**Exhibit10.3**

** **

**EXECUTIONCOPY**

 

**LOAN AGREEMENT**

 

**THIS LOAN AGREEMENT** (this “Agreement”) is made as of this 28 day of September, 2005 by andbetween (i) **COMSTOCK BELLEMEADE, L.C.**, aVirginia limited liability company (“Borrower”) and (ii) **BANK OF AMERICA, N.A.**, a national banking association (the “Lender”).

 

R E C I T A L S:

 

Pursuant to and subject to the terms of a certainCommitment Letter from Lender to Borrower dated September 2, 2005 (the “Commitment”)and subject to the terms sets forth hereinbelow, Lender agrees to make a loanto Borrower, as more particularly described herein for the purpose of (i) theacquisition of certain residential buildings containing in the aggregate 316units (each a “Unit” and collectively, the “Units”) and the improvement of commonarea facilities within the complex and (ii) the renovation and condominiumconversion of the Units (the “Renovation”). All of the foregoing shall be constructed on real property in Leesburg,Virginia more particularly described in Exhibit “A” hereto.

 

WHEREAS, Comstock Homebuilding Companies, Inc.has executed and delivered to Lender a Guaranty (as defined herein); and

 

WHEREAS, Lender and Borrower have agreed to executethis Agreement for the purpose of describing together with the other LoanDocuments (as herein defined) some of the terms and conditions relating to thedisbursement of Loan proceeds, and to otherwise set forth together with theother Loan Documents (as herein defined) some of the obligations of Borrowerand the Lender.

 

W I T N E S S E T H:

 

For and in consideration of these presents, and infurther consideration of the mutual covenants and agreements herein set forth,and in consideration of the sum of Ten and no/100 Dollars ($10.00) lawful moneyof the United States of America by each of the parties to the other paid,receipt of which is hereby acknowledged, the parties hereto, intending to belegally bound, do hereby covenant and agree as follows:

 

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**ARTICLE I – DEFINITIONS**

 

**1.1**                               Definitions.  Borrower and the Lender agreethat, unless the context otherwise specifies or requires, the following termsshall have the meanings herein specified, such definitions to be applicableequally to the singular and the plural forms of such terms and to all genders:

 

(a)                                  **Appraised Value** - The then current market value determinedpursuant to the most recent appraisal for the Property. All such appraisalsshall be ordered by the Lender, prepared at Borrower’s expense by a certifiedappraiser acceptable to the Lender and otherwise satisfactory to the Lender inall respects. The Lender may order, if required by the Lender’s internalpolicies, reappraisals of the Property, at the Lender’s sole discretion and atBorrower’s expense.

 

(b)                                 **Borrower** - The entity hereinabovedesignated as such.

 

(c)                                  **Contract**- A fully executed contract of sale for aUnit that: (i) has been accepted by Borrower and meets the Lender’scriteria for acceptable contracts; (ii) is not subject to cancellationwithout forfeiture of all deposits thereunder (except for cause in accordancewith applicable law and in the event the purchaser fails to obtain thenecessary mortgage loan); (iii) contains no contingencies (including,without limitation, the sale of the purchaser’s home) except ordinary financingcontingencies; (iv) is accompanied by a cash deposit or deposits in form,content and amount acceptable to the Lender; and (v) that either (A) providesfor a cash sale (i.e., a sale not contingent upon financing) by a purchaserwhose creditworthiness is satisfactory to the Lender in all respects, or (B) isaccompanied by a pre-qualification letter from a permanent mortgage lender inform, amount and content satisfactory to the Lender in all respects.  In lieu of copies of Contracts, the Borrowermay elect to submit a “Unit Contract Summary Report” in form attached hereto asExhibit “C”.  At Lender’soption, no more than twice monthly Lender shall verify the accuracy of theinformation on each Unit Contract Summary Report through a review of Borrower’sfiles.  Notwithstanding the foregoing,the Lender shall retain the right to request copies of Contracts at any timeduring the term of the Loan.  At the timeany Unit Contract Summary Report is submitted to the Lender for its approval,Borrower shall specifically identify to the Lender each Contract wherein thepurchaser is affiliated with or related to Borrower, Guarantor (hereinafterdefined) or any of their respective employees, shareholders, partners, membersor other principals, as applicable “Related Party Contracts”).  The number of Related Party Contracts shallnot exceed ten percent (10%) of the total Units without Lender’s prior consent.

 

(d)                                 **Deed of Trust** - Collectively, that certainCredit Line Deed of Trust and Security Agreement of even date herewith,executed and delivered by Borrower to secure the Loan, as any of the same mayfrom time to time be amended, modified, supplemented or spread.

 

(e)                                  **Default **- Any of the happenings, events,circumstances or occurrences designated as such in this Agreement.

 

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(f)                                    **Environmental Regulations** - “Environmental Regulations” as defined inthe Deed of Trust.

 

(g)                                 **Guarantor** – Comstock Homebuilding Companies, Inc.and any other party that executes and delivers a Guaranty, and its or theirrespective successors, personal representatives and permitted assigns.

 

(h)                                 **Guaranty** - That certain (i) Guaranty Agreementof even date herewith executed and delivered by Guarantor to secure the Loanand all other indebtedness under the Loan Documents (hereinafter defined), and (ii) anyand all other guaranty agreements executed for the benefit of the Lender tosecure the Loan, as any of the same may from time to time be amended, modified,replaced or supplemented.

 

(i)                                     **Hazardous Materials** -  “HazardousMaterials” as defined in the Deed of Trust.

 

(j)                                     **Improvements** - Any and all buildings,structures, improvements, alterations or appurtenances already existing or atany time hereafter constructed or placed upon the Land, and any replacementsthereof, additions thereto and substitutions therefor, including withoutlimitation, all equipment, apparatus, machinery and fixtures of any kind orcharacter forming a part thereof.

 

(k)                                  **Indebtedness** - All amounts due or to become dueto the Lender pursuant to or on account of the Note (hereinafter defined) orthe Letter of Credit Note (hereinafter defined), this Agreement and each of theother Loan Documents, including, without limitation, all principal (whetheradvanced prior to, upon execution of, or after the date of this Agreement),interest, late charges, loan fees, extension fees, prepayment fees, amountsdrawn under any letters of credit, any letter of credit fees and all otherpayments required to be made by the Borrower pursuant to or on account of theNote, this Agreement and any of the other Loan Documents, and including any andall amounts advanced by the Lender for the account of the Borrower pursuant tothe provisions of this Agreement and any of the other Loan Documents, whetheror not such amounts are advanced from the proceeds of the Loan.

 

(l)                                     **Jurisdiction of Choice** - The Commonwealth of Virginia, thejurisdiction under whose laws this Agreement shall be governed, unlessotherwise provided herein.

 

(m)                               **Land** **—** Any or all of the real property now owned or hereafteracquired by the Borrower with Loan proceeds and more particularly described inthe Deed of Trust.

 

(n)                                 **Lender** - The party hereinabove designatedas such, its successors and assigns.

 

(o)                                 **Letter of Credit Note** – that certain Letter of Credit Note of evendate herewith in the principal amount of $1,000,000.00 made by the Borrower,payable to the order

 

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of the Lender, as the same may from time totime be amended, modified, replaced or supplemented.

 

(p)                                 **Loan** – That certain acquisition and developmentloan in the amount of $46,725,000.00, and that certain $1,000,000.00 letter ofcredit, each made pursuant to this Agreement, to finance the acquisition anddevelopment of certain property, as evidenced by the Note and the Letter ofCredit Note and secured by the Deed of Trust and the other Loan Documents.

 

(q)                                 **Loan Document**s - This Agreement, the Note, the Letterof Credit Note, the Deed of Trust, any Guaranty and any other instrument ordocuments executed in connection with the Loan, as any of the same may fromtime to time be amended, modified or supplemented.

 

(r)                                    **Maturity Date** – October        ,2007.

 

(s)                                  **Note** - That certain Deed of Trust Noteof even date herewith in the original principal amount of $46,725,000.00, or somuch thereof as shall be advanced, made by the Borrower, payable to the orderof the Lender, as the same may from time to time be amended, modified, replacedor supplemented.

