Document:

exv10w1

 

Exhibit 10.1

LIMITED GUARANTY

     This Limited Guaranty (this “Guaranty”) dated as of the 1st day of September, 2006
(the “Effective Date”), is made by United Development Funding III, L.P., a Delaware limited
partnership (“Guarantor”), for the benefit of United Mortgage Trust, a real estate
investment trust organized under the laws of the state of Maryland (the “Lender”) or its
permitted successors and assigns.

R E C I T A L S:

     A.      United Development Funding, L.P., a Nevada limited partnership (“Debtor”) has
issued to Lender, that certain Second Amended and Restated Secured Line of Credit Promissory Note
in the principal amount of U.S. $45,000,000.00 dated June 20, 2006 (the “Note”).

     B.     Guarantor is in the business of providing credit enhancements in the form of loan
guarantees , and Guarantor is willing to enter into this Guaranty in favor of Lender and hereby
agree to be bound by its terms and conditions.

A G R E E M E N T:

     NOW, THEREFORE, for good and valuable consideration, and intending to be legally bound hereby,
Guarantor agrees and covenants as follows:

     1.     Definitions. Capitalized terms not defined in this Guaranty shall have the
respective meanings given to such terms in the Note.

     2.     Guaranty and Surety. Subject to the provisions of Section 3, Guarantor
hereby absolutely and unconditionally guarantees and becomes surety for, the full, timely and
complete payment when due, whether by lapse of time, by acceleration of payment, or otherwise, of
the indebtedness, liabilities and obligations of Debtor to the Lender existing or arising now or in
the future under the Note and all renewals, extensions, modifications and substitutions of all or
any part of the Note (collectively, the “Guaranteed Obligations”). Guarantor’s obligation
under this Guaranty is unconditional, absolute and enforceable, irrespective of the validity or
enforceability of the Guaranteed Obligations in whole or in part or of the Note or any provision
thereof, whether recovery against Debtor with respect to the Guaranteed Obligations in whole or in
part is prevented by bankruptcy, the operation of law, or otherwise, and any other circumstance
that might otherwise cause a legal or equitable discharge or defense of Guarantor.

     3.     Maximum Liability Amount. Notwithstanding anything to the contrary contained in
this Guaranty, (a) in no event shall the liability of Guarantor under this Guaranty exceed
$30,000,000.00 (the “Maximum Liability Amount”), and (b) the Maximum Liability Amount shall
be reduced by $1.00 for every $1.00 by which the Total Partners’ Equity of the Debtor exceeds
$30,000,000.00, as set forth in the most recent financial statements of the Debtor as determined
on the last business day of the month with respect to which such Maximum Liability Amount is
determined (in case of such reduction, the reduced amount shall be the “Maximum Liability Amount”
referenced herein). Debtor’s “Total Partners’ Equity” shall be the sum of

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Partnership Equity and Net Income as determined by the Debtor in accordance with its financial
reporting practices.

     4.      Subsequent Acts by Lender. Lender may, in its sole discretion and without notice,
take or refrain from taking any action that might otherwise be deemed a legal or equitable release
or discharge of Guarantor’s obligations under this Guaranty without either impairing or affecting
the liability of Guarantor for the full, timely and complete payment of the Guaranteed Obligations,
which actions might include, by way of illustration and not limitation:

     (a)     the renewal or extension of any of the Guaranteed Obligations or any payments
thereunder, or the acceleration or change of time for payment of the Guaranteed Obligations,
any increase in the principal amount of any promissory note or other instrument comprising a
part of the Guaranteed Obligations and/or any additional funds advanced under the Guaranteed
Obligations;

     (b)      the modification, amendment or change in any of the terms relating to any
promissory note or other agreement, document or instrument executed at any time in the past,
present or future in favor of Lender, including, without limitation, the Note;

     (c)      the absence of any attempt to collect the Guaranteed Obligations from Debtor or any
other person or entity primarily or secondarily liable for the Guaranteed Obligations or any
other action to enforce Lender’ rights with respect to the Guaranteed Obligations;

