EMPLOYMENT AGREEMENT

     This EMPLOYMENT  AGREEMENT (the  "AGREEMENT") is made as of this 1st day of
July, 1998, by and between MONTEREY HOMES  CORPORATION,  a Maryland  corporation
(the "Company") and Steven Hafener, an individual ("EXECUTIVE"). If Executive is
presently or subsequently  becomes employed by a subsidiary of Company, the term
"Company" shall be deemed to refer  collectively  to Monterey Homes  Corporation
and the  subsidiary  or  subsidiaries  which  employs  Executive,  provided that
Monterey Homes  Corporation shall remain  responsible for performance  hereof as
provided in Article 26, below.

                                    RECITALS

     A. COMPANY BUSINESS. The Company's principal business is homebuilding.

     B.  AGREEMENT  PURPOSE.  The  Company  desires  to  employ  Executive,  and
Executive  desires to be employed by Company,  on the terms and  conditions  set
forth herein.

     NOW  THEREFORE,  in  consideration  of the  mutual  covenants,  agreements,
representations, and warranties contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:

     1. DEFINITIONS. As used herein:

          (a) CAPITALIZED TERMS. Capitalized terms used herein and not otherwise
     defined  shall  have the same  meanings  as set forth in the  Agreement  of
     Purchase  and Sale of  Assets  by and among  Company,  Executive,  Sterling
     Communities,   S.H.   Capital,   Inc.   and  others  dated  June  15,  1998
     ("Acquisition Agreement").

          (b) "CAUSE" shall mean the following:

               i)  Employee's  misappropriation  of any money or other assets or
          properties of the Company  resulting or intended to result directly or
          indirectly in personal gain or enrichment to Executive;

               ii) Executive  engages in conduct  involving  fraud,  dishonesty,
          embezzlement,  theft,  or  similar  matters  that are  detrimental  to
          Company;

               iii)  Executive's  willful  disregard  of his primary  duties (as
          described in Section 3) to the Company.

          (c)  "COMPANY  CONFIDENTIAL   INFORMATION"  shall  mean  confidential,
     proprietary  information or trade secrets of Company and its  subsidiaries,
     including,  without  limitation,  the  following:  (1)  customer and vendor
     information as compiled by Company and its subsidiaries, including pricing,
     sale and contract terms and  conditions,  contract  expirations,  and other
<PAGE>
     compiled   customer  and  vendor   information;   (2)   Company's  and  its
     subsidiaries'  internal  practices  and  procedures;  (3) Company"s and its
     subsidiaries'  financial condition and financial results of operation;  (4)
     information relating to Company"s and its subsidiaries' real estate holding
     or  commitments,  lot  positions,  strategic  planning,  sales,  financing,
     insurance,  purchasing,  marketing,  promotion,  distribution,  and selling
     activities, whether now existing, or acquired, developed, or made available
     anytime  in the  future  to or by  Company  or its  subsidiaries;  (5)  all
     information which Executive has a reasonable basis to consider confidential
     or which is treated by Company or its subsidiaries as confidential; and (6)
     any and all information having independent economic value to Company or its
     subsidiaries that is not generally known to, and not readily  ascertainable
     by  proper  means  by,  persons  who can  obtain  economic  value  from its
     disclosure or use. Executive  acknowledges that such information is Company
     Confidential  Information  whether  disclosed to or learned by Executive or
     originated  by  Executive  during his  employment  by Company or any of its
     subsidiaries.

          (d)  "TERMINATION"  shall mean  termination of Executive's  employment
     with Company pursuant to Sections 16 through 19 hereof.

     2. TERM OF AGREEMENT.  This  Agreement will commence as of July 1, 1998 and
shall  terminate  four (4) years from such date,  unless  earlier  terminated in
accordance with, and subject to, the other provisions  hereof (the "TERM").  For
the  purposes of this  Agreement  a "year"  shall mean the twelve  month  period
commencing on the date of this Agreement.

