Flh'~L

RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO:

QUINT & THIMMIG LLP One Embarcadero Center. Suite 2420 San Francisco, CA 94111-3737

Attention: PaulJ. Thimmig. Esq.

REGULATORY AGREEMENT AND

DECLARATION OF RESTRICTIVE COVENANTS

by and between

CALIFORNIA STATE\i~IDE COMMUT~IES DEVELOPMENT AUTHOE~I"Y

and

BALDWIN HOUSING ASSOCIATES, L.P., A CALIFORNIA LIhaED PARTNERSHIP

Dated as of August 1, 2001

Relating to: California Statewide Communities Development Authority

Multifamily Housing Revenue Bonds 03aldwin Hills Apartments) Series 20014

03008. I1:J5753

OF CONTENTS

Section 1. Definitions and Interpretation................................................................-.....···········....1 Section 2. Representations. Covenants and Warranties of the Borrower........................................4 Section 3. Qualified Residential Rental Development.............................................····..·······.·..·...6 Section 4. Very Low and Low Income Tenants: Reporting Requirements......................................7 Section 4A. CDLAC Requirements...........................................................................·.··.................9 Section 5. Tax-Exempt Status of the Bonds...................................................................................9 Section 6. Additional Requirements of the Housing Law.............................................................9 Section 7. Additional Requirements of the Issuer.......................................................................10 Section 8. Modification of Covenants.................................................................................. .......11 Section 9. Indemnification........................................................................................................12 Section 10. Consideration......................................................................··-:·················-···········-···12 Section ii. Reliance................................................................................................·.·············..··12

Section 12. Sale or Transfer of the Development..........................................................................13 Section 13. Term...............................................................................................·.-..····················14 Section 14. Covenants to Run With the Land..............................................................................14 Section 15. Burden and Benefit...................................................................................................15

Section 16. Uniformity; Common Plan........................................................................................15 Section 17. Default; Enforcement................................................................................................15

Section 18. Responsibility for Monitoring..............................................................-.-··.................16 Section 19. Recording and Filing................................................................................................16 Section 20. Payment of Fees....................................................................................................... 17 Section 21. Governing Law........................................................................................................17 Section 22. Amendments; Waivers.............................................................................................17 Section 23. Notices.....................................................................................................................17

Section 24. Severability..............................................................................................................18 Section 25. Multiple Counterparts...............................................................................................18 Section 26. Limitation on Liability...................;..........................................................................18 Section 27. Third Party Beneficiaries...................:.......................................................................18

EXHIBIT A DESCRIPTION OF PROPERTY

EXHIBIT B FORM OF CERTIFICATE OF COMPLIANCE (CDLAC RESOLUTION)

EXHIBIT C CERTIFICATE OF CONTINUING PROGRAM COMPLIANCE

EXHIBIT D INCOME COMPUTATION AND CERTIFICATION

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AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS

REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE

COVENANTS las supplemented and amended from time to time, this "Agreement" or this "Regulatory Agreement") is made and entered into as of August i, 2001, by and between the CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY, a joint exercise of powers authority duly organized and existing under the laws of the State of California (together with any successor to its rights, duties and obligations, the "issuer"), and BALDWIN HOUSING ASSOCIATES, L.P., A CALIFORNIA LIMITED PARTNERSHIP (together with any successor to its rights, duties and obligations hereunder, the "Borrower").

WITNESSETH:

WHEREAS, the Issuer proposes to issue up to $2.800,000 California Statewide Communities Development Authority Multifamily Housing Revenue Bonds (Baldwin Hills Apartments) Series 2001Q (the "Bonds"), pursuant to Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "·Act") and in compliance with Chapter 7 of Part 5 of Division 31 of the Health and Safety Code of the State of California (the "Housing Law"), with the proceeds of the Bonds utilized to fund a loan to the Borrower pursuant to the terms of the Loan Agreement of even date herewith las supplemented and amended from time to time, the 'Loan Agreement"), among the Issuer, U.S. Bank National Association, as Bondowner Representative (the "Bondowner Representative") and the Borrower in order to enable the Borrower to finance the acquisition and rehabilitation of a 58 unit (including one manager's unit), multifamily rental housing development known as Baldwin Hills Apartments, located at 4063 Nicoiet and 4070 Ursula in the City of Los Angeles, California, on the site described in Exhibit A hereto: (the "Development"); and

WHEREAS, in order to assure the Issuer and the owners of the Bonds that interest on the Bonds will be excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code"), and to satisfy the public purposes for which the Bonds are authorized to· be issued under the Housing Law, and to satisfy the purposes of the Issuer in determining to issue the Bonds, certain limits on the occupancy of units in the Development need to be established and certain other requirements need to be met.

NOW, THEREFORE, in consideration of the issuance of the Bonds by the Issuer and the mutual covenants and undertakings set forth herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Issuer and the Borrower hereby agree as follows:

Section 1. Definitions and Interpretation. Unless the context otherwise requires, the capitalized terms used herein shall have the respective meanings assigned to them in the recitals hereto, in this Section 1, in Section 1.01 of the Indenture, dated as of August i, 2001, between the issuer and the Bondowner Representative, or in Section 1.1 of the Loan Agreement, dated as of August 1, 2001, among the Issuer, the Bondowner Representative and the Borrower.

"Adjusted Income" means the adjusted income of a person (together with the adjusted income of all persons who intend to reside with such person in one residential unit) as calculated in a manner consistent with the method for determination of annual income under

Section 8 of the Housing Act in effect as of the Closing Date.

Party" means (a) a person whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code, (b) a person who together with the Borrower are members of the same controlled group of corporations las defined in Section 1563(a) of the Code, except that "more than 50 percent" shall be substitute-d for "at least 80 percent" each place it appears therein), (c) a partnership and each of its partners land their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code, and (d) an S corporation and each of its shareholders land their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code.

"Administrator" means any administrator or program monitor appointed by the Issuer in the administration of this Regulatory Agreement, and any successor so appointed. The initial Administrator shall be Wells Fargo Bank, N.A..

"Area" means the Primary Metropolitan Statistical Area in which the Development is located.

"Certificate of Continuing Program Compliance" means the Certificate to be filed by the Borrower with the Issuer, the Administrator (if other than the Issuer) and the Bondowner Representative pursuant to Section 4(e) hereof, which shall be substantially in the form attached as Exhibit C hereto, or in such other form as may be provided by the Issuer to the Borrower.

"CDLAC" - means the California Debt Limit Allocation Committee.

"CDLAC Resolution" means Resolution No. 01-109 adopted by CDLAC on May 8. 2001, with respect to the Development.

"City" means the City of Los Angeles, California.

"Closing Date" means the date of the issuance and delivery of the Bonds, being August 30, 2001.

"County" means the County of Los Angeles.

"Development" means the multifamily rental housing development known as Baldwin Hills Apartments, located on the real property site described in Exhibit A hereto. and consisting of those facilities, including the Borrower's fee interest in the real property described in Exhibit A hereto, structures, buildings, fixtures or equipment, as may at any time exist on such real property, the acquisition and rehabilitation of which are to be financed, in whole or in part. from the proceeds of the sale of the Bonds or the proceeds of any payment by the Borrower pursuant to the Loan Agreement, and any real property, structures, buildings, fixtures or equipment acquired in substitution for, as a renewal or replacement of. or a modification or improvement to, all or any part of such facilities.

"Development Costs" means, to the extent authorized by the Housing Law, the Code and the Regulations, any and all costs and expenses incurred by the Borrower with respect to the acquisition, financing, rehabilitation and/or operation of the Development. whether paid or incurred prior to or after the Closing Date, including, without limitation, costs for the acquisition of property, the cost of consultant, accounting and legal services, appraisal costs, other expenses necessary or incident to determining the feasibility of the Development, and administrative expenses, and interest on the Loan.

"Housing Act" means the United States Housing Act of 1937, as amended, or its successor.

Certification" means a Verification of Income and an Occupancy Certificate in the form attached as Exhibit D hereto, or in such other form as may be provided by the Issuer to the Borrower.

"Low Income Tenant" means any tenant whose Adjusted Income does not exceed limits determined in a manner consistent with determinations of very low income families under Section 8 of the Housing Act, except that the percentage of median gross income that qualifies as low income shall be sixty percent (60%) of median gross income for the Area with adjustments for family size. If all the occupants of a unit are students las defined under Section 151(e)(4) of the Code), no one of whom is entitled to file a joint return under Section 6013 of the Code, such occupants shall not qualify as Low income Tenants. The determination of a tenant's status as a Low Income Tenant shall be made by the Borrower upon initial occupancy of a unit in the Development by such tenant, on the basis of an Income Certification executed by the tenant.

"Low Income Units" means the units in the Development required to be rented, or held available for occupancy by, Low Income Tenants pursuant to Sections 4(a), 4A and 6(a) hereof.

