered  by this  Section,  or of any  notice  of other  claim  relating  to the
environmental  condition of the Project, or of its discovery of any matter which
would  make  the  representations,  warranties  and/or  covenants  herein  to be
inaccurate or misleading in any respect.

     The Borrower  hereby agrees to indemnify and hold the Lender  harmless from
all loss, cost,  damage,  claim and expense incurred by the Lender on account of
(i) the violation of any representation,  warranty or covenant set forth in this
Section,  (ii)  Borrower's  failure to perform any  obligations of this Section,
(iii) Borrower's or the Project's failure to fully comply with all environmental
laws,  rules and regulations,  or with all occupational  health and safety laws,
rules  and  regulations,  or (iv) any  other  matter  related  to  environmental
conditions on, under or affecting the Project,  specifically including,  without
limitation,  any loss, cost, damage,  claim and expense which is attributable in
whole or in part to the alleged  negligence of Lender,  its agents or employees.
This indemnification shall survive the closing of the Loan, payment of the Loan,
the exercise of any right or remedy under any Loan Document, any subsequent sale
or transfer of the Project, and all similar or related events or occurrences.

                                   ARTICLE III

                           CONDITIONS TO DISBURSEMENTS

     SECTION 3.01 CONDITIONS PRECEDENT TO INITIAL DISBURSEMENT. Lender shall not
be obligated to, but at Lender's sole option may, make the initial  disbursement
hereunder (the "Initial  Disbursement")  until each of the following  conditions
has been fully satisfied:

     (a) Lender shall have received and approved a copy of a survey  prepared by
an  approved  surveyor,  showing  the  total  square  footage  of the  Property,
dimensions,  means of ingress and egress,  location of all existing and proposed
improvements,  boundaries,  encroachments,  setback  lines,  rights  of way  and
easements,  whether the Property is situated  within a  designated  flood hazard
area and, if requested by Lender, a surveyor's  certificate in substantially the
form of EXHIBIT "G" hereto;

     (b) Lender  shall have  received  UCC-11  reports and an  acceptable  title
policy  binder from a title  insurance  company  qualified to do business in the
state in which the Property is situated,  in the amount of the Loan and covering
the Project,  with any  exceptions  contained in such  policies or reports to be
subject to approval of Lender and its counsel;

     (c) Lender shall have received the properly  executed  Note,  together with
the other Loan Documents and such other documents as Lender may require;

CONSTRUCTION LOAN AGREEMENT - PAGE 6
<PAGE>
     (d) If the Property or any part  thereof is located in a  designated  flood
zone, a flood insurance  policy shall have been obtained on the Project,  naming
Lender in the mortgagee clause;

     (e) Borrower  shall be in compliance  with all of the terms and  provisions
set forth  herein and no Event of  Default  specified  herein,  nor any event or
condition which upon notice or lapse of time, or both,  would constitute such an
Event of Default, shall have occurred and be continuing;

     (f) A copy of the  Plans  shall  have been  furnished  to and  approved  by
Lender;

     (g) Lender shall have received satisfactory evidence that a proper building
permit and/or any required development permits have been obtained;

     (h) Lender shall have received and approved evidence satisfactory to Lender
that  Borrower  has  obtained  liability,  workmen's  compensation,  hazard  and
builder's risk insurance with respect to the Project (as applicable),  issued by
such companies and in such amounts as are  satisfactory to Lender,  covering all
development,  construction,  and  improvements,  with  mortgagee or loss payable
clause(s) in New York standard form in favor of Lender;

     (i) Lender shall have received a certificate of compliance  with applicable
restrictive  or  protective   covenants,   and   certifications  by  appropriate
governmental   agencies,  in  forms  acceptable  to  Lender,  that  the  planned
development  and/or  construction  and the use of the Property  conform with all
federal,  state and municipal laws,  restrictions  and  requirements  including,
without limitation, applicable zoning regulations;

     (j) Lender shall have  received and  approved  copies of the duly  executed
development and/or construction  contract(s) covering all improvements and costs
to be incurred in the Project,  the duly  executed  contract  for  architectural
services relating to the erection of the Project,  the duly executed engineering
contract for the Project (all as applicable),  contractors' lien  subordinations
from those  contractors  and subs required by Lender and an assignment to Lender
of the construction contract, the architectural contract, and/or the engineering
contract, together with the general contractor's, the Project architect's and/or
the Project engineer's consents to such assignments;

     (k) A copy of the  engineering and soil report shall have been received and
approved by Lender;

     (l) Lender shall have received and approved  certificates  of the engineer,
contractor and/or architect for the Project,  or other evidence  satisfactory to
Lender,  that there are no  Hazardous  Materials  on the Project or on or in any
improvements  existing or to be  constructed  thereon and that the Project,  the
Plans  and  the  proposed  and  existing  improvements  comply  with  all  laws,
governmental  standards and  regulations  applicable to Borrower and the Project
relating to occupational  health and safety,  hazardous waste and substances and
environmental matters;

     (m) Lender, and if applicable, Lender's construction consultant, shall have
received and approved the Project Budget;

     (n) Lender  shall have  received  and  approved a current  appraisal of the
Project,  addressed to the Lender and  prepared by an appraiser  approved by the
Lender,  reflecting an appraised  value  satisfactory to Lender and otherwise in
form and substance satisfactory to Lender;

     (o) Lender shall have  received  and  approved all payment and  performance
bonds  required by the City of Fort Worth related to the  Facilities  Agreements
executed by the City and the Borrower. The Lender shall not be expected to issue
any such bonds;

     (p) Lender  shall have  received  such  further  documents  and opinions as
Lender reasonably may request.

CONSTRUCTION LOAN AGREEMENT - PAGE 7
<PAGE>
     SECTION  3.02  CONDITIONS  TO  DISBURSEMENTS  AFTER  INITIAL  DISBURSEMENT.
Disbursements  under  the Note  after  the  Initial  Disbursement  shall be made
monthly and at such other times as Borrower and Lender  shall  agree;  provided,
however,  that in no event shall Lender be obligated to make disbursements after
the Initial Disbursement, prior to the full satisfaction of all of the following
conditions:

     (a) Lender  shall have been  furnished  draw request in for  acceptable  to
Lender,  properly  completed  and  executed  by the general  contractor  and the
Project architect or engineer, as applicable, certifying as to the percentage of
completion of each item of development and/or construction, and that the advance
requested is for work actually done and materials actually incorporated into the
Project and, to the extent approved by Lender,  materials  actually  located and
stored on the Property, during the period preceding the date of the disbursement
and the value thereof;

     (b) Lender shall have been furnished  evidence  satisfactory to it that the
Project  architect or engineer,  as  applicable,  has  inspected the Project and
approved development and/or construction to the date of the disbursement;

     (c) Lender shall have received a mechanic's and  materialman's  lien waiver
from the general  contractor and any other  subcontractors  engaged in work upon
the Property,  waiving  their lien rights  through the date of the last previous
disbursement (provided however, that with respect to any subcontractor, the lien
release shall not be required until the final payment to such subcontractor);

     (d) Upon request of Lender, Borrower shall exhibit or cause to be exhibited
to Lender satisfactory  evidence,  by receipts,  certificates or vouchers,  that
there are no outstanding  overdue claims or demands for labor and materials used
in the Project or  improvements  on the  Property,  and if any notice of lien be
filed against any of the collateral  securing the Loan,  under any mechanic's or
other lien law,  Lender may suspend further  disbursements  under this Agreement
until such lien shall have been discharged of record, or Lender may satisfy such
lien by  disbursement  hereunder if such lien is not discharged of record within
thirty (30) days after Lender requests  Borrower to have such lien discharged of
record;

     (e) All work  which is  usually  done at the  stage of  development  and/or
construction  when the  disbursement  is requested  must, in the judgment of the
Project architect or engineer, as applicable,  or in the judgment of an approved
representative  of  Lender  (at  Lender's  election),  be  done  in a  good  and
workmanlike  manner,  and all  materials  and  fixtures  usually  furnished  and
installed at such time shall be furnished and installed;

