Exhibit 10.21

 

RECORDING REQUESTED BY
FIDELITY TITLE COMPANY

 

725112095 / 1149582

 

 

 

RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:

 

 

[SEAL]

L. Anthony Beall, Esquire
Troutman Sanders LLP
P.O. Box 1122
Richmond, Virginia 23218-1122

[BARCODE]

 

MULTIFAMILY DEED OF TRUST,

ASSIGNMENT OF RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

(CALIFORNIA — REVISION DATE 05-11-2004)

 

ATTENTION COUNTY RECORDER: THIS INSTRUMENT IS INTENDED TO BE EFFECTIVE AS A
FINANCING STATEMENT FILED AS A FIXTURE FILING PURSUANT TO SECTION 9502 OF THE
CALIFORNIA COMMERCIAL CODE. PORTIONS OF THE GOODS COMPRISING A PART OF THE
MORTGAGED PROPERTY ARE OR ARE TO BECOME FIXTURES RELATED TO THE LAND DESCRIBED
IN EXHIBIT A HERETO. THIS INSTRUMENT IS TO BE FILED FOR RECORD IN THE RECORDS OF
THE COUNTY WHERE DEEDS OF TRUST ON REAL PROPERTY ARE RECORDED AND SHOULD BE
INDEXED AS BOTH A DEED OF TRUST AND AS A FINANCING STATEMENT COVERING FIXTURES.
THE ADDRESSES OF BORROWER (DEBTOR) AND LENDER (SECURED PARTY) ARE SPECIFIED IN
THE FIRST PARAGRAPH ON PAGE 1 OF THIS INSTRUMENT.

 

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FHLMC Loan No. 487798287

Waterford Place Apartments

 

MULTIFAMILY DEED OF TRUST,

ASSIGNMENT OF RENTS,

SECURITY AGREEMENT AND

FIXTURE FILING

(CALIFORNIA - REVISION DATE 05-11-2004)

 

THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND
FIXTURE FILING (the “Instrument”) is made to be effective as of this 31st day of
March, 2008, by WATERFORD PLACE APARTMENTS, LLC, a limited liability company
organized and existing under the laws of California, whose address is c/o J. F.
Shea Co., Inc., 655 Brea Canyon Road, Walnut, California 91789, as trustor
(“Borrower”), to FIRST AMERICAN TITLE INSURANCE COMPANY, as trustee (“Trustee”),
for the benefit of DEUTSCHE BANK BERKSHIRE MORTGAGE, INC., a corporation
organized and existing under the laws of Delaware, whose address is One Beacon
Street, 14th Floor, Boston, Massachusetts 02108, as beneficiary (“Lender”).
Borrower’s organizational identification number, if applicable, is 200405510066.

 

Borrower, in consideration of the Indebtedness and the trust created by this
Instrument, irrevocably grants, conveys and assigns to Trustee, in trust, with
power of sale, the Mortgaged Property, including the Land located in the County
of Alameda, State of California and described in Exhibit A attached to this
Instrument.

 

TO SECURE TO LENDER the repayment of the Indebtedness evidenced by Borrower’s
Multifamily Note payable to Lender, dated as of the date of this Instrument, and
maturing on May 1, 2014 (the “Maturity Date”), in the principal amount of
$13,245,000.00, and all renewals, extensions and modifications of the
Indebtedness, the payment of all sums advanced by or on behalf of Lender to
protect the security of this Instrument under Section 12, and the performance of
the covenants and agreements of Borrower contained in the Loan Documents.

 

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

REVISION DATE 02-15-2008

 

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:

 

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(a)                     “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; and
(iii) investigatory fees.

 

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

 

(c)                     “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.

 

(d)                    “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.

 

(e)                     “Controlling Entity” means an entity which owns,
directly or indirectly through one or more intermediaries, (i) a general
partnership interest or a Controlling Interest of the limited partnership
interests in Borrower (if Borrower is a partnership or joint venture), (ii) a
manager’s interest in Borrower or a Controlling Interest of the ownership or
membership interests in Borrower (if Borrower is a limited liability company),
(iii) a Controlling Interest of any class of voting stock of Borrower (if
Borrower is a corporation), (iv) a trustee’s interest or a Controlling Interest
of the beneficial interests in Borrower (if Borrower is a trust), or (v) a
managing partner’s interest or a Controlling Interest of the partnership
interests in Borrower (if Borrower is a limited liability partnership).

 

(f)                       “Controlling Interest” means (i) 51 percent or more of
the ownership interests in an entity, or (ii) a percentage ownership interest in
an entity of less than 51 percent, if the owner(s) of that interest actually
direct(s) the business and affairs of the entity without the requirement of
consent of any other party. The Controlling Interest shall be deemed to be 51
percent unless otherwise stated in Exhibit B.

 

(g)                    “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.

 

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

 

(i)                        “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,

 

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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.

 

(j)                        “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.

 

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

 

(l)                        “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,” “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.

 

(m)                  “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.

 

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

 

(o)                    “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.

 

(p)                    “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.

 

(q)                    “Initial Owners” means, with respect to Borrower or any
other entity, the persons or entities 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.

 

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

 

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(s)                     “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.

 

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

 

(u)                    “Loan Documents” means the Note, this Instrument, 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.

 

(v)                    “Loan Servicer” means the entity that from time to time
is designated by Lender 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.

 

(w)                  “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.

 

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

 

(y)                    “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;

 

 

(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 Property,
whether or not Borrower obtained the insurance pursuant to Lender’s requirement;

 

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(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.

 

(z)                      “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.

 

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

 

(bb)             “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

 

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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.

 

(cc)               “Properly Jurisdiction” is defined in Section 30(a).

 

(dd)             “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.

 

(ee)               “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 hen on the Land or the
Improvements.

 

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

 

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,

 

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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 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, 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

 

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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 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 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

 

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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 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, the permission
given to Borrower

 

9

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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.

 

(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, firm
or corporation 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 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)                       Borrower shall not lease any portion of the Mortgaged
Property for non-residential use except with the prior written consent of Lender
and Lender’s prior written approval of the Lease agreement. 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. 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. Borrower shall, without request by Lender, deliver
an executed copy of each non-residential Lease to Lender promptly after such
Lease is signed. All non-residential Leases, including renewals or extensions of
existing Leases, shall specifically provide that (i) such Leases are subordinate
to the lien of this Instrument; (ii) 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; (iii) the tenant agrees to

 

10

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execute such further evidences of attainment as Lender or any purchaser at a
foreclosure sale may from time to time request; (iv) the Lease shall not be
terminated by foreclosure or any other transfer of the Mortgaged Property;
(v) after a foreclosure sale of the Mortgaged Property, Lender or any other
purchaser at such foreclosure sale may, at Lender’s or such purchaser’s option,
accept or terminate such Lease; and (vi) the tenant shall, upon receipt after
the occurrence of an Event of Default of a written request from Lender, 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

 

11

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“Collect” below. Lender will not require the Borrower to make Imposition
Deposits with respect to the items marked “Deferred” below.

