The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.

In the preparation of our financial statements, we apply GAAP. The application of GAAP may require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying results. For a description of our accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2011.

Certain statements discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations", and elsewhere in this Form 10-Q constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties and other important factors include, among others: the stability of certain financial markets; disruption of the credit markets and reduced availability and more stringent financing requirements for commercial and residential mortgages of all types; the number of investor and speculator resale homes for sale and homes in foreclosure in our communities and in the geographic areas in which we develop and sell homes; the increased level of unemployment; the decline in net worth and/or of income of potential buyers; the decline in consumer confidence; the failure to successfully implement our business strategy (including our intentions to focus primarily on the development of active adult communities in the future); shifts in demographic trends affecting demand for active adult and primary housing; the level of immigration and migration into the areas in which we conduct real estate activities; our access to financing; construction defect and home warranty claims; changes in, or the failure or inability to comply with, government regulations; the failure to successfully integrate acquisitions into our business, including the JEN Transaction; and other factors as described in AV Homes' filings with the Securities and Exchange Commission, including under the caption "Risk Factors" included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. At least 80% of active adult homes are intended for occupancy by at least one person 55 years or older. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management's opinions only as of the date hereof.

Executive Overview and Outlook

We are engaged in the business of homebuilding, community development, and land sales in Florida and Arizona. Sales revenues and home building activities were adversely affected by economic conditions in both markets, although home sales have improved from previous low levels. We also engage in other activities such as the sale of commercial and industrial land for third-party development, which has also been adversely affected by economic conditions.

Our primary business strategy is to focus our resources on the development of residential communities for people age 55 and older, including the marketing, sale or rental, and construction of residences within those communities. We believe that demographic trends and the lifestyle aspirations of aging Baby Boomers provide us with a favorable environment for future business. Solivita and CantaMia, our active adult communities near Orlando, Florida and Phoenix, Arizona, respectively, are our largest actively selling communities. During the third quarter of 2012, we introduced twelve new model homes at Solivita. The new models were well received with nearly 3,000 people visiting during the opening weekend. Later this year we will also begin sales and construction at our newest community, Vitalia at Tradition. In addition, we anticipate adding two or three more communities which will broaden our geographic footprint and future participation in the longer term growth of demand from the wave of Baby Boomers entering their retirement years.

We also remain moderately active in the sale and construction of primary residences for people of all ages, some of which are located in communities we developed. Currently, we are selling from three primary locations, two in Florida and one in Arizona. We expect to sell out of lots at all three communities within 12-15 months and are actively looking for replacement lot positions. Finished lot prices have increased significantly in our primary markets as builders compete to replenish their depleted holdings. We are also experiencing increases in materials costs. Absent corresponding pricing power, these cost increases may negatively impact margins on future sales of primary residences or limit our interest in acquiring new lot positions.

Implementation of our new management information system, which began in the first quarter of 2012, will continue into the remainder of the year. This new fully integrated suite of CRM (Customer Relationship Management), accounting, finance and production scheduling software should significantly improve our efficiency and provide more timely and robust information for managing the company. This promises to be an important investment of time and financial resources as sales and closings increase due to a much anticipated recovery and the addition of more actively selling communities in our portfolio.

During the quarter we sold 99 homes and closed 82 sales generating approximately $17,405 of revenue. Customer traffic remained good at both our family and active adult communities through the end of the quarter. The cancellation rate during the quarter at our communities trended downwards from previous quarters, although there are ongoing overall difficulties our customers have in arranging financing, or selling an existing home.

In the third quarter of 2012, we sold non-core assets generating $20,753 of cash. At September 30, 2012, we had additional assets under contract for sale. These sales are contingent upon a number of factors and may not close, but the activity is indicative of our ongoing effort to sell non-core assets and further reduce associated carrying costs.

During the nine months ended September 30, 2012, our homebuilding operations used cash of $13,424 which was partially offset by net cash from land sales. Cash flow from current operations is insufficient to cover our primary recurring costs for interest payments, real estate taxes, Homeowner Association subsidies, and unallocated general & administrative expenses. We believe that these losses will narrow as improving market conditions help to further increase sales at our existing communities. Additional revenue from our new investments is expected to further enhance our future productivity. We believe that we have sufficient available cash to fund these losses. We also plan to carefully manage our inventory levels through monitoring land holdings, land development and home starts. In that regard, our planned asset sales are expected to help diversify land holdings and reduce associated carry costs from existing assets.