"Qualified Development Costs" means Development Costs paid or incurred following the date which is 60 days prior to the Inducement Date, which either constitute land or property of a character subject to the allowance for depreciation under Section 167 of the Code or are chargeable to a capital account with respect to the Development for federal income tax and financial accounting purposes, or would be so chargeable either with a proper election by the Borrower or but for the proper election by the Borrower to deduct those amounts within the meaning of Regulation 1.103-8(a)(1)(i); provided, however, that only such portion of interest accrued during rehabilitation of the Development shall constitute a Qualified Development Cost as bears the same ratio to all such interest as the Qualified Development Costs bear to all Development Costs; and provided, further, that interest accruing after the completion of the rehabilitation of the Development shall not be a Qualified Development Cost; and provided still further that if any portion of the Development is being constructed by an "affiliated party" (whether as a general contractor or a subcontractor), "Qualified Development Costs" shall include only (a) the actual out-of-pocket costs incurred by such affiliated party in rehabilitating the Development (or any portion thereof), (b) any reasonable fees for supervisory services actually rendered by the affiliated party and (c) any overhead expenses incurred by the affiliated party that are directly attributable to the work performed on the Development, and shall not include, for example, intercompany profits resulting from members of an affiliated group (within the meaning of Section 1504 of the Code) participating in the rehabilitation of the Development or payments received by such affiliated party due to early completion of the Development (or any portion thereof).

"Qualified Development Period" means the period beginning on the Closing Date, and ending on the later of the following: (a) the date which is fifty-five (55) years after the Closing Date; or (b) the first date on which no Tax-Exempt private activity bonds with respect to the Development are Outstanding; or (c) the date on which any assistance provided with respect to the Development under Section 8 of the Housing Act terminates.

"Regulations" means the Income Tax Regulations of the Department of the Treasury applicable under the Code from time to time.

"Regulatory Agreement" means this Regulatory Agreement and Declaration of Restrictive Covenants, as it may be supplemented and amended from time to time.

means with respect to interest on any obligations of a state or local government, including the Bonds, that such interest is excluded from gross income for federal income tax purposes; provided, however, that such interest may be includable as an item of tax preference or otherwise includable directly or indirectly for purposes of calculating other tax liabilities, including any alternative minimum tax or environmental tax, under the Code.

"Very Low Income Tenant" means any tenant whose Adjusted Income does not exceed limits determined in a manner consistent with determinations of very low income families under Section 8 of the Housing Act, except that the percentage of median gross income that qualifies as very low income shall be fifty percent (50%) of median gross income for the Area with adjustments for family size. If all the occupants of a unit are students las defined under Section 151(e)(4) of the Code), no one of whom is entitled to file a joint return under Section 6013 of the Code, such occupants shall not qualify as Very Low Income Tenants. The determination of a tenant's status as a Very Low Income Tenant shall be made by the Borrower upon initial occupancy of a unit in the Development by such tenant, on the basis of an Income Certification executed by the tenant.

"Very Low Income Units" means the units in the Development required to be rented, or held available for occupancy by, Very Low Income Tenants pursuant to Sections 4(a) and 6(a) hereof.

Unless the context clearly requires otherwise, as used in this Regulatory Agreement. words of any gender shall be construed to include each other gender when appropriate and words of the singular number shall be construed to include the plural number, and vice versa, when appropriate. The Regulatory Agreement and ail the terms and provisions hereof shall be construed to effectuate the purposes set forth herein and to sustain the validity hereof.

The titles and headings of the sections of this Regulatory Agreement have been inserted for convenience of reference only, and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof or be considered or given any effect in construing this Regulatory Agreement or any provisions hereof or in ascertaining intent. if any question of intent shall arise.

The parties to this Regulatory Agreement acknowledge that each party and their respective counsel have participated in the drafting and revision of this Regulatory Agreement. Accordingly, the parties agree that any rule of rehabilitation to the effect that ambiguities are to be resolved against the drafting party shall not apply in the interpretation of this Regulatory Agreement or any supplement or exhibit hereto.

Section 2. Representations. Covenants and Warranties of the Bo_rrower. The Borrower hereby represents, as of the date hereof, and covenants, warrants and agrees as follows:

(a) The statements made in the various certificates delivered by the Borrower to the Issuer on the date the Loan was made are true and correct.

(b) The Borrower land any person related to it within the meaning of Section 147(a)(2) of the Code) will not take or omit to take, as is applicable, any action if such action or omission would in any way cause the proceeds of the Loan to be applied in a manner contrary to the requirements of the Loan Agreement or this Regulatory Agreement.

(c) It will not knowingly take or permit, or omit to take or cause to be taken, as is appropriate, any action that would adversely affect the exclusion from gross income for federal income tax purposes or the exemption from California personal income taxation

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the interest on the Bonds and, if it should take or permit, or omit to take or cause to be taken, any such action, it will take all lawful actions necessary to rescind or correct such actions or omissions promptly upon obtaining knowledge thereof.

(d) It will take such action or actions as may be necessary, in the written opinion of Bond Counsel filed with the Issuer and the Borrower, to comply fully with the Housing Law, the Code and all applicable rules, rulings, policies, procedures, Regulations or other official statements promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service to the extent necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds.

(e) The Borrower has incurred a substantial binding obligation to expend proceeds of the Loan pursuant to which the Borrower is obligated to expend at least five percent (5%) of the maximum principal amount of the Loan.

(f) The Borrower will proceed with due diligence to complete the rehabilitation of the Development and the full expenditure of the proceeds of the Loan. The Borrower reasonably expects to complete the acquisition and rehabilitation of the Development and to expend the full amount of the Loan for Development Costs by August i, 2002.

(g) The Borrower's reasonable expectations respecting the total expenditure of the proceeds of the Loan have been accurately set forth in a certificate of the Borrower delivered on the Closing Date. Upon completion of the Development, the aggregate disbursements of the proceeds of the Loan will have been applied to pay or to reimburse the Borrower for the payment of Qualified Development Costs in an amount equal to ninety-seven percent (97%) or more of such disbursements, and less than twenty-five percent (25%) of such disbursements shall have been used to pay for the acquisition of land or an interest therein.

(h) The Borrower will not take or omit to take, as is applicable, any action if such action or omission would in any way cause the proceeds from the Loan to be applied in a manner contrary to the requirements of the Loan Agreement, this Regulatory Agreement, the Housing Law or the Code.

(i) The Borrower agrees to expend towards the rehabilitation of the Development (such expenditures to constitute "rehabilitation expenditures" as defined in Section 46(d) of the Code), within two (2) years of the Closing Date, an amount at least equal to fifteen percent (15"/o) of the proceeds of the Bonds used to acquire the buildings land equipment) comprising the Development.

(j) The Borrower is executing this Regulatory Agreement on the Closing Date and agrees to record this Regulatory Agreement in the real property records of the County at the time it acquires the site on which the Development is located prior to (i) the recordation of the Deed of Trust, and (ii) any disbursement of the Loan in excess of the $50,001 proceeds of the Loan disbursed on the Closing Date. The Borrower will use all reasonable diligence to acquire the Development site, and to complete all conditions in the Loan Agreement to the disbursement of the portion of the Loan not disbursed on the Closing Date. The Borrower has reviewed all of such conditions and reasonably expects to be able to satisfy each and every such condition, including the admission of an investor limited partner to the Borrower's partnership agreement that will provide funds as required under the conditions set forth in the Loan Agreement.

3. Oualified Residential Rental Development. The Borrower hereby acknowledges and agrees that the Development is to be owned, managed and operated as a "qualified residential rental project" (within the meaning of Section 142(d) of the Code) for a term equal to the Qualified Development Period. To that end, and for the term of this Regulatory Agreement, the Borrower hereby represents, covenants, warrants and agrees as follows:

(a) The Development will be acquired, constructed and operated for the purpose of providing multifamily residential rental property. The Borrower will construct, o\~n. manage and operate the Development as a project to provide multifamily residential rental property comprised of a building or structure or several interrelated buildings or structures, together with any functionally related and subordinate facilities. and no other facilities, in accordance with Section 142(d) of the Code, Section 1.103-8(b) of the Regulations and the provisions of the Housing Law, and in accordance with such requirements as may he imposed thereby on the Development from time to time.

(b) All of the dwelling units in the Development will be similarly constructed units, and each dwelling unit in the Development will contain complete separate and distinct facilities for living, sleeping, eating, cooking and sanitation for a single person or a family, including a sleeping area, bathing and sanitation facilities and cooking facilities equipped with a cooking range, refrigerator and sink.

(c) None of the dwelling units in the Development will at any time be utilized on a transient basis, or will ever be used as a hotel, motel, dormitory, fraternity house. sorority house, rooming house, nursing home, hospital, sanitarium, rest home or trailer court or park.

(d) No part of the Development will at any time during the Qualified Development Period be owned by a cooperative housing corporation, nor shall the Borrower take any steps in connection with a conversion to such ownership or use, and the Borrower will not take any steps in connection with a conversion of the Development to condominium ownership during the Qualified Development Period (except that the Borrower may obtain final map approval and the Final Subdivision Public Report from the California Department of Real Estate and may file a coiidominium plan with the City).

