Document:

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Exhibit 10.38

                      OPEN-END MORTGAGE, SECURITY AGREEMENT
                       AND ASSIGNMENT OF LEASES AND RENTS
                               (Shippensburg, PA)

                      THIS DOCUMENT SECURES FUTURE ADVANCES

         THIS OPEN-END MORTGAGE, SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND
RENTS (herein "Instrument") is made as of the 31st day of March, 2002 by the
grantor, Balanced Care Realty (OFC), Inc., a Delaware corporation (the
"Borrower") in favor of the grantee, Ocwen Financial Corporation, a Florida
corporation ("Ocwen").

         WHEREAS, Ocwen, Borrower, Balanced Care Corporation, a Delaware
corporation ("Balanced Care"), Balanced Care at Medina, Inc., a Delaware
corporation ("BCM"), Balanced Care at Centerville, Inc., a Delaware corporation
("BCC"), Balanced Care at Shippensburg, Inc. ("BCS") a Delaware corporation,
(BCM, BCC, and BCS are collectively referred to hereinafter as "Management
Companies"), and Senior Care Operators of Shippensburg, LLC, a Delaware limited
liability company ("Licensee"), have entered into the Term Loan Agreement, as of
the date hereof ("Term Loan Agreement"), pursuant to which Ocwen has agreed to
loan Borrower, and Borrower has accepted from Ocwen, the principal sum of Nine
Million One Hundred Fifty-Three Thousand Three Hundred Fifty-Six Dollars
($9,153,356.00) plus interest thereon ("Loan").

         WHEREAS, Borrower has used the proceeds of the Loan to pay a portion of
the purchase price for certain real property (and three (3) assisted living
facilities located thereon) Borrower has purchased from Medina ALF, Inc., a
Florida corporation ("Medina"), Centerville ALF, Inc., a Florida corporation
("Centerville") and Shippensburg ALF, Inc., a Florida corporation
("Shippensburg") (Medina, Centerville and Shippensburg are collectively referred
to hereinafter as "Seller"), pursuant to the terms and conditions of the
Agreement of Purchase and Sale, of even date herewith, by and among Sellers,
Ocwen, Borrower, Balanced Care and the following
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parties joining only as to specific provisions: Management Companies and
Licensee ("Purchase Agreement").

         WHEREAS, in connection with the Loan, Borrower has executed the Term
Note, of even date herewith ("Term Note"), evidencing Borrower's obligation to
repay all principal and interest due under the Loan as well as certain
additional payments that may be required pursuant to the terms of the Term Loan
Agreement and Term Note.

         WHEREAS, Ocwen, as a condition to providing the Loan to Borrower,
requires that Borrower grant to Ocwen a first priority or senior mortgage on the
property legally described on Exhibit A hereto, pursuant to the terms of this
Instrument, and the Borrower is willing to grant Ocwen a first priority or
senior mortgage in and to the property described on Exhibit A hereto and to
otherwise perform the obligations set forth in this Instrument.

         WHEREAS, the Term Loan Agreement, the Term Note, all Security Documents
(as defined in the Term Loan Agreement), and all Ancillary Documents (as defined
in the Term Loan Agreement) shall hereinafter be collectively referred to as the
"Loan Agreements."

         Borrower, intending to be legally bound, in consideration of the Loan
from Ocwen, and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, hereby agrees that the foregoing
recitals are incorporated herein by reference and as follows:

         TO SECURE TO OCWEN (a) the repayment of any amounts due to Ocwen under
the Loan Agreements, specifically including but not limited to the Term Loan
Agreement, and the repayment of other indebtedness of Borrower to Ocwen secured
by this Instrument, with interest on the foregoing, and all renewals, extensions
and modifications of the foregoing; (b) the payment of all other sums with
interest thereon advanced in accordance herewith to protect the security of this
Instrument; and (c) the performance of the covenants and agreements of Borrower
herein contained and contained in the Loan Agreements, and in any other
documents given by Borrower to Ocwen to evidence, or otherwise in connection
with, additional indebtedness of Borrower to Ocwen secured by this Instrument,
Borrower does hereby mortgage, grant, convey and assign to Ocwen all of the
Borrower's right, title, interest, and privileges in and to the following: the
real property described in Exhibit A attached hereto and made a part hereof,
together with all buildings, improvements, and tenements now or hereafter
erected on the real property and owned by Borrower, and all

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heretofore or hereafter vacated alleys and streets abutting the property, and
all easements, rights, appurtenances, rents, royalties, mineral, oil and gas
rights and profits, water, water rights, and water stock appurtenant to the
property, and all fixtures, machinery, equipment, engines, boilers,
incinerators, building materials and appliances whatsoever now or hereafter
located in, or on, or used, or intended to be used in connection with the
property, including, but not limited to, those for the purposes of supplying or
distributing heating, cooling, electricity, gas, water, air and light; and all
elevators, and related machinery and equipment, fire prevention and
extinguishing apparatus, security and access control apparatus, plumbing, bath
tubs, water heaters, water closets, sinks, ranges, stoves, refrigerators,
dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors,
screens, blinds, shades, curtains and curtain rods, mirrors, cabinets, paneling,
rugs, attached floor coverings, furniture, fixtures and equipment now owned or
hereafter acquired and used in, on or about the subject real estate (excluding,
however, leased equipment) all of which, to the extent owned by Borrower,
including replacements and additions thereto, shall be deemed to be and remain a
part of the real property covered by this Instrument; and, to the extent
permissible by law, all licenses, permits and certifications and all other
general intangibles owned or used in connection with the operation of the real
property covered by this Instrument; and all of the proceeds of the foregoing;
and all of the above including said real property are herein referred to as the
"Property".

         Borrower covenants and agrees that Borrower is lawfully seized of the
estate hereby conveyed and has the right to mortgage, grant, convey and assign
the Property, that the Property is unencumbered, except for Permitted
Encumbrances, and that Borrower will warrant and defend generally the title to
the Property against all claims and demands, whatsoever. As used herein,
"Permitted Encumbrances" means (i) all matters listed on Schedule B to that
certain "marked up" Title Insurance Commitment issued by First American Title
Insurance Company, dated April 5, 2002 and noted as Commitment Number
PHL02-120/NA # 4760; (ii) all resident or occupancy contracts for the leasing of
units located on the Property; and (iii) real property taxes and assessments
imposed or assessed on the Property but not yet due and payable as of March 31,
2002.

         Borrower and Ocwen covenant and agree as follows:

         1.   PAYMENT OF AMOUNTS DUE UNDER THE LOAN AGREEMENTS; OPEN-END
MORTGAGE. Borrower is obligated to promptly pay when due

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all amounts which shall become due to Ocwen under the Loan Agreements, and all
other sums secured by this Instrument. This Instrument is intended to be and
shall be construed as an open-end mortgage and shall secure the maximum
principal amount of $9,153,356.00 together with interest thereon and such other
amounts as shall become due and owing to Ocwen from Borrower pursuant to this
Instrument, the Loan Agreements, or other notes, documents or agreements
evidencing, or otherwise executed in connection with, additional indebtedness
secured by this Instrument.

         2.   FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Upon default in
payment of any of the following described items, which default continues for a
period of thirty (30) days after Ocwen has provided notice of same to Borrower
(and Borrower shall notify Ocwen of its default in the payment of the following
promptly after Borrower becomes aware of same), or, upon the occurrence of an
Event of Default under any of the Loan Agreements, specifically including but
not limited to the Term Loan Agreement, or other notes or agreements given in
connection with additional indebtedness of Borrower to Ocwen secured by this
Instrument, Ocwen shall have the right, at its option, to require Borrower to
pay to Ocwen on the first day of each month, for so long as the Term Note or any
of the Loan Agreements remains outstanding, a sum (herein "Funds") equal to
one-twelfth of (a) the yearly water and sewer rates which may be levied on the
Property; and (b) the yearly expenses, costs or fees associated with any
licenses, permits, certifications or other governmental approvals required,
necessary, or desirable for the operation of the facility located on the
Property, all as reasonably estimated initially and from time to time adjusted
by the basis of assessments and bills and reasonable estimates thereof. Any
waiver by Ocwen of a requirement that Borrower pay such Funds following
Borrower's default in payment of any of such items or the occurrence of an Event
of Default under any of the Loan Agreements, specifically including but not
limited to the Term Loan Agreement, may be revoked by Ocwen, in Ocwen's sole
discretion, at any time upon notice in writing to Borrower. Borrower shall be
required to escrow funds sufficient to pay real property taxes and assessments,
and upon Borrower's failure to pay premiums for the following when due,
insurance premiums for fire and other casualty/hazard insurance, in accordance
with the terms and conditions of Section 4.7 of the Term Loan Agreement, and
such escrowed funds shall not be governed by this Section 2, but rather by
Section 4.7 of the Term Loan Agreement.

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         The Funds shall be held by Ocwen and shall be applied to pay said
rates, rents, and/or license, permit, or other fees ("Other Impositions") so
long as no Event of Default has occurred under any of the Loan Agreements,
specifically including but not limited to the Term Loan Agreement. Ocwen shall
make no charge for so holding and applying the Funds, analyzing said account or
for verifying and compiling said assessments and bills, unless Ocwen pays
Borrower interest, earnings or profits on the Funds and applicable law permits
Ocwen to make such a charge. Unless applicable law requires interest, earnings
or profits on the Funds to be paid, Ocwen shall not be required to pay Borrower
any interest, earnings or profits on the Funds. Ocwen shall give to Borrower,
without charge, an annual accounting of the Funds showing credits and debits to
the Funds and the purpose for which each debit to such Funds was made.

