MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING

Exhibit 10X

Prepared by, and after recording return to:

John P. Machen, Esquire
DLA Piper US LLP
6225 Smith Avenue
Baltimore, Maryland 21209-3600

ATTENTION: COUNTY RECORDER—THIS INSTRUMENT COVERS GOODS THAT ARE OR WILL BECOME FIXTURES ON THE DESCRIBED REAL PROPERTY AND SHOULD BE FILED FOR RECORD IN THE REAL PROPERTY RECORDS WHERE MORTGAGES ON REAL ESTATE ARE RECORDED. THIS INSTRUMENT SHOULD ALSO BE INDEXED AS A UNIFORM COMMERCIAL CODE FINANCING STATEMENT COVERING GOODS THAT ARE OR WILL BECOME FIXTURES ON THE DESCRIBED REAL PROPERTY. THE MAILING ADDRESSES, TELEPHONE NUMBERS, AND FAX NUMBERS OF THE SECURED PARTY AND THE DEBTOR ARE WITHIN.

 MORTGAGE, SECURITY AGREEMENT AND FIXTURE FILING

 DAVIDSON DIVERSIFIED REAL ESTATE I, L.P. ,
a Delaware limited partnership
Borrower,

 having an office at
4582 South Ulster Parkway, Suite 1100
Denver, Colorado 80237

 to

 TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY,

 an Iowa corporation,
Lender,

 having an office
c/o AEGON USA Realty Advisors, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, Iowa 52499-5443

 effective as of the 21st day of September, 2007

 
Loan Amount:  $2,405,000.00
Premises:  Versailles on the Lake, Allen County, Fort Wayne, Indiana

Mortgage, Security Agreement And Fixture Filing

This Mortgage, Security Agreement and Fixture Filing (this “Mortgage”) is made and given as of the Effective Date , by DAVIDSON DIVERSIFIED REAL ESTATE I, L.P., as Borrower, a Delaware limited partnership, whose address is 4582 South Ulster Parkway, Suite 1100, Denver, Colorado 80237 (the “Borrower”), to TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY, as Mortgagee, an Iowa corporation having an office c/o AEGON USA Realty Advisors, Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499-5443 (the “Lender”). The definitions of capitalized terms used in this Mortgage may be found either in Section 3 below, or through the cross-references provided in that Section.

1.

RECITALS

A.

Under the terms of a certain Secured Real Estate Credit Facility Agreement dated September 11, 2007 (the “Facility Agreement”), AEGON USA Realty Advisors, Inc. (“AEGON”), as agent for affiliated lenders agreed to fund a series of loans to affiliates of the Carveout Obligor.

B.

Under the terms of the Facility Agreement and a Second Revised Loan Application/Commitment dated September 12, 2007 (the “Commitment”), AEGON , as agent for the Lender, agreed to fund a loan in the principal amount of $2,405,000 (the “Loan”).

C.

The Lender has funded the Loan in the principal amount of $2,405,000 in accordance with the Commitment and the Facility Agreement, and to evidence the Loan, the Borrower has executed and delivered to the Lender a certain Secured Promissory Note, of even date, in the amount of $2,405,000, with a maturity and final payment date of October 1, 2010.

D.

The Commitment requires and the Facility Agreement require that the Loan be secured by all of the Borrower’s existing and after-acquired interest in certain real property and by certain tangible and intangible personal property.

2.

GRANTING CLAUSE

To secure the repayment of the Indebtedness, any increases, modifications, renewals or extensions of the Indebtedness, and any substitutions for the Indebtedness, as well as the performance of the Borrower’s other Obligations, and in consideration of the sum of ten dollars ($10.00) and other valuable consideration, the receipt and sufficiency of which are acknowledged, the Borrower mortgages, grants, bargains, warrants, conveys, alienates, releases, assigns, sets over and confirms to the Mortgagee, and to its successors and assigns forever, all of the Borrower’s existing and after acquired interests in the Real Property.

3.

DEFINED TERMS

The following defined terms are used in this Mortgage. For ease of reference, terms relating primarily to the Security Agreement are defined in Subsection 22.1.

“ Absolute Assignment of Leases and Rents ” means the Loan Document bearing this heading.

an “ Affiliate ” of any person means any entity controlled by, or under common control with, that person.

