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 MARCH 31, 1996

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

FOR TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its Charter)

CREATED UNDER DECLARATION OF TRUST 75-1328153
PURSUANT TO THE LAWS OF (I.R.S. Employer
THE COMMONWEALTH OF MASSACHUSETTS Identification No.)
(State or other jurisdiction
of incorporation or organization)

600 N. PEARL ST., SUITE 420 75201
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code (214) 720-8950

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
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X * NO
------ -----

* The registrant's confirmed plan of reorganization under Chapter 11 of the
Bankruptcy code did not provide for the distribution of securities.

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of each of the issuer's classes of securities
as of May 10, 1996: Shares of Beneficial Interest, no par value - 12,153,658
shares.
2
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
LIBERTE INVESTORS

INDEX

Page
----

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

Consolidated Balance Sheet - March 31, 1996 and June 30, 1995 . . . . . . . . . . . . . . 3

Consolidated Statement of Operations - Quarter and Nine Months Ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Consolidated Statement of Cash Flows - Nine Months Ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 10

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 14

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY

March 31, June 30,
1996 1995
--------------- --------------

Assets
Notes Receivable:
Earning $ 5,342,270 $ 5,415,306
Nonearning 284,530 392,066
Foreclosed real estate held for sale:
Nonearning - NOTE B 3,770,119 15,385,214
-------------- -------------
9,396,919 21,192,586

Less: Allowance for possible losses 69,282 10,498,922
-------------- -------------
9,327,637 10,693,664

Unrestricted cash and cash equivalents 22,637,781 20,576,517
Restricted cash and cash equivalents 58,375 59,245
Accrued interest and other receivables 133,096 103,888
Other assets 759,354 602,664
-------------- -------------
$ 32,916,243 $ 32,035,978
============== =============

- ------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Liabilities
Accrued and other liabilities $ 496,922 $ 416,164

Shareholders' Equity
Shares of Beneficial Interest, no par value,
unlimited authorization:
12,423,208 issued and 12,153,658 outstanding,
net of 269,550 shares held in Treasury, at
March 31, 1996 and June 30, 1995 32,419,321 31,619,814
-------------- -------------
$ 32,916,243 $ 32,035,978
============== =============

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY

Quarter Ended Nine Months Ended
March 31, March 31,
------------------------------ -----------------------------------------
1996 1995 1996 1995
------------ ------------- ------------ --------------

Income
Interest Income
Notes receivable $ 119,717 $ 125,381 $ 370,558 $ 525,828
Other 305,519 303,232 917,002 586,575
Gain on disposition of real estate 106,652 -- 552,652 --
Consulting and other 178,190 7,110 458,525 608,320
------------ ------------- ------------ --------------
710,078 435,723 2,298,737 1,720,723
------------ ------------- ------------ --------------

Expenses
Provision for possible losses -- 1,000,000 -- 3,192,000
Salaries and related costs 266,829 150,228 512,931 523,672
General and administrative 97,881 100,770 293,677 278,338
Legal, audit and advisory 52,622 29,051 507,400 70,804
Foreclosed real estate 16,888 37,329 106,952 223,693
Management fees -- 26,895 -- 155,856
Trustees' fees and expenses 8,100 22,215 63,300 44,115
------------ ------------- ------------ -------------
442,320 1,366,488 1,484,260 4,488,478
------------ ------------- ------------ --------------

Net income (loss) $ 267,758 $ (930,765) $ 814,477 $ (2,767,755)
============ ============= ============ =============

Net income (loss) per Share
of Beneficial Interest $.02 $(0.07) $.07 $(.22)

Weighted average number of
Shares of Beneficial Interest 12,153,658 12,288,433 12,153,658 12,378,939

Cash dividends declared per share -- -- -- --

See notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY

Nine Months Ended
March 31,
----------------------------------------------
1996 1995
-------------- -------------------------

