Exhibit 10.7

Prepared by, and after recording return to:

Bernice H. Cilley, Esquire

Troutman Sanders LLP

Post Office Box 1122

Richmond, Virginia 23218-1122

 

I certify this to be a true and exact copy of the original. By:  

LOGO [g316837st_098.jpg]

MULTIFAMILY MORTGAGE,

ASSIGNMENT OF RENTS

AND SECURITY AGREEMENT

(OKLAHOMA – REVISION DATE 03-31-2008)

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Freddie Mac Loan No. 981199259

Spring Creek of Edmond

MULTIFAMILY MORTGAGE,

ASSIGNMENT OF RENTS

AND SECURITY AGREEMENT

(OKLAHOMA – REVISION DATE 03-31-2008)

THIS MULTIFAMILY MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (the
“Instrument”) is made as of the 31st day of January, 2011, between WC/TP SPRING
CREEK, LLC, a limited liability company organized and existing under the laws of
Delaware, whose address is 8111 Preston Road, Suite 715, Dallas, Texas 75225, as
mortgagor (“Borrower”), and HOLLIDAY FENOGLIO FOWLER, L.P., a limited
partnership organized and existing under the laws of Texas, whose address is 9
Greenway Plaza, Suite 700, Houston, Texas 77046, as mortgagee (“Lender”).
Borrower’s organizational identification number, if applicable, is 4486082.

Borrower is indebted to Lender in the principal amount of $14,100,000.00, as
evidenced by Borrower’s Multifamily Note payable to Lender dated as of the date
of this Instrument, and maturing on February 1, 2018 (the “Maturity Date”).

TO SECURE TO LENDER the repayment of the Indebtedness, and all renewals,
extensions and modifications of the Indebtedness, and the performance of the
covenants and agreements of Borrower contained in the Loan Documents, Borrower
mortgages, warrants, grants, conveys and assigns to Lender, with power of sale,
the Mortgaged Property, including the Land located in the County of Oklahoma,,
State of Oklahoma, and described in Exhibit A attached to this Instrument.

Borrower represents and warrants that Borrower is lawfully seized of the
Mortgaged Property and has the right, power and authority to grant, convey and
assign the Mortgaged Property, and that the Mortgaged Property is unencumbered
except as shown on the schedule of exceptions to coverage in the title policy
issued to and accepted by Lender contemporaneously with the execution and
recordation of this Instrument and insuring Lender’s interest in the Mortgaged
Property (the “Schedule of Title Exceptions”). Borrower covenants that Borrower
will warrant and defend generally the title to the Mortgaged Property against
all claims and demands, subject to any easements and restrictions listed in the
Schedule of Title Exceptions.

UNIFORM COVENANTS – CME

REVISION DATE 11-23-2010

Covenants. In consideration of the mutual promises set forth in this Instrument,
Borrower and Lender covenant and agree as follows:

1. DEFINITIONS. The following terms, when used in this Instrument (including
when used in the above recitals), shall have the following meanings:

(a) “Affiliate” of any Person means (i) any other Person which, directly or
indirectly, is in Control of, is Controlled by or is under common Control with,
such Person; (ii) any other Person who is a director or officer of (A) such
Person, (B) any subsidiary of such Person, or (C) any Person described in clause
(i) above; or (iii) any corporation, limited liability company or partnership
which has as a director any Person described in subsection (ii) above.

 

 

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(b) “Approved Seller/Servicer” is defined in Section 43(b).

(c) “Assignment of Management Agreement” means Assignment of Management
Agreement and Subordination of Management Fee of even date herewith among
Borrower, Lender and Property Manager, including all schedules, riders, allonges
and addenda, as such Assignment of Management Agreement may be amended from time
to time.

(d) “Attorneys’ Fees and Costs” means (i) fees and out of pocket costs of
Lender’s and Loan Servicer’s attorneys, as applicable, including costs of
Lender’s and Loan Servicer’s in-house counsel, support staff costs, costs of
preparing for litigation, computerized research, telephone and facsimile
transmission expenses, mileage, deposition costs, postage, duplicating, process
service, videotaping and similar costs and expenses; (ii) costs and fees of
expert witnesses, including appraisers; (iii) investigatory fees; and (iv) the
costs for any opinion required by Lender pursuant to the terms of the Loan
Documents.

(e) “Borrower” means all entities identified as “Borrower” in the first
paragraph of this Instrument, together with their successors and assigns.

(f) “Business Day” means any day other than a Saturday, a Sunday or any other
day on which Lender or the national banking associations are not open for
business.

(g) “Claim” is defined in Section 18(1).

(h) “Collateral Agreement” means any separate agreement between Borrower and
Lender for the purpose of establishing replacement reserves for the Mortgaged
Property, establishing a fund to assure the completion of repairs or
improvements specified in that agreement, or assuring reduction of the
outstanding principal balance of the Indebtedness if the occupancy of or income
from the Mortgaged Property does not increase to a level specified in that
agreement, or any other agreement or agreements between Borrower and Lender
which provide for the establishment of any other fund, reserve or account.

(i) “Condemnation” is defined in Section 20(a).

(j) “Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person whether
through ownership of voting securities, beneficial interests, by contract or
otherwise. The definition is to be construed to apply equally to variations of
the word “Control,” including “Controlled,” “Controlling” or “Controlled by.”

(k) “Controlling Entity” means an entity which, directly or indirectly through
one or more intermediaries, (i) owns or Controls a general partnership interest
or a Controlling Interest of the limited partnership interests in Borrower (if
Borrower is a partnership), (ii) is a Manager of Borrower or owns a Controlling
Interest in a manager of Borrower or a Controlling Interest of the ownership or
membership interests in Borrower (if Borrower is a limited liability company),
or (iii) owns or Controls a Controlling Interest of any class of voting stock of
Borrower (if Borrower is a corporation). The SPE Equity Owner, if applicable,
shall be considered a Controlling Entity for purposes of this definition.

 

 

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(l) “Controlling Interest” means (i) 50 percent or more of the direct or
indirect ownership interests in an entity, or (ii) a percentage ownership
interest in an entity of less than 50 percent, if the owner(s) of that interest
actually Control(s) the business and affairs of the entity without the
requirement of consent of any other party.

(m) “Cut-off Date” is defined in the Note.

(n) “Defeasance” is defined in Section 44.

(o) “Defeasance Closing Date” is defined in Section 44(b).

(p) “Defeasance Collateral” means (i) a Freddie Mac Debt Security, (ii) a Fannie
Mae Debt Security, (iii) U.S. Treasury Obligations, or (iv) FHLB Obligations.

(q) “Defeasance Date” means the second (2nd) anniversary of the “startup date”
of the last REMIC within the meaning of Section 860G(a)(9) of the Tax Code which
holds all or any portion of the Loan.

(r) “Defeasance Fee” is defined in Section 44(c).

(s) “Defeasance Notice” is defined in Section 44(b).

(t) “Defeasance Period” is defined in the Note.

(u) “Disclosure Document” is defined in Section 39.

(v) “Eligible Account” means an identifiable account which is separate from all
other funds held by the holding institution that is either (i) an account or
accounts maintained with the corporate trust department of a federal or
state-chartered depository institution or trust company which complies with the
definition of Eligible Institution or (ii) a segregated trust account or
accounts maintained with the corporate trust department of a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution or trust
company is subject to regulations substantially similar to 12 C.F.R. §9.10(b),
having in either case a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal and state authority. An
Eligible Account will not be evidenced by a certificate of deposit, passbook or
other instrument.

(w) “Eligible Institution” means a federal or state chartered depository
institution or trust company insured by the Federal Deposit Insurance
Corporation, the short term unsecured debt obligations or commercial paper of
which are rated at least A-3 by Standard & Poor’s Ratings Services, a division
of The McGraw-Hill Companies, Inc., P-3 by Moody’s Investors Service, Inc. and
F-3 by Fitch, Inc. in the case of accounts in which funds are held for thirty
(30) days or less or, in the case of letters of credit or accounts in which
funds are held for more than thirty (30) days, the long term unsecured debt
obligations of which are rated at least “A” by Fitch, Inc. and Standard & Poor’s
Ratings Services, a division of The McGraw-Hill Companies, Inc., and “A2” by
Moody’s Investors Service, Inc. If at any time an Eligible Institution does not
meet the required rating, the Loan Servicer must move the Eligible Account
within thirty (30) days of such event to an appropriately rated Eligible
Institution.

(x) “Environmental Inspections” is defined in Section 18(g).

 

 

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(y) “Environmental Permit” means any permit, license, or other authorization
issued under any Hazardous Materials Law with respect to any activities or
businesses conducted on or in relation to the Mortgaged Property.

(z) “ERISA” is defined in Section 48(d).

(aa) “Event of Default” means the occurrence of any event listed in Section 22.

(bb) “Fannie Mae Debt Security” means any non-callable bond, debenture, note, or
other similar debt obligation issued by Federal National Mortgage Association.

(cc) “FHLB Obligations” mean direct, non-callable and non-redeemable securities
issued, or fully insured as to payment, by any consolidated bank that is a
member of the Federal Home Loan Banks.

(dd) “First Mortgage” is defined in Section 43(b).

(ee) “Fixtures” means all property owned by Borrower which is so attached to the
Land or the Improvements as to constitute a fixture under applicable law,
including: machinery, equipment, engines, boilers, incinerators, installed
building materials; systems and equipment for the purpose of supplying or
distributing heating, cooling, electricity, gas, water, air, or light; antennas,
cable, wiring and conduits used in connection with radio, television, security,
fire prevention, or fire detection or otherwise used to carry electronic
signals; telephone systems and equipment; elevators and related machinery and
equipment; fire detection, prevention and extinguishing systems and apparatus;
security and access control systems and apparatus; plumbing systems; water
heaters, ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage
disposers, washers, dryers and other appliances; light fixtures, awnings, storm
windows and storm doors; pictures, screens, blinds, shades, curtains and curtain
rods; mirrors; cabinets, paneling, rugs and floor and wall coverings; fences,
trees and plants; swimming pools; and exercise equipment.

(ff) “Freddie Mac” is defined in Section 43(a).

(gg) “Freddie Mac Debt Security” means any non-callable bond, debenture, note,
or other similar debt obligation issued by Freddie Mac.

(hh) “Governmental Authority” means any board, commission, department or body of
any municipal, county, state or federal governmental unit, or any subdivision of
any of them, that has or acquires jurisdiction over the Mortgaged Property or
the use, operation or improvement of the Mortgaged Property or over the
Borrower.

(ii) “Hazard Insurance” is defined in Section 19.

(jj) “Hazardous Materials” means petroleum and petroleum products and compounds
containing them, including gasoline, diesel fuel and oil; explosives; flammable
materials; radioactive materials; polychlorinated biphenyls (“PCBs”) and
compounds containing them; lead and lead-based paint; asbestos or asbestos
containing materials in any form that is or could become friable; underground or
above-ground storage tanks, whether empty or containing any substance; any
substance the presence of which on the Mortgaged Property is prohibited by any
federal, state or local authority; any substance that requires special handling
and any other material or substance now or in the future that (i) is defined as
a “hazardous substance,”

 

 

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“hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,”
“contaminant,” or “pollutant” by or within the meaning of any Hazardous
Materials Law, or (ii) is regulated in any way by or within the meaning of any
Hazardous Materials Law.

(kk) “Hazardous Materials Laws” means all federal, state, and local laws,
ordinances and regulations and standards, rules, policies and other governmental
requirements, administrative rulings and court judgments and decrees in effect
now or in the future and including all amendments, that relate to Hazardous
Materials or the protection of human health or the environment and apply to
Borrower or to the Mortgaged Property. Hazardous Materials Laws include, but are
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601, et seq., the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., the Toxic Substance
Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water Act, 33 U.S.C.
Section 1251, et seq., and the Hazardous Materials Transportation Act, 49 U.S.C.
Section 5101, et seq., and their state analogs.

(ll) “Impositions” and “Imposition Deposits” are defined in Section 7(a).

(mm) “Improvements” means the buildings, structures, improvements, and
alterations now constructed or at any time in the future constructed or placed
upon the Land, including any future replacements and additions.

(nn) “Indebtedness” means the principal of, interest at the fixed or variable
rate set forth in the Note on, and all other amounts due at any time under, the
Note, this Instrument or any other Loan Document, including prepayment premiums,
late charges, default interest, and advances as provided in Section 12 to
protect the security of this Instrument.

(oo) “Indemnitees” is defined in Section 18(j).

(pp) “Initial Owners” means, with respect to Borrower or any other entity, the
Persons that (i) on the date of the Note, or (ii) on the date of a Transfer to
which Lender has consented, own in the aggregate 100 percent of the ownership
interests in Borrower or that entity.

(qq) “Intercreditor Agreement” is defined in Section 43(b).

(rr) “Issuer Group” is defined in Section 47.

(ss) “Issuer Person” is defined in Section 47.

(tt) “Junior Lender” is defined in Section 43(e).

(uu) “Land” means the land described in Exhibit A.

(w) “Leases” means all present and future leases, subleases, licenses,
concessions or grants or other possessory interests now or hereafter in force,
whether oral or written, covering or affecting the Mortgaged Property, or any
portion of the Mortgaged Property (including proprietary leases or occupancy
agreements if Borrower is a cooperative housing corporation), and all
modifications, extensions or renewals.

(ww) “Lender” means the entity identified as “Lender” in the first paragraph of
this Instrument, or any subsequent holder of the Note.

 

 

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(xx) “Lien” is defined in Section 16.

(yy) “Loan” means the loan evidenced by the Note.

(zz) “Loan Documents” means the Note, this Instrument, the Assignment of
Management Agreement, all guaranties, all indemnity agreements, all Collateral
Agreements, O&M Programs, the MMP and any other documents now or in the future
executed by Borrower, any guarantor or any other Person in connection with the
Loan evidenced by the Note, as such documents may be amended from time to time.

(aaa) “Loan Servicer” means the entity that from time to time is designated by
Lender or its designee to collect payments and deposits and receive Notices
under the Note, this Instrument and any other Loan Document, and otherwise to
service the Loan evidenced by the Note for the benefit of Lender. Unless
Borrower receives Notice to the contrary, the Loan Servicer is the entity
identified as “Lender” in the first paragraph of this Instrument.

(bbb) “Lockout Period” is defined in the Note.

(ccc) “Manager” or “Managers” means a Person who is named or designated as a
manager or managing member or otherwise acts in the capacity of a manager or
managing member of a limited liability company in a limited liability company
agreement or similar instrument under which the limited liability company is
formed or operated.

(ddd) “Material Adverse Effect” is defined in Section 48(f).

(eee) “MMP” means a moisture management plan to control water intrusion and
prevent the development of Mold or moisture at the Mortgaged Property throughout
the term of this Instrument. At a minimum, the MMP must contain a provision for
(i) staff training, (ii) information to be provided to tenants,
(iii) documentation of the plan, (iv) the appropriate protocol for incident
response and remediation and (v) routine, scheduled inspections of common space
and unit interiors.

(fff) “Mold” means mold, fungus, microbial contamination or pathogenic
organisms.

(ggg) “Mortgaged Property” means all of Borrower’s present and future right,
title and interest in and to all of the following:

 

  (i) the Land;

 

  (ii) the Improvements;

 

  (iii) the Fixtures;

 

  (iv) the Personalty;

 

  (v) all current and future rights, including air rights, development rights,
zoning rights and other similar rights or interests, easements, tenements,
rights of way, strips and gores of land, streets, alleys, roads, sewer rights,
waters, watercourses, and appurtenances related to or benefiting the Land or the
Improvements, or both, and all rights-of-way, streets, alleys and roads which
may have been or may in the future be vacated;

 

 

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  (vi) all proceeds paid or to be paid by any insurer of the Land, the
Improvements, the Fixtures, the Personalty or any other part of the Mortgaged
Properly, whether or not Borrower obtained the insurance pursuant to Lender’s
requirement;

 

  (vii) all awards, payments and other compensation made or to be made by any
municipal, state or federal authority with respect to the Land, the
Improvements, the Fixtures, the Personalty or any other part of the Mortgaged
Property, including any awards or settlements resulting from condemnation
proceedings or the total or partial taking of the Land, the Improvements, the
Fixtures, the Personalty or any other part of the Mortgaged Property under the
power of eminent domain or otherwise and including any conveyance in lieu
thereof;

 

  (viii) all contracts, options and other agreements for the sale of the Land,
the Improvements, the Fixtures, the Personalty or any other part of the
Mortgaged Property entered into by Borrower now or in the future, including cash
or securities deposited to secure performance by parties of their obligations;

 

  (ix) all proceeds from the conversion, voluntary or involuntary, of any of the
above into cash or liquidated claims, and the right to collect such proceeds;

 

  (x) all Rents and Leases;

 

  (xi) all earnings, royalties, accounts receivable, issues and profits from the
Land, the Improvements or any other part of the Mortgaged Property, and all
undisbursed proceeds of the Loan secured by this Instrument;

 

  (xii) all Imposition Deposits;

 

  (xiii) all refunds or rebates of Impositions by any municipal, state or
federal authority or insurance company (other than refunds applicable to periods
before the real property tax year in which this Instrument is dated);

 

  (xiv) all tenant security deposits which have not been forfeited by any tenant
under any Lease and any bond or other security in lieu of such deposits; and

 

  (xv) all names under or by which any of the above Mortgaged Property may be
operated or known, and all trademarks, trade names, and goodwill relating to any
of the Mortgaged Property.

(hhh) “New Commercial Lease” is defined in Section 4(f).

(iii) “Note” means the Multifamily Note described on page 1 of this Instrument,
including all schedules, riders, allonges and addenda, as such Multifamily Note
may be amended from time to time.

(jjj) “Notice” is defined in Section 31(a).

 

 

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(kkk) “O&M Program” is defined in Section 18(d).

(lll) “Person” means any natural person, sole proprietorship, corporation,
general partnership, limited partnership, limited liability company, limited
liability limited partnership, joint venture, association, joint stock company,
bank, trust, estate, unincorporated organization, any federal, state, county or
municipal government (or any agency or political subdivision thereof), endowment
fund or any other form of entity.

(mmm) “Personalty” means all:

 

  (i) accounts (including deposit accounts) of Borrower related to the Mortgaged
Property;

 

  (ii) equipment and inventory owned by Borrower, which are used now or in the
future in connection with the ownership, management or operation of the Land or
Improvements or are located on the Land or Improvements, including furniture,
furnishings, machinery, building materials, goods, supplies, tools, books,
records (whether in written or electronic form), and computer equipment
(hardware and software);

 

  (iii) other tangible personal property owned by Borrower which is used now or
in the future in connection with the ownership, management or operation of the
Land or Improvements or is located on the Land or in the Improvements, including
ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage disposers,
washers, dryers and other appliances (other than Fixtures);

 

  (iv) any operating agreements relating to the Land or the Improvements;

 

  (v) any surveys, plans and specifications and contracts for architectural,
engineering and construction services relating to the Land or the Improvements;

 

  (vi) all other intangible property, general intangibles and rights relating to
the operation of, or used in connection with, the Land or the Improvements,
including all governmental permits relating to any activities on the Land and
including subsidy or similar payments received from any sources, including a
governmental authority; and

 

  (vii) any rights of Borrower in or under letters of credit.

(nnn) “Pledge Agreement” is defined in Section 44(f).

(ooo) “Preapproved Transfer” is defined in Section 21(c).

(ppp) “Prior Lien” is defined in Section 12.

(qqq) “Proceeding” means, whether voluntary or involuntary, any case, proceeding
or other action against Borrower or any SPE Equity Owner under any existing or
future law of any jurisdiction relating to bankruptcy, insolvency,
reorganization or relief of debtors.

 

 

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(rrr) “Prohibited Activities or Conditions” is defined in Section 18(a).

(sss) “Property Jurisdiction” is defined in Section 30(a).

(ttt) “Property Manager” means WillMax Capital Management Inc., a Texas
corporation.

(uuu) “Rating Agencies” means Fitch, Inc.; Moody’s Investors Service, Inc.; or
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., or any successor entity of the foregoing, or any other nationally
recognized statistical rating organization.

(vvv) “Release Instruments” is defined in Section 44(f).

(www) “Remedial Work” is defined in Section 18(h).

(xxx) “Rent Schedule” means a written schedule for the Mortgaged Property
showing the name of each tenant, and for each tenant, the space occupied, the
lease expiration date, the rent payable for the current month, the date through
which rent has been paid, and any related information requested by Lender.

(yyy) “Rents” means all rents (whether from residential or non-residential
space), revenues and other income of the Land or the Improvements, parking fees,
laundry and vending machine income and fees and charges for food, health care
and other services provided at the Mortgaged Property, whether now due, past
due, or to become due, and deposits forfeited by tenants, and, if Borrower is a
cooperative housing corporation or association, maintenance fees, charges or
assessments payable by shareholders or residents under proprietary leases or
occupancy agreements, whether now due, past due, or to become due.

(zzz) “Required DSCR” is defined in Section 43(b).

(aaaa) “Required LTV” is defined in Section 43(b).

(bbbb) “Restoration” is defined in Section 19(f).

(cccc) “Scheduled Debt Payments” is defined in Section 44(g).

(dddd) “Secondary Market Transaction” means (a) any sale or assignment of this
Instrument, the Note and the other Loan Documents to one or more investors as a
whole loan; (b) a participation of the Loan to one or more investors; (c) any
deposit of this Instrument, the Note and the other Loan Documents with a trust
or other entity which may sell certificates or other instruments to investors
evidencing an ownership interest in the assets of such trust or other entity; or
(d) any other sale, assignment or transfer of the Loan or any interest therein
to one or more investors.

(eeee) “Securities Liabilities” is defined in Section 47.

(ffff) “Securitization” means when the Note or any portion of the Note is
assigned to a REMIC trust.

(gggg) “Servicing Arrangement” is defined in Section 36(b).

 

 

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(hhhh) “Single Purpose Entity” is defined in Section 33(b).

(iiii) “SPE Equity Owner” is NOT APPLICABLE-Borrower shall not be required to
maintain an SPE Equity Owner in its organizational structure during the term of
the Loan and all references to SPE Equity Owner in this Instrument and in the
Note shall be of no force or effect.

(jjjj) “Successor Borrower” is defined in Section 44(h).

(kkkk) “Supplemental Mortgage” is defined in Section 43(b).

(llll) “Supplemental Mortgage Product” is defined in Section 43(a).

(mmmm) “Tax Code” means the Internal Revenue Code of the United States.

(nnnn) “Taxes” means all taxes, assessments, vault rentals and other charges, if
any, whether general, special or otherwise, including all assessments for
schools, public betterments and general or local improvements, which are levied,
assessed or imposed by any public authority or quasi-public authority, and
which, if not paid, will become a lien on the Land or the Improvements.

(oooo) “Third Party Information” is defined in Section 47.

(pppp) “Transfer” is defined in Section 21.

(qqqq) “Transfer and Assumption Agreement” is defined in Section 44(f).

(rrrr) “UCC Collateral” is defined in Section 2.

(ssss) “Underwriter Group” is defined in Section 47.

(tttt) “U.S. Treasury Obligations” means direct, non-callable and non-redeemable
securities issued, or fully insured as to payment, by the United States of
America.

2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.

