Calexico City Council
September 2, 2026

AGENDA
ITEM
17 AGENDA
CALEXICO California ITEM

MEXICO MEET
17 CITY COUNCIL

AGENDA STAFF REPORT
DATE: September 2, 2026
TO: Mayor and City Council
APPROVED BY: Benjamin Martinez, City Manager
REVIEWED BY: Karla Chaparro, Finance Director Le
PREPARED BY: Benjamin Martinez, City Manager
SUBJECT: Consideration to Provide a Letter of Support for the Assumption of an Existing City of Calexico HOME Loan for Villa Del Este Apartments located at 1100& 1103 Avenida de Oro in the City of Calexico
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Recommendation:

Approve a Letter of Support for the Assumption of an Existing City of Calexico HOME Loan for Villa Del Este Apartments located at 1100 & 1103 Avenida de Oro in the City of Calexico.

Background:

The purpose of this report is for the City Council to consider issuing a letter to support a new affiliated entity to assume an existing City of Calexico HOME loan for Villa del Este Apartments. Villa del Este Apartments is a 100-unit apartment complex located at 1100 & 1103 Avenida de Oro that is restricted to occupancy by Low-and Very-Low-Income family households. The property was originally constructed in two phases in 1983 and 1985 utilizing United States Department of Agriculture (USDA) financing. All the property's revenue units (99 units) receive monthly rent subsidy pursuant to a project-based contract between USDA (now referred to as Rural Development) and the project's ownership.

In 2007, Villa del Este Apartments was acquired by its current ownership entity as a single-purpose limited partnership named Villa del Este L.P. Its general partner is an entity named Highland Property Development LLC (HPD). The acquisition of the property and mild rehabilitation performed ($20,000 per unit) were financed by mortgage loans provided by JP Morgan Chase, Rural Development, the California Department of Housing and Community Development (HCD), a HOME loan from the City of Calexico, and low-income housing tax credit equity provided by an investor limited partner. The HCD loan in the amount of $2,990,769 and the City of Calexico HOME loan in the amount of $1,363,887 each bear interest at 3% and are payable from 50% of residual cash flow relative to their loan principal balances.

5 Discussion and Analysis:

As of June 30, 2026 the outstanding principal balance of City of Calexico HOME loan was $1,363,887 and the accrued interest on the loan was approximately $678,631. Management of the property, coupled with the presence of a project-based rental subsidy contract has enabled the property to generate cash flow sufficient to pay its maximum annual permissible distribution (as prescribed by Rural Development).

Such distribution has included an annual payment of interest to the City of $7,773 since 2019 (commencing effective January 1, 2018, in accordance with the HOME loan agreement). In short, the City's HOME loan is current.

The City of Calexico loan has a term and affordability covenant of 55 years (through June 30, 2063), unless otherwise extended by the City. The initial compliance term imposed under the State's low-income housing tax credit program expired in 2022. The expiration of such compliance term provides property ownership the ability to transfer the property to a new-affiliated entity that will again include HPD as the general partner. It is HPD's intent for the new entity to apply for tax-exempt bonds and low-income housing tax credits to re-acquire the property at a price equal to the balance of the outstanding mortgage debt and renovate the property ($60,000 per unit). HPD has received approval from Rural Development and HCD to assume the outstanding balance of their loans and accrued interest on the property and is seeking the City of Calexico's approval to assume the outstanding balance of its loan and accrued interest under the existing terms.

HPD's proposal to renovate Villa del Este Apartments will not affect the tenants' portion of their monthly rent payment that will continue to be based on their household income. The renovation work will include the provision of a new 30-year roof, replacement and upgrade of life safety measures, ADA compliance, energy-efficiency measures, enhancement of the building's exterior and interior common areas, as well as replacement of the units' HVAC systems, water heaters, kitchen and bathroom cabinetry, countertops, appliances and other furnishings. The renovation work is expected to decrease the property's operating expenses and enable an increased cash flow. The transfer will permit Rural Development to increase the maximum annual permissible distribution that will accordingly increase the annual interest payment from property ownership to the City of Calexico.

The application deadline is September 8, 2026, for HPD's new entity to apply for tax-exempt bonds and Low-Income Housing Tax Credits to re-acquire the property. The bonds and tax credits are expected to be awarded on December 9, 2026. If awarded, HPD will return to the City of Calexico for final approval of the required documents.

Fiscal Impact:

There is no immediate budgetary expenditure associated with the proposed action. The City will Coordinated With:

City Manager's Department
Finance Department
City Attorney
2 Attachments:

1. Draft Letter of Support

2. HOME Loan Agreement

3. HOME Promissory Note

4. HOME Regulatory Agreement
Paul Patierno
Chief Financial Officer
Highland Property Development LLC
132 E. Lemon Avenue
Monrovia, California 91016
Subject: City of Calexico - HOME Investment Partnership Program Loan to HPD Oroville Manor L.P.

Dear Mr. Patierno,
This letter is in regards to a HOME Investment Partnership Program Loan in the original amount of $1,363,887 made by the City of Calexico (City) to HPD Villa del Este L.P. (Borrower) in June 2008. Such loan was made for the purpose of assisting the Borrower in acquiring and rehabilitating Villa del Este Apartments (Project), which is a 100-unit apartment complex located at 1100 & 1103 Avenida de Oro in the City of Calexico, restricted for occupancy by Low-and Very-Low Income family households. Highland Property Development LLC (Highland) serves as a general partner in HPD Villa del Este L.P.

Highland Property Development LLC (Highland) has informed the City that the Project reached the end of its initial low-income housing tax credit compliance term in 2022. Highland now desires to transfer the Project from the Borrower to a new, to-be-formed limited partnership entity (Villa del Este I1 LP) in which Highland will serve as General Partner that will acquire and rehabilitate the Project. The new entity will admit a new investor limited partner and will continue to operate the Project in its current capacity as a property restricted to occupancy by Low-and Very-Low Income family households.

Under the conditions described above, the City of Calexico will permit Villa del Este II LP to assume the currently outstanding balance of the City Loan ($1,363,887) under the existing terms of the Promissory Note, Loan and Regulatory Agreements dated June 30, 2008, between the City and Borrower. Such terms include repayment of the loan principal plus annual interest at a rate of 3% from 50% of the Residual Receipts of the Project's operations.

Signed...
...City Official
Loan Agreement
HOME Investment Partnerships Program
MPD Villa Del Este LP
Calexico, California
THIS AGREEMENT is made and entered into as of June 30, 2008, by and between the City of Calexico, a political subdivision of the State of California ("City"), and HPD Villa Del Este LP, a California limited partnership, with its principal place of doing business located at 250.

West Colorado Blvd., Suite 210, Arcadia, CA 91007.

WHEREAS:

Partnerships Ach COME Program Tried of tie ranson to sale atonal Affordible Housing Act ("ACT"), and amendments thereto; and
Program; and
HOME Progray to gloved pric rome gant domes or anitains not in. limited partnerships; and
Borrower has requested a loan of HOME Program funds for costs related to the construction of a proposed rental apartment unit project located in Calexico, California; and City desires to assist Borrower by lending HOME Program funds for certain construction and other activities of the Project as more particularly described herein below.

NOW, THEREFORE, in consideration of the covenants and conditions herein contained, City and Borrower mutually agree as follows:

Definitions. Except to the extent modified or supplemented by the HOME Program Agreement between City and HCD, any term defined in the ACT or the HOME Program regulations at 24 CFR Part 92, as amended, shall have the same meaning when used herein.
"Activity" shall mean the rehabilitation and other activities to be carried out in part with City HOME Program funds in connection with the Project, more particularly described in the attached Schedule "A", incorporated herein by this reference as if set forth in full.
7008527676 1
(b) "Borrower" shall mean HPD Villa Del Este LP, a California limited partnership, for the purposes of this Agreement.
(c) "Event of Default" shall mean the occurrence of any of the events listed in Section 36 hereof and the expiration of any applicable notice and cure period provided for in this Agreement and in all schedules, exhibits, and attachments that may be incorporated herein. "General Partners" shall mean HPD Villa Del Este LLC, a California limited liability company, the co-general partner of the Borrower whose principal place of doing business is located at 250 West Colorado Blvd., Suite 210, Arcadia, CA 91007 and Hearthstone Housing Foundation, a California nonprofit public benefit corporation, the managing general partner of the Borrower whose principal place of doing business is located at 5031 Birch Street, Suite F, Newport Beach, CA 92660.
"HOME-assisted units" shall mean the units in the Project that are designated to be managed and rented in accordance with the HOME Program regulations throughout the Period of Affordability. Twenty (20) units in the Project, as agreed to by City and Borrower, will be designated as the HOME-assisted units. "HOME Program" shall mean City's HOME Investments Partnership Program, including the administration thereof, with respect to the terms of the agreements between HCD and the City which commit HOME Program funds to the City. (g) "Loan" shall mean the loan of HOME Program funds by the City to the Borrower for Activity costs.
"Loan Documents" shall mean Schedules "A" and "B", and Exhibits "A" through "E", attached hereto and incorporated herein by this reference. (i) "Period of Affordability" shall mean the time period beginning at Project Completion and ending on the date fifty-five (55) years thereafter, during which the Project must remain affordable in accordance with 24 CFR 92.252, as amended. "Project" refers to Villa del Este 1 and Il Apartments, a development of one hundred (100) apartment units for persons who are low, very low and moderate income households, at a site located at 1100 Avenida de Oro, Calexico, State of California (the "Property"), and more particularly described in Exhibit "A", incorporated herein by this reference as if set forth in full.
(k) "Project Completion" shall have the same meaning as set forth at 24 CFR

92.2, as amended.
"Project Premises" shall mean the Project real property and any structures, appurtenances, fixtures, personality and/or any equipment thereon, whether or not attached permanently to the real property.
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The Loan.
(a) Purpose: the purpose of the Loan is to provide financing for the Activity. costs incurred pursuant to this Agreement, as more fully described in the attached Schedule "A".

Enforcement of Provisions: in order to enforce the terms of this Agreement, the Loan shall be evidenced by a Promissory Note ("Note"), a form of which is attached hereto as Exhibit "B". The Note shall be secured by a Deed of Trust and Assignment of Rents from Borrower for the benefit of the City, or its assigns, for the outstanding amount of the Loan, ("Deed of Trust"), a form of which is attached hereto as Exhibit "C" and incorporated herein by this reference. The HOME Program affordability requirements shall be enforced on the Project through a Regulatory Agreement in accordance with 24 CFR 92.504(c)(13), as amended, ("Deed Restriction"), a form of which is attached hereto as Exhibit "D" and incorporated herein by this reference. The Deed Restriction shall be recorded against the Project Premises and shall be superior to all other liens on the Project Premises, except any lien so approved in writing by the City Manager. In addition, Borrower shall execute and deliver to the City a ("Security Agreement"), a form of which is attached hereto as Exhibit "E" and incorporated herein by this reference, and a UCC-1 Financing Statement, in a form acceptable to City.
(c) If the Project does not comply with the affordability requirements as set forth in 24 CFR 92:252, as amended, during the Period of Affordability, Borrower shall have sixty (60) days after receipt of written notice from City to cure such default; provided, however, in the event Borrower is diligently pursuing the cure of such default during the sixty (60) day period, but such default cannot be cured within such sixty (60) day period but is capable of being cured, Borrower shall have an additional ninety (90) days to cure such default. If, after the expiration of such cure periods, Borrower shall have failed to cure the default, the Loan shall immediately become due and payable with interest accrued thereon plus City's actual out of pocket costs to the City.

Unless otherwise approved in writing, the Deed of Trust shall be junior only to any and all Project construction and/or permanent financing trust deeds referred to in Schedule "A".
(e) Borrower hereby acknowledges and stipulates that any and all loan repayments by Borrower shall, when received, be the sole property of the City, and, consistent with the law, can thereafter be used in any manner determined by the City Council.

Maximum Loan Funds Available Under Agreement and Mode of Payment.

City agrees to pay and Borrower agrees to accept, as Loan disbursements, progress payments as reimbursement for Borrower's costs incurred under this Agreement upon Borrower making satisfactory progress toward completion of the Activity as reasonably determined by City; provided, that the total Loan amount available to Borrower shall not exceed One Million Three Hundred Sixty-Three Thousand Eight Hundred Eighty-Seven Dollars 700852767v6 3
(S1,363,887). Borrower agrees to accept sole financial responsibility for all other costs as shown in Schedule "B", , related to the Project in excess of the One Million Three Hundred Sixty-Three Thousand Eight Hundred Eighty-Seven Dollars ($1,363,887), made available by the City pursuant to this Agreement.
(b) City's duty to make Loan funds available to Borrower is expressly contingent on City's receipt of HOME Program Funds from the Federal Government allocated for this Activity. In the event that HOME Program Funds are not received by City, Borrower agrees that City, at its sole option, may terminate or suspend this Agreement until such funds are received. Borrower hereby agrees to the foregoing without reservation or claim for future cause of action or suit in equity based thereon against City and agrees to hold City harmless.

Loan disbursements shall be made to Borrower as shown in Schedule "B", after execution of the Note, upon Borrower's submittal to City of certified claims executed by a properly designated official of Borrower indicating the percentage of the Activity that has been completed. Said certified claims shall be itemized and properly documented to show clearly the items, tasks or services for which Activity cost reimbursement is being claimed and the basis for cost computation whether by cost per hour, cost per weight, cost per task or other measurement as agreed by and between City and Borrower. Borrower agrees not to request Loan disbursements under this Agreement until funds are needed for payment of completed eligible Activity costs. Said certified claims shall also be itemized and properly documented to distinguish clearly among the items, tasks or services for which cost reimbursement is being claimed from the City Loan and from other sources of Project financing.

