<PAGE>
                                                                   Exhibit 10.27


                               WILLIAM LYON HOMES

                  OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN

                        EFFECTIVE AS OF FEBRUARY 11, 2002


<PAGE>


                               TABLE OF CONTENTS
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<S>           <C>                                                                         <C>
ARTICLE 1      DEFINITIONS.................................................................1

        1.1.   Accrued Benefit.............................................................1

        1.2.   Beneficiary.................................................................1

        1.3.   Calendar Year...............................................................1

        1.4.   Change in Control ..........................................................1

        1.5.   Code........................................................................3

        1.6.   Compensation................................................................3

        1.7.   Deferral Account............................................................3

        1.8.   Effective Date..............................................................3

        1.9.   Election of Deferral........................................................3

        1.10.  Outside Director............................................................3

        1.11.  Participant.................................................................3

        1.12.  Participant Annual Deferral.................................................3

        1.13.  Plan........................................................................3

        1.14.  Plan Administrator..........................................................3

        1.15.  Plan Year...................................................................3

        1.16.  Valuation Date..............................................................3

ARTICLE 2      ELIGIBILITY AND PARTICIPATION...............................................4

        2.1.   Eligibility.................................................................4

        2.2.   Participation...............................................................4

ARTICLE 3      CONTRIBUTIONS AND CREDITS...................................................4

ARTICLE 4      DEFERRAL ACCOUNTS AND ALLOCATION OF FUNDS...................................5

        4.1.   Deferral Account Allocations................................................5

        4.2.   Investment Election and Declared Rates......................................5

</TABLE>


                                      -i-

<PAGE>

<TABLE>
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<S>           <C>                                                                         <C>
        4.3.   Determination of Accounts...................................................6

ARTICLE 5      ENTITLEMENT TO BENEFITS.....................................................6

        5.1.   Vesting of Benefits.........................................................6

        5.2.   Termination of Service as a Director........................................6

        5.3.   Fixed Payment Date Benefit..................................................6

        5.4.   Death Benefits..............................................................7

        5.5.   Hardship Distribution.......................................................7

        5.6.   Withdrawal Election.........................................................7

        5.7.   Adverse Action on Participant or Plan.......................................8

ARTICLE 6      RIGHTS ARE LIMITED..........................................................8

        6.1.   Benefits Payable Only From General Corporate Assets: Unsecured General
               Creditor Status of Participant..............................................8

        6.2.   No Right to Board Membership................................................8

        6.3.   Benefits Not Transferable...................................................9

        6.4.   No Trust Created............................................................9

ARTICLE 7      BENEFICIARIES...............................................................9

        7.1.   Beneficiary Designation.....................................................9

        7.2.   Spouse's Interest...........................................................9

        7.3.   Facility of Payment.........................................................9

ARTICLE 8      PLAN ADMINISTRATION........................................................10

        8.1.   Responsibility of Administration of the Plan...............................10

        8.2.   Arbitration................................................................10

        8.3.   Notice.....................................................................12

ARTICLE 9      AMENDMENT OR TERMINATION...................................................13

ARTICLE 10     THE TRUST..................................................................13

</TABLE>

                                      -ii-

<PAGE>

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<S>           <C>                                                                         <C>
        10.1.  Establishment of Trust.....................................................13

        10.2.  Interrelationship of the Plan and the Trust................................13

        10.3.  Contribution to the Trust..................................................13

ARTICLE 11     MISCELLANEOUS..............................................................13

        11.1.  Governing Law..............................................................13

        11.2.  Withholding................................................................13

EXHIBIT A......Participant Enrollment and Election Form

EXHIBIT B      Deemed Investment Elections..................................................

EXHIBIT C      Designation of Beneficiary...................................................

</TABLE>

                                     -iii-
<PAGE>

                               WILLIAM LYON HOMES
                  OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN

        THIS PLAN is adopted as of the 11th day of February, 2002, by William
Lyon Homes, a Delaware corporation (the "Corporation"), as follows:

                                    RECITALS

        WHEREAS, the Corporation wishes to establish the William Lyon Homes
Outside Directors Deferred Compensation Plan (the "Plan") to provide additional
retirement benefits and income tax deferral opportunities for directors of the
Corporation who are not officers or employees of the Corporation; and

        WHEREAS, the Corporation intends that the Plan shall at all times be
administered and interpreted in such a manner as to constitute an unfunded
nonqualified deferred compensation plan for directors of the Corporation who are
not officers or employees of the Corporation;

        NOW, THEREFORE, the Corporation hereby adopts the following Outside
Directors Deferred Compensation Plan.

                                    ARTICLE 1

                                   DEFINITIONS

        DEFINITION OF TERMS. Certain words and phrases are defined when first
used in later sections of this plan. In addition, the following words and
phrases when used herein, unless the context clearly requires otherwise, shall
have the following respective meanings.

1.1.    ACCRUED BENEFIT. The sum of all amounts deferred hereunder by or on
        behalf of a Participant, including any earnings, gains, losses, and
        changes in value credited to the Participant or his or her Beneficiaries
        pursuant to this Plan, which shall be reflected in the Deferral Account.

1.2.    BENEFICIARY. The Beneficiary designated by a Participant under Article
        7, or, if the Participant has not designated a Beneficiary under Article
        7, the person or persons entitled to receive distributions of benefits
        under Section 5.4.

1.3.    CALENDAR YEAR.  January 1 to December 31.

1.4.    CHANGE IN CONTROL shall mean the occurrence of any of the following:

            (i)   Any "Person" or "Group", as such terms are defined in Section
                  13(d) of the Securities Exchange Act of 1934 (the "Exchange
                  Act") and the rules and regulations promulgated thereunder,
                  excluding any Excluded Stockholder, who is or becomes the
                  "Beneficial Owner" (within the meaning of Rule 13d-3 under the
                  Exchange Act), directly or indirectly, of securities of the
                  Corporation, or of any entity


                                      -1-
<PAGE>

                  resulting from a merger or consolidation involving the
                  Corporation, representing more than fifty percent (50%) of the
                  combined voting power of the then outstanding securities of
                  the Corporation or such entity.