 

(t)                                    **Obligations** - Any and all of the covenants,warranties, representations, agreements, promises and other obligations (otherthan the Indebtedness) made or owing by the Borrower, the Guarantors or othersto the Lender pursuant to or as otherwise set forth in the Loan Documents.

 

(u)                                 **Progress Inspector** - Such person or firm as theLender may from time to time appoint or designate to inspect the progress ofthe Renovation and conformity of construction with applicable laws, and forsuch other purposes as may from time to time seem appropriate to the Lender oras may be required by the terms of this Agreement.

 

(v)                                 **Project** – Bellemeade Farms Project (hereinafterdefined).

 

(w)                               **Property** - The property described as suchin the Deed of Trust, including, but not limited to, the Land and theImprovements.

 

(x)                                   **Title Company** - Any title company approved by the Lenderthat provides mortgagee title insurance covering the lien of the Deed of Trustin favor of the Lender thereon.

 

(y)                                 **Bellemeade Farms Project** – acquisition, renovation and condominiumconversion of up to 316 Units in Leesburg, Loudoun County, Virginia and theimprovement of common area facilities within the complex.

 

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**ARTICLE II – CONDITIONS PRECEDENT TO CLOSING**

 

Inaddition to any other conditions stated in this Agreement, the followingconditions must be satisfied prior to Lender having any obligation to advancefunds hereunder:

 

**2.1**                               LoanDocuments.  Receipt by Lender ofappropriately completed and duly executed originals of this Agreement and theother Loan Documents.  In addition,Borrower shall provide a writtenopinion of counsel to the Borrower and the Guarantor as to the authority of theBorrower and the Guarantor to execute and deliver the Loan Documents, as to theenforceability and validity of the Loan Documents, and as to such other mattersas the Lender may reasonably require.

 

**2.2**.                            OrganizationalDocuments.    Borrower shall supply,with respect to the Borrower and Guarantor: (i) a currently certified copyof the Articles of Organization or Certificate of Incorporation and allamendments thereto, as applicable; (ii) evidence satisfactory to Lenderand its counsel that Borrower and Guarantor in good standing in thejurisdiction where organized and qualified to do business in every jurisdictionin which the nature of their businesses or their properties makes suchqualification necessary; (iii) resolutions of the Borrower and Guarantorauthorizing the due execution and delivery of the Loan Documents to which it isa party, to the extent necessary; and (iv) certified true copies of theOperating Agreement or By-laws and all amendments thereto, as applicable.

 

None of the documentspursuant to which the Borrower or Guarantor is organized shall be amended ormodified in any respect without the prior written consent of the Lender, whichmay be given or withheld in the reasonable discretion of the Lender.

 

**2.3**                               Insurance.  Borrower shall provide Lender with a completeand fully paid up policy or policies of casualty and fire insurance withstandard extended coverage in an amount not less than the replacement cost ofthe improvements and personalty located on the Property; $2,000,000.00 covering all claims for bodilyinjury or death and property damage arising out of a single occurrence and$2,000,000.00 for the aggregate of all occurrences during any given annualpolicy period, plus $5,000,000.00 of “umbrella” coverage; builder’s riskinsurance with on a completed value, nonreporting form with permission tocomplete and occupy; malicious mischief insurance; business interruptioninsurance and insurance against such other hazards as Lender may require, inamounts, with insurers and under forms of policies containing such provisionsand endorsements as Lender may require. All policies of insurance (except employee benefit and public liabilityinsurance which shall name Lender as an additional insured) shall contain alender’s loss payable clause and standard mortgagee clause for the benefit ofLender, and shall provide, in part, that: (a) in the event of a loss, all insurance proceeds shall be paid toLender and Lender shall be authorized and empowered by Borrower to settle,adjust or compromise any claims for loss, damage or destruction under suchpolicies of insurance; (b) any loss covered by such insurance shall bepayable by the insurer in accordance with the terms of such policynotwithstanding any act or negligence of Borrower, its agents or employees, thenamed insured or any owner, tenant or occupant of the Property which mightotherwise result in forfeiture of said insurance; (c) the insurer waivesall rights of setoff, counterclaim or deduction against Borrower; and (d) shouldtitle to and beneficial

 

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ownership of the Propertybecome vested in Lender, the insurance provided by such policies shall continuefor the term thereof for the benefit of Lender. All required insurance shall provide that (i) the insuranceafforded all parties named as insureds shall be primary insurance and shall notparticipate with, nor be in excess over, any other valid and collectibleinsurance available to Lender, (ii) any other insurance obtained by anynamed insured shall not be called upon to contribute until the limits of thepolicies required hereunder are exhausted, and (iii) the insurancerequired hereunder cannot be canceled or materially amended or altered withoutat least thirty (30) days prior written notification to Lender.  All insurance required hereunder shall beissued by companies and in an amounts in each company approved in advance byLender, in its sole discretion, and such insurance shall be in the form and onterms (including but not limited to deductibles, self-insured retentions orsimilar provisions) approved in advance by Lender, in its sole discretion.

 

Borrowershall deliver all such policies (or certified copies thereof) to Lender,together with a one-year’s paid receipt for each such policy.  In addition, Lender shall be furnished withsatisfactory evidence indicating whether the Property is located within an areathat has been identified as a “special flood hazard area” as that term is usedin the Flood Disaster Protection Act of 1973. If any insurable improvements on the Property are located in any area sodesignated, a flood insurance policy satisfactory to Lender shall be depositedwith Lender prior to the closing on the Loan and shall be maintained in fullforce until the Loan is repaid in full.

 

**2.4**                               FinancingStatement.  The financing statementnecessary to perfect Lender’s security interest in the personal propertysubject to the Deed of Trust shall be duly filed in all appropriate offices andjurisdictions, all other financing statements covering any of such personalproperty shall be terminated, and filing and recording receipts evidencing suchfilings and terminations shall be delivered to Lender, all in form andsubstance satisfactory to Lender.

 

**2.5**                               RealEstate Documents.  Lender shall havereceived and approved, in its sole discretion, the following:

 

(a)                                  Appraisal.  An appraisal of the Property, prepared by anappraiser acceptable to Lender, in form and content acceptable to Lender,conforming to all regulatory and internal appraisal guidelines applicable to orestablished by Lender, in its sole, absolute, nonreviewable discretion,reflecting an as-finished discounted value for the Property satisfactory toLender in its sole, absolute nonreviewable discretion.  Lender acknowledges that the appraisalreceived by it is acceptable.

 

(b)                                 TitleInsurance. An irrevocable commitment to issue a full-coverage mortgageetitle insurance policy (the “Title Policy”) on the ALTA 1992 form insuring thefirst lien of the Deed of Trust to Lender in a form and issued by a titleinsurance company or companies acceptable to Lender, said policy (i) containingonly those exceptions to title as shall be reasonably approved by Lender andLender’s counsel, and (ii) showing the lien of the Deed of Trust securingthe Loan to be a first lien of record, on the fee simple estate of Borrower inthe Property, together with true and complete copies of all documents orinstruments identified therein as exceptions to title.  The title policy shall be delivered to Lenderpromptly after

 

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recordation of the Deed of Trust. Lender shall have the right todesignate such co-insurers or re-insurers as it deems advisable in its solediscretion.  Such policy or policiesshall be endorsable or assignable to Lender’s successors and assigns, uponrequest, without cost to Lender. Such policy or policies shall containaffirmative insurance against filed and unfiled mechanic’s liens in formacceptable to Lender. Lender shall receive satisfactory evidence that there isno pending litigation with respect to the Property.

 

(c)                                  Survey.  A current survey (or other documentationacceptable to Lender) and legal description of the Property satisfactory toLender from a registered land surveyor of the Commonwealth of Virginia, whichsurvey shall show all easements, rights of way and other matters of record,shall locate all proposed improvements on the Land and shall generally show astate of facts acceptable to Lender and contain a surveyor’s certificatesatisfactory to the Lender.

 

(d)                                 EnvironmentalAudit.  An environmental audit of theProperty prepared by an environmental consulting firm acceptable to Lender, inits sole discretion, confirming that the Property is in compliance with allapplicable environmental laws.

 

(e)                                  Budget.  Receipt by Lender of the final budget for theProject, which shall be attached hereto as Exhibit “B”, and whichshall be reasonably acceptable to Lender.

