Comstock Homebuilding Companies, Inc. (Form: 10-K, Received: 03/31/2009 16:25:52)

COMSTOCK HOMEBUILDING COMPANIES, INC.

Date: March 31, 2009

/s/ C HRISTOPHER C LEMENTE

Christopher Clemente

Chairman and Chief Executive Officer

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

Commission file number 1-32375

Comstock Homebuilding Companies, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware		20-1164345
*(State or Other Jurisdiction of Incorporation or Organization)*		*(I.R.S. Employer Identification No.)*

11465 Sunset Hills Road

5th Floor

Reston, Virginia 20190

(703) 883-1700

(Address, including zip code, and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Class A common stock, par value $.01 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)

Large Accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of The Act). Yes ¨ No þ

The aggregate market value of voting and non-voting common equity held by nonaffiliates of the registrant (11,721,847 shares) based on the last reported sale price of the registrant’s common equity on the NASDAQ Global Market on June 30, 2008, which was the last business day of the registrant’s most recently completed second fiscal quarter, was $4,219,865. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant.

As of March 23, 2009, there were outstanding 15,211,499 shares of the registrant’s Class A common stock, par value $.01 per share, and 2,733,500 shares of the registrant’s Class B common stock, par value $.01 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2008 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

COMSTOCK HOMEBUILDING COMPANIES, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2008

TABLE OF CONTENTS


		Page
	PART I
Item 1.	Business	2
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	30
Item 4.	Submissions of Matters to a Vote of Security Holders	31

	PART II
Item 5.	Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 8.	Financial Statements and Supplementary Data	54
Item 9.	Changes In and Disagreements With Accountants and Financial Disclosure	54
Item 9A.	Controls and Procedures	55
Item 9B.	Other Information	55

	PART III
Item 10.	Directors and Executive Officers of the Registrant	56
Item 11.	Executive Compensation	56
Item 12.	Security Ownership of Certain Beneficial Owners and Management	56
Item 13.	Certain Relationships and Related Transactions	56
Item 14.	Principal Accountant Fees and Services	56

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	57
Signatures
Index to Consolidated Financial Statements		F-1

PART I

Item 1.

Business

Overview

We are a residential real estate developer that has substantial experience building a diverse range of products including single-family homes, townhouses, mid-rise condominiums, high-rise multi-family buildings and mixed-use (residential and commercial) developments in suburban communities and high density urban infill areas. We have historically built projects with the intent that they be sold either as fee-simple properties, condominiums, or investment properties. We focus on geographic areas, products and price points where we believe there will be continuing demand for new housing and potential for attractive returns. We operate in the Washington, D.C., Raleigh, North Carolina, and Atlanta, Georgia markets where we target first-time, early move-up, secondary move-up, and empty nester move-down buyers. We focus on the “middle-market” meaning that we tend to offer products in the middle price points in each market, avoiding the very low-end and high-end products. We believe our middle market strategy positions our products such that they are affordable to a significant segment of potential home buyers in our markets. Since our founding in 1985, and as of December 31, 2008, we have built and delivered more than 5,170 homes generating revenue in excel of $1.3 billion.

Our markets have historically been characterized by strong population and economic growth trends that have led to strong demand for traditional housing. However, the housing industry is in an unprecedented and prolonged cyclical downturn, suffering the effects of reduced demand brought on by significant increases in existing home inventory, resistance to appreciating prices of new homes, turmoil in the mortgage markets, reduced liquidity levels in the world financial markets, increasing unemployment and concerns about the health of the national and global economies. We believe over the past two decades we have gained experience that will be helpful to us as we seek to manage our business through the current difficult market environment. We believe we have taken, and are continuing to take, steps that will assist us in managing our business through the current cycle until market conditions stabilize and eventually improve. There can be no assurances, however, that we will be able to generate and maintain sufficient cash resources to survive long enough for market conditions to improve in a meaningful way.

As a result of deteriorating market conditions, we have adjusted certain aspects of our business strategy. In 2008, we focused our energy on repositioning projects, reducing debt, reducing costs, managing cash resources, renegotiating loans with current period and near-term maturities, refinancing projects and enhancing our balance sheet. We have cancelled or postponed plans to start several new projects and either renegotiated or cancelled contracts to purchase certain other projects. As a result, we purchased no new land in 2008. We have sold certain land and other assets and taken steps to significantly reduce our inventory of speculative homes as well. Until market conditions stabilize, we will continue to focus on working through the land inventory we own. This will include continuing efforts to sell certain land parcels where we believe it is the best strategy relative to that particular asset.

While we have always preferred to purchase finished building lots that are developed by others, we have also been active in entitling and developing land for many of our home building projects. We believe it is important to have the in-house capabilities to manage the entitlement and development of land in order to position our company to be able to recognize opportunities to enhance the value of the real estate we develop and to be opportunistic in our approach to acquisitions. Nonetheless, our interest in any potential acquisitions of new development projects will most likely be focused on finished building lots until market conditions and circumstances warrant otherwise. As such, we have significantly reduced our in-house development staff.

have declined significantly as a result of current economic conditions. In order to reduce the cost associated with carrying our condominium inventory in the Washington, DC region, we are temporarily operating two of our multi-family projects as hybrid for-sale and for-rent properties. This approach provides us regular cash flow which we use to offset a portion of the operating and financing costs associated with the applicable multi-family projects. In addition, we believe the value of the projects will increase over time as market conditions stabilize or improve. In Raleigh, North Carolina and Atlanta, Georgia, our inventory continues to be concentrated in lower density housing which is principally single family homes.

Our business was founded in 1985 by Christopher Clemente, our current Chief Executive Officer, as a residential land developer and home builder focused on the move-up home market in the Northern Virginia suburbs of the Washington, D.C area. Prior to our initial public offering in December 2004, we operated our business through four primary holding companies. In connection with our initial public offering, these primary holding companies were consolidated and merged into Comstock Homebuilding Companies, Inc., which was incorporated in Delaware in May 2004. Our principal executive offices are located at 11465 Sunset Hills Road, 5th floor, Reston, Virginia 20190, and our telephone number is (703) 883-1700. Our Web site is www.comstockhomebuilding.com. References to “Comstock,” “we,” “our” and “us” refer to Comstock Homebuilding Companies, Inc. together in each case with our subsidiaries and any predecessor entities unless the context suggests otherwise.

Our Markets

We have operations in the greater Washington, D.C., Raleigh, North Carolina and Atlanta, Georgia markets. In each of these markets job growth in recent years has led to population growth. This in turn led to increased demand for new homes and home price appreciation. The double digit pace of price appreciation in some areas led to inflationary pressures on the costs associated with producing homes (increases in cost of land, labor and materials). Rapidly appreciating home values also attracted undercapitalized investors who were not committed to ownership of the homes and condominiums they sought to purchase. As a result, when market conditions cooled, contract cancellations increased which led to an increased inventory of speculative homes held by builders. The number of existing homes available for sale by individuals also increased significantly. This supply/demand imbalance created significant pressure on homebuilders to increase selling concessions and to reduce prices. At the same time turmoil in the mortgage markets created uncertainty regarding the availability of mortgage financing and concerns about the reduced liquidity levels in the U.S. financial system and the health of the national economy caused prospective home buyers to stay out of the market. At this time it is nearly impossible to predict with accuracy the future levels of demand for new housing in our markets. We expect, based on recent year-over-year trends, to continue to experience depressed demand for new housing and pricing pressures throughout 2009 continuing into 2010.

Our Liquidity

The greatest challenge we face in the current real estate market is liquidity. As a result of the global credit crisis facing banks and other non-traditional lenders we have very limited ability to generate capital through borrowing. With demand slow and continued price erosion on our homes the spread between the net selling price of our homes and the financing costs associated with the homes we sell has been compressed to the point where there is little or no cash flow being generated by sales activity. Our stock price has been dramatically depressed and the use of our stock as currency at these trading prices would be impractical and would compromise the preservation of our carry-forward net operating losses. The combination of these and other liquidity constraints have forced us to rethink the way we operate on a daily basis. A continued lack of adequate access to liquidity will force us to once again resize our operations and may result in the Company either filing for bankruptcy protection or being forced to liquidate.

Our Business Strategy

Our general business strategy has been to focus on for-sale residential real estate development opportunities in the Mid-Atlantic and Southeastern United States that afford us the ability to produce products at price points where we believe there is significant long-term demand for new housing. Recognizing the housing industry is cyclical in nature and current challenging market conditions will take time to stabilize, we have adapted our business plan and strategy with the goal of protecting liquidity, enhancing our balance sheet, product and service line expansion and positioning the Company for

future growth and profitability when the economy begins to improve. In connection with this strategy we have adopted a conservative approach to land acquisition and capital investment which favors future acquisitions of finished building lots and we have postponed all plans for market expansion. We remain committed to working with our lenders to identify mutually beneficial means of disposing of assets that do not allow for adequate return on invested capital. We believe this approach will assist us in managing our business through today’s challenging market conditions.

Our general operating business strategy has the following key elements:

Protect liquidity and maximize capital availability. For as long as market demand for housing remains depressed we will remain highly focused on preserving liquidity by limiting our investments in long term real estate projects. We will again seek to build our pipeline of building lots when market conditions warrant through a cautious and measured approach focused on acquisition of developed building lots. The acquisition of finished building lots has reduced equity requirements, as compared to raw land parcels that require entitlement and development, which enhances return on invested capital. In addition, in order to maintain sufficient operating liquidity and capital availability we will continue to sell certain assets that are either highly leveraged or have significant cash equity. We will also continue to reduce overhead where and when possible.

Maximize the realized value of our real estate owned. Due to our depth of experience in many different aspects of real estate development we believe we are able to continuously evaluate and re-evaluate the use of the real estate we own and therefore are well positioned to identify alternative uses for the inventory that may increase the value of such properties. We have been successful in selling certain condominium assets as for-rent properties where the subject property holds a higher total value for a rental property owner that it otherwise would for individual homeowners in the aggregate. In properties where a bulk sale is impractical we are attempting to maximize short term cash flow and minimize net debt service obligations by temporarily operating certain properties as hybrid for-sale and for-rent properties.

Utilize technology to streamline operations, reduce costs, enhance customer communications and facilitate sales. During 2008, we continued advancing our technological capabilities with a focus on reducing costs, attracting sales and communicating with our customers. Upgrades of our information management, purchasing, customer relationship management and accounting systems that began prior to 2008 were either completed or substantially completed during the period. These enhanced platforms will allow us to manage our business more efficiently and better seek to reduce and control costs.

Rationalize overhead expenses. We believe the key to success in our business in difficult times is balancing and aligning our staffing levels with the size of our business and continually working to reduce general and administrative expenses as market conditions shift. At the same time, we believe that a recovery will come and we want to be staffed in such a way that we can operate until a recovery comes and identify opportunities along the way to capitalize on undervalued assets.

Focus on our core markets in the Mid-Atlantic and Southeast Region of the United States. We believe that, after current homebuilding industry and general economic conditions eventually stabilize and then improve, there may be attractive opportunities for long term growth in our existing markets. Accordingly, we intend to maintain appropriately sized operations in our current markets until such time as the condition of the national economy and the housing industry warrant a broader focus.

Focus on our current land inventory in our core markets . We plan to focus on maximizing our returns on the inventory of land that we hold in our core markets while utilizing our strong local presence and our extensive experience in our core markets to enhance our access to building lots that are developed by others. We believe that, after current homebuilding industry and general economic conditions eventually stabilize and then improve, homebuilders will have better access to reasonably priced developed building lots and that by focusing future land acquisition efforts on developed lots we will reduce risks associated with land development and enhance returns on capital invested. Our experience in previous economic downturns is that land purchase terms improve as a result of soft demand for new homes.

Focus on a broad segment of the home buying market, aka the “middle market”. Our single-family homes, townhouses and condominiums are deliberately designed to be priced in the middle range of the market. This is because we believe that by focusing on products that are affordable to the largest segment of the prospective home buying population we reduce risk to market fluctuations. As we look for opportunities created by the current downturn we will be focused on projects either positioned or easily repositioned for our middle-market orientation.

Create opportunities in areas overlooked by our competitors. We believe our market knowledge and experience in land entitlement and development enable us to successfully identify attractive real estate opportunities, efficiently manage the process of obtaining development rights and maximize land value. We plan to maintain these capabilities because we believe that this expertise allows us to protect the value of the assets that we hold while also positioning us to react quickly to new, favorable opportunities. As current homebuilding industry and general economic conditions eventually stabilize and then improve, we believe there will be attractive market opportunities for well-designed, quality homes and condominiums in urban and suburban areas in close proximity to transportation facilities.

Maximize our economies of scale where practical. We apply a production home builder approach to all of our product categories. In many instances, we utilize plans across multiple markets which we have built numerous times. This repetitive manufacturing process allows us to minimize cost through value engineering resulting from previous field experience. We are also able to coordinate labor and material purchasing under bulk contracts thereby reducing unit costs. As a result, we are able to realize economies of scale in the purchase of raw materials, supplies, manufactured inputs and labor.

Aggressively pursue recovery of losses through litigation . We are the Plaintiff, and also a defendant, in two significant law suits relating to both the Eclipse and Belmont Bay projects (as described in Item 3). We intend to commit significant company resources to the prosecution and defense of these efforts over the next twelve months. This commitment of resources may come at the expense of other real estate and homebuilding investments, but we believe the potential returns justify the risks.

Our Operations

We operate a separate homebuilding division in each of our core markets. Each divisional operation is wholly owned by Comstock Homebuilding Companies, Inc., or a subsidiary thereof. Each division is made up of a local division management team, production team and sales team. Each division relies on services provided by the Company covering land underwriting and acquisition, legal, accounting, information technology,

human resources, marketing, sales training, purchasing, and finance. We believe this is an efficient manner of operating our Company because each divisional operation is staffed locally based on the size of the subject division while the core services provided by the corporate parent help minimize repetitive staffing requirements. Previous acquisitions of Parker Chandler Homes (Atlanta) and Capitol Homes (Raleigh) have been fully integrated into our operational structure.

Each division management team is typically compensated based on the performance results of the respective division and the overall performance of the Company. Sales team compensation is commission based. As market conditions have deteriorated, we have carefully reduced the size of our staff at each division and at the corporate parent. We continuously monitor market conditions to ensure that we only staff at warranted levels. In addition, given current market and economic conditions we will not start construction of a new home unless it is pre-sold to a qualified buyer with a substantial deposit posted and financing in place.

Land Identification and Acquisition

We believe that by controlling and managing a land inventory through options as opposed to owning land we will be better able to manage future growth in accordance with our business plan and long term objectives. In the past we have acquired land for our home building operations both as finished building lots and as raw land that we develop. Through the acquisition of Parker Chandler Homes (Atlanta) and Capitol Homes (Raleigh) our land inventory expanded significantly. Due to the focus the acquired companies had on developing raw land, the amount of raw land in our land inventory increased. As market conditions deteriorated, we have sold certain land and other assets to reduce interest expense and risks associated with land development. We will continue to manage our land inventory in a manner that we believe will reduce risks and enhance operating results.

We will continue to focus on maximizing our returns on the land inventory that we control while shifting our focus for future land acquisitions, when market conditions warrant and liquidity exists, towards finished building lots. Our goal during this down cycle is to survive relatively intact as an operating business and to capitalize on distress in the marketplace by contracting to purchase land from land developers who will maintain ownership of the land through the entitlement and development process. If and when we option land in this manner we typically provide our home building and entitlement expertise to the seller in order to ensure the land is developed in a manner consistent with our plans for the project. By contracting to purchase land that will be delivered to us in the future and only utilizing our resources as project managers we reduce the financial risks associated with owning land while seeking entitlements and performing land development.

We own land that must be developed into building lots. While market conditions remain difficult we will continue to utilize our strategy of seeking to sell certain of these assets to other developers and will only develop these raw parcels of land as needed for our home building operations where we believe market conditions and the potential return on capital invested warrants the development process.

In the past we have purchased existing rental apartment properties in the Washington, DC region with the intent of converting them to for-sale condominium projects. We have completed some of these conversion developments and sold others as market conditions deteriorated. We own one partially completed condominium conversion property, Penderbrook, in Fairfax County, Virginia. While we continue to sell converted condominiums at the Penderbrook development we also operate Penderbrook as a rental apartment community. This approach provides cash flow from rents to offset interest costs and operating expenses associated with the property. We have not abandoned our intent to sell the units as condominiums over time.

We have also elected to employ this strategy at our Eclipse project in Arlington, Virginia where we are temporarily renting approximately half of the unsold units to generate cash flow. In certain cases we have sold condo conversion units in bulk to rental project investors and operators. We do not plan to acquire additional condominium conversion projects.

In the Washington, DC region we have developed several new condominium projects, including high density mixed use projects. We believe that the demographics of the Washington, DC region will over time continue to lead to demand for high quality, high density housing after current market conditions eventually stabilize and then improve. These types of projects tend to require a greater capital investment, higher levels of debt and longer construction cycles than typical low density single family developments. Due to current market conditions we will be focused on identifying future projects that require lower levels of invested capital. Accordingly, we have cancelled plans to commence additional high density condominium projects and will not undertake any such development until we believe market conditions warrant.

Our land acquisition and disposition process is overseen by an executive land committee that includes representatives from our various business departments. This committee meets regularly to evaluate prospective land acquisitions, project financing options, underperforming projects, asset dispositions and liquidity issues. During much of 2008, the primary focus of the committee was disposing of assets where we believed it to be the best course of action given market conditions. Currently the committee is focused on evaluating existing projects and land holdings with the goal of seeking means of enhancing the potential for improved operating results or immediate monetization.

When market conditions improve, and assuming our level of land inventory and availability of capital warrant additional acquisitions, the committee will again focus on new land acquisitions. To the extent the committee approves any such acquisitions, we will focus on acquiring new projects we believe have the potential to generate an attractive return on capital invested. The committee evaluates several factors that could affect the outcome of a project under consideration. These factors include:

•

supply and absorption rates of similar new home projects;

•

supply and absorption rates of existing homes in the area;

•

projected equity requirements;

•

projected return on invested capital;

•

status of land development entitlements;

•

projected net margins of homes to be sold by us;

•

projected absorption rates;

•

demographics, school districts, transportation facilities and other location factors; and

•

competitive market positioning.

Our acquisition due diligence process involves a high level of scrutiny which includes a variety of analyses, including land title examination, applicable zoning evaluations, environmental analysis, soil analysis, utility availability studies, and marketing studies that review population and employment trends, school districts, access to regional transportation facilities, prospective home buyer profiles, sales forecasts, projected construction costs, labor and material availability, assessment of political risks and other factors.

Land Entitlement and Development

We have extensive knowledge and experience in all aspects of the site selection, land planning, entitlement and land development processes. Specifically, we have significant experience in dealing with the governmental and regulatory authorities that govern the site development and entitlement processes. Entitlement is the process by which a local government determines the density it will permit to be developed on a particular property and approves the development plans. Obtaining entitlements and development permits often requires significant negotiations with local governmental authorities, and various other parties, including local homeowner associations, environmental protection groups and federal governmental agencies. Our extensive experience and knowledge allow us to effectively negotiate with all concerned parties in an attempt to ensure the costs of developing the subject property are commensurate with the profit potential of the proposed development.

Our experience and in-house capabilities enable us to quickly assess the likelihood of obtaining necessary approvals on a particular property, the estimated costs associated with development of a particular property, and the potential development challenges associated with a particular property. As a result, we can control the details of development, from the design of each community entryway to the placement of streets, utilities and amenities, in order to efficiently design a development that we believe will maximize the potential return on our investment in the property.

Because of our experience in obtaining entitlements and because of our in-house land development capability we believe we are well suited to work with land developers to ensure their development plans are efficient and designed in keeping with our development objectives. Further, we believe that these capabilities position us well to work with financial institutions seeking to sell land assets on which they have foreclosed.

In current market conditions we seek to manage development risk by acquiring options to purchase properties after the approval of the necessary entitlements and full development of the land. We utilize our capabilities with regard to land entitlement and land development to provide a service to land owners in an effort to obtain low cost options to acquiring the subject land after the entitlement and development process is complete, thereby avoiding market risks associated with raw land acquisitions and minimizing capital exposure to the projects.

Sales, Marketing and Production

We sought diversification and growth through multiple product offerings that were to be utilized in a few core markets rather than seeking to grow into multiple markets. We believe this strategy minimizes risks associated with entering new markets and operating in second or third tier markets.

Our primary target markets are first-time; early-move up and first move-down home buyers. We have a wide variety of product lines and custom options for our products that enable us to meet the specific needs of each of our markets and each of our home buyers. We seek to design products that can, whenever possible, be utilized in each of our core markets. We believe that our diversified product strategy enables us to best serve a wide range of home buyers in our target demographics and adapt quickly to changing market conditions. We continually reevaluate and improve upon our existing product designs and develop new product offerings to keep up with changing consumer demands and emerging market trends.

Our single-family homes range in size from approximately 1,400 square feet to over 6,000 square feet with target pricing from the $100,000s to the $600,000s. Our townhouses range in size from approximately 1,200 square feet to over 4,500 square feet and are typically priced from the $100,000s to the $500,000s depending on the market. Our condominiums range in size from approximately 400 square feet to over 2,400 square feet and are priced from the $100,000s to over $1 million. Our average new order price over all product types, was $284,000, $240,000 and $257,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

We typically act as the general contractor in the construction of our wood frame single-family homes, townhouses and mid-rise condominium buildings. On projects where we offer these product lines our employees provide land development management, construction management, material purchasing and quality control supervision on the homes we build. Substantially all construction work on these types of projects is done by subcontractors that contract directly with our home building subsidiaries and with whom we typically have an established relationship. On our

high-rise and mixed-use developments where we typically build concrete structures, we engage a general contractor for the site preparation and construction management, and our preference is to have a bonded fixed price or a gross maximum price contract with the selected general contractor. In these instances the subcontractors that perform the construction work are typically contracted directly by the general contractor that we select. On projects where we offer these product lines our employees provide land development oversight management, construction quality supervision and certain construction management services. In all instances we follow generally accepted management procedures and construction techniques which are consistent with local market practices. We believe that we comply with local and state building codes on all of our developments.

Our goal is to commence construction on a single-family home only after a contract is signed, a customer deposit has been posted, and mortgage approval has been obtained by the home buyer. We generally begin construction of our townhouses and condominiums after we have obtained customer pre-sale commitments for a significant percentage of the units in the building and our lender commits to funding all units. Current market conditions have caused us to significantly limit or eliminate the construction of unsold inventory, including model homes. We closely monitor our inventory applying a measured approach to unit production in keeping with sales absorption. We will continue to have reduced building at our projects as we work through the process of selling existing inventory first. On occasion we will sell a completed model home to a third party investor purchaser who is willing to lease back the home to us for use during the marketing phase of a project.

To facilitate the sale of our products, we normally build, decorate, furnish and landscape model homes for each product line and maintain onsite sales offices. In most cases, we employ in-house commissioned sales personnel to sell our homes. On occasion we will contract for marketing services with a third party brokerage firm. All personnel engaged in the sale of Comstock homes receive extensive training in the sales process from our in-house sales training group. We strive to provide a high level of customer service during the sales process. Through multi-lingual home buying seminars, relationships with preferred mortgage lenders and utilization of a series of proprietary custom marketing programs, we are able to educate our prospective purchasers, prepare our customers for home ownership and help our homebuyers obtain a mortgage tailored to their specific needs.

Our unique NextHome ^tm programs are designed to assist our customers in many aspects of purchasing a Comstock home, as follows:


• DownRight ™	–	a program designed to help identify ways to meet the down payment requirements of a new home purchase;
• Tailor Made™	–	a program with unique financing products and agreements with major lenders that tailor a monthly payment in order to make home ownership affordable in any interest rate climate;
• Get It Sold ™	–	a program designed to help our customers sell their current home quickly and efficiently in order to facilitate their purchase of a new Comstock home;
• All@Home ™	–	a program enabling our customers to design technology solutions for their new Comstock home to met their individual specifications;
• Built Right ™	–	a quality assurance program incorporating quality assurance inspections with high-quality materials; and
• Home Style ™	–	an optional upgrade program providing hundreds of options to choose from to customize a new Comstock home to suit the specific desires of our customers.

All personnel involved in the sale of our homes receive extensive training on the product they are selling. In addition, our sales professionals are trained on the specialized programs offered by us in connection with the purchasing, customizing and financing of a Comstock home and the warranty we provide. We employ our sales personnel on a long-term basis, rather than a project-by-project basis, which we believe results in a more committed and motivated sales force with better product knowledge. We believe this continuity has a positive impact on sales.

Our corporate and local marketing directors work with local project and sales managers to develop marketing objectives, sales strategies, and advertising and public relations programs for our projects. These objectives, strategies and home pricing decisions are subject to approval by senior management. We typically build, decorate, furnish and landscape model homes for each product line and maintain onsite sales offices, which are generally open seven days a week. We believe model homes play a critical role in our marketing efforts. Where warranted, we sell certain projects from a centralized location in an effort to reduce capital investment requirements in particular projects.

Our homes are typically sold before construction through sales contracts that are accompanied by a 3-10% deposit. Such sales contracts are usually subject to certain contingencies such as the home buyer’s ability to qualify for financing. Cancellation rates are subject to a variety of factors beyond our control such as consumer confidence, negative media hype relating to homebuilding adverse economic conditions which lower consumer confidence, increase mortgage interest rates and negatively affect the sale of our existing homes. During 2008 our cancellation rate decreased across all products in all of our markets resulting an and a decrease in the existence of standing inventory.

During 2008 we continued increased our efforts to focus on lower cost marketing over the Internet in an effort to reduce costs associated with local print advertisements. We believe that the home buying population will continue to increase its reliance on information available on the Internet to help guide their home buying decision. Accordingly, our marketing efforts will continue to seek to leverage this trend in an effort to maximize potential sales.

During 2006 we opened a centralized sales center located in Reston, Virginia. This facility was designed to support cross-product and cross-community shopping in one central location. In 2007 we closed the sales center, and it will not be reopened. The center was not operational in 2008. During 2008 we negotiated a termination of the lease by which we issued the landlord a warrant to purchase 50,000 shares of our Class A Common Shares.

Our Communities

At December 31, 2008 we had active communities under development in the following states and counties:


State		County
Georgia		Cherokee, Forsyth, Fulton, Gwinnett, Jackson, Paulding
Maryland		Frederick
North Carolina		Johnson, Wake
Virginia		Arlington, Fairfax, Loudoun, Prince William

The following chart summarizes certain information for our current and planned communities at December 31, 2008:


Project	State	Product Type (2)	Estimated Units at Completion (5)	Units Settled	Backlog (3)	Lots Owned Unsold	Lots under Option Agreement Unsold	Average New Order Revenue to Date
Status: Active (1)
Allen Creek	GA	SF	26	23	—	3	—	$	204,987
Arcanum	GA	SF	34	24	—	10	—	$	376,173
Falling Water	GA	SF	22	18	—	4	—	$	422,513
Gates at Luberon	GA	SF	31	3	—	28	—	$	618,259
Glenn Ivey	GA	SF	20	18	—	2	—	$	227,039
James Road	GA	SF	10	9	—	1	—	$	339,847
Post Road	GA	SF	60	—	—	60	—		n/a
Wyngate	GA	SF	4	3	1	—	—	$	409,160

Sub-Total / Weighted Average (4)			207	98	1	108	—	$	323,079
Emerald Farm	MD	SF	84	78	—	6	—	$	452,347

Sub-Total / Weighted Average (4)			84	78	—	6	—	$	452,347
Allyn’s Landing	NC	TH	108	81	1	26	—	$	237,210
Brookfield Station	NC	SF	62	15	—	47	—	$	222,757
Haddon Hall	NC	Condo	90	25	—	65	—	$	161,815
Holland Road	NC	SF	81	18	2	61	—	$	437,932
Providence-SF	NC	SF	58	24	4	30	—	$	195,225
Riverbrooke	NC	SF	66	47	—	19	—	$	166,608
Wakefield Plantation	NC	TH	77	49	—	28	—	$	483,042
Wheatleigh Preserve	NC	SF	28	18	—	10	—	$	279,204

Sub-Total / Weighted Average (4)			570	277	7	286	—	$	273,198
Commons on Potomac Sq	VA	Condo	191	86	—	105	—	$	233,546
Commons on Williams Sq	VA	Condo	180	139	1	40	—	$	340,553
Penderbrook	VA	Condo	424	301	—	123	—	$	257,029
River Club II	VA	Condo	112	9	2	101	—	$	251,550
The Eclipse on Center Park	VA	Condo	465	364	—	101	—	$	401,228

Sub-Total / Weighted Average (4)			1,372	899	3	470	—	$	325,878

Total Active			2,233	1,352	11	870	—	$	321,936

Status: Development (1)
Shiloh Road I	GA	SF	60	—	—	60	—		n/a
Tribble Lakes	GA	SF	167	—	—	167	—		n/a

Sub-Total / Weighted Average (4)			227	—	—	227	—		n/a
Massey Preserve	NC	SF	187	—	—	187	—		n/a
Providence-TH	NC	TH	18	—	—	18	—		n/a

Sub-Total / Weighted Average (4)			205	—	—	205	—		n/a
Beacon Park	VA	Condo	488	—	—	—	488		n/a
Station View	VA	TH	47	—	—	47	—		n/a

Sub-Total / Weighted Average (4)			535	—	—	47	488		n/a

Total Development			967	—	—	479	488		n/a

Total Active & Development			3,200	1,352	11	1,349	488	$	321,936

(1)	“Active” communities are open for sales. “Development” communities are in the development process and have not yet opened for sales.

(2)	“SF” means single family home, “TH” means townhouse and “Condo” means condominium.

(3)	“Backlog” means we have an executed order with a buyer but the settlement has not yet taken place.

(4)	“Weighted Average” means the weighted average new order sale price.

(5)	Where applicable, unit counts adjusted downward to account for friendly foreclosures by Comstock’s banks.

Greater Washington DC Area

Northern Virginia Market

Beacon Park at Belmont Bay 8&9 was initially planned as a 600-unit active adult condominium community located at the confluence of the Potomac and Occoquan Rivers in the master-planned, urban-style community of Belmont Bay in Woodbridge, Virginia. The project was planned to include two phases, the first being 112 units situated in four 28-unit mid-rise buildings and the second phase including three high-rise buildings containing approximately 488 units. Initially all 600 units were contemplated to be active-adult units, where the majority of buyers would be 55 years of age or older. To broaden the potential pool of prospective buyers we elected as was our option, for the first phase of the project to be marketed without age restrictions (see River Club II below) and began the process of rebranding this phase of the project to River Park II. Currently, we have purchased have a long-term option on the remaining 488 lots of active adult units which we may, or may not, exercise. The project is on hold due to ongoing litigation between ourselves, the developer and the community’s Design Review Board.

The Commons on Potomac Square is a four building, 191-unit, mid-rise condominium complex in Loudoun County, Virginia. The project is positioned well for first-time homeowners in a market where the cost of single-family homes and townhouses are prohibitive for most renters. Sales began in late 2004, settlements began in early 2006. We previously built and sold the first two buildings and have suspended construction activities at the community electing not to start the final 103-unit building until demand increases.

The Commons on Williams Square is a 180-unit, two-over-two townhouse style condominium development in Prince William County, Virginia. Sales began in 2004, settlements began in 2005. We have built 150 of the units at the project. Construction of the remaining 30 units has been suspended until market conditions improve.

The Eclipse on Center Park is a 465-unit, high-rise condominium complex in Arlington County, Virginia. Located at Potomac Yard, formerly one of the East Coast’s major railway yards, the project is just minutes from downtown Washington DC, the Pentagon, and Reagan National Airport. The project is an upscale, urban-style, mixed-use complex with residential condominiums above an 80,000 square foot retail center, which includes a Harris Teeter grocery store and other convenience-oriented retailers. A club room and rooftop deck, as well as numerous upper-floor units, offer panoramic views of the Potomac River, Ronald Reagan National Airport, and Washington monuments. Sales for Phase I began in the second quarter of 2004, sales for Phase II began in December 2005, and settlements began in November 2006. Construction on the buildings is complete but our general contractor failed to complete warranty and punch-out work. As a result we are self-performing all final work in the buildings and seeking remuneration from the contractor. Sales are continuing, however, we also manage a rental program at the project to help offset carrying costs and operating expenses. At December 31, 2008, we had approximately 56 units rented out of 101 remaining units, generating monthly gross revenue of approximately $115,000.

Penderbrook Square is a 424-unit rental apartment complex in the Fair Oaks area of Fairfax County, Virginia that we purchased as condominium conversion project. We acquired the property in 2005 and made significant improvements to common areas, building exteriors, and heating and air-conditioning systems within units and have completed the conversion of a majority of the units to condominiums. Sales and settlements began in 2005.

River Club II , the rebranded first phase of Beacon Park at Belmont Bay 8&9 is a four building, 112-unit mid-rise, condominium development located in the planned community of Belmont Bay. Located at the confluence of the Potomac and Occoquan Rivers in Woodbridge, Virginia, the property has river and golf course views. The project is “market rate” meaning it is not subject to any age restrictions. One of the four buildings is built with designer-ready finishes in the units. The project is on hold due to ongoing litigation between ourselves, the developer and the Community’s Design Review Board.

Station View is a 47-unit townhouse development in Loudoun County, Virginia. Our products will have spacious floor plans, two-car garages, and will be affordable alternatives to single-family homes in the desirable Ashburn area. We expect to begin land development and sales in 2010 with sales opening in 2011.

Maryland

Emerald Farm is an 84-unit development of single-family homes in Frederick, Maryland conveniently located near major transportation routes. Currently, a water moratorium has substantially limited availability of building permits in the area. Sales and settlements began in 2001 and will continue on the remaining lots as the availability of building permits allows.

North Carolina Market

Raleigh, North Carolina

Allyn’s Landing is a 108-unit townhouse development in the heart of Raleigh, North Carolina near Research Triangle Park and the Raleigh-Durham International Airport. The project overlooks an eight-acre lake and includes amenities such as a fountain, gazebo and walking trails. Sales and settlements began in 2002. In late 2006, we repositioned the product offerings from three-story townhouses to two-story, master-bedroom-down townhouses, which resulted in increased sales and settlement activity in 2007 and 2008.

Brookfield Station is a 62-unit, single-family development in Knightdale, North Carolina. Community amenities include easy access to I-540, shopping, restaurants, and downtown Raleigh. Sales and settlements began in 2007. The project remains open for sale.

Haddon Hall is our only condominium project outside of the Washington, DC region. It is a three building, 90-unit condominium development in Apex, North Carolina that is positioned well for first-time homebuyers. Sales and settlements for the first 30-unit building began in 2007. Construction on the remaining 60 units will not be commenced until market conditions improve.

Holland Road is an 81-unit, single-family home development in Apex, North Carolina. The community features large, wooded lots, a community pool, and easy access to the Research Triangle. Sales began in 2006; settlements began in late 2007 and are expected to continue throughout 2009 and beyond.

North Farm is a 47-unit, single-family home development in the Flowers Plantation community of Clayton, North Carolina. Community amenities include shopping and recreation facilities within walking distance of the project. We have ceased building operations in this community and are working on selling our remaining lot inventory in the project.

Massey Preserve is a 187-unit, single-family home development in Raleigh, North Carolina. When sales open, we plan to utilize existing product lines. Land development permits are available but land development for this project is on hold until market conditions warrant.

Providence is a 58-unit single family home development located in Raleigh, North Carolina. Its location is convenient to downtown Raleigh and North Hills and Crabtree Valley malls. Sales and settlements began in 2007 and are expected to continue throughout 2009 and beyond.

Providence Towns is an 18-unit townhouse development in Raleigh, North Carolina adjacent to the Providence single-family project. The lots were developed by the seller but the project is on hold until market conditions warrant. We are negotiating a trade of these lots for single family home lots in the Providence community.

Riverbrooke II is the 66-unit second phase of a single-family home development in Raleigh, North Carolina. The project is located in an established neighborhood with easy access to interstates I-40, I-440, and North Hills and Crabtree Valley malls. Sales and settlements began in 2006.

Wakefield Plantation is a 77-unit, carriage-style, luxury townhouse development in Raleigh, North Carolina. Our unique carriage-home product offers as much as 5,300 square feet of finished living space in three-unit and four-unit attached configurations with two-car garages and interior courtyards. Sales began in 2001 and settlements began in 2002. Construction of new buildings is on hold pending sufficient pre-sales.

Wheatleigh Preserve is a 28-unit, single-family home development in Raleigh, North Carolina. Lots are one-quarter acre. Sales and settlements began in 2006 and are expected to continue throughout 2009 and beyond.

Greater Atlanta Market

Atlanta, Georgia

Allen Creek is a 26-unit, single-family home development in Talmo, Georgia. The community has easy access to interstate I-85 in the northeast of Atlanta. Sales and settlements began in 2006 and are expected to continue throughout 2009 and beyond.

Arcanum is a 34-unit, single-family home development in Cumming, Georgia. The community has access to the Polo Golf and Country Club amenities and is conveniently located near Highway 400. Sales and settlements began in 2006 and are expected to continue throughout 2009 and beyond.

Brentwood Estates is a 31-unit, single-family home development in Commerce, Georgia. The community has easy access to interstate I-85 northeast of Atlanta. Sales and settlements began in 2006 and are expected to continue throughout 2009 and beyond.

Falling Water is a 22-unit, single-family home development with large, wooded lots in Woodstock, Georgia. The community is conveniently located just ten minutes from Alpharetta with easy access to Highway 400. Sales and settlements began in 2006 and are expected to continue throughout 2009 and beyond.

Gates of Luberon is a 31-unit, single-family home development in Cumming, Georgia. Amenities include a community pool and a nature area. The community has easy access to downtown Atlanta via Highway 141. Sales and settlements began in 2006. Plans for this project are unclear at this time because the lender; Haven Trust was closed by the Federal Deposit Insurance Corporation in December 2008. The Company is awaiting the outcome of on-going litigation with Haven Trust.

Post Road is a 60-unit, single-family home development in Cumming, Georgia with easy access to Highway 400. We are finalizing the development of the lots and preparing the project for opening.

Shiloh Road is a 60-unit, single-family home development in Alpharetta, Georgia with easy access to Highway 400. All work on this project has been indefinitely suspended.

Tribble Lakes is a 167-unit, single-family home development in Cumming, Georgia located around a large lake. The project is easily accessible via Highway 400. Land development began in 2006 but is on hold until market conditions justify additional investment.

Warranty

We provide our single-family and townhouse home buyers with a one-year limited warranty covering workmanship and materials. The limited warranty is transferable to subsequent buyers not under direct contract with us and requires that home buyers agree to the definitions and procedures set forth in the warranty. Our condominium home buyers typically have a statutory two-year warranty on their purchases. In addition, we provide a five-year structural warranty on our homes and condominiums pursuant to applicable statutory requirements. From time to time, we assess the appropriateness of our warranty reserves and adjust accruals as necessary. When deemed appropriate by us, we will accrue additional warranty reserves. We require our sub-contractors to warrant their work and they are contractually obligated to fix defects in their work that arise during the warranty period. We seek to minimize our risk associated with warranty repairs through our quality assurance program and by selecting sub-contractors with sufficient resources and insurance who are known for quality work. Beyond our sub-contractor warranties we self-insure the balance of all of our warranties.

Competition

The real estate development and home building industries are highly competitive and fragmented. Competitive overbuilding in local markets, among other competitive factors, has adversely affected home builders in our markets. Home builders compete for financing, raw materials and skilled labor, as well as for the sale of homes. Additionally, under normal market conditions competition exists within the industry for prime properties, especially those with developed building lots. We compete with other local, regional and national real estate companies and home builders. Some of our competitors have greater financial, marketing, sales and other resources than we have. Some of the national builders against which we compete include Pulte Homes, Centex, DR Horton, Toll Brothers, Ryan Homes, Hovnanian and Lennar.

We do not compete against all of the builders in our geographic markets in all of our product types or submarkets, as some builders focus on particular types of projects within those markets, such as large estate homes, that are not in competition with our communities. We believe the factors that home buyers consider in deciding whether to purchase from us include the location, value and design of our products. We believe that we typically build attractive, innovative products in sought-after locations that are perceived as good values by customers. Accordingly, we believe that we compare favorably on these factors.

Additionally, we compete with the resale market of existing homes including foreclosures and short-sales. The dramatic increase of inventory of existing homes available for sale has created significant competition among builders and home sellers for home buyers. This has led to downward pressure on prices in all of our markets. Many of our competitors have used very aggressive price discounts to sell homes. To be competitive, and to reduce our inventory of completed homes, we utilized aggressive discounting to move product in 2008. It is impossible to predict future pricing trends. At this time we expect the resale market to be our greatest source of competition in 2009 and 2010.

Regulation

We and our competitors are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulation, which imposes restrictive zoning and density requirements in order to limit the number of homes that can ultimately be built within the boundaries of a particular project. We and our competitors may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future in the states in which we operate. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction.

We and our competitors are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of the environment. Some of the laws to which we and our properties are subject may impose requirements concerning development in waters of the United States, including wetlands, the closure of water supply wells, management of asbestos-containing materials, exposure to radon, and similar issues. The particular environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former uses of the site. These environmental laws may result in delays, may cause us and our competitors to incur substantial compliance and other costs, and may prohibit or severely restrict development in certain environmentally sensitive regions or areas. However, environmental laws have not, to date, had a material adverse impact on our operations.

Technology

We are committed to the use of Internet-based technology for managing our business, communicating with our customers, and marketing our projects. For customer relationship management, we use Builder’s Co-Pilot™, a management information system that was custom developed in accordance with our needs and requirements. This system allows for online and collaborative efforts between our sales and marketing functions and integrates our sales, production and divisional office operations in tracking the progress of construction on each of our projects. We believe that real-time access to our construction progress and our sales and marketing data and documents through our systems increases the effectiveness of our sales and marketing efforts as well as management’s ability to monitor our business. Through our Web site, www.comstockhomebuilding.com, our customers and prospects receive automatic electronic communications from us on a regular basis. We believe this application of technology has and will continue to greatly enhance our conversion rates.

In January 2007 we commenced use of our new accounting and purchasing management software, the JD Edwards Enterprise One software system. This highly scalable purchasing and accounting system has positioned us to be more cost competitive and will, we hope, contribute to future cost reductions and margin expansion.

We rely primarily on a combination of copyright, trade secret and trademark laws to protect our proprietary rights. We license the “Comstock” brand from our founder, and CEO, Christopher Clemente. The license is a perpetual, royalty-free license agreement. We have filed a U.S. federal trademark application with respect to “Comstock Homes Worthy of the Investment” and we will file a U.S. federal trademark application with respect to “Comstock Homebuilding Companies.” We believe the strength of these trademarks benefits our business. In addition, as a result of recent acquisitions, we now own the Capitol Homes and Parker-Chandler brands which we do not currently use in our marketing efforts.

Employees

At December 31, 2008, we had 67 full-time and part-time employees. Our employees are not represented by any collective bargaining agreement and we have never experienced a work stoppage. We believe we have good relations with our employees.

Executive Officers

Our executive officers and other management employees and their respective ages and positions as of December 31, 2008 are as follows:


Name	Age	Current Position
Christopher Clemente*	48	Chairman and Chief Executive Officer
Gregory V. Benson*	54	President, Chief Operating Officer
Bruce J. Labovitz*	40	Chief Financial Officer
Jeffrey R. Dauer*	46	Director, Accounting and Financial Reporting
Jubal R. Thompson	39	General Counsel and Secretary

*	Section 16 officers.

Executive Officers and Key Employees

Christopher Clemente founded Comstock in 1985 and has been director since May 2004. Since 1992, Mr. Clemente has served as our Chairman and Chief Executive Officer. Mr. Clemente has over 20 years of experience in all aspects of real estate development and home building, and more than 25 years of experience as an entrepreneur.

Gregory V. Benson joined us in 1991 as President and Chief Operating Officer and has been director since May 2004. Mr. Benson is also a member of our board of directors. Mr. Benson has over 30 years of home building experience including over 13 years at national home builders, including NVHomes, Ryan Homes and Centex Homes.

Bruce J. Labovitz has served as our Chief Financial Officer since January 2004, after serving as our Vice President — Finance from April 2002 to January 2004 and Vice President — Investment Finance from January 2002 to April 2002. From June 2001 to January 2002, Mr. Labovitz was a Vice President of Viking Communications, a telecommunications company. From November 2000 to June 2001, Mr. Labovitz was the President, Marketing & Services of Inlec Communications, a telecommunications company. Prior to that, from May 1996 to November 2000, Mr. Labovitz was Executive Vice President/Chief Operating Officer of BMK Advertising, an advertising agency.

Jeffrey R. Dauer has served as our Director of Accounting and Financial Reporting since June 2007. Mr. Dauer was Director of Financial Reporting from March 2007 to June 2007. From October 2004 to March 2007, Mr. Dauer was retained to lead the Sarbanes-Oxley Section 404 implementation and assist in the Company’s JD Edwards ERP system conversion.

Jubal R. Thompson has served as our General Counsel since October 1998 and our Secretary since December 2004. From April 2002 to April 2003, Mr. Thompson also served as our Vice President — Finance. From 1995 to 1998, Mr. Thompson was associated with Robert Weed & Associates, a law firm.

Other Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.

We also make available, free of charge, at our Internet website located at www.comstockhomebuilding.com, our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, and our current reports on Form 8-K as well as Form 3, Form 4, and Form 5 Reports for our directors, officers, and principal stockholders, together with amendments to those reports filed or furnished pursuant to Section 13(a), 15(d), or 16 under the Exchange Act. These reports are available as soon as reasonably practicable after their electronic filing with the Securities and Exchange Commission.

CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this report include forward-looking statements. These forward-looking statements can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “may,” “intend,”

“expect,” “will,” “should,” “seeks” or other similar expressions. Forward-looking statements are based largely on our expectations and involve inherent risks and uncertainties including certain risks described in this report. When considering those forward-looking statements, you should keep in mind the risks, uncertainties and other cautionary statements made in this report. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Some factors which may affect the accuracy of the forward-looking statements apply generally to the real estate industry, while other factors apply directly to us. Any number of important factors which could cause actual results to differ materially from those in the forward-looking statements include, without limitation: general economic and market conditions, including interest rate levels; our ability to service our substantial debt; inherent risks in investment in real estate; our ability to compete in the markets in which we operate; regulatory actions; fluctuations in operating results; our anticipated growth strategies; shortages and increased costs of labor or building materials; the availability and cost of land in desirable areas; natural disasters; our ability to raise debt and equity capital and grow our operations on a profitable basis; and our continuing relationships with affiliates.

Many of these factors are beyond our control. For a discussion of factors that could cause actual results to differ, please see the discussion in this report under the heading “Risk Factors” in Item 1A.

Item 1A.

Risk Factors

Risks Relating to Our Business

Going concern — The occurrence of recent adverse developments in the housing and credit markets has adversely affected our business and our liquidity and has resulted in our auditors issuing an opinion that reflects substantial doubt about our ability to continue as a going concern.

The for-sale residential construction industry has come under enormous pressure due to numerous economic and industry-related factors. Several companies operating in the residential construction sector of the economy have filed for bankruptcy protection or ceased operations entirely and others are facing serious operating and financial challenges. At the same time, the outstanding indebtedness of many others has been downgraded by credit rating agencies, and credit conditions in the industry continue to deteriorate. We faced significant challenges during 2008 due to these adverse conditions and expect to continue to face challenges in 2009. Recent adverse changes in the economy, consumer sentiment, significantly reduced demand, mortgage finance and credit markets have given rise to concerns that we may not be able to continue to achieve favorable modifications to our debt and/or meet our liquidity requirements which are necessary for us to continue operating.

Failure to successfully negotiate renewals of and extensions to our credit facilities would adversely affect our liquidity.

Our subsidiaries have a significant amount of secured debt. A portion of this debt has matured and remains unpaid. In our industry it is usual and customary for lenders to renew and extend project facilities until the project is complete. Since we are the guarantor of our subsidiaries’ debt, any significant failure to negotiate renewals and extensions to this debt would severely compromise our liquidity and could jeopardize our ability to satisfy our capital and cash flow requirements. Our previously reported and cured loan covenant violations, in connection with liquidity limitations of our banks, may impact our ability to renew and extend our debt. The current and continuing reduction in residential real estate demand and reduced availability of consumer mortgage financing could compromise our cash flow to a point where we would be unable to service our debt. If that happens and our lenders do not provide assistance in the form of additional borrowing capacity or waivers, our ability to continue operating would be seriously compromised.

