<PAGE>

                                                                     EXHIBIT 4.2

Loan No.: 26-5950685                                       Tradewinds Apartments
                                                                Newport News, VA


                        INDEMNITY AND GUARANTY AGREEMENT
                        --------------------------------

         THIS INDEMNITY AND GUARANTY AGREEMENT (this "Agreement"), made as of
                                                      ---------
June 20, 2001 by CORNERSTONE REALTY INCOME TRUST, INC., a Virginia corporation
("Indemnitor"), whose address is 306 East Main Street, Richmond, Virginia 23219,
  ----------
Attention: Glade M. Knight, in favor of FIRST UNION NATIONAL BANK, a national
banking association ("Lender"), whose address is One First Union Center, 301
                      ------
South College Street, Mailcode NC 0166, Charlotte, North Carolina 28288-0166,
Attention: Contract Finance.

                              W I T N E S S E T H:

         WHEREAS, CRIT-VA III, INC., a Virginia corporation ("Borrower"), has
                                                              --------
obtained a loan (the "Loan") in the principal amount of Eleven Million One
                      ----
Hundred Thousand and No/100 Dollars ($11,100,000.00) from Lender; and

         WHEREAS, the Loan is evidenced by a Promissory Note (the "Note") dated
                                                                   ----
of even date herewith, executed by Borrower and payable to the order of Lender,
in the stated principal amount of Eleven Million One Hundred Thousand and No/100
Dollars ($11,100,000.00), and is secured by a Deed of Trust and Security
Agreement dated of even date herewith (the "Deed of Trust") from Borrower for
                                            -------------
the benefit of Lender, encumbering that certain real property situated in the
City of Newport News, Commonwealth of Virginia, as more particularly described
on Exhibit A attached hereto and incorporated herein by this reference, together
   ---------
with the buildings, structures and other improvements now or hereafter located
thereon (the "Property") and by the other Loan Documents (as defined in the Deed
              --------
of Trust); and

         WHEREAS, as a condition to making the Loan to Borrower, Lender has
required that Indemnitor indemnify Lender from and against and guarantee payment
to Lender of those items for which Borrower has recourse liability and for which
Lender has recourse against Borrower under the terms of Section 2.6 of the Note;
and

         WHEREAS, Indemnitor is the sole shareholder of Borrower, the extension
of the Loan to Borrower is of substantial benefit to Indemnitor and, therefore,
Indemnitor desires to indemnify Lender from and against and guarantee payment to
Lender of those items for which Borrower is personally liable and for which
Lender has recourse against Borrower under the terms of the Note and the Deed of
Trust.

         NOW, THEREFORE, to induce Lender to extend the Loan to Borrower and in
consideration of the foregoing premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Indemnitor hereby covenants and agrees for the benefit of Lender, as follows:

<PAGE>

     1.   Indemnity and Guaranty. Indemnitor hereby assumes liability for,
          ----------------------
hereby guarantees payment to Lender of, hereby agrees to pay, protect, defend
and save Lender harmless from and against, and hereby indemnifies Lender from
and against any and all liabilities, obligations, losses, damages, costs and
expenses (including, without limitation, reasonable attorneys' fees), causes of
action, suits, claims, demands and judgments of any nature or description
whatsoever (collectively, "Costs") which may at any time be actually imposed
                           -----
upon, incurred by or awarded against Lender as a result of:

          (a) Misapplication or misappropriation by Borrower of proceeds paid
under any insurance policies (or paid to Borrower as a result of any other claim
or cause of action against any person or entity) by reason of damage, loss or
destruction to all or any portion of the Property, to the full extent of such
proceeds not previously delivered to Lender, but which, under the terms of the
Loan Documents, should have been delivered to Lender;

          (b) Misapplication or misappropriation by Borrower of proceeds or
awards resulting from the condemnation or other taking in lieu of condemnation
of all or any portion of the Property to the full extent of such proceeds or
awards not previously delivered to Lender, but which, under the terms of the
Loan Documents, should have been delivered to Lender;

          (c) Misapplication or misappropriation by Borrower of all tenant
security deposits or other refundable deposits paid to or held by Borrower or
any other person or entity under the control or direction of Borrower, if any,
in connection with leases of all or any portion of the Property, which are not
applied in accordance with the terms of the applicable lease or other agreement;