 

(f)                                    Evidenceof Zoning Compliance.   Such writtenevidence as the Lender may require to the effect that the Property has beenzoned for purposes consistent with the uses contemplated beyond any possibilityof appeal and to the effect, further, that there are no pending proceedings,either administrative, legislative or judicial which would in any manneradversely affect the status of the zoning with respect to such property or anypart thereof.

 

(g)                                 PublicUtilities.  Evidence to the effectthat sanitary sewer, water, electric, gas, telephone and other public utilitiesare available and adequate to serve the Property for purposes consistent withthe Renovation on the Property.

 

(h)                                 SaleAgreement. A copy of the purchase contract for the Property,satisfactory to the Lender and Lender’s counsel in form and substance.

 

(i)                                     NoDefault.  No event shall haveoccurred and be continuing that constitutes a Default (as defined below).

 

(j)                                     Representations.  All representations and warranties containedin this Agreement shall be true and correct in every material respect as of thedate of the first disbursement under this Agreement and on the date of anyfuture disbursements hereunder.

 

(k)                                  SatisfactoryDocuments.  All documents deliveredpursuant to this Agreement must be in form and substance reasonablysatisfactory to Lender and its counsel, and all legal matters incident to thisAgreement must be reasonably satisfactory to Lender’s counsel.

 

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**2.6**                               EquityRequirement.   At or prior to Closing, Borrower shall provide Lenderevidence that Borrower has contributed $8,872,548.00 toward the purchase priceof the Property (“Equity Contribution”).

 

**2.7**                               LoanFee. Upon the closing of the Loan,the Borrower shall pay Lender anon-refundable loan fee in accordance with the Fee Letter Agreement of evendate hererwith between Borrower and Lender.

 

**ARTICLE III - CONDITIONS FOR RENOVATIONADVANCES**

 

**3.1**                               Inaddition to any other conditions stated in this Agreement, the followingconditions must be satisfied prior to Lender making any advances under thisAgreement for the Renovation.  Borrowershall obtain and submit to Lender for Lender’s approval, in its reasonablediscretion, the following, as they pertain to the Project:

 

(a)                                  Permits.  Copies of any and all building and similarpermits required in connection with the Renovation, together with such evidenceas the Lender may require to the effect that all fees for such permits havebeen paid.  Satisfactory evidence shallbe submitted to Lender of the receipt of all governmental approvals necessaryfor the Renovation and condominium conversion of the Units have beenobtained.  Lender shall also receivesatisfactory evidence that all applicable safety, ecological and environmentallaws and any other codes or regulations affecting the Renovation and/orproposed use of the Property have been complied with.

 

(b)                                 GeneralContractor.  The general contractormust be approved by Lender in Lender’s sole discretion (the “General Contractor”).The contract for the Renovation shall be subject to Lender’s approval, andshall be assigned to Lender, effective on a Default under any of the Loan Documents.  The General Contractor shall consent to suchassignment, and the General Contractor shall agree, in the event of any suchDefault, to continue performance of the contract for Lender, if Lender sorequests.  In addition, the GeneralContractor shall maintain workers’ compensation and disability insurance inamounts required by law, and employer’s liability insurance.

 

(c)                                  Listof Subcontractors and Materialmen. If required by Lender, a list of the names of all subcontractors andmaterialmen intended by the Borrower to perform work or supply materials inconnection with the Renovation, and conformed copies of executed contracts forsuch work and materials, in form and substance reasonably satisfactory toLender.

 

(d)                                 Builder’sRisk Insurance.  Evidence that theinsurance policy referred to in paragraph 2.2 hereof contains builder’s riskcoverage on a completed value, non-reporting form with permission to completeand occupy.

 

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**ARTICLE IV- ADVANCES FOR THE RENOVATION**

 

**4.1**  Loan disbursements for the Renovation shallbe governed and conditioned on the following:

 

(a)                                  TheRenovation shall be performed by the Borrower in strict accordance with allapplicable (whether present or future) laws, ordinances, rules, regulations,requirements and order of any governmental or regulatory authority having orclaiming jurisdiction.  The Renovationshall be completed in a manner so as not to encroach upon any easement orright-of-way, or upon the land of others. The Renovation shall be wholly withinall applicable building restriction lines and set-backs or variances madetherefor, however established, and shall be in strict accordance with allapplicable use or other restrictions and the provisions of any prior declarations,covenants and zoning ordinances and regulations.

 

(b)                                 Borrowershall submit to Lender or the Progress Inspector, at Lender’s discretion, suchinformation as may be reasonably requested by Lender or the Progress Inspectorto verify the Renovation costs which are to be incurred in connection with theRenovation.  Lender shall not beobligated to authorize disbursement of Loan proceeds with respect to theRenovation for an amount in excess of the Renovation costs to be incurred inconnection therewith as verified by Lender or the Progress Inspector pursuantto the provisions of the preceding sentence. The funding of each draw requestis subject to an inspection and approval by an authorized officer of the Lenderand the Progress Inspector. Sufficient time shall be required between thesubmission of the draw request and the actual advances in order to permiton-site inspection by an authorized officer of the Lender and the ProgressInspector.

 

(c)                                  TheLoan proceeds will be advanced in installments as the Renovation progresses inaccordance with the terms of this Agreement to finance the Renovation, but nomore often than twice each thirty (30) days; provided that Lender is satisfiedthat the undisbursed amount of the Loan will be sufficient to complete the work,costs estimates, approved change orders on file with the Lender, and pay orprovide for all reasonably anticipated Renovation costs through the maturity ofthe Loan and the Lender is satisfied that the Borrower has paid all costsincurred in connection with the Renovation prior to the date of the requestedadvance.  In the event Lender determinesthat the undisbursed portion of the Loan is insufficient to complete theRenovation in such manner as Lender may require, the Borrower shall providesuch funds necessary to complete the Renovation.

 

(d)                                 Eachadvance shall be conditioned upon receipt of (i) a written certification,on AIA forms G-702 and G-703 by the Borrower, that the work which is the basisof the requested advance was satisfactorily completed and within the costestimates approved by Lender (or such adjustments of cost estimates of lineitems as shall be required and approved by Lender, provided that sufficientfunds to complete the Renovation will be available under such adjustedestimates), to the satisfaction of Lender, and (ii) evidence that all thennecessary certificates required to be obtained from any board, agency ordepartment (government or otherwise) have been obtained.  All documents required to be submitted toLender as a condition of each disbursement shall be on standard AIA forms orsuch other agreed upon draw

 

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mechanism and shall be furnished to Lender at the address designated byLender from time to time.

 

(e)                                  Lendershall also require notice of continuation or an endorsement to the titleinsurance policy theretofore delivered, indicating that since the lastpreceding advance there has been no change in the status of title and no titleexceptions not theretofore approved by the Lender and bringing the policy tothe date of the advance then being made and increasing the coverage of thepolicy by an amount equal to the advance then being made if the policy does notby its terms provide for such an increase.

 

(f)                                    Beforemaking any advance of Loan proceeds, the Lender may require the Borrower toobtain from the General Contractor, acknowledgments of payment and releases ofliens and rights to claim liens, if applicable, down to the date of the lastpreceding advance and concurrently with the final advance.  All such acknowledgments and releases shallbe in the form and substance satisfactory to the Lender.

 

(g)                                 TheLender shall not be obligated to make the final advance of Loan proceedshereunder, unless (i) the Progress Inspector has certified to the Lenderon standard AIA forms that the work is complete; (ii) the Lender hasreceived evidence satisfactory to it that all work requiring inspection bygovernmental or regulatory authorities having or claiming jurisdiction has beenduly inspected and approved by such authorities and by any rating or inspectionorganization, bureau, association, or office having or claiming jurisdiction;and (iii) the Lender has received evidence satisfactory to it thatrequisite certificates of occupancy for permanent occupancy have been validlyissued and that completion of the Renovation has occurred free and clear of allmechanics’ or materialmens’ liens and any bills or claims for labor, materialsand services in connection with the completion of the Renovation.  All fees and costs of the Progress Inspectorincurred by the Lender shall be paid by the Borrower at its sole expense.

