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                                                                 EXHIBIT 10.1

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                                 LOAN AGREEMENT

                         DATED AS OF SEPTEMBER 25, 2000

                                     BETWEEN

                            WILLIAM LYON HOMES, INC.,
                            A CALIFORNIA CORPORATION

                                 THE "BORROWER"

                                       AND

                        RESIDENTIAL FUNDING CORPORATION,
                             A DELAWARE CORPORATION

                                    "LENDER"

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                                TABLE OF CONTENTS

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ARTICLE I DEFINITIONS........................................................................1

        Section 1.1.  Certain Defined Terms..................................................1

        Section 1.2.  Other Definitional Provisions.........................................20

ARTICLE II THE LOAN.........................................................................21

        Section 2.1.  Agreement to Lend and Borrow; Evidence of Indebtedness and
               Maturity.....................................................................21

        Section 2.2.  Disbursements of the Loan.............................................21

        Section 2.3.  Use of Disbursements..................................................21

        Section 2.4.  Commitment Fees.......................................................22

        Section 2.5.  Increase in Commitment Fee as a Result of Increase in the
               Loan Amount; No Reduction in Commitment Fee Regardless of
               Reductions in the Loan Amount................................................23

        Section 2.6.  Repayment of Principal................................................24

        Section 2.7.  Interest..............................................................25

        Section 2.8.  Prepayment of the Loan................................................26

        Section 2.9.  Security..............................................................26

        Section 2.10.  Payments.............................................................26

        Section 2.11.  Extension............................................................26

        Section 2.12.  Applications of Payments; Late Charges...............................27

        Section 2.13.  Interest Rate Limitation.............................................28

        Section 2.14.  Revolving Nature of Loan.............................................28

        Section 2.15.  Voluntary Permanent Reduction in the Loan Amount.....................28

ARTICLE III APPROVAL OF PROJECTS AND DISBURSEMENTS..........................................29

        Section 3.1.  Project Approval and Project Commitments..............................29

        Section 3.2.  The ABF Program.......................................................29

        Section 3.3.  Processes and Conditions Relating to Disbursements....................33

ARTICLE IV REPRESENTATIONS AND WARRANTIES...................................................37

        Section 4.1.  Consideration.........................................................37

        Section 4.2.  Organization..........................................................37

        Section 4.3.  Authorization.........................................................37

        Section 4.4.  Governmental Consents.................................................37

        Section 4.5.  Validity..............................................................38

        Section 4.6.  Financial Position....................................................38

        Section 4.7.  Governmental Regulations..............................................38
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        Section 4.8.  Employee Benefit Plans................................................38

        Section 4.9.  Securities Activities.................................................38

        Section 4.10.  No Material Adverse Change...........................................38

        Section 4.11.  Payment of Taxes.....................................................38

        Section 4.12.  Litigation...........................................................39

        Section 4.13.  Environmental Matters................................................39

        Section 4.14.  No Burdensome Restrictions...........................................39

        Section 4.15.  Full Disclosure......................................................39

        Section 4.16.  Adequate Consideration...............................................39

ARTICLE V COVENANTS OF BORROWER.............................................................40

        Section 5.1.  Consideration.........................................................40

        Section 5.2.  Affirmative Covenants.................................................40

        Section 5.3.  Negative Covenants....................................................44

        Section 5.4.  Financial Covenants...................................................45

        Section 5.5.  Insurance.............................................................45

        Section 5.6.  Prohibited Transfers..................................................47

ARTICLE VI THE PROJECTS.....................................................................47

        Section 6.1. Consideration..........................................................47

        Section 6.2.  Title to the Projects.................................................48

        Section 6.3.  No Prior Liens or Claims..............................................48

        Section 6.4.  Access to the Projects................................................48

        Section 6.5.  Compliance with Project Requirements and Laws and Regulations.........48

        Section 6.6.  Covenants, Zoning, Codes, Permits and Consents........................49

        Section 6.7.  Utilities.............................................................49

        Section 6.8.  Map, Permits. Licenses and Approvals..................................49

        Section 6.9.  Approval of Plans and Specifications and Approval of Budgets..........49

        Section 6.10.  Adequacy of Acquisition and Development Amount.......................50

        Section 6.11.  Construction Start and Completion....................................50

        Section 6.12.  Personal Property Incorporation......................................51

        Section 6.13.  Contractors and Contracts............................................51

        Section 6.14.  Evidence of Ownership of Materials...................................51

        Section 6.15.  Changes to Plans and Specifications and Budgets......................51

        Section 6.16.  Lender Inspections, Appraisal and Information........................54

        Section 6.17.  Correction of Defects................................................54
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        Section 6.18.  Protection Against Lien Claims.......................................54

        Section 6.19.  Conveyance, Lease or Encumbrance.....................................55

        Section 6.20.  Security Instruments.................................................56

        Section 6.21.  Further Assurances; Cooperation......................................56

        Section 6.22.  Negative Covenants...................................................56

        Section 6.23.  Signs................................................................56

        Section 6.24.  Letter of Credit.....................................................56

ARTICLE VII SALES OF LOTS AND UNITS AND RELEASES FROM DEED OF TRUST.........................58

        Section 7.1.  Sales Agreements......................................................58

        Section 7.2.  Sales and Closings....................................................58

        Section 7.3.  Sales Operations and Seller's Obligations.............................59

        Section 7.4.  Model Units...........................................................59

        Section 7.5.  Releases from Lien of Deed of Trust...................................59

ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES.................................................61

        Section 8.1.  Events of Default.....................................................61

        Section 8.2.  Remedies..............................................................66

        Section 8.3.  Authorization to Apply Assets to Payment of Loan......................71

ARTICLE IX MISCELLANEOUS....................................................................71

        Section 9.1.  Successors and Assigns; No Assignment by Borrower.....................71

        Section 9.2.  Notices...............................................................71

        Section 9.3.  Changes, Waivers, Discharge and Modifications in Writing..............73

        Section 9.4.  No Waiver; Remedies Cumulative........................................73

        Section 9.5.  Costs, Expenses and Taxes.............................................73

        Section 9.6.  Disclaimer by Lender; No Joint Venture................................74

        Section 9.7.  Indemnification.......................................................74

        Section 9.8.  Consultants...........................................................75

        Section 9.9.  Governing Law.........................................................75

        Section 9.10.  Titles and Headings..................................................75

        Section 9.11.  Counterparts.........................................................75

        Section 9.12.  Lender's Right With Respect to the Loan..............................75

        Section 9.13.  Confidentiality......................................................75

        Section 9.14.  Time is of the Essence...............................................76

        Section 9.15.  No Third Parties Benefitted..........................................76

        Section 9.16.  Severability.........................................................76

        Section 9.17.  Jurisdiction.........................................................76
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        Section 9.18.  Waiver of Jury Trial.................................................77

        Section 9.19.  Interpretation.......................................................77

        Section 9.20.  Entire Agreement.....................................................77
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                                 LOAN AGREEMENT

        THIS LOAN AGREEMENT (this "Loan Agreement") is made as of September 25,
2000, by and between WILLIAM LYON HOMES, INC., a California corporation (the
"Borrower") and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, its
successors and assigns (the "Lender").

                                R E C I T A L S:

        A Borrower has applied to Lender for a revolving loan in the initial
principal amount of Seventy-Five Million Dollars ($75,000,000) (the "Loan") to
finance various acquisition, development and construction projects which
Borrower anticipates undertaking.

        B Lender is willing to make the requested loan upon and subject to the
terms and conditions set forth in this Agreement.

                                   AGREEMENT:

        NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

        Section 1.1. Certain Defined Terms. As used herein (including any
Exhibits attached hereto), the following terms shall have the meanings set forth
below (unless expressly stated to the contrary):

        "ABF Program" shall mean the asset-based financing program available to
the Borrower as further described in Section 3.2 herein.

        "Acquisition and Development Amount" shall mean, with respect to a
Project, the maximum amount of the Loan which may be disbursed for Qualified
Acquisition and Development Expenditures which relate to the acquisition of the
Land and the Development Work of such Project, subject to availability under the
terms of this Loan Agreement.

        "Acquisition and Development Interest Reserve" shall mean, with respect
to a Project, the amount within the Budget which has been designated as
available to pay the interest on the Acquisition and Development Amount for such
Project; provided, however, that in the event the cumulative sales of the Homes
within the Project on or after the date which is six (6) months from the date
Homes in the Project are first offered for sale is thirty-three percent (33%) or
more below the projected cumulative sales as determined based on the absorption
rate set forth in the applicable Project Commitment, then at Lender's option
Borrower will be

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required to pay interest from its own funds on the Acquisition and Development
Amount for such Project.

        "Acquisition and Development Maturity Date" shall mean, with respect to
a Project, the date which is set forth in the Project Commitment for such
Project as the date on which all proceeds of the Loan advanced for the
acquisition of the Land and the Development Work for such Project must be
repaid.

        "Acquisition and Development Soft Costs and Other Costs" shall mean,
with respect to a Project and subject to the limitations set forth in the
Project Commitment for such Project, the Borrower's overhead, general and
administrative expenses, governmental fees, legal fees and expenses, title
insurance costs and other "soft" costs and all other costs incurred in the
acquisition of the Land and the Development Work of such Project, to the extent
included in the Budget for such Project.

        "Additional Loan Fee" shall mean, with respect to a High Advance Rate
Project, the additional fee the Borrower will be required to pay to Lender as a
condition precedent to the Lender's release of its lien on any Lot or Unit
located in the Project, which amount shall equal the following:

                (a) in the event the Lender has advanced proceeds of the Loan to
        finance the acquisition of the Land and the Development Work and the
        Borrower finances the construction of a Home on a Lot from a source
        other than the Lender or sells a Lot to another builder, an amount equal
        to five percent (5%) of the Value of such Lot; and

                (b) in the event the Lender has advanced proceeds of the Loan to
        finance the Homes, regardless of the completion status of the Unit, an
        amount equal to one and one-half percent (1.50%) of the Gross Selling
        Price of such Unit.

        "Additional Units" shall mean Units which (a) were not encumbered by the
lien of the Deed of Trust at the time of execution of this Loan Agreement, (b)
are located within a Project for which the Lender has issued a Project
Commitment to include such Units in the ABF Program, (c) the Borrower desires,
and Lender approves, be made a part of the Borrowing Base Collateral under the
ABF Program, and (d) have become encumbered by the first-priority lien of the
Deed of Trust.

        "Advance Rate" shall mean, with respect to a Project and disbursements
of the Loan for the Project, the percentages set forth in the Project
Commitment.

        "Affiliate" shall mean a Person that, directly or indirectly, controls,
is controlled by, or is under common control with, a referenced Person.

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        "Applicable ABF Advance Rate' shall have the meaning given in Section
3.2(c)(2).

        "Applicable Acquisition and Development Principal Repayment Percentage"
shall mean, with respect to a Project, one hundred fifteen percent (115%);
provided, however, if the applicable Project Commitment for a Project specifies
that the "Applicable Acquisition and Development Principal Repayment Percentage"
for such Project is one hundred percent (100%), then the "Applicable Acquisition
and Development Principal Repayment Percentage" for such Project shall be one
hundred percent (100%).

        "Appraisal Report" shall mean, with respect to a Project, a real estate
appraisal report which (i) has been prepared by an Appraiser, (ii) at the time
it is submitted to the Lender is not more than three (3) months old, or was
updated by letter not more than three (3) months prior to the date of submission
to the Lender, (iii) states that it is prepared in accordance with the
applicable standards of the American Institute of Real Estate Appraisers for
such reports, (iv) provides an appraisal of the Value of the Project or portion
thereof required to be appraised thereunder, and (v) employs a customary
methodology and provides limiting conditions satisfactory to the Lender.

        "Appraiser" shall mean, with respect to a Project, a Person who is
qualified to appraise property similar in size and scope to the Project which
such Person is acceptable to the Lender in its sole and absolute discretion.

        "Approval Period" shall mean the period during which new projects will
be considered for approval for funding from proceeds of the Loan, which period
shall commence on the date of this Loan Agreement and shall end on the Approval
Period Termination Date.

        "Approval Period Termination Date" shall mean September 25, 2002, which
is the date twenty-four (24) months after the date of this Loan Agreement, as
such date may be extended pursuant to the terms of Section 2.11.

        "Approved Cash Flow Statement" shall mean, with respect to a Project,
the cash flow statement for such Project, prepared by Borrower and approved by
Lender, which shall, among other things, establish the estimated outstanding
advances of the Loan for such Project on a month-by-month basis, as such cash
flow statement may be amended from time to time with the prior written consent
of Lender.

        "Assignment" shall mean, with respect to all of the Projects, that
certain assignment of construction agreements and development items executed by
the Borrower in favor of Lender, as the same may be amended or otherwise
modified from time to time.

        "Borrower" shall mean William Lyon Homes, Inc., a California
corporation.

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        "Borrowing Base Allowable Disbursement Amount" shall mean, on any date
of determination, as determined by Lender, the amount of the Loan available to
be disbursed with respect to the Borrowing Base Collateral, which amount shall
be the lesser of (a) the Loan Amount minus the sum of (i) the outstanding
principal balance of advances under the Loan made for the acquisition of Land
and Development Work for all Projects, plus (ii) Borrowing Base Outstanding
Amount, or (b) the Borrowing Base Value minus the Borrowing Base Outstanding
Amount.

        "Borrowing Base Collateral" shall mean the Units and all personal
property and fixtures located thereon or associated therewith which are included
in the ABF Program.

        "Borrowing Base Home Amount" shall have the meaning given in Section
3.2(c)(2).

        "Borrowing Base Outstanding Amount" shall mean, on any date of
determination, as determined by Lender, the principal amount of the Loan
outstanding in connection with the ABF Program.

        "Borrowing Base Value" shall mean, on any date of determination, the
value assigned to the Borrowing Base Collateral by the Lender on such date
pursuant to and in accordance with the terms of Section 3.2.

        "Budget" shall mean, with respect to a Project, the itemized budget for
such Project submitted to and approved by the Lender, as such budget may be
amended in accordance with the provisions of this Loan Agreement.

        "Business Day" shall mean a day other than Saturday, Sunday or a day on
which national banks are legally closed for business in the States of
California, Illinois and Minnesota.

        "Change" shall mean, with respect to a Project, any material extra work
not contemplated by the Plans and Specifications, the installation of materially
additional or different materials from those set forth in the Plans and
Specifications, or any other material change in the Plans and Specifications.

        "Commitment Fee" shall mean the fee the Borrower is required to pay to
the Lender during the period from the date of this Loan Agreement through the
Maturity Date, which fee shall be an amount equal to one-half of one percent
(.50%) per annum of the Loan Amount in effect on the day such fee is due to the
Lender, to be paid in quarterly installments as provided in Section 2.4.

        "Construction Agreements" shall mean, with respect to a Project, all
agreements (including, without limitation, construction contracts) entered into
between the Borrower and

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any contractor, architect, engineer, supplier or other Person with respect to
the development or construction of the Project, as such agreements may be
amended or otherwise modified from time to time in accordance with this Loan
Agreement.

        "Construction Progress Schedule" shall mean, with respect to a Project,
the schedule for the Development Work and the Homes submitted to the Lender, as
such schedule may be adjusted in accordance with the provisions of this Loan
Agreement.

        "Conventional Project" shall mean a Project as to which (i) the proceeds
of the Loan may be used to acquire Land, construct Development Work and/or
construct Homes, (ii) the Advance Rate for the acquisition of the Land and the
Development Work for such Project is described under the caption "Conventional
Project" in the Project Requirements and (iii) no Additional Loan Fee is due.

        "Debt" shall mean, for any Person, without duplication, the sum of all
(i) indebtedness for borrowed money, (ii) obligations evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligations to pay the
deferred purchase price of property or services, (iv) obligations as lessee
under leases which shall have been or should be, in accordance with GAAP,
recorded as capital leases, (v) obligations of such Person to purchase
securities (or other property) which arise out of or in connection with the sale
of the same or substantially similar securities or property, (vi) obligations of
such Person to reimburse any bank or other Person in respect of amounts actually
paid under a letter of credit or similar instrument, (vii) indebtedness or
obligations of others secured by a lien on any asset of such Person, whether or
not such indebtedness or obligations are assumed by such Person (to the extent
of the value of the asset), (viii) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clauses
(i) through (vii) above, and (ix) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.

        "Deed of Trust" shall mean collectively, each deed of trust, security
agreement and fixture filing (or mortgage, as applicable) with assignment of
rents, proceeds and agreements, covering any one or more of the Projects,
executed or to be executed by the Borrower, as trustor, for the benefit of the
Lender, as the same may be amended or otherwise modified from time to time.

        "Development Work" shall mean, with respect to a Project, the work of
development to be performed on or with respect to the Land (including, without
limitation, the installation of utilities, roads and all related on-site and
off-site improvements) in connection with the development of the Land for the
subsequent construction thereon of Homes, all of which

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work and construction shall be completed by or on behalf of the Borrower in
accordance with the Development Work Plans and Specifications, but shall not
include the Homes.

        "Development Work Plans and Specifications" shall mean, with respect to
a Project, the final set of architectural, structural, mechanical, electrical,
grading, sewer, water, street and utility plans and specifications for the
Development Work to be included within such Project, including all supplements,
amendments and modifications thereto signed by the architect, all in form and
substance reasonably satisfactory to the Lender and the Inspector.

        "Draw Request Certification" shall mean, with respect to a requested
disbursement of the Loan, a certification of Borrower delivered to the Lender in
the form of Exhibit E.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations and rulings issued thereunder.

        "Environmental Indemnity" shall mean, with respect to all of the
Projects, that certain hazardous substances remediation and indemnification
agreement executed by the Borrower in favor of the Lender, as the same may be
amended or otherwise modified from time to time.

        "Event of Default" shall mean the occurrence of any of the events listed
in Section 8.1.

        "Excluded Unit" shall mean any Unit which includes a Home (whether under
construction or completed) that has been part of the Borrowing Base Collateral
for more than fifteen (15) months from the commencement of construction of such
Home in the case of a Sold Unit or a Spec Unit or for more than thirty (30)
months from the commencement of construction of such Home in the case of a Model
Unit.

        "Finished Lot" shall mean a lot as to which construction of the Home can
be commenced.

        "Force Majeure Event" shall mean, with respect to a Project, fire,
flood, labor dispute, weather, governmental action or other cause beyond the
reasonable control of Borrower that shall delay the Development Work or the
completion of the Homes.

        "GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession prevalent in the United States of America.

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        "Gross Selling Price" means, with respect to any Unit, the base sales
price for such Unit plus any lot premium, plus any options, extras and/or
upgrades ordered from the Borrower, whether financed or collected at the close
of the escrow, less any builder concessions given by the Borrower.

        "Guarantor" shall mean William Lyon Homes, a Delaware corporation, which
is the parent corporation of the Borrower.

        "Guaranty" shall mean that certain Guaranty of even date herewith and
executed by the Guarantor in favor of the Lender, as such Guaranty may be
amended or otherwise modified from time to time.

        "Hazardous Materials" shall mean the following:

                (a) any oil, flammable substances, explosives, radioactive
        materials, hazardous wastes or substances, toxic wastes or substances or
        any other materials or pollutants, exposure to which is prohibited,
        limited or regulated by any governmental authority pursuant to any
        Hazardous Materials Law;

                (b) asbestos in any form which is or could become friable, urea
        formaldehyde foam insulation, transformers or other equipment which
        contain dielectric fluid containing levels of polychlorinated biphenyls
        in excess of fifty (50) parts per million, exposure to which is
        prohibited, limited or regulated by any governmental authority pursuant
        to any Hazardous Materials Law;

                (c) any chemical, material or substance defined as or included
        in the definition of "hazardous substances", "hazardous wastes",
        "hazardous materials", "extremely hazardous waste", "restricted
        hazardous waste", or "toxic substances" or words of similar import under
        any Hazardous Material Laws; and

                (d) any other chemical, material or substance, exposure to which
        is prohibited, limited or regulated by any governmental authority
        pursuant to any Hazardous Materials Law.

        "Hazardous Materials Claims" shall mean any and all enforcement,
clean-up, removal or other governmental or regulatory actions or orders
threatened, instituted or completed pursuant to any Hazardous Materials Laws,
together with all claims made or threatened by any third party relating to
damage, contribution, cost recovery compensation, loss or injury resulting from
any Hazardous Materials.

        "Hazardous Materials Laws" shall mean any federal, state or local laws,
ordinances and the regulations, policies or publications promulgated pursuant
thereto relating to (i) the

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environment, (ii) health and safety, (iii) any Hazardous Materials (including,
without limitation, the use, handling, transportation, production, disposal,
discharge or storage thereof), (iv) industrial hygiene or (v) environmental
conditions on, under or about property, including, without limitation, soil and
groundwater conditions; including, but not limited to, the following, as now or
hereafter amended: the Clean Air Act, 42 U.S.C. Sec. 9401, et seq.; the Clean
Water Act, 33 U.S.C. Sec. 7401, et. seq.; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec. 9601, et. seq.,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. Sec. 11001, et. seq.; the Federal Water Pollution Control Act, 33 U.S.C.
Sec. 1251, et. seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Sec.
1801, et. seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901,
et. seq.; the Safe Drinking Water Act, 42 U.S.C. Secs. 300f to 300j; the Solid
Waste Disposal Act, 42 U.S.C. Sec. 3251, et. seq.; the Toxic Substances Control
Act, 15 U.S.C. Sec. 2601, et seq.; Sections 25115, 25117, 25122.7, 25140,
25249.8, 25281, 25316, 25501, and 25316 of the California Health and Safety
Code; Article 9 or Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20; Nevada Revised Statutes Chapter 459; Nevada Revised
Statutes Chapter 444; Nevada Revised Statutes Chapter 445; Nevada Revised
Statutes Chapter 590; Nevada Revised Statutes Sections 618.850, inclusive;
Nevada Revised Statutes Section 477.045, as now or hereafter amended; the
Uniform Fire Code, as adopted by and now or hereafter in effect in the State of
Nevada.

        "High Advance Rate Project" shall mean a Project as to which (i) the
proceeds of the Loan may be used to acquire Land, construct Development Work
and/or construct Homes, (ii) the Advance Rate for the acquisition of the Land
and the Development Work for such Project is described under the caption "High
Advance Rate Project" in the Project Requirements and (iii) the Additional Loan
Fee is due.

        "Homes" shall mean, with respect to a Project, the single family
residences, condominium homes and/or attached townhouses that will be
constructed by the Borrower in accordance with the Home Plans and Specifications
using certain of the proceeds of the Loan, which structures the Borrower shall
construct on the Lots and offer for sale to individuals and families.

        "Home Plans and Specifications" shall mean, with respect to a Project,
the final set of architectural, structural, mechanical and electrical plans and
specifications for the Homes to be included within such Project, including all
supplements, amendments and modifications thereto signed by the architect, all
in form and substance reasonably satisfactory to the Lender and the Inspector.

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        "Indemnified Party" shall mean the Lender and any Affiliate of Lender
and any successors or assigns of Lender or any such Affiliate and each of their
officers, directors, employees, agents, attorneys, consultants, advisors and
Affiliates.

        "Independent Project Commitment Amount" shall mean, at any date of
determination, the aggregate amount of outstanding loan commitments issued by
the Lender and/or RFC Construction Funding Corp. to the Borrower or its
Affiliates with respect to projects which are not cross-collateralized with the
Projects and which are evidenced by promissory notes other than the Note, which
"Independent Project Commitment Amount" shall include, without limitation, the
LP Homes #1 Commitment Amounts. For purposes of this Agreement, the "Independent
Project Commitment Amount" shall (i) automatically increase by the amount of any
new loan commitment issued by the Lender and/or RFC Construction Funding Corp.
to the Borrower or its Affiliates with respect to a project which is not
cross-collateralized with the Projects and which is evidenced by a promissory
note other than the Note, with such automatic increase to become effective on
the date of issuance of such new loan commitment, and (ii) reduce by the amount
of any reduction in the Independent Project Commitment Amount, with such
reduction to become effective only upon delivery by the Lender or RFC
Construction Funding Corp. to the Borrower or its applicable Affiliate of a
written notice which serves to reduce a specific loan commitment by the amount
specified in such written notice.

        "Inspector" shall mean, with respect to a Project, the inspector(s) or
engineer(s) engaged by the Lender, at the expense of the Borrower, to provide to
Lender consultation services in connection with the Project.

        "Interest Due Date" shall mean the fifteenth (15th) calendar day of each
month in which the Lender has sent a statement of interest due pursuant to the
terms of Section 2.7(b).

        "Land" shall mean, with respect to a Project, that certain real property
which is suitable for and substantially entitled for the construction of Homes
thereon and related on and off-site improvements and upon which the Borrower
will perform the Development Work (if applicable) and construct the Homes, as
such real property is legally described in the Deed of Trust.

        "Land Banking" shall mean the practice of acquiring unimproved real
property and not commencing the initial phase of development of such real
property within six (6) months after the date of acquisition.

        "Land Speculation" shall mean the practice of acquiring either (i)
unimproved real property and reselling such real property without adding value
by development of such real property, or (ii) real property for which a
tentative tract map or the equivalent of a tentative

                                      -9-
<PAGE>   15

tract map has not been obtained or which is not substantially entitled for the
development of a residential project.

        "Laws and Regulations" shall mean, with respect to a Project, (i) all
laws, regulations, orders, codes, ordinances, rules, statutes and policies of
all local, regional, county, state and federal governmental authorities having
jurisdiction over such Project and (ii) all restrictive covenants and other
title encumbrances, permits and approvals, leases and other rental agreements
which in any case related to the development, occupancy, ownership, management,
use, and/or operation of such Project.

        "Lender" shall mean Residential Funding Corporation, a Delaware
corporation, its successors and assigns.

        "Lender's Release Price" shall mean, with respect to any Lot and/or Unit
which the Borrower requests the Lender to release from the lien of a Deed of
Trust, the amount required to be paid to the Lender prior to such release, which
amount shall equal the sum of (i) if the Lot or Unit is in a High Advance Rate
Project, the Additional Loan Fee for such Lot or Unit plus (ii) the amount
specified in Section 2.6(a) for such Lot or Unit, plus (iii) any past due
interest or fees owed to the Lender pursuant to the terms of the Loan Documents.

        "Letter of Credit" shall mean, with respect to any Project, any letter
of credit issued by a bank or other financial institution in favor of a
governmental entity to secure the Borrower's obligation to complete the
Development Work.

        "Letter of Credit Amount" shall mean the face amount of a Letter of
Credit.

        "Loan" shall mean the revolving loan described in this Loan Agreement in
a principal amount not to exceed the Loan Amount.

        "Loan Agreement" shall mean this Loan Agreement, as this loan agreement
may be amended or otherwise modified from time to time in accordance with the
terms hereof.

        "Loan Amount" shall mean, at any date of determination, an amount equal
to (a) Seventy-Five Million Dollars ($75,000,000), minus (b) the Independent
Project Commitment Amount, subject to reduction pursuant to Section 2.15.

        "Loan Documents" shall mean, as to the Loan, all documents, instruments,
agreements, assignments and certificates relating thereto, including, without
limitation, any and all loan or credit agreements, promissory notes, deeds of
trust, mortgages, security agreements, assignments of rents, assignments of
leases, assignments of contracts, environmental indemnities, guaranties,
contractor's consent agreements, lender's title insurance policies, opinions of
counsel, evidences of authorization or incumbency, escrow

                                      -10-
<PAGE>   16

instructions, architect's consent agreements, and UCC-1 financing statements
executed (and acknowledged where applicable) by Borrower and/or Lender (where
applicable) in connection with Lender making the Loan to Borrower, as the same
may be amended or otherwise modified from time to time in accordance with this
Loan Agreement. The Loan Documents shall include, but not be limited to, the
following:

           (a) this Loan Agreement;

           (b) the Note;

           (c) the Guaranty;

           (d) the Environmental Indemnity;

           (e) the Assignment;

           (f) the Title Policy; and

           (g) the Project Documents.

        "Loan Parties" shall mean the Borrower and the Guarantor.

        "Lots" shall mean, with respect to a Project, the tracts of real
property within the Land that have been or will be developed for the subsequent
construction thereon of Homes.

        "LP Homes #1" shall mean LP Homes #1, LLC, a Delaware limited liability
company.

        "LP Homes #1 Commitment Amounts" shall mean, at any determination date,
the aggregate amount of outstanding loan commitments issued by the Lender
(and/or RFC Construction Funding Corp.) to LP Homes #1.

        "Map" shall mean a final subdivision or parcel map for a Project
consistent with the Plans and Specifications for such Project and the Laws and
Regulations applicable to such Project, which "Map" shall be acceptable to the
Lender in the Lender's sole discretion.

        "Material Adverse Change" shall mean any material and adverse change in,
or a change which has a material adverse effect upon, any of:

                (a) the business, properties, operations or condition (financial
        or otherwise) of any Loan Party since either or both of (i) the
        financial condition reflected in the December 31, 1999 audited financial
        statements of the Loan Parties, or (ii) the date of the most recent
        financial statements delivered to the Lender in connection with the
        Loan; or

                                      -11-
<PAGE>   17

                (b) the legal or financial ability of either of any Loan Party
        to perform its obligations under the Loan Documents to which it is a
        party and to avoid any Potential Default or Event of Default; or

                (c) the legality, validity, binding effect or enforceability
        against any Loan Party of any Loan Document.

        "Maturity Date" shall mean the first to occur of (i) September 25, 2004,
which is the date four (4) years from the date of this Loan Agreement (as such
date may be extended in writing by Lender and Borrower from time to time), or
(ii) the date on which the Loan is required to be repaid pursuant to Section
8.2.

        "Model Unit" shall mean, with respect to a Project, any Unit which is
not subject to a Sales Agreement and which the Borrower has designated as a
model home to be used in marketing the Project, the number of which such model
homes shall be limited as set forth in the Project Commitment.

        "Net Income" of the Guarantor and its Subsidiaries (including the
Borrower) means, with respect to a calendar year, the after-tax net income of
the Guarantor and its Subsidiaries (including the Borrower) on a consolidated
basis for such calendar year determined in accordance with GAAP, before any
extraordinary losses.

        "Net Sales Proceeds" shall mean the proceeds from the sale of a Lot
and/or Unit deducting a reasonable real estate commission and closing costs,
which real estate commission and closing costs shall not exceed five percent
(5%) of the gross sales price for such Lot and/or Unit.

        "Net Worth" shall mean the net worth of the Guarantor and its
Subsidiaries (including the Borrower) reported on a consolidated basis accounted
for in accordance with GAAP; provided, however, in no event shall goodwill in
excess of $8,300,000 be included in calculating Net Worth for purposes of this
Loan Agreement.

        "Note" shall mean that certain Revolving Promissory Note dated of even
date herewith and executed by Borrower, as maker, and made payable to the order
of Lender, as holder, in the amount of Seventy-Five Million Dollars
($75,000,000) and maturing on the Maturity Date, to evidence the Loan, as such
Revolving Promissory Note may be amended or otherwise modified from time to
time.

        "PH Institutional Ventures" shall mean PH Institutional Ventures, a
California corporation.

                                      -12-
<PAGE>   18

        "Permitted Exceptions" shall mean, with respect to a Project, (i) real
estate taxes and assessments not yet due and payable and possible supplemental
assessments for improvements constructed on the Land, (ii) exceptions to title
which are approved in writing by the Lender, and (iii) the exceptions set forth
in the Title Policy or in any Title Policy Endorsement accepted by Lender.

        "Percentage Completed" shall have the meaning given in Section
3.2(c)(2).

        "Person" shall mean an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.

        "Plans and Specifications" shall mean, with respect to a Project, the
Development Work Plans and Specifications for such Project and the Home Plans
and Specifications for such Project, collectively.

        "Potential Default" shall mean the existence of any event, which with
the giving of notice, the passage of time, or both, would constitute an Event of
Default hereunder or an event of default (however described) under any other of
the Loan Documents.

        "Prepayment Price" shall mean an amount equal to (i) the principal
amount of the Loan to be prepaid, as requested by the Borrower, with no premium
thereon, plus (ii) all accrued interest to the date of prepayment on the
principal amount prepaid, together with other fees and expenses due and owing to
Lender pursuant to the terms of the Loan Documents.

        "Prime Rate" shall mean the rate that is indicated in the Telerate as
the prime lending rate announced from time to time by Bank One, National
Association (formerly known as The First National Bank of Chicago), a national
banking association, as in effect from time to time, it being understood that
the Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. In the event that such rate is no
longer shown in the Telerate, Borrower and Lender shall reasonably agree on a
substitute source for determining the prime lending rate of Bank One, National
Association (formerly known as The First National Bank of Chicago).

        "Project" shall mean any acquisition, development and/or construction
project of the Borrower as to which the Lender has issued a Project Commitment
and made proceeds of the Loan available for disbursement, which such project
shall include the Land, the Development Work and/or the Homes to be completed on
the Land.

        "Project Commitment" shall mean, with respect to a Project, the
commitment issued by the Lender to the Borrower for the Project, wherein the
Lender agrees, subject to the terms

                                      -13-
<PAGE>   19

and conditions of this Loan Agreement and such "Project Commitment", to make
proceeds of the Loan available for the Project, and, if applicable, to arrange
for the issuance of a Letter of Credit for the Project. The Project Commitments
shall be substantially in the form of Exhibit D.

        "Project Documents" shall mean, with respect to a Project, all
documents, instruments, agreements, assignments and certificates relating
thereto, including, without limitation, any and all loan or credit agreements,
promissory notes, deeds of trust, mortgages, security agreements, assignments of
rents, assignments of leases, assignments of contracts, environmental
indemnities, guaranties, contractor's consent agreements, lender's title
insurance policies, opinions of counsel, evidences of authorization or
incumbency, escrow instructions, architect's consent agreements, and UCC-1
financing statements executed (and acknowledged where applicable) by Borrower
and/or Lender (where applicable) in connection with Lender making proceeds of
the Loan available to the Borrower for the Project, as the same may be amended
or otherwise modified from time to time in accordance with this Loan Agreement.
The Project Documents shall include, but not be limited to, the following:

           (a) the Project Commitment;

           (b) the Deed of Trust or a modification to the Deed of Trust;

           (c) the UCC Financing Statement;

           (d) the Title Policy Endorsement;

           (e) the Plans and Specifications; and

           (f) the Letter of Credit.

The Project Documents shall include those forms of documents, instruments,
agreements, assignments and certificates for the States of California, Arizona
and Nevada which the Lender approves at the time of its execution and delivery
of this Loan Agreement, as evidenced by a written certificate of the Lender. The
forms of the Project Documents may be supplemented or amended from time to time
to add or amend form Project Documents approved by Lender and Borrower.

        "Project Requirements" shall mean, for any project proposed to be
included as a Project pursuant to the terms of this Loan Agreement, the
requirements listed in Exhibit B.

        "Project Security Instruments" shall mean, with respect to a Project,
all pledge agreements, guaranties, deeds of trust, mortgages, security
agreements, assignments and other

                                      -14-
<PAGE>   20

agreements or instruments previously executed or to be executed by Borrower
granting in favor of Lender a lien or encumbrance on or a security interest in
any property or right or interest of Borrower as security for the Loan, as the
same may be amended or otherwise modified from time to time in accordance with
this Loan Agreement, including but not limited to the following:

                (a) the Deed of Trust; and

                (b) the UCC Financing Statement.

        "Project Underwriting Documents" shall mean, for any project proposed to
be included as a Project pursuant to the terms of this Loan Agreement, the
documents listed in Exhibit C and any other documents relating to the proposed
project which Lender reasonably requests, all in form and substance reasonably
satisfactory to the Lender and, as to items A2, A6, B1, B3 and B6, in form and
substance reasonably satisfactory to the Inspector.

