**Exhibit 10.21**

 
| **RECORDING REQUESTED BY  FIDELITY TITLE COMPANY**                                                  |          |
|-----------------------------------------------------------------------------------------------------|---------------|
| 725112095 / 1149582                                                                                 |          |
| ** **                                                                                          | ** **    |
| RECORDING  REQUESTED BY  AND WHEN RECORDED MAIL TO:                                                 |          |
| ** **                                                                                          | **[SEAL]**    |
| L.  Anthony Beall, Esquire  Troutman Sanders LLP  P.O. Box 1122  Richmond, Virginia 23218-1122 | **[BARCODE]** |

 

**MULTIFAMILYDEED OF TRUST,**

**ASSIGNMENTOF RENTS,**

**SECURITYAGREEMENT AND FIXTURE FILING**

**(CALIFORNIA— REVISION DATE 05-11-2004)**

 

ATTENTIONCOUNTY RECORDER: THIS INSTRUMENT IS INTENDED TO BE EFFECTIVE AS A FINANCINGSTATEMENT FILED AS A FIXTURE FILING PURSUANT TO SECTION 9502 OF THECALIFORNIA COMMERCIAL CODE. PORTIONS OF THE GOODS COMPRISING A PART OF THEMORTGAGED PROPERTY ARE OR ARE TO BECOME FIXTURES RELATED TO THE LAND DESCRIBEDIN EXHIBIT A HERETO. THIS INSTRUMENT IS TO BE FILED FOR RECORD IN THE RECORDSOF THE COUNTY WHERE DEEDS OF TRUST ON REAL PROPERTY ARE RECORDED AND SHOULD BEINDEXED AS BOTH A DEED OF TRUST AND AS A FINANCING STATEMENT COVERING FIXTURES.THE ADDRESSES OF BORROWER (DEBTOR) AND LENDER (SECURED PARTY) ARE SPECIFIED INTHE FIRST PARAGRAPH ON PAGE 1 OF THIS INSTRUMENT.

 

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FHLMC Loan No. 487798287

Waterford Place Apartments

 

**MULTIFAMILYDEED OF TRUST,**

**ASSIGNMENTOF RENTS,**

**SECURITYAGREEMENT AND**

**FIXTUREFILING**

**(CALIFORNIA- REVISION DATE 05-11-2004)**

 

THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENTAND FIXTURE FILING (the **“Instrument”**)is made to be effective as of this 31st day of March, 2008, by **WATERFORD PLACE APARTMENTS, LLC,**a limitedliability company organized and existing under the laws of California, whoseaddress is c/o J. F. Shea Co., Inc., 655 Brea Canyon Road, Walnut,California 91789, as trustor (**“Borrower”**),****to**FIRSTAMERICAN TITLE INSURANCE COMPANY,**as trustee (**“Trustee”**), for the benefit of **DEUTSCHE BANK BERKSHIRE MORTGAGE, INC.,**acorporation organized and existing under the laws of Delaware, whose address isOne Beacon Street, 14th Floor, Boston, Massachusetts 02108, as beneficiary (**“Lender”**). Borrower’s organizationalidentification number, if applicable, is 200405510066.

 

Borrower, in consideration of the Indebtedness and the trust created bythis Instrument, irrevocably grants, conveys and assigns to Trustee, in trust,with power of sale, the Mortgaged Property, including the Land located in theCounty of Alameda, State of California and described in Exhibit A attachedto this Instrument.

 

TO SECURE TO LENDER the repayment of the Indebtedness evidenced byBorrower’s Multifamily Note payable to Lender, dated as of the date of thisInstrument, and maturing on May 1, 2014 (the **“Maturity Date”**), in the principal amount of $13,245,000.00,and all renewals, extensions and modifications of the Indebtedness, the paymentof all sums advanced by or on behalf of Lender to protect the security of thisInstrument under Section 12, and the performance of the covenants andagreements of Borrower contained in the Loan Documents.

 

Borrower represents and warrants that Borrower is lawfully seized ofthe Mortgaged Property and has the right, power and authority to grant, conveyand assign the Mortgaged Property, and that the Mortgaged Property isunencumbered, except as shown on the schedule of exceptions to coverage in thetitle policy issued to and accepted by Lender contemporaneously with theexecution and recordation of this Instrument and insuring Lender’s interest inthe Mortgaged Property (the **“Schedule ofTitle Exceptions”**). Borrower covenants that Borrower will warrantand defend generally the title to the Mortgaged Property against all claims anddemands, subject to any easements and restrictions listed in the Schedule ofTitle Exceptions.

 

**UNIFORM COVENANTS**

**REVISIONDATE 02-15-2008**

 

**Covenants.**In consideration of the mutual promises set forth in this Instrument,Borrower and Lender covenant and agree as follows:

 

**1.****                        ****DEFINITIONS.**The following terms, when used in thisInstrument (including when used in the above recitals), shall have thefollowing meanings:

 

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(a)                     **“Attorneys’ Fees and Costs”**means (i) fees and out-of-pocket costsof Lender’s and Loan Servicer’s attorneys, as applicable, including costs ofLender’s and Loan Servicer’s in-house counsel, support staff costs, costs ofpreparing for litigation, computerized research, telephone and facsimiletransmission expenses, mileage, deposition costs, postage, duplicating, processservice, videotaping and similar costs and expenses; (ii) costs and feesof expert witnesses, including appraisers; and (iii) investigatory fees.

 

(b)                    **“Borrower”**means all persons or entities identified as “Borrower”in the first paragraph of this Instrument, together with their successors andassigns.

 

(c)                     **“Business Day”**means any day other than a Saturday, a Sundayor any other day on which Lender or the national banking associations are notopen for business.

 

(d)                    **“Collateral Agreement”**means any separate agreement between Borrowerand Lender for the purpose of establishing replacement reserves for theMortgaged Property, establishing a fund to assure the completion of repairs orimprovements specified, in that agreement, or assuring reduction of theoutstanding principal balance of the Indebtedness if the occupancy of or incomefrom the Mortgaged Property does not increase to a level specified in thatagreement, or any other agreement or agreements between Borrower and Lenderwhich provide for the establishment of any other fund, reserve or account.

 

(e)                     **“Controlling Entity”** means an entity which owns, directly orindirectly through one or more intermediaries, (i) a general partnershipinterest or a Controlling Interest of the limited partnership interests inBorrower (if Borrower is a partnership or joint venture), (ii) a manager’sinterest in Borrower or a Controlling Interest of the ownership or membershipinterests in Borrower (if Borrower is a limited liability company), (iii) aControlling Interest of any class of voting stock of Borrower (if Borrower is acorporation), (iv) a trustee’s interest or a Controlling Interest of thebeneficial interests in Borrower (if Borrower is a trust), or (v) amanaging partner’s interest or a Controlling Interest of the partnershipinterests in Borrower (if Borrower is a limited liability partnership).

 

(f)                       **“Controlling Interest”** means (i) 51 percent or more of theownership interests in an entity, or (ii) a****percentage ownership interest in an entity of less than 51percent, if the owner(s) of that interest actually direct(s) thebusiness and affairs of the entity without the requirement of consent of anyother party. The Controlling Interest shall be deemed to be 51 percent unlessotherwise stated in Exhibit B.

 

(g)                    **“Environmental Permit”**means any permit, license, or otherauthorization issued under any Hazardous Materials Law with respect to anyactivities or businesses conducted on or in relation to the Mortgaged Property.

 

(h)                    **“Event of Default”**means the occurrence of any event listed in Section 22.

 

(i)                        **“Fixtures”** means all property owned by Borrower whichis so attached to the Land or the Improvements as to constitute a fixture underapplicable law, including: machinery, equipment, engines, boilers, incinerators,installed building materials; systems and equipment for the purpose ofsupplying or distributing heating, cooling, electricity, gas, water, air, orlight; antennas, cable, wiring and conduits used in connection with radio,television, security, fire prevention, or fire detection or otherwise used tocarry electronic signals; telephone systems and equipment; elevators andrelated machinery and equipment; fire detection, prevention and extinguishingsystems and apparatus; security and access control systems and apparatus;plumbing systems; water heaters, ranges, stoves, microwave ovens,refrigerators, dishwashers,

 

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garbage disposers,washers, dryers and other appliances; light fixtures, awnings, storm windowsand storm doors; pictures, screens, blinds, shades, curtains and curtain rods;mirrors; cabinets, paneling, rugs and floor and wall coverings; fences, treesand plants; swimming pools; and exercise equipment.

 

(j)                        **“Governmental Authority”** means any board,commission, department or body of any municipal, county, state or federalgovernmental unit, or any subdivision of any of them, that has or acquiresjurisdiction over the Mortgaged Property or the use, operation or improvementof the Mortgaged Property or over the Borrower.

 

(k)                     **“Hazard Insurance”** is defined in Section 19.

 

(l)                        **“Hazardous Materials”** means petroleum andpetroleum products and compounds containing them, including gasoline, dieselfuel and oil; explosives; flammable materials; radioactive materials;polychlorinated biphenyls (“PCBs”) and compounds containing them; lead andlead-based paint; asbestos or asbestos-containing materials in any form that isor could become friable; underground or above-ground storage tanks, whetherempty or containing any substance; any substance the presence of which on theMortgaged Property is prohibited by any federal, state or local authority; anysubstance that requires special handling and any other material or substancenow or in the future that (i) is defined as a “hazardous substance,” “hazardousmaterial,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,”or “pollutant” by or within the meaning of any Hazardous Materials Law, or (ii) isregulated in any way by or within the meaning of any Hazardous Materials Law.

 

(m)                  **“Hazardous Materials Laws”** means allfederal, state, and local laws, ordinances and regulations and standards,rules, policies and other governmental requirements, administrative rulings andcourt judgments and decrees in effect now or in the future and including allamendments, that relate to Hazardous Materials or the protection of humanhealth or the environment and apply to Borrower or to the Mortgaged Property.Hazardous Materials Laws include, but are not limited to, the ComprehensiveEnvironmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601,*et seq.,*the ResourceConservation and Recovery Act of 1976, 42 U.S.C. Section 6901, *et seq.,*the Toxic Substance Control Act,15 U.S.C. Section 2601, *et seq.,*theClean Water Act, 33 U.S.C. Section 1251, *etseq.,*and the Hazardous Materials Transportation Act, 49 U.S.C. Section 5101*et seq.,*and their state analogs.

 

(n)                    **“Impositions”** and **“Imposition Deposits”** are defined in Section 7(a).

 

(o)                    **“Improvements”**means the buildings,structures, improvements, and alterations now constructed or at any time in thefuture constructed or placed upon the Land, including any future replacementsand additions.

 

(p)                    **“Indebtedness”** means the principal of,interest at the fixed or variable rate set forth in the Note on, and all otheramounts due at any time under, the Note, this Instrument or any other LoanDocument, including prepayment premiums, late charges, default interest, andadvances as provided in Section 12 to protect the security of thisInstrument.

 

(q)                    **“Initial Owners”** means, with respect toBorrower or any other entity, the persons or entities that (i) on the dateof the Note, or (ii) on the date of a Transfer to which Lender hasconsented, own in the aggregate 100 percent of the ownership interests inBorrower or that entity.

 

(r)                       **“Land”**means the land described in Exhibit A.

 

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(s)                     **“Leases”**means all present and futureleases, subleases, licenses, concessions or grants or other possessoryinterests now or hereafter in force, whether oral or written, covering oraffecting the Mortgaged Property, or any portion of the Mortgaged Property(including proprietary leases or occupancy agreements if Borrower is a cooperativehousing corporation), and all modifications, extensions or renewals.

 

(t)                       **“Lender”** means the entity identified as “Lender”in the first paragraph of this Instrument, or any subsequent holder of theNote.

 

(u)                    **“Loan Documents”** means the Note, thisInstrument, all guaranties, all indemnity agreements, all CollateralAgreements, O&M Programs, the MMP and any other documents now or in thefuture executed by Borrower, any guarantor or any other person in connectionwith the loan evidenced by the Note, as such documents may be amended from timeto time.

 

(v)                    **“Loan Servicer”** means the entity that fromtime to time is designated by Lender to collect payments and deposits andreceive Notices under the Note, this Instrument and any other Loan Document,and otherwise to service the loan evidenced by the Note for the benefit ofLender. Unless Borrower receives Notice to the contrary, the Loan Servicer isthe entity identified as “Lender” in the first paragraph of this Instrument.

 

(w)                  **“MMP”**means a moisture management plan tocontrol water intrusion and prevent the development of Mold or moisture at theMortgaged Property throughout the term of this Instrument. At a minimum, theMMP must contain a provision for (i) staff training, (ii) informationto be provided to tenants, (iii) documentation of the plan, (iv) theappropriate protocol for incident response and remediation and (v) routine,scheduled inspections of common space and unit interiors.

 

(x)                      **“Mold”** means mold, fungus, microbialcontamination or pathogenic organisms.

 

(y)                    **“Mortgaged Property”** means all of Borrower’spresent and future right, title and interest in and to all of the following:

 
| (i)    | the  Land;                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (ii)   | the  Improvements;                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (iii)  | the  Fixtures;                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (iv)   | the  Personalty;                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (v)    | all  current and future rights, including air rights, development rights, zoning  rights and other similar rights or interests, easements, tenements,  rights-of-way, strips and gores of land, streets, alleys, roads, sewer  rights, waters, watercourses, and appurtenances related to or benefiting the  Land or the Improvements, or both, and all rights-of-way, streets, alleys and  roads which may have been or may in the future be vacated; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (vi)   | all proceeds paid or to be paid by any insurer of  the Land, the Improvements, the Fixtures, the Personalty or any other part of  the Mortgaged Property, whether or not Borrower obtained the insurance  pursuant to Lender’s requirement;                                                                                                                                                                                                       |

 

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| (vii)  | all  awards, payments and other compensation made or to be made by any municipal,  state or federal authority with respect to the Land, the Improvements, the  Fixtures, the Personalty or any other part of the Mortgaged Property,  including any awards or settlements resulting from condemnation proceedings  or the total or partial taking of the Land, the Improvements, the Fixtures,  the Personalty or any other part of the Mortgaged Property under the power of  eminent domain or otherwise and including any conveyance in lieu thereof; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (viii) | all  contracts, options and other agreements for the sale of the Land, the  Improvements, the Fixtures, the Personalty or any other part of the Mortgaged  Property entered into by Borrower now or in the future, including cash or  securities deposited to secure performance by parties of their obligations;                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (ix)   | all  proceeds from the conversion, voluntary or involuntary, of any of the above  into cash or liquidated claims, and the right to collect such proceeds;                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (x)    | all  Rents and Leases;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (xi)   | all  earnings, royalties, accounts receivable, issues and profits from the Land,  the Improvements or any other part of the Mortgaged Property, and all  undisbursed proceeds of the loan secured by this Instrument;                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (xii)  | all  Imposition Deposits;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (xiii) | all  refunds or rebates of Impositions by any municipal, state or federal  authority or insurance company (other than refunds applicable to periods  before the real property tax year in which this Instrument is dated);                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (xiv)  | all  tenant security deposits which have not been forfeited by any tenant under  any Lease and any bond or other security in lieu of such deposits; and                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (xv)   | all names under or by which any of the above  Mortgaged Property may be operated or known, and all trademarks, trade names,  and goodwill relating to any of the Mortgaged Property.                                                                                                                                                                                                                                                                                                                                                                     |

 

(z)                      **“Note”** means the Multifamily Note describedon page 1 of this Instrument, including all schedules, riders, allongesand addenda, as such Multifamily Note may be amended from time to time.

 

(aa)               **“O&M Program”** is defined in Section 18(d).

 

(bb)             **“Personalty”** means all:

 
| (i)    | accounts  (including deposit accounts) of Borrower related to the Mortgaged Property;                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                          |
| (ii)   | equipment and inventory  owned by Borrower, which are used now or in the future in connection with the  ownership, management or operation of |

 

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|   | the  Land or Improvements or are located on the Land or Improvements, including  furniture, furnishings, machinery, building materials, goods, supplies,  tools, books, records (whether in written or electronic form), and computer  equipment (hardware and software);                                                                                                                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                     |
| (iii)  | other  tangible personal property owned by Borrower which is used now or in the  future in connection with the ownership, management or operation of the Land  or Improvements or is located on the Land or in the Improvements, including  ranges, stoves, microwave ovens, refrigerators, dishwashers, garbage  disposers, washers, dryers and other appliances (other than Fixtures); |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |
| (iv)   | any  operating agreements relating to the Land or the Improvements;                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |
| (v)    | any  surveys, plans and specifications and contracts for architectural,  engineering and construction services relating to the Land or the  Improvements;                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |
| (vi)   | all  other intangible property, general intangibles and rights relating to the  operation of, or used in connection with, the Land or the Improvements,  including all governmental permits relating to any activities on the Land and  including subsidy or similar payments received from any sources, including a  governmental authority; and                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                     |
| (vii)  | any rights of Borrower in  or under letters of credit.                                                                                                                                                                                                                                                                                                                                   |

 

(cc)               **“Properly Jurisdiction”**is defined in Section 30(a).

 

(dd)             **“Rents”**means all rents (whether from residential ornon-residential space), revenues and other income of the Land or theImprovements, parking fees, laundry and vending machine income and fees andcharges for food, health care and other services provided at the MortgagedProperty, whether now due, past due, or to become due, and deposits forfeitedby tenants, and, if Borrower is a cooperative housing corporation orassociation, maintenance fees, charges or assessments payable by shareholdersor residents under proprietary leases or occupancy agreements, whether now due,past due, or to become due.

 

(ee)               **“Taxes”** means all taxes, assessments, vault rentalsand other charges, if any, whether general, special or otherwise, including allassessments for schools, public betterments and general or local improvements,which are levied, assessed or imposed by any public authority or quasi-publicauthority, and which, if not paid, will become a hen on the Land or theImprovements.

 

(ff)                   **“Transfer”**is defined in Section 21.