(a) This Instrument is also a security agreement under the Uniform Commercial
Code for any of the Mortgaged Property which, under applicable law, may be
subjected to a security interest under the Uniform Commercial Code, whether such
Mortgaged Property is owned now or acquired in the future, and all products and
cash and non-cash proceeds thereof (collectively, “UCC Collateral”), and
Borrower hereby grants to Lender a security interest in the UCC Collateral.
Borrower hereby authorizes Lender to prepare and file financing statements,
continuation statements and financing statement amendments in such form as
Lender may require to perfect or continue the perfection of this security
interest and Borrower agrees, if Lender so requests, to execute and deliver to
Lender such financing statements, continuation statements and amendments.
Borrower shall pay all filing costs and all costs and expenses of any record
searches for financing statements and/or amendments that Lender may require.
Without the prior written consent of Lender, Borrower shall not create or permit
to exist any other lien or security interest in any of the UCC Collateral.

(b) Unless Borrower gives Notice to Lender within 30 days after the occurrence
of any of the following, and executes and delivers to Lender modifications or
supplements of this

 

 

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Instrument (and any financing statement which may be filed in connection with
this Instrument) as Lender may require, Borrower shall not (i) change its name,
identity, structure or jurisdiction of organization; (ii) change the location of
its place of business (or chief executive office if more than one place of
business); or (iii) add to or change any location at which any of the Mortgaged
Property is stored, held or located.

(c) If an Event of Default has occurred and is continuing, Lender shall have the
remedies of a secured party under the Uniform Commercial Code, in addition to
all remedies provided by this Instrument or existing under applicable law. In
exercising any remedies, Lender may exercise its remedies against the UCC
Collateral separately or together, and in any order, without in any way
affecting the availability of Lender’s other remedies.

(d) This Instrument constitutes a financing statement with respect to any part
of the Mortgaged Property that is or may become a Fixture, if permitted by
applicable law.

3. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION.

(a) As part of the consideration for the Indebtedness, Borrower absolutely and
unconditionally assigns and transfers to Lender all Rents. It is the intention
of Borrower to establish a present, absolute and irrevocable transfer and
assignment to Lender of all Rents and to authorize and empower Lender to collect
and receive all Rents without the necessity of further action on the part of
Borrower. Promptly upon request by Lender, Borrower agrees to execute and
deliver such further assignments as Lender may from time to time require.
Borrower and Lender intend this assignment of Rents to be immediately effective
and to constitute an absolute present assignment and not an assignment for
additional security only. For purposes of giving effect to this absolute
assignment of Rents, and for no other purpose, Rents shall not be deemed to be a
part of the Mortgaged Property. However, if this present, absolute and
unconditional assignment of Rents is not enforceable by its terms under the laws
of the Property Jurisdiction, then the Rents shall be included as a part of the
Mortgaged Property and it is the intention of the Borrower that in this
circumstance this Instrument create and perfect a lien on Rents in favor of
Lender, which lien shall be effective as of the date of this Instrument.

(b) After the occurrence of an Event of Default, and during the continuance of
such Event of Default, Borrower authorizes Lender to collect, sue for and
compromise Rents and directs each tenant of the Mortgaged Property to pay all
Rents to, or as directed by, Lender. However, until the occurrence of an Event
of Default, Lender hereby grants to Borrower a revocable license to collect and
receive all Rents, to hold all Rents in trust for the benefit of Lender and to
apply all Rents to pay the installments of interest and principal then due and
payable under the Note and the other amounts then due and payable under the
other Loan Documents, including Imposition Deposits, and to pay the current
costs and expenses of managing, operating and maintaining the Mortgaged
Property, including utilities, Taxes and insurance premiums (to the extent not
included in Imposition Deposits), tenant improvements and other capital
expenditures. So long as no Event of Default has occurred and is continuing, the
Rents remaining after application pursuant to the preceding sentence may be
retained by Borrower free and clear of, and released from, Lender’s rights with
respect to Rents under this Instrument. From and after the occurrence of an
Event of Default and during the continuance of such Event of Default, and
without the necessity of Lender entering upon and taking and maintaining control
of the Mortgaged Property directly, or by a receiver, Borrower’s license to
collect Rents shall automatically terminate and Lender shall without Notice be
entitled to all Rents as they become due and payable, including Rents then due
and unpaid. Borrower shall pay

 

 

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to Lender upon demand all Rents to which Lender is entitled. At any time on or
after the date of Lender’s demand for Rents, (i) Lender may give, and Borrower
hereby irrevocably authorizes Lender to give, notice to all tenants of the
Mortgaged Property instructing them to pay all Rents to Lender, (ii) no tenant
shall be obligated to inquire further as to the occurrence or continuance of an
Event of Default, and (iii) no tenant shall be obligated to pay to Borrower any
amounts which are actually paid to Lender in response to such a notice. Any such
notice by Lender shall be delivered to each tenant personally, by mail or by
delivering such demand to each rental unit. Borrower shall not interfere with
and shall cooperate with Lender’s collection of such Rents.

(c) Borrower represents and warrants to Lender that Borrower has not executed
any prior assignment of Rents (other than an assignment of Rents securing any
prior indebtedness that is being assigned to Lender, or paid off and discharged
with the proceeds of the Loan evidenced by the Note), that Borrower has not
performed, and Borrower covenants and agrees that it will not perform, any acts
and has not executed, and shall not execute, any instrument which would prevent
Lender from exercising its rights under this Section 3, and that at the time of
execution of this Instrument there has been no anticipation or prepayment of any
Rents for more than two months prior to the due dates of such Rents. Borrower
shall not collect or accept payment of any Rents more than two months prior to
the due dates of such Rents.

(d) If an Event of Default has occurred and is continuing, Lender may,
regardless of the adequacy of Lender’s security or the solvency of Borrower and
even in the absence of waste, enter upon and take and maintain full control of
the Mortgaged Property in order to perform all acts that Lender in its
discretion determines to be necessary or desirable for the operation and
maintenance of the Mortgaged Property, including the execution, cancellation or
modification of Leases, the collection of all Rents, the making of repairs to
the Mortgaged Property and the execution or termination of contracts providing
for the management, operation or maintenance of the Mortgaged Property, for the
purposes of enforcing the assignment of Rents pursuant to Section 3(a),
protecting the Mortgaged Property or the security of this Instrument, or for
such other purposes as Lender in its discretion may deem necessary or desirable.
Alternatively, if an Event of Default has occurred and is continuing, regardless
of the adequacy of Lender’s security, without regard to Borrower’s solvency and
without the necessity of giving prior notice (oral or written) to Borrower,
Lender may apply to any court having jurisdiction for the appointment of a
receiver for the Mortgaged Property to take any or all of the actions set forth
in the preceding sentence. If Lender elects to seek the appointment of a
receiver for the Mortgaged Property at any time after an Event of Default has
occurred and is continuing, Borrower, by its execution of this Instrument,
expressly consents to the appointment of such receiver, including the
appointment of a receiver ex parte if permitted by applicable law. If Borrower
is a housing cooperative corporation or association, Borrower hereby agrees that
if a receiver is appointed, the order appointing the receiver may contain a
provision requiring the receiver to pay the installments of interest and
principal then due and payable under the Note and the other amounts then due and
payable under the other Loan Documents, including Imposition Deposits, it being
acknowledged and agreed that the Indebtedness is an obligation of the Borrower
and must be paid out of maintenance charges payable by the Borrower’s tenant
shareholders under their proprietary leases or occupancy agreements. Lender or
the receiver, as the case may be, shall be entitled to receive a reasonable fee
for managing the Mortgaged Property. Immediately upon appointment of a receiver
or immediately upon the Lender’s entering upon and taking possession and control
of the Mortgaged Property, Borrower shall surrender possession of the Mortgaged
Property to Lender or the receiver, as the case may be, and shall deliver to
Lender or the receiver, as the case may be, all documents, records (including
records on electronic or magnetic media), accounts, surveys, plans, and
specifications relating to the Mortgaged Property and all security deposits and
prepaid Rents. In the event Lender takes possession and control of the

 

 

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Mortgaged Property, Lender may exclude Borrower and its representatives from the
Mortgaged Property. Borrower acknowledges and agrees that the exercise by Lender
of any of the rights conferred under this Section 3 shall not be construed to
make Lender a mortgagee-in-possession of the Mortgaged Property so long as
Lender has not itself entered into actual possession of the Land and
Improvements.

(e) If Lender enters the Mortgaged Property, Lender shall be liable to account
only to Borrower and only for those Rents actually received. Except to the
extent of Lender’s gross negligence or willful misconduct, Lender shall not be
liable to Borrower, anyone claiming under or through Borrower or anyone having
an interest in the Mortgaged Property, by reason of any act or omission of
Lender under Section 3(d), and Borrower hereby releases and discharges Lender
from any such liability to the fullest extent permitted by law.

(f) If the Rents are not sufficient to meet the costs of taking control of and
managing the Mortgaged Property and collecting the Rents, any funds expended by
Lender for such purposes shall become an additional part of the Indebtedness as
provided in Section 12.

(g) Any entering upon and taking of control of the Mortgaged Property by Lender
or the receiver, as the case may be, and any application of Rents as provided in
this Instrument shall not cure or waive any Event of Default or invalidate any
other right or remedy of Lender under applicable law or provided for in this
Instrument.

4. ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.

(a) As part of the consideration for the Indebtedness, Borrower absolutely and
unconditionally assigns and transfers to Lender all of Borrower’s right, title
and interest in, to and under the Leases, including Borrower’s right, power and
authority to modify the terms of any such Lease, or extend or terminate any such
Lease. It is the intention of Borrower to establish a present, absolute and
irrevocable transfer and assignment to Lender of all of Borrower’s right, title
and interest in, to and under the Leases. Borrower and Lender intend this
assignment of the Leases to be immediately effective and to constitute an
absolute present assignment and not an assignment for additional security only.
For purposes of giving effect to this absolute assignment of the Leases, and for
no other purpose, the Leases shall not be deemed to be a part of the Mortgaged
Property. However, if this present, absolute and unconditional assignment of the
Leases is not enforceable by its terms under the laws of the Property
Jurisdiction, then the Leases shall be included as a part of the Mortgaged
Property and it is the intention of the Borrower that in this circumstance this
Instrument create and perfect a lien on the Leases in favor of Lender, which
lien shall be effective as of the date of this Instrument.

(b) Until Lender gives Notice to Borrower of Lender’s exercise of its rights
under this Section 4, Borrower shall have all rights, power and authority
granted to Borrower under any Lease (except as otherwise limited by this Section
or any other provision of this Instrument), including the right, power and
authority to modify the terms of any Lease or extend or terminate any Lease.
Upon the occurrence of an Event of Default, and during the continuance of such
Event of Default, the permission given to Borrower pursuant to the preceding
sentence to exercise all rights, power and authority under Leases shall
automatically terminate. Borrower shall comply with and observe Borrower’s
obligations under all Leases, including Borrower’s obligations pertaining to the
maintenance and disposition of tenant security deposits.

 

 

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(c) Borrower acknowledges and agrees that the exercise by Lender, either
directly or by a receiver, of any of the rights conferred under this Section 4
shall not be construed to make Lender a mortgagee-in-possession of the Mortgaged
Property so long as Lender has not itself entered into actual possession of the
Land and the Improvements. The acceptance by Lender of the assignment of the
Leases pursuant to Section 4(a) shall not at any time or in any event obligate
Lender to take any action under this Instrument or to expend any money or to
incur any expenses. Except to the extent of Lender’s gross negligence or willful
misconduct, Lender shall not be liable in any way for any injury or damage to
person or property sustained by any Person or Persons in or about the Mortgaged
Property. Prior to Lender’s actual entry into and taking possession of the
Mortgaged Property, Lender shall not (i) be obligated to perform any of the
terms, covenants and conditions contained in any Lease (or otherwise have any
obligation with respect to any Lease); (ii) be obligated to appear in or defend
any action or proceeding relating to the Lease or the Mortgaged Property; or
(iii) be responsible for the operation, control, care, management or repair of
the Mortgaged Property or any portion of the Mortgaged Property. The execution
of this Instrument by Borrower shall constitute conclusive evidence that all
responsibility for the operation, control, care, management and repair of the
Mortgaged Property is and shall be that of Borrower, prior to such actual entry
and taking of possession.

(d) Upon delivery of Notice by Lender to Borrower of Lender’s exercise of
Lender’s rights under this Section 4 at any time after the occurrence of an
Event of Default, and during the continuance of such Event of Default, and
without the necessity of Lender entering upon and taking and maintaining control
of the Mortgaged Property directly, by a receiver, or by any other manner or
proceeding permitted by the laws of the Property Jurisdiction, Lender
immediately shall have all rights, powers and authority granted to Borrower
under any Lease, including the right, power and authority to modify the terms of
any such Lease, or extend or terminate any such Lease.

(e) Borrower shall, promptly upon Lender’s request, deliver to Lender an
executed copy of each residential Lease then in effect. All Leases for
residential dwelling units shall be on forms approved by Lender, shall be for
initial terms of at least six months and not more than two years, and shall not
include options to purchase.

 

         (f)

(i)

Except as set forth below, Borrower shall not enter into a Lease for any portion
of the Mortgaged Property for non-residential use without the prior written
consent of Lender.

 

  (ii) Borrower shall not modify the terms of, or extend or terminate, any Lease
for non-residential use (including any Lease in existence on the date of this
Instrument) without the prior written consent of Lender; provided, however,
Lender’s consent shall not be required for the modification or extension of a
non-residential Lease if such modification or extension is on terms at least as
favorable to Borrower as those customary at that time in the applicable market
and the income from the extended or modified Lease will not be less than the
income received from the Lease as of the date of this Instrument.

 

  (iii) Lender’s consent shall not be required for Borrower to enter into a new
Lease for space occupied as of the date of this Instrument for non-residential
use (“New Commercial Lease”), provided that such New Commercial Lease satisfies
the following requirements:

 

 

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  (A) the aggregate of the income derived from the space leased by the New
Commercial Lease accounts for less than five percent (5%) of the gross income of
the Mortgaged Property on the date of this Instrument;

 

  (B) the tenant under the New Commercial Lease is not an Affiliate of the
Borrower or any guarantor;

 

  (C) terms of the New Commercial Lease are at least as favorable to Borrower as
those customary on the date of this Instrument in the applicable market;

 

  (D) the rents paid to the Borrower pursuant to the New Commercial Lease are
greater than or equal to the rents paid to Borrower pursuant to the Lease for
that portion of the Mortgaged Property that was in effect prior to the New
Commercial Lease; and

 

  (E) the New Commercial Lease must provide that the space may not be used or
operated, in whole or in part, for any of the following: (1) the operation of a
so-called “head shop” or other business devoted to the sale of articles or
merchandise normally used or associated with illegal or unlawful activities such
as, but not limited to, the sale of paraphernalia used in connection with
marijuana or controlled drugs or substances, (2) a gun shop, shooting gallery or
firearms range, (3) a so-called massage parlor or any business which sells,
rents or permits the viewing of so-called “adult” or pornographic materials such
as, but not limited to, adult magazines, books, movies, photographs, sexual
aids, sexual articles and sex paraphernalia, (4) for the sale or distribution of
any flammable liquids, gases or other Hazardous Materials as defined under this
Instrument, (5) an off-track betting parlor or arcade, (6) a liquor store or
other business whose primary business is the sale of alcoholic beverages for
off-site consumption, (7) a burlesque or strip club, or (8) any other illegal
activity.

 

  (iv) Borrower shall, without request by Lender, deliver a fully executed copy
of each non-residential Lease to Lender promptly after such Lease is signed.

 

  (v)

All non-residential Leases, regardless of whether Lender’s consent or approval
is required, including renewals or extensions of existing Leases, shall
specifically provide that (A) such Leases are subordinate to the lien of this
Instrument; (B) the tenant shall attorn to Lender and any purchaser at a
foreclosure sale, such attornment to be self-executing and effective upon
acquisition of title to the Mortgaged Property by any purchaser at a foreclosure
sale or by Lender in any manner; (C) the tenant agrees to execute such further
evidences of attornment as Lender or any purchaser at a foreclosure sale may
from time to time request; (D) the Lease shall not be terminated by foreclosure
or any other transfer of the Mortgaged Property; (E) after a foreclosure sale of
the Mortgaged Property, Lender or any other purchaser at such foreclosure sale
may, at Lender’s or such

 

 

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  purchaser’s option, accept or terminate such Lease; and (F) upon receipt of a
written request from Lender following the occurrence of an Event of Default, pay
all Rents payable under the Lease to Lender.

(g) Borrower shall not receive or accept Rent under any Lease (whether
residential or non-residential) for more than two months in advance.

(h) If Borrower is a cooperative housing corporation or association,
notwithstanding anything to the contrary contained in this subsection or in
Section 21, so long as Borrower remains a cooperative housing corporation or
association and is not in breach of any covenant of this Instrument, Lender
hereby consents to:

 

  (i) the execution of leases of apartments for a term in excess of two years
from Borrower to a tenant shareholder of Borrower, so long as such leases,
including proprietary leases, are and will remain subordinate to the lien of
this Instrument; and

 

  (ii) the surrender or termination of such leases of apartments where the
surrendered or terminated lease is immediately replaced or where the Borrower
makes its best efforts to secure such immediate replacement by a newly executed
lease of the same apartment to a tenant shareholder of the Borrower. However, no
consent is hereby given by Lender to any execution, surrender, termination or
assignment of a lease under terms that would waive or reduce the obligation of
the resulting tenant shareholder under such lease to pay cooperative assessments
in full when due or the obligation of the former tenant shareholder to pay any
unpaid portion of such assessments.

5. PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT
PREMIUM. Borrower shall pay the Indebtedness when due in accordance with the
terms of the Note and the other Loan Documents and shall perform, observe and
comply with all other provisions of the Note and the other Loan Documents.
Borrower shall pay a prepayment premium in connection with certain prepayments
of the Indebtedness, including a payment made after Lender’s exercise of any
right of acceleration of the Indebtedness, as provided in the Note.

6. EXCULPATION. Borrower’s personal liability for payment of the Indebtedness
and for performance of the other obligations to be performed by it under this
Instrument is limited in the manner, and to the extent, provided in the Note.

7. DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

(a) Unless this requirement is waived in writing by Lender, which waiver may be
contained in this Section 7(a), Borrower shall deposit with Lender on the day
monthly installments of principal or interest, or both, are due under the Note
(or on another day designated in writing by Lender), until the Indebtedness is
paid in full, an additional amount sufficient to accumulate with Lender the
entire sum required to pay, when due, the items marked “Collect” below. Lender
will not require the Borrower to make Imposition Deposits with respect to the
items marked “Deferred” below.

 

[Collect]  

   Hazard Insurance premiums or other insurance premiums required by Lender
under Section 19,

 

 

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[Collect] [Deferred]

[N/A] [Deferred]

  

Taxes,

water and sewer charges (that could become a lien on the Mortgaged Property),

ground rents,

assessments or other charges (that could become a lien on the Mortgaged
Property)

The amounts deposited under the preceding sentence are collectively referred to
in this Instrument as the “Imposition Deposits.” The obligations of Borrower for
which the Imposition Deposits are required are collectively referred to in this
Instrument as “Impositions.” The amount of the Imposition Deposits shall be
sufficient to enable Lender to pay each Imposition before the last date upon
which such payment may be made without any penalty or interest charge being
added. Lender shall maintain records indicating how much of the monthly
Imposition Deposits and how much of the aggregate Imposition Deposits held by
Lender are held for the purpose of paying Taxes, insurance premiums and each
other Imposition.

(b) Imposition Deposits shall be deposited in an Eligible Account at an Eligible
Institution (which may be Lender, if Lender is such an institution) and shall be
invested in “permitted investments” as then defined and required by the Rating
Agencies. Lender shall not be obligated to open additional accounts or deposit
Imposition Deposits in additional institutions when the amount of the Imposition
Deposits exceeds the maximum amount of the federal deposit insurance or
guaranty. Lender shall apply the Imposition Deposits to pay Impositions so long
as no Event of Default has occurred and is continuing. Unless applicable law
requires, Lender shall not be required to pay Borrower any interest, earnings or
profits on the Imposition Deposits. As additional security for all of Borrower’s
obligations under this Instrument and the other Loan Documents, Borrower hereby
pledges and grants to Lender a security interest in the Imposition Deposits and
all proceeds of, and all interest and dividends on, the Imposition Deposits. Any
amounts deposited with Lender under this Section 7 shall not be trust funds, nor
shall they operate to reduce the Indebtedness, unless applied by Lender for that
purpose under Section 7(e).

(c) If Lender receives a bill or invoice for an Imposition, Lender shall pay the
Imposition from the Imposition Deposits held by Lender. Lender shall have no
obligation to pay any Imposition to the extent it exceeds Imposition Deposits
then held by Lender. Lender may pay an Imposition according to any bill,
statement or estimate from the appropriate public office or insurance company
without inquiring into the accuracy of the bill, statement or estimate or into
the validity of the Imposition.

(d) If at any time the amount of the Imposition Deposits held by Lender for
payment of a specific Imposition exceeds the amount reasonably deemed necessary
by Lender, the excess shall be credited against future installments of
Imposition Deposits. If at any time the amount of the Imposition Deposits held
by Lender for payment of a specific Imposition is less than the amount
reasonably estimated by Lender to be necessary, Borrower shall pay to Lender the
amount of the deficiency within 15 days after Notice from Lender.

(e) If an Event of Default has occurred and is continuing, Lender may apply any
Imposition Deposits, in any amounts and in any order as Lender determines, in
Lender’s discretion, to pay any Impositions or as a credit against the
Indebtedness. Upon payment in full of the Indebtedness, Lender shall refund to
Borrower any Imposition Deposits held by Lender.

(f) If Lender does not collect an Imposition Deposit with respect to an
Imposition either marked “Deferred” in Section 7(a) or pursuant to a separate
written waiver by Lender, then

 

 

PAGE 17

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on or before the date each such Imposition is due, or on the date this
Instrument requires each such Imposition to be paid, Borrower must provide
Lender with proof of payment of each such Imposition for which Lender does not
require collection of Imposition Deposits. Lender may revoke its deferral or
waiver and require Borrower to deposit with Lender any or all of the Imposition
Deposits listed in Section 7(a), regardless of whether any such item is marked
“Deferred” in such section, upon Notice to Borrower, (i) if Borrower does not
timely pay any of the Impositions, (ii) if Borrower fails to provide timely
proof to Lender of such payment, or (iii) at any time during the existence of an
Event of Default.

(g) In the event of a Transfer prohibited by or requiring Lender’s approval
under Section 21, Lender’s waiver of the collection of any Imposition Deposit in
this Section 7 may be modified or rendered void by Lender at Lender’s option by
Notice to Borrower and the transferee(s) as a condition of Lender’s approval of
such Transfer.

8. COLLATERAL AGREEMENTS. Borrower shall deposit with Lender such amounts as may
be required by any Collateral Agreement and shall perform all other obligations
of Borrower under each Collateral Agreement.

9. APPLICATION OF PAYMENTS. If at any time Lender receives, from Borrower or
otherwise, any amount applicable to the Indebtedness which is less than all
amounts due and payable at such time, then Lender may apply that payment to
amounts then due and payable in any manner and in any order determined by
Lender, in Lender’s discretion. Neither Lender’s acceptance of an amount that is
less than all amounts then due and payable nor Lender’s application of such
payment in the manner authorized shall constitute or be deemed to constitute
either a waiver of the unpaid amounts or an accord and satisfaction.
Notwithstanding the application of any such amount to the Indebtedness,
Borrower’s obligations under this Instrument and the Note shall remain
unchanged.

