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HOLLAND & HART LLP David K. Broadbent, #0442 Matthew T. Wirthlin, #8291 Romaine C. Marshall, #9654 J. Andrew Sjoblom, #10860 Doyle S. Byers, #11440 Cory A. Talbot, #11477 222 S. Main Street, Suite 2200 Salt Lake City, UT 84101 Telephone: 801-799-5960 Fax: 801-713-6259 Attorneys for John A. Beckstead as Receiver

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

SECURITIES AND EXCHANGE COMMISSION, Plaintiff, vs. MANAGEMENT SOLUTIONS, INC., a Texas Corporation; WENDELL A. JACOBSON; ALLEN R. JACOBSON, Defendants.

MOTION TO DISCLAIM AND ABANDON ENCINITO APARTMENTS

Civil Action No. 2:11-cv-01165

Judge Bruce S. Jenkins

John A. Beckstead (the “Receiver”), as Receiver for Management Solutions, Inc. and

related entities and the assets of Wendell A. Jacobson and Allen R. Jacobson, hereby moves to

disclaim and abandon the Encinito Apartments.

Hondo Encinito Apartments, LLC (“Hondo Encinito”) is a receivership entity. (Order

Appointing Receiver, Freezing Assets & Other Relief (Dkt. No. 4), Ex. A.) Hondo Encinito

owns real property in Medina County, Texas, known as the Encinito Apartments, located at 2805

Case 2:11-cv-01165-BSJ Document 958 Filed 02/28/13 of 16

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Avenue U, Hondo, Texas (the “Property”). The Property is encumbered by a Multifamily Deed

of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the “Deed of Trust”) to

secure a $3,000,000 debt originally owed to Greystone Servicing Corporation, Inc.

(“Greystone”). (Deed of Trust, Ex. B hereto at 1; Multifamily Note (the “Note”), Ex. C hereto at

1; see also Apr. 27, 2012 Commitment for Title Insurance (the “Title Report”), Ex. D hereto at 8,

¶ 71; Declaration of Roy Miller (“Miller Decl.”) (Dkt. No. 869), ¶¶ 10 and 12 and Ex. G thereto.)

Greystone assigned the Deed of Trust to Fannie Mae by an Assignment of Deed of Trust

recorded April 12, 2011. (Ex. E hereto; see also Title Report, Ex. D hereto at 8, ¶ 7; Miller

Decl., ¶ 11 and Ex. F thereto.)

The Receiver commissioned an appraisal of the Property, which valued it at $3,100,000

as is. (See Sept. 9, 2012 Valuation Report, Ex. A hereto at 2.) As of December 31, 2012, the

unpaid principal balance under the Note was $2,921,108.87. (Declaration of Thom Ruffin

(“Ruffin Decl.”), (Dkt. No. 867), ¶ 7.) The Receiver has made each of the monthly payments of

$18,945.78 to Fannie Mae, with the exception of two payments for January and February 2012,

totaling $37,891.56. Thus, Fannie Mae is currently owed approximately $2,921,108.98 plus the

two missed payments, for a total of $ 2,959,000.54. (Ruffin Decl., ¶ 7.) The payments that were

missed in January and February 2012 may subject the receivership to potential claims for late

charges and default interest, which would add 4.00% to the normal interest rate of 5.79%. (Note,

Ex. C hereto at 1.)

1 The Title Report also reflects a Deed of Trust securing a $15,000,000 note recorded in December 2007, held by American First Federal Credit Union (“AFFCU”). (Ex. D hereto at 7, ¶ 5.) Although that would place the Property even further under water, the Receiver has investigated and determined that the portion of the AFFCU note secured by the Property has been fully paid and the AFFCU deed of trust should have been released or reconveyed.


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The Property is also subject to a prepayment penalty if sold before the Prepayment Period

End Date, which is the last day of October 2020. (Note, Ex. C hereto at 2.) Fannie Mae

estimates that the amount of the Prepayment Premium as of December 31, 2012 was

$978,329.63. (Ruffin Decl., ¶ 7.)

Excluding default interest and late charges, the appraised value of the Property only

exceeds the principal and regular interest that is due and owing by approximately $140,999.46.

Even if the Court were to preclude default interest and/or late fees, and the Receiver was able to

find a qualified buyer to assume the mortgage (which could depress the price given the 5.79%

regular interest rate), and the Receiver was able to avoid paying a sales commission, none of

which is certain, the equity in the Property is too little to justify the continued administration of

this Property. Accordingly, the Receiver seeks an order from the Court allowing him

immediately to disclaim and abandon all of the receivership’s interests in the Property. As

further explained in the Memorandum below, given that there is so little equity in the Property,

the Receiver believes that this is in the best interests of the receivership estate and the investors.

MEMORANDUM

I. BACKGROUND

1. Hondo Encinito obtained the Encinito Properties from Encinito Apartments Ltd.

by a Special Warranty Deed with Vendor’s lien from Encinito Apartments, Ltd. (the “Special

Warranty Deed”). (See Special Warranty Deed, Ex. F hereto.) The Special Warranty Deed was

recorded on May 3, 2000.

2. The legal description of the Property is set forth in the Title Report as follows:

A SURVEY OF 8.983 ACRES OF LAND SITUATED WITHIN THE CORPORATE LIMITS OF THE CITY OF HONDO, IN


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MEDINA COUNTY, TEXAS, OUT OF SURVEY NO. 184, ABSTRACT NO. 1029, JOHN WOLFART, ORIGINAL GRANTEE, BEING A PORTION OF THAT CERTAIN 23.434 ACRE TRACT OF LAND DESCRIBED AS TRACT I IN A PARTITION DEED TO ROBERT R. CORDER, JR., ET UX, FROM MAYBELLE R. HAGENS, ET AL, DATED SEPTEMBER 1, 1986, AS RECORDED IN VOLUME 46 ON PAGE 249 OF THE OFFICIAL PUBLIC RECORDS OF MEDINA COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

BEGINNING: AT A 5/8" IRON PIN SET IN THE REMAINS OF A BROKEN CONCRETE R.O.W. MARKER FOUND AT THE POINT-OF-INTERSECTION OF THE EAST LINE OF AVENUE "U" AND THE NORTH R.O.W. LINE OF F.M. HIGHWAY 1250 (30TH STREET) FOR THE SOUTHWEST CORNER OF SAID 23.434 ACRE TRACT OF LAND AND THE SOUTHWEST CORNER OF THIS SURVEY;

THENCE: ALONG A RUNDOWN FENCE, THE EAST LINE OF SAID AVENUE "U", AND THE WEST LINE OF SAID23.434 ACRE TRACT OF LAND, N 00-18-24 W 732.27 FEET TO A 5/8" IRON PIN FOR THE NORTHWEST CORNER OF THIS SURVEY;

THENCE: N 89-07-32 E 528.76 FEET TO A 5/8" IRON PIN SET FOR THE SOUTHWEST CORNER OF A CERTAIN 2.410 ACRE TRACT OF LAND DESCRIBED AS TRACT II TO MAYBELLE R. HAGENS, ET AL, IN THE AFOREMENTIONED PARTITION DEED, AND THE NORTHEAST CORNER OF THIS SURVEY;\

THENCE: S 00-52-28 E 737.76 FEET TO A RAILROAD SPIKE SET IN CONCRETE RIPRAP ON THE NORTH R.O.W. LINE OF SAID F.M. HIGHWAY 1250 AND THE SOUTH LINE OF SAID 23.434 ACRE TRACT OF LAND FOR THE SOUTHEAST CORNER OF THIS SURVEY;

THENCE: ALONG FENCE, THE NORTH R.O.W. LINE OF SAID F.M. HIGHWAY 1250, AND THE SOUTH LINE OF SAID 23.434 ACRE TRACT OF LAND, S 89-42-58 W 536.04 FEET TO THE POINT OF BEGINNING.

(Ex. D at 4.)


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3. Hondo Encinito executed an April 6, 2011 Promissory Note (the “Note”) in favor

of Greystone in the amount of $3,000,000.00. (Note, Ex. C at 1.)

4. To secure the Note, Hondo Encinito executed the Deed of Trust against the

Property, which was recorded on April 12, 2011. (Trust Deed, Ex. B hereto at 1.)

5. As of December 31, 2012, the unpaid principal balance under the Note was

$2,921,108.87. (Ruffin Decl., ¶ 7.)

6. The Receiver has made each of the monthly payments of $18,945.78 to Fannie

Mae, with the exception of two payments for January and February 2012, totaling $37,891.56.

Thus, Fannie Mae is currently owed approximately $2,921,108.98 plus the two missed payments,

for a total of $ 2,959,000.54. (Ruffin Decl., ¶ 7.)

7. The payments that were missed in January and February 2012 subject the

receivership to potential claims for late charges and default interest, which would add 4.00% to

the normal interest rate of 5.79%. (Note, Ex. C hereto at 1.)

8. The Property is also subject to a prepayment penalty if sold before the

Prepayment Period End Date, which is the last day of October 2020. (Note, Ex. C hereto at 2.)

Fannie Mae estimates that the amount of the Prepayment Premium as of December 31, 2012 was

$978,329.63. (Ruffin Decl., ¶ 7.)

9. The Receiver commissioned an appraisal of the Property, which valued it at

$3,100,000 as is. (Ex. A hereto at 2.)

II. ARGUMENT

It is within the Court’s broad equitable discretion to permit the Receiver to relinquish any

rights to assets within the Receivership when they cease to have value to the estate. See 65 Am.


6

Jur. 2d Receivers § 156 (2012) (“If a receiver determines that a particular asset has so little value

as to make its administration unprofitable, the receiver may petition the court for an instruction

to abandon the asset as worthless.”); cf. 11 U.S.C. § 554(a) (stating that a trustee in bankruptcy

may abandon property of the estate that is burdensome or that is of inconsequential value and

benefit to the estate); SEC v. Elliott, 953 F.2d 1560, 1569-70 (11th Cir. 1992) (“A district court

has wide discretion to determine the appropriate relief in an equity receivership.”), rev’d in part

on other grounds, 998 F.2d 922 (11th Cir. 1993).

The Property has very little equity. Fannie Mae is owed at least $ 2,959,000.54, or 95.5%

of the appraised value of the Property, excluding any default interest, late charges that may be

awarded due to the payments missed early in the receivership. (See Background, ¶¶ 5-9.) Under

these circumstances, it is clear that the Receiver will realize little, if any value from the

continued administration or sale of the Property that would benefit the Receivership estate or

investors. Therefore, it is in the best interests of the Receivership estate to disclaim and abandon

all interests in the Property.

The Receiver requests that the order authorizing him to disclaim and abandon all interests

in the Property clearly indicate that the stay imposed by the Appointment Order is no longer

applicable against the Property.

III. CONCLUSION

The Receiver requests that the Court grant this Motion and enter an order authorizing the

Receiver to disclaim and abandon any and all interest in the Property immediately.


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RESPECTFULLY SUBMITTED this 28th day of February, 2013.

HOLLAND & HART LLP /s/ J. Andrew Sjoblom David K. Broadbent Matthew T. Wirthlin Romaine C. Marshall J. Andrew Sjoblom Doyle S. Byers Cory A. Talbot

Attorneys for John A. Beckstead as Receiver

CERTIFICATE OF SERVICE

I hereby certify that on the 28th day of February, 2013, I caused a true and correct copy

of the foregoing to be served in the following manner upon the addressee(s) listed below:

U.S.Mail,postageprepaid HandDelivery Facsimile Overnightcourier E‐mailand/orCM/ECF

DanielJ.WadleyThomasM.MeltonAlisonJ.OkinakaPaulN.FeindtSECURITIES&EXCHANGECOMMISSION15W.SouthTempleStreet,Suite1800SaltLakeCity,UT84101Telephone:(801)524‐5796Facsimile:(801)524‐[email protected]@[email protected]@sec.govAttorneysforSecuritiesandExchangeCommission


GregB.BaileyP.O.Box298FountainGreen,UT84632Telephone:(435)262‐7683ProSe


8


GregoryN.HooleHOOLE&KINGL.C.4276HighlandDriveSaltLakeCity,UT84124Telephone:(801)272‐7556Facsimile:(801)272‐[email protected]


KimR.WilsonTammyB.GeorgelasSNOWCHRISTENSEN&MARTINEAU10ExchangePlace,11thFloorP.O.Box45000SaltLakeCity,UT84145‐5000Telephone:(801)521‐9000Facsimile:(801)363‐[email protected]@scmlaw.comAttorneysforBankMidwestN.A.,assuccessor‐by‐mergerwithHillcrestBank,N.A.


SamM.StricklinBrianC.MitchellBRACEWELL&GIULIANI,LLP1445RossAvenue,Suite3800Dallas,TX75202Telephone:(214)758‐1053Facsimile:(214)468‐[email protected]@bgllp.comAttorneysforBankMidwestN.A.,assuccessor‐by‐mergerwithHillcrestBank,N.A.


AdelaideMaudsleyBrandonC.PondCHAPMANANDCUTLER,LLP201S.MainStreet,Suite2000SaltLakeCity,UT84111Telephone:(801)533‐[email protected]@chapman.comAttorneysforMutualofOmahaBank


9


JohnP.KincadeDeannaE.CaldwellJamesRichardWhiteWINSTEADPC500WinsteadBuilding2728N.HarwoodStreetDallas,TX75201Telephone:(214)745‐5400Facsimile:(214)745‐[email protected]@[email protected]


D.ZacharyWisemanRAYQUINNEY&NEBEKER,P.C.36S.StateStreet,Suite1400P.O.Box45385SaltLakeCity,UT84145‐[email protected]


GeorgeW.PrattJessicaP.WildeJONESWALDOHOLBROOK&MCDONOUGH170S.MainStreet,Suite1500SaltLakeCity,UT84101Telephone:(801)521‐[email protected]@joneswaldo.comAttorneysforBarlowCorporation


DouglasM.DurbanoJacobD.BriggsDURBANOLAWFIRM,P.C.476W.HeritageParkBlvd.,Suite200Layton,UT84041Telephone:(801)776‐[email protected]


10


AmyF.SorensonJaredC.FieldsSNELL&WILMERL.L.P.15W.SouthTemple,Suite1200SaltLakeCity,UT84101Telephone:(801)257‐[email protected]@swlaw.comAttorneysforFannieMae


JasonD.BorenMatthewL.MoncurBALLARDSPAHRLLPOneUtahCenter,Suite800201S.MainStreetSaltLakeCity,UT84111‐2221Telephone:(801)531‐[email protected]@ballardspahr.comAttorneysforFreddieMac


EdwinJ.TomkoJasonM.RossCURRANTOMKOTARSKILLP2001BryanTower,Suite2000Dallas,TX75201Telephone:(214)270‐[email protected]@cttlegal.comAttorneysforBrianBlain,VisionaryManagement,FirstBranchandEncinitoProperties


JohnH.BogartTELOSVENTURESGROUP299S.MainStreet,Suite1300SaltLakeCity,UT84111Telephone:(801)535‐[email protected],VisionaryManagement,FirstBranchandEncinitoProperties


11


KennethL.Cannon,IIStevenJ.McCardellDURHAMJONES&PINEGAR111E.Broadway,Suite900SaltLakeCity,UT84111Telephone:(801)415‐[email protected]@djplaw.comAttorneysforKeyBank


JohnL.YoungJeremyM.HoffmanYOUNGHOFFMANLLC170S.MainStreet,Suite1125SaltLakeCity,UT84101‐1605Telephone:(801)359‐[email protected]@yahlaw.comAttorneysforArvestBank


PhilipD.HixonR.CharlesWilkinRobertS.GlassRobertP.SkeithGLASSWILKINPC1515S.Utica,Suite250Tulsa,OK74014Telephone:(918)582‐[email protected]@[email protected]@glasswilkin.comAttorneysforArvestBank


MatthewN.EvansGregoryS.RobertsRAYQUINNEY&NEBEKER36S.StateStreet,Suite1400P.O.Box45385SaltLakeCity,UT84145‐0385Telephone:(801)521‐[email protected]@rqn.comAttorneysforNevadaStateBank


12


JeffreyE.NelsonU.S.ATTORNEY’SOFFICE185S.StateStreet,Suite300SaltLakeCity,UT84111Telephone:(801)325‐3250jeff.nelson@usdoj.govAttorneysforDepartmentofHousingandUrbanDevelopment


MatthewC.BarneckWayneZ.BennettRICHARDSBRANDTMILLERNELSONWellsFargoCenter,15thFloor299S.MainStreetP.O.Box2465SaltLakeCity,UT84110‐2465matthew‐[email protected]‐[email protected]


J.ScottBrownStevenC.StrongPARSONSKINGHORNHARRIS111E.Broadway,11thFloorSaltLakeCity,UT84111Telephone:(801)363‐[email protected]@pkhlawyers.comAttorneysforCentralBank


MarkR.GaylordMatthewL.MoncurBALLARDSPAHRLLPOneUtahCenter,Suite800201S.MainStreetSaltLakeCity,UT84111‐2221Telephone:(801)531‐[email protected]@ballardspahr.comAttorneysforU.S.BankNationalAssociationasTrustee,assuccessorininteresttoBankofAmerica,NationalAssoc.,assuccessorbymergertoLaSalleBankNationalAssoc.fortheregisteredholdersofLB‐UBSCommercialMortgageTrust2005‐C7,CommercialMortgagePass‐ThroughCert,Series2005‐C7


13


JosephCoveyRobertS.ClarkRoyceB.CovingtonPARRBROWNGEE&LOVELESS185S.StateStreet,Suite800SaltLakeCity,UT84111Telephone:(801)532‐[email protected]@parrbrown.comrcovington@parrbrown.comAttorneysforC.EugeneMcDermott,MaryAnnMcDermott,ForestHillsApartments,McKeanEnterprises,EricClarkWelling,MaryKatherineWelling,PheasantWoodandNycomApartments


StevenW.CallRAYQUINNEY&NEBEKER36S.StateStreet,Suite1400P.O.Box45385SaltLakeCity,UT84145‐0385Telephone:(801)532‐[email protected]


MarkWilsonWilliamsSHERMAN&HOWARDLLC633SeventeenthStreet,Suite3000Denver,CO80202Telephone:(303)299‐[email protected]


HeidiG.Goebel(10343)EricK.Jenkins(10783)CHRISTENSEN&JENSEN,P.C.15W.SouthTemple,Suite800SaltLakeCity,UT84101Telephone:(801)323‐5000Facsimile:(801)355‐[email protected]@chrisjen.comAttorneysforBranchBanking&Trust


14


ScottA.ShanesJulieK.BiermacherSTRASBURGER&PRICE,LLP2801NetworkBlvd.,Suite600Frisco,TX75034Telephone:(469)287‐3900Facsimile:(469)287‐[email protected]@strasburger.comAttorneysforBranchBanking&Trust


ScottA.CummingsStevenT.WatermanDORSEY&WHITNEY136S.MainStreet,Suite1000SaltLakeCity,UT84101‐1685Telephone:(801)933‐[email protected]@dorsey.comAttorneysforU.S.BankNationalAssociation


AshtonJ.HydeDavidR.HagueFABIAN&CLENDENIN215S.StateStreet,Suite1200SaltLakeCity,UT84111‐2323Telephone:(801)323‐[email protected]@fabianlaw.comAttorneysforJohnA.Beckstead


MarkF.James(5295)HATCH,JAMES&DODGE,P.C.10WestBroadway,Suite400SaltLakeCity,Utah84101Telephone:(801)363‐6363Facsimile:(801)363‐6666Email:[email protected]‐C1KengaryWay,LLCCFCRE2011‐C2HeatherbridgeLane,LLCCRCRE2011‐C1Apartments12900,LLC


15


M.ScottBarnardAlanM.HayesHeatherL.PeckhamAKINGUMPSTRAUSSHAUER&FELDLLP1700PacificAvenue,Suite4100Dallas,[email protected]@akingump.comhpeckham@akingump.comAttorneysforProposedIntervenorsCFCRE2011‐C1KengaryWay,LLCCFCRE2011‐C2HeatherbridgeLane,LLCCRCRE2011‐C1Apartments12900,LLC


LonA.JenkinsJONESWALDOHOLBROOK&MCDONOUGH170S.MainStreet,Suite1500SaltLakeCity,UT84101Telephone:(801)521‐[email protected]


HeatherDeansFoleyVenableLLP750EastPrattStreet,Suite900Baltimore,[email protected]


MatthewC.BarneckRussellC.FericksChadE.FunkRICHARDSBRANDTMILLERNELSONWellsFargoCenter,15thFloor299S.MainStreetP.O.Box2465SaltLakeCity,UT84110‐2465matthew‐[email protected]‐[email protected]‐[email protected],JillR.NielsonandBlackCliffsInvestments,LLC


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LonA.JenkinsNathanD.ThomasJONESWALDOHOLBROOK&MCDONOUGH170S.MainStreet,Suite1500SaltLakeCity,UT84101Telephone:(801)521‐[email protected]@joneswaldo.comAttorneysforIntervenorPlaintiffUS.BankNationalAssociation,asTrusteefortheRegisteredHoldersofCD2007‐CD4CommercialMortgageTrust,CommercialMortgagePass‐ThroughCertificates,SeriesCD2007‐CD4,actingbyandthroughitsSpecialServicerCWCapitalAssetManagementLLC


HeatherDeansFoley,Esq.(admittedprohacvice)VENABLELLP750EastPrattStreet,Suite900Baltimore,Maryland21202Telephone:410.244.7400Facsimile:410.244.7742hdfoley@venable.comAttorneysforIntervenorPlaintiffUS.BankNationalAssociation,asTrusteefortheRegisteredHoldersofCD2007‐CD4CommercialMortgageTrust,CommercialMortgagePass‐ThroughCertificates,SeriesCD2007‐CD4,actingbyandthroughitsSpecialServicerCWCapitalAssetManagementLLC


DanielM.BenjaminBALLARDSPAHRLLP655WestBroadway,Suite1600SanDiego,CA92101Telephone:(619)696‐[email protected]@ballardspahr.comAttorneysforU.S.BankNationalAssociationasTrustee,assuccessorininteresttoBankofAmerica,NationalAssoc.,assuccessorbymergertoLaSalleBankNationalAssoc.fortheregisteredholdersofLB‐UBSCommercialMortgageTrust2005‐C7,CommercialMortgagePass‐ThroughCert,Series2005‐C7

/s/ J. Andrew Sjoblom

6026497_1


EXHIBIT A

Case 2:11-cv-01165-BSJ Document 958-1 Filed 02/28/13 Page 1 of 116

VALUATION REPORT ENCINITO APARTMENTS 2805 Avenue U Hondo, Medina County, Texas 78861 CBRE, Inc. File No. 12-361HO-3739 Client Asset No. A39

Scott Miller MANAGEMENT SOLUTIONS RECEIVERSHIP PO Box 1290 Salt Lake City, Utah 84110

© 2012 CBRE, Inc.


V A L U A T I O N & A D V I S O R Y S E R V I C E S

200 Concord Plaza, Suite 200 San Antonio, TX 78216

T (210) 253-6009 F (210) 340-1821

www.cbre.com

September 9, 2012 Scott Miller MANAGEMENT SOLUTIONS RECEIVERSHIP PO Box 1290 Salt Lake City, Utah 84110 RE: Appraisal of Encinito Apartments 2805 Avenue U Hondo, Medina County, Texas CBRE, Inc. File No 12-361HO-3739 Client Asset No A39

Dear Mr. Miller:

At your request and authorization, CBRE, Inc. has prepared an appraisal of the market value of the referenced property. Our analysis is presented in the following Summary Appraisal Report.

The subject is a 108-unit multi-family garden property located at 2805 Avenue U in Hondo. The property consists of 17, 1 & 2-story apartment buildings. The improvements were constructed in 1993 and are situated on an 8.983-acre site. Currently, the property is 82.4% occupied and is considered to be in average overall condition. The subject is more fully described, legally and physically, within the enclosed report.

Based on the analysis contained in the following report, the market value of the subject is concluded as follows:

MARKET VALUE CONCLUSION

Appraisal Premise Interest Appraised Date of Value Value Conclusion

As Is Fee Simple Estate September 7, 2012 $3,100,000

Compiled by CBRE

Data, information, and calculations leading to the value conclusion are incorporated in the report following this letter. The report, in its entirety, including all assumptions and limiting conditions, is an integral part of, and inseparable from, this letter.

The following appraisal sets forth the most pertinent data gathered, the techniques employed, and the reasoning leading to the opinion of value. The analyses, opinions and conclusions were developed

© 2012 CBRE, Inc.


Mr. Scott Miller September 9, 2012 Page 2

based on, and this report has been prepared in conformance with, our interpretation of the guidelines and recommendations set forth in the Uniform Standards of Professional Appraisal Practice (USPAP), the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute. It also conforms to Title XI Regulations and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) updated in 1994 and further updated by the Interagency Appraisal and Evaluation Guidelines promulgated in 2010.

The intended use and user of our report are specifically identified in our report as agreed upon in our contract for services and/or reliance language found in the report. No other use or user of the report is permitted by any other party for any other purpose. Dissemination of this report by any party to non-client, non-intended users does not extend reliance to any other party and CBRE will not be responsible for unauthorized use of the report, its conclusions or contents used partially or in its entirety.

It has been a pleasure to assist you in this assignment. If you have any questions concerning the analysis, or if CBRE, Inc. can be of further service, please contact us.

Respectfully submitted, CBRE, Inc. - VALUATION & ADVISORY SERVICES

Buddy R. Urban, MAI David O. Thibodeaux, MAI First Vice President Managing Director St. Cert.: TX-1320516-G St. Cert.: TX-1328392-G Phone: (210) 253-6009 Phone: (512) 499-4928 Fax: (210) 340-1821 Fax: (512) 499-4999 Email: [email protected] Email: [email protected]

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | CERTIFICATION OF THE APPRAISAL

i

CERTIFICATION OF THE APPRAISAL

We certify to the best of our knowledge and belief:

1. The statements of fact contained in this report are true and correct. 2. The reported analyses, opinions, and conclusions are limited only by the reported assumptions

and limiting conditions and are our personal, impartial and unbiased professional analyses, opinions, and conclusions.

3. We have no present or prospective interest in or bias with respect to the property that is the subject of this report and have no personal interest in or bias with respect to the parties involved with this assignment.

4. Our engagement in this assignment was not contingent upon developing or reporting predetermined results.

5. Our compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.

6. This appraisal assignment was not based upon a requested minimum valuation, a specific valuation, or the approval of a loan.

7. Our analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice, as well as the requirements of the State of Texas.

8. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and Standards of Professional Appraisal Practice of the Appraisal Institute.

9. The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.

10. As of the date of this report, Buddy R. Urban, MAI and David O. Thibodeaux, MAI have completed the continuing education program of the Appraisal Institute.

11. Buddy R. Urban, MAI has and David O. Thibodeaux, MAI has not made a personal inspection of the property that is the subject of this report.

12. No one provided significant real property appraisal assistance to the persons signing this report. 13. Valuation & Advisory Services operates as an independent economic entity within CBRE, Inc.

Although employees of other CBRE, Inc. divisions may be contacted as a part of our routine market research investigations, absolute client confidentiality and privacy were maintained at all times with regard to this assignment without conflict of interest.

14. Neither Buddy R. Urban, MAI or David O. Thibodeaux, MAI have provided any services, as an appraiser or in any other capacity, regarding the property that is the subject of this report within the three-year period immediately preceding acceptance of this assignment.

Buddy R. Urban, MAI David O. Thibodeaux, MAI St. Cert.: TX-1320516-G St. Cert.: TX-1328392-G

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | SUBJECT PHOTOGRAPHS

ii

SUBJECT PHOTOGRAPHS

AERIAL VIEW

© 2012 CBRE, Inc.

CBRE



iii

TYPICAL VIEW OF THE SUBJECT

TYPICAL VIEW OF THE SUBJECT ENTRANCE

© 2012 CBRE, Inc.



iv

VIEW OF THE PARKING AREA

VIEW OF A TYPICAL BUILDING EXTERIOR

© 2012 CBRE, Inc.



v

VIEW OF A COMMON LAUNDRY FACILITY

VIEW OF THE FITNESS CENTER

© 2012 CBRE, Inc.



vi

VIEW OF A TYPICAL KITCHEN INTERIOR

VIEW OF A 1ST FLOOR LIVING ROOM INTERIOR

© 2012 CBRE, Inc.



vii

VIEW OF A 2ND FLOOR LIVING ROOM/DINING ROOM

VIEW OF A TYPICAL BATHROOM INTERIOR

© 2012 CBRE, Inc.



viii

ANOTHER BATHROOM INTERIOR

VIEW OF A BEDROOM INTERIOR

© 2012 CBRE, Inc.



ix

ANOTHER VIEW OF A BEDROOM INTERIOR

VIEW OF THE AVENUE U STREET FRONTAGE, LOOKING SOUTH

© 2012 CBRE, Inc.



x

VIEW OF THE 30TH STREET ELEVATION, LOOKING EAST

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | SUMMARY OF SALIENT FACTS

xi

SUMMARY OF SALIENT FACTS

Property Name

Location

Client Asset Number

Assessor’s Parcel Number

Highest and Best Use

As If Vacant

As Improved

Property Rights Appraised

Land Area 8.98 AC 391,299 SF

Improvements

Property Type Apartment

Number of Buildings

Number of Stories

Gross Building Area

Net Rentable Area

Number of Units 108

Average Unit Size 845 SF

Year Built 1993 Renovated: 0

Condition

Estimated Exposure/Marketing Time

Financial Indicators

Current Occupancy 82.4%

Stabilized Occupancy 91.0%

Stabilized Credit Loss 1.0%

Overall Capitalization Rate 7.75%

Discount Rate 10.00%

Terminal Capitalization Rate 8.25%

Pro Forma Operating Data Total Per Unit

Effective Gross Income $662,514 $6,134

Operating Expenses $422,779 $3,915

Expense Ratio 63.81%

Net Operating Income $239,735 $2,220

17

92,859 SF

91,280 SF

Encinito Apartments

Fee Simple Estate

Apartment

Hold for future development

A39

2805 Avenue U, Hondo, Medina County, Texas 78861

R50619

(Multi-family Garden)

6 Months

Average

1 & 2

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xii

VALUATION Total Per Unit

Market Value As Is On September 7, 2012Sales Comparison Approach $3,100,000 $28,704

Income Capitalization Approach $3,100,000 $28,704

Insurable Value (Replacement Cost) $4,550,000 $42,130

CONCLUDED MARKET VALUE

Appraisal Premise Interest Appraised Value

As Is Fee Simple Estate $3,100,000

Compiled by CBRE

Date of Value

September 7, 2012

STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS (SWOT)

Strengths and weaknesses are internal to the subject; opportunities & threats are external to the subject

Strengths

The subject’s price point is appropriate for the demographic profile in the immediate area

Weaknesses

The subject has only a laundry room, fitness center and playground for amenities, which is generally less than most properties

Opportunities

The increased demand and economic impact from the Eagle Ford Shale energy play has begun to influence the local economy with increased demand for housing

Threats

There is ample vacant land in the area for new development as warranted

EXTRAORDINARY ASSUMPTIONS

An extraordinary assumption is defined as “an assumption directly related to a specific assignment,

which, if found to be false, could alter the appraiser’s opinions or conclusions. Extraordinary

assumptions presume as fact otherwise uncertain information about physical, legal, or economic

characteristics of the subject property; or about conditions external to the property such as market

conditions or trends; or about the integrity of data used in an analysis.” 1

None noted

1 Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 73.

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xiii

HYPOTHETICAL CONDITIONS

A hypothetical condition is defined as “that which is contrary to what exists but is supposed for the

purpose of analysis. Hypothetical conditions assume conditions contrary to known facts about

physical, legal, or economic characteristics of the subject property; or about conditions external to the

property, such as market conditions or trends; or about the integrity of data used in an analysis.” 2

None noted

2 Dictionary of Real Estate Appraisal, 97.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | TABLE OF CONTENTS

xiv

TABLE OF CONTENTS

CERTIFICATION OF THE APPRAISAL ............................................................................................. i

SUBJECT PHOTOGRAPHS .......................................................................................................... ii

SUMMARY OF SALIENT FACTS ................................................................................................... xi

TABLE OF CONTENTS .............................................................................................................. xiv

INTRODUCTION ...................................................................................................................... 1

AREA ANALYSIS ......................................................................................................................... 5

NEIGHBORHOOD ANALYSIS .................................................................................................... 8

MARKET ANALYSIS .................................................................................................................. 12

SITE ANALYSIS ........................................................................................................................ 21

IMPROVEMENTS ANALYSIS ...................................................................................................... 24

HIGHEST AND BEST USE ......................................................................................................... 27

APPRAISAL METHODOLOGY ................................................................................................... 28

INSURABLE VALUE ................................................................................................................... 29

SALES COMPARISON APPROACH ............................................................................................ 31

INCOME CAPITALIZATION APPROACH .................................................................................... 36

RECONCILIATION OF VALUE .................................................................................................. 56

ASSUMPTIONS AND LIMITING CONDITIONS .......................................................................... 57

ADDENDA A Improved Sale Data Sheets B Rent Comparable Data Sheets C Operating Data D Précis METRO Report - Economy.com, Inc. E Client Contract Information F Qualifications

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | INTRODUCTION

1

INTRODUCTION

Property Identification:

Location:

Client Asset Number:

Assessor’s Parcel Number:Property History:

Current Owner:

Current Asking Price:

Previous Sale Date:

Previous Sale Price:

Other Sales - Past 3 Years:Appraisal Premise: Date of Value:

As Is September 7, 2012

As Stabilized September 7, 2012

Date of Inspection:

Date of Report:

Exposure/Mktg Time Information: Range Average

Comparable Sales Data: 3 - 6 Months 4.3 Months

PwC Apartment 0 - 18 Months 5.3 Months

Local Market Professionals: 3 - 9 Months 6.0 Months

Estimated Exposure/Marketing Time:

Fee Simple Estate

September 7, 2012

September 9, 2012

Encinito Apartments

2805 Avenue U,Hondo, Texas

R50619

A39

6 Months

Fee Simple Estate

None

Property Rights Appraised:

Hondo Encinito Apartments, LLC

$5,400,000

April 28, 2000

N/A

INTENDED USE OF REPORT

This appraisal is to be used for internal decision making purposes, and no other use is permitted.

INTENDED USER OF REPORT

This appraisal is to be used by Management Solutions Receivership, and no other user may rely on

our report unless as specifically indicated in the report.

Intended Users - the intended user is the person (or entity) who the appraiser intends will use the results of the appraisal. The client may provide the appraiser with information about other potential users of the appraisal, but the appraiser ultimately determines who the appropriate users are given the appraisal problem to be solved. Identifying the intended users is necessary so that the appraiser can report the opinions and conclusions developed in the appraisal in a manner that is clear and understandable to the intended

© 2012 CBRE, Inc.



2

users. Parties who receive or might receive a copy of the appraisal are not necessarily intended users. The appraiser’s responsibility is to the intended users identified in the report, not to all readers of the appraisal report. 3

The subject’s legal description is: 8.983 acres in the J. Wolfort Survey 184, Abstract 1029, Medina

County, Texas.

Title to the property appears to be vested in the name of Hondo Encinito Apartments, LLC who

acquired title to the property in April 2000 and recorded in the Medina County Deed Records. The

property is now under the control of Management Solutions Receivership.

To the best of our knowledge, there has been no ownership transfer of the property during the

previous three years. Based upon discussions with the client, the subject is not listed for sale at this

time.

PURPOSE OF THE APPRAISAL

The purpose of this appraisal is to estimate the market value of the subject property. The current

economic definition of market value agreed upon by agencies that regulate federal financial

institutions in the U.S. (and used herein) is as follows:

The most probable price which a property should bring in a competitive and open market under all

conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and

assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of

a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their own best

interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in U.S. dollars or in terms of financial arrangements

comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or

creative financing or sales concessions granted by anyone associated with the sale. 4

TERMS AND DEFINITIONS

The Glossary of Terms in the Addenda provides definitions for additional terms that are, and may be

used in this appraisal.

3 Appraisal Institute, The Appraisal of Real Estate, 13th ed. (Chicago: Appraisal Institute, 2008), 132.

4 Office of Comptroller of the Currency (OCC), 12 CFR Part 34, Subpart C – Appraisals, 34.42 (g); Office of Thrift

Supervision (OTS), 12 CFR 564.2 (g); Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 122-123. This is also compatible with the RTC, FDIC, FRS and NCUA definitions of market value as well as the updated Interagency Appraisal and Evaluation Guidelines promulgated in 2010.

© 2012 CBRE, Inc.



3

SCOPE OF WORK

The scope of the assignment relates to the extent and manner in which research is conducted, data is

gathered and analysis is applied, all based upon the following problem-identifying factors stated

elsewhere in this report:

Client Intended use Intended user Type of opinion Effective date of opinion Relevant characteristics about the subject Assignment conditions

This appraisal of the subject has been presented in the form of a Summary Report, which is intended

to comply with the reporting requirements set forth under Standards Rule 2-2(b) of the USPAP. That is,

this report incorporates a summary of all information significant to the solution of the appraisal

problem. It also includes summary descriptions of the subject and the market for the subject type.

CBRE, Inc. completed the following steps for this assignment:

Data Resources Utilized in the Analysis

RESOURCE VERIFICATION

Site Data Source(s)/Verification:Size Medina County Appraisal District records

Compiled by CBRE


Improved Data Source(s)/Verification:Gross Size/Units Appraisal district & floor plansNet Size/Units Floor plansNo. Bldgs. Property managementParking Spaces Property managementYOC Appraisal district & property management

Compiled by CBRE


Economic Data Source(s)/Verification:Deferred Maintenance: N/ABuilding Costs: Marshall Valuation ServiceIncome Data: Rent roll, operating statements, property management & rent

comparablesExpense Data: Operating statements, property management & expense comparables

Compiled by CBRE

Extent to Which the Property is Identified

CBRE, Inc. collected the relevant information about the subject from the owner (or representatives),

public records and through an inspection of the subject property. The property was legally identified

through the following sources:

© 2012 CBRE, Inc.



4

postal address assessor’s records, and legal description

Extent to Which the Property is Inspected

CBRE, Inc. inspected the interior and exterior of the subject, as well as its surrounding environs on the

effective date of appraisal. This included the following:

subject apartment unit no’s. 1507, 408, 503 and 504 the subject’s common amenities including the fitness center, laundry rooms, playground area and

parking areas

According to Bridget, the manager, this inspection sample was considered an adequate

representation of the subject property and is the basis for our findings.

Type and Extent of the Data Researched

CBRE, Inc. reviewed the micro and/or macro market environments with respect to physical and

economic factors relevant to the valuation process. This process included interviews with regional

and/or local market participants, available published data, and other various resources. CBRE, Inc.

also conducted regional and/or local research with respect to the following:

applicable tax data zoning requirements flood zone status demographics income and expense data, and comparable data

Type and Extent of Analysis Applied

CBRE, Inc. analyzed the data gathered through the use of appropriate and accepted appraisal

methodology to arrive at a probable value indication via each applicable approach to value. The

steps required to complete each approach are discussed in the methodology section.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | AREA ANALYSIS

5

AREA ANALYSIS

The subject is located in the City of Hondo which is a tertiary market. The City of Hondo is located

approximately 40 miles west of the San Antonio CBD.

Moody’s Economy.com provides the following San Antonio, TX metro area economic summary as of

July 2012. The full Moody’s Economy.com report is presented in the Addenda.

SAN ANTONIO, TX - ECONOMIC ANALYSISIndicators 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gross Metro Product (C$B) 67.5 70.8 74.3 76.2 74.1 77.5 81.0 83.9 87.0 90.8 94.7 98.8

% Change 3.7 5.0 4.9 2.5 -2.7 4.5 4.6 3.5 3.8 4.3 4.3 4.3

Total Employment (000) 781.9 811.5 834.3 852.5 836.7 843.3 852.7 866.9 889.4 920.5 956.1 990.0

% Change 2.9 3.8 2.8 2.2 -1.9 0.8 1.1 1.7 2.6 3.5 3.9 3.5

Unemployment Rate 5.0 4.6 4.1 4.7 6.6 7.4 7.4 6.7 6.7 6.7 6.6 6.0

Personal Income Growth 8.6 8.5 8.2 5.4 -1.8 5.6 5.7 3.3 4.1 5.8 7.3 7.5

Population (000) 1,896.3 1,956.4 2,011.5 2,061.3 2,105.7 2,153.9 2,194.9 2,241.5 2,287.2 2,333.1 2,380.1 2,427.0

Single-Family Permits 14,706.0 13,841.0 9,350.0 6,010.0 5,486.0 5,144.0 4,410.0 6,190.0 8,144.8 11,955.7 14,607.4 14,215.9

Multifamily Permits 7,599.0 5,920.0 3,945.0 4,564.0 438.0 1,721.0 2,717.0 2,457.6 2,394.1 2,389.3 2,311.9 2,142.8

Existing-Home Price ($Ths) 133.3 141.3 152.9 151.4 148.7 150.7 152.0 158.3 157.9 162.0 168.5 173.3

Mortgage Originations ($Mil) 8,441.9 9,239.5 9,342.7 6,852.1 8,624.4 6,954.6 5,171.3 6,174.9 4,074.0 3,983.4 4,614.4 5,105.2

Net Migration (000) 23.5 43.5 36.4 30.3 24.9 29.5 23.4 28.7 27.5 27.5 28.3 28.1

Personal Bankruptcies 8,143.0 2,567.0 3,211.0 3,653.0 4,585.0 4,557.0 4,070.0 4,135.4 4,270.7 4,431.0 4,300.4 4,367.6

Source: Moody's Economy.com

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6

RECENT PERFORMANCE

Employment growth in San Antonio has decelerated in 2012, and year over year, the pace has

roughly matched the national average, slower than other major Texas metro areas. However, the level

is already above its prerecession peak because of the relative mildness of the 2008-2009 recession,

which coincided with strong Base Realignment and Closure-related gains. Construction and

manufacturing are leading the way, and the deep drag from declines in local government appears to

have ended. The unemployment rate has declined by a full percentage point over the past year to

6.7%, and more job seekers are re-entering the labor force.

CONSTRUCTION AND DISTRIBUTION

Construction employment bottomed out in early 2011, has grown at a 5% pace over the past year,

and will get additional support from Port San Antonio's decision to build additional rail lines. The

expansion will begin later in 2012 and result in about three miles of new rail lines at the East Kelly

Railport, approximately double the existing capacity. The aim is to attract more transportation

companies serving the Eagle Ford shale. At present, three distribution companies use the port's rail,

and others such as Cornell Carriers, which ships sand for use in drilling, plan to increase their

payrolls.

The construction industry is also benefiting from the recovery in new permits for multifamily

construction back to a pace just below the pre-boom average. More residential building will occur in

2013 as single-family construction begins to rebound.

COMMERCIAL AEROSPACE

The commercial aerospace industry will grow further as Boeing moves more maintenance and

modification work from Wichita KS to a site on the former Kelly Air Force Base. Professional and

technical services will benefit as the facility performs painting, inspections, drop-in maintenance,

logistics support, and corrosion control. The move will generate approximately 400 jobs locally,

adding to the 2,700 the company already employs in the region. The first airplane is expected to

arrive toward the end of 2012. San Antonio won the business in part because of its relatively lower

costs of doing business, particularly for the space, which costs 70% less because it is leased instead of

owned. Another advantage is that San Antonio has the physical space to handle four to seven times as

many planes as Wichita. According to Boeing, its local facility houses the largest freestanding high-

bay hangar in the world. Additionally, the historically large concentration of Air Force bases in San

Antonio has resulted in a large contingent of workers with relevant skills. Last year, similar work on

Boeing's 787 Dreamliner was transferred to San Antonio, also generating about 400 jobs.

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7

DEMOGRAPHICS

Significantly above-average population growth will continue to support consumer-oriented industries,

although the gains will begin to decelerate over the next several years. The BRAC, during which

soldiers and their families came to the area, has concluded. Similarly, the related inflow of healthcare

professionals will also slow as the metro area's capacity as a military medical hub is reached.

However, the area's central location as a distribution hub between Mexico and points east in Texas,

and its relatively low costs of living and doing business will ensure that San Antonio will remain a draw

for in-migrants.

EMPLOYMENT

The top employers in the San Antonio area are as follows:

CONCLUSION

The San Antonio economy will continue to advance in the near term, supported by expansion of the

Eagle Ford shale energy industry and gradual gains in the national economy. The drag from local

government cutbacks will dissipate. Additionally, the concentration of military cybersecurity and

medical activity, growth in commercial aerospace, and above-average population gains will

contribute to San Antonio's above-average performance.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | NEIGHBORHOOD ANALYSIS

8

NEIGHBORHOOD ANALYSIS

LOCATION

The subject is in the city of Hondo and is considered a rural location. The city of Hondo is situated in

central Medina County and is the county seat of Medina County. The city of Hondo is located

approximately 40 miles west of the San Antonio CBD.

BOUNDARIES

The neighborhood boundaries are detailed as follows:

North: Hondo City Limits and surrounding rural areas South: Hondo City Limits and surrounding rural areas East: Hondo City Limits and surrounding rural areas West: Hondo City Limits and surrounding rural areas

LAND USE

Land uses within the subject neighborhood consist of a mixture of commercial, light industrial, rural

residential and undeveloped land. For the most part the neighborhood appears to be in a stabilized

stage, as most of the older commercial properties in the area are occupied and new development

© 2012 CBRE, Inc.



9

appears to be limited. The majority of the single-family residential development within a five mile

radius of the subject may be described as rural residential with homes in the $40,000-$150,000

value range. According to information obtained from Claritas, approximately 59% of the homes built

within a five-mile radius of the subject were constructed since 1980. The average home value within

a five-mile radius is about $92,840.

GROWTH PATTERNS

Growth patterns have occurred along primary commercial thoroughfares such as US Highway 90

(locally known as 19th Street). Walmart vacated an older store in eastern Hondo and constructed a

new store directly behind the old facility. Several restaurants and retail facilities are located along

Highway 90. Approximately two miles west of Hondo is the Ney State Jail, which employs

approximately 136 employees. According to some of the apartment managers interviewed, the area

is starting to see some impact from the Eagle Ford Shale energy play. This formation is south of

Hondo, but in proximity as shown in the following map of the permitted wells.

© 2012 CBRE, Inc.



10

The closet County with drilling activity is Frio County, approximately 17 miles south of the subject.

With housing n such short demand further south into the Eagle Ford, workers are beginning to

migrate north to areas where housing is available, albeit, not to the extent seen within the heart of the

play.

ACCESS

Primary access to the subject neighborhood is provided by US Highway 90 and State Highway 173.

Highway 90, is primarily a four-lane, variable width right-of-way, traversing the neighborhood in an

east-west direction. This arterial connects the subject neighborhood with the City of San Antonio to

the east, and the City of Del Rio to the west. State Highway 173 provides north-south access to the

area. This arterial, known as the Texas Hill Country Trail, crosses with Highway 90 in eastern Hondo

and connects the subject neighborhood with Kerrville to the north and Highway 16 just outside of

Pleasanton.

DEMOGRAPHICS

Selected neighborhood demographics in 1-, 3-, and 5-mile radii from the subject are shown in the

following table:

SELECTED NEIGHBORHOOD DEMOGRAPHICS

2805 Avenue UHondo, TX

Population

2017 Population 4,343 9,732 10,475

2012 Population 4,217 9,268 9,950

2000 Population 3,953 8,033 8,571

1990 Population 3,680 6,141 6,494

Annual Growth 2012 - 2017 0.59% 0.98% 1.03%

Annual Growth 2000 - 2012 0.54% 1.20% 1.25%

Annual Growth 1990 - 2000 0.72% 2.72% 2.81%

Households

2017 Households 1,558 2,690 2,961

2012 Households 1,500 2,556 2,803

2000 Households 1,384 2,283 2,474

1990 Households 1,276 2,011 2,148

Annual Growth 2012 - 2017 0.76% 1.03% 1.10%

Annual Growth 2000 - 2012 0.67% 0.95% 1.05%

Annual Growth 1990 - 2000 0.82% 1.28% 1.42%

Income

2012 Median HH Inc $31,973 $34,926 $35,983

2012 Estimated Average Household Income $41,507 $45,817 $47,256

2012 Estimated Per Capita Income $15,035 $15,826 $16,270

Age 25+ College Graduates - 2010 457 921 1,013

Age 25+ Percent College Graduates - 2012 17.1% 15.3% 15.6%

Source: Nielsen/Claritas

1 Mile Radius

3 Mile Radius

5 Mile Radius

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11

CONCLUSION

The subject neighborhood can best be described as rural, but in proximity to support services and

employment in nearby San Antonio. As shown above, the population and households within the

subject neighborhood has shown minimal changes over the past twelve years. The neighborhood

currently has a below average income demographic profile which is standard in rural areas. The

outlook for the neighborhood is for stable slow growth as San Antonio extends further west with

employment opportunities. As a result, the demand for existing developments is expected to be

average.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | MARKET ANALYSIS

12

MARKET ANALYSIS

The market analysis forms a basis for assessing market area boundaries, supply and demand factors,

and indications of financial feasibility. There is no survey or data source compiling information

regarding apartments in Hondo. The primary data source utilized for this analysis is our survey of

competing properties.

The subject is a 108-unit garden-style apartment property, considered to be a Class B apartment

community. According to the Institute of Real Estate Management (via Income/Expense Analysis:

Conventional Apartments 2003), the following apartment property definitions may be applicable

towards the subject:

Garden Type Projects: We consider this to be a group of low-rise apartment buildings situated on a sizable landscaped plot, under one management.

DEMOGRAPHIC ANALYSIS

Demand for additional residential property is a direct function of population change. Multi-family

communities are products of a clearly definable demand relating directly to population shifts.

Housing, Population and Household Formation

The following table illustrates the population and household changes for the subject neighborhood.

POPULATION AND HOUSEHOLD PROJECTIONS

Population

2017 Population 4,343 9,732 10,475

2012 Population 4,217 9,268 9,950

2000 Population 3,953 8,033 8,571

1990 Population 3,680 6,141 6,494

Annual Growth 2012 - 2017 0.59% 0.98% 1.03%

Annual Growth 2000 - 2012 0.54% 1.20% 1.25%

Annual Growth 1990 - 2000 0.72% 2.72% 2.81%

Households

2017 Households 1,558 2,690 2,961

2012 Households 1,500 2,556 2,803

2000 Households 1,384 2,283 2,474

1990 Households 1,276 2,011 2,148

Annual Growth 2012 - 2017 0.76% 1.03% 1.10%

Annual Growth 2000 - 2012 0.67% 0.95% 1.05%

Annual Growth 1990 - 2000 0.82% 1.28% 1.42%


1 Mile Radius

3 Mile Radius

5 Mile Radius

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13

As shown, the subject’s neighborhood is experiencing very little change in both population and

households.

Income Distributions

Household income available for expenditure on housing and other consumer items is a primary factor

in determining the price/rent level of housing demand in a market area. In the case of this study,

projections of household income, particularly for renters, identifies in gross terms the market from

which the subject submarket draws. The following table illustrates estimated household income

distribution for the subject neighborhood.

