UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER: 001-32322

TOUSA, INC.

(Exact name of registrant as specified in its charter)


Delaware		76-0460831
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4000 Hollywood Blvd., Suite 400 N
Hollywood, Florida		33021
(Address of principal executive offices)		(ZIP code)

(954) 364-4000
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o (Do not check if a smaller reporting company) ~~Smaller reporting company o~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 59,604,169 shares of common stock as of ~~March~~May 811, 2009.

TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
INDEX

	PAGE
PART I. Financial Information		3
ITEM 1. Consolidated Financial Statements (Unaudited)		3
Consolidated Statements of Financial Condition		3
Consolidated Statements of Operations		45
Consolidated Statement of Stockholders’ (Deficit) Equity		5
Consolidated Statement of Stockholders’ Deficit		6
Consolidated Statements of Cash Flows		67
Notes to Unaudited Consolidated Financial Statements		89
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		4041
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		6463
ITEM 4. Controls and Procedures		64
PART II. Other Information		65
ITEM 1. Legal Proceedings		65
ITEM 1A. Risk Factors		67
ITEM 6. Exhibits		68
Signatures		69
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in millions, except par value)

	June 30, 2008			December 31, 2007
	September 30, 2008			December 31, 2007
	(Unaudited)
ASSETS
HOMEBUILDING:
Cash and cash equivalents:
Unrestricted	$	~~192~~277.45		$	67.2
Restricted		~~185~~19.89			5.1
Inventory:
Deposits		3019.2			56.9
Homesites and land under development		~~288~~235.17			633.0
Residences completed and under construction		~~337~~282.9			555.9
Inventory not owned		109.36			26.0
		666.5			1,271.8
		547.4			1,271.8
Property and equipment, net		1915.02			24.6
Investments in unconsolidated joint ventures		83.70			9.0
Receivables from unconsolidated joint ventures		~~0.1~~—			0.3
Other assets		6162.30			330.0
Goodwill		—			11.2
Assets held for sale		2.97			6.1
		1,136.7			1,725.3
		927.7			1,725.3
FINANCIAL SERVICES:
Cash and cash equivalents:
Unrestricted		1113.36			9.3
Restricted		~~4.3~~—			5.6
Mortgage loans held for sale		65.10			15.0
Other assets		4.10			6.8
		25.8			36.7
		22.6			36.7
Total assets	$	~~1,162~~950.53		$	1,762.0
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
LIABILITIES AND STOCKHOLDERS’ DEFICIT
HOMEBUILDING:
Accounts payable and other liabilities	$	~~130~~121.86		$	401.8
Customer deposits		2117.8			33.9
Obligations for inventory not owned		—			32.0
Notes payable		—			1,585.3
Bank borrowings		—			168.5
Liabilities associated with assets held for sale		0.24			0.9
		152.8			2,222.4
		139.8			2,222.4
FINANCIAL SERVICES:
Accounts payable and other liabilities		41.73			7.3
Bank borrowings		—			7.8
		4.7			15.1
		1.3			15.1
Total liabilities not subject to compromise		~~157~~141.51			2,237.5
Liabilities subject to compromise (Note 2)		2,~~143~~080.80			—
Total liabilities		2,~~301~~221.31			2,237.5
Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock — $0.01 par value; 3,000,000 shares authorized; 117,500 issued and outstanding at June 30, 2008 and December 31, 2007		9.1			3.9
Common stock — $0.01 par value; 975,000,000 shares authorized; 59,604,169 shares issued and outstanding at June 30, 2008 and December 31, 2007		0.6			0.6
Additional paid-in capital		567.2			570.7
Accumulated deficit		(1,715.7	)		(1,050.7	)
Total stockholders’ (deficit) equity		(1,138.8	)		(475.5	)
Total liabilities and stockholders’ (deficit) equity	$	1,162.5		$	1,762.0

See accompanying notes to unaudited consolidated financial statements.


	September 30, 2008			December 31, 2007
	(Unaudited)
Stockholders’ deficit:
Preferred stock — $0.01 par value; 3,000,000 shares authorized; 117,500 issued and outstanding at September 30, 2008 and December 31, 2007		11.6			3.9
Common stock — $0.01 par value; 975,000,000 shares authorized; 59,604,169 shares issued and outstanding at September 30, 2008 and December 31, 2007		0.6			0.6
Additional paid-in capital		565.5			570.7
Accumulated deficit		(1,848.5	)		(1,050.7	)

Total stockholders’ deficit		(1,270.8	)		(475.5	)

Total liabilities and stockholders’ deficit	$	950.3		$	1,762.0

See accompanying notes to unaudited consolidated financial statements.

TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share amounts)

(Unaudited)

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2008			2007			2008			2007
HOMEBUILDING:
Revenues:
Home sales	$	~~276~~246.96		$	~~535~~449.36		$	~~567~~814.84		$	1,~~092~~542.73
Land sales		170.3			3043.43			2122.70			3377.70
		294.2			565.7			589.5			1,126.4
		246.9			492.9			836.4			1,619.3
Cost of sales:
Home sales		~~260~~194.81			~~437~~370.91			~~519~~713.01			~~879~~1,250.90
Land sales		~~12.~~1.5			2656.85			1618.83			2985.16
Inventory impairments and abandonment costs		~~304~~97.71			84504.85			~~477~~574.01			~~123~~628.94
Other		—			(10.68	)		—			(45.20	)
		577.6			547.9			1,012.8			1,028.7
		292.7			930.3			1,305.5			1,959.0
Gross profit (loss)		(283.4	)		17.8			(423.3	)		97.7
Gross loss		(45.8	)		(437.4	)		(469.1	)		(339.7	)
Selling, general and administrative expenses		5544.60			8586.0			~~109~~153.8			~~176~~262.4
Loss (income) from unconsolidated joint ventures, net		—(0.1	)		19.52			(0.34	)		(08.48	)
Impairment (recovery) of investments in and receivables from unconsolidated joint ventures		(9.3	)		—			(8.8	)		5.5
Impairment of investments in and receivables from unconsolidated joint ventures		9.9			23.4			1.1			28.9
Provision for settlement of loss contingency		—			3240.07			—			~~110~~151.96
Goodwill impairments		~~11.2~~—			~~38.~~2.7			11.2			3840.29
Interest expense (see Note 3 for contractual interest)		16.79			010.10			3653.87			010.2
Other income, net		(0.5	)		(1.4	)		(1.9	)		(2.1	)
Other expense (income), net		(0.8	)		0.6			(2.7	)		(1.5	)
Homebuilding pretax loss		(~~357~~115.17	)		(~~137~~610.60	)		(~~570~~685.18	)		(~~231~~841.0	)
FINANCIAL SERVICES:
Revenues		34.31			118.03			913.12			2331.03
Expenses		6.4.6			8.71			1318.40			1826.01
Financial Services pretax income (loss)		(30.15	)		20.32			(4.38	)		5.02
Loss from continuing operations before reorganization items and taxes		(~~360~~116.2	)		(~~135~~609.38	)		(~~574~~690.46	)		(~~226~~835.08	)
Reorganization items, net (see Note 2)		18.27			—			86105.74			—
Provision (benefit) for income taxes		0(2.7	)		~~(13~~6.20	)		0(2.70	)		(4135.7	)
Loss from continuing operations, net of taxes		(~~379~~132.12	)		(~~122~~615.18	)		(~~661~~794.80	)		(~~184~~800.31	)
Discontinued operations:
Loss from discontinued operations		(0.6	)		(23.09	)		(3.28	)		(711.98	)
Loss from disposal of discontinued operations		—			~~(13.6~~—	)		—			(13.6	)
Benefit for income taxes		—			~~(5.7~~—	)		—			(7.8	)
Loss from discontinued operations, net of taxes		(0.6	)		(93.9	)		(3.28	)		(1317.76	)
Net loss		(~~379~~132.78	)		(~~132~~619.07	)		(~~665~~797.08	)		(~~198~~817.07	)
Dividends and accretion of discount on preferred stock		2.5			—2.2			57.27			—2.2
Net loss available to common stockholders	$	(382.2	)	$	(132.0	)	$	(670.2	)	$	(198.0	)
Net loss attributable to common stockholders	$	(135.3	)	$	(621.9	)	$	(805.5	)	$	(819.9	)
LOSS PER COMMON SHARE, BASIC AND DILUTED:
Loss from continuing operations	$	(62.4026	)	$	(210.0436	)	$	(1113.1945	)	$	(313.0946	)
Loss from discontinued operations		(0.01	)		(0.1707	)		(0.0507	)		(0.2330	)
Loss per common share	$	(62.4127	)	$	(210.2143	)	$	(1113.2452	)	$	(313.3276	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic		59,604,169			59,604,169			59,604,169			59,~~599~~601,~~569~~119
Diluted		59,604,169			59,604,169			59,604,169			59,~~599~~601,~~569~~119

See accompanying notes to unaudited consolidated financial statements.

TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT~~) EQUITY~~

(Dollars in millions)

(Unaudited)

									Additional						Total
	Preferred Stock				Common Stock				Paid-In			Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Deficit			(Deficit~~) Equity~~
Balance at January 1, 2008		117,500	$	3.9		59,604,169	$	0.6	$	570.7		$	(1,050.7	)	$	(475.5	)
Stock option compensation expense		—		—		—		—		12.75			—			12.75
Dividends and accretion of preferred stock		—		5.2		—		—		(5.2	)		—			—
Dividends and accretion of preferred stock discount		—		7.7		—		—		(7.7	)		—			—
Net loss		—		—		—		—		—			(~~665~~797.08	)		(~~665~~797.08	)
Balance at June 30, 2008		117,500	$	9.1		59,604,169	$	0.6	$	567.2		$	(1,715.7	)	$	(1,138.8	)
Balance at September 30, 2008		117,500	$	11.6		59,604,169	$	0.6	$	565.5		$	(1,848.5	)	$	(1,270.8	)

See accompanying notes to unaudited consolidated financial statements.

TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
	2008			2007
Cash flows from operating activities:
Net loss	$	(~~665~~797.08	)	$	(~~198~~817.07	)
Loss from discontinued operations		3.28			1317.76
Loss from continuing operations		(~~661~~794.80	)		(~~184~~800.31	)
Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization expense		7.6			7.4
Depreciation and amortization		10.4			11.2
Non-cash compensation expense		12.75			23.10
Non-cash interest expense		2538.4			—8.0
Reorganization items, net		86105.74			—
Provision for settlement of loss contingency		—			110.9
Loss on early termination of debt		—			2.4
Inventory impairments and abandonment costs		477.0			123.9
Provision for settlement of loss contingency		—			151.6
Goodwill impairments		11.2			38.2
Loss on impairments of inventory and abandonment costs		574.1			628.4
Goodwill impairments		11.2			40.9
Write-down of receivables		5.7			—
Deferred income taxes		—			(27160.96	)
Loss (income) from unconsolidated joint ventures		(0.34	)		919.42
Distributions of earnings from unconsolidated joint ventures		0.2			0.69
Impairment of investments in and receivables from unconsolidated joint ventures		(81.81	)		528.59
Changes in operating assets and liabilities, net of effects of dispositions:
Changes in operating assets and liabilities:
Restricted cash		(~~179~~9.42	)		028.76
Inventory		~~113~~143.12			(4572.91	)
Receivables from unconsolidated joint ventures		(31.74	)		(2329.9	)
Other assets		~~222~~216.82			~~(52~~82.54	)
Mortgage loans held for sale		810.90			510.79
Accounts payable and other liabilities		15(4.05	)		(4526.47	)
Customer deposits		(1216.1	)		(715.76	)
Net cash provided by (used in) operating activities		~~109~~292.28			(8388.26	)
Cash flows from investing activities:
Net additions to property and equipment		(0.4	)		(7.5	)
Acquisitions, net of cash acquired		—			(7.7	)
Investments in unconsolidated joint ventures		(1.6	)		(21.1	)
Net disposals (additions) to property and equipment		0.8			(9.4	)
Capital distributions from unconsolidated joint ventures		—			9.7
Investments in unconsolidated joint ventures		(1.6	)		(29.2	)
Net cash used in investing activities		(2.0	)		(18.9	)
Capital distributions from unconsolidated joint ventures		—			12.4
Net cash used in investing activities		(0.8	)		(33.9	)
Cash flows from financing activities:
Net borrowings from revolving credit facilities		31.5			50.0
Net borrowings from (repayments of) revolving credit facilities		(28.1	)		150.3
Net repayments of Financial Services bank borrowings		(7.8	)		(6.8	)
Principal payments on notes payable		(37.7	)		(0.5	)
Payments for deferred financing costs		(2.9	)		(11.2	)
Net repayments of Financial Services bank borrowings		(7.8	)		(13.0	)
Net cash provided by financing activities		20.8			32.0
Payments for deferred financing costs		(2.9	)		(32.1	)
Net cash provided by (used in) continuing operations		128.0			(70.1	)
Payment for issuance of convertible preferred stock and warrants		—			(2.9	)
Net cash provided by (used in) financing activities		(76.5	)		101.8
Net cash provided by (used in) continuing operations		215.5			(20.7	)
Cash flows from discontinued operations:
Net cash used in operating activities		(0.89	)		(812.54	)
Net cash provided by investing activities		—			52.3
Net cash provided by financing activities		—			56.5
Net cash provided by (used in) discontinued operations		(0.89	)		4344.81
Increase in cash and cash equivalents		214.6			23.4
Cash and cash equivalents at beginning of period		76.5			54.2
Cash and cash equivalents at end of period	$	291.1		$	77.6

	Six Months Ended
	Nine Months Ended
	June 30,
	September 30,
	2008			2007
Increase (decrease) in cash and cash equivalents		127.2			(26.3	)
Cash and cash equivalents at beginning of period		76.5			54.2
Cash and cash equivalents at end of period	$	203.7		$	27.9
Supplemental disclosure of non-cash financing activities:
Decrease in inventory not owned	$	(15.7	)	$	(79.5	)
Increase (decrease) in obligations for inventory not owned	$	(15.9	)	$	44.5
Decrease in obligations for inventory not owned	$	(15.3	)	$	(73.5	)
Increase (decrease) in inventory not owned	$	(16.4	)	$	39.8
Supplemental disclosure of non-cash investing activities:
Supplemental disclosure of non-cash activities:
Refer to Note 3 for the consolidation of variable interest entities in accordance with FIN 46R.
Refer to Note 3 for the consolidation of variable interest entities in accordance with FIN 46(R)
Refer to Note 4 for the settlement of the Transeastern joint venture and related acquisition of assets

See accompanying notes to unaudited consolidated financial statements.

TOUSA, INC. AND SUBSIDIARIES
DEBTOR-IN-POSSESSION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2008

1. Business and Organization

Business

TOUSA, Inc. (“TOUSA”, the “Company”, “we”, “us” and “our”) is a homebuilder with a geographically diversified national presence. We operate in various metropolitan markets in nine states, located in four major geographic regions: Florida, the Mid-Atlantic, Texas and the West. We design, build and market detached single-family residences, town homes and condominiums. We also provide title insurance and, through a joint venture, mortgage brokerage services to our homebuyers and others. Generally, we do not retain or service the mortgages that we originate but, rather, sell the mortgages and related servicing rights. See “Mortgage Joint Venture” discussion below. Technical Olympic S.A. owns approximately 67% of our outstanding common stock. Technical Olympic S.A. is a publicly-traded Greek company whose shares are traded on the Athens Stock Exchange. Our equity structure will likely change as a result of our Chapter 11 filings.

~~Organization~~ On March 20, 2009, we filed Forms 15 with the Securities and Exchange Commission terminating the registration of our debt and equity securities under Section 12(g) of the Securities Exchange Act of 1934. Our duty to file periodic reports under the Exchange Act was suspended immediately upon filing the Forms 15. We are therefore voluntarily filing this Quarterly Report on Form 10-Q and do not intend to make any further filings.

Technical Olympic S.A. owns approximately 67% of our outstanding common stock. Technical Olympic S.A. is a publicly-traded Greek company whose shares are traded on the Athens Stock Exchange. Our equity structure will likely change as a result of our Chapter 11 filings.

Chapter 11 Cases

The following discussion provides general background information regarding our cases under Chapter 11 of the Bankruptcy Code, and is not intended to be an exhaustive description. Additional information regarding our Chapter 11 cases, including access to court documents and other general information about the Chapter 11 cases, is available at www.kccllc.net/tousa. Financial information on the website is prepared according to requirements of federal bankruptcy law and the United States Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division (the “Bankruptcy Court”). While such financial information accurately reflects information required under federal bankruptcy law, such information may be unconsolidated, unaudited and prepared in a format different than that used in our unaudited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States and filed under the securities laws. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for investment decisions relating to our stock or debt or for comparison with other financial information filed with the Securities and Exchange Commission.

On January 29, 2008, TOUSA, Inc. and certain of our subsidiaries (excluding our financial services subsidiaries and joint ventures) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court. The Chapter 11 cases have been consolidated solely for procedural purposes and are pending as Case No. 08-10928-JKO.

WeThe ~~continue~~following todiscussion ~~operate~~provides ~~our~~general ~~businesses~~background ~~and~~information ~~manage~~regarding our ~~properties~~cases ~~as debtors-in-possession~~ under ~~the~~Chapter 11 ~~jurisdiction~~ of the Bankruptcy ~~Court~~Code, and inis ~~accordance~~not ~~with~~intended ~~the~~to ~~applicable~~be ~~provisions~~an ofexhaustive ~~the Bankruptcy Code and orders of the Bankruptcy Court~~description. AtAdditional information ~~the~~regarding ~~onset~~our ~~of the~~ Chapter 11 cases, ~~we obtained~~including ~~Bankruptcy~~access ~~Court~~to ~~approval~~court ~~to,~~documents ~~among~~and other ~~things, continue to pay certain critical vendors~~general ~~and~~information ~~vendors~~about ~~with~~the ~~lien~~Chapter 11 ~~rights~~cases, ~~meet~~is ~~our~~available ~~pre-petition~~at ~~payroll~~www.kccllc.net/tousa. ~~obligations,~~Financial information ~~maintain~~on ~~our~~the ~~cash management~~website ~~systems,~~is ~~sell~~prepared ~~homes~~according ~~free~~to ~~and~~requirements ~~clear~~ of ~~liens,~~federal ~~pay~~bankruptcy ~~our~~law ~~taxes,~~and ~~continue~~the United toStates ~~provide~~Bankruptcy ~~employee benefits~~Court ~~and~~for ~~maintain~~the ~~our~~Southern ~~insurance~~District ~~programs.~~of ~~In addition~~Florida, ~~the~~Fort ~~Bankruptcy~~Lauderdale ~~Court~~Division ~~has approved~~(the ~~certain~~“Bankruptcy ~~trading~~Court”). ~~notification~~While ~~and~~such ~~transfer~~financial ~~procedures~~information ~~designed~~accurately toreflects ~~allow~~information usrequired under tofederal ~~restrict~~bankruptcy ~~trading~~law, ~~in our~~such ~~common~~information ~~stock~~may ~~(and~~be ~~related~~unconsolidated, ~~securities)~~unaudited and ~~has~~prepared ~~also~~in ~~provided for potentially retroactive~~a ~~application~~format ofdifferent ~~notice~~than ~~and~~that ~~sell-down~~used ~~procedures~~in ~~for~~our ~~trading~~unaudited inconsolidated ~~claims~~financial ~~against~~statements ~~the~~prepared ~~debtors’ estates (~~in accordance ~~the~~with ~~event~~generally ~~that~~accepted ~~such~~accounting ~~procedures~~principles ~~are approved~~ in the ~~future),~~United ~~which~~States ~~could~~and ~~negatively~~filed ~~impact~~under ~~our~~the ~~accumulated~~securities ~~net~~laws. ~~operating~~Moreover, ~~losses~~the ~~and~~materials ~~other~~filed ~~tax~~with ~~attributes.~~the ~~The~~ Bankruptcy Court ~~has~~are ~~also~~not ~~entered~~prepared for the ~~orders~~purpose toof ~~establish~~providing ~~procedures~~a basis for ~~the~~investment ~~purchase~~decisions ~~and~~relating ~~disposition~~to ofour ~~real~~stock ~~property~~or bydebt usor ~~subject to~~for ~~certain~~comparison ~~monetary~~with ~~limits~~other ~~without~~financial ~~specific~~information ~~approval~~filed ~~for~~with ~~each~~the ~~transaction~~Securities and Exchange Commission.

OnIn ~~February~~March 52009, ~~2008,~~we ~~pursuant~~announced tothat anour ~~interim~~primary ~~order~~focus ~~from~~will ~~the~~be ~~Bankruptcy~~on ~~Court~~completing ~~dated~~and ~~January 31,~~delivering sold ~~2008~~homes currently under construction and on selling our remaining inventory of speculative homes. In addition, we ~~entered~~are ~~into~~seeking ato ~~Senior~~sell ~~Secured~~our ~~Super-Priority~~other ~~Debtor~~assets. In certain cases, such as in ~~Possession~~the ~~Credit~~State of Florida and ~~Security Agreement.~~in ~~The~~Austin ~~agreement~~and ~~provided~~Houston, ~~for~~Texas, awe ~~first~~are ~~priority~~attempting ~~and~~to ~~priming~~sell ~~secured~~our ~~revolving~~assets ~~credit~~as ~~interim~~a whole. We are ~~commitment~~in discussions with various parties regarding a sale of upour tofinancial ~~$134~~services businesses, Universal Land Title, Inc.~~6 million~~, Preferred Home Mortgage Company and Alliance Insurance Information Services. ~~The~~We ~~agreement~~are ~~was~~attempting ~~subsequently~~to ~~amended~~sell all of our assets in a manner designed to ~~extend~~maximize itrecovery for our creditors. Subject to, ~~June 19~~in certain situations, receiving approvals from the Bankruptcy ~~2008.~~Court, Nowe ~~funds~~have ~~were~~taken ~~drawn~~and ~~under~~will continue to take the ~~agreement.~~following actions:

~~The~~• ~~agreement~~severely ~~was~~curtailing ~~subsequently~~land ~~terminated~~purchases; ~~and~~• weabandoning ~~entered~~or ~~into~~in ansome ~~agreement~~cases ~~with~~renegotiating our ~~prepetition~~ ~~secured~~rights ~~lenders~~under tooption ~~use cash collateral on hand (cash generated by our operations, including the sale of excess inventory~~ and ~~the~~land ~~proceeds~~bank ofcontracts; ~~our~~• ~~federal~~engaging ~~tax refund of $207.3 million received~~ in ~~April 2008).~~bulk Wesales ~~are authorized by the Bankruptcy Court to use cash collateral~~ of ~~our first~~land ~~lien~~ and ~~second~~unsold ~~lien~~homes; ~~lenders~~• inreducing ~~a manner consistent with a budget negotiated by~~ the ~~parties. The~~number ~~order further provided for the pay-down~~ of ~~$175.0 million~~unsold tohomes ~~our~~under ~~first~~construction ~~lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful~~ and ~~repayment~~limiting is required. We also have the right to pay-down an additional $15.0 million to our first lien secured lenders. As of March 6, 2009, we had paid-down approximately $143.0 million to the first lien secured lenders. We may incur liens and ~~enter into sale~~/~~leaseback~~or ~~transactions~~curtailing ~~for~~land ~~model~~development ~~homes~~activities; ~~subject~~• tocompleting ~~certain~~other ~~limitations.~~asset Wedispositions; ~~have granted the pre-petition agents~~ and ~~the~~• ~~lenders~~pursuing ~~various~~other ~~forms~~initiatives ofdesigned ~~protection, including liens and claims~~ to ~~protect~~ ~~against~~monetize any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our ~~secured facilities~~assets.

We ~~and~~continue ~~the~~to ~~first~~operate ~~lien~~our ~~lenders~~businesses ~~reached~~and anmanage ~~agreement~~our toproperties ~~extend~~as debtors-in-possession under the ~~use~~jurisdiction of ~~cash~~the ~~collateral~~Bankruptcy ~~until April 30,~~Court ~~2009~~and onin ~~terms~~accordance ~~substantially~~with ~~similar~~the toapplicable ~~those~~provisions inof the Bankruptcy ~~original~~Code ~~cash~~and ~~collateral~~orders ~~order.~~of ~~The new~~the ~~cash~~Bankruptcy ~~collateral~~Court. ~~order~~At ~~was~~the ~~approved~~onset byof the Chapter 11 cases, we obtained Bankruptcy Court onapproval ~~January 28~~to, ~~2009.~~among Ifother wethings, ~~fail~~continue to pay certain critical vendors ~~comply~~and vendors with ~~the~~lien ~~order~~rights, wemeet ~~will~~our ~~not~~pre-petition ~~have~~payroll ~~sufficient~~obligations, maintain our cash management systems, sell homes free and clear of liens, pay our taxes, continue to ~~enable~~provide employee benefits and maintain our insurance programs. In addition, the Bankruptcy Court has approved certain trading notification and transfer procedures designed to allow us to ~~operate~~restrict trading in our ~~business~~common stock (and related securities) and has also provided for potentially retroactive ~~effectuate~~application of notice and sell-down procedures for trading in claims against the debtors’ estates (in the event that such procedures are approved in the future), which could negatively impact our accumulated ~~restructuring.~~net operating losses and other

The Bankruptcy Court established May 19, 2008 as the bar date for filing proofs of claim against the Debtors relating to obligations arising before January 29, 2008. As of February 25, 2009, approximately 4,400 claims have been filed against us totaling $7.3 billion in asserted liabilities. These claims are comprised of approximately $5.0 million in administrative claims, $219.0 million in secured claims, $75.0 million in priority claims and $7.0 billion in unsecured claims. There are many claims (at least 700) that have been asserted in “unliquidated” amounts or that contain an unliquidated component. Notably, among the unliquidated claims are the claims of our secured first and second lien lenders. In addition, the indenture trustees under our approximately $1.1 billion of unsecured debentures each filed an unliquidated claim with respect to such obligations.

On October 13, 2008, we filed with the Bankruptcy Court the (a) Joint Plan of TOUSA, Inc. and its Affiliated Debtors and Debtors in Possession under Chapter 11 of the Bankruptcy Code (as modified or revised, the “Plan”) and (b) Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code relating to the Plan (as modified or revised, the “Disclosure Statement”). On October 24, 2008 and November 12, 2008, the Debtors filed revised versions of the Plan and Disclosure Statement (including projected financial information) with the Bankruptcy Court. Copies of the Plan and Disclosure Statement, as filed with the Bankruptcy Court, are available at http://www.tousa.com/reorg. We have the exclusive right to solicit acceptance thereof until April 30, 2009. Pursuant to Section 1121 of the Bankruptcy Code, the exclusivity periods may be expanded or reduced by the Bankruptcy Court, but in no event can the exclusivity periods to file and solicit acceptance of a plan or plans of reorganization be extended beyond June 29, 2009.

As a result of our Chapter 11 cases and other matters described herein, including uncertainties related to the fact that our filed plan of reorganization has not been confirmed, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things:

• our ability to generate and maintain adequate cash; • the cost, duration and outcome of the restructuring process; • our ability to comply with the terms of our cash collateral order and seek and receive extensions of our ability to use cash collateral; and • our ability to retain key employees.

These challenges are in addition to those operational and competitive challenges that we face in connection with our business. In conjunction with our advisors, we are implementing strategies to aid our liquidity and our ability to continue as a going concern. However, such efforts may not be successful.

We have taken and will continue to take actions to maximize cash receipts and minimize cash expenditures with the understanding that certain of these actions may make us less able to take advantage of future improvements in the homebuilding market. We continue to take steps to reduce our general and administrative expenses by streamlining activities and increasing efficiencies, which have led and will continue to lead to major reductions in the workforce. However, much of our efforts to reduce general and administrative expenses are being offset by professional and consulting fees associated with our Chapter 11 cases. In addition, we are working with our existing suppliers and seeking new suppliers, through competitive bid processes, to reduce construction material and labor costs. We have and will continue to analyze each community based on anticipated sales absorption rates, net cash flows and financial returns taking into consideration current market factors in the homebuilding industry such as the oversupply of homes available for sale in most of our markets, less demand, decreased consumer confidence, tighter mortgage loan underwriting criteria and higher foreclosures. Subject to, in certain situations, receiving approvals from the Bankruptcy Court, we have taken and will continue to take the following actions:

• limiting new arrangements to acquire land (by submitting proposals to increased review); • engaging in bulk sales of land and unsold homes; • reducing the number of unsold homes under construction and limiting and/or curtailing development activities in any development where we do not expect to deliver homes in the near future or where development is necessary to retain entitlements or sell land; • renegotiating terms or abandoning our rights under option and land bank contracts; • considering other asset dispositions including the possible sale and/or wind down of underperforming assets, communities, divisions and joint venture interests; and • pursuing other initiatives designed to monetize our assets.

tax attributes. The Bankruptcy Court has also entered orders to establish procedures for the purchase and disposition of real property by us subject to certain monetary limits without specific approval for each transaction.

On February 5, 2008, pursuant to an interim order from the Bankruptcy Court dated January 31, 2008, we entered into a Senior Secured Super-Priority Debtor in Possession Credit and Security Agreement. The agreement provided for a first priority and priming secured revolving credit interim commitment of up to $134.6 million. The agreement was subsequently amended to extend it to September 19, 2008. No funds were drawn under the agreement.

The agreement was subsequently terminated and we entered into an agreement with our prepetition secured lenders to use cash collateral on hand (cash generated by our operations, including the sale of excess inventory and the proceeds of our federal tax refund of $207.3 million received in April 2008). We are authorized by the Bankruptcy Court to use cash collateral of our first lien and second lien lenders in a manner consistent with a budget negotiated by the parties. The order further provided for the pay-down of $175.0 million to our first lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful and repayment is required. We also have the right to pay-down an additional $15.0 million to our first lien secured lenders. As of May 1, 2009, we had paid-down $148.4 million to the first lien secured lenders. We may incur liens and enter into sale/leaseback transactions for model homes subject to certain limitations. We have granted the pre-petition agents and the lenders various forms of protection, including liens and claims to protect against any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our secured facilities.

Our right to the use of cash collateral has been extended until July 31, 2009 on terms substantially similar to those in the original cash collateral order. If we fail to comply with the order, we will not have sufficient cash to enable us to operate our business and effectuate our restructuring.

The Bankruptcy Court established May 19, 2008 as the bar date for filing proofs of claim against the Debtors relating to obligations arising before January 29, 2008. As of April 28, 2009, approximately 4,400 claims have been filed against us totaling $7.3 billion in asserted liabilities. These claims are comprised of approximately $5.0 million in administrative claims, $219.0 million in secured claims, $75.0 million in priority claims and $7.0 billion in unsecured claims. There are many claims (at least 700) that have been asserted in “unliquidated” amounts or that contain an unliquidated component. Notably, among the unliquidated claims are the claims of our secured first and second lien lenders. In addition, the indenture trustees under our approximately $1.1 billion of unsecured debentures each filed an unliquidated claim with respect to such obligations.

On April 17, 2009, we filed with the Bankruptcy Court our First Amended Joint Plan of TOUSA, Inc. and its Affiliated Debtors and Debtors in Possession under Chapter 11 of the Bankruptcy Code (as modified or revised, the “Plan”) and Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code relating to the Plan (as modified or revised, the “Disclosure Statement”). Copies of the Plan and Disclosure Statement, as filed with the Bankruptcy Court, are available at http://www.tousa.com/reorg. Currently, no hearing has been scheduled on the Plan or Disclosure Statement. We have the exclusive right to file a plan until July 29, 2009 and the exclusive right to solicit acceptance thereof until September 27, 2009. Pursuant to Section 1121 of the Bankruptcy Code, the exclusivity periods may be expanded or reduced by the Bankruptcy Court, but in no event can the exclusivity periods to file and solicit acceptance of a plan or plans of reorganization be extended beyond September 29, 2009.

Mortgage Joint Venture

On January 28, 2008, Preferred Home Mortgage Company, our wholly-owned residential mortgage lending subsidiary, entered into an Amended and Restated Agreement of Limited Liability Company with Wells Fargo Ventures, LLC. The limited liability company is known as PHMCWF, LLC but does business as “Preferred Home Mortgage Company, an affiliate of Wells Fargo.” Preferred Home Mortgage Company owns 49.9% of the venture with the balance owned by Wells Fargo. Effective April 1, 2008, the venture began to carry on the mortgage business of Preferred Home Mortgage Company. The venture is managed by a committee composed of six members, three from Preferred Home Mortgage Company and three from Wells Fargo. The venture entered into a revolving credit agreement with Wells Fargo Bank, N.A. providing for advances of up to $20.0 million. Wells Fargo Home Mortgage provides the general and administrative support (as well as all loan related processing, underwriting and closing functions), and is the end investor for the majority of the loans closed through the joint venture. Prior to the joint venture, Preferred Home Mortgage Company had a centralized operations center that provided those support functions. The majority of these support functions ceased in June 2008. Effective April 1, 2008, we began to account for the venture as an equity-method investment.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The unaudited consolidated financial statements include our accounts and those of our subsidiaries. All significant intercompany balances and transactions have been eliminated in the unaudited consolidated financial statements. For the three months ended ~~June~~September 30, 2008 and 2007, we have eliminated inter-segment Financial Services revenues of $0.76 million and $43.5 6 million, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2008 and 2007, we have eliminated inter-segment Financial Services revenues of $2.39 million and $710.27 million, respectively.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) on a going concern basis. This contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. Accordingly, we do not include any adjustments relating to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern. Due to our Chapter 11 cases, there is substantial doubt about our ability to continue as a going concern and there is uncertainty about the realization of assets and satisfaction of liabilities, without substantial adjustments and/or changes in capital structure.

In accordance with GAAP, we have applied the provisions of American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), in preparing the unaudited consolidated financial statements. SOP 90-7 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain items of income, expense, gain or loss realized or incurred because we are in Chapter 11 are recorded in reorganization items, net on the accompanying unaudited consolidated statements of operations. Also, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified in liabilities subject to compromise on the unaudited consolidated statement of financial condition at June 30, 2008. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies (“SFAS 5”), even if they may be settled for lesser amounts. As of June 30, 2008, the pre-petition liabilities included in liabilities subject to compromise have not been reduced.

The following table summarizes the components included in reorganization items, net, in our unaudited consolidated statements of operations for the three and six months ended June 30, 2008 (in millions):

	Three Months			Six Months
	Ended			Ended
	June 30, 2008			June 30, 2008
Professional fees	$	15.3		$	22.8
Write-off of deferred finance costs		3.0			54.4
Write-off of debt premium and discounts		—			11.9
Interest income		(0.1	)		(0.1	)
Reversal of previously recorded interest expense		—			(2.3	)
Total reorganization items, net	$	18.2		$	86.7

Net cash paid for reorganization items totaled $13.8 million related to professional fees and $24.6 million ($21.7 million professional fees and $2.9 million deferred finance costs) for the three and six months ended June 30, 2008, respectively.

~~The~~In ~~following~~accordance ~~table~~with ~~summarizes~~GAAP, we have applied the ~~components~~provisions ~~included~~of American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), in preparing the unaudited consolidated financial statements. SOP 90-7 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain items of income, expense, gain or loss realized or incurred because we are in Chapter 11 are recorded in reorganization items, net on the accompanying unaudited consolidated statements of operations. Also, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified in liabilities subject to compromise on ~~our~~ the unaudited consolidated statement of financial condition asat September 30, 2008. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, in accordance with Statement of ~~June~~Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies (“SFAS 5”), even if they may be settled for lesser amounts. As of September 30, 2008, (the pre-petition liabilities included in ~~millions):~~liabilities subject to compromise have not been reduced.

Revolving Loan Facility(1)	$	272.8
First Lien Term Loan Facility due 2012(1)		199.0
Second Lien Term Loan Facility due 2013(1)		340.5
Senior notes due 2010, at 9% (1)		300.0
Senior notes due 2011, at 8 1/4%(1)		250.0
Senior subordinated notes due 2012, at 10 3/8%(1)		185.0
Senior subordinated notes due 2011, at 7 1/2%(1)		125.0
Senior subordinated notes due 2015, at 7 1/2%(1)		200.0
Senior Subordinated PIK Notes due 2015, at 14 3/4%(1)		23.1
Accrued interest on notes payable		47.2
Accounts payable and other liabilities		184.5
Obligations for inventory not owned(2)		16.7
Total liabilities subject to compromise	$	2,143.8

The following table summarizes the components included in reorganization items, net, in our unaudited consolidated statements of operations for the three and nine months ended September 30, 2008 (in millions):


	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2008			2008
Professional fees	$	19.7		$	42.5
Write-off of deferred finance costs		—			54.4
Write-off of debt premium and discounts		—			11.9
Interest income		(1.6	)		(1.7	)
Lease rejections		0.6			0.6
Reversal of previously recorded interest expense		—			(2.3	)

Total reorganization items, net	$	18.7		$	105.4

Net cash paid for reorganization items totaled $15.3 million related to professional fees and $39.9 million ($37.0 million of professional fees and $2.9 million of deferred finance costs) for the three and nine months ended September 30, 2008, respectively.

The following table summarizes the components included in liabilities subject to compromise on our unaudited consolidated statement of financial condition as of September 30, 2008 (in millions):


Revolving Loan Facility⁽¹⁾	$	223.1
First Lien Term Loan Facility due 2012⁽¹⁾		161.3
Second Lien Term Loan Facility due 2013⁽¹⁾		352.6
Senior notes due 2010, at 9% ⁽¹⁾		300.0
Senior notes due 2011, at 8 1/4%⁽¹⁾		250.0
Senior subordinated notes due 2012, at 10 3/8%⁽¹⁾		185.0
Senior subordinated notes due 2011, at 7 1/2%⁽¹⁾		125.0
Senior subordinated notes due 2015, at 7 1/2%⁽¹⁾		200.0
Senior Subordinated PIK Notes due 2015, at 14 3/4%⁽¹⁾		24.0
Accrued interest on notes payable		47.2
Accounts payable and other liabilities		195.7
Obligations for inventory not owned⁽²⁾		16.1

Total liabilities subject to compromise	$	2,080.0


⁽¹⁾		See Note 9

⁽²⁾		See Note 3

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Those estimates and assumptions which, in the opinion of management, are both significant to the underlying amounts included in the financial statements and as to which future events or information could change those estimates include:

• impairment assessments of investments in unconsolidated joint ventures, long-lived assets, including our inventory, and goodwill; • loss exposures associated with the abandonment of our rights under option and/or land bank contracts, the relinquishment of our rights under certain joint ventures and obligations under joint venture debt agreements and under performance bonds; • classification of liabilities subject to compromise; • insurance and litigation related contingencies; • realization of deferred income tax assets and liability for unrecognized tax benefits; and • estimated costs associated with construction and development activities in connection with our homebuilding operations.

	•		classification of liabilities subject to compromise;

	•		insurance and litigation related contingencies;

	•		realization of deferred income tax assets and liability for unrecognized tax benefits; and

	•		estimated costs associated with construction and development activities in connection with our homebuilding operations.

The accompanying unaudited consolidated financial statements do not purport to reflect or provide for the consequences of our Chapter 11 cases. In particular, the financial statements do not purport to show: (1) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (2) as to stockholders’ equity accounts, the effect of any changes that may be made in our capitalization; or (3) as to operations, the effect of any changes that may be made to our business. In addition, the financial statements do not reflect the amounts that may be allowed with respect to pre-petition claims and liabilities which may, as a result of the filing of proofs of claims by our creditors, result in liabilities in excess of those estimated by us in preparing the accompanying unaudited consolidated financial statements.

Due to our normal operating cycle being in excess of one year, we present unclassified unaudited consolidated statements of financial condition.

Interim Presentation

The accompanying unaudited consolidated financial statements reflect all adjustments, consisting primarily of normal recurring items that, in the opinion of management, are considered necessary for a fair presentation of the financial position, results from operations, and cash flows for the periods presented. Results of operations achieved through ~~June~~September 30, 2008 are not necessarily indicative of those that may be achieved for the year ending December 31, 2008. The unaudited consolidated statement of financial condition as of December 31, 2007 was derived from audited financial statements included in our 2007 Annual Report on Form 10-K, but does not include all disclosures required under GAAP and with the rules and regulations of the Securities and Exchange Commission. The unaudited consolidated financial statements included as part of this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

Loss per Common Share

11 Basic loss per common share is computed by dividing loss attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per common share is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are options or other common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. Dilutive securities are not included in the weighted average number of shares when inclusion would increase the earnings per share or decrease the loss per common share.

~~Table~~ For the three months ended September 30, 2008 and 2007, basic and diluted weighted average shares outstanding were 59,604,169. For the nine months ended September 30, 2008 and 2007, basic and diluted weighted average shares outstanding were 59,604,169 and 59,601,119, respectively. There were no dilutive common stock equivalents during the three and nine months ended September 30, 2008 and 2007. At September 30, 2008, outstanding options to purchase 7.5 million shares of ~~Contents~~common stock were excluded from the computation of loss per common share since their inclusion would be anti-dilutive.

Basic loss per common share is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted loss per common share is computed based on the weighted average number of shares of common stock and dilutive securities outstanding during the period. Dilutive securities are options or other common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. Dilutive securities are not included in the weighted average number of shares when inclusion would increase the earnings per share or decrease the loss per common share.

For the three months ended June 30, 2008 and 2007, basic and diluted weighted average shares outstanding were 59,604,169. For the six months ended June 30, 2008 and 2007, basic and diluted weighted average shares outstanding were 59,604,169 and 59,599,569, respectively. There were no dilutive common stock equivalents during the three and six months ended June 30, 2008 and 2007.

Revenue Recognition

Our primary source of revenue is the sale of homes to homebuyers. To a lesser degree, we engage in the sale of land to other homebuilders and other third-parties. Revenue is recognized on home sales and land sales at closing when title passes to the buyer and all of the following conditions are met: a sale is consummated, a significant down payment is received, the earnings process is complete, the receivable is not subject to future subordination, the collection of any remaining receivables is reasonably assured and we do not have substantial continuing involvement with the sold asset.

In accordance with SFAS No. 66, Accounting for the Sales of Real Estate (“SFAS 66”), at ~~June~~ September 30, 2008 and December 31, 2007, we deferred approximately $0.52 million and $1.0 million, respectively, in profit related to certain homes that were delivered for which our mortgage subsidiary originated interest-only loans or loans with high loan to value ratios which did not meet the initial and continuing investment requirements under SFAS 66, and the loans were still held for sale at the respective balance sheet date.

Fair Value Disclosures

Effective January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements (“SFAS 157”), for our financial instruments measured at fair value on a recurring basis. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, expands disclosures about fair value measurements and establishes a fair value hierarchy summarized below:

Level 1		Fair value determined based on quoted prices in active markets for identical assets or liabilities.
Level 2		Fair value determined using significant observable inputs either directly or indirectly through corroboration with market data.
Level 3		Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Level 1 Fair value determined based on quoted prices in active markets for identical assets or liabilities.

~~Our~~ Level 2 Fair ~~financial~~value ~~instruments~~determined ~~measured~~using atsignificant ~~fair~~observable ~~value~~inputs oneither adirectly ~~recurring~~or ~~basis~~indirectly atthrough ~~June 30,~~corroboration ~~2008~~with ~~are summarized~~market ~~below (in millions):~~data.