 

[Deferred]

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

[Deferred]

Taxes,

[Deferred]

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

[N/A]

ground rents,

[Deferred]

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 held in an institution
(which may be Lender, if Lender is such an institution) whose deposits or
accounts are insured or guaranteed by a federal agency. 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

 

12

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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 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.

 

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(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
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, joint venture 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.

 

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.
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 Lenders 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”).

 

(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.

 

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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.

 

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, 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.

 

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(b)                    Within 120 days after the end of each fiscal year of
Borrower, Borrower shall furnish to Lender a statement of income and expenses
for Borrower’s operation of the Mortgaged Property for that fiscal year, a
statement of changes in financial position of Borrower relating to the Mortgaged
Property for that fiscal year and, when requested by Lender, a balance sheet
showing all assets and liabilities of Borrower relating to the Mortgaged
Property as of the end of that fiscal year. If Borrower’s fiscal year is other
than the calendar year, Borrower must also submit to Lender a year-end statement
of income and expenses within 120 days after the end of the calendar year.

 

(c)                     Within 120 days after the end of each calendar year, and
at any other time, upon Lender’s request, Borrower shall furnish to Lender each
of the following. However, Lender shall not require any of the following 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, upon written
request to Borrower, require Borrower to furnish any of the following more
frequently:

 

(i)

a rent 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;

 

 

(ii)

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; and

 

 

(iii)

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), 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.

 

(d)                    At any time upon Lender’s request, Borrower shall furnish
to Lender each of the following. However, Lender shall not require any of the
following 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 any of the following more frequently:

 

(i)

a balance sheet, a statement of income and expenses for Borrower and a statement
of changes in financial position of Borrower for Borrower’s most recent fiscal
year;

 

 

(ii)

a quarterly or year-to-date income and expense statement for the Mortgaged
Property; and

 

 

(iii)

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.

 

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(e)                     Upon Lender’s request at any time when an Event of
Default has occurred and is continuing, Borrower shall furnish to Lender monthly
income and expense statements and rent schedules for the Mortgaged Property.

 

(f)                       An individual having authority to bind Borrower shall
certify each of the statements, schedules and reports required by Sections
14(b) through 14(e) to be complete and accurate. Each of the statements,
schedules and reports required by Sections 14(b) through 14(e) 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) and 14(c)(i) and (ii) 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 (e), Lender
shall give Borrower Notice specifying the statements, schedules and reports
required by Section 14(b) through (e) 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
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)                    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.

 

(i)                        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

 

17

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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 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), (iii), (iv) or (v), or pursuant to Section 20.

 

(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 a residential rental property manager satisfactory to
Lender at all times under a contract approved by Lender in writing, which
contract must be terminable upon not more than 30 days notice without the
necessity of establishing cause and without payment of a penalty or termination
fee by Borrower or its successors.

 

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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 or any
other property of Borrower that is adjacent to 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 or any other property of
Borrower that is adjacent to 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 any property of Borrower that is
adjacent to the Mortgaged Property; or

 

 

(v)

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

 

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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.”

 

(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

 

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by Borrower to Lender in writing, that tank complies with all requirements of
Hazardous Materials Laws;

 

 

(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
or any other property of Borrower that is adjacent to 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 any other property of Borrower that is
adjacent to 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

 

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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 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, (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:

 

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(i)

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

 

 

(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 or on or under any property of
Borrower that is adjacent to the Mortgaged Property; 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(1) 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 judgement 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 or entity, the obligation of those
persons or entities 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)                     Borrower shall keep the Improvements insured at all
times against such hazards as Lender may from time to time require, which
insurance shall include but not be limited to coverage against loss by fire,
windstorm and allied perils, general boiler and machinery coverage, and business
interruption including loss of rental value insurance for the Mortgaged Property
with extra expense insurance. If Lender so requires, such insurance shall also
include sinkhole insurance, mine subsidence insurance, earthquake insurance,
and, if the Mortgaged Property does not conform to applicable zoning or land use
laws, building ordinance or law coverage. 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,

 

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Borrower shall pay for all such documentation at its sole cost and expense.
Borrower acknowledges and agrees that Lender’s insurance requirements may change
from time to time throughout the term of the Indebtedness. If any of the
Improvements is located in an area identified by the Federal Emergency
Management Agency (or any successor to that agency) as an area having special
flood hazards, Borrower shall insure such Improvements against loss by flood.
All insurance required pursuant to this Section 19(a) shall be referred to as
“Hazard Insurance.” All policies of Hazard Insurance must include a
non-contributing, non-reporting mortgagee clause in favor of, and in a form
approved by, Lender.

 

(b)                    All premiums on insurance policies required under this
Section 19 shall be paid in the manner provided in Section 7, unless Lender has
designated in writing another method of payment. AH such policies shall also be
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 5 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, Borrower shall
deliver a legible copy of each renewal policy (or a duplicate original) in a
form satisfactory to Lender within 120 days after the expiration date of the
original policy.

 

(c)                     Borrower shall maintain at all times commercial general
liability insurance, workers’ compensation insurance and such other liability,
errors and omissions and fidelity insurance coverages as Lender may from time to
time require. AH policies for general liability insurance must contain a
standard additional insured provision, in favor of, and in a form approved by,
Lender.

 

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

 

(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, 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.

 

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(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 $10,000 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 $10,000 but less than $50,000 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.

 

(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
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

 

 

(v)

Lender determines that the Restoration will not be completed within one year
after the date of the loss or casualty.

 

(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 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.

 

21.      TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER. [RIGHT TO
UNLIMITED TRANSFERS – WITH LENDER APPROVAL].

 

(a)       “Transfer” means

 

(i)                        a sale, assignment, transfer or other disposition
(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;

 

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(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, a joint venture and a limited
liability partnership, 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.

 

(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; and

 

(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
(7) below:

 

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(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 an individual 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.

 

(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, [See Exhibit A] shall
retain at all times a managing interest in 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.

