SECURED LINE OF CREDIT PROMISSORY NOTE

FOR VALUE RECEIVED, the undersigned, UNITED DEVELOPMENT FUNDING LAND OPPORTUNITY FUND, L.P., a Delaware limited partnership (“ Borrower ”), hereby makes this Secured Line of Credit Promissory Note (as it may be amended, modified, renewed, extended, increased, superseded, or replaced from time to time, this “ Note ”) and promises to pay to the order of UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited partnership or its assigns (“ Lender ”), the sum of Twenty Five Million and NO/100 Dollars ($25,000,000.00), or, if greater or less, the aggregate outstanding principal amount of this Note, together with accrued, unpaid interest thereon, pursuant to the terms and conditions set forth in this Note.  All amounts are payable to Lender in lawful money of the United States of America at the address for Lender provided in Section 1 of  this Note, or at such other address as from time to time may be designated by Lender.

1.            Definitions .  In addition to the terms defined elsewhere in this Note, the following terms have the meanings set forth below for purposes of this Note:

“ Accrued Interest Payments ” means the monthly interest payments equal to the amount of accrued interest on the outstanding principal balance of this Note, calculated at the applicable rate of interest provided herein, and payable as provided herein.

“ Advance Request ” shall mean Lender’s standard form of Advance Request for this Note, as in effect from time to time, duly executed by an officer of Borrower and including or accompanied by an Officer’s Certificate dated as of the date of the Advance Request and as of the funding date.

“ Base Rate ” shall mean the lesser of (i) fifteen percent (15.0%), accrued monthly and compounded annually, or (ii) the Highest Lawful Rate.

“ Collateral ” shall have the meaning given to such term in the Security Agreement.

“ Commitment ” shall mean the aggregate amount of up to U.S. Twenty Five Million and NO/100 Dollars ($25,000,000.00).

“ Default Rate ” shall mean the lesser of (i) eighteen percent (18%), accrued monthly and compounded annually, or (ii) the Highest Lawful Rate.

“ Disposition ” shall mean any sale, lease, transfer, assignment, exchange or conveyance in whole or in part.

“ Effective Date ” shall mean August 20, 2008.

“ Highest Lawful Rate ” means 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 or charge, take, receive or reserve a greater amount of interest than under Texas law), taking into account all fees and expenses contracted for, charged, received, taken or reserved by Lender in connection with the transaction relating to this Note and the indebtedness evidenced hereby or by the other Loan Documents which are treated as interest under applicable law.

“ Investments ” shall mean loans to and/or investments in entities that acquire, entitle, develop and/or sell land or lots for the construction of single-family residential homes.

“ Lien ” shall mean any lien, security interest, charge, tax lien, pledge, encumbrance, conditional sales or other title retention arrangement or any other interest in property designed to secure the repayment of indebtedness or the satisfaction of any other obligation, whether arising by agreement or under any statute or law, or otherwise.

“ Loan ” shall mean the amount of principal outstanding under this Note from time to time, together with unpaid accrued interest thereon.

“ Officer’s Certificate ” means a certificate duly executed by an authorized officer on behalf of Borrower certifying that (i) no Event of Default has occurred and is continuing under this Note, (ii) all representations and warranties made by Borrower in this Note and the other Loan Documents are true and correct in all respects, and (iii) Borrower has complied with and performed, in all respects, all covenants, conditions and agreements which are then required by this Note and the other Loan Documents to have been complied with or performed.

“ Senior Indebtedness ” shall mean indebtedness owed to a Senior Lender.

“ Senior Lender ” means any bank, financial institution or other lender having made a loan to any client of Borrower that has a senior position with respect to the payment of any indebtedness and/or the priority of any Liens.

2.            Certain Loan Terms .  In addition all other terms and conditions set forth herein, certain terms and conditions of this Note are set forth below:

Borrower’s Address                            1702 N. Collins Blvd., Suite 100

For Notice :                                             Richardson, Texas  75080

Attention:  Hollis M. Greenlaw

Facsimile No. 972-889-0162

Lender's Address                                 1812 Cindy Lane, Suite 200

For Notice and Payment :                     Bedford, Texas 76021

Attention:  Ben Wissink

Facsimile No. 817-835-0380

3.            Origination Fee .  Borrower agrees to pay Lender an origination fee equal to three percent (3%) of each advance or Commitment made under this Note pursuant to that certain letter agreement dated as of the Effective Date (the “ Origination Fee Letter ”), but in any event not to exceed $750,000.00 in the aggregate; provided, that no further Origination Fee shall be due after total advances or Commitment made under this Note exceed $25,000,000.00 in the aggregate and further provided, that no origination fee shall be due on the portion of the Commitment repaid and re-advanced under this Note.  The origination fee due with respect to any advance shall be paid to Lender at or prior to the date of Lender’s funding of such advance hereunder.