Our operations require significant capital, which may not continue to be available.

The real estate development industry is capital intensive and requires significant expenditures for operations, land purchases, land development and construction as well as potential acquisitions of other homebuilders. In order to maintain our operations, we will need to obtain additional financing. These funds can be generated through public or private debt or

equity financings, additional bank borrowings free cash flow from settlements, or from strategic alliances or joint ventures. In light of the current economic climate we may not be successful in obtaining additional funds in a timely manner, on favorable terms or at all. Moreover, certain of our bank financing agreements contain provisions that limit the type and amount of debt we may incur in the future without our lenders’ consent. In addition, the availability of borrowed funds, especially for land acquisition and construction financing, has been greatly reduced, and lenders may require us to invest increased amounts of equity in a project in connection with both new loans and the extension of existing loans. If we do not have access to additional capital, we may be required to delay, scale back or abandon some or all of our acquisition plans or growth strategies or reduce capital expenditures and the size of our operations and as a result may experience a material adverse affect on our business, results of operations and financial condition.

Our continuing operations and future growth depends on the availability of construction, acquisition and development loans.

Currently, we have multiple construction, acquisition and development loans. These credit facilities tend to be project-oriented and generally have variable rates and require significant management time to administer them. If financial institutions decide to discontinue providing these facilities to us we would lose our primary source of financing our operations or the cost of retaining or replacing these credit facilities could increase dramatically. Further, this type of financing is typically characterized by short-term loans which are subject to call. If our primary source of financing becomes unavailable or accelerated repayment is demanded, we may not be able to meet our obligations and our ability to continue operating would be seriously compromised. This may force us into bankruptcy or liquidation.

We engage in construction and real estate activities which are speculative and involve a high degree of risk.

The home building industry is speculative and demand for new homes is significantly affected by changes in economic and other conditions, such as:

•

employment levels;

•

availability of home buyer mortgage financing;

•

interest rates; and

•

consumer confidence.

These factors can negatively affect the demand for and pricing of our homes and our margin on sale. We are also subject to a number of risks, many of which are beyond our control, including:

•

delays in construction schedules;

•

cost overruns;

•

changes in governmental regulations (such as slow-or no-growth initiatives);

•

increases in real estate taxes and other local government fees;

•

labor strikes;

•

transportation costs for delivery of materials; and

•

increases and/or shortages in raw materials and labor costs.

Our ability to sell homes, and, accordingly, our results of operations, will be affected by the availability of mortgage financing to potential home buyers.

Most home buyers finance their purchase of a new home through third-party mortgage financing. As a result, residential real estate demand is adversely affected by:

•

increases in interest rates and/or related fees;

•

increases in real estate transaction closing costs;

•

decreases in the availability of consumer mortgage financing;

•

increasing housing costs;

•

unemployment; and

•

changes in federally sponsored financing programs;

•

increases in foreclosure inventory and reduction in market comparables resulting from foreclosures and short sales.

Increases in interest rates and decreases in the availability of consumer mortgage financing have depressed the market for new homes because of the increased monthly mortgage costs and the unavailability of financing to potential home buyers. For instance, recent initiatives to tighten underwriting standards have made mortgage financing more difficult to obtain for some of our entry-level home buyers, which has led to decreased demand from these buyers. Even if potential home buyers do not experience difficulty securing mortgage financing for their purchase of a new home, increases in interest rates and decreased mortgage availability could make it harder for them to sell their existing homes. This could continue to adversely affect our operating results and financial condition.

Fluctuations in market conditions may affect our ability to sell our land and home inventories at expected prices, if at all, which could adversely affect our revenues, earnings and cash flows.

We are subject to the potential for significant fluctuations in the market value of our land and home inventories. We must constantly locate and acquire new tracts of undeveloped and developed land if we are to support growth in our home building operations. There is a lag between the time we acquire control of undeveloped land or developed home sites and the time that we can bring the communities built on that land to market and deliver our homes. This lag time varies from site to site as it is impossible to predict with certainty in advance the length of time it will take to obtain governmental approvals and building permits. The risk of owning undeveloped land, developed land and homes can be substantial. The market value of undeveloped land, buildable lots and housing inventories can fluctuate significantly as a result of changing economic and market conditions. Inventory carrying costs can be significant and can result in losses in a poorly performing development or market. Material write-downs of the estimated value of our land and home inventories could occur if market conditions deteriorate or if we purchase land or build home inventories at higher prices during stronger economic periods and the value of those land or home inventories subsequently declines during weaker economic periods. We could also be forced to sell homes, land or lots for prices that generate lower profit than we anticipate, or at a loss, and may not be able to dispose of an investment in a timely manner when we find dispositions advantageous or necessary. Furthermore, a continued decline in the market value of our land or home inventories may give rise to additional impairments of our inventory and write-offs of contract deposits and feasibility cost, which may result in a breach of financial covenants contained in one or more of our credit facilities, which could cause a default under those credit facilities. Defaults in these credit facilities are often times the responsibility of the Company as the Company is the guarantor of most of its subsidiary’s debts.

Deteriorating market conditions, turmoil in the credit markets and increased price competition have continued to negatively impact the Company in 2008 resulting in reduced sales prices, increased customer concessions, reduced gross margins and extended estimates for project completion dates. As a result, the Company evaluated all 41 of its projects to determine if recorded carrying amounts were recoverable. This evaluation resulted in an aggregate 2008 impairment charge of $18.0 million, with $6.1 million in the Washington D.C. region, $11.4 million in the Atlanta, Georgia region and $0.5 million in the Raleigh, N.C. region. Impairment charges are recorded as a reduction in our capitalized land and/or house costs. The impairment charge was calculated using a discounted cash flow analysis model, which is dependent upon several subjective

factors, including the selection of an appropriate discount rate, estimated average sales prices and estimated sales rates. In performing its impairment modeling the Company must select what it believes is an appropriate discount rate based on current market cost of capital and returns expectations. The Company has used its best judgment in determining an appropriate discount rate based on anecdotal information it has received from marketing its deals for sale in recent months. The Company has elected to use a rate of 17% in its discounted cash flow model. While the selection of a 17% discount rate was subjective in nature, the Company believes it is an appropriate rate in the current market. The estimates used by the Company are based on the best information available at the time the estimates are made. If market conditions continue to deteriorate additional adverse changes to these estimates in future periods could result in further material impairment amounts to be recorded.

In general, an ownership change occurs whenever there is a shift in ownership by more than 50 percentage points by one or more 5% shareholders over a specified time period (generally three years). Given Section 382’s broad definition, an ownership change could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control.

The Company currently has approximately $37.5 million in Federal and State NOLs and approximately $0.9 million of AMT credits, with a potential value of up to $15.5 million in tax savings over the next 20 years. Under Internal Revenue Code Section 382 rules, if a change of ownership is triggered, the Company’s NOL asset and possibly certain other deferred tax assets may be impaired. We estimate that as of December 31, 2008, the cumulative shift in the Company’s stock was at an approximately 32% level compared with the 50% level that would trigger impairment of our NOL asset. However, if an ownership change were to occur due to the Company’s valuation allowance on its net deferred tax assets, a Section 382 limitation is not expected to materially impact the Company’s financial position or results of operations as of December 31, 2008. However, if an ownership change were to occur, the application of Section 382 may require the Company to reduce its gross deferred tax assets related to its NOLs and possibly other deferred tax asset balances.

Home prices and sales activities in the Washington, D.C., Raleigh, North Carolina and Atlanta, Georgia geographic markets have a large impact on our results of operations because we conduct substantially all of our business in these markets. Although demand in these geographic areas historically has been strong, the current slowdown in residential real estate demand and reduced availability of consumer mortgage financing have reduced the likelihood of consumers seeking to purchase new homes which has had and will likely continue to have a negative impact on the pace at which we receive orders for our new homes. As a result of the foregoing and general economic conditions, potential customers may be less willing or able to buy our homes, or we may take longer or incur more costs to build them. We may not be able to recapture increased costs by raising prices in many cases because of market conditions or because we fix our prices in advance of delivery by signing home sales contracts. We may be unable to change the mix of our homes or our offerings or the affordability of our homes to maintain our margins or satisfactorily address changing market conditions in other ways. This has and could continue to adversely affect our results of operations and cash flows.

Because our business depends on the acquisition of new land, the potential limitations on the supply of land could reduce our revenues or negatively impact our results of operations and financial condition.

Even in the current depressed housing market, we experience competition for available land and developed home sites in the Washington, D.C., Raleigh, North Carolina and Atlanta, Georgia markets. In these markets, we have experienced competition for home sites from other, sometimes better capitalized, home builders. In the Raleigh, North Carolina market, we have recently experienced competition from large, national home builders entering the market. Our ability to continue our home building activities over the long term depends upon our ability to locate and acquire suitable parcels of land or developed home sites to support our home building operations. If competition for land increases, the cost of acquiring it may rise, and the availability of suitable parcels at acceptable prices may decline. Any need for increased pricing could increase the rate at which consumer demand for our homes declines and, consequently, reduce the number of homes we sell and lead to a decrease in our revenues, earnings and cash flows.

Our business is subject to governmental regulations that may delay, increase the cost of, prohibit or severely restrict our development and home building projects and reduce our revenues and cash flows.

We are subject to extensive and complex laws and regulations that affect the land development and home building process, including laws and regulations related to zoning, permitted land uses, levels of density (number of dwelling units per acre), building design, access to water and other utilities, water and waste disposal and use of open spaces. In addition, we and our subcontractors are subject to laws and regulations relating to worker health and safety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of our markets, we are required to pay environmental impact fees, use energy saving construction materials and give commitments to provide certain infrastructure such as roads and sewage systems. We must also obtain permits and approvals from local authorities to complete

residential development or home construction. The laws and regulations under which we and our subcontractors operate, and our and their obligations to comply with them, may result in delays in construction and development, cause us to incur substantial compliance and other increased costs, and prohibit or severely restrict development and home building activity in certain areas in which we operate. If we are unable to continue to develop communities and build and deliver homes as a result of these restrictions or if our compliance costs increase substantially, our revenues, earnings and cash flows may be reduced.

Cities and counties in which we operate have adopted, or may adopt, slow or no-growth initiatives that would reduce our ability to build and sell homes in these areas and could adversely affect our revenues, earnings and cash flows.

From time to time, certain cities and counties in which we operate have approved, and others in which we operate may approve, various “slow-growth” or “no-growth” initiatives and other similar ballot measures. Such initiatives restrict development within localities by, for example, limiting the number of building permits available in a given year. Approval of slow- or no-growth measures could reduce our ability to acquire land, obtain building permits and build and sell homes in the affected markets and could create additional costs and administration requirements, which in turn could have an adverse effect on our revenues, earnings and cash flows.

Increased regulation in the housing industry increases the time required to obtain the necessary approvals to begin construction and has prolonged the time between the initial acquisition of land or land options and the commencement and completion of construction. These delays increase our costs, decrease our profitability and increase the risks associated with the land inventories we maintain.

Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to build in those municipalities. This, in turn, could reduce the number of homes we sell and decrease our revenues, earnings and cash flows.

The competitive conditions in the home building industry could increase our costs, reduce our revenues and earnings and otherwise adversely affect our results of operations and cash flows.

The home building industry is highly competitive and fragmented. We compete in each of our markets with a number of national, regional and local builders for customers, undeveloped land and home sites, raw materials and labor. For example, in the Washington, D.C. market, we compete against multiple publicly-traded national home builders, and many privately-owned regional and local home builders. We do not compete against all of the builders in our geographic markets in all of our product types or submarkets, as some builders focus on particular types of projects within those markets, such as large estate homes, that are not in competition with our projects.

We compete primarily on the basis of price, location, design, quality, service and reputation. Some of our competitors have greater financial resources, more established market positions and better opportunities for land and home site acquisitions than we do and have lower costs of capital, labor and material than us. The competitive conditions in the home building industry could, among other things:

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make it difficult for us to acquire suitable land or home sites in desirable locations at acceptable prices and terms, which could adversely affect our ability to build homes;

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require us to increase selling commissions and other incentives, which could reduce our profit margins;

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result in delays in construction if we experience delays in procuring materials or hiring trades people or laborers;

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result in lower sales volume and revenues; and

•

increase our costs and reduce our earnings

We also compete with sales of existing homes and condominiums, foreclosure sales of existing homes and condominiums and available rental housing. A continued oversupply of competitively priced resale, foreclosure or rental homes in our markets could adversely affect our ability to sell homes profitably.

Our business is concentrated in a few geographic areas which increases our exposure to localized risks.

We currently develop and sell homes principally in the Washington, D.C., Raleigh, North Carolina and Atlanta, Georgia markets. Our limited geographic diversity means that adverse general economic, weather or other conditions in either of these markets could adversely affect our results of operations and cash flows or our ability to grow our business.

We are dependent on the services of certain key employees and the loss of their services could harm our business.

Our success largely depends on the continuing services of certain key employees, including Christopher Clemente, our Chairman and Chief Executive Officer; Gregory Benson, our President and Chief Operating Officer and Bruce Labovitz, our Chief Financial Officer. Our continued success also depends on our ability to attract and retain qualified personnel. We believe that Messrs. Clemente, Benson and Labovitz each possess valuable industry knowledge, experience and leadership abilities that would be difficult in the short term to replicate. The loss of these or other key employees could harm our operations, business plans and cash flows.

A significant portion of our business plan involves and may continue to involve mixed-use developments and high-rise projects with which we have less experience.

We are actively involved in the construction and development of mixed-use and high-rise residential projects. Our experience is largely based on smaller wood-framed structures that are less complex than high-rise construction or the development of mixed-use projects. A mixed-use project is one that integrates residential and non-residential uses in the same structure or in close proximity to each other, on the same land. As we continue to expand into these new product types, we expect to encounter operating, marketing, customer service, warranty and management challenges with which we have less familiarity. We have expanded our management team to include individuals with significant experience in this type of real estate development but have been forced to let some of them go as we’ve downsized our operation. If we are unable to successfully manage the challenges of this portion of our business, we may incur additional costs and our results of operations and cash flows could be adversely affected.

If we experience shortages of labor or supplies or other circumstances beyond our control, there could be delays or increased costs in developing our projects, which would adversely affect our operating results and cash flows.

We and the home building industry from time to time may be affected by circumstances beyond our control, including:

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work stoppages, labor disputes and shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers;

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lack of availability of adequate utility infrastructure and services;

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transportation cost increases;

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our need to rely on local subcontractors who may not be adequately capitalized or insured; and

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shortages or fluctuations in prices of building materials.

These difficulties have caused and likely will cause unexpected construction delays and short-term increases in construction costs. In an attempt to protect the margins on our projects, we often purchase certain building materials with commitments that lock in the prices of these materials for 90 to 120 days or more. However, once the supply of building materials subject to these commitments is exhausted, we are again subject to market fluctuations and shortages. We may not be able to recover unexpected increases in construction or materials costs by raising our home prices because, typically, the price of each home is established at the time a customer executes a home sale contract. Furthermore, sustained increases in construction costs may, over time, erode our profit margins and may adversely affect our results of operations and cash flows.

We depend on the availability and skill of subcontractors and their willingness to work with us.

Substantially all of our construction work is done by subcontractors with us acting as the general contractor or by subcontractors working for a general contractor we select for a particular project. Accordingly, the timing and quality of our construction depends on the availability and skill of those subcontractors. We do not have long-term contractual commitments with subcontractors or suppliers. Although we believe that our relationships with our suppliers and subcontractors are good, we cannot assure that skilled subcontractors will continue to be available at reasonable rates and in the areas in which we conduct our operations. The inability to contract with skilled subcontractors or general contractors at reasonable costs on a timely basis could limit our ability to build and deliver homes and could erode our profit margins and adversely affect our results of operations and cash flows. Recent cash flow and credit facility limitations have forced us to negotiate settlements with our vendors at less than the entire amounts owed. This may result in vendors not wanting to work with us on future projects.

Product liability litigation and claims that arise in the ordinary course of business may be costly or negatively impact sales, which could adversely affect our results of operations and cash flows.

Our home building business is subject to construction defect and product liability claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. Among the claims for which developers and builders have financial exposure are property damage, environmental claims and bodily injury claims. Damages awarded under these suits may include the costs of remediation, loss of property and health-related bodily injury. In response to increased litigation, insurance underwriters have attempted to limit their risk by excluding coverage for certain claims associated with environmental conditions, pollution and product and workmanship defects. As a developer and a home builder, we may be at risk of loss for mold-related property, bodily injury and other claims in amounts that exceed available limits on our comprehensive general liability policies. In addition, the costs of insuring against construction defect and product liability claims are high and the amount of coverage offered by insurance companies is limited. Uninsured product liability and similar claims, claims in excess of the limits under our insurance policies and the costs of obtaining insurance to cover such claims could have a material adverse effect on our revenues, earnings and cash flows.

Increased insurance risk could negatively affect our business, results of operations and cash flows.

Insurance and surety companies have reassessed many aspects of their business and, as a result, may take actions that could negatively affect our business. These actions could include increasing insurance premiums,

requiring higher self-insured retentions and deductibles, requiring additional collateral on surety bonds, reducing limits, restricting coverages, imposing exclusions, and refusing to underwrite certain risks and classes of business. Any of these actions may adversely affect our ability to obtain appropriate insurance coverage at reasonable costs, which could have a material adverse effect on our business. Additionally, coverage for certain types of claims, such as claims relating to mold, is generally unavailable. Further, we rely on surety bonds, typically provided by insurance companies, as a means of limiting the amount of capital utilized in connection with the public improvement sureties that we are required to post with governmental authorities in connection with land development and construction activities. The cost of obtaining these surety bonds is, from time to time, unpredictable and on occasion these surety bonds are unavailable. These factors can delay commencement of development projects and adversely affect revenue, earnings and cash flows.

We are subject to warranty claims arising in the ordinary course of business that could be costly.

We provide service warranties on our homes for a period of one year or more post closing and a structural warranty for five years post closing. We self-insure all of our warranties and reserve an amount we believe will be sufficient to satisfy any warranty claims on homes we sell. We also attempt to pass much of the risk associated with potential defects in materials and workmanship on to the subcontractors performing the work and the suppliers and manufacturers of the materials. In such cases, we still may incur unanticipated costs if a subcontractor, supplier or manufacturer fails to honor its obligations regarding the work or materials it supplies to our projects. If the amount of actual claims materially exceeds our aggregate warranty reserves and/or the amounts we can recover from our subcontractors and suppliers, our operating results and cash flows would be adversely affected.

Our business, results of operations and financial condition may be adversely affected by adverse weather conditions or natural disasters.

Adverse weather conditions, such as extended periods of rain, snow or cold temperatures, and natural disasters, such as hurricanes, tornadoes, floods and fires, can delay completion and sale of homes, damage partially complete or other unsold homes in our inventory and/or decrease the demand for homes or increase the cost of building homes. To the extent that natural disasters or adverse weather events occur, our business and results may be adversely affected. To the extent our insurance is not adequate to cover business interruption losses or repair costs resulting from these events, our results of operations and financial conditions may be adversely affected.

We are subject to certain environmental laws and the cost of compliance could adversely affect our business, results of operations and cash flows.

As a current or previous owner or operator of real property, we may be liable under federal, state, and local environmental laws, ordinances and regulations for the costs of removal or remediation of hazardous or toxic substances on, under or in the properties or in the proximity of the properties we develop. These laws often impose liability whether or not we knew of, or were responsible for, the presence of such hazardous or toxic substances. The cost of investigating, remediating or removing such hazardous or toxic substances may be substantial. The presence of any such substance, or the failure promptly to remediate any such substance, may adversely affect our ability to sell the property, to use the property for our intended purpose, or to borrow funds using the property as collateral. In addition, the construction process involves the use of hazardous and toxic materials. We could be held liable under environmental laws for the costs of removal or remediation of such materials. In addition, our existing credit facilities also restrict our access to the loan proceeds if the properties that are used to collateralize the loans are contaminated by hazardous substances and require us to indemnify the bank against losses resulting from such occurrence for significant periods of time, even after the loan is fully repaid.

Our Eclipse project is part of a larger development located at Potomac Yard in Northern Virginia. Potomac Yard was formerly part of a railroad switching yard contaminated by rail-related activities. Remediation of the property was conducted under supervision of the U.S. Environmental Protection Agency, or EPA, in coordination with state and local authorities. In 1998, federal, state and local government agencies authorized redevelopment of the property. Our plans for development of our portion of the project are consistent with those authorizations. Although concentrations of contaminants remain on the property under the EPA-approved remediation work plan, the EPA has determined that they do not present an unacceptable risk to human health or the environment. However, it is possible that we could incur some costs to defend against any claims that might be brought in the future relating to any such contaminants.

If we are not able to develop our communities successfully, results of operations and financial condition could be diminished.

Before a community generates any revenues, material expenditures are required to acquire land, to obtain development approvals and to construct significant portions of project infrastructure, amenities, model homes and sales facilities. It can take a year or more for a community development to achieve cumulative positive cash flow. Our inability to develop and market our communities successfully and to generate positive cash flows from these operations in a timely manner would have a material adverse effect on our ability to service our debt and to meet our working capital requirements.

Our operating results may vary.

We expect to experience variability in our revenues and net income. Factors expected to contribute to this variability include, among other things:

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the uncertain timing of real estate closings;

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our ability to continue to acquire additional land or options thereon on acceptable terms and the timing of all necessary regulatory approvals required for development;

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the condition of the real estate market and the general economy in the markets in which we operate;

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the cyclical nature of the home building industry;

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the changing regulatory environment concerning real estate development and home building;

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changes in prevailing interests rates and the availability of mortgage financing; and

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costs of material and labor and delays in construction schedules.

The volume of sales contracts and closings typically varies from month to month and from quarter to quarter depending on several factors, including the stages of development of our projects, weather and other factors beyond our control. In the early stages of a project’s development, we incur significant start-up costs associated with, among other things, project design, land acquisition and development, construction and marketing expenses. Since revenues from sales of properties are generally recognized only upon the transfer of title at the closing of a sale, no revenue is recognized during the early stages of a project unless land parcels or residential home sites are sold to other developers. Periodic sales of properties may be insufficient to fund operating expenses. Further, if sales and other revenues are not adequate to cover operating expenses, we will be required to seek sources of additional operating funds. Accordingly, our financial results will vary from community to community and from time to time.

Acts of war or terrorism may seriously harm our business.

Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power or acts of terrorism, may cause disruption to the U.S. economy, or the local economies of the markets in which we operate, cause shortages of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our revenues, earnings and cash flows.

We do not own the Comstock brand or trademark, but use the brand and trademark pursuant to the terms of a perpetual license granted by Christopher Clemente, our Chief Executive Officer and Chairman of the Board.

Our Chief Executive Officer and Chairman of the Board, Christopher Clemente, has licensed the “Comstock” brand and trademark to us in perpetuity and free of charge. We do not own the brand or the trademark and may be unable to protect it against infringement from third parties. However, Mr. Clemente retains the right to continue using the “Comstock” brand and trademark individually and through affiliates, including real estate development projects in our current or future markets. We will be unable to control the quality of projects undertaken by Mr. Clemente or others using the “Comstock” brand and trademark and therefore will be unable to prevent any damage to its goodwill that may occur. We will further be unable to preclude Mr. Clemente from licensing or transferring the ownership of the “Comstock” trademark to third parties, some of whom may compete against us. Consequently, we are at risk that our brand could be damaged which could have a material adverse effect on our business, operations and cash flows.

Risks Related to our Common Stock and the Securities Markets

Volatility of our stock price could adversely affect stockholders.

The market price of our Class A common stock could fluctuate significantly as a result of:

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quarterly variations in our operating results;

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general conditions in the home building industry;

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interest rate changes;

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changes in the market’s expectations about our operating results;

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our operating results failing to meet the expectation of securities analysts or investors in a particular period;

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changes in financial estimates and recommendations by securities analysts concerning our Company of the home building industry in general;

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operating and stock price performance of other companies that investors deem comparable to us;

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news reports relating to trends in our markets;

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changes in laws and regulations affecting our business;

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material announcements by us or our competitors.

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material announcements by our construction lenders or the manufacturers and suppliers we use;

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sales of substantial amounts of Class A common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

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general economic and political conditions such as recessions and acts of war or terrorism.

Investors may not be able to resell their shares of our Class A common stock following periods of volatility because of the market’s adverse reaction to that volatility. Our Class A common stock may not trade at the same levels as the stock of other homebuilders, and the market in general may not sustain its current prices.

Investors in our Class A common stock may experience dilution with the future exercise of stock options and warrants, the grant of restricted stock and issuance of stock in connection with our acquisitions of other homebuilders.

From time to time, we have issued and we will continue to issue stock options or restricted stock grants to employees and non-employee directors pursuant to our equity incentive plan. We expect that these options or restricted stock grants will generally vest commencing one year from the date of grant and continue vesting over a four-year period. Investors may experience dilution as the options vest and are exercised by their holders and the restrictions lapse on the restricted stock grants. In addition, we may issue stock in connection with acquisitions of other homebuilders, which may result in investors experiencing dilution.

Substantial sales of our Class A common stock, or the perception that such sales might occur, could depress the market price of our Class A common stock.

A substantial amount of the shares of our Class A common stock are eligible for immediate resale in the public market. Any sales of substantial amounts of our Class A common stock in the public market, or the perception that such sales might occur, could depress the market price of our Class A common stock.

Possibility of Delisting of our Common Stock from Nasdaq Global Marketplace.

In January 2008 we received notice from Nasdaq that we were in violation of the Nasdaq Minimum Bid-Price requirement that our stock’s closing bid remain above $1.00 per share. We were given until July 2008 to cure this deficiency. Our stock did not regain compliance and as such we were given notice of delisting. We appealed for a 180-day stay which was granted. In November 2008 and again in both January 2009 and March 2009 the bid-price rules were temporarily suspended. We currently have until October 2009 to regain compliance with the Bid-Price rules or shift our listing to the OTC exchange. There are no assurances that Nasdaq will again extend the deadline or that we will regain compliance.

The holders of our Class B common stocks exert control over us and thus limit the ability of other stockholders to influence corporate matters.

Messrs. Clemente and Benson own 100% of our outstanding Class B common stock, which, together with their shares of Class A common stock, represent approximately 78.1% of the combined voting power of all classes of our voting stock. As a result, Messrs. Clemente and Benson, acting together, have control over us, the election of our board of directors and our management and policies. Messrs. Clemente and Benson, acting together, also have control over all matters requiring stockholder approval, including the amendment of certain provisions of our certificate of incorporation and bylaws, the approval of any equity-based employee compensation plans and the approval of fundamental corporate transactions, including mergers. In light of this control, other companies could be discouraged from initiating a potential merger, takeover or any other transaction resulting in a change of control. Such a transaction potentially could be beneficial to our business or to our stockholders. This may in turn reduce the price that investors are willing to pay in the future for shares of our Class A common stock.

The limited voting rights of our Class A common stock could impact its attractiveness to investors and its liquidity and, as a result, its market value.

The holders of our Class A and Class B common stock generally have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to 15 votes per share on all matters to be voted on by stockholders. The difference in the voting rights of

the Class A and Class B common stock could diminish the value of the Class A common stock to the extent that investors or any potential future purchasers of our Class A common stock ascribe value to the superior voting rights of the Class B common stock.

It may be difficult for a third party to acquire us, which could inhibit stockholders from realizing a premium on their stock price.

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in business combinations with any stockholder, including all affiliates and employees of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s voting stock unless specified conditions are met.

Our amended and restated certificate of incorporation and bylaws contain provisions that have the effect of delaying, deferring or preventing a change in control of us that stockholders may consider favorable or beneficial. These provisions could discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

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a staggered board of directors, so that it would take three successive annual meetings to replace all directors;

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a prohibition of stockholder action by written consent; and

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advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting.

Our issuance of shares of preferred stock could delay or prevent a change of control of us.

Our Board of Directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 20,000,000 shares of preferred stock, par value $.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders, even where stockholders are offered a premium for their shares. The issuance of shares of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of Class A common stock, including the loss of voting control. We have no present plans to issue any shares of preferred stock.

Item 1B.

Unresolved Staff Comment s

None.

Item 2.

Properties

Our principal administrative, sales and marketing facilities are located at our headquarters in Reston, Virginia. At December 31, 2008 we leased 15,714 square feet of office space in the Reston facility from Comstock Asset Management, L.C., an affiliate wholly-owned by Christopher Clemente. Pursuant to this five-year headquarters lease which we entered into on October 1, 2004, we will pay annual rent of approximately $502,000, subject to a 4% annual increase through the lease termination.

We also lease office space in Raleigh, North Carolina where we occupy approximately 3,300 square feet of office space. On October 1, 2005 we entered into a five-year lease agreement for approximately 4,351 square feet of office space in Reston, Virginia. This office space was originally intended to be a sales office. However due to unfavorable market conditions, we discontinued using the sales office in December 2007 and in 2008 reached a lease termination agreement with the landlord. We have no further obligation related to the sales office lease.

Item 3.

Legal Proceedings

On December 7, 2007, the Company and a subsidiary were served with a complaint and notice of lis pendens resulting from an allegation of the subsidiary’s failure to pay $0.7 million allegedly due to the seller of property in the District of Columbia known as the East Capitol project. The Company’s subsidiary posted a cash escrow for 1.5 times the amount sought in the complaint in order to complete conveyance of the property without exception to title and vigorously defended the matter. The parties settled the matter in December 2008, and the escrow has been released.

On February 29, 2008, a wholly owned subsidiary of the Company, Mathis Partners, LLC (“Mathis Partners”), received notices of acceleration and foreclosure from Haven Trust Bank (Lender) pursuant to existing acquisition and construction credit facilities at its Gates of Luberon project. The aggregate outstanding balance of the indebtedness was approximately $4.8 million as of the date of the notices. The notices were issued after maturity of the indebtedness and Mathis Partners’ inability to negotiate an extension of the credit facilities with Lender pursuant to terms and conditions Mathis Partners deemed satisfactory. On March 31, 2008, Mathis Partners, the special purpose entity that owns the Gates of Luberon project, filed Chapter 11 reorganization, prohibiting a scheduled foreclosure sale of the Lender’s collateral in the Gates of Luberon project from taking place. Mathis Partners ceased making adequate protection payments to the Lender in September of 2008, allowing Lender to petition the court for relief from the automatic stay, a prerequisite to Lender’s ability to recommence the foreclosure process. In April 2008, the Lender filed a separate collection action against the Company pursuant to a guaranty agreement entered into by the Company for the outstanding balance of the indebtedness. On December 6, 2008, the Chapter 11 petition was dismissed and in January 2009, prior to any substantive action taking place in the lawsuit or recommencement of foreclosure proceedings, the Lender failed and was taken over by the Federal Deposit Insurance Corporation (FDIC). The FDIC has sought a stay in the guaranty action through May of 2009. The carrying value of Mathis Partners assets at December 31, 2008 is approximately $4.4 million.

On July 3, 2008, the Company and Comstock Belmont Bay 8&9, L.C. (the “Subsidiary”) were served with a complaint by Belmont Bay, LC (“Seller”) to enforce payment of a purchase money promissory note (“Purchase Note”) that matured on March 24, 2007, made by the Subsidiary and guaranteed by the Company with respect to our Beacon Park I Condominium at Belmont Bay (the “Project”). Demand is made for $2.0 million, plus accrued interest, costs and attorney fees. The Company and Subsidiary have filed answers to the action and the Subsidiary filed a counterclaim against the Seller as a result of its various breaches of the purchase contract that gave rise to the Purchase Note. On July 30, 2008, the Company and Subsidiary received notice of an additional complaint filed by Seller for breach of the purchase contract and on August 6, 2008, the Subsidiary was served with a third complaint by Seller and the master associations for the Belmont Bay development seeking injunctive relief to prohibit the Subsidiary from selling the Project. The Subsidiary and the Company intend to vigorously defend all actions and have filed a complaint against the Seller, the master association and certain individual constituent members of the associations as a result of their various contractual and fiduciary breaches.

On July 29, 2008, Balfour Beatty Construction, LLC, successor in interest to Centex Construction (“Balfour”) the general contractor for a subsidiary of the Company filed liens totaling approximately $0.5 million at The Eclipse on Center Park project (“Project”) in connection with its claim for amounts allegedly owed under the Project contract documents. In September 2008, the Company’s subsidiary filed suit against Balfour to invalidate the liens and for its actual and liquidated damages in the approximate amount of $13.8 million due to construction delays and additional costs incurred by the Company’s subsidiary with respect to the Project. In October 2008, Balfour filed counterclaims in the approximate amount of $4.0 million. The lender for the Company’s subsidiary has not issued a default notice with respect to the liens but an adverse judgment with respect to the litigation or the existence of the liens could nevertheless be considered an event of default under the subsidiaries loan associated with the Project.

Other than the foregoing, we are not currently subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising from our normal business activities. Although we

cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actions currently pending against us, we do not expect that any such liability will have a material adverse effect on our financial position, operating results or cash flows. We believe that we have obtained adequate insurance coverage, rights to indemnification, or where appropriate, have established reserves in connection with these legal proceedings.

Item 4.

Submission of Matters to a Vote of Security Holders.

None.

PART II

Item 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

Our Class A common stock has been traded on the NASDAQ Global Market under the symbol “CHCI” since our initial public offering on December 14, 2004. The following table sets forth the high and low sale prices of our Class A common stock, as reported on NASDAQ, for the periods indicated:


	High		Low
Fiscal Year Ended 2006
Fourth quarter	$	14.69	$	3.94
Fiscal Year Ended 2007
First quarter	$	6.92	$	3.99
Second quarter	$	4.29	$	2.55
Third quarter	$	2.95	$	1.21
Fourth quarter	$	2.00	$	0.50
Fiscal Year Ended 2008
First quarter	$	1.37	$	0.50
Second quarter	$	0.83	$	0.31
Third quarter	$	1.05	$	0.06
Fourth quarter	$	0.80	$	0.16

On March 27, 2009, there were approximately 25 record holders and as of our last proxy record date approximately 3,439 beneficial owners of our Class A common stock. On March 27, 2009 there were two holders of our Class B common stock.

Dividends

We have never paid any cash dividends on our common stock. From time to time, our board of directors evaluates the desirability of paying cash dividends. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, applicable loan covenants and other factors deemed relevant by our board of directors.

Issuer Purchases of Equity Securities

Our board of directors has previously authorized the repurchase of up to 1.0 million shares of our Class A common stock in one or more open market or privately negotiated transactions.

During the twelve months ended December 31, 2008, we did not repurchase any of our outstanding Class A common stock. We have no immediate plans to resume stock repurchases under this authorization.

Stock Performance Graph

The following line graph compares cumulative total stockholder returns for the period from December 14, 2004, the date of our initial public offering, through December 31, 2008 for (1) our Class A common stock; (2) the NASDAQ Composite Index; and (3) the Standard & Poor’s (S&P) 500 Homebuilding Index. The graph assumes an investment of $100 on December 14, 2004, which was the first day on which our stock was listed on the NASDAQ Global Market.

The performance shown is not necessarily indicative of future performance.

COMPARISON OF CUMULATIVE TOTAL RETURN

LOGO


Company/Index	Base Period 12/14/04	Indexed Returns Years Ending
Company/Index	Base Period 12/14/04	12/31/04	12/31/05	12/31/06	12/31/07	12/31/08
COMSTOCK HOMEBUILDING COS	100	137.31	88.19	35.94	4.13	1.06
NASDAQ COMPOSITE INDEX	100	100.72	102.11	111.83	122.80	73.02
S&P 500 HOMEBUILDING INDEX	100	104.65	131.70	104.18	42.05	25.11

Item 6.

Selected Financial Data

The following table contains selected consolidated and combined financial information and is supplemented by the more detailed financial statements and notes thereto included elsewhere in this report. We derived the selected historical financial data shown below for 2008, 2007, 2006, 2005 and 2004 from our audited financial statements. You should read the following financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our combined consolidated financial statements and the related notes, included elsewhere in this report.

FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA

Dollars in thousands (except per share data)


	Year ended December 31,
	2008			2007			2006			2005		2004
Revenues	$	46,662		$	266,159		$	245,881		$	224,305	$	96,045
Expenses Cost of sales		39,274			245,309			216,657			156,490		63,993
Impairments and write-offs (1)		18,022			78,264			57,426			1,216		—
Selling, general and administrative		16,400			34,671			37,500			24,190		11,940
Interest, real estate taxes and indirect costs related to inactive projects		5,685			—			—			—		—
Operating (loss) income		(32,719	)		(92,085	)		(65,702	)		42,409		20,112
Gain (loss) on troubled debt restructuring		12,851			—			—			—		—
Other income (expense), net		2,850			1,886			1,487			1,450		908
(Loss) Income before minority interest and equity in earnings of real estate partnerships		(17,018	)		(90,199	)		(64,215	)		43,859		19,204
Minority interest		(7	)		(137	)		15			30		5,260
(Loss) Income before equity in (loss) earnings of real estate partnerships		(17,010	)		(90,062	)		(64,230	)		43,829		13,944
Equity in (loss) earnings of real estate partnerships		—			—			(135	)		99		118
Total pre-tax (loss) income		(17,010	)		(90,062	)		(64,365	)		43,928		14,062
Income tax (benefit) provision		48			(2,552	)		(24,520	)		16,366		(241	)
Net (loss) income	$	(17,058	)	$	(87,510	)	$	(39,845	)	$	27,562	$	14,303
Basic (loss) earnings per share	$	(0.98	)	$	(5.42	)	$	(2.63	)	$	2.14	$	1.95
Basic weighted average shares outstanding (2)		17,462			16,140			15,148			12,870		7,347
Dilutive (loss) earnings per share	$	(0.98	)	$	(5.42	)	$	(2.63	)	$	2.12	$	1.95
Dilutive weighted average shares outstanding (2)		17,462			16,140			15,148			13,022		7,351

	December 31,
Balance Sheet Data	2008			2007			2006			2005		2004
Cash and cash equivalents	$	5,977		$	6,822		$	21,263		$	42,167	$	67,559
Real estate held for development and sale (1)(3)		129,542			203,860			405,144			263,802		104,326
Total assets		160,859			258,976			517,429			431,319		304,507
Notes payable		90,086			141,214			265,403			143,657		76,628
Subordinated debt		12,743			30,000			30,000			—		—
Total liabilities		130,111			212,226			393,173			285,843		239,586
Minority interest		223			231			371			400		2,695

(1)

During the years ended December 31, 2008, 2007 and 2006, the Company recorded gains from troubled debt restructuring, impairment charges and write-offs of option deposits and related feasibility costs. The inclusion of these items makes year to year comparisons difficult and should be considered when evaluating results of operations in relation to earlier years.

(2)	Shares outstanding of our predecessor for prior years have been adjusted to account for shares issued to the owners of our predecessor in connection with the initial public offering of our common stock.

(3)	During 2006 the Company acquired Parker Chandler Homes, Inc. in Atlanta, GA and Capitol Homes, Inc. in Raleigh, NC.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial and Other Data” and our consolidated and combined financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Notes Regarding Forward-looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed below and elsewhere in this report, particularly under the headings “Risk Factors” and “Cautionary Notes Regarding Forward-looking Statements.”

Overview

Our markets have historically been characterized by strong population and economic growth trends that have led to strong demand for traditional housing. However, the housing industry is in an unprecedented and prolonged cyclical downturn, suffering the effects of reduced demand brought on by significant increases in existing home inventory, resistance to appreciating prices of new homes, turmoil in the mortgage markets, reduced liquidity levels in the world financial markets, increasing unemployment and concerns about the health of the national and global economics. We believe over the past two decades we have gained experience that will be helpful to us as we seek to manage our business through the current difficult market environment. We believe we have taken, and are continuing to take, steps that will assist us in managing our business through the current cycle until market conditions stabilize and eventually improve. There can be no assurances, however, that we will be able to generate and maintain sufficient cash resources to survive long enough for market conditions to improve.

As a result of deteriorating market conditions, we have adjusted certain aspects of our business strategy. In 2008, we focused our energy on repositioning projects, reducing debt, reducing costs, managing liquidity, renegotiating loans with current period and near-term maturities, refinancing projects and enhancing our balance sheet. We have cancelled or postponed plans to start several new projects and either renegotiated or cancelled contracts to purchase certain other projects. As a result, we purchased no new land in 2008. We have sold certain land and other assets and taken steps to significantly reduce our inventory of speculative homes as well. Until market conditions stabilize, we will continue to focus on working through the land inventory we own. This will include continuing efforts to sell certain land parcels where we believe it is the best strategy relative to that particular asset.

While we have always preferred to purchase finished building lots that are developed by others, we have also been active in entitling and developing land for many of our home building projects. We believe it is important to have the in-house capabilities to manage the entitlement and development of land in order to position our company to be able to recognize opportunities to enhance the value of the real estate we develop and to be opportunistic in our approach to acquisitions. Nonetheless, our interest in acquiring new development projects will be focused on finished building lots until market conditions and circumstances warrant otherwise. As such, we have significantly reduced our in-house development staff.

During the past several years our business has included the development, redevelopment and construction of residential mid-rise and high-rise condominium complexes. The majority of our multi-family projects are in our core market of the greater Washington, D.C. area. We believe the demographics and housing trends in the Washington, DC area will continue to generate demand for high density housing and mixed-use developments over the long term. However, condominium sales in the greater Washington, D.C. area have declined significantly as a result of current economic conditions. In order to reduce the cost associated with carrying our condominium inventory in the Washington, DC region we are temporarily operating two of our multi-family projects as hybrid for-sale and for-rent properties. This approach provides us regular cash flow which we use to offset a portion of the carry costs associated with the applicable multi-family assets. In addition, we believe the value of the assets will increase over time as market conditions stabilize or improve. In Raleigh, North Carolina and Atlanta, Georgia, we continue to be focused on lower density housing principally single family homes.

Our business was founded in 1985 by Christopher Clemente, our current Chief Executive Officer, as a residential land developer and home builder focused on the move-up home market in the Northern Virginia suburbs of the Washington, D.C area. Prior to our initial public offering in December 2004, we operated our business through four primary holding companies. In connection with our initial public offering, these primary holding companies were consolidated and merged into Comstock Homebuilding Companies, Inc., which was incorporated in Delaware in May 2004. Our principal executive offices are located at 11465 Sunset Hills Road, Suite 510, Reston, Virginia 20190, and our telephone number is (703) 883-1700. Our Web site is www.comstockhomebuilding.com. References to “Comstock,” “we,” “our” and “us” refer to Comstock Homebuilding Companies, Inc. together in each case with our subsidiaries and any predecessor entities unless the context suggests otherwise.

In today’s real estate market our general operating business strategy has the following key elements:

•

protect liquidity and maximize capital availability;

•

maximize the realized value of our real estate owned;

•

utilize technology to streamline operations, reduce costs, enhance customer communications and facilitate sales

•

rationalize overhead expenses;

•

focus on our core markets in the Mid-Atlantic and Southeast region of the United States;

•

focus on our current land inventory in our core markets;

•

focus on a broad segment of the home buying market, aka the “middle market”;

•

create opportunities in areas overlooked by our competitors;

•

maximize our economies of scale;

•

aggressively prosecute existing litigation to recover costs and damages caused by others.

At December 31, 2008, we either owned or controlled under option agreements over 1,800 building lots. The following tables summarize certain information related to new orders, settlements, and backlog for the twelve month periods ended December 31, 2008, 2007, and 2006:


	Twelve months ended December 31, 2008
(dollars in 000s except units)	Washington Metro Area		North Carolina		Georgia		Total
Gross new orders		69		54		17		140
Cancellations		17		23		13		53
Net new orders		52		31		4		87
Gross new order revenue	$	23,052	$	11,532	$	5,260	$	39,844
Cancellation revenue	$	4,701	$	6,879	$	4,023	$	15,603
Net new order revenue	$	18,351	$	4,653	$	1,237	$	24,241
Average gross new order price	$	334	$	214	$	309	$	285
Settlements		62		63		22		147
Settlement revenue - homebuilding	$	21,367	$	15,633	$	7,097	$	44,097
Average settlement price	$	345	$	248	$	323	$	300
Backlog units (1)		3		7		1		11
Backlog revenue (1)	$	739	$	1,977	$	386	$	3,102
Average backlog price (1)	$	246	$	282	$	386	$	282


	Twelve months ended December 31, 2007
(dollars in 000s except units)	Washington Metro Area		North Carolina		Georgia		Total
Gross new orders		559		152		116		827
Cancellations		162		28		24		214
Net new orders		397		124		92		613
Gross new order revenue	$	123,909	$	38,017	$	35,936	$	197,862
Cancellation revenue	$	69,974	$	8,476	$	7,594	$	86,044
Net new order revenue	$	53,935	$	29,541	$	28,342	$	111,818
Average gross new order price	$	222	$	250	$	310	$	239
Settlements		669		131		86		886
Settlement revenue — homebuilding	$	174,584	$	31,644	$	26,577	$	232,805
Average settlement price	$	261	$	242	$	309	$	263
Backlog units (1)		13		39		18		70
Backlog revenue (1)	$	4,112	$	12,684	$	6,051	$	22,847
Average backlog price (1)	$	316	$	325	$	336	$	326

	Twelve months ended December 31, 2006
(dollars in 000s except units)	Washington Metro Area		North Carolina		Georgia		Total
Gross new orders		625		175		165		965
Cancellations		122		6		43		171
Net new orders		503		169		122		794
Gross new order revenue	$	159,498	$	45,213	$	43,236	$	247,947
Cancellation revenue	$	39,621	$	2,956	$	10,631	$	53,208
Net new order revenue	$	119,877	$	42,257	$	32,605	$	194,739
Average gross new order price	$	255	$	258	$	262	$	257
Settlements		675		132		107		914
Settlement revenue — homebuilding	$	180,182	$	32,255	$	27,656	$	240,093
Average settlement price	$	267	$	244	$	258	$	263
Backlog units (1)		285		45		15		345
Backlog revenue (1)	$	123,080	$	13,245	$	4,948	$	141,273
Average backlog price (1)	$	432	$	294	$	330	$	409

(1)	Backlog data as of 12/31 for each year.

Recent accounting pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standard No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this pronouncement has not had a material effect on our consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standard No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment to FASB Statement No. 115 (“SFAS 159”), which permits entities to measure various financial instruments and certain other items at fair value at specified election dates. The election must be made at the initial recognition of the financial instrument, and any unrealized gains or losses must be reported at each reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The adoption of this pronouncement has not had a material effect on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (“SFAS 141R”), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable financial statement users to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after fiscal years beginning after December 15, 2008. The adoption of this pronouncement is not expected to have a material effect on our consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 5 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent; the amount of net income attributable to the parent and to the noncontrolling interest; changes in a parent’s ownership interest; and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is required to be adopted prospectively for the first annual reporting period after December 15, 2008. The adoption of this pronouncement is not expected to have a material effect on our consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 enhances the current disclosure framework in SFAS 133 and requires enhanced disclosures about why an entity uses derivative instruments, how derivative instruments are accounted for under SFAS 133 and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years beginning after November 15, 2008. The adoption of this pronouncement is not expected to have a material effect on our consolidated financial statements.

In June 2008, the FASB issued FASB Staff Position (FSP) Emerging Issues Task Force 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. The two-class method determines earnings per share for each class of common stock and participating securities according to dividends or dividend equivalents and their respective participation rights in undistributed earnings. The Company’s outstanding restricted stock awards will be considered participating securities under the FSP. The FSP is effective for the Company’s fiscal year beginning January 1, 2009, and requires retrospective application. The adoption of this pronouncement is not expected to have a material effect on our consolidated financial statements.

In October 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP FAS 157-3”). FSP FAS 157-3 clarifies the application of FASB Statement No. 157, “Fair Value Measurements,” in a market that is not active. FSP FAS 157-3 was effective upon issuance and adopted by the Company as of September 30, 2008. The adoption of FSP FAS 157-3 did not have a material impact on the Company’s consolidated financial statements.

In December 2008, the FASB issued FASB Staff Position (FSP) No. FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities”. The FSP requires additional disclosures by public companies about their involvement with variable interest entities and their continuing involvement with transferred financial assets. The FSP was effective for public entities with annual and interim periods ending after December 15, 2008, and was adopted by the Company as of December 31, 2008. The adoption of the FSP did not have a material impact on the Company’s consolidated financial statements.