	Fair Value
Financial Instrument	Hierarchy	Fair Value
Assets:
Mortgage loans held for sale	Level 2	$	6.1

Level 3 Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar
techniques.

Mortgage loans held for sale of $6.1 million represents loans originated in prior years for which the fair value is determined by third-party opinions establishing the market sales price for the underlying collateral adjusted for customary sales and marketing costs.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157. SFAS 157 was effective for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal year beginning January 1, 2008), and interim periods within those fiscal years. We adopted SFAS 157 effective January 1, 2008 for our financial instruments measured at fair value on a recurring basis. For additional information refer to the “Fair Value Disclosures” section above. In February 2008, the FASB issued a final Staff Position to allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB also decided to amend SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that address leasing transactions. We are currently reviewing the effects, if any, of SFAS 157 related to nonfinancial assets and liabilities on our unaudited consolidated financial statements.

In November 2006, the FASB issued EITF No. 06-8, Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums, (“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 was effective as of January 1, 2008 and had no impact on our unaudited consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, and (“SFAS 159”). SFAS 159 permits companies to measure many financial instruments and certain other items at fair value. While SFAS 159 became effective for us on January 1, 2008, we did not elect the fair value measurement option for any of our financial assets or liabilities.

Our financial instruments measured at fair value on a recurring basis at September 30, 2008 are summarized below (in millions):


	Fair Value
Financial Instrument	Hierarchy	Fair Value
Assets:
Mortgage loans held for sale	Level 2	$	5.0

Mortgage loans held for sale of $5.0 million represents loans originated in prior years for which the fair value is determined by third-party opinions establishing the market sales price for the underlying collateral adjusted for customary sales and marketing costs.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157. SFAS 157 was effective for financial statements issued for fiscal years beginning after November 15, 2007 (our fiscal year beginning January 1, 2008), and interim periods within those fiscal years. As discussed above, we adopted SFAS 157 effective January 1, 2008 for our financial instruments measured at fair value on a recurring basis. In February 2008, the FASB issued a final Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157, to allow a one-year deferral of adoption of SFAS 157 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB also decided to amend SFAS 157 to exclude SFAS No. 13, Accounting for Leases, and its related interpretive accounting pronouncements that address leasing transactions. We are currently reviewing the effects, if any, of SFAS 157 related to nonfinancial assets and liabilities on our unaudited consolidated financial statements.

In November 2006, the FASB issued EITF No. 06-8, Applicability of the Assessment of a Buyers Continuing Investment under FASB Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums (“EITF 06-8”). EITF 06-8 establishes that a company should evaluate the adequacy of the buyer’s continuing investment in determining whether to recognize profit under the percentage-of-completion method. EITF 06-8 was effective as of January 1, 2008 and had no impact on our unaudited consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”). SFAS 159 permits companies to measure many financial instruments and certain other items at fair value. While SFAS 159 became effective for us on January 1, 2008, we did not elect the fair value measurement option for any of our financial assets or liabilities.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree, and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. Adoption is prospective, and early adoption is not permitted. Adoption of SFAS 141(R) will apply to any business combination beginning January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained, noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. We are currently reviewing the effect of this statement on our unaudited consolidated financial statements.

On February 20, 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. The FSP addresses whether there are circumstances that would permit a transferor and a transferee to evaluate the accounting for the transfer of a financial asset separately from a repurchase financing when the counterparties to the two transactions are the same. The FSP presumes that the initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (a linked transaction) under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140"). However, if certain criteria specified in the FSP are met, the initial transfer and repurchase financing may be evaluated separately under SFAS 140. The FSP is effective for fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. Earlier application is not permitted. Adoption of the FSP is not expected to have a material effect on our unaudited consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). SFAS 161 requires enhanced disclosures regarding derivative instruments and hedging activities to enable investors to better understand their effects on a company’s financial position, financial performance and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. SFAS 161 is effective for fiscal years beginning after November 15, 2008. We are currently evaluating the disclosure requirements of SFAS 161 and their impact on our unaudited consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position 90-7-1, An Amendment of AICPA Statement of Position 90-7 (“FSP 90-7-1”). FSP 90-7-1, which was effective immediately and amends SOP 90-7, paragraph 38 to nullify the requirement regarding changes in accounting principles. Previously under paragraph 38 of SOP 90-7, changes in accounting principles that will be required in the financial statements of an emerging entity within the 12 months following the adoption of fresh-start accounting were required to be adopted at the time fresh-start reporting was adopted. As a result of the amendment, an entity emerging from bankruptcy that applies fresh-start reporting should follow only the accounting standards in effect at the date fresh-start reporting is adopted, which include those standards eligible for early adoption if an election is made to adopt early. This will be applicable to us on upon emergence from bankruptcy.

In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). This FSP clarifies the treatment of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) that are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants . Additionally, this FSP specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are currently evaluating the impact of FSP APB 14-1 will have on our unaudited consolidated financial statements.

In November 2008, the FASB issued EITF Issue No. 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”), which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited. We are currently evaluating the impact EITF 08-6 will have on our unaudited consolidated financial statements.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (FSP 140-4 and FIN 46(R)-8). FSP 140-4 and FIN 46(R)-8 requires additional disclosures about transfers of financial assets and involvement with variable interest entities. FSP 140-4 and FIN 46(R)-8 is effective for the first reporting period ending after December 15, 2008. The implementation of this standard is not expected to have a material impact on our unaudited consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”), which addresses the factors that determine whether there has been a significant decrease in the volume and level of activity for an asset or liability when compared to the normal market activity. This pronouncement provides that if it has been determined that the volume and level of activity has significantly decreased and that transactions are not orderly, further analysis is required and significant adjustments to the quoted prices or transactions might be needed. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. We are currently evaluating the impact FSP FAS 157-4 will have on our unaudited consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB 28-1”), which provide guidance relating to required disclosures concerning the fair value of financial instruments when a publicly traded company issues financial information for interim reporting periods. The requirements are effective for interim reporting periods ending after June 15, 2009. We are currently evaluating the impact FSP FAS 107-1 and APB 28-1 will have on our unaudited consolidated financial statements.

3. Inventory

The following is a breakdown of inventory (in millions):

	June 30, 2008
	September 30, 2008
					Residences
			Homesites and		Completed and
			Land Under		Under		Inventory		Total
Region	Deposits		Development		Construction		Not Owned		Inventory
	Deposits		Development		Construction		Not Owned		Inventory
Florida	$	0.1	$	140.0	$	146.7	$	—	$	286.8
Region
Mid-Atlantic		4.7		12.5		24.7		—		41.9
Florida	$	0.1	$	105.7	$	105.1	$	—	$	210.9
Texas		11.9		56.1		103.1		1.2		172.3
Mid-Atlantic		3.8		10.3		18.5		—		32.6
West		13.5		79.5		63.4		9.1		165.5
Texas		2.2		54.8		98.7		1.0		156.7
Total	$	30.2	$	288.1	$	337.9	$	10.3	$	666.5
West		13.1		64.9		60.6		8.6		147.2
Total	$	19.2	$	235.7	$	282.9	$	9.6	$	547.4


	December 31, 2007
					Residences
			Homesites and		Completed and
			Land Under		Under		Inventory		Total
	Deposits		Development		Construction		Not Owned		Inventory
Region
Florida	$	10.2	$	294.7	$	320.1	$	8.1	$	633.1
Mid-Atlantic		7.9		21.8		28.6		—		58.3
Texas		15.6		73.3		111.9		3.1		203.9
West		23.2		243.2		95.3		14.8		376.5

Total	$	56.9	$	633.0	$	555.9	$	26.0	$	1,271.8

	December 31, 2007
					Residences
			Homesites and		Completed and
			Land Under		Under		Inventory		Total
Region	Deposits		Development		Construction		Not Owned		Inventory
Florida	$	10.2	$	294.7	$	320.1	$	8.1	$	633.1
Mid-Atlantic		7.9		21.8		28.6		—		58.3
Texas		15.6		73.3		111.9		3.1		203.9
West		23.2		243.2		95.3		14.8		376.5
Total	$	56.9	$	633.0	$	555.9	$	26.0	$	1,271.8

A summary of homebuilding interest capitalized in inventory is as follows (in millions):

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2008			2007			2008			2007
Interest capitalized, beginning of period	$	7870.61		$	7681.36		$	77.8		$	68.7
Interest incurred(1)(2)		2726.9			2943.45			6592.21			56100.72
Less interest included in:
Cost of sales		(~~19.~~8.0	)		(2335.12	)		(3543.8	)		(4378.46	)
Interest expense		(16.79	)		(010.10	)		(3653.87	)		(010.2	)
Other adjustments		0.1			(0.94	)		(0.32	)		(0.26	)
Interest capitalized, end of period(3)	$	7072.12		$	8179.65		$	7072.12		$	8179.65

(1)		Included in interest incurred is the amortization of deferred finance costs which amounted to $13.5 million for the three months ended September 30, 2007, and $14.3 million and $6.2 million for the ~~three~~nine months ended ~~June~~September 30, 2008 and ~~June~~September 30, 2007, respectively,. ~~and~~There ~~$4.3~~was ~~million~~no ~~and~~amortization ~~$2.7~~of ~~million~~deferred finance costs for the ~~six~~three months ended ~~June~~September 30, 2008 ~~and~~due ~~June~~to ~~30,~~the ~~2007,~~write-off ~~respectively~~of our deferred finance costs.
(2)		Had we not filed voluntary petitions for relief under Chapter 11, contractual interest incurred for the three and ~~six~~nine months ended ~~June~~September 30, 2008 iswould have been $3653.74 million and $91162.69 million, respectively, a portion of which would have been capitalized. Interest on our senior and senior subordinated notes stopped accruing upon filing for Chapter 11. See Note 9.
(3)		We have incurred significant inventory impairments in recent years, which are determined based on total inventory, including capitalized interest. However, the capitalized interest amounts above are gross amounts before allocating any portion of the impairments to capitalized interest.

In the ordinary course of business, we enter into option contracts to purchase homesites and land held for development. At ~~June~~September 30, 2008 and December 31, 2007, we had non-refundable cash deposits totaling $307.27 million and $56.9 million, respectively, included in inventory in the accompanying unaudited consolidated statements of financial condition. Under these option contracts, we have the right to buy homesites at predetermined prices on a predetermined takedown schedule. Option contracts generally require the payment of a cash deposit and/or the posting of a letter of credit, which is typically less than 20% of the underlying purchase price, and may require monthly maintenance payments. These option contracts are either with land sellers or third party financial entities which have acquired the land to enter into the option contract with us. Homesite option contracts are generally non-recourse, thereby limiting our financial exposure for non-performance to our cash deposits and/or letters of credit. In certain instances, we have entered into development agreements in connection with option contracts, which require us to complete the development of the land, at a fixed reimbursable amount, even if we choose not to exercise our option and forfeit our deposit and even if our costs exceed the reimbursable amount. We have abandoned our rights under certain option contracts that require us to complete the development of land for a fixed reimbursable amount. We recorded net recoveries of $0.6 million for the three months ended September 30, 2008 and net losses of $43.04 million for the ~~six months~~nine months ended ~~June~~September 30, 2008 for our estimated obligations under these development agreements, which is is included in inventory impairments and abandonment costs in the accompanying unaudited ~~consolidated~~ consolidated statement of operations. ~~No such losses were recorded during the three months ended June 30, 2008.~~ At ~~June~~September 30, 2008 and December 31, 2007, $1413.37 million and $10.3 million are included in liabilities subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition related to these development agreements.

Financing Transactions under SFAS 66

Certain of our option contracts give the other party the right to require us to purchase homesites or guarantee certain minimum returns. We have abandoned our rights under certain of these option contracts and we have not complied with the notices given to us. These option contracts were previously recorded as financing transactions under SFAS 66 and the inventory was included in inventory not owned and the corresponding liability was included in obligations for inventory not owned. Since we defaulted under or terminated these contracts, we are no longer accounting for these contracts as financing transactions. During the three and ~~six~~nine months ended ~~June~~September 30, 2008, we recorded losses of $45.80 million and $914.5 million, respectively, in connection with the ~~abandonment~~ abandonment of these option contracts, for our estimated obligations, which is included in ~~inventory~~ inventory impairments and abandonment costs in the accompanying unaudited consolidated statements of of operations. These amounts were computed based on the estimated deficiency between the fair ~~value~~ value of the underlying inventory compared to our required purchase price under the option contract. The total required purchase price under these option contracts at ~~June~~September 30, 2008 and December 31, 2007 was $2836.63 million and $25.0 million, respectively. At ~~June~~September 30, 2008 and December 31, 2007, $1924.0 million and $9.5 million is included in liabilities subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition.

14 From time to time, we transfer title to certain parcels of land to unrelated third parties or enter into agreements pursuant to which third parties purchase land which we have the contractual right to acquire. We then enter into options with the purchasers to acquire fully developed homesites. As we have continuing involvement in these properties, in accordance with SFAS 66, we have accounted for these transactions as financing arrangements. At September 30, 2008 and December 31, 2007, $7.8 million (net of $2.1 million in impairments) and $9.8 million (net of $6.0 million in impairments), respectively, of inventory not owned and $9.9 million and $15.8 million, respectively, of obligations for inventory not owned relate to sales where we have continuing involvement.

From time to time, we transfer title to certain parcels of land to unrelated third parties or enter into agreements pursuant to which third parties purchase land which we have the contractual right to acquire. We then enter into options with the purchasers to acquire fully developed homesites. As we have continuing involvement in these properties, in accordance with SFAS 66, we have accounted for these transactions as financing arrangements. At June 30, 2008 and December 31, 2007, $8.3 million (net of $2.1 million in impairments) and $9.8 million (net of $6.0 million in impairments), respectively, of inventory not owned and $10.4 million and $15.8 million, respectively, of obligations for inventory not owned relate to sales where we have continuing involvement.

Consolidation of Variable Interest Entities Under FIN 46(R)

Some of our option contracts for the purchase of land or homesites are with land sellers and third party financial entities, which qualify as variable interest entities (“VIEs”) under FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities (“FIN 46(R)”). FIN 46(R) addresses consolidation by business enterprises of VIEs in which an entity absorbs a majority of the expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests ~~in the entity. Obligations~~ for inventory not owned in our unaudited consolidated statements of financial condition represent liabilities associated with our land banking and similar activities, including obligations in VIEs which have been consolidated by us and in which we have a less than 50% ownership interest, and the creditors have no recourse against us.

in the entity. Obligations for inventory not owned in our unaudited consolidated statements of financial condition represent liabilities associated with our land banking and similar activities, including obligations in VIEs which have been consolidated by us and in which we have a less than 50% ownership interest, and the creditors have no recourse against us.

In applying FIN 46(R) to our homesite option contracts and other transactions with VIEs, we make estimates regarding cash flows and other assumptions. We believe that our critical assumptions underlying these estimates are reasonable based on historical evidence and industry practice. Based on our analysis of transactions entered into with VIEs, we determined that we are the primary beneficiary of certain of these homesite option contracts. Consequently, FIN 46(R) requires us to consolidate the assets (homesites) at their fair value, although (1) we have no legal title to the assets, (2) our maximum exposure to loss is generally limited to the deposits or letters of credit placed with these entities, and (3) creditors, if any, of these entities have no recourse against us.

The effect of FIN 46(R) at ~~June~~September 30, 2008 was to increase inventory by $21.08 million (net of $4.3 million of impairments), excluding cash deposits of $0.2 million, which had been previously recorded, with a corresponding increase to obligations for inventory not owned of $26.01 million in the accompanying unaudited consolidated statement of financial condition. The effect of FIN 46(R) at December 31, 2007 was to increase inventory by $16.2 million, excluding cash deposits of $3.8 million, which had been previously recorded, with a corresponding increase to obligations for inventory not owned of $16.2 million in the accompanying unaudited consolidated statement of financial condition. Additionally, we have entered into arrangements with VIEs to acquire homesites in which our variable interest is insignificant and, therefore, we have determined that we are not the primary beneficiary and are not required to consolidate the assets of such VIEs. Our potential exposure to loss in VIEs where we are not the primary beneficiary would primarily be the forfeiture of our deposit and/or letters of credit placed on land purchase and option contracts. At ~~June~~ September 30, 2008 and December 31, 2007, our non-refundable cash deposits placed on land purchase and option contracts amounted to $307.27 million and $56.9 million, respectively, and our letters of credit placed on land purchase and option contracts amounted to $~~10.~~4.9 million and $44.9 million, respectively.

Inventory Impairments and Abandonment Costs

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), we carry long-lived assets held for sale at the lower of the carrying amount or fair value. For active communities (communities under development and construction), we evaluate an asset for impairment when events and circumstances indicate that they may be impaired. Impairment is evaluated by estimating future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, an impairment loss is recognized. Fair value, for purposes of calculating impairment, is measured based on estimated future cash flows, discounted at a market rate of interest. During the three months ended ~~June~~September 30, 2008 and 2007, we we recorded impairment losses and abandonment costs of $~~175~~65.50 million and $4163.43 million, respectively, on active communities. During the ~~six~~nine months ended ~~June~~September 30, 2008 and 2007, we recorded impairment losses and abandonment costs of $~~277~~342.2 million and $49112.47 million, respectively, on active communities. These losses are included in cost of sales — inventory impairments and abandonment costs in the accompanying unaudited consolidated statements of operations.

In accordance with SFAS 144, we performed an evaluation of impairment on a large land parcel located in Arizona, known as ofRed ~~June~~River, during the nine months ended September 30, 2008 and determined that it is was impaired as the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition did not exceed the carrying value. We based our computation of the future undiscounted cash flows on management estimates and projections which assume that the land parcel will be subdivided into super-pads (entitled and engineered, level but not graded, ~~subdivided land parcels~~ with the required master plan infrastructure and utilities for merchant builders to custom finish lots for retail home construction) with super-pad sales estimated to commence in 2010 in anticipation of retail new home demand in 2012. This computation also included other assumptions related to market supply and demand, product type, homesite sizes, sales pace, sales prices, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs and costs of materials. The undiscounted cash flows are based on a long-term project horizon of nine years; accordingly, all project costs are variable. The undiscounted cash flows used to evaluate this parcel, assume a nine-year average annual retail home price appreciation of 2.5%. As a result, an impairment charge of $85.0 million was recognized during the ~~three~~nine months ended ~~June~~ September 30, 2008 related to this parcel, which is included in the write-off of deposits and abandonment costs for the West region in the table below, leaving a remaining book value of $19.68 million.

During the three and ~~six~~nine months ended ~~June~~September 30, 2008, we also recorded charges of $~~129~~32.21 million and $~~199~~231.89 million, respectively, in write-offs of deposits and abandonment costs which are included in cost of sales — inventory impairments and abandonment costs in the accompanying unaudited consolidated statements of operations, related to land that we have determined is not probable that we will purchase or build on (including land to be sold as lots), compared to $43441.42 million and $74515.5 7 million, respectively, for the three and ~~six~~nine months ended ~~June~~ September 30, 2007. The following table summarizes information related to impairment charges on active communities and write-offs of deposits and abandonment costs by region (dollars in millions):

1516

	Three Months Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	September 30,				September 30,
	2008		2007		2008		2007
Impairment charges on active communities:
Florida	$	~~132~~58.01	$	2315.67	$	~~205~~264.90	$	2844.74
Mid-Atlantic		52.91		4.54		1214.56		611.60
Texas		2.1.7		~~0.5~~—		34.18		0.6
West		353.51		1243.82		5558.78		1356.57
		175.5		41.4		277.2		49.4
		65.0		63.3		342.2		112.7
Write-offs of deposits and abandonment costs:
Florida		1410.30		12274.15		3646.4		12287.83
Mid-Atlantic		94.26		1333.59		914.40		1347.98
Texas		513.5		~~0.2~~—		620.83		0.3
West		~~100~~4.20		17132.68		~~147~~151.2		47180.53
		129.2		43.4		199.8		74.5
		32.1		441.2		231.9		515.7
Inventory impairments and abandonment costs	$	~~304~~97.71	$	84504.85	$	~~477~~574.01	$	~~123~~628.94
Remaining carrying value of inventory impaired at end of period	$	~~529~~502.42	$	~~696~~728.0	$	~~529~~502.42	$	~~696~~728.0
Number of projects impaired during the period		~~168~~98		~~115~~131		~~224~~257		~~131~~171
Total number of projects included in inventory and reviewed for impairment during the period		~~354~~361		~~457~~481		~~354~~361		~~457~~481

4. Transeastern Joint Venture

We acquired our 50% interest in the Transeastern Joint Venture (“Transeastern JV”) on August 1, 2005, when the Transeastern JV acquired substantially all of the homebuilding assets and operations of Transeastern Properties, Inc. including work in process, finished lots and certain land option rights. The Transeastern JV paid approximately $826.2 million for these assets and operations (which included the assumption of $127.1 million of liabilities and certain transaction costs, net of $30.1 million of cash). The other member of the joint venture was an entity controlled by the former majority owners of Transeastern Properties, Inc. We functioned as the managing member of the Transeastern JV through a wholly-owned subsidiary.

On October 31, 2006 and November 1, 2006, we received demand letters from the administrative agent for the lenders to the Transeastern JV demanding payment under certain guarantees. The demand letters alleged that potential defaults and events of default had occurred under the credit agreements and that such potential defaults or events of default had triggered our obligations under the guarantees. The lenders claimed that our guarantee obligations equaled or exceeded all of the outstanding obligations under each of the credit agreements and that we were liable for default interest, costs and expenses.

On July 31, 2007, we consummated transactions to settle the disputes regarding the Transeastern JV with the lenders to the Transeastern JV, its land bankers and our joint venture partner in the Transeastern JV. As a result, the Transeastern JV became a wholly-owned subsidiary of ours by merger into one of our subsidiaries.

Pursuant to the settlement, among other things,

	•		the Transeastern JV became a wholly-owned subsidiary of ours by merger into one of our subsidiaries, which became a guarantor on our credit facilities and note indentures (the acquisition was accounted for using the purchase method of accounting and results of operations have been included in our consolidated results beginning on July 31, 2007);

	•		the senior secured lenders of the Transeastern JV were repaid in full, including accrued interest (approximately $400.0 million in cash);

	•		the senior mezzanine lenders to the Transeastern JV received $20.0 million in aggregate principal amount of 14.75% Senior Subordinated PIK Election Notes due 2015 and $117.5 million in initial aggregate liquidation preference of 8% Series A Convertible Preferred PIK Preferred Stock;

	•		the junior mezzanine lenders to the Transeastern JV received warrants to purchase shares of our common stock which had an estimated fair value of $8.2 million at issuance (based on the Black-Scholes option pricing model and before issuance costs);

	•		we entered into settlement and release agreements with the senior mezzanine lenders and the junior mezzanine lenders to the Transeastern JV which released us from our potential obligations to them; and

1617

•

we entered into a settlement and mutual release agreement with Falcone/Ritchie LLC and certain of its affiliates (the “Falcone Entities”) concerning the Transeastern JV, one of which owned 50% of the equity interests in the Transeastern JV and, among other things, released the Falcone Entities from claims under the 2005 asset purchase agreement pursuant to which we acquired our interest in the Transeastern JV. Pursuant to the settlement agreement, we remain obligated on certain indemnification obligations, including, without limitation, certain land bank arrangements.

To effect the settlement of the Transeastern JV dispute, on July 31, 2007, we also entered into:

	•		an amendment to our $800.0 million revolving loan facility dated January 30, 2007;

	•		a new $200.0 million aggregate principal amount first lien term loan facility; and

	•		a new $300.0 million aggregate principal amount second lien term loan facility.

The proceeds from the first and second lien term loans were used to satisfy claims of the senior secured lenders against the Transeastern JV, and to pay related expenses. Our existing $800.0 million revolving loan facility was amended and restated to reduce the revolving commitments thereunder by $100.0 million and permit the incurrence of the first and second lien term loan facilities (and make other conforming changes relating to the facilities). Net proceeds from these financings at closing were $470.6 million which is net of a 1% discount and transaction costs.

We also paid:

	•		$50.2 million in cash to purchase land under existing land bank arrangements with the former Transeastern JV partner; and

	•		$33.5 million in interest and expenses.

Additional descriptions of the facilities, preferred stock and the warrants are provided in Notes 9 and 12 to the unaudited consolidated financial statements.

In connection with the Transeastern JV settlement, we recognized a loss of $426.6 million, of which $32.0 million was recognized during the three months ended ~~June~~September 30, 2007, $119.6 million ~~was~~ was recognized during the remainder of 2007 and $275.0 million was recognized during 2006.

The consideration paid by us in connection with the TE Acquisition approximated $586.8 million, at the time of settlement (July 31, 2007), which included (in millions):


Purchase price:
Cash consideration paid to Senior Lenders of the Transeastern JV	$	400.0
Fair value of convertible preferred stock issued		84.0
Fair value of senior subordinated notes issued		10.9
Fair value of common stock warrants issued		8.2
Payment to purchase land under existing land bank arrangements		50.2
Transaction costs including accrued interest paid to the Senior Lenders		33.5

Total estimated purchase price	$	586.8

Allocation of purchase consideration:
Cash and cash equivalents	$	10.3
Restricted cash		28.4
Inventory⁽¹⁾		149.8
Property and equipment		1.0
Accounts payable and other liabilities		(27.4	)
Customer deposits		(1.9	)
Previously accrued loss contingency⁽²⁾		385.9
Additional loss on TE Acquisition⁽³⁾		40.7

	$	586.8

(1)		The fair value of the inventory was determined by estimating future cash flows expected to result from the use of the asset and its eventual disposition, discounted at a market rate of interest.
(2)		In accordance with SFAS 5 and other authoritative guidance, as of ~~June~~September 30, 2007, we accrued $385.9 million for settlement of a loss contingency (determined by computing the difference between the estimated fair value of the consideration paid in connection with the global settlement less the estimated fair value of the business acquired).
(3)		There were no identifiable intangible assets or goodwill associated with the TE Acquisition.

1718

5. Investments in Unconsolidated Joint Ventures

We have entered into strategic joint ventures that acquire and develop land for our Homebuilding operations and/or that also build and market homes for sale to third parties. Our partners in these joint ventures generally are unrelated homebuilders, land sellers, financial investors or other real estate entities. In some cases our Chapter 11 filings have constituted an event of default under the joint venture lender agreements which have resulted in the debt becoming immediately due and payable, limiting the joint ventures’ access to future capital. In joint ventures where the assets are being financed with debt, the borrowings are non-recourse to us except that in certain instances we have agreed to complete certain property development commitments in the event the joint ventures default and to indemnify the lenders for losses resulting from fraud, misappropriation, violations of environmental laws and similar acts. In some cases, we have agreed to make capital contributions to the joint venture sufficient to comply with a specified debt to value ratio. Our obligations become full recourse upon certain bankruptcy events with respect to the joint venture. At ~~June~~September 30, ~~2008~~ 2008 and December 31, 2007, we had investments in unconsolidated joint ventures of $83.70 million and $9.0 million, respectively. We account for these investments under the equity method of accounting. These unconsolidated joint ventures are limited liability companies or limited partnerships in which we have a limited partnership interest and a minority interest in the general partner. At ~~June 30, 2008 and~~ December 31, 2007, we had receivables of $0.~~1 million and $0.~~3 million, net of allowances, ~~respectively,~~ from these joint ventures due to loans and advances, unpaid management fees and other items. At September 30, 2008, we had no receivables from joint ventures.

In ~~many~~certain instances, we ~~are~~were appointed as the day-to-day manager of the unconsolidated ~~entities~~ entities and ~~receive~~received management fees for performing this function. We earned management fees from ~~these~~ these unconsolidated entities of $0 and $40.58 million for the three months ended ~~June~~September 30, 2008 and 2007, respectively, and $0.1 million and $89.10 million for the ~~six~~nine months ended ~~June~~September 30, 2008 and 2007, respectively. These fees are included in income (loss) from unconsolidated joint ventures in the accompanying unaudited consolidated statements of operations.

We evaluated the recoverability of our investments in and receivables from unconsolidated joint ventures under APB 18 and SFAS No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS 114”), and recorded total impairments of investments in unconsolidated joint ventures of $25.38 million and $23.4 million for the three months ended ~~June~~September 30, 2008 and 2007, respectively, and $2.8.6 million and $528.59 million for the ~~six~~ nine months ended ~~June~~September 30, 2008 and 2007, respectively. AtAdditionally, ~~June~~during the three months ended September 30, 2008, we recorded $5.3 million of impairments on joint venture receivables (net of a $2.2 million recovery related to a previously written-off joint venture receivable). At September 30, 2008 and December 31, 2007, the accrual related to joint venture obligations was $5947.57 million and $74.6 million, respectively, which primarily relates to limited guarantees we issued in connection with our unconsolidated joint ventures. As explained in further detail below, the decrease in the accrual is primarily due to the reduction of loss accruals ~~totaling $11.6 million~~ for certain joint venture obligations ~~obilgations~~totaling $26.9 million established in 2007 and reversed during the ~~three~~nine months ended ~~June~~ September 30, 2008.

Engle/Sunbelt Joint Venture

In December 2004, we entered into a joint venture agreement with Suntous Investors, LLC (“Suntous”) to form Engle/Sunbelt Holdings, LLC (“Engle/Sunbelt”). Engle/Sunbelt was formed to develop finished homesites and to build and deliver homes in the Phoenix, Arizona market. Upon its inception, the venture acquired eight of our existing communities in Phoenix, Arizona.

At December 31, 2007, the joint venture had financing arrangements with an aggregate borrowing capacity of $230.0 million, of which $200.0 million related to a revolving loan and $30.0 million related to a mezzanine financing instrument. On January 16, 2008, the facility was amended to reduce the revolving loan limit to $115.0 million and terminate the mezzanine financing instrument. While the borrowings by Engle/Sunbelt were non-recourse to us, we had obligations to complete construction of certain improvements and housing units in the event Engle/Sunbelt defaulted. Additionally, we agreed to indemnify the lenders for, among other things, potential losses resulting from violations of environmental laws, misappropriation, bankruptcy filings and similar acts by Engle/Sunbelt.

Although Engle/Sunbelt was not included in our Chapter 11 filings, our Chapter 11 filings constituted an event of default under the financing arrangements and Engle/Sunbelt’s debt became immediately due and payable.

During 2007, we evaluated the recoverability of our investment in and receivables from Engle/Sunbelt for impairment under APB 18 and SFAS 114, respectively, and recorded an impairment charge of $60.7 million, representing the full carrying value our investment in and receivables ~~from~~ from Engle/Sunbelt, net of deferred gains of $22.5 million.

In April 2008, we entered into a settlement agreement with the lenders pursuant to which Engle/Sunbelt agreed to the appointment of a receiver and further agreed to either, at the election of the lenders, deliver a deed in lieu of foreclosure to its assets or consent to a judicial foreclosure. We also agreed to assist the lenders in their efforts to complete certain construction for which we ~~will~~would receive arm’s length compensation. The Bankruptcy Court entered an order approving the settlement agreement. Pursuant to the settlement agreement, on November 20, 2008, we were relieved from our obligations under the completion and indemnity agreements.

TOUSA/Kolter Joint Venture

In January 2005, we entered into a joint venture with Kolter Real Estate Group LLC to form TOUSA/Kolter Holdings, LLC (“TOUSA/Kolter”) for the purpose of acquiring, developing and selling approximately 1,900 homesites and commercial property in a master planned community in South Florida. The joint venture obtained senior and senior subordinated term loans. We entered into a Performance and Completion Agreement in favor of the lenders under which we agreed, among other things, to construct and complete the horizontal development of the lots and commercial property and related infrastructure in accordance with certain plans. The loans required, among other things, TOUSA/Kolter to have completed the development of certain lots by January 7, 2007. Due to unforeseen and unanticipated delays in the entitlement process and additional development requests by the county and water management district, TOUSA/Kolter was unable to complete the development of these certain lots by the required deadline. On ~~June~~September 21, 2007, and in response to missing the development deadline, TOUSA/Kolter amended the existing loan agreements and we amended the Performance and Completion Agreement to extend the Performance and Completion Agreement development deadline to May 31, 2008. The amendments to the term loan agreements increased the interest rate on the senior term loan by 100 basis points to LIBOR plus 3.25% and by 50 basis points to LIBOR plus 8.5% for the senior subordinated term loan. As a condition to the amendment, we agreed with Kolter Real Estate Group LLC to be responsible for the additional 150 basis points; accordingly, this would be a cost of the lots we acquired from ~~TOUSA/Kolter. The amendment also required us to~~ increase our existing letter of credit by an additional $1.8 million to $12.1 million and place an additional $3.0 million cash deposit on the remaining lots under option. The $3.0 million was used by TOUSA/Kolter to pay down a portion of the senior term loan.

1819

TOUSA/Kolter. The amendment also required us to increase our existing letter of credit by an additional $1.8 million to $12.1 million and place an additional $3.0 million cash deposit on the remaining lots under option. The $3.0 million was used by TOUSA/Kolter to pay down a portion of the senior term loan.

As we had abandoned our rights under the option contract due to non-performance, we recorded an obligation of $12.1 million for the letter of credit we anticipated would be drawn, wrote-off the $3.0 million cash deposit and $1.0 million in capitalized pre-acquisition costs in 2007. In 2008, the letter of credit was drawn and used to reduce the joint venture’s term loan outstanding.

The lenders to the joint venture ~~have~~ declared the loan to the venture to be in default. The Remargining Agreement ~~requires~~required us to pay to the Administrative Agent, upon default of the joint venture, an amount necessary to decrease the principal balance of the loan so that the outstanding balance ~~does~~did not exceed 70% of the value of the joint venture’s assets. Based on the estimated fair value of the assets of the joint venture, we recorded a $54.0 million obligation (which included the $12.1 million letter of credit accrual) in 2007 in connection with our obligation under the re-margining provisions of the loan agreement. We did not record any additional contingent liability under the completion guarantee as the $54.0 million accrual represented the full debt obligation of the joint venture. At December 31, 2007, the obligation of $54.0 million is included in accounts payable and other liabilities in the accompanying unaudited consolidated statements of financial condition. As a result of the 2009 transaction discussed below, we reduced the obligation for $8.5 million of loan forgiveness, $11.7 million of drawn letters of credit and $2.3 million of escrowed interest applied to the loan balance, leaving a remaining obligation at ~~June~~September 30, 2008 of of $31.5 million, which is included in liabilities subject to compromise in the accompanying ~~unaudited~~ unaudited consolidated statement of financial condition.

During 2007, we evaluated the recoverability of our investment and receivables from TOUSA/Kolter for impairment under APB 18 and SFAS 114, respectively, and recorded an impairment charge of $58.8 million representing the full carrying value of our investment in and receivables from TOUSA/Kolter, net of deferred gains of $12.8 million, which were deferred as a result of the contributed assets and contract assignments to TOUSA/Kolter. Additionally, in 2007 we recorded an obligation of $18.9 million for performance bonds and letters of credit that we placed on behalf of the joint venture, as we considered it probable that we would be required to reimburse these amounts for development remaining to be completed. At ~~June~~September 30, 2008 and December 31, 2007, ~~the~~ the obligation for performance bonds and letters of credit of $13.7 million and $18.9 million, respectively, is included in liabilities subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition.

On January 28, 2009, we entered into an agreement with CC Loan Acquisition LLC, which had purchased the loans to the joint venture and the Community Development District Bonds related to the project. The joint venture deeded the property to CC Loan Acquisition LLC and received an extension of the maturity of the “B Bonds” until May 1, 2013. A portion of the outstanding joint venture indebtedness was also satisfied and the amount collectible from CC Loan Acquisition LLC under filed proofs of claim related to the Completion Agreement was limited. This agreement was approved by the Bankruptcy Court on January 9, 2009.

Centex/TOUSA at Wellington, LLC

In December 2005, we entered into a joint venture with Centex Corporation to form Centex/TOUSA at Wellington, LLC (“Centex/TOUSA at Wellington”) for the purpose of acquiring, developing and selling approximately 264 homesites in a community in South Florida. The joint venture obtained a term loan of which $31.0 million was outstanding as of ~~June~~September 30, 2008 and December 31, 2007. ~~The~~ The credit agreement requires us to construct and complete the horizontal development of the lots ~~and~~ and related infrastructure in accordance with certain agreed upon plans. On August 31, 2007, Centex/TOUSA at Wellington received a notice from the lender requiring the joint venture members to contribute approximately $10.0 million to the joint venture to reduce the outstanding term loan in order to comply with the 60% loan-to-value ratio covenant. We have not made the required equity contribution.

We evaluated the recoverability of our investment in and receivables from Centex/TOUSA at Wellington for impairment under APB 18 and SFAS 114 respectively, and recorded an impairment of $27.0 million representing the full carrying value of our investment in and receivables from Centex/TOUSA at Wellington during 2007. Based on the estimated fair value of the assets of the joint venture, we recorded a $15.5 million ~~obligation~~liability in 2007, in connection with our obligation under the re-margining provisions of the loan agreement which represents our portion of the joint venture’s outstanding debt. We did not record any additional contingent liability under the ~~completion~~ completion guarantee as the $15.5 million accrual represents our portion of the full joint venture ~~debt~~ debt obligation. At ~~June~~September 30, 2008 and December 31, 2007, the $15.5 million obligation is included in liabilities subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition.

We have entered into an agreement with our joint venture partner pursuant to which we will surrender our interest in the joint venture, be relieved from any liability owed to the venture or under the guarantees and convey our ownership interest in 44 lots to the venture for $1.1 million, less applicable real estate taxes. The agreement is subject to Bankruptcy Court approval.

Layton Lakes Joint Venture

In connection with our joint venture with Lennar Corporation (the “Layton Lakes Joint Venture”) to acquire and develop land, townhome properties and commercial property in Gilbert, Arizona, we entered into a Completion and Limited Indemnity Agreement for the benefit of the lender to the joint venture.

We evaluated the recoverability of our investment in and receivables from the Layton Lakes Joint Venture for impairment under APB 18 and SFAS 114, respectively, and recorded an impairment charge of $24.9 million representing the full carrying value of our investment in and receivables from the Layton Lakes Joint Venture during 2007. At that time, we did not record any obligation under the re-margining provision as we were not a party to the re-margining agreement. The remargining agreement required that the outstanding loan balance not exceed 65% of the value of the joint venture’s assets. Additionally, in 2007 we recorded an obligation of $4.4 million for performance bonds that we placed on behalf of the joint venture, as we considered it probable that we would be required to reimburse these amounts for development remaining to be completed. We did not record any additional contingent liability under the completion guarantee as based on ~~the estimated fair value of the assets of the joint venture,~~ ~~we did not believe that it was probable that we would be called to perform under the completion obligation.~~

~~The joint venture also breached various other loan covenants. As a result of our defaults,~~20 ~~including our failure to maintain a required net worth, we did not have the right to take down lots or vote as a member of the joint venture.~~

~~Tousa,~~the ~~Tousa~~estimated ~~Homes,~~fair ~~Inc.,~~value ~~Lennar~~of ~~and~~ the ~~Town~~assets of ~~Gilbert, Arizona entered into a series of agreements pursuant to which, among other things, we have surrendered our interest in~~ the joint venture; ~~and have paid $1.3 million toward completion of certain offsite improvements. In exchange,~~ we ~~have~~did ~~been~~not ~~granted~~believe anthat ~~option~~it ~~to continue acquiring lots and the Town of Gilbert has agreed to~~was ~~issue~~probable ~~certificates~~that ofwe ~~occupancy~~would ~~for~~be ~~certain~~called ~~homes under construction. Tousa, Tousa Homes, Inc., Lennar and Bank Midwest each agreed~~ to ~~mutual~~perform releases of claims related to the Layton Lakes Joint Venture. The Bankruptcy Court approved these agreements on November 25, 2008. As a result of this settlement and certain work performed by our joint venture, we reversed $4.3 million of our accrual for estimated obligations under the ~~performance bonds~~completion ~~during the six months ended June 30, 2008~~obligation.

The joint venture also breached various other loan covenants. As a result of our defaults, including our failure to maintain a required net worth, we did not have the right to take down lots or vote as a member of the joint venture.

Tousa, Tousa Homes, Inc., Lennar and the Town of Gilbert, Arizona entered into a series of agreements pursuant to which, among other things, we surrendered our interest in the joint venture and paid $1.3 million toward completion of certain offsite improvements. In exchange, we were granted an option to continue acquiring lots and the Town of Gilbert agreed to issue certificates of occupancy for certain homes under construction. Tousa, Tousa Homes, Inc., Lennar and Bank Midwest each agreed to mutual releases of claims related to the Layton Lakes Joint Venture. The Bankruptcy Court approved these agreements on November 25, 2008. As a result of this settlement and certain work performed by our joint venture partner, we reversed $4.4 million of our accrual for estimated obligations under the performance bonds during the nine months ended September 30, 2008.

Other

Certain of our other ongoing unconsolidated land development joint ventures have outstanding debt obligations totaling $1712.64 million and $20.6 million at ~~June~~September 30, 2008 and December 31, 2007, respectively. These joint venture borrowings are non-recourse to us except that in certain instances we have agreed to complete certain property development commitments in the event the joint venture defaults and to indemnify the lenders for losses resulting from fraud, misappropriation, violations of environmental laws and similar acts.

Summarized in the tables below is the unaudited condensed combined financial information related to our ongoing unconsolidated land development joint ventures, primarily located in Texas, for which we have investments that are accounted for under the equity method of accounting, excluding those joint ventures discussed above in which we have written off our investment (in millions):

	June 30,		December 31,
	2008		2007
Assets:
Cash and cash equivalents	$	2.8	$	3.2
Inventories		38.1		39.0
Other assets		5.1		0.9
Total assets	$	46.0	$	43.1
Liabilities and equity:
Accounts payable and other liabilities		2.7		5.1
Notes payable		17.6		20.6
Equity of:
TOUSA, Inc.		12.7		7.9
Others		13.0		9.5
Total equity		25.7		17.4
Total liabilities and equity	$	46.0	$	43.1

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Revenues	$	4.5	$	4.0	$	6.7	$	20.0
Cost and expenses		3.9		4.0		5.8		20.0
Net income	$	0.6	$	—	$	0.9	$	—

6. Other Assets

Other assets consist of the following (in millions):

	June 30,		December 31,
	September 30,		December 31,
	2008		2007
Homebuilding:
Income taxes receivable	$	—	$	218.4
Accounts receivable		2526.85		34.7
Deferred finance costs, net		—		55.8
Prepaid expenses		1713.73		20.3
Other assets		17.8		0.8
Deposits and other assets		22.2		0.8
Total other assets	$	6162.30	$	330.0

During the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2008, we wrote off $~~3.0 million and $~~54.4 million, ~~respectively,~~ of deferred finance costs related to our unsecured and under-secured debt obligations which have been classified as liabilities subject to compromise and are recorded at amounts expected to be allowed by the Bankruptcy Court.