“ Appurtenances ” means all rights, estates, titles, interests, privileges, easements, tenements, hereditaments, titles, royalties, reversions, remainders and other interests, whether presently held by the Borrower or acquired in the future, that may be conveyed as interests in the Land under the laws of Indiana. Appurtenances include the Easements and the Assigned Rights.

“ Assigned Rights ” means all of the Borrower’s rights, easements, privileges, tenements, hereditaments, contracts, claims, licenses or other interests, whether presently existing or arising in the future. The Assigned Rights include all of the Borrower’s rights in and to:

(i)

any greater estate in the Real Property;

(ii)

insurance policies required to be carried hereunder, including the right to negotiate claims and to receive Insurance Proceeds and unearned insurance premiums (except as expressly provided in Subsection 8.1);

(iii)

Condemnation Proceeds;

(iv)

licenses and agreements permitting the use of sources of groundwater or water utilities, septic leach fields, railroad sidings, sewer lines, means of ingress and egress;

(v)

drainage over other property;

(vi)

air space above the Land;

(vii)

mineral rights;

(viii)

party walls;

(ix)

vaults and their usage;

(x)

franchises;

(xi)

commercial tort claims that arise during the Loan term in respect of damages to the Real Property or to its operations, in respect of any impairment to the value of the Real Property, or in respect of the collection of any Rents;

(xii)

construction contracts;

(xiii)

roof and equipment guarantees and warranties;

(xiv)

building and development licenses and permits;

(xv)

tax credits or other governmental entitlements, credits or rights, whether or not vested;

(xvi)

licenses and applications (whether or not yet approved or issued);

(xvii)

rights under management and service contracts;

(xviii)

leases of Fixtures; and

(xix)

trade names, trademarks, trade styles, service marks, and copyrights that are directly related to the property and reasonably necessary for operation of the Property or the principal manner with which the Improvements are identified, and agreements with architects, environmental consultants, property tax consultants, engineers, and any other third party contractors whose services benefit the Real Property.

“ Bankruptcy Code ” means the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. Sections 101 et seq., and the regulations promulgated pursuant to those statutes.

“ Business Day ” means any day when state and federal banks are open for business in Cedar Rapids, Iowa.

“ Carveout Guarantee and Indemnity ” means that certain “Carveout Guarantee and Indemnity Agreement” entered into by the Carveout Obligor on the date of this Mortgage, together with all substitutions, modifications, and amendments.

“ Carveout Obligations ” means those obligations described in Section 21.

“ Carveout Obligor ” means AIMCO Properties, L.P.. Any other person who expressly assumes liability for the Carveout Obligations during the term of the Loan shall become a “Carveout Obligor” for purposes of this Mortgage.

“ Carveouts ” means those matters from which Carveout Obligations may arise, which are described in Section 21.

“ Condemnation Proceeds ” means all money or other property that has been, or is in the future, awarded or agreed to be paid or given in connection with any taking by eminent domain of all or any part of the Real Property (including a taking through the vacation of any street dedication or through a change of grade of such a street), either permanent or temporary, or in connection with any purchase in lieu of such a taking, or as a part of any related settlement, except for the right to condemnation proceeds awarded to the tenant in a separate proceeding in respect of the lost value of the tenant’s leasehold interest, provided that the award does not reduce, directly or indirectly, the award to the owner of the Real Property.

“ Curable Non-Monetary Default ” means any of the acts, omissions, or circumstances specified in Subsection 10.3 below.

“ Default ” means any of the acts, omissions, or circumstances specified in Section 10 below.

“ Default Rate ” means the rate of interest specified as the “Default Rate” in the Note.

“ Development Agreements ” means all development, utility or similar agreements included in the Permitted Encumbrances.

“ Easements ” means the Borrower’s existing and future interests in and to the declarations, easements, covenants, and restrictions appurtenant to the Land.

“ Environmental Indemnity Agreement ” means the Loan Document bearing that heading, together with all substitutions, modifications, and amendments.

