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06-0501_MILLENNIUM HOUSING CORPORATION_Supplemental Regulatory Agreement 114 1 ity I itir.' 1110 BY!I W.6 . "TbfeiVbcument was electronically recorded by WRICAN TI.E.COMPANY NATIONAUCOMMERCIAL SERVICES First American Title B COMMERCIAMNOUSTRIAL DIVISION Recorded in Official Records,Orange County RECORDING REQUESTED BY AND Tom Daly,Clark-Recorder WHEN RECORDED RETURN TO: 81.00 BEST BEST & KRIEGER LLP 2006000368544 11:05am 06/01/06 3750 University Avenue, 3d Floor 119 30 Al2 D06 24 Riverside, CA 92501 0.00 0.00 0.00 0.00 69.00 0.00 0.00 0.00 Attention: Francis J. Baum,Esq. [Space ab&6fbiRecorder's use SUPPLEMENTAL REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS By and Between the CITY OF SAN JUAN CAPISTRANO and MILLENNIUM HOUSING CORPORATION, as Owner Dated as of May 1, 2006 RVPUBTBAUNC708986.1 RECORDING REQUESTED BY AND ) WHEN RECORDED RETURN TO: ) BEST BEST& KRIEGER LLP ) 3750 University Avenue, 3`d Floor ) Riverside, CA 92501 ) Attention: Francis J. Baum, Esq. ) 1 [Space above for Recorder's use] SUPPLEMENTAL REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS By and Between the CITY OF SAN JUAN CAPISTRANO and MILLENNIUM HOUSING CORPORATION, as Owner Dated as of May 1, 2006 RVPUB\FBAUM708986.1 TABLE OF CONTENTS Page Section 1. Definitions and Interpretation.................................................................... 1 Section 2. Membership in Authority; Rental Assistance Fund...................................3 Section 3. Project Requirements.................................................................................4 Section 3A. Property Management and Maintenance ................................................... 5 Section 4. Qualified Residents.................................................................................... 6 Section 5. Repair and Replacement Fund................................................................... 9 Section6. Other Covenants......................................................................................... 9 Section7. Indemnification.......................................................................................... 9 Section8. Consideration........................................................................................... 10 Section9. Reliance.................................................................................................... 10 Section 10. Sale or Transfer of the Project; Option to Purchase ................................ 10 Section11. Term......................................................................................................... I 1 Section 12. Covenants to Run With the Land............................................................. 12 Section 13. Burden and Benefit.................................................................................. 12 Section 14. Uniformity; Common Plan. ..................................................................... 12 Section15. Enforcement............................................................................................. 12 Section 16. Recording and Filing................................................................................ 13 Section17. Payment of Fees....................................................................................... 13 Section 18. Governing Law........................................................................................ 13 Section19. Amendments............................................................................................ 13 Section20. Notice..................................................................................I.................... 13 Section21. Severability.............................................................................................. 14 Section 22. Multiple Counterparts.............................................................................. 14 Section 23. Subordination........................................................................................... 14 EXHIBIT A- Legal Description.................................................................................................A-1 EXHIBIT B—Rental Control Ordinance.....................................................................................B-1 RVPUBIFBAUv6708986.1 _i_ THIS SUPPLEMENTAL REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (the "Regulatory Agreement"), made and entered into as of May 1, 2006, by and between the City of San Juan Capistrano, a public body, corporate and politic (the "City"), and Millennium Housing Corporation, a California nonprofit corporation, as the owner of the property described in Exhibit A attached hereto (the "Owner"): WITNESSETH: WHEREAS, the Owner is acquiring the property described on Exhibit A attached hereto and the improvements located thereon, consisting of a 312-space mobile home park known as "San Juan Mobile Estates" (the "Project"), with a loan to it from the Independent Cities Lease Finance Authority (the "Authority") from the proceeds of the Authority's Mobile Home Park Revenue Bonds, Series A, Series B and Taxable Series C (collectively, the "Authority Bonds"); and WHEREAS, in connection with the issuance of the Authority Bonds, the Owner, the Authority and Union Bank of California,N.A., as trustee for the Authority Bonds (the "Authority Bond Trustee") have entered into a Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2006 (the "Authority Regulatory Agreement") which is being recorded in the real estate records of Orange County as a covenant running with the real property described in Exhibit A (the "Property"); and WHEREAS, in consideration of the City joining the Authority as an Associate Member in order to enable the Authority to provide financing to the Owner for the Project, the Owner and the City are entering into this Supplemental Regulatory Agreement and wish it to be recorded as a covenant running with the Property on a subordinate basis to the Authority Regulatory Agreement and the Deed of Trust referred to herein; NOW, THEREFORE, in consideration of the mutual covenants and undertakings set forth herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged,the City and the Owner hereby agree as follows: Section 1. Definitions and Interpretation. The following terms shall have the respective meanings assigned to them in this Section I unless the context in which they are used clearly requires otherwise: "Adjusted Income" — The total anticipated annual income of all persons in a household, as calculated in accordance with 25 California Code of Regulations Section 6914 or pursuant to a successor State housing program that utilizes a reasonably similar method of calculation of adjusted income. In the event that no such program exists, the City shall provide the Owner with a reasonably similar method of calculation of adjusted income as provided in said Section 6914. "Administration Agreement" - The Administration and Oversight Agreement, dated as of May 1, 2006, by and among the Authority, the City, the Owner and the Oversight Agent. "Area" - The Primary Metropolitan Statistical Area in which the Project is located. "Authority" -The Independent Cities Lease Finance Authority. RVPUBTBAUNR708986.1 1 "Authority Bonds" - Collectively, the Authority's Mobile Home Park Revenue Bonds (San Juan Mobile Estates) Series 2006A, Mobile Home Park Subordinate Revenue Bonds (San Juan Mobile Estates) Series 2006B and Mobile Home Park Subordinate Revenue Bonds (San Juan Mobile Estates) Taxable Series 2006C issued pursuant to an Indenture of Trust between the Authority and the Authority Bond Trustee and dated as of May 1, 2006. "Authority Bond Trustee" - Union Bank of California, N.A., as trustee for the Authority Bonds. "Certificate of Continuing Program Compliance" - The certificate with respect to the Project to be filed by the Owner with the Authority, the City, the Oversight Agent and the Authority Bond Trustee which shall be substantially in the form attached to the Authority Regulatory Agreement as Exhibit C. "City" - The City of San Juan Capistrano. "County" -The County of Orange. "Deed of Trust"- The Deed of Trust defined in the Indenture. "Income Certification" - The Income Computation and Certification attached to the Authority Regulatory Agreement as Exhibit B. "Lower Income Residents" - An individual or family household that, on the later of: (i) the date of this Agreement, or (ii) the date of the Lower Income Resident's initial occupancy of the Park, has an Adjusted Income that does not exceed the qualifying limits for lower income households, adjusted for actual household size, as established and amended from time to time pursuant to Section 8 for the United States Housing Act of 1937, and as published by the State of California Department of Housing and Community Development. "Lower Income Spaces" - The spaces in the Project designated for occupancy by Lower Income Residents pursuant to Section 4(a) of this Supplemental Regulatory Agreement. "Median Income for the Area" - The median gross yearly income adjusted for household size for the Area, as published from time to time by the State. In the event that such income determinations are no longer published, or are not updated for a period of at least eighteen (18) months,the City shall provide the Owner with other income determinations which are reasonably similar with respect to methods of calculation to those previously published by the State. "Oversight Agent" - the Oversight Agent appointed under the Administration Agreement, which initially shall be Wolf& Company Inc. "Project Restriction Period" - The period ending 35 years from the execution date of this Supplemental Regulatory Agreement. "Qualified Residents" - means Very Low Income Residents and Lower Income Residents. "Qualified Space" - a Very Low Income Space or a Lower Income Space. RVPUB\FBAUW708986.1 2 "Rental Assistance Fund" - The fund by that name established pursuant to the Indenture and to be administered pursuant to Section 2(b)hereof. "Space" - A mobile home space within the Project upon which a mobile home may be placed. "Very Low Income Residents" - Individuals or families with an Adjusted Income which does not exceed the qualifying limits for very low income households, adjusted for actual household size, as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, and as published by the State of California Department of Housing and Community Development. "Very Low Income Spaces" - The Spaces in the Project designated for occupancy by Very Low Income Residents pursuant to Section 4(a) of this Supplemental Regulatory Agreement. Such terms as are not defined herein shall have the meanings assigned to them in the Indenture. Unless the context clearly requires otherwise, as used in this Supplemental 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 Supplemental 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 terns used in the preamble and recitals of this Supplemental Regulatory Agreement have been included for convenience of reference only, and the meaning, construction and interpretation of all defined terns 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 Supplemental 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 terns or provisions hereof or be considered or given any effect in construing this Supplemental Regulatory Agreement or any provisions hereof or in ascertaining intent, if any question of intent shall arise. Section 2. Membership in Authority; Rental Assistance Fund. (a) City Membership in Authority. In consideration of the Borrower entering into this Supplemental Regulatory Agreement, the City has agreed to become an Associate Member of the Authority in order to enable the Authority to provide financing to the Owner for the Project. (b) Rental Assistance Fund. (i) The Owner shall establish with the Authority Bond Trustee the Rental Assistance Fund, which shall be held by the Authority Bond Trustee pursuant to Section 5.18 of the Indenture. After initial funding of the Rental Assistance Fund, the Owner shall thereafter fund additional deposits to the Rental Assistance Fund from moneys in the Surplus Fund under the Indenture so as to maintain sufficient moneys in the Rental Assistance Fund to meet the Owner's obligations under this Section 2(b). (ii) The Owner is authorized to make monthly withdrawals and utilize moneys in the Rental Assistance Fund to provide a subsidy for rental payments to be made by tenants in the Project in the manner and in the amounts set forth as follows: RVPU13\FBAUM\708986.1 3 (a) Upon close of escrow ("Close of Escrow"), initial space rent for each mobilehome space in the Project occupied by a resident at that time will be $805 per month (the "Rent Cap"). The Rent Cap for residents that do not currently rent space in the Project will be adjusted annually after the Close of Escrow to the rent permitted under the Rent Control Ordinance of the City of San Juan Capistrano (the "Rent Control Ordinance"). The Rent Cap for residents that currently rent space in the Project or rent space in the Project within seven days of the Close of Escrow("Current Residents") shall remain at $805 per month until the second anniversary of the Close of Escrow, and shall thereafter be adjusted annually to the rent permitted under the Rent Control Ordinance (said amount, as adjusted from time to time, being referred to herein as the "Space Rent"). (b) Notwithstanding the Space Rent set forth in (a) above, every Current Resident will pay only that amount permitted as rent under the Rent Control Ordinance and any difference will be provided as assistance from the Rental Assistance Fund such that the total of the rent actually paid by such Current Resident, and the amount paid as rental assistance will equal the Space Rent. This rental subsidy for Current Residents will continue to be paid from the Rental Assistance Fund as long as the Current Resident resides in the Project. (c) All rental assistance will be contingent upon the Current Resident applicant's compliance with park rules, including the requirement to provide the Annual Income Certification needed for the Owner's compliance with the bond documents; failure to comply with park rules or the annual certification requirement, after written notice and the expiration of a reasonable cure period, may result in a suspension.of the rental assistance, such suspension to continue until the Current Resident is again in compliance. (d) The Owner shall not seek to evict Current Residents who,while otherwise complying with park rules, cannot pay the subsidized rents; in such cases, the Owner shall use park surplus funds or the Rental Assistance Fund to reasonably further subsidize or defer a portion of the rent, depending upon individual circumstances, but the Owner shall not be obligated to subsidize or defer sums in excess of the amount that would reduce the rent payable by a Current Resident below the rent that would be payable by that Current Resident under the Rent Control Ordinance had the Owner never purchased the Project. Owner shall also