LOAN PARTICIPATION AGREEMENT
This Loan Participation Agreement (this "Agreement") is entered into by First Preference Mortgage Corp. a Texas corporation, ("Seller"), 800 Washington Avenue, Waco, Texas 76701, and Citizens State Bank, a Texas state banking corporation, ("Buyer"), P. O. Box 109, Woodville, Texas 75979.
WHEREAS Seller operates as a mortgage lender and makes residential mortgage loans to various borrowers;
WHEREAS Seller wishes to sell from time to time to Buyer undivided participation ownership interest ("Participation Interests") in certain single-family residential mortgage loans (the "Loans") originated by Seller;
WHEREAS Buyer wishes to purchase from time to time from Seller Participation Interests in certain of the Loans;
NOW THEREFORE, Seller and Buyer hereby agree as follows:
1. Offer to Sell Participation Interests. Seller may from time to time offer to sell, and sell, to Buyer Participation Interests in certain of the Loans. Such Loans shall be loans to be made by Seller to individual borrowers (each, the "Borrower," and, collectively, the "Borrowers") for the purpose of (i) purchasing a single-family residence intended to be used and occupied by the Borrower or (ii) refinancing an existing loan which the Borrower has from another lender secured by such a residence. These Loans shall not be construction loans. All of such Loans will be secured by a valid first lien on the residence which is being purchased or refinanced by the Borrower. All of such Loans shall be secured by residential property located in the State of Texas. (The term "Borrower" or "Borrowers" shall also refer to any co-maker, guarantor, or endorser under the Loan.)
2. Possible Purchase of Participation Interests. Buyer may from time to time agree to purchase, and purchase, such Participation Interests. Nothing herein shall require or bind Buyer to purchase any such Participation Interest until Buyer has taken all action to evaluate a specific Loan offered by Seller to Buyer and Buyer has agreed in writing to purchase a specific Participation Interest in accordance with the procedures set forth herein.
3. Participation is a Sale. Any purchase by Buyer from Seller of a Participation Interest under this Agreement shall constitute a sale of an undivided percentage ownership interest in the Loan and in the collateral security for the Loan and in the note evidencing the Loan and in the lien securing the Loan and shall in no way be construed as an extension of credit by Buyer to Seller. Upon the purchase by Buyer from Seller of a Participation Interest in a Loan, Buyer shall be considered for all purposes as the legal and equitable owner of the percentage ownership interest in the Loan, the note, the collateral security, and the loan documents relating to the Loan.
4. Percentage of Participations. All such Participation Interests which Seller may sell to Buyer and which Buyer may purchase from Seller shall be a 99% interest in the Loan.
5. Procedure for Offering Participation Interests. Seller may offer to sell to Buyer such a Participation Interest only prior to the Loan being made by Seller and prior to Seller having committed to make the Loan to the Borrower. In such event, Seller shall notify Buyer of the potential Loan and forward to Buyer all documents required under this Agreement. Reasonably promptly after the receipt thereof, Buyer will make a determination whether Buyer wishes to purchase a Participation Interest in the Loan if the Loan is made. Buyer shall independently determine the creditworthiness of the potential Borrower, using standards and guidelines determined by Buyer. In doing so, Buyer may use a third party to make such determinations under standards and guidelines determined and set out by Buyer. Any determination of the creditworthiness of the Borrower shall be solely for the benefit of Buyer.