     (f) Borrower shall furnish Lender with a certification  by Borrower showing
full payment of all labor,  materials and supplies furnished or delivered to the
Project for which a request for a  disbursement  has been made, or used thereon,
as of the date of the last previous disbursement;

     (g)  Borrower  shall  furnish  Lender  with  an  endorsement  to the  title
insurance  policy  binder  showing  title  free and  clear of  materialmen's  or
mechanics'  liens or any other  encumbrances as of a date not more than five (5)
days prior to the date of the disbursement request;

     (h) All other  conditions  described in Section 3.01 hereof shall have been
and shall  continue  to be fully  satisfied,  and all other  items or  documents
described in Section 3.01 hereof shall have been obtained and approved by Lender
and shall be in full force and effect and  unmodified,  and no event  shall have
occurred or failed to occur which,  upon notice or lapse of time or both,  would
result in the termination of any of such items or documents;

CONSTRUCTION LOAN AGREEMENT - PAGE 8
<PAGE>
     (i) No event  shall  have  occurred  or  failed to occur  which  would be a
default or Event of Default under this Agreement,  the Note, or any of the other
Loan  Documents  or which upon notice or lapse of time or both would  constitute
such a default or Event of Default; and

     (j) Lender  shall have  received and approved  such further  documents  and
information as Lender may reasonably require, including,  without limitation, if
applicable, an FHA/VA compliance inspection report.

     SECTION 3.03 ADDITIONAL  CONDITIONS FOR FINAL DISBURSEMENT.  In addition to
the  conditions  contained in Sections  3.01 and 3.02 hereof,  prior to and as a
condition  precedent  to  Lender's  obligation  to make the  final  disbursement
hereunder:

     (a)  Borrower  shall have  exhibited or cause to be exhibited to Lender the
final  certificate of approval of the various  governmental  authorities  having
jurisdiction over the Project,  including,  without limitation, as applicable, a
certificate of occupancy, a final record map recorded in the real estate records
of the county where the Project is located,  any  necessary  development  and/or
construction certificates, and certificates of the full payment and discharge of
all costs,  expenses,  contract  payments  and charges  relating to  development
and/or construction;

     (b) Borrower shall have submitted the architect's  and/or  engineer's final
certificate of substantial  completion and other appropriate  development and/or
construction certificates relating to the completion of the Project;

     (c) Lender  shall have  received and approved a final survey of the Project
as completed, prepared by a surveyor acceptable to Lender;

     (d) Lender shall have  inspected  and  approved the Project,  if they shall
elect to do so;

     (e) Lender shall have received a final  mechanic's and  materialman's  lien
waiver and release from the general contractor and any other contractors engaged
in work upon the Property; and

     (f) In  addition,  the final  disbursement  hereunder  shall,  at  Lender's
option,  be withheld until thirty (30) days after (i) the  "completion" (as such
term is defined in Section 53.106 of the Texas Property Code) of the Project and
(ii) an  affidavit  of  completion  has been filed with the County  Clerk of the
county in which the Property is located in compliance with Section 53.106 of the
Texas Property Code.

     SECTION 3.04 ADDITIONAL  REQUIREMENTS REGARDING  DISBURSEMENTS.  Lender may
require  three (3) business  days' notice in writing  from  Borrower  prior to a
disbursement hereunder. The person or persons authorized to execute or otherwise
make  disbursement  requests  shall be specified in a resolution of the board of
directors  of Borrower  or a similar  authorization  document,  if Borrower is a
corporation or other entity, or shall be the individuals  signing this Agreement
as  "Borrower".  Lender  shall not be  obligated  to  disburse  more than ninety
percent (90%) of each  requisition for direct  construction  costs until each of
the  conditions  for final  disbursement  in Section  3.03  hereof have been and
remain fully satisfied.

     SECTION  3.05  CERTAIN  DISBURSEMENTS.  Prior  to the  satisfaction  of the
conditions set forth in Sections 3.01, 3.02, 3.03 and 3.04 hereof, Lender may at
its sole option,  but shall have no obligation to,  disburse such sums as Lender
may elect,  including without  limitation amounts owed for expenses to Lender by

CONSTRUCTION LOAN AGREEMENT - PAGE 9
<PAGE>
Borrower under Section 4.05 hereof, and all such disbursements or payments shall
be deemed to have been made pursuant to this  Agreement and not in  modification
hereof.

     SECTION 3.06 JOINT  LIABILITY.  The Borrower  specifically  authorizes  and
directs  the Lender to make  disbursements  on this Loan upon the request of the
person or persons designated in Section 3.04 hereof. Each Borrower whose name is
signed to this Agreement  shall be liable for all such  disbursements  made upon
request of the above-described person or persons  notwithstanding the failure of
each of the  Borrowers  to execute any request  for  disbursement,  it being the
intention of each Borrower to appoint each of the above-described persons as the
agent  and   attorney-in-fact   of  the  Borrower  to  make  such  requests  for
disbursements.  The Borrower does specifically  ratify and confirm to the Lender
the Borrower's liability for disbursements made pursuant to this Section.

     SECTION 3.07 LOAN  PROCEEDS.  The Lender shall not be required to segregate
the  Loan  proceeds  or to  ear-mark  such  proceeds  in any  manner.  The  sole
obligation  of the Lender shall be to disburse the proceeds as set forth herein,
provided  Borrower  satisfies the conditions  precedent to the  disbursement and
provided  no event has  occurred or failed to occur  which  would  constitute  a
default  or  Event of  Default  (as  defined  herein  and  therein)  under  this
Agreement,  the Note, the Deed of Trust, or any of the other Loan Documents,  or
which upon notice or lapse of time, or both,  would constitute such a default or
Event of Default.

                                   ARTICLE IV

                              AFFIRMATIVE COVENANTS

     SECTION 4.01  DEFICIENCY IN AMOUNT OF  UNDISBURSED  LOAN  PROCEEDS.  If and
whenever the Lender shall  determine  and notify the Borrower that the amount of
monies remaining  undisbursed is less than the amount required fully to complete
and pay for the improvements  contemplated under this Loan, and the Lender shall
demand  that the  Borrower  deposit  with the  Lender  an  amount  equal to such
deficiency  as  determined  by the Lender,  then and in that event the  Borrower
shall comply with such demand  within ten (10) days from the date  thereof.  The
judgment and  determination  of the Lender under this Section shall be final and
conclusive. A budgetary savings in one category of the Project Budget will allow
an increase in another  budgeted  category.  In determining the amount of monies
required to fully  complete the  improvements  contemplated  by the Loan,  it is
acknowledged  that the Borrower will conduct certain  off-site work that will be
funded by the Borrower directly.  The Borrower shall keep the Lender informed of
the status of the off-site work, as well as the completion schedule,  the budget
and payment  schedule for the  off-site  work and provide from time to time such
information as the Lender shall reasonably require.

     SECTION 4.02  INTEREST  RESERVE.  If, due to high  interest  rates or other
various factors, any interest reserve of the Project Budget appears to Lender to
be inadequate,  Borrower shall fund the equity necessary to cure the inadequacy.
The interest reserve  sufficiency is to be determined by projecting the interest
rate at the then current rate  applied to the  anticipated  Loan balance for the
remaining term.