Operating activities:
Net income (loss) $ 814,477 $ (2,767,755)
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible losses -- 3,192,000
Net change in:
Accrued interest and other receivables (29,208) 191,293
Other assets (202,897) 39,734
Accrued and other liabilities 80,758 (305,507)
Non-cash interest on executive stock option loan (14,969) (9,369)
Income from impaired loans (444,075) --
Gains from disposition of foreclosed real estate (552,652) --
-------------- -------------
Net cash provided (used) by operating activities (348,566) 340,396
-------------- -------------

Investing activities:
Collections on mortgage loans 501,602 1,343,510
Collections on RPI note receivable 1,148,144 475,094
Advances on mortgage loans -- (306,949)
Expenditures on foreclosed real estate -- (186,865)
Sales of foreclosed real estate 759,214 10,195,898
Net sales of restricted cash investments 870 63,970
-------------- -------------
Net cash provided by investing activities 2,409,830 11,584,658
-------------- -------------

Financing activities:
Purchase of treasury stock -- (404,325)
-------------- -------------
Net cash used by financing activities -- (404,325)
-------------- ------------

Net increase in unrestricted cash and cash equivalents 2,061,264 11,520,729
Unrestricted cash and cash equivalents at beginning of period 20,576,517 9,157,640
-------------- -------------
Unrestricted cash and cash equivalents at end of period $ 22,637,781 $ 20,678,369
============== =============

Schedule of noncash investing activities:
Transfer of mortgage loans to foreclosed real estate $ -- $ 4,792,781
Write-up of value of impaired note $ 71,950 $ --
Write-up of value of long-lived asset to be disposed of $ 53,751 $ --
Charge-offs to allowance for possible losses, net - NOTE B $ 10,429,640 $ 4,243,496
Sales of foreclosed real estate financed by mortgage loans $ 1,076,800 $ 138,400

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
March 31, 1996

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals other than
those described in NOTE E) considered necessary for a fair presentation have
been included. Operating results for the quarter ended and nine months ended
March 31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 1996. For further information,
refer to the financial statements and footnotes included in the Annual Report on
Form 10-K of Liberte Investors for the fiscal year ended June 30, 1995, as
amended. See NOTE E -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

This Form 10-Q contains both disclosures concerning historical matters and
forward looking statements. For purposes of the Private Securities Litigation
Reform Act of 1995, the reader should consider any statements not solely
addressing historical matters to be forward looking statements subject to the
protection of the act. Such forward looking statements involve risks and
uncertainties that could cause the Trust's actual results to differ
significantly from such statements. These risks and uncertainties include the
strength or weakness of the real estate markets in California and Texas at any
particular time and the uncertainty concerning the Trust's ability to expand its
business of making and purchasing real estate mortgage loans through the
acquisition of other companies.

The accompanying financial statements include the accounts of Liberte Investors
and Liberte Corp., a wholly-owned subsidiary which is currently inactive. All
intercompany balances and transactions have been eliminated. As used herein,
the "Trust" refers to Liberte Investors and its subsidiary.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Adoption of Authoritative Statements: Effective July 1, 1995, the Trust
adopted Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 114 requires that the impaired value of a loan be based
on either (i) the present value of expected future cash flows discounted at the
loan's effective interest rate, or (ii) the fair value of the collateral if the
repayment of the loan is expected to be provided solely by the collateral. The
adoption of the new statement did not have a material effect on the Trust's
financial condition, results of operations, or cash flows.

At March 31, 1996, the Trust had two impaired loans with a carrying value of
$285,000 and eight impaired loans, from prior foreclosure related deficiency
notes and or judgments, with no carrying value. There is no allowance allocated
to these impaired assets. At March 31, 1996 the Trust had ownership interest
in these deficiency notes and or judgments ranging from 40% to 80%, the balance
of which is owned by participants in the original loan receivable. In
accordance with the asset disposition agreement with ST Lending ("STL"), the
principal participant other than the Trust, the Trust received STL's remaining
interest in these notes. This transfer occurred on April 15, 1996. See NOTE G
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

Income from impaired loans during the quarter ended March 31, 1996, totaled
$171,000. Of this amount, $72,000 of income was recognized by a valuation
adjustment on a foreclosure related deficiency judgment, which had no carrying
value until circumstances indicated that a collection was likely. During the
quarter ended March 31, 1996, the average month-end recorded investment in
impaired loans was $237,000.