          (d) Misapplication or misappropriation by Borrower of rent and other
payments received from tenants under leases of all or any portion of the
Property paid more than one (1) month in advance;

          (e) Misapplication or misappropriation by Borrower of rents, issues,
profits and revenues of all or any portion of the Property received by Borrower
or any other person or entity under the control or direction of Borrower that
are applicable to a period after the occurrence and continuance of an Event of
Default under the Loan Documents, or any event which with notice or the passage
of time, or both, would constitute an Event of Default, which are not either
applied to the ordinary and necessary expenses or capital expenditures in
connection with owning and operating the Property or paid to Lender or otherwise
as contemplated or permitted by the Loan Documents;

          (f) Waste committed on the Property, or damage to the Property as a
result of the intentional misconduct or gross negligence of Borrower or any of
its officers, general partners or members, as the case may be, Indemnitor, or
any agent or employee of any such persons, or any removal of any portion of the
Property not repaired as required by the Loan Documents in violation of the
terms of the Loan Documents, to the full extent of the losses or damages
actually incurred by Lender on account of such occurrence;

<PAGE>

          (g) Failure by Borrower to pay any valid taxes, assessments,
mechanic's liens, materialmen's liens or other liens which could create liens on
any portion of the Property which would be superior to the lien or security
title of the Deed of Trust or the other Loan Documents except, with respect to
any such taxes or assessments, to the extent that funds have been deposited with
Lender pursuant to the terms of the Deed of Trust specifically for the
applicable taxes or assessments and not applied by Lender to pay such taxes and
assessments;

          (h) All obligations and indemnities of Borrower under Section 1.31 of
the Deed of Trust and the Environmental Indemnity Agreement (as defined in the
Note) relating to hazardous or toxic substances or radon or compliance with
environmental laws and regulations; and

          (i) Fraud, material misrepresentation or failure to disclose a
material fact by Borrower or any of its officers, general partners or members,
as the case may be, Indemnitor, or any agent, employee or other person
authorized to make statements, representations or disclosures on behalf of
Borrower, any officer, general partner or member, as the case may be, of
Borrower, or Indemnitor, to the full extent of any losses, damages and expenses
actually incurred by Lender on account thereof.

     This is a guaranty of payment and performance and not of collection. The
liability of Indemnitor for Costs under this Agreement shall be direct and
immediate and not conditional or contingent upon the pursuit of any remedies
against Borrower or any other person (including, without limitation, other
guarantors, if any), nor against the collateral for the Loan. Indemnitor waives
any right to require that an action be brought against Borrower or any other
person or to require that resort be made to any collateral for the Loan or to
any balance of any deposit account or credit on the books of Lender in favor of
Borrower or any other person. In the event, on account of the Bankruptcy Reform
Act of 1978, as amended, or any other debtor relief law (whether statutory,
common law, case law or otherwise) of any jurisdiction whatsoever, now or
hereafter in effect, which may be or become applicable, Borrower shall be
relieved of or fail to incur any debt, obligation or liability as provided in
the Loan Documents, Indemnitor shall nevertheless be fully liable for Costs
hereunder. In the event of a default under the Loan Documents which is not cured
within any applicable grace or cure period, Lender shall have the right to
enforce its rights, powers and remedies (including, without limitation,
foreclosure of all or any portion of the collateral for the Loan) thereunder or
hereunder, in any order, and all rights, powers and remedies available to Lender
in such event shall be non-exclusive and cumulative of all other rights, powers
and remedies provided thereunder or hereunder or by law or in equity. If the
Costs guaranteed hereby are partially paid or discharged by reason of the
exercise of any of the remedies available to Lender, this Agreement shall
nevertheless remain in full force and effect, and Indemnitor shall remain liable
for all remaining Costs guaranteed hereby, even though any rights which
Indemnitor may have against Borrower may be destroyed or diminished by the
exercise of any such remedy.