     SECTION 4.03 INSURANCE  COVERAGE AND APPLICATION OF PROCEEDS.  The interest
of the Lender  shall,  at all times,  be protected by adequate fire and multiple
perils insurance covering all development and/or  construction work,  buildings,

CONSTRUCTION LOAN AGREEMENT - PAGE 10
<PAGE>
improvements, fixtures and other personal property on or related to the Premises
and off-site and on-site  materials  related to the Project through a company or
companies  acceptable to the Lender and in an amount equal to the full insurable
value of such work, buildings and improvements, fixtures, personal property, and
materials.  Such fire and  multiple  perils  insurance  policies  shall  contain
mortgagee  or loss  payable  clause(s)  in New  York  standard  form in favor of
Lender.  The proceeds from any loss covered by insurance shall be, at the option
of the Lender, applied to the replacement of the loss or toward the repayment of
the Loan.  The Borrower also shall provide  workmen's  compensation  and general
liability insurance with respect to the Premises through companies acceptable to
Lender and in such amounts as are satisfactory to Lender.  Lender shall be named
as  an  additional  insured  on  all  liability  insurance  policies  and  as  a
certificate  holder  on  all  workmen's  compensation  insurance  policies.  The
originals of all  insurance  policies  required by this Section  shall be in the
possession of the Lender no later than the  commencement of development  work or
construction,  and Lender  shall have no  obligation  to disburse  any funds for
development  work or  construction  costs until Lender shall have  received such
policies and satisfactory evidence of the payment of the premiums thereon.

     SECTION  4.04 PAYMENT OF TAXES AND DEBTS.  The Borrower  agrees to promptly
pay and discharge any taxes,  assessments or indebtedness upon the Project which
may become due or payable during the existence of this Loan.

     SECTION 4.05 PAYMENT OF EXPENSES OF LENDER.  The Borrower agrees to pay any
and all taxes,  insurance  premiums,  recording  fees,  abstract or title policy
costs,  attorneys' fees and all other expenses and costs of every kind which may
reasonably  be  incurred by the Lender in the  making,  processing,  collecting,
protecting and servicing of this Loan and in maintaining unimpaired its security
and lien, or otherwise connected with or growing out of this transaction. Lender
may reimburse itself out of any disbursement  hereunder,  and such reimbursement
shall be deemed to be a disbursement  under this  Agreement  covered by the Note
and secured by the Loan Documents.

     SECTION 4.06 REMOVAL OF MECHANICS' AND  MATERIALMEN'S  LIENS.  The Borrower
specifically  agrees to have any mechanics' and materialmen's liens which may be
filed  against  the  Premises   released  or  bonded  (in  compliance  with  the
requirements  of Section  53.171 et seq. of the Texas  Property Code) within ten
(10) days of the date of filing of the same, time being of the essence.

     SECTION 4.07 PROGRESS  REPORTS.  The Borrower shall deliver to the Lender a
report of the progress of the  contemplated  improvements  to the Premises,  the
cost of said improvements compared to estimates, and/or contracts, the promotion
and  merchandising  efforts for the sale of the Project,  current sales reports,
and such other data and information concerning the Project as may be required by
the  Lender.   Such  reports  shall  be  required  on  a  monthly  basis  unless
circumstances dictate more frequent reports in the judgment of the Lender.

     SECTION 4.08  REVISED  SURVEY.  The  Borrower  agrees to locate and develop
and/or  construct  the  improvements  on the  Property  so as to comply with and
violate no  building  and use  restrictions  on,  against or  applicable  to the
Property  and agrees to furnish  the Lender,  upon  request,  a survey  locating
roadways and other  improvements,  in the form and made by a competent  surveyor
meeting the approval of the Lender,  showing full  compliance  with the recorded
plat.  Lender shall have no obligation to make further  disbursements  hereunder
until such "as built" survey is provided to and approved by Lender.

CONSTRUCTION LOAN AGREEMENT - PAGE 11
<PAGE>
     SECTION 4.09  INSPECTIONS.  (a) Lender  shall have the right,  and Borrower
shall allow  Lender,  at all times to inspect  the  Project  and all  collateral
securing  the  Loan.  The  Borrower  also  shall  permit  Lender  and any of its
authorized  representatives,  and shall cause such  persons  and  entities to be
permitted:  (i) to visit,  examine,  inspect  and make  extracts  from books and
records of the Borrower and will discuss with Lender or its  representatives the
affairs,  finances  and  accounts  of the  Borrower;  and  (ii) to  inspect  all
collateral  securing the Loan, all at such reasonable  times and as often as may
be reasonably requested;

     (b)  Lender's  construction  or  development  consultants,  if any shall be
employed,  shall  have the right at all times to  inspect  the  Project  and the
status of  construction  and/or  development  and to review  all  architectural,
engineering,  and  construction  drawings and other  documents.  The consultants
shall make such  reports as required by Lender,  including  without  limitation,
reports concerning the status of construction and/or development,  compliance of
the construction and/or development with the Plans,  determinations with respect
to status of compliance with construction and/or development  schedules and cost
estimates,  and compliance with all provisions of this Agreement.  All costs and
expenses  incurred by Lender in connection  with the  employment of a consultant
shall be reimbursed by Borrower;

     (c) Any such inspections and reports made pursuant to this Section shall be
solely for the benefit of Lender,  and neither  Borrower nor any Guarantor,  any
Endorser,  or any third  party  shall be entitled to claim any loss or damage as
the result either of such inspections or the failure to make the same.

     SECTION  4.10 SIGN.  The Lender shall have the right to erect a sign on the
Project stating that financing for the Project is being provided by the Lender.

     SECTION 4.11 FINANCIAL STATEMENTS.  Upon request by Lender,  Borrower shall
furnish or cause to be  furnished  to Lender such  financial  statements  on and
other information concerning the Borrower, any Guarantor,  any Endorser, and the
Project in a form suitable to, and containing  such  information  as, Lender may
require.

     SECTION 4.12 ACCESS TO  BORROWER'S  BOOKS AND RECORDS.  The Lender,  or its
agents,  shall  have  unrestricted  access  to the  records,  accounting  books,
contracts,  subcontracts,  bills and  statements of the Borrower,  including any
supporting or related vouchers or other instruments, and shall have the right to
make  copies of the  same.  If the  Lender  so  requires,  the  records,  books,
vouchers,  or other  instruments  shall be  delivered  to an  accountant  of the
Lender's choice for audit,  examination,  inspection,  and photocopying or other
type of duplication.

     SECTION  4.13  CONDEMNATION.   The  Borrower,  for  the  Borrower  and  the
Borrower's heirs, executors, administrators, successors and assigns, does hereby
assign unto the Lender, its successors and assigns, any and all award and awards
hereto  made  and  hereafter  to be  made by any  federal,  state  or  municipal
authorities to the present and all subsequent owners of the Premises,  including
any award or awards for any change or changes of grade of streets  affecting the
Premises,  which  award or awards are hereby  assigned  to the  Lender,  and the

CONSTRUCTION LOAN AGREEMENT - PAGE 12
<PAGE>
Lender,  for itself,  its  successors  and  assigns (at its or their  option) is
hereby authorized, directed and empowered to collect and receive the proceeds of
any such award or awards from the authorities making the same and to give proper
receipts and acquittances  therefor, and to apply the same toward the payment of
the amount owing on account of the Note and Deed of Trust,  notwithstanding  the
fact that the amount owing on account of the Note and Deed of Trust may not then
be due and payable.  The Borrower,  for the Borrower and the  Borrower's  heirs,
executors,  administrators,  successors and assigns, hereby covenants and agrees
to and with the Lender,  its  successors  and assigns,  upon  request,  to make,
execute and deliver any and all assignments and other instruments sufficient for
the purpose of assigning such award or awards to the holder of the Note and Deed
of Trust,  free, clear and discharged of any and all encumbrances of any kind or
nature whatsoever.

     SECTION  4.14  NOTICE OF DEFAULTS  UNDER THIS  AGREEMENT  AND OTHER  CREDIT
ARRANGEMENTS.  Borrower  shall give prompt  notice to Lender of any  defaults by
Borrower  hereunder  or under  any other  Loan  Document,  and of any  notice of
default received by Borrower under any other credit arrangement of Borrower.

     SECTION 4.15 FURTHER ASSURANCES.  Borrower shall do, make, execute,  record
and deliver, or will cause to be done, made, executed,  recorded, and delivered,
all such additional and further acts, things, deeds,  assurances and instruments
as Lender may require to effect,  confirm, assure to, or more completely to vest
in Lender the rights,  remedies, liens and conveyances intended to be granted or
conveyed to Lender under this Agreement,  the Note, the other Loan Documents, or
in the collateral  securing the Loan,  including  without  limitation,  estoppel
certificates  stating  that the Loan is in full  force and effect and that there
are no defenses or offsets thereto.

