<SUBMISSION>
<ACCESSION-NUMBER>0000950147-01-501441
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>3
<PERIOD>20010630
<FILING-DATE>20010814
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>MERITAGE CORP
<CIK>0000833079
<ASSIGNED-SIC>1531
<IRS-NUMBER>860611231
<STATE-OF-INCORPORATION>MD
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-09977
<FILM-NUMBER>1713247
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>6613 N SCOTTSDALE RD
<STREET2>STE 200
<CITY>SCOTTSDALE
<STATE>AZ
<ZIP>85250
<PHONE>6029988700
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>6613 NORTH SCOTTSDALE ROAD
<STREET2>SUITE200
<CITY>SCOTTSDALE
<STATE>AZ
<ZIP>85250
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>EMERALD MORTGAGE INVESTMENTS CORP
<DATE-CHANGED>19900502
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>HOMEPLEX MORTGAGE INVESTMENTS CORP
<DATE-CHANGED>19920703
</FORMER-COMPANY>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>MONTEREY HOMES CORP
<DATE-CHANGED>19970113
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>e-6972.txt
<DESCRIPTION>QUARTERLY REPORT FOR THE QTR ENDED 06/30/2001
<TEXT>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001

                                       OR

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                          Commission File Number 1-9977


                              MERITAGE CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)


               Maryland                                          86-0611231
     (State or Other Jurisdiction)                            (I.R.S. Employer
   of Incorporation or Organization)                         Identification No.)


 6613 North Scottsdale Road, Suite 200                             85250
          Scottsdale, Arizona                                    (Zip Code)
(Address of Principal Executive Offices)


                                 (480) 998-8700
              (Registrant's Telephone Number, Including Area Code)


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 [X] No [ ].

As of August 10, 2001,  5,345,746  shares of Meritage  Corporation  common stock
were outstanding.

================================================================================
<PAGE>
                              MERITAGE CORPORATION
                  FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

                                TABLE OF CONTENTS

                                                                        PAGE NO.
PART I.        FINANCIAL INFORMATION

     ITEM 1.   FINANCIAL STATEMENTS:

               Consolidated Balance Sheets as of June 30, 2001
               (unaudited) and December 31, 2000..........................   3

               Consolidated Statements of Earnings for the Three and Six
               Month Periods ended June 30, 2001 and 2000 (unaudited).....   4

               Consolidated Statements of Cash Flows for the Six
               Months ended June 30, 2001 and 2000 (unaudited)............   5

               Notes to Consolidated Financial Statements.................   6

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS........................  11

     ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   14

PART II.       OTHER INFORMATION

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K...........................  15

SIGNATURES     ........................................................... S.1

                                       2
<PAGE>
                          PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                      MERITAGE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                                        June 30,    December 31,
                                                          2001         2000
                                                        ---------    ---------
                                                       (Unaudited)
ASSETS
  Cash and cash equivalents                             $   4,079    $   4,397
  Real estate under development                           324,614      211,307
  Deposits on real estate under option or contract         35,708       24,251
  Receivables                                               9,756        2,179
  Deferred tax asset                                          602          543
  Goodwill                                                 28,760       17,675
  Property and equipment, net                               7,147        4,717
  Other assets                                              6,686        2,006
                                                        ---------    ---------

          Total Assets                                  $ 417,352    $ 267,075
                                                        =========    =========

LIABILITIES
  Accounts payable and accrued liabilities              $  61,070    $  48,907
  Home sale deposits                                       15,308       10,917
  Notes payable                                           198,469       86,152
                                                        ---------    ---------

          Total Liabilities                               274,847      145,976
                                                        ---------    ---------

STOCKHOLDERS' EQUITY
  Common stock, par value $.01. Authorized
    50,000,000 shares; issued and outstanding
    6,150,209 shares at June 30, 2001 and
    5,922,822 shares at December 31, 2000                      62           59
  Additional paid-in capital                              104,046      102,526
  Retained earnings                                        49,413       29,530
  Treasury stock at cost; 811,963 shares at
    June 30, 2001 and December 31, 2000                   (11,016)     (11,016)
                                                        ---------    ---------

          Total Stockholders' Equity                      142,505      121,099
                                                        ---------    ---------

  Total Liabilities and Stockholders' Equity            $ 417,352    $ 267,075
                                                        =========    =========

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                     Three Months Ended June 30,   Six Months Ended June 30,
                                     ---------------------------   -------------------------
                                         2001         2000            2001         2000
                                       ---------    ---------       ---------    ---------
                                              (in thousands, except per share data)
<S>                                    <C>          <C>             <C>          <C>
Home sales revenue                     $ 174,403    $ 120,802       $ 290,516    $ 212,455
Land sales revenue                         1,005        1,946           1,598        2,703
                                       ---------    ---------       ---------    ---------
                                         175,408      122,748         292,114      215,158

Cost of home sales                      (136,829)     (96,526)       (229,408)    (171,482)
Cost of land sales                          (943)      (1,703)         (1,474)      (2,384)
                                       ---------    ---------       ---------    ---------
                                        (137,772)     (98,229)       (230,882)    (173,866)

Home sales gross profit                   37,574       24,276          61,108       40,973
Land sales gross profit                       62          243             124          319
                                       ---------    ---------       ---------    ---------
                                          37,636       24,519          61,232       41,292

Commissions and other sales costs         (9,435)      (6,458)        (16,448)     (12,237)
General and administrative costs          (7,884)      (4,847)        (12,818)      (8,849)
Interest expense                              --           (3)             (1)          (5)

Other income, net                            827          422           1,361          955
                                       ---------    ---------       ---------    ---------

Earnings before income taxes and
  extraordinary item                      21,144       13,633          33,326       21,156
Income taxes                              (8,205)      (5,060)        (12,997)      (7,812)
                                       ---------    ---------       ---------    ---------
Earnings before extraordinary item        12,939        8,573          20,329       13,344
Extraordinary item:
  loss from extinguishment of debt
  (net of $285 tax benefit)                 (446)          --            (446)          --
                                       ---------    ---------       ---------    ---------

Net earnings                           $  12,493    $   8,573       $  19,883    $  13,344
                                       =========    =========       =========    =========

Earnings per share:

Basic:
  Earnings before extraordinary item   $    2.44    $    1.62       $    3.89    $    2.52
  Extraordinary item                        (.08)          --            (.08)          --
                                       ---------    ---------       ---------    ---------
     Net earnings per share            $    2.36    $    1.62       $    3.81    $    2.52
                                       =========    =========       =========    =========

Diluted:
  Earnings before extraordinary item   $    2.20    $    1.50       $    3.52    $    2.31
  Extraordinary item                        (.08)          --            (.08)          --
                                       ---------    ---------       ---------    ---------
     Net earnings per share            $    2.12    $    1.50       $    3.44    $    2.31
                                       =========    =========       =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  Six Months Ended June 30,
                                                                  -------------------------
                                                                     2001          2000
                                                                   ---------     ---------
                                                                      (in thousands)
<S>                                                                <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings                                                     $  19,883     $  13,344
  Adjustments to reconcile net earnings to net
  cash used in operating activities:
    Depreciation and amortization                                      1,986         1,525
    Increase in deferred tax asset before extraordinary item             (59)         (136)
    Stock option compensation expense                                     --            73
  Change in assets and liabilities, net of effect of acquisition:
    Increase in real estate under development                        (58,763)      (29,574)
    Increase in deposits on real estate under option or contract      (2,557)       (1,792)
    (Increase) decrease in receivables and other assets              (11,726)          253
    Increase in accounts payable and accrued liabilities               5,274         1,690
    Increase in home sale deposits                                     1,888         4,055
    Increase in goodwill                                                (260)           --
                                                                   ---------     ---------
    Net cash used in operating activities                            (44,334)      (10,562)
                                                                   ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Cash paid for acquisition/merger                                   (65,759)       (5,158)
  Purchases of property and equipment                                 (2,175)       (1,431)
                                                                   ---------     ---------
    Net cash used in investing activities                            (67,934)       (6,589)
                                                                   ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings                                                         432,735       196,001
  Repayments of debt                                                (322,308)     (180,184)
  Repurchase of stock                                                     --        (2,635)

  Proceeds from exercises of stock options                             1,523             6
                                                                   ---------     ---------
    Net cash provided by financing activities                        111,950        13,188
                                                                   ---------     ---------

Net decrease in cash and cash equivalents                               (318)       (3,963)
Cash and cash equivalents at beginning of period                       4,397        13,422
                                                                   ---------     ---------
Cash and cash equivalents at end of period                         $   4,079     $   9,459
                                                                   =========     =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The acquisition of Hancock Communities resulted in the following
  changes in assets and liabilities:

  Real estate under development                                    $ (54,545)
  Deposits on real estate under option or contract                    (8,899)
  Receivables and other assets                                          (543)
  Accounts payable and accrued liabilities                             6,890
  Home sale deposits                                                   2,503
  Goodwill                                                           (11,423)
  Property and equipment                                              (1,632)
  Borrowings                                                           1,890
                                                                   ---------
  Net cash paid for acquisition                                    $ (65,759)
                                                                   =========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       5
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

     We develop, construct and sell new high-quality, single-family homes in the
semi-custom  luxury,   move-up  and  entry-level  markets.  We  operate  in  the
Dallas/Fort  Worth,  Austin and Houston,  Texas markets as Legacy Homes,  in the
Phoenix/Scottsdale  and  Tucson,  Arizona  markets as  Monterey  Homes,  Hancock
Communities  and Meritage  Homes,  and in the San Francisco Bay and  Sacramento,
California markets as Meritage Homes.

