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                                                                   EXHIBIT 10.97

REGULATORY AGREEMENT FOR                         U.S. DEPARTMENT OF HOUSING
MULTIFAMILY HOUSING PROJECTS                     AND URBAN DEVELOPMENT
                                                 Office of Housing
                                                 Federal Housing Commissioner


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Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits
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Project No. 143-22015 PM/ALF/REF

Mortgagee:  RED MORTGAGE CAPITAL, INC.

Amount of Mortgage Note:    $2,207,400.00                 Date: December 1, 2001

Mortgage: Recorded: State: California  County: Orange   Date: December ___, 2001
           Concurrently Herewith       Book  _________  Page  ____________

    Originally endorsed for insurance under Section 232 pursuant to Section
223(f) of the National Housing Act, as amended.

    This Agreement entered into this 1st day of December, 2001, between ARV
FULLERTON, L.P., a California limited partnership whose address is 245 Fischer
Avenue, Suite D-1, Costa Mesa, California 92626, their successors, heirs, and
assigns (jointly and severally, hereinafter referred to as Owners) and the
undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his successors
(hereinafter referred to as Secretary).

    In consideration of the endorsement for insurance by the Secretary of the
above described note or in consideration of the consent of the Secretary to the
transfer of the mortgaged property or the sale and conveyance of the mortgaged
property by the Secretary, and in order to comply with the requirements of the
National Housing Act, as amended, and the Regulations adopted by the Secretary
pursuant thereto, Owners agree for themselves, their successors, heirs and
assigns, that in connection with the mortgaged property and the project operated
thereon and so long as the contract of mortgage insurance continues in effect,
and during such further period of time as the Secretary shall be the owner,
holder or reinsurer of the mortgage, or during any time the Secretary is
obligated to insure a mortgage on the mortgage property:

    1.  Owners, except as limited by paragraph 17 hereof, assume and agree to
        make promptly all payments due under the note and mortgage.



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    2.  (a) Owners shall establish or continue to maintain a reserve fund for
        replacements by the allocation to such reserve fund in a separate
        account with the mortgagee or in a safe and responsible depository
        designated by the mortgagee, concurrently with the beginning of payments
        towards amortization of the principal of the mortgage insured or held by
        the Secretary of an amount equal to $1,971.67 per month unless a
        different date or amount is approved in writing by the Secretary. Said
        monthly deposit consists of $1,638.75 for Realty and $332.92 for
        Non-Realty. In addition, the Owner has made an initial deposit to the
        fund of $225,657.40 ($23,852.40 to Realty and $201,805.00 to
        Non-Realty). Such fund, whether in the form of a cash deposit or
        invested in obligations of, or fully guaranteed as to principal by, the
        United States of America shall at all times be under the control of the
        mortgagee. Disbursements from such fund, whether for the purpose of
        effecting replacement of structural elements and mechanical equipment of
        the project or for any other purpose, may be made only after receiving
        the consent in writing of the Secretary. In the event that the owner is
        unable to make a mortgage note payment on the due date and that payment
        cannot be made prior to the due day of the next such installment or when
        the mortgagee has agreed to forgo making an election to assign the
        mortgage to the Secretary based on a monetary default, or to withdraw an
        election already made, the Secretary is authorized to instruct the
        mortgagee to withdraw funds from the reserve fund for replacements to be
        applied to the mortgage payment in order to prevent or cure the default.
        In addition, in the event of a default in the terms of the mortgage,
        pursuant to which the loan has been accelerated, the Secretary may apply
        or authorize the application of the balance in such fund to the amount
        due on the mortgage debt as accelerated.

        (b) Where Owners are acquiring a project already subject to an insured
        mortgage, the reserve fund for replacements to be established will be
        equal to the amount due to be in such fund under existing agreements or
        charter provisions at the time Owners acquire such project, and payments
        hereunder shall begin with the first payment due on the mortgage after
        acquisition, unless some other method of establishing and maintaining
        the fund is approved in writing by the Secretary.