            (ii)  The individuals who, as of the time immediately following the
                  election of directors at the Corporation's 2001 Annual Meeting
                  of Stockholders, are members of the Board (the "Existing
                  Directors"), cease, for any reason, to constitute more than
                  fifty percent (50%) of the number of authorized directors of
                  the Corporation as determined in the manner prescribed in the
                  Corporation's Certificate of Incorporation and Bylaws;
                  provided, however, that if the election, or nomination for
                  election, by the Corporation's stockholders of any new
                  director was approved by a vote of at least fifty percent
                  (50%) of the Existing Directors, such new director shall be
                  considered an Existing Director; provided further, however,
                  that no individual shall be considered an Existing Director if
                  such individual initially assumed office as a result of either
                  an actual or threatened "Election Contest" (as described in
                  Rule 14a-11 promulgated under the Exchange Act) or other
                  actual or threatened solicitation of proxies by or on behalf
                  of anyone other than the Board (a "Proxy Contest"), including
                  by reason of any agreement intended to avoid or settle any
                  Election Contest or Proxy Contest.

            (iii) The consummation of (x) a merger, consolidation or
                  reorganization to which the Corporation is a party, whether or
                  not the Corporation is the Person surviving or resulting
                  therefrom, or (y) a sale, assignment, lease, conveyance or
                  other disposition of all or substantially all of the assets of
                  the Corporation, in one transaction or a series of related
                  transactions, to any Person other than the Corporation, where
                  any such transaction or series of related transactions as is
                  referred to in clause (x) or clause (y) above in this
                  subparagraph (iii) (singly or collectively, a "Transaction")
                  does not otherwise result in a "Change in Control" pursuant to
                  subparagraph (i) of this definition of "Change in Control";
                  provided, however, that no such Transaction shall constitute a
                  "Change in Control" under this subparagraph (iii) if the
                  Persons who were the stockholders of the Corporation
                  immediately before the consummation of such Transaction are
                  the Beneficial Owners, immediately following the consummation
                  of such Transaction, of fifty percent (50%) or more of the
                  combined voting power of the then outstanding voting
                  securities of the Person surviving or resulting from any
                  merger, consolidation or reorganization referred to in clause
                  (x) above in this subparagraph (iii) or the Person to whom the
                  assets of the Corporation are sold, assigned, leased, conveyed
                  or disposed of in any transaction or series of related
                  transactions referred in clause (y) above in this subparagraph
                  (iii), in substantially the same proportions in which such


                                      -2-
<PAGE>

                  Beneficial Owners held voting stock in the Corporation
                  immediately before such Transaction.

        For purposes of the foregoing definition, the term "Excluded
        Stockholder" means General William Lyon, his spouse, children or
        grandchildren, or any trust for the benefit of such persons, or any
        corporation or other entity, the majority of whose beneficial interests
        are owned or controlled by any of such persons or trusts.

1.5.    CODE. The Internal Revenue Code of 1986, as amended from time to time.

1.6.    COMPENSATION. The director's fees payable to a Participant for service
        as an Outside Director.

1.7.    DEFERRAL ACCOUNT. Book entries maintained by the Corporation reflecting
        the Participant's Accrued Benefit, provided, however, that the existence
        of such book entries and the Deferral Account shall not create, and
        shall not be deemed to create, a trust of any kind, or a fiduciary
        relationship between the Corporation and the Participant or his or her
        Beneficiaries.

1.8.    EFFECTIVE DATE.  February 11, 2002.

1.9.    ELECTION OF DEFERRAL. A written notice filed by the Participant with the
        Human Resources Department of the Corporation in substantially the form
        attached hereto as Exhibit A, the Participant Enrollment and Election
        Form, specifying the amount (if any) of Compensation to be deferred.

1.10.   OUTSIDE DIRECTOR. A member of the Board of Directors of the Corporation
        who is not currently an officer or employee of the Corporation or of any
        of its affiliates or subsidiaries.

1.11.   PARTICIPANT.  An Outside Director.

1.12.   PARTICIPANT ANNUAL DEFERRAL. The portion of a Participant's
        Compensation, which he or she elects to defer for the Calendar Year in
        question.

1.13.   PLAN. This Plan, together with any and all amendments or supplements
        thereto.

1.14.   PLAN ADMINISTRATOR. The Board of Directors of the Corporation, without
        the participation of any Outside Director, except as provided in Section
        8.1(c).

1.15.   PLAN YEAR. The Calendar Year, except that the first Plan Year shall be
        the short year beginning February 11, 2002 and ending December 31, 2002.

1.16.   VALUATION DATE. The last day of each quarter during the Plan Year, or
        such other dates as the Plan Administrator may establish in its
        discretion.


                                      -3-
<PAGE>

                                    ARTICLE 2

                          ELIGIBILITY AND PARTICIPATION

2.1.    ELIGIBILITY.

        (a)    Each Outside Director shall become a Participant on the first day
               on which such Outside Director becomes an Outside Director.

        (b)    Once an Outside Director becomes a Participant, he or she shall
               remain a Participant until he or she ceases to be an Outside
               Director, and thereafter until all benefits to which he or she
               (or his or her Beneficiaries) is entitled under the Plan have
               been paid.

2.2.    PARTICIPATION.

        (a)    The Participant may elect a Participant Annual Deferral hereunder
               by filing an Election of Deferral. The initial Election of
               Deferral must be filed on or before February 19, 2002 and shall
               be effective for Compensation which would otherwise be payable
               thereafter in 2002.

        (b)    Each Election of Deferral shall be effective only for
               Compensation which would otherwise be paid in the Calendar Year
               to which the Election of Deferral applies, and shall be
               irrevocable during such Calendar Year. Any subsequent Election of
               Deferral, to be effective, must be filed at least 10 days prior
               to the beginning of the Calendar Year for which deferral is
               sought. Any person who becomes an Outside Director during the
               Plan Year may elect to participate and commence deferrals by
               filing an Election of Deferral within 30 days following the date
               on which he became an Outside Director.

