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HomeMy WebLinkAbout2003-05-20; City Council; 17176 Exhibit 3; Multi-Family Housing Revenue Bonds3 13061-10 RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO Jones Hall, A Professional Law Corporation 650 California Street, 18th Floor San Francisco, California 94108 Attention: Thomas A. Downey, Esq. JH:TADarm REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS By and Among CITY OF CARLSBAD, as Issuer and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee and CIC CALAVERA, L.P., as Borrower Dated as of June 1,2003 Relating to: City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series A and City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series B TABLE OF CONTENTS Section 1 . Section 2 . Section 3 . Section 4 . Section 4A . Section 5 . Section 6 . Section 7 . Section 8 . Section 9 . Section 10 . Section 11 . Section 12 . Section 13 . Section 14 . Section 15 . Section 16 . Section 17 . Section 18 . Section 19 . Section 20 . Section 21 . Section 22 . Section 23 . Section 24 . Section 25 . Section 26 . Section 27 . Section 28 . Section 29 . EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E EXHIBIT F EXHIBIT G Definitions and Interpretation .............................................................................. 2 Acquisition and Construction of the Project ............................................................ 6 Residential Rental Property ................................................................................. 7 Very Low Income Tenants ...................................................................................... 9 Additional Requirement of the Issuer .................................................................. 12 Tax Status of the Bonds ...................................................................................... 14 Modification of Special Tax Covenants ............................................................... 14 Indemnification ................................................................................................. 15 Consideration .................................................................................................... 16 Reliance ............................................................................................................ 16 Sale or Transfer of the Project ............................................................................. 16 Term .................................................................................................................. 17 Covenants to Run With the Land ........................................................................ 18 Burden and Benefit ............................................................................................. 18 Uniformity; Common Plan .................................................................................. 18 Enforcement ....................................................................................................... 18 Recording and Filing .......................................................................................... 19 Payment of Fees ................................................................................................. 19 Amendments ...................................................................................................... 20 Notice ............................................................................................................... 20 Governing Law ................................................................................................... 20 Severability ...................................................................................................... 21 Multiple Counterparts ........................................................................................ 21 Trustee Acting Solely in Its Capacity .................................................................. 21 Compliance by Borrower ..................................................................................... 22 Estoppel Certificates ......................................................................................... 22 Third-party Beneficiaries .................................................................................. 22 Limited Liability .............................................................................................. 22 No Interference or Impairment of Loan or Credit Facility ..................................... 22 Subordination .................................................................................................... 24 LEGAL DESCRIPTION OF THE SITE INCOME COMPUTATION AND CERTIFICATION COMPLETION CERTIFICATE CERTIFICATE OF CONTINUING PROGRAM COMPLIANCE CERTIFICATE AS TO COMMENCEMENT OF QUALIFIED PROJECT PERIOD CERTIFICATE OF COMPLIANCE (CDLAC RESOLUTION) COPY OF CDLAC RESOLUTION REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS THIS REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (the "Regulatory Agreement"), made and entered into as of June 1, 2003, by and among the CITY OF CARLSBAD, a municipal corporation, duly organized and existing under the laws of the State of California (together with any successor to its rights, duties and obligations, the "Issuer"), WELLS FARGO BANK, NATIONAL ASSOCIATION a national banking association organized and existing under the laws of the United States of America, duly authorized to accept and execute trusts of the type contemplated by the Indenture (as hereinafter defined), with a corporate trust office in Los Angeles, as Trustee (the "Trustee"), and CIC CALAVERA, L.P., a limited partnership organized and existing under the laws of the State of California (the "Borrower"), owner of the land described in Exhibit A attached hereto. WITNESSETH: WHEREAS, the Legislature of the State of California enacted Chapter 7 of Part 5 of Division 31 (commencing with Section 52075) of the Health and Safety Code (the "Act") to authorize cities and counties to issue revenue bonds to finance the acquisition and construction of multifamily rental housing for families and individuals of low income; and WHEREAS, the Issuer is a public body corporate and politic (within the meaning of that term in the Regulations of the Department of Treasury and the rulings of the Internal Revenue Service prescribed and promulgated pursuant to Section 103 of the Internal Revenue Code of 1986, as amended (the "Code")); and WHEREAS, on May ---I 2003 the Issuer adopted a resolution authorizing the issuance of revenue bonds under the Issuer's Charter and the Act in connection with the financing of the acquisition and construction of a multifamily residential rental housing project located in the City of Carlsbad on the site described in Exhibit A hereto and commonly known as Mariposa Apartments (the "Project") which housing project shall be subject to the terms and provisions hereof; and WHEREAS, in furtherance of the purposes of the Act and the Inducement Resolution and as a part of the Issuer's plan of financing residential housing, the Issuer has issued $ aggregate principal amount of its revenue bonds designated "City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series A" and $ aggregate principal amount of its revenue bonds designated "City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series B" (collectively, the "Bonds") pursuant to the terms of the Trust Indenture of even date herewith (the "Indenture") by and between the Issuer and the Trustee, the proceeds of which Bonds were loaned to the Borrower (the "Loan") pursuant to a Financing Agreement, of even date herewith (the "Financing Agreement"), among the Issuer, the Borrower and the Trustee; and WHEREAS, the Issuer hereby certifies that all things necessary to make the Bonds, when issued as provided in the Indenture, the valid, binding and limited obligations of the Issuer according to the import thereof, and to constitute the valid assignments of the amounts pledged to the payment of the principal of, and premium, if any, and interest on the Bonds have been done and performed, and the creation, execution and delivery of the Indenture and the 1 execution and issuance of the Bonds, subject to the terms thereof, in all respects have been duly authorized; and WHEREAS, the Code and the regulations and rulings promulgated with respect thereto and the Act prescribe that the use and operation of the Project be restricted in certain respects and in order to ensure that the Project will be constructed, used and operated in accordance with the Code and the Act, the Issuer, the Trustee and the Borrower have detennined to enter into this Regulatory Agreement in order to set forth certain terms and conditions relating to the acquisition and construction of the Project (as hereinafter defined); NOW, THEREFORE, in consideration of the mutual covenants and undertakings set forth herein, and for other good and valuable consideration the receipt and sufficiency of whi& hereby are acknowledged, the Issuer, the Trustee and the Borrower hereby agree as follows: Section 1. Definitions and Interoretation. Capitalized terms used herein shall have the respective meanings assigned to them in this Section 1 unless the context in which they are used clearly requires otherwise: "Act" means Chapter 7 of Part 5 of Division 31 of the Health and Safety Code of the State of California as now in effect and as it may from time to time hereafter be amended or supplemented. "Adjusted Income" means the adjusted income of a person (together with the adjusted income of all persons of the age of 18 years or older who intend to reside with such person in one residential unit) as calculated in the manner prescribed pursuant to Section 8 of the United States Housing Act of 1937, or, if said Section 8 is terminated, as prescribed pursuant to said Section 8 immediately prior to its termination or as otherwise required under Section 142 of the Code and the Act. "Affiliated Party" means (a) a Person whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code, (b) a Person who together with the Borrower are members of the same controlled group of corporations (as defined in Section 1563(a) of the Code, except that "more than 50 percent" shall be substituted for "at least 80 percent" each place it appears therein), (c) a partnership and each of its partners (and their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code, and (d) an S corporation and each of its shareholders (and their spouses and minor children) whose relationship with the Borrower would result in a disallowance of losses under Section 267 or 707(b) of the Code. "Affordable Rent" or "Rents" means monthly rent charged for a dwelling unit in the Project not in excess of thirty percent (30%) of onetwelfth of fifty percent (50%) of the annual Median Income for the Area, based upon the following assumed household sizes for the following sizes of dwelling units in the Project: Size of Units Assumed Number of Persons in Household for Affordable Units Studio One bedroom Two bedrooms Three bedrooms 1 2 3 4 2 "Area" means the Primary Metropolitan Statistical Area in which the Project is located, as promulgated by HUD. "Authorized Borrower Representative" means any person who at the time and from time to time may be designated as such, by written certificate furnished to the Issuer and the Trustee containing the specimen signature of such person and signed on behalf of the Borrower by the co-managers of the Borrower, which certificate may designate an alternate or alternates. "Bond Counsel" means any attorney at law or firm of attorneys selected by the Issuer, of nationally recognized standing in matters pertaining to the federal tax status of interest on bonds issued by states and political subdivisions, and duly admitted to practice law before the highest court of any state of the United States of America, but shall not include counsel for the Borrower or any Credit Provider (as defined in the Indenture). "Bond Issuance Date" means the date of the delivery of the Bonds. "Bonds" means, collectively, City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series A and City of Carlsbad Multifamily Housing Revenue Bonds (Mariposa Apartments) 2003 Series B, all as issued and as otherwise defined in the Indenture. "Borrower" means CIC Calavera, L.P., a California limited partnership, and its successors and assigns. and assigns. "Certificate of Continuing Program Compliance" means the certificate with respect to the Project to be filed by the Borrower with the Issuer, the Credit Provider and the Trustee which shall be substantially in the form attached to this Regulatory Agreement as Exhibit D. "CDLAC" means The California Debt Limit Allocation Committee, and its successors "Code" means the Internal Revenue Code of 1986, as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable temporary and final regulations promulgated, and applicable official public guidance published, under the Code. "Completion Certificate'' means the certificate of completion of the acquisition and construction of the Project required to be delivered to the Issuer, the Credit Provider and the Trustee by the Borrower pursuant to Section 2 of this Regulatory Agreement, which shall be substantially in the form attached to this Regulatory Agreement as Exhibit C. "Completion Date" means the date of the completion of the acquisition and construction of the Project, as that date shall be certified as provided in Section 2 of this Regulatory Agreement. Credit Bank "Costs of Issuance" means the items of expense payable directly or indirectly by or reimbursable to the Issuer and related to the authorization, sale and issuance of the Bonds, including, without limitation, printing costs, costs of reproducing documents, filing and recording fees, fees and charges of the Trustee, fees and expenses of counsel to the Trustee, fees and expenses of the Issuer, including but not limited to the fees and expenses of the Issuer's Department