Document:

<PAGE>
                                                                  EXHIBIT 10.4.2

                                                       FHLMC Loan No.: 002701324
THIS INSTRUMENT PREPARED BY:

Apperson, Crump & Maxwell, PLC
6000 Poplar Avenue, Suite 400
Memphis, Tennessee 38119
Attn: Robert J. Pinstein, Esq.

AFTER RECORDING, RETURN TO:

Holt Ney Zatcoff & Wasserman, LLP
100 Galleria Parkway, Suite 600
Atlanta, Georgia 30339
Attn: Sanford H. Zatcoff, Esq.

                        MULTIFAMILY DEED TO SECURE DEBT,
                              ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT

                       (GEORGIA - REVISION DATE 3-17-03)

<PAGE>

                                                                  Exhibit 10.4.2
                                                       FHLMC Loan No.: 002701324

                        MULTIFAMILY DEED TO SECURE DEBT,
                               ASSIGNMENT OF RENTS
                             AND SECURITY AGREEMENT
                        (GEORGIA - REVISION DATE 3-17-03)

         THIS MULTIFAMILY DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND SECURITY
AGREEMENT (the "INSTRUMENT") is made to be effective as of the 21 day of August,
2003, between ROBERTS PROPERTIES RESIDENTIAL, L.P., a limited partnership
organized and existing under the laws of the State of Georgia, whose address is
8010 Roswell Road, Suite 120, Atlanta, Georgia 30350, as grantor ("BORROWER"),
and L. J. MELODY & COMPANY, a corporation organized and existing under the laws
of the State of Texas, whose address is 5847 San Felipe, Suite 4400, Houston,
Texas 77057, as grantee ("LENDER"). Borrower's organizational identification
number, if applicable, is K418365.

         Borrower is indebted to Lender in the principal amount of Ten Million
Seven Hundred Fifty Thousand and No/100 Dollars ($10,750,000.00), as evidenced
by Borrower's Multifamily Note payable to Lender, dated as of the date of this
Instrument, and maturing on September 1, 2014 (the "MATURITY DATE").

         TO SECURE TO LENDER the repayment of the Indebtedness, and all
renewals, extensions and modifications of the Indebtedness, and the performance
of the covenants and agreements of Borrower contained in the Loan Documents,
Borrower grants, conveys and assigns to Lender and Lender's successors and
assigns, with power of sale, the Mortgaged Property, including the Land located
in Gwinnett County, State of Georgia and described in Exhibit A attached to this
Instrument. To have and to hold the Mortgaged Property unto Lender and Lender's
successors and assigns forever. As used in this Instrument, the term "Mortgaged
Property" is synonymous with the term "Secured Property," and the term "lien" is
synonymous with the term "security interest and title."

         Borrower covenants that Borrower is lawfully seized of the Mortgaged
Property and has the right, power and authority to grant, convey and assign the
Mortgaged Property, that the Mortgaged Property is unencumbered, except as shown
on the schedule of exceptions to coverage in the title policy issued to and
accepted by Lender contemporaneously with the execution and recordation of this
Instrument and insuring Lender's interest in the Mortgaged Property (the
"SCHEDULE OF TITLE EXCEPTIONS"). Borrower covenants that Borrower will warrant
and defend generally the title to the Mortgaged Property against all claims and
demands, subject to any easements and restrictions listed in the Schedule of
Title Exceptions.

                                                                          PAGE 1
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                                                                  Exhibit 10.4.2

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

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

         (a)      "ATTORNEYS' FEES AND COSTS" means (i) fees and out-of-pocket
costs of Lender's and Loan Servicer's attorneys, as applicable, including costs
of Lender's and Loan Servicer's in-house counsel, support staff costs, costs of
preparing for litigation, computerized research, telephone and facsimile
transmission expenses, mileage, deposition costs, postage, duplicating, process
service, videotaping and similar costs and expenses; (ii) costs and fees of
expert witnesses, including appraisers; and (iii) investigatory fees.

         (b)      "BORROWER" means all persons or entities identified as
"Borrower" in the first paragraph of this Instrument, together with their
successors and assigns.

         (c)      "COLLATERAL AGREEMENT" means any separate agreement between
Borrower and Lender for the purpose of establishing replacement reserves for the
Mortgaged Property, establishing a fund to assure the completion of repairs or
improvements specified in that agreement, or assuring reduction of the
outstanding principal balance of the Indebtedness if the occupancy of or income
from the Mortgaged Property does not increase to a level specified in that
agreement, or any other agreement or agreements between Borrower and Lender
which provide for the establishment of any other fund, reserve or account.

         (d)      "CONTROLLING ENTITY" means an entity which owns, directly or
indirectly through one or more intermediaries, (i) a general partnership
interest or a Controlling Interest of the limited partnership interests in
Borrower (if Borrower is a partnership or joint venture), (ii) a manager's
interest in Borrower or a Controlling Interest of the ownership or membership
interests in Borrower (if Borrower is a limited liability company), (iii) a
Controlling Interest of any class of voting stock of Borrower (if Borrower is a
corporation), or (iv) a trustee's interest or a Controlling Interest of the
beneficial interests in Borrower.

         (e)      "CONTROLLING INTEREST" means (i) 51 percent or more of the
ownership interests in an entity, or (ii) a percentage ownership interest in an
entity of less than 51 percent, if the owner(s) of that interest actually
direct(s) the business and affairs of the entity without the requirement of
consent of any other party. The Controlling Interest shall be deemed to be 51
percent unless otherwise stated in Exhibit B.

                                                                          PAGE 2
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                                                                  Exhibit 10.4.2

         (f)      "ENVIRONMENTAL PERMIT" means any permit, license, or other
authorization issued under any Hazardous Materials Law with respect to any
activities or businesses conducted on or in relation to the Mortgaged Property.

         (g)      "EVENT OF DEFAULT" means the occurrence of any event listed in
Section 22.

         (h)      "FIXTURES" means all property owned by Borrower which is so
attached to the Land or the Improvements as to constitute a fixture under
applicable law, including: machinery, equipment, engines, boilers, incinerators,
installed building materials; systems and equipment for the purpose of supplying
or distributing heating, cooling, electricity, gas, water, air, or light;
antennas, cable, wiring and conduits used in connection with radio, television,
security, fire prevention, or fire detection or otherwise used to carry
electronic signals; telephone systems and equipment; elevators and related
machinery and equipment; fire detection, prevention and extinguishing systems
and apparatus; security and access control systems and apparatus; plumbing
systems; water heaters, ranges, stoves, microwave ovens, refrigerators,
dishwashers, garbage disposers, washers, dryers and other appliances; light
fixtures, awnings, storm windows and storm doors; pictures, screens, blinds,
shades, curtains and curtain rods; mirrors; cabinets, paneling, rugs and floor
and wall coverings; fences, trees and plants; swimming pools; and exercise
equipment.

         (i)      "GOVERNMENTAL AUTHORITY" means any board, commission,
department or body of any municipal, county, state or federal governmental unit,
or any subdivision of any of them, that has or acquires jurisdiction over the
Mortgaged Property or the use, operation or improvement of the Mortgaged
Property.

         (j)      "HAZARD INSURANCE" is defined in Section 19.

         (k)      "HAZARDOUS MATERIALS" means petroleum and petroleum products
and compounds containing them, including gasoline, diesel fuel and oil;
explosives; flammable materials; radioactive materials; polychlorinated
biphenyls ("PCBs") and compounds containing them; lead and lead-based paint;
asbestos or asbestos-containing materials in any form that is or could become
friable; underground or above-ground storage tanks, whether empty or containing
any substance; any substance the presence of which on the Mortgaged Property is
prohibited by any federal, state or local authority; any substance that requires
special handling and any other material or substance now or in the future that
(i) is defined as a "hazardous substance," "hazardous material," "hazardous
waste," "toxic substance," "toxic pollutant," "contaminant," or "pollutant" by
or within the meaning of any Hazardous Materials Law, or (ii) is regulated in
any way by or within the meaning of any Hazardous Materials Law.

                                                                          PAGE 3
<PAGE>

                                                                  Exhibit 10.4.2

         (l)      "HAZARDOUS MATERIALS LAWS" means all federal, state, and local
laws, ordinances and regulations and standards, rules, policies and other
governmental requirements, administrative rulings and court judgments and
decrees in effect now or in the future and including all amendments, that relate
to Hazardous Materials or the protection of human health or the environment and
apply to Borrower or to the Mortgaged Property. Hazardous Materials Laws
include, but are not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq., the
Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water
Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation
Act, 49 U.S.C. Section 5101 et seq., and their state analogs.

         (m)      "IMPOSITIONS" and "IMPOSITION DEPOSITS" are defined in Section
7(a).

         (n)      "IMPROVEMENTS" means the buildings, structures, improvements,
and alterations now constructed or at any time in the future constructed or
placed upon the Land, including any future replacements and additions.

         (o)      "INDEBTEDNESS" means the principal of, interest at the fixed
or variable rate set forth in the Note on, and all other amounts due at any time
under, the Note, this Instrument or any other Loan Document, including
prepayment premiums, late charges, default interest, and advances as provided in
Section 12 to protect the security of this Instrument.

         (p)      "INITIAL OWNERS" means, with respect to Borrower or any other
entity, the persons or entities that (i) on the date of the Note, or (ii) on the
date of a Transfer to which Lender has consented, own in the aggregate 100
percent of the ownership interests in Borrower or that entity.

         (q)      "LAND" means the land described in Exhibit A.

         (r)      "LEASES" means all present and future leases, subleases,
licenses, concessions or grants or other possessory interests now or hereafter
in force, whether oral or written, covering or affecting the Mortgaged Property,
or any portion of the Mortgaged Property (including proprietary leases or
occupancy agreements if Borrower is a cooperative housing corporation), and all
modifications, extensions or renewals.

         (s)      "LENDER" means the entity identified as "Lender" in the first
paragraph of this Instrument, or any subsequent holder of the Note.

         (t)      "LOAN DOCUMENTS" means the Note, this Instrument, all
guaranties, all indemnity agreements, all Collateral Agreements, O&M Programs,
and any other documents now or in the

                                                                          PAGE 4
<PAGE>

                                                                  Exhibit 10.4.2

future executed by Borrower, any guarantor or any other person in connection
with the loan evidenced by the Note, as such documents may be amended from time
to time.

         (u)      "LOAN SERVICER" means the entity that from time to time is
designated by Lender to collect payments and deposits and receive Notices under
the Note, this Instrument and any other Loan Document, and otherwise to service
the loan evidenced by the Note for the benefit of Lender. Unless Borrower
receives Notice to the contrary, the Loan Servicer is the entity identified as
"Lender" in the first paragraph of this Instrument.

         (v)      "MORTGAGED PROPERTY" means all of Borrower's present and
future right, title and interest in and to all of the following:

                  (i)      the Land;

                  (ii)     the Improvements;

                  (iii)    the Fixtures;

                  (iv)     the Personalty;

                  (v)      all current and future rights, including air rights,
                           development rights, zoning rights and other similar
                           rights or interests, easements, tenements,
                           rights-of-way, strips and gores of land, streets,
                           alleys, roads, sewer rights, waters, watercourses,
                           and appurtenances related to or benefiting the Land
                           or the Improvements, or both, and all rights-of-way,
                           streets, alleys and roads which may have been or may
                           in the future be vacated;

                  (vi)     all proceeds paid or to be paid by any insurer of the
                           Land, the Improvements, the Fixtures, the Personalty
                           or any other part of the Mortgaged Property, whether
                           or not Borrower obtained the insurance pursuant to
                           Lender's requirement;

                  (vii)    all awards, payments and other compensation made or
                           to be made by any municipal, state or federal
                           authority with respect to the Land, the Improvements,
                           the Fixtures, the Personalty or any other part of the
                           Mortgaged Property, including any awards or
                           settlements resulting from condemnation proceedings
                           or the total or partial taking of the Land, the
                           Improvements, the Fixtures, the Personalty or any
                           other part of the Mortgaged Property under the power
                           of eminent domain or otherwise and including any
                           conveyance in lieu thereof;

                                                                          PAGE 5
<PAGE>

                                                                  Exhibit 10.4.2

                  (viii)   all contracts, options and other agreements for the
                           sale of the Land, the Improvements, the Fixtures, the
                           Personalty or any other part of the Mortgaged
                           Property entered into by Borrower now or in the
                           future, including cash or securities deposited to
                           secure performance by parties of their obligations;

                  (ix)     all proceeds from the conversion, voluntary or
                           involuntary, of any of the above into cash or
                           liquidated claims, and the right to collect such
                           proceeds;

                  (x)      all Rents and Leases;

                  (xi)     all earnings, royalties, accounts receivable, issues
                           and profits from the Land, the Improvements or any
                           other part of the Mortgaged Property, and all
                           undisbursed proceeds of the loan secured by this
                           Instrument and, if Borrower is a cooperative housing
                           corporation, maintenance charges or assessments
                           payable by shareholders or residents;

                  (xii)    all Imposition Deposits;

                  (xiii)   all refunds or rebates of Impositions by any
                           municipal, state or federal authority or insurance
                           company (other than refunds applicable to periods
                           before the real property tax year in which this
                           Instrument is dated);

                  (xiv)    all tenant security deposits which have not been
                           forfeited by any tenant under any Lease and any bond
                           or other security in lieu of such deposits; and

                  (xv)     all names under or by which any of the above
                           Mortgaged Property may be operated or known, and all
                           trademarks, trade names, and goodwill relating to any
                           of the Mortgaged Property.

         (w)      "NOTE" means the Multifamily Note described on page 1 of this
Instrument, including all schedules, riders, allonges and addenda, as such
Multifamily Note may be amended from time to time.

         (x)      "O&M PROGRAM" is defined in Section 18(d).

         (y)      "PERSONALTY" means all

                                                                          PAGE 6
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                                                                  Exhibit 10.4.2

                  (i)      accounts (including deposit accounts);

                  (ii)     equipment and inventory owned by Borrower, which are
                           used now or in the future in connection with the
                           ownership, management or operation of the Land or
                           Improvements or are located on the Land or
                           Improvements, including furniture, furnishings,
                           machinery, building materials, goods, supplies,
                           tools, books, records (whether in written or
                           electronic form), computer equipment (hardware and
                           software);

                  (iii)    other tangible personal property including ranges,
                           stoves, microwave ovens, refrigerators, dishwashers,
                           garbage disposers, washers, dryers and other
                           appliances (other than Fixtures);

                  (iv)     any operating agreements relating to the Land or the
                           Improvements;

                  (v)      any surveys, plans and specifications and contracts
                           for architectural, engineering and construction
                           services relating to the Land or the Improvements;

                  (vi)     all other intangible property, general intangibles
                           and rights relating to the operation of, or used in
                           connection with, the Land or the Improvements,
                           including all governmental permits relating to any
                           activities on the Land and including subsidy or
                           similar payments received from any sources, including
                           a governmental authority; and

                  (vii)    any rights of Borrower in or under letters of credit.

         (z)      "PROPERTY JURISDICTION" is defined in Section 30(a).

         (aa)     "RENTS" means all rents (whether from residential or
non-residential space), revenues and other income of the Land or the
Improvements, parking fees, laundry and vending machine income and fees and
charges for food, health care and other services provided at the Mortgaged
Property, whether now due, past due, or to become due, and deposits forfeited by
tenants.

         (bb)     "TAXES" means all taxes, assessments, vault rentals and other
charges, if any, whether general, special or otherwise, including all
assessments for schools, public betterments and general or local improvements,
which are levied, assessed or imposed by any public authority

                                                                          PAGE 7
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                                                                  Exhibit 10.4.2

or quasi-public authority, and which, if not paid, will become a lien on the
Land or the Improvements.