assist any Current Resident brought to the Owner's attention by the City, to the extent such assistance will not prevent the Owner from meeting its other obligations under its various bond agreements. Section 3. Project Requirements. The Owner hereby represents, as of the date hereof, and covenants, warrants and agrees as follows: (a) The Project is being owned and operated for the purpose of providing residential rental housing, consisting of one mobile home Space for each household, together with related facilities. (b) All of the mobile homes in the Project will contain separate facilities for living, sleeping, eating, cooking and sanitation, including a sleeping area, bathing and sanitation facilities and cooking facilities equipped with a cooking range, refrigerator and sink. RVPUB\FBAUM708986.1 4 (c) All of the Spaces will be available for rental on a continuous basis to members of the general public, and the Owner will not give preference to any particular class or group in renting the Spaces in the Project, except to the extent that Spaces are required to be leased or rented to Qualified Residents. (d) The Project comprises a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project. (e) There shall be no discrimination against or segregation of any person or group of persons on account of race, color, religion, age, sex, marital status, ancestry, national origin, source of income (e.g. AFDC or SSI) or disability in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Project nor shall the transferee or any person claiming under or through the transferee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the Project. (f) The Very Low Income Spaces and the Lower Income Spaces shall be intermingled with, and shall be of comparable quality to, all other Spaces in the Project. Tenants in all Spaces shall have equal access to and enjoyment of all common facilities of the Project. (g) In the aggregate, no more than two persons per bedroom, plus one person shall occupy any Space in the Project. For example, with respect to a two bedroom mobilehome, maximum occupancy shall be 5 persons. (h) The Owner will accept as tenants, on the same basis as all other prospective tenants, persons who are recipients of federal certificates for rent subsidies pursuant to the existing housing program under Section 8 of the United Stated Housing Act, or its successor. The Owner shall not apply selection criteria to Section 8 certificate or voucher holders that is more burdensome than criteria applied to all other prospective tenants, nor shall the Owner apply or permit the application of management policies or lease provisions with respect to the Project which have the effect of precluding occupancy of Spaces by such prospective tenants. (i) The Owner agrees to honor all existing lease agreements in effect on the date of the Agreement, including any provisions contained therein with respect to rent adjustments, or if requested by a tenant who is a party to such a lease agreement, to replace such lease agreement with a month-to-month lease arrangement, subject to the Rent Control Ordinance. Section 3A. Property Management and Maintenance. The following provisions shall apply during the term of this Supplemental Regulatory Agreement. (a) Management Responsibilities. The Owner is responsible for all management functions with respect to the Project including without limitation the selection of tenants, certification and recertification of household size and income, evictions, collection of rents and deposits, maintenance, landscaping, routine and extraordinary repairs, replacement of capital items, and security. The City shall not have responsibility over management of the Project. The Owner may delegate its duties under this Section 3A to a property management company. A resident manager shall also be required. In no instance shall the Owner delegate or forego its responsibility to manage and operate the Project in the manner set forth in this Supplemental Regulatory Agreement and the Loan Agreement. RVPUBTBAUNC708986.1 5 (b) Management and Operation of Project. The Owner acknowledges that there exists a Residents Association for the Project and a governing board thereof (the "Resident Association Board"). The Owner agrees that the Resident Association Board may provide tenant comment and input to the Owner in the management and operation of the Project. The Owner or its representative or agent agrees to meet with any such Resident Association Board at least twice a year, or at such other frequency as agreed by the Resident Association Board and the Owner, to receive comments and recommendations with respect to Project operation and management. The Owner further agrees to provide regular reports (at least quarterly, or at such other intervals as agreed to by the Owner and the Resident Association Board) relating to the operation of the Project to the Resident Association Board. While the Resident Association Board shall have no decision-making authority with respect to the management and operation of the Project, the Owner agrees to use its best efforts to implement recommendations of the Resident Association Board that can reasonably be implemented by the Owner and that will not cause the Owner, in its reasonable judgment, to be unable to perform its obligations under this Agreement, the Authority Regulatory Agreement, the Loan Agreement and the Deed of Trust. The Owner further agrees that it shall not refuse any good-faith request by the Resident Association Board for the addition, deletion or amendment of a Project rule or regulation absent a good-faith, business reason for doing so. The Owner may request all residents of the Project to vote on any such addition, deletion or amendment. The Owner further agrees to review and take such action as it determines to be appropriate with respect to any documented complaints about Project management presented to it by the Resident Association Board. (c) Property Maintenance. The Owner agrees, for the entire Term of this Supplemental Regulatory Agreement, to maintain all common area interior and exterior improvements and common buildings on the Project (exclusive of the mobile homes and tenant spaces), including landscaping and common buildings on the Project in good condition and repair (and, as to landscaping, in a healthy condition) and in accordance with all applicable laws, rules, ordinances, orders and regulations of all federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. The City places prime importance on quality maintenance to ensure that all City-assisted affordable housing projects within the City are not allowed to deteriorate due to below-average maintenance. Section 4. Qualified Residents. The Owner hereby represents, as of the date hereof, and warrants, covenants and agrees as follows: (a) During the Project Requirement Period (a) not less than twenty percent (20%) of the Spaces in the Project shall be designated as Very Low Income Spaces and shall be continuously occupied by Very Low Income; and (b) not less than thirty percent (30%) of the Spaces in the Project shall be designated as Lower Income Spaces and shall be continuously occupied by Lower Income Residents. The monthly rent charged for one-half of the Very Low Income Spaces (i.e., 10% of the Spaces in the Project) shall be not greater than as follows: (A) where a Very Low Income Resident is both the registered and legal owner of the mobile home and is not making mortgage payments for the purchase of that mobile home, the total rental charge for occupancy of the Space (excluding a reasonable allowance for other related housing costs determined at the time of acquisition of the RVPUBNFBAUNE708986.1 6 Project by the Owner and excluding any supplemental rental assistance from the State, the federal government, or any other public agency to the Very Low Income Resident, on behalf of the Space and the mobile home) shall not exceed one-twelfth of 30 percent of 50 percent of Median Income for the Area, adjusted for household size in the manner set forth below. (B) where a Very Low Income Resident is the registered owner of the mobile home and is making mortgage payments for the purchase of that mobile home, the total rental charge for occupancy of the Space (excluding any charges for utilities and storage and excluding any supplemental rental assistance from the State, the federal government, or any other public agency to the Very Low Income Resident, or on behalf of the Space and mobile home), shall not exceed one-twelfth of 15 percent of 50 percent, of Median Income for the Area, as adjusted for household size in the manner set forth below. (C) where a Very Low Income Resident rents both the mobile home and the Space occupied by the mobile home, the total rental payments paid by the Very Low Income Resident on the mobile home and the Space occupied by the mobile home (excluding any supplemental rental assistance from the State, the federal government, or any other public agency to that Very Low Resident or on behalf of that Space and mobile home) shall not exceed one-twelfth of 30 percent of 50 percent, of Median Income as established by the U.S. Department of Housing and Urban Development for the Area adjusted for household size in the manner set forth below. In adjusting rent for household size, it shall be assumed that two persons will occupy a single-wide mobilehome and three persons will occupy a multisectional mobilehome; provided that if the multisectional mobilehome has three or more bedrooms, then it shall be assumed that four persons shall occupy a three-bedroom unit and five persons will occupy a four-bedroom unit. (b) In the event a recertification of the income of a Very Low Income Resident or a Lower Income Resident, as applicable, in accordance with Section 4(d) below demonstrates that such tenant no longer qualifies as a Very Low Income Resident or a Lower Income Resident, as applicable, the Space occupied by such tenant shall continue to be treated as a Very Low Income Space or a Lower Income Space, as applicable, unless and until any Space in the Project thereafter is occupied by a new tenant other than a Very Low Income Resident or a Lower Income Resident, as applicable. Moreover, a Space previously occupied by a Very Low Income Resident or a Lower Income Resident, as applicable, and then vacated shall be considered occupied by a Qualified Resident until reoccupied, other than for a temporary period, at which time the character of the Space shall be redetermined. In no event shall such temporary period exceed thirty-one (3 1) days. Notwithstanding anything herein to the contrary, if at any time the number of Qualified Residents falls below the number required by subparagraph(a) (i) of this Section,the next available vacant Space shall be rented to a Qualified Resident. (c) Annually, the Owner will obtain and maintain on file an Income Certification form from each Qualified Resident occupying a Qualified Space, dated immediately prior to the initial occupancy of such Qualified Resident in the Project (or prior to the Closing Date in the case of existing Very Low Income Residents). In addition, the Owner will provide such further information as may be required in the future by the State of California, as requested by the City or the Oversight Agent. The Owner shall verify that the income provided by an applicant with RVPUB\FBAUW708986.1 7 respect to a Space to be occupied after the Closing Date is accurate by taking one or more of 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 such as a current pay stub or W-2 form, (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 reasonably satisfactory to the Oversight Agent or (4) such other information as may be reasonably requested by the Oversight Agent. Within ten days of the last day of each calendar quarter during the term of this Regulatory Agreement commencing with the quarter ending September 30, 2006, the Owner shall advise the Oversight Agent or in the absence of a Oversight Agent, the City, of the status of the occupancy of the Project by delivering to the Oversight Agent a Certificate of Continuing Program Compliance; provided, however, with the prior written approval of the Oversight Agent or the City, as the case may be, such Certificate need be filed only semi-annually. Copies of the most recent Income Certifications for Qualified Residents commencing or continuing occupancy of a Qualified Space shall be made available to the City or Oversight Agent upon request. (d) Annually, the Owner shall recertify the income of the occupants of such Very Low Income Spaces and Lower Income Spaces, as applicable, by obtaining a completed Income Certification 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 qualify as Very Low Income Residents or Lower Income Residents, as applicable, such household will no longer qualify as a Very Low Income Resident or a Lower Income Resident, as applicable, and the Owner either (i) will designate another qualifying Tenant and Space in the Project as a Very Low Income Resident or a Lower Income Resident, as applicable and`a Very Low Income Space or a Lower Income Space, as applicable, respectively, or (ii) will rent the next available vacant Space to one or more Very Low Income Residents or Lower Income Residents, as applicable. (e) The Owner will maintain complete and accurate records pertaining to the Qualified Spaces, and will permit any duly authorized representative of the City or the Oversight Agent to inspect during normal business hours and with prior notice the books and records of the Owner pertaining to the Project, including those records pertaining to the occupancy of the Qualified Spaces. (f) Each lease or rental agreement pertaining to a Qualified Space occupied after the Closing Date shall contain a provision to the effect that the Owner has relied on the Income Certification and supporting information supplied by the Qualified Resident in determining qualification for occupancy of the Qualified Space, and that any material misstatement in such certification (whether or not intentional) may be cause for immediate termination of such lease. Each lease or rental agreement will also contain a provision that failure to cooperate with the annual recertification process reasonably instituted by the Owner pursuant to Section 4(d) above will disqualify the Space as a Qualified Space and provide grounds for termination of the lease. The Owner agrees to provide to the Oversight Agent and the City, a copy of the form of application and lease or rental agreement to be provided to prospective Qualified Residents and any amendments thereto. (g) In the event, despite the Owner's exercise of best efforts to comply with the provisions of Section 4 of this Regulatory Agreement, the Owner shall have been out of RVPUB\FBAUW708986.1 8 compliance with any of the restrictions of Section 4 hereof relative to Qualified Residents, for a period in excess of six months, then at the sole option of the City the term of the Regulatory Agreement shall be automatically extended for the period of