UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the fiscal year ended
December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from
to
Commission file number
0-14377
Krupp Realty Limited Partnership-VII
(Exact name of registrant as specified in its
charter)
Massachusetts
04-2842924
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
470 Atlantic Avenue, Boston, Massachusetts
02210
(Address of principal executive offices)
(Zip Code)
(Registrant's telephone number, including area
code) (617) 423-2233
Securities registered pursuant to Section
12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act: Units of Investor
Limited Partner
Interest
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the
registrant was required to file such reports),
and (2) has been subject to such filing
requirements for the past 90 days. Yes X
No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and
will not be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by
reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities
held by non-affiliates: Not applicable.
Documents incorporated by reference: Part IV,
Item 14.
The exhibit index is located on pages 9-12.
The total number of pages in this document is
31.
<PAGE>
PART I
This Form 10-K contains forward-looking
statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934.
Actual results could differ materially from
those projected in the forward-looking
statements as a result of a number of factors,
including those identified herein.
ITEM 1.BUSINESS
Krupp Realty Limited Partnership-VII ("KRLP-
VII") was formed on August 21, 1984 by filing
a Certificate of Limited Partnership in The
Commonwealth of Massachusetts. KRLP-VII
issued all of the General Partner Interests to
two General Partners, The Krupp Corporation, a
Massachusetts corporation, and The Krupp
Company Limited Partnership-II, a
Massachusetts limited partnership. KRLP-VII
also issued all of the Original Limited
Partner Interests to The Krupp Company Limited
Partnership-II. On November 2, 1984, KRLP-VII
commenced an offering of up to 40,000 units of
Investor Limited Partner Interest (the
"Units") for $1,000 per Unit. The public
offering was closed on April 25, 1986, at
which time 27,184 Units had been sold. For
additional details, see Note A to Consolidated
Financial Statements included in Item 8
(Appendix A) of this report. The primary
business of KRLP-VII is to invest in, operate,
refinance and ultimately dispose of a
diversified portfolio of residential and
commercial real estate. KRLP-VII considers
itself to be engaged only in the industry
segment of investment in real estate.
On December 19, 1984 the General Partners
formed Krupp Realty Courtyards Limited
Partnership ("Realty-VII") as a prerequisite
for the refinancing of Courtyards Village East
Apartments ("Courtyards Village"). At the
same time, the General Partners transferred
ownership of Courtyards Village to Realty-VII.
The General Partner of Realty-VII is KRLP-VII.
The Limited Partners of Realty-VII are KRLP-
VII and The Krupp Corporation ("Krupp Corp.").
Krupp Corp. has beneficially assigned its
interest in Realty-VII to KRLP-VII.
On March 31, 1994, the General Partners formed
Windsor Partners Limited Partnership ("Windsor
L.P.") as a prerequisite for the refinancing
of Windsor Apartments. At the same time, the
General Partners transferred ownership of the
property to Windsor L.P. In exchange for the
property, KRLP-VII received 99% Limited
Partnership interest in Windsor L.P. The
General Partner of Windsor L.P. is ST. Windsor
Corporation which has a 1% interest in Windsor
L.P. and is 100% owned by KRLP-VII.
KRLP-VII, Realty-VII and Windsor L.P. are
collectively known as Krupp Realty Limited
Partnership-VII and Subsidiaries (collectively
referred to herein as the "Partnership").
On December 2, 1997, Berkshire Realty
Enterprise Limited Partnership, an affiliate
of the General Partners, as agent for the
Partnership, entered into an Agreement of Sale
to sell Nora Corners, a shopping center
containing 89,432 leasable square feet,
located in Indianapolis, Indiana, to Kejack,
Inc. and its permitted assigns, which are
unaffiliated third parties. The transaction
was consummated on January 30, 1998 (see Note
K to Consolidated Financial Statements,
included in Item 8 (Appendix A) of this
report).
The Partnership's real estate investments are
subject to some seasonal fluctuations due to
changes in utility consumption and seasonal
maintenance expenditures. However, the future
performance of the Partnership will depend
upon factors which cannot be predicted. Such
factors include general economic and real
estate market conditions, both on a national
basis and in those areas where the
Partnership's real estate investments are
located, the availability and cost of borrowed
funds, real estate tax rates, operating
expenses, energy costs, government regulations
and federal and state income tax laws. The
requirements for compliance with federal,
state and local regulations to date have not
had an adverse affect on the Partnership's
operations, and no adverse affect therefrom is
anticipated in the future.
The Partnership's investments in real estate
are also subject to such risks as (i)
competition from existing and future projects
held by other owners in the locations of the
Partnership's properties, (ii) possible
reduction in rental income due to an inability
to maintain high occupancy levels, the
financial failure of a tenant or the inability
of retail tenants to achieve gross sales at a
level sufficient to provide for additional
rental income based on a percentage of sales,
(iii) possible adverse changes in mortgage
interest rates, (iv) possible adverse changes
in general economic and local conditions, such
as competitive over-building, increases in
unemployment, or adverse changes in real
estate zoning laws, (v) the possible future
adoption of rent control legislation which
would not permit the full amount of increased
costs to be passed on to tenants in the form
of rent increases, and (vi) other
circumstances over which the Partnership may
have little or no control.
As of December 31, 1997, the Partnership did
not employ any personnel.
ITEM 2. PROPERTIES
As of December 31, 1997, the Partnership had
leveraged investments in two apartment
complexes having an aggregate of 524 units and
one commercial shopping center with 89,432
square feet of leasable space.
A summary of the Partnership's real estate
investments as of December 31, 1997 is
presented below. Schedule III included in
Item 8 (Appendix A) to this report contains
additional detailed information with respect
to individual properties.
<TABLE>
<CAPTION>
Average Occupancy
Total Units/ For the Year Ended
Year of Current Leasable December 31,
<S> <C> <C> <C> <C> <C>
DescriptionAcquisition Square Footage 1997 1996 1995 1994 1993
Residential
Courtyards Village East
Apartments
Naperville, Illinois 1985 224 Units 97% 98% 95% 97% 96%
Windsor Apartments
Garland, Texas 1984 300 Units 96% 96% 95% 94% 92%
Commercial
Nora Corners Shopping
Center
Indianapolis, Indiana 1986 89,432 Sq. Ft. 94% 94% 93% 93% 93%
</TABLE>
The Partnership has no present plans for major
improvements or developments of its real
estate. Only improvements necessary to keep
the Partnership's properties competitive in
their respective markets were completed in
1997 and are expected to be completed in the
next year.
There were two tenants at Nora Corners
occupying 10% or more of the Partnership's
leasable space as of December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal
proceedings to which the Partnership is a
party or of which any of its property is the
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS
The transfer of Units is subject to certain
limitations contained in the Partnership
Agreement. There is no public market for the
Units and it is not anticipated that any such
public market will develop.
The number of Investor Limited Partners as of
December 31, 1997 was approximately 1,500.
One of the objectives of the Partnership is to
generate cash available for distribution.
The Partnership discontinued distributions
during 1989 due to insufficient operating Cash
Flow. In 1994, however, the General Partners
determined that there was sufficient Cash Flow
to reinstate distributions. These
distributions commenced in August, 1994 at a
rate of $5.00 per Unit and thereafter have
been paid semiannually at an annual rate of
$20.00 per Unit.
The Partnership made the following distributions to its Partners
during the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
Amount Per Unit Amount Per Unit
Limited Partners:
Investor Limited Partners
(27,184 Units
<S> <C> <C> <C> <C>
outstanding) $543,679 $20.00 $543,679 $20.00
Original Limited Partner 48,327 48,327
General Partners 12,082 12,082
$604,088 $604,088
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information
regarding the Partnership's financial position and operating
results. This information should be used in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Consolidated Financial Statements and
Notes thereto, which are included in Items 7 and 8 of this report,
respectively.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total revenue $ 4,795,059 $ 4,688,515 $ 4,537,418 $ 4,286,787$4,799,476
Income (loss) before
gain on sale of
property (151,137) 10,513 (24,601) (409,938) (789,506)
Gain on sale of
property - - - - 843,368
Net income (loss) (151,137) 10,513 (24,601) (409,938) 53,862
Net income (loss)
allocated to:
Investor Limited
Partners (149,626) 9,462 (24,355) (405,839) 53,323
Per Unit (5.50) .35 (.90) (14.93) 1.96
Original Limited
Partner - 841 - - -
General Partners (1,511) 210 (246) (4,099) 539
Total assets at
December 31, 17,995,610 16,855,594 17,611,547 18,358,061 18,751,190
Long-term obligations
at December 31, 14,345,624 12,366,197 12,563,382 12,745,312 8,364,761
Distributions:
Investor Limited
Partners 543,679 543,679 543,679 135,920 -
Per Unit 20.00 20.00 20.00 5.00 -
Original Limited
Partner 48,327 48,327 48,327 12,082 -
General Partners 12,082 12,082 12,082 3,020 -
</TABLE>
Operating results for the periods presented are not comparable due
to the sale of Westbrook Place and Willow Cove Apartments on July
1, 1993.
Prior performance of the Partnership is not necessarily indicative
of future operations.<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of
Financial Condition and Results of Operations
contains forward-looking statements including
those concerning Management's expectations
regarding the future financial performance and
future events. These forward-looking
statements involve significant risk and
uncertainties, including those described
herein. Actual results may differ materially
from those anticipated by such forward-looking
statements.
Liquidity and Capital Resources
The Partnership's ability to generate cash
adequate to meet its needs is dependent
primarily upon the operations of its real
estate investments. Such ability would also
be impacted by the future availability of bank
borrowings and the future refinancing and sale
of the Partnership's remaining real estate
investments. These sources of liquidity will
be used by the Partnership for payment of
expenses related to real estate operations,
capital improvements, debt service and other
expenses. Cash Flow, if any, as calculated
under Section 8.2(a) of the Partnership
Agreement, will then be available for
distribution to the Partners. In 1994, the
General Partners determined that there was
sufficient Cash Flow to reinstate semiannual
distributions. These distributions commenced
in August 1994 at a rate of $5.00 per Unit and
increased in February 1995 to a rate of $20.00
per Unit.
On July 30, 1997, the Partnership successfully
completed the refinancing of the Courtyards
Village East Apartments ("Courtyards Village")
mortgage note. The new $5,280,000 note bears
interest at an annual rate of 7.88%, requires
equal monthly principal and interest
installments of $38,302, and matures on August
1, 2007. Net refinancing proceeds of
approximately $1,860,000 will provide
additional liquidity to fund capital
improvements at the Partnership's properties,
Courtyards Village and Windsor Apartments.
In order to remain competitive in their
respective markets, the Partnership's
properties spent approximately $1,301,000 in
1997 and are expecting to spend approximately
$1,721,000 for fixed assets in 1998, primarily
funded from refinancing proceeds. These
improvements include interior and exterior
enhancements, carpeting and vinyl flooring
upgrades, roofing at Windsor Apartments and an
extensive rehabilitation project at Courtyards
Village.
On December 2, 1997, Berkshire Realty
Enterprises Limited Partnership, an affiliate
of the General Partners, as agent for the
Partnership, entered into an Agreement of Sale
to sell Nora Corners, a shopping center
containing 89,432 net leasable square feet
located in Indianapolis, Indiana, to Kejack,
Inc. and its permitted assigns, which are
unaffiliated third parties. The transaction
was consummated on January 30, 1998 (see Note
K to Consolidated Financial Statements,
included in Item 8 (Appendix A) of this
report). Net proceeds from the sale, after
payment of Partnership liabilities and funding
of reserves for contingent liabilities, will
be distributed in accordance with the
Partnership Agreement.
Operations
The following discussion relates to the
operations of the Partnership and its
properties, Courtyards Village, Nora Corners
Shopping Center and Windsor Apartments for the
years ended December 31, 1997, 1996, and 1995.
1997 compared to 1996
Net income decreased in 1997 when compared to
1996, as the increase in total expenses more
than offset the increase in total revenue.
Rental revenue increased as a result of rental
rate increases implemented at Courtyards
Village and Windsor Apartments as well as late
and relet fees collected at Courtyards
Village. Occupancy rates at the Partnership's
properties remained relatively stable in 1997
when compared to 1996.
Total expenses in 1997 increased, when
compared to 1996, due primarily to increases
in maintenance, general and administrative,
depreciation and interest expenses.
