WILLIAM LYON HOMES
THIRD MODIFICATION AMENDMENT DATED AS OF DECEMBER 23, 2008
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<DESCRIPTION>THIRD MODIFICATION AMENDMENT DATED AS OF DECEMBER 23, 2008
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<TITLE>Third Modification Amendment Dated as of December 23, 2008</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2"><B>Exhibit 10.6 </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Borrower:</FONT></TD>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">WILLIAM&nbsp;LYON&nbsp;HOMES,&nbsp;INC.</FONT></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Loan No.:</FONT></TD>
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</TABLE> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>THIRD MODIFICATION AGREEMENT </U></FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">THIS THIRD MODIFICATION AGREEMENT (the &#147;<U>Amendment</U>&#148;) is dated December&nbsp;23, 2008, by and between WILLIAM LYON HOMES, INC., a
California corporation (&#147;<U>Owner</U>&#148;), and CALIFORNIA NATIONAL BANK, a national banking association (&#147;<U>Lender</U>&#148;). </FONT></P> <P STYLE="margin-top:24px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman"
SIZE="2"><U>RECITALS </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">A. Owner and Lender entered into that certain Borrowing Base Revolving Line of Credit Agreement dated
July&nbsp;10, 2006 (as heretofore amended by the First Amendment, First Modification and Second Modification (each as defined below), the &#147;<U>Loan Agreement</U>&#148;), pursuant to which Lender agreed to extend to Owner a maximum Commitment
Amount of $50,000,000.00 (the &#147;<U>Loan</U>&#148;), upon the terms and conditions set forth in said Loan Agreement, for the purpose of providing funds for financing the development of certain Approved Subdivisions and construction of
Improvements thereon. The Loan is evidenced by that certain Borrowing Base Secured Promissory Note dated July&nbsp;10, 2006, in the principal amount of $50,000,000.00 made by Owner in favor of Lender (the <U>&#147;Original Note</U>&#148;). The Loan,
the Loan Agreement and the Note are secured by, among other things, certain Deeds of Trust, executed by Owner, as &#147;<U>Trustor</U>&#148; in favor of Lender, as &#147;<U>Beneficiary,</U>&#148; encumbering the Approved Subdivisions and
Improvements more particularly described therein. The Deeds of Trust securing the Loan and executed by Owner as of the dated of this Agreement are set forth on <U>Schedule&nbsp;1</U> hereto. The Deeds of Trust and all other documents executed and
delivered by Owner in connection with the Loan and the Note which provide security for the Loan are hereinafter collectively referred to as the &#147;<U>Security Instruments.</U>&#148; </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">B The Loan Agreement was amended pursuant to a First Amendment to Borrowing Base Revolving Line of Credit Agreement dated February&nbsp;20, 2007
(&#147;<U>First Amendment</U>&#148;), an Extension and Modification Agreement dated August&nbsp;2, 2007 (the &#147;<U>First Modification</U>&#148;), and a Second Extension and Modification Agreement dated May&nbsp;21, 2008 (the &#147;<U>Second
Modification</U>&#148;), each executed by Owner and Lender. The Original Note, the Loan Agreement, the First Amendment, the First Modification, the Second Modification, the Security Instruments and all other documents executed by or on behalf of
Owner in connection with the Loan are hereinafter collectively referred to as the &#147;<U>Loan Documents.</U>&#148; Unless otherwise defined herein, capitalized terms used in this Amendment shall have the same meanings as set forth in the Loan
Agreement and the Note. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">C. Lender is the holder of the Note, and the secured party under each and all of the Security Instruments.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">D. As of the date hereof, the outstanding principal balance of the Note is Ten Million Seven Hundred Twenty-Six Thousand Six Hundred
Fifty-Nine and 37/100 Dollars ($10,726,659.37) and Thirty-One Million Eight Hundred Seventy-Four Thousand Seven Hundred Ninety-Six and 63/100 Dollars ($31,874,796.63) remains undisbursed. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">E. Owner and Lender now desire to make certain modifications to the Note and the Loan Agreement in
consideration of Owner&#146;s agreements hereinafter described and payment to Lender of the sums hereinafter described. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">NOW, THEREFORE, in
consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Owner and Lender hereby agree as follows: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">1. <U>Amended and Restated Note</U>. Subject to the satisfaction of the conditions precedent set forth in <U>Section&nbsp;5</U> below, the Original Note
is amended and restated in its entirety pursuant to that Amended and Restated Borrowing Base Secured Promissory Note of even date herewith in the principal amount of $30,000,000.00 (the &#147;<U>Note</U>&#148;), a true and correct copy of which is
attached hereto as <U>Exhibit &#147;A&#148;</U>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">2. <U>Commitment Agreement; Interest Rate; Facility Increase</U>. Subject to the
