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Exhibit 10.5


                                                                Loan No. 99-407


                     HAZARDOUS MATERIALS INDEMNITY AGREEMENT


            This HAZARDOUS MATERIALS INDEMNITY AGREEMENT (this "Agreement") is
made as of December 30, 1999 by and among BALANCED CARE REALTY AT STATE COLLEGE,
INC., a Delaware corporation, BALANCED CARE REALTY AT ALTOONA, INC., a Delaware
corporation, BALANCED CARE REALTY AT LEWISTOWN, INC., a Delaware corporation,
BALANCED CARE REALTY AT READING, INC., a Delaware corporation, BALANCED CARE
REALTY AT BERWICK, INC., a Delaware corporation, BALANCED CARE REALTY AT
PECKVILLE, INC., a Delaware corporation, BALANCED CARE REALTY AT SCRANTON, INC.,
a Delaware corporation, BALANCED CARE REALTY AT MARTINSBURG, INC., a Delaware
corporation, BALANCED CARE REALTY AT MAUMELLE, INC., a Delaware corporation,
BALANCED CARE REALTY AT SHERWOOD, INC., a Delaware corporation, BALANCED CARE
REALTY AT MOUNTAIN HOME, INC., a Delaware corporation and BALANCED CARE REALTY
AT MANSFIELD, INC., a Delaware corporation (collectively, "Borrower"), and
BALANCED CARE CORPORATION, a Delaware corporation ("BCC") in favor of HELLER
HEALTHCARE FINANCE, INC., a Delaware corporation ("Lender"), whose address is 2
Wisconsin Circle, Suite 400, Chevy Chase, Maryland 20815.

                                    RECITALS

            A. Each Borrower is the owner in fee simple of that certain real
property described in Exhibit A attached hereto (collectively called the
"Properties") and together with all rights and appurtenances thereto and all
improvements presently located or hereafter constructed thereon are hereinafter
collectively called the "Project").

            B. Concurrently herewith, Lender is making a loan to Borrower in the
principal sum of Thirty-Two Million and No/100 Dollars ($32,000,000.00) (the
"Loan").

            C. To evidence the Loan, Borrower has executed and delivered to
Lender a Promissory Note A of even date herewith in the face amount of
Twenty-Five Million Six Hundred Thousand and No/100 Dollars ($25,600,000.00) and
a Subordinated Promissory Note B of even date herewith in the face amount of Six
Million Four Hundred Thousand and No/100 Dollars ($6,400,000.00) (said notes and
any and all renewals, amendments, modifications, increases and extensions
thereof are hereinafter collectively
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called the "Note") and a Loan Agreement of even date herewith (as amended from
time to time, the "Loan Agreement").

            D. Concurrently herewith, each Borrower has granted to Lender a
first mortgage or deed of trust (as amended from time to time, the "Mortgages")
encumbering its Property. The Notes, the Loan Agreement, the Mortgages, and any
other documents evidencing or securing the Loan or executed in connection
therewith, and any modification, renewal or extension of any of the foregoing
are collectively called the "Loan Documents".

            E. BCC owns, directly or indirectly, one hundred percent (100%) of
all issued and outstanding capital stock of each Borrower.

            F. Lender, as a condition to making the Loan, has requested that
Borrower and BCC enter into this Agreement to indemnify Lender against
liabilities arising from Hazardous Materials (as hereinafter defined) used or
located on, or affecting the Project or any part thereof, and that Borrower and
BCC acknowledge and agree that their execution and delivery of this Agreement
and their performance of the covenants contained herein are material inducements
for Lender's agreement to make the Loan.

                                   AGREEMENTS

            NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and BCC hereby represent, warrant, covenant and agree as
follows:

            1. No Hazardous Materials on Project. Borrower and BCC represent and
warrant to the best of their knowledge, and covenant that there are no, nor will
there be, for as long as any indebtedness or obligations remain outstanding
under the Loan, any Hazardous Materials generated, released, stored, buried or
deposited over, beneath, in or upon the Project or any part thereof or on or
beneath the surface of adjacent property, except as such Hazardous Materials may
be generated, used, stored or transported in connection with the permitted uses
of the Project or any part thereof and then only to the extent permitted by law
after obtaining all necessary permits and licenses therefor. "Hazardous
Materials" shall mean and include any pollutants, flammables, explosives,
petroleum (including crude oil) or any fraction thereof, radioactive materials,
hazardous wastes, dangerous or toxic substances or related materials, including
substances defined as or included in the definition of toxic or hazardous
substances, wastes or materials under any federal, state or local laws,
ordinances, regulations or guidances which relate
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to pollution, the environment or the protection of public health and safety, or
limiting, prohibiting or otherwise regulating the presence, sale, recycling,
generation, manufacture, use, transportation, disposal, release, storage,
treatment of, or response or exposure to, toxic or hazardous substances, wastes
or materials. Such laws, ordinances and regulations, now or hereafter in effect,
and as the same may be amended from time to time, are hereinafter collectively
referred to as the "Hazardous Materials Laws."