 

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(d)       The occurrence of any of the following Transfers shall not constitute
an Event of Default under this Instrument, provided that Borrower has notified
Lender in writing within 30 days following the occurrence of any of the
following, and such Transfer does not constitute an Event of Default under any
other Section of this Instrument:

 

(i)                        a change of the Borrower’s name, provided that UCC
financing statements and/or amendments sufficient to continue the perfection of
Lender’s security interest have been properly filed and copies have been
delivered to Lender;

 

(ii)                     a change of the form of the Borrower not involving a
transfer of the Borrower’s assets and not resulting in any change in liability
of any Initial Owner, provided that UCC financing statements and/or amendments
sufficient to continue the perfection of Lender’s security interest have been
properly filed and copies have been delivered to Lender;

 

(iii)                  the merger of the Borrower with another entity when the
Borrower is the surviving entity;

 

(iv)                 a Transfer that occurs by devise, descent, or by operation
of law upon the death of a natural person; and

 

(v)                    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.

 

(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 a
Controlling Interest of all limited partnership interests in Borrower;

 

(iii)                  if Borrower is a general partnership or a joint venture,
a Transfer of any general partnership or joint venture interest in Borrower;

 

(iv)                 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 a Controlling Interest of all the membership interests in
Borrower, (B) a Transfer of any membership or other interest of a manager in
Borrower that results in a change of manager or (C) a change in a nonmember
manager;

 

(v)                    if Borrower is a corporation (A) the Transfer of any
voting stock in Borrower which would cause the Initial Owners to own less than a

 

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Controlling Interest 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;

 

(vi)                 if Borrower is a trust, (A) a Transfer of any beneficial
interest in Borrower which would cause the Initial Owners to own less than a
Controlling Interest of all the beneficial interests in Borrower, (B) the
termination or revocation of the trust, or (C) the removal, appointment or
substitution of a trustee of Borrower;

 

(vii)              if Borrower is a limited liability partnership, (A) a
Transfer of any partnership interest in Borrower which would cause the Initial
Owners to own less than a Controlling Interest of all partnership interests in
Borrower, or (B) a transfer of any partnership or other interest of a managing
partner in Borrower that results in a change of manager; and

 

(viii)           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 (vii) 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.

 

(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 meets all of the eligibility, credit,
management and other standards (including but not limited to any standards with
respect to previous relationships between Lender and the transferee) customarily
applied by Lender at the time of the proposed Transfer to the approval of
borrowers in connection with the origination or purchase of similar mortgages on
multifamily properties;

 

(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, at the time of the proposed
Transfer, meets all standards as to its physical condition, occupancy, net
operating income and the collection of reserves that are customarily applied by
Lender at the time of the proposed Transfer to the approval of properties in
connection

 

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with the origination or purchase of similar mortgages on multifamily properties;

 

(vi)                 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 individuals 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;

 

(vii)              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 individuals or entities acceptable to Lender to execute and deliver
to Lender a guaranty in a form acceptable to Lender; and

 

(viii)           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 (1) percent of the
unpaid principal balance of the Indebtedness immediately before the applicable
Transfer; and

 

(C)                  the amount of Lender’s out-of-pocket costs (including
reasonable Attorneys’ Fees and Costs) incurred in reviewing the Transfer request

 

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 to comply with the provisions of Section 33;

 

(d)       fraud or material misrepresentation or material omission by Borrower,
any of its officers, directors, trustees, general partners or managers 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;

 

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(f)        any Event of Default under Section 21;

 

(g)       the commencement of a forfeiture action or proceeding, whether civil
or criminal, which, in Lender’s reasonable judgment, 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 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)       any voluntary filing by Borrower for bankruptcy protection under the
United States Bankruptcy Code or any reorganization, receivership, insolvency
proceeding or other similar proceeding pursuant to any other federal or state
law affecting debtor and creditor rights to which Borrower voluntarily becomes
subject, or the commencement of any involuntary case against Borrower by any
creditor (other than Lender) of Borrower pursuant to the United States
Bankruptcy Code or other federal or state law affecting debtor and creditor
rights which case is not dismissed or discharged within 90 days after filing;
and

 

(l)        any representations and warranties by Borrower in this Instrument
which is false or misleading in any material respect.

 

23.      REMEDIES CUMULATIVE. 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.

 

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

 

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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. 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.

 

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 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. 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

 

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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.

 

29.      ESTOPPEL CERTIFICATE. Within 10 days after a request from Lender,
Borrower shall 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.

 

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.

 

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(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 ASSET BORROWER. Until the Indebtedness is paid in full, Borrower
(a) shall not own any real or personal property other than the Mortgaged
Property and personal property related to the operation and maintenance of the
Mortgaged Property; (b) shall not operate any business other than the management
and operation of the Mortgaged Property; and (c) shall not maintain its assets
in a way difficult to segregate and identify.

 

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 or entity signs
this Instrument as Borrower, the obligations of such persons and entities 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

 

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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.”

 

39.      DISCLOSURE OF INFORMATION. Lender may furnish information regarding
Borrower or the Mortgaged Property to third parties with an existing or
prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including but not limited to
trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans, as well as governmental regulatory agencies having
regulatory authority over Lender. Borrower irrevocably waives any and all rights
it may have under applicable law to prohibit such disclosure, including but not
limited to 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.      ADJUSTABLE RATE MORTGAGE - THIRD PARTY CAP AGREEMENT “CAP COLLATERAL.”

 

(a)       If the Note provides for interest to accrue at an adjustable or
variable interest rate (other than during the “Extension Period,” as defined in
the Note, if applicable), then the definition of “Mortgaged Property” shall
include the “Cap Collateral.” The “Cap Collateral” shall mean

 

(i)                        any interest rate cap agreement, interest rate swap
agreement, or other interest rate-hedging contract or agreement obtained by
Borrower as a requirement of any Loan Document or as a condition of Lender’s
making the Loan (a “Cap Agreement”);

 

(ii)                     any and all moneys (collectively, “Cap Payments”)
payable pursuant to any Cap Agreement by the interest rate cap provider or other
counterparty

 

37

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to a Cap Agreement or any guarantor of the obligations of any such cap provider
or counterparty (a “Cap Provider”);

 

(iii)                  all rights of Borrower under any Cap Agreement and all
rights of Borrower to all Cap Payments, including contract rights and general
intangibles, whether existing now or arising after the date of this Instrument;

 

(iv)                 all rights, liens and security interests or guaranties
granted by a Cap Provider or any other person to secure or guaranty payment of
any Cap Payment whether existing now or granted after the date of this
Instrument;

 

(v)                    all documents, writings, books, files, records and other
documents arising from or relating to any of the foregoing, whether existing now
or created after the date of this Instrument; and

 

(vi)                 all cash and non-cash proceeds and products of (ii) —
(v) above.