“ Environmental Laws ” means all present and future laws, statutes, ordinances, rules, regulations, orders, guidelines, rulings, decrees, notices and determinations of any Governmental Authority to the extent that they pertain to: (A) the protection of health against environmental hazards; (B) the protection of the environment, including air, soils, wetlands, and surface and underground water, from contamination by any substance that may have any adverse health effect on humans, livestock, fish, wildlife, or plant life, or which may disturb an ecosystem; (C) underground storage tank regulation or removal; (D) wildlife conservation; (E) protection or regulation of natural resources; (F) the protection of wetlands; (G) management, regulation and disposal of solid and hazardous wastes; (H) radioactive materials; (I) biologically hazardous materials; (J) indoor air quality; or (K) the manufacture, possession, presence, use, generation, storage, transportation, treatment, release, emission, discharge, disposal, abatement, cleanup, removal, remediation or handling of any Hazardous Substances. “Environmental Laws” include the Comprehensive Environmental Response, Compensation, and Liability Act, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act, 33 U.S.C. §1251 et seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Toxic Substances Control Act, 15 U.S.C. §2601 et seq., all similar state statutes and local ordinances, and all regulations promulgated under any of those statutes, and all administrative and judicial actions respecting such legislation, all as amended from time to time.

“ ESA ” means the written environmental site assessment of the Real Property obtained under the terms of the Commitment.

“ Escrow Expenses ” means those expenses in respect of real and personal property taxes and assessments, Insurance Premiums and such other Impositions as the Lender pays from time to time directly from the Escrow Fund using monies accumulated through the collection of Monthly Escrow Payments.

“ Escrow Fund ” means the funds deposited by Borrower with the Lender pursuant to Section 9 hereof, as reflected in the accounting entry maintained on the books of the Lender as funds available for the payment of Escrow Expenses under the terms of this Mortgage.

“ Facility Agreement ” means that certain Facility Agreement dated September 11, 2007, entered into by and between AEGON and AIMCO Properties, L.P. (“ AIMCO ”), under which the AIMCO has the right, subject to certain conditions, to borrower up to Two Hundred Million Dollars ($200,000,000.00) in loans secured by stabilized multifamily properties from AEGON’s affiliated lenders.

“ Fixtures ” means all materials, supplies, equipment, apparatus and other items now or hereafter attached to or installed on the Land and Improvements in a manner that causes them to become fixtures under the laws of Indiana, including all built-in or attached furniture or appliances, elevators, escalators, heating, ventilating and air conditioning system components, emergency electrical generators and related fuel storage or delivery systems, septic system components, storm windows, doors, electrical equipment, plumbing, water conditioning, lighting, cleaning, snow removal, lawn, landscaping, irrigation, security, incinerating, fire-fighting, sprinkler or other fire safety equipment, bridge cranes or other installed materials handling equipment, satellite dishes or other telecommunication equipment, built-in video conferencing equipment, sound systems or other audiovisual equipment, and cable television distribution systems. Fixtures do not include trade fixtures, office furniture and office equipment owned by a tenant who is unrelated to the Borrower, provided such items may be detached and removed by the tenant without damage to the Real Property, other than incidental damage that the tenant is obligated to repair under the terms of its Lease. Fixtures expressly include HVAC, mechanical, security and similar systems of general utility for the operation of the Improvements as leasable commercial real property.

“ Governmental Authority ” means any political entity with the legal authority to impose any requirement on the Property, including the governments of the United States, the State of Indiana, Allen County, the City of Fort Wayne, and any other entity with jurisdiction to decide, regulate, or affect the ownership, construction, use, occupancy, possession, operation, maintenance, alteration, repair, demolition or reconstruction of any portion or element of the Real Property.

“ Hazardous Substance ” means any substance the release of or the exposure to which is prohibited, limited or regulated by any Environmental Law, or which poses a hazard to human health because of its toxicity, including: (A) any “oil,” as defined by the Federal Water Pollution Control Act and regulations promulgated thereunder (including crude oil or any fraction of crude oil), (B) any radioactive substance and (C) Stachybotrys chartarum or other molds. However, the term “Hazardous Substance” includes neither (A) a substance used in the cleaning and maintenance of the Real Property, if the quantity, storage and manner of its use are customary, prudent, and do not violate applicable law, nor (B) automotive motor oil in immaterial quantities, if leaked from vehicles in the ordinary course of the operation of the Real Property and cleaned up in accordance with reasonable property management procedures and in a manner that violates no applicable law.