 

(h)**                                **TheLender shall not be obligated to make any advances of Loan proceeds hereunderunless, in the reasonable judgment of the Lender, all work completed at thetime of the application for advance has been performed in a good andworkmanlike manner, and all materials and fixtures usually furnished andinstalled at that stage of the Renovation have been furnished and installed, andno Default which has not been cured has occurred under any of the documentsevidencing, securing or guaranteeing the Loan.

 

(i)                                     UponDefault hereunder, Lender, at its option, may make any and all advances, or anypart thereof, directly to the contractors or subcontractors againstrequisitions for payment under the Renovation contracts or subcontracts, as thecase may be; the execution of this Agreement by Borrower shall and doesconstitute an irrevocable direction and authorization to so advance funds.  All payments made pursuant to the foregoingshall be made within the scope of the respective contracts.

 

(j)                                     Lender,at its option, may make any advance to itself for the payment of interest orany and all other reasonable costs incurred by Lender in connection with orpursuant

 

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to the Loan Documents, and the execution of this Agreement by Borrowershall and does constitute an irrevocable direction and authorization to soadvance funds.

 

**ARTICLE V — REPRESENTATIONS AND WARRANTIES**

 

Borrower hereby represents and warrants to theLender, as of the date hereof and at all times hereafter, that:

 

**5.1**                               Organization, Power, Etc.   (a) Borroweris a duly organized, validly existing limited liability company, in good standingunder the laws of the jurisdiction of its organization; (b) Guarantor is aduly organized, validly existing corporation under the laws of the jurisdictionof its organization (c) each of the Borrower and Guarantor has the powerand authority to own its properties and to carry on its business as now beingconducted; (c) each of the Borrower and Guarantor is duly qualified to dobusiness in the jurisdiction where the Property is located and in everyjurisdiction in which the nature of its business or its properties makes suchqualification necessary; (d) each of the Borrower and Guarantor is incompliance with all laws, regulations, ordinances and orders of publicauthorities applicable to it; and (e) each of the Borrower and Guarantorhas the full power, authority and legal right to execute, deliver and performthe covenants and obligations set forth in this Agreement and the other LoanDocuments and to carry out the terms hereof and thereof.

 

**5.2**                               Validity of Loan Documents.  Theexecution, delivery and performance by Borrower of the Note, the Letter ofCredit Note and the other Loan Documents: (a) are within the legal powersof Borrower; (b) have been duly authorized by all requisite partnershipand/or membership action, as applicable; (c) have received all necessarygovernmental approvals; (d) will not violate any provision of law, anyorder of any court or other agency of government or any articles oforganization, membership and/or operating agreement, partnership agreement,indenture, agreement or other instrument to which Borrower is a party or bywhich it or any of its property is bound, or be in conflict with, result in abreach of or constitute (with due notice or lapse of time or both) a defaultunder any such indenture, agreement or other instrument, or result in thecreation or imposition of any lien, charge or encumbrance of any naturewhatsoever upon any of its property or assets, except as contemplated by theprovisions of the Loan Documents; and (e) when executed and delivered byBorrower, will constitute the legal, valid and binding obligations of theBorrower and other obligors named therein, if any, in accordance with theirrespective terms.

 

**5.3**                               Financial Statements.  Allfinancial statements delivered to the Lender are true and correct in allrespects, have been prepared in accordance with generally accepted accountingpractices consistently applied (other than with respect to individualGuarantors), and fairly present the financial condition of the Borrower andother parties named therein as of the dates thereof.  No material adverse change has occurred inthe financial condition reflected therein since the dates thereof and nomaterial additional liabilities have been incurred since the

 

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mostrecent date thereof other than the borrowing contemplated in the Commitment andthis Agreement.

 

**5.4**                               Other Information.  Allother information, reports, papers and data given to the Lender with respect toBorrower or others obligated under the terms of the Loan Documents and theProperty are accurate and correct in all material respects and complete insofaras completeness may be necessary to give the Lender a true and accurateknowledge of the subject matter.

 

**5.5**                               Utilities and Access.  Allutility services and access necessary for the Renovation are available,including, without limitation, roads, telephone service, water supply, stormand sanitary sewer facilities, and natural gas or electric facilities.

 

**5.6**                               Defaults.  There is no Default on the partof the Borrower under the Note or any of the other Loan Documents and no eventhas occurred that may give rise to a Default.

 

**ARTICLE VI — AFFIRMATIVE COVENANTS**

 

Until the Indebtedness has been paid in full and theLoan has been terminated, Borrower hereby affirmatively covenants and agrees asfollows:

 

**6.1**                               Financial Statements; Sales and InventoryReports.  Borrower shall provide the following withrespect to the Guarantor:

 

(a)                                  as soon as available, but in no event laterthan ninety (90) days after the close of its fiscal year (but in no eventearlier than the date such financial statements must be submitted togovernmental authorities), financial statements (all of which financialstatements may include, as requested by the Lender, a balance sheet, incomestatement, sources and uses of funds for such fiscal and/or calendar year,projected sources and uses of funds for the coming year, detailed listing anddescription of all contingent liabilities, tax returns, written verification ofliquidity and such other supporting schedules and documentation which theLender may request).  All such financialstatements shall be audited by a certified public accountant acceptable to theLender in all respects; and

 

(b)                                 if requested by the Lender, within forty-five(45) days after the close of its quarterly business period (but in no eventearlier than the date such financial statements must be submitted togovernmental authorities), the financial statements to be filed with applicablegovernmental authorities.

 

**6.2**                               Construction. After each advance of proceeds under the Loan, Borrower shall commenceto acquire the Land and/or proceed with the Renovation for which each suchadvance is designated and will prosecute the same in good faith with diligenceand continuity.

 

**6.3**                               Approval and Permits.  Nowork associated with the Renovation shall be commenced by Borrower unless anduntil all necessary approvals by all governmental

 

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authorities having or claiming jurisdiction andby the beneficiary of any applicable restrictive covenant have been obtained,and unless and until all required building and other permits have been validlyissued and all required fees and bonds have been paid or posted, as thecircumstances may require.

 

**6.4**                               Free and Clear of Liens. Except as may be otherwise specifically permitted under the LoanDocuments, Borrower shall not make any contract or arrangement of any kindwhich would give rise to a lien on any portion of the Property.  The Renovation shall be completed by Borrowerfree and clear of all mechanics’ and materialmen’s liens.

 

**6.5**                               Compliance with Laws - Encroachments.  TheRenovation shall be performed in strict accordance with all applicable presentand future laws, ordinances, rules, regulations, requirements and orders of anygovernmental or regulatory authority having or claiming jurisdiction.

 

**6.6**                               Inspections; Cooperation. Borrower shall permit the Lender and its duly authorized representatives(including, without limitation, the Progress Inspector) to enter upon theProperty at all reasonable times and in a reasonable manner to inspect theImprovements and any and all materials and to examine all detailed plans andshop drawings and similar materials relating to the Renovation.  Borrower will at all times cooperate andrequest its subcontractors and materialmen to cooperate with the Lender and itsduly authorized representatives (including, without limitation, the ProgressInspector) in connection with or in aid of the performance of the Lender’sfunctions under this Loan Agreement. Borrower shall pay all inspection fees incurred by the Lender inconnection with the Loan; however, so long as no Default exists, inspectionsshall be limited to two site inspection visits per month to be performed by theProgress Inspector at Borrower’s sole cost and expense.  Inspection fees may be deducted by the Lenderfrom the Borrower’s applicable Loan disbursement.

 

**6.7**                               Vouchers and Receipts. Borrower will furnish to the Lender, promptly on demand, a computergenerated report of job costs and accounts payable for the Project financedunder the Loan, and from and after any Default under the Loan, (i) anycontracts, bills of sale, statements, receipted vouchers or agreements pursuantto which Borrower has any claim of title to any materials, fixtures or otherarticles delivered or to be delivered to the Land or incorporated or to beincorporated into the Improvements and (ii) a verified written statement,in such form and detail as the Lender may require, showing all amounts paid andunpaid for labor and materials and all items of labor and materials to befurnished for which payment has not been made and the amounts to be paidtherefor.

 

**6.8**                               Payments for Labor and Materials. Borrower will pay when due all bills for materials supplied and forservices or labor performed in connection with the Renovation.

