Document:

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                                                                   EXHIBIT 10.84

Regulatory Agreement
NURSING HOMES
U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT
Office of Housing
Federal Housing Commissioner

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Project Number                         Mortgagee
121-22028-ALF                          Red Capital Mortgage, Inc., an Ohio
                                       corporation
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Amount of Mortgage Note                Date
$1,789,700.00                          December 5, 2000
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Mortgage Recorded (State)     County                   Date
California                    Santa Clara              December __, 2000
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Book                                   Page

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        This Agreement entered into this 5th day of December, 2000 between
RETIREMENT INNS II, LLC, a Delaware limited liability company whose address is
245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626 (jointly and
severally, hereinafter referred to as Lessee) and the undersigned FEDERAL
HOUSING COMMISSIONER, (hereinafter called Commissioner).

        In consideration of the consent of the Commissioner to the leasing of
the aforesaid project by ARV CAMPBELL, L.P., a California limited partnership,
Mortgagor, and in order to comply with the requirements of the National Housing
Act and the Regulations adopted by the Commissioner pursuant thereto, Lessees
agree for themselves, their successors, heirs and assigns, that in connection
with the mortgaged property and the project operated thereon and so long as the
Contract of Mortgage Insurance continues in effect, and during such further
period of time as the Commissioner shall be the owner, holder or reinsurer of
the mortgage, or during any time the Commissioner is obligated to insure a
mortgage on the mortgaged property:

        (1)  The lease shall be subject and subordinate to the mortgage securing
             the note or other obligation endorsed for insurance by the
             commissioner;

        (2)  Lessee shall make payments under lease when due;

        (3)  Payments by the lessee to the lessor shall be sufficient to pay all
             mortgage payments including payments to reserves for taxes,
             insurance, etc., payments to the Reserve for Replacements, and to
             take care of necessary maintenance. If at the end of any calendar
             year, or any fiscal year if the project operates on the basis of a
             fiscal year, payments under the lease have not been sufficient to
             take care of the above items, the lessor and lessee upon request in
             writing from the Commissioner shall renegotiate the amounts due
             under the lease so that such amounts shall be sufficient to take
             care of such items; the Commissioner shall be furnished by the
             lessee, within thirty days after being called upon to do so, with a
             financial report in form satisfactory to the Commissioner covering
             the operations of the mortgaged property and of the project;

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        (4)  The lessee shall not sublease the project or any part thereof
             without the consent of the Commissioner;

        (5)  The lessee shall at all times maintain in full force and effect a
             license from the State or other licensing authority to operate the
             project as a nursing home, but the owner shall not be required to
             maintain such a license;

        (6)  Lessee shall maintain in good repair and condition any parts of the
             project for the maintenance of which lessee is responsible under
             the terms of the lease;

        (7)  Lessee shall not remodel, reconstruct, add to, or demolish any part
             of the mortgaged property or subtract from any real or personal
             property of the project;

        (8)  Lessee shall not use the project for any purpose except the
             operation of a nursing home;

        (9)  If a default is declared by the Commissioner under the provisions
             of Paragraph 10 of the Regulatory Agreement entered into by the
             lessor-mortgagor and the Commissioner on the 5th day of December,
             2000, a copy of notice of default having been given to the lessee,
             the lessee will thereafter make all future payments under the lease
             to the Commissioner;

        (10) The lease may be cancelled upon thirty days written notice by the
             Commissioner given to the lessor and the lessee for a violation of
             any of the above provisions unless the violation is corrected to
             the satisfaction of the Commissioner within said thirty day period.

        (11) The Commissioner must approve any change in or transfer of
             ownership of the lessee entity, and any change in or transfer of
             the management operation, or control of the project.

        (12) The lessee shall not reduce or expand, allow to be reduced or
             expanded, or cause the expansion or reduction of the bed capacity
             of the project without the consent of the Commissioner. Any change
             in the bed capacity shall violate this Regulatory Agreement.

