<PAGE>   1
                                                                    EXHIBIT 10.7
                  


               NEW SPECIAL PREFERRED STOCK DISTRIBUTION AGREEMENT


         This New Special Preferred Stock Distribution Agreement ("Agreement")
is made and entered into as of the _____ day of June, 1997, by and between
FirstCity Financial Corporation, a Delaware corporation ("FirstCity"), and the
FirstCity Liquidating Trust, a trust formed under the laws of the State of
Texas (the "Trust").

                                   RECITALS:

         WHEREAS, the Trust was created pursuant to the Liquidating Trust
Agreement dated as of July 3, 1995, by and between FirstCity (fka First City
Bancorporation of Texas, Inc.), for the benefit of the respective Beneficiaries
entitled to the Trust Assets, and Fleet National Bank (fka Shawmut Bank
Connecticut, National Association), as Trustee (the "Trust Agreement"); and

         WHEREAS, FirstCity is the holder of record of the Class A Certificate
issued by the Trust; and

         WHEREAS, pursuant to the terms of the Trust Agreement, the Trust is
obligated to distribute to the holder of the Class A Certificate the New
Special Preferred Stock Dividend Amount and the New Special Preferred Stock
Redemption Amount; and

         WHEREAS, FirstCity is authorized to issue 2,500,000 shares of New
Special Preferred Stock, par value $0.01 per share, with a nominal stated value
of $21.00 per share (the "Special Preferred Stock"), of which 1,923,481 shares
are issued and outstanding as of the date hereof; and

         WHEREAS, FirstCity is authorized to issue up to 100,000,000 shares of
Optional Preferred Stock in one or more classes or series, the shares of each
class or series to have such rights, powers and privileges as fixed by the
board of directors of FirstCity in a resolution adopted providing for the
issuance of the class or series; and

         WHEREAS, on or before June 30, 1997, FirstCity intends to initiate its
offer to exchange (the "Exchange Offer") the issued and outstanding shares of
Special Preferred Stock for shares of a new class or series of Optional
Preferred Stock to be issued by FirstCity ("New Series Preferred Stock"); and

         WHEREAS, the shares of Special Preferred Stock which are exchanged in
the Exchange Offer are referred to in this Agreement as the "Exchanging Shares"
and the shares of Special Preferred Stock which are not exchanged in the
Exchange Offer are referred to in this Agreement as the "Non-Exchanging
Shares"; and

         WHEREAS, FirstCity and the Trust have agreed that June 30, 1997, shall
be a Distribution Date (the "First Distribution Date") and that the
Distribution Amount on the First Distribution Date shall be an amount equal to
the total of the following (the "First Distribution Amount"):  (A) not less
than $20,000,000 (the amount actually paid on the First Distribution Date being
referred to in this





                                                                          PAGE 1
<PAGE>   2
Agreement as the "Initial Distribution Amount"); plus (B) an amount equal to
all accrued but unpaid dividends through the First Distribution Date,
regardless of declaration by the board of directors of FirstCity, on the
Special Preferred Stock; and

         WHEREAS, FirstCity and the Trust have agreed that not later than July
31, 1997, shall be a Distribution Date (the actual date of the distribution of
the Second Distribution Amount being referred to herein as the "Second
Distribution Date") and that the Distribution Amount on the Second Distribution
Date shall be an amount equal to the total of the following (the "Second
Distribution Amount"):  (A) 1,923,481 times $22.75; minus (B) the Initial
Distribution Amount; plus (c) an amount equal to the product of the following:
(I) 15% per annum for the period from the First Distribution Date through the
Second Distribution Date; times (II) $21.00; times (III) the difference between
(X) 1,923,481 less (Y) the Initial Distribution Amount divided by $22.75; and

