Exhibit 10.3
Prepared by, and after recording
return to:
David J. McPherson, Esquire
Troutman Sanders LLP
1660 International Drive
Suite 600, Tysons Corner
McLean, Virginia 22102-3805
MULTIFAMILY DEED OF TRUST,
ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT AND FIXTURE FILING
(TEXAS)
NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR
STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED
FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER’S
LICENSE NUMBER.

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
TEXAS   Form 4044   11/01          

Ó 1997-2001 Fannie Mae

 

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TABLE OF CONTENTS

              PAGE  
1. DEFINITIONS
    1  
2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT
    5  
3. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION
    6  
4. ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY
    8  
5. PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM
    9  
6. EXCULPATION
    9  
7. DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES
    9  
8. COLLATERAL AGREEMENTS
    10  
9. APPLICATION OF PAYMENTS
    10  
10. COMPLIANCE WITH LAWS
    11  
11. USE OF PROPERTY
    11  
12. PROTECTION OF LENDER’S SECURITY
    11  
13. INSPECTION
    11  
14. BOOKS AND RECORDS; FINANCIAL REPORTING
    12  
15. TAXES; OPERATING EXPENSES
    13  
16. LIENS; ENCUMBRANCES
    14  
17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY
    14  
18. ENVIRONMENTAL HAZARDS
    15  
19. PROPERTY AND LIABILITY INSURANCE
    19  
20. CONDEMNATION
    20  
21. TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER
    21  
22. EVENTS OF DEFAULT
    24  

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23. REMEDIES CUMULATIVE
    24  
24. FORBEARANCE
    25  
25. INTENTIONALLY DELETED
    25  
26. WAIVER OF STATUTE OF LIMITATIONS
    25  
27. WAIVER OF MARSHALLING
    25  
28. FURTHER ASSURANCES
    25  
29. ESTOPPEL CERTIFICATE
    26  
30. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE
    26  
31. NOTICE
    26  
32. SALE OF NOTE; CHANGE IN SERVICER
    26  
33. SINGLE ASSET BORROWER
    27  
34. SUCCESSORS AND ASSIGNS BOUND
    27  
35. JOINT AND SEVERAL LIABILITY
    27  
36. RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY
    27  
37. SEVERABILITY; AMENDMENTS
    27  
38. CONSTRUCTION
    27  
39. LOAN SERVICING
    27  
40. DISCLOSURE OF INFORMATION
    28  
41. NO CHANGE IN FACTS OR CIRCUMSTANCES
    28  
42. SUBROGATION
    28  
43. ACCELERATION; REMEDIES
    28  
44. RELEASE
    31  
45. TRUSTEE
    31  
46. VENDOR’S LIEN; RENEWAL AND EXTENSION
    31  
47. NO FIDUCIARY DUTY
    31  
48. FIXTURE FILING
    31  
49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS
    31  

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
TEXAS   Form 4044 11/01 Page ii          

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50. LOAN CHARGES
    32  
51. PROPERTY AND LIABILITY INSURANCE: DELIVERY OF POLICY TO LENDER
    32  
52. ENTIRE AGREEMENT
    32  
53. WAIVER OF TRIAL BY JURY
    32  

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
TEXAS   Form 4044 11/01 Page iii          

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Waterford at Deer Park
MULTIFAMILY DEED OF TRUST,
ASSIGNMENT OF RENTS
SECURITY AGREEMENT AND FIXTURE FILING
     THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
(the “Instrument”) is dated as of the 3rd day of May, 2007, by TRIAD SENIOR
LIVING III, L.P., a limited partnership organized and existing under the laws of
Texas, whose address is c/o Capital Senior Living Corporation, 14160 Dallas
Parkway, Suite 300, Dallas, Texas 75254, Attention: General Counsel, as trustor
(“Borrower”), to ED STOUT, as trustee (“Trustee”), for the benefit of CAPMARK
BANK, an industrial bank organized and existing under the laws of Utah, whose
address is 6955 Union Park Center, Suite 330, Midvale, Utah 84047, Attn:
President, with a copy to Capmark Finance Inc., 116 Welsh Road, Horsham,
Pennsylvania 19044, Attn: Servicing – Executive Vice President, as beneficiary
(“Lender”).
     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 Harris, State of Texas and described in Exhibit A attached to this
Instrument. To have and to hold the Mortgaged Property unto Trustee, Trustee’s
successor in trust and Trustee’s assigns forever.
     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 June 1, 2017, in the principal amount of
$10,315,000.00, and all renewals, extensions and modifications of the
Indebtedness, and the performance of the covenants and agreements of Borrower
contained in the Loan Documents.
     Borrower warrants and represents 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.
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 a schedule of exceptions to coverage in any title
insurance policy issued to Lender contemporaneously with the execution and
recordation of this Instrument and insuring Lender’s interest in the Mortgaged
Property.
Covenants. Borrower and Lender covenant and agree as follows:
     1. DEFINITIONS. The following terms, when used in this Instrument
(including when used in the above recitals), shall have the following meanings:
     (a) “Borrower” means all persons or entities identified as “Borrower” in
the first paragraph of this Instrument, together with their successors and
assigns.
     (b) “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 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.

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
TEXAS   Form 4044 11/01 Page 1          

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     (c) “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.
     (d) “Event of Default” means the occurrence of any event listed in
Section 22.
     (e) “Fixtures” means all property which is so attached to the Land or the
Improvements as to constitute a fixture under applicable law, including:
machinery, equipment, engines, boilers, incinerators, installed building
materials; systems and equipment for the purpose of supplying or distributing
heating, cooling, electricity, gas, water, air, or light; antennas, cable,
wiring and conduits used in connection with radio, television, security, fire
prevention, or fire detection or otherwise used to carry electronic signals;
telephone systems and equipment; elevators and related machinery and equipment;
fire detection, prevention and extinguishing systems and apparatus; security and
access control systems and apparatus; plumbing systems; water heaters, ranges,
stoves, microwave ovens, refrigerators, dishwashers, garbage disposers, washers,
dryers and other appliances; light fixtures, awnings, storm windows and storm
doors; pictures, screens, blinds, shades, curtains and curtain rods; mirrors;
cabinets, paneling, rugs and floor and wall coverings; fences, trees and plants;
swimming pools; and exercise equipment.
     (f) “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.
     (g) “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
defined as a “hazardous substance,” “hazardous material,” “hazardous waste,”
“toxic substance,” “toxic pollutant,” “contaminant,” or “pollutant” within the
meaning of any Hazardous Materials Law.
     (h) “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 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, 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.
     (i) “Impositions” and “Imposition Deposits” are defined in Section 7(a).
     (j) “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.

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TEXAS   Form 4044 11/01 Page 2          

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     (k) “Indebtedness” means the principal of, interest 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.
     (l) [Intentionally omitted]
     (m) “Key Principal” means the natural person(s) or entity identified as
such at the foot of this Instrument, and any person or entity who becomes a Key
Principal after the date of this Instrument and is identified as such in an
amendment or supplement to this Instrument.
     (n) “Land” means the land described in Exhibit A.
     (o) “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.
     (p) “Lender” means the entity identified as “Lender” in the first paragraph
of this Instrument and its successors and assigns, or any subsequent holder of
the Note.
     (q) “Loan Documents” means the Note, this Instrument, all guaranties, all
indemnity agreements, all Collateral Agreements, O&M Programs, and any other
documents now or in the future executed by Borrower, Key Principal, 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.
     (r) “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.
     (s) “Mortgaged Property” means all of Borrower’s present and future right,
title and interest in and to all of the following:

  (1)   the Land;     (2)   the Improvements;     (3)   the Fixtures;     (4)  
the Personalty;     (5)   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
benefitting 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;  
  (6)   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

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
TEXAS   Form 4044 11/01 Page 3          

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      Mortgaged Property, whether or not Borrower obtained the insurance
pursuant to Lender’s requirement;     (7)   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;     (8)   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;     (9)   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;     (10)   all Rents
and Leases;     (11)   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
and, if Borrower is a cooperative housing corporation, maintenance charges or
assessments payable by shareholders or residents;     (12)   all Imposition
Deposits;     (13)   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);
    (14)   all tenant security deposits which have not been forfeited by any
tenant under any Lease; and     (15)   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.

     (t) “Note” means the Multifamily Note described on page 1 of this
Instrument, including the Acknowledgement and Agreement of Key Principal to
Personal Liability for Exceptions to Non-Recourse Liability (if any), and all
schedules, riders, allonges and addenda, as such Multifamily Note may be amended
from time to time.
     (u) “O&M Program” is defined in Section 18(a).
     (v) “Personalty” means all equipment, inventory, general intangibles which
are used now or in the future in connection with the ownership, management or
operation of the Land or the Improvements or are located on the Land or in the
Improvements, including furniture, furnishings, machinery, building materials,
appliances, goods, supplies, tools, books, records

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
TEXAS   Form 4044 11/01 Page 4          

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     (whether in written or electronic form), computer equipment (hardware and
software) and other tangible personal property (other than Fixtures) which are
used now or in the future in connection with the ownership, management or
operation of the Land or the Improvements or are located on the Land or in the
Improvements, and any operating agreements relating to the Land or the
Improvements, and any surveys, plans and specifications and contracts for
architectural, engineering and construction services relating to the Land or the
Improvements and all other intangible property 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.
     (w) “Property Jurisdiction” is defined in Section 30(a).
     (x) “Rents” means all rents (whether from residential or non-residential
space), revenues and other income of the Land or the Improvements, including
subsidy payments received from any sources (including, but not limited to
payments under any Housing Assistance Payments Contract) 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.
     (y) “Taxes” means all taxes, assessments, vault rentals and other charges,
if any, general, special or otherwise, including all assessments for schools,
public betterments and general or local improvements, which are levied, assessed
or imposed by any public authority or quasi-public authority, and which, if not
paid, will become a lien, on the Land or the Improvements.
     (z) “Transfer” means (A) a sale, assignment, transfer or other disposition
(whether voluntary, involuntary or by operation of law); (B) the granting,
creating or attachment of a lien, encumbrance or security interest (whether
voluntary, involuntary or by operation of law); (C) 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; (D) the
withdrawal, retirement, removal or involuntary resignation of a partner in a
partnership or a member or manager in a limited liability company; or (E) the
merger, dissolution, liquidation, or consolidation of a legal entity. “Transfer”
does not include (i) a conveyance of the Mortgaged Property at a judicial or
non-judicial foreclosure sale under this Instrument or (ii) the Mortgaged
Property becoming part of a bankruptcy estate by operation of law under the
United States Bankruptcy Code. 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.
     2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is also a
security agreement under the Uniform Commercial Code for any of the Mortgaged
Property which, under applicable law, may be subject to a security interest
under the Uniform Commercial Code, whether acquired now or 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 file financing statements,
continuation statements and financing statement amendments, in such form as
Lender may require to perfect or continue the perfection of this security
interest and Borrower agrees, if Lender so requests, to execute and deliver to
Lender such financing statements, continuation statements and amendments.
Borrower shall pay all filing costs and all costs and expenses of any record
searches for financing statements 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. 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.