         (cc)     "TRANSFER" is defined in Section 21.

         2.       UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.

         (a)      This Instrument is also a security agreement under the Uniform
Commercial Code for any of the Mortgaged Property which, under applicable law,
may be subjected to a security interest under the Uniform Commercial Code,
whether such Mortgaged Property is owned now or acquired in the future, and all
products and cash and non-cash proceeds thereof (collectively, "UCC
COLLATERAL"), and Borrower hereby grants to Lender a security interest in the
UCC Collateral. Borrower hereby authorizes Lender to prepare and file financing
statements, continuation statements and financing statement amendments in such
form as Lender may require to perfect or continue the perfection of this
security interest and Borrower agrees, if Lender so requests, to execute and
deliver to Lender such financing statements, continuation statements and
amendments. Borrower shall pay all filing costs and all costs and expenses of
any record searches for financing statements and/or amendments that Lender may
require. Without the prior written consent of Lender, Borrower shall not create
or permit to exist any other lien or security interest in any of the UCC
Collateral.

         (b)      Unless Borrower gives Notice to Lender within 30 days after
the occurrence of any of the following, and executes and delivers to Lender
modifications or supplements of this Instrument (and any financing statement
which may be filed in connection with this Instrument) as Lender may require,
Borrower shall not (i) change its name, identity, structure or jurisdiction of
organization; (ii) change the location of its place of business (or chief
executive office if more than one place of business); or (iii) add to or change
any location at which any of the Mortgaged Property is stored, held or located.

         (c)      If an Event of Default has occurred and is continuing, Lender
shall have the remedies of a secured party under the Uniform Commercial Code, in
addition to all remedies provided by this Instrument or existing under
applicable law. In exercising any remedies, Lender may exercise its remedies
against the UCC Collateral separately or together, and in any order, without in
any way affecting the availability of Lender's other remedies.

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

                                                                          PAGE 8
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                                                                  Exhibit 10.4.2

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

         (a)      As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all Rents. It is
the intention of Borrower to establish a present, absolute and irrevocable
transfer and assignment to Lender of all Rents and to authorize and empower
Lender to collect and receive all Rents without the necessity of further action
on the part of Borrower. Promptly upon request by Lender, Borrower agrees to
execute and deliver such further assignments as Lender may from time to time
require. Borrower and Lender intend this assignment of Rents to be immediately
effective and to constitute an absolute present assignment and not an assignment
for additional security only. For purposes of giving effect to this absolute
assignment of Rents, and for no other purpose, Rents shall not be deemed to be a
part of the Mortgaged Property. However, if this present, absolute and
unconditional assignment of Rents is not enforceable by its terms under the laws
of the Property Jurisdiction, then the Rents shall be included as a part of the
Mortgaged Property and it is the intention of the Borrower that in this
circumstance this Instrument create and perfect a lien on Rents in favor of
Lender, which lien shall be effective as of the date of this Instrument.

         (b)      After the occurrence of an Event of Default, Borrower
authorizes Lender to collect, sue for and compromise Rents and directs each
tenant of the Mortgaged Property to pay all Rents to, or as directed by, Lender.
However, until the occurrence of an Event of Default, Lender hereby grants to
Borrower a revocable license to collect and receive all Rents, to hold all Rents
in trust for the benefit of Lender and to apply all Rents to pay the
installments of interest and principal then due and payable under the Note and
the other amounts then due and payable under the other Loan Documents, including
Imposition Deposits, and to pay the current costs and expenses of managing,
operating and maintaining the Mortgaged Property, including utilities, Taxes and
insurance premiums (to the extent not included in Imposition Deposits), tenant
improvements and other capital expenditures. So long as no Event of Default has
occurred and is continuing, the Rents remaining after application pursuant to
the preceding sentence may be retained by Borrower free and clear of, and
released from, Lender's rights with respect to Rents under this Instrument. From
and after the occurrence of an Event of Default, and without the necessity of
Lender entering upon and taking and maintaining control of the Mortgaged
Property directly, or by a receiver, Borrower's license to collect Rents shall
automatically terminate and Lender shall without Notice be entitled to all Rents
as they become due and payable, including Rents then due and unpaid. Borrower
shall pay to Lender upon demand all Rents to which Lender is entitled. At any
time on or after the date of Lender's demand for Rents, (i) Lender may give, and
Borrower hereby irrevocably authorizes Lender to give, notice to all tenants of
the Mortgaged Property instructing them to pay all Rents to Lender, (ii) no
tenant shall be obligated to inquire further as to the occurrence or continuance
of an Event of Default, and (iii) no tenant shall be obligated to pay to
Borrower any amounts which are actually paid to Lender in response

                                                                          PAGE 9
<PAGE>

                                                                  Exhibit 10.4.2

to such a notice. Any such notice by Lender shall be delivered to each tenant
personally, by mail or by delivering such demand to each rental unit. Borrower
shall not interfere with and shall cooperate with Lender's collection of such
Rents.

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

         (d)      If an Event of Default has occurred and is continuing, Lender
may, regardless of the adequacy of Lender's security or the solvency of Borrower
and even in the absence of waste, enter upon and take and maintain full control
of the Mortgaged Property in order to perform all acts that Lender in its
discretion determines to be necessary or desirable for the operation and
maintenance of the Mortgaged Property, including the execution, cancellation or
modification of Leases, the collection of all Rents, the making of repairs to
the Mortgaged Property and the execution or termination of contracts providing
for the management, operation or maintenance of the Mortgaged Property, for the
purposes of enforcing the assignment of Rents pursuant to Section 3(a),
protecting the Mortgaged Property or the security of this Instrument, or for
such other purposes as Lender in its discretion may deem necessary or desirable.
Alternatively, if an Event of Default has occurred and is continuing, regardless
of the adequacy of Lender's security, without regard to Borrower's solvency and
without the necessity of giving prior notice (oral or written) to Borrower,
Lender may apply to any court having jurisdiction for the appointment of a
receiver for the Mortgaged Property to take any or all of the actions set forth
in the preceding sentence. If Lender elects to seek the appointment of a
receiver for the Mortgaged Property at any time after an Event of Default has
occurred and is continuing, Borrower, by its execution of this Instrument,
expressly consents to the appointment of such receiver, including the
appointment of a receiver ex parte if permitted by applicable law. Lender or the
receiver, as the case may be, shall be entitled to receive a reasonable fee for
managing the Mortgaged Property. Immediately upon appointment of a receiver or
immediately upon the Lender's entering upon and taking possession and control of
the Mortgaged Property, Borrower shall surrender possession of the Mortgaged
Property to Lender or the receiver, as the case may be, and shall deliver to
Lender or the receiver, as the case may be, all documents, records (including
records on electronic or magnetic media), accounts, surveys, plans, and
specifications relating to the Mortgaged Property and all security deposits and
prepaid Rents. In the event Lender takes possession and control of the Mortgaged
Property, Lender may exclude Borrower and its representatives from the

                                                                         PAGE 10
<PAGE>

                                                                  Exhibit 10.4.2

Mortgaged Property. Borrower acknowledges and agrees that the exercise by Lender
of any of the rights conferred under this Section 3 shall not be construed to
make Lender a mortgagee-in-possession of the Mortgaged Property so long as
Lender has not itself entered into actual possession of the Land and
Improvements.

         (e)      If Lender enters the Mortgaged Property, Lender shall be
liable to account only to Borrower and only for those Rents actually received.
Except to the extent of Lender's gross negligence or willful misconduct, Lender
shall not be liable to Borrower, anyone claiming under or through Borrower or
anyone having an interest in the Mortgaged Property, by reason of any act or
omission of Lender under Section 3(d), and Borrower hereby releases and
discharges Lender from any such liability to the fullest extent permitted by
law.

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

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

         4.       ASSIGNMENT OF LEASES; LEASES AFFECTING THE MORTGAGED PROPERTY.

         (a)      As part of the consideration for the Indebtedness, Borrower
absolutely and unconditionally assigns and transfers to Lender all of Borrower's
right, title and interest in, to and under the Leases, including Borrower's
right, power and authority to modify the terms of any such Lease, or extend or
terminate any such Lease. It is the intention of Borrower to establish a
present, absolute and irrevocable transfer and assignment to Lender of all of
Borrower's right, title and interest in, to and under the Leases. Borrower and
Lender intend this assignment of the Leases to be immediately effective and to
constitute an absolute present assignment and not an assignment for additional
security only. For purposes of giving effect to this absolute assignment of the
Leases, and for no other purpose, the Leases shall not be deemed to be a part of
the Mortgaged Property. However, if this present, absolute and unconditional
assignment of the Leases is not enforceable by its terms under the laws of the
Property Jurisdiction, then the Leases shall be included as a part of the
Mortgaged Property and it is the intention of the Borrower that in this
circumstance this Instrument create and perfect a lien on the Leases in favor of
Lender, which lien shall be effective as of the date of this Instrument.

                                                                         PAGE 11
<PAGE>

                                                                  Exhibit 10.4.2

         (b)      Until Lender gives Notice to Borrower of Lender's exercise of
its rights under this Section 4, Borrower shall have all rights, power and
authority granted to Borrower under any Lease (except as otherwise limited by
this Section or any other provision of this Instrument), including the right,
power and authority to modify the terms of any Lease or extend or terminate any
Lease. Upon the occurrence of an Event of Default, the permission given to
Borrower pursuant to the preceding sentence to exercise all rights, power and
authority under Leases shall automatically terminate. Borrower shall comply with
and observe Borrower's obligations under all Leases, including Borrower's
obligations pertaining to the maintenance and disposition of tenant security
deposits.

         (c)      Borrower acknowledges and agrees that the exercise by Lender,
either directly or by a receiver, of any of the rights conferred under this
Section 4 shall not be construed to make Lender a mortgagee-in-possession of the
Mortgaged Property so long as Lender has not itself entered into actual
possession of the Land and the Improvements. The acceptance by Lender of the
assignment of the Leases pursuant to Section 4(a) shall not at any time or in
any event obligate Lender to take any action under this Instrument or to expend
any money or to incur any expenses. Except to the extent of Lender's gross
negligence or willful misconduct, Lender shall not be liable in any way for any
injury or damage to person or property sustained by any person or persons, firm
or corporation in or about the Mortgaged Property. Prior to Lender's actual
entry into and taking possession of the Mortgaged Property, Lender shall not (i)
be obligated to perform any of the terms, covenants and conditions contained in
any Lease (or otherwise have any obligation with respect to any Lease); (ii) be
obligated to appear in or defend any action or proceeding relating to the Lease
or the Mortgaged Property; or (iii) be responsible for the operation, control,
care, management or repair of the Mortgaged Property or any portion of the
Mortgaged Property. The execution of this Instrument by Borrower shall
constitute conclusive evidence that all responsibility for the operation,
control, care, management and repair of the Mortgaged Property is and shall be
that of Borrower, prior to such actual entry and taking of possession.

         (d)      Upon delivery of Notice by Lender to Borrower of Lender's
exercise of Lender's rights under this Section 4 at any time after the
occurrence of an Event of Default, and without the necessity of Lender entering
upon and taking and maintaining control of the Mortgaged Property directly, by a
receiver, or by any other manner or proceeding permitted by the laws of the
Property Jurisdiction, Lender immediately shall have all rights, powers and
authority granted to Borrower under any Lease, including the right, power and
authority to modify the terms of any such Lease, or extend or terminate any such
Lease.

         (e)      Borrower shall, promptly upon Lender's request, deliver to
Lender an executed copy of each residential Lease then in effect. All Leases for
residential dwelling units shall be on forms approved by Lender, shall be for
initial terms of at least six months and not more than two

                                                                         PAGE 12
<PAGE>

                                                                  Exhibit 10.4.2

years, and shall not include options to purchase. If Borrower is a cooperative
housing corporation, association or other validly organized entity under
municipal, county, state or federal law, notwithstanding anything to the
contrary contained in this subsection, so long as Borrower is not in breach of
any covenant of this Instrument, Lender hereby consents to the execution of
leases of apartments for a term in excess of two years from Borrower to a tenant
shareholder of Borrower, to the surrender or termination of such leases of
apartments where the surrendered or terminated lease is immediately replaced or
where the Borrower makes its best efforts to secure such immediate replacement
by a newly executed lease of the same apartment to a tenant shareholder of the
Borrower. However, no consent is hereby given by Lender to any execution,
surrender, termination or assignment of a lease under terms that would waive or
reduce the obligation of the resulting tenant shareholder under such lease to
pay cooperative assessments in full when due or the obligation of the former
tenant shareholder to pay any unpaid portion of such assessments.

         (f)      Borrower shall not lease any portion of the Mortgaged Property
for non-residential use except with the prior written consent of Lender and
Lender's prior written approval of the Lease agreement. Borrower shall not
modify the terms of, or extend or terminate, any Lease for non-residential use
(including any Lease in existence on the date of this Instrument) without the
prior written consent of Lender. However, Lender's consent shall not be required
for the modification or extension of a non-residential Lease if such
modification or extension is on terms at least as favorable to Borrower as those
customary at that time in the applicable market and the income from the extended
or modified Lease will not be less than the income received from the Lease as of
the date of this Instrument. Borrower shall, without request by Lender, deliver
an executed copy of each non-residential Lease to Lender promptly after such
Lease is signed. All non-residential Leases, including renewals or extensions of
existing Leases, shall specifically provide that (i) such Leases are subordinate
to the lien of this Instrument; (ii) the tenant shall attorn to Lender and any
purchaser at a foreclosure sale, such attornment to be self-executing and
effective upon acquisition of title to the Mortgaged Property by any purchaser
at a foreclosure sale or by Lender in any manner; (iii) the tenant agrees to
execute such further evidences of attornment as Lender or any purchaser at a
foreclosure sale may from time to time request; (iv) the Lease shall not be
terminated by foreclosure or any other transfer of the Mortgaged Property; (v)
after a foreclosure sale of the Mortgaged Property, Lender or any other
purchaser at such foreclosure sale may, at Lender's or such purchaser's option,
accept or terminate such Lease; and (vi) the tenant shall, upon receipt after
the occurrence of an Event of Default of a written request from Lender, pay all
Rents payable under the Lease to Lender.

         (g)      Borrower shall not receive or accept Rent under any Lease
(whether residential or non-residential) for more than two months in advance.

                                                                         PAGE 13
<PAGE>

                                                                  Exhibit 10.4.2

         5.       PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS;
PREPAYMENT PREMIUM. Borrower shall pay the Indebtedness when due in accordance
with the terms of the Note and the other Loan Documents and shall perform,
observe and comply with all other provisions of the Note and the other Loan
Documents. Borrower shall pay a prepayment premium in connection with certain
prepayments of the Indebtedness, including a payment made after Lender's
exercise of any right of acceleration of the Indebtedness, as provided in the
Note.

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

         7.       DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES.

         (a)      Unless this requirement is waived in writing by Lender, which
waiver may be contained in this Section 7(a), Borrower shall deposit with Lender
on the day monthly installments of principal or interest, or both, are due under
the Note (or on another day designated in writing by Lender), until the
Indebtedness is paid in full, an additional amount sufficient to accumulate with
Lender the entire sum required to pay, when due, the items marked "Collect"
below. Lender will not require the Borrower to make Imposition Deposits with
respect to the items marked "Deferred" below.

         [Deferred]   Hazard Insurance premiums or other insurance premiums
                      required by Lender under Section 19,

         [Deferred]   Taxes,

         [Deferred]   water and sewer charges (that could become a lien on the
                      Mortgaged Property),

         [  N/A   ]   ground rents,

         [Deferred]   assessments or other charges (that could become a lien on
                      the Mortgaged Property)

The amounts deposited under the preceding sentence are collectively referred to
in this Instrument as the "IMPOSITION DEPOSITS." The obligations of Borrower for
which the Imposition Deposits are required are collectively referred to in this
Instrument as "IMPOSITIONS." The amount of the Imposition Deposits shall be
sufficient to enable Lender to pay each Imposition before the last date upon
which such payment may be made without any penalty or interest charge being
added. Lender shall maintain records indicating how much of the monthly
Imposition Deposits and how much of the aggregate Imposition Deposits held by
Lender are held for the purpose of paying Taxes, insurance premiums and each
other Imposition.