10. COMPLIANCE WITH LAWS AND ORGANIZATIONAL DOCUMENTS.

(a) Borrower shall comply with all laws, ordinances, regulations and
requirements of any Governmental Authority and all recorded lawful covenants and
agreements relating to or affecting the Mortgaged Property, including all laws,
ordinances, regulations, requirements and covenants pertaining to health and
safety, construction of improvements on the Mortgaged Property, fair housing,
disability accommodation, zoning and land use, and Leases. Borrower also shall
comply with all applicable laws that pertain to the maintenance and disposition
of tenant security deposits.

(b) Borrower shall at all times maintain records sufficient to demonstrate
compliance with the provisions of this Section 10.

(c) Borrower shall take appropriate measures to prevent, and shall not engage in
or knowingly permit, any illegal activities at the Mortgaged Property that could
endanger tenants or visitors, result in damage to the Mortgaged Property, result
in forfeiture of the Mortgaged Property, or otherwise materially impair the lien
created by this Instrument or Lender’s interest in the Mortgaged Property.
Borrower represents and warrants to Lender that no portion of the Mortgaged
Property has been or will be purchased with the proceeds of any illegal
activity.

(d) Borrower shall at all times comply with all laws, regulations and
requirements of any Governmental Authority relating to Borrower’s formation,
continued existence and good standing in the Property Jurisdiction. Borrower
shall at all times comply with its organizational

 

 

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documents, including but not limited to its partnership agreement (if Borrower
is a partnership), its by-laws (if Borrower is a corporation or housing
cooperative corporation or association) or its operating agreement (if Borrower
is an limited liability company or tenancy-in-common). If Borrower is a housing
cooperative corporation or association, Borrower shall at all times maintain its
status as a “cooperative housing corporation” as such term is defined in
Section 216(b) of the Internal revenue Code of 1986, as amended, or any
successor statute thereto.

(e) Borrower represents and warrants that Borrower, any commercial tenant of the
Mortgaged Property and/or any operator of the Mortgaged Property were in
possession of all material licenses, permits and authorizations required for use
of the Mortgaged Property which were valid and in full force and effect as of
the date of this Instrument. Borrower warrants that it, any commercial tenant of
the Mortgaged Property and/or any operator of the Mortgaged Property shall
remain in material compliance with all material licenses, permits and other
legal requirements necessary and required to conduct its business.

11. USE OF PROPERTY. Unless required by applicable law, Borrower shall not
(a) allow changes in the use for which all or any part of the Mortgaged Property
is being used at the time this Instrument was executed, except for any change in
use approved by Lender, (b) convert any individual dwelling units or common
areas to commercial use, (c) initiate a change in the zoning classification of
the Mortgaged Property or acquiesce without Notice to and consent of Lender in a
change in the zoning classification of the Mortgaged Property, (d) establish any
condominium or cooperative regime with respect to the Mortgaged Property,
(e) combine all or any part of the Mortgaged Property with all or any part of a
tax parcel which is not part of the Mortgaged Property, or (f) subdivide or
otherwise split any tax parcel constituting all or any part of the Mortgaged
Property without the prior consent of Lender. The Mortgaged Property (x) permits
ingress and egress, (y) is served by public utilities and services generally
available in the surrounding community or otherwise appropriate for the use in
which the Mortgaged Property is currently being utilized, and (z) constitutes
one or more separate tax parcels or the Lender’s title policy contains one or
more endorsements with respect to the matters described in (x) or (z).
Notwithstanding anything contained in this Section to the contrary, if Borrower
is a housing cooperative corporation or association, Lender acknowledges and
consents to Borrower’s use of the Mortgaged Property as a housing cooperative.

12. PROTECTION OF LENDER’S SECURITY; INSTRUMENT SECURES FUTURE ADVANCES.

(a) If Borrower fails to perform any of its obligations under this Instrument or
any other Loan Document, or if any action or proceeding is commenced which
purports to affect the Mortgaged Property, Lender’s security or Lender’s rights
under this Instrument, including eminent domain, insolvency, code enforcement,
civil or criminal forfeiture, enforcement of Hazardous Materials Laws,
fraudulent conveyance or reorganizations or proceedings involving a bankrupt or
decedent, then Lender at Lender’s option may make such appearances, file such
documents, disburse such sums and take such actions as Lender reasonably deems
necessary to perform such obligations of Borrower and to protect Lender’s
interest, including (i) payment of Attorneys’ Fees and Costs, (ii) payment of
fees and out-of-pocket expenses of accountants, inspectors and consultants,
(iii) entry upon the Mortgaged Property to make repairs or secure the Mortgaged
Property, (iv) procurement of the insurance required by Section 19, (v) payment
of amounts which Borrower has failed to pay under Sections 15 and 17, and
(vi) advances made by Lender to pay, satisfy or discharge any obligation of
Borrower for the payment of money that is secured by a pre-existing mortgage,
deed of trust or other lien encumbering the Mortgaged Property (a “Prior Lien”).

 

 

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(b) Any amounts disbursed by Lender under this Section 12, or under any other
provision of this Instrument that treats such disbursement as being made under
this Section 12, shall be secured by this Instrument, shall be added to, and
become part of, the principal component of the Indebtedness, shall be
immediately due and payable and shall bear interest from the date of
disbursement until paid at the “Default Rate,” as defined in the Note.

(c) Nothing in this Section 12 shall require Lender to incur any expense or take
any action.

13. INSPECTION.

(a) Lender, its agents, representatives, and designees may make or cause to be
made entries upon and inspections of the Mortgaged Property (including
environmental inspections and tests) during normal business hours, or at any
other reasonable time, upon reasonable notice to Borrower if the inspection is
to include occupied residential units (which notice need not be in writing).
Notice to Borrower shall not be required in the case of an emergency, as
determined in Lender’s discretion, or when an Event of Default has occurred and
is continuing.

(b) If Lender determines that Mold has developed as a result of a water
intrusion event or leak, Lender, at Lender’s discretion, may require that a
professional inspector inspect the Mortgaged Property as frequently as Lender
determines is necessary until any issue with Mold and its cause(s) are resolved
to Lender’s satisfaction. Such inspection shall be limited to a visual and
olfactory inspection of the area that has experienced the Mold, water intrusion
event or leak. Borrower shall be responsible for the cost of such professional
inspection and any remediation deemed to be necessary as a result of the
professional inspection. After any issue with Mold, water intrusion or leaks is
remedied to Lender’s satisfaction, Lender shall not require a professional
inspection any more frequently than once every three years unless Lender is
otherwise aware of Mold as a result of a subsequent water intrusion event or
leak.

(c) If Lender or Loan Servicer determines not to conduct an annual inspection of
the Mortgaged Property, and in lieu thereof Lender requests a certification,
Borrower shall be prepared to provide and must actually provide to Lender a
factually correct certification each year that the annual inspection is waived
to the following effect:

Borrower has not received any written complaint, notice, letter or other written
communication from tenants, management agent or governmental authorities
regarding mold, fungus, microbial contamination or pathogenic organisms (“Mold”)
or any activity, condition, event or omission that causes or facilitates the
growth of Mold on or in any part of the Mortgaged Property or if Borrower has
received any such written complaint, notice, letter or other written
communication that Borrower has investigated and determined that no Mold
activity, condition or event exists or alternatively has fully and properly
remediated such activity, condition, event or omission in compliance with the
Moisture Management Plan for the Mortgaged Property.

If Borrower is unwilling or unable to provide such certification, Lender may
require a professional inspection of the Mortgaged Property at Borrower’s
expense.

 

 

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14. BOOKS AND RECORDS; FINANCIAL REPORTING.

(a) Borrower shall keep and maintain at all times at the Mortgaged Property or
the management agent’s office, and upon Lender’s request shall make available at
the Mortgaged Property (or, at Borrower’s option, at the management agent’s
office), complete and accurate books of account and records (including copies of
supporting bills and invoices) adequate to reflect correctly the operation of
the Mortgaged Property, in accordance with GAAP consistently applied (or such
other method which is reasonably acceptable to Lender), and copies of all
written contracts, Leases, and other instruments which affect the Mortgaged
Property. The books, records, contracts, Leases and other instruments shall be
subject to examination and inspection by Lender at any reasonable time.

(b) Borrower shall furnish to Lender each of the following within twenty-five
(25) days after the end of each calendar quarter prior to Securitization and
within thirty-five (35) days after the end of each calendar quarter after
Securitization:

 

  (i) a Rent Schedule dated no earlier than the date that is five (5) days prior
to the end of such quarter; and

 

  (ii) a statement of income and expenses for Borrower’s operation of the
Mortgaged Property either

 

  (A) for the twelve (12) month period ending upon the last day of such quarter,
or

 

  (B) if at the end of such quarter Borrower and any Affiliate of Borrower have
owner the Mortgaged Property for less than twelve (12) months, for the period
commencing with the acquisition of the Mortgaged Property by Borrower or its
Affiliates, and ending upon the last day of such quarter.

(c) Within ninety (90) days after the end of each fiscal year of Borrower,
Borrower shall furnish to Lender each of the following:

 

  (i) an annual statement of income and expenses for Borrower’s operation of the
Mortgaged Property for that fiscal year;

 

  (ii) a statement of changes in financial position of Borrower relating to the
Mortgaged Property for that fiscal year;

 

  (iii) a balance sheet showing all assets and liabilities of Borrower relating
to the Mortgaged Property as of the end of that fiscal year and a profit and
loss statement for Borrower; and

 

  (iv) an accounting of all security deposits held pursuant to all Leases,
including the name of the institution (if any) and the names and identification
numbers of the accounts (if any) in which such security deposits are held and
the name of the person to contact at such financial institution, along with any
authority or release necessary for Lender to access information regarding such
accounts.

 

 

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(d) Borrower shall furnish to Lender each of the following:

 

  (i) in addition to the requirements of Section 14(b), upon Lender’s request
prior to a Securitization, and thereafter upon Lender’s reasonable request, in
each case within twenty-five (25) days after the end of each month, a monthly
Rent Schedule and a monthly statement of income and expenses for Borrower’s
operation of the Mortgaged Property;

 

  (ii) upon Lender’s request prior to a Securitization, and thereafter upon
Lender’s reasonable request, in each case within ten (10) days after such
request, a statement that identifies all owners of any interest in Borrower and
any Controlling Entity and the interest held by each (unless Borrower or any
Controlling Entity is a publicly-traded entity in which case such statement of
ownership shall not be required), and if Borrower or a Controlling Entity is a
corporation, all officers and directors of Borrower and the Controlling Entity,
and if Borrower or a Controlling Entity is a limited liability company, all
Managers who are not members;

 

  (iii) copies of all tax returns filed by Borrower, within thirty (30) days
after the date of filing; and

 

  (iv) such other financial information or property management information
(including, without limitation, information on tenants under Leases to the
extent such information is available to Borrower, copies of bank account
statements from financial institutions where funds owned or controlled by
Borrower are maintained, and an accounting of security deposits) as may be
required by Lender from time to time.

(e) At any time upon Lender’s request, Borrower shall furnish to Lender a
monthly property management report for the Mortgaged Property, showing the
number of inquiries made and rental applications received from tenants or
prospective tenants and deposits received from tenants and any other information
requested by Lender. However, Lender shall not require the foregoing more
frequently than quarterly except when there has been an Event of Default and
such Event of Default is continuing, in which case Lender may require Borrower
to furnish the foregoing more frequently.

(f) A natural person having authority to bind Borrower (or the SPE Equity Owner
or guarantor, as applicable) shall certify each of the statements, schedules and
reports required by Sections 14(b) through 14(e) and 14(h) to be complete and
accurate. Each of the statements, schedules and reports required by Sections
14(b) through 14(e) and 14(h) shall be in such form and contain such detail as
Lender may reasonably require. Lender also may require that any of the
statements, schedules or reports listed in Section 14(b), 14(c) and
Section 14(d)(i) and (iv) be audited at Borrower’s expense by independent
certified public accountants acceptable to Lender, at any time when an Event of
Default has occurred and is continuing or at any time that Lender, in its
reasonable judgment, determines that audited financial statements are required
for an accurate assessment of the financial condition of Borrower or of the
Mortgaged Property.

(g) If Borrower fails to provide in a timely manner the statements, schedules
and reports required by Sections 14(b) through 14(e) and 14(h), Lender shall
give Borrower Notice specifying the statements, schedules and reports required
by Section 14(b) through 14(e) and 14(h) that Borrower has failed to provide. If
Borrower has not provided the required statements, schedules and reports within
10 Business Days following such Notice, then Lender shall have the right to have
Borrower’s books and records audited, at Borrower’s expense, by independent

 

 

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certified public accountants selected by Lender in order to obtain such
statements, schedules and reports, and all related costs and expenses of Lender
shall become immediately due and payable and shall become an additional part of
the Indebtedness as provided in Section 12. Notice to Borrower shall not be
required in the case of an emergency, as determined in Lender’s discretion, or
when an Event of Default has occurred and is continuing.

(h) Borrower shall cause each guarantor and, at Lender’s request, any SPE Equity
Owner, to provide to Lender (i) within ninety (90) days after the close of such
party’s fiscal year, such party’s balance sheet and profit and loss statement
(or if such party is a natural person, within ninety (90) days after the close
of each calendar year, such party’s personal financial statements) in form
reasonably satisfactory to Lender and certified by such party to be accurate and
complete; and (ii) such additional financial information (including, without
limitation, copies of state and federal tax returns with respect to any SPE
Equity Owner but Lender shall only require copies of such tax returns with
respect to each guarantor if an Event of Default has occurred and is continuing)
as Lender may reasonably require from time to time and in such detail as
reasonably required by Lender.

(i) If an Event of Default has occurred and is continuing, Borrower shall
deliver to Lender upon written demand all books and records relating to the
Mortgaged Property or its operation.

(j) Borrower authorizes Lender to obtain a credit report on Borrower at any
time.

15. TAXES; OPERATING EXPENSES.

(a) Subject to the provisions of Section 15(c) and Section 15(d), Borrower shall
pay, or cause to be paid, all Taxes when due and before the addition of any
interest, fine, penalty or cost for nonpayment.

(b) Subject to the provisions of Section 15(c), Borrower shall (i) pay the
expenses of operating, managing, maintaining and repairing the Mortgaged
Property (including utilities, repairs and replacements) before the last date
upon which each such payment may be made without any penalty or interest charge
being added, and (ii) pay insurance premiums at least 30 days prior to the
expiration date of each policy of insurance, unless applicable law specifies
some lesser period.

(c) If Lender is collecting Imposition Deposits, to the extent that Lender holds
sufficient Imposition Deposits for the purpose of paying a specific Imposition,
then Borrower shall not be obligated to pay such Imposition, so long as no Event
of Default exists and Borrower has timely delivered to Lender any bills or
premium notices that it has received. If an Event of Default exists, Lender may
exercise any rights Lender may have with respect to Imposition Deposits without
regard to whether Impositions are then due and payable. Lender shall have no
liability to Borrower for failing to pay any Impositions to the extent that
(i) any Event of Default has occurred and is continuing, (ii) insufficient
Imposition Deposits are held by Lender at the time an Imposition becomes due and
payable or (iii) Borrower has failed to provide Lender with bills and premium
notices as provided above.

(d) Borrower, at its own expense, may contest by appropriate legal proceedings,
conducted diligently and in good faith, the amount or validity of any Imposition
other than insurance premiums, if (i) Borrower notifies Lender of the
commencement or expected commencement of such proceedings, (ii) the Mortgaged
Property is not in danger of being sold

 

 

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or forfeited, (iii) if Borrower has not already paid the Imposition, Borrower
deposits with Lender reserves sufficient to pay the contested Imposition, if
requested by Lender, and (iv) Borrower furnishes whatever additional security is
required in the proceedings or is reasonably requested by Lender.

(e) Borrower shall promptly deliver to Lender a copy of all notices of, and
invoices for, Impositions, and if Borrower pays any Imposition directly,
Borrower shall furnish to Lender, on or before the date this Instrument requires
such Impositions to be paid, receipts evidencing that such payments were made.

16. LIENS; ENCUMBRANCES. Borrower acknowledges that, to the extent provided in
Section 21, the grant, creation or existence of any mortgage, deed of trust,
deed to secure debt, security interest or other lien or encumbrance (a “Lien”)
on the Mortgaged Property (other than the lien of this Instrument) or on certain
ownership interests in Borrower, whether voluntary, involuntary or by operation
of law, and whether or not such Lien has priority over the lien of this
Instrument, is a “Transfer” which constitutes an Event of Default and subjects
Borrower to personal liability under the Note.

17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY.

(a) Borrower shall not commit waste or permit impairment or deterioration of the
Mortgaged Property.

(b) Borrower shall not abandon the Mortgaged Property.

(c) Borrower shall restore or repair promptly, in a good and workmanlike manner,
any damaged part of the Mortgaged Property to the equivalent of its original
condition, or such other condition as Lender may approve in writing, whether or
not insurance proceeds or condemnation awards are available to cover any costs
of such restoration or repair; however, Borrower shall not be obligated to
perform such restoration or repair if (i) no Event of Default has occurred and
is continuing, and (ii) Lender has elected to apply any available insurance
proceeds and/or condemnation awards to the payment of Indebtedness pursuant to
Section 19(h)(ii) through (viii), or pursuant to Section 20(d)(ii) through
(viii).

(d) Borrower shall keep the Mortgaged Property in good repair, including the
replacement of Personalty and Fixtures with items of equal or better function
and quality.

(e) Borrower shall provide for professional management of the Mortgaged Property
by the Property Manager or by a residential rental property manager satisfactory
to Lender at all times under a property management agreement approved by Lender
in writing. Borrower shall not surrender, terminate, cancel, modify, renew or
extend its property management agreement, or enter into any other agreement
relating to the management or operation of the Property with Property Manager or
any other Person, or consent to the assignment by the Property Manager of its
interest under such property management agreement, in each case without the
consent of Lender, which consent shall not be unreasonably withheld.; If at any
time Lender consents to the appointment of a new property manager, such new
property manager and Borrower shall, as a condition of Lender’s consent, execute
an assignment of management agreement in a form acceptable to Lender. If any
such replacement property manager is an Affiliate of Borrower, and if a
nonconsolidation opinion was delivered at the origination of the Loan, Borrower
shall deliver to Lender an updated nonconsolidation opinion in form and
substance satisfactory to the Rating Agencies (unless waived by the Rating
Agencies) with regard to nonconsolidation.

 

 

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(f) Borrower shall give Notice to Lender of and, unless otherwise directed in
writing by Lender, shall appear in and defend any action or proceeding
purporting to affect the Mortgaged Property, Lender’s security or Lender’s
rights under this Instrument. Borrower shall not (and shall not permit any
tenant or other person to) remove, demolish or alter the Mortgaged Property or
any part of the Mortgaged Property, including any removal, demolition or
alteration occurring in connection with a rehabilitation of all or part of the
Mortgaged Property, except (i) in connection with the replacement of tangible
Personalty, (ii) if Borrower is a cooperative housing corporation or
association, to the extent permitted with respect to individual dwelling units
under the form of proprietary lease or occupancy agreement and (iii) repairs and
replacements in connection with making an individual unit ready for a new
occupant.

(g) Unless otherwise waived by Lender in writing, Borrower must have or must
establish and must adhere to the MMP. If the Borrower is required to have an
MMP, the Borrower must keep all MMP documentation at the Mortgaged Property or
at the management agent’s office and available for the Lender or the Loan
Servicer to review during any annual assessment or other inspection of the
Mortgaged Property that is required by Lender.

(h) If Borrower is a housing cooperative corporation or association, until the
Indebtedness is paid in full Borrower shall not reduce the maintenance fees,
charges or assessments payable by shareholders or residents under proprietary
leases or occupancy agreements below a level which is sufficient to pay all
expenses of the Borrower, including, without limitation, all operating and other
expenses for the Mortgaged Property and all payments due pursuant to the terms
of the Note and any Loan Documents.

18. ENVIRONMENTAL HAZARDS.

(a) Except for matters described in Section 18(b), Borrower shall not cause or
permit any of the following:

 

  (i) the presence, use, generation, release, treatment, processing, storage
(including storage in above ground and underground storage tanks), handling, or
disposal of any Hazardous Materials on or under the Mortgaged Property;

 

  (ii) the transportation of any Hazardous Materials to, from, or across the
Mortgaged Property;

 

  (iii) any occurrence or condition on the Mortgaged Property, which occurrence
or condition is or may be in violation of Hazardous Materials Laws;

 

  (iv) any violation of or noncompliance with the terms of any Environmental
Permit with respect to the Mortgaged Property; or

 

  (v) any violation or noncompliance with the terms of any O&M Program as
defined in subsection (d).

The matters described in clauses (i) through (v) above, except as otherwise
provided in Section 18(b), are referred to collectively in this Section 18 as
“Prohibited Activities or Conditions.”

 

 

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(b) Prohibited Activities or Conditions shall not include lawful conditions
permitted by an O&M Program or the safe and lawful use and storage of quantities
of (i) pre-packaged supplies, cleaning materials and petroleum products
customarily used in the operation and maintenance of comparable multifamily
properties, (ii) cleaning materials, personal grooming items and other items
sold in pre-packaged containers for consumer use and used by tenants and
occupants of residential dwelling units in the Mortgaged Property; and
(iii) petroleum products used in the operation and maintenance of motor vehicles
from time to time located on the Mortgaged Property’s parking areas, so long as
all of the foregoing are used, stored, handled, transported and disposed of in
compliance with Hazardous Materials Laws.

(c) Borrower shall take all commercially reasonable actions (including the
inclusion of appropriate provisions in any Leases executed after the date of
this Instrument) to prevent its employees, agents, and contractors, and all
tenants and other occupants from causing or permitting any Prohibited Activities
or Conditions. Borrower shall not lease or allow the sublease or use of all or
any portion of the Mortgaged Property to any tenant or subtenant for
nonresidential use by any user that, in the ordinary course of its business,
would cause or permit any Prohibited Activity or Condition.

(d) As required by Lender, Borrower shall also have established a written
operations and maintenance program with respect to certain Hazardous Materials.
Each such operations and maintenance program and any additional or revised
operations and maintenance programs established for the Mortgaged Property
pursuant to this Section 18 must be approved by Lender and shall be referred to
herein as an “O&M Program.” Borrower shall comply in a timely manner with, and
cause all employees, agents, and contractors of Borrower and any other Persons
present on the Mortgaged Property to comply with each O&M Program. Borrower
shall pay all costs of performance of Borrower’s obligations under any O&M
Program, and Lender’s out of pocket costs incurred in connection with the
monitoring and review of each O&M Program and Borrower’s performance shall be
paid by Borrower upon demand by Lender. Any such out-of-pocket costs of Lender
that Borrower fails to pay promptly shall become an additional part of the
Indebtedness as provided in Section 12.