of Finance and office of the City Attorney, fees and expenses of counsel to any present or future credit enhancement provider for the Bonds, fees and expenses of the Issuer's Financial Advisor, Bond Counsel, counsel to the Borrower, counsel to the Issuer, and counsel to 3 lo I the Underwriter, underwriting, legal and accounting fees and charges, costs of credit ratings, fees of the California Debt Limit Allocation Committee and the California Debt Advisory Commission, fees and charges for execution, transportation and safekeeping of Bonds, initial fees of the Issuer and other costs, charges and fees in connection with the foregoing. "County" means the County of San Diego, California. "Credit Bank" has the meaning assigned to the term "Credit Bank" or "Credit Provider" in the Indenture. "Deed of Trust" means the Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing, executed as of June 1, 2003, by the Borrower, as trustor, in favor of , as trustee for the benefit of the Issuer and the Credit Bank, as their interests may appear, and any successor deed of trust thereto, which secures, inter alia, the Borrower's obligation to repay the Loan as described therein. "Facilities" means the buildings, structures and other improvements to be acquired and constructed on the Site, and all fixtures and other property owned by the Borrower and located on, or used in connection with, such buildings, structures and other improvements. "Financing Agreement" means the Financing Agreement, of even date herewith, between the Issuer and the Borrower, pursuant to which the Loan was made. "HUD" means the United States Department of Housing and Urban Development. "Indenture" means the Trust Indenture, of even date herewith, between the Issuer and the Trustee, pursuant to which the Bonds have been issued, as amended from time to time. "Inducement Date" means sixty days prior to November 12, 2002, the date of adoption of the Inducement Resolution. "Inducement Resolution" means the resolution adopted by the Issuer on November 12, 2002, indicating its intention to issue tax-exempt obligations to finance the Project. "Issuer" means the City of Carlsbad, California. "Letter of Credit" has the meaning assigned to the term "Letter of Credit" or "Credit Facility" in the Indenture. "Loan" means the loan made to the Borrower pursuant to the Financing Agreement to provide financing for the acquisition and construction of the Project. "Median Income for the Area" means the median income for the Area as most recently determined by the Secretary of the Treasury (which determination is required by Code Section 142(d)(2)(B) to be consistent with determinations of area median gross income under Section 8 of the United States Housing Act of 1937, or, if such program is terminated, under such program as in affect immediately before such termination). "Program Administrator" means a governmental agency, a financial institution, a certified public accountant, an apartment management firm, a mortgage insurance company or other business entity performing similar duties or otherwise experienced in the administration of restrictions on bond financed multifamily housing projects which shall initially be the Issuer and, at the Issuer's election, any other person or entity appointed by the Issuer who shall enter 4 into an administration agreement in a form acceptable to the Issuer and the Program Administrator. "Project" means the Facilities and the Site. "Project Costs" means to the extent authorized by the Code, the Regulations and the Act, any and all costs incurred by the Borrower with respect to the acquisition and construction of the Project, whether paid or incurred prior to or after the Inducement Date, including, without limitation, costs for site preparation, the planning of housing and related facilities and improvements, the acquisition of property, the removal or demolition of existing structures, the construction of housing and related facilities and improvements, and all other work in connection therewith, and all costs of financing, including, without limitation, the cost of consultant, accounting and legal services, other expenses necessary or incident to determining the feasibility of the Project, contractors' and Borrower's overhead and supervisors' fees and costs directly allocable to the Project, administrative and other expenses necessary or incident to the Project and the financing thereof (including reimbursement to any municipality, county or entity for expenditures made for the Project), and interest accrued during construction and prior to the Completion Date. "Qualified Project Costs" means Project Costs (excluding Costs of Issuance) incurred after the Inducement Date which either constitute land or property of a character subject to the allowance for depreciation under Section 167 of the Code or are chargeable to a capital account with respect to the Project for federal income tax and financial accounting purposes, or would be so chargeable either with a proper election by the Borrower or but for the proper election by the Borrower to deduct those amounts within the meaning of Regulation 1.103-8(a)(l)(i); provided, however, that only such portion of interest accrued during construction of the Project shall constitute a Qualified Project Cost as bears the same ratio to all such interest as the Qualified Project Costs bear to all Project Costs; and provided further that interest accruing after the Completion Date shall not be a Qualified Project Cost; and provided still further that if any portion of the Project is being constructed by an Affiliated Party (whether as a general contractor or a subcontractor), "Qualified Project Costs" shall include only (a) the actual out-of- pocket costs incurred by such Affiliated Party in constructing the Project (or any portion thereof), (b) any reasonable fees for supervisory services actually rendered by the Affiliated Party, and (c) any overhead expenses incurred by the Affiliated Party which are directly attributable to the work performed on the Project, and shall not include, for example, intercompany profits resulting from members of an affiliated group (within the meaning of Section 1504 of the Code) participating in the construction of the Project or payments received by such Affiliated Party due to early completion of the Project (or any portion thereof). "Qualified Project Period" means the period beginrung on the date on which ten percent (10%) of the units in the Project are first occupied, and ending on the latest of (a) the date which is 55 years after the date on which at least fifty percent (50%) of the dwelling units in the Project are first occupied, (b) the first day on which no tax exempt private activity bond issued with respect to the Project is outstanding, (c) the date on which any assistance provided with respect to the Project under Section 8 of the United States Housing Act of 1937 terminates, or (d) the date on which the Bonds are paid in full or extinguished. For purposes of clause (b), the term "private activity bond" has the meaning contemplated in Section 142(d)(2)(A)(ii) of the Code. "Registered Owner" or "Bondowner" or "owner" means when used with respect to the Bonds, means the owner of a Bond then outstanding under the Indenture, as shown on the registration books maintained by the Trustee pursuant to the Indenture. 5 103 "Regulations" means the income tax regulations promulgated by the United States "Regulatory Agreement" means this Regulatory Agreement and Declaration of Restrictive Department of the Treasury pursuant to the Code from time to time. Covenants, together with any amendments hereto or supplements hereof. "Site" means the parcel or parcels of real property described in Exhibit "A', which is attached hereto and by this reference incorporated herein, and all rights and appurtenances thereunto appertaining. "State" means the State of California. "Tax Certificate" means the Certificate As To Arbitrage, dated the Bond Issuance Date executed and delivered by the Issuer and the Borrower, as amended or supplemented from time to time, together with the Certificate Regarding Use of Proceeds, dated the Bond Issuance Date executed and delivered by the Borrower. "Trustee" means Wells Fargo Bank, National Association, acting as trustee under the Indenture or any successor trustee appointed in accordance with the terms of the Indenture. "Very Low Income Tenants" means individuals or families with an Adjusted Income which does not exceed sixty percent (60%) of the Median Income for the Area, adjusted for household size. In no event, however, will the occupants of a residential unit be considered to be Very Low Income Tenants if all the occupants are students, as defined in Section 151(c)(4) of the Code, as such may be amended, no one of which is entitled to file a joint federal income tax return. "Very Low Income Units" means the dwelling units in the Project designated for occupancy by Very Low Income Tenants pursuant to Section 4(a) of this Regulatory Agreement. Unless the context clearly requires otherwise, as used in this Regulatory Agreement, words of the masculine, feminine or neuter gender shall be construed to include each other gender when appropriate and words of the singular number shall be construed to include the plural number, and vice versa, when appropriate. This Regulatory Agreement and all the terms and provisions hereof shall be construed to effectuate the purposes set forth herein and to sustain the validity hereof. The defined terms used in the preamble and recitals of this Regulatory Agreement have been included for convenience of reference only, and the meaning, construction and interpretation of all defined terms shall be determined by reference to this Section 1 notwithstanding any contrary definition in the preamble or recitals hereof. The titles and headings of the sections of this Regulatory Agreement have been inserted for convenience of reference only, and are not to be considered a part hereof and shall not in any way modify or restrict any of the terms or provisions hereof or be considered or given any effect in construing this Regulatory Agreement or any provisions hereof or in ascertaining intent, if any question of intent shall arise. Section 2. mt. The Borrower hereby represents, (a) The Borrower has inmed, or will incur within six months after the Bond Issuance Date, a substantial binding obligation to commence the acquisition and construction of the Project, pursuant to which the Borrower is or will be obligated to as of the date hereof, and covenants, warrants and agrees as follows: 6 'Of expend at least the lesser of (i) 2-1/2 percent of the aggregate principal amount of the Bonds or (ii) $100,000. (b) The Borrower's reasonable expectations respecting the total cost of the acquisition and construction of the Project and the disbursement of Bond proceeds are accurately set forth in the Borrower's Certificate Regarding Use of Proceeds, which has been delivered to the Issuer on the Bond Issuance Date. (c) The Borrower will proceed with due diligence to complete the acquisition and construction of the Project and expects to expend the full amount of the proceeds of the Loan for Project Costs prior to June 1,2006. (d) The statements made in the various certificates delivered by the Borrower to the Issuer or the Trustee on the Bond Issuance Date are true and correct. (e) On the Completion Date, the Borrower will submit to the Issuer and the Trustee, a duly executed and completed Completion Certificate. (f) Money on deposit in any fund or account in connection with the Bonds whether or not such money was derived from other sources, shall not be used by or under the direction of the Borrower, in a manner which would cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the Code, and the Borrower specifically agrees that the investment of money in any such fund shall be restricted as may be necessary to prevent the Bonds from being "arbitrage bonds" under the Code. (g) The Borrower (and any person related to it within the meaning of Section 147(a)(2) of the Code) will not take or omit to take, as is applicable, any action if such action or omission would in any way cause the proceeds from the sale of the Bonds to be applied in a manner contrary to the requirements of the Indenture, the Financing Agreement or this Regulatory Agreement, as applicable. (h) On the date on which ten percent (10%) of the units in the Project are first rented to tenants, the Borrower will submit to the Issuer, the Credit Bank (if the Letter of Credit is still in effect) and the Trustee, a duly executed and completed Certificate as to Commencement of Qualified Project Period, in the form of Exhibit E hereto. (i) On or concurrently with the final draw by the Borrower of amounts in the Mortgage Loan Fund established under the Indenture (the "Loan Fund"), the expenditure of such draw when added to all previous disbursements from the Loan Fund established under the Indenture will result in not less than 95 percent of all disbursements from the Loan Fund representing Bond proceeds having been used to pay or reimburse the Borrower for Qualified Project Costs and not more than 25 percent of all disbursements from the Loan Fund representing Bond proceeds having been used to pay for the acquisition of land or any interest therein. Section 3. Residential Rental Proper&. The Borrower hereby acknowledges and agrees that the Project will be owned, managed and operated as a "qualified residential rental project" (within the meaning of Section 142(d) of the Code) until the expiration of the Qualified Project Period. To that end, and for the term of this Regulatory Agreement, the Borrower hereby represents, as of the date hereof, and covenants, warrants and agrees as follows: (a) The Project is being acquired and constructed for the purpose of providing multifamily residential rental property, and the Borrower shall own, rnanage and operate the Project as