satisfaction of the conditions precedent set forth in <U>Section&nbsp;5</U> below, Article 1 [Definitions] of the Loan Agreement is amended as follows: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">(a) <U>Commitment Agreement</U>. The defined term &#147;Commitment Amount&#148; is deleted in its entirety and replaced with the following: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Commitment Amount</U>&#148; means THIRTY MILLION AND NO/100THS DOLLARS ($30,000,000.00).&#148; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) <U>Interest Rate</U>. The defined term &#147;Interest Rate&#148; is deleted in its entirety and replaced with the following:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;<U>Interest Rate</U>&#148; means the Reference Rate plus one percent (1.0%), with such interest rate being adjusted
from time to time as and when the Reference Rate is adjusted.&#148; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) <U>Facility Increase</U>. The defined term
&#147;Facility Increase&#148; is deleted in its entirety. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">3. <U>Deletion of Increase in Commitment Amount</U>. Subject to the satisfaction
of the conditions precedent set forth in <U>Section&nbsp;5</U> below, Article 2 [Loan Facility] is amended by deleting <U>Section&nbsp;2.1(d)</U> in its entirety and replacing it with the following: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">&#147;d. [<U>Intentionally Omitted</U>.]&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">4. <U>Financial Covenants</U>. Subject to the satisfaction of the conditions precedent set forth in <U>Section&nbsp;5</U> below, <U>Article&nbsp;7</U> [Financial Covenants] of the Loan Agreement is amended as follows:
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) <U>Minimum Tangible Net Worth</U>. Section&nbsp;7.1 is deleted in its entirety and replaced with the following:
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">&#147;7.1 <U>Minimum Tangible Net Worth Covenant</U>. WLH will maintain, on a consolidating basis, a
minimum Tangible Net Worth equal to or greater than Ninety Million Dollars ($90,000,000.00).&#148; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) <U>Leverage
Ratio</U>. Section&nbsp;7.2 is deleted in its entirety and replaced with the following: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">&#147;7.2 [<U>Intentionally Omitted.</U>]&#148;
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) <U>Minimum Liquidity</U>. Section&nbsp;7.4 is deleted in its entirety and replaced with the following: </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:13%"><FONT FACE="Times New Roman" SIZE="2">&#147;7.4 <U>Minimum Liquidity</U>. WLH shall maintain, on a consolidating basis, at all times, Available Liquidity which, is equal to or greater than
Thirty Million Dollars ($30,000,000).&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">5. <U>No Set Off</U>. Section&nbsp;12.1 is deleted in its entirety and replaced with the
following: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">&#147;Notwithstanding any provision of any Loan Document or applicable law to the contrary, in no event shall Lender, whether
with or without demand or notice to Borrower, exercise any right to set-off and apply deposits (whether certificates of deposit, demand, general, savings, special, time, or other, and whether provisional or final) held by Lender for Borrower or any
other liabilities or other obligations of Lender to Borrower against or to the Obligations.&nbsp;By its signature below, Lender hereby waives any right it may have to set-off and apply such deposits or other liabilities against or to the
Obligations.&#148; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">6. <U>Conditions Precedent</U>. The effectiveness of this Amendment is subject to satisfaction of the following
conditions precedent and other requirements of Lender set forth herein: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Owner shall deposit with Lender concurrently
with its execution and delivery of this Amendment: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(i) The Note fully executed by Owner; </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(ii) A Reaffirmation of Guarantees, fully executed by William Lyon Homes, a Delaware corporation; and </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(iii) Any and all additional documents and items as Lender may reasonably require in connection with this Amendment. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Owner shall pay or cause to be paid to Lender on or before its execution and delivery of this Amendment, all legal, title, escrow,
documentation, and other costs incurred by or on behalf of Lender in connection with this transaction including without limitation, the preparation of this Amendment and all other documents prepared in connection herewith. </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">7. <U>Application of Payments</U>. From and after the date of this Amendment, all payments under the Note
shall be applied in accordance with its terms and the terms of the Loan Agreement as amended by this Amendment. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">8. <U>Reaffirmations</U>.