(e) Borrower represents and warrants to Lender that, except as previously
disclosed by Borrower to Lender in writing (which written disclosure may be in
certain environmental assessments and other written reports accepted by Lender
in connection with the funding of the Indebtedness and dated prior to the date
of this Instrument):

 

  (i) Borrower has not at any time engaged in, caused or permitted any
Prohibited Activities or Conditions on the Mortgaged Property;

 

  (ii) to the best of Borrower’s knowledge after reasonable and diligent
inquiry, no Prohibited Activities or Conditions exist or have existed on the
Mortgaged Property;

 

  (iii) the Mortgaged Property does not now contain any underground storage
tanks, and, to the best of Borrower’s knowledge after reasonable and diligent
inquiry, the Mortgaged Property has not contained any underground storage tanks
in the past. If there is an underground storage tank located on the Mortgaged
Property that has been previously disclosed by Borrower to Lender in writing,
that tank complies with all requirements of Hazardous Materials Laws;

 

 

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  (iv) to the best of Borrower’s knowledge after reasonable and diligent
inquiry, Borrower has complied with all Hazardous Materials Laws, including all
requirements for notification regarding releases of Hazardous Materials. Without
limiting the generality of the foregoing, Borrower has obtained all
Environmental Permits required for the operation of the Mortgaged Property in
accordance with Hazardous Materials Laws now in effect and all such
Environmental Permits are in full force and effect;

 

  (v) to the best of Borrower’s knowledge after reasonable and diligent inquiry,
no event has occurred with respect to the Mortgaged Property that constitutes,
or with the passing of time or the giving of notice would constitute,
noncompliance with the terms of any Environmental Permit;

 

  (vi) there are no actions, suits, claims or proceedings pending or, to the
best of Borrower’s knowledge after reasonable and diligent inquiry, threatened
that involve the Mortgaged Property and allege, arise out of, or relate to any
Prohibited Activity or Condition; and

 

  (vii) Borrower has not received any written complaint, order, notice of
violation or other communication from any Governmental Authority with regard to
air emissions, water discharges, noise emissions or Hazardous Materials, or any
other environmental, health or safety matters affecting the Mortgaged Property.

(f) Borrower shall promptly notify Lender in writing upon the occurrence of any
of the following events:

 

  (i) Borrower’s discovery of any Prohibited Activity or Condition;

 

  (ii) Borrower’s receipt of or knowledge of any written complaint, order,
notice of violation or other communication from any tenant, management agent,
Governmental Authority or other Person with regard to present or future alleged
Prohibited Activities or Conditions, or any other environmental, health or
safety matters affecting the Mortgaged Property; or

 

  (iii) Borrower’s breach of any of its obligations under this Section 18.

Any such notice given by Borrower shall not relieve Borrower of, or result in a
waiver of, any obligation under this Instrument, the Note, or any other Loan
Document.

(g) Borrower shall pay promptly the costs of any environmental inspections,
tests or audits, a purpose of which is to identify the extent or cause of or
potential for a Prohibited Activity or Condition (“Environmental Inspections”),
required by Lender in connection with any foreclosure or deed in lieu of
foreclosure, or as a condition of Lender’s consent to any Transfer under
Section 21, or required by Lender following a reasonable determination by Lender
that Prohibited Activities or Conditions may exist. Any such costs incurred by
Lender (including Attorneys’ Fees and Costs and the costs of technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) that Borrower fails to pay promptly shall become an
additional part of the Indebtedness as provided in Section 12. As long as (i) no
Event of Default has occurred and is continuing, (ii) Borrower has actually paid
for or reimbursed Lender for all costs of any such Environmental Inspections
performed or required by

 

 

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Lender, and (iii) Lender is not prohibited by law, contract or otherwise from
doing so, Lender shall make available to Borrower, without representation of any
kind, copies of Environmental Inspections prepared by third parties and
delivered to Lender. Lender hereby reserves the right, and Borrower hereby
expressly authorizes Lender, to make available to any party, including any
prospective bidder at a foreclosure sale of the Mortgaged Property, the results
of any Environmental Inspections made by or for Lender with respect to the
Mortgaged Property. Borrower consents to Lender notifying any party (either as
part of a notice of sale or otherwise) of the results of any Environmental
Inspections made by or for Lender. Borrower acknowledges that Lender cannot
control or otherwise assure the truthfulness or accuracy of the results of any
Environmental Inspections and that the release of such results to prospective
bidders at a foreclosure sale of the Mortgaged Property may have a material and
adverse effect upon the amount that a party may bid at such sale. Borrower
agrees that Lender shall have no liability whatsoever as a result of delivering
the results to any third party of any Environmental Inspections made by or for
Lender, and Borrower hereby releases and forever discharges Lender from any and
all claims, damages, or causes of action, arising out of, connected with or
incidental to the results of, the delivery of any of Environmental Inspections
made by or for Lender.

(h) If any investigation, site monitoring, containment, clean-up, restoration or
other remedial work (“Remedial Work”) is necessary to comply with any Hazardous
Materials Law or order of any Governmental Authority that has or acquires
jurisdiction over the Mortgaged Property or the use, operation or improvement of
the Mortgaged Property, or is otherwise required by Lender as a consequence of
any Prohibited Activity or Condition or to prevent the occurrence of a
Prohibited Activity or Condition, Borrower shall, by the earlier of (i) the
applicable deadline required by Hazardous Materials Law or (ii) 30 days after
Notice from Lender demanding such action, begin performing the Remedial Work,
and thereafter diligently prosecute it to completion, and shall in any event
complete the work by the time required by applicable Hazardous Materials Law. If
Borrower fails to begin on a timely basis or diligently prosecute any required
Remedial Work, Lender may, at its option, cause the Remedial Work to be
completed, in which case Borrower shall reimburse Lender on demand for the cost
of doing so. Any reimbursement due from Borrower to Lender shall become part of
the Indebtedness as provided in Section 12.

(i) Borrower shall comply with all Hazardous Materials Laws applicable to the
Mortgaged Property. Without limiting the generality of the previous sentence,
Borrower shall (i) obtain and maintain all Environmental Permits required by
Hazardous Materials Laws and comply with all conditions of such Environmental
Permits; (ii) cooperate with any inquiry by any Governmental Authority; and
(iii) comply with any governmental or judicial order that arises from any
alleged Prohibited Activity or Condition.

(j) Borrower shall indemnify, hold harmless and defend (i) Lender, including any
custodian, trustee and any other fiduciaries who hold or have held a full or
partial interest in the Loan for the benefit of third parties, (ii) any prior
owner or holder of the Note, (iii) the Loan Servicer, (iv) any prior Loan
Servicer, (v) the officers, directors, shareholders, partners, employees and
trustees of any of the foregoing, and (vi) the heirs, legal representatives,
successors and assigns of each of the foregoing (collectively, the
“Indemnitees”) from and against all proceedings, claims, damages, penalties and
costs (whether initiated or sought by Governmental Authorities or private
parties), including Attorneys’ Fees and Costs and remediation costs, whether
incurred in connection with any judicial or administrative process or otherwise,
arising directly or indirectly from any of the following:

 

  (i) any breach of any representation or warranty of Borrower in this
Section 18;

 

 

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  (ii) any failure by Borrower to perform any of its obligations under this
Section 18;

 

  (iii) the existence or alleged existence of any Prohibited Activity or
Condition;

 

  (iv) the presence or alleged presence of Hazardous Materials on or under the
Mortgaged Property or in any of the Improvements; and

 

  (v) the actual or alleged violation of any Hazardous Materials Law.

(k) Counsel selected by Borrower to defend Indemnitees shall be subject to the
approval of those Indemnitees. In any circumstances in which the indemnity under
this Section 18 applies, Lender may employ its own legal counsel and consultants
to prosecute, defend or negotiate any claim or legal or administrative
proceeding and Lender, with the prior written consent of Borrower (which shall
not be unreasonably withheld, delayed or conditioned) may settle or compromise
any action or legal or administrative proceeding. However, unless an Event of
Default has occurred and is continuing, or the interests of Borrower and Lender
are in conflict, as determined by Lender in its discretion, Lender shall permit
Borrower to undertake the actions referenced in this Section 18 in accordance
with this Section 18(k) and Section 18(l) so long as Lender approves such
action, which approval shall not be unreasonably withheld or delayed. Borrower
shall reimburse Lender upon demand for all costs and expenses incurred by
Lender, including all costs of settlements entered into in good faith,
consultants’ fees and Attorneys’ Fees and Costs.

(l) Borrower shall not, without the prior written consent of those Indemnitees
who are named as parties to a claim or legal or administrative proceeding (a
“Claim”), settle or compromise the Claim if the settlement (i) results in the
entry of any judgment that does not include as an unconditional term the
delivery by the claimant or plaintiff to Lender of a written release of those
Indemnitees, satisfactory in form and substance to Lender; or (ii) may
materially and adversely affect Lender, as determined by Lender in its
discretion.

(m) Borrower’s obligation to indemnify the Indemnitees shall not be limited or
impaired by any of the following, or by any failure of Borrower or any guarantor
to receive notice of or consideration for any of the following:

 

  (i) any amendment or modification of any Loan Document;

 

  (ii) any extensions of time for performance required by any Loan Document;

 

  (iii) any provision in any of the Loan Documents limiting Lender’s recourse to
property securing the Indebtedness, or limiting the personal liability of
Borrower or any other party for payment of all or any part of the Indebtedness;

 

  (iv) the accuracy or inaccuracy of any representations and warranties made by
Borrower under this Instrument or any other Loan Document;

 

 

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  (v) the release of Borrower or any other Person, by Lender or by operation of
law, from performance of any obligation under any Loan Document;

 

  (vi) the release or substitution in whole or in part of any security for the
Indebtedness; and

 

  (vii) Lender’s failure to properly perfect any lien or security interest given
as security for the Indebtedness.

(n) Borrower shall, at its own cost and expense, do all of the following:

 

  (i) pay or satisfy any judgment or decree that may be entered against any
Indemnitee or Indemnitees in any legal or administrative proceeding incident to
any matters against which Indemnitees are entitled to be indemnified under this
Section 18;

 

  (ii) reimburse Indemnitees for any expenses paid or incurred in connection
with any matters against which Indemnitees are entitled to be indemnified under
this Section 18; and

 

  (iii) reimburse Indemnitees for any and all expenses, including Attorneys’
Fees and Costs, paid or incurred in connection with the enforcement by
Indemnitees of their rights under this Section 18, or in monitoring and
participating in any legal or administrative proceeding.

(o) The provisions of this Section 18 shall be in addition to any and all other
obligations and liabilities that Borrower may have under applicable law or under
other Loan Documents, and each Indemnitee shall be entitled to indemnification
under this Section 18 without regard to whether Lender or that Indemnitee has
exercised any rights against the Mortgaged Property or any other security,
pursued any rights against any guarantor, or pursued any other rights available
under the Loan Documents or applicable law. If Borrower consists of more than
one Person, the obligation of those Persons to indemnify the Indemnitees under
this Section 18 shall be joint and several. The obligation of Borrower to
indemnify the Indemnitees under this Section 18 shall survive any repayment or
discharge of the Indebtedness, any foreclosure proceeding, any foreclosure sale,
any delivery of any deed in lieu of foreclosure, and any release of record of
the lien of this Instrument. Notwithstanding the foregoing, if Lender has never
been a mortgagee-in-possession of, or held title to, the Mortgaged Property,
Borrower shall have no obligation to indemnify the Indemnitees under this
Section 18 after the date of the release of record of the lien of this
Instrument by payment in full at the Maturity Date or by voluntary prepayment in
full.

19. PROPERTY AND LIABILITY INSURANCE.

(a) At all times during the term hereof, Borrower shall maintain, at its sole
cost and expense, for the mutual benefit of Borrower and Lender, the following
policies of insurance:

 

  (i)

Insurance against any peril included within the classification “All Risks of
Physical Loss” with extended coverage in amounts at all times sufficient to
prevent Borrower from becoming a co-insurer within the terms of the applicable
policies, but in any event such insurance shall be maintained in an amount equal
to the full insurable value of the Mortgaged Property.

 

 

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  The policy referred to in this Section 19 shall contain a replacement cost
endorsement and a waiver of depreciation. As used in this Instrument, “full
insurable value” means the actual replacement cost of the Improvements and
Personalty (without taking into account any depreciation), determined annually
by an insurer or by Borrower or, at the request of Lender, by an insurance
broker (subject to Lender’s reasonable approval). In all cases where any of the
Improvements or the use of the Mortgaged Property shall at any time constitute
legal non-conforming structures or uses under applicable legal requirements of
any Governmental Authority, the policy referred to in this Section 19 must
include “Ordinance and Law Coverage,” with “Time Element,” “Loss to the
Undamaged Portion of the Building,” “Demolition Cost” and “Increased Cost of
Construction” endorsements, in the amount of coverage required by Lender;

 

  (ii) Commercial general liability insurance, including contractual injury,
bodily injury, broad form death and property damage liability against any and
all claims, including all legal liability to the extent insurable imposed upon
Borrower and all Attorneys’ Fees and Costs, arising out of or connected with the
possession, use, leasing, operation, maintenance or condition of the Mortgaged
Property with a combined limit of not less than $2,000,000 in the aggregate and
$1,000,000 per occurrence, plus umbrella or excess liability coverage with
minimum limits in the aggregate and per occurrence of $1,000,000 for
Improvements that have 1 to 3 stories and an additional $2,000,000 in coverage
for each additional story with maximum required coverage of $10,000,000, plus
motor vehicle liability coverage for all owned and non-owned vehicles
(including, without limitation, rented and leased vehicles) containing minimum
limits per occurrence, including umbrella coverage, of $1,000,000.

 

  (iii) Statutory workers’ compensation insurance;

 

  (iv) Business interruption including loss of rental value insurance for the
Mortgaged Property in an amount equal to not less than twelve (12) months’
estimated gross Rents attributable to the Mortgaged Property and based on gross
Rents for the immediately preceding year and otherwise sufficient to avoid any
co-insurance penalty with a 90 day extended period of indemnity (but a minimum
of eighteen (18) months’ estimated gross Rents attributable to the Mortgaged
Property and based on gross Rents for the immediately preceding year and
otherwise sufficient to avoid any coinsurance penalty with a 90 day extended
period of indemnity when (A) the Improvements have 5 or more stories or (B) at
all times during which the Indebtedness is equal to or greater than
$50,000,000);

 

  (v) If any portion of the Improvements are located within a federally
designated flood hazard zone, flood insurance in an amount equal to the full
insurable value of the portion of such Improvements within such flood hazard
zone. Such coverage may need to be purchased through excess carriers if the
required coverage exceeds the maximum insurance allowed under the federal flood
insurance program;

 

 

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  (vi) Insurance against loss or damage from (A) leakage of sprinkler systems
and (B) explosion of steam boilers, air conditioning equipment, pressure vessels
or similar apparatus now or hereafter installed at the Mortgaged Property, in
such amounts as Lender may from time to time reasonably require and which are
customarily required by institutional lenders with respect to similar properties
similarly situated;

 

  (vii) The insurance required under clauses (i) and (iv) above shall cover
perils of terrorism and acts of terrorism and Borrower shall maintain commercial
property insurance for loss resulting from perils and acts of terrorism on terms
(including amounts) consistent with those required under clauses (i) and
(iv) above at all times during the term of the Loan evidenced by the Note;

 

  (viii) During any period of Restoration, builder’s “all risk” insurance in an
amount equal to not less than the full insurable value of the Property against
such risks (including fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may request, in form and substance
acceptable to Lender; and

 

  (ix) Such other insurance with respect to the Improvements and Personalty
located on the Property against loss or damage as required by Lender (including,
without limitation, liquor/dramshop, Mold, hurricane, windstorm and earthquake
insurance) provided such insurance is of the kind for risks from time to time
customarily insured against and in such minimum coverage amounts and maximum
deductibles as are generally required by institutional lenders for properties
comparable to the Mortgaged Property or which Lender may deem necessary in its
reasonable discretion; provided, however, if Lender requires earthquake
insurance, the amount of coverage must be equal to 150% of the probable maximum
loss for the Mortgaged Property but Lender shall not require earthquake
insurance if the probable maximum loss for the Mortgaged Property is less than
twenty percent (20%). In the event any updated reports or other documentation
are reasonably required by Lender in order to determine whether such additional
insurance is necessary or prudent, Borrower shall pay for all such documentation
at its sole cost and expense.

All insurance required pursuant to subsections (i) and subsections (iv) through
(ix) shall be referred to as “Hazard Insurance”.

(b) All premiums on insurance policies required under Section 19(a) shall be
paid in the manner provided in Section 7, unless Lender has designated in
writing another method of payment. All such policies shall also be in a form
approved by Lender. All policies of Hazard Insurance must include a
non-contributing, non-reporting mortgagee clause in favor of, and in a form
approved by, Lender. All policies for general liability insurance must contain a
standard additional insured provision, in favor of, and in a form approved by
Lender. Borrower shall deliver to Lender a legible copy of each insurance policy
(or duplicate original), and Borrower shall promptly deliver to Lender a copy of
all renewal and other notices received by Borrower with respect to the policies
and all receipts for paid premiums. At least 30 days prior to the expiration
date of any insurance policy, Borrower shall deliver to Lender evidence
acceptable to Lender that the policy has been renewed. If Borrower has not
delivered a legible copy of each renewal policy (or a duplicate original) prior
to the expiration date of any insurance policy,

 

 

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Borrower shall deliver a legible copy of each renewal policy (or a duplicate
original), in a form satisfactory to Lender, no later than the earlier of
(i) the date that is 60 days after the expiration date of the original policy,
or (ii) the date of any notice to Lender under subsection (f) below.

(c) Borrower will maintain the insurance coverage described in this Section 19
with companies acceptable to Lender and with a rated claims paying ability of at
least (i) “A-” or its equivalent by Fitch, Inc., (ii) “A-” or its equivalent by
Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc., (iii) “A3” or its equivalent by Moody’s Investors Service, Inc. or
(iv) “A” for financial strength and “VIII” for financial size, or their
equivalents, by A.M. Best Company. All insurers providing insurance required by
this Instrument must be authorized to issue insurance in the Property
Jurisdiction.

(d) All insurance policies and renewals of insurance policies required by this
Section 19 shall be for such periods as Lender may from time to time require.

(e) Borrower shall comply with all insurance requirements and shall not permit
any condition to exist on the Mortgaged Property that would invalidate any part
of any insurance coverage that this Instrument requires Borrower to maintain.

(f) In the event of loss, Borrower shall give immediate written notice to the
insurance carrier and to Lender. Borrower hereby authorizes and appoints Lender
as attorney in fact for Borrower to make proof of loss, to adjust and compromise
any claims under policies of Hazard Insurance, to appear in and prosecute any
action arising from such Hazard Insurance policies, to collect and receive the
proceeds of Hazard Insurance, to hold the proceeds of Hazard Insurance, and to
deduct from such proceeds Lender’s expenses incurred in the collection of such
proceeds. This power of attorney is coupled with an interest and therefore is
irrevocable. However, nothing contained in this Section 19 shall require Lender
to incur any expense or take any action. Lender may, at Lender’s option,
(i) require a “repair or replacement” settlement, in which case the proceeds
will be used to reimburse Borrower for the cost of restoring and repairing the
Mortgaged Property to the equivalent of its original condition or to a condition
approved by Lender (the “Restoration”), or (ii) require an “actual cash value”
settlement in which case the proceeds may be applied to the payment of the
Indebtedness, whether or not then due. To the extent Lender determines to
require a repair or replacement settlement and apply insurance proceeds to
Restoration, Lender shall apply the proceeds in accordance with Lender’s
then-current policies relating to the restoration of casualty damage on similar
multifamily properties.

(g) Notwithstanding any provision to the contrary in this Section 19, as long as
no Event of Default, or any event which, with the giving of Notice or the
passage of time, or both, would constitute an Event of Default, has occurred and
is continuing,

 

  (i) in the event of a casualty resulting in damage to the Mortgaged Property
which will cost $25,000 or less to repair, the Borrower shall have the sole
right to make proof of loss, adjust and compromise the claim and collect and
receive any proceeds directly without the approval or prior consent of the
Lender so long as the insurance proceeds are used solely for the Restoration of
the Mortgaged Property; and

 

  (ii) in the event of a casualty resulting in damage to the Mortgaged Property
which will cost more than $25,000 but less than $100,000 to repair, the Borrower
is authorized to make proof of loss and adjust and compromise the claim without
the prior consent of Lender, and Lender shall hold the applicable insurance
proceeds to be used to reimburse Borrower for the cost of Restoration of the
Mortgaged Property and shall not apply such proceeds to the payment of sums due
under this Instrument.

 

 

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(h) Lender will have the right to exercise its option to apply insurance
proceeds to the payment of the Indebtedness only if Lender determines that at
least one of the following conditions is met:

 

  (i) an Event of Default (or any event, which, with the giving of Notice or the
passage of time, or both, would constitute an Event of Default) has occurred and
is continuing;

 

  (ii) Lender determines, in its discretion, that there will not be sufficient
funds from insurance proceeds, anticipated contributions of Borrower of its own
funds or other sources acceptable to Lender to complete the Restoration;

 

  (iii) Lender determines, in its discretion, that the rental income from the
Mortgaged Property after completion of the Restoration will not be sufficient to
meet all operating costs and other expenses, Imposition Deposits, deposits to
reserves and Loan repayment obligations relating to the Mortgaged Property;

 

  (iv) Lender determines, in its discretion, that the Restoration will not be
completed by the earlier of (A) at least one year before the Maturity Date (or
six months before the Maturity Date if Lender determines in its discretion that
re-leasing of the Mortgaged Property will be completed within such six-month
period) or (B) the expiration of the business interruption coverage;

 

  (v) Lender determines that the Restoration will not be completed within one
year after the date of the loss or casualty;

 

  (vi) the casualty involved an actual or constructive loss of more than 30% of
the fair market value of the Mortgaged Property, and rendered untenantable more
than 30% of the residential units of the Mortgaged Property;

 

  (vii) after Restoration the fair market value of the Mortgaged Property is
expected to be less than the fair market value of the Mortgaged Property
immediately prior to such casualty (assuming the affected portion of the
Mortgaged Property is relet within a reasonable period after the date of such
casualty); or

 

  (viii) during and after the completion of the Restoration less than 35% of the
Leases covering the residential units of the Mortgaged Property will remain in
full force and effect.

(i) If the Mortgaged Property is sold at a foreclosure sale or Lender acquires
title to the Mortgaged Property, Lender shall automatically succeed to all
rights of Borrower in and to any insurance policies and unearned insurance
premiums and in and to the proceeds resulting from any damage to the Mortgaged
Property prior to such sale or acquisition.

 

 

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(j) Unless Lender otherwise agrees in writing, any application of any insurance
proceeds to the Indebtedness shall not extend or postpone the due date of any
monthly installments referred to in the Note, Section 7 of this Instrument or
any Collateral Agreement, or change the amount of such installments.

(k) Borrower agrees to execute such further evidence of assignment of any
insurance proceeds as Lender may require.

