Exhibit 10.7

AMENDMENT NO. 2 TO FORBEARANCE
AND COLLATERAL ACCOUNT AGREEMENT

     THIS AMENDMENT

("Amendment") is made as of __________, 2002, by and among:

PARTIES

     (i)     ALS HOLDINGS, INC., a Delaware corporation, and ALS WISCONSIN
HOLDINGS, INC., a Delaware corporation (collectively, the "Borrowers");

     (ii)     ALTERRA HEALTHCARE CORPORATION, a Delaware corporation formerly
known as Alternative Living Services, Inc. (the "Guarantor");

     (iii)     WASHINGTON MUTUAL BANK, FA, a federal association, U.S. BANK
NATIONAL ASSOCIATION, f/k/a Firstar Bank Milwaukee, N.A., and AMSOUTH BANK, the
Lenders under, and as defined in, the Financing Agreement described below (in
such capacity, the "Lenders"); and

     (iv)     WASHINGTON MUTUAL BANK, FA, a federal association, successor by
merger to Bank United, in its capacity as agent (in such capacity, the "Agent")
for the Lenders under the Financing Agreement.

     Borrowers, Guarantor, Lenders and Agent are collectively referred to herein
as the "Parties."

RECITALS

     The Parties have entered into that certain Forbearance and Collateral
Account Agreement dated as of November 1, 2001, as amended by Amendment No. 1
dated as of December, 2001 (as so amended, the "Agreement"). Capitalized terms
used and not otherwise defined herein shall have the meanings given in the
Agreement. The Forbearance Period under the Agreement during which Agent and
Lenders agreed to refrain from exercising certain remedies under the Financing
Agreement and certain related documents has expired.

     Pursuant to that certain Collateral Disposition Agreement dated as of the
date hereof between Borrowers, Guarantor, Agent and Lenders, Borrowers and
Guarantor have agreed to permit Agent, on behalf of Lenders, to foreclose
Lenders' interests in the Properties (as defined in the Collateral Disposition
Agreement) and the other Collateral (as defined in the Collateral Disposition
Agreement) with the cooperation of Borrowers and Guarantor or, alternatively at
the option of Agent, to provide Agent or any one or more nominees of Agent with
deeds in lieu of foreclosure with respect to some of the Properties and the
other Collateral, or, subject to the prior approval of Agent and Lenders, to
sell the Properties to third parties, upon the terms and subject to the
conditions of the Collateral Disposition Agreement.

In connection with the Collateral Disposition Agreement, the Parties desire to
amend the Agreement to provide for an adjustment to the monthly amount of funds
distributed to Agent and Lenders from the Cash Collateral Account upon each
foreclosure or sale of a Property or a deed in lieu of foreclosure with respect
to a Property pursuant to the Collateral Disposition Agreement.

AGREEMENT

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

 1. Amendment to Section 3.2 - Deposits to the Account. Section 3.2 is hereby
    amended by deleting the introductory paragraph thereof in its entirety and
    replacing it with the following: "Prior to the transfer of each Facility and
    the related Collateral pursuant to that certain Collateral Disposition
    Agreement dated as of October 8, 2002 between Borrowers, Guarantor, Agent
    and Lenders (the "Collateral Disposition Agreement"), the Borrowers and the
    Guarantor shall cause the gross amount of all rents, issues and profits of
    such Facility and all other payments received by the Borrowers, the
    Guarantor or any of their affiliates, agents, managers, lessees, independent
    contractors or representatives in respect of such Facility or any of the
    other Collateral (all of the foregoing being referred to collectively as the
    "Cash Collateral") to be deposited directly into the Cash Collateral
    Account. To effect the foregoing:".
 2. Amendment to Section 3.5 - Disbursement of Funds to the Lenders. Section 3.5
    is hereby amended by deleting the period at the end thereof and replacing it
    with the following: "; provided, however, that on the Recordation Date (as
    defined in the Collateral Disposition Agreement ) for a Facility, the
    monthly amount distributable to Agent and Lenders pursuant to this Section
    3.5, as it may have been previously reduced or increased pursuant to this
    Section 3.5, shall be reduced or increased by the amount shown opposite such
    Facility in the following table:

    

Facility

Reduction in Monthly
Payment

Leesburg, Florida

$30,000

Pin Oak, Florida (Clare Bridge)

$4,000

Pin Oak, Florida (Wynwood)

$4,000

Tequesta, Florida (Clare Bridge)

$16,000

Michigan City, Indiana (Sterling Cottage)

$30,000

Michigan City, Indiana (Sterling House)

$28,000

Lawrence, Kansas

$12,000

Owatonna, Minnesota (Clare Bridge)

$12,000

Owatonna, Minnesota (Sterling House)

$12,000

Southern Pines, North Carolina (Sterling House)

$12,000

Dublin Borough, Pennsylvania

$28,000

Appleton, Wisconsin

$24,000

Facility

Increase in Monthly Payment

Tequesta, Florida (Villas)

$4,000

Lenexa, Kansas

$4,000

Southern Pines, North Carolina (Clare Bridge)

$4,000"

   

 3.  Amendment to Section 3.6 - Release of Deposit Funds to Borrowers. Section
     3.6 is hereby amended by deleting the words "and continuing through the end
     of the Forbearance Period" therefrom.

     

 4.  Representations and Warranties. Each Borrower and Guarantor hereby restates
     and reconfirms all representations, warranties and covenants set forth in
     the Forbearance Agreement as of the date of this Amendment.
     