“ Impositions ” means all real and personal property taxes levied against the Property; general or special assessments; ground rent; water, gas, sewer, vault, electric or other utility charges; common area charges; owners’ association dues or fees; fees for any easement, license or agreement maintained for the benefit of the Property; and any and all other taxes, levies, user fees, claims, charges and assessments whatsoever that at any time may be assessed, levied or imposed on the Property or upon its ownership, use, occupancy or enjoyment, and any related costs, interest or penalties. In addition, “Impositions” include all documentary, stamp or intangible personal property taxes that may become due in connection with the Indebtedness, including Indebtedness in respect of any future advance made by the Lender to the Borrower, or that are imposed on any of the Loan Documents.

“ Improvements ” means, to the extent of the Borrower’s existing and future interest, all buildings and improvements of any kind erected or placed on the Land now or in the future, including the Fixtures, together with all appurtenant rights, privileges, Easements, tenements, hereditaments, titles, reversions, remainders and other interests.

“ Indebtedness ” means all sums that are owed or become due pursuant to the terms of the Note, this Mortgage, or any of the other Loan Documents or any other writing executed by the Borrower relating to the Loan, including scheduled principal payments, scheduled interest payments, default interest, late charges, prepayment premiums, accelerated or matured principal balances, advances, collection costs (including reasonable attorneys’ fees), reasonable attorneys’ fees and costs in enforcing or protecting the Note, the Mortgage, or any of the other Loan Documents in any probate, bankruptcy or other proceeding, receivership costs and all other financial obligations of the Borrower incurred in connection with the Loan transaction, provided, however, that this Mortgage shall not secure any Loan Document or any particular person’s liabilities or obligations under any Loan Document to the extent that such Loan Document expressly states that it or such particular person's liabilities or obligations are unsecured by this Mortgage. Indebtedness shall also include any obligations under agreements executed and delivered by Borrower which specifically provide that such obligations are secured by this Mortgage.

“ Insurance Premiums ” means all premiums or other charges required to maintain in force any and all insurance policies that this Mortgage requires that the Borrower maintain.

“ Insurance Proceeds " means (A) all proceeds of all insurance now or hereafter carried by or payable to the Borrower with respect to the Real Property, including with respect to the interruption of rents or income derived from the Property, all unearned insurance premiums and all related claims or demands, and (B) all Proceeds (as defined in Subsection 22.1).

“ Key Principal ” means Apartment Investment and Management Company.

“ Land ” means that certain tract of land located in Fort Wayne, Allen County, Indiana, which is described on the attached Exhibit A, together with the Appurtenances.

“ Leases ” means all leases, subleases, licenses, concessions, extensions, renewals and other agreements (whether written or oral, and whether presently effective or made in the future) through which the Borrower grants any possessory interest in and to, or any right to occupy or use, all or any part of the Real Property, and any related guaranties.

“ Legal Control ” means the power, either directly or indirectly, to exercise the authority of the owner of the Real Property, either as or through the majority shareholder of the common stock of a corporation, the sole or managing general partner of a limited partnership, the managing general partner of a general partnership, or the sole manager of a limited liability company, provided the person or entity exercising such authority cannot be divested of such authority without its consent, either directly or indirectly, except for cause.

“ Legal Requirements ” means all laws, statutes, rules, regulations, ordinances, judicial decisions, administrative decisions, building permits, development permits, certificates of occupancy, or other requirements of any Governmental Authority.

“ Loan Documents ” means all documents evidencing the Loan or delivered in connection with the Loan, whether entered into at the closing of the Loan or in the future, including, without limitation, the Note, this Mortgage, the Absolute Assignment of Leases and Rents, the Carveout Guarantee and Indemnity, and the Environmental Indemnity Agreement.

“ Maximum Permitted Rate ” means the highest rate of interest permitted to be paid or collected by applicable law with respect to the Loan.

“ Monthly Escrow Payment ” means the sum of the Monthly Imposition Requirement, the Monthly Insurance Premium Requirement, and the Monthly Reserve Requirement.