HOUSEHOLD INCOME DISTRIBUTION

Households by Income Distribution - 2012

Less than $15K 17.47% 16.86% 16.73%$15K - $25K 20.53% 18.23% 17.48%$25K - $35K 16.67% 15.02% 14.48%$35K - $50K 18.47% 17.92% 17.84%$50K - $75K 14.27% 16.78% 17.52%$75K - $100K 7.40% 7.94% 8.06%$100K - $150K 4.40% 5.48% 5.85%$150K - $250K 0.13% 0.90% 0.96%$250K - $500K 0.53% 0.70% 0.82%$500K or more 0.13% 0.20% 0.25%


1 Mile Radius

3 Mile Radius

5 Mile Radius

The following table illustrates the median and average household income levels for the subject

neighborhood.

HOUSEHOLD INCOME LEVELS

Income

2012 Median HH Inc $31,973 $34,926 $35,983

2012 Estimated Average Household Income $41,507 $45,817 $47,256

2012 Estimated Per Capita Income $15,035 $15,826 $16,270


1 Mile Radius

3 Mile Radius

5 Mile Radius

An analysis of the income data indicates that the submarket is generally comprised of lower-income

economic cohort groups, which include the target groups to which the subject is oriented.

Employment

An employment breakdown typically indicates the working class characteristics for a given market

area. The specific employment population within the indicated radii of the subject is as follows:

© 2012 CBRE, Inc.



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EMPLOYMENT BY INDUSTRY

Occupation

Agr/Frst/Fish/Hunt/Mine 6.66% 6.73% 6.62%Construction 6.72% 8.06% 8.17%Total Manufacturing 10.70% 8.84% 8.86%Wholesale Trade 4.73% 4.55% 4.47%Retail Trade 10.14% 9.66% 9.49%Transport/Warehse/Utils 11.33% 8.97% 8.77%Information 0.12% 0.20% 0.24%Fin/Insur/RE/Rent/Lse 5.97% 6.24% 6.50%Prof/Sci/Tech/Admin 2.24% 2.99% 3.28%Mgmt of Companies 0.00% 0.00% 0.00%Admin/Spprt/Waste Mgmt 0.93% 0.98% 1.07%Educational Svcs 10.39% 10.08% 10.11%Health Care/Soc Asst 14.25% 16.71% 16.32%Entertainment & Rec Services 0.93% 1.46% 1.64%Accommdtn/Food Svcs 2.86% 2.70% 2.66%Oth Svcs, Not Pub Admin 5.72% 5.49% 5.40%Public Administration 6.29% 6.34% 6.38%


1 Mile Radius

3 Mile Radius

5 Mile Radius

The previous table illustrates the employment character of the submarket, indicating a predominantly

middle-income employment profile, with the majority of the population holding health care,

transportation/warehousing, manufacturing and educational related services. It should be noted,

none of the demographics take into consideration the slight population growth associated with the oil

and gas play – Eagle Ford Shale. According to managers interviewed, population has begun to

increase in the area due to this energy play. Although Medina County is just north of the Eagle Ford

Shale formation, Hondo is located on the major east/west highway (US Highway 90) connecting the

fields to the south with San Antonio to the east and West Texas. The managers indicated they are

seeing and increase for housing and support services.

Outlook

Based on this analysis, the immediate area surrounding the subject property is projected to experience

modest growth relative to households and population, even considering the Eagle Ford Shale energy

play. Given the area demographics, it appears that demand for both comparable surrounding area

multi-family properties and the subject will be good.

MARKET OVERVIEW

The following discussion illustrates some general observations in the surrounding apartment market.

© 2012 CBRE, Inc.



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Market Summary

Market statistics for the Hondo area and the subject submarket are shown in the following table:

OCCUPANCY CONCLUSIONS

Hondo Area 94.0%

Rent Comparables 94.1%

Subject's Current Occupancy 82.4%

Subject's Stabilized Occupancy 91.0%

Lease-up Period 0 Months

Compiled by CBRE

The subject property has the lowest occupancy rate for any apartment community in Hondo. Recently,

15 corporate leased units were vacated, leaving the occupancy level lower than normal. The

manager indicated occupancy is typically around 90% to 92% and she expects to be back to that level

in less than three months. Based on the number of applications that have been submitted and

awaiting approval, occupancy should reach stabilized levels in the timeframe the manager projects, if

not sooner.

Barriers to Entry

There are generally few barriers to entry in this market. Although zoning can be a deterrent, there is

available land for development. Another barrier to development can be an owner’s ability to achieve

suitable rental rates that would warrant speculative development. Rental rates are not at levels that

would provide sufficient incentive to developers, even with the slight impact from the Eagle Ford Shale

oil and gas activity.

Most multi-family development activity in the Hondo area has been scarce, with no new projects

developed in the past 5 years. Tuscany Court is a 76-unit townhouse style apartment property that

has direct access garages for each unit. This project is 94% occupied, which according to the

manager, is typical. The units are relatively large, with an average size at 1,192 square feet;

however, the overall rent is $0.64 per square foot, which would not provide sufficient profit to a

developer today.

Demand Generators

As stated, the Eagle Ford Shale energy related businesses have positively impacted population and

housing. Throughout the formation and larger communities in proximity, housing has become a

serious issue as the current supply is not sufficient to support the number of workers entering the area.

Many small RV parks have popped up in front yards with access to major highways. “Man camps”

where rooms are rented by the month have also seen increased development. Hotels and apartments

in proximity are booked to capacity. The question is – how long will it last? There are various ideas

© 2012 CBRE, Inc.



16

on this topic, but the consensus is that once the drilling operations slow down, the remaining

personnel needed for daily operations will be significantly lower and conditions will revert back to pre-

Eagle Ford days.

Other notable demand generators in the area include the Ney State Jail, just two-miles west of

Hondo. This facility was established in 1995 and has 136 total employees. Agriculture, ranching and

hunting are other major economic activities in the area.

Other demand generators include those in the San Antonio area, where the San Antonio CBD is

about 40 miles to the east of Hondo.

COMPETITIVE PROPERTIES

Comparable properties have been surveyed in order to identify the occupancy trends within the

immediate submarket. The comparable data is summarized in the following table:

SUMMARY OF COMPARABLE APARTMENT RENTALS

Comp. No. Name Location Occupancy

1 Brian Place 231 19th street,Hondo, TX

98%

2 Country Villas 211 Meadows Drive,Castroville, TX

93%

3 Landmark 2001 Boerne Avenue,Hondo, TX

100%

4 Tuscany Court 2208 14th Street,Hondo, TX

94%

Subject Encinito Apartments 2805 Avenue U,Hondo, Texas

82%

Compiled by CBRE

The comparable properties surveyed reported occupancy rates of 93% to 100%, with an overall

average of 94.1%.

SUBJECT TRENDS AND PROJECTIONS

Occupancy

Occupancy rate is the relationship between the actual income received from a property and the

income that would be received if the entire space were occupied. Consequently, the occupancy rate

is a product of both (1) the relationship between the amount of occupied space in a building or

© 2012 CBRE, Inc.



17

market (physical) and (2) the relationship between the contract rent for the occupied building or

market space and the total rent estimated for all space in the building or market (economic).

Subject’s Historical Trends

The developer’s pro forma information and our projections are detailed in the following chart.

OCCUPANCY

Year % PGI

2011 89%

2012 Annualized 91%

2012 Budget 91%

CBRE Estimate 91%

Compiled by CBRE

Our pro forma estimate of stabilized occupancy for the subject is above the current levels at the

subject, but in line with the market. We have considered a stabilized occupancy level taking into

consideration the entire holding period, which is typically 5 to 7 years, extending to 10 in many cases.

Additionally, the subject was recently impacted when the large corporate contingent vacated 15 units,

all at one time.

Conclusion

Based on the foregoing analysis, CBRE’s conclusion of stabilized occupancy for the subject is

illustrated in the following table. This estimate considers both the physical and economic factors of

the market.

OCCUPANCY CONCLUSIONS

Hondo Area 94.0%

Rent Comparables 94.1%

Subject's Current Occupancy 82.4%

Subject's Stabilized Occupancy 91.0%

Compiled by CBRE

Our concluded stabilized occupancy reflects an average, or near average level considering the

comparable properties for each data set. These estimates appear reasonably justified for the

following reasons:

Strengths The subject represents a mid range multi-family project in the market, with an average

overall appeal; The most directly competing properties are generally reporting higher occupancies;

© 2012 CBRE, Inc.



18

The subject is located just south of a primary thoroughfare (US Highway 90), and it offers good access to major highways, employment, medical facilities, shopping and recreational amenities in nearby San Antonio

Weaknesses Although no new construction is forecast for the Hondo market there is land available in

the area that would support multi-family development increasing the risk of competition; Concerns about the ending of the Eagle Ford Shale energy play are paramount and most

managers interviewed indicated they expected a decrease in associated impact once the drilling portion of the play ends.

Absorption

The subject is 82.4% occupied, nine units below the stabilized occupancy rate of 91%. While on site,

the manager presented a stack of current application, all of which were awaiting credit approval and

qualification. Additionally, the current occupancy reflects the 15 corporate units vacating all at one

time. Based on the number of actual in place applicants, the lease-up period to stabilized occupancy

is expected to be less than three months. The loss associated with the lease-up period is minimal and

would not impact the potential sale price of the property. As such, a discount for lease-up is not

warranted.

CONCLUSION

The area apartment market is exhibiting stable occupancy levels and rents. The addition of new

product to the market is not likely, but if developed would create downward pressure on occupancy

and on owners’ ability to maintain effective rental rates. However, the long-term projection for the

subject submarket is for no new construction.

With respect to the subject in particular, we believe it is well located for an apartment project,

especially at its price point. The neighborhood is accessible to highway corridors, medical facilities,

and recreational amenities, and it is expected to continue to experience steady demand. The

neighborhood is generally comprised of lower-income economic cohort groups, which is the targeted

market for the subject. Most properties surveyed reported occupancy above 93%. Based on these

indicators, properties most similar to the subject are expected to perform similar to the historical

levels.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | SITE ANALYSIS

19

PLAT MAP

© 2012 CBRE, Inc.

•••

~ . ,. '" - '" = Ill .. " . [Il

" . ~- ~ ~ ..

,

EI

30TH STREET

CBRE



20

FLOOD PLAIN MAP

© 2012 CBRE, Inc.

Prepared for: CBRE, lnc _

2805 Ave nue U www. lntertlood .com · 1-800-151-6633 Hondo, TX 78861-3044

CBRE



21

SITE ANALYSIS

The following chart summarizes the salient characteristics of the subject site.

SITE SUMMARY AND ANALYSIS

Physical DescriptionGross Site Area 8.98 Acres 391,299 Sq. Ft.

Net Site Area 8.98 Acres 391,299 Sq. Ft.

Primary Road Frontage Avenue U

Secondary Road Frontage 30th Street

Excess Land Area None

Surplus Land Area None

Shape

Topography

Zoning District

Flood Map Panel No. & Date 48325C0460C 30-Apr-12

Flood Zone Zone AE

Adjacent Land Uses

Earthquake Zone

Comparative AnalysisAccess

Visibility

Functional Utility

Traffic Volume

Adequacy of Utilities

Landscaping

Drainage

Utilities AdequacyWater Yes

Sewer Yes

Natural Gas N/A

Electricity Yes

Telephone Yes

Mass Transit N/A

Other Yes No UnknownDetrimental Easements X

Encroachments X

Deed Restrictions X

Reciprocal Parking Rights X

Common Ingress/Egress X

Source: Various sources compiled by CBRE

Assumed adequate

Average

ProviderCity of Hondo

Assumed adequate

N/A

City of Hondo

N/A

City of Hondo

AT & T and others

Rating

Average

Assumed adequate

Average

Irregular

Level

MF, Multifamily District

N/A

Public park, vacant land, rural residential and educational uses

Average

© 2012 CBRE, Inc.



22

CONCLUSION

The site has an average location in terms of access to surrounding employment, retail and support

facilities. The size of the site is typical for the area and use, and there are no known detrimental uses

in the immediate vicinity. Overall, there are no known factors which are considered to prevent the site

from development to its highest and best use, as if vacant.

© 2012 CBRE, Inc.

CBRE


ENCINITO APARTMENTS | IMPROVEMENT ANALYSIS

23

IMPROVEMENTS LAYOUT

© 2012 CBRE, Inc.

KITCHEN

.. [;D

DINING 9'2" X S'S"

LIVING 17'10' X 12'10"

STOR

@i

2 Bedroom 11 Bath 798 Sq. Fe

H ::1 c=i DINING

S' O" XS' S" KITCHEN :JI

IUlI"~ P f- ~'a1.:!!..

LIVING _C":!

BEDROOM 1 10'2" X II'S"

....

SEDRooM 2 11'0' X 9'4"

E=:l J MASTER

BEDROOM

0 11 ' 0' X1I'S"

13' 2" X 15'0" .. BEDROOM 3 ~ BEDROOM 2 1, 'O' X9'4" F 'T

8 1. ~

~ 10'4"X9' 4"

PORCH

I

:> Bedroom 12 Bath 980 Sq. Ft.

,

CBRE



24

IMPROVEMENTS ANALYSIS

The following chart shows a summary of the improvements.

IMPROVEMENTS SUMMARY AND ANALYSIS

Apartment

1993 Renovated: 0


Total Spaces:

1.79Parking Ratio (spaces/unit)

Development Density

193

Parking Improvements Open

12 Units/Acre

17

92,859 SF

91,280 SF

1 & 2

Number of Units

Average Unit Size

Number of Buildings

Number of Stories

Gross Building Area

Year Built

845 SF

108

(Multi-family Garden)Property Type

Net Rentable Area

UNIT MIX

Unit Mix/Type Comments No. UnitsPercent of

TotalUnit Size

(SF) NRA (SF)

2BR/1BA 80 74.1% 798 63,840

3BR/2BA 28 25.9% 980 27,440

Total/Average: 108 100.0% 845 91,280


BUILDING AREA

Please refer to the Resource Verification table in the Scope of Work for the source of the building area

size.

CONDITION ANALYSIS

Our inspection of the property indicated no major items of deferred maintenance. According to the

manager, the roofs were replaced about three years ago following a hail storm which damages the

composition shingles on all buildings.

ZONING

The following chart summarizes the subject’s zoning requirements.

© 2012 CBRE, Inc.



25

ZONING SUMMARYCurrent Zoning MF, Multifamily District

Legally Conforming Yes

Uses Permitted Residential, including apartments

Zoning Change Not likely

Category Zoning Requirement

Minimum Lot Size 2 Acres

Maximum Height 35 Feet

Minimum Setbacks

Front Yard 25 Feet

Street Side Yard 15 Feet

Interior Side Yard 20 Feet if adjoining residential

Rear Yard 20 Feet

Maximum Bldg. Coverage 50%

Maximum FAR/Density 18 Units/Acre

Subject's Actual Density 12 Units/Acre

Source: Planning & Zoning Dept.

TAX ASSESSMENT DATA

The following summarizes the local assessor’s estimate of the subject’s market value, assessed value,

and taxes, and does not include any furniture, fixtures or equipment.

AD VALOREM TAX INFORMATION

Assessor's Market Value 2011 2012 Pro Forma

R50619 $1,200,000 $1,200,000

Subtotal $1,200,000 $1,200,000 $1,500,000

Assessed Value @ 100% 100% 100%

$1,200,000 $1,200,000 $1,500,000

General Tax Rate (per $100 A.V.) 2.267400 2.267400 2.267400

Total Taxes $27,209 $27,209 $34,011

Source: Assessor's Office

Under the Texas Property Tax Code, assessed value is supposed to represent 100% of market value

via the use of all three approaches to value. However, this rarely happens. First, Texas is a non-

disclosure state, and the sales price is not on any public document and does not have to be divulged.

In addition, the owners of the subject property have the ability to protest the subject’s valuation in any

given tax year regardless of whether or not there is an increase.

The local Assessor's methodology for valuation is fee simple market value. Re-assessments are

completed on an annual basis. Notifications of assessed value as of January 1st are mailed in March

© 2012 CBRE, Inc.



26

and April and the Appraisal District has to be notified of a value protest by June 1. Tax rates, set by

the individual taxing authorities, are not determined until November of that year.

TAX COMPARABLES

As a crosscheck to the subject’s applicable real estate taxes, CBRE, Inc. has reviewed the real estate

tax information according to Medina County for comparable properties in the market area. The

following table summarizes the comparables employed for this analysis:

AD VALOREM TAX COMPARABLES

Comparable Rental231 19th

street2001 Boerne

Avenue2208 14th

StreetSubject

Subject Prop Forma

Year Built 2001 1978 2004 1993 1993No. Units 40 48 76 108 108Tax Year 2012 2012 2012 2012 2012

Total Assessed Value $545,100 $715,250 $1,300,000 $1,200,000 $1,500,000AV Per Unit $13,628 $14,901 $17,105 $11,111 $13,889

Source: Assessor's Office

The above tax comparables are representative of competing apartment properties in the area. The

comparables were constructed between 1978 and 2004, and report assessments ranging from

$13,628 to $17,105 per unit. The subject is currently assessed at $11,111 per unit, which is below

the range reported by comparable properties on a per unit basis. The current assessed value is

considered slightly too low based on the tax comparable analysis.

Based on the foregoing, the total taxes for the subject have been estimated as $34,011 for the base

year of our analysis, based upon an assessed value of $1,500,000, or $13,889 per unit.

CONCLUSION

The improvements are considered to be in average overall condition and are considered to be typical

for the age and location in regard to improvement design and layout, as well as interior and exterior

amenities. Overall, there are no known factors that could be considered to adversely impact the

marketability of the improvements.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | HIGHEST AND BEST USE

27

HIGHEST AND BEST USE

In appraisal practice, the concept of highest and best use represents the premise upon which value is

based. The four criteria the highest and best use must meet are:

legally permissible; physically possible; financially feasible; and maximally productive.

The highest and best use analysis of the subject is discussed on the following pages.

AS VACANT

The property is zoned for apartment use and is of sufficient size to accommodate various types of

development. The immediate area includes various land uses, mostly rural in nature. Considering the

surrounding land uses, location attributes, legal restrictions and other factors, it is our opinion that the

subject site as vacant should be held for future development as economic conditions warrant.

AS IMPROVED

As improved, the subject involves an apartment-oriented facility. The current use is legally permissible

and physically possible. The improvements continue to contribute value to the property and based on

our analysis, the existing use is financially feasible. Therefore, it is our opinion that the highest and

best use of the subject, as improved, is for continued apartment related use.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | APPRAISAL METHODOLOGY

28

APPRAISAL METHODOLOGY

In appraisal practice, an approach to value is included or omitted based on its applicability to the

property type being valued and the quality and quantity of information available.

COST APPROACH

The cost approach is based on the proposition that the informed purchaser would pay no more for the

subject than the cost to produce a substitute property with equivalent utility. This approach is

particularly applicable when the property being appraised involves relatively new improvements that

represent the highest and best use of the land, or when it is improved with relatively unique or

specialized improvements for which there exist few sales or leases of comparable properties.

SALES COMPARISON APPROACH

The sales comparison approach utilizes sales of comparable properties, adjusted for differences, to

indicate a value for the subject. Valuation is typically accomplished using physical units of comparison

such as price per square foot, price per unit, price per floor, etc., or economic units of comparison

such as gross rent multiplier. Adjustments are applied to the physical units of comparison derived

from the comparable sale. The unit of comparison chosen for the subject is then used to yield a total

value. Economic units of comparison are not adjusted, but rather analyzed as to relevant differences,

with the final estimate derived based on the general comparisons.

INCOME CAPITALIZATION APPROACH

The income capitalization approach reflects the subject’s income-producing capabilities. This

approach is based on the assumption that value is created by the expectation of benefits to be derived

in the future. Specifically estimated is the amount an investor would be willing to pay to receive an

income stream plus reversion value from a property over a period of time. The two common

valuation techniques associated with the income capitalization approach are direct capitalization and

the discounted cash flow (DCF) analysis.

METHODOLOGY APPLICABLE TO THE SUBJECT

In valuing the subject, only the sales comparison and income capitalization approaches are

applicable and have been used. Considering the age of the improvements, the amount of accrued

depreciation and the fact that the Cost Approach is not typically considered by investors of the

particular vintage and class of the subject property, the cost approach is not applicable.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | INSURABLE VALUE (REPLACEMENT COST)

29

INSURABLE VALUE

Insurable value is defined as follows:

1. the value of an asset or asset group that is covered by an insurance policy; can be estimated by deducting costs of noninsurable items (e.g., land value) from market value.

2. value used by insurance companies as the basis for insurance. Often considered to be replacement or reproduction cost plus allowances for debris removal or demolition less deterioration and noninsurable items. Sometimes cash value or market value, but often entirely a cost concept. 5

3. a type of value for insurance purposes. 6

CBRE, Inc. has followed traditional appraisal standards to develop a reasonable calculation based

upon industry practices and industry-accepted publications such as the Marshall Valuation Service.

The methodology employed is a derivation of the cost approach and is not reliable for insurable value

estimates. Actual construction costs and related estimates can vary greatly from this estimate.

The insurable value estimate presented herein is intended to reflect the value of the destructible

portions of the subject, based on the replacement of physical items that are subject to loss from

hazards (excluding indestructible items such as basement excavation, foundation, site work, land value

and indirect costs). In the case of the subject, this estimate is based upon the base building costs

(direct costs) as obtained via the Marshall Valuation Service handbook, with appropriate deductions.

This analysis should not be relied upon to determine proper insurance coverage as only consultants

considered experts in cost estimation and insurance underwriting are qualified to provide an insurable

value. It is provided to aid the client/reader/user as part of their overall decision making process and

no representations or warranties are made by CBRE, Inc. regarding the accuracy of this estimate and

it is strongly recommended that other sources be utilized to develop any estimate of insurable value.

5 Marshall & Swift/Boeckh, LLC, Marshall Valuation Service, (Los Angeles: Marshall & Swift/Boeckh, LLC, 2010), Sec 3, p 2.

6 Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), 102.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | INSURABLE VALUE (REPLACEMENT COST)

30

INSURABLE VALUE (REPLACEMENT COST) CONCLUSION

Primary Building Type: Height per Story: 8'Effective Age: Number of Buildings: 17Condition: Gross Building Area: 92,859 SFExterior Wall: Net Rentable Area: 91,280 SFNumber of Units: Average Unit Size: 845 SFNumber of Stories: Average Floor Area: N/A

Base Building Cost (via Marshall Valuation Service cost data) $5,058,945

Insurable Exclusions 10.0% of Total Building Cost ($505,894)

Insurable Value (Replacement Cost) Indication $4,553,050

Rounded $4,550,000

Value Per Unit $42,130

Compiled by CBRE

1 & 2108

Apartment17 YRSAverageEngineered Steel Panels

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | SALES COMPARISON APPROACH

31


The following map and table summarize the comparable data used in the valuation of the subject. A

detailed description of each transaction is included in the addenda.

SUMMARY OF COMPARABLE APARTMENT SALES

Year No. Avg. Unit Adjusted Price Per NOI PerNo. Name Type Date Built Units Size Sale Price 1 Unit 1 Occ. Unit OAR

1 Saddlewood,San Antonio, TX

Sale Mar-12 1973 282 920 $8,800,000 $31,206 97% $2,262 7.25%

2 Rockport Landing,San Antonio, TX

Sale Feb-12 1980 256 666 $8,150,000 $31,836 90% $2,308 7.25%

3 Timberock,San Antonio, TX

Sale Dec-11 1982 216 691 $5,940,000 $27,500 92% $2,475 9.00%

4 Lodge on Perrin Creek,San Antonio, TX

Sale May-11 1983 309 658 $9,050,000 $29,288 80% $2,783 9.50%

5 Lantana,San Antonio, TX

Sale Feb-11 1972 108 1,007 $2,395,332 $22,179 85% $1,955 8.82%

Subj.Pro

Forma

Encinito Apartments,Hondo, Texas

--- --- 1993 108 845 --- --- 91% $2,220 ---

1 Transaction amount adjusted for cash equivalency and/or deferred maintenance (where applicable)

Compiled by CBRE

Transaction

© 2012 CBRE, Inc.



32

The sales utilized represent the best data available for comparison with the subject. The apartment

market in Hondo is very small and our research did not uncover any recent apartment property

transactions. As such the sales utilized were selected from our research of comparable improved sales

within the greater San Antonio area. Comparables One, Two and Three are the most similar to the

subject and will be discussed in detail in the following analysis.

Improved Sale One

This comparable represents a garden-style multifamily property consisting of 282 units and is situated

on an 11-acre parcel at 2554 NE Loop 410, San Antonio, TX. The improvements were originally

constructed in 1973 and were considered in fair condition at the time of sale. The exterior walls

depict stucco construction components. The average unit size was 920 square feet and project/unit

amenities included pools (2), fitness center, laundry rooms (2), carports and washer/dryer

connections. The property sold in March 2012 for $8,800,000, or $31,206 per unit. Pro Forma

Income net operating income at the time of sale was $638,001, or $2,262 per unit, for an overall

capitalization rate of 7.25%. The property's EGIM was calculated as 4.36 and occupancy at the time

of sale was 97%. This property is located along the south side of NE Loop 410, west of Perrin-Beitel

Road, in northeast San Antonio.

The -10% downward adjustment for location reflects this comparable's superior feature with respect to

proximity to a wider range of employment centers. Upon comparison with the subject, this

comparable was considered inferior in terms of project size and received an upward adjustment of 5%

for this characteristic due to its larger number of units. In terms of age/condition, this comparable

was judged inferior due to its older year of construction and received an upward adjustment of 10%

for this characteristic. The adjustment for project amenities was warranted due to the minimal

amenities at the subject. Therefore, a downward adjustment of -10% was judged proper for this

comparable. Overall, this comparable was deemed superior in comparison to the subject and a

downward net adjustment was warranted to the sales price indicator.

Improved Sale Two


on a 8.859-acre parcel at 1300 Patricia Drive, San Antonio, TX. The improvements were originally


depict wood siding construction components. The average unit size was 667 square feet and

project/unit amenities included pool, two laundry rooms, tennis courts fitness center, club house,

access gates and washer/dryer connections. The property sold in February 2012 for $8,150,000, or

$31,836 per unit. Pro Forma Income net operating income at the time of sale was $590,876, or

$2,308 per unit, for an overall capitalization rate of 7.25%. The property's EGIM was calculated as

4.58 and occupancy at the time of sale was 90%. This property is located along the west side of

Patricia Drive, north of Parliament Drive, in north central San Antonio.

© 2012 CBRE, Inc.



33


proximity to a wider range of employment centers and its north central San Antonio location. Upon

comparison with the subject, this comparable was considered inferior in terms of project size and

received an upward adjustment of 5% for this characteristic due to its larger number of units. In terms

of age/condition, this comparable was judged inferior due to it older year of construction and

received an upward adjustment of 10% for this characteristic. In terms of average unit size this

comparable is inferior and an upward adjustment of 5% was considered appropriate. The adjustment

for project amenities was warranted due to the minimal amenities at the subject. Therefore, a

downward adjustment of -10% was judged proper for this comparable. Overall, this comparable was

deemed superior in comparison to the subject and a downward net adjustment was warranted to the

sales price indicator.

Improved Sale Three


on a 7.421-acre parcel at 7220 Marbach Road, San Antonio, TX. The improvements were originally


depict masonry construction components. The average unit size was 691 square feet and project/unit

amenities included pool, leasing office, controlled access & laundry room. The property sold in

December 2011 for $5,940,000, or $27,500 per unit. Pro Forma Income net operating income at

the time of sale was $534,605, or $2,475 per unit, for an overall capitalization rate of 9%. The

property's EGIM was calculated as 4.11 and occupancy at the time of sale was 92%. This Class B/C

property is located along the south side of Marbach Road, east of Loop 410, in west San Antonio.


proximity to a wider range of employment centers. Upon comparison with the subject, this

comparable was considered inferior in terms of project size and received an upward adjustment of 5%

for this characteristic due to it larger number of units. In terms of age/condition, this comparable was

judged inferior due to its older year of construction and received an upward adjustment of 10% for

this characteristic. In terms of average unit size this comparable is inferior and an upward adjustment

of 5% was considered appropriate. The adjustment for project amenities was warranted due to the

minimal amenities at the subject. Therefore, a downward adjustment of -5% was judged proper for

this comparable. Overall, this comparable was deemed inferior in comparison to the subject and an

upward net adjustment was warranted to the sales price indicator.

SUMMARY OF ADJUSTMENTS

Based on our comparative analysis, the following chart summarizes the adjustments warranted to each

comparable.

© 2012 CBRE, Inc.



34

APARTMENT SALES ADJUSTMENT GRID

Comparable Number 1 2 3 4 5Subj.Pro

FormaTransaction Type Sale Sale Sale Sale Sale ---Transaction Date Mar-12 Feb-12 Dec-11 May-11 Feb-11 ---

Year Built 1973 1980 1982 1983 1972 1993

No. Units 282 256 216 309 108 108

Avg. Unit Size 920 666 691 658 1,007 845Actual Sale Price $8,800,000 $8,150,000 $5,000,000 $9,250,000 $2,395,332 ---Adjusted Sale Price 1 $8,800,000 $8,150,000 $5,940,000 $9,050,000 $2,395,332 ---Price Per Unit 1 $31,206 $31,836 $27,500 $29,288 $22,179 ---

Occupancy 97% 90% 92% 80% 85% 91%

NOI Per Unit $2,262 $2,308 $2,475 $2,783 $1,955 $2,220

OAR 7.25% 7.25% 9.00% 9.50% 8.82% ---

Adj. Price Per Unit $31,206 $31,836 $27,500 $29,288 $22,179

Property Rights Conveyed 0% 0% 0% 0% 0%Financing Terms 1 0% 0% 0% 0% 0%

Conditions of Sale 0% 0% 0% 0% 0%

Market Conditions (Time) 0% 0% 0% 0% 5%

Subtotal - Price Per Unit $31,206 $31,836 $27,500 $29,288 $23,288

Location -10% -20% -10% -10% 0%

Project Size 5% 5% 5% 5% 0%

Age/Condition 10% 10% 10% 10% 20%

Quality of Construction 0% 0% 0% 0% 0%

Avg. Unit Size 0% 5% 5% 5% -5%

Project Amenities -10% -10% -5% -10% -5%

Parking 0% 0% 0% 0% 0%

Other 0% 0% 0% 0% 0%

Total Other Adjustments -5% -10% 5% 0% 10%

Indicated Value Per Unit $29,645 $28,652 $28,875 $29,288 $25,617

1 Transaction amount adjusted for cash equivalency and/or deferred maintenance (where applicable)

Compiled by CBRE

SALE PRICE PER UNIT CONCLUSION

Overall, Comparables One, Two and Three were the most representative of the subject, and

warranted greatest consideration because they are the most recent and most closely resemble the

subject’s NOI per unit. The following chart presents the valuation conclusion:

© 2012 CBRE, Inc.



35


Total Units X Value Per Unit = Value

108 X $28,700 = $3,099,600

108 X $29,600 = $3,196,800

EGI X EGIM = Value

$662,514 X 4.50 = $2,981,311

VALUE CONCLUSION

Indicated Stabilized Value $3,100,000

Deferred Maintenance $0

Lease-Up Discount $0

Value Indication $3,100,000

Rounded $3,100,000


Compiled by CBRE

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | INCOME CAPITALIZATION APPROACH

36

INCOME CAPITALIZATION APPROACH

The following map and table summarize the comparable data used in the valuation of the subject. A

detailed description of each transaction is included in the addenda.

SUMMARY OF COMPARABLE APARTMENT RENTALS

Comp. No. Property Name Location

Year Built Occ.

No. Units

Avg. Rent Per Unit

1 2001 98% 40 $521

2 1986 93% 128 $703

3 1978 100% 0 $0

4 2004 94% 76 $763

Subj. Encinito Apartments 2805 Avenue U,Hondo, Texas

1993 82% 108 ---

Compiled by CBRE

Country Villas

Brian Place 231 19th street,Hondo, TX

Landmark 2001 Boerne Avenue,Hondo, TX

211 Meadows Drive,Castroville, TX

2208 14th Street,Hondo, TX

Tuscany Court

© 2012 CBRE, Inc.



37

DISCUSSION/ANALYSIS OF RENT COMPARABLES

It should be noted, the supply of apartments in Hondo is very small and the subject is inferior to most

of the other properties in terms of age or amenities. Comparable Nos. Two and Four are most

representative of the subject and are discussed in detail as follows:

Rent Comparable Two

This comparable rental represents the Country Villas apartments, a 128-unit multi-family garden-style

multifamily property at 211 Meadows Drive, Castroville, TX. The improvements were originally

constructed in 1986 and were considered in average condition at the time of our research. The

structure's exterior walls depict brick veneer construction components and the average unit size is 859

square feet. According to the unit mix and asking rates for this property, the average base rental rate

is $0.82 per square foot monthly ($703/unit), based upon typical lease terms of 12 month. No rent

premiums were reported. Utilities included with the rent consist of water & trash and concessions

currently offered are included in the stated rates. The property is currently 93% leased. This property

was originally developed as condominiums, but with the lack of demand for condos, was converted to

a rental property. Downstairs units lease for $75 more per month than upstairs units. The rates

reported reflect the average rents for two-bedroom units with upstairs being $700/month and

downstairs being $775/month. Current specials include 1/2 off 1st month's rent on upstairs two-

bedroom units on a 12 month lease only.

As compared to the subject, this project was viewed as similar with respect to condition, quality of

construction and design appeal, while regarded as superior in terms of utilities n the rent and location

(closer to San Antonio). Overall, the subject is inferior to this comparable and should command

lower rents than this property.

Rent Comparable Four

This comparable rental represents the Tuscany Court apartments, a 76-unit multi-family garden-style

multifamily property at 2208 14th Street, Hondo, TX. The improvements were originally constructed in

2004 and were considered in average condition at the time of our research. The structure's exterior

walls depict stone construction components and the average unit size is 1,192 square feet.

Project/unit amenities include the following: pool, fitness center, business center, club house with

kitchen, laundry, washer/dryer connections, direct access garages and perimeter fencing. According

to the unit mix and asking rates for this property, the average base rental rate is $0.64 per square foot

monthly ($763/unit), based upon typical lease terms of 12 months. No rent premiums were reported.

No utilities are included with the rent and concessions are not currently offered. The property is

currently 94% leased. This property is located along the north side of 14th Street, in northwest

Hondo. Each unit has a direct access garage and washer/dryer connections.

© 2012 CBRE, Inc.



38

As compared to the subject, this project was viewed as superior with respect to age/condition, and

amenities while regarded as similar in terms of location, quality of construction and design appeal.

Overall, this comparable is superior to the subject and the subject should command lower rents than

this comparable.

SUBJECT RENTAL INFORMATION

The following table shows the subject’s unit mix and quoted rental rates.

SUBJECT RENTAL INFORMATION

No. of Unit Unit Quoted Rent

Type Units Size (SF) Occ. $/Unit Per SF

2BR/1BA 80 798 SF 90% $482 $0.60

3BR/2BA 28 980 SF 61% $678 $0.69

Total/Average: 108 845 SF 82% $533 $0.63

Compiled by CBRE

According to on-site management, the following represents the most recent rental trends at the subject

property:

recent rental decreases were implemented in order to recover occupancy from the vacating of 15 corporate units;

the subject has implemented a utility reimbursement program whereas the rental rates depicted are exclusive of water, sewer and trash costs;

concessions are currently offered at the subject in terms of $200 off the 1st month’s rent for two-bedroom units and $250 off the 1st month’s rent on three-bedroom units. These specials are included in the rents shown above and concessions will not be deducted as a line-item charge in the following analysis.

MARKET RENT CONCLUSIONS

The following chart shows the market rent conclusions for the subject:

MARKET RENT CONCLUSIONS

No. Unit Monthly Rent Annual Rent AnnualUnits Unit Type Size Total SF $/Unit $/SF PRI $/Unit $/SF Total

80 2BR/1BA 798 SF 63,840 SF $499 $0.63 $39,920 $5,988 $7.50 $479,040

28 3BR/2BA 980 SF 27,440 SF $699 $0.71 $19,572 $8,388 $8.56 $234,864

108 845 SF 91,280 SF $551 $0.65 $59,492 $6,610 $7.82 $713,904

Compiled by CBRE

Our estimate of market rent for the subject is higher than the current quoted rates, which include

concessions to recover occupancy from the sudden decrease with the vacating of 15 corporate units.

The concessions will be eliminated once occupancy has recovered and will not be an on-going part of

the leasing structure.

© 2012 CBRE, Inc.



39

RENT ROLL ANALYSIS

The subject’s rent roll is illustrated as follows:

RENT ROLL ANALYSIS

Total TotalRevenue Component Monthly Rent Annual Rent

89 Occupied Units at Contract Rates $49,173 $590,076

19 Vacant Units at Market Rates $11,681 $140,172

108 Total Units @ Contract Rent $60,854 $730,248

108 Total Units @ Market Rent $59,492 $713,904

% Difference -2.3%

Compiled by CBRE

The variation between the total annual rent reflected in the rent roll analysis and the market rent

conclusion is due to the following:

older leases that included upfront or first month concessions that have burned off; higher rents for corporate units that have now been vacated

POTENTIAL RENTAL INCOME CONCLUSION

Within this analysis, potential rental income is estimated based upon the forward looking market

rental rates over the next twelve months. This method of calculating rental income is most prevalent in

the local market and is consistent with the method used to derive overall capitalization rates from the

comparable sales data.

POTENTIAL RENTAL INCOME

Year Total % Change

2011 $732,995 ---

2012 Annualized $730,627 0%

2012 Budget $745,812 2%

CBRE Estimate $713,904 -4%

Compiled by CBRE

Based on the schedule above, our pro forma estimate appears to be -4% below the 2012 budgeted

amount; however, our estimate of potential rental income is based on net effective rents to the

property, after recurring concessions. The historical and budgeted amounts shown above are gross

potential rent prior to deductions for concessions and loss to lease. In order to appropriately compare

the potential rental income amounts, concessions and loss to lease must be considered within the

historical amounts. The net potential rental income for the subject is as follows:

© 2012 CBRE, Inc.



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YearPotential

Rental Income Concessions Loss to LeaseNet Rental

Income % Change

2011 $732,995 ($593) $6,546 $738,948 N/A

2012 Annualized $730,627 ($7,227) $1,884 $725,284 -1.85%

2012 Budget $745,812 $0 $0 $745,812 2.83%

CBRE Estimate $713,904 $0 $0 $713,904 -4.28%

Complied by CBRE

NET RENTAL INCOME ANALYSIS

After considering concessions offered in the past, and loss to lease, our potential rental income

estimate is -4.3% below the 2012 Budget amount and -1.6% below the net rental income in 2012, as

annualized. The 2012 Annualized amount reflects in place rents that had upfront concessions that

have burned off, as well as higher rents for the corporate units than have now been vacated.

OPERATING HISTORY

The following table presents the available operating data for the subject.

OPERATING HISTORY

Year-Occupancy 20112012

Annualized 2012 BudgetCBRE

Estimate

Total $/Unit Total $/Unit Total $/Unit Total $/UnitIncome

Rental Income $652,805 $6,044 $666,186 $6,168 $679,957 $6,296 $649,653 $6,015Loss to Lease 6,546 61 $1,884 17 $0 - - - Concessions (593) (5) ($7,227) (67) $0 - - - Credit Loss - - $0 - ($7,330) (68) (7,139) (66) Other Income 26,200 243 $101,640 941 $18,606 172 20,000 185 Effective Gross Income $684,958 $6,342 $762,483 $7,060 $691,234 $6,400 $662,514 $6,134

ExpensesReal Estate Taxes $27,651 $256 $28,485 $264 $27,489 $255 $34,011 $315Property Insurance - - 17,796 165 $19,366 179 17,820 165 Utilities 45,045 417 63,597 589 $61,204 567 63,720 590 Administrative & General 38,191 354 38,034 352 $36,018 334 36,180 335 Repairs & Maintenance 45,918 425 77,082 714 $77,138 714 77,220 715 Landscaping & Security 11,678 108 16,233 150 $16,116 149 16,200 150 Management Fee ¹ 28,386 263 23,163 214 $22,076 204 23,188 215 Payroll 92,082 853 80,397 744 $120,263 1,114 120,420 1,115 Non-Revenue Units - - - - $0 - - - Advertising & Promotion 483 4 6,918 64 $5,738 53 7,020 65 Gross Receipts Tax - - - - $0 - - - Reserves for Replacement 27,000 250 27,000 250 $27,000 250 27,000 250 Operating Expenses $316,434 $2,930 $378,705 $3,507 $412,408 $3,819 $422,779 $3,915

Net Operating Income $368,524 $3,412 $383,778 $3,554 $278,825 $2,582 $239,735 $2,220

¹ (Mgmt. typically analyzed as a % of EGI) 4.1% 3.0% 3.2% 3.5%

2012 Annualized Amounts Represent 4 Months (Mar through June 2012). 2012 Budget Represents 10 Months (Mar through Dec 2012)

Source: Operating statements

91.0%89.1% 91.2% 91.2%

LOSS TO LEASE

Within the local market, buyers and sellers typically recognize a reduction in potential rental income

due to the difference between market and contract rental rates. In this market, lease rates are typically

flat and are anticipated to roll to market every 12 months on average. As a result, actual collections

typically lag behind market rates by approximately six to seven months. Based upon the difference

between market rent and contract rent, the loss to lease associated with the subject is estimated at

0.00% of gross rental income. This method of calculating rental income is most prevalent in the local

© 2012 CBRE, Inc.



41

market and is consistent with the method used to derive overall capitalization rates from the

comparable sales data.

CONCESSIONS

Rent concessions are present in the local market in the form of free rent, reduced net rents or reduced

move in/1st month’s rent. With such a wide range of concessions being offered in the local market,

we have utilized net effective rents in our analysis, which effectively places all comparable and the

subject on the same leasing structure. Therefore, an additional deduction for concessions would not

be applicable.

VACANCY

The subject’s estimated stabilized occupancy rate was previously discussed in the market analysis. The

subject’s vacancy is detailed as follows:

VACANCY

Year % PGI

2011 11%

2012 Annualized 9%

2012 Budget 9%

Current 18%

CBRE Estimate 9%

Compiled by CBRE

CREDIT LOSS

The credit loss estimate is an allowance for nonpayment of rent or other income. The subject’s credit

loss is detailed as follows:

CREDIT LOSS

Year % PGI

2011 0.0%

2012 Annualized 0.0%

2012 Budget 1.0%

CBRE Estimate 1.0%

Compiled by CBRE

Our estimate considers professional management with typical tenant screening and background

checks.

© 2012 CBRE, Inc.



42

OTHER INCOME

Other income is supplemental to that derived from leasing of the improvements. This includes

categories such as forfeited deposits, after-hour utility charges, late charges, etc. The subject’s

ancillary income is detailed as follows:

OTHER INCOME

Year Total $/Unit

2011 $26,200 $243

2012 Annualized $101,640 $941

2012 Budget $18,606 $172

CBRE Estimate $20,000 $185

Compiled by CBRE

The 2012 annualized amount includes atypical collection for lease buy-outs/termination fees, and is

well above the 2011 historical and the 2012 Budget. Our estimate is generally consistent with the

available budgeted financial data.

EFFECTIVE GROSS INCOME

The subject’s effective gross income is detailed as follows:

EFFECTIVE GROSS INCOME

Year Total % Change

2011 $684,958 ---

2012 Annualized $762,483 11%

2012 Budget $691,234 -9%

CBRE Estimate $662,514 -4%

Compiled by CBRE

Our pro forma estimate is approximately -4% lower than the current annualized year, as the four

month historical data for 2012 included higher rents associated with the corporate units.

OPERATING EXPENSE ANALYSIS

Expense Comparables

The following chart summarizes expenses obtained from recognized industry publications and/or

comparable properties.

© 2012 CBRE, Inc.



43

EXPENSE COMPARABLES

Comparable Number 1 2 3

Location Central Texas Central Texas Central Texas

No. Units 400 140 319

GLA (SF) 307,036 121,760 262,043

Expense Year 2012 Annualized 2012 Annualized 2011

Effective Gross Income $7,380 $7,161 $7,726

Other Income $440 $313 $316

Expenses $/Unit $/Unit $/Unit

Real Estate Taxes $839 $889 $760

Property Insurance 183 233 168

Utilities 552 1,714 620

Administrative & General 232 170 138

Repairs & Maintenance 525 222 552

Landscaping & Security 102 56 98

Management Fee ¹ 261 141 268

Payroll 1,098 1,156 1,219

Non-Revenue Units 139 101 63

Advertising & Promotion 128 63 253

Gross Receipts Tax - - -

Reserves for Replacement 250 250 250

Operating Expenses $4,309 $4,995 $4,389

Operating Expense Ratio 58.4% 69.8% 56.8%¹ (Mgmt. typically analyzed as a % of EGI) 3.5% 2.0% 3.5%

Compiled by CBRE

The subject’s expense is detailed as follows:

OPERATING EXPENSES

Year Total $/Unit

2011 $316,434 $2,930

2012 Annualized $378,705 $3,507

2012 Budget $412,408 $3,819

Expense Comparable 1 N/A $4,309



CBRE Estimate $422,779 $3,915

Compiled by CBRE

The subject’s per square foot operating expense pro forma is below the total per unit operating

expenses indicated by the expense comparables, but is supported by the budgeted amount indicated

above.

© 2012 CBRE, Inc.



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NET OPERATING INCOME CONCLUSION

The subject’s net operating income is detailed as follows:

NET OPERATING INCOME

Year Total $/Unit

2011 $368,524 $3,412

2012 Annualized $383,778 $3,554

2012 Budget $278,825 $2,582

CBRE Estimate $239,735 $2,220

Compiled by CBRE

Our pro forma estimate is lower than the current annualized year and 2012 Budget. The net income

reported in 2011 did not include an insurance expense. Like the 2012 Annualized amount, included

a lower payroll expense than the budget and our projections. At this time, the property is operating

with a three-person staff: manger, maintenance technician and a landscaping person. Make ready’s

are generally done by the landscaping employee or maintenance technician. The budget, as well as

our projections include an additional employee for janitorial, porter and make ready. As such, the

projected net operating income is lower than reported in the 2012 Annualized amount. The primary

difference between our pro forma and the 2012 Budget is higher taxes, placing the subject within the

range of assessed values of competing properties.

DIRECT CAPITALIZATION

Direct capitalization is a method used to convert a single year’s estimated stabilized net operating

income into a value indication. The following subsections represent different techniques for deriving

an overall capitalization rate for direct capitalization.

Comparable Sales

The overall capitalization rates (OARs) confirmed for the comparable sales analyzed in the sales

comparison approach are as follows:

COMPARABLE CAPITALIZATION RATES

Sale Sale Price

Sale Date $/Unit Occupancy OAR Basis OAR

1 Mar-12 $31,206 97% Pro Forma Income 7.25%

2 Feb-12 $31,836 90% Pro Forma Income 7.25%

3 Dec-11 $27,500 92% Pro Forma Income 9.00%

4 May-11 $29,288 80% Pro Forma Income 9.50%

5 Feb-11 $22,179 85% Pro Forma Income 8.82%

Indicated OAR: 90% 7.25%

Compiled by: CBRE

© 2012 CBRE, Inc.



45

The overall capitalization rates for these sales were derived based upon the actual or pro-forma

income characteristics of the property. Sale Nos. One and Two transpired within the past six months,

while Sale Nos. Three, Four and Five represent slightly older transaction dates. Therefore, primary

emphasis has been placed upon the more recent data, which is generally reflective of current market

trends, interest rates, and buyer’s expectations and motivation in the market.

Published Investor Surveys

The results of the most recent investor surveys are summarized in the following chart.

OVERALL CAPITALIZATION RATES

Investment Type OAR Range Average

RERC - Spring 2012 South Region

1st Tier Investment Properties 4.80% - 10.00% 7.00%

2nd Tier Investment Properties 5.50% - 11.00% 7.90%

3rd Tier Investment Properties 7.00% - 11.00% 8.80%

CBRE Apartments

Class A 3.50% - 7.75% 5.40%

Class B 4.25% - 10.00% 6.37%

Class C 4.75% - 11.00% 7.59%

PwC Apartment

National Data 3.75% - 10.00% 5.83%

Indicated OAR: 7.5% - 8.5%

Compiled by: CBRE

The subject is considered to be a Class B property. Because of the subject’s location in a tertiary

market, an OAR within the range of the averages of Class C properties and 3rd Tier Investment

Properties indicated in the preceding table is considered appropriate.

Market Participants

The results of recent interviews with knowledgeable real estate professionals are summarized in the

following table.

OVERALL CAPITALIZATION RATES

Respondent Company OAR Date of Survey

Scott Weems San Antonio Commercial Advisors 7.25% - 7.50% Aug-12

Casey Fry Apartment Realty Advisors 7.00% - 8.00% Aug-12

Chris Stutzman Transwestern 7.25% - 8.00% Aug-12

Indicated OAR: 7.00% - 8.00%

Compiled by: CBRE

© 2012 CBRE, Inc.



46

In deriving an appropriate overall capitalization rate for the subject, numerous market participants

were interviewed and consulted to gather applicable information. Three real estate professionals that

are active in the local market were interviewed and all indicated that they have recently negotiated

similar property sales in the 7.0% to 8.0% OAR range based upon pro forma net operating income.

Based upon current market trends, they would anticipate pro forma OARs to fall within this range.

Band of Investment

The band of the investment technique has been utilized as a crosscheck to the foregoing techniques.

The Mortgage Interest Rate and the Equity Dividend Rate (EDR) are based upon current market yields

for similar investments. The analysis is shown in the following table.

BAND OF INVESTMENT

Mortgage Interest Rate 5.00%

Mortgage Term (Amortization Period) 30 Years

Mortgage Ratio (Loan-to-Value) 75%

Mortgage Constant (monthly payments) 0.06442

Equity Dividend Rate (EDR) 12%

Mortgage Requirement 75% x 0.06442 = 0.04832

Equity Requirement 25% x 0.12000 = 0.03000

100% 0.07832

Indicated OAR: 7.80%

Compiled by: CBRE

Debt Coverage Ratio

The debt coverage ratio (DCR) is the ratio of net operating income to annual debt service and

measures the ability of a given property to meet its debt service out of net operating income. Utilizing

data obtained from knowledgeable mortgage finance professionals, the subject’s projected NOI can

be tested for reasonableness against the market’s typical loan parameters to determine whether or not

the DCR is positive. This analysis is shown in the following table.

© 2012 CBRE, Inc.



47

DEBT COVERAGE RATIO ANALYSIS

Estimated As Is Value $3,100,000

Mortgage Ratio (Loan-to-Value) 75%

Estimated Mortage Loan Amount $2,325,000

Mortgage Interest Rate 5.00%

Mortgage Term (Amortization Period) 30 Years

Mortgage Constant (monthly payments) 0.06442

Annual Debt Service (monthly payments) $149,773

Estimated NOI $239,735

Estimated Debt Coverage Ratio (DCR) 1.60

Market Debt DCR 1.30

Positive DCR? (Y or N) Yes

Compiled by: CBRE

Capitalization Rate Conclusion

The following chart summarizes the OAR conclusions.