         WHEREAS, FirstCity and the Trust have agreed that upon payment of the
First Distribution Amount and Second Distribution Amount (the "Aggregate
Distribution Amount") with respect to the New Special Preferred Stock Dividend
Amount and the New Special Stock Redemption Amount shall have been paid in full
and the Trust shall have no further obligation to make any distributions to the
holder of the Class A Certificate with respect to the New Special Preferred
Stock Dividend Amount and the New Special Stock Redemption Amount;

         NOW, THEREFORE, the parties hereto hereby agree as follows:

         1.      DISTRIBUTION DATES AND DISTRIBUTION AMOUNTS.

         FirstCity and the Trust agree that June 30, 1997, shall be a
Distribution Date and that the Distribution Amount on the First Distribution
Date shall be the First Distribution Amount.  FirstCity and the Trust agree
that on or about July 31, 1997, shall be a Distribution Date and that the
Distribution Amount on the Second Distribution Date shall be the Second
Distribution Amount.  The Trust shall distribute the First Distribution Amount
to FirstCity on the First Distribution Date and shall distribute the Second
Distribution Amount to FirstCity on the Second Distribution Date.

         2.      PAYMENT IN FULL OF NEW SPECIAL PREFERRED STOCK DIVIDEND AMOUNT
AND NEW SPECIAL PREFERRED STOCK REDEMPTION AMOUNT.  Upon payment of the First
Distribution Amount and the Second Distribution Amount, the Aggregate
Distribution Amount with respect to the New Special Preferred Stock Dividend
Amount and the New Special Preferred Stock Redemption Amount shall be deemed to
have been paid in full and the Trust shall have no further obligation to make
any distributions to the holder of the Class A Certificate with respect to the
New Special Preferred Stock Dividend Amount and the New Special Stock
Redemption Amount.  Upon payment of the Aggregate Distribution Amount,
FirstCity, the sole holder of the Class A Certificate, shall immediately
deliver to the Trust a Release, Waiver and Indemnification Agreement ("RWI
Agreement") in the form of Exhibit A attached hereto.

         3.      ALLOCATION OF DISTRIBUTION AMOUNTS.  The total of the First
Distribution Amount and the Second Distribution Amount shall be treated as paid
with respect to and allocated as follows:  (A) to the Non-Exchanging Shares, an
amount equal to $24.94 times the number of Non-Exchanging





                                                                          PAGE 2
<PAGE>   3
Shares (the "Non-Exchanging Shares Amount"); and (B) to the Exchanging Shares,
an amount equal to the difference between (I) the First Distribution Amount
plus the Second Distribution Amount less (II) the Non-Exchanging Shares Amount.

         4.      RESERVATION AMOUNT.  FirstCity and the Trust acknowledge and
agree that pursuant to the terms of the Trust Agreement, the holder of the
Class A Certificate is entitled to receive Distribution Amounts other than the
New Special Preferred Stock Dividend Amount and the New Special Preferred Stock
Redemption Amount (the "Future Distribution Amounts").  Prior to receipt by the
Trust of a written notice from FirstCity that a Future Distribution Amount is
or may become due and payable (a "Reservation Notice"), the Aggregate
Distribution Amount with respect to the FirstCity Amount, New Special Preferred
Stock Dividend Amount and New Special Preferred Stock Redemption Amount shall
be treated as paid in full or reserved in full under Section 7.2(1)(b)(i) of
the Trust Agreement and, subject to the other provisions of Section 7.2 of the
Trust Agreement, distributions may be made to the holders of the Class B
Certificates and Class C Certificates.  Upon receipt of a Reservation Notice,
no further distributions shall be made to the holders of the Class B
Certificates or the Class C Certificates until the Future Distribution Amount
described in the Reservation Notice has either been paid in full or reserved in
full to the reasonable satisfaction of FirstCity.

         5.      QUIET PERIOD.  Neither the Trust or FirstCity shall purchase,
or request or cause the other to purchase, any shares of the Special Preferred
Stock after the date of this Agreement.

         6.      MISCELLANEOUS.

         (a)     DEFINITIONS.  Unless otherwise defined in this Agreement,
capitalized terms used in this Agreement shall have the meaning assigned such
terms in the Trust Agreement.