                                    ARTICLE 3

                            CONTRIBUTIONS AND CREDITS

        Commencing on the Effective Date, and continuing through the date on
which the Participant ceases to be an Outside Director, each Participant shall
be entitled to elect to defer into his or her Deferral Account, by filing with
the Plan Administrator an Election of Deferral prior to the beginning of the
Plan Year, a portion of the Compensation that the Participant would be entitled
to receive from the Corporation during the Plan Year. In the Election of
Deferral, the Participant shall specify the amount to be deferred, which such
specification may be expressed as a percentage of the Compensation or as a fixed
dollar amount. A Participant may elect to defer up to one hundred percent (100%)
of the Compensation which would otherwise be payable to him during a Plan Year.
If a Participant validly elects to defer less than all of his Compensation for a
Plan Year, his deferrals shall be withdrawn from the Compensation that would
otherwise be payable to him in such Plan Year as ratably as possible.


                                      -4-
<PAGE>

                                    ARTICLE 4

                    DEFERRAL ACCOUNTS AND ALLOCATION OF FUNDS

4.1.    DEFERRAL ACCOUNT ALLOCATIONS.

        (a)    Compensation which is deferred under the Plan shall be deemed to
               be added to the Deferral Account on the first day of the
               following month in which the Compensation would otherwise have
               been paid.

        (b)    All amounts paid from a Deferral Account shall be deemed to be
               paid on the first day of the month.

        (c)    Based on the Investment Elections of a Participant made under
               Section 4.2, the Participant's Deferral Account shall be credited
               with investment earnings, gains, losses or changes in value
               effective at the end of each calendar quarter during the Plan
               Year, except as otherwise provided in this Plan.

        (d)    The Plan Administrator may, at any time, change the timing or
               methods for crediting or debiting earnings, gains, losses, and
               changes in value of investment options, deferrals of
               Compensation, and payments of benefits and withdrawals under this
               Plan; provided, however, that the times and methods for crediting
               or debiting such items in effect at any particular time shall be
               uniform among all Participants and Beneficiaries.

4.2.    INVESTMENT ELECTION AND DECLARED RATES.

        (a)    Investment Elections may be made from any of the various
               investment alternatives selected by the Participant from among
               those made available by the Corporation from time to time, which
               are outlined in Exhibit B.

        (b)    A Participant (or, in the event of the Participant's death, the
               Participant's Beneficiary) shall make Investment Elections for
               the Participant's Deferral Account by filing a form substantially
               in the form of Exhibit B (or another form acceptable to the Plan
               Administrator) with the Plan Administrator. A Participant may
               elect to have his or her Deferral Account deemed to be invested
               in up to ten (10) investment alternatives, provided, however,
               that such investment alternative must be applied to at least ten
               percent (10%) of the total balance in his or her Deferral Account
               and must be in a whole percentage amount. Investment Elections
               shall remain in effect until changed and may be changed once
               during each calendar quarter, with such change to be effective on
               the first day of the succeeding calendar quarter.

        (c)    At the end of each calendar quarter (or such shorter period as
               the Plan Administrator may determine), the Corporation shall
               compute the total return for the quarter (or such shorter period)
               as to each Participant's Investment Elections and reduce such
               returns for that quarter's (or shorter period's) money management
               fees, mortality charges, cost of insurance and investment
               expenses associated specifically with each investment
               alternative. The total


                                      -5-
<PAGE>

               return for each investment alternative shall be that investment
               alternative's total return for that quarter (or shorter period)
               reduced for expenses as described above.

        (d)    From time to time, and at its sole discretion, the Corporation
               may change the investment alternatives which it makes available
               to the Participant. However, notwithstanding the provisions of
               this Section 4.2, the Corporation may invest contributions in
               investments other than the investments selected by such
               Participant but the Participant's return will solely be based on
               the results of his or her Investment Election reduced for
               expenses as described in Section 4.2(c) above. Nothing in this
               Plan shall require the Corporation actually to acquire or hold
               any particular investment.

4.3.    DETERMINATION OF ACCOUNTS. A Participant's Accrued Benefit and Deferral
        Account balance as of each Valuation Date shall consist of the balance
        of deferrals of Compensation and investment earnings, gains, losses, and
        changes in value in his or her Deferral Account determined in accordance
        with this Section 4.

                                   ARTICLE 5

                             ENTITLEMENT TO BENEFITS

5.1.    VESTING OF BENEFITS. A Participant's Accrued Benefit shall be fully
        vested and nonforfeitable at all times.

5.2.   TERMINATION OF SERVICE AS A DIRECTOR. In the event of the Participant's
       termination of service on the Board of Directors of the Corporation, the
       Corporation shall pay to the Participant the value of the Participant's
       Accrued Benefit, unless the Participant has validly elected a later fixed
       payment date under Section 5.3. Such benefit shall be payable in a lump
       sum on or about the first day of the third month following the date on of
       the Participant's termination of service on the Board of Directors of the
       Corporation.

5.3.    FIXED PAYMENT DATE BENEFIT.

        (a)    A Participant may select a fixed payment date for the payment or
               commencement of payment of his or her Accrued Benefit. Payments
               made under this election will be payable in one lump sum within
               seven (7) days after the fixed payment date. A Participant may
               extend a fixed payment date by written notice to the Plan
               Administrator, provided that the Participant gives such written
               notice at least one (1) year before the fixed payment date before
               such extension. Such fixed payment dates may not be accelerated.

        (b)    Any fixed payment date elected by a Participant as provided under
               Section 5.3(a) above may be before or after the Participant's
               termination of service on the Board of Directors of the
               Corporation, but must be no earlier than the January 1 of the
               third calendar year after the calendar year in which the election
               is made or in which the Participant gives a written notice of
               extension.


