SECURITY AGREEMENT

This Security Agreement (this “ Agreement ”) dated as of the 20 ^th day of August, 2008 (the “ Effective Date ”), is made by UNITED DEVELOPMENT FUNDING LAND OPPORTUNITY FUND, L.P., a Delaware limited partnership (“ Borrower ” or the “ Debtor ”), in favor of UNITED DEVELOPMENT FUNDING III, L.P., a Delaware limited partnership (“ Lender ”).

A.           Lender has committed to loan up to U.S. Twenty Five Million and NO/100 Dollars ($25,000,000.00) (the “ Loan ”) to Borrower pursuant to the terms and conditions of that certain Secured Line of Credit Promissory Note (the “ Note ”) executed by Borrower and payable to the order of Lender dated the Effective Date, the proceeds of which shall be used by Borrower for business purposes.

B.           It is a condition precedent to Lender’s willingness to accept the Note and advance funds to Borrower thereunder that Debtor enter into this Agreement with Lender, pursuant to which Debtor grants Lender a security interest in and lien on all of its assets, and Debtor is willing to enter into this Agreement and agree to be bound by its terms and conditions.

NOW, THEREFORE, in consideration of the foregoing premises and in order to induce Lender to accept the Note and advance funds to Borrower thereunder, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, Debtor covenants and agrees with Lender as follows:

1.            Definitions .  All capitalized terms used but not defined in this Agreement shall have the respective meanings given to such terms in the Note.  Notwithstanding the foregoing sentence, terms used in Article 9 of the Uniform Commercial Code (the “ Code ”) in the State of Texas, when used in this Agreement, have the definitions given to such terms as therein defined.

2.            Grant of Security Interest .  Debtor hereby assigns, pledges and grants to Lender for its benefit, a continuing security interest in all of Debtor’s right, title and interest in and to all of its assets, whether now owned or hereafter acquired, and including, without limitation, all full and partial interests in the following (collectively, the “ Collateral ”):

(a)           all promissory notes payable to the order of Borrower issued by clients of Borrower (“ Client Notes ”) and all mortgages, deeds of trust to secure debt and deeds of trust on real or personal property, and contracts for deed and/or installment contracts, and all full or partial interests therein, and all related loan documents, guarantees, security agreements, leases, pledge agreements, assignments of interests, assignments of proceeds, assignments of securities, and all title policies, insurance policies, and security interests related to any of the foregoing and the rights to receive payment thereon and other agreements and property which secure or relate to any receivable or other asset (all such interests and documents evidencing such interests are referred to herein collectively as the “ Client Loan Documents ”);

(b)           all accounts receivable, receivables, rights to payment, promissory notes, and all guarantees, security agreements, insurance policies, and security interests and the rights to receive payment thereon, including, without limitation, all rights to payment under the Client Notes and the Client Loan  Documents;

(c)           all cash on hand, including, without limitation, cash held in bank accounts, brokerage accounts, certificates of deposit, and other depositories, all accounts receivable owing by any person or entity, including all such amounts due thereunder, and all security for payment thereof, and in and to all the proceeds, monies, income, instruments, securities, accounts, benefit, collections, tax refunds, insurance proceeds, and products thereof and thereon and attributable or accruing thereto;

(d)           all equipment, inventory, materials, computer software and records, goods, and other personal property, and all documents and receipts covering such property, and all licenses and permits used or held for use in connection with such property;

(e)           all patents, trademarks, service marks, copyrights, licenses, and all other intellectual property (collectively, the “ Intellectual Property ”), and all agreements and contracts regarding the use and exploitation of any of the Intellectual Property and applications therefor;

(f)           all contract rights and other general intangibles, including, without limitation, all contract and other rights to receive proceeds and reimbursements, and all license agreements;

(g)           all interests in all subsidiaries, and all capital stock, equity interests, partnership interests, and membership interests and all warrants, options and other rights to purchase any such capital stock, equity interests, partnership interests, and membership interests, in any corporation, partnership, limited liability company or other entity;

(h)           all books and records (including electronic records, computer disks, tapes, printouts and other storage media) relating to any of the foregoing; and

(i)           any and all products and proceeds of the foregoing (including, but not limited to, any claim to any item referred to in this definition, and any claim against any third party for loss of, damage to or destruction of any or all of, the Collateral or for proceeds payable under, or unearned premiums with respect to, policies of insurance) in whatever form, including, but not limited to, cash, negotiable instruments and other instruments for the payment of money, chattel paper, security agreements and other documents.