a project to provide a multifamily residential rental property 7 comprised of a building or structure or several interrelated buildings or structures, together with any functionally related and subordinate facilities, and no other facilities, in accordance with applicable provisions of Section 142(d) of the Code and Section 1.103-8(b) of the Regulations, and the Act, and in accordance with such requirements as may be imposed thereby on the Project from time to time. (b) All of the dwelling units in the Project will be similarly constructed units, and, to the extent required by the Code and the Regulations, each dwelling unit in the Project will contain complete separate and distinct facilities for living, sleeping, eating, cooking and sanitation for a single person or a family, including a sleeping area, bathing and sanitation facilities and cooking facilities equipped with a cooking range, refrigerator and sink. (c) None of the dwelling units in the Project will at any time be utilized on a transient basis, or will ever be used as a hotel, motel, dormitory, fraternity house, sorority house, rooming house, nursing home, hospital, sanitarium, rest home, retirement house or trailer court or park; provided, however, that the Project may comprise facilities functionally related and subordinate to the dwelling units, which constitute a portion of a congregate care or assisted living facility. (d) No part of the Project will at any time be owned by a cooperative housing corporation, nor shall the Borrower take any steps in connection with a conversion to such ownership or uses. Other than obtaining a final subdivision map on the Project and a Final Subdivision Public Report from the California Department of Real Estate, the Borrower shall not take any steps in connection with a conversion of the Project to a condominium ownership except with the prior written approving opinion of Bond Counsel that the interest on the Bonds will not become taxable thereby under Section 103 of the Code. (e) All of the dwelling units in the Project will be available for rental on a continuous basis to members of the general public and the Borrower will not give preference to any particular class or group in renting the dwelling units in the Project, except to the extent that dwelling units are required to be leased or rented to Very Low Income Tenants. (f) The Site consists of a parcel or parcels that are contiguous except for the interposition of a road, street or stream, and all of the Facilities will comprise a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project. (g) No dwelling unit in the Project shall be occupied by the Borrower. Notwithstanding the foregoing, if the Project contains five or more dwelling units, this subsection shall not be construed to prohibit occupancy of dwelling units by one or more resident managers or maintenance personnel any of whom may be the Borrower; provided that the number of such managers or maintenance personnel is not unreasonable given industry standards for facilities similar to the Project in the area for the number of dwelling units in the Project. (h) Should involuntary noncompliance with the provisions of Section 1.103-8(b) of the Regulations be caused by fire, seizure, requisition, foreclosure, transfer of title by deed in lieu of foreclosure, change in a federal law or an action of a federal agency after the Bond Issuance Date which prevents the Issuer from enforcing the requirements of the Regulations, or condemnation or similar event, the Borrower covenants that, within a "reasonable period" determined in accordance with the Regulations, it will either prepay 8 the Loan or apply any proceeds received as a result of any of the preceding events to reconstruct the Project to meet the requirements of Section 142(d) of the Code and the Regulations. (i) The Borrower shall not discriminate on the basis of race, creed, religion, color, sex, sexual orientation, source of income (e.g. TANF, SSI), physical disability, age, national origin or marital status in the rental, lease, use or occupancy of the Project or in connection with the employment or application for employment of persons for the construction, operation and management of the Project. The Issuer hereby elects to have the Project meet the requirements of section 142(d)(l)(A) of the Code and Section 52080(a)(l)(A) of the Act. Section 4. Verv Low Income Tenants. Pursuant to the requirements of the Issuer and Section 142(d) of the Code and applicable provisions of the Act, the Borrower hereby represents, as of the date hereof, and warrants, covenants and agrees as follows: (a) During the Qualified Project Period or as otherwise required by subsection 4(a)(iv) below: (i) Not less than forty percent (40%) of the completed units in the Project shall be designated as Very Low Income Units which are occupied, or held vacant for occupancy, and shall be continuously occupied (or held vacant and available for immediate occupancy) by Very Low Income Tenants. All of the Very Low Income Units shall be generally distributed in terms of location and number of bedrooms throughout the Project. The Very Low Income Units shall be of comparable quality and offer a range of sizes and number of bedrooms comparable to those units which are available to other tenants. Tenants in the Very Low Income Units shall have equal access and enjoyment to all common facilities of the Project. (ii) The monthly rent paid by the persons occupying the Very Low Income Units shall be Affordable Rent. (iii) Very Low Income Units shall remain available on a priority basis for occupancy by Very Low Income Tenants. A unit occupied by a Very Low Income Tenant who at the commencement of the occupancy is a Very Low Income Tenant shall be treated as occupied by a Very Low Income Tenant until a recertification of such tenant's income in accordance with Section 4(c) below demonstrates that such tenant no longer qualifies as a Very Low Income Tenant and thereafter any residential unit in the Project is occupied by a new resident other than a Very Low Income Tenant. Moreover, a unit previously occupied by a Very Low Income Tenant and then vacated shall be considered occupied by a Very Low Income Tenant until reoccupied, other than for a temporary period, at which time the character of the unit shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. (iv) Following the expiration or termination of the Qualified Project Period, except in the event of foreclosure and redemption of the Bonds, deed in lieu of the foreclosure, eminent domain, or action of a federal agency preventing enforcement, Very Low Income Units required to be reserved for occupancy pursuant to subparagraph (a) shall remain available to the Very Low Income Tenant occupying a Very Low Income Unit at the date of expiration or termination of the Qualified Project Period, at a rent not greater than the amount set forth by subparagraph (a)(ii), until the earliest of any of the following occur: (A) The Very Low Income Tenant's household income exceeds 140 percent of the maximum eligible income specified in the definition of Very Low Income Tenant. (B) The Very Low Income Tenant voluntarily moves or is evicted for "good cause". "Good cause" for the purposes of this section, means the nonpayment of rent or allegation of facts necessary to prove major, or repeated minor, violations of material provisions of the occupancy agreement which detrimentally affect the health and safety of other persons or the structure, the fiscal integrity of the Project or the purposes or special program of the Project. (C) The Borrower pays the relocation assistance and benefits to tenants as provided in subdivision (b) of Section 7264 of the Government Code of the State of California. (v) During the three years prior to expiration of the Qualified Project Period, the Borrower shall continue to make available to Very Low Income Tenants, Very Low Income Units that have been vacated to the same extent other units in the Project are made available to noneligible households. (vi) Subparagraphs (iv) and (v) hereof shall not be construed to require the Issuer to monitor the Borrower's compliance with the provisions of subparagraphs (iv) and (v) hereof. (b) Immediately prior to a Very Low Income Tenant's occupancy of a Very Low Income Unit, the Borrower will obtain and maintain on file an Income Computation and Certification form, in the form of Exhibit B hereto, from each Very Low Income Tenant occupying a Very Low Income Unit, dated immediately prior to the initial occupancy of such Very Low Income Tenant in the Project. In addition, the Borrower will provide such further information as may be required in the future by the State of California, the Issuer and by the Act, Section 142(d) of the Code and the Regulations, as the same may be amended from time to time, or in such other form and manner as may be required by applicable rules, rulings, policies, procedures or other official statements now or hereafter promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service with respect to obligations issued under Section 142(d) of the Code. The Borrower shall verlfy that the income provided by an applicant is accurate by taking the following steps as a part of the verification process: (1) obtain a federal income tax return for the most recent tax year, (2) obtain a written verification of income and employment from applicant's current employer, (3) if an applicant is unemployed or did not file a tax return for the previous calendar year, obtain other verification of such applicant's income satisfactory to the Program Administrator or (4) such other information as may be requested by the Program Administrator. Copies of the most recent Income Computation and Certifications for Very Low Income Tenants commencing or continuing occupancy of a Very Low Income Unit shall be attached prior to the date on which 90% of the units in the Project are occupied to the quarterly report to be filed with the Program Administrator and the Credit Provider within 10 days of the last day of each quarter during the Qualified Project Period, and subsequent to the date on which 90% of the units in the Project are occupied, to the 10 annual report to be filed with the Program Administrator and the Credit Provider within 10 days of the last day of the month of August during the Qualified Project Period. (c) Immediately prior to the first anniversary date of the occupancy of a Very Low Income Unit by one or more Very Low Income Tenants, and on each anniversary date thereafter, the Borrower shall recerbfy the income of the occupants of such Very Low Income Unit by obtaining a completed Income Computation and Certdication based upon the current income of each occupant of the unit. In the event the recertification demonstrates that such household's income exceeds 140% of the income at which such household would quahfy as Very Low Income Tenants, such household will no longer quahfy as a Very Low Income Tenant and the Borrower will rent the next available unit of comparable or smaller size to one or more Very Low Income Tenants and will not rent any unit to tenants who are not Very Low Income Tenants until at least forty percent (40%) of the units are again occupied by Very Low Income Tenants. No tenant in the Project shall be denied continued occupancy in the Project because, after occupancy, such tenant's household income increases such that the income for such household will no longer qualify such household as Very Low Income Tenants. An "available" unit is one that is unoccupied by a tenant. (d) Upon the commencement of the Qualified Project Period, and within ten days of the last day of each quarter thereafter during the term of this Regulatory Agreement, the Borrower shall advise the Issuer and the Program Administrator of the status of the occupancy of the Project by delivering to such parties a Certificate of Continuing Program Compliance. (e) The Borrower will maintain complete and accurate records pertaining to the Very Low Income Units, and will pennit upon reasonable notice and during business hours any duly authorized representative of the Issuer, the Trustee, CDLAC, the Department of the Treasury or the Internal Revenue Service to inspect the books and records of the Borrower pertaining to the Project, including those records pertaining to the occupancy of the Very Low Income Units. (f) The Borrower will prepare and submit to the Issuer, the Trustee and the Program Administrator, if any, within thirty days after each anniversary of the Completion Date, a Certificate of Continuing Program Compliance executed by the Borrower stating (i) the percentage of the dwelling units of the Project which were occupied or deemed occupied, pursuant to subsection (a) hereof, by Very Low Income Tenants during such period, and (ii) that either (A) no unremedied default has occurred under this Regulatory Agreement or (B) a default has occurred, in which event the certificate shall describe the nature of the default and set forth the measures being taken by the Borrower to remedy such default. The Borrower shall submit to the Secretary of the Treasury annually on the anniversary date of the start of the Qualified Project Period, or such other date as is required by the Secretary, the Annual Certification of a Residential Rental Project (or such other form as required by the Secretary of the Treasury) and shall provide a copy of such certification to the Issuer, the Credit Provider and the Program Administrator, if any, so as to comply with Section 142(d)(7) of the Code. (g) The Borrower shall accept as tenants on the same basis as all other prospective tenants, including persons who are recipients of federal certificates or vouchers for rent subsidies pursuant to the existing program under Section 8 of the United States Housing Act of 1937, or its successor. The Borrower shall not apply selection criteria to Section 8 certificate or voucher holders that are more burdensome