20. CONDEMNATION.

(a) Borrower shall promptly notify Lender in writing of any action or proceeding
or notice relating to any proposed or actual condemnation or other taking, or
conveyance in lieu thereof, of all or any part of the Mortgaged Property,
whether direct or indirect (a “Condemnation”). Borrower shall appear in and
prosecute or defend any action or proceeding relating to any Condemnation unless
otherwise directed by Lender in writing. Borrower authorizes and appoints Lender
as attorney in fact for Borrower to commence, appear in and prosecute, in
Lender’s or Borrower’s name, any action or proceeding relating to any
Condemnation and to settle or compromise any claim in connection with any
Condemnation, after consultation with Borrower and consistent with commercially
reasonable standards of a prudent lender. This power of attorney is coupled with
an interest and therefore is irrevocable. However, nothing contained in this
Section 20 shall require Lender to incur any expense or take any action.
Borrower hereby transfers and assigns to Lender all right, title and interest of
Borrower in and to any award or payment with respect to (i) any Condemnation, or
any conveyance in lieu of Condemnation, and (ii) any damage to the Mortgaged
Property caused by governmental action that does not result in a Condemnation.

(b) Lender may hold such awards or proceeds and apply such awards or proceeds,
after the deduction of Lender’s expenses incurred in the collection of such
amounts (including Attorneys’ Fees and Costs) at Lender’s option, to the
restoration or repair of the Mortgaged Property or to the payment of the
Indebtedness, with the balance, if any, to Borrower. Unless Lender otherwise
agrees in writing, any application of any awards or proceeds to the Indebtedness
shall not extend or postpone the due date of any monthly installments referred
to in the Note, Section 7 of this Instrument or any Collateral Agreement, or
change the amount of such installments. Borrower agrees to execute such further
evidence of assignment of any awards or proceeds as Lender may require.

(c) Notwithstanding any provision to the contrary in this Section 20, but
subject to Section 20(e) below, in the event of a partial Condemnation of the
Mortgaged Property, as long as no Event of Default, or any event which, with the
giving of Notice or the passage of time, or both, would constitute an Event of
Default, has occurred and is continuing, in the event of a partial Condemnation
resulting in proceeds or awards in the amount of less than $100,000, the
Borrower shall have the sole right to make proof of loss, adjust and compromise
the claim and collect and receive any proceeds directly without the approval or
prior consent of the Lender so long as the proceeds or awards are used solely
for the Restoration of the Mortgaged Property.

 

 

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(d) In the event of a partial Condemnation of the Mortgaged Property resulting
in proceeds or awards in the amount of $100,000 or more and subject to
Section 20(e) below, Lender will have the right to exercise its option to apply
Condemnation proceeds to the payment of the Indebtedness only if Lender
determines that at least one of the following conditions is met:

 

  (i) an Event of Default (or any event, which, with the giving of Notice or the
passage of time, or both, would constitute an Event of Default) has occurred and
is continuing;

 

  (ii) Lender determines, in its discretion, that there will not be sufficient
funds from Condemnation proceeds, anticipated contributions of Borrower of its
own funds or other sources acceptable to Lender to complete the Restoration;

 

  (iii) Lender determines, in its discretion, that the rental income from the
Mortgaged Property after completion of the Restoration will not be sufficient to
meet all operating costs and other expenses, Imposition Deposits, deposits to
reserves and Loan repayment obligations relating to the Mortgaged Property;

 

  (iv) Lender determines, in its discretion, that the Restoration will not be
completed at least one year before the Maturity Date (or six months before the
Maturity Date if Lender determines in its discretion that re-leasing of the
Mortgaged Property will be completed within such six-month period);

 

  (v) Lender determines that the Restoration will not be completed within one
year after the date of the Condemnation;

 

  (vi) the Condemnation involved an actual or constructive loss of more than 15%
of the fair market value of the Mortgaged Property, and rendered untenantable
more than 25% of the residential units of the Mortgaged Property;

 

  (vii) after Restoration the fair market value of the Mortgaged Property is
expected to be less than the fair market value of the Mortgaged Property
immediately prior to the Condemnation (assuming the affected portion of the
Mortgaged Property is relet within a reasonable period after the date of the
Condemnation); or

 

  (viii) during and after the completion of the Restoration less than 35% of the
Leases covering the residential units of the Mortgaged Property will remain in
full force and effect.

(e) Notwithstanding anything to the contrary set forth in this Instrument,
including this Section 20, during any period that the Loan or any portion of the
Loan is included in a Securitization, if any portion of the Mortgaged Property
is released from the lien of the Loan in connection with a Condemnation and if
the ratio of (i) the unpaid principal balance of the Loan to (ii) the value of
the Mortgaged Property, as determined by Lender in its sole discretion based on
a commercially reasonable valuation method, is greater than 125% immediately
after such Condemnation and before any restoration or repair of the Mortgaged
Property (but taking into account any planned restoration or repair of the
Mortgaged Property as if such planned restoration or repair were completed), the
Lender shall apply any net proceeds or awards from such Condemnation, in full,
to the payment of the principal of the Indebtedness whether or not then due and
payable, unless Lender shall have received an opinion of counsel, satisfactory
to Lender, that a different application of such net proceeds or awards will not
cause such Securitization to fail to meet applicable federal income tax
qualification requirements or subject such Securitization to any tax.

 

 

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(f) If the Mortgaged Property is sold at a foreclosure sale or Lender acquires
title to the Mortgaged Property, Lender shall automatically succeed to all
rights of Borrower in and to any Condemnation proceeds and awards prior to such
sale or acquisition.

(g) Borrower agrees to execute such further evidence of assignment of any
Condemnation proceeds as Lender may require.

21. TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER. [RIGHT TO
UNLIMITED TRANSFERS – WITH LENDER APPROVAL]. Notwithstanding anything to the
contrary in this Section 21, no Transfer will be permitted under this Section 21
unless the provisions of Section 33 are satisfied.

(a) “Transfer” means

 

  (i) a sale, assignment, transfer or other disposition or divestment of any
interest therein (whether voluntary, involuntary or by operation of law);

 

  (ii) the granting, creating or attachment of a lien, encumbrance or security
interest (whether voluntary, involuntary or by operation of law);

 

  (iii) the issuance or other creation of an ownership interest in a legal
entity, including a partnership interest, interest in a limited liability
company or corporate stock;

 

  (iv) the withdrawal, retirement, removal or involuntary resignation of a
partner in a partnership or a member or Manager in a limited liability company;
or

 

  (v) the merger, dissolution, liquidation, or consolidation of a legal entity
or the reconstitution of one type of legal entity into another type of legal
entity.

For purposes of defining the term “Transfer,” the term “partnership” shall mean
a general partnership, a limited partnership, and a joint venture, and the term
“partner” shall mean a general partner, a limited partner and a joint venturer.

(b) “Transfer” does not include

 

  (i) a conveyance of the Mortgaged Property at a judicial or non-judicial
foreclosure sale under this Instrument,

 

  (ii) the Mortgaged Property becoming part of a bankruptcy estate by operation
of law under the United States Bankruptcy Code, or

 

  (iii) a lien against the Mortgaged Property for local taxes and/or assessments
not then due and payable.

 

 

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(c) The occurrence of any of the following Transfers shall not constitute an
Event of Default under this Instrument, notwithstanding any provision of
Section 21(e) to the contrary:

 

  (i) a Transfer to which Lender has consented;

 

  (ii) a Transfer that occurs in accordance with Section 21(d);

 

  (iii) the grant of a leasehold interest in an individual dwelling unit for a
term of two years or less not containing an option to purchase;

 

  (iv) a Transfer of obsolete or worn out Personalty or Fixtures that are
contemporaneously replaced by items of equal or better function and quality,
which are free of liens, encumbrances and security interests other than those
created by the Loan Documents or consented to by Lender;

 

  (v) the creation of a mechanic’s, materialman’s, or judgment lien against the
Mortgaged Property, which is released of record or otherwise remedied to
Lender’s satisfaction within 60 days of the date of creation;

 

  (vi) if Borrower is a housing cooperative corporation or association, the
Transfer of more than 49 percent of the shares in the housing cooperative or the
assignment of more than 49 percent of the occupancy agreements or leases
relating thereto by tenant shareholders of the housing cooperative or
association to other tenant shareholders;

 

  (vii) any Transfer of an interest in Borrower or any interest in a Controlling
Entity (which, if such Controlling Entity were Borrower, would result in an
Event of Default) listed in (A) through (F) below (a “Preapproved Transfer”),
under the terms and conditions listed as items (1) through (9) below:

 

  (A) a sale or transfer to one or more of the transferor’s immediate family
members; or

 

  (B) a sale or transfer to any trust having as its sole beneficiaries the
transferor and/or one or more of the transferor’s immediate family members; or

 

  (C) a sale or transfer from a trust to any one or more of its beneficiaries
who are immediate family members of the transferor; or

 

  (D) the substitution or replacement of the trustee of any trust with a trustee
who is an immediate family member of the transferor; or

 

  (E) a sale or transfer to an entity owned and Controlled by the transferor or
the transferor’s immediate family members; or

 

  (F) a sale or transfer to a natural person or entity that has an existing
interest in the Borrower or in a Controlling Entity.

 

  (1) Borrower shall provide Lender with prior written Notice of the proposed
Preapproved Transfer, which Notice must be accompanied by a non-refundable
review fee in the amount of $3,000.00.

 

 

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  (2) For the purposes of these Preapproved Transfers, a transferor’s immediate
family members will be deemed to include a spouse, parent, child or grandchild
of such transferor.

 

  (3) Either directly or indirectly, John A. Wensinger shall retain at all times
a Controlling Interest in the Borrower and manage the day-to-day operations of
the Borrower.

 

  (4) At the time of the proposed Preapproved Transfer, no Event of Default
shall have occurred and be continuing and no event or condition shall have
occurred and be continuing that, with the giving of Notice or the passage of
time, or both, would become an Event of Default.

 

  (5) Lender shall be entitled to collect all costs, including the cost of all
title searches, title insurance and recording costs, and all Attorneys’ Fees and
Costs.

 

  (6) Lender shall not be entitled to collect a transfer fee as a result of
these Preapproved Transfers.

 

  (7) In the event of a Transfer prohibited by or requiring Lender’s approval
under this Section 21, this Section (c)(vii) may be modified or rendered void by
Lender at Lender’s option by Notice to Borrower and the transferee(s), as a
condition of Lender’s consent.

 

  (8) If a nonconsolidation opinion was delivered at origination of the Loan and
if, after giving effect to all Preapproved Transfers and all prior Transfers,
fifty percent (50%) or more in the aggregate of direct or indirect interests in
Borrower are owned by any Person and its Affiliates that owned less than a fifty
percent (50%) direct or indirect interest in Borrower as of the origination of
the Loan, an opinion of counsel for Borrower, in form and substance satisfactory
to Lender and to the Rating Agencies, with regard to nonconsolidation.

 

  (9) Confirmation acceptable to Lender that Section 33 continues to be
satisfied; and

 

  (viii) a Supplemental Mortgage that complies with Section 43 or Defeasance
that complies with Section 44.

 

 

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(d) The occurrence of any of the following Transfers shall not constitute an
Event of Default under this Instrument, provided such Transfer does not
constitute an Event of Default under any other Section of this Instrument:

 

  (i) a Transfer that occurs by devise, descent, or by operation of law upon the
death of a natural person to one or more members of the immediate family of such
natural person or to a trust or family conservatorship established for the
benefit of such immediate family member or members, provided that:

 

  (A) The Property Manager (or a replacement property manager approved by
Lender), if applicable, continues to be responsible for the management of the
Mortgaged Property, and such Transfer shall not result in a change in the
day-to-day operations of the Mortgaged Property;

 

  (B) those persons responsible for the management and control of Borrower
remain unchanged as a result of such Transfer, or any replacement management is
approved by Lender;

 

  (C) Lender receives confirmation acceptable to Lender that Section 33
continues to be satisfied;

 

  (D) each guarantor executes such documents and agreements as Lender shall
reasonably require to evidence and effectuate the ratification of each guaranty
and indemnity agreement, or in the event of the death of any guarantor or
indemnitor, the Borrower causes one or more natural persons or entities
acceptable to Lender to execute and deliver to Lender a guaranty in a form
acceptable to Lender, without any cost or expense to Lender;

 

  (E) Borrower shall give Lender Notice of such Transfer together with copies of
all documents effecting such Transfer not more than thirty (30) calendar days
after the date of such Transfer, and contemporaneously therewith, shall
(1) reaffirm the warranties and representations under Section 10 and Section 48
of this Instrument and (2) satisfy Lender, in its discretion, that such
Transferee’s organization, credit and experience in the management of similar
properties are deemed to be appropriate to the overall structure and
documentation of the existing financing;

 

  (F) such legal opinions from Transferee’s counsel as Lender deems necessary,
including an opinion that the Transferee and any SPE Equity Owner is in
compliance with Section 33 of this Instrument, a nonconsolidation opinion (if a
nonconsolidation opinion was delivered at origination of the Loan and if
required by Lender), an opinion that the ratification of the Loan Documents and
guaranty, if applicable, has been duly authorized, executed, and delivered and
that the ratification documents and guaranty, if applicable, are enforceable as
the obligation of the Transferee; and

 

  (G) Borrower shall pay or reimburse Lender for all costs and expenses incurred
by Lender in connection with such Transfer (including all Attorneys’ Fees and
Costs); and

 

 

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  (ii) the grant of an easement, if before the grant Lender determines that the
easement will not materially affect the operation or value of the Mortgaged
Property or Lender’s interest in the Mortgaged Property, and Borrower pays to
Lender, upon demand, all costs and expenses, including Attorneys’ Fees and
Costs, incurred by Lender in connection with reviewing Borrower’s request; and,
if the Note is held by a REMIC trust and if required by Lender, an opinion of
counsel for Borrower, in form and substance satisfactory to Lender, to the
effect that (A) the grant of such easement has been effected in accordance with
the requirements of Treasury Regulation Section 1.860G-2(a)(8) (as such
regulation may be modified, amended or replaced from time to time), (B) the
qualification and status of the REMIC trust as a REMIC will not be adversely
affected or impaired as a result of such grant, and (C) the REMIC trust will not
incur a tax under Section 860G(d) of the Tax Code as a result of such grant.

(e) The occurrence of any of the following Transfers shall constitute an Event
of Default under this Instrument:

 

  (i) a Transfer of all or any part of the Mortgaged Property or any interest in
the Mortgaged Property;

 

  (ii) if Borrower is a limited partnership, a Transfer of (A) any general
partnership interest, or (B) limited partnership interests in Borrower that
would cause the Initial Owners of Borrower to own less than 50% of all limited
partnership interests in Borrower;

 

  (iii) if Borrower is a limited liability company, (A) a Transfer of any
membership interest in Borrower which would cause the Initial Owners to own less
than 50% of all the membership interests in Borrower or (B) a Transfer that
results in a change of Manager;

 

  (iv) if Borrower is a corporation (A) the Transfer of any voting stock in
Borrower which would cause the Initial Owners to own less than 50% of any class
of voting stock in Borrower or (B) if the outstanding voting stock in Borrower
is held by 100 or more shareholders, one or more Transfers by a single
transferor within a 12-month period affecting an aggregate of 5 percent or more
of that stock;

 

  (v) a Transfer of any interest in a Controlling Entity which, if such
Controlling Entity were Borrower, would result in an Event of Default under any
of Sections 21(e)(i) through (iv) above.

Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default in order to exercise any of its
remedies with respect to an Event of Default under this Section 21.

 

 

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(f) Lender shall consent, without any adjustment to the rate at which the
Indebtedness secured by this Instrument bears interest or to any other economic
terms of the Indebtedness set forth in the Note, to a Transfer that would
otherwise violate this Section 21 if, prior to the Transfer, Borrower has
satisfied each of the following requirements:

 

  (i) the submission to Lender of all information required by Lender to make the
determination required by this Section 21(f);

 

  (ii) the absence of any Event of Default;

 

  (iii) the transferee (the “Transferee”) meets Lender’s eligibility, credit,
management and other standards satisfactory to Lender in its sole discretion;

 

  (iv) the Transferee’s organization, credit and experience in the management of
similar properties are deemed by the Lender, in its discretion, to be
appropriate to the overall structure and documentation of the existing
financing;

 

  (v) the Mortgaged Property will be managed by a property manager meeting the
requirements of Section 17(e);

 

  (vi) the Mortgaged Property, at the time of the proposed Transfer, meets all
standards as to its physical condition, occupancy, net operating income and the
collection of reserves satisfactory to Lender in its sole discretion;

 

  (vii) in the case of a Transfer of all or any part of the Mortgaged Property,
(A) the execution by the Transferee of Lender’s then-standard assumption
agreement that, among other things, requires the Transferee to perform all
obligations of Borrower set forth in the Note, this Instrument and any other
Loan Documents, and may require that the Transferee comply with any provisions
of this Instrument or any other Loan Document which previously may have been
waived or modified by Lender, (B) if Lender requires, the Transferee causes one
or more natural persons or entities acceptable to Lender to execute and deliver
to Lender a guaranty in a form acceptable to Lender, and (C) the Transferee
executes such additional Collateral Agreements as Lender may require;

 

  (viii) in the case of a Transfer of any interest in a Controlling Entity, if a
guaranty has been executed and delivered in connection with the Note, this
Instrument or any of the other Loan Documents, the Borrower causes one or more
natural persons or entities acceptable to Lender to execute and deliver to
Lender a guaranty in a form acceptable to Lender;

 

  (ix) If a Supplemental Mortgage is outstanding, the Borrower obtains the
consent of the lender for the Supplemental Mortgage;

 

  (x) Lender’s receipt of all of the following:

 

  (A) a review fee in the amount of $3,000.00;

 

  (B) a transfer fee in an amount equal to one percent of the unpaid principal
balance of the Indebtedness immediately before the applicable Transfer; and

 

 

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  (C) the amount of Lender’s out of pocket costs (including reasonable
Attorneys’ Fees and Costs) incurred in reviewing the Transfer request and any
fees charged by the Rating Agencies; and

 

  (xi) evidence satisfactory to Lender that the Transferee and any SPE Equity
Owner of such Transferee meet the requirements of Section 33;

 

  (xii) such legal opinions from Transferee’s counsel as Lender deems necessary,
including an opinion that the Transferee and any SPE Equity Owner is in
compliance with Section 33 of this Instrument, a nonconsolidation opinion (if a
nonconsolidation opinion was delivered at origination of the Loan and if
required by Lender), an opinion that the assignment and assumption of the Loan
Documents has been duly authorized, executed, and delivered and that the
assignment documents and the Loan Documents are enforceable as the obligation of
the Transferee; and

22. EVENTS OF DEFAULT. The occurrence of any one or more of the following shall
constitute an Event of Default under this Instrument:

(a) any failure by Borrower to pay or deposit when due any amount required by
the Note, this Instrument or any other Loan Document;

(b) any failure by Borrower to maintain the insurance coverage required by
Section 19;

(c) any failure by Borrower or any SPE Equity Owner to comply with the
provisions of Section 33 or if any of the assumptions contained in any
nonconsolidation opinions delivered to Lender at any time is or shall become
untrue in any material respect;

(d) fraud or material misrepresentation or material omission by Borrower, any of
its officers, directors, trustees, general partners or managers, any SPE Equity
Owner or any guarantor in connection with (i) the application for or creation of
the Indebtedness, (ii) any financial statement, Rent Schedule, or other report
or information provided to Lender during the term of the Indebtedness, or
(iii) any request for Lender’s consent to any proposed action, including a
request for disbursement of funds under any Collateral Agreement;

(e) any failure by Borrower to comply with the provisions of Section 20;

(f) any Event of Default under Section 21;

(g) the commencement of a forfeiture action or proceeding, whether civil or
criminal, which could result in a forfeiture of the Mortgaged Property or
otherwise materially impair the lien created by this Instrument or Lender’s
interest in the Mortgaged Property;

(h) any failure by Borrower to perform any of its obligations under this
Instrument (other than those specified in Sections 22(a) through (g)), as and
when required, which continues for a period of 30 days after Notice of such
failure by Lender to Borrower. However, if Borrower’s failure to perform its
obligations as described in this Section 22(h) is of the nature that it cannot
be cured within the 30 day grace period but reasonably could be cured within 90
days, then Borrower shall have additional time as determined by Lender in its
discretion, not to exceed an additional 60 days, in which to cure such default,
provided that Borrower has

 

 

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diligently commenced to cure such default during the 30-day grace period and
diligently pursues the cure of such default. However, no such Notice or grace
periods shall apply in the case of any such failure which could, in Lender’s
judgment, absent immediate exercise by Lender of a right or remedy under this
Instrument, result in harm to Lender, impairment of the Note or this Instrument
or any other security given under any other Loan Document;

(i) any failure by Borrower to perform any of its obligations as and when
required under any Loan Document other than this Instrument which continues
beyond the applicable cure period, if any, specified in that Loan Document;

(j) any exercise by the holder of any other debt instrument secured by a
mortgage, deed of trust or deed to secure debt on the Mortgaged Property of a
right to declare all amounts due under that debt instrument immediately due and
payable;

(k) if (i) Borrower or any SPE Equity Owner shall commence any case, Proceeding
or other action under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship
or relief of debtors (A) seeking to have an order for relief entered with
respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debt, or (B) seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets; or (ii) there
shall be commenced against Borrower or any SPE Equity Owner any case,
Proceeding, or other action of a nature referred to in clause (i) above by any
party other than Lender which (A) results in the entry of an order for relief or
any such adjudication or appointment, or (B) remains undismissed, undischarged
or unbonded for a period of ninety (90) days; or (iii) there shall be commenced
against Borrower or any SPE Equity Owner any case, Proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of any order by a court of competent jurisdiction for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending
appeal within ninety (90) days from the entry thereof; or (iv) Borrower or any
SPE Equity Owner shall take any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii) or (iii) above; and

(1) any representations and warranties by Borrower or any SPE Equity Owner in
this Instrument that are false or misleading in any material respect.

23. REMEDIES CUMULATIVE; REMEDIES OF BORROWER. Each right and remedy provided in
this Instrument is distinct from all other rights or remedies under this
Instrument or any other Loan Document or afforded by applicable law, and each
shall be cumulative and may be exercised concurrently, independently, or
successively, in any order. In the event that a claim or adjudication is made
that Lender has acted unreasonably or unreasonably delayed acting in any case
where, by law or under this Instrument or the other Loan Documents, Lender has
an obligation to act reasonably or promptly, Lender shall not be liable for any
monetary damages, and Borrower’s sole remedy shall be limited to commencing an
action seeking injunctive relief or declaratory judgment. Any action or
proceeding to determine whether Lender has acted reasonably shall be determined
by an action seeking declaratory judgment.

 

 

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24. FORBEARANCE.

(a) Lender may (but shall not be obligated to) agree with Borrower, from time to
time, and without giving notice to, or obtaining the consent of, or having any
effect upon the obligations of, any guarantor or other third party obligor, to
take any of the following actions: extend the time for payment of all or any
part of the Indebtedness; reduce the payments due under this Instrument, the
Note, or any other Loan Document; release anyone liable for the payment of any
amounts under this Instrument, the Note, or any other Loan Document; accept a
renewal of the Note; modify the terms and time of payment of the Indebtedness;
join in any extension or subordination agreement; release any Mortgaged
Property; take or release other or additional security; modify the rate of
interest or period of amortization of the Note or change the amount of the
monthly installments payable under the Note; and otherwise modify this
Instrument, the Note, or any other Loan Document.

