Bud Raymond - Page 3

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          approximately 30 homes.  Later on his own, as described below,              
          petitioner developed a subdivision consisting of homes for low              
          income families; in addition, he also built and sold custom                 
          designed homes.                                                             
               In 1992, petitioner purchased a tract of land which he                 
          subdivided into 58 lots and is now known as the Pajaro Dunes                
          subdivision.  Petitioner obtained financing from The Savings Bank           
          of Stockton to construct homes in the subdivision.  Additionally,           
          he hired his son’s construction company to supervise the                    
          construction of the subdivision.  Fourteen homes were completed             
          in 1994, while 44 homes were completed in 1995.                             
               Petitioner hired Rancho Real Estate (Rancho) to market and             
          sell the homes.  Rancho placed advertisements in local newspapers           
          and posted signs to market the properties.  In 1994, Rancho                 
          procured the sale of 14 homes.  The next year, in 1995, the                 
          remaining 44 homes were sold.                                               
               The purchase prices of the homes ranged from $63,900 to                
          $79,900.  To facilitate the sales in 1995, petitioner accepted              
          promissory notes for part of the purchase prices on 41 of the 44            
          homes sold that year and requested second deeds of trust to                 
          secure the notes.3  The promissory notes range in principal                 

               3  The typical financing structure consisted of the                    
          following arrangement (typically known as an 80-15-5 mortgage):             
          (1) The Savings Bank of Stockton financing 80 percent of the                
          purchase price with a loan at an 8.5-percent interest rate,                 

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