William Lyon Homes
Audit Committee
Charter

(Amended and Restated February 18, 2004)

Audit Committee Charter Quicklinks

Article I - Formation and Purpose

Article II - Composition

Article III - Key Functions

Article IV - Procedures and Meetings

Article I

Formation and Purpose

1. The Board of Directors (the “Board”) of William Lyon Homes, a Delaware corporation (the “Company”) has formed the Audit Committee (the “Committee”) pursuant to Section 141(c)(2) of the Delaware General Corporation Law and Article V of the Company’s Bylaws. The purposes of the Committee are (1) to assist Board oversight of (a) the integrity of the Company’s financial statements, (b) the Company’s compliance with legal and regulatory requirements, (c) the Company’s independent auditors’ qualifications and independence, and (d) the performance of the Company’s internal audit function and independent auditors, and (2) to prepare an audit committee report as required by the Securities and Exchange Commission (“SEC”) to be included in the Company’s annual proxy statement.

2. The Committee shall fulfill its purposes by carrying out the functions set forth in Article III. In addition, the Committee shall have such other powers and responsibilities as may be expressly delegated to the Committee from time to time by the Board. Subject to any restrictions set forth in the Company’s Certificate of Incorporation and Bylaws and applicable law, the Committee shall have all power and authority necessary or appropriate to carry out its purposes and responsibilities.

3. In discharging its role, the Committee encourages free and open communication among the Committee, the Company’s independent auditors and management, and is empowered to investigate any matter brought to its attention with all requisite access to the books, records, facilities and personnel of the Company and with access to the Company’s outside legal counsel and other advisors. The Committee has the power to retain separate outside counsel or other advisors, different from the Company’s regular outside counsel and advisors, and to authorize such expenditures by the Company as it shall determine necessary for payment of compensation to (1) the independent auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and (2) any counsel or advisers engaged by the Audit Committee. The Committee shall have direct responsibility for the appointment, compensation, retention and oversight of the Company’s independent auditors and the approval of all audit engagement fees and terms, as well as all significant non-audit engagements with the independent auditors. The independent auditors shall report directly to the Committee.

4. Management is responsible for preparing the Company’s financial statements and for their accuracy, and the Company’s independent auditors are responsible for auditing those financial statements. While the Committee has certain authority and oversight responsibilities under this charter, it is not the responsibility of the Committee to plan or conduct audits. In the absence of their possession of reason to believe that such reliance is unwarranted, the members of the Committee may rely without independent verification on the information provided to them and on the representations made by the Company’s management and the Company’s independent auditors. Accordingly, the Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Committee’s authority and oversight responsibilities do not assure that the audits of the Company’s financial statements have been carried out in accordance with generally accepted auditing standards, that the financial statements are presented in accordance with generally accepted accounting principles (“GAAP”) or that the Company’s independent auditors are in fact “independent.”

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Article II

Composition

1. The Committee shall be comprised of not less than three members of the Board. Subject to the foregoing, the exact number of members of the Committee shall be fixed and may be changed from time to time by resolution duly adopted by the Board. Each Committee member shall be determined by the Board to be independent in accordance with the criteria set by the New York Stock Exchange, Inc. (“NYSE”) for board members and audit committee members and the rules promulgated by the SEC under the Securities Exchange Act of 1934, as amended ("Exchange Act"). All members shall meet the NYSE’s financial literacy requirements and at least one member shall be an “audit committee financial expert” as such term is defined in applicable SEC rules. If a member of the Audit Committee serves on the audit committees of three or more public companies and such member wishes to serve on the audit committee of another public company, then such member shall so notify the Board and the member may serve on the additional audit committee only if the Board determines that such simultaneous service would not impair the ability of such member to effectively serve on the Company's Audit Committee. Such determination by the Board shall be disclosed in the Company's annual proxy statement in accordance with applicable laws and regulations.

2. The members of the Committee shall be appointed by the Board and shall serve until their successors are appointed or until their earlier resignation or removal. The members shall serve at the pleasure of the Board and may be removed, with or without cause, from the Committee at any time by the Board.