     2.   Indemnification Procedures.
          --------------------------

          (a) If any action shall be brought against Lender based upon any of
the Costs for which Lender is indemnified hereunder, Lender shall notify
Indemnitor in writing thereof and

<PAGE>

Indemnitor shall promptly assume the defense thereof, including, without
limitation, the employment of counsel reasonably acceptable to Lender and the
negotiation of any settlement; provided, however, that any failure of Lender to
                               --------  -------
notify Indemnitor of such matter shall not impair or reduce the obligations of
Indemnitor hereunder. In the event Indemnitor shall fail to discharge or
undertake to defend Lender against any Costs for which Lender is indemnified
hereunder, Lender may, at its sole option and election, defend or settle such
claim, loss or liability, and, upon reasonable prior written notice to
Indemnitor, Lender shall have the right, at the expense of Indemnitor (which
expense shall be included in Costs), to employ separate counsel in any such
action and to participate in the defense thereof. The liability of Indemnitor to
Lender hereunder shall be conclusively established by such settlement (absent
manifest error), provided such settlement is made in good faith, the amount of
such liability to include both the settlement consideration and the costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, actually incurred by Lender in effecting such settlement. In such
event, such settlement consideration, costs and expenses shall be included in
Costs and Indemnitor shall pay the same as hereinafter provided.

          (b) Indemnitor shall not, without the prior written consent of Lender,
such consent not to be unreasonably withheld or delayed: (i) settle or
compromise any action, suit, proceeding or claim or consent to the entry of any
judgment that does not include as an unconditional term thereof the delivery by
the claimant or plaintiff to Lender of a full and complete written release of
Lender (in form, scope and substance satisfactory to Lender in its sole
discretion) from all liability in respect of such action, suit, proceeding or
claim and a dismissal with prejudice of such action, suit, proceeding or claim;
or (ii) settle or compromise any action, suit, proceeding or claim in any manner
that may adversely affect Lender or obligate Lender to pay any sum or perform
any obligation as reasonably determined by Lender.

          (c) All Costs shall be immediately reimbursable to Lender when and as
incurred and, in the event of any litigation, claim or other proceeding, without
any requirement of waiting for the ultimate outcome of such litigation, claim or
other proceeding, and Indemnitor shall pay to Lender any and all Costs within
ten (10) days after receipt of written notice from Lender itemizing in
reasonable detail the amounts thereof incurred to the date of such notice. In
addition to any other remedy available for the failure of Indemnitor to
periodically pay such Costs, such Costs, if not paid within said ten-day period,
shall bear interest at the Default Interest Rate (as defined in the Note).

     3.   Reinstatement of Obligations. If at any time all or any part of any
          ----------------------------
payment made by Indemnitor or received by Lender from Indemnitor under or with
respect to this Agreement is or must be rescinded or returned for any reason
whatsoever (including, but not limited to, the insolvency, bankruptcy or
reorganization of Indemnitor or Borrower), then the obligations of Indemnitor
hereunder shall, to the extent of the payment rescinded or returned, be deemed
to have continued in existence, notwithstanding such previous payment made by
Indemnitor, or receipt of payment by Lender, and the obligations of Indemnitor
hereunder shall continue to be effective or be reinstated, as the case may be,
as to such payment, all as though such previous payment by Indemnitor had never
been made.

<PAGE>

     4.   Waivers by Indemnitor.  To the fullest extent permitted by law,
          ---------------------
Indemnitor hereby waives and agrees not to assert or take advantage of:

          (a) Any right to require Lender to proceed against Borrower or any
other person or to proceed against or exhaust any security held by Lender at any
time or to pursue any other remedy in Lender's power or under any other
agreement before proceeding against Indemnitor hereunder;

          (b) Any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons;

          (c) Except as expressly provided herein, demand, presentment for
payment, notice of nonpayment, protest, notice of protest and all other notices
of any kind, or the lack of any thereof, including, without limiting the
generality of the foregoing, notice of the existence, creation or incurring of
any new or additional indebtedness or obligation or of any action or non-action
on the part of Borrower, Lender, any endorser or creditor of Borrower or of
Indemnitor or on the part of any other person whomsoever under this or any other
Loan Document held by Lender;

          (d) Any defense based upon an election of remedies by Lender;

          (e) Any right or claim or right to cause a marshalling of the assets
of Indemnitor;

          (f) Any principle or provision of law, statutory or otherwise, which
is or might be in conflict with the terms and provisions of this Agreement;

