MERITAGE CORP
FIRST MODIFICATION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>FIRST MODIFICATION AGREEMENT
<TEXT>

                          FIRST MODIFICATION AGREEMENT

DATE: May 16, 2000

PARTIES: Borrower:  MHC:      MONTEREY HOMES CONSTRUCTION, INC., an Arizona
                              corporation

                    MHA:      MONTEREY HOMES ARIZONA, INC., an Arizona
                              corporation

                    Chandler: CHANDLER 110, LLC, an Arizona limited liability
                              company

                    MHNC:     MERITAGE HOMES OF NORTHERN CALIFORNIA, INC.,
                              a California corporation

         Lenders:   WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a national
                    banking association, formerly known as Norwest Bank Arizona,
                    National Association

                    CALIFORNIA BANK & TRUST, a California banking corporation

         Administrative
         Agent:     WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a national
                    banking association, formerly known as Norwest Bank Arizona,
                    National Association

         Documentation and
         Syndication
         Agent:     CALIFORNIA BANK & TRUST, a California banking corporation

                                    RECITALS:

     A.  Lenders  have  extended to Borrower  credit  ("Loan") in the  principal
amount of $70,000,000.00 pursuant to the Loan Agreement, dated December 29, 1999
("Loan  Agreement"),  and evidenced by two (2) Promissory Notes,  dated December
29, 1999  (collectively,  the  "Notes").  Capitalized  terms used herein and not
otherwise  defined  shall have the  meanings  ascribed to such terms in the Loan
Agreement.  The  unpaid  principal  of  the  Loan  as  of  the  date  hereof  is
$62,528,287.24.
<PAGE>
     B. The Loan is secured by, among other things, the following  (the"Deeds of
Trust"):

          (i) An  Amended  and  Restated  Deed of  Trust,  Assignment  of Rents,
     Security  Agreement and Fixture Filing  (Maricopa) dated December 29, 1999,
     by MHC and MHA, as trustor,  for the benefit of  Administrative  Agent,  as
     beneficiary,  recorded on December 30, 1999, at Recorder's No.  99-1165935,
     records  of  Maricopa  County,   Arizona,   as  thereafter  amended  and/or
     supplemented from time to time;

          (ii) A Deed of Trust,  Assignment  of Rents,  Security  Agreement  and
     Fixture Filing (Val Vista Meadows Option Property) dated December 29, 1999,
     by MHC and MHA, as trustor,  for the benefit of  Administrative  Agent,  as
     beneficiary,  recorded on December 30, 1999, at Recorder's No.  99-1165936,
     records  of  Maricopa  County,   Arizona,   as  thereafter  amended  and/or
     supplemented from time to time;

          (iii) A Deed of Trust,  Assignment  of Rents,  Security  Agreement and
     Fixture Filing (Paseo  Crossing)  dated  February 8, 2000, by Chandler,  as
     trustor, for the benefit of Administrative Agent, as beneficiary,  recorded
     on February 25, 2000, at  Recorder's  No.  00-0140216,  records of Maricopa
     County,  Arizona,  as thereafter  amended and/or  supplemented from time to
     time;

          (iv) An  Amended  and  Restated  Deed of Trust,  Assignment  of Rents,
     Security  Agreement and Fixture  Filing (Pima) dated  December 29, 1999, by
     MHC and MHA,  as  trustor,  for the  benefit of  Administrative  Agent,  as
     beneficiary,  recorded on December 30, 1999,  in Docket  11204,  page 6460,
     records of Pima County,  Arizona, as thereafter amended and/or supplemented
     from time to time;

          (v) A  Deed  of  Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement and Fixture  Filing (Black  Diamond  Knolls) dated  September 13,
     1999,  by MHNC, as trustor,  for the benefit of  Administrative  Agent,  as
     beneficiary,  recorded on October 5, 1999, as Series No. 99-264104, records
     of  Contra  Costa  County,   California,   as  thereafter   amended  and/or
     supplemented from time to time;