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
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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. This Instrument
constitutes a financing statement with respect to any part of the Mortgaged
Property which is or may become a Fixture.
     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,” as that term is defined in Section 1(s).
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, and Borrower
shall, upon Borrower’s receipt of any Rents from any sources (including, but not
limited to subsidy payments under any Housing Assistance Payments Contract), pay
the total amount of such receipts to the Lender. However, until the occurrence
of an Event of Default, Lender hereby grants to Borrower a revocable license to
collect and receive all Rents, to hold all Rents in trust for the benefit of
Lender and to apply all Rents to pay the installments of interest and principal
then due and payable under the Note and the other amounts then due and payable
under the other Loan Documents, including Imposition Deposits, and to pay the
current costs and expenses of managing, operating and maintaining the Mortgaged
Property, including utilities, Taxes and insurance premiums (to the extent not
included in Imposition Deposits), tenant improvements and other capital
expenditures. So long as no Event of Default has occurred and is continuing, the
Rents remaining after application pursuant to the preceding sentence may be
retained by Borrower free and clear of, and released from, Lender’s rights with
respect to Rents under this Instrument. From and after the occurrence of an
Event of Default, and 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 after the occurrence of an
Event of Default, 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; provided, however, that the giving of any such
notice by Lender shall not affect, in any way, Lender’s entitlement to the Rents
as of the date on which the Event of Default occurs. No tenant shall be
obligated to inquire further as to the occurrence or continuance of an Event of
Default, and 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.

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
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     (c) Borrower represents and warrants to Lender that Borrower has not
executed any prior assignment of Rents (other than an assignment of Rents
securing indebtedness that will be 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. Lender or the
receiver, as the case may be, shall be entitled to receive a reasonable fee for
managing the Mortgaged Property. Immediately upon appointment of a receiver or
immediately upon the Lender’s entering upon and taking possession and control of
the Mortgaged Property, Borrower shall surrender possession of the Mortgaged
Property to Lender or the receiver, as the case may be, and shall deliver to
Lender or the receiver, as the case may be, all documents, records (including
records on electronic or magnetic media), accounts, surveys, plans, and
specifications relating to the Mortgaged Property and all security deposits and
prepaid Rents. In the event Lender takes possession and control of the 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. 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 this Section 3, 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

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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”, as that term is defined in Section 1(s). 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 the occurrence of an Event of Default, 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 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. 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) 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, 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

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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. If customary in the applicable market, residential
Leases with terms of less than six months may be permitted with Lender’s prior
written consent.
     (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. 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 (1) such Leases are subordinate
to the lien of this Instrument (unless waived in writing by Lender); (2) 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; (3) the tenant agrees to execute such further evidences of attornment as
Lender or any purchaser at a foreclosure sale may from time to time request;
(4) the Lease shall not be terminated by foreclosure or any other transfer of
the Mortgaged Property; (5) 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 (6) 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.
     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) 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 (1) any water and sewer charges which, if not paid, may result
in a lien on all or any part of the Mortgaged Property, (2) the premiums for
fire and other hazard insurance, rent loss insurance and such other insurance as
Lender may require under Section 19, (3) Taxes, and (4) amounts for other
charges and expenses which Lender at any time reasonably deems necessary to
protect the Mortgaged Property, to prevent the imposition of liens

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on the Mortgaged Property, or otherwise to protect Lender’s interests, all as
reasonably estimated from time to time by Lender. 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 obligation of
Borrower for which Imposition Deposits are required. Any waiver by Lender of the
requirement that Borrower remit Imposition Deposits to Lender may be revoked by
Lender, in Lender’s discretion, at any time upon notice to Borrower.
     (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. Borrower
hereby pledges and grants to Lender a security interest in the Imposition
Deposits as additional security for all of Borrower’s obligations under this
Instrument and the other Loan Documents. Any amounts deposited with Lender under
this Section 7 shall not be trust funds, nor shall they operate to reduce the
Indebtedness, unless applied by Lender for that purpose under Section 7(e).
     (c) If Lender receives a bill or invoice for an Imposition, Lender shall
pay the Imposition from the Imposition Deposits held by Lender. Lender shall
have no obligation to pay any Imposition to the extent it exceeds Imposition
Deposits then held by Lender. Lender may pay an Imposition according to any
bill, statement or estimate from the appropriate public office or insurance
company without inquiring into the accuracy of the bill, statement or estimate
or into the validity of the Imposition.
     (d) If at any time the amount of the Imposition Deposits held by Lender for
payment of a specific Imposition exceeds the amount reasonably deemed necessary
by Lender, the excess shall be credited against future installments of
Imposition Deposits. If at any time the amount of the Imposition Deposits held
by Lender for payment of a specific Imposition is less than the amount
reasonably estimated by Lender to be necessary, Borrower shall pay to Lender the
amount of the deficiency within 15 days after notice from Lender.
     (e) If an Event of Default has occurred and is continuing, Lender may apply
any Imposition Deposits, in any amounts and in any order as Lender determines,
in Lender’s discretion, to pay any Impositions or as a credit against the
Indebtedness. Upon payment in full of the Indebtedness, Lender shall refund to
Borrower any Imposition Deposits held by Lender.
     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 which
is less than all amounts then due and payable nor

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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. 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, 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. Borrower shall at all times maintain records
sufficient to demonstrate compliance with the provisions of this Section 10.
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.
     11. USE OF PROPERTY. Unless required by applicable law, Borrower shall not
(a) except for any change in use approved by Lender, 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, (b) convert any individual dwelling units or
common areas to commercial use, (c) initiate or acquiesce in a change in the
zoning classification of the Mortgaged Property, or (d) establish any
condominium or cooperative regime with respect to the Mortgaged Property.
     12. PROTECTION OF LENDER’S SECURITY.
     (a) If Borrower fails to perform any of its obligations under this
Instrument or any other Loan Document, or if any action or proceeding is
commenced which purports to affect the Mortgaged Property, Lender’s security or
Lender’s rights under this Instrument, including eminent domain, insolvency,
code enforcement, civil or criminal forfeiture, enforcement of Hazardous
Materials Laws, fraudulent conveyance or reorganizations or proceedings
involving a bankrupt or decedent, then Lender at Lender’s option may make such
appearances, 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 (1) payment of fees and out-of-pocket expenses of attorneys,
accountants, inspectors and consultants, (2) entry upon the Mortgaged Property
to make repairs or secure the Mortgaged Property, (3) procurement of the
insurance required by Section 19, and (4) payment of amounts which Borrower has
failed to pay under Sections 15 and 17.
     (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 added to, and become part of, the principal
component of the Indebtedness, shall be immediately due and payable and shall
bear interest from the date of disbursement until paid at the “Default Rate”, as
defined in the Note.
     (c) Nothing in this Section 12 shall require Lender to incur any expense or
take any action.
     13. INSPECTION. Lender, its agents, representatives, and designees may make
or cause to be made entries upon and inspections of the Mortgaged Property
(including

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environmental inspections and tests) during normal business hours, or at any
other reasonable time.
     14. BOOKS AND RECORDS; FINANCIAL REPORTING.
     (a) Borrower shall keep and maintain at all times at the Mortgaged Property
or the management agent’s offices, and upon Lender’s request shall make
available at the Mortgaged Property, 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 at any reasonable time by Lender.
     (b) Borrower shall furnish to Lender all of the following:

  (1)   within 120 days after the end of each fiscal year of Borrower, 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;  
  (2)   within 120 days after the end of each fiscal year of Borrower, and at
any other time upon Lender’s request, 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;    
(3)   within 120 days after the end of each fiscal year of Borrower, and at any
other time upon Lender’s request, 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;     (4)   within 120 days after the end of
each fiscal year of Borrower, and at any other time upon Lender’s request, a
statement that identifies all owners of any interest in Borrower and the
interest held by each, if Borrower is a corporation, all officers and directors
of Borrower, and if Borrower is a limited liability company, all managers who
are not members;     (5)   upon Lender’s request, 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;     (6)  
upon Lender’s request, 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; and

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  (7)   if required by Lender, a statement of income and expense for the
Mortgaged Property for the prior month or quarter.

     (c) Each of the statements, schedules and reports required by Section 14(b)
shall be certified to be complete and accurate by an individual having authority
to bind Borrower, and shall be in such form and contain such detail as Lender
may reasonably require. Lender also may require that any statements, schedules
or reports be audited at Borrower’s expense by independent certified public
accountants acceptable to Lender.
     (d) If Borrower fails to provide in a timely manner the statements,
schedules and reports required by Section 14(b), 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.
     (e) 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.
     (f) Borrower authorizes Lender to obtain a credit report on Borrower at any
time.
     (g) If an Event of Default has occurred and Lender has not previously
required Borrower to furnish a quarterly statement of income and expense for the
Mortgaged Property, Lender may require Borrower to furnish such a statement
within 45 days after the end of each fiscal quarter of Borrower following such
Event of Default.
     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 pay the
expenses of operating, managing, maintaining and repairing the Mortgaged
Property (including insurance premiums, utilities, repairs and replacements)
before the last date upon which each such payment may be made without any
penalty or interest charge being added.
     (c) As long as no Event of Default exists and Borrower has timely delivered
to Lender any bills or premium notices that it has received, Borrower shall not
be obligated to pay Taxes, insurance premiums or any other individual Imposition
to the extent that sufficient Imposition Deposits are held by Lender for the
purpose of paying that specific Imposition. If an Event of Default exists,
Lender may exercise any rights Lender may have with respect to Imposition
Deposits without regard to whether Impositions are then due and payable. Lender
shall have no liability to Borrower for failing to pay any Impositions to the
extent that any Event of Default has occurred and is continuing, insufficient
Imposition Deposits are held by Lender at the time an Imposition becomes due and
payable or 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 (1) Borrower notifies Lender of
the commencement or expected commencement of such proceedings, (2) the Mortgaged
Property is not in danger of being sold or forfeited, (3) Borrower deposits with
Lender reserves sufficient to pay the contested

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Imposition, if requested by Lender, and (4) Borrower furnishes whatever
additional security is required in the proceedings or is reasonably requested by
Lender, which may include the delivery to Lender of the reserves established by
Borrower to pay the contested Imposition.
     (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 promptly furnish to Lender receipts evidencing such payments.
     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.
     17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY.
     (a) Borrower (1) shall not commit waste or permit impairment or
deterioration of the Mortgaged Property, (2) shall not abandon the Mortgaged
Property, (3) 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, (4) shall keep the Mortgaged Property
in good repair, including the replacement of Personalty and Fixtures with items
of equal or better function and quality, (5) shall provide for professional
management of the Mortgaged Property by a residential rental property manager
satisfactory to Lender under a contract approved by Lender in writing, and
(6) 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 except in connection with the replacement of tangible
Personalty.
     (b) If, in connection with the making of the loan evidenced by the Note or
at any later date, Lender waives in writing the requirement of Section 17(a)(5)
above that Borrower enter into a written contract for management of the
Mortgaged Property and if, after the date of this Instrument, Borrower intends
to change the management of the Mortgaged Property, Lender shall have the right
to approve such new property manager and the written contract for the management
of the Mortgaged Property and require that Borrower and such new property
manager enter into an Assignment of Management Agreement on a form approved by
Lender. If required by Lender (whether before or after an Event of Default),
Borrower will cause any Affiliate of Borrower to whom fees are payable for the
management of the Mortgaged Property to enter into an agreement with Lender, in
a form approved by Lender, providing for subordination of those fees and such
other provisions as Lender may require. “Affiliate of Borrower” means any
corporation, partnership, joint venture, limited liability company, limited
liability partnership, trust or individual controlled by, under common control
with, or which controls Borrower (the term “control” for these purposes shall
mean the ability, whether by the ownership of shares or other equity interests,
by contract or otherwise, to elect a majority of the directors of a corporation,
to make management decisions on behalf of, or independently to select the
managing partner of, a partnership, or otherwise to have the power independently
to remove and then select a majority of those individuals exercising managerial
authority over an entity, and control shall be conclusively presumed in the case
of the ownership of 50% or more of the equity interests).