                                      -6-
<PAGE>

5.4.    DEATH BENEFITS. In the event of the Participant's death while serving on
        the Board of Directors of the Corporation, or before a validly-elected
        fixed payment date that would be later than the termination of the
        Participant's service on the Board of Directors of the Corporation, and
        before payment of benefits under this Plan, the Corporation shall pay a
        survivor benefit in an amount based on the Participant's Accrued Benefit
        at the date of death. The death benefit payable under this Section 5.4
        shall be distributed to the Participant's Beneficiary in a lump sum on
        or about the first day of the third month following the Participant's
        date of death and based on the last Beneficiary designation received by
        the Corporation from the Participant prior to his or her death. If no
        such designation has been received by the Corporation, such payment
        shall be made to the Participant's surviving legal spouse. If the
        Participant is not survived by a legal spouse, the said payment shall be
        made to the then living children of the Participant, if any, in equal
        shares. If there are no surviving children, the balance of the Accrued
        Benefit shall be paid to the estate of the Participant.

5.5.    HARDSHIP DISTRIBUTION.

        (a)    HARDSHIP WITHDRAWAL. In the event that the Plan Administrator,
               upon written request of a Participant, determines, in its sole
               discretion, that the Participant has suffered an unforeseeable
               financial emergency, the Corporation shall pay to the
               Participant, as soon as practicable following such determination,
               an amount necessary to meet the emergency (the "Hardship
               Withdrawal"), but not exceeding the balance of such Participant's
               Deferral Account as of the date of such payment. For purposes of
               this Section 5.5(a), an "unforeseeable financial emergency" shall
               mean an event that the Plan Administrator determines to give rise
               to an unexpected need for cash arising from an illness, casualty
               loss, sudden financial reversal or other such unforeseeable
               occurrence. Amounts of Hardship Withdrawal may not exceed the
               amount the Plan Administrator reasonably determines to be
               necessary to meet such emergency needs (including taxes incurred
               by reason of a taxable distribution).

        (b)    RULES ADOPTED BY PLAN ADMINISTRATOR. The Plan Administrator shall
               have the authority to adopt additional rules relating to hardship
               distributions. In administering these rules, the Plan
               Administrator shall act in accordance with the principle that the
               primary purpose of this Plan is to provide additional retirement
               income, not additional funds for current consumption.

        (c)    LIMIT ON NUMBER OF HARDSHIP DISTRIBUTIONS. No participant may
               receive more than one hardship distribution in any Calendar Year.

        (d)    PROHIBITION OF FURTHER DEFERRALS. A Participant who receives a
               hardship distribution, and who is still a member of the Board of
               Directors of the Corporation, shall be prohibited from making
               deferrals under section 3.1 for the remainder of the Calendar
               Year in which the distribution is made.

5.6.    WITHDRAWAL ELECTION. A Participant may elect, at any time, to withdraw
        all of his or her vested Accrued Benefit, calculated as if such
        Participant were receiving a


                                      -7-
<PAGE>

        Termination Benefit, less a ten percent (10%) withdrawal penalty (the
        net amount shall be referred to as the "Withdrawal Amount"). No partial
        withdrawals of that balance shall be allowed. The Participant shall make
        this election by giving the Plan Administrator advance written notice of
        the election in a form determined from time to time by the Plan
        Administrator. The penalty shall be equal to ten percent (10%) of the
        Participant's Accrued Benefit determined immediately prior to the date
        of his or her election. Once the Withdrawal Amount is paid, the
        Participant shall be suspended permanently from further participation in
        the Plan.

5.7.    ADVERSE ACTION ON PARTICIPANT OR PLAN. Notwithstanding any other
        provision hereof, in the event there is a determination by the Internal
        Revenue Service, or in the event of a final determination by a court or
        competent jurisdiction, that amounts credited to the Participants'
        Deferral Accounts hereunder are includable in the gross incomes of the
        Participants or Beneficiaries, the Plan Administrator may in its sole
        discretion distribute the entire amount credited to the Participants'
        Deferral Accounts to the Participants or Beneficiaries and cause the
        termination of future deferrals of Compensation by the Participants.

                                    ARTICLE 6

                               RIGHTS ARE LIMITED

6.1.    BENEFITS PAYABLE ONLY FROM GENERAL CORPORATE ASSETS: UNSECURED GENERAL
        CREDITOR STATUS OF PARTICIPANT.

        (a)    Payment to the Participant or any Beneficiary hereunder shall be
               made from assets which shall continue, for all purposes, to be
               part of the general, unrestricted assets of the Corporation; no
               person shall have any interest in any such asset by virtue of any
               provision of this Plan. The Corporation's obligation hereunder
               shall be an unfunded and unsecured promise to pay money in the
               future. To the extent that any person acquires a right to receive
               payments from the Corporation under the provisions hereof, such
               right shall be no greater than the right of any unsecured general
               creditor of the Corporation; no such person shall have or acquire
               any legal or equitable right, interest or claim in or to any
               property or assets of the Corporation.

        (b)    In the event that, in its discretion, the Corporation purchases
               an insurance policy or policies insuring the life of a
               Participant, or any member of the Board of Directors of the
               Corporation, to allow the Corporation to recover or meet the cost
               of providing benefits in whole or in part, hereunder, no
               Participant or Beneficiary shall have any rights whatsoever
               therein or in said policy or the proceeds therefrom. The
               Corporation shall be the sole owner and beneficiary of any such
               insurance policy or property and shall possess and may exercise
               all incidents of ownership therein.

6.2.    NO RIGHT TO BOARD MEMBERSHIP. Nothing contained herein shall be
        construed to give any Participant the right to be continued as a member
        of the Board of Directors of the Corporation, to modify or affect the
        terms of his membership on such Board,


                                      -8-
<PAGE>

        or to interfere with the right of the shareholders of the Corporation to
        elect members of such Board. It is expressly understood that this Plan
        relates only to the payment of deferred compensation for the
        Participant's services.

6.3.    BENEFITS NOT TRANSFERABLE. No Participant or Beneficiary under this Plan
        shall have any power or right to transfer, assign, anticipate,
        hypothecate or otherwise encumber any part of all the amounts payable
        hereunder. No part of the amounts payable shall, prior to actual
        payment, be subject to seizure or sequestration for the payment of any
        debts, judgments, alimony or separate maintenance owed by a Participant
        or any other person, nor be transferable by operation of law in the
        event of a Participant's or any other person's bankruptcy or insolvency,
        or dissolution of marriage. Any such attempted assignment shall be void.