OVERALL CAPITALIZATION RATE - CONCLUSION

Source Indicated OAR

Comparable Sales 7.25%-9.50%

National Investor Survey 7.5% - 8.5%

Market Participants 7.00% - 8.00%

Band of Investment 7.80%

CBRE Estimate 7.75%

Compiled by: CBRE

Overall, an OAR above the range indicated by the most recent comparables is considered

appropriate for the following reasons:

Positive Attributes

There is no new construction planned for the subject submarket;

Negative Attributes

The subject is located in a tertiary market that is not expected to significantly change due to new demand generators such as the Eagle Ford Shale energy play to the south

In concluding an overall capitalization rate for the subject, primary reliance has been placed upon the

data obtained from the comparable sales and interviews with active market participants. This data

tends to provide the most accurate depiction of both buyer’s and seller’s expectations within the

market and the ranges indicated are relatively tight. Further secondary support for our conclusion is

noted via both the CBRE, Inc. National Investor Survey and the band of investment methodology.

Considering the data presented, the concluded overall capitalization rate appears to be well

supported in the local market.

© 2012 CBRE, Inc.



48

Direct Capitalization Summary

A summary of the direct capitalization at stabilized occupancy is illustrated in the following chart.

DIRECT CAPITALIZATION SUMMARY

Income $/Door/Mo. $/Unit/Yr Total Potential Rental Income $595 $6,610 $713,904Loss to Lease 0.00% - 0 - Concessions 0.00% - 0 -

Adjusted Rental Income $595 $6,610 713,904 Vacancy 9.00% (54) (595) (64,251) Credit Loss 1.00% (6) (66) (7,139)

Net Rental Income $535 $5,949 $642,514

Other Income 17 185 20,000

Effective Gross Income $552 $6,134 $662,514

ExpensesReal Estate Taxes $315 $34,011Property Insurance 165 17,820 Utilities 590 63,720 Administrative & General 335 36,180 Repairs & Maintenance 715 77,220 Landscaping & Security 150 16,200 Management Fee 3.50% 215 23,188 Payroll 1,115 120,420 Non-Revenue Units 0 - Advertising & Promotion 65 7,020 Reserves for Replacement 250 27,000

Operating Expenses $3,915 $422,779

Operating Expense Ratio 63.81%

Net Operating Income $2,220 $239,735

OAR / 7.75%

Indicated Stabilized Value $3,093,350

Rounded $3,100,000

Deferred Maintenance -

Lease-Up Discount -

Value Indication $3,093,350

Rounded $3,100,000


Matrix Analysis Cap Rate Value

7.50% $3,196,500

7.75% $3,093,300

8.00% $2,996,700

Compiled by CBRE

© 2012 CBRE, Inc.



49

DISCOUNTED CASH FLOW ANALYSIS (DCF)

The DCF assumptions concluded for the subject are summarized as follows:

SUMMARY OF DISCOUNTED CASH FLOW ASSUMPTIONS

General Assumptions

Start Date Sep-12Terms of Analysis 10 YearsSoftware Excel

Growth Rate Assumptions

Income Growth 2.50%Expense Growth 2.50%Inflation (CPI) 2.50%Real Estate Tax Growth 2.00%

Market Rates - Year 1Average Rent ($/Unit/Yr.) $6,610Total Operating Expenses ($/Unit/Yr.) $3,915

Occupancy AssumptionsCurrent Occupancy 82.41%Stabilized Occupancy 91.00%Credit Loss 1.00%Stabilized Occupancy (w/Credit Loss) 90.00%Loss to Lease 0.0%Concessions 0.0%Estimated Lease-up Period 0 Months

Financial Assumptions

Discount Rate 10.00%Terminal Capitalization Rate 8.25%

Other Assumptions

Cost of Sale 2.00%Capital Expenses (Deferred Maintenance) $0

Compiled by CBRE

Provided on the following pages is a discussion of the leasing assumptions used in the discounted

cash flow analysis that were not analyzed in the direct capitalization approach.

General Assumptions

The DCF analysis utilizes a 10-year projection period. This is consistent with current investor

assumptions.

Growth Rate Assumptions

The inflation and growth rates for the DCF analysis have been estimated by analyzing the expectations

typically used by buyers and sellers in the local marketplace. Published investor surveys, an analysis of

© 2012 CBRE, Inc.



50

the Consumer Price Index (CPI), as well as CBRE, Inc.'s survey of brokers and investors active in the

local market form the foundation for the selection of the appropriate growth rates. The compilation is

shown in the following chart.

SUMMARY OF GROWTH RATESInvestment Type Rent Expenses Inflation

U.S. Bureau of Labor Statistics (CPI-U)10-Year Snapshot Average as of Jul-12 2.44%

PwC Apartment

National Data 2.73% 2.62% n/a

Market Participants

CBRE Brokers 1.5%-3% 3.00% 3.00%

CBRE Estimate 2.50% 2.50% 2.50%

Compiled by: CBRE

The estimated growth rates indicated above are based primarily on market participants. The surveyed

market participants indicated the potential for income growth should fall in line with inflation, as no

new demand generators are projected that would boast rents.

Leasing Assumptions

The previously concluded pro forma income and expenses have been utilized as the basis for Year 1

of the holding period. All subsequent years vary according to the growth rate assumptions applied to

the Year 1 estimate.

Occupancy Assumptions

The occupancy rate over the holding period is based on the subject’s estimated stabilized occupancy

rate and estimated lease-up period to achieve a stabilized occupancy position.

Vacancy, Credit Loss and Absorption

Please refer to the market analysis of this report for a detailed discussion of these elements.

Financial Assumptions

Discount Rate Analysis

The results of the most recent investor surveys are summarized in the following chart.

© 2012 CBRE, Inc.



51

DISCOUNT RATES

Investment Type Rate Range Average





RERC - Spring 2012 San Antonio

1st Tier Investment Properties 8.20%

PwC Apartment

National Data 5.25% - 14.00% 8.28%

CBRE Estimate 10.00%

Compiled by: CBRE

The subject is considered to be a Class B property. Because of the subject’s location in a tertiary

market, a discount rate slightly below the average of the range indicated by Class C properties in the

preceding table is considered appropriate.

Terminal Capitalization Rate

The reversionary value of the subject is based on an assumed sale at the end of the holding period

based on capitalizing the Year 11 NOI at a terminal capitalization rate. Typically, for properties

similar to the subject, terminal capitalization rates are 50 to 100 basis points higher than going-in

capitalization rates (OARs). This is a result of the uncertainty of future economic conditions and the

natural aging of the property. For the subject, we have concluded a load factor of 50 basis points to

be appropriate.

TERMINAL CAPITALIZATION RATES

Investment Type Rate Range Average





PwC Apartment

National Data 4.50% - 9.75% 6.25%

CBRE Estimate 8.25%

Compiled by: CBRE

Discounted Cash Flow Conclusion

The DCF schedule(s) and value conclusions are depicted on the following page(s).

© 2012 CBRE, Inc.


ENCINITO APARTMENTSDISCOUNTED CASH FLOW ANALYSIS

BEGINNING 09/12

YEAR 1 2 3 4 5 6 7 8 9 10 Reversion

RevenuePotential Rental Income $713,904 $731,752 $750,046 $768,797 $788,017 $807,717 $827,910 $848,608 $869,823 $891,569 $913,858Loss to Lease 0 0 0 0 0 0 0 0 0 0 0Concessions 0 0 0 0 0 0 0 0 0 0 0Adjusted Rental Income $713,904 $731,752 $750,046 $768,797 $788,017 $807,717 $827,910 $848,608 $869,823 $891,569 $913,858Vacancy & Credit Loss (71,390) (73,175) (75,005) (76,880) (78,802) (80,772) (82,791) (84,861) (86,982) (89,157) (91,386)Other Income 20,000 20,500 21,013 21,538 22,076 22,628 23,194 23,774 24,368 24,977 25,601

Effective Gross Income $662,514 $679,077 $696,054 $713,455 $731,291 $749,573 $768,313 $787,521 $807,209 $827,389 $848,073

ExpensesReal Estate Taxes $34,011 $34,691 $35,385 $36,093 $36,815 $37,551 $38,302 $39,068 $39,849 $40,646 $41,459Property Insurance 17,820 18,266 18,723 19,191 19,671 20,163 20,667 21,184 21,714 22,257 22,813Utilities 63,720 65,313 66,946 68,620 70,336 72,094 73,896 75,743 77,637 79,578 81,567Administrative & General 36,180 37,085 38,012 38,962 39,936 40,934 41,957 43,006 44,081 45,183 46,313Repairs & Maintenance 77,220 79,151 81,130 83,158 85,237 87,368 89,552 91,791 94,086 96,438 98,849Landscaping & Security 16,200 16,605 17,020 17,446 17,882 18,329 18,787 19,257 19,738 20,231 20,737Management Fee 23,188 23,768 24,362 24,971 25,595 26,235 26,891 27,563 28,252 28,959 29,683Payroll 120,420 123,431 126,517 129,680 132,922 136,245 139,651 143,142 146,721 150,389 154,149Non-Revenue Units 0 0 0 0 0 0 0 0 0 0 0Advertising & Promotion 7,020 7,196 7,376 7,560 7,749 7,943 8,142 8,346 8,555 8,769 8,988Gross Receipts Tax 0 0 0 0 0 0 0 0 0 0 0Reserves for Replacement 27,000 27,675 28,367 29,076 29,803 30,548 31,312 32,095 32,897 33,719 34,562

Total Expenses $422,779 $433,181 $443,838 $454,757 $465,946 $477,410 $489,157 $501,195 $513,530 $526,169 $539,120

Net Income $239,735 $245,896 $252,216 $258,698 $265,345 $272,163 $279,156 $286,326 $293,679 $301,220 $308,953

Assumptions:Income Growth N/A 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%Vacancy & Credit Loss Allowance 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% Tax Expense Growth N/A 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00%Op. Expense Growth N/A 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%Management Fee 3.50%Cost of Sale 2.00%

EGI, EXPENSES, AND NOI Sale / Yield Matrix

Terminal Cap Rate8.00% 8.25% 8.50%

IRR9.75% 3,134,318 3,089,083 3,046,509

10.00% 3,082,400 3,038,183 2,996,56710.25% 3,031,624 2,988,400 2,947,718

Reconciled Value Indication: $3,038,183

Deferred Maintenance: $0

As-Is Value Indication (Rounded): $3,000,000

$27,778/Unit

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

1 2 3 4 5 6 7 8 9 10Year

EGI Total Expenses NOI

© 2012 CBRE, Inc.



53

CONCLUSION OF INCOME CAPITALIZATION APPROACH

The conclusions via the valuation methods employed for this approach are as follows:

INCOME CAPITALIZATION APPROACH VALUESAs Is on

September 7, 2012

Direct Capitalization Method $3,100,000

Discounted Cash Flow Analysis $3,000,000

Reconciled Value $3,100,000

Compiled by CBRE

Primary emphasis has been placed on the Direct Capitalization Method. This method is considered to

best reflect the actions of buyers and sellers currently active in this market.

© 2012 CBRE, Inc.



54

COST TO ACHIEVE STABILIZED OPERATIONS

The cost estimates employed for this approach are reflective of a property operating at a stabilized

level. A stabilized occupancy for the subject has been estimated to be 90.0% while the subject is

currently operating at 82.4%, without consideration of a 1.0% credit loss allowance. Consequently,

an adjustment is / is not warranted.

As the subject is currently below a stabilized occupancy position, it requires a deduction for lease-up

to stabilization. With the estimated lease-up period estimated in the preceding discussion, the

appropriate discount rate is estimated at 1.00%, based upon short-term comparable investment

instruments ranging from 6% to 12%. Based upon a Lease-Up Discount Analysis over an absorption

period of 0 months, an adjustment of $0 for the subject has been estimated. The Lease-Up Discount

Analysis schedule is presented _________. This analysis utilizes assumptions developed in the market

analysis and income capitalization approach and will be deducted as a line item from each approach

in order to render an “as is” value estimate.

© 2012 CBRE, Inc.



55

INSERT OPTIONAL 2nd DISCOUNTED CASH FLOW ANALYSIS (IN COLOR) OR LUD HERE

© 2012 CBRE, Inc.

CBRE


ENCINITO APARTMENTS | RECONCILIATION OF VALUE

56

RECONCILIATION OF VALUE

The value indications from the approaches to value are summarized as follows:

SUMMARY OF VALUE CONCLUSIONSAs Is on

September 7, 2012

Sales Comparison Approach $3,100,000

Income Capitalization Approach $3,100,000

Reconciled Value $3,100,000

Compiled by CBRE

In valuing the subject, the _______ Approach is considered most reliable and has been given primary

emphasis, with secondary emphasis placed on the ______ Approach. Although the Cost Approach is

generally applicable for this property type, it is not considered to be the most reliable approach to

value for the subject.

Based on the foregoing, the market value of the subject has been concluded as follows:

MARKET VALUE CONCLUSION

Appraisal Premise Interest Appraised Date of Value Value Conclusion

As Is Fee Simple Estate September 7, 2012 $3,100,000

As Stabilized Fee Simple Estate September 7, 2012 $3,100,000

Compiled by CBRE

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | ASSUMPTIONS AND LIMITING CONDITIONS

57

ASSUMPTIONS AND LIMITING CONDITIONS

1. Unless otherwise specifically noted in the body of the report, it is assumed that title to the property or properties appraised is clear and marketable and that there are no recorded or unrecorded matters or exceptions to title that would adversely affect marketability or value. CBRE, Inc. is not aware of any title defects nor has it been advised of any unless such is specifically noted in the report. CBRE, Inc., however, has not examined title and makes no representations relative to the condition thereof. Documents dealing with liens, encumbrances, easements, deed restrictions, clouds and other conditions that may affect the quality of title have not been reviewed. Insurance against financial loss resulting in claims that may arise out of defects in the subject’s title should be sought from a qualified title company that issues or insures title to real property.

2. Unless otherwise specifically noted in the body of this report, it is assumed: that the existing improvements on the property or properties being appraised are structurally sound, seismically safe and code conforming; that all building systems (mechanical/electrical, HVAC, elevator, plumbing, etc.) are in good working order with no major deferred maintenance or repair required; that the roof and exterior are in good condition and free from intrusion by the elements; that the property or properties have been engineered in such a manner that the improvements, as currently constituted, conform to all applicable local, state, and federal building codes and ordinances. CBRE, Inc. professionals are not engineers and are not competent to judge matters of an engineering nature. CBRE, Inc. has not retained independent structural, mechanical, electrical, or civil engineers in connection with this appraisal and, therefore, makes no representations relative to the condition of improvements. Unless otherwise specifically noted in the body of the report: no problems were brought to the attention of CBRE, Inc. by ownership or management; CBRE, Inc. inspected less than 100% of the entire interior and exterior portions of the improvements; and CBRE, Inc. was not furnished any engineering studies by the owners or by the party requesting this appraisal. If questions in these areas are critical to the decision process of the reader, the advice of competent engineering consultants should be obtained and relied upon. It is specifically assumed that any knowledgeable and prudent purchaser would, as a precondition to closing a sale, obtain a satisfactory engineering report relative to the structural integrity of the property and the integrity of building systems. Structural problems and/or building system problems may not be visually detectable. If engineering consultants retained should report negative factors of a material nature, or if such are later discovered, relative to the condition of improvements, such information could have a substantial negative impact on the conclusions reported in this appraisal. Accordingly, if negative findings are reported by engineering consultants, CBRE, Inc. reserves the right to amend the appraisal conclusions reported herein.

3. Unless otherwise stated in this report, the existence of hazardous material, which may or may not be present on the property was not observed by the appraisers. CBRE, Inc. has no knowledge of the existence of such materials on or in the property. CBRE, Inc., however, is not qualified to detect such substances. The presence of substances such as asbestos, urea formaldehyde foam insulation, contaminated groundwater or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there is no such material on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in this field, if desired.

We have inspected, as thoroughly as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representation is made as to these matters unless specifically considered in the appraisal.

4. All furnishings, equipment and business operations, except as specifically stated and typically considered as part of real property, have been disregarded with only real property being considered in the report unless otherwise stated. Any existing or proposed improvements, on or off-site, as well as any alterations or repairs considered, are assumed to be completed in a workmanlike manner according to standard practices based upon the information submitted to CBRE, Inc. This report may be subject to amendment upon re-inspection of the subject subsequent to repairs, modifications, alterations and completed new construction. Any estimate of Market Value is as of the date indicated; based upon the information, conditions and projected levels of operation.

5. It is assumed that all factual data furnished by the client, property owner, owner’s representative, or persons designated by the client or owner to supply said data are accurate and correct unless otherwise specifically noted in the appraisal report. Unless otherwise specifically noted in the appraisal report, CBRE, Inc. has no reason to believe that any of the data furnished contain any material error. Information and data referred to in this paragraph include, without being limited to, numerical street addresses, lot and block numbers, Assessor’s Parcel Numbers, land dimensions, square footage area of the land, dimensions of the improvements, gross building areas, net rentable areas, usable areas, unit count, room count, rent schedules, income data, historical operating expenses, budgets, and related data. Any material error in any of the above data could have a substantial impact on the conclusions reported. Thus, CBRE, Inc. reserves the right to amend conclusions reported if made aware of any such error. Accordingly, the client-addressee should

© 2012 CBRE, Inc.



58

carefully review all assumptions, data, relevant calculations, and conclusions within 30 days after the date of delivery of this report and should immediately notify CBRE, Inc. of any questions or errors.

6. The date of value to which any of the conclusions and opinions expressed in this report apply, is set forth in the Letter of Transmittal. Further, that the dollar amount of any value opinion herein rendered is based upon the purchasing power of the American Dollar on that date. This appraisal is based on market conditions existing as of the date of this appraisal. Under the terms of the engagement, we will have no obligation to revise this report to reflect events or conditions which occur subsequent to the date of the appraisal. However, CBRE, Inc. will be available to discuss the necessity for revision resulting from changes in economic or market factors affecting the subject.

7. CBRE, Inc. assumes no private deed restrictions, limiting the use of the subject in any way.

8. Unless otherwise noted in the body of the report, it is assumed that there are no mineral deposit or subsurface rights of value involved in this appraisal, whether they be gas, liquid, or solid. Nor are the rights associated with extraction or exploration of such elements considered unless otherwise stated in this appraisal report. Unless otherwise stated it is also assumed that there are no air or development rights of value that may be transferred.

9. CBRE, Inc. is not aware of any contemplated public initiatives, governmental development controls, or rent controls that would significantly affect the value of the subject.

10. The estimate of Market Value, which may be defined within the body of this report, is subject to change with market fluctuations over time. Market value is highly related to exposure, time promotion effort, terms, motivation, and conclusions surrounding the offering. The value estimate(s) consider the productivity and relative attractiveness of the property, both physically and economically, on the open market.

11. Any cash flows included in the analysis are forecasts of estimated future operating characteristics are predicated on the information and assumptions contained within the report. Any projections of income, expenses and economic conditions utilized in this report are not predictions of the future. Rather, they are estimates of current market expectations of future income and expenses. The achievement of the financial projections will be affected by fluctuating economic conditions and is dependent upon other future occurrences that cannot be assured. Actual results may vary from the projections considered herein. CBRE, Inc. does not warrant these forecasts will occur. Projections may be affected by circumstances beyond the current realm of knowledge or control of CBRE, Inc.

12. Unless specifically set forth in the body of the report, nothing contained herein shall be construed to represent any direct or indirect recommendation of CBRE, Inc. to buy, sell, or hold the properties at the value stated. Such decisions involve substantial investment strategy questions and must be specifically addressed in consultation form.

13. Also, unless otherwise noted in the body of this report, it is assumed that no changes in the present zoning ordinances or regulations governing use, density, or shape are being considered. The property is appraised assuming that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, nor national government or private entity or organization have been or can be obtained or renewed for any use on which the value estimates contained in this report is based, unless otherwise stated.

14. This study may not be duplicated in whole or in part without the specific written consent of CBRE, Inc. nor may this report or copies hereof be transmitted to third parties without said consent, which consent CBRE, Inc. reserves the right to deny. Exempt from this restriction is duplication for the internal use of the client-addressee and/or transmission to attorneys, accountants, or advisors of the client-addressee. Also exempt from this restriction is transmission of the report to any court, governmental authority, or regulatory agency having jurisdiction over the party/parties for whom this appraisal was prepared, provided that this report and/or its contents shall not be published, in whole or in part, in any public document without the express written consent of CBRE, Inc. which consent CBRE, Inc. reserves the right to deny. Finally, this report shall not be advertised to the public or otherwise used to induce a third party to purchase the property or to make a “sale” or “offer for sale” of any “security”, as such terms are defined and used in the Securities Act of 1933, as amended. Any third party, not covered by the exemptions herein, who may possess this report, is advised that they should rely on their own independently secured advice for any decision in connection with this property. CBRE, Inc. shall have no accountability or responsibility to any such third party.

15. Any value estimate provided in the report applies to the entire property, and any pro ration or division of the title into fractional interests will invalidate the value estimate, unless such pro ration or division of interests has been set forth in the report.

16. The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. Component values for land and/or buildings are not intended to be used in conjunction with any other property or appraisal and are invalid if so used.

17. The maps, plats, sketches, graphs, photographs and exhibits included in this report are for illustration purposes only and are to be utilized only to assist in visualizing matters discussed within this report. Except as specifically stated, data relative to size or area of the subject and comparable properties has been obtained from sources deemed accurate and reliable. None of the exhibits are to be removed, reproduced, or used apart from this report.

© 2012 CBRE, Inc.



59

18. No opinion is intended to be expressed on matters which may require legal expertise or specialized investigation or knowledge beyond that customarily employed by real estate appraisers. Values and opinions expressed presume that environmental and other governmental restrictions/conditions by applicable agencies have been met, including but not limited to seismic hazards, flight patterns, decibel levels/noise envelopes, fire hazards, hillside ordinances, density, allowable uses, building codes, permits, licenses, etc. No survey, engineering study or architectural analysis has been made known to CBRE, Inc. unless otherwise stated within the body of this report. If the Consultant has not been supplied with a termite inspection, survey or occupancy permit, no responsibility or representation is assumed or made for any costs associated with obtaining same or for any deficiencies discovered before or after they are obtained. No representation or warranty is made concerning obtaining these items. CBRE, Inc. assumes no responsibility for any costs or consequences arising due to the need, or the lack of need, for flood hazard insurance. An agent for the Federal Flood Insurance Program should be contacted to determine the actual need for Flood Hazard Insurance.

19. Acceptance and/or use of this report constitutes full acceptance of the Contingent and Limiting Conditions and special assumptions set forth in this report. It is the responsibility of the Client, or client’s designees, to read in full, comprehend and thus become aware of the aforementioned contingencies and limiting conditions. Neither the Appraiser nor CBRE, Inc. assumes responsibility for any situation arising out of the Client’s failure to become familiar with and understand the same. The Client is advised to retain experts in areas that fall outside the scope of the real estate appraisal/consulting profession if so desired.

20. CBRE, Inc. assumes that the subject analyzed herein will be under prudent and competent management and ownership; neither inefficient or super-efficient.

21. It is assumed that there is full compliance with all applicable federal, state, and local environmental regulations and laws unless noncompliance is stated, defined and considered in the appraisal report.

22. No survey of the boundaries of the property was undertaken. All areas and dimensions furnished are presumed to be correct. It is further assumed that no encroachments to the realty exist.

23. The Americans with Disabilities Act (ADA) became effective January 26, 1992. Notwithstanding any discussion of possible readily achievable barrier removal construction items in this report, CBRE, Inc. has not made a specific compliance survey and analysis of this property to determine whether it is in conformance with the various detailed requirements of the ADA. It is possible that a compliance survey of the property together with a detailed analysis of the requirements of the ADA could reveal that the property is not in compliance with one or more of the requirements of the ADA. If so, this fact could have a negative effect on the value estimated herein. Since CBRE, Inc. has no specific information relating to this issue, nor is CBRE, Inc. qualified to make such an assessment, the effect of any possible non-compliance with the requirements of the ADA was not considered in estimating the value of the subject.

24. Client shall not indemnify Appraiser or hold Appraiser harmless unless and only to the extent that the Client misrepresents, distorts, or provides incomplete or inaccurate appraisal results to others, which acts of the Client approximately result in damage to Appraiser. Notwithstanding the foregoing, Appraiser shall have no obligation under this Section with respect to any loss that is caused solely by the active negligence or willful misconduct of a Client and is not contributed to by any act or omission (including any failure to perform any duty imposed by law) by Appraiser. Client shall indemnify and hold Appraiser harmless from any claims, expenses, judgments or other items or costs arising as a result of the Client's failure or the failure of any of the Client's agents to provide a complete copy of the appraisal report to any third party. In the event of any litigation between the parties, the prevailing party to such litigation shall be entitled to recover, from the other, reasonable attorney fees and costs.

25. As part of the client’s requested scope of work, an estimate of insurable value is provided herein. CBRE, Inc. has followed traditional appraisal standards to develop a reasonable calculation based upon industry practices and industry accepted publications such as the Marshal Valuation Service handbook. The methodology employed is a derivation of the cost approach which is primarily used as an academic exercise to help support the market value estimate and therefore is not reliable for Insurable Value estimates. Actual construction costs and related estimates can vary greatly from this estimate.

This analysis should not be relied upon to determine proper insurance coverage which can only be properly estimated by consultants considered experts in cost estimation and insurance underwriting. It is provided to aid the client/reader/user as part of their overall decision making process and no representations or warranties are made by CBRE, Inc. regarding the accuracy of this estimate and it is strongly recommend that other sources be utilized to develop any estimate of insurable value.

© 2012 CBRE, Inc.


ENCINITO APARTMENTS | ADDENDA

ADDENDA

© 2012 CBRE, Inc.



ADDENDUM A

IMPROVED SALE DATA SHEETS

© 2012 CBRE, Inc.


APARTMENT SALE No. 1SaddlewoodLocation DataLocation: 2554 NE Loop 410

San Antonio, TX 78217

County: Bexar

Parcel No: 536475

Atlas Ref:

Physical DataType: Multi-family Garden

Land Area: 11.000 Acres

Grs Liv.Area 259,472 SF

Number of Units: 282

Average Unit Size: 920 SF

Year Built: 1973, Renov 1995

No. of Stories: 2

Exterior: Stucco

Condition: Fair

Amenities: Pools (2), fitness center, laundry rooms (2), carports and washer/dryer connections

Sale DataTransaction Type: Sale

Date: 3/2012

Marketing Time: 4 months

Grantor: Catalysts Saddlewood, LLC

Grantee: Saddlewood Apartments San Antonio,LLC

Document No.: 15418/1675

Sale Price: $8,800,000

Financing: Cash to Seller

Cash Eq.Price: $8,800,000

Req.Capital Cost: $0

Adj. Sale Price: $8,800,000

Verification: Broker

AnalysisUnderwriting Criteria:

Overall Cap Rate (OAR): 7.25%

Projected IRR: 0.00%

Eff Gross Inc Mult (EGIM):

4.36

Op Exp Ratio (OER): 68.37%

Price Per SF: $33.92

Price Per Unit: $31,206

Occupancy / Lease DataSource: Broker

Occupancy at Sale: 97.00%

Based On: Pro Forma Income

Total Per Unit

Potential Gross Inc: $2,345,495 $8,317

Vacancy & Credit Loss: $328,369 $1,164

Effective Gross Inc: $2,017,126 $7,153

Expenses & Reserves: $1,379,125 $4,891

Net Operating Inc: $638,001 $2,262

Unit Type No. Min SF Max SF %

Efficiency 2 440 1%

1BR/1BA 120 746 43%

2BR/2BA 48 988 17%

2BR/2BA 64 1,018 23%

3BR/2BA 48 1,177 17%

Totals/Avg 282 100%

Unit Mix

CommentsThis property is located along the south side of NE Loop 410, west of Perrin-Beitel Road, in northeast San Antonio. The income and expense information is based on the trailing 3 month actuals, adjusted for $250/unit for reserves. Taxes were adjusted to 75% of the sale price and vacancy and collection loss includes 8% concessions.

© 2012 CBRE, Inc.


APARTMENT SALE No. 2Rockport LandingLocation DataLocation: 1300 Patricia Drive


County: Bexar

Parcel No: 624375

Atlas Ref:






Year Built: 1980, Renov 1992

No. of Stories: 2

Exterior:

Condition:

Amenities: Pool, two laundry rooms, tennis courts fitness center, club house, access gates and washer/dryer connections


Date: 2/2012


Grantor: Trivest Patricia, LP

Grantee: Cropston Bridge Rockport LLC & Bodger Birdge Rockport LLC








AnalysisUnderwriting Criteria: Direct Cap




4.58




Occupancy / Lease DataSource: Appraiser



Total Per Unit


Vacancy & Credit Loss: $154,894 $605





1BR/1BA 48 470 0 19%

1BR/1BA 32 520 0 13%

1BR/1BA 72 620 0 28%

1BR/1BA 32 717 0 13%

2BR/1BA 32 800 0 13%

2BR/2BA 40 956 0 16%

Totals/Avg 256 100%

Unit Mix

© 2012 CBRE, Inc.


APARTMENT SALE No. 2CommentsThis property is located along the west side of Patricia Drive, north of Parliament Drive, in north central San Antonio. The property was in fair condition at the time of sale. The broker indicated the cap rate to be slightly higher than 7%. The income and expense information is based on the broker's indcation of cap rate, with expenses adjusted to include reserves at $300 per unit.

© 2012 CBRE, Inc.

CBRE


APARTMENT SALE No. 3TimberockLocation DataLocation: 7220 Marbach Road


County: Bexar

Parcel No: 581171

Atlas Ref:






Year Built: 1982

No. of Stories: 2

Exterior:

Condition:

Amenities: Pool, leasing office, controlled access & laundry room


Date: 12/2011


Grantor: Blue Valley Apartments, Inc.

Grantee: Calton Investments, Inc.





Req.Capital Cost: $940,000







4.11







Total Per Unit




Expenses & Reserves: $908,995 $4,208



1BR/1BA 72 480 0 33%

2BR/1BA 144 796 0 67%

Totals/Avg 216 100%

Unit Mix

CommentsThis Class B/C property is located along the south side of Marbach Road, east of Loop 410, in west San Antonio. The property was in fair to average condition, with approximately $940,000 in deferred maintenance. Occupancy had increased from around 72% in late 2010 to 92% at the time of sale. The major deferred maintenance item involves the roofs,which need to be replaced on several buildings. The income and expense information is based on a review of the operating statements, no adjustments to taxes (assessed at 88.4% of sale price), and including reserves at $250 per unit.

© 2012 CBRE, Inc.


APARTMENT SALE No. 4Lodge on Perrin CreekLocation DataLocation: 2355 Austin Highway


County: Bexar

Parcel No: 501494

Atlas Ref:






Year Built: 1983

No. of Stories:

Exterior:

Condition: Average

Amenities: Pools (2), laundry rooms (2), washer/dryer connections and access gates


Date: 5/2011


Grantor: LB-UBS 2006-C3 Perrin

Grantee: Confidential





Req.Capital Cost: ($200,000)







4.58







Total Per Unit







1BR/1BA 84 532 0 27%

1BR/1BA 64 580 0 21%

1BR/1BA 80 647 0 26%

1BR/1BA 32 736 0 10%

1BR/1BA 16 929 0 5%

2BR/1BA 24 908 0 8%

2BR/2BA 8 1,054 0 3%

2BR/2BA 1 1,100 0 0%

Totals/Avg 309 100%

Unit Mix

© 2012 CBRE, Inc.


APARTMENT SALE No. 4CommentsThis property is a lender REO located along Austin Highway, in northeast San Antonio. Marketing began in November 2010 and was placed under contract right away. In January 2011, the sale fell out due to buyer limitations and was subsequently remarketed and placed under contract in February 2011. The sale closed on May 16, 2011. The sale price of $9,250,000 was adjusted for a $200,000 credit given the buyer at closing. Income and expense data is based on a review of the actual operating statements, adjusted to include $250 per unit reserves. The current assessed value of $7 million was adjusted slightly upward to $8 million, increasing taxes in the pro forma income calculation.

© 2012 CBRE, Inc.

CBRE


APARTMENT SALE No. 5LantanaLocation DataLocation: 4603 Vance Jackson Road


County: Bexar

Parcel No: 488571

Atlas Ref:





Average Unit Size: 1,007 SF

Year Built: 1972

No. of Stories: 2

Exterior:

Condition:

Amenities: Pool, leasing office and two laundry facilities


Date: 2/2011

Marketing Time: NA

Grantor: SA Multifamily Investment, Ltd.

Grantee: Triff Lantana












3.47







Total Per Unit

Potential Gross Inc: $798,910 $7,397


Effective Gross Inc: $691,057 $6,399

Expenses & Reserves: $479,810 $4,443



1BR/1BA 16 600 0 15%

1BR/1BA 12 800 0 11%

2BR/2BA 32 1,000 0 30%

3BR/2BA 48 1,200 0 44%

Totals/Avg 108 100%

Unit Mix

CommentsThis property is located along Vance Jackson, north of Loop 410, in the San Antonio NC2 submarket. The property was in fair condition at the time of the sale with some deferred maintenance. The broker indicated the property was not brought to the market and the buyer paid a slight premium to secure the property before it was introduced to the market. The income and expense information was based on a review of the opertaing statements, adjusting for taxes in line with the sale price and inclusive of $250 per unit in reserves.

© 2012 CBRE, Inc.



ADDENDUM B

RENT COMPARABLE DATA SHEETS

© 2012 CBRE, Inc.


APARTMENT COMPARABLE No. 1Brian PlaceLocation DataLocation: 231 19th street

Hondo, TX 78861

County: Medina

Parcel No: R4113

Atlas Ref:

Physical DataType: Multi-family Walk-up

Number of Units: 40

Year Built 2001

No. of Stories 1


Exterior: Brick Veneer

Condition: Average

Amenities: Laundry

Occupancy / Lease DataOccupancy: 98.00 %

Rent Premiums: None

Concessions: None

Typical Lease Term: 12 months

Utilities incl. in Rent: Water, sewer & trash

Tenant Profile: Varies

Management Co.: Brian Place

Phone No: 830-741-2055

Survey Date: 9/12

Unit Type No. SF Rent Rent Per Sq Ft

1BR/1BA 16 528 $443 $0.84

2BR/1BA 16 700 $554 $0.79

3BR/2BA 8 900 $610 $0.68

Total/Avg 40 26,848 $521 $0.78

Rent Summary

CommentsThis property is located along the south side of Highway 90, in eastern Hondo. The property consists of one-story buildngs with a mix of one-, two- and three-bedroom units. The property pays all utilities, except electricty.

© 2012 CBRE, Inc.


APARTMENT COMPARABLE No. 2Country VillasLocation DataLocation: 211 Meadows Drive

Castroville, TX 78009

County: Medina

Parcel No:

Atlas Ref:



Year Built 1986

No. of Stories 2



Condition: Average

Amenities: None


Rent Premiums: None

Concessions: Included in the stated rates

Typical Lease Term: 12 month

Utilities incl. in Rent: Water & trash

Tenant Profile: Families

Management Co.:

Phone No: 830-538-2746

Survey Date: 9/12


1BR/1BA 24 669 $625 $0.93

2BR/2BA 20 860 $721 $0.84

2BR/2BA 84 913 $721 $0.79

Total/Avg 128 109,948 $703 $0.82

Rent Summary

CommentsThis property was originally developed as condominiums, but with the lack of demand for condos, was converted to a rental property. Downstairs units lease for $75 more per month than upstairs units. The rates above reflect the average rents for two-bedroom units with upstairs being $700/month and downstairs being $775/month. Current speicals include 1/2 off 1st month's rent on upstairs two-bedroom units on a 12 month lease only. Residents are responsible for electricty and sewer, while the property pays water and trash.

© 2012 CBRE, Inc.


APARTMENT COMPARABLE No. 3LandmarkLocation DataLocation: 2001 Boerne Avenue

Hondo, TX 78861

County: Medina

Parcel No: R18398

Atlas Ref:


Number of Units:

Year Built 1978

No. of Stories 2

Average Unit Size:


Condition: Average

Amenities: Pool, leasing office and laundry


Rent Premiums: None

Concessions: None


Utilities incl. in Rent: None


Management Co.:

Phone No: 830-741-4777

Survey Date: 9/12


1BR/1BA 0 557 $425 $0.76

2BR/2BA 0 800 $460 $0.58

2BR/2BA 0 1000 $490 $0.49

Total/Avg 0 0 $0 $0.00

Rent Summary

CommentsThis proeprty is located along the east side of Boerne Avenue, in western Hondo. No specials are being offered at this time. Tenants pay all utilities.

© 2012 CBRE, Inc.


APARTMENT COMPARABLE No. 4Tuscany CourtLocation DataLocation: 2208 14th Street

Hondo, TX 78861

County: Medina

Parcel No: R63797

Atlas Ref:


Number of Units: 76

Year Built 2004

No. of Stories 2

Average Unit Size: 1,192 SF

Exterior: Stone

Condition: Average

Amenities: Pool, fitness center, business center, club house with kitchen, laundry, washer/dryer connections, direct access garages and perimmeter fencing


Rent Premiums: None

Concessions: None


Utilities incl. in Rent: None


Management Co.:

Phone No: 830-426-4220

Survey Date: 9/12


2BR/1BA 20 980 $658 $0.67

3BR/2BA 56 1268 $800 $0.63

Total/Avg 76 90,608 $763 $0.64

Rent Summary

CommentsThis property is located along the north side of 14th Street, in northwest Hondo. Each unit has a direct access garage and washer/dryer connections. No specials are currently offered. Tenants pay all utilities.

© 2012 CBRE, Inc.



ADDENDUM C

OPERATING DATA

© 2012 CBRE, Inc.


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FrIi»')o. ~ 7, 2012


C O T T O N W O O D R E S I D E N T I A L™

PTD Actual PTD Budget Variance % Var YTD Actual YTD Budget Variance % Var Annual

Gross Potential Rent

4002. Market Rent 61,080.00 61,080.00 0.00 0.00 255,009.00 255,010.00 -1.00 0.00 621,490.00

4004. Loss/Gain to Lease 471.00 0.00 471.00 N/A 628.00 0.00 628.00 N/A 0.00

Total Gross Potential Rent 61,551.00 61,080.00 471.00 0.77 255,637.00 255,010.00 627.00 0.25 621,490.00

Net Rental Income/Loss

4104. Less: Vacancy -5,967.87 -4,524.44 -1,443.43 -31.90 -21,469.26 -21,491.10 21.84 0.10 -54,858.87

4111. Less: Bad Debt 0.00 -610.80 610.80 100.00 0.00 -2,443.20 2,443.20 100.00 -6,108.00

4117. Less Concessions Upfront 200.00 0.00 200.00 N/A -1,530.25 0.00 -1,530.25 N/A 0.00

4118. Less Concessions Prorated 0.00 0.00 0.00 N/A -853.81 0.00 -853.81 N/A 0.00

4120. Less: Concessions Renewal 0.00 0.00 0.00 N/A -25.00 0.00 -25.00 N/A 0.00

Total Rental Income/Loss -5,767.87 -5,135.24 -632.63 -12.32 -23,878.32 -23,934.30 55.98 0.23 -60,966.87

Other Income

4203. Renter's Insurance 0.00 0.00 0.00 N/A 79.60 0.00 79.60 N/A 0.00

4204. Interest Income - Operating Accounts 0.00 0.00 0.00 N/A 0.32 0.00 0.32 N/A 0.00

4210. Laundry Income 1,000.48 0.00 1,000.48 N/A 4,646.32 0.00 4,646.32 N/A 0.00

4212. Late Fees 200.00 150.00 50.00 33.33 785.00 700.00 85.00 12.14 1,900.00

4214. Returned Check Charge 0.00 0.00 0.00 N/A 50.00 50.00 0.00 0.00 150.00

4216. Lease Initiation/Administrative Fee 200.00 1,800.00 -1,600.00 -88.89 200.00 1,800.00 -1,600.00 -88.89 3,400.00

4217. Cleaning Charges 280.00 100.00 180.00 180.00 2,302.50 400.00 1,902.50 475.62 1,000.00

4218. Misc. Income 0.00 0.00 0.00 N/A -655.00 0.00 -655.00 N/A 0.00

4219. Damage Charges 925.00 100.00 825.00 825.00 6,642.49 400.00 6,242.49 1,560.62 1,000.00

4220. Application Fee 515.00 715.00 -200.00 -27.97 1,880.00 2,255.00 -375.00 -16.63 5,555.00

4222. Lease Buyout/Termination 3,743.25 0.00 3,743.25 N/A 14,903.25 0.00 14,903.25 N/A 0.00

4227. Electricity Income 0.00 0.00 0.00 N/A 42.67 0.00 42.67 N/A 0.00

4228. Pet Fees - Non Refundable 0.00 150.00 -150.00 -100.00 900.00 600.00 300.00 50.00 1,500.00

4236. Other Utility Income 0.00 0.00 0.00 N/A 364.07 0.00 364.07 N/A 0.00

4244. Month-Month Fee 500.00 100.00 400.00 400.00 1,639.25 400.00 1,239.25 309.81 1,000.00

4245. Short Term Lease Fee 0.00 0.00 0.00 N/A 100.00 0.00 100.00 N/A 0.00

4252. Trash Income 733.67 846.00 -112.33 -13.28 3,183.69 3,384.00 -200.31 -5.92 8,460.00

Total Other Income 8,097.40 3,961.00 4,136.40 104.43 37,064.16 9,989.00 27,075.16 271.05 23,965.00

Total Income 63,880.53 59,905.76 3,974.77 6.64 268,822.84 241,064.70 27,758.14 11.51 584,488.13

Operating Expenses

General & Administrative Expenses

5014. Mileage Reimbursement 0.00 50.00 50.00 100.00 806.48 856.80 50.32 5.87 1,156.80

5016. Credit Reports 154.50 247.50 93.00 37.58 593.86 935.00 341.14 36.49 2,365.00

5017. Letterhead/Business Cards 0.00 0.00 0.00 N/A 0.00 0.00 0.00 N/A 184.00

5020. Bank Service Charge 143.42 100.00 -43.42 -43.42 386.56 400.00 13.44 3.36 996.00

5021. Shopping Reports 100.00 110.00 10.00 9.09 100.00 110.00 10.00 9.09 330.00

5022. Office Internet 0.00 35.00 35.00 100.00 67.93 140.00 72.07 51.48 350.00

Encinito Apartmets (tx031)

Budget ComparisonPeriod = Jun 2012

Book = Accrual

© 2012 CBRE, Inc.






Book = Accrual

5023. Computer & IT Support/Repair 150.00 150.00 0.00 0.00 450.00 600.00 150.00 25.00 1,500.00

5024. Cell Phones/Emergency Answering 0.00 25.00 25.00 100.00 25.00 100.00 75.00 75.00 250.00

5025. Answering Service/On Hold Greeting 109.00 109.00 0.00 0.00 621.30 621.30 0.00 0.00 1,275.30

5026. Uniforms 107.21 250.00 142.79 57.12 107.21 250.00 142.79 57.12 500.00

5028. Business Meals 0.00 25.00 25.00 100.00 230.76 275.00 44.24 16.09 425.00

5032. Dues and Subscriptions 0.00 0.00 0.00 N/A 230.00 230.00 0.00 0.00 230.00

5034. Office Supplies 114.90 50.00 -64.90 -129.80 954.62 940.00 -14.62 -1.56 1,240.00

5036. Software (YARDI)/Training 609.38 609.38 0.00 0.00 1,828.14 2,437.52 609.38 25.00 6,093.80

5037. Corporate Travel 150.00 150.00 0.00 0.00 2,471.90 2,472.00 0.10 0.00 3,372.00

5038. Postage and Delivery 150.00 150.00 0.00 0.00 476.29 630.00 153.71 24.40 1,620.00

5040. Clubhouse Refreshments 0.00 25.00 25.00 100.00 0.00 100.00 100.00 100.00 250.00

5041. Blue Moon Software 0.00 0.00 0.00 N/A 484.03 484.25 0.22 0.05 879.25

5042. Telephone 195.64 196.00 0.36 0.18 3,655.22 3,698.00 42.78 1.16 5,498.00

5043. Telephone Long Distance 0.00 0.00 0.00 N/A 51.64 0.00 -51.64 N/A 0.00

Total General & Administrative Expenses 1,984.05 2,281.88 297.83 13.05 13,540.94 15,279.87 1,738.93 11.38 28,515.15

Management Fees

5102. Management Fee 1,916.80 1,797.17 -119.63 -6.66 9,094.53 8,093.81 -1,000.72 -12.36 18,396.51

Total Management Fees 1,916.80 1,797.17 -119.63 -6.66 9,094.53 8,093.81 -1,000.72 -12.36 18,396.51

Payroll

Management Payroll

5152. Management Salaries 2,841.50 2,841.50 0.00 0.00 9,795.33 12,621.30 2,825.97 22.39 29,277.14

5155. Management Workers Comp 56.89 57.00 0.11 0.19 170.67 228.00 57.33 25.14 570.00

5156. Management Incentive Pay 456.31 615.00 158.69 25.80 771.55 1,843.00 1,071.45 58.14 8,188.00

5158. Management Payroll Taxes 404.39 404.00 -0.39 -0.10 1,004.91 1,655.00 650.09 39.28 4,035.59

5160. Management Health/Dental Benefits 388.05 392.16 4.11 1.05 790.32 1,568.64 778.32 49.62 3,921.60

5161. Management Rent Credit 143.00 143.00 0.00 0.00 429.00 572.00 143.00 25.00 1,430.00

5162. Other Employee Related Costs/ADP 35.00 35.00 0.00 0.00 100.25 140.00 39.75 28.39 350.00

Total Management Payroll 4,325.14 4,487.66 162.52 3.62 13,062.03 18,627.94 5,565.91 29.88 47,772.33

Maintenance Payroll

5202. Maintenance Salaries 3,240.73 3,240.73 0.00 0.00 19,439.62 19,639.46 199.84 1.02 39,558.22

5205. Maintenance Workers Comp 69.54 70.00 0.46 0.66 208.62 280.00 71.38 25.49 700.00

5206. Maintenance Incentive Pay 249.38 100.00 -149.38 -149.38 290.24 450.00 159.76 35.50 2,975.00

5208. Maintenance Payroll Taxes 276.02 399.07 123.05 30.83 1,729.12 2,223.44 494.32 22.23 4,941.74

5210. Maintenance Health/Dental Benefits 384.42 392.16 7.74 1.97 711.74 1,568.64 856.90 54.63 3,921.60

5212. Other Employee Related Costs/ADP 35.00 35.00 0.00 0.00 115.25 140.00 24.75 17.68 350.00

Total Maintenance Payroll 4,255.09 4,236.96 -18.13 -0.43 22,494.59 24,301.54 1,806.95 7.44 52,446.56

Total Payroll 8,580.23 8,724.62 144.39 1.66 35,556.62 42,929.48 7,372.86 17.17 100,218.89

Repairs & Maintenance In House

5304. Painting Supplies 314.16 315.00 0.84 0.27 1,572.56 1,655.00 82.44 4.98 3,415.00

5308. Cleaning Supplies 32.11 50.00 17.89 35.78 235.69 350.00 114.31 32.66 650.00

© 2012 CBRE, Inc.






Book = Accrual

5312. Plumbing Supplies 381.05 400.00 18.95 4.74 2,099.43 2,800.00 700.57 25.02 4,600.00

5314. Electrical Supplies 334.08 100.00 -234.08 -234.08 960.94 700.00 -260.94 -37.28 1,300.00

5315. Light Bulbs 86.08 50.00 -36.08 -72.16 306.79 350.00 43.21 12.35 550.00

5316. Exterior Building Repair Supplies 0.00 25.00 25.00 100.00 309.27 275.00 -34.27 -12.46 425.00

5318. Interior Building/Carpentry/Hardware Supplies 209.06 180.00 -29.06 -16.14 817.03 720.00 -97.03 -13.48 1,480.00

5320. Appliance Repair Parts 580.69 250.00 -330.69 -132.28 1,330.24 1,200.00 -130.24 -10.85 2,100.00

5322. Linoleum/Tile Repair Supplies 0.00 0.00 0.00 N/A 78.32 78.00 -0.32 -0.41 148.00

5324. Windows/Screen Repair Supplies 0.00 0.00 0.00 N/A 64.29 0.00 -64.29 N/A 0.00

5326. Locks/Keys 47.28 200.00 152.72 76.36 1,253.43 1,285.00 31.57 2.46 1,985.00

5329. Pest Control Supplies In-House 127.26 50.00 -77.26 -154.52 177.98 200.00 22.02 11.01 500.00

5332. HVAC Repair Supplies 878.40 1,100.00 221.60 20.15 4,545.81 5,100.00 554.19 10.87 8,300.00

5334. Maintenance Equipment 78.98 50.00 -28.98 -57.96 125.09 200.00 74.91 37.46 500.00

5335. Misc. Repairs and Maintenance Supplies 0.00 625.00 625.00 100.00 2,510.34 3,182.00 671.66 21.11 3,782.00

Total Repairs & Maintenance In House 3,069.15 3,395.00 325.85 9.60 16,387.21 18,095.00 1,707.79 9.44 29,735.00

Grounds & Landscaping In House

5512. Landscape Supplies 62.22 100.00 37.78 37.78 62.22 100.00 37.78 37.78 200.00

5514. Fire Equipment/Safety 62.53 30.00 -32.53 -108.43 62.53 120.00 57.47 47.89 300.00

5524. Misc Grounds/Landscaping 0.00 25.00 25.00 100.00 0.00 100.00 100.00 100.00 250.00

Total Grounds & Landscaping In House 124.75 155.00 30.25 19.52 124.75 320.00 195.25 61.02 750.00

Vendor Contract Services

5602. Alarm Service 0.00 35.00 35.00 100.00 0.00 140.00 140.00 100.00 350.00

5606. Pest Control Contract 122.55 125.00 2.45 1.96 466.80 500.00 33.20 6.64 1,250.00

5608. Unit Cleaning Services 665.01 1,170.00 504.99 43.16 2,906.69 3,714.69 808.00 21.75 8,974.69

5609. Carpet Cleaning Service 0.00 0.00 0.00 N/A 0.00 102.00 102.00 100.00 102.00

5614. Painting 0.00 2,050.00 2,050.00 100.00 4,847.23 9,402.00 4,554.77 48.44 20,152.00

5616. Glass/Screen Replacement 118.84 120.00 1.16 0.97 756.36 998.00 241.64 24.21 1,718.00

5619. Landscape Service 943.47 1,890.00 946.53 50.08 5,348.64 4,410.00 -938.64 -21.28 13,230.00

5621. Plumbing Repair Service 0.00 0.00 0.00 N/A 747.65 750.00 2.35 0.31 1,450.00

Total Vendor Contract Services 1,849.87 5,390.00 3,540.13 65.68 15,073.37 20,016.69 4,943.32 24.70 47,226.69

Advertising & Marketing

5702. Promotion/Misc. Marketing 534.31 555.00 20.69 3.73 534.31 615.00 80.69 13.12 735.00

5703. Banners/Signs/Flags 0.00 0.00 0.00 N/A 0.00 50.00 50.00 100.00 100.00

5708. Brochures/Flyers 0.00 0.00 0.00 N/A 674.22 675.00 0.78 0.12 675.00

5709. Web Site 184.68 0.00 -184.68 N/A 187.68 0.00 -187.68 N/A 0.00

5711. Locators 0.00 0.00 0.00 N/A 116.09 0.00 -116.09 N/A 0.00

5712. Resident/Other Referrals 0.00 100.00 100.00 100.00 0.00 400.00 400.00 100.00 1,000.00

5714. Resident Renewal Expense 0.00 25.00 25.00 100.00 0.00 100.00 100.00 100.00 250.00

5716. Resident Activities 0.00 0.00 0.00 N/A 0.00 0.00 0.00 N/A 750.00

5717. Misc Resident Expense 0.00 54.00 54.00 100.00 108.00 216.00 108.00 50.00 540.00

5718. Conferences/Education 42.12 0.00 -42.12 N/A 801.88 732.00 -69.88 -9.55 732.00

© 2012 CBRE, Inc.