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     18. ENVIRONMENTAL HAZARDS.
     (a) Except for matters covered by a written program of operations and
maintenance approved in writing by Lender (an “O&M Program”) or matters
described in Section 18(b), Borrower shall not cause or permit any of the
following:

  (1)   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;     (2)  
the transportation of any Hazardous Materials to, from, or across the Mortgaged
Property;     (3)   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;
or     (4)   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.

The matters described in clauses (1) through (4) above are referred to
collectively in this Section 18 as “Prohibited Activities or Conditions”.
     (b) Prohibited Activities and Conditions shall not include the safe and
lawful use and storage of quantities of (1) pre-packaged supplies, cleaning
materials and petroleum products customarily used in the operation and
maintenance of comparable multifamily properties, (2) 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 (3) 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) If an O&M Program has been established with respect to Hazardous
Materials, 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 the O&M Program. All costs of performance
of Borrower’s obligations under any O&M Program shall be paid by Borrower, and
Lender’s out-of-pocket costs incurred in connection with the monitoring and
review of the O&M Program and Borrower’s performance shall be paid by Borrower
upon demand by Lender. Any such out-of-pocket costs of Lender which Borrower
fails to pay promptly shall become an additional part of the Indebtedness as
provided in Section 12.

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
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     (e) Borrower represents and warrants to Lender that, except as previously
disclosed by Borrower to Lender in writing:

  (1)   Borrower has not at any time engaged in, caused or permitted any
Prohibited Activities or Conditions;     (2)   to the best of Borrower’s
knowledge after reasonable and diligent inquiry, no Prohibited Activities or
Conditions exist or have existed;     (3)   except to the extent previously
disclosed by Borrower to Lender in writing, 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 Property which has been previously disclosed by Borrower to
Lender in writing, that tank complies with all requirements of Hazardous
Materials Laws;     (4)   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;     (5)   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;     (6)   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
    (7)   Borrower has not received any 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.

The representations and warranties in this Section 18 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.
     (f) Borrower shall promptly notify Lender in writing upon the occurrence of
any of the following events:

  (1)   Borrower’s discovery of any Prohibited Activity or Condition;     (2)  
Borrower’s receipt of or knowledge of any complaint, order, notice of violation
or other communication from any Governmental Authority or other person with
regard to present or future alleged Prohibited Activities or Conditions or any
other environmental, health or safety matters

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
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      affecting the Mortgaged Property or any other property of Borrower that is
adjacent to the Mortgaged Property; and     (3)   any representation or warranty
in this Section 18 becomes untrue after the date of this Agreement.

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 (“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 the fees and
out-of-pocket costs of attorneys and technical consultants whether incurred in
connection with any judicial or administrative process or otherwise) which
Borrower fails to pay promptly shall become an additional part of the
Indebtedness as provided in Section 12. The results of all Environmental
Inspections made by Lender shall at all times remain the property of Lender and
Lender shall have no obligation to disclose or otherwise make available to
Borrower or any other party such results or any other information obtained by
Lender in connection with its Environmental Inspections. 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 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 of Lender’s Environmental Inspections. Borrower acknowledges that Lender
cannot control or otherwise assure the truthfulness or accuracy of the results
of any of its 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 which a party may bid at such sale.
Borrower agrees that Lender shall have no liability whatsoever as a result of
delivering the results of any of its Environmental Inspections to any third
party, 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 Lender’s Environmental
Inspections.
     (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 under any Hazardous Materials Law,
Borrower shall, by the earlier of (1) the applicable deadline required by
Hazardous Materials Law or (2) 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 cooperate with any inquiry by any Governmental Authority
and shall comply with any governmental or judicial order which 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,

          FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
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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 fees and
out-of-pocket expenses of attorneys and expert witnesses, investigatory fees,
and remediation costs, whether incurred in connection with any judicial or
administrative process or otherwise, arising directly or indirectly from any of
the following:

  (1)   any breach of any representation or warranty of Borrower in this
Section 18;     (2)   any failure by Borrower to perform any of its obligations
under this Section 18;     (3)   the existence or alleged existence of any
Prohibited Activity or Condition;     (4)   the presence or alleged presence of
Hazardous Materials on or under the Mortgaged Property or any property of
Borrower that is adjacent to the Mortgaged Property; and     (5)   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. However, any Indemnitee may elect to defend
any claim or legal or administrative proceeding at the Borrower’s expense.
     (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
(1) 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 (2) may materially and adversely affect Lender, as determined by
Lender in its discretion.
     (m) Lender agrees that the indemnity under this Section 18 shall be limited
to the assets of Borrower and Lender shall not seek to recover any deficiency
from any natural persons who are general partners of Borrower.
     (n) Borrower shall, at its own cost and expense, do all of the following:

  (1)   pay or satisfy any judgment or decree that may be entered against any
Indemnitee or Indemnitees in any legal or administrative proceeding incident to
any matters against which Indemnitees are entitled to be indemnified under this
Section 18;     (2)   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     (3)   reimburse Indemnitees for any
and all expenses, including fees and out-of-pocket expenses of attorneys and
expert witnesses, 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.

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     (o) 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. Borrower shall reimburse Lender upon demand for
all costs and expenses incurred by Lender, including all costs of settlements
entered into in good faith, and the fees and out-of-pocket expenses of such
attorneys and consultants.
     (p) 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.
     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 and allied perils, general
boiler and machinery coverage, and business income coverage. Lender’s insurance
requirements may change from time to time throughout the term of the
Indebtedness. 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. 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, and if flood insurance is
available in that area, Borrower shall insure such Improvements against loss by
flood.
     (b) All premiums on insurance policies required under Section 19(a) shall
be paid in the manner provided in Section 7, unless Lender has designated in
writing another method of payment. All such policies shall also be in a form
approved by Lender. All policies of property damage insurance shall include a
non-contributing, non-reporting mortgage clause in favor of, and in a form
approved by, Lender. Lender shall have the right to hold the original policies
or duplicate original policies of all insurance required by Section 19(a).
Borrower shall promptly deliver to Lender a copy of all renewal and other
notices received by Borrower with respect to the policies and all receipts for
paid premiums. At least 30 days prior to the expiration date of a policy,
Borrower shall deliver to Lender the original (or a duplicate original) of a
renewal policy in form satisfactory to Lender.
     (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.
     (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.

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     (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 property damage insurance, to appear in
and prosecute any action arising from such property damage insurance policies,
to collect and receive the proceeds of property damage 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,
(1) hold the balance of such proceeds to 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
(2) apply the balance of such proceeds to the payment of the Indebtedness,
whether or not then due. To the extent Lender determines to apply insurance
proceeds to Restoration, Lender shall do so in accordance with Lender’s
then-current policies relating to the restoration of casualty damage on similar
multifamily properties.
     (g) Lender shall not exercise its option to apply insurance proceeds to the
payment of the Indebtedness if all of the following conditions are met: (1) 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; (2) Lender determines, in its discretion, that there will be
sufficient funds to complete the Restoration; (3) Lender determines, in its
discretion, that the rental income from the Mortgaged Property after completion
of the Restoration will be sufficient to meet all operating costs and other
expenses, Imposition Deposits, deposits to reserves and loan repayment
obligations relating to the Mortgaged Property; (4) Lender determines, in its
discretion, that the Restoration will be completed before the earlier of (A) one
year before the maturity date of the Note or (B) one year after the date of the
loss or casualty; and (5) upon Lender’s request, Borrower provides Lender
evidence of the availability during and after the Restoration of the insurance
required to be maintained by Borrower pursuant to this Section 19.
     (h) 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.
     20. CONDEMNATION.
     (a) Borrower shall promptly notify Lender of any action or proceeding
relating to any 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. 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.

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     (b) Lender may apply such awards or proceeds, after the deduction of
Lender’s expenses incurred in the collection of such amounts, 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.
     (a) The occurrence of any of the following events shall constitute an Event
of Default under this Instrument:

  (1)   a Transfer of all or any part of the Mortgaged Property or any interest
in the Mortgaged Property;     (2)   a Transfer of a Controlling Interest in
Borrower;     (3)   a Transfer of a Controlling Interest in any entity which
owns, directly or indirectly through one or more intermediate entities, a
Controlling Interest in Borrower;     (4)   a Transfer of all or any part of Key
Principal’s ownership interests (other than limited partnership interests) in
Borrower, or in any other entity which owns, directly or indirectly through one
or more intermediate entities, an ownership interest in Borrower;     (5)   if
Key Principal is an entity, (A) a Transfer of a Controlling Interest in Key
Principal, or (B) a Transfer of a Controlling Interest in any entity which owns,
directly or indirectly through one or more intermediate entities, a Controlling
Interest in Key Principal;     (6)   if Borrower or Key Principal is a trust,
the termination or revocation of such trust; and     (7)   a conversion of
Borrower from one type of legal entity into another type of legal entity,
whether or not there is a Transfer.

     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.
     (b) The occurrence of any of the following events shall not constitute an
Event of Default under this Instrument, notwithstanding any provision of Section
21(a) to the contrary:

  (1)   a Transfer to which Lender has consented;     (2)   a Transfer that
occurs by devise, descent, or by operation of law upon the death of a natural
person;

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  (3)   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;     (4)   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;     (5)   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 incurred by Lender in connection with reviewing
Borrower’s request; and     (6)   the creation of a tax lien or a mechanic’s,
materialman’s or judgment lien against the Mortgaged Property which is bonded
off, released of record or otherwise remedied to Lender’s satisfaction within
30 days of the date of creation.

     (c) 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, to a Transfer that would otherwise violate this
Section 21 if, prior to the Transfer, Borrower has satisfied each of the
following requirements:

  (1)   the submission to Lender of all information required by Lender to make
the determination required by this Section 21(c);     (2)   the absence of any
Event of Default;     (3)   the transferee meets all of the eligibility, credit,
management and other standards (including any standards with respect to previous
relationships between Lender and the transferee and the organization of 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, deeds of trust or deeds to secure debt on multifamily
properties;     (4)   the Mortgaged Property, at the time of the proposed
Transfer, meets all standards as to its physical condition that are customarily
applied by Lender at the time of the proposed Transfer to the approval of
properties in connection with the origination or purchase of similar mortgages
on multifamily properties;     (5)   in the case of a Transfer of all or any
part of the Mortgaged Property, or direct or indirect ownership interests in
Borrower or Key Principal (if an entity), if transferor or any other person has
obligations under any Loan Document, the execution by the transferee or one or
more individuals or entities acceptable to Lender of an assumption agreement
(including, if applicable, an Acknowledgement and Agreement of Key Principal to
Personal Liability for Exceptions to Non-Recourse Liability) that is acceptable
to Lender and that, among other things, requires the transferee to perform all
obligations of transferor or such person set forth in such Loan Document, and
may require that the transferee comply with any provisions

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      of this Instrument or any other Loan Document which previously may have
been waived by Lender;     (6)   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    
(7)   Lender’s receipt of all of the following:

  (A)   a non-refundable review fee in the amount of $3,000 and a transfer fee
equal to 1 percent of the outstanding Indebtedness immediately prior to the
Transfer.     (B)   In addition, Borrower shall be required to reimburse Lender
for all of Lender’s out-of-pocket costs (including reasonable attorneys’ fees)
incurred in reviewing the Transfer request, to the extent such expenses exceed
$3,000.