Effective July 1, 1995, the Trust adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement requires that assets held for disposal be carried at the lower of
their carrying amount or fair value less cost to sell. The adoption of the new
statement did not have a material effect on the Trust's financial condition,
results of operations, or cash flows, as foreclosed real estate was previously
carried at fair value less estimated cost to sell. The balance sheet effect of
adopting SFAS No. 121 was the netting of allocated reserves against the related
foreclosed real estate. Restatement of previously issued financial statements
to comply with SFAS No. 121 is neither permitted nor required.

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At March 31, 1996, the Trust held assets to be disposed of consisting of
foreclosed real estate in the form of land and developed single-family lots.
The March 31, 1996, carrying amount of these assets was $3,770,000.

The single family lots are being sold on a quarterly basis and are expected to
be liquidated by the end of fiscal 1997. The carrying amount of these lots was
$915,000 at March 31, 1996.

The balance of the Trust's foreclosed real estate consists of 14 parcels of
land totaling approximately 608 acres in San Antonio, Texas. Certain parcels
are under contract for sale and the balance are being marketed for sale at
prices comparable to similar assets in the San Antonio area. The Trust expects
to liquidate these parcels over the next two fiscal years.

Reclassifications: Certain amounts in previously issued financial statements
have been reclassified to conform to the March 31, 1996, presentation.

NOTE C - COMMITMENTS AND CONTINGENCIES

At March 31, 1996, the Trust had commitments for indemnification of development
bond issuers and other guarantees totaling $109,045.

Cash and cash equivalents at March 31, 1996, included restricted cash of
$58,375 for unpaid claims related to the Trust's previous bankruptcy. At June
30, 1995, restricted cash included $59,245 for such claims.

The Trust is involved in routine litigation incidental to its business, which,
in the opinion of management, will not result in a material adverse impact on
the Trust's financial condition, results of operations, or cash flows.

NOTE D - SHARE TRANSFER RESTRICTIONS

In order to avoid limitations on the use of the Trust's tax attributes, the
Declaration of Trust as amended, generally prohibits the transfer of shares of
beneficial interest in the Trust (the "Shares") to any Person who is, or would
become, a holder of 5% or more of the Shares, and prohibits any transfer of
Shares if, as a result of the transfer, any Person would become a holder of 5%
or more of the Shares or increase a 5% or more ownership position, in each case
after giving effect to the transfer, directly or by attribution. "Person" for
this purpose is defined broadly to mean any individual, corporation, estate,
debtor, association, company, partnership, joint venture or similar
organization.

If a transfer violates this prohibition, either (i) the Shares that were
purported to be transferred in excess of the 5% limit will be deemed to remain
the property of the initial transferor, or (ii) upon election by the Trust,
such Shares shall be transferred to an agent designated by the Trust, who will
sell them in an arm's-length transaction, the proceeds of such sale to be
allocated to the purported transferee up to (x) the amount paid by such
transferee for such Shares and (y) where the purported transfer was by gift
inheritance or any similar transfer, the fair market value of such Shares at
the time of the purported transfer.

If the purported transferee has resold the Shares to an unrelated party in an
arm's length transaction, the purported transferee will be deemed to have sold
the Shares as an agent for the initial transferor, and will be required to
transfer the proceeds of such sale to the agent designated by the Trust, except
to the extent

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that the agent grants written permission to the purported transferee to retain
a portion of the proceeds up to the amount that would have been payable to such
transferee had the Shares been sold by the agent rather than by the purported
transferee.

The Declaration of Trust further provides that the Trust may require, as a
condition to the registration of the transfer of any Shares, that the proposed
transferee furnish to the Trust all information reasonably requested by the
Trust with respect to the proposed transferee's direct or indirect ownership
interests in Shares.

The Board of Trustees of the Trust will have the power to approve transfers
that would otherwise be prohibited under the foregoing provisions.

