TENTH MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING LINE OF CREDIT AGREEMENT

Exhibit 10.4

TENTH 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 Tenth 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, by a Seventh Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of March 12, 2008, by an Eighth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of June 5, 2008, and by a Ninth Modification Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of September 16, 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 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:

Borrower acknowledges the accuracy of the Recitals.

2.1 The Commitment Amount is hereby reduced from $40,000,000 to $30,000,000. 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 Maturity Date is hereby shortened from June 28, 2010 to December 28, 2009. All principal, interest and Other Amounts shall be immediately due and payable on the Maturity Date, as shortened hereby.

2.3 The definition of “ Interest Rate ” set forth in Section 1.1 of the Loan Agreement is deleted in its entirety and replaced with the following:

“‘ Interest Rate ’ means the LIBOR Rate or the Floating Rate, as applicable, provided that the Interest Rate shall never be less than 5.5% per annum.”

2.4 The definition of “ Floating Rate ” set forth in Section 1.1 of the Loan Agreement is deleted in its entirety and replaced with the following:

“‘ Floating Rate ’ means, for any day, a rate per annum equal to the sum of (a) the Prime Rate for such day, plus (b) the Applicable Margin; provided that the Floating Rate shall never be less than the Applicable Margin plus the Adjusted One Month LIBOR Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day). Any change in the Floating Rate due to a change in the Prime Rate or the Adjusted One Month LIBOR Rate shall be effective from and including the effective date of such change in the Prime Rate or the Adjusted One Month LIBOR Rate, respectively.”

2.5 The following definition is hereby added to Section 1.1 of the Loan Agreement:

“‘ Adjusted One Month LIBOR Rate ’ means, an interest rate per annum equal to the sum of (i) 2.50% per annum plus (ii) the LIBOR Base Rate for a one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day); provided that, for the avoidance of doubt, the LIBOR Base Rate for any day shall be based on the rate appearing on the Reuters Screen LIBOR01 Page (or on any successor or substitute page) at approximately 11:00 a.m. London time on such day.”

2.6 Section 2.3(a) of the Loan Agreement is hereby deleted in its entirety and restated to provide as follows:

“(a) Rate of Interest . Each Advance will bear interest from the date of the Advance at a per annum Interest Rate which is either the LIBOR Rate or the Floating Rate, as elected by Borrower in accordance with Section 2.4 , provided that the Interest Rate shall never be less than 5.5% per annum.”

2.7 Section 2.11(d) of the Loan Agreement is hereby deleted in its entirety and restated to provide as follows:

“(d) Payments During Term Out . From and after the Revolving Credit Termination Date, the Borrower shall make the following principal payments:

(i) On the last day of the second Calendar Month after the Revolving Credit Termination Date, on the last day of each fourth Calendar Month after the Revolving Credit Termination Date, and on the Maturity Date, the Borrower will make a principal