          (vi) A Deed  of  Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement and Fixture Filing (Black Diamond Knolls Option  Property)  dated
     September 13, 1999, by MHNC, as trustor,  for the benefit of Administrative
     Agent,  as  beneficiary,  recorded  on  October  5,  1999,  as  Series  No.
     99-264105,  records  of Contra  Costa  County,  California,  as  thereafter
     amended and/or supplemented from time to time;

          (vii) A Deed of  Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement and Fixture Filing (Black Diamond  Estates) dated April 12, 1999,
     by  MHNC,  as  trustor,  for  the  benefit  of  Administrative   Agent,  as
     beneficiary,  recorded on May 7, 1999, as Series No. 99-123453,  records of
     Contra Costa County,  California, as thereafter amended and/or supplemented
     from time to time;

                                       -2-
<PAGE>
          (viii) A Deed of Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement and Fixture Filing  (Wildhorse No. 1) dated November 18, 1998, by
     MHNC, as trustor, for the benefit of Administrative  Agent, as beneficiary,
     recorded on November 24, 1998, as  Instrument  No.  98-0034610,  records of
     Yolo County,  California,  as thereafter  amended and/or  supplemented from
     time to time;

          (ix) A Deed  of  Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement and Fixture Filing (Whitney Oaks) dated October 2, 1998, by MHNC,
     as  trustor,  for the  benefit of  Administrative  Agent,  as  beneficiary,
     recorded on November 24, 1998, as  Instrument  No.  98-0097765,  records of
     Placer County,  California,  as thereafter amended and/or supplemented from
     time to time;

          (x) A  Deed  of  Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement and Fixture  Filing  (Empire  Ranch) dated  November 15, 1999, by
     MHNC, as trustor, for the benefit of Administrative  Agent, as beneficiary,
     recorded  on  December  2, 1999,  in Book  9912-02,  page 0995,  records of
     Sacramento County,  California,  as thereafter amended and/or  supplemented
     from time to time; and

          (xi) A Deed  of  Trust,  Assignment  of  Leases  and  Rents,  Security
     Agreement  and  Fixture  Filing  (Sterling  Park - Phase I) dated April 30,
     1999,  by MHNC, as trustor,  for the benefit of  Administrative  Agent,  as
     beneficiary,  recorded on May 3, 1999, as Instrument No. 99058301,  records
     of  San  Joaquin   County,   California,   as  thereafter   amended  and/or
     supplemented from time to time.

The agreements,  documents,  and instruments securing the Loan and the Notes are
referred to individually and collectively as the "Security Documents."

     C. The Notes, the Loan Agreement,  the Security Documents,  the side letter
regarding the Agency Fee (the "Agency Fee Letter"), any environmental  indemnity
agreement,  and all other  agreements,  documents,  and instruments  evidencing,
securing,   or  otherwise  relating  to  the  Loan  are  sometimes  referred  to
individually and collectively as the "Loan Documents."

     D.  A  Continuing  Guarantee  dated  December  29,  1999  guaranteeing  all
indebtedness of Borrower to Lenders (the "Guarantee Agreement") was executed and
delivered  to Lenders by MERITAGE  CORPORATION,  a Maryland  corporation,  MTH -
TEXAS GP,  INC.,  an  Arizona  corporation,  MTH - TEXAS LP,  INC.,  an  Arizona
corporation,  LEGACY/MONTEREY  HOMES L.P., an Arizona limited  partnership,  and
TEXAS HOME MORTGAGE CORPORATION,  a Texas corporation (hereinafter  collectively
called "Guarantors").

                                       -3-
<PAGE>
     E.  Borrower  has  requested  that  Lenders,   Administrative   Agent,  and
Documentation  and  Syndication  Agent modify the Loan and the Loan Documents as
provided  herein.   Lenders,   Administrative   Agent,  and   Documentation  and
Syndication  Agent are  willing  to so modify  the Loan and the Loan  Documents,
subject to the terms and conditions herein.

                                   AGREEMENT:

     For good and valuable  consideration,  the receipt and sufficiency of which
are  hereby  acknowledged,   Borrower,   Lenders,   Administrative   Agent,  and
Documentation and Syndication Agent agree as follows:

SECTION 1. ACCURACY OF RECITALS.