     (d)      the waiver, consent, or delay in enforcement by Lender with respect to any
provision of any instrument evidencing the Guaranteed Obligations;

     (e)      any failure by Lender to take any steps to perfect and maintain its security
interest in, or to preserve its rights to, any security or collateral given for the
Guaranteed Obligations, or the release or compromise of any lien or security held by Lender
as security for the Guaranteed Obligations;

     (f)      the compounding, rearrangement or consolidation by Lender of all or any part of the
Guaranteed Obligations;

     (g)      the release from liability of Debtor or any other guarantor or person or entity
primarily or secondary liable for the Guaranteed Obligations who may guarantee or provide
security for the Guaranteed Obligations in whole or in part; or

     (h)     the settlement, release, compromise or cancellation of all or any part of the
Guaranteed Obligations, or the acceptance of partial payment of all or any part of the
Guaranteed Obligations.

     5.      Expenses. Subject to the provisions of Section 3, Guarantor agrees to pay
all costs and expenses, including, without limitation, all court costs and reasonable attorneys’
fees

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paid or incurred by Lender in endeavoring to collect all or any part of the Guaranteed Obligations,
or in enforcing or pursuing its remedies with respect to the Guaranteed Obligations.

     6.      Payment by Guarantor. In the event of any failure to pay with respect to the
Guaranteed Obligations or any “default” or “event of default” under the Note, subject to the
provisions of Section 3, Guarantor agrees to pay on demand, all of the Guaranteed
Obligations and all other costs, expenses and other amounts payable under this Guaranty. Lender
shall not be required to liquidate any lien or any other form of security, instrument, or note held
by Lender prior to making such demand. THIS IS A GUARANTY OF PAYMENT AND NOT OF COLLECTION, and
Guarantor specifically agrees that Lender shall not be required to assert any claim, file suit, or
proceed to obtain a judgment against Debtor or any other guarantor, endorser or surety for the
Guaranteed Obligations, or make any effort at collection of the Guaranteed Obligations, or
foreclose against or seek to realize upon any security or collateral now or hereafter existing for
the Guaranteed Obligations, or exercise or assert any other right or remedy to which Lender is or
may be entitled in connection with the Guaranteed Obligations, before or as a condition of
enforcing the liability of Guarantor under this Guaranty or requiring payment of the Guaranteed
Obligations under this Guaranty. Guarantor agrees, to the full extent it may legally do so, that
suit may be brought against Guarantor with or without making Debtor or any other person or entity a
party to such suit, as Lender may elect. Guarantor agrees that Guarantor shall remain fully liable
under this Guaranty regardless of whether Debtor is held to be not liable on the Guaranteed
Obligations and regardless of whether all or any portion of the Guaranteed Obligations are
“non-recourse” or “limited recourse” to Debtor.

     7.      Application of Payments. Lender shall have the exclusive right to determine the
time and manner of application of any payments or credits to the Guaranteed Obligations, whether
received from Debtor or any other source, and such determination shall be binding on Guarantor.
All such payments and credits may be applied, reversed and reapplied, in whole or in part, to any
of the Guaranteed Obligations as Lender shall determine in its sole discretion without affecting
the validity or enforceability of this Guaranty.

     8.      Guarantor’s Responsibilities. Guarantor hereby assumes responsibility for keeping
informed of the financial condition of Debtor and any and all endorsers and/or other guarantors of
any instrument or document evidencing all or any part of the Guaranteed Obligations and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Guarantor
further agrees that Lender shall have no duty to advise Guarantor of any information known to
Lender regarding such condition or such circumstances or to undertake any investigation. If
Lender, in its sole discretion, undertakes at any time or from time to time to provide any such
information to Guarantor, Lender shall be under no obligation to update any such information or to
provide any such information to Guarantor on any subsequent occasion.

     9.      Reinstatement. Guarantor agrees that to the extent any payment or payments are
made to Lender or Lender receive any proceeds of collateral, which payments or proceeds are
subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to
be repaid to Debtor or any other party, then Guarantor’s obligations under this Guaranty to the

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extent of such repayment shall immediately and automatically be reinstated and continued in
full force and effect.