Critical Accounting Policies and Estimates

Our consolidated and combined financial statements are prepared in accordance with generally accepted accounting principles, which require us to make certain estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to the consolidation of variable interest entities, revenue recognition, impairment of real estate held for development and sale, warranty reserve and our environmental liability exposure. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates.

A summary of significant accounting policies is provided in Note 2 to our audited consolidated financial statements. The following section is a summary of certain aspects of those accounting policies that require our most difficult, subjective or complex judgments and estimates.

Consolidation of Variable Interest Entities

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “ Consolidation of Variable Interest Entities ,” (“FIN 46”). FIN 46 requires the primary beneficiary of a variable interest entity to consolidate that entity. A variable interest entity is created when (i) the equity investment at risk is not sufficient to permit the entity from financing its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Expected losses are the expected negative variability of an entity’s net assets exclusive of its variable interests, and expected residual returns are the expected positive variability in the fair value of an entity’s assets, exclusive of variable interests. Prior to the issuance of FIN 46, an enterprise generally consolidated an entity when the enterprise had a controlling financial interest in the entity through ownership of a majority voting interest.

In December 2003, the FASB issued a revision of FIN 46 (“FIN 46-R”), clarifying certain provisions of FIN 46. We adopted the provisions of FIN 46-R on February 1, 2003 to the extent that they related to variable interest entities created on or after that date. For variable interest entities created before January 31, 2003,

FIN 46-R was deferred to the end of the first interim or annual period ending after March 15, 2004. We fully adopted FIN 46-R effective March 31, 2004. Based on the provisions of FIN 46-R, we have concluded that whenever we option land or lots from an entity and pay a significant nonrefundable deposit, a variable interest entity is created under condition (ii) (b) of the previous paragraph. This is because we have been deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity’s expected theoretical losses if they occur. Therefore, for each variable interest entity created, we compute the expected losses and residual returns based on the probability of future cash flows as outlined in FIN 46-R to determine if we are deemed to be the primary beneficiary of the variable interest entity.

The methodology used to evaluate our primary beneficiary status requires substantial management judgment and estimation. These judgments and estimates involve assigning probabilities to various estimated cash flow possibilities relative to the selling entity’s expected profits and losses and the cash flows associated with changes in the fair value of the land under contract. Because we do not have any ownership interests in the entities with which we contract to buy land (such as LLCs), we may not have the ability to compel these entities to provide financial or other data to assist us in the performance of the primary beneficiary evaluation. This lack of direct information from the contracting entities may result in our evaluation being conducted solely based on the aforementioned management judgments and estimates. Further, where we deem ourselves to be the primary beneficiary of such an entity created after December 31, 2003 and that entity refuses to provide financial statements, we utilize estimation techniques to perform the consolidation. While management believes that our estimation techniques provide a reasonable basis for determining the financial condition of an entity that refuses to provide financial statements, the actual financial condition of the entity could differ from that reported. In addition, although management believes that our accounting policy is designed to properly assess our primary beneficiary status relative to our involvement with the entities from which we acquire land, changes to the probabilities and the cash flow possibilities used in our evaluation could produce different conclusions regarding our primary beneficiary status.

Revenue Recognition

We primarily derive our earned revenues from the sale of residential property. We recognize residential revenue and all related costs and expenses when full payment has been received, title and possession of the property has been conveyed and risks and rewards of ownership transfer to the buyer and other sale and profit recognition criteria are satisfied. Management estimates of future costs to be incurred after the completion of each sale are included in cost of sales. A change in circumstances that causes these estimates of future costs to increase or revenues to decrease could significantly affect the profit recognized on these sales.

Impairment of Real Estate Held for Development and Sale

•

significant negative industry or economic trends;

•

a significant underperformance relative to historical or projected future operating results;

•

a significant change in the manner in which an asset is used; and

•

an accumulation of costs significantly in excess of the amount originally expected to construct an asset.

Real estate is stated at the lower of cost or estimated fair value using the methodology described as follows. A write-down to estimated fair value is recorded when we determine that the net book value exceeds the estimated selling prices less cost to sell. These evaluations are made on a property-by-property basis. When we determine that the net book value of an asset may not be recoverable based upon the estimated undiscounted cash flow, an impairment write-down is recorded. The evaluation of future cash flows and fair value of individual properties requires significant judgment and assumptions, including estimates regarding expected sales prices, development absorption and remaining development costs. Significant adverse changes in circumstances affecting these judgments and assumptions in future periods could cause a significant impairment adjustment to be recorded. As discussed in Note 4 in the accompanying financial statements, we recorded impairment charges of $0.8 million in the first quarter of 2008, $13.7 million in the second quarter of 2008, zero in the third quarter of 2008 and $3.5 in the fourth quarter of 2008.

Warranty Reserve

Warranty reserves for houses sold are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the one-year warranty period provided by us or within the five-year statutorily mandated structural warranty period. Since we generally subcontract our home building work, subcontractors are required to provide us with an indemnity and a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based upon historical warranty cost experience and current business factors. Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on a periodic basis. Although management considers the warranty reserve to be adequate, there can be no assurance that this reserve will prove to be adequate over time to cover losses due to increased costs for material and labor, the inability or refusal of manufacturers or subcontractors to financially participate in corrective action, unanticipated adverse legal settlements, or other unanticipated changes to the assumptions used to estimate the warranty reserve.

Environmental Liability Exposure

Development and sale of real property creates a potential for environmental liability on our part as owner and developer, for our own acts as well as the acts of prior owners of the subject property or owners or past owners of adjacent parcels. If hazardous substances are discovered on or emanating from any of our properties, we and prior owners may be held liable for costs and liabilities relating to those hazardous substances. We generally undertake environmental studies in connection with our property acquisitions, when warranted. If we incur environmental remediation costs in connection with properties we previously sold, including clean up costs, consulting fees for environmental studies and investigations, monitoring costs, and legal costs relating to clean up, litigation defense and the pursuit of responsible third parties, they are expensed. We capitalize costs relating to land under development and undeveloped land as part of development costs. Costs incurred for properties to be sold are deferred and charged to cost of sales when the properties are sold. Should a previously undetected, substantial environmental hazard be found on our properties, significant liquidity could be consumed by the resulting clean up requirements and a material expense may be recorded. Further, governmental regulation on environmental matters affecting residential development could impose substantial additional expense on us, which could adversely affect our results of operations or the value of properties owned under contract, or purchased by us. For additional information regarding risks associated with environmental hazards and environmental regulation, see “Business — Risk Factors — We are Subject to Certain Environmental Laws and the Cost of Compliance Could Adversely Affect our Business.”

Results of Operations

Year ended December 31, 2008 compared to year ended December 31, 2007

Orders, backlog and cancellations

Gross new order revenue for the year ended December 31, 2008 decreased $158.0 million, or 79.9%, to $39.8 million on 140 homes as compared to $197.9 million on 827 homes for the year ended December 31, 2007. Net new orders for the year ended December 31, 2008 decreased $87.6 million, or 78.3%, to $24.2 million on 87 homes as compared to $111.8 million on 613 homes for the year ended December 31, 2007. The 526 unit decrease in net new orders was experienced across all of our markets and projects and is attributable to the real estate industry downturn and the contraction of the national economy. General erosion of consumer confidence and increasing unemployment along with increasing difficulty in obtaining mortgage financing reduced demand in 2008. The reduction in 2008 was most dramatically impacted, however, by the 2007 bulk sale of the Bellemeade project. The balance of the reduction was contributed to reduced new orders and increased cancellations.

The average gross new order revenue per unit for the year ended December 31, 2008 increased by $46,000 to $285,000 as compared to $239,000 for the year ended December 31, 2007. The increase in average sales price per new order is attributable to an increase in average new order revenue at our Eclipse project in 2008. Despite receiving 44 fewer gross new orders at the Eclipse in 2008 versus 2007, the average gross new order price increased to $488,000 in 2008 from $416,000 in 2007. An additional cause of the increase in 2008 was that average gross new order was depressed by the effect of the discounted bulk sales of condominium conversion units at Bellemeade. Our backlog at December 31, 2008 decreased $19.7 million, in 2007 or 86.4%, to $3.1million on 11 homes as compared to our backlog at December 31, 2007 of $22.8 million on 70 homes. The decrease in backlog is consistent with real estate industry slowdown, the global credit crisis and national economic recession currently taking place.

Our cancellation rate for the year ended December 31, 2008 was 37.9% on 140 gross new orders compared to a cancellation rate of 25.9% on 827 gross new orders for the comparable period in 2007. In the Washington, DC market we experienced 17 cancellations on 69 gross new orders, or 24.6%. In the Raleigh market our cancellation rate was 42.6%, or 23 cancellations on 54 gross new orders, and in the Atlanta market our cancellation rate was 76.5%, or 13 cancellations on 17 gross new orders. We believe that the high rate of cancellations in our Atlanta and Raleigh markets was due in part to the first-time buyer orientation of our products, our inability to initiate construction due to lack of available construction financing and a slowing of the resale market for our move-up buyers.

Revenues

The number of homes delivered for the year ended December 31, 2008 decreased by 83.4%, or 739 homes, to 147 as compared to 886 homes for the year ended December 31, 2007. Average revenue per home delivered increased by $37,000 to $300,000 for the year ended December 31, 2008 as compared to $263,000 for the year ended December 31, 2007. The decrease in units settled was the result of 203 settlements at the Eclipse valued at $86.8 million in 2007 versus 27 settlements valued at $13.1 million in 2008, and the 2007 bulk sale of our 316-unit Bellemeade condominium conversion project.

Homebuilding revenues decreased by $188.7 million, or 81.1%, to $44.1million for the year ended December 31, 2008 as compared to $232.8 million for the year ended December 31, 2007. The decrease in homebuilding revenue is primarily attributable to weaker market conditions, reduced availability or mortgage financing in the second half of the year and reduced pricing of our homes in an effort to sell speculative inventory.

Other Revenues

Other revenue for the year ended December 31, 2008 decreased by $30.8 million, or 92.2% to $2.6 million, as compared to $33.4 million for the year ended December 31, 2007. Other revenue from lot sales for the year ended December 31, 2008 was $0.02 million, as compared to $31.8 million for the year ended December 31, 2007. For the twelve months ended December 31, 2007 other revenue included finished lot sales at our Massey Preserve project ($7.2 million), raw lot sales at our Blake Culpepper project ($3.6 million), raw lot sale of our East Capital Street project ($6.0 million) and the sale of our Potomac Yard Retail complex ($14.5 million). We consider revenue to be from homebuilding when there is a structure built or being built on the lot when delivered. Sales of lots occur, and are included in other revenues, when we sell raw land or finished home sites in advance of any home construction. Other revenue includes $2.5 million and $0.8 million of revenue generated by our rental communities during the twelve months ended December 31, 2008 and the twelve months ended December 31, 2007, respectively. Other revenue for the year ended December 31, 2008 and 2007 includes $0.07 million and $0.4 million respectively of revenue associated with the Company’s Settlement Title Services division.

Cost of sales and cost of sales other

Cost of sales for the year ended December 31, 2008 decreased $171.9 million, or 81.4%, to $39.2 million, or 88.9% of homebuilding revenue, as compared to $211.1 million, or 90.7% of revenue, for the year ended December 31, 2007. The 1.8 point decrease in cost of sales as a percentage of homebuilding revenue for the year ended December 31, 2008 is attributable primarily to prior period impairment charges and reclassification direct costs for inactive projects. Impairment charges result in increased margins because they reduce inventory costs remaining to be released and charged to cost of sales when future units are settled. Projects are classified as inactive when they are either substantially complete or construction activities have been indefinitely suspended. When a project becomes inactive for accounting purposes, interest, real estate tax and overhead costs are no longer capitalized into inventory but are expensed in the period incurred. This in turn increases future margin in the same way as impairments.

Cost of sales other for the year ended December 31, 2008 was $0.03 million, as compared to $34.2 million for the year ended December 31, 2007. Cost of sales other for the year ended December 2008 and 2007 includes expenses associated with lot and bulk project sales made to third parties, rental community operations and expenses associated with the management of the Company’s Settlement Title Services division. The reduction in cost of sales other is the result of lower land sale revenue in 2008 as compared to 2007.

Impairments and write-offs

For the twelve months ended December 31, 2008 we recorded impairment and write-off charges of $18.0 million including an impairment charge of $3.4 million at our Tribble Road project in Atlanta, $7.9 million over fourteen other projects in our Atlanta division, $6.2 million over two projects in our Washington, D.C. division and $0.5 million over two projects in our Raleigh, N.C. division. For the twelve months ended December 31, 2007 we recorded $78.4 million of impairments and write-offs, with approximately $35.0 million, $10.2 million and $33.1 million in the Washington metro area, North Carolina and Georgia, respectively.

Based on management’s assessment of current market conditions, estimates for the future and the Company’s ability to negotiate settlements with its lender with respect to deficiencies associated with the return of certain properties, we believe there are no additional impairments warranted at this time. However, if market conditions deteriorate further, actual costs are higher than budgeted or we are unsuccessful in our negotiations with our lenders, we would be required to re-evaluate the recoverability of our real estate held for development and sale and may incur additional impairment charges.

Selling, general and administrative expenses

Selling, general and administrative costs for the year ended December 31, 2008 decreased $18.3 million, or 52.7%, to $16.4 million, as compared to $34.7 million for the year ended December 31, 2007. Selling, general and administrative expenses represented 35.1% of total revenue for the year ended December 31, 2008, as compared to 13.0% for the year ended December 31, 2007.

The bulk of the decrease in selling, general and administrative costs was the result of staffing reductions and decreases in related compensation cost reductions of $7.0 million. Non-compensation related selling expenses decreased by $3.2 million to $1.6 million for the year ended December 31, 2008 as compared to $4.8 million for the year ended December 31, 2007. General and administrative costs for the year ended December 31, 2007 included a one-time charge of $3.9 million relating to non-cash stock compensation in December 2007 resulting from the acceleration of certain unvested stock grants. Rent expense incurred for office and model home leases decreased by $1.2 million to $1.0 million in the year ended December 31, 2008 from $2.2 million in the year ended December 31, 2007. Consulting fees decreased by $1.3 million and accounting related fees decreased by $0.8 million from 2007 to 2008.

Interest, real estate taxes and indirect costs related to inactive projects

Due to the severity of the real estate market downturn, various projects were classified as inactive during 2008. A project becomes inactive for accounting purposes when either the project is substantially complete or construction or development efforts are suspended indefinitely. When a project becomes inactive, its interest, real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period in which they are incurred. For the twelve months ended December 31, 2008 the Company recorded $5.7 million of expense relating to inactive projects including $4.0 million of interest, $1.0 million of real estate taxes and $0.7 million of production overhead costs. For the twelve months ended December 31, 2007 no projects had been classified as inactive and therefore all interest, real estate tax and production overhead costs were capitalized as incurred.

Operating loss

Operating loss for the twelve months ended December 31, 2008 decreased $59.4 million to $(32.7) million as compared to $(92.1) million for the twelve months ended December 31, 2007. Operating margin for the twelve months ended December 31, 2008 was (70.0%) as compared to (34.6%) for the twelve months ended December 31, 2007. The decrease in operating margin is attributable to disproportionate decreases in revenue, selling, general and administrative expenses as discussed above.

Year ended December 31, 2007 compared to year ended December 31, 2006

Orders, backlog and cancellations

Gross new order revenue for the year ended December 31, 2007 decreased $50.0 million, or 20.2%, to $197.9 million on 827 homes as compared to $247.9 million on 965 homes for the year ended December 31, 2006. Net new orders for the year ended December 31, 2007 decreased $82.9 million, or 42.6%, to $111.8 million on 613 homes as compared to $194.7 million on 794 homes for the year ended December 31, 2006. The 181 unit decrease in net new orders was primarily attributable to increased cancellations of 214 units for the twelve months ended December 31, 2007 as compared to 171 units for the twelve months ended December 31, 2006, and decreases in sales at our Eclipse project which was substantially pre-sold in 2005 and 2006. In addition, the Company’s 2006 acquisitions of Parker Chandler Homes Inc., and Capitol Homes Inc., in the Georgia and North Carolina markets, contributed approximately 122 and 91 new order units, respectively in 2006. Our customers experienced increasing difficulty in 2007 obtaining mortgage financing, a factor which also contributed to reduced new orders and increased cancellations.

The average gross new order revenue per unit for the year ended December 31, 2007 decreased by $18,000 to $239,000 as compared to $257,000 for the year ended December 31, 2006. The decrease in average sales price per new order is attributable to lower priced product offerings in our North Carolina and Georgia markets, increased sales of lower priced condominiums, discounted bulk sales of condominium conversion units at Bellemeade, and price decreases throughout our markets in response to slower demand as compared to 2006. This decrease was offset by higher per unit new orders at the Company’s Eclipse on Center Park at Potomac Yard project as a result of more sales in the East Tower. Our backlog at December 31, 2007 decreased $118.4 million, or 83.8%, to $22.8 million on 70 homes as compared to our backlog at December 31, 2006 of $141.3 million on 345 homes. The decrease in backlog is primarily the result of 203 deliveries valued at $86.8 million at the Eclipse during the twelve months ended December 31, 2007.

Our average cancellation rate for the year ended December 31, 2007 was approximately 25.9% on 827 gross new orders compared to cancellation rate of 17.7% on 965 gross new orders for the comparable period in 2006. Cancellations were most prevalent in the greater Washington, DC market where we experienced 162 cancellations on 559 gross new orders or 29.0%. At the Eclipse project we experienced 123 cancellations on 72 new orders although most of the cancellations were related to contracts entered into prior to 2007. In the Raleigh market our cancellation rate was 18.4%, or 28 cancellations on 152 gross new orders, and in the Atlanta market our cancellation rate was 20.7%, or 24 cancellations on 116 gross new orders. We believe that the high rate of cancellations in our Atlanta and Raleigh markets was due in part to the first-time buyer orientation of our products as well as a slowing of the resale market for our move-up buyers.

Revenues

The number of homes delivered for the year ended December 31, 2007 decreased by 3.1%, or 28 homes, to 886 as compared to 914 homes for the year ended December 31, 2006. Average revenue per home delivered was unchanged at $263,000 for the year ended December 31, 2007 as compared to $263,000 for the year ended December 31, 2006. The decrease in units settled was the result of higher cancellations and reduced new orders which were offset by 203 settlements at the Eclipse valued at $86.8 million and the bulk sale of our Bellemeade condominium conversion project.

Homebuilding revenues decreased by $7.3 million, or 3.0%, to $232.8 million for the year ended December 31, 2007 as compared to $240.1 million for the year ended December 31, 2006. The decrease in homebuilding revenue is primarily attributable to weaker market conditions, reduced availability or mortgage financing in the second half of the year and reduced pricing of our homes in an effort to sell speculative inventory.

Other Revenues

Other revenue for the year ended December 31, 2007 increased by $27.6 million, or 475.9% to $33.4 million, as compared to $5.8 million for the year ended December 31, 2006. Other revenue for the year ended December 31, 2007 and 2006 includes lot sales made to third parties, revenue associated with the Company’s Settlement Title Services division, management fees received from Comstock Asset Management Inc. (as discussed in Note 12 to the consolidated financial statements), and revenue received from a marketing services alliance. The increase is attributable to increased lot sales and bulk project sales during 2007 as compared to 2006. The Company considers a sale to be from homebuilding when there is a structure built on the lot when it is sold. Sales of lots occur, and are included in other revenues, when the Company sells raw or finished home sites in advance of any substantial home construction. Projects where other revenue was generated include: Massey Preserve finished lot sales ($7.2 million), Blake Culpepper raw lot sales ($3.6 million), East Capital Street raw lot sales ($6.0 million) and the Potomac Yard Retail complex sale ($14.5 million).

Cost of sales and cost of sales other

Cost of sales for the year ended December 31, 2007 decreased $0.3 million, or 0.1%, to $211.1 million, or 90.7% of homebuilding revenue, as compared to $211.4 million, or 88.1% of revenue, for the year ended December 31, 2006. The 2.6 percentage point increase in cost of sales as a percentage of homebuilding revenue for the year ended December 31, 2007 is attributable to several factors. Due to weakening market conditions, we extended the sales cycle of many of our projects, which in turn increased direct costs per unit by increasing the amount of real estate tax, interest and overhead capitalized to the project. In many cases, since we relieve our capitalized costs pro-rata to the individual lots, fewer remaining lots must absorb the increased costs. As a result, per unit costs go up. In addition, we have experienced pricing concessions and increases in seller closing cost contributions. This percentage point increase in cost of sales was partially offset by the classification of a portion of the cost of sales as impairments and write-offs during the first three quarters of 2007. Cost of sales other for the year ended December 31, 2007 increased by $29.0 million, or 557.7% to $34.2 million, as compared to $5.2 million for the year ended December 31, 2006. Cost of sales other for the year ended December 2007 and 2006 includes expenses associated with lot and bulk project sales made to third parties and expenses associated with the management of the Company’s Settlement Title Services division. Cost of sales other as a percentage of other revenue was 102.7% and 90.7% for the year ended December 31, 2007 and 2006 respectively. The 12.0 percentage point increase in cost of sales other as a percentage of other revenue is due to the Company selling lots at book value to exit underperforming projects as compared to sales of lots for a gain in 2006. This percentage point increase in cost of sales other was partially offset by the classification of a portion of the cost of sales other as impairments and write-offs during the first three quarters of 2007.

Impairments and write-offs

As discussed in Note 5 in the accompanying notes to the consolidated financial statements, the Company, for the year ended December 31, 2007 and 2006, recorded impairment charges of $68.8 and $51.2 million, respectively. For the year ended December 31, 2007 the Company wrote-off $9.5 million related to deposits on forfeited option contacts, value assigned to forfeited option contracts and related feasibility costs as compared to $6.2 million for the year ended December 31 2006. Impairments and write-offs were recorded in all of our geographic regions. The majority of the Company’s impairments, $61.4 million, were recorded at September 30, 2007 based on the continuing need for price concession the weakening of pricing power and increasing inventory costs resulting from the capitalization of interest, overheads and real estate taxes.

At December 31, 2007, the Company had approximately $0.2 million related to non-refundable option deposits to purchase real estate.

Selling, general and administrative expenses

Selling, general and administrative costs for the year ended December 31, 2007 decreased $2.8 million or 7.5% to $34.7 million, as compared to $37.5 million for the year ended December 31, 2006. Selling, general and administrative expenses represented 13.0% of total revenue for the year ended December 31, 2007, as compared to 15.3% for the year ended December 31, 2006.

This decrease in selling, general and administrative costs was principally the result of staffing reductions and related compensation costs of $4.4 million. Selling expenses represented $11.5 million of total selling, general and administrative costs for the year ended December 31, 2007 as compared to $12.7 million for the year ended December 31, 2006. Reductions in recurring general and administrative costs were offset by the recognition of a one-time charge of $3.9 million non-cash stock compensation in December 2007 resulting from the acceleration of certain unvested stock grants. General and administrative expenses also included other non-cash charges including depreciation and amortization of $0.9 million.

Operating loss

Operating loss for the year ended December 31, 2007 increased $26.4 million to $(92.1) million as compared to $(65.7) million for the year ended December 31, 2006. Operating margin for the year ended December 31, 2007 was (34.6 compared to (26.7)% for the year ended December 31, 2006. The increase in operating loss is primarily attributable to $78.3 million of non-cash impairments and write-offs for the year ended December 31, 2007 as compared to $57.4 million for the year ended December 31, 2006. Net of impairments and write-offs, operating loss for the year ended December 31, 2007 was $(13.8) million which represents a decrease of $5.5 million as compared to a $(8.3) million operating loss net of impairments and write-offs for the year ended December 31, 2006. Operating margin was negatively impacted by an increase in impairments and write-offs as a percentage of revenue and loss on other revenue of $(0.9) million for the year ended December 31, 2007 as compared to profit on other revenue of $0.5 million for the year ended December 31, 2006.

Other (income) expense, net

Other (income) expense, net increased by $0.4 million to income of $1.9 million for the year ended December 31, 2007 as compared to income of $1.5 million for the year ended December 31, 2006. The increase in other income is attributable to the forfeiture of $1.0 million of buyer earnest money deposits at the Eclipse project primarily offset by the loss on disposal of assets of $0.4 million.

Loss before minority interest

Loss before minority interest decreased by $26.0 million, or 40.5%, to $(90.2) million for the year ended December 31, 2007 as compared to $(64.2) million for the year ended December 31, 2006. The decrease is consistent with the decrease in operating income detailed above.

Minority interest

Minority interest income of $137,000 for the year ended December 31, 2007 as compared to expense of $15,000 for the year ended December 31, 2006 is primarily due to impairments recorded at the Company’s Barrington Park and Comstock North Carolina subsidiaries in which there are 1% and 2.3% minority partners, respectively.

Income taxes

Income tax benefit for the year ended December 31, 2007 was $2.6 million compared to $24.5 million for the year ended December 31, 2006. Our combined effective tax rate including both current and deferred provisions for the year ended December 31, 2007 was 2.8% as compared to 38.1% for the year ended December 31, 2006. The decrease is primarily a result of our establishment of a full $29.2 million valuation allowance against our net deferred tax assets based on the uncertainty regarding the future realization through future taxable income or carryback opportunities. If in the future the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowance will be reversed.

Year ended December 31, 2006 compared to year ended December 31, 2005

Orders, backlog and cancellations

Gross new order revenue for the year ended December 31, 2006 decreased $20.3 million, or 7.6%, to $247.9 million on 965 homes as compared to $268.2 million on 740 homes for the year ended December 31, 2005. Net new order revenue for the year ended December 31, 2006 decreased $35.5 million, or 15.4%, to $194.7 million on 794 homes as compared to $230.3 million on 631 homes for the year ended December 31, 2005. The 163 unit increase in net new order was primarily attributable to increased condominium and bulk condominium conversion sales at Carter Lake which were offset by decreases in sales at our Eclipse project which was substantially pre-sold in 2005. The Company’s 2006 acquisitions of Parker Chandler Homes Inc., and Capitol Homes Inc., in the Georgia and North Carolina markets, contributed approximately 122 and 91 new order units, respectively.

The average gross new order revenue per unit for the year ended December 31, 2006 decreased by $105,000 to $257,000 as compared to $362,000 for the year ended December 31, 2005. The decrease in average sales price per new order is attributable to lower priced product offerings in our North Carolina and Georgia markets, higher sales of lower priced condominiums, discounted bulk sales of condominium conversion units and general price decreases throughout in response to slower demand throughout our markets as compared to 2005. Our backlog at December 31, 2006 decreased $49.1 million, or 25.8%, to $141.3 million on 345 homes as compared to our backlog at December 31, 2005 of $190.4 million on 475 homes. Of the Company’s December 31, 2006 backlog, approximately $116.5 million is derived from 258 orders at the Company’s Eclipse on Center Park at Potomac Yard project, of which $46.1 million on 134 units settled in the fourth quarter of 2006.

Our average cancellation rate for the year ended December 31, 2006 was approximately 17.7% on 965 gross new orders compared to cancellation rate of 14.7% on 740 gross new orders for the comparable period in 2005. Cancellations were most prevalent in the greater Washington, DC market where we experienced 122 cancellations on 625 gross new orders or 19.5%. At the Eclipse project we experienced 35 cancellations on 46 new orders although most of the cancellations we related to contracts entered into in 2004. In the Raleigh market our cancellation rate was 3.4% on 6 cancellations out of 175 gross new orders and in the Atlanta market our cancellation rate was 26.1% on 43 cancellations out of 165 gross new orders. We believe that the high rate of cancellations in our Atlanta market was due in part to the first-time buyer orientation of our products as well as a slowing of the resale market for our move-up buyers.

Revenues

The number of homes delivered in the year ended December 31, 2006 increased by 51.6%, or 311 homes, to 914 from 603 homes in the year ended December 31, 2005. Average revenue per home delivered decreased by approximately $96,000 or 26.7% to $263,000 for the year ended December 31, 2006 as compared to $359,000 for the year ended December 31, 2005. In December 2006, the Company delivered an additional 30 bulk sale units at its Countryside condominium project to a related party purchaser who is a former officer of the Company for $4.2 million and subsequently entered into a marketing and sales agreement with the buyer to sell the units on his behalf. Because the Company participated in the profits of the sales, the Company was deemed to have an on-going involvement and as such the revenue from the sale of these units was deferred and was recognized along with the revenue generated from the marketing agreement at the time the units were delivered to subsequent purchasers.

Homebuilding revenues increased by $23.8 million, or 11.0%, to $240.1 million for the year ended December 31, 2006 as compared to $216.3 million for the year ended December 31, 2005. The total number of homes delivered and total homebuilding revenue for the year ended December 31, 2006 includes 259 homes and $40.0 million in revenue related to the bulk sale of the Company’s Carter Lake condominium conversion project. The Company delivered this project in its entirety to a rental operator during November 2006.

Excluding the sale of Carter Lake, the increase in the number of units delivered is attributable to the company’s Eclipse project which delivered 134 units, and the Company’s expansion in the North Carolina and Atlanta markets as a result of the acquisition of Capitol Homes Inc. and Parker Chandler Homes Inc. During the year ended December 31, 2006 we delivered 132 homes in Raleigh and 107 homes in Atlanta as compared to 33 homes in Raleigh and zero homes in Atlanta for the year ended December 31, 2005. The decrease in revenues and average revenue per home is attributable to lower priced product offerings in our North Carolina and Georgia markets, higher sales of lower priced condominiums and condominium conversion units and general decreases in the prices of homes as compared to 2005.

Other revenues

Other revenue for the year ended December 31, 2006 decreased by $2.2 million, or 27.5% to $5.8 million, as compared to $8.0 million for the year ended December 31, 2005. Other revenue for the year ended December 31, 2006 and 2005 includes lot sales made to third parties, revenue associated with the Company’s Settlement Title Services division, management fees received from Comstock Asset Management Inc. (as discussed in Note 12 to the consolidated financial statements), and revenue received from a marketing services alliance. The decrease is attributable to lower overall lot sales during 2006 as compared to 2005. The Company considers a sale to be from homebuilding when there is a structure built on the lot when it is sold. Sales of lots occur, and are included in other revenues, when the Company sells raw or finished home sites in advance of any substantial home construction.

Cost of sales and cost of sales other

Cost of sales for the year ended December 31, 2006 increased $58.5 million, or 38.3%, to $211.4 million, or 88.1% of homebuilding revenue, as compared to $152.9 million, or 70.7% of revenue, for the year ended December 31, 2005. The 17.4 percentage point increase in cost of sales as a percentage of homebuilding revenue for the year ended December 31, 2006 is attributable to several factors. Due to weakening market conditions, we extended the sales cycle of many of our projects, which in turn increased direct costs per unit by increasing the amount of real estate tax, interest and overhead capitalized to the project. In many cases, since we relive our capitalized costs pro-rata to the individual lots, fewer remaining lots must absorb increased costs. In addition, we have experienced pricing concessions and increases in material and labor costs throughout our markets. Due to the factors stated above, the Company expected costs of sales as a percentage of revenue to continue to face additional upward pressure until general market conditions improved, costs of materials moderated and new inventory was acquired. Cost of sales other for the year ended December 31, 2006 increased by $1.6 million, or 44.4% to $5.2 million, as compared to $3.6 million for the year ended December 31, 2005. Cost of sales other for the year ended December 2006 and 2005 includes expenses associated with lot sales made to third parties and expenses associated with the management of the Company’s Settlement Title Services division. Cost of sales other as a percentage of other revenue was 90.7% and 44.8% for the year ended December 31, 2006 and 2005 respectively. The 45.9 percentage point increase in cost of sales other as a percentage of other revenue is due to the Company selling lots at book value to exit underperforming projects as compared to sales of lots for a gain in 2005.

Impairments and write-offs

As discussed in Note 5 in the accompanying notes to the consolidated financial statements, the Company, for the year ended December 31, 2006 and 2005, recorded impairment charges of $51.2 and $1.2 million, respectively. For the year ended December 31, 2006 the Company wrote-off $6.2 million related to deposits on

forfeited option contacts, value assigned to forfeited option contracts and related feasibility costs. Total impairments and write-offs were taken in all of our geographic regions, with approximately $26.8 million, $7.5 million and $23.1 million in the Washington metro area, North and South Carolina and Georgia, respectively. The bulk of the Company’s impairments, $39.9 million, were recorded at December 31, 2006 based on the continuing need for price concession the weakening of pricing power and increasing inventory costs resulting from the capitalization of interest, overheads and real estate taxes.

At December 31, 2006, the Company had approximately $3.8 million related to non-refundable option deposits to purchase real estate. In addition, the Company has approximately $7.9 million related to feasibility costs incurred on projects under option agreements or under feasibility study periods.

Selling, general and administrative expenses

Selling, general and administrative costs for the year ended December 31, 2006, increased $13.3 million or 55.0% to $37.5 million, as compared to $24.2 million for the year ended December 31, 2005. Selling, general and administrative expenses represented 15.3% of total revenue for the year ended December 31, 2006, as compared to 10.8% for the year ended December 31, 2005.

This increase was the result of additional staffing and related compensation costs of $5.2 million, increased media and other marketing related costs of $2.5 million, office and model rent of $1.2 million, feasibility and consulting fees of $2.4 million, and legal fees of $ 0.4 million, and general administrative expenses including depreciation and amortization of $1.6 million.

In addition, our acquisition during the year of both Parker Chandler Homes and Capitol Homes increased our selling, general and administrative expenses by $4.7 million and $1.2 million, respectively.

Operating (loss) income

Operating (loss) income for the year ended December 31, 2006 decreased $108.1 million to $(65.7) million as compared to $42.4 million for the year ended December 31, 2005. Operating margin for the year ended December 31, 2006 was (26.7%) compared to 18.9% for the year ended December 31, 2005. The decrease in operating margin is primarily attributable to $57.4 million of impairments and write-offs for the year ended December 31, 2006 as compared to $1.2 million for the year ended December 31, 2005. Net of impairments and write-offs, operating loss for the year ended December 31, 2006 was $(8.3) million which represents a decrease of $50.7 million as compared to the year ended December 31, 2005. The additional decrease over the impairments and write-offs is attributable to higher costs of sales as a percentage of revenue and increased selling, general and administrative expenses as a percentage of total revenue.

Other (income) expense, net

Other (income) expense, net increased by $37,000 to net other income of $1.5 million for the year ended December 31, 2006 as compared to net other income of $1.5 million for the year ended December 31, 2005.

(Loss) income before minority interest

(Loss) income before minority interest decreased by $108.1 million, or 246.4%, to $(64.2) million for the year ended December 31, 2006 as compared to $43.9 million for the year ended December 31, 2005. The decrease is consistent with the decrease in operating income detailed above.

Minority interest

Minority interest expense decreased by $15,000 to $15,000 for the year ended December 31, 2006 as compared to $30,000 for the year ended December 31, 2005. This decrease is the primarily the result of a slower pace of deliveries at the Company’s Comstock North Carolina subsidiary in which there is a small minority partner who retained its interest at the initial public offering when all other minority interests were purchased by Comstock Homebuilding Companies, Inc.

Income taxes

Income tax (benefit) expense for the year ended December 31, 2006 was $(24.5) million compared to $16.4 million for the year ended December 31, 2005. Our combined effective tax rate including both current and deferred provisions for the year ended December 31, 2006 was 38.1% as compared to 37.3% for the year ended December 31, 2005.

Liquidity and Capital Resources

We require capital to operate, to post deposits on new deals, to purchase and develop land, to construct homes, to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales. These expenditures include payroll, community engineering, entitlement, architecture, advertising, utilities and interest as well as the construction costs of our homes and rent, insurance amenities. Our sources of capital include, and will continue to include, funds derived from various secured and unsecured borrowings, cash flow from operations which include the sale and delivery of constructed homes and finished and raw building lots, and the sale of equity and debt securities. Our current operations and inventory of owned and controlled home sites will require substantial capital to develop and construct.

In production home building, it is common for builders such as ourselves to employ revolving credit facilities under which the maximum funding available under the facility exceeds the maximum outstanding balance allowed at any given time. This revolving debt will typically provide for funding of an amount up to a pre- determined percentage of the cost of each asset funded. The balance of the funding for that asset is provided for by us as equity. The efficiency of revolving debt in production home building allows us to operate with less overall debt capital availability than would be required if we built each project with long-term amortizing debt. At December 31, 2008, we had approximately $102.8 million of outstanding indebtedness and $6.0 million of unrestricted cash.

During 2008 the banking and credit markets experienced severe disruption as a result of a collapse in the sub-prime and securitized debt markets. As a result, commercial banks and other unregulated lenders have experienced a liquidity crunch which has made funding for real estate lending extremely difficult to secure. This tightening of the credit markets presents substantial risk to our ability to secure financing for our operations, construction and land development efforts. In addition, this disruption is affecting our customers’ ability to secure mortgage financing for the purchase of our homes. This limitation on available credit could have a devastating effect on our sales and revenue in 2009 which would further undermine our ability to generate enough cash to fund our operations, meet our obligations and survive as a going concern.

Our overall borrowing capacity is typically constrained by loan covenants which require maximum loan-to-value ratios, minimum ratios of interest to EBITDA, minimum tangible net worth, minimum unit settlements and maximum ratios of total liabilities to total equity. Our non-compliance with certain of these covenants has, for the period ending December 31, 2008, been waived eliminated or ignored by our lenders. There is no assurance either that we will return to compliance in the future or that our lenders will continue to provide us waivers of our covenants. In the event our banks discontinue funding, accelerate the maturities of their facilities, refuse to waive future covenant defaults or refuse to renew the facilities at maturity we could experience an unrecoverable liquidity crisis in the future. We can make no assurances that internally generated cash advances available under our credit facilities, refinancing of existing underleveraged projects or access to public debt and equity markets will provide us with access to sufficient cash flow to meet our existing and expected operating capital needs in 2009. If we fail to meet our cash requirements we may be required to seek bankruptcy protection or to liquidate.

Both the Company and its subsidiaries have secured debt of approximately $21.9 million which matured prior to December 31, 2008 or has curtailment covenants and interest obligations during 2009 and beyond. In our industry it was customary for lenders to renew and extend project facilities until the project is complete provided the loans are kept current. That is no longer the case. Since we are the guarantor of a majority of our subsidiaries’ debt, any significant failure to negotiate renewals and extensions to this debt would severely compromise our liquidity and could jeopardize our ability to satisfy our capital requirements. Our recently reported and cured loan covenant violations, may at some point negatively impact our ability to renew and extend our debt. Details regarding each of the Company’s credit facilities and the current status are discussed in the section “Credit Facilities” below.

At December 31, 2008 we had $6.0 million in unrestricted cash and $3.9 million in restricted cash. Included in our restricted cash balance is $3.0 million on deposit with Wachovia securing an irrevocable letter of credit relating to a captive insurance program. We are working with the insurance provider to obtain a release of the letter of credit. Our access to working capital is very limited and our debt service obligations and operating costs for 2009 exceed our current cash reserves. If we are unable to identify new sources of cash and cash flow and/or successfully modify our existing facilities, we will likely deplete our cash reserves and be forced to file for bankruptcy protection in the near future. There can be no assurances that in that event we would be able to reorganize through bankruptcy, and we might be forced to effect a liquidation of our assets.

Credit Facilities

The majority of the Company’s debt is variable rate, based on LIBOR or the prime rate plus a specified number of basis points, typically ranging from 220 to 600 basis points over the LIBOR rate and from 25 to 200 basis points over the prime rate. As a result, we are exposed to market risk in the area of interest rate changes. At December 31, 2008, the one-month LIBOR and prime rates of interest were 0.44% and 3.25%, respectively, and the interest rates in effect under the existing secured revolving development and construction credit facilities ranged from 2.64% to 5.45%. During 2008 these rates have been relatively stable. Based on current operations, as of December 31, 2008, an increase/decrease in interest rates of 100 basis points on our variable rate debt would result in a corresponding increase/decrease in interest actually incurred by us of approximately $1.0 million in a fiscal year. While some of that interest would be capitalized and included in cost of sales as homes are delivered, the majority of it would be expensed in the period incurred to the extent that it related to projects which are inactive by accounting standards.

In the past the Company has generally financed its development and construction activities on a single or multiple project basis so it is not uncommon for each project or collection of projects the Company develops and builds to have a separate credit facility. Accordingly, the Company has numerous credit facilities and lenders. In June 2008 the Company retained the services of FTI Consulting to assist in the restructuring of the Company’s debts. In connection with this assignment, Brad Foster of FTI was appointed to the position of interim Chief Restructuring Officer of the Company. After evaluating its options with respect to restructuring its debts the Company elected to suspend making regularly scheduled cash interest payments on all of its debt excluding its senior unsecured notes to JP Morgan Ventures, its secured term loan with KeyBank relating to Potomac Yard and First Charter relating to Brookfield. During the second half of 2008 the Company was in discussions with substantially all of its lenders to negotiate amendments to its loan facilities and modifications to its guarantees that were more aligned with the evolving housing market downturn and the Company’s limited liquidity. The Company was successful in renegotiating a significant portion of its debts and as such no longer needed the services of FTI Consulting or Brad Foster. The Company terminated its relationship with FTI Consulting in October 2008 and in connection therewith Brad Foster resigned as Chief Restructuring Officer.

As described in more detail below, at December 31, 2008 our outstanding debt by lender was as follows (dollars in 000s):


Bank	Balance as of 12/31/08		Recourse
Key Bank	$	31,006	Secured
Wachovia		19,916	Secured
Guggenheim Capital Partners		13,594	Secured
JP Morgan Ventures		12,743	Unsecured
M&T Bank		7,554	Secured
Royal Bank of Canada		5,530	Secured
FDIC (Haven Trust)		4,771	Secured
Bank of America		3,626	Unsecured
Seller - Belmont Bay		1,797	Unsecured
Fifth Third		1,315	Secured
Branch Banking & Trust		677	Secured
Seller - Emerald Farm		100	Unsecured
Total	$	102,829

The following paragraphs detail the status of the loans upon which the Company ceased paying interest in June 2008.

On May 26, 2006 the Company entered into $40.0 million Secured Revolving Borrowing Base Credit Facility with Wachovia Bank for the financing of entitled land, land under development, construction and project related letters of credit. Funding availability was to be limited by compliance with a borrowing base and certain financial covenants. The Company ceased making interest payments on this loan in June 2008, which may be construed by the lender as an event of default under the loan agreement. On July 25, 2008 Wachovia issued the Company a notice of default with respect to this facility. In December 2008 we entered into loan modification agreements with Wachovia by which the single credit facility was split into three separate notes; an $8.0 million revolving construction loan, a $7.0 million term note and a $4.2 million outstanding project note. In connection with these modifications Wachovia wrote off $3.0 million with respect to our Tribble Road Project in Atlanta. This transaction has been accounted for as a troubled debt restructuring pursuant to Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors of Troubled Debt Restructurings (“SFAS 15”). Under SFAS 15 we recorded a $3.3 million gain on troubled debt restructuring after accounting for future interest costs. The revolver and term notes mature in January 10, 2009 and the project note matures on December 10, 2011. The revolving loan requires us to meet certain settlement covenants by June 30, 2011 which we will likely not be able to achieve.

At December 31, 2008 the Company had $7.8 million outstanding to M&T Bank. Under the terms of the loan original agreements, the Company was required to maintain certain financial covenants. In March 2007 the Company entered into loan modification agreements lowering the minimum interest coverage ratio and the minimum tangible net worth covenants. On October 25, 2007 the Company entered into loan modification agreements which extended maturities and provided for forbearance with respect to all financial covenants. On June 30, 2008, the loans with M&T matured. The Company ceased making interest payments on these loans in July 2008, which may be construed by the lender as an event of default under the loan agreement. In connection with a dispute between Comstock and the developers of Belmont Bay in Woodbridge, Virginia the developers of Belmont Bay have filed a lis pendens against the River Club II project which represents $6.6 million of the outstanding balance with M&T. The Company believes this to be an illegal slander of title and is vigorously defending itself. Until such time as the title issue is resolved, the Company cannot transfer any of the units at River Club II and therefore cannot generate any loan paydown. Negotiations to modify the terms of the loans with M&T were suspended indefinitely as a result of the actions of the developers.

At December 31, 2008 the Company had approximately $0.7 million outstanding to Branch Bank & Trust Company (“BB&T”) relating to three construction loans in the Company’s Atlanta market. On August 29, 2008 The Company entered into a foreclosure agreement with BB&T with respect to approximately $31.4 million of debt secured by properties in Virginia and Atlanta, Georgia. Under the terms of the foreclosure agreement, the Company agreed to cooperate with BB&T with respect to its foreclosure on certain Company real estate assets and BB&T agreed to provide the Company with a full release from its related debt obligations. BB&T completed its foreclosure on the properties in September 2008. The Company retained three pre-sold lots in Atlanta which are not included in the foreclosure agreement. The Company is still awaiting its final release of liability associated with the foreclosures.

At December 31, 2008 the Company had $0.0 million outstanding with Regions Bank. The Company entered into a forbearance and conditional release agreement with Regions Bank on September 4, 2008 with respect to approximately $5.3 million of the Company’s secured debt. Under the terms of the agreement, the Company agreed to cooperate with Regions Bank with respect to its foreclosure on certain of the Company’s real estate assets in Atlanta, Georgia and Regions Bank agreed to provide the Company a full release from its obligations with no deficiency liability post-foreclosure on or before December 15, 2008. Foreclosure occurred in November 2008.

At December 31, 2008, the Company had $3.6 million outstanding to Bank of America in a 10-year unsecured note. Under the terms of a friendly foreclosure Bank of America foreclosed on the Company’s Highland Avenue, Brentwood Estates and Senators Ridge projects in Atlanta. In connection with the friendly foreclosures Bank of America and Comstock modified the terms of the Company’s existing unsecured note by extending the term to ten (10) year, establishing an interest accrual for the first two years and a six year curtailment schedule starting in year four of the loan’s term.

As of December 31, 2008 the Company had $1.8 million outstanding on a seller funded loan related to, but not secured by, the Company’s River Club II Condominium project. The loan matured but remains unpaid. Discussions with the lender, who is also the Project’s developer, regarding loan modifications and other project related contract modifications have proved unsuccessful, resulting in the Comstock Belmont Bay 8&9, LC and Belmont Bay, LC litigation discussed in Item 3 herein.

At December 31, 2008 Mathis Partners, LLC, a wholly owned subsidiary of the Company had approximately $4.8 million of principal, accrued interest and fees outstanding to the Federal Deposit Insurance Corporation (FDIC) relating to the Company’s Gates at Luberon project. This loan matured in November 2007. Haven Trust Bank the originating lender and its participating lenders were unwilling to grant an extension on terms the Company felt were reasonable so this loan remains unpaid and unmodified. Haven Trust Bank initiated foreclosure proceedings and the Company protected the equity in the project by seeking bankruptcy protection for the entity which owns Gates at Luberon. The Company elected not to submit a plan of reorganization to the court by September 30, 2008 which resulted in Haven Trust filing a motion to lift the court imposed stay of foreclosure. In December 2008 Haven Trust Bank was closed by the FDIC and its loan portfolio was taken over by the FDIC. Litigation with respect to Haven Trust’s guarantee action against Comstock has been stayed with the court while the FDIC determines its intended course of action.

At December 31, 2008 the Company had approximately $13.6 million outstanding to Guggenheim Capital Partners relating to the Company’s Penderbrook Condominium project. On August 20, 2008 Guggenheim issued a notice of default to the Company regarding a purported default. The Company has subsequently entered into a loan modification agreement with Guggenheim as discussed in Subsequent Events.

At December 31, 2008 the Company had approximately $5.5 million outstanding to Royal Bank of Canada (“RBC”) relating to three projects in the Atlanta market. The Company ceased making interest payments in July 2008. The Company’s Comstock Homes of Atlanta, LLC subsidiary has received a notice of default from RBC. The Company is not a guarantor of this debt.

The following paragraphs detail the status of the Company’s other credit facilities that are not part of the above restructuring.