     3.  POSITION  WITH  COMPANY.  During  the Term,  Executive  shall  serve as
[President or General Manager] of the NC Company, shall devote his full time and
efforts to the affairs of Company,  and shall faithfully and diligently  perform
all duties commensurate with such position, including, without limitation, those
duties reasonably requested by Company"s Board of Directors. Executive's primary
duties shall include the day to day management of the NC Company,  including the
supervision  of  employees,  the  identification  of new  development  projects,
advance  planning  and  development  of  land  acquired  by NC  Company,  sales,
marketing  and  construction  of new homes,  warranty and  customer  service and
accounting for operations of the NC Company to the Company. As more particularly
provided in the Acquisition  Agreement,  it is contemplated that NC Company will
conduct all residential  development  activities and hold all  residential  real
estate of the Company and its affiliates in Northern California.

     4.  SALARY.  Executive  shall be  entitled  to receive a base  salary  from
Company in the amount of $150,000  per year,  payable in equal  installments  in
accordance with Company's  general salary payment  policies in effect during the
Term hereof (the "MINIMUM BASE  SALARY").  For each year  thereafter  during the
term  hereof,  the Minimum  Base Salary  shall be equal to 105% of the  previous
Minimum Base Salary.  All of Executive's  compensation under this Agreement will
be subject to deduction  and  withholding  authorized  or required by applicable
law.

     5. BONUS AND STOCK  OPTION.  The Company shall pay  performance  bonuses to
Executive  or his  assigns to the extent  allowable  by law,  which shall be the
three percent (3%) of the Pre-Tax Net Income  (determined prior to the deduction

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<PAGE>
for any Earn-Out Payment) of the NC Company,  up to his Minimum Base Salary (the
"Bonus").  The  amount of  Pre-Tax  Income of NC  Company  shall be  subject  to
increase  in the same  manner as provided  in the  Acquisition  Agreement  (with
respect to the Earn-Out  Payment)  with respect to any  residential  real estate
holdings or operations of the Company and its affiliates in Northern  California
which are not maintained and held in NC Company. The Bonus will be paid annually
in cash within  sixty (60) days of the end of each Earn- Out  Period.  Executive
acknowledges that the Bonus,  regardless of to whom payable,  will be subject to
deduction and withholding authorized or required by applicable law. In addition,
the Company  hereby grant  Executive  options to acquire 15,000 shares of common
stock  pursuant to the Stock Option  Agreement in the form of EXHIBIT A attached
hereto under the Company"s stock option plan. The exercise price of such options
shall be the  closing  price of a share of Company  stock on the  Closing of the
transactions contemplated in the Acquisition Agreement.

     6. VACATION AND SICK LEAVE.  Executive shall be entitled to take reasonable
vacation, holiday and sick leave, subject to the Company"s reasonable limits and
policies.

     7. BENEFIT PLANS. Executive shall be eligible to participate in all benefit
plans made  available  to  Company  employees  from time to time  subject to any
applicable vesting periods. These benefits currently include a health plan and a
401(k) Plan.  Nothing  herein shall restrict  Company's  ability to terminate or
modify any benefit plan or arrangement.

     8. EXPENSES.  Company shall pay for or reimburse Executive for all ordinary
and necessary  business expenses incurred or paid by Executive in furtherance of
Company's  business,  subject to and in accordance  with Company's  policies and
procedures of general application.

     9. STAFF MANUAL. All other terms of Executives employment shall be governed
by the Company employee manual (the "Employee Manual"). The Company reserves the
right to amend the Employee  Manual,  from time to time, and Executive  shall be
subject to  changes  made so long as such  changes  are  applied to all  Company
employees.