          (g) Any duty on the part of Lender to disclose to Indemnitor any facts
Lender may now or hereafter know about Borrower or the Property, regardless of
whether Lender has reason to believe that any such facts materially increase the
risk beyond that which Indemnitor intends to assume or has reason to believe
that such facts are unknown to Indemnitor or has a reasonable opportunity to
communicate such facts to Indemnitor, it being understood and agreed that
Indemnitor is fully responsible for being and keeping informed of the financial
condition of Borrower, of the condition of the Property and of any and all
circumstances bearing on the risk that liability may be incurred by Indemnitor
hereunder;

          (h) Any lack of notice of disposition or of manner of disposition of
any collateral for the Loan;

          (i) Any invalidity, irregularity or unenforceability, in whole or in
part, of any one or more of the Loan Documents;

          (j) Any lack of commercial reasonableness in dealing with the
collateral for the Loan;

<PAGE>

          (k) Any deficiencies in the collateral for the Loan or any deficiency
in the ability of Lender to collect or to obtain performance from any persons or
entities now or hereafter liable for the payment and performance of any
obligation hereby guaranteed;

          (l) An assertion or claim that the automatic stay provided by 11
U.S.C. (S)362 (arising upon the voluntary or involuntary bankruptcy proceeding
of Borrower) or any other stay provided under any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, which may be or become applicable, shall
operate or be interpreted to stay, interdict, condition, reduce or inhibit the
ability of Lender to enforce any of its rights, whether now or hereafter
required, which Lender may have against Indemnitor or the collateral for the
Loan;

          (m) Any modifications of the Loan Documents or any obligation of
Borrower relating to the Loan by operation of law or by action of any court,
whether pursuant to the Bankruptcy Reform Act of 1978, as amended, or any other
debtor relief law (whether statutory, common law, case law or otherwise) of any
jurisdiction whatsoever, now or hereafter in effect, or otherwise; and

          (n) Any action, occurrence, event or matter consented to by Indemnitor
under Section 6(h) hereof, under any other provision hereof, or otherwise.
      ------------

     5.   Representation and Warranty. Indemnitor hereby represents, warrants
          ---------------------------
and covenants that Indemnitor's net worth is, and at all times while this
Agreement shall be in effect, shall be not less than $500,000, as determined in
accordance with generally accepted accounting principles consistently applied.

     6.   General Provisions.
          ------------------

          (a) Fully Recourse. All Costs guaranteed hereunder are recourse
              --------------
obligations of Indemnitor and not restricted by any limitation on recourse
liability set forth in any of the Loan Documents.

          (b) Unsecured Obligations. Indemnitor hereby acknowledges that
              ---------------------
Lender's appraisal of the Property is such that Lender is not willing to accept
the consequences of the inclusion of Indemnitor's indemnity set forth herein
among the obligations secured by the Deed of Trust and the other Loan Documents
and that Lender would not make the Loan but for the unsecured recourse liability
undertaken by Indemnitor herein.

          (c) Survival. This Agreement shall be deemed to be continuing in
              --------
nature and shall remain in full force and effect and shall survive the exercise
of any remedy by Lender under the Deed of Trust or any of the other Loan
Documents, including, without limitation, any foreclosure or deed in lieu
thereof, even if, as a part of such remedy, the Loan is paid or satisfied in
full.

<PAGE>

                  (d) No Subrogation; No Recourse Against Lender.
                      ------------------------------------------
Notwithstanding the satisfaction by Indemnitor of any liability hereunder,
Indemnitor shall not have any right of subrogation, contribution, reimbursement
or indemnity whatsoever or any right of recourse to or with respect to the
assets or property of Borrower or to any collateral for the Loan. In connection
with the foregoing, Indemnitor expressly waives any and all rights of
subrogation to Lender against Borrower, and Indemnitor hereby waives any rights
to enforce any remedy which Lender may have against Borrower and any right to
participate in any collateral for the Loan. In addition to and without in any
way limiting the foregoing, Indemnitor hereby subordinates any and all
indebtedness of Borrower now or hereafter owed to Indemnitor to all indebtedness
of Borrower to Lender, and agrees with Lender that Indemnitor shall not demand
or accept any payment of principal or interest from Borrower, shall not claim
any offset or other reduction of Indemnitor's obligations hereunder because of
any such indebtedness and shall not take any action to obtain any of the
collateral from the Loan. Further, Indemnitor shall not have any right of
recourse against Lender by reason of any action Lender may take or omit to take
under the provisions of this Agreement or under the provisions of any of the
Loan Documents.