         If at any time the amount of the Funds held by Ocwen shall be less than
the amount deemed necessary by Ocwen to pay water and sewer rates, rents, and/or
license, permit or other fees, and Other Impositions, as they fall due, Borrower
shall, thirty (30) days after demand, pay such deficiency.

         Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument or upon the occurrence of an Event of Default under any of the Loan
Agreements, specifically including but not limited to the Term Loan Agreement,
Ocwen may apply, in any amount and in any order as Ocwen shall determine in
Ocwen's sole discretion, any Funds held by Ocwen at the time of application (a)
to pay rates, rents, and/or license, permit, or other fees, and Other
Impositions which are now or will hereafter become due; or (b) as a credit
against sums secured by this Instrument. Upon release of this Instrument, Ocwen
shall promptly refund to Borrower any Funds held by Ocwen.

         3.   APPLICATION OF PAYMENTS. All payments received by Ocwen from
Borrower under the Loan Agreements or this Instrument shall be applied by Ocwen
in the following order of priority: (a) amounts payable to Ocwen by Borrower
under paragraph 2 hereof; (b) interest payable on amounts due under the Loan
Agreements; (c) principal due under the Loan Agreements; (d) interest payable on
advances made pursuant to paragraph 8 hereof; (e) principal of advances made
pursuant to paragraph 8 hereof; and (f) any other sums secured by this
Instrument in such order as Ocwen, at Ocwen's option, may determine; provided,
however, that Ocwen may, at Ocwen's option, apply any sums to interest and
principal payable by Borrower pursuant to paragraph 8 hereof prior to amounts
due pursuant to the Loan Agreements and further provided that, in the

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event of a sale as provided in paragraph 25 hereof, the proceeds of the sale
shall be applied first to the costs of sale and thereafter as otherwise set
forth herein.

         4.   CHARGES; LIENS. Borrower shall pay all water and sewer rates,
rents, taxes (not being diligently contested by Borrower in a timely manner and
not otherwise paid by Ocwen from the escrow fund therefore established and
maintained pursuant to Section 4.7 of the Term Loan Agreement), premiums, and
license, permit, or other fees, and Other Impositions attributable to the
Property. Borrower shall promptly discharge any lien which has, or may have,
priority over or equality with, the lien of this Instrument; provided, however,
that Borrower shall be entitled to contest any such lien in good faith (provided
Borrower contests such lien in a diligent and timely manner). With respect to
liens filed for failure to pay real property taxes and/or assessments, Borrower
shall be entitled to contest the lien only if Borrower pays the taxing or
assessing authority sufficient funds to discharge the lien prior to commencement
of the contest. Upon written request from Ocwen, if the lien is in a face amount
in excess of $100,000, Borrower shall provide a bond, letter of credit, or
sufficient funds in an escrow account, to pay off the amount required to
discharge the lien during the period of contest by Borrower (except for real
property tax and/or assessment liens, which are governed by the foregoing
sentence). If a mechanic's lien is filed against the Property, Borrower shall
promptly notify Ocwen and, at Ocwen's request, shall, at Borrower's option, but
subject to the right to contest hereinafter set forth, either (i) escrow with
Ocwen or with the consent of Ocwen deposit in a court of competent jurisdiction
a sum of money equal to the amount of the lien, or (ii) provide a bond against
the lien in such amount and in such manner as to discharge the lien as an
encumbrance against the Property. Without Ocwen's prior written permission,
except as otherwise permitted herein or in any other Loan Document, Borrower
shall not allow any lien, encumbrance, or other interest in the Property
inferior to the lien of this Instrument to be perfected against the Property.

         5.   HAZARD, LIABILITY, AND OTHER INSURANCE. Borrower shall keep the
real property and improvements now existing or hereafter erected on the Property
insured by carriers at all times satisfactory to Ocwen and in a form acceptable
to Ocwen against loss by fire, hazards included within the term "extended
coverage," and such other hazards and casualties as Ocwen shall reasonably
require and in an amount not less than the full replacement cost of the
buildings and improvements located on the Property (i.e., such insurance shall
insure the Property on a

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replacement value basis). The Borrower shall also maintain such other insurance,
specifically including but not limited to rent loss (if applicable), general
liability, workers' compensation, etc., upon the Property, of such character as
is usually maintained by Balanced Care or its Affiliates on like properties, and
in an amount that is acceptable to Ocwen, in the exercise of its reasonable
discretion. Such policies must be written on an occurrence basis so as to
provide blanket contractual liability, broad form property damage coverage, and
coverage for products and completed operations.

         Borrower shall determine if the Property is located in a federally
identified flood hazard zone and if the property is so located the Borrower will
provide flood insurance coverage in a reasonable amount as determined by Ocwen.

         All policies of insurance required by the terms of this Instrument
shall provide or contain an endorsement by the insurer thereof that any loss
shall be payable in accordance with the terms of such policy notwithstanding any
act or negligence of Borrower which might otherwise result in forfeiture of said
insurance and the further agreement of the insurer waiving all rights of
set-off, counterclaim or deductions against Borrower. In addition, such policies
shall contain an agreement by the insurers thereof that such policies shall not
be canceled or changed except upon not less than 30 days prior written notice
delivered to Ocwen.

         All insurance policies and renewals thereof shall be issued by
companies with a Best's Insurance Reports policy holder's rating of A- or better
and a financial size category of Class XI or better, shall be in a form
acceptable to Ocwen and shall include a standard mortgagee clause in favor of
and in form acceptable to Ocwen. Ocwen shall be listed as a mortgagee, loss
payee and additional insured of all such policies. Ocwen shall have the right to
hold the policies, and Borrower shall promptly furnish to Ocwen all renewal
notices and all receipts of paid premiums. At least ten (10) days prior to the
expiration date of a policy, Borrower shall deliver to Ocwen a renewal policy in
form satisfactory to Ocwen. Notwithstanding anything to the contrary set forth
above, Ocwen will agree to consent, in its reasonable discretion, to
modifications to insurance requirements to accommodate company-wide insurance
programs that may in the future be implemented by Balanced Care and its
Affiliates (as defined in the Term Loan Agreement), which insurance programs may
include (without limitation) self-insurance elements or blanket policy insurance
programs with other Affiliates of Balanced Care or LMR

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Holdings Limited, an exempted company incorporated in the Cayman Islands (LMR").

         If Ocwen is made a party defendant to any litigation concerning this
Instrument or the Property or any part thereof or interest therein, or the
occupancy thereof by Borrower, and such litigation is not caused by any act of
Ocwen which constitutes gross negligence or intentional misconduct on the part
of Ocwen, then Borrower shall indemnify, defend and hold Ocwen harmless from all
liability by reason of said litigation, including reasonable attorneys' fees and
expenses incurred by Ocwen in any such litigation, whether or not any such
litigation is prosecuted to judgment. Borrower waives any and all right to claim
or recover against Ocwen, its officers, employees, agents and representatives,
for loss of or damage to Borrower, the Property, Borrower's property, or the
property of others under Borrower's control from any cause insured against or
required to be insured against by the provisions of this Instrument, except when
such claim or recovery arises out of an act of Ocwen.

         In the event of loss, Borrower shall give reasonably prompt written
notice to the insurance carrier and to Ocwen. If an Event of Default has
occurred under any of the Loan Agreements, specifically including but not
limited to the Term Loan Agreement, Borrower hereby authorizes Ocwen to act as
attorney-in-fact for Borrower to make proof of loss, to adjust and compromise
any claim under the insurance policies, to appear in and prosecute any action
arising from such insurance policies, to collect and receive insurance proceeds,
and to deduct therefrom Ocwen's expenses incurred in the collection of such
proceeds; provided, however, that nothing contained in this paragraph 5 shall
require Ocwen to incur any expense or take any action hereunder. In the event of
loss, the proceeds of said insurance shall be paid, held and disbursed as
hereinafter provided.

         If the Property is sold pursuant to paragraph 25 hereof, or if Ocwen
acquires title to the Property, Ocwen shall have all of the right, title and
interest of Borrower in and to any insurance policies and unearned premiums
thereon and in and to the proceeds resulting from any damage to the Property
prior to such sale or acquisition.

         Provided that Borrower is not in default hereunder and an Event of
Default has not occurred and is not continuing under any of the Loan Agreements,
specifically including but not limited to the Term Loan Agreement, insurance
proceeds shall be held by Ocwen to reimburse Borrower for the cost of
restoration and repair of

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the Property, and the Property shall be restored to the equivalent of its
original condition or such other condition as Ocwen may approve in writing.
Ocwen may, at Ocwen's option, condition disbursement of said proceeds on Ocwen's
approval of plans and specifications of an architect satisfactory to Ocwen,
contractor's cost estimates, architect's certificates, waivers of lien, sworn
statements of mechanics and materialmen and such other evidence of costs,
percentage completion of construction, application of payments, and satisfaction
of liens as Ocwen may reasonably require. If the amount needed to complete such
repairs or restoration is greater than the amount of insurance proceeds
available, the Borrower shall, at the election of Ocwen and within sixty (60)
days from the date of loss, (i) deposit with Ocwen the difference between the
estimated amount needed to complete such repairs and the available insurance
proceeds, or (ii) pay from Borrower's funds all costs attributable to such
repair or restoration until such time as the estimated remaining cost of the
repairs or restoration is less than or equal to the available insurance
proceeds. If the above conditions are not met, Ocwen may apply such proceeds
toward payment of any amounts due under the Loan Agreements, or toward payment
of any other indebtedness of Borrower to Ocwen secured by this Instrument.

