ENVIRONMENTAL INDEMNITY AGREEMENT BY MIDLOTHIAN LONGBRANCH, L.P., CENTURION ACQUISITION, L.P., PARS

Exhibit 10.3

ENVIRONMENTAL INDEMNITY AGREEMENT

     THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this “Agreement”), executed as of the 14^th day of August, 2006 (the “Effective Date”), is made by Midlothian Longbranch, L.P., a Texas limited partnership (“Borrower”), Centurion Acquisitions, L.P., a Texas limited partnership (“Centurion”), Pars Investments, Inc., a Texas corporation (the “General Partner”), and Mehrdad Moayedi (“Moayedi”, and collectively with Borrower, Centurion and the General Partner, the “Affiliates”) in favor of United Development Funding III, L.P., a Delaware limited partnership (“Lender”).

RECITALS:

     A. Lender has agreed to advance funds to Borrower under that certain Secured Promissory Note dated as of the Effective Date in the principal amount of U.S. $962,563.00 (the “Note”), which shall be secured in part by a Deed of Trust, Security Agreement and Financing Statement (Fixture Filing) (the “Deed of Trust”) executed and delivered by Borrower to Todd Etter, trustee for the benefit of Lender, covering that certain real property owned by Borrower located in the City of Midlothian, County of Ellis, State of Texas and commonly referred to as “Meadows at Longbranch,” as further described on Exhibit “A” attached to the Deed of Trust (the “Property”).

     B. It is a condition precedent to Lender’s agreement to advance funds to Borrower under the Note that Borrower and the Affiliates enter into this Agreement, and Borrower and the Affiliates are willing to enter into this Agreement in favor of Lender and hereby agree to be bound by its terms and conditions.

AGREEMENT:

     NOW THEREFORE, in consideration of the premises and in order to induce Lender to advance funds under the Note, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower and the Affiliates agree and covenant with Lender as follows:

     1. Definitions. Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Note. In addition, as used in this Agreement, the following terms have the following meanings:

     “Environmental Activity” means the existence, use, storage, Release, threatened Release, generation, processing, abatement, removal, or disposal of any Hazardous Substance on, to, or from the Property or the handling, transportation, treatment, or disposal of any Hazardous Substance arranged by or on behalf of any Indemnitor.

     “Environmental Claims” means any and all governmental and third-party actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations, proceedings, consent orders, or consent agreements relating in any way to the presence or Use of any Hazardous Substance on the Property or the Release or threatened Release of any Hazardous

Substance to or from the Property or the violation of any Environmental Requirement or any Environmental Permit applicable to the Property or which otherwise relate to any Environmental Activity (hereafter “Claims”), including without limitation (a) any and all Claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial, or other actions or damages pursuant to any applicable Environmental Requirement, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation, or injunctive relief arising in connection with any Hazardous Substance or arising from alleged injury or threat of injury to property, human health, or the environment resulting or allegedly resulting from any Environmental Activity.

     “Environmental Damages” means all claims, judgments, damages, losses, penalties, fines, liabilities (including strict liability), encumbrances, liens, costs, and expenses imposed against any party in connection with any Environmental Activity, and all costs and expenses of investigation and defense of any Environmental Claim, whether or not such Environmental Claim is ultimately defeated, and in connection with any good faith settlement or agreed judgment, including, without limitation, reasonable attorneys’ fees and disbursements and consultants’ fees, which are reasonably necessary or required as a result of an Environmental Claim based on the existence or alleged existence of any Hazardous Substance upon, about, or beneath the Property, or the migration or threat of migration of any Hazardous Substance to or from the Property, or the existence of a violation of any Environmental Requirement pertaining to any Indemnitor or the Property, regardless of whether the existence or alleged existence of such Hazardous Substance or the violation of Environmental Requirements arose prior to any Indemnitor’s ownership or operation of the Property. “Environmental Damages” shall include, without limitation, (a) damages for personal injury or injury to property or natural resources occurring upon or off of the Property, (b) fees incurred for the services of attorneys, consultants, contractors, experts, and laboratories, and all other costs incurred in connection with the investigation of the presence or alleged presence of Hazardous Substances on, about, or under the Property, the removal or remediation of any Hazardous Substances, or the violation of Environmental Requirements, including, without limitation, costs and expenses for the preparation of any feasibility studies or reports or the performance of any cleanup, remediation, removal, response, abatement, containment, closure, restoration, or monitoring work required by any Governmental Authority or reasonably necessary in defense of any Environmental Claim, and reasonable attorneys’ fees, costs, and expenses incurred in enforcing this Agreement or collecting any sums due hereunder, and (c) liability to any third person or Governmental Authority to indemnify such person or entity for costs expended in connection with the items referenced in subparagraph (b) preceding, and (d) diminution in the value of the Property.