(e) All of the completed dwelling units in the Development (except for not more than one unit set aside for resident manager or other administrative use) will be available for rental during the Qualified Development Period on a continuous basis to members of the general public, on a first-come first-served basis, and the Borrower will not give preference to any particular class or group in renting the dwelling units in the Development, except to the extent that dwelling units are required to be leased or rented to Very Low Income Tenants and Low income Tenants hereunder.

(f) The Development site consists of a parcel or parcels that are contiguous except for the interposition of a road, street or stream, and all of the facilities of the Development comprise a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Development.

(g) The Borrower shall not discriminate on the basis of race, creed, color, sex, source of income (e.g. AFDC, SSI), physical disability, age, national origin or marital status in the rental, lease, use or occupancy of the Development or in connection with

employment or application for employment of persons for the operation and management of the Development.

(h) No dwelling unit in the Development shall be occupied by the Borrower. Notwithstanding the foregoing, if the Development contain five or more dwelling units. this subsettion shall not be construed to prohibit occupancy of dwelling units by one or more resident managers or maintenance personnel any of whom may be the Borrower: provided that the number of such managers or maintenance personnel is not unreasonable given industry standards in the area for the number of dwelling units in the Development.

(i) The Borrower will not sell dwelling units within the Development.

(i) In accordance with Section 147(b) of the Code, the average maturity of the Bonds does not exceed 120% of the average reasonably expected economic life of the facilities being financed by the Bonds.

TheIssuer hereby elects to have the Development meet the requirements of section 142(d)(l)(B) of the Code.

Section 4. Very Low and Low Income Tenants: Reporting Reauirements. Pursuant to the requirements of the Code and CDLAC, the Borrower hereby represents, warrants and covenants as follows:

(a) During the Qualified Development Period, at least six (6) of the units in the Development will be occupied, or held vacant and available for occupancy by, Very Low Income Tenants and the remaining units in the Development will be occupied, or held vacant and available for occupancy by, Low income Tenants. For the purposes of this paragraph (a), a vacant unit which was most recently occupied by a Very Low Income Tenant or a Low Income Tenant is treated as rented and occupied by a Very Low Income Tenant or a Low Income Tenant, respectively, until reoccupied, other than for a temporary period of not more than 31 days, at which time the character of such unit shall be redetermined.

Its is hereby acknowledged that the Issuer is requiring that at least forty percent (40%) of the units in the Development be occupied by, or held vacant and available for occupancy by, Low Income Tenants, and the affordability requirements in excess of such forty percent (40%) have been imposed by CDLAC pursuant to the CDLAC Resolution. Notwithstanding any other provision of this Regulatory Agreement, the Administrator shall only monitor the Borrower's compliance with the requirement of the Issuer described in the preceding sentence, and not the other units in the Development.

(b) No tenant qualifying as a Very Low Income Tenant or a Low Income Tenant shall be denied continued occupancy of a unit in the Development because, after admission, such tenant's Adjusted Income increases to exceed the qualifying limit for Very Low Income Tenants or Low Income Tenants, respectively. However, should a Low Income Tenant's Adjusted Income, as of the most recent determination thereof, exceed one hundred forty percent (140%) of the applicable income limit for a Low Income Tenant of the same family size, the next available unit of comparable or smaller size must be rented to (or held vacant and available for immediate occupancy by) a Low Income Tenant. Until such next available unit is rented to a Low Income Tenant, the former Low Income Tenant who has ceased to qualify as such shall be deemed to continue to be a Low Income Tenant for purposes of the Low Income Unit requirements

Section 4 (a) hereof until the rental of an available unit of comparable or smaller size to a tenant who is not a Low Income Tenant.

(c) For the Qualified Development Period, the Borrower will obtain, complete. and maintain on file Income Certifications for each Very Low Income Tenant and Low Income Tenant, including (i) an Income Certification dated immediately prior to the initial occupancy of such Very Low income Tenant or Low Income Tenant, respectively. in the Development, and (ii) thereafter, an annual Income Certification with respect to each Low Income Tenant, within thirty days before or after the anniversary of such tenant's initial occupancy of a unit in the Development. The Borrower will provide such additional information as may be required in the future by the State of California. by the Issuer, by CDLAC and by the Code, as the same may be amended from time to time, or in such other form and manner as may be required by applicable rules, rulings, policies. procedures, Regulations or other official statements now or hereafter promulgated. proposed or made by the Department of the Treasury or the Internal Revenue Service with respect to Tax-Exempt obligations. A copy of the most recent Income Certifications for Very Low Income Tenants and Low Income Tenants commencing or continuing occupation of a Very Low Income Unit or Low Income Unit, respectively, shall be attached to each report to be filed with the Administrator pursuant to paragraph (e) of this Section 4.

The Borrower shall make a good faith effort to verify that the income information provided by an applicant in an Income Certificatidn is accurate by taking one or more of the following steps as a part of the verification process: (1) obtain a pay stub for the most recent pay period, (2) obtain an income tax return for the most recent tax year. (3) obtain a credit report or conduct a similar type credit search, (4) obtain an income verification from the applicant's current employer, (5) obtain an income verification front the Social Security Administration and/or the California Department of Social Services if the applicant receives assistance from either of such agencies, or (6) if the applicant is unemployed and does not have an income tax return, obtain another form of independent verification.

(d) The Borrower will maintain complete and accurate records pertaining to the Very Low Income Units and the Low Income Units, and will permit any duly authorized representative of the Issuer, the Bondowner Representative, the Department of the Treasury or the Internal Revenue Service to inspect the books and records of the Borrower pertaining to the Development, including those records pertaining to the occupancy of the Very Low Income Units and the Low Income Units.

(e) The Borrower will prepare and submit to the Administrator ton behalf of the Issuer) and the Bondowner Representative, no later than the tenth day of each month until the end of the Qualified Development~ Period, a Certificate of Continuing Program Compliance executed by the Borrower stating (i) the percentage of the dwelling units of the Development which were occupied or deemed occupied, pursuant to subsection (a) hereof, by Low Income Tenants during the preceding calendar month; and (ii) that either (A) no unremedied default has occurred under this Regulatory Agreement, or (B) a default has occurred, in which event the certificate shall describe the nature of the

default in detail and set forth the measures being taken by the Borrower to remedy such default. During the Qualified Development Period, the Borrower shall submit a completed Internal Revenue Code Form 8703 of such other annual certification as required by the Code with respect to the Development, to the Secretary of the Treasury on or before March 31, of each year (or such other date as may be required by the Code).

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(f) For the Qualified Development period, all tenant leasesor rental·agreements shall be subordinate to this Regulatory Agreement and the Deed of Trust. All leases pertaining to Very Low Income Units and the Low Income Units shall contain clauses, among others. wherefn each tenant who occupies a Very Low Income Unit or a Low Income Unit. respectively: (1) certifies the accuracy of the stateli~ents made in the Income Certification; (ii) agroes that the family income and otherellgibllity requirements shall be deemed substantial and material obligations of the tenancy of such tenant, that such tenant will comply promptly with all requests for information ~ivith respect thereto from the Borrower, the Bondowner Representative or the Administrat~r on behalf of the Issuer. and that the failure to provide accurate information in the Income Certification or refusal to comply with a request for information with respect thereto shall be deemed a violation of a substantial obligation of the tenancy of such tenant; (111) acknowledges that the Borrower has relied on the Income Certification arid supporting information supplied by the Very Low income Tenant or Low Income Tenant, as applicable, in determining qualification for occupancy of the Very Low Income Unit or Low Income Unit, and that any material misstatement in such certification (whether or not ~ntentional) will be cause for immediate termination of such lease or rental agreement;

.and (iv) agrees that the tenant's income (if it is a Low Income Tenant) is su·bject to annual certification in accordance with Section 4(0) hereof and that if upon any such certification such tenant's Adjusted Income exceeds the applicable Low Income Tenant income limit under Section 4(b), such tenant may cease to qualify as a Low Income Tenant, and such tenant's rent is subject to increase.

Section 4A. CDLAC Reauirements. The acquisition, rehabilitation and operation of the Development and the financing thereof are and shall be in compliance with the conditions set forth in Exhibit A to ·the CDLAC Resolution. as it may be amended, which, conditions are incorpbrated herein by reference and are made a part hereof; provided, however, the Issuer shall have no obligation to monitor and enforce the Borrower's compliance with the provisions of this Section 4A. The Borrower shall prepare and submit to CDLAC, at the times required by CDLAC, a Certificate of Compliance in substantially the foim attached hereto as Exhibit B hereto, executed by an authorized representative of the Borrower.