         6.   PRESERVATION AND MAINTENANCE OF PROPERTY. Borrower (a) shall not
commit waste or permit impairment or deterioration of the Property; (b) shall
not abandon the Property; (c) shall restore or repair promptly and in a good and
workmanlike manner all or any part of the Property to the equivalent of its
original condition (except for obsolete equipment and ordinary wear and tear),
or such lesser condition as Ocwen may approve in writing, in the event of any
damage, injury or loss thereto, whether or not insurance proceeds are available
to cover in whole or in part the costs of such restoration or repair unless the
improvements portion of the Property are totally destroyed, insurance has been
maintained thereon as required by this Instrument and Ocwen applies the proceeds
of said insurance to the full payment of the sums secured by this Instrument;
(d) shall keep the Property, including improvements, fixtures, equipment,
machinery and appliances thereon in good repair (except for obsolete items and
ordinary wear and tear) and shall replace improvements, fixtures, equipment,
machinery and appliances in the ordinary course of Borrower's business; (e)
shall comply in all material respects with all laws, ordinances, regulations and
requirements of any governmental body applicable to the Property unless Borrower
is contesting the same in good faith and such contest does not unreasonably
jeopardize the continued operation of the Property; (f) shall keep in full force
and effect, without restriction or

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limitation, and not allow the expiration or lapse of, and shall fully comply
with all conditions and requirements associated with all licenses, permits,
certifications and governmental approvals (including but not limited to Medicare
and Medicaid provider numbers and participation agreements and requirements of
the State of Pennsylvania Certificate of Need Law, in the event same become
applicable) required, necessary, or desirable for the operation of the long-term
care facility constituting part of the Property hereunder, and (g) shall give
notice in writing to Ocwen of, appear in and defend any action or proceeding
purporting to affect the Property, the security of this Instrument or the rights
or powers of Ocwen hereunder. Neither the Borrower nor any tenant or other
person shall remove, demolish or alter any improvement now existing or hereafter
erected on the Property or any fixture (other than trade fixtures), equipment,
machinery or appliance in or on the Property except when incident to the
replacement of improvements, fixtures, equipment, machinery and appliances with
items of like kind or additions, and except replacements or removals in the
ordinary course of the Borrower's business.

         7.   USE OF PROPERTY. Unless required by applicable law or unless Ocwen
has otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Instrument
was executed. Borrower shall not initiate or acquiesce in a change in the zoning
classification of the Property without Ocwen's prior written consent.

         8.   PROTECTION OF OCWEN'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Instrument, or if any action or
proceeding is commenced which affects the Property or title thereto or the
interest of Ocwen therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings involving a
bankrupt or decedent, then Ocwen, at Ocwen's option and after thirty (30) days
prior notice to Borrower, may make such appearances, disburse such sums and take
such action as Ocwen deems necessary, in its sole discretion, to protect Ocwen's
interests, including, but not limited to, (a) disbursement of attorney's fees;
(b) entry upon the Property to make repairs; (c) procurement of satisfactory
insurance as provided in paragraph 5 hereof; and (d) taking all action required
in order to obtain or reinstate any required, necessary or desirable licenses,
permits, approvals, or authorizations of governmental entities (including but
not limited to Medicare and Medicaid provider numbers and participation
agreements and State of Pennsylvania Certificate of Need approvals

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and/or authorization, in the event the foregoing become applicable).

         Any amounts disbursed by Ocwen pursuant to this paragraph 8, with
interest thereon, shall become additional indebtedness of Borrower secured by
this Instrument. Unless Borrower and Ocwen agree to other terms of payment, such
amounts shall be immediately due and payable and shall bear interest from the
date of disbursement at the Default Rate of interest stated in the Term Loan
Agreement unless collection from Borrower of interest at such rate would be
contrary to applicable law, in which event such amounts shall bear interest at
the highest rate which may be collected from Borrower under applicable law.
Borrower hereby covenants and agrees that Ocwen shall be subrogated to the lien
of any mortgage or other lien discharged, in whole or in part, by the
indebtedness secured hereby. Nothing contained in this paragraph 8 shall require
Ocwen to incur any expense or take any action hereunder.

         9.   INSPECTION. Ocwen may make or cause to be made entries upon and
inspections of the Property in accordance with the terms and provisions of the
Term Loan Agreement governing such inspections.

         10.  BOOKS AND RECORDS. Borrower shall keep and maintain at all times
complete and accurate books of account and records adequate to reflect correctly
the operation of the Property and copies of all written contracts, leases and
other instruments which affect the Property, including but not limited to
licenses, permits, certifications and authorizations and approvals of
governmental agencies. Such books, records, contracts, leases and other
instruments (including licenses, permits, certifications, and authorizations and
approvals of governmental agencies) shall be subject to examination and
inspection at any reasonable time by Ocwen.

         11.  CONDEMNATION. Borrower shall promptly notify Ocwen of any action
or proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part thereof, and Borrower shall appear in and
prosecute any such action or proceeding unless otherwise directed by Ocwen in
writing. If any Event of Default under the Loan Agreements has occurred and is
continuing, Ocwen, at Ocwen's option, may act as attorney-in-fact for Borrower
to commence, appear in and prosecute, in Ocwen's name or Borrower's name, any
action or proceeding relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim

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in connection with such condemnation or other taking. The proceeds of any award,
payment or claim for damages, direct or consequential, in connection with any
condemnation or other taking, whether direct or indirect, of the Property, or
part thereof, or for conveyances in lieu of condemnation, are hereby assigned to
and shall be paid to Ocwen.

         With the consent of Ocwen, which consent shall not be unreasonably
withheld, Borrower may apply such awards, payments, proceeds or damages, after
the deduction of Ocwen's expenses incurred in the collection of such amounts, to
restoration or repair of the Property. Otherwise, such sums so received shall be
applied to payment of any amounts due under the Loan Agreements, under other
notes, agreements, or documents evidencing other indebtedness of Borrower to
Ocwen secured by this Instrument, or other sums secured by this Instrument, or,
if no such amounts are then due, held by Ocwen as security for Borrower's
obligations under the Loan Agreements or such other notes, agreements or
documents evidencing indebtedness secured hereby. Borrower agrees to execute
such further evidence of assignment of any awards, proceeds, damages or claims
arising in connection with such condemnation or taking as Ocwen may require.

         12.  BORROWER AND LIEN NOT RELEASED. From time to time, Ocwen may, at
Ocwen's option, without giving notice to or obtaining the consent of Borrower or
Borrower's successors or assigns or of any junior lienholder or guarantor,
without liability on Ocwen's part and notwithstanding Borrower's breach of any
covenant or agreement of Borrower in this Instrument, extend the time for
payment of any amounts due under the Loan Agreements or any other indebtedness
secured by this Instrument or any part thereof, reduce the payments thereon,
release anyone liable for payment of such amounts, release from the lien of this
Instrument any part of the Property, take or release other or additional
security, reconvey any part of the Property, consent to any map or plat of the
Property, consent to the granting of any easement, join in any extension or
subordination agreement, agree in writing with Borrower to modify any term or
condition of the Loan Agreements, or other notes, documents or agreements
evidencing indebtedness of Borrower to Ocwen secured hereby, including any term
or condition relating to the payment of money. Any actions taken by Ocwen
pursuant to the terms of this paragraph 12 shall not affect the obligation of
Borrower or Borrower's successors or assigns to pay the sums secured by this
Instrument and to observe the covenants of Borrower contained herein, shall not
affect the guaranty of any person, corporation, partnership or other entity for
payment of the indebtedness secured hereby, and shall not

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affect the lien or priority of lien hereof on the Property. Borrower shall pay
Ocwen a reasonable service charge, together with such title insurance premiums
and attorney's fees as may be incurred at Ocwen's option for any such action if
taken at Borrower's request.

         13.  FORBEARANCE BY OCWEN NOT A WAIVER. Any forbearance by Ocwen in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any right or remedy.
The acceptance by Ocwen of payment of any sum secured by this Instrument after
the due date of such payment shall not be a waiver of Ocwen's right to either
require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of insurance or the
payment of taxes or other liens or charges by Ocwen shall not be a waiver of
Ocwen's right to accelerate the maturity of the indebtedness secured by this
Instrument. Ocwen's receipt of any awards, proceeds or damages under paragraphs
5 and 11 hereof shall not operate to cure or waive Borrower's default in payment
of sums secured by this Instrument.

         14.  ESTOPPEL CERTIFICATE. Borrower shall, within 30 days of a written
request from Ocwen, furnish Ocwen with a written statement, duly acknowledged,
setting forth, to Borrower's knowledge, the sums secured by this Instrument and
any right of set-off, counterclaim or other defense which exists against such
sums and the obligations of this Instrument. Within 30 days of Borrower's
written request therefor, Ocwen shall furnish Borrower with a statement as to
(i) the amount then secured by this Instrument, and (ii) whether, to Ocwen's
knowledge, an Event of Default under the Loan Agreements has occurred or is
continuing.

