EXHIBIT 10.97
REGULATORY AGREEMENT FOR U.S. DEPARTMENT OF HOUSING
MULTIFAMILY HOUSING PROJECTS AND URBAN DEVELOPMENT
Office of Housing
Federal Housing Commissioner
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Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits
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Project No. 143-22015 PM/ALF/REF
Mortgagee: RED MORTGAGE CAPITAL, INC.
Amount of Mortgage Note: $2,207,400.00 Date: December 1, 2001
Mortgage: Recorded: State: California County: Orange Date: December ___, 2001
Concurrently Herewith Book _________ Page ____________
Originally endorsed for insurance under Section 232 pursuant to Section
223(f) of the National Housing Act, as amended.
This Agreement entered into this 1st day of December, 2001, between ARV
FULLERTON, L.P., a California limited partnership whose address is ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇-▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, their successors, heirs, and
assigns (jointly and severally, hereinafter referred to as Owners) and the
undersigned SECRETARY OF HOUSING AND URBAN DEVELOPMENT and his successors
(hereinafter referred to as Secretary).
In consideration of the endorsement for insurance by the Secretary of the
above described note or in consideration of the consent of the Secretary to the
transfer of the mortgaged property or the sale and conveyance of the mortgaged
property by the Secretary, and in order to comply with the requirements of the
National Housing Act, as amended, and the Regulations adopted by the Secretary
pursuant thereto, Owners agree for themselves, their successors, heirs and
assigns, that in connection with the mortgaged property and the project operated
thereon and so long as the contract of mortgage insurance continues in effect,
and during such further period of time as the Secretary shall be the owner,
holder or reinsurer of the mortgage, or during any time the Secretary is
obligated to insure a mortgage on the mortgage property:
1. Owners, except as limited by paragraph 17 hereof, assume and agree to
make promptly all payments due under the note and mortgage.
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2. (a) Owners shall establish or continue to maintain a reserve fund for
replacements by the allocation to such reserve fund in a separate
account with the mortgagee or in a safe and responsible depository
designated by the mortgagee, concurrently with the beginning of payments
towards amortization of the principal of the mortgage insured or held by
the Secretary of an amount equal to $1,971.67 per month unless a
different date or amount is approved in writing by the Secretary. Said
monthly deposit consists of $1,638.75 for Realty and $332.92 for
Non-Realty. In addition, the Owner has made an initial deposit to the
fund of $225,657.40 ($23,852.40 to Realty and $201,805.00 to
Non-Realty). Such fund, whether in the form of a cash deposit or
invested in obligations of, or fully guaranteed as to principal by, the
United States of America shall at all times be under the control of the
mortgagee. Disbursements from such fund, whether for the purpose of
effecting replacement of structural elements and mechanical equipment of
the project or for any other purpose, may be made only after receiving
the consent in writing of the Secretary. In the event that the owner is
unable to make a mortgage note payment on the due date and that payment
cannot be made prior to the due day of the next such installment or when
the mortgagee has agreed to forgo making an election to assign the
mortgage to the Secretary based on a monetary default, or to withdraw an
election already made, the Secretary is authorized to instruct the
mortgagee to withdraw funds from the reserve fund for replacements to be
applied to the mortgage payment in order to prevent or cure the default.
In addition, in the event of a default in the terms of the mortgage,
pursuant to which the loan has been accelerated, the Secretary may apply
or authorize the application of the balance in such fund to the amount
due on the mortgage debt as accelerated.
(b) Where Owners are acquiring a project already subject to an insured
mortgage, the reserve fund for replacements to be established will be
equal to the amount due to be in such fund under existing agreements or
charter provisions at the time Owners acquire such project, and payments
hereunder shall begin with the first payment due on the mortgage after
acquisition, unless some other method of establishing and maintaining
the fund is approved in writing by the Secretary.
3. Real property covered by the mortgage and this agreement is described in
Exhibit A attached hereto.
(This paragraph 4 is not applicable to cases insured under Section 232).
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4. (a) If the mortgage is originally a Secretary-held purchase money
mortgage, or is originally endorsed for insurance under any Section
other than Sections 231 or 232 and is not designed primarily for
occupancy by elderly persons, Owners shall not in selecting tenants
discriminate against any person or persons by reason of the fact that
there are children in the family.
(b) If the mortgage is originally endorsed for insurance under Section
221, Owners shall in selecting tenants give to displaced persons or
families an absolute preference or priority of occupancy which shall be
accomplished as follows:
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(1) For a period of sixty (60) days from the date of original
offering, unless a shorter period of time is approved in writing
by the Secretary, all units shall be held for such preferred
applicants, after which time any remaining unrented units may be
rented to non-preferred applicants;
(2) Thereafter, and on a continuing basis, such preferred applicants
shall be given preference over non-preferred applicants in their
placement on a waiting list to be maintained by the Owners; and
(3) Through such further provisions agreed to in writing by the
parties.