In April 2008, we received a $207.3 million refund of previously paid income taxes for 2005 and 2006 through the carryback of our taxable loss from 2007 ~~of which $175~~.~~0 million has been has~~ ~~been included in restricted cash at June 30, 2008 as required by the cash collateral order (see Note 1).~~

7. Goodwill

Goodwill represents the excess of the purchase price of our acquisitions over the fair value of the net assets acquired. Additional consideration paid in subsequent periods under the terms of purchase agreements is included as acquisition costs.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, we test goodwill for impairment annually or more frequently if certain impairment indicators are present. For purposes of the impairment test, we consider each homebuilding and financial services entity a reporting unit. Our impairment test is based on discounted cash flows derived from internal projections. This process requires us to make assumptions on future revenues, costs, and timing of expected cash flows. Due to the degree of judgment required and uncertainties surrounding such estimates, actual results could differ from such estimates. To the extent additional information arises or our strategies change, it is possible that our conclusion regarding goodwill impairment could change, which could have a material adverse effect on our financial position and results of operations. During the ~~three~~nine months ended ~~June~~September 30, 2008, we determined that the challenging housing market ~~and~~ and the asset impairments taken in certain of our homebuilding divisions were indicators of impairment. All goodwill was impaired as of June 30, 2008. We performed our interim impairment tests as of March 31, 2008 and ~~determined~~June 30, ~~that~~2008, ~~there~~which ~~was~~resulted in a goodwill impairment for the ~~three~~ nine months ended ~~June~~September 30, 2008 of $11.2 million ($1.6 million related to the Mid-Atlantic ~~region~~ region and $9.6 million related to the Texas region). During ~~2007~~the three months ended September 30, 2007, we recorded a goodwill impairment charge in our Southwest Florida division of $2.7 million. During the nine months ended September 30, 2007, we recorded goodwill impairments totaling $40.9 million in our Southwest Florida ($2.7 million), Virginia ($6.5 million), Mid-Atlantic ($21.2 million) and Las Vegas ($10.5 million) divisions~~; accordingly, we recognized a $38~~.~~2 million~~ ~~goodwill impairment charge for the three and six months ended June 30, 2007.~~ Additionally, during the ~~six~~nine months ended ~~June~~September 30, 2007, we wrote-off $3.1 million of goodwill related to our Dallas division that has been accounted for as a discontinued operation.

At ~~June~~ September 30, 2008, there is no remaining goodwill. At December 31, 2007, total goodwill is $11.2 million, ~~which~~ ~~consists~~consisting of $1.6 million related to the Mid-Atlantic region and $9.6 million related to the Texas region.

8. Accounts Payable and Other Liabilities

Accounts payable and other liabilities consist of the following (in millions):

	June 30,		December 31,
	2008		2007
Homebuilding:
Accounts payable	$	36.4	$	41.8
Interest		8.1		48.4
Compensation		13.1		14.8
Taxes, including income and real estate		13.2		22.6
Accrual for unpaid invoices on delivered homes		20.0		27.9
Accrued expenses		8.4		90.7
Community development district bond obligations		27.7		29.6
Obligations related to unconsolidated joint ventures		—		74.6
Accrued letters of credit expected to be drawn		—		43.6
Warranty costs		3.8		5.0
Deferred revenue		0.1		2.8
Total accounts payable and other liabilities(1)	$	130.8	$	401.8

(1) Certain accounts payable and other liabilities at June 30, 2008 have been classified as liabilities subject to compromise (see Note 2).

In connection with the development of certain of our communities, community development or improvement districts may utilize tax-exempt bond financing to fund construction or acquisition of certain on-site and off-site infrastructure improvements. Some bonds are repaid directly by us while other bonds only require us to pay non-ad valorem assessments related to lots not yet delivered to residents. These bonds are typically secured by the property and are repaid from assessments levied on the property over time. We also guarantee district shortfalls under certain bond debt service agreements when the revenues, fees and assessments, which are designed to cover principal, interest and other operating costs of the bonds, are insufficient. In accordance with EITF 91-10, Accounting for Special Assessments and Tax Increment Financing, we record a liability for future assessments, which are fixed and determinable for a fixed or determinable period. In addition and in accordance with SFAS 5, we evaluate whether we are contingently liable for any of the debt related to the bond issuance. Community development district bond obligations were $27.7 million and $29.6 million at June 30, 2008 and December 31, 2007, respectively.

At June 30, 2008, we have total outstanding performance / surety bonds of $170.1 million related to land development activities and have estimated our exposure on our outstanding surety bonds to be $58.6 million based on land development remaining to be completed. At June 30, 2008 and December 31, 2007, our accrual totaled $42.0 million and $48.0 million, respectively, for surety bonds where we consider it probable that we will be required to reimburse the surety for amounts drawn related to defaulted agreements, which is included as a liability subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition.

8. Accounts Payable and Other Liabilities

Accounts payable and other liabilities consist of the following (in millions):


	September 30,		December 31,
	2008		2007
Homebuilding:
Accounts payable	$	36.8	$	41.8
Interest		9.7		48.4
Compensation		10.7		14.8
Taxes, including income and real estate		12.7		22.6
Accrual for unpaid invoices on delivered homes		19.6		27.9
Accrued expenses		2.6		90.7
Community development district bond obligations		26.7		29.6
Obligations related to unconsolidated joint ventures		—		74.6
Accrued letters of credit expected to be drawn		—		43.6
Warranty costs		2.7		5.0
Deferred revenue		0.1		2.8

Total accounts payable and other liabilities⁽¹⁾	$	121.6	$	401.8


⁽¹⁾		Certain accounts payable and other liabilities at September 30, 2008 have been classified as liabilities subject to compromise (see Note 2).

In connection with the development of certain of our communities, community development or improvement districts may utilize tax-exempt bond financing to fund construction or acquisition of certain on-site and off-site infrastructure improvements. Some bonds are repaid directly by us while other bonds only require us to pay non-ad valorem assessments related to lots not yet delivered to residents. These bonds are typically secured by the property and are repaid from assessments levied on the property over time. We also guarantee district shortfalls under certain bond debt service agreements when the revenues, fees and assessments, which are designed to cover principal, interest and other operating costs of the bonds, are insufficient. In accordance with EITF 91-10, Accounting for Special Assessments and Tax Increment Financing, we record a liability for future assessments, which are fixed and determinable for a fixed or determinable period. In addition and in accordance with SFAS 5, we evaluate whether we are contingently liable for any of the debt related to the bond issuance. Community development district bond obligations were $26.7 million and $29.6 million at September 30, 2008 and December 31, 2007, respectively.

At September 30, 2008, we have total outstanding performance / surety bonds of $140.6 million related to land development activities and have estimated our exposure on our outstanding surety bonds to be $54.5 million based on land development remaining to be completed. At September 30, 2008 and December 31, 2007, our accrual totaled $41.8 million and $48.0 million, respectively, for surety bonds where we consider it probable that the surety has a claim for reimbursement for amounts drawn related to defaulted agreements, which is included as a liability subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition.

9. Homebuilding and Financial Services Borrowings

Homebuilding Borrowings

Homebuilding borrowings consist of the following (in millions):

	June 30,			December 31,
	September 30,			December 31,
	2008			2007
Revolving Loan Facility	$	~~272~~223.81		$	168.5
First Lien Term Loan Facility due 2012		~~199~~161.03			199.0
Discount on First Lien Term Loan Facility(1)		—			(1.8	)
Second Lien Term Loan Facility due 2013		~~340~~352.56			317.1
Discount on Second Lien Term Loan Facility(1)		—			(2.8	)
Senior notes due 2010, at 9%		300.0			300.0
Senior notes due 2011, at 8 1/4%		250.0			250.0
Discount on senior notes(1)		—			(2.5	)
Senior subordinated notes due 2012, at 10 3/8%		185.0			185.0
Senior subordinated notes due 2011, at 7 1/2%		125.0			125.0
Senior subordinated notes due 2015, at 7 1/2%		200.0			200.0
Premium on senior subordinated notes(1)		—			3.7
Senior Subordinated PIK Notes due 2015, at 14 3/4%		2324.10			21.3
Discount on Senior Subordinated PIK Notes(1)		—			(8.7	)
		1,895.4			1,753.8
		1,821.0			1,753.8
Less: Amounts classified as liabilities subject to compromise (see Note 2)		(1,~~895~~821.40	)		—
	$	—		$	1,753.8

(1) During the six months ended June 30, 2008, we wrote-off $11.9 million of debt premium and discounts related to our debt obligations which have been classified as liabilities subject to compromise (see Note 2).

The filing of the Chapter 11 cases triggered repayment obligations under a number of instruments and agreements relating to our direct and indirect financial obligations. As a result, all our borrowings became automatically and immediately due and payable. We believe that any efforts to enforce the payment obligations are stayed as a result of the filing of the Chapter 11 cases.

We are authorized by the Bankruptcy Court order to use cash collateral of our first lien and second lien lenders in a manner consistent with a budget negotiated by the parties. The order further provided for the pay-down of $175.0 million to our first lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful and repayment is required. We also have the right to pay-down an additional $15.0 million to our first lien secured lenders. As of March 6, 2009, we had paid-down approximately $143.0 million to the first lien secured lenders. We may incur liens and enter into sale/leaseback transactions for model homes subject to certain limitations. We have granted the pre-petition agents and the lenders various forms of protection, including liens and claims to protect against any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our secured facilities.

We and the first lien lenders reached an agreement to extend the use of cash collateral until April 30, 2009 on terms substantially similar to those in the original cash collateral order. The new cash collateral order was approved by the Bankruptcy Court on January 28, 2009. If we fail to comply with the order, we will not have sufficient cash to enable us to operate our business and effectuate our restructuring.

Revolving Loan Facility and First and Second Lien Term Loan Facilities

To effect the TE Acquisition, on July 31, 2007, we entered into (1) the $200.0 million aggregate principal amount first lien term loan facility (the “First Lien Term Loan Facility”) and (2) the $300.0 million aggregate principal amount second lien term loan facility (the “Second Lien Term Loan Facility”), (First and Second Lien Term Loan Facilities taken together, the “Facilities”). At June 30, 2008 and December 31, 2007, we had $272.8 million and $168.5 million, respectively, outstanding under our revolving loan facility (the “Revolving Loan Facility”). There is no additional capacity available under the Revolving Loan Facility other than for letters of credit presented to the bank. The Revolving Loan Facility expires on March 9, 2010. The First Lien Term Loan Facility expires on July 31, 2012 and the Second Lien Term Loan Facility expires on July 31, 2013. At June 30, 2008, the Revolving Loan Facility and the Facilities are classified as liabilities subject to compromise (see Note 2).

The interest rates on the Facilities and the Revolving Loan Facility are based on LIBOR plus a margin or an alternate base rate plus a margin, at our option. For the Revolving Loan Facility, the LIBOR rates are increased by between 2.50% and 5.25% depending on our leverage ratio (as defined in the Agreement) and credit ratings. Loans bearing interest at the base rate (the rate announced by Citibank as its base rate or 0.50% above the Federal Funds Rate) increase between 1.00% and 5.25% in accordance with the same criteria. Based on our current leverage ratio and credit ratings, our LIBOR loans bear interest at LIBOR plus 5.25% and our base rate loans bear interest at the Federal Funds Rate plus 5.25%. For the First Lien Term Loan Facility, the interest rate is LIBOR plus 5.00% or base rate plus 4.00%. For the Second Lien Term Loan Facility, the interest rate is LIBOR plus 7.25% or base rate plus 6.25%. The Second Lien Term Loan Facility allows us to pay interest, at our option, (1) in cash, (2) entirely by increasing the principal amount of the Second Lien Term Loan Facility, or (3) a combination thereof. The Facilities and the New Revolving Loan Facility are guaranteed by substantially all of our domestic subsidiaries (“Guarantor Subsidiaries”). The obligations are secured by substantially all of our assets, including those of our subsidiaries other than our mortgage and title subsidiaries.

⁽¹⁾During the nine months ended September 30, 2008, we wrote-off $11.9 million of debt premium and discounts related to our debt obligations which have been classified as liabilities subject to compromise (see Note 2).

We are authorized by the Bankruptcy Court order to use cash collateral of our first lien and second lien lenders in a manner consistent with a budget negotiated by the parties. The order further provided for the pay-down of $175.0 million to our first lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful and repayment is required. We also have the right to pay-down an additional $15.0 million to our first lien secured lenders. As of May 1, 2009, we had paid-down $148.4 million to the first lien secured lenders. We may incur liens and enter into sale/leaseback transactions for model homes subject to certain limitations. We have granted the pre-petition agents and the lenders various forms of protection, including liens and claims to protect against any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our secured facilities.

Revolving Loan Facility and First and Second Lien Term Loan Facilities

To effect the TE Acquisition, on July 31, 2007, we entered into (1) the $200.0 million aggregate principal amount first lien term loan facility (the “First Lien Term Loan Facility”) and (2) the $300.0 million aggregate principal amount second lien term loan facility (the “Second Lien Term Loan Facility”), (First and Second Lien Term Loan Facilities taken together, the “Facilities”). At September 30, 2008 and December 31, 2007, we had $223.1 million and $168.5 million, respectively, outstanding under our revolving loan facility (the “Revolving Loan Facility”). There is no additional capacity available under the Revolving Loan Facility other than for letters of credit presented to the bank. The Revolving Loan Facility expires on March 9, 2010. The First Lien Term Loan Facility expires on July 31, 2012 and the Second Lien Term Loan Facility expires on July 31, 2013. At September 30, 2008, the Revolving Loan Facility and the Facilities are classified as liabilities subject to compromise (see Note 2).

The interest rates on the Facilities and the Revolving Loan Facility are based on LIBOR plus a margin or an alternate base rate plus a margin, at our option. For the Revolving Loan Facility, the LIBOR rates are increased by between 2.50% and 5.25% depending on our leverage ratio (as defined in the Agreement) and credit ratings. Loans bearing interest at the base rate (the rate announced by Citibank as its base rate or 0.50% above the Federal Funds Rate) increase between 1.00% and 4.25% in accordance with the same criteria. Based on our current leverage ratio and credit ratings, our LIBOR loans bear interest at LIBOR plus 5.25% and our base rate loans bear interest at the Federal Funds Rate plus 4.25%. For the First Lien Term Loan Facility, the interest rate is LIBOR plus 5.00% or base rate plus 4.00%. For the Second Lien Term Loan Facility, the interest rate is LIBOR plus 7.25% or base rate plus 6.25%. The Second Lien Term Loan Facility allows us to pay interest, at our option, (1) in cash, (2) entirely by increasing the principal amount of the Second Lien Term Loan Facility, or (3) a combination thereof. The Facilities and the Revolving Loan Facility are guaranteed by substantially all of our domestic subsidiaries (“Guarantor Subsidiaries”). The obligations are secured by substantially all of our assets, including those of our subsidiaries other than our mortgage and title subsidiaries.

Senior Notes and Senior Subordinated Notes

Our outstanding senior notes are guaranteed, on a joint and several basis, by the Guarantor Subsidiaries, which are all of our material domestic subsidiaries, other than our mortgage and title subsidiaries (the Non-Guarantor Subsidiaries). Our outstanding senior subordinated notes are guaranteed on a senior subordinated basis by all of the Guarantor Subsidiaries. The senior notes rank pari passu in right of payment with all of our existing and future unsecured senior debt and senior in right of payment to our senior subordinated notes and any future subordinated debt. The senior subordinated notes rank pari passu in right of payment with all of our existing and future unsecured senior subordinated debt. The indentures governing the senior notes and senior subordinated notes generally require us to maintain a minimum consolidated net worth and place certain restrictions on our ability, among other things, to incur additional debt, pay or declare dividends or other restricted payments, sell assets, enter into transactions with affiliates, invest in joint ventures above specified amounts and merge or consolidate with other entities. Interest on our outstanding senior notes and senior subordinated notes is payable semi-annually. In accordance with SOP 90-7, as of January 29, 2008, the petition date, we ceased accruing interest on the senior notes and the senior subordinated notes as these are unsecured claims and are not entitled to interest upon filing of petitions for relief under Chapter 11. At ~~June~~September 30, 2008, ~~the~~ the senior notes and senior subordinated notes are classified as liabilities subject to compromise (see Note 2).

Special Interest

In connection with the issuance of the $250.0 million 8 1 / 4 % senior notes, we filed within 90 days of the issuance a registration statement with the SEC covering a registered offer to exchange the notes for exchange notes of ours having terms substantially identical in all material respects to the notes. The registration statement was not declared effective within the required 180 days of issuance and was withdrawn in 2008. As a result, on October 9, 2006, in accordance with their terms, the notes became subject to special interest which accrues at a rate of 0.25% per annum during the 90-day period immediately following the occurrence of such default, and increases by 0.25% per annum at the end of each 90-day period, up to a maximum of 1.0% per annum. In accordance with SOP 90-7, as of January 29, 2008, the petition date, we ceased accruing special interest and reversed $2.3 million of the interest expense that had been previously accrued as these are unsecured claims and not entitled to interest upon filing petitions for relief under Chapter 11.

Senior Subordinated PIK Notes

As part of the transactions to settle the disputes regarding the Transeastern JV, on July 31, 2007, the senior mezzanine lenders to the Transeastern JV received $20.0 million in aggregate principal amount of 14.75% Senior Subordinated PIK Election Notes (“PIK Notes”) due 2015.

Interest on the PIK Notes is payable semi-annually. The PIK Notes are unsecured senior subordinated obligations of ours, and are guaranteed on an unsecured senior subordinated basis by each of our existing and future subsidiaries that guarantee our 7.5% Senior Subordinated Notes due 2015 (the “Existing Notes”). We are required to pay 1% of the interest in cash and the remaining 13.75%, at our option, (i) in cash, (ii) entirely by increasing the principal amount of the PIK Notes or issuing new notes, or (iii) a combination thereof. The PIK Notes mature on July 1, 2015. The indenture governing the PIK Notes contains the same covenants as contained in the indenture governing the Existing Notes and is subject, in most cases, to any change to such covenants made to the indenture governing the Existing Notes. The PIK Notes are redeemable by us at redemption prices greater than their principal amount. The PIK Notes contain an optional redemption feature that allows us to redeem up to a maximum of 35% of the aggregate principal amount of the PIK Notes using the proceeds of subsequent sales of its equity interest at 114.75% of the aggregate principal amount of the PIK Notes then outstanding, plus accrued and unpaid interest. Additionally, after July 1, 2012, subject to certain terms of our other debt agreements, we may redeem the PIK Notes at a premium to the principal amount as follows: 2012 — 107.375%; 2013 — 103.688%; 2014 and thereafter — 100.000%. The call options exercisable at anytime after July 1, 2012 at a premium do not require bifurcation under SFAS 133 because they are only exercisable by us and they are not contingently exercisable. The redemption option is conditionally exercisable based on the proceeds raised from an equity offering at 114.75% of up to 35% of the aggregate outstanding PIK Notes principal and represents an embedded call option that must be bifurcated from the PIK Notes; however, the fair value of this call option is not material and has not been bifurcated from the host instrument.

The PIK Notes provide for registration rights for the holders whereby the interest rate increases by 0.25% per annum for the first 90 days of a registration default, as defined, which amount increases by an additional 0.25% every 90 days a registration default is continuing, not to exceed 1.0% in the aggregate, from and including the date of the registration default to and excluding the date on which the registration default is cured. Registration default payments may be paid, at our option, in cash, additional PIK Notes, or a combination thereof.

At ~~June~~September 30, 2008, the PIK Notes are classified as liabilities subject to compromise (see Note 2).

Financial Services Borrowings

23 Until December 4, 2008, the subsidiary had two warehouse lines of credit in place to fund the origination of residential mortgage loans. The revolving warehouse line of credit (the “Warehouse Line of Credit”), which was entered into on December 5, 2007, provided for revolving loans of up to $25.0 million. The Warehouse Line of Credit replaced the $100.0 million revolving warehouse line of credit that expired on December 8, 2007. From January 25, 2008 through December 4, 2008, the availability under the Warehouse Line of Credit was reduced to $15.0 million. The $150.0 million mortgage loan purchase facility (“Purchase Facility”) was amended to decrease the size of the facility to $75.0 million. From January 25, 2008 through December 4, 2008, the availability under the Purchase Facility was reduced to $40.0 million. However, we had agreed with the lender not to utilize these facilities. The Warehouse Line of Credit bore interest at the 30-day LIBOR rate plus a margin of 2.0%, was secured by funded mortgages, which were pledged as collateral, and required our mortgage subsidiary to maintain certain financial ratios and minimums. The Warehouse Line of Credit also placed certain restrictions on, among other things, our mortgage subsidiary’s ability to incur additional debt, create liens, pay or make dividends or other distributions, make equity investments, enter into transactions with affiliates, and merge or consolidate with other entities. Our mortgage subsidiary was in compliance with all covenants and restrictions at September 30, 2008. At September 30, 2008, our mortgage subsidiary had no outstanding borrowings.

Until December 4, 2008, the joint venture had two warehouse lines of credit in place to fund the origination of residential mortgage loans. The revolving warehouse line of credit (the “Warehouse Line of Credit”), which was entered into on December 5, 2007, provided for revolving loans of up to $25.0 million. The Warehouse Line of Credit replaced the $100.0 million revolving warehouse line of credit that expired on December 8, 2007. From January 25, 2008 through December 4, 2008, the availability under the Warehouse Line of Credit was reduced to $15.0 million. The $150.0 million mortgage loan purchase facility (“Purchase Facility”) was amended to decrease the size of the facility to $75.0 million. From January 25, 2008 through December 4, 2008, the availability under the Purchase Facility was reduced to $40.0 million. However, we had agreed with the lender not to utilize these facilities. The Warehouse Line of Credit bore interest at the 30-day LIBOR rate plus a margin of 2.0%, was secured by funded mortgages, which were pledged as collateral, and required our mortgage subsidiary to maintain certain financial ratios and minimums. The Warehouse Line of Credit also placed certain restrictions on, among other things, our mortgage subsidiary’s ability to incur additional debt, create liens, pay or make dividends or other distributions, make equity investments, enter into transactions with affiliates, and merge or consolidate with other entities. Our mortgage subsidiary was in compliance with all covenants and restrictions at June 30, 2008. At June 30, 2008, our mortgage subsidiary had no outstanding borrowings.

10. Income Taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes (“SFAS 109”), as interpreted by FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). Under SFAS 109, income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized based on the anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We are subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. We have effectively closed all U.S. federal income tax matters for years through 2004. The Internal Revenue Service has ~~informed~~concluded usits ~~that~~review itof ~~will~~our be2005 ~~examining~~through ~~our~~ 2007 consolidated tax ~~return~~ ~~for~~returns ~~fiscal~~and ~~years~~has ~~2005~~submitted ~~through~~its ~~2007~~report ~~under~~to the Joint Committee on Taxation under the normal procedures applicable to taxpayers with refunds in excess of $2.0 million. As we understand, ~~which~~that ~~are~~report ~~subject~~did not propose any changes to the returns as filed. We are awaiting the Joint Committee’s onacceptance ~~Taxation~~of ~~reviews~~the findings included in that report. Management believes that ~~the~~all other tax liabilities recorded are adequate and the tax refunds received properly reflect the amounts due to us from the applicable taxing authorities. ~~However, a~~ ~~significant assessment against us could have a material adverse effect on our financial position, results of operations or cash flows.~~

It is our continuing policy to account for interest and penalties associated with income tax obligations as a component of income tax expense.

SFAS 109 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. We assess our deferred tax assets quarterly to determine if valuation allowances are required. Pursuant to SFAS 109, we were unable to record an income tax benefit for the three and ~~six~~nine months ended ~~June~~September 30, 2008, as all recognizable tax benefits under current tax law were recorded in ~~prior~~ prior years. Our valuation allowance increased by $~~132~~47.54 million and $~~232~~279.48 million, respectively, ~~for~~ for the three and ~~six~~nine months ended ~~June~~September 30, 2008 to $~~738~~785.15 million at ~~June~~September 30, 2008.

Our results of operations may be impacted in the future by our inability to realize a tax benefit for future tax losses or for items that will generate additional deferred tax assets. Our results of operations might be favorably impacted in the future by reversals of valuation allowances if we are able to demonstrate sufficient positive evidence that our deferred tax assets will be realized. However, there could be restrictions on the amount of the carryforwards that can be utilized if certain changes in our ownership should occur which would likely significantly limit potential future benefit, even if we could demonstrate sufficient positive evidence that our deferred taxes could otherwise be realized.

In April 2008, we received a $207.3 million refund of previously paid income taxes for 2005 and 2006 through the carryback of our taxable loss from 2007.

During the three ~~and six~~ months ended ~~June~~September 30, 2008, we ~~recorded~~reduced our unrecognized tax benefit by $02.7 million ofprimarily ~~additions~~due to a favorable ruling received from the Internal Revenue Service related ~~unrecognized~~to an uncertain tax ~~benefits~~position. ~~under~~This ~~FIN~~reduction ~~48,~~was ~~consisting~~offset ~~primarily~~by $0.7 million of interest on previously ~~recorded~~ recorded amounts, resulting in a net $2.0 million benefit for the nine months ended September 30, 2008.

11. Commitments and Contingencies

We are involved in various claims and actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters is not expected to have a material adverse effect on our unaudited consolidated financial position or results of operations.

Warranty

We provide homebuyers with a limited warranty of workmanship and materials from the date of sale for up to two years. We generally have recourse against our subcontractors for claims relating to workmanship and materials. In some cases, we also provide up to a ten-year homeowner’s warranty which covers major structural and design defects related to homes sold by us during the policy period, subject to a significant self-insured retention per occurrence. Estimated warranty costs are recorded at the time of sale based on historical experience and current trends. Warranty costs are included in accounts payable and other liabilities in the accompanying unaudited consolidated statements of financial condition.

During the ~~six~~nine months ended ~~June~~September 30, 2008 and 2007, the activity in our warranty cost ~~accrual~~ accrual consisted of the following (in millions):


	Nine Months Ended
	September 30,
	2008			2007
Accrued warranty costs at January 1	$	5.0		$	7.4
Liability recorded for warranties issued during the period		2.1			4.4
Warranty work performed		(8.4	)		(4.4	)
Adjustments		4.0			(2.0	)


Accrued warranty costs at September 30	$	2.7		$	5.4

~~Table~~ To address potential homebuyer concerns regarding fulfillment of ~~Contents~~warranty obligations at the inception of our Chapter 11 cases, we entered into an agreement with Professional Warranty Service Corporation to guarantee our warranty obligations for the first ten years after closing and assume all liability for structural claims in years three through ten. Effective April 15, 2009, with Bankruptcy Court approval and to alleviate potential concerns related to our new operating model, we entered into an agreement with Professional Warranty Service Corporation to directly provide warranty service for all homes sold or delivered by us from January 21, 2008 through April 30, 2010. We paid $4.5 million (which includes the surrender of any rights to receive a refund of premiums paid under the initial program) for this coverage plus a premium based on the sale price of each home delivered. As a result of our Chapter 11 filings, we have generally ceased performing warranty services for homes not covered by the Professional Warranty Service Corporation program.

	Six Months Ended
	June 30,
	2008			2007
Accrued warranty costs at January 1	$	5.0		$	7.4
Liability recorded for warranties issued during the period		1.7			2.7
Warranty work performed		(6.3	)		(4.2	)
Adjustments		3.4			1.0
Accrued warranty costs at June 30	$	3.8		$	6.9

To address potential homebuyer concerns regarding fulfillment of warranty obligations at the inception of our Chapter 11 cases, we entered into an agreement with a third party to guarantee our warranty obligations for the first ten years after closing and assume all liability for structural claims in years three through ten. The agreement covered all homes in backlog on January 21, 2008 and all homes sold or delivered between January 21, 2008 and June 30, 2008.

Letters of Credit and Performance Bonds

We are subject to the normal obligations associated with entering into contracts for the purchase, development and sale of real estate in the routine conduct of our business. We are committed under various letters of credit and performance bonds which are required for certain development activities, deposits on land and deposits on homesite purchase contracts. Under these arrangements, we had total outstanding letters of credit of $3119.71 million as of ~~June~~September 30, 2008. As a result of abandoning our rights under option contracts, as of ~~June~~September 30, 2008, we accrued $43.85 million for letters of credit which we anticipated would be drawn due to nonperformance under such contracts. From ~~July~~October 1, 2008 through ~~February~~April 2830, 2009, an additional $20.58 million of letters of credit have been drawn related to the ~~abandonment of option contracts which have increased our~~ borrowings outstanding under our Revolving Loan Facility. In certain instances, we have entered into development agreements in connection with option contracts which require us to complete the development of the land, at a fixed reimbursable amount, even if we choose not to exercise our option and forfeit our deposit and even if our costs exceed the reimbursable amount.

~~At June 30, 2008, we have total outstanding performance / surety bonds of $170.1 million~~25 related to land development activities and have estimated our exposure on our outstanding surety bonds to be $58.6 million based on land development remaining to be completed. At June 30, 2008 and December 31, 2007, our accrual totaled $42.0 million and $48.0 million, respectively, for surety bonds where we consider it probable that we will be required to reimburse the surety for amounts drawn related to defaulted agreements, which is included as a liability subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition.

UntilTable the establishment of a surety bond program in January 2009, we had no ability to obtain new surety bonds or letters of credit and in some cases, had to post cash deposits with government entities or escrow agents. Under the program approved by the Bankruptcy Court, we have an aggregate $15.0 million available for surety bonds. Surety bonds are issued after notice to creditors who have a right to object. The surety bonds are collateralized by cash deposits maintained in escrow accounts. At February 28, 2009, $2.5 million was maintained as collateral for surety bonds. Contents

abandonment of option contracts which have increased our borrowings outstanding under our Revolving Loan Facility. In certain instances, we have entered into development agreements in connection with option contracts which require us to complete the development of the land, at a fixed reimbursable amount, even if we choose not to exercise our option and forfeit our deposit and even if our costs exceed the reimbursable amount.

Until the establishment of a surety bond program in January 2009, we had no ability to obtain new surety bonds or letters of credit and in some cases, had to post cash deposits with government entities or escrow agents. Under the program approved by the Bankruptcy Court, we have an aggregate $15.0 million available for surety bonds. Surety bonds are issued after notice to creditors who have a right to object. The surety bonds are collateralized by cash deposits maintained in escrow accounts. At April 30, 2009, $2.5 million was maintained as collateral for surety bonds.

Exposure on Abandoned Homesite Option Contracts

See Note 3.

Chapter 11 Cases

On January 29, 2008, TOUSA, Inc. and certain of our subsidiaries (excluding our financial services subsidiaries and joint ventures) filed voluntary petitions relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division. The Chapter 11 cases have been consolidated solely for procedural purposes and are pending as Case No. 08-10928-JKO. See Note 1 for additional discussion.

Securities Class Action Lawsuit

Beginning in December 2006, various stockholder plaintiffs brought lawsuits seeking class action status in the United States District Court for the Southern District of Florida. The actions were consolidated, and the consolidated suit is pending under the caption Durgin, et al., v. TOUSA, Inc., et al., No. 06-61844-CIV. On September 7, 2007, the Court appointed Diamondback Capital Management, L.C. (“Diamondback”) as the lead plaintiff and approved Diamondback’s selection of counsel. Diamondback filed a consolidated complaint on November 2, 2007. The consolidated complaint set forth a proposed class period of August 1, 2005 to March 19, 2007 and alleged that TOUSA’s public filings and other public statements were false and misleading in describing the financing for the Transeastern Joint Venture as non-recourse to TOUSA, and in describing the Transeastern Joint Venture’s financial condition during the class period. Plaintiffs also alleged in the consolidated complaint that certain public filings and statements were misleading or suffered from material omissions in failing to fully disclose or describe the Completion and Carve-Out Guarantees that TOUSA executed in support of the Transeastern Joint Venture’s financing. The consolidated complaint included claims under Section 11 of the Securities Act for strict liability and negligence regarding the registration statements and prospectus associated with the September 2005 offering of four million shares of stock. Plaintiffs asserted related claims against certain of the defendants as controlling persons responsible for the statements in the registration statements and prospectus. Finally, plaintiffs alleged claims under Section 10(b) of the Exchange Act for fraud with respect to various public statements regarding the non-recourse nature of the Transeastern debt, regarding the Completion and Carve-Out Guarantees, and regarding the financial condition of the Transeastern Joint Venture. Plaintiffs sought by way of the consolidated complaint compensatory damages, plus fees and costs, on behalf of themselves and the putative class of purchasers of TOUSA common stock and purchasers and sellers of options on TOUSA common stock.

On January 30, 2008, TOUSA and various other defendants filed motions to dismiss plaintiffs’ Consolidated Complaint. On February 4, 2008, TOUSA filed a Notice of Suggestion of Bankruptcy notifying the court that TOUSA filed a bankruptcy petition. On February 5, 2008, the Court entered an order staying the action as to TOUSA pursuant to Section 362 of the United States Bankruptcy Code.

On April 30, 2008, lead plaintiff Diamondback filed a motion to withdraw as lead plaintiff, which the court granted on May 22, 2008. On July 15, 2008, the court appointed the Bricklayers & Trowel Trades International Pension Fund (the “Bricklayers”) as the new lead plaintiff. On July 30, 2008, the Bricklayers filed a notice of an intent to file an amended complaint and accordingly, on July 31, 2008, the court denied as moot without prejudice the defendants’ previously filed motions to dismiss the consolidated complaint.

On September 19, 2008, the Bricklayers filed a Consolidated Amended Class Action Complaint (the “amended complaint”). This amended complaint dropped many of the parties previously named as defendants in the consolidated complaint, including TOUSA, leaving only Antonio B. Mon, Tommy McAden, David J. Keller and Randy L. Kotler as defendants in the suit. The amended complaint also dropped the Section 11 and Section 15 claims, leaving the claims under Section 10(b) of the Exchange Act and Rule 10b-5, as well as the claims made under Section 20(a) of the Exchange Act. Defendants Mon, Keller and Kotler filed motions to dismiss the amended complaint on November 21, 2008. Defendant McAden had not yet been served, but his counsel recently entered an appearance and filed a motion to dismiss on March 2, 2009. The ~~deadline~~plaintiff ~~for~~filed ~~the~~its ~~plaintiffs’~~ opposition to the motions to dismiss ~~has~~on ~~been extended to~~ March 24, 2009. Defendants’ ~~will have an opportunity to file~~ replies in support of their motions to dismiss were due on May 13, 2009. A trial date has not yet been set.

Proceeding by Official Committee of Unsecured Creditors

In re TOUSA, Inc., Docket No. 08-10928-JKO; Adv. Pro No. 08-1435-JKO. We and certain of our subsidiaries are involved in an adversary proceeding brought as part of our Chapter 11 proceedings. On July 14, 2008, the Official Committee of Unsecured Creditors of TOUSA, Inc. (the “Committee”) commenced an adversary proceeding (the “Committee Action”) as part of our and certain of our subsidiaries’ (collectively, the “Debtors”) Chapter 11 proceedings in United States Bankruptcy Court for the Southern District of Florida. The Debtors were originally non-parties to the Committee Action, but have since been named as third-party defendants by two of the original defendants in the Committee Action.

The Committee Action seeks to avoid certain allegedly fraudulent and preferential pre-petition transfers of up to $800 million the Debtors made in connection with the settlement of litigation related to the Transeastern Joint Venture (the “Transeastern Settlement”), and further seeks to avoid as a preferential transfer any security interest that may have been granted by any of the Debtors to certain lenders in a tax refund of approximately $207.0 million that the Debtors received in 2008. The Committee’s original complaint (the “Complaint”) named over 60 defendants, including the lenders under the credit agreements funding the Transeastern Joint Venture (the “Transeastern Lenders”), as well as the original lenders (and their successors and assigns) and administrators under the credit agreements entered into as a result of the Transeastern Settlement (the “New Credit Agreements”). The Debtors are not defendants to the Committee Action.

The Committee’s Complaint alleged that, in order to resolve certain prepetition litigation regarding the Transeastern Joint Venture, the parties to that litigation entered into a series of settlement agreements releasing all claims relating to the Transeastern acquisition. The Complaint alleges that, as part of these settlement agreements, certain of our entities agreed to pay over $420 million to the administrator of the Transeastern loans and to issue approximately $135 million in preferred stock, notes and warrants. The Complaint further alleged that to fund these payments, we and certain of our subsidiaries (the “Conveying Subsidiaries”) entered into the three New Credit Agreements. According to the Complaint, the loans issued under these New Credit Agreements were secured by liens on the property and assets of all of the Debtors, including the Conveying Subsidiaries. The Complaint alleged that the Conveying Subsidiaries were not defendants in the prepetition Transeastern litigation and were not obligated on the Transeastern debt that was released in connection with the Transeastern Settlement. Therefore, the Complaint alleged, the Conveying Subsidiaries did not receive reasonably equivalent value for the secured debt obligations that they incurred. The Complaint also alleged that the Conveying Subsidiaries were either insolvent at the time of the Transeastern Settlement or became insolvent as a result of it, and that the Conveying Subsidiaries were left with unreasonably small capital as a result of the New Credit Agreements. Based on these allegations, the Committee seeks to have the liens established under the New Credit Agreements voided and all amounts already repaid under the New Credit Agreements returned. The Committee also seeks to have the security interest the Debtors granted to the New Lenders on the Debtors’ tax refund voided and the New Lenders’ claims seeking allowance of the full amount of the New Loans disallowed in their entirety or reduced.

On September 19, 2008, the Bankruptcy Court held a hearing on motions to dismiss that had been filed by Defendants Citicorp North America, Inc., and Wells Fargo Bank, N.A. Well Fargo’s motion to dismiss was denied. Citicorp’s motion to dismiss sought dismissal of claims relating to only one of the three New Credit Agreements, the Second Amended And Restated Revolving Credit Agreement (the “Revolver”). The Court granted Citicorp’s motion to dismiss, but granted the Committee leave to file an amended complaint.

On October 17, 2008, the Committee filed an Amended Complaint. The Amended Complaint contained additional allegations regarding the Revolver, and added new defendants. Citicorp has moved to dismiss the claims in the Amended Complaint relating to the Revolver. In addition, the Transeastern Lenders have moved to dismiss all claims against them. The Court denied the Transeastern Lenders’ motion to dismiss. The Court granted Citicorp’s motion to dismiss the Revolver claims in the Amended Complaint, but again granted the Committee leave to file a second amended complaint consistent with the Court’s specific guidance on the revolver issue. After initially filing a Second Amended Complaint again including claims related to the Revolver, on February 4, 2009, the Committee filed a Third Amended Complaint which did not include claims relating to the Revolver. The Committee has, however, appealed to the District Court the dismissal of the Revolver claims in the Amended Complaint.

~~and~~subsidiaries’ ~~other liabilities~~(collectively, ~~subordinated, contingent~~the ~~or otherwise, (c~~“Debtors”) Chapter ~~not~~11 ~~being~~proceedings ~~able~~in toUnited ~~pay~~States ~~their~~Bankruptcy Court ~~debts~~for ~~and~~the ~~liabilities,~~Southern ~~subordinated, contingent,~~District orof ~~otherwise,~~Florida. ~~and/or~~The ~~(d) having~~Debtors ~~unreasonably~~were ~~small~~originally ~~capital~~non-parties ~~with which~~ to ~~conduct their~~the ~~business.”~~Committee ~~On September 30~~Action, ~~2008~~but ~~the~~have ~~Debtors~~since ~~filed~~been ~~their~~named ~~answer~~as tothird-party ~~the~~defendants ~~Citigroup~~by ~~Third-Party Complaint,~~certain ~~generally~~of ~~denying~~the ~~Citigroup’s~~original defendants ~~allegations~~in ~~and~~the ~~asserting~~Committee ~~affirmative defenses~~Action.

On October 17, 2008, the Committee filed an Amended Complaint. The Amended Complaint contained additional allegations regarding the Revolver, and added new defendants. Citicorp moved to dismiss the claims in the Amended Complaint relating to the Revolver. In addition, the Transeastern Lenders moved to dismiss all claims against them. The Court denied the Transeastern Lenders’ motion to dismiss. The Court granted Citicorp’s motion to dismiss the Revolver claims in the Amended Complaint, but again granted the Committee leave to file a second amended complaint consistent with the Court’s specific guidance on the revolver issue. After initially filing a Second Amended Complaint again including claims related to the Revolver, on February 4, 2009, the Committee filed a Third Amended Complaint which did not include claims relating to the Revolver. The Committee has, however, appealed to the District Court the dismissal of the Revolver claims in the Amended Complaint.

In addition, on August 13, 2008, Citicorp North America, Inc., in its capacity as the Administrative Agent for the First Lien Term Loan, answered the Complaint in the Committee Action, and filed a third-party complaint (the “Citigroup Third-Party Complaint”) against TOUSA, Inc. and each of the Debtor signatories, co-borrowers and co-guarantors under the First Lien Term Loan. The Citigroup Third-Party Complaint alleges that, to the extent the Committee establishes its allegations in the Committee Action, the defendants to the Citigroup Third-Party Complaint will have “materially breached the First Lien Term Loan” by “(a) not having assets whose fair value exceeded their debts and liabilities, subordinated, contingent or otherwise, (b) not having assets whose fair saleable value exceed their debts and other liabilities, subordinated, contingent or otherwise, (c) not being able to pay their debts and liabilities, subordinated, contingent, or otherwise, and/or (d) having unreasonably small capital with which to conduct their business.” On September 30, 2008 the Debtors filed their answer to the Citigroup Third-Party Complaint, generally denying Citigroup’s allegations and asserting affirmative defenses.

On November 6, 2008, Wells Fargo Bank, N.A., in its capacity as the Second Lien Term Agent, filed its answer to the Committee’s Amended Complaint in the Committee Action, and filed a third-party complaint (the “Wells Fargo Third-Party Complaint”) against TOUSA, Inc. and each of the Debtor signatories, co-borrowers and co-guarantors under the Second Lien Term Loan (except for Engle/Gilligan, LLC, Engle Homes Delaware, Inc., Newmark Homes Business Trust, TOUSA Delaware, Inc., and TOUSA Funding, LLC). The Wells Fargo Third-Party Complaint alleges that, to the extent the Committee establishes its allegations in the Committee Action, the defendants to the Wells Fargo Third-Party Complaint will have “materially breached the Second Lien Term Loan” by “(a) not having assets whose fair value exceeded their debts and liabilities, subordinated, contingent or otherwise, (b) not having assets whose fair saleable value exceed their debts and other liabilities, subordinated, contingent or otherwise, (c) not being able to pay their debts and liabilities, subordinated, contingent, or otherwise, and/or (d) having unreasonably small capital with which to conduct their business.” On November 25, 2008, the Debtors filed their answer to the Wells Fargo Third-Party Complaint, generally denying Wells Fargo’s allegations and asserting affirmative defenses.

On February 24, 2009, the Senior Transeastern Lenders and the CIT Group/Business Credit, Inc. (“CIT”) each filed a Counterclaim and Third-Party Complaint against certain of the Debtors. The Senior Transeastern Lenders and CIT allege that they are entitled to indemnification against any recovery the Committee receives as a result of the Committee’s fraudulent transfer claims under the terms of the August 1, 2005 Senior Credit Agreement signed by certain of the Debtors in connection with the formation of the Transeastern Joint ~~Venture. The Senior Transeastern Lenders and CIT seek~~ recoupment for the full amount of any recovery against them on each of the Committee’s fraudulent transfer claims. Under the current schedule, the Debtors have until March 20, 2009 to respond to the Counterclaims and Third-Party Complaints.

