**Exhibit10.3**

**EXTENSION AND MODIFICATIONOFEMPLOYMENT AGREEMENT**

THIS EXTENSION AND MODIFICATION OF EMPLOYMENT AGREEMENT (the “Extension”)is entered into as of April 30, 2007 by and between Hearthside Homes, Inc., aCalifornia corporation (“Employer”), which is an indirect wholly-ownedsubsidiary of California Coastal Communities, Inc., a Delaware corporation (“Parent”),and MICHAEL J. RAFFERTY (“Executive”).

W I T N E S S E TH:

WHEREAS, Executive and Employer have entered into an EmploymentAgreement dated as of August 8, 2005 (the “Employment Agreement”), throughwhich Executive has provided various executive capacities to Employer andEmployer has obtained various executive services by Executive; and

WHEREAS, Employer desires to obtain the benefit of continued servicefrom Executive by extending the Employment Agreement, and Executive desires torender continued services to Employer by extending the Employment Agreementpursuant to the terms and conditions of this Extension;

NOW, THEREFORE, in consideration of the foregoing recitals and themutual promises and covenants herein contained, the parties agree as follows:

# SECTION 1.           CONTINUING EFFECTIVENESS OFEMPLOYMENT AGREEMENT.  Except to theextent of any modification made pursuant to the terms of this Extension, theEmployment Agreement shall continue to remain in full force and effectfollowing the date hereof.

# SECTION 2.           EXTENSION OF TERM.  Employer and Executive hereby agree to extendthe term of the Employment Agreement until December 31, 2008.

# SECTION 3.           BASE SALARY.  Effective January 1, 2007 and until theexpiration of the term set forth in Section 2 above, Employer agrees topay Executive a base salary of at least Two Hundred and Twenty-Six ThousandFive Hundred Dollars ($226,500) per year in semi-monthly installments onthe same dates the other senior officers of Employer are paid.

### (i)            PaidTime Off.  Executive shall beentitled to five (5) weeks of paid time off (“PTO”) each twelve-month period,in accordance with the terms and provisions set forth in that certainHearthside Homes/California Coastal Communities Employee Handbook Addendumdated December 4, 2006 (the “Addendum”) a copy of which has been delivered toExecutive; and Executive hereby represents and warrants that (i) the Addendumhas been fully read and understood, and (ii) Executive agrees to be bound bythe Addendum with respect to all matters of PTO.

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# SECTION4.           BONUS.  From the date hereof and until the expirationof the term set forth above, Employer agrees to provide Executive with theopportunity to earn the following bonuses: (i) a discretionary bonus, to bedetermined on an annual basis in the sole and absolute discretion of Parent’sCompensation Committee, related to such Committee’s assessment of Executive’srelative contribution towards the success of Signal Landmark’s Brightwaterproject; and (ii) incentivebonuses based on the bonus formula set forth on Schedules A and B of theEmployment Agreement.

# INWITNESS WHEREOF, the parties have executed this Extension as of the date firstabove written.

|   | “EMPLOYER”    |
|--------|-------------------------|
|   |                    |
|   | HEARTHSIDE  HOMES, INC. |
|   |                    |
|   | By:                     | /s/ RAYMOND J. PACINI |   |
|   |                    | Raymond J.  Pacini |   |
|   |                    | Chief Executive  Officer |   |
|   |                    |
|   | “EXECUTIVE”   |
|   |                    |
|   |                    | /s/ MICHAEL J. RAFFERTY |   |
|   |                    | Michael J. Rafferty |   |

 

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