6.4.    NO TRUST CREATED. Nothing contained in this Plan, and no action taken
        pursuant to its provisions by any person shall create, or be construed
        to create, a trust of any kind, or a fiduciary relationship between the
        Corporation and any other person.

                                    ARTICLE 7

                                  BENEFICIARIES

7.1.    BENEFICIARY DESIGNATION. The Participant shall have the right, at any
        time, to submit in substantially the form attached hereto as Exhibit C,
        a written designation of primary and secondary beneficiaries to whom
        payment under this Plan shall be made in the event of his or her death
        prior to complete distribution of the benefits payable. Each Beneficiary
        designation shall become effective only when receipt thereof is
        acknowledged in writing by the Plan Administrator. The Plan
        Administrator shall have the right, in its sole discretion, to reject
        any Beneficiary designation, which is not in substantially the form
        attached hereto as Exhibit C. Any attempt to designate a Beneficiary,
        otherwise than as provided in this Section 7.1, shall be ineffective.

7.2.    SPOUSE'S INTEREST. A Participant's Beneficiary designation shall be
        deemed automatically revoked if the Participant names a spouse as
        Beneficiary and the marriage is later dissolved or the spouse dies.
        Without limiting the generality of the foregoing, the interest in the
        benefits hereunder of a spouse of a Participant who has predeceased the
        Participant or whose marriage with the Participant has been dissolved
        shall automatically pass to the Participant and shall not be
        transferable by such spouse in any manner, including but not limited to
        such spouse's will, nor shall such interest pass under the laws of
        intestate succession.

7.3.    FACILITY OF PAYMENT. If a distribution is to be made to a minor, or to a
        person who is otherwise incompetent, then the Plan Administrator may, in
        its discretion, make such distribution (i) to the legal guardian, or if
        none, to a parent of a minor payee with whom the payee maintains his or
        her residence, or (ii) to the conservator or committee or, if none, to
        the person having custody of an incompetent payee. Any such distribution
        shall fully discharge the Plan Administrator, the Corporation and Plan
        from further liability on account thereof.


                                      -9-
<PAGE>

                                    ARTICLE 8

                               PLAN ADMINISTRATION

8.1.    RESPONSIBILITY OF ADMINISTRATION OF THE PLAN.

        (a)    The Plan Administrator shall be responsible for the management,
               operation and administration of the Plan. The Plan Administrator
               may employ others to render advice with regard to its
               responsibilities under this Plan. It may also allocate its
               responsibilities to others and may exercise any other powers
               necessary for the discharge of its duties. The Plan Administrator
               shall be entitled to rely conclusively upon all tables,
               valuations, certifications, opinions and reports furnished by any
               actuary, accountant, controller, counsel or other person employed
               or engaged by the Plan Administrator with respect to the Plan.

        (b)    The primary responsibility of the Plan Administrator is to
               administer the Plan for the benefit of the Participants and their
               beneficiaries, subject to the specific terms of the Plan. The
               Plan Administrator shall administer the Plan in accordance with
               its terms and shall have the power to determine all questions
               arising in connection with the administration, interpretation,
               and application of the Plan. Any such determination shall be
               conclusive and binding upon all persons and their heirs,
               executors, beneficiaries, successors and assigns. The Plan
               Administrator shall have all powers necessary or appropriate to
               accomplish its duties under the Plan. The Plan Administrator
               shall also have the discretion and authority to make, amend,
               interpret, and enforce all appropriate rules and regulations for
               the administration of this Plan and decide or resolve any and all
               questions, including but not limited to, interpretations of this
               Plan and entitlement to or amount of benefits under this Plan, as
               may arise in connection with the Plan.

        (c)    From and after the occurrence of a Change in Control, the Plan
               Administrator shall consist of a committee of the individuals who
               were members of the Corporation's Board of Directors ninety (90)
               days before the occurrence of the Change in Control, with any
               vacancy in such committee occurring thereafter being filled with
               a person or persons selected by the other members of such
               committee.

8.2.    ARBITRATION. Any claim or controversy between the parties which the
        parties are unable to resolve themselves, including any claim arising
        out of a Participant's employment or the termination of that employment,
        and including any claim arising out of, connected with, or related to
        the formation, interpretation, performance or breach of any provision of
        this Plan, and any claim or dispute as to whether a claim is subject to
        arbitration, shall be submitted to and resolved exclusively by expedited
        arbitration by a single arbitrator in accordance with the following
        procedures:

        (a)    In the event of a claim or controversy subject to this
               arbitration provision, the complaining party shall promptly send
               written notice to the other party


                                      -10-
<PAGE>

               identifying the matter in dispute and the proposed remedy.
               Following the giving of such notice, the parties shall meet and
               attempt in good faith to resolve the matter. In the event the
               parties are unable to resolve the matter within twenty-one (21)
               days, the parties shall meet and attempt in good faith to select
               a single arbitrator acceptable to both parties. If a single
               arbitrator is not selected by mutual consent within ten (10)
               business days following the giving of the written notice of
               dispute, an arbitrator shall be selected from a list of nine
               persons each of whom shall be an attorney who is either engaged
               in the active practice of law or a recognized arbitrator and who,
               in either event, is experienced in serving as an arbitrator in
               disputes between employers and employees, which list shall be
               provided by the main Orange County office of the American
               Arbitration Association ("AAA") or of the Federal Mediation and
               Conciliation Service. If, within three business days of the
               parties' receipt of such list, the parties are unable to agree
               upon an arbitrator from the list, then the parties shall each
               strike names alternatively from the list, with the first to
               strike being determined by the flip of a coin. After each party
               has had four strikes, the remaining name on the list shall be the
               arbitrator. If such person is unable to serve for any reason, the
               parties shall repeat this process until an arbitrator is
               selected.