     (d) For purposes of this Section, the following terms shall have the
meanings set forth below:

  (1)   “Initial Owners” means, with respect to Borrower or any other entity,
the persons or entities who on the date of the Note own in the aggregate 100% of
the ownership interests in Borrower or that entity.     (2)   A Transfer of a
“Controlling Interest” shall mean, with respect to any entity, the following:

  (i)   if such entity is a general partnership or a joint venture, a Transfer
of any general partnership interest or joint venture interest which would cause
the Initial Owners to own less than 51% of all general partnership or joint
venture interests in such entity;     (ii)   if such entity is a limited
partnership, a Transfer of any general partnership interest;     (iii)   if such
entity is a limited liability company or a limited liability partnership, a
Transfer of any membership or other ownership interest which would cause the
Initial Owners to own less than 51% of all membership or other ownership
interests in such entity;     (iv)   if such entity is a corporation (other than
a Publicly-Held Corporation) with only one class of voting stock, a Transfer of
any voting stock which would cause the Initial Owners to own less than 51% of
voting stock in such corporation;     (v)   if such entity is a corporation
(other than a Publicly-Held Corporation) with more than one class of voting
stock, a Transfer of any voting stock which would cause the Initial Owners to
own less than a sufficient number of shares of voting stock having the power to
elect the majority of directors of such corporation; and

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  (vi)   if such entity is a trust, the removal, appointment or substitution of
a trustee of such trust other than (A) in the case of a land trust, or (B) if
the trustee of such trust after such removal, appointment or substitution is a
trustee identified in the trust agreement approved by Lender.

  (3)   “Publicly-Held Corporation” shall mean a corporation the outstanding
voting stock of which is registered under Section 12(b) or 12(g) of the
Securities and Exchange Act of 1934, as amended.

     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,
or any of its officers, directors, trustees, general partners or managers, Key
Principal or any guarantor in connection with (A) the application for or
creation of the Indebtedness, (B) any financial statement, rent roll, or other
report or information provided to Lender during the term of the Indebtedness, or
(C) any request for Lender’s consent to any proposed action, including a request
for disbursement of funds under any Collateral Agreement;
     (e) any Event of Default under Section 21;
     (f) 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;
     (g) any failure by Borrower to perform any of its obligations under this
Instrument (other than those specified in Sections 22(a) through (f)), as and
when required, which continues for a period of 30 days after notice of such
failure by Lender to Borrower, but no such notice or grace period 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;
     (h) 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; and
     (i) 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.
     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

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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 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. 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. [INTENTIONALLY DELETED]. See Section 50.
     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, transfers and assurances as Lender
may require from time to time in order to better assure, grant, and convey to
Lender the rights intended to be granted, now or in the future, to Lender under
this Instrument and the Loan Documents.

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     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 shall be litigated
exclusively in the Property Jurisdiction. The state and federal courts and
authorities with jurisdiction in the Property Jurisdiction shall have exclusive
jurisdiction over all controversies which 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.
     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 (1) the date when the notice is
received by the addressee; (2) 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 (3) the third Business Day
after the notice is deposited in the United States mail with postage prepaid,
certified mail, return receipt requested. As used in this Section 31, the term
“Business Day” means any day other than a Saturday, a Sunday or any other day on
which Lender is not open for business.
     (b) Any party to this Instrument may change the address to which notices
intended for it are to be directed by means of notice given to the other party
in accordance with this Section 31. Each party agrees that it will not refuse or
reject delivery of any notice given in accordance with this Section 31, that it
will acknowledge, in writing, the receipt of any notice upon request by the
other party and that any notice rejected or refused by it shall be deemed for
purposes of this Section 31 to have been received by the rejecting party on the
date so refused or rejected, as conclusively established by the records of the
U.S. Postal Service or the courier service.
     (c) Any notice under the Note and any other Loan Document which 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. The Note or a partial interest in the
Note (together with this Instrument and the other Loan Documents) may be sold
one or more

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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.
     33. SINGLE ASSET BORROWER. Until the Indebtedness is paid in full, Borrower
(a) shall not acquire 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, (1) 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, (2) Borrower shall not be a third
party beneficiary of any Servicing Arrangement, and (3) 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.
     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. LOAN SERVICING. 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 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

         
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receives conflicting notices regarding the identity of the Loan Servicer or any
other subject, any such notice from Lender shall govern.
     40. 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 trustees, master
servicers, special servicers, rating agencies, and organizations maintaining
databases on the underwriting and performance of multifamily mortgage loans.
Borrower irrevocably waives any and all rights it may have under applicable law
to prohibit such disclosure, including any right of privacy.
     41. NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the application
for the loan submitted to Lender (the “Loan Application”) and in all financial
statements, rent rolls, reports, certificates and other documents submitted in
connection with the Loan Application are complete and accurate in all material
respects. There has been no material adverse change in any fact or circumstance
that would make any such information incomplete or inaccurate.
     42. SUBROGATION. If, and to the extent that, the proceeds of the loan
evidenced by the Note are used 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”),
such loan proceeds 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.
     43. ACCELERATION; REMEDIES. At any time during the existence of an Event of
Default, 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 Texas 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.
     If Lender invokes the power of sale, Lender may, by and through the
Trustee, or otherwise, sell or offer for sale the Mortgaged Property in such
portions, order and parcels as Lender may determine, with or without having
first taken possession of the Mortgaged Property, to the highest bidder for cash
at public auction. Such sale shall be made at the courthouse door of the county
in which all or any part of the Land to be sold is situated (whether the parts
or parcel, if any, situated in different counties are contiguous or not, and
without the necessity of having any Personalty present at such sale) on the
first Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m., after
advertising the time, place and terms of sale and that portion of the Mortgaged
Property to be sold by posting or causing to be posted written or printed notice
of sale at least twenty-one (21) days before the date of the sale at the
courthouse door of the county in which the sale is to be made and at the
courthouse door of any other county in which a portion of the Land may be
situated, and by filing such notice with the County Clerk(s) of the county(s) in
which all or a portion of the Land may be situated, which notice may be posted
and filed by the Trustee acting, or by any person acting for the Trustee, and
Lender has, at least twenty-one (21) days before the date of the sale, served
written or printed notice of the proposed sale by certified mail on each debtor
obligated to pay the Indebtedness according to Lender’s records by the deposit
of such notice, enclosed in a postpaid wrapper, properly addressed to such
debtor at debtor’s most recent address as shown by Lender’s records, in a post
office or official depository under the care and custody of the United States
Postal Service. The affidavit of any person

         
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having knowledge of the facts to the effect that such service was completed
shall be prima facie evidence of the fact of service.
     Trustee shall deliver to the purchaser at the sale, within a reasonable
time after the sale, a deed conveying the Mortgaged Property so sold in fee
simple with covenants of general warranty. Borrower covenants and agrees to
defend generally the purchaser’s title to the Mortgaged Property against all
claims and demands. The recitals in Trustee’s deed shall be prima facie evidence
of the truth of the statements contained in those recitals. Trustee shall apply
the proceeds of the sale in the following order: (a) to all reasonable costs and
expenses of the sale, including reasonable Trustee’s fees and 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.
     If all or any part of the Mortgaged Property is sold pursuant to this
Section 43, Borrower will be divested of any and all interest and claim to the
Mortgaged Property, including any interest or claim to all insurance policies,
utility deposits, bonds, loan commitments and other intangible property included
as a part of the Mortgaged Property. Additionally, after a sale of all or any
part of the Land, Improvements, Fixtures and Personalty, Borrower will be
considered a tenant at sufferance of the purchaser of the same, and the
purchaser shall be entitled to immediate possession of such property. If
Borrower shall fail to vacate the Mortgaged Property immediately, the purchaser
may and shall have the right, without further notice to Borrower, to go into any
justice court in any precinct or county in which the Mortgaged Property is
located and file an action in forcible entry and detainer, which action shall
lie against Borrower or its assigns or legal representatives, as a tenant at
sufferance. This remedy is cumulative of any and all remedies the purchaser may
have under this Instrument or otherwise.
     In any action for a deficiency after a foreclosure under this Instrument,
if any person against whom recovery is sought requests the court in which the
action is pending to determine the fair market value of the Mortgaged Property,
as of the date of the foreclosure sale, the following shall be the basis of the
court’s determination of fair market value:
     (a) the Mortgaged Property shall be valued “as is” and in its condition as
of the date of foreclosure, and no assumption of increased value because of
post-foreclosure repairs, refurbishment, restorations or improvements shall be
made;
     (b) any adverse effect on the marketability of title because of the
foreclosure or because of any other title condition not existing as of the date
of this Instrument shall be considered;
     (c) the valuation of the Mortgaged Property shall be based upon an
assumption that the foreclosure purchaser desires a prompt resale of the
Mortgaged Property for cash within a six month-period after foreclosure;
     (d) although the Mortgaged Property may be disposed of more quickly by the
foreclosure purchaser, the gross valuation of the Mortgaged Property as of the
date of foreclosure shall be discounted for a hypothetical reasonable holding
period (not to exceed 6 months) at a monthly rate equal to the average monthly
interest rate on the Note for the twelve months before the date of foreclosure;
     (e) the gross valuation of the Mortgaged Property as of the date of
foreclosure shall be further discounted and reduced by reasonable estimated
costs of disposition, including brokerage commissions, title policy premiums,
environmental assessment and clean-up costs, tax and assessment, prorations,
costs to comply with legal requirements and attorneys’ fees;

         
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     (f) expert opinion testimony shall be considered only from a licensed
appraiser certified by the State of Texas and, to the extent permitted under
Texas law, a member of the Appraisal Institute, having at least five years’
experience in appraising property similar to the Mortgaged Property in the
county where the Mortgaged Property is located, and who has conducted and
prepared a complete written appraisal of the Mortgaged Property taking into
considerations the factors set forth in this Instrument; no expert opinion
testimony shall be considered without such written appraisal;
     (g) evidence of comparable sales shall be considered only if also included
in the expert opinion testimony and written appraisal referred to in the
preceding paragraph; and
     (h) an affidavit executed by Lender to the effect that the foreclosure bid
accepted by Trustee was equal to or greater than the value of the Mortgaged
Property determined by Lender based upon the factors and methods set forth in
subparagraphs (a) through (g) above before the foreclosure shall constitute
prima facie evidence that the foreclosure bid was equal to or greater than the
fair market value of the Mortgaged Property on the foreclosure date.
     Lender may, at Lender’s option, comply with these provisions in the manner
permitted or required by Title 5, Section 51.002 of the Texas Property Code
(relating to the sale of real estate) or by Chapter 9 of the Texas Business and
Commerce Code (relating to the sale of collateral after default by a debtor), as
those titles and chapters now exist or may be amended or succeeded in the
future, or by any other present or future articles or enactments relating to
same subject. Unless expressly excluded, the Mortgaged Property shall include
Rents collected before a foreclosure sale, but attributable to the period
following the foreclosure sale, and Borrower shall pay such Rents to the
purchaser at such sale. At any such sale:
     (a) whether made under the power contained in this Instrument,
Section 51.002, the Texas Business and Commerce Code, any other legal
requirement or by virtue of any judicial proceedings or any other legal right,
remedy or recourse, it shall not be necessary for Trustee to have physically
present, or to have constructive possession of, the Mortgaged Property (Borrower
shall deliver to Trustee any portion of the Mortgaged Property not actually or
constructively possessed by Trustee immediately upon demand by Trustee) and the
title to and right of possession of any such property shall pass to the
purchaser as completely as if the property had been actually present and
delivered to the purchaser at the sale;
     (b) each instrument of conveyance executed by Trustee shall contain a
general warranty of title, binding upon Borrower;
     (c) the recitals contained in any instrument of conveyance made by Trustee
shall conclusively establish the truth and accuracy of the matters recited in
the Instrument, including nonpayment of the Indebtedness and the advertisement
and conduct of the sale in the manner provided in this Instrument and otherwise
by law and the appointment of any successor Trustee;
     (d) all prerequisites to the validity of the sale shall be conclusively
presumed to have been satisfied;
     (e) the receipt of Trustee or of such other party or officer making the
sale shall be sufficient to discharge to the purchaser or purchasers for such
purchaser(s)’ purchase money, and no such purchaser or purchasers, or such
purchaser(s)’ assigns or personal representatives, shall thereafter be obligated
to see to the application of such purchase money or be in any way answerable for
any loss, misapplication or nonapplication of such purchase money;
     (f) to the fullest extent permitted by law, Borrower shall be completely
and irrevocably divested of all of Borrower’s right, title, interest, claim and
demand whatsoever, either at law or in