     10.  COVENANTS  OF  EXECUTIVE.  In  consideration  of the  agreement of the
Company  (which shall  include  joint  ventures  (50% or more owned by Company),
subsidiaries and parent companies for purposes of Sections 10 and 11, whether in
corporate,  partnership or other form) to employ Executive, until June 30, 2002,
and for the  consideration  provided to  Executive  pursuant to the  Acquisition
Agreement, Executive hereby agrees that Executive will not, except in connection
with the performance of his duties hereunder,  directly or indirectly, either as
an employee,  partner,  owner,  director,  adviser or consultant or in any other
capacity:

          (a) Engage in the homebuilding or residential lot development business
     (a "Competing  Business") PROVIDED,  HOWEVER,  that the foregoing shall not
     restrict  (i)  the   ownership  of  less  than  1%  of  a   publicly-traded
     homebuilding  company, (ii) engaging in the homebuilding or residential lot
     development business, in each case outside of Arizona,  Texas,  California,
     and any other  state which the Company  develops  operations  in during the
     term of this Agreement,  or (iii) for a reasonable time period, the winding
     up, settling,  and closing of Sterling's business,  including defending any
     outstanding  actions  or  proceedings  involving  Sterling,  the  Partners,

                                      -3-
<PAGE>
     Executive,  or any entity in which the  Executive,  directly or indirectly,
     have previously  engaged in the homebuilding or residential lot development
     business.

          (b)  Recruit,  hire or discuss  employment  with any person who is, or
     within the six month period  preceding  the date of such  activity  was, an
     employee of the Company  (other than as a result of a general  solicitation
     for employment);

          (c)  Solicit  any  customer or supplier of the Company for a Competing
     Business or  otherwise  attempt to induce any such  customer or supplier to
     discontinue its relationship with the Company; or

          (d) Executive represents to the Company that he is willing and able to
     engage in businesses that are not Competing  Businesses  hereunder and that
     enforcement of the  restrictions  set forth in this SECTION 10 would not be
     unduly  burdensome to Executive.  Employee hereby agrees that the period of
     time provided for in this SECTION 10 and the territorial  restrictions  and
     other  provisions  and  restrictions  set forth herein are  reasonable  and
     necessary to protect  Company and its successors and assigns in the use and
     employment of the goodwill of the business  conducted by Executive prior to
     the Closing Date and sold to Company pursuant to the Acquisition Agreement.
     Executive  further  agrees that damages  cannot  compensate  Company in the
     event of a violation of this SECTION 10 and that, if such violation  should
     occur,  injunctive  relief shall be essential for the protection of Company
     and its successors and assigns. Accordingly, Executive hereby covenants and
     agrees that, in the event any of the provisions of this SECTION 10 shall be
     violated or breached, Company shall be entitled to obtain injunctive relief
     against the party or parties  violating  such  covenants,  without bond but
     upon due  notice,  in addition  to such  further or other  relief as may be
     available at equity or law.  Obtainment  of such an  injunction  by Company
     shall not be considered an election of remedies or a waiver of any right to
     assert any other remedies which Company has at law or in equity.  No waiver
     of any breach or  violation  hereof shall be implied  from  forbearance  or
     failure by Company to take action thereof.  Executive agrees to pay any and
     all reasonable costs and expenses,  including  attorneys' fees, incurred by
     Company in enforcing  this  provision if it is  determined  that  Executive
     breached this provision.

          (e) Executive hereby agrees that upon the commencement by Executive of
     employment  with any third  party  during  the period in which the terms of
     this SECTION 10 are in effect,  Executive  shall promptly  disclose to each
     such new company the terms of this SECTION 10, and shall cause such company
     to maintain such  information in confidence.  Executive  further agrees and
     authorizes Company to notify others, including customers of Company and any
     such future employers of Executive,  of the terms of this SECTION 10 and of
     Executive's obligations hereunder.

     11. CONFIDENTIALITY AND NONDISCLOSURE.  It is understood that in the course
of Executive's  employment with Company,  Executive will become  acquainted with
Company Confidential Information. Executive recognizes that Company Confidential
Information  has been developed or acquired at great expense,  is proprietary to
Company or its subsidiaries,  and is and shall remain the exclusive  property of
Company.  Accordingly,  Executive  hereby covenants and agrees that he will not,
without the express written consent of Company,  during  Executive's  employment
with Company or its  subsidiaries  and  thereafter or until such time as Company
Confidential  Information  becomes generally known, or readily  ascertainable by

                                      -4-
<PAGE>
proper means, by persons unrelated to Company or its  subsidiaries,  disclose to
others,  copy,  make any use of, or remove from  Company"s or its  subsidiaries'
premises any Company Confidential Information,  except as Executive's duties for
Company or its subsidiaries may specifically require. In the event of dispute or
litigation,   Executive  shall  have  the  burden  of  proof  that  the  Company
Confidential Information has become generally known, or readily ascertainable by
proper means, by persons unrelated to Company or its subsidiaries.