                                                                         PAGE 14
<PAGE>

                                                                  Exhibit 10.4.2

         (b)      Imposition Deposits shall be held in an institution (which may
be Lender, if Lender is such an institution) whose deposits or accounts are
insured or guaranteed by a federal agency. Lender shall not be obligated to open
additional accounts or deposit Imposition Deposits in additional institutions
when the amount of the Imposition Deposits exceeds the maximum amount of the
federal deposit insurance or guaranty. Lender shall apply the Imposition
Deposits to pay Impositions so long as no Event of Default has occurred and is
continuing. Unless applicable law requires, Lender shall not be required to pay
Borrower any interest, earnings or profits on the Imposition Deposits. As
additional security for all of Borrower's obligations under this Instrument and
the other Loan Documents, Borrower hereby pledges and grants to Lender a
security interest in the Imposition Deposits and all proceeds of, and all
interest and dividends on, the Imposition Deposits. Any amounts deposited with
Lender under this Section 7 shall not be trust funds, nor shall they operate to
reduce the Indebtedness, unless applied by Lender for that purpose under Section
7(e).

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

         (d)      If at any time the amount of the Imposition Deposits held by
Lender for payment of a specific Imposition exceeds the amount reasonably deemed
necessary by Lender, the excess shall be credited against future installments of
Imposition Deposits. If at any time the amount of the Imposition Deposits held
by Lender for payment of a specific Imposition is less than the amount
reasonably estimated by Lender to be necessary, Borrower shall pay to Lender the
amount of the deficiency within 15 days after Notice from Lender.

         (e)      If an Event of Default has occurred and is continuing, Lender
may apply any Imposition Deposits, in any amounts and in any order as Lender
determines, in Lender's discretion, to pay any Impositions or as a credit
against the Indebtedness. Upon payment in full of the Indebtedness, Lender shall
refund to Borrower any Imposition Deposits held by Lender.

         (f)      If Lender does not collect an Imposition Deposit with respect
to an Imposition either marked "Deferred" in Section 7(a) or pursuant to a
separate written waiver by Lender, then on or before the date each such
Imposition is due, or on the date this Instrument requires each such Imposition
to be paid, Borrower must provide Lender with proof of payment of each such
Imposition for which Lender does not require collection of Imposition Deposits.
Lender may revoke its deferral or waiver and require Borrower to deposit with
Lender any or all of the Imposition Deposits listed in Section 7(a), regardless
of whether any such item is marked

                                                                         PAGE 15
<PAGE>

                                                                  Exhibit 10.4.2

"Deferred" in such section, upon Notice to Borrower, (i) if Borrower does not
timely pay any of the Impositions, (ii) if Borrower fails to provide timely
proof to Lender of such payment, or (iii) at any time during the existence of an
Event of Default.

         (g)      In the event of a Transfer prohibited by or requiring Lender's
approval under Section 21, Lender's waiver of the collection of any Imposition
Deposit in this Section 7 may be modified or rendered void by Lender at Lender's
option by Notice to Borrower and the transferee(s) as a condition of Lender's
approval of such Transfer.

         8.       COLLATERAL AGREEMENTS. Borrower shall deposit with Lender such
amounts as may be required by any Collateral Agreement and shall perform all
other obligations of Borrower under each Collateral Agreement.

         9.       APPLICATION OF PAYMENTS. If at any time Lender receives, from
Borrower or otherwise, any amount applicable to the Indebtedness which is less
than all amounts due and payable at such time, then Lender may apply that
payment to amounts then due and payable in any manner and in any order
determined by Lender, in Lender's discretion. Neither Lender's acceptance of an
amount that is less than all amounts then due and payable nor Lender's
application of such payment in the manner authorized shall constitute or be
deemed to constitute either a waiver of the unpaid amounts or an accord and
satisfaction. Notwithstanding the application of any such amount to the
Indebtedness, Borrower's obligations under this Instrument and the Note shall
remain unchanged.

         10.      COMPLIANCE WITH LAWS. Borrower shall comply with all laws,
ordinances, regulations and requirements of any Governmental Authority and all
recorded lawful covenants and agreements relating to or affecting the Mortgaged
Property, including all laws, ordinances, regulations, requirements and
covenants pertaining to health and safety, construction of improvements on the
Mortgaged Property, fair housing, disability accommodation, zoning and land use,
and Leases. Borrower also shall comply with all applicable laws that pertain to
the maintenance and disposition of tenant security deposits. Borrower shall at
all times maintain records sufficient to demonstrate compliance with the
provisions of this Section 10. Borrower shall take appropriate measures to
prevent, and shall not engage in or knowingly permit, any illegal activities at
the Mortgaged Property that could endanger tenants or visitors, result in damage
to the Mortgaged Property, result in forfeiture of the Mortgaged Property, or
otherwise materially impair the lien created by this Instrument or Lender's
interest in the Mortgaged Property. Borrower represents and warrants to Lender
that no portion of the Mortgaged Property has been or will be purchased with the
proceeds of any illegal activity.

         11.      USE OF PROPERTY. Unless required by applicable law, Borrower
shall not (a) allow changes in the use for which all or any part of the
Mortgaged Property is being used at

                                                                         PAGE 16
<PAGE>

                                                                  Exhibit 10.4.2

the time this Instrument was executed, except for any change in use approved by
Lender, (b) convert any individual dwelling units or common areas to commercial
use, (c) initiate a change in the zoning classification of the Mortgaged
Property or acquiesce without Notice to and consent of Lender in a change in the
zoning classification of the Mortgaged Property, (d) establish any condominium
or cooperative regime with respect to the Mortgaged Property, (e) combine all or
any part of the Mortgaged Property with all or any part of a tax parcel which is
not part of the Mortgaged Property, or (f) subdivide or otherwise split any tax
parcel constituting all or any part of the Mortgaged Property without the prior
consent of Lender.

         12.      PROTECTION OF LENDER'S SECURITY; INSTRUMENT SECURES FUTURE
ADVANCES.

         (a)      If Borrower fails to perform any of its obligations under this
Instrument or any other Loan Document, or if any action or proceeding is
commenced which purports to affect the Mortgaged Property, Lender's security or
Lender's rights under this Instrument, including eminent domain, insolvency,
code enforcement, civil or criminal forfeiture, enforcement of Hazardous
Materials Laws, fraudulent conveyance or reorganizations or proceedings
involving a bankrupt or decedent, then Lender at Lender's option may make such
appearances, file such documents, disburse such sums and take such actions as
Lender reasonably deems necessary to perform such obligations of Borrower and to
protect Lender's interest, including (i) payment of Attorneys' Fees and Costs,
(ii) payment of fees and out-of-pocket expenses of accountants, inspectors and
consultants, (iii) entry upon the Mortgaged Property to make repairs or secure
the Mortgaged Property, (iv) procurement of the insurance required by Section
19, and (v) payment of amounts which Borrower has failed to pay under Sections
15 and 17.

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

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

         13.      INSPECTION. Lender, its agents, representatives, and designees
may make or cause to be made entries upon and inspections of the Mortgaged
Property (including environmental inspections and tests) during normal business
hours, or at any other reasonable time, upon reasonable notice to Borrower if
the inspection is to include occupied residential units (which notice need not
be in writing). Notice to Borrower shall not be required in the case of an

                                                                         PAGE 17
<PAGE>

                                                                  Exhibit 10.4.2

emergency, as determined in Lender's discretion, or when an Event of Default has
occurred and is continuing.

         14.      BOOKS AND RECORDS; FINANCIAL REPORTING.

         (a)      Borrower shall keep and maintain at all times at the Mortgaged
Property or the management agent's office, and upon Lender's request shall make
available at the Mortgaged Property (or, at Borrower's option, at the management
agent's office), complete and accurate books of account and records (including
copies of supporting bills and invoices) adequate to reflect correctly the
operation of the Mortgaged Property, and copies of all written contracts,
Leases, and other instruments which affect the Mortgaged Property. The books,
records, contracts, Leases and other instruments shall be subject to examination
and inspection by Lender at any reasonable time.

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

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

                  (i)      a rent schedule for the Mortgaged Property showing
                           the name of each tenant, and for each tenant, the
                           space occupied, the lease expiration date, the rent
                           payable for the current month, the date through which
                           rent has been paid, and any related information
                           requested by Lender;

                  (ii)     an accounting of all security deposits held pursuant
                           to all Leases, including the name of the institution
                           (if any) and the names and identification numbers of
                           the accounts (if any) in which such security deposits
                           are held and the name of the person to contact at
                           such financial institution, along with any authority
                           or release necessary for Lender to access information
                           regarding such accounts; and

                                                                         PAGE 18
<PAGE>

                                                                  Exhibit 10.4.2

                  (iii)    a statement that identifies all owners of any
                           interest in Borrower and any Controlling Entity and
                           the interest held by each (unless Borrower or any
                           Controlling Entity is a publicly-traded entity in
                           which case such statement of ownership shall not be
                           required), if Borrower or a Controlling Entity is a
                           corporation, all officers and directors of Borrower
                           and the Controlling Entity, and if Borrower or a
                           Controlling Entity is a limited liability company,
                           all managers who are not members.

         (d)      At any time upon Lender's request, Borrower shall furnish to
Lender each of the following. However, Lender shall not require any of the
following more frequently than quarterly except when there has been an Event of
Default and such Event of Default is continuing, in which case Lender may
require Borrower to furnish any of the following more frequently:

                  (i)      a balance sheet, a statement of income and expenses
                           for Borrower and a statement of changes in financial
                           position of Borrower for Borrower's most recent
                           fiscal year;

                  (ii)     a quarterly or year-to-date income and expense
                           statement for the Mortgaged Property; and

                  (iii)    a monthly property management report for the
                           Mortgaged Property, showing the number of inquiries
                           made and rental applications received from tenants or
                           prospective tenants and deposits received from
                           tenants and any other information requested by
                           Lender.

         (e)      Upon Lender's request at any time when an Event of Default has
occurred and is continuing, Borrower shall furnish to Lender monthly income and
expense statements and rent schedules for the Mortgaged Property.

         (f)      An individual having authority to bind Borrower shall certify
each of the statements, schedules and reports required by Sections 14(b) through
14(e) to be complete and accurate. Each of the statements, schedules and reports
required by Sections 14(b) through 14(e) shall be in such form and contain such
detail as Lender may reasonably require. Lender also may require that any of the
statements, schedules or reports listed in Section 14(b) and 14(c)(i) and (ii)
be audited at Borrower's expense by independent certified public accountants
acceptable to Lender, at any time when an Event of Default has occurred and is
continuing or at any time that Lender, in its reasonable judgment, determines
that audited financial statements are

                                                                         PAGE 19
<PAGE>

                                                                  Exhibit 10.4.2

required for an accurate assessment of the financial condition of Borrower or of
the Mortgaged Property.

         (g)      If Borrower fails to provide in a timely manner the
statements, schedules and reports required by Sections 14(b) through (e), Lender
shall give Borrower Notice specifying the statements, schedules and reports
required by Section 14(b) through (e) that Borrower has failed to provide. If
Borrower has not provided the required statements, schedules and reports within
10 Business Days following such Notice, then Lender shall have the right to have
Borrower's books and records audited, at Borrower's expense, by independent
certified public accountants selected by Lender in order to obtain such
statements, schedules and reports, and all related costs and expenses of Lender
shall become immediately due and payable and shall become an additional part of
the Indebtedness as provided in Section 12. Notice to Borrower shall not be
required in the case of an emergency, as determined in Lender's discretion, or
when an Event of Default has occurred and is continuing.

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

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

         15.      TAXES; OPERATING EXPENSES.

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

         (b)      Subject to the provisions of Section 15(c), Borrower shall (i)
pay the expenses of operating, managing, maintaining and repairing the Mortgaged
Property (including utilities, repairs and replacements) before the last date
upon which each such payment may be made without any penalty or interest charge
being added, and (ii) pay insurance premiums at least 30 days prior to the
expiration date of each policy of insurance, unless applicable law specifies
some lesser period.

         (c)      If Lender is collecting Imposition Deposits, to the extent
that Lender holds sufficient Imposition Deposits for the purpose of paying a
specific Imposition, then Borrower shall not be obligated to pay such
Imposition, so long as no Event of Default exists and Borrower has timely
delivered to Lender any bills or premium notices that it has received. If an
Event of Default exists, Lender may exercise any rights Lender may have with
respect to Imposition Deposits without regard to whether Impositions are then
due and payable. Lender shall have no

                                                                         PAGE 20
<PAGE>

                                                                  Exhibit 10.4.2

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

         (d)      Borrower, at its own expense, may contest by appropriate legal
proceedings, conducted diligently and in good faith, the amount or validity of
any Imposition other than insurance premiums, if (i) Borrower notifies Lender of
the commencement or expected commencement of such proceedings, (ii) the
Mortgaged Property is not in danger of being sold or forfeited, (iii) if
Borrower has not already paid the Imposition, Borrower deposits with Lender
reserves sufficient to pay the contested Imposition, if requested by Lender, and
(iv) Borrower furnishes whatever additional security is required in the
proceedings or is reasonably requested by Lender.

         (e)      Borrower shall promptly deliver to Lender a copy of all
notices of, and invoices for, Impositions, and if Borrower pays any Imposition
directly, Borrower shall furnish to Lender receipts evidencing such payments on
or before the date this Instrument requires such Impositions to be paid.

         16.      LIENS; ENCUMBRANCES. Borrower acknowledges that, to the extent
provided in Section 21, the grant, creation or existence of any mortgage, deed
of trust, deed to secure debt, security interest or other lien or encumbrance (a
"LIEN") on the Mortgaged Property (other than the lien of this Instrument) or on
certain ownership interests in Borrower, whether voluntary, involuntary or by
operation of law, and whether or not such Lien has priority over the lien of
this Instrument, is a "TRANSFER" which constitutes an Event of Default and
subjects Borrower to personal liability under the Note.

         17.      PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED
PROPERTY.

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

         (b)      Borrower shall not abandon the Mortgaged Property.

         (c)      Borrower shall restore or repair promptly, in a good and
workmanlike manner, any damaged part of the Mortgaged Property to the equivalent
of its original condition, or such other condition as Lender may approve in
writing, whether or not insurance proceeds or condemnation awards are available
to cover any costs of such restoration or repair; however, Borrower shall not be
obligated to perform such restoration or repair if (i) no Event of Default

                                                                         PAGE 21
<PAGE>

                                                                  Exhibit 10.4.2

has occurred and is continuing, and (ii) Lender has elected to apply any
available insurance proceeds and/or condemnation awards to the payment of
Indebtedness pursuant to Section 19(h)(ii), (iii), (iv) or (v), or pursuant to
Section 20.

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

         (e)      Borrower shall provide for professional management of the
Mortgaged Property by a residential rental property manager satisfactory to
Lender at all times under a contract approved by Lender in writing, which
contract must be terminable upon not more than 30 days notice without the
necessity of establishing cause and without payment of a penalty or termination
fee by Borrower or its successors.