 

**6.9**                               Correction of Construction Defects. Borrower will promptly correct or cause the correction of any structuraldefects in the Improvements and any substantial departures or deviations fromthe Plans and Specifications.

 

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**6.10**                        Insurance.  Borrower will comply with allinsurance requirements set forth in the Deed of Trust.

 

**6.11**                        Hazardous Materials. Borrower will comply with the provisions of the Deed of Trust regardingHazardous Materials and all applicable Environmental Regulations.

 

**6.12**                        Subcontractors. Borrower shall immediately disclose to the Lender upon request the namesof all subcontractors with whom Borrower has contracted or intends to contractfor the Renovation or for the furnishing of labor or materials therefor.

 

**6.13**                        Equity Contribution.  Ator prior to closing, Borrower shall make the Equity Contribution.

 

**6.14****                       **Condominium Conversion.  TheBorrower shall take all steps necessary to validly and legally convert theProperty into a condominium regime with approximately 316 residential Units.The condominium documents, including without limitation, the condominiumdeclaration and by-laws, shall be acceptable to the Lender in its discretion.From time to time, upon the Lender’s request, the Borrower shall provide Lenderwith evidence that Borrower has complied with any applicable requirements ofthe condominium documents and any applicable laws. Borrower shall, within 150 days of theclosing of the Loan, provide Lender with all condominium documents, includingwithout limitation, the public offering statement. Lender recognizes that theBellemeade Farms Project will utilize an expandable condominium regime, wherebythe condominium will be established in phases to expand over the Property.Lender shall not unreasonably withhold its consent to certain cross easementsas the condominium regime expands within the complex.

 

**6.15****                       **Curtailment Schedule.  Borroweragrees to comply with the following curtailment schedule for advancesunder the Loan (the “Mandatory Principal Curtailment Requirement”):

 

 
| **Due Date**            | ** ** | **$ Amount of Curtailment** | ** ** | **Remaining Commitment** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------|------------|
| June 30, 2006      |       | $                                | 7,400,000  |                     | $          | 39,325,000 |   |
| September 30, 2006 |       | $                                | 5,550,000  |                     | $          | 33,775,000 |   |
| December 31, 2006  |       | $                                | 5,550,000  |                     | $          | 28,225,000 |   |
| March 31, 2007     |       | $                                | 5,550,000  |                     | $          | 22,675,000 |   |
| June 30, 2007      |       | $                                | 5,550,000  |                     | $          | 17,125,000 |   |
| September 30, 2007 |       | $                                | 5,550,000  |                     | $          | 11,575,000 |   |
| Extension Period        |       |                             |       |                     |       |
| December 31, 2007  |       | $                                | 5,550,000  |                     | $          | 6,025,000 |   |
| March 31, 2008     |       | $                                | 6,025,000  |                     | $          | 0 |   |

 

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** **

**ARTICLE VII — NEGATIVE COVENANTS**

 

Until the Indebtedness has been paid in full and theLoan has been terminated, Borrower hereby covenants and agrees as follows:

 

**7.1**                               Restrictions on Subordinate Financing. Throughout the term of the Loan, Borrower shall not place anysubordinate financing on the Property.

 

**7.2**                               Changes to Plans and Specifications. Without the prior written consent of the Lender, Borrower will notpermit any substantial changes in the design concept for the Units.

 

**7.3**                               Prohibition on Transfer of Assets. Without the prior written consent of the Lender, Borrower will nottransfer any of its assets, except for transfers in the ordinary course ofbusiness and transfers for which Borrower receives consideration substantiallyequivalent to the fair market value of the transferred asset.

 

**7.4**                               Assignments.  Without the prior writtenconsent of Lender, Borrower will not transfer, assign, pledge or hypothecateany of its rights to advances, or any of its rights or obligations under thisAgreement.  Any assignment made orattempted by Borrower without the prior written consent of the Lender shall bevoid.  No consent by the Lender to anassignment by Borrower shall either (a) release Borrower as the partyprimarily obligated and liable under the terms of this Agreement unlessBorrower shall be released specifically by the Lender in writing, or (b) bedeemed to be a waiver of the requirement of prior written consent by the Lenderwith respect to each and every further assignment.

 

**ARTICLE VIII — DEFAULT**

 

Each of the following events shall constitute a “Default”under this Agreement and each of the other Loan Documents:

 

**8.1**                               Payment of Indebtedness.  Anyfailure by the Borrower to pay when due any and all amounts payable by theBorrower under the terms of the Note or any of the other Loan Documents, whichfailure to pay remains uncured for a period of five (5) calendar daysafter the date such payment is due (or five (5) calendar days after noticefromLender in the case of amounts due that are not regular monthly payments),including, without limitation, any principal payment, interest payment, letterof credit reimbursement, loan fee, extension fee, letter of credit fee or latecharge, and including any advances made by the Lender from the proceeds of theLoan or otherwise and interest thereon at the applicable rate set forth in theLoan Documents.

 

**8.2**                               Performance of Obligations.  Anydefault by the Borrower or Guarantor in the due observance or performance ofany of the Obligations and such default, if other than in payment of theIndebtedness, shall remain uncured thirty (30) days after the receipt byBorrower of written notice from Lender identifying such default.  If Borrower receives such notice, Borrowershall diligently pursue a cure of such default.

 

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**8.3**                               Other Defaults.  Theoccurrence of any Default under the Deed of Trust or the Note or any of theother Loan Documents.

 

**8.4**                               Representations and Warranties.  Anydetermination by the Lender that any representation or warranty contained inany of the Loan Documents or in any certificate, opinion, financial informationor any other form delivered to the Lender in connection with the Loan, isincorrect or misleading in any material respect at any time.

 

**8.5**                               Progress of Construction. Except for delays unavoidably occasioned by strikes, lock- outs, war orcivil disturbance, natural disaster or acts of God (a) any delay in theRenovation caused by lack of good faith or reasonable dispatch, (b) anyabandonment of the work or discontinuation of construction for a period of morethan thirty (30) consecutive days, unless the Lender is notified of Borrower’sabandonment of work or discontinuance of construction is otherwise approved bythe Lender, or (c) any failure to complete the Renovation on or before thematurity date of the Loan.

 

**8.6**                               Proceeds Insufficient to Complete.  Anyfailure by Borrower to pay or deposit the amount of the deficiency requiredpursuant to Section 4.1(c) hereof, if the Lender determines that theamount of undisbursed Loan proceeds available is less than the amount necessaryor required to complete and pay for the Renovation.

 

**8.7**                               Mechanic’s Lien.  Theestablishment of any mechanics’ or materialmen’s lien against any portion ofthe Property, unless the same is insured over by the Title Company, satisfied,or bonded to the satisfaction of the Lender within thirty (30) days.

 

**8.8**                               Adverse Action or Insolvency.  (a) theentry of a final judgment for the payment of money in excess of $50,000.00against the Borrower or the Guarantor that is not discharged or bonded withinthirty (30) days after the date of entry, (b) the institution of anyproceeding by or against the Borrower or the Guarantor in bankruptcy, or for areorganization or an arrangement with creditors under any insolvency or debtorrelief law which is not dismissed or stayed within thirty (30) days of the dateof filing, (c) the appointment of any receiver, liquidator, assignee,custodian or similar official for the Borrower or the Guarantor or any portionof the Property, or (d) the issuance of any writ or order of attachment,levy or garnishment against the Borrower or the Guarantor which is notdischarged to the Lender’s satisfaction within thirty (30) days after the dateof such issuance.

 

**8.9**                               Financial Condition.  Anyreasonable determination by the Lender that a material adverse change has occurredin the financial condition of the Borrower or Guarantor, including without limitation, the failureof Guarantor to meet the financial covenants of set forth in Section 4 ofthe Guaranty.

 

**8.10**                        Hazardous Materials. Violations of any applicable Environmental Regulations or requirementsof the Deed of Trust pertaining to Hazardous Materials.

 

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**8.11**                        Death and Dissolution.  Thedeath, legal incompetence, dissolution, liquidation or termination of Borrower orGuarantor, or of any general partner of Borrower or Guarantor, subject to theprovisions of the Guaranty Agreement.