~~Discovery in the Committee Action, the Citicorp Third-Party Complaint, and the Wells Fargo~~27 Third-Party Complaint is currently ongoing. Pursuant to the amended case management order entered by the Court on November 11, 2008, current and former employees of the Debtors the parties and various non-parties have been deposed.

On February 26,Table 2009, the court entered an order granting the Debtors’ motion to compel mediation of the case. The non-binding mediation is currently scheduled to take place on March 23, 2009 and March 24, 2009. Contents

~~Trial is~~Venture. ~~currently~~The ~~scheduled~~Senior Transeastern Lenders and CIT seek recoupment for the ~~weeks~~full amount of ~~July~~any recovery against them on each of the Committee’s fraudulent transfer claims. On April 131, 2009, the third-party defendant Debtors moved to strike, or in the alternative to sever and stay, the claims asserted against them in the Senior Transeastern Lenders’ ~~July~~and CIT’s Counterclaims and Third-Party Complaints. A hearing on the third-party Debtor’s motion is currently scheduled for May 2028, 2009.

~~On October 26,~~Discovery ~~2007,~~in the ~~TOUSA~~Committee ~~Board~~Action, ofthe ~~Directors~~Citicorp ~~received~~Third-Party aComplaint, ~~letter from~~and ~~counsel~~the toWells aFargo Third-Party ~~group~~Complaint ofis ~~holders~~currently ofongoing. ~~TOUSA~~Pursuant ~~senior~~to ~~and subordinated notes (~~the~~“Noteholder~~ ~~Group”).~~amended ~~TOUSA~~case ~~did~~management ~~not~~order ~~file for~~entered ~~bankruptcy protection as requested~~ by the ~~Noteholder~~Court ~~Group, but did later file for bankruptcy~~ on ~~January~~November 11, 2008~~. On February 27~~, ~~2009 the~~current ~~Official~~and ~~Committee~~former ~~of Unsecured Creditors of TOUSA filed a motion~~employees ~~seeking standing to pursue claims against members~~ of ~~certain Debtor-Subsidiaries’ boards of directors as well as~~ the ~~majority shareholder of TOUSA~~Debtors, ~~Tech~~the ~~SA,~~parties inand various ~~connection~~non-parties ~~with~~have ~~the~~been ~~July 31, 2007 transaction~~deposed.

On February 26, 2009, the court entered an order granting the Debtors’ motion to compel mediation of the case. The non-binding judicial settlement conference was conducted by Judge Laurel Isicoff on March 23, 2009 and March 24, 2009. On April 14, 2009, Judge Isicoff reported that that the parties were at an impasse with respect to the Committee’s claims against the First Lien Term Loan Lenders, the First Lien Revolver Lenders, and the Senior Transeastern Lenders. Judge Isicoff further reported that the other Defendants had either reached an agreement with the Committee or were continuing settlement discussions. Trial is currently scheduled for the weeks of July 13, 2009 and July 20, 2009.

Potential Claim by the Official Committee of Unsecured Creditors of TOUSA

On October 26, 2007, the TOUSA Board of Directors received a letter from counsel to a group of holders of TOUSA senior and subordinated notes (the “Noteholder Group”). TOUSA did not file for bankruptcy protection as requested by the Noteholder Group, but did later file for bankruptcy in January 2008. On February 27, 2009 the Official Committee of Unsecured Creditors of TOUSA filed a motion seeking standing to pursue claims against members of certain Debtor-Subsidiaries’ boards of directors as well as the majority shareholder of TOUSA, Tech SA, in connection with the July 31, 2007 transaction. The Court has not yet heard or ruled upon the Committee’s motion.

Vista Lakes

Plaintiffs, purchasers of homes in the Vista Lakes community near Orlando, filed a class action complaint alleging that their homes were built on the site of a former bombing range. The plaintiffs seek recovery under theories of fraud, breach of contract, strict liability, negligence, and civil conspiracy. Because the plaintiffs named debtor defendants Tousa, Inc., Tousa Homes, Inc., d/b/a Engle Homes Orlando and Tousa Homes, LP as defendants in this action, the action was removed to federal court. The plaintiffs then agreed to dismiss the debtor defendants and the parties entered into a stipulation for remand. The state court case was re-opened and the parties remaining as defendants included Universal Land Title, Inc. and Preferred Home Mortgage Company.

Universal Land Title, Inc. and Preferred Home Mortgage Company filed a motion to dismiss the second amended complaint. On February 13, 2009, the court dismissed all nine counts of the second amended complaint as to both Universal Land Title, Inc. and Preferred Home Mortgage Company, but granted Plaintiffs leave to amend their complaint ~~by March 23, 2009~~.

~~Based~~On ~~upon~~March 23, ~~the~~2009, ~~early~~Plaintiffs ~~stage~~filed oftheir ~~the~~Third ~~litigation,~~Amended Complaint and, ~~depending~~with ~~upon~~the ~~whether~~exception ~~Plaintiffs will~~of ~~choose~~the toclaim ~~pursue~~for ~~any~~strict ~~claims~~liability, re-alleged eight of the previously dismissed causes of action against Universal Land Title, Inc. orand Preferred Home Mortgage Company. On April 29, 2009, Preferred Home Mortgage Company byand ~~filing~~Universal Land Title, Inc. filed their motion to dismiss the Third Amended Complaint. On April 30, 2009, Plaintiffs filed a ~~third~~notice ~~amended~~voluntarily ~~complaint~~dismissing certain counts, weand the only claims that ~~are~~remain ~~unable~~pending as to ~~evaluate~~Preferred ~~the~~Home ~~likelihood~~Mortgage ofCompany anand ~~unfavorable~~Universal ~~outcome~~Land orTitle, ~~the~~Inc. ~~range~~are ofcounts ~~liability~~for innegligence ~~such event~~and civil conspiracy.

Based upon the early stage of the litigation and discovery, and depending upon the success of the motion to dismiss the Third Amended Complaint, we are unable to evaluate the likelihood of an unfavorable outcome or the range of liability in such event.

Chinese Drywall

TOUSA Homes, Inc. was named as a defendant in a purported class action lawsuit pending in the United States District Court for the Southern District of Florida on behalf of certain homeowner plaintiffs in Southwest Florida. (Karen Vickers, et al., v. TOUSA Homes, Inc., et al., No. 09-20510-CIV-GOLD/MCALILEY). The ~~lawsuit~~complaint ~~has~~alleges ~~been~~the ~~filed~~plaintiff homeowners were sold homes containing drywall that is inherently defective (“Chinese Drywall”), ~~but~~because it emits various sulfide gasses and/or other chemicals through “off gassing” that purportedly causes property damage and potential health hazards. The plaintiffs have voluntarily withdrawn the complaint without prejudice. We are in the process of responding to notice of the alleged defect pursuant to Florida Statutes chapter 558. TOUSA Homes, Inc. was named, but has not been served in an additional purported class action lawsuit making similar allegations in the Lee County, Florida Circuit Court (Joyce Dowdy Revocable Trust, et. al v. Engle Homes, Inc. et. al, No. 09-CA-1158).

The complaint alleges the plaintiff homeowners were sold homes containing drywall that is inherently defective, (“Chinese Drywall”), because it emits various sulfide gasses and/or other chemicals through “off gassing” that purportedly causes property damage and potential health hazards. Only one TOUSA homeowner is named as a plaintiff.

Due to the Chapter 11 cases, Plaintiff’s counsel has agreed not to serve TOUSA. TOUSA is currently in the process of filing a motion to have all claims against TOUSA dismissed based on the protection of the bankruptcy filing.

TOUSA is in the process of responding to notice of the alleged defect and of the plaintiff homeowners intent to file the class action lawsuit pursuant to Florida Statutes chapter 558.

TOUSA Homes, Inc. was named, but has not been served in an additional purported class action lawsuit making similar allegations (Joyce Dowdy Revocable Trust, et. al v. Tousa Homes, Inc. et. al).

Diligence is currently being conducted by TOUSA to determine the number of homes sold and unsold containing the Chinese drywall product which is alleged to be defective.

Other Litigation

We are also involved in various other claims and legal actions arising in the ordinary course of business. We do not believe that the ultimate resolution of these other matters will have a material adverse effect on our financial condition or results of operations. As of the date of the Chapter 11 filing, then pending litigation was generally stayed, and absent further order of the Bankruptcy Court, most parties may not take any action to recover on pre-petition claims against us.

Informal Inquiry

In the Matter of TOUSA, Inc. SEC Inquiry, File No. FL-3310. In ~~June~~September of 2007, we were ~~contacted~~ contacted by the Miami Regional Office of the SEC requesting the voluntary provision of documents, and other information from us, relating primarily to corporate and financial information and ~~communications~~ communications related to the Transeastern JV. ~~The~~In ~~SEC~~May 2009, ~~has~~the SEC advised us that ~~this inquiry should not be construed as an indication that any violations of law have occurred, nor should~~ it ~~be considered a reflection~~has ~~upon~~completed ~~any~~its ~~person,~~investigation ~~entity, or security. We have cooperated with the inquiry~~ and ~~have~~does not ~~received~~intend ~~any further~~to ~~requests~~recommend inany aenforcement ~~number of months~~action.

PHMC Settlement

On July 10, 2008, PHMC entered into a settlement agreement with one of its primary purchasers of its mortgage loans. In connection with the settlement, we recorded a loss accrual of $2.9 million in 2007. The settlement agreement releases PHMC of all its known and unknown obligations under the Loan Purchase Agreement.

12. Stockholders’ (Deficit~~) Equity~~

Convertible PIK Preferred Stock

The preferred stock ranks senior to all of our capital stock with respect to liquidation and dividends and has an initial aggregate liquidation preference of $117.5 million and accrues dividends semi-annually at 8% per annum as follows: (i) 1% payable in cash; (ii) the remaining 7% payable, at our option, in cash, additional preferred stock, or a combination thereof. The preferred stock is mandatorily redeemable on July 1, 2015 at $1.61 per share. The conversion price of the preferred stock will be adjusted for certain anti-dilution events including below market price or below the conversion price issuances by us of our common stock, subject to certain exceptions.

At ~~June~~September 30, 2008 and December 31, 2007, the preferred stock redemption amount includes ~~amounts~~ amounts representing dividends not currently declared or paid but which will be payable under the redemption features. The preferred stock is currently redeemable because redemption of the instrument, absent the existence of the share settled conversion option, is certain to occur at maturity. At ~~June~~September 30, 2008, the accreted redemption balance is $0.8 million.

The preferred stock contains a contingent dividend feature, which provides for an increase in the dividend rate of 0.25% during the period in which the Company fails to register the underlying common stock. This increase in the dividend rate becomes effective after 270 days. The contingent dividend feature constitutes an obligation to make future payments or otherwise transfer consideration under a registration payment arrangement. In accordance with FSP EITF No. 00-19-2, Accounting for Registration Payment Arrangements, the contingent dividend feature should be separately recognized and measured in accordance with SFAS 5. At ~~June~~September 30, 2008, $0.4 million ~~was~~ was accrued for our obligation under the registration payment arrangement. Although there is no limitation on the amount that could be paid under this arrangement, our estimate is based on our estimated date of exit from bankruptcy of ~~June~~September 2009 since this liability is expected to be extinguished as part of the Chapter 11 cases.

In accordance with EITF No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, the intrinsic value of the beneficial conversion feature required measurement at the commitment date by comparing our stock price at date of closing to the conversion price, which is determinable at the end of the 20 trading days commencing 60 calendar days after closing. The value attributable to the beneficial conversion features has been recognized and measured by allocating a portion of the proceeds to additional paid-in-capital (since there are no retained earnings) and a discount to the preferred stock. In accordance with EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, $84.0 million, representing the maximum intrinsic value of the beneficial conversion feature, is amortized from additional-paid in capital to preferred stock from October 26, 2007 to July 1, 2015.

Dividends and amortization of the discount of the preferred stock are recorded as charges to retained earnings or additional paid in capital, if there are no retained earnings, and reduce net income in the determination of income ~~available~~attributable to shareholders for the purposes of computing ~~basic~~ basic and diluted earnings per share. For the three and ~~six~~nine months ended ~~June~~September 30, 2008, dividends on and accretion of preferred stock was $2.5 million and $57.27 million, respectively, which was recorded as a charge to additional paid-in-capital.

We will determine and, if required, measure a beneficial conversion feature based on the fair value of our stock price on the date dividends are declared on the convertible preferred shares, which will be recognized as a reduction to retained earnings (or additional paid in capital if there no retained earnings) and the convertible preferred shares newly issued if the fair value of the stock on the declaration date is below the contractual conversion price. The “discount” on the convertible preferred shares issued as PIK dividends will then be accreted through the contractual maturity of the instrument.

The preferred stock is not a participating security, as defined in SFAS No. 128, Earnings per Share, and EITF No. 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 , and, therefore, does not require the two-class method of calculating EPS. The preferred stock provides for the adjustment to the conversion price for common stock dividends declared. The common shares underlying the convertible preferred stock have not been included in diluted EPS as its effect is anti-dilutive.

Warrants

The warrants are exercisable for a term of five years from the date of issuance. The warrants had an estimated fair value of $8.2 million at issuance (based on the Black-Scholes option pricing model and certain agreed upon inputs). The warrants are exercisable as follows (i) 5,045,662 shares of common stock can be purchased at $5.31 per share, and (ii) 5,045,662 shares of common stock can be purchased at $6.38 per share. The exercise prices of the warrants will be adjusted for certain anti-dilution events including below market price or below the conversion price issuances by us of our common stock, subject to certain exceptions. Upon exercise of the warrants by the holders thereof, we may, in our sole discretion, satisfy our obligations under any warrant being exercised by: (i) paying the holder the value of the common stock to be delivered in cash less the exercise price; (ii) paying such amount in common stock rather than cash; (iii) delivering shares of common stock upon receiving the cash exercise price therefore; or (iv) any combination of the foregoing.

NYSE Delisting

Effective November 19, 2007, NYSE Regulation, Inc. suspended our common stock and debt securities from trading on the NYSE. We appealed the suspension. Following our suspension from the NYSE, we began trading on the Pink Sheet Electronic Quotation Service. On February 15, 2008, the NYSE denied our appeal and affirmed the decision to suspend trading in our common stock and debt securities. On March 3, 2008, the NYSE filed Forms 25, Notification of Removal of Listing and/or Registration under Section 12(b) of the Securities Exchange Act of 1934, with the SEC of its intention to remove our common stock, 9% Senior Notes due July 1, 2010, 9% Senior Notes due July 1, 2010, 7 1 / 2 % Senior Subordinated Notes due March 15, 2011, 7 1 / 2 % Senior Subordinated Notes ~~due~~ due January 15, 2015 and the 10 3 / 8 % Senior Subordinated Notes due July 1, 2012 at the opening of of business May 13, 2008. Our common stock and debt securities were delisted on that date.

13. Stock-Based Compensation

Under the TOUSA, Inc. Annual and Long-Term Incentive Plan (the “Plan”) employees, consultants and directors of ours, our subsidiaries and affiliated entities, (as defined in the Plan), are eligible to receive options to purchase shares of common stock. Each stock option expires on a date determined when the options are granted, but not more than ten years after the date of grant. Stock options granted have a vesting period ranging from immediate vesting to a graded vesting over five years.

During the three months ended ~~June~~September 30, 2008 and 2007, we recognized compensation expense related to stock options of $0.78 million and $01.90 million, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2008 and 2007, we recognized compensation expense related to stock options of $12.7 5 million and $23.0 million, respectively. At ~~June~~September 30, 2008 and December 31, 2007, outstanding stock options totaled 7.5 million and 7.8 million, respectively. During the ~~six~~ nine months ended ~~June~~September 30, 2008, ~~220~~241,~~625~~250 stock options were forfeited.

14. Operating and Reporting Segments

Our operating segments are aggregated into reportable segments in accordance with SFAS No. 131, Disclosures About Segments of an Enterprise and Related Information, based primarily upon similar economic characteristics, product type, geographic areas, and information used by the chief operating decision maker to allocate resources and assess performance. Our reportable segments consist of our four major Homebuilding geographic regions (Florida, Mid-Atlantic, Texas and West) and our Financial Services operations.

Through our four homebuilding regions, we design, build and market detached single-family residences, town homes and condominiums in various metropolitan markets in nine states, located as follows:

Florida: Central Florida, Jacksonville, Southeast Florida, Southwest Florida, Tampa/St. Petersburg

Mid-Atlantic: Baltimore / Southern Pennsylvania, Nashville, Northern Virginia (on September 25, 2007, we sold in bulk, home sites in our Mid-Atlantic (excluding Nashville) and Virginia divisions)

Texas: Austin, Houston, San Antonio (on ~~June~~September 6, 2007, we sold substantially all of our Dallas/Fort Worth division)

West: Colorado, Las Vegas, Phoenix

Evaluation of segment performance is based on the segment’s results of operations without consideration of income taxes. Results of operations for our four homebuilding segments consist of revenues generated from the sales of homes and land, equity in earnings from unconsolidated joint ventures, and other income / expense less the cost of homes and land sold and selling, general and administrative expenses. The results of operations for our Financial Services segment ~~consists~~consist of revenues generated from mortgage financing, title insurance and other ancillary services less the cost of such services and certain selling, general and administrative expenses. Effective April 1, 2008, our mortgage subsidiary became part of a joint venture and has been accounted for as an equity-method investment (see “Mortgage Joint Venture” discussion in Note 1).

The operational results of each of our segments are not necessarily indicative of the results that would have occurred had each segment been an independent, stand-alone entity during the periods presented. The following tables set forth the financial information relating to our operations, presented by segment (in millions)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Revenues:
Homebuilding:
Florida(2)	$	109.9	$	218.2	$	230.5	$	475.5
Mid-Atlantic		13.9		62.5		30.6		114.7
Texas(1)		103.9		170.8		212.3		320.0
West		66.5		114.2		116.1		216.2
Total Homebuilding		294.2		565.7		589.5		1,126.4
Financial Services		3.3		11.0		9.1		23.0
Total revenues	$	297.5	$	576.7	$	598.6	$	1,149.4

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Loss (income) from unconsolidated joint ventures:
Florida	$	—		$	2.5		$	—		$	0.4
Mid-Atlantic		—			(2.6	)		—			(0.7	)
Texas		—			—			(0.2	)		—
West(3)		—			1.6			(0.1	)		(0.1	)
		—			1.5			(0.3	)		(0.4	)
Impairments (recoveries) on unconsolidated joint ventures:
Florida		(10.8	)		—			(10.7	)		5.5
Texas		2.3			—			2.3			—
West		(0.8	)		—			(0.4	)		—
		(9.3	)		—			(8.8	)		5.5
Loss (income) from unconsolidated joint ventures after impairments	$	(9.3	)	$	1.5		$	(9.1	)	$	5.1
Results of Operations:
Homebuilding:
Florida(2)	$	(143.4	)	$	(14.7	)	$	(247.5	)	$	9.1
Mid-Atlantic		(19.9	)		(42.1	)		(28.3	)		(45.7	)
Texas(1)		(22.4	)		14.4			(17.3	)		28.7
West		(142.5	)		(47.2	)		(218.4	)		(76.8	)
Total Homebuilding		(328.2	)		(89.6	)		(511.5	)		(84.7	)
Financial Services		(3.1	)		2.3			(4.3	)		5.0
Corporate and unallocated		(28.9	)		(48.0	)		(58.6	)		(146.3	)
Loss from continuing operations before reorganization items and taxes	$	(360.2	)	$	(135.3	)	$	(574.4	)	$	(226.0	)

(1)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(2)		The results of operations for Transeastern for the three and six months ended June 30, 2008 have been included in our consolidated results. Results of operations for the three and six months ended June 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4.
(3)		We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and six months ended June 30, 2008 due to the settlement agreement reached in 2008. See Note 5.

	June 30,		December 31,
	2008		2007
Assets:
Homebuilding:
Florida	$	309.4	$	631.3
Mid-Atlantic		50.4		73.0
Texas(1)		182.5		220.0
West		176.0		381.3
Assets held for sale		2.9		6.1
Financial Services		25.8		36.7
Corporate and unallocated		415.5		413.6
Total assets	$	1,162.5	$	1,762.0
Investments in Unconsolidated Joint Ventures:
Mid-Atlantic	$	0.1	$	0.1
Texas		8.6		8.6
West		—		0.3
Total Investments in Unconsolidated Joint Ventures	$	8.7	$	9.0

(1) The Texas region excludes the Dallas division, which is classified as a discontinued operation.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues:
Homebuilding:
Florida⁽²⁾	$	79.3		$	195.6		$	309.8		$	671.1
Mid-Atlantic		17.7			81.4			48.3			196.1
Texas⁽¹⁾		101.5			149.0			313.8			469.0
West		48.4			66.9			164.5			283.1

Total Homebuilding		246.9			492.9			836.4			1,619.3
Financial Services		4.1			8.3			13.2			31.3

Total revenues	$	251.0		$	501.2		$	849.6		$	1,650.6


Loss (income) from unconsolidated joint ventures:
Florida	$	—		$	0.2		$	—		$	2.1
Mid-Atlantic		—			—			—			(2.2	)
Texas		(0.1	)		(0.3	)		(0.3	)		(0.3	)
West		—			9.3			(0.1	)		9.2

		(0.1	)		9.2			(0.4	)		8.8

Impairments (recoveries) on unconsolidated joint ventures:
Florida		(1.9	)		16.4			(12.6	)		20.4
Mid-Atlantic		—			—			—			1.5
Texas		6.6			—			8.9			—
West⁽³⁾		5.2			7.0			4.8			7.0

		9.9			23.4			1.1			28.9

Loss from unconsolidated joint ventures after impairments	$	9.8		$	32.6		$	0.7		$	37.7


Results of Operations:
Homebuilding:
Florida⁽²⁾	$	(53.9	)	$	(299.4	)	$	(301.4	)	$	(290.3	)
Mid-Atlantic		(7.9	)		(52.0	)		(36.2	)		(97.7	)
Texas⁽¹⁾		(11.6	)		14.6			(28.9	)		43.3
West		(17.1	)		(199.4	)		(235.5	)		(276.2	)

Total Homebuilding		(90.5	)		(536.2	)		(602.0	)		(620.9	)
Financial Services		(0.5	)		0.2			(4.8	)		5.2
Corporate and unallocated		(25.2	)		(73.8	)		(83.8	)		(220.1	)

Loss from continuing operations before reorganization items and taxes	$	(116.2	)	$	(609.8	)	$	(690.6	)	$	(835.8	)


⁽¹⁾		The Texas region excludes the Dallas division, which is classified as a discontinued operation.

⁽²⁾		The results of operations for Transeastern for the three and nine months ended September 30, 2008 have been included in our consolidated results. Results of operations for the three and nine months ended September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4.

⁽³⁾		We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine months ended September 30, 2008 due to the settlement agreement reached in 2008. See Note 5.


	September		December 31,
	30, 2008		2007
Assets:
Homebuilding:
Florida	$	241.7	$	631.3
Mid-Atlantic		42.9		73.0
Texas⁽¹⁾		171.1		220.0
West		156.5		381.3
Assets held for sale		2.7		6.1
Financial Services		22.6		36.7
Corporate and unallocated		312.8		413.6

Total assets	$	950.3	$	1,762.0

Investments in Unconsolidated Joint Ventures:
Mid-Atlantic	$	0.1	$	0.1
Texas		2.9		8.6
West		—		0.3

Total Investments in Unconsolidated Joint Ventures	$	3.0	$	9.0


⁽¹⁾		The Texas region excludes the Dallas division, which is classified as a discontinued operation.

15. Discontinued Operations

On ~~June~~September 6, 2007, we sold substantially all of our Dallas/Fort Worth division to an ~~unrelated~~ unrelated third-party for $56.5 million and realized a pre-tax loss on disposal of $13.6 million. ~~Certain~~ Certain communities were not part of the sale. We are actively marketing these communities for sale.

In accordance with SFAS 144, the results of our Dallas/Fort Worth division have been classified as discontinued operations for all periods presented. Discontinued operations include Dallas/Fort Worth division revenues and net loss of $0.82 million and $0.6 million, respectively, for the three months ended ~~June~~September 30, 2008 and $161.1 million and $93.9 million, respectively, for ~~the~~ the three months ended ~~June~~September 30, 2007. Included in the net loss of the Dallas/Fort Worth division for the three months ended ~~June~~September 30, 2008 and 2007 is $0.3 million and $02.18 million, respectively, of inventory impairments and abandonment costs. Discontinued operations include Dallas/Fort Worth division revenues and net loss of $1.02 million and $3.28 million, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2008 and $4344.67 million and $1317.76 million, respectively, for the ~~six~~nine months ended ~~June~~ September 30, 2007. Included in the net loss of the Dallas/Fort Worth division for the ~~six~~nine months ended ~~June~~ September 30, 2008 and 2007 is $1.9 million and $25.87 million, respectively, of inventory impairments and abandonment costs. Additionally, during the ~~six~~nine months ended ~~June~~September 30, 2007, we wrote off $3.1 million of goodwill which is included in loss from discontinued operations for the ~~six~~nine months ended ~~June~~September 30, 2007 related to the sale of our Dallas/Fort Worth division.

Assets held for sale, as shown on the unaudited consolidated statements of financial condition, consist primarily of $2.97 million and $6.1 million of inventory at ~~June~~September 30, 2008 ~~and~~ and December 31, 2007, respectively.

16. Summarized Financial Information

Our outstanding senior notes and senior subordinated notes are fully and unconditionally guaranteed, on a joint and several basis, by the Guarantor Subsidiaries, which are all of the Company’s material direct and indirect subsidiaries, other than our mortgage and title operations subsidiaries (the Non-guarantor Subsidiaries). Each of the Guarantor Subsidiaries is directly or indirectly 100% owned by the Company. In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors. Substantially all of our subsidiaries are included in the Chapter 11 cases, excluding our financial services subsidiaries and unconsolidated joint ventures.

Consolidated Statement of Financial Condition June 30, 2008

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(in millions)
ASSETS
HOMEBUILDING:
Cash and cash equivalents	$	376.3		$	1.9		$	—		$	—		$	378.2
Inventory		—			666.5			—			—			666.5
Property and equipment, net		1.8			17.2			—			—			19.0
Investments in unconsolidated joint ventures		—			8.7			—			—			8.7
Receivables from unconsolidated joint ventures, net		—			0.1			—			—			0.1
Investments in/ advances to consolidated subsidiaries		445.8			(353.0	)		(7.1	)		(85.7	)		—
Other assets		25.0			36.3			—			—			61.3
Assets held for sale		—			2.9			—			—			2.9
		848.9			380.6			(7.1	)		(85.7	)		1,136.7
FINANCIAL SERVICES:
Cash and cash equivalents		—			—			15.6			—			15.6
Mortgage loans held for sale		—			—			6.1			—			6.1
Other assets		—			—			4.1			—			4.1
		—			—			25.8			—			25.8
Total assets	$	848.9		$	380.6		$	18.7		$	(85.7	)	$	1,162.5
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
HOMEBUILDING:
Accounts payable and other liabilities	$	23.4		$	107.4		$	—		$	—		$	130.8
Customer deposits		—			21.8			—			—			21.8
Liabilities associated with assets held for sale		—			0.2			—			—			0.2
		23.4			129.4			—			—			152.8
FINANCIAL SERVICES:
Accounts payable and other liabilities		—			—			4.8			(0.1	)		4.7
Total liabilities not subject to compromise		23.4			129.4			4.8			(0.1	)		157.5
Liabilities subject to compromise		1,964.2			179.6			—			—			2,143.8
Total stockholders’ equity (deficit)		(1,138.7	)		71.6			13.9			(85.6	)		(1,138.8	)
Total liabilities and stockholders’ equity (deficit)	$	848.9		$	380.6		$	18.7		$	(85.7	)	$	1,162.5

Consolidated Statement of Financial Condition ~~December~~September 3130, ~~2007~~2008

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	~~(in millions)~~						(in millions)
ASSETS
HOMEBUILDING:
Cash and cash equivalents	$	81276.37		$	(920.07	)	$	—		$	—		$	72297.34
Inventory		—			~~1,271~~547.84			—			—			~~1,271~~547.84
Property and equipment, net		31.3			2113.39			—			—			2415.62
Investments in unconsolidated joint ventures		—			93.0			—			—			93.0
Receivables from unconsolidated joint ventures, net		—			0.3			—			—			0.3
Investments in/ advances to consolidated subsidiaries		346.5			(404.8	)		(8.2	)		66.5			—
Investments in/ advances to consolidated subsidiaries		989.7			(372.5	)		(5.5	)		(611.7	)		—
Other assets		22.9			39.1			—			—			62.0
Other assets		287.7			42.3			—			—			330.0
Assets held for sale		—			2.7			—			—			2.7
Goodwill		—			11.2			—			—			11.2
		647.4			222.0			(8.2	)		66.5			927.7
Assets held for sale		—			6.1			—			—			6.1
		1,362.0			980.5			(5.5	)		(611.7	)		1,725.3
FINANCIAL SERVICES:
Cash and cash equivalents		—			—			1413.96			—			1413.96
Mortgage loans held for sale		—			—			155.0			—			155.0
Other assets		—			—			64.80			—			64.80
		—			—			3622.76			—			3622.76
Total assets	$	~~1,362~~647.04		$	~~980~~222.50		$	3114.24		$	~~(611~~66.75	)	$	~~1,762~~950.03
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
HOMEBUILDING:
Accounts payable and other liabilities	$	8327.78		$	~~318~~93.18		$	—		$	—		$	~~401~~121.86
Customer deposits		—			3317.98			—			—			3317.98
Obligations for inventory not owned		—			32.0			—			—			32.0
Liabilities associated with assets held for sale		—			0.4			—			—			0.4
Notes payable		1,585.3			—			—			—			1,585.3
		27.8			112.0			—			—			139.8
Bank borrowings		168.5			—			—			—			168.5
Liabilities associated with assets held for sale		—			0.9			—			—			0.9
		1,837.5			384.9			—			—			2,222.4
FINANCIAL SERVICES:
Accounts payable and other liabilities		—			—			81.03			~~(0.7~~—	)		71.3
Bank borrowings		—			—			7.8			—			7.8
		—			—			1.3			—			1.3
		—			—			15.8			(0.7	)		15.1
Total liabilities not subject to compromise		27.8			112.0			1.3			—			141.1
Total liabilities not subject to compromise		1,837.5			384.9			15.8			(0.7	)		2,237.5
Liabilities subject to compromise		1,890.4			189.6			—			—			2,080.0
Liabilities subject to compromise		—			—			—			—			—
Total liabilities		1,918.2			301.6			1.3			—			2,221.1
Total stockholders’ equity (deficit)		(~~475~~1,270.58	)		~~595~~(79.6	)		1513.41			~~(611~~66.05	)		(~~475~~1,270.58	)
Total liabilities and stockholders’ equity (deficit)	$	~~1,362~~647.04		$	~~980~~222.50		$	3114.24		$	~~(611~~66.75	)	$	~~1,762~~950.03

Consolidated Statement of ~~Operations Three~~Financial ~~Months Ended June~~Condition December 3031, ~~2008~~2007

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	( in millions)
							(in millions)
ASSETS
HOMEBUILDING:
Revenues	$	—		$	294.2		$	—		$	—		$	294.2
Cash and cash equivalents	$	81.3		$	(9.0	)	$	—		$	—		$	72.3
Cost of sales		—			577.6			—			—			577.6
Inventory		—			1,271.8			—			—			1,271.8
Gross loss		—			(283.4	)		—			—			(283.4	)
Property and equipment, net		3.3			21.3			—			—			24.6
Selling, general and administrative expenses		13.2			43.2			—			(0.8	)		55.6
Investments in unconsolidated joint ventures		—			9.0			—			—			9.0
Recovery of investments in and receivables from unconsolidated joint ventures		—			(9.3	)		—			—			(9.3	)
Receivables from unconsolidated joint ventures, net		—			0.3			—			—			0.3
Goodwill impairment		—			11.2			—			—			11.2
Investments in/ advances to consolidated subsidiaries		989.7			(372.5	)		(5.5	)		(611.7	)		—
Interest expense		16.8			(0.1	)		—			—			16.7
Other assets		287.7			42.3			—			—			330.0
Other expense (income), net		330.8			8.6			—			(339.9	)		(0.5	)
Goodwill		—			11.2			—			—			11.2
Homebuilding pretax loss		(360.8	)		(337.0	)		—			340.7			(357.1	)
Assets held for sale		—			6.1			—			—			6.1
		1,362.0			980.5			(5.5	)		(611.7	)		1,725.3
FINANCIAL SERVICES:
Revenues		—			—			4.0			(0.7	)		3.3
Cash and cash equivalents		—			—			14.9			—			14.9
Expenses		—			—			7.0			(0.6	)		6.4
Mortgage loans held for sale		—			—			15.0			—			15.0
Financial Services pretax loss		—			—			(3.0	)		(0.1	)		(3.1	)
Other assets		—			—			6.8			—			6.8
Loss from continuing operations before reorganization items and taxes		(360.8	)		(337.0	)		(3.0	)		340.6			(360.2	)
		—			—			36.7			—			36.7
Reorganization items, net		18.2			—			—			—			18.2
Total assets	$	1,362.0		$	980.5		$	31.2		$	(611.7	)	$	1,762.0
Benefit for income taxes		0.7			—			—			—			0.7
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Loss from continuing operations, net of taxes		(379.7	)		(337.0	)		(3.0	)		340.6			(379.1	)
HOMEBUILDING:
Discontinued operations:
Accounts payable and other liabilities	$	83.7		$	318.1		$	—		$	—		$	401.8
Loss from discontinued operations		—			(0.6	)		—			—			(0.6	)
Customer deposits		—			33.9			—			—			33.9
Loss from discontinued operations, net of taxes		—			(0.6	)		—			—			(0.6	)
Obligations for inventory not owned		—			32.0			—			—			32.0
Net loss		(379.7	)		(337.6	)		(3.0	)		340.6			(379.7	)
Notes payable		1,585.3			—			—			—			1,585.3
Dividends and accretion of discount on preferred stock		2.5			—			—			—			2.5
Bank borrowings		168.5			—			—			—			168.5
Net loss available to common stockholders	$	(382.2	)	$	(337.6	)	$	(3.0	)	$	340.6		$	(382.2	)
Liabilities associated with assets held for sale		—			0.9			—			—			0.9
		1,837.5			384.9			—			—			2,222.4
FINANCIAL SERVICES:
Accounts payable and other liabilities		—			—			8.0			(0.7	)		7.3
Bank borrowings		—			—			7.8			—			7.8
		—			—			15.8			(0.7	)		15.1
Total liabilities not subject to compromise		1,837.5			384.9			15.8			(0.7	)		2,237.5
Liabilities subject to compromise		—			—			—			—			—
Total stockholders’ equity (deficit)		(475.5	)		595.6			15.4			(611.0	)		(475.5	)
Total liabilities and stockholders’ equity (deficit)	$	1,362.0		$	980.5		$	31.2		$	(611.7	)	$	1,762.0

Consolidated Statement of Operations ~~Six~~Three Months Ended ~~June~~September 30, 2008

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	( in millions)
							(in millions)
HOMEBUILDING:
Revenues	$	—		$	~~589~~246.59		$	—		$	—		$	~~589~~246.59
Cost of sales		—			~~1,012~~292.87			—			—			~~1,012~~292.87
Gross loss		—			(~~423~~45.38	)		—			—			(~~423~~45.38	)
Selling, general and administrative expenses		2410.97			8733.39			—			(20.46	)		~~109~~44.80
Income from unconsolidated joint ventures, net		—			(0.3	)		—			—			(0.3	)
Recovery from unconsolidated joint ventures, net		—			(0.1	)		—			—			(0.1	)
Recovery of investments in and receivables from unconsolidated joint ventures		—			(8.8	)		—			—			(8.8	)
Impairments on investments in unconsolidated joint ventures		—			9.9			—			—			9.9
Goodwill impairment		—			11.2									11.2
Interest expense		16.9			—			—			—			16.9
Interest expense		36.8			—			—			—			36.8
Other expenses, net		89.2			61.2			—			(151.2	)		(0.8	)
Other expense (income), net		515.9			6.2			—			(524.0	)		(1.9	)
Homebuilding pretax loss		(116.8	)		(150.7	)		—			151.8			(115.7	)
Homebuilding pretax loss		(577.6	)		(518.9	)		—			526.4			(570.1	)
FINANCIAL SERVICES:
Revenues		—			—			~~11.~~4.7			(20.36	)		94.1
Expenses		—			—			145.85			(10.49	)		~~13.~~4.6
Financial Services pretax loss		—			—			(30.48	)		(0.93	)		(40.35	)
Loss from continuing operations before reorganization items and taxes		(~~577~~116.68	)		(~~518~~150.97	)		(30.48	)		~~525~~152.51			(~~574~~116.42	)
Reorganization items, net		8618.7			—			—			—			8618.7
Benefit for income taxes		0(2.7	)		—			—			—			0(2.7	)
Loss from continuing operations, net of taxes		(~~665~~132.08	)		(~~518~~150.97	)		(30.48	)		~~525~~152.51			(~~661~~132.82	)
Discontinued operations:
Loss from discontinued		—			(3.2	)		—			—			(3.2	)
Loss from discontinued operations		—			(0.6	)		—			—			(0.6	)
Loss from discontinued operations, net of taxes		—			(30.26	)		—			—			(30.26	)
Net loss		(~~665~~132.08	)		(~~522~~151.13	)		(30.48	)		~~525~~152.51			(~~665~~132.08	)
Dividends and accretion of discount on preferred stock		5.2.5			—			—			—			5.2.5
Net loss available to common stockholders	$	(670.2	)	$	(522.1	)	$	(3.4	)	$	525.5		$	(670.2	)
Loss attributable to common stockholders	$	(135.3	)	$	(151.3	)	$	(0.8	)	$	152.1		$	(135.3	)

Consolidated Statement of Operations ~~Three~~Nine Months Ended ~~June~~September 30, ~~2007~~2008

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(in millions)
HOMEBUILDING:
Revenues	$	—		$	~~565~~836.74		$	—		$	—		$	~~565~~836.74
Cost of sales		—			~~547~~1,305.95			—			—			~~547~~1,305.95
Gross profit		—			17.8			—			—			17.8
Gross loss		—			(469.1	)		—			—			(469.1	)
Selling, general and administrative expenses		1835.16			71121.32			—			(43.40	)		85153.08
Loss from unconsolidated joint ventures, net		—			1.5			—			—			1.5
Recovery from unconsolidated joint ventures, net		—			(0.4	)		—			—			(0.4	)
Provision for settlement of loss contingency		32.0			—			—			—			32.0
Impairments on investments in unconsolidated joint ventures		—			1.1			—			—			1.1
Goodwill impairment		—			38.2			—			—			38.2
Goodwill impairments		—			11.2			—			—			11.2
Interest expense		—53.7			~~0.1~~—			—			—			053.17
Other expense (income), net		64.0			2.0			—			(67.4	)		(1.4	)
Other (income) expenses, net		605.1			67.4			—			(675.2	)		(2.7	)
Homebuilding pretax loss		(~~114~~694.14	)		(95669.36	)		—			71678.82			(~~137~~685.68	)
FINANCIAL SERVICES:
Revenues		—			—			1516.41			(42.49	)		1113.02
Expenses		—			—			1020.73			(2.03	)		818.70
Financial Services pretax income		—			—			4.7			(2.4	)		2.3
Financial Services pretax loss		—			—			(4.2	)		(0.6	)		(4.8	)
Income (loss) from continuing operations before income taxes		(114.1	)		(95.3	)		4.7			69.4			(135.3	)
Loss from continuing operations before reorganization items and taxes		(694.4	)		(669.6	)		(4.2	)		677.6			(690.6	)
Provision (benefit) for income taxes		17.9			(33.1	)		2.0			—			(13.2	)
Reorganization items, net		105.4			—			—			—			105.4
Income (loss) from continuing operations		(132.0	)		(62.2	)		2.7			69.4			(122.1	)
Benefit for income taxes		(2.0	)		—			—			—			(2.0	)
Loss from continuing operations, net of taxes		(797.8	)		(669.6	)		(4.2	)		677.6			(794.0	)
Discontinued operations:
Loss from discontinued operations		—			(23.08	)		—			—			(23.08	)
Loss from disposal of discontinued operations		—			(13.6	)		—			—			(13.6	)
Loss from discontinued operations, net of taxes		—			(3.8	)		—			—			(3.8	)
Benefit for income taxes		—			(5.7	)		—			—			(5.7	)
Net loss		(797.8	)		(673.4	)		(4.2	)		677.6			(797.8	)
Loss from discontinued operations, net of taxes		—			(9.9	)		—			—			(9.9	)
Dividends and accretion of discount on preferred stock		7.7			—			—			—			7.7
Net income (loss)	$	(132.0	)	$	(72.1	)	$	2.7		$	69.4		$	(132.0	)
Loss attributable to common stockholders	$	(805.5	)	$	(673.4	)	$	(4.2	)	$	677.6		$	(805.5	)

Consolidated Statement of Operations ~~Six~~Three Months Ended ~~June~~September 30, 2007

							Non-
	TOUSA,			Guarantor			Guarantor		Intercompany
	Inc.			Subsidiaries			Subsidiaries		Eliminations			Total
	( in millions)
	(in millions)
HOMEBUILDING:
Revenues	$	—		$	~~1,126~~492.49		$	—	$	—		$	~~1,126~~492.49
Cost of sales		—			~~1,028~~930.73			—		—			~~1,028~~930.73
Gross profit		—			97.7			—		—			97.7
Gross loss		—			(437.4	)		—		—			(437.4	)
Selling, general and administrative expenses		3923.83			~~143~~66.73			—		(73.16	)		~~176~~86.40
Income from unconsolidated joint ventures, net		—			(0.4	)		—		—			(0.4	)
Loss from unconsolidated joint ventures, net		—			9.2			—		—			9.2
Impairment of investments in and receivables from unconsolidated joint ventures		—			5.5			—		—			5.5
Impairments on investments in unconsolidated joint ventures		—			23.4			—		—			23.4
Provision for settlement of loss contingency		~~110~~40.97			—			—		—			~~110~~40.97
Goodwill impairment		—			~~38.~~2.7			—		—			~~38.~~2.7
Interest expense		—10.0			~~0.2~~—			—		—			010.20
Other expense (income), net		57.9			10.3			—		(70.3	)		(2.1	)
Other expenses, net		547.5			30.2			—		(577.1	)		0.6
Homebuilding pretax loss		(~~208~~621.65	)		(99569.82	)		—		77580.47			(~~231~~610.0	)
FINANCIAL SERVICES:
Revenues		—			—			3011.19		(73.16	)		238.03
Expenses		—			—			~~21.~~8.2		(30.81	)		188.01
Financial Services pretax income		—			—			8.3.7		(3.35	)		5.0.2
Income (loss) from continuing operations before income taxes		(~~208~~621.65	)		(99569.82	)		8.3.7		74577.12			(~~226~~609.08	)
Provision (benefit) for income taxes		(101.68	)		~~(34~~6.70	)		31.68		—			~~(41~~6.70	)
Income (loss) from continuing operations		(~~198~~619.07	)		(65575.12	)		41.79		74577.12			(~~184~~615.38	)
Discontinued operations:
Loss from discontinued operations		—			(73.9	)		—		—			(73.9	)
Loss from disposal of discontinued operations		—			(13.6	)		—		—			(13.6	)
Loss from discontinued operations, net of taxes		—			(3.9	)		—		—			(3.9	)
Benefit for income taxes		—			(7.8	)		—		—			(7.8	)
Net income (loss)		(619.7	)		(579.1	)		1.9		577.2			(619.7	)
Loss from discontinued operations, net of taxes		—			(13.7	)		—		—			(13.7	)
Dividends and accretion of discount on preferred stock		2.2			—			—		—			2.2
Net income (loss)	$	(198.0	)	$	(78.8	)	$	4.7	$	74.1		$	(198.0	)
Net income (loss) attributable to common stockholders	$	(621.9	)	$	(579.1	)	$	1.9	$	577.2		$	(621.9	)