        (13) The lessee shall not enter into any management contract involving
             the project, unless such shall contain a provision that, in the
             event of default under the Regulatory Agreement as recited in
             paragraph 9 (above) of this Agreement, the management agreement
             shall be subject to termination without penalty upon written
             request of the Commissioner. Upon such request the lessee shall
             immediately arrange to terminate the contract within a period of
             not more than thirty (30) days and shall make arrangements
             satisfactory to the Commissioner for continuing proper management
             of the project.

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

        (15) There shall be full compliance with the provisions of (1) any State
             or local laws prohibiting discrimination in housing on the basis of
             race, color, creed, or national origin; and (2) with the

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             Regulations of the Federal Housing Administration providing for
             non-discrimination and equal opportunity in housing. It is
             understood and agreed that failure or refusal to comply with any
             such provisions shall be a proper basis for the Commissioner to
             take any corrective action he may deem necessary including, but not
             limited to, the refusal to consent to a further renewal of the
             lease between the mortgagor-lessor and the lessee, the rejection of
             applications for FHA mortgage insurance and the refusal to enter
             into future contracts of any kind with which the lessee is
             identified; and further, if the lessee is a corporation or any
             other type of business association or organization which may fail
             or refuse to comply with the aforementioned provisions, the
             Commissioner shall have a similar right of corrective action (1)
             with respect to any individuals who are officers, directors,
             trustees, managers, partners, associates or principal stockholders
             of the lessee; and (2) with respect to any other type of business
             association, or organization with which the officers, directors,
             trustees, managers, partners, associates or principal stockholders
             of the lessee may be identified.

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

                             RETIREMENT INNS II, LLC
                             a Delaware limited liability company

                             By:     ___________________________
                                     Abdo H. Khoury
                                     Manager

                                     December 5, 2000

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

                             By:     ________________________________
                                     Authorized Agent

                             December 5, 2000<PAGE>   1

                                                                   EXHIBIT 10.85

                               DEED OF TRUST NOTE

$8,855,000.00                                          San Francisco, California
                                                                December 5, 2000

        FOR VALUE RECEIVED, the undersigned, ARV SUNNYVALE, L.P., a California
limited partnership, promises to pay RED MORTGAGE CAPITAL, INC., an Ohio
corporation, or order, at its principal office at 150 East Gay Street, 22nd
Floor, Columbus, Ohio 43215 or at such other place as may be designated in
writing by the holder of this Note, the principal sum of EIGHT MILLION EIGHT
HUNDRED FIFTY-FIVE THOUSAND AND 00/100THS DOLLARS ($8,855,000.00), with interest
thereon from the date hereof at the rate of Eight and three hundredths per
centum (8.03 %) per annum on the unpaid balance until paid. The principal and
interest shall be payable in monthly installments as follows:

                             Interest alone shall be due and payable on the
               first day of January, 2000. Thereafter, commencing on February 1,
               2001, monthly installments of principal and interest at the rate
               of Eight and three hundredths per centum (8.03 %) per annum shall
               be due and payable in the sum of SIXTY-THREE THOUSAND EIGHTY-SIX
               AND 65/100THS DOLLARS ($63,086.65) each, such payments to
               continue monthly thereafter on the first day of each succeeding
               month until the entire indebtedness has been paid in full. In any
               event, the balance of principal (if any) remaining unpaid, plus
               accrued interest, shall be due and payable on January 1, 2036.
               The installments of principal and interest shall be applied first
               to interest at the rate aforesaid upon the principal sum or so
               much thereof as shall from time to time remain unpaid, and the
               balance thereof shall be applied on account of principal.

        Both principal and interest under this Note, as well as the additional
payments set forth in the Deed of Trust shall be payable at the office of RED
MORTGAGE CAPITAL, INC., at its principal office at 150 East Gay Street, 22nd
Floor, Columbus, Ohio 43215 or such other place as the holder may designate in
writing.