Upon receipt and approval (which approval shall be made in the reasonable discretion of the City) by City of certified claims for Activity to be paid for under this Agreement with HOME Program Funds, City shall make Loan disbursements to Borrower, or its designee(s), in an amount up to the maximum amounts permitted by HCD HOME rules and regulations. Advances on certified claims for any personal services contracts (e.g. services of mechanical engineer) shall be at one hundred percent (100%) of the claim amount.

Borrower hereby acknowledges and covenants that all mitigation and permit fees, which would be required of any other privately owned multiple family project in the City of Calexico of similar size and configuration, shall be paid from the proceeds of the Loan.

Term of Agreement. Except as otherwise provided at Sections 5 and 50, herein below, the term of this Agreement shall commence as of the first date written above, and continue until the Note is paid in full or the end of the Period of Affordability, which ever period is longer.

Termination of Agreement. City reserves the right to terminate this Agreement upon any breach of this Agreement and/or the Loan Documents by Borrower which continues beyond any stated cure period by giving Borrower written notice of its intention to terminate at least fifteen (15) business days prior to the effective date of the termination, in which event City 700852767v6 4
shall only disburse loan funds for work successfully completed as determined solely by City prior to the effective date of termination.

Project Cost Evaluation. Borrower agrees that, if Project costs are less than estimated in Schedule "B", and all costs advanced by the Borrower's General Partners) and/or costs deferred by said General Partners), have been repaid or paid in full, with the approval of the City Manager, the Loan funds available to Borrower for the Project shall be reduced to the amount required.

Borrower's Obligations and Conditions.
hereby agrees; ) As a conătion of the advance of any funds hereunder by City, Borrower 11) to assure reasonable access to the Project Premises by City and its. designees upon advance notice of at least one business day; (2) to execute the Note, the Deed of Trust, the Deed Restriction and Security Agreement (the "Loan Documents");
(3) to provide to City a preliminary title report with such exceptions and liens as acceptable by City, and if requested by City, an appraisal that meets the standards specified by the City. Such appraisal shall be from an appraiser acceptable to the City who is also licensed to practice in the State of California; (4) to provide documentation to City that all funds necessary to complete the Project as shown in Schedule "A", in the amount of not less than $10,788,133 will be available to Borrower;
to immediately pay all costs related to acquisition and development of the Project Premises in excess of the HOME Program Funds obligated pursuant to this Agreement when due; and
(6) to provide proof of insurance as specified in Section 34 herein at the City Manager's request for review and approval prior to start of Project construction. (b) Prior to and during the Period of Affordability, Borrower further agrees:
(1) to make improvements to the Project Premises in accordance with plans approved by the City Manager for that purpose;
(2), to furnish City, upon request, a copy of the marketing plan that Borrower plans to use to market and select occupants for the Project Premises. Borrower further agrees to make changes in the marketing plan in response to comments from City and to resubmit the marketing plan for City review and approval, so long as such changes are not in conflict with the provisions and requirements governing the Project Premises, 700852767v6 5
as previously or concurrently agreed to by the Borrower pursuant to and in conformance with the rules and regulations of the California Housing Finance Agency ("CHFA"), the California Debt Limit Advisory Committee ("CDLAC""), and/or the California Tax Credit Allocation Committee ("CTCAC"). Subject to the above conditions, Borrower will follow the marketing plan that is approved by City in renting HOME-assisted units to the client population;
accordance win 24 Cir 22 and rise rei, an ep alien population in, "Tenants," below;
(4) to. provide City with any and all reports reasonably required by this.

Agreement;
to allow City, HCD, their agents and designee(s) reasonable access to the Project Premises for purposes related to this Agreement upon 1 day advance notice; to maintain the Project Premises in a manner which meets the provisions of this: Agreement, and to establish City approved performance standards for the management, operation and maintenance of the Project and the Premises during the Period of Affordability, which standards may be judicially enforceable by the City as a remedy in addition to any and all others which may be provided by law. (c) Borrower shall complete acquisition, and commence rehabilitation of the Project Premises not more than twelve (12) months from the date of this Agreement, and will accept tenants not more than twenty-four months from the date of this Agreement, except that this time can be extended with the written approval of the City Manager.

Borrower shall be responsible for implementation of this Project.

Implementation shall include, without limitation, preparation of specification documents and any required plans, solicitation and hiring of contractors, construction engineering and inspection, contract administration and HCD compliance monitoring services. If requested by City, Borrower shall provide City with all plans and specifications, including changes requested by Borrower during construction, for the City Manager's review and approval prior to use.

Borrower shall be responsible for the maintenance and operation of the Project Premises during the Period of Affordability and Loan Term, whichever time period is greater.
(f All work performed by Borrower shall be completed satisfactorily and within the budgetary limits and time schedule milestones provided for in this Agreement in all naterial respects. City shall not be obligated to loan or otherwise reimburse Borrower for worl erformed subiect to this Agreement if said work is unsatisfactory to City (in its reasonable 70085276706 6
discretion) or completed subsequent to the time or times specified in this Agreement. Any and all modifications to the Agreement time schedules are at the sole option of the City Manager. (g) Borrower shall be responsible for complying with all applicable local, State, and Federal laws and regulations.
(h) Borrower shall cooperate fully with City in undertaking the Project and shall assure and permit City and its representatives, inspectors and consultants to enter upon the Project Premises during normal business hours upon advance notice of at least one business day to inspect the Project and materials to be used therein and to examine all contracts, records, test reports, plans and shop drawings which are kept at the Project site or at Borrower's offices.

Borrower shall cooperate with and shall use its best efforts to cause the Project Premises' general contractor and subcontractors) to cooperate with any such representatives, inspectors or consultants retained by City.

Borrower shall remain fully obligated under the provisions of this Agreement notwithstanding its designation of any third-party or parties for the undertaking of all or any part of the Activity to be completed under this Agreement, or the assignment of any of its obligations under this Agreement.

In its provision for rehabilitation of the improvements, Borrower (in collaboration with the City) shall conduct, as appropriate, a preconstruction conference.

Borrower shall be responsible for the control and safety of Borrower officers, employees, agents, or invitees during the implementation of this Project. Borrower shall take all actions necessary to insure the safety of its employees and invitees during the implementation of the Project and during the operation of the improvements constructed pursuant to this Agreement.

Subsequent to bid openings, if the City Manager determines that funds budgeted for the Project are insufficient to satisfactorily accomplish or complete the work referenced in this Agreement, Borrower shall have thirty (30) calendar days from the date of such determination to obtain additional Project funding beyond the City's maximum financial obligation or satisfactorily and appropriately reduce the scope of the Project, as provided for herein above. If the reduction of Project scope is not successful in satisfactorily lowering overall Project costs, City and Borrower agree to mutually terminate this Agreement according to the requirements and standards of 24 CFR Part 85.44, "Termination for Convenience", as amended. whatsoever to Borrower for expenses incurred after termination of this Agreement, nor shall the City incur any liability whatsoever for costs related to any subsequent completion of the improvements herein contemplated.
(m) As an express condition precedent to the Loan of any HOME Program Funds under the terms of this Agreement, Borrower shall execute and return to City the duly executed Loan Documents in forms acceptable to City.
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Borower shall comply with all applicable present and future Federal, State, and local laws, regulations and requirements including, but not limited to, all HOME Program regulations. If HCD directs City to modify the Agreement or any other aspect of the Project, Borrower shall amend this Agreement and/or modify the Project in a manner which is (o) Borrower shall not permit any lien, levy, attachment or restraint to be made or filed against the Project Premises or the Project or permit any receiver, trustee or assignee for the benefit of creditors to be appointed to take possession of the Project Premises or any portion of the Project except with the prior written consent of City. Mechanics or material liens shall be handled as described in Section 7(q) below. (P) Borrower shall obtain a policy of title insurance in the aggregate principal amount of the Note, free and clear of all encumbrances, except as approved by the City in writing on the date of the close of escrow.
(9) Borrower shall promptly discharge or cause to be discharged any and all mechanic's and/or materialmen's liens or claims of lien filed or otherwise asserted against the Project Premises, the Project and any proceedings for enforcement thereof and shall promptl lischarge or cause to be discharged any stop notices received by City

8. Tenants.
(a) Partnership shall carry out City's affirmative marketing responsibilities, as furnished by City in writing to Borrower.

During the Period of Affordability, a minimum of twelve (12) of the twenty (20) HOME-assisted Project units shall be occupied by families whose annual incomes do not exceed, at the time of occupancy, thirty percent (30%) of the median family income as established by HCD at rent levels that are consistent with 24 CFR 92.252, as amended, a minimum of four (4) of the twenty (20) HOME-assisted Project Units shall be occupied by (c) In all events, a minimum of twenty percent (20%) of all HOME-assisted Project units shall be occupied by Very Low-income households at rents that are no greater than the Low HOME rents, less the appropriate utility allowance established by the local housing 700852767v6 8
authority. Furthermore, in no event shall rents for any HOME-assisted Project unit exceed the High HOME rents, less the appropriate utility allowance established by the local housing authority.
(d) Borrower shall comply with 24 CFR 92.253, as amended, concerning tenant and participant protections.

9. Additional Security. Subject to the rights of Project superior trust deed holders, to which the City's rights as set forth hereunder shall be subordinated, in addition to any other security for the Loan provided herein, Borrower also gives to and confers upon City the right, power, and authority, during the term of this Agreement, to collect the rents, issues and profits of the Project Premises, reserving unto Borrower the right, prior to any default by Borrower in payment of any indebtedness secured hereby or in performance of any agreement hereunder, to collect and retain such rents, issues and profits as they become due and payable. Subject to the rights of Project superior trust deed holders, to which the City's rights as set forth hereunder shall be subordinated, upon any defaults and after the expiration of any applicable notice and cure period provided for herein, the City may, either in person, by agent, or by a receiver to be appointed by a court, and without regard to the adequacy of any security for the indebtedness hereby secured, enter upon and take possession of said Project Premises or any part thereof, in its own name sue for or otherwise collect such rents, issues, and profits, including those past due and unpaid, and apply the same, less costs. and expenses or for operation and collection, including reasonable attorney's fees, upon any indebtedness secured hereby, and in such order as the City may determine. The entering upon and taking possession of said Project Premises, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice.

Property Standards. The Project shall meet the property standards of 24 CFR

92.251, as amended, including the Model Energy Code published by the Council of American Building Officials. Borrower shall provide City with a certification from Borrower with respect to the Project meeting these standards.

11. City's Obligations.

Any regulation enacted by City to facilitate the administration of the HOME Program shall be made available to Borrower by the City. funds under this A recite will precis invoices of Borrower for the disbursement of Loam

12. Laws and Regulations.
(a) Borrower shall obey in all material respects the provisions of the Act, any amendments thereto, the Federal regulations and guidelines now or hereafter enacted pursuant to the Act, terms of the HOME Program agreement ("Standard Agreement'") between HCD and 700852767v6 9
City now or hereafter in effect, and the regulations now or hereafter enacted by the City to facilitate its administration of the HOME Program in the City of Calexico, or any other statute, regulation or guideline applicable to the HOME Program. Partnership shall become familiar with the appropriate statutes, regulations and guidelines governing the HOME Program.

Borrower agrees to comply in all material respects with all applicabl rovisions of the HOME Program regulations including, but not limited to, the Projec Requirements of Subpart F of 24 CFR 92, as amended.
(c) Borrower agrees that all provisions of State of California law are a part of this Agreement to the same extent as if set forth herein in full and shall be complied with by Borrower under this Agreement and any related agreements in all material respects and to the (d) During the Period of Affordability the Project shall meet the Housing Quality Standards of 24 CFR 882.109, as amended, and local housing code requirements. Not less than annually, City shall have the right to inspect, or cause to be inspected, the Project Premises to determine compliance with these standards during normal business hours and upon 1 day advance notice. City shall report all discovered noncompliance to Borrower and Borrower shall expeditiously take reasonable corrective actions to cure all such noncompliances.

Borrower will comply in all material respects with all applicable laws, ordinances, rules and regulations of federal (including but not limited to the HUD housing quality standards pursuant to 24 CFR 887.109, Section 504 of the Rehabilitation Act of 1973, as amended, and the American Disabilities Act of 1992), state and local governments and agencies having jurisdiction over either the Borrower, the Project or the Project Premises and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. All permits, consents, permissions and licenses required by any federal, state or local govemment or agency to which Borrower, the Project or the Project Premises is subject, which may be necessary in relation to this Agreement for the acquisition, development, rehabilitation or ownership of the Project, have been, or will be, obtained, and to the Borrower's kuowledge, none of such consents, permissions and licenses are subject to appeal or to conditions which have not been met.

13. Records and Administration. Borrower agrees to comply in all material respects with all applicable provisions and requirements in the administration and implementation of the Activity and in the maintenance of records. The following specific provisions apply to the Project:
(a) Borrower shall keep accurate records of its efforts to market the Project to prospective tenants and results of those efforts. At least annually during the Period of Affordability but more often if requested by City, Borrower shall provide City with a report which includes at a minimum the following:
700852167v6 10
a description of marketing and outreach carried out during the reporting period, including such items as clipped notices, flyers, advertisements, letters, (2) records of the race or ethnicity, gender, and family size of each applicant; and
records of the family income, rent paid, family size, race or ethnicity, and gender of each person who is a tenant during the reporting period.