            2. Compliance with Laws. For as long as any indebtedness or
obligations remain outstanding under the Loan Documents, Borrower and BCC shall,
and shall cause their respective employees, agents, tenants, contractors and
subcontractors and any other persons from time to time present on or occupying
the Project or any part thereof to, keep and maintain the Project in compliance
with, and not cause or knowingly permit the Project or any part thereof to be in
violation of, any applicable Hazardous Materials Laws. None of Borrower, BCC or
any of their respective employees, agents, tenants, contractors or
subcontractors or any other persons occupying or present on the Project or any
part thereof shall generate, use, store, manufacture or dispose of on, under or
about any part of the Project or transport to or from the Project or any part
thereof any Hazardous Materials, except such Hazardous Materials as may be
generated, used, stored or transported in connection with the permitted uses of
the Project or any part thereof and then only to the extent permitted by law
after obtaining all necessary permits and licenses therefor.

            3. Hazardous Materials Claims. Borrower and BCC shall immediately
advise Lender in writing of: (a) any notices received by Borrower or BCC or
their Affiliates (as defined in the Loan Agreement) (whether such notices are
from the Environmental Protection Agency, or any other federal, state or local
governmental agency or regional office thereof) of the violation or potential
violation of any applicable Hazardous Materials Laws occurring on, under or
about the Project or any part thereof; (b) any and all enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed or
threatened against Borrower, BCC or the Project or any part thereof pursuant to
any Hazardous Materials Laws; (c) all claims made or threatened by any third
party against Borrower, BCC or the Project or any part thereof relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
any Hazardous Materials (the matters set forth in clauses (a), (b) and (c) above
are hereinafter referred to as "Hazardous Materials Claims"); and (d) the
discovery by Borrower or BCC or their Affiliates of any occurrence or condition
on the Project or any part thereof or any
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real property adjoining or in the vicinity of the Project or any part thereof
that could cause the Project or any part thereof or any part thereof to be
subject to any Hazardous Materials Claims. Lender shall have the right but not
the obligation to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated in connection with any Hazardous Materials
Claims and Borrower and BCC shall pay to Lender, upon demand, all attorneys' and
consultants' fees incurred by Lender in connection therewith.

            4. Other Hazardous Materials Laws. Borrower and BCC hereby
represent, warrant and certify to the best of their knowledge, based on due
inquiry, that (a) there are no underground storage tanks located on, under or
about the Project or any part thereof that are subject to the notification
requirements under Section 9002 of the Solid Waste Disposal Act, as now or
hereafter amended (42 U.S.C. Section 6991); and (b) there is no facility located
on the Project or any part thereof that is subject to the reporting requirements
of Section 312 of the Federal Emergency Planning and Community Right to Know Act
of 1986 and the Federal regulations promulgated thereunder (42 U.S.C. Section
11022).

            5. Inspection and Testing. Lender may require Borrower and BCC, at
their sole cost and expense, from time to time (but not more than once each
calendar year for each Property, unless an Event of Default (as defined in the
Loan Agreement) is then continuing) to perform or cause to be performed, such
studies or assessments of the Project or any part thereof, as Lender may
reasonably deem necessary, appropriate or desirable, to determine the status of
environmental conditions on, under and about the Project or any part thereof,
which studies and assessments shall be for the benefit of Lender and shall be
prepared in accordance with the specifications established by Lender.