        "Qualified Acquisition and Development Expenditures" shall mean, with
respect to a Project, the costs related to the acquisition of the Land and the
Development Work for such Project for which proceeds of the Loan may be
disbursed as contemplated by the Project Commitment for such Project, which such
costs shall be limited to the following:

                (a) the cost of acquiring the Land or the Lots;

                (b) the cost of materials and labor for Development Work in
        place for the Project, but excluding any costs for materials delivered
        to the Land which have not yet been put in place or materials as to
        which the Borrower does not have title;

                (c) the Acquisition and Development Acquisition Soft Costs and
        Other Costs; and

                (d) the Acquisition and Development Interest Reserve.

The particular amounts which may be disbursed for each of the categories set
forth in paragraphs (a) through (d) above shall be set forth in the Budget for
the applicable Project. Amounts in the Budget related to the acquisition of the
Land and the Development Work for a Project which are not listed in any of the
categories set forth in paragraphs (a) through (d) above shall not be Qualified
Acquisition and Development Expenditures.

        "RFC CF Asset Based Funding System" shall mean the Lender's software
system on which Lender and Borrower maintain information regarding the Units in
the Borrowing Base Collateral, Borrowing Base Value, Borrowing Base Outstanding
Amount, Borrowing Base Allowable Disbursement Amount and related information
relating to the ABF Program.

                                      -15-
<PAGE>   21

        "Release" shall mean any presence, use, generating, storing, spilling,
leaking, pumping, pouring, emitting, treating, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of Hazardous Materials into the
environment, or about, on, from, under, within or affecting any Project, or
transported to or from any Project, including continuing migration of Hazardous
Materials into or through soil, surface water or groundwater, during Borrower's
ownership of such Project, in violation of the Hazardous Materials Laws.

        "Sales Agreement" shall mean a written agreement for the sale of a Lot
or a Unit between the Borrower and a person who is not an Affiliate of the
Borrower and who has been pre-qualified for the financing necessary to purchase
such Lot or Unit, which agreement shall (i) be binding upon such purchaser, (ii)
require such purchaser to deposit with the Borrower an "at risk" deposit (which
such deposit may be returned to the purchaser, and shall not be "at risk", in
the event the contingencies specified in the agreement are not satisfied), (iii)
contain no contingencies to the obligation of such purchaser to purchase such
Lot or Unit, other than contingencies related to financing and the sale of
another residence; provided that in the event any contingency is not removed
within sixty (60) days of the date of the agreement, such agreement shall no
longer be considered a "Sales Agreement" for purposes of this Loan Agreement,
and (iv) conform to all applicable laws, regulations, codes and ordinances,
including those requiring disclosures to prospective and actual buyers.

        "Sold Unit" shall mean any Unit which is subject to a Sales Agreement.

        "Spec Units" shall mean Units, other than Model Units, which are not
subject to a Sales Agreement.

        "Stage" shall mean, with respect to a Project, the various stages of
construction of the Homes.

        "Staged Draw Schedule" shall mean, with respect to a Project, the
various Stages of construction of the Homes, which such Stages, and the
components of the Homes which fit within each such Stage, shall be specified in
the Project Commitment.

        "Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be owned or controlled,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries.

                                      -16-
<PAGE>   22

        "Title Company" shall mean Fidelity National Title Insurance Company or
any other title insurance company approved in writing by the Lender.

        "Title Policy" shall mean that certain policy or policies of title
insurance accepted by the Lender for all of the Projects, which policy or
policies of title insurance shall (i) be an ALTA loan form (1970 form, revised
10-17-84, or the equivalent thereof) title insurance policy, (ii) be issued in
the amount of the original principal amount of the Note, (iii) be issued by the
Title Company, (iv) insure the Lender that the applicable Deed of Trust is an
enforceable first lien against marketable fee simple title to all of the
Projects, subject only to Permitted Exceptions, (v) provide mechanics' lien
coverage, and (vi) have appended thereto a comprehensive endorsement, a usury
endorsement, a revolving loan credit and variable rate endorsement, an
environmental lien endorsement and such other endorsements as are generally
required by lenders in the area in which the Projects are located, and otherwise
in form and substance reasonably satisfactory to Lender.

        "Title Policy Endorsement" shall mean an endorsement to the Title
Policy, in form and content acceptable to the Lender, to be delivered to the
Lender pursuant to the terms of this Loan Agreement.

        "Total Liabilities" shall mean the aggregate amount of all liabilities
of the Guarantor and its Subsidiaries (including the Borrower) reported on a
consolidated basis as computed in accordance with GAAP.

        "Transfer" shall mean the occurrence of any of the following:

                (a) any sale, conveyance, assignment, transfer, alienation,
        mortgage, conveyance, of security title, encumbrance or other
        disposition of any Project, of any kind, or any other transaction the
        result of which is, directly or indirectly, to divest Borrower of any
        portion of its title to or interest in any Project, voluntarily or
        involuntarily;

                (b) any merger, consolidation or dissolution involving Borrower
        or the sale or transfer of a significant portion of the assets of
        Borrower;

                (c) so long as LP Homes #1 has any outstanding loans or other
        obligations to the Lender (or to RFC Construction Funding Corp.) or the
        Lender (or RFC Construction Funding Corp.) has any outstanding
        commitments to make loans available to LP Homes #1, any merger,
        consolidation or dissolution involving PH Institutional Ventures or any
        sale, conveyance, assignment, transfer, alienation, encumbrance or other
        disposition by PH Institutional Ventures of any of its membership
        interest in LP Homes #1 or any other transaction or event the result of

                                      -17-
<PAGE>   23

        which is directly or indirectly to cause PH Institutional Ventures to
        own less than fifty percent (50%) of the outstanding membership
        interests in LP Homes #1 or to cause PH Institutional Ventures to cease
        being the managing member of LP Homes #1.

                (d) so long as LP Homes #1 has any outstanding loans or other
        obligations to the Lender (or to RFC Construction Funding Corp.) or the
        Lender (or RFC Construction Funding Corp.) has any outstanding
        commitments to make loans available to LP Homes #1, any sale,
        conveyance, assignment, transfer, alienation, encumbrance or other
        disposition by Borrower of any of its stock in PH Institutional Ventures
        or any other transaction or event the result of which is directly or
        indirectly to cause Borrower to own less than one hundred percent (100%)
        of the outstanding stock in PH Institutional Ventures;

                (e) any merger, consolidation or dissolution involving Guarantor
        or any sale, conveyance, assignment, transfer, alienation, encumbrance
        or other disposition by Guarantor of any of its stock in Borrower or any
        other transaction or event the result of which is directly or indirectly
        to cause Guarantor to own less than one hundred percent (100%) of the
        outstanding stock if Borrower.

                (f) any conveyance, assignment, transfer or other disposition
        (at one time or over a period of time) of any of the stock of Guarantor
        owned at any time by William Lyon ("General Lyon") or William H. Lyon
        ("Mr. Lyon") (collectively, General Lyon and Mr. Lyon are herein called
        the "Lyons") or any issuance of additional stock in Guarantor or any
        other event the result of which is to dilute, decrease or eliminate the
        Lyons' ownership interest in Guarantor, unless, after giving effect to
        any such conveyance, assignment, transfer, other disposition, issuance
        or other event, the Lyons and/or a Qualified Transferee (defined below)
        (i) retain control of Guarantor, (ii) continue to own at least forty
        percent (40%) of the outstanding stock of Guarantor at all times
        subsequent to such conveyance, assignment, transfer, other disposition,
        issuance or other event on a continuous and full time basis with the
        power and responsibility to manage the material day to day operations of
        Guarantor, Borrower and their Subsidiaries, and (iii) any three (3) of
        Wade Cable, Thomas J. Mitchell, Douglas F. Bauer, Richard S. Robinson or
        Michael D. Grubbs continue to be employed by Guarantor and Borrower at
        all times subsequent to the transfer on a continuous and full time basis
        with power and responsibility to manage the material day to day
        operations of Guarantor, Borrower and their Subsidiaries. For purposes
        of this subsection (f), a "Qualified Transferee" is a transferee which
        must be (1) the executor of the estate of General Lyon, (2) a member of
        the immediate family of General Lyon, or (3) the trustee of a trust
        established and continuously maintained for the sole benefit of the
        immediate family of General Lyon.

                                      -18-
<PAGE>   24

        "UCC Financing Statement" shall mean, with respect to a Project, a UCC
financing statement executed by Borrower, as debtor, in favor of Lender, as
secured party, in connection with Lender making proceeds of the Loan available
to the Borrower for such Project, as such UCC financing statement may be amended
or otherwise modified from time to time.

        "Unit" shall mean a Finished Lot and the Home constructed on such
Finished Lot.

        "Value" shall mean the value which an Appraiser (or if no Appraisal
Report is required by Lender, Lender) assigns to the Project or any part thereof
as to which a value is being determined, as set forth in an Appraisal Report (if
an Appraisal Report is required by Lender) and based upon the following:

                (a) with respect to High Advance Rate Projects, and for purposes
        of determining the Additional Loan Fee payable in the event the Lender
        has advanced proceeds of the Loan to finance the acquisition of the Land
        and the Development Work, and the Borrower finances the construction of
        a Home from a source other than the Lender or sells a Lot to another
        builder, the value of such Lot shall be determined based on the "as if
        complete" value of such Lot after completion of all Development Work;

                (b) the value of the Land or any part thereof which is part of a
        Project shall be determined based on the retail value of the Land after
        completion of all Development Work;

                (c) the value of any Sold Unit, whether or not the Home has been
        commenced or completed, shall be determined based upon the sales price
        set forth in the Sales Agreement; and

                (d) the value of any Model Unit or Spec Unit, whether or not the
        Home has been commenced or completed, shall be determined based upon the
        "as-completed" "full retail" value of the base model of the applicable
        Unit set forth in an Appraisal, exclusive of options, extras, upgrades
        and lot/location premiums except to the extent set forth in the
        applicable Project Commitment.

        "WIP Report" shall mean a Work in Progress Report related to the
Borrower's Units included in the ABF Program, which report shall be generated by
the Lender from the RFC CF Asset Based Funding System.

                                      -19-
<PAGE>   25

        Section 1.2. Other Definitional Provisions.

                (a) Accounting terms not defined herein shall have the
        respective meanings given to them under GAAP. To the extent that the
        definitions of accounting terms herein are inconsistent with the
        meanings of such terms under GAAP, the definitions contained herein
        shall control.

                (b) The words "hereof", "herein" and "hereunder" and words of
        similar import when used in this Loan Agreement shall refer to this Loan
        Agreement as a whole and not to any particular provision of this Loan
        Agreement.

                (c) In this Loan Agreement in the computation of periods of time
        from a specified date to a later specified date, the word "from" means
        "from and including" and the words "to" and "until" each means "to but
        excluding".

                                   ARTICLE II
                                    THE LOAN

        Section 2.1. Agreement to Lend and Borrow; Evidence of Indebtedness and
Maturity.

                (a) Lender agrees, on the terms and conditions hereinafter set
        forth, to make the Loan to Borrower for the purpose of providing
        financing for Projects; provided, however, that (i) the sum of the
        outstanding principal balances of advances under the Loan made for the
        acquisition of Land and Development Work for all Projects and the
        Borrowing Base Outstanding Amount shall not exceed at any time the Loan
        Amount, (ii) the advances of the Loan made with respect to the
        acquisition of Land and the Development Work for any given Project shall
        not exceed at any time the Acquisition and Development Amount for such
        Project, (iii) the Borrowing Base Outstanding Amount shall not exceed at
        any time the Borrowing Base Value, and (iv) the obligation of the Lender
        to make the Loan is conditioned upon, among other things, the Lender's
        receipt of the documents set forth in Exhibit A attached hereto.
        Borrower and Lender acknowledge that although the sum of the Acquisition
        and Development Amounts for all Projects and the Borrowing Base
        Outstanding Amount at any given date of determination may exceed the
        Loan Amount, Lender shall have no obligation to make any advance of Loan
        proceeds in excess of the Loan Amount. The Borrower shall repay the Loan
        pursuant to Section 2.6, may prepay the Loan pursuant to Section 2.8 and
        may reborrow proceeds of the Loan pursuant to this Section 2.1(a).

                                      -20-
<PAGE>   26

                (b) Concurrent with the execution and delivery of this Loan
        Agreement, the Borrower shall execute and deliver to the Lender the
        Note, evidencing the indebtedness incurred by the Borrower pursuant to
        the terms of this Loan Agreement.

                (c) The outstanding principal balance of the Loan, together with
        accrued and unpaid interest thereon and all other amounts payable by
        Borrower under the terms of the Loan Documents, shall be due and payable
        on the Maturity Date.

        Section 2.2. Disbursements of the Loan. The Lender shall make
disbursements of the Loan in accordance with and subject to the terms of Article
III hereof.

        Section 2.3. Use of Disbursements. Borrower shall ensure the use of
disbursements of the Loan only for purposes permitted by this Loan Agreement.

        Section 2.4. Commitment Fees.

                (a) During the period from the date of this Loan Agreement until
        the Approval Period Termination Date, the Commitment Fee shall be an
        annual fee determined in advance for the applicable annual period. The
        Borrower shall pay to Lender the annual Commitment Fee for each annual
        period in which the Commitment Fee is required to be paid; provided,
        however, that the Lender agrees that the Borrower may pay such annual
        Commitment Fee in advance in equal quarterly installments; provided
        further, however, that the fact that the Commitment Fee may be paid in
        quarterly installments does not alter the character of the Commitment
        Fee as an annual fee, payable for the applicable annual period. During
        the period from the date of this Loan Agreement through the Approval
        Period Termination Date, the Commitment Fee shall be paid as follows:

                        (1) The initial quarterly installment of the Commitment
                Fee shall be paid upon execution of this Loan Agreement.

                        (2) On January 1, April 1, July 1 and October 1 of each
                year, commencing January 1, 2001, the Borrower shall pay the
                quarterly installment of the Commitment Fee due with respect to
                the applicable annual period.

                (b) On and after the Approval Period Termination Date, the
        Commitment Fee shall be a semi-annual fee determined in advance for the
        applicable semi-annual period. The Borrower shall pay to Lender the
        semi-annual Commitment Fee for each semi-annual period in which the
        Commitment Fee is required to be paid; provided, however, that the
        Lender agrees that the Borrower may pay such semi-annual Commitment Fee
        in advance in equal quarterly installments; provided further, however,
        that the fact that the Commitment Fee may be paid in quarterly
        installments

                                      -21-
<PAGE>   27

        does not alter the character of the Commitment Fee as a semi-annual fee,
        payable for the applicable semi-annual period. On and after the Approval
        Period Termination Date, the Commitment Fee shall be paid as follows:

                        (1) The initial quarterly installment of the Commitment
                Fee shall be paid on the Approval Period Termination Date.

                        (2) On January 1, April 1, July 1 and October 1 of each
                year commencing with the first such date after the Approval
                Period Termination Date, the Borrower shall pay the quarterly
                installment of the Commitment Fee due with respect to the
                applicable semi-annual fee.

                (c) If Borrower fails to pay any Commitment Fee as required
        under this Section 2.4 in a timely manner, Borrower hereby authorizes
        Lender to disburse to itself proceeds of the Loan to pay such Commitment
        Fee. Lender in its sole discretion (but without any obligation to do so)
        may make such disbursements notwithstanding the existence of an Event of
        Default or Potential Default. Such disbursements shall be added to the
        outstanding principal balance of the Loan. The authorization hereby
        granted is irrevocable, and no further direction or authorization from
        Borrower is necessary for Lender to make such disbursements. If Lender
        disburses to itself Loan proceeds to pay itself a Commitment Fee without
        first having received a request from Borrower to make such a
        disbursement, then Lender shall send to Borrower a statement that shows
        the amount of Loan proceeds disbursed to pay such Commitment Fee and an
        explanation of Lender's calculation of the amount thereof.

        Section 2.5. Increase in Commitment Fee as a Result of Increase in the
Loan Amount; No Reduction in Commitment Fee Regardless of Reductions in the Loan
Amount.

                (a) In the event that the Loan Amount increases at any time as a
        result of a reduction in the Independent Project Commitment Amount, the
        Commitment Fee related to the then-current annual period (if prior to
        the Approval Period Termination Date) or the then-current semi-annual
        period (if on or after the Approval Period Termination Date) shall be
        increased by the amount determined by the Lender as appropriate for the
        period from the date of the increase in the Loan Amount through the last
        day of such annual period or such semi-annual period, as applicable. The
        Borrower shall pay such additional Commitment Fee related to the
        increase in the Loan Amount in advance in quarterly installments, with
        the initial installment (for the initial quarter or the remainder of the
        initial quarter, as applicable) payable on the later of five (5) days
        after written demand therefor or the date of such increase in the Loan
        Amount and with each subsequent quarterly installment payable on each
        January 1, April 1, July 1 and October 1 thereafter until the end of the
        then-current annual period

                                      -22-
<PAGE>   28

        or semi-annual period, as applicable. Thereafter, the Commitment Fee for
        the entire Loan Amount (including such increase in the Loan Amount) will
        be determined and payable for each subsequent annual period or
        semi-annual period in accordance with the provisions of Section 2.4. In
        the event that the Borrower or its Affiliate (including LP Homes #1) has
        paid in advance a non-refundable commitment fee with respect to an
        independent project commitment and the termination of such independent
        project commitment prior to the end of the period through which such
        non-refundable commitment fee has been paid results in an increase in
        the Loan Amount, then the Lender will determine the "unused" amount of
        such non-refundable commitment fee related to such terminated
        independent project commitment and the Lender shall credit such "unused"
        amount against the additional Commitment Fee due under this Section
        2.5(a) as a result of the related increase in the Loan Amount.

                (b) The Borrower acknowledges that prior to the Approval Period
        Termination Date the Commitment Fee required to be paid to the Lender
        pursuant to the provisions of Section 2.4 shall be due and owing to the
        Lender in advance for each annual period, regardless of whether the Loan
        remains outstanding for the entire annual period, and regardless of
        whether the Loan Amount decreases during such annual period, and in the
        event either the Borrower repays or is required to repay the Loan prior
        to the end of such annual period, or the Loan Amount decreases prior to
        the end of such annual period, the Borrower shall not be entitled to any
        refund of the Commitment Fee previously paid. The Borrower further
        acknowledges that on and after the Approval Period Termination Date the
        Commitment Fee required to be paid to the Lender pursuant to the
        provisions of Section 2.4 shall be due and owing to the Lender in
        advance for each semi-annual period, regardless of whether the Loan
        remains outstanding for the entire semi-annual period, and regardless of
        whether the Loan Amount decreases during such semi-annual period, and in
        the event either the Borrower repays or is required to repay the Loan
        prior to the end of such semi-annual period, or the Loan Amount
        decreases prior to the end of such semi-annual period, the Borrower
        shall not be entitled to any refund of the Commitment Fee previously
        paid. Upon termination of this Loan Agreement, no additional Commitment
        Fee shall thereafter be due to the Lender.

        Section 2.6. Repayment of Principal. Principal of the Loan shall be due
and payable as follows:

                (a) Upon the sale of a Lot or Unit, the Borrower shall repay the
        principal amount of the Loan in an amount equal to the greater of (i)
        one hundred percent (100%) of the Net Sales Proceeds arising from the
        sale of such Lot or Unit (after payment of the Additional Loan Fee
        related to such Lot or Unit, if applicable) or (ii) the sum of (A) the
        Applicable Acquisition and Development Principal Repayment

                                      -23-
<PAGE>   29

        Percentage of the total amount of the Loan outside of the ABF Program
        budgeted for the acquisition of such Lot plus the Development Work
        related to such Lot (including Acquisition Soft Costs and Other Costs
        related to the acquisition of the Land and the Development Work), plus
        (B) one hundred percent (100%) of the Borrowing Base Value of such Lot
        or Unit. Each principal payment received by Lender shall be applied
        first to repay the Applicable Acquisition and Development Principal
        Repayment Percentage of the total amount of the Loan outside of the ABF
        Program budgeted for the acquisition of such Lot plus the Development
        Work related to such Lot (including Acquisition Soft Costs and Other
        Costs related to the acquisition of the Land and the Development Work),
        with the remainder of such principal payment being applied to the
        Borrowing Base Outstanding Amount. The principal payments described
        above shall be made until such time as the total amount of the Loan
        related to such Project outside of the ABF Program has been paid in full
        and the Borrowing Base Outstanding Amount has been paid in full.

                (b) If the amount of the Loan disbursed for the acquisition of
        the Land and the Development Work for a Project has not been repaid on
        or before the Acquisition and Development Maturity Date for such
        Project, the Borrower shall on such date repay the entire principal
        amount of the Loan disbursed for the acquisition of the Land and the
        Development Work for such Project.

                (c) In the event that the Borrowing Base Outstanding Amount
        shall at any time exceed the Borrowing Base Value, the Borrower shall
        immediately make a principal repayment of the Borrowing Base Outstanding
        Amount in an amount sufficient to eliminate any such excess.

                (d) In the event that the sum of the outstanding principal
        balances of advances under the Loan made for the acquisition of Land and
        Development Work for all Projects and the Borrowing Base Outstanding
        Amount shall at any time exceed the Loan Amount, the Borrower shall
        immediately pay to the Lender a principal repayment of the Borrowing
        Base Outstanding Amount in an amount sufficient to eliminate any such
        excess.

                (e) On any date that the Lender makes any payment with respect
        to a Letter of Credit, the Borrower shall pay to the Lender an amount
        equal to the amount so paid by the Lender with respect to the Letter of
        Credit.

                (f) On the Maturity Date, the Borrower shall repay the entire
        remaining principal amount of the Loan.

                                      -24-
<PAGE>   30

        Section 2.7. Interest.

                (a) The Loan shall bear interest from the date of disbursement
        hereunder on the unpaid principal at the per annum rate of the Prime
        Rate plus three-eighths of one percent (.375%). Throughout the term of
        the Loan, interest shall be calculated on a the basis of a 360-day year
        consisting of twelve (12) thirty (30) day months.

                (b) On or before the fifth (5th) Business Day of each month,
        commencing with the first month after the Lender has disbursed proceeds
        of the Loan, the Lender shall send to Borrower a statement setting forth
        the amount of interest due for the previous month. Borrower shall pay
        the interest due for the previous month on or before the Interest Due
        Date, except if the Borrower has elected, with respect to any Project,
        to include in the Budget for such Project an Acquisition and Development
        Interest Reserve, then the Borrower may direct the Lender to make a
        disbursement of the Loan to pay the interest due on the Loan with
        respect to such Project until such time as such Acquisition and
        Development Interest Reserve is fully disbursed, upon and subject to the
        terms and conditions contained herein.

        Section 2.8. Prepayment of the Loan. Borrower shall have the right to
prepay the Loan at any time, in full or in part at a price equal to the
Prepayment Price. Any partial prepayment of the Loan shall be accompanied by a
statement wherein the Borrower specifies (i) to which Project such prepayment is
to be applied and (ii) the particular Lots and/or Units, to which such
prepayment is to be applied. No Lot or Unit will be released from the lien of
the Deed of Trust in connection with any prepayment of the Loan unless the
portion of the Prepayment Price applied to such Lot or Unit, as applicable,
equals the Lender's Release Price applicable to such Lot or Unit.

        Section 2.9. Security. Payment of the Loan by Borrower and performance
of Borrower's other obligations under the Loan Documents shall be secured by the
collateral described in the Project Security Instruments, which Borrower
warrants shall create a valid and first-lien position with respect to the
Projects subject to Permitted Exceptions.

        Section 2.10. Payments. All payments of principal and interest on the
Loan shall be made to the Lender by federal funds wire transfer as instructed by
the Lender in immediately available funds not later than 1:00 p.m. (Minneapolis
time) on the dates such payments are to be made. Any payment received after 1:00
p.m. (Minneapolis time) shall be deemed received by the Lender on the next
Business Day. All computations of interest and fees under the Loan Documents
shall be made by Lender on the basis of a year of 360 days, comprised of twelve
(12) thirty (30) day months. If any payment of interest or principal to be made
by Borrower shall become due on a day other than a Business Day, such payment
shall be made

                                      -25-
<PAGE>   31

on the next succeeding Business Day and such extension of time shall be included
in computing any interest with respect to such payment.

        Section 2.11. Extension. Borrower may, not earlier than ninety (90) days
and not later than forty five (45) days prior to the then effective Approval
Period Termination Date (as it may be extended from time to time pursuant to
this Section 2.11), request in writing that the Approval Period and the Maturity
Date each be extended for twelve (12) months, or an increment thereof. Lender
may, in its sole and absolute discretion, consent or not consent to such request
by giving written notice thereof to Borrower not less than thirty (30) days
prior to the then effective Approval Period Termination Date. If Lender fails to
give such notice Lender shall be deemed not to have consented to such extension.
If the Lender consents to such request, the Approval Period Termination Date and
the Maturity Date shall each be extended twelve (12) months, or an increment
thereof, from the then effective Approval Period Termination Date and Maturity
Date, respectively.

        Section 2.12. Applications of Payments; Late Charges.

                (a) Payments received by Lender pursuant to the terms hereof
        shall be applied in the following manner:

                        (1) first, to the payment of all expenses, charges,
                costs and fees incurred by or payable to Lender and for which
                Borrower is obligated pursuant to the terms of the Loan
                Documents;

                        (2) second, to the payment of all interest accrued to
                the date of such payment, except that the payments made pursuant
                to Section 2.6(a) through (f) shall be applied to the payment of
                principal in accordance with subparagraph (3) below and not to
                the payment of interest; and

                        (3) third, to the payment of principal.

        Notwithstanding anything to the contrary contained in this Loan
        Agreement, after the occurrence and during the continuation of an Event
        of Default, all amounts received by Lender from any party shall be
        applied in such order as Lender, in its sole discretion, may elect.

                (b) If any installment of interest and/or the payment of
        principal is not received by Lender within five (5) Business Days after
        the due date thereof, then in addition to the remedies conferred upon
        Lender pursuant to Section 8.2 hereof and the other Loan Documents, the
        Lender may elect to assess a late charge of four percent (4%) of the
        amount of the installment due and unpaid, which such late charge will be
        added to the delinquent amount to compensate Lender for the expense of
        handling the

                                      -26-
<PAGE>   32

        delinquency. Borrower and Lender agree that such late charge represents
        a good faith and fair and reasonable estimate of the probable cost to
        Lender of such delinquency. Borrower acknowledges that during the time
        that any such amount shall be in default, Lender will incur losses which
        are impracticable, costly and inconvenient to ascertain and that such
        late charge represents a reasonable sum considering all of the
        circumstances existing on the date of the execution of this Loan
        Agreement and represents a reasonable estimate of the losses Lender will
        incur by reason of late payment. Borrower further agrees that proof of
        actual losses would be costly, inconvenient, impracticable and extremely
        difficult to fix. Acceptance of such late charge shall not constitute a
        waiver of the default with respect to the overdue installment, and shall
        not prevent Lender from exercising any of the other rights and remedies
        available hereunder.

        Section 2.13. Interest Rate Limitation. The provisions of this Loan
Agreement and the other Loan Documents are hereby expressly limited so that in
no contingency or event whatever shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of the sums evidenced by this Loan
Agreement exceed the maximum amount permissible under applicable law. If from
any circumstance whatever the performance or fulfillment of any provision of
this Loan Agreement or of any other Loan Document should involve or purport to
require any payment in excess of the limit prescribed by law, then the
obligation to be performed or fulfilled is hereby reduced to the limit of such
validity, and if, from any circumstance whatever, Lender should ever receive as
interest an amount which would exceed the highest lawful rate under applicable
law, then the amount which would be excessive interest shall be applied as an
optional reduction of principal in accordance with the terms of Section 2.8 of
this Loan Agreement (or, at Lender's option, be paid over to Borrower), and
shall not be counted as interest.

        Section 2.14. Revolving Nature of Loan. The Loan is a revolving loan,
and until the Approval Period Termination Date, any amounts which are repaid
may, subject to the terms of the Loan Documents limiting the amounts which may
be drawn for any Project and the terms restricting disbursements of proceeds of
the Loan, be redrawn for another Project; provided, however, that amounts of the
Loan which are disbursed with respect to acquisition of Land and Development
Work cannot be disbursed again with respect to that Project unless otherwise
expressly provided in the Project Commitment with respect to such Project.

        Section 2.15. Voluntary Permanent Reduction in the Loan Amount. From and
after the Approval Period Termination Date, Borrower may from time to time, upon
written notice given by Borrower to Lender not less than thirty (30) days prior
to the end of the then-current semi-annual period for the Commitment Fee, elect
to permanently reduce the Loan Amount; provided, however, that (i) the Loan
Amount, after giving effect to any such permanent reduction, shall not be less
than an amount which the Lender reasonably determines will be

                                      -27-
<PAGE>   33

necessary to complete the Development Work and all of the Homes in all of the
Projects, and (ii) the amount of any such permanent reduction shall be Five
Million Dollars ($5,000,000) or a greater amount in One Million Dollars
($1,000,000) increments. Provided that the Borrower provides the required
written notice to Lender within the thirty (30) day period specified above, the
applicable reduction in the Loan Amount under this Section 2.15 shall become
effective on the first day of the next semi-annual period for the Commitment
Fee.

                                   ARTICLE III
                     APPROVAL OF PROJECTS AND DISBURSEMENTS

        Section 3.1. Project Approval and Project Commitments.

                (a) During the Approval Period, the Borrower may submit to
        Lender projects proposed to be included as Projects, all pursuant to and
        in accordance with the terms of this Loan Agreement, and upon approval
        as a Project, disbursements of the Loan may be made in accordance with
        the provisions of this Loan Agreement.

                (b) In order to include a proposed project as a Project,
        Borrower shall submit to Lender a complete description of the proposed
        project, including the Project Underwriting Documents, and evidence that
        the proposed project complies with the Project Requirements.

                (c) Upon its receipt of the Project Underwriting Documents and
        evidence that the proposed project complies with the Project
        Requirements, Lender shall have thirty (30) days to review and, in its
        sole and absolute discretion and acting in good faith, approve or
        disapprove the proposed project as a Project which may be financed from
        proceeds of the Loan. In the event a proposed project complies with the
        Project Requirements and the Lender disapproves the proposed project,
        the Lender shall disclose in writing to the Borrower the reasons for the
        Lender's disapproval. Upon any such approval, Lender shall issue a
        Project Commitment with respect thereto and such proposed project shall
        become a Project for purposes of this Loan Agreement. The Project
        Commitment for each Project will specify, among other things, the
        Acquisition and Development Amount for such Project, which amount once
        disbursed and repaid cannot be disbursed again with respect to such
        Project unless otherwise expressly provided in the Project Commitment
        with respect to such Project.

        Section 3.2. The ABF Program. The construction of Homes in each Project
shall be funded through the ABF Program, in accordance with the conditions and
procedures set forth below:

                (a) Pledging of Borrowing Base Collateral.

                                      -28-
<PAGE>   34

                        (1) On the date of execution and delivery of this Loan
                Agreement, the Borrowing Base Collateral shall consist of those
                Units, if any, encumbered by the lien of the Deed of Trust as of
                the date of this Loan Agreement. The Borrower may pledge
                Additional Units as part of the Borrowing Base Collateral,
                subject to the terms of this Section 3.2.

                        (2) No Additional Unit may become part of the Borrowing
                Base Collateral unless it is within a Project for which the
                Lender has issued a Project Commitment to include such Project
                in the ABF Program.

                        (3) In order to pledge an Additional Unit as part of the
                Borrowing Base Collateral, the Borrower shall be required to
                meet the following conditions precedent with respect to such
                pledge:

                                (i) the Additional Unit must be located in a
                        Project for which the Lender has issued a Project
                        Commitment to include such Project in the ABF Program
                        and shall not have been previously included as part of
                        the Borrowing Base Collateral;

                                (ii) the Borrower shall notify Lender of
                        Borrower's request to include such Additional Unit by
                        making the appropriate entries in the RFC CF Asset Based
                        Funding System;

                                (iii) if the Lender does not already have a Deed
                        of Trust, UCC Financing Statement and Title Policy
                        acceptable to the Lender covering such Additional Unit,
                        the Borrower shall deliver to the Lender a Deed of Trust
                        (or if requested by Lender, a deed of trust modification
                        agreement), a UCC Financing Statement and a Title Policy
                        (or if requested by Lender, a Title Policy Endorsement)
                        relating to such Additional Unit, each of which shall be
                        in form and substance acceptable to Lender in Lender's
                        sole discretion;

                                (iv) if requested by the Lender, the Borrower
                        shall deliver to the Lender recording and closing
                        affidavits and certificates, closing statements,
                        documents establishing that all taxes, charges, filing
                        registration and recording fees, excises and levies
                        imposed by reason of Lender taking a Deed of Trust on
                        the Additional Unit have been paid, and all other
                        documents and instruments customarily delivered in
                        connection with deed of trust transactions in the
                        jurisdiction in which such Additional Unit is located,
                        each of which shall be in form and substance acceptable
                        to Lender in Lender's sole discretion; and

                                      -29-
<PAGE>   35

                                (v) if requested by the Lender, the Borrower
                        shall deliver to Lender a favorable opinion of counsel
                        with respect to the Deed of Trust (or, if requested by
                        Lender, the deed of trust modification agreement) and
                        each other Loan Document delivered with respect to the
                        pledge of such Additional Units in form and substance
                        satisfactory to Lender.

        (b) WIP Reports.

                (1) From time to time at the discretion of the Lender, Lender
        shall generate an updated WIP Report related to the Borrower's Units
        included in the Borrowing Base Collateral. The Lender shall utilize the
        WIP Report in determining the Borrowing Base Value, the Borrowing Base
        Outstanding Amount, the Borrowing Base Allowable Disbursement Amount and
        other information related to the Units included in the ABF Program.

                (2) The Borrower shall promptly from time to time update
        information in the RFC CF Asset Based Funding System to reflect the
        inclusion of Additional Units, changes in stages of construction of
        Homes, etc. All information updated by Borrower in the RFC CF Asset
        Based Funding System must be approved by Lender and may be adjusted or
        modified by Lender in its sole discretion. Lender, in its sole
        discretion, may update the RFC CF Asset Based Funding System to reflect
        such changes in the Homes and other matters as Lender determines,
        including, without limitation, changes to reflect sales of Units.

                (3) The Lender may, on any date it determines, deliver a copy of
        the most recently generated WIP Report to the Inspector. The Inspector
        shall take such actions as the Lender and Inspector deem necessary to
        verify the status of the Borrowing Base Collateral as set forth in such
        WIP Report, including random inspections of the Projects to confirm the
        accuracy of the WIP Report. The Borrower shall take any and all actions
        requested by the Lender or Inspector to enable the Inspector to make
        such verifications, including but not limited to taking such actions as
        are necessary to allow the Inspector access to the Projects. The
        Borrower shall pay the costs and expenses of such inspections, provided,
        however, that so long as a Potential Default or an Event of Default does
        not exist, the Borrower shall be required to pay for only one (1) such
        inspection of each of the Units in each of the Projects during each
        calendar quarter (the Lender anticipates that the Inspector will inspect
        approximately one-third (1/3) of all Units in the ABF Program each
        month).

        (c) Determination of Borrowing Base Value.

                                      -30-
<PAGE>   36

                (1) The Lender shall determine the Borrowing Base Value, taking
        into account all Units then comprising the Borrowing Base Collateral
        (except the Excluded Units), the status of construction, increases in
        the value of the Borrowing Base Collateral as reflected in the most
        recently generated WIP Report, decreases in the value of the Borrowing
        Base Collateral as a result of the release of Borrowing Base Collateral
        as a result of sales or otherwise, and adjustments to the value of the
        Borrowing Base Collateral based upon the reports the Lender receives
        from the Inspector and/or the Appraiser. The Borrower agrees that no
        value shall be assigned to any Excluded Units for purposes of
        determining Borrowing Base Value.