In the event Borrower expends at least three hundred thousand dollars ($300,000) in Federal financial assistance in any single fiscal year, from all sources combined, upon City's request, Borrower shall arrange at its own expense for performance of a "Single Audit" of its entire operation by an independent auditor. Such audit shall comply with the requirements and standards of OMB Circular A-87, "Principles for Determining Costs Applicable to Grants and Contracts with State, Local and Federally Recognized Indian Tribal Governments", Public Law 98-502, "Single Audit Act of 1984"; 24 CFR 85.26, "Non-Federal Audit"; and OMB Circular A-133, "Audits of States, Local Governments, and Other Non-Profit Organizations."
The results of the audit must be submitted to City within thirty (30) days of completion. Acceptance of Borrower's audit reports by City does not prohibit City from performing any additional audit work required to follow-up on findings, as deemed necessary by City, or as necessary for City to comply with any administrative or audit requirements imposed by the Federal or State government.
(c) As a condition of receiving Federal financial assistance under this Agreement, Borrower agrees to comply with 24 CFR 85.42, "Retention and Access Requirements for Records." It is further agreed by Partnership that any agreement between Partnership and its independent auditor shall provide for access during normal business hours and upon 1 day advance notice to the independent auditor's work papers by Federal, State and City auditors, or their authorized agents, as may be deemed necessary to carry out their audit responsibilities, The audit agreement must also require Borrower's independent auditor to retain for review purposes said audit work papers for three (3) years from date of audit completion or until all related audit issues are resolved, whichever should occur later. (d) Borrower shall maintain a financial management system which complies with 24 CFR 84.20, "Standards for Financial Management Systems". (e) Borrower agrees to comply with the methods and procedures for payment as outlined in 24 CFR 85.21, "Payment", except as modified by 24 CFR 570.513, means "Lump Sum Drawdown for Financing of Property Rehabilitation Activities." (f) Borrower shall comply with the standards and requirements of 24 CFR

85.32, "Equipment."
70085276766 11
(g) Borrower shall comply with the requirements and standards of 24 CFR 85- 22, "'Allowable Costs."
(h) Borrower shall comply with the standards and requirements of 24 CFR

85.35, "Debarment and Suspension; Drug Free Workplace," and 24 CFR 85.40, 'Monitoring and Reporting Program Performance." Borrower further agrees that City has the right to monitor and supervise the administration and/or implementation of the Project to be completed pursuant to this Agreement to help insure compliance with the requirements of the Act as now or hereinafter amended, the Federal regulations as now or hereafter promulgated pursuant to the Act, or guidelines developed by the Federal government for administering and/or implementing the Project, or any other statute, rule, regulation or guideline applicable to the administration and/or (i) Borrower shall comply with the standards and requirements of 24 CFR

85.43, "Enforcement," and 24 CFR 85.44, "Termination for Convenience." Borrower also agrees that the City may, by unilateral action, terminate this Agreement upon any breach of this Agreement and/or the Loan Documents by Borrower which continues beyond any stated cure period by giving ten (10) days prior written notice to Borrower.

Borrower shall be accountable to City for any and all HOME Program funds expended by Borrower or any officer, employee, agent or representative thereof, whether or not such officer, employee, agent or representative thereof was acting within the scope of his employment. Borrower shall repay City the full amount of any improperly expended HOME Program funds upon demand and shall comply with the requirements of 24 CFR 85.51, "Later Disallowance's and Adjustments." City may retain any funds of Borrower in City's possession to liquidate the acknowledged debt resulting from such improper expenditure. (k) Borrower shall comply with the standards and requirements of 24 CFR

84.73, "Collection of Amounts Due."
(1) City may withhold funds from Borrower if Borrower is not complying in Program, the terms of this Agreement, or any other statute or regulation applicable to the HOME Program or administration thereof as determined solely by City. Should City become subject to any sanctions due to any failure by Borrower or Borrower's agent to comply with all applicable Federal, State, and local laws and regulations, Borrower hereby agrees to be solely liable for any such sanctions and shall fully reimburse, hold harmless, and indemnify City for any payments made or funding lost and the City's expenses related thereto, including City's reasonable attorney's fees, as a result of such sanctions.
(m) Borrower agrees to keep the Project Premises in good condition and repair, not remove or demolish any building thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged or destroyed thereon and to pay when due all claims for labor performed and materials furnished therefor, to 700852767v6 12
comply with all laws affecting said property or requiring any alterations or improvements to be added thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon said property in violation of law; to cultivate, irrigate, fertilize, fumigate; prune and do all other acts which from the character or use of said property may be reasonably necessary, the specific enumeration's herein not excluding the general.

14. Political Activity. Borrower agrees that no HOME Program Funds shall be expended to finance any political activity in contravention of the Hatch Act found at Chapter 15 of Title 5 of the United States Code, as amended.

15. Prohibited Use of Federal Funds for Lobbying. The Lobbying Disclosure Act of 1995 prohibits the awarding of federal funds to non-profit organizations under Section 501(c)(4) of the Internal Revenue Code, as amended, if they engage in lobbying.

Borrower certifies, to the best of its knowledge and belief, that no federally appropriated funds have been paid or will be paid, by or on behalf of Borrower, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection. with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal grant, loan, or cooperative agreement.

Borrower shall require that the language of this certification be included in the award documents for all subawards at all tiers (excluding subcontracts and contracts under grants, loans, and cooperative agreements) and that all subrecipients shall certify and disclose accordingly.

16. Use of HOME Program Funds for Religious Purpose. Borrower agrees that no HOME Program Funds shall be expended for the design, construction, operation, or maintenance of any facility to be used for sectarian instruction or as a place for religious worship except in those cases where such use is incidental and does not favor one religious group over another.

17. Litigation Status. Borrower warrants and represents that there are no legal actions pending that would materially affect the project.

18. Utilities. Etc. Borrower warrants and represents that all necessary telephone services, gas, electric power, storm sewers, sanitary sewers and water facilities are or will be available to the Project Premises, adequate to serve the Project, exist at the boundary of the Project Premises and are not or will not be subject to any conditions, other than normal charges to the utility supplier, which would limit the use of such utilities. All streets and easements necessary for construction and operation of the Project are available to the boundaries of the 700852767v6 13
No Condemnation. Borrower represents and warrants that as of the date hereof, no condemnation or other like proceedings are pending or to the best knowledge oi the Borrower, threatened against the Project which would impair the full utilization of the Project in

20. Prohibited Interest of Officials and. Employees. No member of or delegate to the Congress of the United States, and no resident commissioner, shall be admitted to any share or part of this Agreement or to any benefit to arise from the same. No member of the City Council of City or any other public official who exercises any functions or responsibilities with respect to the Program during his tenure, or for one (1) year thereafter, shall have any interest, direct or indirect, in any contract or subcontract, or the proceeds thereof, for work to be performed pursuant to this Agreement. Borrower shall incorporate or cause to be incorporated, in all contracts or subcontracts, relating in any manner to this Agreement, a provision prohibiting such interest.

The parties to this Agreement have read and are aware of the provisions of section 1090, et seq., and section 87100, et seg., of the Government Code relating to conflict of interest of public officers and employees.

Borrower agrees that it is unaware of any financial or economic interest of any public officer or employee of City relating to this Agreement. It is further understood and agreed that if such a financial interest does exist at the inception of this Agreement, City may immediately terminate this Agreement by giving written notice thereof. Borrower shall comply with the requirements of Government Code section 87100, et seq., during the term of this Agreement.

21. Equal Employment Opportunity. In carrying out the Project, Borrower shall not discriminate against any employee or applicant for employment because of race, color, religion, sex, national origin, age or handicap. Such action shall include, but not be limited to, the following: employment, upgrading, demotion or transfer, recruitment or recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and the selection for training, including apprenticeship. Borrower shall post in conspicuous places, available to employees and applicants for employment, notices to be provided by City and/or HCD setting forth the shal reve consideration for employment for reada mace that i gain, so plent. origin, age, or handicap.

Borrower hereby agrees that it will incorporate or cause to be incorporated into government pursuant to a grant, contract, loan, insurance, or guarantee, the equal opportunity 700852767v5 14
Borrower further agrees that it shall be bound by the equal opportunity clause required by the law with respect to its own employment practices when it participates in federally assisted construction work; provided, that the above equal opportunity clause is not applicable to any subsidiary, parent or related organization of Borrower which does not Borrower agrees that it shall assist and cooperate actively with City, HCD, and the Secretary of Labor in obtaining the compliance of contractors and subcontractors with the equal opportunity clause and the rules, regulations, and relevant orders of the Secretary of Labor; that it shall furnish City, HCD and the Secretary of Labor such information as they may require for the supervision of such compliance; and that it shall otherwise assist City and HCD in the Borrower agrees that it shall refrain from entering into any contract or contract modification subject to Executive Order 11246 of September 24, 1965, as amended, with a contractor debarred from, or who has not demonstrated eligibility for, government contracts and federally assisted construction contracts pursuant to the Executive Order and shall carry out such sanctions and penalties for violation of the equal opportunity clause as may be imposed upon contractors and subcontractors by HCD or the Secretary of Labor pursuant to Part 11, Subpart D of the Executive Order. In addition, Borrower agrees that if it fails or refuses to comply with these undertakings, HCD may take any or all of the following actions: Cancel, terminate, or suspend, in whole or in part, this Agreement; refrain from extending any further assistance to Borrower under the HOME Program with respect to which the failure or refusal occurred until satisfactory assurance of future compliance has been received from such; and refer the case to the Department of Justice for appropriate legal proceedings.

Nondiscrimination Requirements. In the provision of service under this and any related agreements, Borrower shall provide that no person shall on the grounds of race, color, national origin, religion, or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with HOME Program funds. In addition, HOME Program funds must be made available în accordance with the following:

The requirements of the Fair Housing Act and implementing regulations at 24 CFR 100, as amended;
Executive Order 11063 (Equal Opportunity in Housing), as amended; and (c) Title VI of the Civil Rights Act of 1964 (PL 88-352) and Title VIII of the Civil Rights Act of 1968 (PL 90-284), as amended, (nondiscrimination and fair housing on federally assisted programs)
By adition to the foregoing, Borrower shall comply with all nonaliscrimination clauses required 70085276706 15

23. Rehabilitation Act of 1973. This Agreement is subject to the provisions of Sections 503 and 504 of the Rehabilitation Act of 1973 (PL 930112), 29 USC 706, as amended, activity receiving Federal financial assistance. Borrower shall cause or require to be inserted in full, in all contracts subject to such regulations, the clause, or any modification thereof, required by law.

24. Nondiscrimination on the Basis of Age. This Agreement is subject to the Age Discrimination Act of 1975, as amended, (Title III of Public Law 94-135) and attendant Code of Federal Regulations at 48 CFR, Part 22, Subpart 22.9, as amended, which provides that, except as otherwise provided, no person in the United States shall, on the basis of age, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance.

25. Relocation and Acquisition. Borrower shall, in acquiring real property in connection with the HOME Program, comply to the greatest extent practicable under State law with the real property acquisition policies set out under Sections 301 and 302 of Title IIl of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, P.L.-642, as amended, and shall comply with and pay or reimburse property owners for necessary expenses as specified in Sections 303 and 304 of the aforementioned Title 111, and implementing regulations at 49 CFR Part 24, as amended.

26. Environmental Considerations. In order to assure that the policies of the National Environmental Policy Act of 1969 (NEPA), as amended, and the California Environmental Quality Act of 1970 (CEQA), as amended, are most effectively implemented, Borrower shall comply with HCD Environmental Review Procedures (24 FR Part 58), as amended, leading to certification of release of funds for particular projects, and the CEQA review procedure in connection with this Project.

27. Lead-Based Paint Hazards. As specified in the HOME regulations at 24 CFR

92.355, Borrower agrees to abide by the requirements of the Lead-Based Paint Poisoning Prevention Act (42 U.S.C. 4821 et seq.) as amended, and 24 CFR Part 35 which prohibit the use of lead-based paint on applicable surfaces of any residential structures constructed or rehabilitated under any Federal or federally assisted program. Such regulations shall require Borrower to include or cause inclusion of appropriate provisions in contracts and subcontracts pursuant to which such federally assisted construction or rehabilitation is performed, prohibiting such use of lead-based paint. Borrower shall be responsible for inspection and certifications required for enforcement of such prohibitions.

Hazardous Materials. To the best of Borrower's knowledge, the Project Premises are not in violation of any Federal, State or local law, ordinance or regulation relating to industrial hygiene or to the environmental conditions on, under or about the Project Premises including, but not limited to, soil and groundwater conditions. Neither Borrower nor, to the best 700852767v6 16
of Borrower's knowledge, any third-party has constructed, used on or about the Project Premises or transported to or from the Project Premises any flammable explosives, radioactive materials, asbestos in any form which is friable or physically could become friable, hazardous wastes, toxic substances or other related materials whether in the form of a chemical, element, compound, solution, mixture or otherwise ("Hazardous Materials"). For the purpose of this Agreement, Hazardous Materials shall include, but not be limited to, substances defined as "hazardous substances," "hazardous materials," or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S:C. §9601, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. §1801, et seq.; the Resource Conseryation and Recovery Act, as amended, 42 U.S.C. §6901 et seg.; those substances defined as "hazardous waste" in Section 25117 of the California Health & Safety Code, as amended, or as "hazardous substances" in Section 25316 of the California Health & Safety Code, as amended; and in the regulations adopted and publications promulgated pursuant to said laws.