Our business remains capital intensive and requires or may require increased expenditures for land and infrastructure development and housing construction, along with increased funding of operating deficits, real estate taxes, Homeowner Association deficits, interest expense and working capital. We anticipate using available cash and may be reliant, in part, upon asset sales to fund new investments or new initiatives that are consistent with our new strategy. We also anticipate being reliant upon access to the capital markets to fully fund these activities and to repay debt upon maturity.

During the third quarter of 2012, we continued to implement our new strategic plan. The primary efforts were focused on the evaluation of potential future investments to expand our market exposure. The search for appropriate sites in our target markets led us to several new and potential future investments. During the quarter we invested approximately $10 million in new land positions. In addition, subsequent to September 30, 2012, we have committed to two more sites in the Phoenix area. These investments will require additional acquisition funding of $21.5 million which will come from our cash on hand. We also anticipate further investment related activity within the next six months as we identify and screen sites in new market locations. In addition to the acquisition costs, we plan to commit significant funds toward the development of these assets. In many instances, development costs will exceed the original acquisition costs and could be expended before we can generate meaningful sales revenue.

In September, we completed the negotiation of an agreement entitled "Agreement for Development of Poinciana Parkway", with an effective date of October 15, 2012. This agreement is a four party agreement among Osceola County, Polk County, Osceola Expressway Authority and Avatar Properties Inc. that should result in the Poinciana Parkway being funded, constructed, operated and maintained by Osceola County, Polk County and the Osceola Expressway Authority. The primary contingency that remains to be addressed is the issuance of bonds to complete funding of construction. Upon confirmation of funding, API will assign all permits, mitigation credits and plans to Osceola County and will donate certain right-of-ways that will accommodate both the arterial and southern connector facilities and other lands to Osceola and Polk County. This will result in a non-cash charge of approximately $8 million resulting from the transfer of mitigation credits carried on our books and the carried value of contributed Right of Way land. Thereafter, the Osceola County Expressway Authority will be responsible for all design modifications, construction management and operation of that portion of Poinciana Parkway that is a part of the Osceola County Expressway Authority System. Polk and Osceola counties would own and operate all arterial roadway segments. This is a positive step forward for all parties to the agreement. When completed, the Poinciana Parkway is expected to have a positive impact on the Poinciana and surrounding communities, and could accelerate development of our substantial land holdings in the area.

We believe the downturn in the homebuilding industry showed signs of moderate recovery during the first nine months of 2012. This downturn has been one of the most severe in U.S. history. New home demand is restrained by a number of factors including the number of foreclosures, pending foreclosures, mortgage defaults and investor-owned units for sale; bank and lender owned auctions of existing homes; availability of significant discounts; the difficulty of potential purchasers in selling their existing homes at prices they are willing to accept, and difficulty in arranging mortgage financing. These factors have moderated but continue to adversely affect both the number of homes we are able to sell and the prices at which we are able to sell them. In addition, we are engaged in business in Florida and Arizona, two of the most negatively impacted states. Our homebuilding results this quarter reflect these difficult conditions, and it remains unclear if any sustained recovery in the industry will be reflected in our future results.

Our business is also affected to some extent by the seasonality of home sales which are generally higher during the months of November through April in the geographic areas in which we conduct our business. In addition, our residential community activities, along with other real estate activities such as the sale of commercial and industrial land, are heavily concentrated in the Poinciana, Florida submarket. These factors have a significant impact on our ability to participate in a market recovery. If the real estate market declines further, or sales at our existing communities do not improve materially, it may be necessary to take additional charges against our earnings for inventory impairments or write-downs of our investments in unconsolidated entities and other assets.

We continue our ongoing efforts to improve our operating efficiencies by identifying areas of our business where we can reduce our expenses. As part of this process, we will continue to examine our assets to determine which assets fit within our primary business strategy. These evaluations may also result in additional cash and non-cash charges or write-downs.

RESULTS OF OPERATIONS

The following table provides a comparison of certain financial data related to
our operations for the nine and three months ended September 30, 2012 and 2011:

                                                 Nine Months                  Three Months
Operating income (loss)                      2012           2011          2012           2011
Active adult communities
Revenues                                   $  29,272     $   28,066     $   9,376     $   10,794
Expenses                                      40,332         35,822        15,178         13,100
Segment operating loss                       (11,060 )       (7,756 )      (5,802 )       (2,306 )

Primary residential
Revenues                                      23,373          9,752        10,297          2,813
Expenses                                      24,290         49,616        10,005         40,463
Segment operating loss                          (917 )      (39,864 )         292        (37,650 )

Commercial and industrial and other land
sales
Revenues                                      20,753         15,285         8,696            220
Expenses                                      15,592         10,301         8,248          2,053
Segment operating income                       5,161          4,984           448         (1,833 )