        (b)    Unless the parties agree otherwise, within sixty (60) days of the
               selection of the arbitrator, a hearing shall be conducted before
               such arbitrator at a time and a place in Orange County agreed
               upon by the parties. In the event the parties are unable to agree
               upon the time or place of the arbitration, the time and place
               within Orange County shall be designated by the arbitrator after
               consultation with the parties. Within thirty (30) days of the
               conclusion of the arbitration hearing, the arbitrator shall issue
               an award, accompanied by a written decision explaining the basis
               for the arbitrator's award.

        (c)    In any arbitration hereunder, the Corporation shall pay all
               administrative fees of the arbitration and all fees of the
               arbitrator, except that the Participant or Beneficiary may, if he
               wishes, pay up to one-half of those amounts. Each party shall pay
               its own attorneys' fees, costs, and expenses, unless the
               arbitrator orders otherwise. The prevailing party in such
               arbitration, as determined by the arbitrator, and in any
               enforcement or other court proceedings, shall be entitled, to the
               extent permitted by law, to reimbursement from the other party
               for all of the prevailing party's costs (including but not
               limited to the arbitrator's compensation), expenses, and
               attorneys' fees. The arbitrator shall have no authority to add to
               or to modify this Plan, shall apply all applicable law, and shall
               have no lesser and no greater remedial authority than would a
               court of law resolving the same claim or controversy. The
               arbitrator shall, upon an appropriate motion, dismiss any claim
               without an evidentiary hearing if the party bringing the motion
               establishes that it would be entitled to summary judgment if the
               matter had been pursued in court litigation. The parties shall be
               entitled to reasonable discovery subject to the discretion of the
               arbitrator.


                                      -11-
<PAGE>

        (d)    The decision of the arbitrator shall be final, binding, and
               non-appealable, and may be enforced as a final judgment in any
               court of competent jurisdiction.

        (e)    This arbitration provision of the Plan shall extend to claims
               against any parent, subsidiary, or affiliate of each party, and,
               when acting within such capacity, any officer, director,
               shareholder, Participant, Beneficiary, or agent of each party, or
               of any of the above, and shall apply as well to claims arising
               out of state and federal statutes and local ordinances as well as
               to claims arising under the common law or under this Plan.

        (f)    Notwithstanding the foregoing, and unless otherwise agreed
               between the parties, either party may, in an appropriate matter,
               apply to a court for provisional relief, including a temporary
               restraining order or preliminary injunction, on the ground that
               the arbitration award to which the applicant may be entitled may
               be rendered ineffectual without provisional relief.

        (g)    Any arbitration hereunder shall be conducted in accordance with
               the employee benefit plan claims rules and procedures of the AAA
               then in effect; provided, however, that, (i) all evidence
               presented to the arbitrator shall be in strict conformity with
               the legal rules of evidence, and (ii) in the event of any
               inconsistency between the employee benefit plan claims rules and
               procedures of the AAA and the terms of this Plan, the terms of
               this Plan shall prevail.

        (h)    If any of the provisions of this Section 8.2 are determined to be
               unlawful or otherwise unenforceable, in whole or in part, such
               determination shall not affect the validity of the remainder of
               this Section 8.2, and this Section 8.2 shall be reformed to the
               extent necessary to carry out its provisions to the greatest
               extent possible and to insure that the resolution of all
               conflicts between the parties, including those arising out of
               statutory claims, shall be resolved by neutral, binding
               arbitration. If a court should find that the provisions of this
               Section 8.2 are not absolutely binding, then the parties intend
               any arbitration decision and award to be fully admissible in
               evidence in any subsequent action, given great weight by any
               finder of fact, and treated as determinative to the maximum
               extent permitted by law.

8.3.    NOTICE. Any notice, consent or demand required or permitted to be given
        under the provisions of this Plan shall be in writing and shall be
        signed by the party giving or making the same. If such notice, consent
        or demand is mailed, it shall be sent by United States certified mail,
        postage prepaid, addressed to the addressee's last known address as
        shown on the records of the Corporation. The date of such mailing shall
        be deemed the date of notice consent or demand. Any person may change
        the address to which notice is to be sent by giving notice of the change
        of address in the manner aforesaid.


                                      -12-
<PAGE>

                                    ARTICLE 9

                            AMENDMENT OR TERMINATION

        This Plan may be amended or terminated by the Corporation at any time,
without notice to or consent of any person, pursuant to resolutions adopted by
its Board of Directors. Any such amendment or termination shall take effect as
of the date specified therein and, to the extent permitted by law. However, no
such amendment or termination shall reduce the amount then credited to the
Participant's Deferral Account. If the Plan is terminated, benefits will be
distributed in one lump sum.

                                   ARTICLE 10

                                    THE TRUST

10.1.   ESTABLISHMENT OF TRUST. The Corporation shall establish a grantor trust,
        of which the Corporation is the grantor, within the meaning of subpart
        E, part I, subchapter J, subtitle A of the Code, to pay benefits under
        this Plan (the "Trust").

10.2.   INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
        shall govern the rights of a Participant to receive distributions
        pursuant to the Plan. The provisions of the Trust shall govern the
        rights of the Participant and the creditors of the Corporation to the
        assets transferred to the Trust. The Corporation shall at all times
        remain liable to carry out its obligations under the Plan. The
        Corporation's obligations under the Plan may be satisfied with Trust
        assets distributed pursuant to the terms of the Trust.

10.3.   CONTRIBUTION TO THE TRUST. Amounts may be contributed by the Corporation
        to the Trust in the sole discretion of the Corporation.

                                   ARTICLE 11

                                  MISCELLANEOUS

11.1.   GOVERNING LAW. The Plan and the rights and obligations of all persons
        hereunder shall be governed by and construed in accordance with the laws
        of the State of California, other than its laws regarding choice of law.



11.2.   WITHHOLDING. If any payments to be made to Participant or Beneficiaries
        pursuant to this Plan shall be subject to all federal, state and local
        income and employment taxes, such taxes may be withheld accordingly by
        the Corporation from benefits under this Plan or from salary, bonuses or
        other amounts due to the Participant as determined by the Plan
        Administrator.


                                      -13-
<PAGE>

        IN WITNESS WHEREOF, the Corporation has executed this Plan as of the day
and year above first written.

