Noted hedge fund manager John Paulson's company is the leading bidder for bankrupt TOUSA Homes' western region assets, offering $42.4 million for 8,277 un-started lots and 22 model homes in Arizona, Colorado, and Nevada.

Paulson's interest in the land has been a poorly kept secret. The company offered to buy all the western assets in November 2009. Prior to that, TOUSA had been negotiating to sell off the assets in pieces.

After Paulson's November offer, TOUSA reached out to others who might be potential buyers of all its western assets, according to bankruptcy court documents.

While the debtors engaged in follow-on conversations with certain potential purchasers, Paulson's offer remained the highest and best available, the documents said.

On March 4, TOUSA and Paulson inked a deal that gave it 21 days for due diligence. That deadline was extended 11 times while Paulson worked through settling claims and amending developer agreements on the land.

The official document was filed July 6.

While the lots are spread among three states, by far the largest asset in the portfolio is Red River, a development some 15 miles beyond the outskirts of Phoenix in Pinal County.

As stalking horse bidder for the TOUSA assets, any other bidder must best Paulson RERF Acquisition Corp.'s $42,425,727.40 bid by a 3% breakup fee, plus expenses of no more than $250,000. In addition, bids must be made in $500,000 increments.

Paulson was also an aggressive bidder on TOUSA's Florida assets in January but lost out to Starwood Land Ventures after a prolonged bidding battle. Starwood, which was the stalking horse bidder on the Florida lots, had quietly negotiated a deal to sell some of the land to Lennar prior to the auction.

The competition from Paulson's company and another bidder for the Florida land forced Starwood to up its bid on the 5,499 home lots and 36 model homes by $20 million to win the auction. In the end, it paid $81 million.

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