3. The Board shall appoint one member of the Committee to serve as the Chair of the Committee. The Chair shall set the agenda for the Committee’s meetings, convene and chair the Committee’s meetings and act as the Committee’s representative to the Board in communicating with the Board and management. In addition, the Chair of the Committee shall preside at the executive sessions of the non-management members of the Board. If the Board fails to appoint a Chair of the Committee, the members of the Committee shall elect a Chair by majority vote of the full Committee to serve at the pleasure of the majority of the full Committee. The Chair of the Committee shall serve as Chair for not more than five consecutive years.

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Article III

Key Functions

The Committee’s role is one of oversight. The Company’s management is responsible for preparing the Company’s financial statements and the Company’s independent auditors are responsible for auditing those financial statements. Additionally, the Committee recognizes that financial management, as well as the Company’s independent auditors, have more time, knowledge and more detailed information concerning the Company than do Committee members; consequently, in carrying out its oversight responsibilities, the Committee is not providing any expert or special assurance as to the Company’s financial statements or any professional certification as to work of the Company’s independent auditors. Further, auditing literature, particularly Statement of Auditing Standards No. 71, defines the term “review” to include a particular set of required procedures to be undertaken by independent auditors. The members of the Committee are not independent auditors, and the term “review” as applied to the Committee in this Charter is not intended to have that meaning and should not be interpreted to suggest that the Committee members can or should follow the procedures required of auditors performing reviews of financial statements. The Committee shall, subject to the requirements of the Company’s Certificate of Incorporation and Bylaws and applicable law, carry out the following responsibilities and functions:

1. Pre-Approval of Auditor Services.

(a) Approve in advance all auditing services, including the provision of comfort letters in connection with securities offerings, and non-audit services permitted by applicable law to be provided to the Company by the Company's independent auditors, except non-auditing services which meet the following criteria:

(i) The aggregate amount of all such non-audit services provided to the Company constitute less than 5% of the total amount of revenues paid by the Company to its auditor during the fiscal year in which the non-audit services are provided;

(ii) The services were not recognized by the Company at the time of the engagement to be non-audit services; and

(iii) The services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by one or more members of the Committee to whom authority to grant such approvals has been delegated by the Committee.

If the Committee approves an audit service within the scope of engagement of the independent auditor, the audit service shall be deemed to have been preapproved for purposes of this Article III.1. The Committee may delegate to one or more of its members the authority to grant pre-approvals. Any decision by a member to whom such authority has been delegated shall be presented to the Committee at its next meeting.

(b) Any approval by the Committee of a permitted non-audit service in the Company’s applicable periodic public filings shall be disclosed as required by law.

2. Oversight of Independent Auditing Services.

(a) Have direct responsibility for the appointment, compensation, retention and oversight of the work of any registered public accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company.

(b) Meet with the independent auditors to review and approve the plan and scope for each audit of the Company's financial statements and related services, including proposed fees to be incurred with respect thereto.

(c) Review and recommend action with respect to the results of each independent audit of the Company's financial statements and recommendations of the independent auditors arising as a result of such audit.

(d) Review with the independent auditors any audit problems or difficulties and management’s response, including any restrictions on the scope of the independent auditors’ activities or on access to requested information, and any significant disagreements with management. The review should also include a discussion of the responsibilities, budget and staffing of the Company’s internal audit function.

(e) Discuss with the Company's independent auditors the matters required to be communicated pursuant to Statement on Auditing Standards No. 61 ("SAS 61"), as it may be amended or supplemented.

(f) At least annually, obtain and review a report by the independent auditors describing (i) the independent auditors’ internal quality-control procedures,(ii) any material issues raised by the most recent internal quality-control review, or peer review of the independent auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the independent auditors, and any steps taken to respond to such issues, and (iii) all relationships between the independent auditors and the Company (which may be set forth in the disclosures required in Article III.2.(g) below).

(g) At least annually, discuss with the independent auditors their independence and receive each of the following in writing:

(i) disclosure of all relationships between the independent auditors and their related entities and the Company and its related entities that in the auditors' professional judgment may reasonably be thought to bear on independence; and

(ii) confirmation that, in the auditors' professional judgment, they are independent of the Company within the meaning of the federal securities laws.