than criteria applied to all other prospective tenants and the Borrower shall not refuse 11 to rent to any Very Low Income Tenant on the basis of household size as long as such household size does not exceed three persons for a one bedroom unit, five persons for a two bedroom unit and seven persons for a three bedroom unit. The Borrower shall not collect any additional fees or payments from a Very Low Income Tenant except security deposits or other deposits required of all tenants. The Borrower shall not collect security deposits or other deposits from Section 8 certificate or voucher holders in excess of that allowed under the Section 8 Program. The Borrower shall not discriminate against Very Low Income Tenant applicants on the basis of source of income (i.e., TANF or SSI), and the Borrower shall consider a prospective tenant’s previous rent history of at least one year as evidence of the ability to pay the applicable rent (ability to pay shall be demonstrated if a Very Low Income Tenant can show that the same percentage or more of the tenant’s income has been paid for rent in the past as will be required to be paid for the rent applicable to the Very Low Income Unit to be occupied provided that such Very Low Income Tenant’s expenses have not materially increased). (h) Each lease pertaining to a Very Low Income Unit shall contain a provision to the effect that the Borrower has relied on the income certification and supporting information supplied by the Very Low Income Tenant in determining qualification for occupancy of the Very Low Income Unit, and that any material misstatement in such certification (whether or not intentional) will be cause for immediate termination of such lease. Each lease may also contain a provision that failure to cooperate with the annual recertification process reasonably instituted by the Borrower pursuant to Section 4(c) above may at the option of the Borrower disquahfy the unit as a Very Low Income Unit or provide grounds for termination of the lease. (i) The acquisition, construction and operation of the Project and the financing thereof is and shall be in compliance with the conditions set forth in Exhibit A to The CDLAC Resolution No. 03-34 adopted on March 26, 2003 and attached hereto as Exhibit G (the ”CDLAC Resolution”), which conditions are incorporated herein by reference and are made a part hereof; provided, however, neither the Issuer nor the Program Administrator shall be required to monitor the Borrower’s compliance with the provisions of this paragraph (i). The Borrower shall prepare and submit to CDLAC a Certificate of Compliance in substantially the form attached hereto as Exhibit F, executed by an authorized representative of the Borrower. Section 4A. Additional Reauirements of the Issuer. In addition to the requirements set forth above and to the extent not prohibited thereby, the Borrower hereby agrees during the Qualified Project Period to comply with each of the requirements of the Issuer set forth in this Section 4A, as follows: (a) The Borrower will pay the Issuer all of the amounts required by Section 4.3 of the Financing Agreement, and will indemrufy the Issuer and the Trustee as provided in Section 9.1 of the Financing Agreement. The Borrower will make the units reserved pursuant to Section 4(a) available, on a priority basis, to the extent permitted by law, to households comprised of persons whom the Issuer has informed the Borrower have been displaced by the Issuer or its political subdivisions from other housing developments located in the City of Carlsbad. The Borrower shall not discriminate against tenant applicants on the basis of source of income (i.e., TANF or SSI), and the Borrower shall consider a prospective tenant’s previous rent history of at least one year as evidence of such tenant’s ability to pay the applicable rent for the unit be occupied (ability to pay shall be demonstrated if the tenant can show that the tenant has paid on time the same percentage or more of the tenant’s income for rent as the tenant would be required to (b) 12 1 io pay for the rent (applicable to the unit to be occupied); provided that such tenant paid the same percentage or more of such tenant’s income for rent as such tenant will be paying under the proposed lease. The Borrower may consider such factors as it deems important when reviewing and approving a tenant’s application for occupancy and an existing tenant’s continued occupancy. (c) Notwithstanding the provisions of Section 4(a) hereof, if a Very Low Income Tenant’s Adjusted Income, as of the most recent determination thereof, exceeds one hundred forty percent (140%) of the applicable income limit for a Very Low Income Tenant of the same family size, the next available unit of comparable size must be rented to (or held vacant and available for immediate occupancy by) a Very Low Income Tenant. (d) All tenant lists, applications and waiting lists relating to the Project shall at all times be kept separate and identifiable from any other business of the Borrower and shall be maintained as required by the Issuer in reasonable condition for proper audit and subject to examination during business hours by representatives of the City of Carlsbad (including the Program Administrator). (e) The Borrower shall submit to the Issuer, (i) not later than the close of each calendar quarter, a statistical report to the Issuer, in the form set forth as Exhibit D hereto, or such other comparable form as may be prescribed by the Issuer, setting forth the information called for therein, and (ii) within fifteen (15) days after receipt of a written request, any other information or completed forms requested by the Issuer m order to comply with reporting requirements of the Internal Revenue Service or the State of California. (f) Each of the requirements of Section 2, 3 and 4 hereof is incorporated as a specific requirement of the Issuer, whether or not required by California or federal law, and shall be in force for the Qualified Project Period. (g) The Borrower acknowledges that the Issuer may appoint a Program Administrator (other than the Issuer) to act as its agent to administer this Regulatory Agreement and to monitor performance by the Borrower of the terms, provisions and requirements hereof. In such event, the Borrower shall comply with any reasonable request by the Issuer to deliver to any such Project Administrator, in addition to or instead of the Issuer, any reports, notices or other documents required to be delivered pursuant hereto, and to make the Project and the books and records with respect thereto available for inspection by the Project Administrator as an agent of the Issuer. (h) Any of the foregoing requirements of the Issuer may be expressly waived by the Issuer in writing, but (i) no waiver by the Issuer of any requirement of this Section 4A shall, or shall be deemed to, extend to or affect any other provision of this Regulatory Agreement except to the extent the Issuer and the Trustee have received an opinion of Bond Counsel to the effect that any such provision is not required by the Act and may be waived without adversely affecting the exclusion from gross income of interest on the Bonds for federal income tax purposes; and (ii) any requirement of this Section 4A shall be void and of no force and effect if the Issuer, the Trustee and the Borrower receive a written opinion of Bond Counsel to the effect that compliance with any such requirement would cause interest on the Bonds to cease to be excludable from gross income for federal income tax purposes or to the effect that compliance with such requirement would be in conflict with the Act or any other applicable state or federal law. 13 Section 5. Tax Status of the Bonds. The Borrower and the Issuer each hereby represents, as of the date hereof, and warrants, covenants and agrees that: (a) It will not knowingly take or permit, or omit to take or cause to be taken, as is appropriate, any action that would adversely affect the exclusion from gross income for federal income tax purposes of the interest on the Bonds or the exemption from California personal income taxation of the interest on the Bonds and, if it should take or permit, or omit to take or cause to be taken, any such action, it will take all lawful actions necessary to rescind or correct such actions or omissions promptly upon obtaining knowledge thereof; (b) It will take such action or actions as may be necessary, in the written opinion of Bond Counsel filed with the Issuer, the Trustee, the Credit Provider and the Borrower, to comply fully with the Act and all applicable rules, rulings, policies, procedures, Regulations or other official statements promulgated, proposed or made by the Department of the Treasury or the Internal Revenue Service pertaining to obligations issued under Section 142(d) of the Code to the extent necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds; and (c) It will file of record such documents and take such other steps as are necessary, in the written opinion of Bond Counsel filed with the Issuer, the Trustee, the Credit Provider and the Borrower, in order to insure that the requirements and restrictions of this Regulatory Agreement will be binding upon all owners of the Project, including, but not limited to, the execution and recordation of this Regulatory Agreement in the real property records of the County. The Borrower hereby covenants to include the requirements and restrictions contained in this Regulatory Agreement in any document transferring any interest in the Project to another person to the end that such transferee has notice of, and is bound by, such restrictions, and to obtain the agreement from any transferee to abide by all requirements and restrictions of this Regulatory Agreement. Issuer hereby agree as follows: Section 6. Modification of Suecial Tax Covenants. The Borrower, the Trustee and the (a) To the extent any amendments to the Act, the Regulations or the Code shall, in the written opinion of Bond Counsel filed with the Issuer, the Trustee and the Borrower, impose requirements upon the ownership or operation of the Project moR restrictive than those imposed by this Regulatory Agreement which must be complied with in order to maintain the exclusion from gross income for federal income tax purposes of interest on the Bonds, this Regulatory Agreement shall be deemed to be automatically amended to impose such additional or more restrictive requirements. (b) The Borrower, the Issuer and, if applicable, the Trustee shall execute, deliver and, if applicable, file of record any and all documents and instruments, necessary to effectuate the intent of this Section 6, and each of the Borrower and the Issuer hereby appoints the Trustee as its true and lawful attorney-in-fact to execute, deliver and, if applicable, file of record on behalf of the Borrower or the Issuer, as is applicable, any such document or instrument (in such form as may be approved in writing by Bond Counsel) if either the Borrower or the Issuer defaults in the performance of its obligations under this subsection (b); provided, however, that the Trustee shall take no action under this subsection (b) without first notifying the Borrower or the Issuer, or both of them, as is applicable, unless directed in writing by the Issuer or the Borrower and without first 14 .providing the Borrower or the Issuer, or both, as is applicable, an opportunity to comply with the requirements of this Section 6. Nothing is this subsection (b) shall be construed to allow the Trustee to execute an amendment to this Regulatory Agreement on behalf of the Issuer. (c) To the extent that the Act, the Regulations or the Code, or any amendments thereto, shall, in the written opinion of Bond Counsel filed with the Issuer, the Trustee and the Borrower, impose requirements upon the ownership or operation of the Project less restrictive than imposed by this Regulatory Agreement, this Regulatory Agreement may be amended or modified to provide such less restrictive requirements but only by written amendment signed by the Issuer, in its sole discretion, the Trustee and the Borrower, and only upon receipt by the Issuer of the written opinion of Bond Counsel to the effect that such amendment will not affect the exclusion of interest on the Bonds from gross income for federal income tax purpose or violate the requirements of the Act, and otherwise in accordance with Section 19 hereof. Section 7. Indemnification. Subject to the limitations set forth in the Financing Agreement, the Borrower shall indemmfy, hold harmless and defend the Issuer and the Trustee and the respective agents, officers, members, directors, officials and employees of each of them against all loss, costs, damages, expenses, suits, judgments, actions and liabilities of whatever nature (including, without limitation, reasonable attorneys' fees, litigation and court costs, amounts paid in settlement, and amounts paid to discharge judgments) directly or indirectly resulting from or arising out of or related to (a) the design, construction, installation, operation, use, occupancy, maintenance, or ownership of the Project (including compliance with laws, ordinances and des and regulations of public authorities relating thereto); or (b) any written statements or representations made by or on behalf of the Borrower, the Project or the Bonds made or given to the Issuer or any underwriters or purchasers of any of the Bonds by the Borrower or by any Authorized Borrower Representative (with respect to the Trustee, indemnification shall be given as to written statements or representations of the Borrower or of any Authorized Borrower Representative including, but not limited to, statements or representations of facts or financial information). The Borrower also shall pay and discharge and shall indemmfy and hold harmless the Issuer and the Trustee from (x) any lien or charge upon payments by the Borrower to the Issuer and the Trustee hereunder