     10.     Waivers by Guarantor. Guarantor hereby waives to the extent permissible by law:
(a) notice of acceptance of this Guaranty and of creation of the Guaranteed Obligations, (b)
presentment, notice of non-payment, and demand for payment of the Guaranteed Obligations, (c)
protest, notice of protest, and notice of dishonor or default to Guarantor or to any other party
with respect to any of the Guaranteed Obligations, and (d) all other notices to which Guarantor
might otherwise be entitled.

     11.     Continuation. This Guaranty shall continue in full force and effect with respect
to Guarantor, and Lender shall be entitled to make loans and advances and extend financial
accommodations to Debtor on the faith of this Guaranty, until Lender delivers to Guarantor, a
written revocation of this Guaranty executed by Lender.

     12.      Mutual Understanding. Guarantor represents and warrants to Lender that Guarantor
has read and fully understands the terms and provisions hereof, has had an opportunity to review
this Guaranty with legal counsel and has executed this Guaranty based on Guarantor’s own judgment
and advice of counsel. If an ambiguity or question of intent or interpretation arises, this
Guaranty will be construed as if drafted jointly by Guarantor and Lender and no presumption or
burden of proof will arise favoring or disfavoring any party because of authorship of any provision
of this Guaranty.

     13.     Further Assurances. Guarantor at Guarantor’s expense will promptly (a) execute
and deliver to Lender on Lender’ request, all such other and further documents, agreements and
instruments as may be requested by Lender, and (b) deliver all such supplementary information as
may be requested by Lender, in compliance with or accomplishment of the agreements of Guarantor
under this Guaranty.

     14.     Cumulative Remedies. Guarantor hereby agrees that all rights and remedies that
Lender are afforded by reason of this Guaranty are separate and cumulative with respect to
Guarantor and otherwise and may be pursued separately, successively, or concurrently, as Lender
deem advisable. In addition, all such rights and remedies of Lender are non-exclusive and shall in
no way limit or prejudice Lender’s ability to pursue any other legal or equitable rights or
remedies that may be available to Lender.

     15.     Notice. All notices and other communications under this Guaranty will be in
writing and will be mailed by registered or certified mail, postage prepaid, sent by facsimile,
delivered personally by hand, or delivered by nationally recognized overnight delivery service, to
the parties’ respective addresses. Each notice or other communication will be treated as effective
and as having been given and received (a) if sent by mail, at the earlier of its receipt or three
business days after such notice or other communication has been deposited in a regularly maintained
receptacle for deposit of United States mail, (b) if sent by facsimile, upon confirmation of
facsimile transfer, (c) if delivered personally by hand, upon written confirmation of delivery from
the person delivering such notice or other communication, or (d) if sent by nationally recognized
overnight delivery service, upon written confirmation of delivery from such service.

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     16.     Enforcement and Waiver by Lender. Lender shall have the right at all times to
enforce the provisions of this Guaranty in strict accordance with its respective terms,
notwithstanding any conduct or custom on the part of Lender in refraining from so doing at any time
or times. The failure of Lender at any time or times to enforce its rights under such provisions
strictly in accordance with the same, shall not be construed as having created a custom or in any
way or manner modified or waived the same. All rights and remedies of Lender are cumulative and
concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any
other right or remedy.

     17.     CHOICE OF LAW; JURISDICTION; VENUE. THIS GUARANTY SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS
CONFLICTS OF LAWS PROVISIONS. JURISDICTION FOR ALL MATTERS ARISING OUT OF THIS GUARANTY SHALL BE
EXCLUSIVELY IN THE STATE AND FEDERAL COURTS SITTING IN DALLAS COUNTY, TEXAS, AND GUARANTOR HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE JURISDICTION OF SUCH STATE AND FEDERAL COURTS AND AGREES AND
CONSENTS NOT TO ASSERT IN ANY PROCEEDING, THAT ANY SUCH PROCESS IS BROUGHT IN AN INCONVENIENT FORUM
OR THAT THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREES TO A TRANSFER OF SUCH PROCEEDING TO THE
COURTS SITTING IN DALLAS COUNTY, TEXAS.