         (f)      Borrower shall give Notice to Lender of and, unless otherwise
directed in writing by Lender, shall appear in and defend any action or
proceeding purporting to affect the Mortgaged Property, Lender's security or
Lender's rights under this Instrument. Borrower shall not (and shall not permit
any tenant or other person to) remove, demolish or alter the Mortgaged Property
or any part of the Mortgaged Property, including any removal, demolition or
alteration occurring in connection with a rehabilitation of all or part of the
Mortgaged Property, except (i) in connection with the replacement of tangible
Personalty, (ii) if Borrower is a cooperative housing corporation, to the extent
permitted with respect to individual dwelling units under the form of
proprietary lease or occupancy agreement and (iii) repairs and replacements in
connection with making an individual unit ready for a new occupant.

         18.      ENVIRONMENTAL HAZARDS.

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

                  (i)      the presence, use, generation, release, treatment,
                           processing, storage (including storage in above
                           ground and underground storage tanks), handling, or
                           disposal of any Hazardous Materials on or under the
                           Mortgaged Property or any other property of Borrower
                           that is adjacent to the Mortgaged Property;

                  (ii)     the transportation of any Hazardous Materials to,
                           from, or across the Mortgaged Property;

                  (iii)    any occurrence or condition on the Mortgaged Property
                           or any other property of Borrower that is adjacent to
                           the Mortgaged Property, which

                                                                         PAGE 22
<PAGE>

                                                                  Exhibit 10.4.2

                           occurrence or condition is or may be in violation of
                           Hazardous Materials Laws;

                  (iv)     any violation of or noncompliance with the terms of
                           any Environmental Permit with respect to the
                           Mortgaged Property or any property of Borrower that
                           is adjacent to the Mortgaged Property;

                  (v)      any violation or noncompliance with the terms of any
                           O&M Program as defined in subsection (d).

The matters described in clauses (i) through (v) above, except as otherwise
provided in Section 18(b), are referred to collectively in this Section 18 as
"PROHIBITED ACTIVITIES OR CONDITIONS."

         (b)      Prohibited Activities and Conditions shall not include lawful
conditions permitted by an O&M Program or the safe and lawful use and storage of
quantities of (i) pre-packaged supplies, cleaning materials and petroleum
products customarily used in the operation and maintenance of comparable
multifamily properties, (ii) cleaning materials, personal grooming items and
other items sold in pre-packaged containers for consumer use and used by tenants
and occupants of residential dwelling units in the Mortgaged Property; and (iii)
petroleum products used in the operation and maintenance of motor vehicles from
time to time located on the Mortgaged Property's parking areas, so long as all
of the foregoing are used, stored, handled, transported and disposed of in
compliance with Hazardous Materials Laws.

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

         (d)      As required by Lender, Borrower shall also have established a
written operations and maintenance program with respect to certain Hazardous
Materials. Each such operations and maintenance program and any additional or
revised operations and maintenance programs established for the Mortgaged
Property pursuant to Section 18(h) must be approved by Lender and shall be
referred to herein as an "O&M PROGRAM." Borrower shall comply in a timely manner
with, and cause all employees, agents, and contractors of Borrower and any other
persons present on the Mortgaged Property to comply with each O&M Program.
Borrower shall pay all costs of performance of Borrower's obligations under any
O&M Program, and Lender's

                                                                         PAGE 23
<PAGE>

                                                                  Exhibit 10.4.2

out-of-pocket costs incurred in connection with the monitoring and review of
each O&M Program and Borrower's performance shall be paid by Borrower upon
demand by Lender. Any such out-of-pocket costs of Lender that Borrower fails to
pay promptly shall become an additional part of the Indebtedness as provided in
Section 12.

         (e)      Borrower represents and warrants to Lender that, except as
previously disclosed by Borrower to Lender in writing (which written disclosure
may be in certain environmental assessments and other written reports accepted
by Lender in connection with the funding of the Indebtedness and dated prior to
the date of this Instrument):

                  (i)      Borrower has not at any time engaged in, caused or
                           permitted any Prohibited Activities or Conditions on
                           the Mortgaged Property;

                  (ii)     to the best of Borrower's knowledge after reasonable
                           and diligent inquiry, no Prohibited Activities or
                           Conditions exist or have existed on the Mortgaged
                           Property;

                  (iii)    the Mortgaged Property does not now contain any
                           underground storage tanks, and, to the best of
                           Borrower's knowledge after reasonable and diligent
                           inquiry, the Mortgaged Property has not contained any
                           underground storage tanks in the past. If there is an
                           underground storage tank located on the Mortgaged
                           Property that has been previously disclosed by
                           Borrower to Lender in writing, that tank complies
                           with all requirements of Hazardous Materials Laws;

                  (iv)     to the best of Borrower's knowledge after reasonable
                           and diligent inquiry, Borrower has complied with all
                           Hazardous Materials Laws, including all requirements
                           for notification regarding releases of Hazardous
                           Materials. Without limiting the generality of the
                           foregoing, Borrower has obtained all Environmental
                           Permits required for the operation of the Mortgaged
                           Property in accordance with Hazardous Materials Laws
                           now in effect and all such Environmental Permits are
                           in full force and effect;

                  (v)      to the best of Borrower's knowledge after reasonable
                           and diligent inquiry, no event has occurred with
                           respect to the Mortgaged Property that constitutes,
                           or with the passing of time or the giving of notice
                           would constitute, noncompliance with the terms of any
                           Environmental Permit;

                  (vi)     there are no actions, suits, claims or proceedings
                           pending or, to the best of Borrower's knowledge after
                           reasonable and diligent inquiry, threatened

                                                                         PAGE 24
<PAGE>

                                                                  Exhibit 10.4.2

                           that involve the Mortgaged Property and allege, arise
                           out of, or relate to any Prohibited Activity or
                           Condition;

                  (vii)    Borrower has not received any written complaint,
                           order, notice of violation or other communication
                           from any Governmental Authority with regard to air
                           emissions, water discharges, noise emissions or
                           Hazardous Materials, or any other environmental,
                           health or safety matters affecting the Mortgaged
                           Property or any other property of Borrower that is
                           adjacent to the Mortgaged Property; and

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

                  (i)      Borrower's discovery of any Prohibited Activity or
                           Condition;

                  (ii)     Borrower's receipt of or knowledge of any written
                           complaint, order, notice of violation or other
                           communication from any tenant, management agent,
                           Governmental Authority or other person with regard to
                           present or future alleged Prohibited Activities or
                           Conditions, or any other environmental, health or
                           safety matters affecting the Mortgaged Property or
                           any other property of Borrower that is adjacent to
                           the Mortgaged Property;

                  (iii)    Borrower's breach of any of its obligations under
                           this Section 18.

Any such notice given by Borrower shall not relieve Borrower of, or result in a
waiver of, any obligation under this Instrument, the Note, or any other Loan
Document.

         (g)      Borrower shall pay promptly the costs of any environmental
inspections, tests or audits, a purpose of which is to identify the extent or
cause of or potential for a Prohibited Activity or Condition ("ENVIRONMENTAL
INSPECTIONS"), required by Lender in connection with any foreclosure or deed in
lieu of foreclosure, or as a condition of Lender's consent to any Transfer under
Section 21, or required by Lender following a reasonable determination by Lender
that Prohibited Activities or Conditions may exist. Any such costs incurred by
Lender (including Attorneys' Fees and Costs and the costs of technical
consultants whether incurred in connection with any judicial or administrative
process or otherwise) that Borrower fails to pay promptly shall become an
additional part of the Indebtedness as provided in Section 12. As long as (i) no
Event of Default has occurred and is continuing, (ii) Borrower has actually paid
for or reimbursed Lender for all costs of any such Environmental Inspections
performed or required by Lender, and (iii) Lender is not prohibited by law,
contract or otherwise from doing so, Lender shall make available to Borrower,
without representation of any kind, copies of Environmental Inspections prepared
by third parties and delivered to Lender. Lender hereby reserves the right,

                                                                         PAGE 25
<PAGE>

                                                                  Exhibit 10.4.2

and Borrower hereby expressly authorizes Lender, to make available to any party,
including any prospective bidder at a foreclosure sale of the Mortgaged
Property, the results of any Environmental Inspections made by or for Lender
with respect to the Mortgaged Property. Borrower consents to Lender notifying
any party (either as part of a notice of sale or otherwise) of the results of
any Environmental Inspections made by or for Lender. Borrower acknowledges that
Lender cannot control or otherwise assure the truthfulness or accuracy of the
results of any Environmental Inspections and that the release of such results to
prospective bidders at a foreclosure sale of the Mortgaged Property may have a
material and adverse effect upon the amount that a party may bid at such sale.
Borrower agrees that Lender shall have no liability whatsoever as a result of
delivering the results to any third party of any Environmental Inspections made
by or for Lender, and Borrower hereby releases and forever discharges Lender
from any and all claims, damages, or causes of action, arising out of, connected
with or incidental to the results of, the delivery of any of Environmental
Inspections made by or for Lender.

         (h)      If any investigation, site monitoring, containment, clean-up,
restoration or other remedial work ("REMEDIAL WORK") is necessary to comply with
any Hazardous Materials Law or order of any Governmental Authority that has or
acquires jurisdiction over the Mortgaged Property or the use, operation or
improvement of the Mortgaged Property, or is otherwise required by Lender as a
consequence of any Prohibited Activity or Condition or to prevent the occurrence
of a Prohibited Activity or Condition, Borrower shall, by the earlier of (i) the
applicable deadline required by Hazardous Materials Law or (ii) 30 days after
Notice from Lender demanding such action, begin performing the Remedial Work,
and thereafter diligently prosecute it to completion, and shall in any event
complete the work by the time required by applicable Hazardous Materials Law. If
Borrower fails to begin on a timely basis or diligently prosecute any required
Remedial Work, Lender may, at its option, cause the Remedial Work to be
completed, in which case Borrower shall reimburse Lender on demand for the cost
of doing so. Any reimbursement due from Borrower to Lender shall become part of
the Indebtedness as provided in Section 12.

         (i)      Borrower shall comply with all Hazardous Materials Laws
applicable to the Mortgaged Property. Without limiting the generality of the
previous sentence, Borrower shall (i) obtain and maintain all Environmental
Permits required by Hazardous Materials Laws and comply with all conditions of
such Environmental Permits; (ii) cooperate with any inquiry by any Governmental
Authority; and (iii) comply with any governmental or judicial order that arises
from any alleged Prohibited Activity or Condition.

         (j)      Borrower shall indemnify, hold harmless and defend (i) Lender,
(ii) any prior owner or holder of the Note, (iii) the Loan Servicer, (iv) any
prior Loan Servicer, (v) the officers, directors, shareholders, partners,
employees and trustees of any of the foregoing, and (vi) the heirs, legal
representatives, successors and assigns of each of the foregoing (collectively,
the

                                                                         PAGE 26
<PAGE>

                                                                  Exhibit 10.4.2

"INDEMNITEES") from and against all proceedings, claims, damages, penalties and
costs (whether initiated or sought by Governmental Authorities or private
parties), including Attorneys' Fees and Costs and remediation costs, whether
incurred in connection with any judicial or administrative process or otherwise,
arising directly or indirectly from any of the following:

                  (i)      any breach of any representation or warranty of
                           Borrower in this Section 18;

                  (ii)     any failure by Borrower to perform any of its
                           obligations under this Section 18;

                  (iii)    the existence or alleged existence of any Prohibited
                           Activity or Condition;

                  (iv)     the presence or alleged presence of Hazardous
                           Materials on or under the Mortgaged Property or in
                           any of the Improvements or on or under any property
                           of Borrower that is adjacent to the Mortgaged
                           Property; and

                  (v)      the actual or alleged violation of any Hazardous
                           Materials Law.

         (k)      Counsel selected by Borrower to defend Indemnitees shall be
subject to the approval of those Indemnitees. In any circumstances in which the
indemnity under this Section 18 applies, Lender may employ its own legal counsel
and consultants to prosecute, defend or negotiate any claim or legal or
administrative proceeding and Lender, with the prior written consent of Borrower
(which shall not be unreasonably withheld, delayed or conditioned) may settle or
compromise any action or legal or administrative proceeding. However, unless an
Event of Default has occurred and is continuing, or the interests of Borrower
and Lender are in conflict, as determined by Lender in its discretion, Lender
shall permit Borrower to undertake the actions referenced in this Section in
accordance with this Section and Section 18(l) so long as Lender approves such
action, which approval shall not be unreasonably withheld or delayed. Borrower
shall reimburse Lender upon demand for all costs and expenses incurred by
Lender, including all costs of settlements entered into in good faith,
consultants' fees and Attorneys' Fees and Costs.

         (l)      Borrower shall not, without the prior written consent of those
Indemnitees who are named as parties to a claim or legal or administrative
proceeding (a "CLAIM"), settle or compromise the Claim if the settlement (i)
results in the entry of any judgment that does not include as an unconditional
term the delivery by the claimant or plaintiff to Lender of a written release of
those Indemnitees, satisfactory in form and substance to Lender; or (ii) may
materially and adversely affect Lender, as determined by Lender in its
discretion.

                                                                         PAGE 27
<PAGE>

                                                                  Exhibit 10.4.2

         (m)      Borrower's obligation to indemnify the Indemnitees shall not
be limited or impaired by any of the following, or by any failure of Borrower or
any guarantor to receive notice of or consideration for any of the following:

                  (i)      any amendment or modification of any Loan Document;

                  (ii)     any extensions of time for performance required by
                           any Loan Document;

                  (iii)    any provision in any of the Loan Documents limiting
                           Lender's recourse to property securing the
                           Indebtedness, or limiting the personal liability of
                           Borrower or any other party for payment of all or any
                           part of the Indebtedness;

                  (iv)     the accuracy or inaccuracy of any representations and
                           warranties made by Borrower under this Instrument or
                           any other Loan Document;

                  (v)      the release of Borrower or any other person, by
                           Lender or by operation of law, from performance of
                           any obligation under any Loan Document;

                  (vi)     the release or substitution in whole or in part of
                           any security for the Indebtedness; and

                  (vii)    Lender's failure to properly perfect any lien or
                           security interest given as security for the
                           Indebtedness.

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

                  (i)      pay or satisfy any judgment or decree that may be
                           entered against any Indemnitee or Indemnitees in any
                           legal or administrative proceeding incident to any
                           matters against which Indemnitees are entitled to be
                           indemnified under this Section 18;

                  (ii)     reimburse Indemnitees for any expenses paid or
                           incurred in connection with any matters against which
                           Indemnitees are entitled to be indemnified under this
                           Section 18; and

                  (iii)    reimburse Indemnitees for any and all expenses,
                           including Attorneys' Fees and Costs, paid or incurred
                           in connection with the enforcement by Indemnitees of
                           their rights under this Section 18, or in monitoring
                           and participating in any legal or administrative
                           proceeding.

                                                                         PAGE 28
<PAGE>

                                                                  Exhibit 10.4.2

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

         19.      PROPERTY AND LIABILITY INSURANCE.

         (a)      Borrower shall keep the Improvements insured at all times
against such hazards as Lender may from time to time require, which insurance
shall include but not be limited to coverage against loss by fire and allied
perils, general boiler and machinery coverage, rent loss insurance and business
income coverage. If Lender so requires, such insurance shall also include
sinkhole insurance, mine subsidence insurance, earthquake insurance, and, if the
Mortgaged Property does not conform to applicable zoning or land use laws,
building ordinance or law coverage. Borrower acknowledges and agrees that
Lender's insurance requirements may change from time to time throughout the term
of the Indebtedness. If any of the Improvements is located in an area identified
by the Federal Emergency Management Agency (or any successor to that agency) as
an area having special flood hazards, and if flood insurance is available in
that area, Borrower shall insure such Improvements against loss by flood. All
insurance required pursuant to this Section 19(a) shall be referred to as
"HAZARD INSURANCE."