     BASIS OF PRESENTATION.  The consolidated  financial  statements include the
accounts of Meritage Corporation and its subsidiaries. Intercompany balances and
transactions  have been  eliminated  in  consolidation  and certain prior period
amounts have been reclassified to be consistent with current financial statement
presentation.   In  the  opinion  of  management,   the  accompanying  unaudited
consolidated  financial  statements reflect all adjustments,  consisting only of
normal  recurring  adjustments,   necessary  to  fairly  present  our  financial
position,  results of operations and cash flows for the periods  presented.  The
results of operations for any interim period are not  necessarily  indicative of
results to be expected for a full fiscal year.

NOTE 2 - REAL ESTATE UNDER DEVELOPMENT AND CAPITALIZED INTEREST

     The components of real estate under development are (in thousands):

                                               June 30, 2001   December 31, 2000
                                               -------------   -----------------
Homes under contract, in production               $164,150         $ 92,881
Finished home sites                                 68,646           60,630
Home sites under development                        56,917           27,636
Model homes and homes held for resale               31,961           26,937
Land held for development                            2,940            3,223
                                                  --------         --------
                                                  $324,614         $211,307
                                                  ========         ========

     We capitalize  certain  interest  costs  incurred  during  development  and
construction. Capitalized interest is allocated to real estate under development
and charged to cost of sales when the  property  is  delivered  to the buyer.  A
summary of interest capitalized and interest expensed follows (in thousands):

<TABLE>
<CAPTION>
                                             Three Months Ended     Six Months Ended
                                                  June 30,              June 30,
                                             ------------------    ------------------
                                              2001       2000       2001       2000
                                             -------    -------    -------    -------
<S>                                          <C>        <C>        <C>        <C>
Beginning unamortized capitalized interest   $ 6,541    $ 4,274    $ 5,426    $ 3,971
Interest capitalized                           3,364      2,774      6,438      4,642
Amortized to cost of home and land sales      (2,657)    (2,137)    (4,616)    (3,702)
                                             -------    -------    -------    -------
Ending unamortized capitalized interest      $ 7,248    $ 4,911    $ 7,248    $ 4,911
                                             =======    =======    =======    =======

Interest incurred                            $ 3,364    $ 2,777    $ 6,439    $ 4,647
Interest capitalized                          (3,364)    (2,774)    (6,438)    (4,642)
                                             -------    -------    -------    -------
Interest expensed                            $    --    $     3    $     1    $     5
                                             =======    =======    =======    =======
</TABLE>

                                       6
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


NOTE 3 - NOTES PAYABLE

Notes payable consists of:
                                                        June 30,    December 31,
                                                          2001         2000
                                                        --------     --------
                                                            (in thousands)
$100 million bank revolving construction line of
  credit, interest payable monthly approximating
  prime (6.75% at June 30, 2001) or LIBOR (rates
  varying from 3.79% to 3.835% at June 30, 2001)
  plus 2.0%, payable at the earlier of close of
  escrow, maturity date of individual homes and
  lots within the collateral pool or over a
  24-month period beginning June 1, 2003, secured
  by first deeds of trust on real estate                $ 19,702     $ 50,354

$75 million bank revolving construction line of
  credit, interest payable monthly approximating
  prime or LIBOR plus 2.0%, payable at the earlier
  of close of escrow, maturity date of individual
  homes and lots within the line or May 31, 2002,
  secured by first deeds of trust on real estate           9,334       17,269

Acquisition and development seller carry back
  financing, interest payable monthly at fixed
  rates of 9% and 10% per annum; payable at the
  maturity date of the individual projects,
  secured by first deeds of trust on land                  4,433        3,516

Senior unsecured notes, maturing June 1, 2011,
  annual interest of 9.75% payable semi-annually         165,000           --

Senior unsecured notes, paid in full May 30, 2001             --       15,000

Other                                                         --           13
                                                        --------     --------

     Total                                              $198,469     $ 86,152
                                                        ========     ========

                                       7
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


NOTE 4 - EARNINGS PER SHARE

     Basic and  diluted  earnings  per share  were  calculated  as  follows  (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                          Three Months Ended       Six Months Ended
                                                               June 30,                June 30,
                                                         --------------------    --------------------
                                                           2001        2000        2001        2000
                                                         --------    --------    --------    --------
<S>                                                      <C>         <C>         <C>         <C>
BASIC:
Earnings before extraordinary item                       $ 12,939    $  8,573    $ 20,329    $ 13,344
Extraordinary item, net of tax benefit                       (446)         --        (446)         --
                                                         --------    --------    --------    --------
Net earnings                                             $ 12,493    $  8,573    $ 19,883    $ 13,344
                                                         ========    ========    ========    ========
Weighted average number of shares outstanding               5,303       5,287       5,213       5,287
                                                         --------    --------    --------    --------
Basic earnings per share before extraordinary item       $   2.44    $   1.62    $   3.89    $   2.52
Extraordinary item                                           (.08)         --        (.08)         --
                                                         --------    --------    --------    --------
Basic earnings per share                                 $   2.36    $   1.62    $   3.81    $   2.52
                                                         ========    ========    ========    ========
DILUTED:
Earnings before extraordinary item                       $ 12,939    $  8,573    $ 20,329    $ 13,344
Extraordinary item, net of tax benefit                       (446)         --        (446)         --
                                                         --------    --------    --------    --------
Net earnings                                             $ 12,493    $  8,573    $ 19,883    $ 13,344
                                                         ========    ========    ========    ========
Weighted average number of shares outstanding               5,303       5,287       5,213       5,287
Effect of dilutive securities:
  Contingent shares and warrants                               --          --          --          37
  Options to acquire common stock                             586         439         561         451
                                                         --------    --------    --------    --------
Diluted weighted common shares outstanding                  5,889       5,726       5,774       5,775
                                                         --------    --------    --------    --------
Diluted earnings per share before extraordinary item     $   2.20    $   1.50    $   3.52    $   2.31
Extraordinary item                                           (.08)         --        (.08)         --
                                                         --------    --------    --------    --------
Diluted earnings per share                               $   2.12    $   1.50    $   3.44    $   2.31
                                                         ========    ========    ========    ========
Antidilutive stock options not included in diluted EPS         15         277          15         278
                                                         ========    ========    ========    ========
</TABLE>

NOTE 5 - INCOME TAXES

     Total  income tax expense for the three and six months  ended June 30, 2001
was allocated as follows (in thousands):

                                           Three Months Ended   Six Months Ended
                                              June 30, 2001       June 30, 2001
                                              -------------       -------------
Income from continuing operations                $  8,205            $ 12,997
Extraordinary item                                   (285)               (285)
                                                 --------            --------
                                                 $  7,920            $ 12,712
                                                 ========            ========

Income tax expense attributable to income from continuing operations consists of
(in thousands):

                                   Three Months Ended        Six Months Ended
                                        June 30,                 June 30,
                                  --------------------     --------------------
                                    2001        2000         2001        2000
                                  --------    --------     --------    --------
Current:
  Federal                         $  7,271    $  4,520     $ 11,418    $  6,939
  State                                879         657        1,638       1,009
                                  --------    --------     --------    --------

                                     8,150       5,177       13,056       7,948
                                  --------    --------     --------    --------
Deferred:
  Federal                               65        (105)         (34)       (122)
  State                                (10)        (12)         (25)        (14)
                                  --------    --------     --------    --------

                                        55        (117)         (59)       (136)
                                  --------    --------     --------    --------

     Total                        $  8,205    $  5,060     $ 12,997    $  7,812
                                  ========    ========     ========    ========

                                       8
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


NOTE 6 - SEGMENT INFORMATION

     We classify our operations into three primary geographic  segments:  Texas,
Arizona and  California.  These segments  generate  revenue  through the sale of
homes to external customers. We are not dependent on any one major customer.