Section 5. Tax-ExemDtStatus of the Bonds. The Borrower and the Issuer, as applicable, each hereby represents, warrants and agrees as follows:

(a) The Borrower and the Issi~cr will not knowingly take or permit, or omit to rake or cause to be taken, as is appropriate, any action that would adversely affect the Tax-Exempt nature of the interest on the Bonds and, if either of them should take or

~ permit, or omit to take or cause to be taken, any such action, it will take all lawful actions necessary'to rescind or correct such actions or omissions promptly upon obtaining knowledge thereof.

(b) The Borrower and the Issuer will file of recor;i such documents and take such other steps as are·necessary, in the written opinion of Bond Counsel filed with the Borrower. the Issuer and the Bondowner Representative. In order to insure that the requirements and restrictions of this Regulatory Agreement will be binding upon all owners of the Development, including, but not limited to, the execution and recordation of this Regulatory Agreement in the real property records of the County.

Section 6. Add'itional Reouiremerits of the Housina_Law, In addition.to the requirements set forth above, so long as any Bonds are out~tanding the Borrower hereby agrees to comply with each of the requirements of Section 52080 of the California Health and Safety Code set forth In this Section 6. as follows:

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ua:59 rAa '/145640085 AVALON CO~MUNITIES ~moo4

(5) Not less than 40% of'the total number of units In the Development shall be available for occupancy on a priority basis to Low Income Tenants. The units made available to meet this requirement shall be of comparable quality and offer a range of sizes and numbers ofbedrooms comparable to the units that are available to other tenants in the Development.

(b) The rental payments for the Low Income Units paid by the tenants thereof (excluding any supplemental rental assistance from the Stare, the federal government or any other public agency to those tenants or on behalf of those units) shall not exceed 300/0 of an amount equal to 60% of the median adSusted gross income for the Area.

(c) The Borrower shall accept as tenants, on the same basis as all other prospective tenants, low-income tenants who are 'recipients of federal certificates or vouchers for rent subsidies pursuant to the existing program under Section 8 of the Housing Act. The Borrower shall· not permit any selection criteria to be applied to Section 8 certificate or voucher holders that is more burdensome than the criteria applied to all other prospective tenants.

(d) The unitsreserved for occupancy as required by subsection (0) of this Section shall remain available on a priority bads for occupancy at all times during the QualiBe~ Development Period.

(e) During the three (3) years prior to the expiration of the Qualified Development Period, the Borrower shall continue to make available to eli~ble households reserved units that have been vacated to the same extent that nonreserved units are madeavailable to nonellgible households.

(1) Elollowing the expiration or termination of the Qualified Development Period. except in the event of foreclosure·and redemption of the Bonds, deed in lieu of foreclosure eminent domain, or action of a federal agency preven~ng enforcement, units reserved for occupancy as required by subsection (8) of this Section shall remain available to any eligible tenant occupying a reserved unit at the dare of such expiration or termination, at the relit determined by subsection (8) of this Section, until the'earliest of(l) the household's income exceeds 140% of the maximuni eligible income specified above, (2) the household voluntarily moves or is evicted for good cause, as defined in the Act, (3) 30 years after the date of the commencement of the Qualified Development Period, and (4) the Borrower pays the relocation assistance and-benefits to households as provided in Section 7264(8) of the C;overnment Code of the State.

(8) The covenants and conditions of this Regulatory Agreement shall be binding upon successors in interest of the Borrower.

(h) On the Closing Date, this Regulatory Agreement shall be recorded in the office of the county recorder of the County, and shall be recorded in the grantor-grantee index to the names of the Borrower as grantor and to the name of the Issuer as grantee.

Section 7. Additional Reauirements of the Issu'er. In addition to the requirements set forth above and to the extent not prohibited thereby, the Borrower hereby agrees during the Qualified Development Period to comply with each of the requirements of the Issuer set forth in this Section 7, as follows:

(9) The Borrower will pay to the issuerall of the amounts iequired by Section 10.1 of~the Loan Agreement and will indemnify the Issuer and the Bondowner Representative as provided in Section 13.2 of the Loan Agreement.

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AVALON COMMUNITIES ~005

(b) All tenant lists, applications and waiting lists relating to the Development shall at all times be kept separate and identifiable from any other business of the Borrower and shall be maintained as required by the Issuer, in a reasonable condition for P~uPerer audit and subJect to examination during busines~ hours by representatives of the

(c) The Borrower shall submit to the Administrator, on behalf of the Issuer. (i) not Eater than August 1 of each year, a statistical report to the Issuer in the form provided by the Issuer or the Administrator, setting forth the information called for therein, and (flj within fifteen (15) days after receipt of a written request, any other inforrhation or completed forms requested by the Issuer or the Administrator in order to comply with reporting requirements of`the Internal Revenue Service or the State. including without limitation information necessary for the Issuer to file the annualreport required by Section 8855.5 of the California Government Code;

(d) For purposes of Section 6(b). the base rents shall be adjusted for household size, to the extent permitted by law, and in making such adjustments it shall be assumed that one person will occupy a studio unit, two persons will occupy a one-bedroom unit, three persons will occupy a two-be&oom unit, foul persons will occupy a three- bedroom unit, and five persons will.occupy a four-bedroom unit.

(e) The Borrower acknowledges that the Issuer may appoint an Administrator other than the Issuer to adminfster this Regulatory Agreement and to monitor performance by the Borrower of the terms, provisions and requirements hereof. In such event. the Borr'ower shall comply with any reasonable request by the Issuer or the Administrator to deliver to any Such Administrator, in addition to or instead of the Issuer, any reports, notices or other documents required to be delivered pursuant hereto. and to make the Development and the books and records with respect thereto available for inspection by the Administrator as an agent of the Issuer.

Any of the foregoing requirements of the Issuer may be expressly waived by the Issuer in writing, but (i) no waiver by the Issuer of any requirement of this Section 7 shall, or shall be deemed to, extend to or affect any other provision of this Regulatory Agreement except to the extent the Issuir has received an opinion.of Bond Counsel that any such provision is not iequired by the Housing Law and may be waived without adversely affecting the exclusion from gross income ofinterest oothe Bonds for federal income tax purposes; and (li) any requirement . of this Section 7 shall be void and of no force and effect If the Issuer and the Borrower receive a written opinion of Bond Counsel to the effect that compliance with·any such requirement would cause interest on the Bonds to cease to be Tax-Exempt or to the effect that compliance with such requirement would be in conflict with the Housing Law or any other state or federal law.

Section 8. Modinc~t~onoP Covenants. The Borrower and the Issuer hereby agree as follows:

(a) To the extent any amendments to the Housing Law, the Regulations or the Code shall, in the written Opinion of Bond Counsel filed with the Issuer, the Bondowner Representative and the Borrower, impose requirements upon the ownership or operation ofthe D~velopment more restrictive than those imposed by this Regulatory Agreement. and if such requirements are applicable to the Development, this Regulatory Agreement shall be deemed to be automaticaI!y amended to impose such additional or more restrictive requirements.

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To the extent that the Housing Law, the Regulations or the Code, or any amendments thereto, shall, in the written opinion of Bond Counsel filed with the Issuer, the Bondowner Representative and the Borrower, impose requirements upon the ownership or operation of the Development less restrictive than imposed by this Regulatory Agreement, this Regulatory Agreement may be amended or modified to provide such less restrictive requirements, but only by written amendment signed by the Issuer, at its sole discretion, and the Borrower, and only upon receipt by the Issuer of the written opinion of Bond Counsel to the effect that such amendment will not affect the Tax-Exempt status of interest on the Bonds or violate the requirements of the Housing Law, and otherwise in accordance with Section 22 hereof.

(c) The Borrower and the Issuer, shall execute, deliver and, if applicable, file of record any and all documents and instruments necessary to effectuate the intent of this Section 8, and each of the Borrower and the Issuer hereby appoints the Bondowner Representative as its true and lawful attorney-in-fact to execute, deliver and, if applicable, file of record on behalf of the Borrower or the Issuer, as is applicable, any such document or instrument tin such form as may be approved by Bond Counsel. as evidenced by receipt of the opinion required by paragraph (b) above) if either the Borrower or the Issuer defaults in the ·performance of its obligations under this subsection (c); provided, however, that unless directed in writing by the Issuer or the Borrower, the Bondowner Representative shall take no action under this subsection (c) without first notifying the Borrower or the Issuer, or both of them, as is applicable, and without first providing the Borrower or the Issuer, or both, as is applicable, an opportunity to comply with the requirements of this Section 8. Nothing in this subsection (c) shall be construed to allow the Bondowner Representative to execute an amendment to this Regulatory Agreement on behalf of the Issuer.

Section 9. Indemnification. The Borrower hereby covenants and agrees that it shall indemnify, hold harmless and defend the Issuer and the Bondowner Representative, as applicable, and their respective officers, directors, officials, employees and agents, as set forth in Section 13.2 of the Loan Agreement. In addition thereto, the Borrower will pay upon demand all of the fees and expenses paid or incurred by the Bondowner Representative and/or the Issuer in enforcing the provisions hereof.