         (b)      All premiums on Hazard Insurance policies required under
Section 19(a) shall be paid in the manner provided in Section 7, unless Lender
has designated in writing another method of payment. All such policies shall
also be in a form approved by Lender. All policies of property damage insurance
shall include a non-contributing, non-reporting mortgage clause in favor of, and
in a form approved by, Lender. Lender shall have the right to hold the original
policies or duplicate original policies of all Hazard Insurance required by
Section 19(a). Borrower shall promptly deliver to Lender a copy of all renewal
and other notices received by Borrower with respect to the policies and all
receipts for paid premiums. Borrower shall deliver

                                                                         PAGE 29
<PAGE>

                                                                  Exhibit 10.4.2

to Lender the original (or a duplicate original) of a renewal policy in form
satisfactory to Lender at least 30 days prior to the expiration date of a
policy, unless applicable law specifies some lesser period.

         (c)      Borrower shall maintain at all times commercial general
liability insurance, workers' compensation insurance and such other liability,
errors and omissions and fidelity insurance coverages as Lender may from time to
time require.

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

         (e)      Borrower shall comply with all insurance requirements and
shall not permit any condition to exist on the Mortgaged Property that would
invalidate any part of any insurance coverage that this Instrument requires
Borrower to maintain.

         (f)      In the event of loss, Borrower shall give immediate written
notice to the insurance carrier and to Lender. Borrower hereby authorizes and
appoints Lender as attorney-in-fact for Borrower to make proof of loss, to
adjust and compromise any claims under policies of Hazard Insurance, to appear
in and prosecute any action arising from such Hazard Insurance policies, to
collect and receive the proceeds of Hazard Insurance, and to deduct from such
proceeds Lender's expenses incurred in the collection of such proceeds. This
power of attorney is coupled with an interest and therefore is irrevocable.
However, nothing contained in this Section 19 shall require Lender to incur any
expense or take any action. Lender may, at Lender's option, (i) hold the balance
of such proceeds to be used to reimburse Borrower for the cost of restoring and
repairing the Mortgaged Property to the equivalent of its original condition or
to a condition approved by Lender (the "RESTORATION"), or (ii) apply the balance
of such proceeds to the payment of the Indebtedness, whether or not then due. To
the extent Lender determines to apply insurance proceeds to Restoration, Lender
shall apply the proceeds in accordance with Lender's then-current policies
relating to the restoration of casualty damage on similar multifamily
properties.

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

                  (i)      in the event of a casualty resulting in damage to the
                           Mortgaged Property which will cost $10,000 or less to
                           repair, the Borrower shall have the sole right to
                           make proof of loss, adjust and compromise the claim
                           and collect and receive any proceeds directly without
                           the approval or prior consent of

                                                                         PAGE 30
<PAGE>

                                                                  Exhibit 10.4.2

                           the Lender so long as the insurance proceeds are used
                           solely for the Restoration of the Mortgaged Property;
                           and

                  (ii)     in the event of a casualty resulting in damage to the
                           Mortgage Property which will cost more than $10,000
                           but less than $50,000 to repair, the Borrower is
                           authorized to make proof of loss and adjust and
                           compromise the claim without the prior consent of
                           Lender, and Lender shall hold the applicable
                           insurance proceeds to be used to reimburse Borrower
                           for the cost of Restoration of the Mortgaged Property
                           and shall not apply such proceeds to the payment of
                           sums due under this Instrument.

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

                  (i)      an Event of Default (or any event which, with the
                           giving of Notice or the passage of time, or both,
                           would constitute an Event of Default) has occurred
                           and is continuing;

                  (ii)     Lender determines, in its discretion, that there will
                           not be sufficient funds from insurance proceeds,
                           anticipated contributions of Borrower of its own
                           funds or other sources acceptable to Lender to
                           complete the Restoration;

                  (iii)    Lender determines, in its discretion, that the rental
                           income from the Mortgaged Property after completion
                           of the Restoration will not be sufficient to meet all
                           operating costs and other expenses, Imposition
                           Deposits, deposits to reserves and loan repayment
                           obligations relating to the Mortgaged Property; or

                  (iv)     Lender determines, in its discretion, that the
                           Restoration will not be completed at least one year
                           before the Maturity Date (or six months before the
                           Maturity Date if Lender determines in its discretion
                           that re-leasing of the Mortgaged Property will be
                           completed within such six-month period); or

                  (v)      Lender determines that the Restoration will not be
                           completed within one year after the date of the loss
                           or casualty.

         (i)      If the Mortgaged Property is sold at a foreclosure sale or
Lender acquires title to the Mortgaged Property, Lender shall automatically
succeed to all rights of Borrower in and to

                                                                         PAGE 31
<PAGE>

                                                                  Exhibit 10.4.2

any insurance policies and unearned insurance premiums and in and to the
proceeds resulting from any damage to the Mortgaged Property prior to such sale
or acquisition.

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

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

         20.      CONDEMNATION.

         (a)      Borrower shall promptly notify Lender in writing of any action
or proceeding or notice relating to any proposed or actual condemnation or other
taking, or conveyance in lieu thereof, of all or any part of the Mortgaged
Property, whether direct or indirect (a "CONDEMNATION"). Borrower shall appear
in and prosecute or defend any action or proceeding relating to any Condemnation
unless otherwise directed by Lender in writing. Borrower authorizes and appoints
Lender as attorney-in-fact for Borrower to commence, appear in and prosecute, in
Lender's or Borrower's name, any action or proceeding relating to any
Condemnation and to settle or compromise any claim in connection with any
Condemnation, after consultation with Borrower and consistent with commercially
reasonable standards of a prudent lender. This power of attorney is coupled with
an interest and therefore is irrevocable. However, nothing contained in this
Section 20 shall require Lender to incur any expense or take any action.
Borrower hereby transfers and assigns to Lender all right, title and interest of
Borrower in and to any award or payment with respect to (i) any Condemnation, or
any conveyance in lieu of Condemnation, and (ii) any damage to the Mortgaged
Property caused by governmental action that does not result in a Condemnation.

         (b)      Lender may apply such awards or proceeds, after the deduction
of Lender's expenses incurred in the collection of such amounts (including
Attorneys' Fees and Costs) at Lender's option, to the restoration or repair of
the Mortgaged Property or to the payment of the Indebtedness, with the balance,
if any, to Borrower. Unless Lender otherwise agrees in writing, any application
of any awards or proceeds to the Indebtedness shall not extend or postpone the
due date of any monthly installments referred to in the Note, Section 7 of this
Instrument or any Collateral Agreement, or change the amount of such
installments. Borrower agrees to execute such further evidence of assignment of
any awards or proceeds as Lender may require.

                                                                         PAGE 32
<PAGE>

                                                                  Exhibit 10.4.2

         21.      TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.
[RIGHT TO UNLIMITED TRANSFERS -- WITH LENDER APPROVAL].

         (a)      "TRANSFER" means

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

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

                  (iii)    the issuance or other creation of an ownership
                           interest in a legal entity, including a partnership
                           interest, interest in a limited liability company or
                           corporate stock;

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

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

For purposes of defining the term "Transfer," the term "partnership" shall mean
a general partnership, a limited partnership, a joint venture and a limited
liability partnership, and the term "partner" shall mean a general partner, a
limited partner and a joint venturer.

         (b)      "Transfer" does not include

                  (i)      a conveyance of the Mortgaged Property at a judicial
                           or non-judicial foreclosure sale under this
                           Instrument,

                  (ii)     the Mortgaged Property becoming part of a bankruptcy
                           estate by operation of law under the United States
                           Bankruptcy Code, or

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

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

                  (i)      a Transfer to which Lender has consented;

                                                                         PAGE 33
<PAGE>

                                                                  Exhibit 10.4.2

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

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

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

                  (v)      the creation of a mechanic's, materialman's, or
                           judgment lien against the Mortgaged Property which is
                           released of record or otherwise remedied to Lender's
                           satisfaction within 60 days of the date of creation;

                  (vi)     if Borrower is a housing cooperative, any Transfer of
                           the shares in the housing cooperative or any
                           assignment of the occupancy agreements or leases
                           relating thereto by tenant shareholders of the
                           housing cooperative; and

                  (vii)    any Transfer of an interest in Borrower or any
                           interest in a Controlling Entity (which, if such
                           Controlling Entity were Borrower, would result in an
                           Event of Default) listed in (A) through (F) below (a
                           "PREAPPROVED TRANSFER"), under the terms and
                           conditions listed as items (1) through (7) below:

                           (A)      a sale or transfer to one or more of the
                                    transferor's immediate family members; or

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

                           (C)      a sale or transfer from a trust to any one
                                    or more of its beneficiaries who are
                                    immediate family members of Borrower or a
                                    Controlling Entity; or

                           (D)      the substitution or replacement of the
                                    trustee of any trust with a trustee who is
                                    an immediate family member of the
                                    transferor; or

                           (E)      a sale or transfer to an entity owned and
                                    controlled by the transferor or the
                                    transferor's immediate family members; or

                           (F)      a sale or transfer to an individual or
                                    entity that has an existing interest in the
                                    Borrower or in a Controlling Entity.

                                                                         PAGE 34
<PAGE>

                                                                  Exhibit 10.4.2

                                    (1)           Borrower shall provide Lender
                                             with prior written Notice of the
                                             proposed Preapproved Transfer,
                                             which Notice must be accompanied by
                                             a non-refundable review fee in the
                                             amount of $ N/A.

                                    (2)           For the purposes of these
                                             Preapproved Transfers, a
                                             transferor's immediate family
                                             members will be deemed to include a
                                             spouse, parent, child or grandchild
                                             of such transferor.

                                    (3)           Either directly or indirectly,
                                             N/A shall retain at all times not
                                             less than a N/A percent interest in
                                             the Borrower and a managing
                                             interest in the Borrower.

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

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

                                    (6)           Lender shall not be entitled
                                             to collect a transfer fee as a
                                             result of these Preapproved
                                             Transfers.

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

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

                  (i)      a change of the Borrower's name, provided that UCC
                           financing statements
                                                                         PAGE 35
<PAGE>

                                                                  Exhibit 10.4.2

                           and/or amendments sufficient to continue the
                           perfection of Lender's security interest have been
                           properly filed and copies have been delivered to
                           Lender;

                  (ii)     a change of the form of the Borrower not involving a
                           transfer of the Borrower's assets and not resulting
                           in any change in liability of any Initial Owner,
                           provided that UCC financing statements and/or
                           amendments sufficient to continue the perfection of
                           Lender's security interest have been properly filed
                           and copies have been delivered to Lender;

                  (iii)    the merger of the Borrower with another entity when
                           the Borrowing entity is the surviving entity

                  (iv)     a Transfer that occurs by devise, descent, or by
                           operation of law upon the death of a natural person;
                           and

                  (v)      the grant of an easement, if before the grant Lender
                           determines that the easement will not materially
                           affect the operation or value of the Mortgaged
                           Property or Lender's interest in the Mortgaged
                           Property, and Borrower pays to Lender, upon demand,
                           all costs and expenses, including Attorneys' Fees and
                           Costs, incurred by Lender in connection with
                           reviewing Borrower's request.

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

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

                  (ii)     if Borrower is a limited partnership, a Transfer of
                           (A) any general partnership interest, or (B) limited
                           partnership interests in Borrower that would cause
                           the Initial Owners of Borrower to own less than a
                           Controlling Interest of all limited partnership
                           interests in Borrower;

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

                  (iv)     if Borrower is a limited liability company, (A) a
                           Transfer of any membership interest in Borrower which
                           would cause the Initial Owners to own less than a
                           Controlling Interest of all the membership interests
                           in

                                                                         PAGE 36
<PAGE>

                                                                  Exhibit 10.4.2

                           Borrower, (B) a Transfer of any membership or other
                           interest of a manager in Borrower that results in a
                           change of manager or (C) a change in a nonmember
                           manager;

                  (v)      if Borrower is a corporation (A) the Transfer of any
                           voting stock in Borrower which would cause the
                           Initial Owners to own less than a Controlling
                           Interest of any class of voting stock in Borrower or
                           (B) if the outstanding voting stock in Borrower is
                           held by 100 or more shareholders, one or more
                           Transfers by a single transferor within a 12-month
                           period affecting an aggregate of 5 percent or more of
                           that stock;

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

                  (vii)    a Transfer of any interest in a Controlling Entity
                           which, if such Controlling Entity were Borrower,
                           would result in an Event of Default under any of
                           Sections 21(e)(i) through (vi) above.

Lender shall not be required to demonstrate any actual impairment of its
security or any increased risk of default in order to exercise any of its
remedies with respect to an Event of Default under this Section 21.

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

                  (i)      the submission to Lender of all information required
                           by Lender to make the determination required by this
                           Section 21(f);

                  (ii)     the absence of any Event of Default;

                  (iii)    the transferee meets all of the eligibility, credit,
                           management and other standards (including but not
                           limited to any standards with respect to previous
                           relationships between Lender and the transferee)
                           customarily applied by Lender at the time of the
                           proposed Transfer to the approval of

                                                                         PAGE 37
<PAGE>

                                                                  Exhibit 10.4.2

                           borrowers in connection with the origination or
                           purchase of similar mortgages on multifamily
                           properties;

                  (iv)     the transferee's organization, credit and experience
                           in the management of similar properties are deemed by
                           the Lender, in its discretion, to be appropriate to
                           the overall structure and documentation of the
                           existing financing;

                  (v)      the Mortgaged Property, at the time of the proposed
                           Transfer, meets all standards as to its physical
                           condition, occupancy, net operating income and the
                           collection of reserves that are customarily applied
                           by Lender at the time of the proposed Transfer to the
                           approval of properties in connection with the
                           origination or purchase of similar mortgages on
                           multifamily properties;

                  (vi)     in the case of a Transfer of all or any part of the
                           Mortgaged Property, (A) the execution by the
                           transferee of Lender's then-standard assumption
                           agreement that, among other things, requires the
                           transferee to perform all obligations of Borrower set
                           forth in the Note, this Instrument and any other Loan
                           Documents, and may require that the transferee comply
                           with any provisions of this Instrument or any other
                           Loan Document which previously may have been waived
                           or modified by Lender, (B) if Lender requires, the
                           transferee causes one or more individuals or entities
                           acceptable to Lender to execute and deliver to Lender
                           a guaranty in a form acceptable to Lender, and (C)
                           the transferee executes such additional Collateral
                           Agreements as Lender may require;

                  (vi)     in the case of a Transfer of any interest in a
                           Controlling Entity, if a guaranty has been executed
                           and delivered in connection with the Note, this
                           Instrument or any of the other Loan Documents, the
                           Borrower causes one or more individuals or entities
                           acceptable to Lender to execute and deliver to Lender
                           a guaranty in a form acceptable to Lender; and

                  (vii)    Lender's receipt of all of the following:

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

                           (B)      a transfer fee in an amount equal to 1%
                                    percent of the unpaid principal balance of
                                    the Indebtedness immediately before the
                                    applicable Transfer; and

                                                                         PAGE 38
<PAGE>

                                                                  Exhibit 10.4.2

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

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

         (a)      any failure by Borrower to pay or deposit when due any amount
required by the Note, this Instrument or any other Loan Document;

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

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

         (d)      fraud or material misrepresentation or material omission by
Borrower, any of its officers, directors, trustees, general partners or managers
or any guarantor in connection with (i) the application for or creation of the
Indebtedness, (ii) any financial statement, rent schedule, or other report or
information provided to Lender during the term of the Indebtedness, or (iii) any
request for Lender's consent to any proposed action, including a request for
disbursement of funds under any Collateral Agreement;

         (e)      any failure to comply with the provisions of Section 20;

         (f)      any Event of Default under Section 21;

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

         (h)      any failure by Borrower to perform any of its obligations
under this Instrument (other than those specified in Sections 22(a) through
(g)), as and when required, which continues for a period of 30 days after Notice
of such failure by Lender to Borrower. However, if Borrower's failure to perform
its obligations as described in this Section 22(h) is of the nature that it
cannot be cured within the 30 day grace period but reasonably could be cured
within 90 days, then Borrower shall have additional time as determined by Lender
in its discretion, not to exceed an additional 60 days, in which to cure such
default, provided that Borrower has diligently commenced to cure such default
during the 30-day grace period and diligently pursues

                                                                         PAGE 39
<PAGE>

                                                                  Exhibit 10.4.2

the cure of such default. However, no such Notice or grace periods shall apply
in the case of any such failure which could, in Lender's judgment, absent
immediate exercise by Lender of a right or remedy under this Instrument, result
in harm to Lender, impairment of the Note or this Instrument or any other
security given under any other Loan Document;

         (i)      any failure by Borrower to perform any of its obligations as
and when required under any Loan Document other than this Instrument which
continues beyond the applicable cure period, if any, specified in that Loan
Document;

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

         (k)      Borrower voluntarily files for bankruptcy protection under the
United States Bankruptcy Code or voluntarily becomes subject to any
reorganization, receivership, insolvency proceeding or other similar proceeding
pursuant to any other federal or state law affecting debtor and creditor rights,
or an involuntary case is commenced against Borrower by any creditor (other than
Lender) of Borrower pursuant to the United States Bankruptcy Code or other
federal or state law affecting debtor and creditor rights and is not dismissed
or discharged within 90 days after filing; and

         (l)      any of Borrower's representations and warranties in this
Instrument is false or misleading in any material respect.