     Operational   information  relating  to  the  different  business  segments
follows.  Certain  information  has not  been  included  by  segment  due to the
immateriality  of the amount to the  segment or in total.  We  evaluate  segment
performance based on several factors,  of which the primary financial measure is
earnings  before  interest  and taxes  (EBIT).  The  accounting  policies of the
business segments are the same as those described in Notes 1 and 2. There are no
significant transactions between segments.

                                Three Months Ended         Six Months Ended
                                     June 30,                  June 30,
                              ----------------------    ----------------------
                                2001         2000         2001         2000
                              ---------    ---------    ---------    ---------
                                               (in thousands)
HOME SALES REVENUE:
  Texas                       $  67,381    $  52,281    $ 122,958    $ 101,711
  Arizona                        67,184       32,257      100,360       54,199
  California                     39,838       36,264       67,198       56,545
                              ---------    ---------    ---------    ---------
         Total                $ 174,403    $ 120,802    $ 290,516    $ 212,455
                              =========    =========    =========    =========


EBIT:
  Texas                       $  11,532    $   8,769    $  21,062    $  15,779
  Arizona                         7,220        2,762        9,424        3,757
  California                      6,161        5,631        9,294        7,942
  Corporate and other            (1,112)      (1,389)      (1,837)      (2,615)
                              ---------    ---------    ---------    ---------
         Total                $  23,801    $  15,773    $  37,943    $  24,863
                              =========    =========    =========    =========

AMORTIZATION OF CAPITALIZED INTEREST:
  Texas                       $     564    $     656    $   1,147    $   1,291
  Arizona                         1,435          933        2,416        1,511
  California                        658          548        1,053          900
                              ---------    ---------    ---------    ---------
         Total                $   2,657    $   2,137    $   4,616    $   3,702
                              =========    =========    =========    =========

                                                           At           At
                                                        June 30,    December 31,
                                                          2001         2000
                                                        ---------    ---------
                                                            (in thousands)
ASSETS:
  Texas                                                 $ 131,622    $ 108,238
  Arizona                                                 207,648      102,746
  California                                               71,963       53,723
  Corporate                                                 6,119        2,368
                                                        ---------    ---------
         Total                                          $ 417,352    $ 267,075
                                                        =========    =========

                                       9
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

NOTE 7 - HANCOCK ACQUISITION

     On May 30, 2001,  we acquired  substantially  all of the  homebuilding  and
related   assets  of  HC  Builders,   Inc.  and  Hancock   Communities,   L.L.C.
(collectively "Hancock"). The purchase price was $65.8 million in cash, plus the
assumption  of  trade  payables,   accrued   liabilities  and  customer  deposit
liabilities totaling $8.7 million and a note totaling $1.9 million. In addition,
we granted to Greg  Hancock,  the founder of Hancock  Communities,  an earn-out,
payable over three years,  equal to 20% of Hancock's  pre-tax net income after a
10.5%  charge on capital.  Hancock  designs,  builds and markets a wide range of
high-quality  homes in the  Phoenix,  Arizona  area with a focus on serving  the
entry-level  and  move-up   single-family   housing  markets  and  is  currently
developing  affordable  age-restricted  adult communities.  During 2000, Hancock
closed 1,143 homes at an average  selling price of $160,700,  resulting in total
revenues of $183.7 million and EBITDA of $16.9 million.

     This acquisition was accounted for using the purchase method of accounting.
Accordingly, the Company recorded goodwill of approximately $11.4 million, which
represents  the  excess of the  purchase  price  over the fair  value of the net
tangible and identifiable  intangible  assets acquired and liabilities  assumed.
Such amount is being amortized over a period of 20 years.

     The  following  unaudited  pro forma  financial  data for the three and six
months ended June 30, 2001 and 2000 has been prepared as if the  acquisition  of
the assets and liabilities of Hancock on May 30, 2001 had occurred on January 1,
2000. Unaudited pro forma financial data is presented for informational purposes
only  and is  based  on  historical  information.  This  information  may not be
indicative of the actual  amounts of the Company had the events  occurred on the
date  listed  above,  nor  does it  purport  to  represent  future  periods  (in
thousands, except per share data):

                                       Three Months Ended     Six Months Ended
                                            June 30,              June 30,
                                       -------------------   -------------------
                                         2001       2000       2001       2000
                                       --------   --------   --------   --------
Revenue                                $209,637   $165,992   $344,824   $292,631
Expenses before extraordinary item       18,484     10,344     26,138     15,640
Net earnings                             18,484     10,344     26,138     15,194
Diluted EPS before extraordinary item      3.14       1.81       4.53       2.71
Diluted EPS after extraordinary item       3.14       1.81       4.53       2.63

NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS

     In July 2001, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement No. 141,  BUSINESS  COMBINATIONS,  and Statement No. 142, GOODWILL AND
OTHER  INTANGIBLE  ASSETS.  Statement 141 requires  that the purchase  method of
accounting be used for all business  combinations  initiated after June 30, 2001
as well as all purchase  method business  combinations  completed after June 30,
2001.  Statement 141 also specifies the criteria that intangible assets acquired
in a  purchase  method  business  combination  must  meet to be  recognized  and
reported  apart from  goodwill.  Statement  142 will require  that  goodwill and
intangible  assets with  indefinite  useful  lives no longer be  amortized,  but
instead  tested  for  impairment  at  least  annually  in  accordance  with  the
provisions of Statement  142.  Statement  142 will also require that  intangible
assets with definite useful lives be amortized over their  respective  estimated
useful lives to their estimated  residual values, and reviewed for impairment in
accordance  with Statement No. 121,  ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.

     The  Company  is  required  to  adopt  the   provisions  of  Statement  141
immediately, except with regard to business combinations initiated prior to July
1, 2001, and Statement 142 effective January 1, 2002. Furthermore,  any goodwill
and any intangible  assets determined to have an indefinite useful life that are
acquired in a purchase business  combination  completed after June 30, 2001 will
not  be  amortized,  but  will  continue  to be  evaluated  for  impairment,  in
accordance  with  the  appropriate   pre-Statement  142  accounting  literature.
Goodwill  and  intangible  assets  acquired in business  combinations  completed
before  July 1,  2001 will  continue  to be  amortized  until  the  adoption  of
Statement 142.

     Statement  141 will  require,  upon  adoption of  Statement  142,  that the
Company evaluate its existing  intangible assets and goodwill that were acquired
in  a  prior  purchase   business   combination,   and  to  make  any  necessary
reclassifications in order to conform with the new criteria in Statement 141 for
recognition  apart from  goodwill.  Upon adoption of Statement  142, the Company
will be  required  to  reassess  the  useful  lives and  residual  values of all
intangible  assets  acquired in  purchase  business  combinations,  and make any
necessary amortization period adjustments by the end of the first interim period
after adoption.  In addition, to the extent an intangible asset is identified as
having an  indefinite  useful  life,  the  Company  will be required to test the
intangible  asset for impairment in accordance  with the provisions of Statement
142 within the first interim period.  Any impairment loss will be measured as of
the date of adoption  and  recognized  as the  cumulative  effect of a change in
accounting principle in the first interim period.

                                       10
<PAGE>
                      MERITAGE CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


     The  Company   currently  has   unamortized   goodwill  in  the  amount  of
approximately $28.8 million,  that will be subject to the transition  provisions
of Statements 141 and 142. Amortization expense related to goodwill was $597,000
and  $1,067,000  for the six months  ended June 30,  2001 and for the year ended
December 31, 2000,  respectively.  The Company has not  determined the impact of
the  immediate  adoption of Statement  141 and the adoption of Statement  142 on
January 1, 2002 will not have a material impact on its results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believe,"  "expect,"  "anticipate," and "project" and similar expressions
identify  forward-looking  statements,  which  speak  only  as of the  date  the
statement was made.  Such  forward-looking  statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934. Such statements include the expected
benefits of the Hancock  acquisition,  including  future  closings and Hancock's
contribution  to our revenues and earnings,  projections  of revenue,  income or
loss, capital  expenditures,  backlog,  plans for future  operations,  financing
needs or plans and  liquidity,  and plans  relating to our  housing  products or
services, as well as assumptions relating to the foregoing. Our past performance
or past  or  present  economic  conditions  in our  housing  markets  may not be
indicative of future performance and conditions.