non-compliance upon written notice to the Owner and the Oversight Agent from the City, such extension to relate to the Qualified Spaces and Qualified Residents as to which such noncompliance relate. Section 5. Repair and Replacement Fund. The Owner agrees and covenants to cause to be established and maintained the Repair and Replacement Fund created by Section 5.3(7) of the Indenture and to be used and replenished as provided in Sections 5.13 and 5.7(h) of the Indenture and Section 6.22 of the Loan Agreement. Section 6. Other Covenants. (a) The Owner further covenants and agrees as follows: The Owner will comply with the provisions of Title 2, Chapter 2, Article 9 of the City Municipal Code relating to mobile home rent control (the "Rent Control Ordinance"), a copy of which Rent Control Ordinance is attached hereto as Exhibit B notwithstanding any legal challenges to the Rent Control Ordinance, and further agrees that it shall at all times abide by and follow the terms and provisions of the Rent Control Ordinance, and shall not in any manner challenge said provisions. (b) In the event the Owner requests any discretionary rental increases under the Rent Control ordinance, the Owner agrees not to appeal any decision of the City with respect to such request. (c) In the event the Rent Control Ordinance is determined in any legal proceeding to be invalid for any reason, the Owners agrees to continue to comply with the provisions of the Rent Control Ordinance as if it were still in effect. Section 7. Indemnification. The Owner shall indemnify, hold harmless and defend the City, the Oversight Agent and the Authority Bond Trustee and the respective officers, members, directors, officials and employees of each of them (the "indemnified party") against all loss, costs, damages, expenses, suits,judgments, actions and liabilities of whatever nature,joint and several (including, without limitation, 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 operation, use, occupancy, maintenance, or ownership of the Project (including compliance with laws, ordinances and rules and regulations of public authorities relating thereto); or (b) any written statements or representations with respect to the Owner the Project or the Authority Bonds made or given to the City, the Oversight Agent or the Authority Bond Trustee, by the Owner, or any of its agents or employees, including, but not limited to, statements or representations of facts or financial information; provided, however, the Owner shall not be obligated to indemnify the City, the Authority Bond Trustee or the Oversight Agent for damages caused by the gross negligence or willful misconduct of the City, the Authority Bond Trustee or the Oversight Agent. The Owner also shall pay and discharge and shall indemnify and hold harmless the City, the Oversight Agent and the Authority Bond Trustee from (x) any lien or charge upon payments by the Owner to the City and the Authority Bond 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 City shall give prompt notice to the Owner, and the Owner shall have the sole right and duty to assume, and will assume, the defense RVPUB\FBAUM\708986.1 9 thereof, including the employment of counsel selected by the indemnified party and the payment of all reasonable expenses related thereto, with full power to litigate, compromise or settle the same in its sole discretion; provided, however, that the Owner shall have the right to review and approve or disapprove any such compromise or settlement, and provided further that any such approval shall not be unreasonably withheld. Section 8. Consideration. The City has agreed to become an Associate Member of the Authority for the purpose, among others, of inducing the Owner to own and operate the Project such that the Project shall contribute to the City's efforts to provide affordable housing to Qualified Residents in the City and to the satisfaction of the City's ongoing housing burden. In consideration of the City joining the Authority as an Associate Member in order to allow the Authority to provide financing to the Owner for the Project, the Owner has entered into this Supplemental 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. In performing its duties and obligations hereunder, the City may rely upon statements and certificates of the Owner and Qualified Residents, and upon audits of the books and records of the Owner pertaining to the Project. In addition, the City 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 City hereunder in good faith and in conformity with such opinion. Section 10. Sale or Transfer of the Project; Option to Purchase. (a) The Owner 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 for individual tenant or owner use as contemplated hereunder), without obtaining the prior written consent of the City and upon receipt by the City of(i) reasonable evidence satisfactory to the City that the Owner's purchaser or transferee has assumed in writing and in full, the Owner's duties and obligations under this Supplemental Regulatory Agreement, (ii) an opinion of counsel for the transferee that the transferee has duly assumed the obligations of the Owner under this Supplemental Regulatory Agreement, and that such obligations and this Supplemental Regulatory Agreement are binding on the transferee, (iii) the City receives evidence acceptable to the City that either (A) the transferee has experience in the ownership, operation and management of comparable projects without any record of material violations of discrimination restrictions or other state or federal laws or regulations applicable to such projects, or (B) the transferee agrees to retain a property management firm with the experience and record described in subparagraph (A) above and in either case, at its option, the City may cause the Oversight Agent to provide on-site training in program compliance if the City determines such training is necessary and (iv) the City receives evidence that the purchaser is a not for-profit organization. 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 Owner, and shall be ineffective to relieve the Owner of its obligations under this Supplemental Regulatory Agreement. Not less than 30 days prior to consummating any sale, transfer or disposition of any interest in the Project, the Owner shall deliver to the City and the Oversight Agent a notice in writing explaining the nature of the proposed transfer. (b) Notwithstanding the provisions of Section 10(a) above, the Owner shall grant to the San Juan Capistrano Residents Association (the "Residents Association") an option to RVPUB\FBAUMC708986.1 10 purchase the Project from the Owner under a written option agreement on the following general terms: (i) During the first 10 years following the Closing Date, the purchase price of the Project under said option shall be equal to $40,110,000 plus the costs of any financing undertaken by the Residents Association to accomplish such purchase; (ii) After the first 10 years following the Closing Date, the purchase price of the Project shall be equal to $40,110,000 plus the increase in the Consumer Price Index for the preceding year (beginning with year 11), together with the costs of any financing undertaken by the Residents Association to accomplish said purchase; (iii) The Residents Association shall pay, in addition to the purchase price set forth in (a) or (b) above, all costs, fees and expenses, including, but not limited to, title, escrow and all other closing costs, necessary to defease, prepay and redeem the Outstanding Bonds of the Authority and the transfer of ownership of the Project from the Owner to the Residents Association; and (iv) The Residents Association shall provide to the City, the Authority and the Owner an opinion of Bond Counsel to the effect that the exercise of said option and the purchase of the Project by the Residents Association and the defeasance of the Outstanding Authority Bonds will not in and of itself, cause interest on said Authority Bonds to be included in gross income for federal income tax purposes. (c) 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 Owner, and shall be ineffective to relieve the Owner of its obligations under this Supplemental Regulatory Agreement. Not less than 30 days prior to consummating any sale, transfer or disposition of any interest in the Project, the Owner shall deliver to the City and the Oversight Agent a notice in writing explaining the nature of the proposed transfer. Section 11. Term. 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 Project Restriction Period, it being expressly agreed and understood that the provisions hereof are intended to survive the retirement of the Authority Bonds. Notwithstanding any other provisions of this Regulatory Agreement to the contrary, this entire Supplemental Regulatory Agreement, or any of the provisions or sections hereof, may be terminated upon agreement by the City and the Owner. The terms of this Supplemental Regulatory Agreement to the contrary notwithstanding, this Supplemental 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 foreclosure or delivery of a deed in lieu of foreclosure whereby the Authority Bondowners or a third party shall take possession of the Project, or (ii) involuntary non-compliance with the provisions of this Supplemental 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 City from enforcing the provisions hereof, or(iii) condemnation or a similar event and the payment in full and retirement of the Authority Bonds theretofore or within a reasonable period thereafter. Upon the termination of the terms of this RVPURTBAUNW08986.1 I I Supplemental 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 Supplemental Regulatory Agreement in accordance with its terms. Section 12. Covenants to Run With the Land. The Owner hereby subjects the Project (including the Project site) to the covenants, reservations and restrictions set forth in this Supplemental Regulatory Agreement. The City and the Owner 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 Owner's successors in title to the Project; provided, however, that upon the termination of this Supplemental Regulatory Agreement said covenants, reservations and restrictions shall expire with the exception of the non-discrimination covenant of Section 3(e) which shall continue in perpetuity. 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 instrument. Section 13. Burden and Benefit. The City and the Owner hereby declare their understanding and intent that the burden of the covenants set forth herein touch and concern the land in that the Owner's legal interest in the Project is rendered less valuable thereby. The City and the Owner 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 Qualified Residents, the intended beneficiaries of such covenants, reservations and restrictions. Section 14. Uniformity; 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 Project. Section 15. Enforcement. If the Owner defaults in the performance or observance of any covenant, agreement or obligation of the Owner set forth in this Supplemental Regulatory Agreement, and if such default remains uncured for a period of 60 days after notice thereof shall have been given by the City to the Owner(provided, however, that the City may at its sole option extend such period and provided further, in the event any default relates to Section 4 hereof and the Owner is exercising best efforts to comply with such restrictions as determined by the City in its reasonable discretion, then the cure period described above shall be 6 months and shall be subject to the extension of the Project Restriction Period under Section 4(h) hereof), then the City shall declare an "Event of Default" to have occurred hereunder, and the City, at its option, 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 Owner 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 City hereunder; (b) have access to and inspect, examine and make copies of all of the books and records of the Owner pertaining to the Project; and RVPUB\FBALW708986.1 12 (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 Owner hereunder. All fees, costs and expenses of the City and the Oversight Agent (including, without limitation, reasonable attorneys' fees) reasonably incurred in taking any action pursuant to this Section 15 shall be the sole responsibility of the Owner. Section 16. Recording and Filing. The Owner shall cause this Supplemental Regulatory Agreement and all amendments and supplements hereto, to be recorded and filed, after the recording of the Authority Regulatory Agreement and the Deed of Trust in the real property records of the County and in such other places as the may reasonably request. The Owner shall pay all fees and charges incurred in connection with any such recording. Section 17. Payment of Fees. In the event of a default hereunder by the Owner, the Owner shall pay to the City reasonable compensation for any services rendered by it hereunder and reimbursement for all expenses reasonably incurred by in connection with such default. Section 18. Governing Law. This Supplemental Regulatory Agreement shall be governed by the laws of the State of California. Section 19. Amendments. This Supplemental Regulatory Agreement shall be amended only by a written instrument executed by the parties hereto or their successors in title, and duly recorded in the real property records of the County. Section 20. Notice. All notices, certificates or other communications shall be sufficiently given and 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 certified mail, return receipt requested,postage prepaid, addressed as follows: City: City of San Juan Capistrano 32400 Paseo Adelanto San Juan Capistrano, CA 92675 Attn: City Manager Oversight Wolf& Company Inc. Agent: 5 Pembroke Lane Laguna Niguel, CA 92677 Attn: Wesley R. Wolf Owner: Millennium Housing Corporation 660 Newport Center Drive, Suite 1020 Newport Beach, CA 92660 Attn: George Turk 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. RVPUB\FBAUW708986.1 13 Section 21. Severability. If any provision of this Supplemental 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. Multiple Counterparts. This Supplemental 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. Subordination. This Supplemental Regulatory Agreement and any amendments, modifications, renewals and extensions hereof shall at all times be a lien and charge on the Project and the real property described on Exhibit A hereto expressly and unconditionally subordinate to the lien and charge thereon of the Authority Regulatory Agreement and the Deed of Trust. RVPUB\FBAUM\708986.1 14 IN WITNESS WHEREOF, the City and the Owner have executed this Supplemental Regulatory Agreement by duly authorized representatives, all as of the date first written hereinabove. CITY OF SAN JUAN CAPISTRANO By: l7{1;ZA T g441�— City Manager MILLENNIUM HOUSING CORPORATION, a California non-profit public benefit corporation e de t RVPUB\FBAUM\708986.1 15 PUBLIC AGENCY FORM OF ACKNOWLEDGEMENT State of California ) County of Orange ) ss. City