Maintenance expense increased due to shrubbery
and mulch replacement at Courtyards Village
and preventive pest control at Windsor
Apartments. Costs incurred in connection with
the operation of the Partnership, including
the preparation of reports and other
communications to investors as well as legal
costs related to the unsolicited tender offers
made to purchase Partnership Units caused
general and administrative expense to
increase. Depreciation expense increased in
conjunction with increased capital
improvements completed at the Partnership's
properties. Interest expense rose as a result
of the refinancing of the Courtyards Village
mortgage note (for further discussion of this
matter, see Note D to the Consolidated
Financial Statements, included in Item 8
(Appendix A) to this report).
1996 compared to 1995
Overall, net income improved in 1996 when
compared to 1995, as the increase in total
revenue more than offset the increase in total
expenses. Moderate rental rate increases at
Windsor Apartments and Courtyards Village,
along with average occupancy increases at all
the Partnership's properties in 1996 when
compared to 1995, contributed to the overall
increase in rental revenue in 1996. Interest
income increased due to additional investments
in commercial paper yielding higher rates of
return.
Total expenses increased in 1996 as compared
to 1995. This increase was attributable to a
rise in both operating and real estate tax
expenses. Operating expense increased as
utility consumption during the first quarter
of 1996 increased due to severe weather
conditions in the Chicago area. Additionally,
extensive advertising for Courtyards Village
further contributed to this rise in operating
expense and allowed Courtyards to achieve and
maintain its high level of occupancy. Real
estate taxes increased as a result of a
reassessment of Windsor Apartments' property
value in 1996 by the local taxing authority.
These increases in operating and real estate
tax expenses were partially offset by a
decrease in general and administrative expense
due to legal and consulting fees paid for the
appraisals of the properties in 1995.
Depreciation expense increased in conjunction
with the increase in capital improvements,
which were performed to enhance the appearance
of the Partnership's properties.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
See Appendix A to this report.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF
THE REGISTRANT
The Partnership has no directors or executive
officers. Information as to the directors and
executive officers of The Krupp Corporation,
which is a General Partner of KRLP-VII, and
The Krupp Company Limited Partnership-II, the
other General Partner of KRLP-VII, is as
follows:
Position with
Name and AgeThe Krupp Corporation
Douglas Krupp (51)President and Co-Chairman of
the Board
George Krupp (53)Co-Chairman of the Board
Wayne H. Zarozny (39)Treasurer
Douglas Krupp is Co-Chairman and Co-Founder
of The Berkshire Group. Established in 1969
as the Krupp Companies, this real estate-based
firm expanded over the years within its areas
of expertise including investment program
sponsorship, property and asset management,
mortgage banking, health care facility
ownership and the management of the company.
Mr. Krupp is a graduate of Bryant College. In
1989 he received an honorary Doctor of Science
in Business Administration from this
institution and was elected trustee in 1990.
Mr. Krupp is Chairman of the Board and a
Director of both Berkshire Realty Company,
Inc. (NYSE-BRI) and Harborside Health care
(NYSE-HBR). Mr. Krupp also serves as Chairman
of the Board and Trustee of Krupp Government
Income Trust and as Chairman of the Board and
Trustee of Krupp Government Income Trust II.
George Krupp is Douglas Krupp's brother.
George Krupp is the Co-Chairman and Co-
Founder of The Berkshire Group. Established
in 1969 as the Krupp Companies, this real
estate-based firm expanded over the years
within its areas of expertise including
investment program sponsorship, property and
asset management, mortgage banking and
healthcare facility ownership. Mr. Krupp
received his undergraduate education from the
University of Pennsylvania and Harvard
University Extension School, and holds a
Master's degree in history from Brown
University.
Wayne H. Zarozny is Vice President of The
Berkshire Group. Mr. Zarozny has held several
positions within The Berkshire Group since
joining the company in 1986 and is currently
responsible for accounting and financial
reporting, treasury, accounts payable and
payroll activities. Prior to joining The
Berkshire Group, he was an audit supervisor
for Pannell Kerr Forster International and on
the audit staff of Deloitte, Haskins and Sells
in Boston. He received a B.S. degree from
Bryant College, a Master's degree in Business
Administration from Clark University and is a
Certified Public Accountant.
ITEM 11. EXECUTIVE
COMPENSATION
The Partnership has no directors or
executive officers.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 1997, beneficial owners
of record owning more than 5% of the
Partnership's 27,184 outstanding Units were as
follows:
Title Name and Address Amount and NaturePercent
of of of of
Class Beneficial Owner Beneficial Ownership Class
InvestorEquity Resource Cambridge Fund L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 105.00 Units .39%
Title Name and Address Amount and NaturePercent
of of of of
Class Beneficial Owner Beneficial Ownership Class
InvestorEquity Resource General Fund L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 30.00 Units .11%
Investor Equity Resource Brattle Fund
L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 20.00 Units .07%
Investor Equity Fund XV L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 160.00 Units .59%
Investor Equity Resource Fund XVI L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 515.00 Units 1.89%
Investor Equity Resource Fund XVII
L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 497.50 Units 1.83%
Investor Equity Resource Fund XVIII
L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 150.00 Units .55%
Investor Equity Fund XIX L.P.
Limited 14 Story Street
Partner Cambridge, MA 02138
Units 186.50 Units .69%
Total 1,664.00 Units 6.12%
The only interests held by management or its
affiliates consist of its General Partner and
Original Limited Partner Interests.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
The Partnership does not have any directors,
executive officers or nominees for election as
director.
PART IV
ITEM 14.EXHIBITS, CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements -
see Index to Consolidated Financial
Statements and Schedule included
under Item 8 (Appendix A), on page
F-2 to this report.
2. Consolidated Financial Statement
Schedules - see Index to Consolidated
Financial Statements and Schedule
included under Item 8 (Appendix A),
on page F-2 to this report. All
other schedules are omitted as they
are not applicable or not required or
the information is provided in the
Consolidated Financial Statements or
the Notes thereto.
(b) Exhibits:
Number and Description Under Regulation
S-K
The following reflects all applicable
exhibits required under Item 601 of
Regulation S-K:
(4) Instruments defining the rights of
security holders including
indentures:
(4.1) Amended Agreement of Limited
Partnership dated as of October 23,
1984 [Exhibit A to Prospectus
included in Registrant's Registration
Statement on Form S-11 (File
2-92889)].*
(4.2) Thirty-Second Amendment and
Restatement of Certificate of Limited
Partnership filed with the
Massachusetts Secretary of State on
June 4, 1986 [Exhibit 4.2 to
Registrant's Report on Form 10-K
dated October 31, 1986 (File No. 0-
14377)].*
(10) Material Contracts
Windsor Apartments
(10.1) Purchase and Sale Agreement
dated June 3, 1983 between
Douglas Krupp, on behalf of
himself and others, and Garland
Land Joint Venture [Exhibit 1 to
Registrant's Report on Form 8-K
dated December 27, 1984 (File
No. 2-92889)].*
(10.2) Property Management Agreement,
dated December 27, 1984 between
Krupp Realty Limited
Partnership-VII, as Owner and
BRI OP Limited Partnership,
formerly known as Berkshire
Property Management, a
subsidiary of Berkshire Realty
Company, Inc. [Exhibit 10.4 to
Registrant's Report on Form 10-K
for the fiscal year ended
October 31, 1984 (File No. 2-
92889)].*
(10.3) Promissory Note dated April 13,
1994 by and between Windsor
Partners Limited Partnership and
Sun Life Insurance Company of
America [Exhibit 10.1 to
Registrant's Report on Form 10-Q
dated June 30, 1994 (File No. 0-
14377)].*
(10.4) Deed of Trust, Security
Agreement, Fixture Filing,
Financing Statement and
Assignment of Leases and Rents
dated April 13, 1994 from the
grantor, Windsor Partners
Limited Partnership, to the
Trustee, Brian C. Rider [Exhibit
10.2 to Registrant's Report on
Form 10-Q dated June 30, 1994
(File No. 0-14377)].*
Courtyards Village East Apartments
(10.5) Purchase and Sale Agreement
dated October 12, 1984 between
Douglas Krupp on behalf of
himself and others, and The
Courtyards Village and The
Courtyards Village Inn-East
Apartments Partnership [Exhibit
1 to Registrant's Report on Form
8-K dated April 1, 1985 (File
2-92889)].*
(10.6) Amended Trust Agreement dated May 6,
1976 between The Courtyards Village
and The Courtyards Village Inn-East
Apartments Partnership and American
National Bank and Trust Company of
Chicago [Exhibit 2 to Registrant's
Report on Form 8-K dated April 1,
1985 (File No. 2-92889)].*
(10.7) Assignment of Trust of American
National Bank and Trust Company of
Chicago dated April 1, 1985 [Exhibit
3 to Registrant's Report on Form 8-K
dated April 1, 1985 (File No.
2-92889)].*
(10.8) Mortgage Note dated January 1, 1973
between American National Bank and
Trust Company of Chicago and
Republic Realty Mortgage Company
[Exhibit 4 to Registrant's Report on
Form 8-K dated April 1, 1985 (File
No. 2-92889)].*
(10.9) Modification Agreement dated May 1,
1975 between American National Bank
and Trust Company of Chicago and
Republic Realty Mortgage
Corporation. [Exhibit 5 to
Registrant's Report on Form 8-K
dated April 1, 1985 (File No.
2-92889)].*
(10.10) Mortgage Note dated May 18, 1976
between American National Bank
and Trust Company of Chicago and
Republic Realty Mortgage Company
[Exhibit 6 to Registrant's
Report on Form 8-K dated April
1, 1985 (File No. 2-92889)].*
(10.11) Mortgage Agreement dated May 18,
1976 between American National
Bank and Trust Company of
Chicago and Republic Realty
Mortgage Corporation [Exhibit 7
to Registrant's Report on Form
8-K dated April 1, 1985 (File
No. 2-92889)].*
(10.12) Amended HUD Regulatory Agreement
dated May 18, 1976 between
American National Bank and Trust
Company of Chicago and Republic
Realty Mortgage Corporation
[Exhibit 8 to Registrant's
Report on Form 8-K dated April
1, 1985 (File No. 2-92889)].*
(10.13) Consolidation Agreement dated
June 14, 1976 between American
Bank and Trust Company of
Chicago, as Trustee, and
Republic Realty Mortgage
Corporation [Exhibit 9 to
Registrant's Report on Form 8-K
dated April 1, 1985 (File No.
2-92889)].*
(10.14) Property Management Agreement,
dated April 1, 1985 between
Krupp Realty Limited
Partnership-VII, as Owner and
BRI OP Limited Partnership,
formerly known as Berkshire
Property Management, an
affiliate of Berkshire Realty
Company, Inc. [Exhibit 10.20 to
Registrant's Report on Form 10-K
for the year ended October 31,
1985 (File No. 2-92889)].*
(10.15) Promissory Note dated July 30, 1997
between American National Bank and
Trust Company of Chicago and Reilly
Mortgage Group, Inc.+
(10.16) Multifamily Mortgage, Assignment of
Rents, and Security Agreement dated
July 30, 1997 between American
National Bank and Trust Company of
Chicago and Reilly Mortgage Group,
Inc.+
Nora Corners Shopping Center
(10.17) Purchase and Sale Agreement dated
June 16, 1986 between Douglas Krupp,
on behalf of himself and others and
Nora Corners Building Associates,
Ltd., an Illinois limited
partnership [Exhibit 1 to
Registrant's Report on Form 8-K
dated September 24, 1986 (File No.
0-14377)].*
(10.18) Amendment to Purchase and Sale
Agreement dated August 29, 1986
between Douglas Krupp, on behalf of
himself and others (assigned to
Krupp Realty Limited Partnership-
VII), and Nora Corners Building
Associates, Ltd., an Illinois
limited partnership [Exhibit 2 to
Registrant's Report on Form 8-K
dated September 24, 1986 (File No.
0-14377)].*
(10.19) Property Management Agreement dated
September 24, 1986 between Krupp
Realty Limited Partnership-VII, as
Owner and Krupp Asset Management
Company, now known as Berkshire
Property Management ("BPM"), as
Agent [Exhibit 10.36 to Registrant's
Report on Form 10-K dated October
31, 1987 (File No. 0-14377)].*
(10.20) Special Warranty Deed dated
September 24, 1986 between Krupp
Realty Limited Partnership-VII and
Nora Corners Building Associates,
Ltd., an Illinois limited
partnership [Exhibit 8 to
Registrant's Report on Form 8-K
dated September 24, 1986 (File No.
0-14377)].*
(10.21) Land Lease dated October 11, 1962
between Cornelius M. and Wilma Brown
(lessor) and Burger Chef Systems,
Inc., an Indiana corporation
(lessee) [Exhibit 9 to Registrant's
Report on Form 8-K dated September
24, 1986 (File No. 0-14377)].*
(10.22) Notice of Lease dated September 23,
1963 between Cornelius M. and Wilma
Brown (lessor) and Burger Chef
Systems, Inc., an Indiana
corporation (lessee) [Exhibit 10 to
Registrant's Report on Form 8-K
dated September 24, 1986 (File No.