     Actual   results   may   differ   materially   from  those   expressed   in
forward-looking statements. Statements in Exhibit 99 to this Quarterly Report on
Form 10-Q and in our Annual Report on Form 10-K for the year ended  December 31,
2000,  including  "Business",  "Market  for the  Registrant's  Common  Stock and
Related  Stockholder  Matters",  in  the  Notes  to the  Consolidated  Financial
Statements and "Management's  Discussion and Analysis of Financial Condition and
Results  of  Operations,"  "Factors  That May  Affect  Our  Future  Results  and
Financial  Condition,"  and "Special Note of Caution  Regarding  Forward-Looking
Statements"  describe factors,  among others,  that could contribute to or cause
such  differences.  These  factors  may  also  affect  our  business  generally.
Additional  factors that could cause actual  results to differ  materially  from
those  expressed in such  forward-looking  statements  and that could affect our
business generally, are described in our Form S-4 filed with the SEC on July 18,
2001.  As a result of these  factors,  the  Company's  stock and bond prices may
fluctuate dramatically.

     RESULTS OF OPERATIONS

     The following  discussion and analysis provides  information  regarding our
results of  operations  for the three and six month  periods ended June 30, 2001
and 2000. All material balances and transactions between us and our subsidiaries
have  been  eliminated  in  consolidation.  In  management's  opinion,  the data
reflects  all  adjustments,  consisting  of only normal  recurring  adjustments,
necessary to fairly present our financial position and results of operations for
the  periods  presented  in  accordance  with  accounting  principles  generally
accepted in the United  States of America.  The  results of  operations  for any
interim  period are not  necessarily  indicative of results  expected for a full
fiscal year.

                                       11
<PAGE>
     HOME SALES REVENUE, SALES CONTRACTS AND NET SALES BACKLOG

     The data provided  below shows  operating and financial  data regarding our
homebuilding activities (in thousands).

<TABLE>
<CAPTION>
                           Three Months Ended                  Six Months Ended
                                June 30,        Percentage         June 30,         Percentage
                         --------------------    Increase    --------------------    Increase
Home Sales Revenue         2001        2000     (Decrease)     2001        2000     (Decrease)
                         --------    --------   ----------   --------    --------   ----------
<S>                      <C>         <C>           <C>       <C>         <C>           <C>
Total
Dollars                  $174,403    $120,802       44%      $290,516    $212,455       37%
Homes closed                  773         525       47%         1,289         965       34%
Average sales price      $  225.6    $  230.1       (2)%     $  225.4    $  220.2        2%

Texas
Dollars                  $ 67,381    $ 52,281       29%      $122,958    $101,711       21%
Homes closed                  400         303       32%           720         605       19%
Average sales price      $  168.5    $  172.5       (2)%     $  170.8    $  168.1        2%

Arizona
Dollars                  $ 67,184    $ 32,257      108%      $100,360    $ 54,199       85%
Homes closed                  268         117      129%           394         196      101%
Average sales price      $  250.7    $  275.7       (9)%     $  254.7    $  276.5       (8)%

California
Dollars                  $ 39,838    $ 36,264       10%      $ 67,198    $ 56,545       19%
Homes closed                  105         105       --            175         164        7%
Average sales price      $  379.4    $  345.4       10%      $  384.0    $  344.8       11%

                           Three Months Ended                  Six Months Ended
                                June 30,        Percentage         June 30,         Percentage
                         --------------------    Increase    --------------------    Increase
Sales Contracts            2001        2000     (Decrease)     2001        2000     (Decrease)
                         --------    --------   ----------   --------    --------   ----------
Total
Dollars                  $174,858    $147,770       18%      $351,752    $296,670       19%
Homes ordered                 757         590       28%         1,497       1,219       23%
Average sales price      $  231.0    $  250.5       (8)%     $  235.0    $  243.4       (3)%

Texas
Dollars                  $ 69,324    $ 57,561       20%      $142,832    $118,481       21%
Homes ordered                 422         317       33%           859         672       28%
Average sales price      $  164.3    $  181.6      (10)%     $  166.3    $  176.3       (6)%

Arizona
Dollars                  $ 68,513    $ 44,922       53%      $135,828    $ 88,859       53%
Homes ordered                 242         143       69%           455         280       63%
Average sales price      $  283.1    $  314.1      (10)%     $  298.5    $  317.4       (6)%

California
Dollars                  $ 37,021    $ 45,287      (18)%     $ 73,092    $ 89,330      (18)%
Homes ordered                  93         130      (28)%          183         267      (31)%
Average sales price      $  398.1    $  348.4       14%      $  399.4    $  334.6       19%
</TABLE>

                                       12
<PAGE>
                                                   At June 30,        Percentage
                                              --------------------     Increase
Net Sales Backlog                               2001        2000      (Decrease)
                                              --------    --------    ----------
Total
Dollars                                       $478,658    $305,100        57%
Homes in backlog                                 2,064       1,247        66%
Average sales price                           $  231.9    $  244.7        (5)%

Texas
Dollars                                       $139,439    $110,753        26%
Homes in backlog                                   834         633        32%
Average sales price                           $  167.2    $  175.0        (4)%

Arizona
Dollars                                       $258,199    $128,978       100%
Homes in backlog                                 1,015         408       149%
Average sales price                           $  254.4    $  316.1       (20)%

California
Dollars                                       $ 81,020    $ 65,369        24%
Homes in backlog                                   215         206         4%
Average sales price                           $  376.8    $  317.3        19%

     HOME SALES REVENUE. The increases in total home sales revenue and number of
homes closed in the second  quarter and first six months of 2001 compared to the
same  periods  of 2000  resulted  mainly  from good  performances  in all of our
divisions,  continued  growth in our mid-priced home closings in Arizona and the
addition of Hancock  Communities to our operations in Phoenix,  Arizona. In June
2001  Hancock  contributed  70 home  closings  with home sales  revenue of $12.1
million.

     SALES  CONTRACTS.  Sales  contracts for any period  represent the aggregate
sales price of all homes ordered by customers,  net of cancellations.  We do not
include sales contingent upon the sale of a customer's  existing home as a sales
contract until the contingency is removed.  Historically,  we have experienced a
cancellation  rate  approximating  23% of  gross  sales,  which  we  believe  is
consistent  with  industry  standards.  Total sales  contracts  increased in the
second quarter and first six months of 2001 compared to the same periods of 2000
due mainly to sales growth in Dallas/Ft.  Worth, the continued  expansion of our
mid-priced  Meritage  Phoenix  division in Arizona,  and the addition of Hancock
Communities to our operations.  During the month of June, 2001, Hancock received
70 home contracts.  The decrease in sales  contracts in our Northern  California
region for the second  quarter and first six months of 2001 reflects the lack of
available lot inventory caused by the early sellout of communities late in 2000.

     NET SALES BACKLOG.  Backlog  represents  net sales  contracts that have not
closed.  Total dollar  backlog at June 30, 2001  increased 57% over the June 30,
2000 amount due to an increase in the number of homes in backlog.  The number of
homes in backlog at June 30, 2001  increased 66% over the same date in the prior
year.  These  increases  resulted  from  expansion  of  our  operations  in  our
mid-priced Meritage Phoenix division in Arizona and the Hancock acquisition.  We
have  included in our June 30, 2001 backlog 610 pre-sold  Hancock  homes with an
aggregate dollar value of approximately $107.5 million. The beginning balance of
the purchased Hancock homes were not included as sales contracts received during
the three and six months ended June 30, 2001.

                                       13
<PAGE>
     OTHER OPERATING INFORMATION

<TABLE>
<CAPTION>
                                       Three Months Ended June 30,          Six Months Ended June 30,
                                     --------------------------------    --------------------------------
                                                           Percentage                          Percentage
                                                            Increase                            Increase
                                      2001       2000      (Decrease)      2001      2000      (Decrease)
                                     -------    -------    ----------    -------    -------    ----------
<S>                                  <C>        <C>          <C>         <C>        <C>          <C>
HOME SALES GROSS PROFIT
Dollars                              $37,574    $24,276        55%       $61,108    $40,973        49%
Percentage of home sales revenues       21.5%      20.1%      1.4%          21.0%      19.3%      1.7%

COMMISSIONS AND OTHER SALES COSTS
Dollars                              $ 9,435     $6,458        46%       $16,448    $12,237        34%
Percent of home sales revenue            5.4%       5.3%         *           5.7%       5.8%        *

GENERAL AND ADMINISTRATIVE COSTS
Dollars                              $ 7,884     $4,850        63%       $12,819    $ 8,854        45%
Percent of total revenue                 4.5%       4.0%         *           4.4%       4.1%        *

INCOME TAXES
Dollars                              $ 8,205     $5,060        62%       $12,997    $ 7,812        66%
Percent of income before taxes and
  extraordinary item                    38.8%      37.1%      1.7%          39.0%      36.9%      2.1%
</TABLE>

----------
* - Less than 1%

     HOME SALES GROSS  PROFIT.  Gross profit equals home sales  revenue,  net of
housing cost of sales,  which  include  developed lot costs,  home  construction
costs, amortization of common community costs (such as the cost of model complex
and  architectural,  legal and zoning  costs),  interest,  sales tax,  warranty,
construction  overhead and closing costs.  The dollar  increases in gross profit
for the  three  and six  months  ended  June 30,  2001 are  attributable  to the
increase in the number of homes closed and to continued strength in our markets,
allowing increases in sales prices which expanded gross margins.