 

(b)       As additional security for Borrower’s obligation under the Loan
Documents, Borrower hereby assigns and pledges to Lender all of Borrower’s
right, title and interest in and to the Cap Collateral. Borrower has instructed
and will instruct each Cap Provider and any guarantor of a Cap Provider’s
obligations to make Cap Payments directly to Lender or to Loan Servicer on
behalf of Lender.

 

(c)       So long as there is no Event of Default, Lender or Loan Servicer will
remit to Borrower each Cap Payment received by Lender or Loan Servicer with
respect to any month for which Borrower has paid in full the monthly installment
of principal and interest or interest only, as applicable, due under the Note.
Alternatively, at Lender’s option so long as there is no Event of Default,
Lender may apply a Cap Payment received by Lender or Loan Servicer with respect
to any month to the applicable monthly payment of accrued interest due under the
Note if Borrower has paid in full the remaining portion of such monthly payment
of principal and interest or interest only, as applicable.

 

(d)       Following an Event of Default, in addition to any other rights and
remedies Lender may have, Lender may retain any Gap Payments and apply them to
the Indebtedness in such order and amounts as Lender determines. Neither the
existence of a Cap Agreement nor anything in this Instrument shall relieve
Borrower of its primary obligation to timely pay in full all amounts due under
the Note and otherwise due on account of the Indebtedness.

 

(e)       If the Note does not provide for interest to accrue at an adjustable
or variable interest rate (other than during the Extension Period) then this
Section 42 shall be of no force or effect.

 

43.      ACCELERATION; REMEDIES. If an Event of Default has occurred and is
continuing. Lender, at Lender’s 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 California 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. Lender shall be entitled to collect all costs and expenses
incurred in pursuing such remedies, including attorneys’ fees, costs of
documentary evidence, abstracts and title reports.

 

38

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If the power of sale is invoked, Lender shall execute a written notice of the
occurrence of an Event of Default and of Lender’s election to cause the
Mortgaged Property to be sold and shall cause the notice to be recorded in each
county in which the Mortgaged Property or some part of the Mortgaged Property is
located. Trustee shall give notice of default and notice of sale and shall sell
the Mortgaged Property according to California law. Trustee may sell the
Mortgaged Property at the time and place and under the terms designated in the
notice of sale in one or more parcels and in such order as Trustee may
determine. Trustee may postpone the sale of all or any part of the Mortgaged
Property by public announcement at the time and place of any previously
scheduled sale. Lender or Lender’s designee may purchase the Mortgaged Property
at any sale.

 

Trustee shall deliver to the purchaser at the sale, within a reasonable time
after the sale, a deed conveying the Mortgaged Property so sold without any
express or implied covenant or warranty. The recitals in Trustee’s deed shall be
prima facie evidence of the truth of the statements made in those recitals.
Trustee shall apply the proceeds of the sale in the following order: (a) to all
costs and expenses of the sale, including Trustee’s fees not to exceed 5% of the
gross sales price, attorneys’ fees and costs of title evidence; (b) to the
Indebtedness in such order as Lender, in Lender’s discretion, directs; and
(c) the excess, if any, to the person or persons legally entitled to the excess.

 

44.      RECONVEYANCE. Upon payment of the Indebtedness, Lender shall request
Trustee to reconvey the Mortgaged Property and shall surrender this Instrument
and the Note to Trustee. Trustee shall reconvey the Mortgaged Property without
warranty to the person or persons legally entitled to the Mortgaged Property.
Such person or persons shall pay Trustee’s reasonable costs incurred in so
reconveying the Mortgaged Property.

 

45.      SUBSTITUTE TRUSTEE. Lender, at Lender’s option, may from time to time,
by a written instrument, appoint a successor trustee, which instrument, when
executed and acknowledged by Lender and recorded in the office of the Recorder
of the county or counties where the Mortgaged Property is situated, shall be
conclusive proof of proper substitution of the successor trustee. The successor
trustee shall, without conveyance of the Mortgaged Property, succeed to all the
title, power and duties conferred upon the Trustee in this Instrument and by
California law. The instrument of substitution shall contain the name of the
original Lender, Trustee and Borrower under this Instrument, the book and
page where this Instrument is recorded, and the name and address of the
successor trustee. If notice of default has been recorded, this power of
substitution cannot be exercised until after the costs, fees and expenses of the
then acting Trustee have been paid to such Trustee, who shall endorse receipt of
those costs, fees and expenses upon the instrument of substitution. The
procedure provided for substitution of trustee in this Instrument shall govern
to the exclusion of all other provisions for substitution, statutory or
otherwise.

 

46.      STATEMENT OF OBLIGATION. Lender may collect a fee not to exceed the
maximum allowed by applicable law for furnishing the statement of obligation as
provided in Section 2943 of the Civil Code of California.

 

47.      SPOUSE’S SEPARATE PROPERTY. Each Borrower who is a married person
expressly agrees that recourse may be had against his or her separate property.

 

48.      FIXTURE FILING. This Instrument is also a fixture filing under the
Uniform Commercial Code of California.

 

39

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49.      ADDITIONAL PROVISION REGARDING APPLICATION OF PAYMENTS. In addition to
the provisions of Section 9, Borrower further agrees that, if Lender accepts a
guaranty of only a portion of the Indebtedness, Borrower waives its right under
California Civil Code Section 2822(a), to designate the portion of the
Indebtedness which shall be satisfied by a guarantor’s partial payment

 

50.      WAIVER OF MARSHALLING; OTHER WAIVERS. To the extent permitted by law,
Borrower waives (i) the benefit of all present or future laws providing for any
appraisement before sale of any portion of the Mortgaged Property, (ii) all
rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the Indebtedness and marshalling
in the event of foreclosure of the lien created by this Instrument, (iii) all
rights and remedies which Borrower may have or be able to assert by reason of
the laws of the State of California pertaining to the rights and remedies of
sureties, (iv) 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
the Note or any other obligation secured by this Instrument, and (v) any rights,
legal or equitable, to require marshalling of assets or to require upon
foreclosure sales in a particular order, including any rights under California
Civil Code Sections 2899 and 3433. Lender shall have the right to determine the
order in which any or all of the Mortgaged Property shall be subjected to the
remedies provided by this Instrument. 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 the remedies provided by this
Instrument. By signing this Instrument, Borrower does not waive its rights under
Section 2924c of the California Civil Code.

 

51.      ADDITIONAL PROVISIONS CONCERNING ENVIRONMENTAL HAZARDS. In addition to
the provisions of Section 18:

 

(a)       Except for matters covered by an O&M Program or matters described in
Section 18(b), Borrower shall not cause or permit any lien (whether or not such
lien has priority over the lien created by this Instrument) upon the Mortgaged
Property imposed pursuant to any Hazardous Materials Laws. Any such lien shall
be considered a Prohibited Activity or Condition.