                                The "Corporation"

                                WILLIAM LYON HOMES


                                By:  /s/ WADE H. CABLE
                                  ----------------------------------------
                                     Wade H. Cable


                                Title:  President and Chief Operating Officer


                                      -14-
<PAGE>

                               WILLIAM LYON HOMES
                  OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN
                    PARTICIPANT ENROLLMENT AND ELECTION FORM

                                    EXHIBIT A

        This Agreement is entered into this ____day of ___________, 20___
between WILLIAM LYON HOMES, hereinafter referred to as the "Corporation," and
_______________________, hereinafter referred to as the "Participant."

        I acknowledge that as an Outside Director of the Corporation I have been
offered an opportunity to participate in the Corporation's Outside Directors
Deferred Compensation Plan for the Plan year beginning February 11, 2002. I am
electing the alternatives set forth as indicated below:

I.      ELECTION TO DEFER
        (Please check all that apply)

  [ ]   I WILL participate in the Corporation's Outside Directors Deferred
        Compensation Plan for the forthcoming Plan Year and duly authorize the
        Corporation to make the appropriate deductions from my director's fees.


I hereby elect to defer receipt of my director's fees for the forthcoming Plan
Year as set forth below:

  [ ]   ____% or $________ of my director's fees to be withdrawn ratably (as
        nearly as possible) from my director's fees during rest of the year.


  [ ]   I will NOT participate in the Corporation's Outside Directors Deferred
        Compensation Plan for the forthcoming Plan Year.

NOTE:  THIS ELECTION IS IRREVOCABLE FOR THE FORTHCOMING PLAN YEAR.

II.     FIXED PAYMENT DATE BENEFITS ELECTION (PER ARTICLE 5):
        (Please check if you want to elect a fixed payment date)

        [ ]          FIXED PAYMENT DATE BENEFITS.  I hereby elect to have my
               fixed payment date benefits distributed to me in the following
               manner:

               Date for fixed payments to commence __________________________
               (This date may be no earlier than the January 1 of the third
               calendar year after the calendar year in which this election is
               made, but may be later than the date you leave the Board.)

        NOTE: THIS ELECTION MAY BE CHANGED TO EXTEND THE PAYMENT DATE TO A LATER
        DATE SO LONG AS (a) YOU MAKE THE ELECTION TO SO EXTEND THE DATE AT LEAST
        ONE YEAR BEFORE THE ORIGINAL DATE, AND (b) THE EXTENDED DATE IS NO
        EARLIER THAN JANUARY 1 OF THE


                                      -15-
<PAGE>

        THIRD CALENDAR YEAR AFTER YOU MAKE THE ELECTION TO EXTEND. SUCH DATES
        MAY NOT BE ACCELERATED.

                                   PARTICIPANT


                                   ---------------------------------------
                                   First Name              Last Name


                                      -16-
<PAGE>

                               WILLIAM LYON HOMES
                  OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN
                           DEEMED INVESTMENT ELECTIONS

                                    EXHIBIT B

This Agreement is entered into this _____ day of ________, 20___ between WILLIAM
LYON HOMES, hereinafter referred to as the "Corporation," and
____________________, hereinafter referred to as the "Participant."

Investment Elections

I elect to have my Deferral Account credited with a rate of return based on the
following Declared Rate(s). This Investment Election shall supersede any prior
election which I have made and shall continue until such time as I make a new
Investment Election in accordance with the terms of the Plan. (Investment
elections may be changed by a participant once a quarter and each account must
have at least a 10% allocation of the Participant's deferral.) Please see
accompanying material and prospectus for a detailed explanation of investment
options.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Investment Options                                              Participant Allocation
---------------------------------------------------------------------------------------------
<S>                                                            <C>
Hartford 40 Portfolio (Capital Preservation)                    %
---------------------------------------------------------------------------------------------
Hartford 60 Portfolio (Balanced Income)                         %
---------------------------------------------------------------------------------------------
Hartford 80 Portfolio (Balanced Growth)                         %
---------------------------------------------------------------------------------------------
Hartford 100 Portfolio (Growth)                                 %
---------------------------------------------------------------------------------------------
Hartford 120 Portfolio (Aggressive Growth)                      %
---------------------------------------------------------------------------------------------
Bank of America Prime Rate plus 1%, adjusted quarterly          %
---------------------------------------------------------------------------------------------
                                                               TOTAL               100%
                                                                     ------------------------
</TABLE>

                                   PARTICIPANT


                                   ---------------------------------------
                                   First Name              Last Name



                                      -17-
<PAGE>

                               WILLIAM LYON HOMES
                  OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN
                           DESIGNATION OF BENEFICIARY

                                    EXHIBIT C

        TO:  WILLIAM LYON HOMES (hereinafter referred to as the "Corporation"),

In accordance with the rights granted to me in the William Lyon Homes Outside
Directors Deferred Compensation Plan, between the Corporation and me, I do
hereby designate as Beneficiary thereunder to receive payments thereunder in the
event of my death:

        PRIMARY Beneficiary:  _______________________________________
        Relationship:  ______________________________________________

        1ST CONTINGENT Beneficiary:  __________________________________
        Relationship:  ______________________________________________

I further reserve the privilege of changing the Beneficiary herein named at any
time or times without the consent of any such beneficiary.

        This designation is made upon the following terms and conditions:

1. The word "Beneficiary" as used herein shall include the plural,
Beneficiaries, wherever the Plan permits.

2. For purposes of this Beneficiary Designation, no person shall be deemed to
have survived the Participant if that person dies within thirty (30) days of the
Participant's death.

3. Beneficiary shall mean the Primary Beneficiary if such Primary Beneficiary
survives the Participant by at least thirty (30) days, and shall mean the 1st
Contingent Beneficiary if the Primary Beneficiary does not survive the
Participant by at least thirty (30) days.

4. If the Primary Beneficiary shall be deceased on any annual payment date
provided in said Agreement, any and all remaining annual payments shall be
payable to the 1st Contingent Beneficiary unless the executors or administrators
of said deceased Beneficiary are named as Primary Beneficiary hereinabove.