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

         24.      FORBEARANCE.

         (a)      Lender may (but shall not be obligated to) agree with
Borrower, from time to time, and without giving notice to, or obtaining the
consent of, or having any effect upon the obligations of, any guarantor or other
third party obligor, to take any of the following actions: extend the time for
payment of all or any part of the Indebtedness; reduce the payments due under
this Instrument, the Note, or any other Loan Document; release anyone liable for
the payment of any amounts under this Instrument, the Note, or any other Loan
Document; accept a renewal of the Note; modify the terms and time of payment of
the Indebtedness; join in any extension or subordination agreement; release any
Mortgaged Property; take or release other or additional security; modify the
rate of interest or period of amortization of the Note or change the

                                                                         PAGE 40
<PAGE>

                                                                  Exhibit 10.4.2

amount of the monthly installments payable under the Note; and otherwise modify
this Instrument, the Note, or any other Loan Document.

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

         25.      LOAN CHARGES. If any applicable law limiting the amount of
interest or other charges permitted to be collected from Borrower is interpreted
so that any charge provided for in any Loan Document, whether considered
separately or together with other charges levied in connection with any other
Loan Document, violates that law, and Borrower is entitled to the benefit of
that law, that charge is hereby reduced to the extent necessary to eliminate
that violation. The amounts, if any, previously paid to Lender in excess of the
permitted amounts shall be applied by Lender to reduce the principal of the
Indebtedness. For the purpose of determining whether any applicable law limiting
the amount of interest or other charges permitted to be collected from Borrower
has been violated, all Indebtedness which constitutes interest, as well as all
other charges levied in connection with the Indebtedness which constitute
interest, shall be deemed to be allocated and spread over the stated term of the
Note. Unless otherwise required by applicable law, such allocation and spreading
shall be effected in such a manner that the rate of interest so computed is
uniform throughout the stated term of the Note.

         26.      WAIVER OF STATUTE OF LIMITATIONS. 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 Loan Document.

         27.      WAIVER OF MARSHALLING. Notwithstanding the existence of any
other security interests in the Mortgaged Property held by Lender or by any
other party, Lender shall have the right to determine the order in which any or
all of the Mortgaged Property shall be subjected to the remedies provided in
this Instrument, the Note, any other Loan Document or applicable law. Lender
shall have the right to determine the order in which any or all portions of the
Indebtedness are satisfied from the proceeds realized upon the exercise of such
remedies. Borrower and any party who now or in the future acquires a security
interest in the Mortgaged

                                                                         PAGE 41
<PAGE>

                                                                  Exhibit 10.4.2

Property and who has actual or constructive notice of this Instrument waives any
and all right to require the marshalling of assets or to require that any of the
Mortgaged Property be sold in the inverse order of alienation or that any of the
Mortgaged Property be sold in parcels or as an entirety in connection with the
exercise of any of the remedies permitted by applicable law or provided in this
Instrument.

         28.      FURTHER ASSURANCES. Borrower shall execute, acknowledge, and
deliver, at its sole cost and expense, all further acts, deeds, conveyances,
assignments, estoppel certificates, financing statements or amendments,
transfers and assurances as Lender may require from time to time in order to
better assure, grant, and convey to Lender the rights intended to be granted,
now or in the future, to Lender under this Instrument and the Loan Documents.

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

         30.      GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE.

         (a)      This Instrument, and any Loan Document which does not itself
expressly identify the law that is to apply to it, shall be governed by the laws
of the jurisdiction in which the Land is located (the "PROPERTY JURISDICTION").

         (b)      Borrower agrees that any controversy arising under or in
relation to the Note, this Instrument, or any other Loan Document may be
litigated in the Property Jurisdiction. The state and federal courts and
authorities with jurisdiction in the Property Jurisdiction shall have
jurisdiction over all controversies that shall arise under or in relation to the
Note, any security for the Indebtedness, or any other Loan Document. Borrower
irrevocably consents to service, jurisdiction, and venue of such courts for any
such litigation and waives any other venue to which it might be entitled by
virtue of domicile, habitual residence or otherwise. However, nothing in this
Section 30 is intended to limit Lender's right to bring any suit, action or
proceeding relating to matters under this Instrument in any court of any other
jurisdiction.

                                                                         PAGE 42
<PAGE>

                                                                  Exhibit 10.4.2

         31.      NOTICE.

         (a)      All Notices, demands and other communications ("NOTICE") under
or concerning this Instrument shall be in writing. Each Notice shall be
addressed to the intended recipient at its address set forth in this Instrument,
and shall be deemed given on the earliest to occur of (i) the date when the
Notice is received by the addressee; (ii) the first Business Day after the
Notice is delivered to a recognized overnight courier service, with arrangements
made for payment of charges for next Business Day delivery; or (iii) the third
Business Day after the Notice is deposited in the United States mail with
postage prepaid, certified mail, return receipt requested. As used in this
Section 31, the term "BUSINESS DAY" means any day other than a Saturday, a
Sunday or any other day on which Lender is not open for business.

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

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

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

         33.      SINGLE ASSET BORROWER. Until the Indebtedness is paid in full,
Borrower (a) shall not own any real or personal property other than the
Mortgaged Property and personal property related to the operation and
maintenance of the Mortgaged Property; (b) shall

                                                                         PAGE 43
<PAGE>

                                                                  Exhibit 10.4.2

not operate any business other than the management and operation of the
Mortgaged Property; and (c) shall not maintain its assets in a way difficult to
segregate and identify.

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

         35.      JOINT AND SEVERAL LIABILITY. If more than one person or entity
signs this Instrument as Borrower, the obligations of such persons and entities
shall be joint and several.

         36.      RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY.

         (a)      The relationship between Lender and Borrower shall be solely
that of creditor and debtor, respectively, and nothing contained in this
Instrument shall create any other relationship between Lender and Borrower.

         (b)      No creditor of any party to this Instrument and no other
person shall be a third party beneficiary of this Instrument or any other Loan
Document. Without limiting the generality of the preceding sentence, (i) any
arrangement (a "SERVICING ARRANGEMENT") between the Lender and any Loan Servicer
for loss sharing or interim advancement of funds shall constitute a contractual
obligation of such Loan Servicer that is independent of the obligation of
Borrower for the payment of the Indebtedness, (ii) Borrower shall not be a third
party beneficiary of any Servicing Arrangement, and (iii) no payment by the Loan
Servicer under any Servicing Arrangement will reduce the amount of the
Indebtedness.

         37.      SEVERABILITY; AMENDMENTS. The invalidity or unenforceability
of any provision of this Instrument shall not affect the validity or
enforceability of any other provision, and all other provisions shall remain in
full force and effect. This Instrument contains the entire agreement among the
parties as to the rights granted and the obligations assumed in this Instrument.
This Instrument may not be amended or modified except by a writing signed by the
party against whom enforcement is sought; provided, however, that in the event
of a Transfer prohibited by or requiring Lender's approval under Section 21, any
or some or all of the Modifications to Instrument set forth in Exhibit B (if
any) may be modified or rendered void by Lender at Lender's option by Notice to
Borrower and the transferee(s).

         38.      CONSTRUCTION. The captions and headings of the Sections of
this Instrument are for convenience only and shall be disregarded in construing
this Instrument. Any reference in this Instrument to an "Exhibit" or a "Section"
shall, unless otherwise explicitly provided, be construed as referring,
respectively, to an Exhibit attached to this Instrument or to a

                                                                         PAGE 44
<PAGE>

                                                                  Exhibit 10.4.2

Section of this Instrument. All Exhibits attached to or referred to in this
Instrument are incorporated by reference into this Instrument. Any reference in
this Instrument to a statute or regulation shall be construed as referring to
that statute or regulation as amended from time to time. Use of the singular in
this Agreement includes the plural and use of the plural includes the singular.
As used in this Instrument, the term "including" means "including, but not
limited to."

         39.      DISCLOSURE OF INFORMATION. Lender may furnish information
regarding Borrower or the Mortgaged Property to third parties with an existing
or prospective interest in the servicing, enforcement, evaluation, performance,
purchase or securitization of the Indebtedness, including but not limited to
trustees, master servicers, special servicers, rating agencies, and
organizations maintaining databases on the underwriting and performance of
multifamily mortgage loans. Borrower irrevocably waives any and all rights it
may have under applicable law to prohibit such disclosure, including but not
limited to any right of privacy.

         40.      NO CHANGE IN FACTS OR CIRCUMSTANCES. Borrower warrants that
(a) all information in the application for the loan submitted to Lender (the
"LOAN APPLICATION") and in all financial statements, rent schedules, reports,
certificates and other documents submitted in connection with the Loan
Application are complete and accurate in all material respects; and (b) there
has been no material adverse change in any fact or circumstance that would make
any such information incomplete or inaccurate.

         41.      SUBROGATION. If, and to the extent that, the proceeds of the
loan evidenced by the Note are used to pay, satisfy or discharge any obligation
of Borrower for the payment of money that is secured by a pre-existing mortgage,
deed of trust or other lien encumbering the Mortgaged Property (a "PRIOR LIEN"),
such loan proceeds shall be deemed to have been advanced by Lender at Borrower's
request, and Lender shall automatically, and without further action on its part,
be subrogated to the rights, including lien priority, of the owner or holder of
the obligation secured by the Prior Lien, whether or not the Prior Lien is
released.

         42.      ADJUSTABLE RATE MORTGAGE - THIRD PARTY CAP AGREEMENT "CAP
COLLATERAL."

         (a)      If the Note provides for interest to accrue at an adjustable
or variable interest rate (other than during the "Extension Period," as defined
in the Note, if applicable), then the definition of "Mortgaged Property" shall
include the "CAP COLLATERAL." The "Cap Collateral" shall mean

                  (i)      any interest rate cap agreement, interest rate swap
                           agreement, or other interest rate hedging contract or
                           agreement obtained by Borrower as a

                                                                         PAGE 45
<PAGE>

                                                                  Exhibit 10.4.2

                           requirement of any Loan Document or as a condition of
                           Lender's making the Loan (a "CAP AGREEMENT");

                  (ii)     any and all moneys (collectively, "CAP PAYMENTS")
                           payable pursuant to any Cap Agreement by the interest
                           rate cap provider or other counterparty to a Cap
                           Agreement or any guarantor of the obligations of any
                           such cap provider or counterparty (a "CAP PROVIDER");

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

                  (iv)     all rights, liens and security interests or
                           guaranties granted by a Cap Provider or any other
                           person to secure or guaranty payment of any Cap
                           Payment whether existing now or granted after the
                           date of this Instrument;

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

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

         (b)      As additional security for Borrower's obligation under the
Loan Documents, Borrower hereby assigns and pledges to Lender all of Borrower's
right, title and interest in and to the Cap Collateral. Borrower has instructed
and will instruct each Cap Provider and any guarantor of a Cap Provider's
obligations to make Cap Payments directly to Lender or to Loan Servicer on
behalf of Lender.

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

         (d)      Following an Event of Default, in addition to any other rights
and remedies Lender may have, Lender may retain any Cap Payments and apply them
to the Indebtedness in such order and amounts as Lender determines. Neither the
existence of a Cap Agreement nor anything in this

                                                                         PAGE 46
<PAGE>

                                                                  Exhibit 10.4.2

Instrument shall relieve Borrower of its primary obligation to timely pay in
full all amounts due under the Note and otherwise due on account of the
Indebtedness.

         (e)      If the Note does not provide for interest to accrue at an
adjustable or variable interest rate (other than during the Extension Period)
then this Section 42 shall be of no force or effect.

         43.      ACCELERATION; REMEDIES. At any time during the existence of an
Event of Default, Lender, at Lender's option, may declare the Indebtedness to be
immediately due and payable without further demand, and may invoke the power of
sale granted in this Instrument (and Borrower appoints Lender as Borrower's
agent and attorney-in-fact to exercise such power of sale in the name and on
behalf of Borrower) and any other remedies permitted by Georgia law or provided
in this Instrument or in any other Loan Document. Borrower acknowledges that the
power of sale granted in this Instrument may be exercised by Lender without
prior judicial hearing. Lender shall be entitled to collect all costs and
expenses incurred in pursuing such remedies, including reasonable attorneys'
fees, costs of documentary evidence, abstracts and title reports.

         Lender may sell and dispose of the Mortgaged Property at public
auction, at the usual place for conducting sales at the courthouse in the county
where all or any part of the Mortgaged Property is located, to the highest
bidder for cash, first advertising the time, terms and place of such sale by
publishing a notice of sale once a week for four consecutive weeks (without
regard to the actual number of days) in a newspaper in which sheriff's
advertisements are published in such county, all other notice being waived by
Borrower; and Lender may thereupon execute and deliver to the purchaser a
sufficient instrument of conveyance of the Mortgaged Property in fee simple,
which may contain recitals as to the happening of the default upon which the
execution of the power of sale granted by this Section depends. The recitals in
the instrument of conveyance shall be presumptive evidence that Lender duly
complied with all preliminary acts prerequisite to the sale and instrument of
conveyance. Borrower constitutes and appoints Lender as Borrower's agent and
attorney-in-fact to make such recitals, sale and conveyance. Borrower ratifies
all of Lender's acts, as such attorney-in-fact, and Borrower agrees that such
recitals shall be binding and conclusive upon Borrower and that the conveyance
to be made by Lender (and in the event of a deed in lieu of foreclosure, then as
to such conveyance) shall be effectual to bar all right, title and interest,
equity of redemption, including all statutory redemption, homestead, dower,
curtsey and all other exemptions of Borrower, or its successors in interest, in
and to the Mortgaged Property.