     Borrower acknowledges the accuracy of the Recitals.

SECTION 2. MODIFICATION OF LOAN DOCUMENTS; OTHER AGREEMENTS.

     2.1 The  aggregate  face  amount  of the  Notes is  hereby  increased  from
$70,000,000.00 to $100,000,000.00 and the Notes are hereby amended, restated and
replaced,  all in  accordance  with the  terms and  provisions  of those two (2)
Replacement  Promissory  Notes  executed and delivered  simultaneously  with the
execution of this Agreement ("Replacement Notes").  Hereinafter,  each reference
to the  Notes  herein  and in the Loan  Documents  shall be a  reference  to the
Replacement Notes.

     2.2 Section 1.1 of the Loan  Agreement is hereby amended in its entirety to
read as follows:

          1.1 Borrower  has applied to the Banks for a revolving  line of credit
     loan  facility in the  aggregate  amount of ONE HUNDRED  MILLION AND NO/100
     DOLLARS  ($100,000,000.00)  (the "Loan")  against which  Borrower may, from
     time to time during the term hereof,  make draws,  repay all or part of the
     same and then draw additional  sums,  subject to the terms,  conditions and
     provisions set forth herein,  for the purpose of financing the  acquisition
     and development of entitled land, lots under  development,  improved single
     family  residential lots and the construction of single family  residential
     units within  subdivisions  located in the  metropolitan  areas of Phoenix,
     Tucson,  Sacramento  and  San  Francisco,  and  other  Northern  California
     metropolitan  areas, and approved by  Administrative  Agent pursuant to the
     terms hereof.

     2.3 The following  definition  set forth in Section 2 of the Loan Agreement
is hereby amended in its entirety to read as follows:

          "COMMITMENT  AMOUNT" means the lesser of (i) the  aggregate  amount of
     the Banks'  Commitment as set forth on Schedule 3.1, and (ii) the amount of
     $100,000,000.00,  as the same may be reduced from time to time  pursuant to
     Section 3.15.

                                       -4-
<PAGE>
     2.4 Section 8.1 of the Loan  Agreement is hereby amended in its entirety to
read as follows:

          8.1 Facility Fee. A fee for the Commitment (the "Facility Fee") at the
     rate  of  one-quarter  of one  percent  (.25%)  per  annum  of the  maximum
     Commitment  Amount  (i.e.,  $70,000,000.00  prior  to  May  16,  2000,  and
     $100,000,000.00  thereafter)  shall be due and payable quarterly in advance
     on each January 1, April 1, July 1 and October 1, provided that the initial
     Facility  Fee shall be payable on the date of this  Agreement  and shall be
     prorated for the period commencing on the date of this Agreement and ending
     on December 31, 1999 at the per annum rate set forth above.

     2.5 Section 19.3(a) of the Loan Agreement is hereby amended in its entirety
to read as follows:

          (a) Minimum  Liquidity.  The Meritage Group's Liquidity at any time to
     be less than $10,000,000.00.

     2.6 Schedule 3.1 to the Loan  Agreement is hereby  replaced in its entirety
with Schedule 3.1 attached hereto and by this reference  incorporated herein and
therein.

     2.7 Each of the Loan  Documents  is modified to provide  that it shall be a
default or an event of default  thereunder if Borrower shall fail to comply with
any of the covenants of Borrower herein or if any  representation or warranty by
Borrower  herein or by any  guarantor  in any related  Consent and  Agreement of
Guarantor(s) is materially incomplete,  incorrect,  or misleading as of the date
hereof.

     2.8 Each reference to the amount of the Loan,  the aggregate  amount of the
Notes and the maximum  Commitment  Amount as  $70,000,000.00  in any of the Loan
Documents  (including,  without  limitation,  the Agency  Fee  Letter) is hereby
amended to be a reference to the amount of  $100,000,000.00.  Each  reference in
the Loan  Documents  to any of the Loan  Documents  is  hereby  amended  to be a
reference to such document as modified herein.