0-14377)].*
(10.23) Assignment of Lease dated September
24, 1986 between Krupp Realty
Limited Partnership-VII and Nora
Corners Building Associates, Ltd.,
an Illinois limited partnership
[Exhibit 11 to Registrant's Report
on Form 8-K dated September 24, 1986
(File No. 0-14377)].*
(10.24) Promissory Note dated September 27,
1994, effective October 6, 1994, by
and between Krupp Realty Limited
Partnership-VII and John Hancock
Mutual Life Insurance Company.
[Exhibit 10.22 to Registrant's
Report on Form 10-K dated December
31, 1994 (File No. 0-14377)].*
(10.25) Mortgage, Security Agreement,
Assignment of Leases and Fixture
Filing dated September 27, 1994,
effective October 6, 1994, by and
between Krupp Realty Limited
Partnership-VII and John Hancock
Mutual Life Insurance Company.
[Exhibit 10.23 to Registrant's
Report on Form 10-K dated December
31, 1994 (File No. 0-14377)].*
* Incorporated by reference
+ Filed herein
(c) Reports on Form 8-K
During the last quarter of the year ended
December 31, 1997, the Partnership did not
file any reports on Form 8-K.<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to
be signed on its behalf by the undersigned,
thereunto duly authorized, on the th day of
March, 1998.
KRUPP REALTY LIMITED
PARTNERSHIP-VII
By: The Krupp Corporation, a General
Partner
By:/s/ Douglas Krupp
Douglas Krupp, President, Co-Chairman
(Principal Executive Officer) and
Director of The Krupp Corporation
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been
signed below by the following persons on
behalf of the registrant and in the capacities
indicated, on the th day of March, 1998.
Signatures Titles
/s/ Douglas Krupp President, Co-
Chairman (Principal Executive Douglas
KruppOfficer) and Director of The Krupp
Corporation, a General Partner.
/s/ George Krupp Co-Chairman
(Principal Executive Officer)George Krupp and
Director of The Krupp Corporation, a General Partner.
/s/ Wayne H. Zarozny Treasurer of
The Krupp Corporation, a Wayne H. Zarozny
General Partner.
<PAGE>
APPENDIX A
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
ITEM 8 OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1997<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31,
1997 and
December 31, 1996 F-4
Consolidated Statements of Operations for the
Years Ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in
Partners' Equity for
the Years Ended December 31, 1997, 1996 and
1995 F-6
Consolidated Statements of Cash Flows for the
Years Ended
December 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial StatementsF-8 - F-16
Schedule III - Real Estate and Accumulated
Depreciation F-17 - F-18
All other schedules are omitted as they are
not applicable, not required, or the
information is provided in the consolidated
financial statements or the notes
thereto.<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Realty Limited Partnership-VII and
Subsidiaries:
We have audited the consolidated
financial statements and the financial
statement schedule of Krupp Realty Limited
Partnership-VII and Subsidiaries (the
"Partnership") listed in the index on page F-2
of this Form 10-K. These financial statements
and financial statement schedule are the
responsibility of the Partnership's
management. Our responsibility is to express
an opinion on these financial statements and
financial statement schedule based on our
audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the
audit to obtain reasonable assurance about
whether the financial statements are free of
material misstatement. An audit includes
examining, on a test basis, evidence
supporting the amounts and disclosures in the
consolidated financial statements. An audit
also includes assessing the accounting
principles used and significant estimates made
by management, as well as evaluating the
overall consolidated financial statement
presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly,
in all material respects, the consolidated
financial position of Krupp Realty Limited
Partnership-VII and Subsidiaries as of
December 31, 1997 and 1996 and the
consolidated results of its operations and its
cash flows for each of the three years in the
period ended December 31, 1997 in conformity
with generally accepted accounting principles.
In addition, in our opinion, the financial
statement schedule referred to above, when
considered in relation to the basic financial
statements taken as a whole, presents fairly
in all material respects, the information
required to be included therein.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
January 30, 1998<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
Real estate assets:
Multi-family apartment complexes, net of
accumulated depreciation of $11,454,014 and
<S> <C> <C>
$10,420,771, respectively (Note D) $ 9,009,457 $ 8,770,063
Retail center, net of accumulated
depreciation of $3,676,352 at
December 31, 1996 (Notes D and H) 5,673,137 6,038,521
Total real estate assets 14,682,594 14,808,584
Cash and cash equivalents (Note C) 2,254,160 1,177,332
Cash restricted for tenant security deposits 25,980 36,823
Replacement reserve escrow (Note D) - 52,009
Prepaid expenses and other assets 742,453 584,929
Deferred expenses, net of accumulated
amortization of $132,911 and $91,377,
respectively (Note I) 290,423 195,917
Total assets $17,995,610 $16,855,594
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Mortgage notes payable (Note D) $14,502,371 $12,562,165
Accounts payable - 7,431
Accrued expenses and other liabilities
(Note E) 808,885 846,419
Total liabilities 15,311,256 13,416,015
Commitments (Notes F and H)
Partners' equity (deficit) (Note F):
Investor Limited Partners (27,184 Units
outstanding) 3,379,358 4,072,663
Original Limited Partner (433,275) (384,948)
General Partners (261,729) (248,136)
Total Partners' equity 2,684,354 3,439,579
Total liabilities and Partners' equity $17,995,610 $16,855,594
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
Revenue:
<S> <C> <C> <C>
Rental (Note G)$ 4,718,640 $ 4,614,568 $4,470,378
Interest income 76,419 73,947 67,040
Total revenue 4,795,059 4,688,515 4,537,418
Expenses:
Operating (Notes H and I) 1,122,340 1,123,377 1,037,818
Maintenance 393,024 366,051 359,058
Real estate taxes 465,010 466,876 437,003
General and administrative (Note I)128,855 98,847 136,069
Management fees (Note I) 204,023 193,484 192,572
Depreciation and amortization 1,468,094 1,325,765 1,281,398
Interest (Note D) 1,164,850 1,103,602 1,118,101
Total expenses 4,946,196 4,678,002 4,562,019
Net income (loss) (Note J) $ (151,137)$ 10,513$ (24,601)
Allocation of net income (loss)(Note F):
Investor Limited Partners
(27,184 Units outstanding) $ (149,626)$ 9,462$ (24,355)
Investor Limited Partners
Per Unit $ (5.50)$ .35$ (.90)
Original Limited Partner $ - $ 841$ -
General Partners $ (1,511)$ 210$ (246)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Equity
Balance at
<S> <C> <C> <C> <C>
December 31, 1994 $5,174,914 $(289,135) $ (223,936)$ 4,661,843
Distributions (543,679) (48,327) (12,082) (604,088)
Net loss (24,355) - (246) (24,601)
Balance at
December 31, 1995 4,606,880 (337,462) (236,264) 4,033,154
Distributions (543,679) (48,327) (12,082) (604,088)
Net income 9,462 841 210 10,513
Balance at
December 31, 1996 4,072,663 (384,948) (248,136) 3,439,579
Distributions (Note F)(543,679) (48,327) (12,082) (604,088)
Net loss (Note F) (149,626) - (1,511) (151,137)
Balance at
December 31, 1997 $3,379,358 $(433,275) $ (261,729)$ 2,684,354
</TABLE>
The per Unit distributions for each of the years ended December 31,
1997, 1996 and 1995 was $20.00, none of which represented a return
of capital.
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
Operating activities:
<S> <C> <C> <C>
Net income (loss) $(151,137) $ 10,513 $ (24,601)
Adjustments to reconcile
net income (loss) to net cash
provided by operating
activities:
Depreciation and amortization 1,468,094 1,325,765 1,281,398
Changes in assets and liabilities:
Decrease (increase) in
restricted cash for tenant
security deposits 10,843 (844) 19,105
Decrease (increase) in prepaid
expenses and other assets(157,524) (16,154) 7,811
Increase (decrease) in accounts
payable (4,116) (44,414) 23,338
Increase (decrease) in accrued
expenses and other
liabilities (37,534) 60,747 26,798
Net cash provided by
operating activities 1,128,626 1,335,613 1,333,849
Investing activities:
Deposits to replacement reserve
escrow (12,000) (24,000) (24,000)
Withdrawals from replacement
reserve escrow 64,009 29,453 20,727
Additions to fixed assets (1,300,570) (691,972) (262,341)
Increase (decrease) in accounts
payable related to fixed asset
additions (3,315) 3,315 -
Net cash used in
investing activities (1,251,876) (683,204) (265,614)
Financing activities:
Principal payments on mortgage
notes payable (166,985) (182,026) (167,961)
Proceeds from mortgage
note payable 5,280,000 - -
Repayment of mortgage
note payable (3,172,809) - -
Increase in deferred expenses (136,040) - (6,613)
Distributions (604,088) (604,088) (604,088)
Net cash provided by (used
in) financing activities 1,200,078 (786,114) 778,662)
Net increase (decrease) in cash and
cash equivalents 1,076,828 (133,705) 289,573
Cash and cash equivalents,
beginning of year 1,177,332 1,311,037 1,021,464
Cash and cash equivalents,
end of year $ 2,254,160$ 1,177,332$ 1,311,037
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization
Krupp Realty Limited Partnership-VII ("KRLP-
VII") was formed on August 21, 1984 by filing
a Certificate of Limited Partnership in The
Commonwealth of Massachusetts. KRLP-VII
terminates on December 31, 2025 unless earlier
terminated upon the occurrence of certain
events as set forth in the Partnership
Agreement. KRLP-VII issued all of the General
Partner Interests to two General Partners, The
Krupp Corporation, a Massachusetts
corporation, and The Krupp Company Limited
Partnership-II, a Massachusetts limited
partnership, in exchange for capital
contributions aggregating $1,000. In
addition, the General Partners were required
to make additional capital contributions of
$135,891 which were used to pay organization
and offering costs in excess of 5% of the
gross proceeds of the offering. Except under
certain limited circumstances upon termination
of KRLP-VII, the General Partners are not
required to make any other additional capital
contributions.
KRLP-VII also issued all of the Original
Limited Partner Interests to The Krupp Company
Limited Partnership-II in exchange for a
capital contribution of $4,000.
On November 2, 1984, KRLP-VII commenced an
offering of up to 40,000 units of Investor
Limited Partner Interest (the "Units") for
$1,000 per Unit. The public offering was
closed on April 25, 1986, at which time 27,184
Units had been sold for $27,184,000.
On December 19, 1984 the General Partners
formed Krupp Realty Courtyards Limited
Partnership ("Realty-VII") as a prerequisite
for the refinancing of Courtyards Village East
Apartments ("Courtyards Village"). At the
same time, the General Partners transferred
ownership of Courtyards Village to Realty-VII.
The General Partner of Realty-VII is KRLP-VII.
The Limited Partners of Realty-VII are KRLP-
VII and The Krupp Corporation ("Krupp Corp.").
Krupp Corp. has beneficially assigned its
interest in Realty-VII to KRLP-VII.
On March 31, 1994, the General Partners formed
Windsor Partners Limited Partnership ("Windsor
L.P.") as a prerequisite for the refinancing
of Windsor Apartments. At the same time, the
General Partners transferred ownership of the
property to Windsor L.P. In exchange for the
property, KRLP-VII received a 99% Limited
Partnership interest in Windsor L.P. The
General Partner of Windsor L.P. is ST. Windsor
Corporation which has a 1% interest in Windsor
L.P. and is 100% owned by KRLP-VII.
KRLP-VII, Realty-VII and Windsor L.P. are
collectively known as Krupp Realty Limited
Partnership-VII and Subsidiaries (collectively
referred to herein as the "Partnership").
On December 2, 1997, Berkshire Realty
Enterprises Limited Partnership, an affiliate
of the General Partners, as agent for the
Partnership, entered into an Agreement of Sale
to sell Nora Corners, a shopping center
containing 89,432 leasable square feet,
located in Indianapolis, Indiana, to Kejack,
Inc. and its permitted assigns, which are
unaffiliated third parties. Nora Corners
Shopping Center was included in a package with
thirteen other properties owned by affiliates
of the General Partners. The transaction was
consummated subsequent to year end on January
30, 1998 (see Note K).
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
Continued
B. Significant Accounting Policies
The Partnership uses the following
accounting policies for financial
reporting purposes, which may differ
in certain respects from those used
for federal income tax purposes (see
Note J):
Basis of Presentation
The consolidated financial statements present
the consolidated assets, liabilities and
operations of the Partnership. All
intercompany balances and transactions have
been eliminated.