The provisions of this Section 9 shall survive the term of the Bonds, the Loan Agreement and this Regulatory Agreement.

Section 10. Consideration. The Issuer has agreed to issue the Bonds to provide funds to lend to the Borrower to finance the acquisition and rehabilitation of the Development, all for the purpose, among others, of inducing the Borrower to acquire, rehabilitate and operate the Development. In consideration of the issuance of the Bonds by the Issuer, the Borrower has entered into this Regulatory Agreement and has agreed to restrict the uses to which this Development can be put on the terms and conditions set forth herein.

Section 11. Reliance. The Issuer and the Borrower hereby recognize and agree that the representations and covenants set forth herein may be relied upon by all persons interested in the legality and validity of the Bonds, in the exemption from State personal income taxation of interest on the Bonds and in the Tax-Exempt status of the interest on the Bonds. In performing their duties and obligations hereunder, the issuer may rely upon statements and certificates of the Low Income Tenants and the Very Low Income Tenants, and upon audits of the books and records of the Borrower pertaining to the Development. In addition, the Issuer may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the issuer hereunder in good faith and in conformity with such opinion. In determining whether any default or lack of compliance by the

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AVALON COE6MUNITIES ~oos

,. Borrower exists under this Re~ulatory Agreement, the Issuer shall not be required to conduct any investigation Into or review of the operations or records of the Borrower and may rely solely on any written notice or'certificate delivered to the Issuer by the Borrower with respect to the occurrence or absence of a default unless it knows that the notice or certificate is erroneous or misleading.

Section 12, Sale_or.Transfer of the_Dev~elo~ment. For the Qualified Development Period. theBotrower shall not, except as provided below and in accordance with the Loan Agreement' and the Deed of Trust, sell, transfer or otherwise dispose of·the Development. in whole or in part, without the prior written consent of the Issuer, which consent shall be given as promptly as practicable ·folowing: (A) the receipt by the Issuer of evidence acceptable to the Issuer that (1) the Borrower shall not be in default hereunder or under the Loan Agreement (which may be evidenced by a certificate of the Borrower) or the purchaser or assignee undertakes to cure any defaults of the Borrower to the reasonable satisfaction of the Issuer; (2) the continued operation of the Development shall comply with the pi.ovisions of this Regulatory Agreement; (3) either (a) the purchaser or assignee or its property manager has at least three years' experience in the ownership, operation and management ofstmilar size, rental housing prqiects, and at least one year s experience in the ownership, operation and management of rental housing projects contained below-mar~et-rate units, without any record of material violations of discriminatfon restrictions or other state or federal laws or regulations or local government requirements applicable to such prOJects, or (b) the purchaser or assignee agrees to retain a property management firm wlti~ the experience and record described in subclause (a) above, or (c) the transferring Borrower or its management company will continue to manage the Development for at least one year following such transfer and during such period will provide training to the transferee and its manager in-the responsibilities relating to the Low Income Units; and (4) the person or entity which is to acquire the Development does not have pending against it, and does not have a history of, building code violations or significant and material complaints concerning the maintenance, upkeep, operation, and regulatory agreement compliance of any of its projects as Identified by any local, state or federal regulatory agencies; (B) the execution by the purchaser or assignee of any document requested by the Issuer with respect to the assumption of the Borrower's obligations under this Regulatory Agreement and the Loan Agreement, including without limitation an Instrument of assumption hereof, and delivery to the Issuer of an opinion of such purchaser or assignee's counsel to the effect that each such document and this Regulatory Agreement are valid, ~binding and enforceable obligations of such purchaser or assignee; (C) receipt by the ·Issuer of an opinion of Bond ' Counsel addressed to the Issuer and the Bondowner Representative to the effect that any such sale, transfer or other disposition will not adversely affect the Tax-Exempt status of interest on the Bonds; (D) receipt by the Issuer and Bondowner Representative of all fees and/or expenses then currently due and payable to the Issuer and Bondowner f~epresentative: and (E) satisfaction of such o~ther conditions or matters as are set forth In the Loan Agreement and the Deed ofTrust. TheIssuer hereby consents to a transfer of the Development by the Borrower to one of its general partners or their affiliates, if the Issuer receives the documents listed in the p;recedlng sentence, It is hereby expressly stipulated and agreed that any sale. transfer or other disposition of the Development in violation of this Section 12 shall be null; void and without effect, shall cause a reversion of tftle to the Borrower, and shall be ineffective to relieve the Borrower of its obligations under this Regulatory Agreement. Nothing in this Section shall affect any provision of any other document or instrument between the Borrower and any other party which requires the Borrower to obtain the prior written consent of such other party in order to sell, transfer or otherwise dispose of-theDevei0pment. Upon any sale at other transfer which complies with this Regulatory Agreement, the Borrower shall be fully and atitomatically released from its obfigations hereunder to the extent such obligations have been assumed by the transferee of the Develgpment. Any transfer of the Development to any entity, whether or not affiliated with the Borrower, shall be subJect to the provisions of this Section 12, except that no consent of the Issuer shall be required In the case of any transfer of the Development to a wholly

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~THU 08:55 FAX 7145640085 AVALON CO~MUNITIES ~007

owned subsidiary of the Borrower if any applicable conditions set forth in the Loan Agreement and any conditions set forth in the Deed of Trust are satisfied.

For the Qualified.Development Period, the Borrower shall not: (1) except pursuant to the provisions of this Regulatory A~eement, the Loan Agreement and the Deed of Trust land upon receipt by the Borrower of an opinion· of Bond Counsel that such action will not adversely affect the Tax-Exempt status of interest on the Bonds), or except upon a sale, transfer or other disposition of the Development in accordance with the terms of this Regulatory Agreement, subordinate or encumber any of the Development or grant commercial leases (not including any laundry related leases) of any part thereof, orpermit the convey transfer or encumbrance of any part of the Development (except for apartment leases); (2) demolish any part of the Development or substantially subtract from any real or personal property of the Development, except to the extent that what is removed is replaced with comparable property; or .(3) permit ~S'id"e~f~"' dwelling accommodations of the Development for any purpose except· rental

Section 13. ~U~- This Regulatory Agreement and all and several of the terms hereof shall become effective upon its execution and delivery, and shall remain in full force and effect for the period provided herein and shall terminate as to any provision not otherwise provided with a specif~e termination date and shall terminate In Its entiretSI at the end of the Qualified Development Period, it being expressly agreed and understood that the provisions hereof are intended to survive the retirement of the Bonds and discharge of the Indenture, the Loan Agreement and the Deed~ of Trust.

The terms of this Regulatory Agreement to the contrary notwithstanding, the requirements of this Regulatory Agreement shall terminate and be of no further force and effect In the event of transfer of title by (1) foreclosure of deed in lieu of foreclosure, or (11) involuntary noncompliance with the provisions of this Regulatory Agreement caused by fire, seizure, requisition, change in a federal law or an action of a federal agency after the Closing Date that prevents the Issuer and the BondownerRepresentative from enforcing such provisions, or condemnation or a simifar event, ~t only if, within a reasonable period, ~ither the Bonds are retired or amounts received as a consequence of such event are used to provide a project which meets the requirements hereof; provided, however, that the preceding provisions of this sentence shall cease to apply and the restrictions contained herein shall be reinstated if, at any time subsequent to the termination of such provisions as the result of the foreclosure or the delivery of a deed in lieu of foreclosure or a similar e~ent, the Borrower or any related person.(wlthin the meaning of Section 1.103-iO(e) of the Regulations) obtains an ownership interest in the Development for federal income tax purposes. The Borrower hereby agrees that, following any foreclosure, transfer of title by deed in lieu of foreclosure or similar event, neither the Borrower nor any such related person as described above will obtain an ownership interest in the Development for~federal tax purposes. Upon the termination of the terms of this Regulatory Agreement, the parties hereto agree to execute, deliver and record appropriate instruments of release and discharge of the terms`hereof; provided, however, that the execution and delivery of . such instruments shall not be necessary or a prerequisite to the termination of this Regulatory Agreement in accordance with Its terms.

Section 14. CovenantstoRun With the Land. Notwithstanding Section 1461 of the California Civil Code, the Borrower hereby subf~-cts the Development to the covenants, reservations and restrictions set forth in this Regulatory Agreement. The Issuer and the Borrower hereby declare their express Intent that the covenants, reservations and restrictions set forth herein shall be deemed covenants running with the land ai~d shall pass to and be binding upon the Borrower's successors In interest to the Development; provided, however, that on the termination of this Regulatory Agreement said covenants, reservations and restrictions shall expire. Each and every contract, deed or other Instrument hereafter executed revering or

14-

the Development or any portion thereof shall conclusively be held to have been executed, delivered and accepted subject to such covenants, reservations and restrictions. regardless of whether such covenants, reservations and restrictions are set forth in such contract, deed or other instruments.