 

(b)       Borrower represents and warrants to Lender that, except as previously
disclosed by Borrower to Lender in writing:

 

(1)                     at the time of acquiring the Mortgaged Property,
Borrower undertook all appropriate inquiry into the previous ownership and uses
of the Mortgaged Property consistent with good commercial or customary practice
and no evidence or indication came to light which would suggest that the
Mortgaged Property has been or is now being used for any Prohibited Activities
or Conditions; and

 

(2)                     the Mortgaged Property has not been designated as
“hazardous waste property” or “border zone property” pursuant to Section 25220,
et seq., of the California Health and Safety Code.

 

The representations and warranties in this Section 5l(b) shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the loan evidenced by the Note, until the Indebtedness
has been paid in full.

 

40

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(c)       Without limiting any of the remedies provided in this Instrument,
Borrower acknowledges and agrees that each of the provisions in Section 18 and
in this Section 51 is an environmental provision (as defined in
Section 736(f)(2) of the California Code of Civil Procedure) made by Borrower
relating to the real property security (the “Environmental Provisions”), and
that Borrower’s failure to comply with any of the Environmental Provisions will
be a breach of contract that will entitle Lender to pursue the remedies provided
by Section 736 of the California Code of Civil Procedure (“Section 736”) for the
recovery of damages and for the enforcement of the Environmental Provisions.
Pursuant to Section 736, Lender’s action for recovery of damages or enforcement
of the Environmental Provisions shall not constitute an action within the
meaning of Section 726(a) of the California Code of Civil Procedure or
constitute a money judgment for a deficiency or a deficiency judgment within the
meaning of Sections 580a, 580b, 580d, or 726(b) of the California Code of Civil
Procedure.

 

(d)       Any reference in this Instrument or in any other Loan Document to
Section 18 of this Instrument shall be construed as referring together to
Section 18 and this Section 51.

 

52.      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.

 

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.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

41

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WATERFORD PLACE APARTMENTS, LLC,

 

 

a California limited liability company

 

 

 

 

 

 

By:

Shea Properties Management Company, Inc.,

 

 

 

a Delaware corporation, its manager

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ James G. Shontere

 

 

 

 

James G. Shontere

 

 

 

 

Secretary

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Robert R. O’Dell

 

 

 

 

Robert R. O’Dell

 

 

 

 

Treasurer

 

42

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CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT

 

State of California

 

County of Los Angeles

 

On March 27, 2008 before me, Winnie L. Yee

,

          DATE                              NAME, TITLE OF OFFICER - E.G., “JANE
DOE, NOTARY PUBLIC”

 

 

personally appeared

James G. Shontere & Robert R. O’Dell

                                                                        ,

 

NAME(S) OF SIGNER(S)

 

 

who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
they executed the same in their authorized capacity(ies), and that by their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

[SEAL]

 

 

/s/ Winnie L. Yee

 

 

 

Signature of Notary

 

OPTIONAL

 

Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.

 

 

CAPACITY CLAIMED BY SIGNER

 

DESCRIPTION OF ATTACHED DOCUMENT

 

 

 

 

o

INDIVIDUAL

 

 

o

CORPORATE OFFICER:

 

 

 

 

 

TITLE OR TYPE OF DOCUMENT

 

TITLE(S)

 

 

 

 

 

 

o

PARTNER(S):

o    LIMITED

 

 

o

 

o    GENERAL

 

 

o

ATTORNEY-IN-FACT

 

 

o

TRUSTEE(S)

 

NUMBER OF PAGES

o

GUARDIAN/CONSERVATOR

 

 

o

OTHER:

 

 

 

 

 

 

 

 

 

DATE OF DOCUMENT

 

 

 

 

SIGNER IS REPRESENTING:

 

 

NAME OF PERSONS OR ENTITY(IES)

 

 

 

 

 

SIGNER(S) OTHER THAN NAMED ABOVE

 

43

--------------------------------------------------------------------------------

 

CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT

 

State of                               

 

County of                              

 

On                                      before me,

 

,

DATE

NAME, TITLE OF OFFICER - E.G., “JANE DOE, NOTARY PUBLIC”

personally appeared

                                                                                                                                                        ,

 

NAME(S) OF SIGNER(S)

 

who proved to me on the basis of satisfactory evidence to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.

 

I certify under PENALTY OF PERJURY under the laws of the State of California
that the foregoing paragraph is true and correct.

 

WITNESS my hand and official seal.

 

 

 

 

 

 

 

 

Signature of Notary

 

OPTIONAL

 

Though the data below is not required by law, it may prove valuable to persons
relying on the document and could prevent fraudulent reattachment of this form.

 

 

CAPACITY CLAIMED BY SIGNER

 

DESCRIPTION OF ATTACHED DOCUMENT

 

 

 

 

o

INDIVIDUAL

 

 

o

CORPORATE OFFICER:

 

 

 

 

 

TITLE OR TYPE OF DOCUMENT

 

TITLE(S)

 

 

 

 

 

 

o

PARTNER(S):

o    LIMITED

 

 

o

 

o    GENERAL

 

 

o

ATTORNEY-IN-FACT

 

 

o

TRUSTEE(S)

 

NUMBER OF PAGES

o

GUARDIAN/CONSERVATOR

 

 

o

OTHER:

 

 

 

 

 

 

 

 

 

DATE OF DOCUMENT

 

 

 

 

SIGNER IS REPRESENTING:

 

 

NAME OF PERSONS OR ENTITY(IES)

 

 

 

 

 

SIGNER(S) OTHER THAN NAMED ABOVE

 

44

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EXHIBIT B

 

MODIFICATIONS TO INSTRUMENT

 

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

 

1.                          Delete clause (ii) of Section 2(b).

 

2.                          Change the reference in the second sentence of
Section 4(e) from “six months” to “three months” and add at the end of the
sentence “provided, however, that not more than 2.5% of the total units in the
Mortgaged Property at any one time may be leased on a month-to-month basis as
corporate units.”

 

3.                          Section 7 of the Security Instrument is amended to
add the following subsection:

 

“(h)             At least annually, the Borrower must provide Lender with proof
of payment of all such Impositions for which Lender is not collecting Imposition
Deposits.”

 

4.                          Delete Section 10(b).

 

5.                          In the first sentence of Section 12(a), after the
words “then Lender at Lender’s option”, insert the following: “with concurrent
notice to Borrower,”.

 

6.                          At the end of Section 13(a), insert the following:
“Lender shall use good faith efforts to minimize interference with tenants of
the Improvements while conducting any environmental inspections and tests.”