On May 4, 2006 the Company closed on a $30.0 million Junior Subordinated Note Offering. The term of the note was thirty years and it could be retired after five years with no penalty. The rate was fixed at 9.72% the first five years and LIBOR plus 420 basis points the remaining twenty-five years. In March 2007 the Company retired the Junior Subordinated Note with no penalty and entered into a new 10-year, $30.0 million Senior Unsecured Note Offering with the same lender at the same interest rate. During the third quarter of 2007, the lender’s rights were assumed by the lender’s creditor(s). On March 14, 2008, the Company executed an option to restructure the $30.0 million unsecured note. In connection therewith, the Company made a $6.0 million principal payment to the lender and executed an amended and restated indenture with a new principal balance of $9.0 million, loosened financial covenants and a revised term of 5 years. The Company also issued the lender a seven-year warrant to purchase 1.5 million shares of Class A common stock at $0.70 per share. In exchange the lender agreed to cancel $15.0 million of the outstanding principal balance. This transaction has been accounted for as a troubled debt restructuring pursuant to Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors of Troubled Debt Restructurings (“SFAS 15”). Under SFAS 15, the amended and restated indenture was recorded at $13.4 million on March 31, 2008 which includes its principal amount plus the total estimated future interest payments of $4.4 million over the remaining life of the notes at March 31, 2008. Interest on this senior unsecured debt is prepaid through December 31, 2008. As of December 31, 2008, $12.7 million was outstanding with this facility, which includes its principal amount of $9.0 million plus the total estimated future interest payments of $3.7 million. At December 31, 2008 the Company is in violation of its leverage ratio covenant and has not received a waiver or notice of default.

In December 2005 the Company entered into a $147.0 million secured, limited recourse loan with Corus Bank related to the Company’s Eclipse project. Under the terms of the loan there was a single deed of trust covering two loan tranches. This loan was repaid in full in March 2008.

At December 31, 2008 the Company had $31.0 million outstanding to KeyBank under a revolving credit facility secured by the Company’s Eclipse and Station View projects. Under the terms of the note there is an interest reserve which is increased as the outstanding balance is reduced. At September 30, 2008 the available balance in the interest reserve was approximately $2.4 million. While there are no financial covenants associated with the loan, there are a series of curtailment requirements commencing March 31, 2009. The Company is negotiating a waiver to the March 31, 2009 minimum curtailment requirement.

As of December 31, 2008 the Company had $1.3 million outstanding with Fifth Third Bank, successor to First Charter Bank. The loan matured on December 10, 2008. There are no financial covenants associated with this loan. The Company is negotiating an extension to the loan. The Company is not a guarantor of this debt.

From time to time, the Company has employed subordinated and unsecured credit facilities to supplement the capital resources or a particular project or group of projects. The Company’s lenders under these credit facilities will typically charge interest rates that are substantially higher than those charged by the lenders under our senior and secured credit facilities. These credit facilities will vary with respect to terms and costs. As of December 31, 2008, there was approximately $16.4 million of outstanding variable rate unsecured loans.

Many of the Company’s loan facilities contain Material Adverse Effect clauses which, if invoked, could create an event of default under the loan. In the event all the Company’s loans were deemed to be in default as a result of a Material Adverse Effect, the Company’s ability to meet the capital and debt obligations would be compromised and the Company would not be able to continue operations without bankruptcy protection.

The Company’s senior management continues to work closely with its lenders on both temporary and permanent modifications to the lending facilities. These modifications are principally related to financial covenants and maturity dates. The Company cannot at this time provide any assurances that it will be successful in these efforts. In the event the Company is not successful it may not be able to continue operations absent court imposed protections.

As illustrated by the following debt maturity schedule, we have a significant amount of debt which either has matured or will mature in the near future. In our industry, it was customary for secured debt to be renewed until a project is complete but we have no assurance that this will be the case with our debts. Our recently reported and cured loan covenant violations, may impact our ability to renew and extend our debt. Failure to meet our obligations as they come due could force us to have to use court protections under bankruptcy to continue to operate.

As of December 31, 2008, maturities and/or scheduled curtailments under our borrowings are as follows:


Year ending December 31,
Past Due (1)	$	21,167
2009		677
2010		19,916
2011		44,600
2012 and thereafter		16,469

Total	$	102,829

(1) past due is comprised of Haven Trust Bank ($4.8 million), Royal Bank of Canada ($5.5 million), M&T Bank ($7.8 million), Fifth-Third ($1.3 million) and an unsecured seller financing related to Belmont Bay ($1.8 million).

Cash Flow

Net cash provided by/(used in) operating activities was $12.9 million for the year ended December 31, 2008, $116.5 million for the year ended December 31, 2007, and $(86.4) million for the year ended December 31, 2006. In 2008, our primary source of cash from operating activities was $13.0 million in federal and state income tax refunds. In 2007, the primary source of cash provided by operating activities was the sale of real estate assets. In 2006, the primary use of cash operating activities was attributable to increased investments in real estate held for development and sale.

Net cash provided by/(used in) investing activities was zero for the year ended December 31, 2008, $(0.1) million for the year ended December 31, 2007 and $(17.9) million for the year ended December 31, 2006. In 2007, the primary use of cash in investing activities was the purchase of property, plant and equipment. In 2006, the primary source of cash used in investing activities was the acquisitions of Parker Chandler Homes and Capitol Homes.

Net cash provided by/(used in) financing activities was $(13.7) million for the year ended December 31, 2008, $(130.8) million for the year ended December 31, 2007 and $83.3 million for the year ended December 31, 2006. The primary source of cash used in financing activities for the year ended December 31, 2008 was the refinance of our Eclipse at Potomac Yard project and the primary use was the payoff of our Corus Bank and JP Morgan Ventures. In December 31, 2007 the primary use of cash in financing activities was the reduction of notes and other indebtedness. The primary source of cash provided by financing activities for the period ended December 31, 2006 was proceeds from additional borrowings under our credit facilities.

Subsequent Events

On January 27, 2009, Comstock Homebuilding Companies, Inc. (the “Company” or “Comstock”) and Comstock Penderbrook, L.C. (the “Borrower”), a wholly owned subsidiary of the Company, entered into a forbearance agreement (the “Agreement”) with Guggenheim Corporate Funding (the “Lender”) with respect to the $13.5 million outstanding under the Company’s secured Penderbrook project loan. The key terms of the Agreement provide for: 1) The maturity date of the loan was extended from February 22, 2010 to March 6, 2011 with additional incremental extensions until March 6, 2012 provided certain unit delivery requirement thresholds are met. To qualify for the first additional incremental extension of four months the Company must achieve forty-five settlements prior to the extended maturity; 2) The interest rate in effect for each calendar year will be determined on the last day of the year, retroactively for the year, based upon the cumulative unit settlements during the year. The interest rate will start to step down from a high of LIBOR + 1400 bps to a floor of LIBOR + 400 bps each year based on a range of seven to twenty unit settlements occurring in 2009 and a range of sixteen to twenty-six unit settlements in 2010. Prior to the execution of the forbearance agreement the interest rate spread on the loan was fixed at 600 bps over LIBOR; 3) The Borrower must achieve cumulative unit settlements on a quarterly basis of one, six, eight, ten, sixteen and twenty-four commencing on September 30, 2009 through December 31, 2010; 4) The Borrower assigned to the Lender deeds-in-lieu of foreclosure to be recorded in the event of a default that remains uncured and has waived its rights to automatic stay of foreclosure; 5) Outstanding past due interest of approximately $0.4 million was added to the outstanding balance of the loan resulting in an outstanding balance post closing on the Agreement of approximately $14.0 million; 6) Comstock was granted a one-time option to retire the note prior to May 26, 2009 at a discount of between 9% and 16% based upon when the option is exercised.

On February 26, 2009 Comstock Homes of Washington, L.C., a wholly owned subsidiary of Comstock Homebuilding Companies, Inc. concurrently entered into a Fourth Amendment to Sub-Lease Agreement and a Services Agreement with Comstock Asset Management, L.C., (“CAM”) an entity which is wholly owned by Christopher Clemente, Comstock’s Chairman and Chief Executive Officer. Under the terms of the lease Amendment, CAM released the Comstock Homes of Washington from its lease obligation with respect to 1,400 square feet of space at its headquarters in Reston, Virginia. In consideration of the release Comstock Homes of Washington agreed to pay a $50,000 termination fee to CAM which is payable at a rate of $5,000 per month for ten months. After the amendment, Comstock Homes of Washington had 15,800 square feet remaining under its sub-lease with CAM with annual rent of $0.5 million. Under the terms of the Services Agreement Comstock Homes of Washington agreed to provide project management and leasing services to CAM for a term of ten months at a rate of $5,000 per month.

Contractual Obligations and Commercial Commitments

In addition to the above financing arrangements, we have commitments under certain contractual arrangements to make future payments for goods and services. These commitments secure the future rights to various assets and services to be used in the normal course of operations. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with current accounting rules, the future rights and obligations pertaining to such firm commitments are not reflected as assets or liabilities on the consolidated balance sheet. The following table summarizes our contractual and other obligations at December 31, 2008, and the effect such obligations are expected to have on liquidity and cash flow in future periods:


	Payments due by period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(In thousands)
Notes payable(1)	$	102,829	$	21,844	$	65,516	$	12,843	$	3,626
Operating leases	$	1,800	$	794	$	1,006	$	—	$	—
Capital leases	$	48	$	48	$	—	$	—	$	—

Total	$	174,625	$	7,742	$	136,444	$	439	$	30,000

(1)	Notes payable includes estimated interest payments in accordance with SFAS 15 based on interest rates in effect at December 31, 2008. Notes payable does not include any penalty or default interest.

Notes payable have an undefined repayment due date and are typically due and payable as homes are settled.

We are not an obligor under, or guarantor of, any indebtedness of any party other than for obligations entered into by certain wholly owned subsidiaries of the Company.

We have no off-balance sheet arrangements except for the operating leases described above.

As discussed in Note 3 in the accompanying consolidated financial statements as of December 31, 2007, the Company has posted aggregate non-refundable deposits of $0.2 million on $19.0 million worth of land purchase options.

Seasonality and Weather

Our business is affected by seasonality with respect to orders and deliveries. In the markets in which we operate, the primary selling seasons are from January through May as well as September and October. Orders in other months typically are lower. In addition, the markets in which we operate are four-season markets that experience significant periods of rain and snow. Construction cycles and efforts are often adversely affected by severe weather.

Inflation

Inflation can have a significant impact on our business performance and the home building industry in general. Rising costs of land, transportation costs, utility costs, materials, labor, overhead, administrative costs and interest rates on floating credit facilities can adversely affect our business performance. In addition, rising costs of certain items, such as lumber, can adversely affect the expected profitability of our backlog. Generally, we have been able to recover any increases in costs through increased selling prices. However, there is no assurance we will be able to increase selling prices in the future to cover the effects of inflation and other cost increases.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows, due to adverse changes in financial and commodity market prices and interest rates. We are exposed to market risk in the area of interest rate changes. A majority of our debt is variable rate based on LIBOR and prime rate, and, therefore, affected by changes in market interest rates. Based on current operations, as of December 31, 2008, an increase/decrease in interest rates of 100 basis points on our variable rate debt would have resulted in a corresponding increase/decrease in interest actually incurred by us of approximately $1.0 million in a fiscal year, which would be either capitalized and included in cost of sales as homes are delivered if the project is active, or expensed as incurred if the project is inactive. As a result, the effect on net income could be immediate if the variable rate debt was related to projects classified for accounting purposes as inactive. Changes in the prices of commodities that are a significant component of home construction costs, particularly lumber, may result in unexpected short-term increases in construction costs. Because the sales price of our homes is fixed at the time a buyer enters into a contract to acquire a home and we generally contract to sell our homes before construction begins, any increase in costs in excess of those anticipated at the time of each sale may result in lower consolidated operating income for the homes in our backlog. We attempt to mitigate the market risks of the price fluctuation of commodities by entering into fixed price option contracts with our subcontractors and material suppliers for a specified period of time, generally commensurate with the building cycle. These contracts afford us the option to purchase materials at fixed prices but do not obligate us to any specified level of purchasing.

Item 8.

Financial Statements and Supplementary Data

Reference is made to the financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated, with the participation of our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2008. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have each concluded that our disclosure controls and procedures as of December 31, 2008 are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls

We do not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over our financial reporting.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008, based on criteria set forth in the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Our management determined that, as of December 31, 2008, our internal control over financial reporting is effective.

Item 9B.

Other Information

Not applicable.

PART III

Item 10.

Directors and Executive Officers of the Registrant

The information required by this Item relating to our directors is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2009 Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, “Business — Executive Officers” of this report.

Item 11.

Executive Compensation

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2009 Annual Meeting of Stockholders.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13.

Certain Relationships and Related Transactions

Item 14.

Principal Accountant Fees and Services

PART IV

Item 15.

Exhibit and Financial Statement Schedules

(a) Financial Statements

(1) Financial Statements are listed in the Index to Financial Statements on page F-1 of this report.

(2) Schedules have been omitted because they are not applicable or because the information required to be set forth therein is included in the consolidated and combined financial statements or notes thereto.

(b) Exhibits


Exhibit Number		Exhibit

3.1(2)		Amended and Restated Certificate of Incorporation

3.2(2)		Amended and Restated Bylaws

4.1(1)		Specimen Stock Certificate

10.1(1)		Lease Agreement, dated as of January 31, 2004, with Comstock Partners, L.C.

10.2(1)		Agreement of Sublease, dated as of October 1, 2004, with Comstock Asset Management, L.C.

10.3(1)		Loan Agreement, dated December 17, 1997, as amended, with Bank of America, N.A.

10.4(1)		Disbursement and Construction Loan Agreement and Disbursement and Development Loan Agreement, each dated October 10, 2002 and as amended, with Branch Banking and Trust Company of Virginia.

10.5(1)		Disbursement and Construction Loan Agreement and Acquisition, Disbursement and Development Loan agreement, each dated July 25, 2003, with Branch Banking and Trust Company of Virginia.

10.6(2)		Loan Agreement, dated January 25, 2005, with Corus Bank, N.A.

10.7(2)		Completion Guaranty, dated January 25, 2005 in favor of Corus Bank, N.A.

10.8(2)		Carve-Out Guaranty, dated January 25, 2005, in favor of Corus Bank, N.A.

10.9(1)		Form of Indemnification Agreement

10.10(1)		Form of Promissory Note to be issued to each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub by each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.11(1)		Form of Tax Indemnification Agreement to be entered into by each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub with each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.12(1)		2004 Long-Term Incentive Compensation Plan

10.13(1)		Form Of Stock Option Agreement under the 2004 Long-Term Incentive Compensation Plan

10.14(2)		Form Of Restricted Stock Grant Agreement under the 2004 Long-Term Incentive Compensation Plan

10.15(1)		Employee Stock Purchase Plan

10.16(1)		Purchase and Sale Agreement, dated as of April 25, 2003, as amended, with Crescent Potomac Yard Development, LLC


Exhibit Number		Exhibit

10.17(2)		Purchase and Sale Agreement, dated as of November 9, 2004, as amended, with Fair Oaks Penderbrook Apartments L.L.C.

10.18(2)		Real Estate Purchase Contract, dated as of February 4, 2005, with Westwick Apartments LLC

10.19(2)		Services Agreement, dated March 4, 2005, with Comstock Asset Management, L.C.

10.20(1)		Employment Agreement with Christopher Clemente

10.21(1)		Employment Agreement with Gregory Benson

10.22(1)		Employment Agreement with Bruce Labovitz

10.23(1)		Confidentiality and Non-Competition Agreement with Christopher Clemente

10.24(1)		Confidentiality and Non-Competition Agreement with Gregory Benson

10.25(1)		Confidentiality and Non-Competition Agreement with Bruce Labovitz

10.26(2)		Description of Arrangements with William Bensten

10.27(2)		Description of Arrangements with David Howell

10.28(1)		Trademark License Agreement

10.29(2)		Purchase Agreement, dated as of November 12, 2004 with Comstock Asset Management, L.C.

10.30(3)		Agreement of Purchase and Sale, dated June 23, 2005, by and between Comstock Carter Lake, L.C. and E.R. Carter, L.L.C.

10.31(3)		Agreement of Purchase and Sale, dated September 28, 2005, by and between Comstock Bellemeade, L.C. and Bellemeade Farms Investors, LLC et. al.

10.32(3)		Loan Agreement, dated September 28, 2005, by and between Comstock Bellemeade, L.C. and Bank of America, N.A.

10.33(3)		Guaranty Agreement, dated September 28, 2005, by the Registrant in favor of Bank of America, N.A.

10.34(4)		Life Insurance Reimbursement Agreement with William P. Bensten

10.35(4)		Life Insurance Reimbursement Agreement with Bruce Labovitz

10.36(4)		Description of Reimbursement and Indemnification Arrangement with Christopher Clemente and Gregory Benson

10.37(3)		Agreement of Purchase and Sale, dated June 23, 2005, by and between Comstock Carter Lake, L.C. and E.R. Carter, L.L.C.

10.38(5)		Stock Purchase Agreement with Parker-Chandler Homes, Inc. and the Selling Stockholders identified therein, dated as of January 19, 2006

10.39(5)		Loan Agreement, dated January 31, 2006, by and between Comstock Carter Lake, L.C. and Bank of America, N.A.

10.40(5)		Guaranty Agreement, dated January 31, 2006, by the Registrant in favor of Bank of America, N.A.

10.41(6)		Form of purchase agreement, dated as of May 5, 2006, as amended as of May 9, 2006, by and between the Company and the purchasers identified therein

10.42(6)		Form of warrant.

10.43(7)		Note Purchase Agreement with Kodiak Warehouse LLC, dated as of May 4, 2006

10.44(7)		Junior Subordinated Indenture with Wells Fargo Bank, N.A., dated as of May 4, 2006


Exhibit Number		Exhibit

10.45(7)		Credit Agreement with Wachovia Bank, N.A., dated as of May 26, 2006

10.46(7)		Stock Purchase Agreement with Capitol Homes, Inc. and the Selling Shareholders identified therein, dated as of May 1, 2006

10.47(8)		Letter, dated October 18, 2007, from Friedlander, Misler, Sloan, Kletzkin & Ochsman, PLLC to the Registrant and Comstock Bellemeade, L.C.

10.48(8)		Purchase and Sale Agreement by and between Comstock Countryside L.C. and Merion-Loudon, LC, dated as of December 21, 2006

10.49(8)		Marketing and Sale Agreement by and between Comstock Countryside LC and Merion-Loudon, L.C., dated as of December 21, 2006

10.50(8)		Consulting Agreement with The Merion Group, LC, dated as of December 21, 2006

10.51(8)		Loan Modification Agreement, dated as of December 2006, by and among the Registrant, Highland Avenue Properties, LLC and Bank of America, N.A.

10.52(8)		Amended and Restated Guaranty Agreement, dated December 2006, by the Registrant in favor of Bank of America, N.A.

10.53(8)		Loan Modification Agreement, dated as of December 2006, by and among the Registrant, Comstock Homes of Atlanta, LLC, Comstock Homes of Myrtle Beach, LLC and Bank of America, N.A.

10.54(8)		Amended and Restated Guaranty Agreement, dated December 2006, by the Registrant in favor of Bank of America, N.A.

10.55(8)		First Loan Modification Agreement, dated as of December 2006, by and among the Registrant, Comstock Bellemeade, L.C., Bank of America, N.A. and Lenka E. Lundsten

10.56(8)		Second Loan Modification Agreement, dated as of December 22, 2006, by and between the Registrant and Bank of America, N.A.

10.57(9)		Loan and Security Agreement, dated as of February 2008, by and between the Registrant and Stonehenge Funding, LC.

10.58(9)		Guaranty Agreement, dated as of February 2008, by Comstock Potomac Yard, L.C. in favor of Stonehenge Funding, LC.

10.59(9)		Supplement to Indenture, dated as of January 7, 2008, by and between the Registrant and Wells Fargo Bank, N.A.

10.60(9)		Amended and Restated Indenture, dated as of March 14, 2008, by and between the Registrant and Wells Fargo Bank, N.A.

10.61(9)		Loan Agreement, dated as of March 14, 2008, by and among Comstock Station View, L.C., Comstock Potomac Yard, L.C., and KeyBank National Association.

10.62(9)		Unconditional Guaranty of Payment and Performance, dated as of March 2008, by the Registrant in favor of KeyBank National Association.

10.63*		Forbearance and Conditional Release Agreement, dated as of November 25, 2008, by and among Highland Avenue Properties, LLC, Comstock Homes of Atlanta, LLC, the Registrant and Bank of American, N.A.

10.64*		Sixth Loan Modification Agreement, dated as of November 26, 2008, by and among the Registrant and Bank of America, N.A.

10.65*		Amended and Restated Promissory Note (Tribble Road Loan), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank, National Association.

10.66*		Loan Modification and Forbearance Agreement, dated as of December 10, 2008, by and among the Registrant, various wholly owned subsidiaries as guarantors and Wachovia Bank, National Association.

10.67*		Amended and Restated Promissory Note (Revolving Line of Credit), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank, National Association.

10.68*		Amended and Restated Promissory Note (Term Loan), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank, National Association.

14.1(2)		Code of Ethics

21.1*		List of subsidiaries

23.1*		Consent of PricewaterhouseCoopers LLP

24.1*		Power of Attorney (see signature page to this Annual Report on Form 10-K.)

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

*	Filed herewith.

(1)	Incorporated by reference to an exhibit to the Registrant’s Registration Statement on Form S-1, as amended, initially filed with the Commission on August 13, 2004 (No. 333-118193).

(2)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2005.

(3)	Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2005.

(4)	Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2005.

(5)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2006.

(6)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Registrant filed with the Commission on May 10, 2005.

(7)	Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2006.

(8)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2007.

(9)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 24, 2008.

I NDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page
COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at December 31, 2008 and 2007		F-3
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006		F-4
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Comstock Homebuilding Companies, Inc.

In our opinion, the consolidated financial statements listed in the index on page F-1 present fairly, in all material respects, the financial position of Comstock Homebuilding Companies, Inc. and its subsidiaries (the Company) at December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has experienced declining market conditions and has significant liquidity concerns that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PricewaterhouseCoopers LLP

McLean, Virginia

March 31, 2009

F-2

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share data)


	December 31, 2008			December 31, 2007
ASSETS
Cash and cash equivalents	$	5,977		$	6,822
Restricted cash		3,859			4,985
Receivables		—			370
Due from related parties		—			92
Real estate held for development and sale		129,542			203,860
Inventory not owned - variable interest entities		19,250			19,250
Property, plant and equipment, net		829			1,539
Other assets		1,402			22,058

TOTAL ASSETS	$	160,859		$	258,976

LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities	$	8,232		$	21,962
Obligations related to inventory not owned		19,050			19,050
Notes payable		84,563			135,367
Unsecured debt		18,266			35,847

TOTAL LIABILITIES		130,111			212,226

Commitments and contingencies (Note 13)
Minority interest		223			231

SHAREHOLDERS’ EQUITY
Class A common stock, $0.01 par value, 77,266,500 shares authorized, 15,608,438 and 15,120,955 issued and outstanding, respectively		156			151
Class B common stock, $0.01 par value, 2,733,500 shares authorized, 2,733,500 issued and outstanding		27			27
Additional paid-in capital		157,058			155,998
Treasury stock, at cost (391,400 Class A common stock)		(2,439	)		(2,439	)
Accumulated deficit		(124,277	)		(107,219	)

TOTAL SHAREHOLDERS’ EQUITY		30,525			46,519

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	160,859		$	258,976

The accompanying notes are an integral part of these consolidated financial statements.

F-3

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)


	Twelve Months Ended December 31,
	2008			2007			2006
Revenues
Revenue - homebuilding	$	44,097		$	232,805		$	240,093
Revenue - other		2,565			33,354			5,788

Total revenue		46,662			266,159			245,881
Expenses
Cost of sales - homebuilding		39,246			211,068			211,408
Cost of sales - other		28			34,241			5,249
Impairments and write-offs		18,022			78,264			57,426
Selling, general and administrative		16,400			34,671			37,500
Interest, real estate taxes and indirect costs related to inactive projects		5,685			—			—

Operating loss		(32,719	)		(92,085	)		(65,702	)
Loss (Gain) on troubled debt restructuring		(12,851	)		—			—
Other income, net		(2,850	)		(1,886	)		(1,487	)

Loss before minority interest		(17,018	)		(90,199	)		(64,215	)
Minority interest		(8	)		(137	)		15

Loss before equity in loss earnings of real estate partnership		(17,010	)		(90,062	)		(64,230	)
Equity in loss of real estate partnership		—			—			(135	)

Total pre tax loss		(17,010	)		(90,062	)		(64,365	)
Income taxes expense (benefit)		48			(2,552	)		(24,520	)

Net loss	$	(17,058	)	$	(87,510	)	$	(39,845	)

Basic loss per share	$	(0.98	)	$	(5.42	)	$	(2.63	)
Basic weighted average shares outstanding		17,462			16,140			15,148

Diluted loss per share	$	(0.98	)	$	(5.42	)	$	(2.63	)
Diluted weighted average shares outstanding		17,462			16,140			15,148

The accompanying notes are an integral part of these consolidated financial statements.

F-4

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

(Amounts in thousands, except per share data)


	Class A			Class B			Additional paid-in capital		Treasury stock			Retained earnings (deficit)			Total
	Shares	Amount		Shares	Amount		Additional paid-in capital		Treasury stock			Retained earnings (deficit)			Total
Balance at December 31, 2005	11,533	$	115	2,733	$	27	$	126,461		—		$	18,473		$	145,076
Stock compensation and issuances	457		5	—		—		2,386					—			2,391
Issuance of common stock under employee stock purchase plans	18		—					142								142
Treasury stock purchases				—		—		—		(2,439	)		—			(2,439	)
Share issuance - private placement of equity (less transaction costs)	2,121		21	—		—		18,539		—			—			18,560
Net loss													(39,845	)		(39,845	)

Balance at December 31, 2006	14,129		141	2,733		27		147,528		(2,439	)		(21,372	)		123,885
Stock compensation and issuances	971		10	—		—		8,416		—			—			8,425
Issuance of common stock under employee stock purchase plans	21		0					55					—			55
FIN 48 cumulative effect of adoption													1,663			1,663
Net loss													(87,510	)		(87,510	)

Balance at December 31, 2007	15,121		151	2,733		27		155,998		(2,439	)		(107,219	)		46,519
Stock compensation and issuances	472		5					329								333
Issuance of common stock under employee stock purchase plans	16		0					8								8
Warrants								723								723
Net loss													(17,058	)		(17,058	)

Balance at December 31, 2008	15,609	$	156	2,733	$	27	$	157,058	$	(2,439	)	$	(124,277	)	$	30,525

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands, except per share data)


	Twelve Months Ended December 31,
	2008			2007			2006
Cash flows from operating activities:
Net loss	$	(17,058	)	$	(87,510	)	$	(39,845	)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities
Amortization and depreciation		710			852			1,080
Impairments and write-offs		18,022			78,264			57,426
Loss on disposal of assets		2			461			24
Minority interest		(8	)		(137	)		15
Equity in earnings of real estate partnership		—			—			136
Gain on troubled debt restructuring		(12,851	)		—			—
Board of directors compensation		148			198			—
Amortization of stock compensation		186			6,141			2,390
Deferred income tax		—			10,657			(21,816	)
Changes in operating assets and liabilities:
Restricted cash		1,126			7,341			(1,526	)
Receivables		370			4,185			3,593
Due from related parties		92			3,467			(1,154	)
Real estate held for development and sale		14,280			133,542			(71,444	)
Other assets		19,964			(8,192	)		1,338
Accounts payable and accrued liabilities		(12,084	)		(31,629	)		(14,247	)
Due to related parties		—			(1,140	)		(2,333	)

Net cash provided by (used in) operating activities		12,899			116,501			(86,363	)

Cash flows from investing activities:
Purchase of property, plant and equipment		—			(129	)		(2,392	)
Business acquisitions, net of cash acquired		—			—			(15,490	)

Net cash provided by (used in) financing activities		—			(129	)		(17,882	)

Cash flows from financing activities:
Proceeds from notes payable		49,391			84,570			216,551
Payments on senior unsecured debt		(6,000	)		—			—
Proceeds from senior unsecured debt		—			30,000			—
Payments on junior subordinated debt		—			(30,000	)		—
Proceeds from junior subordinated debt		—			—			30,000
Proceeds from related party notes payable		—			—			4,200
Payments on notes payable		(57,144	)		(215,434	)		(182,199	)
Payments on related party notes payable		—			—			(1,430	)
Distributions paid to minority shareholders		—			(3	)		(44	)
Proceeds from shares issued under employee stock purchase plan		9			55			141
Purchase of treasury stock		—			—			(2,438	)
Proceeds from equity offerings		—			—			18,561

Net cash (used in) provided by financing activities		(13,744	)		(130,812	)		83,342

Net decrease in cash and cash equivalents		(845	)		(14,441	)		(20,904	)
Cash and cash equivalents, beginning of period		6,822			21,263			42,167

Cash and cash equivalents, end of period	$	5,977		$	6,822			21,263

Supplemental cash flow information:
Interest paid (net of interest capitalized)	$	—		$	—		$	—
Income taxes paid	$	—		$	27		$	45
Supplemental disclosure for non-cash activity:
Interest incurred but not paid in cash	$	290		$	6,674		$	13,689
Warrants issued in connection with troubled debt restructuring	$	723
Reduction in real estate held for development and sale in connection with troubled debt restructuring	$	42,307
Reduction in notes payable in connection with troubled debt restructuring	$	45,117
Reduction in accrued liabilities in connection with troubled debt restructuring	$	1,646

The accompanying notes are an integral part of these consolidated financial statements.

F-6

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except per share data)

1.	ORGANIZATION

Comstock Companies, Inc. (the “Company”) was incorporated on May 24, 2004 as a Delaware corporation. On June 30, 2004, the Company changed its name to Comstock Homebuilding Companies, Inc.

On December 17, 2004, as a result of completing its initial public offering (“IPO”) of its Class A common stock, the Company acquired 100% of the outstanding capital stock of Comstock Holding Company, Inc. and subsidiaries (“Comstock Holdings”) by merger, which followed a consolidation that took place immediately prior to the closing of the IPO (the “Consolidation”). The Consolidation was effected through the mergers of Sunset Investment Corp., Inc. and subsidiaries and Comstock Homes, Inc. and subsidiaries and Comstock Service Corp., Inc and subsidiaries (“Comstock Service”) with and into Comstock Holdings. Pursuant to the terms of the merger agreement, shares of Comstock Holdings were canceled and replaced by 4,333 and 2,734 shares Class A and B common stock of the Company, respectively. Both Class A and B common stock shares bear the same economic rights. However, for voting purposes, Class A stock holders are entitled to one vote for each share held while Class B stock holders are entitled to fifteen votes for each share held.

The mergers of Sunset Investment Corp., Inc. and subsidiaries and Comstock Homes, Inc. and subsidiaries with and into Comstock Holdings (collectively the “Comstock Companies” or “Predecessor”) and the Company’s acquisition of Comstock Holdings was accounted for using the Comstock Companies’ historical carrying values of accounting as these mergers were not deemed to be substantive exchanges. The merger of Comstock Service was accounted for using the purchase method of accounting (see Note 2) as this was deemed to be a substantive exchange due to the disparity in ownership.

The Company’s Class A common stock is traded on the NASDAQ Global market (“NASDAQ”) under the symbol “CHCI” and has no public trading history prior to December 17, 2004. In January 2008 the Company was notified by NASDAQ that it was not in compliance with requirements related to its listing on the NASDAQ Global Market. The Company was granted 180 days to regain compliance. On July 9, 2008 the Company was notified that it had not regained compliance and was going to be delisted from the NASDAQ Global Market. The Company requested a hearing on September 4, 2008 to appeal this decision and seek an additional extension. On October 24, 2008 the Company received a notice from NASDAQ indicating that the NASDAQ Listing Qualifications Panel had granted the Company’s request for continued listing. The notice from NASDAQ indicated that continued listing was subject to: 1) the Company evidencing a closing bid price of $1.00 or more for a minimum of ten consecutive trading days on or before April 9, 2009, and 2) the Company evidencing a minimum market value of publicly held shares of $5,000 on or before May 10, 2009. In January 2009 and again in March 2009 NASDAQ suspended compliance obligations with respect to these rules. On March 23, 2009 NASDAQ again suspended its compliance rules for 90 days such that our deadlines are now estimated to be October 13, 2009 and November 10, 2009.

The Company develops, builds and markets single-family homes, townhouses and condominiums in the Washington D.C., Raleigh, North Carolina and Atlanta, Georgia metropolitan markets. The Company also provides certain management and administrative support services to certain related parties.

The homebuilding industry is cyclical and significantly affected by changes in national and local economic, business and other conditions. During 2006, new home sales in our markets began to slow and that trend has significantly worsened in 2008, resulting in the impairments discussed in Note 4. In response to these conditions, the Company has significantly reduced selling, general and administrative expenses in order to align its cost structure with the current level of sales activity, slowed land acquisition, delayed land development and construction activities (except where required for near term sales) and has offered for sale various developed lots and land parcels that the Company believes are not needed based on current absorption rates. Additional reductions may be required as the downturn is expected to continue into 2009.

Liquidity Developments in 2008

The Company and its subsidiaries have secured debt which either matures or has curtailment obligations during 2009 and beyond. Under normal market conditions it is customary for lenders in our industry to renew and extend debt obligations until a project or collection of projects is complete provided the loans are kept current. The Company is the guarantor of substantially all of its subsidiaries’ debt. As a result, any significant failure to negotiate renewals and extensions to its debt would severely compromise the Company’s liquidity and would jeopardize the Company’s ability to satisfy its capital requirements. As recently reported, and as further discussed in Note 8, several of the Company’s loan facilities have matured with no extensions negotiated. As a result, in the second quarter of 2008, the Company retained external consultants to act as a financial advisor to the Company in exploring debt restructuring and capital raising alternatives. In connection with the exploration of available debt restructuring alternatives, the Company elected to cease making certain scheduled interest and/or principal curtailment payments while it attempts to negotiate modifications or other satisfactory resolutions from its lenders. The amount outstanding on the impacted facilities at the time was approximately $71,000 as of September 30, 2008, which the Company believes, based on prior period impairments, approximated the carry value of associated real estate assets. During 2008 the Company reported several loan covenant violations and notices of default from several of its lenders. As discussed further in Note 2, these violations and notices have led to foreclosures of assets and have resulted in guarantee enforcement actions being initiated against the Company. Additional foreclosure actions may occur in the future as a result of the continuing distress in the real estate and credit markets. In addition, many of the Company’s loan facilities contain Material Adverse Effect clauses which, if invoked, could create an event of default under the loan. In the event certain of the Company’s loans were deemed to be in default as a result of a Material Adverse Effect, the Company’s ability to meet its cash flow and debt obligations would be compromised.

The Company cannot at this time provide any assurances that it will be successful in its continuing efforts to work with its lenders on loan modifications. In the event the Company is not successful it may not be able to continue operations without filing a petition of bankruptcy. We require capital to operate, to post deposits on new deals, to purchase and develop land, to construct homes, to fund related carrying costs and overhead and to fund various advertising and marketing programs to generate sales. These expenditures include payroll, community engineering, entitlement, architecture, advertising, utilities and interest as well as the construction costs of our homes and rent, insurance amenities. Our sources of capital include, and will continue to include, funds derived from various secured and unsecured borrowings, cash flow from operations which include the sale and delivery of constructed homes and finished and raw building lots, and the sale of equity and debt securities. Our current operations and inventory of owned and controlled home sites will require substantial capital to develop and construct.

In production home building, it is common for builders such as ourselves to employ revolving credit facilities under which the maximum funding available under the facility exceeds the maximum outstanding balance allowed at any given time. This revolving debt will typically provide for funding of an amount up to a pre-determined percentage of the cost of each asset funded. The balance of the funding for that asset is provided for by us as equity. The efficiency of revolving debt in production home building allows us to operate with less overall debt capital availability than would be required if we built each project with long-term amortizing debt. At December 31, 2008, we had approximately $102.8 million of outstanding indebtedness and $6.0 million of unrestricted cash.

Our overall borrowing capacity is typically constrained by loan covenants which require maximum loan-to-value ratios, minimum ratios of interest to EBITDA, minimum tangible net worth, minimum unit settlements and maximum ratios of total liabilities to total equity. Our non-compliance with certain of these covenants has, for the period ending December 31, 2008, been waived eliminated or ignored by our lenders. There is no assurance either that we will return to compliance in the future or that our lenders will continue to provide us waivers of our covenants. In the event our banks discontinue funding, accelerate the maturities of their facilities, refuse to waive future covenant defaults or refuse to renew the facilities at maturity we could experience an unrecoverable liquidity crisis in the future. We can make no assurances that internally generated cash advances available under our credit facilities, refinancing of existing underleveraged projects or access to public debt and equity markets will provide us with access to sufficient capital to meet our existing and expected operating capital needs in 2009. If we fail to meet our cash flow requirements we may be required to seek bankruptcy protection or to liquidate.

At December 31, 2008 we had $6.0 million in unrestricted cash and $3.9 million in restricted cash. Included in our restricted cash balance is $3.0 million at Wachovia securing an irrevocable letter of credit relating to a captive insurance program. We are working with the insurance provider to obtain a release of the letter of credit. Our access to working capital is very limited and our debt service obligations and operating costs for 2009 exceed our current cash reserves. If we are unable to identify new sources of liquidity and/or successfully modify our existing facilities, we will likely deplete our cash reserves and be forced to file for bankruptcy protection in the near future. There can be no assurances that in that event we would be able to reorganize through bankruptcy, and we might be forced to effect a liquidation of our assets.

F-7

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies and practices used in the preparation of the consolidated financial statements is as follows:

Basis of presentation

As discussed in Note 1, the Company and the Predecessor effected the Consolidation on December 17, 2004. The Company and the Predecessor were entities that had a high degree of common ownership, common management and common corporate governance as they were owned by the same individuals each holding substantially the same ownership. As a result, the Company has determined that, based on the high degree of common ownership that resulted in substantially the same ownership interests before and after the transaction, the common nature of the businesses, the long-term business relationships between the companies and other related factors, the exchange lacked substance, and therefore, they accounted for the consolidation on a historical cost basis in accordance with FASB Technical Bulletin FTB 85-5, “Issues Related to Accounting for Business Combinations.” Further, Statement of Financial Accounting Standards No. 141, Business Combinations (“SFAS 141”) states that, in transactions between parties under common control, the receiving entity should account for the assets and liabilities received at their historical carrying values. Additionally, such transfers should be accounted for by the receiving entity as of the beginning of the period in which the transaction occurs. Accordingly, the Company has reflected the assets and liabilities acquired in the transaction at their historical carrying values and the results of operations are presented as if the transaction occurred on January 1, 2004.

The Predecessor merged with Comstock Service on December 17, 2004. Due to a disparity in ownership as compared to the other entities which comprised the Predecessor, Comstock Service was not under common control with the Predecessor and as such the consolidation transaction was considered a substantive exchange. Accordingly, the Company has accounted for the consolidation of Comstock Service as an acquisition using the purchase method of accounting as required by SFAS 141. As a result, the assets and liabilities acquired have been recorded at fair value in the accompanying financial statements on the date of the transaction. No goodwill was recognized in connection with this transaction.

Principles of consolidation

The consolidated financial statements include all controlled subsidiaries. In addition, the Company reviews its relationships with other entities to assess whether the Company is the primary beneficiary of a variable interest entity. If the determination is made that the Company is the primary beneficiary, then that entity is consolidated in accordance with FASB Interpretation No. 46-R: Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (“FIN 46-R”). See Note 3 for additional discussion on the consolidation of variable interest entities. Minority interest reflects third parties’ ownership interest in entities the Company has consolidated. All material inter-company balances and transactions are eliminated in consolidation.

Cash and cash equivalents and restricted cash

Cash and cash equivalents are comprised of cash and short-term investments with maturities when purchased of three months or less. At times, the Company may have deposits with institutions in excess of federally insured limits. Banking institutions with which the Company does business are considered credit worthy; therefore, credit risk associated with cash and cash equivalents is considered low.

F-8

At December 31, 2008 and 2007, the Company had restricted cash of $3,859 and $4,985 respectively, which primarily includes certain customer deposits related to future home sales and cash reserved to cover the Company’s general liability insurance policy deductible.

Receivables

Receivables include amounts in transit or due from title and settlement companies for residential property closings. The receivable balance at December 31, 2008 was zero. The Company collected all of the December 31, 2007 receivable balance of $370.

Real estate held for development and sale

Land, land development and indirect land development costs are accumulated by specific area and allocated to various lots or housing units based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Construction costs primarily include direct construction costs and capitalized field overhead. Other costs are comprised of prepaid local government fees and capitalized interest and real estate taxes, and are assigned based upon the relative sales value, unit or area methods. Selling costs are expensed as incurred.

Estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions. The evaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances which may affect fair value including management’s plans for the property. Due to the large acreage of certain land holdings, disposition in the normal course of business is expected to extend over a number of years. A write-down to estimated fair value is recorded when the carrying value of the property exceeds its estimated fair value. These evaluations are made on a property-by-property basis. The Company assesses the impairment of real estate assets whenever events or changes in circumstances indicate that the net book value may not be recoverable (see Note 4).

Capitalized interest and real estate taxes

Interest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate held for development and sale during the active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete or the property becomes inactive which means that development and construction activities have been suspended indefinitely. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest and real estate taxes capitalized to real estate held for development and sale are expensed as a component of cost of sales as related units are sold. The following table is a summary of interest incurred and capitalized and interest expensed as units are settled:


	Years ended December 31,
	2008		2007		2006
Total interest incurred and capitalized	$	4,742	$	23,214	$	27,758

Interest expensed as a component of cost of sales	$	3,722	$	24,605	$	12,094

During 2008 the majority of the Company’s projects in Washington, DC and Atlanta, GA were inactivated for accounting purposes as they were either substantially complete or management elected to suspend construction activities indefinitely. When a project becomes inactive, its interest, real estate taxes and indirect production overhead costs are no longer capitalized but rather expensed in the period in which they are incurred. Following is a breakdown of the interest, real estate taxes and indirect costs related to inactive projects reported on the statement of operations related to the inactivation of certain real estate projects held for development and sale:


	Years ended December 31,
	2008		2007		2006
Total interest incurred and expensed for inactive projects	$	3,993	$	—	$	—
Total real estate taxes incurred and expensed for inactive projects		1,022		—		—
Total production overhead incurred and expensed for inactive projects		670		—		—

	$	5,685		—		—

F-9

Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and are depreciated on the straight-line method over their estimated useful lives as follows:


Furniture and fixtures		7 years
Office equipment		5 years
Computer equipment and capitalized software		3 years
Leasehold improvements		Life of related lease

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from their separate accounts and any gain or loss on sale is reflected in operations. Expenditures for maintenance and repairs are charged to expense as incurred.

Investment in real estate partnership

Real estate partnerships in which the Company has significant influence but has less than a controlling interest, and is not the primary beneficiary under FIN 46-R, are accounted for under the equity method. Under the equity method, the Company’s initial investment is recorded at cost and is subsequently adjusted to recognize its share of earnings and losses. Distributions received reduce the carrying amount of the investment.

Warranty reserve

Warranty reserves for houses settled are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the one-year warranty period provided by the Company or within the five-year statutorily mandated structural warranty period. Since the Company subcontracts its homebuilding work, subcontractors are required to provide the Company with an indemnity and a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based upon historical warranty cost experience and current business factors. Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on a periodic basis. Warranty claims are directly charged to the reserve as they arise. The following table is a summary of warranty reserve activity which is included in accounts payable and accrued liabilities:


	Years ended December 31,
	2008			2007			2006
Balance at beginning period	$	1,537		$	1,669		$	1,206
Additions		432			1,010			1,524
Releases and/or charges incurred		(938	)		(1,142	)		(1,061	)

Balance at end of period	$	1,031		$	1,537		$	1,669

F-10

Revenue recognition

The Company recognizes revenues and related profits or losses from the sale of residential properties, including multiple units to the same buyer, finished lots and land sales when closing has occurred, full payment has been received, title and possession of the property transfer to the buyer and the Company has no significant continuing involvement in the property.

Other revenues include revenue from land sales and from management and administrative support services provided to related parties, which are recognized as the services are provided.

Advertising costs

The total amount of advertising costs charged to selling, general and administrative expense was $878, $3,350, and $4,223 for the years ended December 31, 2008, 2007 and 2006, respectively.

Stock compensation

As discussed in Note 12, the Company sponsors stock option plans and restricted stock award plans. Prior to December 14, 2004, the Company did not sponsor any such plans. Effective January 1, 2004, the Company prospectively adopted Statement of Financial Accounting Standards No. 123R (revised 2004), Share-Based Payment (“SFAS 123R”), which supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees . SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements over the vesting period based on their fair values at the date of grant. A portion of the costs associated with stock-based compensation is capitalized to real estate held for development and sale and the remainder is allocated to selling, general and administrative expenses.

Income taxes

Prior to December 17, 2004, the Predecessor company had elected to be treated as an S corporation under Subchapter S of the Internal Revenue Code and therefore was not subject to income taxes. Taxable income or loss was passed through to and reported by the individual shareholders. Subsequent to the consolidation the Company was reorganized as a C corporation under which income taxes are accounted for under the asset and liability method in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“FAS 109”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”). FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FAS 109. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. The Company adopted the provisions of FIN 48 effective January 1, 2007 and the provisions of FIN 48 have been applied to all income tax positions commencing from that date. As a result of this adoption, the Company recorded a benefit to the opening accumulated deficit in the amount of $1,663. We recognize interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of general and administrative expense.

Prior to 2007, we determined our tax contingencies in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (“FAS 5”). We recorded estimated tax liabilities to the extent the contingencies were probable and could be reasonably estimated.

F-11

Loss per share

The following weighted average shares and share equivalents are used to calculate basic and diluted EPS for the years ended December 31, 2008, 2007 and 2006:


	Years Ended December 31,
	2008			2007			2006
Basic loss per share
Net loss	$	(17,058	)	$	(87,510	)	$	(39,845	)

Basic weighted-average shares outstanding		17,462			16,140			15,148

Per share amounts	$	(0.98	)	$	(5.42	)	$	(2.63	)

Dilutive loss per share
Net loss	$	(17,058	)	$	(87,510	)	$	(39,845	)

Basic weighted-average shares outstanding		17,462			16,140			15,148
Stock options and restricted stock grants		—			—			—

Dilutive weighted-average shares outstanding		17,462			16,140			15,148

Per share amounts	$	(0.98	)	$	(5.42	)	$	(2.63	)

As a result of net losses in the years ended December 31, 2008, 2007 and 2006, stock grant issuances were excluded from the computation of dilutive earnings per share because their inclusion would have been anti-dilutive. Options and warrants issued during these periods were also excluded due to the options and warrants having an exercise price greater than the average market price of the common shares.

Comprehensive income

For the years ended December 31, 2008, 2007 and 2006, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying consolidated financial statements.

Segment reporting

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS 131”) establishes standards for the manner in which companies report information about operating segments. The Company determined it provides one single type of business activity, homebuilding, which operates in multiple geographic or economic environments. In addition, as a result of the Company’s acquisitions in Georgia and North Carolina, which became fully integrated in the fourth quarter of 2006, the Company modified how it analyzes its business during the fourth quarter of 2006. As such, the Company has determined that its homebuilding operations now primarily involve three reportable geographic segments: Washington DC Metropolitan Area, Raleigh, North Carolina and Atlanta, Georgia. The aggregation criteria are based on the similar economic characteristics of the projects located in each of these regions.

F-12

The table below summarizes revenue and operating (loss) income for each of the Company’s geographic segments:


	Years Ended December 31,
	2008			2007			2006
Revenues:
Washington DC Metropolitan Area	$	23,929		$	200,622		$	181,058
Raleigh, North Carolina		15,633			38,935			32,297
Atlanta, Georgia		7,100			26,602			32,526

Total	$	46,662		$	266,159		$	245,881

Operating (loss) income
Washington DC Metropolitan Area	$	(10,060	)	$	(25,890	)	$	(10,729	)
Raleigh, North Carolina		82			(10,044	)		(7,811	)
Atlanta, Georgia		(14,119	)		(37,784	)		(29,121	)

Segment operating (loss) income		(24,097	)		(73,718	)		(47,661	)

Corporate expenses unallocated		(8,622	)		(18,367	)		(18,041	)

Total operating (loss) income		(32,719	)		(92,085	)		(65,702	)

Gain on debt restructuring		12,851			—			—
Other income		2,850			1,886			1,487
Equity in (loss) earnings of real estate partnership		—			—			(135	)
Minority interest (expense) income		8			137			(15	)

(Loss) income before income taxes	$	(17,010	)	$	(90,062	)	$	(64,365	)

The following table summarizes impairment and write-offs by segment. These expense amounts are included in the segment operating income (loss) as reflected in the table above.