Partnership agrees to submit, if requested by City at any time and from time-to- time, a current up-to-date report, satisfactory to City in its sole and absolute discretion, prepared by a consultant approved by City, certifying that the Project Premises and the improvements thereon are neither being used nor have they been used for any activities involving, directly or indirectly, the use, generation, treatment, storage or disposal of any Hazardous Materials, and City reserves the right, in its sole and absolute discretion, to retain, at Borrower's sole expense, an independent professional consultant to review such report. Borrower hereby grants to City, its agents, employees, consultants and contractors, the right to enter upon the Project Premises and the improvements thereon and to perform such tests as are reasonably necessary to conduct such a Other than as required by Borrower in the ordinary course of maintaining the Project Premises (i.c., landscape gardening and janitorial maintenance), during the term of this Agreement, Borrower shall not keep, store or place in or on the Project Premises any material(s) that is in any way Hazardous Material, or which requires investigation or remediation under any Federal, State or local law, statute, regulation or ordinance ("Applicable Laws"). Borrower shall cleanup and dispose of any deposit, spill, discharge or other release of Hazardous Material which occurs during the term of this Agreement in accordance with all Applicable Laws. Borrower shall provide any information, make any and all submissions and take any steps mandated by any legal requirement or required by any governmental authority or court which has jurisdiction, with respect to any Hazardous Material which Borrower is required to cleanup. Borrower's obligations shall survive the termination of this Agreement.

Flood Disaster Protection. Borrower agrees to abide by the requirements of the Flood Disaster Protection Act of 1973 (P.L. 93-234), as amended. No portion of the assistance provided under HOME Program funded agreements is approved for acquisition or construction equirements for participation in the national flood insurance program pursuant to Section 20 d) of the Flood Disaster Protection Act, and the use of any assistance provided under gran funded agreements for such acquisition or construction in such identified areas in communities 700852767v6 17
then participating in the national flood insurance program shall be subject to the mandatory purchase of flood insurance requirements of Section 102(a) of the Flood Disaster Protection Act.

Any contract or agreement for the sale, lease, or other transfer of land acquired, cleared or improved with assistance provided under HOME Program funded agreements shall contain, if such land is located in an area identified by the Secretary as having special flood hazards and in which the sale of flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, provisions obligating the transferee and its successors or assigns to obtain and maintain, during ownership of such land, such flood insurance as required with respect to financial assistance for acquisition or construction purposes under Section 102(a) of the Flood Disaster Protection Act of 1973. Such provisions shall be required notwithstanding the fact that the construction on such land is not itself funded with HOME Program assistance.

In its compliance with the Flood Disaster Protection requirements, Borrower hereby agrees to comply with the provisions of Executive Order 11296, relating to evaluation of flood hazards, and with Executive Order 11288, relating to the prevention, control, and abatement of water pollution.

Affirmative Action of Special Disabled and the Vietnam Era Veterans Provisions.

Borrower shall comply with 48 CFR, Chapter 1, Subpart 22.13 as amended, and shall take affirmative action to employ, advance in employment and otherwise treat qualified disabled veterans and veterans of the Vietnam era without discrimination based on their disability or veterans status in all employment practices such as the following: Employment, upgrading, demotion or transfer, recruitment, advertising, layoff or termination, rates of pay or other forms of compensation, and selection for training, including apprenticeship. In all contracts or agreements of ten thousand dollars ($10,000) or more relating to this Agreement, Borrower shall include or cause to be included the "Affirmative Action for Special Disabled and the Vietnam Era Veterans Provisions' clause required by law.

31. Americans with Disabilities Act of 1990. Borrower and all HOME Program contractors and subcontractors shall agree to abide by the requirements of the Americans with Disabilities Act of 1990, Public Law 101-336, as amended, and any regulations issued pursuant thereto, which prohibits, at Title I thereof, discrimination by any employer, employment agency, or labor organization against any qualified individual with a disability in regard to any term, condition, or privilege of employment; makes applicable, at Title 11 thereof, the prohibition against discrimination on the basis of disability to all programs, activities and services provided or made available by State and local agencies or instrumentalities or agencies thereof, or by public entities that provide public transportation; prohibits, at Title III thereof, discrimination against disabled persons by privately operated public accommodations and in public transportation services provided by private entities; and which, at Titles IV and V thereof, makes further provision against discrimination against disabled persons.

32. Architectural Barriers Act of 1968. This Agreement is subject to the requirements of the Architectural Barriers Act of 1968, as amended, and the regulations issued pursuant 700852767v6 18
thereto, which provides, except as otherwise provided, that every building be designed, constructed, leased, or altered in accordance with the minimal standards in the "American Standard Specifications for Making Buildings and Facilities Accessible to, and Usable by, the Physically Handicapped", published by the American National Standards Institute, Inc.

Indemnification. Borrower agrees to indemnify, defend (upon written request by City) and hold harmless City, HCD, their agents, officers, employees and authorized representatives from any and all losses, liabilities, costs, expenses, charges, damages, claims, liens, and causes of action, of whatsoever kind or nature (including, but not limited to, reasonable attorneys' fees) which are in any manner directly or indirectly caused, occasioned or contributed to in whole or in part, through any act, omission, fault or negligence, whether active or passive, of Borrower or Borrower's officers, agents, employees or authorized representatives, which relates in any manner to this Agreement, any work to be performed by Borrower under this Agreement, or any authority delegated to Borrower under this Agreement, even though the same may have resulted from the joint, concurring or contributory negligence, whether active or passive, of City or any other person or persons, unless the same is caused by the gross negligence or willful misconduct of the party indemnified or held harmless.

34. Insurance. Borrower, in order to protect City, HCD, their agents, officers, and employees against all claims and liability for death, injury, loss and damage as a result of Borrower's actions in connection with the performance of Borrower's obligations, as required in this Agreement, shall secure and maintain insurance as described below in sub-paragraphs (a) and (b), and shall require that all contractors hired by Borrower to perform work on the Project Premises to secure and maintain insurance as described below in sub-paragraph (c) Borrower shall be responsible for any deductibles under all required insurance policies.

Workers' Compensation Insurance Requirement -- Borrower shall submit written proof that Borrower is insured against liability for workers' compensation in accordance with the provisions of Section 3700 of the Labor Code.

In signing this Agreement, Borrower makes the following certification, required by Section 1861 of the Labor Code:
"It is aware of the provisions of Section 3700 of the Labor Code which require every employer to be insured against liability for workers' compensation or to undertake self-insurance in accordance with the provisions of that code, and it will comply with such provisions before commencing the performance of the work of this Agreement."
(b) Liability Insurance Requirements:
(1) Borrower shall maintain in full force and effect, at all times during the term of this Agreement, the following insurance coverage:
700852767v6 19
Commercial General Liability Insurance coverage.
including, but not limited to, Premises-Operations, Contractual Liability Insurance (specifically concerning the indemnity provisions of this Agreement), and Personal Injury for liability arising out of Borrower's operations of the Project Premises, including any use or occupancy of its facilities, grounds and tructures. Said insurance coverage shall have minimum limits for Bodily Iniu nd Property Damage liability of One Million Dollars ($1.000.000) eac occurrence and Two Million Dollars ($2,000,000) aggregate.

Automobile Liability Insurance (if applicable) with a
combined single limit of not less than One Million Dollars ($1,000,000) per occurrence. Such insurance shall include coverage for all owned, hired and non- owned vehicles and shall be provided by a business or commercial vehicle policy.

Upon acquisition of the Property (or if there are no
improvements on the Property, upon completion of construction of any improvements) Borrower shall maintain Fire and Extended Coverage Insurance on a blanket basis or with an agreed amount clause in amounts not less than 100% of the Project's replacement value.

The Commercial General Liability Insurance required in this sub- paragraph (b) and sub-paragraph (c) below shall include an endorsement naming the City, HCD and their officers, agents and employees as insured as their interests may appear.

Upon acquisition of the Property by Borrower, evidence of insurance in compliance with the requirements above shall be furnished to the City Manager by Certificate of Insurance. Said insurance shall not be reduced or canceled vithout thirty (30) days prior written notice to City
Contractor Insurance Requirements. During the rehabilitation of the Project, Borrower shall require that all contractors hired by Borrower to perform work on the Project Premises maintain the following insurance coverage at all times during the performance of said work:
(1) Builders Risk Insurance to be written on an All Risk Completed Value form, in an aggregate amount equal to 100% of the completed insurable value of the improvements.

Commercial General Liability Insurance with limits of not less han One Million Dollars ($1,000,000) each occurrence and Two Million Dollar:
$2,000,000) aggregate to protect Borrower during the construction phase from claim involving bodily injury and/or death and damage to the property of others. Said insurance shall include an endorsement to include owners' and contractors' protective coverage.
700852767v6 20
Automobile Liability Insurance with a combined single limit of not les than for alien dalise and 00)ved crete and hal be pral in by de business or commercial vehicle policy.
(d) Cancellation of Insurance - The above stated insurance coverage shall be maintained by Borrower until the expiration of this Agreement if an occurrence policy is used.

Also, phrases such as "endeavor to" and "But failure to mail such notice shall impose no obligation or liability of any kind upon the company" shall not be included in the cancellation working of the Certificate of Insurance.
(e) All insurance shall be issued by a company or companies listed in the current "Best's Key Rating Guide" publication with a minimum of a "Bt;V" rating, or in special circumstances, be pre-approved by both the Risk Management Division of the Office of City Attorney and the City Manager.

If Borrower is, or becomes during the term of this Agreement, self-insured or a member of a sell-insurance pool, Borrower shall provide coverage substantially equivalent to the insurance coverage and endorsements required above. The City Manager, or his designee, and the City's Risk Management Division shall determine, in their sole discretion, whether the coverage proposed to be provided by Borrower is substantially equivalent to the above-required coverage.
(g) Insurance coverage in the minimum amounts set forth herein shall not be construed to relieve Borrower for liability in excess of such coverage, nor shall it preclude the City from taking such other actions as are available to it under any other provision of this Agreement or otherwise in law.

Failure by Borrower or Borrower's contractors) to maintain all such obtain and maintain the insurance coverage required by this Agreement.

35. Eminent Domain. Subject to the parallel rights of any and all Project Premises and/or Project superior trust deed holders, to which the City's rights as set forth hereunder shall be subordinated, in the event that any proceeding or action is commenced for the taking of the Project Premises or the Project, or any part thereof or interest therein, for public or quasi-public use under the power of eminent domain, by reason of any non-City public improvement or non- 700852767v6 21
City condemnation proceeding, or in any other manner, or should Borrower receive any notice or other information regarding such proceeding, action, taking or damage, Borrower shall give prompt written notice thereof to City. City shall be entitled, at its option, without regard to the adequacy of its security, to appear in and prosecute in its own name any condemnation action or proceeding. City shall also be entitled to make any compromise or settlement in connection with such taking or damage; provided, however, City must first obtain Borrower's consent to any such compromise or settlement (which consent shall not be unreasonably withheld, conditioned or delayed). After deducting therefrom all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit, including, without limitation, reasonable attorneys' fees) incurred by it in connection with any such action or proceeding, City shall distribute such condemnation proceeds to Borrower to repair or replace the Project Premises or the Project with any balance applied to the Loan. Notwithstanding the foregoing, City shall be under no obligation to prosecute such condemnation actions) or proceeding(s).