    3.  Real property covered by the mortgage and this agreement is described in
        Exhibit A attached hereto.

        (This paragraph 4 is not applicable to cases insured under Section 232).


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    4.  (a) If the mortgage is originally a Secretary-held purchase money
        mortgage, or is originally endorsed for insurance under any Section
        other than Sections 231 or 232 and is not designed primarily for
        occupancy by elderly persons, Owners shall not in selecting tenants
        discriminate against any person or persons by reason of the fact that
        there are children in the family.

        (b) If the mortgage is originally endorsed for insurance under Section
        221, Owners shall in selecting tenants give to displaced persons or
        families an absolute preference or priority of occupancy which shall be
        accomplished as follows:


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            (1) For a period of sixty (60) days from the date of original
                offering, unless a shorter period of time is approved in writing
                by the Secretary, all units shall be held for such preferred
                applicants, after which time any remaining unrented units may be
                rented to non-preferred applicants;

            (2) Thereafter, and on a continuing basis, such preferred applicants
                shall be given preference over non-preferred applicants in their
                placement on a waiting list to be maintained by the Owners; and

            (3) Through such further provisions agreed to in writing by the
                parties.

        (c) Without the prior written approval of the Secretary not more than
        25% of the number of units in a project insured under Section 231 shall
        be occupied by persons other than elderly persons.

        (d) All advertising or efforts to rent a project insured under Section
        231 shall reflect a bona fide effort of the Owners to obtain occupancy
        by elderly persons.

    5.  Owners shall not without the prior written approval of the Secretary:

        (a) Convey, transfer, or encumber any of the mortgaged property, or
        permit the conveyance, transfer or encumbrance of such property.

        (b) Assign, transfer, dispose of, or encumber any personal property of
        the project, including rents, or pay out any funds except from surplus
        cash, except for reasonable operating expenses and necessary repairs.

        (c) Convey, assign, or transfer any beneficial interest in any trust
        holding title to the property, or the interest of any general partner in
        a partnership owning the property, or any right to manage or receive the
        rents and profits from the mortgaged property.

        (d) Remodel, add to, reconstruct, or demolish any part of the mortgaged
        property or subtract from any real or personal property of the project.

        (e) Make, or receive and retain, any distribution of assets or any
        income of any kind of the project except surplus cash and except on the
        following conditions:


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            (1) All distributions shall be made only as of and after the end of
                a semiannual or annual fiscal period, and only as permitted by
                the law of the applicable jurisdiction;

            (2) No distribution shall be made from borrowed funds, prior to the
                completion of the project or when there is any default under
                this Agreement or under the note or mortgage;

            (3) Any distribution of any funds of the project, which the party
                receiving such funds is not entitled to retain hereunder, shall
                be held in trust separate and apart from any other funds; and

            (4) There shall have been compliance with all outstanding notices of
                requirements for proper maintenance of the project.

        (f) Engage, except for natural persons, in any other business or
        activity, including the operation of any other rental project, or incur
        any liability or obligation not in connection with the project.

        (g) Require, as a condition of the occupancy or leasing of any unit in
        the project, any consideration or deposit other than the prepayment of
        the first month's rent plus a security deposit in an amount not in
        excess of one month's rent to guarantee the performance of the covenants
        of the lease. Any funds collected as security deposits shall be kept
        separate and apart from all other funds of the project in a trust
        account the amount of which shall at all times equal or exceed the
        aggregate of all outstanding obligations under said account.

        (h) Permit the use of the dwelling accommodations or nursing facilities
        of the project for any purpose except the use which was originally
        intended, or permit commercial use greater than that originally approved
        by the Secretary.

    6.  Owners shall maintain the mortgaged premises, accommodations and the
        grounds and equipment appurtenant thereto, in good repair and condition.
        In the event all or any of the buildings covered by the mortgage shall
        be destroyed or damaged by fire or other casualty, the money derived
        from any insurance on the property shall be applied in accordance with
        the terms of the mortgage.