                  (e) Reservation of Rights. Nothing contained in this Agreement
                      ---------------------
shall prevent or in any way diminish or interfere with any rights or remedies,
including, without limitation, the right to contribution, which Lender may have
against Borrower, Indemnitor or any other party under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (codified at
Title 42 U.S.C. (S)9601 et seq.), as it may be amended from time to time, or any
                        -- ---
other applicable federal, state or local laws, all such rights being hereby
expressly reserved.

                  (f) Financial Statements. Indemnitor hereby agrees, as a
                      --------------------
material inducement to Lender to make the Loan to Borrower, to comply with the
provisions of Section 1.18(f) of the Deed of Trust as concerns Indemnitor.
Indemnitor hereby warrants and represents unto Lender that any and all financial
data which have heretofore been given or may hereafter be given to Lender with
respect to Indemnitor did or will at the time of such delivery fairly and
accurately present the financial condition of Indemnitor.

                  (g) Rights Cumulative; Payments. Lender's rights under this
                      ---------------------------
Agreement shall be in addition to all rights of Lender under the Note, the Deed
of Trust and the other Loan Documents. FURTHER, PAYMENTS MADE BY INDEMNITOR
UNDER THIS AGREEMENT SHALL NOT REDUCE IN ANY RESPECT BORROWER'S OBLIGATIONS AND
LIABILITIES UNDER THE NOTE, THE DEED OF TRUST AND THE OTHER LOAN DOCUMENTS
EXCEPT WITH RESPECT TO, AND TO THE EXTENT OF, BORROWER'S OBLIGATION AND
LIABILITY FOR THE PAYMENT MADE BY INDEMNITOR.

                  (h) No Limitation on Liability. Indemnitor hereby consents and
                      --------------------------
agrees that Lender may at any time and from time to time without further consent
from Indemnitor do any of the following events, and the liability of Indemnitor
under this Agreement shall be unconditional and absolute and shall in no way be
impaired or limited by any of the following events, whether occurring with or
without notice to Indemnitor or with or without consideration unless the same
shall have the effect of satisfying Borrower's obligations under the Loan
Documents: (i) any extensions of time for performance required by any of the
Loan Documents or extension or renewal of the Note; (ii) any sale, assignment or
foreclosure of the Note, the Deed of Trust or

<PAGE>

any of the other Loan Documents or any sale or transfer of the Property (but
subject to the provisions of Section 1.5(d)(C)(5) of the Note and Section
1.13(b)(10) of the Deed of Trust); (iii) any change in the composition of
Borrower, including, without limitation, the withdrawal or removal of Indemnitor
from any current or future position of ownership, management or control of
Borrower; (iv) the accuracy or inaccuracy of the representations and warranties
made by Indemnitor herein or by Borrower in any of the Loan Documents; (v) the
release of Borrower or of any other person or entity from performance or
observance of any of the agreements, covenants, terms or conditions contained in
any of the Loan Documents by operation of law, Lender's voluntary act or
otherwise; (vi) the release or substitution in whole or in part of any security
for the Loan; (vii) Lender's failure to record the Deed of Trust or to file any
financing statement (or Lender's improper recording or filing thereof) or to
otherwise perfect, protect, secure or insure any lien or security interest given
as security for the Loan; or (viii) the modification of the terms of any one or
more of the Loan Documents. No such action which Lender shall take or fail to
take in connection with the Loan Documents or any collateral for the Loan, nor
any course of dealing with Borrower or any other person, shall limit, impair or
release Indemnitor's obligations hereunder, affect this Agreement in any way or
afford Indemnitor any recourse against Lender. Nothing contained in this Section
shall be construed to require Lender to take or refrain from taking any action
referred to herein.

                  (i) Entire Agreement; Amendment; Severability. This Agreement
                      -----------------------------------------
contains the entire agreement between the parties respecting the matters herein
set forth and supersedes all prior agreements, whether written or oral, between
the parties respecting such matters. Any amendments or modifications hereto, in
order to be effective, shall be in writing and executed by the parties hereto. A
determination that any provision of this Agreement is unenforceable or invalid
shall not affect the enforceability or validity of any other provision, and any
determination that the application of any provision of this Agreement to any
person or circumstance is illegal or unenforceable shall not affect the
enforceability or validity of such provision as it may apply to any other
persons or circumstances.