of San Juan Capistrano ) (Gov't Code 40814 & Civil Code 118 1) On May 25, 2006 before me,Margaret R. Monahan, City Clerk,personally appeared David F.Adams,City Manager,personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. (SEAL) WITNESS my hand and official seal. AAjt et R. Monahan, City Clerk OPTIONAL Capacity Claimed by Signers Description of Attached Document City Manager Supplemental Regulatory Agreement & Declaration of Restrictive Covenants Title Signers are Representing City of San Juan Capistrano STATE OF CALIFORNIA ) ) ss. COUNTY OF RIVERSIDE ) On May 30, 2006, before me, Evelyn Corselli, A NOTARY PUBLIC, personally appeared GEORGE TURK ©personally known to me OR ❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/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 ofNoiary [SEAL] laEVELYN CORSELLI COMM. #1523014 NOTARY PUBLIC-CALIFORNIA RIVERSIDE COUNTY - My Comm.Expires October 90,2008 RV PUB\FBAUNI\708986.1 EXHIBIT "A" LEGAL DESCRIPTION PARCEL 3 OF PARCEL MAPS, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 62, PAGE 19 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. SAID LAND IS ALSO BEING A PORTION OF THE FOLLOWING DESCRIBED PARCELS "A" AND `B". PARCEL A: BEING THOSE PORTIONS OF LOTS 60, 61 AND 62 OF TRACT NO. 103, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE NORTHWESTERLY LINE OF SAID LOT 61, LYING NORTH 210 40' 07" EAST 4.78 FEET FROM THE WESTERLY CORNER OF SAID LOT 61; THENCE NORTH 890 58' 18" EAST 564.75 FEET TO THE WESTERLY LINE OF THE LAND DESCRIBED AS PARCEL 101, IN THE DEED TO THE ORANGE COUNTY FLOOD CONTROL DISTRICT, RECORDED JUNE 28, 1963 IN BOOK 6609, PAGE 371 OF OFFICIAL RECORDS OF SAID COUNTY; THENCE ALONG SAID WESTERLY LINE, SOUTH 30 04' 46" WEST 1045.00 FEET TO A POINT LYING NORTH 30 04' 46" EAST 583.39 FEET FROM THE SOUTHERLY LINE OF SAID LOT 62; THENCE SOUTH 89° 58' 18" WEST 548.34 FEET; THENCE NORTH 44° 01' 54" WEST 687.07 FEET TO THE NORTHWESTERLY LINE OF SAID LOT 62; THENCE ALONG SAID LAST MENTIONED NORTHWESTERLY LINE, NORTH 420 14' 44" EAST 743.84 FEET TO THE NORTHEASTERLY LINE OF SAID LOT 62; THENCE ALONG SAID NORTHEASTERLY LINE, SOUTH 700 07' 46" EAST 16.40 FEET TO SAID NORTHWESTERLY LINE OF LOT 61; THENCE ALONG SAID LAST MENTIONED NORTHWESTERLY LINE, NORTH 21° 40' 07"EAST 4.78 FEET TO THE POINT OF BEGINNING. PARCEL B: BEING THOSE PORTIONS OF LOTS 60 AND 62 OF TRACT NO. 103, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE WESTERLY LINE OF THE LAND DESCRIBED AS PARCEL 101, IN THE DEED TO ORANGE COUNTY FLOOD CONTROL DISTRICT, RECORDED JUNE 28, 1963 IN BOOK 6609, PAGE 371 OF OFFICIAL RECORDS OF SAID COUNTY, WITH THE SOUTHERLY LINE OF SAID LOT 62; THENCE ALONG SAID WESTERLY LINE, NORTH 3° 04' 46" EAST 583.39 FEET; RV PUB\FBAUM\708986.1 A-1 THENCE SOUTH 890 58' 18" WEST 548.34 FEET; THENCE NORTH 44° 01' 54" WEST 687.07 FEET TO THE NORTHWESTERLY LINE OF SAID LOT 62; THENCE ALONG SAID NORTHWESTERLY LINE, SOUTH 420 14' 44" WEST 290.73 FEET AND SOUTH 360 58' 16" WEST 302.19 FEET TO THE SOUTHWESTERLY LINE OF SAID LOT 62; THENCE ALONG SAID SOUTHWESTERLY LINE, SOUTH 440 01' 54" EAST 862.34 FEET TO SAID SOUTHERLY LINE; THENCE ALONG SAID SOUTHERLY LINE, NORTH 89° 58' 18" EAST 772.38 FEET TO THE POINT OF BEGINNING. APN: 121-171-29 and 121-171-30 RVPUB\FBAUMV08986.1 2 EXHIBIT `B" RENT CONTROL ORDINANCE RVPUB\FBAUM\708986.1 B-1 _ ORDINANCE NO. 902 AN ORDINANCE OF THE CITY OF SAN JUAN CAPISTRANO, CALIFORNIA, AMENDING MUNICIPAL CODE SUBSECTION 2-2.903(a) OF ARTICLE 9, "MOBILE HOME RENT CONTROL", OF THE SAN JUAN CAPISTRANO MUNICIPAL CODE The City Council of the City of San Juan Capistrano hereby ordains as follows: Section 1. Code Amendment. Municipal Code subsection 2-2.903(a) of section 2-2.903, "Petition and Hearing Process Regarding Rent Increase" is hereby amended in its entirety to Read as follows: "(a) Petition and hearing procedure. Upon the filing with the secretary of a written petition concerning a proposed or actual increase in rent filed by an owner or by residents who reside in and represent more than fifty (50) percent of the inhabited spaces within a park, excluding management, a hearing thereon shall be conducted by a Hearing Officer within sixty (60) calendar days, or as soon thereafter as is reasonably practicable, after the filing of the petition. In the event that the park owner has proposed a rent increase for one or more residents (e.g., based upon one year anniversary dates) but less than the total number of residents in the park, then only one hearing process shall be conducted by the same hearing officer where the rent increases proposed for all residents in the park for that year is based upon the same factual justification. Any such rent increase shall be subject to a protest petition when filed by a majority of total park residents. The filing of one petition protest shall be sufficient to place all similar rent increases for that year at issue under the hearing review process. The hearing shall be conducted only in the event the petition is filed with the secretary thirty (30) calendar days following the effective date of the rent increase which is the subject of the petition. The Hearing Officer shall be chosen and a hearing conducted in accordance with the Hearing Officer procedure established by the Council." Section 2. Application. The code amendment set forth in Section 1 is declaratory of the Council's intent that Municipal Code section 2-2.903(a) has meant and does require one rent review hearing for multiple rent increases proposed for groups of park residents wherein the rent increase is the same for all and based upon the same factual justification for all. 1 03-01-2005 Accordingly, this code amendment applies to any rent increase proposed by any park -- owner after January 1, 2004. Section 3. City Clerk's Certification. The City Clerk shall certify to the adoption of this Ordinance and cause the same to be posted at the duly designated posting places within the City and published once within fifteen (15)days after passage and adoption as required by law. PASSED, APPROVED AND ADOPTED this 15 day of March 2005. WYAr HART, MAYOR ATTEST: i M 7RET R. MONAHAN, CITY CLERK STATE OF CALIFORNIA ) COUNTY OF ORANGE ) ss. CITY OF SAN JUAN CAPISTRANO ) I, MARGARET R. MONAHAN, appointed City Clerk of the City of San Juan Capistrano, do hereby certify that the foregoing is a true and correct copy of Ordinance No. 902 which was regularly introduced and placed upon its first reading at the Regular Meeting of the City Council on the 15"' day of February 2005 and that thereafter, said Ordinance was duly adopted and passed at the Regular Meeting of the City Council on the 1"day of March 2005 by the following vote, to wit: AYES: COUNCIL MEMBERS: Allevato, Bathgate, Soto, Swerdlin, and Mayor Hart NOES COUNCIL MEMBERS: None ABSENT: COUNCIL MEMBERS: None �2, L� A A ET R. MONAHAN, City Clerk 2 03-01-2005 RECORDING REQUESTED BY This Document was electronically recorded by FIRST AMERICAN TITLE COMPANY First American Title-13 NATIONAL/COMMERCIAL SERVICES COMMERCIALANOUSTRIAL DIVISION Recorded in Official Records, Orange County RECORDING REQUESTED BY AND Tom Daly, Clerk-Recorder pp,, WHEN RECORDED RETURN TO: 117.00 Best Best&Krieger LLP 2006000368541 11:05am 06/01/06 36 3750 University Avenue, 3' Floor 0.0 30 Al2 D050 0.00 0.00 0.0000 �os.oa a.Do o.ao o.00 Riverside, CA 92501 0.0 Attention: Francis J. Baum, Esq. A/C5 -a2DX6,7V-jAI - rc—, REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS by and among the INDEPENDENT CITIES LEASE FINANCE AUTHORITY, as Authority and UNION BANK OF CALIFORNIA,N.A., as Trustee and MILLENNIUM HOUSING CORPORATION, as Borrower Dated as of May 1, 2006 Relating to: $29,660,000 Independent Cities Lease Finance Authority Mobile Home Park Revenue Bonds (San Juan Mobile Estates) Series 2006A and $9,765,000 Independent Cities Lease Finance Authority Mobile Home Park Subordinate Revenue Bonds (San Juan Mobile Estates) Series 2006B and $485,000 Independent Cities Lease Finance Authority Mobile Home Park Subordinate Revenue Bonds (San Juan Mobile Estates) Taxable Series 2006C R V PUB\FBAUM\708998.1 TABLE OF CONTENTS Page Section 1. Definitions and Interpretation.................................................................................... 2 Section 2. Representations and Warranties of the Bon-ower...................................................... 4 Section 3. Residential Rental Property....................................................................................... 5 Section 3A. Additional Program Requirements.......................................................................... 6 Section4. Qualified Residents.................................................................................................... 7 Section 5. Tax Status of the Bonds........................................................................................... 10 Section 6. Modification of Special Tax Covenants .................................................................. 10 Section 7. Indemnification........................................................................................................ 11 Section8. Consideration........................................................................................................... 12 Section9. Reliance.................................................................................................................... 12 Section 10. Sale or Transfer of the Project............................................................................... 12 Section11. Term....................................................................................................................... 13 Section 12. Covenants to Run With the Land........................................................................... 14 Section 13. Burden and Benefit................................................................................................ 14 Section 14. Uniformity; Common Plan.................................................................................... 14 Section15. Enforcement........................................................................................................... 14 Section 16. Recording and Filing.............................................................................................. 15 Section17. Payment of Fees..................................................................................................... 16 Section 18. Governing Law...................................................................................................... 16 Section19. Amendments.......................................................................................................... 16 Section20. Notice..................................................................................................................... 16 Section21. Severability............................................................................................................ 17 Section 22. Multiple Counterparts............................................................................................ 17 Section 23. Trustee Acting Solely in Such Capacity................................................................ 17 Section 24. Compliance by Borrower....................................................................................... 17 Section 25. Limited Liability of the Authority......................................................................... 17 EXHIBIT A - Legal Description................................................................................................. A-1 EXHIBIT B - Income Computation and Certification.................................................................B-1 EXHIBIT C - Certification of Continuing Program Compliance................................................0-1 RVPUB\FBAUM\708998.1 1 `y REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS THIS REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (the "Regulatory Agreement"), made and entered into as of May 1, 2006, is by and among the Independent Cities Lease Finance Authority, a joint powers authority organized and existing under the laws of the State of California (the "Authority), Union Bank of California, N.A., a national banking association, as trustee (the "Trustee") under an Indenture of Trust dated as of the date hereof between the Authority and the Trustee, and Millennium Housing Corporation, a California nonprofit public benefit corporation, as the owner of the property described in Exhibit A attached hereto (the"Borrower"). RECITALS: WHEREAS, the Legislature of the State of California enacted Chapter 8, Part 5 of Division 31 of the California Health and Safety Code (the "Act') to authorize cities, including joint powers authorities among cities, to issue bonds to finance the acquisition of mobile home parks to provide housing for persons of very low income; and WHEREAS, the Authority is a political subdivision 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, the Authority has previously adopted a resolution (the "Resolution") authorizing the issuance of revenue bonds in connection with the financing of the San Juan Mobile Estates mobile home park to be acquired by the Borrower and located in the City of San Juan Capistrano, California (the "Project'); and WHEREAS, in furtherance of the purposes of the Act and the Resolution, the Authority proposes to issue $39,910,000 aggregate initial principal amount of its revenue bonds in three series designated "Independent Cities Lease Finance Authority Mobile Home Park Revenue Bonds (San Juan Mobile Estates), Series 2006A" (the "Series A Bonds"), "Independent Cities Lease Finance Authority Mobile Home Park Subordinate Revenue Bonds (San Juan Mobile Estates), Series 200613" (the "Series B Bonds") and"Independent Cities Lease Finance Authority Mobile Home Park Subordinate Revenue Bonds (San Juan Mobile Estates), Taxable Series 2006C" (the "Series C Bonds" and together with the Series A Bonds and the Series B Bonds, the "Bonds"), the proceeds of which will be loaned to the Borrower (the "Loan") which, in consideration of the Loan, will cause to be delivered to the Trustee its promissory note in the aggregate principal amount of the Bonds (the "Note") secured by the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing (the "Mortgage") recorded in the office of the County Recorder for the County of Orange; and WHEREAS, the Authority, the Trustee and the Borrower have entered into a Loan Agreement, dated the date hereof(the "Loan Agreement"), pursuant to which the Authority will make the Loan to the Borrower to finance the Project; and RVPU13\FBAUM\708998.1 1 WHEREAS, the Note will be held by the Trustee in trust for the benefit of the owners from time to time of the Bonds pursuant to the terms of the Indenture to pay when due the principal of and interest on the Bonds; and WHEREAS, all things necessary to make the Bonds, when issued as provided in the Indenture, the valid and binding limited obligations of the Authority according to the import thereof, and to constitute the Indenture a valid assignment 