Form 16-23

Deed of Trust and Security Agreement

[Water Rights]

Notice of confidentiality rights: If you are a natural person, you may remove or strike any or all of the following information from any instrument that transfers an interest in real property before it is filed for record in the public records: your Social Security number or your driver’s license number.

Terms

Date:

Grantor:

Grantor’s Mailing Address:

Trustee[s]:

Trustee’s Mailing Address[es]:

Lender:

Lender’s Mailing Address:

Obligation

Note

Date:

Original principal amount:

Borrower:

Lender:

Maturity date:

Other Debt: [include optional clauses from form 8-6 in this manual or describe other debt]

Property: [include description[s] of each applicable category of property]

1.Water Rights: [include appropriate description[s] (same as in the security agree­ment, form 16-22), which may be found in the subject permit[s], certificate[s] of adjudication, deed[s], easement[s], or other document[s] of conveyance].

2.Permits and Certificates of Adjudication (“Permits/Certificates” whether one or more): [describe, e.g., All Permits and Certificates of Adjudication pertaining to the Water Rights, now existing or hereafter acquired, including those identified below, and all amend­ments, replacements, and modifications thereto].

3.The following equipment, fixtures, and personal property used in connection with the Water Rights: [describe].

4.All easements and other rights appurtenant to, or used in connection with, the Water Rights, whether now existing or hereafter acquired [include if applicable: , including that Easement Agreement for Groundwater Rights dated [date], executed by [name] as grantor and Grantor as Grantee, recorded under Document No. [number] in the Official Public Records of [county] County, Texas].

5.All agreements for the sale of water derived from the Water Rights, whether now existing or hereafter executed, and the proceeds thereof.

6.All agreements for the lease of any portion of the Water Rights, whether now existing or hereafter executed, and all rents and proceeds thereof.

7.[Describe other property as applicable.]

Appurtenant Land Conveyed to Trustee:

Surface Estate/Place of Appropriation/Diversion:

Surface Estate/Place of Use:

Grantor’s Intended [Purpose of Use] [and] [Point of Diversion] of Water Rights:

Water Authority: [include as applicable: The Texas Commission on Environmental Quality (TCEQ) [and/or [any groundwater authority, watermaster, or conservation district, or other agency or governmental bodies or authorities having jurisdiction over the adminis­tration of the water rights covered]]].

Prior Lien: [include recording information]

Other Exceptions to Conveyance and Warranty:

A.Granting Clause

For value received and to secure payment of the Obligation, Grantor conveys the Prop­erty to Trustee, in trust [include if applicable: ; provided, however, that the conveyance of the Water Rights is separate and apart from the Surface Estate, and no right in the Surface Estate is granted, except as expressly provided above and described as Appurtenant Land]. Grantor warrants and agrees to defend the title to the Property, subject to the [include if applicable: Prior Lien and] Other Exceptions to Conveyance and Warranty. On payment of the Obligation and all other amounts secured by this deed of trust, this deed of trust will have no further effect, and Lender will release it at Grantor’s expense. In addition to creating a deed-of-trust lien on all the real and other property described above, Grantor also grants to Lender a secu­rity interest in all of the above-described property pursuant to and to the extent permitted by the Texas Uniform Commercial Code.

B.Grantor’s Obligations

Grantor agrees to—

B.1.keep the Property in good repair and condition, and in accordance with all appli­cable laws, rules and regulations, and the terms of this agreement;

B.2.pay all taxes, fees, and assessments on the Property before delinquency, not authorize a taxing entity to transfer its tax lien on the Property to anyone other than Lender, and not request a deferral of the collection of taxes pursuant to section 33.06 of the Texas Tax Code;

B.3.defend title to the Property subject to the [include if applicable: Prior Liens and] Other Exceptions to Conveyance and Warranty, preserve the lien’s priority as it is established in this deed of trust, and take all action necessary to protect or preserve Grantor’s and Lender’s rights and interests in the Water Rights and under the Permits/Certificates;

B.4.maintain all insurance coverages with respect to the Property, revenues gener­ated by the Property, and operations on the Property that Lender reasonably requires (“Required Insurance Coverages”), issued by insurers and written on policy forms acceptable to Lender, and deliver evidence of the Required Insurance Coverages in a form acceptable to Lender at least ten days before the expiration of the Required Insurance Coverages;

B.5.obey all laws, ordinances, and restrictive covenants applicable to the Property;

B.6.keep any buildings occupied as required by the Required Insurance Coverages;

B.7.if the lien of this deed of trust is not a first lien, pay or cause to be paid all prior lien notes and abide by or cause to be abided by all prior lien instruments;