(b) Any forbearance by Lender in exercising any right or remedy under the Note,
this Instrument, or any other Loan Document or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any other right or
remedy, or the subsequent exercise of any right or remedy. The acceptance by
Lender of payment of all or any part of the Indebtedness after the due date of
such payment, or in an amount which is less than the required payment, shall not
be a waiver of Lender’s right to require prompt payment when due of all other
payments on account of the Indebtedness or to exercise any remedies for any
failure to make prompt payment. Enforcement by Lender of any security for the
Indebtedness shall not constitute an election by Lender of remedies so as to
preclude the exercise of any other right available to Lender. Lender’s receipt
of any awards or proceeds under Sections 19 and 20 shall not operate to cure or
waive any Event of Default.

25. LOAN CHARGES. If any applicable law limiting the amount of interest or other
charges permitted to be collected from Borrower is interpreted so that any
charge provided for in any Loan Document, whether considered separately or
together with other charges levied in connection with any other Loan Document,
violates that law, and Borrower is entitled to the benefit of that law, that
charge is hereby reduced to the extent necessary to eliminate that violation.
The amounts, if any, previously paid to Lender in excess of the permitted
amounts shall be applied by Lender to reduce the principal of the Indebtedness.
For the purpose of determining whether any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower has been
violated, all Indebtedness which constitutes interest, as well as all other
charges levied in connection with the Indebtedness which constitute interest,
shall be deemed to be allocated and spread over the stated term of the Note.
Unless otherwise required by applicable law, such allocation and spreading shall
be effected in such a manner that the rate of interest so computed is uniform
throughout the stated term of the Note.

26. WAIVER OF STATUTE OF LIMITATIONS, OFFSETS, AND COUNTERCLAIMS. Borrower
hereby waives the right to assert any statute of limitations as a bar to the
enforcement of the lien of this Instrument or to any action brought to enforce
any Loan Document. Borrower hereby waives the right to assert a counterclaim,
other than a compulsory counterclaim, in any action or proceeding brought
against it by Lender or otherwise to offset any obligations to make the payments
required by the Loan Documents. No failure by Lender to perform any of its
obligations hereunder shall be a valid defense to, or result in any offset
against, any payments that Borrower is obligated to make under any of the Loan
Documents.

27. WAIVER OF MARSHALLING. Notwithstanding the existence of any other security
interests in the Mortgaged Property held by Lender or by any other party, Lender
shall

 

 

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have the right to determine the order in which any or all of the Mortgaged
Property shall be subjected to the remedies provided in this Instrument, the
Note, any other Loan Document or applicable law. Lender shall have the right to
determine the order in which any or all portions of the Indebtedness are
satisfied from the proceeds realized upon the exercise of such remedies.
Borrower and any party who now or in the future acquires a security interest in
the Mortgaged Property and who has actual or constructive notice of this
Instrument waives any and all right to require the marshalling of assets or to
require that any of the Mortgaged Property be sold in the inverse order of
alienation or that any of the Mortgaged Property be sold in parcels or as an
entirety in connection with the exercise of any of the remedies permitted by
applicable law or’ provided in this Instrument.

28. FURTHER ASSURANCES; LENDER’S EXPENSES. Borrower shall execute, acknowledge,
and deliver, at its sole cost and expense, all further acts, deeds, conveyances,
assignments, estoppel certificates, financing statements or amendments,
transfers and assurances as Lender may require from time to time in order to
better assure, grant, and convey to Lender the rights intended to be granted,
now or in the future, to Lender under this Instrument and the Loan Documents.
Borrower acknowledges and agrees that, in connection with each request by
Borrower under this Instrument or any Loan Document, Borrower shall pay all
reasonable Attorneys’ Fees and Costs and expenses incurred by Lender, including
any fees charged by the Rating Agencies, regardless of whether the matter is
approved, denied or withdrawn. Any amounts payable by Borrower hereunder shall
be deemed a part of the Indebtedness, shall be secured by this instrument and
shall bear interest at the Default Rate if not fully paid within ten (10) days
of written demand for payment.

29. ESTOPPEL CERTIFICATE. Within 10 days after a request from Lender, Borrower
sha|l deliver to Lender a written statement, signed and acknowledged by
Borrower, certifying to Lender or any Person designated by Lender, as of the
date of such statement, (i) that the Loan Documents are unmodified and in full
force and effect (or, if there have been modifications, that the Loan Documents
are in full force and effect as modified and setting forth such modifications);
(ii) the unpaid principal balance of the Note; (iii) the date to which interest
under the Note has been paid; (iv) that Borrower is not in default in paying the
Indebtedness or in performing or observing any of the covenants or agreements
contained in this Instrument or any of the other Loan Documents (or, if the
Borrower is in default, describing such default in reasonable detail);
(v) whether or not there are then existing any setoffs or defenses known to
Borrower against the enforcement of any right or remedy of Lender under the Loan
Documents; and (vi) any additional facts requested by Lender.

30. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

(a) This Instrument, and any Loan Document which does not itself expressly
identify the law that is to apply to it, shall be governed by the laws of the
jurisdiction in which the Land is located (the “Property Jurisdiction”).

(b) Borrower agrees that any controversy arising under or in relation to the
Note, this Instrument, or any other Loan Document may be litigated in the
Property Jurisdiction. The state and federal courts and authorities with
jurisdiction in the Property Jurisdiction shall have jurisdiction over all
controversies that shall arise under or in relation to the Note, any security
for the Indebtedness, or any other Loan Document. Borrower irrevocably consents
to service, jurisdiction, and venue of such courts for any such litigation and
waives any other venue to which it might be entitled by virtue of domicile,
habitual residence or otherwise. However, nothing in this Section 30 is intended
to limit Lender’s right to bring any suit, action or proceeding relating to
matters under this Instrument in any court of any other jurisdiction.

 

 

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31. NOTICE.

(a) All Notices, demands and other communications (“Notice”) under or concerning
this Instrument shall be in writing. Each Notice shall be addressed to the
intended recipient at its address set forth in this Instrument, and shall be
deemed given on the earliest to occur of (i) the date when the Notice is
received by the addressee; (ii) the first Business Day after the Notice is
delivered to a recognized overnight courier service, with arrangements made for
payment of charges for next Business Day delivery; or (iii) the third Business
Day after the Notice is deposited in the United States mail with postage
prepaid, certified mail, return receipt requested.

(b) Any party to this Instrument may change the address to which Notices
intended for it are to be directed by means of Notice given to the other party
in accordance with this Section 31. Each party agrees that it will not refuse or
reject delivery of any Notice given in accordance with this Section 31, that it
will acknowledge, in writing, the receipt of any Notice upon request by the
other party and that any Notice rejected or refused by it shall be deemed for
purposes of this Section 31 to have been received by the rejecting party on the
date so refused or rejected, as conclusively established by the records of the
U.S. Postal Service or the courier service.

(c) Any Notice under the Note and any other Loan Document that does not specify
how Notices are to be given shall be given in accordance with this Section 31.

32. SALE OF NOTE; CHANGE IN SERVICER; LOAN SERVICING. The Note or a partial
interest in the Note (together with this Instrument and the other Loan
Documents) may be sold one or more times without prior Notice to Borrower. A
sale may result in a change of the Loan Servicer. There also may be one or more
changes of the Loan Servicer unrelated to a sale of the Note. If there is a
change of the Loan Servicer, Borrower will be given Notice of the change. All
actions regarding the servicing of the Loan evidenced by the Note, including the
collection of payments, the giving and receipt of Notice, inspections of the
Mortgaged Property, inspections of books and records, and the granting of
consents and approvals, may be taken by the Loan Servicer unless Borrower
receives Notice to the contrary. If Borrower receives conflicting Notices
regarding the identity of the Loan Servicer or any other subject, any such
Notice from Lender shall govern.

33. SINGLE PURPOSE ENTITY.

(a) Until the Indebtedness is paid in full, each Borrower and SPE Equity Owner
shall remain a Single Purpose Entity.

(b) A “Single Purpose Entity” means a corporation, limited partnership, or
limited liability company which, at all times since its formation and
thereafter:

 

  (i) shall not engage in any business or activity, other than the ownership,
operation and maintenance of the Mortgaged Property and activities incidental
thereto;

 

  (ii) shall not acquire, own, hold, lease, operate, manage, maintain, develop
or improve any assets other than the Mortgaged Property and such Personalty as
may be necessary for the operation of the Mortgaged Property and shall conduct
and operate its business as presently conducted and operated;

 

 

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  (iii) shall preserve its existence as an entity duly organized, validly
existing and in good standing (if applicable) under the laws of the jurisdiction
of its formation or organization and shall do all things necessary to observe
organizational formalities;

 

  (iv) shall not merge or consolidate with any other Person;

 

  (v) shall not take any action to dissolve, wind-up, terminate or liquidate in
whole or in part; to sell, transfer or otherwise dispose of all or substantially
all of its assets; to change its legal structure; transfer or permit the direct
or indirect transfer of any partnership, membership or other equity interests,
as applicable, other than Transfers permitted hereunder; issue additional
partnership, membership or other equity interests, as applicable; or seek to
accomplish any of the foregoing;

 

  (vi) shall not, without the prior unanimous written consent of all of the
Borrower’s partners, members, or shareholders, as applicable, and, if
applicable, the prior unanimous written consent of one hundred percent (100%) of
the members of the board of directors or of the board of managers of the
Borrower or the SPE Equity Owner: (A) file any insolvency, or reorganization
case or proceeding, to institute proceedings to have the Borrower or any SPE
Equity Owner be adjudicated bankrupt or insolvent, (B) institute proceedings
under any applicable insolvency law, (C) seek any relief under any law relating
to relief from debts or the protection of debtors, (D) consent to the filing or
institution of bankruptcy or insolvency proceedings against the Borrower or any
SPE Equity Owner, (E) file a petition seeking, or consent to, reorganization or
relief with respect to the Borrower or any SPE Equity Owner under any applicable
federal or state law relating to bankruptcy or insolvency, (F) seek or consent
to the appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian, or any similar official for the Borrower or a substantial part of its
property or for any SPE Equity Owner or a substantial part of its property,
(G) make any assignment for the benefit of creditors of the Borrower or any SPE
Equity Owner, (H) admit in writing the Borrower’s or any SPE Equity Owner’s
inability to pay its debts generally as they become due, or (I) take action in
furtherance of any of the foregoing;

 

  (vii) shall not amend or restate its organizational documents if such change
would modify the requirements set forth in this Section 33;

 

  (viii) shall not own any subsidiary or make any investment in, any other
Person;

 

  (ix) shall not commingle its assets with the assets of any other Person and
shall hold all of its assets in its own name;

 

  (x)

shall not incur any debt, secured or unsecured, direct or contingent (including,
without limitation, guaranteeing any obligation), other than,

 

 

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  (A) the Indebtedness (and any further indebtedness as described in Section 43
with regard to Supplemental Mortgages) and (B) customary unsecured trade
payables incurred in the ordinary course of owning and operating the Mortgaged
Property provided the same are not evidenced by a promissory note, do not
exceed, in the aggregate, at any time a maximum amount of two percent (2%) of
the original principal amount of the Indebtedness and are paid within sixty
(60) days of the date incurred;

 

  (xi) shall maintain its records, books of account, bank accounts, financial
statements, accounting records and other entity documents separate and apart
from those of any other Person and shall not list its assets as assets on the
financial statement of any other Person; provided, however, that the Borrower’s
assets may be included in a consolidated financial statement of its Affiliate
provided that (A) appropriate notation shall be made on such consolidated
financial statements to indicate the separateness of the Borrower from such
Affiliate and to indicate that the Borrower’s assets and credit are not
available to satisfy the debts and other obligations of such Affiliate or any
other Person and (B) such assets shall also be listed on the Borrower’s own
separate balance sheet;

 

  (xii) except for capital contributions or capital distributions permitted
under the terms and conditions of its organizational documents, shall only enter
into any contract or agreement with any general partner, member, shareholder,
principal or Affiliate of Borrower or any guarantor, or any general partner,
member, principal or Affiliate thereof, upon terms and conditions that are
commercially reasonable and substantially similar to those that would be
available on an arm’s-length basis with third parties;

 

  (xiii) shall not maintain its assets in such a manner that will be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any other Person;

 

  (xiv) shall not assume or guaranty (excluding any guaranty that has been
executed and delivered in connection with the Note) the debts or obligations of
any other Person, hold itself out to be responsible for the debts of another
Person, pledge its assets to secure the obligations of any other Person or
otherwise pledge its assets for the benefit of any other Person, or hold out its
credit as being available to satisfy the obligations of any other Person;

 

  (xv) shall not make or permit to remain outstanding any loans or advances to
any other Person except for those investments permitted under the Loan Documents
and shall not buy or hold evidence of indebtedness issued by any other Person
(other than cash or investment-grade securities);

 

  (xvi) shall file its own tax returns separate from those of any other Person,
except to the extent that the Borrower is treated as a “disregarded entity” for
tax purposes and is not required to file tax returns under applicable law, and
shall pay any taxes required to be paid under applicable law;

 

 

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  (xvii) shall hold itself out to the public as a legal entity separate and
distinct from any other Person and conduct its business solely in its own name,
shall correct any known misunderstanding regarding its separate identity and
shall not identify itself or any of its Affiliates as a division or department
of any other Person;

 

  (xviii) shall maintain adequate capital for the normal obligations reasonably
foreseeable in a business of its size and character and in light of its
contemplated business operations and shall pay its debts and liabilities from
its own assets as the same shall become due;

 

  (xix) shall allocate fairly and reasonably shared expenses with Affiliates
(including, without limitation, shared office space) and use separate
stationery, invoices and checks bearing its own name;

 

  (xx) shall pay (or cause the Property Manager to pay on behalf of the Borrower
from the Borrower’s funds) its own liabilities (including, without limitation,
salaries of its own employees) from its own funds;

 

  (xxi) shall not acquire obligations or securities of its partners, members,
shareholders, or Affiliates, as applicable;

 

  (xxii) except as contemplated or permitted by the property management
agreement with respect to the Property Manager, shall not permit any Affiliate
or constituent party independent access to its bank accounts;

 

  (xxiii) shall maintain a sufficient number of employees (if any) in light of
its contemplated business operations and pay the salaries of its own employees,
if any, only from its own funds;

 

  (xxiv) if such entity is a single member limited liability company, such
entity shall (A) be formed and organized under Delaware law, (B) have either
(1) one springing member that is a corporation whose stock is 100% owned by the
sole member of Borrower and that satisfies the requirements for a corporate
springing member set forth below in this subsection or (2) two springing members
who are natural persons and (C) otherwise comply with all Rating Agencies
criteria for single member limited liability companies (including, without
limitation, the delivery of Delaware single member limited liability company
opinions acceptable in all respects to Lender and to the Rating Agencies). If
the springing member is a corporation, such springing member shall at all times
comply, and will cause Borrower to comply, with each of the representations,
warranties and covenants contained in this Section 33 as if such representation,
warranty or covenant were made directly by such corporation. If there is more
than one springing member, only one springing member shall be the sole member of
Borrower at any one time, and the second springing member shall become the sole
member only upon the first springing member ceasing to be a member, so that at
all times Borrower has one and only one member;

 

 

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  (xxv) if such entity is a single member limited liability company that is
board-managed, such entity shall have a board of managers separate from that of
guarantor and any other Person and shall cause its board of managers to keep
minutes of board meetings and actions and observe all other Delaware limited
liability company required formalities; and

 

  (xxvi) if a SPE Equity Owner is required pursuant to Section 1(jjjj) of this
Instrument, if the Borrower is (A) a limited liability company with more than
one member, then the Borrower has and shall have at least one (1) member that is
an SPE Equity Owner that has satisfied and shall satisfy the requirements of
Section 33(c) below and such member is its managing member, or (B) a limited
partnership, then all of its general partners are SPE Equity Owners that have
satisfied and shall satisfy the requirements of Section 33(c) below.

(c) With respect to each SPE Equity Owner, if applicable, a “Single Purpose
Entity” means a corporation or a Delaware single member limited liability
company which, at all times since its formation and thereafter complies in its
own right (subject to the modifications set forth below), and shall cause
Borrower to comply, with each of the requirements contained in Section 33(b).
Upon the withdrawal or the disassociation of an SPE Equity Owner from Borrower,
Borrower shall immediately appoint a new SPE Equity Owner, whose organizational
documents are substantially similar to those of the withdrawn or disassociated
SPE Equity Owner, and deliver a new nonconsolidation opinion to the Rating
Agencies and Lender in form and substance satisfactory to Lender and to the
Rating Agencies (unless the opinion is waived by the Rating Agencies), with
regard to nonconsolidation by a bankruptcy court of the assets of each of the
Borrower and SPE Equity Owner with those of its Affiliates.

 

  (i) With respect to Sections 33(b)(i) and 33(b)(x) the SPE Equity Owner shall
not engage in any business or activity other than being the sole managing member
or general partner, as the case may be, of the Borrower and owning at least a
0.5% equity interest in Borrower;

 

  (ii) With respect to Section 33(b)(ii), the SPE Equity Owner has not and shall
not acquire or own any assets other than its equity interest in the Borrower and
personal property related thereto; and

 

  (iii) With respect to Section 33(b)(viii), the SPE Equity Owner shall not own
any subsidiary or make any investment in any other Person, except for Borrower;

 

  (iv) With respect to Section 33(b)(xiv), the SPE Equity Owner shall not assume
or guaranty the debts or obligations of any other Person, hold itself out to be
responsible for the debts of another Person, pledge its assets to secure the
obligations of any other Person or otherwise pledge its assets for the benefit
of any other Person, or hold out its credit as being available to satisfy the
obligations of any other Person, except for in its capacity as general partner
of the Borrower (if applicable);

 

  (v)

With respect to Section 33(b)(x), the SPE Equity Owner has not and shall not
incur any debt, secured or unsecured, direct or contingent (including, without
limitation, guaranteeing any obligation), other than (A) customary

 

 

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  unsecured payables incurred in the ordinary course of owning the Borrower
provided the same are not evidenced by a promissory note, do not exceed, in the
aggregate, at any time a maximum amount of $10,000 and are paid within sixty
(60) days of the date incurred and (B) except in its capacity as general partner
of the Borrower (if applicable).

(d) [INTENTIONALLY DELETED]

(e) Notwithstanding anything to the contrary in this Instrument, no Transfer
will be permitted under Sections 21(c), (d), (e) or (f) unless the provisions of
this Section 33 are satisfied at all times.

34. SUCCESSORS AND ASSIGNS BOUND. This Instrument shall bind, and the rights
granted by this Instrument shall inure to, the respective successors and assigns
of Lender and Borrower. However, a Transfer not permitted by Section 21 shall be
an Event of Default.

35. JOINT AND SEVERAL LIABILITY. If more than one Person signs this Instrument
as Borrower, the obligations of such Persons shall be joint and several.

36. RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

(a) The relationship between Lender and Borrower shall be solely that of
creditor and debtor, respectively, and nothing contained in this Instrument
shall create any other relationship between Lender and Borrower.

(b) No creditor of any party to this Instrument and no other Person shall be a
third party beneficiary of this Instrument or any other Loan Document. Without
limiting the generality of the preceding sentence, (i) any arrangement (a
“Servicing Arrangement”) between the Lender and any Loan Servicer for loss
sharing or interim advancement of funds shall constitute a contractual
obligation of such Loan Servicer that is independent of the obligation of
Borrower for the payment of the Indebtedness, (ii) Borrower shall not be a third
party beneficiary of any Servicing Arrangement, and (iii) no payment by the Loan
Servicer under any Servicing Arrangement will reduce the amount of the
Indebtedness.

37. SEVERABILITY; AMENDMENTS. The invalidity or unenforceability of any
provision of this Instrument shall not affect the validity or enforceability of
any other provision, and all other provisions shall remain in full force and
effect. This Instrument contains the entire agreement among the parties as to
the rights granted and the obligations assumed in this Instrument. This
Instrument may not be amended or modified except by a writing signed by the
party against whom enforcement is sought; provided, however, that in the event
of a Transfer prohibited by or requiring Lender’s approval under Section 21, any
or some or all of the Modifications to Instrument set forth in Exhibit B (if
any) may be modified or rendered void by Lender at Lender’s option by Notice to
Borrower and the transferee(s).

38. CONSTRUCTION. The captions and headings of the Sections of this Instrument
are for convenience only and shall be disregarded in construing this Instrument.
Any reference in this Instrument to an “Exhibit” or a “Section” shall, unless
otherwise explicitly provided, be construed as referring, respectively, to an
Exhibit attached to this Instrument or to a Section of this Instrument. All
Exhibits attached to or referred to in this Instrument are incorporated by
reference into this Instrument. Any reference in this Instrument to a statute or
regulation shall be construed as referring to that statute or regulation as
amended from time to time. Use of the singular in this Agreement includes the
plural and use of the plural includes the singular. As used in this Instrument,
the term “including” means “including, but not limited to.”

 

 

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39. DISSEMINATION OF INFORMATION. Borrower acknowledges that Lender may provide
to third parties with an existing or prospective interest in the servicing,
enforcement, evaluation, performance, ownership, purchase, participation or
Securitization of the Loan, including, without limitation, any of the Rating
Agencies, any entity maintaining databases on the underwriting and performance
of commercial mortgage loans, as well as governmental regulatory agencies having
regulatory authority over Lender, any and all information which Lender now has
or may hereafter acquire relating to the Loan, the Mortgaged Property, Borrower,
any SPE Equity Owner or any guarantor, as Lender determines necessary or
desirable and that such information may be included in disclosure documents in
connection with a Securitization or syndication of participation interests,
including, without limitation, a prospectus, prospectus supplement, offering
memorandum, private placement memorandum or similar document (each, a
“Disclosure Document”) and also may be included in any filing with the
Securities and Exchange Commission pursuant to the Securities Act or the
Securities Exchange Act. To the fullest extent permitted under applicable law,
Borrower irrevocably waives all rights, if any, to prohibit such disclosure,
including, without limitation, any right of privacy.

40. NO CHANGE IN FACTS OR CIRCUMSTANCES. Borrower warrants that (a) all
information in the application for the Loan submitted to Lender (the “Loan
Application”) and in all financial statements, Rent Schedules, reports,
certificates and other documents submitted in connection with the Loan
Application are complete and accurate in all material respects; and (b) there
has been no material adverse change in any fact or circumstance that would make
any such information incomplete or inaccurate.

41. SUBROGATION. If, and to the extent that, the proceeds of the Loan evidenced
by the Note, or subsequent advances under Section 12, are used to pay, satisfy
or discharge a Prior Lien, such Loan proceeds or advances shall be deemed to
have been advanced by Lender at Borrower’s request, and Lender shall
automatically, and without further action on its part, be subrogated to the
rights, including lien priority, of the owner or holder of the obligation
secured by the Prior Lien, whether or not the Prior Lien is released.

42. [INTENTIONALLY DELETED]

43. SUPPLEMENTAL FINANCING.

(a) This Section shall apply only if at the time of any application referred to
below, the Federal Home Loan Mortgage Corporation (“Freddie Mac”) has in effect
a product described in its Multifamily Seller/Servicer Guide under which it
purchases supplemental mortgages on multifamily properties that meet specified
criteria (a “Supplemental Mortgage Product”).