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 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 used and operated in accordance with the Code (including Section 501(c)(3) of the Code) and the Act, and the Authority, the Trustee and the Borrower have determined to enter into this Regulatory Agreement in order to set forth certain terms and conditions relating to the operation of the Project. NOW, THEREFORE, in consideration of the mutual covenants and undertakings set forth herein, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the Authority, the Trustee and the Borrower hereby agree as follows: Section 1. Definitions and Interpretation. In addition to the terms defined in the • '4 foregoing recitals, the following terms used in this Regulatory Agreement shall have the respective meanings assigned to them in this Section 1 unless the context in which they are used clearly requires otherwise: "Adjusted Income" - The adjusted income of all persons who intend to occupy a Space, calculated in the manner determined by the Secretary of the Treasury pursuant to Section 142(d)(2)(B) of the Code. "Administration Agreement' - The Administration and Oversight Agreement, dated as of May 1, 2006, by and among the Authority, the Borrower, the City and the Oversight Agent. "Area" - The Primary Metropolitan Statistical Area in which the Project is located. "Authority Annual Fee" - An amount equal to 1/8 of one percent of the outstanding principal amount of the Bonds payable to the Authority 1/12 of such amount monthly, on the 151 day of each month, from the General Account of the Administration Fund or as otherwise provided in Section 5.7 of the Indenture, commencing May 15, 2007 plus an annual amount to pay the costs of the Authority audit report with respect to the Bonds, which is expected to be approximately $7,000 per year, such amount to be billed by the Authority to the Borrower and to be paid by the Borrower promptly upon receipt of such invoice and ending with the end of the term of this Regulatory Agreement. "Certificate of Continuing Program Compliance" - The certificate with respect to the Project to be filed by the Borrower with the Authority, the City, the Oversight Agent and the Trustee which shall be substantially in the form attached hereto as Exhibit C. "City"—The City of San Juan Capistrano, California. RVPUB\FBAUM\708998.1 2 "County"- The County of Orange. } "Income Certification" - The Income Computation and Certification attached hereto as Exhibit B. "Median Income for the Area" - The median income for the Area as most recently determined pursuant to the Act. "Oversight Agent" - The Oversight Agent appointed under the Administration Agreement, which shall initially be Wolf& Company Inc. "Oversight Agent's Fee" - The administration fee of the Oversight Agent, as set forth in the Administration Agreement. "Qualified Project Period" - The period as defined in Section 142(d)(2)(A) of the Code; provided such period is subject to extension in accordance with Section 4(g) hereof. "Qualified Residents" -means Very Low Income Residents. "Qualified Space" - a Very Low Income Space. "Space" - A mobile home space within the Project upon which a mobile home may be placed. m.. • , "Tax Certificate" - The certificate as to arbitrage of the Authority and Borrower, dated as of the Closing Date, with respect to the Bonds. "Very Low Income Residents" - Individuals or families with an Adjusted Income which does not exceed the amount promulgated by the U.S. Department of Housing and Urban Development for very low income households for the Area as adjusted for household size as set forth below. In no event, however, will the occupants of a Space be considered to be Very Low Income Residents 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. Currently, Section 151(c)(4) defines a student as an individual enrolled as a full-time student during each of 5 calendar months during the calendar year in which occupancy of the unit begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance or is an individual pursuing a full-time course of institutional on farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereof. "Household Size" Adjustment for 1 = 70%; Adjustment for 2 = 80%; Adjustment for 3 = 90%; Adjustment for 4 =100%; Adjustment for 5 = 108%; Adjustment for 6 = 116%; Adjustment for 7 = 124%; Adjustment for 8 = 132%. "Very Low Income Spaces" - The Spaces in the Project designated for occupancy by Very Low Income Residents pursuant to Section 4(a) of this Regulatory Agreement. Such terms as are not defined herein shall have the meanings assigned to them in the Indenture. 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 RVPUB\FBAUM\708998.1 3 ` 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. Representations and Warranties of the Borrower. The Borrower hereby represents, as of the date hereof, and covenants,warrants and agrees as follows: (a) The Borrower has incurred a substantial binding obligation to acquire the Project pursuant to which the Borrower is obligated to expend at least five percent (5%) of the principal amount of the Bonds. (b) The Borrower's reasonable expectations respecting the use of Bond proceeds are accurately set forth in the Certificate Regarding Use of Proceeds executed by the Borrower on the Closing Date. '# (c) The statements made in the various certificates delivered by the Borrower to the Authority or the Trustee are true and correct. (d) Not more than 2% of the proceeds of the Series A Bonds and Series B Bonds shall be applied to pay Cost of Issuance. (e) 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 Series A Bonds and the Series B 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 Series A Bonds and the Series B Bonds from being"arbitrage bonds" under the Code. (f) The Borrower will not take or omit to take, as is applicable, any action if such action or omission would in any way cause the proceeds from the sale of the Bonds to be applied in a manner contrary to the requirements of the Indenture, the Loan Agreement and this Regulatory Agreement. RVPUB\FBAUM\708998.1 4 Section 3. Residential Rental Property. The Borrower hereby represents, as of the date hereof, and covenants, warrants and agrees as follows: (a) The Project is being owned and operated for the purpose of providing residential rental housing, consisting of one mobile home Space for each household, together with related facilities. (b) All of the mobile homes in the Project will contain separate facilities for living, sleeping, eating, cooking and sanitation, including a sleeping area, bathing and sanitation facilities and cooking facilities equipped with a cooking range, refrigerator and sink. (c) All of the Spaces 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 Spaces in the Project, except to the extent that Spaces are required to be leased or rented to Qualified Residents. (d) The Project comprises a single geographically and functionally integrated project for residential rental property, as evidenced by the ownership, management, accounting and operation of the Project. (e) No part of the Project will at any time be owned or used as a condominium or by a cooperative housing corporation, and the Borrower shall not take any steps toward such conversion without an opinion of Bond Counsel that interest on the Series A Bonds and the Series B Bonds will not thereby become includable in gross income for federal income tax purposes. (f) Should involuntary noncompliance with the provisions of this Regulatory Agreement 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 Closing Date which prevents the Authority 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 the Note or apply any proceeds received as a result of any of the preceding events to reconstruct the Project to meet the requirements hereof. (g) There shall be no discrimination against or segregation of any person or group of persons on account of race, color, religion, sex, marital status, ancestry, national origin, source of income (e.g. AFDC (or its successor program, if any) or SSI) or disability in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Project nor shall the transferee or any person claiming under or through the transferee, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the Project. (h) The Very Low Income Spaces shall be intermingled with, and shall be of comparable quality to, all other Spaces in the Project. Tenants in all Spaces shall have equal access to and enjoyment of all common facilities of the Project. RVPUB\FBAUM\708998.1 5 (i) In the aggregate, no more than two persons per bedroom, plus one person shall occupy any Space in the Project, not including children born after the date of initial occupancy by a household. For example, with respect to a two bedroom mobilehome, maximum occupancy shall be 5 persons (exclusive of post-occupancy children described above). Section 3A. Additional Proeram Requirements. The following provisions shall apply during the term of this Agreement, irrespective of whether any Bonds are outstanding. (a) The Borrower shall notify the Authority, and the Oversight Agent of the operations/management company it will employ for the Project no less than thirty (30) days prior to the signing of a contract with any such entity. Qualifications of the firm(s) shall also be provided at that time and the Authority shall have the right to submit comments on the qualifications of the firm, which shall be considered by Borrower prior to execution of a contract. (b) The Borrower is responsible for all management functions with respect to the Project including without limitation the selection of tenants, certification and recertification of household size and income, evictions, collection of rents and deposits, maintenance, landscaping, routine and extraordinary repairs, replacement of capital items, and security. The Authority shall have no responsibility over management of the Project. In no instance shall the Borrower delegate or forego its responsibility to operate the Project in the manner set forth in this Agreement and the Loan Agreement, except as expressly provided in Section 3A.(b) above. (c) The Authority, through its Authorized Officer, reserves the right to conduct on or about May 15 of each year, commencing May 15, 2007, an annual (or more frequently, if deemed necessary by the Authority) review of the management practices and financial status of the Project. The purpose of each periodic review will be to enable the Authority to determine if the Project is being operated and managed in accordance with the requirements and standards of this Agreement. The Borrower shall cooperate with the Authority in such reviews, including but not limited to making its books and records regarding the Project available for inspection by the Authority. (d) The Borrower agrees, for the entire term of this Agreement, to maintain all common area interior and exterior improvements and common buildings on the Project (exclusive of the mobile homes and tenant spaces), including, without limitation, landscaping at the Project, in good condition and repair, including necessary replacements (and, as to landscaping, in a healthy condition) and in accordance with all applicable laws, rules, ordinances, orders and regulations of all federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials. (e) The Borrower will comply with the provisions of Title 2, Chapter 2, Article 9 of the Municipal Code of the City relating to rent review (the "Rent Control Ordinance") and further agrees that it shall at all times abide by and follow the terms and provisions of the Rent Control Ordinance, and shall not in any manner challenge said provisions. RVPUB\FBAUM\708998.1 6 a The Authority places prime importance on quality maintenance to ensure that all affordable housing projects that receive financing assistance within the jurisdiction of the Authority are not allowed to deteriorate due to below-average maintenance. Normal wear and tear of the Project will be acceptable to the Authority assuming the Borrower agrees to provide all necessary improvements to assure the Project is maintained in good condition. The Borrower shall make all repairs and replacements necessary to keep the Project in good condition and repair. hi the event that the Borrower breaches any of the covenants contained in this Section 3A(d) and such default continues for a period of ten (10) days after written notice from the Authority, with respect to graffiti, debris, waste material, and general maintenance or thirty (30) days after written notice from the Authority with respect to landscaping and building improvements, then the Authority, in addition to whatever other remedy they may have at law or in equity, shall have the right to enter upon the Project and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, the Authority shall be permitted (but are not required) to enter upon the Project and perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Project, and to attach a lien on the Project, or to assess the Project, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by the Authority and/or costs of such cure, including a fifteen percent (15%) administrative charge, which amount shall be promptly paid by the Borrower to the Authority upon written demand. Section 4. Qualified Residents. (1) Pursuant to the requirements of the Code and the Act, the Borrower hereby represents, as of the date hereof, and warrants, covenants and agrees as follows: (a) During the Qualified Project Period: (i) not less than twenty percent (20%) of the Spaces in the Project shall be designated as Very Low Income Spaces and shall be continuously occupied by Very Low Income Residents. The monthly rent charged for one-half of the Very Low Income Spaces (i.e., 10% of the Spaces) shall be not greater than as follows: (A) where a Very Low Income Resident is both the registered and legal owner of the mobile home and is not making mortgage payments for the purchase of that mobile home, the total rental charge for occupancy of the Space (excluding a reasonable allowance for other related housing costs determined at the time of acquisition of the Project by the Borrower and excluding any supplemental rental assistance from the State, the federal government, or any other public agency to the Very Low Income Resident or on behalf of the Space and the mobile home) shall not exceed one-twelfth of 30 percent of 50 percent of Median Income for the Area, adjusted for household size in the manner set forth below. (B) where a Very Low Income Resident is the registered owner of the mobile home and is making mortgage payments for the purchase of RVPUB\FBAUM\708998.1 7 that mobile home, the total rental charge for occupancy of the Space (excluding any charges for utilities and storage and excluding any supplemental rental assistance from the State, the federal government, or any other public agency to the Very Low Income Resident or on behalf of the Space and mobile home), shall not exceed one-twelfth of 15 percent of 50 percent of Median Income for the Area, as