     12. ACKNOWLEDGMENT;  RELIEF FOR VIOLATION. Executive hereby agrees that the
period of time provided for in Section 10 and the territorial  restrictions  and
other provisions and restrictions set forth in Section 11 therein are reasonable
and necessary to protect Company,  its subsidiaries and its and their successors
and assigns in the use and employment of the good will of the business conducted
by Company and its  subsidiaries.  Executive  further agrees that damages cannot
compensate Company in the event of a violation of Section 10 or 11, and that, if
such  violation  should  occur,  injunctive  relief shall be  essential  for the
protection  of  Company,  its  subsidiaries,  and its and their  successors  and
assigns.  Accordingly,  Executive hereby covenants and agrees that, in the event
any of the  provisions  of Sections  10 and 11 shall be  violated  or  breached,
Company shall be entitled to obtain injunctive relief against Executive, without
bond but upon due notice,  in addition  to such  further or other  relief as may
appertain at equity or law.  Obtainment  of such an  injunction by Company shall
not be considered an election of remedies or a waiver of any right to assert any
other remedies which Company has at law or in equity. No waiver of any breach or
violation hereof shall be implied from forbearance or failure by Company to take
action  thereon.  Executive  hereby agrees that he has such skills and abilities
that the  provisions  of Sections 10 and 11 will not prevent him from  earning a
living.  Each party agrees to pay its own costs and  expenses in  enforcing  any
provision of this Agreement.

     13.  EXTENSION  DURING  BREACH.  Executive  agrees  that  the  time  period
described  in Section 10 shall be extended for a period equal to the duration of
any breach of such provisions by Executive.

     14. RETURN OF COMPANY MATERIALS AND COMPANY CONFIDENTIAL INFORMATION.  Upon
Termination,  Executive shall promptly  deliver to Company the originals and all
copies of any and all materials,  documents, notes, manuals, or lists containing
or embodying Company Confidential Information or relating directly or indirectly
to the business of Company in the possession or control of Executive.

     15. NO AGREEMENT WITH OTHERS.  Executive represents,  warrants,  and agrees
that Executive is not a party to any agreement with any other person or business
entity,  including  former  employers,  that  in  any  way  affects  Executive's
employment by Company or relates to the same subject matter of this Agreement or
conflicts with his obligations  under this Agreement,  or restricts  Executive's
services to Company.

     16.  TERMINATION  FOR CAUSE.  The Company may terminate  this Agreement for
Cause by giving written  notice of Termination  and, with respect to a purported
violation of Section  1(b)(iii) of this  Agreement  that is curable in such time
period,  shall afford Executive an opportunity to cure or disprove the purported

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<PAGE>
violation  for the  thirty-day  period  following  such notice.  The Company may
immediately  terminate  this  Agreement for Cause with respect to a violation of
Section  1(b)(i) or (ii).  Upon  Termination  of Executive for Cause,  Executive
shall be entitled to receive  only the Minimum  Base  Salary,  the amount of any
unpaid  performance  bonus  earned in any  complete  fiscal  year of the Company
preceding the date of termination, and any benefits as are due Executive through
the  effective  date of such  Termination.  No  prorated  Bonus shall be paid to
Executive  upon a Termination  for Cause.  If this Agreement is terminated for a
violation of Section  1(b)(i) or (ii) Executive shall not receive any portion of
its Earn-Out pursuant to the Acquisition Agreement.