 

**ARTICLE IX — DEFAULT - REMEDIES**

 

**9.1**                               Remedies on Default.  Uponthe happening of any Default, the Lender shall not be obligated to advance anyadditional Loan proceeds, and, in addition to any other rights or remediesavailable to it under this Section, the Deed of Trust and other Loan Documents,the Lender may enter into possession of the Property or any portion thereof,and perform any and all work and labor necessary to complete the Renovation andto employ watchmen to protect the Property.

 

All sums expended by the Lender for such purposesshall be deemed to have been paid to the Borrower or for its benefit and shallconstitute part of the Indebtedness secured by the Deed of Trust.   Borrower hereby constitutes and appoints theLender as its true and lawful attorney-in-fact with full power of substitutionto complete the work in the name of Borrower, and hereby empowers said attorneyor attorneys as follows:  (a)  touse any funds of Borrower, including any escrow balances and any unadvancedLoan proceeds, for the purpose of completing the Renovation;  (b)  to make such additions and changesand corrections in the plans and specifications as may be necessary ordesirable in the judgment of the Lender to complete the Renovation;  (c)  to employ such contractors,subcontractors, agents, architects and inspectors as may be required for suchpurpose;  (d)  to pay, settle orcompromise all existing bills and claims which are or may be liens against theProperty, or may be necessary or desirable for the completion of the work orthe clearance of title; (e) in the name of Borrower to execute allapplications and certificates that may be required; (f)  to execute,acknowledge and deliver such documents, instruments and certificates, and totake such other actions, in the name and on behalf of Borrower and at the solecost and expense of Borrower, as the Lender, in its sole discretion, deemsnecessary, desirable or appropriate to effectuate the provisions of thissection; and (g)  to do any and every act with respect to the Renovationthat Borrower may do in its own behalf.

 

It is understood and agreed that this power ofattorney shall be deemed to be a power coupled with an interest which cannot berevoked.  Such attorney-in-fact shallalso have power to prosecute and defend all actions or proceedings inconnection with the Renovation and to take such actions and require suchperformance as is deemed necessary.

 

The Lender shall also have the right, upon thehappening of any Default, to do any one or more of the following, at itselection, but without any obligation to do so:

 

(a)                                  to declare the Indebtedness immediately dueand payable;

 

(b)                                 to terminate the Loan;

 

(c)                                  to decline to make any further Loan advancesand/or readvances;

 

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(d)                                 to reduce any claim to judgment;

 

(e)                                  to exercise any and all rights and remediesafforded by this Agreement and the other Loan Documents, as well as any and alllegal or equitable rights and remedies afforded under any statute or otherwise;and

 

(f)                                    to set off and apply against the Indebtednessany and all deposits, funds or assets at any time held, and any and all indebtednessat any time owed, by the Lender to or for the credit or account of Borrower.

 

**9.2**                               No Conditions Precedent to Exercise of Remedies. Neither Borrower nor Guarantor shall be relieved of any obligation byreason of the failure of the Lender to comply with any request of Borrower orof any other person to take action to foreclose on the Deed of Trust orotherwise to enforce any provisions of the Note, the Letter of Credit Note orthe other Loan Documents, or by reason of the release, regardless of consideration,of all or any part of the Property, or by reason of any agreement ofstipulation between any subsequent owner of any portion of the Property and theLender extending the time of payment or modifying the terms of the Notes or theother Loan Documents without first having obtained the consent of Borrower orsuch Guarantor; and in the latter event, Borrower and each Guarantor shallcontinue to be liable to make payments according to the terms of any suchextension or modification agreement, unless expressly released and dischargedin writing by the Lender.

 

**9.3**                               Remedies Cumulative and Concurrent.  Noremedy herein conferred upon or reserved to the Lender is intended to beexclusive of any other remedies provided for in the Note or in the other Loan Documents,and each and every such remedy shall be cumulative, and shall be in addition toevery other remedy given hereunder, or under the Note, the Deed of Trust or theother Loan Documents, or now or hereafter existing at law or in equity or bystatute.  Every right, power and remedygiven by the Note and the Loan Documents to the Lender shall be concurrent andmay be pursued separately, successively or together against the Borrower,Guarantor, or the Property or any part thereof, or any one or more of them; andevery right, power and remedy given by the Note or the other Loan Documents maybe exercised from time to time as often as may be deemed expedient by theLender.

 

**9.4**                               Strict Performance.  Nodelay or omission of the Lender in exercising any right, power or remedyaccruing upon the happening of a Default shall impair any such right, power orremedy or shall be construed to be a waiver of any such Default or anyacquiescence therein.  No delay oromission on the part of the Lender in exercising any option for acceleration ofthe maturity of the Indebtedness, or for foreclosure under the Deed of Trustfollowing any Default as aforesaid, or any other option granted to the Lenderhereunder in any one or more instances, or the acceptance by the Lender of anypartial payment on account of the Indebtedness, shall constitute a waiver ofany such Default and each such option shall remain continuously in full forceand effect.

 

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**9.5**                               Dispute Resolution.

 

(a)                                  Arbitration. Except to the extent expressly provided below, any Dispute shall, uponthe request of either party, be determined by binding arbitration in accordancewith the Federal Arbitration Act, Title 9, United States Code (or if notapplicable, the applicable state law), the then-current rules forarbitration of financial services disputes of the American ArbitrationAssociation, or any successor thereof (“AAA”) and the “Special Rules” set forthbelow.  “Dispute” means any controversy,claim or dispute between or among the parties to this Note, Agreement, orGuaranty,  as applicable, including anycontroversy, claim or dispute arising out of or relating to (a) thisAgreement, (b) any other Loan Documents, (c) any related agreementsor instruments, or (d) the transaction contemplated herein or therein(including any claim based on or arising from an alleged personal injury orbusiness tort). In the event of any inconsistency, the Special Rules shallcontrol.  The filing of a court action isnot intended to constitute a waiver of the right of Borrower or Lender,including the suing party, thereafter to require submittal of the Dispute toarbitration.  Any party to this Agreementmay bring an action, including a summary or expedited proceeding, to compelarbitration of any Dispute in any court having jurisdiction over suchaction.  For the purposes of this DisputeResolution Section only, the terms “party” and “parties” shall include anyparent corporation, subsidiary or affiliate of Lender involved in the servicing,management or administration of any obligation described in or evidenced bythis Agreement, together with the officers, employees, successors and assignsof each of the foregoing.

 

(b)                                 Special Rules.

 

(i)                                     The arbitration shall be conducted in anyU.S. state where real or tangible personal property collateral is located, orif there is no such collateral, in the City and County where Lender is locatedpursuant to its address for notice purposes in this Agreement.

 

(ii)                                  The arbitration shall be administered by AAA,who will appoint an arbitrator.  If AAAis unwilling or unable to administer or legally precluded from administeringthe arbitration, or if AAA is unwilling or unable to enforce or legallyprecluded from enforcing any and all provisions of this Dispute ResolutionSection, the any party to this Agreement, may substitute another arbitrationorganization that has similar procedures to AAA and that will observe andenforce any and all provisions of this Dispute Resolution Section.  All Disputes shall be determined by onearbitrator; however, if the amount in controversy in a Dispute exceeds FiveMillion Dollars ($5,000,000), upon the request of any party, the Dispute shallbe decided by three arbitrators (for purposes of this Agreement, referred to collectivelyas the “arbitrator”).

 

(iii)                               All arbitration hearings will be commencedwithin ninety (90) days of the demand for arbitration and completed withinninety (90) days from the date of commencement; provided, however, that upon ashowing of good cause, the arbitrator shall be permitted to extend thecommencement of such hearing for up to an additional sixty (60) days.

 

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(iv)                              The judgment and the award, if any, of thearbitrator shall be issued within thirty (30) days of the close of thehearing.  The arbitrator shall provide aconcise written statement setting forth the reasons for the judgment and forthe award, if any.  The arbitrationaward, if any, may be submitted to any court having jurisdiction to beconfirmed and enforced, and such confirmation and enforcement shall not besubject to arbitration.

 

(v)                                 The arbitrator will give effect to statutesof limitations and any waivers thereof in determining the disposition of anyDispute and may dismiss one or more claims in the arbitration on the basis thatsuch claim or claims is or are barred. For purposes of the application of the statute of limitations, theservice on AAA under applicable AAA rules of a notice of Dispute is theequivalent of the filing of a lawsuit.