    7.  Owners shall not file any petition in bankruptcy or for a receiver or in
        insolvency or for reorganization or composition, or make any assignment
        for the benefit of creditors or to a trustee for creditors, or permit an
        adjudication in bankruptcy or


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        the taking possession of the mortgaged property or any part thereof by a
        receiver or the seizure and sale of the mortgaged property or any part
        hereof under judicial process or pursuant to any power of sale, and fail
        to have such adverse actions set aside within forty-five (45) days.

    8.  (a) Any management contract entered into by Owners or any of them
        involving the project shall contain a provision that, in the event of
        default hereunder, it shall be subject to termination without penalty
        upon written request by the Secretary. Upon such request Owners shall
        immediately arrange to terminate the contract within a period of not
        more than thirty (30) days and shall make arrangements satisfactory to
        the Secretary for continuing proper management of the project.

        (b) Payment for services, supplies, or materials shall not exceed the
        amount ordinarily paid for such services, supplies, or materials in the
        area where the services are rendered or the supplies or materials
        furnished.

        (c) The mortgaged property, equipment, buildings, plans, offices,
        apparatus, devices, books, contracts, records, documents, and other
        papers relating thereto shall at all times be maintained in reasonable
        condition for proper audit and subject to examination and inspection at
        any reasonable time by the Secretary or his duly authorized agents.
        Owners shall keep copies of all written contracts or other instruments
        which affect the mortgaged property, all or any of which may be subject
        to inspection and examination by the Secretary or his duly authorized
        agents.

        (d) The books and accounts of the operations of the mortgaged property
        and of the project shall be kept in accordance with the requirements of
        the Secretary.

        (e) Within sixty (60) days following the end of each fiscal year the
        Secretary shall be furnished with a complete annual financial report
        based upon an examination of the books and records of mortgagor prepared
        in accordance with the requirements of the Secretary, prepared and
        certified to by an officer or responsible Owner and, when required by
        the Secretary, prepared and certified by a Certified Public Accountant,
        or other person acceptable to the Secretary.

        (f) At the request of the Secretary, his agents, employees, or
        attorneys, the Owners shall furnish monthly occupancy reports and shall
        give specific answers to questions upon which information is desired
        from time to time relative to


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        income, assets, liabilities, contracts, operation, and condition of the
        property and the status of the insured mortgage.

        (g) All rents and other receipts of the project shall be deposited in
        the name of the project in a financial institution, whose deposits are
        insured by an agency of the Federal Government. Such funds shall be
        withdrawn only in accordance with the provisions of this Agreement for
        expenses of the project or for distributions of surplus cash as
        permitted by paragraph 6(e) above. Any Owner receiving funds of the
        project other than by such distribution of surplus cash shall
        immediately deposit such funds in the project bank account and failing
        so to do in violation of this Agreement shall hold such funds in trust.
        Any Owner receiving property of the project in violation of this
        Agreement shall hold such funds in trust. At such time as the Owners
        shall have lost control and/or possession of the project, all funds held
        in trust shall be delivered to the mortgagee to the extent that the
        mortgage indebtedness has not been satisfied.

        (h) If the mortgage is insured under Section 232:

            1. The Owners or lessees shall at all times maintain in full force
            and effect from the state or other licensing authority such license
            as may be required to operate the project as a nursing home and
            shall not lease all or part of the project except on terms approved
            by the Secretary.

            2. The Owners shall suitably equip the project for nursing home
            operations.

            3. The Owners shall execute a Security Agreement and Financing
            Statement (or other form of chattel lien) upon all items of
            equipment, except as the Secretary may exempt, which are not
            incorporated as security for the insured mortgage. The Security
            Agreement and Financing Statement shall constitute a first lien upon
            such equipment and shall run in favor of the mortgagee as additional
            security for the insured mortgage.

        (i) If the mortgage is insured under Section 231, Owners or lessees
            shall at all times maintain in full force and effect from the state
            or other licensing authority such license as may be required to
            operate the project as housing for the elderly.