and (y) any taxes (including, without limitation, all ad valorem taxes and sales taxes), assessments, impositions and other charges in respect of any portion of the Project. If any such claim is asserted, or any such lien or charge upon payments, or any such taxes, assessments, impositions or other charges, are sought to be imposed, the Issuer or the Trustee shall give prompt notice to the Borrower, and the Borrower shall have the sole right and duty to assume, and will assume, the defense thereof, including the employment of counsel approved by the indemnified party in such party's sole discretion, and shall assume the payment of all expenses related thereto, with full power to litigate, compromise or settle the same in its sole discretion; provided that the Issuer and the Trustee shall have the right to review and approve or disapprove any such compromise or settlement. Each indemnified party shall have the right to employ separate counsel in any such action or proceeding and participate in the investigation and defense thereof, and the Borrower shall pay the reasonable fees and expenses of such separate counsel; provided, however, such parties may only employ separate counsel at the expense of the Borrower if in their respective judgment a conflict of interest exists by reason of common representation or if all parties commonly represented do not agree as to the action (or inaction) of counsel. Neither Credit Bank nor any successor in interest to Credit Bank will assume or take subject to any liability for the indemnification obligations of the Borrower for acts or omissions of the Borrower prior to any transfer of title to Credit Bank, whether by foreclosure or deed in lieu of foreclosure under the Deed of Trust or any Credit Bank documents; the Borrower shall 15 113 remain liable under the indemnification provisions of the Regulatory Agreement for its acts and omissions prior to any transfer of title to Credit Bank. Credit Bank shall indemrufy the Issuer following acquisition of the Project by Credit Bank, by foreclosure or deed in lieu of foreclosure, during and only during, any ensuing period that Credit Bank owns and operates the Project, provided that Credit Bank's liability shall be strictly limited to acts and omissions of Credit Bank occurring during the period of ownership and operation of the Project by Credit Bank. Credit Bank's obligation to provide indemnification shall be contingent upon Credit Bank's receipt of written notice from any party asserting a right to indemnification in time sufficient to enable Credit Bank to defend any action, claim or proceeding in a manner which is not prejudicial to Credit Bank's rights. Credit Bank shall have no indemnification obligations with respect to the Bonds, the Bond Documents or the Loan Documents. In addition thereto, the Borrower will pay upon demand all of the fees and expenses reasonably paid or incurred by the Trustee or the Issuer in enforcing the provisions hereof. Section 8. Consideration. The Issuer has issued the Bonds to provide funds to make the Loan, to finance the Project, all for the purpose, among others, of inducing the Borrower to acquire, construct, equip and operate the Project. In consideration of the issuance of the Bonds by the Issuer, the Borrower has entered into this Regulatory Agreement and has agreed to restrict the uses to which the Project can be put on the terms and conditions set forth herein. Section 9. Reliance. The Issuer and the Borrower hereby recognize and agree that the representations, warranties, covenants and agreements set forth herein may be relied upon by all persons interested in the legality and validity of the Bonds, and in the exclusion from gross income for federal income tax purposes of interest on the Bonds and the exemption from California personal income taxation of the interest on the Bonds. In performing their duties and obligations hereunder, the Issuer, the Program Administrator, if any, and the Trustee may rely upon statements and certificates of the Borrower and Very Low Income Tenants, and upon audits of the books and records of the Borrower pertaining to the Project. In addition, the Issuer, the Program Administrator, if any, and the Trustee may consult with counsel, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Issuer, the Program Administrator, if any, or the Trustee hereunder in good faith and in conformity with such opinion. In determinjng whether any default or lack of compliance by the Borrower exists under this Regulatory Agreement, the Trustee shall not be required to conduct any investigation into or review of the operations or records of the Borrower and may rely solely on any notice or certificate delivered to the Trustee by the Borrower or the Issuer with respect to the occurrence or absence of a default. Section 10. Sale or Transfer of the Project. The Borrower intends to hold the Project for its own account, has no current plans to sell, transfer or otherwise dispose of the Project, and hereby covenants and agrees not to sell, transfer or otherwise dispose of the Project, or any portion thereof (other than the leasing of dwelling units for individual tenant use as contemplated hereunder), without obtaining the prior consent of the Issuer and the Trustee, which consent shall not be unreasonably withheld, and receipt by the Issuer, the Credit Provider and the Trustee of (i) evidence satisfactory to the Issuer that the Borrower's purchaser or transferee has assumed in writing and in full, the Borrower's duties and obligations under this Regulatory Agreement, (ii) an opinion of counsel of the transferee that the transferee has duly assumed the obligations of the Borrower under this Regulatory Agreement and that such obligations and this Regulatory Agreement are binding on the transferee, (iii) evidence acceptable to the Issuer that either (A) the purchaser or assignee has experience in the ownership, operation and management of rental housing projects such as the Project without any record of material violations of discrimination restrictions or other state or federal laws or regulations applicable to such projects, or (B) the purchaser or assignee agrees to retain a property management firm with the experience and record described in subparagraph (A) above 16 or if the purchaser or assignee does not have management experience, the Issuer will or will cause the Program Administrator to provide on-site training in program compliance if the Issuer determines such training is necessary, (iv) evidence that no event of default exists under any of this Regulatory Agreement, the Financing Agreement, or any document related to the Loan, and payment of all fees and expenses of the Issuer, and the Trustee due under any of such documents are current, and (v) an opinion of Bond Counsel to the effect that such transfer will not, in itself, cause interest on any Bond to become includable in the gross income of the recipients thereof for federal income tax purposes. It is hereby expressly stipulated and agreed that any sale, transfer or other disposition of the Project in violation of this Section 10 shall be null, void and without effect, shall cause a reversion of title to the Borrower, and shall be ineffective to relieve the Borrower of its obligations under this Regulatory Agreement. Nothing in this Section 10 shall affect any provision of any other document or instrument between the Borrower and any other party which requires the Borrower to obtain the prior written consent of such other party in order to sell, transfer or otherwise dispose of the Project. Not less than 60 days prior to consummating any sale, transfer or disposition of any interest in the Project, the Borrower shall deliver to the Issuer and the Trustee a notice in writing explaining the nature of the proposed transfer. Notwithstanding anythmg contained in this Section 10 to the contrary, neither the consent of the Issuer nor the delivery of items (i) through (v) of the preceding paragraph shall be required in the case of (a) the execution, delivery and recordation by Borrower of any mortgage or deed of trust encumbering all or any part of the Project, or (b) a foreclosure or deed in lieu of foreclosure by the Credit Bank whereby the Credit Bank or its designee becomes the owner of the Project, and nothing contained in this Section 10 shall otherwise affect the right of the Credit Bank or its designee to foreclose on the Project or to accept a deed in lieu of foreclosure. Any syndication by the Borrower of the Project shall be in compliance with any applicable requirements of Section 52080(e) of the Act, and (i) the terms and conditions of the syndication shall not reduce or limit any of the requirements of the Act or regulations adopted or documents executed pursuant to the Act, (ii) no requirements of the Issuer shall be subordinated to the syndication agreement, and (iii) the syndication shall not result in the provision of fewer assisted units, or the reduction of any benefits or services, than were in existence prior to the syndication agreement. Section 11. Term. Subject to the following paragraph of this Section 11, this Regulatory Agreement and all and several of the terms hereof shall become effective upon its execution and delivery and shall remain in full force and effect during the Qualified Project Period, it being expressly agreed and understood that the provisions hereof are intended to survive the retirement of the Bonds and expiration, termination or cancellation of the Indenture and the Financing Agreement. Notwithstanding any other provisions of this Regulatory Agreement to the contrary, and in addition to the provisions set forth below, this entire Regulatory Agreement, or any of the provisions or sections hereof, may be terminated upon agreement by the Issuer, the Trustee and the Borrower subject to compliance with any of the provisions contained in this Regulatory Agreement only if there shall have been received an opinion of Bond Counsel (with a copy to the Credit Provider) that such termination will not adversely affect the exclusion from gross income for federal income tax purposes or the exemption from State personal income taxation of the interest on the Bonds. The Borrower shall provide notice of any termination of this Regulatory Agreement to the Issuer, the Credit Provider and the Trustee. The terms of this Regulatory Agreement to the contrary notwithstanding, this Regulatory Agreement, and all and several of the terms hereof, shall terminate and be of no further force and effect in the event of (i)(a) a foreclosure by the Trustee or the Credit Bank (if the Letter of Credit is still in effect) of the lien of a deed of trust on the Project or delivery of a deed in lieu of 17 foreclosure pursuant to which the Trustee, the Credit Bank (if the Letter of Credit is still in effect) or a purchaser or transferee shall take possession of the Project or (b) involuntary non- compliance with the provisions of this Regulatory Agreement caused by fire, seizure, requisition, change in a federal law or an action of a federal agency after the date hereof which prevents the Issuer and the Trustee from enforcing the provisions hereof or condemnation or a similar event, and (ii) in each case, the payment in full and retirement of the Bonds (or extinguishment in accordance with the terms of the Indenture) prior thereto or within a reasonable period thereafter; provided, however, that the preceding provisions of this sentence shall cease to apply and the restrictions contained herein shall be reinstated if, at any time subsequent to the termination of such provisions as the result of the foreclosure or the delivery of a deed in lieu of foreclosure or a similar event, the Borrower or any related person to it (within the meaning of Section 1.103-10(e) of the Regulations) obtains an ownership interest in the Project for Federal income tax purposes. Upon the termination of the terms of this Regulatory Agreement, the parties hereto agree to execute, deliver and record appropriate instruments of release and discharge of the terms hereof; provided, however, that the execution and delivery of such instruments shall not be necessary or a prerequisite to the termination of this Regulatory Agreement in accordance with its terms. Section 12. Covenants to Run With the Land. The Borrower hereby subjects the Project (including the Site) to the covenants, reservations and restrictions set forth in this Regulatory Agreement. The Issuer and the Borrower hereby declare their express intent that the covenants, reservations and restrictions set forth herein shall be deemed covenants running with the land and shall pass to and be binding upon the Borrower's successors in title to the Project; provided, however, that on the termination of this Regulatory Agreement said covenants, reservations and restrictions shall expire. Each and every contract, deed or other instrument hereafter executed covering or conveying the Project or any portion thereof shall conclusively be held to have been executed, delivered and accepted subject to such covenants, reservations and restrictions, regardless of whether such covenants, reservations and restrictions are set forth in such contract, deed or other instruments. No breach of any of the provisions of this Regulatory Agreement shall defeat or render invalid the lien of a mortgage made in good faith and for value encumbering the Site. The Issuer and the Borrower hereby declare their understanding and intent that the burden of the covenants set forth herein touch and concern the land in that the Borrower's legal interest in the Project is rendered less valuable thereby. The Issuer, the Trustee and the Borrower hereby further declare their understanding and intent that the benefit of such covenants touch and concern the land by enhancing and increasing the enjoyment and use of the Project by Very Low Income Tenants, the intended beneficiaries of such covenants, reservations and