adjusted for household size in the manner set forth below. (C) where a Very Low Income Resident rents both the mobile home and the Space occupied by the mobile home, the total rental payments paid by the Very Low Income Resident on the mobile home and the Space occupied by the mobile home (excluding any supplemental rental assistance from the State, the federal government, or any other public agency to that Very Low Resident or on behalf of that Space and mobile home) shall not exceed one-twelfth of 30 percent of 50 percent of Median Income for the Area adjusted for household size in the manner set forth below. In adjusting rent for household size, it shall be assumed that one person will occupy a recreational vehicle, two persons will occupy a single-wide mobilehome and three persons will occupy a multisectional mobilehome; or, as an alternative as permitted under Section 33742(a) of the California Health and Safety Code, it shall be assumed that one person will occupy a studio unit, two persons will occupy a one-bedroom unit, three • 4; persons will occupy a two-bedroom unit, four persons will occupy a three-bedroom unit, and five persons will occupy a four-bedroom unit. (b) In the event a recertification of such tenant's income in accordance with Section 4(d) below demonstrates that such tenant no longer qualifies as a Qualified Resident the Space occupied by such Resident shall continue to be treated as a Qualified Space unless and until any Space in the Project thereafter is occupied by a new tenant other than a Qualified Resident. Moreover, a Space previously occupied by a Qualified Resident and then vacated shall be considered occupied by a Qualified Resident until reoccupied, other than for a temporary period, at which time the character of the Space shall be redetermined. In no event shall such temporary period exceed thirty-one (31) days. Notwithstanding anything herein to the contrary, if at any time the number of Qualified Residents falls below the number required by subparagraph (a) (i) of this Section, the next available vacant Space shall be rented to a Qualified Resident. (c) Immediately prior to a Qualified Resident's occupancy of a Qualified Space (or prior to the Closing Date with respect to Very Low Income Spaces previously occupied), the Borrower will obtain and maintain on file an Income Certification form from each Qualified Resident occupying a Qualified Space, dated immediately prior to the initial occupancy of such Qualified Resident in the Project (or prior to the Closing Date in the case of existing Very Low Income Residents). In addition, the Borrower will provide such further information as may be required in the future by the State of California, and by the Act, as the same may be amended from time to time, as requested by the Authority or the Oversight Agent. The Borrower shall verify that the income provided by an applicant with respect to a Space to be occupied after the Closing Date is accurate by taking one or more of the following steps as a part of the verification process: RVPUB\FBAUM\708998.1 $ (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, such as a current pay stub or W-2 form, (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 reasonably satisfactory to the Oversight Agent or (4) such other information as may be reasonably requested by the Oversight Agent. Within ten days after the last day of each calendar quarter during the term of this Regulatory Agreement commencing with the quarter ending September 30, 2006 the Borrower shall advise the Oversight Agent or in the absence of an Oversight Agent, the Authority, of the status of the occupancy of the Project by delivering to the Oversight Agent a Certificate of Continuing Program Compliance; provided, however, with the prior written approval of the Oversight Agent or the Authority, as the case may be, such Certificate need be filed only semi-annually. Copies of the most recent Income Certifications for Qualified Residents commencing or continuing occupancy of a Qualified Space shall be made available to the Authority or Oversight Agent upon request. (d) Annually, the Borrower shall recertify the income of the occupants of such Qualified Spaces by obtaining a completed Income Certification based upon the current income of each occupant of the Space. The Borrower need not verify the income of tenants in connection with any such recertification. In the event the recertification demonstrates that such household's income exceeds 140% of the income at which such household would qualify as Qualified Residents, such household will no longer qualify as a Qualified Resident, and the Borrower either(i) will designate another qualifying Tenant and Space in the Project as a Qualified Resident and a Qualified Space, respectively, or (ii)will rent the next available vacant Space to one or more Qualified Residents. (e) The Borrower will maintain complete and accurate records pertaining to the Qualified Spaces, and will permit any duly authorized representative of the Authority, the Oversight Agent, the Trustee (who shall have no duty to inspect), the Department of the Treasury or the Internal Revenue Service to inspect during normal business hours and with prior notice the books and records of the Borrower pertaining to the Project, including those records pertaining to the occupancy of the Qualified Spaces. 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, a certification that the Project continues to meet the requirements of Section 142(d) of the Code, and shall provide a copy of such certification to the Oversight Agent. (f) Each lease or rental agreement pertaining to a Qualified Space occupied after the Closing Date shall contain a provision to the effect that the Borrower has relied on the Income Certification and supporting information supplied by the Qualified Resident in determining qualification for occupancy of the Qualified Space, and that any material misstatement in such certification (whether or not intentional) may be cause for • immediate termination of such lease. Each lease or rental agreement will also contain a provision that failure to cooperate with the annual recertification process reasonably instituted by the Borrower pursuant to Section 4(d) above will disqualify the Space as a RVPUB\FBAUM\708998.1 9 Qualified Space and provide grounds for termination of the lease. The Borrower agrees ;.4 to provide to the Oversight Agent, and the Authority, a copy of the form of application and lease to be provided to prospective Qualified Residents and any amendments thereto. (g) In the event, despite Borrower's exercise of best efforts to comply with the provisions of Section 4 of this Regulatory Agreement, the Borrower shall have been out of compliance with any of the restrictions of Section 4 hereof relative to Qualified Residents, for a period in excess of six months, then at the sole option of the Authority the term of the Regulatory Agreement shall be automatically extended for the period of non-compliance upon written notice to the Borrower, the Trustee and the Oversight Agent from the Authority, such extension to relate to the Qualified Spaces and Qualified Residents as to which such noncompliance relate. Section 5. Tax Status of the Bonds. The Borrower and the Authority 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 Series A Bonds and the Series B Bonds or the exemption from California personal income tax of the interest on the Series A Bonds and the Series B 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, . .,k (b) It will take such action or actions as may be necessary, in the written opinion of Bond Counsel filed with the Authority, the Trustee 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 145 of the Code to the extent necessary to maintain the exclusion from gross income for federal income tax purposes of interest on the Series A Bonds and the Series B 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 Authority, the Trustee and the Borrower, in order to ensure 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 (other than leases of Spaces in the Project to individual tenants) to another person to the end that such transferee has notice of, and is bound by, such restrictions, and to obtain the agreement from any transferee to abide by all requirements and restrictions of this Regulatory Agreement. • Section 6. Modification of Special Tax Covenants. The Borrower, the Trustee and the Authority hereby agree as follows: RVPUB\FBAUM\708998.1 10 (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 Authority, the Trustee and the Borrower, impose requirements upon the ownership or operation of the Project more 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 Series A Bonds and the Series B Bonds, this Regulatory Agreement shall be deemed to be automatically amended to impose such additional or more restrictive requirements. (b) To the extent any amendments to the Act, the Regulations or the Code shall, in the written opinion of Bond Counsel filed with the Authority, 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 approved and signed by the Authority(in its sole and absolute discretion), the Trustee and the Borrower and approved by the written opinion of Bond Counsel that such amendment (a) will not affect the exclusion from gross income for federal income tax purposes of interest on the Series A Bonds and the Series B Bonds, and (b) shall not conflict with any restrictions imposed by the Authority, the Act, the regulations promulgated under the Code or the Code, as applicable. (c) The Borrower, the Authority 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 Authority hereby appoints the Trustee as its true and lawful attomey-in-fact to execute, deliver and, if applicable, file of record on behalf of the Borrower or the Authority, 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 Authority defaults in the performance of its obligations under this subsection (c); provided, however, that the Trustee shall take no action under this subsection (c) without first notifying the Borrower or the Authority, or both of them, as is applicable, unless directed in writing by the Authority or the Borrower and without first providing the Borrower or the Authority, or both, as is applicable, an opportunity to comply with the requirements of this Section 6. Section 7. Indemnification. The Borrower shall indemnify, hold harmless and defend the Authority, the Oversight Agent and the Trustee and the respective officers, members, directors, officials and employees of each of them (the "indemnified party") against all loss, costs, damages, expenses, suits, judgments; actions and liabilities of whatever nature, joint and several (including, without limitation, 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 operation, use, occupancy, maintenance, or ownership of the Project (including compliance with laws, ordinances and rules and regulations of public authorities relating thereto); (b) any written statements or representations with respect to the Borrower, the Project or the Bonds made or given to the Authority, the Oversight Agent or the Trustee, or any underwriters or purchasers of any of the Bonds, by the Borrower, or any of its agents or employees, including, but not limited to, statements or representations of facts or financial information; or (c) any actions taken by the Court in joining the Authority as an associate member or holding a public hearing with respect to the financing of the Project by the Authority through the issuance of the Bonds; provided, however, the Borrower shall not be RVPUB\FBAUM\708998.1 I I # obligated to indemnify the Authority, the Trustee, the Oversight Agent or the Oversight Agent for damages caused by the gross negligence or willful misconduct of the Authority, the Trustee or the Oversight Agent. The Borrower also shall pay and discharge and shall indemnify and hold harmless the Authority, the Oversight Agent and the Trustee from (x) any lien or charge upon payments by the Borrower to the Authority 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 Authority, the Oversight Agent 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 selected by the indemnified party and the payment of all reasonable expenses related thereto, with full power to litigate, compromise or settle the same in its sole discretion; provided, however, that the Authority and the Trustee shall each have the right to review and approve or disapprove any such compromise or settlement, and provided further that any such approval shall not be unreasonably withheld. Section 8. Consideration. The Authority has issued the Bonds to provide funds to make the Loan under the Loan Agreement to finance the Project, all for the purpose, among others, of inducing the Borrower to own and operate the Project such that the Project shall contribute to the Authority's efforts to provide affordable housing to Qualified Residents and Very Low Income Residents in the City and to the satisfaction of the City's ongoing housing burden. In consideration of the issuance of the Bonds by the Authority, 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 Authority 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 the interest on the Series A Bonds and the Series B Bonds and the exemption from California personal income tax of the interest on the Bonds. In performing their duties and obligations hereunder, the Authority and the Trustee may rely upon statements and certificates of the Borrower and Qualified Residents, and upon audits of the books and records of the Borrower pertaining to the Project. In addition, the Authority 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 Authority or the Trustee hereunder in good faith and in conformity with such opinion. In determining 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 upon any notice or certificate delivered to the Trustee by the Borrower, the Authority or the Oversight Agent with respect to the occurrence or absence of a default. Section 10. Sale or Transfer of the Proiect. 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 for individual tenant use as contemplated hereunder), without obtaining the prior written consent of the Authority and upon receipt by the Authority and the Trustee of(i) evidence satisfactory to the Authority that the Borrower's purchaser or transferee has assumed in writing and in full, the Borrower's duties and obligations under this Regulatory RVPUB\FBAUM\708998.1 12 4 Agreement and under the Administration Agreement, (ii) an opinion of counsel for the transferee that the transferee has duly assumed the obligations of the Borrower under this Regulatory Agreement and the Administration Agreement and that such obligations and this Regulatory Agreement and the Administration Agreement are binding on the transferee, (iii) the Authority receives evidence acceptable to the Authority that either (A) the transferee has experience in the ownership, operation and management of comparable projects without any .record of material violations of discrimination restrictions or other state or federal laws or regulations applicable to such projects, or (B) the transferee agrees to retain a property management firm with the experience and record described in subparagraph (A) above, and in either case, at its option, the Authority may cause the Oversight Agent to provide on-site training in program compliance if the Authority determines such training is necessary, (iv) an opinion of Bond Counsel to the effect that such sale will not in and of itself cause interest on the Series A Bonds and the Series B Bonds to become includable in the gross income of the recipients thereof for federal income tax purposes, and (v) evidence that the Borrower has complied with any applicable provisions of Section 6.2 of the Loan Agreement. 