Debtor shall be deemed to have possession of any of the Collateral in transit to it or set apart for it or for any of its agents, affiliates or correspondents.

3.            Security for Obligations .  This Agreement and the security interest created and evidenced hereby secure the following obligations and liabilities (all such obligations and liabilities are referred to herein as the “ Obligations ”):

(a)           the prompt and complete payment, observance and performance of all duties, liabilities, obligations and indebtedness of Borrower arising under the Note and the other Loan Documents;

(b)           all costs reasonably incurred by Lender to obtain, preserve, perfect and enforce the security interest evidenced hereby and by the other Loan Documents and to maintain, preserve and collect the Collateral, and all taxes, assessments, insurance premiums, repairs, reasonable attorneys’ fees and legal expenses, rent, storage charges, advertising costs, brokerage fees and expenses of sale; and

(c)           all modifications, extensions, renewals, replacements, and increases of each of the foregoing described in clauses (a) through (b) , or any part thereof.

4.            Debtor Remains Liable .  Notwithstanding anything to the contrary contained in this Agreement: (a) Debtor shall remain liable under the contracts and agreements included in the Collateral and obligated to perform all duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Lender of any of its rights hereunder shall not release Debtor from any duties or obligations under the contracts and agreements included in the Collateral, and (c) Lender shall have no obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of either Debtor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

5.            Representations and Warranties .  Debtor represents and warrants as follows:

(a)           Debtor owns the Collateral free and clear of any lien, security interest, charge or encumbrance of any kind whatsoever (collectively, “ Liens ”) except for (i) the security interest created hereby in favor of Lender, (ii) Liens in favor of any person or entity that Lender has agreed in writing shall have priority over the Collateral (the “ Senior Liens ”), (iii) Liens approved by Lender pursuant to a written consent or agreement executed by Lender, (iv) Liens explicitly permitted by the Loan Documents, and (v) Liens for taxes not yet due and payable (collectively, the Liens described in clauses (i) through (v) above are referred to herein as the “ Permitted Liens ”).  A schedule of the Senior Liens shall be attached hereto as Schedule 1 .  No effective financing statement, continuation statement or amendment thereto promulgated under the Uniform Commercial Code of any state (collectively, “ Financing Statements ”) or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of Lender or in favor of the holder(s) of the Permitted Liens.  The validity of the Collateral in whole or in part, and Debtor’s title thereto is not currently being questioned in any litigation or regulatory proceeding to which Debtor is a party, nor is any such litigation or proceeding threatened.

(b)           This Agreement creates and evidences a valid and perfected security interest in the Collateral, securing the payment of the Obligations, second in priority only to any Senior Liens, and all filings and other actions of either Debtor necessary or desirable to perfect and protect such security interest have been, or will be upon request, duly taken by Debtor.

(c)           No authorization, approval or other action by, and no notice to or other filing with, any governmental authority or regulatory body is required, either (i) for the grant by Debtor of the security interest granted hereby or for the execution, delivery or performance of this Agreement by Debtor, or (ii) for the perfection of or the exercise by Lender of its rights and remedies hereunder (other than the filing of Financing Statements by Lender).

(d)           Debtor’s principal place of business is at the address for Borrower set forth in Section 1 of the Note (the “ Principal Place of Business ”).  All Collateral and books of account and records relating to the Collateral are located at Debtor’ Principal Place of Business.