restrictions, and by furthering the public purposes for which the Bonds were issued. Section 13. Burden and Benefit. Section 14. Uniformitv; Common Plan. The covenants, reservations and restrictions hereof shall apply uniformly to the entire Project in order to establish and carry out a common plan for the use, development and improvement of the Site. any and Section 15. Enforcement. If the Borrower defaults in the performance or observance of covenant, agreement or obligation of the Borrower set forth in this Regulatory Agreement, if such default remains uncured for a period of sixty (60) days after notice thereof shall have been given by the Issuer or the Trustee to the Borrower and the Credit Bank (if the Letter of Credit is still in effect) (provided, however, that the Issuer may at its sole option extend such Deriod if the Borrower or the Credit Bank (if the Letter of Credit is still in effect) Drovides the I Issuer with an opinion of affect the exclusion from Bonds), then the Issuer or Bond Counsel to the effect that such extension will 'kot adversely gross income for federal income tax purposes of interest on the the Trustee, to the extent directed by and acting on behalf of the 18 Issuer, shall declare an "Event of Default" to have occurred hereunder, and, subject to the provisions of the Indenture, may take any one or more of the following steps: (a) by mandamus or other suit, action or proceeding at law or in equity, require the Borrower to perform its obligations and covenants hereunder or enjoin any acts or things which may be unlawful or in violation of the rights of the Issuer or the Trustee hereunder; (b) have access to and inspect, examine and make copies of all of the books and records of the Borrower pertaining to the Project; (c) take such other action at law or in equity as may appear necessary or desirable to enforce the obligations, covenants and agreements of the Borrower hereunder; or (d) with the written consent of the Credit Bank, require the Trustee to declare an event of default under the Financing Agreement, to accelerate the Loan and to proceed to redeem the Bonds in accordance with the Indenture. provided, however, if the default is such that it can be cured, but not within sixty (60) days, the Borrower shall be entitled to a greater period of time to cure such default with the consent of the Issuer, which shall not be unreasonably withheld, in no event to exceed 6 months, if the Borrower proceeds with due diligence to me said default and, prior to the end of the initial sixty (60) day period, delivers to the Issuer, the Credit Bank (if the Letter of Credit is still in effect) and the Trustee an Opinion of Bond Counsel to the effect that the failure to cure said default within said sixty (60) day period and the extension of the time to cure of up to 6 months will not adversely affect the continued exclusion from gross income of interest on the Bonds for federal tax purposes. The Credit Bank (if the Letter of Credit is still in effect) shall have the right (but not the obligation) in its sole discretion and to the extent permitted under the Construction Documents (as defined in the Indenture) to cure any Borrower defaults in the performance or observation of any covenant, agreement or obligation of the Borrower set forth in this Regulatory Agreement. The Trustee shall have the right, in accordance with this Section 15 and the provisions of the Indenture, without the consent or approval of the Issuer, to exercise any or all of the rights or remedies of the Issuer hereunder; provided that prior to taking any such act the Trustee shall give the Issuer written notice of its intended action. All reasonable fees, costs and expenses of the Trustee incurred in taking any action pursuant to this Section 15 shall be the sole responsibility of the Borrower. Section 16. Recording and Filing. The Borrower shall cause this Regulatory Agreement and all amendments and supplements hereto and thereto, to be recorded and filed, prior to the recording of the First Deed of Trust and the disbursement of the Loan, in the real property records of the County and in such other places as the Issuer may reasonably request. The Borrower shall pay all fees and charges incurred in connection with any such recording. Section 17. Pavment of Fees. Notwithstanding any prepayment of the Loan and notwithstanding a discharge of the Indenture, throughout the term of this Regulatory Agreement, the Borrower shall continue to pay to the Issuer its administrative fee described below and upon the occurrence of an event of default hereunder, to the Issuer and to the Trustee reasonable compensation for any services rendered by any of them hereunder and reimbursement for all expenses reasonably incurred by any of them in connection therewith. 19 The Borrower shall pay to the Issuer on the Bond Issuance Date the initial financing fee of the Issuer in the amount of twenty-five one hundredths of one percent (.25%) of the origjnal principal amount of the Bonds ($ ). Thereafter, an annual administrative fee shall be paid by the Borrower to the Issuer in equal semiannual installments, on June 1 and December 1 of each year, commencing on the Bond Issuance Date (such first payment to be prorated for the period from the Bond Issuance date to November 30, 2003), in an annual amount equal to one-eighth of one percent (.125%) of the origmal principal amount of the Bonds ($ annually). The fee of the Issuer referenced in this Section shall in no way limit amounts payable by the Borrower under Section 7 or 15 hereof, or otherwise arising in connection with the Issuer's or Trustee's enforcement of the provisions of this Regulatory Agreement. In the event that the Bonds are prepaid in full prior to the end of the term of this Regulatory Agreement, the Issuer's fee for the remainder of the term of this Regulatory Agreement, at the option of the Issuer, shall be paid by the Borrower (i) at the time of the prepayment of the last of the Bonds and shall be a lump sum amount equal to the present value (based on a discount rate equal to the yield on the Bonds, as determined by the Issuer at the time of prepayment) of the Issuer's fee for the number of years remaining under this Regulatory Agreement or (ii) annually on June 1 of each year from amounts placed in escrow at the time the Bonds are prepaid in full, which amounts plus any projected eamings thereon are, to the satisfaction of the Issuer, sufficient to pay the remaining administrative fees of the Issuer. In case any action at law or in equity, including an action for declaratory relief, is brought against the Borrower to enforce the provisions of this Regulatory Agreement, the Borrower agrees to pay reasonable attorney's fees and other reasonable expenses incurred by the Issuer, the Trustee and/or the Program Administrator in connection with such action. Section 18. Governing Law. This Regulatory Agreement shall be governed by the laws of the State of California. Except as expressly provided herein and in the Financing Agreement, the Trustee's rights, duties and obligations hereunder are governed in their entirety by the terms and provisions of the Indenture. Section 19. Amendments. Except as provided in Section 6(a) hereof, this Regulatory Agreement shall be amended only by a written instrument executed by the parties hereto or their successors in title and with the prior written consent of the Credit Bank (if the Letter of Credit is still in effect), which prior written consent shall not be unreasonably withheld, and duly recorded in the real property records of the County. The parties hereto acknowledge that for so long as the Bonds are outstanding the owners of the Bonds are third party beneficiaries to this Regulatory Agreement. Section 20. Notice. All notices, certificates or other communications shall be sufficiently given and (except for notices to the Trustee, which shall be deemed given only when actually received by the Trustee) shall be deemed given on the date personally delivered or on the second day following the date on which the same have been mailed by first class mail, postage prepaid, addressed as follows: Issuer: City of Carlsbad Housing & Redevelopment Agency 2965 Roosevelt Street, Suite B Carlsbad, CA 92008 Attention: Telephone: Facsimile: 20 with a copy to (which copy shall not constitute notice to the Issuer): Trustee: Credit Bank: Borrower: With a copy to: Wells Fargo Bank, National Association 707 Wilshire Boulevard, 17th Los Angeles, CA 90017 Attention: Corporate Trust Department CIC Calavera, L.P. 215 South Highway 101, Suite 200 Solano Beach, CA 92075 Attention: Wallace C. Dieckman Facsimile: (858) 259-2644 Pillsbury Winthrop LLP 50 Fremont Street San Francisco, CA 94105 Attention: Gary Downs, Esq. Telephone: Facsimile: With a copy to: Any of the foregoing parties may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates, documents or other communications shall be sent. Section 21. Severability. If any provision of this Regulatory Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions hereof shall not in any way be affected or impaired thereby. Section 22. Multide Countemarts. This Regulatory Agreement may be executed in multiple counterparts, all of which shall constitute one and the same instrument, and each of which shall be deemed to be an original. Section 23. Trustee Actinz Solelv in Its Cauacitv. In accepting its obligations hereunder, the Trustee acts solely as trustee for the benefit of the Registered Owners of the Bonds issued under the Indenture and not in its individual capacity; and the Trustee shall be liable to any persons, including, without limitation, the Issuer and the Borrower, seeking payment from the Trustee for any liability arising by reason of the transactions contemplated hereby only to the extent set forth in Article XI of the Indenture. The Trustee shall act as specifically provided herein and no implied duties or obligations (other than the implied covenant of good faith and fair dealing) shall be read into this 21 Regulatory Agreement against the Trustee. The Trustee is entering into this Regulatory Agreement solely in its capacity as Trustee under the Indenture and not in its individual, corporate or personal capacity and except as specifically provided herein, nothing herein shall be construed as imposing any duties or obligations upon the Trustee beyond those contained in the Indenture. The duties, powers and liabilities of the Trustee in acting hereunder shall be subject to the provisions of the Indenture, including, without limitation, the provisions of Article XI thereof. After the date on which no Bonds remain outstanding, as provided in the Indenture, the Trustee shall no longer have any duties or responsibilities under this Regulatory Agreement and all references to the Trustee in this Regulatory Agreement shall be deemed references to the Issuer. Section 24. Comdiance bv Borrower. The Trustee shall not be responsible for monitoring or venfying compliance*by the Borrower with its obligations under this Regulatory Agreement. Section 25. Limited Liability. All obligations of the Issuer incurred hereunder shall be limited obligations, payable solely kd only from Bond proceeds and other amounts derived by the Issuer from the Loan or otherwise under the Financing Agreement. Section 26. Estomel Certificates. The Issuer and the Trustee agree, upon the reasonable request of the Borrowir'or its successor in interest, to promptly execute and deliver to the Borrower (with a copy to the Credit Bank, if the Letter of Credit is still in effect) or its successor in interest or to any potential or actual purchaser, mortgagor or encumbrance of the Project, a written certificate stating, if the same be true, that the Issuer and the Trustee have no knowledge of any violation or default of the Borrower of any of its covenants hereunder, or if there are such violations or defaults, the nature of the same. Section 27. Third-Partv Beneficiaries. The parties to the Regulatory Agreement recognize and agree that the terms of the Regulatory Agreement and the enforcement of those terms are entered into for the benefit of various parties, including CDLAC and Fannie Mae. CDLAC and the Fannie Mae shall accordingly have contractual rights in this Regulatory Agreement and the Fannie Mae shall be entitled (but not obligated) to enforce, separately or jointly with the Issuer and/or the Trustee, or to cause the Issuer or the Trustee to enforce this Regulatory Agreement, and CDLAC shall be entitled (but not obligated) to enforce in accordance with Section 15 hereof, the terms of the CDLAC Resolution. In addition, CDLAC and Fannie Mae are intended to be and shall be a third-party beneficiary of this Regulatory Agreement. Notwithstanding the above, any enforcement of the terms and provisions of the CDLAC Resolution by CDLAC shall not adversely affect the interests of the owners of the Bonds and shall otherwise be subject to the terms, conditions and limitations otherwise applicable to the enforcement of remedies under this Regulatory Agreement. For purposes of this Regulatory Agreement, the Letter of Credit shall be deemed in effect so long as any one or more of the following remain true and correct: (a) the Letter of Credit remains in full force and effect; or (b) any amounts remain owing under any of the Construction Phase Credit Documents following payment under the Letter of Credit. Section 28. No Interference or ImDairment of Loan or Credit Facilitv. Notwithstanding anything herein to the contrary, as long as the Credit Facility or any other credit enhancement facility provided by Fannie Mae remains outstanding and Fannie Mae is not in default of its obligations under the Credit Facility or any such other credit enhancement facility, (i) the occurrence of an event of default under this Regulatory Agreement shall not, under any circumstances whatsoever, be deemed or constitute a default under the Loan Documents, except as may be otherwise