Risks and Uncertainties
The Partnership invests its cash primarily in
deposits and money market funds with
commercial banks. The Partnership has not
experienced any losses to date on its invested
cash.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amount of assets and liabilities,
contingent assets and liabilities and revenues
and expenses during the reporting period.
Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Partnership includes all short-term
investments with original maturities of three
months or less from the date of acquisition in
cash and cash equivalents. The cash
investments are recorded at cost, which
approximates market values.
Rental Revenues
Residential and commercial leases require the
payment of base rent monthly in advance.
Rental revenues are recorded on the accrual
basis. Commercial leases generally contain
provisions for additional rent based on a
percentage of tenant sales and other
provisions which are also recorded on the
accrual basis, but are billed in arrears.
Minimum rental revenue for long term
commercial leases is recognized on a straight-
line basis over the life of the related lease.
Depreciation
Depreciation is provided for by the use of the
straight-line method over estimated useful
lives of the related assets as follows:
Buildings and improvements 2 to 39
years
Equipment, furnishings and fixtures3 to 8
years
Tenant improvements for commercial tenants are
depreciated over the life of the related
lease.
Continued<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
Continued
B.Significant Accounting Policies, Continued
Impairment of Long-Lived Assets
Real estate assets and equipment are stated at
depreciated cost. Pursuant to Statement of
Financial Accounting Standards Opinion No. 121
"Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be
Disposed of", impairment losses are recorded
on long-lived assets used in operations on a
property by property basis, when events and
circumstances indicate that the assets might
be impaired and the estimated undiscounted
cash flows to be generated by those assets are
less than the are less than the carrying
amount of those assets. Upon determination
that an impairment has occurred, those assets
shall be reduced to fair value less estimated
costs to sell.
Leasing Commissions
Leasing commissions on commercial properties
are deferred and amortized over the life of
the related lease.
Deferred Expenses
Costs of obtaining and recording mortgages on
the properties are being amortized over the
term of the mortgage notes using the straight
line method.
Income Taxes
The Partnership is not liable for federal or
state income taxes as the Partnership income
or loss is allocated to the Partners for
income tax purposes. In the event that the
Partnership's tax returns are examined by the
Internal Revenue Service or state taxing
authority and the examination results in a
change in the Partnership taxable income or
loss, such change will be reported to the
Partners.
Reclassifications
Certain prior year balances have been
reclassified to conform with current year
consolidated financial statement presentation.
C. Cash and Cash Equivalents
Cash and cash equivalents at December 31, 1997 and 1996
consisted of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Cash and money market accounts$1,857,152$ 285,964
Commercial paper 397,008 891,368
$2,254,160 $1,177,332
</TABLE>
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. Mortgage Notes Payable
The properties owned by the Partnership are pledged as
collateral for the respective non-recourse mortgage notes
payable outstanding at December 31, 1997 and 1996. Mortgage
notes payable consisted of the following:
<TABLE>
<CAPTION>
Annual Interest
Principal Rate
Property 1997 1996 1997 1996 Maturity Date
Courtyards Village
<S> <C> <C> <C> <C> <C>
East Apartments$ 5,261,610 $ 3,219,833 7.88% 7.00% August 1, 2007
Nora Corners
Shopping Center 4,084,037 4,141,618 9.00% 9.00% October 1,2004
Windsor Apartments 5,156,724 5,200,714 9.25%9.25% May 1, 2001
Total $14,502,371$12,562,165
</TABLE>
Courtyards Village East Apartments
On July 30, 1997, the Partnership completed
the refinancing of the Courtyards Village
Apartments mortgage note. The property was
refinanced with a $5,280,000 non-recourse
mortgage note payable at the rate of 7.88% per
annum with monthly principal and interest
payments of $38,302. The mortgage note, which
is collateralized by the property, matures on
August 1, 2007 at which time the remaining
principal (approximately $4,658,637) and any
accrued interest are due. The note may be
prepaid, subject to a prepayment premium, at
any time with 30 days notice. The Partnership
used the majority of the proceeds from the
refinancing to repay the existing mortgage
note on the property of $3,172,809, pay
closing costs of $136,040 and to establish
various escrows. As part of the refinancing,
the Partnership was required to establish a
$9,525 repair escrow and a replacement reserve
escrow. The replacement reserve escrow
required no initial deposit at the close and
monthly deposits of $4,200 beginning on
September 1, 1998.
At December 31, 1996, the property was subject
to a non-recourse mortgage note payable, held
by the U.S. Department of Housing and Urban
Development ("HUD") which required equal
monthly installments of $26,506, which
consisted of principal and interest. In
addition, the Partnership was required to make
a monthly deposit of $2,000 to an escrow
account to be used for property replacements
and improvements, and a monthly mortgage
insurance premium deposit equal to .5% per
annum of the outstanding principal balance.
Based on the borrowing rates currently
available to the Partnership for bank loans
with similar terms and average maturities, the
fair value of long-term debt is approximately
$5,400,000 and $3,000,000 for the years ended
December 31, 1997 and 1996, respectively.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D.Mortgage Notes Payable, Continued
Nora Corners Shopping Center
The property is subject to a non-recourse
mortgage note payable in the original amount
of $4,250,000, based on a 25-year amortization
and payable in equal monthly installments of
$35,666, consisting of principal and interest.
At maturity, all unpaid principal,
approximately $3,526,000, and any accrued
interest are due. After October 1, 1998, the
note may be prepaid subject to a prepayment
penalty.
Based on the borrowing rates currently
available to the Partnership for bank loans
with similar terms and average maturities, the
fair value of long-term debt is approximately
$4,400,000 and $4,300,000 for the years ended
December 31, 1997 and 1996, respectively.
Windsor Apartments
The property is subject to a non-recourse
mortgage note payable in the original amount
of $5,300,000, based on a 30-year amortization
and payable in equal monthly installments of
$43,602, consisting of principal and interest.
At maturity, all unpaid principal,
approximately $5,021,000, and any accrued
interest are due. The note may be prepaid
subject to a prepayment penalty.
Based on the borrowing rates currently
available to the Partnership for bank loans
with similar terms and average maturities, the
fair value of long-term debt is approximately
$5,500,000 for the years ended December 31,
1997 and 1996.
The aggregate scheduled principal amounts of
long-term borrowings due during the five years
ending December 31, 2002 are $156,747,
$171,020, $186,599, $5,161,146 and $152,964.
The Partnership paid interest on its
borrowings in the amounts of $1,155,562,
$1,087,261 and $1,101,325 during the years
ended December 31, 1997, 1996 and 1995,
respectively.
E. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the
following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accrued real estate taxes $499,440 $478,793
Other liabilities 210,403 275,754
Tenant security deposits 79,049 76,532
Prepaid rent 19,993 15,340
$808,885 $846,419
</TABLE>
F.Partners' Equity
Under the terms of the Partnership Agreement,
losses from operations are allocated 99% to
the Investor Limited Partners and 1% to the
General Partners. Profits from operations are
allocated 90% to the Investor Limited
Partners, 8% to the Original Limited Partner
and 2% to the General Partners, until such
time that the Investor Limited Partners have
received a return of their total invested
capital plus a 9% per annum cumulative return
thereon and thereafter, 69% to the Investor
Limited Partners, 25% to the Original Limited
Partner and 6% to the General Partners.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
F.Partners' Equity, Continued
Profits from Capital Transactions are
allocated first, to the Investor Limited
Partners until they have received a return of
their total invested capital. Thereafter,
profits from Capital Transactions are
allocated in accordance with the Partnership
Agreement. Losses from Capital Transactions
are allocated 99% to the Investor Limited
Partners and 1% to the General Partners.
Notwithstanding anything above, the General
Partners shall be allocated at least 1% of all
profits and losses from Capital Transactions.
Under the terms of the Partnership Agreement,
cash distributions are made on the same basis
as the allocations of profits described above.
Pursuant to the Partnership Agreement,
proceeds from Capital Transactions shall first
be applied to the payment of all debts and
liabilities of the Partnership and second to
fund reserves for contingent liabilities. The
remaining net cash proceeds shall then be
distributed in accordance with the Partnership
Agreement and will be distributed in part
after payment by the Partnership of a certain
subordinated financial consulting fee as
described below.
The Partnership entered into a Sales Agent
Agreement for the public offering of Units.
Under that Agreement, the Partnership was
required to pay to the sales agent
underwriting commissions and related financial
consulting fees equal to 9% of the gross
proceeds from the offering. In addition, the
sales agent will be entitled to receive, over
the life of the Partnership, a subordinated
financial consulting fee based upon the net
cash proceeds received by the Partnership as a
result of sales and refinancings of
Partnership properties, which fee shall be in
an amount not exceeding 1.5% of the gross
proceeds of the offering of Units. No such
fees will, however, be payable unless and
until all Partners have received a return of
their Invested Capital and the Investor
Limited Partners have received a 9% per annum
cumulative return.
As of December 31, 1997, the following
cumulative partner contributions and
allocations have been made since the inception
of the Partnership:
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Equity
<S> <C> <C> <C> <C>
Capital contributions$ 27,184,000$ 4,000 $ 136,891 $ 27,324,891
Syndication costs (3,697,375) - (135,891) (3,833,266)
Distributions (4,928,814) (438,116)(109,527) (5,476,457)
Net loss from capital
transactions (816,767) - (8,250) (825,017)
Net income (loss)
from operations (14,361,686) 841 (144,952) (14,505,797)
Balance at
December 31, 1997$ 3,379,358$ (433,275)$(261,729)$ 2,684,354
</TABLE>
G. Future Base Rents Due Under Commercial Operating Leases
As a result of the sale of the Nora Corners, subsequent to year
end, all commercial operating leases were assumed by the buyer
(see Note K).
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
H.Land Lease
Nora Corners is situated on 11.21 acres of
land, seven acres of which are owned by
certain non-affiliated third parties. These
seven acres of land are leased to the
Partnership subject to a 99-year land lease
which expires in 2061. The land lease
requires annual rental payments of $17,280
from 1987 through 2012, $20,180 from 2012
through 2037, and $23,040 from 2037 through
2061. Under the terms of the land lease, the
lessee may assign its rights to a subsequent
purchaser of the property (see Note K).
I. Related Party Transactions
The Partnership pays property management fees
to an affiliate of the General Partners for
management services. Pursuant to the
management agreements, management fees are
payable monthly at a rate of 4% of the gross
receipts, net of leasing commissions, from the
commercial property under management and 5% of
gross receipts from residential properties
under management. The affiliate of the
General Partners sold the residential
management agreements to BRI OP Limited
Partnership, a subsidiary of Berkshire Realty
Company Inc., a publicly traded real estate
investment trust and an affiliate of the
General Partners, on February 28, 1997. The
Partnership also reimburses affiliates of the
General Partners for certain expenses incurred
in connection with the operation of the
Partnership and its properties including
administrative expenses.
Amounts accrued or paid to the General Partners' affiliates during the
years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Property management fees $204,023 $193,484 $192,572
Expense reimbursements 161,571 157,089 129,445
Charged to operations $365,594 $350,573 $322,017
</TABLE>
Expense reimbursements due from affiliates of $78,010 and $14,328 were
included in prepaid expenses and other assets at December 31, 1997 and
1996, respectively.
In addition to the amounts above, refinancing costs of $53,540 were
paid to the General Partners' affiliates during the year ended December
31, 1997.
Continued<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
J. Federal Income Taxes
For federal income tax purposes, the Partnership is depreciating
property using the Accelerated Cost Recovery System ("ACRS") and the
Modified Accelerated Cost Recovery System ("MACRS") depending on which
is applicable.
The reconciliation of the net income (loss) reported in the
accompanying Consolidated Statement of Operations with the net loss
reported in the Partnership's federal income tax return for the years
ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Net income (loss) per
Consolidated Statement of
<S> <C> <C> <C>
Operations $(151,137) $ 10,513 $ (24,601)
Difference in book
and tax depreciation
and amortization 35,424 (35,798) (64,375)
Rental adjustment
required by Generally
Accepted Accounting
Principles (10,930) 1,208 3,467
Net loss for federal
income tax purposes $(126,643) $ (24,077) $ (85,509)
The allocation of the net loss for federal income tax purposes for the
year ended December 31, 1997 is as follows:
Portfolio Passive
Income Loss Total
General Partners $ 764 $ (2,031) $ (1,267)
Original Limited Partner - - -
Investor Limited Partners 75,655 (201,031) (125,376)
$ 76,419 $(203,062) $ (126,643)
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the per Unit net
loss to the Investor Limited Partners for federal income tax purposes
was ($4.61), ($.88) and ($3.11), respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeds its tax basis by approximately $4,141,800 and $4,198,500 at
December 31, 1997 and 1996, respectively. The basis of the
Partnership's liabilities for financial reporting purposes is less than
its tax basis by approximately $2,895,500 for the year ended December
31, 1997.