         
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equity, in and to the property sold, and such sale shall be a perpetual bar to
any claim to all or any part of the property sold, both at law and in equity,
against Borrower and against any person claiming by, through or under Borrower;
and
     (g) to the extent and under such circumstances as are permitted by law,
Lender may be a purchaser at any such sale.
     44. RELEASE. Upon payment of the Indebtedness, Lender shall release this
Instrument. Borrower shall pay Lender’s reasonable costs incurred in releasing
this Instrument.
     45. TRUSTEE.
     (a) Trustee may resign by giving of notice of such resignation in writing
to Lender. If Trustee shall die, resign or become disqualified from acting under
this Instrument or shall fail or refuse to act in accordance with this
Instrument when requested by Lender or if for any reason and without cause
Lender shall prefer to appoint a substitute trustee to act instead of the
original Trustee named in this Instrument or any prior successor or substitute
trustee, Lender shall have full power to appoint a substitute trustee and, if
preferred, several substitute trustees in succession who shall succeed to all
the estate, rights, powers and duties of the original Trustee named in this
Instrument. Such appointment may be executed by an authorized officer, agent or
attorney-in-fact of Lender (whether acting pursuant to a power of attorney or
otherwise), and such appointment shall be conclusively presumed to be executed
with authority and shall be valid and sufficient without proof of any action by
Lender.
     (b) Any successor Trustee appointed pursuant to this Section shall, without
any further act, deed or conveyance, become vested with all the estates,
properties, rights, powers and trusts of the predecessor Trustee with like
effect as if originally named as Trustee in this Instrument; but, nevertheless,
upon the written request of Lender or such successor Trustee, the Trustee
ceasing to act shall execute and deliver an instrument transferring to such
successor Trustee, all the estates, properties, rights, powers and trusts of the
Trustee so ceasing to act, and shall duly assign, transfer and deliver any of
the property and monies held by the Trustee ceasing to act to the successor
Trustee.
     (c) Trustee may authorize one or more parties to act on Trustee’s behalf to
perform the ministerial functions required of Trustee under this Instrument,
including the transmittal and posting of any notices.
     46. VENDOR’S LIEN; RENEWAL AND EXTENSION. N/A.
     47. NO FIDUCIARY DUTY. Lender owes no fiduciary or other special duty to
Borrower.
     48. FIXTURE FILING. This Instrument is also a fixture filing under the
Uniform Commercial Code of Texas.
     49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS. In no event shall
the assignment of Rents or Leases in Section 3 and Section 4 cause the
Indebtedness to be reduced by an amount greater than the Rents actually received
by Lender and applied by Lender to the Indebtedness, whether before, during or
after (i) an Event of Default, or (ii) a suspension or revocation of the license
granted to Borrower in Section 3(c) with regard to the Rents. Borrower and
Lender specifically intend that the assignment of Rents and Leases in Section 3
and Section 4 is not intended to result in a pro tanto reduction of the
Indebtedness. The assignment of Rents and Leases in Section 3 and Section 4 is
not intended to constitute a payment of, or with respect to, the Indebtedness
and, therefore, Borrower and Lender specifically

         
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intend that the Indebtedness shall not be reduced by the value of the Rents and
Leases assigned. Such reduction shall occur only if, and to the extent that,
Lender actually receives Rents pursuant to Section 3 and applies such Rents to
the Indebtedness. Borrower agrees that the value of the license granted with
regard to the Rents equals the value of the absolute assignment of Rents to
Lender. The assignment of Rents contained in Section 3 shall terminate upon the
release of this Instrument.
     50. LOAN CHARGES. Borrower and Lender intend at all times to comply with
the laws of the State of Texas governing the maximum rate or amount of interest
payable on or in connection with the Indebtedness (or applicable United States
federal law to the extent that it permits Lender to contract for, charge, take,
reserve or receive a greater amount of interest than under Texas law). If the
applicable law is ever judicially interpreted so as to render usurious any
amount payable under the Note, this Instrument or any other Loan Document, or
contracted for, charged, taken, reserved or received with respect to the
Indebtedness, or if acceleration of the maturity of the Indebtedness, or if any
prepayment by Borrower results in Borrower having paid any interest in excess of
that permitted by any applicable law, then Borrower and Lender expressly intend
that all excess amounts collected by Lender shall be applied to reduce the
unpaid principal balance of the Indebtedness (or, if the Indebtedness has been
or would thereby be paid in full, shall be refunded to Borrower), and the
provisions of the Note, this Instrument and the other Loan Documents immediately
shall be deemed reformed and the amounts thereafter collectible under the Loan
Documents reduced, without the necessity of the execution of any new documents,
so as to comply with any applicable law, but so as to permit the recovery of the
fullest amount otherwise payable under the Loan Documents. The right to
accelerate the maturity of the Indebtedness does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the Indebtedness shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the full
term of the Indebtedness until payment in full so that the rate or amount of
interest on account of the Indebtedness does not exceed the applicable usury
ceiling. Notwithstanding any provision contained in the Note, this Instrument or
any other Loan Document that permits the compounding of interest, including any
provision by which any accrued interest is added to the principal amount of the
Indebtedness, the total amount of interest that Borrower is obligated to pay and
Lender is entitled to receive with respect to the Indebtedness shall not exceed
the amount calculated on a simple (i.e., noncompounded) interest basis at the
maximum rate on principal amounts actually advanced to or for the account of
Borrower, including all current and prior advances and any advances made
pursuant to the Instrument or any other Loan Document (such as for the payment
of Impositions and similar expenses or costs).
     51. PROPERTY AND LIABILITY INSURANCE: DELIVERY OF POLICY TO LENDER..
Notwithstanding the provisions of Section 19(b), Borrower shall not be required
to deliver the original (or a duplicate original) of any renewal policy of
insurance to Lender more than 15 days prior to the expiration date of the policy
then held by Lender.
     52. ENTIRE AGREEMENT. THIS INSTRUMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
     53. 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

         
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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:
          þ Exhibit A       Description of the Land (required)
          þ 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]

         
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            TRIAD SENIOR LIVING III, L.P., a Texas limited
partnership

By: Capital Senior Living Properties 5, Inc., a
        Delaware corporation, its general partner
   

            By:   /s/ Gloria Holland       Gloria Holland        Vice President 
   

STATE OF                     ,                      County ss:
     BEFORE ME, the undersigned, a Notary Public in and for said County and
State, on this day personally appeared Gloria Holland, known to me to be the
Vice President of Capital Senior Living Properties 5, Inc., a Delaware
corporation, general partner of Triad Senior Living III, L.P., the limited
partnership that executed the foregoing instrument, known to me to be the person
whose name is subscribed to the foregoing instrument, and acknowledged to me
that the same was the act of the said limited partnership, and that he/she
executed the same as the act of such limited partnership for the purposes and
consideration therein expressed and in the capacity therein stated.
     GIVEN UNDER MY HAND AND SEAL OF OFFICE this ___ day of
                    , 2007.

     
 
   
 
  Notary Public in and for                     
 
  County,                     

My Commission Expires:                     

         
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KEY PRINCIPAL
Key Principal

     
Name:
  Capital Senior Living Corporation  
Address:
  14160 Dallas Parkway, Suite 300
 
  Dallas, Texas 75254
 
  Attention: General Counsel

         
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EXHIBIT A
[DESCRIPTION OF THE LAND]

         
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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. The fourth paragraph on page 1 of the Instrument is deleted in its
entirety and replaced with the following:
     “Borrower warrants and represents 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.”
     2. Section 1(s)(15) is of the Instrument deleted in its entirety and
replaced with the following:

  “(15)   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; provided however, that the name “Waterford at Deer
Park” and/or associated trademark rights are not assigned to Lender.”

     3. The first sentence of Section 4(f) of the Instrument is deleted in its
entirety and replaced with the following:
“Borrower shall not lease any portion of the Mortgaged Property for
non-residential leases except with the prior written consent of Lender and
Lender’s prior written approval of the Lease agreement; provided, however, that
Lender’s prior written consent and prior written approval shall not be required
with respect to (i) equipment leases in the aggregate amount of $100,000 per
year (each a ‘Permitted Equipment Lease’); or (ii) commercial Leases covering
floor space not exceeding 5,000 square feet or with annual rent of less than
$15,000 (each a ‘Permitted Commercial Lease’).”
     4. Section 16 of the Instrument is amended by deleting “(other than the
lien of this Instrument)” and replacing it with the following: “(other than the
lien of this Instrument or any easement or restriction listed in the Schedule of
Title Exceptions)”.
     5. Section 18(e)(4) of the Instrument is amended to add “to the best of
Borrower’s knowledge after reasonable and diligent inquiry,” at the beginning
thereof.
     6. Section 18(e)(5) of the Instrument is amended to add “to the best of
Borrower’s knowledge after reasonable and diligent inquiry,” at the beginning
thereof.

         
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     7. The first paragraph of Section 18(j) of the Instrument is amended by
adding the following at the end thereof: “(except for those matters arising from
Lender’s gross negligence or intentional acts or omissions.)”
     8. Section 21(b)(3) of the Instrument is amended by adding the following at
the end thereof: “or the grant of a leasehold interest pursuant to a Permitted
Equipment Lease or a Permitted Commercial Lease.”
     9. Section 43(e) of the Instrument is amended by deleting the words
“discounted and”.