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

     19.     Amendments; Waivers. No amendment or waiver of any provision of this Guaranty nor
consent to any departure by Guarantor herefrom shall in any event be effective unless the same
shall be in writing and signed by Lender and Guarantor, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given. Guarantor
may not be released from Guarantor’s obligations hereunder, except pursuant to a written instrument
executed by Lender.

     20. Binding Effect; Assignment. This Guaranty shall be binding on Guarantor and
Guarantor’s administrators, other legal representatives, successors, heirs and assigns, including,
without limitation, any receiver, trustee or debtor in possession of or for Guarantor, and shall
inure to the benefit of Lender and its respective successors and assigns. Guarantor shall not be
entitled to transfer or assign this Guaranty in whole or in part without the prior written consent
of Lender. This Guaranty is freely assignable and transferable by Lender without the consent of
Guarantor. Should the status, composition, structure or name of Guarantor change, this Guaranty
shall continue and also cover the Guaranteed Obligations under the new status composition,
structure or name according to the terms of this Guaranty.

     21.     Captions. The captions in this Guaranty are for the convenience of reference only
and shall not limit or otherwise affect any of the terms or provisions hereof.

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     22.     Number of Gender of Words. Except where the context indicates otherwise, words in
the singular number will include the plural and words in the masculine gender will include the
feminine and neutral, and vice versa, when they should so apply.

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

     24.     ENTIRE AGREEMENT. THIS GUARANTY CONSTITUTES THE ENTIRE AGREEMENT AMONG THE
PARTIES CONCERNING THE SUBJECT MATTER HEREOF, AND ALL PRIOR DISCUSSIONS, AGREEMENTS AND STATEMENTS,
WHETHER ORAL OR WRITTEN, ARE MERGED INTO THIS GUARANTY. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
AMONG THE PARTIES. THIS GUARANTY MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

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

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     IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty on this the 1st day of
September, 2006, effective for all purposes as of the Effective Date.

	 	 	 	 	 
	 	GUARANTOR: UNITED DEVELOPMENT FUNDING III, L.P.

a Delaware limited partnership

 	 
	 	By:  	UMTH Land Development, L.P.
 	 
	 	Its: 	General Partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	                                  UMT Services Inc.
 	 
	 	Its: 	General Partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	     /s/ Hollis M. Greenlaw
 	 
	 	 	Name:  	Hollis M. Greenlaw 	 
	 	 	Its:  President 	 
	 

7exv10w2

 

Exhibit 10.2

UNITED DEVELOPMENT FUNDING III, L.P.

1702 N. Collins Blvd., Suite 100

Richardson, Texas 75080

Effective Date: September 1, 2006

United Development Funding, L.P.

1812 Cindy Lane, Suite 200

Bedford, Texas 76021

     RE: Credit Enhancement Fee related to Guaranty of Note

Gentlemen:

     This letter agreement (this “Agreement”) sets forth our understanding with respect to
the Limited Guaranty dated as of September 1, 2006 (as it may be amended, the “Guaranty”)
that United Development Funding III, L.P., a Delaware limited partnership (“UDF III”) has
agreed to enter into, execute and deliver to United Mortgage Trust, a real estate investment trust
organized under the laws of the state of Maryland (“UMT”) for the benefit of United
Development Funding, L.P., a Nevada limited partnership (“UDF”), in connection with the
line of credit provided by UMT to UDF pursuant to that certain Second Amended and Restated Secured
Line of Credit Promissory Note dated June 20, 2006 in the principal amount of U.S. $45,000,000 (as
it may be amended, the “Note”). Capitalized terms not defined herein shall have the
meanings given to such terms in the Guaranty.