	Years Ended December 31,
	2008		2007		2006
Washington DC Metropolitan Area	$	6,141	$	35,005	$	26,779
Raleigh, North Carolina		499		10,190		7,527
Atlanta, Georgia		11,382		33,069		23,120

	$	18,022	$	78,264	$	57,426

The table below summarizes total assets for each of the Company’s segments at December 31,


	2008		2007
Washington DC Metropolitan Area	$	116,483	$	150,593
Raleigh, North Carolina		20,592		28,514
Atlanta, Georgia		14,332		50,888
Corporate		9,452		28,981

Total assets	$	160,859	$	258,976

F-13

Use of estimates

The preparation of the financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates are utilized in the valuation of real estate held for development and sale, valuation of deferred tax assets, capitalization of costs, consolidation of variable interest entities and warranty reserves.

Recent accounting pronouncements

3.	CONSOLIDATION OF VARIABLE INTEREST ENTITIES

The Company typically acquires land for development at market prices from various entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if the Company fails to perform under the agreements. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts. The Company may, at its option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the land under contract. The Company’s sole legal obligation and economic loss for failure to perform under these purchase agreements is typically limited to the amount of the deposit pursuant to the liquidated damages provision contained within the purchase agreement. As a result, none of the creditors of any of the entities with which the Company enters into forward fixed price purchase agreements have recourse to the general credit of the Company.

The Company also does not share in an allocation of either the profit earned or loss incurred by any of these entities with which the Company has fixed price purchase agreements. The Company has concluded that whenever it options land or lots from an entity and pays a significant non-refundable deposit as described above, a variable interest entity is created under the provisions of Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, Consolidation of Variable Interest Entities (“FIN 46-R”). This is because the Company has been deemed to have provided subordinated financial support, which creates a variable interest which limits the equity holder’s returns and may absorb some or all of an entity’s expected theoretical losses if they occur. The Company, therefore, examines the entities with which it has fixed price purchase agreements for possible consolidation by the Company under FIN 46-R. This requires the Company to compute expected losses and expected residual returns based on the probability of future cash flows as outlined in FIN 46-R. This calculation requires substantial management judgments and estimates. In addition, because the Company does not have any contractual or ownership interests in the entities with which it contracts to buy the land, the Company does not have the ability to compel these development entities to provide financial or other data to assist the Company in the performance of the primary beneficiary evaluation.

The Company has evaluated its fixed price purchase agreement with Belmont Bay, LC relating to Phase II of Beacon Park and has determined that it is the primary beneficiary of that entity. See Note 13 for a status of the Company’s litigation with Belmont Bay, LC related to the Beacon Park condominium purchase money promissory note. As a result, at December 31, 2008 and December 31, 2007, the Company consolidated one entity in the accompanying consolidated balance sheets. The effect of the consolidation was the inclusion of $19,250 in “Inventory not owned-variable interest entities” with a corresponding inclusion of $19,050 (net of land deposits paid of $200) to “Obligations related to inventory not owned.” Creditors, if any, of this variable interest entity have no recourse against the Company relating to this purchase contract.

F-14

4.	REAL ESTATE HELD FOR DEVELOPMENT AND SALE

Real estate held for development and sale includes land, land development costs, interest and other construction costs and is stated at cost or, when circumstances or events indicate that the real estate held for development or sale is impaired, at estimated fair value. Land, land development and indirect land development costs are accumulated by specific project and allocated to various lots or housing units within that project using specific identification and allocation based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Construction costs primarily include direct construction costs and capitalized field overhead. Other costs are comprised of prepaid local government fees and capitalized interest and real estate taxes. Selling costs are expensed as incurred.

Estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions. The evaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances, which may affect fair value including management’s plans for the property. Due to the large acreage of certain land holdings, disposition in the normal course of business is expected to extend over a number of years. A write-down to estimated fair value is recorded when the net carrying value of the property exceeds its estimated discounted fair value. These evaluations are made on a property-by-property basis as seen fit by management whenever events or changes in circumstances indicate that the net book value may not be recoverable.

Deteriorating market conditions, turmoil in the credit markets and increased price competition have continued to negatively impact the Company during 2008 resulting in reduced sales prices, increased customer concessions, reduced gross margins and extended estimates for project completion dates. As a result of these difficult conditions, the Company evaluates its projects on a quarterly basis to determine if recorded carrying amounts are recoverable. This evaluation resulted in impairment charges of $3,443 in the fourth quarter of 2008 that were based on a discounted cash flow model. Discounted cash flow models are dependent upon several subjective factors, including the selection of an appropriate discount rate, estimated average sales prices and estimated sales pace. In performing its impairment modeling the Company must select what it believes is an appropriate discount rate based on current market cost of capital and returns expectations. The Company has used its best judgment in determining an appropriate discount rate based on anecdotal information it has received from marketing its deals for sale in recent months. The Company has elected to use a rate of 17% in its discounted cash flow model. While the selection of a 17% discount rate was subjective in nature, the Company believes it is an appropriate rate in the current market. The estimates used by the Company are based on the best information available at the time the estimates were made. If market conditions continue to deteriorate, additional adverse changes to these estimates in future periods could result in further material impairment amounts to be recorded.

In the second quarter of 2008, the Company retained an external consulting firm to act as an advisor in exploring debt restructuring and capital raising alternatives. In connection with the exploration of available debt restructuring alternatives, the Company elected to cease making certain scheduled interest and/or principal curtailment payments while it attempts to negotiate modifications or other satisfactory resolutions from its lenders. One strategy for restructuring the Company’s debt obligations is to transfer the deed to certain projects to the lender in exchange for the settlement in full of any debt balance owed to the lender by the Company. This is commonly referred to as a ‘deed-in-lieu’ or ‘friendly foreclosure’ transaction. During the second quarter of 2008, the Company reduced the carrying value of the related assets to their estimated net realizable value which approximated the carrying value of the associated debt. This resulted in a reduction in asset carrying values of $13,240 across fourteen (14) projects and is included in impairments and write-offs for the twelve months ended December 31, 2008.

As further discussed in Note 17, the Company entered into a foreclosure agreement with Branch Banking and Trust Company (“BB&T”) with respect to approximately $31,365 of the Company’s secured debt during the three months ended September 30, 2008. Under the terms of the foreclosure agreement, the Company agreed to cooperate with BB&T with respect to its foreclosure on $31,244 of the Company’s real estate assets and BB&T agreed to provide the Company a full release from its obligations with no deficiency liability post-foreclosure. The foreclosure agreement covers properties in Virginia and Atlanta. BB&T executed on the foreclosure of these properties during the three months ended September 30, 2008. Also in September 2008, the Company entered into a foreclosure agreement with Regions Bank relating to approximately $5,306 of secured debt. Under the terms of the foreclosure agreement, the Company agreed to cooperate with Regions Bank with respect to its foreclosure on $5,529 of the Company’s real estate assets and Region’s Bank agreed to provide the Company a full release from its obligations with no deficiency liability post-foreclosure. Regions Bank then executed on the foreclosure of $5,529 of the Company’s Atlanta real estate assets in November 2008. During the three months ended December 31, 2008, the Company entered into a foreclosure agreement with Bank of America with respect to approximately $5,723 of the Company’s secured debt. Under the terms of the foreclosure agreement, the Company agreed to cooperate with Bank of America with respect to its foreclosure on $5,534 of the Company’s real estate assets and Bank of America agreed to provide the Company a full release from its obligations with no deficiency liability post-foreclosure. Bank of America executed on the foreclosure of $5,534 million of the Company’s Atlanta real estate assets during the three months ended December 31, 2008.

In addition, and from time to time, the Company will write-off deposits it has made for options on land that it has decided not to purchase. These deposits and any related capitalized pre-acquisition feasibility or project costs are written off at the earlier of the option expiration or the decision to terminate the option.

F-15

The following table summarizes impairment charges and write-offs for the twelve months ended December 31, 2008, 2007 and 2006:


	Twelve Months Ended December 31,
	2008		2007		2006
Impairments	$	18,011	$	68,788	$	51,200
Write-offs		11		9,476		6,226

	$	18,022	$	78,264	$	57,426

After impairments and write-offs, real estate held for development and sale consists of the following:


	December 31,
	2008		2007
Land and land development costs	$	82,025	$	84,448
Cost of construction (including capitalized interest and real estate taxes)		47,517		119,412

	$	129,542	$	203,860

5.	PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment consist of the following:


	December 31,
	2008			2007
Computer equipment and capitalized software	$	2,145		$	2,145
Furniture and fixtures		317			336
Office equipment		309			309
Leasehold improvements		79			78

		2,850			2,868
Less: accumulated depreciation		(2,021	)		(1,329	)

	$	829		$	1,539

Depreciation and amortization expense, included in “selling, general, and administrative” in the consolidated financial statements of operations, amounted to $701, $852 and $357 for the years ended December 31, 2008, 2007 and 2006, respectively. During 2007 the Company wrote off approximately $604 of leasehold improvement costs related to the reduction of leased office space.

F-16

6.	OTHER ASSETS

Other assets consist of the following:


	December 31,
	2008		2007
Restricted escrow deposits	$	492	$	4,650
Prepaid income taxes(1)		—		13,742
Miscellaneous prepaid and other		910		3,666

	$	1,402	$	22,058

(1)	Prepaid income tax represents $13,801 in tax benefits receivable as a result of a taxable loss incurred for the twelve months ended December 31, 2007. This amount was collected in full in March 2008.

7.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:


	December 31,
	2008		2007
Trade payables	$	6,126	$	14,141
Warranty		1,031		1,537
Customer deposits		316		3,020
Other		759		3,264

	$	8,232	$	21,962

8.	NOTES PAYABLE, SENIOR UNSECURED DEBT AND COVENANTS

The Company has outstanding borrowings with various financial institutions and other lenders which have been used to finance the acquisition, development and construction of real estate property.

As of December 31, 2008, maturities of all of our borrowings are as follows:


Year ending December 31,
Past Due(1)	$	21,167
2009		677
2010		19,916
2011		44,600
2012 and thereafter		16,469

Total	$	102,829

(1)	Past due is comprised of Haven Trust Bank ($4.8 million), Royal Bank of Canada ($5.5 million), M&T Bank ($7.8 million), Fifth-Third ($1.3 million) and an unsecured seller financing related to Belmont Bay ($1.8 million).

Notes payable consist of the following:


	December 31,
	2008		2007
Secured acquisition, development and construction notes(a)	$	64,647	$	111,255
Secured revolving credit line(b)		19,916		28,062
Senior unsecured term notes(c)		12,743		30,000
Unsecured term loans(d)		5,523		1,797

Total	$	102,829	$	171,214

(a)

Secured acquisition, development and construction notes

We have several loans with various banks that provide us with specific project financing. These loans are secured by one or more specific project assets and are used for land acquisition, development and construction. The loans bear interest at various rates, based on Prime or LIBOR benchmarks with a certain amount of additional basis points

F-17

added. At December 31, 2008 the weighted average stated rate was approximately 7.3%. In certain cases the Company is required to adhere to financial covenants under the terms of the agreements. At December 31, 2008, the Company was not in compliance with certain of these covenants with respect to minimum unit settlements with Guggenheim, its leverage ratio with JPMorgan and its debt service coverage ratio with M&T Bank. We do not expect to regain compliance in the foreseeable future with these covenants and in fact expect that we will experience additional violations in the future as we continue to realign our debt with evolving market conditions.

(b)

Secured revolving credit line

(c)

Senior unsecured note

On May 4, 2006 the Company closed on a $30.0 million Junior Subordinated Note Offering. The term of the note was thirty years and it could be retired after five years with no penalty. The rate was fixed at 9.72% the first five years and LIBOR plus 420 basis points the remaining twenty-five years. In March 2007 the Company retired the Junior Subordinated Note with no penalty and entered into a new 10-year, $30.0 million Senior Unsecured Note Offering with the same lender at the same interest rate. During the third quarter of 2007, the lender’s rights were assumed by the lender’s creditor(s). On March 14, 2008, the Company executed an option to restructure the $30.0 million unsecured note. In connection therewith, the Company made a $6.0 million principal payment to the lender and executed an amended and restated indenture with a new principal balance of $9.0 million, loosened financial covenants and a revised term of 5 years. The Company also issued the lender a seven-year warrant to purchase 1.5 million shares of Class A common stock at $0.70 per share. In exchange the lender agreed to cancel $15.0 million of the outstanding principal balance. This transaction has been accounted for as a troubled debt restructuring pursuant to Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors of Troubled Debt Restructurings (“SFAS 15”). Under SFAS 15, the amended and restated indenture was recorded at $13.4 million on March 31, 2008 which includes its principal amount plus the total estimated future interest payments of $4.4 million over the remaining life of the notes at March 31, 2008. Interest on this senior unsecured debt is prepaid through December 31, 2008. As of December 31, 2008, $12.7 million was outstanding with this facility, which includes its principal amount of $9.0 million plus the total estimated future interest payments of $3.7 million. At December 31, 2008 the Company is [in violation of its leverage ratio] and has not received a waiver as of the time of filing.

(d)

Unsecured term loans

At December 31, 2008 we had $5,523 outstanding under unsecured loan agreements with three lenders. These unsecured loans have a weighted average stated rate of interest of approximately 3.4%. There are no financial covenants associated with these loans. The notes have either matured ($1,797) or will mature between March 2007 and December 2018.

F-18

For the years ended December 31, 2008, 2007 and 2006, aggregate debt had a weighted average annual effective interest rate of 6.4%, 8.4%, and 9.7%, respectively.

9.	COMMON STOCK

As discussed in Note 1, the Company immediately prior to the IPO as a result of its merger with Comstock Holdings, had 4,333 and 2,734 shares Class A and B common stock outstanding. Class A and B common stock shares bear the same economic rights. However for voting purposes, Class A stock holders are entitled to one vote for each share held while Class B stock holders are entitled to fifteen votes for each share held.

As a result of the IPO, the Company sold 3,960 Class A shares of common stock. The Company also sold an additional 594 shares of Class A common stock pursuant to the underwriters’ exercise of their over-allotment option.

On June 22, 2005 the Company completed a follow-on offering in which 2,360 shares of Class A common stock were sold to the public.

On May 12, 2006 (the “Closing Date”), the Company completed a private placement (the “PIPE”) to institutional and other accredited investors of 2,121 shares of Class A common stock and warrants exercisable into 636 shares of Class A common stock. The Company sold the securities for $9.43 per share for total proceeds of approximately $20,000 and net proceeds of approximately $18,700. The per share price of $9.43 represented a premium of approximately 14.6% to the closing price of the Company’s common stock on the date the purchase was completed. The net proceeds were used for general corporate purposes. The warrants issued in connection with the PIPE were five-year warrants exercisable at any time after November 10, 2006 with an exercise price of $11.32 per share.

Under EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” , the fair value of the warrants issued under the PIPE have been reported as equity instruments because the liquidated damages, which are capped at 10%, reasonably represent the difference between the value of a registered share and an unregistered share of the Company’s common stock.

In February 2006 the Company’s Board of Directors authorized the Company to purchase up to 1,000 shares of the Company’s Class A common stock in the open market or in privately negotiated transactions. The authorization did not include a specified time period in which the shares repurchase would remain in effect. During the twelve months ended December 31, 2006, the Company repurchased an aggregate of 391shares of Class A common stock for a total of $2,439 or $6.23 per share. There were no shares repurchased for the twelve months ended December 31, 2008 or in 2007 and the Company has no immediate plans to repurchase any additional shares under the existing authorization.

10.

RELATED PARTY TRANSACTIONS

In April 2002 and January 2004, the Predecessor entered into lease agreements for approximately 7.7 and 8.8 square feet, respectively, for its corporate headquarters at 11465 Sunset Hills Road, Reston, Virginia from Comstock Partners, L.C. (now known as 11465 SH-I, LC), an affiliate of our Predecessor in which executive officers of the Company, Christopher Clemente, Gregory Benson, and others are principals. Christopher Clemente owns a 45% interest, Gregory Benson owns a 5% interest, an entity which is owned or controlled by Christopher Clemente’s father-in-law, owns a 45% interest, and an unrelated third party owns a 5% interest in Comstock Partners. On September 30, 2004, the lease agreements were canceled and replaced with new leases for a total of 20.6 square feet with Comstock Asset Management, L.C., an entity wholly owned by Christopher Clemente. On August 1, 2005, the lease agreement was amended for an additional 8.4 square feet. On March 31, 2007 the lease agreement was amended decreasing the total square footage from 29.0 to 24.1 and extending the term for two additional years. In October 2007, the lease agreement was amended decreasing the total square footage from 24.1 to 17.1 and extending the term to four years through September 2011. Total payments under this lease agreement were $565 and $720, respectively for the twelve months ended December 31, 2008 and 2007.

In May 2003, the Predecessor hired a construction company, in which Christopher Clemente’s brother, serves as the President and is a significant shareholder, to provide construction services and act as a general contractor at the Company’s Belmont Bay developments. For the twelve months ended December 31, 2008, 2007 and 2006, total payments made to the construction company were $0, $3,249 and $6,523, respectively.

During 2003, the Predecessor entered into agreements with I-Connect, L.C., a company in which Investors Management, LLC, an entity wholly owned by Gregory Benson, holds a 25% interest, for information technology and website consulting services and the right to use certain customized enterprise software developed with input from the Company. The intellectual property rights associated with the software solution developed by I-Connect, along with any improvements made thereto by the Company, remain the property of I-Connect. For the twelve months ended December 31, 2008, 2007 and 2006, the Company paid $253, $509, and $471, respectively to I-Connect.

During the twelve months ended December 31, 2007 and 2006, the Company entered into sales contracts to sell homes to certain employees of the Company. The Company, in order to attract, retain, and motivate employees maintains a home ownership benefit program. Under the home ownership benefits, an employee receives certain cost benefits provided by the Company when purchasing a home or having one built by the Company. Sales of homes to employees for investment purposes do not qualify for any cost benefits. The Company did not enter into any sales contracts with employees during the twelve months ended December 31, 2008.

In September 2005, Comstock Foundation, Inc. was created. Comstock Foundation is a not-for-profit organization organized exclusively for charitable purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code and is an affiliate of the Company. The affairs of Comstock Foundation are managed by a five-person board of directors with Christopher Clemente, Gregory Benson, Bruce Labovitz and Tracy Schar (employee of the Company and spouse of Christopher Clemente) being four of the five. During the twelve months ended December 31, 2008 and 2007 the Company donated $5 and $2, respectively, to Comstock Foundation.

In February 2008, the Company entered into a Loan and Security Agreement with Stonehenge Funding, LC, a wholly-owned subsidiary of Comstock Asset Management, an entity wholly-owned by Christopher Clemente, the Chairman and Chief Executive Officer of the Company. The loan in the amount of $4,000 was secured by the Company’s anticipated federal income tax refund for tax year 2007. Terms of the loan included interest-only payments at a fixed rate of 12% per annum and an origination fee paid by the Company to Stonehenge Funding at closing of the loan totaling $200. Participating in the loan were Gregory Benson ($500) and Tracy Schar ($1,500). In March 2008, the Company received its federal income tax refund and used a portion of the refund to settle the loan. Total interest payments of $16 were made to Stonehenge Funding.

F-19

The Board previously approved the final sale of the retail (non-residential) condominium units at the Eclipse on Center Park Condominium (“the Project”) and previously unallocated and unresolved financial obligations between Comstock Potomac Yard, L.C. (Comstock) and Comstock Asset Management, L.C. (CAM) stemming from that certain agreement dated November 12, 2004, as amended on September 29, 2005 (the “Agreement”). The conveyance of the retail units occurred on December 17, 2007. Pursuant to the Agreement, Comstock is required to bond off and indemnify CAM against any losses associated with the filing of mechanics liens against the retail units by Comstock’s contractors or subcontractors. Balfour Beatty Construction, Comstock’s general contractor for the Project, filed a mechanics lien against the entire Project in a total amount of approximately $515 in July of 2008. The pro-rata portion of the bond allocated to the retail units owned by CAM was $76 (the “Cash Bond”). On August 1, 2008, CAM made demand for bonding over and/or indemnification pursuant to the Agreement and on January 28, 2009, Comstock paid the Cash Bond to CAM for purposes of bonding over the lien. In the event the lien is invalidated on Comstock’s motion or Comstock is otherwise successful in its claim against Balfour Beatty, the $76 Cash Bond shall be returned to Comstock.

11.

EMPLOYEE BENEFIT PLANS

The Company maintains a defined contribution retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code (the “Code”). Eligible participants may contribute a portion of their compensation to their respective retirement accounts in an amount not to exceed the maximum allowed under the Code. In January 2006, the Company began matching employee contributions. The total amount matched for the twelve months 2008, 2007 and 2006, was $64, 121 and $135, respectively. The Company also maintains an Employee Stock Purchase Plan in which eligible employees have the opportunity to purchase common stock of the Company at a discounted price of 85% of the fair market value of the stock on the designated dates of purchase. Under the terms of the plan, the total fair market value of the common stock that an eligible employee may purchase each year is limited to the lesser of 15% of the employee’s annual compensation or $15. Under the plan, employees of the Company purchased 15,762, 20,763 and 18,231 shares of Class A common stock, for the twelve months ending December 31, 2008, 2007 and 2006, respectively.

F-20

12.

RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS

Effective January 1, 2004, the Company adopted the fair value recognition provisions of SFAS 123(R). Prior to December 14, 2004, the Company did not sponsor any stock based plans.

On December 14, 2004 the Company adopted the 2004 Long-Term Compensation Plan (“The Plan”). The plan provides for the issuance of stock options, stock appreciation rights, or SARs, restricted stock, deferred stock, dividend equivalents, bonus stock and awards in lieu of cash compensation, other stock-based awards and performance awards. Any shares issued under the Plan vest typically over service periods that range from one to five years. Stock options issued under the plan expire 10 years from the date they are granted.

The Plan provided for an initial authorization of 1,550 shares of Class A common stock for issuance thereunder, plus an additional annual authorization effective January 1, 2006 equal to the lesser of (i) 3% of the Class A common stock outstanding on the date of determination, (ii) 500 shares or (iii) such lesser amount as may be determined by the Company’s Board of Directors. In September 2007 shareholders approved an amendment to The Plan increasing the number of shares reserved and available for grant from 1,550 to 2,550 and an automatic annual increase provision that increases the number of Plan shares reserved and available for grant by the lesser of the number of shares outstanding or 750 shares.

In December 2007, the Company’s Board of Directors authorized the accelerated vesting of substantially all outstanding unvested restricted stock awards held by employees representing approximately 845 shares. As a result of the acceleration, the Company recognized approximately $4,200 of compensation expense during the 4th quarter of 2007, thereby eliminating the need to recognize these expenses in future periods.

In December 2007, the Company’s Board of Directors authorized the cancellation of all outstanding vested and unvested stock options representing approximately 200 shares. In connection therewith, the Company recognized approximately $176 of compensation expense associated with the subject options during the 4th quarter of 2007, thereby eliminating the need to recognize these expenses in future periods.

In December 2007, the Company’s Board of Directors authorized the granting of 647 shares in new stock option awards to certain Company employees, with a $1.00 per share exercise price. The new stock options were issued to employees at all levels of the company (excluding the CEO) with the $1.00 exercise price set above the then current market price in an effort to further align the interests of the workforce as a whole with the interests of shareholders. The new stock options will vest over a four year period. Over the four year vesting period the Company will recognize compensation expense of approximately $200 associated with the new options during 2008-2011.

The following equity awards were outstanding at December 31,


	2008	2007	2006
Stock options	568	647	207
Restricted stock grants	397	1,966	618

Total outstanding equity awards	965	843	825

F-21

On December 31, 2008 the following amounts were available for issuance under the plan:


Shares available for issuance at December 31, 2007	1,241
Restricted stock grants and options issued	(398	)
Restricted stock grants and options forfeited or cancelled	80
Shares issued under employee stock purchase plan	(12	)

Shares available for issuance at December 31, 2008	911

The fair value of each option award is calculated on the date of grant using the Black-Scholes option pricing model and certain subjective assumptions. Because the Company does not have sufficient trading history, expected volatilities are based on historical volatilities of comparable companies within our industry. We estimate forfeitures using a weighted average historical forfeiture rate. Our estimates of forfeitures will be adjusted over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from their estimate. The risk-free rate for the periods is based on the U.S. Treasury rates in effect at the time of grant. The expected term of options is based on the simplified method as allowed under Staff Accounting bulletins (SAB) No’s. 107 and 110 issued by the SEC. The simplified method assumes the option will be exercised midway between the vesting date and the contractual term of the option. The Company is able to use the simplified method as the options qualify as “plain vanilla” options as defined by SAB No. 107. The following table summarizes the assumptions used to calculate the fair value of options during 2008 and 2007.


	2008			2007			2006
Weighted average fair value of options granted	$	0.33		$	0.33		N/A
Dividend yields		N/A			N/A		N/A
Expected volatility		58.3%-60.1	%		58.3%-60.1	%	N/A
Weighted average expected volatility		59.31	%		59.45	%	N/A
Risk free interest rates		3.56%-3.87	%		3.56%-3.87	%	N/A
Weighted average expected term (in years)		6.25			6.26		N/A

The following table summarizes information about stock option activity:


	Shares		Weighted average exercise price
Outstanding at December 31, 2006	207		$	19.81
Granted	647			1.00
Exercised	—			—
Cancelled	(200	)		19.67
Forfeited or expired	(7	)		23.90

Outstanding at December 31, 2007	647		$	1.00
Granted	1			1.00
Exercised	—			—
Forfeited or expired	(80	)		1.00

Outstanding at December 31, 2008	568		$	1.00

Exercisable at December 31, 2008	162		$	1.00

F-22

A summary of the Company’s restricted share activity is presented below:


	Shares		Weighted average fair value at date of grant
Restricted shares outstanding at December 31, 2005	274			16.46
Granted	598			9.71
Vested	(130	)		(15.05	)
Forfeited	(155	)		15.62

Restricted shares outstanding at December 31, 2006	587		$	9.83
Granted	1,023			4.25
Vested	(463	)		(5.94	)
Accelerated	(845	)		(7.24	)
Forfeited	(106	)		5.41

Restricted shares outstanding at December 31, 2007	196		$	8.87
Granted	397			0.49
Vested	(196	)		(3.43	)
Forfeited	—

Restricted shares outstanding at December 31, 2008	397		$	5.93

As of December 31, 2008, there was $144 of total unrecognized compensation cost related to non-vested restricted stock issuances granted under the Plan. This cost is expected to be fully recognized by September 30, 2009.

Total compensation expense for share based payment arrangements for the year ended December 31, 2008 and 2007 was $280 and $6,191 respectively, of which $0 and $347 was capitalized to real estate held for development and sale. The total deferred tax (liability) benefit related to stock compensation as of December 31, 2008 and 2007 amounted to $(82) and $(273) respectively.

The Company intends to issue new shares of its common stock upon vesting of restricted stock grants or the exercise of stock options.

13.

COMMITMENTS AND CONTINGENCIES

Litigation

On December 7, 2007, the Company and a subsidiary were served with a complaint and notice of lis pendens resulting from an allegation of the subsidiary’s failure to pay $712 allegedly due to the seller of property in the District of Columbia known as the East Capitol project. The Company’s subsidiary posted a cash escrow for 1.5 times the amount sought in the complaint in order to complete conveyance of the property without exception to title and intends to vigorously defend the matter. The parties settled the matter in December 2008, and the escrow has been released.

On February 29, 2008, a wholly owned subsidiary of the Company, Mathis Partners, LLC (“Mathis Partners”), received notices of acceleration and foreclosure from Haven Trust Bank (Lender) pursuant to existing acquisition and construction credit facilities at its Gates of Luberon project. The aggregate outstanding balance of the indebtedness was approximately $4,800 as of the date of the notices. The notices were issued after maturity of the indebtedness and Mathis Partners’ inability to negotiate an extension of the credit facilities with Lender pursuant to terms and conditions Mathis Partners deemed satisfactory. On March 31, 2008, Mathis Partners, the special purpose entity that owns the Gates of Luberon project, filed a Chapter 11 reorganization, prohibiting a scheduled foreclosure sale of the Lender’s collateral in the Gates of Luberon project from taking place. Mathis Partners ceased making adequate protection payments to the Lender in September of 2008, allowing Lender to petition the court for relief from the automatic stay, a prerequisite to Lender’s ability to recommence the foreclosure process. In April 2008, the Lender filed a separate collection action against the Company pursuant to a guaranty agreement entered into by the Company for the outstanding balance of the indebtedness. On December 6, 2008, the Chapter 11 petition was dismissed and in January 2009, prior to any substantive action taking place in the lawsuit or recommencement of foreclosure proceedings, the Lender failed and was taken over by the Federal Deposit Insurance Corporation (FDIC). The FDIC has sought a stay in the guaranty action through May of 2009. The carrying value of Mathis Partners assets at December 31, 2008 is approximately $4,400.

On July 3, 2008, the Company and Comstock Belmont Bay 8&9, L.C. (the “Subsidiary”) were served with a complaint by Belmont Bay, LC (“Seller”) to enforce payment of a purchase money promissory note (“Purchase Note”) that matured on March 24, 2007, made by the Subsidiary and guaranteed by the Company with respect to our Beacon Park I Condominium at Belmont Bay (the “Project”). Demand is made for $1,993, plus accrued interest, costs and attorney fees. The Company and Subsidiary have filed answers to the action and the Subsidiary filed a counterclaim against the Seller as a result of its various breaches of the purchase contract that gave rise to the Purchase Note. On July 30, 2008, the Company and Subsidiary received notice of an additional complaint filed by Seller for breach of the purchase contract and on August 6, 2008, the Subsidiary was served with a third complaint by Seller and the master associations for the Belmont Bay development seeking injunctive relief to prohibit the Subsidiary from selling the Project. The Subsidiary and the Company intend to vigorously defend all actions and have filed a complaint against the Seller, the master association and certain individual constituent members of the associations as a result of their various contractual and fiduciary breaches.

On July 29, 2008, Balfour Beatty Construction, LLC, successor in interest to Centex Construction (“Balfour”) the general contractor for a subsidiary of the Company filed liens totaling approximately $500 at The Eclipse on Center Park project (“Project”) in connection with its claim for amounts allegedly owed under the Project contract documents. In September 2008, the Company’s subsidiary filed suit against Balfour to invalidate the liens and for its actual and liquidated damages in the approximate amount of $13,800 due to construction delays and additional costs incurred by the Company’s subsidiary with respect to the Project. In October 2008, Balfour filed counterclaims in the approximate amount of $4,000. The lender for the Company’s subsidiary has not issued a default notice with respect to the liens but an adverse judgment with respect to the litigation or the existence of the liens could nevertheless be considered an event of default under the subsidiaries loan associated with the Project.

F-23

Other than the foregoing, we are not subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising from our normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could arise with respect to legal actions pending against us, we do not expect that any such liability will have a material adverse effect on our financial position, operating results or cash flows. We believe that we have obtained adequate insurance coverage, rights to indemnification, or where appropriate, have established reserves in connection with these legal proceedings.

Letters of credit and performance bonds

The Company has commitments as a result of contracts entered into with certain third parties to meet certain performance criteria as outlined in such contracts. The Company is required to issue letters of credit and performance bonds to these third parties as a way of ensuring that such commitments entered into are met by the Company. At December 31, 2008, the Company has issued $3,976 in letters of credit and $8,451 in performance and payment bonds to these third parties. No amounts have been drawn against these letters of credit and performance bonds.

Operating leases

The Company leases office space and model homes under non-cancelable operating leases. Future minimum annual lease payments under these leases at December 31, 2008:


Year Ended:	Amount
2009		794
2010		602
2011		404
Thereafter		—

Total	$	1,800

F-24

Office and model home operating lease rental expense aggregated $1,011, $2,151 and $2,209 respectively, for years ended December 31, 2007, 2007 and 2006.

14.

FAIR VALUE OF FINANCIAL INSTRUMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The Statement does not require or permit any new fair value measurements but does apply under other accounting pronouncements that require or permit fair value measurements. The changes to current practice resulting from the Statement relate to the definition of fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. With respect to SFAS 157, the FASB also issued FASB Staff Position SFAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”) and FASB Staff Position SFAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). FSP FAS 157-1 amends SFAS 157 to exclude from the scope of SFAS 157 certain leasing transactions accounted for under Statement of Financial Accounting Standards No. 13, “Accounting for Leases.” FSP FAS 157-2 amends SFAS 157 to defer the effective date of SFAS 157 for all non-financial assets and non-financial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008. Effective January 1, 2008, we adopted, on a prospective basis, the portions of SFAS 157 not deferred by FSP FAS 157-2; this adoption did not have a material effect on our financial position, results of operations or cash flows. We do not expect that the adoption of SFAS 157 for our non-financial assets and non-financial liabilities on January 1, 2009 will have a material effect on our financial position, results of operations of cash flows.

We also adopted FASB Staff Position SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active” (“FSP FAS-157-3”), effective upon its issuance by the FASB on October 10, 2008. The adoption of FSP FAS-157-3 did not have a material effect on our financial position, results of operations or cash flows.

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS 157 are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities are reasonable estimates of their fair values based on their short maturities. The carrying amount of floating rate debt approximates fair value.

The fair value of fixed rate debt is based on observable market rates (level 1 inputs). The following table summarizes the fair value of fixed rate debt and the corresponding carrying value of fixed rate debt as of December 31, 2008:


	December 31,
	2008		2007
Carrying amount	$	10,797	$	33,259
Fair value	$	10,542	$	31,338

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

As discussed in Note 4, real estate held for development and sale is valued utilizing the lower of cost or market methodology. As such, the Company utilizes discounted cash flow models to determine market value (level 3 input). Discounted cash flow models are dependent upon several subjective factors, including the selection of an appropriate discount rate, estimated average sales prices and estimated sales pace. In performing its impairment modeling the Company must select what it believes is an appropriate discount rate based on current market cost of capital and returns expectations. The Company has used its best judgment in determining an appropriate discount rate based on anecdotal information it has received from marketing its deals for sale in recent months. The estimates used by the Company are based on the best information available at the time the estimates were made. If market conditions continue to deteriorate, additional adverse changes to these estimates in future periods could result in further material impairment amounts to be recorded.

15.

INCOME TAXES

Income taxes are accounted for under the asset and liability method in accordance with SFAS 109 “Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

For the twelve months ended December 31, 2008, the Company generated a tax loss of approximately $34,884 for federal and state tax purposes. Therefore, an effective tax rate of zero was assumed in calculating the current income tax expense at December 31, 2008.

Income tax provision consists of the following as of December 31,:


	2008			2007			2006
Current:
Federal	$			$	(11,251	)	$	(2,281	)
State		48			(1,958	)		(424	)

					(13,209	)		(2,705	)
Deferred:
Federal		(5,855	)		(17,890	)		(18,833	)
State		(1,089	)		(3,391	)		(3,552	)

		(6,944	)		(21,281	)		(22,385	)
Other
Valuation allowance		6,944			29,209			—
Tax shortfall related to the vesting of equity awards					2,729			570

Total income tax expense	$	48		$	(2,552	)	$	(24,520	)

F-25

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred tax assets and liabilities at December 31 are as follows:


	2008			2007
Deferred tax assets:
Inventory	$	19,047		$	26,632
Warranty		308			560
Investment in Affiliates		38			38
Net operating loss and tax credit carryforwards		15,483			2,543
Cancellation of debt gain		2,505			—
Accrued expenses		(176	)		531
Stock based compensation		(82	)		(273	)

		37,123			30,031
Less — valuation allowance		(36,107	)		(29,209	)

Net deferred tax assets		1,016			822

Deferred tax liabilities:
Inventory		—			—
Investment in Affiliates		—			—
Depreciation and amortization		(1,016	)		(822	)

Net deferred tax liabilities		(1,016	)		(822	)

Net deferred tax assets (liabilities)	$	—		$	—

As of December 31, 2007, the Company recorded valuation allowances for certain tax attributes and other deferred tax assets. At December 31, 2008, significant uncertainty exists regarding the future realization of these deferred tax assets through future taxable income or carry back opportunities. If in the future the Company believes that it is more likely than not that these deferred tax benefits will be realized, the valuation allowances will be reversed.

The Company’s ability to use its NOLs and, in certain circumstances, future built-in losses and depreciation deductions can be negatively affected if there is an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change occurs whenever there is a shift in ownership by more than 50 percentage points by one or more 5% shareholders over a specified time period (generally three years). Given Section 382’s broad definition, an ownership change could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control.

The Company currently has approximately $ 37,519 in Federal and State NOLs and approximately $ 862 of AMT credits, with a potential value of up to $ 15,483 in tax savings over the next 20 years. Under Internal Revenue Code Section 382 rules, if a change of ownership is triggered, the Company’s NOL asset and possibly certain other deferred tax assets may be impaired. We estimate that as of December 31, 2008, the cumulative shift in the Company’s stock was at an approximately 32% level compared with the 50% level that would trigger impairment of our NOL asset. However, if an ownership change were to occur due to the Company’s valuation allowance on its net deferred tax assets, a Section 382 limitation is not expected to materially impact the Company’s financial position or results of operations as of December 31, 2008. However, if an ownership change were to occur, the application of Section 382 may require the Company to reduce its gross deferred tax assets related to its NOLs and possibly other deferred tax asset balances.

As discussed in Note, 1, we adopted the provisions of FIN 48 as of January 1, 2007. As a result of this adoption, the Company recorded a benefit to the opening accumulated deficit in the amount of $1,663. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, would be recognized as a component of general and administrative expense. At September 30, 2008, the Company had gross unrecognized tax benefits of $77, which was fully reserved. The reserve was limited to interest on the net timing difference. The unrecognized tax benefits of $77 at September 30, 2008, would not reduce the Company annual effective tax rate if recognized. The Company has accrued interest and recorded a liability of $77 related to these unrecognized tax benefits during 2008. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.

We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2004 through 2007 tax years generally remain subject to examination by federal and most state tax authorities.

F-26

A reconciliation of the statutory rate and the effective tax rate follows:


	2008		2007		2006
Statutory Rate	35.00	%	35.00	%	35.00	%
State income taxes — net of federal benefit	3.97	%	3.97	%	4.03	%
Permanent differences	1.85	%	0.09	%	0.02	%
Change in effective tax rate	0.0	%	(0.02	)%	(0.04	)%
Tax reserve	0.0	%	(0.75	)%	(0.61	)%
Tax shortfall related to the vesting of certain equity awards	0.0	%	(3.03	)%	(0.88	)%
Change in valuation allowance	(40.82	)%	(32.43	)%	0.58	%

	0.00	%	2.83	%	38.10	%

16.

QUARTERLY RESULTS (unaudited)

Quarterly results for the years ended December 31, 2008 and 2007 follow (in thousands, except per share amounts):


	Three months ended
	March 31, 2008			June 30, 2008			September 30, 2008			December 31, 2008
Revenues	$	16,376		$	12,003		$	13,073		$	5,209
Operating loss		(2,970	)		(17,032	)		(4,663	)		(8,055	)
Pretax income (loss)		6,542			(16,618	)		(2,197	)		(4,738	)
Net income (loss)		6,542			(16,618	)		(2,202	)		(4,781	)
Basic earnings (loss) per share		0.40			(1.00	)		(0.13	)		(0.27	)
Diluted earnings (loss) per share		0.39			(1.00	)		(0.13	)		(0.27	)

	Three months ended
	March 31, 2007			June 30, 2007			September 30, 2007			December 31, 2007
Revenues	$	46,723		$	114,300		$	51,986		$	53,151
Operating loss		(2,884	)		(7,899	)		(70,282	)		(11,020	)
Pretax loss		(2,539	)		(7,594	)		(69,565	)		(10,365	)
Net loss		(1,669	)		(4,668	)		(42,468	)		(38,706	)
Basic loss per share		(0.11	)		(0.29	)		(2.63	)		(2.35	)
Diluted loss per share		(0.11	)		(0.29	)		(2.63	)		(2.35	)

Quarterly and year-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year due to rounding.

F-27

17.

TROUBLED DEBT RESTRUCTURING

On March 14, 2008, the Company executed an option to restructure its 10-year $30,000 senior unsecured note. In connection therewith, the Company made a $6,000 principal payment to the noteholder and executed an amended and restated indenture with the noteholder with a new principal balance of $9,000 and a revised term of 5 years. The Company also issued the noteholder a warrant to purchase 1,500 shares of Class A common stock at $0.70 per share. In exchange the noteholder agreed to cancel the remaining $15,000 of the original outstanding principal balance.

This transaction was accounted for as a troubled debt restructuring modification of terms pursuant to Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors of Troubled Debt Restructurings (“SFAS 15”). Under SFAS 15, the amended and restated indenture was recorded at its principal amount plus the total estimated future interest payments of $13,438.

On March 14, 2008, the gain resulting from the execution of the amended and restated indenture, calculated in accordance with SFAS 15, was determined as follows:


Cash paid (including prepayment of interest through December 31, 2008)	$	6,651
Issuance of warrants, at fair value		720
Amended and restated indenture, principal plus future interest payments		13,438
Transaction costs		172

Total consideration paid		20,981
Amount outstanding under original indenture		(30,000	)
Interest accrued under original indenture		(599	)
Unamortized loan fees		1,293

Gain on troubled debt restructuring	$	(8,325	)

On both a basic and diluted income per share basis the $8,325 gain was $0.48 per share for the twelve months ended December 31, 2008.

On August 29, 2008 the Company entered into a foreclosure agreement with Branch Banking and Trust Company (“BB&T”) with respect to approximately $31,365 of debt secured by properties in Virginia and Atlanta, Georgia. Under the terms of the foreclosure agreement, the Company agreed to cooperate with BB&T with respect to its foreclosure on the Company’s real estate assets and BB&T agreed to provide the Company with a full release from its debt obligations. BB&T completed its foreclosure on the properties in September 2008. The Company retained three pre-sold lots in Atlanta which are not included in the foreclosure agreement.

This transaction was accounted for as a transfer of assets in full settlement of debt pursuant SFAS 15. Under SFAS 15, the Company recognized a gain measured by the excess of the carrying amount of the debt settled over the fair value of the foreclosed real estate assets. The gain resulting from the foreclosure agreement was calculated in accordance with SFAS 15 and recorded in the third quarter of 2008. The gain was calculated as follows:


Carrying amount of debt settled in full	$	31,365
Cancellation of accrued interest		1,004
Assumption of contractor liabilities		69

Total consideration received		32,438
Fair value of foreclosed real estate assets held for development and sale		(31,244	)

Gain on troubled debt restructuring	$	1,194

On both a basic and diluted income per share basis the $1,194 gain was $0.07 per share for the twelve months ended December 31, 2008.

On September 4, 2008 the Company entered into a foreclosure agreement with Regions Bank with respect to approximately $5,306 of debt secured by properties in Atlanta, Georgia. Under the terms of the foreclosure agreement, the Company agreed to cooperate with Regions Bank with respect to its foreclosure on the Company’s real estate assets and Regions Bank agreed to provide the Company with a full release from its debt obligations. Regions Bank completed its foreclosure on the properties in November 2008.

This transaction was accounted for as a transfer of assets in full settlement of debt pursuant to SFAS 15. Under SFAS 15, the Company recognized a loss measured by the excess of the carrying amount of the fair value of the foreclosed real estate assets over the debt settled. The loss resulting from the Regions Bank foreclosure agreement was recorded in the fourth quarter of 2008 and calculated in accordance with SFAS 15 as follows:


Carrying amount of debt settled in full	$	5,306
Cancellation of accrued interest		209

Total consideration received		5,515
Fair value of foreclosed real estate assets held for development and sale		5,529

Loss on troubled debt restructuring	$	(14	)

On November 26, 2008 the Company entered into a forbearance and conditional release agreement with Bank of America with respect to approximately $5,723 of debt also secured by properties in Atlanta, Georgia. Under the terms of the forbearance agreement, the Company agreed to cooperate with Bank of America with respect to its foreclosure on the Company’s real estate assets and Bank of America agreed to provide the Company with a full release from its debt obligations. Bank of America completed its foreclosure on the properties in December 2008.

The Bank of America transaction was accounted for as a transfer of assets in full settlement of debt pursuant to SFAS 15. Under SFAS 15, the Company recognized a gain measured by the excess of the carrying amount of the debt settled over the fair value of the foreclosed real estate assets. The gain resulting from the forbearance agreement was recorded in the fourth quarter of 2008 and calculated in accordance with SFAS 15 as follows:


Carrying amount of debt settled in full	$	5,723
Cancellation of accrued interest		103

Total consideration received		5,826
Fair value of foreclosed real estate assets held for development and sale		(5,534	)

Gain on troubled debt restructuring	$	292

F-28

On both a basic and diluted income per share basis the $292 gain was $0.02 per share for the twelve months ended December 31, 2008.

On December 10, 2008, the Company executed a loan modification and forbearance agreement with Wachovia Bank to restructure approximately $21,625 outstanding under a borrowing base facility secured by properties in the Company’s Washington, D.C., Raleigh, N.C. and Atlanta, Georgia markets. As part of the agreement, Wachovia agreed to cancel $4,288 of the original outstanding principal balance related to the Company’s Tribble Road project in Atlanta, Georgia.

This transaction was accounted for as a troubled debt restructuring modification of terms pursuant to SFAS 15. Under SFAS 15, the debt under the modification and forbearance agreement was recorded at the principal amount plus the total estimated future interest payments of $1,025. In December 2008, the gain resulting from the execution of the loan modification agreement, calculated in accordance with SFAS 15, was determined as follows:


Transaction costs paid in cash	$	93
Loan modification and forbearance agreement, principal plus future estimated interest payments		18,901
Deferred transaction costs		104

Total consideration paid		19,098
Amount outstanding under original indenture		(21,625	)
Interest accured under original indenture		(563	)

Gain on troubled debt restructuring	$	(3,090	)

On both a basic and diluted income per share basis the $3,090 gain was $0.18 per share for the twelve months ended December 31, 2008.

18.

SUBSEQUENT EVENTS

On January 27, 2009, Comstock Homebuilding Companies, Inc. (the “Company” or “Comstock”) and Comstock Penderbrook, L.C. (the “Borrower”), a wholly owned subsidiary of the Company, entered into a forbearance agreement (the “Agreement”) with Guggenheim Corporate Funding (the “Lender”) with respect to the $13,500 outstanding under the Company’s secured Penderbrook project loan. The key terms of the Agreement provide for: 1) The maturity date of the loan was extended from February 22, 2010 to March 6, 2011 with additional incremental extensions until March 6, 2012 provided certain unit delivery requirement thresholds are met. To qualify for the first additional incremental extension of four months the Company must achieve forty-five settlements prior to the extended maturity; 2) The interest rate in effect for each calendar year will be determined on the last day of the year, retroactively for the year, based upon the cumulative unit settlements during the year. The interest rate will start to step down from a high of LIBOR + 1400 bps to a floor of LIBOR + 400 bps each year based on a range of seven to twenty unit settlements occurring in 2009 and a range of sixteen to twenty-six unit settlements in 2010. Prior to the execution of the forbearance agreement the interest rate spread on the loan was fixed at 600 bps over LIBOR; 3) The Borrower must achieve cumulative unit settlements on a quarterly basis of one, six, eight, ten, sixteen and twenty-four commencing on September 30, 2009 through December 31, 2010; 4) The Borrower assigned to the Lender deeds-in-lieu of foreclosure to be recorded in the event of a default that remains uncured and has waived its rights to automatic stay of foreclosure; 5) Outstanding past due interest of approximately $425 was added to the outstanding balance of the loan resulting in an outstanding balance post closing on the Agreement of approximately $14,000; 6) Comstock was granted a one-time option to retire the note prior to May 26, 2009 at a discount of between 9% and 16% based upon when the option is exercised.