     COMMISSIONS AND OTHER SALES COSTS.  Commissions and other sales costs, such
as advertising and sales office expenses,  were approximately  $9.4 million,  or
5.4% of home sales revenue, in the three months ended June 30, 2001, as compared
to  approximately  $6.5  million,  or 5.3% of home  sales  revenue in the second
quarter of 2000. For the first six months of 2001,  commissions  and other sales
costs were approximately  $16.4 million or 5.7% of home sales revenue,  compared
with $12.2 million, or 5.8%, of home sales revenue for the first half of 2000.

     GENERAL AND ADMINISTRATIVE  COSTS.  General and  administrative  costs were
approximately  $7.9 million,  or 4.5% of total revenue in the second  quarter of
2001, as compared to  approximately  $4.9  million,  or 4.0% of total revenue in
2000. General and administrative costs were approximately $12.8 million, or 4.4%
of total revenue in the first six months of 2001,  as compared to  approximately
$8.9 million, or 4.2% of total revenue in the same period for the same period of
2000.  General and  administrative  costs in 2001 were higher as a percentage of
revenue in comparison to the prior year due mainly to the strong  performance of
our Northern California region which resulted in a larger-than-typical  earn-out
per the term of the purchase contract when we acquired the division.

     INCOME TAXES.  The increases in income taxes for the quarter and six months
ended June 30,  2001 from the prior year  resulted  from an  increase in pre-tax
income, along with a slightly higher effective tax rate.

     LIQUIDITY AND CAPITAL RESOURCES

     Our principal uses of working capital are land  purchases,  lot development
and home construction. We use a combination of borrowings and funds generated by
operations to meet our working capital requirements.

     At June 30, 2001, we had short-term secured revolving construction loan and
acquisition  and  development  facilities  totaling  $175.0  million,  of  which
approximately  $29.0 million was  outstanding.  An additional  $120.6 million of
unborrowed  funds  supported by approved  collateral  were  available  under our
credit  facilities at that date,  subject to  compliance  with the financial and
other covenants in our loan agreements.  This additional borrowing is limited to
approximately $56 million under such loan covenants.

                                       14
<PAGE>
     On May 30, 2001, we issued $165 million in principal amount of 9.75% senior
notes due June 1,  2011.  Approximately  $66  million  of the  proceeds  of this
offering were used to complete the  acquisition of the assets and liabilities of
Hancock,  approximately $78 million were used to pay down existing bank debt and
approximately  $15.9 million was used to repay existing senior notes. This early
repayment of debt resulted in prepayment penalty fees of approximately $731,000,
which net of the related  income tax  benefit,  is recorded as an  extraordinary
loss of $446,000 in the second quarter of 2001.

The 9.75% unsecured senior notes require us to comply with a number of covenants
including:

     1)   Limitations on additional indebtedness,
     2)   Limitations  on  the  payment  of  dividends,  redemption  of  equity
          interests and certain investments,
     3)   Maintenance of a minimum level of consolidated tangible net worth,
     4)   Limitations on liens securing certain obligations, and
     5)   Limitations  on the sale of assets,  mergers  and  consolidations  and
          transactions with affiliates.

     Management believes that the Company's current borrowing capacity,  cash on
hand at June 30, 2001 and anticipated  cash flows from operations are sufficient
to meet  liquidity  needs for the  foreseeable  future.  There is no  assurance,
however,  that future  amounts  available  from our sources of liquidity will be
sufficient to meet future  capital needs.  The amount and types of  indebtedness
that we incur may be limited by the terms of the indenture  governing our senior
notes and by the terms of our other credit agreements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not enter into derivative financial instruments for trading purposes,
though we do have other  financial  instruments in the form of notes payable and
senior debt. Our lines of credit and credit  facilities are at variable interest
rates and are subject to market risk in the form of interest rate  fluctuations.
The interest rate on our senior debt is at a fixed rate.

                                       15
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS

     EXHIBIT                                                        PAGE OR
     NUMBER                    DESCRIPTION                      METHOD OF FILING
     ------                    -----------                      ----------------
       10.1    Modification to $65,000,000 Line of Credit        Filed herewith

       99      Private Securities Litigation Reform Act of       Filed herewith
               1995 Safe Harbor Compliance Statement for
               Forward-Looking Statements

(b)  REPORTS ON FORM 8-K

     On May 10, 2001, we filed a report on Form 8-K describing  our  anticipated
acquisition of the homebuilding  assets of Hancock Communities and our intent to
issue 9.75% senior notes due 2011 in a private  placement.  On May 11, 2001,  we
filed an amendment to our Form 8-K updating certain information  relating to the
Hancock acquisition.

     On June 6, 2001, we filed a report on Form 8-K describing the completion of
our private  placement of $165 million in principal amount of 9.75% senior notes
due 2011 and the completion of the Hancock acquisition.

                                       16
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934,  the registrant has duly cause this report on Form 10-Q to
be signed on its behalf by the undersigned, thereunto duly authorized, this 14th
day of August 2001.


                                        MERITAGE CORPORATION,
                                        a Maryland Corporation


                                        By /s/ LARRY W. SEAY
                                           -------------------------------------
                                           Larry W. Seay
                                           Chief Financial Officer and Vice
                                           President-Finance
                                           (Principal Financial Officer and Duly
                                           Authorized Officer)

                                       S-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>ex10-1.txt
<DESCRIPTION>MODIFICATION TO $65,000,000 LINE OF CREDIT
<TEXT>
                                                                    Exhibit 10.1

                                  May 29, 2001



Guaranty Bank
8333 Douglas Avenue
Dallas, Texas 75225

     Re:  Modification of an existing $65,000,000.00 guidance line from Guaranty
          Bank, a federal  savings  bank  (formerly  known as "Guaranty  Federal
          Bank,  F.S.B.")  ("Lender") to Legacy/Monterey  Homes L.P., an Arizona
          corporation  ("Borrower");  such  loan and  other  indebtedness  being
          guaranteed by Meritage Corporation, a Maryland corporation,  MTH-Texas
          GP, Inc.,  an Arizona  corporation  and MTH-Texas LP, Inc., an Arizona
          corporation (collectively referred to as "Guarantor")

Gentlemen:

     Reference is made to that certain Master Loan Agreement dated as of January
31, 1993 (and all amendments  thereto,  if any) (the "Loan  Agreement ") between
Lender and Borrower governing a $65,000,000.00  loan (as decreased) (the "Loan")
for the acquisition  and/or  refinancing of residential  lots located in certain
counties in the State of Texas as described  therein,  and the  construction  of
single-family  residences  thereon.  Unless otherwise  expressly defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Loan Agreement. As used in this letter agreement,  the
term "Loan  Instruments"  shall mean and include (i) the "Loan  Instruments"  as
defined in the Loan Agreement,  (ii) the Seventh Modification Agreement dated as
of even date  herewith,  executed by and between the parties  hereto,  and (iii)
this letter agreement and all other documents  executed in conjunction  herewith
(and all amendments thereto, if any).

     Borrower and Lender desire to amend and modify certain terms and provisions
of the Loan and the Loan Instruments as follows:

     1. The stated maturity date of the Note is hereby extended to and including
May 31, 2002,  when the entire unpaid  principal  balance of the Note,  together
with  all  accrued  and  unpaid  interest  shall be due and  payable;  provided,
however,  such  date may be  extended  as set forth in  Paragraph  9 of the Loan
Agreement (as amended hereby).