     17.  TERMINATION  BY COMPANY  WITHOUT  CAUSE.  If Executive  is  terminated
without Cause,  Executive shall be entitled to receive  Executive's Minimum Base
Salary for the  remainder of the terms of this  Agreement,  payable  pursuant to
normal payroll practices,  the amount of any unpaid Bonus earned in any complete
fiscal year of the  Company  preceding  the date of  Termination,  the  prorated
portion of any current year Bonus,  and any benefits  including  any  disability
benefits provided to Executive under Company"s standard policies as in effect as
are due through July 1, 2002.  In  addition,  the vesting of  Executive's  stock
options,  if any, shall be  accelerated,  as if the Executive had served through
the end of the fiscal year of his Termination.

     18.  TERMINATION  UPON  DEATH  OF  EXECUTIVE.  If  during  the term of this
Agreement  Executive dies, then this Agreement shall terminate and Company shall
pay to the estate of Executive  only the Minimum Base Salary,  the amount of any
unpaid  Bonus earned in any complete  fiscal year of the Company  preceding  the
date of Termination,  the prorated portion of any objectively determined current
year bonus, and any benefits  (including any life insurance benefits provided to
Executive's  estate under Company's  standard  policies as in effect) as are due
through the date of his death.  In addition,  the vesting of  Executive's  stock
options,  if any, shall be  accelerated,  as if the Executive had served through
the end of the fiscal year of his Termination.

     19.  TERMINATION  UPON  DISABILITY OF EXECUTIVE.  If during the term of the
Agreement  Executive  is unable to perform the  services  required of  Executive
pursuant to this  Agreement,  with or without  reasonable  accommodation,  for a
continuous  period of ninety (90) days due to disability or incapacity by reason
of any physical or mental  illness (as  reasonably  determined by Company by its
Board of  Directors),  then  Company  shall  have the  right to  terminate  this
Agreement  at the end of such  ninety-day  period  by giving  written  notice to
Executive.  Executive  shall be entitled to receive only the Minimum Base Salary
the amount of any unpaid Bonus earned in any complete fiscal year of the Company
preceding  the date of  Termination,  the  prorated  portion of any current year
Bonus, and any benefits (including any disability benefits provided to Executive
under Company's  standard  policies as in effect) as are due through the date of
his disability.  In addition,  the vesting of Executive's stock options shall be
accelerated,  as if the Executive had served  through the end of the fiscal year
of his Termination.

     20. INDEMNITY.  The Company shall indemnify Executive (a) to the extent set
forth in the  Company's  Bylaws  (provided  such  Bylaws do not treat  Executive
differently from any other executive  officer of the Company or its affiliates),
and  (b)  without  restriction  by the  Company's  Bylaws,  as  provided  in the
Indemnification Agreement. Such indemnification shall survive the termination of
this Agreement.

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<PAGE>
     21. ARBITRATION. Any dispute, controversy, or claim, whether contractual or
non-contractual,  between the parties hereto arising  directly or indirectly out
of or connected with this Agreement, relating to the breach or alleged breach of
any  representation,  warranty,  agreement,  or covenant  under this  Agreement,
unless  mutually  settled by the  parties  hereto,  shall be resolved by binding
arbitration in accordance with the Commercial  Arbitration Rules of the American
Arbitration  Association  (the  "AAA").  Any  arbitration  shall be conducted by
arbitrators  approved  by  the  AAA  and  mutually  acceptable  to  Company  and
Executive. All such disputes,  controversies,  or claims shall be conducted by a
single  arbitrator,  unless  the  dispute  involves  more  than  $50,000  in the
aggregate in which case the  arbitration  shall be conducted by a panel of three
arbitrators.  If the  parties  hereto are unable to agree on the  arbitrator(s),
then the AAA shall select the  arbitrator(s).  The  resolution of the dispute by
the arbitrator(s) shall be final, binding, nonappealable,  and fully enforceable
by a court of  competent  jurisdiction  under the Federal  Arbitration  Act. The
arbitrator(s)  shall award  compensatory  damages to the prevailing  party.  The
arbitrator(s)  shall have no  authority  to award  consequential  or punitive or
statutory  damages,  and the parties  hereby waive any claim to those damages to
the fullest extent allowed by law. The arbitration award shall be in writing and
shall include a statement of the reasons for the award. The arbitration shall be
held in San Francisco,  California.  The  arbitrator(s)  shall award  reasonable
attorneys" fees and costs to the prevailing party.