specified in the Loan Documents, and shall not impair, defeat or render invalid the lien of the Security Instrument and (ii) none of the Issuer, the Loan Servicer, the Trustee nor any other person shall: 22 (a) initiate or take any action which may have the effect, directly or indirectly, of impairing the ability of the Borrower to timely pay the principal of, interest on, or other amounts due and payable under, the Loan; interfere with or attempt to interfere with or influence the exercise by Fannie Mae or the Loan Servicer of any of their rights under the Loan, including, without limitation, Fannie Mae's or the Loan Servicer is remedial rights under the Loan Documents upon the Occurrence of an event of default by the Borrower under the Loan; or (b) (c) upon the Occurrence of an event of default under the Loan, take any action to accelerate or otherwise enforce payment or seek other remedies with respect to the Loan, it being understood and agreed that neither the Issuer nor the Trustee may, without the prior written consent of Fannie Mae, on account of any default under this Regulatory Agreement, seek, in any manner, to cause the Loan to become due and payable, to enforce the Note or to foreclose on the Security Instrument or cause the Trustee to redeem the Bonds or to declare the principal of the Bonds and the interest accrued on the Bonds to be immediately due and payable, or cause the Trustee to foreclose or take any other action under the Bond Documents, the Loan Documents or any other documents which action would or could have the effect of achieving any one or more of the foregoing actions, events or results. No person other than Fannie Mae shall have the right to declare the principal balance of the Note to be immediately due and payable or to initiate foreclosure or other like action. The foregoing prohibitions and limitations shall not limit the rights of the Issuer or the Trustee to specifically enforce this Regulatory Agreement or to seek injunctive relief in order to provide for the operation of the Project in accordance with the requirements of the Code and the Act, and shall not be construed to limit the rights of the Issuer to enforce its rights against the Borrower under the indemnification provisions of this Regulatory Agreement provided that the prosecution of a claim for indemnification shall not cause the Borrower to file a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Borrower under any applicable liquidation, insolvency, bankruptcy, construction, composition, reorganization, conservation or other similar law in effect now or in the future. Notwithstanding anything in this Regulatory Agreement to the contrary, any right of the Issuer or the Trustee to take any action at law or in equity to enforce the obligations, covenants and agreements of the Borrower under this Regulatory Agreement which includes any claim for indemnification, damages or any other monetary obligation sought to be enforced shall, as provided in Section 26 of this Regulatory Agreement, be subject and subordinate in all respects to the repayment in full of all amounts due to Fannie Mae under the Loan Documents. All obligations of the Borrower under this Regulatory Agreement for the payment of money, including claims for indemnification and damages shall not be secured by or in any manner constitute a lien on the Project, and neither the Issuer nor the Trustee shall have the right to enforce such obligations other than directly against the Borrower pursuant to Section 15 of this Regulatory Agreement. No subsequent Borrower of the Project shall be liable or obligated for the breach or default of any obligation of any prior Borrower unless specifically assumed in writing by a subsequent Borrower, including, but not limited to, any payment or indemnification obligation. Such obligations shall be personal to the person who was the Borrower at the time the default or 23 breach was alleged to have occurred and such person shall remain liable for any and all damages occasioned by the default or breach even after such person ceases to be the Borrower of the Project. Promptly upon determining that a violation of this Regulatory Agreement has occurred, the Issuer or the Trustee shall, by notice in writing to the Loan Servicer and Fannie Mae, inform the Loan Servicer and Fannie Mae that such violation has occurred, the nature of the violation and that the violation has been cured or has not been cured, but is curable within a reasonable period of time, or is incurable; notwithstanding the Occurrence of such violation, neither the Issuer nor the Trustee shall have, and each of them acknowledge that they shall not have, any right to cause or direct acceleration of the Loan, to enforce the Note or to foreclose on the Security Instrument. Section 29. Subordination. The terms, covenants and restrictions of this Agreement, other than those set forth in Sections 3 and 4, are and shall at all times hereafter re& subject and subordinate, in all respects, to the liens, rights and interests created under the Loan Documents and the loan documents with respect to the Project executed by the Borrower for the benefit of the Credit Bank. Upon a conveyance or other transfer of title to the Project by foreclosure (judicial or under power of sale), deed in lieu of foreclosure or comparable conversion of the Loan or any mortgage with respect to the Project executed by the Borrower for the benefit of the Credit Bank, the Person who acquires title to the Project pursuant to such foreclosure or deed in lieu of foreclosure or comparable conversion (unless such Person is the Borrower or a person related to the Borrower with the meaning of Section 1.103.10(e) of the Regulations, in which event this Agreement shall remain in full force and effect) shall acquire such title free and clear of the terms, covenants and restrictions of this Agreement, other than those set forth in Sections 3, 4, 4A, 7, 10 and 17 and, from and after the date on which such Person acquires title to the Project, the terms, covenants and restrictions of this Agreement, other than those set forth in Section 3,4,4A, 7,lO and 17 shall automatically terminate and be of no force and effect; provided that Sections 3,4,4A, 7,lO and 17 shall also terminate and be of no force or effect under the circumstances set forth in the second paragraph of Section 11 and pursuant to the provisions of this Agreement. 24 IN WITNESS WHEREOF, the Issuer, the Trustee and the Borrower have executed this Regulatory Agreement by duly authorized representatives, all as of the date first written hereinabove. CITY OF CARLSBAD, as Issuer By: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: Authorized Signatory CIC CALAVERA, L.P., a California limited partnership By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner By: Michael T. Walsh Executive Director/President By: CIC Calavera Hills 11, LLC, a California limited liability company Its: Co- General Partner By: James J. Schmid Manager [Execution Page of the Regulatory Agreement and Declaration of Restrictive Covenants dated as of June 1,20031 STATE OF CALIFORNIA ) COUNTY OF 1 ) ss. on ,2001 before me, , Notary Public, personally appeared personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) STATE OF CALIFORNIA ) COUNTY OF ) ) ss. on ,2001 before me, , Notary Public, personally appeared _________-_____________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) STATE OF CALIFORNIA ) COUNTY OF 1 ) ss. on ,2001 before me, , Notary Public, personally appeared ___ , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary (Seal) STATE OF CALIFORNIA 1 COUNTY OF ) ) ss. on 2001 before me, , Notary Public, personally appeared personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary- (Seal) EXHIBIT A LEGAL DESCRIPTION OF THE SITE All that certain real property situated in the City of Carlsbad, County of San Diego, State of California, more particularly described as follows: A-1 EXHIBIT B INCOME COMPUTATION AND CERTIFICATION NOTE TO APARTMENT OWNER This form is designed to assist you in computing Annual Income in accordance with the method set forth in the Department of Housing and Urban Project ("HUD") Regulations (24 CFR Part 5). You should make certain that this form is at all times up to date with the HUD Regulations. All capitalized terms used herein shall have the meanings assigned to such terms in the Regulatory Agreement and Declaration of Restrictive Covenants, dated as of June 1, 2003, among the City of Carlsbad, and CIC Calavera, L.P. Re: [Address of Apartment Building] I/We, the undersigned state that I/we have read and answered fully, frankly and personally each of the following questions for all persons who are to occupy the unit being applied for in the above apartment project. Listed below are the names of all persons who intend to reside in the unit: 1. 2. 3. 4. 5. of the to Head of Social Security Place of Household Household & Number Emplovment Name of Members Relationship HEAD SPOUSE Income Computation 6. Total Anticiuated Income. The total anticipated income, calculated in accordance with the provisions of this paragraph 6, of all persons listed above for the 12-month period beginning the date that I/we plan to move into a unit (i.e. ) is $ Included in the total anticipated income listed above are: (a) the full amount, before payroll reductions, of all wages and salaries, overtime pay, commissions, fees, tips and bonuses and other compensation for personal services; (b) the net income from the operation of a business or profession or from the rental of real or personal property (without deducting expenditures for business expansion or amortization of capital indebtedness); an allowance for depreciation of capital assets used in a business or profession may be deducted, based on straight-line depreciation, as provided in Internal Revenue Service regulations; include any withdrawal of cash or assets from the operation of a business or profession, except to the extent the withdrawal is reimbursement of cash or assets in the operation by the above persons, (c) interest and dividends (including income from assets excluded below); B-1 (d) the full amount of periodic payments received from social security, annuities, insurance policies, retirement funds, pensions, disability or death benefits and other similar types of periodic receipts, including any lump sum payment for the delayed start of a periodic payment; (e) payments in lieu of earnings, such as unemployment and disability compensation, (f) the maximum amount of public assistance available to the above persons other than (8) periodic and determinable allowances, such as alimony and child support payments workmen's compensation and severance pay; the amount of any assistance specifically designated for shelter and utilities; and regular contributions and gfts received from persons not residing in the dwelling; (h) all regular pay, special pay and allowances of a member of the Armed Forces (whether or not living in the dwelling) who is the head of the household or spouse; (i) The amount of any public welfare assistance payment; if the welfare assistance payment includes any amount specifically designated for shelter and utilities that is subject to adjustment by the welfare assistance agency in accordance with the actual cost of shelter and utilities, the amount of welfare assistance income to be included as income shall consist of (i) the amount of the allowance or grant exclusive of the amount specifically designated for shelter or utilities, plus (ii) the maximum amount that the welfare assistance agency could in fact allow the family for shelter and utilities (if the family's welfare assistance is ratably reduced from the standard of need by applying a percentage, the amount calculated under this paragraph 6 (i) shall be the amount resulting from one application of the percentage); Excluded from such anticipated income are: (a) income from employment of children (including foster children) under the age of 18 years; (b) (c) payment received for the care of foster children or foster adults; lump sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and worker's compensation), capital gains and settlement for personal or property losses; the cost of medical expenses for any family member; (d) amount received by the family that are specifically for, or in reimbursement of, (e) income of a live-in aide; (f) the full amount of student financial assistance paid directly to the student or the educational institution; (g) special pay to a family member serving the Armed Forces who is exposed to hostile fire; B-2 (h) amounts received under training programs funded by the Department of Housing and Urban Development ("HUD'); (i) amounts received by a participant in other publicly assisted programs which are specifically for or in reimbursement of out-of-pocket expenses incurred (special equipment, clothing transportation, child care, etc.) and which are made solely to allow participation in a specific program: (k) a resident service stipend in a modest amount (not to exceed $200 per month) received by a resident for performing a service for the Owner, on a part-time bases, that enhances the quality of life in the Project, including, but not limited to, fire patrol, hall monitoring, lawn maintenance and resident initiatives coordination (no residents may receive more than one stipend during the same period of time); compensation from state of local employment training programs in training or a family member as resident management staff, which compensation is received under employment training programs (including training programs not affiliated with a local government with clearly defined goals and objectives, and which compensation is excluded only for the period during which the family member participates in the employment training program; (1) (m) reparation payment paid by a foreign govemment pursuant to claims filed under earrings in excess of $480 for each full-time student, 18 years or older, but adoption assistance payments in excess of $480 per adopted child; the laws of government for person who were persecuted during the Nazi era; excluding the head of household and spouse; (n) (0) (p) deferred periodic payments of supplemental security income and social security amount received by the family in the form of refund or rebates under state or benefits that are received in a lump sum payment; local law for property taxes paid on the dwelling unit; (4) (r) amounts paid by a state agency to a family with a developmentally disabled family member living at home to offset the cost of services and equipment needed to keep the developmentally disabled family member at home; temporary, nonrecurring or sporadic income (including gfts); and (s) (t) amounts specifically excluded by any other federal statue from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any programs to which the exclusions set forth in 24 CFR 5.609 (c) apply. 