“ Monthly Imposition Requirement ” means one-twelfth (1/12th) of the annual amount that the Lender estimates will be required to permit the timely payment by the Lender of those Impositions that the Lender elects, from time to time, to include in the calculation of the Monthly Imposition Requirement. Such Impositions shall include real and personal property taxes and may include, at the Lender’s sole and absolute discretion, any Impositions that the Borrower has failed to pay on a timely basis during the term of the Loan. The Lender shall base its estimate on the most recent information supplied by the Borrower concerning future Impositions. If the Borrower fails to supply such information or if it is unavailable at the time of estimation, the Lender shall estimate future Impositions using historical information and an annual inflation factor equal to the lesser of five percent (5%) and the maximum inflation factor permitted by law.

“ Monthly Insurance Premium Requirement ” means one-twelfth (1/12th) of the annual amount that the Lender estimates (based on available historical data and using, if future Insurance Premiums are as yet undeterminable, a five percent (5%) inflation factor) will be required to permit the timely payment of the Insurance Premiums by the Lender.

“ Monthly Reserve Requirement ” means the monthly payment amount which the Lender estimates will result, over the subsequent twelve (12) months, in the accumulation of a surplus in the Escrow Fund equal to the sum of the Monthly Imposition Requirement and the Monthly Insurance Premium Requirement.

“ Note ” means the promissory note dated of even date herewith to evidence the Indebtedness in the original principal amount of $2,405,000, together with all extensions, renewals and modifications.

“ Notice ” means a notice given in accordance with the provisions of Subsection 25.13.

“ Obligations ” means all of the obligations required to be performed under the terms and conditions of any of the Loan Documents by any Obligor, except for obligations that are expressly stated to be unsecured under the terms of another Loan Document.

“ Obligor ” means the Borrower, the Carveout Obligor, or any other Person that is liable under the Loan Documents for the payment of any portion of the Indebtedness, or the performance of any other obligation required to be performed under the terms and conditions of any of the Loan Documents, under any circumstances.

“ Participations ” means participation interests in the Loan Documents granted by the Lender.

“ Permitted Control Group Member ” shall mean any member of a group comprised of Apartment Investment and Management Company and trusts for the benefit of any of the foregoing persons.

“ Permitted Encumbrances ” means (A) the lien of taxes and assessments not yet due and payable and (B) those matters of public record listed as special exceptions in the Lender's title insurance policy insuring the priority of this Mortgage.

“ Permitted Transfer ” means a transfer specifically described in Section 14 as permitted.

“ Person ” means any individual, corporation, limited liability company, partnership, trust, unincorporated association, government, governmental authority or other entity.

“ Property ” means the Real Property and the Leases, Rents and Personal Property (as defined in Subsection 22.1 below).

“ Qualified Property Manager ” means either (A) a financially sound, professional property management company, experienced in managing properties similar in type and quality to the Real Property, and which is one of the top three institutional property management companies in the real estate market where the Real Property is located, based on the number of units under its management or (B) another property management company approved in writing by the Lender.

“ Rating Agencies ” means one or more credit rating agencies approved by Lender.

“ Real Property ” means the Land and the Improvements.

“ REIT ” means Apartment Investment and Management Company, a Maryland corporation.

“ Rents ” means all rents, income, receipts, issues and profits and other benefits paid or payable for using, leasing, licensing, possessing, operating from or in, residing in, selling, mining, extracting minerals from, or otherwise enjoying the Real Property, whether presently existing or arising in the future, to which the Borrower may now or hereafter become entitled or may demand or claim from the commencement of the Loan term through the time of the satisfaction of all of the Obligations, including security deposits, amounts drawn under letters of credit securing tenant obligations, minimum rents, additional rents, common area maintenance charges, parking revenues, deficiency rents, termination payments, space contraction payments, damages following default under a Lease, premiums payable by tenants upon their exercise of cancellation privileges, proceeds from lease guarantees, proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by destruction or damage to the Real Property, all rights and claims of any kind which the Borrower has or may in the future have against the tenants under the Leases, lease guarantors, or any subtenants or other occupants of the Real Property, all proceeds of any sale of the Real Property in violation of the Loan Documents, any future award granted the Borrower in any court proceeding involving any such tenant in any bankruptcy, insolvency, or reorganization proceedings in any state or federal court, and any and all payments made by any such tenant in lieu of rent.