     22. SEVERABILITY; REFORMATION. In the event any court or arbiter determines
that any of the restrictive covenants in this Agreement, or any part thereof, is
or are invalid or  unenforceable,  the  remainder of the  restrictive  covenants
shall not thereby be affected and shall be given full effect,  without regard to
invalid  portions.  If any of the  provisions of this  Agreement  should ever be
deemed to exceed the temporal, geographic, or occupational limitations permitted
by applicable  laws,  those  provisions  shall be and are hereby reformed to the
maximum temporal,  geographic,  or occupational limitations permitted by law. In
the event any court or arbiter  refuses to reform  this  Agreement  as  provided
above,   the  parties  hereto  agree  to  modify  the  provisions   held  to  be
unenforceable to preserve each party"s anticipated benefits thereunder.

     23.  NOTICES.  All notices and other  communications  hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telecopier,
or  by  registered  or  certified  mail  (postage  prepaid  and  return  receipt
requested) to the parties at the  following  addresses (or at such other address
for a party as shall be specified by it by like notice):

     If to Company :           Monterey Homes Corporation
                               6613 N. Scottsdale Road
                               Suite 200
                               Scottsdale, Arizona 85250
                               Phone:  (602) 998-8700
                               Fax:  (602) 998-9162
                               Attn:  President

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<PAGE>
     With a copy to:           Snell & Wilmer L.L.P.
                               One Arizona Center
                               Phoenix, Arizona 85004-0001
                               Phone: (602) 382-6252
                               FAX:  (602) 382-6070
                               Attn:  Steven D. Pidgeon, Esq.

     If to Executive:          Steve Hafener
                               1655 N. Main Street, Suite 240
                               Walnut Creek, California 94596

     With a copy to:           Miller Starr & Regalia
                               1331 N. California Blvd., Suite 500
                               Walnut Creek, California 94596
                               Phone:  (925) 935-9400
                               Fax:  (925) 933-4126
                               Attn: Karl Geier, Esq.

     All such notices and other communications shall be deemed to have been duly
given:  when  delivered by hand, if personally  delivered;  three  business days
after being deposited in the mail,  postage  prepaid,  if delivered by mail; and
when receipt is acknowledged, if telecopied.

     24.  COUNTERPARTS.  This  Agreement  may  be  executed  in  any  number  of
counterparts,  and each counterpart shall constitute an original instrument, but
all such separate counterparts shall constitute one and the same agreement.

     25. GOVERNING LAW. The validity,  construction,  and enforceability of this
Agreement  shall  be  governed  in all  respects  by the  laws of the  State  of
California, without regard to its conflict of laws rules.

     26. ASSIGNMENT. This Agreement shall not be assigned by operation of law or
otherwise, except that Company may assign all or any portion of its rights under
this  Agreement to any Company  entity,  but no such  assignment  shall  relieve
Monterey Homes Corporation,  a Maryland corporation,  or its Corporate Successor
(herein  defined) of its primary  liability  of all  obligations  of the Company
hereunder,  and except that this Agreement may be assigned to any corporation or
entity (a  "Corporate  Successor")  with or into which  Company may be merged or
consolidated  or to which  Company  transfers  all or  substantially  all of its
assets,   and  such  corporation  or  entity  assumes  this  Agreement  and  all
obligations and undertakings of Company hereunder.

         27. FURTHER  ASSURANCES.  At any time on or after the date hereof,  the
parties  hereto  shall  each  perform  such  acts,   execute  and  deliver  such
instruments, assignments, endorsements and other documents and do all such other
things  consistent  with  the  terms  of  this  Agreement  as may be  reasonably
     necessary to accomplish the transaction contemplated in this Agreement or
otherwise carry out the purpose of this Agreement.

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     28.  GENDER,  NUMBER  AND  HEADINGS.  The  masculine,  feminine,  or neuter
pronouns used herein shall be interpreted  without regard to gender, and the use
of the  singular  or plural  shall be deemed to include the other  whenever  the
context so requires.