         15.  UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. In addition to being a
Mortgage and Assignment of Rents, this Instrument is intended to be a security
agreement pursuant to the Uniform Commercial Code for any of the items specified
above as part of the Property which under applicable law may be subject to a
security interest pursuant to the Uniform Commercial Code, and Borrower hereby
grants Ocwen a first security interest in said items. Borrower agrees that Ocwen
may file this Instrument, or a reproduction hereof, in the real estate records
or other appropriate index, as a financing statement for any of the items
specified above as part of the Property. Any reproduction of this Instrument or
of any other security agreement or financing statement shall be sufficient as a
financing statement. In addition, Borrower agrees to execute and deliver to
Ocwen, upon

                                      -13-
<PAGE>
Ocwen's request, any financing statements, as well as extensions, renewals and
amendments thereof, and reproductions of this Instrument in such form as Ocwen
may reasonably require to perfect a security interest with respect to said
items. Borrower shall pay all costs of filing such financing statements and any
extensions, renewals, amendments and releases thereof, and shall pay all
reasonable costs and expenses of any record searches for financing statements
Ocwen may reasonably require. Without the prior written consent of Ocwen, except
as otherwise permitted by the Term Loan Agreement, Borrower shall not create or
suffer to be created pursuant to the Uniform Commercial Code any other security
interest in said items, including replacements and additions thereto. If any
Event of Default occurs under any of the Loan Agreements, specifically including
but not limited to the Term Loan Agreement, or if a default occurs under any
other note, document or agreement given by Borrower to Ocwen in connection with
indebtedness of Borrower to Ocwen secured by this Instrument, or if Ocwen
declares all sums secured hereby immediately due and payable in accordance with
the first sentence of paragraph 25, Ocwen shall have the remedies of a secured
party under the Uniform Commercial Code and, at Ocwen's option, may also invoke
the remedies provided in paragraph 25 of this Instrument as to such items. In
exercising any of said remedies, Ocwen may proceed against the items of real
property and any items of personal property specified above as part of the
Property separately or together and in any order whatsoever, without in any way
affecting the availability of Ocwen's remedies under the Uniform Commercial Code
or of the remedies provided in paragraph 25 of this Instrument.

         16.  LEASES OF THE PROPERTY. Borrower shall comply with and observe
Borrower's obligations as landlords under any leases of the Property or any part
thereof. Borrower shall furnish Ocwen with executed copies of all
non-residential leases hereafter made of all or any part of the Property, and
all non-residential leases hereafter entered into will be subject to Ocwen's
prior written approval, which approval shall not be unreasonably withheld.
Borrower shall provide copies of all residential leases to Ocwen within thirty
(30) Business Days after Ocwen's request therefore. Unless otherwise directed by
Ocwen and except for non-residential leases, all leases of the Property made
after the date hereof shall specifically provide that such leases are
subordinate to this Instrument; that the tenant attorns to Ocwen, such
attornment to be effective upon Ocwen's acquisition of title to the Property;
that the tenant agrees to execute such further evidences of attornment as Ocwen
may from time to time request; and that the attornment of the tenant shall not
be terminated by foreclosure.

                                      -14-
<PAGE>
In addition, all lessees (other than lessees under residential leases) of all or
any part of the Property shall execute a Subordination, Attornment and
Non-Disturbance and Estoppel Certificate in substantially the same form attached
hereto as Exhibit B or as agreed to by Ocwen. Except for residential leases
amended, modified, executed, surrendered, or terminated in the ordinary course
of Borrower's business, Borrower shall not, without Ocwen's written consent,
which consent shall not be unreasonably withheld, execute, modify, surrender or
terminate, either orally or in writing, any lease hereafter made of all or any
part of the Property, permit an assignment or sublease of such a lease, or
request or consent to the subordination of any lease of all or any part of the
Property to any lien subordinate to this Instrument. If Borrower becomes aware
that any tenant (other than a residential tenant) proposes to do, or is doing,
any act or thing which may give rise to any right to set-off against rent,
Borrower shall (a) take such steps as shall be reasonably calculated to prevent
the accrual of any right to a set-off against rent, (b) notify Ocwen thereof and
of the amount of said set-offs, and (c) within ten days after such accrual,
reimburse the tenant who shall have acquired such right to set-off or take such
other steps as shall effectively discharge such set-off and as shall assure that
rents thereafter due shall continue to be payable without set-off or deduction.

         17.  REMEDIES CUMULATIVE. Each remedy provided in this Instrument is
distinct and cumulative to all other rights or remedies under this Instrument or
afforded by law or equity, and may be exercised concurrently, independently, or
successively, in any order whatsoever.

         18.  TRANSFERS OF THE PROPERTY; CHANGES IN CONTROL OR OWNERSHIP OF
MORTGAGOR. Upon the voluntary or involuntary sale, lease (in violation of this
Instrument or in violation of the Term Loan Agreement), exchange, assignment,
conveyance (other than a condemnation governed by Section 11 of this
Instrument), transfer or other disposition (herein collectively called
"Disposition") of all or any portion of the Property (or any interest therein),
or a transfer of the Borrower of any interest therein prohibited by any of the
Loan Agreements, or in the event Borrower conveys to any other party a security
interest in the Property or any part thereof, or voluntarily or involuntarily
permits or suffers the Property to be further encumbered, in violation of this
Instrument (herein collectively called "Encumbrance"), then such Disposition or
Encumbrance shall be a default hereunder, and Ocwen may, at its option, enforce
any and all of its rights, remedies and recourses as set forth herein and/or in
the Loan Agreements; provided,

                                      -15-
<PAGE>
however, Ocwen shall not enforce such rights, remedies, and recourses if it
consents in writing to the Disposition or Encumbrance in question. It is
expressly agreed that in connection with determining whether to grant or
withhold such consent the determination made by Ocwen shall be conclusive and
Ocwen may require as conditions to granting such consent (a) payment of Ocwen's
reasonable attorneys' fees in connection with such Disposition or Encumbrance,
and (b) the express assumption of the payment of the indebtedness and
performance of the obligations of the Borrower by the party to whom such
Disposition will be made (with or without the release of Borrower from liability
for such indebtedness and obligations).

         19.  NOTICE. Whenever notice is required to be given pursuant to the
provisions hereof, such notice shall be given at the addresses and in the manner
specified in the Term Loan Agreement.

         20.  SUCCESSORS AND ASSIGNS BOUND; AGENTS; CAPTIONS. The covenants and
agreements herein contained shall bind, and the rights hereunder shall inure to,
the respective successors and assigns of Ocwen and Borrower. In exercising any
rights hereunder or taking any actions provided for herein, Ocwen may act
through its employees, agents or independent contractors as authorized by Ocwen.
The captions and headings of the paragraphs of this Instrument are for
convenience only and are not to be used to interpret or define the provisions
hereof.

         21.  GOVERNING LAW AND FORUM SELECTION; SEVERABILITY. This Instrument
shall be governed by the laws of the State of Ohio, without regard to its
conflict of law provisions. In the event of any dispute, claim or controversy
arising out of the terms or conditions of this Instrument or any of the Loan
Agreements, Borrower hereby agrees that such dispute, claim, or controversy
shall be brought and heard only in the United States District Court for the
Southern district of Ohio, Western Division, in such other federal court as
Ocwen shall select, in state court in the State of Ohio, County of Montgomery,
or in such other state court in such other county and state as Ocwen may select,
and all applicable appellate courts thereof, and Borrower hereby waives any
objection to jurisdiction, venue or forum non convenes that Borrower may have
otherwise had if this provision were not included herein. At the request of
Ocwen, made at any time, Borrower shall designate a statutory agent in any State
requested by Ocwen such that the forum selection clause of this Section 21 may
be effectuated.

                                      -16-
<PAGE>
         In the event that any provision of this Instrument conflicts with
applicable law, such conflict shall not affect other provisions of this
Instrument which can be given effect without the conflicting provisions, and to
this end the provisions of this Instrument are declared to be severable.

         22.  WAIVER OF STATUTE OF LIMITATIONS. To the extent permitted by law,
Borrower hereby waives the right to assert any statute of limitations as a bar
to the enforcement of the lien of this Instrument or to any action brought to
enforce any of the Loan Agreements or any other obligation secured by this
Instrument.

         23.  WAIVER OF MARSHALLING. Notwithstanding the existence of any other
security interests in the Property held by Ocwen or by any other party, Ocwen
shall have the right to determine the order in which any or all of the Property
shall be subjected to the remedies provided herein. Ocwen shall have the right
to determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument,
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof, hereby waives any and all
right to require the marshalling of assets in connection with the exercise of
any of the remedies permitted by applicable law or provided herein.

         24.  ASSIGNMENT OF LEASES AND RENTS, CONTRACT RIGHTS, AND LICENSES AND
PERMITS; APPOINTMENT OF RECEIVER; OCWEN IN POSSESSION. Borrower hereby
absolutely and unconditionally assigns and transfers to Ocwen all the leases,
rents and revenues of the Property, including those now due, past due, or to
become due by virtue of any lease or other agreement for the occupancy or use of
all or any part of the Property, regardless of to whom the rents and revenues of
the Property are payable. Borrower hereby absolutely and unconditionally assigns
and transfers to Ocwen all of the contract rights of Borrower in and under
resident agreements or occupancy agreements (quasi real property leases),
service agreements and other vendor agreements necessary, required, or desirable
for the operation of the facility that constitutes the Property secured hereby,
the foregoing assignment to be effective at any time upon Ocwen providing
written notice to Borrower. To the extent permitted by applicable law, Borrower
also hereby absolutely and unconditionally assigns and transfers to Ocwen all of
the rights of Borrower in, under and to all licenses, permits, certifications
and governmental approvals necessary, required or desirable in connection with
the operation