Continued
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
K. Subsequent Events
The sale of Nora Corners Shopping Center, as discussed in Note A, was
consummated on January 30, 1998. The total selling price of the
fourteen properties was $138,000,000, of which the Partnership received
$6,604,300, less the assumption of the first mortgage note payable of
$4,084,037 and its share of the closing costs. The land lease
discussed in Note H was assigned to the buyer in conjunction with the
sale.
As a result of the sale of Nora Corners Shopping Center on January 30,
1998, the Partnership filed a report on Form 8-K on February 2,
1998.<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to
Initial Cost to Partnership Acquisition
Buildings & Buildings & Depreciable
Description Encumbrances Land Improvements Improvements Life
Courtyards
Village East
Apartments
Naperville,
<S> <C> <C> <C> <C> <C>
Illinois $ 5,261,610 $ 487,529 $ 6,486,198 $ 2,580,5653 to 25 Years
Nora Corners
Shopping Center
Indianapolis,
Indiana 4,084,037 775,345 8,240,342 727,1192 to 39 Years
Windsor
Apartments
Garland,
Texas 5,156,724 696,362 9,251,669 961,1483 to 25 Years
Total $ 14,502,371 $1,959,236 $23,978,209 $ 4,268,832
Gross Amounts Carried at
End of Year
Buildings Year
and Accumulated Construction
Date
Description Land Improvements Total Depreciation Completed
Acquired
Courtyards
Village East
Apartments
Naperville,
Illinois $ 487,529 $ 9,066,763 $ 9,554,292$ 5,174,222 1973 4/1/85
Nora Corners
Shopping Center
Indianapolis,
Indiana 775,345 8,967,461 9,742,806 4,069,669 1985 9/24/86
Windsor
Apartments
Garland,
Texas 696,362 10,212,817 10,909,179 6,279,792 1984 12/27/84
Total $1,959,236 $ 28,247,041$30,206,277 $15,523,683
</TABLE>
Continued<PAGE>
KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(Continued)
December 31, 1997
Reconciliation of Real Estate and Accumulated Depreciation for each
of the three years in the period ended December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
Real Estate
<S> <C> <C> <C>
Balance at beginning of year $28,905,707 $28,213,735 $27,951,394
Acquisition and improvements 1,300,570 691,972 262,341
Balance at end of year $30,206,277 $28,905,707$28,213,735
1997 1996 1995
Accumulated Depreciation
Balance at beginning of year $14,097,123 $12,807,221$11,561,799
Depreciation expense 1,426,560 1,289,902 1,245,422
Balance at end of year $15,523,683 $14,097,123$12,807,221
</TABLE>
The aggregate cost of the Partnership's real estate for federal
income tax purposes is $30,172,138 and the aggregate accumulated
depreciation for federal income tax purposes is $19,654,470.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Krupp
Realty Fund 7 Financial Statements for the nine months ended December 31, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,254,160
<SECURITIES> 0
<RECEIVABLES> 275,083<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 493,350
<PP&E> 30,629,611<F2>
<DEPRECIATION> (15,656,594)<F3>
<TOTAL-ASSETS> 17,995,610
<CURRENT-LIABILITIES> 808,885
<BONDS> 14,502,371<F4>
0
0
<COMMON> 2,684,354<F5>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,995,610
<SALES> 0
<TOTAL-REVENUES> 4,795,059<F6>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,781,346<F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,164,850
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,137)<F8>
<EPS-PRIMARY> 0<F8>
<EPS-DILUTED> 0<F8>
<FN>
<F1>Includes all receivables included in "prepaid expenses and other assets" on
the Balance Sheet.
<F2>Multi-family complexes of $20,463,471, retail center of $9,742,806 and
deferred expenses of $423,334.
<F3>Accumulated depreciation of $15,523,683 and accumulated amortization of
$132,911.
<F4>Represents mortgage notes payable.
<F5>Total deficit of the General Partners of ($261,729) and equity of Limited
Partners of $2,946,083.
<F6>Includes all revenue of the Partnership.
<F7>Includes operating expenses of $1,848,242, real estate taxes of $465,010 and
depreciation and amortization of $1,468,094.
<F8>Net loss allocated ($1,511)to the General Partners and ($149,626) to the
Limited Partners. Average net loss per Unit of Limited Partner interest is
($5.50).
</TABLE>
Loan No. 817768866
MULTIFAMILY NOTE - LAND TRUST
US $5,280,000.00<PAGE>
July ___, 1997 <PAGE>
FOR VALUE RECEIVED, the undersigned Co-
Maker and AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not personally or
individually, but solely as Trustee under the
provisions of that certain Trust Agreement
dated December 1, 1972, as amended on May 6,
1976 and further amended on November 30,
1992, and known as Trust Number 77424, (the
"Land Trustee") (the Co-Maker and the Land
Trustee may be referred to collectively as
the "Borrower") jointly and severally
promise to pay to the order of REILLY
MORTGAGE GROUP, INC., a District of Columbia
corporation, the principal sum of Five
Million Two Hundred Eighty Thousand and
No/100ths Dollars (US $5,280,000.00), with
interest on the unpaid principal balance at
the annual rate of Seven and Eighty Eight One
Hundredths percent (7.88%).
1. Defined Terms. As used in this
Note, (i) the term "Lender" means the holder
of this Note, (ii) the term "Indebtedness"
means 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, and (iii) the term "Co-Maker"
means the party or parties having a
beneficial interest in the Land Trust.
"Event of Default" 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 2000
Corporate Ridge, Suite 925, McLean, Virginia
22102, 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) Unless disbursement of
principal is made by Lender to Borrower on
the first day of the month, interest for the
period beginning on the date of disbursement
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. Interest under this
Note shall be computed on the basis of a 360-
day year consisting of twelve 30-day months.
(b) Consecutive monthly
installments of principal and interest, each
in the amount of Thirty Eight Thousand Three
Hundred One and 99/100ths Dollars (US
$38,301.99), shall be payable on the first
day of each month beginning on September 1,
1997, until the entire unpaid principal
balance evidenced by this Note is fully paid.
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, and any reference
below to "accrued interest" shall refer to
accrued interest which has not become part of
the unpaid principal balance. Any remaining
principal and interest shall be due and
payable on August 1, 2007, or on any earlier
date on which the unpaid principal balance of
this Note becomes due and payable, by
acceleration or otherwise (the "Maturity
Date"). 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.
(c) 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.
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, or any
party making up 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 a Multifamily
Mortgage, Assignment of Rents and Security
Agreement (the "Security Instrument"), a
Collateral Assignment of Beneficial Interest,
a Combined Security Agreement and Assignment
of Rents and Leases, a Beneficiary's
Undertaking and related documents dated as of
the date of this Note (collectively with the
Security Instrument, the "Loan Documents"),
and reference is made to the Loan Documents
for other rights of Lender as to 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 Charge. If any monthly 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
amount is due, Borrower shall pay to Lender,
immediately and without demand by Lender, a
late charge equal to Five (5%) percent of
such amount. Borrower acknowledges that its
failure to make timely payments will cause
Lender to incur additional expenses in
servicing and processing the loan evidenced
by this Note (the "Loan"), and that it is
extremely difficult and impractical to
determine those additional expenses.
Borrower agrees that the late charge 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.
8. Default Rate. So long as (a) any
monthly installment under this Note remains
past due for 30 days or more, or (b) any
other Event of Default has occurred and is
continuing, 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 the occurrence
of such other Event of Default, as
applicable, at a rate (the "Default Rate")
equal to the lesser of 4 percentage points
above the rate stated in the first paragraph
of this Note or the maximum interest rate
which may be collected from Borrower under
applicable law. 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 that any monthly installment
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
under this Note is delinquent for more than
30 days or any other Event of Default has
occurred and is continuing, 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 Co-Maker's Personal
Liability.
(a) Except as otherwise provided in this
Paragraph 9, Co-Maker 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 and any other
collateral held by Lender as security for the
Indebtedness. These limitations on Co-Makers
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) Co-Maker shall be personally
liable to Lender for the repayment of a
portion of the Indebtedness equal to zero
percent (0%) of the original principal
balance of this Note, plus any other amounts
for which Co-Maker has personal liability
under this Paragraph 9.
(c) In addition to Co-Maker's
personal liability under Paragraph 9(b), Co-
Maker shall be personally liable to Lender
for the repayment of a further portion of the
Indebtedness equal to any loss or damage
suffered by Lender as a result of (1) failure
of Co-Maker 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 Section 2 of the
Combined Security Agreement and Assignment of
Rents and Leases, and the amount of all
security deposits collected by Co-Maker from
tenants then in residence; (2) failure of Co-
Maker to apply all insurance proceeds and
condemnation proceeds as required by the
Security Instrument; (3) failure of Co-Maker
to comply with Section 14(d) or (e) of the
Security Instrument relating to the delivery
of books and records, statements, schedules
and reports; (4) commission of waste by Co-
Maker, including but not limited to failure
of Co-Maker to contemporaneously replace any
Personalty or Fixtures that Co-Maker removes
from the Mortgaged Property with items of
equal or better function and quality as
required by Section 17 of the Security
Instrument; or (5) failure to apply Rents,
first, to the payment of reasonable operating
expenses and then to amounts ("Debt Service
Amounts") payable under this Note, the
Security Instrument or any other Loan
Document (except that Co-Maker will not be
personally liable (i) to the extent that Co-
Maker 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
Co-Maker has paid all operating expenses and
Debt Service Amounts for that calendar year.)
(d) For purposes of determining
Co-Maker's personal liability under Paragraph
9(b) and Paragraph 9(c), all payments made by
Co-Maker or any guarantor of this Note with
respect to the Indebtedness and all amounts
received by Lender from the enforcement of
its rights under the Security Instrument or
the Loan Documents shall be applied first to
the portion of the Indebtedness for which Co-
Maker has no personal liability.
(e) Co-Maker 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) Land Trustee's or the
beneficiary of the trust referred to in the
first paragraph of this Note (the
"Beneficiary") acquisition of any property or
operation of any business not permitted by
Section 33 of the Security Instrument, or the
Beneficiary's acquisition or ownership of a
beneficial interest under any trust other
than the trust referred to in the first
paragraph of this Note; (2) a Transfer
(including, but not limited to, a lien or
encumbrance) that is an Event of Default
under Section 21 of the Security Instrument,
other than a Transfer consisting solely of
the involuntary removal or involuntary
withdrawal of a general partner in a limited
partnership or a manager in a limited
liability company; or (3) fraud or written
material misrepresentation by Borrower 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.
(f) In addition to any personal
liability for the Indebtedness, Co-Maker
shall be personally liable to Lender for (1)
the performance of all of Land Trustee's
obligations under Section 18 of the Security
Instrument (relating to environmental
matters); (2) the costs of any audit under
Section 14(d) of the Security Instrument; and
(3) any costs and expenses incurred by Lender
in connection with the collection of any
amount for which Co-Maker is personally
liable under this Paragraph 9, including fees
and out of pocket expenses of attorneys and
expert witnesses and the costs of conducting
any independent audit of Borrower's books and
records in relation to the Mortgaged Property
to determine the amount for which Co-Maker
has personal liability.
(g) To the extent that Co-Maker
has personal liability under this Paragraph
9, Lender may exercise its rights against Co-
Maker personally without regard to whether
Lender has exercised any rights against the
Land Trustee or 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 (1) 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:
(1) Borrower may voluntarily
prepay all of the unpaid principal balance of
this Note on the last Business Day of a
calendar month if Borrower has given Lender
at least 30 days prior notice of its
intention to make such prepayment. Such
prepayment shall be made by paying (A) the
amount of principal being prepaid, (B) all
accrued interest, (C) all other sums due
Lender at the time of such prepayment, and
(D) the prepayment premium calculated
pursuant to Schedule A. For all purposes
including the accrual of interest, any
prepayment received by Lender on any day
other than the last calendar day of the month
shall be deemed to have been received on the
last calendar day of such month. For
purposes of this Note, a "Business Day" means
any day other than a Saturday, Sunday or any
other day on which Lender is not open for
business. Borrower shall not have the option
to voluntarily prepay less than all of the
unpaid principal balance.
(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, (A) all accrued interest and
all other sums due Lender, and (B) the
prepayment premium calculated pursuant to
Schedule A.