36. Events of Default.
(a)
ovenant. agreement, provision or warranty contained in this Agreement. and/or the Loa Documents, including but not limited to the following:

Borrower fails to pay all or any installment of principal, interest or cost under the Note when due after seven (7) days written notice from the City; or (2) Borrower fails to pay any other amount payable by Borrower under this Agreement or the Loan Documents after seven (7) days written notice from the City when due; or
(3) Any lien is recorded against all or any part of the Project Premises or the Project without the City's prior written consent, whether such lien is prior or subordinate to the liens of the Deed of Trust or the Deed Restriction, and such lien is not removed from the title or otherwise remedied to the City's satisfaction after thirty (30) days written notice from the City; or
Any representation or warranty made by Borrower in this Agreement and/or any Loan Document proves to have been incorrect in any material respect when made; or
All or a substantial or material portion of the Project is damaged or destroyed by fire or other casualty, and the City has reasonably determined upon restoration or repair that the security of the Deed of Trust has been impaired or that the repair, restoration or replacement of the Project in accordance with the requirements of the Deed of Trust is not economically practicable or is not completed within two (2) years of the receipt of insurance; or all or a substantial or material portion of the Project and/or Project Premises is condemned, seized or appropriated by any governmental agency or subject to any action or other proceeding instituted by any governmental 700852767v6 22
agency for any such purpose such that the Project and/or Project Premises cannot be operated for their intended purpose; or
Borrower is dissolved or liquidated or merged with or into any other entity; or for any period of more than ten (10) days Borrower ceases to exist in its present form and/or ceases to be in good standing and duly qualified under the laws of the State of California; or all or substantially all of the assets of Borrower are sold or otherwise transferred; or
(7) Borrower assigns or attempts to assign any rights or interest under this Agreement or any Loan Document, whether voluntarily or involuntarily, without the prior written consent of the City; or this Agreement or any Loan Document becomes or is claimed by Borrower to be unenforceable against Borrower, or the Deed of Trust ceases to constitute a valid and indefeasible perfected lien on the Project Premises; or (8) A voluntary or involuntary filing for relief by or for Borrower under the United States Bankruptcy Code which is not stayed within thirty (30) days; or Borrower fails to perform or observe any other term, covenant or agreement contained in this Agreement or any Loan Documents and, unless a shorter cure period is stated in any of the Loan Documents, either (i) such failure continues for more than sixty (60) days after City's written notice thereof, or (i) such failure is not reasonably capable of being cured within such 60-day period, but is reasonably capable of being cured within an additional ninety (90) days, but Borrower or its limited partner(s) fails to commence action to cure such failure within such 60-day period and/or fails to diligently and continuously prosecute such action to completion within the additional ninety (90) days.
(b) Subject to the rights of Project's superior trust deed holders, to which the City's rights as set forth hereunder shall be subordinated, on the occurrence of one. or more Events of Default, in addition to its other rights in this Agreement or in any of the Loan Documents, and its rights and/or remedies at law, or in equity, the City may, without prior demand, exercise any one or more of the following rights and remedies:
(1) Termination of Disbursements: terminate its obligation to make Loan disbursements; and/or,
Apply to any court, State or Federal, for specific performance of Agreement and the Loan Documents, or for such other relief as may be appropriate. It is og ted by Bemen o that the an oct Cents wong feierble and eat the the unt of compensation which would provide adequate relief to City, in light of the purposes and 7008527676 23
(3) Acceleration: declare the Note and all other sums owing to the City with respect to the Note delivered herewith immediately due and payable in full; and/or, make any other or further Loan disbursements, regardless of the City's previous exercise (5) Legal and Equitable Remedies: proceed as authorized at law or in quity with respect to the Event of Default, and in connection with that, remain entitled cercise all other rights and remedies described in this Agreement and/or the Loa Documents.

Borrower agrees to pay all of City's costs, fees and expenses, includin easonable attorney's fees, costs and expenses, with respect to the City's exercise of any of it rights and remedies under this Agrecment.
(d) In the event of a conflict between an Event of Default under this Agreement and the Deed of Trust, the terms of this Agreement shall control.

Notwithstanding anything to the contrary contained in any of the Loan Documents, the City hereby agrees that prior to the exercise of any of its remedies available following an Event of Default, the City shall provide notice to the limited partners of the Borrower and, in addition to providing such limited partners with the same period of time to cure any Event of Detault as attorded to the Borrower, shall accept or reject the tender of cure by the limited partners on the same basis as if tendered by the Borrower.

37. "Section 3 Compliance in the Provision of Training, Employment and Business Opportunities for Lower-Income Persons". This Agreement is subject to the requirements of Section 3 of the Housing and Urban Development Act of 1968 (12 USC 1701u), as amended, the HCD regulations issued pursuant thereto at 24 CFR Part 135, and any applicable rules and orders of HCD issued thereunder. The purpose of Section 3 is to ensure that employment and other economic opportunities generated by HCD assistance or HCD-assisted projects covered by Section 3. shall, to the greatest extent feasible, be directed to low and very low income persons particularly persons who are recipients of HCD assistance for housing.

Borrower shall cause of require to be inserted in full in all contracts and econtent To Section 3 clause sited, Training, Employmen and Busines Opportunity has required by law.

Borrower shall provide such copies of 24 CFR Part 135 as may be necessary for the information of the parties to contracts required to contain the Section 3 clause. 700852767v6. 24
Small Business Concerns. This Agreement is subject to the requirements of the Small Business Act (15 USC 631 et seq.), as amended, the HCD applicable regulations issued pursuant thereto at 48 CFR, Part 19, and any applicable rules and orders of HCD issued thereunder requiring aid, counseling, assistance, and protection, insofar as possible, with, for, or of the interests of small business concerns in order to preserve free competitive enterprise; and placement with small business concerns of a fair proportion of the total Federally funded purchases and contracts for property and services.

Borrower shall implement the specific small business policies herein below stated in order to further applicable requirements of the Small Business Act:
(a) Small business concerns shall be afforded an equitable opportunity to compete for prime contracts and subcontracts. The Utilization of Small Business Concerns" clause as required by law shall be included by Borrower in all contracts in connection with this Activity in amounts which may exceed ten thousand dollars ($10,000) except (i) contracts which, including all subcontracts thereunder, are to be performed entirely outside the United States, and (ii) contracts for services which are personal in nature. The "Small Business Subcontracting Program" clause as required by law shall be included by Borrower in all contracts in connection with this Project which may exceed five hundred thousand dollars ($500,000) and which, in the opinion of the City, offer substantial subcontracting possibilities. (b) Bidders mailing lists shall include established and potential qualified small business concerns.
(c) Invitations for bids or requests for proposals shall be sent to all firms on the appropriate mailing list except that where use of less than a complete list is appropriate, a prorata number of small business concerns shall be solicited. accordance wit these policised procurements and contract awards shall be publicized in Procurement of property and services shall be divided into reasonably small lots (not less than economic production runs) in order to permit bidding on quantities less than the total requirements.

The maximum amount of time practical shall be allowed for preparation and submission of bids and proposals.

Delivery schedules shall be established on a realistic basis which will encourage small business participation to the extent consistent with the actual requirements of the Small Business Act.

Applicable specifications, plans, and drawings either shall be furnished with invitations for bids and requests for proposals or, when not so furnished, information as to locations where they may be obtained or examined shall be furnished. 700852767v6 25
Subpar 140%, Equat Lovent of equal low bids, awards shall be in accordance with 48 CFR (i) Subcontracting to enroll business concerns shall be encouraged.

Placement of small purchases (amounts under twenty five thousand dollars ($25,000) with small business concerns shall be encouraged.

Small business concerns seeking Federal contracts, but found to lack qualifications as prime contractors, should be referred to the City and the Small Business Administration for assistance as may be appropriate.
(m) Offers from small business concerns otherwise qualified to perform specific Federal contracts but ineligible under Walsh-Healey Public Contract Acts, 41 USC 35 et seq., shall be referred to the City and Small Business Administration for possible certification of eligibility to receive and perform the contract.
(n) To the extent practicable, work to be performed which exceeds the maximum amount of any contract for which a surety may be guaranteed against loss shall be placed so that more than one small business concern may perform the work.

A small business concern otherwise qualified to receive and perform specific Federal contracts but determined to be nonresponsible may be certified to be competent by the Small Business Administration under the provisions of the Small Business Act.

39. Federal Labor Standards Provisions. Borrower and all contractors engaged under contracts for the construction, alteration, and/or repair of any project with twelve (12) of more HOME-assisted units shall comply with HCD requirements pertaining to such contracts and the applicable requirements of the regulations of the Department of Labor under 29 CFR Part 3,5, and Sa, as amended, governing the payment of wages and the ratio of apprentices and trainees to journeymen; provided, that it wage rates higher than those required under such regulations are imposed by State or local law, nothing hereunder is intended to relieve the Partnership or contractors of their obligation, it any, to require payment of higher rates. Borrower shall cause or require to be inserted in full, in all such contracts subject to such regulations, the appropriate clause(s), or any modification thereof, as required by law.

No awards of contracts covered under this Section of this Agreement shall be made to any contractor who is ineligible under the provisions of any applicable regulations of the Department of Labor to receive an award of such contract.

40. Compliance with Clean Air and Water Acts. This Agreement is subject to the requirements of the Clean Air Act, as amended, 42 USC 7401 et seq., the Federal Water Pollution Control Act, as amended, 33 USC 1251 et seq., Executive Order 11738, dated September 10, 1973, and the regulations of the Environmental Protection Agency with respect thereto at 40 CFR Part 15, as amended.
700852767vб 26
Borrower shall cause or require to be inserted in full in all contracts and subcontracts in connection with this Activity with respect to any nonexempt transaction (exceeds one hundred thousand dollars ($100,000), or involves a facility the subject of a conviction under the Clean Air Act, or the Federal Waste Pollution Control Act, and listed by the Environmental Protection Agency, or not otherwise exempt) thereunder funded with assistance provided under this Agreement, the appropriate clause(s) as required by law.

Furthermore, Borrower shall cause or require to be inserted in full the appropriate provisions required by law in each solicitation and resulting contract and contracts awarded without reference to a solicitation.

In no event shall any amount of assistance provided under this Agreement be utilized with respect to a facility which has given rise to a conviction under Section 11 3(c)(1) of the Clean Air Act or Section 309(C) of the Federal Water Pollution Control Act.

Successors and Assigns of City and Partner. This Agreement shall be binding and inure to the benefit of the successors to or assigns of the City and Borrower. This Agreement shall not be assigned without the prior written consent of the City.

Concurrent Remedy. No right or remedy herein conferred on or reserved to City is exclusive of any other right or remedy herein or by law or equity provided or permitted; but each shall be cumulative of every other right or remedy given hereunder or now or hereafter existing by law or in equity or by statute or otherwise, and may be enforced concurrently therewith or from time to time.

43. No Waiver. No covenant or condition of this Agreement can be waived except by the written consent of City. Forbearance or indulgence by City in any regard whatsoever shall not constitute a waiver of the covenant or condition to be performed by Borrower. A waiver of one (1) covenant or condition by City does not grant or imply a waiver of any other covenant or condition to be performed by Borrower. City shall be entitled to invoke any remedy available to City under this Agreement or by law or in equity despite said forbearance or indulgence.

Incorporation of Prior Agreements and Amendments. This Agreement contains the sum total of all agreements of the parties with respect to any matter mentioned herein. No rior agreement or understanding pertaining to any such matter shall be effective. Thi greement may be modified in writing only, signed by the parties in interest at the time of th Severability. The invalidity of any provision of this Agreement, as determined by a court of competent jurisdiction, shall in no way effect the validity of any other provision hereof.

Lender-Borrower Relationship. In the performance of the activities herein provided for, Borrower shall be, and is, a borrower and is not a partner, an agent or employee of City. Borrower has and shall retain the right to exercise full control and supervision of the 700852767v6 27
activities to be performed under this Agreement and full control over the employment, direction, compensation, and discharge of all persons assisting Borrower in the performance of said activities. Borrower shall be solely responsible for all matters relating to the payment of its employees, including compliance with social security withholding, State and Federal taxes, and all other regulations governing such matters.

47. Relationship of Parties. The relationship of Partnership and City under this Agreement is, and shall at all times remain, solely that of lender and borrower. City neither undertakes nor assumes any responsibility or duty to Borrower or to any third party with respect to the Project or the Project Premises, except as expressly provided in this Agreement.

Venue. If either party to this Agreement initiates any legal or equitable action to enforce the terms of this Agreement and/or any of the Loan Documents, to declare the rights of the parties under this Agreement and/or Loan Documents, or which relates to this Agreement and/or Loan Documents in any manner, City and Borrower agree that the proper venue for any such action is the Superior Court of the State of California of and for the County of Imperial, unless the amount in the controversy falls below the jurisdiction of the Superior Court, in which case, the proper venue for any such action is in the Municipal Court of Imperial County-

49. Authority. Each individual executing this. Agreement on behalf of Borrower represents and warrants that he is duly authorized to execute and deliver this Agreement on behalf of Borrower and that this Agreement is binding on Borrower in accordance with its terms.

50. Procedure to Modify and Limitation of Term of Agreement. (a) Except as otherwise provided herein, the terms of this Agreement may only be modified by the written consent of the parties hereto. (b) This Agreement shall be in effect through the Period of Affordability or ending with repayment with interest of HOME Program Funds loaned by City to Borrower, whichever time period is greater, except that Borrower shall retain records as is required in Section 13 of this Agreement entitled "Records and Administration".

Notices. Notices shall be sufficiently given herein under if personally served upon the Clerk of the City Council or if sent by United States Mail, postage prepaid, directed to the City, addressed to:

City of Calexico
608 Heber Avenue
Calexico, CA 92231
Attn: City Manager
•
7008527676 28
If directed to Borrower, addressed to:

HPD Villa Del Este LP
c/o Highland Property Development, LLC
250 West Colorado Blvd., Suite 210
Arcadia, CA 91007
Attn: William E. Rice
With a copy to:

CTCW-Villa del Este LLC
c/o Column Financial
2660 Eastchase Lane, Suite 401
Montgomery, AL 36117
Attn: Sam Colson
Any change in notice shall be delivered solely by certified mail, return receipt requested. [SIGNATURE PAGE FOLLOWS IMMEDIATELY]
700852767v6 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers and agents as of the day and year first above written.

CITY OF GALEXIÇO:

By: Quis bahrada
Name:

Title: Actiy City Moner
BORROWER:

HPD Villa Del Este LP,
a California limited partnership
By: HPD Villa Del Este LLC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
By:

William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Partner
By:

Milly J. Dick
Assistant Director
C An/ 7000<0767191 30
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers and agents as of the day and year first above written.

CITY OF CALEXICO:

By:

Name:

Title:

BORROWER:

HPD Villa Del Este LP,
a California limited partnership
By: HPD Villa Del Este LLC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
By: Will
William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Partner
By:

Milly J. Dick
Assistant Director
•
7008527676 30
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers and agents as of the day and year first above written.