     2.  Paragraph 2 (b) of the Loan  Agreement  is hereby  modified by deleting
such paragraph in its entirety and replacing it with the following:
<PAGE>
Guaranty Bank
May 29, 2001
Page 2

          (b) With  respect  to any  Property  located  in the  State of  Texas,
     Mortgagee Title Policy Binder on Interim Construction Loan, or with respect
     to Property located in any other state, an ALTA Lender's extended policy of
     Title Insurance (either form being referred to as the "Policy"),  issued by
     a company or companies acceptable to Lender,  agreeing to insure Lender, in
     the aggregate  amount of the Loan Allocation (as  hereinafter  defined) for
     each Property  covered by such Mortgage (the "Aggregate Loan  Allocation"),
     that such Mortgage and any other liens securing the payment of the Note and
     Loan have the  priority  required by Lender.  If  required  by Lender,  the
     Policy  shall be extended to cover each and every  advance at the time such
     advance is made;  provided,  however, the maximum title insurance for title
     insurance  underwriters  must be acceptable  to Lender,  and if required by
     Lender,  from time to time,  Borrower shall cause to be issued to Lender an
     additional  Policy  or  Policies,  in such  amounts  and  from  such  title
     insurance underwriters, as are acceptable to Lender.

     3. Paragraph 2(l) of the Loan Agreement is hereby modified by deleting such
paragraph in its entirety and replacing it with the following:

          (l) Lender may require as a condition  to each  advance,  a bills-paid
     affidavit from each original contractor and subcontractor,  to be submitted
     with each draw  request,  together with any other  information  required or
     permitted,  as determined by Lender,  under  applicable law in the state in
     which the Property is located (including, without limitation,  requests for
     information,  notices of contract, notices of payments, interim waivers and
     release upon payment or lien subordination agreements).

     4.  Paragraph 6 (a) of the Loan  Agreement  is hereby  modified by deleting
such paragraph in its entirety and replacing it with the following paragraph:

          (a) Prior to the  recordation  of any Mortgage,  no work (as that term
     may be defined under  applicable  law for the state in which the particular
     Property is located) of any kind  (including the  destruction or removal of
     any  existing  improvements,   site  work,  clearing,  grubbing,  draining,
     erection of temporary  utilities or fencing of the Property)  pertaining to
     the construction of any of the Residences, has been or will be commenced or
     performed  upon the  Property  and no material (as that term may be defined
     under  applicable  law for the state in which the  particular  Property  is
     located)  or  equipment  has  been  or  will be  delivered  to or upon  the
     Property,  and no construction contract for the construction of erection of
     any of the  Residences  has been or will be let (and if required by Lender,
     prior to commencement of such work or delivery of such materials,  Borrower
     shall execute and deliver to Lender any notice of commencement [in form and
     content  satisfactory  to Lender] as may be required or  permitted,  in the
     determination of Lender, under applicable law).
<PAGE>
Guaranty Bank
May 29, 2001
Page 3

     5.  Paragraph 8 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:

          8. REVOLVING LOAN. All or any portion of the principal of the Loan may
     be borrowed,  paid, prepaid,  repaid and reborrowed from time to time prior
     to maturity in accordance with the provisions of the Loan Instruments.  The
     excess of  borrowing  (advances  and  re-advances)  over  repayments  shall
     evidence  the  principal  balance  of the Loan from time to time and at any
     time.  The aggregate  amount of all advances  under the Loan may exceed the
     Loan Amount, but neither the outstanding  principal balance of the Loan nor
     the outstanding  aggregate amount of the Loan Allocations shall ever exceed
     the Loan Amount. The Loan shall not be governed by or be subject to Chapter
     15 of the Texas  Credit  Code Title 79,  Revised  Civil  Statutes of Texas,
     1925, as amended.

          The maximum  total Loan  Allocations  and Letters of Credit  under the
     Loan at any time  shall be  limited  to  $125,000,000.00,  which  sum shall
     consist of the following:

          (a) the total of all Loan Allocations for Property (Texas and Arizona)
     secured by Mortgages, plus;

          (b) the amount of any Letters of Credit (when issued, if any);

          provided, however, that the $125,000,000.00 Loan Allocation limitation
     set forth in this  sentence  shall be  increased  by an amount equal to any
     cash  deposits made by Borrower with Lender as security for the Loan and as
     a Borrower's  Deposit under  Paragraph 5 of the Loan  Agreement  (with each
     such deposit to be advanced by Lender to Borrower prior to the disbursement
     of loan proceeds upon the  satisfaction  of conditions  for advances  under
     this Loan  Agreement).  Borrower  shall  execute and deliver to Lender such
     documents as may be necessary to establish such account and to grant Lender
     a security interest in the same.

          Notwithstanding any provision in the Loan Instruments to the contrary,
     in no event shall the sum of (i) the aggregate  amounts  advanced under the
     Note,  and (ii) the amount of any Letters of Credit (when  issued,  if any)
     exceed a total of  $75,000,000.00,  notwithstanding  that the maximum total
     Loan  Allocations  and  Letters of Credit  under the Loan may  exceed  such
     $75,000,000.00 total; and consequently,  Lender shall have no obligation to
     disburse additional funds in the event the sum of (i) the aggregate amounts
     advanced or to be advanced (including all Loan Allocations) under the Note,
     and (ii) the amount of any Letters of Credit (when issued, if any) exceed a
     total of $75,000,000.00.
<PAGE>
Guaranty Bank
May 29, 2001
Page 4

          Notwithstanding   any  provisions  in  the  Loan  Instruments  to  the
     contrary,  if at anytime  the  aggregate  disbursed  and  unpaid  principal
     balance of the Loan (together  with the aggregate  amount of any Letters of
     Credit  under  the  Loan)  exceed   $75,000,000.00,   then  Borrower  shall
     immediately  (following  written demand by Lender) deliver to Lender a cash
     amount  equal to such  excess,  which cash  amount  shall be applied to the
     principal  balance of the Loan in order that such aggregate amount shall be
     reduced to $75,000,000.00.

     6. Paragraph 13 of the Loan  Agreement is hereby  modified by deleting such
paragraph in its entirety and replacing it with the following paragraph:

          13. CHOICE OF LAW. THE LOAN  INSTRUMENTS ARE EXECUTED AND DELIVERED IN
     THE STATE OF TEXAS AND THE LOAN IS PAYABLE THERE.  EXCEPT WHERE FEDERAL LAW
     IS APPLICABLE (INCLUDING,  WITHOUT LIMITATION, ANY FEDERAL USURY CEILING OR
     OTHER  FEDERAL  LAW  WHICH,  FROM  TIME  TO  TIME,  IS  APPLICABLE  TO  THE
     INDEBTEDNESS  HEREIN  AND  WHICH  PREEMPTS  STATE  USURY  LAWS),  THIS LOAN
     AGREEMENT,  THE NOTE, THE MORTGAGES AND THE OTHER LOAN INSTRUMENTS SHALL BE
     GOVERNED AND CONSTRUED IN  ACCORDANCE  WITH THE LAWS OF THE STATE OF TEXAS,
     EXCEPT TO THE EXTENT THE LAW OF THE STATE IN WHICH THE  MORTGAGED  PROPERTY
     IS LOCATED  GOVERNS THE  PERFECTION  AND  DETERMINATION  OF LIEN RIGHTS AND
     PRIORITY,  AND THE  ENFORCEMENT  OF  REMEDIES  AND THE  DISPOSITION  OF THE
     PROPERTY.

     7. Loan Agreement is hereby  modified by deleting  Paragraph 20 of the Loan
Agreement in its entirety and replacing it with the following:

          20.  LETTERS OF CREDIT:  At  Lender's  sole and  absolute  discretion,
     Lender  shall  issue  letters of credit (the  "Letters of Credit")  for the
     benefit of Borrower for the purposes set forth below; provided, that during
     the term of the Loan, the aggregate  amount of any  outstanding  Letters of
     Credit and the amount of any Letters of Credit funded by Lender shall never
     exceed the lesser of (a) a sum derived by subtracting  the total  aggregate
     sum of all Loan Allocations  from  $75,000,000.00,  or (b)  $10,000,000.00.
     Furthermore,  the amount of the  Letters of Credit  (when  issued,  if any)
     shall reduce the Borrowing  Base. In addition to any other  requirements of
     Lender,  and as a  condition  to the  issuance  of any  Letters  of Credit,
     Borrower   shall   execute  and  deliver  to  Lender  a  Letter  of  Credit
     Application,  Reimbursement  and  Loan  Agreement,  in the  same  form  and
     substance of the document  attached hereto as Exhibit D.  Concurrently with
     the issuance of, or renewal of, any Letters of Credit,  Borrower  shall pay
     to Lender a
<PAGE>
Guaranty Bank
May 29, 2001
Page 5

     fee equal to the  greater of (a)  $250.00,  or (b)  one-half of one percent
     (1/2%) of the amount of each such Letters of Credit.