Section 15. Burden and Benefit. The Issuer and the Borrower hereby declare their understanding and inte~it that the burdens of the covenants set forth herein touch and concern the land in that the Borrower's legal interest in the Development is rendered less valuable thereby. The Issuer and the Borrower hereby further declare their understanding and intent that the benefits of such covenants touch and concern the land by enhancing and increasing the enjoyment and use of the Development by Very Low income Tenants and Low Income Tenants. the intended beneficiaries of such covenants, reservations and restrictions, and by furthering the public purposes for which the Bonds were issued.

Section 16. Uniformity; Common Plan. The covenants, reservations and restrictions hereof shall apply uniformly to the entire Development in order to establish and carry out a common plan for the use of the site on which the Development is located.

Section 17. Default Enforcement. If the Borrower defaults in the performance or I~'~~"' I"'U~-~"'~"

observance of any covenant, agreement or obligation of the Borrower set forth inthis Regulator- Agreement, and if such default remains uncured for a period of sixty (60) days after notice thereof shall have been given by the Issuer or the Bondowner Representative to the Borrower, or for a period of sixty (60) days from the date the Borrower should, with due diligence. have discovered such default, then the Issuer or the Bondowner Representative, acting on its own behalf or on behalf of the Issuer (to the extent directed in writing by the Issuer, subject to the provisions of the Indenture), shall declare an "Event of Default" to have occurred hereunder: provided, however, that if the default is of such a nature that it cannot be corrected within 60 days, such default shall not constitute an Event of Default hereunder so long as (i) the Borrower institutes corrective action within said 60 days and diligently pursues such action until the default is corrected, and (ii) in the opinion of Bond Counsel, the failure to cure said default within 60 days will not adversely affect the Tax-Exempt status of interest on the Bonds. The Issuer and the Bondowner Representative shall have the right to enforce the obligations of the Borrower under this Regulatory Agreement within shorter periods of time than are otherwise provided herein if necessary in the opinion of Bond Counsel to insure compliance with the Housing Law or the Code.

Following the declaration of an Event of Default hereunder the Issuer, or the Bondowner Representative, may at their respective options, take any one or more of the following steps, in addition to all other remedies provided by law or equity:

(i) by mandamus or other suit, action or proceeding at law or in equity, including injunctive relief, require the Borrower to perform its obligations and covenants hereunder or enjoin any acts or things which may be unlawful or in violation of the rights of the Issuer or the Bondowner Representative hereunder;

(ii) have access to and inspect, examine and make copies of all of the books and records of the Borrower pertaining to the Development;

(iii) take such other action at law or in equity as may appear necessary or desirable to enforce the obligations, covenants and agreements of the Borrower hereunder; and

15-

declare a default under the Loan Agreement and (subject to any applicable cure periods set forth in the Loan Agreement) proceed with any remedies provided therein.

The Borrower hereby agrees that specific enforcement of the Borrower's agreements contained herein is the only means by which the Issuer may fully obtain the benefits of such agreements made by the Borrower herein·, and the Borrower therefore agrees to the imposition of the remedy of specific performance against it in the case of any Event of Default by the Borrower hereunder.

The Bondowner Representative shall have the right, in accordance with this Section and the provisions of the Indenture, without the consent or approval of the Issuer, to exercise any or all of the rights or remedies of the Issuer hereunder; provided that prior to taking any such action the Bondowner Representative shall give the Issuer written notice of its intended action. After the Indenture has been discharged, the Issuer may act on its own behalf to declare an "Event of Default" to have occurred and to take any one or more of the steps specified hereinabove to the same extent and with the same effect as if taken by the Bondowner Representative.

All reasonable fees, costs and expenses of the Bondowner Representative and the Issuer incurred in taking any action pursuant to this Section shall be the sole responsibility of the Borrower.

No breach or default under this Regulatory Agreement shall defeat or render invalid the Deed of Trust or any like encumbrance upon the Development or any portion thereof given in good faith and for value.

Section 18. Resr,onsibilitv for Monitoring. The Issuer shall be (or shall cause the Administrator to be) responsible for the monitoring and verifying of compliance by the Borrower with the terms of this Regulatory Agreement. After the date on which no Bonds remain outstanding as provided in the Indenture, all references to the Bondowner Representative in this Regulatory Agreement shall be deemed references to the Issuer.

Section 19. Recordine and Filine;. (a) The Borrower shall cause this Regulatory Agreement and all amendments and supplements hereto and thereto, to be recorded and filed in the real property records of the County and in such other places as the Issuer or the Bondowner Representative may reasonably request. The Borrower shallpay ail fees and charges incurred in connection with any such recording.

(b) The Borrower and the Issuer will file of record such other documents and take such other steps as are necessary, in the written opinion of Bond Counsel filed with the Borrower, the Issuer and the Bondowner Representative, in order to insure that the requirements and restrictions of this Regulatory Agreement will be binding upon all owners of the Development.

(c) The Borrower hereby covenants to include or reference the requirements and restrictions contained in this Regulatory Agreement in any documents transferring any interest in the Development to another person to the end that such transferee has notice of, and is bound by, such restrictions, and to obtain the agreement from any transferee to abide by all requirements and restrictions of this Regulatory Agreement.

Section 20. Payment of Fees. The Borrower agrees to pay to the Issuer (a) an initial fee of $500.00, which the Issuer acknowledges has been paid prior to the Closing Date, (ii) the Issuer's annual fee in an amount equal to $7.000.00 (being 0.25% per annum of the maximum aggregate principal amount of the Bonds), which amount shall be payable semiannually, in

16-

in equal installments, commencing on the Closing Date and continuing until the end of the Qualified Development Period, and (iii) within thirty (30) days after receipt of request for payment thereof, all reasonable out-of-pocket expenses of the Issuer (not including salaries and wages of Issuer employees) related to the Development and the financing thereof that are not otherwise required to be paid by the Borrower under the terms of this Regulatory Agreement or the Loan Agreement and are not paid from disbursements of the Loan, including, without limitation, legal fees and expenses incurred in connection with the interpretation, performance. enforcement or amendment of any documents relating to the Development or the Bonds.

Section 21. G~I~Z~g~· This Regulatory Agreement shall be governed by the laws of the State of California.

Section 22. Amendments· Waivers. (a) This Regulatory Agreement may be amended ""~"U"'~"~~' ~' c~' ~~"

only by a written instrument executed by the parties hereto or their successors in title, and dul~ recorded in the real property records of the County, and only upon receipt by the Issuer of an opinion from Bond Counsel that such amendment will not adversely affect the Tax-Exempt status of interest on the Bonds and is not contrary to the provisions of the Housing Law.

(b) Anything to the contrary contained herein notwithstanding, the Issuer and the Borrower hereby agree to amend this Regulatory Agreement to the extent required, in the opinion of Bond Counsel, in order that interest on the Bonds remain Tax-Exempt. The parties requesting such amendment shall notify the other parties to this Regulatory Agreement of the proposed amendment, with a copy of such requested amendment to Bond Counsel and a request that such Bond Counsel render to the Issuer an opinion as to the effect of such proposed amendment upon the Tax-Exempt status of interest on the Bonds. This provision shall not be subject to any provision of any other agreement requiring any party hereto to obtain the consent of any other person in order to amend this Regulatory Agreement.

(c) Any waiver of, or consent to, any condition under this Regulatory Agreement must be expressly made in writing.

Section 23. Notices. · Any notice required to be given hereunder shall be made in writing and shall be given by personal delivery, overnight delivery, certified or registered mail. postage prepaid. return receipt requested, or by telecopy, in each case at the respective addresses specified in Section 11.06 of the Indenture or at such other addresses as may be specified in writing by the parties hereto. Unless otherwise specified by the Administrator, the address of the Administrator is:

Wells Fargo Bank Corporate Trust Services MAC #E2818-176 707 Wilshire Boulevard, 17th Floor

Los Angeles, California 90017

A copy of each notice hereunder to the Issuer or the Administrator shall also be given to the Bondowner Representative. The Issuer, the Administrator, the Bondowner Representative. and the Borrower may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Notice shall be deemed given on the date evidenced by the postal or courier receipt or other written evidence of delivery or electronic transmission; provided that any telecopy or other electronic transmission received by any party after 4:00 p.m., local time of the receiving party, as evidenced by the time shown on such transmission, shall be deemed to have been received the following Business Day.

-17-

24. Severabiiitv. If any provision of this Regulatory Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions hereof shall not in any way be affected or impaired thereby.

Section 25. Multiple Counterparts. This Regulatory Agreement may be simultaneously executed in multiple counterparts, all of which shall constitute one and the same instrument. and each of which shall be deemed to be an original.