                  (j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
                      -------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS
LOCATED, EXCEPT TO THE EXTENT THAT THE APPLICABILITY OF ANY OF SUCH LAWS MAY NOW
OR HEREAFTER BE PREEMPTED BY FEDERAL LAW, IN WHICH CASE SUCH FEDERAL LAW SHALL
SO GOVERN AND BE CONTROLLING.

                  (k) Binding Effect; Waiver of Acceptance. This Agreement shall
                      ------------------------------------
bind Indemnitor and its heirs, personal representatives, successors and assigns
and shall inure to the benefit of Lender and the officers, directors,
shareholders, agents and employees of Lender and their respective heirs,
successors and assigns. Notwithstanding the foregoing, Indemnitor shall not
assign any of its rights or obligations under this Agreement without the prior
written consent of Lender, which consent may be withheld by Lender in its sole
discretion. Indemnitor hereby waives any acceptance of this Agreement by Lender,
and this Agreement shall immediately be binding upon Indemnitor.

<PAGE>

                  (l) Notice. All notices, demands, requests or other
                      ------
communications to be sent by one party to the other hereunder or required by law
shall be in writing and shall be deemed to have been validly given or served by
delivery of the same in person to the intended addressee, or by depositing the
same with Federal Express or another reputable private courier service for next
business day delivery to the intended addressee at its address set forth on the
first page of this Agreement or at such other address as may be designated by
such party as herein provided, or by depositing the same in the United States
mail, postage prepaid, registered or certified mail, return receipt requested,
addressed to the intended addressee at its address set forth on the first page
of this Agreement or at such other address as may be designated by such party as
herein provided. All notices, demands and requests shall be effective upon such
personal delivery, or one (1) business day after being deposited with the
private courier service, or two (2) business days after being deposited in the
United States mail as required above. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice was given
as herein required shall be deemed to be receipt of the notice, demand or
request sent. By giving to the other party hereto at least fifteen (15) days'
prior written notice thereof in accordance with the provisions hereof, the
parties hereto shall have the right from time to time to change their respective
addresses and each shall have the right to specify as its address any other
address within the United States of America.

                  (m) No Waiver; Time of Essence; Business Day. The failure of
                      ----------------------------------------
any party hereto to enforce any right or remedy hereunder, or to promptly
enforce any such right or remedy, shall not constitute a waiver thereof nor give
rise to any estoppel against such party nor excuse any of the parties hereto
from their respective obligations hereunder. Any waiver of such right or remedy
must be in writing and signed by the party to be bound. This Agreement is
subject to enforcement at law or in equity, including actions for damages or
specific performance. Time is of the essence hereof. The term "business day" as
used herein shall mean a weekday, Monday through Friday, except a legal holiday
or a day on which banking institutions in New York, New York are authorized by
law to be closed.

                  (n) Captions for Convenience. The captions and headings of the
                      ------------------------
sections and paragraphs of this Agreement are for convenience of reference only
and shall not be construed in interpreting the provisions hereof.

                  (o) Reasonable Attorney's Fees. In the event it is necessary
                      --------------------------
for Lender to retain the services of an attorney or any other consultants in
order to enforce this Agreement, or any portion thereof, Indemnitor agrees to
pay to Lender any and all costs and expenses, including, without limitation,
reasonable attorneys' fees, incurred by Lender as a result thereof and such
costs, fees and expenses shall be included in Costs.

                  (p) Successive Actions. A separate right of action hereunder
                      ------------------
shall arise each time Lender acquires knowledge of any matter indemnified or
guaranteed by Indemnitor under this Agreement. Separate and successive actions
may be brought hereunder to enforce any of the provisions hereof at any time and
from time to time. No action hereunder shall preclude any subsequent action, and
Indemnitor hereby waives and covenants not to assert any defense in the nature
of splitting of causes of action or merger of judgments.

<PAGE>

                  (q) Reliance. Lender would not make the Loan to Borrower
                      --------
without this Agreement. Accordingly, Indemnitor intentionally and
unconditionally enters into the covenants and agreements as set forth above and
understands that, in reliance upon and in consideration of such covenants and
agreements, the Loan shall be made and, as part and parcel thereof, specific
monetary and other obligations have been, are being and shall be entered into
which would not be made or entered into but for such reliance.