            6. Removal of Hazardous Materials. Borrower and BCC, at their sole
cost and expense, shall, with due care, in a safe manner and in accordance with
all Hazardous Materials Laws, detain the spread of, ameliorate and remove from
the Project and every part thereof (and from any other property as required by
any Hazardous Materials Laws) any Hazardous Materials contamination located on,
under or about any such property in violation of Hazardous Materials Laws and
monitor or cause to be monitored the levels of such Hazardous Materials on,
under or about any such property or in the ground water in accordance with the
terms and procedures required by any federal, state or local governmental agency
having jurisdiction including, without limitation, any Regional Water Quality
Control Board and the Environmental Protection Agency.
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            7. Indemnification. Borrower and BCC shall jointly and severally
indemnify, defend and save harmless Lender and its officers, directors,
shareholders, agents, attorneys, representatives and employees, their successors
and assigns (individually and collectively "Indemnitee"), from and against any
and all claims, demands, causes of action, damages, costs, expenses, lawsuits
and liabilities, at law or in equity, of every kind or nature whatsoever,
directly or indirectly arising out of or attributable to the generation, use,
storage, release, threatened release, discharge, disposal or presence of
Hazardous Materials on, under or about the Project or any part thereof (whether
occurring prior to or during or after the term of the Loan or otherwise and,
except as provided below, regardless of by whom caused, whether by Borrower, BCC
or any predecessor in title or any owner of land adjacent to any part of the
Project or any other third party, or any employee, agent, tenant, contractor or
subcontractor of Borrower, BCC or any predecessor in title or any such adjacent
land owner or any third person) including, without limitation:

            (a) Claims of third parties (including governmental agencies) for
injury to or death of any person or for damage to or destruction of any
property;

            (b) Claims for response costs, clean-up costs, costs and expenses of
removal and restoration, including fees of attorneys and experts, and costs of
determining the existence of Hazardous Materials and reporting same to any
governmental agency;

            (c) Any and all other claims for expenses or obligations, including
attorneys' fees, costs, and other expenses related to Hazardous Materials on,
under or about any part of the Project;

            (d) Any and all penalties threatened, sought or imposed on account
of a violation of any Hazardous Materials Laws;

            (e) All reasonable fees of any consultants, attorneys, and
engineering firms retained in connection with monitoring the obligations of
Borrower and BCC under this Agreement and the Loan Documents; and

            (f) Any loss occasioned by diminution in the value of any of the
Properties which may result from any of the foregoing;

provided, however, no Indemnitee shall be entitled to indemnification hereunder
for any claim arising from any Indemnitee's gross negligence or intentional
misconduct.
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            8. Defense or Settlement of Claims.

            (a) To assert an indemnity claim under this Agreement, Indemnitee
shall notify Borrower and BCC in writing as soon as reasonably practical under
the circumstances stating the facts which entitle Indemnitee to make a claim for
indemnification.

            (b) Borrower and BCC shall, at their own cost, expense and risk:

            (i) defend all suits, actions, or other legal or administrative
      proceedings that may be threatened, brought or instituted against an
      Indemnitee on account of any matter or matters described in Section 7
      above;

            (ii) pay or satisfy any judgment, decree or settlement that may be
      rendered against or agreed to by an Indemnitee in any such suit, action or
      other legal or administrative proceeding;

            (iii) reimburse Indemnitee for any and all reasonable expenses,
      including, without limitation, all legal expenses incurred in connection
      with any of the matters described in Section 7 above or in connection with
      enforcing this Agreement; and

            (iv) reimburse Indemnitee for any loss occasioned by the diminution
      in the value of any of the Properties caused by the presence of Hazardous
      Materials or the breach of any representation, warranty or obligation of
      Borrower or BCC.

            (c) Any law firm selected by Borrower or BCC to defend an
indemnified claim shall be subject to the approval of Indemnitee which approval
shall not be unreasonably withheld or delayed; provided that upon thirty (30)
days prior written notice, Indemnitee may elect to defend, using a law firm
selected by such Indemnitee, any such claim, loss, action, legal or
administrative proceeding at the cost and expense of Borrower and BCC, if, in
the reasonable judgment of Indemnitee: (i) the defense is not proceeding or
being conducted in a satisfactory manner or (ii) there is a conflict of interest
between any of the parties to such lawsuit, action, legal or administrative
proceeding.

            (d) If Indemnitee exercises its right to designate counsel pursuant
to the preceding clause, all costs and expenses thereof shall be paid by
Borrower and BCC within ten (10) days following written demand by such
Indemnitee.
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            (e) In the event Borrower or BCC shall pay to Indemnitee any claim
under this Agreement, then Borrower or BCC (as applicable) shall be subrogated
to any rights of such Indemnitee relating thereto, and such Indemnitee will
cooperate with Borrower and BCC, at the cost and expense of Borrower and BCC, in
enforcing such rights; provided, that such subrogation shall not be in
derogation of any rights of the Indemnitee under this Agreement, and shall not
be construed to limit the obligations of Borrower or BCC hereunder.

            9. Binding Effect. All the covenants and agreements of each Borrower
or BCC contained in this Agreement shall apply to and bind their respective
heirs, legal representatives, successors and assigns and shall inure to the
benefit of each Indemnitee and its successors and assigns.