                (2) For purposes of calculating the Borrowing Base Value, the
        following definitions shall be employed:

                "Borrowing Base Home Amount" shall mean the amount which shall
                be allocated to each Home included in the ABF Program for
                purposes of determining the Borrowing Base Value, which amount
                shall be equal that amount which is determined by multiplying
                the Applicable ABF Advance Rate times the Value of the Unit, and
                subtracting therefrom the total amount of the Loan disbursed for
                the land acquisition and budgeted for the Development Work
                related to such Unit. The Borrowing Base Home Amounts shall be
                determined for each design type of Home and shall be set forth
                in the applicable Project Commitments.

                "Applicable ABF Advance Rate" shall mean (i) with respect to a
                Unit in a Conventional Project, (A) 75% of the Value of such
                Unit if such Unit is a Spec Unit, or (B) 80% of the Value of
                such Unit if such Unit is a Sold Unit or a Model Unit, or (ii)
                with respect to a Unit in a High Advance Rate Project, (A) 80%
                of the Value of such Unit if such Unit is a Model Unit or Spec
                Unit, or (B) 85% of the Value of such Unit if such Unit is a
                Sold Unit.

                "Percentage Completed" shall mean, with respect to a Home, the
                percentage of the construction of the Home which has been
                completed, which such percentage shall be based upon the
                percentages in the Staged Draw Schedule and shall be set forth
                in the most recent WIP Report.

                (3) With respect to a Unit included in the ABF Program, on any
        date of determination, the Borrowing Base Value shall be that amount
        which is

                                      -31-
<PAGE>   37

        equal to (A) the Borrowing Base Home Amount for such Unit multiplied by
        the Percentage Completed for such Unit; provided, however, that Excluded
        Units shall be excluded in determining the Borrowing Base Value,
        although such Excluded Units shall remain as part of the collateral for
        the Loan until such Excluded Unit is released from the lien of the Deed
        of Trust in accordance with the terms of the Loan Documents.

                (4) The Borrowing Base Value for Units included in the ABF
        Program shall be adjusted by the Lender in its sole discretion (i) to
        reflect Units which have been removed as Borrowing Base Collateral, (ii)
        to reflect Units which have become Excluded Units, (iii) to reflect
        additional construction of the Homes, as set forth in the most recently
        generated WIP Report, (iv) to reflect the addition of Additional Units
        as part of the Borrowing Base Collateral as approved by the Lender, and
        (v) to reflect any change in Value based upon reports the Lender
        receives from the Inspector and/or the Appraiser or otherwise.

        (d) Determination of Borrowing Base Allowable Disbursement Amount. The
Lender shall determine the Borrowing Base Allowable Disbursement Amount, taking
into account changes in the Borrowing Base Value as determined pursuant to
Section 3.2(c) above and the Borrowing Base Outstanding Amount on any day of
determination. The Borrowing Base Allowable Disbursement Amount is available for
disbursement by the Lender to the Borrower subject to the terms and conditions
for disbursement set forth in this Loan Agreement.

Section 3.3. Processes and Conditions Relating to Disbursements.

        (a) All requests for disbursements of proceeds of the Loan shall comply
with the terms of this Section 3.3 and any additional limitations set forth in
this Loan Agreement and the Project Commitments. Disbursements related to the
acquisition of Land and Development Work with respect to all Projects shall be
available two (2) times per month, subject to the provisions of Section 3.3(d)
below. Disbursements related to the construction of Homes under the ABF Program
shall be available daily subject to the provisions of Section 3.3(e) below.

        (b) Each disbursement request shall be evidenced by a Draw Request
Certification and, if such disbursement request includes costs for Development
Work, shall be accompanied by the following:

                (1) with respect to requested disbursements for costs of
        Development Work, a written summary prepared by the Borrower, in detail

                                      -32-
<PAGE>   38

        acceptable to the Lender, of the billings of each subcontractor or
        vendor with respect to such Development Work for which a disbursement is
        being requested, and, upon request of Lender, copies of such billings of
        each such subcontractor or vendor;

                (2) with respect to requested disbursements for costs of
        Development Work, a written certification from the Inspector to Lender,
        in a form satisfactory to Lender, that (i) the portion of the
        Development Work for which payment is being sought has been completed
        and (ii) all Development Work done for which payment is being sought
        shall have been completed with sound new materials and fixtures, or
        refurbished materials and fixtures that meet the requirements of the
        Plans and Specifications, and in a good and workmanlike manner;

                (3) with respect to requested disbursements for costs of
        Development Work, at Borrower's expense, a "mechanics lien" endorsement
        to the Title Policy insuring that there are no liens imposed by law for
        services, labor or materials appearing in the public records, and
        insuring the full amount of the disbursement, provided that any such
        endorsement may show mechanics' liens resulting from the Development
        Work if and only if the issuer of the Title Policy shall issue an
        endorsement which insures Lender against any loss by reason of such
        mechanics' liens and Borrower shall have complied in all respects with
        the requirements of Section 6.18; and

                (4) such other documents specified in the Project Commitment.

The foregoing submissions shall reflect the cost of all Development Work for
which payment is to be made, and the Draw Request Certification shall specify
the portion of such costs which will be paid out of the requested disbursement
of Loan proceeds, and, if any portion of such costs are to be paid by the
Borrower, the portion of such costs to be paid by the Borrower.

        (c) Each disbursement request related to the construction of Homes under
the ABF Program shall specify a requested disbursement which is equal to or less
than the Borrowing Base Allowable Disbursement Amount.

        (d) Provided that no Event of Default or Potential Default exists, and
subject to the terms and conditions set forth herein, the Lender will use its
reasonable best efforts to disburse to the Borrower the amount requested
relating to the acquisition of Land and Development Work within five (5)
Business Days after receipt of a Draw Request Certification meeting the
requirements of this Loan

                                      -33-
<PAGE>   39

Agreement, provided that in the event the Lender is unable to make the
disbursement within such time period, the Lender will disburse the proceeds of
the Loan as soon thereafter as possible. All disbursements shall be delivered to
Borrower by federal funds wire transfer as instructed by Borrower.

        (e) Provided that no Event of Default or Potential Event of Default
exists, and subject to the terms and conditions set forth herein, so long as the
Lender receives a Draw Request Certification meeting the requirements of this
Loan Agreement on or before 2:00 p.m. (Minneapolis time) on any Business Day,
the Lender will use its reasonable best efforts to disburse to the Borrower the
amount requested in such Draw Request Certification relating to the construction
of Homes under the ABF Program on the next Business Day following such Business
Day on which the Lender received such Draw Request Certification, provided that
in the event the Lender is unable to make the disbursement within such time
period, the Lender will disburse the proceeds of the Loan as soon thereafter as
possible. All disbursements shall be delivered to Borrower by federal funds wire
transfer as instructed by Borrower.

        (f) The obligation of Lender to make a disbursement requested by the
Borrower of proceeds of the Loan is subject to fulfillment of all of the
following conditions precedent:

                (1) No Event of Default or Potential Default has occurred and is
        continuing, or would result from such disbursements or from the
        application of the proceeds therefrom.

                (2) Lender shall not be obligated to make any disbursement of
        the Loan related to a Project if such Project does not satisfy the
        project requirements set forth in the Project Commitment for such
        Project.

                (3) Lender shall not be obligated to make any distribution of
        the Loan related to the acquisition of Land or Development Work related
        to a Project if the proceeds of the Loan which remain available for
        disbursement for such acquisition of Land and Development Work will not
        be sufficient to complete such acquisition of Land and the Development
        Work related to such Project; provided, however, that the Lender shall
        be obligated to make a disbursement notwithstanding such a deficiency in
        the event that (i) the Budget for the acquisition of the Land and the
        Development Work of such Project and the amount of the Loan available
        for such acquisition of the Land and such Development Work have been
        increased by an amount at least equal to such deficiency in accordance
        with the terms of Section 6.15(d), or (ii) the Borrower provides to the
        Lender evidence that it has paid from its own funds,

                                      -34-
<PAGE>   40

        in addition to any Borrower funds which the Budget for such Project
        requires, an amount at least equal to the amount of such deficiency.

                (4) Lender shall not be obligated to make any disbursement of
        the Loan related to the acquisition of Land or the Development Work of a
        Project to the extent that the related disbursement relates to costs
        which are not Qualified Acquisition and Development Expenditures for
        such Project.

                (5) Lender shall not be obligated to disburse any Loan proceeds
        to the extent that any liens (other than liens for real property taxes
        that are not yet delinquent) have been filed against the collateral,
        except as permitted by Section 6.18;

                (6) Lender shall not be obligated to disburse any Loan proceeds
        unless all statements made in the applicable Draw Request Certification
        are true and correct on and as of the date of the requested
        disbursement, before and after giving effect thereto and to the
        application of the proceeds therefrom; and

                (7) Lender shall not be obligated to disburse any Loan proceeds
        unless the representations and warranties of Borrower contained in the
        Loan Documents are true and correct in all material respects on and as
        of the date of the requested disbursement, before and after giving
        effect thereto and to the application of the proceeds therefrom, as
        though made on and as of such date.

        (g) Lender shall not be obligated to make any disbursement of the Loan
under the ABF Program unless the Lender shall have received from the Title
Company, within thirty (30) days prior to such requested disbursement, a
"date-down endorsement" with respect to the Title Policy relating to each
Project as to which a disbursement of Loan proceeds is requested.

        (h) Notwithstanding the failure of any condition precedent to Lender's
obligation to make any disbursement hereunder, Lender may make such disbursement
if Lender, in its sole discretion, determines the making of the same to be
advisable. The making of any disbursement, either before or after the
satisfaction of all conditions precedent with respect to Lender's obligation to
make the same, shall not be deemed to constitute an approval or acceptance by
Lender of the Development Work or the Homes theretofore completed or a waiver of
such condition with respect to a subsequent disbursement.

                                      -35-
<PAGE>   41

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

        Section 4.1. Consideration. As an inducement to Lender to execute this
Loan Agreement, make the Loan and disburse the proceeds of the Loan, Borrower
represents and warrants to Lender the truth and accuracy of the matters set
forth in this Article IV.

        Section 4.2. Organization. Each of the Loan Parties is duly organized,
validly existing and in good standing as a corporation under the laws of its
state of incorporation, is duly qualified to do business and is in good standing
in every jurisdiction where its business or properties require such
qualification and has all requisite power and authority to own and operate its
properties and to carry on its business as now conducted or proposed to be
conducted.

        Section 4.3. Authorization. The execution, delivery and performance by
each of the Loan Parties of the Loan Documents to which it is a party have been
duly authorized by all necessary action and do not and will not (i) contravene
the Articles of Incorporation or charter documents of the Loan Parties; (ii)
contravene any law, rule or regulation or any order, writ, judgment, injunction
or decree or any contractual restriction binding on or affecting the Loan
Parties; (iii) require any approval or consent of any partner, shareholder or
any other Person other than approvals or consents which have been previously
obtained and disclosed in writing to Lender; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which either of the Loan Parties is a
party or by which either of the Loan Parties or its properties may be bound or
affected; or (v) result in, or require the creation or imposition of, any lien
of any nature (other than the liens contemplated hereby) upon or with respect to
any of the properties now owned or hereafter acquired by either of the Loan
Parties; and neither of the Loan Parties is in default in any material respect
under any such law, rule, regulation, order, writ, judgment, injunction, decree
or contractual restriction or any such indenture, agreement, lease or
instrument.

        Section 4.4. Governmental Consents. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
either of the Loan Parties of the Loan Documents to which it is a party or any
other document executed pursuant thereto or in connection therewith.

        Section 4.5. Validity. The Loan Documents have been duly executed and
delivered by and constitute the legal, valid and binding obligations of the Loan
Parties, enforceable in accordance with their respective terms.

                                      -36-
<PAGE>   42

        Section 4.6. Financial Position. As of the dates prepared, the financial
statements and all financial data heretofore delivered to Lender in connection
with the Loan and/or relating to the Loan Parties are true, correct and complete
in all material respects and were prepared in accordance with GAAP consistently
applied. Such financial statements fairly present the financial position of the
Persons who are the subject thereof as of the dates thereof.

        Section 4.7. Governmental Regulations. Neither of the Loan Parties is
subject to regulation under the Investment Company Act of 1940, the Federal
Power Act, the Public Utility Holding Company Act of 1935, the Interstate
Commerce Act, as the same may be amended from time to time, or any federal or
state statute or regulation limiting its ability to incur Debt.

        Section 4.8. Employee Benefit Plans. Neither of the Loan Parties
maintains any pension, retirement, profit sharing or similar employee benefit
plan that is subject to ERISA other than a plan pursuant to which such entity's
contribution requirement is made concurrently with the employees' contributions.

        Section 4.9. Securities Activities. Neither of the Loan Parties is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve System
in effect from time to time) and not more than twenty-five percent (25%) of the
value of the assets of either of the Loan Parties consists of such margin stock.

        Section 4.10. No Material Adverse Change. No Material Adverse Change has
occurred since December 31, 1999.

        Section 4.11. Payment of Taxes. All tax returns and reports required to
be filed by each of the Loan Parties have been timely filed, or proper
extensions for filing have been obtained, and all taxes, assessments, fees and
other governmental charges upon each of the Loan Parties and its properties,
assets, income and franchises which are due and payable have been paid when due
and payable, or proper extensions for payment have been obtained, except to the
extent that such taxes, assessments, fees and other governmental charges or the
failure to pay the same would not be material to the respective business,
properties, assets, operations, condition (financial or otherwise) or business
prospects of such Loan Party. Neither of the Loan Parties has any knowledge of
any proposed tax assessment against either of the Loan Parties that could be
material to its business, properties, assets, operations, condition (financial
or otherwise) or business prospects.

                                      -37-
<PAGE>   43

        Section 4.12. Litigation. There is no pending or, to the knowledge of
the Loan Parties, threatened action, suit, proceeding or arbitration against or
affecting either of the Loan Parties before any court, governmental agency or
arbitrator, which may result in a Material Adverse Change.

        Section 4.13. Environmental Matters. The operations of each of the Loan
Parties comply in all respects with all Hazardous Materials Laws except such
noncompliance which would not (if enforced in accordance with applicable law)
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Change. As of the date of this Loan Agreement, (i) neither of
the Loan Parties nor the present properties or operations of the Loan Parties is
subject to any outstanding written order from or settlement or consent agreement
with any governmental authority or other Person, nor is any of the foregoing
subject to any judicial or docketed administrative proceeding respecting any
Hazardous Materials Law, Hazardous Materials Claim or Hazardous Material, and
(ii) there are no other conditions or circumstances known to either of the Loan
Parties which may give rise to any Hazardous Materials Claim arising from the
operations of either of the Loan Parties.

        Section 4.14. No Burdensome Restrictions. Neither of the Loan Parties is
a party to or bound by any contract or agreement, or subject to any charter or
corporate restriction or any requirement of law, which would reasonably be
expected to result in a Material Adverse Change.

        Section 4.15. Full Disclosure. None of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of either of
the Loan Parties in connection with the Loan Documents contains any untrue
statement of a material fact, or omits any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
it is recognized by Lender that projections and forecasts provided and to be
provided by Loan Parties, while reflecting the Loan Parties' good faith
projections or forecasts based upon methods and data the Loan Parties believe to
be reasonable and accurate, are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results.

        Section 4.16. Adequate Consideration. The Borrower represents and
warrants to Lender that prior to the Loan Parties entering into the Loan
Documents to which it is a party, each of the Loan Parties has reviewed the
benefits to be provided to it as a result of the Lender making the Loan and has
concluded that such benefits are reasonably equivalent in value to the
collateral to be pledged to secure the Loan and the obligations assumed and to
be assumed by the Loan Parties pursuant to the Loan Documents.

                                      -38-
<PAGE>   44

                                    ARTICLE V
                              COVENANTS OF BORROWER

        Section 5.1. Consideration. As an inducement to Lender to execute this
Loan Agreement, make the Loan and make each disbursement of the Loan, Borrower
hereby covenants as set forth in this Article V.

        Section 5.2. Affirmative Covenants. Unless Lender shall otherwise
consent in writing, so long as any amount payable hereunder or under any other
Loan Document shall remain unpaid or Lender shall have any commitment to
disburse the Loan hereunder, Borrower shall, and Borrower shall cause each other
Loan Party to:

                (a) Reporting Requirements. Furnish or cause to be furnished to
        Lender the following notices and reports:

                        (1) Weekly, Monthly and Quarterly Reports. The following
                reports:

                                (A) On or before the fifth (5th) day after the
                        end of each week, a weekly sales report for all of the
                        Borrower's construction and development projects,
                        including, without limitation, the Projects; and

                                (B) Upon Lender's written request, from time to
                        time, a status report relating to the Projects which
                        sets forth the progress of construction and actual costs
                        of acquisition and development for each Project as
                        compared with the Budget for such Project;

                        (2) Quarterly Financial Reports. As soon as possible and
                in any event within forty five (45) days after the end of each
                fiscal quarter of the Guarantor (other than the last quarter of
                any fiscal year), the following: (i) unaudited financial
                statements of the Guarantor and its Subsidiaries (including the
                Borrower) on a fully consolidated basis (and with respect to the
                Borrower, on a consolidating basis), which financial statements
                shall include (A) a balance sheet as at the end of such fiscal
                quarter and (B) statements of income and cash flow for the
                period from the beginning of the then current fiscal year to the
                end of such fiscal quarter and setting forth in comparative form
                figures for the corresponding period of the preceding fiscal
                year, all in reasonable detail and in accordance with GAAP
                consistently applied and certified by the President, Senior Vice
                President or Senior Vice President and Chief Financial Officer
                of the Guarantor to fairly present the financial condition of
                the Guarantor and its Subsidiaries (including the Borrower) on a
                fully consolidated basis (and with respect to the Borrower, on a
                consolidating basis) as at the end

                                      -39-
<PAGE>   45

                of such fiscal quarter and the results of the operations of the
                Guarantor and its Subsidiaries (including the Borrower) on a
                fully consolidated basis (and with respect to the Borrower, on a
                consolidating basis) for the period ending on such date; (ii) a
                summary report of accounts payable aging, and (iii) a written
                statement certifying that the Loan Parties are in compliance
                with the terms of the Loan Documents, or if the Loan Parties are
                not in compliance, specifying the details of the non-compliance
                and the action being taking to correct such non-compliance;

                        (3) Annual Financial Statements. As soon as possible and
                in any event within one hundred twenty (120) days after the end
                of each fiscal year of the Guarantor, audited financial
                statements of the Guarantor and its Subsidiaries (including the
                Borrower) on a fully consolidated basis (and with respect to the
                Borrower, on a consolidating basis), which financial statements
                shall include a balance sheet as at the end of such fiscal year,
                statements of income, shareholders' equity and cash flow for
                such fiscal year, and setting forth in each case in comparative
                form figures for the preceding fiscal year, all in reasonable
                detail and in accordance with GAAP consistently applied
                accompanied by an unqualified opinion issued by an independent
                certified public accountant acceptable to Lender;

                        (4) Notice of Labor Controversy. As soon as possible and
                in any event within five (5) Business Days after Borrower has
                knowledge of its occurrence, written notice of any labor
                controversy resulting in a material strike, work stoppage,
                shutdown or other material labor disruption against or involving
                Borrower or any Project;

                        (5) Notice of Material Adverse Change. Promptly upon its
                occurrence, written notice and a description of any matter which
                has resulted, or will result, in a Material Adverse Change;

                        (6) Notice of Defaults or Potential Defaults. As soon as
                possible and in any event within five (5) Business Days after
                Borrower has knowledge of the occurrence of any Potential
                Default (however described) or Event of Default hereunder or an
                event of default (however described) under any other of the Loan
                Documents, written notice and a description of such Potential
                Default, Event of Default or event of default and the action
                which Borrower proposes to take with respect thereto;

                        (7) Notices of Default Regarding Other Development
                Projects. As soon as possible and in any event within five (5)
                Business Days after Borrower

                                      -40-
<PAGE>   46

                has knowledge of the occurrence of (i) any event of default
                under any loan or other financing facility, including seller
                financing, made for a development or construction project
                comparable to a Project and involving either of the Loan
                Parties, which event of default is likely to result in a
                Material Adverse Change, or (ii) any event of default under any
                other loan or credit agreement relating to other debt incurred
                by either of the Loan Parties, which event of default is likely
                to result in a Material Adverse Change, written notice and a
                description of such event of default under subparagraph (i) or
                (ii) above and the cure period and the action which Borrower
                proposes to take with respect thereto;

                        (8) Notice of Litigation. As soon as possible and in any
                event within five (5) Business Days after institution thereof,
                (i) written notice and a description of any adverse litigation,
                action or proceeding relating to any Project or (ii) written
                notice and a description of any other adverse litigation, action
                or proceeding commenced against either of the Loan Parties which
                would, if adversely determined against such Loan Party, result
                in a Material Adverse Change;

                        (9) Notices Regarding Hazardous Materials. Promptly upon
                its occurrence, written notice and a description of the Release
                of any Hazardous Material, or any liability with respect
                thereto, on, under or in connection with a Project and the
                action which Borrower proposes to take with respect thereto;

                        (10) Notices Regarding Projects. Promptly and in any
                event within five (5) Business Days after receipt by Borrower,
                copies of all (i) notices of violation relating to and adversely
                affecting any Project that Borrower receives from any
                governmental agency or authority, (ii) notices of default that
                Borrower receives under the Construction Agreements or any other
                agreement relating to and adversely affecting any Project, and
                (iii) notices of default that Borrower receives under any
                agreement relating to the borrowing of money by Borrower for any
                Project from any Person; and

                        (11) Other Information. Such other information
                respecting the business, properties, assets, operations and
                condition, financial or otherwise, of the Loan Parties and the
                Projects, including, without limitation, copies of Project
                construction and sales reports and information to verify the
                calculation and accuracy of the Gross Selling Price for Units,
                all as Lender may from time to time reasonably request.

                                      -41-
<PAGE>   47

                (b) Compliance with Laws, Etc. Comply in all material respects,
        with all applicable laws, rules, regulations and orders of any
        governmental authority, the noncompliance with which is likely to result
        in a Material Adverse Change.

                (c) Payment of Taxes and Claims. Pay all taxes, assessments and
        other governmental charges imposed upon it or any of its properties or
        assets or in respect of any of its franchises, business, income or
        profits before any penalty accrues thereon, and all other claims
        (including, without limitation, claims for labor, services, materials
        and supplies) for sums which have become due and payable and which by
        law have or may become a lien upon any of its properties or assets.
        Notwithstanding the foregoing, either of the Loan Parties may, at its
        expense, contest the validity or application of any such taxes,
        assessments, other governmental charges and other claims by appropriate
        legal proceedings promptly initiated and diligently conducted in good
        faith, provided that, with respect to mechanic's liens for any Project,
        Borrower complies with the terms and requirements of Section 6.18 of
        this Loan Agreement.

                (d) Maintenance of Properties; Books and Records. Maintain or
        cause to be maintained:

                        (1) in good repair, working order and condition all
                properties and assets material to the continued conduct of the
                business of either of the Loan Parties, and from time to time
                make or cause to be made all necessary repairs, renewals and
                replacements thereof; and

                        (2) proper books, records and accounts in which full,
                true and correct entries in accordance with GAAP consistently
                applied are made of all financial transactions and matters
                involving its assets and business.

                (e) Maintenance of Existence. Maintain and preserve its
        existence and all rights, privileges, qualifications, permits, licenses,
        franchises and other rights material to its business.

                (f) Further Assurances. Execute and deliver at any time and from
        time to time any and all instruments, agreements and documents, and
        shall take such other action as Lender reasonably requires to maintain,
        perfect or insure Lender's security provided for under the Loan
        Documents, including, without limitation, the execution of amendments to
        the Loan Documents.

                (g) Management. At all times, maintain professional and
        qualified management and staff, as determined in the reasonable
        discretion of the Borrower, to manage, operate and maintain the
        Projects.

                                      -42-
<PAGE>   48

        Section 5.3. Negative Covenants. So long as any amount payable hereunder
or any other Loan Document still remains unpaid or Lender shall have any
commitment to disburse the Loan hereunder, Borrower shall not, unless Lender
shall otherwise consent in writing:

                (a) Liens. Subject to the rights of the Borrower pursuant to
        this Loan Agreement, create, assume or suffer to exist any lien,
        security interest or other charge or encumbrance, or any other type of
        preferential arrangement, upon the collateral for the Loan assigned to
        Lender by Borrower pursuant to the Project Security Instruments,
        excluding, however, liens for taxes and assessments which are not yet
        delinquent.

                (b) Sales, Etc. of Assets; Ownership of Collateral. Make any
        material transfer, pledge or hypothecation of (i) any assets of the
        Borrower (in a single transaction or a series of related transactions)
        other than to secure real estate loans to other lenders in the normal
        course of business or other transfers in the ordinary course of
        business, or (ii) any of the collateral for the Loan assigned to Lender
        pursuant to the Project Security Instruments; provided, however, that
        the foregoing restriction shall not apply to any sale of a Lot or a Sold
        Unit in the ordinary course of the business of the Borrower; provided
        further, however, that in no event shall the Borrower be allowed to
        grant subordinate liens or security interests on the Projects.

                (c) Change in Nature of Business. Make any change in the nature
        of its business as carried on at the date hereof.

                (d) Land Banking or Land Speculation. Permit the use of Loan
        proceeds for Land Banking or Land Speculation.

                (e) Use of Proceeds. Use any part of the proceeds of the Loan to
        (i) purchase or carry any margin stock (within the meaning of Regulation
        U issued by the Board of Governors of the Federal Reserve System), (ii)
        repay or otherwise refinance indebtedness of Borrower or others incurred
        to purchase or carry any margin stock, (iii) extend credit for the
        purpose of purchasing or carrying any margin stock, or (iv) acquire any
        security in any transaction that is subject to Section 13 or 14 of the
        Securities Exchange Act of 1934, as amended, and regulations promulgated
        thereunder.

        Section 5.4. Financial Covenants. Borrower shall cause the Guarantor to
comply with each of the following financial covenants:

                                      -43-
<PAGE>   49

                (a) Net Worth. The Guarantor and its Subsidiaries (including the
        Borrower) shall maintain at all times a Net Worth equal to or in excess
        of the amount set forth below opposite the applicable period set forth
        below:

<TABLE>
<CAPTION>
                      Applicable Period                            Minimum Net Worth Amount
                      -----------------                            ------------------------
<S>                                                                      <C>
         From the date hereof through December 31, 2000                   $45,000,000

         Each calendar year after the calendar year              The Required Net Worth Amount
         ended December 31, 2000
</TABLE>

        As used in this Section 5.4, the "Required Net Worth Amount" for any
        given calendar year shall be an amount equal to the sum of the minimum
        Net Worth required under this Section 5.4 as of the immediately
        preceding calendar year plus fifty percent (50%) of the Net Income
        realized by the Guarantor and its Subsidiaries (including the Borrower)
        during such immediately preceding calendar year (with any net loss
        counting as zero in such calculation).

                (b) Ratio of Total Liabilities to Net Worth. The Guarantor and
        its Subsidiaries (including the Borrower) will maintain at all times the
        ratio of its Total Liabilities to Net Worth of not more than the ratio
        set forth below opposite the applicable period set forth below:

<TABLE>
<CAPTION>
                       Applicable Period                                  Ratio
                       -----------------                              ------------
<S>                                                                  <C>
         From the date of the Loan Agreement through
         December 31, 2000                                            5.00 to 1.00

         From January 1, 2001 through December 31, 2001               4.50 to 1.00

         From and after January 1, 2002                               4.00 to 1.00
</TABLE>

        Section 5.5. Insurance. Borrower shall maintain or cause its contractors
to maintain the insurance required by the terms of this Loan Agreement and shall
deposit with Lender original, duplicate original or certified copies of
insurance certificates issued by insurance companies with current Best's Key
Ratings of not less than A/IX and written in form and content acceptable to
Lender, providing the following minimum insurance coverages:

                (a) For each Project, all-risk course of construction insurance
        (non-reporting form) in the minimum amount of the proposed construction
        cost for such

                                      -44-
<PAGE>   50

        Project on a replacement cost basis against loss or damage by hazards
        customarily included within "extended coverage" policies, and any other
        risks or hazards which in Lender's reasonable judgment should be insured
        against, with a Lender's Loss Payable Endorsement naming Lender as a
        mortgagee together with a full replacement cost endorsement (without
        provisions for co-insurance).

                (b) "Comprehensive General Liability" insurance in the minimum
        "general aggregate" amount of Two Million Dollars ($2,000,000), in the
        minimum "occurrence" limit of One Million Dollars ($1,000,000) and in
        the minimum "umbrella" amount of Ten Million Dollars ($10,000,000), all
        against claims for "personal injury" liability, including bodily injury,
        death or damage to the project liability, including completed operations
        and contractual liability and also including owners' and contractors'
        protective coverage naming Lender as an additional insured.

                (c) Workers' compensation insurance as prescribed by the laws of
        each state in which the Borrower is required to maintain such insurance,
        and employers' liability with limits as prescribed by law.

                (d) For each Project, flood insurance in the maximum amount of
        the proposed land acquisition, development work and home construction
        cost for such Project or the maximum coverage available, whichever is
        less, designating Lender as payee, or evidence satisfactory to Lender
        that the Project is not located within an area designated as within the
        100 year flood plain under the National Flood Insurance Program.

                (e) Insurance with respect to its properties, assets and
        business against loss or damage of the kinds customarily insured against
        by Persons of established reputation engaged in the same or similar
        business and similarly situated, of such types and in such amounts as
        are customarily carried under similar circumstances by such other
        Persons, all in accordance with reasonably prudent industry standards.

        Each policy of insurance required under this Section 5.5 shall contain
the "standard non-contributory mortgagee clause" and the "standard lenders' loss
payable clause," or their equivalents, in favor of Lender and/or its assignees,
and shall provide that it shall not be modified or canceled without thirty (30)
days' prior written notice to Lender. Borrower shall also furnish Lender with
receipts for the payment of premiums on such policies or other evidence of such
payment reasonably satisfactory to Lender. In the event Borrower does not
deposit with Lender a new policy of insurance with evidence of payment of
premiums thereon at least thirty (30) days prior to the expiration of any
expiring policy, then Lender may, but shall not be obligated to, procure such
insurance, and Borrower shall pay the premiums thereon to Lender promptly upon
demand. If the Borrower has a blanket insurance

                                      -45-
<PAGE>   51

policy in force providing coverage for several properties of the Borrower, the
Lender will accept a certificate of such insurance together with a copy of such
blanket insurance policy and a Lender's Loss Payable Endorsement naming Lender
as a mortgagee, provided that the certificate identifies all of the Projects and
sets forth the coverage and amounts of insurance and such coverage and amounts
of insurance comply with each of the requirements set forth in this Section 5.5.
Lender shall not, by the fact of approving, disapproving, accepting, preventing,
obtaining or failing to obtain any such insurance, incur any liability for the
form or legal sufficiency of insurance contracts, solvency of insurers or
payment of losses, and Borrower hereby expressly assumes full responsibility
therefor and all liability related thereto, if any.

        Section 5.6. Prohibited Transfers. Borrower shall not, and shall not
cause, allow or permit a Transfer without the prior written consent of Lender,
which consent may be withheld or conditioned in Lender's absolute discretion. To
the extent any Transfer consented to by Lender involves any of the Projects of
Borrower or any of Borrower's obligations under the Loan Documents, any
permitted transferee shall, as a condition of the effectiveness of any consent
by Lender hereunder, assume all of Borrower's obligations under the Loan
Documents and agree to be bound thereby. Such assumption shall not, however,
release Borrower from any liability under the Loan Documents. Consent to any
Transfer by Lender shall not be deemed a waiver of Lender's right to require
such consent to any further or future Transfers. The foregoing provisions shall
not apply to sales of the Lots and Homes to home buyers in the ordinary course
of Borrower's business.

                                   ARTICLE VI
                                  THE PROJECTS

        Section 6.1. Consideration. As an inducement to Lender to execute this
Loan Agreement and to make each disbursement of the Loan, Borrower represents
and warrants to the truth and accuracy of the matters regarding each Project set
forth in this Article VI and hereby covenants regarding each Project as set
forth in this Article VI. With respect to a future Project, Borrower represents
and covenants to the truth and accuracy of the matters regarding such Project
set forth in this Article VI and covenants regarding such Project as set forth
in this Article VI from and after the point in time when Lender issues a Project
Commitment to Borrower with respect to such Project.

        Section 6.2. Title to the Projects. Borrower is, or will be upon
acquisition of the Land related to each Project and the construction of the
Development Work and Homes related to each Project, the sole legal and
beneficial owner of such Land, Development Work and Homes, free and clear of all
claims, liens and encumbrances other than Permitted Exceptions. All of the
personal property which forms a part of such Development Work and Homes is or
will be vested solely in Borrower, free and clear of all claims, liens and

                                      -46-
<PAGE>   52

encumbrances, and the security interest of Lender in such personal property is a
first lien thereon.

        Section 6.3. No Prior Liens or Claims. Except as otherwise may have been
approved in writing by Lender and as to which Lender shall have received such
endorsements (including mechanics lien coverage) to the Title Policy as Lender
may require to assure the priority of the Deed of Trust as a valid first lien on
each Project, Borrower represents that, prior to recordation of the Deed of
Trust, neither it, nor anyone acting on Borrower' s behalf has (i) commenced
construction of the Development Work or the Homes, or any grading or site
clearance related thereto, (ii) purchased, contracted for or otherwise brought
upon the Land related to any such Project any materials, specially fabricated or
otherwise, to be incorporated into the Development Work or the Homes related to
any such Project, or (iii) entered into any contract or arrangement, the
performance of which by any other party thereto could give rise to a lien or
claim on any such Project or any portion thereof.

        Section 6.4. Access to the Projects. All roads, streets, traffic turn
lanes, and access ways necessary for the full utilization of each Project for
its intended purpose have either been completed or the necessary rights of way
have either been acquired or conditionally approved for acquisition by the
appropriate governmental authority or have been dedicated to or conditionally
approved for dedication for public use and by the appropriate governmental
authority, and all necessary steps have been taken by Borrower and the
appropriate governmental authority to assure the complete construction and
installation thereof by the time needed for construction and/or occupancy and
operation of each such Project.

        Section 6.5. Compliance with Project Requirements and Laws and
Regulations. Each Project, the proposed and actual use thereof, the Development
Work and the Homes related thereto, when completed, will comply with the Project
Requirements and with the Laws and Regulations, and there is no action or
proceeding pending or, to the knowledge of Borrower (after due inquiry),
threatened before any court, quasi-judicial body or administrative agency at the
time of any disbursement by Lender relating to the validity of the Loan or the
proposed or actual use of any Project.

        Section 6.6. Covenants, Zoning, Codes, Permits and Consents. Borrower is
familiar with and has complied with, or will comply with, all of the Laws and
Regulations to be complied with in connection with the construction of the
Development Work and the Homes related to each Project. Except as set forth in
the Project Commitment applicable to each Project, all permits, licenses,
consents, approvals or authorizations by, or registrations, declarations,
withholding of objections or filings with any governmental body necessary in
connection with the valid execution, delivery and performance of the Loan
Documents, and any and all other documents executed in connection with any of
the foregoing, necessary for the subdivision of the Land related to each such
Project, necessary for the construction of the

                                      -47-
<PAGE>   53

Development Work and the Homes related to each such Project, and necessary for
the marketing and sale of the Homes related to each such Project, have been
obtained or will be obtained on a timely basis and are or will be valid,
adequate and in full force and effect. Construction of the Development Work and
the Homes related to each such Project and the intended use thereof will in all
respects conform to and comply with all Laws and Regulations, including without
limitation all applicable zoning, subdivision, environmental protection, use and
building codes, laws, regulations and ordinances.