(c) Without the prior written approval of the Secretary not more than
25% of the number of units in a project insured under Section 231 shall
be occupied by persons other than elderly persons.
(d) All advertising or efforts to rent a project insured under Section
231 shall reflect a bona fide effort of the Owners to obtain occupancy
by elderly persons.
5. Owners shall not without the prior written approval of the Secretary:
(a) Convey, transfer, or encumber any of the mortgaged property, or
permit the conveyance, transfer or encumbrance of such property.
(b) Assign, transfer, dispose of, or encumber any personal property of
the project, including rents, or pay out any funds except from surplus
cash, except for reasonable operating expenses and necessary repairs.
(c) Convey, assign, or transfer any beneficial interest in any trust
holding title to the property, or the interest of any general partner in
a partnership owning the property, or any right to manage or receive the
rents and profits from the mortgaged property.
(d) Remodel, add to, reconstruct, or demolish any part of the mortgaged
property or subtract from any real or personal property of the project.
(e) Make, or receive and retain, any distribution of assets or any
income of any kind of the project except surplus cash and except on the
following conditions:
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(1) All distributions shall be made only as of and after the end of
a semiannual or annual fiscal period, and only as permitted by
the law of the applicable jurisdiction;
(2) No distribution shall be made from borrowed funds, prior to the
completion of the project or when there is any default under
this Agreement or under the note or mortgage;
(3) Any distribution of any funds of the project, which the party
receiving such funds is not entitled to retain hereunder, shall
be held in trust separate and apart from any other funds; and
(4) There shall have been compliance with all outstanding notices of
requirements for proper maintenance of the project.
(f) Engage, except for natural persons, in any other business or
activity, including the operation of any other rental project, or incur
any liability or obligation not in connection with the project.
(g) Require, as a condition of the occupancy or leasing of any unit in
the project, any consideration or deposit other than the prepayment of
the first month's rent plus a security deposit in an amount not in
excess of one month's rent to guarantee the performance of the covenants
of the lease. Any funds collected as security deposits shall be kept
separate and apart from all other funds of the project in a trust
account the amount of which shall at all times equal or exceed the
aggregate of all outstanding obligations under said account.
(h) Permit the use of the dwelling accommodations or nursing facilities
of the project for any purpose except the use which was originally
intended, or permit commercial use greater than that originally approved
by the Secretary.
6. Owners shall maintain the mortgaged premises, accommodations and the
grounds and equipment appurtenant thereto, in good repair and condition.
In the event all or any of the buildings covered by the mortgage shall
be destroyed or damaged by fire or other casualty, the money derived
from any insurance on the property shall be applied in accordance with
the terms of the mortgage.
7. Owners shall not file any petition in bankruptcy or for a receiver or in
insolvency or for reorganization or composition, or make any assignment
for the benefit of creditors or to a trustee for creditors, or permit an
adjudication in bankruptcy or
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the taking possession of the mortgaged property or any part thereof by a
receiver or the seizure and sale of the mortgaged property or any part
hereof under judicial process or pursuant to any power of sale, and fail
to have such adverse actions set aside within forty-five (45) days.
8. (a) Any management contract entered into by Owners or any of them
involving the project shall contain a provision that, in the event of
default hereunder, it shall be subject to termination without penalty
upon written request by the Secretary. Upon such request Owners shall
immediately arrange to terminate the contract within a period of not
more than thirty (30) days and shall make arrangements satisfactory to
the Secretary for continuing proper management of the project.
(b) Payment for services, supplies, or materials shall not exceed the
amount ordinarily paid for such services, supplies, or materials in the
area where the services are rendered or the supplies or materials
furnished.
(c) The mortgaged property, equipment, buildings, plans, offices,
apparatus, devices, books, contracts, records, documents, and other
papers relating thereto shall at all times be maintained in reasonable
condition for proper audit and subject to examination and inspection at
any reasonable time by the Secretary or his duly authorized agents.
Owners shall keep copies of all written contracts or other instruments
which affect the mortgaged property, all or any of which may be subject
to inspection and examination by the Secretary or his duly authorized
agents.
(d) The books and accounts of the operations of the mortgaged property
and of the project shall be kept in accordance with the requirements of
the Secretary.
(e) Within sixty (60) days following the end of each fiscal year the
Secretary shall be furnished with a complete annual financial report
based upon an examination of the books and records of mortgagor prepared
in accordance with the requirements of the Secretary, prepared and
certified to by an officer or responsible Owner and, when required by
the Secretary, prepared and certified by a Certified Public Accountant,
or other person acceptable to the Secretary.