Consolidated Statement of ~~Cash Flows~~Operations ~~Six~~Nine Months Ended ~~June~~September 30, ~~2008~~2007

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	( in millions)
	(in millions)
Net cash provided by (used in) operating activities	$	(454.7	)	$	29.7		$	8.2		$	526.0		$	109.2
HOMEBUILDING:
Cash flows from investing activities:
Revenues	$	—		$	1,619.3		$	—		$	—		$	1,619.3
Net additions to property and equipment		0.5			(0.9	)		—			—			(0.4	)
Cost of sales		—			1,959.0			—			—			1,959.0
Investments in unconsolidated joint ventures		—			(1.6	)		—			—			(1.6	)
Gross loss		—			(339.7	)		—			—			(339.7	)
Net cash used in investing activities		0.5			(2.5	)		—			—			(2.0	)
Selling, general and administrative expenses		63.1			210.1			—			(10.8	)		262.4
Cash flows from financing activities:
Loss from unconsolidated joint ventures, net		—			8.8									8.8
Net borrowings from revolving credit facilities		31.5			—			—			—			31.5
Impairments on investments in unconsolidated joint ventures		—			28.9									28.9
Net repayments of from Financial Services bank borrowings		—			—			(7.8	)		—			(7.8	)
Provision for settlement of loss contingency		151.6			—			—			—			151.6
Payments for deferred financing costs		(2.9	)		—			—			—			(2.9	)
Goodwill impairment		—			40.9			—			—			40.9
Increase (decrease) in intercompany transactions		543.9			(19.5	)		1.6			(526.0	)		—
Interest expense		10.0			0.2			—			—			10.2
Net cash provided by (used in) financing activities		572.5			(19.5	)		(6.2	)		(526.0	)		20.8
Other (income) expenses, net		605.4			40.5			—			(647.4	)		(1.5	)
Net cash provided by continuing operations		118.3			7.7			2.0			—			128.0
Homebuilding pretax loss		(830.1	)		(669.1	)		—			658.2			(841.0	)
Net cash used in discontinued operations		—			(0.8	)		—			—			(0.8	)
FINANCIAL SERVICES:
Increase in cash and cash equivalents		118.3			6.9			2.0			—			127.2
Revenues		—			—			42.0			(10.7	)		31.3
Cash and cash equivalents at beginning of period		79.1			(11.9	)		9.3			—			76.5
Expenses		—			—			30.0			(3.9	)		26.1
Cash and cash equivalents at end of period	$	197.4		$	(5.0	)	$	11.3		$	—		$	203.7
Financial Services pretax income		—			—			12.0			(6.8	)		5.2
Income (loss) from continuing operations before income taxes		(830.1	)		(669.1	)		12.0			651.4			(835.8	)
Provision (benefit) for income taxes		(12.4	)		(28.7	)		5.4			—			(35.7	)
Income (loss) from continuing operations		(817.7	)		(640.4	)		6.6			651.4			(800.1	)
Discontinued operations:
Loss from discontinued operations		—			(11.8	)		—			—			(11.8	)
Loss from disposal of discontinued operations		—			(13.6	)		—			—			(13.6	)
Benefit for income taxes		—			(7.8	)		—			—			(7.8	)
Loss from discontinued operations, net of taxes		—			(17.6	)		—			—			(17.6	)
Net income (loss)		(817.7	)		(658.0	)		6.6			651.4			(817.7	)
Dividends and accretion of discount on preferred stock		2.2			—			—			—			2.2
Net income (loss) attributable to common stockholders	$	(819.9	)	$	(658.0	)	$	6.6		$	651.4		$	(819.9	)

Consolidated Statement of Cash Flows ~~Six~~Nine Months Ended ~~June~~September 30, ~~2007~~2008

							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total	~~Total~~
	(in millions)
	( in millions)
Net cash provided by (used in) operating activities	$	(~~159~~389.75	)	$	(95.3	)	$	119.74		$	74678.12			$	~~(83~~292.28	)
Cash flows from investing activities:
Net additions to property and equipment		(0.8	)		(6.1	)		(0.6	)		—				(7.5	)
Net disposals of property and equipment		0.6			0.2			—			—				0.8
Investments in unconsolidated joint ventures		—			(~~21.~~1.6	)		—			—				(~~21.~~1.6	)
Capital distributions from unconsolidated joint ventures		—			9.7			—			—				9.7
Net cash provided by (used in) investing activities		0.6			(1.4	)		—			—				(0.8	)
Net cash used in investing activities		(0.8	)		(17.5	)		(0.6	)		—				(18.9	)
Cash flows from financing activities:
Net borrowings from revolving credit facilities		50(28.01	)		—			—			—				50(28.01	)
Net repayments of Financial Services bank borrowings		—			—			(6.8	)		—				(6.8	)
Principal payments on term loans		(37.7	)		—			—			—				(37.7	)
Payments for deferred financing costs		(11.2	)		—			—			—				(11.2	)
Net repayments of from Financial Services bank borrowings		—			—			(7.8	)		—				(7.8	)
Increase (decrease) in intercompany transactions		88.1			(9.9	)		(4.1	)		(74.1	)			—
Payments for deferred financing costs		(2.9	)		—			—			—				(2.9	)
Net cash provided by (used in) financing activities		126.9			(9.9	)		(10.9	)		(74.1	)			32.0
Increase (decrease) in intercompany transactions		643.2			32.3			2.7			(678.2	)			—
Net cash provided by (used in) continuing operations		(33.6	)		(36.7	)		0.2			—				(70.1	)
Net cash provided by (used in) financing activities		574.5			32.3			(5.1	)		(678.2	)			(76.5	)
Net cash provided by discontinued operations		—			43.8			—			—				43.8
Net cash provided by continuing operations		185.6			25.6			4.3			—				215.5
Increase (decrease) in cash and cash equivalents		(33.6	)		7.1			0.2			—				(26.3	)
Net cash used in discontinued operations		—			(0.9	)		—			—				(0.9	)
Cash and cash equivalents at beginning of period		50.6			(3.2	)		6.8			—				54.2
Increase in cash and cash equivalents		185.6			24.7			4.3			—				214.6
Cash and cash equivalents at end of period	$	17.0		$	3.9		$	7.0		$	—			$	27.9
Cash and cash equivalents at beginning of period		79.1			(11.9	)		9.3			—				76.5
Cash and cash equivalents at end of period	$	264.7		$	12.8		$	13.6		$	—			$	291.1

Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2007


							Non-
	TOUSA,			Guarantor			Guarantor			Intercompany
	Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(in millions)
Net cash provided by (used in) operating activities	$	(569.4	)	$	(173.9	)	$	3.4		$	651.3			$	(88.6	)

Cash flows from investing activities:
Acquisitions, net of cash acquired		—			(7.7	)		—			—				(7.7	)
Net additions to property and equipment		(0.8	)		(7.9	)		(0.7	)		—				(9.4	)
Investments in unconsolidated joint ventures		—			(29.2	)		—			—				(29.2	)
Capital distributions from unconsolidated joint ventures		—			12.4			—			—				12.4

Net cash used in investing activities		(0.8	)		(32.4	)		(0.7	)		—				(33.9	)

Cash flows from financing activities:
Net borrowings from revolving credit facilities		150.3			—			—			—				150.3
Principal payments on notes payable		(0.5	)		—			—			—				(0.5	)
Net repayments of Financial Services bank borrowings		—			—			(13.0	)		—				(13.0	)
Payments for deferred financing costs		(32.1	)		—			—			—				(32.1	)
Payments for issuance of convertible preferred stock and warrants		(2.9	)		—			—			—				(2.9	)
Increase (decrease) in intercompany transactions		494.0			149.8			7.5			(651.3	)			—

Net cash provided by (used in) financing activities		608.8			149.8			(5.5	)		(651.3	)			101.8

Net cash provided by (used in) continuing operations		38.6			(56.5	)		(2.8	)		—				(20.7	)
Net cash provided by discontinued operations		—			44.1			—			—				44.1

Increase (decrease) in cash and cash equivalents		38.6			(12.4	)		(2.8	)		—				23.4
Cash and cash equivalents at beginning of period		50.6			(3.2	)		6.8			—				54.2

Cash and cash equivalents at end of period	$	89.2		$	(15.6	)	$	4.0		$	—			$	77.6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes included elsewhere in this report.

As used in this Form 10-Q, “consolidated” information refers only to information relating to our continuing operations which are consolidated in our financial statements and exclude the results of our Dallas/Fort Worth division which we have classified as a discontinued operation; and “combined” information includes consolidated information and information relating to our unconsolidated joint ventures. Unless otherwise noted, the information contained herein is shown on a consolidated basis. Our unaudited consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Due to our Chapter 11 cases, there is substantial doubt about our ability to continue as a going concern and there is uncertainty about the realization of assets and satisfaction of liabilities, without material adjustments and/or changes in ownership.

Explanatory Note

In some instances we have attempted to provide information as of a date more current than ~~June~~ September 30, 2008. The housing market has continued to deteriorate significantly since ~~June~~ September 30, 2008 and we have not yet completed the analyses and processes required for the preparation of ~~our quarterly~~ ~~report~~financial onstatements ~~Form 10-Q~~ for ~~the~~any period ~~ended~~subsequent to September 30, 2008. Therefore, the information ~~contained~~ contained herein does not include reserves or provisions for any period after the period ended ~~June~~ September 30, 2008. As a result of the continued homebuilding and overall macroeconomic market deterioration and the impact of our Chapter 11 filing on our operations, it is likely that we will have material impairments, losses and provisions upon completion of the analyses and processes in ~~connection with~~ ~~the preparation of~~ future ~~reports~~periods.

Executive Summary

We generate revenues from our homebuilding operations (“Homebuilding”) and financial services operations (“Financial Services”), which comprise our two principal business segments. Through our Homebuilding operations we design, build and market high-quality detached single-family residences, town homes and condominiums in various metropolitan markets in nine states located in four major geographic regions, which are also our reportable segments: Florida, the Mid-Atlantic, Texas and the West.


Florida	Mid-Atlantic	Texas	West
Central Florida	Baltimore/Southern Pennsylvania	Austin	Colorado
Jacksonville	Nashville	Houston	Las Vegas
Southeast Florida	Northern Virginia	San Antonio	Phoenix
Southwest Florida
Tampa/St. Petersburg

We conduct our Homebuilding operations through our consolidated subsidiaries and through various unconsolidated joint ventures that also build and market homes.

Since 2006, the homebuilding industry has experienced a significant and sustained decrease in demand for new homes, an oversupply of new and existing homes available for sale and a more restrictive mortgage lending environment. Although we operate in a number of markets, approximately 53% of our operations are concentrated in Florida and the West, based on 2007 deliveries, which suffered particularly severe downturns in home buying activity. The weakness in the housing market has accelerated during 2008 as a result of increased foreclosures, fewer home sales, increased buyer difficulty in obtaining financing, lack of consumer confidence, inability to sell existing homes that would enable prospective buyers to purchase new homes, greater cancellations of home purchase agreements by buyers, higher inventories of unsold homes and the increased use by homebuilders, speculators, investors and others of discounts, incentives, price concessions, broker commissions and advertising to close home sales compared to the past several years. The deterioration in the homebuilding industry has been negatively impacted by significant disruptions in the broader financial markets and severe constraints in the credit markets. Further deterioration in the homebuilding industry is expected for the foreseeable future and may have a material adverse effect on our business, financial condition and results of operations.

Reflecting these trends, we, like many other homebuilders, experienced severe liquidity challenges in the credit and mortgage markets, diminished consumer confidence, increased home inventories and foreclosures and downward pressure on home prices. Potential buyers have exhibited both a reduction in confidence as to the economy in general and a willingness to delay purchase decisions based on a perception that prices will continue to decline. Prospective homebuyers continue to be concerned about interest rates and the inability to sell their current homes or to obtain appraisals at sufficient amounts to secure mortgage financing as a result of the ~~recent~~ disruption in the mortgage markets and the tightening of credit standards. Our Chapter 11 filings were a further factor contributing to decreased performance.

As a result of deteriorating market conditions and liquidity constraints, we did not exercise certain homesite option and land bank contracts and reviewed our inventories, goodwill, investments in joint ventures and other assets for possible impairment charges. We recognized charges in continuing operations totaling $~~306~~107.60 million and $~~155~~571.03 million for the three months ended ~~June~~ September 30, 2008 and 2007, respectively, and $~~479~~586.4 million and $~~278~~849.58 million for ~~six~~the nine months ended ~~June~~September 30, 2008 and 2007, respectively related to inventory and goodwill impairments, abandonment costs, joint venture impairments and the settlement of a loss contingency.

40 For the three and nine months ended September 30, 2008, we reported a loss from continuing operations, net of taxes, of $132.2 million and $794.0 million compared to $615.8 million and $800.1 million for the three and nine months ended September 30, 2007. Home

For the three and six months ended June 30, 2008, we reported a loss from continuing operations, net of taxes, of $379.1 million and $661.8 million compared to $122.1 million and $184.3 million for the three and six months ended June 30, 2007. Home deliveries from continuing operations decreased 3840% and 3738%, Homebuilding revenues decreased 50% and 48%, and net sales orders from continuing operations decreased 7837% and 5955% for the three and ~~six~~nine months ended ~~June~~September 30, 2008 as compared to the three and ~~six~~nine months ended ~~June~~ September 30, 2007. During the three and ~~six~~nine months ended ~~June~~September 30, 2008, our unconsolidated joint ~~ventures~~ ventures had a decrease in deliveries and net sales orders of 100% as compared to the three and nine ~~six~~ months ended ~~June~~September 30, 2007 due to the consolidation of the results of our Transeastern joint venture, previously included in our unconsolidated joint venture results, into our Florida operations for the three and ~~six~~nine months ended ~~June~~September 30, 2008. Additionally, we have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and ~~six~~ nine months ended ~~June~~September 30, 2008 due to the settlement agreement reached with ~~respect to~~ the ~~joint~~ ~~venture~~lenders ~~and~~to the ~~expectation that the~~ joint venture ~~will not provide a contribution to our future results~~. During the three and ~~six~~nine months ended ~~June~~September 30, 2008, we also recognized $18.27 million and $86105.74 million of reorganization expenses related to our ~~bankruptcy~~ bankruptcy cases.

Recent Developments

Chapter 11 Cases

On January 29, 2008, TOUSA, Inc. and certain of our subsidiaries (excluding our financial services subsidiaries and joint ventures) filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida, Fort Lauderdale Division. The Chapter 11 cases have been consolidated solely for procedural purposes and are pending as Case No. 08-10928-JKO.

We continue to operate our businesses and manage our properties as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. At the onset of the Chapter 11 cases, we obtained Bankruptcy Court approval to, among other things, continue to pay certain critical vendors and vendors with lien rights, meet our pre-petition payroll obligations, maintain our cash management systems, sell homes free and clear of liens, pay our taxes, continue to provide employee benefits and maintain our insurance programs. In addition, the Bankruptcy Court has approved certain trading notification and transfer procedures designed to allow us to restrict trading in our common stock (and related securities) and has also provided for potentially retroactive application of notice and sell-down procedures for trading in claims against the debtors’ estates (in the event that such procedures are approved in the future), which could negatively impact our accumulated net operating losses and other tax attributes. The Bankruptcy Court has also entered orders to establish procedures for the purchase and disposition of real property by us subject to certain monetary limits without specific approval for each transaction.

~~The~~• ~~agreement~~severely ~~was~~curtailing ~~subsequently~~land ~~terminated~~purchases; ~~and~~• weabandoning ~~entered~~or ~~into~~in ansome ~~agreement~~cases ~~with~~renegotiating our ~~prepetition~~ ~~secured~~rights ~~lenders~~under tooption ~~use cash collateral on hand (cash generated by our operations, including the sale of excess inventory~~ and ~~the~~land ~~proceeds~~bank ofcontracts; ~~our~~• ~~federal~~engaging ~~tax refund of $207.3 million received~~ in ~~April 2008).~~bulk Wesales ~~are authorized by the Bankruptcy Court to use cash collateral~~ of ~~our first~~land ~~lien~~ and ~~second~~unsold ~~lien~~homes; ~~lenders~~• inreducing ~~a manner consistent with a budget negotiated by~~ the ~~parties. The~~number ~~order further provided for the pay-down~~ of ~~$175.0 million~~unsold tohomes ~~our~~under ~~first~~construction ~~lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful~~ and ~~repayment~~limiting is required. We also have the right to pay-down an additional $15.0 million to our first lien secured lenders. As of March 6, 2009, we had paid-down approximately $143.0 million to the first lien secured lenders. We may incur liens and ~~enter into sale~~/~~leaseback transactions~~or ~~for~~curtailing ~~model~~land ~~homes~~development ~~subject~~activities; to• ~~certain~~completing ~~limitations.~~other Weasset ~~have~~dispositions; ~~granted the pre-petition agents~~ and ~~the~~• ~~lenders~~pursuing ~~various~~other ~~forms~~initiatives ofdesigned ~~protection, including liens and claims~~ to ~~protect~~monetize against any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our ~~secured facilities~~assets.

WeOn ~~and~~February 5, ~~the~~2008, ~~first~~pursuant ~~lien~~to ~~lenders reached~~ an ~~agreement~~interim toorder ~~extend~~from the ~~use~~Bankruptcy ofCourt ~~cash~~dated ~~collateral until April~~January 3031, 2008, ~~2009~~we onentered ~~terms~~into ~~substantially~~a ~~similar~~Senior toSecured ~~those~~Super-Priority Debtor in ~~the~~Possession ~~original~~Credit ~~cash~~and ~~collateral order~~Security Agreement. The ~~new~~ ~~cash~~agreement ~~collateral~~provided ~~order~~for ~~was~~a ~~approved~~first bypriority ~~the~~and ~~Bankruptcy~~priming ~~Court~~secured onrevolving ~~January 28,~~credit ~~2009.~~interim commitment Ifof weup ~~fail~~ to ~~comply~~ ~~with~~$134.6 million. ~~the~~The ~~order,~~agreement wewas ~~will~~subsequently ~~not~~amended ~~have~~to ~~sufficient~~extend ~~cash~~it to September 19, ~~enable~~2008. usNo tofunds ~~operate~~were ~~our~~drawn ~~business~~under ~~and effectuate~~the ~~our restructuring~~agreement.

The ~~Bankruptcy~~agreement ~~Court~~was ~~established~~subsequently ~~May 19,~~terminated ~~2008~~and aswe ~~the~~entered ~~bar~~into ~~date~~an ~~for~~agreement ~~filing~~with ~~proofs~~our prepetition ofsecured ~~claim against~~lenders ~~the~~to ~~Debtors~~use ~~relating~~cash tocollateral ~~obligations~~on ~~arising~~hand ~~before~~(cash ~~January 29~~generated by our operations, including ~~2008.~~the Assale of ~~February 25, 2009,~~excess ~~approximately~~inventory ~~4,400~~and ~~claims~~the ~~have~~proceeds ~~been~~of ~~filed~~our ~~against~~federal ustax ~~totaling~~refund ~~approximately~~of $7207.3 ~~billion~~million received in ~~asserted~~ ~~liabilities~~April 2008). ~~These~~We ~~claims~~ are ~~comprised~~authorized by the Bankruptcy Court to use cash collateral of ~~approximately~~our first ~~$5.0 million~~lien and second lien lenders in ~~administrative~~a manner consistent with a budget negotiated by the parties. ~~claims,~~The order further provided for the pay-down of $~~219~~175.0 million into our first lien term secured lenders, subject to disgorgement provisions in the event that certain claims, against the lenders are successful and repayment is required. We also have the right to pay-down an additional $7515.0 million into ~~priority~~our ~~claims~~first ~~and~~lien $7secured lenders.0 As of May ~~billion~~1, ~~in unsecured~~2009, ~~claims~~we had paid-down $148.4 million ~~There~~to ~~are~~the ~~many~~first ~~claims~~lien ~~(at~~secured ~~least~~lenders. ~~700)~~We ~~that~~may ~~have~~incur ~~been~~liens ~~asserted~~and inenter ~~“unliquidated”~~into sale/leaseback ~~amounts~~transactions orfor ~~that~~model ~~contain~~homes ansubject ~~unliquidated~~to ~~component~~certain limitations. ~~Notably,~~We ~~among~~have granted the ~~unliquidated~~pre-petition agents ~~claims~~and ~~are~~ the ~~claims~~ lenders various forms of ~~our~~protection, ~~secured~~including ~~first~~liens and ~~second~~claims ~~lien~~to ~~lenders.~~protect Inagainst any ~~addition,~~diminution of the ~~indenture~~collateral ~~trustees~~value, ~~under~~payment ~~our~~of accrued, but unpaid interest on the first ~~approximately~~priority ~~$1.1 billion~~indebtedness ofat ~~unsecured~~the ~~debentures~~non-default ~~each~~rate ~~filed~~and anthe ~~unliquidated~~payment ~~claim~~of ~~with~~reasonable ~~respect~~fees toand expenses of ~~such~~the ~~obligations~~agents under our secured facilities.

OnOur ~~October 13,~~right ~~2008,~~to ~~we filed with~~ the ~~Bankruptcy~~use ~~Court the (a) Joint Plan~~ of ~~TOUSA,~~cash ~~Inc.~~collateral ~~and its~~has ~~Affiliated~~been ~~Debtors~~extended ~~and~~until ~~Debtors in Possession under Chapter~~July 1131, of2009 ~~the~~on ~~Bankruptcy Code (as~~terms ~~modified~~substantially orsimilar ~~revised, the “Plan”) and (b) Disclosure Statement pursuant~~ to ~~Section 1125~~those ofin the ~~Bankruptcy~~ ~~Code~~original ~~relating~~cash tocollateral ~~the Plan (as modified or revised, the “Disclosure Statement”)~~order. ~~On October 24,~~If ~~2008~~we ~~and~~fail ~~November 12,~~to ~~2008,~~comply ~~the Debtors filed revised versions of the Plan and Disclosure Statement (including projected financial information)~~ with ~~the Bankruptcy Court. Copies~~ of the ~~Plan and Disclosure Statement~~order, aswe ~~filed~~will ~~with~~not ~~the Bankruptcy Court, are available at http://www.tousa.com/reorg. We~~ have ~~the~~sufficient ~~exclusive~~cash ~~right~~ to ~~solicit~~enable ~~acceptance~~us ~~thereof until April 30, 2009. Pursuant~~ to ~~Section 1121~~operate ofour ~~the~~business ~~Bankruptcy Code, the exclusivity periods may be expanded or reduced by the Bankruptcy Court, but in no event can the exclusivity periods to file~~ and ~~solicit acceptance~~effectuate ~~of a plan or plans of reorganization be extended beyond June 29, 2009~~our restructuring.

41 The Bankruptcy Court established May 19, 2008 as the bar date for filing proofs of claim against the Debtors relating to obligations arising before January 29, 2008. As of April 28, 2009, approximately 4,400 claims have been filed against us totaling approximately $7.3

• limiting new arrangements to acquire land (by submitting proposals to increased review); • engaging in bulk sales of land and unsold homes; • reducing the number of unsold homes under construction and limiting and/or curtailing development activities in any development where we do not expect to deliver homes in the near future or where development is necessary to retain entitlements or sell land; • renegotiating terms or abandoning our rights under option and land bank contracts; • considering other asset dispositions including the possible sale and/or wind down of underperforming assets, communities, divisions and joint venture interests and; • pursuing other initiatives designed to monetize our assets.

The foregoing discussion provides general background information regarding our Chapter 11 cases, and is not intended to be an exhaustive description. Additional information regarding our Chapter 11 cases, including access to court documents and other general information about the Chapter 11 cases, is available at www.kccllc.net/tousa. Financial information on the website is prepared according to requirements of federal bankruptcy law and the Bankruptcy Court. While such financial information accurately reflects information required under federal bankruptcy law, such information may be unconsolidated, unaudited and prepared in a format different than that used in our unaudited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States and filed under the securities laws. Moreover, the materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for investment decisions relating to our stock or debt or for comparison with other financial information filed with the Securities and Exchange Commission.

Mortgage Joint Venture

billion in asserted liabilities. These claims are comprised of approximately $5.0 million in 'administrative claims, $219.0 million in secured claims, $75.0 million in priority claims and $7.0 billion in unsecured claims. There are many claims (at least 700) that have been asserted in “unliquidated” amounts or that contain an unliquidated component. Notably, among the unliquidated claims are the claims of our secured first and second lien lenders. In addition, the indenture trustees under our approximately $1.1 billion of unsecured debentures each filed an unliquidated claim with respect to such obligations.

~~NYSE~~ On ~~Delisting~~April 17, 2009, we filed with the Bankruptcy Court our First Amended Joint Plan of TOUSA, Inc. and its Affiliated Debtors and Debtors in Possession under Chapter 11 of the Bankruptcy Code (as modified or revised, the “Plan”) and Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code relating to the Plan (as modified or revised, the “Disclosure Statement”). Copies of the Plan and Disclosure Statement, as filed with the Bankruptcy Court, are available at http://www.tousa.com/reorg. Currently, no hearing has been scheduled on the Plan or Disclosure Statement. We have the exclusive right to file a plan until July 29, 2009 and the exclusive right to solicit acceptance thereof until September 27, 2009. Pursuant to Section 1121 of the Bankruptcy Code, the exclusivity periods may be expanded or reduced by the Bankruptcy Court, but in no event can the exclusivity periods to file and solicit acceptance of a plan or plans of reorganization be extended beyond September 29, 2009.

~~Effective~~As ~~November 19,~~a ~~2007,~~result ~~NYSE~~of ~~Regulation, Inc. suspended~~ our ~~common~~Chapter 11 ~~stock~~cases and ~~debt securities~~other ~~from~~matters ~~trading~~described ~~on the NYSE. We appealed the suspension. Following our suspension from the NYSE~~herein, ~~we began trading on the~~including ~~Pink~~uncertainties ~~Sheet~~related ~~Electronic~~to ~~Quotation Service. On February 15, 2008,~~ the ~~NYSE~~fact ~~denied~~that our ~~appeal and affirmed the decision to suspend trading in our common stock and debt securities. On March 3, 2008, the NYSE~~ filed ~~Forms~~plan ~~25, Notification~~ of ~~Removal~~reorganization ofhas ~~Listing~~not ~~and/or~~been ~~Registration under Section 12(b)~~confirmed, ofthere ~~the~~is ~~Securities~~substantial ~~Exchange~~doubt ~~Act~~about ofour ~~1934,~~ability ~~with the SEC of its intention~~ to ~~remove~~continue ~~our~~as ~~common~~a ~~stock, 9%~~going Senior Notes due July 1, 2010, 9% Senior Notes due July 1, 2010, 7 1 / 2 % Senior Subordinated Notes due March 15, 2011, 7 1 / 2 % Senior Subordinated Notes due January 15, 2015 and the 10 3 / 8 % Senior Subordinated Notes due July 1, 2012 at the opening of business May 13, 2008concern. ~~Our common~~ ~~stock and debt securities were delisted on that date.~~

~~Sale~~ On March 20, 2009, we filed Forms 15 with the Securities and Exchange Commission terminating the registration of ~~Dallas/Fort~~our ~~Worth~~debt ~~Operations~~and equity securities under Section 12(g) of the Securities Exchange Act of 1934. Our duty to file periodic reports under the Exchange Act was suspended immediately upon filing the Forms 15. We are therefore voluntarily filing this Quarterly Report on Form 10-Q and do not intend to make any further filings.

OnThe ~~June 6,~~foregoing ~~2007,~~discussion weprovides ~~sold~~general ~~substantially~~background ~~all~~information ofregarding our ~~Dallas/Fort~~Chapter 11 cases, ~~Worth~~and ~~division~~is not intended to be an ~~unrelated third~~exhaustive ~~party~~description. ~~for~~Additional ~~$56.5~~information regarding our Chapter ~~million~~11 cases, including access to court documents and ~~realized~~other ageneral ~~pre-tax~~information ~~loss~~about onthe Chapter 11 ~~disposal~~cases, ofis ~~$13~~available at www.~~6 million~~kccllc.net/tousa. ~~Results~~Financial information on the website is prepared according to requirements of federal bankruptcy law and the Bankruptcy Court. ~~our~~While ~~Dallas/Fort~~such ~~Worth~~financial ~~operations~~information ~~have~~accurately ~~been~~reflects ~~classified~~information asrequired aunder ~~discontinued~~federal ~~operation~~bankruptcy law, such information may be unconsolidated, unaudited and ~~prior~~prepared ~~periods~~in a format different than that ~~have~~used ~~been~~in ~~restated~~our unaudited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States and filed under the securities laws. Moreover, the ~~accordingly~~materials filed with the Bankruptcy Court are not prepared for the purpose of providing a basis for investment decisions relating to our stock or debt or for comparison with other financial information filed with the Securities and Exchange Commission.

~~Informal~~Total ~~Inquiry~~Controlled Homesites by our Homebuilding Operations

In the Matter of TOUSA, Inc. SEC Inquiry, File No. FL-3310. In June of 2007, we were contacted by the Miami Regional Office of the SEC requesting the voluntary provision of documents, and other information from us, relating primarily to corporate and financial information and communications related to the Transeastern JV. The SEC has advised us that this inquiry should not be construed as an indication that any violations of law have occurred, nor should it be considered a reflection upon any person, entity or security. We have cooperated with the inquiry and have not received any further requests in a number of months.

Total Controlled Homesites by our Homebuilding Operations (Including Joint Ventures)

The following is a summary of our controlled homesites:

	June 30, 2008						December 31, 2007
	September 30, 2008						December 31, 2007
					Total						Total
	Owned		Optioned		Controlled		Owned		Optioned		Controlled
Region:
Florida		7,~~900~~600		—		7,~~900~~600		8,600		600		9,200
Mid-Atlantic		~~400~~300		~~300~~200		~~700~~500		400		800		1,200
Texas(1)		2,000		~~3,200~~700		52,~~200~~700		2,500		4,000		6,500
West		9,~~500~~300		200		9,~~700~~500		9,900		5,400		15,300
Continuing operations		19,~~800~~200		31,~~700~~100		2320,~~500~~300		21,400		10,800		32,200
Discontinued operations(1)		100		—		100		100		100		200
Total consolidated homesites		19,900		3,700		23,600		21,500		10,900		32,400
Total		19,300		1,100		20,400		21,500		10,900		32,400

(1) The Texas region excludes the Dallas~~/Fort~~ ~~Worth~~ division, which is classified as a discontinued operation.

The following is a summary breakdown of our owned homesites:

	Residences Completed or				Homesites Finished or				Raw Land Held for
	Under Construction				Under Construction				Future Development				Total
	6/30/08		12/31/07		6/30/08		12/31/07		6/30/08		12/31/07		6/30/08		12/31/07
	9/30/08		12/31/07		9/30/08		12/31/07		9/30/08		12/31/07		9/30/08		12/31/07
Region
Florida		~~900~~700		1,400		65,~~400~~900		6,600		~~600~~1,000		600		7,~~900~~600		8,600
Mid-Atlantic		100		100		~~300~~200		300		—		—		~~400~~300		400
Texas(1)		600		700		1,000		1,400		400		400		2,000		2,500
West		~~500~~400		700		2,~~300~~200		2,500		6,700		6,700		9,~~500~~300		9,900
Continuing operations		21,~~100~~800		2,900		109,~~000~~300		10,800		78,~~700~~100		7,700		19,~~800~~200		21,400
Discontinued operations(1)		—		—		—		—		100		100		100		100
Consolidated total		21,~~100~~800		2,900		109,~~000~~300		10,800		78,~~800~~200		7,800		19,~~900~~300		21,500


⁽¹⁾		The Texas region excludes the Dallas/Fort Worth division, which is classified as a discontinued operation.

We use option contracts in addition to land joint ventures in order to acquire land whenever feasible. Option contracts allow us to control large homesite positions with reduced capital investment.

~~transactions~~ We asuse ~~financing~~option ~~arrangements.~~contracts ~~At June 30, 2008 and December 31, 2007, $8.3 million (net of $2.1 million~~ in ~~impairments)~~addition ~~and~~to ~~$9.8 million~~land ~~(net~~joint ofventures ~~$6.0 million~~ in ~~impairments), respectively,~~order ofto ~~inventory~~acquire ~~not~~land ~~owned and $10~~whenever feasible.~~4 million~~ ~~and~~Option ~~$15.8 million,~~contracts ~~respectively,~~allow ~~of obligations~~us ~~for inventory not owned relate~~ to ~~sales~~control ~~where~~large wehomesite ~~have~~positions ~~continuing~~with ~~involvement~~reduced capital investment.

Controlled homesites represent homesites either owned or under option by our consolidated subsidiaries or by our unconsolidated joint ventures that build and market homes. We do not include as controlled homesites those homesites which are included in land development joint ventures where we do not intend to build homes. These joint ventures acquire and develop land to be sold to us for use in our homebuilding operations or sold to others. See additional discussion regarding our joint ventures located in the “Liquidity and Capital Resources” section.

Due to worsening market conditions impacting the new home industry and our liquidity constraints, we have applied increasingly conservative standards to our land retention and option exercise decisions. We have analyzed each of our communities to determine if they are aligned with our immediate and mid term goals which are focused on our ability to monetize assets within a relatively short period of time. As part of the analysis, we have reviewed our construction processes including our bid procedures, bid templates and engineering designs in an attempt to reduce costs from home construction. Preacquisition costs, development costs and the number of home starts and speculative homes have also been reduced in light of the new challenges facing the market and us.

At ~~June~~September 30, 2008, the number of homesites controlled by our consolidated continuing ~~operations~~ operations has decreased by 811,~~700~~900 or 2737%, as compared to December 31, 2007. Due to our liquidity constraints, during the three and ~~six~~nine months ended ~~June~~September 30, 2008, we did not exercise certain option contracts which resulted in a reduction of approximately 12,500 and 68,~~300~~800 optioned homesites, respectively.

Homebuilding Operations

For the three and ~~six~~nine months ended ~~June~~September 30, 2008 total consolidated home deliveries from continuing operations decreased 3840% and 3738%, ~~respectively, consolidated~~ Homebuilding revenues decreased 50% and 48%, and ~~consolidated~~ net sales orders from continuing operations decreased 7837% and 5955%, for the three and nine months ended ~~respectively~~September 30, 2008 as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2007. We had a net loss from continuing operations of $~~379~~132.12 million and $~~661~~794.80 million for the three and ~~six~~nine months ended ~~June~~ September 30, 2008, respectively, as compared to a net loss from continuing operations of $~~122~~615.18 million and $~~184~~800.31 million for the three and ~~six~~nine months ended ~~June~~September 30, 2007, respectively.

During the three and ~~six~~nine months ended ~~June~~September 30, 2008, our unconsolidated joint ventures had a decrease in deliveries and net sales orders of 100% as compared to the three and ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2007 due to the consolidation of the results of our Transeastern joint venture, ~~previously~~ previously included in our unconsolidated joint venture results, into our Florida operations for the three and ~~six~~ nine months ended ~~June~~September 30, 2008. Additionally, we have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine ~~six~~ months ended ~~June~~ September 30, 2008 due to the settlement agreement reached with ~~respect to~~ the ~~joint~~lenders ~~venture and the~~to ~~expectation that~~ the joint venture ~~will not provide a contribution to our future results~~. During the three and ~~six~~nine months ended ~~June~~September 30, 2008, we also recognized $18.27 million and $86105.74 million, respectively, of reorganization expenses related to our ~~bankruptcy~~ bankruptcy cases.

Compared to ~~June~~September 30, 2007, consolidated sales value in backlog from continuing operations at ~~June~~at September 30, 2008 decreased 6367% to $~~479~~364.34 million. Our sales orders cancellation rate was 7340% and 5249% for the three and ~~six~~nine months ended ~~June~~September 30, 2008, respectively, as compared to 3246% and 3034% for three and ~~six~~nine months ended ~~June~~September 30, 2007, respectively. Cancellation rates continue to be affected by worsening market conditions and our Chapter 11 cases.

We build homes for inventory (speculative homes) and on a pre-sold basis. At ~~June~~September 30, 2008, we had 21,~~100~~800 homes completed or under construction compared to 2,900 homes at December 31, 2007. Approximately 3941% of these homes were unsold at ~~June~~September 30, 2008, a decrease from 45% at December 31, 2007. At ~~June~~September 30, 2008, we had ~~284~~296 completed unsold homes in our inventory, down 47 44% from 532 homes at December 31, 2007. Approximately 4756% of our completed, unsold homes at ~~June~~ September 30, 2008 had been completed for more than 90 days. WeAs ~~are~~previously ~~focusing~~discussed, ~~our~~in ~~efforts on diligently managing the number~~March ~~and~~2009, ~~geographic~~we ~~allocation~~announced ofthat our ~~speculative~~primary ~~homes,~~focus ~~addressing~~will ~~our~~be ~~inventory~~completing ~~levels~~ and ~~timing~~delivering ~~our construction~~sold ~~starts,~~homes ~~together~~currently under ~~with~~construction ~~other~~and ~~actions,~~on toselling ~~strengthen~~ our ~~statement~~ remaining inventory of ~~financial~~speculative ~~condition~~homes.

Once a sales contract with a buyer has been approved, we classify the transaction as a “new sales order” and include the home in “backlog.” Such sales orders are usually subject to certain contingencies such as the buyer’s ability to qualify for financing and ability to sell their existing home. At closing, title passes to the buyer and a home is considered to be “delivered” and is removed from backlog. Revenues, which are net of buyer incentives and cost of sales, are recognized upon the delivery of the home, land or homesite when title is transferred to the buyer. We estimate that the average period between the execution of a sales contract for a home and closing is approximately four months to over a year for pre-sold homes; however, this varies by market. The principal expenses of our Homebuilding operations are cost of sales and selling, general and administrative (“SG&A”) expenses. Costs of home sales include land and land development costs, home construction costs, previously capitalized indirect costs, capitalized interest and estimated warranty costs.

SG&A expenses for our Homebuilding operations include administrative costs, advertising expenses, on-site marketing expenses, sales commission costs and closing costs. Sales commissions are included in selling, general and administrative costs when the related revenue is recognized. As used herein, “Homebuilding” includes results of home and land sales. “Home sales” includes results related only to the sale of homes.

Financial Services Operations

Mortgage Company owns 49.9% of the venture with the balance owned by Wells Fargo. Effective April 1, 2008, the venture began to carry on the mortgage business of Preferred Home Mortgage Company. The venture is managed by a committee composed of six members, three from Preferred Home Mortgage Company and three from Wells Fargo. The venture entered into a revolving credit agreement with Wells Fargo Bank, N.A. providing for advances of up to $20.0 million. Wells Fargo Home Mortgage provides the general and administrative support (as well as all loan related processing, underwriting and closing functions), and is the end investor for the majority of the loans closed through the joint venture. Prior to the joint venture, Preferred Home Mortgage Company had a centralized operations center that provided those support functions. The majority of these support functions ceased in June 2008. Effective April 1, 2008, we began to account for the venture as an equity-method investment.

During the ~~six~~nine months ended ~~June~~September 30, 2008, approximately 1% to 2% of the homebuyers, ~~including~~ including those in our unconsolidated joint ventures, that utilized our mortgage subsidiary and ~~mortgage~~ mortgage joint venture obtained sub-prime loans. We define a sub-prime loan as one where the buyer’s FICO score is below 620 and is not an FHA or VA loan. At ~~June~~September 30, 2008, none of our backlog that utilized our mortgage joint venture included homebuyers seeking sub-prime financing. Since 2007, the mortgage markets have experienced a significant disruption, which commenced with ~~increasing~~ increasing rates of default on “sub-prime” loans and declines in the market value of those loans. These events led to an unprecedented combination of reduced investor demand for mortgage loans and mortgage-backed securities, tighter credit underwriting standards, reduced mortgage loan liquidity and increased credit risk premiums, all of which affected the availability of nonconforming mortgage products. The tightening of credit standards in the sub-prime market had an impact on the Alt-A and prime loans and further negatively impacted current homebuilding market conditions.

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates included in our 2007 Form 10-K except as follows.

Impairment of Long-Lived Assets

Housing communities and land/homesites under development are stated at the lower of cost or net realizable value. Property and equipment is carried at cost less accumulated depreciation. We assess these assets for impairment in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

We review inventories for impairment on a community by community basis. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the assets, an impairment loss is recognized. Our evaluation for impairment is impacted by margins on homes that have been delivered, margins in sales contracts in backlog, projected margins with regard to future home sales over the life of the community, projected margins with regard to future land sales, and the fair value of the land itself. We pay particular attention to trends that indicate a downward market such as slow-moving inventories and lower sales prices.

If the undiscounted cash flows are less than the carrying amount of inventory, then the impairment is measured based on estimated future cash flows, discounted at a market rate of interest. The projected cash flows for each community are significantly impacted by estimates related to market supply and demand, product type, homesite sizes, sales pace, sales prices, sales incentives, construction costs, sales and marketing expenses, the local economy, competitive conditions, labor costs, costs of materials and other factors for that particular community. Local economy and community factors that may affect our assumptions include current market economic and demographic conditions, competitors’ presence and activities in the local market, current market trends and forecasts, historical results, specific community features such as location, amenities, unique attributes and future potential alternatives for product offerings in response to market conditions. The determination of fair value also requires discounting the estimated cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams. The discount rate used in determining each asset’s fair value depends on the community’s projected life and development stage. At ~~June~~September 30, 2008, we used discount rates ~~ranging~~ ranging from 12% to 22% with an average of 18%, depending on the perceived risks associated with ~~the~~ the community’s cash flow streams relative to its inventory. Our cash flow projection models assume either a price depreciation or no price change depending on market conditions and a minimal price appreciation in most of our markets in 2010. These assumptions are based on third-party market data, corroborated with management estimates and projections. Subsequently, during the ~~second~~fourth ~~half of~~quarter of 2008 and during 2009, the weakness in the housing market was exacerbated by unforeseen ~~significant~~ significant disruptions in the broader financial markets and severe constraints in the credit markets. As SFAS No. 144 requires that the assumptions used in the cash flow projection models reflect the conditions in effect as of the assessment date, our evaluation did not anticipate the ~~dramatic~~ dramatic effect of these events. Due to the continued deterioration in market conditions, we expect that our assumptions for the ~~second~~fourth ~~half~~quarter of 2008 will be correspondingly adjusted, which we expect ~~will~~ will result in additional impairment charges.