 

**2.****                        ****UNIFORM COMMERCIAL CODESECURITY AGREEMENT.**

 

(a)                     This Instrument is also a security agreementunder the Uniform Commercial Code for any of the Mortgaged Property which,under applicable law, may be subjected to a security interest under the UniformCommercial Code, whether such Mortgaged Property is owned now or acquired inthe future, and all products and cash and non-cash proceeds thereof(collectively, **“UCC Collateral”**),and Borrower hereby grants to Lender a security interest in the UCC Collateral.Borrower hereby authorizes Lender to prepare and file financing statements,

 

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continuationstatements and financing statement amendments in such form as Lender mayrequire to perfect or continue the perfection of this security interest andBorrower agrees, if Lender so requests, to execute and deliver to Lender suchfinancing statements, continuation statements and amendments. Borrower shallpay all filing costs and all costs and expenses of any record searches forfinancing statements and/or amendments that Lender may require. Without theprior written consent of Lender, Borrower shall not create or permit to existany other lien or security interest in any of the UCC Collateral.

 

(b)                    Unless Borrower gives Notice to Lender within30 days after the occurrence of any of the following, and executes and deliversto Lender modifications or supplements of this Instrument (and any financingstatement which may be filed in connection with this Instrument) as Lender mayrequire, Borrower shall not (i) change its name, identity, structure orjurisdiction of organization; (ii) change the location of its place ofbusiness (or chief executive office if more than one place of business); or (iii) addto or change any location at which any of the Mortgaged Property is stored,held or located.

 

(c)                     If an Event of Default has occurred and iscontinuing, Lender shall have the remedies of a secured party under the UniformCommercial Code, in addition to all remedies provided by this Instrument orexisting under applicable law. In exercising any remedies, Lender may exerciseits remedies against the UCC Collateral separately or together, and in anyorder, without in any way affecting the availability of Lender’s otherremedies.

 

(d)                    This Instrument constitutes a financingstatement with respect to any part of the Mortgaged Property that is or maybecome a Fixture, if permitted by applicable law.

 

**3.****                        ****ASSIGNMENT OF RENTS;APPOINTMENT OF RECEIVER; LENDER IN POSSESSION.**

 

(a)                     As part ofthe consideration for the Indebtedness, Borrower absolutely and unconditionallyassigns and transfers to Lender all Rents. It is the intention of Borrower toestablish a present, absolute and irrevocable transfer and assignment to Lenderof all Rents and to authorize and empower Lender to collect and receive allRents without the necessity of further action on the part of Borrower. Promptlyupon request by Lender, Borrower agrees to execute and deliver such furtherassignments as Lender may from time to time require. Borrower and Lender intendthis assignment of Rents to be immediately effective and to constitute anabsolute present assignment and not an assignment for additional security only.For purposes of giving effect to this absolute assignment of Rents, and for noother purpose, Rents shall not be deemed to be a part of the MortgagedProperty. However, if this present, absolute and unconditional assignment ofRents is not enforceable by its terms under the laws of the PropertyJurisdiction, then the Rents shall be included as a part of the MortgagedProperty and it is the intention of the Borrower that in this circumstance thisInstrument create and perfect a lien on Rents in favor of Lender, which lienshall be effective as of the date of this Instrument.

 

(b)                    After theoccurrence of an Event of Default, Borrower authorizes Lender to collect, suefor and compromise Rents and directs each tenant of the Mortgaged Property topay all Rents to, or as directed by, Lender. However, until the occurrence ofan Event of Default, Lender hereby grants to Borrower a revocable license tocollect and receive all Rents, to hold all Rents in trust for the benefit ofLender and to apply all Rents to pay the installments of interest and principalthen due and payable under the Note and the other amounts then due and payableunder the other Loan Documents, including Imposition Deposits, and to pay thecurrent costs and expenses of managing, operating and maintaining the MortgagedProperty, including utilities, Taxes and insurance premiums (to the extent notincluded in Imposition Deposits), tenant

 

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improvementsand other capital expenditures. So long as no Event of Default has occurred andis continuing, the Rents remaining after application pursuant to the precedingsentence may be retained by Borrower free and clear of, and released from,Lender’s rights with respect to Rents under this Instrument. From and after theoccurrence of an Event of Default, and without the necessity of Lender enteringupon and taking and maintaining control of the Mortgaged Property directly, orby a receiver, Borrower’s license to collect Rents shall automaticallyterminate and Lender shall without Notice be entitled to all Rents as theybecome due and payable, including Rents then due and unpaid. Borrower shall payto Lender upon demand all Rents to which Lender is entitled. At any time on orafter the date of Lender’s demand for Rents, (i) Lender may give, andBorrower hereby irrevocably authorizes Lender to give, notice to all tenants ofthe Mortgaged Property instructing them to pay all Rents to Lender, (ii) notenant shall be obligated to inquire further as to the occurrence orcontinuance of an Event of Default, and (iii) no tenant shall be obligatedto pay to Borrower any amounts which are actually paid to Lender in response tosuch a notice. Any such notice by Lender shall be delivered to each tenantpersonally, by mail or by delivering such demand to each rental unit. Borrowershall not interfere with and shall cooperate with Lender’s collection of suchRents.

 

(c)                     Borrower represents and warrants to Lenderthat Borrower has not executed any prior assignment of Rents (other than anassignment of Rents securing any prior indebtedness that is being assigned toLender, or paid off and discharged with the proceeds of the loan evidenced bythe Note), that Borrower has not performed, and Borrower covenants and agreesthat it will not perform, any acts and has not executed, and shall not execute,any instrument which would prevent Lender from exercising its rights under thisSection 3, and that at the time of execution of this Instrument there hasbeen no anticipation or prepayment of any Rents for more than two months priorto the due dates of such Rents. Borrower shall not collect or accept payment ofany Rents more than two months prior to the due dates of such Rents.

 

(d)                    If an Event of Default has occurred and iscontinuing, Lender may, regardless of the adequacy of Lender’s security or thesolvency of Borrower and even in the absence of waste, enter upon and take andmaintain full control of the Mortgaged Property in order to perform all actsthat Lender in its discretion determines to be necessary or desirable for theoperation and maintenance of the Mortgaged Property, including the execution,cancellation or modification of Leases, the collection of all Rents, the makingof repairs to the Mortgaged Property and the execution or termination ofcontracts providing for the management, operation or maintenance of theMortgaged Property, for the purposes of enforcing the assignment of Rentspursuant to Section 3(a), protecting the Mortgaged Property or thesecurity of this Instrument, or for such other purposes as Lender in itsdiscretion may deem necessary or desirable. Alternatively, if an Event ofDefault has occurred and is continuing, regardless of the adequacy of Lender’ssecurity, without regard to Borrower’s solvency and without the necessity ofgiving prior notice (oral or written) to Borrower, Lender may apply to anycourt having jurisdiction for the appointment of a receiver for the MortgagedProperty to take any or all of the actions set forth in the preceding sentence.If Lender elects to seek the appointment of a receiver for the MortgagedProperty at any time after an Event of Default has occurred and is continuing,Borrower, by its execution of this Instrument, expressly consents to theappointment of such receiver, including the appointment of a receiver *ex parte*if permitted by applicable law.If Borrower is a housing cooperative corporation or association, Borrowerhereby agrees that if a receiver is appointed, the order appointing thereceiver may contain a provision requiring the receiver to pay the installmentsof interest and principal then due and payable under the Note and the otheramounts then due and payable under the other Loan Documents, includingImposition Deposits, it being acknowledged and agreed that the Indebtedness isan obligation of the Borrower and must be paid out of maintenance chargespayable by the Borrower’s tenant shareholders under their proprietary leases oroccupancy agreements. Lender or the receiver, as the case may be, shall be

 

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entitledto receive a reasonable fee for managing the Mortgaged Property. Immediatelyupon appointment of a receiver or immediately upon the Lender’s entering uponand taking possession and control of the Mortgaged Property, Borrower shallsurrender possession of the Mortgaged Property to Lender or the receiver, asthe case may be, and shall deliver to Lender or the receiver, as the case maybe, all documents, records (including records on electronic or magnetic media),accounts, surveys, plans, and specifications relating to the Mortgaged Propertyand all security deposits and prepaid Rents. In the event Lender takespossession and control of the Mortgaged Property, Lender may exclude Borrowerand its representatives from the Mortgaged Property. Borrower acknowledges andagrees that the exercise by Lender of any of the rights conferred under this Section 3shall not be construed to make Lender a mortgagee-in-possession of theMortgaged Property so long as Lender has not itself entered into actualpossession of the Land and Improvements.

 

(e)                     If Lender enters the Mortgaged Property,Lender shall be liable to account only to Borrower and only for those Rentsactually received. Except to the extent of Lender’s gross negligence or willfulmisconduct, Lender shall not be liable to Borrower, anyone claiming under orthrough Borrower or anyone having an interest in the Mortgaged Property, byreason of any act or omission of Lender under Section 3(d), and Borrowerhereby releases and discharges Lender from any such liability to the fullestextent permitted by law.

 

(f)                       If the Rents are not sufficient to meet thecosts of taking control of and managing the Mortgaged Property and collectingthe Rents, any funds expended by Lender for such purposes shall become anadditional part of the Indebtedness as provided in Section 12.

 

(g)                    Any entering upon and taking of control ofthe Mortgaged Property by Lender or the receiver, as the case may be, and anyapplication of Rents as provided in this Instrument shall not cure or waive anyEvent of Default or invalidate any other right or remedy of Lender underapplicable law or provided for in this Instrument

 

**4.****                        ****ASSIGNMENT OF LEASES; LEASESAFFECTING THE MORTGAGED PROPERTY.**

 

(a)                     As part of the consideration for theIndebtedness, Borrower absolutely and unconditionally assigns and transfers toLender all of Borrower’s right, title and interest in, to and under the Leases,including Borrower’s right, power and authority to modify the terms of any suchLease, or extend or terminate any such Lease. It is the intention of Borrowerto establish a present, absolute and irrevocable transfer and assignment toLender of all of Borrower’s right, title and interest in, to and under theLeases. Borrower and Lender intend this assignment of the Leases to beimmediately effective and to constitute an absolute present assignment and notan assignment for additional security only. For purposes of giving effect tothis absolute assignment of the Leases, and for no other purpose, the Leasesshall not be deemed to be a part of the Mortgaged Property. However, if thispresent, absolute and unconditional assignment of the Leases is not enforceableby its terms under the laws of the Property Jurisdiction, then the Leases shallbe included as a part of the Mortgaged Property and it is the intention of theBorrower that in this circumstance this Instrument create and perfect a lien onthe Leases in favor of Lender, which lien shall be effective as of the date ofthis Instrument.

 

(b)                    Until Lender gives Notice to Borrower ofLender’s exercise of its rights under this Section 4, Borrower shall haveall rights, power and authority granted to Borrower under any Lease (except asotherwise limited by this Section or any other provision of thisInstrument), including the right, power and authority to modify the terms ofany Lease or extend or terminate any Lease. Upon the occurrence of an Event ofDefault, the permission given to Borrower

 

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pursuantto the preceding sentence to exercise all rights, power and authority underLeases shall automatically terminate. Borrower shall comply with and observeBorrower’s obligations under all Leases, including Borrower’s obligationspertaining to the maintenance and disposition of tenant security deposits.

 

(c)                     Borrower acknowledges and agrees that theexercise by Lender, either directly or by a receiver, of any of the rightsconferred under this Section 4 shall not be construed to make Lender amortgagee-in-possession of the Mortgaged Property so long as Lender has notitself entered into actual possession of the Land and the Improvements. Theacceptance by Lender of the assignment of the Leases pursuant to Section 4(a) shallnot at any time or in any event obligate Lender to take any action under thisInstrument or to expend any money or to incur any expenses. Except to theextent of Lender’s gross negligence or willful misconduct, Lender shall not beliable in any way for any injury or damage to person or property sustained byany person or persons, firm or corporation in or about the Mortgaged Property.Prior to Lender’s actual entry into and taking possession of the MortgagedProperty, Lender shall not (i) be obligated to perform any of the terms,covenants and conditions contained in any Lease (or otherwise have anyobligation with respect to any Lease); (ii) be obligated to appear in ordefend any action or proceeding relating to the Lease or the MortgagedProperty; or (iii) be responsible for the operation, control, care, managementor repair of the Mortgaged Property or any portion of the Mortgaged Property.The execution of this Instrument by Borrower shall constitute conclusiveevidence that all responsibility for the operation, control, care, managementand repair of the Mortgaged Property is and shall be that of Borrower, prior tosuch actual entry and taking of possession.

 

(d)                    Upon delivery of Notice by Lender to Borrowerof Lender’s exercise of Lender’s rights under this Section 4 at any timeafter the occurrence of an Event of Default, and without the necessity ofLender entering upon and taking and maintaining control of the MortgagedProperty directly, by a receiver, or by any other manner or proceedingpermitted by the laws of the Property Jurisdiction, Lender immediately shallhave all rights, powers and authority granted to Borrower under any Lease,including the right, power and authority to modify the terms of any such Lease,or extend or terminate any such Lease.

 

(e)                     Borrower shall, promptly upon Lender’srequest, deliver to Lender an executed copy of each residential Lease then ineffect. All Leases for residential dwelling units shall be on forms approved byLender, shall be for initial terms of at least six months and not more than twoyears, and shall not include options to purchase.

 

(f)                       Borrower shall not lease any portion of theMortgaged Property for non-residential use except with the prior writtenconsent of Lender and Lender’s prior written approval of the Lease agreement.Borrower shall not modify the terms of, or extend or terminate, any Lease fornon-residential use (including any Lease in existence on the date of thisInstrument) without the prior written consent of Lender. However, Lender’sconsent shall not be required for the modification or extension of anon-residential Lease if such modification or extension is on terms at least asfavorable to Borrower as those customary at that time in the applicable marketand the income from the extended or modified Lease will not be less than theincome received from the Lease as of the date of this Instrument. Borrowershall, without request by Lender, deliver an executed copy of eachnon-residential Lease to Lender promptly after such Lease is signed. Allnon-residential Leases, including renewals or extensions of existing Leases,shall specifically provide that (i) such Leases are subordinate to thelien of this Instrument; (ii) the tenant shall attorn to Lender and anypurchaser at a foreclosure sale, such attornment to be self-executing andeffective upon acquisition of title to the Mortgaged Property by any purchaserat a foreclosure sale or by Lender in any manner; (iii) the tenant agreesto

 

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executesuch further evidences of attainment as Lender or any purchaser at aforeclosure sale may from time to time request; (iv) the Lease shall notbe terminated by foreclosure or any other transfer of the Mortgaged Property; (v) aftera foreclosure sale of the Mortgaged Property, Lender or any other purchaser atsuch foreclosure sale may, at Lender’s or such purchaser’s option, accept orterminate such Lease; and (vi) the tenant shall, upon receipt after theoccurrence of an Event of Default of a written request from Lender, pay allRents payable under the Lease to Lender.

 

(g)                    Borrower shall not receive or accept Rentunder any Lease (whether residential or non-residential) for more than twomonths in advance.

 

(h)                    If Borrower is a cooperative housingcorporation or association, notwithstanding anything to the contrary containedin this subsection or in Section 21, so long as Borrower remains acooperative housing corporation or association and is not in breach of anycovenant of this Instrument, Lender hereby consents to:

 
| (i)    | the  execution of leases of apartments for a term in excess of two years from  Borrower to a tenant shareholder of Borrower, so long as such leases,  including proprietary leases, are and will remain subordinate to the lien of  this Instrument; and                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| (ii)   | the surrender or termination of such leases of  apartments where the surrendered or terminated lease is immediately replaced  or where the Borrower makes its best efforts to secure such immediate  replacement by a newly executed lease of the same apartment to a tenant  shareholder of the Borrower. However, no consent is hereby given by Lender to  any execution, surrender, termination or assignment of a lease under terms  that would waive or reduce the obligation of the resulting tenant shareholder  under such lease to pay cooperative assessments in full when due or the  obligation of the former tenant shareholder to pay any unpaid portion of such  assessments. |

 

**5.****                        ****PAYMENT OF INDEBTEDNESS;PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM.** Borrower shall pay the Indebtedness when duein accordance with the terms of the Note and the other Loan Documents and shallperform, observe and comply with all other provisions of the Note and the otherLoan Documents. Borrower shall pay a prepayment premium in connection withcertain prepayments of the Indebtedness, including a payment made after Lender’sexercise of any right of acceleration of the Indebtedness, as provided in theNote.

 

**6.****                        ****EXCULPATION.** Borrower’s personal liability for payment ofthe Indebtedness and for performance of the other obligations to be performedby it under this Instrument is limited in the manner, and to the extent,provided in the Note.

 

**7.****                        ****DEPOSITS FOR TAXES,INSURANCE AND OTHER CHARGES.**

 

(a)                     Unless this requirement is waived in writingby Lender, which waiver may be contained in this Section 7(a), Borrowershall deposit with Lender on the day monthly installments of principal orinterest, or both, are due under the Note (or on another day designated inwriting by Lender), until the Indebtedness is paid in full, an additionalamount sufficient to accumulate with Lender the entire sum required to pay,when due, the items marked

 

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“Collect”below. Lender will not require the Borrower to make Imposition Deposits withrespect to the items marked “Deferred” below.

 
| [Deferred] | Hazard  Insurance premiums or other insurance premiums required by Lender under  Section 19, |
|------------|---------------------------------------------------------------------------------------------------|
| [Deferred] | Taxes,                                                                                            |
| [Deferred] | water  and sewer charges (that could become a lien on the Mortgaged  Property),                   |
| [N/A]      | ground  rents,                                                                                    |
| [Deferred] | assessments or other charges (that could become a  lien on the Mortgaged  Property)               |

 

Theamounts deposited under the preceding sentence are collectively referred to inthis Instrument as the **“Imposition Deposits.”**The obligations of Borrower for which the Imposition Deposits arerequired are collectively referred to in this Instrument as **“Impositions.”** The amount of the ImpositionDeposits shall be sufficient to enable Lender to pay each Imposition before thelast date upon which such payment may be made without any penalty or interestcharge being added. Lender shall maintain records indicating how much of themonthly Imposition Deposits and how much of the aggregate Imposition Depositsheld by Lender are held for the purpose of paying Taxes, insurance premiums andeach other Imposition.

 

(b)                    Imposition Deposits shall be held in aninstitution (which may be Lender, if Lender is such an institution) whosedeposits or accounts are insured or guaranteed by a federal agency. Lendershall not be obligated to open additional accounts or deposit ImpositionDeposits in additional institutions when the amount of the Imposition Depositsexceeds the maximum amount of the federal deposit insurance or guaranty. Lendershall apply the Imposition Deposits to pay Impositions so long as no Event ofDefault has occurred and is continuing. Unless applicable law requires, Lendershall not be required to pay Borrower any interest, earnings or profits on theImposition Deposits. As additional security for all of Borrower’s obligationsunder this Instrument and the other Loan Documents, Borrower hereby pledges andgrants to Lender a security interest in the Imposition Deposits and allproceeds of and all interest and dividends on, the Imposition Deposits. Anyamounts deposited with Lender under this Section 7 shall not be trustfunds, nor shall they operate to reduce the Indebtedness, unless applied byLender for that purpose under Section 7(e).