         
FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT -
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  Borrower’s Initials

         
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EXHIBIT B
MODIFICATIONS TO INSTRUMENT
(Seniors Housing)
     The following modifications are made to the text of the Instrument that
precedes this Exhibit:
     1. Section 1 of the Instrument is hereby amended to add the following
paragraphs at the end thereof:
“(aa) “Accounts” means all money, funds, investment property, accounts, general
intangibles, deposit accounts, chattel paper, documents, instruments, judgments,
claims, settlements of claims, causes of action, refunds, rebates,
reimbursements, reserves, deposits, subsidies, proceeds, products, rents and
profits, now or hereafter arising, received or receivable, from or on account of
the Borrower’s management and operation of the Mortgaged Property as a Seniors
Housing Facility.”
“(bb) “Contract(s)” means any contract or other agreement for the provision of
goods or services at or otherwise in connection with the operation, use or
management of the Mortgaged Property, including cash deposited to secure
performance by parties of their obligations.”
“(cc) “Inventory” means all right, title and interest of Borrower in and to
inventory of every type and description, now owned and hereafter acquired,
including, without limitation, raw materials, work in process, finished goods,
goods returned or repossessed or stopped in transit, goods used for
demonstration, promotion, marketing or similar purposes, property in, on or with
which any of the foregoing may be stored or maintained, all materials and
supplies usable or used or consumed at the Mortgaged Property, and all documents
and documents of title relating to any of the foregoing, together with all
present and future parts, additions, accessories, attachments, accessions,
replacements, replacement parts and substitutions therefore or thereto in any
form whatsoever.”
“(dd) “License(s)” means any operating licenses, certificates of occupancy,
health department licenses, food service licenses, certificates of need,
business licenses, permits, registrations, certificates, authorizations,
approvals, and similar documents required by applicable laws and regulations for
the operation of the Mortgaged Property as a Seniors Housing Facility, including
replacements and additions thereto.”
“(ee) “Operating Lease” means any master lease, operating agreement, operating
lease or similar document, preapproved by Lender, under which control of the
occupancy, use, operation, maintenance and administration of the Mortgaged
Property as a Seniors Housing Facility has been granted to any individual or
entity other than the Borrower.”
“(ff) “Operator” means any qualified and licensed (if so required by the
applicable laws of the Property Jurisdiction) individual or entity obligated
under the terms of an Operating Lease with the Borrower.”

         
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“(gg) “Seniors Housing Facility” means a residential housing facility which
qualifies as “housing for older persons” under the Fair Housing Amendments Act
of 1988 and the Housing for Older Persons Act of 1995 comprised of independent
living units.”
“(hh) “Third Party Payments” means all payments and the rights to receive such
payments from Medicaid programs or similar federal, state or local programs,
boards, bureaus or agencies, and from residents, private insurers or others.”
     2. Section 1(g) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“The term “Hazardous Materials” shall also include any medical products or
devices, including, but not limited to, those materials defined as “medical
waste” or “biological waste” under relevant statutes or regulations pertaining
to any Hazardous Materials Law.”
     3. Section 1(o) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“The term “Leases” shall also include any residency, occupancy, admission and
care agreements pertaining to residents of the Mortgaged Property and any
Operating Lease.”
     4. Section 1(s) of the Instrument is hereby amended:
A) to revise subsection (14) to read as follows:
“(14) all resident and tenant security deposits, entrance fees, application
fees, processing fees, community fees and any other amounts or fees deposited by
any resident or tenant upon execution of a Lease which have not been forfeited
by the resident or tenant; and”
and
B) to add the following subsections (16), (17), (18) and (19) at the end thereof
“(16) all payments due, or received, from residents, second party charges added
to base rental income, base and/or additional meal sales, commercial operations
located on the Mortgaged Property or provided as a service to the residents of
the Mortgaged Property, rental from guest suites, seasonal lease charges,
furniture leases, and laundry services, and any and all other services provided
to residents in connection with the Mortgaged Property, and any and all other
personal property on the Mortgaged Property, excluding personal property
belonging to residents of the Mortgaged Property (other than Personalty
belonging to Borrower);”
“(17) subject to applicable law and regulations, all Licenses and Contracts
relating to the operation and authority to operate the Mortgaged Property as a
Seniors Housing Facility;”

         
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“(18) all Third Party Payments arising from the operation of the Mortgaged
Property as a Seniors Housing Facility, utility deposits, unearned premiums,
accrued, accruing or to accrue under insurance policies now or hereafter
obtained by the Borrower and all proceeds of any conversion of the Mortgaged
Property or any part thereof including, without limitation, proceeds of hazard,
property, flood and title insurance and all awards and compensation for the
taking by eminent domain, condemnation or otherwise, of all or any part of the
Mortgaged Property or any easement therein;” and
“(19) all of Borrower’s Accounts and Inventory.”
     5. Section 1(v) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“The term “Personalty” shall also include all personal property currently owned
or acquired by Borrower after the date hereof used in connection with the
ownership and operation of the Mortgaged Property as a Seniors Housing Facility,
all kitchen or restaurant supplies and facilities, dining room supplies and
facilities, medical supplies and facilities, leasehold improvements, or related
furniture and equipment, together with all present and future parts, additions,
accessories, replacements, attachments, accessions, replacement parts and
substitutions therefor, and the proceeds thereof (cash and non-cash including
insurance proceeds) and any other equipment, supplies or furniture owned by
Borrower and leased to any third party service provider or any Operator under
any Operating Lease, use, occupancy, or lease agreements, as well as all
Licenses, to the extent permitted by applicable law and regulations, including
replacements and additions thereto.”
     6. Section 1(x) of the Instrument is hereby amended to provide as follows:
“Rents” means all rents (whether from residential or non-residential space),
revenues and other income of the Land or the Improvements, including rent paid
under any Operating Lease, subsidy payments received from any sources (including
but not limited to payments under any Housing Assistance Payments Contract),
parking fees, laundry and vending machine income and fees and charges for food,
healthcare, and other services provided at the Mortgaged Property, whether now
due, past due, or to become due, security deposits, entrance fees, application
fees, processing fees, community fees and any other amounts or fees forfeited by
any resident or tenant, together with and including all proceeds from any
private insurance for residents to cover rental charges and charges for services
at or in connection with the Mortgaged Property, and the right to Third Party
Payments due for the rents or services of residents at the Mortgaged Property.
Each of the foregoing shall be considered “Rents” for the purposes of the
actions and rights set forth in Section 3 of this Instrument.
     7. Section 3(b) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“After an Event of Default, Lender is further authorized to give notice to all
Third Party Payment payors (other than governmental entities) at Lender’s
option, instructing them to pay all Third Party Payments which would be
otherwise paid to Borrower to Lender, to the extent permitted by law. In the
case of Third Party Payments from Third Party Payment payors which are
governmental entities,

         
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including Medicaid, Lender and Borrower have executed a Depositary Agreement of
even date herewith which establishes special procedures for the receipt and
disposition of the Third Party Payments.”
     8. Section 3(c) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“In order to induce Lender to lend funds hereunder, Borrower (together with any
Operator or manager of the Mortgaged Property) hereby agrees upon the occurrence
of an Event of Default and at the option of Lender, that it shall continue to
provide all necessary services required under any Operating Lease or applicable
licensing or regulatory requirements and shall fully cooperate with Lender and
any receiver as may be appointed by a court, in performing these services and
agrees to arrange for an orderly transition to a replacement operator, manager
or provider of the necessary services, and to execute promptly all applications,
assignments, consents and documents requested by Lender to facilitate such
transition.”
     9. The first sentence in Section 4(b) of the Instrument is hereby amended
to add the following at the end thereof:
”, with the exception of any Operating Lease.”
     10. The last sentence in Section 4(e) of the Instrument is hereby amended
to state as follows:
“If customary in the applicable market, residential Leases with a month-to-month
term or with terms of less than six months shall be permitted with Lender’s
prior written consent.”
     11. The first sentence in Section 4(f) of the Instrument is hereby amended
to add the following at the end thereof:
“with the exception of any Operating Lease which has previously been approved by
Lender.”
     12. Section 4 of the Instrument is hereby amended to add the following as
Section 4(h):
“Any Operating Lease is and shall be subject and subordinate in all respects to
the liens, terms, covenants and conditions of the Instrument and the other Loan
Documents, and to all renewals, modifications, consolidations, replacements and
extensions thereof, and to all advances heretofore made or which may hereafter
be made pursuant to the Instrument (including all sums advanced for the purposes
of (x) protecting or further securing the lien of the Instrument, curing
defaults by Borrower under the Loan Documents or for any other purposes
expressly permitted by the Instrument or (y) constructing, renovating,
repairing, furnishing, fixturing or equipping the Mortgaged Property.”
     13. Section 11 of the Instrument is hereby amended to add the following
sentences at the end thereof:
“Borrower acknowledges that as of the date of this Instrument, Borrower and the
Mortgaged Property are not certified to participate in the Medicaid assisted
living waiver program administered by the Property Jurisdiction (“Program”).
Borrower

         
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covenants and agrees that it will notify Lender in writing 30 days prior to
Borrower’s submission of its request to participate in the Program, and will
provide Lender with copies of all correspondence and documentation received from
the Property Jurisdiction or any authorizing entity concerning its submission.
In the event the Mortgaged Property or Borrower becomes eligible to participate
in the Program, Borrower agrees to execute then-current Fannie Mae forms of
Medicaid reserve agreement and depositary agreement as Lender may require.”
“Borrower further covenants and agrees that it shall not permit more than 20% of
its effective gross income to be derived from units relying on Medicaid
payments. If by reason of applicable law or regulation more than 20% of
effective gross income becomes derived from units relying on Medicaid payments,
the Borrower shall diligently and expeditiously take all reasonable steps
necessary to bring the Mortgaged Property into compliance with the preceding
sentence to the extent permissible by applicable law or regulation. Borrower
further covenants and agrees that it shall limit the use and occupancy of the
Mortgaged Property to residents that meet the standards for independent living
or assisted living, and that it shall not accept residents that require skilled
nursing care or permit residents requiring skilled nursing care to remain at the
Mortgaged Property as a routine matter.”
     14. Section 12(a) of the Instrument is hereby amended to add the following
at the end thereof:
“and, (5) payments for any required licensing fees, permits, or other expenses
related to the operation of the Mortgaged Property as a Seniors Housing Facility
by or on behalf of the Lender, any fines or penalties that may be assessed
against the Mortgaged Property, any costs incurred to bring the Mortgaged
Property into full compliance with applicable codes and regulatory requirements,
and any fees or costs related to Lender’s employment of any operator or service
provider for the Mortgaged Property.”
     15. Section 14(b) of the Instrument is hereby deleted in its entirety and
replaced with the following:
“(b) Subject to federal, state and local laws and regulations applicable to
resident and tenant privacy, including but not limited to the Health Insurance
Portability and Accountability Act (“HIPAA”) (collectively the “Privacy Laws”),
Borrower shall furnish to Lender all of the following:”

  “(1)   within 30 days after the end of each fiscal quarter, a statement of
income and expenses for Borrower’s or any Operator’s operation of the Mortgaged
Property for that quarter, a statement of changes in financial position of
Borrower relating to the Mortgaged Property for that quarter and a balance sheet
showing all assets and liabilities of Borrower relating to the Mortgaged
Property as of the end of that quarter;”     “(2)   within 90 days after the end
of each twelve consecutive month fiscal year, a statement of income and expenses
for Borrower’s or any Operator’s operation of the Mortgaged Property for that
fiscal year, prepared in accordance with generally accepted accounting
principles (“GAAP”), a statement of changes in financial position of Borrower
relating to the Mortgaged Property for that fiscal year,

