FIFTH MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING LINE OF CREDIT AGREEMENT

Exhibit 10.1

FIFTH 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 Fifth 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, and as further modified 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, and by a Fourth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of April 26, 2007 (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 One Hundred Million Dollars ($100,000,000) 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 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 has been, and continues 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 has requested that the Bank agree to extend the Revolving Credit Termination Date from June 28, 2008 to June 28, 2009, to extend the Maturity Date from June 28, 2009, to June 28, 2010, and to modify certain terms and conditions of the Loan Documents as hereinafter provided. Based on the representations of Borrower, Bank is willing to so extend the Revolving Credit Termination Date and the Maturity Date and modify the Loan Documents, subject to the terms and conditions 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:

Borrower acknowledges the accuracy of the Recitals.

2.1 The Revolving Credit Termination Date is hereby extended from June 28, 2008 to June 28, 2009. In no event shall the Bank be required to make Advances of the Loan to Borrower and to issue Facility LCs for the account of Borrower after the Revolving Credit Termination Date, as extended hereby.

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2.2 The Maturity Date is hereby extended from June 28, 2009 to June 28, 2010. All principal, interest and Other Amounts shall be immediately due and payable on the Maturity Date, as extended hereby.

2.3 Subparagraphs (e)(iv), (e)(v) and (e)(vi) of the definition of “ Maximum Allowed Advance ” set forth in the Loan Agreement are is deleted in their entirety and replaced with the following:

“(iv) For each SFR Spec Unit, the lesser of (A) 80% of the lesser of (1) the Appraised Value for that Unit or (2) the current base price at which Borrower is marketing such Unit, and (B) 90% of the Unit Cost for that Unit;

(v) For each Spec Unit which constitutes an MFR Unit, the lesser of (A) 70% of the lesser of (1) the Appraised Value for that Unit or (2) the current base price at which Borrower is marketing such Unit, and (B) 85% of the Unit Cost for that Unit;

(vi) For each Spec Unit which constitutes a High Density Unit, the lesser of (A) 70% of the lesser of (1) the Appraised Value for that Unit or (2) the current base price at which Borrower is marketing such Unit, and (B) 70% of the Unit Cost for that Unit;”

2.4 Section 3.3(b)(i) of the Loan Agreement is deleted in its entirety and replaced with the following:

“(i) Limitation on Attached A&D Lot Availability in Approved Subdivisions . The aggregate Lot Collateral Value of all Attached A&D Lots (other than Attached A&D Lots that have been reclassified as Units) in all Approved Subdivisions included as Eligible Collateral in the Borrowing Base may not exceed an amount equal to thirty percent (30%) of the Commitment Amount (the “ Attached A&D Lot Sub-Limit ”).”

2.5 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, the Model Units in the Approved Subdivision commonly known as “Tramonto,” which was approved as an Approved Subdivision pursuant to that certain Project Loan Addendum dated as of October 7, 2005, 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.

2.6 Notwithstanding any provision in the Loan Agreement or in any other Loan Document to the contrary, the A&D Lots and the Model Units in the Approved Subdivision commonly known as “Groves at Falling Leaf,” which was