    9.  Owners will comply with the provisions of any Federal, State, or local
        law prohibiting discrimination in housing on the grounds of race, color,
        religion or


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        creed, sex, or national origin, including Title VIII of the Civil Rights
        Act of 1968 (Public Law 90-284; 82 Stat. 73), as amended, Executive
        Order 11063, and all requirements imposed by or pursuant to the
        regulations of the Department of Housing and Urban Development
        implementing these authorities (including 24 CFR Parts 100, 107 and 110,
        and Subparts I and M of Part 200).

    10. Upon a violation of any of the above provisions of this Agreement by
        Owners, the Secretary may give written notice thereof, to Owners, by
        registered or certified mail, addressed to the addresses stated in this
        Agreement, or such other addresses as may subsequently, upon appropriate
        written notice thereof to the Secretary, be designated by the Owners as
        their legal business address. If such violation is not corrected to the
        satisfaction of the Secretary within thirty (30) days after the date
        such notice is mailed or within such further time as the Secretary
        determines is necessary to correct the violation, without further notice
        the Secretary may declare a default under this Agreement effective on
        the date of such declaration of default and upon such default the
        Secretary may:

        (a) (i) If the Secretary holds the note - declare the whole of said
                indebtedness immediately due and payable and then proceed with
                the foreclosure of the mortgage;

            (ii) If said note is not held by the Secretary - notify the holder
                of the note of such default and request holder to declare a
                default under the note and mortgage, and holder after receiving
                such notice and request, but not otherwise, at its option, may
                declare the whole indebtedness due, and thereupon proceed with
                foreclosure of the mortgage, or assign the note and mortgage to
                the Secretary as provided in the Regulations;

        (b) Collect all rents and charges in connection with the operation of
        the project and use such collections to pay the Owners' obligations
        under this Agreement and under the note and mortgage and the necessary
        expenses of preserving the property and operating the project.

        (c) Take possession of the project, bring any action necessary to
        enforce any rights of the Owners growing out of the project operation,
        and operate the project in accordance with the terms of this Agreement
        until such time as the Secretary in his discretion determines that the
        Owners are again in a position to operate the project in accordance with
        the terms of this Agreement and in compliance with the requirements of
        the note and mortgage.


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        (d) Apply to any court, state or Federal, for specific performance of
        this Agreement, for an injunction against any violation of the
        Agreement, for the appointment of a receiver to take over and operate
        the project in accordance with the terms of the Agreement, or for such
        other relief as may be appropriate, since the injury to the Secretary
        arising from a default under any of the terms of this Agreement would be
        irreparable and the amount of damage would be difficult to ascertain.

    11. As security for the payment due under this Agreement to the reserve fund
        for replacements, and to secure the Secretary because of his liability
        under the endorsement of the note for insurance, and as security for the
        other obligations under this Agreement, the Owners respectively assign,
        pledge and mortgage to the Secretary their rights to the rents, profits,
        income and charges of whatsoever sort which they may receive or be
        entitled to receive from the operation of the mortgaged property,
        subject, however, to any assignment of rents in the insured mortgage
        referred to herein. Until a default is declared under this Agreement,
        however, permission is granted to Owners to collect and retain under the
        provisions of this Agreement such rents, profits, income, and charges,
        but upon default this permission is terminated as to all rents due or
        collected thereafter.