 

(c)                     If Lender receives a bill or invoice for anImposition, Lender shall pay the Imposition from the Imposition Deposits heldby Lender. Lender shall have no obligation to pay any Imposition to the extentit exceeds Imposition Deposits then held by Lender. Lender may pay anImposition according to any bill, statement or estimate from the appropriatepublic office or insurance company without inquiring into the accuracy of thebill, statement or estimate or into the validity of the Imposition.

 

(d)                    If at any time the amount of the ImpositionDeposits held by Lender for payment of a specific Imposition exceeds the amountreasonably deemed necessary by Lender, the excess shall be credited againstfuture installments of Imposition Deposits. If at any time the amount of theImposition Deposits held by Lender for payment of a specific Imposition is lessthan the amount reasonably estimated by Lender to be necessary, Borrower shallpay to Lender the amount of the deficiency within 15 days after Notice fromLender.

 

(e)                     If an Event of Default has occurred and iscontinuing, Lender may apply any Imposition Deposits, in any amounts and in anyorder as Lender determines, in Lender’s

 

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discretion,to pay any Impositions or as a credit against the Indebtedness. Upon payment infull of the Indebtedness, Lender shall refund to Borrower any ImpositionDeposits held by Lender.

 

(f)                       If Lender does not collect an ImpositionDeposit with respect to an Imposition either marked “Deferred” in Section 7(a) orpursuant to a separate written waiver by Lender, then on or before the dateeach such Imposition is due, or on the date this Instrument requires each suchImposition to be paid, Borrower must provide Lender with proof of payment ofeach such Imposition for which Lender does not require collection of ImpositionDeposits. Lender may revoke its deferral or waiver and require Borrower todeposit with Lender any or all of the Imposition Deposits listed in Section 7(a),regardless of whether any such item is marked “Deferred” in such section, uponNotice to Borrower, (i) if Borrower does not timely pay any of theImpositions, (ii) if Borrower fails to provide timely proof to Lender ofsuch payment, or (iii) at any time during the existence of an Event ofDefault.

 

(g)                    In the event of a Transfer prohibited by orrequiring Lender’s approval under Section 21, Lender’s waiver of thecollection of any Imposition Deposit in this Section 7 may be modified orrendered void by Lender at Lender’s option by Notice to Borrower and thetransferee(s) as a condition of Lender’s approval of such Transfer.

 

**8.****                        ****COLLATERAL AGREEMENTS.** Borrower shall deposit with Lender suchamounts as may be required by any Collateral Agreement and shall perform allother obligations of Borrower under each Collateral Agreement.

 

**9.****                        ****APPLICATION OF PAYMENTS.** If at any time Lender receives, fromBorrower or otherwise, any amount applicable to the Indebtedness which is lessthan all amounts due and payable at such time, then Lender may apply thatpayment to amounts then due and payable in any manner and in any orderdetermined by Lender, in Lender’s discretion. Neither Lender’s acceptance of anamount that is less than all amounts then due and payable nor Lender’sapplication of such payment in the manner authorized shall constitute or bedeemed to constitute either a waiver of the unpaid amounts or an accord andsatisfaction. Notwithstanding the application of any such amount to theIndebtedness, Borrower’s obligations under this Instrument and the Note shallremain unchanged.

 

**10.****                 ****COMPLIANCE WITH LAWS AND ORGANIZATIONALDOCUMENTS.**

 

(a)                     Borrower shall comply with all laws,ordinances, regulations and requirements of any Governmental Authority and allrecorded lawful covenants and agreements relating to or affecting the MortgagedProperty, including all laws, ordinances, regulations, requirements andcovenants pertaining to health and safety, construction of improvements on theMortgaged Property, fair housing, disability accommodation, zoning and landuse, and Leases. Borrower also shall comply with all applicable laws thatpertain to the maintenance and disposition of tenant security deposits.

 

(b)                    Borrower shall at all times maintain recordssufficient to demonstrate compliance with the provisions of this Section 10.

 

(c)                     Borrower shall take appropriate measures toprevent, and shall not engage in or knowingly permit, any illegal activities atthe Mortgaged Property that could endanger tenants or visitors, result indamage to the Mortgaged Property, result in forfeiture of the MortgagedProperty, or otherwise materially impair the lien created by this Instrument orLender’s interest in the Mortgaged Property. Borrower represents and warrantsto Lender that no portion of the Mortgaged Property has been or will bepurchased with the proceeds of any illegal activity.

 

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(d)                    Borrower shall at all times comply with alllaws, regulations and requirements of any Governmental Authority relating toBorrower’s formation, continued existence and good standing in the PropertyJurisdiction. Borrower shall at all times comply with its organizationaldocuments, including but not limited to its partnership agreement (if Borroweris a partnership), its by-laws (if Borrower is a corporation or housingcooperative corporation or association) or its operating agreement (if Borroweris an limited liability company, joint venture or tenancy-in-common). IfBorrower is a housing cooperative corporation or association, Borrower shall atall times maintain its status as a “cooperative housing corporation” as suchterm is defined in Section 216(b) of the Internal revenue Code of1986, as amended, or any successor statute thereto.

 

**11.****                 ****USE****OFPROPERTY.**Unless required by applicable law, Borrower shall not (a) allowchanges in the use for which all or any part of the Mortgaged Property is beingused at the time this Instrument was executed, except for any change in useapproved by Lender, (b) convert any individual dwelling units or commonareas to commercial use, (c) initiate a change in the zoningclassification of the Mortgaged Property or acquiesce without Notice to andconsent of Lender in a change in the zoning classification of the MortgagedProperty, (d) establish any condominium or cooperative regime with respectto the Mortgaged Property, (e) combine all or any part of the MortgagedProperty with all or any part of a tax parcel which is not part of theMortgaged Property, or (f) subdivide or otherwise split any tax parcelconstituting all or any part of the Mortgaged Property without the priorconsent of Lender. Notwithstanding anything contained in this Section tothe contrary, if Borrower is a housing cooperative corporation or association,Lender acknowledges and consents to Borrower’s use of the Mortgaged Property asa housing cooperative.

 

**12.****                 ****PROTECTION OF LENDER’SSECURITY; INSTRUMENT SECURES FUTURE ADVANCES.**

 

(a)                     If Borrower fails to perform any of itsobligations under this Instrument or any other Loan Document, or if any actionor proceeding is commenced which purports to affect the Mortgaged Property,Lender’s security or Lenders rights under this Instrument, including eminentdomain, insolvency, code enforcement, civil or criminal forfeiture, enforcementof Hazardous Materials Laws, fraudulent conveyance or reorganizations or proceedingsinvolving a bankrupt or decedent, then Lender at Lender’s option may make suchappearances, file such documents, disburse such sums and take such actions asLender reasonably deems necessary to perform such obligations of Borrower andto protect Lender’s interest, including (i) payment of Attorneys’ Fees andCosts, (ii) payment of fees and out-of-pocket expenses of accountants,inspectors and consultants, (iii) entry upon the Mortgaged Property tomake repairs or secure the Mortgaged Property, (iv) procurement of theinsurance required by Section 19, (v) payment of amounts whichBorrower has failed to pay under Sections 15 and 17, and (vi) advancesmade by Lender to pay, satisfy or discharge any obligation of Borrower for thepayment of money that is secured by a pre-existing mortgage, deed of trust orother lien encumbering the Mortgaged Property (a **“Prior Lien”**).

 

(b)                    Any amounts disbursed by Lender under this Section 12,or under any other provision of this Instrument that treats such disbursementas being made under this Section 12, shall be secured by this Instrument,shall be added to, and become part of, the principal component of theIndebtedness, shall be immediately due and payable and shall bear interest fromthe date of disbursement until paid at the **“DefaultRate,”**as defined in the Note.

 

(c)                     Nothing in this Section 12 shall requireLender to incur any expense or take any action.

 

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**13.****                 ****INSPECTION.**

 

(a)                     Lender, its agents, representatives, anddesignees may make or cause to be made entries upon and inspections of theMortgaged Property (including environmental inspections and tests) duringnormal business hours, or at any other reasonable time, upon reasonable noticeto Borrower if the inspection is to include occupied residential units (whichnotice need not be in writing). Notice to Borrower shall not be required in thecase of an emergency, as determined in Lender’s discretion, or when an Event ofDefault has occurred and is continuing.

 

(b)                    If Lender determines that Mold has developedas a result of a water intrusion event or leak, Lender, at Lender’s discretion,may require that a professional inspector inspect the Mortgaged Property asfrequently as Lender determines is necessary until any issue with Mold and itscause(s) are resolved to Lender’s satisfaction. Such inspection shall belimited to a visual and olfactory inspection of the area that has experiencedthe Mold, water intrusion event or leak. Borrower shall be responsible for thecost of such professional inspection and any remediation deemed to be necessaryas a result of the professional inspection. After any issue with Mold, waterintrusion or leaks is remedied to Lender’s satisfaction, Lender shall notrequire a professional inspection any more frequently than once every threeyears unless Lender is otherwise aware of Mold as a result of a subsequentwater intrusion event or leak.

 

(c)                     If Lender or Loan Servicer determines not toconduct an annual inspection of the Mortgaged Property, and in lieu thereofLender requests a certification, Borrower shall be prepared to provide and mustactually provide to Lender a factually correct certification each year that theannual inspection is waived to the following effect:

 

Borrowerhas not received any written complaint, notice, letter or other writtencommunication from tenants, management agent or governmental authoritiesregarding mold, fungus, microbial contamination or pathogenic organisms (“Mold”)or any activity, condition, event or omission that causes or facilitates thegrowth of Mold on or in any part of the Mortgaged Property or if Borrower hasreceived any such written complaint, notice, letter or other writtencommunication that Borrower has investigated and determined that no Moldactivity, condition or event exists or alternatively has fully and properlyremediated such activity, condition, event or omission in compliance with theMoisture Management Plan for the Mortgaged Property.

 

If Borrower is unwilling or unable to provide such certification,Lender may require a professional inspection of the Mortgaged Property atBorrower’s expense.

 

**14.****                 ****BOOKS AND RECORDS; FINANCIALREPORTING.**

 

(a)                     Borrower shall keep and maintain at all timesat the Mortgaged Property or the management agent’s office, and upon Lender’srequest shall make available at the Mortgaged Property (or, at Borrower’soption, at the management agent’s office), complete and accurate books ofaccount and records (including copies of supporting bills and invoices)adequate to reflect correctly the operation of the Mortgaged Property, andcopies of all written contracts, Leases, and other instruments which affect theMortgaged Property. The books, records, contracts, Leases and other instrumentsshall be subject to examination and inspection by Lender at any reasonabletime.

 

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(b)                    Within 120 days after the end of each fiscalyear of Borrower, Borrower shall furnish to Lender a statement of income andexpenses for Borrower’s operation of the Mortgaged Property for that fiscalyear, a statement of changes in financial position of Borrower relating to theMortgaged Property for that fiscal year and, when requested by Lender, abalance sheet showing all assets and liabilities of Borrower relating to theMortgaged Property as of the end of that fiscal year. If Borrower’s fiscal yearis other than the calendar year, Borrower must also submit to Lender a year-endstatement of income and expenses within 120 days after the end of the calendaryear.

 

(c)                     Within 120 days after the end of eachcalendar year, and at any other time, upon Lender’s request, Borrower shallfurnish to Lender each of the following. However, Lender shall not require anyof the following more frequently than quarterly except when there has been anEvent of Default and such Event of Default is continuing, in which case Lendermay, upon written request to Borrower, require Borrower to furnish any of thefollowing more frequently:

 
| (i)    | a  rent schedule for the Mortgaged Property showing the name of each tenant, and  for each tenant, the space occupied, the lease expiration date, the rent  payable for the current month, the date through which rent has been paid, and  any related information requested by Lender;                                                                                                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (ii)   | an  accounting of all security deposits held pursuant to all Leases, including  the name of the institution (if any) and the names and identification numbers  of the accounts (if any) in which such security deposits are held and the  name of the person to contact at such financial institution, along with any  authority or release necessary for Lender to access information regarding  such accounts; and                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (iii)  | a statement that identifies all owners of any  interest in Borrower and any Controlling Entity and the interest held by each  (unless Borrower or any Controlling Entity, is a publicly-traded entity in  which case such statement of ownership shall not be required), if Borrower or  a Controlling Entity is a corporation, all officers and directors of Borrower  and the Controlling Entity, and if Borrower or a Controlling Entity is a  limited liability company, all managers who are not members. |

 

(d)                    At any time upon Lender’s request, Borrowershall furnish to Lender each of the following. However, Lender shall notrequire any of the following more frequently than quarterly except when therehas been an Event of Default and such Event of Default is continuing, in whichcase Lender may require Borrower to furnish any of the following morefrequently:

 
| (i)    | a  balance sheet, a statement of income and expenses for Borrower and a  statement of changes in financial position of Borrower for Borrower’s most  recent fiscal year;                                                                                   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                            |
| (ii)   | a  quarterly or year-to-date income and expense statement for the Mortgaged  Property; and                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                            |
| (iii)  | a monthly property  management report for the Mortgaged Property, showing the number of inquiries  made and rental applications received from tenants or prospective tenants and  deposits received from tenants and any other information requested by Lender. |

 

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(e)                     Upon Lender’s request at any time when anEvent of Default has occurred and is continuing, Borrower shall furnish toLender monthly income and expense statements and rent schedules for theMortgaged Property.

 

(f)                       An individual having authority to bindBorrower shall certify each of the statements, schedules and reports requiredby Sections 14(b) through 14(e) to be complete and accurate. Each ofthe statements, schedules and reports required by Sections 14(b) through14(e) shall be in such form and contain such detail as Lender mayreasonably require. Lender also may require that any of the statements,schedules or reports listed in Section 14(b) and 14(c)(i) and (ii) beaudited at Borrower’s expense by independent certified public accountantsacceptable to Lender, at any time when an Event of Default has occurred and iscontinuing or at any time that Lender, in its reasonable judgment, determinesthat audited financial statements are required for an accurate assessment ofthe financial condition of Borrower or of the Mortgaged Property.

 

(g)                    If Borrower fails to provide in a timelymanner the statements, schedules and reports required by Sections 14(b) through(e), Lender shall give Borrower Notice specifying the statements, schedules andreports required by Section 14(b) through (e) that Borrower hasfailed to provide. If Borrower has not provided the required statements,schedules and reports within 10 Business Days following such Notice, thenLender shall have the right to have Borrower’s books and records audited, atBorrower’s expense, by independent certified public accountants selected byLender in order to obtain such statements, schedules and reports, and allrelated costs and expenses of Lender shall become immediately due and payableand shall become an additional part of the Indebtedness as provided in Section 12.Notice to Borrower shall not be required in the case of an emergency, asdetermined in Lender’s discretion, or when an Event of Default has occurred andis continuing.

 

(h)                    If an Event of Default has occurred and iscontinuing, Borrower shall deliver to Lender upon written demand all books andrecords relating to the Mortgaged Property or its operation.

 

(i)                        Borrower authorizes Lender to obtain a creditreport on Borrower at any time.

 

**15.****                 ****TAXES; OPERATING EXPENSES.**

 

(a)                     Subject to the provisions of Section 15(c) andSection 15(d), Borrower shall pay, or cause to be paid, all Taxes when dueand before the addition of any interest, fine, penalty or cost for nonpayment.

 

(b)                    Subject to the provisions of Section 15(c),Borrower shall (i) pay the expenses of operating, managing, maintainingand repairing the Mortgaged Property (including utilities, repairs andreplacements) before the last date upon which each such payment may be madewithout any penalty or interest charge being added, and (ii) pay insurancepremiums at least 30 days prior to the expiration date of each policy ofinsurance, unless applicable law specifies some lesser period.

 

(c)                     If Lender is collecting Imposition Deposits,to the extent that Lender holds sufficient Imposition Deposits for the purposeof paying a specific Imposition, then Borrower shall not be obligated to paysuch Imposition, so long as no Event of Default exists and Borrower has timelydelivered to Lender any bills or premium notices that it has received. If anEvent of Default exists, Lender may exercise any rights Lender may have withrespect to Imposition Deposits without regard to whether Impositions are thendue and payable. Lender shall have no

 

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liabilityto Borrower for failing to pay any Impositions to the extent that (i) anyEvent of Default has occurred and is continuing, (ii) insufficientImposition Deposits are held by Lender at the time an Imposition becomes dueand payable or (iii) Borrower has failed to provide Lender with bills andpremium notices as provided above.

 

(d)                    Borrower, at its own expense, may contest byappropriate legal proceedings, conducted diligently and in good faith, the amountor validity of any Imposition other than insurance premiums, if (i) Borrowernotifies Lender of the commencement or expected commencement of suchproceedings, (ii) the Mortgaged Property is not in danger of being sold orforfeited, (iii) if Borrower has not already paid the Imposition, Borrowerdeposits with Lender reserves sufficient to pay the contested Imposition, ifrequested by Lender, and (iv) Borrower furnishes whatever additionalsecurity is required in the proceedings or is reasonably requested by Lender.

 

(e)                     Borrower shall promptly deliver to Lender acopy of all notices of, and invoices for, Impositions, and if Borrower pays anyImposition directly, Borrower shall furnish to Lender on or before the datethis Instrument requires such Impositions to be paid, receipts evidencing thatsuch payments were made.

 

**16.****                 ****LIENS; ENCUMBRANCES.** Borrower acknowledges that, to the extentprovided in Section 21, the grant, creation or existence of any mortgage,deed of trust, deed to secure debt, security interest or other lien orencumbrance (a **“Lien”**) on theMortgaged Property (other than the lien of this Instrument) or on certainownership interests in Borrower, whether voluntary, involuntary or by operationof law, and whether or not such Lien has priority over the lien of thisInstrument, is a **“Transfer”** whichconstitutes an Event of Default and subjects Borrower to personal liabilityunder the Note.