         The Mortgaged Property may be sold in one parcel and as an entirety, or
in such parcels, manner or order as Lender, in its discretion, may elect, and
one or more exercises of the powers granted in this Section shall not extinguish
or exhaust the power unless the entire Mortgaged

                                                                         PAGE 47
<PAGE>

                                                                  Exhibit 10.4.2

Property is sold or the Indebtedness is paid in full, and Lender shall collect
the proceeds of such sale, applying such proceeds as provided in this Section.
In the event of a deficiency, Borrower shall immediately on demand from Lender
pay such deficiency to Lender, subject to the provisions of the Note limiting
Borrower's personal liability for payment of the Indebtedness. Borrower
acknowledges that Lender may bid for and purchase the Mortgaged Property at any
foreclosure sale and shall be entitled to apply all or any part of the
Indebtedness as a credit to the purchase price. Borrower covenants and agrees
that Lender shall apply the proceeds of the sale in the following order: (a) to
all reasonable costs and expenses of the sale, including reasonable attorneys'
fees and costs of title evidence; (b) to the Indebtedness in such order as
Lender, in Lender's discretion, directs; and (c) the excess, if any, to the
person or persons legally entitled to the excess. The power and agency granted
in this Section 43 are coupled with an interest, are irrevocable by death or
otherwise and are in addition to the remedies for collection of the Indebtedness
as provided by law.

         If the Mortgaged Property is sold pursuant to this Section 43,
Borrower, or any person holding possession of the Mortgaged Property through
Borrower, shall surrender possession of the Mortgaged Property to the purchaser
at such sale on demand. If possession is not surrendered on demand, Borrower or
such person shall be a tenant holding over and may be dispossessed in accordance
with Georgia law.

         44.      RELEASE. Upon payment of the Indebtedness, Lender shall cancel
this Instrument. Borrower shall pay Lender's reasonable costs incurred in
canceling this Instrument.

         45.      BORROWER'S WAIVER OF CERTAIN RIGHTS. To the fullest extent
permitted by law, Borrower agrees that Borrower will not at any time insist
upon, plead, claim or take the benefit or advantage of any present or future law
providing for any appraisement, valuation, stay, extension or redemption,
homestead, moratorium, reinstatement, marshalling or forbearance, and Borrower,
for Borrower, Borrower's heirs, devisees, representatives, successors and
assigns, and for any and all persons ever claiming any interest in the Mortgaged
Property, to the fullest extent permitted by law, waives and releases all rights
of redemption, valuation, appraisement, stay of execution, reinstatement
(including all rights under O.C.G.A. Section 44-14-85), notice of intention to
mature or declare due the whole of the Indebtedness, and all rights to a
marshaling of assets of Borrower, including the Mortgaged Property.

         46.      DEED TO SECURE DEBT. This conveyance is to be construed under
the existing laws of the State of Georgia as a deed passing title, and not as a
mortgage, and is intended to secure the payment of the Indebtedness.

         47.      ASSUMPTION NOT A NOVATION. Lender's acceptance of an
assumption of the obligations of this Instrument and the Note, and the release
of Borrower pursuant to

                                                                         PAGE 48
<PAGE>

                                                                  Exhibit 10.4.2

Section 21, shall not constitute a novation and shall not affect the priority of
the lien created by this Instrument.

         48.      WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE
ARISING OUT OF THIS INSTRUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS
BORROWER AND LENDER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT
TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT
EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY
GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT
LEGAL COUNSEL.

         ATTACHED EXHIBITS. The following Exhibits are attached to this
Instrument:

                  [X]      Exhibit A       Description of the Land (required).

                  [X]      Exhibit B       Modifications to Instrument

         IN WITNESS WHEREOF, Borrower has signed and delivered this Instrument
or has caused this Instrument to be signed and delivered by its duly authorized
representative.

SIGNED, SEALED AND                     BORROWER:
DELIVERED IN THE
PRESENCE OF:                           ROBERTS PROPERTIES RESIDENTIAL, L.P.,
                                       a Georgia limited partnership

                                       By: Roberts Realty Investors, Inc.,
                                           a Georgia corporation
/s/ Sanford H. Zatcoff                     Its: Sole General Partner
---------------------------
Unofficial Witness

/s/ Catherine S. Moore                     By: /s/ Charles R. Elliott
---------------------------                    -----------------------------
Notary Public                                  Charles R. Elliott
My Commission Expires:                         Secretary and Treasurer
June 15, 2007

                                                                         PAGE 49
<PAGE>

                                    EXHIBIT B

                           MODIFICATIONS TO INSTRUMENT

The following modifications are made to the text of the Instrument that precedes
this Exhibit:

1.       Section 1(y) is hereby amended by deleting the semicolon and the word
         "and" at the end of subsection (vi) and replacing them with a period
         and by deleting subsection (vii) in its entirety.

2.       Section 14(c) is hereby amended by adding the following as the last
         sentence of subsection (iii):

         "Notwithstanding anything to the contrary hereinabove stated, the
         statement required to be furnished by this subsection (iii) shall not
         be required except upon Lender's request."

3.       Section 14(d) is hereby amended by adding the following as the last
         sentence of subsection (iii):

         "Notwithstanding anything to the contrary hereinabove stated, the
         report required to be furnished by this subsection (iii) shall not be
         required except when there has been an Event of Default and such Event
         of Default is continuing."

4.       Section 14(h) is hereby amended by inserting the following words after
         the word "demand": "true and correct copies, certified by Borrower's
         general partner's or Borrower's chief financial officer, of".

5.       Section 21(c) is hereby amended by deleting subsection (vii) thereof
         and inserting the following new subsections (vii) and (viii):

         "(vii)   a Transfer of fee simple title to the Mortgaged Property to
                  Roberts Realty Investors, Inc. (the `REIT'), provided that
                  each of the following requirements has been satisfied:

                  (A)      Borrower has provide Lender with at least 30 days
                           prior written notice of the proposed Transfer, which
                           notice shall be accompanied by a non-refundable
                           review fee in the amount of $5,000;

                                                                        PAGE B-1
<PAGE>

                  (B)      No other Transfer has occurred, and the REIT is at
                           the time of the proposed Transfer a Georgia
                           corporation in good standing and a self-administered
                           real estate investment trust;

                  (C)      The absence of any Event of Default;

                  (D)      The execution by the REIT of an assumption agreement
                           that is acceptable to Lender and that requires the
                           REIT to perform all obligations of Borrower set forth
                           in the Note, this Instrument and any other Loan
                           Documents, and to comply with all of the provisions
                           of this Instrument or the other Loan Documents (but
                           which does not impose upon the REIT any greater
                           obligations or liabilities than are imposed upon the
                           Borrower named herein as set forth in the Loan
                           Documents);

                  (E)      Borrower has delivered to Lender a commitment from
                           the title insurance company that issued the title
                           insurance policy insuring this Instrument to endorse
                           such title insurance policy and update and continue
                           the coverage provided thereby to the date of the
                           recording of the deed transferring title to Mortgaged
                           Property to the REIT, with no additional exceptions
                           to insurance coverage; and the original of such
                           endorsement is delivered to Lender promptly following
                           the recording of such deed; and

                  (F)      Lender has been paid or reimbursed by Borrower for
                           all of Lender's out-of-pocket costs (including title
                           search and title insurance charges, recording charges
                           and reasonable fees and expenses of Lender's legal
                           counsel) incurred in connection with the Transfer
                           request and Transfer. No separate transfer fee shall
                           be payable in connection with the Transfer described
                           in this Section 21(c)(vii); and

         (viii)   a Transfer of publicly traded shares or other publicly traded
                  units of ownership in the REIT or a Controlling Entity; or a
                  Transfer (which shall include an exchange for shares or other
                  units of ownership in the REIT) of limited partnership
                  interests in Borrower. No Transfer described in this Section
                  21(c)(viii) shall be subject to the conditions or requirements
                  of Section 21(f)."

6.       Section 21 is hereby modified to include the following new Section
         21(g):

                  "(g) Anything in this Section 21 to the contrary
         notwithstanding, Borrower will not request that Lender consent to, and
         Lender will not consent to, a Transfer during the `Extension Period'
         set forth in the Note."

                                                                        PAGE B-2
<PAGE>

7.       Section 33 hereof is hereby deleted in its entirety.

8.       Whenever reference is made in this Instrument or any of the Loan
         Documents to the payment of "reasonable attorney's fees" or words of
         similar import, the same shall mean and refer to the payment of actual
         attorney's fees incurred based upon the attorney's normal hourly rates
         and the number of hours worked, and not the attorney's fees statutorily
         defined in O.C.G.A. section 13-1-11.

                                                                        PAGE B-3<PAGE>
                                                                  Exhibit 10.4.3

                                                       FHLMC Loan No.: 002701324

                          REPLACEMENT RESERVE AGREEMENT
                           (REVISION DATE 01-31-2003)

         This REPLACEMENT RESERVE AGREEMENT ("Agreement") is made and entered
into, to be effective as of August 21, 2003, by and between ROBERTS PROPERTIES
RESIDENTIAL, L.P., a Georgia limited partnership ("Borrower"), and L. J. MELODY
& COMPANY, a Texas corporation, ("Lender") and its successors and assigns.

                              W I T N E S S E T H:

         WHEREAS, Lender has agreed to make and Borrower has agreed to accept
the Loan, which is to be evidenced by the Note and secured by the Security
Instrument encumbering the Land and the Improvements. The Land is described on
Exhibit "A" attached to this Agreement; and

         WHEREAS, as a condition of making the Loan, Lender is requiring
Borrower to establish the Replacement Reserve Fund for the funding of Capital
Replacements throughout the Loan term.

         NOW, THEREFORE, for and in consideration of the Loan, the mutual
promises and covenants herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Lender and Borrower agree as follows:

1.       Definitions. The following terms used in this Agreement shall have the
         meanings set forth below in this Section 1. Any term used in this
         Agreement and not defined shall have the meaning given to that term in
         the Security Instrument.

         (a)      "Capital Replacement" means the replacement of those items
                  listed on Exhibit "B" of this Agreement and such other
                  replacements of equipment, major components or capital systems
                  related to the Improvements as may be approved in writing or
                  required by Lender.

         (b)      "Disbursement Period" means the interval between disbursements
                  from the Replacement Reserve Fund, which interval shall be no
                  shorter than once a month.

         (c)      "Improvements" means the buildings, Personal Property and
                  improvements situated upon the Land, currently constituting a
                  multifamily apartment project known as River Oaks Apartments.

                                                                          PAGE 1
<PAGE>

                                                                  Exhibit 10.4.3

         (d)      "Initial Deposit" means the amount of Zero Dollars ($-0-) made
                  as of the date of this Agreement.

         (e)      Inspection Fee means a fee for performing any inspection
                  required by this Agreement in an amount not to exceed One
                  Hundred and No/100 Dollars ($100.00) per inspection.

         (f)      Investment Fee means a one time fee for establishing the
                  Replacement Reserve Fund in the amount of Five Hundred and
                  No/100 Dollars ($500.00).

         (g)      "Loan" means the loan from Lender to Borrower in the original
                  principal amount of Ten Million Seven Hundred Fifty Thousand
                  and No/100 Dollars ($10,750,000.00), as evidenced by the Note
                  and secured by the Security Instrument.

         (h)      "Minimum Disbursement Request Amount" means Three Thousand and
                  No/100 Dollars ($3,000.00).

         (i)      "Monthly Deposit" means the amount of Three Thousand Nine
                  Hundred Sixty and No/100 Dollars ($3,960.00) per month to be
                  deposited into the Replacement Reserve Fund in accordance with
                  this Agreement.

         (j)      "Property" means the Land and Improvements.

         (k)      "Replacement Reserve Deposit" means the Initial Deposit, the
                  Monthly Deposit and/or the Revised Monthly Deposit, as
                  appropriate.

         (l)      "Replacement Reserve Fund" means the account established
                  pursuant to this Agreement to defray the costs of Capital
                  Replacements.

         (m)      "Review Period" means the period ending 120 months after the
                  first monthly payment date.

         (n)      "Revised Monthly Deposit" means the amount per month that
                  Lender determines Borrower must deposit in the Replacement
                  Reserve Fund during any Subsequent Review Period.

         (o)      "Security Instrument" means the mortgage, deed of trust, deed
                  to secure debt, or other similar security instrument
                  encumbering the Property and securing Borrower's performance
                  of its Loan obligations.

         (p)      "Subsequent Review Period" means the period of 12 months
                  commencing either (i) at the termination of the Review Period
                  or (ii) at the termination of a prior

                                                                          PAGE 2
<PAGE>

                                                                  Exhibit 10.4.3

                  Subsequent Review Period. There may be more than one
                  Subsequent Review Period.

2.       Replacement Reserve Fund.

         (a)      Establishment; Funding.

                  (i)      Upon the closing of the Loan, the parties shall
                           establish the Replacement Reserve Fund and, if
                           required by Lender, Borrower shall pay the Initial
                           Deposit to Lender for deposit into the Replacement
                           Reserve Fund.

                  (ii)     Commencing on the date the first installment of
                           principal and/or interest is due under the Note and
                           continuing on the same day of each successive month
                           until the end of the Review Period, Borrower shall
                           pay the Monthly Deposit to Lender for deposit into
                           the Replacement Reserve Fund, together with its
                           regular monthly payments of principal and interest as
                           required by the Note and Security Instrument.

                  (iii)    Prior to the end of the Review Period, Lender will
                           assess the physical condition of the Property. Lender
                           may adjust the Monthly Deposit at the termination of
                           the Review Period to reflect Lender's determination
                           of the condition of the Property. Upon written notice
                           from Lender or Loan Servicer, Borrower shall begin
                           paying the Revised Monthly Deposit on the first
                           monthly payment date of the Subsequent Review Period
                           and shall continue paying the Revised Monthly Deposit
                           until Lender further adjusts the Replacement Reserve
                           Deposit during a Subsequent Review Period, if
                           applicable. If Lender does not provide Borrower with
                           written notice of a Revised Monthly Deposit, Borrower
                           shall continue to pay the Monthly Deposit or the
                           Revised Monthly Deposit then in effect.

         (b)      Investment of Deposits. Borrower and Lender agree that Lender
                  shall hold all moneys deposited into the Replacement Reserve
                  Fund in an interest bearing account, and any interest earned
                  on such moneys shall be added to the principal balance of the
                  Replacement Reserve Fund and disbursed in accordance with the
                  provisions of this Agreement. Borrower acknowledges and agrees
                  that it shall not have the right to direct Lender as to any
                  specific investment of moneys in the Replacement Reserve Fund.
                  Lender shall not be responsible for any losses resulting from
                  investment of moneys in the Replacement Reserve Fund or for
                  obtaining any specific level or percentage of earnings on such
                  investment. Lender shall be entitled to deduct the Investment
                  Fee from the Replacement Reserve Fund for establishing the
                  Replacement Reserve.

                                                                          PAGE 3
<PAGE>

                                                                  Exhibit 10.4.3

         (c)      Use. Subject to the pledge and security interest and other
                  rights of Lender set forth in this Agreement, the Replacement
                  Reserve Fund shall be maintained for the payment of the costs
                  of the Capital Replacements identified on Exhibit B.

         (d)      Deferral of Deposits. Notwithstanding subsections 2(a) through
                  (c) above, Lender defers its right to require Borrower to make
                  the Replacement Reserve Deposit. However, at the end of the
                  Review Period or any Subsequent Review Period, Lender reserves
                  the right to require that Borrower begin making the
                  Replacement Reserve Deposit if Lender reasonably determines
                  that the physical condition of the Property warrants that
                  Borrower begin making such deposit. Lender's determination to
                  require such deposit shall not depend on the existence of any
                  of the events set forth in subsection (e) below.

         (e)      Reinstatement of Deposits. Notwithstanding subsection 2(d)
                  above, Lender reserves the right to require at any time, upon
                  written notice to Borrower, that Borrower begin making the
                  Replacement Reserve Deposit if Lender reasonably determines
                  that any of the following events have occurred:

                  (i)      Borrower's default under the Note, Security
                           Instrument, or any other document delivered in
                           connection with the Loan, or

                  (ii)     the occurrence of a Transfer which is prohibited
                           under the terms of the Security Instrument or which
                           requires Lender's consent, or

                  (iii)    Borrower's failure to maintain the Property in a
                           satisfactory manner and/or in accordance with the
                           requirements of the Security Instrument.