B.8.notify Lender of any change of address or if Grantor has obtained any new ease­ment rights for use in connection with the Water Rights;

B.9.timely pay all permit fees, use fees, assessments, taxes, or other charges levied or assessed by any Water Authority, and maintain all Permits/Certificates or other rights cov­ered by this deed of trust in accordance with the terms of this deed of trust and in good stand­ing with the issuing Water Authority;

B.10.comply with all rules and regulations of any applicable Water Authority, and immediately notify Lender of any threatened or actual enforcement action against Grantor or the Property by any applicable Water Authority;

B.11.obtain Lender’s written consent before seeking to modify or convert any agree­ment, including any Permits/Certificates issued by any applicable Water Authority, relating to the Property;

B.12.immediately notify Lender of any change in any permit or certificate issued by any Water Authority for the Property and of any proposed amendment, conversion, or other change to the permit or certificate [include if applicable: and immediately record the permit or certificate, as amended, in the real property records of the applicable county or counties]; and

B.13.provide and maintain with the Water Authority written instructions, in form approved by Lender, notifying the Water Authority of Lender’s rights and interests in the Water Rights and the Permits/Certificates, and prohibiting the Water Authority, without the prior written authorization of Lender, from (a) approving or documenting a conveyance of all or any portion of the Water Rights or (b) approving a request or application by Grantor or any other person to transfer, amend, or terminate the Permits/Certificates as it or they pertain to the Water Rights.

C.Lender’s Rights

C.1.Lender or Lender’s mortgage servicer may appoint in writing one or more sub­stitute trustees, succeeding to all rights and responsibilities of Trustee.

C.2.If the proceeds of the Obligation are used to pay any debt secured by prior liens, Lender is subrogated to all the rights and liens of the holders of any debt so paid.

C.3.Lender may apply any proceeds received under the insurance policies covering the Property either to reduce the Obligation or to repair or replace damaged or destroyed improvements covered by the policy.

C.4.Notwithstanding the terms of the Note to the contrary, and unless applicable law prohibits, all payments received by Lender from Grantor with respect to the Obligation or this deed of trust may, at Lender’s discretion, be applied first to amounts payable under this deed of trust and then to amounts due and payable to Lender with respect to the Obligation, to be applied to late charges, principal, or interest in the order Lender in its discretion determines.

C.5.If Grantor fails to perform any of Grantor’s obligations, Lender may perform those obligations and be reimbursed by Grantor on demand for any amounts so paid, including attorney’s fees, plus interest on those amounts from the dates of payment at the rate stated in the Note for matured, unpaid amounts. The amount to be reimbursed will be secured by this deed of trust.

C.6.COLLATERAL PROTECTION INSURANCE NOTICE

In accordance with the provisions of section 307.052(a) of the Texas Finance Code, the Beneficiary hereby notifies the Grantor as follows:

(A)the Grantor is required to:

(i)keep the collateral insured against damage in the amount the Lender specifies;

(ii)purchase the insurance from an insurer that is authorized to do business in the state of Texas or an eligible surplus lines insurer; and

(iii)name the Lender as the person to be paid under the policy in the event of a loss;

(B)the Grantor must, if required by the Lender, deliver to the Lender a copy of the policy and proof of the payment of premiums; and

(C)if the Grantor fails to meet any requirement listed in Paragraph (A) or (B), the Lender may obtain collateral protection insurance on behalf of the Grantor at the Grantor’s expense.

C.7.If there is a default on the Obligation or if Grantor fails to perform any of Grantor’s obligations and the default continues after any required notice of the default and the time allowed to cure, Lender may—

a.declare the unpaid principal balance and earned interest on the Obligation immediately due;

b.direct Trustee to foreclose this lien, in which case Lender or Lender’s agent will cause notice of the foreclosure sale to be given as provided by the Texas Property Code as then in effect; and

c.purchase the Property at any foreclosure sale by offering the highest bid and then have the bid credited on the Obligation.

C.8.Lender may remedy any default without waiving it and may waive any default without waiving any prior or subsequent default.

C.9.Grantor authorizes Lender to file financing statements under the Uniform Com­mercial Code describing the Property. This deed of trust constitutes a fixture filing as to the Property.