     “Environmental Laws” means all statutes and ordinances of any Governmental Authority having jurisdiction over any Indemnitor, the Property, or any user or occupant of the Property, and relating to the protection of human health and the environment, now existing or hereafter adopted, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. § 9601, et seq.), the Solid Waste Disposal Act, as amended (42 U.S.C. § 6901, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. § 1801, et seq.), the Clean Air Act, as amended (42 U.S.C. § 7401, et seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. § 1251, et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. § 2601, et seq.), the

Safe Drinking Water Act, as amended (42 U.S.C. § 300f, et seq.), the Atomic Energy Act, as amended (42 U.S.C. § 2014, et seq.), the Federal Insecticide, Fungicide and Rodenticide Act, as amended (7 U.S.C. § 136, et seq.), the Oil Pollution Act of 1990, as amended (33 U.S.C. § 2701, et seq.), the Emergency Planning and Community Right-to-Know Act of 1986, as amended (42 U.S.C. § 11001, et seq.), the Occupational Safety and Health Act, as amended (29 U.S.C. § 651, et seq.), the Endangered Species Act, the Texas Water Code, as amended, and the Texas Health and Safety Code, as amended, and the regulations adopted and publications promulgated pursuant thereto.

     “Environmental Permits” means all permits, approvals, identification numbers, licenses, and other authorizations required under any applicable Environmental Requirement.

     “Environmental Requirements” means all applicable present and future Environmental Laws and all rules, regulations, orders, decrees, permits, licenses, concessions, franchises, or other restrictions or requirements of any Governmental Authority relating to the protection of human health or the environment and all applicable judicial, regulatory, or administrative decisions, decrees, judgments, or orders thereunder.

     “Governmental Authority” means any governmental authority, the United States of America, any state of the United States of America, and any subdivision of any of the foregoing, and any agency, department, commission, board, authority, instrumentality, bureau, or court having jurisdiction over the Property, or over any Indemnitor or any occupant or user of the Property, or any of their respective businesses, operations, assets, or properties.

     “Hazardous Substance” means any substance, material, or waste (a) the presence or Release of which requires reporting, investigation, or remediation under any Environmental Requirement, (b) which is defined or listed as a “hazardous waste,” “hazardous substance,” “extremely hazardous waste,” “restricted hazardous waste,” “hazardous material,” “toxic substance,” or other similar or related term under any Environmental Law, (c) which is toxic, radioactive, or otherwise classified as hazardous or toxic and is or becomes regulated by any Governmental Authority as a threat to human health or the environment, (d) the presence of which on the Property causes or threatens to cause a nuisance upon the Property or to adjacent property, (e) the presence of which on adjacent properties could constitute a trespass by any Indemnitor, (f) which is asbestos, (g) which is polychlorinated biphenyls, or (h) which contains petroleum or any petroleum-derived product.

     “Indemnitees” means Lender and its subsidiaries and affiliates, any assignee of Lender with respect to all or any portion of the Loan, and their respective subsidiaries, affiliates, shareholders, partners, members, directors, officers, agents, attorneys, and employees, and their respective successors and assigns, and “Indemnitee” means any one of the Indemnitees.

     “Indemnitors” means, collectively, (i) Borrower and its successors and permitted assigns and (ii) each Affiliate and their respective successors and permitted assigns.