     29.  WAIVER  OF   PROVISIONS.   The  terms,   covenants,   representations,
warranties,  and  conditions  of this  Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require  performance of any provisions  hereof shall,  in no manner,
affect the right at a later date to enforce the same.  No waiver by any party of
any condition, or breach of any provision,  term, covenant,  representation,  or
warranty  contained in this Agreement,  whether by conduct or otherwise,  in any
one or more  instances,  shall be deemed  to be or  construed  as a  further  or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation, or warranty of this Agreement.

     30.  ATTORNEYS"  FEES AND COSTS.  If any legal action or any arbitration or
other proceeding is brought for the enforcement of this Agreement, or because of
an alleged dispute, breach, default, or misrepresentation in connection with any
of the  provisions of this  Agreement,  the  successful  or prevailing  party or
parties  shall be entitled to recover  reasonable  attorneys"  fees,  accounting
fees, and other costs incurred in that action or proceeding,  in addition to any
other relief to which it or they may be entitled.

     31.  SECTION AND PARAGRAPH  HEADINGS.  The Article and Section  headings in
this  Agreement are for reference  purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.

     32.  AMENDMENT.  This  Agreement  may be amended only by an  instrument  in
writing executed by all parties hereto.

     33. EXPENSES.  Except as otherwise  expressly  provided herein,  each party
shall bear its own  expenses  incident to this  Agreement  and the  transactions
contemplated  hereby,  including  without  limitation,   all  fees  of  counsel,
consultants, and accountants.

     34. ENTIRE AGREEMENT.  This Agreement constitutes and embodies the full and
complete  understanding  and agreement of the parties hereto with respect to the
subject matter hereof,  and supersedes all prior  understandings  or agreements,
whether oral or in writing.

     35.  WITHHOLDING.  Executive  acknowledges and agrees that payments made to
Executive by Company  pursuant to the terms of this  Agreement may be subject to
tax withholding and that Company may withhold against payments due Executive any
such amounts as well as any other amounts payable by Executive to Company.

     36. RELEASE. Receipt by Executive of any of the severance benefits noted in
paragraphs  16,  17,  18 and 19  hereof  following  termination  of  Executive's
employment  hereunder  shall  be  subject  to  Executive's  compliance  with any
reasonable  and lawful  policies or procedures  of Company  relating to employee
severance  including  the  execution  and  delivery  by  Executive  of a release
reasonably  satisfactory  to Company  and  Executive  of any and all claims that
Executive  may have  against  Company  or any  related  person,  except  for the

                                      -9-
<PAGE>
continuing obligations provided herein, and except for any claims arising out of
Company's  fraudulent or criminal conduct, and an agreement that Executive shall
not disparage  Company or any of its directors,  officers,  employees or agents.
Concurrent with the termination of Executive's  employment hereunder pursuant to
paragraphs  16,  17,  18 or 19  hereof,  and  receipt  of a  release  reasonably
satisfactory to the Company and Executive, the Company shall execute and deliver
to Executive a release, reasonably satisfactory to Company and Executive, of any
and all claims that  Company may have against  Executive,  except for any claims
arising out of Executive's fraudulent or criminal conduct, and an agreement that
Company shall not disparage Executive.



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                                      -10-
<PAGE>
     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement or
caused this Agreement to be duly executed on their respective  behalf,  by their
respective officers thereunto duly authorized,  all as of the day and year first
above written.


                                        MONTEREY HOMES CORPORATION, a
                                        Maryland corporation



                                        By: /s/ Larry W. Seay
                                           -------------------------------------
                                        Name: Larry W. Seay
                                             -----------------------------------
                                        Its: Vice President Finance & CFO
                                            ------------------------------------


                                        /s/ Steve Hafener
                                        ----------------------------------------
                                        Steve Hafener



                                        SH CAPITAL, INC., a
                                        California corporation
                                        for the limited purpose of acknowledging
                                        and agreeing to the provisions of
                                        Section 16



                                        By: /s/ Steve Hafener
                                           -------------------------------------
                                        Its: President
                                            ------------------------------------

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