Book = Accrual

Total Advertising & Marketing 761.11 734.00 -27.11 -3.69 2,422.18 2,788.00 365.82 13.12 4,782.00

Legal & Professional

5804. Legal 150.00 150.00 0.00 0.00 450.00 600.00 150.00 25.00 1,500.00

Total Legal & Professional 150.00 150.00 0.00 0.00 450.00 600.00 150.00 25.00 1,500.00

Utilities

5904. Vacant Electric 20.00 280.00 260.00 92.86 2,575.44 1,910.00 -665.44 -34.84 3,975.00

5906. Common Area/Other Electric 2,545.05 1,770.00 -775.05 -43.79 11,173.36 8,740.00 -2,433.36 -27.84 19,360.00

5910. Common Area/Other Gas 0.00 0.00 0.00 N/A 468.83 0.00 -468.83 N/A 0.00

5912. Water 767.31 875.00 107.69 12.31 7,494.04 7,615.00 120.96 1.59 12,865.00

5913. Sewer 9.44 975.00 965.56 99.03 3,878.30 4,425.00 546.70 12.35 10,275.00

5914. Trash Removal Service 1,438.30 1,433.00 -5.30 -0.37 3,632.61 4,390.00 757.39 17.25 12,988.00

Total Utilities 4,780.10 5,333.00 552.90 10.37 29,222.58 27,080.00 -2,142.58 -7.91 59,463.00

Taxes

6102. Real Estate Tax Expense 2,249.22 2,249.22 0.00 0.00 13,993.15 13,993.66 0.51 0.00 27,488.98

Total Taxes 2,249.22 2,249.22 0.00 0.00 13,993.15 13,993.66 0.51 0.00 27,488.98

Insurance

6202. Property Insurance Expense 1,458.00 1,458.00 0.00 0.00 7,390.00 7,390.00 0.00 0.00 16,138.00

Total Insurance 1,458.00 1,458.00 0.00 0.00 7,390.00 7,390.00 0.00 0.00 16,138.00

Total Operating Expenses 26,923.28 31,667.89 4,744.61 14.98 143,255.33 156,586.51 13,331.18 8.51 334,214.22

Net Operating Income 36,957.25 28,237.87 8,719.38 30.88 125,567.51 84,478.19 41,089.32 48.64 250,273.91

Interest Expense

8002. Mortgage Interest 18,945.78 18,945.78 0.00 0.00 75,783.12 75,783.12 0.00 0.00 189,457.80

Total Interest Expense 18,945.78 18,945.78 0.00 0.00 75,783.12 75,783.12 0.00 0.00 189,457.80

Net Income 18,011.47 9,292.09 8,719.38 93.84 49,784.39 8,695.07 41,089.32 472.56 60,816.11

Capital Improvements

1636. Equipment/Tools 739.03 739.03 0.00 0.00 739.03 739.03 0.00 0.00 739.03

1647. Exterior Electrical/Lighting 0.00 0.00 0.00 N/A 521.90 530.00 8.10 1.53 530.00

1654. Exterior Stair Replacement 0.00 0.00 0.00 N/A 0.00 0.00 0.00 N/A 7,000.00

1658. Exterior Plumbing 0.00 0.00 0.00 N/A 250.00 0.00 -250.00 N/A 0.00

1666. Office Computer Equipment 0.00 0.00 0.00 N/A 448.69 450.00 1.31 0.29 450.00

1676. Unit Blinds 215.76 170.00 -45.76 -26.92 1,441.17 1,470.00 28.83 1.96 2,745.00

1678. Unit Carpet 0.00 800.00 800.00 100.00 10,595.63 12,450.00 1,854.37 14.89 21,250.00

1681. Unit Dishwasher 214.34 0.00 -214.34 N/A 1,054.37 840.00 -214.37 -25.52 1,270.00

1684. Unit Fridge 0.00 0.00 0.00 N/A 4,701.30 4,701.00 -0.30 -0.01 5,701.00

1687. Unit HVAC Building 1,352.03 1,000.00 -352.03 -35.20 7,941.93 7,602.00 -339.93 -4.47 8,602.00

© 2012 CBRE, Inc.


Total

Income

Rental Income

Gross Potential Rent 732,960.00 ` Less Concession -592.17

Less Delinquencies -143,622.05

Less Vacancy -80,155.05

Loss/Gain to Lease 6,546.00

Plus Misc Income 24,768.52

Plus Security Deposit 1,431.00

Prepaid 92,735.47

Total Rental Income $ 634,071.72

Total Income $ 634,071.72

Expenses

Admin

Dues and Subscriptions 4,083.75

Postage and Delivery 478.92

Printing and Reproduction 197.09

Rental Expense 25,596.48

Total Admin $ 30,356.24

Expenses 1,073.00

Payroll

Maintenance Salary 52,970.30

Office Salary 20,530.27

Payroll Taxes 18,581.60

Total Payroll $ 92,082.17

Professional Fees

Legal Fees 2,354.00

Management Fees 28,386.08

Total Professional Fees $ 30,740.08

Repairs and Mainenance

Contract Labor 14,676.49

Exterior Repairs 5,120.31

Interior Repairs 8,117.42

Landscaping 11,678.03yPaints 15,828.12

Pest Control 2,175.34pMainenance $ 57,595.71

Supplies

Marketing 482.77

Encinito ApartmentsProfit & Loss

January - December 2011

© 2012 CBRE, Inc.


Office 4,167.75

Total Supplies $ 4,650.52

Taxes

Property 27,651.30

Total Taxes $ 27,651.30

Utilities

Gas and Electric 38,990.22

Telephone 6,054.61

Total Utilities $ 45,044.83

Total Expenses $ 289,193.85

Net Operating Income $ 344,877.87

Other Income

Interest Income 1.33

Total Other Income $ 1.33

Other Expenses

Capital Expense 17,945.76

Guaranteed Payment 24,240.00

Interest Expense 13,201.46

Mortgage 149,102.41

Total Interest Expense $ 162,303.87

Other Expenses 22,500.00

Total Other Expenses $ 226,989.63

Net Other Income -$ 226,988.30

Net Income $ 117,889.57

© 2012 CBRE, Inc.



ADDENDUM D

PRÉCIS METRO REPORT - ECONOMY.COM, INC.

© 2012 CBRE, Inc.


SHORTTERM

LONGTERM

STRENGTHS & WEAKNESSES

CURRENT EMPLOYMENT TRENDS

FORECAST RISKSRISK-ADJUSTEDRETURN, ’11-16

RELATIVE EMPLOYMENT PERFORMANCE (1997=100)

EMPLOYMENT GROWTH RANK

VITALITY

LIFE CYCLE PHASE

U.S.=100% Best=1 Worst=384

Best=1, Worst=392 U.S.=100%

2011-2013

RELATIVE COSTSLIVING BUSINESS

2011-2016

RELATIVE RANK

ANALYSIS

MOODY’S ANALYTICS / Précis U.S. Metro / South / July 2012 87

U.S. SAZ

90100110120130140150160

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F 14F 15F 16F

44 1st quintile

20 1st quintile 81%100%

Recent Performance. Employment growth in San Antonio has decelerated in 2012, and year over year, the pace has roughly matched the national av-erage, slower than other major Texas metro areas. However, the level is already above its prerecession peak because of the relative mildness of the 2008-2009 recession, which coincided with strong Base Realignment and Closure-related gains. Construc-tion and manufacturing are leading the way, and the deep drag from declines in local government appears to have ended. The unemployment rate has declined by a full percentage point over the past year to 6.7%, and more job seekers are re-entering the labor force.

Construction and distribution. Construction employment bottomed out in early 2011, has grown at a 5% pace over the past year, and will get additional support from Port San Antonio’s deci-sion to build additional rail lines. The expansion will begin later in 2012 and result in about three miles of new rail lines at the East Kelly Railport, approximately double the existing capacity. The aim is to attract more transportation companies serving the Eagle Ford shale. At present, three dis-tribution companies use the port’s rail, and others such as Cornell Carriers, which ships sand for use in drilling, plan to increase their payrolls.

The construction industry is also benefiting from the recovery in new permits for multifamily con-struction back to a pace just below the pre-boom av-erage. More residential building will occur in 2013 as single-family construction begins to rebound.

Commercial aerospace. The commercial aero-space industry will grow further as Boeing moves more maintenance and modification work from Wichita KS to a site on the former Kelly Air Force Base. Professional and technical services will ben-efit as the facility performs painting, inspections, drop-in maintenance, logistics support, and corro-sion control. The move will generate approximately

400 jobs locally, adding to the 2,700 the company already employs in the region. The first airplane is expected to arrive toward the end of 2012. SAZ won the business in part because of its relatively lower costs of doing business, particularly for the space, which costs 70% less because it is leased instead of owned. Another advantage is that SAZ has the physical space to handle four to seven times as many planes as Wichita. According to Boeing, its local fa-cility houses the largest freestanding high-bay hangar in the world. Additionally, the historically large con-centration of Air Force bases in SAZ has resulted in a large contingent of workers with relevant skills. Last year, similar work on Boeing’s 787 Dreamliner was transferred to SAZ, also generating about 400 jobs.

Demographics. Significantly above-average pop-ulation growth will continue to support consumer-oriented industries, although the gains will begin to decelerate over the next several years. The BRAC, during which soldiers and their families came to the area, has concluded. Similarly, the related in-flow of healthcare professionals will also slow as the metro area’s capacity as a military medical hub is reached. However, the area’s central location as a distribution hub between Mexico and points east in Texas, and its relatively low costs of living and doing business will ensure that SAZ will remain a draw for in-migrants.

The San Antonio economy will continue to ad-vance in the near term, supported by expansion of the Eagle Ford shale energy industry and gradual gains in the national economy. The drag from lo-cal government cutbacks will dissipate. Addition-ally, the concentration of military cybersecurity and medical activity, growth in commercial aero-space, and above-average population gains will contribute to SAZ’s above-average performance.

Edward FriedmanJuly 2012

STRENGTHS ● Increased concentration of military medical activities owing to BRAC-related development.

● Strategic location for growing trade and distribution industries in the Southwest.

WEAKNESSES ● Vulnerability to spending volatility in tourism and truck production.

● Below-average incomes limiting growth in discretionary consumer spending.

UPSIDE ● Boom in Eagle Ford Shale exploration lifts professional services, distribution industries.

● Expansion of commercial aerospace business leads to added hiring, new support businesses.

DOWNSIDE ● Military downsizing results in more layoffs than expected.

● State deficit squeezes government employment longer than expected.

DataBuffet® MSA code: MSAZ

119%

SAN ANTONIO

Growth/Mature

43X X 1.67%

2005 2006 2007 2008 2009 2010 2011 INDIcATORS 2012 2013 2014 2015 2016 67.5 70.8 74.3 76.2 74.1 77.5 81.0 Gross metro product (c$B) 83.9 87.0 90.8 94.7 98.8 3.7 5.0 4.9 2.5 -2.7 4.5 4.6 % change 3.5 3.8 4.3 4.3 4.3 781.9 811.5 834.3 852.5 836.7 843.3 852.7 Total employment (000) 866.9 889.4 920.5 956.1 990.0 2.9 3.8 2.8 2.2 -1.9 0.8 1.1 % change 1.7 2.6 3.5 3.9 3.5 5.0 4.6 4.1 4.7 6.6 7.4 7.4 Unemployment rate 6.7 6.7 6.7 6.6 6.0 8.6 8.5 8.2 5.4 -1.8 5.6 5.7 Personal income growth 3.3 4.1 5.8 7.3 7.5 1,896.3 1,956.4 2,011.5 2,061.3 2,105.7 2,153.9 2,194.9 Population (000) 2,241.5 2,287.2 2,333.1 2,380.1 2,427.0 14,706 13,841 9,350 6,010 5,486 5,144 4,410 Single-family permits 6,190 8,145 11,956 14,607 14,216 7,599 5,920 3,945 4,564 438 1,721 2,717 Multifamily permits 2,458 2,394 2,389 2,312 2,143 133.3 141.3 152.9 151.4 148.7 150.7 152.0 Existing-home price ($ ths) 158.3 157.9 162.0 168.5 173.3 8,442 9,240 9,343 6,852 8,624 6,955 5,171 Mortgage originations ($ mil) 6,175 4,074 3,983 4,614 5,105 23.5 43.5 36.4 30.3 24.9 29.5 23.4 Net migration (000) 28.7 27.5 27.5 28.3 28.1 8,143 2,567 3,211 3,653 4,585 4,557 4,070 Personal bankruptcies 4,135 4,271 4,431 4,300 4,368

% cHANGE yR AGO, 3-MO MA

Oct 11 Feb 12 Jun 12

Total 0.7 1.0 1.4Construction -1.6 3.3 5.5Manufacturing 3.1 1.9 2.3Trade 1.4 2.9 2.8Trans/Utilities 4.4 2.9 2.2Information 0.5 -1.8 -4.0Financial Activities 3.9 1.9 1.0Prof & Business Svcs. -2.0 -1.8 -2.0Edu & Health Svcs. 2.2 1.9 2.8Leisure & Hospitality 2.8 3.9 5.4Other Services 0.1 0.7 1.6Government -2.3 -2.6 -2.0

© 2012 CBRE, Inc.


EMPLOYMENT & INDUSTRY MIGRATION FLOWS

LEADING INDUSTRIESHOUSE PRICES

COMPARATIVE EMPLOYMENT AND INCOME

PER CAPITA INCOME

Due to U.S. fl uctuations Relative to U.S.

TOP EMPLOYERS

PUBLIC

INDUSTRIAL DIVERSITY

EMPLOYMENT VOLATILITY

Sources: IRS (top), 2010; Census Bureau, 2011

Sources: BLS, Moody’s Analytics, 2011

2011

Sources: Percent of total employment — Moody’s Analytics & BLS, 2011; Average annual earnings — BEA, 2010

NAICS INDUSTRY EMPLOYEES (000)

Sector % of Total Employment Average Annual Earnings

Not due to U.S. Due to U.S.

Most Diverse (U.S.)

Least Diverse

Source: Bureau of Economic Analysis, 2010

Source: FHFA, 1996Q1=100, NSA

MiningConstructionManufacturing Durable NondurableTransportation/UtilitiesWholesale TradeRetail TradeInformationFinancial ActivitiesProf. and Bus. ServicesEduc. and Health ServicesLeisure and Hosp. ServicesOther ServicesGovernment

MOODY’S RATING

88 MOODY’S ANALYTICS / Précis U.S. Metro / South / July 2012

Aaa cOUNTyAS OF AUG 04, 2011

INTO SAN ANTONIO, TX NUMBER OF MIGRANTS

Austin, TX 4,932Houston, TX 4,794Dallas, TX 2,475Corpus Christi, TX 2,226Fort Worth, TX 1,330Los Angeles, CA 1,308Washington, DC 1,292Killeen, TX 1,272El Paso, TX 1,102McAllen, TX 1,045Total In-migration 78,089

FROM SAN ANTONIO, TXAustin, TX 4,952Houston, TX 4,133Dallas, TX 2,511Corpus Christi, TX 1,444Killeen, TX 1,166Fort Worth, TX 1,098Washington, DC 904McAllen, TX 879El Paso, TX 769Colorado Springs, CO 724Total Out-migration 58,827

Net Migration 19,262

GVSL State & Local Government 124.97225 Restaurants and other eating places 71.3ML Military Personnel 35.4GVF Federal Government 35.36216 Home health care services 22.06221 General medical and surgical hospitals 21.45221 Depository credit intermediation 19.75241 Insurance carriers 19.35613 Employment services 17.74451 Grocery stores 17.06211 Offices of physicians 16.97211 Traveler accommodation 14.3FR Farms 14.12382 Building equipment contractors 11.65617 Services to buildings and dwellings 11.5

High-tech employment 31.2As % of total employment 3.4

2008 2009 2010 2011Domestic 26,171 21,141 24,936 19,515

Foreign 4,163 3,716 4,568 3,841

Total 30,334 24,857 29,504 23,356

Federal 35,288

State 19,204

Local 105,660

SAZ TX U.S. 0.4% 2.2% 0.6% 4.9% 5.3% 4.2% 5.4% 7.9% 8.9% 61.6% 64.6% 62.0% 38.4% 35.4% 38.0% 2.4% 4.1% 3.7% 3.4% 4.9% 4.2% 11.2% 11.0% 11.1% 2.2% 1.8% 2.0% 8.2% 6.0% 5.8% 11.8% 12.7% 13.2% 15.4% 13.5% 15.1% 12.4% 9.9% 10.1% 3.7% 3.5% 4.1% 18.8% 17.2% 16.8%

SAZ TX U.S. $45,421 $93,449 $70,081 $52,224 $55,344 $53,795 $57,656 $80,864 $73,041 nd $79,735 $75,070 nd $82,821 $69,828 $72,983 $74,206 $60,610 $66,252 $83,540 $75,460 $32,556 $31,573 $31,162 $67,953 $75,745 $91,647 $39,528 $42,295 $46,508 $44,840 $55,544 $60,384 $45,418 $48,853 $49,569 $23,112 $22,246 $24,000 $33,084 $34,758 $33,510 $70,732 $60,513 $66,559

Lackland AFB 39,604

Fort Sam Houston 26,907

USAA Insurance Co. 15,000

Randolph AFB 10,651

The Methodist Hospital System 7,747

Baptist Health System 6,310

University of Texas Health Science Center at SA 6,153

Alamo Community College District 5,347

University Health System 5,132

Wells Fargo 4,666

JPMorgan Chase and Co. 4,300

Christus Santa Rosa Health Care 4,235

University of Texas at San Antonio 4,007

CPS Energy 3,950

Brooke Army Medical Center 3,500

Clarke American Checks 3,200

Six Flags Fiesta Texas 3,000

Toyota Motor Manufacturing Texas Inc. 2,800

Southwest Research Institute 2,700

James A. Haley Veterans Hospital 2,500

Sources: Guide to Military Installations, 2011, San Antonio Business Journal, Book of Lists, 2012

0.00

0.20

0.40

0.60

0.80

1.000.82

0%

20%

40%

60%

80%

100%

85%

SAZ U.S.

10092

05,000

10,00015,00020,00025,00030,00035,000

08 09 10 11

Net Migration, SAZNET MIGRATION, SAZ

SAZ TX U.S.

34,969 37,747 39,937

SAZ U.S.

80

100

120

140

160

180

200

220

97 00 03 06 09 12

© 2012 CBRE, Inc.

• • • •

~ / --/ /

/ ./

, , , ,

- -• • •


MOODY’S ANALYTICS / Précis U.S. Metro / South / July 2012 89

SAN ANTONIO

-6

-4

-2

0

2

4

08 09 10 11 12

Recently Weakest of Major Texas Metro Areas…Employment, % change yr ago, 3-mo MA

Sources: BLS, Moody’s Analytics

U.S.

Texas

San Antonio

Eagle Ford Lifts Makers of Drilling Supplies

-16

-8

0

8

-10

-5

0

5

09 10 11 12

Industrial production (R)

Manufacturing employment (L)


% change yr ago

-12

-9

-6

-3

0

3

6

09 10 11 12

…Because of Big Decline in Local GovernmentEmployment, % change yr ago, 3-mo MA


Government

Private services

Goods producing

-1.0 -0.5 0.0 0.5 1.0 1.5

San Antonio

McAllen

Texas

Corpus Christi

El Paso

Brownsville

Change from2007 to 2010

Improving Labor Force Will Attract Business

Sources: Census Bureau, Moody’s Analytics

Population 25 and older with a bachelor’s degree, ppt

60 80 100 120

Houston

Austin

Dallas

Texas

Fort Worth

San Antonio

Low Cost Environment Also Drives Relocations

Source: Moody’s Analytics

Cost of doing business, U.S.=100, 2009

80

100

120

140

160

180

200

90 00 10 20F

U.S.

Texas

Population Gains Slow, but Stay Above AveragePopulation, 1990=100

Sources: Census Bureau, Moody’s Analytics

San Antonio

Several factors will be favorable for growth in business services throughout the forecast. First, the proportion of adults with a bachelor’s degree or higher has risen faster than in comparable metro areas in Texas. As BRAC-related military medical operations have grown, so has the inflow of well-trained healthcare profes-sionals. Second, the cost of doing business remains significantly lower than in the other major metro areas. Most recently, this and the growth in Eagle Ford have caused a number of energy services companies to plan to locate large local operations in the area.

Longer term, the SAZ housing market is set to grow steadily. The most important driver will be above-average population growth. Key to this expectation will be in-migration to take advantage of job opportunities related to Eagle Ford exploration and the expansion of military medical activities. The number of healthcare professionals engaging in training, research and care will grow. Although housing affordability is a bit lower than the national average, these higher-paid workers will be able to find relatively low-priced houses in the metro area.

© 2012 CBRE, Inc.


102 MOODY’S ANALYTICS / Précis U.S. Metro / South / July 2012

© 2012, Moody’s Analytics, Inc. and/or its licensors and affi liates (together, “Moody’s”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by Moody’s from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall Moody’s have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of Moody’s or any of its directors, offi cers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profi ts), even if Moody’s is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The fi nancial reporting, analysis, projections, observations, and other information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell, or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation prior to investing.

About Moody’s AnalyticsEconomic & Consumer Credit Analytics

Moody’s Analytics helps capital markets and credit risk management professionals worldwide respond to an evolving marketplace with confi dence. Through its team of economists, Moody’s Analytics is a leading independent provider of data, analysis, modeling and forecasts on national and regional economies, fi nancial markets, and credit risk.

Moody’s Analytics tracks and analyzes trends in consumer credit and spending, output and income, mortgage activity, popu-lation, central bank behavior, and prices. Our customized models, concise and timely reports, and one of the largest assembled fi nancial, economic and demographic databases support fi rms and policymakers in strategic planning, product and sales fore-casting, credit risk and sensitivity management, and investment research. Our customers include multinational corporations, governments at all levels, central banks and fi nancial regulators, retailers, mutual funds, fi nancial institutions, utilities, residen-tial and commercial real estate fi rms, insurance companies, and professional investors.

Our web and print periodicals and special publications cover every U.S. state and metropolitan area; countries throughout Eu-rope, Asia and the Americas; and the world’s major cities, plus the U.S. housing market and other industries. From our offi ces in the U.S., the United Kingdom, and Australia, we provide up-to-the-minute reporting and analysis on the world’s major economies.

Moody’s Analytics added Economy.com to its portfolio in 2005. Its economics and consumer credit analytics arm is based in West Chester PA, a suburb of Philadelphia, with offi ces in London and Sydney. More information is available at www.economy.com.

© 2012 CBRE, Inc.



ADDENDUM E

CLIENT CONTRACT INFORMATION

© 2012 CBRE, Inc.


VALUATION & ADVISORY SERVICES

CBRE, Inc. 2415 East Camelback Road, Suite 900 Phoenix, Arizona 85016

August 31, 2012 Michael R. Rowland, MAI, FRICS Senior Managing Director

Scott Miller MANAGEMENT SOLUTIONS RECEIVERSHIP PO Box 1290 Salt Lake City, UT 84110 Phone: 801.799.5978 Email: [email protected] RE: Assignment Agreement

Encinito Apartments 2805 Avenue U Hondo, TX Estates of Ecena Irving, TX

Dear Mr. Miller:

We are pleased to submit this proposal and our Terms and Conditions for this assignment.

PROPOSAL SPECIFICATIONS

Purpose: To estimate the Market Value of the referenced real estate Premise: As Is Rights Appraised: Fee Simple and Leased Fee, as appropriate Intended Use: Internal Decision Making purposes Intended User: The intended user is MANAGEMENT SOLUTIONS RECEIVERSHIP.

Reliance on any reports produced by CBRE under this Agreement is extended solely to the Client signing below and to any other Intended Users identified in this Agreement. Other parties or entities who obtain a copy of the report may not rely upon any opinions or conclusions contained in the report unless such party or entity has expressly been identified by CBRE as an Intended User.

Reliance Language: None Inspection: CBRE will conduct a physical inspection of both the interior and

exterior of the subject property, as well as its surrounding environs on the effective date of appraisal.

Valuation Approaches: All three traditional approaches to value will be considered. Report Type: Summary Appraisal Standards: USPAP Appraisal Fee: $10,000 Expenses: Fee includes all associated expenses Retainer: A retainer is not required for this assignment Payment Terms: Final payment is due and payable upon delivery of the final report or

within thirty (30) days of your receipt of the initial report, whichever is

© 2012 CBRE, Inc.


Scott Miller Assignment Agreement Page 3 of 7 August 31, 2012

sooner. The fee is considered earned upon delivery of the initial report. We will invoice you for the assignment in its entirety at the completion of the assignment.

Delivery Instructions: CBRE encourages our clients to join in our environmental sustainability efforts by accepting an electronic copy of the report. An Adobe PDF file via email will be delivered to [email protected]. The client has requested No (0) bound final copy(ies). Charges may apply for additional copies (see Terms and Conditions).

Delivery Schedule: Preliminary Value: Not Required Draft Report: September 7, 2012 Final Report: Upon Client’s request

Start Date: The appraisal process will start upon receipt of your signed agreement and the property specific data.

Acceptance Date: These specifications are subject to modification if this proposal is not accepted within 5 business days from the date of this letter.

TERMS AND CONDITIONS

The attached Terms and Conditions and Specific Property Data Request are deemed a part of this agreement as though set forth in full herein. We appreciate this opportunity to be of service to you on this assignment. If you have additional questions, please contact us. Sincerely, CBRE, Inc. Valuation & Advisory Services

Michael R. Rowland, MAI, FRICS Senior Managing Director As Agent for CBRE, Inc. T 602-735-5508 F 602-735-5613 [email protected]

© 2012 CBRE, Inc.


Scott Miller Assignment Agreement Page 4 of 7 August 31, 2012

AGREED AND ACCEPTED

FOR MANAGEMENT SOLUTIONS RECEIVERSHIP:

Signature Date Name Title Phone Number Fax Number E-Mail Address

© 2012 CBRE, Inc.



ADDENDUM F

QUALIFICATIONS

© 2012 CBRE, Inc.


QUALIFICATIONS OF CLAUDE R. “BUDDY” URBAN, MAI First Vice President CBRE, Inc., Valuation and Advisory Services 200 Concord Plaza, Suite 800 San Antonio, TX 78216 (210) 253-6009 EDUCATIONAL Bachelor of Business Administration, Sam Houston State University, Huntsville, Texas LICENSE(S)/CERTIFICATION(S) Certified General Real Estate Appraiser: State of Texas (No. TX-1320516-G) Licensed Real Estate Broker: State of Texas PROFESSIONAL Appraisal Institute

Designed Member (MAI), Membership No. 81922

EMPLOYMENT EXPERIENCE 1984 to 1986 Associate Consultant/Appraiser, Michael J. Urban & Assoc., Inc. Houston, TX 1986 to 1992 Associate Consultant/Appraiser, Dominy, Ford & McPherson, Inc., Houston, TX 1992 to 1994 President and Principal Appraiser, Buddy R. Urban & Assoc., Houston, TX 1994 to 1998 President and Principal, NaturaLawn of America and Burnett Pipeline Co.,

Houston, TX 1998-2003 Associate Consultant/Appraiser, Gerald A. Teel, Inc., Houston, TX 2003-Present CBRE, Inc., San Antonio, TX Professional experience has been in the fee preparation/review of real estate appraisals, feasibility studies, rent analyses and market studies of commercial and residential properties. Primary experience encompasses a wide variety of property types including office, retail, industrial, multifamily, hotel, marinas, medical office, restaurant, parking garage, car wash, low-income housing, bond financed multi-family, residential subdivision, master-planned business park, bank branch, special purpose, and single family. Have also testified in eminent domain hearings and Federal bankruptcy. Assignments completed in Florida, Louisiana, Mississippi, Nevada, New Mexico, Kansas, Virgin Islands, British Virgin Islands, Puerto Rico and Texas.

© 2012 CBRE, Inc.


Douglas E. OldmixonCommissioner

Texas Appraiser Licensing and Certification BoardTexas Appraiser Licensing and Certification BoardTexas Appraiser Licensing and Certification BoardTexas Appraiser Licensing and Certification BoardP.O. Box 12188 Austin, Texas 78711-2188

Certified General Real Estate Appraiser

You may wish to laminate the pocket identification card to preserve it.

Inquiry as to the status of this license may be made to:

Texas Appraiser Licensing and Certification BoardP.O. Box 12188

Austin, Tx 78711-2188www.talcb.state.tx.us(512) 459-2232 (TREC)Fax:(512) 465-3995


The person named on the reverse is licensed by the Texas Appraiser Licensing and Certification Board.



Having provided satisfactory evidence of the qualifications required by the Texas Appraiser Licensing and Certification Act, Texas OccupationsCode, Chapter 1103, is authorized to use this title, Certified General Real Estate Appraiser.

Having provided satisfactory evidence of the qualifications required by theTexas Appraiser Licensing and Certification Act, Texas Occupations Code,Chapter 1103, is authorized to use this title, Certified General Real EstateAppraiser.

Number:

Issued:

1320516

Expires: 07/31/2013

Number#:

Issued: Expires:

CLAUDE RAYMOND URBAN

601 NW LOOP 410 STE 350

SAN ANTONIO, TX 78216

1320516

07/31/2013

Appraiser:

Appraiser:

05/12/2011


05/12/2011


TX G

TX G

© 2012 CBRE, Inc.


QUALIFICATIONS OF

DAVID O. THIBODEAUX, MAI Managing Director

CBRE, Inc.

VALUATION & ADVISORY SERVICES 100 Congress Avenue, Suite 500

Austin, Texas 78750 (512) 499-4928

FORMAL EDUCATION

Lamar University - B.A. Finance (1989)

CONTINUING EDUCATION All current requirements have been completed for each of the state’s certifications as well as the Appraisal Institute for the MAI designation.

LICENSE(S) / CERTIFICATION(S)

Certified Real Estate Appraiser: State of Texas (No. TX-1328395-G) Appraisal Institute Associate Member Registered Professional Appraiser: Board of Professional Tax Examiners Designated Member (MAI) 2008 Certificate No. 12507

EMPLOYMENT EXPERIENCE

Commercial real estate experience includes three years with National Facilities Corporation as an Acquisition Analyst with participation in the negotiation of sale, lease and financing contracts ranging in value from $250,000 to $25,000,000. Three years with the Harris County Appraisal District (HCAD) as a complex commercial property analyst with responsibilities including expert testimony for HCAD in protest hearings and court cases. In 1998 with CB Richard Ellis and the Capital Market Support Services Division (CMSS) promoted to Director. In capacity as Director, experience includes managing underwriting assignments for CMBS portfolio acquisitions ranging in size from 30-200 assets and ranging in value from $80,000,000 to $750,000,000. In capacity as a Managing Director for Central Texas Valuation and Consulting Division, experience includes consulting, review and appraisal services on several of the most significant commercial real estate transactions and development projects in the Central Texas Region. March 1998 - Present CBRE, Inc. Houston, Texas Managing Director January 1995 –March 1998 Harris County Appraisal District Houston, Texas Commercial Analyst January 1992-January 1995 Lee Burns & Company Houston, Texas Staff Appraiser May 1989 – November 1991 National Facilities Corp. Houston, Texas Acquisition Analyst

© 2012 CBRE, Inc.





You may wish to laminate the pocket identification card to preserve it.

Inquiry as to the status of this license may be made to:

Texas Appraiser Licensing and Certification BoardP.O. Box 12188

Austin, Tx 78711-2188www.talcb.state.tx.us(512) 459-2232 (TREC)Fax:(512) 465-3995


The person named on the reverse is licensed by the Texas Appraiser Licensing and Certification Board.



Having provided satisfactory evidence of the qualifications required by the Texas Appraiser Licensing and Certification Act, Texas OccupationsCode, Chapter 1103, is authorized to use this title, Certified General Real Estate Appraiser.

Having provided satisfactory evidence of the qualifications required by theTexas Appraiser Licensing and Certification Act, Texas Occupations Code,Chapter 1103, is authorized to use this title, Certified General Real EstateAppraiser.

Number:

Issued:

1328395

Expires: 01/31/2013

Number#:

Issued: Expires:

DAVID ODEUS THIBODEAUX

8206 ASMARA CT

AUSTIN, TX 78750

1328395

01/31/2013

Appraiser:

Appraiser:

01/27/2011


01/27/2011


TX G

TX G

© 2012 CBRE, Inc.


EXHIBIT B


FM000001

Doc# 2011002105 Vol. 812 Pag 4-1 'J4/12/2011 1:3'jPM e ~

Prepared by, and after recording return to:

Filicia Davenport, Esq. Ballard Spahr LLP 601 13th Street, NW, Suite 1000 South Washington, DC 20005

MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

(TEXAS)

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MA Y REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 TEXAS © 1997-2009 Fannie Mae (Encinito) DMEAST #13440319 v3

Doc# 2011002105 Vol. 812 Pag 4-1 'J4/12/2011 1:3'jPM e ~

Prepared by, and after recording return to:

Filicia Davenport, Esq. Ballard Spahr LLP 601 13th Street, NW, Suite 1000 South Washington, DC 20005



(TEXAS)

NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MA Y REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 TEXAS © 1997-2009 Fannie Mae (Encinito) DMEAST #13440319 v3


FM000002

TABLE OF CONTENTS

Do c# 21.1.11 1 002105 Vol. 812 Pace 432 <i4/12/2011 i:3'3~'M -

I. DEFINITIONS ..................................................................................................................... 1

2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT ..................................... 7

3. ASSIGNMENT OF RENTS; APPOINTMENT OF RECE[VER; LENDER IN POSSESSION ................................................................................................ 7

4. . -- ASSIGNM EN1'- 0F-bE-ASES;-I:£ASES-AFFEeTIN6-l'HE------MORTGAGED PROPERTY ............................................................................................. [0

5. PAYMENT OF [NDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM .................................................................. 11

6. EXCULPATION ................................................................................................................ 12

7. DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES .............................. 12

8. COLLATERAL AGREEMENTS ..................................................................................... 13

9. APPLICATION OF PAyMENTS ..................................................................................... [3

10. COMPLIANCE WITH LAWS .......................................................................................... 13

[I. USE OF PROPERTY ....................................................................... ~ ................................ [4

[2. PROTECTION OF LENDER'S SECURITy .................................................................... 14

13. [NSPECTION .................................................................................................................... [4

14. BOOKS AND RECORDS; FINANCIAL REPORTING .................................................. 14

15. TAXES; OPERATING EXPENSES ................................................................................. 16

[6. LIENS; ENCUMBRANCES ............................................................................................. 17

17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTy ............................................................................................. 17

[8. ENV[RONMENTAL HAZARDS ..................................................................................... 18

[9. PROPERTY AND LIABILITY INSURANCE ................................................................. 23

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page i TEXAS © 1997-2009 Fannie Mae (Encinito) DMEAST #13440319 v3

TABLE OF CONTENTS

Do c# 21.1.11 1 002105 Vol. 812 Pace 432 <i4/12/2011 i:3'3~'M -

I. DEFINITIONS ..................................................................................................................... 1

2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT ..................................... 7

3. ASSIGNMENT OF RENTS; APPOINTMENT OF RECE[VER; LENDER IN POSSESSION ................................................................................................ 7

4. . -- ASSIGNM EN1'- 0F-bE-ASES;-I:£ASES-AFFEeTIN6-l'HE------ -~-MORTGAGED PROPERTY ............................................................................................. [0

5. PAYMENT OF [NDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM .................................................................. 11

6. EXCULPATION ................................................................................................................ 12

7. DEPOSITS FOR TAXES, INSURANCE AND OTHER CHARGES .............................. 12

8. COLLATERAL AGREEMENTS ..................................................................................... 13

9. APPLICATION OF PAyMENTS ..................................................................................... [3

10. COMPLIANCE WITH LAWS .......................................................................................... 13

[I. USE OF PROPERTY ....................................................................... ~ ................................ [4

[2. PROTECTION OF LENDER'S SECURITy .................................................................... 14

13. [NSPECTION .................................................................................................................... [4

14. BOOKS AND RECORDS; FINANCIAL REPORTING .................................................. 14

15. TAXES; OPERATING EXPENSES ................................................................................. 16

[6. LIENS; ENCUMBRANCES ............................................................................................. 17

17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTy ............................................................................................. 17

[8. ENV[RONMENTAL HAZARDS ..................................................................................... 18

[9. PROPERTY AND LIABILITY INSURANCE ................................................................. 23

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page i TEXAS © 1997-2009 Fannie Mae (Encinito) DMEAST #13440319 v3


FM000003

I ( • \

20.

21.

22.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

42.

.Doc# 2011002105 Vol. 812 Page 4~-\34112/2~1! 1:39PM . ~~

CONDEMNATION ........................................................................................................... 25

TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER ..................................................................................................................... 26

EVENTS OF DEFAULT ................................................................................................... 3 I

REMEDIES CUMULATIVE ............................................................................................ 32

FORBEARANCE .............................................................................................................. 32

INTENTIONALLY DELETED ........................................................................................ 32

WAIVER OF STATUTE OF LIMITATIONS .................................................................. 32

WAIVER OF MARSHALING .......................................................................................... 33

FURTHER ASSURANCES .............................................................................................. 33

ESTOPPEL CERTIFICATE .............................................................................................. 33

GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE .......................... 33

NOTICE ............................................................................................................................. 34

SALE OF NOTE; CHANGE IN SERVICER ................................................................... 34

SINGLE ASSET BORROWER ........................................................................................ 34

SUCCESSORS AND ASSIGNS BOUND ........................................................................ 34

JOINT AND SEVERAL LIABILITY ............................................................................... 35

RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY ......................... 35

SEVERABILITY; AMENDMENTS ................................... , ............................................. 35

CONSTRUCTION ............................................................................................................. 35

LOAN SERVICING ....................................................................... : .................................. 35

DISCLOSURE OF INFORMATION ................................................................................ 36

NO CHANGE IN FACTS OR CIRCUMSTANCES ........................................................ 36

SUBROGATION ............................................................................................................... 36

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page ii TEXAS © 1997-2009 Fannie Mae (Encinito) DMEAST #13440319 v3

I ( • \

20.

21.

22.

24.

25.

26.

27.

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30.

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.Doc# 2011002105 Vol. 812 Page 4~-\34112/2~1! 1:39PM . ~~

CONDEMNATION ........................................................................................................... 25

TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER ..................................................................................................................... 26

EVENTS OF DEFAULT ................................................................................................... 3 I

REMEDIES CUMULATIVE ............................................................................................ 32

FORBEARANCE .............................................................................................................. 32

INTENTIONALLY DELETED ........................................................................................ 32

WAIVER OF STATUTE OF LIMITATIONS .................................................................. 32

WAIVER OF MARSHALING .......................................................................................... 33

FURTHER ASSURANCES .............................................................................................. 33

ESTOPPEL CERTIFICATE .............................................................................................. 33

GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE .......................... 33

NOTICE ............................................................................................................................. 34

SALE OF NOTE; CHANGE IN SERVICER ................................................................... 34

SINGLE ASSET BORROWER ........................................................................................ 34

SUCCESSORS AND ASSIGNS BOUND ........................................................................ 34

JOINT AND SEVERAL LIABILITY ............................................................................... 35

RELATIONSHIP OF PARTIES; NO THIRD PARTY BENEFICIARY ......................... 35

SEVERABILITY; AMENDMENTS ................................... , ............................................. 35

CONSTRUCTION ............................................................................................................. 35

LOAN SERVICING ....................................................................... : .................................. 35

DISCLOSURE OF INFORMATION ................................................................................ 36

NO CHANGE IN FACTS OR CIRCUMSTANCES ........................................................ 36

SUBROGATION ............................................................................................................... 36

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page ii TEXAS © 1997-2009 Fannie Mae (Encinito) DMEAST #13440319 v3


FM000004

Doc# 2011Q1Q121Q15 Vol: 812 Page 434 't4/121c011 1 :~'?PM

43. ACCELERATION; REMEDIES ....................................................................................... 36

44. RELEASE .......................................................................................................................... 39

45. TRUSTEE .......................................................................................................................... 39

46. VENDOR'S LIEN; RENEWAL AND EXTENSION ..................................................... .40

47. NO FIDUCIARY DUTY .................................................................................................. .40

48. FIXTURE FILING ............................................................................................................ .40

49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS ............................................................................................................................... 40

50. LOAN CHARGES ............................................................................................................ .41

51. PROPERTY AND LIABILITY INSURANCE - DELIVERY OF POLICY TO LENDER ..................................................................................................... .41

52. ENTIRE AGREEMENT ................................................................................................... .41

53. WAIVER OF TRIAL BY JURY ...................................................................................... .42

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page iii TEXAS © 1997-2009 Fannie Mae (Encinito) OM EAST #13440319 v3

Doc# 2011Q1Q121Q15 Vol: 812 Page 434 't4/121c011 1 :~'?PM

43. ACCELERATION; REMEDIES ....................................................................................... 36

44. RELEASE .......................................................................................................................... 39

45. TRUSTEE .......................................................................................................................... 39

46. VENDOR'S LIEN; RENEWAL AND EXTENSION ..................................................... .40

47. NO FIDUCIARY DUTY .................................................................................................. .40

48. FIXTURE FILING ............................................................................................................ .40

49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS ............................................................................................................................... 40

50. LOAN CHARGES ............................................................................................................ .41

51. PROPERTY AND LIABILITY INSURANCE - DELIVERY OF POLICY TO LENDER ..................................................................................................... .41

52. ENTIRE AGREEMENT ................................................................................................... .41

53. WAIVER OF TRIAL BY JURY ...................................................................................... .42

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page iii TEXAS © 1997-2009 Fannie Mae (Encinito) OM EAST #13440319 v3


FM000005

, . "

Doc# 201101112105 Vol. 812 Page 435 34/12/2011 1 :j'jPM



THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (the "Instrument") is dated as of the 6th day of April 201 I, by HONDO ENCINITO APARTMENTS, LLC, a limited liability company organized and existing under the laws of Texas, whose address is c/o Management Solutions, Inc., 6750 Locke Avenue, Suite 301, Fort Worth, Texas 76116, as trustor ("Borrower"), to STEVEN R. MARTENS, ESQ., whose address is 100 Congress Avenue, Suite 1100, Austin, Texas 78701, as trustee ("Trustee"), for the benefit of GREYS TONE SERVICING CORPORATION, INC., a corporation organized and existing under the laws of Georgia, whose address is 419 Belle Air Lane, Warrenton, Virginia 20186, as beneficiary ("Lender").

Borrower, in consideration of the Indebtedness and the trust created by this Instrument, irrevocably grants, conveys and assigns to Trustee, in trust, with power of sale, the Mortgaged Property, including the Land located in Medina County, State of Texas and described in Exhibit A attached to this Instrument. To have and to hold the Mortgaged Property unto Trustee, Trustee's successor in trust and Trustee's assigns forever.

TO SECURE TO LENDER the repayment of the Indebtedness evidenced by Borrower's Multitamily Note payable to Lender, dated as of the date of this Instrument, and maturing on May 1, 2021, in the principal amount of $3,000,000.00, and all renewals, extensions and moditications of the Indebtedness, and the performance of the covenants and agreements of Borrower contained in the Loan Documents.

Borrower warrants and represents that Borrower is lawfully seized of the Mortgaged Property and has the right, power and authority to grant, convey and assign the Mortgaged Property, and that the Mortgaged Property is unencumbered. 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 a schedule of exceptions to coverage in any title insurance policy issued to Lender contemporaneously with the execution and recordation of this Instrument and insuring Lender's interest in the Mortgaged Property.

Covenants. Borrower and Lender covenant and agree as follows:

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

(a) "Borrower" means all persons or entities identified as "Borrower" in the tirst paragraph ofthis Instrument, together with their successors and assigns.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 1 TEXAS © 1997-2009 Fannie Mae (Encinito)

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THIS MULTIFAMILY DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING (the "Instrument") is dated as of the 6th day of April 201 I, by HONDO ENCINITO APARTMENTS, LLC, a limited liability company organized and existing under the laws of Texas, whose address is c/o Management Solutions, Inc., 6750 Locke Avenue, Suite 301, Fort Worth, Texas 76116, as trustor ("Borrower"), to STEVEN R. MARTENS, ESQ., whose address is 100 Congress Avenue, Suite 1100, Austin, Texas 78701, as trustee ("Trustee"), for the benefit of GREYS TONE SERVICING CORPORATION, INC., a corporation organized and existing under the laws of Georgia, whose address is 419 Belle Air Lane, Warrenton, Virginia 20186, as beneficiary ("Lender").

Borrower, in consideration of the Indebtedness and the trust created by this Instrument, irrevocably grants, conveys and assigns to Trustee, in trust, with power of sale, the Mortgaged Property, including the Land located in Medina County, State of Texas and described in Exhibit A attached to this Instrument. To have and to hold the Mortgaged Property unto Trustee, Trustee's successor in trust and Trustee's assigns forever.

TO SECURE TO LENDER the repayment of the Indebtedness evidenced by Borrower's Multitamily Note payable to Lender, dated as of the date of this Instrument, and maturing on May 1, 2021, in the principal amount of $3,000,000.00, and all renewals, extensions and moditications of the Indebtedness, and the performance of the covenants and agreements of Borrower contained in the Loan Documents.

Borrower warrants and represents that Borrower is lawfully seized of the Mortgaged Property and has the right, power and authority to grant, convey and assign the Mortgaged Property, and that the Mortgaged Property is unencumbered. 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 a schedule of exceptions to coverage in any title insurance policy issued to Lender contemporaneously with the execution and recordation of this Instrument and insuring Lender's interest in the Mortgaged Property.

Covenants. Borrower and Lender covenant and agree as follows:

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

(a) "Borrower" means all persons or entities identified as "Borrower" in the tirst paragraph ofthis Instrument, together with their successors and assigns.



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(b) "Collateral Agreement" means any separate agreement between Borrower and Lender for the purpose of establishing replacement reserves tor the M0l1gaged Property, establishing a fund to assure 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 tor the establishment of any other fund, reserve or account.

(c) "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.

(d) "Event of Default" means the occurrence of any event listed in Section 22.

(e) "Fixtures" means all property which is so attached to the Land or the Improvements as to constitute a tixture 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, tire prevention, or tire detection or otherwise used to carry electronic signals; telephone systems and equipment; elevators and related machinery and equipment; tire 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 tloor and wall coverings; fences, trees and plants; swimming pools; and exercise equipment.

(f) "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.

(g) "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 detined as a "hazardous substance," "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant," "contaminant," or "pollutant" within the meaning of any Hazardous Materials Law.

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(b) "Collateral Agreement" means any separate agreement between Borrower and Lender for the purpose of establishing replacement reserves tor the M0l1gaged Property, establishing a fund to assure 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 tor the establishment of any other fund, reserve or account.

(c) "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.

(d) "Event of Default" means the occurrence of any event listed in Section 22.

(e) "Fixtures" means all property which is so attached to the Land or the Improvements as to constitute a tixture 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, tire prevention, or tire detection or otherwise used to carry electronic signals; telephone systems and equipment; elevators and related machinery and equipment; tire 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 tloor and wall coverings; fences, trees and plants; swimming pools; and exercise equipment.

(f) "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.

(g) "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 detined as a "hazardous substance," "hazardous material," "hazardous waste," "toxic substance," "toxic pollutant," "contaminant," or "pollutant" within the meaning of any Hazardous Materials Law.

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(h) "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 etfect now or in the future and including all amendments, that relate to Hazardous Materials 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, 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.

(i) "Impositions" and "Imposition Deposits" are defined in Section 7(a).

U) "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 .

. (k) "Indebtedness" means the principal ot: interest 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.

(I) [Intentionally omitted.]

(m) "Key Principal" means (A) the natural person(s) or entity identified as such at the toot of this Instrument; (B) the natural person or entity who signed either the Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to NonRecourse Liability or the Exceptions to Non-Recourse Guaranty (or is otherwise a guarantor on the Indebtedness); and (C) any person or entity who becomes a Key Principal after the date of this Instrument and is identitied as such in an assumption agreement, or another amendment or supplement to this Instrument or who otherwise signs either the Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability or Exceptions to Non-Recourse Guaranty (or any other guaranty of the Indebtedness).

(n) "Land" means the land described in Exhibit A.

(0) "Leases" means all present and future leases, subleases, licenses, concessions or grants or other possessory interests now or hereafter in torce, whether oral or written, covering or affeCting the Mortgaged Property, or any portion of the Mortgaged Property. (including proprietary leases or occupancy at,'Teements if Borrower is a cooperative housing corporation), and all modifications, extensions or renewals.

(p) "Lender" means the entity identified as "Lender" in the first paragraph of this Instrument and its successors and assigns, or any subsequent holder ofthe Note.

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(h) "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 etfect now or in the future and including all amendments, that relate to Hazardous Materials 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, 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.

(i) "Impositions" and "Imposition Deposits" are defined in Section 7(a).

U) "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 .

. (k) "Indebtedness" means the principal ot: interest 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.

(I) [Intentionally omitted.]

(m) "Key Principal" means (A) the natural person(s) or entity identified as such at the toot of this Instrument; (B) the natural person or entity who signed either the Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to NonRecourse Liability or the Exceptions to Non-Recourse Guaranty (or is otherwise a guarantor on the Indebtedness); and (C) any person or entity who becomes a Key Principal after the date of this Instrument and is identitied as such in an assumption agreement, or another amendment or supplement to this Instrument or who otherwise signs either the Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability or Exceptions to Non-Recourse Guaranty (or any other guaranty of the Indebtedness).

(n) "Land" means the land described in Exhibit A.

(0) "Leases" means all present and future leases, subleases, licenses, concessions or grants or other possessory interests now or hereafter in torce, whether oral or written, covering or affeCting the Mortgaged Property, or any portion of the Mortgaged Property. (including proprietary leases or occupancy at,'Teements if Borrower is a cooperative housing corporation), and all modifications, extensions or renewals.

(p) "Lender" means the entity identified as "Lender" in the first paragraph of this Instrument and its successors and assigns, or any subsequent holder ofthe Note.

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(q) "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 future executed by Borrower, Key Principal, 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.

(r) "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 ofthis Instrument.

(s) "Mortgaged Property" means all of Borrower's present and future right, title and interest in and to all ofthe following:

(1) the Land;

(2) the Improvements;

(3) the Fixtures;

(4) the Personalty;

(5) 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 benetitting 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;

(6) 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;

(7) 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;

(8) all contracts, options and other agreements tor the sale of the Land, the Improvements, the Fixtures, the Personalty or any other part of the


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(q) "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 future executed by Borrower, Key Principal, 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.

(r) "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 ofthis Instrument.