We believe that the accounting for impairment of long-lived assets is a critical accounting policy because of the assumptions inherent in the evaluations and the impact of recognizing impairments would be material to our consolidated financial statements. Evaluations for impairment are significantly impacted by estimates of future revenues, costs and expenses and other factors involving some amount of uncertainty since they are based on current market conditions and current assumptions of future markets made by management. These assumptions include: the expected sales prices and sales incentives to be offered; the timing of sales within a community; the expected cancellation rates based on local housing market conditions and competition; the number and type of homes available and pricing and incentives being offered in other communities by us or by other builders in the surrounding areas; total costs expended to date and expected to be incurred in the future, including, sales and marketing costs; alternative products that may be offered that could have an impact on sales pace, sales price and/or building costs; and, alternative uses for the property such as the possibility of a sale of lots to a third party versus the sale of individual homes. Many of these assumptions are interdependent and changing one assumption generally requires a corresponding change to one or more of the other assumptions. For example, increasing or decreasing the sales absorption rate has a direct impact on the estimated per unit sales price of a home, the level of time sensitive costs (such as indirect construction, overhead and carrying costs), and selling and marketing costs (such as model maintenance costs and promotional and advertising campaign costs). Our objectives for a community, could have a significant impact on the community cash flow analysis. For example, if our business objective is to drive delivery levels, our community cash flow analysis will be different than if the business objective is to preserve operating margins. These objectives may vary significantly from community to community, from division to division, and over time with respect to the same community. The number of communities reviewed for impairment and the interrelationship and complexity of assumptions preclude discussion on a

community, could have a significant impact on the community cash flow analysis. For example, if our business objective is to drive delivery levels, our community cash flow analysis will be different than if the business objective is to preserve operating margins. These objectives may vary significantly from community to community, from division to division, and over time with respect to the same community. The number of communities reviewed for impairment and the interrelationship and complexity of assumptions preclude discussion on a community by community basis. Continuing uncertainties in economic and market conditions and assumptions and estimates required of our management in valuing inventory during changing market conditions, could result in actual future results differing materially from management’s assumptions and may require material inventory impairment charges to be recorded in the future. For example, further market deterioration may lead to additional sales incentives and decreases in sales prices and/or volumes resulting in additional impairment charges on previously impaired inventory, as well as on inventory not currently impaired but for which indicators of impairment may arise if further market deterioration occurs.

Inventory impairments and ~~abandonments~~abandonment costs on active communities were $~~175~~65.50 million and $~~277~~342.2 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2008 compared to $4163.43 million and $49112.27 million, respectively, for the three and ~~six~~ nine months ended ~~June~~September 30, 2007. During the three and ~~six~~nine months ended ~~June~~September 30, 2008, we also recorded charges of $~~129~~32.2 1 million and $~~199~~231.89 million, respectively, in write-offs of deposits and abandonment costs which are included in cost of sales — inventory impairments and abandonment costs in the ~~accompanying~~ accompanying unaudited consolidated statements of operations, related to land that we have determined is not probable that we will purchase or build on (including land to be sold as lots), compared to $43441.42 million and $74515.57 million, respectively, for the three and ~~six~~nine months ended ~~June~~ September 30, 2007. Included in the impairment charges on active communities for the three and ~~six~~ nine months ended ~~June~~September 30, 2008 is $0 million and $4.3 million, respectively, of inventory impairments recognized on properties accounted for as financing arrangements under SFAS 66 for which we do not have title to the underlying asset.

Financial Reporting Under SOP 90-7

In accordance with GAAP, we have applied the provisions of American Institute of Certified Public Accountants’ (“AICPA”) Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”), in preparing the unaudited consolidated financial statements. SOP 90-7 requires that the financial statements, for periods subsequent to the Chapter 11 filing, distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, certain items of income, expense, gain or loss realized or incurred because we are in Chapter 11 are recorded in reorganization items, net on the accompanying unaudited consolidated statements of operations. Also, pre-petition obligations that may be impacted by the bankruptcy reorganization process have been classified in liabilities subject to compromise on the unaudited consolidated statement of financial condition at ~~June~~ September 30, 2008. These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies (“SFAS 5”), even if they may be settled for lesser amounts. As of ~~June~~ September 30, 2008, the pre-petition liabilities included in liabilities subject to compromise have not been reduced.

We believe that financial reporting under SOP 90-7 is a critical accounting policy because it has a significant impact on our business processes and internal control over financial reporting related to the proper separation and payment of pre-petition and post-petition obligations and the preparation of unaudited consolidated financial statements and related disclosures reflecting the accounting required for the restructuring activities and reorganization expenses resulting from our Chapter 11 proceedings. Application of SOP 90-7 involves estimates for amounts expected to be allowed claims, among other things.

Results of Operations — Consolidated

Three Months Ended ~~June~~September 30, 2008 Compared to Three Months Ended ~~June~~September 30, 2007

Total revenues decreased 4850% to $~~297~~251.50 million for the three months ended ~~June~~September 30, 2008, ~~from~~ from $~~576~~501.72 million for the three months ended ~~June~~September 30, 2007. This decrease is primarily attributable to a decrease in Homebuilding revenues ~~of 48%~~.

For the three months ended ~~June~~September 30, 2008, we reported a loss from continuing operations ~~before~~ before reorganization items and the benefit for income taxes of $~~360~~116.2 million as compared to a loss from continuing operations before ~~benefit for~~ income taxes of $~~135~~609.38 million for the three months ended ~~June~~September 30, 2007. Results from continuing operations for the three months ended ~~June~~September 30, 2008 and 2007 include charges totaling $~~306~~107.60 million and $~~155~~571.03 million, respectively, related to ~~inventory~~ inventory impairments, abandonment costs, joint venture impairments, goodwill impairments and the ~~provision~~ ~~for~~ settlement of a loss contingency. During the three months ended ~~June~~September 30, 2008, we also ~~recognized~~ recognized $18.27 million of reorganization expenses related to our bankruptcy cases.

Our effective tax rate from continuing operations was 0.(2.0)% for the three months ended ~~June~~ September 30, 2008. The effective tax rate for the three months ended ~~June~~September 30, 2008 was impacted primarily by a valuation allowance on our deferred tax asset and the reduction of unrecorded tax benefits due to a favorable ruling received from the Internal Revenue Service related to an uncertain tax position.

For the three months ended ~~June~~September 30, 2008, we reported a loss from continuing operations, ~~net~~ net of taxes, of $~~379~~132.12 million (or a loss of $62.4026 per basic and diluted share) compared to a loss from continuing operations, net of taxes, of $~~122~~615.18 million (or a loss of $210.0436 per basic and diluted share) for the three months ended ~~June~~September 30, 2007.

Homebuilding

Homebuilding revenues decreased 4850% to $~~294~~246.29 million for the three months ended ~~June~~ September 30, 2008, from $~~565~~492.79 million for the three months ~~June~~September 30, 2007. This decrease is primarily due to a decrease in revenue from home sales to $~~276~~246.96 million for the three months ended ~~June~~ September 30, 2008 from $~~535~~449.36 million for the three months ended ~~June~~September 30, 2007. The decrease in revenue from home sales, which is net of buyer incentives, was due to a 3840% decrease in the number of deliveries from continuing operations to ~~1,020~~881 for the three months ended ~~June~~September 30, 2008 from 1,~~656~~459 for the three months ended ~~June~~September 30, 2007. The average price of homes delivered from continuing operations decreased 169% to $~~271~~280,000 for the three months ended ~~June~~September 30, 2008, from $~~323~~308,000 for the three months ended September 30, 2007. For the three months ended September 30, 2008, our incentives from continuing operations increased 21% to $54,800 per home delivered from $45,300 per home delivered for the three months ended ~~June~~September 30, 2007. Our home sales revenues have continued to decrease through 2009 as the number of home deliveries declined as a result of severe market conditions in the new and existing home industry combined with diminished consumer confidence, the oversupply of new and existing homes available for sale, increased foreclosures and downward pressure on home prices. These factors have been exacerbated by our Chapter 11 filings.

For the three months ended ~~June~~September 30, 2008, we had a homebuilding gross loss of $~~283~~45.~~4 million~~8 million as compared to a gross ~~profit~~loss of $17437.84 million for the three months ended ~~June~~September 30, 2007. This decrease is primarily due to ~~an increase~~a decrease in inventory impairments and abandonment costs during the three months ended ~~June~~September 30, 2008 ~~in addition to the decrease in the number of deliveries coupled with higher incentives on homes delivered in response to challenging homebuilding market conditions~~. Inventory impairments and abandonment costs were $~~175~~97.51 million for the three months ended ~~June~~September 30, 2008 compared to $41504.4 5 million for the ~~three months ended June 30, 2007. For the three months ended June 30, 2008, our~~ ~~incentives from continuing operations increased 54% to $59,300 per home delivered from $38,600 per home delivered for the~~ three months ended ~~June~~September 30, 2007.

SG&A expenses decreased to $5544.60 million for the three months ended ~~June~~September 30, 2008, from $8586.0 million for the three months ended ~~June~~September 30, 2007. This decrease in expenses is due to a decrease of $1716.58 million in selling and marketing expenses primarily due to a $118.31 million decrease in commissions resulting from a decrease in both deliveries and average selling prices; a decrease of $4.50 million in professional fees related to the Transeastern JV settlement in 2007; and a reduction in overhead and related expenses due to reduced levels of business during the three months ended ~~June~~September 30, 2008.

SG&A expenses as a percentage of revenues from home sales for the three months ended ~~June~~ September 30, 2008 ~~increased~~decreased to 2018%, as compared to 1619% for the three months ended ~~June~~September 30, 2007. The decrease ~~increase~~ in SG&A expenses as a percentage of home sales revenues is due to the decrease in ~~deliveries~~selling and marketing expenses and ~~average~~ ~~selling~~an ~~prices~~overall reduction in overhead as discussed above.

For the three months ended June 30, 2008, we had income from unconsolidated joint ventures of $9.3 million compared to a loss from unconsolidated joint ventures of $1.5 million for the three months ended June 30, 2007. The increase in our earnings from unconsolidated joint ventures is primarily due to the reduction of loss accruals totaling $11.6 million for certain joint venture obligations established in 2007 and reversed during the three months ended June 30, 2008.

Net Sales Orders and Homes in Backlog (Consolidated)

For the three months ended ~~June~~September 30, 2008, net sales orders from continuing operations decreased by 7837% to ~~353~~559 as compared to ~~1,573~~892 for the three months ended ~~June~~September 30, 2007. The ~~decrease~~ decrease in net sales orders is due to decreased demand for new homes and higher cancellation rates. These factors, as well as our Chapter 11 cases, have continued to negatively impact our net sales orders through ~~the first quarter of~~ 2009.

Our cancellation rate ~~increased~~decreased to 7340% for the three months ended ~~June~~September 30, 2008 from 3246% ~~for~~ ~~the three months ended June 30, 2007. The majority of our regions experienced increases in cancellation rates~~ for the three months ended ~~June~~September 30, ~~2008 when compared with the same period in~~ 2007. Our Florida and Mid-Atlantic regions had the largest increases in cancellation rate to 144% and 43%, respectively, for the three months ended June 30, 2008 as compared to 34% and 17%, respectively, for the three months ended June 30, 2007. The ~~increase~~decrease in cancellation ~~rate~~rates ~~in Florida~~ is ~~primarily~~ due to ~~contracts with a third-party that marketed homes in~~ the ~~United Kingdom, which were~~ ~~included~~reduction in ~~backlog~~sales ~~at December 31, 2007 and March 31, 2008 and were cancelled in June 2008~~rates. ~~These contracts were for 511~~ homes representing $115.6 million of revenue. The decrease in cancellation rate in Texas is consistent with our overall performance in Texas, a region that has been less affected by the challenging market conditions experienced in other regions.

We had 1,~~580~~258 homes in backlog from continuing operations as of ~~June~~September 30, 2008, as compared to to 3,~~806~~485 homes in backlog as of ~~June~~September 30, 2007. The 5864% decrease in backlog units is primarily due to a decline in sales orders ~~and an increase in cancellation rates~~ as a result of decreased demand. The sales value of backlog from continuing operations decreased 6367% to $~~479~~364.34 million at ~~June~~September 30, 2008, from $1.31 billion at ~~June~~ September 30, 2007, due to the decrease in the number of homes in backlog in addition to a decrease in the average selling price of homes in backlog to $~~303~~290,000 from $~~339~~320,000 from period to period. The decrease in the average selling price of homes in backlog was primarily due to increased incentives and a change in product mix. At ~~December~~April 3130, ~~2008~~2009, our consolidated continuing operations had ~~829~~536 homes in backlog representing $~~228~~142.31 million in revenue.

Net Sales Orders and Homes in Backlog (Unconsolidated Joint Ventures)

For the three months ended ~~June~~September 30, 2008, net sales orders decreased by 100% as compared to to the three months ended ~~June~~September 30, 2007. The decrease in net sales orders was due to the results for the Transeastern joint venture, previously included in our unconsolidated joint venture results, ~~are~~ being consolidated into our Florida operations for the three months ended ~~June~~September 30, 2008. Additionally, we have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three months ended ~~June~~September 30, 2008 due to the ~~settlement~~ settlement agreement reached with ~~respect to~~ the ~~joint~~lenders ~~venture~~to ~~and~~ the ~~current expectation that the~~ joint ~~venture~~ ~~will not provide a contribution to our future results~~venture.

Our unconsolidated joint ventures, had no homes in backlog as of ~~June~~September 30, 2008, as compared to ~~502~~135 homes in backlog as of ~~June~~ September 30, 2007. The 100% decrease in backlog ~~due~~ is todue to the factors described above regarding the ~~Transeastern~~ ~~and~~ Engle/Sunbelt joint ~~ventures~~venture.

Discontinued Operations

On ~~June~~September 6, 2007, we sold substantially all of our Dallas/Fort Worth division to an ~~independent~~ independent third-party. In accordance with SFAS 144, results of our Dallas/Fort Worth division have been classified as a discontinued operation, and prior periods have been restated. ~~Discontinued~~ Discontinued operations include Dallas/Fort Worth division revenues and a net loss of $0.82 million and $0.6 million, respectively, for the three months ended ~~June~~September 30, 2008 and $161.1 million and $93.9 million, respectively, for the three months ended ~~June~~September 30, 2007.

~~Six~~Nine Months Ended ~~June~~September 30, 2008 Compared to ~~Six~~Nine Months Ended ~~June~~September 30, 2007

Total revenues decreased 4849% to $~~598~~849.6 million for the ~~six~~nine months ended ~~June~~September 30, 2008, ~~from~~ from $1.17 billion for the ~~six~~nine months ended ~~June~~September 30, 2007. This decrease is primarily attributable to a decrease in Homebuilding revenues of 48%.

For the ~~six~~nine months ended ~~June~~September 30, 2008, we reported a loss from continuing operations ~~before~~ before reorganization items and the benefit for income taxes of $~~574~~690.46 million as compared to a loss from continuing operations before benefit for income taxes of $~~226~~835.08 million for the ~~six~~ nine months ended ~~June~~ September 30, 2007. Results from continuing operations for the ~~six~~nine months ended ~~June~~ September 30, 2008 and 2007 include charges totaling $~~479~~586.4 million and $~~278~~849.58 million, respectively, related to inventory impairments, abandonment costs, joint venture impairments, goodwill impairments and the ~~provision for~~ settlement of a loss contingency. During the ~~six~~ nine months ended ~~June~~ September 30, 2008, we also recognized $86105.74 million of reorganization expenses related to ~~our~~ our bankruptcy cases.

Our effective tax rate from continuing operations was (0.3)% for the nine months ended September 30, 2008 compared to 4.3% for the nine months ended September 30, 2007, respectively. The effective tax rate for the nine months ended September 30, 2008 was impacted primarily by a valuation allowance on our deferred tax asset and the reduction of unrecognized tax benefits due to a favorable ruling received from the Internal Revenue Service related to an uncertain tax position.

For the nine months ended September 30, 2008, we reported a loss from continuing operations, net of taxes, of $794.0 million (or a loss of $13.45 per basic and diluted share) compared to a loss from continuing operations, net of taxes, of $800.1 million (or a loss of $13.46 per basic and diluted share) for the nine months ended September 30, 2007.

Our effective tax rate from continuing operations was 0.1% for the six months ended June 30, 2008 compared to 18% for the six months ended June 30, 2007, respectively. The effective tax rate for the six months ended June 30, 2008 was impacted primarily by a valuation allowance on our deferred tax asset.

For the six months ended June 30, 2008, we reported a loss from continuing operations, net of taxes, of $661.8 million (or a loss of $11.19 per basic and diluted share) compared to a loss from continuing operations, net of taxes, of $184.3 million (or a loss of $3.09 per basic and diluted share) for the six months ended June 30, 2007.

Homebuilding

Homebuilding revenues decreased 48% to $~~589~~836.54 million for the ~~six~~nine months ended ~~June~~September 30, 2008, from $1.16 billion for the ~~six~~nine months ~~June~~September 30, 2007. This decrease is primarily due to a decrease in revenue from home sales to $~~567~~814.84 million for the ~~six~~nine months ended ~~June~~September 30, 2008 from $1.15 billion for the ~~six~~nine months ended ~~June~~September 30, 2007. The decrease in revenue from home sales, which is net of buyer incentives, was due to a 3738% decrease in the number of deliveries from continuing operations to 23,~~139~~020 for the ~~six~~nine months ended ~~June~~September 30, 2008 from 34,~~374~~833 for the ~~six~~ nine months ended ~~June~~September 30, 2007. The average price of homes delivered from continuing operations decreased 1815% to $~~265~~270,000 for the ~~six~~ nine months ended ~~June~~September 30, 2008, from $~~324~~319,000 for the ~~six~~ nine months ended ~~June~~September 30, 2007. Our home sales revenues have continued to decrease through 2009 as the number of home deliveries declined as a result of severe market conditions in the new and existing home industry combined with diminished consumer confidence, the oversupply of new and existing homes available for sale, increased foreclosures and downward pressure on home prices. These factors have been exacerbated by our Chapter 11 filings.

For the ~~six~~nine months ended ~~June~~September 30, 2008, we had a homebuilding gross loss of $~~423~~469.31 million as compared to ~~a gross profit of~~ $97339.7 million for the ~~six~~nine months ended ~~June~~September 30, 2007. This ~~decrease~~ increase is primarily due to ~~an increase in inventory impairments and abandonment costs during~~ the ~~six months ended June 30, 2008 in addition to the~~ decrease in the number of deliveries coupled with ~~higher~~ higher incentives on homes delivered in response to challenging homebuilding market conditions~~. Inventory~~ ~~impairments and abandonment costs were $477.0 million for the six months ended June 30,~~partially ~~2008~~offset ~~compared~~by toa ~~$123.9 million~~decrease ~~for~~in ~~the~~inventory ~~six~~impairments ~~months~~and ~~ended~~abandonment ~~June 30, 2007~~costs. For the ~~six~~nine months ended ~~June~~September 30, 2008, our incentives from continuing operations increased 5846% to $6059,~~800~~000 per home delivered from $3840,~~300~~400 per home delivered for the ~~six~~nine months ended ~~June~~September 30, 2007.

SG&A expenses decreased to $~~109~~153.8 million for the ~~six~~nine months ended ~~June~~September 30, 2008, from $~~176~~262.4 million for the ~~six~~nine months ended ~~June~~September 30, 2007. This decrease in expenses is due to a decrease of $3652.19 million in selling and marketing expenses primarily due to a $2331.89 million decrease in commissions resulting from a decrease in both deliveries and average selling prices; a decrease of $1116.90 million in professional fees related to the Transeastern JV settlement in 2007; and a reduction in overhead and related expenses due to reduced levels of business during the ~~six months~~nine months ended ~~June~~September 30, 2008.

SG&A expenses as a percentage of revenues from home sales for the ~~six~~nine months ended ~~June~~ September 30, 2008 increased to 19%, as compared to 1617% for the ~~six~~nine months ended ~~June~~September 30, 2007. The increase in SG&A expenses as a percentage of home sales revenues is due to the decrease in deliveries and average selling prices.

For the ~~six~~nine months ended ~~June~~September 30, 2008, we had income from unconsolidated joint ventures of of $90.14 million compared to a loss from unconsolidated joint ventures of $58.18 million for the ~~six~~nine months ended ~~June~~September 30, 2007. The increase in our earnings from unconsolidated joint ventures is primarily due to the reduction of loss accruals totaling $11.6 million for certain joint venture obligations established in 2007 and reversed during the ~~six~~nine months ended ~~June~~September 30, 2008.

Net Sales Orders and Homes in Backlog (Consolidated)

For the ~~six~~nine months ended ~~June~~September 30, 2008, net sales orders from continuing operations ~~decreased~~ decreased by 5955% to 1,~~340~~899 as compared to 34,~~303~~195 for the ~~six~~nine months ended ~~June~~September 30, 2007. The decrease in net sales orders is due to decreased demand for new homes and higher cancellation rates. These factors , as well as our Chapter 11 cases, have continued to negatively impact our net sales orders through ~~the first quarter of~~ 2009.

Our cancellation rate increased to 5249% for the ~~six~~nine months ended ~~June~~September 30, 2008 from 3034% for the ~~six~~ nine months ended ~~June~~September 30, 2007. The majority of our regions experienced increases in ~~cancellation~~ cancellation rates for the ~~six~~nine months ended ~~June~~September 30, 2008 when compared with the same period in 2007. Our Florida and Mid-Atlantic regions had the largest increases in cancellation rate to 8878% and 3549%, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2008 as compared to 3238% and 1726%, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2007. The increase in cancellation rate in Florida is primarily due to contracts with a third-party that marketed homes in the United Kingdom, ~~which were included in backlog at~~ ~~December 31, 2007, March 31, 2008 and were cancelled in June 2008. These contracts were~~ for 511 homes representing $115.6 million of revenue~~. The decrease in cancellation rate in Texas is consistent with our overall performance in Texas~~, awhich ~~region~~were ~~that~~cancelled ~~has been less affected by the challenging market conditions experienced~~ in ~~other regions~~June 2008.

Net Sales Orders and Homes in Backlog (Unconsolidated Joint Ventures)

For the ~~six~~nine months ended ~~June~~September 30, 2008, net sales orders decreased by 100% as compared to the ~~six~~ nine months ended ~~June~~September 30, 2007. The decrease in net sales orders was due to the results for the Transeastern joint venture, previously included in our unconsolidated joint venture results, ~~are~~ being consolidated into our Florida operations for the ~~six~~nine months ended ~~June~~September 30, 2008. Additionally, we have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the ~~six~~nine months ended ~~June~~September 30, 2008 due to the settlement agreement reached with ~~respect to~~ the ~~joint~~lenders ~~venture~~to ~~and~~ the ~~current expectation that the~~ joint venture ~~will not provide a contribution to our future results~~.

Discontinued Operations

On September 6, 2007, we sold substantially all of our Dallas/Fort Worth division to an independent third-party. In accordance with SFAS 144, results of our Dallas/Fort Worth division have been classified as a discontinued operation, and prior periods have been restated. Discontinued operations include Dallas/Fort Worth division revenues and net loss of $1.2 million and $3.8 million, respectively, for the nine months ended September 30, 2008 and $44.7 million and $17.6 million, respectively, for the nine months ended September 30, 2007.

Discontinued Operations

On June 6, 2007, we sold substantially all of our Dallas/Fort Worth division to an independent third-party. In accordance with SFAS 144, results of our Dallas/Fort Worth division have been classified as a discontinued operation, and prior periods have been restated. Discontinued operations include Dallas/Fort Worth division revenues and a net loss of $1.0 million and $3.2 million, respectively, for the six months ended June 30, 2008 and $43.6 million and $13.7 million, respectively, for the six months ended June 30, 2007.

Reportable Segments

Our operating segments are aggregated into reportable segments in accordance with Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information, based primarily upon similar economic characteristics, product type, geographic area and information used by the chief operating decision maker to allocate resources and assess performance. Our reportable segments consist of our four major Homebuilding geographic regions (Florida, Mid-Atlantic, Texas and the West) and our Financial Services operations.

Homebuilding Operations

The reportable segments for our Homebuilding operations are as follows:

Florida: Central Florida, Jacksonville, Southeast Florida, Southwest Florida, Tampa/St. Petersburg

Mid-Atlantic: Baltimore/Southern Pennsylvania, Nashville, Northern Virginia (on September 25, 2007, we sold in bulk, home sites in our Mid-Atlantic (excluding Nashville) and Virginia divisions)

Texas: Austin, Houston, San Antonio (on ~~June~~September 6, 2007, we sold substantially all of our Dallas/Fort Worth division)

West: Colorado, Las Vegas, Phoenix

Selected Homebuilding Operations and Financial Data

The following tables set forth selected operational and financial data for our Homebuilding operations for the periods indicated (dollars in millions, except average price in thousands):

Three Months Ended

~~Six~~Nine Months Ended

June 30,

September 30,

2008

2007

2008

2007

Homebuilding revenues:

Florida(2):

Florida(2) :

Sales of homes

~~108~~79.53

~~192~~188.83

~~227~~306.47

~~449~~637.14

Sales of land

~~1.4~~—

257.43

3.1

2633.47

Total Florida

~~109~~79.93

~~218~~195.26

~~230~~309.58

~~475~~671.51

Mid-Atlantic:

Sales of homes

1317.97

6249.49

2846.41

~~114~~164.65

Sales of land

—

031.15

2.2

031.16

Total Mid-Atlantic

1317.97

6281.54

3048.63

~~114~~196.71

Texas(1):

Texas(1) :

Sales of homes

97101.35

~~167~~147.08

~~205~~306.27

~~313~~461.97

Sales of land

~~6.6~~—

31.82

7.1

67.13

Total Texas

~~103~~101.95

~~170~~149.80

~~212~~313.38

~~320~~469.0

West:

Sales of homes

5748.21

~~113~~63.16

~~106~~154.89

~~215~~278.17

Sales of land

90.3

13.13

9.36

14.14

Total West

6648.54

~~114~~66.29

~~116~~164.15

~~216~~283.21

Total homebuilding revenues

~~294~~246.29

~~565~~492.79

~~589~~836.54

1,~~126~~619.43

(1)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(2)		The results of operations for Transeastern for the three and ~~six~~nine months ended ~~June~~September 30, 2008 have been included in our consolidated results. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.

	Three Months Ended						~~Six~~Nine Months Ended
	June 30,						June 30,
	September 30,						September 30,
	2008			2007			2008			2007
Results of Operations:
Homebuilding:
Florida(2)	$	(~~143~~53.49	)	$	(14299.74	)	$	(~~247~~301.54	)	$	9(290.13	)
Mid-Atlantic		(197.9	)		(4252.10	)		(2836.32	)		(4597.7	)
Texas(1)		(2211.46	)		14.46			(1728.39	)		2843.73
West		(~~142~~17.51	)		(47199.24	)		(~~218~~235.45	)		(76276.82	)
Total Homebuilding		(~~328~~90.25	)		(89536.62	)		(~~511~~602.50	)		(84620.79	)
Financial Services		(30.15	)		20.32			(4.38	)		5.02
Corporate and unallocated		(2825.92	)		(4873.08	)		(5883.68	)		(~~146~~220.31	)
Loss from continuing operations before reorganization items and taxes	$	(~~360~~116.2	)	$	(~~135~~609.38	)	$	(~~574~~690.46	)	$	(~~226~~835.08	)

(1)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(2)		The results of operations for Transeastern for the three and ~~six~~nine months ended ~~June~~September 30, 2008 have been included in our consolidated results. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.

	Three Months Ended				~~Six~~Nine Months Ended
	June 30,				June 30,
	September 30,				September 30,
	2008		2007		2008		2007
Impairment charges on active communities:
Florida	$	~~132~~58.01	$	2315.67	$	~~205~~264.90	$	2844.74
Mid-Atlantic		52.91		4.54		1214.56		611.60
Texas		2.1.7		~~0.5~~—		34.18		0.6
West		353.51		1243.82		5558.78		1356.57
		175.5		41.4		277.2		49.4
		65.0		63.3		342.2		112.7
Write-offs of deposits and abandonment costs:
Florida		1410.30		12274.15		3646.4		12287.83
Mid-Atlantic		94.26		1333.59		914.40		1347.98
Texas		513.5		~~0.2~~—		620.83		0.3
West		~~100~~4.20		17132.68		~~147~~151.2		47180.53
		129.2		43.4		199.8		74.5
		32.1		441.2		231.9		515.7
Inventory impairments and abandonment costs	$	~~304~~97.71	$	84504.85	$	~~477~~574.01	$	~~123~~628.94
Remaining carrying value of inventory impaired at end of period	$	~~529~~502.42	$	~~696~~728.0	$	~~529~~502.42	$	~~696~~728.0
Number of projects impaired during the period		~~168~~98		~~115~~131		~~224~~257		~~131~~171
Total number of projects included in inventory and reviewed for impairment during the period		~~354~~361		~~457~~481		~~354~~361		~~457~~481

	Three Months Ended								~~Six~~Nine Months Ended
	June 30,								June 30,
	September 30,								September 30,
	2008				2007				2008				2007
	Homes		$		Homes		$		Homes		$		Homes		$
Deliveries:
Consolidated:
Florida(2)		~~395~~270	$	~~108~~79.53		~~509~~551	$	~~192~~188.83		~~862~~1,132	$	~~227~~306.47		1,~~229~~780	$	~~449~~637.14
Mid-Atlantic		4061		1317.97		~~168~~138		6249.49		86147		2846.41		~~320~~458		~~114~~164.65
Texas(1)		~~377~~369		97101.35		~~649~~563		~~167~~147.08		~~801~~1,170		~~205~~306.27		1,~~221~~784		~~313~~461.97
West		~~208~~181		5748.21		~~330~~207		~~113~~63.16		~~390~~571		~~106~~154.89		~~604~~811		~~215~~278.17
Continuing operations		~~1,020~~881		~~276~~246.96		1,~~656~~459		~~535~~449.36		23,~~139~~020		~~567~~814.84		34,~~374~~833		1,~~092~~542.73
Discontinued operations(1)		61		0.82		697		161.1		78		1.02		~~182~~189		4344.67
Consolidated total		~~1,026~~882		~~277~~246.78		1,~~725~~466		~~551~~450.47		23,~~146~~028		~~568~~815.86		35,~~556~~022		1,~~136~~587.30
Unconsolidated joint ventures:
Florida (excluding Transeastern)		—		—		37—		~~10.4~~—		—		—		40		11.3
Transeastern(2)		—		—		~~328~~132		7328.35		—		—		~~607~~739		~~146~~174.38
Mid-Atlantic		—		—		96		21.51		—		—		1016		24.80
West(3)		—		—		~~320~~136		9336.35		—		—		~~638~~774		~~194~~230.59
Total unconsolidated joint ventures		—		—		~~694~~274		~~179~~66.51		—		—		1,~~295~~569		~~354~~421.90
Combined total		~~1,026~~882	$	~~277~~246.78		21,~~419~~740	$	~~730~~516.98		23,~~146~~028	$	~~568~~815.86		46,~~851~~591	$	12,~~491~~008.20

(1)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(2)		The results of operations for Transeastern for the three and ~~six~~nine months ended ~~June~~September 30, 2008 have been included in our consolidated results. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.
(3)		We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and ~~six~~nine months ended ~~June~~September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.

	Three Months Ended												~~Six~~Nine Months Ended
	June 30,												June 30,
	September 30,												September 30,
	2008						2007						2008					2007
	Homes			$			Homes			$			Homes		$			Homes		$
Net Sales Orders(1):
Consolidated:
Florida(3) (4)		(210	)	$	(65.3	)		439		$	138.0			123	$	(13.3	)		1,037	$	355.3
Florida(3)(4)		172		$	32.8			226		$	43.6			295	$	19.5			1,263	$	398.9
Mid-Atlantic		502			18(2.43	)		~~207~~57			7117.04			~~137~~139		4442.30			~~428~~485		~~152~~170.60
Texas(2)		~~393~~226			~~103~~61.68			~~624~~376			~~153~~99.41			~~793~~1,019		~~205~~267.20			1,~~282~~658		~~318~~417.13
West		~~120~~159			3139.84			~~303~~233			7959.15			~~287~~446		74114.60			~~556~~789		~~159~~219.94
Continuing operations		~~353~~559			88131.57			~~1,573~~892			~~441~~219.56			1,~~340~~899		~~310~~442.85			34,~~303~~195		~~985~~1,205.96
Discontinued operations(2)		2—			~~0.4~~—			(1—	)		—(0.5	)		9		1.0			70		1918.49
Consolidated total		~~355~~559			88131.97			~~1,572~~892			~~441~~219.51			1,~~349~~908		~~311~~443.85			34,~~373~~265		1,~~005~~224.35
Unconsolidated joint ventures:
Florida (excluding Transeastern)		—			—			8—			~~0.8~~—			—		—			12		1.7
Transeastern(3)		—			—			~~158~~54			259.12			—		—			~~194~~248		1727.81
Mid-Atlantic		—			—			106			2.1.0			—		—			1319		23.8
West(5)		—			—			~~144~~93			3121.45			—		—			~~387~~480		95116.48
Total unconsolidated joint ventures		—			—			~~320~~153			5931.47			—		—			~~606~~759		~~117~~149.74
Combined total		~~355~~559		$	88131.97			1,~~892~~045		$	~~500~~250.98			1,~~349~~908	$	~~311~~443.85			35,~~979~~024	$	1,~~123~~373.09

(1)		Net of cancellations.
(2)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(3)		The results of operations for Transeastern for the three and ~~six~~nine months ended ~~June~~September 30, 2008 have been included in our consolidated results. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.
(4)		In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in the United Kingdom. Of the 511 contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007. Accordingly, included in net sales orders for the three and nine months ended September 30, 2008 are 511 cancellations related to these contracts.
(5)		We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine months ended September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.

(4)	Contracts with a third-party that marketed homes in the United Kingdom included in backlog at March 31, 2008 were cancelled in June 2008. These contracts were for 511 homes representing $115.6 million of revenue.
	September 30, 2008						September 30, 2007
(5)	We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and six months ended June 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.
					Average						Average
	Homes		$		Price		Homes		$		Price
Sales Backlog:
Consolidated:
Florida(3)		493	$	148.5	$	301		1,935	$	664.4	$	343
Mid-Atlantic		72		24.0	$	334		239		87.1	$	365
Texas(1)		398		115.1	$	289		848		229.2	$	270
West		295		76.8	$	260		463		135.3	$	292
Continuing operations		1,258		364.4	$	290		3,485		1,116.0	$	320
Discontinued operations(1)		4		0.6	$	148		14		4.3	$	305
Consolidated total		1,262		365.0	$	289		3,499		1,120.3	$	320
Unconsolidated joint ventures:
West(2)		—		—		—		135		37.0	$	274
Total unconsolidated joint ventures		—		—		—		135		37.0	$	274
Combined total		1,262	$	365.0	$	289		3,634	$	1,157.3	$	318

	June 30, 2008						June 30, 2007
(1)	The Texas region excludes the Dallas division, which is classified as a discontinued operation.
					Average						Average
(2)	We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and nine months ended September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.
	Homes		$		Price		Homes		$		Price
(3)	In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in the United Kingdom. Of the 511 contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007.
Sales Backlog:
Consolidated:
Florida(2)		591	$	195.0	$	330		2,036	$	758.0	$	372
Mid-Atlantic		131		44.0	$	336		314		118.5	$	377
Texas(1)		541		154.8	$	286		1,035		277.8	$	268
West		317		85.5	$	270		421		136.5	$	324
Continuing operations		1,580		479.3	$	303		3,806		1,290.8	$	339
Discontinued operations(1)		5		0.8	$	150		21		5.8	$	278
Consolidated total		1,585		480.1	$	303		3,827		1,296.6	$	339
Unconsolidated joint ventures:
Florida (excluding Transeastern)		—		—		—		18		4.6	$	254
Transeastern(2)		—		—		—		284		65.8	$	232
Mid-Atlantic		—		—		—		6		1.3	$	215
West(3)		—		—		—		194		55.0	$	284
Total unconsolidated joint ventures		—		—		—		502		126.7	$	252
Combined total		1,585	$	480.1	$	303		4,329	$	1,423.3	$	329

(1)	The Texas region excludes the Dallas division, which is classified as a discontinued operation.
	Three Months Ended September 30,						Nine Months Ended September 30,
(2)	The results of operations for Transeastern for the three and six months ended June 30, 2008 have been included in our consolidated results. Results of operations for the three and six months ended June 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.
	2008			2007			2008			2007
(3)	We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and six months ended June 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.
Cancellation rates:
Consolidated:
Florida(2)		38	%		56	%		78	%		38	%
Mid-Atlantic		97	%		59	%		49	%		26	%
Texas(1)		35	%		43	%		27	%		33	%
West		36	%		35	%		40	%		36	%
Continuing Operations		40	%		46	%		49	%		34	%

	Three Months Ended						Six Months Ended
(1)	The Texas region excludes the Dallas division, which is classified as a discontinued operation.
	June 30,						June 30,
(2)	In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in the United Kingdom. Of the 511 contracts, 398 contracts were entered into in 2005 and 113 contracts were entered into in June 2007. Accordingly, included in cancellation rates for the three and nine months ended September 30, 2008 are 511 cancellations related to these contracts.
	2008			2007			2008			2007
Cancellation rates:
Consolidated:
Florida(2)		144	%		34	%		88	%		32	%
Mid-Atlantic		43	%		17	%		35	%		17	%
Texas(1)		22	%		33	%		25	%		29	%
West		46	%		34	%		42	%		36	%
Continuing Operations		73	%		32	%		52	%		30	%

(1)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(2)		Contracts with a third-party that marketed homes in the United Kingdom, which were included in backlog at December 31, 2007 and March 31, 2008 and were cancelled in June 2008. These contracts were for 511 homes representing $115.6 million of revenue.

	Three Months Ended June 30,										Six Months Ended June 30,
	Three Months Ended September 30,										Nine Months Ended September 30,
	2008					2007					2008					2007
			Sales					Sales					Sales					Sales
	Deliveries		Orders			Deliveries		Orders			Deliveries		Orders			Deliveries		Orders
Average Price:
Consolidated:
Florida(2) (4)	$	275	$	311		$	379	$	314		$	264	$	(108	)	$	365	$	343
Florida(2)(4)	$	294	$	190		$	342	$	193		$	271	$	66		$	358	$	316
Mid-Atlantic	$	347	$	369		$	371	$	343		$	330	$	323		$	358	$	357
Mid-Atlantic(5)	$	290	$	(1,132	)	$	362	$	305		$	313	$	302		$	359	$	351
Texas(1)	$	~~258~~275	$	~~263~~273		$	~~257~~262	$	~~246~~264		$	~~256~~262	$	~~259~~262		$	~~257~~259	$	~~248~~252
West	$	~~275~~266	$	~~265~~248		$	~~343~~308	$	~~261~~255		$	~~274~~271	$	~~260~~256		$	~~356~~344	$	~~288~~278
Continuing operations	$	~~271~~280	$	~~251~~236		$	~~323~~308	$	~~281~~246		$	~~265~~270	$	~~232~~233		$	~~324~~319	$	~~298~~287
Discontinued operations(1)	$	~~128~~160	$	~~161~~—		$	~~233~~158	$	~~(46~~—	)	$	~~144~~146	$	112		$	~~240~~237	$	~~277~~270
Consolidated total	$	~~271~~280	$	~~250~~236		$	~~320~~307	$	~~281~~246		$	~~265~~269	$	~~231~~232		$	~~320~~316	$	~~298~~287
Unconsolidated joint ventures:
Florida (excluding Transeastern)		—		—		$	~~282~~—	$	99—			—		—		$	282	$	142
Transeastern(2)		—		—		$	~~223~~216	$	~~159~~171			—		—		$	~~241~~237	$	92109
Mid-Atlantic		—		—		$	~~282~~193	$	~~207~~172			—		—		$	~~282~~249	$	~~216~~202
West(3)		—		—		$	~~292~~268	$	~~219~~231			—		—		$	~~305~~298	$	~~246~~243
Total unconsolidated joint ventures		—		—		$	~~259~~241	$	~~186~~207			—		—		$	~~274~~268	$	~~194~~197
Combined total	$	~~271~~280	$	~~250~~236		$	~~302~~297	$	~~265~~240		$	~~265~~269	$	~~231~~232		$	~~307~~305	$	~~282~~273

(1)		The Texas region excludes the Dallas division, which is classified as a discontinued operation.
(2)		The results of operations for Transeastern for the three and ~~six~~nine months ended ~~June~~September 30, 2008 have been included in our consolidated results. Results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2007 are included in the results for the unconsolidated joint ventures. See Note 4 of the notes to the unaudited consolidated financial statements.
(3)		We have excluded the results of the Engle/Sunbelt joint venture from our unconsolidated joint venture results for the three and ~~six~~nine months ended ~~June~~September 30, 2008 due to the settlement agreement reached in 2008. See Note 5 of the notes to the unaudited consolidated financial statements.
(4)		~~Contracts~~In June 2008, we cancelled 511 contracts, representing $115.6 million of revenue, with a third-party that marketed homes to customers in the United Kingdom,. ~~which~~Of ~~were~~the ~~included~~511 incontracts, ~~backlog~~398 atcontracts ~~December~~were ~~31,~~entered ~~2007~~into ~~and~~in ~~March~~2005 ~~31,~~and ~~2008~~113 ~~and~~contracts were ~~cancelled~~entered into in June ~~2008~~2007. ~~These~~Accordingly, ~~contracts~~included ~~were~~in net sales orders for ~~511~~the ~~homes~~three ~~representing~~and ~~$115.6~~nine ~~million~~months ofended ~~revenue~~September 30, 2008 are 511 cancellations related to these contracts.
(5)		During the three months ended September 30, 2008, our Mid-Atlantic region experienced a 97% cancellation rate with only two net sales.

Three Months Ended ~~June~~September 30, 2008 compared to Three Months Ended ~~June~~September 30, 2007

Florida: Homebuilding revenues decreased 5059% to $~~109~~79.93 million for the three months ended ~~June~~September 30, 2008 from $~~218~~195.26 million for the three months ended ~~June~~September 30, 2007. The decrease in in Homebuilding revenues was due to a 4458% decrease in revenues from home sales to $~~108~~79.53 million for the three months ended ~~June~~September 30, 2008 from $~~192~~188.83 million for the three months ended ~~June~~ September 30, 2007 and a decrease in revenue from land sales toof $17.43 million ~~for~~compared ~~the~~to ~~three months ended June 30, 2008 from $25.4 million for~~ the three months ended ~~June~~September 30, 2007. The decrease in home sales revenues during the three months ended ~~June~~ September 30, 2008 is the result of a 2251% decrease in the number of home deliveries to ~~395~~270 for the three months ended ~~June~~September 30, 2008 from ~~509~~551 homes delivered for the three months ended ~~June~~ September 30, 2007, and a 2714% decrease in the average selling price of homes to $~~275~~294,000 for the three months ended ~~June~~September 30, 2008 from $~~379~~342,000 for the three months ended ~~June~~September 30, 2007.