New certificates evidencing ownership of Shares bear a conspicuous legend
referencing the transfer restrictions and are held by the Trust's transfer
agent for replacement of old certificates when submitted for transfer.

NOTE E - STOCK PURCHASE AGREEMENT

On January 16, 1996, the Trust entered into a Stock Purchase Agreement (as
amended, the "Stock Purchase Agreement") with Hunter's Glen/Ford, Ltd., a Texas
limited partnership ("Hunter's Glen"), pursuant to which the Trust agreed to
sell 8,102,439 newly issued Shares to Hunter's Glen for $23,091,951 ($2.85 per
Share). After the sale, Hunter's Glen would own 40% of the outstanding Shares.
The partners of Hunter's Glen are Gerald J. Ford and certain family interests.
Hunter's Glen has made a down-payment of $2,000,000, to be held in escrow
pending the closing.

The Trust has received a written opinion from Bear, Stearns & Co. Inc. that the
proposed sale is fair, from a financial point of view, to the Trust's public
shareholders.

Prior to the sale of the Shares pursuant to the Stock Purchase Agreement, the
Trust will reorganize into a Delaware corporation that will succeed to all of
the Trust's assets and liabilities. Upon such reorganization, shareholders of
the Trust will automatically become shareholders of the Delaware corporation on
a share for share basis.

Consummation of the transactions contemplated by the Stock Purchase Agreement
is subject to a number of conditions, including the reorganization of the Trust
into the Delaware corporation. Accordingly, Hunter's Glen would actually
purchase shares of common stock from the Delaware corporation, rather than
shares of beneficial interest from the Trust. In addition, the reorganization
of the Trust and the sale of the shares are subject to the approval of the
Trust's shareholders. The solicitation of the approval of the reorganization
and the sale of the Shares to Hunter's Glen and the exchange of shares of
beneficial interest in the Trust for shares of common stock in the Delaware
corporation will be made only by means of a proxy statement/prospectus
transmitted to the Trust's shareholders.

At the closing, Mr. Ford will become the initial Chief Executive Officer of the
Delaware corporation. The corporation's board of directors will consist of
three directors, Mr. Ford, and two of the Trust's three trustees. In addition,
Mr. Enloe, the Trust's current Chief Executive Officer and Mr. Buttermore, the
Trust's current Chief Financial Officer will receive bonus payments of $100,000
and $50,000, respectively, for services rendered in connection with the
transaction.

NOTE F - FEDERAL INCOME TAXES

Though the Trust had net income for the quarter and nine months ended March 31,
1996, no tax liability has been recognized. At June 30, 1995, the Trust had,
for federal tax purposes, net operating loss carryforwards in sufficient amount
to mitigate any significant tax liability for fiscal year 1996.

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NOTE G - SUBSEQUENT EVENT

On April 24, 1996, the Trust entered into a supplement (the "Supplement") to
the Asset Disposition Agreement, dated as of February 28, 1995 (the
"Disposition Agreement"), by and among the Trust, ST Lending, Inc. ("STL") and
Lomas Management, Inc. ("LMI"). The Disposition Agreement set forth certain
agreements between the Trust, STL and LMI with respect to certain assets in
which both the Trust and STL had interests. STL's remaining interest in eight
deficiency notes and or judgments, which have no carrying value, were
transferred to the Trust, in accordance with the Disposition Agreement. These
assets have no carrying value because future collections are unlikely. The
Supplement transfers ownership of an entity, whose sole asset is approximately
40 acres of undeveloped commercial real estate that is fully encumbered by tax
liens, to the Trust and sets forth the terms under which LMI will continue to
manage the asset. The supplement further describes the method of allocating the
funds to be paid to the Trust and STL with respect to a proposed settlement
agreement for a deficiency note receivable, the gross proceeds of which are
expected to be less than $11,000. The Trust also exchanged its 50% interest,
representing $212,000 of principal, in a note the Trust had classified as
non-earning, which has a legal interest rate of 1-1/2% over the prime rate per
annum, for STL's 20% interest, representing $269,000 of principal, in a note
the Trust classified as earning, bearing interest at the rate of 2% over the
prime rate per annum. The exchange of these notes resulted in the Trust owning
100% of an interest bearing note, secured by 75 lots in Murrieta, California.
The difference in the exchange values resulted in the recording of $31,000 of
interest income, which the Trust was owed on the nonearning asset. The remaining
difference of $26,000 was applied as a discount to the carrying value on the
note received and will be amortized to income over the life of the loan.