            10. Indemnification Separate from the Loan.

            (a) Borrower and BCC agree that this Agreement is separate,
independent of and in addition to the undertakings of Borrower and BCC pursuant
to the Loan, the Note, the Loan Agreement and the other Loan Documents. A
separate action may be brought to enforce the provisions hereof, which shall in
no way be deemed to be an action on the Note, whether or not the Loan has been
repaid and whether or not Lender would be entitled to a deficiency judgment
following a judicial foreclosure, trustee's sale or UCC sale. The obligations of
Borrower and BCC hereunder shall not be affected by any exculpatory provisions,
if any, contained in the Note, the Loan Agreement or any of the other Loan
Documents. This Agreement, and all rights and obligations hereunder, shall
survive performance and repayment of the obligations evidenced by and arising
under the Loan Documents, surrender of the Note, reconveyance of the Mortgages,
release of other security provided in connection with the Loan, trustee's sale
or foreclosure under the Mortgages and/or any of the other Loan Documents
(whether by deed or other assignment in lieu of foreclosure, or otherwise,
acquisition of any or all of the Properties by Lender, any other transfer of any
or all of the Properties, and transfer of all of Lender's rights in the Loan,
the Loan Documents, and any or all of the Properties.

            (b) Borrower and BCC waive all rights to require Lender to (i)
proceed against or exhaust any security for the Loan or (ii) pursue any remedy
in Lender's power whatsoever. Borrower waives all defenses by reason of any
disability or other defense under the Loan or by reason of the cessation from
any cause whatsoever of its liability under the Loan, or that it may acquire by
reason of Lender's election of any remedy against it
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including, without limitation, Lender's exercise of its rights to foreclose
under any or all of the Mortgages.

            11. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Illinois.

            12. Amendments. This Agreement may not be modified, amended, waived
or terminated, except by a written instrument executed by the parties hereto.

            13. Parties in Interest. Except as expressly set forth herein,
nothing in this Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Agreement on any persons other
than the parties to it and their respective successors and assigns, nor is
anything in this Agreement intended to relieve or discharge the obligation or
liability of any third persons to any party to this Agreement, nor shall any
provision give any third persons any right of subrogation or action over or
against any party to this Agreement.

            14. Personal Liability. Borrower and BCC hereby acknowledge and
agree that notwithstanding any other provisions of this Agreement, the Note, the
Loan Agreement or the other Loan Documents which may be to the contrary, the
obligations of Borrower and BCC under this Agreement shall be the unlimited
personal obligations of Borrower and BCC.

            15. Joint and Several Obligations. The obligations of each of the
undersigned hereunder shall be joint and several.

            16. Counterparts. This Agreement may be executed in two or more
counterparts.

            17. Consent To Jurisdiction. BORROWER AND BCC HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. BORROWER AND BCC EXPRESSLY
SUBMITS AND CONSENTS TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY
DEFENSE OF FORUM NON CONVENIENS. BORROWER AND BCC HEREBY WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE
UPON BORROWER AND BCC BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO BORROWER AND BCC, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
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            18. Jury Trial Waiver. BORROWER AND BCC, AND LENDER BY ITS
ACCEPTANCE OF THIS AGREEMENT, HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER
OF THIS AGREEMENT AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER, BCC AND
LENDER, AND BORROWER AND BCC ACKNOWLEDGE THAT NEITHER LENDER NOR ANY PERSON
ACTING ON BEHALF OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS
WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. BORROWER, BCC AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT BORROWER BCC AND
LENDER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. BORROWER, BCC AND LENDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN
REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF
THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.

            Borrower and BCC have executed this Agreement or have caused the
same to be executed as of the date first set forth above.


                           BORROWER:

                           BALANCED CARE REALTY AT STATE
                           COLLEGE, INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Printed Name Clint T. Fegan
                           Its VP-CFO

                           BALANCED CARE REALTY AT ALTOONA,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT LEWISTOWN,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its
<PAGE>   10
                           BALANCED CARE REALTY AT READING,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT BERWICK,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT PECKVILLE,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT SCRANTON,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT MARTINSBURG,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT MAUMELLE,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its
<PAGE>   11
                           BALANCED CARE REALTY AT SHERWOOD,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT MOUNTAIN
                           HOME, INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BALANCED CARE REALTY AT MANSFIELD,
                           INC., a Delaware corporation

                           By/s/Clint T. Fegan
                           Name
                           Its

                           BCC:

                           BALANCED CARE CORPORATION,
                           a Delaware corporation


                           By/s/Clint T. Fegan
                           Name
                           Its