CITY OF CALEXICO:

By:

Name:

Title:

BORROWER:

HPD Villa Del Este LP,
a California limited partnership
By: HPD Villa Del Este LIC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
By:

William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Partner
By:

Assistant Director
700852767y6 30
1 PROMISSORY NOTE

SECURED BY DEED OF TRUST
•

WITH ASSIGNMENT

OF RENTS AS ADDITIONAL SECURITY
Calexico, California
$1,363,887 June 30, 2008
Promise to Pay. For value received, the undersigned, HPD Villa Del Este LP, a subdivision of the State of California ("Payee"), or order, the principal sum of One Million Three Hundred Sixty-Three Thousand Eight Hundred Eighty-Seven Dollars ($1,363,887) (hereinafter, the "Loan") plus interest accrued thereon or the aggregate unpaid amount of disbursements to Maker as progress payments for costs incurred upon Maker's satisfactory progress toward completion of the Project (defined herein below) as reasonably determined by Payee pursuant to the terms of this note (hereinafter the "Note"). The Loan consists of funds in the amount of One Three Hundred Sixty-Three Thousand Eight Hundred Eighty-Seven Dollars ($1,363,887) committed through the HOME Agreement (defined herein below) ) Interest. The principal due under this Note shall bear simple interest at the rate of three percent (3%) per annum, or at the Applicable Federal Rate, whichever is lower, with interest to accrue as Loan funds are disbursed to Maker on the date of each City warrant. Interest shall be computed on the basis of a 360-day year. For accounting purposes, interest attributed to the construction period will end with the issuance of Certificate(s) of occupancy on all Project units by the City of Calexico, and interest attributed to the loan period will begin on the following day.

Term. This Note shall have a term of fifty-five (55) years from the date of this Note (the "Term"), unless otherwise extended by the City.

Definitions. All capitalized terms used in this Note, unless otherwise defined, will have the respective meanings specified in the Loan Agreement, dated of even date herewith, entered into between Maker and Payee (the "HOME Agreement"). In addition, as used in this Note, the following terms will have the following meanings:
disbursements received and made by Maker during the calendar year in question and, to the extent permitted by generally accepted accounting principles, shall also be baser upon audited Financial Statements prepared according to generally accepted accounting principles by an independent, certified public accountant. The annual Cash Flow 700852788v4
Statement shall include the return of any funds to Payee as an application of funds to the Loan balance. There shall be a Cash Flow Balance in each applicable year in which the Maker's operating income exceeds its operating expenses, debt service payments, reserve deposits, and in-lieu property tax payments to the City of Calexico, if any, all of which shall be reasonable and subject to the reasonable approval of the City of Calexico Manager. Notwithstanding the foregoing, expenditures shall not include depreciation of buildings or improvements or other non-cash items or non-cash deductions from income.

Calendar Year. Calendar Year shall mean the period beginning January 1 and ending on December 31 of each year of the Term.

Project. Project shall mean site acquisition, off-site improvements and development of one hundred (100) apartment units, a minimum of twenty (20) of which shall be occupied by low and very low income households as defined by the HOME Program regulations, and known as Villa del Este I and II Apartments at 1100 Avenida de Oro in Calexico, California.

5. Terms of Payment.

Until Calendar Year 2018, all payments on principal and interest shall be deferred. If not sooner paid, commencing on January 1, 2018, for each preceding Calendar Year in which there is a Cash Flow Balance, and continuing annually on the first day of each and every year thereafter for the remainder of the Term in which there is a Cash Flow Balance, there shall be due and payable an amount equal to fifty percent (50%) of the Cash Flow Balance in the priority set forth in Section 9.1 of the Maker's Agreement of Limited Partnership dated as of October 6, 2006. If not sooner paid, the unpaid principal balance of this Note, plus any unpaid interest thereon and any other amounts due and payable hereunder, shall be due and payable in full at the end of the Term.

The payments on this Note shall first be applied to interest then to unpaid costs and finally principal obligated through the HOME Agreement, provided however, in no event shall additional interest be earned on unpaid interest which has accrued. (c) The principal of this Note and any unpaid interest accrued thereon may be prepaid in whole or in part at any time without premium or penalty.

In order to determine the amount of each annual payment due under the above. Any unpaid principal and interest remaining at the end of the Term shall b 700852788v4 2
1 (e). The payments due under this Note shall be paid in currency of the United States of America, Which at the time of payments is lawful for the payment of public and private debts.

The payments on this Note shall be made to the Payee at the 608 Heber Avenue, Calexico, California 92231 or to such other place as the Payee may from time to time designate.
(g) Maker agrees that if any installment payment provided in this Note is late for at least ten (10) days, it would be impracticable or extremely difficult to fix the actual damages resulting to the Payee. Therefore, Maker agrees to pay to the Payee the sum of One Thousand Dollars ($1,000) on default, as liquidated damages and not as a penalty, to compensate the Payee for the expenses of administering the default. Only one late charge will be collected on any installment, regardless of the period during which it remains in default.

6. Security. This Note is secured by that certain Deed of Trust and Assignment of Rents (hereinafter the "Deed of Trust') of even date herewith given by the Maker, as Trustor to First American Title Insurance Company and its successors in trust and assigns, as Trustee, for the benefit of the Payee, as the Beneficiary, which Deed of Trust is to be recorded against the certain property in the County of Imperial, California, as more particularly described in the Deed of Trust, and incorporated herein by this reference as if set forth herein (hereinafter the "Property"). This Note is also subject to a Regulatory Agreement of even date herewith given by Maker to Payee. This Note is also secured by a Security Agreement of even date herewith by and between the Payee and Maker.

7. Acceleration.
(a) This Note and all other obligations, direct or contingent, of the Maker under this Note to Payee will become due and payable immediately, except as otherwise stated in this section 7, without presentment for payment or any notice, if:
(1) Maker fails to pay the monies due under this Note within seven (7) • days after the receipt of notice from the Payee:
(2) Maker of this Note:
(i) Fails, after demand and the expiration of thirty (30) days notice, to furnish the annual Cash Flow Statement described above; OT (ii) Suspends business; or
(iii) Is in default under the HOME Agreement after the
expiration of any applicable cure periods as specifically provided in the HOME Agreement; or
700852788v4 3
(iv) Fails to comply with, perform or observe any of the covenants, representations and/or warranties made by Maker under the HOME Agreement if not cured within the applicable cure period, if any, as set forth in the HOME Agreement; or
(V) Fails to comply with, perform or observe any obligation or condition of the Regulatory Agreement and/or the Deed of Trust within any applicable cure periods specified in the HOME Agreement; or (vi) Fails to procure or maintain the insurance policies and/or bonds required by Payee under the HOME Agreement and does not cure such failure within the applicable cure period set forth in the HOME (vil) Sells, transfers, leases, or otherwise transfers the Property or Project except as otherwise agreed to in writing by Payee. (3) Payee discovers that any willful misrepresentation was made to Payee on behalf of Maker to obtain the Loan or an extension of the Loan which materially adversely affects Payee's security.

Waivers.

Maker expressly agrees that this Note or any payment hereunder may be extended from time to time, and that Payee may accept security or release any security for this Note, all without in any way affecting the liability of Maker. (b) The obligations of Maker under this Note shall be absolute and Maker waives any and all rights to offset, deduct, or withhold any payments or charges due under this Note for any reason whatsoever.

9. Notices. All notices to Payee ot Maker shall be made in writing and shall be deemed received when personally delivered, received by the United States certified mail, return receipt requested, postage prepaid, or delivered by courier service addressed as follows:

To Payee: City of Calexico
608 Heber Avenue
Calexico, CA 92231
Attn: City Manager
To Maker: HPD Villa Del Este LP
c/o Highland Property Development LLC
250 West Colorado Blvd., Suite 210
Arcadia, CA 91007
Attn: William E. Rice
700852788v4 4
With a copy to: Pillsbury Winthrop Shaw Pittman LLP
50 Fremont Street
San Francisco, CA 94105
Attn: Gary P. Downs, Esq.

And to: CTCW-Villa del Este LLC
c/o Column Financial
2660 Eastchase Lane, Suite 401
Montgomery, AL 36117
•
Attention: Sam Colson
Any change in notice shall be delivered solely by certified mail, return receipt requested.

Nonrecourse. This Note shall be nonrecourse. No judgment, or execution thereof, entered in any action, legal or equitable, on this Note or the Deed of Trust securing this Note shall be enforced personally against Maker, any partner, officer, director or employees of Maker, or against any assignee of Maker, or any general or limited partner of any assignee, or any officer, director or employee of any general or limited partner of any assignee, but shall be enforced only against the collateral described in the Deed of Trust and such other or further security as, from time to time, may be hypothecated for this Note.

11. Costs and Attorneys' Fees. If Maker or Payee initiates any legal or equitable action to enforce the terms of this Note, to declare the rights of the parties hereunder, or which relates to this Note in any manner, the unsuccessful party in such action shall be liable to the other for all reasonable costs and expenses, including reasonable attorney's fees, incurred by the successful party in such action.

12. Modification. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. Consent by Payee to late payments does not waive its right to declare indebtedness immediately due and payable.

13. Governance. This Note shall be governed by and construed in accordance with the laws of the State of California.

14. Timeliness. The times for the performance of any obligation hereunder shall be strictly construed, time being of the essence.

15. Severability. If any provision of provisions of this Note are held to be invalid, llegal or unenforceable in any respect, this Note shall be construed as not containing tha provision or provisions and all other provisions of this Note shall remain in full force and effect

16. Venue. If Maker or Payee initiates any legal or equitable action to enforce the terms of this Noté, to declare the rights of the parties hereunder, or which relates to this Note m any manner, Maker and Payee agree that the proper venue for any such action is the Superior 700852788v4 5
) Court of the State of California of and for the County of Imperial unless the amount in controversy falls below the jurisdiction of the Superior Court, in which case, the proper venue for any such action is m the County of Imperial Municipal Court. [SIGNATURE PAGE FOLLOWS IMMEDIATELY]
700852.788v4
)
MAKER:

HPD Villa Del Este LP,
a California limited partnership
By: HPD Villa Del Este LLC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
•
By:

William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Partner
By:

Milly J. Dick
Assistant Director
700852788Y4 7
----
) MAKER:

HPD Villa Del Este LP,
a California limited partnership
By: HPD Villa Del Este LLC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
•
its Sole Member and Manager
By:

William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Pa
By:

Assistant Director
/
700852788v4 7

FIRST AMERICAN TITLE
NCS-195806A-SF FIRST AMERICAN TITLE INSURANCE COMPANY

HEREBY CERTIFIES THAT THIS IS A TRUE AND
Free Recording in accordance with CORRECT COPY OF THE ORIGINAL DOCUMENT California Government Code
Section 6103 and 27383 BY:_
RECORDED: July 1s 2008
Recording requesting by: SERIES NO:_ 09- • 018388
and when recorded mail to:

City of Calexico
608 Heber Avenue
Calexico, CA 92231
Ate MAHoney Redevelopnent Deinay

SPACE ABOVE THIS LINE FOR RECORDER'S USE
APN: 058-594-010 and 058-592-010

REGULATORY AGREEMENT
between
City of Calexico
&
HIPD Villa Del Este LP, a California limited partnership in respect to

HOME INVESTMENT PARTNERSHIPS PROGRAM
•
US_NW_700917258_4RA_6-16-08VRLH(3) 1
THIS REGULATORY AGREEMENT is made June 3D, 2008, between HPD Villa Del Este LP, a California limited partnership, with its principal place of business located at 250 West Colorado Blvd., Suite 210, Arcadia, CA 91007 (hereinafter referred to as the "Borrower") anc the City of Calexico, a political subdivision of the State of California (hereinafter referred to as

RECITALS
Pursuant to the Loan Agreement between the City and Borrower, with respect to the HOME Investment Partnerships Program, by and between the Borrower and the City dated as of June 30 , 2008 (hereinafter referred to as the "Loan Agreement"), the City has agreed to loan to the Borrower an amount not to exceed One Million Three Hundred Sixty-Three Thousand Eight Hundred Eighty-Seven Dollars ($1,363,887) (hereinafter referred to as the "Loan") for the purpose of assisting the Borrower in the rehabilitation of that certain real property located at 1100 Avenida de Oro, Calexico, Califomia, and more particularly described in Exhibit "A", attached hereto and made a part hereof (hereinafter referred to as the "Property").

The Loan is being made pursuant to the HOME Investment Partnerships Program (hereinafter referred to as the "HOME Program") established and governed by the Cranston- Gonzalez National Affordable Housing Act of 1990, as amended by the Housing and Community Development Act of 1992, as implemented by and subject to Title 24 Code of Federal Regulations Part 92.

Three Thorean is comes of an an even to a oa, as lie are on die so.

Program. The Loan is evidenced by that certain promissory note (hereinafter referred to as the "Note") dated of even date herewith and is secured by that certain Deed of Trust of even date As a condition of receiving Loan funds for the rehabilitation of 100 units, of which twenty (20) units are considered to be HOME-assisted (hereinafter referred to as the "Project"), he Borrower must agree to place specified restrictions upon the use and transfer of the Propert! found at 24 CFR 92.252. It is the intent of the parties hereto to evidence the Borrower' compliance with the Loan requirements of the HOME Program and place such restrictions upon the use and transfer of the Property, to ensure continued Project affordability, as are required by HOME Program regulations.

NOW THEREFORE, in consideration of the Loan and other valuable consideration, the parties hereto covenant and agree as follows:

1. HOME-Assisted Units & Unit Schedule.

Upon occupancy and for the entire Period of Affordability (as defined below), the Project shall have Twenty (20) HOME-assisted units. These units shall be designated as "Floating" units and shall be rented according to the schedule of units below.