4.            Security; Loan Documents .  This Note is secured by, and entitled to the benefits of, (i) a security agreement executed by Borrower in favor of Lender dated as of the Effective Date (as it may be amended, modified, renewed, extended, superseded, or replaced from time to time, the “ Security Agreement ”) pursuant to which Borrower has granted to Lender, a security interest in the Collateral, and (ii) for each Investment, an allonge, collateral assignment, and/or such other documents, agreements, assignments and instruments as Lender shall require in order to evidence, acknowledge or perfect its security interest in the Collateral, as determined by Lender in its sole discretion (collectively, as each may be amended, modified, renewed, extended, superseded, or replaced from time to time, the “ Collateral Documents ”).  This Note, the Security Agreement, the Collateral Documents, the Origination Fee Letter, all UCC financing statements, amendments thereto and continuation statements (collectively, “ Financing Statements ”) filed by or in favor of Lender, all Advance Requests, all Officer’s Certificates, and all other instruments, agreements, certificates, assignments and other agreements and documents executed, entered into or delivered by any party in connection with this Note, whether prior to, on or after the Effective Date, are collectively referred to in this Note as the “ Loan Documents ”.

5.            Loan Expenses .

(a)           To the extent not prohibited by applicable law, Borrower will pay all reasonable costs and expenses and reimburse Lender for any and all expenditures of every character incurred or expended from time to time, regardless of whether an Event of Default shall have occurred, in connection with any of the following (collectively, “ Loan Expenses ”):

(i)           the preparation, negotiation, documentation, closing, renewal, revision, modification, increase, review or restructuring of any loan or credit facility represented by or secured by the Loan Documents, including legal, accounting, auditing, architectural, engineering, due diligence, title company, and inspection services and disbursements, or in connection with collecting or attempting to enforce or collect pursuant to any Loan Document;

(ii)           Lender’s evaluating, monitoring, administering and protecting the Collateral or any other collateral granted or pledged as security for the Loan or employing others to do so or to perform due diligence for Lender with respect thereto; and

(iii)           Lender’s creating, perfecting and realizing upon Lender’s security interest in, and the Liens on, the Collateral or any other collateral granted or pledged as security for the Loan, and all costs and expenses relating to Lender’s exercising any of its rights and remedies under any Loan Document or at law, including all appraisal fees, consulting fees, filing fees, taxes, brokerage fees and commissions, title review and abstract fees, litigation report fees, UCC search fees, other fees and expenses incident to title searches, reports and security interests, escrow fees, attorneys’ fees, legal expenses, court costs, other fees and expenses incurred in connection with any complete or partial liquidation of the Collateral or any other collateral granted or pledged as security for the Loan, and all fees and expenses for any professional services or any operations conducted in connection therewith.  Notwithstanding the foregoing, no right or option granted by Borrower to Lender or otherwise arising pursuant to any provision of any Loan Document shall be deemed to impose or admit a duty on Lender to supervise, monitor or control any aspect of the character or condition of the Collateral or any other collateral granted or pledged as security for the Loan or any operations conducted in connection with it for the benefit of Borrower or any other person other than Lender.

(b)            Usury Savings Clause Applies .  Borrower agrees that Lender has provided, and shall provide, separate and distinct consideration for the fees and expenses described in Section 5(a) above and elsewhere in this Note and/or that such fees and expenses represent bona fide fees and expenses incurred by Lender.  Borrower and Lender further agree that such fees and expenses are not, are not intended to be, and shall not be characterized as, interest or as compensation for the use, forbearance or detention of money.  Despite the foregoing and notwithstanding anything else in this Note and the other Loan Documents to the contrary, if any fees or expenses charged or chargeable to Borrower hereunder are determined to constitute interest and such fees or expenses, when added to the interest charged hereunder, would cause the aggregate interest charged hereunder to exceed the Highest Lawful  Rate, then Section 13 of this Note shall automatically apply to reduce the interest charged hereunder so as not to exceed the Highest Lawful Rate.

6.            Advance Procedures .

(a)            Advances .  Subject to the other terms and conditions of this Note, including, without limitation, Section 10 , Lender agrees to make advances to Borrower prior to the Maturity Date in an aggregate amount not to exceed the available amount of the Commitment pursuant to the procedures set forth in Section 6(b) .  Notwithstanding anything else to the contrary contained herein, Lender shall have no obligation to make any advance of Commitment to Borrower under this Note unless each of the conditions precedent in Section 10 have been satisfied and/or fulfilled as determined by Lender in its sole discretion.  Any obligation of Lender to fund any amount of the Commitment shall terminate upon the earlier of (i) Lender’s notification to Borrower of such termination, (ii) the acceleration of this Note, or (iii) the Maturity Date.