“ Restoration ” means (A) in the case of a casualty resulting in damage to or the destruction of the Improvements, the repair or rebuilding of the Improvements to their a condition that is at least equivalent to that as of the Effective Date, or (B) in the case of the condemnation of a portion of the Real Property, the completion of such work as may be necessary in order to remedy the effects of the condemnation so that the value and income-generating characteristics of the Real Property are restored.

“ Securities ” means mortgage pass-through certificates or other securities evidencing a beneficial interest in the Loan, issued in a rated or unrated public offering or private placement.

“ Securitization ” means the issuance of Securities.

4.

TITLE

The Borrower represents to and covenants with the Lender and with its successors and assigns that, at the point in time of the grant of the lien created by this Mortgage, the Borrower is well seized of good and indefeasible title to the Real Property, in fee simple absolute, subject to no lien or encumbrance except the Permitted Encumbrances. The Borrower warrants this estate and title to the Lender and to its successors and assigns forever, against all lawful claims and demands of all persons. The Borrower shall maintain mortgagee title insurance issued by a solvent carrier, covering the Real Property in an amount at least equal to the amount of the Loan’s original principal balance. This Mortgage is and shall remain a valid and enforceable first lien on the Real Property, and if the validity or enforceability of this first lien is attacked by appropriate proceedings, the Borrower shall diligently and continuously defend it through appropriate proceedings. Should the Borrower fail to do so, the Lender may at the Borrower’s expense take all necessary action, including the engagement and compensation of legal counsel, the prosecution or defense of litigation, and the compromise or discharge of claims. The Borrower shall defend, indemnify and hold the Lender harmless in any suit or proceeding brought to challenge or attack the validity, enforceability or priority of the lien granted by this Mortgage. If a prior construction, mechanics’ or materialmen’s lien on the Real Property arises by operation of statute during any construction or repair of the Improvements, the Borrower shall either cause the lien to be discharged by paying when due any amounts owed to such persons, or shall comply with Section 12 of this Mortgage.

5.

REPRESENTATIONS OF THE BORROWER

The Borrower represents to the Lender as follows:  

5.1

LEGAL CONTROL

The Borrower and the Property are under the Legal Control of one or more Permitted Control Group Members.

5.2

FORMATION, EXISTENCE, GOOD STANDING

The Borrower is a limited partnership duly organized, validly existing and in good standing under the laws of Delaware and has obtained all licenses and permits and filed all statements of fictitious name and registrations necessary for the lawful operation of its business in Delaware.

5.3

QUALIFICATION TO DO BUSINESS

The Borrower is qualified to do business as a foreign limited partnership under the laws of Indiana and has obtained all licenses and permits and filed all statements of fictitious name and registrations necessary for the lawful operation of its business in Indiana.

5.4

POWER AND AUTHORITY

The Borrower has full power and authority to carry on limited partnership business as presently conducted, to own the Property, to execute and deliver the Loan Documents, and to perform limited partnership Obligations.

5.5

ANTI-TERRORISM REGULATIONS

No Borrower, Borrower Affiliate, or, to the Borrower’s actual knowledge, shareholder of the REIT or limited partner of the Carveout Obligor, is either a “Specially Designated National” or a “Blocked Person” as those terms are defined in the Office of Foreign Asset Control Regulations (31 CFR Section 500 et seq. ).

5.6

DUE AUTHORIZATION

The Loan transaction and the performance of all of the Borrower’s Obligations have been duly authorized by all requisite partnership action, and each individual executing any Loan Document on behalf of the Borrower has been duly authorized to do so.

5.7

NO DEFAULT OR VIOLATIONS

To the best of the Borrower’s knowledge, the execution and performance of the Borrower’s Obligations will not result in any breach of, or constitute a default under, any contract, agreement, document or other instrument to which the Borrower is a party or by which the Borrower may be bound or affected, and to the best of the Borrower’s knowledge do not and will not violate or contravene any law to which the Borrower is subject; nor to the best of the Borrower’s knowledge do any such other instruments impose or contemplate any obligations which are or will be inconsistent with the Loan Documents.

5.8

NO FURTHER APPROVALS OR ACTIONS REQUIRED

To the best of the Borrower’s knowledge, no approval by, authorization of, or filing with any federal, state or municipal or other governmental commission, board or agency or other governmental authority is necessary in connection with the authorization, execution and delivery of the Loan Documents by the Borrower.