         (b)     PRESS RELEASES AND ANNOUNCEMENTS.  No party shall issue any
press release or announcement relating to the subject matter of this Agreement
without the prior written approval of the other party; provided, however, that
any party may make any public disclosure it believes, in good faith, is
required by law or regulation (in which case the disclosing party will advise
the other party prior to making the disclosure).

         (c)     NO THIRD PARTY BENEFICIARIES.  This Agreement shall not confer
any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.

         (d)     ENTIRE AGREEMENT.  This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings or agreements by or among the parties,
written or oral, that may have related in any way to the subject matter hereof.

         (e)     SUCCESSORS AND ASSIGNS.  This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and assigns.  No party may assign





                                                                          PAGE 3
<PAGE>   4
either this Agreement or any of its rights, interests or obligations hereunder
without the prior written approval of the other party.

         (f)     COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

         (g)     HEADINGS.  The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.

         (h)     GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF TEXAS.

         (i)     AMENDMENTS.  No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by all of the
parties.

         (j)     CONSTRUCTION.  The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction shall be applied against any party.


         EXECUTED to be effective as of the date first above written.

                                        FIRSTCITY FINANCIAL CORPORATION


                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------
                                           
                                        FIRSTCITY LIQUIDATING TRUST
                                        BY:      FLEET NATIONAL BANK, TRUSTEE


                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------
                                           




                                                                          PAGE 4
<PAGE>   5
                        DIRECTION OF PORTFOLIO COMMITTEE


         The Portfolio Committee hereby authorizes and directs [Fleet Bank,
N.A.], as Trustee of the Trust, to execute this Agreement and to take any and
all actions and do all other things which it may deem necessary or desirable to
consummate the transactions contemplated this Agreement.

         EXECUTED to effective as of the date first above written.



                                        ----------------------------------------
                                        Robert W. Brown


                                        ----------------------------------------
                                        Rick R. Hagelstein


                                        ----------------------------------------
                                        Richard Bean


                                        ----------------------------------------
                                        David Palmer





                                                                          PAGE 5
<PAGE>   6
                 RELEASE, WAIVER AND INDEMNIFICATION AGREEMENT

         This Release, Waiver and Indemnification Agreement ("RWI Agreement")
is made and entered into as of the _____ day of June, 1997, by and between
FirstCity Financial Corporation, a Delaware corporation ("FirstCity"), and the
FirstCity Liquidating Trust, a trust formed under the laws of the State of
Texas (the "Trust").

                             PRELIMINARY STATEMENT

         FirstCity and the Trust have entered into a New Special Preferred
Stock Distribution Agreement dated June _____, 1997 ("NSPSD Agreement"),
whereby, among other things, the Parties have agreed that the Trust shall,
under its obligation to FirstCity, distribute to FirstCity the New Special
Preferred Stock Dividend Amount and the New Special Preferred Stock Redemption
Amount (each as defined therein).  Because FirstCity is obligated to redeem on 
September 30, 1998, its Special Preferred Stock, the Trust wishes to enter into
this RWI Agreement whereby, among other things, FirstCity agrees to indemnify
and hold the Trust harmless from any and all loss, damage, claim or liability
of any nature whatsoever resulting, directly or indirectly, from or arising,
directly or indirectly, out of the failure of FirstCity to pay when and as due
any and all dividends on the Special Preferred Stock or to redeem the Special
Preferred Stock when and as required by the Amended and Restated Certificate of
Incorporation of FirstCity or otherwise.

         NOW, THEREFORE, , in consideration of the premises and for other good,
valid and binding consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:

                             STATEMENT OF AGREEMENT

         Section 1.       RELEASE.  FirstCity hereby releases and forever
discharges the Trust of and from any and all claims, actions, demands,
lawsuits, causes of action, losses, costs or liability of whatever kind or
nature, now existing or which may hereafter accrue, whether known or unknown,
that have been or might have been asserted whether or not heretofore asserted,
related to or arising, directly or indirectly, out of any acts, events, facts
or circumstances associated with or relating to the failure of FirstCity to pay
when and as due any and all dividends on the Special Preferred Stock or to
redeem the Special Preferred Stock when and as required by the Amended and
Restated Certificate of Incorporation of FirstCity or otherwise.