D.Trustee’s Rights and Duties

If directed by Lender to foreclose this lien, Trustee will—

D.1.either personally or by agent give notice of the foreclosure sale as required by the Texas Property Code as then in effect;

D.2.sell and convey all or part of the Property “AS IS” to the highest bidder for cash with a general warranty binding Grantor, subject to the Prior Lien and to the Other Exceptions to Conveyance and Warranty and without representation or warranty, express or implied, by Trustee;

D.3.from the proceeds of the sale, pay, in this order—

a.expenses of foreclosure, including a reasonable commission to Trustee;

b.to Lender, the full amount of principal, interest, attorney’s fees, and other charges due and unpaid, including all attorney’s fees and expenses atten­dant to (i) any proceedings before any applicable Water Authority to seek the approval of that Water Authority for the necessary changes in owner­ship, diversion point, place of use, and/or purpose of use of the Water Rights and (ii) the conveyance of the Water Rights;

c.any amounts required by law to be paid before payment to Grantor; and

d.to Grantor, any balance; and

D.4.be indemnified, held harmless, and defended by Lender against all costs, expenses, and liabilities incurred by Trustee for acting in the execution or enforcement of the trust created by this deed of trust, which includes all court and other costs, including attor­ney’s fees, incurred by Trustee in defense of any action or proceeding taken against Trustee in that capacity.

E.Grantor’s Authorization

Grantor agrees that Lender is authorized, but is not obligated, to perform one or more of the following:

E.1.To sever the Property, including the Water Rights, into separate groups or par­cels [include if applicable: , to sever the Water Rights from the [Appurtenant Land/Surface Estate/easements]], and to foreclose or convey the Property in lieu of foreclosure in one or more separate or combined transactions.

E.2.To seek the approval of the Water Authority for a change in ownership, diver­sion point, place of use, or purpose of use of the Water Rights, and to transfer any existing unused water allotments that apply or pertain to the Water Rights in connection with a fore­closure or conveyance in lieu of foreclosure.

E.3.To file any application, institute any proceedings, and to perform such other acts or actions on behalf of Grantor, and in Grantor’s name, as Lender may determine to be neces­sary to protect or preserve the Property, including the value of the Water Rights and the rights provided by the Permits/Certificates and Grantor’s or Lender’s interest therein. Grantor hereby appoints Lender as Grantor’s attorney-in-fact, to perform the acts set forth above. This appointment as attorney-in-fact is coupled with an interest, is irrevocable, and shall survive Grantor’s disability, foreclosure of this deed of trust, and conveyance of the Property in lieu of foreclosure.

F.General Provisions

F.1.If any of the Property is sold under this deed of trust, Grantor must immediately surrender possession to the purchaser. If Grantor does not, Grantor will be a tenant at suffer­ance of the purchaser, subject to an action for forcible detainer.

F.2.Recitals in any trustee’s deed conveying the Property will be presumed to be true.

F.3.Proceeding under this deed of trust, filing suit for foreclosure, or pursuing any other remedy will not constitute an election of remedies.

F.4.This lien will remain superior to liens later created even if the time of payment of all or part of the Obligation is extended or part of the Property is released.

F.5.If any portion of the Obligation cannot be lawfully secured by this deed of trust, payments will be applied first to discharge that portion.

F.6.Grantor assigns to Lender all amounts payable to or received by Grantor from condemnation of all or part of the Property, from private sale in lieu of condemnation, and from damages caused by public works or construction on or near the Property. After deduct­ing any expenses incurred, including attorney’s fees and court and other costs, Lender will either release any remaining amounts to Grantor or apply such amounts to reduce the Obliga­tion. Lender will not be liable for failure to collect or to exercise diligence in collecting any such amounts. Grantor will immediately give Lender notice of any actual or threatened pro­ceedings for condemnation of all or part of the Property.

F.7.Interest on the debt secured by this deed of trust will not exceed the maximum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law. Any interest in excess of that maximum amount will be credited on the principal of the debt or, if that has been paid, refunded. On any acceleration or required or per­mitted prepayment, any such excess will be canceled automatically as of the acceleration or prepayment or, if already paid, credited on the principal of the debt or, if the principal of the debt has been paid, refunded. This provision overrides any conflicting provisions in this and all other instruments concerning the debt.

F.8.In no event may this deed of trust secure payment of any debt that may not law­fully be secured by a lien on real estate or create a lien otherwise prohibited by law.

F.9.If Grantor transfers any part of the Property without Lender’s prior written con­sent, Lender may declare the Obligation immediately payable and invoke any remedies pro­vided in this deed of trust for default.

F.9.Grantor may not sell, transfer, or otherwise dispose of any Property, whether voluntarily or by operation of law, without the prior written consent of Lender. If granted, consent may be conditioned on (a) the grantee’s integrity, reputation, character, creditworthi­ness, and management ability being satisfactory to Lender; and (b) the grantee’s executing, before such sale, transfer, or other disposition, a written assumption agreement containing any terms Lender may require, such as a principal pay down on the Obligation, an increase in the rate of interest payable with respect to the Obligation, a transfer fee, or any other modification of the Note, this deed of trust, or any other instruments evidencing or securing the Obligation.