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. Not less than ninety (90) days prior to consummating any sale, transfer or disposition of any interest in the Project, the Borrower shall deliver to the Authority, the Oversight Agent and the Trustee a notice in writing explaining the nature of the proposed transfer. Notwithstanding the foregoing, the Borrower may transfer ownership of the Project to an affiliated entity of the Borrower with prior written notice to the Authority accompanied by (i) an opinion of counsel to the affiliate that it has + assumed the obligations of the Borrower under this Regulatory Agreement and the Administration Agreement and (ii) an opinion of Bond Counsel to the effect that such transfer will not in and of itself cause interest on the Series A Bonds and the Series B Bonds to become included in the gross income of the recipients thereof for federal income tax purposes. In addition to the requirements set forth herein, the Borrower shall have the right to sell the Project in accordance with and subject to the provisions of Section 10 of the Supplemental Regulatory Agreement. Section 11. Term. 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 of the Indenture, the Loan Agreement and the Note. Notwithstanding any other provisions of this Regulatory Agreement to the contrary, this entire Regulatory Agreement, or any of the provisions or sections hereof, may be terminated upon agreement by the Authority, 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 that such termination will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Series A Bonds and the Series B Bonds or the exemption from State personal income tax of the interest on the Bonds. 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(a) a foreclosure or delivery of a deed in lieu of foreclosure whereby a third party shall take possession of the Project, (b) involuntary non-compliance with the provisions of this Regulatory Agreement caused by fire, seizure, requisition, change in a federal law or an RVPUB\FBAUM\708998.1 13 action of a federal agency after the date hereof which prevents the Authority and the Trustee from enforcing the provisions hereof, or (c) condemnation or a similar event, and, in each case, the payment in full and retirement of the Bonds theretofore or within a reasonable period thereafter. 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. When all of the Bonds have been paid or deemed paid pursuant to Article XIII of the Indenture, the Trustee shall no longer have any duties or obligations hereunder, and all references to the Trustee shall thereafter be deemed references to the Authority. Section 12. Covenants to Run With the Land. The Borrower hereby subjects the Project (including the Project site) to the covenants, reservations and restrictions set forth in this Regulatory Agreement. The Authority 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 upon 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 instrument. Section 13. Burden and Benefit. The Authority 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 Authority 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 Residents, the intended beneficiaries of such covenants, reservations and restrictions, and by furthering the public purposes for which the Bonds were issued. Section 14. Uniformity, Common Plan. The covenants, reservations and restrictions hereof shall apply uniformly to the entire Project in order to establish and cavy out a common plan for the use of the Project. Section 15. Enforcement. If the Borrower defaults in the performance or observance of any covenant, agreement or obligation of the Borrower set forth in this Regulatory Agreement, and if such default remains uncured for a period of 60 days after notice thereof shall have been given by the Authority or the Trustee to the Borrower (provided, however, that the Authority may at its sole option extend such period if the Borrower provides the Authority with an opinion of Bond Counsel to the effect that such extension will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Series A Bonds and the Series B Bonds, and provided further, in the event any default relates to Section 4 hereof and the • Borrower is exercising best efforts to comply with such restrictions as determined by the Authority in its sole discretion, then the cure period described above shall be 6 months and shall be subject to the extension of the Qualified Project Period under Section 4(g) hereof), then the RVPUB\FBAUM\708998.1 14 Trustee, subject to the provisions of Section 9 hereof and to the extent directed in writing by the Authority, subject to the provisions of the Indenture, acting on its own behalf or on behalf of the Authority, shall declare an "Event of Default"to have occurred hereunder, and, at its option,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 Authority 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; and (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. In addition to the enforcement remedies set forth above, upon the Borrower's default under this Regulatory Agreement, the Authority shall have the right (but not the obligation) to lease up to 20% of the Spaces in the Project for a rental of$1 per Space per year. The Authority shall sublease such units to Very Low Income Residents to the extent necessary to comply with the provisions hereof. Any rent paid under such a sublease shall be paid to the Borrower after the Authority has been reimbursed for any expenses incurred by it in connection with the • ', sublease; provided that, if the Borrower is in default under the Loan, such rent shall be used to make payments under the Loan. 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 Authority, to exercise any or all of the rights or remedies of the Authority hereunder; provided that prior to taking any such act the Trustee shall give the Authority written notice of its intended action. All fees, costs and expenses of the Trustee, the Authority and the Oversight Agent (including, without limitation, reasonable attorneys' fees) reasonably incurred in taking any action pursuant to this Section 15 shall be the sole responsibility of the Borrower; provided the Trustee shall not be obligated to take any action hereunder that results in expenses or liability to the Trustee unless it is compensated and reimbursed for its expenses, including reasonable attorneys' fees, and indemnified to its satisfaction against liability. After the Indenture has been discharged, or if the Trustee fails to act under this Section 15, the Authority may act in its own behalf to declare an "Event of Default"to have occurred and to take any one or more of the steps specified hereinabove to the same extent and with the same effect as if taken by the Trustee. Section 16. Recording and Filing. The Borrower shall cause this Regulatory Agreement and all amendments and supplements hereto, to be recorded and filed, prior to the recording of the Deed of Trust and the disbursement of the Loan, in the real property records of the County and in such other places as the Authority or the Trustee may reasonably request. The • Borrower shall pay all fees and charges incurred in connection with any such recording. RVPU13\FBAUM\708998.1 15 . Section 17. Payment of Fees. The Borrower will pay to the Authority the Authority Annual Fee, including the portion thereof billed currently by the Authority to the Borrower for the Authority's audit fees and expenses, which shall be paid by the Borrower promptly upon receipt of such invoice and to the Oversight Agent, the Oversight Agent's Fee, each when due. 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 Authority the Authority Annual Fee, and to the Oversight Agent, the Oversight Agent's Fee, and, in the event of a default hereunder, to the Authority and the Trustee reasonable compensation for any services rendered by either of them hereunder and reimbursement for all expenses reasonably incurred by either of them in connection with such default. 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 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 duly recorded in the real property records of the County. The parties hereto acknowledge that, as 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 in • ' writing and will 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 certified mail, return receipt requested,postage prepaid, addressed as follows: Authority: Independent Cities Lease Finance Authority P.O. Box 1750 Palmdale, California 93590-1750 Attention: Program Administrator Oversight Agent: Wolf& Company Inc. 5 Pembroke Lane Laguna Niguel, California 92677 Attention: Wesley R. Wolf Trustee: Union Bank of California, N.A. 350 California Street, I Vh Floor San Francisco, California 94104 Attention: Corporate Trust Borrower: Millennium Housing Corporation . 660 Newport Center Drive, Suite 1020 Newport Beach, California 92660 Attention: George Turk RVPUB\FBAUM\708998.1 16 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. Multiple Counterparts. 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 Acting Solely in Such Capacity. In accepting its obligations hereunder, the Trustee acts solely as trustee for the benefit of the Registered Owners, and not in its individual capacity; and the duties, powers, rights and liabilities of the Trustee in acting hereunder shall be subject to the provisions of the Indenture, including, without limitation, Article VIII of the Indenture. The Trustee shall act as specifically provided herein and no implied duties or obligations shall be read into this 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. After the date on which no Bonds remain outstanding as provided in the Indenture, the Trustee shall have no duties or responsibilities under this Regulatory Agreement, and all references herein to the Trustee shall be deemed references to the Authority. Section 24. Compliance by Borrower. The Trustee shall not be responsible for monitoring or verifying compliance by the Borrower with its obligations under this Regulatory Agreement. The Program Administrator shall assume such responsibilities under the terms of the Administration Agreement among the Program Administrator, the Authority and the Borrower. Section 25. Limited Liability of the Authority. The Authority's liability under this Regulatory Agreement shall be limited as set forth in Section 14.3 of the Indenture. RVPUB\FBAUM\708998.1 17 "ht IN WITNESS WHEREOF, the Authority, the Trustee and the Borrower have executed this Regulatory Agreement by duly authorized representatives, all as of the date first written hereinabove. INDEPENDENT CITIES LEASE FINANCE AUTHORITY By: l( � CTC�I� �aA' Program Administr r Deborah J. Smith UNION BANK OF CALIFORNIA,N.A., as Trustee By:—e — Authorized Officer Mitch Gardner MILLENNIUM HOUSING CORPORATION, a California nonprofit public benefit corporation By. Pr i t Ge ge Turk RVPU13\FBAUM\708998.1 18 STATE OF CALIFORNIA ) ) ss. COUNTY OF RIVERSIDE ) On May 24, 2006, bef re me, Evelyn Corselli, a NOTARY PUBLIC, personally appeared Deborah J. Smith [v�personally known to me ORE] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/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 y [SEAL] EVELYN CORSELLI COMM. #1523014 a NOTARY PUBLIC-CALIFORNIA v_ Mi d ,; , RIVERSIDE COUNTY 9 My Comm.Ecpires Odober302008g RV PUB\FBAUM\708998.1 STATE OF CALIFORNIA ) s ss. COUNTY OF RIVERSIDE ) On May 30, 2006, before me, Evelyn Corselli, a NOTARY PUBLIC, personally appeared George Turk 1' personally known to me OR ❑ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/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. //w Signature of Notary [SEAL] 0 r4 EVELYN CORSELLI COMM. #1523014 NOTARY PUBLIC-CALIFORNIA RIVERSIDE COUNTY My Comm.Exphs October]0.2008 • RV PUB\FBAUM\708998.1 STATE OF CALIFORNIA ) ) ss. COUNTY OF RIVERSIDE ) On May 30, 2006, .before me, Evelyn Corselli, a NOTARY PUBLIC, personally appeared Mitch Gardner ❑ personally known to me OR [proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/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. Lw�-C.t�.,.-�p// / Ceti Signature of No ary [SEAL] EVELYN CORSELLI COMM. #1523014 NOTARY PUBLIC.CALIFORNIA RIVERSIDE COUNTY My Comm.Expires October 30,2008 • • RVPUBWBAUNB708998.1 EXHIBIT"A" LEGAL DESCRIPTION PARCEL 3 OF PARCEL MAPS, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 62, PAGE 19 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. SAID LAND IS ALSO BEING A PORTION OF THE FOLLOWING DESCRIBED PARCELS "A"AND `B„ PARCEL A: BEING THOSE PORTIONS OF LOTS 60, 61 AND 62 OF TRACT NO. 103, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE NORTHWESTERLY LINE OF SAID LOT 61, LYING NORTH 210 40' 07" EAST 4.78 FEET FROM THE WESTERLY CORNER OF SAID LOT 61; THENCE NORTH 890 58' 18" EAST 564.75 FEET TO THE WESTERLY LINE OF THE LAND DESCRIBED AS PARCEL 101, IN THE DEED TO THE ORANGE COUNTY FLOOD CONTROL DISTRICT, RECORDED JUNE 28, 1963 IN BOOK 6609, PAGE 371 OF OFFICIAL RECORDS OF SAID COUNTY; THENCE ALONG SAID WESTERLY LINE, • SOUTH 30 04' 46" WEST 1045.00 FEET TO A POINT LYING NORTH 30 04' 46" EAST 583.39 FEET FROM THE SOUTHERLY LINE OF SAID LOT 62; THENCE SOUTH 89° 58' 18" WEST 548.34 FEET; THENCE NORTH 44° 01' 54" WEST 687.07 FEET TO THE NORTHWESTERLY LINE OF SAID LOT 62; THENCE ALONG SAID LAST MENTIONED NORTHWESTERLY LINE, NORTH 42° 14' 44" EAST 743.84 FEET TO THE NORTHEASTERLY LINE OF SAID LOT 62; THENCE ALONG SAID NORTHEASTERLY LINE, SOUTH 700 07' 46" EAST 16.40 FEET TO SAID NORTHWESTERLY LINE OF LOT 61; THENCE ALONG SAID LAST MENTIONED NORTHWESTERLY LINE, NORTH 210 40' 07" EAST 4.78 FEET TO THE POINT OF BEGINNING. PARCEL B: BEING THOSE PORTIONS OF LOTS 60 AND 62 OF TRACT NO. 103, IN THE CITY OF SAN JUAN CAPISTRANO, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 11, PAGES 29 THROUGH 33 OF MISCELLANEOUS MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE WESTERLY LINE OF THE LAND DESCRIBED AS PARCEL 101, IN THE DEED TO ORANGE COUNTY FLOOD CONTROL DISTRICT, RECORDED JUNE 28, 1963 IN BOOK 6609, PAGE 371 OF OFFICIAL • RECORDS OF SAID COUNTY, WITH THE SOUTHERLY LINE OF SAID LOT 62; RVPUB\FBAUMV08998.1 A-1 THENCE ALONG SAID WESTERLY LINE, NORTH 3° 04' 46" EAST 583.39 FEET; THENCE SOUTH 89° 58' 18" WEST 548.34 FEET; THENCE NORTH 44° 01' 54" WEST ' 687.07 FEET TO THE NORTHWESTERLY LINE OF SAID LOT 62; THENCE ALONG SAID NORTHWESTERLY LINE, SOUTH 42° 14' 44" WEST 290.73 FEET AND SOUTH 36- 58' 16" WEST 302.19 FEET TO THE SOUTHWESTERLY LINE OF SAID LOT 62; THENCE ALONG SAID SOUTHWESTERLY LINE, SOUTH 44° 0V 54"EAST 862.34 FEET TO SAID SOUTHERLY LINE; THENCE ALONG SAID SOUTHERLY LINE, NORTH 89° 58' 18" EAST 772.38 FEET TO THE POINT OF BEGINNING. APN: 121-171-29 and 121-171-30 RVPUBTBAUM\708998.1 A-2 EXHIBIT"B" INCOME COMPUTATION AND CERTIFICATION PART I: TO BE COMPLETED BY RESIDENT. MILLENNIUM HOUSING CORPORATION SAN JUAN MOBILE ESTATES HOUSING AFFORDABILITY SURVEY We understand that completing this profile will assist Millennium Housing Corporation in determining property tax abatement and preserving the park's tax-exempt status based on household income 1. There is/are persons in our household. There are bedrooms in our mobilehome. 