     “Lien” means any encumbrance, lien, deed of trust, change, claim, or security interest of any kind or nature.

     “Note” means the Secured Promissory Note dated of August 14, 2006, executed by Borrower and payable to the order of Lender in the original principal amount of U.S. $962,563.00.

     “Permitted Substances” means common cleaning, maintenance, repair, painting materials, and other commercial or retail products properly stored and handled in normal, commercially reasonable quantities and consumed or used in the ordinary course of use and operation of the Property.

     “Property” means the real and personal property covered by and described in Exhibit “A” attached to the Deed of Trust and includes any soil, surface water, or groundwater on or under any of the real property and all improvements located thereon.

     “Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment (including the abandonment or discarding of barrels, containers, or other closed receptacles containing any Hazardous Substance).

     “Use” means use, ownership, development, construction, maintenance, management, operation, or occupancy.

     2. Indemnity by Indemnitors.

     (a) Indemnitors shall indemnify, defend, save, and hold harmless each Indemnitee from and against any and all Environmental Damages imposed or asserted against the Property or Indemnitees (i) arising from the presence or alleged presence of Hazardous Substances upon, about, or beneath the Property or arising from the migration of Hazardous Substances to or from the Property regardless of the source of such release or when such release occurred or such presence is discovered, (ii) arising in any manner whatsoever out of the violation of any Environmental Requirement pertaining to any Indemnitor or the Property, or (iii) arising from the breach of any covenant or the inaccuracy of any representation or warranty of Indemnitors contained in this Agreement; unless, and to the extent, such Environmental Damages are finally determined to have arisen solely and directly from the gross negligence or willful misconduct of Indemnitees. THIS OBLIGATION SHALL INCLUDE ANY CLAIMS RESULTING FROM THE NEGLIGENCE OR ALLEGED NEGLIGENCE OF ANY INDEMNITEE. This obligation shall include, but shall not be limited to, (A) the burden of defending all claims, suits, and administrative proceedings (with counsel reasonably approved by Indemnitees), even if such claims, suits, or proceedings are groundless, false, fraudulent, or frivolous, and conducting all negotiations of any description, (B) paying and discharging, when and as the same shall become due, any and all judgments, penalties, or other sums due against any Indemnitee, (C) paying and discharging, when and as the same shall become due, all costs of removal and/or remediation of any kind, and promptly disposing of such Hazardous Substances (whether or not such Hazardous Substance may be legally allowed to remain upon, about, or beneath the Property if removal or remediation is prudent), (D) paying and discharging, when and as the same shall become due, all costs of determining whether the Property is in compliance and promptly causing the Property to

be in compliance with all applicable Environmental Requirements, (E) paying and discharging, when and as the same shall become due, all costs associated with claims for damages to persons, property, or natural resources, and (F) paying and discharging, when and as the same shall become due, Indemnitees’ reasonable attorneys’ fees, consultants’ fees, and court costs. Any Indemnitee (or at Indemnitors’ expense if Indemnitors’ counsel or Indemnitee reasonably believes a conflict exists in dual representation), at its expense, may employ additional counsel of its choice to associate with counsel employed by Indemnitors; and any Indemnitee may in good faith settle any Environmental Claim against it, whether or not subject to indemnification hereunder, without the consent or joinder of Indemnitors or any other party.

     Indemnitors and their successors and assigns hereby waive, release, and agree not to make any claim or bring any cost recovery action against Indemnitees under any Environmental Requirement now existing or hereafter enacted. It is expressly understood and agreed that to the extent that Indemnitees are strictly liable under any Environmental Requirements, Indemnitors’ obligations to Indemnitees under this Agreement shall likewise be without regard to fault on the part of Indemnitors with respect to the violation or condition which results in liability to Indemnitees.

     (b) Indemnitors shall indemnify, defend, and hold harmless each Indemnitee from and against any and all loss, liability, obligation, damage, penalty, judgment, claim, deficiency, and expense (including interest, penalties, attorneys’ fees, and amounts paid in settlement) to which Indemnitees may become subject arising out of o