        Prepayment of this Note is subject to the terms and provisions set forth
in Allonge #1 attached hereto and incorporated herein by this reference.

        If default be made in the payment of any installment under this Note,
and if the default is not made good prior to the due date of the next such
installment, the entire principal sum and accrued interest shall at once become
due and payable without notice at the option of the holder of this Note. Failure
to exercise this option shall not constitute a waiver of the right to exercise
the same in the event of any subsequent default.

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        The makers and endorsers severally waive diligence, presentment,
protest, and demand, and also notice of protest, dishonor, and nonpayment of
this Note, and expressly agree that this Note, or any payment thereunder, may be
extended from time to time, and consent to the acceptance of further security
for this Note, including other types of security, all without in any way
affecting the liability of the makers and endorsers hereof. The right to plead
any and all statutes of limitations as a defense to any demand on this Note, or
any guaranty thereof, or to any agreement to pay the same, or to any demand
secured by the Deed of Trust, (hereinafter defined) or other security, securing
this Note, or any and all obligations, or liabilities arising out of or in
connection with said Note or Deed of Trust by any of the parties hereto, is
expressly waived by each and every of the makers, endorsers, guarantors or
sureties.

        Principal and interest are payable in lawful money of the United States.
If action be instituted on this Note, the undersigned promise(s) to pay in
addition to the costs and disbursements allowed by law such sum as the Court may
adjudge reasonable as attorney's fees in said action. This Note is secured by a
Deed of Trust, of even date herewith, to Fidelity National Title Insurance
Company, as Trustee, on real estate situated in the City of Sunnyvale, County of
Santa Clara, California (the "Deed of Trust").

        In the event any installment or part of any installment due hereunder
becomes delinquent for more than fifteen (15) days, there shall be due, at the
option of the holder, in addition to other sums due hereunder, a sum equal to
two percent (2%) of the amount of such installment of principal and interest so
delinquent. Whenever under the law of the jurisdiction where the property is
located, the amount of any such late charge is considered to be additional
interest, this provision shall not be effective if the rate of interest
specified in this Note, together with the amount of the late charge, would
aggregate an amount in excess of the maximum rate of interest permitted and
would constitute usury.

        All parties to this Note, whether principal, surety, guarantor, or
endorser hereby waive presentment for payment, demand, protect, notice of
protest, and notice of dishonor.

        Notwithstanding any other provision contained in this Note, it is agreed
that the execution of this Note shall impose no personal liability on the maker
hereof (nor any of its present or future limited or general partners) for
payment of the indebtedness evidenced hereby and in the event of a default, the
holder of this Note shall look solely to the property described in the Deed of
Trust and to the rents, issues and profits thereof in satisfaction of the
indebtedness evidenced hereby and will not seek or obtain any deficiency or
personal judgment against the maker hereof (nor any of its present or future
limited or general partners) except such judgment or decree as may be necessary
to foreclose and bar its interest in the property and all other property
mortgaged, pledged, conveyed or assigned to secure payment of this Note, except
as set out in the Deed of Trust of even date given to secure this indebtedness.

        IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
in its name and on its behalf by its Senior Vice President, thereunto duly
authorized the day and year first above written.

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                             ARV SUNNYVALE, L.P.
                             a California limited partnership

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

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

                                            By:    _____________________________
                                                   Abdo H. Khoury
                                                   Senior Vice President

================================================================================

        I HEREBY CERTIFY that this is the Note described in and secured by the
Deed of Trust of even date herewith, and in the same principal amount as herein
stated, to Fidelity National Title Insurance Company, Trustee(s), on real estate
in the City of Sunnyvale, Santa Clara County, California.

        Dated this ____ day of December, 2000.

[SEAL]                                __________________________________________
                                                     Notary Public

My Commission Expires:  ___________________

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