SECTION 3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.

     The Loan  Documents  are ratified and affirmed by Borrower and shall remain
in full  force and  effect as  modified  herein.  Any  property  or rights to or
interests in property  granted as security in the Loan Documents shall remain as
security for the Loan and the obligations of Borrower in the Loan Documents.

                                       -5-
<PAGE>
SECTION 4. BORROWER REPRESENTATIONS AND WARRANTIES.

     Borrower  represents  and warrants to Lenders,  Administrative  Agent,  and
Documentation and Syndication Agent:

     4.1 No  default  or event of  default  under any of the Loan  Documents  as
modified herein,  nor any event,  that, with the giving of notice or the passage
of time or both,  would be a  default  or an event  of  default  under  the Loan
Documents as modified herein has occurred and is continuing.

     4.2 There has been no material adverse change in the financial condition of
Borrower,  any Guarantor or any other person whose financial  statement has been
delivered  to  Administrative  Agent in  connection  with the Loan from the most
recent financial statement received by Administrative Agent.

     4.3 Each and all  representations  and  warranties  of Borrower in the Loan
Documents are accurate on the date hereof.

     4.4  Borrower  has no claims,  counterclaims,  defenses,  or set-offs  with
respect to the Loan or the Loan Documents as modified herein.

     4.5 The Loan Documents as modified herein are the legal, valid, and binding
obligation of Borrower,  enforceable  against  Borrower in accordance with their
terms.

     4.6 Each  Borrower is validly  existing  under the laws of the State of its
formation or  organization  and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this  Agreement  and the  performance  of the Loan
Documents as modified herein have been duly  authorized by all requisite  action
by or on behalf of each  Borrower.  This  Agreement  has been duly  executed and
delivered on behalf of each Borrower.

SECTION 5. BORROWER COVENANTS.

     Borrower  covenants with Lenders,  Administrative  Agent, and Documentation
and Syndication Agent:

     5.1 Borrower shall execute, deliver, and provide to Lenders, Administrative
Agent,  and  Documentation  and Syndication  Agent such  additional  agreements,
documents,  and instruments as reasonably  required by  Administrative  Agent to
effectuate the intent of this Agreement.

     5.2  Borrower  fully,  finally,  and  absolutely  and forever  releases and
discharges  Lenders,  Administrative  Agent, and  Documentation  and Syndication
Agent and their present and former directors, shareholders, officers, employees,
agents,  representatives,   successors  and  assigns,  and  their  separate  and
respective heirs, personal representatives, successors and assigns, from any and

                                       -6-
<PAGE>
all actions,  causes of action,  claims, debts, damages,  demands,  liabilities,
obligations,  and  suits,  of  whatever  kind or  nature,  in law or  equity  of
Borrower,  whether now known or unknown to Borrower,  and whether  contingent or
matured, in respect of the Loan, the Loan Documents, or the actions or omissions
of Lenders,  Administrative Agent, and/or Documentation and Syndication Agent in
respect of the Loan or the Loan Documents and which arise from events  occurring
prior to the date of this Agreement.

SECTION 6. CONDITIONS PRECEDENT.

     The agreements of Lenders,  Administrative  Agent,  and  Documentation  and
Syndication  Agent and the  modifications  contained herein shall not be binding
upon Lenders,  Administrative  Agent, and  Documentation  and Syndication  Agent
until Lenders,  Administrative  Agent, and  Documentation  and Syndication Agent
have  executed  and  delivered  this  Agreement  and  Administrative  Agent  has
received, at Borrower's expense, all of the following,  all of which shall be in
form and content  satisfactory to  Administrative  Agent and shall be subject to
approval by Administrative Agent:

     6.1 An original of this  Agreement  fully  executed by the Borrower and all
Guarantors;

     6.2 Original  Modifications of Deeds of Trust (the  "Modifications of Deeds
of Trust") fully executed by the Borrower  modifying the existing Deeds of Trust
to secure the Loan as modified hereby;

     6.3 Original Replacement Promissory Notes fully executed by Borrower;

     6.4 An original  modification  of the side  letter  executed by Borrower in
connection  with the Agency Fee, fully executed by Borrower and the payment of a
prorated Agency Fee as required therein to the effectiveness of this Agreement.