                                      -17-
<PAGE>
of the facility that constitutes the Property secured hereby (including but not
limited to Medicare and Medicaid provider numbers and participation agreements
and Pennsylvania Certificate of Need approvals and authorizations, in the event
the foregoing are applicable), the foregoing assignment to be effective at any
time upon Ocwen providing written notice to Borrower. Although this Instrument
is a present assignment, Ocwen shall not exercise any of the rights or powers
herein conferred upon it until (i) an Event of Default shall have occurred under
any of the Loan Agreements, specifically including but not limited to the Term
Loan Agreement and specifically including but not limited to a default in the
payment of Indebtedness (as defined in the Term Loan Agreement) owed to Ocwen,
or a default in performance by Borrower under any other documents, agreements or
notes provided by Borrower to Ocwen in connection therewith, or (ii) a default
occurs under this Instrument or any other instrument securing the Borrower's
obligations under the Loan Agreements, and with respect to the latter two
events, Ocwen provides written notice of same to Borrower. Borrower hereby
authorizes Ocwen or Ocwen's agents or its designee to (i) collect the aforesaid
rents and revenues and hereby directs each tenant of the Property to pay such
rents to Ocwen or Ocwen's agents; and (ii) take any action necessary to obtain
the assignment of contracts, licenses, permits, certifications or approvals
necessary, required or desirable in connection with the operation of the
facility that constitutes the Property secured hereby and hereby directs third
parties, to the extent they require Borrower's consent or approval to permit or
allow such transfers and assignment, to grant and effectuate such assignments.
Upon an event of default as hereinabove described, and without the necessity of
Ocwen entering upon and taking and maintaining full control of the Property in
person, by agent or by a court-appointed receiver, Ocwen shall immediately be
entitled to possession of all rents and revenues of the Property, and upon prior
written notice to Borrower, all contracts, licenses, permits, certifications and
approvals, as specified in this paragraph; with respect to rents, revenues, and
payments due under income-producing or income-generating contracts for Borrower,
as the same become due and payable (including but not limited to rents then due
and unpaid) and all such rents and other payments received by Borrower shall
immediately upon delivery of such notice be held by Borrower as trustees for the
benefit of Ocwen only. This paragraph may be supplemented by a separate
assignment of leases and rents instrument, and/or a separate assignment of
contracts instrument, and/or separate assignments of licenses, permits,
certifications, and approvals entered into by and between Ocwen and Borrower,
which instrument(s) shall set forth more fully Ocwen's rights with respect to
the leases, rents, revenue,

                                      -18-
<PAGE>
contract rights, licenses, permits, certifications and approvals relating to the
Property.

         25.  ACCELERATION; REMEDIES. If (a) Borrower is in default beyond any
applicable grace period under any of the Loan Agreements, (b) Borrower defaults
in the performance or observance of any of the covenants or agreements of
Borrower contained in this Instrument and such default continues for a period of
30 days after written notice thereof from Ocwen to Borrower, and, in the event
that any such default (other than a monetary default) cannot be cured in such
initial 30 day period despite the exercise of all reasonable diligence by
Borrower, Borrower shall be entitled to an additional 30 days to cure such
default (not including monetary defaults) provided Borrower has commenced and
continues to diligently prosecute such cure at all times, (c) an Event of
Default under the Term Loan Agreement has occurred and is continuing beyond any
applicable grace period, or (d) Borrower is in default or in breach of any
provision, including but not limited to any payment provision, beyond any
applicable grace period, contained in any note, document or agreement given by
Borrower to Ocwen in connection with indebtedness of Borrower to Ocwen secured
by this Instrument; then, in any such event, at any time, without further demand
or notice, any and all sums secured by this Instrument shall be immediately due
and payable and, in addition to any other right or remedy which Ocwen may now or
hereafter have at law or in equity, Ocwen shall have the right and power: (a) to
foreclose upon this Instrument and the lien hereof; (b) to sell the Property
according to law at one or more sales as an entity or in parcels and at such
time and place upon such terms and conditions and after such notices thereof as
may be required by law; (c) to enter upon and take possession of the Property
and/or have a receiver appointed therefor as set forth in paragraph 24 hereof;
and (d) to effectuate the assignments of contract rights, licenses, permits,
certifications, and approvals, as described herein. If all sums secured by this
Instrument become immediately due and payable in accordance with this paragraph,
Ocwen, at Ocwen's option, may foreclose this Instrument by judicial proceeding
and may invoke any other remedies permitted by applicable law or as provided
herein. Ocwen shall be entitled to collect all costs and expenses incurred in
pursuing such remedies, including, but not limited to costs of documentary
evidence, abstracts, title reports, attorneys fees, and any and all fees and
costs associated with the (i) transfer of contracts, or obtaining new contracts,
and (ii) transfer of licenses, permits, certifications, and approvals, both of
the foregoing which are necessary, required, or desirable in connection with the
operation of the facility that constitutes the Property secured hereby.

                                      -19-
<PAGE>
         26.  INDEMNIFICATION. Borrower shall protect, indemnify, defend and
save harmless Ocwen from and against all actions, claims, causes of action,
liabilities, costs and expenses (including, without limitation, reasonable
attorneys fees and expenses, including those incurred in connection with
appellate, bankruptcy and post-judgment proceedings) imposed upon or incurred by
or asserted against Ocwen by reason of: (a) the terms and conditions set forth
in this Instrument; (b) ownership of the Property or any interest therein, or
receipt of any rents; (c) any accident, injury to or death of persons or loss of
or damage to property occurring in, on or about the Property or any part thereof
or on the adjoining sidewalks, curbs, adjacent property or adjacent parking
areas or streets; (d) any use, non-use or condition in, on or about the Property
or any part thereof or on the adjoining sidewalks, curbs, adjacent property,
parking areas or streets; (e) any failure on the part of Borrower to perform or
comply with any of the terms of this Instrument; or (f) the performance of any
labor or services or the furnishing of any materials or other property in
respect of the Property or any part thereof. The obligations of Borrower under
this paragraph 26 shall survive any termination or satisfaction of this
Instrument until the expiration of the statute of limitations of any action,
claim, cause of action, liability, cost or expense for which indemnification is
to be provided by Borrower, as set forth above.

         27.  HAZARDOUS WASTE REPRESENTATION AND INDEMNIFICATION. The Borrower,
Ocwen, Medina ALF, Inc., a Florida corporation, Centerville ALF, Inc., a Florida
corporation, Shippensburg ALF, Inc., a Florida corporation, Balanced Care
Corporation, a Delaware corporation, Balanced Care at Medina, Inc., a Delaware
corporation, Balanced Care at Centerville, Inc., a Delaware corporation,
Balanced Care at Shippensburg, Inc., a Delaware corporation, and Senior Care
Operators of Shippensburg, LLC, a Delaware limited liability company have
entered into the ENVIRONMENTAL CONDITION AND INDEMNITY AGREEMENT, of even date
herewith, governing the relationship between Borrower and Ocwen (and other
parties) as to environmental matters affecting the Property.

         28.  RELEASE. Upon payment of all sums secured by this Instrument that
are due and payable at the time of payoff of the Term Note, and upon the payment
in full of the Term Note (not including any Additional Payments that may become
due in accordance with the terms of Section 1.6 of the Term Loan Agreement) and
all other amounts due and owing to Ocwen under the Term Loan Agreement at the
time of payoff of the Term Note, Ocwen

                                      -20-
<PAGE>
shall discharge this Instrument. Borrower shall pay Ocwen's reasonable costs
incurred in discharging this Instrument.

         Notwithstanding the foregoing paragraph to the contrary, in the event
that, at the time of the payoff of the Term Note, payment is due Ocwen or any of
its Affiliates (specifically including Medina ALF, Inc., Shippensburg ALF, Inc.,
and Centerville ALF, Inc.) under the Deferred Purchase Price Note (as defined in
the Term Loan Agreement) and BCC Note (as defined in the Term Loan Agreement),
Ocwen shall not discharge or be required to discharge this Instrument until
payment in full has been made under the Term Note (not including any Additional
Payments that may become due in accordance with the terms of Section 1.6 of the
Term Loan Agreement), the Deferred Purchase Price Note and the BCC Note, and all
other amounts due and owing to Ocwen and/or such Affiliates under the Term Note,
Deferred Purchase Price Note, and BCC Note have been paid in full.

         Ocwen acknowledges that Borrower may choose to pay off the Loan by
refinancing, and Borrower agrees to provide Ocwen with thirty (30) days advance
written notice of such refinancing. Ocwen shall have such 30 days to provide
Borrower with a payoff letter and to provide to a title company or other escrow
agent a satisfaction and release of this Instrument to be held by such escrow
agent in escrow until Ocwen shall have received payment in full of the Term
Note, and if applicable, the Deferred Purchase Price Note and BCC Note. In the
event that Ocwen fails to provide a letter of payoff or provide the release of
lien of this Instrument within the time period described above, and solely as a
result of Ocwen's failure to timely respond (and not as a result of any action
or inaction by Borrower), Borrower fails to make a payment when due under the
Term Note, Ocwen may not accelerate payments due under the Term Note, or deem
payment due under the Deferred Purchase Price Note and/or BCC Note. Provided,
however, that nothing set forth above shall release Borrower and/or Balanced
Care from any obligation of Borrower or Balanced Care under the Term Note or any
Loan Documents, or under the BCC Note or Deferred Purchase Price Note, in the
event that payments are otherwise due under any of the foregoing; the intent of
the parties with respect to this paragraph being that Ocwen may not benefit from
its failure to timely respond by accelerating the Term Note based solely on such
failure, thereby causing payments to be due that would not otherwise be due
under the Deferred Purchase Price Note and BCC Note, but otherwise, the
obligations of the Borrower and/or Balanced Care under the Loan Agreements,
Deferred Purchase Price Note and BCC Note shall be unaffected hereby.

                                      -21-
<PAGE>
         29.  WAIVER OF JURY TRIAL. OCWEN AND BORROWER HEREBY VOLUNTARILY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN
OCWEN AND BORROWER ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN BORROWER AND OCWEN IN CONNECTION WITH
THIS INSTRUMENT OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTION RELATED HERETO. THIS PROVISION IS A
MATERIAL INDUCEMENT TO OCWEN TO ENTER INTO THE FINANCING TRANSACTION. IT SHALL
NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY OCWEN'S ABILITY TO PURSUE
ITS REMEDIES CONTAINED IN THIS INSTRUMENT OR ANY OTHER DOCUMENT RELATED HERETO.