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

RESULTS OF OPERATIONS

Operations resulted in net income of $268,000 for the quarter ended March 31,
1996, compared to a net loss of $931,000 for the same period in fiscal 1995.
Operations for the nine months ended March 31, 1996, resulted in net income of
$814,000 compared to a net loss of $2,768,000 for the same period in fiscal
1995. The substantial change in operating results for both the quarter and
nine months were due to various factors discussed below.

Notes receivable interest income decreased to $371,000 for the first nine
months of fiscal 1996 from $526,000 for the first nine months of fiscal 1995 as
a result of a lower average outstanding balance of earning notes. Average
earning notes decreased to $5.6 million for the first nine months of fiscal
1996 from $8.4 million for the first nine months of fiscal 1995. The reduction
in average earning notes is primarily a result of the foreclosure of a $4.8
million note receivable (the underlying collateral has since been disposed of
for cash), and repayments of indebtedness by borrowers, partially offset by the
addition of an earning note from the sale of real estate. Average nonearning
notes for the first nine months of fiscal 1996 totaled $239,000 compared to
$218,000 for the same period in fiscal 1995.

Included in earning notes receivable at March 31, 1996, and June 30, 1995, was
a note receivable from Resurgence Properties, Inc. ("RPI") which was received
by the Trust as part of its emergence from Chapter 11 bankruptcy on April 7,
1994. This note carries a floating rate of interest which is 200 basis points
over the London Interbank offered rate ("LIBOR"). The Trust received a
scheduled principal payment of $911,000 during the quarter ended March 31, 1996.
The principal balance of the note was $4,257,988 and $5,406,132 as of March 31,
1996, and June 30, 1995, respectively.

Other interest income derives from cash and cash equivalents and increased to
$917,000 for the first nine months of fiscal 1996 from $587,000 for the first
nine months of fiscal 1995. This increase is due to a growth in the daily
average balance of unrestricted cash and cash equivalents to $21.5 million for
the first nine months of fiscal 1996, from $14.8 million for the first nine
months of fiscal 1995. The increase in unrestricted cash and cash equivalents
is primarily a result of the sale of foreclosed real estate and collections of
principal and interest on notes receivable.

The gain on dispositions of real estate represents proceeds received from the
sale of foreclosed real estate in excess of its carrying value, and the
write-up of value of long lived assets to be disposed of that were previously
written down. The gain in the third quarter of fiscal 1996 includes a $54,000
write-up in value of a group of developed single family lots, that were
previously written down, located in San Antonio, Texas, to more accurately
reflect their fair value less cost to sell. The gain for the nine months ended
March 31, 1996, includes the sale of single family lots located in Murrieta,
California. The Trust initially reduced the carrying value of this California
asset during the third quarter of fiscal 1995 after failing to close on a sales
contract, the sale price of which was negatively affected by the increasing
impact of fees levied by the municipality and agencies of the State of
California. The Trust received an offer to purchase these single family lots
during the second quarter of fiscal 1996 and was able to negotiate a sales
price in excess of its carrying value. The Trust accepted a significant cash
down payment and a note receivable (carrying a market rate of interest) from
the buyer of the lots.

Consulting and other income increased significantly in the quarter ended March
31, 1996, as compared to the quarter ended March 31, 1995. The increase is due
mainly to cash collections on impaired loans, which had no carrying value, that
were received in the quarter ended March 31, 1996. In addition, one impaired
loan, which had no carrying value, was written up by $72,000 when circumstances
indicated that a collection was likely. This write up did not result in the
value of the

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asset being recorded in excess of the original recorded investment in the loan.
Approximately $72,000 was received in full settlement of this receivable on
April 9, 1996.