     8.  Exhibit A to the Loan  Agreement  is hereby  modified by deleting  such
exhibit in its entirety and replacing it with Exhibit A attached hereto.

     9. All  Loan  Instruments  hereby  are  amended  and  modified  in a manner
consistent with the  modifications,  terms and/or  provisions  contained herein.
Except as modified hereby, all the terms,  provisions and conditions of the Loan
Instruments shall remain in full force and effect.

     10. This letter agreement constitutes the "Letter Agreement" referred to in
the Sixth  Modification  Agreement of even date herewith executed by and between
the parties hereto.

     11. The terms and provisions of this letter  agreement may not be modified,
amended,  altered or otherwise affected except by instrument in writing executed
by Lender and Borrower.

     12. Each  Guarantor by its  execution  hereof agree to the  amendments  and
modifications  to the  Loan  Instruments  set  forth  herein  and  in the  prior
amendments and  modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive,  release or in any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.

             (The balance of this page is intentionally left blank.)
<PAGE>
Guaranty Bank
May 29, 2001
Page 6

     If this letter  agreement  correctly  sets forth our  understanding  of the
subject matter contained  herein,  please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed  copy to
the undersigned.

                                        Very truly yours,


                                        BORROWER:


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


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


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice-President
<PAGE>
Guaranty Bank
May 29, 2001
Page 7



                                        GUARANTOR:


                                        MERITAGE CORPORATION,
                                        a Maryland corporation


                                        By: /s/ John R. Landon
                                            ------------------------------------
                                            Name: John R. Landon
                                            Title: Co-Chief Executive Officer



                                        MTH-TEXAS GP, INC.,
                                        an Arizona corporation,


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President



                                        MTH-TEXAS LP, INC.,
                                        an Arizona corporation


                                        By: /s/ Rick Morgan
                                            ------------------------------------
                                            Name: Rick Morgan
                                            Title: Vice President
<PAGE>
Guaranty Bank
May 29, 2001
Page 8

ACCEPTED AND AGREED TO:


LENDER:


GUARANTY BANK,
a federal savings bank



By: /s/ Sam A. Meade
    ----------------------------
    Name: Sam A. Meade
    Title: Senior Vice President
<PAGE>
                                    EXHIBIT A

                                TO LOAN AGREEMENT


1.   Introductory  Paragraph.  RESIDENCE AND INVENTORY LOT  LIMITATIONS.  At any
     given time,  Residences and Inventory Lots financed under the Loan shall be
     limited to the following numbers, unless modified by Lender in writing:

     Total Residences:   Nine Hundred Fifty (950).
     Specs:              One Hundred Sixty (160).
     Models:             Seventy (70).
     Inventory Lots:     One Thousand Four Hundred (1,400).

     Borrower may increase the number of Specs  allowed above by the same number
     by which Borrower is short of Models allowed above.  Borrower covenants and
     agrees not to allow, and is prohibited from allowing, any more than fifteen
     (15) Specs, four (4) Models or two hundred (200) Inventory Lots to exist in
     any Approved Subdivision (as hereinafter defined).

     The outstanding  aggregate amount of the Loan Allocations for all Specs and
     Models at any time shall never exceed $31,250,000.00.

     The outstanding  aggregate amount of the Loan Allocations for all Inventory
     Lots at any time shall never exceed $22,500,000.00.

     The term  "Specs"  means a Residence  which is not a Model and is not Under
     Contract.

     The term "Model" means a Residence  specifically  utilized for the purposes
     of marketing other residential products.

     The term "Under  Contract" shall mean Residences  under written contract to
     sell  to  bona  fide  third  parties  unrelated  to  Borrower,   having  no
     contingency or any other  conditions  not  reasonably  susceptible to being
     satisfied,  providing for earnest money deposits of at least $2,000.00, and
     for which Lender has received  preliminary  loan  approval from a bona fide
     residential permanent lender.

     The term "Inventory Residence" means any Residence which is not a Model.

2.   Introductory Paragraph.  APPROVED SUBDIVISIONS.  The following subdivisions
     and  any  additional  subdivisions  approved  in  writing  by  Lender  (the
     "Approved  Subdivisions")  are  approved by Lender for the  Residences  and
     Inventory Lots:

     Subdivision                                  County
     -----------                                  ------
     Auburn Ridge - Pinelakes                     Harris

EXHIBIT A, - PAGE 1
<PAGE>
     Bethany Ridge                                Collin
     Candle Meadow                                Dallas
     Canyon Gate at The Brazos                    Fort Bend
     Canyon Gate at Cinco Ranch                   Fort Bend
     Cypress Mills                                Harris
     Cypress Point                                Denton
     Parks at Deer Creek                          Tarrant
     El Dorado Heights                            Collin
     Forest Creek                                 Williamson
     Forest Oaks                                  Denton
     Hillcrest Estates                            Collin
     Indian Pointe Estates                        Dallas
     Lakeside Village Estates                     Dallas
     Legend Bend                                  Denton
     Legend Crest                                 Collin
     McCreary Estates                             Tarrant
     Parkwood Hills                               Tarrant
     Pine Lakes                                   Harris
     Plum Creek                                   Hays
     Ryan Ranch                                   Denton
     Springbrook Glen                             Williamson
     Spring Meadow                                Collin
     Stone Gate                                   Tarrant
     Stone Meadow                                 Tarrant
     Village at Western Oaks                      Travis
     Westchester Square                           Dallas
     Westwood Shores                              Dallas
     Wimbledon Champions                          Harris
     Winding Hollow                               Dallas
     Windy Hills Farm                             Collin

3.   Introductory  Paragraph.  APPROVED PRICE RANGE.  The Residences shall be in
     the $70,000.00 to $400,000.00 price range; provided, however, Residences in
     any Approved  Subdivision in the Austin, Texas metropolitan area may have a
     $70,000.00 to $900,000.00 price range.

4.   Paragraph  1(c).  GUARANTOR.  Guarantor  of the  Loan  shall  be:  Meritage
     Corporation,  a Maryland  corporation;  MTH-Texas  G.P.,  Inc.,  an Arizona
     corporation; and MTH-Texas L.P., Inc., an Arizona corporation.

5.   Paragraph 2(h). LOAN FINANCE CHARGE. None.

6.   Paragraph  2(k) and 6(g).  INSPECTION  FEE. An inspection fee of $30.00 per
     Residence  shall be paid to Lender on the day the  Mortgage  pertaining  to
     such Residence is recorded in the Real Property Records.

EXHIBIT A, - PAGE 2
<PAGE>
7.   Paragraph 4(c). LOAN RATIOS. With respect to Residences Under Contract, the
     Loan  Allocation  shall not exceed the  lesser of (1) one  hundred  percent
     (100%) of the direct costs of a Property,  as  determined by Lender or, (2)
     eighty  percent  (80%) of the lowest of the values as provided in Paragraph
     4(c) (i), (ii) and (iii) of this Loan Agreement.

     With respect to Specs, Models and Inventory Lots, the Loan Allocation shall
     not exceed the lesser of (1) one hundred percent (100%) of the direct costs
     of a Property,  as determined by Lender or, (2) seventy-five  percent (75%)
     of the lowest of the values as provided  in  Paragraph  4(c) (i),  (ii) and
     (iii) of this Loan Agreement.

8.   Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
     other  indebtedness  now or  hereafter  owed by the  following  entities to
     Lender: None.

9.   Paragraph  6(s).  REQUIRED  RELEASES.  Borrower shall cause:  (a) Inventory
     Residences to be released from a Mortgage nine (9) months from the day such
     Mortgage  is  recorded  in the Real  Property  Records,  (b)  Models  to be
     released from a Mortgage twenty-four (24) months from the day such Mortgage
     is recorded in the Real  Property  Records,  and (c)  Inventory  Lots to be
     released  from a Mortgage  twelve (12) months from the day such Mortgage is
     recorded in the Real Property  Records;  provided,  however,  if no default
     then exists under any Loan Instruments,  Lender may, at its option,  extend
     the  Required  Release  Date for periods of six (6) months  (the  "Extended
     Release Date");  provided,  such Extended Release Date shall in no event go
     beyond the Stated  Maturity Date (as  hereinafter  defined) or the Extended
     Maturity Date (as hereinafter defined), if applicable.