 

**17.****                 ****PRESERVATION, MANAGEMENT ANDMAINTENANCE OF MORTGAGED PROPERTY.**

 

(a)                     Borrower shall not commit waste or permitimpairment or deterioration of the Mortgaged Property.

 

(b)                    Borrower shall not abandon the MortgagedProperty.

 

(c)                     Borrower shall restore or repair promptly, ina good and workmanlike manner, any damaged part of the Mortgaged Property tothe equivalent of its original condition, or such other condition as Lender mayapprove in writing, whether or not insurance proceeds or condemnation awardsare available to cover any costs of such restoration or repair; however,Borrower shall not be obligated to perform such restoration or repair if (i) noEvent of Default has occurred and is continuing, and (ii) Lender haselected to apply any available insurance proceeds and/or condemnation awards tothe payment of Indebtedness pursuant to Section 19(h)(ii), (iii), (iv) or(v), or pursuant to Section 20.

 

(d)                    Borrower shall keep the Mortgaged Property ingood repair, including the replacement of Personalty and Fixtures with items ofequal or better function and quality.

 

(e)                     Borrower shall provide for professionalmanagement of the Mortgaged Property by a residential rental property managersatisfactory to Lender at all times under a contract approved by Lender inwriting, which contract must be terminable upon not more than 30 days noticewithout the necessity of establishing cause and without payment of a penalty ortermination fee by Borrower or its successors.

 

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(f)                       Borrower shall give Notice to Lender of and,unless otherwise directed in writing by Lender, shall appear in and defend anyaction or proceeding purporting to affect the Mortgaged Property, Lender’ssecurity or Lender’s rights under this Instrument. Borrower shall not (andshall not permit any tenant or other person to) remove, demolish or alter theMortgaged Property or any part of the Mortgaged Property, including anyremoval, demolition or alteration occurring in connection with a rehabilitationof all or part of the Mortgaged Property, except (i) in connection withthe replacement of tangible Personalty, (ii) if Borrower is a cooperativehousing corporation or association, to the extent permitted with respect toindividual dwelling units under the form of proprietary lease or occupancyagreement and (iii) repairs and replacements in connection with making anindividual unit ready for a new occupant.

 

(g)                    Unless otherwise waived by Lender in writing,Borrower must have or must establish and must adhere to the MMP. If theBorrower is required to have an MMP, the Borrower must keep all MMP documentationat the Mortgaged Property or at the management agent’s office and available forthe Lender or the Loan Servicer to review during any annual assessment or otherinspection of the Mortgaged Property that is required by Lender.

 

(h)                    If Borrower is a housing cooperativecorporation or association, until the Indebtedness is paid in full Borrowershall not reduce the maintenance fees, charges or assessments payable byshareholders or residents under proprietary leases or occupancy agreementsbelow a level which is sufficient to pay all expenses of the Borrower,including, without limitation, all operating and other expenses for theMortgaged Property and all payments due pursuant to the terms of the Note andany Loan Documents.

 

**18.****                 ****ENVIRONMENTAL HAZARDS.**

 

(a)                     Except for matters described in Section 18(b),Borrower shall not cause or permit any of the following:

 
| (i)    | the  presence, use, generation, release, treatment, processing, storage (including  storage in above ground and underground storage tanks), handling, or disposal  of any Hazardous Materials on or under the Mortgaged Property or any other  property of Borrower that is adjacent to the Mortgaged Property; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                            |
| (ii)   | the  transportation of any Hazardous Materials to, from, or across the Mortgaged  Property;                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                            |
| (iii)  | any  occurrence or condition on the Mortgaged Property or any other property of  Borrower that is adjacent to the Mortgaged Property, which occurrence or  condition is or may be in violation of Hazardous Materials Laws;                                                                                     |
|   |                                                                                                                                                                                                                                                                                                            |
| (iv)   | any  violation of or noncompliance with the terms of any Environmental Permit with  respect to the Mortgaged Property or any property of Borrower that is  adjacent to the Mortgaged Property; or                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                            |
| (v)    | any violation or  noncompliance with the terms of any O&M Program as defined in subsection  (d).                                                                                                                                                                                                            |

 

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Thematters described in clauses (i) through (v) above, except asotherwise provided in Section 18(b), are referred to collectively in this Section 18as **“Prohibited Activities or Conditions.”**

 

(b)                    Prohibited Activities or Conditions shall notinclude lawful conditions permitted by an O&M Program or the safe andlawful use and storage of quantities of (i) pre-packaged supplies,cleaning materials and petroleum products customarily used in the operation andmaintenance of comparable multifamily properties, (ii) cleaning materials,personal grooming items and other items sold in pre-packaged containers forconsumer use and used by tenants and occupants of residential dwelling units inthe Mortgaged Property; and (iii) petroleum products used in the operationand maintenance of motor vehicles from time to time located on the MortgagedProperty’s parking areas, so long as all of the foregoing are used, stored,handled, transported and disposed of in compliance with Hazardous MaterialsLaws.

 

(c)                     Borrower shall take all commerciallyreasonable actions (including the inclusion of appropriate provisions in anyLeases executed after the date of this Instrument) to prevent its employees,agents, and contractors, and all tenants and other occupants from causing orpermitting any Prohibited Activities or Conditions. Borrower shall not lease orallow the sublease or use of all or any portion of the Mortgaged Property toany tenant or subtenant for nonresidential use by any user that, in theordinary course of its business, would cause or permit any Prohibited Activityor Condition.

 

(d)                    As required by Lender, Borrower shall alsohave established a written operations and maintenance program with respect to certainHazardous Materials. Each such operations and maintenance program and anyadditional or revised operations and maintenance programs established for theMortgaged Property pursuant to this Section 18 must be approved by Lenderand shall be referred to herein as an **“O&MProgram.”**Borrower shall comply in a timely manner with, and causeall employees, agents, and contractors of Borrower and any other personspresent on the Mortgaged Property to comply with each O&M Program. Borrowershall pay all costs of performance of Borrower’s obligations under any O&MProgram, and Lender’s out-of-pocket costs incurred in connection with themonitoring and review of each O&M Program and Borrower’s performance shallbe paid by Borrower upon demand by Lender. Any such out-of-pocket costs ofLender that Borrower fails to pay promptly shall become an additional part ofthe Indebtedness as provided in Section 12.

 

(e)                     Borrower represents and warrants to Lenderthat, except as previously disclosed by Borrower to Lender in writing (whichwritten disclosure may be in certain environmental assessments and otherwritten reports accepted by Lender in connection with the funding of theIndebtedness and dated prior to the date of this Instrument);

 
| (i)    | Borrower  has not at any time engaged in, caused or permitted any Prohibited Activities  or Conditions on the Mortgaged Property;                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                  |
| (ii)   | to  the best of Borrower’s knowledge after reasonable and diligent inquiry, no  Prohibited Activities or Conditions exist or have existed on the Mortgaged  Property;                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                  |
| (iii)  | the Mortgaged Property  does not now contain any underground storage tanks, and, to the best of  Borrower’s knowledge after reasonable and diligent inquiry, the Mortgaged  Property has not contained any underground storage tanks in the past. If  there is an underground storage tank located on the Mortgaged Property that  has been previously disclosed |

 

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|   | by  Borrower to Lender in writing, that tank complies with all requirements of  Hazardous Materials Laws;                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (iv)   | to  the best of Borrower’s knowledge after reasonable and diligent inquiry,  Borrower has complied with all Hazardous Materials Laws, including all  requirements for notification regarding releases of Hazardous Materials.  Without limiting the generality of the foregoing, Borrower has obtained all  Environmental Permits required for the operation of the Mortgaged Property in  accordance with Hazardous Materials Laws now in effect and all such  Environmental Permits are in full force and effect; |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (v)    | to  the best of Borrower’s knowledge after reasonable and diligent inquiry, no  event has occurred with respect to the Mortgaged Property that constitutes,  or with the passing of time or the giving of notice would constitute,  noncompliance with the terms of any Environmental Permit;                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (vi)   | there  are no actions, suits, claims or proceedings pending or, to the best of  Borrower’s knowledge after reasonable and diligent inquiry, threatened that  involve the Mortgaged Property and allege, arise out of, or relate to any  Prohibited Activity or Condition; and                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (vii)  | Borrower has not received any written complaint,  order, notice of violation or other communication from any Governmental  Authority with regard to air emissions, water discharges, noise emissions or  Hazardous Materials, or any other environmental, health or safety matters  affecting the Mortgaged Property or any other property of Borrower that is  adjacent to the Mortgaged Property.                                                                                                                      |

 

(f)                       Borrower shall promptly notify Lender inwriting upon the occurrence of any of the following events:

 
| (i)    | Borrower’s  discovery of any Prohibited Activity or Condition;                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (ii)   | Borrower’s  receipt of or knowledge of any written complaint, order, notice of violation  or other communication from any tenant, management agent, Governmental  Authority or other person with regard to present or future alleged Prohibited  Activities or Conditions, or any other environmental, health or safety  matters affecting the Mortgaged Property or any other property of Borrower that  is adjacent to the Mortgaged Property; or |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (iii)  | Borrower’s breach of any of its obligations under  this Section 18.                                                                                                                                                                                                                                                                                                                                                                            |

 

Anysuch notice given by Borrower shall not relieve Borrower of, or result in awaiver of, any obligation under this Instrument, the Note, or any other LoanDocument.

 

(g)                    Borrower shall pay promptly the costs of anyenvironmental inspections, tests or audits, a purpose of which is to identifythe extent or cause of or potential for a Prohibited Activity or Condition (**“Environmental Inspections”**), required byLender in connection with any foreclosure or deed in lieu of foreclosure, or asa condition of Lender’s consent to any Transfer under Section 21, orrequired by Lender following a reasonable determination by Lender thatProhibited Activities or Conditions may exist. Any such costs incurred byLender (including Attorneys’ Fees and Costs and the costs of technicalconsultants whether incurred in

 

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connectionwith any judicial or administrative process or otherwise) that Borrower failsto pay promptly shall become an additional part of the Indebtedness as providedin Section 12. As long as (i) no Event of Default has occurred and iscontinuing, (ii) Borrower has actually paid for or reimbursed Lender forall costs of any such Environmental Inspections performed or required byLender, and (iii) Lender is not prohibited by law, contract or otherwisefrom doing so, Lender shall make available to Borrower, without representationof any kind, copies of Environmental Inspections prepared by third parties anddelivered to Lender. Lender hereby reserves the right, and Borrower herebyexpressly authorizes Lender, to make available to any party, including anyprospective bidder at a foreclosure sale of the Mortgaged Property, the resultsof any Environmental Inspections made by or for Lender with respect to theMortgaged Property. Borrower consents to Lender notifying any party (either aspart of a notice of sale or otherwise) of the results of any EnvironmentalInspections made by or for Lender. Borrower acknowledges that Lender cannotcontrol or otherwise assure the truthfulness or accuracy of the results of anyEnvironmental Inspections and that the release of such results to prospectivebidders at a foreclosure sale of the Mortgaged Property may have a material andadverse effect upon the amount that a party may bid at such sale. Borroweragrees that Lender shall have no liability whatsoever as a result of deliveringthe results to any third party of any Environmental Inspections made by or forLender, and Borrower hereby releases and forever discharges Lender from any andall claims, damages, or causes of action, arising out of, connected with orincidental to the results of, the delivery of any of Environmental Inspectionsmade by or for Lender.

 

(h)                    If any investigation, site monitoring,containment, clean-up, restoration or other remedial work (**“Remedial Work”**) is necessary to complywith any Hazardous Materials Law or order of any Governmental Authority thathas or acquires jurisdiction over the Mortgaged Property or the use, operationor improvement of the Mortgaged Property, or is otherwise required by Lender asa consequence of any Prohibited Activity or Condition or to prevent the occurrenceof a Prohibited Activity or Condition, Borrower shall, by the earlier of (i) theapplicable deadline required by Hazardous Materials Law or (ii) 30 daysafter Notice from Lender demanding such action, begin performing the RemedialWork, and thereafter diligently prosecute it to completion, and shall in anyevent complete the work by the time required by applicable Hazardous MaterialsLaw. If Borrower fails to begin on a timely basis or diligently prosecute anyrequired Remedial Work, Lender may, at its option, cause the Remedial Work tobe completed, in which case Borrower shall reimburse Lender on demand for thecost of doing so. Any reimbursement due from Borrower to Lender shall becomepart of the Indebtedness as provided in Section 12.

 

(i)                        Borrower shall comply with all HazardousMaterials Laws applicable to the Mortgaged Property. Without limiting thegenerality of the previous sentence, Borrower shall (i) obtain andmaintain all Environmental Permits required by Hazardous Materials Laws andcomply with all conditions of such Environmental Permits; (ii) cooperatewith any inquiry by any Governmental Authority; and (iii) comply with anygovernmental or judicial order that arises from any alleged Prohibited Activityor Condition.

 

(j)                        Borrower shall indemnify, hold harmless anddefend (i) Lender, (ii) any prior owner or holder of the Note, (iii) theLoan Servicer, (iv) any prior Loan Servicer, (v) the officers,directors, shareholders, partners, employees and trustees of any of theforegoing, and (vi) the heirs, legal representatives, successors andassigns of each of the foregoing (collectively, the **“Indemnitees”**) from and against all proceedings, claims,damages, penalties and costs (whether initiated or sought by GovernmentalAuthorities or private parties), including Attorneys’ Fees and Costs andremediation costs, whether incurred in connection with any judicial oradministrative process or otherwise, arising directly or indirectly from any ofthe following:

 

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| (i)    | any  breach of any representation or warranty of Borrower in this Section 18;                                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                |
| (ii)   | any  failure by Borrower to perform any of its obligations under this  Section 18;                                                                                                                             |
|   |                                                                                                                                                                                                                |
| (iii)  | the  existence or alleged existence of any Prohibited Activity or Condition;                                                                                                                                        |
|   |                                                                                                                                                                                                                |
| (iv)   | the  presence or alleged presence of Hazardous Materials on or under the Mortgaged  Property or in any of the Improvements or on or under any property of  Borrower that is adjacent to the Mortgaged Property; and |
|   |                                                                                                                                                                                                                |
| (v)    | the actual or alleged violation of any Hazardous  Materials Law.                                                                                                                                                    |

 

(k)                     Counsel selected by Borrower to defendIndemnitees shall be subject to the approval of those Indemnitees. In anycircumstances in which the indemnity under this Section 18 applies, Lendermay employ its own legal counsel and consultants to prosecute, defend ornegotiate any claim or legal or administrative proceeding and Lender, with theprior written consent of Borrower (which shall not be unreasonably withheld,delayed or conditioned) may settle or compromise any action or legal oradministrative proceeding. However, unless an Event of Default has occurred andis continuing, or the interests of Borrower and Lender are in conflict, asdetermined by Lender in its discretion, Lender shall permit Borrower to undertakethe actions referenced in this Section 18 in accordance with this Section 18(k) andSection 18(1) so long as Lender approves such action, which approvalshall not be unreasonably withheld or delayed. Borrower shall reimburse Lenderupon demand for all costs and expenses incurred by Lender, including all costsof settlements entered into in good faith, consultants’ fees and Attorneys’Fees and Costs.

 

(l)                        Borrower shall not, without the prior writtenconsent of those Indemnitees who are named as parties to a claim or legal oradministrative proceeding (a “Claim”), settle or compromise the Claim if thesettlement (i) results in the entry of any Judgment that does not includeas an unconditional term the delivery by the claimant or plaintiff to Lender ofa written release of those Indemnitees, satisfactory in form and substance toLender; or (ii) may materially and adversely affect Lender, as determinedby Lender in its discretion.

 

(m)                  Borrower’s obligation to indemnify theIndemnitees shall not be limited or impaired by any of the following, or by anyfailure of Borrower or any guarantor to receive notice of or consideration forany of the following:

 
| (i)    | any  amendment or modification of any Loan Document;                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                       |
| (ii)   | any  extensions of time for performance required by any Loan Document;                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                       |
| (iii)  | any  provision in any of the Loan Documents limiting Lender’s recourse to property  securing the Indebtedness, or limiting the personal liability of Borrower or  any other party for payment of all or any part of the Indebtedness; |
|   |                                                                                                                                                                                                                                       |
| (iv)   | the accuracy or inaccuracy  of any representations and warranties made by Borrower under this Instrument  or any other Loan Document;                                                                                                      |

 

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| (v)    | the  release of Borrower or any other person, by Lender or by operation of law,  from performance of any obligation under any Loan Document; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                         |
| (vi)   | the  release or substitution in whole or in part of any security for the  Indebtedness; and                                                  |
|   |                                                                                                                                         |
| (vii)  | Lender’s failure to properly perfect any lien or security  interest given as security for the Indebtedness.                             |

 

(n)                    Borrower shall, at its own cost and expense,do all of the following:

 
| (i)    | pay  or satisfy any judgement or decree that may be entered against any Indemnitee  or Indemnitees in any legal or administrative proceeding incident to any  matters against which Indemnitees are entitled to be indemnified under this  Section 18;                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                      |
| (ii)   | reimburse  Indemnitees for any expenses paid or incurred in connection with any matters  against which Indemnitees are entitled to be indemnified under this  Section 18; and                                                                                                        |
|   |                                                                                                                                                                                                                                                                                      |
| (iii)  | reimburse Indemnitees for any and all expenses,  including Attorneys’ Fees and Costs, paid or incurred in connection with the  enforcement by Indemnitees of their rights under this Section 18, or in  monitoring and participating in any legal or administrative proceeding. |

 

(o)                    The provisions of this Section 18 shallbe in addition to any and all other obligations and liabilities that Borrowermay have under applicable law or under other Loan Documents, and eachIndemnitee shall be entitled to indemnification under this Section 18without regard to whether Lender or that Indemnitee has exercised any rightsagainst the Mortgaged Property or any other security, pursued any rightsagainst any guarantor, or pursued any other rights available under the LoanDocuments or applicable law. If Borrower consists of more than one person orentity, the obligation of those persons or entities to indemnify theIndemnitees under this Section 18 shall be joint and several. Theobligation of Borrower to indemnify the Indemnitees under this Section 18shall survive any repayment or discharge of the Indebtedness, any foreclosureproceeding, any foreclosure sale, any delivery of any deed in lieu offoreclosure, and any release of record of the lien of this Instrument.Notwithstanding the foregoing, if Lender has never been amortgagee-in-possession of, or held title to, the Mortgaged Property, Borrowershall have no obligation to indemnify the Indemnitees under this Section 18after the date of the release of record of the lien of this Instrument bypayment in full at the Maturity Date or by voluntary prepayment in full.