Consulting and other income decreased for the nine months ended March 31, 1996,
as compared to the nine months ended March 31, 1995. For the nine months ended
March 31, 1995, consulting and other income consisted primarily of consulting
fees paid by Resurgence Properties, Inc. ("RPI"), and fees paid for an early
buyout of the consulting agreement between the Trust and RPI. For the nine
months ended March 31, 1996, consulting and other income consisted primarily of
cash collections on impaired loans, which had no carrying value.

No provision for possible losses was made in the quarter ended or nine months
ended March 31, 1996, compared to a provision of $1.0 million in the quarter
ended, and $3.2 million for the nine months ended, March 31, 1995. The
allowance for possible losses was $69,000 at March 31, 1996, compared to $10.5
million at June 30, 1995, and $10.7 million at March 31, 1995. The substantial
reduction in the allowance is a result of applying such allowance to the
carrying value of foreclosed real estate upon the adoption of SFAS No. 121,
beginning in fiscal year 1996. The Trust believes the allowance for possible
losses is adequate at March 31, 1996. See NOTE B - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

The following is a summary of transactions affecting the Trust's allowance for
possible losses for the nine months ended March 31, 1996.

Nine Months Ended March 31, 1996
----------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
----------------------------------------------------

Balance at July 1, 1995 $ 129,901 $ 10,369,021 $ 10,498,922
Reclassifications - SFAS No. 121 -- (10,331,733) (10,331,733)
Amounts charged off, net of recoveries (23,496) (37,288) (60,784)
-------------- -------------- -------------
Balance at September 30, 1995 106,405 -- 106,405

Provision for possible losses -- -- --
Amounts charged off, net of recoveries (14,400) -- (14,400)
-------------- -------------- -------------
Balance at December 31, 1995 92,005 -- 92,005
-------------- -------------- -------------

Provision for possible losses -- -- --
Amounts charged off, net of recoveries (22,723) -- (22,723)
-------------- -------------- -------------
Balance at March 31, 1996 $ 69,282 $ -- $ 69,282
============== ============== =============

Salaries and related costs increased by $117,000 for the quarter ended March
31, 1996, as compared to the same period in the prior year principally due to
the accrual of incentive bonuses in the amount of $150,000 to be paid to
certain officers of the Trust upon the closing of the Stock Purchase Agreement
with Hunter's Glen. Salaries and related costs for the nine months ended March
31, 1996, are less than such costs for the nine months ended March 31, 1995,
primarily as a result of a reduced compensation package for the Chief Executive
Officer beginning in the last quarter of fiscal 1995.

General and administrative costs increased slightly for the nine months ended
March 31, 1996, as compared to the same period in the prior year. This
increase is primarily due to the fact that the Trust became a self managed
entity as of February 28, 1995, and therefore has general and administrative
expenses that, for eight of the nine months in the same period of fiscal 1995,
were

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the responsibility of the former manager of the Trust. The increase in general
and administrative costs is more than offset by the elimination of management
fees paid during fiscal 1995.

Legal, audit, and advisory expenses increased for the quarter ended and nine
months ended March 31, 1996, as compared to the same periods in the prior year.
The increase in the nine month period ended March 31, 1996, is mainly due to
activities during the first and second quarter of fiscal 1996 related to
potential acquisition candidates. The increase for the quarter ended March 31,
1996 is mainly due to fees paid for impaired loan collections and sales of
foreclosed real estate.

Foreclosed real estate expenses decreased for both the quarter ended and nine
months ended March 31, 1996, as compared to the same periods in the prior year.
This was due to a reduction in the size of the real estate portfolio, including
the sale of operating real estate properties during fiscal 1995. Foreclosed
real estate expenses include property taxes and costs to maintain the
properties.

Management fees were eliminated in the fourth quarter of fiscal 1995 due to the
termination of the Management Agreement with Lomas Management in February 1995.
The Trust is currently self managed.