6.            Covenants and Further Assurances .

(a)           Debtor agrees that from time to time, at its own expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be reasonably necessary or desirable, or that Lender may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Lender to exercise and enforce rights and remedies hereunder with respect to any Collateral.  Without limiting the generality of the foregoing, Debtor will, subject to the priority rights, if any, of the holders of the Senior Liens:  (i) mark conspicuously each document included in the Collateral and each of its records pertaining to the Collateral, with a legend, in form and substance satisfactory to Lender, indicating that such document or Collateral is subject to the security interest granted hereby; (ii) transfer, register or otherwise put any of the Collateral in the name of Lender or its nominee; and (iii) execute and file such Financing Statements, and such other instruments or notices, as may be necessary or desirable, or as Lender may request, in order to perfect and preserve the security interest granted or purported to be granted hereby.

(b)           Debtor hereby authorizes Lender to file one or more Financing Statements relative to all or any part of the Collateral without the signature of Debtor where permitted by law.  A carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a Financing Statement where permitted by law.  Debtor acknowledges and agrees that any Financing Statement filed by or on behalf of Lender against Debtor, whether such filing is or was made prior to or after the date of this Agreement, is hereby deemed to include the security interest granted by this Agreement, regardless of whether such Financing Statement is or was filed in connection with the Loan or some other indebtedness owed to Lender.

(c)           Debtor will take all actions and pay all costs to keep and maintain the validity, enforceability, security, priority and collectibility of the Client Notes and the Client Loan Documents and will pay all other amounts which may be necessary or desirable to preserve, maintain and protect Lender's interest in the Client Notes and the Client Loan Documents.

(d)           Debtor shall at all times maintain the Collateral and its books of account and records relating to the Collateral at its Principal Place of Business, and shall not relocate such books of account and records and Collateral unless it delivers to Lender, prior written notice of such relocation and the new location thereof (which must be within the United States).  Debtor will furnish to Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Lender may reasonably request, all in reasonable detail.

(e)           Promptly, but in any event, within three (3) business days following the closing of any Client Note, Borrower agrees to execute and deliver to Lender, for each such Client Note, (i) an allonge duly endorsing the Client Note to Lender, in the form attached to this Agreement as Exhibit “A” , together with the original Client Note, which shall be held by Lender for so long as the Note is outstanding or Lender has any obligation to Borrower thereunder, and (ii) a Collateral Assignment of Note and Liens, assigning the Client Notes and the related Client Loan Documents to Lender, in the form attached to this Agreement as Exhibit “B” .

7.            Insurance .

(a)           Debtor shall, at Debtor’s own expense, maintain insurance with respect to the Collateral in such amounts, against such risks, in such form and with such insurers, as shall be reasonably satisfactory to Lender from time to time.  Debtor shall ensure that the Collateral and the real properties securing the Client Notes and the Client Loan Documents are, and remain, insured against loss by fire and other casualty.  Each policy for property damage insurance shall provide for all losses to be paid to Lender as holder of the security interest created hereby, subject to the priority rights, if any, of the holders of the Senior Liens.  Each such policy shall in addition (i) contain the agreement (if available) by the insurer that any loss thereunder shall be payable to Lender notwithstanding any action, inaction or breach of representation or warranty by Debtor, subject to the priority rights, if any, of the holders of the Senior Liens, (ii) provide that there shall be no recourse against Lender for payment of premiums or other amounts with respect thereto, and (iii) provide that at least ten (10) days prior written notice of cancellation or of lapse shall be given to Lender by the insurer.  Debtor shall, if so requested by Lender, deliver to Lender original or duplicate policies of such insurance and, as often as Lender may reasonably request, a report of a reputable insurance broker selected by Debtor with respect to such insurance.  Further, Debtor shall, at the request of Lender, duly execute and deliver instruments of assignment of such insurance policies to comply with the foregoing requirements and cause the respective insurers to acknowledge notice of such assignment.

(b)           Reimbursement under any liability insurance maintained by Debtor may be paid directly to the person who shall have incurred liability covered by such insurance.  All insurance payments to Lender in respect of Collateral shall be applied by Lender to reduce the indebtedness evidenced by the Note.

8.            Transfers and Other Liens .  Debtor shall not sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, other than the sale or assignment of Client Notes and Client Loan Documents in the ordinary course of business if (i) Lender has provided its prior written consent to such sale or assignment, or (ii) the proceeds of the sale or assignment are used to pay down the Note.  Debtor shall not create or suffer to exist any Lien upon or with respect to any of the Collateral to secure debt