(s) "Mortgaged Property" means all of Borrower's present and future right, title and interest in and to all ofthe following:

(1) the Land;

(2) the Improvements;

(3) the Fixtures;

(4) the Personalty;

(5) 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 benetitting 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;

(6) 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;

(7) 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;

(8) all contracts, options and other agreements tor the sale of the Land, the Improvements, the Fixtures, the Personalty or any other part of the



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Mortgaged Propc11y entcrcd into by Borrower now or in the future, including cash or sccurities deposited to secure performance by parties of their obligations;

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

(10) all Rents and Leases;

(II) 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;

(12) all Imposition Deposits;

(13) 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);

(14) all tenant security deposits which have not been forfeited by any tenant under any Lease; and

(15) 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.

(t) "Note" means the Multifamily Note described on page I of this Instrument, including the Acknowledgment and AI,,'Teement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability (if any), and all schedules, riders, allonges and addenda, as such Multifamily Note may be amended from time to time.

(1.1) "O&M Program" is defined in Section 18(a).

(v) "Personalty" means all equipment, inventory, general intangibles which are used now or in the future in connection with the ownership, management or operation of the Land or th.e Improvements or are located on the Land or in the Improvements, including furniture, furnishings, machinery, building materials, appliances, goods, supplies, tools, books, records (whether in written or electronic form), computer equipment (hardware and software) and other iangible personal property (other than Fixtures) which are used now or in the future in connection with the ownership, management or operation of the Land or the Improvements or are located on the Land or in the Improvements, and any operating agreements relating to the Land or the Improvements, and any surveys, plans and specifications and contracts for

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Mortgaged Propc11y entcrcd into by Borrower now or in the future, including cash or sccurities deposited to secure performance by parties of their obligations;

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

(10) all Rents and Leases;

(II) 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;

(12) all Imposition Deposits;

(13) 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);

(14) all tenant security deposits which have not been forfeited by any tenant under any Lease; and

(15) 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.

(t) "Note" means the Multifamily Note described on page I of this Instrument, including the Acknowledgment and AI,,'Teement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability (if any), and all schedules, riders, allonges and addenda, as such Multifamily Note may be amended from time to time.

(1.1) "O&M Program" is defined in Section 18(a).

(v) "Personalty" means all equipment, inventory, general intangibles which are used now or in the future in connection with the ownership, management or operation of the Land or th.e Improvements or are located on the Land or in the Improvements, including furniture, furnishings, machinery, building materials, appliances, goods, supplies, tools, books, records (whether in written or electronic form), computer equipment (hardware and software) and other iangible personal property (other than Fixtures) which are used now or in the future in connection with the ownership, management or operation of the Land or the Improvements or are located on the Land or in the Improvements, and any operating agreements relating to the Land or the Improvements, and any surveys, plans and specifications and contracts for




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architectural, engineering and construction services relating to the Land or the Improvements and all other intangible property and rights relating to the operation at: or used in connection with, the Land or the Improvements, including all governmental pennits relating to any activities on the Land.

(w) "Property Jurisdiction" is defined in Section 30(a).

(x) "Rents" means all rents (whether from residential or non-residential space), revenues and other income of the Land or the Improvements, including subsidy payments received from any sources (including, but not limited to payments under any Housing Assistance Payments Contract), 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.

(y) "Taxes" means all taxes, assessments, vault rentals and other charges, if any, general, special or otherwise, including all assessments for schools, public bettennents and general or local improvements, which are levied, assessed or imposed by any public authority or quasi-public authority, and which, if not paid, will become a lien, on the Land or the Improvements.

(z) "Transfer" means (A) a sale, assignment, transfer, or other disposition (whether voluntary, involuntary or by operation of law); (B) the grant, creation, or attachment of a lien, encumbrance, or security interest (whether voluntary, involuntary or by operation of law); (C) the issuance or other creation of a direct or indirect ownership interest; or (D) the withdrawal, retirement, removal or involuntary resignation of any owner or manager of a legal entity.

(aa) "Bankruptcy Event" means anyone or more of the following: (i) the commencement of a voluntary case under one or more of the Insolvency Laws by the Borrower; (ii) the acknowledgment in writing by the Borrower that it is unable to pay its debts generally as they mature; (iii) the making of a general assignment for the benefit of creditors by the Borrower; (iv) an involuntary case under one or more Insolvency Laws against the Borrower; (v) the appointment of a receiver, liquidator, custodian, sequestrator, trustee or other similar officer who exercises control over the Borrower or any substantial part of the assets of the Borrower provided that any proceeding or case under (iv) or (v) above is not dismissed within 90 days after filing.

(bb) "Borrower Affiliate" means, as to either Borrower or Key Principal, (i) any entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of Borrower or of Key Principal, (ii) any corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by Borrower or by Key Principal, (iii) any partner, shareholder or, if a limited liability company, member of Borrower or Key Principal, or (iv) any other entity that is related (to the third degree of consanguinity) by blood or marriage to Borrower or Key Principal.


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architectural, engineering and construction services relating to the Land or the Improvements and all other intangible property and rights relating to the operation at: or used in connection with, the Land or the Improvements, including all governmental pennits relating to any activities on the Land.

(w) "Property Jurisdiction" is defined in Section 30(a).

(x) "Rents" means all rents (whether from residential or non-residential space), revenues and other income of the Land or the Improvements, including subsidy payments received from any sources (including, but not limited to payments under any Housing Assistance Payments Contract), 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.

(y) "Taxes" means all taxes, assessments, vault rentals and other charges, if any, general, special or otherwise, including all assessments for schools, public bettennents and general or local improvements, which are levied, assessed or imposed by any public authority or quasi-public authority, and which, if not paid, will become a lien, on the Land or the Improvements.

(z) "Transfer" means (A) a sale, assignment, transfer, or other disposition (whether voluntary, involuntary or by operation of law); (B) the grant, creation, or attachment of a lien, encumbrance, or security interest (whether voluntary, involuntary or by operation of law); (C) the issuance or other creation of a direct or indirect ownership interest; or (D) the withdrawal, retirement, removal or involuntary resignation of any owner or manager of a legal entity.

(aa) "Bankruptcy Event" means anyone or more of the following: (i) the commencement of a voluntary case under one or more of the Insolvency Laws by the Borrower; (ii) the acknowledgment in writing by the Borrower that it is unable to pay its debts generally as they mature; (iii) the making of a general assignment for the benefit of creditors by the Borrower; (iv) an involuntary case under one or more Insolvency Laws against the Borrower; (v) the appointment of a receiver, liquidator, custodian, sequestrator, trustee or other similar officer who exercises control over the Borrower or any substantial part of the assets of the Borrower provided that any proceeding or case under (iv) or (v) above is not dismissed within 90 days after filing.

(bb) "Borrower Affiliate" means, as to either Borrower or Key Principal, (i) any entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of Borrower or of Key Principal, (ii) any corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by Borrower or by Key Principal, (iii) any partner, shareholder or, if a limited liability company, member of Borrower or Key Principal, or (iv) any other entity that is related (to the third degree of consanguinity) by blood or marriage to Borrower or Key Principal.



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(cc) "Insolvency Laws" means the United States Bankruptcy Code, II U.S.c. § 101, et seq., together with any other federal or state law affecting debtor and creditor rights or relating to the bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding, as amended from time to time, to the extent applicable to the Borrower.

2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is also a security agreement under the Uniform Commercial Code for any of the Mortgaged Property which, under applicable law, may be subject to a security interest under the Uniform Commercial Code, whether acquired now or 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 tile 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 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. 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. This Instrument constitutes a financing statement with respect to any part of the Mortgaged Property which is or may become a Fixture.

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 ofthe "Mortgaged Property," as that term is defined in Section I (s). 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.


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(cc) "Insolvency Laws" means the United States Bankruptcy Code, II U.S.c. § 101, et seq., together with any other federal or state law affecting debtor and creditor rights or relating to the bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding, as amended from time to time, to the extent applicable to the Borrower.

2. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT. This Instrument is also a security agreement under the Uniform Commercial Code for any of the Mortgaged Property which, under applicable law, may be subject to a security interest under the Uniform Commercial Code, whether acquired now or 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 tile 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 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. 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. This Instrument constitutes a financing statement with respect to any part of the Mortgaged Property which is or may become a Fixture.

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 ofthe "Mortgaged Property," as that term is defined in Section I (s). 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.



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(b) Alier 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, and Borrower shall, upon Borrower's receipt of any Rents from any sources (including, but not limited to subsidy payments under any Housing Assistance Payments Contract), pay the total amount of such receipts to the 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 benetit 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 ot: 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 after the occurrence of an Event of Default, 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; provided, however, that the giving of any such notice by Lender shall not affect, in any way, Lender's entitlement to the Rents as ofthe date on which the Event of Default occurs. No tenant shall be obligated to inquire further as to the occurrence or continuance of an Event of Default, and no tenant shall be obligated to pay to Borrower any amounts which are actually paid to Lender in response 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 assi b'11ment of Rents securing indebtedness that will be 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

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(b) Alier 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, and Borrower shall, upon Borrower's receipt of any Rents from any sources (including, but not limited to subsidy payments under any Housing Assistance Payments Contract), pay the total amount of such receipts to the 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 benetit 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 ot: 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 after the occurrence of an Event of Default, 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; provided, however, that the giving of any such notice by Lender shall not affect, in any way, Lender's entitlement to the Rents as ofthe date on which the Event of Default occurs. No tenant shall be obligated to inquire further as to the occurrence or continuance of an Event of Default, and no tenant shall be obligated to pay to Borrower any amounts which are actually paid to Lender in response 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 assi b'11ment of Rents securing indebtedness that will be 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

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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 ot'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 tor the appointment of a receiver for the Mortgaged Property to take any or all of the actions set torth in the preceding sentence. If Lender elects to seek the appointment of a receiver for the Mortgaged Property at any time atter 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 tor 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 specitications 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 trom the 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 tor those Rents actually received. 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 this Section 3, and Borrower hereby releases and discharges Lender trom 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 tor in this Instrument.


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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 ot'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 tor the appointment of a receiver for the Mortgaged Property to take any or all of the actions set torth in the preceding sentence. If Lender elects to seek the appointment of a receiver for the Mortgaged Property at any time atter 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 tor 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 specitications 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 trom the 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 tor those Rents actually received. 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 this Section 3, and Borrower hereby releases and discharges Lender trom 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 tor in this Instrument.



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

(a) As part of the consideration t()r 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 etfective and to constitute an absolute present assignment and not an assignment tor additional security only. For purposes of giving etfect to this absolute assignment of the Leases, and tor no other purpose, the Leases shall not be deemed to be a part of the "Mortgaged Property," as that tenn is defined in Section l(s). 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 eftective as of the date of this Instrument.

(b) Until the occurrence of an Event of Default, 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. Lender shall not be liable in any way tor any injury or damage to person or property sustained by any person or persons, tirm 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 pertorm 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 detend any action or proceeding relating to the Lease or the Mortgaged Property; or (iii) be responsible tor 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


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

(a) As part of the consideration t()r 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 etfective and to constitute an absolute present assignment and not an assignment tor additional security only. For purposes of giving etfect to this absolute assignment of the Leases, and tor no other purpose, the Leases shall not be deemed to be a part of the "Mortgaged Property," as that tenn is defined in Section l(s). 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 eftective as of the date of this Instrument.

(b) Until the occurrence of an Event of Default, 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. Lender shall not be liable in any way tor any injury or damage to person or property sustained by any person or persons, tirm 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 pertorm 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 detend any action or proceeding relating to the Lease or the Mortgaged Property; or (iii) be responsible tor 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



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and repair of the Mortgaged Property is and shall be that of Borrower, prior to such actual entry and taking of possession.

(d) From and atter 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 years, and shall not include options to purchase. If customary in the applicable market, residential Leases with terms of less than six months may be permitted with Lender's prior written consent.

(t) 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. 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 specitically provide that (I) such Leases are subordinate to the lien of this Instrument (unless waived in writing by Lender); (2) 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; (3) 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; (4) the Lease shall not be terminated by toreclosure or any other transfer of the Mortgaged Property; (5) after a foreclosure sale of the Mortgaged Property, Lender or any other purchaser at such toreclosure sale may, at Lender's or such purchaser's option, accept or terminate such Lease; and (6) 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.

5. PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM. Borrower shall pay the Indebtedness when due in accordance with the tenns 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

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and repair of the Mortgaged Property is and shall be that of Borrower, prior to such actual entry and taking of possession.

(d) From and atter 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 years, and shall not include options to purchase. If customary in the applicable market, residential Leases with terms of less than six months may be permitted with Lender's prior written consent.

(t) 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. 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 specitically provide that (I) such Leases are subordinate to the lien of this Instrument (unless waived in writing by Lender); (2) 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; (3) 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; (4) the Lease shall not be terminated by toreclosure or any other transfer of the Mortgaged Property; (5) after a foreclosure sale of the Mortgaged Property, Lender or any other purchaser at such toreclosure sale may, at Lender's or such purchaser's option, accept or terminate such Lease; and (6) 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.

5. PAYMENT OF INDEBTEDNESS; PERFORMANCE UNDER LOAN DOCUMENTS; PREPAYMENT PREMIUM. Borrower shall pay the Indebtedness when due in accordance with the tenns 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

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Indebtedness, including a payment made atter Lender's exercise of any right of acceleration of the Indebtedness, as provided in the Note.

6. EXCULPATION. Borrower's personal liability tor 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) 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 Ind~btedness is paid in full, an additional amount sufficient to accumulate with Lender the entire sum required to pay, when due (I) any water and sewer charges which, if not paid, may result in a lien on all or any part of the Mortgaged Property, (2) the premiums for fire and other hazard insurance, rent loss insurance and such other insurance as Lender may require under Section 19, (3) Taxes, and (4) amounts tor other charges and expenses which Lender at any time reasonably deems necessary to protect the Mortgaged Property, to prevent the imposition of liens on the Mortgaged Property, or otherwise to protect Lender's interests, all as reasonably estimated from time to time by Lender. 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 obligation of Borrower for which Imposition Deposits are required. Any waiver by Lender of the requirement that Borrower remit Imposition Deposits to Lender may be revoked by Lender, in Lender's discretion, at any time upon notice to Borrower.

(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. Borrower hereby pledges and grants to Lender a security interest in the Imposition Deposits as additional security for all of Borrower's obligations under this Instrument and the other Loan Documents. 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).


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Indebtedness, including a payment made atter Lender's exercise of any right of acceleration of the Indebtedness, as provided in the Note.

6. EXCULPATION. Borrower's personal liability tor 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) 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 Ind~btedness is paid in full, an additional amount sufficient to accumulate with Lender the entire sum required to pay, when due (I) any water and sewer charges which, if not paid, may result in a lien on all or any part of the Mortgaged Property, (2) the premiums for fire and other hazard insurance, rent loss insurance and such other insurance as Lender may require under Section 19, (3) Taxes, and (4) amounts tor other charges and expenses which Lender at any time reasonably deems necessary to protect the Mortgaged Property, to prevent the imposition of liens on the Mortgaged Property, or otherwise to protect Lender's interests, all as reasonably estimated from time to time by Lender. 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 obligation of Borrower for which Imposition Deposits are required. Any waiver by Lender of the requirement that Borrower remit Imposition Deposits to Lender may be revoked by Lender, in Lender's discretion, at any time upon notice to Borrower.

(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. Borrower hereby pledges and grants to Lender a security interest in the Imposition Deposits as additional security for all of Borrower's obligations under this Instrument and the other Loan Documents. 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).



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(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 tne validity of the Imposition.

(d) Ifat any time the amount of the Imposition Deposits held by Lender for payment of a specitic 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.

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 which 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 InstlUment 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, constlUction of improvements on the Mortgaged Property, fair housing, 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 sutficient 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


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(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 tne validity of the Imposition.

(d) Ifat any time the amount of the Imposition Deposits held by Lender for payment of a specitic 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.

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 which 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 InstlUment 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, constlUction of improvements on the Mortgaged Property, fair housing, 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 sutficient 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



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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.

II. USE OF PROPERTY. Unless required by applicable law, Borrower shall not (a) except for any change in use approved by Lender, allow changes in the use for which all or any part of the Mortgaged Property is being used at the time this Instrument was executed, (b) convert any individual dwelling units or common areas to commercial use, (c) initiate or acquiesce in a change in the zoning classification of the Mortgaged Property, or (d) establish any condominium or cooperative regime with respect to the Mortgaged Property.

12. PROTECTION OF LENDER'S SECURITY.

(a) If Borrower fails to perform any of its obligations under this Instrument or any other Loan Document, or if any action or proceeding (including a Bankruptcy Event) 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, 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 (1) payment of fees and out-of-pocket expenses of attorneys, accountants, inspectors and consultants, (2) entry upon the Mortgaged Property to make repairs or secure the Mortgaged Property, (3) procurement of the insurance required by Section 19, and (4) 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 qther provision of this Instrument that treats such disbursement as being made under this Section 12, 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.

14. BOOKS AND RECORDS; FINANCIAL REPORTING.

(a) Borrower shall keep and maintain at all times at the Mortgaged Property or the management agent's offices, and upon Lender's request shall make available at the Mortgaged Property, complete and accurate books of account and records (including copies of supporting


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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.

II. USE OF PROPERTY. Unless required by applicable law, Borrower shall not (a) except for any change in use approved by Lender, allow changes in the use for which all or any part of the Mortgaged Property is being used at the time this Instrument was executed, (b) convert any individual dwelling units or common areas to commercial use, (c) initiate or acquiesce in a change in the zoning classification of the Mortgaged Property, or (d) establish any condominium or cooperative regime with respect to the Mortgaged Property.

12. PROTECTION OF LENDER'S SECURITY.

(a) If Borrower fails to perform any of its obligations under this Instrument or any other Loan Document, or if any action or proceeding (including a Bankruptcy Event) 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, 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 (1) payment of fees and out-of-pocket expenses of attorneys, accountants, inspectors and consultants, (2) entry upon the Mortgaged Property to make repairs or secure the Mortgaged Property, (3) procurement of the insurance required by Section 19, and (4) 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 qther provision of this Instrument that treats such disbursement as being made under this Section 12, 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.

14. BOOKS AND RECORDS; FINANCIAL REPORTING.

(a) Borrower shall keep and maintain at all times at the Mortgaged Property or the management agent's offices, and upon Lender's request shall make available at the Mortgaged Property, complete and accurate books of account and records (including copies of supporting



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bills and invoices) adequate to retlect 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 at any reasonable time by Lender.

(b) Borrower shall furnish to Lender:

(I) (i) except as provided in clause (ii) below, within 45 days after the end of each tiscal quarter of Borrower, a statement of income and expenses for Borrower's operation of the Mortgaged Property on a year-to-date basis as of the end of each tiscal quarter, (ii) within 120 days after the end of each fiscal year of Borrower, (A) a statement of income and expenses for Borrower's operation of the Mortgaged Property tor such fiscal year, (B) a statement of changes in tinancial position of Borrower relating to the Mortgaged Property tor such fiscal year, and (C) when requested by Lender, a balance sheet showing ail assets and liabilities of Borrower relating to the Mortgaged Property as of the end of such fiscal year; and (iii) any of the foregoing at any other time upon Lender's request;

(2) (i) except as provided in clause (ii) below, within 45 days after the end of each tiscal quarter of Borrower, and (ii) within 120 days after the end of each tiscal year of Borrower, and at any other time upon Lender's request, a rent schedule tor the Mortgaged Property showing the name of each tenant, and for each tenant, the space occupied, the lease expiration date, the rent payable tor the current month, the date through which rent has been paid, and any related information requested by Lender;

(3) within 120 days after the end of each fiscal year of Borrower, and at any other time upon Lender's request, an accounting of all security deposits held pursuant to all Leases, including the name of the institution (if any) and the names and identitication 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 tor Lender to access intormation regarding such accounts;

(4) within 120 days after the end of each tiscal year of Borrower, and at any other time upon Lender's request, a statement that identifies all owners of any interest in Borrower and the interest held by each, if Borrower is a corporation, all officers and directors of Borrower, and if Borrower is a limited liability company, all managers who are not members;

(5) upon Lender's request, a monthly property management report for the Mortgaged Property, showing the number of inquiries made and rental



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bills and invoices) adequate to retlect 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 at any reasonable time by Lender.

(b) Borrower shall furnish to Lender:

(I) (i) except as provided in clause (ii) below, within 45 days after the end of each tiscal quarter of Borrower, a statement of income and expenses for Borrower's operation of the Mortgaged Property on a year-to-date basis as of the end of each tiscal quarter, (ii) within 120 days after the end of each fiscal year of Borrower, (A) a statement of income and expenses for Borrower's operation of the Mortgaged Property tor such fiscal year, (B) a statement of changes in tinancial position of Borrower relating to the Mortgaged Property tor such fiscal year, and (C) when requested by Lender, a balance sheet showing ail assets and liabilities of Borrower relating to the Mortgaged Property as of the end of such fiscal year; and (iii) any of the foregoing at any other time upon Lender's request;

(2) (i) except as provided in clause (ii) below, within 45 days after the end of each tiscal quarter of Borrower, and (ii) within 120 days after the end of each tiscal year of Borrower, and at any other time upon Lender's request, a rent schedule tor the Mortgaged Property showing the name of each tenant, and for each tenant, the space occupied, the lease expiration date, the rent payable tor the current month, the date through which rent has been paid, and any related information requested by Lender;

(3) within 120 days after the end of each fiscal year of Borrower, and at any other time upon Lender's request, an accounting of all security deposits held pursuant to all Leases, including the name of the institution (if any) and the names and identitication 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 tor Lender to access intormation regarding such accounts;

(4) within 120 days after the end of each tiscal year of Borrower, and at any other time upon Lender's request, a statement that identifies all owners of any interest in Borrower and the interest held by each, if Borrower is a corporation, all officers and directors of Borrower, and if Borrower is a limited liability company, all managers who are not members;

(5) upon Lender's request, a monthly property management report for the Mortgaged Property, showing the number of inquiries made and rental




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applications received from tenants or prospective tenants and deposits received from tenants and any other information requested by Lender;

(6) upon Lender's request, 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; and

(7) if required by Lender, within 30 days of the end of each calendar month, a monthly statement of income and expenses for such calendar month on a year-to-date basis for Borrower's operation of the Mortgaged Property.

(c) Each of the statements, schedules and reports required by Section 14(b) shall be certified to be complete and accurate by an individual having authority to bind Borrower, and shall be in such form and contain such detail as Lender may reasonably require. Lender also may require that any statements, schedules or reports be audited at Borrower's expense by independent certified public accountants acceptable to Lender.

(d) If Borrower fails to provide in a timely manner the statements, schedules and reports required by Section 14(b), 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.

(e) 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.

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

15. TAXES; OPERATING EXPENSES.

(a) Subject to the provisions of Section JS(c) and Section IS(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 IS( c), Borrower shall pay the expenses of operating, managing, maintaining and repairing the Mortgaged Property (including insurance premiums, utilities, repairs and replacements) before the last date upon which each such payment may be made without any penalty or interest charge being added.

(c) As long as no Event of Default exists and Borrower has timely delivered to Lender any bills or premium notices that it has received, Borrower shall not be obligated to pay Taxes, insurance premiums or any other individual Imposition to the extent that sufficient Imposition Deposits are held by Lender for the purpose of paying that specific Imposition. If an

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applications received from tenants or prospective tenants and deposits received from tenants and any other information requested by Lender;

(6) upon Lender's request, 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; and

(7) if required by Lender, within 30 days of the end of each calendar month, a monthly statement of income and expenses for such calendar month on a year-to-date basis for Borrower's operation of the Mortgaged Property.

(c) Each of the statements, schedules and reports required by Section 14(b) shall be certified to be complete and accurate by an individual having authority to bind Borrower, and shall be in such form and contain such detail as Lender may reasonably require. Lender also may require that any statements, schedules or reports be audited at Borrower's expense by independent certified public accountants acceptable to Lender.

(d) If Borrower fails to provide in a timely manner the statements, schedules and reports required by Section 14(b), 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.

(e) 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.

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

15. TAXES; OPERATING EXPENSES.

(a) Subject to the provisions of Section JS(c) and Section IS(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 IS( c), Borrower shall pay the expenses of operating, managing, maintaining and repairing the Mortgaged Property (including insurance premiums, utilities, repairs and replacements) before the last date upon which each such payment may be made without any penalty or interest charge being added.

(c) As long as no Event of Default exists and Borrower has timely delivered to Lender any bills or premium notices that it has received, Borrower shall not be obligated to pay Taxes, insurance premiums or any other individual Imposition to the extent that sufficient Imposition Deposits are held by Lender for the purpose of paying that specific Imposition. If an

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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 liability to Borrower for failing to pay any Impositions to the extent that any Event of Default has occurred and is continuing, insufficient Imposition Deposits are held by Lender at the time an Imposition becomes due and payable or 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 (1) Borrower notifies Lender of the commencement or expected commencement of such proceedings, (2) the Mortgaged Property is not in danger of being sold or forfeited, (3) Borrower deposits with Lender reserves sufficient to pay the contested Imposition; if requested by Lender, and (4) Borrower furnishes whatever additional security is required in the proceedings or is reasonably requested by Lender, which may include the delivery to Lender of the reserves established by Borrower to pay the contested Imposition.

(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 promptly furnish to Lender receipts evidencing such payments.

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 MOligaged Property (other than the lien of this Instrument) or on certain ownership interests in Borrower, whether voluntary, involuntary or by operation oflaw, and whether or not such Lien has priority over the lien of this Instrument, is a "Transfer" which constitutes an Event of Default.

17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY.

(a) Borrower (I) shall not commit waste or permit impairment or deterioration of the Mortgaged Property, (2) shall not abandon the Mortgaged Property, (3) 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, (4) shall keep the Mortgaged Property in good repair, including the replacement of Personalty and Fixtures with items of equal or better function and quality, (5) shall provide for professional management of the Mortgaged Property by a residential rental property manager satisfactory to Lender under a contract approved by Lender in writing, and (6) 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

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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 liability to Borrower for failing to pay any Impositions to the extent that any Event of Default has occurred and is continuing, insufficient Imposition Deposits are held by Lender at the time an Imposition becomes due and payable or 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 (1) Borrower notifies Lender of the commencement or expected commencement of such proceedings, (2) the Mortgaged Property is not in danger of being sold or forfeited, (3) Borrower deposits with Lender reserves sufficient to pay the contested Imposition; if requested by Lender, and (4) Borrower furnishes whatever additional security is required in the proceedings or is reasonably requested by Lender, which may include the delivery to Lender of the reserves established by Borrower to pay the contested Imposition.

(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 promptly furnish to Lender receipts evidencing such payments.

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 MOligaged Property (other than the lien of this Instrument) or on certain ownership interests in Borrower, whether voluntary, involuntary or by operation oflaw, and whether or not such Lien has priority over the lien of this Instrument, is a "Transfer" which constitutes an Event of Default.

17. PRESERVATION, MANAGEMENT AND MAINTENANCE OF MORTGAGED PROPERTY.

(a) Borrower (I) shall not commit waste or permit impairment or deterioration of the Mortgaged Property, (2) shall not abandon the Mortgaged Property, (3) 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, (4) shall keep the Mortgaged Property in good repair, including the replacement of Personalty and Fixtures with items of equal or better function and quality, (5) shall provide for professional management of the Mortgaged Property by a residential rental property manager satisfactory to Lender under a contract approved by Lender in writing, and (6) 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

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or any part of the Mortgaged Property except in connection with the replacement of tangible Personalty.

(b) lt~ in connection with the making of the loan evidenced by the Note or at any later date, Lender waives in writing the requirement of Section 17(a)(5) above that Borrower enter into a written contract for management of the Mortgaged Property and if, after the date of this Instrument, Borrower intends to change the management of the Mortgaged Property, Lender shall ·have the right to approve such new property manager and the written contract for the management ot' the Mortgaged Property and require that Borrower and such new property manager enter into an Assignment of Management Agreement on a form approved by Lender. If required by Lender (whether before or after an Event of Default), Borrower will cause any Affiliate of Borrower to whom fees are payable for the management of the Mortgaged Property to enter into an agreement with Lender, in a form approved by Lender, providing for subordination of those fees and such other provisions as Lender may require. "Affiliate of Borrower" means any corporation, partnership, joint venture, limited liability company, limited liability partnership, trust or individual controlled by, under common control with, or which controls Borrower (the term "control" for these purposes shall mean the ability, whether by the ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to make management decisions on behalf of, or independently to select the managing partner of, a partnership, or otherwise to have the power independently to remove and then select a majority of those individuals exercising managerial authority over an entity, and control shall be conclusively presumed in the case of the ownership of 50% or more of the equity interests).

18. ENVIRONMENTAL HAZARDS.

(a) Except for matters covered by a written program of operations and maintenance approved in writing by Lender (an "O&M Program") or matters described in Section 18(b), Borrower shall not cause or permit any of the following:

(1) 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;

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

(3) any occurrence or condition on the Mortgaged Property or any other property of Borrower that is adjacent to the Mortgaged Property, which occurrence or condition is or may be in violation of Hazardous Materials Laws; or


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or any part of the Mortgaged Property except in connection with the replacement of tangible Personalty.

(b) lt~ in connection with the making of the loan evidenced by the Note or at any later date, Lender waives in writing the requirement of Section 17(a)(5) above that Borrower enter into a written contract for management of the Mortgaged Property and if, after the date of this Instrument, Borrower intends to change the management of the Mortgaged Property, Lender shall ·have the right to approve such new property manager and the written contract for the management ot' the Mortgaged Property and require that Borrower and such new property manager enter into an Assignment of Management Agreement on a form approved by Lender. If required by Lender (whether before or after an Event of Default), Borrower will cause any Affiliate of Borrower to whom fees are payable for the management of the Mortgaged Property to enter into an agreement with Lender, in a form approved by Lender, providing for subordination of those fees and such other provisions as Lender may require. "Affiliate of Borrower" means any corporation, partnership, joint venture, limited liability company, limited liability partnership, trust or individual controlled by, under common control with, or which controls Borrower (the term "control" for these purposes shall mean the ability, whether by the ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to make management decisions on behalf of, or independently to select the managing partner of, a partnership, or otherwise to have the power independently to remove and then select a majority of those individuals exercising managerial authority over an entity, and control shall be conclusively presumed in the case of the ownership of 50% or more of the equity interests).

18. ENVIRONMENTAL HAZARDS.

(a) Except for matters covered by a written program of operations and maintenance approved in writing by Lender (an "O&M Program") or matters described in Section 18(b), Borrower shall not cause or permit any of the following:

(1) 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;

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

(3) any occurrence or condition on the Mortgaged Property or any other property of Borrower that is adjacent to the Mortgaged Property, which occurrence or condition is or may be in violation of Hazardous Materials Laws; or



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(4) any violation of or noncompliance with the tenns of any Environmental Pennit with respect to the Mortgaged Property or any property of Borrower that is adjacent to the Mortgaged Property.

The matters described in clauses (I) through (4) above are referred to collectively 1I1 this Section 18 as "Prohibited Activities or Conditions".

(b) Prohibited Activities or Conditions shall not include 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, (2) 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 (3) 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 pennitting 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 pennit any Prohibited Activity or Condition.

(d) If an O&M Program has been established with respect to Hazardous Materials, 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 the O&M Program. All costs of perfonnance of Borrower's obligations under any O&M Program shall be paid by Borrower, and Lender's out-of-pocket costs incurred in connection with the monitoring and review of the O&M Program and Borrower's perfonnance shall be paid by Borrower upon demand by Lender. Any such out-ot:pocket costs of Lender which 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:

(I) Borrower has not at any time engaged in, caused or pennitted any Prohibited Activities or Conditions;

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

(3) except to the extent previously disclosed by Borrower to Lender in writing, the Mortgaged Property does not now contain any underground


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(4) any violation of or noncompliance with the tenns of any Environmental Pennit with respect to the Mortgaged Property or any property of Borrower that is adjacent to the Mortgaged Property.

The matters described in clauses (I) through (4) above are referred to collectively 1I1 this Section 18 as "Prohibited Activities or Conditions".

(b) Prohibited Activities or Conditions shall not include 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, (2) 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 (3) 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 pennitting 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 pennit any Prohibited Activity or Condition.

(d) If an O&M Program has been established with respect to Hazardous Materials, 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 the O&M Program. All costs of perfonnance of Borrower's obligations under any O&M Program shall be paid by Borrower, and Lender's out-of-pocket costs incurred in connection with the monitoring and review of the O&M Program and Borrower's perfonnance shall be paid by Borrower upon demand by Lender. Any such out-ot:pocket costs of Lender which 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:

(I) Borrower has not at any time engaged in, caused or pennitted any Prohibited Activities or Conditions;

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

(3) except to the extent previously disclosed by Borrower to Lender in writing, the Mortgaged Property does not now contain any underground



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storage tanks, and, to the best of Borrower's knowledge alter 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 Property which has been previously disclosed by Borrower to Lender in writing, that tank complies with all requirements of Hazardous Materials Laws;

(4) Borrower has complied with all Hazardous Materials Laws, including all requirements for notitication regarding releases of Hazardous Materials. Without limiting the generality of the toregoing, Borrower has obtained all Environmental Permits required tor the operation of the Mortgaged Property in accordance with Hazardous Materials Laws now in effect and all such Environmental Permits are in full torce and effect;

(5) 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;

(6) there are no actions, suits, claims or proceedings pending or, to the best of Borrower's knowledge after reasonable and diligent inquiry, threatened that involve the Mortgaged Property and allege, arise out of, or relate to any Prohibited Activity or Condition; and

(7) Borrower has not received any 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.

The representations and warranties in this Section 18 shall be continuing representations and warranties that shall be deemed to be made by Borrower throughout the term of the loan evidenced by the Note, until the Indebtedness has been paid in full.

(t) 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;

(2) Borrower's receipt of or knowledge of any complaint, order, notice of violation or other communication from any 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; and


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storage tanks, and, to the best of Borrower's knowledge alter 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 Property which has been previously disclosed by Borrower to Lender in writing, that tank complies with all requirements of Hazardous Materials Laws;

(4) Borrower has complied with all Hazardous Materials Laws, including all requirements for notitication regarding releases of Hazardous Materials. Without limiting the generality of the toregoing, Borrower has obtained all Environmental Permits required tor the operation of the Mortgaged Property in accordance with Hazardous Materials Laws now in effect and all such Environmental Permits are in full torce and effect;

(5) 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;

(6) there are no actions, suits, claims or proceedings pending or, to the best of Borrower's knowledge after reasonable and diligent inquiry, threatened that involve the Mortgaged Property and allege, arise out of, or relate to any Prohibited Activity or Condition; and

(7) Borrower has not received any 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.

The representations and warranties in this Section 18 shall be continuing representations and warranties that shall be deemed to be made by Borrower throughout the term of the loan evidenced by the Note, until the Indebtedness has been paid in full.

(t) 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;

(2) Borrower's receipt of or knowledge of any complaint, order, notice of violation or other communication from any 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; and



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(3) any representation or warranty in this Section 18 becomes untrue atter the date of this Instrument.

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 ("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 the fees and out-of-pocket costs of attorneys and technical consultants whether incurred in connection with any judicial or administrative process or otherwise) which Borrower fails to pay promptly shall become an additional part of the Indebtedness as provided in Section 12. The results of all Environmental Inspections made by Lender shall at all times remain the property of Lender and Lender shall have no obligation to disclose or otherwise make available to Borrower or any other party such results or any other information obtained by Lender in connection with its Environmental Inspections. Lender hereby reserves the right, 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 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 of Lender's Environmental Inspections. Borrower acknowledges that Lender cannot control or otherwise assure the truthfulness or accuracy of the results of any of its 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 which a party may bid at such sale. Borrower agrees that Lender shall have no liability whatsoever as a result of delivering the results of any of its Environmental Inspections to any third party, 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 Lender's Environmental Inspections.

(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 under any Hazardous Materials Law, Borrower shall, by the earlier of (1) the applicable deadline required by Hazardous Materials Law or (2) 30 days atter notice from Lender demanding such action, begin performing the Remedial Work, and thereatler 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.


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(3) any representation or warranty in this Section 18 becomes untrue atter the date of this Instrument.

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 ("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 the fees and out-of-pocket costs of attorneys and technical consultants whether incurred in connection with any judicial or administrative process or otherwise) which Borrower fails to pay promptly shall become an additional part of the Indebtedness as provided in Section 12. The results of all Environmental Inspections made by Lender shall at all times remain the property of Lender and Lender shall have no obligation to disclose or otherwise make available to Borrower or any other party such results or any other information obtained by Lender in connection with its Environmental Inspections. Lender hereby reserves the right, 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 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 of Lender's Environmental Inspections. Borrower acknowledges that Lender cannot control or otherwise assure the truthfulness or accuracy of the results of any of its 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 which a party may bid at such sale. Borrower agrees that Lender shall have no liability whatsoever as a result of delivering the results of any of its Environmental Inspections to any third party, 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 Lender's Environmental Inspections.

(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 under any Hazardous Materials Law, Borrower shall, by the earlier of (1) the applicable deadline required by Hazardous Materials Law or (2) 30 days atter notice from Lender demanding such action, begin performing the Remedial Work, and thereatler 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.



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(i) Borrower shall cooperate with any inquiry by any Governmental Authority and shall comply with any governmental or judicial order which arises from any alleged Prohibited Activity or Condition.

U) 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 "Indemnitees") from and against all proceedings, claims, damages, penalties and costs (whether initiated or sought by Governmental Authorities or private parties), including fees and out-of-pocket expenses of attorneys and expert witnesses, investigatory fees, 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;

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

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

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

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

(k) Counsel selected by Borrower to defend Indemnitees shall be subject to the approval ofthose Indemnitees. However, any Indemnitee may elect to defend any claim or legal or administrative proceeding at the Borrower's expense.

(I) 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 judt,'I1lent 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 (2) may materially and adversely affect Lender, as determined by Lender in its discretion.

(m) Lender agrees that the indemnity under this Section 18 shall be limited to the assets of Borrower and Lender shall not seek to recover any deficiency from any natural persons who are general partners of Borrower.

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

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(i) Borrower shall cooperate with any inquiry by any Governmental Authority and shall comply with any governmental or judicial order which arises from any alleged Prohibited Activity or Condition.

U) 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 "Indemnitees") from and against all proceedings, claims, damages, penalties and costs (whether initiated or sought by Governmental Authorities or private parties), including fees and out-of-pocket expenses of attorneys and expert witnesses, investigatory fees, 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;

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

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

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

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

(k) Counsel selected by Borrower to defend Indemnitees shall be subject to the approval ofthose Indemnitees. However, any Indemnitee may elect to defend any claim or legal or administrative proceeding at the Borrower's expense.

(I) 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 judt,'I1lent 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 (2) may materially and adversely affect Lender, as determined by Lender in its discretion.

(m) Lender agrees that the indemnity under this Section 18 shall be limited to the assets of Borrower and Lender shall not seek to recover any deficiency from any natural persons who are general partners of Borrower.

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

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( I ) payor 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;

(2) 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

(3) reimburse Indemnitees for any and all expenses, including fees and out-or·pocket expenses of attorneys and expert witnesses, 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.

(0) [n 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. Borrower shall reimburse Lender upon demand for all costs and expenses incurred by Lender, including all costs of settlements entered into in good faith, and the fees and out-of-pocket expenses of such attorneys and consultants.

(p) 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 !,'1Iarantor, 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 [ndemnitees under this Section 18 shall be joint and several. The obligation of Borrower to indemnify the Indemnitees under this Section [8 shall survive any repayment or discharge of the Indebtedness, any foreclosure proceeding, any foreclosure sale, any delivery of any deed in lieu oftoreclosure, and any release of record of the lien of this Instrument.

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, and business income coverage. Lender's insurance requirements may change from time to time throughout the term of the Indebtedness. If Lender so requires, such insurance shaH also include sinkhole insurance, mine subsidence insurance, earthquake insurance, and, if the Mortgaged

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( I ) payor 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;

(2) 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

(3) reimburse Indemnitees for any and all expenses, including fees and out-or·pocket expenses of attorneys and expert witnesses, 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.

(0) [n 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. Borrower shall reimburse Lender upon demand for all costs and expenses incurred by Lender, including all costs of settlements entered into in good faith, and the fees and out-of-pocket expenses of such attorneys and consultants.

(p) 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 !,'1Iarantor, 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 [ndemnitees under this Section 18 shall be joint and several. The obligation of Borrower to indemnify the Indemnitees under this Section [8 shall survive any repayment or discharge of the Indebtedness, any foreclosure proceeding, any foreclosure sale, any delivery of any deed in lieu oftoreclosure, and any release of record of the lien of this Instrument.

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, and business income coverage. Lender's insurance requirements may change from time to time throughout the term of the Indebtedness. If Lender so requires, such insurance shaH also include sinkhole insurance, mine subsidence insurance, earthquake insurance, and, if the Mortgaged

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Property does not contonn to applicable zoning or land use laws, building ordinance or law coverage. If any of the Improvements is located in an area identitied by the Federal Emergency Management Agency (or any successor to that agency) as an area having special tlood hazards, and if tlood insurance is available in that area, Borrower shall insure such Improvements against loss by tlood.

(b) All premiums on 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 fonn approved by Lender. All policies of property damage insurance shall include a non-contributing, non-reporting mortgage clause in favor of, and in a fonn approved by, Lender. Lender shall have the right to hold the original policies or duplicate original policies of all 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. At least 30 days prior to the expiration date of a policy, Borrower shall deliver to Lender the original (or a duplicate original) of a renewal policy in fonn satisfactory to Lender.

(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 pennit any condition to exist on the Mortgaged Property that would invalidate any part of any insurance coverage that this Instrument requires Borrower to maintain.

(t) In the event ofloss, 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 property damage insurance, to appear in and prosecute any action arising trom such property damage insurance policies, to collect and receive the proceeds of property damage insurance, and to deduct trom such proceeds Lender's expenses incurred in the collection of such proceeds. This power of attorney is coupled with an interest and theretore 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 u~ed to reimburse Borrower tor 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 (2) apply the balance of such proceeds to the payment of the Indebtedness, whether or not then due. To the extent Lender detennines to apply insurance proceeds to Restoration, Lender shall do so in accordance with Lender's then-current policies relating to the restoration of casualty damage on similar multifamily properties.


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Property does not contonn to applicable zoning or land use laws, building ordinance or law coverage. If any of the Improvements is located in an area identitied by the Federal Emergency Management Agency (or any successor to that agency) as an area having special tlood hazards, and if tlood insurance is available in that area, Borrower shall insure such Improvements against loss by tlood.

(b) All premiums on 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 fonn approved by Lender. All policies of property damage insurance shall include a non-contributing, non-reporting mortgage clause in favor of, and in a fonn approved by, Lender. Lender shall have the right to hold the original policies or duplicate original policies of all 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. At least 30 days prior to the expiration date of a policy, Borrower shall deliver to Lender the original (or a duplicate original) of a renewal policy in fonn satisfactory to Lender.

(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 pennit any condition to exist on the Mortgaged Property that would invalidate any part of any insurance coverage that this Instrument requires Borrower to maintain.

(t) In the event ofloss, 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 property damage insurance, to appear in and prosecute any action arising trom such property damage insurance policies, to collect and receive the proceeds of property damage insurance, and to deduct trom such proceeds Lender's expenses incurred in the collection of such proceeds. This power of attorney is coupled with an interest and theretore 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 u~ed to reimburse Borrower tor 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 (2) apply the balance of such proceeds to the payment of the Indebtedness, whether or not then due. To the extent Lender detennines to apply insurance proceeds to Restoration, Lender shall do so in accordance with Lender's then-current policies relating to the restoration of casualty damage on similar multifamily properties.



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(g) Lender shall not exercise its option to apply insurance proceeds to the payment of the Indebtedness if all of the following conditions are met: (I) 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; (2) Lender determines, in its discretion, that there will be sufficient funds to complete the Restoration; (3) Lender determines, in its discretion, that the net operating income generated by the MOligaged Property after completion of the Restoration will be sufficient to support a debt service coverage ratio not less than the greater of (A) the debt service coverage ratio as of the date of this Instrument (based on the tinal underwriting of the Mortgaged Property) or (B) the debt service coverage ratio immediately prior to the loss (in each case, Lender's determination shall include all operating costs and other expenses, Imposition Deposits, deposits to reserves and loan repayment obligations relating to the Mortgaged Property); (4) Lender_ determines, in. its discretion,. that· the Restoration will be completed before the earlier of (A) one year before the maturity date of the Note or (B) one year after the date of the loss or casualty; and (5) upon Lender's request, Borrower provides Lender evidence of the availability during and after the Restoration of the insurance required to be maintained by Borrower pursuant to this Section 19.

(h) 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 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.

20. CONDEMNATION.

(a) Borrower shall promptly notify Lender of any action or proceeding relating to any 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. 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, 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

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(g) Lender shall not exercise its option to apply insurance proceeds to the payment of the Indebtedness if all of the following conditions are met: (I) 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; (2) Lender determines, in its discretion, that there will be sufficient funds to complete the Restoration; (3) Lender determines, in its discretion, that the net operating income generated by the MOligaged Property after completion of the Restoration will be sufficient to support a debt service coverage ratio not less than the greater of (A) the debt service coverage ratio as of the date of this Instrument (based on the tinal underwriting of the Mortgaged Property) or (B) the debt service coverage ratio immediately prior to the loss (in each case, Lender's determination shall include all operating costs and other expenses, Imposition Deposits, deposits to reserves and loan repayment obligations relating to the Mortgaged Property); (4) Lender_ determines, in. its discretion,. that· the Restoration will be completed before the earlier of (A) one year before the maturity date of the Note or (B) one year after the date of the loss or casualty; and (5) upon Lender's request, Borrower provides Lender evidence of the availability during and after the Restoration of the insurance required to be maintained by Borrower pursuant to this Section 19.

(h) 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 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.

20. CONDEMNATION.

(a) Borrower shall promptly notify Lender of any action or proceeding relating to any 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. 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, 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

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044

TEXAS (Encinito)

06/09 Page 25

© 1997·2009 FaJmie Mae


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change the amount of such installments. Borrower agrees to execute such further evidence of assignment of any awards or proceeds as Lender may require.

21. TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.

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

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

(3) a Transfer of a Controlling Interest in any entity which owns, directly or indirectly through one or more intermediate entities, a Controlling Interest in Borrower;

(4) a Transfer of all or any part of a Key Principal's ownership interests in Borrower, or in any other entity which owns, directly or indirectly through one or more intermediate entities, an ownership interest in Borrower (other than a Transfer of an aggregate beneficial ownership interest in the Borrower of 49% or less of such Key Principal's original ownership interest in the Borrower and which does not otherwise result in a Transfer of the Key Principal's Controlling Interest in such intermediate entities or in the Borrower);

(5) if Key Principal is an entity, (A) a Transfer of a Controlling Interest in Key Principal, or (B) a Transfer of a Controlling Interest in any entity which owns, directly or indirectly through one or more intermediate entities, a Controlling Interest in Key Principal;

(6) if Borrower or Key Principal is a trust, the termination or revocation of such trust; unless the trust is terminated as a result of the death of an individual trustor, in which event Lender must be notified (ind such Borrower or Key Principal must be replaced with an individual or entity acceptable to Lender, in accordance with the provisions of Section 21 I hereof, within 90 days of such death (provided however that no property inspection shall be required and a I % transfer fee will not be charged);

(7) if Key Principal is a natural person, the death of such individual; unless the Lender is notified and such individual is replaced with an individual or entity acceptable to Lender, in accordance with the provisions of Section 21 I hereof, within 90 days of such death {provided however that no


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change the amount of such installments. Borrower agrees to execute such further evidence of assignment of any awards or proceeds as Lender may require.

21. TRANSFERS OF THE MORTGAGED PROPERTY OR INTERESTS IN BORROWER.

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

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

(3) a Transfer of a Controlling Interest in any entity which owns, directly or indirectly through one or more intermediate entities, a Controlling Interest in Borrower;

(4) a Transfer of all or any part of a Key Principal's ownership interests in Borrower, or in any other entity which owns, directly or indirectly through one or more intermediate entities, an ownership interest in Borrower (other than a Transfer of an aggregate beneficial ownership interest in the Borrower of 49% or less of such Key Principal's original ownership interest in the Borrower and which does not otherwise result in a Transfer of the Key Principal's Controlling Interest in such intermediate entities or in the Borrower);

(5) if Key Principal is an entity, (A) a Transfer of a Controlling Interest in Key Principal, or (B) a Transfer of a Controlling Interest in any entity which owns, directly or indirectly through one or more intermediate entities, a Controlling Interest in Key Principal;

(6) if Borrower or Key Principal is a trust, the termination or revocation of such trust; unless the trust is terminated as a result of the death of an individual trustor, in which event Lender must be notified (ind such Borrower or Key Principal must be replaced with an individual or entity acceptable to Lender, in accordance with the provisions of Section 21 I hereof, within 90 days of such death (provided however that no property inspection shall be required and a I % transfer fee will not be charged);

(7) if Key Principal is a natural person, the death of such individual; unless the Lender is notified and such individual is replaced with an individual or entity acceptable to Lender, in accordance with the provisions of Section 21 I hereof, within 90 days of such death {provided however that no



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property inspection shall be required and a I % transfer fee will not be charged);

(8) the merger, dissolution, liquidation, or consolidation of (i) Borrower, (ii) any Key Principal that is a legal entity, or (iii) any legal entity holding, directly or indirectly, a Controlling Interest in the Borrower or in any Key Principal that is an entity;

(9) a conversion of Borrower from one type of legal entity into another type of legal entity (including the conversion of a general partnership into a limited partnership and the conversion of a limited partnership into a limited liability company), whether or not there is a Transfer; if such conversion results in a change in any assets, liabilities, legal rights or obligations of Borrower (or of Key Principal, guarantor, or any general partner of Borrower, as applicable), by operation oflaw or otherwise; and

(10) a Transfer of the economic benefits or right to cash flows attributable to the ownership interests in Borrower and/or, if Key Principal is an entity, Key Principal, separate from the Transfer of the underlying ownership interests, unless the Transfer of the underlying ownership interests would otherwise not be prohibited by this Instrument.

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.

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

(I) a Transfer to which Lender has consented;

(2) except as provided in Section 21 (a)(6) and (7), a Transfer that occurs by devise, descent, pursuant to the provisions of a trust, or by operation of law upon the death of a natural person;

(3) 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;

(4) 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;·

(5) the grant of an easement, servitude, or restrictive covenant if: before the grant, Lender determines that the easement,' servitude, or restrictive

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property inspection shall be required and a I % transfer fee will not be charged);

(8) the merger, dissolution, liquidation, or consolidation of (i) Borrower, (ii) any Key Principal that is a legal entity, or (iii) any legal entity holding, directly or indirectly, a Controlling Interest in the Borrower or in any Key Principal that is an entity;

(9) a conversion of Borrower from one type of legal entity into another type of legal entity (including the conversion of a general partnership into a limited partnership and the conversion of a limited partnership into a limited liability company), whether or not there is a Transfer; if such conversion results in a change in any assets, liabilities, legal rights or obligations of Borrower (or of Key Principal, guarantor, or any general partner of Borrower, as applicable), by operation oflaw or otherwise; and

(10) a Transfer of the economic benefits or right to cash flows attributable to the ownership interests in Borrower and/or, if Key Principal is an entity, Key Principal, separate from the Transfer of the underlying ownership interests, unless the Transfer of the underlying ownership interests would otherwise not be prohibited by this Instrument.

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.