(h) Discuss with the Company's independent auditors any relationships or services disclosed by the independent auditors that may impact the objectivity and independence of the independent auditors and recommend to the Board any actions in response to the independent auditors' disclosures to satisfy itself of the independent auditors' independence.

(i) Obtain and review the reports of the Public Company Accounting Oversight Board with respect to the Company's independent auditors when such reports are made publicly available.

(j) At least annually, evaluate the independent auditors’ qualifications, performance and independence, including a review and evaluation of the lead partner of the independent auditors, and present its conclusions to the Board. In making its evaluation, the Committee should take into account the opinions of management and the Company’s internal auditors (or other personnel responsible for the internal audit function) and should consider whether, in order to assure continuing auditor independence, there should be regular rotation of the audit firm itself.

3. Financial Statements and Disclosures.

(a) Review major issues regarding accounting principles and financial statement presentations, including any significant changes in the Company’s selection or application of accounting principles.

(b) Review analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.

(c) Review the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s financial statements.

(d) Resolve any disagreements between management and the independent auditors regarding financial reporting.

(e) Receive the report of the independent auditor that performs for the Company any audit required by the Exchange Act with respect to each of the following:

(i) All critical accounting policies and practices to be used;

(ii) All alternative treatments of financial information within GAAP that have been discussed with management officials of the Company, the ramifications of the use of such alternative disclosures and treatments and the treatment preferred by the independent auditor; and

(iii) Other material written communications between the independent auditor and the Company such as any management letter or schedule of unadjusted differences.

(f) Review and discuss with the Company's independent auditors and management the Company's audited financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K.

(g) Based on (1) its review and discussions with management of the Company's audited financial statements; (2) its discussion with the independent auditors of the matters to be communicated pursuant to SAS 61; and (3) the written disclosures from the Company's independent auditors regarding independence, recommend to the Board whether the Company's audited financial statements should be included in the Company's Annual Report on Form 10-K for the last fiscal year for filing with the SEC.

(h) Review and discuss with the Company's independent auditors and management the Company's quarterly financial statements, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Quarterly Reports on Form 10-Q.

(i) Review and discuss earnings press releases (including the type and presentation of information to be included therein, particularly the use of “pro forma” or “adjusted” non-GAAP information), as well as financial information and earnings guidance provided to analysts and rating agencies. The Committee’s discussion may be general in nature (e.g., discussion of the types of information to be disclosed and the type of presentation to be made) and the Committee need not discuss in advance each earnings release or each instance in which the Company may provide earnings guidance.

4. Internal Accounting.

(a) Review with the Company's independent auditors and financial management the adequacy and effectiveness of the Company's system of internal accounting controls, including the adequacy of such controls to expose any payments, transactions or procedures that might be deemed illegal or otherwise improper and any special audit steps adopted in light of material control deficiencies.

(b) Prior to the Company's filing of any Quarterly Report on Form 10-Q or Annual Report on Form 10-K, receive the following disclosures from the Company's principal executive officer and principal financial officer with respect to the following:

(i) All significant deficiencies in the design or operation of internal controls over financial reporting which could adversely affect the Company's ability to record, process, summarize and report financial data;

(ii) All material weaknesses in internal controls identified by such officers to the Company's independent auditors; and

(iii) Any fraud, whether material or not material, that involves management of the Company or other employees who have a significant role in the Company's internal controls.

(c) Obtain the attestation and report of the Company's independent auditors on the assessment made by the Company's management in the Company's Annual Report on Form 10-K of the effectiveness of the Company's internal control structure and procedures for financial reporting.

(d) Review the scope and results of the Company's internal auditing procedures and practices and oversee the effectiveness thereof.

5. Management Conduct Policies.

(a) Establish procedures for:

(i) The receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and

(ii) The confidential, anonymous submission by employees of the Company and others of concerns regarding questionable accounting or auditing matters.