         
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      and a balance sheet showing all assets and liabilities of Borrower
relating to the Mortgaged Property as of the end of that fiscal year;”     “(3)
  within 30 days after the end of each quarter of Borrower, and at any other
time upon Lender’s request, a rent schedule for the Mortgaged Property showing
the name of each resident and tenant, and for each resident and tenant, the
space occupied, the lease expiration date, the rent payable for the current
month, the date through which rent has been paid, any income attributable to
additional resident services, and any related information requested by Lender;”
    “(4)   within 120 days after the end of each fiscal year of Borrower, and at
any other time upon Lender’s request, 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;”     “(5)   within 120 days after
the end of each fiscal year of Borrower, and at any other time upon Lender’s
request, a statement that identifies all owners of any interest in Borrower and
the interest held by each, if Borrower is a corporation, all officers and
directors of Borrower, and if Borrower is a limited liability company, all
managers who are not members;”     “(6)   upon Lender’s request, a monthly
property management report for the Mortgaged Property, showing the number of
inquiries made and rental applications received from residents or prospective
residents and deposits received from residents and any other information
requested by Lender;”   “(7)   if required by Lender, a statement of income and
expense for the Mortgaged Property for the prior month or quarter;”     “(8)  
within 10 days of Borrower’s receipt, copies of all inspection reports, surveys,
reviews, and certifications prepared by, for, or on behalf of any licensing or
regulatory authority relating to the Mortgaged Property and any legal actions,
orders, notices, or reports relating to the Mortgaged Property issued by the
applicable regulatory or licensing authorities;”     “(9)   upon the request of
Lender, copies of all reports relating to the services and operations of the
Mortgaged Property, including, if applicable, Medicaid cost reports and records
relating to account balances due to or from Medicaid or any private insurer;”  
  “(10)   within 10 days of submission by Borrower, copies of all incident
reports submitted to any elderly affairs, regulatory or licensing authority;
and”

         
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  “(11)   within 45 days after the end of each calendar year, copies of all
incident reports submitted to any liability insurance carrier during such
calendar year.”

     16. Section 17(a)(5) is hereby amended to state the following:
“shall provide for professional management of the Mortgaged Property as a
Seniors Housing Facility either by Borrower, an Operator under an Operating
Lease approved by Lender in writing, or a management company engaged either by
the Borrower or any Operator under a Contract approved by Lender in writing.”
     17. Section 17(a) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“Borrower further covenants and agrees that it shall maintain and operate the
Mortgaged Property as a Seniors Housing Facility at all times in accordance with
the standards required by any applicable Licenses and as required by any
regulatory authority, that it shall maintain in good standing all Licenses, and
that it shall cause to renew and extend all such required Licenses, and shall
not fail to take any action necessary to keep all such Licenses in good standing
and full force and effect. Borrower will immediately provide Lender with any
notice or order of a violation which may otherwise have an adverse impact on the
Mortgaged Property, its operations or its compliance with licensing and
regulatory requirements.”
     18. Section 17 of the Instrument is hereby amended to add the following as
subsection (c):
“Borrower has entered into the Contracts previously identified to Lender for the
provision of goods or services, at or otherwise in connection with the
operation, use or management of the Mortgaged Property. Borrower may in the
future enter into Contracts for the provision of additional goods or services at
or otherwise in connection with the operation, use or management of the
Mortgaged Property. Until Lender gives notice to Borrower of Lender’s exercise
of its rights under this Instrument, Borrower shall have all rights, power and
authority granted to Borrower under any Contract (except as otherwise limited by
this subsection or any other provision of this Instrument), including the right,
power and authority to modify the terms of any Contract or extend or terminate
any Contract, with the exception of any Operating Lease. Upon the occurrence of
an Event of Default and at the option of Lender, the permission given to
Borrower pursuant to the preceding sentence to exercise all rights, power and
authority under Contracts shall terminate. Upon Lender’s delivery of notice to
Borrower of an Event of Default, Lender shall immediately have all rights,
powers and authority granted to Borrower under any Contract, including the
right, power and authority to modify the terms of, extend or terminate any such
Contract. Borrower hereby represents and warrants and agrees with Lender that:
(1) the Contracts are assignable and no previous assignment of Borrower’s
interest in the Contracts has been made, except for assignments made in
connection with prior financings secured by the Mortgaged Property; (2) the
Contracts are in full force and effect in accordance with their respective terms
and there are no defaults thereunder; (3) Borrower shall fully perform all of
its obligations under the Contracts, and Borrower agrees not to amend, modify,
assign, sell, pledge, transfer, mortgage or otherwise encumber its interests in
any of the Contracts so long as this Instrument is in

         
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effect, or consent to any transfer, assignment or other disposition thereof
without the written approval of Lender; and (4) each Contract entered into by
Borrower subsequent to the date hereof, the average annual consideration of
which, directly or indirectly, is at least $30,000, shall provide: (i) that it
shall be terminable for cause; and (ii) that it shall be terminable, at Lender’s
option, upon the occurrence of an Event of Default.
     19. Section 18(b) of the Instrument is hereby amended to add the following
sentence at the end thereof:
“Prohibited Activities and Conditions also shall not include the safe and lawful
use and storage of medical products and devices customarily used in the
operation of a Seniors Housing Facility.”
     20. Section 19(c) is hereby amended to provide as follows:
“Borrower shall maintain or cause any Operator to maintain at all times
commercial professional liability and general liability insurance, workers’
compensation insurance, and such other insurance as Lender may require from time
to time.”
     21. Section 21(a) of the Instrument is hereby amended to add the following
Sections (8) and (9) at the end thereof:
“(8) a Transfer or change in the holder of the Licenses authorizing the
Mortgaged Property to operate as a Seniors Housing Facility; and”
“(9) a Transfer of the Borrower’s or any Operator’s respective interest(s) in
any Operating Lease.”
     22. Section 22 of the Instrument is hereby amended to add the following as
Sections 22 (g), (h), (i) and (j):
“(g) any failure by Borrower, Operator or any manager (as applicable) to comply
with the use and licensing requirements set forth in Sections 10 and 11”;
“(h) any loss by Borrower, Operator or any manager (as applicable) of any
License or other legal authority necessary to operate the Mortgaged Property as
a Seniors Housing Facility, or any failure by Borrower, Operator or any manager
(as applicable) to comply strictly with any consent order or decree or to
correct, within the time deadlines set by any federal, state or local licensing
agency, any deficiency where such failure results, or under applicable laws and
regulations, is reasonably likely to result, in an action by such agency with
respect to the Mortgaged Property that may have a material adverse effect on the
income and operations of the Mortgaged Property or Borrower’s interest in the
Mortgaged Property, including, without limitation, a termination, revocation or
suspension of any applicable Licenses, necessary for the operation of the
Mortgaged Property as a Seniors Housing Facility”;
“(i) if, without the consent of Lender, Borrower, Operator or any manager (as
applicable):

  “(i)   ceases to operate the Mortgaged Property as a Seniors Housing
Facility;”

         
Seniors Housing Modifications to Instrument
  Form 4075   Page B-11
 
       
 
  05-05   ã 2000-2005 Fannie Mae

 

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  “(ii)   ceases to provide such kitchens, separate bathrooms, and areas for
eating, sitting and sleeping in each independent living or assisted living unit
or at a minimum, central bathing facilities for Alzheimer’s/dementia care, as
are provided as of the date of this Instrument;”     “(iii)   ceases to provide
other facilities and services normally associated with independent living or
assisted living units, including, without limitation, (A) central dining
services providing up to three meals per day, (B) periodic housekeeping,
(C) laundry services, (D) customary transportation services, and (E) social
activities;”     “(iv)   provides or contracts for skilled nursing care for any
of the units;”     “(v)   leases or holds available for lease to commercial
tenants non-residential space (i.e., space other than the units, dining areas,
activity rooms, lobby, parlors, kitchen, mailroom, marketing/management offices)
exceeding ten percent (10%) of the net rental area; or”     “(vi)   takes any
action or permits to exist any condition that causes the Mortgaged Property to
be no longer classified as housing for older persons pursuant to the Fair
Housing Amendments Act of 1988 and the Housing for Older Persons Act of 1995”;
and

“(j) a default under any Operating Lease or under the Subordination, Assignment
and Security Agreement executed by Borrower, Operator and Lender in connection
with this Loan which continues beyond any applicable cure period, or the
termination of any Operating Lease without Lender’s prior written approval.”
     23. The former Sections 22(g), (h) and (i) are hereby amended to be
Sections 22 (k), (l) and (m), respectively and are amended to read as follows:
“(k) any failure by Borrower to perform any of its obligations under this
Instrument (other than those specified in Sections 22(a) through (j)), as and
when required, which continues for a period of 30 days after notice of such
failure by Lender to Borrower, but no such notice or grace period 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;”
“(l) 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; and”

         
Seniors Housing Modifications to Instrument
  Form 4075   Page B-12
 
       
 
  05-05   ã 2000-2005 Fannie Mae

 

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“(m) 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.”
     24. Section 43 of the Instrument is hereby amended to add the following
sentences at the end thereof:
“In addition to the remedies set forth herein and elsewhere in this Instrument,
upon an Event of Default Lender shall be entitled to mandate the use of a
lockbox bank account or other depositary account, to be maintained under the
control and supervision of Lender, for all income of the Mortgaged Property,
including, but not limited to, Rents, service charges, insurance payments and
Third Party Payments. Lender may, upon an Event of Default, cause the removal of
Borrower, Operator or any manager (as applicable) from any Mortgaged Property
operations. Until such time as Lender has located a replacement operator,
Borrower, the acting Operator or manager shall continue to provide all required
services to maintain the Mortgaged Property in full compliance with all
licensing and regulatory requirements as a Seniors Housing Facility. Borrower
acknowledges that its failure to perform or to cause the performance of this
service shall constitute a form of waste of the Mortgaged Property, causing
irreparable harm to Lender and the Mortgaged Property, and shall constitute
sufficient cause for the appointment of a receiver.”
     25. The following new Section is added to the Instrument after the last
numbered Section:
     ”54. BORROWER’S REPRESENTATIONS AND WARRANTIES. In addition to any other
representations and warranties contained in this Instrument, Borrower hereby
represents and warrants to Lender as follows:
“(a) Except for permits required with respect to the offering of food services
at the Mortgaged Property, no regulatory or licensing requirements currently
apply to the Mortgaged Property and Borrower and any Operator thereof are in all
respects legally authorized to operate the Mortgaged Property as a Seniors
Housing Facility under the applicable laws of the Property Jurisdiction without
a license or operating certificate. If any licensing or similar regulatory
requirement is imposed upon or otherwise becomes applicable to the Mortgaged
Property, Borrower and any Operator shall obtain all Licenses required to
lawfully operate the Mortgaged Property as a Seniors Housing Facility and shall
maintain such Licenses in full force and effect. Borrower acknowledges and
agrees that all such Licenses are subject to the terms of this Instrument.”
“(b) Borrower and the Mortgaged Property (and the operation thereof) are in
compliance in all material respects with the applicable provisions of all laws,
statutes, regulations, ordinances, orders, standards, restrictions and rules of
any federal, state or local government or quasi-government body, agency, board
or authority having jurisdiction over the operation of the Mortgaged Property,
including, without limitation: (i) health care and fire safety codes;
(ii) design and construction requirements, (iii) laws regulating the handling
and disposal of medical or biological waste; (iv) the applicable provisions of
Seniors Housing Facility laws, rules, regulations and published interpretations
thereof to which the Borrower or the Mortgaged Property is subject; (v) privacy,
security and billing standards such as those set forth in HIPAA, and (vi) all
criteria established to classify the Mortgaged