     
     
     
 5.  No Impairment of Lien. Nothing in this Amendment shall alter or impair the
     lien priority of the lien granted under any of the Security Documents. Any
     assertion by the Borrowers, the Guarantor, any junior lienholder (if any)
     on the Collateral, or any other party that the execution and delivery of
     this Amendment or the consummation of the transactions contemplated herein
     have altered or impaired the Agent's lien priority shall, at the Agent's
     option, render this Amendment null and void.
     
     
     
     
 6.  Defaults Not Cured. The Agent's and Lenders' entering into this Amendment
     shall not in any way be considered to be a cure of the Borrowers' or the
     Guarantor's defaults under the Financing Documents or a discharge or
     novation with respect to the Notes. Neither this Amendment nor the receipt
     and application of payments by the Agent and the Lenders shall constitute a
     waiver by the Agent or the Lenders of their rights to foreclose on the
     Collateral or otherwise to exercise any of the other rights and remedies
     provided in the Financing Documents, subject to the Collateral Disposition
     Agreement, nor shall any provision contained in this Amendment or the
     receipt and application of any payments result in the Agent or Lenders
     being estopped from exercising such rights or remedies.

     

 7.  No Modification. This Amendment does not constitute a novation as to any of
     the Financing Documents, the Forbearance Agreement or the Collateral
     Disposition Agreement and does not modify, alter, amend, or in any way
     affect the terms and conditions of the Financing Documents, the Forbearance
     Agreement, the Collateral Disposition Agreement or any of them except as
     expressly and specifically stated herein.

     

 8.  Other Obligations. Subject to the amendment to the Forbearance Agreement
     expressly provided for in this Amendment, nothing contained in this
     Amendment will in any manner whatsoever alter, impair or affect the
     obligations of the Borrowers or the Guarantor, or relieve the Borrowers or
     the Guarantor of any of their obligations to make payments and perform all
     of their other obligations required under the Financing Documents and the
     Forbearance Agreement, subject to the Collateral Disposition Agreement.

     

 9.  Successors and Assigns Bound. This Amendment shall be binding upon the
     Borrowers, the Guarantor, the Lenders, the Agent and their respective
     successors and assigns, and shall inure to the benefit of, and may be
     enforced by the Agent and the Lenders and their successors, transferees and
     assigns. The Borrowers and the Guarantor shall not assign any of their
     rights and obligations under this Amendment without the prior written
     consent of the Agent.
     
     
     
     
 10. No Third-Party Beneficiaries. This Amendment is intended solely for the
     benefit of the Borrowers, the Guarantor, the Lenders and the Agent and
     their respective successors and permitted assigns, and no third party shall
     have any rights or interest in any provision of this Amendment, the other
     Financing Documents or the Forbearance Agreement.
     
     
     
     
 11. Amendment and Waiver. No amendment to this Amendment will be valid unless
     it is made in writing and executed by the Parties. No specific waiver or
     forbearance for any breach of any of the terms of this Amendment shall be
     considered as a general waiver of that or any other term of this Amendment.
     
     
     
     
 12. Entire Agreement. This Amendment contains the complete and entire
     understanding of the Parties with respect to the subject matter hereof. If
     any provision of this Amendment is in conflict with any provision of any of
     the Financing Documents or the Forbearance Agreement, the provision
     contained in this Amendment will control; provided, however, that if any
     provision of this Amendment is in conflict with any provision of the
     Collateral Disposition Agreement, the provision contained in the Collateral
     Disposition Agreement will control.
     
     
     
     
 13. Severability. The invalidity, illegality, or unenforceability of any
     provision of this Amendment shall not affect the validity or enforceability
     of any other provision of this Amendment, all of which shall remain in full
     force and effect.
     
     
     
     
 14. Time Is of the Essence. Time is of the essence under this Amendment and
     every term, covenant, and obligation contained herein.
     
     
     
     
 15. Governing Law. This Amendment shall be governed by and construed in
     accordance with the laws of the State of Texas.

     

 16. Effectiveness. This Amendment will not become effective until it has been
     executed by all Parties.

     

 17. Counterparts; Faxed Signatures. This Amendment may be executed in any
     number of counterparts and by each Party on a separate counterpart. All
     such counterparts will constitute one and the same agreement. Delivery of a
     signed copy of this Amendment, or of the signature page of this Amendment,
     by facsimile transmission will be as effective as of delivery of an
     originally executed counterpart hereof.

 

[END OF TEXT]

     IN WITNESS WHEREOF

, the undersigned have executed this Amendment as of the day and year first
above written.

BORROWERS

:

ALS HOLDINGS, INC.

By:/s/ Mark W. Ohlendorf
Name:  Mark W. Ohlendorf
Title:  Vice President

 

ALS WISCONSIN HOLDINGS, INC.

 

 

By:/s/ Mark W. Ohlendorf
Name:  Mark W. Ohlendorf
Title:  Vice President

 

GUARANTOR:
ALTERRA HEALTHCARE CORPORATION

 

 

By:  /s/ Mark W. Ohlendorf

Name:  Mark W. Ohlendorf

Title:  Vice President

 

AGENT AND LENDERS:
WASHINGTON MUTUAL BANK, FA,
as the Agent and as a Lender

 

 

By:  /s/ Gordon Kovacs

Name:  Gordon Kovacs

Title:  First Vice President

 

 

U.S. BANK NATIONAL ASSOCIATION, f/k/a
FIRSTAR BANK MILWAUKEE, N.A., as a
Lender

 

By:  /s/ Dale L. Welke
Name:  Dale L. Welke
Title:  Vice President

 

 

AMSOUTH BANK, as a Lender

By:  /s/ Carl M. Ferris

Name:  Carl M. Ferris

Title:  Vice President