5.9

DUE EXECUTION AND DELIVERY

Each of the Loan Documents to which the Borrower is a party has been duly executed and delivered on behalf of the Borrower.

5.10

LEGAL, VALID, BINDING AND ENFORCEABLE

Each of the Loan Documents to which the Borrower is a party constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.

5.11

ACCURATE FINANCIAL INFORMATION

To the best of the Borrower’s knowledge, all financial information furnished by the Borrower to the Lender in connection with the application for the Loan is true, correct and complete in all material respects and does not omit to state any fact or circumstance necessary to make the statements in them not misleading, and there has been no material adverse change in the financial condition of the Borrower since the date of such financial information.

5.12

COMPLIANCE WITH LEGAL REQUIREMENTS

All governmental approvals and licenses required for the conduct of the Borrower’s business and for the maintenance and operation of the Real Property in compliance with applicable law are in full force and effect, and the Real Property is currently being operated in compliance with the Legal Requirements in all material respects.

5.13

CONTRACTS AND FRANCHISES

To the best of the Borrower’s knowledge, all contracts and franchises necessary for the conduct of the Borrower’s business and for the operation of the Real Property in accordance with good commercial practice are in force.

5.14

NO CONDEMNATION PROCEEDING

As of the Effective Date of this Mortgage, the Borrower has no knowledge of any present, pending or threatened condemnation proceeding or award affecting the Real Property.

5.15

NO CASUALTY

As of the Effective Date of this Mortgage, no damage to the Real Property by any fire or other casualty has occurred, other than damage that has been completely repaired in accordance with good commercial practice and in compliance with applicable law.

5.16

INDEPENDENCE OF THE REAL PROPERTY

The Real Property may be operated independently from other land and improvements not included within or located on the Land, and it is not necessary to own or control any property other than the Real Property in order to meet the obligations of the landlord under any Lease, or in order to comply with the Legal Requirements.

5.17

COMPLETE LOTS AND TAX PARCELS

The Land is comprised exclusively of tax parcels that are entirely included within the Land, and, if the Land is subdivided, of subdivision lots that are entirely included within the Land.

5.18

OWNERSHIP OF FIXTURES

The Borrower owns the Fixtures free of any encumbrances, including purchase money security interests, rights of lessors, and rights of sellers under conditional sales contracts or other financing arrangements.

5.19

COMMERCIAL PROPERTY

The Real Property is used as a multifamily apartment complex , and the Loan is for commercial purposes and has not been made for personal, family or household purposes.

5.20

REAL PROPERTY IS NOT HOMESTEAD PROPERTY

The Real Property is NOT HOMESTEAD PROPERTY of the Borrower or of the spouse of any person named as the Borrower.

5.21

NO AGRICULTURAL USES

The Real Property is not used principally for agricultural or farming purposes.

5.22

PERFORMANCE UNDER DEVELOPMENT AGREEMENTS

To the best of the Borrower’s knowledge, all of the obligations of the owner of the Real Property due under the Development Agreements have been fully, timely and completely performed and such performance has been accepted by the related governmental agency or utility company, and no Governmental Authority has alleged that any default exists under any of the Development Agreements.

5.23

STATUS OF CERTAIN TITLE MATTERS

To the best of the Borrower’s knowledge, each of the Easements included within the Appurtenances (a) is valid and in full force and effect and may not be amended or terminated, except for cause, without the consent of the Borrower, (b) has not been amended or supplemented, (c) requires no approval of the Improvements that has not been obtained, (d) is free of defaults or alleged defaults, (e) does not provide for any assessment against the Real Property that has not been paid in full, and (f) has not been violated by the owner of the Real Property or, to the best of the Borrower’s knowledge, by any tenant of the Real Property.

5.24

NO PROHIBITED TRANSACTIONS

The Borrower represents to the Lender that either (a) the Borrower is not an “employee benefit plan” within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), that is subject to Title I of ERISA, a “plan” within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”), or an entity that is deemed to hold “plan assets” within the meaning of 29 C.F.R. §2510.3-101 of any such employee benefit plan or (b) the entering into of the Loan Documents, the acceptance of the Loan by the Borrower and the existence of the Loan will not result in a non-exempt prohibited transaction under §406 of ERISA or Section 4975 of the Code. The Borrower further warrants and covenants that the foregoing representation will remain true during the term of the Loan.

