EIGHTH MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING LINE OF CREDIT AGREEMENT

EXHIBIT 10.6

EIGHTH MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING

LINE OF CREDIT AGREEMENT

JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, NA (Main Office Chicago, Illinois)), a national banking association (“ Bank ”), and WILLIAM LYON HOMES, INC., a California corporation (“ Borrower ”), hereby enter into this Eighth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement (the “ Modification ”) to the Borrowing Base Revolving Line of Credit Agreement dated as of June 28, 2004, as modified by a Modification Agreement, dated as of December 7, 2004, by a Second Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of July 14, 2005, by a Third Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of October 23, 2006, by a Fourth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of April 26, 2007, by a Fifth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of November 6, 2007, by a Sixth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of February 20, 2008, and by a Seventh Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of March 12, 2008 (the “ Loan Agreement ”), with the consent of guarantor WILLIAM LYON HOMES, a Delaware corporation (“ Guarantor ”).

RECITALS

A. Bank has extended to Borrower credit (“ Loan ”) up to the maximum principal amount of Seventy Million Dollars ($70,000,000) pursuant to the Loan Agreement, as presently evidenced by that certain Amended and Restated Promissory Note dated as of July 14, 2005 (the “ Note ”) executed by Borrower and payable to the order of Bank.

B. The Loan is secured by, among other things, certain Construction Deeds of Trust and Fixture Filing (With Assignment of Rents and Security Agreement) executed by Borrower as Trustor for the benefit of Bank (such Deeds of Trust, as

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amended to dated, shall be hereinafter referred to, individually, as a “ Deed of Trust ” and, collectively, as the “ Deeds of Trust ”). The Loan is further secured by the personal property described in certain UCC-1 Financing Statements relating to the property encumbered by the Deeds of Trust naming Borrower as Debtor and Bank as Secured Party (as amended to date, the “ UCC Financing Statements ”). The Deeds of Trust, the UCC Financing Statements, and such other agreements, documents and instruments securing the Loan are referred to individually and collectively as the “ Security Documents ”).

C. Repayment of the Loan and the completion of the improvements have been, and continue to be, guaranteed by the Repayment Guaranty dated as of June 28, 2004 and executed by Guarantor in favor of Bank (the “ Guaranty ”). The Guaranty and any other agreements, documents and instruments guarantying the Loan are referred to individually and collectively as the “ Guaranty Documents ”.

D. The Loan Agreement, the Note, the Security Documents, the Guaranty Documents, any environmental certification and indemnity agreement, and all other agreements, documents, and instruments evidencing, securing, or otherwise relating to the Loan, as may be amended, modified, extended or restated from time to time, are sometimes referred to individually and collectively as the “ Loan Documents ”. Hereinafter, the Loan Documents shall mean such documents as modified in this Modification.

E. The Borrower and the Bank have agreed to modify the Loan as provided herein.

F. All capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Loan Agreement.

AGREEMENT

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Bank agree as follows:

1. ACCURACY OF RECITALS .

Borrower acknowledges the accuracy of the Recitals.

2. MODIFICATION OF LOAN DOCUMENTS.

2.1 The Commitment Amount is hereby reduced from $70,000,000 to $50,000,000. In no event shall the Bank be obligated to make any disbursement of the Loan which would cause the outstanding principal balance of the Loan to exceed the Commitment Amount, as reduced hereby.

2.2 The Facility LC Sublimit is hereby reduced from $10,000,000 to $5,000,000. In no event shall the Bank be obligated to issue or Modify any Facility LC if

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the issuance or Modification of any such Facility LC would cause the aggregate amount of the outstanding LC Obligations to exceed the Facility LC Sublimit, as reduced hereby.

2.3 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, with respect to the Approved Subdivision commonly known as “Altair,” which was approved as an Approved Subdivision pursuant to that certain Project Loan Addendum (the “ Altair Project Loan Addendum ”), dated as of June 26, 2007:

(a) The MFR A&D Lots in such Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a term of thirty-six (36) Calendar Months from the original Lot Eligibility Date for such A&D Lots.

(b) The MFR Model Units in such Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a term of thirty-six (36) Calendar Months from the original Unit Eligibility Date for such Model Units.

(c) The Mandatory Lot Commitment Reduction Schedule attached as Exhibit B to the Altair Project Loan Addendum is hereby amended and restated in it entirety by the Revised Mandatory Lot Commitment Reduction Schedule attached hereto as Schedule 1 .

2.4 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, with respect to the Approved Subdivision commonly known as “Rosabella at Shady Trails,” which was approved as an Approved Subdivision pursuant to that certain Project Loan Addendum (the “ Rosabella Project Loan Addendum ”), dated as of April 3, 2006:

(a) The MFR A&D Lots in such Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a term of forty-five (45) Calendar Months from the original Lot Eligibility Date for such A&D Lots.

(b) The MFR Model Units in such Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a term of thirty-six (36) Calendar Months from the original Unit Eligibility Date for such Model Units.

(c) The Mandatory Lot Commitment Reduction Schedule attached as Exhibit B to the Rosabella Project Loan Addendum is hereby amended and restated in it entirety by the Revised Mandatory Lot Commitment Reduction Schedule attached hereto as Schedule 2 .

2.5 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, with respect to the Approved Subdivision commonly known as “Tradition at Arboreta,” which was approved as an Approved Subdivision pursuant to that certain Project Loan Addendum (the “ Arboreta Project Loan Addendum ”), dated as of November 28, 2007, the Mandatory Lot Commitment Reduction Schedule attached as Exhibit B to the Arboreta Project Loan Addendum is

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hereby amended and restated in it entirety by the Revised Mandatory Lot Commitment Reduction Schedule attached hereto as Schedule 3 .

2.6 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, with respect to the Approved Subdivision commonly known as “Tramonto,” which was approved as an Approved Subdivision pursuant to that certain Project Loan Addendum (the “ Tramonto Project Loan Addendum ”), dated as of October 7, 2005, the Mandatory Lot Commitment Reduction Schedule attached as Exhibit B to the Tramonto Project Loan Addendum is hereby amended and restated in it entirety by the Revised Mandatory Lot Commitment Reduction Schedule attached hereto as Schedule 4 .

2.7 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, with respect to the Approved Subdivision commonly known as “The Lofts,” which was approved as an Approved Subdivision pursuant to that certain Project Loan Addendum (the “ Lofts Project Loan Addendum ”), dated as of June 20, 2007:

(a) Each of the MFR Spec Units in such Approved Subdivision included in the Borrowing Base, other than the MFR Spec Units identified as Unit Nos. 333, 334 and 335, are hereby converted from MFR Spec Units to MFR A&D Lots and shall continue to be included in the Borrowing Base as MFR A&D Lots. The MFR Spec Units in such Approved Subdivision included in the Borrowing Base which are identified as Unit Nos. 333, 334 and 335 shall continue to be included in the Borrowing Base as MFR Spec Units.

(b) The Maximum Allowed Advance for each MFR A&D Lot in such Approved Sub