    12. As used in this Agreement the term:

        (a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage", "Security
        Instrument", and any other security for the note identified herein, and
        endorsed for insurance or held by the Secretary;

        (b) "Mortgagee" refers to the holder of the mortgage identified herein,
        its successors and assigns;

        (c) "Owners" refers to the persons named in the first paragraph hereof
        and designated as Owners, their successors, heirs and assigns;

        (d) "Mortgaged Property" includes all property, real, personal or mixed,
        covered by the mortgage or mortgages securing the note endorsed for
        insurance or held by the Secretary;

        (e) "Project" includes the mortgaged property and all its other assets
        of whatsoever nature or wheresoever situate, used in or owned by the
        business conducted on said mortgaged property, which business is
        providing housing and other activities as are incidental thereto;


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        (f) "Surplus Cash" means any cash remaining after:

            (1) the payment of:

                (i) All sums due or currently required to be paid under the
                    terms of any mortgage or note insured or held by the
                    Secretary;

               (ii) All amounts required to be deposited in the reserve fund
                    for replacements;

               (iii) All obligations of the project other than the insured
                    mortgage unless funds for payment are set aside or deferment
                    of payment has been approved by the Secretary; and

            (2) the segregation of:

                (i) An amount equal to the aggregate of all special funds
                    required to be maintained by the project; and

                (ii) All tenant security deposits held.

        (g) "Distribution" means any withdrawal or taking of cash or any assets
        of the project, including the segregation of cash or assets for
        subsequent withdrawal within the limitations of Paragraph 6(e) hereof,
        and excluding payment for reasonable expenses incident to the operation
        and maintenance of the project.

        (h) "Default" means a default declared by the Secretary when a violation
        of this Agreement is not corrected to his satisfaction within the time
        allowed by this Agreement or such further time as may be allowed by the
        Secretary after written notice;

        (i) "Section" refers to a Section of the National Housing Act, as
        amended.

        (j) "Displaced persons or families" shall mean a family or families, or
        a person, displaced from an urban renewal area, or as the result of
        government action, or as a result of a major disaster as determined by
        the President pursuant to the Disaster Relief Act of 1970.


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        (k) "Elderly person" means any person, married or single, who is
        sixty-two years of age or over.

    13. This instrument shall bind, and the benefits shall inure to, the
        respective Owners, their heirs, legal representatives, executors,
        administrators, successors in office or interest, and assigns, and to
        the Secretary and his successors so long as the contract of mortgage
        insurance continues in effect, and during such further time as the
        Secretary shall be the owner, holder, or reinsurer of the mortgage, or
        obligated to reinsure the mortgage.

    14. Owners warrant that they have not, and will not, execute any other
        agreement with provisions contradictory of, or in opposition to, the
        provisions hereof, and that, in any event, the requirements of this
        Agreement are paramount and controlling as to the rights and obligations
        set forth and supersede any other requirements in conflict therewith.

    15. The invalidity of any clause, part or provision of this Agreement shall
        not affect the validity or the remaining portions thereof.

    16. The following Owners: ARV Fullerton, L.P., a California limited
        partnership, and all present and future limited and general partners
        thereof, do not assume personal liability for payments due under the
        note and mortgage, or for the payments to the reserve for replacements,
        or for matters not under their control, provided that said Owners shall
        remain liable under this Agreement only with respect to the matters
        hereinafter stated; namely:

        (a) for funds or property of the project coming into their hands which,
        by the provisions hereof, they are not entitled to retain; and

        (b) for their own acts and deeds or acts and deeds of others which they
        have authorized in violation of the provisions hereof.

(To be executed with formalities for recording a deed to real estate)




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    All references herein to the terms "nursing home" or nursing homes" shall
mean and include the terms "assisted living facility" and "assisted living
facilities."

    See Rider I attached hereto and made a part hereof.

    IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the
date first hereinabove written.

                        ARV FULLERTON, L.P.
                        a California limited partnership

                        By: American Retirement Villas Properties II
                            a California limited partnership
                            General Partner

                            By: ARV Assisted Living, Inc.
                                a Delaware corporation
                                General Partner

                                By:
                                    ----------------------------------
                                    Douglas Armstrong
                                    Vice President

                        December 1, 2001



                        SECRETARY OF HOUSING AND URBAN
                        DEVELOPMENT ACTING BY AND
                        THROUGH THE FEDERAL HOUSING
                        COMMISSIONER

                        By:
                            ----------------------------------------
                            Authorized Agent

                        December 1, 2001