ECONOMIC INTEREST PARTICIPATION AGREEMENT AND PURCHASE OPTION

This Economic Interest Participation Agreement and Purchase Option (this “ Agreement ”) is entered into effective as of the 19 ^th day of September, 2008 (the “ Effective Date ”) by and between UNITED MORTGAGE TRUST , a real estate trust organized under the laws of the State of Maryland with an address of 1702 N. Collins Blvd., Suite 100, Richardson, TX 75080, as lender, agent and assignor (“ Assignor ”), and UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited partnership with an address of 1812 Cindy Lane, Suite 200, Bedford, Texas 76021, as assignee (“ Assignee ”).

A.           United Development Funding, L.P., a Delaware limited partnership (“ Borrower ”) has executed and delivered that certain First Amended and Restated Secured Line of Credit Promissory Note, dated as of September 30, 2004, executed by Borrower and payable to the order of Assignor in the original principal amount of $30,000,000, as amended and restated in its entirety by that certain Second Amended and Restated Secured Line of Credit Promissory Note dated as of June 20, 2006 in the increased principal amount of $45,000,000, as modified by that certain First Modification of Second Amended and Restated Secured Line of Credit Promissory Note dated as of September 1, 2006 (as so amended, and as it may be further amended, modified, renewed, extended, superseded or replaced from time to time, the “ Note ”).

B.           The payment and performance of Borrower’s obligations under the Note is secured by that certain First Amended and Restated Security Agreement dated as of September 30, 2004, executed by Borrower in favor of Assignor (as it may be amended, modified, renewed, extended, superseded or replaced from time to time,   the “ Security Agreement ”).

C.           The Note, the Security Agreement, and all other instruments, agreements, mortgages, guarantees, certificates executed or entered into in connection with the Note are referred to herein collectively as the “ Loan Documents ”.

D.           Assignee desires to purchase (i) an economic interest in the payments of principal and interest made by Borrower under the Note relating to amounts funded by Assignee towards Assignor’s funding obligations under the Note (the “ Economic Interest ”) and (ii) an option to purchase a Participation Interest (as defined in Section 1 below) in the Note and the other Loan Documents (the “ Option ”), and Assignor has agreed to sell, assign, transfer and convey the Economic Interest and the Option to Assignee.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee agree as follows:

1.            Assignment .  In consideration for the payment of the Purchase Price (as defined in Section 3 below), Assignor hereby agrees to sell, transfer, assign and convey, and does hereby sell, transfer, assign and convey to Assignee, and Assignee hereby agrees to purchase, accept and receive, and does hereby purchase, accept and receive from Assignor, the Economic Interest and the Option.  The Economic Interest is the right of Assignee to receive payment of principal and accrued interest thereon under the Note relating to amounts funded by Assignee towards Assignor’s funding obligations under the Note.  The Option is the right of Assignee to purchase a participation interest in ownership of the Note and the Loan Documents relating to the Economic Interest purchased by Assignee hereunder including, without limitation, a participation in all rights incidental to ownership of the Note and the Loan Documents (a “ Participation Interest ”).

2.            Economic Interest .  Commencing on the Effective Date, each time that Borrower requests an advance of principal under the Note (a “ Borrower Advance ”), Assignor shall notify Assignee in writing of the principal amount requested by Borrower and the wire transfer and funding instructions.  Thereafter, Assignee shall fund an amount to Assignor equal to the amount of the Borrower Advance and upon such funding, Assignee shall own the Economic Interest related to the Borrower Advance so funded by Assignee.  Assignor shall clearly notate the Economic Interest of Assignee in its books and records by marking each Borrower Advance funded by Assignee and notating that the Economic Interest for such Borrower Advance is owned by Assignee.  Each time Assignee funds a Borrower Advance, Assignee’s Economic Interest shall be increased accordingly.

3.            Purchase Price .  The purchase price for the Economic Interest and the Option shall be (i) Assignee’s funding of each Borrower Advance  made under the Note after the Effective Date and (ii) Assignee’s funding of its pro-rata share of any costs of collection, including attorney fees (collectively, the “ Purchase Price ”).

4.            Payment of Economic Interest .  Assignor shall pay the Economic Interest to Assignee as follows:

(a)            Interest .  For each payment of interest made by Borrower on the Note, Assignor shall pay Assignee its pro rata share of accrued interest paid on the Note based on Assignee’s Economic Interest.  For example and not necessarily representative of real transactions hereunder, if $20,000,0000 in principal is outstanding under the Note, Assignor has funded $16,000,000 of such outstanding principal amount and Assignee has funded $4,000,0000 of such outstanding principal amount, and Borrower makes a payment equal to all accrued interest then due and payable under the Note, then Assignee’s pro rata share of Borrower’s interest payment shall be 20% ($4,000,000 / $20,000,000).

(b)            Principal . For each repayment of principal made by Borrower under the Note, Assignor shall pay Assignee its pro rata share of the principal repaid based on Assignee’s Economic Interest.  For example and not necessarily representative of real transactions hereunder, if $32,000,0000 in principal is outstanding under the Note, Assignor has funded $16,000,000 of such outstanding principal amount and Assignee has funded $16,000,0000 of such outstanding principal amount, and Borrower makes a principal payment equal to $1,000,000, then Assignee’s pro rata share of Borrower’s principal payment shall be $500,000.

(c)            Payments . Assignor shall make all payments of the Economic Interest to Assignee by wire transfer promptly upon receipt of payments from Borrower under the Note.

5.            Abatement . Assignee may temporarily abate its obligation to purchase the Economic Interest by funding Borrower Advances under Section 2 by giving Assignor written notice of the abatement which includes the number of months during which Assignee’s obligations shall be abated, not to exceed (12) months.

6.            Appo