                                    ARTICLE V

                       DEFAULTS AND REMEDIES UPON DEFAULT

     SECTION  5.01 EVENTS OF DEFAULT.  The  happening  of any one or more of the
following events shall constitute an event of default ("Event of Default") under
this Agreement, the Note, the Deed of Trust and the other Loan Documents:

     (a) If the  Borrower  fails to make any  payment  of the  principal  of, or
interest on, or any other charge  under,  the Note, as and when the same becomes
due and payable and the continuance of such failure for a period of five(5) days
after such date;

     (b) If the  Borrower  or any other  person or entity  violates  or fails to
observe or perform any covenant, term, or condition contained in this Agreement,
and the  continuation  of such  failure for a period of fifteen  (15) days after
written notice to the Borrower.  Nothing  contained in this subsection (b) shall
be construed or deemed to require any notice or opportunity to cure for an other
Event of Default  set forth in this  section  unless a specific  notice and cure
periods  is  expressly  provided  in the  subsection  describing  such  Event of
Default.  Any default or Event of Default  under the Note,  the Deed of Trust or
any of the other Loan Documents shall be an Event of Default hereunder;

CONSTRUCTION LOAN AGREEMENT - PAGE 13
<PAGE>
     (c) If any  representation  or warranty  made herein or in any of the other
Loan  Documents,  or if any report,  certificate,  financial  statement or other
instrument  furnished  in  connection  with  this  Agreement  or  the  borrowing
hereunder shall prove to be false or misleading in any material respect;

     (d) If in the  judgment of the Lender the  proceeds of the Loan or any part
thereof  are being or shall at any time have been  diverted  to a purpose  other
than the payment and discharge of the cost of the  materials and labor  entering
into the Project,  and other expenses  relating solely to the Project which have
been approved by the Lender;

     (e)  If  the   construction   and/or   development  work  is  substantially
discontinued  without  cause,  in the sole  determination  of the Lender,  for a
period of  forty-five  (45) days,  in the  aggregate,  or if  Borrower  fails to
prosecute  the  work  on the  Project  with  diligence  and  dispatch  as may be
reasonably required by the Lender;

     (f) If a  voluntary  or  involuntary  petition  is filed by or against  the
Borrower,  any Guarantor or any Endorser  under any provision of the  bankruptcy
laws or any  other  similar  state  or  federal  law,  or if the  Borrower,  any
Guarantor or any Endorser makes any assignment for the benefit of creditors,  or
if the Borrower,  any Guarantor,  or any Endorser becomes insolvent or admits in
writing its  inability  to pay its debts as they become due, or if a receiver or
trustee  shall be  appointed  by any court of  Borrower,  any  Guarantor  or any
Endorser or of the property of Borrower,  any Guarantor or any Endorser,  or any
part thereof;

     (g) If a foreclosure action shall be instituted against the Premises, or if
a lien  shall be filed  against  the  Premises  which is not  removed of record,
bonded or dismissed within fifteen (15) days after such filing;

     (h)  If an  unreasonable  delay  shall  occur  in the  construction  and/or
development of the Project,  as a direct or indirect result of energy shortages,
or municipal,  county,  state, federal or other governmental law, order, rule or
regulation relating to environmental  protection,  sewage treatment,  zoning, or
energy  conservation,  or lack of utilities (which includes,  but is not limited
to, gas, electricity, water and sewage treatment) or if it reasonably appears to
Lender  that,  upon  completion  of such  improvements,  energy  (including  all
utilities)  will  not be  available  in  sufficient  quantities  to  permit  the
operation of the Project;

     (i) If in Lender's sole  judgment,  the Project  cannot be completed by the
Completion Date;

     (j) If the Deed of Trust shall not provide  Lender with a first lien on the
Project,  or if any of the property described in the Deed of Trust is encumbered
in any way without the prior written consent of Lender;

     (k) If the  Project  improvements  are  damaged  or  destroyed  by  fire or
otherwise to an extent such that Lender determines,  in its sole judgment,  that
the Project cannot be completed on or before the Completion  Date, or that there
are  insufficient  funds  remaining in the  construction  budget to complete the
Project,  taking into account any  insurance  proceeds  received  because of the
damage;

     (l) If any claim,  allegation or litigation  shall be made or filed against
Borrower,  which claim,  allegation or  litigation  is reasonably  determined by
Lender to be material to  Borrower's  financial  condition or ability to pay the
Loan. Any claim,  allegation or litigation  shall be made against any Guarantor,
or any Endorser or any properties or rights of any Guarantor or any Endorser and
such  actions,  suits  or  proceedings  materially  and  adversely  affect  such
Guarantor's or Endorser's  financial condition or ability to pay and perform its
obligations  under the Loan and in any event a matter involving  $50,000 or more
shall be deemed material;

     (m) If the Borrower, any Guarantor or any Endorser shall die or be declared
incompetent;

CONSTRUCTION LOAN AGREEMENT - PAGE 14
<PAGE>
     (n) If Borrower fails to comply with any  requirement  of any  governmental
authority having  jurisdiction  within fifteen (15) days after notice in writing
of such requirement shall have been given to Borrower;

     (o) If Borrower  does not disclose to Lender any and all demands or notices
of default to  Borrower  from  subcontractors  or persons or parties  furnishing
labor or materials on the Property  within ten (10)  business days after receipt
of such notice by Borrower;

     (p) If  Borrower is a limited  liability  company,  if any of the  managers
shall  cease to be such  managers,  or if any of them shall  die,  or any action
shall be taken or if there shall be any occurrence  which could or does have the
effect of  terminating,  dissolving,  or  winding-up  the  business  of any such
manager;

     (q) If any  action  whatsoever  shall be  taken,  or if there  shall be any
occurrence  which could or does have the effect of,  terminating,  dissolving or
winding-up the business of the Borrower;

     (r) If there  shall  occur any  default  with  respect to any  indebtedness
(other than the Note) of the  Borrower,  any  Guarantor  or any Endorser or with
respect to the performance of any other  obligation  incurred in connection with
any  indebtedness  for  borrowed  money of the  Borrower,  any  Guarantor or any
Endorser,  if the effect of such default is to  accelerate  the maturity of such
indebtedness  or to permit the holder  thereof  to cause  such  indebtedness  to
become due prior to its stated maturity,  or if any such indebtedness  shall not
be paid when due.

     SECTION 5.02 LENDER'S REMEDIES. Upon the occurrence of any Event of Default
hereunder,  then the Lender  shall have the  absolute  right,  at its option and
election,  without  notice to Borrower or any other person or entity (other than
such notice as may been  required for an Event of Default or event of default to
occur), to do any one or more or all of the following:

     (a) Institute  appropriate  proceedings to specifically enforce performance
hereof;

     (b) Withhold further disbursements hereunder;

     (c) Accelerate the maturity of the Note and demand payment of the principal
sums due thereunder, with interest, charges, advances,  whereupon the same shall
be due and payable  without notice of any kind,  including,  but not limited to,
notice of  intention  to  accelerate  or notice  of  acceleration,  all of which
notices are waived by Borrower, and costs, and in default of said payment or any
part thereof,  exercise all other rights and remedies  available to Lender under
the laws of the State of Texas or any other state and under this Agreement,  the
Note,  the Deed of  Trust,  and the other  Loan  Documents,  including,  without
limitation,  the right to foreclose  and enforce  collection  of such payment by
foreclosure   and/or  other  appropriate   action  in  any  court  of  competent
jurisdiction; or

     (d) Exercise the right of setoff described in Section 5.03 below.