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

(I) a Transfer to which Lender has consented;

(2) except as provided in Section 21 (a)(6) and (7), a Transfer that occurs by devise, descent, pursuant to the provisions of a trust, or by operation of law upon the death of a natural person;

(3) 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;

(4) 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;·

(5) the grant of an easement, servitude, or restrictive covenant if: before the grant, Lender determines that the easement,' servitude, or restrictive

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covenant will not materially atfect 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 incurred by Lender in connection with reviewing Borrower's request;

(6) the creation of a tax lien or a mechanic's, materialman's, or judgment lien against the Mortgaged Property which is bonded ot1~ released of record, or otherwise remedied to Lender's satisfaction within 45 days after Borrower has actual or constructive notice of the existence of such lien; and

(7) the conveyance of the Mortgaged Property at a judicial or non-judicial toreclosure sale under this Instrument.

(c) Lender shall consent 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 I;

(2) the absence of any Event of Default;

(3) the transferee meets all of the eligibility, credit, management, and other standards (including any standards with respect to previous relationships between Lender and the transferee and the organization of the transferee) customarily applied by Lender at the time of the proposed Transfer to the approval of borrowers in connection with the origination or purchase of similar mortgage finance structures on similar multifamily properties, unless partially waived by Lender in exchange tor such additional conditions as Lender may require;

(4) the Mortgaged Property, at the time of the proposed Transfer, meets all standards as to its physical condition 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 mortgage finance structures on similar multifamily properties,. unless partially waived by Lender in exchange tor such additional conditions as Lender may require;

(5) if transferor or any other person has obligations under any Loan Document, the execution by the transferee or one or more individuals or entities acceptable to Lender of an assumption agreement (including, if applicable, an Acknowledgment and Agreement of Key Principal to Personal Liability tor Exceptions to Non Recourse-Liability) that is acceptable to Lender and that, among other things, requires the transferee to pertorm all obligations of transferor or such person set forth in such Loan Document, and may require that the transferee comply with any



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covenant will not materially atfect 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 incurred by Lender in connection with reviewing Borrower's request;

(6) the creation of a tax lien or a mechanic's, materialman's, or judgment lien against the Mortgaged Property which is bonded ot1~ released of record, or otherwise remedied to Lender's satisfaction within 45 days after Borrower has actual or constructive notice of the existence of such lien; and

(7) the conveyance of the Mortgaged Property at a judicial or non-judicial toreclosure sale under this Instrument.

(c) Lender shall consent 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 I;

(2) the absence of any Event of Default;

(3) the transferee meets all of the eligibility, credit, management, and other standards (including any standards with respect to previous relationships between Lender and the transferee and the organization of the transferee) customarily applied by Lender at the time of the proposed Transfer to the approval of borrowers in connection with the origination or purchase of similar mortgage finance structures on similar multifamily properties, unless partially waived by Lender in exchange tor such additional conditions as Lender may require;

(4) the Mortgaged Property, at the time of the proposed Transfer, meets all standards as to its physical condition 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 mortgage finance structures on similar multifamily properties,. unless partially waived by Lender in exchange tor such additional conditions as Lender may require;

(5) if transferor or any other person has obligations under any Loan Document, the execution by the transferee or one or more individuals or entities acceptable to Lender of an assumption agreement (including, if applicable, an Acknowledgment and Agreement of Key Principal to Personal Liability tor Exceptions to Non Recourse-Liability) that is acceptable to Lender and that, among other things, requires the transferee to pertorm all obligations of transferor or such person set forth in such Loan Document, and may require that the transferee comply with any




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provIsIOns of this Instrument or any other Loan Document which previously may have been waived by Lender;

(6) 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 substitute guaranty in a form acceptable to Lender;

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

(A) a non-refundable review fee in the amount of $3,000 and a transfer fee equal to I percent of the outstanding Indebtedness immediately prior to the Transfer; and

(B) Borrower's reimbursement of all of Lender's out-of-pocket costs (including reasonable attorneys' fees) incurred in reviewing the Transfer request, to the extent such expenses exceed $3,000; and

(8) Borrower has agreed to Lender's conditions to approve such Transfer, which may include, but are not limited to (A) providing additional collateral, guaranties, or other credit support to mitigate any risks concerning the proposed transferee or the performance or condition of the Mortgaged Property, and (B) amending the Loan Documents to (i) delete any specially negotiated terms or provisions previously granted for the exclusive benefit of transferor and (ii) restore to original provisions of the standard Fannie Mae form multifamily loan documents, to the extent such provisions were previously modified_

(d) For purposes of this Section, the following terms shall have the meanings set forth below:

(I) "Initial Owners" means, with respect to Borrower or any other entity, the persons or entities who on the date of the Note, directly or indirectly, own in the aggregate 100% of the ownership interests in Borrower or that entity_

(2) A Transfer of a "Controlling Interest" shall mean:

(A) with respect to any entity, the following:

(i) if such entity is a general partnership or a joint venture, a Transfer of any general partnership interest or joint venture interest which would cause the Initial Owners to own less than 51 % of all general partnership or joint venture interests in such entity;

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provIsIOns of this Instrument or any other Loan Document which previously may have been waived by Lender;

(6) 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 substitute guaranty in a form acceptable to Lender;

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

(A) a non-refundable review fee in the amount of $3,000 and a transfer fee equal to I percent of the outstanding Indebtedness immediately prior to the Transfer; and

(B) Borrower's reimbursement of all of Lender's out-of-pocket costs (including reasonable attorneys' fees) incurred in reviewing the Transfer request, to the extent such expenses exceed $3,000; and

(8) Borrower has agreed to Lender's conditions to approve such Transfer, which may include, but are not limited to (A) providing additional collateral, guaranties, or other credit support to mitigate any risks concerning the proposed transferee or the performance or condition of the Mortgaged Property, and (B) amending the Loan Documents to (i) delete any specially negotiated terms or provisions previously granted for the exclusive benefit of transferor and (ii) restore to original provisions of the standard Fannie Mae form multifamily loan documents, to the extent such provisions were previously modified_

(d) For purposes of this Section, the following terms shall have the meanings set forth below:

(I) "Initial Owners" means, with respect to Borrower or any other entity, the persons or entities who on the date of the Note, directly or indirectly, own in the aggregate 100% of the ownership interests in Borrower or that entity_

(2) A Transfer of a "Controlling Interest" shall mean:

(A) with respect to any entity, the following:

(i) if such entity is a general partnership or a joint venture, a Transfer of any general partnership interest or joint venture interest which would cause the Initial Owners to own less than 51 % of all general partnership or joint venture interests in such entity;

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(ii) if such entity is a limited partnership, (A) a Transfer of any general partnership interest, or (B) a Transfer of any partnership interests which would cause the Initial Owners to own less than 51 % of all limited partnership interests in such entity;

(iii) if such entity is a limited liability company or a limited liability partnership, (A) a Transfer of any membership or other ownership interest which would cause the Initial Owners to own less than 5 I % of all membership or other ownership interests in such entity, (B) a Transfer of any membership, or other interest of a manager, in such entity that results in a change of manager, or (C) a change of the non-member manager;

(iv) if such entity is a corporation (other than a Publicly-Held Corporation) with only one class of voting stock, a Transfer of any voting stock which would cause the Initial Owners to own less than 51 % of voting stock in such corporation;

(v) if such entity is a corporation (other than a Publicly-Held Corporation) with more than one class of voting stock, a Transfer of any voting stock which would cause the Initial Owners to own less than a sufficient number of shares of voting stock having the power to elect the majority of directors of such corporation; and

(vi) if such entity is a trust (other than a Publicly-Held Trust), the removal, appointment or substitution of a trustee of such trust other than (A) in the case of a land trust, or (B) if the trustee of such trust after such removal, appointment, or substitution is a trustee identified in the trust agreement approved by Lender; and/or

(B) any agreement (including prOVISIOns contained III the organizational and/or governing documents of Borrower or Key Principal) or Transfer not specified in clause (A), the effect of which, either immediately or after the passage of time or occurrence of a specified event or condition, including the failure of a specified event or condition to occur or be satisfied, would (i) cause a change in or replacement of the Person that controls the management and operations of the Borrower or Key Principal or (ii) limit or otherwise modify the extent of such Person's control over the management and operations of Borrower or Key Principal.



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(ii) if such entity is a limited partnership, (A) a Transfer of any general partnership interest, or (B) a Transfer of any partnership interests which would cause the Initial Owners to own less than 51 % of all limited partnership interests in such entity;

(iii) if such entity is a limited liability company or a limited liability partnership, (A) a Transfer of any membership or other ownership interest which would cause the Initial Owners to own less than 5 I % of all membership or other ownership interests in such entity, (B) a Transfer of any membership, or other interest of a manager, in such entity that results in a change of manager, or (C) a change of the non-member manager;

(iv) if such entity is a corporation (other than a Publicly-Held Corporation) with only one class of voting stock, a Transfer of any voting stock which would cause the Initial Owners to own less than 51 % of voting stock in such corporation;

(v) if such entity is a corporation (other than a Publicly-Held Corporation) with more than one class of voting stock, a Transfer of any voting stock which would cause the Initial Owners to own less than a sufficient number of shares of voting stock having the power to elect the majority of directors of such corporation; and

(vi) if such entity is a trust (other than a Publicly-Held Trust), the removal, appointment or substitution of a trustee of such trust other than (A) in the case of a land trust, or (B) if the trustee of such trust after such removal, appointment, or substitution is a trustee identified in the trust agreement approved by Lender; and/or

(B) any agreement (including prOVISIOns contained III the organizational and/or governing documents of Borrower or Key Principal) or Transfer not specified in clause (A), the effect of which, either immediately or after the passage of time or occurrence of a specified event or condition, including the failure of a specified event or condition to occur or be satisfied, would (i) cause a change in or replacement of the Person that controls the management and operations of the Borrower or Key Principal or (ii) limit or otherwise modify the extent of such Person's control over the management and operations of Borrower or Key Principal.



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(3) "Publicly-Held Corporation" shall mean a corporation the outstanding voting stock of which is registered under Section 12(b) or 12(g) of the Securities and Exchange Act of 1934, as amended.

(4) "Publicly-Held Trust" shall mean a real estate investment trust the outstanding voting shares or beneficial interests of which are registered under Section 12 (b) or 12 (g) of the Securities Exchange Act of 1934, as amended.

(e) Lender shall be provided with written notice of all Transfers under this Section 21, whether or not such Transfers are permitted under Section 21 (b) or approved by Lender under Section 21 ( c), no later than 10 days prior to the date of the Transfer."

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

(a) any failure by Borrower to payor 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, or any of its oHicers, directors, trustees, general partners or managers, Key Principal or any guarantor in connection with (A) the application for or creation of the Indebtedness, (B) any financial statement, rent roll, or other report or information provided to Lender during the term of the Indebtedness, or (C) any request for Lender's consent to any proposed action, including a request for disbursement of funds under any Collateral Agreement;

(e) any (i) Event of Default under Section 21 and/or (ii) occurrence of a Bankruptcy Event;

(f) 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;

(g) any failure by Borrower to perform any of its obligations under this Instrument (other than those specified in Sections 22(a) through (f), as and when required, which continues for a period of 30 days after notice of such failure by Lender to Borrower, but no such notice or grace period 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;

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(3) "Publicly-Held Corporation" shall mean a corporation the outstanding voting stock of which is registered under Section 12(b) or 12(g) of the Securities and Exchange Act of 1934, as amended.

(4) "Publicly-Held Trust" shall mean a real estate investment trust the outstanding voting shares or beneficial interests of which are registered under Section 12 (b) or 12 (g) of the Securities Exchange Act of 1934, as amended.

(e) Lender shall be provided with written notice of all Transfers under this Section 21, whether or not such Transfers are permitted under Section 21 (b) or approved by Lender under Section 21 ( c), no later than 10 days prior to the date of the Transfer."

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

(a) any failure by Borrower to payor 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, or any of its oHicers, directors, trustees, general partners or managers, Key Principal or any guarantor in connection with (A) the application for or creation of the Indebtedness, (B) any financial statement, rent roll, or other report or information provided to Lender during the term of the Indebtedness, or (C) any request for Lender's consent to any proposed action, including a request for disbursement of funds under any Collateral Agreement;

(e) any (i) Event of Default under Section 21 and/or (ii) occurrence of a Bankruptcy Event;

(f) 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;

(g) any failure by Borrower to perform any of its obligations under this Instrument (other than those specified in Sections 22(a) through (f), as and when required, which continues for a period of 30 days after notice of such failure by Lender to Borrower, but no such notice or grace period 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;

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(h) any failure by Borrower to pertimn 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; and

(i) 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.

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

(b) Any torbearance 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. 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. [INTENTIONALLY DELETEDI. See Section 50.

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 entorce any Loan Document.


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(h) any failure by Borrower to pertimn 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; and

(i) 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.

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

(b) Any torbearance 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. 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. [INTENTIONALLY DELETEDI. See Section 50.

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 entorce any Loan Document.



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27. WAIVER OF MARSHALING. 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 detennine 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 detennine 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 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 pennitted 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 certiticates, financing statements, 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 unmoditied and in full force and effect (or, if there have been moditications, that the Loan Documents are in full force and etfect as modified and setting forth such moditications); (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 perfonning 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 shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which 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


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27. WAIVER OF MARSHALING. 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 detennine 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 detennine 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 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 pennitted 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 certiticates, financing statements, 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 unmoditied and in full force and effect (or, if there have been moditications, that the Loan Documents are in full force and etfect as modified and setting forth such moditications); (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 perfonning 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 shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which 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



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waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise.

31. NOTICE.

(a) All notices, demands and other communications ("notice") under or concerning this Instrument shall be in writing. Each notice shaH be addressed to the intended recipient at its address set forth in this Instrument, and shaH be deemed given on the earliest to occur of (I) the' date when the notice is received by the addressee; (2) 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 (3) 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 shaH 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 which does not specify how notices are to be given shaH be given in accordance with this Section 31.

32. SALE OF NOTE; CHANGE IN SERVICER. 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.

33. SINGLE ASSET BORROWER. Until the Indebtedness is paid in full, Borrower (a) shall not acquire 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 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 shaH inure to, the respective successors and assigns of Lender and Borrower. However, a Transfer not permitted by Section 21 shaH be an Event of Default.


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waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise.

31. NOTICE.

(a) All notices, demands and other communications ("notice") under or concerning this Instrument shall be in writing. Each notice shaH be addressed to the intended recipient at its address set forth in this Instrument, and shaH be deemed given on the earliest to occur of (I) the' date when the notice is received by the addressee; (2) 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 (3) 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 shaH 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 which does not specify how notices are to be given shaH be given in accordance with this Section 31.

32. SALE OF NOTE; CHANGE IN SERVICER. 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.

33. SINGLE ASSET BORROWER. Until the Indebtedness is paid in full, Borrower (a) shall not acquire 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 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 shaH inure to, the respective successors and assigns of Lender and Borrower. However, a Transfer not permitted by Section 21 shaH be an Event of Default.


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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 beneticiary of this Instrument or any other Loan Document. Without limiting the generality of the preceding sentence, (1) 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 Servicei' that is independent of the obligation of Borrower for the payment of the Indebtedness, (2) Borrower shall not be a third party beneficiary of any Servicing Arrangement, and (3) no payment by the Loan Servicer under any Servicing Arrangement will reduce the amount ofthe 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 torce 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 entorcement is sought.

38. CONSTRUCTION. The captions and headings of the sections of this Instrument are tor 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 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 Instrument 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. LOAN SERVICING. All actions regarding the servicing of the ioan 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 contlicting notices regarding the identity of the Loan Servicer or any other subject, any such notice from Lender shall govern.


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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 beneticiary of this Instrument or any other Loan Document. Without limiting the generality of the preceding sentence, (1) 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 Servicei' that is independent of the obligation of Borrower for the payment of the Indebtedness, (2) Borrower shall not be a third party beneficiary of any Servicing Arrangement, and (3) no payment by the Loan Servicer under any Servicing Arrangement will reduce the amount ofthe 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 torce 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 entorcement is sought.

38. CONSTRUCTION. The captions and headings of the sections of this Instrument are tor 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 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 Instrument 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. LOAN SERVICING. All actions regarding the servicing of the ioan 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 contlicting notices regarding the identity of the Loan Servicer or any other subject, any such notice from Lender shall govern.



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40. 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 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 any right of privacy.

41. NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the application for the loan submitted to Lender (the "Loan Application") and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan Application are complete and accurate in all material respects. There has been no material adverse change in any fact or circumstance that would make any such information incomplete or inaccurate.

42. 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.

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 and any other remedies permitted by Texas 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 attorneys' fees, costs of documentary evidence, abstracts and title reports.

If Lender invokes the power of sale, Lender may, by and through the Trustee, or otherwise, sell or offer for sale the Mortgaged Property in such portions, order and parcels as Lender may determine, with or without having first taken possession of the Mortgaged Property, to the highest bidder for cash at public auction. Such sale shall be made at the courthouse door of the county in which all or any part of the Land to be sold is situated (whether the parts or parcel, if any, situated in different counties are contiguous or not, and without the necessity of having any Personalty present at such sale) on the tirst Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m., after advertising the time, place and terms of sale and that portion of the Mortgaged Property to be sold by posting or causing to be posted written or printed notice of sale at least twenty-one (21) days before the date of the sale at the courthouse door of the county in which the sale is to be made and at the courthouse door of any other county in which a portion of the Land may be situated, and by tiling such notice with the County Clerk(s) of the county(s)


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40. 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 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 any right of privacy.

41. NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the application for the loan submitted to Lender (the "Loan Application") and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan Application are complete and accurate in all material respects. There has been no material adverse change in any fact or circumstance that would make any such information incomplete or inaccurate.

42. 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.

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 and any other remedies permitted by Texas 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 attorneys' fees, costs of documentary evidence, abstracts and title reports.

If Lender invokes the power of sale, Lender may, by and through the Trustee, or otherwise, sell or offer for sale the Mortgaged Property in such portions, order and parcels as Lender may determine, with or without having first taken possession of the Mortgaged Property, to the highest bidder for cash at public auction. Such sale shall be made at the courthouse door of the county in which all or any part of the Land to be sold is situated (whether the parts or parcel, if any, situated in different counties are contiguous or not, and without the necessity of having any Personalty present at such sale) on the tirst Tuesday of any month between the hours of 10:00 a.m. and 4:00 p.m., after advertising the time, place and terms of sale and that portion of the Mortgaged Property to be sold by posting or causing to be posted written or printed notice of sale at least twenty-one (21) days before the date of the sale at the courthouse door of the county in which the sale is to be made and at the courthouse door of any other county in which a portion of the Land may be situated, and by tiling such notice with the County Clerk(s) of the county(s)



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in which all or a portion of the Land may be situated, which notice may be posted and filed by the Trustee acting, or by any person acting for the Trustee, and Lender has, at least twenty-one (21) days before the date of the sale, served written or printed notice of the proposed sale by certified mail on each debtor obligated to pay the Indebtedness according to Lender's records by the deposit of such notice, enclosed in a postpaid wrapper, properly addressed to such debtor at debtor's most recent address as shown by Lender's records, in a post of1ice or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service.

Trustee shall deliver to the purchaser at the sale, within a reasonable time after the sale, a deed conveying the Mortgaged Property so sold in fee simple with covenants of gel).eral warranty. Borrower covenants and agrees to defend generally the purchaser's title to the Mortgaged Property against all ciaims and demands. The recitals in Trustee's deed shall be prima facie evidence of the truth of the statements contained in those recitals. Trustee shall apply the proceeds of the sale in the following order: (a) to all reasonable costs and expenses of the sale, including reasonable Trustee's fees and 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.

If all or any part of the Mortgaged Property is sold pursuant to this Section 43, Borrower will be divested of any and all interest and claim to the Mortgaged Property, including any interest or claim to all insurance policies, utility deposits, bonds, loan commitments and other intangible property included as a part of the Mortgaged Property. Additionally, after a sale of all or any part of the Land, Improvements, Fixtures and Personalty, Borrower will be considered a tenant at sufferance of the purchaser of the same, and the purchaser shall be entitled to immediate possession of such property. If Borrower shall fail to vacate the Mortgaged Property immediately, the purchaser may and shall have the right, without further notice to Borrower, to go into any justice court in any precinct or county in which the Mortgaged Property is located and file an action in forcible entry and detainer, which action shall lie against Borrower or its assigns or legal representatives, as a tenant at sufferance. This remedy is cumulative of any and all remedies the purchaser may have under this Instrument or otherwise.

In any action for a deficiency after a foreclosure under this Instrument, if any person against whom recovery is sought requests the court in which the action is pending to determine the fair market value of the Mortgaged Property, as of the date of the foreclosure sale, the following shall be the basis of the court's determination of fair market value:

(a) the Mortgaged Property shall be valued "as is" and in its condition as of the date of foreclosure, and no assumption of increased value because of post-foreclosure repairs, refurbishment, restorations or·improvements shall be made;


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in which all or a portion of the Land may be situated, which notice may be posted and filed by the Trustee acting, or by any person acting for the Trustee, and Lender has, at least twenty-one (21) days before the date of the sale, served written or printed notice of the proposed sale by certified mail on each debtor obligated to pay the Indebtedness according to Lender's records by the deposit of such notice, enclosed in a postpaid wrapper, properly addressed to such debtor at debtor's most recent address as shown by Lender's records, in a post of1ice or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service.

Trustee shall deliver to the purchaser at the sale, within a reasonable time after the sale, a deed conveying the Mortgaged Property so sold in fee simple with covenants of gel).eral warranty. Borrower covenants and agrees to defend generally the purchaser's title to the Mortgaged Property against all ciaims and demands. The recitals in Trustee's deed shall be prima facie evidence of the truth of the statements contained in those recitals. Trustee shall apply the proceeds of the sale in the following order: (a) to all reasonable costs and expenses of the sale, including reasonable Trustee's fees and 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.

If all or any part of the Mortgaged Property is sold pursuant to this Section 43, Borrower will be divested of any and all interest and claim to the Mortgaged Property, including any interest or claim to all insurance policies, utility deposits, bonds, loan commitments and other intangible property included as a part of the Mortgaged Property. Additionally, after a sale of all or any part of the Land, Improvements, Fixtures and Personalty, Borrower will be considered a tenant at sufferance of the purchaser of the same, and the purchaser shall be entitled to immediate possession of such property. If Borrower shall fail to vacate the Mortgaged Property immediately, the purchaser may and shall have the right, without further notice to Borrower, to go into any justice court in any precinct or county in which the Mortgaged Property is located and file an action in forcible entry and detainer, which action shall lie against Borrower or its assigns or legal representatives, as a tenant at sufferance. This remedy is cumulative of any and all remedies the purchaser may have under this Instrument or otherwise.

In any action for a deficiency after a foreclosure under this Instrument, if any person against whom recovery is sought requests the court in which the action is pending to determine the fair market value of the Mortgaged Property, as of the date of the foreclosure sale, the following shall be the basis of the court's determination of fair market value:

(a) the Mortgaged Property shall be valued "as is" and in its condition as of the date of foreclosure, and no assumption of increased value because of post-foreclosure repairs, refurbishment, restorations or·improvements shall be made;



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(b) any adverse effect on the marketability of title because of the foreclosure or because of any other title condition not existing as of the date of this Instrument shall be considered;

(c) the valuation of the Mortgaged Property shall be based upon an assumption that the foreclosure purchaser desires a prompt resale of the Mortgaged Property for cash within a six month-period after foreclosure;

(d) although the Mortgaged Property may be disposed of more quickly by the foreclosure purchaser, the gross valuation of the Mortgaged Property as of the date of foreclosure shall be discounted for a hypothetical reasonable holding period (not to exceed 6 months) at a monthly rate equal to the average monthly interest rate on the Note for the twelve months before the date of foreclosure;

(e) the gross valuation of the Mortgaged Property as of the date of foreclosure shall be further discounted and reduced by reasonable estimated costs of disposition, including brokerage commissions, title policy premiums, environmental assessment and clean-up costs, tax and assessment, prorations, costs to comply with legal requirements and attorneys' fees;

(f) expert opinion testimony shall be considered only from a licensed appraiser certified by the State of Texas and, to the extent permitted under Texas law, a member of the Appraisal Institute, having at least five years' experience in appraising property similar to the Mortgaged Property in the county where the Mortgaged Property is located, and who has conducted and prepared a complete written appraisal of the Mortgaged Property taking into considerations the factors set forth in this Instrument; no expert opinion testimony shall be considered without such written appraisal;

(g) evidence of comparable sales shall be considered only if also included in the expert opinion testimony and written al?praisal referred to in the preceding paragraph; and

(h) an affidavit executed by Lender to the effect that the foreclosure bid accepted by Trustee was equal to or greater than the value of the Mortgaged Property determined by Lender based upon the factors and methods set forth in subparagraphs (a) through (g) above before the foreclosure shall constitute prima facie evidence that the foreclosure bid was equal to or greater than the fair market value of the Mortgaged Property on the foreclosure date.

Lender may, at Lender's option, comply with these provisions in the manner permitted or required by Title 5, Section 51.002 of the Texas Property Code (relating to the sale of real estate) or by Chapter 9 of the Texas Business and Commerce Code (relating to the sale of collateral atter default by a debtor), as those titles and chapters now exist or may be amended or succeeded in the future, or by any other present or future articles or enactments relating to same subject. Unless expressly excluded, the Mortgaged Property shall include Rents collected before a foreclosure sale, but attributable to the period following the foreclosure sale, and Borrower shall pay such Rents to the purchaser at such sale. At any such sale:


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(b) any adverse effect on the marketability of title because of the foreclosure or because of any other title condition not existing as of the date of this Instrument shall be considered;

(c) the valuation of the Mortgaged Property shall be based upon an assumption that the foreclosure purchaser desires a prompt resale of the Mortgaged Property for cash within a six month-period after foreclosure;

(d) although the Mortgaged Property may be disposed of more quickly by the foreclosure purchaser, the gross valuation of the Mortgaged Property as of the date of foreclosure shall be discounted for a hypothetical reasonable holding period (not to exceed 6 months) at a monthly rate equal to the average monthly interest rate on the Note for the twelve months before the date of foreclosure;

(e) the gross valuation of the Mortgaged Property as of the date of foreclosure shall be further discounted and reduced by reasonable estimated costs of disposition, including brokerage commissions, title policy premiums, environmental assessment and clean-up costs, tax and assessment, prorations, costs to comply with legal requirements and attorneys' fees;

(f) expert opinion testimony shall be considered only from a licensed appraiser certified by the State of Texas and, to the extent permitted under Texas law, a member of the Appraisal Institute, having at least five years' experience in appraising property similar to the Mortgaged Property in the county where the Mortgaged Property is located, and who has conducted and prepared a complete written appraisal of the Mortgaged Property taking into considerations the factors set forth in this Instrument; no expert opinion testimony shall be considered without such written appraisal;

(g) evidence of comparable sales shall be considered only if also included in the expert opinion testimony and written al?praisal referred to in the preceding paragraph; and

(h) an affidavit executed by Lender to the effect that the foreclosure bid accepted by Trustee was equal to or greater than the value of the Mortgaged Property determined by Lender based upon the factors and methods set forth in subparagraphs (a) through (g) above before the foreclosure shall constitute prima facie evidence that the foreclosure bid was equal to or greater than the fair market value of the Mortgaged Property on the foreclosure date.

Lender may, at Lender's option, comply with these provisions in the manner permitted or required by Title 5, Section 51.002 of the Texas Property Code (relating to the sale of real estate) or by Chapter 9 of the Texas Business and Commerce Code (relating to the sale of collateral atter default by a debtor), as those titles and chapters now exist or may be amended or succeeded in the future, or by any other present or future articles or enactments relating to same subject. Unless expressly excluded, the Mortgaged Property shall include Rents collected before a foreclosure sale, but attributable to the period following the foreclosure sale, and Borrower shall pay such Rents to the purchaser at such sale. At any such sale:



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(a) whether made under the power contained in this Instrument, Section 5l.002, the Texas Business and Commerce Code, any other legal requirement or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for Trustee to have physically present, or to have constructive possession of, the Mortgaged Property (Borrower shall deliver to Trustee any portion of the Mortgaged Property not actually or constructively possessed by Trustee immediately upon demand by Trustee) and the title to and right of possession of any such property shall pass to the purchaser as completely as if the property had been actually present and delivered to the purchaser at the sale;

(b) each instrument of conveyance executed by Trustee shall contain a general warranty of title, binding upon Borrower;

(c) the recitals contained In any instrument of conveyance made by Trustee shall conclusively establish the truth and accuracy of the matters recited in the Instrument, including nonpayment of the Indebtedness and the advertisement and conduct of the sale in the manner provided in this Instrument and otherwise by law and the appointment of any successor Trustee;

(d) all prerequisites to the validity of the sale shall be conclusively presumed to have been satisfied;

(e) the receipt of Trustee or of such other party or officer making the sale shall be sufficient to discharge to the purchaser or purchasers for such purchaser(s)' purchase money, and no such purchaser or purchasers, or such purchaser(s)' assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication of such purchase money;

(t) to the fullest extent permitted by law, Borrower shall be completely and irrevocably divested of all of Borrower's right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar to any claim to all or any part of the property sold, both at law and in equity, against Borrower and against any person claiming by, through or under Borrower; and

(g) to the extent and under such circumstances as are permitted by law, Lender may be a purchaser at any such sale.

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

45. TRUSTEE.

(a) Trustee may resign by giving of notice of such resignation in writing to Lender. If Trustee shall die, resign or become disqualified from acting under this Instrument or shall fail or refuse to act in accordance with this Instrument when requested by Lender or if for any reason and without cause Lender shall prefer to appoint a substitute trustee to act instead of the original Trustee named in this Instrument or any prior successor or substitute trustee, Lender shall have

FANNIE MAE ~IUL TIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 39 TEXAS © 1997-2009 Fannie Mae (Encinito)

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(a) whether made under the power contained in this Instrument, Section 5l.002, the Texas Business and Commerce Code, any other legal requirement or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for Trustee to have physically present, or to have constructive possession of, the Mortgaged Property (Borrower shall deliver to Trustee any portion of the Mortgaged Property not actually or constructively possessed by Trustee immediately upon demand by Trustee) and the title to and right of possession of any such property shall pass to the purchaser as completely as if the property had been actually present and delivered to the purchaser at the sale;

(b) each instrument of conveyance executed by Trustee shall contain a general warranty of title, binding upon Borrower;

(c) the recitals contained In any instrument of conveyance made by Trustee shall conclusively establish the truth and accuracy of the matters recited in the Instrument, including nonpayment of the Indebtedness and the advertisement and conduct of the sale in the manner provided in this Instrument and otherwise by law and the appointment of any successor Trustee;

(d) all prerequisites to the validity of the sale shall be conclusively presumed to have been satisfied;

(e) the receipt of Trustee or of such other party or officer making the sale shall be sufficient to discharge to the purchaser or purchasers for such purchaser(s)' purchase money, and no such purchaser or purchasers, or such purchaser(s)' assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication of such purchase money;

(t) to the fullest extent permitted by law, Borrower shall be completely and irrevocably divested of all of Borrower's right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold, and such sale shall be a perpetual bar to any claim to all or any part of the property sold, both at law and in equity, against Borrower and against any person claiming by, through or under Borrower; and

(g) to the extent and under such circumstances as are permitted by law, Lender may be a purchaser at any such sale.

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

45. TRUSTEE.

(a) Trustee may resign by giving of notice of such resignation in writing to Lender. If Trustee shall die, resign or become disqualified from acting under this Instrument or shall fail or refuse to act in accordance with this Instrument when requested by Lender or if for any reason and without cause Lender shall prefer to appoint a substitute trustee to act instead of the original Trustee named in this Instrument or any prior successor or substitute trustee, Lender shall have

FANNIE MAE ~IUL TIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 39 TEXAS © 1997-2009 Fannie Mae (Encinito)


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full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the original Trustee named in this Instrument. Such appointment may be executed by an authorized oUicer, ·;gent or attorney· in· fact of Lender (whether acting pursuant to a power of attorney or otherwise), and such appointment shall be conclusively presumed to be executed with authority and shall be valid and sutlicient without proof of any action by Lender.

(b) Any successor Trustee· appointed pursuant to this Section shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of the predecessor Trustee with like etfect as if originally named as Trustee in this Instrument; but, nevertheless, upon the written request of Lender or such successor Trustee, the Trustee ceasing to act shall execute and deliver an instfl!ment transferring to such successor Trustee, all the estates, properties, rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and monies held by the Trustee ceasing to act to the successor Trustee.

(c) Trustee may authorize one or more parties to act on Trustee's behalf to perform the ministerial functions required of Trustee under this Instrument, including the transmittal and posting of any notices.

46. VENDOR'S LIEN; RENEWAL AND EXTENSION. N/A

47. NO FIDUCIARY DUTY. Lender owes no fiduciary or other special duty to Borrower.

48. FIXTURE FILING. This Instrument is also a tixture filing under the Uniform Commercinl Code of Texas.

49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS. In no event shall the assignment of Rents or Leases in Section 3 and Section 4 cause the Indebtedness to be reduced by an amount greater than the Rents actually received by Lender and applied by Lender to the Indebtedness, whether before, during or after (i) an Event of Default, or (ii) a suspension or revocation of the license granted to Borrower in Section 31 with regard to the Rents. Borrower and Lender specitically intend that the assignment of Rents and Leases in Section 3 and Section 4 is not intended to result in a pro tanto reduction of the Indebtedness. The assignment of Rents and Leases in Section 3 and Section 4 is not intended to constitute a payment ot: or with respect to, the Indebtedness and, therefore, Borrower and Lender specitically intend that the Indebtedness shall not be reduced by the value of the Rents and Leases assigned. Such reduction shall occur only if, and to the extent that, Lender actually receives Rents pursuant to Section 3 and applies such Rents to the Indebtedness. Borrower agrees that the value of the license granted with regard to the Rents equals the value of the absolute assignment of Rents to Lender. The assignment of Rents contained in Section 3 shall tenninate upon the release of this Instrument.


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full power to appoint a substitute trustee and, if preferred, several substitute trustees in succession who shall succeed to all the estate, rights, powers and duties of the original Trustee named in this Instrument. Such appointment may be executed by an authorized oUicer, ·;gent or attorney· in· fact of Lender (whether acting pursuant to a power of attorney or otherwise), and such appointment shall be conclusively presumed to be executed with authority and shall be valid and sutlicient without proof of any action by Lender.

(b) Any successor Trustee· appointed pursuant to this Section shall, without any further act, deed or conveyance, become vested with all the estates, properties, rights, powers and trusts of the predecessor Trustee with like etfect as if originally named as Trustee in this Instrument; but, nevertheless, upon the written request of Lender or such successor Trustee, the Trustee ceasing to act shall execute and deliver an instfl!ment transferring to such successor Trustee, all the estates, properties, rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver any of the property and monies held by the Trustee ceasing to act to the successor Trustee.

(c) Trustee may authorize one or more parties to act on Trustee's behalf to perform the ministerial functions required of Trustee under this Instrument, including the transmittal and posting of any notices.

46. VENDOR'S LIEN; RENEWAL AND EXTENSION. N/A

47. NO FIDUCIARY DUTY. Lender owes no fiduciary or other special duty to Borrower.

48. FIXTURE FILING. This Instrument is also a tixture filing under the Uniform Commercinl Code of Texas.

49. ADDITIONAL PROVISIONS REGARDING ASSIGNMENT OF RENTS. In no event shall the assignment of Rents or Leases in Section 3 and Section 4 cause the Indebtedness to be reduced by an amount greater than the Rents actually received by Lender and applied by Lender to the Indebtedness, whether before, during or after (i) an Event of Default, or (ii) a suspension or revocation of the license granted to Borrower in Section 31 with regard to the Rents. Borrower and Lender specitically intend that the assignment of Rents and Leases in Section 3 and Section 4 is not intended to result in a pro tanto reduction of the Indebtedness. The assignment of Rents and Leases in Section 3 and Section 4 is not intended to constitute a payment ot: or with respect to, the Indebtedness and, therefore, Borrower and Lender specitically intend that the Indebtedness shall not be reduced by the value of the Rents and Leases assigned. Such reduction shall occur only if, and to the extent that, Lender actually receives Rents pursuant to Section 3 and applies such Rents to the Indebtedness. Borrower agrees that the value of the license granted with regard to the Rents equals the value of the absolute assignment of Rents to Lender. The assignment of Rents contained in Section 3 shall tenninate upon the release of this Instrument.



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50. LOAN CHARGES. Borrower and Lender intend at all times to comply with the laws of the State of Texas governing the maximum rate or amount of interest payable on or in connection with the Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially interpreted so as to render usurious any amount payable under the Note, this Instrument or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Indebtedness, or if acceleration of the maturity of the Indebtedness, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by any applicable law,· then Borrower and Lender expressly intend that all excess amounts collected by Lender shall be applied to reduce the unpaid principal balance of the Indebtedness (or, if the Indebtedness has been or would thereby be paid in full, shall be refunded to Borrower), and the provisions of the Note, this Instrument and the other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible under the Loan Documents reduced, without the necessity of the execution of any new documents, so as to comply with any applicable law, but so as to permit the recovery of the fullest amount otherwise payable under the Loan Documents. The right to accelerate the maturity of the Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Indebtedness until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the applicable usury ceiling. Notwithstanding any provision contained in the Note, this Instrument or any other Loan Document that permits the compounding of interest, including any provision by which any accrued interest is added to the principal amount of the Indebtedness, the total amount of interest that Borrower is obligated to pay and Lender is entitled to receive with respect to the Indebtedness shall not exceed the amount calculated on a simple (i.~., noncompounded) interest basis at the maximum rate on principal amounts actually advanced to or for the account of Borrower, including all current and prior advances and any advances made pursuant to the Instrument or any other Loan Document (such as for the payment of Impositions and similar expenses or costs).

51. PROPERTY AND LIABILITY INSURANCE - DELIVERY OF POLICY TO LENDER. Notwithstanding the provisions of Section 19(b), Borrower shall not be required to deliver the original (or a duplicate original) of any renewal policy of insurance to Lender more than 15 days prior to the expiration date of the policy then held by Lender.

52. ENTIRE AGREEMENT. THIS INSTRUMENT, THE NOTE 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 UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06109 Page 41


Doc# 20110021!Z15 Vol. 812 Page 475 04/12/2011 1 : 39PM .

50. LOAN CHARGES. Borrower and Lender intend at all times to comply with the laws of the State of Texas governing the maximum rate or amount of interest payable on or in connection with the Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially interpreted so as to render usurious any amount payable under the Note, this Instrument or any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Indebtedness, or if acceleration of the maturity of the Indebtedness, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by any applicable law,· then Borrower and Lender expressly intend that all excess amounts collected by Lender shall be applied to reduce the unpaid principal balance of the Indebtedness (or, if the Indebtedness has been or would thereby be paid in full, shall be refunded to Borrower), and the provisions of the Note, this Instrument and the other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible under the Loan Documents reduced, without the necessity of the execution of any new documents, so as to comply with any applicable law, but so as to permit the recovery of the fullest amount otherwise payable under the Loan Documents. The right to accelerate the maturity of the Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the Indebtedness until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the applicable usury ceiling. Notwithstanding any provision contained in the Note, this Instrument or any other Loan Document that permits the compounding of interest, including any provision by which any accrued interest is added to the principal amount of the Indebtedness, the total amount of interest that Borrower is obligated to pay and Lender is entitled to receive with respect to the Indebtedness shall not exceed the amount calculated on a simple (i.~., noncompounded) interest basis at the maximum rate on principal amounts actually advanced to or for the account of Borrower, including all current and prior advances and any advances made pursuant to the Instrument or any other Loan Document (such as for the payment of Impositions and similar expenses or costs).

51. PROPERTY AND LIABILITY INSURANCE - DELIVERY OF POLICY TO LENDER. Notwithstanding the provisions of Section 19(b), Borrower shall not be required to deliver the original (or a duplicate original) of any renewal policy of insurance to Lender more than 15 days prior to the expiration date of the policy then held by Lender.

52. ENTIRE AGREEMENT. THIS INSTRUMENT, THE NOTE 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 UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06109 Page 41



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53. 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:

Exhibit A

Exhibit B

Exhibit C

Description of the Land (required).

Modifications to Instrument (Modification to Transfer Provision - Death of Key Principal).

Modifications to Instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]

FANNIE MAE MVL TIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 42 TEXAS ©. 1997-2009 Fannie Mae (Encinito)

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53. 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:

Exhibit A

Exhibit B

Exhibit C

Description of the Land (required).

Modifications to Instrument (Modification to Transfer Provision - Death of Key Principal).

Modifications to Instrument.


FANNIE MAE MVL TIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 42 TEXAS ©. 1997-2009 Fannie Mae (Encinito)


FM000047

Doc# 21l1110!£12105 Vol. 812 Pa 477

. 04/12/2011 I' -9PM g e IN WITNESS WHEREOF, Borrower has signed and delivered this llistrument or has

caused this Instrument to be signed and delivered by its duly authorized representative.

BORROWER:

HONDO ENCINITO APARTMENTS, LLC, a Texas limited liability company

By: LJ~d.Q~ WendeIl A. Jacobson Managing Member

ACKNOWLEDGEMENT

STATE OF l ) Jot h COUNTY OF \....tPJ h

) ) ss )

This Instrument was acknowledged before me on ~II ~,2011, by Wendell A. Jacobson, the Managing Member of HONDO ENCINI 0 APARTMENTS, LLC, a Texas limited liability company, on behalf of said limited liability company.

J ~rf-8 Si~

; "'{,'.-;i,~ ';f-- .. ;:- JANUARI Hill g(: ",\ Notary Public, State of Utah ,., ;1 Commission H 577034 I.,. -1 M C '. , \.:'. .j Y OrnmlS$IOn Expires ,~_' _ December29,2012

Notary Public

[SEAL]

My Commission expires: \ '), \ ]...-Cl'\ 1'1-

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 TEXAS © 1997-2009 Fannie Mae

Doc# 21l1110!£12105 Vol. 812 Pa 477

. 04/12/2011 I' -9PM g e IN WITNESS WHEREOF, Borrower has signed and delivered this llistrument or has

caused this Instrument to be signed and delivered by its duly authorized representative.

BORROWER:


By: LJ~d.Q~ WendeIl A. Jacobson Managing Member

ACKNOWLEDGEMENT

STATE OF l ) Jot h COUNTY OF \....tPJ h

) ) ss )

This Instrument was acknowledged before me on ~II ~,2011, by Wendell A. Jacobson, the Managing Member of HONDO ENCINI 0 APARTMENTS, LLC, a Texas limited liability company, on behalf of said limited liability company.

J ~rf-8 Si~

; "'{,'._;4~ , ;f-- .;;, JANUARI Hill g(: .",\ Notary Public, State of Utah ,., ;1 Commission H 577034 I... ·1 M C '. , \.:'. .j Y OrnmlS$IOn Expires ,~_' _ December29,2012

Notary Public

[SEAL]

My Commission expires: \ '), \ ]...-Cl'\ 1'1-

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 TEXAS © 1997-2009 Fannie Mae


FM000048

Key Principal

Name:

Address:

KEY PRINCIPAL

Wendell A. Jacobson

c/o Management Solutions, Incorporated 6750 Locke Avenue, Suite 301 Fort Worth, Texas 76116

Doc# 2011002105 Vol. 812 Page 478 ~4/12j2011 1:33PM -

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 44 TEXAS © 1997-2009 Fannie Mae (Encinitol

Key Principal

Name:

Address:

KEY PRINCIPAL

Wendell A. Jacobson

c/o Management Solutions, Incorporated 6750 Locke Avenue, Suite 301 Fort Worth, Texas 76116

Doc# 2011002105 Vol. 812 Page 478 ~4/12j2011 1:33PM -

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page 44 TEXAS © 1997-2009 Fannie Mae (Encinitol


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EXHIBIT A

DESCRIPTION OF THE LAND

A survey of 8.983 acres of land situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No.1029, John Wolfart, original Grantee, being a portion of that certain 23.434 acre tract of land described as Tract I in a Partition Deed to Robert R. Corder, Jr., et ux, from Maybelle R. Hagens, et aI, dated September I, 1986, as recorded in Volume 46 on Page 249 of the Otlicial Public Records of Medina County, Texas, and being more particularly described by metes and bounds as fol1<?ws:

Beginning: At a 5/8 inch iron pin set in the remains of a broken concrete R.O.W. marker found at the point-of-intersection of the East line of Avenue "U" and the North R.O.W. line of F.M. Highway 1250 (30th Street) for the Southwest comer of said 23.434 acre tract of land and the Southwest comer ofthis survey;

Thence: Along a rundown fence, the East line of said Avenue "U", and the West line of said 23.434 acre tract ofland, N 00 degrees 18 minutes 24 seconds W 732.27 feet to a 5/8 inch iron pin for the Northwest comer of this survey;

Thence: N 89 degrees 07 minutes 32 seconds E 528.76 feet to a 5/8 inch iron pin set for the southwest comer of a certain 2.410 acre tract of land described as Tract II to Maybelle R. Hagens, et aI, in the aforementioned Partition Deed, and the Northeast comer ofthis survey;

Thence: S 00 degrees 52 minutes 28 seconds E 737.76 feet to a railroad spike set in concrete riprap on the North R.O.W. line of said F.M. Highway 1250 and the South line of said 23.434 acre tract of land for the Southeast comer of this survey;

Thence: Along fence, the North R.O.W. line of said F.M. Highway 1250, and the South line of said 23.434 acre tract of land, S 89 degrees 42 minutes 58 seconds W 536.04 feet to the Point of Beginning.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page A-I TEXAS © 1997-2009 Fannie Mae

DMEAST #13440319 v3

\) 0 cit: ;:::01 1 01£\21 05 Vol. 812 Page 479 134/12/21111 1 :3'jPM

EXHIBIT A

DESCRIPTION OF THE LAND

A survey of 8.983 acres of land situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No.1029, John Wolfart, original Grantee, being a portion of that certain 23.434 acre tract of land described as Tract I in a Partition Deed to Robert R. Corder, Jr., et ux, from Maybelle R. Hagens, et aI, dated September I, 1986, as recorded in Volume 46 on Page 249 of the Otlicial Public Records of Medina County, Texas, and being more particularly described by metes and bounds as fol1<?ws:

Beginning: At a 5/8 inch iron pin set in the remains of a broken concrete R.O.W. marker found at the point-of-intersection of the East line of Avenue "U" and the North R.O.W. line of F.M. Highway 1250 (30th Street) for the Southwest comer of said 23.434 acre tract of land and the Southwest comer ofthis survey;

Thence: Along a rundown fence, the East line of said Avenue "U", and the West line of said 23.434 acre tract ofland, N 00 degrees 18 minutes 24 seconds W 732.27 feet to a 5/8 inch iron pin for the Northwest comer of this survey;

Thence: N 89 degrees 07 minutes 32 seconds E 528.76 feet to a 5/8 inch iron pin set for the southwest comer of a certain 2.410 acre tract of land described as Tract II to Maybelle R. Hagens, et aI, in the aforementioned Partition Deed, and the Northeast comer ofthis survey;


Thence: Along fence, the North R.O.W. line of said F.M. Highway 1250, and the South line of said 23.434 acre tract of land, S 89 degrees 42 minutes 58 seconds W 536.04 feet to the Point of Beginning.

FANNIE MAE MULTIFAMILY SECURITY INSTRUMENT - Form 4044 06/09 Page A-I TEXAS © 1997-2009 Fannie Mae

DMEAST #13440319 v3


FM000050

•

EXHIBIT B

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MODIFICATIONS TO INSTRUMENT (Modification to Transfer Provision - Death of Key Principal)

The tollowing moditications are made to the text of the Instrument that precedes this Exhibit:

1. Section 21 (a)(7) is hereby deleted in its entirety and the following is inserted in lieu thereof:

"(7) if Key Principal is a natural person, the death of such individual unless (i) Lender is notitied in writing within 90 days after such individual's death and (ii) such individual is replaced, if required by Lender, with an individual or entity acceptable to Lender, in accordance with the provisions of Section 21(c) hereof, within 180 days after such individual's death (the "Replacement Period"). Notwithstanding the toregoing, the Replacement Period may be extended, at Lender's discretion, for a period not to exceed 185 days from the last day of the initial Replacement Period (the "Extended Replacement Period"), provided:

(I) Borrower, if required by Lender, either (i) replaces the current property manager with a property manager reasonably acceptable to Lender, or, (ii) engages a property manager reasonably acceptable to Lender if a property manager has not been previously engaged); and/or

(II) Borrower (and the property manager), if required by Lender, institutes a lockbox or cash management arrangement reasonably acceptable to Lender during the Extended Replacement Period.

No property inspection shall be required and the I % transfer fee will not be charged if the toregoing requirements are timely satisfied;"


Modifications to Instrument Form 4095 I 1/09 Page 8-/ Modification to Transfer Provision - Death of Key Principal

'92009 Fannie Mac

•

EXHIBIT B

Doc# 21011002105 Vol. 812 Page 480 W12/2011 1:3'3PM

MODIFICATIONS TO INSTRUMENT (Modification to Transfer Provision - Death of Key Principal)

The tollowing moditications are made to the text of the Instrument that precedes this Exhibit:

1. Section 21 (a)(7) is hereby deleted in its entirety and the following is inserted in lieu thereof:

"(7) if Key Principal is a natural person, the death of such individual unless (i) Lender is notitied in writing within 90 days after such individual's death and (ii) such individual is replaced, if required by Lender, with an individual or entity acceptable to Lender, in accordance with the provisions of Section 21(c) hereof, within 180 days after such individual's death (the "Replacement Period"). Notwithstanding the toregoing, the Replacement Period may be extended, at Lender's discretion, for a period not to exceed 185 days from the last day of the initial Replacement Period (the "Extended Replacement Period"), provided:

(I) Borrower, if required by Lender, either (i) replaces the current property manager with a property manager reasonably acceptable to Lender, or, (ii) engages a property manager reasonably acceptable to Lender if a property manager has not been previously engaged); and/or

(II) Borrower (and the property manager), if required by Lender, institutes a lockbox or cash management arrangement reasonably acceptable to Lender during the Extended Replacement Period.

No property inspection shall be required and the I % transfer fee will not be charged if the toregoing requirements are timely satisfied;"


Modifications to Instrument Form 4095 I 1/09 Page 8-/ Modification to Transfer Provision - Death of Key Principal

'92009 Fannie Mac


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2. All capitalized terms used in this Exhibit not specifically defined herein shall have the meimings set forth in the text of the Instrwnent that precedes this Exhibit.

BORROWER'S INITIALS: hi A 9-

Modifications to Instrument Form 4095 11109 Modification to Transfer Provision - Death of Key Principal

10 2009 Fannie Mae

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2. All capitalized terms used in this Exhibit not specifically defined herein shall have the meimings set forth in the text of the Instrwnent that precedes this Exhibit.

BORROWER'S INITIALS: hi A 9-

Modifications to Instrument Form 4095 11109 Modification to Transfer Provision - Death of Key Principal

10 2009 Fannie Mae


FM000052

..