(b) After the first anniversary of the date of this Instrument (the “First
Mortgage”), Freddie Mac will consider an application from an originating lender
that is generally approved by Freddie Mac to sell mortgages to Freddie Mac under
the Supplemental Mortgage Product (an “Approved Seller/Servicer”) for the
purchase by Freddie Mac of a proposed indebtedness of Borrower to the Approved
Seller/Servicer to be secured by one or more supplemental mortgages on the
Mortgaged Property (such indebtedness and supplemental mortgages being referred
to

 

 

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together as a “Supplemental Mortgage”). Freddie Mac will purchase each
Supplemental Mortgage secured by the Mortgaged Property if the following
conditions are satisfied:

 

  (i) At the time of the proposed Supplemental Mortgage, no Event of Default
shall have occurred and be continuing and no event or condition shall have
occurred and be continuing that, with the giving of Notice or the passage of
time, or both, would become an Event of Default;

 

  (ii) Borrower, the Mortgaged Property and the proposed Supplemental Mortgage
must be acceptable to Freddie Mac under its then-current Supplemental Mortgage
Product;

 

  (iii) New loan documents must be entered into to reflect each Supplemental
Mortgage, such documents to be acceptable to Freddie Mac in its sole discretion;

 

  (iv) Each Supplemental Mortgage will not cause the combined debt service
coverage ratio of the Mortgaged Property after each Supplemental Mortgage to be
less than 1.25:1, subject to increase in accordance with Freddie Mac’s
then-current policies (“Required DSCR”), as determined by Freddie Mac. As used
in this Section, the term “combined debt service coverage ratio” means, with
respect to the Mortgaged Property, the ratio of (A) the annual net operating
income from the operations of the Mortgaged Property at the time of the proposed
Supplemental Mortgage to (B) the aggregate of the annual principal and interest
payable on (I) the Indebtedness under this Instrument (using a 30-year
amortization schedule), (II) any “Indebtedness” as defined in any security
instruments recorded against the Mortgaged Property (using a 30-year
amortization schedule for any Supplemental Mortgages) and (III) the proposed
“Indebtedness” for any Supplemental Mortgage (using a 30-year amortization
schedule). The annual net operating income of the Mortgaged Property will be as
determined by Freddie Mac in its sole discretion considering factors such as
income in place at the time of the proposed Supplemental Mortgage and income
during the preceding twelve (12) months, and actual, historical and anticipated
operating expenses. Freddie Mac shall determine the combined debt service
coverage ratio of the Mortgaged Property based on its underwriting. Borrower
shall provide Freddie Mac such financial statements and other information
Freddie Mac may require to make these determinations;

 

  (v)

Each Supplemental Mortgage will not cause the combined loan to value ratio of
the Mortgaged Property after each Supplemental Mortgage to exceed 73%, subject
to decrease in accordance with Freddie Mac’s then-current policies (“Required
LTV”), as determined by Freddie Mac. As used in this Section, “combined loan to
value ratio” means, with respect to the Mortgaged Property, the ratio, expressed
as a percentage, of (A) the aggregate outstanding principal balances of (I) the
Indebtedness under this Instrument, (II) any “Indebtedness” as defined in any
security instruments recorded against the Mortgaged Property and (III) the
proposed “Indebtedness” for any Supplemental Mortgage, to (B) the value of the
Mortgaged Property. Freddie Mac shall determine the combined loan to

 

 

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  value ratio of the Mortgaged Property based on its underwriting. Borrower
shall provide Freddie Mac such financial statements and other information
Freddie Mac may require to make these determinations. In addition, Freddie Mac,
at Borrower’s expense, may obtain MAI appraisals of the Mortgaged Property in
order to assist Freddie Mac in making the determinations hereunder. If Freddie
Mac requires an appraisal, then the value of the Mortgaged Property that will be
used to determine whether the Required LTV has been met shall be the lesser of
(A) the appraised value set forth in such appraisal or (B) the value of the
Mortgaged Property as determined by Freddie Mac;

 

  (vi) The Borrower’s organizational documents are amended to permit the
Borrower to incur additional debt in the form of Supplemental Mortgages (Lender
shall consent to such amendment(s));

 

  (vii) One or more natural persons or entities acceptable to Freddie Mac
executes and delivers to the Approved Seller/Servicer a guaranty in a form
acceptable to Freddie Mac with respect to the exceptions to non-recourse
liability described in Freddie Mac’s form promissory note, unless Freddie Mac
has elected to waive its requirement for a guaranty;

 

  (viii) The loan term of each Supplemental Mortgage shall be coterminous with
the First Mortgage or longer than the First Mortgage, including any “Extension
Period” described in the Note secured by the First Mortgage, at Freddie Mac’s
discretion;

 

  (ix) The Prepayment Premium Period (as defined in the Note) of each
Supplemental Mortgage shall be coterminous with the Prepayment Premium Period or
the combined Lockout Period and Defeasance Period (all, as defined in the Note),
as applicable, of the First Mortgage;

 

  (x) The interest rate of each Supplemental Mortgage will be determined by
Freddie Mac in its sole and absolute discretion;

 

  (xi) The Lender enters into an intercreditor agreement (“Intercreditor
Agreement”) acceptable to Freddie Mac and to Lender for each Supplemental
Mortgage;

 

  (xii) Borrower’s payment of fees and other expenses charged by Lender, Freddie
Mac, the Approved Seller/Servicer, and the Rating Agencies (including reasonable
Attorneys’ Fees and Costs) in connection with reviewing and originating each
Supplemental Mortgage;

 

  (xiii) Notwithstanding anything to the contrary in Section 7 of this
Instrument, Borrower shall make deposits under this First Mortgage for the
payment of any Impositions, so long as a Supplemental Mortgage is outstanding,
and such deposits shall be credited to the payment of such Impositions under any
Supplemental Mortgage;

 

 

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  (xiv) All other requirements of the Supplemental Mortgage Product must be met,
unless Freddie Mac has elected to waive one or more of its requirements.

(c) No later than 5 Business Days after Lender’s receipt of a written request
from Borrower, Lender shall provide the following information to an Approved
Seller/Servicer upon Borrower’s written request. Lender shall only be obligated
to provide this information in connection with Borrower’s request for a
Supplemental Mortgage from an Approved Seller/Servicer; provided, however, if
Freddie Mac is the owner of the Note, Lender shall not be obligated to provide
such information:

 

  (i) the then-current outstanding principal balance of the First Mortgage;

 

  (ii) payment history of the First Mortgage;

 

  (iii) whether taxes, insurance, ground rents, replacement reserves, repair
escrows, or other escrows are being collected on the First Mortgage and the
amount of each such escrow as of the date of the request;

 

  (iv) whether any repairs, capital replacements or improvements or rental
achievement or burn-off guaranty requirements are existing or outstanding under
the terms of the First Mortgage;

 

  (v) a copy of the most recent inspection report for the Mortgaged Property;

 

  (vi) whether any modifications or amendments have been made to the Loan
Documents for the First Mortgage since origination of the First Mortgage and, if
applicable, a copy of such modifications and amendments; and

 

  (vii) whether to Lender’s knowledge any Event of Default exists under the
First Mortgage.

(d) Lender shall have no obligation to consent to any mortgage or lien on the
Mortgaged Property that secures any indebtedness other than the Indebtedness,
except as set forth herein.

(e) If a Supplemental Mortgage is made to Borrower, Borrower agrees that the
terms of the Intercreditor Agreement shall govern with respect to any
distributions of excess proceeds by Lender to the Approved Seller/Servicer,
Freddie Mac or their successors and/or assigns (collectively, the “Junior
Lender”), and Borrower agrees that Lender may distribute any excess proceeds
received by Lender pursuant to the Loan Documents to Junior Lender pursuant to
the Intercreditor Agreement.

44. DEFEASANCE (Section Applies if Loan is Assigned to REMIC Trust Prior to the
Cut-off Date). This Section 44 shall apply in the event the Note is assigned to
a REMIC trust prior to me Cut-off Date, and, subject to Section 44(a) and
(c) below, Borrower shall have the right to defease the Loan in whole
(“Defeasance”) and obtain the release of the Mortgaged Property from the lien of
this Instrument upon the satisfaction of the following conditions:

(a) Borrower shall not have the right to obtain Defeasance at any of the
following times:

 

 

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  (i) if the Loan is not assigned to a REMIC trust;

 

  (ii) during the Lockout Period (as defined in the Note);

 

  (iii) after the expiration of the Defeasance Period (as defined in the Note);
or

 

  (iv) after Lender has accelerated the maturity of the unpaid principal balance
of, accrued interest on, and other amounts payable under, the Note pursuant to
Section 6 of the Note.

(b) Borrower shall give Lender Notice (the “Defeasance Notice”) specifying a
Business Day (the “Defeasance Closing Date”) on which Borrower desires to close
the Defeasance. The Defeasance Closing Date specified by Borrower may not be
more than 60 calendar days, nor less than 30 calendar days, after the date on
which the Defeasance Notice is received by Lender. Lender will acknowledge
receipt of the Defeasance Notice and will state in such receipt whether Lender
will designate the Successor Borrower or will permit Borrower to designate the
Successor Borrower.

(c) The Defeasance Notice must be accompanied by a $10,000 non-refundable fee
(the “Defeasance Fee”). If Lender does not receive the Defeasance Fee, then
Borrower’s right to obtain Defeasance pursuant to that Defeasance Notice shall
terminate.

 

  (d)(i) If Borrower timely pays the Defeasance Fee, but Borrower fails to
perform its other obligations hereunder, Lender shall have the right to retain
the Defeasance Fee as liquidated damages for Borrower’s default and, except as
provided in Section 44(d)(ii), Borrower shall be released from all further
obligations under this Section 44. Borrower acknowledges that Lender will incur
financing costs in arranging and preparing for the release of the Mortgaged
Property from the lien of this Instrument in reliance on the executed Defeasance
Notice. Borrower agrees that the Defeasance Fee represents a fair and reasonable
estimate, taking into account all circumstances existing on the date of this
Instrument, of the damages Lender will incur by reason of Borrower’s default.

 

  (ii) In the event that the Defeasance is not consummated on the Defeasance
Closing Date for any reason, Borrower agrees to reimburse Lender for all third
party costs and expenses (other than financing costs covered by Section 44(d)(i)
above) incurred by Lender in reliance on the executed Defeasance Notice, within
5 Business Days after Borrower receives a written demand for payment,
accompanied by a statement, in reasonable detail, of Lender’s third party costs
and expenses.

 

  (iii) All payments required to be made by Borrower to Lender pursuant to this
Section 44 shall be made by wire transfer of immediately available funds to the
account(s) designated by Lender in its acknowledgement of the Defeasance Notice.

 

  (e) No Event of Default has occurred and is continuing.

 

 

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  (f) The documents required to be delivered to Lender on or prior to the
Defeasance Closing Date are:

 

  (i) an opinion of counsel for Borrower, in form and substance satisfactory to
Lender, to the effect that Lender has a valid and perfected lien and security
interest of first priority in the Defeasance Collateral and the proceeds
thereof;

 

  (ii) an opinion of counsel for Borrower, in form and substance satisfactory to
Lender, to the effect that the Pledge Agreement is duly authorized, executed,
delivered and enforceable against Borrower in accordance with the respective
terms;

 

  (iii) unless waived by Lender or unless Lender designates the Successor
Borrower, an opinion of counsel for Successor Borrower, in form and substance
satisfactory to Lender, to the effect that the Transfer and Assumption Agreement
is duly authorized, executed, delivered and enforceable against Successor
Borrower in accordance with the respective terms;

 

  (iv) unless waived by Lender or unless Lender designates the Successor
Borrower, an opinion of counsel for Successor Borrower, in form and substance
satisfactory to Lender, to the effect that the Successor Borrower has been
validly created;

 

  (v) if Borrower designates the Successor Borrower, an opinion of counsel for
Successor Borrower, in form and substance satisfactory to Lender and to the
Rating Agencies, with regard to nonconsolidation of the assets of the Successor
Borrower with those of its Affiliates by a bankruptcy court;

 

  (vi) unless waived by Lender, an opinion of counsel for Borrower, in form and
substance satisfactory to Lender, to the effect that:

 

  (A) if, as of the Defeasance Closing Date, the Note is held by a REMIC trust,
(1) the Defeasance has been effected in accordance with the requirements of
Treasury Regulation Section 1.860G-2(a)(8) (as such regulation may be modified,
amended or replaced from time to time), (2) the qualification and status of the
REMIC trust as a REMIC will not be adversely affected or impaired as a result of
the Defeasance, and (3) the REMIC trust will not incur a tax under
Section 860G(d) of the Tax Code as a result of the Defeasance, and

 

  (B) the Defeasance will not result in a “sale or exchange” of the Note within
the meaning of Section 1001(c) of the Tax Code and the temporary and final
regulations promulgated thereunder;

 

  (vii) unless waived by Lender, a written certificate from an independent
certified public accounting firm (reasonably acceptable to Lender), confirming
that the Defeasance Collateral will generate cash sufficient to make all
Scheduled Debt Payments as they fall due under the Note, including full payment
due on the Note on the Maturity Date;

 

 

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  (viii) Lender’s form of a pledge and security agreement (“Pledge Agreement”)
and financing statements which pledge and create a first priority security
interest in the Defeasance Collateral in favor of Lender;

 

  (ix) Lender’s form of a transfer and assumption agreement (“Transfer and
Assumption Agreement”), whereupon Borrower and any guarantor (in each case,
subject to satisfaction of all requirements hereunder) shall be relieved from
liability in connection with the Loan (other than any liability under Section 18
of this Instrument for events that occur prior to the Defeasance Closing Date,
whether discovered before or after the Defeasance Closing Date) and Successor
Borrower shall assume all remaining obligations;

 

  (x) Forms of all documents necessary to release the Mortgaged Property from
the liens created by this Instrument and related UCC financing statements
(collectively, “Release Instruments”), each in appropriate form required by the
state in which the Property is located; and

 

  (xi) such other opinions, certificates, documents or instruments as Lender may
reasonably request;

 

  (g) Borrower shall deliver to Lender on or prior to the Defeasance Closing
Date:

 

  (i) . The Defeasance Collateral which meets all requirements of
Section 44(g)(ii) below and is owned by Borrower, free and clear of all liens
and claims of third-parties;

 

  (ii) The Defeasance Collateral must be in an amount to provide for
(A) redemption payments to occur prior, but as close as possible, to all
successive Installment Due Dates occurring under the Note after the Defeasance
Closing Date and (B) deliver redemption proceeds at least equal to the amount of
principal and interest due on the Note on each Installment Due Date including
full payment due on the Note on the Maturity Date (“Scheduled Debt Payments”).
The Defeasance Collateral shall be arranged such that redemption payments
received from the Defeasance Collateral are paid directly to Lender to be
applied on account of the Scheduled Debt Payments. Unless otherwise agreed in
writing by Lender, the pledge of the Defeasance Collateral shall be effectuated
through the book-entry facilities of a qualified securities intermediary
designated by Lender in conformity with all applicable laws; and

 

  (iii) All accrued and unpaid interest and all other sums due under the Note,
this Instrument and under the other Loan Documents, including, without
limitation, all amounts due under Section 44(i) below, up to the Defeasance
Closing Date shall be paid in full on or prior to the Defeasance Closing Date.

 

 

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(h) If Lender permits Borrower to designate the Successor Borrower, then
Borrower shall, at Borrower’s expense, designate or establish an accommodation
borrower (“Successor Borrower”) satisfactory to Lender (or Lender, at its
option, may designate the Successor Borrower) which satisfies Lender’s then
current requirements for a “Single Purpose Entity” to assume at the time of
Defeasance ownership of the Defeasance Collateral and liability for all of
Borrower’s obligations under the Pledge Agreement and the Loan Documents (to the
extent that liability thereunder survives release of this Instrument). Borrower
shall pay to Successor Borrower a fee of $1,000.00 as consideration of Successor
Borrower’s assumption of Borrower’s obligations under the Loan Documents.
Notwithstanding any contrary provision hereunder, no Transfer fee is payable to
Lender upon a Transfer of the Loan in accordance with this Section.

(i) Borrower shall pay all reasonable costs and expenses incurred by Lender in
connection with the Defeasance in full on or prior to the Defeasance Closing
Date, which payment is required prior to Lender’s issuance of the Release
Instruments and whether or not Defeasance is completed. Such expenses include,
without limitation, all fees, costs and expenses incurred by Lender and its
agents in connection with the Defeasance (including, without limitation,
reasonable Attorneys’ Fees and Costs for the review and preparation of the
Pledge Agreement and of the other materials described herein and any related
documentation, and any servicing fees, Rating Agencies’ fees or other costs
related to the Defeasance); r; reasonable Attorneys’ Fees and Costs; and a
processing fee to cover Lender’s administrative costs to process Borrower’s
Defeasance request. Lender reserves the right to require that Borrower post a
deposit to cover costs which Lender reasonably anticipates will be incurred.

45. INTENTIONALLY DELETED.

46. LENDER’S RIGHTS TO SELL OR SECURITIZE. Borrower acknowledges that Lender,
and each successor to Lender’s interest, may (without prior Notice to Borrower
or Borrower’s prior consent), sell or grant participations in the Loan (or any
part thereof), sell or subcontract the servicing rights related to the Loan,
securitize the Loan or include the Loan as part of a trust. Borrower, at its
expense, agrees to cooperate with all reasonable requests of Lender in
connection with any of the foregoing including, without limitation, executing
any financing statements or other documents deemed necessary by Lender or its
transferee to create, perfect or preserve the rights and interest to be acquired
by such transferee, providing any updated financial information with appropriate
verification through auditors letters, delivering revised organizational
documents and counsel opinions satisfactory to the Rating Agencies, executed
amendments to the Loan Documents, and review information contained in a
preliminary or final private placement memorandum, prospectus, prospectus
supplements or other Disclosure Document, and providing a mortgagor estoppel
certificate and such other information about Borrower, any SPE Equity Owner, any
guarantor, any Property Manager or the Mortgaged Property as Lender may require
for Lender’s offering materials.

47. SECURITIZATION INDEMNIFICATION.

(a) Borrower and each guarantor agree, in connection with each Disclosure
Document, to provide an indemnification certificate, as set forth below,
indemnifying Lender, any Issuer Person, the Issuer Group and/or the Underwriter
Group (as those terms are defined below; each an “Indemnified Party” and
collectively the “Indemnified Parties”) for any losses to which any Indemnified
Party may become subject under the conditions set forth below.

 

 

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(b) The indemnification certificate will provide that

 

  (i) Borrower and each guarantor have carefully examined those sections of the
Disclosure Documents relating to the following:

 

  (A) Borrower, any SPE Equity Owner, any guarantor, any Property Manager, their
respective Affiliates, the Loan and the Mortgaged Property (the “Borrower
Information”); and

 

  (B) the sections entitled “Special Considerations,” and/or “Risk Factors,” and
“Certain Legal Aspects of the Mortgage Loan,” or similar sections but only to
the extent such sections specifically refer to the Borrower Information (the
“Borrower Information Sections”).

 

  (ii) To the best of such indemnitor’s knowledge, with regard to the Borrower
Information, the Borrower Information Sections do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they
were made, not misleading.

Notwithstanding the foregoing, any indemnification certificate may expressly
exclude any information contained in third party reports prepared by parties
that are not Affiliates of Borrower or any guarantor (“Third Party
Information”), and the obligations and liability of Borrower and any guarantor
pursuant to this Section shall not extend to the Third Party Information.

(c) Borrower’s and each guarantor’s agreement to indemnify the Indemnified
Parties for any losses to which any Indemnified Party may become subject will
extend only to such losses that arise out of or are based upon any untrue
statement of any material fact contained in the Borrower Information or the
Borrower Information Sections of the Disclosure Documents or arise out of or are
based upon the omission to state in the Borrower Information or the Borrower
Information Sections of the Disclosure Documents a material fact required to be
stated in such sections necessary in order to make the statements in such
sections or in light of the circumstances under which they were made, not
misleading (collectively, “Securities Liabilities”).

(d) Borrower and each guarantor agrees to reimburse any Indemnified Party for
any legal or other expenses reasonably incurred by such Indemnified Party in
investigating or defending the Securities Liabilities.

(e) The indemnitors will be liable under clauses (b), (c) and (d) above only to
the extent that such Securities Liabilities arise out of, or are based upon, any
such untrue statement or omission made in the Disclosure Documents in reliance
upon, and in conformity with, Borrower Information furnished to any Indemnified
Party by or on behalf of Borrower or a guarantor in connection with the
preparation of the Disclosure Documents or in connection with the underwriting
of the Loan, including, without limitation, financial statements of Borrower,
any SPE Equity Owner or any guarantor, and operating statements and rent rolls
with respect to the Mortgaged Property.

 

 

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(f) This indemnity is in addition to any liability which Borrower may otherwise
have and shall be effective whether or not an indemnification certificate
described above is provided and shall be applicable based on information
previously provided by or on behalf of Borrower or a guarantor if the
indemnification certificate is not provided.

(g) For purposes of this Section:

 

  (i) The term “Lender” shall include its officers and directors.

 

  (ii) An “Issuer Person” shall include:

 

  (A) any Affiliate of Lender that has filed the registration statement, if any,
relating to the Securitization; and

 

  (B) any Affiliate of Lender which is acting as issuer, depositor, sponsor
and/or in a similar capacity with respect to the Securitization.

 

  (iii) The “Issuer Group” shall include:

 

  (A) each director and officer of any Issuer Person; and

 

  (B) each entity that Controls any Issuer Person within the meaning of
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act.

 

  (iv) The “Underwriter Group” shall include:

 

  (A) each entity which is acting as an underwriter, manager, placement agent,
initial purchaser or in a similar capacity with respect to the Securitization;

 

  (B) each of its directors and officers;

 

  (C) each entity that Controls any such entity within the meaning of Section 15
of the Securities Act or Section 20 of the Securities Exchange Act and is acting
as an underwriter, manager, placement agent, initial purchaser or in a similar
capacity with respect to the Securitization; and

 

  (D) the directors and officers of such entity described in subsection (iv)(C)
above.

48. WARRANTIES OF BORROWER. Borrower, for itself and its successors and assigns,
does hereby represent, warrant and covenant to and with Lender, its successors
and assigns, that:

(a) The representations, warranties and covenants contained in this Instrument
survive for as long as any Indebtedness remains outstanding;

 

 

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(b) None of the items shown in the Schedule of Title Exceptions will materially
or adversely affect (i) the ability of the Borrower to pay the Loan in full,
(ii) the use for which all or any part of the Mortgaged Property is being used
at the time this Instrument was executed, except as set forth in Section 11 of
this Instrument, (iii) the operation of the Mortgaged Property or (iv) the value
of the Mortgaged Property;

(c) Borrower is not an “investment company”, or a company Controlled by an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended;

(d) Borrower is not an “employee benefit plan,” as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which
is subject to Title I of ERISA and the assets of Borrower do not constitute
“plan assets” of one or more such plans within the meaning of 29 C.F.R.
Section 2510.3-101;

(e) Borrower will give prompt written Notice to Lender of any litigation or
governmental proceedings pending or, to the best of Borrower’s knowledge,
threatened (in writing) against Borrower which might have a Material Adverse
Effect as defined below.

