NOTES AND INTEREST PAYABLE

3 Months Ended

Jun. 30, 2011

NOTES AND INTEREST PAYABLE

NOTES AND INTEREST PAYABLE

NOTE 5. NOTES AND INTEREST PAYABLE

The following table lists the mortgage notes payable as of June 30, 2011 (dollars in thousands):

Project	Maturity	Principal Balance
Centura Land	09/18/14	$	6,900
Eagle Crest	11/01/11		2,367
Three Hickory	06/01/20		5
Mercer Crossing/Travelers Land  *	08/10/11		27,635
Accrued interest			1,057
		$	37,964

* This mortgage note represents the allocation of a note with an aggregate outstanding balance of $36.0 million as of June 30, 2011.  The remaining balance of this note of $8.4 million is held on the books of Transcontinental Realty Investors, Inc., an affiliated entity.  As a joint grantor of the mortgage loan, we have joint and several liability of the obligations and liabilities of the loan in its entirety, which include, but are not limited to, payment of all unpaid and accrued interest and principal for the entire outstanding loan balance.  Since April 11, 2010, interest has accrued on the loan. On April 28, 2011, an agreement was made with the lender to make monthly payments of $150,000 until October 5, 2011 when the balance is due in full.  Upon reconciliation of the balance due to the lender, an adjustment was made to re-allocate the loan balance between TCI and IOT.

The properties that we have sold in prior periods to a related party under common control and have deferred the recognition of the sale are treated as “subject to sales contract” on the Consolidated Balance Sheets and are listed in detail in Schedule III, “Real Estate and Accumulated Depreciation” in the Company’s Annual Report on Form 10-K.  These properties were sold to a related party in order to help facilitate an appropriate debt or organizational restructure and may or may not be transferred back to the seller upon resolution.  These properties have mortgages that are secured by the property and many have corporate guarantees.  According to the loan documents, we are currently in default on these mortgages primarily due to lack of payment although we are actively involved in discussions with every lender in order to settle or cure the default situation.  We have reviewed each asset and taken impairment to the extent we feel the value of the property was less than our current basis.