EXHIBIT C

Doc# 2011002105 Vol. 812 Page 48 g

~4/12/2011 1 : 39PM '--

MODIFICATIONS TO INSTRUMENT

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

I. Section 13 is restated as follows:

"13. INSPECTION. Borrower shall permit Lender, its agents, representatives and designees to enter upon and inspect the Mortgaged Property (including in connection with any replacement, repair or environmental inspections), and shall cooperate and provide access to all areas of the Mortgaged Property (subject to the rights of tenants under the Leases) during normal business hours or at such other reasonable time upon reasonable notice, and at any time after an Event of Default or when exigent circumstances exist."

2. Sections 14(c) and 14(d) are restated as follows:

"( c) Each of the statements, schedules and reports required by Section 14(b) shall be certified to be complete and accurate by an individual having authority to bind Borrower, and shall be in such form and contain such detail as Lender may reasonably require. Lender also may require that any statements, schedules or reports be audited at Borrower's expense by independent certified public accountants acceptable to Lender; provided that such requirement shall be limited to not more than once per Borrower's fiscal year so long as no Event of Default has occurred (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).

(d) If Borrower fails to provide in a timely manner the statements, schedules and reports required by Section 14(b), 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, provided, however, Lender shall not exercise such right until it has given Borrower notice of its failure to provide such items in a timely manner and thirty (30) days trom the date of such notice in which to provide all such outstanding items to Lender. All related costs and expenses of Lender in association with the foregoing shall become immediately due and payable and shall become an additional part of the Indebtedness as provided in Section 12.3"

Modifications to Instrument Page c-/

..

EXHIBIT C

Doc# 2011002105 Vol. 812 Page 48 g

~4/12/2011 1 : 39PM '--

MODIFICATIONS TO INSTRUMENT

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

I. Section 13 is restated as follows:

"13. INSPECTION. Borrower shall permit Lender, its agents, representatives and designees to enter upon and inspect the Mortgaged Property (including in connection with any replacement, repair or environmental inspections), and shall cooperate and provide access to all areas of the Mortgaged Property (subject to the rights of tenants under the Leases) during normal business hours or at such other reasonable time upon reasonable notice, and at any time after an Event of Default or when exigent circumstances exist."

2. Sections 14(c) and 14(d) are restated as follows:

"( c) Each of the statements, schedules and reports required by Section 14(b) shall be certified to be complete and accurate by an individual having authority to bind Borrower, and shall be in such form and contain such detail as Lender may reasonably require. Lender also may require that any statements, schedules or reports be audited at Borrower's expense by independent certified public accountants acceptable to Lender; provided that such requirement shall be limited to not more than once per Borrower's fiscal year so long as no Event of Default has occurred (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).

(d) If Borrower fails to provide in a timely manner the statements, schedules and reports required by Section 14(b), 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, provided, however, Lender shall not exercise such right until it has given Borrower notice of its failure to provide such items in a timely manner and thirty (30) days trom the date of such notice in which to provide all such outstanding items to Lender. All related costs and expenses of Lender in association with the foregoing shall become immediately due and payable and shall become an additional part of the Indebtedness as provided in Section 12.3"

Modifications to Instrument Page c-/


FM000053

Ooc# 2011002105 Vol. 812 Page 483 04/12/2011 1:3'j~'M .

3. Section 15(a) is restated as follows:

"(a) Subject to the provisions of Section 15(c) and Section 15(d), Borrower shall pay, or cause to be paid, all Taxes prior to delinquency and imposition of any interest, fine, penalty or cost for nonpayment."

4. A new Section 19(i) is added as follows:

"(i) Notwithstanding anything to the contrary in this Section 19, if any loss is estimated to be in an amount equal to or less than $50,000, Lender shall not exercise its rights and remedies as power-of-attorney herein and shall allow Borrower to make proof of loss, to adjust and compromise any claims under policies of property damage insurance, to appear in and prosecute any action arising from such policies of property damage insurance, and to collect and receive the proceeds of property damage insurance; provided that each of the following conditions shall be satisfied:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Modifications to Instrument

Borrower shall immediately notify Lender of the casualty giving rise to the claim;

no Event of Default has occurred (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);

the Restoration will be completed before the earlier of (a) one (I) year before the stated Maturity Date or (b) one (I) year after the date of the loss or casualty;

there will be sufficient funds to complete the Restoration;

all proceeds of property damage insurance shall be issued in the fonn of joint checks to Borrower and Lender;

proceeds of property damage insurance shall be applied to the Restoration;

Borrower shall deliver to Lender evidence satisfactory to Lender of completion of the Restoration and obtainment of all lien releases;

Borrower shall have complied to Lender's satisfaction with the foregoing requirements on any prior claims subject to this provision, if any; and

Page C-2

Ooc# 2011002105 Vol. 812 Page 483 04/12/2011 1:3'j~'M .

3. Section 15(a) is restated as follows:

"(a) Subject to the provisions of Section 15(c) and Section 15(d), Borrower shall pay, or cause to be paid, all Taxes prior to delinquency and imposition of any interest, fine, penalty or cost for nonpayment."

4. A new Section 19(i) is added as follows:

"(i) Notwithstanding anything to the contrary in this Section 19, if any loss is estimated to be in an amount equal to or less than $50,000, Lender shall not exercise its rights and remedies as power-of-attorney herein and shall allow Borrower to make proof of loss, to adjust and compromise any claims under policies of property damage insurance, to appear in and prosecute any action arising from such policies of property damage insurance, and to collect and receive the proceeds of property damage insurance; provided that each of the following conditions shall be satisfied:

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Modifications to Instrument

Borrower shall immediately notify Lender of the casualty giving rise to the claim;

no Event of Default has occurred (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);

the Restoration will be completed before the earlier of (a) one (I) year before the stated Maturity Date or (b) one (I) year after the date of the loss or casualty;

there will be sufficient funds to complete the Restoration;

all proceeds of property damage insurance shall be issued in the fonn of joint checks to Borrower and Lender;

proceeds of property damage insurance shall be applied to the Restoration;

Borrower shall deliver to Lender evidence satisfactory to Lender of completion of the Restoration and obtainment of all lien releases;

Borrower shall have complied to Lender's satisfaction with the foregoing requirements on any prior claims subject to this provision, if any; and

Page C-2


FM000054

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(9) Lender shall have the right to inspect the Mortgaged Property,


Modifications to Instrument Page C-3

Doc# 2011002105 Vol. 312 Page 484 04/12/2011 1 :3'3PM

(9) Lender shall have the right to inspect the Mortgaged Property,


Modifications to Instrument Page C-3


FM000055

Doc# 2011002105 Vol. 812 Page 485 04/12/2011 1 : 33PM

5. All capitalized tenus used in this Exhibit not specifically defined herein shall have the meanings set forth in the text of the Instrument that precedes this Exhibit.

C-3

BORROWER'S INITIALS: #,49

Any p:ovision here which restricts the sale, rental Dr use of the descrIbed real property because of color Dr race is invalid and unenforceable under federal law. THE STATE OF TEXAS COUNTY OF MEDINA hereby certify that the Instrument FILED in nUlber sequence and staaped hereon by me and was duly RECORDED in the OffiCial Records of Medina County Texas on 04/12/2011 COUNTY CLERK MEDINA COUNTY, TEXAS

Doc# 2011002105 Vol. 812 Page 485 04/12/2011 1 : 33PM

5. All capitalized tenus used in this Exhibit not specifically defined herein shall have the meanings set forth in the text of the Instrument that precedes this Exhibit.

C-3

BORROWER'S INITIALS: #,49

Any p:ovision here which restricts the sale, rental Dr use of the descrIbed real property because of color Dr race is invalid and unenforceable under federal law. THE STATE OF TEXAS COUNTY OF MEDINA hereby certify that the Instrument FILED in nUlber sequence and staaped hereon by me and was duly RECORDED in the OffiCial Records of Medina County Texas on 04/12/2011 COUNTY CLERK MEDINA COUNTY, TEXAS

~.,~·:t~:b~:;. :. ..:?;'. .~ ~ ..... y

\~~ .-/ ',', -t-l .:6\. .... ~)<'! _} !A.../iJ'.,..A • .".~ J~

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FM000056

• \. "! .

Republic Title of rexas. Inc' ,COMMff«:"

Gf" "ROo \,09 SJ9 F'F!~~~_,,_ .....

Prepared by and when recorded mail to:

Filicia Davenport, Esq. Ballard Spahr LLP 601 13th Street, ~vv Suite 1000 South Washington, DC 20005-3807

Doc# 2011002105 Vol. 812 ~aqe 486 04/12/21111 1:39PM -

ASSIGNMENT OF DEED OF TRUST

KNOW THAT as of the 6th day of April 2011, GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation ("Assignor"), in consideration of One Dollar ($1.00) and other good and valuable consideration in hand paid by FANNIE MAE ("Assignee"), the receipt and sufficiency of which are hereby acknowledged, does hereby assign, sell, transfer and set over unto Assignee, all rights, title, interests, obligations and burdens in, to and arising . under that certain Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of the 6th day of April 2011, given by HONDO ENCINITO APARTMENTS, LLC, a Texas limited liability company, to STEVEN R. MARTENS, ESQ., as Trustee for the benefit of Assignor in the principal sum of Three Million and 0011 00 Dollars ($3,000,000.00) (the "Deed of Trust"). Said Deed of Trust was recorded in the Land Records of Medina County, Texas immediately prior to and' concurrently with the recording of this Assignment of Deed of Trust and encumbers the real property described in Exhibit "A", attached hereto and incorporated herein;

TOGETHER with the Multifamily ~ote described in said Deed of Trust and the monies due and to become due thereon with interest;

TO HAVE A~D TO HOLD the same unto the Assignee and to the successors, legal representatives and assigns of the Assignee forever.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

DMEAST #13440363 v3 (Encin~o)

• \. "! .

Republic Title of rexas. Inc' ,COMMff«:"

Gf" "ROo \,09 SJ9 F'F!~~~_,,_ .....


Filicia Davenport, Esq. Ballard Spahr LLP 601 13th Street, ~vv Suite 1000 South Washington, DC 20005-3807

Doc# 2011002105 Vol. 812 ~aqe 486 04/12/21111 1:39PM -


KNOW THAT as of the 6th day of April 2011, GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation ("Assignor"), in consideration of One Dollar ($1.00) and other good and valuable consideration in hand paid by FANNIE MAE ("Assignee"), the receipt and sufficiency of which are hereby acknowledged, does hereby assign, sell, transfer and set over unto Assignee, all rights, title, interests, obligations and burdens in, to and arising . under that certain Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of the 6th day of April 2011, given by HONDO ENCINITO APARTMENTS, LLC, a Texas limited liability company, to STEVEN R. MARTENS, ESQ., as Trustee for the benefit of Assignor in the principal sum of Three Million and 0011 00 Dollars ($3,000,000.00) (the "Deed of Trust"). Said Deed of Trust was recorded in the Land Records of Medina County, Texas immediately prior to and' concurrently with the recording of this Assignment of Deed of Trust and encumbers the real property described in Exhibit "A", attached hereto and incorporated herein;

TOGETHER with the Multifamily ~ote described in said Deed of Trust and the monies due and to become due thereon with interest;

TO HAVE A~D TO HOLD the same unto the Assignee and to the successors, legal representatives and assigns of the Assignee forever.


DMEAST #13440363 v3 (Encin~o)


FM000057

Doc# 201100210E. Vol. 812 Pa 487 04/12120J1 1:3'3PN ge

IN WITNESS WHEREOF, the Assignor has duly executed this Assignment as of the date first above written.

STATE OF MARYLAND

COUNTY OF MONTGOMERY

ASSIGNOR:

GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation

By:

ACKNOWLEDGMENT

) ) ss: )

lbis Instrument was acknowledged before me on April :I~, 2011, by Laura Kane, Managing Director, Closing of GREYS TONE SERVICING CORPORATION, INC., a Georgia corporation, on behalf of said corporation.

[SEAL]

My Commission expire!IAY COMMISSION EXPIRES AUGUST 05, 2012

Doc# 201100210E. Vol. 812 Pa 487 04/12120J1 1:3'3PN ge


STATE OF MARYLAND


ASSIGNOR:


By:

ACKNOWLEDGMENT

) ) ss: )

lbis Instrument was acknowledged before me on April :I~, 2011, by Laura Kane, Managing Director, Closing of GREYS TONE SERVICING CORPORATION, INC., a Georgia corporation, on behalf of said corporation.

[SEAL]

My Commission expire!IAY COMMISSION EXPIRES AUGUST 05, 2012


FM000058

EXHIBIT A

LEGAL DESCRIPTION

Doc# 201101lJ211lJ5 Vol. B12 Page 4BB 04/1212011 1: 39~'M

A survey of 8.983 acres of land situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No.1029, John Wolf art, original Grantee, being a portion of that certain 23.434 acre tract of land described as Tract I in a Partition Deed to Robert R. Corder, Jr., et ux, from Maybelle R. Hagens, et aI, dated September 1, 1986, as recorded in Volume 46 on Page 249 of the Official Public Records of Medina County, Texas, and being more particularly described by metes and bounds as follows:

Beginning: At a 5/8 inch iron pin set in the remains ofa broken concrete R.O.W. marker found at the point-of-intersection of the East line of Avenue "U" and the North R.O.W. line of F.M. Highway 1250 (30th Street) for the Southwest comer of said 23.434 acre tract of land and the Southwest comer of this survey;

Thence: Along a rundown fence, the East line of said Avenue "U", and the West line of said 23.434 acre tract of land, N 00 degrees 18 minutes 24 seconds W 732.27 feet to a 5/8 inch iron pin for the Northwest comer of this survey;

Thence: N 89 degrees 07 minutes 32 seconds E 528.76 feet to a 5/8 inch iron pin set for the southwest comer of a certain 2.410 acre tract of land described as Tract II to Maybelle R. Hagens, et aI, in the aforementioned Partition Deed, and the Northeast comer of this survey;


Thence: Along fence, the North R.O.W. line of said F.M. Highway 1250, and the South line of said 23.434 acre tract of land, S 89 degrees 42 minutes 58 seconds W 536.04 feet to the Point of Beginning. Any provision here Hhich restricts the sale,

Y'ental or use of the described real propertv because of color or race is invalid and ' unenforceable under federal law.

DMEAST #13440363 v3 3

THE STATE OF TEXAS COUNTY OF ~DINA hereby cert i fy that the InstruDent FILED in nUlber seouence and staaped hereon by Ie and was duly RECORDED in the Official Records of Medina County Texas on 04/12/2011 COUNTY CLERK I>'fDINA COUNTY. TEXAS

EXHIBIT A

LEGAL DESCRIPTION

Doc# 201101lJ211lJ5 Vol. B12 Page 4BB 04/1212011 1: 39~'M

A survey of 8.983 acres of land situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No.1029, John Wolf art, original Grantee, being a portion of that certain 23.434 acre tract of land described as Tract I in a Partition Deed to Robert R. Corder, Jr., et ux, from Maybelle R. Hagens, et aI, dated September 1, 1986, as recorded in Volume 46 on Page 249 of the Official Public Records of Medina County, Texas, and being more particularly described by metes and bounds as follows:

Beginning: At a 5/8 inch iron pin set in the remains ofa broken concrete R.O.W. marker found at the point-of-intersection of the East line of Avenue "U" and the North R.O.W. line of F.M. Highway 1250 (30th Street) for the Southwest comer of said 23.434 acre tract of land and the Southwest comer of this survey;

Thence: Along a rundown fence, the East line of said Avenue "U", and the West line of said 23.434 acre tract of land, N 00 degrees 18 minutes 24 seconds W 732.27 feet to a 5/8 inch iron pin for the Northwest comer of this survey;

Thence: N 89 degrees 07 minutes 32 seconds E 528.76 feet to a 5/8 inch iron pin set for the southwest comer of a certain 2.410 acre tract of land described as Tract II to Maybelle R. Hagens, et aI, in the aforementioned Partition Deed, and the Northeast comer of this survey;


Thence: Along fence, the North R.O.W. line of said F.M. Highway 1250, and the South line of said 23.434 acre tract of land, S 89 degrees 42 minutes 58 seconds W 536.04 feet to the Point of Beginning. Any provision here Hhich restricts the sale,

Y'ental or use of the described real propertv because of color or race is invalid and ' unenforceable under federal law.

DMEAST #13440363 v3 3

THE STATE OF TEXAS COUNTY OF ~DINA hereby cert i fy that the InstruDent FILED in nUlber seouence and staaped hereon by Ie and was duly RECORDED in the Official Records of Medina County Texas on 04/12/2011 COUNTY CLERK I>'fDINA COUNTY. TEXAS


EXHIBIT C


FM000059

MUL TIF AMIL Y NOTE

US $3,000,000.00 As of April 6, 2011

FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally (if more than one) promises to pay to the order of GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation, the principal sum of THREE MILLION AND 001100 DOLLARS (US $3,000,000.00), with interest accruing at the Interest Rate on the unpaid principal balance from the Disbursement Date until fully paid.

1. Defined Terms. In addition to defined terms found elsewhere in this Note, as used in this Note, the following definitions shall apply:

Amortization Period: 300 months.

Business Day: Any day other than a Saturday, Sunday or any other day on which Lender is not open for business.

Debt Service Amounts: Amounts payable under this Note, the Security Instrument or any other Loan Document.

Default Rate: A rate equal to the lesser of 4 percentage points above the Interest Rate or the maximum interest rate which may be collected from Borrower under applicable law.

Disbursement Date: The date of disbursement of Loan proceeds hereunder.

First Payment Date: The first day of June 2011.

Indebtedness: The principal of, interest on, or any other amounts due at any time under, this Note, the Security Instrument or any other Loan Document, including prepayment premiums, late charges, default interest, and advances to protect the security of the Security Instrument under Section 12 of the Security Instrument.

Interest Rate: The annual rate of five and seventy-nine hundredths percent (5.79%).

Lender: The holder of this Note.

Loan: The loan evidenced by this Note.

Loan Term: 120 months.

Maturity Date: The first day of May 2021, or any earlier date on which the unpaid principal balance of this Note becomes due and payable by acceleration or otherwise.

Multifamily Non-Recourse Fixed Rate Note - Texas Form 4144 08-09 Page I Fannie Mae . © 1997-2009 Fannie Mae (Encinito) DMEAST #13440224 v3

MUL TIF AMIL Y NOTE

US $3,000,000.00 As of April 6, 2011

FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally (if more than one) promises to pay to the order of GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation, the principal sum of THREE MILLION AND 001100 DOLLARS (US $3,000,000.00), with interest accruing at the Interest Rate on the unpaid principal balance from the Disbursement Date until fully paid.

1. Defined Terms. In addition to defined terms found elsewhere in this Note, as used in this Note, the following definitions shall apply:

Amortization Period: 300 months.

Business Day: Any day other than a Saturday, Sunday or any other day on which Lender is not open for business.

Debt Service Amounts: Amounts payable under this Note, the Security Instrument or any other Loan Document.

Default Rate: A rate equal to the lesser of 4 percentage points above the Interest Rate or the maximum interest rate which may be collected from Borrower under applicable law.

Disbursement Date: The date of disbursement of Loan proceeds hereunder.

First Payment Date: The first day of June 2011.

Indebtedness: The principal of, interest on, or any other amounts due at any time under, this Note, the Security Instrument or any other Loan Document, including prepayment premiums, late charges, default interest, and advances to protect the security of the Security Instrument under Section 12 of the Security Instrument.

Interest Rate: The annual rate of five and seventy-nine hundredths percent (5.79%).

Lender: The holder of this Note.

Loan: The loan evidenced by this Note.

Loan Term: 120 months.

Maturity Date: The first day of May 2021, or any earlier date on which the unpaid principal balance of this Note becomes due and payable by acceleration or otherwise.

Multifamily Non-Recourse Fixed Rate Note - Texas Form 4144 08-09 Page I Fannie Mae . © 1997-2009 Fannie Mae (Encinito) DMEAST #13440224 v3


FM000060

Property Jurisdiction: The jurisdiction in which the Land is located.

Security Instrument: A Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of the date of this Note.

Yield Maintenance Period Term or Prepayment Premium Period Term: 114 months.

Yield Maintenance Period End Date or Prepayment Premium Period End Date: The last day of October 2020.

Event of Default, Key' Principal and other capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Security Instrument.

2. Address for Payment. All payments due under this Note shall be payable at Greystone Servicing Corporation, Inc., P.O. Box 281163, Atlanta, Georgia 30384-1163, or such other place as may be designated by written notice to Borrower from or on behalf of Lender.

3. Payment of Principal and Interest. Principal and interest shall be paid as follows:

(a) Short Month Interest. If disbursement of principal is made by Lender to Borrower on any day other than the first day of the month, interest for the period beginning on the Disbursement Date and ending on and including the last day of the month in which such disbursement is made shall be payable simultaneously with the execution of this Note.

(b) Interest Computation. Interest under this Note shall be computed on the basis of (check one only):

o 30/360. A 360-day year consisting of twelve 30-day months.

[gJ Actua1/360. A 360-day year. The amount of each monthly payment made by Borrower pursuant to Paragraph 3(c) below that is allocated to interest will be based on the actual number of calendar days during such month and shall be calculated by multiplying the unpaid principal balance of this Note by the per annum Interest Rate, dividing the product by 360 and multiplying the quotient by the actual number of days elapsed during the month. Borrower understands that the amount allocated to interest for each month will vary depending on the actual number of calendar days during such month.

(c) Monthly Installments. Consecutive monthly installments of principal and interest, each in the amount of Eighteen Thousand Nine Hundred Forty-Five and 78/100 and 00/100 Dollars (US $18,945.78) shall be payable on the First Payment Date and on the first day of every month thereafter, until the entire unpaid principal balance evidenced by this Note is fully paid. Any remaining principal and interest shall be due and payable on the Maturity Date.

Multifamily Non-Recourse Fixed Rate Note - Texas Fannie Mae DMEAST #13440224 v3

Form 4144 08-09 Page 2 © 1997-2009 Fannie Mae

Property Jurisdiction: The jurisdiction in which the Land is located.

Security Instrument: A Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of the date of this Note.

Yield Maintenance Period Term or Prepayment Premium Period Term: 114 months.

Yield Maintenance Period End Date or Prepayment Premium Period End Date: The last day of October 2020.

Event of Default, Key' Principal and other capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Security Instrument.

2. Address for Payment. All payments due under this Note shall be payable at Greystone Servicing Corporation, Inc., P.O. Box 281163, Atlanta, Georgia 30384-1163, or such other place as may be designated by written notice to Borrower from or on behalf of Lender.

3. Payment of Principal and Interest. Principal and interest shall be paid as follows:

(a) Short Month Interest. If disbursement of principal is made by Lender to Borrower on any day other than the first day of the month, interest for the period beginning on the Disbursement Date and ending on and including the last day of the month in which such disbursement is made shall be payable simultaneously with the execution of this Note.

(b) Interest Computation. Interest under this Note shall be computed on the basis of (check one only):

o 30/360. A 360-day year consisting of twelve 30-day months.

[gJ Actua1/360. A 360-day year. The amount of each monthly payment made by Borrower pursuant to Paragraph 3(c) below that is allocated to interest will be based on the actual number of calendar days during such month and shall be calculated by multiplying the unpaid principal balance of this Note by the per annum Interest Rate, dividing the product by 360 and multiplying the quotient by the actual number of days elapsed during the month. Borrower understands that the amount allocated to interest for each month will vary depending on the actual number of calendar days during such month.

(c) Monthly Installments. Consecutive monthly installments of principal and interest, each in the amount of Eighteen Thousand Nine Hundred Forty-Five and 78/100 and 00/100 Dollars (US $18,945.78) shall be payable on the First Payment Date and on the first day of every month thereafter, until the entire unpaid principal balance evidenced by this Note is fully paid. Any remaining principal and interest shall be due and payable on the Maturity Date.




FM000061

The unpaid principal balance shall continue to bear interest after the MaturitY Date at the Default Rate set forth in this Note until and including the date on which it is paid in full.

(d) Payments Before Due Date. Any regularly scheduled monthly installment of principal and interest that is received by Lender before the date it is due shall be deemed to have been received on the due date solely for the purpose of calculating interest due.

(e) Accrued Interest. Any accrued interest remaining past due for 30 days or more shall be added to and become part of the unpaid principal balance and shall bear interest at the rate or rates specified in this Note. Any reference herein to "accrued interest" shall refer to accrued interest which has not become part of the unpaid principal balance. Any amount added to principal pursuant to the Loan Documents shall bear interest at the applicable rate or rates specified in this Note and shall be payable with such interest upon demand by Lender and absent such demand, as provided in this Note for the payment of principal and interest.

4. . 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, 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. Borrower agrees that neither Lender's acceptance of a payment from Borrower in an amount that is less than all amounts then due and payable nor Lender's application of such payment shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction.

5. Security. The Indebtedness is secured, among other things, by the Security Instrument, and reference is made to the Security Instrument for other rights of Lender concerning the collateral for the Indebtedness.

6. Acceleration. If an Event of Default has occurred and is continuing, the entire unpaid principal balance, any accrued interest, the prepayment premium payable under Paragraph 10, if any, and all other amounts payable under this Note and any other Loan Document shall at once become due and payable, at the option of Lender, without any prior notice to Borrower. Lender may exercise this option to accelerate regardless of any prior forbearance.

7. Late Charle. If any monthly installment due hereunder is not received by Lender on or before the 10 day of each month or if any other amount payable under this Note or under the Security Instrument or any other Loan Document is not received by Lender within 10 days after the date such amount is due, counting from and including the date such amount is due, Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to 5 percent of such monthly installment or other amount due. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charg~ payable pursuant to this Paragraph represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Paragraph 8.

Multifamily Non-Recourse Fixed Rate Note·- Texas Fannie Mae DMEAST #13440224 v3


The unpaid principal balance shall continue to bear interest after the MaturitY Date at the Default Rate set forth in this Note until and including the date on which it is paid in full.

(d) Payments Before Due Date. Any regularly scheduled monthly installment of principal and interest that is received by Lender before the date it is due shall be deemed to have been received on the due date solely for the purpose of calculating interest due.

(e) Accrued Interest. Any accrued interest remaining past due for 30 days or more shall be added to and become part of the unpaid principal balance and shall bear interest at the rate or rates specified in this Note. Any reference herein to "accrued interest" shall refer to accrued interest which has not become part of the unpaid principal balance. Any amount added to principal pursuant to the Loan Documents shall bear interest at the applicable rate or rates specified in this Note and shall be payable with such interest upon demand by Lender and absent such demand, as provided in this Note for the payment of principal and interest.

4. . 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, 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. Borrower agrees that neither Lender's acceptance of a payment from Borrower in an amount that is less than all amounts then due and payable nor Lender's application of such payment shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction.

5. Security. The Indebtedness is secured, among other things, by the Security Instrument, and reference is made to the Security Instrument for other rights of Lender concerning the collateral for the Indebtedness.

6. Acceleration. If an Event of Default has occurred and is continuing, the entire unpaid principal balance, any accrued interest, the prepayment premium payable under Paragraph 10, if any, and all other amounts payable under this Note and any other Loan Document shall at once become due and payable, at the option of Lender, without any prior notice to Borrower. Lender may exercise this option to accelerate regardless of any prior forbearance.

7. Late Charle. If any monthly installment due hereunder is not received by Lender on or before the 10 day of each month or if any other amount payable under this Note or under the Security Instrument or any other Loan Document is not received by Lender within 10 days after the date such amount is due, counting from and including the date such amount is due, Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to 5 percent of such monthly installment or other amount due. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charg~ payable pursuant to this Paragraph represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Paragraph 8.

Multifamily Non-Recourse Fixed Rate Note·- Texas Fannie Mae DMEAST #13440224 v3



FM000062

8. Default Rate. So long as any monthly installment or any other payment due under this Note remains past due for 30 days or more, interest under this Note shall accrue on the unpaid principal balance from the earlier of the due date of the first unpaid monthly installment or other payment due, as applicable, at the Default Rate. If the unpaid principal balance and all accrued interest are not paid in full on the Maturity Date, the unpaid principal balance and all accrued interest shall bear interest from the Maturity Date at the Default Rate. Borrower also acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, that, during the time thatany monthly installment or payment under this Note is delinquent for more than 30 days, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender's ability to meet its other obligations and to take advantage of other investment opportunities, and that it is extremely difficult and impractical to determine those additional costs and expenses. Borrower also acknowledges that, during the time that any monthly installment or other payment due under this Note is delinquent for more than 30 days, Lender's risk of nonpayment of this Note will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest payable under this Note to the Default Rate represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional costs and expenses Lender will incur by reason of the Borrower's delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan.

9. Limits on Personal Liability.

(a) Except as otherwise provided in this Paragraph 9, Borrower shall have no personal liability under this Note, the Security Instrument or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents, and Lender's only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be Lender's exercise of its rights and remedies with respect to the Mortgaged Property (as such term is defined in the Security Instrument) and any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the Indebtedness or any guarantor of any obligations of Borrower.

(b) Borrower shall be personally liable to Lender for the repayment of a portion of the Indebtedness equal to any loss or damage suffered by Lender as a result of:

(l) failure of Borrower to pay to Lender upon demand after an Event of Default, all Rents to which Lender is entitled under Section 3(a) of the Security Instrument and the amount of all security deposits collected by Borrower from tenants then in residence;

(2) failure of Borrower to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument;

(3) failure of Borrower to comply with Section 14(d) or (e) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports;



8. Default Rate. So long as any monthly installment or any other payment due under this Note remains past due for 30 days or more, interest under this Note shall accrue on the unpaid principal balance from the earlier of the due date of the first unpaid monthly installment or other payment due, as applicable, at the Default Rate. If the unpaid principal balance and all accrued interest are not paid in full on the Maturity Date, the unpaid principal balance and all accrued interest shall bear interest from the Maturity Date at the Default Rate. Borrower also acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, that, during the time thatany monthly installment or payment under this Note is delinquent for more than 30 days, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender's ability to meet its other obligations and to take advantage of other investment opportunities, and that it is extremely difficult and impractical to determine those additional costs and expenses. Borrower also acknowledges that, during the time that any monthly installment or other payment due under this Note is delinquent for more than 30 days, Lender's risk of nonpayment of this Note will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest payable under this Note to the Default Rate represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional costs and expenses Lender will incur by reason of the Borrower's delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan.

9. Limits on Personal Liability.

(a) Except as otherwise provided in this Paragraph 9, Borrower shall have no personal liability under this Note, the Security Instrument or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents, and Lender's only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be Lender's exercise of its rights and remedies with respect to the Mortgaged Property (as such term is defined in the Security Instrument) and any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the Indebtedness or any guarantor of any obligations of Borrower.

(b) Borrower shall be personally liable to Lender for the repayment of a portion of the Indebtedness equal to any loss or damage suffered by Lender as a result of:

(l) failure of Borrower to pay to Lender upon demand after an Event of Default, all Rents to which Lender is entitled under Section 3(a) of the Security Instrument and the amount of all security deposits collected by Borrower from tenants then in residence;

(2) failure of Borrower to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument;

(3) failure of Borrower to comply with Section 14(d) or (e) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports;




FM000063

(4) fraud or written material misrepresentation by Borrower, Key Principal or any officer, director, partner, member or employee of Borrower in connection with the application for or creation of the Indebtedness or any request for any action or consent by Lender;

(5) failure to apply Rents, first, to the payment of reasonable operating expenses (other than Property inanagement fees that are not currently payable pursuant to the terms of an Assignment of Management Agreement or any other agreement with Lender executed in connection with the Loan) and then to Debt Service Amounts, except that Borrower will not be personally liable (i) to the extent that Borrower lacks the legal right to direct the disbursement of such sums because of a bankruptcy, receivership or similar judicial proceeding, or (ii) with respect to Rents that are distributed in any calendar year if Borrower has paid all operating expenses and Debt Service Amounts for that calendar year; or

(6) failure by Borrower to comply with the provisions of Section 17(a) of the Security Instrument.

(c) Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following Events of Default:

(1) Borrower's acquisition of any property or operation of any business not permitted by Section 33 of the Security Instrument;

(2) a Transfer that is an Event of Default under Section 21 of the Security Instrument; or

(3) the occurrence of a Bankruptcy Event (but only if the Bankruptcy Event occurs with the consent, encouragement or active participation of Borrower, Key Principal or any Borrower Affiliate).

(d) To the extent that Borrower has personal liability under this Paragraph 9, Lender may exercise its rights against Borrower personally without regard to whether Lender has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to Lender under this Note, the Security Instrument, any other Loan Document or applicable law. For purposes of this Paragraph 9, the term "Mortgaged Property" shall not include any funds that (I) have been applied by Borrower as required or permitted by the Security Instrument prior to the occurrence of an Event of Default, or (2) Borrower was unable to apply as required or permitted by the Security Instrument because of a bankruptcy, receivership, or similar judicial proceeding.

10. Voluntary and Involuntary Prepayments.

(a) A prepayment premium shall be payable in connection with any prepayment made under this Note as provided below:



(4) fraud or written material misrepresentation by Borrower, Key Principal or any officer, director, partner, member or employee of Borrower in connection with the application for or creation of the Indebtedness or any request for any action or consent by Lender;

(5) failure to apply Rents, first, to the payment of reasonable operating expenses (other than Property inanagement fees that are not currently payable pursuant to the terms of an Assignment of Management Agreement or any other agreement with Lender executed in connection with the Loan) and then to Debt Service Amounts, except that Borrower will not be personally liable (i) to the extent that Borrower lacks the legal right to direct the disbursement of such sums because of a bankruptcy, receivership or similar judicial proceeding, or (ii) with respect to Rents that are distributed in any calendar year if Borrower has paid all operating expenses and Debt Service Amounts for that calendar year; or

(6) failure by Borrower to comply with the provisions of Section 17(a) of the Security Instrument.

(c) Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following Events of Default:

(1) Borrower's acquisition of any property or operation of any business not permitted by Section 33 of the Security Instrument;

(2) a Transfer that is an Event of Default under Section 21 of the Security Instrument; or

(3) the occurrence of a Bankruptcy Event (but only if the Bankruptcy Event occurs with the consent, encouragement or active participation of Borrower, Key Principal or any Borrower Affiliate).

(d) To the extent that Borrower has personal liability under this Paragraph 9, Lender may exercise its rights against Borrower personally without regard to whether Lender has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to Lender under this Note, the Security Instrument, any other Loan Document or applicable law. For purposes of this Paragraph 9, the term "Mortgaged Property" shall not include any funds that (I) have been applied by Borrower as required or permitted by the Security Instrument prior to the occurrence of an Event of Default, or (2) Borrower was unable to apply as required or permitted by the Security Instrument because of a bankruptcy, receivership, or similar judicial proceeding.

10. Voluntary and Involuntary Prepayments.

(a) A prepayment premium shall be payable in connection with any prepayment made under this Note as provided below:




FM000064

(1) Borrower may voluntarily prepay all (but not less than all) of the unpaid principal balance of this Note only on the last calendar day of a calendar month (the "Last Day of the Month") and only if Borrower has complied with all of the following:

(i) Borrower must give Lender at least 30 days (if given via U.S. Postal Service) or 20 days (if given via facsimile, email or overnight courier), but not more than 60 days, prior written notice of Borrower's intention to make a prepayment (the "Prepayment Notice"). The Prepayment Notice shall be given in writing (via facsimile, email, U.S. Postal Service or overnight courier) and addressed to Lender. The Prepayment Notice shall include, at a minimum, the Business Day upon which Borrower intends to make the prepayment (the "Intended Prepayment Date").

(ii) Borrower acknowledges that the Lender is not required to accept any voluntary prepayment of this Note on any day other than the Last Day of the Month even (A) if Borrower has given a Prepayment Notice with an Intended Prepayment Date other than the Last Day of the Month or (B) if the Last Day of the Month is not a Business Day. Therefore, even if Lender accepts a voluntary . prepayment on any day other than the Last Day of the Month, for all purposes (including the accrual of interest and the calculation of the prepayment premium), any prepayment received by Lender on any day other than the Last Day of the Month shall be deemed to have been received by Lender on the Last Day of the Month and any prepayment calculation will include interest to and including the Last Day of the Month in which such prepayment occurs. If the Last Day of the Month is not a Business Day, then the Borrower must make the payment on the Business Day immediately preceding the Last Day of the Month.

(iii) Any prepayment shall be made by paying (A) the amount of principal being prepaid, (B) all accrued interest (calculated to the Last Day of the Month), (C) all other sums due Lender at the time of such prepayment, and (D) the prepayment premium calculated pursuant to Schedule A.

(iv) If, for any reason, Borrower fails to prepay this Note (A) within five (5) Business Days after the Intended Prepayment Date or (B) if the prepayment occurs in a month other than the month stated in the original Prepayment Notice, then Lender shall have the right, but not the obligation, to recalculate the prepayment premium based upon the date that Borrower actually prepays this Note and to make such calculation as described in Schedule A attached hereto. For purposes of such recalculation, such new prepayment date shall be deemed the "Intended Prepayment Date."

(2) Upon Lender's exercise of any right of acceleration under this Note, Borrower shall pay to Lender, in addition to the entire unpaid principal balance of this Note outstanding at the time of the acceleration, (i) all accrued interest and all other sums due Lender under this Note and the other Loan Documents, and (ii) the prepayment premium calculated pursuant to Schedule A.



(1) Borrower may voluntarily prepay all (but not less than all) of the unpaid principal balance of this Note only on the last calendar day of a calendar month (the "Last Day of the Month") and only if Borrower has complied with all of the following:

(i) Borrower must give Lender at least 30 days (if given via U.S. Postal Service) or 20 days (if given via facsimile, email or overnight courier), but not more than 60 days, prior written notice of Borrower's intention to make a prepayment (the "Prepayment Notice"). The Prepayment Notice shall be given in writing (via facsimile, email, U.S. Postal Service or overnight courier) and addressed to Lender. The Prepayment Notice shall include, at a minimum, the Business Day upon which Borrower intends to make the prepayment (the "Intended Prepayment Date").

(ii) Borrower acknowledges that the Lender is not required to accept any voluntary prepayment of this Note on any day other than the Last Day of the Month even (A) if Borrower has given a Prepayment Notice with an Intended Prepayment Date other than the Last Day of the Month or (B) if the Last Day of the Month is not a Business Day. Therefore, even if Lender accepts a voluntary . prepayment on any day other than the Last Day of the Month, for all purposes (including the accrual of interest and the calculation of the prepayment premium), any prepayment received by Lender on any day other than the Last Day of the Month shall be deemed to have been received by Lender on the Last Day of the Month and any prepayment calculation will include interest to and including the Last Day of the Month in which such prepayment occurs. If the Last Day of the Month is not a Business Day, then the Borrower must make the payment on the Business Day immediately preceding the Last Day of the Month.

(iii) Any prepayment shall be made by paying (A) the amount of principal being prepaid, (B) all accrued interest (calculated to the Last Day of the Month), (C) all other sums due Lender at the time of such prepayment, and (D) the prepayment premium calculated pursuant to Schedule A.

(iv) If, for any reason, Borrower fails to prepay this Note (A) within five (5) Business Days after the Intended Prepayment Date or (B) if the prepayment occurs in a month other than the month stated in the original Prepayment Notice, then Lender shall have the right, but not the obligation, to recalculate the prepayment premium based upon the date that Borrower actually prepays this Note and to make such calculation as described in Schedule A attached hereto. For purposes of such recalculation, such new prepayment date shall be deemed the "Intended Prepayment Date."

(2) Upon Lender's exercise of any right of acceleration under this Note, Borrower shall pay to Lender, in addition to the entire unpaid principal balance of this Note outstanding at the time of the acceleration, (i) all accrued interest and all other sums due Lender under this Note and the other Loan Documents, and (ii) the prepayment premium calculated pursuant to Schedule A.




FM000065

(3) Any application by Lender of any collateral or other security to the repayment of any portion of the unpaid principal balance of this Note prior to the Maturity Date and in the absence of acceleration shall be deemed to be a partial prepayment by Borrower, requiring the payment to Lender by Borrower of a prepayment premium.

(b) Notwithstanding the provisions of Paragraph IO(a), no prepayment premium shall be payable (1) with respect to any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument, or (2) as provided in subparagraph (c) of Schedule A.

(c) Schedule A is hereby incorporated by reference into this Note.

(d) Any required prepayment of less than the entire unpaid principal balance of this Note shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless Lender agrees otherwise in writing.

( e) Borrower recognizes that any prepayment of the unpaid principal balance of this Note, whether voluntary or involuntary or resulting from a default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth on Schedule A represents a reasonable estimate of the damages Lender will incur because of a prepayment.

(t) Borrower further acknowledges that the prepayment premium provisions of this Note are a material part of the consideration for the loan evidenced by this Note, and acknowledges that the terms of this Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions.

11. Costs and Expenses. Borrower shall pay on demand all expenses and costs, including fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Lender as a result of any default under this Note or in connection with efforts to collect any amount due under this Note, or to enforce the provisions of any of the other Loan Documents, including those incurred in post-judgment collection efforts and in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding.

12. Forbearance. Any forbearance by Lender in exercising any right or remedy under this Note, the Security Instrument, or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any payment 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 or to exercise any right or remedy with respect to any failure to make prompt payment. Enforcement by Lender of any security for Borrower's



(3) Any application by Lender of any collateral or other security to the repayment of any portion of the unpaid principal balance of this Note prior to the Maturity Date and in the absence of acceleration shall be deemed to be a partial prepayment by Borrower, requiring the payment to Lender by Borrower of a prepayment premium.

(b) Notwithstanding the provisions of Paragraph IO(a), no prepayment premium shall be payable (1) with respect to any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument, or (2) as provided in subparagraph (c) of Schedule A.

(c) Schedule A is hereby incorporated by reference into this Note.

(d) Any required prepayment of less than the entire unpaid principal balance of this Note shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless Lender agrees otherwise in writing.

( e) Borrower recognizes that any prepayment of the unpaid principal balance of this Note, whether voluntary or involuntary or resulting from a default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth on Schedule A represents a reasonable estimate of the damages Lender will incur because of a prepayment.

(t) Borrower further acknowledges that the prepayment premium provisions of this Note are a material part of the consideration for the loan evidenced by this Note, and acknowledges that the terms of this Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions.

11. Costs and Expenses. Borrower shall pay on demand all expenses and costs, including fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Lender as a result of any default under this Note or in connection with efforts to collect any amount due under this Note, or to enforce the provisions of any of the other Loan Documents, including those incurred in post-judgment collection efforts and in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding.

12. Forbearance. Any forbearance by Lender in exercising any right or remedy under this Note, the Security Instrument, or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any payment 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 or to exercise any right or remedy with respect to any failure to make prompt payment. Enforcement by Lender of any security for Borrower's




FM000066

obligations under this Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender.

13. Waivers. Presentment, demand; notice of dishonor, protest, notice of acceleration, notice of intent to demand or accelerate payment or maturity, presentment for payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by Borrower, Key Principal, and all endorsers and guarantors of this Note and all other third party obligors.

14. Loan Charges. Borrower and Lender intend at all times to comply with the law of the State of Texas governing the maximum rate or amount of interest payable on or in connection with this Note and the Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially interpreted so as to render usurious any amount payable under this Note or under any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Indebtedness, or of acceleration of the maturity of this Note, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by any applicable law, then Borrower and Lender expressly intend that all excess amounts collected by Lender shall be applied to reduce the unpaid principal balance of this Note (or, if this Note has been or would thereby be paid in full, shall be refunded to Borrower), and the provisions of this Note, the Security Instrument and any other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible under this Note or any other Loan Document reduced, without the necessity of the execution of any new documents, so at to comply with any applicable law, but so as to permit the recovery of the fullest amount otherwise payable under this Note or any other Loan Document. The right to accelerate the maturity of this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by any applicable law, be amortized, prorated, allocated and spread throughout the full term of the Indebtedness until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the applicable usury ceiling. Notwithstanding any provision contained in this Note, the Security Instrument or any other Loan Document that permits the compounding of interest, including any provision by which any accrued interest is added to the principal amount of this Note, the total amount of interest that Borrower is obligated to pay and Lender is entitled to receive with respect to the Indebtedness shall not exceed the amount calculated on a simple (i.e. noncompounded) interest basis at the maximum rate on principal amounts actually advanced to or for the account of Borrower, including all current and prior advances and any advances made pursuant to the Security Instrument or other Loan Documents (such as for the payment of taxes, insurance premiums and similar expenses or costs).

15. Commercial Purpose. Borrower represents that the Indebtedness is being incurred by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family or household purposes.

Multifamily Non-Recourse Fixed Rate Note - Texas Fannie Mae OM EAST #13440224 v3


obligations under this Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender.

13. Waivers. Presentment, demand; notice of dishonor, protest, notice of acceleration, notice of intent to demand or accelerate payment or maturity, presentment for payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by Borrower, Key Principal, and all endorsers and guarantors of this Note and all other third party obligors.

14. Loan Charges. Borrower and Lender intend at all times to comply with the law of the State of Texas governing the maximum rate or amount of interest payable on or in connection with this Note and the Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law). If the applicable law is ever judicially interpreted so as to render usurious any amount payable under this Note or under any other Loan Document, or contracted for, charged, taken, reserved or received with respect to the Indebtedness, or of acceleration of the maturity of this Note, or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by any applicable law, then Borrower and Lender expressly intend that all excess amounts collected by Lender shall be applied to reduce the unpaid principal balance of this Note (or, if this Note has been or would thereby be paid in full, shall be refunded to Borrower), and the provisions of this Note, the Security Instrument and any other Loan Documents immediately shall be deemed reformed and the amounts thereafter collectible under this Note or any other Loan Document reduced, without the necessity of the execution of any new documents, so at to comply with any applicable law, but so as to permit the recovery of the fullest amount otherwise payable under this Note or any other Loan Document. The right to accelerate the maturity of this Note does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Lender does not intend to collect any unearned interest in the event of acceleration. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the Indebtedness shall, to the extent permitted by any applicable law, be amortized, prorated, allocated and spread throughout the full term of the Indebtedness until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the applicable usury ceiling. Notwithstanding any provision contained in this Note, the Security Instrument or any other Loan Document that permits the compounding of interest, including any provision by which any accrued interest is added to the principal amount of this Note, the total amount of interest that Borrower is obligated to pay and Lender is entitled to receive with respect to the Indebtedness shall not exceed the amount calculated on a simple (i.e. noncompounded) interest basis at the maximum rate on principal amounts actually advanced to or for the account of Borrower, including all current and prior advances and any advances made pursuant to the Security Instrument or other Loan Documents (such as for the payment of taxes, insurance premiums and similar expenses or costs).

15. Commercial Purpose. Borrower represents that the Indebtedness is being incurred by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family or household purposes.




FM000067

16. Counting of Days. Except where otherwise specifically provided, any reference in this Note to"a period of "days" means calendar days, not Business Days.

17. Governing Law. This Note shall be governed by the law of the jurisdiction in which the Land is located.

18. Captions. The captions of the paragraphs of this Note are for convenience only and shall be disregarded in construing this Note.

19. Notices. All notices, demands and other communications required or permitted to be given by Lender to Borrower pursuant to this Note shall be given in accordance with Section 31 of the Security Instrument.

20. Consent to Jurisdiction and Venue. Borrower and Key Principal each agrees that any controversy arising under or in relation to this Note shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in relation to this Note. Borrower and Key Principal each 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.

21. WAIVER OF TRIAL BY JURY. BORROWER, KEY PRINCIPAL AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER, KEY PRINCIPAL AND BORROWER 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 SCHEDULES. The following Schedules are attached to this Note:

~ Schedule A Prepayment Premium (required)

~ Schedule B Modifications to Multifamily Note (Waste)

[REMAINDER OF PAGE INTENTION ALL Y LEFT BLANK.]



16. Counting of Days. Except where otherwise specifically provided, any reference in this Note to"a period of "days" means calendar days, not Business Days.

17. Governing Law. This Note shall be governed by the law of the jurisdiction in which the Land is located.

18. Captions. The captions of the paragraphs of this Note are for convenience only and shall be disregarded in construing this Note.

19. Notices. All notices, demands and other communications required or permitted to be given by Lender to Borrower pursuant to this Note shall be given in accordance with Section 31 of the Security Instrument.

20. Consent to Jurisdiction and Venue. Borrower and Key Principal each agrees that any controversy arising under or in relation to this Note shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in relation to this Note. Borrower and Key Principal each 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.

21. WAIVER OF TRIAL BY JURY. BORROWER, KEY PRINCIPAL AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER, KEY PRINCIPAL AND BORROWER 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 SCHEDULES. The following Schedules are attached to this Note:

~ Schedule A Prepayment Premium (required)

~ Schedule B Modifications to Multifamily Note (Waste)

[REMAINDER OF PAGE INTENTION ALL Y LEFT BLANK.]




FM000068

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

BORROWER:


By:

Fannie Mae Commitment Number: 864499

Multifamily Non-Recourse Fixed Rate Note - Texas Fannie Mae

w~a.'Q~ Wendell A. Jacobson Managing Member

Form 4144 08-09 © 1997-2009 Fannie Mae.

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

BORROWER:


By:



w~a.'Q~ Wendell A. Jacobson Managing Member

Form 4144 08-09 © 1997-2009 Fannie Mae.


FM000069


Pay to the order of __________ _ without recourse.


By:


Form 4144 08-09 © 1997-2009 Fannie Mae


Pay to the order of __________ _ without recourse.


By:


Form 4144 08-09 © 1997-2009 Fannie Mae


FM000070

SCHEDULE A

PREP A YMENT PREMIUM

Any prepayment premium payable under Paragraph 10 of this Note shall be computed as follows:

(a) If the prepayment is made at any time after the date of this Note and before the Yield Maintenance Period End Date, the prepayment premium shall be the greater of:

(i) 1 % of the amount of principal being prepaid; or

(ii) The product obtained by multiplying:

(A) the amount of principal being prepaid,

by

(B) the difference obtained by subtracting from the Interest Rate on this Note the Yield Rate (as defined below), on the twenty-fifth Business Day preceding (x) the Intended Prepayment Date, or (y) the date Lender accelerates the Loan or otherwise accepts a prepayment pursuant to Paragraph IO(a)(3) of this Note,

by

(C) the present value factor calculated using the following formula:

I - (1 + rynll2

r [r = Yield Rate n = the number of months remaining between

(I) either of the following: (x) in the case of a voluntary prepayment, the Last Day of the Month during which the prepayment is made, or (y) in any other case, the date on which Lender accelerates the unpaid principal balance of this Note and (2) the Yield Maintenance Period End Date]

Multifamily Non-Recourse Fixed Rate Note - Texas Fannie Mae·

Form 4144 08-09 Page A-I © 1997-2009 Fannie Mae

DMEAST #13440224 v3

SCHEDULE A

PREP A YMENT PREMIUM

Any prepayment premium payable under Paragraph 10 of this Note shall be computed as follows:

(a) If the prepayment is made at any time after the date of this Note and before the Yield Maintenance Period End Date, the prepayment premium shall be the greater of:

(i) 1 % of the amount of principal being prepaid; or

(ii) The product obtained by multiplying:

(A) the amount of principal being prepaid,

by

(B) the difference obtained by subtracting from the Interest Rate on this Note the Yield Rate (as defined below), on the twenty-fifth Business Day preceding (x) the Intended Prepayment Date, or (y) the date Lender accelerates the Loan or otherwise accepts a prepayment pursuant to Paragraph IO(a)(3) of this Note,

by

(C) the present value factor calculated using the following formula:

I - (1 + rynll2

r [r = Yield Rate n = the number of months remaining between

(I) either of the following: (x) in the case of a voluntary prepayment, the Last Day of the Month during which the prepayment is made, or (y) in any other case, the date on which Lender accelerates the unpaid principal balance of this Note and (2) the Yield Maintenance Period End Date]

Multifamily Non-Recourse Fixed Rate Note - Texas Fannie Mae·

Form 4144 08-09 Page A-I © 1997-2009 Fannie Mae

DMEAST #13440224 v3


FM000071

For purposes of this clause (ii), the "Yield Rate" means the yield calculated by interpolating the yields for the immediately shorter and longer term U.S. "Treasury constant maturities" (as reported in the Federal Reserve Statistical Release H.15 Selected Interest Rates (the "Fed Release") under the heading "u.s. government securities'') closest to the remaining term of the Yield Maintenance Period Term, as follows (rounded to three decimal places):

(a-b) x(z- Y»)+b

(x- Y) .

a = the yield for the longer U.S. Treasury constant maturity b = the yield for the· shorter U.S. Treasury constant maturity x = the term of the longer U.S. Treasury constant maturity y = the term of the shorter U.S. Treasury constant maturity z = "n" (as defined in the present value factor calculation

above) divided by 12.