        Section 6.7. Utilities. All utility services and facilities necessary
for the construction, sale and occupancy of each Project and the operation
thereof for its intended purpose are either available at the boundaries of the
Land related to each such Project, or, if not, all necessary steps have been
taken by Borrower and the local authority or public utility company which
provides such services to assure the complete installation and availability
thereof when needed for construction, sale, occupancy and operation of each such
Project.

        Section 6.8. Map, Permits. Licenses and Approvals. Borrower has
obtained, or will in a timely manner obtain, a Map for each Project. Borrower
shall properly comply with and keep in effect each Map and all permits, licenses
and approvals which are required to be obtained from governmental bodies in
order to construct, occupy, operate, market and sell each such Project. Borrower
shall promptly deliver copies of each Map and all such permits, licenses and
approvals to Lender.

        Section 6.9. Approval of Plans and Specifications and Approval of
Budgets.

                (a) The Development Work Plans and Specifications for each
        Project are a true, complete and accurate reflection of the Development
        Work that Borrower will construct with respect to such Project. The Home
        Plans and Specifications for each Project are a true, complete and
        accurate reflection of the Homes that the Borrower will construct with
        respect to such Project. The Plans and Specifications for each Project
        are satisfactory to Borrower and have been reviewed and approved by
        Borrower and the general contractor for such Project (if different from
        the Borrower), and have also been approved, or will be approved in a
        timely manner, as required by all governmental bodies or agencies having
        jurisdiction (including, without limitation, any local design review
        boards) and by the beneficiary of any restrictive covenant affecting
        such Project. There are no structural defects in the Development Work or
        the Homes as shown in the Plans and Specifications for any Project, and
        no violation of any of the Laws and Regulations exists with respect to
        the Plans and Specifications for any Project.

                (b) After diligent investigation of all relevant conditions and
        due consultation with such parties as Borrower deems appropriate,
        Borrower represents

                                      -48-
<PAGE>   54

        that the Budget for each Project identifies on a line item basis all
        costs to be incurred in connection with the Development Work and the
        Homes for such Project and all costs for which proceeds of the Loan are
        to be disbursed. The Budget for each Project reflects Borrower's best,
        true, accurate and complete estimate of the costs shown therein and of
        the costs estimated to be necessary to construct the Development Work
        and the Homes for such Project in accordance with the Plans and
        Specifications for such Project.

        Section 6.10. Adequacy of Acquisition and Development Amount. With
respect to each Project, the aggregate amount of the Acquisition and Development
Amount is sufficient to pay all costs of the acquisition of the Land and all
costs of the Development Work for such Project in accordance with the
Development Work Plans and Specifications and all remaining costs related
thereto, except as has been specifically disclosed to and approved in writing by
Lender.

        Section 6.11. Construction Start and Completion. Borrower shall commence
construction of the Development Work and the Homes for each Project no later
than the date set forth in the Project Commitment and shall thereafter
diligently proceed with construction and completion of the Development Work and
the Homes in a good and workmanlike manner in accordance with the Plans and
Specifications for such Project and the Construction Progress Schedule for such
Project; provided however that in the event construction of a Project is subject
to delays caused by any Force Majeure Event, the Borrower shall provide to the
Lender written notice of such delay, and if such delay will not exceed one
hundred twenty (120) days in the aggregate or is otherwise reasonable in length,
the Borrower shall not be deemed in default of its obligations assumed pursuant
to this Loan Agreement solely by reason of such delay. The Borrower shall cause
the Development Work and the Homes for each Project at all times to materially
conform to the Laws and Regulations and shall accomplish completion of the
Development Work and the Homes of such Project in accordance with the
Construction Progress Schedule for such Project. Borrower shall cooperate at all
times with Lender in bringing about the timely completion of each element of the
Development Work and the Homes for each Project, and Borrower shall resolve all
disputes arising during the work of construction in a manner which shall allow
work to proceed expeditiously.

        Section 6.12. Personal Property Incorporation. All personal property for
which Lender advances Loan proceeds for a Project is to be stored on the Land
for such Project and in Lender' s judgment must be reasonably secure from damage
and theft and fully insured at all times.

        Section 6.13. Contractors and Contracts. Upon demand by Lender, the
Borrower shall furnish to Lender, from time to time, correct lists of all
contractors and subcontractors

                                      -49-
<PAGE>   55

employed in connection with the Development Work and the Homes for each Project.
Each such list shall show the name, address and telephone number of each such
contractor or subcontractor, a general statement of the nature of the work to be
done, the labor and materials to be supplied, the names of materialmen, if
known, and the approximate dollar value of such labor, work and materials with
respect to each. Upon an Event of Default, Lender shall have the right, and at
any time the Inspector shall have the right (in both cases without either the
obligation or the duty), to contact directly each contractor, subcontractor and
materialman to verify the facts disclosed by said list or for any other purpose.

        Section 6.14. Evidence of Ownership of Materials. If requested by
Lender, Borrower shall promptly deliver to Lender any bills of sale, statements,
receipts, contracts or agreements under which Borrower claims title to any
materials, fixtures or articles incorporated into the Development Work and the
Homes of any Project.

        Section 6.15. Changes to Plans and Specifications and Budgets.

                (a) The following Changes, whether made by change order or
        otherwise, to any of (i) the Budget for a Project or the schedule of the
        costs of the Homes for a Project, (ii) the Plans and Specifications for
        a Project and/or (iii) working drawings relating to the Development Work
        or Homes of a Project, shall require the prior written approval of the
        Lender:

                        (1) any Change which, together with all prior increases,
                will result in an increase to the total Budget for the
                Development Work of a Project of five percent (5%) or more, it
                being understood that the foregoing shall not apply to increases
                to particular line items of such Budget unless such increase to
                the line item will result in an increase to such total Budget
                for the Development Work of five percent (5%) or more; and

                        (2) any Change which, together with all prior decreases,
                will result in a decrease to the total Budget for the
                Development Work of a Project of five percent (5%) or more, it
                being understood that the foregoing shall not apply to decreases
                to particular line items of such Budget unless such decrease to
                the line item will result in a decrease to such total Budget for
                the Development Work of five percent (5%) or more; provided,
                however, that the Borrower shall not offset against each other
                increases and decreases in such total Budget for the Development
                Work, it being the intent that an increase or a decrease in such
                total Budget for the Development Work which meets either the
                threshold set forth in subparagraph (a)(1) or the threshold set
                forth in this subparagraph (a)(2) shall require the prior
                approval of the Lender.

                                      -50-
<PAGE>   56

                (b) As a condition to its approval of any Change described in
        subparagraph (a), Lender may require verification that such Change:

                        (1) is a Change as to which the Borrower has complied
                with the terms of subparagraph (d) of this Section 6.15;

                        (2) will not adversely affect the value of Lender's
                security;

                        (3) is not a material change in structure, design,
                exterior appearance, square footage, or function;

                        (4) would not cause an increase in any line item or
                category of such Budget in excess of the contingencies (if any)
                specifically contained in such Budget for that line item or
                category; and

                        (5) would be consistent with the Laws and Regulations.

                Lender is under no duty to review or inform Borrower of the
        quality or suitability of the Plans and Specifications for any Project,
        any contract or subcontract or any changes thereto. Without limitation
        of the foregoing, Borrower shall obtain Lender's prior written approval
        of any alteration in the Plans and Specifications for any Project which
        might adversely affect the value of Lender's security or which,
        regardless of cost, is a material change in structure, design, function
        or exterior appearance.

                (c) Borrower agrees to provide Lender with copies of all change
        orders, together with all additional documents that Lender may require
        in order to evaluate a request for approval of a Change of a type
        described in subparagraph (a) above. These documents may include the
        following: (i) a written description of the Change and related working
        drawings and (ii) a written estimate of the cost of the Change and the
        time necessary to complete it. Lender may take a reasonable time to
        evaluate any requests for approval of a Change, and may require that all
        other approvals required from other parties be obtained before it
        reviews any requested Change; provided however that to the extent the
        Lender's consent is required by a governmental entity prior to such
        governmental entity giving its consent, Lender shall not require that
        all other approvals required from other parties be obtained before it
        reviews any requested Change. Lender may approve or disapprove Changes
        in the exercise of its reasonable judgment. Borrower acknowledges that
        delays may result, and agrees that so long as any delays caused by
        Lender are not unreasonable in duration, they shall not affect
        Borrower's obligation to complete each element of the Development Work

                                      -51-
<PAGE>   57

        and the Homes of a Project in accordance with the Construction Progress
        Schedule for such Project.

                (d) In the event that either:

                        (1) the proceeds of the Loan which are available for
                disbursement for the Development Work of a Project will not be
                sufficient to complete such Development Work for such Project as
                scheduled; or

                        (2) the costs of the Development Work for such Project
                have increased over the amount set forth in the Budget for such
                Development Work by an amount in excess of the amount set forth
                in subparagraphs (a)(1) or (a)(2),

        then the Borrower shall submit to the Lender a revised budget for such
        Project, together with (i) a request that the Lender approve an increase
        in the Acquisition and Development Amount for such Project, which
        request the Lender may approve or disapprove in its absolute and sole
        discretion, or (ii) evidence that the Borrower has sufficient funds to
        pay the increased costs, in which event the Lender shall not be
        obligated to disburse additional amounts of the Loan pursuant to the
        provisions of Section 3.1 until such time as the Borrower provides to
        the Lender evidence that it has paid from its own funds, in addition to
        any Borrower funds which the Budget for such Project requires, an amount
        at least equal to the increase; provided however that in the event
        Borrower provides to Lender the required evidence, as set forth in the
        preceding provision, Lender shall make additional disbursements of
        proceeds of the Loan, subject to the terms and conditions of the Loan
        Documents. Any such revised Budget for such Project submitted to the
        Lender shall be accompanied by a written report from the Inspector
        stating that the Inspector has reviewed and approved such revised
        Budget.

                (e) In addition to obtaining the prior written approval of the
        Lender in connection with any Change described in this Section 6.15, the
        Borrower shall also obtain, to the extent that such approvals may be
        required, (i) the approvals of the appropriate governmental authorities
        to any Change and (ii) from the appropriate persons or entities
        approvals of any alterations in the Map for such Project, the Plans and
        Specifications for such Project or any work, materials or contracts for
        such Project that are required by any of the Laws and Regulations or
        under the terms of the Project Commitment for such Project or the other
        Loan Documents.

        Section 6.16. Lender Inspections, Appraisal and Information. During
normal business hours, the Borrower shall arrange for the Lender, the Inspector
or any other

                                      -52-
<PAGE>   58

authorized representative of Lender, at the reasonable expense of Borrower, to
visit, inspect or appraise each Project, the materials to be used thereon or
therein, contracts, records, plans, specifications and shop drawings relating
thereto, whether kept at Borrower's offices or at the construction site for such
Project or elsewhere, and the books, records, accounts and other financial and
accounting records of Borrower wherever kept, and to make copies and take
extracts thereof and therefrom as often as may be requested at Borrower's cost
and expense. Borrower will cooperate with Lender to enable the Lender, the
Inspector or such other authorized representatives of the Lender to conduct such
visits, inspections and appraisals. The costs of the Inspector and the other
authorized representatives of the Lender, and of such inspections and appraisals
shall be borne by Borrower and shall be paid within thirty (30) days of
Borrower's receipt of any invoice with respect thereto.

        Section 6.17. Correction of Defects. If Lender in its reasonable
judgment determines that any Development Work, Homes or materials related to a
Project fail to conform to the Map for such Project, any Laws and Regulations
applicable to such Project, the Plans and Specifications for such Project or
sound building practices, or that they otherwise depart from any of the
requirements of this Loan Agreement, Lender may require the work to be stopped
and withhold disbursements until the matter is corrected. If this occurs,
Borrower shall promptly correct the work to Lender's reasonable satisfaction,
and pending completion of such corrective work shall not allow any other work
which is dependent upon or directly related to the work requiring correction to
proceed. No such action by Lender shall affect Borrower's obligation to complete
each element of the Development Work and the Homes for such Project within the
times required by this Loan Agreement. The advance of any Loan proceeds shall
not constitute a waiver of Lender's right to require compliance with this
covenant.

        Section 6.18. Protection Against Lien Claims.

                (a) Borrower shall pay and discharge, or cause to be paid and
        discharged, promptly and fully all claims for labor done and materials
        and services furnished in connection with the Development Work and the
        Homes for each Project, and take or cause to be taken all reasonable
        steps to forestall the assertion of claims of lien against each such
        Project or any part thereof. Upon the request of the Lender, Borrower
        shall obtain a lien waiver with respect to each payment by or to the
        Borrower and each of the various subcontractors and materialmen (and the
        major subcontractors and submaterialmen under them) for each Project,
        and Lender, at any time, at its option, may require that Borrower make
        any payments for which disbursements are made hereunder by joint check
        made payable to the Borrower and the subcontractor or sub-subcontractor
        for whose account such payment is to be made, as joint payees.

                                      -53-
<PAGE>   59

                (b) Nothing herein contained shall require Borrower to pay any
        claims for labor, materials, or services which Borrower in good faith
        disputes and which Borrower, at its own expense, currently and
        diligently contests, provided that, for each such case where a claim of
        lien in excess of Five Thousand Dollars ($5,000) has been filed, within
        thirty (30) days after the Borrower's actual receipt of notice of filing
        of any such claim of lien, the Borrower shall take one of the following
        actions with respect to such claim of lien: (1) record or cause to be
        recorded in the office of the recorder of the applicable county where
        such Project is located a surety bond sufficient to release said claim
        of lien, or (2) make or cause to be made a deposit of cash in the amount
        of 150% of the claim of lien with Lender; or (3) deliver or cause to be
        delivered to Lender a specific endorsement to the Title Policy which
        insures Lender against any loss by reason of such claim of lien, or (4)
        deliver or cause to be delivered to Lender such other assurance as may
        be acceptable to Lender; provided, however, that in the event the
        aggregate amount of claims filed with respect to a Project exceeds
        Twenty-Five Thousand Dollars ($25,000), Borrower shall be required to
        take one of the actions specified in (1) through (4) with respect to all
        subsequent claims for such Project, regardless of amount.

        Section 6.19. Conveyance, Lease or Encumbrance. Borrower shall not sell,
agree to sell, convey, transfer, dispose of or further encumber any Project or
any portion thereof or interest therein (other than the sale of Lots and Units
on and subject to the terms of this Loan Agreement), or enter into a lease
covering all or any portion thereof or interest therein, either voluntarily,
involuntarily or otherwise, or enter into an agreement to do so, without the
prior written consent of Lender being first had and obtained. All easements,
declarations, covenants, conditions, restrictions and dedications affecting any
Project shall be submitted to Lender for its approval, accompanied by a drawing
or survey showing the precise location thereof, and such approval shall be
obtained prior to the execution or granting of any thereof by Borrower. Borrower
shall not execute any lease of any portion of any Project without the prior
written consent of Lender. Borrower shall promptly notify Lender of any event of
default or cancellation under any lease now or hereafter in effect.

        Section 6.20. Security Instruments. From time to time, upon the request
of Lender, Borrower shall execute and deliver to Lender a security instrument or
instruments naming Lender as secured party covering all contracts of any kind
entered into in connection with the Development Work or the Homes for each
Project and all other property of any kind whatsoever owned by the Borrower and
used, or to be used, in the use and enjoyment of each Project and concerning
which Lender may have any doubt as to its being subject to the lien of the
Project Security Instruments.

        Section 6.21. Further Assurances; Cooperation. Borrower will at any time
and from time to time upon request of Lender take or cause to be taken any
action, execute,

                                      -54-
<PAGE>   60

acknowledge, deliver or record any further documents, opinions, mortgages,
security agreements, financing statements or other instruments or obtain such
additional insurance as Lender in its discretion deems necessary or appropriate
to carry out the purposes of this Loan Agreement and to preserve, protect and
perfect the security interest intended to be created and preserved in each
Project and the Development Work and the Homes of each Project.

        Section 6.22. Negative Covenants. So long as any amount payable under
any Loan Document still remains unpaid or Lender shall have any commitment to
disburse the Loan hereunder, Borrower shall not, unless Lender shall otherwise
consent in writing (i) create, assume or suffer to exist any lien, security
interest or other charge or encumbrance, or any other type of preferential
arrangement, upon the collateral for the Loan assigned to Lender by Borrower
pursuant to the Project Security Instruments, or (ii) sell, lease, transfer or
otherwise dispose of any of the collateral for the Loan assigned to Lender by
Borrower except in the ordinary course of business.

        Section 6.23. Signs. Upon the request of Lender, Borrower shall erect
and place on or in the vicinity of each Project a sign or signs indicating that
Lender has provided construction financing for such Project. Said sign(s) shall
remain the property of Lender and shall be required to be removed only after the
Development Work and the Homes for such Project have been completed.

        Section 6.24. Letter of Credit.

                (a) Borrower hereby agrees to pay in advance to the Lender, for
        each Letter of Credit, an annual fee equal to an amount determined by
        multiplying the Letter of Credit Amount by a percentage specified in
        writing by the Lender to the Borrower with respect to such Letter of
        Credit, so long as the Letter of Credit is outstanding.

                (b) On each date that the Lender or any Affiliate of the Lender
        pays any amount to reimburse the issuer of a Letter of Credit for
        amounts paid by the issuer due to a draw upon the Letter of Credit, the
        Borrower shall pay to the Lender an amount equal to the amount so drawn.

                (c) Borrower acknowledges that any payment made by Lender or any
        Affiliate of Lender as set forth in subsection (b) above shall
        constitute a disbursement of the Loan, requiring immediate repayment
        from the Borrower. Borrower further acknowledges that its failure to
        make such required repayment shall constitute an Event of Default,
        entitling Lender to exercise any and all of its remedies against
        Borrower in accordance with the terms of the Loan Documents.

                                      -55-
<PAGE>   61

                (d) The obligation of Borrower to Lender with respect to the
        obligations incurred pursuant to this Section 6.24 shall be absolute,
        unconditional and irrevocable to the extent permitted by law, and shall
        be performed strictly in accordance with the terms of this Loan
        Agreement, irrespective of any of the following circumstances:

                        (1) any lack of validity or enforceability of any Loan
                Document, any Letter of Credit, any of the documents relating to
                the Letters of Credit, or any other agreement or instrument
                underlying the Loan Documents or the Letters of Credit, or any
                failure to comply strictly with the terms of any Loan Document,
                any Letter of Credit or any other agreement or instrument;

                        (2) any amendment or waiver of, or consent to departure
                from, the Letters of Credit, any document relating thereto or
                any Loan Document;

                        (3) the existence of any claim, setoff, defense or other
                rights which the Lender, any Affiliate of Lender or Borrower may
                have at any time against any other party or any beneficiary or
                any transferee of any Letter of Credit (or any persons or
                entities for whom any such party or beneficiary or any such
                transferee may be acting), the issuer of any Letter of Credit or
                any other person or entity whether in connection with a Letter
                of Credit, any document relating thereto, any Loan Document, any
                agreement or transaction underlying a Letter of Credit or any
                unrelated transactions;

                        (4) any statement, certificate, draft or other document
                presented under a Letter of Credit proving to be forged,
                fraudulent, invalid or insufficient in any respect or any
                statement therein being untrue or inaccurate in any respect
                whatsoever;

                        (5) payment by the issuer of a Letter of Credit under
                the Letter of Credit against presentation of a draft or
                certificate which does not comply with the terms of the Letter
                of Credit; or

                        (6) any other circumstance or happening whatsoever,
                whether or not similar to any of the foregoing.

                                   ARTICLE VII
                             SALES OF LOTS AND UNITS
                         AND RELEASES FROM DEED OF TRUST

        Section 7.1. Sales Agreements. Each Lot and Unit shall be sold under a
Sales Agreement. Each Sales Agreement must require full payment in cash to
Borrower at closing.

                                      -56-
<PAGE>   62

No Lot or Unit may be leased, sold or conveyed under any lease, conditional
sales contract or other arrangement where Borrower retains a deferred portion of
the purchase price or any residual or contingent interest in the Lot or Unit,
including any purchase money security interest, without the express prior
written consent of Lender in each instance. The Borrower shall, upon the
Lender's request, provide to Lender copies of the Sales Agreements.

        Section 7.2. Sales and Closings. Borrower may enter into sales in the
ordinary course of business with bona fide third party buyers without Lender's
prior written consent if:

                (a) A Sales Agreement is executed with the buyer which conforms
        to the requirements of this Loan Agreement; and

                (b) Borrower, acting in good faith following exercise of due
        diligence, has determined that the buyer is financially capable of
        performing all of its obligations under the Sales Agreement.

Lender in the exercise of its reasonable discretion may consider any sale to be
unsatisfactory if the sale fails to meet any of the requirements of this Loan
Agreement. If this happens, or if any Event of Default (as hereinafter defined)
has occurred and is continuing, Lender may make written demand on Borrower to
submit future Sales Agreements for Lender's approval prior to execution,
together in each instance with accompanying financial statements and other
information that Borrower may have pertaining to the prospective buyer. Borrower
shall comply immediately with any such demand by Lender.

        Section 7.3. Sales Operations and Seller's Obligations. Borrower shall
at all times maintain adequate marketing capability for the sale of the Lots and
Units, and shall perform all obligations required to be performed by it under
each Sales Agreement.

        Section 7.4. Model Units.

                (a) The Borrower shall (i) construct and if necessary, modify,
        Homes in such a manner as to accommodate their use as Model Units within
        each Project, and (ii) maintain a sales office at or near each Project,
        as the Borrower determines, to provide for adequate sales and marketing
        of each such Project. The Borrower shall insure that sufficient adjacent
        parking for customers exists within the vicinity of the sales office.
        The Model Units within each Project shall be used solely as a model
        display (including landscaping and walkways), as a sales office and for
        parking, all in connection with the marketing and sale of Homes within
        such Project. Borrower shall maintain the interiors and exteriors of the
        Model Units within such Project in good condition, repair and order,
        except for ordinary wear and tear. Regardless of any other provision of
        this Loan Agreement, Lender shall not be required to release the Model

                                      -57-
<PAGE>   63

        Units within any Project or any of them from the lien of the Deed of
        Trust unless Borrower has provided, and Lender has accepted, a
        substituted Model Unit within such Project which Lender in its
        reasonable judgment considers to be comparable to the Model Unit to be
        released and suitable for the purposes and uses described above.
        Notwithstanding the foregoing, with the prior written consent of Lender,
        which consent shall not be unreasonably withheld by Lender, the Borrower
        may convert Model Units within a Project to Units held for sale at such
        time as the Borrower determines that it is appropriate to do so given
        the sales activity for such Project. Borrower shall maintain insurance
        coverage regarding the Model Units as Lender shall reasonably require.

                (b) Borrower may sell a Model Unit to a Person approved by
        Lender in its reasonable discretion, subject to the requirements that
        (i) the Borrower leases the Model Unit back from such Person pursuant to
        a lease agreement, the form and terms of which are approved by the
        Lender in its reasonable discretion and (ii) upon the request of the
        Lender, Borrower executes such documents as Lender requires to assign to
        Lender the Borrower's interest in such lease.

        Section 7.5. Releases from Lien of Deed of Trust.

                (a) Borrower may from time to time request that Lender release
        one or more Lots and/or Units from the lien of the Deed of Trust and the
        other Project Security Instruments encumbering such Lots and/or Units.
        So long as no Event of Default exists, Lender agrees that it will
        execute a partial release that releases Lender's lien on such Lot and/or
        Unit pursuant to the Deed of Trust and the documents executed pursuant
        thereto, provided that the following conditions precedent shall have
        been satisfied:

                        (1) Lender shall have received a written notice
                requesting the partial release no fewer than five (5) Business
                Days prior to the date on which the partial release is to be
                effective, which notice shall specify (i) the Project, (ii) the
                specific Lots and/or Units to be released, (iii) if such release
                is being requested in connection with a sale of the Lots and/or
                Units, the Person to whom such Lots and/or Units are being sold,
                which Person shall not be an Affiliate of the Borrower, and (iv)
                the Lender's Release Price(s) therefor;

                        (2) Lender shall have received evidence satisfactory to
                Lender that (i) the closing of the sale and/or release of such
                Lots and/or Units shall be conducted through an escrow with the
                Title Company, and (ii) the Title Company shall have been
                instructed, which instructions shall have been acknowledged and
                agreed to by the Title Company and which cannot be

                                      -58-
<PAGE>   64

                changed or supplemented without Lender's written concurrence,
                not to record Lender's partial release until the Title Company
                receives in respect of such release an amount equal to Lender's
                Release Price for such Lots and/or Units and is irrevocably
                committed to disburse such amount to Lender;

                        (3) Lender shall have received executed originals of
                instruments, agreements and other documents, in form and
                substance satisfactory to Lender, which Lender determines are
                necessary or appropriate, to evidence and/or effectuate the
                partial release and to modify the Loan Documents as a result
                thereof;

                        (4) Lender shall have received evidence satisfactory to
                Lender that the Borrower has satisfied all conditions precedent
                in the Loan Documents relating to the release of the Lots and/or
                Units.

                If the Title Company that is selected by Borrower to insure
        title to the Lots and/or Units sold by the Borrower elects to have
        Borrower and Lender enter into a master release agreement that provides
        for, among other things, the release of the Lots and/or Units once all
        of the Lots and/or Units in a phase of a Project or in an entire Project
        are sold instead of being released one at a time, then Lender agrees to
        enter into such a master release agreement in form and substance
        satisfactory to Lender.

                In connection with each release of a Lot and/or Unit, provided
        all conditions to such release have been met, Lender agrees to provide
        to the Title Company an estoppel letter, in form and substance
        satisfactory to Lender, specifying the Lender's Release Price.

                (b) In addition to the releases provided for in subparagraph
        (a), so long as no Event of Default exists, Lender agrees that, without
        requiring payment of any release price, it shall release from the lien
        of the Deed of Trust and the other Project Security Instruments those
        portions of a Project necessary for utility easements, dedicated public
        roads, common elements (including any parts of such Project to be
        transferred to a homeowners' association or the like), parks,
        greenbelts, recreation areas, schools, medical facilities and other
        similar purposes, provided (i) the Borrower complies with the
        requirements of subparagraphs (1), (3) and (4) of subparagraph (a) above
        (except that the requirement of written notice specifying the Lender's
        Release Price(s) and payment of the Lender's Release Price(s) shall not
        be applicable), (ii) the Lender is furnished with a survey, or another
        document reasonably satisfactory to the Lender, depicting and describing
        the real property to be released and (iii) such release is consistent in
        all material respects with the site plan or other depiction of such
        Project provided to the Lender as part of the Project Underwriting
        Documents.

                                      -59-
<PAGE>   65

                                  ARTICLE VIII
                         EVENTS OF DEFAULT AND REMEDIES

        Section 8.1. Events of Default. The occurrence and continuance of any of
the following events shall constitute an "Event of Default" hereunder:

                (a) Borrower shall fail to pay any installment of principal on
        the Loan when due, whether at stated maturity, as a result of a
        mandatory prepayment requirement, upon acceleration, upon demand for
        payment under Section 8.2(c) or otherwise, or pay when due any interest,
        fees or other amounts payable hereunder or under the other Loan
        Documents;

                (b) any representation or warranty made by the Borrower herein
        or by any Loan Party in any other Loan Document shall at any time be
        incorrect in any material respect; or

                (c) Borrower shall fail to perform or observe any term, covenant
        or agreement contained in this Loan Agreement or any Loan Party shall
        fail to perform or observe any term, covenant or agreement contained in
        any other Loan Document, and such failure shall remain unremedied for
        thirty (30) days after notice thereof from Lender to Borrower or such
        other Loan Party, as applicable; provided that in the event Borrower or
        such other Loan Party, as applicable, commences and is diligently
        pursuing to completion action to cure the failure, such thirty (30) day
        period may be extended for such period of time as is necessary to cure
        the failure, but in no event longer then one hundred twenty (120) days
        from the date of the Lender's notice; provided further however, that in
        the event (i) Lender reasonably determines that the failure to
        immediately declare an Event of Default could materially and adversely
        harm the rights of the Lender hereunder or under any other Loan
        Document, or the rights of the Lender with respect to the collateral
        pledged to secure the Loan, or (ii) Lender reasonably determines that
        the failure to perform or observe the terms of this Loan Agreement or
        any other Loan Document cannot be remedied with the passage of one
        hundred twenty (120) days, then Lender may declare an immediate Event of
        Default in its notice given pursuant to this Section 8.1(c); or

                (d) the Borrower or any other Loan Party shall assert the
        invalidity or unenforceability of any Loan Document or any Loan Document
        shall be adjudicated to be invalid or unenforceable in any material
        respect; or

                (e) the Borrower or any other Loan Party shall fail to pay any
        Debt, or any interest or premium thereon, when due (whether by scheduled
        maturity, required prepayment, acceleration, demand or otherwise) and
        such failure shall continue after

                                      -60-
<PAGE>   66

        the applicable grace period, if any, specified in the agreement or
        instrument relating to such Debt; any other default under any agreement
        or instrument relating to any such Debt, or any other event, shall occur
        and shall continue after the applicable grace period, if any, specified
        in such agreement or instrument, if the effect of such failure to pay,
        default or event results in the acceleration, or permits the
        acceleration of, the maturity of such Debt; or any such Debt shall be
        declared to be due and payable, or is required to be prepaid (other than
        by a regularly scheduled required prepayment) prior to the stated
        maturity thereof; provided however that none of the foregoing events or
        inactions shall constitute an Event of Default unless such event or
        inaction could result in a Material Adverse Change; or

                (f) the Borrower or any other Loan Party shall generally not pay
        its Debts as such Debts become due, or shall admit in writing its
        inability to pay its Debts generally, or shall make a general assignment
        for the benefit of creditors; or any proceeding shall be instituted by
        or against the Borrower or any other Loan Party seeking to adjudicate
        such party as bankrupt or insolvent, or seeking liquidation, winding up,
        reorganization, arrangement, adjustment, protection, relief or
        composition of such party's Debts under any law relating to bankruptcy,
        insolvency or reorganization or relief of debtors, or seeking the entry
        of an order for relief or the appointment of a receiver, trustee or
        other similar official for such party or for any substantial part of
        such party's property and, in the case of any such proceeding instituted
        against it (but not instituted by it), either such proceeding shall
        remain undismissed or unstayed for a period of thirty (30) days (whether
        or not consecutive), or any of the actions sought in such proceeding
        (including, without, limitation, the entry of an order for relief
        against, or the appointment of a receiver, trustee, custodian or other
        similar official for, it or for any substantial part of its property)
        shall occur; or the Borrower or any other Loan Party shall take any
        action to authorize any of the actions set forth above; or

                (g) any event of default (however described) under any other
        Loan Document shall occur and not be cured within the applicable grace
        period; or

                (h) any Project Security Instrument, for any reason, ceases to
        create a valid and perfected first priority lien on or in the Land or
        other collateral relating thereto as described in the Loan Documents, or
        the Borrower or any other Loan Party shall so state in writing; or

                (i) the dissolution or winding up of the Borrower or any other
        Loan Party; or

                                      -61-
<PAGE>   67

                (j) any judgment or order for the payment of money in excess of
        Two Hundred Thousand Dollars ($200,000), singularly or in the aggregate,
        shall be rendered against the Borrower or any other Loan Party, and
        either (i) there shall be a period of forty-five (45) days or more
        during which a stay of enforcement of such judgment or order, by reason
        of a pending appeal or otherwise, shall not be in effect, or (ii)
        enforcement proceedings shall have been commenced by any creditor upon
        such judgment or order and there shall be a period of forty-five (45)
        days or more during which a stay of such enforcement proceedings shall
        not be in effect;

                (k) a Material Adverse Change shall occur; or

                (l) the Borrower shall fail to comply with, or shall fail to
        cause the Guarantor to comply with, any of the covenants set forth in
        Section 5.2, Section 5.3, Section 5.4, Section 5.5 or Section 5.6.

                (m) Borrower fails to meet or comply with any of the projections
        or other provisions of the Construction Progress Schedule for any
        Project (which failure Lender reasonably believe may result in
        impairment of the value of its security for the Loan or in the ability
        of the Borrower to repay the Loan in full by the Maturity Date), and
        does not cure that failure within thirty (30) days after written notice
        from Lender; provided that such cure period shall not be applicable
        (i.e., there shall be no cure period) if Lender has reasonably
        determined that such failure is not susceptible to cure within thirty
        (30) days; or

                (n) the assignment by the Borrower of the rents or the income of
        any Project, or any part thereof or of any other revenues or sales
        proceeds relating to any Project (other than to Lender); or

                (o) there shall occur substantial deviations in the Development
        Work or the Homes of any Project from the Plans and Specifications for
        such Project without the prior approval of Lender, or the existence of
        materially adverse defective workmanship or materials incorporated into
        the Development Work or the Homes for any Project which deviations or
        defects are not corrected within thirty (30) days after written notice
        thereof to Borrower, such deviations and defects to be conclusively
        determined by Lender after consultation with the Inspector; or

                (p) cessation of the Development Work of any Project prior to
        completion of the Homes of such Project for a continuous period of (i)
        one hundred twenty (120) days or more if such cessation is by a Force
        Majeure Event, or (ii) sixty (60) days or more if such cessation is not
        caused by a Force Majeure Event; or

                                      -62-
<PAGE>   68

                (q) the Development Work or the Homes of any Project are not, in
        Lender's reasonable judgment, being carried out in accordance with the
        Construction Progress Schedule for such Project (subject to delays not
        to exceed sixty (60) days or to delays not to exceed one hundred twenty
        (120) days in the aggregate which are caused by Force Majeure Events of
        which Lender has been properly notified in accordance with the
        provisions of Section 6.11); or

                (r) a court of competent jurisdiction enters an order enjoining
        construction of the Development Work or the Homes of any Project, or
        such a court or an authorized governmental agency orders that sales of
        the Lots and/or Units of any Project be suspended or halted, or any
        required approval, license or permit is withdrawn or suspended, and the
        order, withdrawal or suspension remains in effect for a period of thirty
        (30) days; or

                (s) there occurs any attachment, levy, execution or other
        judicial seizure of any portion of any Project, any other material
        collateral provided by Borrower under any of the Loan Documents, or any
        substantial portion of the other assets of Borrower, which is not
        released, expunged, discharged or dismissed prior to the earlier of (i)
        thirty (30) days after such attachment, levy, execution or seizure, or
        (ii) the sale of the assets affected thereby; or

                (t) any surety obligated for any Development Work or Homes of
        any Project is called upon to perform its obligations and/or any person
        demands funds pursuant to any "set-aside" letter or "cash in lieu of
        bond agreement" issued by Lender with respect to such Project; or

                (u) the average sales price for the ten (10) most recently sold
        Units in any Project is less than eighty-five percent (85%) of the
        lesser of (i) the average of the appraised values of such Units as
        determined based upon an Appraisal Report identifying the appraised
        values of base home designs for such Project (or if no Appraisal Report
        is required by Lender with respect to a Project, based upon the values
        of such Units as determined based upon the values of such home designs
        for such Project as set forth in the Project Commitment for such
        Project) or (ii) the average of the base prices for such Units based
        upon the Approved Cash Flow Statement for such Project; or

                (v) the Borrower's pre-tax net income is negative in each of two
        (2) consecutive fiscal quarters or for any four (4) consecutive fiscal
        quarters on a cumulative basis and the ratio of the Total Liabilities of
        the Guarantor and its Subsidiaries (including the Borrower) to the Net
        Worth of the Guarantor and its Subsidiaries (including the Borrower) is
        more than 4.00 to 1.00; or

                                      -63-
<PAGE>   69

                (w) any two (2) or more of Wade Cable, Thomas J. Mitchell,
        Douglas F. Bauer, Richard S. Robinson or Michael D. Grubbs shall cease
        to be employed by the Guarantor or the Borrower on a continuous and full
        time basis with power and responsibility to manage the material day to
        day operations of the Guarantor, the Borrower and their Subsidiaries; or

                (x) an event of default (however described) shall occur under
        any loan agreement or related loan document between LP Homes #1 and the
        Lender, RFC Construction Funding Corp. or any successor or assign
        thereof.