(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. The amount of any such partial
prepayment shall be computed so as to provide
to Lender a prepayment premium computed
pursuant to Schedule A without Borrower
having to pay out-of-pocket any additional
amounts.
(b) Notwithstanding the
provisions of Paragraph 10(a), no prepayment
premium shall be payable with respect to
(A) any prepayment made no more than 90 days
before the Maturity Date, or (B) any
prepayment occurring as a result of the
application of any insurance proceeds or
condemnation award under the Security
Instrument.
(c) Schedule A is hereby
incorporated by reference into this Note.
(d) Any permitted or required
prepayment of less than the 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.
(f) Borrower further acknowledges
that the prepayment premium provisions of
this Note are a material part of the
consideration for the Loan, 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 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
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 and all endorsers and
guarantors of this Note and all other third
party obligors.
14. Loan Charges. If any applicable
law limiting the amount of interest or other
charges permitted to be collected from
Borrower in connection with the Loan is
interpreted so that any interest or other
charge provided for in any Loan Document,
whether considered separately or together
with other charges provided for in any other
Loan Document, violates that law, and
Borrower is entitled to the benefit of that
law, that interest or charge is hereby
reduced to the extent necessary to eliminate
that violation. The amounts, if any,
previously paid to Lender in excess of the
permitted amounts shall be applied by Lender
to reduce the unpaid principal balance of
this Note. For the purpose of determining
whether any applicable law limiting the
amount of interest or other charges permitted
to be collected from Borrower has been
violated, all Indebtedness that constitutes
interest, as well as all other charges made
in connection with the Indebtedness that
constitute interest, shall be deemed to be
allocated and spread ratably over the stated
term of the Note. Unless otherwise required
by applicable law, such allocation and
spreading shall be effected in such a manner
that the rate of interest so computed is
uniform throughout the stated term of the
Note.
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.
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 agrees that any controversy arising
under or in relation to this Note shall be
litigated exclusively in the jurisdiction in
which the Land is located (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 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. Joint and Several Liability. All
obligations under this Note shall be the
joint and several obligations of the Land
Trustee and the Co-Maker. All obligations of
the Co-Maker under this Note shall be the
joint and several obligations of each of the
parties making up the Co-Maker.
22. Remedies. The holder of this Note
may pursue its remedies under this Note
and/or under the Security Instruments
concurrently or independently against any
security for the payment of the Note, or
against all or any of the undersigned.
23. Execution. This Note is executed
by the Co-Maker who owns one hundred percent
(100%) of the beneficial interest and one
hundred percent (100%) of the power of
direction in, to and under the trust
agreement referred to in the initial
paragraph of this Note to evidence its
personal liability as maker of the Note. Such
personal liability of the Co-Maker is limited
by the terms of this Note and the Loan
Documents.
23. Trustee's Exculpation. This Note
is executed by the undersigned Land Trustee,
not personally or individually, but as
trustee of the land trust which holds title
to the Mortgaged Property, in the exercise of
the power and authority conferred upon and
vested in it as trustee. It is expressly
understood and agreed by each original and
successive owner or holder of this Note that
nothing contained in this Note shall be
construed as creating any liability on the
Land Trustee in its personal or individual
capacity to pay this Note or any interest
that may accrue hereunder, and that any
recovery against the Land Trustee on this
Note shall be solely against and out of the
property that secures the repayment of the
obligation evidenced by this Note.
24. WAIVER OF TRIAL BY JURY. BORROWER
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 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:
|X | Schedule A Prepayment Premium
(required)
| X | Schedule B Modifications
to Multifamily Note
<PAGE>
IN WITNESS HEREOF, the Borrower has
executed and delivered the Note as of the day
and year first above written.
Trustee:
AMERICAN NATIONAL
BANK AND TRUST
COMPANY OF CHICAGO,
not personally or
individually, but
solely as Trustee as set forth above
By:
________________________________
Title:
________________________________
Co-Maker:
KRUPP REALTY
COURTYARDS LIMITED
PARTNERSHIP, an
Illinois limited partnership
By: Krupp Realty
Limited Partnership-VII, a
Massachusetts
limited partnership, its
general partner
By: The Krupp
Corporation, a Massachusetts
corporation, a general partner
By:
______________________________
Name:
Stephen C. Parthum
Its:
Duly Authorized Agent
Borrower's Tax I.D.
No.: 363473542
PAY TO THE ORDER OF FEDERAL HOME LOAN
MORTGAGE CORPORATION WITHOUT RECOURSE
THIS ___ DAY OF _____________, 1997
REILLY MORTGAGE GROUP, INC.
______________________________________
Susan Blumberg, Vice President<PAGE>
SCHEDULE A
PREPAYMENT PREMIUM
Any prepayment premium payable under
Paragraph 10 of this Note shall be computed
as follows:
(a) If the prepayment is made between
the date of this Note and the date that is
114 months after the first day of the first
calendar month following the date of this
Note (the "Yield Maintenance Period"), the
prepayment premium shall be the greater of:
(i) 1.0% of the unpaid principal
balance of this Note; or
(ii) the product obtained by
multiplying:
(A) the amount of principal being
prepaid,
by
(B) the excess (if any) of the
Monthly Note Rate over the Assumed
Reinvestment Rate,
by
(C) the Present Value Factor.
For purposes of subparagraph (ii),
the following definitions shall apply:
Monthly Note Rate: one-twelfth
(1/12) of the annual interest rate of the
Note, expressed as a decimal calculated to
five digits.
Prepayment Date: in the case of a
voluntary prepayment, the date on which the
prepayment is made; in any other case, the
date on which Lender accelerates the unpaid
principal balance of the Note.
Assumed Reinvestment Rate: one-
twelfth (1/12) of the yield rate as of the
date 5 Business Days before the Prepayment
Date, on the 6.625% U.S. Treasury Security
due May, 2007, as reported in The Wall Street
Journal, expressed as a decimal calculated to
five digits. In the event that no yield is
published on the applicable date for the
Treasury Security used to determine the
Assumed Reinvestment Rate, Lender, in its
discretion, shall select the non-callable
Treasury Security maturing in the same year
as the Treasury Security specified above with
the lowest yield published in The Wall Street
Journal as of the applicable date. If the
publication of such yield rates in The Wall
Street Journal is discontinued for any
reason, Lender shall select a security with a
comparable rate and term to the Treasury
Security used to determine the Assumed
Reinvestment Rate. The selection of an
alternate security pursuant to this Paragraph
shall be made in Lender's discretion.
Present Value Factor: the factor
that discounts to present value the costs
resulting to Lender from the difference in
interest rates during the months remaining in
the Yield Maintenance Period, using the
Assumed Reinvestment Rate as the discount
rate, with monthly compounding, expressed
numerically as follows:
` n = number of months remaining in Yield
Maintenance Period
ARR = Assumed Reinvestment Rate
(b) If the prepayment is made after the expiration of the
Yield Maintenance Period but more than 90 days before the
Maturity Date, the prepayment premium shall be 1.0% of the unpaid
principal balance of this Note.
Trustee:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not personally or
individually, but solely as Trustee as
set forth above
By: ________________________________
Title:
________________________________
Co-Maker:
KRUPP REALTY COURTYARDS LIMITED
PARTNERSHIP, an Illinois limited
partnership
By: Krupp Realty Limited Partnership-VII, a
Massachusetts limited partnership,its
general partner
By: The Krupp Corporation, a Massachusetts
corporation, a general partner
By: ______________________________
Name: Stephen C. Parthum
Its: Duly
Authorized Agent
<PAGE>
SCHEDULE B
MODIFICATIONS TO MULTIFAMILY NOTE
1. Paragraph 9(c)(1) of this Note is amended to read as
follows:
(1) failure of Co-Maker 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 Section 2 of
the Combined Security Agreement and
Assignment of Rents and Leases, and except to
the extent properly applied to a tenant's
obligations under the lease, the amount of
all security deposits collected by Co-Maker
from tenants then in residence;
2. Paragraph 9 of this Note is amended to add the following
subparagraph (h):
(h) Borrower shall be personally liable
to Lender in (i) an amount equal to the
amount necessary to complete any unfinished
Repairs, as defined in the Security
Instrument, and (ii) an amount equal to the
amount necessary to pay any unpaid bills for
materials, labor or services relating to the
Repairs.
Trustee:
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not personally or
individually, but solely as Trustee as
set forth above
By: ________________________________
Title:
________________________________
<PAGE>
Co-Maker:
KRUPP REALTY COURTYARDS LIMITED
PARTNERSHIP, an Illinois limited
partnership
By: Krupp Realty Limited Partnership-
VII, a
Massachusetts limited partnership,
its
general partner
By: The Krupp Corporation, a
Massachusetts
corporation, a general partner
By:
______________________________
Name: Stephen C. Parthum
Its: Duly
Authorized Agent
Loan No. 817768866
Prepared by, and after recording
return to:
Robert B. Joselow, Esq.
SEEGER POTTER RICHARDSON
LUXTON JOSELOW & BROOKS, L.L.P.
2121 K Street, N.W., Suite 700
Washington, D.C. 20037
MULTIFAMILY MORTGAGE,
ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT
(ILLINOIS LAND TRUST)
THIS INSTRUMENT IS NOT TO BE USED FOR
MULTIFAMILY PROPERTIES CONTAINING 5 OR 6
RESIDENTIAL UNITS IF ANY RESIDENTIAL UNIT
IS OWNER-OCCUPIED
<PAGE>
MULTIFAMILY MORTGAGE,
ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT
(ILLINOIS LAND TRUST)
THIS MULTIFAMILY MORTGAGE, ASSIGNMENT OF
RENTS AND SECURITY AGREEMENT (the
"Instrument") is made as of the _____ day of
July, 1997, between AMERICAN NATIONAL BANK
AND TRUST COMPANY OF CHICAGO, not personally
or individually, but solely as Trustee under
the provisions of that certain Trust
Agreement dated December 1, 1972, as amended
on May 6, 1976 and further amended on
November 30, 1992, and known as Trust No.
77424 whose address is 33 North LaSalle
Street, Chicago, Illinois 60602, as mortgagor
("Borrower""), and REILLY MORTGAGE GROUP,
INC., a corporation organized and existing
under the laws of the District of Columbia,
whose address is 2000 Corporate Ridge, Suite
925, McLean, Virginia 22102, as mortgagee
("Lender").
Borrower is indebted to Lender in the
principal amount of $5,280,000.00, as
evidenced by that certain Multifamily Note
made by Borrower and others as Co-Maker
payable to Lender, dated as of the date of
this Instrument, and maturing on August 1,
2007.
TO SECURE TO LENDER the repayment of the
Indebtedness, and all renewals, extensions
and modifications of the Indebtedness, and
the performance of the covenants and
agreements of Borrower contained in the Loan
Documents, Borrower mortgages, warrants,
grants, conveys and assigns to Lender the
Mortgaged Property, including the Land
located in DuPage County, State of Illinois
and described in Exhibit A attached to this
Instrument.
Borrower represents and warrants that
Borrower is lawfully seized of the Mortgaged
Property and has the right, power and
authority to mortgage, 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:
1. DEFINITIONS. The following terms,
when used in this Instrument (including when
used in the above recitals), shall have the
following meanings:
(a) "Borrower" means all persons or
entities identified as "Borrower" in the
first paragraph of this Instrument, together
with their successors and assigns.
(b) "Collateral Agreement" means any
separate agreement between Borrower and
Lender for the purpose of establishing
replacement reserves for the Mortgaged
Property, establishing a fund to assure the
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 for the establishment of any other
fund, reserve or account.
(c) "Controlling Entity" means an
entity which owns, directly or indirectly
through one or more intermediaries, (A) a
general partnership interest or more than 50%
of the limited partnership interests in
Borrower (if Borrower is a partnership or
joint venture), (B) a manager's interest in
Borrower or more than 50% of the ownership or
membership interests in Borrower (if Borrower
is a limited liability company), (C) more
than 50% of any class of voting stock of
Borrower (if Borrower is a corporation), or
(D) more than 50% of the beneficial interest
in Borrower (if Borrower is a trust).
(d) "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.
(e) "Event of Default" means the
occurrence of any event listed in Section 22.
(f) "Fixtures" means all property which
is so attached to the Land or the
Improvements as to constitute a fixture 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, fire prevention,
or fire detection or otherwise used to carry
electronic signals; telephone systems and
equipment; elevators and related machinery
and equipment; fire 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 floor and wall coverings;
fences, trees and plants; swimming pools; and
exercise equipment.
(g) "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.
(h) "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 defined as a "hazardous substance,"
"hazardous material," "hazardous waste,"
"toxic substance," "toxic pollutant,"
"contaminant," or "pollutant" within the
meaning of any Hazardous Materials Law.