     SECTION 5.03 SETOFF. Lender is hereby given a continuing lien as additional
security for the Note and all other  liabilities and indebtedness of Borrower to
Lender upon any and all moneys,  securities, and other property of Borrower, and
the proceeds thereof,  now or hereafter held or received by or in transit to the
Lender  from  or  for  Borrower,  whether  for  safekeeping,   custody,  pledge,
transmission,  collection,  or  otherwise,  and also  upon  any and all  deposit
balances  (general or special)  and  credits of Borrower  with,  and any and all
claims  of  Borrower  against  the  Lender  at any time  existing,  and upon the
occurrence  of any Event of Default  hereunder,  the Lender may apply or set off
the same against the indebtedness  and liabilities  secured by the Deed of Trust
and other Loan Documents.

CONSTRUCTION LOAN AGREEMENT - PAGE 15
<PAGE>
     SECTION 5.04 DISBURSEMENTS AFTER DEFAULT. Upon the occurrence of any one or
more of the  above-listed  Events of  Default,  all  obligations  on the part of
Lender to make loans and  disbursements  hereunder  shall,  if Lender so elects,
cease and terminate; provided, however, that Lender may, in its sole discretion,
make  additional  disbursements  without  becoming  liable  to  make  any  other
disbursements,  notwithstanding  anything to the  contrary  contained or implied
herein or in any other Loan Document.

                                   ARTICLE VI

                            MISCELLANEOUS PROVISIONS

     SECTION  6.01 NO  THIRD  PARTY  BENEFICIARIES.  There  are no  third  party
beneficiaries  to this  Agreement  or to any of the other  Loan  Documents.  All
conditions to Lender's  obligations to make  disbursements  under this Agreement
are imposed solely and exclusively for the benefit of Lender.  Neither  Borrower
nor any other person or entity shall have  standing to require  satisfaction  of
any such  condition  or be  entitled  to assume  that Lender will refuse to make
disbursements  in the  absence  of  strict  compliance  with  any  or  all  such
conditions, and neither Borrower nor any other person or entity shall, under any
circumstances,  be deemed to be a beneficiary of any conditions  hereof,  any or
all of which  conditions may be waived freely,  in whole or in part by Lender at
any time if, in its sole discretion,  Lender deems it advisable so to do. Lender
makes  no   representations   or   warranties   and  assumes  no  obligation  or
responsibility   with  respect  to  the  quality  of  the   development   and/or
construction  of the  improvements  or any part of the Project.  This  Agreement
shall not  benefit,  and may not be relied  upon by, any person or entity  other
than the Borrower and the Lender.

     SECTION 6.02 WAIVERS BY BORROWER,  GUARANTORS, AND ENDORSERS. This Loan may
be extended  or renewed in whole or in part or the rate of interest  thereon may
be changed or fees in consideration  of loan extensions may be imposed,  and any
related  right or security  therefor may be waived,  exchanged,  surrendered  or
otherwise  dealt  with by the  Borrower  and the  Lender  without  notice to the
co-makers,  Endorsers  and  Guarantors of this Loan,  all without  affecting the
liability of the Borrower and all other obligors under this Agreement, the Note,
the Deed of Trust and the other Loan Documents.  The release of any party liable
upon or in respect  of the Note shall not  release  any other  such  party.  The
Borrower, and each of them, hereby waives presentment,  demand,  protest, notice
of  nonpayment  and of  protest,  notice  of  intent  to  accelerate,  notice of
acceleration,  and any and all other notices and demands whatsoever,  excluding,
however, any notice of default required by this Agreement.

     SECTION  6.03 DELAY;  NO WAIVER.  No delay or failure of Lender to exercise
any option or right herein given or reserved  shall  constitute a waiver of such
option or right or estop  Lender  thereafter  to exercise  the same or any other
option or right at any time, and Lender's payment or contracting to pay anything
Borrower has herein  agreed to pay shall not  constitute a waiver of the default
of  Borrower  in  failing  to make any such  payment.  A waiver by Lender of any
option or right herein given or reserved on any one occasion shall not be deemed
a waiver  of said  option or right on any  future  occasion.  Lender  may in its
discretion extend the time of payment of the principal  evidenced and secured by
the Note and other Loan  Documents  and any extension so granted shall be deemed
to be made in pursuance of this Agreement and not in modification thereof.

CONSTRUCTION LOAN AGREEMENT - PAGE 16
<PAGE>
     SECTION 6.04 SURVIVAL OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.  All
covenants,  agreements,  representations  and  warranties  made  herein  and  in
documents  delivered in support of the Loan request shall be deemed to have been
material  and  relied on by the  Lender  and shall  survive  the  execution  and
delivery to the Lender of the Note and the disbursements hereunder.

     SECTION 6.05 NUMBER;  SUCCESSORS AND ASSIGNS. Plural or singular words used
herein to designate  the  Borrower  shall be construed to refer to the person or
persons, partnership, corporation or other entity, whether one or more than one,
obtaining the Loan from the Lender; and all covenants and agreements herein made
by the  undersigned  Borrower  shall bind the heirs,  personal  representatives,
successors  and assigns of all those  undersigned  designated  as Borrower;  and
every  option,  right and  privilege  herein  reserved or secured to the Lender,
shall inure to the benefit of the Lender's successors and assigns.

     SECTION  6.06  MODIFICATIONS;   WAIVER.  Neither  this  Agreement  nor  any
provision  hereof  may  be  changed,  modified,   amended,  waived,  discharged,
abandoned or terminated  except by an instrument in writing  signed by the party
against  whom  enforcement  of  the  change,  modification,  amendment,  waiver,
discharge,  abandonment or termination is sought. In the event that Lender shall
waive in writing any provision or  requirement  hereunder,  such waiver shall be
effective only for the specific  purposes,  circumstances and duration stated in
said waiver.

     SECTION  6.07  ASSIGNMENTS.  The Lender  may assign  this Loan or any parts
thereof.  The  Borrower  shall  not  assign  this  Agreement  or any part of any
disbursement  to be made  hereunder,  nor convey,  nor  encumber the Premises by
mortgage or other liens  without the prior  written  consent of the Lender.  Any
assignment,  conveyance or encumbrance  without such consent of the Lender shall
constitute an immediate  default  under this  Agreement,  the Note,  the Deed of
Trust, and the other Loan Documents.

     SECTION 6.08 LENDER'S RIGHT TO APPEAR IN LITIGATION.  The Lender shall have
the  right,  but not the  obligation,  to appear  in, or to defend any action or
proceeding  purporting  to affect the rights or duties of the parties  hereunder
and in connection therewith pay out of the Loan proceeds all necessary expenses,
employ  counsel and pay  reasonable  attorneys'  fees, all of which the Borrower
agrees to repay to the Lender upon demand.

     SECTION 6.09 RIGHT TO PARTIAL RELEASES. If applicable, provided there is no
default under this Agreement,  the Deed of Trust,  the Note, or any of the other
Loan  Documents,  the  Lender  agrees  that it will  release  from  the lien and
operation  of the Deed of Trust  any  unit,  lot,  parcel  or other  portion  of
Premises in accordance with the Release Schedule attached hereto as EXHIBIT "H".
Any payment made for the release of any portion of the Premises  hereunder shall
apply  against the  reduction of  principal,  and,  unless  otherwise  agreed on
EXHIBIT "H" hereto,  shall not reduce or otherwise affect any scheduled payments
to become due under the terms of this  Agreement,  the Note,  the Deed of Trust,
and the other Loan Documents.

CONSTRUCTION LOAN AGREEMENT - PAGE 17
<PAGE>
     SECTION 6.10 NOTICE TO PARTIES. All notices provided for herein shall be by
ordinary  mail (except that all notices of default  shall be by certified  mail,
return receipt  requested)  addressed to the Lender at P.O. BOX 650561,  DALLAS,
DALLAS  COUNTY,  TEXAS  75265-0561,  or such  other  address  as the  Lender may
designate in writing,  and to the Borrower at 4050 WEST PARK BLVD., PLANO, TEXAS
75093. Notice shall be completed by depositing the same in the mail addressed to
the party at such address  with the proper  amount of postage  affixed  thereto.
Actual receipt of notice shall not be required to effect notice hereunder.