Other operations
Revenues                                         367            851           157            147
Expenses                                         212            729            70            140
Segment operating income                         155            122            87              7

Operating loss                                (6,661 )      (42,514 )      (4,975 )      (41,783 )

Unallocated income (expenses):
Interest income                                   95            395            32             95
Loss on extinguishment of debt                (1,144 )         (211 )      (1,144 )            -
Equity loss from unconsolidated entities        (117 )         (326 )         (38 )         (341 )
Net (income)/loss attributable to
non-controlling interests                     (1,475 )          387           (33 )          132
General and administrative expenses          (10,296 )      (12,865 )      (3,633 )       (5,093 )
Change in fair value of contingent
consideration                                      -          4,388             -          3,366
Interest expense                              (6,256 )       (7,230 )      (1,903 )       (2,437 )
Other real estate expenses                    (2,664 )       (3,610 )         125         (2,002 )
Impairment of goodwill                             -        (17,215 )           -        (17,215 )
Impairment of land developed or held for
future development                            (2,861 )      (69,733 )         (14 )      (56,633 )
Loss before income taxes                     (31,379 )     (148,534 )     (11,583 )     (121,911 )
Income tax benefit                                 -           (350 )           -           (350 )
Net loss attributable to AV Homes          $ (31,379 )     (148,184 )     (11,583 )     (121,561 )

Data from closings for the active adult and primary residential homebuilding segments for the nine and three months ended September 30, 2012 and 2011 is summarized as follows:

                                                                                              Average
                                                      Number of Units       Revenues       Price Per Unit
For the nine months ended September 30,
2012
Active adult communities                                           100     $   24,021     $            240
Primary residential                                                104         21,497     $            207
Total                                                              204     $   45,518     $            223

2011
Active adult communities                                            84     $   19,266     $            229
Primary residential                                                 34          7,915     $            233
Total                                                              118     $   27,181     $            230

For the three months ended September 30,
2012
Active adult communities                                            34     $    7,731     $            227
Primary residential                                                 48          9,674     $            202
Total                                                               82     $   17,405     $            212

2011
Active adult communities                                            33     $    8,112     $            246
Primary residential                                                 10          2,180     $            218
Total                                                               43     $   10,292     $            239

Data from contracts signed for the active adult and primary residential homebuilding segments for the nine and three months ended September 30, 2012 and 2011 is summarized as follows:

                                                                             Contracts
                                    Gross Number                              Signed,                              Average
                                    of Contracts                              Net of                              Price Per
                                       Signed          Cancellations       Cancellations       Dollar Value         Unit
For the nine months ended
September 30,

2012
Active adult communities                      169                 (46 )               123     $       30,880     $       251
Primary residential                           215                 (32 )               183             41,551     $       227
Total                                         384                 (78 )               306     $       72,431     $       237

2011
Active adult communities                      138                 (25 )               113     $       26,721     $       236
Primary residential                            70                 (11 )                59             12,706     $       215
Total                                         208                 (36 )               172     $       39,427     $       229

For the three months ended
September 30,

2012
Active adult communities                       48                  (9 )                39     $        9,973     $       256
Primary residential                            68                  (8 )                60             14,659     $       244
Total                                         116                 (17 )                99     $       24,632     $       249

2011
Active adult communities                       55                  (9 )                46     $       11,149     $       242
Primary residential                            39                  (8 )                31              5,890     $       190
Total                                          94                 (17 )                77     $       17,039     $       221

Backlog for the active adult and primary residential homebuilding segments as of September 30, 2012 and 2011 is summarized as follows:

                                                          Average
                            Number of       Dollar       Price Per
As of September 30,           Units         Volume         Unit

2012
Active adult communities            68     $ 18,578     $       273
Primary residential                132       29,903     $       227
Total                              200     $ 48,481     $       242

2011
Active adult communities            57     $ 14,748     $       259
Primary residential                 40        8,907     $       223
Total                               97     $ 23,655     $       244

The number of net housing contracts signed during the nine months ended September 30, 2012 compared to the same period in 2011 increased 78%. The dollar value of housing contracts signed increased 84%. Although the volume of housing contracts signed for the three months ended September 30, 2012 continue to reflect a weak market for new residences in the geographic areas where our communities are located, the increase in sales over the same period in 2011 indicates improved market conditions during the past twelve months. Our communities are located in areas of Florida and Arizona where there is an excess of units for sale, including foreclosures and houses being sold by lenders, and continued use of various sales incentives by residential builders in our markets, including AV Homes. During the nine and three months ended September 30, 2012, cancellations of previously signed contracts totaled 78 and 17 compared to 36 and 17 during the nine and three months ended September 30, 2011. As a percentage of the gross number of contracts signed, this represents 20% and 15% for the nine and three months ended September 30, 2012, respectively. As a percentage of the gross number of contract signed, this represents 17% and 18% for the nine and three months ended September 30, 2011, respectively. The increase in cancellations from 2011 to 2012 reflects the ongoing overall difficulties our customers have in arranging financing or selling existing homes.