Owner hereby reaffirms to Lender the continued truth and accuracy of the representations and warranties made by Owner in the Loan Agreement and each and all of the other Loan Documents, with the understanding that Lender is relying upon the
continued truth and accuracy of all such representations and warranties in entering into this Amendment. Owner hereby further affirms and certifies that as of the date of this Amendment, no default or Event of Default as described in the Note, the
Loan Agreement or any of the other Loan Documents exists or would be existing with the passage of time or the giving of notice or both. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">9.
<U>Acknowledgments and Waivers</U>. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(a) Owner acknowledges and confirms that it is fully liable under the Note, as amended
hereby, including, without limitation, that it is obligated to pay all amounts of principal and interest, late charges, and other sums which may now or hereafter become due and owing under the Note, as amended hereby, and all taxes, insurance
premiums and other sums that may be due and payable under the provisions of the Deeds of Trust and other Loan Documents; Owner acknowledges and admits the indebtedness evidenced by the Note, as amended hereby, and unconditionally promises and agrees
to pay the same with interest thereon within the time and in the manner required in the Note, as amended hereby, together with attorneys&#146; fees, costs of collection, and any other sums secured by the Deeds of Trust and other Security
Instruments; and Owner further acknowledges and agrees that upon any default or Event of Default under the Note or any of the other Loan Documents from and after the date of this Amendment, Lender, in addition to any other rights it may have under
the Loan Documents, at law or in equity, shall have the right to declare the entire unpaid balance of principal and interest under the Note immediately due and payable. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(b) Owner, on behalf of itself and on behalf of its officers, directors, shareholders, agents, employees, successors and assigns
(collectively, the &#147;<U>Owner Parties</U>&#148;), and each of them, and anyone claiming through or under them, hereby releases, acquits and forever discharges Lender and its principals, officers, directors, shareholders, agents, employees,
successors and assigns (collectively, the &#147;<U>Lender Parties</U>&#148;) and each of them, of and from any and all claims, causes of action in law or equity, suits, debts, liens, obligations, promises, demands, liabilities, damages, losses,
costs and expenses of every nature, character and description whatsoever in existence as of the execution of this Amendment, known or unknown, fixed or contingent, which the Owner Parties, or any of them, may have or may hereafter acquire against
the Lender Parties and each of them based on or arising out of the Note, the Loan Agreement, the other Loan Documents, this Amendment and the transactions contemplated by said documents, existing prior to the date of this Amendment. With respect to
the foregoing release, Owner, on behalf of itself and on behalf of the Owner Parties and each of them hereby acknowledges and waives the provisions of California Civil Code Section&nbsp;1542, which states: </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">&#147;A general release does not extend to claims which the creditor does not know or suspect to exist in
his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.&#148; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
FACE="Times New Roman" SIZE="2">Owner acknowledges that it has been advised or has had the opportunity to be advised by its attorneys concerning the foregoing, and in light thereof, expressly acknowledges the aforementioned waiver and release of any