        Borrower acknowledges and agrees that all material non-monetary defaults
are conclusively deemed to be and are defaults which impair the security of the
Deed of Trust, and that Lender shall be entitled to exercise any appropriate
remedy, including without limitation, foreclosure of the Deed of Trust upon the
occurrence of any such material non-monetary default.

        Section 8.2. Remedies. Upon the occurrence of any Event of Default, the
following provisions shall apply:

                (a) if such event is an Event of Default specified in Section
        8.1(f), Lender's commitment to fund the Loan shall terminate and the
        indebtedness evidenced by the Note shall and any other amounts payable
        under this Loan Agreement and the other Loan Documents shall immediately
        and automatically become due and payable;

                (b) if such event is an Event of Default specified in Section
        8.1(v) or Section 8.1(w), the Lender's remedies shall be limited to, by
        notice to the Borrower, termination of its commitment to consider
        proposed projects for approval as Projects;

                (c) if such event is an Event of Default under Section 8.1(b),
        Section 8.1(c), Section 8.1(g), Section 8.1(m), Section 8.1(o), Section
        8.1(p), Section 8.1(q), Section 8.1(r) or Section 8.1(u) and such event
        relates solely to a single Project, the Lender's remedies shall be
        limited to the following remedies: (i) Lender may withhold one or more
        requested disbursements of proceeds of the Loan related to such Project
        (or to such portion of such Project as Lender shall determine in its
        sole discretion), whether such requested disbursement relates to the
        Acquisition and Development Amount for such Project or is requested
        under the ABF Program, (ii) by notice to the Borrower, Lender may
        unilaterally eliminate all Units of such Project (or such portion of the
        Units of such Project as Lender shall determine in its sole discretion)
        from the Borrowing Base Collateral for purposes of determining the
        Borrowing Base Value (although such Units will remain as collateral for
        the Loan until released from the lien of the Deed of Trust in accordance
        with the terms of the

                                      -64-
<PAGE>   70

        Loan Documents), (iii) by notice to the Borrower, Lender may suspend or
        terminate its commitment to make any further advance of proceeds of the
        Loan related to the acquisition of Land for such Project, Development
        Work for such Project or the construction of Homes of such Project (or
        related to the acquisition of such portion of Land for such Project,
        such portion of the Development Work for such Project or such portion of
        the construction of Homes for such Project as Lender shall determine in
        its sole discretion), and (iv) by notice to Borrower, Lender may declare
        that portion of the outstanding principal balance of the Loan related to
        the acquisition of Land and Development Work for such Project (or
        related to the acquisition of such portion of Land and Development Work
        for such Project as Lender shall determine in its sole discretion), and
        all interest thereon, to be due and payable, whereby such portion of the
        outstanding principal balance of the Loan related to the acquisition of
        the Land and the Development Work for such Project (or related to the
        acquisition of such portion of Land and Development Work for such
        Project as Lender shall determine in its sole discretion) shall become
        forthwith due and payable, without presentment, demand, protest or
        further notice of any kind, all of which are hereby expressly waived by
        Borrower; and

                (d) upon the occurrence of any Event of Default, other than an
        Event of Default expressly covered by Section 8.2(b) or Section 8.2(c),
        Lender may, at its option:

                        (1) by notice to Borrower, terminate its commitment to
                fund the Loan and declare the Loan, all interest thereon, and
                all other amounts payable under this Loan Agreement and the
                other Loan Documents to be due and payable, whereupon the Loan,
                all such interest and all such amounts shall become and be
                forthwith due and payable, without presentment, demand, protest
                or further notice of any kind, all of which are hereby expressly
                waived by Borrower; and/or

                        (2) exercise any and all rights and remedies available
                to Lender under the Loan Documents or at law or in equity,
                including, without limitation, the right to foreclose or
                otherwise realize upon all or any part of the collateral
                securing Borrower's obligations and to proceed against Borrower
                and/or any other Person liable with respect to the obligations
                under the Loan Documents; and/or

                        (3) immediately terminate any further advances of Loan
                funds hereunder, and from time to time apply all or any portion
                of the undisbursed Loan funds to payment of accrued interest
                under the Note and/or upon any other obligations of Borrower
                hereunder or under the Loan Documents.

                                      -65-
<PAGE>   71

                Lender may also withhold any one or more disbursements after a
                Potential Default occurs, unless Borrower cures or corrects the
                event or condition to the reasonable satisfaction of Lender
                prior to the occurrence of an Event of Default; and/or

                        (4) record a notice of default under the Deed of Trust
                and under the mortgages or deeds of trust, as applicable, which
                secure the indebtedness evidenced by the Note; and/or

                        (5) make any disbursements after the happening of any
                one or more Events of Default, without thereby waiving its right
                to demand payment of the Loan and all other sums owing to Lender
                with respect to the Loan Documents or any other rights or
                remedies described herein, and without liability to make any
                other or further disbursements, notwithstanding Lender's
                previous exercise of any such rights and remedies; and/or

                        (6) enter upon any or all Projects and with or without
                legal process take possession of such Project or Projects,
                remove Borrower and all employees, contractors and agents of
                Borrower therefrom, and complete or attempt to complete
                construction of the Development Work and/or the Homes related
                thereto in accordance with the Plans and Specifications
                therefor, with such changes, additions or corrections therein as
                Lender may from time to time and in its judgment deem
                appropriate, and market, sell or lease such Project or Projects,
                at the risk and expense of Borrower. Lender shall have the right
                at any time to discontinue any work commenced by it in respect
                to such Development Work and/or the Homes or to change the
                course of action undertaken by it and not be bound by any
                limitations or requirements of time whether set forth herein or
                otherwise. Lender shall have the right and power (but shall not
                be obligated) to assume any construction contract made by or on
                behalf of Borrower in any way relating to such Homes and to take
                over and use all or any part of the labor, materials, supplies
                and equipment contracted for, by or on behalf of Borrower
                whether or not previously incorporated into such Development
                Work and/or the Homes, in the discretion of Lender. Lender may
                also modify or terminate any contractual arrangements, subject
                to its right at any time to discontinue any work without
                liability. If Lender chooses to complete such Development Work
                and/or the Homes, Lender shall not assume any liability to
                Borrower or any other person for completing them, or for the
                manner or quality of their construction, and Borrower expressly
                waives any such liability. In connection with any work of
                construction undertaken by Lender pursuant to the provisions of
                this subsection (6), Lender may do any of the following:

                                      -66-
<PAGE>   72

                        (i) engage builders, contractors, subcontractors,
                architects, engineers, suppliers, inspectors, consultants and
                others for the purpose of furnishing labor, materials, equipment
                and other services in connection with the work of construction,
                for the protection or clearance of title to such Project or
                Projects, or for the protection of Lender's interests with
                respect thereto;

                        (ii) pay, settle or compromise all bills or claims which
                may become liens against such Project or Projects or which have
                been or may be incurred in any manner in connection with
                completing construction of such Development Work and/or the
                Homes or for the protection or clearance of title to such
                Project or Projects, or for the protection of Lender's interests
                with respect thereto;

                        (iii) prosecute and defend all actions and proceedings
                in connection with such Project or Projects;

                        (iv) execute, acknowledge and deliver all other
                instruments and documents in the name of Borrower that are
                necessary or desirable, to exercise Borrower's rights under
                contracts concerning such Project or Projects; and

                        (v) take such other action, including the employment of
                security personnel to protect such Development Work and such
                Homes, or refrain from taking action under this Loan Agreement
                as Lender may in its discretion determine from time to time.

        Borrower shall be liable to Lender for sums paid or incurred for
        completing construction of such Development Work and such Homes whether
        the same shall be paid or incurred pursuant to the provisions of this
        Section or otherwise, and all payments made or liabilities incurred by
        Lender hereunder of any kind whatsoever shall be paid by Borrower to
        Lender upon demand with interest at the rate set forth in the Note, and
        all of the foregoing shall be deemed and shall constitute disbursements
        under this Loan Agreement and be secured by the Project Security
        Documents. For the purpose of carrying out the provisions and exercising
        the rights, powers and privileges granted by this subsection (6),
        Borrower hereby unconditionally and irrevocably constitutes and appoints
        Lender its true and lawful attorney-in-fact to enter into such
        contracts, perform such acts and incur such liabilities as are referred
        to in said Section in the name and on behalf of Borrower. This power of
        attorney is coupled with an interest; and/or

                                      -67-
<PAGE>   73

                        (7) where substantial deviations from the Plans and
                Specifications for any Project appear which have not been
                approved as set forth herein, or where defective or
                unworkmanlike labor or materials are being used in the
                construction of the Development Work and/or the Homes of any
                Project, or upon receipt of knowledge of encroachments to which
                there has been no consent, or if Lender determines that the
                Development Work and/or the Homes of any Project are not being
                constructed in accordance with any governmental requirements or
                any covenants, conditions, restrictions, agreements or other
                matters, whether or not of record, affecting the condition of
                title to any Project, Lender shall have the right to immediately
                order stoppage of the construction and demand that such
                conditions be corrected. After issuance of such an order in
                writing, no further work shall be done on that portion of the
                Development Work and/or the Homes of such Project where there is
                a substantial deviation from the Plans and Specifications for
                such Project which has not been approved as set forth herein,
                where there is defective or unworkmanlike labor or materials, or
                which does not comply with governmental requirements or matters
                affecting title to such Project, without the prior written
                consent of Lender, which consent shall not be unreasonably
                withheld, unless and until said condition has been fully
                corrected; and/or

                        (8) foreclose on any security for the Loan without
                waiving its rights to proceed against any other security or
                other entities or individuals directly or indirectly responsible
                for repayment of the Loan, or waive any and all security for the
                Loan as Lender may in its discretion so determine, and pursue
                any such other remedy or remedies as Lender may so determine to
                be in its best interest; and/or

                        (9) if Lender spends its funds in exercising or
                enforcing any of its rights or remedies under the Loan
                Documents, the amount of funds spent shall be payable to Lender
                upon demand, together with interest at the rate applicable to
                the principal balance of the Note, from the date such funds were
                spent until repaid. Such amounts shall be deemed secured by the
                Deed of Trust and other applicable Project Security Documents.

        Whether or not Lender elects to employ any or all of the remedies
available to it in connection with an Event of Default, Lender shall not be
liable for (i) the construction of or failure to construct, complete or protect
the Development Work and/or the Homes of any Project, (ii) the payment of any
expense incurred in connection with the exercise of any remedy available to
Lender or the construction or completion of the Development Work and/or the
Homes of any Project, or (iii) the performance or non-performance of any other
obligation of Borrower or any other Loan Party.

                                      -68-
<PAGE>   74

        All remedies of Lender provided for herein and in any other Loan
Document are cumulative and shall be in addition to all other rights and
remedies provided by law or in equity. The exercise of any right or remedy by
Lender hereunder or under any other Loan Document shall not in any way
constitute a cure or waiver of any Event of Default or any Potential Default
hereunder or under any other Loan Document or invalidate any act done pursuant
to any notice of default, or prejudice Lender in the exercise of any of its
rights hereunder or under any other Loan Documents. If Lender exercises any of
the rights or remedies provided in this Article VIII, that exercise shall not
make Lender, or cause Lender to be deemed to be, a partner or joint venturer of
Borrower. No disbursement of Loan funds by Lender shall cure any Event of
Default or Potential Default, unless Lender agrees otherwise in writing in each
instance.

        Section 8.3. Authorization to Apply Assets to Payment of Loan. The
Borrower hereby authorizes the Lender, following the occurrence of an Event of
Default, without notice or demand, to apply any property, balances, credits,
accounts or moneys of the Borrower, the Guarantor or any Affiliate of the
Borrower or the Guarantor then in the possession of Lender, or standing to the
credit of the Borrower, the Guarantor or any Affiliate of the Borrower or the
Guarantor, to the payment of the Loan.

                                   ARTICLE IX
                                  MISCELLANEOUS

        Section 9.1. Successors and Assigns; No Assignment by Borrower. The
provisions of this Loan Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, provided that
Borrower may not assign or transfer any of its rights or obligations under this
Loan Agreement or any of the other Loan Documents without the prior written
consent of Lender.

        Section 9.2. Notices. All notices, requests and demands to be made
hereunder to the parties hereto shall be in writing (at the addresses set forth
below) and shall be given by any of the following means:

                (a) personal delivery;

                (b) reputable overnight courier service;

                (c) electronic communication, whether by telex, telegram or
        telecopying (if confirmed in writing sent by registered or certified,
        first class mail, return receipt requested); or

                (d) registered or certified, first class mail, return receipt
        requested.

                                      -69-
<PAGE>   75

Any notice, demand or request sent pursuant to the terms of this Loan Agreement
shall be deemed received (i) if sent pursuant subsection (a), upon such personal
delivery, (ii) if sent pursuant to subsection (b), on the next Business Day
following delivery to the courier service, (iii) if sent pursuant to subsection
(c), upon dispatch if such dispatch occurs between the hours of 9:00 a.m. and
5:00 p.m. (recipient's time zone) on a Business Day, and if such dispatch occurs
other than during such hours, on the next Business Day following dispatch and
(iv) if sent pursuant to subsection (d), three (3) days following deposit in the
mail.

        The addresses for notices are as follows:

               To Lender:           Residential Funding Corporation
                                    8400 Normandale Lake Boulevard, Suite 600
                                    Minneapolis, Minnesota  55437
                                    Attention:     Managing Director
                                                   Construction Finance
                                    Telephone No.:  (612) 857-6921
                                    Telecopier No.:  (612) 857-6960

               With a copy to:      Residential Funding Corporation
                                    8400 Normandale Lake Boulevard, Suite 600
                                    Minneapolis, Minnesota  55437
                                    Attention:  General Counsel,
                                                Construction Finance
                                    Telephone No.:  (612) 857-6911
                                    Telecopier No.:  (612) 857-6958

               To Borrower:         William Lyon Homes, Inc.
                                    4490 Von Karman Avenue
                                    Newport Beach, California 92660
                                    Attention:  Michael D. Grubbs,
                                                Senior Vice President
                                                and Chief Financial Officer
                                                Richard S. Robinson,
                                                Senior Vice President
                                    Telephone No.: (949) 476-5475
                                    Telecopier No.: (949) 252-2575

                                      -70-
<PAGE>   76

               With a copy to:      Irell & Manella LLP
                                    840 Newport Center Drive
                                    Suite 500
                                    Newport Beach, California  92660-6324
                                    Attention:     Roy S. Geiger
                                    Telephone No.: (949) 760-5299
                                    Telecopier No.: (949) 760-5200

Such addresses may be changed by notice to the other parties given in the same
manner as provided above.

        Notwithstanding the foregoing, all requests for disbursements of the
Loan pursuant to Article II above shall be deemed received only upon actual
receipt, and such requests for disbursement shall be given only to the Lender's
primary addressee.

        Section 9.3. Changes, Waivers, Discharge and Modifications in Writing.
No provision of this Loan Agreement or any of the other Loan Documents may be
changed, waived, discharged or modified except by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
modification is sought.

        Section 9.4. No Waiver; Remedies Cumulative. No disbursement of proceeds
of the Loan shall constitute a waiver of any conditions to Lender's obligation
to make further disbursements nor, in the event Borrower is unable to satisfy
any such conditions, shall any such waiver have the effect of precluding Lender
from thereafter declaring such inability to constitute an Event of Default
(however described) under this Loan Agreement or any other Loan Document. No
failure or delay on the part of Lender in the exercise of any power, right or
privilege hereunder or under this Loan Agreement or any other Loan Document
shall impair such power, right or privilege or be construed to be a waiver of
any Event of Default (however described) or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof, or of any other right, power or privilege.
Except as specifically provided herein, all rights and remedies existing under
this Loan Agreement or any other Loan Document are cumulative to and not
exclusive of any rights or remedies otherwise available.

        Section 9.5. Costs, Expenses and Taxes. Borrower agrees to pay the
costs, and all expenses incurred by Lender in connection with the preparation,
execution, delivery, administration, modification and amendment of this Loan
Agreement, the other Loan Documents and any other documents to be delivered
hereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for Lender with respect thereto and with respect to advising
Lender as to its rights and responsibilities under this Loan Agreement and the
other Loan Documents. Borrower further agrees to pay all costs and

                                      -71-
<PAGE>   77

expenses of Lender (including, without limitation, reasonable counsel fees and
expenses, court costs and all other litigation expenses, including, but not
limited to, reasonable expert witness fees, document copying expenses, exhibit
preparation, courier expenses, postage expenses and communication expenses) in
connection with the enforcement of this Loan Agreement, the other Loan Documents
and any other documents delivered hereunder, including, without limitation,
costs and expenses incurred in connection with any bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceeding, or any
refinancing or restructuring in the nature of a "workout" of the Loan Documents
and any other documents delivered by Borrower related thereto. In addition,
Borrower shall pay any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Loan Agreement,
the other Loan Documents and the other documents to be delivered hereunder, and
agrees to hold Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
Payment from the Borrower of amounts due pursuant to this Section 9.5 shall be
due ten (10) days after it has received from the Lender written notice of the
nature of the item for which payment is required and the amount due, other than
amounts due pursuant to the last sentence of the previous paragraph which
amounts shall be due on demand.

        Section 9.6. Disclaimer by Lender; No Joint Venture. Borrower
acknowledges, understands and agrees as follows:

                (a) The relationship between Borrower and Lender is, and shall
        at all times remain, solely that of borrower and lender, and Lender
        neither undertakes nor assumes any responsibility for or duty to
        Borrower to select, review, inspect, supervise, pass judgment upon or
        inform Borrower of the quality, adequacy or suitability of any matter or
        thing submitted to Lender for its approval.

                (b) Lender owes no duty of care to protect Borrower or any other
        Person against negligent, faulty, inadequate or defective building or
        construction.

                (c) Borrower is not and shall not be an agent of Lender for any
        purpose. Lender is not a joint venture partner with Borrower in any
        manner whatsoever. Approvals granted by Lender for any matters covered
        under this Loan Agreement shall be narrowly construed to cover only the
        parties and facts identified in any such approval.

        Section 9.7. Indemnification. Borrower agrees to protect, indemnify,
defend and hold harmless each Indemnified Party from and against any and all
claims, damages, losses, liabilities, obligations, penalties, actions,
judgments, suits, costs, disbursements and expenses (including, without
limitation, reasonable fees and expenses of counsel and consultants and
allocated costs of internal counsel) that may be incurred by or asserted against
any

                                      -72-
<PAGE>   78

Indemnified Party, in each case arising out of or in connection with or related
to any of the following:

                (a) the Loan, this Loan Agreement or any other Loan Document,

                (b) the use of funds advanced under the Loan Documents, or

                (c) the failure of Borrower or any other party (other than
        Lender) to comply fully with any and all laws applicable to it,

whether or not an Indemnified Party is a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claims, damages, losses, liabilities, obligations, penalties, actions,
judgments, suits, costs, obligations, penalties, disbursements and expenses are
found in a final non-appealable judgment by a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of the Indemnified
Party. Notwithstanding the foregoing, nothing in this Section 9.7 shall be
construed as an indemnification by Borrower of any claims, damages, losses,
liabilities, obligations, penalties, actions, judgments, suits, costs,
disbursements and expenses related to Hazardous Materials or Hazardous Materials
Laws, which indemnification obligation is separately and exclusively set forth
in the Environmental Indemnity. Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of Borrower
contained in this Section 9.7 shall survive the termination of this Loan
Agreement and the other Loan Documents and the payment in full of the Loan.

        Section 9.8. Consultants. Borrower shall pay any and all valid claims of
any consultants, advisors, brokers or agents whom it has retained or with whom
it has initiated contact with respect to the Loan who claims a right to any fees
in connection with the Loan, and shall indemnify, defend and hold Lender
harmless from such claims, whether or not they are valid.

        Section 9.9. Governing Law. This Loan Agreement shall be governed by and
construed in accordance with the laws of the State of California.

        Section 9.10. Titles and Headings. The titles and headings of sections
of this Loan Agreement are intended for convenience only and shall not in any
way affect the meaning or construction of any provision of this Loan Agreement.

        Section 9.11. Counterparts. This Loan Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same agreement with the same effect as if all
parties had signed the same signature page.

                                      -73-
<PAGE>   79

        Section 9.12. Lender's Right With Respect to the Loan. Notwithstanding
any provision to the contrary contained in this Loan Agreement or any other Loan
Document, the Lender may at any time sell, assign, grant or transfer to any
Person all or a portion of its interest in or rights with respect to the Loan
and in all or part of the obligations of the Borrower and any other obligated
party under the Loan Documents.

        Section 9.13. Confidentiality. Borrower and Lender shall mutually agree
on the contents of any press release, public announcement or other public
disclosure regarding this Loan Agreement and the transactions contemplated
hereunder to be made following the mutual execution and delivery of this Loan
Agreement; provided that Lender may disclose the terms hereof and give copies of
the Loan Documents to assignees and participants and to prospective assignees
and participants. If either party fails to respond to the other party in writing
with either an approval or a disapproval within five (5) Business Days of a
party's receipt of the other party's request for consent or approval as
expressly contemplated pursuant to this Section 9.13, which request shall have
been sent to the other party's notice addressees in the manner set forth in
Section 9.2, then such consent or approval shall be deemed to have been given,
provided that such five (5) Business Day period shall not commence to run unless
and until the other party shall have received all information, materials,
documents and other matters required to be submitted to it hereunder with
respect to such consent or approval and all other information, materials,
documents and other matters reasonably essential to its decision process.

        Section 9.14. Time is of the Essence. Time is of the essence of this
Loan Agreement.

        Section 9.15. No Third Parties Benefitted. This Loan Agreement is made
and entered into for the sole protection and legal benefit of Borrower, Lender,
and their permitted successors and assigns, and no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with this Loan Agreement or any of the other Loan
Documents. Lender shall not have any obligation to any Person not a party to
this Loan Agreement or the other Loan Documents.

        Section 9.16. Severability. The illegality or unenforceability of any
provision of this Loan Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of this Loan Agreement or any instrument or
agreement required hereunder.

        Section 9.17. Jurisdiction. Any legal action or proceeding with respect
to this Loan Agreement or any of the other Loan Documents may be brought in the
courts of the State of California or of the United States for the District of
California, and by execution and delivery of this Loan Agreement, each of
Borrower and Lender consents, for itself and in respect of its property, to the
jurisdiction of those courts. Each of Borrower and Lender irrevocably

                                      -74-
<PAGE>   80

waives any objection, including any objection to the laying of venue or based on
the grounds of forum non conveniens which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect to this
Loan Agreement or any document related hereto. Borrower and Lender each waive
any personal service of any summons, complaint or other process, which may be
made by any other means permitted by California law. Nothing in this Section
9.17 shall affect the right of Lender to serve legal process in any other manner
permitted by law or limit the right of Lender to bring any action or proceeding
against Borrower or its property in the courts of any other jurisdiction.

        Section 9.18. Waiver of Jury Trial. BORROWER AND LENDER WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OR ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND
LENDER AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS LOAN AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS.

        Section 9.19. Interpretation. This Loan Agreement and the other Loan
Documents shall not be construed against Lender merely because of Lender's
involvement in the preparation of such documents and agreements.

        Section 9.20. Entire Agreement. This Loan Agreement, together with the
other Loan Documents, embodies the entire agreement and understanding among
Borrower and Lender and supersedes all prior or contemporaneous agreements and
understandings of such persons, verbal or written, relating to the subject
matter hereof and thereof except for any prior arrangements made with respect to
the payment by Borrower of (or any indemnification for) any fees, costs or
expenses payable to or incurred (or to be incurred) by or on behalf of Lender.

                                      -75-
<PAGE>   81

        IN WITNESS WHEREOF, Lender and Borrower have caused this Loan Agreement
to be duly executed and delivered as of the date first above written.

                                         BORROWER:

                                         WILLIAM LYON HOMES, INC.
                                         a California corporation

                                         By: /s/ RICHARD S. ROBINSON
                                             ----------------------------------

                                         Printed Name: Richard S. Robinson
                                                       ------------------------

                                         Title:  Senior Vice President
                                                 ------------------------------

                                         And

                                         By: /s/  MICHAEL D. GRUBBS
                                             ----------------------------------

                                         Printed Name:  Michael D. Grubbs
                                             ----------------------------------

                                         Title:  Senior Vice President

                                         LENDER:

                                         RESIDENTIAL FUNDING CORPORATION,
                                         a Delaware corporation

                                         By: /s/  PETER G. FISCHER
                                             ----------------------------------

                                         Printed Name:  Peter G. Fischer
                                                        -----------------------

                                         Title:  Director
                                                 ------------------------------

                                      -76-
<PAGE>   82

                           EXHIBIT A TO LOAN AGREEMENT

                       CONDITIONS TO OBLIGATION OF LENDER TO MAKE LOAN

        The obligation of the Lender to make the Loan is conditioned upon the
Lender having received, in form and substance satisfactory to Lender, each of
the following:

        1. Executed originals of this Loan Agreement, the Note and the Guaranty.

        2. A favorable opinion from counsel for Borrower and Guarantor with
respect to the following:

                (a) Each of the Borrower and the Guarantor is duly organized,
        validly existing and in good standing as a corporation under the laws of
        its state of incorporation, is duly qualified to do business and in good
        standing in every jurisdiction where its business or properties require
        such qualification and has all requisite power and authority to own and
        operate its properties and to carry on its business as now conducted.

                (b) Each of the Borrower and the Guarantor has the power and
        authority to execute and deliver, and perform its obligations under, the
        Loan Documents to which it is a party.

                (c) The execution, delivery and performance by Borrower and the
        Guarantor of the Loan Documents to which it is a party have been duly
        authorized by all necessary action and do not and will not (i)
        contravene the Articles of Incorporation or charter documents of the
        Borrower or the Guarantor; (ii) contravene any law, rule or regulation
        or, to such counsel's knowledge (after due investigation), any order,
        writ, judgment, injunction or decree or any contractual restriction
        binding on or affecting the Borrower or the Guarantor; (iii) require any
        approval or consent of any partner or any other Person other than
        approvals or consents which have been previously obtained and disclosed
        in writing to Lender; (iv) to such counsel's knowledge (after due
        investigation), result in a breach of or constitute a default under any
        indenture or loan or credit agreement or any other agreement, lease or
        instrument to which the Borrower or the Guarantor is a party or by which
        the Borrower or the Guarantor or any of the properties of the Borrower
        or the Guarantor may be bound or affected; or (v) to such counsel's
        knowledge (after due investigation), result in, or require the creation
        or imposition of, any lien of any nature (other than the contemplated
        liens) upon or with respect to any of the properties now owned or
        hereafter acquired by the Borrower or the Guarantor; and, to such
        counsel's knowledge, neither the Borrower nor the Guarantor is in
        default under any such law, rule, regulation, order, writ, judgment,
        injunction, decree or contractual restriction or any such indenture,
        agreement, lease or instrument.

                                      A-1
<PAGE>   83

                (d) The Loan Agreement and the Note have been duly executed and
        delivered and constitute the legal, valid and binding obligations of the
        Borrower enforceable in accordance with their respective terms.

                (e) The Guaranty has been duly executed and delivered and
        constitutes the legal, valid and binding obligation of the Guarantor
        enforceable in accordance with its terms.

                (f) No authorization or approval or other action by, and no
        notice to or filing with, any governmental authority or regulatory body
        is required for the due execution, delivery and performance by the
        Borrower of the Loan Agreement or the Note or any other document
        executed pursuant thereto or in connection therewith or by the Guarantor
        of the Guaranty or any other document executed pursuant thereto or in
        connection therewith.

                (g) To such counsel's knowledge (after due investigation), there
        is no pending or threatened action, suit, proceeding or arbitration
        against or affecting the Borrower, the Guarantor or any of their
        Affiliates before any court, governmental agency or arbitrator which, if
        adversely determined, would result in a Material Adverse Change.

                (h) The amounts received or to be received by Lender under this
        Loan Agreement and the other Loan Documents will not constitute usurious
        or otherwise unlawful interest.

                (i) Such other opinions as Lender shall reasonably request.

        3. Copies of the Articles of Incorporation, By-Laws and Certificates of
Good Standing for the Borrower and the Guarantor.

        4. Copies of the resolutions adopted by the Borrower authorizing the
Borrower to obligate itself with respect to the Loan and authorizing certain
officers to execute and deliver this Loan Agreement and the other Loan Documents
to which the Borrower is a party.

        5. Copies of the resolutions adopted by the Guarantor authorizing the
Guarantor to obligate itself with respect to the Guaranty and authorizing
certain officers to execute and deliver the Guaranty and any other Loan
Documents to which the Guarantor is a party.

        6. Payment of all costs and expenses incurred by Lender, including,
without limitation, the fees and costs of its legal counsel, in connection with
the preparation, execution and delivery of this Loan Agreement, the Note, the
Guaranty and all Project Documents executed and delivered as of the date of the
Loan Agreement.

                                      A-2
<PAGE>   84

        7. Evidence satisfactory to the Lender that Borrower has approved the
forms of the Project Documents approved by Lender.

                                      A-3
<PAGE>   85

                           EXHIBIT B TO LOAN AGREEMENT

                              PROJECT REQUIREMENTS

--------------------------------------------------------------------------------
GENERAL                     A proposed project may utilize proceeds of the Loan
                            for any of the following: (i) acquisition of the
                            Land, Development Work and Homes, (ii) acquisition
                            of the Land and Development Work, (iii) acquisition
                            of Finished Lots and Homes or (iv) Homes.

                            A proposed project may be one of several projects
                            anticipated to be developed by the Borrower in a
                            single contiguous development.

--------------------------------------------------------------------------------
ENTITLEMENTS                All proposed projects must be suitable for and
                            substantially entitled for the commencement of the
                            Development Work and/or the Homes, as applicable,
                            including the relative on and off-site improvements.
                            Unless otherwise agreed to by the Lender, the Land
                            must be fully entitled, and the Borrower must be
                            able to commence development of the Project, as
                            contemplated by the Project Underwriting Documents,
                            upon payment of fees to the governing municipality.

--------------------------------------------------------------------------------
GEOGRAPHIC REGION           Projects must be located in the State of California,
                            the State of Arizona or the State of Nevada.

--------------------------------------------------------------------------------
COMMENCEMENT OF WORK        The Development Work or the Homes, as applicable,
                            for a Project must commence within six (6) months of
                            the date of the Project Commitment for such Project.

--------------------------------------------------------------------------------
ACQUISITION AND             The Acquisition and Development Amount for the
DEVELOPMENT AMOUNT          acquisition of the Land and the Development Work
                            related to a Project shall be set forth in the
                            Project Commitment for such Project.

--------------------------------------------------------------------------------
EQUITY                      The equity requirement from the Borrower will be
                            specified in the applicable Project Commitment.

--------------------------------------------------------------------------------
ACQUISITION AND             All Projects.
DEVELOPMENT MATURITY
DATE                        All outstanding borrowings of the Loan related to
                            the acquisition of the Land and the Development Work
                            for a Project shall be due and payable on the
                            Acquisition and Development Maturity Date.

                            The Acquisition and Development Maturity Date shall
                            not exceed the earlier of (i) the date which is
                            specified in the Project Commitment as the
                            Acquisition and Development Maturity Date, or (ii)
                            the Maturity Date.
--------------------------------------------------------------------------------

                                      B-1
<PAGE>   86

--------------------------------------------------------------------------------
PRICE POINT                 The maximum sales price for any Unit in a Project
                            shall not exceed $500,000.

--------------------------------------------------------------------------------
PROJECT SIZE LIMITATIONS    The size of each Project shall be limited to the
                            number of Units which can be absorbed prior to the
                            Acquisition and Development Maturity Date, subject
                            to the requirement that the size of a Project may
                            not exceed 150 Units.

--------------------------------------------------------------------------------
START LIMITATIONS           Construction of Homes within a Project will be
                            limited to the following:

                                1. an unlimited number of Sold Units;

                                2. a number of Model Units not to exceed five
                                (5) Model Units per Project; and

                                3. a number of Spec Units equaling up to three
                                (3) months of unit absorption (based upon the
                                Appraisal required to be delivered as part of
                                the Project Underwriting Documents), except on
                                the 1st phase of the Project, a number of Spec
                                Units not to exceed twenty-five (25) Spec Units;

--------------------------------------------------------------------------------
ADVANCE RATES FOR THE       The Advance Rates for the acquisition of Land and
ACQUISITION OF LAND AND     the Development Work related to a Project shall be
THE DEVELOPMENT WORK        as follows:
RELATED TO A PROJECT
                            Conventional Project:

                            Proceeds of the Loan may be advanced to fund the
                            following:

                                        (1) the lesser of 70% of the cost of the
                                Land or 70% of the Value of the Land; plus

                                        (2) 100% of the costs of the Development
                                Work,

                            provided however that the Acquisition and
                            Development Amount shall not exceed the lesser of
                            70% of the Value of the Land or 85% of the cost of
                            Finished Lots.

                            High Advance Rate Project:

                            Proceeds of the Loan may be advanced to fund the
                            following:

                                        (1) 85% of the acquisition price of the
                                Land; plus

                                        (2) 100% of the costs of the Development
                                Work,

                            provided however that the Acquisition and
                            Development Amount shall not exceed ninety percent
                            (90%) of the Value of the Land.
--------------------------------------------------------------------------------

                                      B-2
<PAGE>   87

--------------------------------------------------------------------------------
BORROWING BASE VALUE        The Borrowing Base Value for a Unit included in the
FOR UNITS INCLUDED          ABF Program shall be that amount which is equal to
IN THE ABF PROGRAM          the aggregate of (i) the Borrowing Base Home Amount
                            for such Unit multiplied by the Percentage Completed
                            for such Unit; provided, however, that Excluded
                            Units shall be excluded in determining the Borrowing
                            Base Value.

                            "Applicable ABF Advance Rate" shall mean (i) with
                            respect to a Unit in a Conventional Project, (A) 75%
                            of the Value of such Unit if such Unit is a Spec
                            Unit, or (B) 80% of the Value of such Unit if such
                            Unit is a Sold Unit or a Model Unit, or (ii) with
                            respect to a Unit in a High Advance Rate Project,
                            (A) 80% of the Value of such Unit if such Unit is a
                            Model Unit or a Spec Unit, or (B) 85% of the Value
                            of such Unit if such Unit is a Sold Unit.

                            "Borrowing Base Home Amount" shall mean the amount
                            which shall be allocated to each Home included in
                            the ABF Program for purposes of determining the
                            Borrowing Base Value, which amount shall be equal to
                            that amount which is determined by multiplying the
                            Applicable ABF Advance Rate times the Value of the
                            Unit, and subtracting therefrom the total amount of
                            the Loan disbursed for the land acquisition and
                            budgeted for the Development Work related to such
                            Unit.