                  (r) Counterparts. This Agreement may be executed in any number
                      ------------
of counterparts, each of which shall be effective only upon delivery and
thereafter shall be deemed an original, and all of which shall be taken to be
one and the same instrument, for the same effect as if all parties hereto had
signed the same signature page. Any signature page of this Agreement may be
detached from any counterpart of this Agreement without impairing the legal
effect of any signatures thereon and may be attached to another counterpart of
this Agreement identical in form hereto but having attached to it one or more
additional signature pages.

                  (s) SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
                      ------------------------------------------------

                  (1) INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
         KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
         COMPETENT COUNSEL, (A) SUBMITS TO PERSONAL JURISDICTION IN THE STATE IN
         WHICH THE PROPERTY IS LOCATED OVER ANY SUIT, ACTION OR PROCEEDING BY
         ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT, (B) AGREES THAT
         ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR
         FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE COUNTY AND STATE
         IN WHICH THE PROPERTY IS LOCATED, (C) SUBMITS TO THE JURISDICTION OF
         SUCH COURTS, AND (D) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES
         THAT INDEMNITOR WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY
         OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO
         BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM).

                  (2) INDEMNITOR, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
         KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF
         COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT
         TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT
         OF, OR IN ANY WAY RELATING TO THIS AGREEMENT OR ANY CONDUCT, ACT OR
         OMISSION OF LENDER OR INDEMNITOR, OR ANY OF THEIR DIRECTORS, OFFICERS,
         PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS
         AFFILIATED WITH LENDER OR INDEMNITOR, IN EACH OF THE FOREGOING CASES,
         WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

                  (t) Waiver by Indemnitor.  Indemnitor covenants and agrees
                      --------------------
that, upon the commencement of a voluntary or involuntary bankruptcy proceeding
by or against Borrower,

<PAGE>

Indemnitor shall not seek or cause Borrower or any other person or entity to
seek a supplemental stay or other relief, whether injunctive or otherwise,
pursuant to 11 U.S.C. (S)105 or any other provision of the Bankruptcy Reform Act
of 1978, as amended, or any other debtor relief law, (whether statutory, common
law, case law or otherwise) of any jurisdiction whatsoever, now or hereafter in
effect, which may be or become applicable, to stay, interdict, condition, reduce
or inhibit the ability of Lender to enforce any rights of Lender against
Indemnitor or the collateral for the Loan by virtue of this Agreement or
otherwise.

                  (u) Secondary Market. Lender may sell, transfer and deliver
                      ----------------
the Loan Documents to one or more investors in the secondary mortgage market. In
connection with such sale, Lender may retain or assign responsibility for
servicing the Loan or may delegate some or all of such responsibility and/or
obligations to a servicer, including, but not limited to, any subservicer or
master servicer, on behalf of the investors.

                  (v) Dissemination of Information. If Lender determines at any
                      ----------------------------
time to sell, transfer or assign the Note, the Deed of Trust and the other Loan
Documents, and any or all servicing rights with respect thereto, or to grant
participations therein (the "Participations") or issue mortgage pass-through
                             --------------
certificates or other securities evidencing a beneficial interest in a rated or
unrated public offering or private placement (the "Securities"), Lender may
                                                   ----------
forward to each purchaser, transferee, assignee, servicer, participant,
investor, or their respective successors in such Participations and/or
Securities (collectively, the "Investor") or any Rating Agency (as defined in
                               --------
the Deed of Trust) rating such Securities, each prospective Investor and each of
the foregoing's respective counsel, all documents and information which Lender
now has or may hereafter acquire relating to the Loan and to Borrower, any
Indemnitor and the Property, which shall have been furnished by Borrower, or any
Indemnitor as Lender determines necessary or desirable.

             [THE BALANCE OF THIS PAGE WAS LEFT BLANK INTENTIONALLY]

<PAGE>

         IN WITNESS WHEREOF, Indemnitor has executed this Indemnity Agreement as
of the day and year first written above.

                                            INDEMNITOR:
                                            ----------

                                            CORNERSTONE REALTY INCOME TRUST,
                                            INC., a Virginia corporation



                                            By:/s/ Stanley J. Olander, Jr.
                                               ---------------------------------
                                                 Name:  Stanley J. Olander, Jr.
                                                 Title: Executive Vice President






<PAGE>

                                    EXHIBIT A
                                    ---------

                                Legal Description

                                    [OMITTED]