Notwithstanding any provision to the contrary, if "z" equals a term reported under the U.S. "Treasury constant maturities" subheading in the Fed Release, the yield for such term shall be used, and interpolation shall not be necessary. If publication of the Fed Release is discontinued by the Federal Reserve Board, Lender shall determine the Yield Rate from another source selected by Lender. Any determination of the Yield Rate by Lender will be binding absent manifest error.]

(b) If the prepayment is made on or after the Yield Maintenance Period End Date but before the last calendar day of the 4th month prior to the month in which the Maturity Date occurs, the prepayment premium shall be 1 % of the amount of principal being prepaid.

(c) Notwithstanding the provisions of Paragraph 10(a) of this Note, no prepayment premium shall be payable with respect to any prepayment made on or after the last calendar day of the 4th month prior to the month in which the Maturity Date occurs.

Borrower Initials


Form 4144 08-09 ~ 1997-2009 Fannie Mae

For purposes of this clause (ii), the "Yield Rate" means the yield calculated by interpolating the yields for the immediately shorter and longer term U.S. "Treasury constant maturities" (as reported in the Federal Reserve Statistical Release H.15 Selected Interest Rates (the "Fed Release") under the heading "u.s. government securities'') closest to the remaining term of the Yield Maintenance Period Term, as follows (rounded to three decimal places):

(a-b) x(z- Y»)+b

(x- Y) .

a = the yield for the longer U.S. Treasury constant maturity b = the yield for the· shorter U.S. Treasury constant maturity x = the term of the longer U.S. Treasury constant maturity y = the term of the shorter U.S. Treasury constant maturity z = "n" (as defined in the present value factor calculation

above) divided by 12.

Notwithstanding any provision to the contrary, if "z" equals a term reported under the U.S. "Treasury constant maturities" subheading in the Fed Release, the yield for such term shall be used, and interpolation shall not be necessary. If publication of the Fed Release is discontinued by the Federal Reserve Board, Lender shall determine the Yield Rate from another source selected by Lender. Any determination of the Yield Rate by Lender will be binding absent manifest error.]

(b) If the prepayment is made on or after the Yield Maintenance Period End Date but before the last calendar day of the 4th month prior to the month in which the Maturity Date occurs, the prepayment premium shall be 1 % of the amount of principal being prepaid.

(c) Notwithstanding the provisions of Paragraph 10(a) of this Note, no prepayment premium shall be payable with respect to any prepayment made on or after the last calendar day of the 4th month prior to the month in which the Maturity Date occurs.

Borrower Initials


Form 4144 08-09 ~ 1997-2009 Fannie Mae


FM000072

SCHEDULEB

MODIFICATIONS TO MULTIFAMILY NOTE (Waste)

The following modification is made to the text of the Multifamily Note that precedes this Schedule:

1. Paragraph 9(b) of the Note is hereby modified by deleting clause (6) in its entirety and inserting the following in lieu thereof:

"(6) waste or abandonment of the Mortgaged Property by Borrower."

2. All capitalized terms used but not defined in the Note (including this Schedule) shall have the meanings given to such terms in the Security Instrument (as that term is defmed in this Note).

Schedule B -[Waste) Fannie Mae

Borrower Initials

Form 4199 11-09 © 2008-2009 Fannie Mae

SCHEDULEB

MODIFICATIONS TO MULTIFAMILY NOTE (Waste)

The following modification is made to the text of the Multifamily Note that precedes this Schedule:

1. Paragraph 9(b) of the Note is hereby modified by deleting clause (6) in its entirety and inserting the following in lieu thereof:

"(6) waste or abandonment of the Mortgaged Property by Borrower."

2. All capitalized terms used but not defined in the Note (including this Schedule) shall have the meanings given to such terms in the Security Instrument (as that term is defmed in this Note).

Schedule B -[Waste) Fannie Mae

Borrower Initials

Form 4199 11-09 © 2008-2009 Fannie Mae


EXHIBIT D


Form 5017448-A (2/1/10) Page 1 of 13 T-7: Commitment for Title Insurance (Rev. 2-1-10)

Commitment

Commitment For Title Insurance T-7 ISSUED BY First American Title Insurance Company

THE FOLLOWING COMMITMENT FOR TITLE INSURANCE IS NOT VALID UNLESS YOUR NAME AND THE POLICY AMOUNT ARE SHOWN IN SCHEDULE A, AND OUR AUTHORIZED REPRESENTATIVE HAS COUNTERSIGNED BELOW. We FIRST AMERICAN TITLE INSURANCE COMPANY will issue our title insurance policy or policies (the Policy) to You (the proposed insured) upon payment of the premium and other charges due, and compliance with the requirements in Schedule B and Schedule C. Our Policy will be in the form approved by the Texas Department of Insurance at the date of issuance, and will insure your interest in the land described in Schedule A. The estimated premium for our Policy and applicable endorsements is shown on Schedule D. There may be additional charges such as recording fees, and expedited delivery expenses. This Commitment ends ninety (90) days from the effective date, unless the Policy is issued sooner, or failure to issue the Policy is our fault. Our liability and obligations to you are under the express terms of this Commitment and end when this Commitment expires.

First American Title Insurance Company

Dennis J. Gilmore President

Timothy Kemp Secretary

By its issuing agent, Republic Title of Texas, Inc.

______________________________________________

2626 Howell Street, 10th Floor Dallas, TX 75204

(214)855-8891 Fax (214)855-8848

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TEXAS TITLE INSURANCE INFORMATION Title insurance insures you against loss resulting from certain risks to your title. The commitment for Title Insurance is the title insurance company’s promise to issue the title insurance policy. The commitment is a legal document. You should review it carefully to completely understand it before your closing date.

El seguro de título le asegura en relaciõn a pérdidas resultantes de ciertos riesgos que pueden afectar el título de su propiedad. El Compromiso para Seguro de Título es la promesa de la compañía aseguradora de titulos de emitir la póliza de seguro de título. El Compromiso es un documento legal. Usted debe leerlo cuidadosamente y enterderlo completamente antes de la fecha para finalizar su transacciõn.

Your Commitment for Title Insurance is a legal contract between you and us. The Commitment is not an opinion or report of your title. It is a contract to issue you a policy subject to the Commitment's terms and requirements. Before issuing a Commitment for Title Insurance (the Commitment) or a Title Insurance Policy (the Policy), the Title Insurance Company (the Company) determines whether the title is insurable. This determination has already been made. Part of that determination involves the Company's decision to insure the title except for certain risks that will not be covered by the Policy. Some of these risks are listed in Schedule B of the attached Commitment as Exceptions. Other risks are stated in the Policy as Exclusions. These risks will not be covered by the Policy. The Policy is not an abstract of title nor does a Company have an obligation to determine the ownership of any mineral interest. - MINERALS AND MINERAL RIGHTS may not be covered by the Policy. The Company may be unwilling to insure title unless there is an exclusion or an exception as to Minerals and Mineral Rights in the Policy. Optional endorsements insuring certain risks involving minerals, and the use of improvements (excluding lawns, shrubbery and trees) and permanent buildings may be available for purchase. If the title insurer issues the title policy with an exclusion or exception to the minerals and mineral rights, neither this Policy, nor the optional endorsements, ensure that the purchaser has title to the mineral rights related to the surface estate. Another part of the determination involves whether the promise to insure is conditioned upon certain requirements being met. Schedule C of the Commitment lists these requirements that must be satisfied or the Company will refuse to cover them. You may want to discuss any matters shown in Schedules B and C of the Commitment with an attorney. These matters will affect your title and your use of the land. When your Policy is issued, the coverage will be limited by the Policy's Exceptions, Exclusions and Conditions, defined below. - EXCEPTIONS are title risks that a Policy generally covers but does not cover in a particular instance. Exceptions are shown on Schedule B or discussed in Schedule C of the Commitment. They can also be added if you do not comply with the Conditions section of the Commitment. When the Policy is issued, all Exceptions will be on Schedule B of the Policy. - EXCLUSIONS are title risks that a Policy generally does not cover. Exclusions are contained in the Policy but not shown or discussed in the Commitment. - CONDITIONS are additional provisions that qualify or limit your coverage. Conditions include your responsibilities and those of the Company. They are contained in the Policy but not shown or discussed in the Commitment. The Policy Conditions are not the same as the Commitment Conditions. You can get a copy of the policy form approved by the Texas Department of Insurance by calling the Title Insurance Company at 1-888-632-1642 or by calling the title insurance agent that issued the Commitment. Texas Department of Insurance may revise the policy form from time to time. You can also get a brochure that explains the policy from the Texas Department of Insurance by calling 1-800-252-3439. Before the Policy is issued, you may request changes in the policy. Some of the changes to consider are:

- Request amendment of the “area and boundary” exception (Schedule B, paragraph 2). To get this amendment, you must furnish a survey and comply with other requirements of the Company. On the Owner’s Policy, you must pay an additional premium for the amendment. If the survey is acceptable to the Company and if the Company’s other requirements are met, your Policy will insure you against loss because of discrepancies or conflicts in boundary lines, encroachments or protrusions, or overlapping of improvements. The Company may then decide not to insure against specific boundary or survey problems by making special exceptions in the Policy. Whether or not you request amendment of the “area and boundary” exception, you should determine whether you want to purchase and review a survey if a survey is not being provided to you.

- Allow the Company to add an exception to "rights of parties in possession." If you refuse this exception, the Company or the title insurance agent may inspect the property. The Company may except to and not insure you against the rights of specific persons, such as renters, adverse owners or easement holders who occupy the land. The Company may charge you for the inspection. If you want to make your own inspection, you must sign a Waiver of Inspection form and allow the Company to add this exception to your Policy.

The entire premium for a Policy must be paid when the Policy is issued. You will not owe any additional premiums unless you want to increase your coverage at a later date and the Company agrees to add an Increased Value Endorsement. CONDITIONS AND STIPULATIONS

1. If you have actual knowledge of any matter which may affect the title or mortgage covered by this Commitment, that is not shown in Schedule B, you must notify us in writing. If you do not notify us in writing, our liability to you is ended or reduced to the extent that your failure to notify us affects our liability. If you do notify us, or we learn of such matter, we may amend Schedule B, but we will not be relieved of liability already incurred.

2. Our liability is only to you, and others who are included in the definition of Insured in the Policy to be

issued. Our liability is only for actual loss incurred in your reliance on this Commitment to comply with its requirements or to acquire the interest in the land. Our liability is limited to the amount shown in Schedule A of this Commitment and will be subject to the following terms of the Policy: Insuring Provisions, Conditions and Stipulations, and Exclusions.

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SCHEDULE A


Effective Date: April 17, 2012 at 8:00 a.m. GF No. 1002-9079-RTT Commitment No. 1002-9079-RTT, issued April 27, 2012, at 8:00 a.m.

1. The policy or policies to be issued are:

(a) OWNER'S POLICY OF TITLE INSURANCE (Form T-1) (Not applicable for improved one-to-four family residential real estate)

Policy Amount: $3,000,000.00 PROPOSED INSURED: Hondo Encinito Apartments, LLC

(b) TEXAS RESIDENTIAL OWNER'S POLICY OF TITLE INSURANCE ONE-TO-FOUR FAMILY RESIDENCES (Form T-1R)

Policy Amount: $ PROPOSED INSURED:

(c) LOAN POLICY OF TITLE INSURANCE (Form T-2) Policy Amount: $0.00 PROPOSED INSURED: Proposed Borrower: Hondo Encinito Apartments, LLC

(d) TEXAS SHORT FORM RESIDENTIAL LOAN POLICY OF TITLE INSURANCE (Form T-2R) Policy Amount $ PROPOSED INSURED: Proposed Borrower:

(e) LOAN TITLE POLICY BINDER ON INTERIM CONSTRUCTION LOAN (Form T-13) Binder Amount: $ PROPOSED INSURED: Proposed Borrower:

(f) OTHER Policy Amount: $ PROPOSED INSURED:

2. The interest in the land covered by this Commitment is:

Fee Simple

3. Record title to the land on the Effective Date appears to be vested in:

Hondo Encinito Apartments, LLC

4. Legal description of land:

See Exhibit "A" attached hereto and made a part hereof.



EXHIBIT "A"

A SURVEY OF 8.983 ACRES OF LAND SITUATED WITHIN THE CORPORATE LIMITS OF THE CITY OF HONDO, IN MEDINA COUNTY, TEXAS, OUT OF SURVEY NO. 184, ABSTRACT NO. 1029, JOHN WOLFART, ORIGINAL GRANTEE, BEING A PORTION OF THAT CERTAIN 23.434 ACRE TRACT OF LAND DESCRIBED AS TRACT I IN A PARTITION DEED TO ROBERT R. CORDER, JR., ET UX, FROM MAYBELLE R. HAGENS, ET AL, DATED SEPTEMBER 1, 1986, AS RECORDED IN VOLUME 46 ON PAGE 249 OF THE OFFICIAL PUBLIC RECORDS OF MEDINA COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS: BEGINNING: AT A 5/8" IRON PIN SET IN THE REMAINS OF A BROKEN CONCRETE R.O.W. MARKER FOUND AT THE POINT-OF-INTERSECTION OF THE EAST LINE OF AVENUE "U" AND THE NORTH R.O.W. LINE OF F.M. HIGHWAY 1250 (30TH STREET) FOR THE SOUTHWEST CORNER OF SAID 23.434 ACRE TRACT OF LAND AND THE SOUTHWEST CORNER OF THIS SURVEY; THENCE: ALONG A RUNDOWN FENCE, THE EAST LINE OF SAID AVENUE "U", AND THE WEST LINE OF SAID 23.434 ACRE TRACT OF LAND, N 00-18-24 W 732.27 FEET TO A 5/8" IRON PIN FOR THE NORTHWEST CORNER OF THIS SURVEY; THENCE: N 89-07-32 E 528.76 FEET TO A 5/8" IRON PIN SET FOR THE SOUTHWEST CORNER OF A CERTAIN 2.410 ACRE TRACT OF LAND DESCRIBED AS TRACT II TO MAYBELLE R. HAGENS, ET AL, IN THE AFOREMENTIONED PARTITION DEED, AND THE NORTHEAST CORNER OF THIS SURVEY; THENCE: S 00-52-28 E 737.76 FEET TO A RAILROAD SPIKE SET IN CONCRETE RIPRAP ON THE NORTH R.O.W. LINE OF SAID F.M. HIGHWAY 1250 AND THE SOUTH LINE OF SAID 23.434 ACRE TRACT OF LAND FOR THE SOUTHEAST CORNER OF THIS SURVEY; THENCE: ALONG FENCE, THE NORTH R.O.W. LINE OF SAID F.M. HIGHWAY 1250, AND THE SOUTH LINE OF SAID 23.434 ACRE TRACT OF LAND, S 89-42-58 W 536.04 FEET TO THE POINT OF BEGINNING. Note: The Company is prohibited from insuring the area or quantity of the land described herein. Any statement in the above legal description of the area or quantity of land is not a representation that such area or quantity is correct, but is made only for informational and/or identification purposes and does not override Item 2 of Schedule B hereof.

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SCHEDULE B


EXCEPTIONS FROM COVERAGE

G.F. No. or File No. 1002-9079-RTT

In addition to the Exclusions and Conditions and Stipulations, your Policy will not cover loss, costs, attorney's fees, and expenses resulting from:

1. The following restrictive covenants of record itemized below (We must either insert specific recording

data or delete this exception):

See Item 10 (a) below.

2. Any discrepancies, conflicts, or shortages in area or boundary lines, or any encroachments or protrusions, or any overlapping of improvements.

3. Homestead or community property or survivorship rights, if any, of any spouse of any insured. (Applies to the Owner's Policy only.)

4. Any titles or rights asserted by anyone, including, but not limited to, persons, the public, corporations, governments or other entities,

a. to tidelands, or lands comprising the shores or beds of navigable or perennial rivers and streams,

lakes, bays, gulfs or oceans, or b. to lands beyond the line of the harbor or bulkhead lines as established or changed by any

government, or c. to filled-in lands, or artificial islands, or d. to statutory water rights, including riparian rights, or e. to the area extending from the line of mean low tide to the line of vegetation, or the rights of access

to that area or easement along and across that area. (Applies to the Owner's Policy only.)

5. Standby fees, taxes and assessments by any taxing authority for the year 2012, and subsequent years; and subsequent taxes and assessments by any taxing authority for prior years due to change in land usage or ownership, but not those taxes or assessments for prior years because of an exemption granted to a previous owner of the property under Section 11.13, Texas Tax Code, or because of improvements not assessed for a previous tax year. (If Texas Short Form Residential Loan Policy of Title Insurance (T-2R) is issued, that policy will substitute "which become due and payable subsequent to Date of Policy" in lieu of "for the year 2012 and subsequent years.")

6. The terms and conditions of the documents creating your interest in the land.

7. Materials furnished or labor performed in connection with planned construction before signing and delivering the lien document described in Schedule A, if the land is part of the homestead of the owner.



(Applies to the Loan Title Policy Binder on Interim Construction Loan only, and may be deleted if satisfactory evidence is furnished to us before a binder is issued.)

8. Liens and leases that affect the title to the land, but that are subordinate to the lien of the insured mortgage. (Applies to Loan Policy (T-2) only.)

9. The Exceptions from Coverage and Express Insurance in Schedule B of the Texas Short Form Residential Loan Policy of Title Insurance (T-2R). (Applies to Texas Short Form Residential Loan Policy of Title Insurance (T-2R) only). Separate exceptions 1 through 8 of this Schedule B do not apply to the Texas Short Form Residential Loan Policy of Title Insurance (T-2R).

10. The following matters and all terms of the documents creating or offering evidence of the matters (We must insert matters or delete this exception):

a. Item No. 1, Schedule B, is hereby deleted.

b. Rights of Parties in Possession. (OWNER POLICY ONLY)

c. All encumbrances, violations, variations, or adverse circumstances affecting Title that would be disclosed by an accurate and complete land survey of the Land, including, without limitation, all visible and apparent easements or uses and all underground easements or uses, the existence of which may arise by unrecorded grant or by use. (May be amended or deleted upon approval of survey.)

d. Rights of tenants, as tenants only, under unrecorded leases or rental agreements.

e. Any portion of subject property lying within the boundaries of a public or private roadway whether dedicated or not.

f. All leases, grants, exceptions or reservations of coal, lignite, oil, gas and other minerals, together with all rights, privileges, and immunities relating thereto, appearing in the Public Records whether listed in Schedule B or not. There may be leases, grants, exceptions or reservations of mineral interest that are not listed.

g. Terms, Conditions, and Stipulations in Lease Agreement as evidenced by Memorandum of Lease dated January 2, 1996, executed by and between:

Lessor: Encinito Apts., Ltd., d/b/a Encinito Apartments Lessee: Web Service Co., Inc. Recorded: March 25, 1996 in Volume 266, Page 1102, of the Official Public records, of Medina

County, Texas; as affected by Subordination Agreement recorded December 12, 1997, recorded in Volume 310, Page 325, Official Public Records of Medina County, Texas.

h. Terms, Conditions, and Stipulations in Lease Agreement as evidenced by Memorandum of Lease dated November 14, 2006, executed by and between:

Lessor: Hondo Encanto Apartments LLC Lessee: Web Intelligent Laundry Systems Recorded: February 07, 2007 in Volume 659, Page 185, of the Official Public records, of Medina

County, Texas, as subordinated by Subordination, Non-Disturbance and Attornment Agreement recorded in Volume 812, Page 489, Official Records of Medina County, Texas.

i. The following has been evidenced by deed recorded in Volume 376, Page 133, Official Public Records of Medina County, Texas: 1) Underground electric service line along the northwest corner 2) Six (6) foot wide water line along the west property line 3) Eight (8) foot wide sewer line along the south property line.

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SCHEDULE C


G.F. No. or File No. 1002-9079-RTT Your Policy will not cover loss, costs, attorney's fees, and expenses resulting from the following requirements that will appear as Exceptions in Schedule B of the Policy, unless you dispose of these matters to our satisfaction, before the date the Policy is issued:

1. Documents creating your title or interest must be approved by us and must be signed, notarized and filed for record.

2. Satisfactory evidence must be provided that:

- no person occupying the land claims any interest in that land against the persons named in paragraph 3

of Schedule A, - all standby fees, taxes, assessments and charges against the property have been paid, - all improvements or repairs to the property are completed and accepted by the owner, and that all

contractors, sub-contractors, laborers, and suppliers have been fully paid, and that no mechanic's, laborer's or materialmen's liens have attached to the property,

- there is legal right of access to and from the land, - (on a Loan Policy only) restrictions have not been and will not be violated that affect the validity and

priority of the insured mortgage.

3. You must pay the seller or borrower the agreed amount for your property or interest.

4. Any defect, lien or other matter that may affect title to the land or interest insured, that arises or is filed after the effective date of this Commitment.

5. Record a Release of Deed of Trust to secure a Note: Grantor: Hondo Encinito Apartments LLC, a Texas limited liability company Trustee: Peter Graf Beneficiary: American First Federal Credit Union Dated: December 27, 2007 Recorded: January 02, 2008 in County Clerk's File No. 200800034 and Volume 700, Page 426, of

the Real Property records, of Medina County, Texas. Amount: $15,000,000.00

6. Said Note being additionally secured by Assignment of Leases and Rents: Dated: December 27, 2007 Recorded: January 02, 2008 in County Clerk's File No. 200800035 and Volume 700, Page 459, of

the Real Property records, of Medina County, Texas.



7. Record a Release of Deed of Trust to secure a Note: Grantor: Hondo Encinito Apartments LLC, a Texas limited liability company Trustee: Steven R. Martens, Esq. Beneficiary: Greystone Servicing Corporation, Inc., a Georgia corporation Dated: April 06, 2011 Recorded: April 12, 2011 in County Clerk's File No. 2011002105, of the Real Property records,

of Medina County, Texas. Amount: $3,000,000.00

Said Note and Deed of Trust assigned to Fannie Mae by Assignment: Dated: April 06, 2011 Recorded: April 12, 2011 in County Clerk's File No. 2011002106, of the Real Property records,

of Medina County, Texas.

8. A Subordination, Non-Disturbance an Attornment Agreement has been filed for record on April 12, 2011 under County Clerk's File No. 2011002107 of the Official Records of Medina County, Texas.

9. Financing Statement: Debtor: Hondo Encinito Apartments, LLC, a Texas limited liability company Secured Party: Greystone Servicing Corporation, Inc., a Georgia corporation and Fannie Mae Recorded: April 12, 2011 in County Clerk's File No. 2011002108, of the Real Property records,

of Medina County, Texas.

10. As to Hondo Encinito Apartments, LLC, a Limited Liability Company, we will require a Resolution of the Managers specific as to the transaction to confirm who is authorized to execute documents on behalf of the company.

NOTE: Closer should be satisfied as to the status of said company and that same is in

good standing.

11. Company requires order confirming sale from the United States District Court for the District of Utah under Case No. 2:11-CV-01165, styled Securities and Exchange Commission, Plaintiff v. Management Solutions, Inc., a Texas corporation; Wendell A. Jacobson; and Allen R. Jacobson, Defendants. Company reserves the right to make further requirements upon review of the above-described suit.

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SCHEDULE D


No:

GF-Number: 1002-9079-RTT

Pursuant to the requirements of Procedural Rule P-21 promulgated by the Commissioner of Insurance: Shareholders owning, controlling or holding, either directly or indirectly, 10% or more of the shares of First American Title Insurance Company and all individuals partnerships, corporations, trusts or other entities owning ten percent (10%) or more of First American Title Insurance Company as of the last day of the year preceding the date hereinabove set forth are as follows: First American Title Insurance Company, a California Corporation - 100%, a wholly owned subsidiary of First American Corporation, a public company. DIRECTORS of First American Title Insurance Company: Dennis J. Gilmore, Mark J. Harmsworth, Parker S. Kennedy, Jeffrey S. Robinson, and Timothy V. Kemp OFFICERS of First American Title Insurance Company: President: Dennis J. Gilmore Executive Vice President, Chief Financial Officer: Mark J. Harmsworth Vice President, Secretary: Timothy V. Kemp Executive Vice President, Business Director: John M. Hollenbeck TITLE INSURANCE AGENCY: Republic Title of Texas, Inc. (Dallas, TX) William A. Kramer, Executive Chairman David A. Shuttee, Executive Chairman Ward Williford, Vice Chairman Mike Richards, Chief Operating Officer Bo Feagin, President Peter Graf, Executive Vice President and General Counsel Dennis Eastland, Executive Vice President, Chief Financial Officer and Secretary Linda Pospisil, Executive Vice President, Residential Operations David Kramer, Executive Vice President, Western Operations You are entitled to receive advance disclosure of settlement charges in connection with the proposed transaction to which this commitment relates. Upon your request, such disclosure will be made to you. Additionally, the name of any person, firm or corporation receiving any sum from the settlement of this transaction will be disclosed on the closing or settlement statement. You are further advised that the estimated title premium * is: Owner Policy $

Mortgagee Policy $

Endorsement Charges $

Other $ Total $ Of this total amount $ or 15.00% will be paid to the policy issuing Title Insurance Company; $ or 85.00% (complete only one) will be retained by the issuing Title Insurance Agent, and the remainder of the estimated premium will be paid to other parties as follows:

Amount To Whom For Services $ Republic Title of Texas, Inc. $ $

*The estimated premium is based upon information furnished to us as of the date of this Commitment for Title Insurance. Final determination of the amount of the premium will be made at closing in accordance with the Rules and Regulations adopted by the State Board of Insurance.

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FIRST AMERICAN TITLE INSURANCE COMPANY

Commitment for Title Insurance Form (T-7)

DELETION OF ARBITRATION PROVISION (Not applicable to the Texas Residential Owner's Policy)

ARBITRATION is a common form of alternative dispute resolution. It can be a quicker and cheaper means to settle a dispute with your Title Insurance Company. However, if you agree to arbitrate, you give up your right to take the Title Company to court and your rights to discovery of evidence may be limited in the arbitration process. In addition, you cannot usually appeal an arbitrator's award. Your policy contains an arbitration provision (shown below). It allows you or the Company to require arbitration if the amount of insurance is $2,000,000 or less. If you want to retain your right to sue the Company in case of a dispute over a claim, you must request deletion of the arbitration provision before the policy is issued. You can do this by signing this form and returning it to the Company at or before the closing of your real estate transaction or by writing to the Company. The arbitration provision in the Policy is as follows: �Either the Company or the Insured may demand that the claim or controversy shall be submitted to arbitration pursuant to the Title Insurance Arbitration Rules of the American Land Title Association (�Rules�). Except as provided in the Rules, there shall be no joinder or consolidation with claims or controversies of other persons. Arbitrable matters may include, but are not limited to, any controversy or claim between the Company and the Insured arising out of or relating to this policy, any service in connection with its issuance or the breach of a policy provision, or to any other controversy or claim arising out of the transaction giving rise to this policy. All arbitrable matters when the Amount of Insurance is $2,000,000 or less shall be arbitrated at the option of either the Company or the Insured, unless the Insured is an individual person (as distinguished from an Entity). All arbitrable matters when the Amount of Insurance is in excess of $2,000,000 shall be arbitrated only when agreed to by both the Company and the Insured. Arbitration pursuant to this policy and under the Rules shall be binding upon the parties. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court of competent jurisdiction.� ___________________________________________ ____________________________SIGNATURE DATE



REPUBLIC TITLE OF TEXAS, INC.

PRIVACY STATEMENT

a Subsidiary of

Republic Title of Texas, Inc. (*RTT*) is a wholly owned subsidiary of First American Title Insurance Company. RTT and its subsidiary and affiliated companies respect the privacy and security of your non-public personal information (�Personal information�) and protecting your Personal Its formation is one of our top priorities. This Privacy Statement explains RTT�s privacy practices, including how we use tire Personal Information we receive from you and from other specified sources, and to whom it may be disclosed. RTT follows the privacy practices described in this Privacy Statement and, depending on use business performed, RTT may share information described herein. Applicability This Privacy Policy governs our use of the information that you provide to us. It does not govern the manner in which we may use information we have obtained from any other source, such as information obtained from a public record or from another person or entity. RTT and First American have also adopted broader guidelines that govern our use of Personal Information regardless of its source. First American calls these guidelines its Fair Information Values. Types of Information Depending upon which of our services you are utilizing, the types of nonpublic Personal Information that we may collect include:

∗ Information we receive from you on applications, forms and in other communications to us. whether in writing, in person, by telephone or any other means; ∗ Information about your transactions with us, our affiliated companies, or others; ∗ Information we receive from a consumer reporting agency; and ∗ Information from you through our Internet websites, such as your name, address, email address, Internet Protocol address, the website links you used to get to our websites, and

your activity while using or reviewing our websites. Uses of Information We request information from you for our own legitimate business purposes and not for the benefit of any nonaffiliated party. Therefore, we will not release your Personal Information to nonaffiliated parties except: (1) as necessary for us to provide the product or service you have requested of us; or (2) as permitted by law. We may, however, store such information indefinitely, including the period after which any customer relationship has ceased. Such information may be used for any internal purpose, such as quality control efforts or customer analysis. We may also provide all of the types of Personal Information listed above to one or more of our affiliated companies. Such affiliated companies include financial service providers, such as title insurers, property and casualty insurers, and trust and investment advisory companies, or companies involved in real estate services, such as appraisal companies, home warranty companies and escrow companies. Furthermore, we may also provide all the information we collect, as described above, to companies that perform marketing services on our behalf, on behalf of our affiliated companies or to other financial institutions with whom we or our affiliated companies have joint marketing agreements. Former Customers Even if you are no longer our customer, our Privacy Policy will continue to apply to you. Confidentiality and Security We will use our best efforts to ensure that no unauthorized parties have access to any of your Personal Information. We restrict access to Personal Information about you to those individuals and entities who need to know that information to provide products or services to you. We will use our best efforts to train and oversee our employees and agents to ensure that your Personal Information will be handled responsibly and in accordance with this Privacy Policy and RTT and First American�s Fair Information Values. We currently maintain physical, electronic, and procedural safeguards that comply with federal regulations to guard your Personal Information. Information Obtained Through Our Web Site RTT and First American Financial Corporation are sensitive to privacy issues on the Internet. We believe it is important you know how we treat the information about you we receive on the Internet. In general, you can visit RTT or First American or its affiliates� Web sites on the World Wide Web without telling us who you are or revealing any information about yourself. Our Web servers collect the domain names, not the e-mail addresses, of visitors. This information is aggregated to measure the number of visits, average time spent on the site, pages viewed and similar information. RTT and First American use this information to measure the use of our site and to develop ideas to improve the content of our site. There are times, however, when we may need information from you, such as your name and email address. When information is needed, we will use our best efforts to let you know at the time of collection how we will use the Personal Information. Usually, the Personal Information we collect is used only by us to respond to your inquiry, process an order or allow you to access specific account/profile information. If you choose to share any Personal Information with us, we will only use it its accordance with the policies outlined above. Business Relationships RTT and First American Financial Corporation�s sites and its affiliates� sites may contain links to other Web sites. While we try to link only to sites that share our high standards and respect for privacy, we are not responsible for the content or the privacy practices employed by other sites. Cookies Some of RTT�s and First American�s Web sites may make use of �cookie� technology to measure site activity and to customize information to your personal tastes. A cookie is an element of data that a Web site can send to your browser, which may then store the cookie on your hard drive. Republictitle.com and FirstAm.com use stored cookies. The goal of this technology is to better serve you when visiting our site, save you time when you are here and to provide you with a more meaningful and productive Web site experience. Fair Information Values

∗ Fairness We consider consumer expectations about their privacy in all our businesses. We only offer products and services that assure a favorable balance between consumer benefits and consumer privacy.

∗ Public Record We believe that an open public record creates significant value for society, enhances consumer choice and creates consumer opportunity. We actively support an open public record and emphasize its importance and contribution to our economy.

∗ Use We believe we should behave responsibly when we use information about a consumer in our business. We will obey the laws governing the collection, use and dissemination of data.

∗ Accuracy We will take reasonable steps to help assure the accuracy of the data we collect, use and disseminate. Where possible, we will take reasonable steps to correct inaccurate information. When, as with the public record, we cannot correct inaccurate information, we will take all reasonable steps to assist consumers in identifying the source of the erroneous data so that the consumer can secure the required corrections.

∗ Education We endeavor to educate the users of our products and services, our employees and others in our industry about the importance of consumer privacy. We will instruct our employees on our fair information values and on the responsible collection and use of data. We will encourage others in our industry to collect and use information in a responsible manner.

∗ Security We will maintain appropriate facilities and systems to protect against unauthorized access to and corruption of the data we maintain.

Effective Date: August 1, 2011



Requests for Correction, Amendment, or Deletion of Personal Information As required by applicable law, we will afford you the right to access your Personal Information, under certain circumstances to find out to whom your Personal Information has been disclosed, and request correction or deletion of your Personal Information. However, RTT�s current policy is to maintain customers� Personal Information for no less than your state�s required record retention requirements for the purpose of handling future coverage claims. For your protection, all requests made under this section must be in writing and must include your notarized signature to establish your identity. Where permitted by law we may charge a reasonable fee to cover the costs incurred in responding to suds requests. Please send requests to:

Republic Title of Texas, Inc. Peter S. Graf General Counsel 2626 Howell Street. 10th Floor

Dallas, Texas 75204 Changes to this Privacy Statement This privacy Statement may be amended from time to time consistent with applicable privacy laws. When we amend this Privacy Statement, we will post a notice of such changes on our website. The effective date of this Privacy Statement, as stated below, indicates the last time this Privacy Statement was revised or materially changed.



Important Notice ISSUED BY First American Title Insurance Company

IMPORTANT NOTICE

To obtain information or make a complaint:

You may call First American Title Insurance Company’s toll-free telephone number for information or to make a

complaint at: 1-888-632-1642

You may also write to First American Title Insurance

Company at:

1 First American Way Santa Ana, California 92707

You may contact the Texas Department of Insurance to obtain information on companies, coverages, rights or

complaints at:

1-800-252-3439

You may write the Texas Department of Insurance:

P.O. Box 149104 Austin, TX 78714-9104

Fax: (512) 475-1771 Web: http://www.tdi.state.tx.us

E-mail: [email protected]

PREMIUM OR CLAIM DISPUTES: Should you have a dispute concerning your premium or about a claim you should contact First American Title

Insurance Company first. If the dispute is not resolved, you may contact the Texas Department of Insurance.

ATTACH THIS NOTICE TO YOUR POLICY: This notice is for information only and does not become a

part or condition of the attached document.

AVISO IMPORTANTE Para obtener informacion o para someter una queja:

Usted puede llamar al numero de telefono gratis de First American Title Insurance Company’s para informacion o

para someter una queja al: 1-888-632-1642

Usted tambien puede escribir a First American Title

Insurance Company:

1 First American Way Santa Ana, California 92707

Puede comunicarse con el Departamento de Seguros de Texas para obtener informacion acerca de companias,

coberturas, derechos o quejas al:

1-800-252-3439

Puede escribir al Departamento de Seguros de Texas:

P.O. Box 149104 Austin, TX 78714-9104

Fax: (512) 475-1771 Web: http://www.tdi.state.tx.us

E-mail: [email protected]

DISPUTAS SOBRE PRIMAS O RECLAMOS: Si tiene una disputa concerniente a su prima o a un

reclamo, debe comunicarse con el First American Title Insurance Company primero. Si no se resuelve la disputa, puede entonces comunicarse con el departamento (TDI).

UNA ESTE AVISO A SU POLIZA: Este aviso es solo para proposito de informacion y no se convierte en parte o condicion del documento adjunto.

Form 50-TXNOTICE (11-1-09) Page 1 of 1 Mandatory Complaint Notice (11-1-09)

Texas


EXHIBIT E


COMMf~'; Republic rille of rexas. Inc Gf" \ \i-.oo \.9 9 SJ9 "$..J:.~ ..


Filicia Davenport, Esq. Ballard Spahr LLP 601 13th Street, NW Suite 1000 South Washington, DC 20005-3807

Ooc# 2tl111tl11Z121il15 Vol_ 812 ~aqe 486 04.' 12/e:tl11 1:39PM ..


KNOW THAT as of the 6th day of April 2011, GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation ("Assignor"), in consideration of One Dollar ($1.00) and other good and valuable consideration in hand paid by FANNIE MAE ("Assignee"), the receipt and sufficiency of which are hereby acknowledged, does hereby assign, sell, transfer and set over unto Assignee, all rights, title, interests, obligations and burdens in, to and arising under that certain Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated as of the 6th day of April 2011, given by HONDO ENCINITO APARTMENTS, LLC, a Texas limited liability company, to STEVEN R. MARTENS, ESQ., as Trustee for the benefit of Assignor in the principal sum of Three Million and 0011 00 Dollars ($3,000,000.00) (the "Deed of Trust"). Said Deed of Trust was recorded in the Land Records of Medina County, Texas immediately prior to and concurrently with the recording of this Assignment of Deed of Trust and encumbers the real property described in Exhibit "A", attached hereto and incorporated herein;

TOGETHER with the Multifamily Note described in said Deed of Trust and the monies due and to become due thereon with interest;

TO HAVE AND TO HOLD the same unto the Assignee and to the successors, legal representatives and assigns of the Assignee forever.


DMEAST #13440363 v3 (Eneinito)


Doc# 2011002106 Vol. 812 Page 487 04i1212011 1:39PM


STATE OF MARYLAND


ASSIGNOR:


By:

aging Director, Closing

ACKNOWLEDGMENT

) ) ss: )

Ibis Instrument was acknowledged before me on April 2, 2011, by Laura Kane, Managing Director, Closing of GREYSTONE SERVICING CORPORATION, INC., a Georgia corporation, on behalf of said corporation.

[SEAL]

My Commission expire!MY COMMISSION EXPIRES AUGUST 05, 2012


EXHIBIT A

LEGAL DESCRIPTION

Doc# 21Z1111Z1021\l1E. Vol. 812 Page 4BB 04/12/2011 1:39PM .

A survey of 8.983 acres of land situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No.1029, John Wolfart, original Grantee, being a portion of that certain 23.434 acre tract of land described as Tract I in a Partition Deed to Robert R. Corder, Jr., et ux, from Maybelle R. Hagens, et ai, dated September I, 1986, as recorded in Volume 46 on Page 249 of the Official Public Records of Medina County, Texas, and being more particularly described by metes and bounds as follows:

Beginning: At a 5/8 inch iron pin set in the remains of a broken concrete R.O.W. marker found at the point-of-intersection of the East line of Avenue "U" and the North R.O.W. line of F.M. Highway 1250 (30th Street) for the Southwest corner of said 23.434 acre tract of land and the Southwest corner ofthis survey;

Thence: Along a rundown fence, the East line of said Avenue "U", and the West line of said 23.434 acre tract ofland, N 00 degrees 18 minutes 24 seconds W 732.27 feet to a 5/8 inch iron pin for the Northwest corner of this survey;

Thence: N 89 degrees 07 minutes 32 seconds E 528.76 feet to a 5/8 inch iron pin set for the southwest corner of a certain 2.410 acre tract of land described as Tract II to Maybelle R. Hagens, et ai, in the aforementioned Partition Deed, and the Northeast corner of this survey;

Thence: S 00 degrees 52 minutes 28 seconds E 737.76 feet to a railroad spike set in concrete riprap on the North R.O.W. line of said F.M. Highway 1250 and the South line of said 23.434 acre tract ofland for the Southeast corner of this survey;

Thence: Along fence, the North R.O.W. line of said F.M. Highway 1250, and the South line of said 23.434 acre tract of land, S 89 degrees 42 minutes 58 seconds W 536.04 feet to the Point of Beginning. An'.orovislon here. whien restrlcts. th, sal"

I"en"al or _~se of the described real prooertv beca'..:.se ot [:0101" Of race is lnvalid anO Imenfcr'C"Fable under hoe-rat iaw.

DMEAST #13440363 v3 3

THE STAT" 0" TeXAS (OUNT! OF MEDINA ~!?r'pbv ('ert! fv that the Instr'ulent FILED In iiilJtrer Sl'{:uence and staloed het~eon bv Ie and was oulv RtCORDED In the OffIcial ~e~or~ds of Medina County Texas on 04i12/20il LOUr,TV CLERK ~EDHjA COUNTY. TE,AS

?~~~i5~~L-"~'" ' .. ,'. -i> " '\(Si l:\~~L < •• 1. ~,~, /t" '" ".~.;; ." .. ·~~37~~.j~~~'~ ;~'.- ... 4 __ l,(,. ,"·,A~':_,· ' .. ~.

v·· .. "~·.;.l~'I··


EXHIBIT F


115160

SPECIAL WARRANTY DEED WITH VENDOR'S LIEN

ST ATE OF TEXAS § § §

KNOW ALL MEN BY THESE PRESENTS: COUNTY OF MEDINA

That ENCINITO APARTMENTS, LTD. (hereinafter referred to as "Grantor"), for and in consideration of the sum ofTen Dollars ($10.00), and other good and valuable consideration to it in hand paid by HONDO ENCINITO APARTMENTS, LLC (hereinafter referred to as "Grantee"), the receipt and sufficiency of which are hereby acknowledged, and the further consideration of Grantee's assumption of the unpaid principal and earned interest of TWO MILLION EIGHT HUNDRED THIRTY THREE THOUSAND SEVEN HUNDRED FORTY SIX AND 14/100 DOLLARS ($2,833,746.14) with interest from April 26, 2000 on the note in the original principal sum of TWO MILLION NINE HUNDRED THOUSAND AND NO/IOO DOLLARS ($2,900,000.00) dated December 12, 1997, executed by ENCINITO APARTMENTS, LTD. TO JAMES R. KOZUCH, TRUSTEE, and payable to the order of REILLY MORTGAGE CAPIT AL CORPORATION. The note is secured by Deed of Trust recorded in Volume 310, Page 298, Official Public Records of real property of Medina County, Texas, said Note and lien securing same having been assigned to the FEDERAL NATIONAL MORTGAGE ASSOCIATION by instrument dated December 12,1 997, and filed of record in Volume 310, Page 391, Medina County Official Public Records. As further consideration Grantee promises to keep and perform all of the covenants and obligations of the Grantor named in that Deed of Trust and to indemnify Grantor against any damages caused by Grantee's breach of its obligations under this assumption. Upon and subject to the exceptions, encumbrances, terms and provisions hereinafter set forth and described, have GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents do hereby GRANT, BARGAIN, SELL and CONVEY, unto Grantee that certain tract or parcel of real property situated in Medina County, Texas, described on Exhibit "A" attached hereto and made a part hereof for all purposes, together with all right, title and interest of Grantors in and to any easements, rights of way or other interests in, on or to, any land, highway, street, road or avenue, open or closed, on, across, in front of, abutting or adjoining said real property and all buildings, fixtures and other improvements relating thereto, and further together with all the oil, gas and other minerals owned by Grantors, in, on and under said real property (being hereinafter referred to collectively as the "Property") .

This conveyance is made and accepted subject to the following exceptions:

I . Any discrepancies, conflicts or shortages in area or boundary lines; any encroachments or overlapping of improvements.

2. Standby fees and Taxes for the year 2000 and subsequent years, and subsequent assessments for prior years due to change in land usage or ownership.

3. Rights of parties in possession.

Vo\. _37_6 __ pg. t33 _


4. Any visible and apparent roadway, easement, rights-of-way and prescnptIve rights over or across the subject property, the existence of which does not appear ofrecords.

5. Any restrictions, reservations, covenants, conditions, oil, gas and other mineral leases, severances, and other instruments covering the Land, together with all rights, privileges and immunities appurtenant to any such lease, severance or other instrument.

6. Rights of parties in possession under any unrecorded leases.

7. Rights of adjoining owners in any walls and fences situated on a common boundary.

8. Tenns and conditions of that certain lease agreement dated January 2, 1996, by and between Encinito Apartments, Ltd. dba Encinito Apartments, as lessor, and Web Service Company, Inc., as lessee, as more fully evidenced by memorandum of same recorded in Volume 266, Page 1102, Medina County Official Public Records, and subordinated by instrument filed of record in Volume 310, Page 325, Medina County Official Public Records. Company insures the insured against loss, if any, sustained by the insured under the tenns of this policy if their interest is not subordinated to the lien ofthe insured mortgage.

9. Underground Electric Service Line along the northwest comer of subject property as shown on survey plat dated November II, 1997, as prepared by Charles W. Rothe, Registered Professional Land Surveyor.

10. Six Foot (6') Wide Water Line along the west property line as shown on survey plat dated November 11, 1997, as prepared by Charles W. Rothe, Registered Professional Land Surveyor.

11. Eight Foot (8') Wide Sewer Line along the south property line as shown on survey plat dated November 11, 1997, as prepared by Charles W. Rothe, Registered Professional Land Surveyor.

TO HAVE AND TO HOLD the Property, subject to the Exceptions, as aforesaid, unto Grantee, Grantee's heirs, successors and assigns forever, and Grantors do hereby bind themselves, their heirs, executors, administrators, successors and assigns, to WARRANT AND FOREVER DEFEND, subject to the exceptions described above, all and singular the Property unto Grantee, Grantee's heirs, successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof, by, through, and under Grantors, but not otherwise.

But it is expressly agreed that the VENDOR'S LIEN, as well as the Superior Title to the Property, is retained against Property until the Note assumed by Grantee and a1l interest thereon is fully paid according to the face, tenor, effect and reading thereof, at which time this deed shall

Vol. 376 _----pg, 114_


become absolute. The Lender, at the instance and request of Grantee, having advanced and paid in cash to Grantors that portion of the purchase price of the Property as evidenced by the Note, the Vendor's Lien, together with the Superior Title to the Property, is retained herein for the benefit of the Lender, and the same are hereby TRANSFERRED and ASSIGNED to the Lender.

By acceptance of this Deed, Grantee assumes payment of property taxes relating to the Property for the year 2000 and subsequent years.

Grantee's mailing address is: HONDO ENCINlTO APARTMENTS, LLC, Attn. Mr. Wendell Jacobson, P.O. Box 400, Fountain Green, Utah 84632.

IN WITNESS WHEREOF, this Deed has been executed by each of the Grantors on the date of their respective signatures.

Date: __ I'IP:;,.t',....i....,1=:!,,28=-::-, .... 2r.:OO=-O..,..T_O.....,.,beTVT_

e££ectLve May 3, 2000

STATE OF TEXAS § §

ENCINITO APARTMENTS, LTD.

BY: ENCINO COMMUNITY DEVLOPMENT CORPORATION, BY SCOTT WEEMS, ITS

P~~-----------SCOTT WEEMS

COUNTY OF BEXAR §

This instrument was acknowledged before me on ~/ Jt , 2000, by Encinito Apartments, Ltd., by Encino Community Developmente;rp~ration, by Scott Weems, its President, on behalf of said Limited Partnership. J

~AfMlJa NOT PUBLIC, STATE OF TEXAS

My Commission Expires: ________ _

Vol. P 135 ----g.--

376


EXHIBIT "A"

8.983 acres of land, more or less, situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No. 1029, John Wolfart, original Grantee, being that same property described in a deed to Encinito Apartments, Ltd., from Encino Community Development Corporation, dated September 29, 1994, as recorded in Volume 230, on Page 46 of the Official Public Records of Medina County, Texas, and being more particularly described by metes and bounds as in the attached Exhibit "B" hereto.

376 Vol. ___ P,g. 13'


EXHIBIT "B"

A survey of 8.983 acres of land situated within the Corporate Limits of the City of Hondo, in Medina County, Texas, out of Survey No. 184, Abstract No. 1029, John Wolf art, original Grantee, being a portion of that certain 23.434 acre tract of land described as Tract I in a Partition Deed to Robert R. Corder, Jr., et ux, from Maybelle R Hagens, et ai, dated September 1, 1986, as recorded in Volume 46 on Page 249 of the Official Public Records of Medina County, Texas, and being more particularly described by metes and bounds as follows:

BEGINNING:

THENCE:

THENCE:

THENCE:

THENCE:

(3894-00 1)# 168509

At a 5/8" iron pin set in the remains of a broken concrete R.O.W. marker found at the point-of-intersection of the East line of Avenue "U" and the North R.O.W. line of F.M. Highway 1250 (30th Street) for the Southwest comer of said 23.434 acre tract of land and the Southwest comer of this survey;

Along a rundown fence, the East line of said Avenue "U", and the West line of said 23.434 acre tract ofland, N 00-18-24 W 732.27 feet to a 5/8" iron pin for the Northwest comer of this survey;

N 89-07-32 E 528.76 feet to a 5/8" iron pin set for the Southwest comer of a certain 2.410 acre tract of land described as Tract II to Maybelle R Hagens, et ai, in the aforementioned Partition Deed, and the Northeast comer of this survey;

S 00-52-28 E 737.76 feet to a railroad spike set in concrete riprap on the North RO.W. line of said F.M. Highway 1250 and the South line of said 23.434 acre tract ofland for the Southeast comer of this survey;

Along fence, the North RO.W. line of said F.M. Highway 1250, and the South line of said 23.434 acre tract of land, S 89-42-58 W 536.04 feet to the POINT OF BEGINNING.

.... ""O.SIO~ HER! .... c. RESTlIICTS M! SAL! IIfHTAl 011 USE O. "" 0fSCIIIIW·1If.II "ROPER" BECAUSI ()< COlOO 00 RIoCI IS IWAlIO 00 "IofNfORCfAIIlE \NIell FBJaI.II. .(AW THE STATE OF TI!XAS COUNlY OF MEDINA

hereOy cerlify tIIO! tIIis Instrument was FILED in ftIe numbef Sequence on the date and at tile lime stamped hell!On by me: anC! _ dulV RECORDED In the Official Public Records of Medina County. Texas

FIlED IN MY OFRC KATHY WlI IONS

00

...... ~ "!~+"'" !'i.,ow:.,--~<,\\ A .'Lfi.,-MAY. 0 3 2~O ~~.

PM-4 1!! :81 \&1

\~ \ J}} ' .. ~~ ....... -;:.<;.' COUNTY CL RK

.......... ~ ......... ' M~QINA muNTY TEXAS 'DO HAY U 3

coumv ClERK, MEDINA CO.

Vol. _3_'_S_Pg. 137