     6.5 A prorated  Facility  Fee with  respect to the  increase in  Commitment
Amount in the amount of $9,375.30.

     6.6 A legal opinion of Borrower's  counsel covering such issues as shall be
required by Administrative Agent.

     6.7 If any Borrower or any Guarantor is a  corporation,  limited  liability
company, partnership or trust, such resolutions or authorizations and such other
documents as Administrative Agent may require relating to the existence and good
standing of that  corporation,  partnership  or trust,  and the authority of any
person   executing  this  Agreement  or  other   documents  on  behalf  of  that
corporation, limited liability company, partnership or trust;

     6.8 A  commitment  from the  title  insurance  companies  that  issued  the
lender's ALTA extended coverage title insurance  policies in connection with the
Loan (the "Title  Policies")  to issue  endorsements,  in form  satisfactory  to
Administrative Agent, to the Title Policies,  increasing the aggregate amount of

                                       -7-
<PAGE>
the Title Policies to  $100,000,000.00  and insuring that the Deeds of Trust, as
modified  hereby and by the  Modifications  of Deeds of Trust,  continue to be a
first lien upon the real property described  therein,  as security for the Loan,
as modified  herein,  subject  only to those  exceptions  contained in the Title
Policies  and  to  such  additional   exceptions  as  Administrative  Agent  may
specifically approve in writing; and

     6.9 Payment of all the internal and external costs and expenses incurred by
Lenders,  Administrative  Agent,  and  Documentation  and  Syndication  Agent in
connection  with this  Agreement  (including,  without  limitation,  inside  and
outside attorneys, processing, title, filing, and recording costs, expenses, and
fees).

SECTION 7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR
           WAIVER.

     The Loan Documents as modified  herein  contain the complete  understanding
and agreement of Borrower, Lenders,  Administrative Agent, and Documentation and
Syndication   Agent  in   respect   of  the  Loan  and   supersede   all   prior
representations,   warranties,  agreements,  arrangements,  understandings,  and
negotiations.  No  provision  of the Loan  Documents  as modified  herein may be
changed,  discharged,  supplemented,  terminated,  or waived except in a writing
signed by the parties thereto.

SECTION 8. BINDING EFFECT.

     The Loan Documents as modified herein shall be binding upon and shall inure
to the benefit of Borrower, Lenders, Administrative Agent, and Documentation and
Syndication  Agent and their  successors  and assigns and the  executors,  legal
administrators,  personal representatives, heirs, devisees, and beneficiaries of
Borrower,  provided,  however,  Borrower  may not  assign  any of its  right  or
delegate  any of its  obligation  under  the Loan  Documents  and any  purported
assignment or delegation shall be void.

SECTION 9. CHOICE OF LAW.

     This  Agreement  shall be governed by and construed in accordance  with the
laws of the  State  of  Arizona,  without  giving  effect  to  conflicts  of law
principles.

SECTION 10. COUNTERPART EXECUTION.

     This Agreement may be executed in one or more  counterparts,  each of which
shall be deemed an original and all of which together  shall  constitute one and
the same document.  Signature  pages may be detached from the  counterparts  and
attached to a single copy of this Agreement to physically form one document.

                                       -8-
<PAGE>
     DATED as of the date first above stated.