During the three months ended ~~June~~September 30, 2008, we recognized $~~132~~58.01 million in impairment charges compared to $2315.67 million for the three months ended ~~June~~September 30, 2007. Gross margin on ~~home~~ home sales, excluding impairments, was 429% for the three months ended ~~June~~September 30, 2008, compared to 2219% for the three months ended ~~June~~September 30, 2007. This ~~decrease~~increase in gross margin was primarily due to the recovery of previously recorded impairments on homes delivered partially offset by an increase in sales incentives offered to home buyers coupled with a decline in the base price of the homes delivered. The average sales incentive per home delivered increased 8126% to $9793,~~300~~600 per home for the three months ended ~~June~~September 30, 2008, from $5374,~~800~~500 for the three months ended ~~June~~ September 30, 2007.

For the three months ended ~~June~~September 30, 2008 and 2007, we incurred losses of $1210.50 million ~~and~~ and $9275.1 million from land sales, respectively, which included land impairments and abandonment ~~costs~~ costs of $1410.30 million and $12274.15 million, respectively.

Mid-Atlantic: Homebuilding revenues decreased 78% to $1317.97 million for the three months ended ~~June~~September 30, 2008 from $6281.54 million for the three months ended ~~June~~September 30, 2007. The decrease in in Homebuilding revenues was ~~primarily~~ due to a 65% decrease in revenues from home sales ~~during~~to $17.7 million for the three months ended ~~June~~September 30, 2008 from $49.9 million for the three months ended September 30, 2007 and a decrease in revenue from land sales of $31.5 million compared to the three months ended September 30, 2007. Home sales revenues decreased as a result of a 7656% decrease in the number of home deliveries to 4061 for the three months ended ~~June~~September 30, 2008 from ~~168~~138 homes delivered for the three months ended ~~June~~September 30, 2007, and a 720% decrease in the average selling price of homes to $~~347~~290,000 for the three months ended ~~June~~September 30, 2008 from $~~371~~362,000 for the three months ended ~~June~~September 30, 2007 ~~coupled with a decline in the base price of the homes delivered~~.

During the three months ended June 30, 2008, we recognized $5.9 million in impairment charges compared to $4.5 million for the three months ended June 30, 2007. Gross margin on home sales, excluding impairments, decreased to 1% for the three months ended June 30, 2008 compared to 14% for the three months ended June 30, 2007 in part due to an increase in average sales incentive per home delivered of 4% to $28,500 per home for the three months ended June 30, 2008, from $27,400 for the three months ended June 30, 2007.

~~For~~During the three months ended ~~June~~September 30, 2008 ~~and 2007~~, we ~~incurred~~recognized ~~losses of~~ $9.2.1 million ~~and~~in impairment charges compared to $134.84 million ~~from~~for ~~land~~the three months ended September 30, 2007. Gross margin on home sales, ~~respectively~~excluding impairments, ~~which~~increased ~~included~~to ~~land~~12% ~~impairments~~for the three months ended September 30, 2008 compared to 11% for the three months ended September 30, 2007. This slight increase in gross margin was primarily due to a decrease in cost of sales and ~~abandonment~~the ~~costs~~recovery of previously recorded impairments on homes delivered, partially offset by an increase in sales incentives offered to home buyers coupled with a decline in the base price of $9the homes delivered.2 Average sales incentive per home delivered increased 5% to $29,400 per home for the three months ended September ~~million~~30, ~~and~~2008, from $~~13.5~~27,800 for the three months ended September ~~million~~30, ~~respectively~~2007.

~~Texas:~~For ~~Homebuilding revenues decreased 39% to $103.9 million for~~ the three months ended ~~June~~ September 30, 2008 ~~from~~and ~~$170.8 million for the three months ended June 30~~2007, ~~2007.~~we ~~The~~incurred ~~decrease~~losses inof ~~Homebuilding revenues was due to a 42% decrease in revenues from home sales to~~ $974.36 million ~~for the three~~and ~~months ended June 30, 2008 from~~ $~~167~~46.09 million ~~for the three months ended June 30, 2007. The decrease in revenue~~ from ~~home~~land sales, ~~was primarily due to a 42% decrease in the number of home deliveries to 377 for the three months ended June 30~~respectively, ~~2008~~which ~~from~~included ~~649~~land ~~homes~~impairments ~~delivered~~and ~~for~~abandonment ~~the three~~costs ~~months ended June 30, 2007. The average selling price~~ of ~~homes remained relatively unchanged at~~ $~~258,000 for the three months ended June~~4.6 ~~30,~~million ~~2008~~and ~~from~~ $~~257,000 for the three months ended June~~33.9 30million, ~~2007.~~ ~~Our Texas region has been less affected by the challenging market conditions experienced in other regions~~respectively. ~~We believe that this is the result of the overall moderate growth rates and price~~ ~~appreciation experienced in Texas in prior periods and the relative health of the Texas economy as compared to other markets in which we sell.~~

~~During~~Texas: ~~the~~Homebuilding ~~three~~revenues ~~months~~decreased ~~ended~~32% ~~June 30,~~to ~~2008, we recognized~~ $2101.15 million infor ~~impairment~~the ~~charges~~three months ended ~~compared~~September 30, to2008 from $0149.50 million for the three months ended ~~June~~September 30, 2007. ~~Gross~~The ~~margin~~decrease in onHomebuilding ~~home~~revenues ~~sales, excluding~~was ~~impairments,~~primarily ~~was~~due 11to a 31% decrease in revenues from home sales to $101.5 million for the three months ended ~~June~~September 30, 2008, ~~compared~~from to$147.8 million ~~21%~~ for the three months ended ~~June~~September 30, 2007. ~~This~~The decrease in ~~gross~~revenue ~~margin~~from home sales was primarily due to ana ~~increase~~34% decrease in ~~sales~~the ~~incentives~~number ~~offered~~of home deliveries to ~~home~~369 ~~buyers.~~for ~~The~~the ~~average~~three ~~sales~~months ~~incentive~~ended ~~per~~September 30, ~~home~~2008 from 563 homes delivered for the three months ended September 30, 2007. The average selling price of homes increased 585% to $27275,~~700~~000 ~~per home~~ for the three months ended ~~June~~September 30, 2008, from $17262,~~600~~000 for the three months ended ~~June~~September 30, 2007. Our Texas region has been less affected by the challenging market conditions experienced in other regions. We believe that this is the result of the overall moderate growth rates and price appreciation experienced in Texas in prior periods and the relative health of the Texas economy as compared to other markets in which we sell.

~~For~~During the three months ended ~~June~~September 30, 2008 ~~and 2007~~, we ~~incurred~~recognized ~~losses of~~ $51.37 million in impairment charges and $0no impairment charges during the three months ended September 30, 2007.~~2 million~~ ~~from~~Gross ~~land~~margin on home sales, ~~respectively~~excluding impairments, ~~which~~was ~~included~~unchanged ~~land~~at ~~impairments~~23% ~~and~~for ~~abandonment~~the ~~costs~~three ~~of $5.5 million~~months ~~and~~ended ~~$0.2~~September ~~million~~30, 2008 ~~respectively~~and 2007.

~~West:~~For ~~Homebuilding revenues decreased 42% to $66.5 million for~~ the three months ended ~~June~~ September 30, 2008 ~~from~~and ~~$114.2 million for the three months ended June 30~~2007, ~~2007.~~we ~~The~~incurred ~~decrease~~(losses)/gains ~~in Homebuilding~~of ~~revenues was due to a 49% decrease in revenues from home sales to~~ $57(13.2 5) million ~~for the~~and ~~three months ended June 30, 2008 from~~ $~~113~~0.13 million ~~for the three months ended June 30, 2007, partially offset by an increase in revenue~~ from land sales ~~to $9.3 million for the three months ended June 30~~, ~~2008 from $1.1 million for the three months ended June 30~~respectively, ~~2007.~~which ~~The~~included ~~decrease~~land ~~in revenue~~impairments ~~from home sales was due to a 37% decrease in the number of home deliveries to 208 for the~~and ~~three~~abandonment ~~months~~costs ~~ended June 30, 2008 from 330 homes delivered for the three months ended June 30, 2007, and a 20% decrease in the average selling price~~ of ~~homes to~~ $~~275,000 for the three months ended June~~13.5 ~~30,~~million ~~2008 from $343,000~~ for the three months ended ~~June~~September 30, ~~2007~~2008.

~~During~~West: Homebuilding revenues decreased 28% to $48.4 million for the three months ended ~~June~~ September 30, 2008, wefrom ~~recognized~~ $3566.59 million infor ~~impairment~~the ~~charges~~three months ended September 30, 2007. The decrease ~~compared~~in Homebuilding revenues was due to a 25% decrease in revenues from home sales to $1248.81 million for the three months ended ~~June~~September 30, ~~2007~~2008 from $63.6 million ~~Gross~~for ~~margin~~the onthree ~~home~~months ~~sales,~~ended September ~~excluding~~30, ~~impairments~~2007, ~~was~~and 1%a decrease in revenue from land sales to $0.3 million for the three months ended ~~June~~ September 30, 2008, ~~compared~~from to$3.3 million ~~10%~~ for the three months ended ~~June~~September 30, 2007. ~~This~~The decrease in ~~gross~~revenue ~~margin~~from ~~was~~home ~~primarily~~sales was due to ~~the~~a 13% decrease in ~~average~~the ~~selling~~number ~~prices~~of ~~discussed~~home ~~above.~~deliveries ~~The~~to ~~average~~181 ~~sales~~for the ~~incentive~~three ~~per~~months ~~home~~ended ~~delivered~~September 30, ~~decreased~~2008 ~~19%~~from to207 ~~$50,200~~ homes delivered for the three months ended ~~June~~ September 30, ~~2008~~2007, ~~from~~and a 14% decrease in the average selling price of homes to $62266,~~100~~000 for the three months ended ~~June~~September 30, ~~2007~~2008 asfrom ~~incentives~~$308,000 ~~were~~for ~~factored into~~ the ~~reduction~~three inmonths ~~the~~ended ~~base~~September 30, ~~price of the home~~2007.

~~For~~During the three months ended ~~June~~September 30, 2008 ~~and 2007~~, we ~~incurred~~recognized ~~losses of~~ $973.1 million ~~and~~in impairment charges compared to $1543.12 million ~~from~~for ~~land~~the ~~sales,~~three ~~respectively,~~months ~~which~~ended ~~included~~September 30, ~~land~~2007. ~~impairments~~Gross ~~and~~margin ~~abandonment costs~~on ofhome ~~$100.2 million~~sales, ~~and~~excluding ~~$17.6 million~~impairments, ~~respectively.~~was ~~Land~~8% ~~impairment~~for ~~and~~the ~~abandonment~~three ~~charges~~months ~~during~~ended September 30, 2008, compared to 9% for the three months ended ~~June~~September 30, ~~2008~~2007. ~~include~~This adecrease ~~$85.0 million~~in ~~impairment~~gross onmargin awas ~~parcel~~primarily due ofto ~~land~~the as decrease in average selling prices discussed above and an increase in ~~Note~~sales 3incentives, partially offset by the recovery of previously recorded impairments on homes delivered. The average sales incentive per home delivered increased 6% to $55,600 for the ~~unaudited~~three ~~consolidated~~months ~~financial~~ended September 30, ~~statements~~2008 from $52,400 for the three months ended September 30, 2007.

~~Six~~ For ~~Months~~the ~~Ended~~three ~~June~~months ended September 30, 2008 ~~compared~~and to2007, ~~Six~~we ~~Months~~incurred ~~Ended~~losses ~~June~~of $5.2 30million and $132.0 million from land sales, ~~2007~~respectively, which included land impairments and abandonment costs of $4.0 million and $132.8 million, respectively.

~~Florida:~~Nine ~~Homebuilding~~Months ~~revenues~~Ended ~~decreased 52% to $230.5~~September ~~million for the six months ended June~~ 30, 2008 ~~from~~compared ~~$475.5 million for the six months ended June 30, 2007. The decrease in Homebuilding revenues was due~~ to aNine ~~49%~~Months ~~decrease~~Ended ~~in revenues from home sales to $227.4~~September ~~million for the six months ended June~~ 30, ~~2008 from $449.1 million for the six months ended June 30,~~ 2007 ~~and a decrease in~~ revenue from land sales to $3.1 million for the six months ended June 30, 2008 from $26.4 million for the six months ended June 30, 2007. The decrease in home sales during the six months ended June 30, 2008 was the result of a 30% decrease in the number of home deliveries to 862 for the six months ended June 30, 2008 from 1,229 homes delivered for the six months ended June 30, 2007, and a 28% decrease in the average selling price of homes to $264,000 for the six months ended June 30, 2008 from $365,000 for the six months ended June 30, 2007.

~~During~~ Florida: Homebuilding revenues decreased 54% to $309.8 million for the ~~six~~nine months ended ~~June~~ September 30, 2008, wefrom ~~recognized~~ $~~205~~671.91 million infor ~~impairment~~the ~~charges~~nine months ended September 30, 2007. The decrease ~~compared~~in Homebuilding revenues was due to a 52% decrease in revenues from home sales to $28306.7 million for the ~~six~~nine months ended ~~June~~September 30, ~~2007~~2008 from $637.4 million ~~Gross~~for ~~margin~~the onnine ~~home~~months ~~sales,~~ended ~~excluding impairments~~September 30, ~~was~~2007 5%and a decrease in revenue from land sales to $3.1 million for the ~~six~~nine months ended ~~June~~September 30, 2008, ~~compared~~from to$33.7 million ~~22%~~ for the ~~six~~ nine months ended ~~June~~September 30, 2007. ~~This~~ The decrease in ~~gross~~home ~~margin~~sales during the nine months ended September 30, 2008 was ~~primarily~~the ~~due~~result toof ana ~~increase~~36% decrease in ~~sales incentives~~the ~~offered~~number toof home ~~buyers~~deliveries ~~coupled~~to ~~with~~1,132 afor ~~decline~~the innine ~~the~~months ~~base price~~ended ofSeptember 30, ~~the~~2008 from 1,780 homes delivered. ~~The~~for ~~average~~the ~~sales~~nine ~~incentive~~months ~~per~~ended ~~home~~September 30, ~~delivered~~2007, ~~increased~~and 87a 24% todecrease in the ~~$99,100~~average ~~per~~selling ~~home~~price of homes to $271,000 for the ~~six~~nine months ended ~~June~~September 30, 2008, from $52358,~~900~~000 for the ~~six~~nine months ended ~~June~~ September 30, 2007.

~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2008 ~~and 2007~~, we ~~incurred~~recognized ~~a loss of~~ $34264.90 million ~~and~~in impairment charges compared to $944.4 million ~~from~~for ~~land~~the nine months ended September 30, 2007. Gross margin on home sales, ~~respectively~~excluding impairments, ~~which~~was ~~included~~11% ~~land~~for ~~impairments~~the ~~and~~nine ~~abandonment~~months ~~costs~~ended September 30, 2008, compared to 21% for the nine months ended September 30, 2007. This decrease in gross margin was primarily due to an increase in sales incentives offered to home buyers coupled with a decline in the base price of the homes delivered, partially offset by the recovery of previously recorded impairments ~~$36~~on homes delivered.~~4 million~~ ~~and~~The average sales incentive per home delivered increased 64% to $~~12.8~~97,800 per home for the nine months ended September ~~million~~30, ~~respectively~~2008, from $59,600 for the nine months ended September 30, 2007.

~~Mid-Atlantic:~~For ~~Homebuilding revenues decreased 73% to $30.6 million for~~ the ~~six~~nine months ended ~~June~~ September 30, 2008 ~~from~~and ~~$114.7 million for the six months ended June 30,~~ 2007~~. The decrease in Homebuilding revenues was primarily due to a decrease in revenues from home sales during the six months ended June 30~~, ~~2008~~we asincurred a ~~result~~loss of a$44.9 million ~~73% decrease in the number of home deliveries to 86~~and ~~homes delivered for the six months ended June~~$284.5 ~~30,~~million ~~2008~~ from ~~320~~land ~~homes delivered for the six months ended June 30~~sales, ~~2007~~respectively, ~~and~~which aincluded 8%land ~~decrease~~impairments inand ~~the~~abandonment ~~average selling price~~ costs of ~~homes to~~ $~~330,000 for the six months ended June~~46.4 ~~30,~~million ~~2008~~and ~~from~~ $~~358,000 for the six months ended June~~287.3 30million, ~~2007~~respectively.

~~During~~Mid-Atlantic: Homebuilding revenues decreased 75% to $48.3 million for the ~~six~~nine months ended ~~June~~ September 30, 2008, wefrom ~~recognized~~ $12196.51 million infor ~~impairment~~the ~~charges~~nine months ended September 30, 2007. The decrease ~~compared~~in Homebuilding revenues was due to a 72% decrease in revenues from home sales to $646.61 million for the ~~six~~nine months ended ~~June~~September 30, ~~2007~~2008 from $164.5 million ~~Gross~~for ~~margin~~the onnine ~~home~~months ~~sales, excluding~~ended ~~impairments~~September 30, ~~was~~2007 8%and a decrease in revenue from land sales to $2.2 million for the ~~six~~nine months ended ~~June~~ September 30, 2008, ~~compared~~from to$31.6 million ~~14%~~ for the ~~six~~ nine months ended ~~June~~September 30, 2007. ~~This~~The decrease in ~~gross~~home ~~margin~~sales was ~~primarily~~ due to ana ~~increase~~a 68% decrease in ~~sales incentives~~the ~~offered~~number toof home ~~buyers~~deliveries ~~coupled~~to ~~with~~147 ahomes ~~decline~~delivered for in the ~~base price~~nine ofmonths ~~the~~ended September 30, 2008 from 458 homes delivered. ~~The~~for ~~average~~the ~~sales~~nine ~~incentive~~months ~~per~~ended September 30, ~~home~~2007, ~~delivered~~and ~~increased~~a 1513% decrease in the average selling price of homes to $31313,~~100~~000 ~~per home~~ for the nine ~~six~~ months ended ~~June~~September 30, 2008, from $27359,000 for the ~~six~~nine months ended ~~June~~ September 30, 2007.

~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2008 ~~and 2007~~, we ~~incurred~~recognized a$14.6 million ~~loss~~in ofimpairment charges compared to $911.30 million ~~and~~for ~~$14~~the nine months ended September 30, 2007.1 Gross margin on ~~million~~home sales, ~~respectively~~excluding impairments, ~~from~~was ~~land~~10% ~~sales~~for the nine months ended September 30, ~~which~~2008, ~~included~~compared to ~~land~~14% ~~impairments~~for ~~and~~the ~~abandonment~~nine ~~costs~~months ended September 30, 2007. This decrease in gross margin was primarily due to an increase in sales incentives offered to home buyers coupled with a decline in the base price of the homes delivered, partially offset by the recovery of previously recorded impairments $9on homes delivered.~~4 million~~ ~~and~~The average sales incentive per home delivered increased 11% to $~~13.9~~30,400 per home for the nine months ended September ~~million~~30, ~~respectively~~2008, from $27,300 for the nine months ended September 30, 2007.

~~Texas:~~For ~~Homebuilding revenues decreased 34% to $212.3 million for~~ the ~~six~~nine months ended ~~June~~ September 30, 2008 ~~from~~and ~~$320.0 million for the six months ended June 30~~2007, ~~2007.~~we ~~The~~incurred ~~decrease in Homebuilding revenues was due to~~ a ~~35%~~loss ~~decrease~~of ~~in revenues from home sales to~~ $~~205~~13.29 million ~~for the six months~~and ~~ended June 30, 2008 from~~ $~~313~~61.90 million, ~~for the six months ended June 30~~respectively, ~~2007. The decrease in revenue~~ from ~~home~~land sales ~~was primarily due to a 34% decrease in the number of home deliveries to 801 for the six months ended June 30~~, ~~2008~~which ~~from~~included ~~1,221~~land ~~homes~~impairments ~~delivered~~and ~~for~~abandonment ~~the six months ended June 30,~~costs ~~2007. The average selling price~~ of ~~homes remained relatively unchanged at~~ $~~256,000 for the six months ended June~~14.0 ~~30,~~million ~~2008~~and ~~from~~ $~~257,000 for the six months ended June~~47.8 30million, ~~2007~~respectively. ~~Our Texas region~~ has been less affected by the challenging market conditions experienced in other regions. We believe that this is the result of the overall moderate growth rates and price appreciation experienced in Texas in prior periods and the relative health of the Texas economy as compared to other markets in which we sell.

~~During~~Texas: ~~the~~Homebuilding ~~six~~revenues ~~months~~decreased ~~ended~~33% ~~June 30,~~to ~~2008, we recognized~~ $3313.18 million infor ~~impairment~~the ~~charges~~nine months ended ~~compared~~September 30, to2008 from $0469.60 million for the ~~six~~nine months ended ~~June~~September 30, 2007. ~~Gross~~The ~~margin~~decrease in onHomebuilding revenues was primarily due to a decrease in revenues from home sales~~, excluding~~ ~~impairments,~~to ~~was~~$306.7 million ~~16%~~ for the ~~six~~nine months ended ~~June~~September 30, 2008, ~~compared~~from to$461.7 million ~~22%~~ for the ~~six~~ nine months ended ~~June~~ September 30, 2007. ~~This~~The decrease in ~~gross~~revenue ~~margin~~from home sales was primarily due to ana ~~increase~~34% indecrease ~~sales~~in ~~incentives~~the ~~offered~~number toof home ~~buyers~~deliveries to 1,170 for the nine months ended September 30, 2008 from 1,784 homes delivered for the nine months ended September 30, 2007. The average ~~sales~~selling ~~incentive~~price ~~per~~of ~~home~~homes remained ~~delivered~~relatively ~~increased~~unchanged ~~61%~~at to $26262,~~600~~000 ~~per home~~ for the ~~six~~nine months ended ~~June~~September 30, 2008, from $16259,~~600~~000 for the ~~six~~nine months ended ~~June~~ September 30, 2007. Our Texas region has been less affected by the challenging market conditions experienced in other regions. We believe that this is the result of the overall moderate growth rates and price appreciation experienced in Texas in prior periods and the relative health of the Texas economy as compared to other markets in which we sell.

~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2008 ~~and 2007~~, we ~~incurred~~recognized ~~a (loss)/gain of~~ $(64.7) 8 million in impairment ~~and~~charges compared to $0.46 million, ~~respectively~~for the nine months ended September 30, ~~from~~2007. ~~land~~Gross margin on home sales, ~~which~~excluding ~~included~~impairments, ~~land~~was ~~impairments~~18% ~~and~~for ~~abandonment~~the nine months ended September 30, 2008, compared ~~costs~~to of22% $6for the nine months ended September 30, 2007.8 This decrease in gross margin was primarily due to an increase in sales incentives offered to home buyers. The average sales incentive per home delivered increased 62% to $27,800 per home for the nine months ended September ~~million~~30, ~~and~~2008, from $~~0.3~~17,100 for the nine months ended September ~~million~~30, ~~respectively~~2007.

~~West:~~For ~~Homebuilding revenues decreased 46% to $116.1 million for~~ the ~~six~~nine months ended ~~June~~September 30, 2008 ~~from~~and ~~$216.2 million for the six months ended June 30~~2007, ~~2007.~~we ~~The~~incurred ~~decrease in Homebuilding revenues was due to~~ a ~~50%~~(loss)/gain ~~decrease~~of ~~in revenues from home sales to~~ $~~106~~(20.8 2) million ~~for~~and ~~the six months ended June 30, 2008 from~~ $~~215~~0.17 million ~~for the six months ended June 30~~, ~~2007~~respectively, ~~partially offset by an increase in revenue~~ from land sales ~~to $9.3 million for the six months ended June 30~~, ~~2008~~which ~~from $1.1 million~~included ~~for~~land ~~the~~impairments six months ended June 30, 2007. The decrease in revenue from home sales was due to a 35% decrease in the number of home deliveries to 390 for the six months ended June 30, 2008 from 604 homes delivered for the six months ended June 30, 2007, and ~~a 23% decrease in the~~ ~~average~~abandonment ~~selling~~costs ~~price~~ of ~~homes to~~ $~~274,000 for the six months ended June~~20.3 ~~30,~~million ~~2008~~and ~~from~~ $~~356,000 for the six months ended June~~0.3 30million, ~~2007~~respectively.

~~During~~West: Homebuilding revenues decreased 42% to $164.5 million for the ~~six~~nine months ended ~~June~~ September 30, 2008, wefrom ~~recognized~~ $55283.71 million infor ~~impairment~~the ~~charges~~nine months ended September 30, 2007. The decrease ~~compared~~in Homebuilding revenues was due to a 44% decrease in revenues from home sales to $13154.59 million for the ~~six~~nine months ended ~~June~~September 30, ~~2007~~2008 from $278.7 million ~~Gross~~for ~~margin~~the onnine ~~home~~months ~~sales,~~ended ~~excluding~~September 30, ~~impairments~~2007, ~~was~~partially 3%offset ~~for~~by an increase in revenue from land sales to $9.6 million for the ~~six~~nine months ended ~~June~~September 30, 2008, ~~compared~~from to$4.4 million ~~13%~~ for the ~~six~~ nine months ended ~~June~~September 30, 2007. ~~This~~The decrease in ~~gross~~revenue ~~margin~~from ~~was~~home ~~primarily~~sales was due to ~~the~~a 30% decrease in ~~average~~ ~~selling~~the ~~prices~~number ~~discussed~~of ~~above. The average sales incentive per~~ home ~~delivered decreased~~ deliveries to ~~$52,600~~571 for the ~~six~~nine months ended ~~June~~September 30, 2008 ~~compared~~from to811 ~~$58,700~~homes delivered for the nine ~~six~~ months ended ~~June~~ September 30, 2007, asand ~~incentives were factored into~~ a ~~reduction~~21% decrease in the ~~base~~ average selling price of homes to $271,000 for the ~~home~~nine months ended September 30, 2008 from $344,000 for the nine months ended September 30, 2007.

~~For~~During the ~~six~~nine months ended ~~June~~September 30, 2008, we ~~incurred~~recognized ~~a loss of~~ $~~144~~58.08 million ~~from~~in ~~land sales~~impairment ~~primarily~~charges ~~due~~compared to ~~land~~$56.7 million ~~improvements~~for ~~and~~ the ~~write-offs~~nine ofmonths ~~deposits~~ended ~~and~~September 30, ~~abandonment~~2007. ~~costs~~Gross ~~totaling~~margin ~~$147.2 million~~on home sales, ~~as compared~~excluding toimpairments, awas ~~loss~~4% onfor ~~land~~the ~~sales~~nine ofmonths ~~$42.6~~ended September ~~million~~30, ~~during~~2008, compared to 12% for the ~~six~~nine months ended ~~June~~September 30, 2007,. ~~which~~This decrease in gross margin was primarily due ~~included~~to ~~$47.5 million~~the decrease in average selling prices discussed above, partially offset by the recovery of previously ~~land~~recorded impairments ~~and~~on ~~abandonment~~homes ~~costs~~delivered. ~~Land~~The ~~impairment~~average ~~and~~sales ~~abandonment~~incentive per home delivered ~~charges~~decreased ~~during~~slightly to $56,800 for the ~~six~~nine months ended ~~June~~September 30, 2008 ~~include~~compared ato $~~85.0 million~~57,100 ~~impairment~~for the onnine amonths ~~parcel~~ended ~~of land~~September 30, 2007 as ~~discussed~~incentives inwere ~~Note~~factored 3into toa reduction in the ~~unaudited~~base price ~~consolidated~~of ~~financial~~the ~~statements~~home.

For the nine months ended September 30, 2008, we incurred a loss of $149.3 million from land sales primarily due to land improvements and the write-offs of deposits and abandonment costs totaling $151.2 million, as compared to a loss on land sales of $174.6 million during the nine months ended September 30, 2007, which included $180.3 million of land impairments and abandonment costs. Land impairment and abandonment charges during the nine months ended September 30, 2008 include an $85.0 million impairment on a parcel of land as discussed in Note 3 to the unaudited consolidated financial statements.

Seasonality

The homebuilding industry tends to be seasonal, as generally there are more homes sold in the spring and summer months when the weather is milder. Because new home deliveries trail new home contracts by a number of months, we typically have the greatest percentage of home deliveries in the fall and winter, and slow sales in the spring and summer months could negatively affect our full year results. We operate primarily in the Southwest and Southeast, where weather conditions are more suitable to a year-round construction process than in other parts of the country. Our operations in Florida and Texas are at risk of repeated and potentially prolonged disruptions during the Atlantic hurricane season, which lasts from ~~June~~September 1 until November 30.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Our Homebuilding operations’ primary uses of cash have been for land acquisitions, construction and development expenditures, joint venture investments and SG&A expenditures. Our sources of cash to finance these uses have been primarily cash generated from operations and cash from our financing activities.

Our Financial Services operations primarily used cash to fund mortgages, prior to their sale, and SG&A expenditures. We relied primarily on internally generated funds, which included the proceeds generated from the sale of mortgages, and the mortgage operations’ warehouse lines of credit to fund these operations.

Our income before non-cash charges generally is our most significant source of operating cash flow.

55 At September 30, 2008, our homebuilding operations had unrestricted cash and cash equivalents of $277.5 million as compared to $67.2 million at December 31, 2007.

At June 30, 2008, our homebuilding operations had unrestricted cash and cash equivalents of $192.4 million as compared to $67.2 million at December 31, 2007.

We are operating our businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As a result, we are subject to the risks and uncertainties associated with our Chapter 11 cases which include, among other things:

• the availability of and our ability to operate subject to the terms of the cash collateral order and related budget; • limitations on our ability to implement and execute our business plans and strategy; • our ability to obtain and maintain normal terms with existing and potential homebuyers, vendors and service providers and maintain contracts and leases that are critical to our operations; • our ability to obtain needed approval from the Bankruptcy Court for transactions outside of the ordinary course of business, which may limit our ability to respond on a timely basis to certain events or take advantage of certain opportunities; • limitations on our ability to obtain Bankruptcy Court approval with respect to motions in the Chapter 11 cases that we may seek from time to time or potentially adverse decisions by the Bankruptcy Court with respect to such motions, including as a result of the actions of our creditors and other third parties, who may oppose our requested relief or who may seek to require us to take actions that we oppose; • limitations on our ability to reject contracts or leases that are burdensome or uneconomical; • limitations on our ability to raise capital, including through sales of assets; and • our ability to ~~attract,~~ motivate and retain key and essential personnel is impacted by the Bankruptcy Code which limits our ability to implement a retention program or take other measures intended to motivate employees to remain with us.

These risks and uncertainties could negatively affect our business and operations in various ways. For example, events or publicity associated with our Chapter 11 cases could adversely affect our relationships with existing and potential homebuyers, vendors and employees, which in turn could adversely affect our operations and financial condition, particularly if such proceedings are protracted.

As a result of our Chapter 11 cases and the other matters described herein, including the uncertainties related to the fact that our filed plan of reorganization has not been confirmed, there is substantial doubt about our ability to continue as a going concern. ~~Our ability to~~ ~~continue as a going concern, including our ability to meet our ongoing operational obligations, is dependent upon, among other things:~~

• As ~~our~~a ~~ability~~result toof ~~generate~~severe market conditions and ~~maintain~~our ~~adequate~~liquidity ~~cash;~~constraints, •during the ~~cost~~nine months ended September 30, ~~duration~~2008, we abandoned our rights under certain option agreements which resulted in an approximately 8,800 unit decline in our optioned homesites. Abandonment decisions were made following in depth community by community analyses of all option contracts based on projected returns, amount and ~~outcome~~timing of ~~the~~incremental ~~restructuring~~cash ~~process;~~flow, •and owned homesites. As a result of abandoning our ~~ability~~rights under option contracts, as of September 30, 2008, we accrued $3.5 million for letters of credit which we anticipated would be drawn due to ~~comply~~nonperformance ~~with~~under such contracts. From October 1, 2008 through April 30, 2009, an additional $0.8 million of letters of credit have been drawn related to the ~~terms~~abandonment of option contracts which have increased our ~~cash~~borrowings outstanding ~~collateral~~under ~~order~~our Revolving Loan Facility. In certain instances, we have entered into development agreements in connection with option contracts which require us to complete the development of the land, at a fixed reimbursable amount, even if we choose not to exercise our option and ~~seek~~forfeit our deposit and ~~receive~~even ~~extensions~~if our costs exceed the reimbursable amount. We recorded net recoveries of $0.6 million for the three months ended September 30, 2008 and net losses of $3.4 million for the nine months ended September 30, 2008 for our ~~ability~~estimated obligations under these development agreements, which is included in inventory impairments and abandonment costs in the accompanying unaudited consolidated statement of operations. Through the first quarter of 2009, we have continued to ~~use~~reduce ~~cash~~inventory ~~collateral;~~in an attempt to further align our inventory levels to housing demand in those markets we serve, reduce our cost of sales relating to construction and •labor costs for the homes we build and reduce our ~~ability~~selling, general and administrative costs to ~~retain~~levels consistent ~~key~~with ~~employees~~fewer home deliveries to operate within our liquidity constraints. These or future actions may not be sufficient to allow us to continue our operations.

These challenges are in addition to those operational and competitive challenges that we face in connection with our business.

As a result of severe market conditions and our liquidity constraints, during the six months ended June 30, 2008, we abandoned our rights under certain option agreements which resulted in an approximately 6,300 unit decline in our optioned homesites. Abandonment decisions were made following in depth community by community analyses of all option contracts based on projected returns, amount and timing of incremental cash flow, and owned homesites. As a result of abandoning our rights under option contracts, as of June 30, 2008, we accrued $4.8 million for letters of credit which we anticipated would be drawn due to nonperformance under such contracts. From July 1, 2008 through February 28, 2009, an additional $2.5 million of letters of credit have been drawn related to the abandonment of option contracts which have increased our borrowings outstanding under our Revolving Loan Facility. In certain instances, we have entered into development agreements in connection with option contracts which require us to complete the development of the land, at a fixed reimbursable amount, even if we choose not to exercise our option and forfeit our deposit and even if our costs exceed the reimbursable amount. We recorded losses of $4.0 million for the six months ended June 30, 2008 for our estimated obligations under these development agreements, which is included in inventory impairments and abandonment costs in the accompanying unaudited consolidated statement of operations. No losses were recorded during the three months ended June 30, 2008. Through the first quarter of 2009, we have continued to reduce inventory in an attempt to further align our inventory levels to housing demand in those markets we serve, reduce our cost of sales relating to construction and labor costs for the homes we build and reduce our selling, general and administrative costs to levels consistent with fewer home deliveries to operate within our liquidity constraints. These or future actions may not be sufficient to allow us to continue our operations.

Our unaudited consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have $1.98 billion in borrowings and have experienced significant operating losses. For the ~~six~~nine months ended ~~June~~September 30, 2008, we incurred a loss from continuing operations, net of taxes, of $~~661~~794.80 million and had stockholders’ deficit of $1.13 billion. There is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern and ~~emerge~~ emerge successfully from our Chapter 11 cases will depend upon our development and consummation of a plan of reorganization. The accompanying unaudited consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets.

For the ~~six~~nine months ended ~~June~~September 30, 2008, cash provided by/(used in) operating activities ~~was~~ was $~~109~~292.28 million, as compared to $(8388.26) million during the ~~six~~nine months ended ~~June~~September 30, 2007. ~~The~~ The improvement in the use of cash by our operating activities is primarily a result of a decrease in in our inventory. ~~The~~and ~~increase~~other inassets. ~~restricted~~The ~~cash and related~~ decrease in other assets is primarily due to a $207.3 million refund of previously paid income taxes ~~of which $175~~.~~0 million~~ ~~has~~In ~~been~~addition ~~has been~~to ~~included~~this ~~in restricted cash at June 30~~refund, ~~2008~~during ~~as required by~~ the ~~cash~~nine ~~collateral order (see~~months ~~Notes~~ended ~~1 and 10 of the consolidated unaudited financial statements). In addition to this refund, through June~~September 2008, we have received refunds of overpayments of federal ~~and state income taxes reflected on our 2006 returns and a quick refund application for 2007~~ estimated tax payments totaling $3312.40 million. ~~We are subject to Joint Committee on Taxation reviews under the normal~~ ~~procedures applicable to taxpayers with refunds in excess of $2.0 million~~

Cash used in investing activities was $2.0.8 million during the ~~six~~nine months ended ~~June~~September 30, 2008, as compared to $1833.9 million during the ~~six~~nine months ended ~~June~~September 30, 2007. The decrease in cash used in investing activities is primarily due to the reduction in the investments in our ~~unconsolidated~~ unconsolidated joint ventures during the ~~six~~nine months ended ~~June~~September 30, ~~2007~~2008 of $~~21.~~1.6 million compared to $129.62 million for the ~~six~~nine months ended ~~June~~September 30, ~~2008~~2007.

Financing Activities

Our consolidated borrowings at ~~June~~September 30, 2008 were $1.98 billion (see Note 9 to the ~~unaudited~~ unaudited consolidated financial statements).

On February 5, 2008, pursuant to an interim order from the Bankruptcy Court dated January 31, 2008, we entered into a Senior Secured Super-Priority Debtor in Possession Credit and Security Agreement. The agreement provided for a first priority and priming secured revolving credit interim commitment of up to $134.6 million. The agreement was subsequently amended to extend it to ~~June~~ September 19, 2008. No funds were drawn under the agreement.

The agreement was subsequently terminated and we entered into an agreement with our prepetition secured lenders to use cash collateral on hand (cash generated by our operations, including the sale of excess inventory and the proceeds of our federal tax refund of $207.3 million received in April 2008). We are authorized by the Bankruptcy Court to use cash collateral of our first lien and second lien lenders in a manner consistent with a budget negotiated by the parties. The order further provided for the pay-down of $175.0 million to our first lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful and repayment is required. We also have the right to pay-down an additional $15.0 million to our first lien secured lenders. As of ~~March~~May 61, 2009, we had paid-down ~~approximately~~ $~~143~~148.04 million to the first lien secured lenders. We may incur liens and enter into sale/leaseback transactions for model homes subject to certain limitations. We have granted the pre-petition agents and the lenders various forms of protection, including liens and claims to protect against any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our secured facilities.

WeOur ~~and~~right ~~the first lien lenders reached an agreement~~ to ~~extend~~ the use of cash collateral has been extended until ~~April~~ July 3031, 2009 on terms substantially similar to those in the original cash collateral order. ~~The new cash collateral order was approved by the Bankruptcy Court on January 28, 2009.~~ If we fail to comply with the order, we will not have sufficient cash to enable us to operate our business and effectuate our restructuring.

Revolving Loan Facility and First and Second Lien Term Loan Facilities

To effect the TE Acquisition, on July 31, 2007, we entered into (1) the $200.0 million aggregate principal amount first lien term loan facility (the “First Lien Term Loan Facility”) and (2) the $300.0 million aggregate principal amount second lien term loan facility (the “Second Lien Term Loan Facility”), (First and Second Lien Term Loan Facilities taken together, the “Facilities”). At ~~June~~September 30, 2008 and December 31, 2007, we had $~~272~~223.81 million and $168.5 million, respectively, outstanding under our revolving loan facility (the “Revolving Loan Facility”). There is no additional capacity available under the Revolving Loan Facility other than for letters of credit presented to the bank. The Revolving Loan Facility expires on March 9, 2010. The First Lien Term Loan Facility expires on July 31, 2012 and the Second Lien Term Loan Facility expires on July 31, 2013. At ~~June~~September 30, 2008, the Revolving Loan Facility and the Facilities are classified as liabilities subject to compromise (see Note 2 to the unaudited consolidated financial statements).

The interest rates on the Facilities and the Revolving Loan Facility are based on LIBOR plus a margin or an alternate base rate plus a margin, at our option. For the Revolving Loan Facility, the LIBOR rates are increased by between 2.50% and 5.25% depending on our leverage ratio (as defined in the Agreement) and credit ratings. Loans bearing interest at the base rate (the rate announced by Citibank as its base rate or 0.50% above the Federal Funds Rate) increase between 1.00% and 4.25% in accordance with the same criteria. Based on our current leverage ratio and credit ratings, our LIBOR loans bear interest at LIBOR plus 5.25% and our base rate loans bear interest at the Federal Funds Rate plus 4.25%. For the First Lien Term Loan Facility, the interest rate is LIBOR plus 5.00% or base rate plus 4.00%. For the Second Lien Term Loan Facility, the interest rate is LIBOR plus 7.25% or base rate plus 6.25%. The Second Lien Term Loan Facility allows us to pay interest, at our option, (i) in cash, (ii) entirely by increasing the principal amount of the Second Lien Term Loan Facility, or (iii) a combination thereof. The Facilities and the Revolving Loan Facility are guaranteed by substantially all of our domestic subsidiaries. The obligations are secured by substantially all of our assets, including those of our subsidiaries other than our mortgage and title subsidiaries.

Federal Funds Rate plus 4.25%. For the First Lien Term Loan Facility, the interest rate is LIBOR plus 5.00% or base rate plus 4.00%. For the Second Lien Term Loan Facility, the interest rate is LIBOR plus 7.25% or base rate plus 6.25%. The Second Lien Term Loan Facility allows us to pay interest, at our option, (i) in cash, (ii) entirely by increasing the principal amount of the Second Lien Term Loan Facility, or (iii) a combination thereof. The Facilities and the New Revolving Loan Facility are guaranteed by substantially all of our domestic subsidiaries. The obligations are secured by substantially all of our assets, including those of our subsidiaries other than our mortgage and title subsidiaries.

Senior Notes and Senior Subordinated Notes

Our outstanding senior notes are guaranteed, on a joint and several basis, by the Guarantor Subsidiaries, which are all of our material domestic subsidiaries, other than our mortgage and title subsidiaries (the Non-Guarantor Subsidiaries). Our outstanding senior subordinated notes are guaranteed on a senior subordinated basis by all of the Guarantor Subsidiaries. The senior notes rank pari passu in right of payment with all of our existing and future unsecured senior debt and senior in right of payment to our senior subordinated notes and any future subordinated debt. The senior subordinated notes rank pari passu in right of payment with all of our existing and future unsecured senior subordinated debt. The indentures governing the senior notes and senior subordinated notes generally require us to maintain a minimum consolidated net worth and place certain restrictions on our ability, among other things, to incur additional debt, pay or declare dividends or other restricted payments, sell assets, enter into transactions with affiliates, invest in joint ventures above specified amounts and merge or consolidate with other entities. Interest on our outstanding senior notes and senior subordinated notes is payable semi-annually. In accordance with SOP 90-7, as of January 29, 2008, the petition date, we ceased accruing interest on the senior notes and the senior subordinated notes as these are unsecured claims and are not entitled to interest upon filing petitions for relief under Chapter 11. At ~~June~~September 30, 2008, the senior notes and senior subordinated notes are classified as liabilities subject to compromise (see Note 2 to the unaudited consolidated financial statements).