On February 26, 2009 Comstock Homes of Washington, L.C., a wholly owned subsidiary of Comstock Homebuilding Companies, Inc. concurrently entered into a Fourth Amendment to Sub-Lease Agreement and a Services Agreement with Comstock Asset Management, L.C., (“CAM”) an entity which is wholly owned by Christopher Clemente, Comstock’s Chairman and Chief Executive Officer. Under the terms of the lease Amendment, CAM released the Comstock Homes of Washington from its lease obligation with respect to 1.4 square feet of space at its headquarters in Reston, Virginia. In consideration of the release Comstock Homes of Washington agreed to pay a $50 termination fee to CAM which is payable at a rate of $5 per month for ten months. After the amendment, the Comstock Homes of Washington had 15.8 square feet remaining under its sub-lease with CAM with annual rent of $502. Under the terms of the Services Agreement Comstock Homes of Washington agreed to provide project management and leasing services to CAM for a term of ten months at a rate of $5 per month.

19.

CHANGE IN ACCOUNTING ESTIMATES

The preparation of the financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates are utilized in the valuation of real estate held for development and sale, valuation of deferred tax assets, contingent liabilities, capitalization of costs, consolidation of variable interest entities, warranty reserves and incentive compensation accruals.

During the twelve months ended December 31, 2008, the Company recognized a reduction in selling, general and administrative expense of approximately $1,417 related to the amount accrued at December 31, 2007 for 2007 employee incentive compensation payments. This transaction was a change in estimate due to the fact that after the completion and filing of the Company’s form 10-K for the year ended December 31, 2007, the Company’s CEO, with the approval of the Compensation Committee of the Board of Directors, determined to forgo paying 2007 performance based bonuses. Instead, the Company elected to pay bonuses to retain key employees through 2008 and executives through 2009. The new facts and circumstances that came to light subsequent to the filing of form 10-K led management to conclude that this was a change in an accounting estimate. Accordingly, management has accounted for the change in estimate in the current period in accordance with Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections .

F-29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.


Signature		Capacity	Date

/s/ C HRISTOPHER C LEMENTE Christopher Clemente		Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)	March 31, 2009

* Gregory V. Benson		Regional President, Southeast	March 31, 2009

/s/ B RUCE J. L ABOVITZ Bruce J. Labovitz		Chief Financial Officer (Principal Financial Officer)	March 31, 2009

/s/ J EFFREY R. D AUER Jeffrey R. Dauer		Chief Accounting Officer (Principal Accounting Officer)	March 31, 2009

* A. Clayton Perfal		Director	March 31, 2009

* David M. Guernsey		Director	March 31, 2009

* James A. MacCutcheon		Director	March 31, 2009

* Norman D. Chirite		Director	March 31, 2009

* Robert P. Pincus		Director	March 31, 2009

* Socrates Verses		Director	March 31, 2009

By:	/s/ B RUCE J. L ABOVITZ		March 31, 2009
	Bruce J. Labovitz Attorney-in-Fact


Exhibit Number		Exhibit

3.1(2)		Amended and Restated Certificate of Incorporation

3.2(2)		Amended and Restated Bylaws

4.1(1)		Specimen Stock Certificate

10.1(1)		Lease Agreement, dated as of January 31, 2004, with Comstock Partners, L.C.

10.2(1)		Agreement of Sublease, dated as of October 1, 2004, with Comstock Asset Management, L.C.

10.3(1)		Loan Agreement, dated December 17, 1997, as amended, with Bank of America, N.A.

10.4(1)		Disbursement and Construction Loan Agreement and Disbursement and Development Loan Agreement, each dated October 10, 2002 and as amended, with Branch Banking and Trust Company of Virginia.

10.5(1)		Disbursement and Construction Loan Agreement and Acquisition, Disbursement and Development Loan agreement, each dated July 25, 2003, with Branch Banking and Trust Company of Virginia.

10.6(2)		Loan Agreement, dated January 25, 2005, with Corus Bank, N.A.

10.7(2)		Completion Guaranty, dated January 25, 2005 in favor of Corus Bank, N.A.

10.8(2)		Carve-Out Guaranty, dated January 25, 2005, in favor of Corus Bank, N.A.

10.9(1)		Form of Indemnification Agreement

10.10(1)		Form of Promissory Note to be issued to each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub by each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.11(1)		Form of Tax Indemnification Agreement to be entered into by each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub with each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.12(1)		2004 Long-Term Incentive Compensation Plan

10.13(1)		Form Of Stock Option Agreement under the 2004 Long-Term Incentive Compensation Plan

10.14(2)		Form Of Restricted Stock Grant Agreement under the 2004 Long-Term Incentive Compensation Plan

10.15(1)		Employee Stock Purchase Plan

10.16(1)		Purchase and Sale Agreement, dated as of April 25, 2003, as amended, with Crescent Potomac Yard Development, LLC

10.17(2)		Purchase and Sale Agreement, dated as of November 9, 2004, as amended, with Fair Oaks Penderbrook Apartments L.L.C.

10.18(2)		Real Estate Purchase Contract, dated as of February 4, 2005, with Westwick Apartments LLC

10.19(2)		Services Agreement, dated March 4, 2005, with Comstock Asset Management, L.C.

10.20(1)		Employment Agreement with Christopher Clemente

10.21(1)		Employment Agreement with Gregory Benson

10.22(1)		Employment Agreement with Bruce Labovitz

10.23(1)		Confidentiality and Non-Competition Agreement with Christopher Clemente

10.24(1)		Confidentiality and Non-Competition Agreement with Gregory Benson

10.25(1)		Confidentiality and Non-Competition Agreement with Bruce Labovitz

10.26(2)		Description of Arrangements with William Bensten


Exhibit Number		Exhibit

10.27(2)		Description of Arrangements with David Howell

10.28(1)		Trademark License Agreement

10.29(2)		Purchase Agreement, dated as of November 12, 2004 with Comstock Asset Management, L.C.

10.30(3)		Agreement of Purchase and Sale, dated June 23, 2005, by and between Comstock Carter Lake, L.C. and E.R. Carter, L.L.C.

10.31(3)		Agreement of Purchase and Sale, dated September 28, 2005, by and between Comstock Bellemeade, L.C. and Bellemeade Farms Investors, LLC et. al.

10.32(3)		Loan Agreement, dated September 28, 2005, by and between Comstock Bellemeade, L.C. and Bank of America, N.A.

10.33(3)		Guaranty Agreement, dated September 28, 2005, by the Registrant in favor of Bank of America, N.A.

10.34(4)		Life Insurance Reimbursement Agreement with William P. Bensten

10.35(4)		Life Insurance Reimbursement Agreement with Bruce Labovitz

10.36(4)		Description of Reimbursement and Indemnification Arrangement with Christopher Clemente and Gregory Benson

10.37(3)		Agreement of Purchase and Sale, dated June 23, 2005, by and between Comstock Carter Lake, L.C. and E.R. Carter, L.L.C.

10.38(5)		Stock Purchase Agreement with Parker-Chandler Homes, Inc. and the Selling Stockholders identified therein, dated as of January 19, 2006

10.39(5)		Loan Agreement, dated January 31, 2006, by and between Comstock Carter Lake, L.C. and Bank of America, N.A.

10.40(5)		Guaranty Agreement, dated January 31, 2006, by the Registrant in favor of Bank of America, N.A.

10.41(6)		Form of purchase agreement, dated as of May 5, 2006, as amended as of May 9, 2006, by and between the Company and the purchasers identified therein

10.42(6)		Form of warrant.

10.43(7)		Note Purchase Agreement with Kodiak Warehouse LLC, dated as of May 4, 2006

10.44(7)		Junior Subordinated Indenture with Wells Fargo Bank, N.A., dated as of May 4, 2006

10.45(7)		Credit Agreement with Wachovia Bank, N.A., dated as of May 26, 2006

10.46(7)		Stock Purchase Agreement with Capitol Homes, Inc. and the Selling Shareholders identified therein, dated as of May 1, 2006

10.47(8)		Letter, dated October 18, 2007, from Friedlander, Misler, Sloan, Kletzkin & Ochsman, PLLC to the Registrant and Comstock Bellemeade, L.C.

10.48(8)		Purchase and Sale Agreement by and between Comstock Countryside L.C. and Merion-Loudon, LC, dated as of December 21, 2006

10.49(8)		Marketing and Sale Agreement by and between Comstock Countryside LC and Merion-Loudon, L.C., dated as of December 21, 2006

10.50(8)		Consulting Agreement with The Merion Group, LC, dated as of December 21, 2006

10.51(8)		Loan Modification Agreement, dated as of December 2006, by and among the Registrant, Highland Avenue Properties, LLC and Bank of America, N.A.

10.52(8)		Amended and Restated Guaranty Agreement, dated December 2006, by the Registrant in favor of Bank of America, N.A.

10.53(8)		Loan Modification Agreement, dated as of December 2006, by and among the Registrant, Comstock Homes of Atlanta, LLC, Comstock Homes of Myrtle Beach, LLC and Bank of America, N.A.


Exhibit Number		Exhibit

10.54(8)		Amended and Restated Guaranty Agreement, dated December 2006, by the Registrant in favor of Bank of America, N.A.

10.55(8)		First Loan Modification Agreement, dated as of December 2006, by and among the Registrant, Comstock Bellemeade, L.C., Bank of America, N.A. and Lenka E. Lundsten

10.56(8)		Second Loan Modification Agreement, dated as of December 22, 2006, by and between the Registrant and Bank of America, N.A.

10.57(9)		Loan and Security Agreement, dated as of February 2008, by and between the Registrant and Stonehenge Funding, LC.

10.58(9)		Guaranty Agreement, dated as of February 2008, by Comstock Potomac Yard, L.C. in favor of Stonehenge Funding, LC.

10.59(9)		Supplement to Indenture, dated as of January 7, 2008, by and between the Registrant and Wells Fargo Bank, N.A.

10.60(9)		Amended and Restated Indenture, dated as of March 14, 2008, by and between the Registrant and Wells Fargo Bank, N.A.

10.61(9)		Loan Agreement, dated as of March 14, 2008, by and among Comstock Station View, L.C., Comstock Potomac Yard, L.C., and KeyBank National Association.

10.62(9)		Unconditional Guaranty of Payment and Performance, dated as of March 2008, by the Registrant in favor of KeyBank National Association.

10.63*		Forbearance and Conditional Release Agreement, dated as of November 25, 2008, by and among Highland Avenue Properties, LLC, Comstock Homes of Atlanta, LLC, the Registrant and Bank of American, N.A.

10.64*		Sixth Loan Modification Agreement, dated as of November 26, 2008, by and among the Registrant and Bank of America, N.A.

10.65*		Amended and Restated Promissory Note (Tribble Road Loan), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank, National Association.

10.66*		Loan Modification and Forbearance Agreement, dated as of December 10, 2008, by and among the Registrant, various wholly owned subsidiaries as guarantors and Wachovia Bank, National Association.

10.67*		Amended and Restated Promissory Note (Revolving Line of Credit), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank, National Association.

10.68*		Amended and Restated Promissory Note (Term Loan), dated as of December 10, 2008, by the Registrant in favor of Wachovia Bank, National Association.

14.1(2)		Code of Ethics

21.1*		List of subsidiaries

23.1*		Consent of PricewaterhouseCoopers LLP

24.1*		Power of Attorney (see signature page to this Annual Report on Form 10-K.)

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

*	Filed herewith.

(1)	Incorporated by reference to an exhibit to the Registrant’s Registration Statement on Form S-1, as amended, initially filed with the Commission on August 13, 2004 (No. 333-118193).

(2)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 31, 2005.

(3)	Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 14, 2005.

(4)	Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2005.

(5)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2006.

(6)	Incorporated by reference to an exhibit to the Current Report on Form 8-K of the Registrant filed with the Commission on May 10, 2005.

(7)	Incorporated by reference to an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 9, 2006.

(8)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2007.

(9)	Incorporated by reference to an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 24, 2008.

Exhibit 10.63

Execution Copy

FORBEARANCE AND CONDITIONAL RELEASE AGREEMENT

THIS FORBEARANCE AND CONDITIONAL RELEASE AGREEMENT (this “ Agreement ”) is entered into as of November , 2008 (the “ Effective Date ”), by and among HIGHLAND AVENUE PROPERTIES, LLC, a Georgia limited liability company (“ Highland Avenue ”) and COMSTOCK HOMES OF ATLANTA, LLC, a Georgia limited liability company, successor by merger to Parker-Chandler Homes, Inc., a Georgia limited liability company ( “Comstock Atlanta” ), each a “ Borrower ” and collectively the “ Borrowers ”; COMSTOCK HOMEBUILDING COMPANIES, INC. , a Delaware corporation (“ Guarantor ”), and BANK OF AMERICA, N.A. , a national banking association (“ Lender ”).

R E C I T A L S:

A. Highland Avenue is indebted to Lender with respect to a loan in the original stated principal amount of $4,851,235.00 (the “ Highland Avenue Loan ”), which is (i) evidenced by that certain Note dated May 2, 2005, payable by Highland Avenue Properties, LLC to the order of Lender in said principal amount, (ii) secured by that certain Deed to Secure Debt and Security Agreement dated May 2, 2005 and recorded on May 4, 2005 in Deed Book 39924, Page 32, Fulton County, Georgia records, encumbering Land Lots 18 & 19 of the 14th District, Fulton County, Georgia (said property containing approximately 4.86 acres), and (iii) unconditionally guaranteed by Guarantor pursuant to that certain Amended and Restated Guaranty Agreement dated December 28, 2006.

B. Comstock Atlanta is indebted to Lender with respect to a loan in the original stated principal amount of $7,500,000.00 (the “ Comstock Atlanta Loan ”) which is: (i) evidenced by that certain Real Estate Note dated January 16, 2004, payable by Parker Chandler Homes South Carolina, LLC, as predecessor in interest to Comstock Homes of Atlanta, LLC, to the order of Lender in said principal amount; (ii) secured in Jackson County, Georgia, by (a) that certain Deed to Secure Debt and Security Agreement dated as of January 16, 2004, originally recorded in the Superior Court of Jackson County, Georgia on February 4, 2004 in Deed Book 33I Page 369, (b) that certain Deed to Secure Debt and Security Agreement dated as of January 16, 2004, originally recorded in the Superior Court of Jackson County, Georgia on March 4, 2004 in Deed Book 33I, Page 374, (c) that certain Deed to Secure Debt and Security Agreement dated as of June 23, 2005, originally recorded in the Superior Court of Jackson County, Georgia on July 22, 2005 in Deed Book 39U Page 783, (d) that certain Deed to Secure Debt and Security Agreement dated as of November 14, 2005, originally recorded in the Superior Court of Jackson County, Georgia on November 28, 2005 in Deed Book 41P, Page 62, and (e) that certain Deed to Secure Debt and Security Agreement dated as of September 29, 2006, originally recorded in the Superior Court of Jackson County, Georgia on October 4, 2006 in Deed Book 45U, Page 57 (collectively, as the same have been or may be amended, renewed, supplemented or restated from time to time, and as the same, as amended, have been subsequently recorded in the land records of Jackson County, the “ Jackson Deed to Secure Debt ”), encumbering Land Lots 44, 45, 46, 47, 48, 49, 50, 58, 59 and 67, Brentwood Estates, Jackson County, Georgia; (iii) secured in Paulding County, Georgia by (a) that certain Deed to Secure Debt and Security Agreement dated as of April 2, 2004 and originally recorded in the land records of Paulding County, Georgia on April 16, 2004 in Deed Book 1623 Page 0891, (b) that certain Deed to Secure Debt and Security Agreement dated as of October 29, 2004, and originally recorded in Paulding County, Georgia on November 10, 2004 in Deed Book 1764 Page 40, and (c) that certain Deed to Secure Debt and Security Agreement dated as of

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February 24, 2005, and originally recorded in Paulding County, Georgia on March 22, 2005 in Deed Book 1847, Page 420 (collectively, as the same have been or may be amended, renewed, supplemented or restated from time to time, and as the same, as amended, have been subsequently recorded in the land records of Paulding County, the “ Paulding Deed to Secure Debt ”), encumbering land lots 23, 24, 25, 48, 49, 158, 159, 160, 161, 165, 170, 172, 176, 177, 178, 179, 182, 184, 190, 191, 194, 195, 196, 197, 198, 199, 202, 205, 209, 219, 220, 221, 222, 223, 227, 228, 237 and 257 phase 3, Senator’s Ridge, Paulding County, Georgia; and (iv) unconditionally guaranteed by Guarantor pursuant to the Amended and Restated Guaranty Agreement dated December 28, 2006 (the “ Guaranty ”).

The Highland Avenue Loan and the Comstock Atlanta Loan are collectively referred to hereinafter as the “ Loans ”. The Notes evidencing the Loans, as more particularly described above, are collectively referred to hereinafter as the “ Notes ” and the Deeds to Secure Debt securing the Loans, as more particularly described above, are collectively referred to hereinafter as the “ Security Deeds ”. The Notes and the Security Deeds are individually referred to by reference to the related Loan ( e.g. , the Note evidencing the Highland Avenue Loan is referred to hereinafter as the “ Highland Avenue Note ” and the Security Deed securing the Comstock Atlanta Loan is referred to hereinafter as the “ Comstock Atlanta Security Deed ”). The Notes, the Security Deeds, and the Guaranty, as amended, if any, and all other ancillary documents evidencing the Loans are collectively referred to hereinafter as the “ Loan Documents ”, and Borrowers and Guarantor are collectively referred to hereinafter as “ Obligors ”.

C. Obligors are no longer willing to comply with their respective obligations under the Loan Documents and have offered to cooperate with Lender in the foreclosure of the Security Deeds. Obligors have requested that Lender (i) forbear from the exercise of its rights and remedies against Guarantor under the Guaranty pending the foreclosure of the Security Deeds, and (ii) release Obligors from their obligations under the Loan Documents (other than those obligations set forth in that certain Environmental Indemnification and Release Agreement to be executed as of the date hereof, hereinafter referred to as the “ Environmental Indemnity Agreement ”, in form attached hereto as Exhibit A ) at such time as the foreclosure of the Security Deeds has been completed. Lender is willing to grant Obligors’ and Guarantor’s request, provided that the Obligors cooperate with Lender in the foreclosure of the Security Deeds, and provided that Obligors do not commit any Forbearance Termination Events as defined and enumerated herein. The parties have entered into this Agreement to evidence their agreement regarding the foregoing matters.

NOW, THEREFORE, for and in consideration of the foregoing Recitals, the covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, the parties hereto agree as follows:

1. Confirmation of Recitals and Other Matters . As a material inducement for Lender to enter into this Agreement, Obligors agree with Lender, and represent and warrant to Lender, that (i) the statements set forth in the recitals to this Agreement are true and correct and contain no material omission of fact, (ii) the Loans are in default and all obligations under the Loan Documents are fully matured and immediately due and payable in full without offset, defense, or reduction, (iii) Obligors have received or waived any notices to which they are entitled with respect to the existing defaults under the Loan, and (iv) but for this Agreement, Lender, may, at its option and without further notice to or demand upon any Obligor or any other person, exercise and enforce any and all rights and remedies under the Security Deeds, the Guaranty, and the other Loan Documents.

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2. Forbearance Covenant . Notwithstanding the existing defaults under the Loans, but subject to the terms and conditions stated in this Agreement, Lender agrees that it will not take any action or file any proceedings, whether under the Guaranty, at law, or in equity, to enforce the rights and remedies of Lender against Guarantor (the foregoing covenant being hereinafter referred to as the “ Forbearance Covenant ”). The Forbearance Covenant will remain in effect until the occurrence of a Forbearance Termination Event (as defined below). Upon written notice of the occurrence of a Forbearance Termination Event that is not cured by Obligors within fifteen days thereafter, Lender will have the right at any time and from time to time to exercise any and all rights and remedies available against Guarantor under the Guaranty or Environmental Indemnity Agreement, at law or in equity, to the same extent as Lender would be entitled if the Forbearance Covenant had never been part of this Agreement. As used herein, the term “ Forbearance Termination Event ” means the occurrence of one or more of the following events:

(a) If Lender determines that any acknowledgment, representation or warranty made by any Obligor in this Agreement is untrue or inaccurate in any material respect;

(b) If any Obligor breaches, defaults, repudiates, or fails to perform or observe any of that Obligor’s obligations or agreements stated in this Agreement;

(c) If any Obligor (or any person acting on behalf of any Obligor) commences, joins in, assists, cooperates in, or participates as an adverse party (except for compulsory legal process which requires testimony) in any suit or other proceeding against Lender or any affiliate, officer, director, or employee of Lender, relating to the Loans, any Collateral for the Loans, or the business affairs of any Obligor;

(d) If any Obligor (or any person acting on behalf of any Obligor) breaches, defaults, repudiates, or fails to perform or observe any of that Obligor’s obligations or agreements relating to environmental regulations or hazardous materials, as set forth and defined in the Environmental Indemnity Agreement; or

(e) If any Obligor (or any person acting on behalf of any Obligor) takes any action to prevent or hinder Lender’s carrying out and completion of the foreclosure of the Security Deeds, including any Obligor (or any person acting on behalf of any Obligor) taking direct or indirect action, or permitting any action which would allow such Obligor to (i) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, (ii) seek or consent to the appointment of a receiver, liquidator or any similar official, or (iii) make an assignment for the benefit of creditors.

(f) If Obligors fail to pay in full on or before December 1, 2008 all past due real property taxes pertaining to the Collateral (defined below) including, without limitation, past due real property taxes owing to Fulton County, Texas, Jackson County, Texas and Paulding County Texas.

3. Foreclosure of Collateral . (a) Obligors acknowledge that Lender intends to commence (or has commenced) proceedings to foreclose its security title, lien, and security interest in and to all real and personal property securing the Loans, as described in the Security

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Deeds and the other Loan Documents (collectively, the “ Collateral ”), in accordance with the provisions of the Loan Documents and applicable law (the “ Foreclosure Proceedings ”) and shall use commercially reasonable efforts to pursue and complete the Foreclosure Proceedings in a timely manner. As of the date hereof, the Foreclosure Proceedings are scheduled to be held no later than December 2, 2008, which date may change in accordance with applicable law. In consideration of the Forbearance Covenant, Obligors jointly and severally (i) ratify and affirm Lender’s security title, lien, and security interest in and to the Collateral pursuant to the Loan Documents, (ii) acknowledge and agree that Obligors have received commercially reasonable, timely, and accurate notice of Lender’s intention to foreclose its security title, lien, and security interest in the Collateral and that Lender has satisfied all requirements set forth in the Loan Documents relating to commencement of the Foreclosure Proceedings, (iii) covenant and agree to use commercially reasonable efforts to cooperate with Lender in connection with the Foreclosure Proceedings, and (iv) covenant and agree that none of Obligors shall contest, oppose, delay, or otherwise interfere with the commencement and prosecution of the Foreclosure Proceedings (or any foreclosure sale arising from the Foreclosure Proceedings).

(b) Obligors hereby consent to the judicial confirmation of the Foreclosure Proceedings and waive any and all rights each party may possess at law or in equity to oppose or object to Lender’s judicial confirmation of the Foreclosure Proceedings. Obligors acknowledge receipt of copies of the notices of sale in connection with the Foreclosure Proceedings taking place in Paulding, Jackson, and Fulton counties and agree that the information contained in the notices of sale is accurate and satisfies all statutory requirements. Furthermore, Obligors acknowledge that the Paulding County notices of sale are being advertised in the Dallas New Era on November 6th, 13th, 20th and 27th, the Jackson County notices of sale are being advertised in the Jackson Herald on November 5th, 12th, 19th and 26th, and the Fulton County notice of sale is being advertised in the Fulton County Daily Report on November 7th, 14th, 21st and 26th.

Obligors hereby confirm and agree to execute such documentation as may be required by Lender to submit to the court at any confirmation hearing as evidence in support thereof, the following: (i) the purchase price of each of the properties securing the Loans at the Foreclosure Proceeding was equal to or greater than the true market value of that property as of the date of the Foreclosure Proceeding in accordance with O.C.G.A. Section 44-14-161; (ii) Lender and Lender’s agents complied with all statutory requirements in conducting the Foreclosure Proceeding; and (iii) Subject to the provisions of Paragraph 7 hereof, Lender is entitled to the deficiency between the purchase price the properties actually brought at the Foreclosure Proceedings and the indebtedness owed under the Loans. Obligors acknowledge that a court may rely on the provisions of this paragraph in determining whether to confirm the Foreclosure Proceedings.

4. Deliveries by Obligors . Obligors covenant to Lender that within five (5) business days after each written request therefor (to the extent that any of such items are in the possession or direct control of Obligors, or to the extent that Obligors may request delivery of such items from any third parties), Obligors will deliver or cause the following items relating to the Collateral to be delivered to Lender whether such request is made prior or subsequent to the date of this Agreement or the foreclosure of any of the Security Deeds: (i) any certificates of insurance related to the Collateral; (ii) any certificates of occupancy, licenses, and other governmental permits related to the Collateral; (iii) any surveys, plats, drawings, engineering reports, maps, plans and specifications, and other similar matters related to the Collateral; (iv) any tax assessments, notices, and statements related to the Collateral; (v) all books and records of the Borrowers pertaining to the Collateral; and (vi) any keys necessary to obtain full access to the Collateral.

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5. Contracts . Obligors represent and warrant to Lender that as of the date hereof to the actual knowledge of Obligors after due inquiry and investigation, attached hereto as Schedule I is a true, complete, and correct listing of all material commitments, rental agreements, equipment leases, guaranties, leases, contracts, undertakings, and arrangements entered into by any Obligor or anyone on behalf of any Obligor, whether written and oral, relating to the Collateral. Obligors further represent and warrant to Lender that Obligors have delivered to Lender copies of all documents relating to such matters to the extent that any of such items are in the possession or direct control of Obligors.

6. Payables . Obligors represent and warrant to Lender that as of the date hereof to the actual knowledge of Obligors after due inquiry and investigation, attached hereto as Schedule II is a true and correct listing of all lienable claims against the Collateral and all other material payables owing in connection with the Collateral, including, without limitation, all trade payables, real and personal property taxes, employee wages (including accrued vacation and fringe benefits, if any), utility charges, insurance premiums, lease payments, license, and franchise and royalty payments (hereafter collectively called the “ Payables ”) as of the dates therein stated. It is specifically understood that Lender has not and will not agree to assume or incur any liability or responsibility with respect to the Payables or any other obligation of Obligors.

7. Release of Guarantor and Obligors . Upon the earlier of (i) Lender completing the foreclosure of its security title, lien, and security interest in the Collateral, or (ii) February 15, 2008 and provided Obligors are not in default under their respective obligations to Lender under this Agreement, Lender shall execute and deliver to Guarantor and Obligors a full release of Guarantor and each Obligor from all liabilities and obligations under the Loan Documents or otherwise with respect to the Loans (the “ Release(s) ”). The form of Release shall be as set forth on Schedule III. The above notwithstanding, the forgoing provisions shall not terminate Guarantor’s and each Obligor’s liabilities and obligations as set forth in the Environmental Indemnity Agreement, or as they pertain to any obligations and liabilities as set forth herein.

8. Release . Upon receipt of the Releases and in consideration of Lender’s entering into this Agreement and without any contingency, precondition, or condition subsequent, Obligors, for themselves and their respective heirs, executors, successors and assigns, hereby jointly and severally fully and forever release, relinquish, discharge, settle and compromise any and all claims, cross-claims, counterclaims, causes, damages and actions of every kind and character, and all suits, costs, damages, expenses, compensation and liabilities of every kind, character and description, whether direct or indirect, known or unknown, in law or in equity, which any of them has, had, may have, or will have against Lender, and/or any of its affiliates, parents, directors, agents, representatives, officers, employees, attorneys, consultants, or contractors (collectively, the “ Released Parties ”) on account of, arising, or resulting from, or in any manner incidental to, any and every thing or event occurring or failing to occur at any time in the past up to and including the Effective Date hereof, including, without limitation, any claims relating to the Loans, the Loan Documents, this Agreement, any act and event relating to Lender’s administration of the Loans or the other Obligations, any other transaction contemplated by this Agreement, and any act and event relating to any Released Parties (collectively, the “ Claims ”). In addition, Obligors jointly and severally covenant not to sue any of the Release Parties on account of any Claims. The above

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notwithstanding, the forgoing provisions shall not terminate Guarantor’s and each Obligor’s liabilities and obligations as set forth in the Environmental Indemnity Agreement, and shall not release any Lender’s Claims as they pertain thereto.

9. Representations and Warranties . In addition to all other representations and warranties set forth herein, Obligors represent, warrant, and covenant to and with Lender, which representations, warranties and covenants shall survive until the Obligations are indefeasibly released or otherwise satisfied in full, that:

(a) Obligors have the full power and authority to enter into this Agreement and to incur the obligations and consummate the transactions described herein and therein, all of which have been authorized by all proper and necessary corporate action where applicable.

(b) This Agreement constitutes the valid and legally binding obligation of Obligors enforceable in accordance with its terms and does not violate, conflict with, or constitute any default under any law, government regulation, organizational documents, or any other agreement or instrument binding upon or applicable to Obligors.

(c) No approval, authorization or other action by, or filing with, any governmental official, board or authority is required in connection with the execution and delivery of this Agreement, except such approvals and authorizations as have been received, such actions as have been taken, and such filings as have been made.

10. No Waiver by Lender . No course of dealing and no delay or failure of Lender to exercise any right, power, or privilege under any of the Loan Documents will affect any other or future exercise of such right, power, or privilege. Any departure by Lender from the terms and conditions of the Loan Documents prior to the date of this Agreement will not limit or restrict Lender’s right to require that Obligors strictly perform and observe the terms and conditions of this Agreement and the Loan Documents.

11. Effect of Agreement; No Novation . Obligors acknowledge and agree that this Agreement is not intended to be, and shall not be deemed or construed to be, a novation or release of the Notes, the Obligations, or any of the other Loan Documents, and except as expressly provided in this Agreement, this Agreement is not intended to be, and shall not be deemed or construed to be, a modification, amendment, or waiver of the Notes, the Obligations, or any of the other Loan Documents.

12. Entire Agreement . This Agreement is the entire agreement among the parties relating to the specific subject matter of this Agreement and supersedes any prior agreements, commitments and understandings between the parties.

13. Full Knowledge . Obligors acknowledge having read this Agreement and consulting with counsel (or having had the opportunity to consult with counsel) before executing this Agreement; that Obligors have relied upon their own judgment and that of their counsel in executing same and have not relied on or been induced by any representation, statement or act by any other party referenced to herein which is not referred to in this Agreement; and that Obligors enters into this Agreement voluntarily, with full knowledge of its significance.

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14. Invalid Provision to Affect No Others . If, from any circumstances whatsoever, fulfillment of any provision of this Agreement shall involve transcending the limit of validity presently prescribed by any applicable law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity. Further, if any cause or provision herein contained operates or would prospectively operate to invalidate this Agreement, in whole or in part, then such clause or provision only shall be held for naught, as though not herein contained, and the remainder of this Agreement shall remain operative and in full force and effect.

15. Counterparts; Electronic Delivery . To facilitate execution, this Agreement may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Agreement to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties thereto. Any signature to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages. Delivery of an executed counterpart of this Agreement by telecopier or any other form of electronic transmission shall be equally as effective as delivery of an original executed counterpart thereof. Any party delivering an executed counterpart of this Agreement by telecopier or other electronic means also shall deliver an original executed counterpart of such instrument, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect thereof.

16. Modifications . This Agreement cannot be changed or terminated orally, is for the benefit of the parties hereto and their respective successors and assigns, and is binding upon the parties hereto in accordance with its terms.

17. Successors and Assigns . This Agreement shall bind and inure to the benefit of the parties hereto, including their respective successors and assigns.

18. Time is of the Essence . Time is of the essence in the performance of this Agreement.

19. Governing Law; Venue . This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia (without regard to the conflict of laws rules in effect from time to time in the State of Georgia).

20. WAIVER OF JURY TRIAL . TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, OBLIGORS AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN ANY LAWSUIT OR OTHER COURT ACTION RELATED TO THIS AGREEMENT, THE NOTE, THE OBLIGATIONS, AND THE OTHER LOAN DOCUMENTS, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY, INCLUDING, WITHOUT LIMITATION, IN RESPECT TO ANY CLAIM, COUNTERCLAIM, THIRD-PARTY CLAIM, DEFENSE, OR SET-OFF ASSERTED IN ANY SUCH LAWSUIT OR COURT ACTION. ANY SUCH LAWSUIT OR COURT ACTION SHALL BE TRIED EXCLUSIVELY TO A COURT WITHOUT A JURY. OBLIGORS SPECIFICALLY ACKNOWLEDGE THAT THEIR EXECUTION OF THIS WAIVER OF JURY TRIAL IS A MATERIAL PORTION OF THE CONSIDERATION RECEIVED BY LENDER IN EXCHANGE FOR ITS ENTERING INTO THIS AGREEMENT.

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IN WITNESS WHEREOF, Obligors have executed this Agreement under seal as of the date first above written.


*Borrowers:*

COMSTOCK HOMES OF ATLANTA, LLC , a Georgia limited liability company

By: Comstock Homebuilding Companies, Inc., its Manager

By:
Name:
Title:

HIGHLAND AVENUE PROPERTIES, LLC, a Georgia limited liability company

By: Comstock Homebuilding Companies, Inc., its Manager

By:
Name:
Title:

*Guarantor:*

COMSTOCK HOMEBUILDING COMPANIES, INC.

By:
Name:
Title:

[Signatures continue on the next page]

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IN WITNESS WHEREOF, Lender has executed this Agreement under seal with the intention that this Agreement shall be effective as of the date first above written.


*Lender:*

BANK OF AMERICA, N.A., a national banking association

By:
Name:
Title:

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SCHEDULE I

List of Contracts

SCHEDULE II

List of Payables

SCHEDULE III

Form of Release

EXHIBIT A

Environmental Indemnity Agreement

Exhibit 10.64

Execution Copy

SIXTH LOAN MODIFICATION AGREEMENT

THIS SIXTH LOAN MODIFICATION AGREEMENT (this “ Agreement ” or this “ Modification ”) is made as of the day of November, 2008 but effective as of the Effective Date (defined below), by and among: COMSTOCK HOMEBUILDING COMPANIES, INC. , a Delaware corporation (the “ Borrower ,” whether one or more) and BANK OF AMERICA, N.A., a national banking association, its successors and assigns (the “ Lender ”).

RECITALS:

WHEREAS, pursuant to the terms of that certain Revolving Line of Credit Note dated as of February 22, 2006, by and between Borrower and Lender (and as the same may be further modified, renewed, supplemented or restated, the “ Note ”), Lender made a loan (the “ Loan ”) to Borrower in the original principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00), as evidenced by the Note;

WHEREAS, pursuant to that certain Loan Modification Agreement dated August 22, 2006 (the “ First Loan Modification ”), Borrower and Lender agreed to modify the Loan to, among other things, (i) reduce the maximum outstanding principal amount of the Loan to Ten Million and No/100 Dollars ($10,000,000.00); (ii) extend the Maturity Date of the Loan to November 22, 2006 and (iii) make certain other changes in connection with the Loan;

WHEREAS, pursuant to the terms of that certain Second Loan Modification Agreement dated as of November 22, 2006 (the “ Second Loan Modification ”), Borrower and Lender agreed to, among other things, (i) state that no further advances could be made under the Loan; (ii) reduce the maximum outstanding principal amount of the Loan to Five Million and No/100 Dollars ($5,000,000.00); (iii) extend the Maturity Date of the Loan to December 28, 2007; (iv) modify the payment terms of the Loan; and (v) and make certain other changes in connection with the Loan;

WHEREAS, pursuant to the terms of that certain Third Loan Modification Agreement dated June 28, 2007 (the “Third Loan Modification”), Borrower and Lender agreed to, among other things, (i) extend the Maturity Date of the Loan and (ii) modify the payment terms of the Loan (the “ Third Modification Agreement ”);

WHEREAS, in consideration of Lender entering into, among other things, the Third Modification Agreement, Highland Avenue (as hereinafter defined) and Homes of Atlanta (as hereinafter defined) agreed, pursuant to the terms of certain modification agreements dated June 28, 2007 to secure the Loan with the Highland Property (as hereinafter defined) and the Atlanta Property (as hereinafter defined);

WHEREAS, pursuant to the terms of that certain Fourth Modification Agreement dated December 27, 2007 (the “ Fourth Loan Modification ”), Borrower and Lender agreed to modify certain payment terms of the Loan;

WHEREAS, pursuant to the terms of that certain Fifth Modification Agreement dated February 27, 2008 (the “ Fifth Loan Modification ”), Borrower and Lender agreed to modify certain payment terms of the Loan;

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WHEREAS, the outstanding principal balance under the Loan as of the date hereof is Three Million One Hundred Twenty Thousand and No/100 Dollars ($3,120,000.00);

WHEREAS Lender last received a loan payment from Borrower on May 28, 2008, and interest on the Loan has continued to accrue from and after such date;

WHEREAS, in addition to being the holder of the Loan, Lender is also currently the holder of: (i) a certain loan made by Lender to Highland Avenue Properties, LLC (“ Highland Avenue ”) in the original principal amount of Four Million Eight Hundred Fifty One Thousand Two Hundred Thirty-Five and No/100 Dollars ($4,851,235.00) (as the same has been or may be amended, renewed, supplemented or restated from time to time, the “ Highland Loan ”) which Highland Loan is secured by, among other things, certain property located in Atlanta, Georgia (the “ Highland Property ”) and (ii) a certain loan made by Lender to Comstock Homes of Atlanta, LLC (“ Homes of Atlanta ”) in the original principal amount of Seven Million Five Hundred Thousand and No/100 Dollars ($7,500,000.00)) (as the same has been or may be amended, renewed, supplemented or restated from time to time, the “ Atlanta Loan ”) which Atlanta Loan is secured by, among other things, certain property located in Jackson County and Paulding County, Georgia (the “ Atlanta Property ”);

WHEREAS, Borrower, Highland Avenue, Homes of Atlanta and Lender have all entered into that certain Forbearance and Conditional Release Agreement (the “ Forbearance Agreement ”) dated as of the date hereof, whereby Lender has agreed to release Borrower, Highland Avenue and Homes of Atlanta from their obligations under the Highland Loan and Atlanta Loan, and forbear from the exercise of its right and remedies against Borrower, Highland Avenue and Homes of Atlanta under such loans;

WHEREAS, at the request of the Borrower, Lender has agreed to, among other things, modify certain payment terms of the Loan and extend the Maturity Date of the Loan;

WHEREAS, Borrower’s obligations under the Note and the other Loan Documents (hereinafter defined) are hereinafter collectively called the “ Obligations ”; the Note and all other documents and any modification agreement previously, now or hereafter executed and delivered to evidence, secure, guarantee, or in connection with, the Obligations, as the same has been or may be amended, renewed, extended, amended, supplemented or restated, are hereinafter collectively called the “ Loan Documents ”; and all liens, security interests, assignments, superior titles, rights, remedies, powers, equities and priorities securing the Note or providing recourse to Lender with respect thereto, are hereinafter collectively called the “ Liens ”; and

WHEREAS, Borrower and Lender agree that this Agreement shall only become effective upon Lender’s successful foreclosure of the Security Deeds (as defined in the Forbearance Agreement) in accordance with the terms of the Forbearance Agreement, including Borrower, Highland Avenue and Homes of Atlanta (or any person acting directly or indirectly on behalf thereof) refraining from taking any action that would prevent or hinder Lender from carrying out and completing the foreclosure of the Security Deeds in accordance therewith (the “ Effective Date ”).

NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all parties, the parties agree as follows:

1. Recitals . The recitals set forth above are a material part of this Agreement, and are incorporated herein as if restated in full.

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2. Definitions . All capitalized terms herein, unless otherwise defined herein, shall have the same meaning ascribed to such terms as in the Loan Documents.

3. Interest Rate . Interest on the Loan shall continue to accrue in accordance with the terms of the Note, including and without limitation, the following provisions:

The unpaid principal balance of this Note from day to day outstanding which is not past due, shall bear interest at a rate equal to the “Stated Rate” (hereinafter defined) computed on the “Annual Basis” (hereinafter defined). As used herein, the term “ Stated Rate ” means a fluctuating rate of interest equal to the BBA LIBOR Daily Floating Rate (hereinafter defined) plus Two Hundred Twenty (220) basis points per annum. The Stated Rate shall change with each change in the BBA LIBOR Daily Floating Rate as of the date of any such change, without any requirement that the Lender provide notice to the Borrower. As used herein (i) the term “ Annual Basis ” means computation of interest for the actual number of days elapsed and as if each year were composed of 360 days, and (ii) the term “ BBA LIBOR Daily Floating Rate ” shall mean a fluctuating rate of interest per annum equal to the British Bankers Association LIBOR Rate (“ BBA LIBOR ”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as selected by Lender from time to time) as determined for each Business Day at approximately 11:00 a.m. London time two (2) London Banking Days prior to the date in question, for U.S. Dollar deposits (for delivery on the first day of such interest period) with a one month term, as adjusted from time to time in Lender’s sole discretion for governmental reserve requirements, deposit insurance assessment rates and other regulatory costs. If such rate is not available at such time for any reason, then a comparable rate will be reasonably selected by Lender. “ Business Day ” shall mean a day on which Lender is open for the conduct of substantially all of its banking business at its office in the city in which this Note is payable (excluding Saturdays and Sundays). A “ London Banking Day ” is a day on which banks in London are open for business and dealing in offshore dollars.

If Lender determines that no adequate basis exists for determining the BBA LIBOR Daily Floating Rate, or that any applicable law or regulation or compliance therewith by Lender prohibits or restricts or makes impossible the charging of interest based on the BBA LIBOR Daily Floating Rate and Lender so notifies Borrower, then until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, interest shall accrue and be payable on the unpaid principal balance of this Note from the date Lender so notifies Borrower until the Maturity Date of this Note (whether by acceleration, declaration, extension or otherwise) at a fluctuating rate of interest equal to the Prime Rate of Lender computed on the Annual Basis. As used herein, (i) the term “Annual Basis” means computation of interest for the actual number of days elapsed and as if each year were composed of 360 days and (ii) the term “ Prime Rate ” means, on any day, the rate of interest per annum then most recently established by Lender as its “prime rate.” Any such rate is a general reference rate of interest, may not be related to any other rate, and may not be the lowest or best rate actually charged by Lender to any customer or a favored rate and may not correspond with future increases or decreases in interest rates charged by other lenders or market rates in general, and that Lender may make various business or other loans at rates of interest having no relationship to such rate. Each time the Prime Rate changes, the

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per annum rate of interest on this Note shall change immediately and contemporaneously with such change in the Prime Rate. If Lender (including any subsequent holder of this Note) ceases to exist or to establish or publish a prime rate from which the Prime Rate is then determined, the applicable variable rate from which the Prime Rate is determined thereafter shall be instead the prime rate reported in The Wall Street Journal (or the average prime rate if a high and a low prime rate are therein reported), and the Prime Rate shall change without notice with each change in such prime rate as of the date such change is reported.

4. Maturity. All of the Obligations, including (without limitation) all outstanding principal, accrued and unpaid interest, outstanding late charges, unpaid fees, and all other amounts outstanding under the Note and the other Loan Documents, shall be due and payable in full on December 28, 2018 (the “ Maturity Date ”). The Maturity Date may not be further extended by the Borrower. All amounts due under the Loan are due in full on the Maturity Date. All references to the Maturity Date contained in the Loan Documents shall refer to the Maturity Date as defined in this Agreement.

5. Payments. Payments of principal and interest under the Loan shall be due and payable as follows:

(a) No payments of principal or interest shall be due prior to January 28, 2010 (“ First Interest Payment Date ”).

(b) On the First Interest Payment Date, Borrower shall make a payment of all then accrued and unpaid interest on the Loan at the Stated Rate;

(c) On February 28, 2010 and on the 28 ^th of each month thereafter (each such date, a “ Payment Date ”) through and including Maturity Date, Borrower shall make monthly payments of all accrued and unpaid interest on the Loan at the Stated Rate.

(d) Commencing January 28, 2012 and continuing on each and every successive Payment Date thereafter through November 28, 2018, in addition to monthly payments of interest, Borrower shall make consecutive monthly payments of principal in the amount of Thirty-Seven Thousand One Hundred Forty Two and ⁸⁶ / 100 Dollars ($37,142.86) each.

(e) On the Maturity Date, Borrower shall pay the entire outstanding principal balance of the Loan, together with all accrued but unpaid interest thereon at the Stated Rate, and all other amounts due under this Agreement or any other Loan Document.

6. Modification Fees . Borrower shall pay a modification fee to the Lender in connection with this Modification in the amount of Four Hundred Ninety-One Thousand Nine Hundred Eighty-Eight and No/100 Dollars ($491,988.00) (the “ Sixth Loan Modification Fee ”), which fee shall accrue interest at the Stated Rate from the date hereof until paid in full. The Sixth Loan Modification Fee shall be due and payable as follows:

(a) On the First Interest Payment Date, Borrower shall make a payment of all then accrued and unpaid interest on the Sixth Loan Modification Fee.

(b) On each and every successive Payment Date thereafter through and including the Maturity Date, Borrower shall make monthly payments of all accrued and unpaid interest on the Sixth Loan Modification Fee.

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(c) Commencing January 28, 2012 and continuing on each and every successive Payment Date thereafter through November 28, 2018, in addition to monthly payments of interest on the Sixth Loan Modification Fee, Borrower shall make monthly payments of a portion of the Sixth Loan Modification Fee in the amount of Five Thousand Eight Hundred Fifty-Seven and ⁰⁰ / 100 Dollars ($5,857.00) each.

(d) On the Maturity Date, Borrower shall pay the entire unpaid balance of the Sixth Loan Modification Fee, together with all accrued but unpaid interest thereon at the Stated Rate.

7. Past Due Rate . Any principal of, and to the extent permitted by applicable law, any interest on such principal, and any other sum payable hereunder, which is not paid when due, including, without limitation, the Sixth Loan Modification Fee, shall bear interest from the date due and payable until paid, payable on demand, at a rate per annum (the “ Past Due Rate ”) equal to the Stated Rate plus four percent (4%).

8. Late Charges . If Borrower fails to make any payment under the terms of the Loan as modified herein within fifteen (15) days after the date such payment is due, including and without limitation, the Sixth Loan Modification Fee, Borrower shall pay to Lender on demand a late charge equal to four percent (4%) of such payment. Such fifteen (15) day period shall not be construed as in any way extending the due date of any payment. The “late charge” is imposed for the purpose of defraying the expenses of the Lender incident to handling such delinquent payment. This charge shall be in addition to, and not in lieu of, the Past Due Rate and any other remedy Lender may have, whether authorized herein or by law, and is in addition to any fees and charges of any agents or attorneys which Lender may employ upon the occurrence of a Default.

9. Default Upon the occurrence of any default under the Loan that is not cured within any applicable cure period, at Lender’s election, the full principal amount of the Loan together with all accrued and unpaid interest thereon and the full Sixth Loan Modification Fee, together with all accrued and unpaid interest thereon and any applicable fees as set forth herein or in any of the other Loan Documents, shall be immediately due and payable in full.

10. Borrower’s Representations and Warranties . The Borrower hereby represents and warrants that: (a) the execution and delivery of this Agreement does not contravene, result in a breach of, or constitute a default under, any deed of trust, loan agreement, indenture or other contract or agreement to which Borrower is a party or by which Borrower or any of its properties may be bound (nor would such execution and delivery constitute such a default with the passage of time or the giving of notice or both), and does not violate or contravene any law, order, decree, rule, regulation or restriction to which Borrower or any of Borrower’s property is subject; (b) this Agreement constitutes the legal, valid and binding obligations of Borrower enforceable in accordance with its terms; (c) the execution and delivery of, and performance under, this Agreement are within Borrower’s power and authority without the joinder or consent of any other party and have been duly authorized by all requisite action, and are not in contravention of any law, or of any indenture, agreement or undertaking to which Borrower is a party or by which it is bound; (d) there are no offsets, claims or defenses with respect to the Obligations; and (e) Borrower is duly organized and legally existing under the laws of the state of its organization and is duly qualified to do business in the Commonwealth of Virginia. Except as set forth on Exhibit A hereto or otherwise disclosed in its public filings from time to time, the Borrower further represents and warrants that

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there is no material suit, judicial or administrative action, claim, investigation, inquiry, proceeding or demand pending (or, to Borrower’s knowledge, threatened) against (i) Borrower, or (ii) which affects title to any of Borrower’s property or the Borrower’s title to any of Borrower’s property, or (iii) which affects the validity enforceability or priority of any of the Loan Documents. Borrower agrees to indemnify and hold the Lender harmless against any loss, claim damage, liability or expense (including, without limitation, attorneys’ fees) incurred as a result of any representation or warranty made by Borrower herein which proves to be untrue or inaccurate in any respect, and any such occurrence shall constitute a default under the Loan Documents.