 

(vi)                              Any dispute concerning this arbitrationprovision, including any such dispute as to the validity or enforceability ofthis provision, or whether a Dispute is arbitrable, shall be determined by thearbitrator; provided, however, that the arbitrator shall not be permitted tovary the express provisions of these Special Rules or the Reservations ofRights in subsection (c) below.

 

(vii)                           The arbitrator shall have the power to awardlegal fees and costs pursuant to the terms of this Agreement.

 

(viii)   The arbitration will take place on anindividual basis without reference to, resort to, or consideration of any formof class or class action.

 

(c)                                  Reservations of Rights.  Nothing in this Agreement shall be deemed to (i) limitthe applicability of any otherwise applicable statutes of limitation and anywaivers contained in this Agreement, or (ii) apply to or limit the rightof Lender (A) to exercise self help remedies such as (but not limited to)setoff, or (B) to foreclose judicially or nonjudicially against any realor personal property collateral, or to exercise judicial or nonjudicial powerof sale rights, (C) to obtain from a court provisional or ancillaryremedies such as (but not limited to) injunctive relief, writ of possession,prejudgment attachment, or the appointment of a receiver, or (D) to pursuerights against a party to this Agreement, in a third-party proceeding in anyaction brought against Lender in a state, federal or international court,tribunal or hearing body (including actions in specialty courts, such asbankruptcy and patent courts).  Lendermay exercise the rights set forth in clauses (A) through (D), inclusive,before, during or after the pendency of any arbitration proceeding broughtpursuant to this Agreement, as applicable. Neither the exercise of self help remedies nor the institution ormaintenance of an action for foreclosure or provisional or ancillary remediesshall constitute a waiver of the right of any party, including the claimant inany such action, to arbitrate the merits of the Dispute occasioning resort tosuch remedies.  No provision in the LoanDocuments regarding submission to jurisdiction and/or venue in any court isintended or shall be construed to be in derogation of the provisions in any LoanDocument for arbitration of any Dispute.

 

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(d)                                 Conflicting Provisions for DisputeResolution.  If there is any conflictbetween the terms, conditions and provisions of this Section and those ofany other provision or agreement for arbitration or dispute resolution, theterms, conditions and provisions of this Section shall prevail as to anyDispute arising out of or relating to (i) this Agreement, (ii) anyother Loan Document, (iii) any related agreements or instruments, or (iv) thetransaction contemplated herein or therein (including any claim based on orarising from an alleged personal injury or business tort).  In any other situation, if the resolution ofa given Dispute is specifically governed by another provision or agreement forarbitration or dispute resolution, the other provision or agreement shallprevail with respect to said Dispute.

 

(e)                                  Jury Trial Waiver in Arbitration.  By agreeing to this Section, the partiesirrevocably and voluntarily waive any right they may have to a trial by jury inrespect of any Dispute.

 

**ARTICLE IX — MISCELLANEOUS**

 

**10.1**                        No Warranty by Lender.  Byaccepting or approving anything required to be observed, performed or fulfilledby Borrower or Guarantor pursuant to this Agreement or any other LoanDocuments, including, without limitation, any plans, specifications,certificate, financial information, survey, receipt, appraisal or insurancepolicy, the Lender shall not be deemed to have warranted or represented thesufficiency, legality, effectiveness or legal effect of the same, or of anyterm, provision or condition thereof. Any such acceptance or approval thereofshall not be or constitute any warranty or representation with respect theretoby the Lender.

 

**10.2**                        Liability of Lender.  TheLender shall not be liable for any act or omission by it pursuant to theprovisions of this Agreement in the absence of fraud or gross negligence.  The Lender shall incur no liability toBorrower or any other party in connection with the acts or omissions of theLender in reliance upon any certificate or other paper believed by the Lenderto be genuine or with respect to any other thing which the Lender may do orrefrain from doing, unless such act or omission amounts to fraud or gross negligence.

 

**10.3**                        Modification - Waiver.  Noneof the terms or provisions of this Agreement may be changed, waived, modified,discharged or terminated except as provided in the Deed of Trust.

 

**10.4**                        Third Parties - Benefit.  Allconditions set forth herein with respect to the obligations of the Lender tomake Loan advances are imposed solely and exclusively for the benefit of theLender, and no other person shall either have standing to require satisfactionof such condition in accordance with its terms, be entitled to assume that theLender will refuse to make advances in the absence of strict compliance withany or all of such conditions, or be deemed to be beneficiary of suchconditions under any circumstances, any or all of which may be freely waived inwhole or in part by the Lender at any time in the sole and absolute exercise ofits discretion.  The Lender shall in noevent be responsible or liable to any person other than the Borrower for thedisbursement of or failure to disburse any of the proceeds of the Loan, and

 

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no contractor, subcontractor, laborer ormaterial supplier or other person shall have any right or claim against theLender with respect to this Agreement. The terms and provisions of this Agreement are for the benefit of theparties hereto and, except as herein specifically provided, no other personshall have any right or cause of action on account thereof.

 

**10.5**                        Captions and Headings.  Thecaptions and headings contained in this Agreement are included herein forconvenience of reference only and shall not be considered a part hereof.

 

**10.6**                        Counterparts.  ThisAgreement may be executed in any number of counterparts, each of which shall beconsidered an original for all purposes; provided, however, that all suchcounterparts shall together constitute one and the same instrument.

 

**10.7**                        Signs; Publicity.  Atthe request and expense of the Lender (subject to applicable law and compliancewith governmental requirements, and subject to Borrower’s approval of thedesign and location of said sign, which consent shall not be unreasonablywithheld), Borrower shall install a sign or signs at a location or locations onthe Property satisfactory to the Lender, reciting, among other things, that theLender is financing the Renovation. Borrower shall (at the expense of Lender) obtain all permits, licensesand approvals from the appropriate governmental agency or association that arenecessary for the erection and existence of any such signs.  Borrower expressly authorizes the Lender toprepare and to furnish to the news media for publication from time to time newsreleases with respect to any portion of the Property detailing the Lender’sinvolvement with the financing.

 

**10.8**                        Applicable Law.  ThisAgreement shall be governed by and construed, interpreted and enforced inaccordance with the laws of the Jurisdiction of Choice, unless the “choice oflaw” rules of the Jurisdiction of Choice can be construed or interpretedto require the laws of another jurisdiction to govern, in which case the “choiceof law” rules of the Jurisdiction of Choice shall not apply.

 

**10.9**                        Time of Essence.  Timeshall be of the essence of each and every provision of this Agreement of whichtime is an element.

 

**10.10**                 Conflicts.  The terms and conditions ofthe Note and the other Loan Documents are incorporated into this Agreement andmade a part hereof as if specifically set forth herein.  In the event any provision of this Agreementconflicts with the terms of any other Loan Document, the terms of thisAgreement shall prevail.  For purposes ofthis Section the absence of a provision from any Loan Documents shall notconstitute a conflict.

 

**10.11**                 Quality of Documents and Other Items.  Eachdocument, item or other evidence required to be delivered to the Lender inconnection with this Agreement shall be satisfactory in form and substance tothe Lender in its sole discretion.  Inaddition, all surveys, appraisals, environmental site assessments, inspections,cost reviews, subcontracts, leases, bonds, insurance policies and all otherdocuments required or contemplated by this Agreement and the other LoanDocuments shall be satisfactory to the Lender and, if required by the Lender,

 

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Borrower shall provide the Lender and itscounsel with copies of any or all of such documents.  All contractors, subcontractors, sureties,insurers and any other party responsible for the execution and preparation ofthe foregoing documents shall also be satisfactory to the Lender.

 

**10.12**                 Professional Services.  Ifrequested by Lender, Borrower shall: (a) not more frequently thanannually, cause an inspection and written appraisal of the Property (or suchparts of it as are designated in the Lender’s request) to be made and providedto Lender by an appraiser approved and engaged by the Lender in its solediscretion; and (b) cause to be conducted or prepared any other writtenreport, summary, opinion, inspection, review, survey, audit or otherprofessional service relating to the Property or any operations in connectionwith it (all as designated in Lender’s request) as Lender may reasonablyrequest, including, without limitation, any accounting, auctioneering,architectural, consulting, engineering, design, legal, management, pestcontrol, surveying, title abstracting or other technical, managerial orprofessional service relating to the Property or its operations. The Lender mayelect to deliver any such request by facsimile, by mail or by hand deliveryaddressed to the Borrower as provided herein or by any other legally effectivemethod, and it may be given at any time and from time to time.