(f) There are no judicial, administrative, mediation or arbitration actions,
suits or proceedings pending or, to the best of Borrower’s knowledge, threatened
(in writing) against or affecting Borrower (and, if Borrower is a limited
partnership, any of its general partners or if Borrower is a limited liability
company, any member of Borrower) or the Mortgaged Property which, if adversely
determined, would have a material adverse effect on (i) the Mortgaged Property,
(ii) the business, prospects, profits, operations or condition (financial or
otherwise) of Borrower, (iii) the enforceability, validity, perfection or
priority of the lien of any Loan Document, or (iv) the ability of Borrower to
perform any obligations under any Loan Document (collectively, a “Material
Adverse Effect”).

(g) With regard to ERISA:

 

  (i) Borrower shall not engage in any transaction which would cause an
obligation, or action taken or to be taken, hereunder (or the exercise by Lender
of any of its rights under the Note, this Instrument or any of the other Loan
Documents) to be a non-exempt (under a statutory or administrative class
exemption) prohibited transaction under ERISA.

 

  (ii) Borrower further covenants and agrees to deliver to Lender such
certifications or other evidence from time to time throughout the term of this
Instrument, as requested by Lender in its sole discretion, that (A) Borrower is
not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is
subject to Title I of ERISA, or a “governmental plan” within the meaning of
Section 3(32) of ERISA; (B) Borrower is not subject to state statutes regulating
investments and fiduciary obligations with respect to governmental plans; and
(C) one or more of the following circumstances is true:

 

  (1) Equity interests in Borrower are publicly offered securities within the
meaning of 29 C.F.R. Section 2510.3-101(b)(2), as amended from time to time or
any successor provision;

 

 

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  (2) Less than twenty-five percent (25%) of each outstanding class of equity
interests in Borrower are held by “benefit plan investors” within the meaning of
Section 3(42) of ERISA, as amended from time to time or any successor provision;
or

 

  (3) Borrower qualifies as an “operating company” or a “real estate operating
company” within the meaning of 29 C.F.R. Section 2510.3-101(c), as amended from
time to time or any successor provision, or within the meaning of 29 C.F.R.
Section 2510.3- 101(e) as an investment company registered under the Investment
Company Act of 1940.

 

  (iii) BORROWER SHALL INDEMNIFY LENDER AND DEFEND AND HOLD LENDER HARMLESS FROM
AND AGAINST ALL CIVIL PENALTIES, EXCISE TAXES, OR OTHER LOSS, COST, DAMAGE AND
EXPENSE (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS’ FEES AND COSTS
INCURRED IN THE INVESTIGATION, DEFENSE AND SETTLEMENT OF CLAIMS AND LOSSES
INCURRED IN CORRECTING ANY PROHIBITED TRANSACTION OR IN THE SALE OF A PROHIBITED
LOAN, AND IN OBTAINING ANY INDIVIDUAL PROHIBITED TRANSACTION EXEMPTION UNDER
ERISA THAT MAY BE REQUIRED, IN LENDER’S SOLE DISCRETION) THAT LENDER MAY INCUR,
DIRECTLY OR INDIRECTLY, AS A RESULT OF DEFAULT UNDER THIS SECTION 48. THIS
INDEMNITY SHALL SURVIVE ANY TERMINATION, SATISFACTION OR FORECLOSURE OF THIS
INSTRUMENT.

49. COOPERATION WITH RATING AGENCIES AND INVESTORS. Borrower covenants and
agrees that in the event Lender decides to include the Loan as an asset of a
Secondary Market Transaction, Borrower shall (a) at Lender’s request, meet with
representatives of the Rating Agencies and/or investors to discuss the business
and operations of the Mortgaged Property, and (b) permit Lender or its
representatives to provide related information to the Rating Agencies and/or
investors, and (c) cooperate with the reasonable requests of the Rating Agencies
and/or investors in connection with all of the foregoing.

50. RESERVED.

51. RESERVED.

52. RESERVED.

53. RESERVED.

54. RESERVED.

55. RESERVED.

56. RESERVED.

 

 

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57. RESERVED.

58. RESERVED.

59. RESERVED.

60. ACCELERATION; REMEDIES. At any time during the existence of an Event of
Default, Lender shall give any notice to Borrower required by applicable law. If
no notice is required or if the Event of Default is not cured as prescribed by
applicable law, Lender at its option may declare the Indebtedness to be
immediately due and payable without further demand and may invoke the power of
sale and any other remedies permitted by applicable law or provided in this
Instrument or in any other Loan Document. Borrower acknowledges that the power
of sale granted in this Instrument may be exercised by Lender without prior
judicial hearing. Borrower has the right to bring an action to assert the
nonexistence of an Event of Default or any other defense of Borrower to
acceleration and sale. Lender shall be entitled to collect all costs and
expenses incurred in pursuing such remedies including attorneys’ fees and costs
of documentary and title evidence.

If Lender invokes the power of sale, Lender shall give notice in the manner
required by applicable law to Borrower and any other persons prescribed by
applicable law. Lender shall also publish the notice of sale, and the Mortgaged
Property shall be sold, as prescribed by applicable law. Lender may, at its
option, sell the Mortgaged Property in one or more parcels and in such order as
Lender may determine. Lender may postpone the sale or change the place of the
sale as permitted by applicable law by giving notice complying with applicable
law. Lender or its designee may purchase the Mortgaged Property at any sale. The
proceeds of the sale shall be applied in the manner prescribed by applicable
law.

61. RELEASE. Upon payment of the Indebtedness, Lender shall release this
Instrument. Lender shall pay reasonable costs incurred in releasing this
Instrument.

62. WAIVER OF APPRAISEMENT. Appraisement of the Mortgaged Property is hereby
waived or not waived at Lender’s option, which shall be exercised on or before
the date on which a written judgment in any judicial foreclosure hereof is
signed by the court.

63. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) COVENANTS AND AGREES
NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS
INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER AND LENDER THAT
IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE
FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY,
KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

NOTICE TO BORROWER

A power of sale has been granted in this Instrument. A power of sale may allow
the Lender to take the Mortgaged Property and sell it without going to court in
a foreclosure action upon the occurrence of an Event of Default under this
Instrument.

 

 

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ATTACHED EXHIBITS. The following Exhibits are attached to this Instrument:

 

  x    Exhibit A      Description of the Land (required).   x    Exhibit B     
Modifications to Instrument

IN WITNESS WHEREOF, Borrower has signed and delivered this Instrument or has
caused this Instrument to be signed and delivered by its duly authorized
representative.

 

 

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WC/TP SPRING CREEK, LLC, a Delaware limited liability company

By:

  WillMax Spring Creek LLC, a Texas limited liability company, its Managing
Member   By:  

/s/ John A. Wensinger

  Name:   John A. Wensinger     Manager

STATE OF TEXAS, DALLAS County ss:

The foregoing instrument was acknowledged before me this 26th day of January,
2011 by John A. Wensinger, Manager of WillMax Spring Creek LLC, a Texas limited
liability company, Managing Member on behalf of WC/TP Spring Creek, LLC, a
Delaware limited liability company.

 

/s/ Angela Pace

Notary Public

My commission expires: LOGO [g316837st_218b.jpg]

 

 

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EXHIBIT A

Legal Description

(Spring Creek of Edmond)

A tract of land in the Southeast Quarter (SE/4) of the Southwest Quarter (SW/4)
of Section Thirty-six (36), Township Fourteen (14) North, Range Three (3) West
of the Indian Meridian, Oklahoma County, Oklahoma, being more particularly
described as follows:

COMMENCING at the Southwest Corner of the Southeast Quarter (SE/4) of the
Southwest Quarter (SW/4) of said Section 36;

Thence North 89°39’15” East along the South line of said Southeast Quarter
(SE/4) of the Southwest Quarter (SW/4) a distance of 164.42 feet to a point,
said point being the Point or Place of Beginning;

Thence North 89°39’15” East along the South line of said Southeast Quarter
(SE/4) of the Southwest Quarter (SW/4) a distance of 1150.94 feet to a point
(being the Southeast Comer of said Southeast Quarter (SE/4) of the Southwest
Quarter (SW/4));

Thence North 0°20’24” West a distance of 706.36 feet to a point, said point
being in the South line of Lot 2, Block 4, BRENTWOOD ADDITION;

Thence South 89°39’41” West a distance of 95.51 feet to a point, said point
being the Southwest Corner of said Lot 2, Block 4;

Thence North 12°54’26” West a distance of 78.60 feet to a point, said point
being the Southeast Corner of Lot 16, Block 6, BRENTWOOD 3RD ADDITION;

Thence North 87°26’08” West a distance of 135.77 feet to a point;

Thence South 45°27’41” West a distance of 255.00 feet to a point;

Thence South 56°36’48” West a distance of 125.12 feet to a point; said point
being the Southeast Corner of Lot 8, Block 5, BRENTWOOD 2ND ADDITION;

Thence South 63°16’39” West a distance of 260.45 feet to a point;

Thence South 0°08’02” West (recorded legal) East (surveyed legal) a distance of
51.59 feet to a point;

Thence South 58°03’08” West a distance of 211.82 feet to a point;

Thence North 58°19’11” West a distance of 211.82 feet to a point, said point
being the Southwest Corner of Lot 2, Block 5, BRENTWOOD 2ND ADDITION;

Thence South 2°52’06” West a distance of 385.17 feet to a point, said point
being the Point or Place of Beginning.

 

 

PAGE A-1

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EXHIBIT B

MODIFICATIONS TO INSTRUMENT

The following modifications are made to the text of the Instrument that precedes
this Exhibit:

I.     RECYCLED PROVISIONS:

 

1. Section 22 is modified to add the following new subsection (m):

 

  (m) if any of the Underwriting Representations set forth in Section 33(f) or
any of the Separateness Representations set forth in Section 33(g) shall have
been untrue in any respect when made.

 

2. Section 33 is modified to add the following new subsection (f):

 

  (f) Underwriting Representations. Borrower hereby represents with respect to
Borrower, from the date of such entity’s formation that it

 

  (i) is and always has been duly formed, validly existing, and in good standing
in the state of its formation and in all other jurisdictions where it is
qualified to do business;

 

  (ii) has no judgments or liens of any nature against it except for tax liens
not yet due;

 

  (iii) is in compliance with all laws, regulations, and orders applicable to it
and, except as otherwise disclosed in this Instrument, has received all permits
necessary for it to operate;

 

  (iv) is not involved in any dispute with any taxing authority;

 

  (v) has paid all taxes which it owes;

 

  (vi) has never owned any real property other than the Mortgaged Property and
personal property necessary or incidental to its ownership or operation of the
Mortgaged Property and has never engaged in any business other than the
ownership and operation of the Mortgaged Property;

 

  (vii) is not now, nor has ever been, party to any lawsuit, arbitration,
summons, or legal proceeding that is still pending or that resulted in a
judgment against it that has not been paid in full;

 

  (viii) has provided Lender with complete financial statements that reflect a
fair and accurate view of the entity’s financial condition;

 

  (ix) has obtained a current Phase I environmental site assessment (the “ESA”)
for the Mortgaged Property prepared consistent with ASTM Practice E 1527 and the
ESA has not identified any recognized environmental conditions that require
further investigation or remediation;

 

 

PAGE B-1

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  (x) has no material contingent or actual obligations not related to the
Mortgaged Property; and

 

  (xi) each amendment and restatement of Borrower’s organizational documents has
been accomplished in accordance with, and was permitted by, the relevant
provisions of said documents prior to its amendment or restatement from time to
time.

 

3. Section 33 is modified to add the following new subsection (g):

 

  (g) Separateness Representations. Borrower hereby represents from the date of
such entity’s formation that it:

 

  (i) has not entered into any contract or agreement with any of its Affiliates,
constituents, or owners, or any guarantors of any of its obligations or any
Affiliate of any of the foregoing (individually, a “Related Affiliate Party,”
and collectively, the “Related Affiliate Parties”), except upon terms and
conditions that are commercially reasonable and substantially similar to those
available in an arm’s-length transaction with an unrelated party;

 

  (ii) has paid all of its debts and liabilities from its assets;

 

  (iii) has done or caused to be done all things necessary to observe all
organizational formalities applicable to it and to preserve its existence;

 

  (iv) has maintained all of its books, records, financial statements and bank
accounts separate from those of any other Person;

 

  (v) has not had its assets listed as assets on the financial statement of any
other Person;

 

  (vi) has filed its own tax returns (except to the extent that it has been a
tax-disregarded entity not required to file tax returns under applicable law)
and, if it is a corporation, has not filed a consolidated federal income tax
return with any other Person;

 

  (vii) has been, and at all times has held itself out to the public as, a legal
entity separate and distinct from any other Person (including any Affiliate or
other Related Affiliate Party);

 

  (viii) has corrected any known misunderstanding regarding its status as a
separate entity;

 

  (ix) has conducted all of its business and held all of its assets in its own
name;

 

  (x) has not identified itself or any of its affiliates as a division or part
of the other;

 

  (xi) has maintained and utilized separate stationery, invoices and checks
bearing its own name;

 

 

PAGE B-2

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  (xii) has not commingled its assets with those of any other Person and has
held all of its assets in its own name;

 

  (xiii) has not guaranteed or become obligated for the debts of any other
Person;

 

  (xiv) has not held itself out as being responsible for the debts or
obligations of any other Person;

 

  (xv) has allocated fairly and reasonably any overhead expenses that have been
shared with an Affiliate, including paying for office space and services
performed by any employee of an Affiliate or Related Affiliate Party;

 

  (xvi) has not pledged its assets to secure the obligations of any other Person
and no such pledge remains outstanding except in connection with the Loan;

 

  (xvii) has maintained adequate capital in light of its contemplated business
operations;

 

  (xviii) has maintained a sufficient number of employees in light of its
contemplated business operations and has paid the salaries of its own employees
from its own funds;

 

  (xix) has not owned any subsidiary or any equity interest in any other entity;

 

  (xx) has not incurred any indebtedness that is still outstanding other than
Indebtedness that is permitted under the Loan Documents;

 

  (xxi) has not had any of its obligations guaranteed by an Affiliate or other
Related Affiliate Party, except for guarantees that have been either released or
discharged (or that will be discharged as a result of the closing of the Loan)
or guarantees that are expressly contemplated by the Loan Documents; and

 

  (xxii) none of the tenants holding leasehold interests with respect to the
Mortgaged Property are an Affiliate of the Borrower or other Related Affiliate
Party.

II.     TRANSACTION-SPECIFIC PROVISIONS:

 

1. The following provision is added as a new subsection to Section 17:

 

  (i) Borrower shall maintain the contract for termite control services with a
qualified service provider at the Mortgaged Property for so long as the
Indebtedness remains outstanding.

 

1. Section 21 (c)(vii)(F) is deleted in its entirety.

 

2. The following provision is added to Section 21(c):

 

  (ix)

any Transfer pursuant to a buy-sell agreement or similar agreement of an
interest in Borrower or any interest in a Controlling Entity (which, if such
Controlling Entity were Borrower, would result in an Event of Default) to a
natural person or entity that has an existing interest in the Borrower or in a

 

 

PAGE B-3

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  Controlling Entity (an “Ownership Interest Transfer”), under the terms and
conditions listed as items (A) through (K) below:

 

  (A) Borrower shall provide Lender with thirty (30) days prior written Notice
of the proposed Ownership Interest Transfer, which Notice must be accompanied by
a non-refundable review fee in the amount of $5,000.

 

  (B) At the time of the proposed Ownership Interest Transfer, no Event of
Default shall have occurred and be continuing and no event or condition shall
have occurred and be continuing that, with the giving of Notice or the passage
of time, or both, would become an Event of Default; provided, however, if the
Ownership Interest Transfer would cure the Event of Default, the Ownership
Interest Transfer must occur within sixty (60) days after all conditions in this
Section have been satisfied to Lender’s satisfaction.

 

  (C) Borrower must pay or reimburse Lender for all costs and expenses incurred
by Lender in connection with the Ownership Interest Transfer (including all
Attorneys’ Fees and Costs).

 

  (D) At the time of the Ownership Interest Transfer Borrower must pay to Lender
a transfer fee in the following amount:

 

  (1) the amount of $25,000 if John A. Wensinger directly or indirectly retains
the Controlling Interest, managing member interest or general partnership
interest, as applicable.

 

  (2) the amount of $50,000 if Thackeray Partners Realty Fund II, L.P. will
obtain directly or indirectly the Controlling Interest, managing member interest
or general partnership interest, as applicable (“New Borrower Principal”).

 

  (E) In the event of a Transfer prohibited by or requiring Lender’s approval
under this Section 21, this Section may be modified or rendered void by Lender
at Lender’s option by Notice to Borrower and the transferee(s), as a condition
of Lender’s consent.

 

  (F) If there will be a New Borrower Principal, the New Borrower Principal must
provide a replacement guarantor (the “New Guarantor”) meeting the following
requirements and otherwise acceptable to Lender in its discretion:

 

  (1) New Guarantor shall be required to have a net worth of at least
$5,000,000.00, and liquid assets of at least $1,410,000.00 (the “Net Worth and
Liquidity Requirements”).

 

  (2) Lender must receive all information and organizational documents
reasonably requested by Lender with respect to the New Guarantor.

 

 

PAGE B-4

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  (3) The New Guarantor must execute a guaranty in the same form and content as
the current Guaranty (the “New Guaranty”), and if the New Guarantor is an
entity, the New Guaranty shall be modified to include the following new
Section 21.

 

  (4) If the New Guarantor is an entity, the Guaranty must be modified to insert
one of the following versions of new Section 21, to be determined by New
Guarantor at its option:

MINIMUM NET WORTH/LIQUIDITY

21. Minimum Net Worth/Liquidity Requirements.

(a) Guarantor shall maintain a minimum net worth of $5,000,000.00 with liquid
assets of at least $1,410,000.00 (collectively, the “Minimum Net Worth
Requirement”).

(b) In addition to the financial information that Guarantor is required to
provide pursuant to Section 12 of this Guaranty, Guarantor shall provide Lender,
annually within ninety (90) days after the end of each fiscal year of Guarantor,
with a written certification (the “Guarantor Certification”) of the net worth
and liquid assets of Guarantor, derived in accordance with customarily
acceptable accounting practices, which shall be certified, under penalty of
perjury, by Guarantor.

(c) In the event Guarantor receives written notice from Lender that it has
failed to maintain the Minimum Net Worth Requirement, within thirty (30) days of
receipt of such written notice, Guarantor must deliver to Lender a letter of
credit (or other collateral acceptable to Lender in its sole discretion) meeting
the following conditions:

 

  (i) if a letter of credit, be in the form found on Freddie Mac’s website at
http://www.freddiemac.com/multifamily/cm e_documents.html (The letter of credit
must name Lender as the sole beneficiary, have an initial term of not less than
12 months or not less than thirty (30) davs after Loan maturity, whichever is
earlier, and be issued by a bank acceptable to Lender in its sole discretion);
and

 

  (ii)

be in an amount equal to the greater of (X) the positive difference, if any,
obtained by subtracting the net worth identified in the Guarantor Certification
from the minimum net worth required under the Minimum Net Worth Requirement,
(Y) the positive

 

 

PAGE B-5

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  difference, if any, obtained by subtracting the liquid assets identified in
the Guarantor Certification from the minimum liquid assets required under the
Minimum Net Worth Requirement and (Z) $100,000.

(d) Provided no Event of Default (as defined in the Security Instrument) then
exists, Guarantor shall be entitled to request a return of the unused portion,
if any, of the letter of credit or other collateral in the event it delivers to
Lender evidence in form and substance satisfactory to Lender, including, without
limitation, a Guarantor Certification, that it has satisfied the Minimum Net
Worth Requirement.

OR

MATERIAL ADVERSE CHANGE

21. Material Adverse Change.

(a) In the event Guarantor receives Notice (as defined in the Security
Instrument) from Lender of Lender’s determination, in its reasonable judgment
based on financial information that Guarantor has provided pursuant to
Section 12 of this Guaranty and Section 14 of the Security Instrument
(“Financial Information”) that there has been a Material Adverse Change (as
defined below), within thirty (30) days of receipt of such Notice, Guarantor
must either (1) cause one or more natural persons or entities acceptable to
Lender to execute and deliver to Lender a guaranty in a form acceptable to
Lender, without any cost or expense to Lender or (2) deliver to Lender a letter
of credit (or other collateral acceptable to Lender in its sole discretion)
meeting the following conditions:

 

  (i) if a letter of credit, in the form found on Freddie Mac’s website at
http://www.freddiemac.com/multifamily/cm e_documents.html (The letter of credit
must name Lender as the sole beneficiary, have an initial term of not less than
12 months or not less than thirty (30) days after Loan maturity, whichever is
earlier, and be issued by a bank acceptable to Lender in its sole discretion);
and

 

  (ii)

be in an amount equal to the greater of (X) the positive difference, if any,
obtained by subtracting the net worth identified in the Financial Information
from $5,000,000.00,

 

 

PAGE B-6

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  (Y) the positive difference, if any, obtained by subtracting the liquid assets
identified in the Financial Information from $1,410,000.00 and (Z) $100,000.

(b) Provided no Event of Default (as defined in the Security Instrument) then
exists, Guarantor shall be entitled to request a return of the letter of credit
or other collateral in the event it delivers to Lender evidence in form and
substance satisfactory to Lender that a Material Adverse Change no longer
exists.

(c) For purposes of this Section, the term “Material Adverse Change” shall mean
any material adverse effect or material adverse change, either individually or
in the aggregate, in the general affairs, condition (financial or other),
business, properties, results of operations, prospects, assets, liabilities, net
worth or operations of the business and/or assets of Guarantor which would, if
Guarantor were a publicly-traded company, result in a downgrade of its credit
rating below investment grade.

 

  (5) Section 22 of this Instrument will be deemed to be modified to insert the
following as a new subsection:

(m) any failure by Guarantor to comply with any Net Worth and Liquidity
provision or Material Adverse Change provision of Section 21 of the Guaranty, if
applicable.

 

  (G) At all times the Mortgaged Property must continue to be managed by (i) the
initial Property Manager or (ii) a successor Property Manager satisfactory to
Lender pursuant to a property management agreement approved by Lender in
writing; provided that such successor Property Manager and Borrower shall
execute an assignment of the management agreement in form acceptable to Lender.

 

  (H) If applicable, at the time of the proposed Ownership Interest Transfer,
the New Borrower Principal must certify that its net worth and liquidity are
substantially the same as its net worth and liquidity as of the date of this
Instrument and there is not any pending bankruptcy, reorganization or litigation
which would substantially negatively affect such net worth and/or liquidity.

 

  (I) If a nonconsolidation opinion was delivered at origination of the Loan and
if, after giving effect to all Ownership Interest Transfer and all prior
Transfers, fifty percent (50%) or more in the aggregate of direct or indirect
interests in Borrower are owned by any Person and its Affiliates that owned less
than a fifty percent (50%) direct or indirect interest in Borrower as of the
origination of the Loan, an opinion of counsel for Borrower, in form and
substance satisfactory to Lender and to the Rating Agencies, with regard to
nonconsolidation.

 

 

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  (J) Lender must receive confirmation acceptable to Lender that Section 33
continues to be satisfied.

 

  (K) For purposes of the Preapproved Transfers set forth in Section 21(c)(vii),
the New Guarantor will be deemed to be the person or entity set forth in
subsection 21(c)(vii)(3).

 

 

PAGE B-8