11. Renewal; Lien Continuation; No Novation . Borrower hereby renews the Obligations and promises to pay and perform all Obligations as modified by this Agreement. All Obligations evidenced by the Note are hereby ratified and confirmed as valid, subsisting and the Liens are hereby ratified and confirmed as valid, subsisting and securing the Obligations, as modified hereby. Nothing herein shall in any manner diminish, impair, waive or extinguish the Note, the Obligations or the Liens. The execution and delivery of this Agreement shall not constitute a novation of the debt evidenced and secured by the Loan Documents.

12. Expenses. Borrower shall pay all costs and expenses of all title work, title and related searches in the public records, escrow fees, recording taxes, mortgage taxes and other document and intangible taxes and the cost of any other reports or tests deemed necessary by Lender in connection with (i) this Agreement or (ii) the restructuring of the Loan.

13. Authorization . At the time of execution of this Agreement, Borrower shall, if and to the extent requested by Lender, deliver to Lender (a) an opinion of Borrower’s counsel dated the date hereof, in form and substance satisfactory to Lender, that this Agreement has been duly authorized, executed and delivered by Borrower and is binding on, and enforceable against, the Borrower in accordance with its terms; and (b) such other evidence of due authorization and execution by the Borrower as the Lender may require.

14. Further Assurances . The Borrower agrees to execute and deliver to the Lender, promptly upon request from Lender, such additional documents as may be necessary or appropriate to consummate the transactions contemplated herein or to perfect, or continue the perfection of, the Liens.

15. No Defenses . Borrower represents and warrants that Borrower has no claims, actions, causes of action, defenses, counterclaims or setoffs of any kind or nature which Borrower can assert against Lender in connection with the making, closing, administration, collection or enforcement by Lender of the Loan Documents, this Agreement or any related agreements.

16. No Waiver by Lender . Borrower acknowledges and agrees that the execution of this Agreement by the Lender is not intended nor shall it be construed as (a) an actual or implied waiver of any, default under the Note, any Deed to Secure Debt which encumbers the Highland Property or the Atlanta Property or any other Loan Document, or (b) an actual or implied waiver of any condition or obligation imposed upon the Borrower pursuant to the Note, any Deed to Secure Debt which encumbers the Highland Property or the Atlanta Property or any other Loan Document.

17. Borrower’s Performance . If Borrower should fail to comply with any of the agreements, covenants or obligations of the Borrower under this or any other Loan Document, then Lender (in Borrower’s name or in its own name) may, but is under no obligation to, perform them or

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cause them to be performed for the account of Borrower at Borrower’s sole expense. Any and all expenses thus incurred or paid by Lender shall be Borrower’s demand obligations to Lender and shall bear interest, from the date of Lender’s payment of any such obligation or expense for Borrower’s account until the date on which Borrower repays it to Lender, at the default rate of interest set forth in the Note. Upon making any such payment or incurring any such expense, Lender shall be fully subrogated to all of the rights of the person or entity receiving such payment. Any amounts owing by Borrower to Lender pursuant to this provision or any other provision of this Agreement shall automatically and without notice constitute a portion of the Obligations evidenced by the Note secured by any Deed to Secure Debt which encumbers the Highland Property or the Atlanta Property and the other Loan Documents. The amount and nature of any such expense and the time when paid shall be fully established by the affidavit of Lender or any of Lender’s officers or agents.

18. Release . Upon the Effective Date, and in consideration of Lender’s entering into this Agreement, Borrower, for itself and its affiliates, heirs, executors, successors and assigns, hereby fully and forever release, relinquish, discharge, settle and compromise any and all claims, cross-claims, counterclaims, causes, damages and actions of every kind and character, and all suits, costs, damages, expenses, compensation and liabilities of every kind, character and description, whether direct or indirect, known or unknown, in law or in equity, which it has, had, may have, or will have against Lender, and/or any of its affiliates, parents, directors, agents, representatives, officers, employees, attorneys, consultants, or contractors (collectively, the “ Lender Parties ”) on account of, arising, or resulting from, or in any manner incidental to, any and every thing or event occurring or failing to occur at any time in the past up to and including the Effective Date hereof, including, without limitation, any claims relating to the Loan, the Loan Documents, this Agreement, any act and event relating to Lender’s administration of the Loans or any other obligations related thereto, any other transaction contemplated by this Agreement, and any act and event at any time in the past up to and including the Effective Date hereof, relating to any Lender Parties (collectively, the “ Claims ”). In addition, Borrower covenants not to sue any of the Lender Parties on account of any Claims.

19. Miscellaneous . To the extent of any conflict between the Note (or any earlier modification of it) and this Agreement, this Agreement shall control. Except as hereby expressly modified, all terms of the Note and all other Loan Documents (as any of them may have been previously modified by any written agreement) remain in full force and effect. This Agreement (a) shall bind and benefit the parties hereto and their respective heirs, beneficiaries, administrators, executors, receivers, trustees, successors and assigns (provided, however, no party other than the Lender shall assign its rights hereunder without the prior written consent of the Lender); (b) may be modified or amended only by a writing signed by the Lender and the Borrower; (c) SHALL BE GOVERNED BY (INCLUDING BUT NOT LIMITED TO ITS VALIDITY, ENFORCEMENT AND INTERPRETATION) THE LAWS OF THE COMMONWEALTH OF VIRGINIA AND UNITED STATES FEDERAL LAW; (d) may be executed in several counterparts, and by the parties hereto on separate counterparts, and each counterpart, when executed and delivered, shall constitute an original agreement enforceable against all who signed it without production of or accounting for any other counterpart, and all separate counterparts shall constitute the same agreement; and (e) embodies the entire agreement and understanding between the parties with respect to modifications of documents provided for herein and supersedes all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. “Borrower” shall include, in their individual capacities and jointly, all parties hereinabove named as the Borrower. The duties, covenants, conditions, obligations, and warranties of the Borrower in this Agreement shall be joint

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and several obligations of the Borrower and, if more than one, of each party named as the Borrower hereinabove, and each such party’s heirs, legal representatives, successors and assigns. If any Borrower is a corporation, partnership or other legal entity, the Borrower and the person or persons signing for it represent and warrant to the Lender that this Agreement is duly executed, acknowledged and delivered by the Borrower’s duly authorized representatives. Whenever used herein, the singular number shall include the plural and the plural the singular, and any gender shall be applicable to all genders. The use of the words “herein”, “hereof”, “hereunder” and other similar compounds of the word “here” shall refer to this entire Agreement and not to any particular section, paragraph or provision. The headings in this Agreement shall be accorded no significance in interpreting it.

20. Financing Statements. Borrower authorizes the Lender, from time to time and without expense to the Lender, to file in such filing office or offices as the Lender may select, any financing statements and extensions, renewals or amendments thereof, naming the Borrower as debtor and in such form as the Lender may require, in order to further evidence or perfect Lender’s security interests granted pursuant to the Loan Documents.

[Signatures to Follow On Next Page]

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EXECUTED ON THE DATE OR DATES OF THE ACKNOWLEDGMENTS HEREOF, BUT EFFECTIVE AS OF THE DATE FIRST STATED IN THIS AGREEMENT.


WITNESS:				BORROWER:

				COMSTOCK HOMEBUILDING COMPANIES, INC. , a Delaware corporation

				By:
Print Name:				Print Name:
				Print Title:

[SEAL]


COMMONWEALTH OF VIRGINIA	)
	)	ss:
COUNTY OF	)

I, , a Notary Public in and for the aforesaid said jurisdiction, do hereby certify that , who is personally well known to me as (or satisfactorily proven to me to be) the person who signed the foregoing instrument executed this day of , 2008, personally appeared before me in said jurisdiction and acknowledged that he is the of COMSTOCK HOMEBUILDING COMPANIES, INC. , a Delaware corporation which is a party to the foregoing instrument; that he has been duly authorized to execute and deliver the foregoing instrument for the purposes therein contained and that the same is his act and deed and the act and deed of COMSTOCK HOMEBUILDING COMPANIES, INC. , a Delaware corporation.

IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2008.



		Notary Public
(SEAL)
		My Commission expires:

[signatures continue on the next page]

Page 9


WITNESS:				LENDER:

				BANK OF AMERICA, N.A.

				By:
Print Name:				Print Name:
				Print Title:

[CORPORATE SEAL]


STATE OF CONNECTICUT	)
	)	ss:
COUNTY OF FAIRFIELD	)

I, , a Notary Public in and for the aforesaid said jurisdiction, do hereby certify that , who is personally well known to me as (or satisfactorily proven to me to be) the person who signed the foregoing instrument executed this day of , 2008, personally appeared before me in said jurisdiction and acknowledged that he is the of BANK OF AMERICA, N.A. , a national banking association; that he has been duly authorized to execute and deliver the foregoing instrument for the purposes therein contained and that the same is his act and deed and the act and deed of BANK OF AMERICA, N.A.

IN WITNESS WHEREOF, I have set my hand and Notarial Seal, this day of , 2008.



		Notary Public
(SEAL)
		My Commission expires:

Page 10

Exhibit 10.65

AMENDED AND RESTATED PROMISSORY NOTE

(TRIBBLE ROAD LOAN)


$3,000,000.00						December 10, 2008

Comstock Homebuilding Companies, Inc. (hereinafter referred to as “Borrower”)

11465 Sunset Hills Road

5th Floor

Reston, VA 20190

Attn: Christopher D. Clemente

Attn: Jubal R. Thompson

Wachovia Bank, National Association (hereinafter referred to as “Bank”)

123 South Broad Street

Philadelphia, PA 19109

Borrower promises to pay to the order of Bank, in lawful money of the United States of America by mailing to the address specified hereinafter or wherever else Bank may specify, the sum of Three Million and No/100 Dollars ($3,000,000.00), with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this “Note”).

RENEWAL/MODIFICATION. This Note, an Amended and Restated Promissory Note (Revolving Line of Credit) of even date herewith, and an Amended and Restated Promissory Note (Term Loan) of even date herewith renew, extend and/or modify that certain Promissory Note dated May 26, 2006 in the original principal amount of $40,000,000.00 (as previously modified and amended, if applicable, the “Original Note”). This Note is not a novation.

USE OF PROCEEDS. Borrower shall use the proceeds of the loan(s) evidenced by this Note for the commercial purposes of Borrower, as follows: debt renewal and extension pursuant to the terms of that certain Loan Modification and Forbearance Agreement of even date herewith entered into by Borrower, Bank, and other parties (the “Forbearance Agreement”).

SECURITY. Borrower has granted or will grant Bank a security interest in the collateral described in the Loan Documents and such other security instruments as are executed from time to time, including, but not limited to, real and personal property collateral described in (i) that certain Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Massey Preserve, L.L.C. (formerly Comstock Wesel, L.L.C.) to TRSTE, Inc., a Virginia corporation (“TRSTE”) and recorded in the Wake County Register of Deeds in Book 11976, Page 1996; (ii) that certain Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Homes of Raleigh, L.L.C. (“Comstock Raleigh”) (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Durham County Register of Deeds in Book 5222, Page 995; (iii) that certain Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh to TRSTE and recorded in the Johnston County Register of Deeds in Book 3128, Page 783; (iv) that certain Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 11976, Page 1982; (v) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated June 26, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12031, Page 441; (vi) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 21, 2006 from Comstock Raleigh to TRSTE and recorded in the Johnston County Register of Deeds in Book 3165, Page 476; (vii) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 25, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12079, Page 404; (viii) that certain Deed of Trust, Security Agreement and Financing Statement dated July 21, 2006 from Comstock Landing, LLC to TRSTE and recorded in the Wake County Register of Deeds in Book 12080, Page 830; (ix) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 27, 2006 from Comstock Wakefield, LLC and Comstock Wakefield II, LLC to TRSTE and recorded in the Wake County Register of Deeds in Book

12094, Page 1730; (x) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Homes of Atlanta, LLC (“Comstock Atlanta”) to Lender and recorded with Cherokee County Clerk of Superior Court in Book 9018, Page 173; (xi) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4428, Page 387; (xii) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Jackson County Clerk of Superior Court in Book 45I, Page 458; (xiii) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated September 14, 2006 from Comstock James Road, LLC to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4450, Page 620; (xiv) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated September 27, 2006 from Tribble Road Development, LLC to Lender and recorded with Forsyth County Clerk of Superior Court on in Book 4469, Page 410; (xv) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated October 18, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12223, Page 2235; (xvi) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated November 9, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12261, Page 489; (xvii) that certain Deed of Trust, Security Agreement and Financing Statement dated November 13, 2006 from Comstock Summerland, L.C. to TRSTE and recorded in the Prince William County Register of Deeds as instrument number 200611170162991; and (xviii) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated December 13, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12308, Page 2241.

INTEREST RATE. Interest shall accrue on the unpaid principal balance of this Note from the date hereof at the LIBOR Market Index Rate plus 4.0%, as that rate may change from day to day in accordance with changes in the LIBOR Market Index Rate (“Interest Rate”). “LIBOR Market Index Rate”, for any day, means the rate for 1 month U.S. dollar deposits as reported on Telerate Successor Page 3750 as of 11:00 a.m., London time, on such day, or if such day is not a London business day, then the immediately preceding London business day (or if not so reported, then as determined by Bank from another recognized source or interbank quotation).

DEFAULT RATE. In addition to all other rights contained in this Note, if a Default (as defined herein) occurs and as long as a Default continues, all outstanding Obligations, other than Obligations under any swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time) between Borrower and Bank or its affiliates, shall bear interest at the Interest Rate plus 3% (“Default Rate”). The Default Rate shall also apply from acceleration until the Obligations or any judgment thereon is paid in full.

INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period (“Actual/360 Computation”). The Actual/360 Computation determines the annual effective interest yield by taking the stated (nominal) rate for a year’s period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective rate exceeding the nominal rate.

REPAYMENT TERMS. All principal and accrued interest shall be due and payable on December 10, 2011.

APPLICATION OF PAYMENTS. Monies received by Bank from any source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank.

If any payment received by Bank under this Note or other Loan Documents is rescinded, avoided or for any reason returned by Bank because of any adverse claim or threatened action, the returned payment shall remain payable as an obligation of all persons liable under this Note or other Loan Documents as though such payment had not been made.

DEFINITIONS. Loan Documents. The term “Loan Documents”, as used in this Note and the other Loan Documents, refers to all documents executed in connection with or related to the loan evidenced by this Note and any prior notes which evidence all or any portion of the loan evidenced by this Note, and any letters of credit issued pursuant to any loan agreement to which this Note is subject, any applications for such letters of credit and any other documents executed in connection therewith or related thereto, and may include, without limitation, a commitment letter that survives closing, a loan agreement, this Note, forbearance agreements, guaranty agreements, security agreements, security instruments, financing statements, mortgage instruments, any renewals or modifications, whenever any of the foregoing are executed, but does not include swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time). Obligations. The term “Obligations”, as used in this Note and the other Loan Documents, refers to any and all indebtedness and other obligations under this Note, all other obligations under any other Loan Document(s), and all obligations under any swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time) between Borrower and Bank, or its affiliates, whenever executed. Certain Other Terms. All terms that are used but not otherwise defined in any of the Loan Documents shall have the definitions provided in the Uniform Commercial Code.

LATE CHARGE. If any payments are not timely made, Borrower shall also pay to Bank a late charge equal to 5% of each payment past due for 10 or more days. This late charge shall not apply to payments due at maturity or by acceleration hereof.

Acceptance by Bank of any late payment without an accompanying late charge shall not be deemed a waiver of Bank’s right to collect such late charge or to collect a late charge for any subsequent late payment received.

If this Note is secured by owner-occupied residential real property located outside the state in which the office of Bank first shown above is located, the late charge laws of the state where the real property is located shall apply to this Note and the late charge shall be the highest amount allowable under such laws. If no amount is stated thereunder, the late charge shall be 5% of each payment past due for 10 or more days.

ATTORNEYS’ FEES AND OTHER COLLECTION COSTS. Borrower shall pay all of Bank’s reasonable expenses actually incurred to enforce or collect any of the Obligations including, without limitation, reasonable arbitration, paralegals’, attorneys’ and experts’ fees and expenses, whether incurred without the commencement of a suit, in any trial, arbitration, or administrative proceeding, or in any appellate or bankruptcy proceeding.

USURY. If at any time the effective interest rate under this Note would, but for this paragraph, exceed the maximum lawful rate, the effective interest rate under this Note shall be the maximum lawful rate, and any amount received by Bank in excess of such rate shall be applied to principal and then to fees and expenses, or, if no such amounts are owing, returned to Borrower.

the possibility of withdrawing from the Atlanta, GA market which is hereby acknowledged by Bank; (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower’s Subsidiaries or Affiliates or any guarantor; (iii) the acquisition of substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity; or (iv) should any Borrower or any of Borrower’s Subsidiaries or Affiliates or any guarantor enter into any merger or consolidation. Material Adverse Change. Bank determines in good faith, in its sole discretion, that the prospects for payment or performance of the Obligations are impaired or there has occurred a material adverse change in the business or prospects of Borrower, financial or otherwise.

REMEDIES UPON DEFAULT. If a Default occurs under this Note or any Loan Documents, Bank may at any time thereafter, take the following actions: Bank Lien. Foreclose its security interest or lien against Borrower’s deposit accounts and investment property without notice. Acceleration Upon Default. Accelerate the maturity of this Note and, at Bank’s option, any or all other Obligations, other than Obligations under any swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time) between Borrower and Bank, or its affiliates, which shall be due in accordance with and governed by the provisions of said swap agreements; whereupon this Note and the accelerated Obligations shall be immediately due and payable; provided, however, if the Default is based upon a bankruptcy or insolvency proceeding commenced by or against Borrower or any guarantor or endorser of this Note, all Obligations (other than Obligations under any swap agreement as referenced above) shall automatically and immediately be due and payable. Cumulative. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity.

FINANCIAL AND OTHER INFORMATION. Borrower shall deliver to Bank such information as Bank may reasonably request from time to time, including without limitation, financial statements and information pertaining to Borrower’s financial condition. Such information shall be true, complete, and accurate.

WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note and other Loan Documents shall be valid unless in writing and signed by an officer of Bank. No waiver by Bank of any Default shall operate as a waiver of any other Default or the same Default on a future occasion. Neither the failure nor any delay on the part of Bank in exercising any right, power, or remedy under this Note and other Loan Documents shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

Except to the extent otherwise provided by the Loan Documents or prohibited by law, each Borrower and each other person liable under this Note waives presentment, protest, notice of dishonor, demand for payment, notice of intention to accelerate maturity, notice of acceleration of maturity, notice of sale and all other notices of any kind. Further, each agrees that Bank may (i) extend, modify or renew this Note or make a novation of the loan evidenced by this Note, and/or (ii) grant releases, compromises or indulgences with respect to any collateral securing this Note, or with respect to any Borrower or other person liable under this Note or any other Loan Documents, all without notice to or consent of each Borrower and other such person, and without affecting the liability of each Borrower and other such person; provided, Bank may not extend, modify or renew this Note or make a novation of the loan evidenced by this Note without the consent of the Borrower, or if there is more than one Borrower, without the consent of at least one Borrower; and further provided, if there is more than one Borrower, Bank may not enter into a modification of this Note which increases the burdens of a Borrower without the consent of that Borrower.

Bank’s address on the first page hereof without regard to that state’s conflict of laws principles. If the terms of this Note should conflict with the terms of any loan agreement or any commitment letter that survives closing, the terms of this Note shall control. Borrower’s Accounts. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower’s deposit accounts and investment property with Bank and any of its affiliates. Swap Agreements. All swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time), if any, between Borrower and Bank or its affiliates are independent agreements governed by the written provisions of said swap agreements, which will remain in full force and effect, unaffected by any repayment, prepayment, acceleration, reduction, increase or change in the terms of this Note, except as otherwise expressly provided in said written swap agreements, and any payoff statement from Bank relating to this Note shall not apply to said swap agreements except as otherwise expressly provided in such payoff statement. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in the Bank’s address on the first page hereof. Severability. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. Payments. All payments shall be mailed to Bank at Construction Loan Administration, 1 W 4th Street, Winston Salem, NC 27101, Mail Code NC6256, Attn: Monica Feher; or other such address as provided by Bank in writing. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower’s address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Wachovia Bank, National Association, Attn: Patrick McGovern, 123 South Broad Street, Philadelphia, PA 19109, Mail Code PA1246, or such other address as Bank may specify in writing from time to time. Notices to Bank must include the mail code. In the event that Borrower changes Borrower’s address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term “person” shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under this Note, even though the stated principal amount of this Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the address for payments set forth above shall be deemed received at the opening of the next banking day. Joint and Several Obligations. If there is more than one Borrower, each is jointly and severally obligated together with all other parties obligated for the Obligations. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES HERETO, INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM THAT MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES. EACH OF THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE. Patriot Act Notice. To help fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. For purposes of this section, account shall be understood to include loan accounts. Final Agreement. This Note and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent agreements of the parties. There are no unwritten agreements between the parties.

Commercial Financial Disputes Arbitration Rules (the “Arbitration Rules”) of the American Arbitration Association (the “AAA”) and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, a dispute as to whether a matter is subject to arbitration, or claims arising from documents executed in the future, but shall specifically exclude claims brought as or converted to class actions. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. Special Rules. All arbitration hearings shall be conducted in the city named in the address of Bank first stated above. A hearing shall begin within 90 days of demand for arbitration and all hearings shall conclude within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party’s entitlement to such remedies is a Dispute. Waiver of Jury Trial. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE AS TO WHICH BINDING ARBITRATION HAS BEEN DEMANDED.

IN WITNESS WHEREOF , Borrower, on the day and year first above written, has caused this Note to be duly executed under seal.

Exhibit 10.66

LOAN MODIFICATION AND FORBEARANCE AGREEMENT

This LOAN MODIFICATION AND FORBEARANCE AGREEMENT (“Agreement”) is made and entered into as of December 10, 2008 (the “Effective Date”) by and among COMSTOCK HOMEBUILDING COMPANIES, INC., a Delaware corporation (“Borrower”); COMSTOCK MASSEY PRESERVE, L.L.C., a Virginia limited liability company (“Comstock Massey”); COMSTOCK HOMES OF RALEIGH, L.L.C., a North Carolina limited liability company (“Comstock Raleigh”); COMSTOCK HOLLAND ROAD, L.L.C., a Virginia limited liability company (“Comstock Holland”); COMSTOCK HOMES OF ATLANTA, LLC, a Georgia limited liability company (“Comstock Atlanta”); COMSTOCK JAMES ROAD, LLC, a Georgia limited liability company (“Comstock James Road”); TRIBBLE ROAD DEVELOPMENT, LLC, a Georgia limited liability company (“Tribble Road Development”); COMSTOCK SUMMERLAND, L.C., a Virginia limited liability company (“Comstock Summerland”); COMSTOCK LANDING, LLC, a Virginia limited liability company (“Comstock Landing”); COMSTOCK WAKEFIELD, LLC, a Virginia limited liability company (“Comstock Wakefield”); COMSTOCK WAKEFIELD II, LLC, a Virginia limited liability company (“Comstock Wakefield II”); and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association (“Wachovia” or “Lender”) (Comstock Massey, Comstock Raleigh, Comstock Holland, Comstock Atlanta, Comstock James Road, Tribble Road Development, Comstock Summerland, Comstock Wakefield, and Comstock Wakefield II are collectively referred to as “Guarantors”; Borrower and Guarantors are collectively referred to as “Obligors” and each, individually, as an “Obligor”; Wachovia and the Obligors are collectively referred to as the “Parties” and each, individually, as a “Party”). Capitalized terms used but not defined in this Agreement shall have their meaning in the “Existing Loan Documents” defined below.

RECITALS

A. Comstock is indebted to Lender under a Revolving Promissory Note dated May 26, 2006 in the original principal amount of $40,000,000.00 (as modified and amended, if applicable, the “Note”).

B. In connection with the Note, the Obligors, as applicable, executed the following documents and agreements:

1. Credit Agreement (the “Credit Agreement”) dated May 26, 2006 between Lender and Comstock, joined into by Comstock Raleigh (formerly Capitol Homes, Inc.) and Comstock Massey (formerly Comstock Wesel, L.L.C.), as modified and amended;

2. Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Massey (formerly Comstock Wesel, L.L.C.) to TRSTE, Inc., a Virginia corporation (“TRSTE”) and recorded in the Wake County Register of Deeds in Book 11976, Page 1996;

3. Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Durham County Register of Deeds in Book 5222, Page 995;

4. Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Johnston County Register of Deeds in Book 3128, Page 783;

5. Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Wake County Register of Deeds in Book 11976, Page 1982;

6. Supplemental Deed of Trust, Security Agreement and Financing Statement dated June 26, 2006 from Comstock Raleigh (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Wake County Register of Deeds in Book 12031, Page 441;

7. Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 21, 2006 from Comstock Raleigh (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Johnston County Register of Deeds in Book 3165, Page 476;

8. Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 25, 2006 from Comstock Raleigh (formerly Capitol Homes, Inc.) to TRSTE and recorded in the Wake County Register of Deeds in Book 12079, Page 404;

9. Deed of Trust, Security Agreement and Financing Statement dated July 21, 2006 from Comstock Landing, LLC to TRSTE and recorded in the Wake County Register of Deeds in Book 12080, Page 830;

10. Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 27, 2006 from Comstock Wakefield and Comstock Wakefield II to TRSTE and recorded in the Wake County Register of Deeds in Book 12094, Page 1730;

11. Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Cherokee County Clerk of Superior Court in Book 9018, Page 173;

12. Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4428, Page 387;

13. Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Jackson County Clerk of Superior Court in Book 45I, Page 458;

14. Deed to Secure Debt, Security Agreement and Financing Statement dated September 14, 2006 from Comstock James Road to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4450, Page 620;

15. Deed to Secure Debt, Security Agreement and Financing Statement dated September 27, 2006 from Tribble Road Development to Lender and recorded with Forsyth County Clerk of Superior Court on in Book 4469, Page 410;

16. Supplemental Deed of Trust, Security Agreement and Financing Statement dated October 18, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12223, Page 2235;

17. Supplemental Deed of Trust, Security Agreement and Financing Statement dated November 9, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12261, Page 489;

18. Deed of Trust, Security Agreement and Financing Statement dated November 13, 2006 from Comstock Summerland to TRSTE and recorded in the Prince William County Register of Deeds as instrument number 200611170162991;

19. Supplemental Deed of Trust, Security Agreement and Financing Statement dated December 13, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12308, Page 2241;

20. Unconditional Guaranty dated May 26, 2006 by Comstock Raleigh (formerly Capitol Homes, Inc.) in favor of Lender;

21. Unconditional Guaranty dated May 26, 2006 by Comstock Massey (formerly Comstock Wesel, L.L.C.) in favor of Lender;

22. Unconditional Guaranty dated July 17, 2006 by Comstock Holland in favor of Lender;

23. Unconditional Guaranty dated July 21, 2006 by Comstock Landing in favor of Lender;

24. Unconditional Guaranty dated August 1, 2006 by Comstock Wakefield in favor of Lender;

25. Unconditional Guaranty dated August 1, 2006 by Comstock Wakefield II in favor of Lender;

26. Unconditional Guaranties dated August 29, 2006 by Comstock Atlanta in favor of Lender;

27. Unconditional Guaranty dated September 14, 2006 by Comstock James Road in favor of Lender;

28. Unconditional Guaranty dated September 27, 2006 by Tribble Road Development in favor of Lender;

29. Unconditional Guaranty dated October 18, 2006 by Comstock Raleigh in favor of Lender; and

30. Unconditional Guaranty dated November 13, 2006 by Comstock Summerland in favor of Lender.

C. The Parties entered into that certain Forbearance Agreement made effective February 21, 2007, as modified and amended by letter agreements dated January 15, 2008, March 3, 2008, and April 14, 2008 (the “Original Forbearance Agreement”).

D. The documents described in Paragraphs A through C, all financing statements filed in conjunction therewith, and all other documents executed or authorized by Obligors in connection with the Note, the Credit Agreement, and the Original Forbearance Agreement, as modified and amended if applicable, are collectively referred to as the “Existing Loan Documents”. The Existing Loan Documents, together with this Agreement and any documents executed pursuant to this Agreement are collectively referred to as the “Loan Documents”. All indebtedness whether now existing or hereafter arising that is due and owing by Obligors to Lender under the Loan Documents is collectively referred to as the “Obligations”. All real and personal property and fixtures pledged as collateral for the Obligations is collectively referred to as the “Property”.

E. Obligors acknowledge that (1) the Forbearance Period terminated on April 30, 2008; (2) as of the Effective Date, Borrower is in default under the Existing Loan Documents based on (a) Borrower’s failure to comply with the following financial covenants contained in the Credit Agreement: (i) violation of Senior Liabilities to Effective Tangible Net Worth Ratio for the fiscal quarters ended 3/31/08, 6/30/2008, and 9/30/08, (ii) violation of EBITDA/Debt Service Ratio for the fiscal quarters ended 3/31/08, 6/30/2008, and 9/30/08, and (iii) violation of Tangible Net Worth requirement for the fiscal quarters ended 3/31/08, 6/30/2008, and 9/30/08, (b) Borrower’s failure to make the June, July, August, September, October, November, and December 2008 interest payments within five business days after their respective due dates, (c) Borrower’s failure to maintain general liability insurance at the level required under the Credit Agreement, and (d) existence of a Material Adverse Change as evidenced by Borrower’s inability to pay its obligations to Lender as they come due in the ordinary course of business (collectively, the “Existing Defaults”); and (3) as a result of the Existing Defaults, all Obligations are immediately due and payable in full and Lender is presently entitled to exercise all rights and remedies available to it under the Existing Loan Documents and under applicable law. Obligors’ acknowledgement of the foregoing specific events of default does not preclude Lender from asserting the existence of other events of default.

F. Borrower has requested that Lender agree to extend the Forbearance Period to January 15, 2010 and provide certain additional financing to Borrower. Lender, subject to the terms and conditions of this Agreement, has agreed to this request.

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the Parties due hereby stipulate, covenant and agree as follows:

1. Representations, Warranties and Acknowledgements . Obligors, jointly and severally, hereby represent, warrant and acknowledge to Lender, upon which Lender is relying, that:

1.1 The foregoing recitals are true and correct.

1.2 Each is authorized under applicable law to execute, deliver and perform this Agreement and all documents, instruments and agreements executed in connection herewith and neither the execution and delivery of this Agreement nor the fulfillment of or compliance with any of the terms and conditions of this Agreement will, to the best of each Obligor’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of or constitute a violation or default under any contract, agreement, applicable law, regulation, judgment, writ, order or decree to which any of Obligors, or their respective properties are subject.

1.3 The Existing Loan Documents are legal, valid and binding obligations of Obligors in accordance with their respective terms. The liens, security interests and other encumbrances in favor of Lender granted under the Existing Loan Documents are duly perfected and are not subject to avoidance or invalidation for any reason.

1.4 There are no pending, nor to the best knowledge of Obligors, threatened actions, litigation, disputes, alleged defaults for breaches, suits or proceedings against or in any way relating adversely to any Obligor or its properties before any court, arbitrator or governmental or administrative body or agency, except as described in Schedule 1.4 .

1.5 Obligors have received no notice of default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which any of them is a party or by which their properties are bound except as described in this Agreement or set forth in Schedule 1.5 .

1.6 Neither this Agreement nor any report, schedule, certificate, agreement or any instrument heretofore or contemporaneously herewith provided to Lender by Obligors contain any misrepresentation or untrue statement of facts or omits to state any material facts.

1.7 Neither the execution and delivery of this Agreement nor the performance of any actions required by this Agreement is being consummated by any party to hinder, delay or defraud any entity to which any Obligors were or are now or will hereafter become indebted.

1.8 As of the Effective Date, the balance due under the Note, excluding Lender’s attorneys’ fees and costs, is as follows:


Principal	$	21,662,491.07
Accrued Interest	$	501,866.30
Late Charges	$	33,922.39
Appraisal Fees	$	29,750.00
Total	$	22,228,029.76

Lender is waiving the late charges in the amount of $33,922.39 as part of the consideration for this Agreement.

2. Payments Due Under this Agreement . As a condition of this Agreement, Obligors, as applicable, shall remit to Lender the following payments:

2.1 At “Closing” (hereafter defined):


(i)	Legal Fees ¹	$86,938.71

(ii)	Appraisal Fees	$5,561.29
	(partial payment)

	Total	$92,500.00

2.2 Other payments:

(i) $104,188.71, consisting of that portion of the appraisal fees which is not being paid at Closing ($24,188.71), additional legal fees which are not being paid at Closing ($5,000.00), and a commitment and forbearance fee in the amount of $75,000.00, which shall be paid in eleven (11) equal monthly installments of $8,680.00 commencing on January 10, 2009 and continuing on the 10 ^th day of each month thereafter, with payment of the remaining balance of $8,708.71 due on December 10, 2009;

(ii) all payments due under the “Term Loan” (hereafter defined);

(iii) all payments due under the “Revolver” (hereafter defined);

(iv) all payments due under the “Tribble Road Loan” (hereafter defined); and

(v) all other payments required under the Loan Documents.

3. Amended Credit Facility . The Credit Facility is amended to constitute three separate loans: (a) a term loan in the principal amount of $11,608,484.00 (the “Term Loan”); (b) a revolving loan in the principal amount of $8,000,000.00 (the “Revolver”), and (c) a term loan in the principal amount of $3,000,000.00 (the “Tribble Road Loan”). The Term Loan, the Revolver, and the Tribble Road Loan shall be evidenced by Amended and Restated Promissory Notes in form and substance satisfactory to Lender (the “Amended Notes”).

4. Term Loan .

4.1 The principal amount of the Term Loan, $11,608,484.00, is the sum of (a) all accrued and unpaid interest on the Note as of the Effective Date ($489,953.00) (“Pre-Closing Interest”); and (b) the principal amounts advanced by Lender for those lots shown in Schedule 4.1 which are pledged as collateral for the Obligations (collectively, the “Lots” and each a “Lot”) ($11,118,531.00).

4.2 The unpaid principal balance of the Term Loan shall bear interest from the date hereof at the LIBOR Market Index Rate plus 4%.

¹	Additional legal fees may become due as provided in paragraph 18 of this Agreement.

4.3 All unpaid principal and accrued interest under the Term Loan shall be due any payable in full on January 15, 2010 (“Maturity Date”).

4.4 The release price for each of the Lots subject to financing under the Term Loan will be the sum of (a) the amount advanced by Lender for all of the Lots in the particular development where the Lot to be released is located, allocated to each Lot on a pro rata basis, plus Pre-Closing Interest allocated to each Lot in the same manner (as detailed in Schedule 4.1 ); plus (b) all accrued but unpaid interest due for each Lot from the Effective Date to the closing of the sale of that respective Lot.

5. Revolver .

5.1 Use of Proceeds . Proceeds under the Revolver may be advanced, repaid and readvanced, up to the maximum amount of $8,000,000.00, subject to Borrower’s compliance with the terms and conditions of this Agreement. Except as expressly provided in section 5.4(i), such proceeds may be used by Borrower solely for construction of single family residential houses, townhomes, and condominiums (individually a “Unit” and collectively the “Units”) on the Lots and the completion of partially constructed Units on the Property, in accordance with the plans and specifications approved by Lender (as same may be modified from time to time with the written approval of Lender, the “Plans and Specifications”), and subject to the further conditions hereafter specified.

5.2 Construction Budget. Subject to compliance by Borrower with the terms and conditions of this Agreement, Lender shall make advances to Borrower for hard construction costs incurred by Borrower in connection with the construction of the Units (“Hard Costs”), plus an overhead allowance of six percent (6%) of approved Hard Costs for the construction of new Units on the Lots, in accordance with the sources and uses provided to Lender (as same may be revised from time to time with the written approval of Lender, the “Construction Budget”); provided , however , that in no event shall Lender be obligated to make advances in excess of Verified Project Costs (as hereafter defined). As used in this Agreement, “Verified Project Costs” means the aggregate, from time to time, of (a) Hard Costs actually incurred by Borrower for work in place as part of the Unit, as certified by Lender’s Inspector (as hereafter defined) pursuant to the provisions of this Agreement, and (b) an overhead allowance of six percent (6%) of approved Hard Costs for the construction of new Units on the Lots (which shall be added to the line item for Hard Costs in every Construction Budget). There shall be no overhead allowance for advances related to the Existing Units (as hereafter defined).

5.3 Lender’s Inspector . Lender shall have the right to retain, at Borrower’s expense, an inspector (“Lender’s Inspector”) to review and advise Lender with respect to all Plans and Specifications, Constructions Budgets, construction, architectural and other design professional contracts, change orders, governmental permits and approvals, and other matters related to the design and construction of the Units, to monitor the progress of construction and to review on behalf of Lender all Requests for Advances (as hereafter defined) submitted by Borrower. Lender may make inspections under this section at any time in its discretion; provided, however, that Borrower shall not be responsible for payment of such expenses in excess of $100 per inspection for a condominium and $30 per inspection for any other type of Unit and shall pay for no more that two inspections per month per project. The fees and

expenses of Lender’s Inspector, whether internal or external, shall be due and payable by Borrower as provided for herein or otherwise on demand. Borrower acknowledges that (i) Lender’s Inspector has been retained by Lender to act as a consultant, and only as a consultant, to Lender in connection with the construction of the Units, and Lender’s Inspector may be an employee of the Lender, (ii) Lender’s Inspector shall in no event have any power or authority to make any decision or to give any approval or consent or to do any other thing which is binding upon Lender, and any such purported decision, approval, consent or act by Lender’s Inspector on behalf of Lender shall be void and of no force or effect; provided, however, that if Lender’s Inspector is also the loan officer for the Revolver, Lender may agree to such power or authority acting solely in the employee’s capacity as loan officer for the Lender, (iii) Lender reserves the right to make any and all decisions required to be made by Lender under this Agreement, in its sole and absolute discretion, and without in any instance being bound or limited in any manner whatsoever by any opinion expressed or not expressed by Lender’s Inspector to Lender or any other person with respect thereto, and (iv) Lender reserves the right in its sole and absolute discretion to replace Lender’s Inspector with another inspector at any time and without prior notice to or approval by Borrower. All inspections by or on behalf of Lender shall be solely for the benefit of Lender, and Borrower shall have no right to claim any loss or damage against Lender or Lender’s Inspector (whether or not an employee of the Lender) arising from any alleged (i) negligence or failure to perform such inspections, (ii) failure to monitor loan disbursements or the progress or quality of construction, or (iii) failure to otherwise properly administer the construction aspects of the loan.

5.4 Procedures and Conditions for Advances.

(i) Frequency of Advances . Lender shall advance $1,158,351.00 at Closing (the “Initial Advance”), $100,000.00 of which shall by used to pay property taxes and other approved expenses related to the Tribble Road Property (hereafter defined), with the remaining amount to be used by Borrower solely to pay or as reimbursement for approved construction costs for the partially completed Units shown in Schedule 5.4 (the “Existing Units”). Approval for subsequent advances under the Revolver will be given by Lender on a Unit by Unit basis, subject to Borrower’s compliance with the terms and conditions of this Agreement. Advances shall be limited to no more than two (2) per month.

(ii) Request for Advance . For each request for an advance under the Revolver, Borrower shall submit to Lender, at least five (5) business days prior to the requested date of disbursement, a completed written disbursement request (each, a “Request for Advance”) in such form and detail as required by Lender, together with a check in the amount of any inspection fee required hereunder. Each Request for Advance shall certify and contain in detail acceptable to Lender: (a) the cost of the labor that has been performed, (b) the materials that have been incorporated into the Unit, and (c) a list of the Units to be inspected. In addition:

(1) each Request for Advance for Existing Units shall be accompanied by the Plans and Specifications and the Construction Budget; and

(2) each Request for Advance for the transfer of a Lot from the Term Loan and construction of a new Unit on the Lot shall be accompanied by a request for a release of the Lot from the Term Loan, the Plans and Specifications, the Construction Budget,

and evidence satisfactory to Lender (in its sole discretion) of (i) a binding, non-contingent contract for the sale of the Unit at a price acceptable to Lender, and (ii) a cash deposit of at least five percent (5%) of the sale price for the Unit, such deposit to be held by a third-party escrow agent satisfactory to Lender.

All Requests for Advances shall be accompanied by such additional supporting data and documents as Lender may require, including, without limitation, invoices and waivers of mechanic’s and materialmen’s liens.

(iii) Conditions to Advance . Lender will have no obligation to make any advance if a default (other than the Existing Defaults) under any of the Loan Documents or an event which, with the giving of notice or the passage of time, or both, would constitute a default under any of the Loan Documents has occurred and is continuing, and unless it has received from the Borrower (if not expressly waived by Lender), in form and substance satisfactory to Lender: (a) evidence of any updated title search and/or endorsement to the title policy required by Lender, as applicable, which shall be, unless expressly waived by Lender, in compliance with Lender’s minimum standards in effect at the time of such advance; and if any title policy contains a pending disbursement clause, the amount of the policy shall increase by the advance being made in connection therewith; and (b) evidence of compliance with any other conditions as required by Lender. In no event will Lender approve an advance for an Existing Unit, or for the transfer of a Lot from the Term Loan to the Revolver and construction of a new Unit, if, in the sole opinion of Lender or Lender’s Inspector, the total cost to complete the Unit is greater than the availability under the Revolver at the time of the Request for Advance.

(iv) Inspection . If required by Lender upon receiving a Request for Advance, Lender’s Inspector may determine prior to any advance (a) whether the work completed to the date of such Request for Advance has been done satisfactorily and in accordance with the Plans and Specifications, (b) the percentage of construction of the Unit completed as of the date of such Request for Advance, (c) the Hard Costs (as applicable) actually incurred for work in place as part of the Unit as of the date of such Request for Advance, (d) the actual sum necessary to complete construction of the Unit in accordance with the Plans and Specifications, and (e) the amount of time from the date of such Request for Advance which will be required to complete construction of the Unit in accordance with the Plans and Specifications and/or the Construction Budget.

(v) Disbursement of Advances . At its option, Lender may make advances under the Revolver directly into a separate construction disbursement account or other Borrower account with Lender, to Borrower directly, to a title insurance company or other third party, or directly to the general contractor, subcontractor, materialmen or other suppliers providing labor, services or materials in connection with the construction of the Unit. Lender shall have no obligation after making disbursements in a particular manner to continue to make disbursements in that manner. Notwithstanding the foregoing, Lender’s records of any advance made pursuant to the Loan Documents shall, in the absence of manifest error, be deemed correct and acceptable and binding upon Borrower.

(vi) Final Advance . Lender shall have no obligation to make the final advance for a Unit unless (a) it has received from Borrower (if not expressly waived by Lender),

all in form and substance satisfactory to Lender, all of the items required for advances in general; and (b) the Unit shall have been fully constructed and completed in a good a workmanlike manner in accordance with the Plans and Specifications and all applicable statutes, ordinances, codes, regulations, and restrictions.

5.5 Interest. The unpaid principal balance of the Revolver shall bear interest from the date hereof at the LIBOR Market Index Rate plus 4%.

5.6 Payment Terms . Payments on the Revolver will be due as follows:

(i) interest only commencing on January 10, 2009 and continuing on the 10 ^th day of each month thereafter until the Maturity Date;

(ii) upon the sale of each Unit, a release price equal to the sum of (a) the total amount advanced by Lender for the Unit and the lot upon which the Unit is built (including all amounts advanced by Lender prior to the Effective Date for the Existing Units, as reflected in Schedule 5.4 , plus all amounts advanced by Lender after the Effective Date pursuant to the provisions of this Agreement and the Revolver), together with all accrued but unpaid interest thereon (the “Base Unit Release Payment”); plus (b) an additional $10,000.00 for each of the ten spec Units remaining in the Summerland project as of the Effective Date (which is included in the amounts shown for the Summerland spec Units in the column headed “1 ^st Draw” in Schedule 5.4 ), together with all accrued interest thereon from and after the date of the Initial Advance (the “Additional Summerland Release Payment”); plus (c) 25% of any net sale proceeds after payment of the Base Unit Release Payment, the Additional Summerland Release Payment (if applicable), any unfunded construction costs approved by Lender in writing on not less than five (5) business days notice, and all reasonable and customary sales expenses and closing costs properly charged to Borrower as reflected in a HUD-1 settlement statement delivered to Lender not less than three (3) business days in advance of the closing of the sale of the Unit (the “Excess Unit Release Payment”), with the Excess Unit Release Payment to be applied to the unpaid Obligations in any manner in Lender’s discretion; and

(iii) all principal and accrued and unpaid interest shall be due and payable in full on the Maturity Date.

5.7 Construction of Project. Unless otherwise expressly agreed to by Lender, (i) construction of the Units shall be carried on diligently and without delay or interruption for more than 10 consecutive days; and (iii) Units shall be constructed in a good and workmanlike manner, in accordance with the Plans and Specifications, the other Construction Documents (as hereinafter defined) and the Construction Budget, and in compliance with all applicable statutes, ordinances, codes, regulations and restrictions. “Construction Documents” shall mean all construction contracts, contracts with architects, engineers or other design professionals, Plans and Specifications, drawings, budgets, bonds and other agreements pertaining to construction of the Unit, all engineering, soil and other reports and studies and all surveys pertaining thereto and or required by Lender’s Inspector, together with all modifications and additions thereto. In no event will Lender fund a change order or an amendment to the Plans and Specifications or the other Construction Documents unless Lender has previously given its written consent to such change order or amendment.

5.8 Liens and Lien Waivers. Except for the liens set forth on Schedule 5.8, which shall be paid and released with the proceeds of the Initial Advance, Borrower shall take all action necessary to have any mechanic’s and materialmen’s liens, judgment liens, or other liens or encumbrances released, transferred to bond, or sufficient funds escrowed with the title insurer to pay such lien or other encumbrance in full, all within 30 days of the date Borrower receives notice of the filing of such liens or encumbrances. If any such lien or encumbrance is filed, no advances will be made until it is removed and a copy of the recorded release thereof is received by Lender and accepted by the title insurance company. Borrower shall be fully and solely responsible for compliance in all respects whatsoever with the applicable mechanic’s and materialmen’s lien laws.

5.9 Title and Surveys . Unless otherwise expressly waived by Lender, Borrower shall ensure that the existing security instruments in favor of Lender are and remain first liens on the property encumbered, and that the property is and remains free and clear of all other liens, defects, or encumbrances, except as set forth on Schedule 5.8. If any surveys are required by Lender, Lender’s Inspector, or the issuer of any title policy, Borrower shall deliver such surveys within 30 days after such request. Any change in the state of facts shown in any updated survey shall be subject to approval by Lender and Lender’s Inspector. The Units shall be constructed entirely on the Lots and will not encroach upon or overhang any easement, right of way, or any other land, and shall be construed wholly within applicable building setback restrictions.

5.10 Insurance. In addition to any insurance requirements set forth in the applicable security instruments, Borrower shall maintain during construction of any improvements: (a) builders’ all-risk extended coverage insurance (non-reporting Completed Value with Special Cause of Loss form) in amounts based on the completed replacement value of the improvements (excluding roads, foundations, parking areas, paths, walkways and like improvements), endorsed to provide that occupancy by any person shall not void the coverage and naming Lender (and its successors and assigns) as their interests may appear, as the first mortgagee under a standard mortgagee endorsement clause; (b) upon completion of construction of each Unit, All-Risk fire and extended coverage hazard insurance (non-reporting Commercial Property Policy with Special Cause of Loss form) covering that Unit in an aggregate amount not less than 100% of the agreed upon full insurable replacement value of that Unit, and naming Lender and its successors and assigns as their interests may appear, as the first mortgagee under a standard mortgagee endorsement clause; (c) comprehensive general public liability insurance of at least $2,000,000 covering injury and damage to persons and property with limits acceptable to Lender and naming Lender (and its successors and assigns) as their interests may appear, as an additional insured; (d) if the applicable real property is located within a special flood hazard area as identified by the Secretary of Housing and Urban Development under the National Flood Insurance Reform Act of 1994, flood insurance in the amount equal to the lesser of (A) the agreed upon full insurable replacement value of each Unit (less any value attributable to the applicable real property), or if agreed to in writing by Lender (B) the maximum available amount through the Federal Flood Insurance Program, and naming Lender (and its successors and assigns) as their interests may appear, as the first mortgagee under a standard mortgagee endorsement clause; (e) insurance which complies with the workers’ compensation and employers’ liability laws of all states in which the Property is located and, if required by Lender, such other states as Borrower is required to maintain insurance; and (f) other insurance as Lender may require in amounts and with carriers satisfactory to Lender.