(i) "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 effect 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 1801,
and their state analogs.
(j) "Impositions" and "Imposition
Deposits" are defined in Section 7(a).
(k) "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.
(l) "Indebtedness" means the principal
of, 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.
(m) "Initial Owners" means, with
respect to Borrower or any other entity, the
persons or entities who on the date of the
Note own in the aggregate 100% of the
ownership interests in Borrower or that
entity, and if Borrower is a trust, the
persons or entities who on the date of the
Note own, directly or indirectly, in the
aggregate 100% of the ownership interests in
the beneficiary of such trust.
(n) "Land" means the land described in
Exhibit A.
(o) "Leases" means all present and
future leases, subleases, licenses,
concessions or grants or other possessory
interests now or hereafter in force, whether
oral or written, covering or affecting the
Mortgaged Property, or any portion of the
Mortgaged Property (including proprietary
leases or occupancy agreements 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, or any subsequent holder
of the Note.
(q) "Loan Documents" means the Note,
this Instrument, the Beneficiary's
Undertaking executed by the beneficiary of
Borrower in favor of Lender, the Combined
Security Agreement and Assignment of Rents
and Leases executed by the beneficiary of
Borrower in favor of Lender, the Collateral
Assignment of Beneficial Interest executed by
the beneficiary of Borrower in favor of
Lender, all guaranties, all indemnity
agreements, all Collateral Agreements, O&M
Programs, and any other documents now or in
the future executed by Borrower, 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 of this
Instrument.
(s) "Mortgaged Property" means all of
Borrower's present and future right, title
and interest in and to all of the 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
benefitting 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 for the sale of
the Land, the Improvements, the
Fixtures, the Personalty or any
other part of the Mortgaged
Property entered into by Borrower
now or in the future, including
cash or securities deposited to
secure performance by parties of
their obligations;
(9) all proceeds from the
conversion, voluntary or
involuntary, of any of the above
into cash or liquidated claims, and
the right to collect such proceeds;
(10) all Rents and Leases;
(11) 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 1 of this Instrument,
including all schedules, riders, allonges and
addenda, as such Multifamily Note may be
amended from time to time.
(u) "O&M Program" is defined in
Section 18(a).
(v) "Personalty" means all furniture,
furnishings, equipment, machinery, building
materials, appliances, goods, supplies,
tools, books, records (whether in written or
electronic form), computer equipment
(hardware and software) and other tangible
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
architectural, engineering and construction
services relating to the Land or the
Improvements and all other intangible
property and rights relating to the operation
of, or used in connection with, the Land or
the Improvements, including all governmental
permits 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 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
betterments 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 granting, creating
or attachment of a lien, encumbrance or
security interest (whether voluntary,
involuntary or by operation of law); (C) the
issuance or other creation of an ownership
interest in a legal entity, including a
partnership interest, interest in a limited
liability company or corporate stock; (D)
the withdrawal, retirement, removal or
involuntary resignation of a partner in a
partnership or a member or manager in a
limited liability company; or (E) the merger,
dissolution, liquidation, or consolidation of
a legal entity or the reconstitution of one
type of legal entity into another type of
legal entity. "Transfer" does not include
(i) a conveyance of the Mortgaged Property at
a judicial or non-judicial foreclosure sale
under this Instrument or (ii) the Mortgaged
Property becoming part of a bankruptcy estate
by operation of law under the United States
Bankruptcy Code. For purposes of defining
the term "Transfer," the term "partnership"
shall mean a general partnership, a limited
partnership, a joint venture and a limited
liability partnership, and the term "partner"
shall mean a general partner, a limited
partner and a joint venturer.
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 shall execute and
deliver to Lender, upon Lender's request,
financing statements, continuation statements
and amendments, in such form as Lender may
require to perfect or continue the perfection
of this security interest. 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. After 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. 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 benefit 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 of, and released from, the lien created
by this Instrument. 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.
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 on or after the date of Lender's demand
for Rents, 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, 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.
(b) Borrower represents and warrants to
Lender that Borrower has not executed any
prior assignment of Rents (other than an
assignment 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.
(c) 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 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 purpose of protecting the Mortgaged
Property or the security of 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 for the appointment
of a receiver for the Mortgaged Property to
take any or all of the actions set forth in
the preceding sentence. If Lender elects to
seek the appointment of a receiver for the
Mortgaged Property at any time after 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 for
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
specifications 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 from 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.
(d) If Lender enters the Mortgaged
Property, Lender shall be liable to account
only to Borrower and only for 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 from any such liability to
the fullest extent permitted by law.
(e) 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.
(f) 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 for in this Instrument.
4. ASSIGNMENT OF LEASES; LEASES
AFFECTING THE MORTGAGED PROPERTY.
(a) As part of the consideration for
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. However, until Lender gives
notice to Borrower of Lender's exercise of
its rights under this Section 4, Borrower
shall have all rights, power and authority
granted to Borrower under any Lease (except
as otherwise limited by Section 4(d), Section
4(e) 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.
(b) 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 this assignment
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 for any injury or damage to person or
property sustained by any person or persons,
firm or corporation in or about the Mortgaged
Property. Prior to Lender's actual entry
into and taking possession of the Mortgaged
Property, this assignment shall not (i)
obligate Lender to perform any of the terms,
covenants and conditions contained in any
Lease (or otherwise impose any obligation
upon Lender with respect to any Lease); (ii)
obligate Lender to appear in or defend any
action or proceeding relating to the Lease or
the Mortgaged Property; or (iii) impose upon
Lender any responsibility for 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
and repair of the Mortgaged Property is and
shall be that of Borrower, prior to such
actual entry and taking of possession.
(c) Upon delivery of notice by Lender
to Borrower of Lender's exercise of Lender's
rights under this Section 4 at any time 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, 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.
(d) 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.
(e) 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
specifically provide that (1) such Leases are
subordinate to the lien of this Instrument;
(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 foreclosure or any other
transfer of the Mortgaged Property; (5) after
a foreclosure sale of the Mortgaged Property,
Lender or any other purchaser at such
foreclosure 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.
(f) 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 terms 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 Indebtedness, including a
payment made after Lender's exercise of any
right of acceleration of the Indebtedness, as
provided in the Note.
6. EXCULPATION. Borrower's personal
liability for 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 Indebtedness is paid in
full, an additional amount sufficient to
accumulate with Lender the entire sum
required to pay, when due (1) 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
for 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, plus one-sixth of
such estimate. 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).
(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 the validity of the
Imposition.
(d) If at any time the amount of the
Imposition Deposits held by Lender for
payment of a specific Imposition exceeds the
amount reasonably deemed necessary by Lender
plus one-sixth of such estimate, 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 plus one-sixth of
such estimate, 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 Instrument 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, construction 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 sufficient 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 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.
11. 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 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 other
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 bills and invoices) adequate to
reflect 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
all of the following:
(1) within 120 days after the end
of each fiscal year of Borrower, a
statement of income and expenses
for Borrower's operation of the
Mortgaged Property for that fiscal
year, a statement of changes in
financial position of Borrower
relating to the Mortgaged Property
for that fiscal year and, when
requested by Lender, a balance
sheet showing all assets and
liabilities of Borrower relating to
the Mortgaged Property as of the
end of that fiscal year;
(2) within 120 days after the end
of each fiscal year of Borrower,
and at any other time upon Lender's
request, a rent schedule for the
Mortgaged Property showing the name
of each tenant, and for each
tenant, the space occupied, the
lease expiration date, the rent
payable for 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 identification 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 for Lender to access
information regarding such
accounts;
(4) within 120 days after the end
of each fiscal year of Borrower,
and at any other time upon Lender's
request, a statement that
identifies all owners of any
interest in Borrower and any
Controlling Entity and the interest
held by each, if Borrower or a
Controlling Entity is a
corporation, all officers and
directors of Borrower and the
Controlling Entity, and if Borrower
or a Controlling Entity is a
limited liability company, all
managers who are not members;
(5) upon Lender's request,
quarterly income and expense
statements for the Mortgaged
Property;
(6) upon Lender's request at any
time when an Event of Default has
occurred and is continuing, monthly
income and expense statements for
the Mortgaged Property;
(7) upon Lender's request, a
monthly property management report
for the Mortgaged Property, showing
the number of inquiries made and
rental applications received from
tenants or prospective tenants and
deposits received from tenants and
any other information requested by
Lender; and
(8) 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.
(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.
(f) Borrower authorizes Lender to
obtain a credit report on Borrower at any
time.
15. TAXES; OPERATING EXPENSES.
(a) Subject to the provisions of
Section 15(c) and Section 15(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 15(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 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 Mortgaged
Property (other than the lien of this
Instrument) or on certain ownership interests
in Borrower, whether voluntary, involuntary
or by operation of law, and whether or not
such Lien has priority over the lien of this
Instrument, is a "Transfer" which constitutes
an Event of Default and subjects Borrower to
personal liability under the Note.
17. PRESERVATION, MANAGEMENT AND
MAINTENANCE OF MORTGAGED PROPERTY. Borrower
(a) shall not commit waste or permit
impairment or deterioration of the Mortgaged
Property, (b) shall not abandon the Mortgaged
Property, (c) 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, (d)
shall keep the Mortgaged Property in good
repair, including the replacement of
Personalty and Fixtures with items of equal
or better function and quality, (e) 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
(f) 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 or any part
of the Mortgaged Property except in
connection with the replacement of tangible
Personalty.
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
(4) any violation of or
noncompliance with the terms of any
Environmental Permit with respect
to the Mortgaged Property or any
property of Borrower that is
adjacent to the Mortgaged Property.
The matters described in clauses (1) through
(4) above are referred to collectively in
this Section 18 as "Prohibited Activities or
Conditions".
(b) Prohibited Activities and
Conditions shall not include the safe and
lawful use and storage of quantities of (1)
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 permitting 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 permit 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
performance 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 performance
shall be paid by Borrower upon demand by
Lender. Any such out-of-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:
(1) Borrower has not at any time
engaged in, caused or permitted 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 storage tanks, and, to
the best of Borrower's knowledge
after 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 notification
regarding releases of Hazardous
Materials. Without limiting the
generality of the foregoing,
Borrower has obtained all
Environmental Permits required for
the operation of the Mortgaged
Property in accordance with
Hazardous Materials Laws now in
effect and all such Environmental
Permits are in full force 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.
(f) Borrower shall promptly notify
Lender in writing upon the occurrence of any
of the following events:
(1) 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
(3) any representation or warranty
in this Section 18 becomes untrue
after the date of this Agreement.
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 after
notice from Lender demanding such action,
begin performing the Remedial Work, and
thereafter 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.
(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.
(j) 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:
(1) 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 of those Indemnitees. However, any
Indemnitee may elect to defend any claim or
legal or administrative proceeding at the
Borrower's expense.
(l) 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 (1) results in the entry of any
judgment 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) Borrower's obligation to indemnify
the Indemnitees shall not be limited or
impaired by any of the following, or by any
failure of Borrower or any guarantor to
receive notice of or consideration for any of
the following:
(1) any amendment or modification
of any Loan Document;
(2) any extensions of time for
performance required by any Loan
Document;
(3) any provision in any of the
Loan Documents limiting Lender's
recourse to property securing the
Indebtedness, or limiting the
personal liability of Borrower or
any other party for payment of all
or any part of the Indebtedness;
(4) the accuracy or inaccuracy of
any representations and warranties
made by Borrower under this
Instrument or any other Loan
Document;
(5) the release of Borrower or any
other person, by Lender or by
operation of law, from performance
of any obligation under any Loan
Document;
(6) the release or substitution in
whole or in part of any security
for the Indebtedness; and
(7) Lender's failure to properly
perfect any lien or security
interest given as security for the
Indebtedness.
(n) Borrower shall, at its own cost and
expense, do all of the following:
(1) pay or 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 of 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.
(o) In 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
guarantor, 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
Indemnitees under this Section 18 shall be
joint and several. The obligation of Borrower
to indemnify the Indemnitees under this
Section 18 shall survive any repayment or
discharge of the Indebtedness, any
foreclosure proceeding, any foreclosure sale,
any delivery of any deed in lieu of
foreclosure, 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 shall also include
sinkhole insurance, mine subsidence
insurance, earthquake insurance, and, if the
Mortgaged Property does not conform to
applicable zoning or land use laws, building
ordinance or law coverage. If any of the
Improvements is located in an area identified
by the Federal Emergency Management Agency
(or any successor to that agency) as an area
having special flood hazards, and if flood
insurance is available in that area, Borrower
shall insure such Improvements against loss
by flood.