         Section 2.       WAIVER.  FirstCity hereby waives any and all rights,
remedies, claims, actions, demands, lawsuits, or causes of action, of whatever
kind or nature, now existing or which may hereafter accrue, whether known or
unknown, that have been or might have been asserted whether or not heretofore
asserted, related to or arising, directly or indirectly, out of any acts,
events, facts or circumstances associated with or relating to the failure of
FirstCity to pay when and as due any and all dividends on the Special Preferred
Stock or to redeem the Special
<PAGE>   7
Preferred Stock when and as required by the Amended and Restated Certificate of
Incorporation of FirstCity or otherwise.

         Section 3.       INDEMNIFICATION.

                 (a)      FirstCity hereby agrees to indemnify, defend and save
         the Trust harmless, from and against all demands, claims, actions or
         causes of action, assessments, losses, damages, liabilities, costs and
         expenses, including without limitation, interest, penalties and
         attorney's fees and expenses (collectively "Damages") asserted
         against, resulting to, imposed upon or incurred by the Trust by reason
         of or relating to or arising, directly or indirectly, out of the
         failure of FirstCity to pay when and as due any and all dividends on
         the Special Preferred Stock or to redeem the Special Preferred Stock
         when and as required by the Amended and Restated Certificate of
         Incorporation of FirstCity or otherwise.

                 (b)      If any claim of liability is made by a third person
         against the Trust based on related to or arising, directly or
         indirectly, out of any acts, events, facts or circumstances associated
         with or relating to the failure of FirstCity to pay when and as due
         any and all dividends on the Special Preferred Stock or to redeem the
         Special Preferred Stock when and as required by the Amended and
         Restated Certificate of Incorporation of FirstCity or otherwise, the
         Trust shall with reasonable promptness give to FirstCity written
         notice of the claim and request FirstCity to defend the same

                 (c)      FirstCity shall have the right to undertake and shall
         undertake if so requested by the Trust (at FirstCity's cost and
         expense) the defense thereof by representatives chosen by it and
         reasonably acceptable to the Trust.  If FirstCity, within a reasonable
         time after notice of any such claim, fails to defend the Trust against
         such claim the Trust will (upon further notice to FirstCity) have the
         right to undertake the defense, compromise or settlement of such claim
         at the cost and expense of, on behalf of and for the account and risk
         of FirstCity, subject to the right of FirstCity to assume the defense
         of such claim at any time prior to settlement, compromise or final
         determination thereof.

         Section 4.       MISCELLANEOUS.

                 (a)      Defined Terms.  Unless otherwise defined in the RWI
         Agreement, the terms used in this RWI Agreement shall have the meaning
         assigned such terms in the NSPSD Agreement.

                 (b)      Further Assurances.  From time to time upon request
         and without further consideration, each of the parties hereto shall,
         and shall cause its subsidiaries and affiliates to, execute, deliver
         and acknowledge all such further instruments and do such further acts
         as any other party hereto may reasonably require to evidence or
         implement the transactions contemplated by this Agreement.




                                      2
<PAGE>   8
                 (c)      No Waiver/Remedies Cumulative.  Any failure of any of
         the parties to comply with any obligation, covenant, agreement or
         condition herein may be waived by any of the parties entitled to the
         benefit thereof only by a written instrument signed by each such party
         granting such waiver, but such waiver or failure to insist upon strict
         compliance with such obligation, representation, warranty, covenant,
         agreement or condition shall not operate as a waiver of or estoppel
         with respect to any subsequent or other failure.  The rights,
         remedies, powers and privileges herein provided are cumulative and not
         exclusive or any rights, remedies, powers and privileges provided by
         law.