                            "Percentage Completed" shall mean, with respect to a
                            Home, the percentage of the construction of the Home
                            which has been completed, which such percentage
                            shall be based upon the percentages in the Staged
                            Draw Schedule and shall be set forth in the most
                            recent WIP Report.
--------------------------------------------------------------------------------

                                      B-3
<PAGE>   88

                           EXHIBIT C TO LOAN AGREEMENT

                         PROJECT UNDERWRITING DOCUMENTS

A.      GENERAL PROJECT INFORMATION:

        1.      Summary description of proposed project.

        2.      Designation of proposed project as a Conventional Project or a
                High Advance Rate Project.

        3.      Purchase contract for property.

        4.      Cash flow analysis, which shall include the proposed Budget
                (including breakdown between Land acquisition costs, costs of
                Development Work and costs of Homes) and Construction Progress
                Schedule for the proposed project.

        5.      Market report supporting absorption rates and information on
                home product.

        6.      Appraisal Report setting forth (i) a Value for the proposed
                project equal to or greater than that required by the Project
                Requirements and (ii) a value for each model type within the
                proposed project.

        7.      The map or plat relating to such project.

        8.      Preliminary title report, including copies of all documents
                relating to exceptions.

B.      CONSTRUCTION INFORMATION AND DOCUMENTS:

        1.      Site plan.

        2.      Evidence of site plan approval and proper zoning.

        3.      Plans and Specifications for each Home design.

        4.      ALTA survey, if required by Lender.

        5.      Phase I environmental report.

        6.      Soils report.

        7.      Letters regarding utility availability.

                                      C-1
<PAGE>   89

        8.      Evidence of the Borrower's ability to satisfy the conditions of
                the site plan approval.

C.      PROJECT LEGAL DOCUMENTS

        1.      Proposed or recorded CC&R's.

        2.      If a condominium, a copy of the homeowner's association articles
                of incorporation, by-laws and budget.

                                      C-2
<PAGE>   90

                           EXHIBIT D TO LOAN AGREEMENT

                           FORM OF PROJECT COMMITMENT

FIELD(Commitment Date)

William Lyon Homes, Inc.
4490 Von Karman Avenue
Newport Beach, California  92660

Attention:    Michael D. Grubbs, Senior Vice President and
              Chief Financial Officer
              Richard S. Robinson, Senior Vice President

        RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, its successors
and assigns (the "Lender") is pleased to confirm that the Lender agrees to
advance, in accordance with and pursuant to the Loan Agreement referenced below,
proceeds of the loan which the Lender made to WILLIAM LYON HOMES, INC., a
California corporation (the "Borrower") with respect to the Project specified
below, substantially upon the terms outlined below. Capitalized terms used
herein shall have the meanings assigned those terms in the Loan Agreement dated
as of September 25, 2000, between the Borrower and the Lender.

--------------------------------------------------------------------------------
GENERAL

--------------------------------------------------------------------------------
PROJECT                     PROJECT NAME

--------------------------------------------------------------------------------
PROJECT LOCATION            PROJECT LOCATION

--------------------------------------------------------------------------------
TERMS OF THE LOAN APPLICABLE TO THIS PROJECT

--------------------------------------------------------------------------------
ACQUISITION AND             The Acquisition and Development Amount, which is
DEVELOPMENT AMOUNT          the amount of the Loan reserved to finance and/or
                            refinance the acquisition and development of the
                            Finished Lots in the Project $ACQUISITION AND
                            DEVELOPMENT AMOUNT.

--------------------------------------------------------------------------------
EQUITY                      AMOUNT[$] AND TIMING

--------------------------------------------------------------------------------
TYPE OF PROJECT             HIGH ADVANCE RATE OR CONVENTIONAL
--------------------------------------------------------------------------------

                                      D-1
<PAGE>   91

--------------------------------------------------------------------------------
KEYBOARD(Including Only     The Additional Loan Fee the Borrower will be
For High Advance Rate       required to pay to Lender as a condition precedent
Project is Projects)        to the Lender's release of its lien on any Lot or
ADDITIONAL LOAN FEE         Unit located in the equal to the following:

                                (a) in the event the Lender has advanced
                                proceeds of the Loan to finance the acquisition
                                of the Land and the Development Work and the
                                Borrower finances the construction of a Home on
                                a Lot from a source other than the Lender or
                                sells a Lot to another builder, an amount equal
                                to five percent (5%) of the Value of such Lot;
                                and

                                (b) in the event the Lender has advanced
                                proceeds of the Loan to finance the Homes,
                                regardless of the completion status of the Unit,
                                an amount equal to one and one-half percent
                                (1.50%) of the Gross Selling Price of such Unit.

--------------------------------------------------------------------------------
INTEREST RATE               The Loan shall bear interest from the date of
                            disbursement on the unpaid principal at the per
                            annum rate of the Prime Rate plus three-eighths of
                            one percent (.375%).

--------------------------------------------------------------------------------
KEYBOARD(Select Type of     Proceeds of the Loan up to the Acquisition and
Project) ADVANCE RATE       Development Amount may be advanced to fund the
FOR LAND ACQUISITION AND    following:
DEVELOPMENT WORK --
High Advance Rate Project

                                (1) to acquire the Land, 85% of the acquisition
                                price of the Land; plus

                                (2) to fund Development Work, 100% of the costs
                                of the Development Work,

                             provided however that the Acquisition and
                             Development Amount shall not exceed ninety percent
                             (90%) of the Value of the Land.
--------------------------------------------------------------------------------

                                      D-2
<PAGE>   92

--------------------------------------------------------------------------------
ADVANCE RATE FOR LAND       Proceeds of the Loan up to the Acquisition and
ACQUISITION AND             Development Amount may be advanced to fund the
DEVELOPMENT WORK --         following:
Conventional Project

                                (1) to acquire the Land, the lesser of 70% of
                                the cost of the Land or 70% of the Value of the
                                Land; plus

                                (2) to fund Development Work, 100% of the costs
                                of the Development Work,

                            provided however that the Acquisition and
                            Development Amount shall not exceed the lesser of
                            seventy percent (70%) of the Value of the Land or
                            85% of the cost of Finished Lots.

--------------------------------------------------------------------------------
VALUE OF LAND               KEYBOARD (INSERT VALUES)

                            Value of Land

                            The value of the Land shall be $VALUE OF LAND, which
                            value was determined based on the retail value of
                            the Land after completion of all Development Work.

                            KEYBOARD (HIGH ADVANCE RATE PROJECTS ONLY)
                            Value of Finished Lots:

                            For purposes of determining the Additional Loan Fee
                            payable in the event the Lender has advanced
                            proceeds of the Loan to finance the acquisition of
                            the Land and the Development Work, and the Borrower
                            finances the construction of a Home from a source
                            other than the Lender or sells a Lot to another
                            builder, the value of the Lots shall be determined
                            based on the "as if complete" value of the Lots
                            after completion of all Development Work.

--------------------------------------------------------------------------------
APPLICABLE ACQUISITION      The Applicable Acquisition and Development Principal
AND DEVELOPMENT             Repayment Percentage for the Project is APPLICABLE
PRINCIPAL REPAYMENT         PERCENTAGE (____________%).
PERCENTAGE
--------------------------------------------------------------------------------

                                      D-3
<PAGE>   93

--------------------------------------------------------------------------------
ABF PROGRAM                 Proceeds of the Loan may be advanced to fund the
                            construction of Homes in the Project under the ABF
                            Program pursuant to the terms of the Loan Agreement.

--------------------------------------------------------------------------------
BORROWING BASE VALUE
UNDER THE ABF PROGRAM       The Borrowing Base Value of a Unit included in the
                            ABF Program shall be that amount which is equal to
                            the aggregate of (i) the Borrowing Base Home Amount
                            for such Unit multiplied by the Percentage Completed
                            for such Unit; provided, however, that Excluded
                            Units shall be excluded in determining the Borrowing
                            Base Value.

                            "Borrowing Base Home Amount" shall mean the amount
                            which shall be allocated to each Home for purposes
                            of determining the Borrowing Base Value, which
                            amount shall be equal to that amount which is
                            determined by multiplying the Applicable ABF Advance
                            Rate times the Value of the Unit, and subtracting
                            therefrom the total amount of the Loan disbursed for
                            the land acquisition and budgeted for the
                            Development Work related to such Unit.

                            "Percentage Completed" shall mean, with respect to a
                            Home, the percentage of the construction of the Home
                            which has been completed, which such percentage
                            shall be based upon the percentages in the Staged
                            Draw Schedule and shall be set forth in the most
                            recent WIP Report.

                            KEYBOARD FOR CONVENTIONAL PROJECTS:

                            "Applicable ABF Advance Rate" shall mean (A) 75% of
                            the Value of such Unit if such Unit is a Spec Unit,
                            or (B) 80% of the Value of such Unit if such Unit is
                            a Sold Unit or a Model Unit.

                            FOR HIGH ADVANCE RATE PROJECTS:

                            "Applicable ABF Advance Rate" shall mean (A) 80% of
                            the Value of such Unit if such Unit is a Model Unit
                            or a Spec Unit, or (B) 85% of the Value of such Unit
                            if such Unit is a Sold Unit.
--------------------------------------------------------------------------------

                                      D-4
<PAGE>   94

--------------------------------------------------------------------------------
VALUE OF UNITS              Sold Units:

                            The value of any Sold Unit, whether or not the Home
                            has been commenced or completed, shall be determined
                            based upon the sales price set forth in the Sales
                            Agreement.

                            Model Units and Spec Units:

                            The values of the Model Units and Spec Units,
                            whether or not the Home has been commenced or
                            completed, shall be determined, based upon the
                            "as-completed" "full retail" value of the base value
                            of the applicable Unit, exclusive of options,
                            extras, upgrades and lot/location premiums, which
                            shall be as follows:

<TABLE>
<CAPTION>
                            Base Model                         Value
                            ----------                         -----
<S>                                                           <C>
                            [Model #MODEL 1]                  $VALUE 1

                            [Model #MODEL 2]                  $VALUE 2

                            [Model #MODEL 3]                  $VALUE 3
</TABLE>

--------------------------------------------------------------------------------
ADDITIONAL LIMITATIONS
ON DISBURSEMENTS            FIRST:  KEYBOARD(SPECIFY)

                            SECOND:  KEYBOARD(SPECIFY)

                            ADDITIONAL:  KEYBOARD(SPECIFY)

--------------------------------------------------------------------------------
MATURITY DATE               The Maturity Date is the first to occur of (i)
                            September 25, 2004, which is the date four (4) years
                            from the date of the Loan Agreement (as such date
                            may be extended in writing by Lender and Borrower
                            from time to time), or (ii) the date on which the
                            Loan is required to be repaid pursuant to Section
                            8.2 of the Loan Agreement.

--------------------------------------------------------------------------------
ACQUISITION AND
DEVELOPMENT MATURITY DATE   The first to occur of (i) KEYBOARD(ACQUISITION AND
                            DEVELOPMENT MATURITY DATE), which is the date
                            KEYBOARD(# MONTHS) months from the date of the
                            Project Documents for such Project (as such date may
                            be extended in writing by the Lender and the
                            Borrower from time to time), or (ii) the Maturity
                            Date.
--------------------------------------------------------------------------------

                                      D-5
<PAGE>   95

--------------------------------------------------------------------------------
KEYBOARD(DELETE IF NOT      KEYBOARD(SPECIFY INFORMATION)
APPLICABLE)
LETTER OF CREDIT

--------------------------------------------------------------------------------
PROJECT INFORMATION

--------------------------------------------------------------------------------
DESCRIPTION OF PROJECT      ACQUISITION OF LAND: Acquisition of land for a UNIT
                            NO [WDS/#] lot residential subdivision located
                            LOCATION WITHIN STATE in the State of PROJECT STATE.

--------------------------------------------------------------------------------
                            DEVELOPMENT WORK: The work of development to be
                            performed on or with respect to the Land (including,
                            without limitation, the installation of utilities,
                            roads and all related on-site and off-site
                            improvements) in connection with the development of
                            the Land for the subsequent construction thereon of
                            Homes, all of which work and construction shall be
                            completed by or on behalf of the Borrower in
                            accordance with the Plans and Specifications, but
                            shall not include the Homes.

--------------------------------------------------------------------------------
                            HOMES: The Homes which are to be constructed on or
                            with respect to the Land by or on behalf of the
                            Borrower in accordance with the Plans and
                            Specifications, which improvements shall include
                            UNIT NO. [WDS/#] single-family detached homes /
                            attached townhomes / detached townhomes /
                            condominiums in a subdivision commonly known as
                            PROJECT NAME located in PROJECT COUNTY County, State
                            of PROJECT STATE, but shall not include the
                            Development Work.

--------------------------------------------------------------------------------
BUDGET FOR ACQUISITION
AND DEVELOPMENT AMOUNT      The Budget for the Acquisition and Development
                            Amount is attached hereto as Schedule 1.

--------------------------------------------------------------------------------
BUDGET AND STAGES
FOR HOMES                   Schedule 2 attached hereto sets forth the Budget for
                            the Homes, including a Staged Draw Schedule of the
                            Stages relating to the construction of the Homes.

--------------------------------------------------------------------------------
PRICE POINT                 The maximum sales price for any Unit in the Project
                            shall not exceed $PRICE POINT.

--------------------------------------------------------------------------------
PERMITTED MODEL UNITS       Proceeds of the Loan may be disbursed for no more
                            than MODEL HOME NUMBER Model Units.
--------------------------------------------------------------------------------

                                      D-6
<PAGE>   96

--------------------------------------------------------------------------------
ABSORPTION RATE             The projected absorption rate for the Project is
                            ABSORPTION NUMBER Units per month.

--------------------------------------------------------------------------------
PERMITTED SPEC UNITS        Proceeds of the Loan may be disbursed for a number
                            of Spec Units equaling three (3) months of
                            absorption, currently SPEC NUMBER Spec Units, except
                            on the 1st phase of the Project, a number of Spec
                            Units not to exceed twenty-five (25) Spec Units.

--------------------------------------------------------------------------------
INSPECTOR                   INSPECTOR, or such other inspector(s) or engineer(s)
                            engaged by the Lender, at the expense of the
                            Borrower, to provide to Lender consultation services
                            in connection with the Project.

--------------------------------------------------------------------------------
CONSTRUCTION PROGRESS
SCHEDULE                    Construction of the Project will commence no later
                            than ninety (90) days from the date of this Project
                            Commitment and will continue in accordance with the
                            Construction Progress Schedule provided to Lender.

--------------------------------------------------------------------------------
PROJECT DOCUMENTS
--------------------------------------------------------------------------------
PROJECT DOCUMENTS           Project Commitment
                            Deed of Trust
                            UCC Financing Statements (one for filing with
                              PROJECT STATE Secretary of State and one for
                              filing with PROJECT COUNTY County
                            Title Policy or Title Policy Endorsement Plans and
                            Specifications

--------------------------------------------------------------------------------
OTHER REQUIRED DOCUMENTS    Prior to closing this transaction, Borrower shall
                            deliver to Lender the following: KEYBOARD(SPECIFY)
--------------------------------------------------------------------------------

        This Project Commitment is conditioned upon the absence of (i) any
Material Adverse Change since the date of the most recent financial statements
delivered to Lender, (ii) any material adverse change in the financial condition
or projected operations of the Project since the date of the most recent
information delivered to the Lender with respect to the Project, (iii) any
material action, suit or proceeding (including, without limitation, any inquiry
or investigation) pending or threatened with respect to Borrower, the Guarantor
or the Project that could have a material adverse affect on the Borrower, the
Guarantor or the Project and (iv) the occurrence of any Event of Default or
Potential Default prior to the execution and delivery of the Project Documents.

                                      D-7
<PAGE>   97

        The Project Documents shall be prepared by counsel to the Lender and
shall be satisfactory to the Lender. Borrower shall be obligated to pay all
costs and expenses incurred to satisfy all conditions precedent, whether or not
any funds of the Loan are advanced with respect to the Project. The Lender shall
not be responsible or liable for consequential damages which may be alleged as a
result of the issuance of this Project Commitment.

        Borrower agrees to indemnify and hold harmless Lender from liabilities
(including costs of settlement) arising out of or resulting from the
transactions contemplated by this Project Commitment, and to reimburse the
Lender for reasonable legal or other expenses incurred in connection with the
defense or preparation of the defense of any such liability.

        The provisions of the immediately preceding two paragraphs shall survive
any termination of this Project Commitment.

                                      D-8
<PAGE>   98

        This Project Commitment shall terminate unless (a) this Project
Commitment is accepted by you on or before DATE, and (b) definitive Project
Documents, satisfactory in form and substance to the Lender, have been entered
into on or before DOCUMENT DATE or such later date as is mutually agreeable to
the Lender and the Borrower.

                                        Sincerely,

                                        RESIDENTIAL FUNDING CORPORATION

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

                                        TERMS ACCEPTED:

                                        WILLIAM LYON HOMES, INC.,
                                        a California corporation

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

                                        And

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

                                      D-9
<PAGE>   99

                                   SCHEDULE 1

                       ACQUISITION AND DEVELOPMENT BUDGET

                                      D-10
<PAGE>   100

                                   SCHEDULE 2

                    BUDGET FOR HOMES AND STAGED DRAW SCHEDULE

                                      D-11
<PAGE>   101

                           EXHIBIT E TO LOAN AGREEMENT

                       FORM OF DRAW REQUEST CERTIFICATION

--------------------------------------------------------------------------------

DRAW REQUEST NUMBER ____

[DATE]

LENDER:                 RESIDENTIAL FUNDING CORPORATION

BORROWER:               WILLIAM LYON HOMES, INC., a California corporation

--------------------------------------------------------------------------------

        Reference is made to that certain Loan Agreement dated as of September
25, 2000, between Lender and Borrower (as amended or otherwise modified from
time to time, the "Loan Agreement"). Capitalized terms used herein without
definition shall have the meanings s et forth in the Loan Agreement, unless the
context shall require otherwise.

        With respect to the Acquisition and Development Amounts of the Projects,
Borrower requests Lender to disburse to the Borrower proceeds of the Loan in the
amounts and for the purposes stated in the attached Schedule 1.

        With respect to the ABF Program, Borrower requests Lender to disburse to
the Borrower proceeds of the Loan in the amount of $ __, which is equal to or
less than the Borrowing Base Allowable Disbursement Amount.

        In connection with such requested disbursements, Borrower hereby
represents, warrants and certifies to Lender as follows:

                (a) No Event of Default or Potential Default presently exists
        under the Loan Agreement or any other Loan Document.

                (b) All of the representations and warranties of Borrower under
        the Loan Agreement and the other Loan Documents are hereby remade and
        restated.

                                      E-1
<PAGE>   102

                (c) With respect to the Loan:

                        (1) the Borrower has satisfied all conditions precedent
                to the funding of the proceeds of the Loan as set forth in the
                Loan Agreement and the other Loan Documents;

                        (2) the Loan Documents are in full force and effect;

                        (3) the Loan is secured by a first priority lien on the
                Projects and the other collateral described in the Loan
                Documents;

                        (4) with respect to the Acquisition and Development
                Amount for each Project, the sum of all amounts expended in
                respect of the acquisition of Land and Development Work related
                to such Project does not exceed the amounts in the specified
                Budget, or if such amounts do exceed the amounts specified in
                the Budget, attached hereto is a listing of the amounts over
                budget and an explanation of such budget overrun(s); and

                        (5) all contractors, subcontractors, vendors,
                materialmen and other Persons entitled to payment with respect
                to each Project have been paid or will be paid, subject to
                retainage, with the proceeds of the requested disbursement.

                (d) All insurance required to be maintained by Borrower remains
        in full force and effect, of the types, in the amounts and issued by
        insurers as previously approved by Lender.

                                      E-2
<PAGE>   103

                (e) All of the information contained in the most recent WIP
        Report generated by Lender is true, complete and accurate, and such WIP
        Report does not contain any untrue statement of a material fact, or omit
        any material fact required to be stated therein or necessary to make the
        statement made therein, in light of circumstances under which they are
        made, not misleading.

                                        BORROWER:

                                        WILLIAM LYON HOMES, INC.,
                                        a California corporation

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

                                        And

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

                                      E-3<PAGE>   1
                                                                    EXHIBIT 10.2

William Lyon Homes, Inc.
Loan No. 906-0100

                              MASTER LOAN AGREEMENT

        This Master Loan Agreement (this "Loan Agreement") dated as of August
31, 2000, is made by and between WILLIAM LYON HOMES, INC., a California
corporation ("Borrower"), whose address is 4490 Von Karman Avenue, Newport
Beach, CA 92660 and GUARANTY FEDERAL BANK, F.S.B., a federal savings bank
organized and existing under the laws of the United States ("Lender"), whose
address is 8333 Douglas Avenue, Dallas, Texas 75225, in connection with a
revolving loan (hereinafter called the "Loan"), from Lender to Borrower, for the
acquisition and development of lots (the "Lots Being Actively Developed"),
and/or refinancing of residential lots (the "Finished Lots"), and the
construction of single-family residences thereon (the "Residences") (the Lots
Being Actively Developed and Finished Lots may be collectively referred to as
"Lots," and with the Residences and all related improvements ("Improvements")
thereto, are sometimes collectively referred to hereinafter as the "Real
Property" or the "Properties," and individually, as a "Property.") The Lots
Being Actively Developed and Finished Lots are more particularly defined in the
Specific Loan Terms, Conditions and Definitions (the "Specific Loan Terms")
attached hereto as Exhibit "A". Except as expressly consented to in writing, in
advance by Lender, the Properties shall be located only in residential
subdivisions ("Subdivisions") approved in advance by Lender, and otherwise
meeting the criteria set forth in Paragraph 4 of the Specific Loan Terms. The
initial list of Subdivisions approved for purposes of the Loan (the "Initial
Approved Subdivisions") is set forth in Paragraph 2 of the Specific Loan Terms
and may be supplemented with such additional Subdivisions (the "Additional
Approved Subdivisions") such as may hereafter be approved by Lender from time to
time pursuant to all the terms and provisions of this Loan Agreement
(collectively, the "Approved Subdivisions"). The price range of the Residences
in the Initial Approved Subdivisions shall be as stipulated in Paragraph 2 of
the Specific Loan Terms, and, for Additional Approved Subdivisions, as approved
by Lender in connection therewith. The number of Residences to be constructed at
any time shall be as stipulated in Paragraph 4 of the Specific Loan Terms. The
Loan shall be in the principal amount of FIFTY-FIVE MILLION DOLLARS
($55,000,000.00). This Loan Agreement is a master agreement and shall govern all
of the disbursements (each, a "Disbursement") of the proceeds of the Loan ("Loan
Proceeds") made under a revolving promissory note secured by one or more deeds
of trust, from time to time executed by Borrower, for the benefit of Lender,
covering the Lots and Residences constructed or to be constructed thereon and
such other property as may be described in any such deeds of trust, all as more
fully provided herein below.

        In connection with the Loan, Borrower and Lender hereby agree as
follows:

        1. THE LOAN. Lender shall make and disburse, and Borrower shall accept
and use, the Loan in accordance with all the provisions of this Loan Agreement
and the other Loan Instruments (defined below). Lender shall make the Loan to
Borrower by means of Disbursements over time in accordance with this Loan
Agreement, and there shall be no funding of the Loan other than to the extent of
the Disbursements actually made. Lender's agreement to make the Loan is subject
to Borrower's satisfaction of all the conditions precedent applicable to the
initial Disbursement of Loan Proceeds (the "Initial Disbursement") with respect
to the Initial Approved Subdivisions in advance, as such conditions are set
forth in Section 2.1 below, not later than the deadline ("Loan Closing
Deadline") for the closing for the Loan ("Loan Closing"), as set forth in
Paragraph 1 of the Specific Loan Terms. This Loan Agreement, the Note, each
Mortgage (defined below), the Guaranty and any other documents evidencing or
securing the Loan whether or not specified in this Loan Agreement or the
Specific Loan Terms are collectively called hereinafter the "Loan Instruments."
As used in this Loan Agreement, the term "Applicable Law" means all Restrictions
(defined below) and all present and future federal, state and local laws,
ordinances, rules, regulations, decisions, and other requirements of
Governmental Authorities applicable thereto.

        2. DISBURSEMENTS. All Disbursements shall be made in accordance with and
subject to the following:

            2.1 Requirements for Initial Disbursement. Prior to the Initial
Disbursement of the Loan Proceeds, as a condition to the Loan Closing, Borrower
shall execute, acknowledge and deliver to, procure for, deposit with and pay to,
Lender, the following, all in form and substance satisfactory to Lender:

<PAGE>   2

               (a) A Revolving Promissory Note evidencing the Loan (the "Note")
        in the principal amount of FIFTY-FIVE MILLION DOLLARS ($55,000,000.00)
        executed by Borrower in favor of Lender and otherwise in form and
        content acceptable to Lender. Notwithstanding such stated principal
        amount, Borrower shall not be entitled to borrow more than is permitted
        under the then effective Borrowing Base (as defined in Paragraph 5(a)(i)
        below).

               (b) Such documents and instruments as Lender may require to
        evidence the status, organization or authority of Borrower and any
        guarantor ("Guarantor") of the Loan identified in the Specific Loan
        Terms.

               (c) If indicated in Paragraph 7 of the Specific Loan Terms,
        continuing guaranties (collectively, the "Guaranty") of the Loan
        executed by the Guarantor(s) identified in Paragraph 5 of the Specific
        Loan Terms.

               (d) Construction cost breakdowns for the construction and
        completion of all Lots, Improvements and Residences comprising the
        Properties (each, a "Construction Cost Breakdown") within the Initial
        Approved Subdivisions then forming a part of the Borrowing Base, each in
        form and content satisfactory to Lender, and otherwise meeting the
        criteria set forth in Paragraph 2.2(m) below.

               (e) Financial statements of Borrower, Borrower's general partner
        ("General Partner") or managing member ("Managing Member"), if
        applicable, and any Guarantor (the "Financial Statements"), acceptable
        in form and content to Lender for such operational periods as are
        required by Lender.

               (f) A written opinion of Borrower's counsel, satisfactory to
        Lender, in form and content satisfactory to Lender, addressed to Lender
        ("Opinion Letter"), opining as to the matters described in Paragraph 10
        of the Specific Loan Terms.

               (g) Such sums required by Lender in connection with the Loan
        ("Loan Fees"), including, but not limited to, a loan facility fee ("Loan
        Facility Fee"), cost analysis and inspection fee in the amounts set
        forth in Paragraph 19 below, and payment of all accrued and owing Lender
        Costs (defined in Paragraph 19 below).

               (h) Such other documents and instruments as Lender may require to
        evidence, govern or secure payment of the Loan, including one or more
        Mortgages encumbering the Approved Subdivisions forming the Borrowing
        Base and such other documents and instruments as may be specified in
        Paragraph 7 of the Specific Loan Terms.

               (i) If required by Lender, evidence that the Properties within
        the Initial Approved Subdivisions are not located within any designated
        flood plain or special flood, earthquake, or other hazard area.

            2.2 Additional Borrowing Base Availability Requirements For Initial
Approved Subdivisions And For First Disbursements Based On Inclusion Of
Additional Approved Subdivisions In Borrowing Base. For Disbursements based on
availability under the Borrowing Base with respect to each Additional Approved
Subdivision, and in order for such Approved Subdivision to be available for
inclusion in the Borrowing Base, Borrower shall execute and deliver to, procure
for and deposit with and pay to Lender the following, all in form and substance
satisfactory to Lender, such requirements also being applicable to the
availability of Disbursements based on the Initial Approved Subdivisions as part
of the Borrowing Base in addition to the requirements of Paragraph 2.1 above
(without duplication):

               (a) Lender shall have received such documents as Lender has
        required as part of its approval of the subject Approved Subdivision and
        to evidence, govern or secure the payment of the Loan, including
        indemnity agreements executed by Borrower and Guarantor covering
        liability for hazardous materials on, under or about the subject Lots or
        Properties, and a Construction Deed of Trust (With Security Agreements,
        Fixture Filing, and Assignment of Rents and Leases) (individually and
        collectively, the "Mortgage"), securing the payment of the Note and Loan
        and evidencing a first

                                      -2-
<PAGE>   3

        lien or charge on all Real Property within the applicable Approved
        Subdivision, all in form and content satisfactory to Lender.

               (b) Evidence that the Mortgage encumbering the Real Property to
        be included in the Borrowing Base has been recorded in the official real
        property records ("Official Records") of the county where such Real
        Property is located ("Recordation").

               (c) At Recordation for the subject Mortgage, Lender shall have
        received a commitment for, and subsequent delivery thereof within the
        time therefor required by Lender, an ALTA LP policy of title insurance
        or its equivalent, on the LP form required by Lender, together with any
        endorsements that Lender may require ("Title Endorsements Required"), as
        set forth in Paragraph 8 of the Specific Loan Terms, with a liability
        limit of not less than the maximum aggregate amounts of the Loan
        Allocations (as hereinafter defined) for each Property covered by such
        Mortgage assuming that Residences are to be constructed on each Lot in
        the Approved Subdivision (the "Aggregate Loan Allocation"), issued by an
        issuer of title insurance, acceptable to Lender as set forth in
        Paragraph 8 of the Specific Loan Terms ("Title Insurer"), insuring
        Lender's interest under each such Mortgage as a valid first-priority
        lien on the Lots and Properties with full coverage against mechanics'
        and materialmen's liens, subject only to the permitted exceptions
        acceptable to Lender ("Permitted Exceptions") (each, a "Title Policy").
        In order for each Approved Subdivision to remain eligible under the
        Borrowing Base for Disbursement availability after Recordation in the
        Official Records in the counties in which the subject Real Property is
        located, Borrower shall, at its own cost and expense, maintain the first
        priority of the Mortgages as a lien on the subject Lots and Properties
        and deliver or cause to be delivered to Lender from time to time such
        endorsements to the Title Policies as Lender deems necessary to insure
        such priority; provided, however, the maximum title insurance for title
        insurance underwriters must be acceptable to Lender, and if required by
        Lender, from time to time, Borrower shall cause to be issued to Lender
        re-insurance or an additional Title Policy or Title Policies, in such
        amounts and from such title insurance underwriters, as are acceptable to
        Lender.

               (d) Policies of risk insurance in form and content and from
        insurers acceptable to Lender, which policies shall include clauses
        requiring a minimum of thirty (30) days' written notice to Lender before
        such insurance may be canceled or reduced, and which shall not include
        any coinsurance provision, and which shall provide coverage, in amounts
        satisfactory to Lender ("Insurance Required"), for the risks set forth
        in, and otherwise meeting the requirements of, Paragraph 9 of the
        Specific Loan Terms. Notice is hereby given to Borrower pursuant to the
        provisions on California Civil Code Section 2955.5 that no lender shall
        require a borrower, as a condition of receiving or maintaining a loan
        secured by real property, to provide hazard insurance coverage against
        risks to the improvements on that real property in an amount exceeding
        the replacement value of the improvements on the property. Borrower
        hereby acknowledges and agrees that it has received and reviewed the
        foregoing notice prior to its execution of the Note and any other
        security documents comprising the Loan Instruments.

               (e) To the extent the same exist at the time Borrower requests
        Disbursements based on availability of Loan Proceeds due to the
        inclusion of a subject Approved Subdivision in the Borrowing Base, and
        in all events prior to the first Disbursement for the construction of a
        Residence in such Approved Subdivision, a complete set of representative
        construction plans and specifications, including grading, mechanical and
        electrical (the "Plans") with respect to each type or model of Residence
        to be constructed by Borrower on every Lot in such Approved Subdivision
        prepared by a licensed civil engineer or architect acceptable to Lender.

               (f) If and when the same exist, if requested by Lender,
        assignment of any construction contract(s), engineering contract(s) and
        architectural contract(s), including the Plans for such Approved
        Subdivision.

               (g) Recorded Subdivision Map or Plat, as applicable based on the
        location of the Approved Project ("Final Map"), meeting the requirements
        of Applicable Law, legally describing all Lots covered by the Mortgage
        encumbering such Approved Subdivision, approved by all applicable
        governmental authorities having jurisdiction (collectively,
        "Governmental Authorities"), so that for all purposes and under all
        Applicable Law, each such Lot or Property may be mortgaged, conveyed and
        otherwise dealt with as a separate legal lot or parcel. For Lots Being
        Actively Developed, Lender may

                                      -3-
<PAGE>   4

        accept an approved tentative map or plat if such map or plat and all
        conditions thereto are approved by Lender and if the Final Map for all
        such Lots will be recorded on a date approved in writing by Lender prior
        to the making of any Disbursement based on Borrowing Base availability
        for such Approved Subdivision; provided, however, no Disbursements for
        construction of Residences, other than Models (as defined in Paragraph 2
        of the Specific Loan Terms) in any Approved Subdivision shall be
        permitted until the Final Map is recorded in the Official Records as
        contemplated above and only to the extent permitted under Applicable
        Law.

               (h) Appraisal of the Real Property in the subject Approved
        Subdivision, which shall be ordered directly by Lender, at Borrower's
        expense, prepared by an appraiser satisfactory to Lender and otherwise
        in form and substance satisfactory to Lender.

               (i) Any sums for Lender Costs which are then due and payable.

               (j) Evidence that each Lot covered by the applicable Mortgage is
        not located within any designated flood plain or special hazard area.

               (k) True, correct and complete copies of all executed contracts
        of sale and escrow instructions (the "Contracts") for Borrower's
        acquisition of the Real Property within such Approved Subdivision.

               (l) If construction or site development work has commenced on the
        Real Property located within the subject Approved Subdivision, and as
        requested by Lender, a waiver of mechanics lien and stop notice rights
        from each original contractor, subcontractor and material supplier,
        enforceable in accordance with Applicable Law, to be submitted with the
        initial Application for Disbursement (as defined in Paragraph 5(a)
        below) based on Borrowing Base availability for such Approved
        Subdivision, or with a Residential Draw Request (as defined in Paragraph
        5(a) below) for such Approved Subdivision, as applicable.

               (m) A detailed Construction Cost Breakdown of all costs and
        expenses required to acquire, develop and complete construction of the
        Lots and Properties in the relevant Approved Subdivision as to the
        following:

                      (i) with respect to acquisition of the Real Property and
               construction of the Lots and Improvements in such Approved
               Subdivision to be financed with proceeds of the Loan; and

                      (ii) with respect to construction of the Residences and
               any Improvements in such Approved Subdivision to be financed with
               proceeds of the Loan.

                           Each Construction Cost Breakdown shall be approved by
Lender in its sole discretion and is subject to change only with the prior
written consent of Lender which may be withheld in its sole discretion.

               (n) If and as requested by Lender and depending on the Stage (as
        defined in Paragraph 5(a)(i) below) of development of the Approved
        Subdivision in question, (i) evidence that all applicable zoning
        ordinances, map approvals and conditions, permit requirements and
        restrictive covenants (collectively, "Restrictions") affecting the Real
        Property covered by such Mortgage permit the construction of and use and
        density intended for the Residences to be constructed thereon and have
        been or will be complied with; (ii) evidence of building permits and all
        other permits and governmental approvals reasonably required with
        respect to the Real Property covered by such Mortgage, (iii) evidence of
        the availability of all utilities to and for the Real Property covered
        by such Mortgage; (iv) evidence that all streets providing access to the
        Real Property covered by such Mortgage have been or will be dedicated to
        public use (if such dedication is then required by applicable
        governmental authorities) and installed and accepted by the applicable
        governmental authorities (if such installation and/or acceptance is then
        required by such authorities); (v) a Phase 1 and, if recommended
        therein, Phase 2 environmental site assessment report with respect to
        the Real Property covered by such Mortgage (together with any additional
        studies, tests or reports recommended therein) which is

                                      -4-
<PAGE>   5

        prepared by a qualified firm acceptable to Lender and which certifies as
        follows: (a) that the Lots and Properties are in compliance with the
        requirements of Paragraph 14 below and meeting Lender's other standard
        requirements for such reports; and (b) there is no publicly available
        information or records, or evidence at the Property covered by such
        Mortgage or visible in the surrounding community, of environmental
        matters that could restrict the development or use of such Properties or
        of any high voltage transmission lines, wetlands, or hazardous material
        except as to such matters consented to in writing by Lender, in advance
        of any disbursement with respect to such Properties, and (vi) such other
        information and evidence as Lender shall require relating to Borrower or
        such Property.