Section 26. Limitation on Liability. Notwithstanding the foregoing or any other provision or obligation to the contrary contained in this Regulatory Agreement, (i) the liability of the Borrower under this Regulatory Agreement to any person or entity, including, but not limited to, the Bondowner Representative or the Issuer and their successors and assigns, is limited to the Borrower's interest in the Development, the revenues and the amounts held in the funds and accounts created under the Indenture, or any rights of the Borrower under any guarantees relating to the Development, and such persons and entities shall look exclusively thereto, or to such other security as may from time to time be given for the payment of obligations arising out of this Regulatory Agreement or any other agreement securing the obligations of the Borrower under this Regulatory Agreement; and (ii) from and after the date of this Regulatory Agreement, no deficiency or other personaljudgment, nor any order or decree of specific performance (other than pertaining to this Regulatory Agreement, any agreement pertaining to any Development or any other agreement securing the Borrower's obligations under this Regulatory Agreement), shall be rendered against the Borrower, the assets of the Borrower (other than the Borrower's interest in the Development, this Regulatory Agreement, amounts held in the funds and accounts created under the Indenture, as applicable, any rights of the Borrower under the Indenture, or the Loan Agreement or any other financing document or any rights of the Borrower under any guarantees relating to the Development), its affiliates, officers, partners or members of their heirs, personal representatives, successors, transferees or assigns, as the case may be, in any action or proceeding arising out of this Regulatory Agreement, or any agreement securing the obligations of the Borrower under this Regulatory Agreement, or any judgment, order or decree rendered pursuant to any such action or proceeding, except to the extent set forth in the Loan Agreement.

Section 27. Third Party Beneficiaries. The parties to this Regulatory Agreement recognize and agree that the terms of this Regulatory Agreement and the enforcement of those terms are entered into for the benefit of various parties, including the Bondowner Representative and CDLAC. The Bondowner Representative and CDLAC shall accordingly have contractual rights in this Regulatory Agreement, and the Bondowner Representative shall be entitled (but not obligated) to enforce the terms of this Regulatory Agreement, and CDLAC shall be entitled (but not obligated) to enforce the terms of the CDLAC Resolution, each in accordance with Section 17 hereof. In addition, the Bondowner Representative and CDLAC are intended to be and shall be third-party beneficiaries of this Regulatory Agreement. Notwithstanding the above, any enforcement of the terms and provisions of the CDLAC Resolution by CDLAC shall be subject to the terms, conditions and limitations otherwise applicable to the enforcement of remedies under this Regulatory Agreement and shall not adversely affect the interests of the owners of the Bonds.

[Reminder of page intentionally left blank.]

18-

WITNESS WHEREOF, the Issuer and the Borrower have executed this Regulatory Agreement by duly authorized representatives, all as of the date first above wntten.

CALIFORNIA STATEWIDE COMMUNITIES 3EVELOPMENT AUTHORIN

-· By:

Member

Ar.LPURPOSE ACKN~WLEDGMENT

)·· State of California

i -- County of

o,Q:·I:r\,~ ?4.'hTY,n before me, Date ~e d·· -Jane Doe Noran P~igllc-,

personally appeared Name(s) ol Slgner(s) 2

~personally known to me Z proved to me on the basis of satisfactory evidence

to be the person(s) whose name(s) is/are subscribed to the within.instrument and acknowledged to me that he/s~te/they executed the same in his/her/their authorized

j T;;b~b~i~b~;;~-~;LT;~II)

capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

1 ESS my~at~d and official seal.

Place Notary SealAbove Signature ol NOldTY~UDIK: 1 OPTIONAL

Though the information below is not required by law, it may prove valuable to persons rely~ng on the document and could prevent fraudulent removal and reanachment of this form to another document.

Description of Attached Document T~tle or Type of Document:

Document Date: Number of Pages:

Signer(s) Other Than Named Above:

··-··- --- ..~ I Capacity(lesr Claimed by Signer

_ Individual

_ Corporate Officer - Title(s): Partner - O Limited G General

Attomey in Fact Trustee

Guardian or Conservator

Z Other:

Signer Is Representing:

1 ~c~c~·c~i~·~I~Fz_J~_~~ 0 1997 National Notary Association · 9350 De Soto Ave.. PO. Box 2402.Chatswgr(h. CA 91313-2402 Prod. No. 5407 Reorder: Call TollFree 1·800-876-6823

HOUSING ASSOCLATES, L.P.,

a California limited partnership

By: HEARTHSTONE HOUSING FOUNDATION, a California

nonprofit ration, Its Managin ~e~eral PartnP'

By: ~ocorroVasquez, xec~j~ive Di~ctor

/// By: BALDWIN-AVALON, tLC, a Califnrni~

limited liability company, Its Administrative General Partner

By: AVALON COMMUNITIES, LLC, ~~ California limited liability comp~nv. its Member

By /*Vi/ Leo Puig, Member

OF CALIFORNIA ) ss

COUNTY OF LOS ANGELES

On August 24. 2001, before me, the undersigned, Notary Public in and for said State and County, personally appeared SOCORRO VASQUEZ, personally ~no~vn to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is

s~cribed to the within instrument and st~knowledged to me thathe executed the same in ~~--· ~srs-authorized capacity(ies), and that by I;I~i~ignature(s) on the instrument the person, or

the entity(ies) upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Public Commission # 11&0672

-;e Noiary Public- Cdiiania ~ LosAngeles County~ ~ r

·3, C~mm. F?c~e~ May20.aXIL i ·:-~·rr~F~·~T~L~T.~I~C·~bB~a

OF CALIFORNIA ) ss

COUNTY OF LOS ANGELES

On AugusC~, 2001, before mel the undersigned, Notary Public in and for said State and County, personally appeared LEO PUIG, personally kno~n to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity(ies). and that by his signature(s) on the instrument the person. or the entity(ies) upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

1~1LIIIL~y Public

I~s~i~h C~mmi~sion # 1~IFslxn I

"A"

LEGAL DESCRIPTION

ALL THAT CERTAIN REAL PROPERTY SITUATED IN THE CITY OF LOS ANGELES. COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS:

Parcel 1:

Lots 71, 72, 73 and 74 of Tract No. 20830, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 605 Page 37 to 43. inclusive of Maps, in the office of the County Recorder of said County.

Except therefrom: all oil, gas, minerals and other hydrocarbon substances in and under said land lying below a depth of 500 feet from the surface thereof, but with no right of surface entry, as provided in the deed recorded April 14, 1957 in Book 54300 Page 275, Official Records.

Parcel 2:

Lots 71 and 72 of Tract No. 23361, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 619 Pages 64 to 68 inclusive, of Maps. in the office of the County Recorder of said County.

Except therefrom all oil, gas, minerals and other hydrocarbon substances lying below a depth of 500 feet from the surface of said land but with no right of surface entry, as provided in the deed recorded May 24, 1960 as Instrument No. 1669, Official Records.

Assessor's ParcelNo: 5028-001-021 & 028

W688360.3

B

FORM OF CERTIFICATE OF COMPLIANCE (CDLAC RESOLUTION)

Witnesseth that on this day of , 20_. the undersigned, having borrowed certain funds from the California Statewide Communities Development Authority (the "Issuer") for the purpose of financing a multifamily rental housing development kno~~·n as Baldwin Hills Apartments (the "Project") located in the City of Los Angeles. California. does hereby certify that:

i. [The Borrower is in compliance with the CDLAC Resolution las defined in the Regulatory Agreement relating to the Project).] [The Borrower is not in ~on~pliance with Condition No. of the CDLAC Conditions. The following measures are bein~ taken to remedy such noncompliance ·]

2. The representations set forth herein are true and correct to the best of the undersigned's knowledge and belief.

Date:

Borrower

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C

CERTIFICATE OF CONTINUING PROGRAM COMPLIANCE

Witnesseth that on this day of , 20_, the undersigned, having borrowed certain funds from the CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY (the "Issuer") for the purpose of financing a multifamily rental housing development (the "Project") , does hereby certify that:

1. During the preceding month (i) such Project was continually in compliance with the Regulatory Agreement executed in connection with such loan from the Issuer, (ii) % of the units in the Project were occupied by Low Income Tenants (minimum of 40%), and (iii)

% of the units in the Project were occupied by Very Low Income Tenants.

Set forth below are the names of Low Income Tenants who commenced or terminated

occupancy during the preceding month.

Commenced OccuDancv Terminated OccuDancv

I. i.

2. 2.

3. 3.

The units occupied by Low Income Tenants are of similar size and quality to other units and are dispersed throughout the Project. Attached is a separate sheet listing the number of each unit and indicating which units are occupied by Low Income Tenants, the size, the number of bedrooms of such units and the number of Low Income Tenants who commenced occupancy

of units during the preceding month.