 

7.                          In the first sentence of Section 14(a), after the
words “management agent’s offices”, insert “or at the corporate offices of Shea
Properties”.

 

8.                          Section 14(c)(iii) is deleted in its entirety and
replaced with the following:

 

“(iii)           a statement that identifies all owners of any interest in
Borrower, 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;”

 

9.                          Add the following to the end of clause (i) of
Section 14(d); “Notwithstanding the foregoing provision of this subsection (i),
so long as there is no Event of Default Lender shall not require financial
statements other than an annual balance sheet and income statement for the
Borrower which are combined with the balance sheet and income statement of J. F.
Shea Co., Inc., which financial statements shall be delivered to Lender, without
the necessity of a request by Lender, within 120 days following the end of each
fiscal year of Borrower.”

 

10.                    In Section 15(a), replace the words “when due” with the
words “prior to delinquency”.

 

11.                    At the end of the second sentence of Section 17(f) after
clause (i), after the word “Personality”, insert “, and except that without the
consent of Lender, Borrower may make alterations and additions to the
Improvements provided that such alterations and additions

 

B-1

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are completed in a lien-free and good and workmanlike manner in accordance with
applicable laws, that neither the performance nor completion of the alterations
or additions adversely affects the structural integrity of the Improvements or
the occupancy of the Improvements, and the aggregate costs of all such
alterations and additions does not exceed $1,500,000.”

 

12.                    In Section 18(e)(iv), insert the words “in all material
respects” following and word “complied” in the first sentence.

 

13.                    In Section 18(f)(ii), delete the words “or other person”,

 

14.                    Section 18(g) is modified to provide that with respect to
any Environmental Inspection required by Lender as a condition of Lender’s
consent to any Transfer under Section 21, Lender shall (x) provide to Borrower
reasonable notice of the Environmental Inspection, (y) to the extent reasonable,
not interfere with the rights of tenants in possession, and (z) shall cause any
contractor, consultant or other entity conducting such Environmental Inspection
to have insurance coverage for damages to the Property caused by such
contractor, consultant or other entity as a result of such Environmental
Inspection.

 

15.                    In Section 18(h), replace the words “on a timely basis”
appearing in the second sentence with the words “prior to the applicable
deadline required by Hazardous Materials Laws”.

 

16.                    In Section 18(i), insert the words “in all material
respects” following and word “comply” in the first sentence.

 

17.                    Insert the following provision after the words “any of
the following” in the first sentence of Section 18(j):

 

“except to the extent that any of the foregoing are conclusively determined to
have first arisen as a result of acts or occurrences which first occurred after
such time as Borrower has sold, transferred or assigned all of its right, title
and interest and into the Mortgaged Property to Lender, or a successor or assign
of Lender pursuant to a foreclosure or deed-in-lieu of foreclosure.”

 

18.                    In Section 19(f), after the third sentence, add the
following: “However, if no Event of Default has occurred, (i) if the cost of a
“Restoration” (hereinafter defined) is reasonably estimated to be $1,500,000 or
less, Borrower shall have the exclusive right to adjust or compromise claims
under policies of insurance for payment of the costs associated with such
Restoration, provided that any such adjustment or compromise shall be subject to
Lender’s prior written approval; and (ii) in all other instances, Lender shall
consult with and allow the participation of Borrower in connection with any
adjustment or compromise of claims under policies of property insurance, but
Lender’s determinations in connection with any adjustment or compromise shall
control.”

 

19.                    At the end of Section 20(b), insert the following: “The
foregoing notwithstanding, Lender shall not exercise its option to apply
Condemnation awards or proceeds to the payment of Indebtedness if the conditions
set forth in Section 19(h) for the application of insurance proceeds to the
Restoration are satisfied in connection with the restoration of the Mortgaged
Property following the Condemnation.” For the purposes of the preceding
sentence, references in Section 19(h) to “the date of the loss or casualty”
shall mean the date of the Condemnation.

 

B-2

--------------------------------------------------------------------------------

 

20.                    Section 21(c)(vii) is hereby deleted in its entirety.

 

21.                    Section 21(c) is supplemented and modified by adding the
following provision:

 

“(viii)    A Transfer to any of the following (“a Pre-Approved Entity”) under
the terms and conditions set forth in items (1)-(7) below:

 

A)                     a Transfer of all or any part of the Property or any
interest in the Property to a Shea Family Member (as hereinafter defined), or a
Shea Controlled Entity (as hereinafter defined);”

 

B)                       a Transfer of interests in Borrower or a change in the
manager of Borrower or the manager of a Controlling Entity, provided that after
giving effect to the Transfer or the change in the manager, the condition set
forth in item (3) below is satisfied;

 

C)                       a Transfer of interests in a Controlling Entity,
provided that after giving effect to the Transfer, the condition set forth in
item (3) below is satisfied;

 

D)                      a Transfer of all or part of the interests of any
general partner in Borrower, provided that after giving effect to the Transfer,
the condition set forth in item (3) below is satisfied.

 

E)                        Borrower delivers written notice of the Transfer to
Lender not less than ten (10) Business Days’ prior to a Transfer of the
Property, and not more than ten (10) Business Days’ following any other
Transfer.

 

(1)                    Lender receives copies of the Transfer documents for a
Transfer of the Property, and copies of any modifications to the organizational
documents of Borrower or any Controlling Entity or general partner resulting
from any other Transfer.

 

(2)                    Upon the Transfer, one or more Shea Family Members (other
than Claire Shea) and/or one or more Shea Controlled Entities (other than one
solely controlled by Claire Shea or her spouse, issue or any trust established
by or for their benefit) shall own, collectively, not less than 50% of the
ownership interests in each of (w) the Property and (x) Borrower or a
corporation, partnership, limited liability company, joint venture, or trust
which is a Controlling Entity in Borrower.

 

(3)                    Lender approves the Transfer, which approval shall be
granted if the Transfer meets the terms and conditions of this
Section 2l(c)(viii).

 

(4)                    With respect to a transfer of the Property, (x) the
transferee executes an assumption agreement that is acceptable to Lender and
which requires the transferee to perform all obligations of Borrower set forth
in the Note, subject to the provisions of section 9 of the Note, this Instrument
and in any other Loan Document, (y)

 

B-3

--------------------------------------------------------------------------------

 

each Guarantor (if applicable) reaffirms in writing its respective obligations
under any Guaranty and acknowledges and confirms that the Guaranty remains in
full force and effect and that each Guarantor guarantees the Pre-Approved
Entity’s obligations under the Note, this Instrument and the other Loan
Documents, and (z) upon Lender’s approval of the Transfer, the assumption
agreement is recorded in the Land Records of the Property Jurisdiction.