Grantor may not cause or permit any Property to be encumbered by any liens, security interests, or encumbrances other than the liens securing the Obligation and the liens securing ad valorem taxes not yet due and payable without the prior written consent of Lender. If granted, consent may be conditioned upon Grantor’s executing, before granting such lien, a written modification agreement containing any terms Lender may require, such as a principal pay down on the Obligation, an increase in the rate of interest payable with respect to the Obligation, an approval fee, or any other modification of the Note, this deed of trust, or any other instruments evidencing or securing the Obligation.

Grantor may not grant any lien, security interest, or other encumbrance (a “Subordinate Instrument”) covering the Property that is subordinate to the liens created by this deed of trust without the prior written consent of Lender. If granted, consent may be conditioned upon the Subordinate Instrument’s containing express covenants to the effect that—

a.the Subordinate Instrument is unconditionally subordinate to this deed of trust;

b.if any action is instituted to foreclose or otherwise enforce the Subordinate Instrument, no action may be taken that would terminate any occupancy or tenancy without the prior written consent of Lender, and that consent, if granted, may be conditioned in any manner Lender determines;

c.rents, if collected by or for the holder of the Subordinate Instrument, will be applied first to the payment of the Obligation then due and to expenses incurred in the ownership, operation, and maintenance of the Property in any order Lender may determine, before being applied to any indebtedness secured by the Subordinate Instrument;

d.written notice of default under the Subordinate Instrument and written notice of the commencement of any action to foreclose or otherwise enforce the Subordinate Instrument must be given to Lender concurrently with or imme­diately after the occurrence of any such default or commencement; and

e.in the event of the bankruptcy of Grantor, all amounts due on or with respect to the Obligation and this deed of trust will be payable in full before any pay­ments on the indebtedness secured by the Subordinate Instrument.

Grantor may not cause or permit any of the following events to occur without the prior written consent of Lender: if Grantor is (a) a corporation, the termination of the corporation or the sale, pledge, encumbrance, or assignment of any shares of its stock; (b) a limited liability company, the termination of the company or the sale, pledge, encumbrance, or assignment of any of its membership interests; (c) a general partnership or joint venture, the termination of the partnership or venture or the sale, pledge, encumbrance, or assignment of any of its part­nership or joint venture interests, or the withdrawal from or admission into it of any general partner or joint venturer; or (d) a limited partnership, (i) the termination of the partnership, (ii) the sale, pledge, encumbrance, or assignment of any of its general partnership interests, or the withdrawal from or admission into it of any general partner, (iii) the sale, pledge, encum­brance, or assignment of a controlling portion of its limited partnership interests, or (iv) the withdrawal from or admission into it of any controlling limited partner or partners. If granted, consent may be conditioned on (a) the integrity, reputation, character, creditworthiness, and management ability of the person succeeding to the ownership interest in Grantor (or security interest in such ownership) being satisfactory to Lender; and (b) the execution, before such event, by the person succeeding to the interest of Grantor in the Property or ownership interest in Grantor (or security interest in such ownership) of a written modification or assumption agreement containing such terms as Lender may require, such as a principal pay down on the Obligation, an increase in the rate of interest payable with respect to the Obligation, a transfer fee, or any other modification of the Note, this deed of trust, or any other instruments evidenc­ing or securing the Obligation.

F.10.When the context requires, singular nouns and pronouns include the plural.

F.11.The term Note includes all extensions, modifications, and renewals of the Note and all amounts secured by this deed of trust.

F.12.This deed of trust binds, benefits, and may be enforced by the successors in interest of all parties.

F.13.If Grantor and Borrower are not the same person, the term Grantor includes Borrower.

F.14.Grantor and each surety, endorser, and guarantor of the Obligation waive all demand for payment, presentation for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, protest, and notice of protest, to the extent permitted by law.

F.15.Grantor agrees to pay reasonable attorney’s fees, trustee’s fees, and court and other costs of enforcing Lender’s rights under this deed of trust if an attorney is retained for its enforcement.

F.16.If any provision of this deed of trust is determined to be invalid or unenforce­able, the validity or enforceability of any other provision will not be affected.

F.17.The term Lender includes any mortgage servicer for Lender.

F.18.Grantor represents that this deed of trust and the Note are given for the follow­ing purposes: [list specific purposes].

F.19.The Note is secured by this deed of trust [[,/and] a Security Agreement/[and/, and] [include form 8-3 vendor’s lien language, if applicable]]. This deed of trust does not waive the provisions of the Security Agreement [include if applicable: and the vendor’s lien], and the liens and the rights created are cumulative. Lender may elect to foreclose under one or more liens without waiving any of the other lien(s).

   
[Name of grantor]