US_NW_700917258_4_RA_6-16-08V/LH(3) 2
AM Bedroom n 2 bedroom 13bearoom l Total
30% y 5 4 3 12
35% AME 21 4 4
2 3
1 1
Additionally, for units where the HOME restricted rents are higher than the actual rents currently paid by the tenants, the Borrower may not increase rents without prior written approval of the California Department of Housing and Community Development (the "Department") and USDA RD. Rents shall not be increased more than once annually Tenant Income Standards. During the Period of Affordability, a minimum of twelve (12) oi the twenty (20) HOME-assisted project units shall be occupied by tamilies whose annual incomes do not exceed, at the time of occupancy, thirty percent (30%) of the median family income as established by Department at rent levels that are consistent with 24 CFR

92.252, as amended, a minimum of four (4) of the twenty (20) HOME-assisted project units shall be occupied by households whose annual income do not exceed, at the time of occupancy, thirty- five percent (35%) of the median family income as established by Department at rent levels that are consistent with 24 CFR 92.252, as amended, a minimum of three (3) of the twenty (20) HOME-assisted project units shall be occupied by households whose annual income do not exceed, at the time of occupancy, forty (40%) of the median family income as established by Department at rent levels that are consistent with 24 CFR 92.252, as amended, and a minimum of one (1) of the twenty (20) HOME-assisted project units shall be occupied by households whose annual incomes do not exceed, at the time of occupancy, forty-five (45%) of the median family income as established by Department at rent levels that are consistent with 24 CFR

92.252, as amended.

Tenant Selection Standards. During the Period of Affordability the Borrower shall select tenants in conformance with HOME Program requirements and California Code of Regulations, Title 25, Division 1, Chapter 7, Subchapter 19, Section 8305. (a) Borrower shall rent vacant HOME-assisted units in the Project only to eligible households in accordance with a management plan approved by the City (the "Management Plan"). Such Management Plan may be periodically altered and such alteration must be submitted to and approved by the City prior to use. The Management Plan shall include:

Reasonable criteria for selection or rejection of tenant applications which shall not discriminate in violation of any federal, state or local law governing discrimination, or any other arbitrary factor;

2. Probibition of local residency requirements;
US_NW_700917258_4_RA_6-16-08YRLH (3) 3
areas not smaller than municipal jurisdictions or recognized communities within unincorporated areas;
components and that are at lo prospectoodenen pot regetade the following other reasonable met dapion of by the based on order of application, lotery or and, based on turnover history for HOME-scare units in the Proceedency approximate date when a HOME-assisted unit may be available; ineligibility, and of their right to appeal this determination; eligible to occupy HOMience of a and in as ot topic designated or various tenant income levels, which shall be made available to prospective tenants • upon request;
wit is recent rein pois peril nea pitation in cance
Affirmative fair housing marketing procedures as specified in the Affirmative Fair Housing Marketing Plan Compliance Regulations of HUD, 24 CFR Part 200.620(a)-(c), or similar affirmative fair marketing housing plan as approved by the City.
umber of people speedome shall wind serent its to households with no less than the Unit Size Minimum Number of Persons in Household
SRO 1
0-BR. 1
1-BR 1
2-BR 2
3-BR 4
4-BR
5-BR 8
Borrower may assign tenant households to units of sizes other than those indicated as appropriate in the table above if the Borrower reasonably determines that special circumstances warrant such an assignment and the reasons are documented in the tenant's file. The Borrower's determination is subject to approval by the City. Through the Management Plan, Borrower may receive US_W700917258_4_RA-16-08VRLH(3)

4. Certification of Tenant Income & Household Size.

The income and household size of all households occupying HOME- assisted units shall be certified by the Borrower prior to occupancy and recertified annually thereafter in a manner approved by the City and specified in the Project's Management Plan. (b) If the income of a tenant upon re-certification exceeds the upper limit for Lower Income households, and there are no other requirements statutorily imposed by other state or federal funding sources or tax credit program, that tenant shall not have its lease terminated as a result thereof, but shall be charged rents as provided in Section 5.

Where a tenant occupying a unit designated for occupancy by a Very Low income housebold no longer qualifies to reside therein at re-certification, but qualifies as ar therwise eligible household, the rent level appropriate for that income level shall be charged pursuant to Section 5
HIGH HOME rents allowed under 24 CFR 92.252
i
For units where the HOME restricted rents are higher than the actual rents currently paid by the tenants, the Borrower may not increase rents above the levels indicated in the Project Report without prior written approval of the HCD and USDA RD. Rents shall not be increased more than once annually.

HOME-assisted units receiving state or federal project-based rental subsidies may exceed HIGH HOME rents if the household qualifies to reside in the unit based on income and household size and the tenant-based portion of the rent does not exceed Thirty percent (30%) of the household's adjusted income. The HOME-assisted unit's maximum rent (tenant contribution and project-based rental subsidy) becomes the rent allowable under the state If the HOME-assisted units are designated as "Floating" units in Section 1 above, any household certified as an Eligible Household upon occupancy but whose income increases above the eligibility level must pay rent the lesser of the amount payable by the tenant under state or local law or 30 percent of the household's adjusted monthly income for rent and utilities; except that the rent may not exceed the market rent for comparable, unassisted units in the neighborhood. HOME-assisted units subject to low-income housing tax credit rules under Section 42 of the Internal Revenue Code shall be governed by such rules.

If the HOME-assisted units are designated as "Fixed" units in Section 1 above, any household certified as an Eligible Household uon occupancy but whose income increases above the eligibility level must pay rent the lesser of the amount payable by the tenant under state or local law or 30 percent of the household's adjusted monthly income for rent and utilities; except that the rent may equal the market rent for comparable, unassisted units in the US_NW_700917258_4_RA_6-16-08VRLH (3) 5
neighborhood. HOME-assisted units subject to low-income housing tax credit rules under Section 42 of the Internal Revenue Code shall be governed by such rules. б. Marketing Plan.

Borrower shall prepare and implement a "Marketing Plan", subject to prior approved by the City, that specifies how the Borrower intends to market the project to prospective tenants in the Project's market area. The Marketing Plan shall specifically address how the Borrower intends to market the Project to underserved populations in the Project market area and the frequency of marketing efforts. The City agrees that the Borrower may utilize the Borrower agrees to evaluate the effectiveness of the Marketing Plan in reaching underserved populations on an annual basis and to revise it as necessary to better reach underserved populations that are not being reached. The revised Marketing Plan shall be submitted to the City for approval prior to implementation.

Assisted Unit Standards.

HOME-assisted units shall not differ substantially in size or amenity level from non-HOME-assisted units with the same number of bedrooms, and units shall not differ in size or amenity level on the basis of income-level restrictions. HOME-assisted units shall not be segregated from non-HOME-assisted units, and units shall not be segregated from each other on the basis of income-level restrictions. The Borrower may, within these limits, change the designation of a particular unit from "Assisted" to "Non-Assisted" or from one income- restriction to another over time. For Projects involving rehabilitation or conversion, the Department may permit certain units to be designated as exclusively market-rate units where necessary for fiscal integrity and where all other Program requirements are satisfied.

For the full loan term, the number, size, type, and amenity level of HOME-assisted units shall not be fewer than the number nor different from the size, type and amenity level described in Section 1 and Recitals Paragraph 4 above. sievance procediatel Ali do it and Cancao Pride Code of real agne, Tite 25, Division 1, Chapter 7, Subchapter 19, Section 8307.
and the Borrower.
approval; and shal incide do polo. All rental or cupancy agreements are subject to City

1. Provisions requiring good cause for termination of tenancy, A provision requiring that the facts constituting the grounds for any eviction be set forth in the notice provided to the tenant pursuant to state law; US_NW_700917258_4_RA_6-16-08VRIH (3) 6
and appeal of management act of slovance procures for hearing complaints of tenants A requirement that the tenant annually recertify household income and size.
) Termination of Tenancy. The Borrower shall not terminate the tenancy ‹ fuse to renew the lease of a tenant of an HOME-assisted unit except for serious or repeati violation of the terms and conditions of the Lease; for violation of applicable federal, state, OI local law; for completion of transitional housing tenancy period; or for other good cause. must serve witen notice to trice it pring the gre to for leton tes 30 days. prior to the termination of the tenancy.
(e) "Good Cause". One or more of the following constitute "good cause":

Failure by the tenant to maintain applicable eligibility requirements nder the Program or other eligibility requirements as imposed by the City or other stat r federal funding sources or tax credits
ight of any tenant to de gely aric net at he leased pre ayes as or te roject facilities
or operation of lie Profe antill interfere with the management, maintenanc (C) Result from the failure or refusal to pay, in a timely fashion, Rent or other permitted charges when due. Failure or refusal to pay in a timely fashion is a minor violation if payment is made during the 3-day notice period;
Material failure by the tenant to carry out obligations under federal, state, or local law;

4. Subletting by the tenant of all or any portion of the HOME-assisted unit;
Any other action or conduct of the tenant constituting significant problems which can be reasonably resolved only by eviction of the tenant, provided that the Borrower has previously notified the tenant that the conduct or action in question would be considered cause for eviction. Examples of action or conduct in this category include the refusal of a tenant, after written notice, to accept reasonable rules or ans reasonable changes in the lease or the refusal to recertify income or household size; or US_NW _700917258_1_RA_6-26-08YRLE (3)
Prohibited Lease Provisions. The Lease may not contain any of the following provisions:
judgment in favor of til germon y brona to dised, to admit pit, or to a with the lease;
Agreement by the tenant that the Borrower may take, hold, or sell personal property of household members without notice to the tenant and a court decision on the rights of the parties. This prohibition, however, does not apply to an agreement by the tenant concerning disposition of personal property remaining in the housing unit after the tenant has moved out of the unit. The Borrower may dispose of this personal property in accordance with state law;
may institute a lawsuit witement of the tenant that the Borrower or Bozower's agent the rights of the parties;

6. Agreement by the tenant to waive any right to a trial by jury; therwise challenge in court, a court decision in connection with the lease; an Agreement by the tenant to waive tenant's right to appeal, or t "greement by the tenant to pay attorneys' fees or other legal cos en it the tenant wins in a court proceeding by the owner against the tenant. The tena however, may be obligated to pay costs if the tenant loses. (g) Rules of Conduct The Borrower shall establish reasonable rules of conduct and occupancy. Such rules shall be consistent with state law and HOME regulations.

Said rules shall be in writing and shail be given to each tenant upon occupancy. Any changes shall become effective no fewer than 30 days after giving written notice thereof to each tenant household.
(b) Appeal & Grievance Procedures. The Borrower shall adopt an appeal and grievance procedure to resolve grievances filed by tenants and appeals of actions taken by Borrower with respect to tenants' occupancy in the Project, and prospective tenants' applications US_NW_700917258_4_RA_6-36-08VRLH (3) 8
•
:
for occupancy. The Borrower's appeal and grievance procedures shall be subject to the City's approval and, at a minimum, shall include the following:
waite copy of the ape regieen do prodivery to each tenant and applicant of a

2. Procedures for informal dispute resolution;
• right to a hearing before an impartial body, which shall consis I one or more persons with the power to render a final decision on the appeal c grievance; and
'rocedures for the conduct of an appeal or gnevance hearing an le appomtment of an impartial hearing body
HOME-assisted Project units, the Borrower covenants that the HOME-assisted Project units shall remain affordable for a period of Fifty-Five (55) years (hereinafter referred to as the "Period of Affordability") from the date of "Project Completion" as specified at 24 CFR. 92.2. It is intended by the parties to this Regulatory Agreement, that this covenant shall run with the land in accordance with the provisions of 24 CFR 92.252, with the benefit of this covenant running to the City, in order to preserve the public interest in maintaining the affordability of the HOME- assisted Project units. The Period of Affordability will remain without regard to the term of any mortgage or the transfer of the Property ownership, other than by foreclosure or deed in lieu of foreclosure.

10. Foreclosure after Project Completion The Borrower promises, covenants, warrants and represents that it shall complete the Project. Whether or not the Project is in fact completed shall be solely determined by the City. Should the Project in fact have been completed, then the Period of Affordability shall terminate upon foreclosure or transfer in lieu of foreclosure, except that the Affordability restrictions shall be revived according to the original terms if, (a) during the original Period of Affordability, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest In the Project or the Property, or if (b) the foreclosing entity or transferee in lieu of foreclosure assumes in writing and agrees to be bound by the terms of the HOME Agreement and the Loan Documents, as that term is defined in the HOME Agreement.

11. Restrictions on Sale or Iransfer.

Upon any sale or transfer, including transfer by gift, devise, decent, foreclosure, assignment, deed in lien of foreclosure, condemnation, and voluntary or involuntary bankruptcy, of the Property without the prior written approval of the City, all principal, interest and costs then owing upon the Loan will become immediately due and payable to the City of SW 7009172584_RA_6-16-08RLH3) 9
:

The City of Calexico shall approve a sale, transfer or conveyance of th roperty provided that all of the following conditions are met: (1) the existing Borrower is requirements; and (iv) any terms of the sale transfer or conveyance shall not threaten the City's security or the successor's ability to comply with all requirements of the HOME Program and this Regulatory Agreement.