5. If more than one Beneficiary is named within the same class (i.e., Primary or
1st Contingent), then annual payments shall be made equally to such
Beneficiaries unless otherwise provided hereinabove. If any such Beneficiary
dies while receiving annual payments under said Agreement, any and all remaining
payments shall continue to be made to the surviving Beneficiaries of such class
and to the legal heirs of the deceased Beneficiary, which legal heirs shall
receive the amount which was being received by said deceased Beneficiary. If all
of the Beneficiaries of a class shall die, any and all remaining payments shall
be made to the next class of Beneficiaries, as provided under Paragraph 4 above.

6. If none of the Beneficiaries named hereinabove are living on any said annual
payment date, any and all remaining payments shall be made to my executors or
administrators, or upon their written request, to any person or persons so
designated by them.

7. If any such annual payments shall be payable to any trust, the Corporation
shall not be liable to see to the application by the Trustee of any payment
hereunder at any time, and may rely upon the sole signature of the Trustee to
any receipt, release or waiver, or to any transfer or other instrument to
whomsoever made purporting to affect this nomination or any right hereunder.

8. A Participant's Beneficiary designation shall be deemed automatically revoked
if the Participant names a spouse as Beneficiary and the marriage is later
dissolved or the spouse dies. Without limiting the generality of the foregoing,
the interest in the benefits hereunder of a spouse of a Participant who has
predeceased the Participant or whose marriage with the Participant has been
dissolved shall automatically pass to the Participant and shall not be
transferable by such spouse in any manner, including but not limited to such
spouse's will, nor shall such interest pass under the laws of intestate
succession.


                                      -18-
<PAGE>

THIS DESIGNATION CANCELS AND SUPERSEDES ANY DESIGNATION OF BENEFICIARY
HERETOFORE MADE BY ME WITH RESPECT TO SAID PLAN AND THE RIGHT TO RECEIVE
PAYMENTS THEREUNDER.

Dated: __________________________              _______________________________
                                                Outside Director



I am the spouse of the Participant/Outside Director named above. I have read and
understood the foregoing Designation of Beneficiary, and especially paragraph 8
thereof. I understand that the Plan does not permit the assignment of my
spouse's benefits to me in the event of the dissolution of my marriage. I also
understand that, even if my spouse names me as a Beneficiary, my rights may be
impaired in the event of the dissolution of my marriage or my death before my
spouse.

Dated: _____________________                   _______________________________
                                               Spouse

Received this ___ day of _____________, 20__   By:____________________________


                                      -19-
<PAGE>

                      ANNUAL ELECTION TO DEFER COMPENSATION
                                     FOR THE
                      WILLIAM LYON OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN

       NOTE: TO BE EFFECTIVE, THIS ELECTION MUST BE DELIVERED TO THE HUMAN
            RESOURCES DEPARTMENT ON OR BEFORE DECEMBER 20, _______ .

Name of Participant:  ______________________________________________________

Social Security No.:  ___________________________

The undersigned outside director hereby elects as follows:

1. The outside director hereby elects to defer receipt of the following portion
of his/her director's fees otherwise payable by the Corporation in _______.

Check appropriate box(es):

[ ] $____________ or percent ______ % of director's fees

{ ] The outside director elects not to defer any director's fees for ________.

2. The outside director requests and authorizes the Corporation to credit the
amount(s) so deferred to the outside director's Deferral Account(s) under the
Plan.

3. The outside director understands and acknowledges that this Election will be
effective only for the following Plan Year. If the outside director wishes to
change his/her deferral election in subsequent Plan Years, he/she must deliver a
new Election of Deferral form to the Human Resources Department of the
Corporation on or before December 20 of the year before the Plan Year when the
deferral will be effective.

4. IN WITNESS WHEREOF, this Agreement has been executed by the parties this
_______day of ____________, ___.



_____________________________             ____________________________________
Witness                                   Outside Director



                                          WILLIAM LYON HOMES


_____________________________             ____________________________________
Witness                                   Its Duly Authorized Officer


                                      -20-
<PAGE>

                     DEEMED INVESTMENT ELECTION CHANGE FORM
                                     FOR THE
         WILLIAM LYON HOMES OUTSIDE DIRECTORS DEFERRED COMPENSATION PLAN

                FOR THE PERIOD BEGINNING ______________________

---------------------------------             --------------------------------
Participant's Name                            Social Security Number

---------------------------------
Date Received

Method of Request:
[ ] Phone       [ ] Fax     [ ] E-Mail    [ ] Other:_________________

I hereby request that my current period deferrals and existing account balances
be allocated as follows:

(Minimum allocation is 10% - total must equal 100%)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Investment Options                                              Participant Allocation
---------------------------------------------------------------------------------------
<S>                                                            <C>
Hartford 40 Portfolio (Capital Preservation)                    %
---------------------------------------------------------------------------------------
Hartford 60 Portfolio (Balanced Income)                         %
---------------------------------------------------------------------------------------
Hartford 80 Portfolio (Balanced Growth)                         %
---------------------------------------------------------------------------------------
Hartford 100 Portfolio (Growth)                                 %
---------------------------------------------------------------------------------------
Hartford 120 Portfolio (Aggressive Growth)                      %
---------------------------------------------------------------------------------------
Bank of America Prime Rate plus 1%, adjusted quarterly          %
---------------------------------------------------------------------------------------

                                                                      TOTAL               100%
                                                                           -------------------
</TABLE>

IMPORTANT: The Participant acknowledges that he/she has received information
regarding each of the above funds, including a copy of the prospectus. The
Participant further acknowledges that the Plan Administrator has discretion as
to whether his/her deferrals are actually invested in the funds selected above;
the Corporation is not obligated to acquire or hold any of the investments
selected above.

AGREED AND ACCEPTED BY THE PARTICIPANT


--------------------------------------------            -----------------------
Signature of Participant                                Date

AGREED AND ACCEPTED BY THE CORPORATION


--------------------------------------------            -----------------------
Signature of Corporation Officer                        Date



                                      -21-