10.  Paragraph 7. REQUIRED PRINCIPAL  REDUCTIONS.  Prior to the date that Lender
     gives Borrower the notice  described in Paragraph 4(f) above, the following
     shall apply:  in the event a Property has been granted an Extended  Release
     Date (as provided in Paragraph 9 of this Exhibit A) and a Mortgage  remains
     covering  such  Property  beyond the  following  periods from the date such
     Mortgage is recorded,  then Borrower shall make a principal  payment of the
     Note in an amount equal to ten percent  (10%) of the Loan  Allocation  with
     respect to such Property (and the Loan  Allocation  for such Property shall
     be reduced by the same amount), as determined by Lender:

     Inventory Residences:    Fifteen (15) months.
     Models:                  Twenty-four (24) months.
     Inventory Lots:          Twelve (12) months.

     From and after the date that Lender gives Borrower the notice  described in
     Paragraph 4(f) of the Loan  Agreement,  the following  shall apply:  in the
     event a Property has been granted an Extended  Release Date, as provided in
     Paragraph 9 of this Exhibit A, Borrower  shall make a principal  payment on
     the Note of ten  percent  (10%) of that  portion  of the Loan  advanced  by
     Lender for such  Property,  within the  following  periods  from the date a
     Mortgage covering such Property is recorded in the Real Property Records:

EXHIBIT A, - PAGE 3
<PAGE>
     Inventory Residences:    Fifteen (15) months.
     Models:                  Twenty-four (24) months.
     Inventory Lots:          Twelve (12) months.

11.  Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
     the later of the maturity  date as provided in the Note (May 31, 2002) (the
     "Stated Maturity Date"), or nine (9) months after the recording in the Real
     Property  Records  of the last  Mortgage  (the  "Extended  Maturity  Date")
     approved  by Lender  and  recorded  prior to the  expiration  of the Stated
     Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
     be recorded.

12.  Paragraph  10.  ADDITIONAL  DEFAULTS.  In addition to the events of default
     stipulated in the Loan  Instruments,  it shall be a default under this Loan
     Agreement if Borrower fails to comply with any of the following: None.

13.  Paragraph 11.  ADDITIONAL LOAN COVENANTS.  Borrower shall fully perform and
     satisfy the following "Additional Loan Covenants":

     (a)  The aggregate  net worth of Borrower  (determined  in accordance  with
          generally accepted accounting principles,  consistently applied) shall
          not fall below $40,000,000.00.

     (b)  The ratio of total  liabilities  to equity (as  determined  by Lender)
          shall not exceed 3.0 to 1.0.

     (c)  John Landon shall at all times retain management control of Borrower.

     (d)  In no event shall Meritage Corporation, a Maryland corporation,  be in
          default under any secured indebtedness.

     If Borrower or Guarantor (if  applicable to Guarantor)  breaches any of the
     Additional  Loan  Covenants  then,  at  Lender's  election,  no  additional
     Mortgages  shall  be  recorded  in the  Real  Property  Records;  provided,
     however,  that a breach  of any  Additional  Loan  Covenants  shall  not be
     considered a default under the Loan Instruments.

14.  Paragraph  16(d).  RELEASE PRICE. The partial release price shall be a cash
     amount  equal to the Loan  Allocation  for the Property  multiplied  by the
     Stage  (expressed  as a percentage)  of the Property,  all as determined by
     Lender;  provided,  however, if Lender shall have given Borrower the notice
     described in Paragraph 4(f) of the Loan Agreement, then the partial release
     price  shall be an  amount in cash  equal to one  hundred  and one  hundred
     percent  (100%) of the  outstanding  balance of the Loan advanced by Lender
     for the Property.

15.  Paragraph  16(e).  EXTENSION  FEE. If Lender  extends the Required  Release
     Date, as provided in Paragraph 9 of this Exhibit A,  Borrower  shall pay to
     Lender an  extension  fee of one percent  (1%) of that  portion of the Loan
     advanced by Lender for each such

EXHIBIT A, - PAGE 4
<PAGE>
     Property times a fraction, the numerator of which is the number of days the
     Required Release Date is extended and the denominator of which is 365.

EXHIBIT A, - PAGE 5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>ex99.txt
<DESCRIPTION>SAFE HARBOR COMPLIANCE STATEMENT
<TEXT>
                                                                      Exhibit 99

                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
         SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS

     In  passing  the  Private  Securities  Litigation  Reform  Act of 1995 (the
"PSLRA"),   Congress  encouraged  public  companies  to  make   "forward-looking
statements" by creating a safe-harbor to protect  companies from  securities law
liability in connection with  forward-looking  statements.  Meritage  intends to
qualify  both its written and oral  forward-looking  statements  for  protection
under the PSLRA.

     The words  "believe,"  "expect,"  "anticipate,"  and  "project" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Such  forward-looking  statements are within the meaning
of that term in Section  27A of the  Securities  Act of 1993,  as  amended,  and
Section 21E of the Securities Exchange Act of 1934.  Forward-looking  statements
in this Form 10-Q include  statements  concerning the demand for and the pricing
of our homes,  the expectation of continued  positive  operating  results in the
remainder  of  2001  and  beyond,  and  the  expected  benefits  of the  Hancock
acquisition,  including  projected  future home  closings and  Hancock's  future
contribution  to our  revenues  and  earnings.  Such  statements  are subject to
significant risks and uncertainties.

     Important  factors  currently  known to management  that could cause actual
results to differ materially from those in forward-looking  statements, and that
could  affect  the  Company's  business  include,  but are not  limited  to, the
following:  (i) changes in national  and local  economic  financial  results and
other conditions, such as employment levels, availability of mortgage financing,
interest rates, consumer confidence,  and housing demand; (ii) risks inherent in
homebuilding  activities,  including  delays  in  construction  schedules,  cost
overruns,  changes in government regulation,  increases in real estate taxes and
other local fees; (iii) changes in costs or availability of land, materials, and
labor; (iv) fluctuations in real estate values;  (v) the timing of home closings
and land sales; (vi) Meritage's  ability to continue to acquire  additional land
or options to acquire additional land on acceptable terms; (vii) a relative lack
of geographic  diversification  of Meritage's  operations,  especially when real
estate  analysts are predicting  that new home sales in certain markets may slow
during or after 2001; (viii) Meritage's  inability to obtain sufficient  capital
on  terms  acceptable  to  Meritage  to  fund  its  planned  capital  and  other
expenditures;  (ix) changes in local,  state and federal  rules and  regulations
governing real estate development and homebuilding  activities and environmental
matters,  including "no growth" or "slow growth"  initiatives,  building  permit
allocation ordinances and building  moratoriums;  (x) expansion by Meritage into
new  geographic or product  markets in which Meritage has little or no operating
experience;  (xi) the inability of Meritage to identify  acquisition  candidates
that will result in  successful  combinations;  (xii) the failure of Meritage to
make acquisitions on terms acceptable to Meritage, or to successfully  integrate
acquired operations,  into Meritage; and (xiii) the loss of key employees of the
Company,  including  Steven  J.  Hilton  and John R.  Landon;  (xiv)  Meritage's
significant  level of  indebtedness  and the diversion of cash flow to make debt
payments; (xv) restrictions on our business activities imposed by the agreements
governing our indebtedness; and (xvi) our inability to repay our indebtedness.

     With respect to our acquisition of Hancock,  these  uncertainties  include:
(1) the risk that the Hancock  business will not be integrated with our existing
business  successfully;  (2) that the market and financial synergies will not be
achieved in the time frame anticipated, or at all; (3) that the acquisition will
not be  accretive  to earnings  due to  unexpected  expenses,  contingencies  or
liabilities  or due to the financial  performance of the Hancock  business;  (4)
that the combined  companies will lose key employees,  management,  suppliers or
subcontractors;  (5) increased competition;  (6) and our ability to successfully
manage new housing  lines that were  previously  managed by Hancock or new lines
planned for the future.

     Forward-looking  statements  express  expectations  of future  events.  All
forward-looking statements are inherently uncertain as they are based on various
expectations  and assumptions  concerning  future events and they are subject to
numerous  known and unknown  risks and  uncertainties  which could cause  actual
events or  results  to differ  materially  from  those  projected.  Due to these
inherent  uncertainties,  the  investment  community is urged not to place undue
reliance on  forward-looking  statements.  In addition,  Meritage  undertakes no
obligations to update or revise  forward-looking  statements to reflect  changed
assumptions, the occurrence of anticipated events or changes to projections over
time.  As a result of these  and other  factors,  the  Company's  stock and bond
prices may fluctuate dramatically.

</TEXT>
</DOCUMENT>
</SUBMISSION>