7. Assets. (A) Do the persons whose income or contributions are included in item 6 above: (i) have savings, stocks, bonds, equity in real property or other form of capital investment (excluding the values of necessary items of personal property such as furniture and automobiles, equity in a housing cooperative unit or in a manufactured home in which such family resides and interests in Indian trust land)? B-3 13 I No - Yes (ii) have they disposed of any assets (other than at a foreclosure or bankruptcy sale) during the last two years at less than fair market value? No - Yes (B) If the answer to (i) or (ii) above is yes, does the combined total value of all such assets owned or disposed of by all such persons total more than $5,000? (C) If the answer to (B) above is yes, state: (i) the total value of all such assets: period (ii) the amount of income expected to be derived from such assets in the 12-month beginning on the date of initial occupancy in the unit that you propose to rent: $ , and (iii) the amount of such income, if any, that was included in item 6 above: $-----I- __ 8. Full-Time Students. (a) Are all of the individuals who propose to reside in the unit full-time students*? *A full-time student is an individual enrolled as a full-time student (carrying a subject load that is considered full time for day students under the standards and practices of the educational institution attended) during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and &dum and normally has a regularly enrolled body of students in attendance or an individual pursuing a full-time course of institutional or farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereof. (b) If the answer to 8(a) is yes, is at least 2 of the proposed occupants of the unit a husband and wife entitled to file a joint federal income tax return? 9. Relationshiu to Proiect Owner. Neither myself nor any other occupant of the unit I/we propose to rent is the owner of the rental housing project in which the unit is located (hereinafter the "Owner"), has any family relationship to the Owner; or owns directly or indirectly any interest in the Owner. For purposes of this paragraph, indirect ownership by an individual shall mean ownership by a family member, ownership by a corporation, partnership, estate or trust in proportion to the ownership or beneficial interest in such corporation, partnership, estate or trustee held by the individual or a family member; and ownership, direct or indirect, by a partner of the individual. 8-4 10. Reliance. This certificate is made with the knowledge that it will be relied upon by the Project Owner to determine maxjmum income for eligibility to occupy the unit and is relevant to the status under federal income tax law of the interest on bond issued to provide financing for the apartment development for which application is being made. I/We consent to the disclosure of such information to the issuer of such bonds, the holders of such bonds, any trustee acting on their behalf and any authorized agent of the Treasury Department or the Internal Revenue Service. I/We declare that all information set forth herein is true, correct and complete and based upon information I/we deem reliable, and that the statement of total anticipated income contained in paragraph 6 is reasonable and based upon such investigation as the undersigned deemed necessary. Further Assistance. I/we will assist the Owner in obtaining any information or documents required to verlfy the statements made herein, including either an income verification from my/our present employer(s) or copies of federal tax returns for the immediately preceding calendar year. 12. Misrepresentation. I/we acknowledge that I/we have been advised that the making of any misrepresentation or misstatement in this declaration will constitute a material breach of my/our agreement with the Owner to lease the unit and will entitle the Owner to prevent or terminate my/our occupancy of the unit by institution of an action for ejection or other appropriate proceedings. 11. I/we declare under penalty of perjury that the foregoing is true and correct. Executed this day of in the City of , California. Applicant Applicant [Signature of all persons over the age of 18 years listed in number 2 above required] B-5 I33 FOR COMPLETION BY APARTMENT OWNER ONLY: 1. calculation of eligible income: a. Enter amount entered for entire household in 6 above: $ b. (1) If amount entered in 7(C)(i) above is greater than $5,000, enter the total amount entered in 7(C)(ii), subtract from that figure the amount entered in 7(C)(iii) and enter the remaining balance ($ 1; (2) Multiply the amount entered in 7(C)(i) times the current passbook savings rate as determined by HUD to determine what the total annual earnings on the amount in 7(C)(ii) would be if invested in passbook savings ($ ), subtract from that figure the amount entered in 7(C)(iii) and enter the remaining balance ($ ); and (3) Enter at right the greater of the amount calculated under (1) or (2) above: $ I C. TOTAL ELIGIBLE INCOME Line La plus line Lb(3)): $ 2. The amount entered in 1.c: Qualifies the applicant(s) as a Very Low Income Tenant(s). Does not qual+ the applicant(s) as a Very Low Income Tenant(s). 3. Number of apartment unit assigned: Bedroom Size: Rent: $ 4. This apartment unit [was/was not] last occupied for a period of 31 consecutive days by persons whose aggregate anticipated annual income as certified in the above manner upon their initial occupancy of the apartment unit qualified them as Lower Income Tenants. 5. Method used to verlfy applicant@) income: Employer income verification. Copies of tax returns. Other ( ) Manager B-6 INCOME VERIFICATION (for employed persons) The undersigned employee has applied for a rental unit located in a project financed under the City of Carlsbad Multifamily Housing Revenue Bond Prograrn for persons of low income. Every income statement of a prospective tenant must be stringently verified. Please indicate below the employee's current annual income from wages, overtime, bonuses, commissions or any other form of compensation received on a regular basis. Annual wages Overtime Bonuses Commissions Total current income I hereby certify that the statements above are true and complete to the best of my knowledge. Signature Date Title I hereby grant you permission to disclose my income to in order that they may determine my income eligibility for rental of an apartment located in their project which has been financed under the City of Carlsbad Multifamily Housing Revenue Bonds. Signature Date Please send to: B-7 I35 INCOME VERIFICATION (for self-employed persons) I hereby attach copies of my individual federal and state income tax returns for the immediately preceding calendar year and certdy that the information shown in such income tax returns is true and complete to the best of my knowledge. , Signature Date B-8 EXHIBIT C COMPLETION CERTIFICATE The undersigned hereby certifies that all portions of the Project were substantially completed and available either for occupancy or use by tenants in the Project as of CIC CALAVERA, L.P., a California limited partnership By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner By: Michael T. Walsh Executive Director By: CIC Calavera Hills 11, LLC, a California limited liability company Its: Co-General Partner By: James J. Schmid Manager The undersigned hereby certifies that: (a) the aggregate amount disbursed on the Loan to date is $ (b) all amounts disbursed on the Loan have been applied to pay or reimburse the undersigned for the payment of Project Costs and none of the amounts disbursed on the Loan have been applied to pay or reimburse any party for the payment of costs or expenses other than Project Costs; and (c) at least 95 percent of the amounts representing proceeds of the Bonds disbursed on the Loan, have been applied to pay or reimburse the Borrower for the payment of Qualified Project Costs (as that term is used in the Regulatory Agreement) and less than 25 percent of the amounts representing proceeds of the Bonds disbursed on the Loan, exclusive of amounts applied to pay the costs of issuing the Bonds, have been applied to pay or reimburse the Borrower for the cost of acquiring land. I CIC CALAVERA, L.P., a California limited partnership c-1 137 By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner By: Michael T. Walsh Executive Director By: CIC Calavera Hills 11, LLC, a California limited liability company Its: Co-General Partner By: James J. SChmid Manager c-2 EXHIBIT D CERTIFICATE OF CONTINUING PROGRAM COMPLIANCE The undersigned, being the Managing General Partner of CIC Calavera L.P., a California limited partnership (the "Borrower") has read and is thoroughly familiar with the provisions of the various documents associated with the Borrower's participation in the City of Carlsbad (the "Issuer") Multifamily Housing Revenue Bond Program, such documents including: 1. the Regulatory Agreement and Declaration of Restrictive Covenants, dated as of June 1, 2003 (the "Regulatory Agreement") among the Borrower, the Issuer and Wells Fargo Bank, National Association, as Trustee for the Bonds identified therein (the "Trustee"); and 2. the Financing Agreement, dated as of June 1, 2003, among the Borrower, the Issuer and the Trustee. As of the date of this Certificate, the following percentages of completed residential units in the Project (as defined in the Regulatory Agreement) (i) are occupied by Low-Income Tenants (as such term is defined in the Regulatory Agreement), or (ii) are currently vacant and being held available for such occupancy and have been so held continuously since the date a Low-Income Tenant vacated such unit; as indicated: Occupied by Low-Income Tenants: Held vacant for occupancy continuously since last occupied by Low-Income Tenant: Vacant Units: YO; Unit Nos. Yo; Unit NOS. 70; Unit NOS. It hereby is confirmed that each Very Low Income Tenant currently residing in a unit m the Project has completed an Income Computation and Certification in the form approved by the Issuer and that since commencement of the Qualified Project Period at least 20% of the occupied units in the Project have been rented to (or are vacant and last occupied by) Very Low Income Tenants (each of the foregoing capitalized terms having the meaning assigned in the Regulatory Agreement). The undersigned hereby certifies that the Borrower is not in default under any of the terms and provisions of the above documents. CIC CALAVERA, L.P., a California limited partnership By: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Its: Managing General Partner By: Michael T. Walsh D-1 Executive Director By: CIC Calavera Hills 11, LLC, a California limited liability company Its: Co-General Partner By: James J. schmid Manager D-2 EXHIBIT E RECORDING REQUESTED BY AND WHEN RECORDED RETURN TO: City of Carlsbad Department of Housing 4 North Second Street, Suite 900 Carlsbad, California 95112 Attention: Director of Housing CERTIFICATE AS TO COMMENCEMENT OF QUALIFIED PROJECT PERIOD CITY OF CARLSBAD MULTIFAMILY HOUSING REVENUE BONDS (Mariposa Apartments) 2003 Series A The undersigned, on behalf of CIC Calavera, L.P., a California limited partnership, hereby certifies that: (complete blank information): 10% of the dwelling units in the project financed in part from the proceeds of the captioned Bonds were first occupied on ,20-. 50% of the dwelling units in the project financed in part from the proceeds of the captioned Bonds were first occupied on ,19-. DATED: f20- CIC CALAVERA, L.P., a California limited partnership By: Its: By: Its: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Managing General Partner By: Michael T. Walsh Executive Director/President CIC Calavera Hills 11, LLC, a California limited liability company Co-General Partner By: James J. Schmid Manager Acknowledged: E-7 CITY OF CARLSBAD By: E-2 I EXHIBIT F FORM OF CERTIFICATE OF COMPLIANCE (CDLAC RESOLUTION) Witnesseth that on this - day of ., 20- the undersigned, having borrowed certain funds from the City of Carlsbad (the ”Issuer”) for the purpose of financing a multifamily rental housing development (the ”Project”) located in the City of Carlsbad, California, does hereby certify that: [The Borrower is in compliance with the CDLAC Resolution (as defined in the Regulatory Agreement relating to the Project).] [The Borrower is not in compliance with Condition No. - of the CDLAC Conditions. The following measures are being taken to 1. remedy such noncompliance -3 2. The representations set forth herein are true and correct to the best of the undersigned’s knowledge and belief. Date: CIC CALAVERA, L.P., a California limited partnership By: Its: By: Its: Pacific Southwest Community Development Corporation, a California nonprofit public benefit corporation Managing General Partner By: Michael T. Walsh Executive Director/President CIC Calavera Hills 11, LLC, a California limited liability company Co-General Partner By: James J. Schmid Manager F-1