         30.  OPEN END MORTGAGE; PROTECTIVE ADVANCES. This Instrument is an Open
End Mortgage as defined in 42 Pa. Con. Stat. Ann. Section 8143 and secures
advances made pursuant to the Term Note, Term Loan Agreement, and other Loan
Agreements, whether such advances are made pursuant to an obligation of Ocwen,
the mortgagee, or otherwise. The maximum total principal indebtedness
outstanding hereunder and secured hereby shall not exceed $9,153,356.00, plus
interest thereon, fees payable to Ocwen in connection therewith, and protective
advances made by Ocwen pursuant to the terms of this Instrument, the Term Note,
and the other Loan Agreements. This Instrument secures, and the Loan Agreements
executed in connection herewith evidence, the obligation of Borrower to repay
protective advances made by Ocwen pursuant to this Instrument and the other Loan
Agreements for, among other things, payment of taxes, assessments, maintenance
charges, insurance premiums, and costs and expenses incurred by Ocwen, including
but not limited to reasonable attorney's fees, for (i) the protection of the
Property, or (ii) the protection of the lien or security of this Instrument,
and/or by reason of the occurrence of an Event of Default. Borrower waives all
of Borrower's rights under 42 Pa. Con. Stat. Ann. Section 8143(C).

                                      -22-
<PAGE>
         IN WITNESS WHEREOF, Borrower has executed this Instrument as of the day
and year first set forth above.

Signed and acknowledged                     BORROWER:
in the presence of:
                                            BALANCED CARE REALTY (OFC),
                                            INC.

/s/Theresa M. Haddad
Printed Name: Theresa M. Haddad             By:/s/Robin L. Barber
                                            Its:   Vice President and
                                                   Secretary

/s/Barbara E. Davis
Printed Name: Barbara E. Davis

COMMONWEALTH OF PENNSYLVANIA      )
                                  )    SS
COUNTY OF CUMBERLAND              )

         On this 4th day of April, 2002, before me, a Notary Public in and for
said County and State, personally appeared Robin L. Barber, the Vice President
and Secretary of Balanced Care Realty (OFC), Inc., a Delaware corporation, who
executed the foregoing instrument as his/her free act and deed on behalf of said
corporation.

         IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

                                            /s/Jaynelle D. Covert
                                            Notary Public

                                            My Commission Expires:June 21, 2004

                                      -23-
<PAGE>
                            CERTIFICATE OF RESIDENCE

         I hereby certify that the business address of the mortgagee named
herein, Ocwen Financial Corporation, a Florida corporation is as follows: Ocwen
Financial Corporation, c/o Ocwen Federal Bank FSB, 1675 Palm Beach Lakes Blvd.,
West Palm Beach, FL 33401, Attn: Secretary.

                                            OCWEN FINANCIAL CORPORATION

                                            By:/s/William B. Shepro
                                            Print Name: William B. Shepro
                                            Its: Sr. Vice President

This instrument was prepared by:
Jill E. Aebker, Esq.
Squire, Sanders & Dempsey L.L.P.
1300 Huntington Center
41 South High Street
Columbus, OH  43215

                                      -24-<PAGE>
Exhibit 10.39

                 ENVIRONMENTAL CONDITION AND INDEMNITY AGREEMENT

         THIS ENVIRONMENTAL CONDITION AND INDEMNITY AGREEMENT (the
"Environmental Indemnity Agreement"), is made as of the Effective Date by and
among Medina ALF, Inc., a Florida corporation ("Medina"), Centerville ALF, Inc.,
a Florida corporation ("Centerville"), Shippensburg ALF, Inc., a Florida
corporation ("Shippensburg") (Medina, Centerville, and Shippensburg are
collectively referred to hereinafter as "Seller"), Ocwen Financial Corporation,
a Florida corporation ("Ocwen"), Balanced Care Realty (OFC), Inc., a Delaware
corporation ("Buyer"), Balanced Care Corporation, a Delaware corporation
("Balanced Care"), Balanced Care at Medina, Inc., a Delaware corporation
("BCM"), Balanced Care at Centerville, Inc., a Delaware corporation ("BCC"),
Balanced Care at Shippensburg, Inc., a Delaware corporation ("BCS") (BCM, BCC,
and BCS are collectively referred to hereinafter as "Management Companies"), and
Senior Care Operators of Shippensburg, LLC, a Delaware limited liability company
("Licensee"). Buyer, Balanced Care, Management Companies and Licensee shall be
collectively referred to in this Environmental Agreement as "Indemnitors."
Seller and Ocwen and their respective successors and assigns, affiliates,
officers, directors, parents, subsidiaries, shareholders, employees, agents,
representatives, contractors and consultants shall be collectively referred to
in this Environmental Indemnity Agreement as, and shall constitute, the
"Indemnified Parties."

                                   WITNESSETH:

         WHEREAS, Seller, Ocwen, and the Indemnitors have entered into an
Agreement of Purchase and Sale ("Purchase Agreement") relative to the Property
more fully described therein.

         WHEREAS, this is the Environmental Indemnity Agreement contemplated by
and referred to in Section 31.4 of the Purchase Agreement.

         WHEREAS, as contemplated by the Purchase Agreement, a portion of the
purchase price for the Property is being financed by Ocwen pursuant to a loan to
Buyer ("Loan") upon the terms and conditions set forth in the Term Loan
Agreement, effective on and as of the Effective Date, by and among Buyer,
Balanced Care, the Management Companies, and Licensee ("Term Loan Agreement")
and pursuant to the Term Note executed by Buyer in favor of Ocwen in connection
therewith ("Term Note").
<PAGE>
         WHEREAS, this is the Environmental Indemnity Agreement contemplated by
and referred to in Sections 3.11 and 8.8 of the Term Loan Agreement.

         WHEREAS, in order to secure the obligations of Buyer set forth in the
Term Loan Agreement, Buyer has executed three (3) Open-End Mortgages, Security
Agreements, and Assignments of Leases and Rents to Ocwen, conveying the Property
back to Ocwen, effective as of the Effective Date ("Mortgages"), as well as
three (3) additional subordinate mortgages on such Property securing other
obligations of Buyer and Balanced Care, effective as of the Effective Date
("Subordinate Mortgages").

         WHEREAS, this is the Environmental Indemnity Agreement contemplated by
and referred to in Section 27 of the Mortgages and Section 27 of the Subordinate
Mortgages.

         NOW THEREFORE, in consideration for the mutual promises, covenants and
agreements set forth herein and in the Purchase Agreement, Term Loan Agreement,
other Loan Documents (as defined in the Term Loan Agreement), and the documents
and agreements executed in connection with the consummation of the transactions
contemplated by the Purchase Agreement ("Purchase Documents"), as well as
certain other valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties to this Environmental Indemnity Agreement,
intending to be legally bound, hereby agree as follows:

                                   AGREEMENT:

         Section 1. DEFINITIONS. The capitalized terms used in this
Environmental Indemnity Agreement which are defined in this Section 1 shall have
the meanings attached to such terms in this Section 1.

         "Actual Knowledge" or "actual knowledge" means the actual knowledge of
such employees, agents, consultants, or representatives of any Indemnitor who,
as a result of their positions, duties, and or responsibilities for such
Indemnitor, would be reasonably expected to have knowledge of the particular
matter at issue.

         "Effective Date" means March 31, 2002.

         "Environment" or "Environmental" means any water or water vapor, any
land including land surface or subsurface, soil, air, fish, wildlife, and all
other natural resources.

                                      -2-
<PAGE>
         "Environmental Laws" mean all federal, state and local environmental,
land use, zoning, public health, chemical use, safety and sanitation laws,
statutes, ordinances, or codes relating to the protection of the Environment
and/or governing the use, exposure, release, storage, treatment, generation,
transportation, processing, handling, production, sale, transport, reuse,
recycling or disposal of Hazardous Substances, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act,
as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. Sections 2601, et seq.), the Clean
Air Act, as amended (42 U.S.C. Sections 7401, et seq.), the Clean Water Act, as
amended (33 U.S.C. Sections 1251, et seq.), the Occupational Safety and Health
Act, as amended (29 U.S.C. Sections 651, et seq.), and all rules, regulations,
policies, guidelines, interpretations, decisions, orders or requirements
(including consent decrees, judicial decisions and administrative orders) of
federal, state and local governmental agencies and authorities with respect
thereto.

         "Environmental Permits" means all permits, licenses, approvals,
authorizations, standards, directives, consents or registrations required by any
Environmental Laws in connection with the ownership, use and/or operation of the
Property and/or the use, exposure, release, storage, treatment, generation,
transportation, processing, handling, production, sale, transport, reuse,
recycling or disposal of Hazardous Substances at the Property.

         "Hazardous Substance" means, without limitation, any flammable
explosives, radioactive material, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum, crude oil or any petroleum based products,
asbestos-containing material in any form or condition, lead-based paint in any
form or condition, methane gas or any related substance, hazardous materials,
hazardous wastes, or hazardous or toxic substances or related materials, as
defined in the Environmental Laws and in the regulations promulgated thereunder.
Notwithstanding the foregoing, the term Hazardous Substances as defined herein
shall not include (a) pharmaceuticals and cleaning agents of the types and in
the quantities and concentrations normally stocked by health care and senior
housing providers similar to the Project Properties (as defined in the Term Loan
Agreement), (b) oil in de minimis amounts typically associated with the use of
certain portions of the Property for driving and parking motor vehicles, or (c)
medical wastes generated at the Property; provided that the foregoing are used,
stored, transported and/or disposed of in accordance with all Environmental
Laws.