 

(5)                    With respect to a Transfer of the Property, Borrower pays
the cost of all title searches, title insurance and recording costs, and all
fees and out of pocket costs of Lender’s legal counsel related to the Transfer.

 

(6)                    Lender shall not collect a transfer fee of 1% of the
unpaid principal balance in connection with the Transfer to the Pre-Approved
Entity. In the case of a Transfer of an interest in the Property, or in the case
of a Transfer of an interest in Borrower, or any general partner of Borrower
which is accompanied by a material change in the organizational documents of any
such entity, Borrower shall pay a review fee in the amount of $2,000.

 

(7)                    At the time of the Transfer, there exists no Event of
Default under this Instrument.

 

For the purposes of this Section 21(c)(viii), the following terms shall have the
following meanings:

 

“Shea Family Member” means John Shea, Peter Shea, Edmund Shea, Claire Shea and
their respective spouses and issue, and trusts established by or for the benefit
of any of the foregoing.

 

“Shea Controlled Entity” means any corporation, partnership, limited liability
company, or joint venture, at least 50.1% of the ownership interests in which
are held by one or more Shea Family Members or another Shea Controlled Entity.

 

22.                    Delete Section 21(f)(iv).

 

23.                    Delete Section 22(f).

 

24.                    In Section 22(h), in the second sentence, change “90
days” to “120 days”, and change “60 days” to “90 days”.

 

25.                    Clause (ii) of Section 29 to read as follows:
“confirmation of Lender’s calculation of the unpaid principal balance of the
Note;”.

 

26.                    Notwithstanding the provisions of Section 37, the
modifications set forth in this Exhibit B shall become ineffective upon a
Transfer that requires Lender’s consent or upon any Transfer that constitutes an
Event of Default under Section 21(e) of this Instrument.

 

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27.                    A new Section 53 is hereby added as follows:

 

“53.    SUPPLEMENTAL LIEN PROVISIONS.

 

(a)       Definitions. For purposes of this Section only, the following terms
have the meanings set forth below:

 

i.                            Event of Default means an Event of Default
described in this Instrument and the Senior Instrument and if the Senior
Instrument is documented on the FNMA/FHLMC Uniform Instrument dated 1/77, any
breach by Borrower of any covenant or agreement in the Senior Instrument, Senior
Note or any other Senior Loan Document after the expiration of any applicable
cure period.

 

ii.                         Supplemental Instrument means the Instrument to
which this Exhibit B is attached.

 

iii.                      Supplemental Loan Documents means all documents
relating to the loan evidenced by the Supplemental Note.

 

iv.                     Supplemental Note means the Multifamily Note secured by
the Supplemental Instrument.

 

v.                        Supplemental Lender means the Lender named in this
Supplemental Instrument and its successors, assigns and transferees.

 

(b)       Subordination of Lien. Notwithstanding any provisions of this
Supplemental Instrument or the Supplemental Loan Documents to the contrary, it
is understood and agreed that the lien, terms, covenants and conditions of this
Supplemental Instrument are and shall be subordinate in all respects, including
right of payment, to the indebtedness (“Senior Indebtedness”) evidenced by a
Multifamily Note dated April 1, 2004, in the original principal amount of
$52,000,000.00 (as modified or amended the “Senior Note”) made by or assumed by
the Borrower and secured by a Multifamily Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing, dated April 1, 2004 (the “Senior
Instrument”) to or for the benefit of Berkshire Mortgage Finance Limited
Partnership, a Massachusetts limited partnership, which was recorded on
April 15, 2004 in the Office of Alameda County, California as Document
No. 2004-159476 and was assigned to the Federal Home Loan Mortgage Corporation
(together with its successors, assigns and transferees, the “Senior Lender”) by
assignment dated April 15, 2004 and recorded on April 15, 2004 in the Office of
Alameda County, California as Document No. 2004-159477.

 

(c)       Default Under Other Liens. If there is an Event of Default under
(i) the Senior Note, the Senior Instrument or any other loan document executed
in connection with the Senior Indebtedness (the “Senior Loan Documents”); or
(ii) any loan document related to another loan in connection with the Mortgaged
Property (regardless of whether Borrower has obtained Supplemental Lender’s
approval of the placement of such lien on the Mortgaged Property), then such
Event of Default shall be an Event of Default under this Supplemental Instrument
and shall entitle Supplemental Lender to invoke any and all

 

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remedies permitted to Supplemental Lender by applicable law, the Supplemental
Note, this Supplemental Instrument or any other Supplemental Loan Documents.

 

(d)       Cross Default of Senior Instrument with Supplemental Instrument. .As
Borrower under both this Supplemental Instrument and the Senior Instrument,
Borrower hereby acknowledges and agrees that if there is an Event of Default
under the Supplemental Note, this Supplemental Instrument or any other
Supplemental Loan Document, such Event of Default shall be an Event of Default
under the terms of the Senior Instrument and shall entitle Senior Lender to
invoke any and all remedies permitted to Senior Lender by applicable law, the
Senior Note, the Senior Instrument or any of the other Senior Loan Documents.

 

(e)       No Merger.

 

(i)                       It is the intent of Borrower and Supplemental Lender
that if Supplemental Lender obtains title to the Mortgaged Property (by virtue
of a foreclosure sale, a deed in lieu of foreclosure or otherwise) and
Supplemental Lender is also or subsequently becomes the holder of the Senior
Note and Senior Instrument, Supplemental Lender’s title interest and Lien
interest shall not automatically merge so as to effect an extinguishment of the
Senior Instrument by operation of the doctrine of merger.

 

(ii)                    It is the intent of Borrower and Supplemental Lender
that if Senior Lender obtains title to the Mortgaged Property (by virtue of a
foreclosure sale, a deed in lieu of foreclosure or otherwise) and Senior Lender
is also or subsequently becomes the holder of the Supplemental Note and
Supplemental Instrument, Senior Lender’s title interest and lien interest shall
not automatically merge so as to effect an extinguishment of this Supplemental
Instrument by operation of the doctrine of merger.

 

(iii)                 Borrower acknowledges and agrees that no course of conduct
by Borrower, Supplemental Lender or Senior Lender subsequent to the date of this
Supplemental Instrument shall be used to demonstrate any intent contrary to the
express intent stated in this Section. Borrower further agrees that the holder
of the Senior Note is a third party beneficiary of the provisions of this
Section and that no amendments, modifications, waivers or other limitations of
this Section shall be effective without the prior written agreement of the
holder of the Senior Note.