     SECTION 6.11 HEADINGS;  AMENDMENTS.  All sections and descriptive  headings
are inserted for  convenience  only,  and shall not affect any  construction  or
interpretation  hereof.  This  Agreement  may not be  amended  except by written
agreement between Borrower and Lender.

     SECTION 6.12  INVALID  PROVISIONS.  Unenforceability  for any reason of any
provision of this Agreement  shall not limit or impair the operation or validity
of any other provision of this Agreement.

     SECTION 6.13 SURVIVAL OF  COMMITMENT.  All  requirements  of any commitment
letter  executed by Lender and  Borrower  relating to the Loan,  and  Borrower's
obligation to perform the same,  except to the extent that such requirements and
obligations are  inconsistent  with this Agreement,  the Note, or the other Loan
Documents,  shall survive the execution of this  Agreement and shall continue in
full force and effect until the Loan is paid in full.

     SECTION 6.14 COUNTERPARTS.  This Agreement may be executed in any number of
counterparts,  each of which, when executed and delivered, shall be an original,
but such counterparts shall together constitute one and the same instrument.

     SECTION 6.15  GOVERNING LAW. THIS  AGREEMENT,  THE NOTE, THE DEED OF TRUST,
AND THE OTHER LOAN  DOCUMENTS  ARE EXECUTED AND DELIVERED IN THE STATE OF TEXAS,
AND  THE  LAWS  OF THE  STATE  OF  TEXAS  SHALL  GOVERN  IN THE  INTERPRETATION,
ENFORCEMENT,  AND ALL OTHER ASPECTS OF THE  OBLIGATIONS AND DUTIES CREATED UNDER
THIS LOAN. Borrower  acknowledges that the negotiation of the provisions of this
Agreement,  the Note,  the Deed of Trust and the other Loan Documents took place
in the State of Texas;  that all such  documents were executed in Dallas County,
Texas,  or if executed  elsewhere,  will  become  effective  only upon  Lender's
receipt and acceptance thereof in said county and state (provided, however, that
Lender  shall have no  obligation  to give,  nor shall  Borrower  be entitled to
receive,  notice of such receipt and acceptance in order for said Loan Documents
to become effective and valid and binding obligations of the Borrower); and that
all of such documents were or will be executed and delivered to Lender to induce
Lender  to  make  the  Loan to  Borrower.  Borrower  hereby  submits  itself  to
jurisdiction in the State of Texas for any action or cause of action arising out
of or in  connection  with the Loan  Documents,  agrees  that venue for any such
action shall be in Dallas County,  Texas and waives any and all rights under the
law of any state to object to jurisdiction or venue within Dallas County, Texas.
Notwithstanding  the foregoing,  nothing contained in this Section shall prevent
Lender from  bringing any action or  exercising  any right in any other  county,
state  or  jurisdiction  against  Borrower,  any  security  for  the  Loan,  any
Collateral or any of Borrower's properties. Initiating such action or proceeding
or taking any such  action in any other  state  shall in no event  constitute  a
waiver by Lender of any of the foregoing.

CONSTRUCTION LOAN AGREEMENT - PAGE 18
<PAGE>
     SECTION 6.16  CONFLICT IN LOAN  DOCUMENTS.  In the event of conflict in the
terms of any  provision in this  Agreement,  the Note,  the Deed of Trust or the
other Loan Documents,  the terms of the provision most favorable to Lender shall
apply.

     SECTION 6.17 NO PARTNERSHIP OR JOINT VENTURE.  Notwithstanding  anything to
the contrary herein contained or implied,  Lender, by this Agreement,  or by any
action pursuant thereto or hereto, shall not be deemed a partner, joint venturer
or participant in the venture with Borrower, and Borrower hereby indemnifies and
agrees to defend and hold Lender  harmless  (including the payment of reasonable
attorneys' fees) from any and all damages  resulting from such a construction of
the parties' relationship.  Without limitation,  it is the intention of Borrower
and Borrower  agrees that the  foregoing  indemnity  shall apply with respect to
such claims,  charges,  losses, expenses and costs which in whole or in part are
caused  by or arise out of the  alleged  negligence  of  Lender,  its  agents or
employees.  The  requirements  herein,  and  the  restrictions  imposed  in this
Agreement, are for the sole protection and benefit of Lender.

     SECTION 6.18 REMEDIES CUMULATIVE.  No right or remedy conferred upon Lender
in this  Agreement  is  intended  to be  exclusive  of any other right or remedy
contained in the Note,  this  Agreement,  or any other Loan Document,  and every
such right or remedy shall be cumulative and in addition to every other right or
remedy contained  herein or therein or now or hereafter  available to the Lender
at law, in equity, by statute or otherwise.

     SECTION 6.19 INDEMNIFICATION.  Borrower shall and does hereby indemnify and
hold  harmless  Lender from and against  any and all  claims,  charges,  losses,
expenses and costs,  including without  limitation  reasonable  attorneys' fees,
resulting  from any  claims,  actions  or  proceedings  in  connection  with the
execution,  delivery and  performance of this  Agreement,  the Note or the other
Loan Documents. Without limitation, it is the intention of Borrower and Borrower
agrees that the  foregoing  indemnity  shall apply with  respect to such claims,
charges,  losses,  expenses and costs which in whole or in part are caused by or
arise  out of the  alleged  negligence  of  Lender,  its  agents  or  employees,
excluding  however  any  act or  omission  determined  by a court  of  competent
jurisdiction to be gross negligence or willful  misconduct.  The indemnification
provided in this section shall survive the payment in full of the Loan.

     SECTION 6.20 THIS  AGREEMENT  PART OF NOTE AND DEED OF TRUST.  The Note and
Deed of Trust provided for herein shall specifically  incorporate this Agreement
by reference  and in the event that the Note and Deed of Trust are duly assigned
by Lender, this Agreement shall be considered assigned in like manner.

     SECTION 6.21 USURY NOT INTENDED;  SAVINGS  PROVISIONS.  Notwithstanding any
provision to the contrary contained herein or in any other Loan Document,  it is
expressly  provided  that in no case or event shall the aggregate of any amounts
accrued or paid pursuant to this Agreement  which under  applicable  laws are or
may be deemed to  constitute  interest  ever  exceed  the  maximum  non-usurious
interest rate permitted by applicable  Texas or federal laws,  whichever  permit
the higher rate.  In this  connection,  Borrower and Lender  stipulate and agree
that it is their common and overriding  intent to contract in strict  compliance

CONSTRUCTION LOAN AGREEMENT - PAGE 19
<PAGE>
with applicable  usury laws. In furtherance  thereof,  none of the terms of this
Agreement shall ever be construed to create a contract to pay, as  consideration
for the use, forbearance or detention of money,  interest at a rate in excess of
the maximum rate  permitted by applicable  laws.  Borrower shall never be liable
for interest in excess of the maximum rate permitted by applicable laws. If, for
any reason whatever,  such interest paid or received during the full term of the
applicable indebtedness produces a rate which exceeds the maximum rate permitted
by  applicable  laws,   Lender  shall  credit  against  the  principal  of  such
indebtedness  (or,  if such  indebtedness  shall  have been paid in full,  shall
refund to the payor of such  interest) such portion of said interest as shall be
necessary to cause the interest paid to produce a rate equal to the maximum rate
permitted by applicable  laws.  All sums paid or agreed to be paid to Lender for
the use,  forbearance  or detention of money shall,  to the extent  permitted by
applicable  law, be  amortized,  prorated,  allocated  and spread in equal parts
throughout  the full term of the applicable  indebtedness,  so that the interest
rate is uniform throughout the full term of such indebtedness. The provisions of
this  Section  6.22 shall  control  all  agreements,  whether  now or  hereafter
existing and whether written or oral, between Borrower and Lender.

     SECTION  6.22  ADDITIONAL  PROVISIONS.  Attached  hereto as EXHIBIT "I" are
additional   terms  and  provisions  of  this  Agreement,   if  any,  which  are
specifically made a part hereof by reference.

