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EXHIBIT 10.12
FHA FORM 92466
REGULATORY AGREEMENT FOR
MULTIFAMILY HOUSING PROJECTS
Project No. 123-22013
Mortgagee: RED MORTGAGE CAPITAL, INC.
Amount of Mortgage Note: $5,782,900.00 Date: January 29, 2001
Mortgage: Recorded: State: Arizona County: Maricopa Date: January 29, 2001
Concurrently Herewith
Book __________ Page _____________ Instrument No. ____________
Originally endorsed for insurance under Section 232 pursuant to Section
223(f) of the National Housing Act.
This Agreement entered into as of this 29th day of January, 2001,
between ARV CHANDLER VILLAS, LP, a California limited partnership whose address
is 245 Fischer Avenue, Suite D-1, Costa Mesa, California 92626, 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.
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 $4,494.50 per month
($3,320.17 for Realty and $1,174.33 for Major Movable
Equipment) unless a different date or amount is approved in
writing by the Secretary. An initial deposit to
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the Fund of $463,546.00 ($322,622.00 for Realty and
$140,924.00 for Major Movable Equipment) has been made. 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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5. (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:
(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.
6. 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.
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(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:
(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.
7. Owners shall maintain the mortgaged premises, accommodations
and the grounds and equipment appurtenant thereto, in good
repair and condition. In the event all or
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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.
8. 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 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.
9. (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 income,
assets, liabilities, contracts, operation, and condition of
the property and the status of the insured mortgage.
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(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.
4. The Owners will not alter, or suffer or permit the
alteration of, the nursing home license, bed
authority or other operating authority of the Project
without the advance written approval of the
Secretary. In the event that any such alteration is
proposed, upon learning of that event the Owners will
advise the Secretary promptly. The Owners will insert
the foregoing requirements into any operating lease
for the Project.
5. The Owners will not enter into, amend, or agree to
the assignment of, any operating lease for all or
part of the Project without the advance written
approval of, and on terms satisfactory to, the
Secretary.
(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.
10. 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 creed, sex, or national
origin, including Title VIII of the Civil Rights Act of 1968
(Public
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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).
11. 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.
(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.
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12. 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.
13. 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;
(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
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(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.
(k) "Elderly person" means any person, married or single, who
is sixty-two years of age or over.
14. 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.
15. 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.
16. The invalidity of any clause, part or provision of this
Agreement shall not affect the validity or the remaining
portions thereof.
17. The following Owners: ARV Chandler Villas, L.P., and all
present and future general and limited 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:
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(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)
[SIGNATURES AND NOTARIES APPEAR ON FOLLOWING PAGES]
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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 CHANDLER VILLAS, L.P.
a California limited partnership
By: American Retirement Villas Properties III, L.P.
a California limited partnership
General Partner
By: ARV Assisted Living, Inc.
a Delaware corporation
General Partner
By:
--------------------------------------
Douglas Armstrong
Vice President
SECRETARY OF HOUSING AND URBAN
DEVELOPMENT ACTING BY AND
THROUGH THE FEDERAL HOUSING
COMMISSIONER
By:
-------------------------------------
Authorized Agent
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ACKNOWLEDGMENTS
State of Arizona ]
]: ss
County of Maricopa ]
Before me, ______________________________, of the State and County
aforementioned, personally appeared Douglas Armstrong, known to me (or
satisfactorily proven to me) to be the person who executed the foregoing
instrument and who, upon oath, acknowledged himself to be the Vice President of
ARV Assisted Living, Inc., a Delaware corporation, the General Partner of
American Retirement Villas Properties III, L.P., a California limited
partnership, the General Partner of ARV CHANDLER VILLAS, L.P., a California
limited partnership, and that he as such General Partner, executed the foregoing
instrument for the purposes therein contained, by signing his name on behalf of
the said ARV CHANDLER VILLAS, L.P.
WITNESS my hand and seal, as of this ____ day of January ___, 2001.
_________________________________
[SEAL] Notary Public
My Commission Expires: ______________________________
State of Arizona ]
]: ss
County of Maricopa ]
On this ___ day of January, 2001, before me personally appeared
____________________________ to me personally known, who, being by me duly
sworn, did say that he/she is the Authorized Agent of the SECRETARY OF HOUSING
AND URBAN DEVELOPMENT, who executed the foregoing instrument, and that said
instrument was signed and sealed on behalf of said SECRETARY OF HOUSING AND
URBAN DEVELOPMENT the day and year first above written for the purposes therein
contained.
WITNESS my hand and seal, as of this ____ day of January ___, 2001.
_________________________________
[SEAL] Notary Public
My Commission Expires: ______________________________