Each policy or certificate shall indicate Lender’s address as Wachovia Bank, National Association, Attn: Patrick McGovern, 123 South Broad Street, Philadelphia, PA 19109, Mail Code PA1246. In addition, each insurance policy or certificate shall include a provision that the policy will not be cancelled, altered or in any way limited in coverage or reduced in amount unless Lender is notified of same in writing at least thirty (30) days prior to cancellation or change. Each insurance policy will be written on forms as are acceptable to Lender by insurance companies authorized or licensed to do business in North Carolina having an Alfred M. Best Company, Inc. rating of “A-” or higher and a financial size category of not less than IX, and which companies are otherwise acceptable to Lender.

The above insurance requirements may be satisfied by appropriate endorsements to a blanket policy covering the projects and other property.

5.11 Assignment of Construction Documents. As additional security for the obligations of Borrower under this Agreement and the other Loan Documents, Borrower hereby collaterally assigns, transfers and grants to Lender a security interest in all of Borrower’s right, title, interest and benefits in or under the Construction Documents.

5.12 Contractors. Borrower agrees it will not engage or permit any general contractor to engage or continue to employ any contractor, subcontractor or materialman who may be reasonably objectionable to Lender. If requested by Lender, Borrower shall deliver a fully executed copy of any or all agreements between Borrower and any contractors, or between any general contractor and its subcontractors, each of which shall be in form and substance reasonably satisfactory to Lender.

5.13 Leases. Borrower will comply with the terms and conditions of, and deliver leased premises at the time and in the condition required by any Lender-approved lease. Borrower will not enter into, amend or renew any leases or other occupancy agreements affecting the Property without Lender’s prior written consent. Lender’s consent may be conditioned upon receipt of such documents and agreements, including without limitation subordination and attornment agreements and tenant estoppel certificates, as Lender may require.

5.14 Ownership of Material and Fixtures. No materials, equipment or fixtures incorporated by Borrower into the Units shall be purchased or installed under any security agreement, conditional sales contract, lease, or other arrangement wherein the seller reserves title or any interest in such items or the right to remove or repossess such items or to consider them personal property after their incorporation into the Units, without the prior written consent of Lender.

5.15 No Warranty by Lender; Indemnification. Nothing contained in this Agreement or any other Loan Document shall constitute or create any duty on or warranty by Lender regarding (i) the proper application by Borrower, general contractor or any subcontractor of the loan proceeds, (ii) the quality or condition of the Property, or (iii) the competence or qualifications of the general contractor or any other party furnishing labor or materials in

connection with construction at the Property. Borrower (a) acknowledges that Borrower has not relied and will not rely upon any experience, awareness or expertise of Lender regarding such matters, and (b) shall indemnify, hold harmless, and defend Lender from any costs, expenses, damages, judgments, or liabilities, including without limitation, attorneys’ fees, arbitration fees, and expert witness fees, arising from or connected with (i) such matters, (ii) payment or non-payment for labor or materials furnished for improvement of the Property, (iii) any claims of mechanics or materialmen, or (iv) any action or inaction by Borrower with respect to the foregoing.

6. Tribble Road Loan .

6.1 The principal amount of the Tribble Road Loan, $3,000,000.00, is $4,288,167.00 less than the amount previously advanced by Lender ($7,288,167.00) for the property described in the Deed to Secure Debt, Security Agreement, and Financing Statement dated September 27, 2006 from Tribble Road Development to Lender and recorded with the Forsyth County Clerk of Superior Court in Deed Book 4469, Page 410 (the “Tribble Road Property”). Lender is forgiving $4,288,167.00 of the Tribble Road debt as part of the consideration for this Agreement.

6.2 The unpaid principal balance of the Tribble Road Loan shall bear interest from the date hereof at the LIBOR Market Index Rate plus 4%.

6.3 All unpaid principal and accrued interest under the Tribble Road Loan shall be due and payable in full on December 10, 2011 (the “Tribble Road Maturity Date”).

6.4 Obligors will use commercially reasonable efforts to maintain the existing entitlements, permits, and approvals required to complete the planned improvements at the Tribble Road Property (the cost of which Borrower estimates to be between $300,000 and $500,000).

6.5 Obligors will use commercially reasonable efforts to sell the Tribble Road Property during the term of the Tribble Road Loan, and will inform Lender promptly in writing of any offers received.

6.6 In the event of a sale of the Tribble Road Property, the sale proceeds shall be distributed as follows:

(i) first, to reasonable and customary sales expenses and closing costs properly charged to seller as reflected in a settlement statement delivered to Lender not less than three (3) business days in advance of the closing of the sale of the Tribble Road Property;

(ii) second, to the unpaid principal balance of the Tribble Road Loan plus all accrued interest thereon;

(iii) third, to Obligors to reimburse them for the reasonable costs of maintaining the existing entitlements, permits, and approval at the Tribble Road Property; and

(iv) fourth, to Wachovia and Obligors to be divided as follows: Wachovia 65%, Obligors 35%.

7. No Additional Funding . From and after the Effective Date, Lender shall be under no obligation to provide any additional funding to Obligors except pursuant to the Revolver.

8. No Novation . The execution of this Agreement and the Amended Notes constitutes a modification, amendment, and division of the Note. Accordingly, Obligors stipulate and agree that:

8.1 This Agreement is not a novation and, except as otherwise modified hereby, the terms and provisions of the Existing Loan Documents shall remain in full force and effect. In the event of any conflict between the terms of this Agreement and the terms of the Existing Loan Documents, the terms of this Agreement shall control.

8.2 The liens and security interests granted under the Existing Loan Documents will continue to secure payment of the Obligations in accordance with their original priorities. Without limiting the foregoing, the Parties agree that all accrued interest on cash collateral held by Lender, including specifically Borrower’s Certificate of Deposit #514291620837144, shall be retained by Lender as additional collateral for the Obligations. In the event Borrower implements a replacement of its general liability insurance program for which Borrower’s cash collateral account is currently security for Borrower’s insurer and the letter of credit is returned to Lender by the beneficiary, Lender agrees to fully cooperate with the transfer of the principal amount of the cash collateral as directed by Borrower; provided however, that all accrued interest shall remain as additional collateral for the Obligations.

9. Forbearance . Subject to compliance by Obligors with each of the Forbearance Conditions (as defined below), during the period commencing on the date hereof and ending on the earliest to occur of (a) January 15, 2010; (b) a default (other than the Existing Defaults) by Obligors under this Agreement, the Amended Notes, or any of the Loan Documents; or (c) the date that any of the Forbearance Conditions are no longer satisfied (the “Forbearance Period”), Lender agrees that it will not, but only by reason of the Existing Defaults, exercise any remedy available to it under the Loan Documents or under any applicable law to enforce collection from Obligors of any obligations or foreclose upon its security interest(s). Notwithstanding anything to the contrary contained in this Agreement, Lender shall not be prohibited from exercising any remedy or power available to it excluding only those expressly set forth in this section.

10. Conditions to Forbearance . Each of the following conditions shall constitute a forbearance condition (each, a “Forbearance Condition” and, collectively, the “Forbearance Conditions”), the continuing satisfaction of each and every one of which shall be a continuing condition to the agreement of Lender to forbear as set forth above:

10.1 All Payments Current. Borrower shall make all payments as and when due under the Amended Notes and this Agreement;

10.2 No Subsequent Defaults . Except as they relate solely to the Existing Defaults, Obligors shall duly observe and perform each obligation and covenant to be performed under the Loan Documents; and

10.3 Sale of Units . Borrower must close the sale of not less than 42 Units from August 18, 2008 through June 30, 2009, and must close the sale of not less than 15 Units each calendar quarter on a quarterly basis after June 30, 2009.

11. Waiver and Termination of Rights . Following any failure to satisfy any Forbearance Condition, Obligors understand, acknowledge and agree that the Forbearance Period shall, at Lender’s option, terminate and all Obligations shall be immediately due and payable in full. In such event Lender may enforce any and all rights and remedies available under the Loan Documents and applicable law without notice.

12. Affirmative Covenants . Obligors covenant and agree that from the date hereof and until payment in full of all Obligations unless Lender shall otherwise consent in writing:

12.1 Obligors shall execute such other and further documents, instruments and agreements as Lender may reasonably request to effect the express provisions of this Agreement;

12.2 Obligors shall comply fully with all applicable statutes, laws and regulations, maintain, preserve and keep the Property in good repair, working order and condition, and make all needed replacements, additions, improvements and renewals thereto, subject to the requirements of the Loan Documents;

12.3 Obligors shall allow Lender and its agents, during normal business hours, to have access to the Property and all books, records and such other documents of Obligors as Lender shall reasonably require, and allow Lender to make copies thereof; and deliver promptly such other information regarding the operation, business affairs, and financial condition of Obligors which Lender may reasonably request; and

12.4 Obligors shall:

(i) furnish to Lender immediately upon becoming aware of the existence of any condition or event which constitutes an Event of Default, or any event which, upon the giving of notice or lapse of time or both, may become a default, written notice specifying the nature and period of existence thereof and the action which Obligors are taking or propose to take with respect thereto; and

(ii) promptly notify Lender in writing of (a) any material adverse change in their financial condition or their business; (b) any default under any material agreement, contract or other instrument to which it is a party or by which any of its properties are bound, or any acceleration of the maturity of any indebtedness owing by Obligors; (c) any material adverse claim against or affecting any Obligor or any part of their properties; (d) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any governmental agency or unit affecting Obligors; and (e) any change in any Obligor’s name or address.

13. Additional Representations and Warranties . Obligors make the following representations and warranties with respect to all of the Property except the Tribble Road Property (the “Non-Tribble Property”):

13.1 the Non-Tribble Property has, or will have upon completion of construction, adequate legal vehicular and pedestrian access to public roads;

13.2 to the best of Obligors’ knowledge, sewer, water and all other appropriate utilities are available at ordinary costs at the Non-Tribble Property through public or unencumbered private easements, and in sufficient quantities to serve the Non-Tribble Property;

13.3 if applicable, required written approvals of septic tanks or wells have been issued by all appropriate governmental authorities in respect of the Non-Tribble Property;

13.4 the Plans and Specifications and the anticipated use of the Non-Tribble Property comply and shall comply with all applicable restrictive covenants, zoning ordinances, building laws and codes, and other applicable laws, regulations and requirements (including without limitation, the Americans with Disabilities Act, as amended);

13.5 the current zoning classification of the Non-Tribble Property and any covenants and restrictions affecting the Non-Tribble Property permit the construction of Units on the Non-Tribble Property;

13.6 Borrower has obtained, or will obtain, all permits and approvals of any type required to complete the improvements on the Non-Tribble Property (subject to any moratoria which may be imposed by the applicable governmental authorities after the Effective Date, although Obligors warrant that they are unaware of any impending or threatened moratoria), and the permits and approval which have been obtained are final and unappealable and remain in full force and effect without restriction or modification;

13.7 all public improvements appurtenant to the Non-Tribble Property have been fully authorized by appropriate ordinance or municipal action;

13.8 Borrower has satisfied, or will satisfy, all conditions imposed by any governmental authority in connection with any grant of subdivision or land development approval;

13.9 all sales of the Non-Tribble Property shall be conducted in compliance with all applicable laws, including, without limitation, the Interstate Land Sales Act;

13.10 no notice of taking by eminent domain or condemnation of any part of the Non-Tribble Property has been received, and Borrower has no knowledge that any such proceeding is contemplated; and

13.11 to the best of Obligors’ knowledge, no part of the Non-Tribble Property has been damaged as a result of any fire, explosion, accident, flood or other casualty which in not now fully restored.

14. Reporting . Notwithstanding anything to the contrary in the Loan Documents, during the Forbearance Period, Lender will suspend the requirement of compliance with the financial covenants contained in the Existing Loan Documents. However, all financial reporting required under the Existing Loan Documents shall continue to be made during the Forbearance Period. All reports shall be delivered to Lender at the following address:

Wachovia Bank, National Association

Attn: Patrick McGovern

123 South Broad Street

Philadelphia, PA 19109

Mail Code PA1246

15. Negative Covenants . Obligors covenant and agree that from the date hereof until payment in full of all Obligations, unless Lender shall otherwise consent in writing, Obligors will not:

15.1 repay any principal, interest, late charges or other amounts due under any loans owed by Obligors to their respective shareholders, officers and directors whether such obligations are evidenced by promissory notes or otherwise;

15.2 pay any dividends or make any other distributions to the shareholders of Obligors;

15.3 make loans to, guaranty any debts of, or invest any money with any shareholders, officers or directors of Obligors.

16. Release of Claims and Covenant Not to Sue . As a material inducement to Lender to enter into this Agreement and to grant the additional concessions to Obligors reflected herein, all in accordance with and subject to the terms and conditions of this Agreement, and all of which are to their direct advantage and benefit, Obligors, jointly and severally, do hereby: (a) remise, release, acquit, satisfy and forever discharge Lender, and all of the past, present and future officers, directors, employees, agents, attorneys, representatives, participants, successors and assigns of Lender, from any and all manner of debts, accountings, bonds, warranties, representations, covenants, promises, contracts, controversies, agreements, liabilities, obligations, expenses, damages, judgments, executions, actions, claims, demands and causes of action of any nature whatsoever, whether at law or in equity, either now accrued or hereafter maturing and whether known or unknown, which any Obligor now has or hereafter can, shall or may have by reason of any matter, cause or thing, from the beginning of the world to and including the date of this Agreement, including specifically, but without limitation, matters arising out of, in connection with or relating to (i) the Obligations, (ii) the Loan Documents or the obligations evidenced thereby, including, the administration or funding thereof, and (iii) any other relationship, agreement or transaction between any Obligor and Lender or any of their respective subsidiaries or affiliates; and (b) covenant and agree never to institute or cause to be instituted or continue prosecution of any suit or other form of action or proceeding of any kind or nature whatsoever against Lender or any subsidiaries or affiliates of Lender, or any of its past, present or future officers, directors, employees, agents, attorneys, representatives, participants, successors or assigns, by reason of or in connection with any of the foregoing matters, claims or causes of action, provided, however, that the foregoing release and covenant not to sue shall not apply to any claims arising after the date of this Agreement with respect to acts, occurrences or events after the date of this Agreement.

17. Waiver of Automatic Stay; Supplemental Stay . Obligors acknowledge and agree that in the event of the filing of any petition for bankruptcy relief filed by or against any Obligor:

17.1 Obligors consent to the entry of an order granting Lender relief from the automatic stay of §362 of the Bankruptcy Code and shall not assert or request any other party to assert that the automatic stay provided by §362 of the Bankruptcy Code shall operate or be interpreted to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has under the Loan Documents or any other rights Lender has against any Obligor or against any property owned by any Obligor;

17.2 Obligors shall not seek or request any other party to seek a supplemental stay or any other relief, whether injunctive or otherwise, pursuant to §105 of the Bankruptcy Code or any other provision of the Bankruptcy Code, to stay, interdict, condition, reduce or inhibit the ability of Lender to enforce any rights it has under the Loan Documents or any other rights Lender has against any Obligor or against any property which it owns.

18. Expenses . In addition to the costs and expenses required to be paid by Obligors at “Closing” (hereafter defined) pursuant to section 2.1 of this Agreement, Obligors shall, within ten (10) days following demand by Lender, pay or reimburse Lender for all costs and expenses incurred by Lender in connection with this Agreement including without limitation all reasonable attorneys’ fees, inspection expenses, premiums for title insurance and policy endorsements, fees incurred by Lender in connection with appraisals of any property securing the indebtedness and any environmental compliance assessments and remediation costs (if any) required by law or regulation or otherwise deemed necessary or desirable by Lender, and all recording fees. Notwithstanding any other provisions contained in the Loan Documents, if Lender retains an attorney in order to enforce, defend or protect Lender’s rights under the Loan Documents or if Lender retains an attorney in connection with any default of any stated or accelerated maturity of the Obligations to Lender in order to collect any debt due Lender or if Lender retains an attorney in connection with any lawsuits, reorganization, bankruptcy or other proceeding involving the Loan Documents or if any Obligor sues Lender, then in any such instance Obligors agree to pay Lender in addition to all principal, interest, late charges and fees, all of Lender’s reasonable costs and expenses including reasonable attorneys’ fees incurred by Lender.

19. Miscellaneous .

19.1 Cumulative Rights . No right, power or remedy conferred upon or reserved to Lender in the Loan Documents is exclusive of any other right, power or remedy conferred upon the Lender thereunder or at law or in equity. Each remedy shall be cumulative and may be exercised by Lender concurrently or consecutively in its discretion.

19.2 No Waiver . Lender may, in its discretion, from time to time waive or forbear from enforcing any provision contained in the Loan Documents, and no such waiver or forbearance shall be deemed a waiver by Lender of any other right or remedy provided herein or by law or be deemed a waiver of the right at any later time to enforce strictly all provisions contained in the Loan Documents and to exercise any and all remedies provided herein and by law.

19.3 Headings . The headings of the articles, sections and subsections of this Agreement are for the convenience of reference only, are not to be considered a part hereof, and shall not limit or otherwise affect any of the terms hereof or thereof.

19.4 Admissions . Obligors expressly acknowledge and agree that the waivers, estoppels and releases contained in this Agreement shall not be construed as an admission of wrongdoing, liability or culpability on the part of Lender or an admission by Lender of the existence of any claims of any Obligor against Lender.

19.5 Construction of Agreement . Each party acknowledges that it has participated in the negotiation of this Agreement, and no provision of this Agreement shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated or drafted such provision. Obligors acknowledge that at all times they have been represented by an attorney in the negotiation of the terms of and in the preparation and execution of this Agreement, and have had the opportunity to review and analyze this Agreement for a sufficient period of time prior to the execution and delivery thereof. No representations or warranties have been made by or on behalf of Lender, or relied upon by any Obligor, pertaining to the subject matter of this Agreement, other than those set forth in this Agreement. This Agreement and the Loan Documents embody the entire agreement and understanding among the parties to the subject matter hereof and supersede all prior proposals, negotiations, agreements and understanding relating to such subject matter.

19.6 Notices . Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed given on the third day following the date deposited in the United States mail, postage prepaid, sent by first class mail and, alternatively, shall be deemed given on the next day following the date such notice is delivered to a nationally recognized overnight delivery service such as Federal Express and addressed as follows:


Obligors:		Comstock Homebuilding Companies, Inc.
		Attn: Christopher Clemente
		11465 Sunset Hills Road
		5th Floor
		Reston, VA 20190

copy to:		Jubal R. Thompson, Esq.
		General Counsel
		11465 Sunset Hills Road
		5th Floor
		Reston, VA 20190


Lender:		Wachovia Bank, National Association
		Attn: Patrick McGovern
		123 South Broad Street
		Philadelphia, PA 19109
		Mail Code PA1246

copy to:		J. William Porter, Esquire
		Parker Poe Adams & Bernstein LLP
		Three Wachovia Center, Suite 3000
		401 S. Tryon Street,
		Charlotte, NC 28202

Either party may, from time to time, designate a different notice address by notice given as herein provided.

19.7 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of North Carolina.

19.8 No Assignment by Obligors . The rights and obligations of Obligors hereunder may not be assigned or transferred to any person or entity without the express written consent of Lender. Obligors may transfer individually selected Lots and/or Units to a newly formed single purpose entity for the purpose of the orderly disposition of the property, any transfer being subject to the prior approval of Lender.

19.9 No Modifications . The terms of the Loan Documents may not be changed, modified, waived, discharged or terminated orally, but only by an instrument or instruments in writing, signed by the party against whom the enforcement of the change, modification, waiver, discharge or termination is asserted.

19.10 Invalid Provision to Affect No Others . If any provisions of this Agreement shall be held invalid, then such provision only shall be deemed invalid, and the remainder of this Agreement shall remain operative and in full force and effect.

19.11 Time of Essence . Time is of the essence in respect of this Agreement.

19.12 Arbitration . Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to the Loan Documents (“Disputes”) between or among parties to this Agreement shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims arising out of or connected with the transaction reflected by this Agreement.

Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the “Arbitration Rules”) of the American Arbitration Association

(the “AAA”) and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in the city in which the office of Lender first stated above is located. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of that state where the hearing will be conducted or if such person is not available to serve, the single arbitrator may be a licensed attorney. Not withstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements.

19.13 Preservation and Limitation of Remedies . Notwithstanding the preceding arbitration provisions, Lender and Obligors agree to preserve, without diminution, certain remedies that any party hereto may employ or exercise freely, independently or in connection with an arbitration proceeding after any arbitration action is brought. Lender and Obligors shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted under Loan Documents or under applicable law or by judicial foreclosure and sale, including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a part in a Dispute.

Obligors and Lender agree that no party shall not have a remedy of punitive or exemplary damages against the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute where the Dispute is resolved by arbitration or judicially.

19.14 Counterparts; Facsimile Signatures. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all counterparts together shall constitute one and the same instrument. Facsimile signatures are acceptable under this Agreement.

19.15 Reaffirmation of Guaranties . Guarantors, jointly and severally, do hereby:

(i) acknowledge their consent and approval to the terms of this Agreement and the Amended Notes;

(ii) stipulate that the Guaranties remain in full force and effect, and are not subject to offset, defense, reduction or counterclaim; and

(iii) reaffirm the Guaranties in all respects.

19.16 Closing . The closing of this Agreement must occur on or before December 24, 2008.

19.17 Conditions Precedent to Closing . The obligation of Lender to close this Agreement is subject to Obligors, as applicable, delivering and/or satisfying each of the following conditions precedent in a form and content satisfactory to Lender:

(i) payment of all sums due at Closing;

(ii) executed duplicate originals of this Agreement;

(iii) executed Amended Notes;

(iv) certified resolutions approving the execution and delivery of this Agreement and the Amended Notes by Obligors;

(v) evidence of paid 2007 ad valorem property taxes, and copies of 2008 ad valorem tax bills, for the Property;

(vi) certificate of property and casualty insurance listing showing Wachovia Bank as additional insured and loss payee; and

(vii) such other documents, instruments, agreements and information as Lender may reasonably request.

“Closing” shall occur when Lender declares that the foregoing conditions have been satisfied as evidenced by Lender’s execution of this Agreement.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement under seal, pursuant to authority duly given as of the day and year first above written.

[Remainder of page intentionally blank. Signatures on following pages]


BORROWER :

COMSTOCK HOMEBUILDING COMPANIES, INC.

By:
Name:
Title:

GUARANTORS :

COMSTOCK MASSEY PRESERVE, L.L.C.
(formerly Comstock Wesel, L.L.C.)

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

COMSTOCK HOMES OF RALEIGH, LLC
(formerly Capitol Homes Inc.)

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

COMSTOCK HOMES OF ATLANTA, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO


COMSTOCK JAMES ROAD, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

TRIBBLE ROAD DEVELOPMENT, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

COMSTOCK SUMMERLAND, L.C.

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

COMSTOCK HOLLAND ROAD, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

COMSTOCK LANDING, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO


COMSTOCK WAKEFIELD, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

COMSTOCK WAKEFIELD II, LLC

By:	Comstock Homebuilding Companies, Inc.
	its Manager

	By:
		Christopher Clemente, CEO

LENDER :

WACHOVIA BANK, NATIONAL ASSOCIATION

By:
	Patrick McGovern
	Senior Vice President

SCHEDULE 1.4

Pending Litigation

SCHEDULE 1.5

Pending Default Notices

SCHEDULE 4.1

Description of the Lots

SCHEDULE 5.4

Description of the Units

SCHEDULE 5.8

Liens

Exhibit 10.67

AMENDED AND RESTATED PROMISSORY NOTE

(REVOLVING LINE OF CREDIT)


$8,000,000.00				December 10, 2008

Comstock Homebuilding Companies, Inc. (hereinafter referred to as “Borrower”)

11465 Sunset Hills Road

5th Floor

Reston, VA 20190

Attn: Christopher D. Clemente

Attn: Jubal R. Thompson

Wachovia Bank, National Association (hereinafter referred to as “Bank”)

123 South Broad Street

Philadelphia, PA 19109

Borrower promises to pay to the order of Bank, in lawful money of the United States of America by mailing to the address specified hereinafter or wherever else Bank may specify, the sum of Eight Million and No/100 Dollars (8,000,000.00) or such sum as may be advanced and outstanding from time to time, with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this “Note”).

RENEWAL/MODIFICATION. This Note, an Amended and Restated Promissory Note (Term Loan) of even date herewith, and an Amended and Restated Promissory Note (Tribble Road Loan) of even date herewith renew, extend and/or modify that certain Promissory Note dated May 26, 2006 in the original principal amount of $40,000,000.00 (as previously modified and amended, if applicable, the “Original Note”). This Note is not a novation.

USE OF PROCEEDS. Pursuant to the terms of that certain Loan Modification and Forbearance Agreement of even date herewith entered into by Borrower, Bank, and other parties (the “Forbearance Agreement”), Borrower shall use the proceeds of the loan(s) evidenced by this Note for the commercial purposes of Borrower as follows: to fund completion of partially constructed “Units” (as defined in the Forbearance Agreement) and construction of new Units on the “Lots” (as defined in the Forbearance Agreement).

LINE OF CREDIT. Approval for advances under this Note will be given on a Unit by Unit basis, subject to Borrower’s strict compliance with the requirements of the Forbearance Agreement. Subject to the foregoing, Borrower may borrow, repay and reborrow, and Bank may advance and readvance under this Note from time to time until the maturity hereof (each an “Advance” and together the “Advances”), so long as the total principal balance outstanding under this Note at any one time does not exceed the principal amount stated on the face of this Note. As of the date of each proposed Advance, Borrower shall be deemed to represent that each representation made in the Loan Documents is true as of such date.

If Borrower subscribes to Bank’s cash management services and such services are applicable to this line of credit, the terms of such service shall control the manner in which funds are transferred between the applicable demand deposit account and the line of credit for credit or debit to the line of credit.

Register of Deeds in Book 5222, Page 995; (iii) that certain Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh to TRSTE and recorded in the Johnston County Register of Deeds in Book 3128, Page 783; (iv) that certain Deed of Trust, Security Agreement and Financing Statement dated May 26, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 11976, Page 1982; (v) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated June 26, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12031, Page 441; (vi) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 21, 2006 from Comstock Raleigh to TRSTE and recorded in the Johnston County Register of Deeds in Book 3165, Page 476; (vii) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 25, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12079, Page 404; (viii) that certain Deed of Trust, Security Agreement and Financing Statement dated July 21, 2006 from Comstock Landing, LLC to TRSTE and recorded in the Wake County Register of Deeds in Book 12080, Page 830; (ix) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated July 27, 2006 from Comstock Wakefield, LLC and Comstock Wakefield II, LLC to TRSTE and recorded in the Wake County Register of Deeds in Book 12094, Page 1730; (x) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Homes of Atlanta, LLC (“Comstock Atlanta”) to Lender and recorded with Cherokee County Clerk of Superior Court in Book 9018, Page 173; (xi) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4428, Page 387; (xii) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Jackson County Clerk of Superior Court in Book 45I, Page 458; (xiii) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated September 14, 2006 from Comstock James Road, LLC to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4450, Page 620; (xiv) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated September 27, 2006 from Tribble Road Development, LLC to Lender and recorded with Forsyth County Clerk of Superior Court on in Book 4469, Page 410; (xv) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated October 18, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12223, Page 2235; (xvi) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated November 9, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12261, Page 489; (xvii) that certain Deed of Trust, Security Agreement and Financing Statement dated November 13, 2006 from Comstock Summerland, L.C. to TRSTE and recorded in the Prince William County Register of Deeds as instrument number 200611170162991; and (xviii) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated December 13, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12308, Page 2241.

INTEREST AND FEE(S) COMPUTATION (ACTUAL/360). Interest and fees, if any, shall be computed on the basis of a 360-day year for the actual number of days in the applicable period (“Actual/360

Computation”). The Actual/360 Computation determines the annual effective interest yield by taking the stated (nominal) rate for a year’s period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the applicable period. Application of the Actual/360 Computation produces an annualized effective rate exceeding the nominal rate.

REPAYMENT TERMS. This Note shall be due and payable as follows:

1) by consecutive monthly payments of accrued interest only, commencing on January 10, 2009 and continuing on the 10 ^th day of each month thereafter until January 15, 2010;

2) by periodic payments of principal and accrued interest (“Installments”) due upon the sale of each Unit, with each such Installment being an amount equal to the sum of (a) the total amount advanced by Bank for the Unit and the Lot upon which the Unit is built (including all amounts advanced by Bank prior to the date hereof for presently existing Units, as reflected in Schedule 1 , plus all amounts advanced by Bank after the date hereof pursuant to this Note), together with all accrued but unpaid interest thereon (the “Base Unit Release Payment”), plus (b) an additional $10,000.00 for each of the ten spec Units remaining in the Summerland project as of the date hereof (which is included in the amounts shown for the Summerland spec Units in the column headed “1 ^st Draw” in Schedule 1 ), together with all accrued interest thereon from and after the date of the Initial Advance (as defined in the Forbearance Agreement) hereunder (the “Additional Summerland Release Payment”), plus (c) 25% of any net sale proceeds after payment of the Base Unit Release Payment, the Additional Summerland Release Payment (if applicable), any unfunded construction costs approved by Bank in writing on not less than five (5) business days notice, and all reasonable and customary sales expenses and closing costs properly charged to Borrower as reflected in a HUD-1 settlement statement delivered to Bank not less than three (3) business days in advance of the closing of the sale of the Unit (the “Excess Unit Release Payment”); and

3) a final payment of all principal and accrued interest shall be due and payable on January 15, 2010.

Borrower may prepay this Note in whole or in part at any time without penalty or premium.

APPLICATION OF PAYMENTS. Monies received by Bank from the sale of Units shall be applied as set forth above and in the Forbearance Agreement. Monies received by Bank from any other source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank.

DEFAULT. If any of the following occurs, a default (“Default”) under this Note shall exist: Nonpayment; Nonperformance. The failure of timely payment or performance of the Obligations or Default under this Note or any other Loan Documents. False Warranty. A warranty or representation made or deemed made in the Loan Documents or furnished Bank in connection with the loan evidenced by this Note proves materially false, or if of a continuing nature, becomes materially false. Cross Default. At Bank’s option, any default in payment or performance of any obligation under any other loans, contracts or agreements of Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or the holder(s) of the majority ownership interests of Borrower with Bank or its affiliates (“Affiliate” shall have the meaning as defined in 11 U.S.C. § 101, as in effect from time to time, except that the term “Borrower” shall be substituted for the term “Debtor” therein; “Subsidiary” shall mean any business in which Borrower holds, directly or indirectly, a controlling interest). Cessation; Bankruptcy. The death of, appointment of a guardian for, dissolution of, termination of existence of, loss of good standing status by, appointment of a receiver for, assignment for the benefit of creditors of, or commencement of any bankruptcy or insolvency proceeding by or against Borrower, its Subsidiaries or Affiliates, if any, or any general partner of or the holder(s) of the majority ownership interests of Borrower, or any party to the Loan Documents. Material Capital Structure or Business Alteration. Without prior written consent of Bank, (i) a material alteration in the kind or type of Borrower’s business or that of Borrower’s Subsidiaries or Affiliates, if any, except for the possibility of withdrawing from the Atlanta, GA market which is hereby acknowledged by Bank; (ii) the sale of substantially all of the business or assets of Borrower, any of Borrower’s Subsidiaries or Affiliates or any guarantor; (iii) the acquisition of substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity; or (iv) should any Borrower or any of Borrower’s Subsidiaries or Affiliates or any guarantor enter into any merger or consolidation. Material Adverse Change. Bank determines in good faith, in its sole discretion, that the prospects for payment or performance of the Obligations are impaired or there has occurred a material adverse change in the business or prospects of Borrower, financial or otherwise.

between Borrower and Bank, or its affiliates, which shall be due in accordance with and governed by the provisions of said swap agreements; whereupon this Note and the accelerated Obligations shall be immediately due and payable; provided, however, if the Default is based upon a bankruptcy or insolvency proceeding commenced by or against Borrower or any guarantor or endorser of this Note, all Obligations (other than Obligations under any swap agreement as referenced above) shall automatically and immediately be due and payable. Cumulative. Exercise any rights and remedies as provided under the Note and other Loan Documents, or as provided by law or equity.

prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. Payments. All payments shall be mailed to Bank at Construction Loan Administration, 1 W 4th Street, Winston Salem, NC 27101, Mail Code NC6256, Attn: Monica Feher; or other such address as provided by Bank in writing. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower’s address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Wachovia Bank, National Association, Attn: Patrick McGovern, 123 South Broad Street, Philadelphia, PA 19109, Mail Code PA1246, or such other address as Bank may specify in writing from time to time. Notices to Bank must include the mail code. In the event that Borrower changes Borrower’s address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term “person” shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under this Note, even though the stated principal amount of this Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the address for payments set forth above shall be deemed received at the opening of the next banking day. Joint and Several Obligations. If there is more than one Borrower, each is jointly and severally obligated together with all other parties obligated for the Obligations. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES HERETO, INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR ARBITRATION PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM THAT MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES. EACH OF THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE. Patriot Act Notice. To help fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. For purposes of this section, account shall be understood to include loan accounts. Final Agreement. This Note and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent agreements of the parties. There are no unwritten agreements between the parties.

Arbitration Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party’s entitlement to such remedies is a Dispute. Waiver of Jury Trial. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE AS TO WHICH BINDING ARBITRATION HAS BEEN DEMANDED.

IN WITNESS WHEREOF , Borrower, on the day and year first above written, has caused this Note to be duly executed under seal.

Exhibit 10.68

AMENDED AND RESTATED PROMISSORY NOTE

(TERM LOAN)


$11,608,484.00		December 10, 2008

Comstock Homebuilding Companies, Inc. (hereinafter referred to as “Borrower”)

11465 Sunset Hills Road

5th Floor

Reston, VA 20190

Attn: Christopher D. Clemente

Attn: Jubal R. Thompson

Wachovia Bank, National Association (hereinafter referred to as “Bank”)

123 South Broad Street

Philadelphia, PA 19109

Borrower promises to pay to the order of Bank, in lawful money of the United States of America by mailing to the address specified hereinafter or wherever else Bank may specify, the sum of Eleven Million, Six Hundred and Eight Thousand, Four Hundred and Eighty-Four and No/100 Dollars ($11,608,484.00), with interest on the unpaid principal balance at the rate and on the terms provided in this Promissory Note (including all renewals, extensions or modifications hereof, this “Note”).

RENEWAL/MODIFICATION. This Note, an Amended and Restated Promissory Note (Revolving Line of Credit) of even date herewith, and an Amended and Restated Promissory Note (Tribble Road Loan) of even date herewith renew, extend and/or modify that certain Promissory Note dated May 26, 2006 in the original principal amount of $40,000,000.00 (as previously modified and amended, if applicable, the “Original Note”). This Note is not a novation.

Security Agreement and Financing Statement dated July 27, 2006 from Comstock Wakefield, LLC and Comstock Wakefield II, LLC to TRSTE and recorded in the Wake County Register of Deeds in Book 12094, Page 1730; (x) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Homes of Atlanta, LLC (“Comstock Atlanta”) to Lender and recorded with Cherokee County Clerk of Superior Court in Book 9018, Page 173; (xi) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4428, Page 387; (xii) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated August 29, 2006 from Comstock Atlanta to Lender and recorded with Jackson County Clerk of Superior Court in Book 45I, Page 458; (xiii) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated September 14, 2006 from Comstock James Road, LLC to Lender and recorded with Forsyth County Clerk of Superior Court in Book 4450, Page 620; (xiv) that certain Deed to Secure Debt, Security Agreement and Financing Statement dated September 27, 2006 from Tribble Road Development, LLC to Lender and recorded with Forsyth County Clerk of Superior Court on in Book 4469, Page 410; (xv) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated October 18, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12223, Page 2235; (xvi) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated November 9, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12261, Page 489; (xvii) that certain Deed of Trust, Security Agreement and Financing Statement dated November 13, 2006 from Comstock Summerland, L.C. to TRSTE and recorded in the Prince William County Register of Deeds as instrument number 200611170162991; and (xviii) that certain Supplemental Deed of Trust, Security Agreement and Financing Statement dated December 13, 2006 from Comstock Raleigh to TRSTE and recorded in the Wake County Register of Deeds in Book 12308, Page 2241.

REPAYMENT TERMS. This Note shall be due and payable as follows:

1) by periodic payments of principal and accrued interest (“Installments”) due upon the sale of each “Lot” (as defined in the Forbearance Agreement), with each such Installment being an amount equal to the sum of (a) the amount advanced by Bank for all of the Lots in the particular development where the Lot being sold is located, allocated to each Lot on a pro rata basis, plus all accrued and unpaid interest on the Original Note as of the date hereof allocated to each Lot in the same manner (as detailed in Schedule 1 attached hereto) plus (b ) all accrued but unpaid interest due for each Lot from the date hereof to the closing of the sale of that respective Lot; and

2) a final payment of all principal and accrued interest shall be due and payable on January 15, 2010.

Borrower may prepay this Note in whole or in part at any time without penalty or premium.

APPLICATION OF PAYMENTS. Monies received by Bank from the sale of Lots shall be applied as set forth in the Forbearance Agreement. Monies received by Bank from any other source for application toward payment of the Obligations shall be applied to accrued interest and then to principal. If a Default occurs, monies may be applied to the Obligations in any manner or order deemed appropriate by Bank.

Borrower and other such person, and without affecting the liability of each Borrower and other such person; provided, Bank may not extend, modify or renew this Note or make a novation of the loan evidenced by this Note without the consent of the Borrower, or if there is more than one Borrower, without the consent of at least one Borrower; and further provided, if there is more than one Borrower, Bank may not enter into a modification of this Note which increases the burdens of a Borrower without the consent of that Borrower.

MISCELLANEOUS PROVISIONS. Assignment. This Note and the other Loan Documents shall inure to the benefit of and be binding upon the parties and their respective heirs, legal representatives, successors and assigns. Bank’s interests in and rights under this Note and the other Loan Documents are freely assignable, in whole or in part, by Bank. In addition, nothing in this Note or any of the other Loan Documents shall prohibit Bank from pledging or assigning this Note or any of the other Loan Documents or any interest therein to any Federal Reserve Bank. Borrower shall not assign its rights and interest hereunder without the prior written consent of Bank, and any attempt by Borrower to assign without Bank’s prior written consent is null and void. Any assignment shall not release Borrower from the Obligations. Applicable Law; Conflict Between Documents. This Note and, unless otherwise provided in any other Loan Document, the other Loan Documents shall be governed by and interpreted in accordance with federal law and, except as preempted by federal law, the laws of the state named in Bank’s address on the first page hereof without regard to that state’s conflict of laws principles. If the terms of this Note should conflict with the terms of any loan agreement or any commitment letter that survives closing, the terms of this Note shall control. Borrower’s Accounts. Except as prohibited by law, Borrower grants Bank a security interest in all of Borrower’s deposit accounts and investment property with Bank and any of its affiliates. Swap Agreements. All swap agreements (as defined in 11 U.S.C. § 101, as in effect from time to time), if any, between Borrower and Bank or its affiliates are independent agreements governed by the written provisions of said swap agreements, which will remain in full force and effect, unaffected by any repayment, prepayment, acceleration, reduction, increase or change in the terms of this Note, except as otherwise expressly provided in said written swap agreements, and any payoff statement from Bank relating to this Note shall not apply to said swap agreements except as otherwise expressly provided in such payoff statement. Jurisdiction. Borrower irrevocably agrees to non-exclusive personal jurisdiction in the state named in the Bank’s address on the first page hereof. Severability. If any provision of this Note or of the other Loan Documents shall be prohibited or invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note or other such document. Payments. All payments shall be mailed to Bank at Construction Loan Administration, 1 W 4th Street, Winston Salem, NC 27101, Mail Code NC6256, Attn: Monica Feher; or other such address as provided by Bank in writing. Notices. Any notices to Borrower shall be sufficiently given, if in writing and mailed or delivered to the Borrower’s address shown above or such other address as provided hereunder, and to Bank, if in writing and mailed or delivered to Wachovia Bank, National Association, Attn: Patrick McGovern, 123 South Broad Street, Philadelphia, PA 19109, Mail Code PA1246, or such other address as Bank may specify in writing from time to time. Notices to Bank must include the mail code. In the event that Borrower changes Borrower’s address at any time prior to the date the Obligations are paid in full, Borrower agrees to promptly give written notice of said change of address by registered or certified mail, return receipt requested, all charges prepaid. Plural; Captions. All references in the Loan Documents to Borrower, guarantor, person, document or other nouns of reference mean both the singular and plural form, as the case may be, and the term “person” shall mean any individual, person or entity. The captions contained in the Loan Documents are inserted for convenience only and shall not affect the meaning or interpretation of the Loan Documents. Advances. Bank may, in its sole discretion, make other advances which shall be deemed to be advances under this Note, even though the stated principal amount of this Note may be exceeded as a result thereof. Posting of Payments. All payments received during normal banking hours after 2:00 p.m. local time at the address for payments set forth above shall be deemed received at the opening of the next banking day. Joint and Several Obligations. If there is more than one Borrower, each is jointly and severally obligated together with all other parties obligated for the Obligations. Fees and Taxes. Borrower shall promptly pay all documentary, intangible recordation and/or similar taxes on this transaction whether assessed at closing or arising from time to time. LIMITATION ON LIABILITY; WAIVER OF PUNITIVE DAMAGES. EACH OF THE PARTIES HERETO, INCLUDING BANK BY ACCEPTANCE HEREOF, AGREES THAT IN ANY JUDICIAL, MEDIATION OR ARBITRATION

PROCEEDING OR ANY CLAIM OR CONTROVERSY BETWEEN OR AMONG THEM THAT MAY ARISE OUT OF OR BE IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY OTHER AGREEMENT OR DOCUMENT BETWEEN OR AMONG THEM OR THE OBLIGATIONS EVIDENCED HEREBY OR RELATED HERETO, IN NO EVENT SHALL ANY PARTY HAVE A REMEDY OF, OR BE LIABLE TO THE OTHER FOR, (1) INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR (2) PUNITIVE OR EXEMPLARY DAMAGES. EACH OF THE PARTIES HEREBY EXPRESSLY WAIVES ANY RIGHT OR CLAIM TO PUNITIVE OR EXEMPLARY DAMAGES THEY MAY HAVE OR WHICH MAY ARISE IN THE FUTURE IN CONNECTION WITH ANY SUCH PROCEEDING, CLAIM OR CONTROVERSY, WHETHER THE SAME IS RESOLVED BY ARBITRATION, MEDIATION, JUDICIALLY OR OTHERWISE. Patriot Act Notice. To help fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. For purposes of this section, account shall be understood to include loan accounts. Final Agreement. This Note and the other Loan Documents represent the final agreement between the parties and may not be contradicted by evidence of prior, contemporaneous or subsequent agreements of the parties. There are no unwritten agreements between the parties.

ARBITRATION. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any claim or controversy arising out of or relating to the Loan Documents between parties hereto (a “Dispute”) shall be resolved by binding arbitration conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the “Arbitration Rules”) of the American Arbitration Association (the “AAA”) and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, a dispute as to whether a matter is subject to arbitration, or claims arising from documents executed in the future, but shall specifically exclude claims brought as or converted to class actions. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. Special Rules. All arbitration hearings shall be conducted in the city named in the address of Bank first stated above. A hearing shall begin within 90 days of demand for arbitration and all hearings shall conclude within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party’s entitlement to such remedies is a Dispute. Waiver of Jury Trial. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE AS TO WHICH BINDING ARBITRATION HAS BEEN DEMANDED.

IN WITNESS WHEREOF , Borrower, on the day and year first above written, has caused this Note to be duly executed under seal.

Exhibit 21.1

List of Subsidiaries


Name		State of Incorporation or Organization
1.	Buckhead Overlook, LLC	Georgia
2.	Comstock Acquisitions, L.C.	Virginia
3.	Comstock Aldie, L.C.	Virginia
4.	Comstock Barrington Park, L.C.	Virginia
5.	Comstock Bellemeade, L.C.	Virginia
6.	Comstock Belmont Bay 5, L.C.	Virginia
7.	Comstock Belmont Bay 89, L.C.	Virginia
8.	Comstock Blooms Mill II, L.C.	Virginia
9.	Comstock Brandy Station, L.C.	Virginia
10.	Comstock Carter Lake, L.C.	Virginia
11.	Comstock Cascades, L.C.	Virginia
12.	Comstock Communities, L.C.	Virginia
13.	Comstock Countryside, L.C.	Virginia
14.	Comstock Delta Ridge II, L.L.C.	Virginia
15.	Comstock East Capitol, L.L.C.	Virginia
16.	Comstock Emerald Farm, L.C.	Virginia
17.	Comstock Fairfax I, L.C.	Virginia
18.	Comstock Flynn’s Crossing, L.C.	Virginia
19.	Comstock Hamlets of Blue Ridge, L.C.	Virginia
20.	Comstock Holland Road, L.L.C.	Virginia
21.	Comstock Homes of Atlanta, LLC	Georgia
22.	Comstock Homes of North Carolina, L.L.C.	North Carolina
23.	Comstock Homes of Raleigh, L.L.C.	North Carolina
24.	Comstock Homes of Washington, L.C.	Virginia
25.	Comstock James Road, L.L.C.	Georgia
26.	Comstock Kelton II, L.C.	Virginia
27.	Comstock Lake Pelham, L.C.	Virginia
28.	Comstock Landing, L.L.C.	Virginia
29.	Comstock Loudoun Condos 1, L.C.	Virginia
30.	Comstock Massey Preserve, L.L.C.	Virginia
31.	Comstock North Carolina, L.L.C.	North Carolina
32.	Comstock Penderbrook, L.C.	Virginia
33.	Comstock Potomac Yard, L.C.	Virginia
34.	Comstock Realty, LLC	Georgia
35.	Comstock Ryan Park, L.C.	Virginia
36.	Comstock Sherbrooke, L.C.	Virginia
37.	Comstock Station View, L.C.	Virginia
38.	Comstock Summerland, L.C.	Virginia
39.	Comstock Wakefield, L.L.C.	Virginia
40.	Comstock Wakefield II, L.L.C.	Virginia
41.	Culpeper Commercial, L.C.	Virginia
42.	Highland Avenue Properties, LLC	Georgia
43.	Highland Station Partners, LLC	Georgia
44.	Mathis Partners, LLC	Georgia
45.	North Shore Raleigh II, L.L.C.	Virginia
46.	Post Preserve, LLC	Georgia
47.	Raleigh Resolution, L.L.C.	Virginia
48.	Settlement Title Services, L.L.C.	Virginia
49.	TCG Debt Fund II, L.C.	Virginia
50.	TCG Fund I, L.C.	Virginia
51.	Tribble Road Development, LLC	Georgia

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-123709) of Comstock Homebuilding Companies, Inc. of our report dated March 16, 2009 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ P RICEWATERHOUSE C OOPERS LLP

McLean, Virginia

March 31, 2009

Exhibit 31.1

CERTIFICATION

I, Christopher Clemente, certify that:

1. I have reviewed this report on Form 10-K of Comstock Homebuilding Companies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


		/s/ C HRISTOPHER C LEMENTE
		Christopher Clemente
Date: March 31, 2009		Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Bruce J. Labovitz, certify that:

1. I have reviewed this report on Form 10-K of Comstock Homebuilding Companies, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


		/s/ B RUCE J. L ABOVITZ
		Bruce J. Labovitz
Date: March 31, 2009		Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Comstock Homebuilding Companies, Inc. (the “Company”) for the year ended December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Christopher Clemente, Chairman and Chief Executive Officer of the Company and Bruce Labovitz, Chief Financial Officer of the Company, certify, to our best knowledge and belief, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ C HRISTOPHER C LEMENTE
		Christopher Clemente
		Chairman and Chief Executive Officer

		/s/ B RUCE J. L ABOVITZ
		Bruce J. Labovitz
March 31, 2009		Chief Financial Officer