 

**19.****                 ****PROPERTY AND LIABILITYINSURANCE.**

 

(a)                     Borrower shall keep the Improvements insuredat all times against such hazards as Lender may from time to time require,which insurance shall include but not be limited to coverage against loss byfire, windstorm and allied perils, general boiler and machinery coverage, andbusiness interruption including loss of rental value insurance for theMortgaged Property with extra expense insurance. If Lender so requires, suchinsurance shall also include sinkhole insurance, mine subsidence insurance,earthquake insurance, and, if the Mortgaged Property does not conform to applicablezoning or land use laws, building ordinance or law coverage. In the event anyupdated reports or other documentation are reasonably required by Lender inorder to determine whether such additional insurance is necessary or prudent,

 

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Borrowershall pay for all such documentation at its sole cost and expense. Borroweracknowledges and agrees that Lender’s insurance requirements may change fromtime to time throughout the term of the Indebtedness. If any of theImprovements is located in an area identified by the Federal EmergencyManagement Agency (or any successor to that agency) as an area having specialflood hazards, Borrower shall insure such Improvements against loss by flood.All insurance required pursuant to this Section 19(a) shall bereferred to as **“Hazard Insurance.”**Allpolicies of Hazard Insurance must include a non-contributing, non-reportingmortgagee clause in favor of, and in a form approved by, Lender.

 

(b)                    All premiums on insurance policies requiredunder this Section 19 shall be paid in the manner provided in Section 7,unless Lender has designated in writing another method of payment. AH suchpolicies shall also be in a form approved by Lender. Borrower shall deliver toLender a legible copy of each insurance policy (or duplicate original) andBorrower shall promptly deliver to Lender a copy of all renewal and othernotices received by Borrower with respect to the policies and all receipts forpaid premiums. At least 5 days prior to the expiration date of any insurancepolicy, Borrower shall deliver to Lender evidence acceptable to Lender that thepolicy has been renewed. If Borrower has not delivered a legible copy of eachrenewal policy (or a duplicate original) prior to the expiration date of anyinsurance policy, Borrower shall deliver a legible copy of each renewal policy(or a duplicate original) in a form satisfactory to Lender within 120 daysafter the expiration date of the original policy.

 

(c)                     Borrower shall maintain at all timescommercial general liability insurance, workers’ compensation insurance andsuch other liability, errors and omissions and fidelity insurance coverages asLender may from time to time require. AH policies for general liabilityinsurance must contain a standard additional insured provision, in favor of,and in a form approved by, Lender.

 

(d)                    All insurance policies and renewals ofinsurance policies required by this Section 19 shall be in such amountsand for such periods as Lender may from time to time require, and shall beissued by insurance companies satisfactory to Lender.

 

(e)                     Borrower shall comply with all insurancerequirements and shall not permit any condition to exist on the MortgagedProperty that would invalidate any part of any insurance coverage that thisInstrument requires Borrower to maintain.

 

(f)                       In the event of loss, Borrower shall giveimmediate written notice to the insurance carrier and to Lender. Borrowerhereby authorizes and appoints Lender as attorney-in-fact for Borrower to makeproof of loss, to adjust and compromise any claims under policies of HazardInsurance, to appear in and prosecute any action arising from such HazardInsurance policies, to collect and receive the proceeds of Hazard Insurance,and to deduct from such proceeds Lender’s expenses incurred in the collectionof such proceeds. This power of attorney is coupled with an interest andtherefore is irrevocable. However, nothing contained in this Section 19shall require Lender to incur any expense or take any action. Lender may, atLender’s option, (i) require a “repair or replacement” settlement, inwhich case the proceeds will be used to reimburse Borrower for the cost ofrestoring and repairing the Mortgaged Property to the equivalent of itsoriginal condition or to a condition approved by Lender (the **“Restoration”**), or (ii) require an “actualcash value” settlement in which case the proceeds may be applied to the paymentof the Indebtedness, whether or not then due. To the extent Lender determinesto require a repair or replacement settlement and apply insurance proceeds toRestoration, Lender shall apply the proceeds in accordance with Lender’sthen-current policies relating to the restoration of casualty damage on similarmultifamily properties.

 

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(g)                    Notwithstanding any provision to the contraryin this Section 19, as long as no Event of Default, or any event which,with the giving of Notice or the passage of time, or both, would constitute anEvent of Default, has occurred and is continuing,

 
| (i)    | in  the event of a casualty resulting in damage to the Mortgaged Property which  will cost $10,000 or less to repair, the Borrower shall have the sole right  to make proof of loss, adjust and compromise the claim and collect and  receive any proceeds directly without the approval or prior consent of the  Lender so long as the insurance proceeds are used solely for the Restoration  of the Mortgaged Property; and                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (ii)   | in the event of a casualty resulting in damage to  the Mortgaged Property which will cost more than $10,000 but less than  $50,000 to repair, the Borrower is authorized to make proof of loss and  adjust and compromise the claim without the prior consent of Lender, and  Lender shall hold the applicable insurance proceeds to be used to reimburse  Borrower for the cost of Restoration of the Mortgaged Property and shall not  apply such proceeds to the payment of sums due under this Instrument. |

 

(h)                    Lender will have the right to exercise itsoption to apply insurance proceeds to the payment of the Indebtedness only ifLender determines that at least one of the following conditions is met:

 
| (i)    | an  Event of Default (or any event, which, with the giving of Notice or the  passage of time, or both, would constitute an Event of Default) has occurred  and is continuing;                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                 |
| (ii)   | Lender  determines, in its discretion, that there will not be sufficient funds from  insurance proceeds, anticipated contributions of Borrower of its own funds or  other sources acceptable to Lender to complete the Restoration;                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                 |
| (iii)  | Lender  determines, in its discretion, that the rental income from the Mortgaged  Property after completion of the Restoration will not be sufficient to meet  all operating costs and other expenses, Imposition Deposits, deposits to reserves  and loan repayment obligations relating to the Mortgaged Property; |
|   |                                                                                                                                                                                                                                                                                                                 |
| (iv)   | Lender  determines, in its discretion, that the Restoration will not be completed at  least one year before the Maturity Date (or six months before the Maturity  Date if Lender determines in its discretion that re-leasing of the Mortgaged  Property will be completed within such six-month period); or         |
|   |                                                                                                                                                                                                                                                                                                                 |
| (v)    | Lender determines that the Restoration will not be  completed within one year after the date of the loss or casualty.                                                                                                                                                                                                |

 

(i)                        If the Mortgaged Property is sold at aforeclosure sale or Lender acquires title to the Mortgaged Property, Lendershall automatically succeed to all rights of Borrower in and to any insurancepolicies and unearned insurance premiums and in and to the proceeds resultingfrom any damage to the Mortgaged Property prior to such sale or acquisition.

 

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(j)        Unless Lender otherwise agrees in writing,any application of any insurance proceeds to the Indebtedness shall not extendor postpone the due date of any monthly installments referred to in the Note, Section 7of this Instrument or any Collateral Agreement, or change the amount of suchinstallments.

 

(k)       Borrower agrees to execute such furtherevidence of assignment of any insurance proceeds as Lender may require.

 

**20.**      **CONDEMNATION.**

 

(a)       Borrower shall promptly notify Lender inwriting of any action or proceeding or notice relating to any proposed oractual condemnation or other taking, or conveyance in lieu thereof, of all orany part of the Mortgaged Property, whether direct or indirect (a **“Condemnation”**). Borrower shall appear inand prosecute or defend any action or proceeding relating to any Condemnationunless otherwise directed by Lender in writing. Borrower authorizes andappoints Lender as attorney-in-fact for Borrower to commence, appear in andprosecute, in Lender’s or Borrower’s name, any action or proceeding relating toany Condemnation and to settle or compromise any claim in connection with anyCondemnation, after consultation with Borrower and consistent with commerciallyreasonable standards of a prudent lender. This power of attorney is coupledwith an interest and therefore is irrevocable. However, nothing contained inthis Section 20 shall require Lender to incur any expense or take anyaction. Borrower hereby transfers and assigns to Lender all right, title andinterest of Borrower in and to any award or payment with respect to (i) anyCondemnation, or any conveyance in lieu of Condemnation, and (ii) anydamage to the Mortgaged Property caused by governmental action that does notresult in a Condemnation.

 

(b)       Lender may apply such awards or proceeds,after the deduction of Lender’s expenses incurred in the collection of suchamounts (including Attorneys’ Fees and Costs) at Lender’s option, to therestoration or repair of the Mortgaged Property or to the payment of theIndebtedness, with the balance, if any, to Borrower. Unless Lender otherwiseagrees in writing, any application of any awards or proceeds to theIndebtedness shall not extend or postpone the due date of any monthlyinstallments referred to in the Note, Section 7 of this Instrument or anyCollateral Agreement, or change the amount of such installments. Borroweragrees to execute such further evidence of assignment of any awards or proceedsas Lender may require.

 

**21.**      **TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS INBORROWER. [RIGHT TO UNLIMITED TRANSFERS – WITH LENDER APPROVAL].**

 

(a)       **“Transfer”**means

 

(i)                        a sale,assignment, transfer or other disposition (whether voluntary, involuntary or byoperation of law);

 

(ii)                     the granting,creating or attachment of a lien, encumbrance or security interest (whethervoluntary, involuntary or by operation of law);

 

(iii)                  the issuance orother creation of an ownership interest in a legal entity, including apartnership interest, interest in a limited liability company or corporatestock;

 

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(iv)                 the withdrawal,retirement, removal or involuntary resignation of a partner in a partnership ora member or manager in a limited liability company; or

 

(v)                    the merger,dissolution, liquidation, or consolidation of a legal entity or thereconstitution of one type of legal entity into another type of legal entity.

 

Forpurposes of defining the term “Transfer,” the term “partnership” shall mean ageneral partnership, a limited partnership, a joint venture and a limitedliability partnership, and the term “partner” shall mean a general partner, alimited partner and a joint venturer.

 

(b)       “Transfer” does not include

 

(i)                        aconveyance of the Mortgaged Property at a judicial or non-judicial foreclosure saleunder this Instrument,

 

(ii)                     the MortgagedProperty becoming part of a bankruptcy estate by operation of law under theUnited States Bankruptcy Code, or

 

(iii)                  a lien againstthe Mortgaged Property for local taxes and/or assessments not then due and payable.

 

(c)       The occurrence of any of the followingTransfers shall not constitute an Event of Default under this Instrument,notwithstanding any provision of Section 21 (e) to the contrary:

 

(i)                        a Transferto which Lender has consented;

 

(ii)                     a Transfer thatoccurs in accordance with Section 21(d);

 

(iii)                  the grant of aleasehold interest in an individual dwelling unit for a term of two years orless not containing an option to purchase;

 

(iv)                 a Transfer ofobsolete or worn out Personalty or Fixtures that are contemporaneously replacedby items of equal or better function and quality, which are free of liens,encumbrances and security interests other than those created by the LoanDocuments or consented to by Lender;

 

(v)                    the creationof a mechanic’s, materialman’s, or judgment lien against the MortgagedProperty, which is released of record or otherwise remedied to Lender’ssatisfaction within 60 days of the date of creation;

 

(vi)                 if Borrower is ahousing cooperative corporation or association, the Transfer of more than 49percent of the shares in the housing cooperative or the assignment of more than49 percent of the occupancy agreements or leases relating thereto by tenantshareholders of the housing cooperative or association to other tenantshareholders; and

 

(vii)              any Transfer of aninterest in Borrower or any interest in a Controlling Entity (which, if suchControlling Entity were Borrower, would result in an Event of Default) listedin (A) through (F) below (a **“PreapprovedTransfer”**), under the terms and conditions listed as items (1) through(7) below:

 

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(A)                a sale or transferto one or more of the transferor’s immediate family members; or

 

(B)                  a sale ortransfer to any trust having as its sole beneficiaries the transferor and/orone or more of the transferor’s immediate family members; or

 

(C)                  a sale ortransfer from a trust to any one or more of its beneficiaries who are immediatefamily members of the transferor; or

 

(D)                 the substitutionor replacement of the trustee of any trust with a trustee who is an immediatefamily member of the transferor; or

 

(E)                   a sale ortransfer to an entity owned and controlled by the transferor or the transferor’simmediate family members; or

 

(F)                   a sale ortransfer to an individual or entity that has an existing interest in theBorrower or in a Controlling Entity.

 

(1)                     Borrowershall provide Lender with prior written Notice of the proposed PreapprovedTransfer, which Notice must be accompanied by a non-refundable review fee inthe amount of $3,000.00.

 

(2)                     For thepurposes of these Preapproved Transfers, a transferor’s immediate familymembers will be deemed to include a spouse, parent, child or grandchild of suchtransferor.

 

(3)                     Eitherdirectly or indirectly, [See Exhibit A] shall retain at all times amanaging interest in the Borrower.

 

(4)                     At the timeof the proposed Preapproved Transfer, no Event of Default shall have occurredand be continuing and no event or condition shall have occurred and becontinuing that, with the giving of Notice or the passage of time, or both,would become an Event of Default.

 

(5)                     Lender shallbe entitled to collect all costs, including the cost of all title searches,title insurance and recording costs, and all Attorneys’ Fees and Costs.

 

(6)                     Lender shallnot be entitled to collect a transfer fee as a result of these PreapprovedTransfers.

 

(7)                     In the eventof a Transfer prohibited by or requiring Lender’s approval under this Section 21,this Section (c)(vii) may be modified or rendered void by Lender atLender’s option by Notice to Borrower and the transferee(s), as a condition ofLender’s consent.

 

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(d)       The occurrence of any of the followingTransfers shall not constitute an Event of Default under this Instrument,provided that Borrower has notified Lender in writing within 30 days followingthe occurrence of any of the following, and such Transfer does not constitutean Event of Default under any other Section of this Instrument:

 

(i)                        a changeof the Borrower’s name, provided that UCC financing statements and/oramendments sufficient to continue the perfection of Lender’s security interesthave been properly filed and copies have been delivered to Lender;

 

(ii)                     a change ofthe form of the Borrower not involving a transfer of the Borrower’s assets andnot resulting in any change in liability of any Initial Owner, provided thatUCC financing statements and/or amendments sufficient to continue theperfection of Lender’s security interest have been properly filed and copieshave been delivered to Lender;

 

(iii)                  the merger ofthe Borrower with another entity when the Borrower is the surviving entity;

 

(iv)                 a Transfer thatoccurs by devise, descent, or by operation of law upon the death of a naturalperson; and

 

(v)                    the grant ofan easement, if before the grant Lender determines that the easement will notmaterially affect the operation or value of the Mortgaged Property or Lender’sinterest in the Mortgaged Property, and Borrower pays to Lender, upon demand,all costs and expenses, including Attorneys’ Fees and Costs, incurred by Lenderin connection with reviewing Borrower’s request.

 

(e)       The occurrence of any of the followingTransfers shall constitute an Event of Default under this Instrument:

 

(i)                        a Transferof all or any part of the Mortgaged Property or any interest in the MortgagedProperty;

 

(ii)                     if Borroweris a limited partnership, a Transfer of (A) any general partnershipinterest, or (B) limited partnership interests in Borrower that wouldcause the Initial Owners of Borrower to own less than a Controlling Interest ofall limited partnership interests in Borrower;

 

(iii)                  if Borrower is ageneral partnership or a joint venture, a Transfer of any general partnershipor joint venture interest in Borrower;

 

(iv)                 if Borrower is alimited liability company, (A) a Transfer of any membership interest inBorrower which would cause the Initial Owners to own less than a ControllingInterest of all the membership interests in Borrower, (B) a Transfer ofany membership or other interest of a manager in Borrower that results in achange of manager or (C) a change in a nonmember manager;

 

(v)                    if Borrower isa corporation (A) the Transfer of any voting stock in Borrower which wouldcause the Initial Owners to own less than a

 

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ControllingInterest of any class of voting stock in Borrower or (B) if theoutstanding voting stock in Borrower is held by 100 or more shareholders, oneor more Transfers by a single transferor within a 12-month period affecting anaggregate of 5 percent or more of that stock;

 

(vi)                 if Borrower is atrust, (A) a Transfer of any beneficial interest in Borrower which wouldcause the Initial Owners to own less than a Controlling Interest of all thebeneficial interests in Borrower, (B) the termination or revocation of thetrust, or (C) the removal, appointment or substitution of a trustee ofBorrower;

 

(vii)              ifBorrower is a limited liability partnership, (A) a Transfer of anypartnership interest in Borrower which would cause the Initial Owners to ownless than a Controlling Interest of all partnership interests in Borrower, or (B) atransfer of any partnership or other interest of a managing partner in Borrowerthat results in a change of manager; and

 

(viii)           a Transfer of anyinterest in a Controlling Entity which, if such Controlling Entity wereBorrower, would result in an Event of Default under any of Sections 21(e)(i) through(vii) above.

 

Lendershall not be required to demonstrate any actual impairment of its security orany increased risk of default in order to exercise any of its remedies withrespect to an Event of Default under this Section 21.

