THIRD MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING LINE OF CREDIT AGREEMENT

EXHIBIT 10.1

THIRD 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 Third Modification 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, dated as of July 14, 2005 (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 further 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 ”).

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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 has requested that the Bank agree to extend the Revolving Credit Termination Date from June 28, 2007 to June 28, 2008, and to extend the Maturity Date from June 28, 2008, to June 28, 2009. Based on the representations of Borrower, Bank is willing to so extend the Revolving Credit Termination Date and the Maturity Date, subject to the terms and conditions herein.

F. The Borrower has also requested that the Bank revise the limitation on Spec Units to be based on the lesser of the number of units specified, the appraised absorption rate or the actual absorption rate. Based on the representations of Borrower, Bank is willing to so revise the limitation on Spec Units, subject to the terms and conditions herein.

G. The Borrower has also requested that the Bank increase the limitation on the Collateral Value of all Lots and Units in any Approved Subdivision located in California from Twenty-Five Million Dollars ($25,000,000) to Thirty Million Dollars ($30,000,000). Based on the representations of Borrower, Bank is willing to so increase the limitation on Collateral Value for Approved Subdivisions located in California, subject to the terms and conditions herein.

H. 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.

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2.1 The Revolving Credit Termination Date is hereby extended from June 28, 2007 to June 28, 2008. 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.

2.2 The Maturity Date is hereby extended from June 28, 2008 to June 28, 2009. All principal, interest and Other Amounts shall be immediately due and payable on the Maturity Date, as extended hereby.

2.3 Section 2.5 of the Loan Agreement is deleted in its entirety and replaced with the following:

“2.5 Method of Advances .

(a) Advances may be made by Bank at the written request of the Person or Persons designated by Borrower from time to time on Bank’s form of signature authorization; provided, however, that Bank shall have acknowledged receipt of any changes in the Person or Persons designated by Borrower, and such Person or Persons designated by Borrower will have executed a new signature authorization form. Subject to Section 2.4 and the other terms and conditions of this Agreement (including those hereinafter set forth), such Person or Persons are hereby authorized by Borrower to request Advances (subject to the limitations in this Agreement) not more frequently than one (1) time per day, and to direct the disposition of the proceeds of Advances until written notice of the revocation of such authority is received from Borrower by Bank and Bank has had a reasonable time to act upon such notice. Bank has no duty to monitor for Borrower or Guarantor, or to report to any such Person, the use of proceeds of Advances. Subject to the satisfaction of all applicable terms and conditions, (i) with respect to each Draw Request submitted on or before 11:00 a.m. on any Business Day, Bank will make the requested advance on or before Noon on the next Business Day and (ii) with respect to a Draw Request received by Bank after 11:00 a.m. on any Business Day, Bank will make the requested advanc