2. My/Our home is a(check one)_singlewide _doublewide triplewide 3. The total combined income of our household from all sources* for the past calendar year was (please check one) _Less than $ _Less than $ r Less than $ _Less than $ Less than $ _Less than $ _Less than $ _Less than $ Less than $ _Less than $ Less than $ _Less than $ _Less than $ _Less than$ $ or more *INCLUDES: Wages/Salary including overtime, Commissions and Fees, Tips and Bonuses, Interest and Dividends, Social Security, Alimony and Child Support, Gifts and Contributions, Military Pay and Income Tax Credits, Disability Payments, Pensions. DOES NOT INCLUDE: Medical Reimbursements, Scholarships, Combat Pay, Government Relocation Payments, Foster Care Payments, Food Stamps, Job Training Act Payments, Low-Income Home Energy Assistance Payments. 4(a). Do the person(s) whose incomes are listed in item #3, above, have savings, stocks, bonds or equity in real property with a combined total value exceeding $5,000 (DO NOT INCLUDE YOUR HOME)? Yes _No (b) If Yes, enter the amount of income expected to be derived from such assets in the next 12 months: $ RVPURW13AUM\708998.1 B-1 (c) Enter the amount of such income that was included in item 3 above: 5. My/Our current monthly space rent is $ 6. My/Our current mortgage payment (if any) is $ 7. My/Our average monthly utility payment(gas, electric,water, sewer, trash)is: $ 8(a). Are ALL of the persons in the household Full-Time Students? Yes No (b) If the answer to 8(a) is Yes, are at least two (2) of the occupants husband and wife entitled to file a joint federal income tax return? Yes No The information provided above is true and correct to the best of my/our knowledge. Space# Head of Household Date Second Head of Household Date Signature Signature Printed Name Printed Name • Please return form to: Millennium Housing Corporation 660 Newport Center Drive, Suite 1020 Newport Beach, California 92660 RVPUB\FBAUM\708998.1 B-2 PART 11 FOR COMPLETION BY PROJECT OWNER ONLY: 1. Calculation of eligible income: a) Enter amount entered for entire household in(3) above: $ b) (1) If the answer to 4(a) above is yes, enter the total amount entered in 4(b), subtract from that figure the amount entered in 4(c) and enter the remaining balance ($ ); (2) Multiply the amount entered in 4(b) times the current passbook savings rate as determined by HUD to determine what the total annual earnings on the amount in 4(b) would be if invested in passbook savings ($ ), 'subtract from that figure the amount entered in 4(c) and enter the remaining balance (3) Enter the greater of the amount calculated under(1) or(2) above: $ C) TOTAL ELIGIBLE INCOME (Line 1.a plus line l.b(3)): $ 2. The amount entered in l.c: Qualifies the applicant(s) as a Qualified Resident(s) Does not qualify the applicant(s) as a Qualified Resident(s) (For purposes of the Supplemental Regulatory Agreement with the City of San Juan Capistrano) Type of Qualified Resident: Very Low Income Lower Income 3. Number of Space assigned: The coach payment is Type of Mobile home: _ Single Wide Rent $ Multisectional Rent $ This Space [was/was not) last occupied for a period of 31 or more consecutive days by persons whose aggregate anticipated annual income as certified in the above manner upon their initial occupancy of the Space qualified them as Very Low Income Residents. RVPURTBAUM\708998.1 B-3 4. Method used to verify applicant(s) income: Employer income verification. Copies of tax returns. Other(, MILLENNIUM HOUSING CORPORATION By: Its: RVPUB\FBAUM\708998.1 B-4 Manager INCOME VERIFICATION (for employed persons) The undersigned employee has applied for a mobile home space located in a project financed by the Independent Cities Lease Finance Authority Housing with proceeds of its Mobilehome Park Revenue Bonds, a portion of which Project is reserved for persons of lower 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 $ Other Income $ Total current income $ 1 I hereby certify that the statements above are true and complete to the best of my knowledge. r 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 a mobile home space located in their project which has been financed under the Independent Cities Lease Finance Authority Mobilehome Park Revenue Bonds. Signature Date Please send to: INCOME VERIFICATION (for self-employed persons) RVPUB\F13AUM\708998.1 B-5 I hereby attach copies of my individual federal and state income tax returns for the • ; immediately preceding calendar year and certify that the information shown in such income tax returns is true and complete to the best of my knowledge. Signature Date RVPUB\FBAUM\708998.1 B-6 ATTACHMENT NO. 1 Total Anticipated Income includes the following: 1. all wages and salaries, overtime pay, commissions, fees, tips and bonuses and other compensation for personal services,before payroll deductions; 2. 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 or any allowances for depreciation of capital assets except for straight line depreciation as provided in Internal Revenue Service regulations); any withdrawal of cash or assets from the operation of a business or profession will be included in income except to the extent the withdrawal is reimbursed of cash or assets invested in the operation by the family; 3. interest and dividends (including income from assets included below and other net income from real or personal property); 4. 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; 5. payments in lieu of earnings, such as unemployment and disability compensation, workmen's compensation and severance pay; 6. the maximum amount of public assistance available to the above persons other than the amount of any assistance specifically designated for shelter and utilities plus the maximum amount that the public assistance agency could in fact allow for shelter and utilities; 7. periodic and determinable allowances, such as alimony and child support payments and regular contributions and gifts received from persons not occupying the Space; and 8. 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 (or other persons whose dependents are occupying the Space). Excluded from such anticipated income are: 1. casual, sporadic or irregular gifts; 2. amounts which are specifically for or in reimbursement of medical expenses; 3. lump sum additions to family assets, such as inheritances, insurance payments (including payments under health and accident insurance and workmen's compensation), capital gains and settlement for personal or property losses; 4. amounts of educational scholarships paid directly to the student or the educational institution, and amounts paid by the government to a veteran for use in meeting the costs of tuition, fees, books and equipment. Any amounts of such scholarships or payments to veterans not used for the above purposes are to be included in income; RVPUB\FBAUM\708998.1 B-7 5. hazardous duty pay to a household member in the Armed Forces who is away from home and exposed to hostile fire; 6. amounts received under training programs funded by HUD; 7. foster child care payments; 8. amounts received by a Disabled (as defined below) person that are disregarded for a limited time for purposes of Supplemental Security Income eligibility and benefits because they are set aside for use under a Plan to Attain Self-Sufficiency; 9. income of a live-in aide; 10. amounts received by a participant in other publicly assisted programs which are specifically for or in reimbursement of out-of-pocket expenses incurred and which are made solely to allow participation in a specific program; 11. reparation payments paid by a foreign government pursuant to claims filed under the laws of that government by persons who were persecuted during the Nazi era; 12. amounts specifically excluded by any other federal statute from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under the United States Housing Act of 1937; 13. amounts received under training programs funded by HUD; 14. $480 for each dependent (a member of the household (excluding foster children) other than family head or spouse, who is under 18 years of age or is a Disabled person (person who is under a disability as defined in Section 223 of the Social Security Act or who has developmental disability as defined in Section 102(7) of the Developmental Disability Assistance and Bill of Rights Act) or Handicapped person (a person having a physical or mental impairment that is expected to be of a long-continued and indefinite duration, substantially impedes his or her ability to live independently, and is of such a nature that such ability could be improved by more suitable housing conditions) or is a full-time student. 15. $400 for any family whose head or spouse (or sole member) is an Elderly (at least 62 years of age), Disabled, or Handicapped person. 16. for any family that is not an Elderly Family (a family whose head or spouse (or sole member) is an Elderly, Disabled, or Handicapped person), but has a Handicapped or Disabled member other than the head of household or spouse, Handicapped Assistance Expenses (reasonable expenses that are anticipated during the period for which annual income is computed for attendant care and auxiliary apparatus for a Handicapped or Disabled family member and that are necessary for the family member to be employed provided the expenses are not paid to the family or reimbursed) in excess of 3% of annual income but this allowance may not exceed the employment income received by family members who are 18 years of age or older as a result of the assistance to the Handicapped or Disabled person. 17. for any family whose head or spouse (or sole member) is an Elderly, Disabled, or Handicapped person, that has no Handicapped Assistance Expenses, an allowance for those RVPUB\PBAUM\708998.1 B-8 rb medical expenses that are anticipated during the period for which annual income is computed not covered by insurance ("Medical Expenses") equal to the amount by which the medical expenses exceed 3%of annual income. 18. for any family whose head or spouse (or sole member) is an Elderly, Disabled, or Handicapped person, that has Handicapped Assistance Expenses greater than or equal to 3% of annual income, an allowance for Handicapped Assistance Expenses in excess of 3% of annual income (but the allowance may not exceed the employment income received by family members who are 18 years of age or older as a result of the assistance to the Handicapped or Disabled person),plus an allowance for Medical Expenses equal to the family's Medical Expenses. 19. for any family whose head or spouse (or sole member) is an Elderly, Disabled or Handicapped person, that has Handicapped Assistance Expenses that are less than 3% of annual income, an allowance for combined Handicapped Assistance Expenses and Medical Expenses that is equal to the amount by which the sum of these expenses exceeds 3% of annual income. 20. amounts anticipated to be paid by the family for the care of children under 13 years of age during the period for which annual income is computed but only where such care is necessary to enable a family member to be gainfully employed or to further education and only to the extent such amounts are not reimbursed; the amount deducted shall reflect reasonable charges for child care and, in the case of child care necessary to permit employment, the amount deducted shall not exceed the amount of income received from such employment. 21. in the case of families assisted by Indian housing authorities, the greater of child care expenses (as described in 20. above), or excessive travel expenses, not to exceed $25 per family per week for employment or education related travel. Full-Time Student means an individual enrolled as a full-time student during each of five (5) calendar months during the calendar year in which occupancy of the Space begins at an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance or is an individual pursuing a full-time course of institutional on farm training under the supervision of an accredited agent of such an educational organization or of a state or political subdivision thereof. RVPUB\FBAUM\708998.1 B-9 EXHIBIT "C" Period Covered [Quarterly) CERTIFICATION OF CONTINUING PROGRAM COMPLIANCE The undersigned, Millennium Housing Corporation (the "Borrower"), has read and is thoroughly familiar with the provisions o£ 1. The Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2006 (the "Regulatory Agreement') among the Borrower, the Independent Cities Lease Finance Authority(the "Authority") and Union Bank of California, N.A. (the"Trustee"); 2. The Indenture of Trust dated as of May 1, 2006 (the "Indenture") between the Authority and the Trustee; 3. The Loan Agreement dated as of May 1, 2006 among the Borrower, the Trustee and the Authority; and 4. The Supplemental Regulatory Agreement and Declaration of Restrictive Covenants dated as of May 1, 2006 (the "Supplemental Regulatory Agreement') between the Borrower and the City of San Juan Capistrano. . As of the date of this Certificate, the following percentages of total Spaces in the Project (i) are occupied by Very Low Income Residents or Lower Income Residents (as such terms are defined in the Regulatory Agreement and Supplemental Regulatory Agreement) or (ii) are currently vacant and being held available for such occupancy and have been so held continuously since the date a Very Low Income Resident vacated such Space; as indicated: Total Project Spaces: Number of Spaces Occupied by Very Low Income Residents: Percent: Held vacant for occupancy continuously since last occupied by Very Low Income Resident: : Percent: Unit Nos: Vacant Spaces: Percent: Unit Nos: Number of Spaces occupied by Lower Income Residents: : Percent: Held vacant for occupancy continuously since last occupied by Lower Income Resident Percent Unit Nos. RVPUB\FBAUM\708998.1 C-1 5. The undersigned hereby certifies that the Borrower is not in default under any of the terms and provisions of the above documents, and no event has occurred which, with the passage of time, would constitute a default thereunder [or if such event has occurred explain below the event and the steps being taken to remedy such event]. MILLENNIUM HOUSING CORPORATION By: Its: • RVPUB\FBAUM\708998.1 C-2