         
Seniors Housing Modifications to Instrument
  Form 4075   Page B-13
 
       
 
  05-05   ã 2000-2005 Fannie Mae

 

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Property as housing for older persons under the Fair Housing Amendments Act of
1988 and the Housing for Older Persons Act of 1995;”
“(c) If required, Borrower has a current provider agreement under any and all
applicable federal, state and local laws for reimbursement: (a) to a Seniors
Housing Facility; or (b) for other type of care provided at such facility. There
is no decision not to renew any provider agreement related to the Mortgaged
Property, nor is there any action pending or threatened to impose alternative,
interim or final sanctions with respect to the Mortgaged Property;”
“(d) Borrower and the Mortgaged Property are not subject to any proceeding, suit
or investigation by any federal, state or local government or quasi-government
body, agency, board authority or any other administrative or investigative body
which may result in the imposition of a fine or an alternative, interim or final
sanction, or which would have a material adverse effect on Borrower or the
operation of the Mortgaged Property, or which would result in the appointment of
a receiver or manager or would result in the revocation, transfer, surrender,
suspension or other impairment of the Licenses for the Mortgaged Property to
operate as a Seniors Housing Facility;”
“(e) Upon Lender’s request and subject to Privacy Laws, copies of resident care
agreements and resident occupancy agreements shall be provided to Lender. All
resident records at the Mortgaged Property are true and correct in all material
respects;”
“(f) Neither the execution and delivery of the Note, the Instrument or the Loan
Documents, Borrower’s performance thereunder, nor the recordation of the
Instrument will adversely affect the Licenses necessary for the operation of the
Mortgaged Property as a Seniors Housing Facility in the Property Jurisdiction;”
“(g) Borrower is not a participant in any federal program whereby any federal,
state or local, government or quasi-governmental body, agency, board or other
authority may have the right to recover funds by reason of the advance of
federal funds. Borrower has received no notice, and is not aware of any
violation of applicable antitrust laws of any federal, state or local,
government or quasi-government body, agency, board or other authority; and,”
“(h) Except as otherwise specifically disclosed to the Lender in writing, in the
event any existing Operating Lease or management agreement is terminated or
Lender acquires the Mortgaged Property through foreclosure or otherwise, neither
Borrower, Lender, any subsequent operator or manager, nor any subsequent
purchaser (through foreclosure or otherwise) must obtain a certificate of need
from any applicable state health care regulatory authority or agency (other than
giving such notice required under the applicable state law or regulation) prior
to applying

         
Seniors Housing Modifications to Instrument
  Form 4075   Page B-14
 
       
 
  05-05   ã 2000-2005 Fannie Mae

 

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for any applicable License necessary for the operation of the Mortgaged Property
as a Seniors Housing Facility, provided that no service or unit complement is
changed.”
     26. All capitalized terms used in this Exhibit not specifically defined
herein shall have the meanings set forth in the text of the Instrument that
precedes this Exhibit.

     
 
   
 
  Borrower’s Initials

         
Seniors Housing Modifications to Instrument
  Form 4075   Page B-15
 
       
 
  05-05   ã 2000-2005 Fannie Mae

 

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EXHIBIT B
MODIFICATIONS TO INSTRUMENT
(Cross-Default and Cross-Collateralization)
     The following modifications are made to the text of the Instrument that
precedes this Exhibit:
     1. Section 33 of the Instrument is hereby amended to read as follows:
     “Until the Indebtedness is paid in full, Borrower shall not (1) acquire any
real or personal property other than the Borrower’s Projects (as defined in
Section 55) and assets (such as accounts) related to the operation and
maintenance of the Borrower’s Projects, or (2) operate any business other than
the management and operation of the Borrower’s Projects.”
     2. The following new Sections are added to the Instrument after the last
numbered Section:
     ”55. CROSS-DEFAULT AND CROSS COLLATERALIZATION.
     (a) In addition to the Mortgaged Property described on Exhibit “A” attached
hereto, the Borrower also owns each of the multifamily properties described on
Exhibit C to this Instrument. All of the properties described on Exhibit C,
together with the Mortgaged Property, are referred to herein collectively as the
“Borrower’s Projects”. Contemporaneous with the closing and funding of the loan
to the Borrower evidenced by the Note, the Lender has extended additional loans
to the Borrower, each loan being secured by a Multifamily Mortgage or Deed of
Trust, Assignment of Rents and Security Agreement (a “Security Instrument”)
against each of the other Borrower’s Projects.
     (b) The Borrower acknowledges that the Lender is unwilling to extend the
loan evidenced by the Note to the Borrower unless the Borrower agrees that all
of the Borrower’s Projects will be treated as a single project through the
imposition of cross-collateralization, cross-default and release provisions. The
Borrower further acknowledges that the Lender’s agreement to amend the single
asset borrower provisions of Section 33 of this Instrument, to permit the
Borrower’s ownership of all of the Borrower’s Projects, is in partial
consideration for the cross-collateralization, cross-default and release
provisions set forth herein below.
     (c) The Borrower hereby agrees and consents that as additional security to
the Lender, each of the Borrower’s Projects shall be subject to the lien of the
Lender’s Security Instrument for each of the other of the Borrower’s Projects,
and that each of the respective Borrower’s Projects shall collateralize the
other Borrower’s Projects as follows: all Mortgaged Property (as defined in the
respective Security Instrument) for each of the Borrower’s Projects shall be
considered part of the “Mortgaged Property” under this Instrument, and shall be
collateral under this Instrument and the Loan Documents.

         
Cross-Default and Cross-Collateralization
  Form 4068 11/01 Page B-16
 Modifications to Instrument (Multi-Project/Multi-Note)
       
 
      ã 1997-2001 Fannie Mae

 

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     (d) The Borrower hereby agrees and consents that the occurrence of an Event
of Default under the Security Instrument securing one of the Borrower’s
Projects, then an Event of Default shall exist under the Security Instrument
with respect to the other Borrower’s Projects. No notice shall be required to be
given to the Borrower in connection with such Event of Default. In the event of
an Event of Default under the Security Instrument with respect to any one of the
Borrower’s Projects, the Lender shall have the right, in its sole and absolute
discretion, to exercise and perfect any and all rights in and under the Loan
Documents with regard to any or all of the other Borrower’s Projects, including,
but not limited to, an acceleration of one or all of the Notes and the sale of
one or all of the Borrower’s Projects in accordance with the terms of the
respective Security Instrument. No notice, except as may be required by the
respective Security Instrument, shall be required to be given to the Borrower in
connection with the Lender’s exercise of any and all of its rights after an
Event of Default has occurred.
     (e) The Borrower may request that Lender make a determination whether any
of the Borrower’s Projects may be released from the cross-default and
cross-collateral provisions of this Section if (i) the Borrower proposes to pay
off an individual loan held by Lender and secured by one of the Borrower’s
Projects, or (ii) the Borrower proposes to sell one of the Borrower’s Projects
and have the Borrower’s loan on that project assumed by a buyer acceptable to
Lender. Upon such request from Borrower, Lender shall consent to the release the
Borrower’s Project from the cross-default and cross-collateral provisions of
this Section, provided:
     (1) If the remaining loans to the Borrower include the loan secured by the
Mortgaged Property and the loan secured by the Borrower’s Project known as
Waterford at Pantego, then such remaining loans shall have, in the aggregate, a
minimum overall 1.35 debt service coverage, based on the remaining Borrower’s
Projects’ collective Net Operating Income for the 12 months of operation
immediately prior to the Borrower’s request for such release; and
     (2) If the remaining loans to the Borrower include one, but not both the
loan secured by the Mortgaged Property and the loan secured by Waterford at
Pantego, then such remaining loans shall have, in the aggregate, a minimum
overall 1.40 debt service coverage, based on the remaining Borrower’s Projects’
collective Net Operating Income for the 12 months of operation immediately prior
to the Borrower’s request for such release; and
     (3) If the remaining loans to the Borrower do not include the loan secured
by the Mortgaged Property and the loan secured by Waterford at Pantego, then
such remaining loans shall have, in the aggregate, a minimum overall 1.45 debt
service coverage, based on the remaining Borrower’s Projects’ collective Net
Operating Income for the 12 months of operation immediately prior to the
Borrower’s request for such release; and
     (4) As consideration for the Lender’s agreement to modify the single asset
borrower provisions of Section 33 of the Instrument, and permit the Borrower to
own all of the Borrower’s Projects, in the event the Borrower proposes to pay
off one of the Borrower’s loans secured by one

         
Cross-Default and Cross-Collateralization
  Form 4068 11/01 Page B-17
 Modifications to Instrument (Multi-Project/Multi-Note)
       
 
      ã 1997-2001 Fannie Mae

 

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of the Borrower’s Projects by refinancing the respective loan with a new lender,
but not in connection with the sale of the respective secured Borrower’s
Project, the Borrower must convey the Borrower’s Project being refinanced to a
different ownership entity (with neither the specific Borrower’s Project or the
proposed new ownership entity being owned by the Borrower) prior to such
refinancing, so that none of the Borrower’s Projects will be security for
financing held by any lender other than the Lender that is the owner and holder
of the Note.
For purposes of (1) and (2) of this paragraph (e), “Net Operating Income” is
defined as:
     (A) the lesser of the actual rents collected for the 12 month period (net
of any concession) or 95% of the gross potential rental income for the 12 month
period; plus
     (B) the actual laundry income (coin operated machines), cable and alarm
fees, application fees, late fees and forfeited deposits for the 12 month
period; less
     (C) the greater of the actual operating expenses for the 12 month period
(including the required Replacement Reserves funding for the period) or the
operating expenses used by Lender in its final underwriting (including
Replacement Reserves), increased at the rate of 3% per annum.
     (f) Notwithstanding any provision of this Section to the contrary, the
Borrower shall not be permitted to request a release of any of the Borrower’s
Projects from the cross-default and cross-collateral provisions of this Section
if, at the time of such request, a default or Event of Default under any of the
loans held by Lender on any of the Borrower’s Projects. No release of any of the
Borrower’s Projects from the cross-default and cross-collateral provisions of
this Section shall be permitted by Lender unless Borrower has paid all costs and
expenses of Lender incurred in connection with its processing of the requested
release, including, without limitation, all title endorsement premiums,
recording fees, inspection fees, and attorney fees.

         
Cross-Default and Cross-Collateralization
  Form 4068 11/01 Page B-18
 Modifications to Instrument (Multi-Project/Multi-Note)
       
 
      ã 1997-2001 Fannie Mae

 

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     56. EXHIBIT C. Exhibit C is attached to this Instrument.”

     
 
   
 
  Borrower’s Initials

         
Cross-Default and Cross-Collateralization
  Form 4068 11/01 Page B-19
 Modifications to Instrument (Multi-Project/Multi-Note)
       
 
      ã 1997-2001 Fannie Mae

 

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EXHIBIT C
Additional Multifamily Properties

1.   Waterford at Columbia
9370 Windsor Lake Boulevard
Columbia, South Carolina 29223

2.   Waterford at Edison Lakes
1025 Park Place
Mishawaka, Indiana 46545

3.   Waterford at Pantego
2650 West Park Row Drive
Pantego, Texas 76013

         
Cross-Default and Cross-Collateralization
  Form 4068 11/01 Page C-1
 Modifications to Instrument (Multi-Project/Multi-Note)
       
 
      ã 1997-2001 Fannie Mae