(f) At the request of the Secretary, his agents, employees, or
attorneys, the Owners shall furnish monthly occupancy reports and shall
give specific answers to questions upon which information is desired
from time to time relative to
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income, assets, liabilities, contracts, operation, and condition of the
property and the status of the insured mortgage.
(g) All rents and other receipts of the project shall be deposited in
the name of the project in a financial institution, whose deposits are
insured by an agency of the Federal Government. Such funds shall be
withdrawn only in accordance with the provisions of this Agreement for
expenses of the project or for distributions of surplus cash as
permitted by paragraph 6(e) above. Any Owner receiving funds of the
project other than by such distribution of surplus cash shall
immediately deposit such funds in the project bank account and failing
so to do in violation of this Agreement shall hold such funds in trust.
Any Owner receiving property of the project in violation of this
Agreement shall hold such funds in trust. At such time as the Owners
shall have lost control and/or possession of the project, all funds held
in trust shall be delivered to the mortgagee to the extent that the
mortgage indebtedness has not been satisfied.
(h) If the mortgage is insured under Section 232:
1. The Owners or lessees shall at all times maintain in full force
and effect from the state or other licensing authority such license
as may be required to operate the project as a nursing home and
shall not lease all or part of the project except on terms approved
by the Secretary.
2. The Owners shall suitably equip the project for nursing home
operations.
3. The Owners shall execute a Security Agreement and Financing
Statement (or other form of chattel lien) upon all items of
equipment, except as the Secretary may exempt, which are not
incorporated as security for the insured mortgage. The Security
Agreement and Financing Statement shall constitute a first lien upon
such equipment and shall run in favor of the mortgagee as additional
security for the insured mortgage.
(i) If the mortgage is insured under Section 231, Owners or lessees
shall at all times maintain in full force and effect from the state
or other licensing authority such license as may be required to
operate the project as housing for the elderly.
9. Owners will comply with the provisions of any Federal, State, or local
law prohibiting discrimination in housing on the grounds of race, color,
religion or
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creed, sex, or national origin, including Title VIII of the Civil Rights
Act of 1968 (Public Law 90-284; 82 Stat. 73), as amended, Executive
Order 11063, and all requirements imposed by or pursuant to the
regulations of the Department of Housing and Urban Development
implementing these authorities (including 24 CFR Parts 100, 107 and 110,
and Subparts I and M of Part 200).
10. Upon a violation of any of the above provisions of this Agreement by
Owners, the Secretary may give written notice thereof, to Owners, by
registered or certified mail, addressed to the addresses stated in this
Agreement, or such other addresses as may subsequently, upon appropriate
written notice thereof to the Secretary, be designated by the Owners as
their legal business address. If such violation is not corrected to the
satisfaction of the Secretary within thirty (30) days after the date
such notice is mailed or within such further time as the Secretary
determines is necessary to correct the violation, without further notice
the Secretary may declare a default under this Agreement effective on
the date of such declaration of default and upon such default the
Secretary may:
(a) (i) If the Secretary holds the note - declare the whole of said
indebtedness immediately due and payable and then proceed with
the foreclosure of the mortgage;
(ii) If said note is not held by the Secretary - notify the holder
of the note of such default and request holder to declare a
default under the note and mortgage, and holder after receiving
such notice and request, but not otherwise, at its option, may
declare the whole indebtedness due, and thereupon proceed with
foreclosure of the mortgage, or assign the note and mortgage to
the Secretary as provided in the Regulations;
(b) Collect all rents and charges in connection with the operation of
the project and use such collections to pay the Owners' obligations
under this Agreement and under the note and mortgage and the necessary
expenses of preserving the property and operating the project.
(c) Take possession of the project, bring any action necessary to
enforce any rights of the Owners growing out of the project operation,
and operate the project in accordance with the terms of this Agreement
until such time as the Secretary in his discretion determines that the
Owners are again in a position to operate the project in accordance with
the terms of this Agreement and in compliance with the requirements of
the note and mortgage.
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(d) Apply to any court, state or Federal, for specific performance of
this Agreement, for an injunction against any violation of the
Agreement, for the appointment of a receiver to take over and operate
the project in accordance with the terms of the Agreement, or for such
other relief as may be appropriate, since the injury to the Secretary
arising from a default under any of the terms of this Agreement would be
irreparable and the amount of damage would be difficult to ascertain.