 

**10.13**                 Further Assurances.  Atthe request of the Lender, Borrower shall take any action or execute anyadditional document reasonably required by the Lender to secure theIndebtedness, confirm the lien of the Deed of Trust or further the intent ofany of the Loan Documents.

 

**10.14**                 Costs and Expenses.  TheBorrower shall pay all out-of-pocket fees, charges and expenses incurred by oron behalf of the Lender in connection with the Loan and the making, closing andadministration of the Loan, including, without limitation (a) fees andexpenses for the examination of title to the Property; (b) recording andfiling fees, recordation taxes and transfer taxes; (c) Title Companypremiums, fees and charges; (d) surveyor charges; (e) appraisal fees;(f) inspection fees; (g) the fees and expenses of the Lender’scounsel; (h) all amounts due the Progress Inspector; (i) the payment,satisfaction, discharge and release of any encumbrance, tax, assessment orother charge or lien upon any portion of the Property; (j) any syndication orparticipation fees, if applicable, and (k) the construction, maintenance andprotection of the Improvements and every portion thereof.  Further, the Lender may (but shall be underno obligation to do so) advance for the account of Borrower as part of or inaddition to the Loan any amount or amounts as the Lender may deem necessary oradvisable in order to fulfill the obligations of Borrower hereunder, whichamount or amounts may be disbursed by the Lender directly to a third party inorder to protect its interests, and any amount so applied by the Lender shallconstitute a portion of the Indebtedness, even though the aggregate of theamounts so applied, together with the other advances under the Note, may exceedthe principal amount of the Note.

 

**10.15**                 Fees and Expenses - Indemnity. Borrower will hold the Lender harmless and indemnify the Lender from allclaims of brokers and “finders” arising by reason of the Loan, the executionand delivery of this Agreement or the making of the Loan.  Borrower shall protect, indemnify and saveharmless the Lender and its directors, officers, agents, and employees, the

 

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Deed of Trust trustees, and all independentcontractors from and against all liabilities, obligations, claims, damages,fines, penalties, causes of action, costs and expenses (including, withoutlimitation, attorneys’ fees and disbursements), imposed upon or incurred by orasserted against any of them in connection with the Loan.

 

**10.16**                 Participation or Sale of the Loan.  TheLender may sell the Loan or any undivided ownership or participation interestin the Loan and disclose in confidence such financial and other informationwith respect to Borrower, the Loan, Guarantor, and/or the Property, or anyportion thereof, which the Lender may deem necessary in connection with suchsale or participation.  Borrower shallexecute, acknowledge and deliver any and all instruments reasonably requestedby the Lender in connection with the foregoing. Borrower shall also pay any expenses of each participant in connectionwith the enforcement of the Loan Documents.

 

**10.17**                 Seal.  If any Borrower is acorporation, the designation “(SEAL)” on this Agreement shall be effective asthe affixing of such Borrower’s corporate seal physically to this Agreement.

 

**10.18**                 **WAIVER OF JURY TRIAL**.  **WITHOUT INTENDING IN ANY WAYTO LIMIT THE PARTIES’ AGREEMENT TO ARBITRATE ANY “DISPUTE” (FOR PURPOSES OFTHIS SECTION, AS DEFINED IN THE “DISPUTE RESOLUTION” SECTION) AS SET FORTH INTHIS AGREEMENT, TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO ARBITRATION ORIS DEEMED BY THE ARBITRATOR OR BY ANY COURT WITH JURISDICTION TO BE NOTARBITRABLE OR NOT REQUIRED TO BE ARBITRATED, BORROWER AND LENDER WAIVE TRIAL BYJURY IN RESPECT OF ANY SUCH “DISPUTE” AND ANY ACTION ON SUCH “DISPUTE.”  THIS WAIVER IS KNOWINGLY, WILLINGLY ANDVOLUNTARILY MADE BY BORROWER AND LENDER, AND BORROWER AND LENDER HEREBYREPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANYPERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFYOR NULLIFY ITS EFFECT.  THIS PROVISION ISA MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  BORROWER AND LENDER ARE EACH HEREBYAUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVEEVIDENCE OF THIS WAIVER OF JURY TRIAL. BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED INTHE SIGNING OF THIS AGREEMENT, AND IN THE MAKING OF THIS WAIVER BY INDEPENDENTLEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENTLEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THEOPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL**.

 

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**10.19**                 Electronic Transmission of Data. Lender and Borrower agree that certain data related to the Loan(including confidential information, documents, applications and reports) maybe transmitted electronically, including transmission over the Internet.  This data may be transmitted to, receivedfrom or circulated among agents and representatives of Borrower and/or Lenderand their affiliates and other persons involved with the subject matter of thisAgreement.  Borrower acknowledges andagrees that (a) there are risks associated with the use of electronictransmission and that Lender does not control the method of transmittal orservice providers, (b) Lender has no obligation or responsibilitywhatsoever and assumes no duty or obligation for the security, receipt or thirdparty interception of any such transmission, except for Lender’s fraud or grossnegligence, and (c) Borrower will release, hold harmless and indemnifyLender from any claim, damage or loss, including that arising in whole or partfrom Lender’s strict liability or sole, comparative or contributory negligence,but excluding that arising from Lender’s fraud or gross negligence, which isrelated to the electronic transmission of data.

 

**10.20**                 USA Patriot Act Notice.  Lender hereby notifies Borrower that pursuant to the requirements of theUSA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,2001)) (the “Act”), Lender is required to obtain, verify and record informationthat identifies Borrower, which information includes the name and address ofBorrower and other information that will allow Lender to identify Borrower inaccordance with the Act.

 

 

[SIGNATURESAPPEAR ON THE NEXT PAGE]

 

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IN WITNESS WHEREOF, the Borrower and the Lender,intending to be executed and delivered under seal, have executed and deliveredthese presents or caused these presents to be executed and delivered under sealas of the year and day first above written.

 
|                    |                  | **BORROWER**:                        |
|-------------------------|-----------------------|--------------------------------------|
|                    |                  |                                 |
|                    |                  |                                 |
| WITNESS/ATTEST:         |                  | **COMSTOCK BELLEMEADE, L.C.,**       |
|                    |                  | a Virginia limited liability company |
|                    |                  |                                 |
|                    |                  |                                 |
| By:                     | /s/ Jubal R. Thompson |                                 |   | By: | Comstock Homebuilding Companies, Inc., |
|                    |                  |                                 | Its Manager |
|                    |                  |                                 |
|                    |                  |                                 | By: | /s/ Christopher Clemente |   |
|                    |                  |                                 |
| Name: Jubal R. Thompson |                  |                                 | Christopher Clemente |
| Title: General Counsel  |                  |                                 | Its Chief Executive  Officer |
|                    |                  |                                 |
|                    |                  |                                 |
| (Seal)                  |                  | Address:                             | 11465 Sunset  Hills Road |
|                    |                  |                                 | 5 th Floor |
|                    |                  |                                 | Reston, Virginia  20190 |
|                    |                  |                                 |
|                    |                  |                                 |
| WITNESS:                |                  | **LENDER**:                          |
|                    |                  |                                 |
|                    |                  | **BANK OF AMERICA, N.A.**            |
|                    |                  | ** **                           |
|                    |                  |                                 |
| /s/ Kelly Wyche         |                  |                                 |   | By: | /s/ Linda Long |   |
|                    |                  |                                 |
| Name: Kelly Wyche       |                  | Linda P. Long                        |
| Title:                  |                  | Senior Vice President                |
|                    |                  |                                 |
|                    |                  | Address:                             | 8300 Greensboro Drive |
|                    |                  |                                 | Suite 300 |
|                    |                  |                                 | McLean, Va. 22102-3604 |
|                         |                       |                                      |  |  |  |  |  |  |  |  |  |  |  |

 

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EXHIBIT “A”

 

Property Description

 

C-27

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EXHIBIT “B”

 

Budget

 

C-28

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EXHIBIT “C”

 

Unit Contract Summary Report

 

C-1

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