                                      -3-
<PAGE>
         "Property" means the Land, Improvements and Fixtures (as such are
defined in the Purchase Agreement), whether located in the past, present or
future on the Property.

         "Release" has the same meaning as given to that term in the
Comprehensive, Environmental Response, Compensation and Liability Act of 1980,
as amended (42 U.S.C.Sections 9601, et seq.), and all regulations
promulgated thereunder.

         Section 2. REPRESENTATIONS AND WARRANTIES. Indemnitors, jointly and
severally, represent and warrant to the Indemnified Parties that, except as may
otherwise be set forth in the Site Assessment Reports listed on Exhibit A hereto
(the "Reports"):

         (a) Neither the Property nor to Indemnitors' actual knowledge, any
property adjacent to the Property is being, nor to Indemnitors' actual
knowledge, at any time in the past has been used in violation of Environmental
Laws for the storage, treatment, generation, transportation, processing,
handling, production or disposal of any Hazardous Substance or as a landfill or
other waste disposal site or for the storage of petroleum, crude oil or any
petroleum based products.

         (b) No underground, partially underground or above-ground storage
tanks, lines or related systems are, nor to Indemnitors' actual knowledge, at
any time in the past have been, located in, on or under the Property.

         (c) The soil, subsoil, bedrock, surface water and groundwater of the
Property and all buildings, structures or other Improvements on the Property are
free of any Hazardous Substances.

         (d) To Indemnitors' actual knowledge, at no time in the past, nor
currently, has there been a Release nor threat of a Release on, at or from the
Property or any property adjacent to or within a one-mile radius of the Property
which through soil, subsoil, bedrock, surface water or groundwater migration
could come to be located on the Property, and Indemnitors have not received any
form of notice or inquiry from any federal, state or local governmental agency
or authority, any operator, tenant, subtenant, licensee or occupant of the
Property or any property adjacent to or within a one-mile radius of the Property
or any other person with regard to a Release or the threat of a Release on, at
or from the Property or any property adjacent to or within a one-mile radius of
the Property.

                                      -4-
<PAGE>
         (e) All Environmental Permits have been obtained and are in full force
and effect.

         (f) To Indemnitors' actual knowledge, no event has occurred with
respect to the Property which, with the passage of time or the giving of notice,
or both, would constitute a violation of any Environmental Laws or
non-compliance with any Environmental Permits.

         (g) To Indemnitors' actual knowledge, there are no agreements, consent
orders, decrees, judgments, licenses, permit conditions or other orders or
directives of any federal, state or local court, governmental agency or
authority arising under any Environmental Laws relating to the past, present or
future ownership, use, operation, sale, transfer, lease or conveyance of the
Property which require any change in the present condition of the Property or
any work, repairs, construction, containment, clean up, investigations, studies,
removal or other remedial action or capital expenditures with respect to the
Property.

         (h) There are no actions, suits, claims or proceedings, pending or to
Indemnitors' actual knowledge, threatened, which could cause the incurrence of
material expenses or costs or which seek money damages, injunctive relief,
remedial action or any other remedy that arise out of, relate to or result from
(i) a violation or alleged violation of any Environmental Laws or noncompliance
or alleged non-compliance with any Environmental Permits, (ii) the presence of
any Hazardous Substance or a Release or the threat of a Release on, at or from
the Property or any property adjacent to the Property or (iii) human exposure to
any Hazardous Substance, noises, vibrations or nuisances of whatever kind to the
extent the same arise from the condition of the Property or the ownership, use,
operation, sale, transfer, lease or conveyance thereof.

         Section 3. COVENANTS OF INDEMNITORS. Indemnitors, on a joint and
several basis, covenant and agree to perform the following:

         (a) Not to cause or permit the Property or any part thereof to be used
for the storage, treatment, generation, transportation, processing, handling,
production or disposal of any Hazardous Substances in violation of Environmental
Laws, except as disclosed in the Reports.

         (b) Comply in all material respects with, and cause all operators,
tenants, subtenants, licensees and occupants of the Property to comply in all
material respects with, all Environmental Laws and to obtain and comply in all
material respects with, and cause all operators, tenants, subtenants, licensees
and occupants of the

                                      -5-
<PAGE>
Property to obtain and comply in all material respects with, all Environmental
Permits.

         (c) Not cause or permit any material change to be made in the present
or intended use of the Property as of the Effective Date which would (i) involve
the use, storage, treatment, generation, transportation, processing, handling,
production or disposal of any Hazardous Substance, except as may be permitted by
any applicable Environmental Law or Environmental Permit and except for storage
tanks set forth in the Reports, or the use of the Property as a landfill or
other waste disposal site, (ii) violate any Environmental Laws, (iii) constitute
material non-compliance with any Environmental Permit, or (iv) increase the risk
of a Release of Hazardous Substances.

         (d) Promptly provide Indemnified Parties with a copy of all
notifications which Indemnitors give or receive with respect to any past or
present Release or the threat of a Release on, at, or from the Property or any
property adjacent to or within a one-mile radius of the Property.

         (e) Undertake and complete all investigations, studies, sampling and
testing and all removal and other remedial actions necessary, which precise
removal or remedial action it shall determine, to contain, remove and clean up
all Hazardous Substances present at, in, on, or under the Property in strict
accordance with, and to the extent required by, all applicable Environmental
Laws and all Environmental Permits.

         (f) At all times, allow all the Indemnified Parties reasonable access
to the Property for the purpose of ascertaining site conditions, including, but
not limited to, subsurface conditions at the Property.

         (g) If, at any time, any Indemnified Party obtains any evidence or
information which reasonably suggests that a violation of any Environmental Laws
or Environmental Permits may exist at the Property, Indemnified Parties may,
after reasonable advance notice to Indemnitors and after a reasonable
opportunity for Indemnitors to respond to the notice and discuss the same with
the Indemnified Parties, require that a full or supplemental environmental
inspection and/or audit report with respect to the Property, of a scope and
level of detail reasonably satisfactory to the Indemnified Parties, be prepared
by an environmental consultant, engineer or other qualified person reasonably
acceptable to Indemnified Parties, at Indemnitors' sole expense. Said
environmental inspection may include a physical inspection of the Property, a
visual inspection

                                      -6-
<PAGE>
of any property adjacent to the Property, personnel interviews and a review of
all Environmental Permits. If the initial inspection, or any subsequent
inspection, shows evidence of possible contamination at, on, under or from the
Property, Indemnified Parties may require a records search and/or subsurface
testing for the presence of Hazardous Substances in the soil, subsoil, bedrock,
surface water and/or groundwater. If said environmental inspection indicates the
presence of any Hazardous Substance or a Release or the threat of a Release at,
on, under or from the Property, Indemnitors shall promptly undertake and
diligently pursue to completion all necessary, appropriate and legally
authorized investigative, containment, removal, clean up and other remedial
actions, in accordance with all Environmental Laws, using methods it shall
determine, which are reasonably acceptable to the appropriate federal, state and
local agencies or authorities.

         Section 4. INDEMNIFICATION PROVISIONS.

         4.1. Indemnified Matters. Indemnitors hereby covenant and agree, at
their sole cost and expense, on a joint and several basis, to indemnify,
protect, defend and save harmless the Indemnified Parties for, from, and against
any and all damages, losses, liabilities, obligations, penalties, claims,
litigation, demands, defenses, judgments, suits, actions, proceedings, costs,
disbursements and/or expenses (including, without limitation, reasonable
attorneys' and reasonable experts' fees, expenses and disbursements) of any kind
or nature whatsoever which may at any time be imposed upon, incurred by or
asserted or awarded against Indemnified Parties relating to, resulting from, or
arising out of: (a) the past, present, or future, use of the Property for the
storage, treatment, generation, transportation, processing, handling,
production, or disposal of any Hazardous Substance or as a landfill or other
waste disposal site, (b) the past, present, or future presence of any Hazardous
Substances or a Release, or the threat of a Release, of Hazardous Substances on,
at, under or from the Property, (c) the failure to promptly undertake, pay for,
and diligently pursue to completion, all necessary, appropriate, and legally
authorized investigative, containment, removal, clean up, and other remedial
actions with respect to a Release or the threat of a Release of Hazardous
Substances on, at, under, or from the Property, (d) human exposure to any
Hazardous Substance of whatever kind to the extent the same arises from the
condition of the Property or the ownership, use, operation, sale, transfer,
lease or conveyance thereof, (e) the damage, destruction, or loss of use of all
or any portion of the Property or the injury, illness or death of any person
arising from or caused by any environmental or public health and safety
condition at, on, under or from the Property, (f) a violation of any

                                      -7-
<PAGE>
Environmental Laws, or (g) non-compliance with any Environmental Permits
(collectively, the "Indemnified Matters"). Provided, however that Indemnitors
shall not be required to indemnify the Indemnified Parties to the extent that
any Indemnified Matter results from the gross negligence or willful misconduct
of the Indemnified Parties.

         4.2. No Limitation of Liability. To the extent permitted by applicable
law, the liability of Indemnitors to the Indemnified Parties hereunder shall in
no way be limited, abridged, impaired or otherwise affected by (i) any amendment
or modification, extensions of time for payment or performance required by any
of the Loan Documents or the Purchase Documents, (ii) the release of Indemnitors
or any other person from the performance or observance of any of the agreements,
covenants, terms or conditions contained in any of the Loan Documents, the
Purchase Documents, or this Agreement, by operation of law, Indemnified Parties'
voluntary act, or otherwise, (iii) any exculpatory provision contained in any of
the Loan Documents or the Purchase Documents, (iv) any investigation or inquiry
conducted by or on the behalf of the Indemnified Parties or any information
which the Indemnified Parties may have or obtain with respect to the
environmental or ecological condition of the Property, (v) the sale, assignment
or foreclosure of the Term Note, Mortgages or Subordinate Mortgages, (vi) the
sale, transfer or conveyance of all or part of the Property, (vii) the death or
legal incapacity of Indemnitor, or (viii) the release or discharge, in whole or
in part, of any Indemnitor in any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or similar proceeding.