                                        MONTEREY HOMES CONSTRUCTION, INC., an
                                        Arizona Corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        MONTEREY HOMES ARIZONA, INC., an Arizona
                                        corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        CHANDLER 110, LLC, an Arizona limited
                                        liability company

                                        BY: MONTEREY HOMES CONSTRUCTION, INC.,
                                            an Arizona corporation, Member


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------

                                       -9-
<PAGE>
                                        MERITAGE HOMES OF NORTHERN CALIFORNIA,
                                        INC., a California corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------
                                                                        BORROWER


                                        WELLS FARGO BANK ARIZONA, NATIONAL
                                        ASSOCIATION, a national banking
                                        association, formerly known as Norwest
                                        Bank Arizona, National Association


                                        By: /s/ Kevin Kosan
                                           -------------------------------------
                                        Name: Kevin Kosan
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        ADMINISTRATIVE AGENT AND LENDER


                                        CALIFORNIA BANK & TRUST, a California
                                        banking corporation


                                        By: /s/ Mark Young
                                           -------------------------------------
                                        Name: Mark Young
                                             -----------------------------------
                                        Title: Executive Vice President
                                              ----------------------------------
                                                               DOCUMENTATION AND
                                                    SYNDICATION AGENT AND LENDER

                                      -10-
<PAGE>
                      CONSENT AND AGREEMENT OF GUARANTOR(S)

     With  respect  to the First  Modification  Agreement,  dated  May 16,  2000
("Agreement"),   between   MONTEREY   HOMES   CONSTRUCTION,   INC.,  an  Arizona
corporation, MONTEREY HOMES ARIZONA, INC., an Arizona corporation, CHANDLER 110,
LLC,  an Arizona  limited  liability  company,  and  MERITAGE  HOMES OF NORTHERN
CALIFORNIA,   INC.,  a  California   corporation  (severally  and  collectively,
"Borrower"),  WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION, a national banking
association,  formerly known as Norwest Bank Arizona,  National  Association and
CALIFORNIA  BANK &  TRUST,  a  California  banking  corporation  (severally  and
collectively,  "Lenders"),  WELLS FARGO BANK ARIZONA,  NATIONAL  ASSOCIATION,  a
national banking association,  formerly known as Norwest Bank Arizona,  National
Association  ("Administrative Agent"), and CALIFORNIA BANK & TRUST, a California
banking  corporation  ("Documentation  and  Syndication  Agent") the undersigned
(individually and, if more than one,  collectively  "Guarantor")  agrees for the
benefit of Lenders,  Administrative  Agent,  and  Documentation  and Syndication
Agent as follows:

     1.  Guarantor  acknowledges  (i)  receiving  a  copy  of  and  reading  the
Agreement,  (ii) the  accuracy of the Recitals in the  Agreement,  and (iii) the
effectiveness  of (A) the Guarantee  Agreement as modified  herein,  and (B) any
other agreements,  documents,  or instruments  securing or otherwise relating to
the  Guarantee  Agreement  (including,  without  limitation,  any  environmental
indemnity agreement  previously  executed and delivered by the undersigned),  as
modified herein. The Guarantee  Agreement and such other agreements,  documents,
and  instruments,   as  modified  herein,   are  referred  to  individually  and
collectively as the "Guarantor Documents."

     2. Guarantor  hereby agrees that Paragraph 2 of the Guarantee  Agreement is
hereby amended in its entirety to read as follows:

          2. The  liability of Guarantor  hereunder  shall not exceed at any one
     time the sum of ONE HUNDRED  MILLION AND NO/100  DOLLARS  ($100,000,000.00)
     for principal,  plus all interest thereon and all attorneys' fees and other
     costs  and  expenses  incurred  by Lender in  collecting,  compromising  or
     enforcing the  indebtedness or in protecting or preserving any security for
     the indebtedness.  Lender may permit the indebtedness of Borrower to exceed
     such  maximum  liability  without  impairing  the  obligation  of Guarantor
     hereunder.  Any payment by Guarantor shall not reduce  Guarantor's  maximum
     obligation  hereunder,  unless  written  notice to that  effect is actually
     received by Lender at or prior to the time of such payment.  Any payment by
     or recovery from  Borrower,  any other  guarantor or any security  shall be
     credited  first to that  portion  of the  indebtedness  which  exceeds  the
     maximum obligation of Guarantor hereunder.

                                       -1-
<PAGE>
     3.  Guarantor  consents to the  modification  of the Loan Documents and all
other matters in the Agreement,  including without  limitation,  the increase in
the principal amount of the Loan to $100,000,000.00.