2. Select appropriate certificate: [No remedied default has occurred under the Regulatory Agreement, the Loan Agreement or the Deed of Trust.] IA default has occurred under the . The nature of the default and the measures being taken to remedy such default are as follows: ·]

3. The representations set forth herein are true and correct to the best of the undersigned's knowledge and belief.

Date: Borrower

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PROGRAM REPORT

Property:

Location:

Today's Date: Submitted by:

Total # Units: Total Units Occupied:

Total New Rentals (Occupied) Total Habitable/Livable Units: Current Month/Quarter:

(Rehabilitation Projects Only)

Total Lower Income New Lower Income Rentals Units Occupied: Current Month/Quarter:

% of Lower income Units Occupied to Total Units:

# of Units Held vacant and available for Rent to Lower Income Tenantsl

PLEASE LIST ALL BOND PROGRAM UNITS BELOW IN NUMERIC OR ALPHABETIC ORDER: (Indicate "V" if vacant)

Gross

Annual

No. Tenant Household

Unit I I of No. of Monthly Income tall Date of No. Tenant's Last Name(s) Occ. Bedrm Rent' sources) Certification

*If tenant(s) are onan Assisted Rental Program such as Section 8. only list tenant portion of rent.

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D

INCOME COMPUTATION AND CERTIFICATION

NOTE TO APARTMENT OWNER: This form is designed to assist you in computing Annual Income in accordance with the method set forth in the Department of Housing and Urban Development ("HUD") Regulations (24 CFR 813). You should make certain that this form is at all times up to date with the HUD Regulations.

Re: Baldwin Hills Apartments, Los Angeles, California

I/We, the undersigned state that I/we have read and answered fully, frankly and personally each of the following questions for all persons who are to occupy the unit being applied for in the above apartment project. Listed below are the names of all persons who intend to reside in the unit:

i. 2. 3. 4. 5. Name of Members Relationship

of the to Head of Social Security Place of Household Household Age Number EmDlovment

HEAD

SPOUSE

Income Computation

6. The total anticipated income, calculated in accordance with the provisions of this paragraph 6, of the person listed above for the 12-month period beginning the dat~ that I plan to move into a unit is $

Included in the total anticipated income listed above are:

(a) all wages and salaries, overtime pay, commissions, fees, tips and bonuses and other compensation for personal services, before payroll deductions;

(b) the net income from the operation ofa business or profession or from the rental of real or personal property (without deducting expenditures for business expansion or amortization of capital indebtedness or any allowance for depreciation of capital assets);

(c) interest and dividends (including income from assets excluded below);

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the full amount of periodic payments received from social security, annuities. insura~ce policies, retirement funds, pensions, disability or death benefits and other similar types·of periodic receipts, including any lump sum payment for the delayed start of a periodic payment;

(e) payments in lieu of earnings, such as unemployment and disability compensation, workmen's compensation and severance pay;

(f) the maximum amount of public assistance available to the above persons other than the amount of any assistance specifically designated for shelter and utilities:

(g) periodic and determinable allowances, such as alimony and child support payments and regular contributions and gifts received from persons not residing in the dwelling:

(h) all regular pay, special pay and allowances of a member of the Armed Forces (whether or not living in the dwelling) who is the head of the household or spouse; and

(i) any earned income tax credit to the extent that it exceeds income tax liability.

Excluded from such anticipated income are:

(a) casual, sporadic or irregular gifts;

(b) amounts which are specifically for or in reimbursement of medical expenses:

(c) lump sum additions to family assets, such as inheritances, insurance payments(including payments under health and accident insurance and workmen's compensation), capital gains and settlement for personal or property losses;

(d) amounts of educational scholarships paid directly to the student or the educational institution, and amounts paid by the government to a veteran for use in meeting the costs of tuition, fees, books and equipment. Any amounts of such scholarships or payments to veterans not used for the above purposes are to be included in income;

(e) special pay to a household member who is away from home and exposed to hostile fire;

(f) relocation payments under Title II of the Uniform Relocation Assistance and Real Property Acquisition Policies Law of 1970;

(g) foster child care payments;

(h) the value of coupon allotments for the purchase of food pursuant to the Food Stamp Law of 1977;

(i) payments to volunteers under the Domestic Volunteer Service Law of 1973;

(i) payments received under the Alaska Native Claims Settlement Law;

(k) income derived from certain submarginal land of the United States that is held in trust for certain Indian tribes:

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payments or allowances made under the Department of Health and Human Services' Low-Income Home Energy Assistance Program:

tm) payments received from the Job Training Partnership Law:

(n) income derived from the disposition of funds of the Grand River Band of Ottawa Indians; and

to) the first $2,000.00 of per capita shares received from judgment funds awarded by the Indian Claims Commission or the Court of Claims.

7. Do the persons whose income or contributions are included in item 6 above:

(a) have savings, stocks, bonds, equity in real property or other form of capital investment (excluding the values of necessary items of personal property such as furniture and automobiles and interests in Indian trust land) Yes No ,or

tb) have they disposed of any assets (other than at a foreclosure or bankruptcy sale) during the last two years at less than fair market value? Yes No

tc) If the answer to (a) or tb) above is yes, does the combined total value of all such assets owned or disposed of by all such persons total more than $5,000? Yes No

(d) If the answer to tc) above is yes, state:

(1) the amount of income expected to be derived from such assets in the 12-month period beginning on the date of initial occupancy in the unit that you propose to rent: $ ,and

(2) the amount of such income, if any, that was included in item 6 above:

8. ta) Are all of the individuals who propose to reside in the unit full-time studentsf? Yes No ;·

*A full-time student is an individual enrolled as a full-time student during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance and is not an individual pursuing a full-time course of institutional or farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereof.

(b) If the answer to 8(a) is yes, is at least I of the proposed occupants of the unit a husband and wife entitled to file a joint federal income tax return? Yes No

9. Neither myself nor any other occupant of the unit I/we propose to rent is the owner of the rental housing project in which the unit is located thereinafter the "Owner"), has any family relationship to the Owner; or owns directly or

D-3

any interest in the Owner. For purposes of this paragraph, indirect ownership by an individual shall mean ownership by a family member. ownership by a c.orporation, partnership, estate or trust in proportion to the ownership or beneficial interest in such corporation, partnership, estate or trustee held by the individual or a family member; and ownership, direct or indirect, by a partner of the individual.

10. This certificate is made with the knowledge that it will be relied upon by the Owner to determine maximum income for eligibility to occupy the unit: and I/we declare that all information set forth herein is true, correct and

complete and based upon information I/we deem reliable and that the statement of total anticipated income contained in paragraph 6 is reasonable and based upon such investigation as the undersigned deemed necessary.

11. I/we will assist the Owner in obtaining any information or documents required to verify the statements made herein, including either an income verification from my/our present employer(s) or copies of federal tax returns for the immediately preceding calendar year.

12, I/we acknowledge that I/we have been advised that the making of any misrepresentation or misstatement in this declaration will constitute a material breach of my/our agreement with the Owner to lease the unit and ~vill entitle the Owner to prevent or terminate my/our occupancy of the unit by institution of an action for ejection or other appropriate proceedings.

I/we declare under penalty of perjury that the foregoing is true and correct.

Executed this day of in the City of ,California.

Applicant

Applicant

[Signature of all persons over the age of 18 years listed in number 2 above required]

FOR COMPLETION BY FACILITY OWNER ONLY:

i. calculation ofeligible income:

a. Enter amount entered for entire

household in 6 above:$

b.(l) If answer to 7(c) above is yes, enter the total amount entered in 7(d)(l), subtract from that figure the amount entered in 7(d)(2) and enter the remaining balance ($

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Multiply the amount entered in 7(c) times the current passbook savings rate to determine what the total annual earnings on the amount in 7(6) would be if invested in

passbook savings ($ I, subtract from that figure the amount entered in 7(d)(2) and enter the remaining balance ($

(3) Enter at right the greater of the amount calculated under (1) or (2) above: ~;

c. TOTAL ELIGIBLE INCOME (Line 1.a plus line l.b(3)): $

2. The amount entered in l.c:

Qualifies the applicant(s) as a Low Income Tenant(s).

Does not qualify the applicant(s) as a Low Income Tenant(s).

3. Number of unit assigned: Bedroom Size: Rent: $

4. This unit Iwas/was not] last occupied for a period of 31 consecutive days by persons whose aggregate anticipated annual income as certified in the above manner upon their

initial occupancy of the apartment unit qualified them as Low Income Tenants.

5. Method used to verify applicant(s) income:

Employer income verification.

Copies of tax returns.

Other (

Manager

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VERIFICATION

(for employed persons)

The undersigned employee has applied for a rental unit located in a development financed by a loan (the "Loan") from the California Statewide Communities Development

i Authority. Every income statement of a prospective tenant must be stringently verified. Please indicate below the employee's current annual income from wages, overtime. bonuses. commissions or any other form of compensation received on a regular basis.

Annual wages Overtime Bonuses Commissions

Total current income

I hereby certify that the statements above are true and complete to the best of my knowledge.

Signature Date Title

I hereby grant you permission to disclose my income to in order that they may determine my income eligibility for rental of an apartment located in their project which has been financed under the Loan.

Signature Date

Please send to:

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VERIFICkTION (for self-employed persons)

I hereby attach copies of my individual federal and state income tax returns for the immediately preceding calendar year and certify that the information shown in such income tax returns is true and complete to the best of my knowledge.

Signature Date

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