11. As security for the payment due under this Agreement to the reserve fund
for replacements, and to secure the Secretary because of his liability
under the endorsement of the note for insurance, and as security for the
other obligations under this Agreement, the Owners respectively assign,
pledge and mortgage to the Secretary their rights to the rents, profits,
income and charges of whatsoever sort which they may receive or be
entitled to receive from the operation of the mortgaged property,
subject, however, to any assignment of rents in the insured mortgage
referred to herein. Until a default is declared under this Agreement,
however, permission is granted to Owners to collect and retain under the
provisions of this Agreement such rents, profits, income, and charges,
but upon default this permission is terminated as to all rents due or
collected thereafter.
12. As used in this Agreement the term:
(a) "Mortgage" includes "Deed of Trust", "Chattel Mortgage", "Security
Instrument", and any other security for the note identified herein, and
endorsed for insurance or held by the Secretary;
(b) "Mortgagee" refers to the holder of the mortgage identified herein,
its successors and assigns;
(c) "Owners" refers to the persons named in the first paragraph hereof
and designated as Owners, their successors, heirs and assigns;
(d) "Mortgaged Property" includes all property, real, personal or mixed,
covered by the mortgage or mortgages securing the note endorsed for
insurance or held by the Secretary;
(e) "Project" includes the mortgaged property and all its other assets
of whatsoever nature or wheresoever situate, used in or owned by the
business conducted on said mortgaged property, which business is
providing housing and other activities as are incidental thereto;
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(f) "Surplus Cash" means any cash remaining after:
(1) the payment of:
(i) All sums due or currently required to be paid under the
terms of any mortgage or note insured or held by the
Secretary;
(ii) All amounts required to be deposited in the reserve fund
for replacements;
(iii) All obligations of the project other than the insured
mortgage unless funds for payment are set aside or deferment
of payment has been approved by the Secretary; and
(2) the segregation of:
(i) An amount equal to the aggregate of all special funds
required to be maintained by the project; and
(ii) All tenant security deposits held.
(g) "Distribution" means any withdrawal or taking of cash or any assets
of the project, including the segregation of cash or assets for
subsequent withdrawal within the limitations of Paragraph 6(e) hereof,
and excluding payment for reasonable expenses incident to the operation
and maintenance of the project.
(h) "Default" means a default declared by the Secretary when a violation
of this Agreement is not corrected to his satisfaction within the time
allowed by this Agreement or such further time as may be allowed by the
Secretary after written notice;
(i) "Section" refers to a Section of the National Housing Act, as
amended.
(j) "Displaced persons or families" shall mean a family or families, or
a person, displaced from an urban renewal area, or as the result of
government action, or as a result of a major disaster as determined by
the President pursuant to the Disaster Relief Act of 1970.
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(k) "Elderly person" means any person, married or single, who is
sixty-two years of age or over.
13. This instrument shall bind, and the benefits shall inure to, the
respective Owners, their heirs, legal representatives, executors,
administrators, successors in office or interest, and assigns, and to
the Secretary and his successors so long as the contract of mortgage
insurance continues in effect, and during such further time as the
Secretary shall be the owner, holder, or reinsurer of the mortgage, or
obligated to reinsure the mortgage.
14. Owners warrant that they have not, and will not, execute any other
agreement with provisions contradictory of, or in opposition to, the
provisions hereof, and that, in any event, the requirements of this
Agreement are paramount and controlling as to the rights and obligations
set forth and supersede any other requirements in conflict therewith.
15. The invalidity of any clause, part or provision of this Agreement shall
not affect the validity or the remaining portions thereof.
16. The following Owners: ARV Fullerton, L.P., a California limited
partnership, and all present and future limited and general partners
thereof, do not assume personal liability for payments due under the
note and mortgage, or for the payments to the reserve for replacements,
or for matters not under their control, provided that said Owners shall
remain liable under this Agreement only with respect to the matters
hereinafter stated; namely:
(a) for funds or property of the project coming into their hands which,
by the provisions hereof, they are not entitled to retain; and
(b) for their own acts and deeds or acts and deeds of others which they
have authorized in violation of the provisions hereof.
(To be executed with formalities for recording a deed to real estate)
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All references herein to the terms "nursing home" or nursing homes" shall
mean and include the terms "assisted living facility" and "assisted living
facilities."
See Rider I attached hereto and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the
date first hereinabove written.
ARV FULLERTON, L.P.
a California limited partnership
By: American Retirement Villas Properties II
a California limited partnership
General Partner
By: ARV Assisted Living, Inc.
a Delaware corporation
General Partner
By:
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Vice President
December 1, 2001
SECRETARY OF HOUSING AND URBAN
DEVELOPMENT ACTING BY AND
THROUGH THE FEDERAL HOUSING
COMMISSIONER
By:
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Authorized Agent
December 1, 2001