 

(f)        Lender shall consent, without any adjustmentto the rate at which the Indebtedness secured by this Instrument bears interestor to any other economic terms of the Indebtedness set forth in the Note, to aTransfer that would otherwise violate this Section 21 if, prior to theTransfer, Borrower has satisfied each of the following requirements:

 

(i)                        thesubmission to Lender of all information required by Lender to make thedetermination required by this Section 21(f);

 

(ii)                     the absenceof any Event of Default;

 

(iii)                  the transfereemeets all of the eligibility, credit, management and other standards (includingbut not limited to any standards with respect to previous relationships betweenLender and the transferee) customarily applied by Lender at the time of theproposed Transfer to the approval of borrowers in connection with the originationor purchase of similar mortgages on multifamily properties;

 

(iv)                 the transferee’sorganization, credit and experience in the management of similar properties aredeemed by the Lender, in its discretion, to be appropriate to the overallstructure and documentation of the existing financing;

 

(v)                    the MortgagedProperty, at the time of the proposed Transfer, meets all standards as to itsphysical condition, occupancy, net operating income and the collection ofreserves that are customarily applied by Lender at the time of the proposedTransfer to the approval of properties in connection

 

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withthe origination or purchase of similar mortgages on multifamily properties;

 

(vi)                 in the case of aTransfer of all or any part of the Mortgaged Property, (A) the executionby the transferee of Lender’s then-standard assumption agreement that, amongother things, requires the transferee to perform all obligations of Borrowerset forth in the Note, this Instrument and any other Loan Documents, and mayrequire that the transferee comply with any provisions of this Instrument orany other Loan Document which previously may have been waived or modified byLender, (B) if Lender requires, the transferee causes one or more individualsor entities acceptable to Lender to execute and deliver to Lender a guaranty ina form acceptable to Lender, and (C) the transferee executes suchadditional Collateral Agreements as Lender may require;

 

(vii)              in the case of aTransfer of any interest in a Controlling Entity, if a guaranty has beenexecuted and delivered in connection with the Note, this Instrument or any ofthe other Loan Documents, the Borrower causes one or more individuals orentities acceptable to Lender to execute and deliver to Lender a guaranty in aform acceptable to Lender; and

 

(viii)           Lender’s receipt of allof the following:

 

(A)                a review fee inthe amount of $3,000.00;

 

(B)                  a transfer feein an amount equal to one (1) percent of the unpaid principal balance ofthe Indebtedness immediately before the applicable Transfer; and

 

(C)                  the amount ofLender’s out-of-pocket costs (including reasonable Attorneys’ Fees and Costs)incurred in reviewing the Transfer request

 

**22.**      **EVENTS OF DEFAULT.** The occurrence of any one or more of the following shall constitute anEvent of Default under this Instrument:

 

(a)       any failure by Borrower to pay or depositwhen due any amount required by the Note, this Instrument or any other LoanDocument;

 

(b)       any failure by Borrower to maintain the insurancecoverage required by Section 19;

 

(c)       any failure by Borrower to comply with theprovisions of Section 33;

 

(d)       fraud or material misrepresentation ormaterial omission by Borrower, any of its officers, directors, trustees,general partners or managers or any guarantor in connection with (i) theapplication for or creation of the Indebtedness, (ii) any financialstatement, rent schedule, or other report or information provided to Lenderduring the term of the Indebtedness, or (iii) any request for Lender’sconsent to any proposed action, including a request for disbursement of fundsunder any Collateral Agreement;

 

(e)       any failure by Borrower to comply with theprovisions of Section 20;

 

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(f)        any Event of Default under Section 21;

 

(g)       the commencement of a forfeiture action orproceeding, whether civil or criminal, which, in Lender’s reasonable judgment,could result in a forfeiture of the Mortgaged Property or otherwise materiallyimpair the lien created by this Instrument or Lender’s interest in theMortgaged Property;

 

(h)       any failure by Borrower to perform any of itsobligations under this Instrument (other than those specified in Sections 22(a) through(g)), as and when required, which continues for a period of 30 days afterNotice of such failure by Lender to Borrower, However, if Borrower’s failure toperform its obligations as described in this Section 22(h) is of thenature that it cannot be cured within the 30 day grace period but reasonably couldbe cured within 90 days, then Borrower shall have additional time as determinedby Lender in its discretion, not to exceed an additional 60 days, in which tocure such default, provided that Borrower has diligently commenced to cure suchdefault during the 30-day grace period and diligently pursues the cure of suchdefault. However, no such Notice or grace periods shall apply in the case ofany such failure which could, in Lender’s judgment, absent immediate exerciseby Lender of a right or remedy under this Instrument, result in harm to Lender,impairment of the Note or this Instrument or any other security given under anyother Loan Document;

 

(i)        any failure by Borrower to perform any of itsobligations as and when required under any Loan Document other than thisInstrument which continues beyond the applicable cure period, if any, specifiedin that Loan Document;

 

(j)        any exercise by the holder of any other debtinstrument secured by a mortgage, deed of trust or deed to secure debt on theMortgaged Property of a right to declare all amounts, due under that debtinstrument immediately due and payable;

 

(k)       any voluntary filing by Borrower forbankruptcy protection under the United States Bankruptcy Code or anyreorganization, receivership, insolvency proceeding or other similar proceedingpursuant to any other federal or state law affecting debtor and creditor rightsto which Borrower voluntarily becomes subject, or the commencement of anyinvoluntary case against Borrower by any creditor (other than Lender) ofBorrower pursuant to the United States Bankruptcy Code or other federal orstate law affecting debtor and creditor rights which case is not dismissed ordischarged within 90 days after filing; and

 

(l)        any representations and warranties by Borrowerin this Instrument which is false or misleading in any material respect.

 

**23.**      **REMEDIES CUMULATIVE.** Each right and remedy provided in this Instrument is distinct from allother rights or remedies under this Instrument or any other Loan Document orafforded by applicable law, and each shall be cumulative and may be exercisedconcurrently, independently, or successively, in any order.

 

**24.**      **FORBEARANCE.**

 

(a)       Lender may (but shall not be obligated to)agree with Borrower, from time to time, and without giving notice to, orobtaining the consent of, or having any effect upon the obligations of, anyguarantor or other third party obligor, to take any of the following actions:extend the time for payment of all or any part of the Indebtedness; reduce thepayments due under this Instrument, the Note, or any other Loan Document;release anyone liable for the payment of any amounts under this Instrument, theNote, or any other Loan Document; accept a

 

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renewalof the Note; modify the terms and time of payment of the Indebtedness; join inany extension or subordination agreement; release any Mortgaged Property; takeor release other or additional security; modify the rate of interest or periodof amortization of the Note or change the amount of the monthly installmentspayable under the Note; and otherwise modify this Instrument, the Note, or anyother Loan Document.

 

(b)       Any forbearance by Lender in exercising anyright or remedy under the Note, this Instrument, or any other Loan Document orotherwise afforded by applicable law, shall not be a waiver of or preclude theexercise of any other right or remedy, or the subsequent exercise of any rightor remedy. The acceptance by Lender of payment of all or any part of the Indebtednessafter the due date of such payment, or in an amount which is less than therequired payment, shall not be a waiver of Lender’s right to require promptpayment when due of all other payments on account of the Indebtedness or toexercise any remedies for any failure to make prompt payment. Enforcement byLender of any security for the Indebtedness shall not constitute an election byLender of remedies so as to preclude the exercise of any other right availableto Lender. Lender’s receipt of any awards or proceeds under Sections 19 and 20shall not operate to cure or waive any Event of Default.

 

**25.**      **LOAN CHARGES.** If any applicable law limiting the amount of interest or other chargespermitted to be collected from Borrower is interpreted so that any chargeprovided for in any Loan Document, whether considered separately or togetherwith other charges levied in connection with any other Loan Document, violatesthat law, and Borrower is entitled to the benefit of that law, that charge ishereby reduced to the extent necessary to eliminate that violation. Theamounts, if any, previously paid to Lender in excess of the permitted amountsshall be applied by Lender to reduce the principal of the Indebtedness. For thepurpose of determining whether any applicable law limiting the amount ofinterest or other charges permitted to be collected from Borrower has beenviolated, all Indebtedness which constitutes interest, as well as all othercharges levied in connection with the Indebtedness which constitute interest,shall be deemed to be allocated and spread over the stated term of the Note.Unless otherwise required by applicable law, such allocation and spreadingshall be effected in such a manner that the rate of interest so computed isuniform throughout the stated term of the Note.

 

**26.**      **WAIVER OF STATUTE OF LIMITATIONS.** Borrower hereby waives the right to assertany statute of limitations as a bar to the enforcement of the lien of thisInstrument or to any action brought to enforce any Loan Document.

 

**27.**      **WAIVER OF MARSHALLING.** Notwithstanding the existence of any othersecurity interests in the Mortgaged Property held by Lender or by any otherparty, Lender shall have the right to determine the order in which any or allof the Mortgaged Property shall be subjected to the remedies provided in thisInstrument, the Note, any other Loan Document or applicable law. Lender shallhave the right to determine the order in which any or all portions of theIndebtedness are satisfied from the proceeds realized upon the exercise of suchremedies. Borrower and any party who now or in the future acquires a securityinterest in the Mortgaged Property and who has actual or constructive notice ofthis Instrument waives any and all right to require the marshalling of assetsor to require that any of the Mortgaged Property be sold in the inverse orderof alienation or that any of the Mortgaged Property be sold in parcels or as anentirety in connection with the exercise of any of the remedies permitted byapplicable law or provided in this Instrument.

 

**28.**      **FURTHER ASSURANCES.** Borrower shall execute, acknowledge, and deliver, at its sole cost andexpense, all further acts, deeds, conveyances, assignments, estoppelcertificates, financing statements or amendments, transfers and assurances asLender may require

 

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fromtime to time in order to better assure, grant, and convey to Lender the rightsintended to be granted, now or in the future, to Lender under this Instrumentand the Loan Documents.

 

**29.**      **ESTOPPEL CERTIFICATE.** Within 10 days after a request from Lender,Borrower shall deliver to Lender a written statement, signed and acknowledgedby Borrower, certifying to Lender or any person designated by Lender, as of thedate of such statement, (i) that the Loan Documents are unmodified and infull force and effect (or, if there have been modifications, that the LoanDocuments are in full force and effect as modified and setting forth suchmodifications); (ii) the unpaid principal balance of the Note; (iii) thedate to which interest under the Note has been paid; (iv) that Borrower isnot in default in paying the Indebtedness or in performing or observing any ofthe covenants or agreements contained in this Instrument or any of the otherLoan Documents (or, if the Borrower is in default, describing such default inreasonable detail); (v) whether or not there are then existing any setoffsor defenses known to Borrower against the enforcement of any right or remedy ofLender under the Loan Documents; and (vi) any additional facts requestedby Lender.

 

**30.**      **GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.**

 

(a)       This Instrument, and any Loan Document whichdoes not itself expressly identify the law that is to apply to it, shall begoverned by the laws of the jurisdiction in which the Land is located (the **“Property Jurisdiction”**).

 

(b)       Borrower agrees that any controversy arisingunder or in relation to the Note, this Instrument, or any other Loan Documentmay be litigated in the Property Jurisdiction. The state and federal courts andauthorities with jurisdiction in the Property Jurisdiction shall havejurisdiction over all controversies that shall arise under or in relation tothe Note, any security for the Indebtedness, or any other Loan Document. Borrowerirrevocably consents to service, jurisdiction, and venue of such courts for anysuch litigation and waives any other venue to which it might be entitled byvirtue of domicile, habitual residence or otherwise. However, nothing in this Section 30is intended to limit Lender’s right to bring any suit, action or proceedingrelating to matters under this Instrument in any court of any otherjurisdiction.

 

**31.**      **NOTICE**

 

(a)       All Notices, demands and other communications(“Notice”) under or concerning this Instrument shall be in writing. Each Noticeshall be addressed to the intended recipient at its address set forth in thisInstrument, and shall be deemed given on the earliest to occur of (i) thedate when the Notice is received by the addressee; (ii) the first BusinessDay after the Notice is delivered to a recognized overnight courier service,with arrangements made for payment of charges for next Business Day delivery;or (iii) the third Business Day after the Notice is deposited in theUnited States mail with postage prepaid, certified mail, return receiptrequested.

 

(b)       Any party to this Instrument may change theaddress to which Notices intended for it are to be directed by means of Noticegiven to the other party in accordance with this Section 31. Each partyagrees that it will not refuse or reject delivery of any Notice given inaccordance with this Section 31, that it will acknowledge, in writing, thereceipt of any Notice upon request by the other party and that any Noticerejected or refused by it shall be deemed for purposes of this Section 31to have been received by the rejecting party on the date so refused orrejected, as conclusively established by the records of the U.S. Postal Serviceor the courier service.

 

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(c)       Any Notice under the Note and any other LoanDocument that does not specify how Notices are to be given shall be given inaccordance with this Section 31.

 

**32.**      **SALE OF NOTE; CHANGE IN SERVICER; LOAN SERVICING.** The Note or a partial interest in the Note(together with this Instrument and the other Loan Documents) may be sold one ormore times without prior Notice to Borrower. A sale may result in a change ofthe Loan Servicer. There also may be one or more changes of the Loan Servicerunrelated to a sale of the Note. If there is a change of the Loan Servicer,Borrower will be given Notice of the change. All actions regarding theservicing of the loan evidenced by the Note, including the collection ofpayments, the giving and receipt of Notice, inspections of the MortgagedProperty, inspections of books and records, and the granting of consents andapprovals, may be taken by the Loan Servicer unless Borrower receives Notice tothe contrary. If Borrower receives conflicting Notices regarding the identity ofthe Loan Servicer or any other subject, any such Notice from Lender shallgovern.

 

**33.**      **SINGLE ASSET BORROWER.** Until the Indebtedness is paid in full,Borrower (a) shall not own any real or personal property other than theMortgaged Property and personal property related to the operation andmaintenance of the Mortgaged Property; (b) shall not operate any businessother than the management and operation of the Mortgaged Property; and (c) shallnot maintain its assets in a way difficult to segregate and identify.

 

**34.**      **SUCCESSORS AND ASSIGNS BOUND.** This Instrument shall bind, and the rightsgranted by this Instrument shall inure to, the respective successors andassigns of Lender and Borrower. However, a Transfer not permitted by Section 21shall be an Event of Default.

 

**35.**      **JOINT AND SEVERAL LIABILITY.** If more than one person or entity signs thisInstrument as Borrower, the obligations of such persons and entities shall bejoint and several.

 

**36.**      **RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.**

 

(a)       The relationship between Lender and Borrowershall be solely that of creditor and debtor, respectively, and nothingcontained in this Instrument shall create any other relationship between Lenderand Borrower.

 

(b)       No creditor of any party to this Instrumentand no other person shall be a third party beneficiary of this Instrument orany other Loan Document. Without limiting the generality of the precedingsentence, (i) any arrangement (a **“ServicingArrangement”**) between the Lender and any Loan Servicer for loss sharingor interim advancement of funds shall constitute a contractual obligation ofsuch Loan Servicer that is independent of the obligation of Borrower for thepayment of the Indebtedness, (ii) Borrower shall not be a third partybeneficiary of any Servicing Arrangement, and (iii) no payment by the LoanServicer under any Servicing Arrangement will reduce the amount of theIndebtedness.

 

**37.**      **SEVERABILITY; AMENDMENTS.** The invalidity or unenforceability of anyprovision of this Instrument shall not affect the validity or enforceability ofany other provision, and all other provisions shall remain in full force andeffect This Instrument contains the entire agreement among the parties as tothe rights granted and the obligations assumed in this Instrument. ThisInstrument may not be amended or modified except by a writing signed by theparty against whom enforcement is sought; provided, however, that in the eventof a Transfer prohibited by or requiring Lender’s approval under Section 21,any or some or all of the

 

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Modifications toInstrument set forth in Exhibit B (if any) may be modified or renderedvoid by Lender at Lender’s option by Notice to Borrower and the transferee(s).

 

**38.**      **CONSTRUCTION.**The captions and headings ofthe Sections of this Instrument are for convenience only and shall bedisregarded in construing this Instrument. Any reference in this Instrument toan “Exhibit” or a “Section” shall, unless otherwise explicitly provided, beconstrued as referring, respectively, to an Exhibit attached to thisInstrument or to a Section of this Instrument. All Exhibits attached to orreferred to in this Instrument are incorporated by reference into thisInstrument. Any reference in this Instrument to a statute or regulation shallbe construed as referring to that statute or regulation as amended from time totime. Use of the singular in this Agreement includes the plural and use of theplural includes the singular. As used in this Instrument, the term “including”means “including, but not limited to.”

 

**39.**      **DISCLOSURE OF INFORMATION.**Lender mayfurnish information regarding Borrower or the Mortgaged Property to thirdparties with an existing or prospective interest in the servicing, enforcement,evaluation, performance, purchase or securitization of the Indebtedness,including but not limited to trustees, master servicers, special servicers,rating agencies, and organizations maintaining databases on the underwritingand performance of multifamily mortgage loans, as well as governmentalregulatory agencies having regulatory authority over Lender. Borrowerirrevocably waives any and all rights it may have under applicable law toprohibit such disclosure, including but not limited to any right of privacy.

 

**40.**      **NO CHANGE IN FACTS OR CIRCUMSTANCES.**Borrowerwarrants that (a) all information in the application for the loansubmitted to Lender (the **“Loan Application”**)and in all financial statements, rent schedules, reports, certificates andother documents submitted in connection with the Loan Application are completeand accurate in all material respects; and (b) there has been no materialadverse change in any fact or circumstance that would make any such informationincomplete or inaccurate.

 

**41.**      **SUBROGATION.**If, and to the extent that,the proceeds of the loan evidenced by the Note, or subsequent advances under Section 12,are used to pay, satisfy or discharge a Prior Lien, such loan proceeds oradvances shall be deemed to have been advanced by Lender at Borrower’s request,and Lender shall automatically, and without further action on its part, besubrogated to the rights, including lien priority, of the owner or holder ofthe obligation secured by the Prior Lien, whether or not the Prior Lien isreleased.

 

**42.**      **ADJUSTABLE RATE MORTGAGE - THIRD PARTY CAP AGREEMENT “CAPCOLLATERAL.”**

 

(a)       If the Note provides forinterest to accrue at an adjustable or variable interest rate (other thanduring the “Extension Period,” as defined in the Note, if applicable), then thedefinition of “Mortgaged Property” shall include the **“Cap Collateral.”** The “Cap Collateral” shall mean

 

(i)                        anyinterest rate cap agreement, interest rate swap agreement, or other interestrate-hedging contract or agreement obtained by Borrower as a requirement of anyLoan Document or as a condition of Lender’s making the Loan (a “**Cap Agreement**”);

 

(ii)                     any and allmoneys (collectively, **“Cap Payments”**)payable pursuant to any Cap Agreement by the interest rate cap provider orother counterparty

 

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to a Cap Agreement or anyguarantor of the obligations of any such cap provider or counterparty (a “**Cap Provider**”);

 

(iii)                  all rights ofBorrower under any Cap Agreement and all rights of Borrower to all CapPayments, including contract rights and general intangibles, whether existingnow or arising after the date of this Instrument;

 

(iv)                 all rights, liensand security interests or guaranties granted by a Cap Provider or any otherperson to secure or guaranty payment of any Cap Payment whether existing now orgranted after the date of this****Instrument;

 

(v)                    all documents,writings, books, files, records and other documents arising from or relating toany of the foregoing, whether existing now or created after the date of thisInstrument; and

 

(vi)                 all cash andnon-cash proceeds and products of (ii) — (v) above.