Senior Subordinated PIK Notes

At ~~June~~September 30, 2008, the PIK Notes are classified as liabilities subject to compromise (see ~~Note~~ Note 2 to the unaudited consolidated financial statements).

Financial Services Borrowings

Until December 4, 2008, the subsidiary had two warehouse lines of credit in place to fund the origination of residential mortgage loans. The revolving warehouse line of credit (the “Warehouse Line of Credit”), which was entered into on December 5, 2007, provided for revolving loans of up to $25.0 million. The Warehouse Line of Credit replaced the $100.0 million revolving warehouse line of credit that expired on December 8, 2007. From January 25, 2008 through December 4, 2008, the availability under the Warehouse Line of Credit was reduced to $15.0 million. The $150.0 million mortgage loan purchase facility (“Purchase Facility”) was amended to decrease the size of the

Until December 4, 2008, the joint venture had two warehouse lines of credit in place to fund the origination of residential mortgage loans. The revolving warehouse line of credit (the “Warehouse Line of Credit”), which was entered into on December 5, 2007, provided for revolving loans of up to $25.0 million. The Warehouse Line of Credit replaced the $100.0 million revolving warehouse line of credit that expired on December 8, 2007. From January 25, 2008 through December 4, 2008, the availability under the Warehouse Line of Credit was reduced to $15.0 million. The $150.0 million mortgage loan purchase facility ~~(“Purchase Facility”) was amended~~ to ~~decrease the size of the facility to~~ $75.0 million. From January 25, 2008 through December 4, 2008, the ~~availability~~ availability under the Purchase Facility was reduced to $40.0 million. However, we had agreed with the lender not to utilize these facilities. The Warehouse Line of Credit bore interest at the 30-day LIBOR rate plus a margin of 2.0%, was secured by funded mortgages, which were pledged as collateral, and required our mortgage subsidiary to maintain certain financial ratios and minimums. The Warehouse Line of Credit also placed certain restrictions on, among other things, our mortgage subsidiary’s ability to incur additional debt, create liens, pay or make dividends or other distributions, make equity investments, enter into transactions with affiliates, and merge or consolidate with other entities. Our mortgage subsidiary was in compliance with all covenants and restrictions at ~~June~~ September 30, 2008. At ~~June~~September 30, 2008, our mortgage subsidiary had no outstanding borrowings.

Liquidity Needs

We continue to have substantial liquidity needs in the operation of our business and face liquidity challenges. Our business depends upon our ability to obtain financing for the development of our residential communities and to provide bonds to ensure the completion of our projects. We expect to have sufficient resources and borrowing capacity to meet all of our commitments throughout the projected term of our Chapter 11 cases as a result of an agreement we entered in ~~June~~September 2008 with our secured lenders to use cash collateral on hand (cash generated by our operations, including the sale of excess inventory and the proceeds of our federal tax refund of $207.3 million received in April 2008). Pursuant to a Bankruptcy Court order dated ~~June~~September 20, 2008, we are authorized by the Bankruptcy Court to use cash collateral of our first lien and second ~~lien~~ lien lenders (approximately $358.0 million at the time of the order) in a manner consistent with a budget negotiated by the parties. The order further provided for the pay-down of $175.0 million of the $358.0 million to our first lien term secured lenders, subject to disgorgement provisions in the event that certain claims against the lenders are successful and repayment is required. The order also reserves our sole right to pay-down an additional $15.0 million to our first lien secured lenders. As of ~~March~~May 61, 2009, we had paid-down ~~approximately~~ $~~143~~148.04 million ~~of the $175.0 million~~ to the first lien secured lenders. We are permitted under the order to incur liens and enter into sale/leaseback transactions for model homes subject to certain limitations. As part of the order, we have granted the pre-petition agents and the lenders various forms of protection, including liens and claims to protect against any diminution of the collateral value, payment of accrued, but unpaid interest on the first priority indebtedness at the non-default rate and the payment of reasonable fees and expenses of the agents under our secured facilities.

WeOur ~~and~~right ~~the first lien lenders reached an agreement~~ to ~~extend~~ the use of cash collateral has been extended until ~~April~~ July 3031, 2009 on terms substantially similar to those in the original cash collateral order. ~~The new cash collateral order was approved by the Bankruptcy Court on January 28, 2009.~~ If we fail to comply with the ~~new~~ order, we will not have sufficient cash to enable us to operate our business and effectuate our restructuring.

InThe ~~order~~Bankruptcy toCourt ~~successfully~~established ~~emerge~~May 19, ~~from~~2008 ~~our~~as ~~Chapter 11~~the ~~cases~~bar asdate afor ~~viable~~filing ~~company,~~proofs weof ~~must~~claim ~~develop,~~against ~~obtain~~the ~~requisite~~Debtors ~~creditor~~relating ~~and~~to ~~Bankruptcy~~obligations ~~Court~~arising ~~approval~~before ofJanuary 29, ~~and~~2008. ~~consummate~~As aof ~~Chapter~~April 1128, 2009, ~~plan~~approximately of4,400 ~~reorganization.~~claims ~~This~~have ~~process~~been ~~requires~~filed against us tototaling ~~meet~~approximately ~~certain~~$7.3 billion ~~statutory requirements under the~~in ~~Bankruptcy~~asserted ~~Code~~liabilities. ~~with~~These ~~respect~~claims toare ~~adequacy~~comprised of ~~disclosure~~approximately ~~regarding~~$5.0 million ain ~~plan of reorganization,~~administrative ~~soliciting~~claims, ~~and~~$219.0 million ~~obtaining~~in ~~creditor~~secured ~~acceptances~~claims, of$75.0 million ain ~~plan~~priority claims and ~~fulfilling~~$7.0 billion ~~other statutory conditions~~in ~~for~~unsecured ~~confirmation~~claims. WeThere ~~may~~are ~~not~~many ~~receive~~claims ~~the~~(at ~~requisite~~least ~~acceptances~~700) tothat ~~confirm~~have abeen ~~plan~~asserted ofin ~~reorganization.~~“unliquidated” ~~Even~~amounts ifor ~~the~~that ~~requisite~~contain ~~acceptances~~an tounliquidated acomponent. ~~plan~~Notably, ofamong ~~reorganization~~the ~~are~~unliquidated ~~received,~~claims are the claims ~~Bankruptcy~~of ~~Court may~~our ~~not~~secured ~~confirm~~first ~~the~~and ~~plan~~second lien lenders. In addition, ~~even~~the ifindenture atrustees ~~plan~~under our approximately $1.1 billion of ~~reorganization~~unsecured isdebentures ~~confirmed,~~each wefiled ~~may~~an ~~not~~unliquidated ~~be able~~claim towith ~~consummate~~respect to such ~~plan~~obligations.

IfOn April 17, 2009, we ~~fail~~filed with the Bankruptcy Court our First Amended Joint Plan of TOUSA, Inc. and its Affiliated Debtors and Debtors in Possession under Chapter 11 of the Bankruptcy Code (as modified or revised, the “Plan”) and Disclosure Statement pursuant to ~~comply~~Section 1125 of the Bankruptcy Code relating to the Plan (as modified or revised, the “Disclosure Statement”). Copies of the Plan and Disclosure Statement, as filed with ~~our~~the ~~cash~~Bankruptcy ~~collateral~~Court, ~~order~~are available at http://www.tousa.com/reorg. Currently, weno ~~may~~hearing ~~not~~has bebeen scheduled ~~able~~for the Plan or Disclosure Statement. We have the exclusive right to ~~borrow~~file ina anplan ~~amount~~until July 29, 2009 and the ~~sufficient~~exclusive right to ~~enable~~solicit usacceptance thereof until September 27, 2009. Pursuant to ~~operate~~Section 1121 ~~our~~of the ~~business~~Bankruptcy ~~and~~Code, ~~restructure~~the ~~our~~exclusivity ~~business~~periods may be expanded or reduced by the Bankruptcy Court, but in ~~bankruptcy~~no event can the exclusivity periods to file and solicit acceptance of a plan or plans of reorganization be extended beyond September 29, 2009.

If a plan of reorganization is not confirmed by the Bankruptcy Court, or if we are unable to successfully consummate a plan after confirmation, we may not be able to reorganize our businesses. If an alternative reorganization could not be agreed upon, we may have to liquidate our assets.

The Bankruptcy Court established May 19, 2008 as the bar date for filing proofs of claim against the Debtors relating to obligations arising before January 29, 2008. As of February 25, 2009, approximately 4,400 claims have been filed against us totaling approximately $7.3 billion in asserted liabilities. These claims are comprised of approximately $5.0 million in administrative claims, $219.0 million in secured claims, $75.0 million in priority claims and $7.0 billion in unsecured claims. There are many claims (at least 700) that have been asserted in “unliquidated” amounts or that contain an unliquidated component. Notably, among the unliquidated claims are the claims of our secured first and second lien lenders. In addition, the indenture trustees under our approximately $1.1 billion of unsecured debentures each filed an unliquidated claim with respect to such obligations.

On October 13, 2008, we filed with the Bankruptcy Court the (a) Joint Plan of TOUSA, Inc. and its Affiliated Debtors and Debtors in Possession under Chapter 11 of the Bankruptcy Code (as modified or revised, the “Plan”) and (b) Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code relating to the Plan (as modified or revised, the “Disclosure Statement”). On October 24, 2008 and November 12, 2008, the debtors filed revised versions of the Plan and Disclosure Statement (including projected financial information) with the Bankruptcy Court. Copies of the Plan and Disclosure Statement, as filed with the Bankruptcy Court, are available at http://www.tousa.com/reorg. We have the exclusive right to solicit acceptance thereof until April 30, 2009. Pursuant to Section 1121 of the Bankruptcy Code, the exclusivity periods may be expanded or reduced by the Bankruptcy Court, but in no event can the exclusivity periods to file and solicit acceptance of a plan or plans of reorganization be extended beyond June 29, 2009.

Off Balance Sheet Arrangements

Land and Homesite Option Contracts

In the ordinary course of business, we enter into option contracts to purchase homesites and land held for development. At September 30, 2008 and December 31, 2007, we had non-refundable cash deposits totaling $7.7 million and $56.9 million, respectively, included in inventory in the accompanying unaudited consolidated statements of financial condition. Under these option contracts, we have the right to buy homesites at predetermined prices on a predetermined takedown schedule. Option contracts generally require the payment of a cash deposit and/or the posting of a letter of credit, which is typically less than 20% of the underlying purchase price, and may require monthly maintenance payments. These option contracts are either with land sellers or third party financial entities which have acquired the land to

~~Land~~enter ~~and~~into the option contract with us. Homesite ~~Option~~option ~~Contracts~~contracts are generally non-recourse, thereby limiting our financial exposure for non-performance to our cash deposits and/or letters of credit. In certain instances, we have entered into development agreements in connection with option contracts, which require us to complete the development of the land, at a fixed reimbursable amount, even if we choose not to exercise our option and forfeit our deposit and even if our costs exceed the reimbursable amount. We have abandoned our rights under certain option contracts that require us to complete the development of land for a fixed reimbursable amount. We recorded net recoveries of $0.6 million for the three months ended September 30, 2008 and net losses of $3.4 million for the nine months ended September 30, 2008 for our estimated obligations under these development agreements, which is included in inventory impairments and abandonment costs in the accompanying unaudited consolidated statement of operations. At September 30, 2008 and December 31, 2007, $13.7 million and $10.3 million are included in liabilities subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated statements of financial condition related to these development agreements.

InCertain ~~the~~of ~~ordinary~~our ~~course~~option ofcontracts ~~business,~~give wethe ~~enter~~other ~~into~~party ~~option~~the ~~contracts~~right to ~~purchase~~require ~~homesites~~us ~~and~~to purchase ~~land~~homesites ~~held~~or ~~for~~guarantee ~~development.~~certain Atminimum ~~June 30,~~returns. ~~2008~~We ~~and~~have ~~December 31,~~abandoned ~~2007,~~our werights ~~had~~under ~~non-refundable~~certain ~~cash~~of these ~~deposits~~option ~~totaling~~contracts ~~$30.2 million~~ and ~~$56.9 million,~~we ~~respectively,~~have ~~included~~not incomplied ~~inventory~~with in the ~~accompanying~~ ~~unaudited~~notices ~~consolidated~~given ~~statements~~to ~~of financial condition~~us. ~~Under~~These ~~these~~ option contracts, wewere previously ~~have~~recorded ~~the~~as ~~right~~financing totransactions ~~buy~~under ~~homesites~~SFAS at66 ~~predetermined~~and ~~prices~~the oninventory awas ~~predetermined~~included ~~takedown~~in ~~schedule.~~inventory ~~Option~~not ~~contracts~~owned ~~generally~~and ~~require~~ the ~~payment~~corresponding ofliability awas ~~cash~~included ~~deposit~~in ~~and/or~~obligations ~~the~~for ~~posting~~inventory ~~of a~~not ~~letter~~owned. ofSince ~~credit,~~we ~~which~~defaulted isunder ~~typically~~or ~~less~~terminated ~~than~~these ~~20%~~contracts, ofwe ~~the~~are ~~underlying~~no ~~purchase~~longer ~~price,~~accounting ~~and may~~for ~~require~~these ~~monthly~~contracts ~~maintenance~~as ~~payments~~financing transactions. ~~These~~During ~~option~~the ~~contracts~~three ~~are~~and ~~either~~nine ~~with~~months ~~land~~ended ~~sellers or third~~September 30, ~~party~~2008, ~~financial~~we ~~entities~~recorded ~~which~~losses ~~have~~of ~~acquired~~$5.0 million ~~the~~and ~~land~~$14.5 million, torespectively, ~~enter~~in ~~into~~connection ~~the option contract~~ with ~~us.~~the ~~Homesite~~abandonment ~~option~~of ~~contracts~~these ~~are~~option ~~generally non-recourse~~contracts, ~~thereby~~for ~~limiting~~ our ~~financial~~estimated ~~exposure~~obligations, ~~for non-performance~~which tois ~~our~~included ~~cash~~in inventory ~~deposits~~impairments and~~/or~~ ~~letters~~abandonment ofcosts ~~credit.~~in Inthe ~~certain~~accompanying ~~instances,~~unaudited weconsolidated ~~have~~statements ~~entered~~of ~~into~~operations. ~~development~~These ~~agreements~~amounts inwere ~~connection~~computed ~~with~~based ~~option~~on ~~contracts,~~the ~~which~~estimated ~~require~~deficiency usbetween ~~to complete~~ the ~~development~~fair value of the ~~land,~~underlying atinventory acompared ~~fixed reimbursable amount, even if we choose not~~ to ~~exercise~~ our ~~option~~required ~~and~~purchase ~~forfeit~~price ~~our~~under ~~deposit and even if our costs exceed~~ the ~~reimbursable amount.~~option Wecontract. ~~recorded~~The ~~losses~~total ofrequired ~~$4.0 million~~purchase ~~for~~price ~~the~~under ~~six~~these ~~months~~option ~~ended~~contracts ~~June~~at September 30, 2008 ~~for our estimated~~and ~~obligations under these development agreements~~December 31, ~~which~~2007 iswas ~~included~~$36.3 million ~~in inventory impairments~~ and ~~abandonment~~ ~~costs in the accompanying unaudited consolidated statement of operations~~$25. ~~No such losses were recorded during the three months ended June~~0 30million, ~~2008~~respectively. At ~~June~~September 30, 2008 and December 31, 2007, $1424.30 million and $109.35 million ~~are~~is included in liabilities subject to compromise ~~and~~ and accounts payable and other liabilities, respectively, in the accompanying unaudited ~~consolidated~~ consolidated statements of financial condition ~~related to these development agreements~~. ~~See Note 3 to our~~ ~~unaudited consolidated financial statements included herein.~~

~~Certain~~We ofare ~~our~~subject ~~option~~to ~~contracts give~~ the ~~other~~normal ~~party~~obligations ~~the~~associated ~~right~~with toentering ~~require~~into uscontracts tofor ~~purchase~~the ~~homesites~~purchase, ordevelopment ~~guarantee~~and ~~certain~~sale ~~minimum returns. We have abandoned our rights under certain~~ of ~~these option~~real ~~contracts~~estate ~~and~~in ~~we have not complied with~~ the ~~notices~~routine ~~given~~conduct toof usour business. ~~These~~We ~~option contracts were~~are ~~previously~~committed ~~recorded~~under asvarious ~~financing~~letters ~~transactions~~of ~~under~~credit ~~SFAS~~and 66performance ~~and~~bonds ~~the~~which ~~inventory~~are ~~was~~required ~~included~~for incertain ~~inventory~~development ~~not~~activities, ~~owned~~deposits ~~and~~on ~~the~~land ~~corresponding~~and ~~liability~~deposits ~~was~~on ~~included~~homesite inpurchase ~~obligations~~contracts. ~~for~~Under ~~inventory not~~these ~~owned.~~arrangements, ~~Since~~ we ~~defaulted~~had ~~under~~total oroutstanding ~~terminated~~letters ~~these~~of ~~contracts,~~credit weof ~~are~~$19.1 million noas ~~longer~~of ~~accounting~~September 30, ~~for~~2008. ~~these~~As ~~contracts~~a asresult ~~financing~~of ~~transactions.~~abandoning ~~During~~our ~~the~~rights ~~three~~under ~~and~~option ~~six~~contracts, ~~months~~as ~~ended~~of ~~June~~September 30, 2008, we ~~recorded~~ ~~losses of~~ accrued $43.~~8 million and $9.~~5 million, ~~respectively,~~for inletters ~~connection with the abandonment~~ of ~~these~~credit ~~option~~which ~~contracts,~~we ~~for~~anticipated ~~our~~would ~~estimated~~be ~~obligations,~~drawn ~~which~~due isto ~~included~~nonperformance ~~in inventory~~under ~~impairments~~such ~~and~~contracts. ~~abandonment~~From ~~costs~~October 1, in2008 ~~the~~through ~~accompanying~~April 30, ~~unaudited consolidated~~2009, ~~statements~~an additional $0.8 million of letters ~~operations.~~of ~~These~~credit ~~amounts~~have ~~were~~been ~~computed~~drawn ~~based~~related onto the ~~estimated~~abandonment ~~deficiency~~of ~~between~~option ~~the~~contracts ~~fair~~which ~~value of~~have ~~the~~increased ~~underlying~~our borrowings ~~inventory~~outstanding ~~compared~~under to our ~~required~~Revolving ~~purchase~~Loan ~~price~~Facility. ~~under~~As discussed, ~~the~~in ~~option~~certain ~~contract.~~instances, ~~The~~we have entered ~~total~~into ~~required~~development ~~purchase~~agreements ~~price~~in ~~under~~connection ~~these~~with option contracts atwhich ~~June 30,~~require ~~2008~~us ~~and~~to ~~December 31,~~complete ~~2007~~the ~~was~~development ~~$28.6 million~~of ~~and~~the ~~$25.0 million~~land, ~~respectively.~~at Ata ~~June 30,~~fixed ~~2008~~reimbursable ~~and December 31~~amount, ~~2007,~~even ~~$19.0 million~~if ~~and~~we ~~$9.5 million~~choose isnot ~~included~~to inexercise ~~liabilities~~our option ~~subject~~and toforfeit ~~compromise~~our deposit and ~~accounts~~even ~~payable~~if ~~and other~~our ~~liabilities,~~costs ~~respectively,~~exceed in the ~~accompanying~~reimbursable ~~unaudited consolidated statements of financial condition~~amount.

WeAt ~~are~~September 30, ~~subject to the normal obligations associated with entering into contracts for the purchase~~2008, ~~development~~we ~~and~~have ~~sale~~total ofoutstanding ~~real~~performance ~~estate~~/ insurety ~~the~~bonds ~~routine conduct~~ of ~~our business~~$140. ~~We are~~6 million ~~committed~~related ~~under~~to ~~various~~land ~~letters of credit and performance bonds which are required for certain~~ development activities, ~~deposits~~and onhave ~~land~~estimated ~~and~~our ~~deposits~~exposure on ~~homesite~~our ~~purchase~~outstanding ~~contracts. Under these~~surety ~~arrangements,~~bonds weto ~~had~~be ~~total outstanding letters of credit of~~ $3154.75 million asbased ofon ~~June 30,~~land ~~2008.~~development Asremaining ~~a result~~to ofbe ~~abandoning~~completed. ~~our~~At ~~rights under option contracts~~September 30, 2008 asand ~~of June~~December 3031, ~~2008~~2007, weour ~~accrued~~accrual totaled $441.8 million ~~for~~and ~~letters of credit which we anticipated would be drawn due to nonperformance under such contracts~~$48. ~~From July~~0 1million, ~~2008 through February 28~~respectively, ~~2009,~~for surety anbonds ~~additional~~where ~~$2.5 million~~we ofconsider ~~letters~~it ~~of credit~~probable ~~have~~that ~~been drawn related to~~ the ~~abandonment~~surety ofhas ~~option~~a ~~contracts~~claim ~~which~~for ~~have~~reimbursement ~~increased our~~for ~~borrowings~~amounts ~~outstanding~~drawn ~~under~~related ~~our~~to ~~Revolving~~defaulted ~~Loan Facility. In certain instances~~agreements, wewhich ~~have~~is ~~entered into~~included ~~development~~as ~~agreements~~a inliability ~~connection~~subject ~~with option contracts which require us~~ to ~~complete the~~ ~~development~~compromise ofand ~~the~~accounts ~~land,~~payable atand aother ~~fixed~~liabilities, ~~reimbursable amount~~respectively, ~~even~~in ifthe weaccompanying ~~choose not to exercise our~~unaudited ~~option~~consolidated ~~and~~statements ~~forfeit~~of ~~our~~financial ~~deposit and even if our costs exceed the reimbursable amount~~condition.

AtUntil ~~June 30,~~the ~~2008,~~establishment weof ~~have~~a ~~total~~surety ~~outstanding~~bond ~~performance~~program /in ~~surety~~January 2009, ~~bonds~~we ofhad ~~$170.1 million related~~no ability to ~~land~~obtain new ~~development~~surety ~~activities~~bonds ~~and~~or ~~have~~letters ~~estimated~~of ~~our~~credit ~~exposure~~and onin ~~our~~some ~~outstanding~~cases, ~~surety bonds~~had to bepost ~~$58.6 million~~cash ~~based~~deposits onwith ~~land~~government entities ~~development~~or ~~remaining~~escrow toagents. beUnder ~~completed.~~the Atprogram ~~June 30,~~approved ~~2008~~by ~~and December 31,~~the ~~2007~~Bankruptcy Court, ~~our~~we ~~accrual~~have ~~totaled~~an aggregate $4215.0 million ~~and~~available ~~$48.0 million, respectively,~~ for surety bonds. ~~where~~Surety webonds ~~consider~~are itissued ~~probable~~after ~~that~~notice ~~we will be required~~ to ~~reimburse~~creditors ~~the surety for amounts~~who ~~drawn~~have ~~related~~a right to ~~defaulted~~object. ~~agreements,~~The ~~which~~surety isbonds ~~included~~are ascollateralized aby ~~liability~~cash ~~subject~~deposits tomaintained ~~compromise~~in ~~and~~escrow accounts. ~~payable~~At ~~and other liabilities~~April 30, ~~respectively~~2009, in$2.5 million ~~the~~was ~~accompanying~~maintained ~~unaudited~~as ~~consolidated statements~~collateral offor ~~financial~~surety ~~condition~~bonds.

Until the establishment of a surety bond program in January 2009, we had no ability to obtain new surety bonds or letters of credit and in some cases, had to post cash deposits with government entities or escrow agents. Under the program approved by the Bankruptcy Court, we have an aggregate $15.0 million available for surety bonds. Surety bonds are issued after notice to creditors who have a right to object. The surety bonds are collateralized by cash deposits maintained in escrow accounts. At February 28 2009, $2.5 million was maintained as collateral for surety bonds.

Investments in Unconsolidated Joint Ventures

We have entered into strategic joint ventures that acquire and develop land for our Homebuilding operations and/or that also build and market homes for sale to third parties. Our partners in these joint ventures generally are unrelated homebuilders, land sellers, financial investors or other real estate entities. In some cases our Chapter 11 filings have constituted an event of default under the joint venture lender agreements which have resulted in the debt becoming immediately due and payable, limiting the joint ventures’ access to future capital. In joint ventures where the assets are being financed with debt, the borrowings are non-recourse to us except that in certain instances we have agreed to complete certain property development commitments in the event the joint ventures default and to indemnify the lenders for losses resulting from fraud, misappropriation, violations of environmental laws and similar acts. In some cases, we have agreed to make capital contributions to the joint venture sufficient to comply with a specified debt to value ratio. Our obligations become full recourse upon certain bankruptcy events with respect to the joint venture. At ~~June~~September 30, 2008 and December 31, 2007, we had investments in unconsolidated joint ventures of $83.70 million and $9.0 million, respectively. We account for these investments under the equity method of accounting. These unconsolidated joint ventures are limited liability companies or limited partnerships in which we have a limited partnership interest and a minority interest in the general partner. At ~~June 30, 2008 and~~ December 31, 2007, we had receivables of $0.~~1 million and $0.~~3 million, net of allowances~~, respectively,~~ from these joint ventures due to loans and advances, unpaid management fees and other items. At September 30, 2008, we had no receivables from joint ventures.

In certain instances, we were appointed as the day-to-day manager of the unconsolidated entities and received management fees for performing this function. We earned management fees from these unconsolidated entities of $0 and $0.8 million for the three months ended September 30, 2008 and 2007, respectively, and $0.1 million and $9.0 million for the nine months ended September 30, 2008 and 2007, respectively. These fees are included in income (loss) from unconsolidated joint ventures in the accompanying unaudited consolidated statements of operations.

InWe ~~many~~evaluated ~~instances,~~the werecoverability ~~are~~of ~~appointed~~our asinvestments ~~the~~in ~~day-to-day~~and ~~manager~~receivables offrom ~~the~~ unconsolidated ~~entities~~ ~~and~~joint ~~receive~~ventures ~~management~~under ~~fees~~APB ~~for~~18 ~~performing~~and ~~this~~SFAS ~~function~~No. 114, WeAccounting ~~earned~~by ~~management~~Creditors ~~fees~~for ~~from~~Impairment ~~these~~of a Loan ~~unconsolidated~~(“SFAS ~~entities~~114”), and recorded total impairments of investments in unconsolidated joint ventures of $05.8 million and $423.54 million for the three months ended ~~June~~September 30, 2008 and 2007, respectively, and $08.16 million and $828.19 million for the ~~six~~nine months ended ~~June~~September 30, 2008 and 2007, respectively. ~~These~~Additionally, ~~fees~~during ~~are~~the ~~included~~three inmonths ~~income~~ended September 30, 2008, we recorded $5.3 million of impairments on joint venture receivables (~~loss~~net of a $2.2 million recovery related to a previously written-off joint venture receivable). At September ~~from~~30, 2008 and December 31, 2007, the accrual related to joint venture obligations was $47.7 million and $74.6 million, respectively, which primarily relates to limited guarantees we issued in connection with our unconsolidated joint ventures. As explained in further detail below, the decrease in the ~~accompanying~~accrual ~~unaudited~~is ~~consolidated~~primarily ~~statements~~due to the reduction of ~~operations~~loss accruals for certain joint venture obligations totaling $26.9 million established in 2007 and reversed during the nine months ended September 30, 2008.

We evaluated the recoverability of our investments in and receivables from unconsolidated joint ventures under APB 18 and SFAS No. 114, Accounting by Creditors for Impairment of a Loan (“SFAS 114”), and recorded total impairments of investments in unconsolidated joint ventures of $2.3 million for the three months ended June 30, 2008 and $2.8 million and $5.5 million for the six months ended June 30, 2008 and 2007, respectively. At June 30, 2008 and December 31, 2007 the accrual related to joint venture obligations was $59.5 million and $74.6 million, respectively, which primarily relates to limited guarantees we issued in connection with our unconsolidated joint ventures. As explained in further detail below, the decrease in the accrual is primarily due to the reduction of loss accruals totaling $11.6 million for certain joint venture obligations established in 2007 and reversed during the three months ended June 30, 2008.

Engle/Sunbelt Joint Venture

During 2007, we evaluated the recoverability of our investment in and receivables from Engle/Sunbelt for impairment under APB 18 and SFAS 114, respectively, and recorded an impairment charge of $60.7 million, representing the full carrying value our investment in and receivables from Engle/Sunbelt, net of deferred gains of $22.5 million.

TOUSA/Kolter Joint Venture

In January 2005, we entered into a joint venture with Kolter Real Estate Group LLC to form TOUSA/Kolter Holdings, LLC (“TOUSA/Kolter”) for the purpose of acquiring, developing and selling approximately 1,900 homesites and commercial property in a master planned community in South Florida. The joint venture obtained senior and senior subordinated term loans. We entered into a Performance and Completion Agreement in favor of the lenders under which we agreed, among other things, to construct and complete the horizontal development of the lots and commercial property and related infrastructure in accordance with certain plans. The loans required, among other things, TOUSA/Kolter to have completed the development of certain lots by January 7, 2007. Due to unforeseen and unanticipated delays in the entitlement process and additional development requests by the county and water management district, TOUSA/Kolter was unable to complete the development of these certain lots by the required deadline. On ~~June~~September 21, 2007, and in response to missing the development deadline, TOUSA/Kolter amended the existing loan agreements and we amended the Performance and Completion Agreement to extend the Performance and Completion Agreement development deadline to May 31, 2008. The amendments to the term loan agreements increased the interest rate on the senior term loan by 100 basis points to LIBOR plus 3.25% and by 50 basis points to LIBOR plus 8.5% for the senior subordinated term loan. As a condition to the amendment, we agreed with Kolter Real Estate Group LLC to be responsible for the additional 150 basis points; accordingly, this would be a cost of the lots we acquired from TOUSA/Kolter. The amendment also required us to increase our existing letter of credit by an additional $1.8 million to $12.1 million and place an additional $3.0 million cash deposit on the remaining lots under option. The $3.0 million was used by TOUSA/Kolter to pay down a portion of the senior term loan.

The lenders to the joint venture ~~have~~ declared the loan to the venture to be in default. The Remargining Agreement ~~requires~~required us to pay to the Administrative Agent, upon default of the joint venture, an amount necessary to decrease the principal balance of the loan so that the outstanding balance ~~does~~did not exceed 70% of the value of the joint venture’s assets. Based on the estimated fair value of the assets of the joint venture, we recorded a $54.0 million obligation (which included the $12.1 million letter of credit accrual) in 2007 in connection with our obligation under the re-margining provisions of the loan agreement. We did not record any additional contingent liability under the completion guarantee as the $54.0 million accrual represented the full debt obligation of the joint venture. At December 31, 2007, the obligation of $54.0 million is included in accounts payable and other liabilities in the accompanying unaudited consolidated statements of financial condition. As a result of the 2009 transaction discussed below, we reduced the obligation for $8.5 million of loan forgiveness, $11.7 million of drawn letters of credit and $2.3 million of escrowed interest applied to the loan balance, leaving a remaining obligation at September 30, 2008 of $31.5 million, which is included in liabilities subject to compromise in the accompanying unaudited consolidated statement of financial condition.

~~completion~~ During ~~guarantee~~2007, aswe evaluated the ~~$54.0 million~~recoverability ~~accrual represented~~of ~~the~~our ~~full~~investment ~~debt~~and ~~obligation~~receivables offrom TOUSA/Kolter ~~the~~for ~~joint~~impairment ~~venture.~~under AtAPB ~~December 31~~18 and SFAS 114, ~~2007~~respectively, ~~the~~and ~~obligation~~recorded ofan impairment charge of $5458.08 million isrepresenting ~~included~~the infull ~~accounts~~carrying ~~payable~~value ~~and~~of ~~other~~our ~~liabilities~~investment in ~~the~~and ~~accompanying unaudited~~receivables ~~consolidated~~from ~~statements~~TOUSA/Kolter, net of ~~financial~~deferred ~~condition~~gains of $12.8 million, Aswhich were deferred as a result of the contributed ~~2009~~assets ~~transaction~~and ~~discussed~~contract ~~below~~assignments to TOUSA/Kolter. Additionally, we ~~reduced~~in ~~the~~2007 we recorded an obligation ~~for~~of $818.59 million offor ~~loan~~performance ~~forgiveness,~~bonds ~~$11.7 million~~and letters of ~~drawn~~credit ~~letters~~that we placed on behalf of ~~credit~~the ~~and~~joint ~~$2.3 million~~venture, ofas ~~escrowed~~we ~~interest~~considered ~~applied~~it toprobable ~~the~~that ~~loan~~we ~~balance,~~would ~~leaving~~be arequired ~~remaining~~to reimburse these ~~obligation~~amounts atfor ~~June~~development remaining to be completed. At September 30, 2008 and December 31, 2007, the obligation for performance bonds and letters of credit of $3113.57 million, ~~which~~and $18.9 million, respectively, is included in liabilities subject to compromise and accounts payable and other liabilities, respectively, in the accompanying unaudited consolidated ~~statement~~statements of financial condition.

~~During~~On ~~2007~~January 28, 2009, we ~~evaluated~~entered ~~the~~into ~~recoverability~~an ofagreement ~~our~~with ~~investment~~CC ~~and~~Loan ~~receivables~~Acquisition ~~from TOUSA/Kolter for impairment under APB 18 and SFAS 114~~LLC, ~~respectively,~~which ~~and recorded an impairment~~had ~~charge~~purchased ofthe ~~$58.8 million~~loans ~~representing~~to the ~~full~~joint ~~carrying~~venture ~~value of our investment in~~ and ~~receivables from~~the ~~TOUSA/Kolter,~~Community ~~net~~Development ofDistrict ~~deferred~~Bonds ~~gains~~related ofto the ~~$12~~project.~~8 million,~~ ~~which~~The ~~were~~joint ~~deferred~~venture asdeeded ~~a result of~~ the ~~contributed~~ ~~assets~~property ~~and contract assignments~~ to ~~TOUSA/Kolter.~~CC ~~Additionally,~~Loan inAcquisition ~~2007~~LLC weand ~~recorded~~received an ~~obligation~~extension of ~~$18.9 million~~the ~~for~~maturity ~~performance bonds and letters~~ of ~~credit~~the ~~that~~“B weBonds” ~~placed~~until ~~on behalf of the joint venture~~May 1, as2013. weA ~~considered~~portion itof ~~probable~~the ~~that~~outstanding ~~we would be required to reimburse these~~joint ~~amounts~~venture ~~for~~indebtedness ~~development~~was ~~remaining~~also tosatisfied ~~be completed. At June 30, 2008~~ and ~~December 31, 2007,~~ the ~~obligation~~ ~~for~~amount ~~performance~~collectible ~~bonds~~from ~~and~~CC ~~letters~~Loan ofAcquisition ~~credit of $13.7 million and $18.9 million,~~LLC ~~respectively,~~under isfiled ~~included~~proofs inof ~~liabilities~~claim ~~subject~~related to ~~compromise~~the ~~and~~Completion ~~accounts~~Agreement ~~payable~~was ~~and~~limited. ~~other liabilities,~~This ~~respectively,~~agreement inwas approved by the ~~accompanying~~Bankruptcy ~~unaudited~~Court ~~consolidated~~on ~~statements~~January 9, ~~of financial condition~~2009.

On January 28, 2009, we entered into an agreement with CC Loan Acquisition LLC, which had purchased the loans to the joint venture and the Community Development District Bonds related to the project. The joint venture deeded the property to CC Loan Acquisition LLC and received an extension of the maturity of the “B Bonds” until May 1, 2013. A portion of the outstanding indebtedness was also satisfied and the amount collectible from CC Loan Acquisition LLC under filed proofs of claim related to the Completion Agreement was limited. This agreement was approved by the Bankruptcy Court on January 9, 2009.

Centex/TOUSA at Wellington, LLC

Layton Lakes Joint Venture

We evaluated the recoverability of our investment in and receivables from the Layton Lakes Joint Venture for impairment under APB 18 and SFAS 114, respectively, and recorded an impairment charge of $24.9 million representing the full carrying value of our investment in and receivables from the Layton Lakes Joint Venture during 2007. At that time, we did not record any obligation under the re-margining provision as we were not a party to the re-margining agreement. The remargining agreement required that the outstanding loan balance not exceed 65% of the value of the joint venture’s assets. Additionally, in 2007 we recorded an obligation of $4.4 million for performance bonds that we placed on behalf of the joint venture, as we considered it probable that we would be required to reimburse these amounts for development remaining to be completed. We did not record any additional contingent liability under the completion guarantee as based on the estimated fair value of the assets of the joint venture, ; we did not believe that it was probable that we would be called to perform under the completion obligation.

Tousa, Tousa Homes, Inc., Lennar and the Town of Gilbert, Arizona entered into a series of agreements pursuant to which, among other things, we ~~have~~ surrendered our interest in the joint ~~venture~~ venture and ~~have~~ paid $1.3 million toward completion of certain offsite improvements. In exchange, we ~~have been~~ were granted an option to continue acquiring lots and the Town of Gilbert ~~has~~ agreed to issue certificates of occupancy for certain homes under construction. Tousa, Tousa Homes, Inc., Lennar and Bank Midwest each agreed to mutual releases of claims related to the Layton Lakes Joint Venture. The Bankruptcy Court approved these agreements on November 25, 2008. As a result of this ~~settlement~~ settlement and certain work performed by our joint venture partner, we reversed $4.34 million of our accrual for estimated obligations under the performance bonds during the ~~six~~nine months ended ~~June~~September 30, 2008.

Other

in certain instances we have agreed to complete certain property development commitments in the event the joint venture defaults and to indemnify the lenders for losses resulting from fraud, misappropriation, violations of environmental laws and similar acts.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including in the material set forth in the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts, and typically include the words “anticipate”, “believe”, “expect”, “estimate”, “project”, and “future.” Specifically, this Form 10-Q contains forward-looking statements including with respect to:

• our expectations regarding population growth and median income growth trends and their impact on future housing demand in our markets; • our expectation regarding the impact of geographic and customer diversification; • our expectations regarding successful implementation of our asset management strategy and its impact on our business; • our expectations regarding future land sales; • our belief regarding growth opportunities within our financial services business; • our estimate that we have adequate financial resources to meet our current and anticipated working capital, including our debt service payments, and land acquisition and development needs; • our expectations regarding our option contracts, investments in land development joint ventures; • our expectations regarding the housing market in 2009 and beyond; and • our expectations regarding our use of cash in operations.

	•		our expectations regarding future land sales;

	•		our expectations regarding the housing market in 2009 and beyond.

We do not undertake any obligation to update any forward-looking statements.

These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. As a result, actual results may differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:

• economic or other business conditions that affect the desire or ability of our customers to purchase new homes in markets in which we conduct our business, such as increases in interest rates or unemployment rates or declines in median income growth, consumer confidence or the demand for, or the price of, housing; • the risks and uncertainties associated with our Chapter 11 cases; • the inability to obtain confirmation of our Chapter 11 plan; • ~~Restrictions on~~ our ability to ~~pursue our business strategies while operating under the Bankruptcy : • our ability to attract,~~ motivate and retain key and essential personnel is impacted by the Bankruptcy Code which limits our ability to implement a retention program or take other measures intended to motivate employees to remain with us; • we require a significant amount of cash, which may not be available to us; • a further decline in the value of our ~~belief~~land ~~that~~and home inventories; • our ability to ~~continue~~dispose assuccessfully aof ~~going~~developed ~~concern~~properties ~~will~~or ~~depend~~undeveloped ~~upon~~land ~~our~~or ~~ability~~homesites toat ~~restructure~~expected ~~our~~prices ~~capital~~and ~~structure~~within anticipated time frames; • our ability to ~~identify~~compete ~~and~~in ~~acquire,~~our atexisting ~~anticipated~~markets; ~~prices~~• the impact of hurricanes, ~~additional~~tornadoes ~~homebuilding~~or ~~opportunities~~other ~~and/~~natural disasters or toweather ~~effect~~conditions on our ~~growth~~business, ~~strategies~~including inthe ~~our~~potential ~~homebuilding~~for ~~operations~~shortages and ~~financial~~increased ~~services~~costs ~~business;~~of •materials ~~events~~and ~~which~~qualified ~~would~~labor ~~impede~~and ~~our~~the ~~ability~~potential tofor ~~open~~delays ~~new~~in ~~communities~~construction and/ obtaining government approvals; • an increase or ~~deliver~~change ~~homes~~in ~~within~~government ~~anticipated~~regulations ~~time~~or ~~frames~~in the interpretation and/or ~~within~~enforcement ~~anticipated~~of ~~budgets~~existing government regulations; • a change in ownership of our stock, as defined in Section 382 of the Internal Revenue Code, which would limit our ability to receive anticipated income tax refunds.

• a further decline in the value of our land and home inventories; • our ability to dispose successfully of developed properties or undeveloped land or homesites at expected prices and within anticipated time frames; • our ability to compete in our existing and future markets; • the impact of hurricanes, tornadoes or other natural disasters or weather conditions on our business, including the potential for shortages and increased costs of materials and qualified labor and the potential for delays in construction and obtaining government approvals; • an increase or change in government regulations or in the interpretation and/or enforcement of existing government regulations; • a change in ownership of our stock, as defined in Section 382 of the Internal Revenue Code, which would limit our ability to receive anticipated income tax refunds.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our senior and senior subordinated notes offerings, as of ~~June~~September 30, 2008, $1.1 billion of our outstanding borrowings are based on fixed interest rates. We are exposed to ~~market~~ market risk primarily related to potential adverse changes in interest rates on our revolving ~~credit~~ credit facility, term loans and warehouse lines. The interest rates relative to these borrowings ~~fluctuate~~ fluctuate with the prime, Federal Funds, LIBOR, and Eurodollar lending rates. As of ~~June~~September 30, 2008, we had an aggregate of $~~812~~737.30 million drawn under our Revolving Loan Facility, ~~term loans~~ and ~~warehouse~~term ~~lines~~loans ~~of credit~~ that are subject to changes in interest rates. An increase or decrease of 1% in interest rates will change our annual debt service payments by $87.14 million per year.

The failure to pay interest on certain notes and the filing of the Chapter 11 cases has constituted events of default or otherwise triggered repayment obligations under a number of instruments and agreements relating to our direct and indirect financial obligations. As a result of the events of default, all our obligations became automatically and immediately due and payable and have been reflected as such in the following table. We believe that any efforts to enforce the payment obligations are stayed as a result of the filing of the Chapter 11 cases and therefore, are not entitled to interest.

Our operations are interest rate sensitive as overall housing demand is adversely affected by increases in interest rates. If mortgage interest rates increase significantly, this may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates also increase our borrowing costs because, as indicated above, our bank loans will fluctuate with the prime, Federal Funds,

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On February 26,Table 2009, the court entered an order granting the Debtors’ motion to compel mediation of the case. The non-binding mediation is currently scheduled to take place on March 23, 2009 and March 24, 2009. Contents

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Filing Compare · TOUSA INC