(b)            Procedure for Borrowing .  Each advance of Commitment (other than an advance to be applied to accrued interest due and owing to Lender under this Note) shall be made pursuant to Borrower’s delivery of an Advance Request and shall specify, in addition to any information requested on Lender’s standard form of Advance Request, (i) the amount of the advance of Commitment so requested, (ii) the requested funding date, and (iii) the use of proceeds.  Each advance of Commitment made for the purpose of funding an Investment shall be accompanied by Borrower’s due diligence materials with respect to the Investment proposed to be funded and other documentation supporting the advance of Commitment.  Borrower agrees to provide, or cause to be provided, all information, documents and agreements as may be requested by Lender in connection with each such Investment and each such request for an advance of Commitment.  Notwithstanding the foregoing sentences of this Section 6(b) and provided that an Event of Default has not occurred and is continuing under this Note, on each date that an payment of accrued interest becomes due and owing to Lender hereunder, Borrower agrees that Lender shall make, and is hereby authorized by Borrower to make, advance(s) from the Commitment equal to the amount of the accrued interest then due and owing to Lender, which amount shall be applied to the accrued interest then due and owing to Lender, without delivery of an Advance Request to Lender in connection with such advance.

(c)            Making of Advances upon Approval of Advance Request .  Subject to the other terms and conditions of this Note, after receipt of an Advance Request and upon approval by Lender of such Advance Request, which approval may be withheld by Lender for any reason or for no reason, Lender shall make available to Borrower, the amount of the requested advance of Commitment (or such lesser amount than the requested amount that Lender has approved to be funded); provided, however, that Lender shall have no obligation to make any advance of Commitment unless each of the conditions precedent in Section 10 have been satisfied and/or fulfilled as determined by Lender in its sole discretion.

(d)            Discretionary Advances .  Lender is authorized to make advances hereunder that Lender, in its sole discretion, deems necessary or desirable to pay any Loan Expense or other amount chargeable to Borrower pursuant to the terms of this Note or any other Loan Document (such advances made for the foregoing purposes are referred to herein as the “ Discretionary Advances ”).  Each Discretionary Advance shall, upon disbursement, automatically constitute principal outstanding hereunder and cause a corresponding increase in the aggregate amount of Borrower’s obligations hereunder (even if such Discretionary Advance causes the aggregate amount outstanding hereunder to exceed the face amount of this Note).  Borrower agrees that each Discretionary Advance shall automatically reduce the available amount of Commitment available hereunder.  The making by Lender of any Discretionary Advance shall not cure or waive any Event of Default hereunder (except only for an Event of Default that has been cured to Lender’s satisfaction as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing the Event of Default so cured, and for an Event of Default that has been waived by Lender as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing the Event of Default so waived).

(e)            Advance Schedule .  Attached to this Note as Schedule 1 is a list of the Advances made under this Note, any payments applied to reduce principal outstanding under this Note, and the aggregate amount of principal outstanding under this Note prepaid by Lender (the “ Advance Schedule ”).  The Advance Schedule shall be revised by Lender from time to time and, as so revised, shall be conclusive and binding upon Borrower, absent manifest error.

(a)            Interest Rate .  The outstanding principal amount of this Note shall bear interest on each day outstanding at the Base Rate in effect on such day, unless the Default Rate shall apply.  Subject to the other provisions of this Note, upon the occurrence and during the continuation of an Event of Default, the outstanding principal amount of this Note shall, at Lender’s option, automatically and without the necessity of notice, bear interest from the date of such Event of Default at the Default Rate, until all such delinquent amounts are paid and such Event of Default has been cured to Lender’s satisfaction as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing the Event of Default so cured, and or waived by Lender as confirmed by Lender’s execution of a written agreement specifically acknowledging and describing the Event of Default so waived.

(b)            Payments .  Except earlier upon any acceleration of this Note:

(i)           Borrower promises to pay to Lender monthly Accrued Interest Payments on the last day of each month for interest accrued during that month; provided, however, that such monthly interest payments may be advanced by Lender from the available amount of the Commitment pursuant to the procedures set forth in Section 6(b) of this Note.

(ii)           In addition to the payments required by the provisions of clause (i) above, if the outstanding principal amount of this Note ever exceeds $25,000,000.00, Borrower promises to pay immediately to Lender, the amount of principal in excess of $25,000,000.00, on the date that such excess exists.

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