 

(b)       As additional security forBorrower’s obligation under the Loan Documents, Borrower hereby assigns andpledges to Lender all of Borrower’s right, title and interest in and to the CapCollateral. Borrower has instructed and will instruct each Cap Provider and anyguarantor of a Cap Provider’s obligations to make Cap Payments directly toLender or to Loan Servicer on behalf of Lender.

 

(c)       So long as there is no Eventof Default, Lender or Loan Servicer will remit to Borrower each Cap Paymentreceived by Lender or Loan Servicer with respect to any month for whichBorrower has paid in full the monthly installment of principal and interest orinterest only, as applicable, due under the Note. Alternatively, at Lender’soption so long as there is no Event of Default, Lender may apply a Cap Paymentreceived by Lender or Loan Servicer with respect to any month to the applicablemonthly payment of accrued interest due under the Note if Borrower has paid infull the remaining portion of such monthly payment of principal and interest orinterest only, as applicable.

 

(d)       Following an Event ofDefault, in addition to any other rights and remedies Lender may have, Lendermay retain any Gap Payments and apply them to the Indebtedness in such orderand amounts as Lender determines. Neither the existence of a Cap Agreement noranything in this Instrument shall relieve Borrower of its primary obligation totimely pay in full all amounts due under the Note and otherwise due on accountof the Indebtedness.

 

(e)       If the Note does notprovide for interest to accrue at an adjustable or variable interest rate(other than during the Extension Period) then this Section 42 shall be ofno force or effect.

 

**43.**      **ACCELERATION; REMEDIES.**If an Event ofDefault has occurred and is continuing. Lender, at Lender’s option, may declarethe Indebtedness to be immediately due and payable without further demand, andmay invoke the power of sale and any other remedies permitted by California lawor provided in this Instrument or in any other Loan Document. Borroweracknowledges that the power of sale granted in this Instrument may be exercisedby Lender without prior judicial hearing. Lender shall be entitled to collectall costs and expenses incurred in pursuing such remedies, including attorneys’fees, costs of documentary evidence, abstracts and title reports.

 

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If the power ofsale is invoked, Lender shall execute a written notice of the occurrence of anEvent of Default and of Lender’s election to cause the Mortgaged Property to besold and shall cause the notice to be recorded in each county in which theMortgaged Property or some part of the Mortgaged Property is located. Trusteeshall give notice of default and notice of sale and shall sell the MortgagedProperty according to California law. Trustee may sell the Mortgaged Propertyat the time and place and under the terms designated in the notice of sale inone or more parcels and in such order as Trustee may determine. Trustee maypostpone the sale of all or any part of the Mortgaged Property by publicannouncement at the time and place of any previously scheduled sale. Lender orLender’s designee may purchase the Mortgaged Property at any sale.

 

Trustee shalldeliver to the purchaser at the sale, within a reasonable time after the sale,a deed conveying the Mortgaged Property so sold without any express or impliedcovenant or warranty. The recitals in Trustee’s deed shall be prima facieevidence of the truth of the statements made in those recitals. Trustee shallapply the proceeds of the sale in the following order: (a) to all costsand expenses of the sale, including Trustee’s fees not to exceed 5% of thegross sales price, attorneys’ fees and costs of title evidence; (b) to theIndebtedness in such order as Lender, in Lender’s discretion, directs; and (c) theexcess, if any, to the person or persons legally entitled to the excess.

 

**44.**      **RECONVEYANCE.** Upon payment of theIndebtedness, Lender shall request Trustee to reconvey the Mortgaged Propertyand shall surrender this Instrument and the Note to Trustee. Trustee shallreconvey the Mortgaged Property without warranty to the person or personslegally entitled to the Mortgaged Property. Such person or persons shall payTrustee’s reasonable costs incurred in so reconveying the Mortgaged Property.

 

**45.**      **SUBSTITUTE TRUSTEE.** Lender, at Lender’soption, may from time to time, by a written instrument, appoint a successortrustee, which instrument, when executed and acknowledged by Lender andrecorded in the office of the Recorder of the county or counties where theMortgaged Property is situated, shall be conclusive proof of propersubstitution of the successor trustee. The successor trustee shall, withoutconveyance of the Mortgaged Property, succeed to all the title, power andduties conferred upon the Trustee in this Instrument and by California law. Theinstrument of substitution shall contain the name of the original Lender,Trustee and Borrower under this Instrument, the book and page where thisInstrument is recorded, and the name and address of the successor trustee. Ifnotice of default has been recorded, this power of substitution cannot beexercised until after the costs, fees and expenses of the then acting Trusteehave been paid to such Trustee, who shall endorse receipt of those costs, feesand expenses upon the instrument of substitution. The procedure provided forsubstitution of trustee in this Instrument shall govern to the exclusion of allother provisions for substitution, statutory or otherwise.

 

**46.**      **STATEMENT OF OBLIGATION.** Lender may collecta fee not to exceed the maximum allowed by applicable law for furnishing thestatement of obligation as provided in Section 2943 of the Civil Code ofCalifornia.

 

**47.**      **SPOUSE’S SEPARATE PROPERTY.** Each Borrowerwho is a married person expressly agrees that recourse may be had against hisor her separate property.

 

**48.**      **FIXTURE FILING.** This Instrument is also a fixturefiling under the Uniform Commercial Code of California.

 

39

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**49.**      **ADDITIONAL PROVISION REGARDING APPLICATION OFPAYMENTS.**In addition to theprovisions of Section 9, Borrower further agrees that, if Lender accepts aguaranty of only a portion of the Indebtedness, Borrower waives its right underCalifornia Civil Code Section 2822(a), to designate the portion of theIndebtedness which shall be satisfied by a guarantor’s partial payment

 

**50.**      **WAIVER OF MARSHALLING; OTHER WAIVERS.**To the extent permitted by law, Borrowerwaives (i) the benefit of all present or future laws providing for anyappraisement before sale of any portion of the Mortgaged Property, (ii) allrights of redemption, valuation, appraisement, stay of execution, notice ofelection to mature or declare due the whole of the Indebtedness and marshallingin the event of foreclosure of the lien created by this Instrument, (iii) allrights and remedies which Borrower may have or be able to assert by reason ofthe laws of the State of California pertaining to the rights and remedies ofsureties, (iv) the right to assert any statute of limitations as a bar tothe enforcement of the lien of this Instrument or to any action brought toenforce the Note or any other obligation secured by this Instrument, and (v) anyrights, legal or equitable, to require marshalling of assets or to require uponforeclosure sales in a particular order, including any rights under CaliforniaCivil Code Sections 2899 and 3433. Lender shall have the right to determine theorder in which any or all of the Mortgaged Property shall be subjected to theremedies provided by this Instrument. Lender shall have the right to determinethe order in which any or all portions of the Indebtedness are satisfied fromthe proceeds realized upon the exercise of the remedies provided by thisInstrument. By signing this Instrument, Borrower does not waive its rightsunder Section 2924c of the California Civil Code.

 

**51.**      **ADDITIONAL PROVISIONS CONCERNING ENVIRONMENTALHAZARDS.**In addition to theprovisions of Section 18:

 

(a)       Except for matters covered by an O&MProgram or matters described in Section 18(b), Borrower shall not cause orpermit any lien (whether or not such lien has priority over the lien created bythis Instrument) upon the Mortgaged Property imposed pursuant to any HazardousMaterials Laws. Any such lien shall be considered a Prohibited Activity orCondition.

 

(b)       Borrower represents and warrants to Lenderthat, except as previously disclosed by Borrower to Lender in writing:

 

(1)                     at the timeof acquiring the Mortgaged Property, Borrower undertook all appropriate inquiryinto the previous ownership and uses of the Mortgaged Property consistent withgood commercial or customary practice and no evidence or indication came tolight which would suggest that the Mortgaged Property has been or is now beingused for any Prohibited Activities or Conditions; and

 

(2)                     the MortgagedProperty has not been designated as “hazardous waste property” or “border zoneproperty” pursuant to Section 25220, *etseq.,*of the California Health and Safety Code.

 

Therepresentations and warranties in this Section 5l(b) shall becontinuing representations and warranties that shall be deemed to be made byBorrower throughout the term of the loan evidenced by the Note, until theIndebtedness has been paid in full.

 

40

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(c)       Without limiting any of the remedies providedin this Instrument, Borrower acknowledges and agrees that each of theprovisions in Section 18 and in this Section 51 is an environmentalprovision (as defined in Section 736(f)(2) of the California Code ofCivil Procedure) made by Borrower relating to the real property security (the **“Environmental Provisions”**), and thatBorrower’s failure to comply with any of the Environmental Provisions will be abreach of contract that will entitle Lender to pursue the remedies provided by Section 736of the California Code of Civil Procedure (**“Section 736”**)for the recovery of damages and for the enforcement of the EnvironmentalProvisions. Pursuant to Section 736, Lender’s action for recovery ofdamages or enforcement of the Environmental Provisions shall not constitute anaction within the meaning of Section 726(a) of the California Code ofCivil Procedure or constitute a money judgment for a deficiency or a deficiencyjudgment within the meaning of Sections 580a, 580b, 580d, or 726(b) of theCalifornia Code of Civil Procedure.

 

(d)       Any reference in this Instrument or in anyother Loan Document to Section 18 of this Instrument shall be construed asreferring together to Section 18 and this Section 51.

 

**52.**      **WAIVER OF TRIAL BY JURY****. BORROWER AND LENDER EACH (A) COVENANTSAND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUTOF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS BORROWER ANDLENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TOTRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHTEXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY ISSEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OFCOMPETENT LEGAL COUNSEL.**

 

**ATTACHED EXHIBITS.** The following Exhibits are attached to thisInstrument:

 
| x      |   | Exhibit A | Description  of the Land (required). |
|--------|--------|----------------|--------------------------------------|
|   |   |           |                                 |
| x      |   | Exhibit B | Modifications  to Instrument         |

 

**INWITNESS WHEREOF,** Borrower has signed and delivered thisInstrument or has caused this Instrument to be signed and delivered by its dulyauthorized representative.

 

**[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]**

 

41

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| ** ** | ** ** | **WATERFORD PLACE APARTMENTS, LLC,**   |
|------------|------------|----------------------------------------|
|       |       | a California limited liability company |
|       |       |                                   |   |
|       |       | By:                                    | Shea  Properties Management Company, Inc., |
|       |       |                                   | a  Delaware corporation, its manager |
|       |       |                                   |   |   |
|       |       |                                   |   |   |
|       |       |                                   | By: | /s/  James G. Shontere |
|       |       |                                   |   | James  G. Shontere |
|       |       |                                   |   | Secretary |
|       |       |                                   |   |   |
|       |       |                                   |   |   |
|       |       |                                   | By: | /s/  Robert R. O’Dell |
|       |       |                                   |   | Robert  R. O’Dell |
|       |       |                                   |   | Treasurer |

 

42

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**CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT**

 
| State  of California   |
|------------------------|
|                   |
| County  of Los Angeles |

 
| On March 27, 2008 before me, Winnie L. Yee                                                                                                                                                                                                                                                                         | ,      |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|           DATE                              NAME,  TITLE OF OFFICER - E.G., “JANE DOE, NOTARY PUBLIC” |   |

 
| personally  appeared | James G. Shontere &  Robert R. O’Dell |                                                                         , |
|----------------------|-----------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 | NAME(S) OF SIGNER(S)                           |                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

whoproved to me on the basis of satisfactory evidence to be the person(s) whosename(s) is/are subscribed to the within instrument and acknowledged to methat they executed the same in their authorized capacity(ies), and that bytheir signature(s) on the instrument the person(s), or the entity uponbehalf of which the person(s) acted, executed the instrument.

 

Icertify under PENALTY OF PERJURY under the laws of the State of California thatthe foregoing paragraph is true and correct.

 

WITNESSmy hand and official seal.

 
| **[SEAL]** |   |   | /s/  Winnie L. Yee   |
|------------|--------|--------|----------------------|
|       |   |   | Signature  of Notary |

 

**OPTIONAL**

 

Thoughthe data below is not required by law, it may prove valuable to persons relyingon the document and could prevent fraudulent reattachment of this form.

 
| ** **                      | **CAPACITY CLAIMED BY SIGNER** |                             | **DESCRIPTION OF ATTACHED DOCUMENT**  |
|---------------------------------|--------------------------------|----------------------------------|---------------------------------------|
| ** **                      | ** **                     |                             | ** **                            |
| o                               | INDIVIDUAL                     | ** **                       | ** **                            |
| o                               | CORPORATE  OFFICER:            |                             |                                  |
|                            |                           |                             | TITLE OR TYPE OF DOCUMENT             |
|                            | TITLE(S)                       |                             |                                  |
|                            |                           |                             |                                  |
| o                               | PARTNER(S):                    | o    LIMITED |                                  |   |
| o                               |                           | o    GENERAL |                                  |   |
| o                               | ATTORNEY-IN-FACT               |                             |                                  |
| o                               | TRUSTEE(S)                     |                             | NUMBER OF PAGES                       |
| o                               | GUARDIAN/CONSERVATOR           |                             |                                  |
| o                               | OTHER:                         |                             |                                  |
|                            |                           |                             |                                  |
|                            |                           |                             | DATE OF DOCUMENT                      |
|                            |                           |                             |                                  |
| **SIGNER IS REPRESENTING:**     |                           |                             |
| NAME  OF PERSONS OR ENTITY(IES) |                           |                             |
|                            |                           |                             | SIGNER(S) OTHER THAN NAMED ABOVE |

 

43

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**CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT**

 

Stateof                               

 

Countyof                              

 
| On                                        before me, |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | , |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|
| DATE                                                                                                                                                                                                                                     | NAME, TITLE OF OFFICER - E.G., “JANE DOE, NOTARY  PUBLIC”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| personally  appeared                                                                                                                                                                                                                     |                                                                                                                                                         , |
|                                                                                                                                                                                                                                     | NAME(S) OF SIGNER(S)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |  |

 

whoproved to me on the basis of satisfactory evidence to be the person(s) whosename(s) is/are subscribed to the within instrument and acknowledged to methat he/she/they executed the same in his/her/their authorized capacity(ies),and that by their signature(s) on the instrument the person(s), or theentity upon behalf of which the person(s) acted, executed the instrument.

 

Icertify under PENALTY OF PERJURY under the laws of the State of California thatthe foregoing paragraph is true and correct.

 

WITNESSmy hand and official seal.

 
|   |   |   |                 |
|--------|--------|--------|----------------------|
|   |   |   | Signature  of Notary |

 

**OPTIONAL**

 

Thoughthe data below is not required by law, it may prove valuable to persons relyingon the document and could prevent fraudulent reattachment of this form.

 
| ** **                      | **CAPACITY CLAIMED BY SIGNER** |                             | **DESCRIPTION OF ATTACHED DOCUMENT**  |
|---------------------------------|--------------------------------|----------------------------------|---------------------------------------|
| ** **                      | ** **                     |                             | ** **                            |
| o                               | INDIVIDUAL                     | ** **                       | ** **                            |
| o                               | CORPORATE  OFFICER:            |                             |                                  |
|                            |                           |                             | TITLE OR TYPE OF DOCUMENT             |
|                            | TITLE(S)                       |                             |                                  |
|                            |                           |                             |                                  |
| o                               | PARTNER(S):                    | o    LIMITED |                                  |   |
| o                               |                           | o    GENERAL |                                  |   |
| o                               | ATTORNEY-IN-FACT               |                             |                                  |
| o                               | TRUSTEE(S)                     |                             | NUMBER OF PAGES                       |
| o                               | GUARDIAN/CONSERVATOR           |                             |                                  |
| o                               | OTHER:                         |                             |                                  |
|                            |                           |                             |                                  |
|                            |                           |                             | DATE OF DOCUMENT                      |
|                            |                           |                             |                                  |
| **SIGNER IS REPRESENTING:**     |                           |                             |
| NAME  OF PERSONS OR ENTITY(IES) |                           |                             |
|                            |                           |                             | SIGNER(S) OTHER THAN NAMED ABOVE |

 

44

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** **

**EXHIBIT B**

** **

MODIFICATIONS TO INSTRUMENT

 

The followingmodifications are made to the text of the Instrument that precedes thisExhibit:

 

1.                          Deleteclause (ii) of Section 2(b).

 

2.                          Changethe reference in the second sentence of Section 4(e) from “six months”to “three months” and add at the end of the sentence “provided, however, thatnot more than 2.5% of the total units in the Mortgaged Property at any one timemay be leased on a month-to-month basis as corporate units.”

 

3.                          Section 7of the Security Instrument is amended to add the following subsection:

 

“(h)             At least annually,the Borrower must provide Lender with proof of payment of all such Impositionsfor which Lender is not collecting Imposition Deposits.”

 

4.                          Delete Section 10(b).

 

5.                          In thefirst sentence of Section 12(a), after the words “then Lender at Lender’soption”, insert the following: “with concurrent notice to Borrower,”.

 

6.                          At theend of Section 13(a), insert the following: “Lender shall use good faithefforts to minimize interference with tenants of the Improvements whileconducting any environmental inspections and tests.”

 

7.                          In thefirst sentence of Section 14(a), after the words “management agent’soffices”, insert “or at the corporate offices of Shea Properties”.

 

8.                          Section 14(c)(iii) isdeleted in its entirety and replaced with the following:

 

“(iii)           a statement thatidentifies all owners of any interest in Borrower, if Borrower or a ControllingEntity is a corporation, all officers and directors of Borrower and theControlling Entity, and if Borrower or a Controlling Entity is a limitedliability company, all managers who are not members;”

 

9.                          Add thefollowing to the end of clause (i) of Section 14(d); “Notwithstandingthe foregoing provision of this subsection (i), so long as there is no Event ofDefault Lender shall not require financial statements other than an annualbalance sheet and income statement for the Borrower which are combined with thebalance sheet and income statement of J. F. Shea Co., Inc., whichfinancial statements shall be delivered to Lender, without the necessity of arequest by Lender, within 120 days following the end of each fiscal year ofBorrower.”

 

10.                    In Section 15(a),replace the words “when due” with the words “prior to delinquency”.

 

11.                    At the end ofthe second sentence of Section 17(f) after clause (i), after the word“Personality”, insert “, and except that without the consent of Lender,Borrower may make alterations and additions to the Improvements provided thatsuch alterations and additions

 

B-1

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are completed in alien-free and good and workmanlike manner in accordance with applicable laws,that neither the performance nor completion of the alterations or additionsadversely affects the structural integrity of the Improvements or the occupancyof the Improvements, and the aggregate costs of all such alterations andadditions does not exceed $1,500,000.”