     In consideration of UDF III’s agreement to enter into the Guaranty, UDF agrees to pay UDF III
or its assigns a monthly credit enhancement fee for so long as the Guaranty is outstanding (the
“Credit Enhancement Fee”), due in arrears on the fifteenth day of the following month,
commencing on October 15, 2006, in an amount equal to the result of following calculation,
calculated as of the last day of the month for which such Credit Enhancement Fee is due:

[Maximum Exposure of UDF III under the Guaranty] x [Enhancement Percentage]

where (a) the “Maximum Exposure of UDF III” is equal to the maximum amount of UDF III’s
exposure under the Guaranty taking into consideration the Maximum Liability Amount of UDF III
pursuant to Section 3 of the Guaranty; provided, that (i) on or before December 31,
2006, in no event shall the Maximum Exposure of UDF III be less than $5,000,000, and (ii) if the
amount of Net Proceeds raised by UDF III exceeds $5,000,000 on the date of calculation, then the
Maximum Exposure of UDF III shall not exceed the amount of Net Proceeds so raised by UDF III
through such date; and (b) the “Enhancement Percentage” is equal to one-quarter of one
percent (0.0025%). “Net Proceeds” shall mean the amount equal to gross offering proceeds
of UDF III minus selling commissions, minus wholesaling fees, minus marketing support fees, minus
due diligence fees, minus organization and offering expenses, minus acquisition and origination
expenses and fees, as determined by UDF III in accordance with the terms set forth in the United
Development Funding Prospectus dated May 15, 2006.

     Example 1. If on August 31, 2006, UDF III has raised $1,500,000 in Net Proceeds, and
the Maximum Liability Amount under the Guaranty is $30,000,000, then the Maximum Exposure of UDF
III is equal to $5,000,000 (pursuant to clause (a)(i) of the calculation), and the Credit
Enhancement Fee due to UDF III on September 15, 2006 is equal to $12,500 ($5,000,000 x 0.0025%).

     Example 2. If on September 30, 2006, UDF III has raised $6,500,000 in Net Proceeds,
and the Maximum Liability Amount under the Guaranty is $30,000,000, then the Maximum Exposure of
UDF III is equal to $6,500,000 (pursuant to clause (a)(ii) of the calculation), and the Credit
Enhancement Fee due to UDF III on October 15, 2006 is equal to $16,250 ($6,500,000 x 0.0025%).

     Example 3. If on January 31, 2007, UDF III has raised $40,000,000 in Net Proceeds,
and the Maximum Liability Amount under the Guaranty is $20,000,000 (having been reduced from the
original

 

 

September 1, 2006

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Maximum Liability Amount of $30,000,000 pursuant to Section 3 of the Guaranty), then the
Maximum Exposure of UDF III is equal to $20,000,000, and the Credit Enhancement Fee due to UDF III
on February 15, 2007 is equal to $50,000 ($20,000,000 x 0.0025%).

     The Credit Enhancement Fee shall be payable to UDF III or its assigns pursuant to the payment
instructions given to UDF by UDF III.

     UDF and UDF III agree that UDF III shall provide separate and distinct consideration for the
Credit Enhancement Fee and that the Credit Enhancement Fee is not, is not intended to be, and shall
not be characterized as interest or as compensation for the use, forbearance or detention of money.

     To confirm your agreement with the foregoing provisions of this letter, please execute this
letter in the space provided for your signature below, whereupon this Agreement shall automatically
become binding upon the parties hereto. Please return your original signature page to us for our
records.

	 	 	 	 	 
	 	Sincerely,

UNITED DEVELOPMENT FUNDING III, L.P.

a Delaware limited partnership

 	 
	 	By:  	UMTH Land Development, L.P.
 	 
	 	Its:   	General Partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	     UMT Services Inc.
 	 
	 	Its:	General Partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	     /s/ Hollis M. Greenlaw
 	 
	 	 	Name:  	Hollis M. Greenlaw 	 
	 	 	Its:  President 	 
	 

	 	 	 	 	 
	 	AGREED AND ACCEPTED:

UNITED DEVELOPMENT FUNDING, L.P.

a Nevada limited partnership

 	 
	 	By:  	United Development Funding, Inc.
 	 
	 	Its: 	General Partner 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	     /s/ Jeff W. Shirley
 	 
	 	 	Name:  	Jeff W. Shirley 	 
	 	 	Its:  President

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