As of September 30, 2012, our inventory of unsold (speculative) homes, both completed and under construction, was 69 units of which 23% were completed compared to 70 units as of December 31, 2011 of which 63% were completed.

During the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, the number of homes closed increased by 73% and the related revenues increased by 67%. Our average sales price for homes closed during the nine months ended September 30, 2012 decreased to $223 compared to $230 for the nine months ended September 30, 2011. This decrease is primarily attributable to a change in mix of homes closed in our primary residential segment.

Our backlog of homes under contract but not yet closed as of September 30, 2012 was 200 units, a 106% increase from September 30, 2011. The dollar volume of homes in backlog was $48,481, a 105% increase over September 30, 2011. We anticipate that we will close in excess of 80% of the homes in backlog as of September 30, 2012 during the subsequent 12-month period, subject to cancellations by purchasers prior to scheduled delivery dates.

Net loss for the nine and three months ended September 30, 2012 was $31,379 or $2.50 per basic and diluted share and $11,583 or $0.92 per basic and diluted shares, respectively compared to $148,184 or $11.91 per basic and diluted share and $121,561 or $9.76 per basic and diluted share, respectively for the nine and three months ended September 30, 2011. The decrease in net loss for the nine and three months ended September 30, 2012 compared to the same periods in 2011 was primarily due to significantly decreased land impairment charges, and also due to decreased losses from our two homebuilding segments.

Combined operating loss from active adult communities and primary residential homebuilding was $11,977 and $5,510 for the nine and three months ended September 30, 2012, respectively as compared to $47,620 and $39,956 for the same periods in 2011. The decrease in net loss for the nine and three months ended September 30, 2012 compared to the same periods in 2011 was primarily attributable to decreased segment impairment losses, increased home closings and reduced divisional overhead in 2012 versus 2011.

Revenues from active adult operations increased $1,206 or 4% and decreased $1,418 or 13% for the nine and three months ended September 30, 2012, respectively, compared to the same periods in 2011. Expenses from active adult operations increased $4,510 or 13% and $2,078 or 16%, respectively, for the nine and three months ended September 30, 2012 compared to the same periods in 2011. The increase in revenues for the nine months ended September 30, 2012 as compared to the same periods last year is primarily attributable to increased closings and a change in mix of homes closed, offset in part by reduced revenues from amenities in 2012 due to the outsourcing of our golf and food and beverage operations at Solivita. The increase in expenses for the nine and three months ended September 30, 2012 is attributable to increased closings, increased impairment charges, and a change in the mix of homes closed, specifically at CantaMia, offset in part by reduced expenses from amenities due to the outsourcing of operations at Solivita. During the nine and three months ended September 30, 2012, we recorded impairment charges in our active adult operations of approximately $1,525 and $807 compared to approximately $1,125 and $128 for the nine and three months ended September 30, 2011 from homes completed or under construction. The average sales price on closings from active adult homebuilding operations during the nine and three months ended September 30, 2012 was $240 and $227, respectively, compared to $229 and $246, respectively, during the same period in 2011.

The average contribution margin (excluding impairment charges) on closings from active adult homebuilding operations during the nine and three months ended September 30, 2012 was approximately 13% and 10%, respectively, compared to approximately 17% and 15% during the same periods in 2011. The decrease in average contribution margins is generally attributable to a change in mix of homes closed. Specifically, in the first nine months of 2012 the mix of homes closed at CantaMia and Seasons generated a smaller profit margin than the mix closed in the same period in 2011. Although the average revenues per unit at these two communities increased in the first nine months of 2012 as compared to the same period in 2011, the cost of sales as a percentage of revenues increased as well. Offsetting these decreases in average contribution margins were improved margins from Solivita. During 2011, we re-engineered the current housing product at Solivita to make the homes more cost efficient. The result of this, coupled with increases in the average closing price per unit, generated higher operating margins at Solivita in the first nine months of 2012 than in the first nine months of 2011. Included in the results from active adult operations are divisional overhead allocated among several communities and our amenity operations.

Revenues from primary residential operations increased $13,621 or 140% and $7,484 or 266% for the nine and three months ended September 30, 2012, . . .