               (o) Evidence, which may take the form of a certification thereof
        by Borrower provided Lender has no reason to believe such certification
        is inaccurate or misleading as to any such matter stated therein, that
        all representations and warranties of Borrower set forth in this Loan
        Agreement are true and correct and that no Default or Event of Default
        (as each such term is hereafter defined in Paragraph 11 below) shall
        exist.

               (p) Evidence that performance and labor and material payment
        bonds required by applicable Governmental Authorities with respect to
        such Approved Subdivision have been posted in accordance with Applicable
        Law.

               (q) Subordination agreements, in form and content satisfactory to
        Lender, providing for the subordination to the lien and charge of the
        relevant Mortgage any liens, rights to payment or performance or clouds
        on title affecting the Real Property in such Approved Subdivision,
        including, without limitation, pursuant to any Contracts under which
        Borrower has acquired such Real Property.

               (r) If requested by Lender following the imposition of any lien
        filed against any of the Lots or Properties with respect to site
        improvement work in such Approved Subdivision, which lien is susceptible
        of having preference over the lien of the Mortgage encumbering such
        Approved Subdivision under California Civil Code Section 3137, as
        determined by Lender in its sole discretion, Lender shall have received
        evidence satisfactory to Lender of Borrower's procurement and
        recordation of a payment bond meeting the requirements of California
        Civil Code Section 3139. The requirements of this subparagraph shall
        apply (with such modifications as are necessary to accommodate
        Applicable Laws in such jurisdiction) equally to Approved Subdivisions
        in jurisdictions other than California.

               (s) Evidence that Borrower is in compliance with any development
        agreements, public or private, affecting the Real Property in such
        Approved Subdivision.

        2.3 Requirements For Certain Borrowing Base Stages. Borrower shall
satisfy the following requirements and, if required by Lender, deliver to Lender
evidence of such satisfaction, (i) to establish availability under the Borrowing
Base for Disbursements based on the below specified Stages of construction in an
Approved Subdivision, or (ii) as a condition to Disbursements pursuant to the
draw procedure set forth in Paragraph 5(a)(ii) below if the Borrowing Base has
been discontinued, as applicable:

               (a) As to any Stage, all material conditions to precedent
        availability of Disbursements for any prior Stage shall have been
        satisfied, or if Lender has deferred the satisfaction of any such
        conditions to a later date, the satisfaction of such conditions by the
        required date.

               (b) As to Stage 1, specified in the attached Exhibit "B",
        building permit(s) and all other permits required with respect to the
        Residences covered by such Mortgage shall have been issued and in full
        force and effect.

               (c) As to Stage 2, specified in the attached Exhibit "B", if
        requested by Lender, Lender's Inspector (defined in Paragraph 7(c)
        below) shall have certified in writing, as to the completion of the
        foundation and Title Insurer shall have issued its foundation
        endorsement to the Title Policy, in the form of CLTA endorsement No.
        102.5 or 102.7 or as Lender may otherwise require, assuring Lender that
        such foundation is constructed wholly within the boundaries of the
        Properties, does not encroach on any easements, and does not violate any
        applicable set-back requirements.

                                      -5-
<PAGE>   6

               (d) Availability under the Borrowing Base for Disbursements based
        on the final Stage (Stage 9 in "Exhibit B") for a Property will not be
        deemed to exist until Lender has received, if Lender so requests, an
        affidavit or certificate executed by Borrower certifying that, as to
        such Property (1) all requirements of Governmental Authorities having
        jurisdiction have been satisfied; (2) no mechanics' or materialmen's
        liens or other encumbrances have been filed against the Property; (3) a
        final certificate of occupancy or an unconditional temporary certificate
        of occupancy has been issued by the governing municipal authority; and
        (4) all invoices, bills, and other payments have been paid in full to
        the appropriate parties with respect to such Property other than
        invoices or bills being paid from such final Disbursement; however,
        Lender shall have the right to require at any time the evidence of such
        certified matters, including without limitation, evidence that either
        (i) the Property has been completed; or (ii) a certificate of occupancy
        has been issued by the appropriate Governmental Authority and final lien
        releases or waivers by all parties who have supplied labor, materials,
        or services for the construction of such Property, or who otherwise
        might be entitled to claim a contractual, statutory, or constitutional
        lien against such Property.

               (e) As to any Stage, the applicable Mortgage shall continue to
        constitute a valid first-priority lien on the Properties encumbered
        thereby and a valid first-priority security interest in any related
        personal property for the full amount then outstanding on account of the
        Loan, and, if requested by Lender, Title Insurer shall have issued its
        endorsement to the Title Policy (which may be in the form of a CLTA 122
        endorsement) insuring the continuing first priority of such Mortgage for
        all prior Disbursements and/or its commitment to insure such priority as
        to any pending Disbursements, subject only to such exceptions thereto as
        have been approved in writing by Lender.

               (f) As to each Stage, if requested by Lender, such certificates,
        approvals and evidence of completion, in whole or in part, of the
        applicable construction item described on the applicable Construction
        Cost Breakdown from the prior Stage of construction of the Properties in
        such Approved Subdivision, together with copies of contracts and
        subcontractors' bills and invoices as Lender may request.

               (g) Lender shall have timely received any applicable Lender Costs
        then required to have been paid pursuant to this Loan Agreement with
        respect to such Approved Subdivision.

        3. DISBURSEMENT PRIOR TO RECORDATION. Notwithstanding any contrary
provisions of the Note, this Loan Agreement, or any of the other Loan
Instruments, and in consideration of Lender's Disbursement of all or part of the
Loan Proceeds prior to the Recordation of a Mortgage on Lots or Property for
which such Loan Proceeds are being disbursed, Borrower and Lender covenant and
agree as follows as to such Mortgage and such Loan Proceeds:

               (a) Provided Borrower has then satisfied all conditions to
        Disbursement of the Loan Proceeds under this Loan Agreement, except
        those requiring the Recordation of the subject Mortgage, Lender agrees
        to make Disbursements of the Loan Proceeds, or so much thereof as
        Borrower shall request, directly to the Title Insurer as part of the
        closing of the transaction whereby an Additional Approved Subdivision is
        included in the Borrowing Base to provide availability of Loan Proceeds
        based on such Approved Subdivision, or for availability of Loan Proceeds
        to acquire or construct such Approved Subdivision (in each case, the
        "Loan Closing") prior to Recordation of said Mortgage. Said Disbursement
        shall be made in accordance with and subject to Lender's escrow
        instructions to the Title Insurer which shall provide, among other
        things, that the funds so disbursed may be used for the benefit of
        Borrower only when Recordation of the subject Mortgage has occurred and
        the conditions for the Loan Closing can be complied with.

               (b) For purpose of this Loan Agreement, all terms and provisions
        of the Note, and Borrower's obligations thereunder, shall be deemed
        effective and in full force and effect on the date the requested
        Disbursement is made to the Title Insurer, except as those terms and
        provisions are amended hereby.

               (c) Interest shall commence and accrue at the rate provided in
        the Note on all Loan Proceeds disbursed by Lender to the Title Insurer
        from the date of such Disbursement irrespective of

                                      -6-
<PAGE>   7

        when or if the subject Mortgage is recorded or when or if such Loan
        Proceeds are disbursed by the Title Insurer to or for the benefit of
        Borrower.

               (d) Unless and until Recordation has occurred, the Note shall be
        deemed unsecured as to such Approved Subdivision and, if such Mortgage
        is not recorded within three (3) Business Days following the date of
        said Disbursement to the Title Insurer, the principal amount of such
        Disbursement, and all interest accrued thereon in accordance herewith,
        shall be due and payable by Borrower to Lender upon Lender's demand made
        at any time after said third Business Day. Until the Recordation of the
        subject Mortgage has occurred, the Note shall be deemed amended to
        conform to the provisions of this Paragraph 3.

        This Section is intended to cover the rights and obligations of the
parties relative to the Disbursement of Loan Proceeds applicable to Lots and
Property covered by a specific Mortgage prior to Recordation of such Mortgage
and, except as to the provisions hereof relating to commencement of interest,
the provisions of this Section shall be deemed canceled and of no further effect
upon Recordation of the subject Mortgage. Lender's election to make any
Disbursement of Loan Proceeds prior to Recordation of such Mortgage shall be in
Lender's sole and absolute discretion and the provisions of this Section shall
in no event be deemed to compel Lender to waive any condition to Disbursements
under this Loan Agreement, including without limitation, Recordation of the
subject Mortgage prior to any Disbursement of Loan Proceeds as to the Initial
Disbursements.

        4. PROCEDURE FOR APPROVAL OF NEW SUBDIVISIONS. Disbursements shall only
be made, and availability of Loan Proceeds under the Borrowing Base shall only
exist, with respect to Approved Subdivisions. Lender shall have approved all
aspects of each Subdivision for which Disbursements are sought, in advance of
any such Disbursement for acquisition or construction of such Approved
Subdivision, or based on its inclusion in the Borrowing Base. Borrower shall
request approval of each Subdivision prior to a request for Disbursements with
respect thereto, and shall provide Lender with all information required by
Lender in connection therewith, including, without limitation, a Construction
Cost Breakdown applicable to such Subdivision. Lender's failure to approve a
Subdivision in writing, or any portion thereof, within fifteen (15) business
days of its receipt of all information required in connection therewith shall be
deemed a disapproval thereof. Upon, and as a condition to, any approval of a new
Subdivision by Lender, Borrower shall execute and deliver to Lender a
confirmation of any restrictions or requirements imposed by Lender as a
condition to its approval of such Subdivision, including any required
supplements or modifications to the Loan Instruments, or confirmations thereof,
as may be required by Lender in connection therewith. A Subdivision which is
approved in writing by Lender for inclusion in the Borrowing Base and/or for
Disbursements for acquisition or construction thereof, and otherwise meeting the
requirements of this Loan Agreement, shall be an "Approved Subdivision."

        5. PROCEDURE FOR DISBURSEMENTS. Subject to all of the terms and
provisions of this Loan Agreement, Disbursements under the Loan shall be in
accordance with the following:

               (a) Except as set forth in subsection (ii) below, Disbursements
        of the Loan shall be made in accordance with the Borrowing Base (as
        defined in subsection (i) below) and in accordance with the following:

                   (i) Borrower shall be entitled only to Disbursements in the
               amount approved by Lender, based upon: (A) as to Lots, the
               percentage of completion of each such Lot, as reasonably
               determined by Lender based on the Construction Cost Breakdown for
               the Approved Subdivision in which such Lots are located, as the
               same may be verified by Lender's Inspector, and (B) as to
               Properties, the stage, as specified in Exhibit "B" attached
               hereto (the "Stage"), of construction of the Properties in the
               subject Approved Subdivision and for which all other requirements
               under this Loan Agreement for Disbursement have been met. On a
               monthly basis, Borrower shall submit to Lender a work in progress
               report (the "WIP Report") which identifies each Property by
               Subdivision, its address, lot and block number, plan type, Loan
               Allocation (as defined below), whether or not it is Under
               Contract (as defined in Paragraph 3 of the Specific Loan Terms),
               sales price, and its Stage of completion either as a Residence, a
               Finished Lot or a Lot Being Actively Developed, according to the
               applicable Construction Cost Breakdown therefor (as approved by
               Lender, the "Borrowing Base Summary"). The Borrowing Base
               Summary, as approved by Lender, shall establish the

                                      -7-
<PAGE>   8

               current Borrowing Base availability (subject to reduction for
               Lots and Residences released or required to be released from
               Mortgages after the date of such WIP Report), and shall be
               certified on behalf of Borrower by Borrower's Agent (as
               identified in Paragraph 6 of the Specific Loan Terms) as true and
               correct. To request a Disbursement based on the Borrowing Base,
               Borrower's Agent shall execute and deliver an Application for
               Disbursement in the form of the attached Exhibit "C"
               ("Application for Disbursement") accompanied by such information
               as Lender may reasonably request regarding satisfaction of any
               conditions to the requested Disbursement required under the terms
               of this Loan Agreement. At any given time, the Borrowing Base
               will be determined by the most recent Borrowing Base Summary
               based on the most recent WIP Report, as received and accepted by
               Lender. However, if inspections by Lender reveal that the WIP
               Report overstates the actual work in progress in the aggregate,
               the Borrowing Base for that and subsequent WIP Reports will be
               reduced by the amount of overstatement until another inspection
               has been performed by Lender. If inspection by Lender reveals
               that more than one WIP Report by Borrower overstates the actual
               work in progress, Lender may restrict the Borrowing Base to that
               amount determined by the last inspection by Lender or discontinue
               Borrowing Base Disbursements, as contemplated under subparagraph
               (ii) below. The aggregate amount, determined by Lender in its
               sole discretion, available from time to time, of the Stage of
               Lots Being Actively Developed (as such Stage is set forth in
               Exhibit "B" attached hereto) and the Stage of actual work in
               process (as such Stage is set forth in Exhibit "B" attached
               hereto) of the Residences, is referred to herein as the
               "Borrowing Base."

                   (ii) Notwithstanding anything to the contrary in this Loan
               Agreement or the other Loan Instruments, at any time (and from
               time to time) Lender may, in its sole discretion, following the
               occurrence of an Event of Default, elect, pursuant to written
               notice thereof given to Borrower, to discontinue the Borrowing
               Base method of Disbursement hereunder and require that any and
               all future Disbursements of the Loan shall be made in
               installments to Borrower for the payment of the acquisition and
               development and refinancing costs of Lots and/or, after actual
               commencement of construction hereunder, for payment of all costs
               of labor, materials or services for the construction of the
               Residences based on work actually done in accordance with the
               applicable Construction Costs Breakdown for such Properties. From
               and after the date of such written notice, Paragraph 5(a)(i)
               above shall be of no force and effect. Thereafter, Disbursements
               under this Loan Agreement shall be based upon work actually done
               during the preceding period less retainage (if required by
               Lender), and all draw requests shall be executed and certified on
               behalf of Borrower by Borrower's Agent and shall be in the form
               of, and contain the information as set forth in a residential
               draw request, in the form of Exhibit "D" attached hereto
               ("Residential Draw Request"), accompanied by such other
               information as may be requested by Lender from time to time, such
               information and documentation to include invoices, canceled
               checks, lien waivers and other evidence as may be reasonably
               required by Lender, such as: (i) unconditional lien releases and
               waivers, in form and content acceptable to Lender, from the
               general contractor and all other contractors, subcontractors and
               suppliers of materials or labor, acknowledging receipt of, and
               release and waiver of any lien, stop notice or other right with
               respect to, amounts equal to prior Disbursements made for such
               materials or labor; (ii) if Lender so requests, unconditional
               lien releases and waivers to similar effect, with respect to the
               requested Disbursements; and (iii) evidence reasonably
               satisfactory to Lender establishing actual payment of Property
               costs of a type which does not give rise to lien rights and for
               which lien releases are, as a result, not appropriate (such as
               permits), for which prior Disbursements were made. In addition,
               delivery to Lender of information and of evidence of the
               satisfaction of certain conditions specified under Sections 2.2
               and 2.3 above, shall be a condition precedent to any
               Disbursements upon any discontinuation of the Borrowing Base
               hereunder and such requirements may be applied on an individual
               Property-by-Property basis.

               (b) Any provision herein to the contrary notwithstanding, for
        purposes of determining the Borrowing Base and/or as to Disbursements
        for the construction of a Property, the maximum amount of the Loan
        allocated to be disbursed for a Property (the "Loan Allocation" or if
        applicable to more than one Property, the "Loan Allocations") shall not
        exceed the lesser of: (1) the percentage set forth in Paragraph 11 of
        the Specific Loan Terms of the direct costs of such Property, as
        determined by Lender (the "Loan to Cost Ratio"); or (2) the percentage
        set forth in Paragraph 11 of the Specific Loan

                                      -8-
<PAGE>   9

        Terms of the lesser of the following values which is applicable to such
        Property (the "Loan to Value Ratio"):

                   (i) The actual price of the Property as stated in a Sales
               Contract; or

                   (ii) The value established in an appraisal prepared at
               Borrower's cost and expense by an appraiser satisfactory to
               Lender and in form and substance satisfactory to Lender; or

                   (iii) The list price offered by Borrower.

               (c) Anything herein or in any of the other Loan Instruments to
        the contrary notwithstanding, at no time shall Lender be obligated to
        make any Disbursement hereunder if the outstanding balance of the Loan
        equals or exceeds the Loan Amount or the then amount of the Borrowing
        Base, or the loans-to-one-borrower limitation imposed upon Lender by any
        applicable laws, rules, and regulations of entities having jurisdiction
        over Lender in connection with indebtedness owing by Borrower and its
        affiliates to Lender (the "Loans-to-One Borrower Limitation").

               (d) Anything herein or in any of the other Loan Instruments to
        the contrary notwithstanding, Lender will disburse Loan Proceeds,
        provided Borrower is not in Default, or an Event of Default has occurred
        and is continuing, and subject to the limitations in Paragraphs 5(b) and
        (c), in a single Disbursement to Borrower for the payment of the
        acquisition or refinancing costs for any Finished Lots. Nothing herein
        shall be construed as an obligation or commitment on the part of Lender
        to finance the construction of Residences on any Inventory Lots, except
        as may be otherwise expressly approved in writing by Lender, other than
        as part of an Approved Subdivision. Lender shall have the right to
        approve in advance Borrower's acquisition of an Inventory Lot that is to
        be encumbered by a Mortgage in favor of Lender.

        6. BORROWER'S DEPOSIT.

               (a) With respect to any Approved Subdivision, if in Lender's
        reasonable judgment, there are insufficient funds remaining in the Loan,
        or insufficient availability under the Borrowing Base, as applicable,
        for the completion of the Properties in such Approved Subdivision in
        accordance with the then-effective Construction Cost Breakdown for such
        Approved Subdivision and Borrower fails, within ten (10) business days
        of Lender's delivery of notice to Borrower of Lender's determination of
        the existence of such insufficiency as to such Approved Subdivision, to
        submit a revised Construction Cost Breakdown for such Approved
        Subdivision addressing such apparent or actual insufficiency of funds,
        which Construction Cost Breakdown shall be acceptable in form and
        content to Lender's satisfaction, and which takes into account
        Borrower's compliance with all other Construction Cost Breakdowns then
        in effect as to all other Approved Subdivisions then included in the
        Borrowing Base, it shall constitute a Default hereunder. If Lender
        determines, based on its review of the revised Construction Cost
        Breakdown, together with such other information required in connection
        therewith by Lender, that the Loan will not be In-Balance (as defined
        below) after giving effect to such revised Construction Cost Breakdown,
        then in such case, Borrower shall deposit with Lender, within fifteen
        (15) days after demand by Lender, such sums, either in the form of cash
        or letter(s) of credit acceptable to Lender ("Borrower's Deposit"), as
        Lender may deem necessary, in addition to the Loan, for the completion
        of the Properties in such Approved Subdivision, the payment of all costs
        in connection with the construction of such Properties, and the
        performance of any obligation of Borrower to Lender owed with respect
        thereto. Borrower hereby agrees that Lender (i) shall have a security
        interest in any Borrower's Deposit in any form to secure all of
        Borrower's obligations under the Loan Instruments, and (ii) may apply
        any proceeds of any Borrower's Deposit for the purposes contemplated
        herein without any further consent or action on Borrower's part. Lender
        shall not be required to pay interest on the Borrower's Deposit. Lender
        will disburse all or a portion of the Borrower's Deposit prior to any
        disbursement of any portion of the Loan Proceeds to complete Properties
        in the affected Approved Subdivision(s). Borrower shall promptly notify
        Lender in writing if and when the cost of the construction of the
        Properties in an Approved Subdivision materially exceeds, or appears
        likely to materially exceed, the amounts budgeted therefor in the
        then-current Construction Cost-Breakdown for

                                      -9-
<PAGE>   10

        such Approved Subdivision. For purposes hereof, "materially" shall mean
        a variance of ten percent (10%) from the budgeted amounts for such item.

               (b) The Loan is in-balance whenever the amount of the undisbursed
        Loan Proceeds or availability under the Borrowing Base (taking into
        account Borrower's compliance with the Construction Cost Breakdowns then
        in effect as to all Approved Subdivisions then included in the Borrowing
        Base), as applicable, plus any sums on deposit in the Borrower's
        Deposit, are sufficient in the reasonable judgment of Lender to pay,
        through completion of the Properties, in accordance with the
        then-applicable Construction Cost Breakdowns for each Approved
        Subdivision then subject to a Mortgage and maturity of the Loan, all of
        the following sums ("In-Balance"):

                   (i) All costs of construction, ownership and maintenance of
               the Properties;

                   (ii) All costs of marketing and sale of the Properties (if
               this Loan Agreement contemplates such marketing and sale during
               the term of the Loan); and

                   (iii) All interest and all other sums which may accrue or be
               payable under the Loan Instruments.

               (c) Failure of the Loan to be In-Balance shall mean that the Loan
        is out-of-balance ("Out-Of-Balance"); provided, however, Borrower shall
        have the right to submit revised Construction Cost Breakdowns for the
        Approved Projects in the Borrowing Base, which shall be subject to the
        approval of Lender, which, in the aggregate, shall bring the Loan
        In-Balance;

                   (i) Borrower acknowledges that the Loan may become
               Out-Of-Balance in numerous ways, not all of which may now be
               foreseen. Borrower further acknowledges that the Loan may become
               Out-Of-Balance from a shortage of funds in any single line item
               or category of the Construction Cost Breakdowns, even if there
               are undisbursed Loan Proceeds in other line items or categories.
               Undisbursed Loan Proceeds in one category or line item (e.g.,
               construction costs) may not be applied to another category or
               line item (e.g., interest reserve) unless either the Construction
               Cost Breakdowns allow such use (and only to the extent
               specifically allowed) or Lender consents in writing to such use
               in each instance.

                   (ii) Whenever the Loan becomes Out-Of-Balance, Lender may
               make written demand on Borrower to deposit Borrower's own funds
               into Borrower's Deposit in an amount sufficient, in Lender's
               reasonable judgment, to cause the Loan to be In-Balance. Borrower
               must immediately deposit all funds required by Lender's demand.
               Borrower must also submit, for Lender's approval, revised
               Construction Cost Breakdowns as to all Approved Subdivisions
               affected thereby within fifteen (15) days after any such demand.
               Lender shall disburse all funds held in Borrower's Deposit in the
               manner provided in this Loan Agreement for Disbursements of the
               Loan Proceeds.

        7. WARRANTIES, REPRESENTATIONS AND COVENANTS. As a material inducement
to Lender to enter into this Loan Agreement, Borrower warrants, represents,
covenants and agrees as follows:

                (a) Commencement, Continuation and Completion. Borrower will
diligently prosecute construction of all Lots Being Actually Developed and
Residences, as applicable, after the commencement of construction thereon, and
will complete same, including all necessary utility connections, in substantial
accordance with the Plans submitted to and approved by Lender, and in accordance
with good building practices and Applicable Laws.

                (b) No Changes to Plans. Without the prior written consent of
Lender, Borrower will make no material change in the Plans submitted to Lender
that either reduces the value of the Properties or causes the Loan to be
Out-Of-Balance.

                (c) Inspections. Lender shall have the right to inspect the
Properties either itself or using Lender's inspector or appraiser ("Lender's
Inspector"), at Borrower's cost and expense (subject to Paragraph 19 below), to
determine Borrower's compliance with the requirements of this Loan Agreement.

                                      -10-
<PAGE>   11

Borrower will permit Lender and Lender's agents and representatives, at any and
all times, during regular business hours, to inspect construction in the
Approved Subdivisions in the Borrowing Base, including the Residences located
therein and to examine and copy all of Borrower's books and records and all
contracts and bills pertaining to said construction and the Residences. After a
Default hereunder, if Lender shall examine the aforesaid books and records,
Borrower shall pay on demand by Lender, subject to Paragraph 19 hereof,
reasonable expenses incurred by Lender as a result of such examination.

                (d) Use of Disbursements. Borrower will accept Disbursements in
accordance with the provisions hereof and, if made to Borrower, will use or
cause each such Disbursement to be used solely for the payment (or
reimbursement) of materials, labor, services, costs and expenses incurred or
expended in connection with the construction of the Lots and/or Properties
within Approved Subdivisions or for such additional costs and expenses as may be
approved in writing by Lender, and in payment or performance of any obligation
of Borrower to Lender, and for no other purpose. If requested by Lender, Lender
shall have received within fifteen (15) days of its request therefor all
information and documentation, including invoices, canceled checks, lien waivers
and other evidence as may be required by Lender with respect to any Approved
Subdivision, such as: (i) unconditional lien releases and waivers, in form and
content acceptable to Lender, from the general contractor and all other
contractors, subcontractors and suppliers of materials or labor, acknowledging
receipt of, and release and waiver of any lien, stop notice or other right with
respect to, amounts equal to payments made by Borrower for such materials or
labor for such Subdivision and depending on the Stage of development of the Lot
or Property in question, and (ii) evidence satisfactory to Lender establishing
actual payment of Property costs of a type which does not give rise to lien
rights and for which lien releases are, as a result, not appropriate (such as
permits), for which prior Disbursements for such Subdivision were made.

                (e) Borrower Liability for Construction. Borrower is solely
liable for construction and completion of the Lots and/or Properties in
accordance with this Loan Agreement. Lender has no liability or obligation
whatsoever for the Lots or Properties or the construction or completion thereof
or work performed thereon, and has no obligation except to disburse the Loan as
herein agreed, and is not obligated to inspect the Lots or Properties; nor is
Lender liable for the performance or default of any contractor or subcontractor,
or for any failure to construct, complete, protect or insure the Lots or
Properties, or for the payment of any cost or expense incurred in connection
therewith, or for the performance or nonperformance of any obligation of
Borrower to Lender; and nothing, including without limitation any Disbursement
hereunder or the deposit or acceptance of any document or instrument, shall be
construed as a representation or warranty, express or implied, on Lender's part.

                (f) No Conditional Sale Contracts. Without the prior written
consent of Lender, no materials, equipment, fixtures or any other part of the
Residences shall be purchased or installed under security agreements,
conditional sale contracts or lease agreements, or other arrangement wherein a
security interest or title to said property is retained or the right is reserved
or accrues to anyone to remove or repossess any such items or to consider them
as personal property.

                (g) Right to Defend. Lender may (but shall not be obligated to)
commence, appear in or defend any action or proceeding purporting to affect any
Real Property or the rights or duties of Lender or Borrower or the payment of
any funds hereunder, and in connection therewith may pay all necessary expenses,
including reasonable attorneys' fees, which Borrower agrees to pay to Lender
upon demand.

                (h) Borrower's Approval of Plans. The Plans submitted to Lender
by Borrower are satisfactory to Borrower, have been approved by any
Guarantor(s), and to the extent required by Applicable Law or any restrictive
covenant, by all Governmental Authorities and beneficiary of any such covenant
respectively. Any existing improvements on the Properties are within the
perimeter of the Properties (except any required off-site Property) in
accordance with the Plans and any Restrictions applicable thereto. There are no
encroachments, defects or conditions (including unstable soil conditions) in, on
or about any of the Properties that would or could render it unfit for
Residences. There are no structural defects in the Properties, and no violation
of any Applicable Law exists with respect to the Lots or Properties.

                (i) Notice of Litigation. Borrower shall promptly inform Lender
of (i) any litigation, proceeding or enforcement of judgment (collectively,
"litigation") threatened or commenced against Borrower, General Partner,
Managing Member or any Guarantor(s) or affecting the Lots or Properties, which,
if

                                      -11-
<PAGE>   12

determined adversely, might have a material adverse effect upon the financial
condition of Borrower, General Partner, Managing Member or Guarantor(s) or upon
the Lots or Properties, or might cause a Default; (ii) any material claim or
controversy which might become the subject of such litigation; and (iii) any
material adverse change in the financial condition of Borrower, General Partner,
Managing Member or Guarantor(s). For the purposes hereof, material adverse
change and/or material adverse effect shall mean a decline of fifteen percent
(15%) in the net worth of Borrower, General Partner, Managing Member or
Guarantor(s) as shown on the Financial Statements delivered to Lender from time
to time in connection with the Loan or an event which places Borrower out of
compliance with any Additional Loan Covenants (as defined in Paragraph 15
below).

                (j) Financial Statements and Reports. As required by Lender,
Borrower shall provide Lender with the Financial Statements and other reports
during the term of the Loan in accordance with Paragraph 12 of the Specific Loan
Terms. Borrower shall also provide, on or before the thirtieth (30th) day of
each calendar month, sales, closings and inventory reports on all for-sale
residential construction projects owned by Borrower, General Partner, Managing
Member or Guarantor, acceptable to Lender, and for Properties securing the Loan,
including a sales report showing all currently pending sales (separated into new
sales entered into during the month being reported on and previous sales
contracted for in preceding months), all closings which took place during the
month being reported on, all sales previously reported that for any reason will
not close, the status of all inventory and all other sales information
reasonably requested by Lender, all in form and content acceptable to Lender.
All Financial Statements and other reports shall be true, correct, and complete
as of the dates specified therein and, in the case of the Financial Statements,
shall fully and accurately present the financial condition of Borrower and any
other party obligated for the Loan, as appropriate, as of the dates specified.
Borrower represents to Lender that on the date hereof, no material adverse
change has occurred in the financial condition of Borrower or, to Borrower's
knowledge, any other party obligated for the Loan since the dates the initial
Financial Statements of Borrower or any other party obligated for the Loan were
delivered to Lender. Borrower shall also promptly deliver to Lender such other
sales information and documents that Lender from time to time may request,
including operating statements, any one or more of the sales agreements ("Sales
Agreements") for particular Residences or Lots, or notice of or information
regarding any claimed breach or disavowal of buyer's or seller's obligations
under any one or more Sales Agreements, and any written marketing report(s)
including all brochures and prospective purchaser lists.

                (k) Required Releases. Subject to the provisions of Paragraph 20
hereof, Borrower shall cause a Lot or Property to be released from a Mortgage at
such times as provided in the Specific Loan Terms attached hereto (the "Required
Release Date").

                (l) Occupancy. Neither Borrower nor any other party shall occupy
any Residence which is covered by a Mortgage.

                (m) Discharge of Liens. Borrower shall pay and discharge all
lawful claims, including taxes, assessments, and governmental charges or levies
imposed upon it or its income or profits or upon any properties belonging to it,
prior to the date upon which penalties attach thereto and deliver receipts of
those payments to Lender as required under the Mortgage; however, Borrower shall
not be required to pay any such tax, assessment, charge or levy, the payment of
which Borrower is diligently contesting in good faith and by proper proceedings
and for which a bond and/or other security to prevent impairment of Lender's
security is posted as Lender may require. Borrower shall pay upon demand any
costs incurred by Lender for realty tax service if required by Lender. Each Lot
is taxed separately without regard to any other real property.

                (n) Formation, Existence. Borrower warrants and represents as to
standing and organization as follows: (i) If Borrower is a corporation, it is
duly organized and validly existing, in good standing under the laws of the
state of its incorporation, and is qualified to do business, and in good
standing, in the state in which the Lots and Properties are situated (and all
other states if any in which Borrower is required to be qualified); (ii) If
Borrower is a partnership, it is duly organized and validly existing, is in good
standing under the laws of the state of its formation and is qualified to do
business in the state in which the Lots and Properties are situated (and all
other states if any in which Borrower is required to be qualified); (iii) If
Borrower is a trust, it is duly organized, validly existing, the trustees
thereof are qualified to act as trustees, and the trust is qualified to do
business in the state in which the Lots and Properties are situated (and all
other states if any in which Borrower is required to be qualified); (iv) If
Borrower is a limited liability company, it is duly organized and validly
existing, in good standing under the laws of the State of its organization, and
is

                                      -12-
<PAGE>   13

qualified to do business, and in good standing, in the State in which the
Properties are situated (and all other States, if any), in which Borrower is
required to be qualified.

                (o) Proper Authority. Borrower has full right, power and
authority to own the Properties, execute and deliver the Loan Instruments to be
executed and delivered by it, consummate the transactions contemplated thereby,
and perform its obligations thereunder. The Loan Instruments to be executed and
delivered by Borrower have been duly authorized, executed and delivered, and
constitute valid and legally binding obligations of Borrower, enforceable in
accordance with their terms, and the Loan is not usurious. The individual(s)
executing the Loan Instruments on behalf of Borrower or any person comprising a
part of Borrower are authorized and empowered by his/her or their signatures
alone to bind Borrower. If Borrower is more than one person, firm or
corporation, all receipts, requests and instructions pertaining to the Loan, or
for any Disbursement thereof, may be made by any one of the undersigned
Borrowers with the same effect as if signed by all.

                (p) No Pending Actions. As of the date of Recordation of any
Mortgage, other than as disclosed to Lender in writing, there are no actions,
suits or proceedings pending or, to the knowledge of Borrower, threatened
against or affecting it, the Properties, or any Guarantor(s) of the nature or
type required to be reported to Lender under Section 7(i) hereof or involving
the validity or enforceability of any Mortgage or the priority of the lien
thereof, at law or in equity, or before or by any Governmental Authority.
Borrower is not in default with respect to any order, writ, injunction, decree
or demand of any court or any Governmental Authority.

                (q) CC&Rs. Borrower may submit to Lender a proposed form of
declaration of covenants, conditions and restrictions ("CC&Rs") affecting all or
part of the Properties which may include provisions for the formation of an
owner's association for the Approved Subdivisions, and may request Lender to
approve and to subordinate the Mortgage to the CC&Rs. Lender shall have no
obligation to grant such a request by Borrower. However, Lender shall consider
and honor any such request if that would not impair or adversely affect the
security of any obligation evidenced by the Loan Instruments. Lender may require
as a condition to its consent to such subordination the issuance of one or more
endorsements to the Title Policy at Borrower's sole cost and expense.

                (r) Notice of Completion, Notice of Cessation. Borrower shall
fully pay and discharge all claims for labor done and materials and services
furnished in connection with the Properties, diligently file or procure the
filing of a valid Notice of Completion upon completion of construction,
diligently file or procure the filing of a Notice of Cessation upon a cessation
of labor on the work of improvement for a continuous period of thirty (30) days
or more, and take all other reasonable steps to forestall the assertion of
claims of lien against the Properties, and of stop notices against Lender of
claims against any funds to be advanced hereunder. Nothing herein contained
shall require Borrower to pay any claims for labor, materials, or services which
Borrower is diligently contesting in good faith and by proper proceedings, if
Borrower posts a surety bond, in the required statutory amounts, sufficient to
release any claim of lien or stop notice within ten (10) days after the filing
or service thereof. Borrower agrees, upon demand by Lender, to defend, indemnify
and hold Lender harmless against any action filed or claim asserted against
Lender for any reason in connection with any such lien claim or stop notice.
Borrower hereby irrevocably appoints and authorizes Lender, as Borrower's
attorney-in-fact under a power of attorney coupled with interest, to execute,
file and record any Notice of Completion or Cessation of Labor or any other
notice which Lender deems necessary or advisable to protect its interest
hereunder or the security for the Loan.