                 (d)      GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY,
         AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS
         REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE
         PRINCIPLES OF CONFLICTS OF LAWS THEREOF.

                 (e)      Counterparts.  This Agreement may be executed in any
         number of counterparts and by different parties hereto in separate
         counterparts, and delivered by means of facsimile transmission or
         otherwise, each of which when so executed and delivered shall be
         deemed to be an original and all of which when taken together shall
         constitute but one and the same agreement.  If any party hereto elects
         to execute and deliver a counterpart signature page by means of
         facsimile transmission, it shall deliver an original of such
         counterpart to each of the other parties hereto within ten Business
         Days of the date hereof, but in no event will the failure to do so
         affect in any way the validity of the facsimile signature or its
         delivery.

                 (f)      Parties in Interest/Assignment.  This Agreement and
         all of the provisions hereof shall be binding upon and inure to the
         benefit of, and be enforceable by, the parties hereto and their
         respective successors and permitted assigns, but neither this
         Agreement nor any of the rights, interests or obligations herein shall
         be assigned by any party hereto without the prior written consent of
         the other parties hereto, and any attempt to do so without obtaining
         the required consents of the other parties hereto shall be void.

                 (g)      Entire Agreement.  This Agreement contains all of the
         terms of the understanding of the parties hereto with respect to the
         subject matter hereof.

                 (h)      Amendment.  This Agreement may not be amended except
         by an instrument in writing signed by each of the parties hereto and
         supersedes all prior agreements and understandings with respect to its
         subject matter.

                 (i)      Notices.  All notices and other communications
         hereunder must be in writing and will be deemed to have been duly
         given when personally or actually delivered or on the date of receipt
         or refusal indicated on the return receipt if mailed (registered or
         certified mail, postage prepaid, return receipt requested), sent by
         express courier service, or when transmitted by facsimile transmission
         to the addresses/facsimile numbers set forth on the signature pages
         hereto, or to such other addresses/facsimile numbers as any party
         hereto may from time to time designate in writing in accordance with
         the provisions





                                                            3
<PAGE>   9
         hereof to the other parties hereto as the proper address/facsimile
         number to which such notices and communications shall be sent.

                 (j)      Severability.  If any provision of this Agreement
         shall be held to be illegal, invalid or unenforceable under any
         applicable law, then such contravention or invalidity shall not
         invalidate the entire Agreement.  Such provision shall be deemed to be
         modified to the extent necessary to render it legal, valid and
         enforceable, and if no such modification shall render it legal, valid
         and enforceable, then this Agreement shall be construed as if not
         containing the provisions held to be invalid, and the rights and
         obligations of the parties shall be construed and enforced
         accordingly.

                 (k)      Headings.  The headings used herein are for
         convenience of reference only, are not a part of this Agreement and
         are not to affect the construction of, or to be taken into
         consideration in interpreting, any provision of this Agreement.

                 (l)      Third Parties.  Nothing herein expressed or implied
         is intended or shall be construed to confer upon or give to any person
         other than the parties hereto and their successors or permitted
         assigns, any rights or remedies under or by reason of this Agreement.


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first hereinabove written.


<TABLE>
<S>                                                <C>
FirstCity Financial Corporation                    FirstCity Liquidating Trust



By:                                                By:                                        
         ----------------------------------                 ----------------------------------
         Name:                                              Name:                             
                 --------------------------                         --------------------------
         Title:                                             Title:                            
                 --------------------------                         --------------------------
                                                   
Address:                                           Address:                                   
                 --------------------------                         --------------------------
                                                                                              
                 --------------------------                         --------------------------
                                                                                              
                 --------------------------                         --------------------------
                                                                                              
                 --------------------------                         --------------------------
Phone No.:                                         Phone No.:                                 
                 --------------------------                         --------------------------
Fax No.:                                           Fax No.:                                   
                 --------------------------                         --------------------------
</TABLE>





                                      4