(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 form approved by Lender. All
policies of property damage insurance shall
include a non-contributing, non-reporting
mortgage clause in favor of, and in a form
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 form 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 permit
any condition to exist on the Mortgaged
Property that would invalidate any part of
any insurance coverage that this Instrument
requires Borrower to maintain.
(f) In the event of loss, 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
from such property damage insurance policies,
to collect and receive the proceeds of
property damage insurance, and to deduct from
such proceeds Lender's expenses incurred in
the collection of such proceeds. This power
of attorney is coupled with an interest and
therefore 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, (1)
hold the balance of such proceeds to be used
to reimburse Borrower for 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 determines 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.
(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: (1) 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 rental income from the
Mortgaged Property after completion of the
Restoration will be sufficient to meet all
operating costs and other expenses,
Imposition Deposits, deposits to reserves and
loan repayment obligations relating to the
Mortgaged Property; and (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.
(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 damaged 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 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. [RIGHT TO ONE
TRANSFER ONLY -- WITH LENDER APPROVAL]
(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;
(2) if Borrower is a limited
partnership, a Transfer of (A)
any general partnership
interest, or (B) limited
partnership interests in
Borrower that would cause the
Initial Owners of Borrower to
own less than 51% of all
limited partnership interests
in Borrower;
(3) if Borrower is a general
partnership or a joint
venture, a Transfer of any
general partnership or joint
venture interest in Borrower;
(4) if Borrower is a limited
liability company, a Transfer
of (A) any membership interest
in Borrower which would cause
the Initial Owners to own less
than 51% of all the membership
interests in Borrower, or (B)
any membership or other
interest of a manager in
Borrower;
(5) if Borrower is a corporation,
(A) the Transfer of any voting
stock in Borrower which would
cause the Initial Owners to
own less than 51% of any class
of voting stock in Borrower or
(B) if the outstanding voting
stock in Borrower is held by
100 or more shareholders, one
or more transfers by a single
transferor within a 12-month
period affecting an aggregate
of 5% or more of that stock;
(6) if Borrower is a trust, (A) a
Transfer of any beneficial
interest in Borrower which
would cause the Initial Owners
to own less than 51% of all
the beneficial interests in
Borrower, or (B) the
termination or revocation of
the trust, or (C) the removal,
appointment or substitution of
a trustee of Borrower; and
(7) a Transfer of any interest in
a Controlling Entity which, if
such Controlling Entity were
Borrower, would result in an
Event of Default under any of
Sections 21(a)(1) through (6)
above.
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:
(1) a Transfer to which Lender has
consented;
(2) a Transfer that occurs by
devise, descent, 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, if
before the grant Lender
determines that the easement
will not materially affect 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;
and
(6) the creation of a mechanic's,
materialman's, or judgment
lien against the Mortgaged
Property which is released of
record or otherwise remedied
to Lender's satisfaction
within 30 days of the date of
creation.
(c) Lender shall consent, one time only
and without any adjustment to the rate at
which the Indebtedness secured by this
Instrument bears interest, to a Transfer that
would otherwise violate this Section 21 if,
prior to the Transfer, Borrower has satisfied
each of the following requirements:
(1) the submission to Lender of
all information required by
Lender to make the
determination required by this
Section 21(c);
(2) the absence of any Event of
Default;
(3) the transferee meets all of
the eligibility, credit,
management and other standards
(including but not limited to
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 mortgages on
multifamily properties;
(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 mortgages on
multifamily properties;
(5) the loan to value ratio at the
time of the proposed Transfer
is 70% or less ("loan to value
ratio" means the ratio of (A)
the outstanding principal
balance of the Indebtedness to
(B) the value of the Mortgaged
Property, as determined by
Lender, expressed as a
percentage);
(6) the debt service coverage
ratio for the last twelve full
months preceding the proposed
Transfer was 1.35 or more
("debt service coverage ratio"
means the ratio of (A) the
annual net operating income
from the Mortgaged Property's
operations during that month
which is available for
repayment of debt, after
deducting operating expenses,
to (B) the annual principal
and interest payable under the
Note); and
(7) in the case of a Transfer of
all or any part of the
Mortgaged Property, (A) the
execution by the transferee of
an assumption agreement that
is acceptable to Lender and
that, among other things,
requires the transferee to
perform all obligations of
Borrower set forth in the
Note, this Instrument and any
other Loan Documents, and may
require that the transferee
comply with any provisions of
this Instrument or any other
Loan Document which previously
may have been waived by
Lender, and (B) if a guaranty
has been executed and
delivered in connection with
the Note, this Instrument or
any of the other Loan
Documents, the transferee
causes one or more individuals
or entities acceptable to
Lender to execute and deliver
to Lender a guaranty in a form
acceptable to Lender;
(8) in the case of a Transfer of
any interest in a Controlling
Entity, 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 guaranty in a form
acceptable to Lender; and
(9) Lender's receipt of all of the
following:
(A) a review fee in the
amount of $2,000.00;
(B) a transfer fee in an
amount equal to 1% of the
unpaid principal balance
of the Indebtedness
immediately before the
applicable Transfer; and
(C) the amount of Lender's
out-of-pocket costs
(including reasonable
attorneys' fees) incurred
in reviewing the Transfer
request.
22. EVENTS OF DEFAULT. The occurrence
of any one or more of the following shall
constitute an Event of Default under this
Instrument:
(a) any failure by Borrower to pay or
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, any of its
officers, directors, trustees, general
partners or managers 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 Event of Default under
Section 21;
(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.
However, 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;
(h) any failure by Borrower or any
beneficiary of Borrower to perform 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;
(i) any exercise by the holder of any
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; and
(j) Borrower voluntarily files for
bankruptcy protection under the United States
Bankruptcy Code or voluntarily becomes
subject to any reorganization, receivership,
insolvency proceeding or other similar
proceeding pursuant to any other federal or
state law affecting debtor and creditor
rights, or an involuntary case is commenced
against Borrower by any creditor (other than
Lender) of Borrower pursuant to the United
States Bankruptcy Code or other federal or
state law affecting debtor and creditor
rights and is not dismissed or discharged
within 60 days after filing.
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 forbearance 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 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. LOAN CHARGES. If any applicable
law limiting the amount of interest or other
charges permitted to be collected from
Borrower is interpreted so that any charge
provided for in any Loan Document, whether
considered separately or together with other
charges levied in connection with any other
Loan Document, violates that law, and
Borrower is entitled to the benefit of that
law, that charge is hereby reduced to the
extent necessary to eliminate that violation.
The amounts, if any, previously paid to
Lender in excess of the permitted amounts
shall be applied by Lender to reduce the
principal of the Indebtedness. For the
purpose of determining whether any applicable
law limiting the amount of interest or other
charges permitted to be collected from
Borrower has been violated, all Indebtedness
which constitutes interest, as well as all
other charges levied in connection with the
Indebtedness which constitute interest, shall
be deemed to be allocated and spread over the
stated term of the Note. Unless otherwise
required by applicable law, such allocation
and spreading shall be effected in such a
manner that the rate of interest so computed
is uniform throughout the stated term of the
Note.
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 enforce any Loan
Document.
27. WAIVER OF MARSHALLING.
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 determine 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 determine 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 permitted
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
certificates, 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 unmodified
and in full force and effect (or, if there
have been modification, that the Loan
Documents are in full force and effect as
modified and setting forth such
modifications); (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 performing 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 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 shall be addressed to the intended
recipient at its address set forth in this
Instrument, and shall be deemed given on the
earliest to occur of (1) 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 shall 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 shall 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/BENEFICIARY.
Until the Indebtedness is paid in full, (a)
Borrower and the beneficiary of Borrower (i)
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; (ii) shall not operate any business
other than the management and operation of
the Mortgaged Property; and (iii) shall not
maintain its assets in a way difficult to
segregate and identify, and (b) the
beneficiary of Borrower shall not acquire or
own the beneficial interest under any trust
other than the Borrower.
34. SUCCESSORS AND ASSIGNS BOUND. This
Instrument shall bind, and the rights granted
by this Instrument shall inure to, the
respective successors and assigns of Lender
and Borrower. However, a Transfer not
permitted by Section 21 shall be an Event of
Default.
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 beneficiary 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 Servicer 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 of the 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 force 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 enforcement
is sought.
38. CONSTRUCTION. The captions and
headings of the sections of this Instrument
are for 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 Agreement 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 loan 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
conflicting notices regarding the identity of
the Loan Servicer or any other subject, any
such notice from Lender shall govern.
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 but not limited
to 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 but not
limited to 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 all of the Indebtedness to be
immediately due and payable without further
demand, and may foreclose this Instrument by
judicial proceeding and may invoke any other
remedies permitted by Illinois law or
provided in this Instrument or in any other
Loan Document. The Indebtedness shall
include, Lender shall be entitled to collect,
and any decree which adjudicates the amount
secured by this Instrument shall include, all
costs and expenses incurred in pursuing such
remedies, including attorneys' fees, costs of
documentary evidence, abstracts and title
reports, any of which my be estimated to
reflect the costs and expenses to be incurred
after the entry of such a decree.
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. WAIVER OF HOMESTEAD AND REDEMPTION.
Borrower releases and waives all rights under
the homestead and exemption laws of the State
of Illinois. Borrower acknowledges that the
Mortgaged Property does not include
"agricultural real estate" or "residential
real estate" as those terms are defined in
735 ILCS 5/15-1201 and 5/15-1219. Pursuant
to 735 ILCS 5/15-1601(b), Borrower waives any
and all rights of redemption from sale under
any order of foreclosure of this Instrument,
or other rights of redemption, which may run
to Borrower or any other Owner of Redemption,
as that term is defined in 735 ILCS 5/15-
1212. Borrower waives all rights of
reinstatement under 735 ILCS 5/15-1602 to the
fullest extent permitted by Illinois law.
46. MAXIMUM AMOUNT OF INDEBTEDNESS.
Notwithstanding any provision to the contrary
in this Instrument, the Note or any other
Loan Document which permits any additional
sums to be advanced on or after the date of
this Instrument, whether as additional loans
or for any payments authorized by this
Instrument, the total amount of the principal
component of the Indebtedness shall not at
any time exceed three hundred percent (300%)
of the original principal amount of the Note
set forth on the first page of this
Instrument.
47. TRUSTEE'S EXCULPATION. This
Instrument is executed by the undersigned
trustee, not personally or individually, but
solely in its capacity as trustee of the land
trust which holds title to the Mortgaged
Property, in the exercise of the power and
authority conferred upon and vested in it as
trustee. It is expressly understood and
agreed by each original and successive owner
or holder of this Instrument that nothing
contained in this Instrument, including
without limitation the provisions of Section
18(m)(3), shall be construed as creating any
liability on the undersigned trustee in its
personal or individual capacity to perform
any of the obligations of the Borrower set
forth herein, and that any recovery against
the undersigned trustee under this Instrument
shall be solely against and out of the
Mortgaged Property.
48. 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:
|X| Exhibit A Description of
the Land (required).
|X| Exhibit B Modifications
to Instrument.
<PAGE>
IN WITNESS WHEREOF, Borrower has signed
and delivered this Instrument or has caused
this Instrument to be signed and delivered by
its duly authorized representative.
ATTEST/WITNESS: BORROWER:
AMERICAN
NATIONAL BANK AND TRUST
COMPANY OF
CHICAGO, not personally or
______________________________
individually, but solely as Trustee as set
forth above
By:
________________________________
Title:
________________________________
STATE OF ILLINOIS, ______________ County ss:
I, the undersigned, a Notary Public, in
and for the County and State aforesaid, do
hereby certify that _____________________ of
American National Bank and Trust Company of
Chicago, not personally or individually, but
solely as Trustee under the provisions of
Trust Agreement dated December 1, 1972, as
amended on May 6, 1976 and further amended on
November 30, 1992, and known as Trust Number
77424, personally known to me to be the same
person whose name is subscribed to the
foregoing instrument as such ______________
appeared before me this day, in person, and
acknowledged that (s)he signed and delivered
said instrument as his/her own free and
voluntary act, and as the free and voluntary
act of said banking corporation, as Trustee,
for the uses and purposes therein set forth;
and the said ____________________ did also
then and there acknowledge that he/she, as
custodian of the corporate seal of said
banking corporation, did affix the said
corporate seal of said banking corporation to
said instrument as his/her own free and
voluntary act, and as the free and voluntary
act of said banking corporation as Trustee for
the uses and purposes herein set forth.
Given under my hand and notarial seal this
_______ day of July, 1997.
______________________________
Notary Public
My Commission Expires:
___________________<PAGE>
EXHIBIT A
[DESCRIPTION OF THE LAND]