3.       Performance of Capital Replacements; Disbursements.

         (a)      Requests for Disbursement. Lender shall disburse funds from
                  the Replacement Reserve Fund, in its sole discretion, as
                  follows:

                  (i)      Borrower's Request. If Borrower determines, at any
                           time or from time to time, that a Capital Replacement
                           is necessary or desirable, Borrower shall perform
                           such Capital Replacement and request from Lender, in
                           writing, reimbursement for such Capital Replacement.
                           Borrower's request for reimbursement shall include
                           (A) a detailed description of the Capital Replacement
                           performed, together with evidence, satisfactory to
                           Lender, that the cost of such Capital Replacement has
                           been paid and (B) lien waivers from each contractor
                           and material supplier supplying labor or materials
                           for such Capital Replacement, if required by Lender.

                  (ii)     Lender's Request. If Lender shall reasonably
                           determine at any time or from time to time, that a
                           Capital Replacement is necessary for the proper
                           maintenance of the Property, it shall so notify
                           Borrower, in writing, requesting that Borrower obtain
                           and submit to Lender bids for all labor and

                                                                          PAGE 4
<PAGE>

                                                                  Exhibit 10.4.3

                           materials required in connection with such Capital
                           Replacement. Borrower shall submit such bids and a
                           time schedule for completing each Capital Replacement
                           to Lender within thirty (30) days after Borrower's
                           receipt of Lender's written notice. Borrower shall
                           perform such Capital Replacement and request from
                           Lender, in writing, reimbursement for such Capital
                           Replacement. Borrower's request for reimbursement
                           shall include (A) a detailed description of the
                           Capital Replacement performed, together with
                           evidence, satisfactory to Lender, that the cost of
                           such Capital Replacement has been paid and (B) lien
                           waivers from each contractor and material supplier
                           supplying labor or materials for such Capital
                           Replacement, if required by Lender.

         (b)      Conditions Precedent. Disbursement from the Replacement
                  Reserve Fund shall be made no more frequently than once every
                  Disbursement Period and, except for the final disbursement, no
                  disbursement shall be made in an amount less than the Minimum
                  Disbursement Request Amount. Disbursements shall be made only
                  if the following conditions precedent have been satisfied, as
                  reasonably determined by Lender:

                  (i)      Payment for Capital Replacement. The Capital
                           Replacement has been performed and/or installed on
                           the Property in a good and workmanlike manner with
                           suitable materials (or in the case of a partial
                           disbursement, performed and/or installed on the
                           Property to an acceptable stage) and paid for by
                           Borrower as evidenced by copies of all applicable
                           paid invoices or bills submitted to Lender by
                           Borrower at the time Borrower requests disbursement
                           from the Replacement Reserve Fund.

                  (ii)     No Default. There is no condition, event or act that
                           would constitute a default (with or without notice
                           and/or lapse of time) under this Agreement or any
                           other Loan Document.

                  (iii)    Representations and Warranties. All representations
                           and warranties of Borrower set forth in this
                           Agreement and in the Loan Documents are true in all
                           material respects.

                  (iv)     Continuing Compliance. Borrower is in full compliance
                           with the provisions of this Agreement, the other Loan
                           Documents and any request or demand by Lender
                           permitted hereby.

                  (v)      No Lien Claim. No lien or claim based on furnishing
                           labor or materials has been filed or asserted against
                           the Property, unless Borrower has properly provided
                           bond or other security against loss in accordance
                           with applicable law.

                                                                          PAGE 5
<PAGE>

                                                                  Exhibit 10.4.3

                  (vi)     Approvals. All licenses, permits, and approvals of
                           governmental authorities required for the Capital
                           Replacement as completed to the applicable stage have
                           been obtained.

                  (vii)    Legal Compliance. The Capital Replacement as
                           completed to the applicable stage does not violate
                           any laws, ordinance, rules or regulations, or
                           building lines or restrictions applicable to the
                           Property.

4.       Right to Complete Capital Replacements. If Borrower abandons or fails
         to proceed diligently to undertake and/or complete any Capital
         Replacement in a timely fashion or is otherwise in default under this
         Agreement for 30 days after written notice of such failure by Lender to
         Borrower, Lender shall have the right (but not the obligation) to enter
         upon the Property and take over and cause the completion of such
         Capital Replacement. However, no such notice or grace period shall
         apply in the case of such failure which could, in Lender's judgment,
         absent immediate exercise by Lender of a right or remedy under this
         Agreement, result in harm to Lender or impairment of the security given
         under the Security Instrument or any other Loan Document. Any contracts
         entered into or indebtedness incurred upon the exercise of such right
         may be in the name of Borrower, and Lender is hereby irrevocably
         appointed the attorney in fact of Borrower, such appointment being
         coupled with an interest, to enter into such contracts, incur such
         obligations, enforce any contracts or agreements made by or on behalf
         of Borrower (including the prosecution and defense of all actions and
         proceedings in connection with the Capital Replacement and the payment,
         settlement or compromise of all bills and claims for materials and work
         performed in connection with the Capital Replacement) and do any and
         all things necessary or proper to complete any Capital Replacement
         including signing Borrower's name to any contracts and documents as may
         be deemed necessary by Lender. In no event shall Lender be required to
         expend its own funds to complete any Capital Replacement, but Lender
         may, in its sole discretion, advance such funds. Any funds advanced
         shall be added to the outstanding balance of the Loan, secured by the
         Security Instrument and payable to Lender by Borrower in accordance
         with the provisions of the Security Instrument pertaining to the
         protection of Lender's security and advances made by Lender. Borrower
         waives any and all claims it may have against Lender for materials
         used, work performed or resultant damage to the Property.

5.       Inspection. Lender or any representative of Lender may periodically
         inspect any Capital Replacement in process and upon completion during
         normal business hours or at any other reasonable time upon reasonable
         prior written notice to Borrower (except in an emergency, as determined
         by Lender in its discretion or after an Event of Default, in which
         event no such prior notice shall be require). Lender shall be entitled
         to deduct the Inspection Fee from the Replacement Reserve Fund for
         performing any such inspection. If Lender, in its sole discretion,
         retains a professional inspection engineer or other qualified third
         party to inspect any Capital Replacement, Lender also shall be entitled
         to deduct from the

                                                                          PAGE 6
<PAGE>

                                                                  Exhibit 10.4.3

         Replacement Reserve Fund an amount sufficient to pay all reasonable
         fees and expenses charged by such third party inspector.

6.       Insufficient Account. If Borrower requests disbursement from the
         Replacement Reserve Fund for a Capital Replacement in accordance with
         this Agreement in an amount which exceeds the amount on deposit in the
         Replacement Reserve Fund, Lender shall disburse to Borrower only the
         amount on deposit in the Replacement Reserve Fund. Borrower shall pay
         all additional amounts required in connection with any such Capital
         Replacement from Borrower's own funds.

7.       Security Agreement. To secure Borrower's obligations under this
         Agreement and to further secure Borrower's obligations under the Note,
         Security Instrument and other Loan Documents, Borrower hereby conveys,
         pledges, transfers and grants to Lender a security interest pursuant to
         the Uniform Commercial Code of the Property Jurisdiction or any other
         applicable law in and to all money in the Replacement Reserve Fund, as
         same may increase or decrease from time to time, all interest and
         dividends thereon and all proceeds thereof.

8.       Post Default. If Borrower defaults in the performance of its
         obligations under this Agreement or under the Note, Security Instrument
         or any other Loan Document, after the expiration of any applicable
         notice or cure period, Lender shall have all remedies available to them
         under Article 9 of the Uniform Commercial Code of the Property
         Jurisdiction and under any other applicable law. In addition, Lender
         may retain all money in the Replacement Reserve Fund, including
         interest, and in Lender's discretion, may apply such amounts, without
         restriction and without any specific order of priority, to the payment
         of any and all indebtedness or obligations of Borrower set forth in the
         Note, Security Instrument or any other Loan Document, including, but
         not limited to, principal, interest, taxes, insurance, reasonable
         attorneys' fees and costs (including those of Lender's in-house
         counsel) and disbursements actually incurred and/or repairs to the
         Property.

9.       Termination. If not sooner terminated by written concurrence of the
         parties, this Agreement shall terminate upon the payment in full of the
         Loan and all indebtedness incurred in connection therewith and upon
         such termination, Lender shall pay to Borrower all funds remaining in
         the Replacement Reserve Fund.

10.      No Amendment. Nothing contained in this Agreement shall be construed to
         amend, modify, alter, change or supersede the terms and provisions of
         the Note, Security Instrument or any other Loan Document; and, if there
         is a conflict between the terms and provisions of this Agreement and
         those of the Note, Security Instrument, or any other Loan Document then
         the terms and provisions of the Note, Security Instrument or such other
         Loan Document shall control.

                                                                          PAGE 7
<PAGE>

                                                                  Exhibit 10.4.3

11.      Release; Indemnity.

         (a)      Release. Borrower covenants and agrees that, in performing any
                  of its duties under this Agreement, none of Lender, any Loan
                  Servicer, or any of their respective agents or employees shall
                  be liable for any losses, claims, damages, liabilities and
                  expenses that may be incurred by any of them as a result of
                  such performance, except that no such party will be released
                  from liability for any losses, claim, damages, liabilities or
                  expenses arising out of the willful misconduct or gross
                  negligence of such party.

         (b)      Indemnity. Borrower hereby agrees to indemnify and hold
                  harmless Lender, Loan Servicer and their respective agents and
                  employees against any and all losses, claims, damages,
                  liabilities and expenses including, without limitation,
                  reasonable attorneys' fees and costs (including those of
                  Lender's in-house counsel) and disbursements, which may be
                  imposed or incurred by any of them in connection with this
                  Agreement except that no such party will be indemnified from
                  liability for any losses, claims, damages, liabilities or
                  expenses arising out of the willful misconduct or gross
                  negligence of such party.

12.      Choice of Law. This Agreement shall be construed and enforced in
         accordance with the laws of the Property Jurisdiction.

13.      Successors and Assigns. Lender may assign its rights and interests
         under this Agreement in whole or in part and upon any such assignment,
         all the terms and provisions of this Agreement shall inure to the
         benefit of such assignee to the extent so assigned. The terms used to
         designate any of the parties herein shall be deemed to include the
         heirs, legal representatives, successors and assigns of such parties;
         and the term "Lender" shall also include any lawful owner, holder or
         pledgee of the Note. Reference herein to "person" or "persons" shall be
         deemed to include individuals and entities. Borrower may not assign or
         delegate its rights, interests, or obligations under this Agreement
         without first obtaining Lender's prior written consent.

14.      Attorneys' Fees. In the event that Lender engages the services of an
         attorney at law to enforce the provisions of this Agreement against
         Borrower, then Borrower shall pay all costs of such enforcement,
         including any reasonable attorneys' fees and costs (including those of
         Lender's in-house counsel) and disbursements actually incurred.

15.      Compliance with Laws; Insurance Requirements.

         (a)      Compliance with Laws. Borrower shall ensure that all Capital
                  Replacements comply with all applicable laws, ordinances,
                  rules and regulations of all governmental authorities having
                  jurisdiction over the Property and applicable insurance
                  requirements including, without limitation, applicable
                  building codes,

                                                                          PAGE 8
<PAGE>

                                                                  Exhibit 10.4.3

                  special use permits, environmental regulations, and
                  requirements of insurance underwriters.

         (b)      Insurance Requirements. In addition to any insurance required
                  under the Loan Documents, Borrower shall provide or cause to
                  be provided workers' compensation, builder's risk (if required
                  by Lender), and public liability insurance and other insurance
                  required under applicable law in connection with any of the
                  Capital Replacements. All such policies that can be endorsed
                  with standard mortgage clauses making losses payable to Lender
                  or its assigns shall be so endorsed. The originals of such
                  policies shall be deposited with Loan Servicer.

16.      Remedies Cumulative. In the event of Borrower's default under this
         Agreement, Lender may exercise all or any one or more of its rights and
         remedies available under this Agreement, at law or in equity. Such
         rights and remedies shall be cumulative and concurrent, and may be
         enforced separately, successively or together, and Lender's exercise of
         any particular right or remedy shall not in any way prevent Lender from
         exercising any other right or remedy available to Lender. Lender may
         exercise any such remedies from time to time as often as Lender
         chooses.

17.      Determinations by Lender. Unless otherwise provided in this Agreement,
         in any instance where the consent or approval of Lender may be given or
         is required, or where any determination, judgment or decision is to be
         rendered by Lender under this Agreement, the granting, withholding or
         denial of such consent or approval and the rendering of such
         determination, judgment or decision shall be made or exercised by
         Lender (or its designated representative) at its sole and exclusive
         option and in its sole and absolute discretion.

18.      Completion of Capital Replacements. Lender's disbursement of moneys
         from the Replacement Reserve Fund or other acknowledgment of completion
         of any Capital Replacement in a manner satisfactory to Lender shall not
         be deemed a certification by Lender that the Capital Replacement has
         been completed in accordance with applicable building, zoning or other
         codes, ordinances, statutes, laws, regulations or requirements of any
         governmental authority or agency. Borrower shall at all times have the
         sole responsibility for ensuring that all Capital Replacements are
         completed in accordance with all such governmental requirements.

19.      No Agency or Partnership. Nothing contained in this Agreement shall
         constitute Lender as a joint venturer, partner or agent of Borrower, or
         render Lender liable for any debts, obligations, acts, omissions,
         representations or contracts of Borrower.

20.      Entire Agreement. This Agreement and the other Loan Documents represent
         the final agreement between the parties and may not be contradicted by
         evidence of prior, contemporaneous or subsequent oral agreements. There
         are no oral agreements between the parties. All prior or
         contemporaneous agreements, understandings, representations

                                                                          PAGE 9
<PAGE>

                                                                  Exhibit 10.4.3

         and statements, oral or written, are merged into this Agreement and the
         other Loan Documents. Neither this Agreement nor any of its provisions
         may be waived, modified, amended, discharged or terminated except in
         writing signed by the party against which the enforcement of the
         waiver, modification, amendment, discharge or termination is sought,
         and then only to the extent set forth in writing; provided, however,
         that in the event of a Transfer requiring Lender's consent under the
         terms of the Security Instrument, one or more or all of the
         Modifications to Agreement set forth in Exhibit C (if any) may be
         modified or rendered void by Lender at Lender's option by notice to
         Borrower/transferee.

21.      Counterparts. This Agreement may be executed in multiple counterparts,
         each of which shall constitute an original document and all of which
         together shall constitute one agreement.

         ATTACHED EXHIBITS. The following Exhibits are attached to this
Agreement:

         [X]      Exhibit A        Legal Description of the Land (required)

         [X]      Exhibit B        Capital Replacements (required)

         [ ]      Exhibit C        Modifications to Agreement

         IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first written above.

                                           BORROWER:

Borrower's Social Security
or Taxpayer Identification No.             ROBERTS PROPERTIES RESIDENTIAL, L.P.,
         58-2122875                        a Georgia limited partnership

                                           By: Roberts Realty Investors, Inc.,
                                               a Georgia corporation
                                               Its: Sole General Partner

                                               By: /s/ Charles R. Elliott
                                                   -----------------------------
                                                   Charles R. Elliott
                                                   Secretary and Treasurer

                      [SIGNATURES CONTINUED ON NEXT PAGE.]

                                                                         PAGE 10
<PAGE>

                                                                  Exhibit 10.4.3

                                           LENDER:

                                           L.J. MELODY & COMPANY,
                                           a Texas corporation

                                           By:   /s/ Bill R. Frazer
                                                 -------------------------------
                                           Name: Bill R. Frazer
                                           Its:  Exec. Vice President & CFO

                                                                         PAGE 11

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