(b) Review from time to time and make recommendations with respect to the Company's policies relating to management conduct and oversee procedures and practices to ensure compliance therewith. Such policies shall include, without limitation, those relating to (1) transactions between the Company and members of its management, (2) political contributions and other sensitive payments, (3) compliance with the Foreign Corrupt Practices Act, and (4) corporate or competitive opportunities offered or enjoyed by members of such management.

(c) Review from time to time and administer the Company’s Code of Business Conduct and Ethics, which includes those standards required by applicable SEC and NYSE rules.

(d) Make interpretations from time to time as to the scope and application of the Company's management conduct policies.

(e) Review and approve or disapprove, as contemplated by the Company's Code of Business Conduct and Ethics, proposed transactions between the Company and its employees or directors.

(f) Receive any report required to be made by the Company's attorneys pursuant to the standards adopted by the SEC for professional conduct of attorneys appearing and practicing before the SEC.

6. Reports.

(a) Prepare an audit committee report as required by the SEC to be included in the Company's annual proxy statement.

(b) Review with the Board, among other matters, any issues that arise with respect to the quality or integrity of the Company’s financial statements, the Company’s compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditors or the performance of the internal audit function.

(c) Report to the Board as necessary regarding the Committee’s recommendations and activities.

7. Other Duties.

(a) Discuss the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures and discuss guidelines and policies to govern the process by which the CEO and senior management assess and manage the Company’s exposure to risk.

(b) Set clear policies for the employment by the Company or its subsidiaries of employees or former employees of the independent auditors, taking into consideration the pressures that may exist for auditors consciously or subconsciously seeking a job with the Company.

(c) At least annually, review the adequacy of this charter and recommend to the Company's Board of Directors any changes to this charter that the Committee deems necessary, appropriate or desirable.

(d) Conduct an annual self-evaluation of the performance of the Committee, including its effectiveness and compliance with this charter.

(e) Perform such other specific functions as the Board may from time to time direct, and make such investigations and reviews of the Company and its operations as the Chief Executive Officer or the Board may from time to time request.

(f) Conduct such investigations as the Committee deems necessary and retain outside experts, if required.

The foregoing functions and responsibilities are set forth as a guide with the understanding that the Committee may, to the extent permitted by applicable laws or regulations, diverge from this guide as appropriate given the circumstances. In addition, the Committee is authorized to take any actions reasonably related to the mandate of this Charter.

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Article IV

Procedures and Meetings

1. The Committee shall keep regular minutes of its meetings. Meetings and actions of the Committee shall be governed by, and held and taken in accordance with, the provisions of Article IV of the Company’s Bylaws (other than Sections 4.2 and 4.7), with such changes in the context of those Bylaws as necessary to substitute the Committee, the Chair of the Committee and its members for the Board, the Chairman of the Board and its members. The Committee shall hold meetings as frequently as necessary at such time and such place as the Committee determines from time to time, with additional meetings to be held as circumstances dictate. In the absence of the Chair, a member designated by the Chair or designated by a majority of the members in attendance shall preside at meeting.

2. The Committee may, to the extent permitted by applicable laws and regulations, form and delegate any of its responsibilities to, a subcommittee so long as such subcommittee consists of at least two members of the Committee. The requirements for action by a subcommittee shall, except as otherwise provided by act of the Committee, be the same as applicable to the Committee.

3. All non-management directors who are not members of the Committee may attend and observe meetings of the Committee, but shall not participate in any discussion or deliberation unless invited to do so by the Committee, and in any event shall not be entitled to vote. To perform its oversight functions effectively, the Committee should meet separately, periodically, with management, with the internal auditors (or other personnel responsible for the internal audit function) and with the independent auditors. The Committee may, at its discretion and at the invitation of the Chair, include in its meetings members of the Company’s management, representatives of the Company’s outside advisors, any other personnel employed or retained by the Company or any other persons whose presence the Committee believes to be necessary or appropriate. Notwithstanding the foregoing, the Committee may also exclude from its meetings any persons it deems appropriate, including, but not limited to, any non-management director who is not a member of the Committee.

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Committee Members

Chairperson

Harold H. Greene

Committee Member

Gary H. Hunt

Committee Member

Alex Meruelo