 

12.                    In Section 18(e)(iv),insert the words “in all material respects” following and word “complied” inthe first sentence.

 

13.                    In Section 18(f)(ii),delete the words “or other person”,

 

14.                    Section 18(g) ismodified to provide that with respect to any Environmental Inspection requiredby Lender as a condition of Lender’s consent to any Transfer under Section 21,Lender shall (x) provide to Borrower reasonable notice of theEnvironmental Inspection, (y) to the extent reasonable, not interfere withthe rights of tenants in possession, and (z) shall cause any contractor,consultant or other entity conducting such Environmental Inspection to haveinsurance coverage for damages to the Property caused by such contractor,consultant or other entity as a result of such Environmental Inspection.

 

15.                    In Section 18(h),replace the words “on a timely basis” appearing in the second sentence with thewords “prior to the applicable deadline required by Hazardous Materials Laws”.

 

16.                    In Section 18(i),insert the words “in all material respects” following and word “comply” in thefirst sentence.

 

17.                    Insert the followingprovision after the words “any of the following” in the first sentence of Section 18(j):

 

“except to the extentthat any of the foregoing are conclusively determined to have first arisen as aresult of acts or occurrences which first occurred after such time as Borrowerhas sold, transferred or assigned all of its right, title and interest and intothe Mortgaged Property to Lender, or a successor or assign of Lender pursuantto a foreclosure or deed-in-lieu of foreclosure.”

 

18.                    In Section 19(f),after the third sentence, add the following: “However, if no Event of Defaulthas occurred, (i) if the cost of a “Restoration” (hereinafter defined) isreasonably estimated to be $1,500,000 or less, Borrower shall have theexclusive right to adjust or compromise claims under policies of insurance forpayment of the costs associated with such Restoration, provided that any suchadjustment or compromise shall be subject to Lender’s prior written approval;and (ii) in all other instances, Lender shall consult with and allow theparticipation of Borrower in connection with any adjustment or compromise ofclaims under policies of property insurance, but Lender’s determinations inconnection with any adjustment or compromise shall control.”

 

19.                    At the end of Section 20(b),insert the following: “The foregoing notwithstanding, Lender shall not exerciseits option to apply Condemnation awards or proceeds to the payment ofIndebtedness if the conditions set forth in Section 19(h) for theapplication of insurance proceeds to the Restoration are satisfied inconnection with the restoration of the Mortgaged Property following theCondemnation.” For the purposes of the preceding sentence, references in Section 19(h) to“the date of the loss or casualty” shall mean the date of the Condemnation.

 

B-2

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20.                    Section 21(c)(vii) ishereby deleted in its entirety.

 

21.                    Section 21(c) issupplemented and modified by adding the following provision:

 

“(viii)    A Transfer to any of thefollowing (“a Pre-Approved Entity”) under the terms and conditions set forth initems (1)-(7) below:

 

A)                     a Transfer ofall or any part of the Property or any interest in the Property to a SheaFamily Member (as hereinafter defined), or a Shea Controlled Entity (ashereinafter defined);”

 

B)                       a Transferof interests in Borrower or a change in the manager of Borrower or the managerof a Controlling Entity, provided that after giving effect to the Transfer orthe change in the manager, the condition set forth in item (3) below issatisfied;

 

C)                       a Transferof interests in a Controlling Entity, provided that after giving effect to theTransfer, the condition set forth in item (3) below is satisfied;

 

D)                      a Transferof all or part of the interests of any general partner in Borrower, providedthat after giving effect to the Transfer, the condition set forth in item (3) belowis satisfied.

 

E)                        Borrowerdelivers written notice of the Transfer to Lender not less than ten (10) BusinessDays’ prior to a Transfer of the Property, and not more than ten (10) BusinessDays’ following any other Transfer.

 

(1)                    Lenderreceives copies of the Transfer documents for a Transfer of the Property, andcopies of any modifications to the organizational documents of Borrower or anyControlling Entity or general partner resulting from any other Transfer.

 

(2)                    Upon theTransfer, one or more Shea Family Members (other than Claire Shea) and/or oneor more Shea Controlled Entities (other than one solely controlled by ClaireShea or her spouse, issue or any trust established by or for their benefit)shall own, collectively, not less than 50% of the ownership interests in eachof (w) the Property and (x) Borrower or a corporation, partnership,limited liability company, joint venture, or trust which is a ControllingEntity in Borrower.

 

(3)                    Lenderapproves the Transfer, which approval shall be granted if the Transfer meetsthe terms and conditions of this Section 2l(c)(viii).

 

(4)                    With respectto a transfer of the Property, (x) the transferee executes an assumptionagreement that is acceptable to Lender and which requires the transferee toperform all obligations of Borrower set forth in the Note, subject to theprovisions of section 9 of the Note, this Instrument and in any other LoanDocument, (y)

 

B-3

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each Guarantor (ifapplicable) reaffirms in writing its respective obligations under any Guarantyand acknowledges and confirms that the Guaranty remains in full force andeffect and that each Guarantor guarantees the Pre-Approved Entity’s obligationsunder the Note, this Instrument and the other Loan Documents, and (z) uponLender’s approval of the Transfer, the assumption agreement is recorded in theLand Records of the Property Jurisdiction.

 

(5)                    With respectto a Transfer of the Property, Borrower pays the cost of all title searches,title insurance and recording costs, and all fees and out of pocket costs ofLender’s legal counsel related to the Transfer.

 

(6)                    Lender shallnot collect a transfer fee of 1% of the unpaid principal balance in connectionwith the Transfer to the Pre-Approved Entity. In the case of a Transfer of aninterest in the Property, or in the case of a Transfer of an interest inBorrower, or any general partner of Borrower which is accompanied by a materialchange in the organizational documents of any such entity, Borrower shall pay areview fee in the amount of $2,000.

 

(7)                    At the time ofthe Transfer, there exists no Event of Default under this Instrument.

 

For the purposes of this Section 21(c)(viii),the following terms shall have the following meanings:

 

“Shea Family Member”means John Shea, Peter Shea, Edmund Shea, Claire Shea and their respectivespouses and issue, and trusts established by or for the benefit of any of theforegoing.

 

“Shea Controlled Entity”means any corporation, partnership, limited liability company, or jointventure, at least 50.1% of the ownership interests in which are held by one ormore Shea Family Members or another Shea Controlled Entity.

 

22.                    Delete Section 21(f)(iv).

 

23.                    Delete Section 22(f).

 

24.                    In Section 22(h),in the second sentence, change “90 days” to “120 days”, and change “60 days” to“90 days”.

 

25.                    Clause (ii) ofSection 29 to read as follows: “confirmation of Lender’s calculation ofthe unpaid principal balance of the Note;”.

 

26.                    Notwithstandingthe provisions of Section 37, the modifications set forth in this Exhibit Bshall become ineffective upon a Transfer that requires Lender’s consent or uponany Transfer that constitutes an Event of Default under Section 21(e) ofthis Instrument.

 

B-4

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27.                    A new Section 53is hereby added as follows:

 

“**53.**    **SUPPLEMENTAL LIEN PROVISIONS.**

 

(a)       **Definitions.** For purposes of this Section only, thefollowing terms have the meanings set forth below:

 

i.                            **Event of Default** means an Event of Defaultdescribed in this Instrument and the Senior Instrument and if the SeniorInstrument is documented on the FNMA/FHLMC Uniform Instrument dated 1/77, anybreach by Borrower of any covenant or agreement in the Senior Instrument,Senior Note or any other Senior Loan Document after the expiration of anyapplicable cure period.

 

ii.                         **Supplemental Instrument** means theInstrument to which this Exhibit B is attached.

 

iii.                      **Supplemental Loan Documents** means alldocuments relating to the loan evidenced by the Supplemental Note.

 

iv.                     **Supplemental Note** means the MultifamilyNote secured by the Supplemental Instrument.

 

v.                        **Supplemental Lender** means the Lender namedin this Supplemental Instrument and its successors, assigns and transferees.

 

(b)       **Subordination of Lien**. Notwithstanding any provisions of thisSupplemental Instrument or the Supplemental Loan Documents to the contrary, itis understood and agreed that the lien, terms, covenants and conditions of thisSupplemental Instrument are and shall be subordinate in all respects, includingright of payment, to the indebtedness (“**SeniorIndebtedness**”) evidenced by a Multifamily Note dated April 1,2004, in the original principal amount of $52,000,000.00 (as modified oramended the **“Senior Note”**) made byor assumed by the Borrower and secured by a Multifamily Deed of Trust,Assignment of Rents, Security Agreement and Fixture Filing, dated April 1,2004 (the “**Senior Instrument**”) toor for the benefit of Berkshire Mortgage Finance Limited Partnership, aMassachusetts limited partnership, which was recorded on April 15, 2004 inthe Office of Alameda County, California as Document No. 2004-159476 andwas assigned to the Federal Home Loan Mortgage Corporation (together with itssuccessors, assigns and transferees, the “**SeniorLender**”) by assignment dated April 15, 2004 and recorded on April 15,2004 in the Office of Alameda County, California as Document No. 2004-159477.

 

(c)       **Default Under Other Liens**. If there is an Event of Defaultunder (i) the Senior Note, the Senior Instrument or any other loandocument executed in connection with the Senior Indebtedness (the “**Senior Loan Documents**”); or (ii) anyloan document related to another loan in connection with the Mortgaged Property(regardless of whether Borrower has obtained Supplemental Lender’s approval ofthe placement of such lien on the Mortgaged Property), then such Event ofDefault shall be an Event of Default under this Supplemental Instrument andshall entitle Supplemental Lender to invoke any and all

 

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remedies permitted toSupplemental Lender by applicable law, the Supplemental Note, this SupplementalInstrument or any other Supplemental Loan Documents.

 

(d)       **Cross Default of Senior Instrument with Supplemental Instrument**...As Borrower under both this Supplemental Instrument and the Senior Instrument,Borrower hereby acknowledges and agrees that if there is an Event of Defaultunder the Supplemental Note, this Supplemental Instrument or any otherSupplemental Loan Document, such Event of Default shall be an Event of Defaultunder the terms of the Senior Instrument and shall entitle Senior Lender toinvoke any and all remedies permitted to Senior Lender by applicable law, theSenior Note, the Senior Instrument or any of the other Senior Loan Documents.

 

(e)       **No Merger**.

 

(i)                       It is theintent of Borrower and Supplemental Lender that if Supplemental Lender obtainstitle to the Mortgaged Property (by virtue of a foreclosure sale, a deed inlieu of foreclosure or otherwise) and Supplemental Lender is also orsubsequently becomes the holder of the Senior Note and Senior Instrument,Supplemental Lender’s title interest and Lien interest shall not automaticallymerge so as to effect an extinguishment of the Senior Instrument by operationof the doctrine of merger.

 

(ii)                    It is theintent of Borrower and Supplemental Lender that if Senior Lender obtains titleto the Mortgaged Property (by virtue of a foreclosure sale, a deed in lieu offoreclosure or otherwise) and Senior Lender is also or subsequently becomes theholder of the Supplemental Note and Supplemental Instrument, Senior Lender’stitle interest and lien interest shall not automatically merge so as to effectan extinguishment of this Supplemental Instrument by operation of the doctrineof merger.

 

(iii)                 Borroweracknowledges and agrees that no course of conduct by Borrower, SupplementalLender or Senior Lender subsequent to the date of this Supplemental Instrumentshall be used to demonstrate any intent contrary to the express intent statedin this Section. Borrower further agrees that the holder of the Senior Note isa third party beneficiary of the provisions of this Section and that noamendments, modifications, waivers or other limitations of this Section shallbe effective without the prior written agreement of the holder of the SeniorNote.

 

(f)        **Collection of Escrows for Impositions and Replacement Reserves.**

 

(i)                       For so longas the same person or entity is both Senior Lender and Supplemental Lender,monthly payments made by Borrower under the Senior Instrument from and afterthe effective date of this Supplemental Instrument as deposits for the paymentof any Impositions shall be credited to the monthly deposits for the payment ofsuch Impositions under this Supplemental Instrument.

 

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(ii)                     For so longas the same person or entity is both Senior Lender and Supplemental Lender,monthly payments made by Borrower from and after the effective date of thisSupplemental Instrument pursuant to the Replacement Reserve Agreement executedin connection with the Senior Note (**“SeniorReplacement Reserve Agreement”**) shall be credited to the monthlyamounts due by Borrower in connection with the Replacement Reserve Agreementexecuted in connection with the Supplemental Indebtedness (**“Supplemental Replacement Reserve Agreement”**).

 

(g)       **Additional Collateral.**

 

(i)                        Subject toSenior Lender’s interest, Borrower hereby assigns and grants to SupplementalLender a security interest in all Imposition Deposits, all amounts in theReplacement Reserve Fund (as such term is defined in****the Senior Replacement Reserve Agreement) and any amount inany repair escrow in connection with the Senior Indebtedness as additionalsecurity for all of the Borrower’s obligations under the Supplemental Note.

 

(ii)                     In addition,Borrower hereby assigns and grants to Senior Lender a security interest in allImposition Deposits, all amounts in the Replacement Reserve Fund (as such termis defined in the Supplemental Replacement Reserve Agreement) and any amount inany repair escrow in connection with the Supplemental Indebtedness asadditional security for all of the Borrower’s obligations under the SeniorNote.

 

(iii)                  It is theintention of Borrower that so long as the same person or entity is both SeniorLender and Supplemental Lender, that all amounts deposited by Borrower inconnection with either the Senior Loan Documents, the Supplemental Loan Documentsor both, constitute collateral for the Indebtedness secured by the SupplementalInstrument and the Senior Indebtedness secured by the Senior Instrument, withthe application of such amounts to such Senior Indebtedness or Indebtedness tobe at the discretion of Senior Lender and Supplemental Lender.”

 

28.       A new Section 54 is hereby added as follows:

 

**“54.**    **CONDOMINIUM PROVISIONS.**

 

(a) Borrower represents and warrants that, tothe best of its knowledge, the Mortgaged Property is a condominium (the “Condominium”)and constitutes all of Unit 1 (as defined in the Condominium Instruments”) anda 97% tenancy-in-common interest in the common elements comprising theWaterford Place Condominiums, a Condominium, as established under theapplicable Condominium Act codified in California Civil Code Sections 1350 etseq., as from time to time amended (the “Condominium Act”). The Declaration, asrecorded in the official records of Alameda County, State of California asDocument No. 2003653881, Bylaws and Plats establishing and describing the

 

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Condominium,arc collectively referred to below as the “Condominium Instruments.”

 

(b)       Borrowerhereby agrees that the Condominium Instruments will not be modified or amendedwithout the prior written consent of Lender until the Indebtedness has beenpaid in full.

 

(c)       Borrowerrepresents and warrants that none of the units in Unit 1 and its 97%tenancy-in-common interest in the common elements comprising the Condominiumhave been sold, conveyed or encumbered or are subject to any agreement toconvey or encumber. Borrower agrees that it will not in any way pledge, sell,convey or encumber or enter into a contract or agreement to pledge, sell,convey or encumber any unit in Unit I or any of its 97% tenancy-in-commoninterest in the common elements of the Condominium unless expressly agreed toin writing by Lender.

 

(d)       Borroweragrees that it shall own, operate and maintain the Mortgaged Properly inaccordance with the terms of this Instrument and operate the Mortgaged Propertysolely as a rental apartment project.

 

(e)       TheMortgaged Property granted, conveyed and assigned to Lender hereunder shallinclude all rights, easements, rights of way, reservations and powers of theBorrower under the Condominium Act and the Condominium Instruments in Borrower’scapacity as owner of the Mortgaged Property and as Declarant as well as anyrights that Borrower may have, in any capacity, under the Condominium Act andthe Condominium Instruments in addition to Borrower’s rights as owner of any ofthe units or the Condominium, specifically including but not limited to allrights to approve any amendments to the Condominium Instruments and all rightsto expand the Condominium.

 

(f)        Borrowerhereby irrevocably constitutes and appoints Lender as Borrower’s proxy andattorney-in-fact (which appointment shall be deemed coupled with an interest)for and in its behalf to perform all of the obligations of Borrower and toexercise all of the rights and powers of Borrower under the CondominiumInstruments without any liability therefor or thereunder (except for grossnegligence or willful misconduct). Borrower hereby instructs and grants andgives to Lender full power and authority to do and perform all and every actand thing whatsoever authorized, permitted, requisite or necessary to be doneby Borrower under the provisions of the Condominium Instruments to all intentsand purposes the same as Borrower might do, hereby ratifying and confirming allsuch attorney shall lawfully do or choose to do or be done by virtue hereof, itbeing understood and agreed that the aforesaid provisions impose no burden orobligation on the Lender to do or perform any act whatsoever. It shall be adefault under this Instrument if (i) Borrower terminates or revokes orattempts to terminate or revoke the aforesaid appointment of Lender as Borrower’sproxy or attorney-in-fact either permanently or as to any election in theCondominium Act or Condominium Instruments or (ii) Borrower attempts tomodify the terms of the Condominium Instruments without the prior writtenconsent of Lender. Notwithstanding anything in this paragraph to the contrary,the rights and powers of Borrower granted in this paragraph may not beexercised by Lender prior to the occurrence of an Event of Default

 

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(g)       Borrowerhereby agrees that it shall maintain insurance in accordance with Lender’srequirements on all of the Mortgaged Property, including any common areas.

 

(h)       Nothingcontained herein is intended to or shall be construed to constitute Lender asthe “Declarant” under the Condominium Act and/or the Condominium Instruments oras owner of the Condominium, a partner or joint venturer of Borrower.

 

(i)        Borrowerhereby agrees to indemnify and hold Lender harmless from and against any andall losses, cost, liabilities, or damages (including attorney’s fees anddisbursements) arising out of (i) the failure of the Borrower to complywith any state or local law, ordinance, statute, or regulation by anygovernmental authority covering the condominium at the Mortgaged Property; or (ii) anyclaim of any unit owner or tenant of any unit owner as a result of anyviolation, breach, misrepresentation, fraud, act, or omission of any obligationof Borrower as set forth in the Condominium Instruments.

 

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