and all rights it may have under California Civil Code Section&nbsp;1542 or any other State or Federal statute or legal principle of similar effect with respect to the foregoing. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">(c) In further consideration of the extension of the Maturity Date under the Note, the provisions of Section&nbsp;3511 of the Commercial
Code of California requiring presentment of said Note to Owner, demand of payment, protest, notice, notice of dishonor, and notice of nonpayment are hereby waived. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
FACE="Times New Roman" SIZE="2">10. <U>Independent Security</U>. Owner hereby agrees that any and all security for the Note including, without limitation, each Deed of Trust, may be enforced by Lender concurrently or independently in such order as
Lender may determine; and with reference to any such security in addition to each Deed of Trust, Lender may, without consent of or notice to Owner, exchange, substitute or release such security without affecting the liability of Owner, and Lender
may release any one or more parties hereto or to the above obligation, or permit the liability of said party or parties to terminate without affecting the liability of any other party or parties liable thereon. </FONT></P> <P
STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">11. <U>Amendment Not a Novation; Ratification</U>. This Amendment is an extension and deferment only, and not a novation. Except as modified by this
Amendment, the terms and provisions of the Note, the Loan Agreement, the Deeds of Trust and each and all of the other Loan Documents are hereby ratified and affirmed in all respects by the parties hereto, and shall remain binding and controlling on
the parties. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">12. <U>Reaffirmation of Environmental Indemnity Agreement</U>. In connection with the Loan, Owner executed an Environmental
Indemnity Agreement in favor of Lender dated July&nbsp;10, 2006. Owner hereby reaffirms that the terms, covenants, conditions and obligations of the Environmental Indemnity Agreement remain binding upon Owner and are in full force and effect,
notwithstanding the modification of the Loan Documents pursuant to this Amendment. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">13. <U>Miscellaneous</U>. Owner and Lender agree to
deliver such additional documents and instruments and to do or cause to be done such other acts and things as may be reasonably necessary to assure the parties hereto of the benefit of the agreements contained in this Amendment. This Amendment
constitutes the entire agreement between the parties with respect to the subject matter hereof. Each of the parties to this Amendment acknowledges that it has had the opportunity to seek legal advice as to the terms of this Amendment, and this
Amendment shall be construed fairly as to each of the parties, regardless of which party prepared this Amendment. Neither this Amendment nor any of the provisions hereof may be changed, waived, discharged or terminated, except by an instrument in
writing signed by the party against whom the enforcement of the change, waiver, discharge or termination is sought. No waiver of </FONT>
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<FONT FACE="Times New Roman" SIZE="2">any right hereunder shall constitute waiver of any other or future right. In any dispute arising out of or related to this Amendment or any of the terms and
provisions contained herein, the prevailing party in such dispute shall be entitled to recover from the losing party, in addition to any other relief, all attorneys&#146; fees and costs incurred by the prevailing party in connection with said
dispute. All provisions of this Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective heirs, legal representatives, successors and assigns. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">[SIGNATURE PAGE FOLLOWS] </FONT></P> <P
STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
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 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT FACE="Times New Roman" SIZE="2">IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.
