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                                                                   EXHIBIT 10.98

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

<TABLE>
<S>                           <C>       <C>           <C>
Project Number                          Mortgagee
121-22029-PM-ALF/REF                    Red Capital Mortgage, Inc., an Ohio
                                        corporation

Amount of Mortgage Note                 Date
$3,997,100.00                           As of February 1, 2001

Mortgage Recorded (State)    County                   Date
California                   San Mateo                As of February 1, 2001

Book                                        Page
</TABLE>

        This Agreement entered into as of the 1st day of February, 2001 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 DALY CITY, 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

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                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;

        (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 1st day
                of February, 2001, 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.

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        (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 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.

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

                             RETIREMENT INNS II, LLC

                                    By:  AMERICAN RETIREMENT VILLAS
                                         PROPERTIES II
                                         Its sole member

                                         By: ARV Assisted Living, Inc.
                                             Its General Partner

                                             By:
                                                -------------------------------
                                                Douglas Armstrong
                                                Vice President

                                    February 1, 2001

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

                                    By:
                                       -------------------------------
                                       Authorized Agent

                                    February 1, 2001

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                                                                   EXHIBIT 10.99

                               DEED OF TRUST NOTE

$2,985,800.00                                          San Francisco, California
                                                          As of February 1, 2001

        FOR VALUE RECEIVED, the undersigned, ARV FREMONT, 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 TWO MILLION NINE
HUNDRED EIGHTY-FIVE THOUSAND EIGHT HUNDRED AND 00/100THS DOLLARS
($2,985,800.00), with interest thereon from the date hereof at the rate of Seven
and three-quarters per centum (7.75%) 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 March, 2001. Thereafter, commencing on April 1,
               2001, monthly installments of principal and interest at the rate
               of Seven and three-quarters per centum (7.75%) per annum shall be
               due and payable in the sum of TWENTY THOUSAND SIX HUNDRED
               SIXTY-SIX AND 99/100THS DOLLARS ($20,666.99) 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 March
               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.

        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 Fremont, County of
Alameda, 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

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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 Vice President, thereunto duly authorized
the day and year first above written.

                        ARV FREMONT, 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:
                                                -------------------------------
                                                Douglas Armstrong
                                                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 Fremont, Alameda County, California.

        Dated this ____ day of February, 2001.

[SEAL]
                                              -------------------------------
                                                      Notary Public

My Commission Expires:
                      ---------------------

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