                (s) Correcting Defects. Within thirty (30) days after demand by
Lender, Borrower shall correct any defect in the Properties or any change in or
deviation from the Plans not approved by Lender, and the making of any
Disbursements shall not constitute a waiver of this covenant; provided, however,
if such thirty (30) day period is insufficient to make such correction, Borrower
shall nonetheless promptly commence such correction and submit a schedule to
Lender, satisfactory in form and content to Lender, within said thirty-day
period providing for the completion of such correction within a time period
approved by Lender therefor. Borrower shall thereafter diligently prosecute such
correction to completion and, in all events, not later than the expiration of
the time period approved by Lender for such correction.

                (t) Cancellation of Contracts. Borrower shall promptly inform
Lender if any Contracts are canceled and/or materially modified.

                                      -13-
<PAGE>   14

                (u) Preliminary Notices. At Lender's request, Borrower shall
deliver to Lender, so that Lender receives within three (3) business days after
Borrower receives, copies of all preliminary notices and related documents
served on Borrower pursuant to California Civil Code Sections 3097 and 3097.1
and any similar or successor statutes including all such notices and documents
addressed to Lender or to "Construction Lender" and received by Borrower. This
subparagraph shall also apply to Approved Subdivisions in jurisdictions other
than California (with such conforming changes as are necessary to comply with
the statutory requirements in such jurisdiction).

                (v) Use of Models. With respect to any Approved Subdivision that
does not include as part of the Real Property encumbered by the lien of the
Mortgage applicable to such Approved Subdivision, Models (as defined in the
Specific Loan Terms) to be used in connection with the marketing and sale of
Residences in such Approved Subdivision, Borrower hereby grants to, and for the
benefit of, Lender, such use and access rights to any such Models, to the extent
of Borrower's interest therein, as may be required by Lender in connection with
Lender's exercise of its rights and remedies under this Loan Agreement and the
other Loan Instruments as the same apply to any such Approved Subdivision.

        8. REQUIRED PRINCIPAL PAYMENTS. Borrower shall pay the principal of the
Note as therein provided and as may be provided in the Specific Loan Terms
attached hereto. Further, if, at any time, the outstanding balance of the Loan
exceeds (a) the Loan Amount, (b) the Loans-to-One-Borrower Limitation, (c) the
Borrowing Base approved by Lender, or (d) as to any individual Property, the
Loan Allocation for that Property then Borrower shall immediately pay in cash to
Lender, following receipt of a written demand therefor, the amount of such
excess. Further, at any time after the recording of a Mortgage in the Official
Records, Lender shall have the right, but not at the expense of Borrower, unless
such appraisal is required by federal regulations applicable to Lender, to
obtain an appraisal of any Property covered by such Mortgage, from an appraiser
satisfactory to Lender, and in the event such appraisal determines that the
portion of the Loan disbursed by Lender for such Property exceeds the Loan
Allocation for such Property, then Borrower shall also immediately pay in cash
to Lender, following demand therefor, the amount of such excess.

        9. REVOLVING LOAN. All or any portion of the principal of the Loan may
be borrowed, paid, prepaid, repaid and reborrowed from time to time prior to
maturity in accordance with the provisions of the Loan Instruments. The excess
of borrowing (Disbursements and re-Disbursements) over repayments shall be the
principal balance of the Loan from time to time and at any time. The aggregate
amount of all Disbursements under the Loan may exceed the Loan Amount, but
neither the outstanding principal balance of the Loan nor the outstanding
aggregate amount of the Loan Allocations (not including those with respect to
Properties released of record by Lender) shall ever exceed the Loan Amount.

        10. MATURITY AND EXTENSION. The Loan shall mature as provided in the
Note and as described in Paragraph 14 of the Specific Loan Terms.

        11. DEFAULT. Each of the following events shall constitute a default
("Default") under this Loan Agreement prior to the giving of notice or
expiration of a cure period, as may be required hereunder, and, following the
giving of such notice and/or expiration of such cure period, or if no notice or
cure period is provided, shall constitute an "Event of Default" under this Loan
Agreement and under the other Loan Instruments:

                (a) Failure to Pay Principal or Interest. Any failure to pay or
deposit when due or required any sum of principal or, subject to any cure
periods which may be set forth on the Note, interest under the Note.

                (b) Breach of Other Monetary Obligations. Any failure to pay or
deposit when due or required any sum (other than principal or interest) under
this Loan Agreement or other Loan Instruments which is not cured within fifteen
(15) days of Lender's delivery of written notice thereof to Borrower.

                (c) Breach of Condition/Covenant. Any breach or failure to
satisfy or perform any condition, covenant or other provision of this Loan
Agreement which is not cured within thirty (30) days of Lender's delivery of
written notice thereof to Borrower.

                                      -14-
<PAGE>   15

                (d) Breach of Other Obligation. The occurrence of any breach or
default which is not cured within the applicable time periods (if any)
designated therein by Borrower, General Partner, Managing Member or any
Guarantor(s) under: (i) any other Loan Instruments, evidencing, securing or
relating to the Loan, in addition to this Loan Agreement; (ii) any Guaranty (or
any revocation thereof); (iii) if the Properties are subject to any leasehold
estate, the lease creating such estate; or (iv) any general contract for
construction of the Properties; (v) any Contract, with respect to any material
continuing obligations of Borrower thereunder; or (vi) any evidences of
indebtedness or undertakings with respect to any other loan(s) extended by
Lender to Borrower.

                (e) Suspension of Business/Bankruptcy. Borrower, General
Partner, Managing Member or any Guarantor(s): (i) voluntarily suspends the
transaction of business; (ii) becomes insolvent or unable to pay its debts as
they mature; (iii) makes an assignment for the benefit of creditors; (iv)
becomes the subject of a bankruptcy, reorganization or similar debtor-relief
proceeding unless, in the case of an involuntary petition filed against
Borrower, General Partner, Managing Member or any Guarantor(s), the petition is
dismissed within sixty (60) days; (v) becomes, or any material part of its
property becomes, the subject of appointment of a receiver, trustee, or
conservator, unless, in the case of such appointment without Borrower's, General
Partner's, Managing Member's or a Guarantor's consent, the appointment is
vacated within sixty (60) days; (vi) has any of its property become subject to
any attachment, execution, sequestration or other judicial seizure not
discharged within sixty (60) days; (vii) fails to pay or discharge any judgment
against it, singly or in the aggregate, in excess of TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000.00) as to Borrower, or to appeal such judgment(s) and obtain a
stay thereof within ten (10) days of entry; or (viii) is dissolved or
terminated.

                (f) False Representations. Any representation by Borrower,
General Partner, Managing Member or any Guarantor(s) of any material fact herein
or in any Financial Statement or other submittal delivered to Lender is false,
incorrect or misleading as of the date made.

                (g) Project Enjoined. Any court of competent jurisdiction issues
an order or decree enjoining the construction on any Lot, or enjoining or
prohibiting the performance of this Loan Agreement or any other Loan Instrument,
and any such decree or order is not vacated within sixty (60) days after its
issuance.

                (h) Lapsed Permit/License. Borrower neglects, fails or refuses
to keep in full force and effect any permit, license or approval necessary for
the construction, sale, use, and/or occupancy of the Properties.

                (i) Bonded Notice. Any bonded stop or other notice to withhold
in connection with the Loan is served on Lender pursuant to the provisions of
Title 15, Division 3, Part 4 of the California Civil Code or any similar or
successor statute, and within ten (10) days of the receipt of such notice the
claim set forth therein is not discharged or, if the amount claimed is disputed
in good faith by Borrower, an appropriate counter bond or equivalent acceptable
to Lender is not filed with Lender.

                (j) Liens; Priority of Mortgage. Other than the statutory lien
for non-delinquent real property taxes and assessments, the imposition of any
voluntary or involuntary lien upon any of the Properties, except as permitted by
the Mortgage or approved by Lender in writing, unless (i) a bond in an amount
not less than that required by statute or other security acceptable to Lender is
provided within ten (10) days following actual knowledge by Borrower of such
lien, or (ii) such lien is released within ten (10) days of the Borrower's
knowledge thereof; provided, however, no Disbursements will be available until
such lien is released or bonded over.

                (k) Destruction. The demolition, destruction or material damage
of any of the Properties, if Lender determines that the Properties cannot be
restored or rebuilt within a reasonable time (not later than the applicable
Completion Date) at a cost not exceeding the aggregate amount then undisbursed
by Lender for Disbursements and allocated to such Properties plus insurance
proceeds, plus Borrower's contributions as more particularly provided in the
Mortgage.

                (l) Uninsured Casualty. The occurrence of an uninsured casualty
with respect to any material portion of the Properties, if Lender determines
that the Properties cannot be restored or rebuilt

                                      -15-
<PAGE>   16

within a reasonable time (not later than the applicable Completion Date), at a
cost not exceeding the aggregate amount then held by Lender for Disbursements
and allocated to such Properties, plus Borrower's contributions as more
particularly provided in the Mortgage.

                (m) No Pledge or Change of Stock or Partnership Interest. If
Borrower is a corporation, the shareholders of Borrower shall not sell, pledge
or assign any shares of the stock of Borrower without the prior written consent
of Lender; provided, however, any transfer of up to ten percent (10%) in the
aggregate of Borrower's shares shall not constitute a Default hereunder. If
Borrower is a partnership or joint venture, the partners, members or joint
venturers of Borrower shall not sell, pledge or assign any of their partnership,
membership or joint venture interest nor shall any general partner, member or
joint venturer be removed as the managing general partner, member or joint
venturer or withdraws from or is admitted to Borrower without the prior written
consent of Lender.

                (n) Criminal Activity. The occurrence of any criminal activity,
regardless of whether Borrower or any person under Borrower's control is at
fault, which could result in the forfeiture of the Properties to any
Governmental Authority.

                (o) Adverse Change. A material adverse change in the business or
financial condition of Borrower, any General Partner, Managing Member or
Guarantor(s) which materially potentially or adversely affects (a) the Approved
Subdivisions, (b) the performance by Borrower, General Partner, Managing Member
or Guarantor(s) of any of their respective obligations under any of the Loan
Instruments or any Guaranty, or (c) the priority of the liens, charges,
encumbrances or security interests created by any of the Loan Instruments.

                (p) Unapproved Deviation. The occurrence of substantial
deviations in the work of construction from the Plans or any Subdivision
completion schedule without the prior approval of Lender, or the appearance of
defective workmanship or materials, which deviations or defects are not
corrected within thirty (30) days after Borrower's discovery or receipt of
written notice thereof.

                (q) Valuation. The amount of the Loan with respect to any
Approved Subdivision exceeds one hundred percent (100%) of the discounted bulk
value thereof at completion.

                (r) Non-Monetary Defaults.

                    (i) Generally. Notwithstanding any other provision of this
        Paragraph, if Lender determines in its reasonable judgment that the
        Default complained of, other than a Default for the payment of monies,
        cannot be cured within the period requiring curing as specified in
        Lender's written notice of Default, then the Default shall be deemed to
        be cured if Borrower within the notice period shall have commenced the
        curing of the Default and shall thereafter diligently prosecute the same
        to completion. If in Lender's reasonable judgment Borrower fails to
        diligently prosecute the curing of the Default or Lender determines that
        said Default is incurable, then this Default shall constitute an Event
        of Default.

                    (ii) Affecting Approved Subdivisions. The Defaults specified
        in Paragraph 11(c) (with respect to breaches of covenants,
        representations or warranties set forth in any of Paragraphs 7(a), 7(b),
        or 7(s)), 11(d)(i) (with respect to defaults under other Loan
        Instruments that are breaches of covenants or representations relating
        to individual Approved Subdivisions or are Events of Default relating to
        acts or omissions concerning individual Approved Subdivisions),
        11(d)(iii), 11(d)(iv), 11(d)(v), 11(g), 11(h), 11(i), 11(j), 11(k),
        11(l), 11(p) and 11(q) shall be deemed to apply to each Approved
        Subdivision on an individual basis only and shall be deemed cured as to
        the subject Approved Subdivision to which the Default applies on the
        first to occur of: (A) Borrower's cure of such Default within the cure
        periods specified, if any, for such Default; or (B) removal of the
        subject Approved Subdivision from the Borrowing Base and re-margining of
        the Loan, if required by Lender, such that the outstanding principal
        amount of the Loan does not exceed the amounts permitted to be borrowed
        by Borrower under this Loan Agreement based on the Borrowing Base as
        reduced due to the elimination of the Approved Subdivision required to
        be removed as provided hereinabove; provided that Borrower shall repay
        within three (3) business days of demand by

                                      -16-
<PAGE>   17

        Lender any principal amounts outstanding with respect to the Loan as may
        be required to effect such re-margining. Upon the occurrence of any
        Default referenced in this subsection (ii), no Disbursements based on
        availability under the Borrowing Base with respect to the Approved
        Subdivision which is the subject of such Default shall be available to
        the Borrower until such Default is cured under subsection (A)
        hereinabove.

                (s) Additional Defaults. Any "Additional Defaults" set forth in
Paragraph 15 of the Specific Loan Terms shall have occurred and are continuing.

        12. REMEDIES. Upon the occurrence of any Event of Default, Lender may at
its option, without prior demand or notice, exercise any one or more of the
following remedies, and any one or more of such other remedies as may be
provided by any Loan Instrument or by law or equity, all of which remedies shall
be cumulative:

                (a) Right to Terminate Disbursements. Terminate the obligation
of Lender to make Disbursements hereunder.

                (b) Right to Call Loan. Declare the Loan and all obligations of
Borrower under the Loan Instruments immediately due and payable.

                (c) Correction. Where substantial deviations from the Plans and
Specifications appear which have not been approved, or defective or
unworkmanlike labor or materials are being used in the Properties, or there
exist encroachments to which there has been no consent, Lender may order
immediate stoppage of construction, after which no further work shall be done
without the prior written consent of Lender unless and until such condition has
been fully corrected notwithstanding any cure periods set forth hereunder.

                (d) No Waiver. Notwithstanding the exercise of any or all of the
remedies described in Sections 12(a), (b) or (c) hereof, make any Disbursements
without thereby waiving (i) its right to demand payment of the Note, (ii) its
right not to make any further Disbursements, or (iii) any of its other rights or
remedies.

                (e) Possession and Completion.

                    (i) To disburse and directly apply the proceeds of any
        Disbursement under the Loan to the satisfaction of any of Borrower's
        obligations hereunder. Any Disbursement by Lender for such purpose shall
        be part of the Loan and shall be secured by the Mortgages, except a
        Disbursement of a Borrower's Deposit. Borrower hereby authorizes Lender
        to hold, use, disburse, and apply the Loan and the Borrower's Deposit
        for payment of costs of construction of the Properties, expenses
        incident to the Loan and each Property, costs of completion of all
        necessary off-site development of each Property, and the payment or
        performance of any obligation of Borrower hereunder. Borrower hereby
        assigns and pledges the proceeds of the Loan and Borrower's Deposit to
        Lender for such purposes. Lender may disburse and incur such expenses as
        Lender deems necessary for the completion of construction of the
        Properties and to preserve each Property and any other security for the
        Loan, and such expenses, even though in excess of the amount of the
        Loan, shall be secured by the Mortgages, and payable to Lender upon
        demand. Lender may disburse any portion of any Disbursement at any time,
        and from time to time, to persons other than Borrower for the purposes
        specified herein irrespective of the provisions of Paragraph 5 hereof,
        including without limitation, to general contractors, subcontractors,
        laborers, material suppliers, or to hire an escrow firm to make such
        Disbursements, and the amount of Disbursements to which Borrower shall
        thereafter be entitled shall be correspondingly reduced.

                    (ii) Without limiting the provisions of subparagraph (i)
        above, Lender may also take possession of the Properties and perform all
        work and labor necessary to complete the work of construction, in which
        event such expenditures (except to the extent made from funds of
        Borrower) shall be deemed Disbursements under the Note, and any
        expenditures in excess of the total amount advanced under the Loan shall
        be deemed an

                                      -17-
<PAGE>   18

        additional Disbursement to Borrower, payable on demand and bearing
        interest at the rate specified in the Note. In addition, Borrower shall
        pay Lender a supervision fee at the current market rate, but not to
        exceed fifteen percent (15%) of the cost of such completion, for
        supervision of construction. Such additional Disbursement and the
        supervision fee is secured by the Mortgages and all other agreements
        securing the performance of Borrower's obligations under this Loan
        Agreement and the other Loan Instruments. Borrower hereby irrevocably
        constitutes and appoints Lender its attorney-in-fact, coupled with an
        interest, with full power of substitution, to complete the construction
        of the Project, or any part thereof in Borrower's name or Lender's name
        (but with no obligation to do so), and in connection therewith to: (a)
        use any funds of Borrower to complete the construction; (b) make such
        additions, changes and corrections in the Plans as Lender deems
        desirable to complete the Residences or any part thereof in an
        economically sound manner; (c) discharge, replace or employ such
        contractors, subcontractors, agents, architects and inspectors as may be
        deemed necessary for such purposes; (d) make Disbursements directly to
        any general contractor, subcontractors, laborers, material suppliers, or
        to hire an escrow firm to make such Disbursements; (e) pay, settle, or
        compromise bills and claims; (f) execute applications and certificates;
        (g) employ watchmen to protect the Properties (including personal
        property located thereon) from damage, injury, or (h) prosecute and
        defend actions or proceedings in connection with any of the Properties,
        and (i) do any act which Borrower might do in its own behalf. In no
        event shall Lender be required to expend its own funds to complete any
        of the Properties.

        13. INDEMNITY. Borrower hereby agrees to defend (by counsel satisfactory
to Lender), indemnify and hold harmless Lender, its officers, directors,
shareholders, agents, employees, affiliates, subsidiaries, successors and
assigns, from and against all losses, damages, liabilities, claims, actions,
judgments, costs and attorneys' fees which Lender may incur, in any capacity, as
a direct or indirect consequence of (a) the making of the Loan (except for
violations of banking law or regulations by Lender), (b) Borrower's failure to
perform any obligations as and when required by any Loan Instrument, (c) the
failure at any time of any of Borrower's representations or warranties to be
true and correct, or (d) any act or omission by Borrower, any contractor,
subcontractor, engineer, architect or other person with respect to any Property.

        14.    HAZARDOUS MATERIALS.

                (a) Representations and Definitions. Borrower and the Properties
are in compliance with all applicable present and future federal, state and
local laws, ordinances, rules, regulations, decisions and other requirements of
governmental authorities relating to hazardous materials, including, without
limitation, any substance now or in the future defined or listed in, or
otherwise classified pursuant to, or regulated by, any applicable laws or
regulations as a hazardous substance, hazardous material, hazardous waste,
infectious waste, toxic substance, toxic pollutant or any other term used to
define, list, classify or regulate substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity or reproductive toxicity, including asbestos and polychlorinated
biphenyls ("Hazardous Materials"), including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendment and
Reauthorization Act of 1980, the Resource Conservation and Recovery Act, the
Hazardous Materials Transportation Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Safe Drinking Water Act, and regulations
thereunder ("Hazardous Materials Laws").

                (b) Covenants. Borrower shall: (i) keep and maintain the
Properties in compliance with, and shall not cause or permit the Properties to
be in violation of, any present or future Hazardous Materials Laws; (ii) not
engage in or permit the use, generation, manufacture, production, storage,
release, discharge, disposal or transportation on, under or about the Properties
of any Hazardous Materials; provided, however, that materials containing
Hazardous Materials which are normally, prudently and properly used in
connection with the development, construction or operation of a project of the
same type as the Properties may be stored and used on the Properties, in
reasonably necessary quantities, provided such use and storage is incident to
and reasonably necessary for normal, prudent and proper development,
construction or operation of the Properties, in all respects in strict
compliance with all present or future Hazardous Materials Laws, but in no event
shall asbestos or asbestos-containing material be incorporated into or placed
upon the Properties, nor shall polychlorinated biphenyls be brought onto the
Properties; (iii) in the event that any Hazardous Materials are found on, under
or about the Properties (except as provided in (ii) above), take all

                                      -18-
<PAGE>   19

necessary and appropriate actions, at its own expense, to cause them to be
cleaned up and immediately removed, all in compliance with all present or future
Hazardous Materials Laws and all other applicable laws.

                (c) Notice. Borrower shall immediately advise Lender in writing
upon Borrower's receipt of all notices of (i) enforcement, clean up, removal,
mitigation or other governmental or regulatory acts instituted, contemplated or
threatened pursuant to any present or future Hazardous Materials Laws affecting
the Properties; (ii) claims made or threatened by any third party against
Borrower or the Properties relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Material or violation
of any present or future Hazardous Materials Laws; (iii) acts, events or
conditions on any real property adjoining or in the vicinity of the Properties
that could cause the Properties or any part thereof to be classified as
"border-zone property" under the provisions of California Health & Safety
Section 25220 et seq., or any regulation thereunder, or which may support a
similar claim or cause of action under any present or future Hazardous Materials
Laws; and (iv) occurrences or conditions on the Properties or any real property
adjoining or in the vicinity of the Properties which could subject Borrower or
the Properties to any restrictions on ownership, occupancy, transferability or
use of the Properties under any present or future Hazardous Materials Laws.

                (d) Border Zone. There is no occurrence or condition on any
other real property that could cause the Properties or any part thereof to be
classified as "border-zone property" under California Health and Safety Code
Sections 25220 et seq., or any regulation related thereto, or to be otherwise
subject to any restriction on ownership, occupancy, transferability or use.

                (e) Inquiry. Borrower has conducted an appropriate inquiry into
the present and prior condition, uses, and ownership of the Properties and has
disclosed in writing to Lender all violations of Hazardous Materials Laws
discovered as a result of such inquiry.

                (f) Actions. Lender shall have the right but not the duty to
join and participate in, as a party if it so elects, any settlements, legal
proceedings or actions initiated in connection with any Hazardous Materials or
present or future Hazardous Materials Laws and to have its reasonable attorneys'
fees and expenses in connection therewith paid by Borrower.

                (g) Testing. If Lender reasonably believes that Borrower may be
in violation of this Section, Lender has the right to enter the Properties and
conduct testing, at Borrower's cost and expense to satisfy itself that Borrower
is in full compliance with the Loan Instruments.

        15. ADDITIONAL LOAN COVENANTS. If there are any additional loan
covenants (the "Additional Loan Covenants") listed in Paragraph 16 of the
Specific Loan Terms attached hereto, and in the event Borrower or Guarantor (if
applicable to Guarantor) breaches any of the Additional Loan Covenants, such
breach shall constitute an Event of Default under the provisions of Paragraph 11
above applicable to such breach and Lender shall be entitled to exercise all
rights and remedies under this Loan Agreement with respect to such Event of
Default.

        16. LIMITATION ON INTEREST. All agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of
the maturity of the Note or otherwise, shall the interest contracted for,
charged or received by Lender exceed the maximum amount permissible under
Applicable Law. If, from any circumstance whatsoever, interest would otherwise
be payable to Lender in excess of the maximum lawful amount, the interest
payable to Lender shall be reduced to the maximum amount permitted under
Applicable Law, and if from any circumstance Lender shall ever receive anything
of value deemed interest by Applicable Law in excess of the maximum lawful
amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal of the Note and not to the payment of interest, or if
such excessive interest exceeds the unpaid balance of principal of the Note such
excess shall be refunded to Borrower. All interest paid or agreed to be paid to
the holder of the Note shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated, and spread throughout the full period from the
date of the Note until payment in full of the principal (including the period of
any renewal or extension thereof) so that the interest thereon for such full
period shall not exceed the maximum amount permitted by Applicable Law. This
Paragraph shall control all agreements between Borrower and Lender.

                                      -19-
<PAGE>   20

        17. CHOICE OF LAW. EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING,
WITHOUT LIMITATION, ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM
TIME TO TIME, IS APPLICABLE TO THE INDEBTEDNESS HEREIN AND WHICH PREEMPTS STATE
USURY LAWS), THIS LOAN AGREEMENT, THE NOTE, THE MORTGAGES AND THE OTHER LOAN
INSTRUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.

        18. NOTICES. All notices, demands, requests, and other communications
required or permitted hereunder shall be in writing and shall be deemed
effective (a) upon actual delivery if delivered by personal delivery or
certified postage prepaid mail; or (b) on the next business day after timely and
proper deposit with an overnight air courier with request for next business day
delivery; or (c) within two (2) business days after deposit with the U.S. Postal
Services by registered or certified mail; or (d) by confirmed facsimile telecopy
transmission, in each such case, addressed to Borrower or Lender, as the case
may be, at the respective addresses set forth on the first page of this Loan
Agreement, or such other address or facsimile telecopier number as Borrower or
Lender may from time to time designate by written notice to the other as herein
required.

        19. FEES AND EXPENSES. Borrower agrees to pay when due (a) a
non-refundable Loan Facility Fee to Lender of TWO HUNDRED SEVENTY-FIVE THOUSAND
DOLLARS ($275,000.00) each calendar year during the term (or extended term if
permitted by Lender) of the Loan, payable at Recordation of the first Mortgage
and annually thereafter on the anniversary thereof, (b) fees of Lender's
Inspector, (c) cost review expenses of Lender of up to FIVE THOUSAND DOLLARS
($5,000.00) for each requested update and/or change to the Construction Cost
Breakdowns, (d) the reasonable attorneys' fees and expenses of Lender's counsel,
(e) actual title insurance and examination charges, (f) actual survey costs, (g)
actual hazard insurance premiums, (h) actual filing and recording fees, and (i)
other reasonable expenses payable to third parties incurred by Lender in
connection with the consummation of the transactions contemplated by this Loan
Agreement, the exercise of Lender's rights under this Loan Agreement and the
other Loan Instruments, and the verification of the performance and satisfaction
of all obligations of Borrower, General Partner, Managing Member (and any
constituent entities or individuals thereof)and Guarantor under this Loan
Agreement and the other Loan Instruments, including all renewals, extensions and
modifications thereof. In the event it becomes necessary for Lender to utilize
legal counsel for the enforcement of the Loan Instruments or any of their terms,
if successful in such enforcement by legal proceedings or otherwise, Lender
shall be reimbursed immediately by Borrower for reasonably incurred attorneys'
fees (including fees for Lender's in-house attorneys) and other costs and
expenses. Borrower shall also immediately reimburse Lender for all attorneys'
fees and costs reasonably incurred in connection with the representation of
Lender in any bankruptcy, insolvency, reorganization or other debtor-relief or
similar proceeding of or relating to Borrower, any General Partner, Managing
Member or Guarantor(s), the Property, or any other property which secures the
obligations of any of the Loan Instruments. All amounts due under this Section
shall bear interest from the date of expenditure until paid at the rate
specified in the Note and are collectively referred to as "Lender Costs". All
facility fees payable to Lender hereunder shall be deemed earned when due and
are non-refundable to Borrower. All such fees shall be retained by Lender and
shall not be applied to any payments of principal or interest due from Borrower
under the Loan Instruments.

        20. PARTIAL RELEASES. Borrower shall have the right to obtain partial
releases of the Property subject to the following terms and conditions:

               (a) There shall not be a Default or Event of Default hereunder or
        under any other of the Loan Instruments;

               (b) Borrower shall submit to Lender a request for partial release
        of a Property (the "Partial Release") in form and substance satisfactory
        to Lender together with a lot and block description of the Residence to
        be released. In addition, the Partial Release should be accompanied with
        information necessary for Lender to process the Partial Release,
        including the name and address of the title insurance company, if any,
        to whose attention the Partial Release should be directed, numbers that
        reference the Partial Release (i.e., order numbers, release numbers,
        assessor's parcel numbers, etc.) and the date when the Partial Release
        is to become effective;

                                      -20-
<PAGE>   21

               (c) If required by Lender, all accrued and unpaid interest on the
        principal amount of the Loan being prepaid shall be paid at the time
        such Partial Release is requested; provided that any payment in
        immediately available funds, received by Lender after one-thirty
        o'clock, p.m. (1:30 p.m.), Dallas, Texas time, will be deemed to have
        been made on the next following business day;

               (d) Payment to Lender of an amount in cash equal to the Release
        Price as provided, and as such term is defined in Paragraph 18 of the
        Specific Loan Terms attached hereto; and

               (e) Payment to Lender of all reasonable costs and expenses
        arising in connection with any Partial Release.

        Notwithstanding any provision herein to the contrary, at such time as
Lender provides to the title company (which is closing the sale of a Property) a
"payoff" quote for a Property being released from a Mortgage, in accordance with
this Paragraph 20, Borrower shall not be entitled to any further Disbursements
under the Loan with respect to such Property. Notwithstanding any provision
herein to the contrary, Lots Being Actively Developed cannot be released from a
particular Subdivision until all work is completed to finish the Lot.

        21. GENERAL PROVISIONS.

                (a) Waiver. No delay or omission of Lender in exercising any
right or power arising from any Default or Event of Default by Borrower shall be
construed as a waiver of such Default or as an acquiescence therein, nor shall
any single or partial exercise of any such right or power preclude any further
exercise thereof. Lender may, at its option, waive or postpone satisfaction of
any condition herein, all of which are for its benefit, and any such waiver or
postponement shall not be deemed to have occurred unless set forth in writing,
signed by Lender and delivered to Borrower, and any such written waiver shall be
operative only for the time and to the extent expressly stated therein.

                (b) No Assignment. Borrower may not assign or otherwise transfer
this Loan Agreement or any right hereunder, and this Loan Agreement shall be
binding upon Borrower and the representatives and successors of Borrower. In the
event of the termination or dissolution of Borrower prior to the completion of
the Residences or prior to the use, release or disbursement of all proceeds of
the Loan and any Borrower's Deposit, this Loan Agreement shall not, at the
option of Lender, be terminated or affected by such dissolution or termination.
Except as provided in the foregoing sentences, this Loan Agreement is made for
the sole benefit of Borrower and Lender, their successors and assigns, and no
other person or persons shall have any rights or remedies under or by reason of
this Loan Agreement. Lender shall not owe any duty whatsoever to any claimant
(i) for labor performed or material furnished in connection with the
construction of the improvements, (ii) to advance any portion of the Loan to pay
any such claim, or (iii) to exercise any right or power of Lender hereunder or
arising from any Default.

                (c) Payments. Borrower agrees to make each payment which it owes
under the Loan Instruments not later than one-thirty (1:30 p.m.) o'clock, p.m.,
Dallas, Texas time, or such other time as is specifically provided herein, on
the date such payment becomes due and payable (or the date any voluntary
prepayment is made), in immediately available funds. Any payment received by
Lender after such time will be deemed to have been made on the next following
business day.

                (d) Writing Necessary. No approval, acceptance or consent of
Lender required by any provision of the Loan Instruments, nor any waiver of any
required approval, acceptance, consent or condition, shall be deemed to have
occurred until set forth in writing, signed by Lender, and delivered to
Borrower.

                (e) Time Is of the Essence. Time is of the essence of the Loan
Instruments and of every part hereof, and Borrower therefore acknowledges that
Lender has no obligation to grant any extension of any provision thereof, and
any extension which Lender may elect to grant may be conditioned upon such terms
and conditions as Lender may impose in its sole discretion.

                (f) Joint and Several Obligation. If more than one person has
executed this Loan Agreement as Borrower, the obligations of all such persons
shall be joint and several. Any married person who executes this Loan Agreement
agrees that recourse may be had against his or her separate

                                      -21-
<PAGE>   22

property. If Borrower is a partnership, the obligations of Borrower shall be the
joint and several obligations of all general partners therein. If Borrower is a
limited liability company, the obligations of Borrower hereunder shall bind all
members of Borrower to the extent of their interests therein.

                (g) Government Regulation. If payment of the Loan is to be
insured or guaranteed by any governmental agency, Borrower shall comply with all
rules, regulations, requirements and statutes relating thereto or provided in
any commitment issued by any such agency to insure or guarantee such payment.

                (h) Headings. The Paragraph headings hereof and in the Exhibits
hereto are inserted for convenience of reference only and shall not alter,
define, or be used in construing the text of such Paragraphs or limit the scope
of provisions of this Loan Agreement.

                (i) Survival. All provisions of the Loan Instruments shall
survive each Recordation of a Mortgage and all Disbursements of the Loan.

                (j) Severability. In the event of any invalidity or
unenforceability of any Loan Instrument or any provision of any Loan
Instruments, the remainder of the Loan Instruments shall remain in full force
and effect.

                (k) Disclosure. Lender may disclose terms of the Loan and
payment information (i) whenever a request for a credit rating is received; (ii)
pursuant to a court or regulatory order; (iii) pursuant to regulatory reporting
requirements; or (iv) to facilitate a sale by Lender of all or any part of the
Loan.

                (l) Interpretation: Include, Day, Person. Each of the Loan
Instruments shall be construed without regard to whether it was prepared or
drafted by one party or other or either of their attorneys. As used herein: (i)
the terms "include," "including" and forms thereof are not exclusive; (ii) the
term "day" means calendar day, except when used in the defined term "Business
Day" which shall mean any day on which Lender is open for business at its
Dallas, Texas main office; and (iii) the term "person" means any individual,
corporation, partnership, Governmental Authority, or other entity of any kind.

                (m) Exhibits. All Exhibits referred to herein are incorporated
herein by this reference and are a part hereof.

                (n) Waiver of Judicial Procedural Matters. Borrower hereby
expressly and unconditionally waives, in connection with any suit, action or
proceeding brought by Lender in connection with any of the Loan Instruments, any
and every right it may have to (i) injunctive relief; (ii) a trial by jury;
(iii) interpose any counterclaim therein; and (iv) have the same consolidated
with any other or separate suit, action or proceeding, with respect to any
matter arising out of the Loan Instruments.

                (o) Counterparts. This Loan Agreement may be executed in one or
more counterparts, all of which, taken together, shall constitute one and the
same agreement.

                (p) Use of Certain Terms. As used in this Loan Agreement, the
term "General Partner" shall apply only if Borrower's form of legal existence is
that of a partnership and the term "Managing Member" shall apply only if
Borrower's form of legal existence is that of a limited liability company.

        22. FINAL AGREEMENT. THIS LOAN AGREEMENT AND THE OTHER LOAN INSTRUMENTS
REPRESENT THE FINAL LOAN AGREEMENT BETWEEN LENDER AND BORROWER CONCERNING THE
LOAN, AND THE LOAN INSTRUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF LENDER AND BORROWER OR ANY
AGENT, BROKER, EMPLOYEE OR REPRESENTATIVE OF EITHER OF THEM. THERE ARE NO ORAL
AGREEMENTS BETWEEN LENDER AND BORROWER.

                                      -22-
<PAGE>   23

        IN WITNESS WHEREOF, this Loan Agreement has been executed by the
undersigned as of the date first set forth above.

<TABLE>
<CAPTION>
BORROWER:                                  LENDER:

<S>                                        <C>
WILLIAM LYON HOMES, INC.,                  GUARANTY FEDERAL BANK, F.S.B., a federal
a California corporation                   savings bank organized and existing under the
                                           laws of the United States

By:     /s/   MICHAEL D. GRUBBS            By:     /s/     JON M. LARSON
        --------------------------                 ----------------------
Name:   Michael D. Grubbs, SVP             Name:   Jon M. Larson
Title:  Chief Financial Officer            Title:  Vice President

By:     /s/    RICHARD S. ROBINSON
        --------------------------
Name:   Richard S. Robinson
Title:  Senior Vice President
</TABLE>

                                      -23-
<PAGE>   24

                                    EXHIBITS

                                TO LOAN AGREEMENT

--------------------------------------------------------------------------------

      EXHIBIT "A"           SPECIFIC LOAN TERMS, CONDITIONS AND DEFINITIONS
      EXHIBIT "B"           STAGE DRAW BREAKDOWN
      EXHIBIT "C"           APPLICATION FOR DISBURSEMENT
      EXHIBIT "D"           RESIDENTIAL DRAW REQUEST
      EXHIBIT "E"           CONSTRUCTION COST BREAKDOWN

                                      -24-

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