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EXHIBIT 10.97
REGULATORY AGREEMENT FOR U.S. DEPARTMENT OF HOUSING
MULTIFAMILY HOUSING PROJECTS AND URBAN DEVELOPMENT
Office of Housing
Federal Housing Commissioner
Under Sections 207,220,221(d)(4), 231 and 232, Except Nonprofits
Project No. 121-22029-PM-ALF/REF
Mortgagee: RED MORTGAGE CAPITAL, INC.
Amount of Mortgage Note: $3,997,100.00 Date: February 1, 2001
Mortgage: Recorded: State: California County: San Mateo Date: February 1, 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 as of the 1st day of February, 2001,
between ARV DALY CITY, L.P., 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.
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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 $3,388.75 per month unless a different date or
amount is approved in writing by the Secretary. Said monthly
deposit consists of $1,966.17 for Realty and $1,422.58 for
Non-Realty. In addition, the Owner has made an initial deposit
to the fund of $190,694.00. 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).
N/A
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N/A
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,
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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.
(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;
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(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 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.
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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.
(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
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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.
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 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
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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;
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(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.
(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.
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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 Daly City, 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 DALY CITY, 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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Douglas Armstrong
Vice President
February 1, 2001
SECRETARY OF HOUSING AND URBAN
DEVELOPMENT ACTING BY AND
THROUGH THE FEDERAL HOUSING
COMMISSIONER
By:
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Authorized Agent
February 1, 2001