     SECTION 6.23  STATUTE OF FRAUDS  NOTICE.  Lender and  Borrower  hereby take
notice of and agree to the following:

     PURSUANT TO SUBSECTION  26.02(b) OF THE TEXAS BUSINESS AND COMMERCE CODE, A
LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED  THEREIN EXCEEDS $50,000 IN VALUE IS
NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE
BOUND OR BY THAT  PARTY'S  AUTHORIZED  REPRESENTATIVE.  PURSUANT  TO  SUBSECTION
26.02(c) OF THE TEXAS BUSINESS AND COMMERCE CODE, THE RIGHTS AND  OBLIGATIONS OF
THE  PARTIES TO THE LOAN  DOCUMENTS  SHALL BE  DETERMINED  SOLELY  FROM THE LOAN
DOCUMENTS,  AND ANY PRIOR ORAL AGREEMENTS  BETWEEN THE PARTIES ARE SUPERSEDED BY
AND MERGED INTO THE LOAN DOCUMENTS.

     THIS  AGREEMENT  AND THE OTHER WRITTEN LOAN  DOCUMENTS  REPRESENT THE FINAL
AGREEMENT  BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS  OR  SUBSEQUENT  ORAL  AGREEMENTS  OF THE PARTIES.  THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

CONSTRUCTION LOAN AGREEMENT - PAGE 20
<PAGE>
     IN WITNESS  WHEREOF,  the parties hereto have caused this  instrument to be
executed as of the day and year first above written.

LENDER:

COMPASS BANK

By: /s/ Steve Eberhardt
    ------------------------------------
    Name: Steve Eberhardt
    Title: Vice President

BORROWER:

HULEN PARK VENTURE, LLC,
a Texas limited liability company

By: /s/ Rick Morgan
    ------------------------------------
    Name: Rick Morgan
    Title: Vice President

GUARANTORS:

MTH-TEXAS GP, INC.,
an Arizona corporation

By: /s/ Rick Morgan
    ------------------------------------
    Name: Rick Morgan
    Its: Vice President

MTH-TEXAS LP, INC.,
an Arizona corporation

By: /s/ Rick Morgan
    ------------------------------------
    Name: Rick Morgan
    Its: Vice President

CONSTRUCTION LOAN AGREEMENT - PAGE 21
<PAGE>
LEGACY/MONTEREY HOMES, L.P.,
an Arizona limited partnership

By: MTH-TEXAS GP, INC.
an Arizona Corporation, its sole general partner

By: /s/ Rick Morgan
    ------------------------------------
    Name: Rick Morgan
    Title: Vice President

MERITAGE CORPORATION,
a Maryland corporation

By: /s/ John R. Landon
    ------------------------------------
    Name: John R. Landon
    Its: Co-CEO

CONSTRUCTION LOAN AGREEMENT - PAGE 22
<PAGE>
                                                                    COMPASS BANK
                                                                      HULEN PARK

                         PROMISSORY NOTE - CONSTRUCTION

$3,300,000.00                                                  February 10, 2000
                                                                   Dallas, Texas

     FOR VALUE RECEIVED,  the undersigned,  HULEN PARK VENTURE,  a Texas limited
liability company (the "Borrower",  whether one or more),  jointly and severally
if more than one,  hereby  promises  to pay to the  order of  COMPASS  BANK (the
"BANK";  Bank and any subsequent holder hereof,  as applicable,  are referred to
herein as the "HOLDER"), without grace at the Bank's office at P. O. Box 650561,
Dallas,  Dallas  County,  Texas  75265-0561,  or such other  place as Holder may
direct, in lawful money of the United States of America, the principal amount of
THREE MILLION THREE HUNDRED  THOUSAND AND NO/100 DOLLARS  ($3,300,000.00)  or so
much  thereof  as may be  advanced  hereunder,  with  interest  at the  rate and
calculated  in the manner  described  herein.  Payment of principal and interest
shall be in accordance with the following provisions:

     1. PAYMENT.  Borrower  promises to pay interest  monthly,  on or before the
tenth (10th) day of each month,  with the first interest payment due and payable
on or before  the first  (1st) day of April,  2000.  The  unpaid  balance of the
principal  and all  accrued  and unpaid  interest  on this Note and all  charges
hereunder  and under the Loan  Documents  (as defined  herein)  shall be due and
payable on August 9, 2002, which is the maturity date of this Note.

     2. INTEREST. Interest from date on the outstanding unpaid principal balance
shall be calculated by multiplying  the product of the principal  amount and the
applicable  rate set forth  herein by the  actual  number of days  elapsed,  and
dividing  by 360;  provided,  however,  that if the Maximum  Allowable  Rate (as
defined below) would be exceeded by virtue of the  calculation of interest based
upon a 360-day  year,  to the extent  necessary to avoid  exceeding  the Maximum
Allowable Rate,  interest shall be computed on the basis of the actual number of
days elapsed in the applicable calendar year in which it accrued. The applicable
rate shall be equal to -ZERO-  PERCENTAGE  POINT (0%) in excess of COMPASS  BANK
Index Rate, which is adjusted by Bank from time to time. Any change in said rate
resulting  from a change in COMPASS BANK Index Rate shall take effect on the day
of such change.  "COMPASS BANK Index Rate," as used herein,  is a reference rate
established  by the Bank for use in computing  and adjusting  interest.  COMPASS
BANK  Index  Rate is  subject  to  increase,  decrease  or change at the  Bank's
discretion,  and is only one of the  reference  rates or  indices  that the Bank
uses.  The Bank may lend to others at rates of  interest  at, or greater or less
than, COMPASS BANK Index Rate or the rate provided herein. Any principal amounts
outstanding  hereunder  after maturity or  acceleration  of this Note shall bear
interest  at an  applicable  rate equal to -ZERO-  PERCENTAGE  POINT  (00.0%) in
excess of COMPASS BANK Index Rate from time to time  prevailing,  calculated  in
the manner set forth  herein.  Notwithstanding  the  applicable  interest  rates
specified  herein,  if on any day the use of any such  rate  would  result in an

NOTE - PAGE 1
<PAGE>
interest  rate on this Note which  exceeds the Maximum  Allowable  Rate for that
day, then the applicable  interest rate hereunder shall be the Maximum Allowable
Rate on such day, but any  subsequent  reductions in the COMPASS BANK Index Rate
shall not  reduce the  applicable  interest  rate  hereunder  below the  Maximum
Allowable  Rate until the total  amount of interest  accrued on this Note equals
the total  amount of interest  which would have accrued at the  applicable  rate
hereunder if the  applicable  rate had at all times been in effect and there was
no limitation by the Maximum Allowable Rate.  "Maximum Allowable Rate" means, on
any day, the maximum  non-usurious  rate of interest  permitted  for that day by
whichever of applicable  federal or Texas law permits the higher  interest rate,
stated as a rate per annum.  On each day, if any,  that  Chapter  One  ("Chapter
One") of Title 79, Texas  Revised Civil  Statutes,  1925, as amended (the "Texas
Credit Code"),  establishes the Maximum  Allowable  Rate, the Maximum  Allowable
Rate shall be the "indicated  rate ceiling" (as defined in Chapter One) for that
day. To the extent  that the  Maximum  Allowable  Rate under  applicable  law is
subject  to  fluctuation,  without  notice to  Borrower  or any other  person or
entity,  the Maximum  Allowable Rate  hereunder  shall  automatically  fluctuate
upward and  downward  as, and in the amount by which,  the maximum  non-usurious
rate of interest permitted by applicable law fluctuates.