     4. Guarantor fully,  finally,  and forever releases and discharges Lenders,
Administrative   Agent,  and  Documentation  and  Syndication  Agent  and  their
successors, assigns, directors, officers, employees, agents, and representatives
from any and all actions, causes of action, claims, debts, demands, liabilities,
obligations,  and suits of  whatever  kind or  nature,  in law or  equity,  that
Guarantor has or in the future may have, whether known or unknown, in respect of
the Loan,  the Loan  Documents,  the  Guarantor  Documents,  or the  actions  or
omissions of Lenders, Administrative Agent, and/or Documentation and Syndication
Agent in respect of the Loan, the Loan Documents, or the Guarantor Documents and
which arise from events occurring prior to the date hereof.

     5. Guarantor  agrees that all  references,  if any, to the Notes,  the Loan
Agreement, the Deeds of Trust, the Security Documents, and the Loan Documents in
the Guarantor Documents shall be deemed to refer to such agreements,  documents,
and instruments as modified by the Agreement.

     6.  Guarantor  reaffirms  the  Guarantor  Documents  and  agrees  that  the
Guarantor  Documents  continue  in full force and  effect and remain  unchanged,
except as specifically modified by this Consent and Agreement of Guarantor(s).

     7. Guarantor agrees that the Loan Documents,  as modified by the Agreement,
and the  Guarantor  Documents,  as modified by this  Consent  and  Agreement  of
Guarantor(s),  are the legal, valid, and binding obligations of Borrower and the
undersigned,  respectively,  enforceable in accordance  with their terms against
Borrower and the undersigned, respectively.

     8. Guarantor agrees that Guarantor has no claims, counterclaims,  defenses,
or offsets with respect to the  enforcement  against  Guarantor of the Guarantor
Documents.

     9.  Guarantor  represents  and  warrants  that  there has been no  material
adverse change in the financial  condition of any Guarantor from the most recent
financial statement received by Administrative Agent.

     10. Guarantor agrees that this Consent and Agreement of Guarantor(s) may be
executed in one or more counterparts,  each of which shall be deemed an original
and all of which together shall constitute one and the same document.  Signature
and acknowledgment pages may be detached from the counterparts and attached to a
single copy of this Consent and Agreement of Guarantor(s) to physically form one
document.

                                       -2-
<PAGE>
     DATED as of the date of the Agreement.


                                        MERITAGE CORPORATION, a Maryland
                                        corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        MTH - TEXAS GP, INC., an Arizona
                                        corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        MTH - TEXAS LP, INC., an Arizona
                                        corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------


                                        LEGACY/MONTEREY HOMES L.P., an Arizona
                                        limited partnership

                                        BY: MTH - TEXAS GP, INC., an Arizona
                                            corporation, General Partner


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------

                                       -3-
<PAGE>
                                        TEXAS HOME MORTGAGE CORPORATION, a Texas
                                        corporation


                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Title: Vice President
                                              ----------------------------------
                                                                       GUARANTOR

                                       -4-
<PAGE>
                                  SCHEDULE 3.1

                            COMMITMENTS OF THE BANKS
                                 as to the Loan
                               as of May 16, 2000


                      Bank                                 %         Commitment
                      ----                               -----      ------------
1.   Wells Fargo Bank Arizona, National Association      50.0%      $ 50,000,000

2.   California Bank & Trust                             50.0%      $ 50,000,000

     Maximum Commitment                                   100%      $100,000,000


Addresses

1.   WELLS FARGO BANK ARIZONA, NATIONAL ASSOCIATION
     100 West Washington, 11th Floor
     Phoenix, Arizona  85003
     Attention: Regional Real Estate Group, MAC S4101-110

2.   CALIFORNIA BANK & TRUST
     11622 El Camino Real, Suite 200
     San Diego, California  92130
     Attention: Peggy Standefer, Esq.

     with a copy to:

     CB&T REAL ESTATE FINANCE
     3101 North Central Avenue, Suite 520
     Phoenix, Arizona  85012
     Attention: Mark Young

                                       -1-
</TEXT>
</DOCUMENT>