LIQUIDITY AND CAPITAL RESOURCES

The Trust is virtually debt free. Its principal funding requirements are
operating expenses, including legal, audit, and advisory expenses expected to
be incurred in connection with closing the Stock Purchase Agreement with
Hunter's Glen and the continued evaluation of potential acquisition candidates
and other strategic opportunities. The Trust's primary sources of funding
operating expenses are principal and interest collections on notes receivable,
proceeds from the sale of foreclosed real estate, and interest on cash and cash
equivalents.

As described in a note to the financial statements, the Trust has entered into
an agreement to sell Shares to Hunter's Glen constituting 40% of the Trust's
fully diluted Shares immediately after the sale. The proceeds from this sale
will be approximately $22.0 million (net of expected costs which are being
capitalized). This additional cash will assist the Trust in its efforts to
expand its business through acquisitions. Hunter's Glen is an affiliate of Mr.
Gerald J. Ford, who the Trust anticipates will become the initial Chief
Executive Officer of the Trust following the closing and the Trust's
reorganization into a Delaware corporation. Mr. Ford has considerable
experience in the acquisition of various companies, specifically in the
financial services industry. Mr. Ford's involvement with the Trust could
therefore facilitate the Trust's acquisition of another company. See NOTE E -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

MATERIAL CHANGES IN FINANCIAL CONDITION

The adoption of certain authoritative accounting statements during the first
quarter of fiscal 1996 resulted in a netting of substantially all of the
Trust's allowance for possible losses on its foreclosed real estate against the
previously reported gross carrying value. See NOTE B - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.

SHARE TRANSFER RESTRICTIONS

In order to avoid limitations on the use of the Trust's tax attributes, the
Declaration of Trust as amended generally prohibits the transfer of Shares to
any Person who is, or would become, a holder of 5% or more of the Shares, and
prohibits any transfer of Shares if, as a result of the transfer, any Person
would become a holder of 5% or more of the Shares or increase a 5% or more
ownership position, in each case after giving effect to the transfer, directly
or by attribution. "Person" for this purpose is defined broadly to

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mean any individual, corporation, estate, debtor, association, company,
partnership, joint venture or similar organization. SEE NOTE D - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

2.1 Stock Purchase Agreement, dated as of January 16, 1996, between
the Trust and Hunter's Glen, as amended by the Amendment to the
Stock Purchase Agreement, dated as of February 27, 1996, and
the Second Amendment to the Stock Purchase Agreement, dated as
of March 28, 1996.

2.2 Confidentiality and Standstill Agreement, dated as of January
16, 1996, between the Trust and Hunter's Glen.

3.1 The Trust's Bylaws, restated to give effect to the First
Amendment to the Bylaws.

27.1 Financial Data Schedules (submitted to the SEC for its
information).

(b) Reports on Form 8-K.

On January 24, 1996, the Registrant filed a report on Form 8-K to
report that on January 16, 1996, Liberte Investors entered into a Stock
Purchase Agreement with Hunter's Glen/Ford, Ltd. SEE NOTE E - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.

LIBERTE INVESTORS

Date: May 14, 1996 By: /s/ TED ENLOE

Ted Enloe
President and Chief Executive Officer

Date: May 14, 1996 By: /s/ BRADLEY S. BUTTERMORE

Bradley S. Buttermore
Principal Accounting and Financial
Officer

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LIBERTE INVESTORS

INDEX TO EXHIBITS

Exhibit No.

2.1 Stock Purchase Agreement, dated as of January 16, 1996, between
the Trust and Hunter's Glen (Incorporated by reference to Exhibit
4.1 of the Trusts Form 8-K, filed with the SEC on January 24,
1996), as amended by the Amendment to the Stock Purchase
Agreement, dated as of February 27, 1996, and the Second
Amendment to the Stock Purchase Agreement, dated as of March 28,
1996.

2.2 Confidentiality and Standstill Agreement, dated as of January
16, 1996, between the Trust and Hunter's Glen.

3.1 The Trust's Bylaws, restated to give effect to the First
Amendment to the Bylaws.

27 Financial Data Schedules (submitted to the SEC for its
information).