     In no event shall the rate of  interest  calculated  and charged  hereunder
exceed the Maximum Allowable Rate. All agreements  between Borrower and Bank, or
any subsequent  Holder of this Note,  whether now existing or hereafter  arising
and whether written or oral, are expressly  limited so that in no contingency or
event whatsoever, whether by reason of acceleration of the maturity of this Note
or  otherwise,  shall the  aggregate of all amounts paid or agreed to be paid to
the  Holder  of this Note for the use,  forbearance  or  detention  of the funds
advanced pursuant to this Note or for the performance or payment of any covenant
or obligation contained herein or in any other document evidencing,  securing or
pertaining to this Note or of any other debt evidenced hereby exceed the Maximum
Allowable  Rate.  If  from  any  circumstances  whatsoever,  fulfillment  of any
provision hereof or of any such other document,  at the time performance of such
provision  shall be due,  shall  involve  transcending  the  limit  of  validity
prescribed by applicable law, then,  ipso facto,  the obligation to be fulfilled
shall be reduced to the limit of such validity,  and if from any circumstance or
reason  whatsoever,  the interest  paid or received on this Note during its full
term  produces a rate which  exceeds the  Maximum  Allowable  Rate,  Bank or any
subsequent  Holder of this Note shall  refund to the payor or, at Bank's or such
Holder's option,  credit against the unpaid principal of this Note, if any, such
portion of said  interest as shall be necessary  to cause the  interest  paid on
this Note to produce a rate equal to the Maximum  Allowable  Rate. All sums paid
or agreed to be paid to any  Holder  of this  Note for the use,  forbearance  or
detention  of the  indebtedness  evidenced  by this Note  shall,  to the  extent
permitted by  applicable  law, be amortized,  prorated,  allocated and spread in
equal  parts  throughout  the full  term of this  Note so that the  interest  is
uniform  throughout the full term of this Note. The terms and provisions of this
paragraph  shall control and supersede  every other  provision of all agreements
between Borrower and any Holder of this Note.

     3. SECURITY.  The indebtedness  evidenced hereby is secured by, among other
things, the Loan Documents defined in the Construction Loan Agreement (the "Loan
Agreement")  executed by the  Borrower in favor of the Bank dated as of the date
hereof (collectively the "Loan Documents").

NOTE - PAGE 2
<PAGE>
     This Note is included in the indebtedness referred to in the Loan Documents
and is  entitled  to the  benefits  of the  Loan  Documents,  but  neither  this
reference  to the Loan  Documents  nor any  provisions  thereof  shall affect or
impair the  absolute  and  unconditional  obligation  of the Borrower to pay the
principal of and interest on this Note when due.

     4. PURPOSE. The Borrower represents, warrants and covenants to and with the
Bank and any other Holder of this Note that the loan  evidenced by this Note and
all advances  hereunder and under the other Loan  Documents are and shall be for
business, commercial, investment or other similar purposes and not primarily for
personal,  family,  household  or  agricultural  use,  as such terms are used in
Chapter One of the Texas Credit Code.

     5. DEFAULT.  The happening of any one or more of the following events shall
constitute an event of default hereunder:

          (a)  Default in the  payment of the  principal  of or interest on this
Note when the same becomes due and payable and the  continuance  of such failure
for a period of five(5) days after such date;

          (b) The  occurrence  of any  Event of  Default  specified  in the Loan
Agreement  or other  Loan  Documents  or in any  other  instrument  executed  in
connection  with or securing this Note,  and the failure to cure same within any
applicable cure period specifically provided in any Loan Document;

          (c) The  failure  by the  Borrower  or any  other  person or entity to
observe any covenant or obligation contained in the Loan Agreement or other Loan
Documents or in any other  instrument  executed in  connection  with or securing
this Note and the  failure  to cure  same  within  any  applicable  cure  period
specifically provided in any Loan Document.

     Upon the occurrence of an event of default, or at any time thereafter,  the
Holder may,  with or without  notice to the Borrower  (other than such notice as
may been required for an Event of Default or event of default to occur), declare
this  Note  to be  forthwith  due  and  payable,  whereupon  this  Note  and the
indebtedness  evidenced  hereby shall  forthwith be due and payable,  both as to
principal and interest, without presentment, demand, protest, or other notice of
any kind, all of which are hereby expressly waived, anything contained herein or
in any of the Loan Documents or in any other  instrument  executed in connection
with or securing this Note to the contrary notwithstanding.

     6.  WAIVERS.  Borrower  and any  endorser or  guarantor of this Note hereby
waive demand,  presentment for payment,  notice of dishonor,  protest, notice of
intent to  accelerate,  notice  of  acceleration,  and  notice  of  protest  and
diligence in  collection  or bringing  suit and agree that the Holder hereof may
accept partial payment,  or release or exchange security or collateral,  without
discharging or releasing any unreleased  collateral or the obligations evidenced
hereby.  Borrower and each such endorser and guarantor further waive any and all
rights  of  exemption,  both  as  to  personal  and  real  property,  under  the
Constitution  or laws of the  United  States,  the  State of Texas or any  other
state.  No  failure of any Holder of this Note to  accelerate  the  indebtedness
evidenced  hereby or to exercise any other right hereunder shall be construed as
a novation or  modification  of this Note or a waiver of the  Holder's  right to
thereafter  insist upon strict  compliance  with the terms of this Note  without
prior notice of such intention being given to the Borrower.

NOTE - PAGE 3
<PAGE>
     7.  ATTORNEYS'  FEES.  Borrower and each endorser or guarantor of this Note
agree to pay reasonable  attorneys' fees and costs incurred by the Holder hereof
in collecting or attempting to collect this Note, whether by suit or otherwise.

     8. PREPAYMENT.  Borrower may prepay this Note, in whole or in part, without
penalty.  Unless being paid in full or waived by Holder,  prepayment shall be in
multiples of $5,000.00. Unless otherwise elected by Holder, any prepayment shall
be applied first to accrued interest, and then to principal.

     9.  APPLICABLE LAW;  VENUE;  PARTIES.  THIS NOTE IS BEING DELIVERED TO, AND
ACCEPTED  BY,  BANK IN THE STATE OF TEXAS AND THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED  IN  ACCORDANCE  WITH THE LAWS OF THE  STATE OF TEXAS  AND THE  UNITED
STATES  OF  AMERICA  FROM  TIME TO TIME IN  EFFECT.  The  Borrower  and the Bank
expressly  agree,  pursuant to Article  15.10(b) of Chapter 15 ("Chapter 15") of
the Texas  Credit  Code,  that Chapter 15 shall not apply to this Note or to the
loan evidenced by this Note or any advance thereunder and that neither this Note
nor any such loan or advance  shall be governed by or subject to the  provisions
of Chapter 15 in any manner  whatsoever.  As used herein,  the terms "Borrower",
"Bank" and  "Holder"  shall be deemed to include  their  respective  successors,
legal  representatives,  heirs and assigns,  whether by voluntary  action of the
parties or by operation of law.

     10. STATUTE OF FRAUDS NOTICE.  THE LOAN AGREEMENT,  THIS NOTE AND THE OTHER
LOAN DOCUMENTS  REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     11.  MODIFICATION,  EXTENSION AND  RESTATEMENT.  This  Promissory Note is a
modification,  extension  and  restatement  of that certain  "Promissory  Note -
Construction"  dated  November 18, 1999,  in the  original  principal  amount of
$250,000.00, payable to the order of the Lender. Borrower covenants and warrants
that there are no  defenses,  counterclaims  or offsets  to the  Original  Note.
Borrower waives and releases any and all such claims, known and unknown, present
and  future,  arising  out of the  transactions  with the  Lender as of the date
hereof.

NOTE - PAGE 4
<PAGE>
     IN WITNESS WHEREOF,  Borrower has executed,  sealed and delivered this Note
in Dallas, Texas, as of the 10th day of January, 2000.

                                        BORROWER:

                                        HULEN PARK VENTURE, LLC
                                        a Texas limited liability company

                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Manager

[ACKNOWLEDGMENT]

STATE OF TEXAS
COUNTY OF COLLIN

     This  instrument  was  acknowledged  before  me on  this  the  10th  day of
February,  2000,  by Rick Morgan,  Manager of HULEN PARK  VENTURE,  LLC, a Texas
limited liability company, on behalf of said limited liability company.

                                        Ana Patterson
                                        ----------------------------------------
                                        Notary Public, State of Texas

[Seal]

NOTE - PAGE 5

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