         4.3. Waivers. Indemnitors hereby (a) waive demand, presentment,
diligence, protest, notice of dishonor or default, notice of acceptance of this
Environmental Indemnity Agreement, and notice of every other kind from the
Indemnified Parties, provided that if the Indemnified Parties seek enforcement
of this indemnity as a result of a third party claim, Indemnified Parties shall
provide notice of such third party claim to Indemnitors, and shall permit
Indemnitors to assume the defense of such third party claim with counsel
reasonably acceptable to the Indemnified Parties, and (b) waive any and all
requirements that the Indemnified Parties shall or shall not take any action,
pursue any remedy, or institute any proceeding at law or in equity against
Indemnitors, or any other person or any security for the Loan as a condition
precedent to bringing an action against Indemnitors pursuant to this
Environmental Indemnity Agreement.

                                      -8-
<PAGE>
         Section 5. INDEMNIFIED PARTIES AUTHORIZED TO TAKE OR COMPLETE CERTAIN
REMEDIAL ACTIONS. If Indemnitors fail to cause any Release of a Hazardous
Substance on, at or from the Property to be contained, removed, cleaned up and
otherwise remediated in accordance with applicable law within 45 days after
receiving notice thereof, or within such additional time as may be permitted by
applicable local, state or federal governmental authority, as may be required to
contain, remove, clean up or otherwise remediate such Release, so long as
Indemnitors diligently prosecuted such action to completion, then the
Indemnitors, after 30 days written notice by Ocwen, shall post a bond or obtain
a letter of credit for the benefit of Ocwen (drawn upon a company reasonably
satisfactory to Ocwen) or deposit an amount of money in an escrow account under
Ocwen's name upon which bond, letter of credit, or escrow an Indemnitor may
draw, and which bond, letter of credit, or escrow shall be in an amount
reasonably sufficient to cause any Release (as described above) to be contained,
removed, cleaned up and otherwise remediated in accordance with applicable law.
Ocwen shall have the right to draw against the bond, letter of credit or escrow
in its discretion in the event that the Indemnitors are unable or unwilling to
meet their obligations under this Section 5, and in the event that Ocwen makes
such a draw, Ocwen shall apply the funds to the cost of the required
remediation. If the Indemnitors fail to post a bond or obtain a letter of credit
or deposit such cash as is required herein, then the Indemnified Parties, at the
Indemnitors' (on a joint and several basis) cost and expense, may, but shall
have no obligation, do so for the benefit of the Indemnitors and do those things
which the Indemnitors are required to do under this Section 5.

         In the event Ocwen or any other Indemnified Party elects to perform for
and on behalf of the Indemnitors, as aforesaid, the contractors and/or
subcontractors selected by the Indemnified Parties shall have the right to enter
the Property with such persons, machinery and equipment, and to undertake such
investigative, containment, removal, clean up or other remedial actions in
accordance with applicable law without thereby incurring any liability to the
Indemnitors on account thereof, except to the extent any such liability arises
from Ocwen's gross negligence or Ocwen's acts or omissions constituting willful
misconduct. Indemnitors agree to cooperate with all contractors and/or
subcontractors engaged in such investigative, containment, removal, clean up or
other remedial actions. Indemnitors shall be liable to the Indemnified Parties
for all costs and expenses, including without limitation, reasonable attorneys'
and experts' fees, expenses and disbursements, paid or incurred on account of
any such actions undertaken on Indemnitors' behalf.

                                      -9-
<PAGE>
         Section 6. PAYMENTS TO INDEMNIFIED PARTIES. Indemnitors shall be
obligated to pay to the Indemnified Parties, within 30 days of demand, all
amounts which shall be due and owing hereunder. Any amount not so paid when due
shall bear interest at the Default Rate of interest (as defined in the Term Loan
Agreement).

         Section 7. TERMINATION OF AGREEMENT. Notwithstanding anything to the
contrary contained herein, in the Term Loan Agreement, any other Loan Document,
the Purchase Agreement, or any other Purchase Document, this Environmental
Indemnity Agreement and the representations, warranties, covenants, and
agreements of the Indemnitors contained in this Environmental Indemnity
Agreement, shall survive the closing of the Loan transaction, the closing of the
purchase and sale transaction contemplated by the Purchase Agreement, and shall
continue in full force and effect until all of the following conditions are
satisfied in full:

         (i) all principal, interest and other sums evidenced or secured by the
Loan Documents, the BCC Note (as defined in the Term Loan Agreement), the
Deferred Purchase Price Note (as defined in the Term Loan Agreement), and any
other costs and expenses incurred by the Indemnified Parties in connection with
the Loan, the BCC Note, and the Deferred Purchase Price Note, are paid in full
by Indemnitors;

         (ii) no Indemnified Parties have at any time nor in any manner
participated in the management or control of, taken possession of or title to
the Property or any portion thereof, whether by foreclosure of the Mortgages or
Subordinate Mortgages, deed in lieu of foreclosure or otherwise;

         (iii) between the date of this Environmental Indemnity Agreement and
the date on which the Loan, the BCC Note, and/or the Deferred Purchase Price
Note, is paid in full, as provided in clause (i) above, there has been no change
in any applicable Environmental Law which would make a lender or mortgagee
liable in respect of the Indemnified Matters notwithstanding the fact that no
event, circumstance or condition of the nature described in clause (ii) above
ever occurred; and

         (iv)     there exist no Indemnified Matters which are then pending.

         Provided, however, that notwithstanding anything set forth above or
otherwise herein, in any Loan Document, the BCC Note, the Deferred Purchase
Price Note, in the Purchase Agreement, or in an Purchase Document to the
contrary, the indemnification obligations of the Indemnitors set forth in
Section 4 hereof and in the other sections of this Environmental Indemnity
Agreement in which they are

                                      -10-
<PAGE>
contained, shall survive until the expiration of the statute of limitations of
any and all claims which may be made under and pursuant to such sections,
whether made by an Indemnified Party or a third party against an Indemnified
Party.

         Section 8. GENERAL PROVISIONS.

         8.1. Construction. Whenever used herein, words of any gender shall be
construed to include any other gender, and words in the singular shall be
construed to include the plural and vice versa, unless the context otherwise
requires. Any representation, warranty or covenant made by Indemnitors for the
benefit of the Indemnified Parties shall also run to the benefit of each and
every one of the Indemnified Parties. This Environmental Indemnity Agreement
shall be binding upon and inure to the benefit of the parties hereto and the
respective successors and permitted assigns of such parties.

         8.2 Other Applicable Provisions. The provisions set forth in
Sections 8.2, 8.3, 8.4, 8.5, 8.9, 8.10, 8.11, 8.12, 8.13, 8.15, 8.16, 8.19,
8.20, and 8.23 of the Term Loan Agreement shall be applicable to this
Environmental Indemnity Agreement as though set forth herein in full.

         8.3 Recording. This instrument shall not be recorded by either party.

         8.4. Jury Waiver. THE UNDERSIGNED (BY THEIR ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED ARISING OUT OF OR IN ANY WAY
RELATED TO THIS DOCUMENT, ANY OTHER LOAN DOCUMENT, THE PURCHASE AGREEMENT OR ANY
PURCHASE DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO SELLER AND OCWEN
TO SELL AND PROVIDE THE FINANCING DESCRIBED IN THE PURCHASE AGREEMENT AND LOAN
DOCUMENTS.

                                      -11-
<PAGE>
        IN WITNESS WHEREOF, Buyer, Balanced Care, Management Companies,
Licensee, Seller, and Ocwen do hereby execute this ENVIRONMENTAL CONDITION AND
INDEMNITY AGREEMENT to be effective as of the Effective Date.

SELLER:
CENTERVILLE ALF, INC.

By:/s/William B. Shepro
Name: William B Shepro
Title: Sr. Vice President

MEDINA ALF, INC.

By:/s/William B. Shepro
Name: William B Shepro
Title: Sr. Vice President

SHIPPENSBURG, ALF, INC.

By:/s/William B. Shepro
Name: William B Shepro
Title: Sr. Vice President

OCWEN:
OCWEN FINANCIAL CORPORATION

By:/s/William B. Shepro
Name: William B Shepro
Title: Sr. Vice President

                                      -12-
<PAGE>
BUYER:
BALANCED CARE REALTY (OFC), INC.

By:/s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary

BALANCED CARE:
BALANCED CARE CORPORATION

By:/s/Robin L. Barber
Name: Robin L. Barber
Title: Senior Vice President, Legal Counsel and Assistant Secretary

LICENSEE:
SENIOR CARE OPERATORS OF SHIPPENSBURG, LLC
         By:  BALANCED CARE AT SHIPPENSBURG, INC., its Manager

         By:/s/Robin L. Barber
         Name: Robin L. Barber
         Title: Vice President and Secretary

MANAGEMENT COMPANIES:
BALANCED CARE AT MEDINA, INC.

By:/s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary

BALANCED CARE AT CENTERVILLE, INC.

By:/s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary

                                      -13-
<PAGE>
BALANCED CARE AT SHIPPENSBURG, INC.

By:/s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary

                                      -14-

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