 

(f)        Collection of Escrows for Impositions and Replacement Reserves.

 

(i)                       For so long as the same person or entity is both
Senior Lender and Supplemental Lender, monthly payments made by Borrower under
the Senior Instrument from and after the effective date of this Supplemental
Instrument as deposits for the payment of any Impositions shall be credited to
the monthly deposits for the payment of such Impositions under this Supplemental
Instrument.

 

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(ii)                     For so long as the same person or entity is both Senior
Lender and Supplemental Lender, monthly payments made by Borrower from and after
the effective date of this Supplemental Instrument pursuant to the Replacement
Reserve Agreement executed in connection with the Senior Note (“Senior
Replacement Reserve Agreement”) shall be credited to the monthly amounts due by
Borrower in connection with the Replacement Reserve Agreement executed in
connection with the Supplemental Indebtedness (“Supplemental Replacement Reserve
Agreement”).

 

(g)       Additional Collateral.

 

(i)                        Subject to Senior Lender’s interest, Borrower hereby
assigns and grants to Supplemental Lender a security interest in all Imposition
Deposits, all amounts in the Replacement Reserve Fund (as such term is defined
in the Senior Replacement Reserve Agreement) and any amount in any repair escrow
in connection with the Senior Indebtedness as additional security for all of the
Borrower’s obligations under the Supplemental Note.

 

(ii)                     In addition, Borrower hereby assigns and grants to
Senior Lender a security interest in all Imposition Deposits, all amounts in the
Replacement Reserve Fund (as such term is defined in the Supplemental
Replacement Reserve Agreement) and any amount in any repair escrow in connection
with the Supplemental Indebtedness as additional security for all of the
Borrower’s obligations under the Senior Note.

 

(iii)                  It is the intention of Borrower that so long as the same
person or entity is both Senior Lender and Supplemental Lender, that all amounts
deposited by Borrower in connection with either the Senior Loan Documents, the
Supplemental Loan Documents or both, constitute collateral for the Indebtedness
secured by the Supplemental Instrument and the Senior Indebtedness secured by
the Senior Instrument, with the application of such amounts to such Senior
Indebtedness or Indebtedness to be at the discretion of Senior Lender and
Supplemental Lender.”

 

28.       A new Section 54 is hereby added as follows:

 

“54.    CONDOMINIUM PROVISIONS.

 

(a) Borrower represents and warrants that, to the best of its knowledge, the
Mortgaged Property is a condominium (the “Condominium”) and constitutes all of
Unit 1 (as defined in the Condominium Instruments”) and a 97% tenancy-in-common
interest in the common elements comprising the Waterford Place Condominiums, a
Condominium, as established under the applicable Condominium Act codified in
California Civil Code Sections 1350 et seq., as from time to time amended (the
“Condominium Act”). The Declaration, as recorded in the official records of
Alameda County, State of California as Document No. 2003653881, Bylaws and Plats
establishing and describing the

 

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Condominium, arc collectively referred to below as the “Condominium
Instruments.”

 

(b)       Borrower hereby agrees that the Condominium Instruments will not be
modified or amended without the prior written consent of Lender until the
Indebtedness has been paid in full.

 

(c)       Borrower represents and warrants that none of the units in Unit 1 and
its 97% tenancy-in-common interest in the common elements comprising the
Condominium have been sold, conveyed or encumbered or are subject to any
agreement to convey or encumber. Borrower agrees that it will not in any way
pledge, sell, convey or encumber or enter into a contract or agreement to
pledge, sell, convey or encumber any unit in Unit I or any of its 97%
tenancy-in-common interest in the common elements of the Condominium unless
expressly agreed to in writing by Lender.

 

(d)       Borrower agrees that it shall own, operate and maintain the Mortgaged
Properly in accordance with the terms of this Instrument and operate the
Mortgaged Property solely as a rental apartment project.

 

(e)       The Mortgaged Property granted, conveyed and assigned to Lender
hereunder shall include all rights, easements, rights of way, reservations and
powers of the Borrower under the Condominium Act and the Condominium Instruments
in Borrower’s capacity as owner of the Mortgaged Property and as Declarant as
well as any rights that Borrower may have, in any capacity, under the
Condominium Act and the Condominium Instruments in addition to Borrower’s rights
as owner of any of the units or the Condominium, specifically including but not
limited to all rights to approve any amendments to the Condominium Instruments
and all rights to expand the Condominium.

 

(f)        Borrower hereby irrevocably constitutes and appoints Lender as
Borrower’s proxy and attorney-in-fact (which appointment shall be deemed coupled
with an interest) for and in its behalf to perform all of the obligations of
Borrower and to exercise all of the rights and powers of Borrower under the
Condominium Instruments without any liability therefor or thereunder (except for
gross negligence or willful misconduct). Borrower hereby instructs and grants
and gives to Lender full power and authority to do and perform all and every act
and thing whatsoever authorized, permitted, requisite or necessary to be done by
Borrower under the provisions of the Condominium Instruments to all intents and
purposes the same as Borrower might do, hereby ratifying and confirming all such
attorney shall lawfully do or choose to do or be done by virtue hereof, it being
understood and agreed that the aforesaid provisions impose no burden or
obligation on the Lender to do or perform any act whatsoever. It shall be a
default under this Instrument if (i) Borrower terminates or revokes or attempts
to terminate or revoke the aforesaid appointment of Lender as Borrower’s proxy
or attorney-in-fact either permanently or as to any election in the Condominium
Act or Condominium Instruments or (ii) Borrower attempts to modify the terms of
the Condominium Instruments without the prior written consent of Lender.
Notwithstanding anything in this paragraph to the contrary, the rights and
powers of Borrower granted in this paragraph may not be exercised by Lender
prior to the occurrence of an Event of Default

 

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(g)       Borrower hereby agrees that it shall maintain insurance in accordance
with Lender’s requirements on all of the Mortgaged Property, including any
common areas.

 

(h)       Nothing contained herein is intended to or shall be construed to
constitute Lender as the “Declarant” under the Condominium Act and/or the
Condominium Instruments or as owner of the Condominium, a partner or joint
venturer of Borrower.

 

(i)        Borrower hereby agrees to indemnify and hold Lender harmless from and
against any and all losses, cost, liabilities, or damages (including attorney’s
fees and disbursements) arising out of (i) the failure of the Borrower to comply
with any state or local law, ordinance, statute, or regulation by any
governmental authority covering the condominium at the Mortgaged Property; or
(ii) any claim of any unit owner or tenant of any unit owner as a result of any
violation, breach, misrepresentation, fraud, act, or omission of any obligation
of Borrower as set forth in the Condominium Instruments.

 

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