The Borrower agrees to secure advance written State HOME Program approval for any conversion to market rate housing, conversion to homeownership, demolition, or any other action that would prevent the full affordability period noted herein from being Restrictions on Encumbrances. The Borrower covenants that the Borrower has provided, however, that Borrower may, without the written consent of the City, enter into regulatory agreements and deeds of trust with assignments of rents, security agreements and • fixture filings for the benefit of the California Statewide Communities Development Authority and Washington Mutual Bank with regard to tax-exempt bond financing, the Department with regard to an MHP Loan and the USDARD with regard to its financing. In all cases, the provisions of 24 CFR 92.252(e) shall continue to apply to the Project.

Keserves for replacement shall be in accordance wit
be requirements or the HOME eng reservis and acerented be in scordane wets HOME Program's replacement reserve requirement for the Project shall be as follows: The initial deposit at permanent loan closing shall be in the amount of $50,000. In Years 1 through 55, the annual deposit to the replacement reserve account shall increase by a minimum of 2.5% over the previous Year's amount. The required annual deposits for Years 1 through 15 are detailed in the Table below. Per UMR §8309(b)(3), the HOME Program reserves the right tr periodically adjust the amount of required deposits to replacement reserves based on the results of reserve studies or other reliable indicators of the need for replacement reserve funds over time.

Year 1 Year 4 Year 7 Year 10 Year 13
$51,250 $55,191 $59,434 $64,004 $68,926
Year 2 Year 5 Year 8 Year 11 Year 14
$52,531 $56,570 $60,920 $65,604 $70,649
Year 3 Year 6 Year 9 Year 12 Year 15
$53,845 $57,985 $62,443 567,244 $72,415
US_NW_700917258_4_RA_6-16-08VRIH (3) 10
Superiority of Regulatory Agreement. Except as set forth in Section 8 above, The Borrower covenants that the Borrower has not, and shall not, enter into or execute any other agreement with provisions contrary to the provisions of this Regulatory Agreement, or contrary to the intent of maintaining the affordability of the Property for the full Period of Affordability. described in Section 3, above.

Violation of Regulatory Agreement by Borrower. In the event of a breach or violation of the provisions of this Regulatory Agreement, the City may give written notice to the Borrower thereof by certified mail or any express delivery service with a delivery receipt addressed to the Borrower at its principal place of business listed above. If the breach or violation is not cured to the satisfaction of the City within the time period specified in the notice, which shall not be less than 30 days, the City may declare a default and may seek legal remedies.

Interpretation of Affordability. It is the intention of the parties to this Regulatory Agreement that affordability be interpreted in view of the express goals of the Cranston- Gonzalez National Affordable Housing Act of 1990, as amended by the Housing and Community Development Act of 1992. It is the purpose of this Regulatory Agreement to limit and restrict use and resale of the Property in order to maintain the Property's affordability for the entire Period of Affordability.

17. Recordkeeping and Reports. The management agent designated by Borrower, and as approved by the City, will be responsible for recordkeeping and reports, including those required to comply with Fair Housing and Equal Opportunity requirements. The management agent Will establish and maintain a comprehensive system of records, books, and accounts in a manner conforming to the directives of the Borrower in order to assist the City in meeting federa and state recordkeeping and reporting requirements. All records; books, and accounts will be subject to examination at reasonable hours by any authorized representative of the City.

18. Maintenance & Management.
(a) Borrower 1s specialy responsible for al maintenance, repair, anc management functions for the Project, including without limitation, selection of tenants, certification and re-certification of household income and size, collection of rents, routine and extraordinary repairs and replacement of capital items. Borrower shall maintain units and common areas in a safe and sanitary manner in accordance with local health, building, an housing codes, HUD housing quality standards pursuant to 24 CFR 882.109 (b) Borrower may contract with a management agent for the performance of the services or duties required in paragraph (2) above. However, doing so does not relieve the Borrower of responsibility for proper performance of said duties. Any such contract shall contain a provision allowing the Borrower to terminate the contract without penalty with no nore than Thirty (30) days notice. Upon determination by the City and notice to the Borrowe bereof that the City has determined that the contracted management agent has failed to operat the Project in accordance with this Agreement, the Borrower shall exercise such right of US_NW_70091725B_4_RA_6-16-08VRLA (3)
•
termination forthwith and shall immediately make arrangements, subject to City's approval, for continuing performance of the requirements of this Agreement.

If the Borrower operates the Project directly without contracting with a management agent and the City determines that the Project is not being operated in accordance with this Agreement, the City may provide notice to the Borrower thereof, and may require the Borrower to contract with a management agent to operate the Project, or to make such other atrangements as the City deems necessary to ensure performance of the requirements of this Agreement.

19. Inspections.

Borrower shall allow the City access to the Project to conduct inspectior n an annual basis, or more frequently, with Thirty (30) days advance written notice ! Borrower.

Borrower shall provide tenants with a minimum of Twenty-Four (24 ours written notice pnor to seeking access to a tenant unit for inspection purposes. In sai notice, Borrower shall clearly inform tenant of the purposes of the inspection.

20. Hazard & Liability Insurances. :
by fire, flood (as required pursuent to 24 CER 92.358), and other suct bazaris, casualties. The Borrower shall at all times keep the development insured against loss liabilities and contingencies. All insurance policies and renewals thereof shall be issued by a -
carrier and in a form acceptable to the City. Property insurance policies shall name the City as additionally insured in a manner approved by the City.
(b) Insurance proceeds and condemnation awards for any loss to or taking of the Project, or any portion thereof, shall be applied or utilized by Borrower as provided in the Deed of Trust, executed by Borrower and referred to in the Recitals hereof.

Governing Law. This Regulatory Agreement shall be construed in accordance with and be governed by the laws of the State of California.

Successors and Assiens. This Regulatory Agreement and all the covenants, promises, and agreements contained in it shall be binding on and inure to the benefit of the respective legal and personal representatives, devisees, heirs, successors, and assigns of the Severability. If any provision of this Regulatory Agreement shall be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions zereof shall not in any way be affected or impaired thereby unless, in the sole discretion of the City, the invalidity, or unenforceability of the provision negates the program purpose and/or threatens the security of the City.

24. Venue. If either party to this Regulatory Agreement initiates any legal of equitable action to enforce the terms of this Regulatory Agreement, to declare the rights of the US_NW_700917258_4_RA_6-16-08VRI (3) 12
parties under this Regulatory Agreement, or which relates to this Regulatory-Agreement in any manner, the City and the Borrower agree that the proper venue for any such action is the Superior Court of the State of California of and for the County of Imperial.

Costs of Enforcement. The Borrower agrees to pay any and all of the City's reasonable costs with respect to enforcement of this Regulatory Agreement, including the City's reasonable attorneys' fees, costs and expenses.

26. Counterparts/Originals. This Regulatory Agreement may be executed i ounterparts, which together shall constitute one (1) entire Regulatory Agreemen US_NW_700917258_4_RA_6-16-08VRLH (3) 13
By SIGNING BELOW, Borrower accepts and agrees to the terns and covenan ontained in this Regulatory Agreemer
CITY OF CALEXICO:

Tus ontrada
Name. LuIS ESTRARA
Title: ACTING CITY MANAGER
HPD Villa Del Este LP,
a California limited partnership
By: FPD Villa Del Este LLC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
By:

William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Partner
By:

Milly J. Dick ....

Assistant Director

1.1..l1
14 By SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Regulatory Agreement.

CITY OF CALEXICO:

By:

Name:

Title:

HPD Villa Del Este LP,
a California limited partnership
By: HPD Villa Del Este LLC,
a California limited liability company,
its Co-General Partner
•
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
By: With ER
William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California допртоб public benefit corporation,
its Managing General Partner
By:

Milly I. Dick
Assistant Director
•
3y SIGNING BELOW, Borrower accepts and agrees to the terms and covenan untained in this Regulatory Agreemen
CITY OF CALEXICO:

By:

Name:

Title:

HPD Villa Del Este IP,
a California limited partnership
By: HPD Villa Del Este LIC,
a California limited liability company,
its Co-General Partner
By: Highland Property Development LLC,
a California limited liability company,
its Sole Member and Manager
By:

William E. Rice
Authorized Manager
By: Hearthstone Housing Foundation,
a California nonprofit public benefit corporation,
its Managing General Partner
By:

Assistant Director
14 -
:

State of CALIFORNIA
County of IMPERIAT,
PUBLIC
On JUNE 26, 2008 before me, LILLIANA BALOMIR, NOTARY personally appeared LUTS ESTRADA who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/arg subscribed to the within instrument and acknowledged to me that helshe/they executed the same in his/her/their authorized capacity(igs), and that by his/her/their signature(s on the instrument the person(8), or the entity upon behalf of which the person(st - acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

WITNESS my hand and official seal,

TILLANA FALOMIR
sing talm (Seal) Commission # 1616770
Notary Public - Colonia
Imperlai County
My Comm. Expires Oct 29, 2009
!
15 State of CaLforNiA
County of OMANGE
on 08/24/08 before me, DivID Qui AnaL, fuLl personally appeared who proved to me on the basis of satisfactory evidence to be the person(s) Whose name(s) is/azt subscribed to the within instrument and acknowledged to me that he/sherthey executed the same in his/ber/their authorized capacity(ies), and that by his/her/their igoature(s) on the instrument the person(s), or the entity upon behalf of which the persons cted, executed the instrumen
I certify under PENALTY OF PERJURY under the laws of the State of California that the Ioregoing paragraph is true and correct.

WITNESS my hand and DAVID QUINTANAR!
COMM. #1759810
Signature V (Seal)

LOS ANGELES COUNTY
My Comm, Expines JULY 30, 2011-
State of WA
County of king
Ce Nedra Van Whyesonally appeared
person) wise names is/are subscribed to the within instrument and acknowied get to me thet who proved to me on the basis of satisfactory evidence to be the he/she/they executed the same in his/her/their authorized capacityies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.

VITNESS my hand and official, s

LESTONES
Signature Whan lay (Seal) 18 NOTARY T
Станко
PUBLIC
•
• Exhibit "A"
Legal Description
Real property in the City of Calexico, County of Imperial, State of California, described as follows:

PARCEL 1:

THE FOLLOWING DESCRIBED LAND PARCEL IS SITUATED IN SECTION 12, TOWNSHIP 17 SOUTH, RANGE 14 EAST, S.B.B.&M. IN THE CITY OF CALEXICO, COUNTY OF IMPERIAL, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF:

COMMENCING AT THE SOUTHEAST MOST POINT OF VILLA DE ORO SUBDIVISION NO. I, AS SHOWN IN THE MAP RECORDED IN BOOK 13, AT PAGE 20, FINAL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY, CALIFORNIA; THENCE NORTH 89° 02' 29" EAST, 55.01 FEET, ALONG THE NORTH LINE OF STATE HIGHWAY 98; THENCE NORTH 01° 49' 51" WEST, 192.86 FEET, TO THE TRUE POINT OF BEGINNING; THENCE NORTH 01° 49' 51" WEST, 223 FEET; THENCE NORTH 88° 10' 09" EAST, 435.00 FEET; THENCE SOUTH 01° 49' 51" EAST 422.48 FEET, TO THE NORTH LINE OF STATE HIGHWAY 98; THENCE SOUTH 89° 02' 29" WEST, 292.53 FEET, ALONG SAID NORTH LINE OF HIGHWAY 98; THENCE NORTH 01° 49' 51" WEST, 187.53 FEET; THENCE NORTH 46° 49' 51" WEST 10.61 FEET; THENCE SOUTH 88° 10' 09" WEST, 135.00 FEET, TO THE POINT OF BEGINNING.

PARCEL 2:

THAT PORTION OF SECTION 12 AND 13, TOWNSHIP 17 SOUTH, RANGE 14 EAST, IN THE CITY OF

CALEXICO, COUNTY OF IMPERIAL,S TATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF DESCRIBED AS FOLLOWS:

BEGINNING AT THE SOUTHWEST CORNER OF BLOCK 1, VILLA DE ORO SUBDIVISION, AS SHOWN ON THE MAP RECORDED IN BOOK 13 PAGE 20 IN FINAL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY, CALIFORNIA, THENCE; NORTH 88° 10'-09" EAST, 435.00 FEET, ALONG THE SOUTH LINE OF SAID BLOCK 1, TO THE SOUTHEAST CORNER THEREOF; THENCE SOUTH 01° 49' 51" EAST, 223.00 FEET, THENCE SOUTH 88° 10' 09" WEST, 135.00 FEET; THENCE SOUTH 43° 10' 09" WEST, 11.32 FEET, THENCE SOUTH 01° 49' 51" EAST, 180.98 FEET TO A POINT ON THE NORTHERLY RIGHT OF WAY LINE OF STATE HIGHWAY 98; THENCE SOUTH 89° 02' 19" WEST, 273.31 FEET; ALONG SAID RIGHT OF WAY LINE; THENCE SOUTH 88° 30' 29" WEST, 18.72 FEET ALONG SAID RIGHT OF WAY

LINE TO THE INTERSECTION WITH THE SOUTHERLY EXTENSION OF THE EAST LINE OF PAULIN SUBDIVISION AS SHOWN ON THE MAP RECORDED IN BOOK 1 PAGE 28 OF OFFICIAL MAPS IN THE OFFICE OF THE COUNTY RECORDER OF IMPERIAL COUNTY, CALIFORNIA; THENCE NORTH 01° 49' 51" WEST, 407.71 FEET, MORE OR LESS ALONG SAID EAST LINE AND EXTENSION THEREOF, TO THE POINT OF BEGINNING.