</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">LENDER:</FONT></TD>
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<TD VALIGN="bottom" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">CALIFORNIA NATIONAL BANK,</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">a national
banking association</FONT></P></TD></TR>
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<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Andrew Zinn</FONT></P></TD></TR>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Andrew Zinn</FONT></TD></TR>
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<TD VALIGN="bottom"><FONT FACE="Times New Roman" SIZE="2">Vice President</FONT></TD></TR>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">OWNER:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT FACE="Times New Roman" SIZE="2">WILLIAM LYON HOMES, INC.,</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT FACE="Times New Roman" SIZE="2">a California
corporation</FONT></P></TD></TR>
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<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Michael D. Grubbs</FONT></P></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">Michael D. Grubbs</FONT></P></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">Senior Vice President</FONT></P></TD></TR>
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<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">/s/ Richard S. Robinson</FONT></P></TD></TR>
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<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Name:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">Richard S. Robinson</FONT></P></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT FACE="Times New Roman" SIZE="2">Title:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT FACE="Times New Roman" SIZE="2">Senior Vice President</FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>

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<TD VALIGN="middle" NOWRAP ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">-7-</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="right"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Signature Page to Extension and Modification</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"
ALIGN="right"><FONT FACE="Times New Roman" SIZE="2">Agreement</FONT></P></TD></TR>
</TABLE>


<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2"><U>SCHEDULE 1 </U></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
FACE="Times New Roman" SIZE="2"><U>DEEDS OF TRUST </U></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><U>Verona</U> &#150; Construction Loan Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July&nbsp;10, 2006, by William Lyon Homes, Inc., a
California corporation, as Trustor, in favor of California National Bank, a national banking association, as Beneficiary, and recorded in the Official Records of Sacramento County on July&nbsp;25, 2006 at Book 20060725, Page 2243.
</FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><U>Kingwood</U> &#150; Construction Loan Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July&nbsp;10, 2006, by William Lyon Homes, Inc.,
a California corporation, as Trustor, in favor of California National Bank, a national banking association, as Beneficiary, and recorded in the Official Records of Clark County, Nevada on July&nbsp;25, 2006, as Instrument No. 20060725-0004149.
</FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><U>Serafina</U> - </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">a. Construction Loan Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July&nbsp;10, 2006, by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank, a national banking association, as Beneficiary,
and recorded in the Official Records of Riverside County, California on August&nbsp;7, 2006, as Document Number 2006-0578867. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">b. First
Amendment to Construction Loan Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated January&nbsp;16, 2007, by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank,
a national banking association, as Beneficiary, and recorded in the Official Records of Riverside County on January&nbsp;24, 2007, as Document Number 2007-0055265. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT
FACE="Times New Roman" SIZE="2">c. Second Amendment to Construction Loan Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated June&nbsp;6, 2007, by William Lyon Homes, Inc., a California corporation, as Trustor,
in favor of California National Bank, a national banking association, as Beneficiary, and recorded in the Official Records of Riverside County on June&nbsp;29, 2007, as Document Number 2007-0429419. </FONT></P> <P
STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">d. Third Amendment to Construction Loan Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated August&nbsp;23, 2007,
by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank, a national banking association, as Beneficiary, and recorded in the Official Records of Riverside County on August&nbsp;24, 2007, as Document
Number 2007-0544971. </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" COLOR="#999999" WIDTH="100%" ALIGN="CENTER">

<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">4.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><U>Sage Court </U> </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">a. Construction Loan Deed of Trust,
Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July&nbsp;23, 2007, by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank, a national banking association, as Beneficiary,
and recorded in the Official Records of Los Angeles County, California on July&nbsp;25, 2007, as Instrument Number 07-1753723. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">b.
Construction Loan Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated August&nbsp;29, 2007, by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank, a national
banking association, as Beneficiary, and recorded in the Official Records of Los Angeles County, California on August&nbsp;29, 2007, as Instrument Number 07-0215838. </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT FACE="Times New Roman" SIZE="2">5.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT FACE="Times New Roman" SIZE="2"><U>Vinter&#146;s Grove </U> </FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">a. Construction Loan Deed of
Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July <U>&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2007, by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank, a national
banking association, as Beneficiary, and recorded in the Official Records of San Bernardino County, California on July <U>&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2007, as Instrument Number
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT FACE="Times New Roman" SIZE="2">b. Construction Loan Deed of
Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing dated July <U>&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2007, by William Lyon Homes, Inc., a California corporation, as Trustor, in favor of California National Bank, a national
banking association, as Beneficiary, and recorded in the Official Records of San Bernardino County, California on July <U>&nbsp;&nbsp;&nbsp;&nbsp;</U>, 2007, as Instrument Number
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P>
 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT FACE="Times New Roman" SIZE="2">-9- </FONT></P>

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