6.

COVENANTS

6.1

GOOD STANDING

The Borrower shall remain in good standing as a limited partnership under the laws of Delaware and shall maintain in force all statements of fictitious name and registrations necessary for the lawful operation of its business in Delaware during the term of the Loan.

6.2

QUALIFICATION TO DO BUSINESS

The Borrower shall remain qualified to do business as a foreign limited partnership under the laws of Indiana and shall maintain in force all licenses and permits, filings and statements of fictitious name and registrations necessary for the lawful operation of its business in Indiana.

6.3

NO DEFAULT OR VIOLATIONS

The Borrower shall not enter into any contract, agreement, document or other instrument, if the performance of the Borrower's Obligations would result in any breach of, or constitute a default under, any such contract, agreement, document or other instrument, or if the contract, agreement, document or other instrument would impose or contemplate any obligations the performance of which would result in a Default under the Loan Documents or would be inconsistent with the performance of the Borrower's Obligations.

6.4

PAYMENT AND PERFORMANCE

The Borrower shall pay the Indebtedness and perform all of its other Obligations, as and when the Loan Documents require such payment and performance.

6.5

PAYMENT OF IMPOSITIONS

The Borrower shall pay the Impositions on or before the last day on which they may be paid without penalty or interest, and shall, within thirty (30) days, furnish the Lender with a paid receipt or a cancelled check as evidence of payment. If the Lender does not receive such evidence, the Lender may obtain it directly. If it does so, the Lender will charge the Borrower an administrative fee of $250 for securing the evidence of payment. The payment of this fee shall be a demand obligation of the Borrower. The Borrower may meet the Imposition payment requirements of this Subsection 6.5 by remitting the Monthly Escrow Payments when due, by immediately providing Notice to the Lender of any new Imposition or increased Imposition unknown to the Lender, and by paying to the Lender on demand any amount required to increase the Escrow Fund to an amount sufficient to permit the Lender to pay all Impositions from the Escrow Fund on time. If the Borrower wishes to contest the validity or amount of an Imposition, it may do so by complying with Section 12. If any new Legal Requirement (other than a general tax on income or on interest payments) taxes the Mortgage so that the yield on the Indebtedness would be reduced, and the Borrower may lawfully pay the tax or reimburse the Lender for its payment, the Borrower shall do so.

6.6

LEGAL CONTROL OF THE BORROWER

The Borrower shall remain under the Legal Control of one or more Permitted Control Group Members during the term of the Loan.

6.7

MANAGEMENT OF THE REAL PROPERTY

The Real Property shall be managed at all times by the Key Principal, by a property management company engaged by the Key Principal to manage the Real Property, or by a Qualified Property Manager.

6.8

MAINTENANCE OF THE REAL PROPERTY

The Borrower shall not commit or permit any waste of the Real Property as a physical or economic asset, and agrees to maintain in good repair the Improvements, including structures, roofs, mechanical systems, parking lots or garages, and other components of the Real Property that are necessary or desirable for the use of the Real Property, or which the Borrower as landlord under any Lease is required to maintain for the benefit of any tenant. In its performance of this Obligation, the Borrower shall promptly and in a good and workmanlike manner repair or restore, as required under Subsection 6.20, any elements of the Improvements that are damaged or destroyed. The Borrower shall also replace roofs, parking lots, mechanical systems, and other elements of the Improvements requiring periodic replacement. The Borrower shall carry out such replacements no less frequently than would a commercially reasonable owner intending to maintain the maximum income-generating potential of the Real Property over its reasonable economic life. The Borrower shall not, without the prior written consent of the Lender, demolish, reconfigure, or materially alter the structural elements of the Improvements, unless such an action is the obligation of the Borrower under a Lease approved by Lender or for which the Lender's approval is not required under the Absolute Assignment of Leases and Rents. The Lender agrees that any request for its consent to such an action shall be deemed given if the Lender does not respond within fifteen (15) Business Days to any written request for such a consent, if the request is accompanied by all materials required to permit the Lender to analyze the proposed action. Any provision in this or any other Section of this Mortgage or any of the other Loan Documents to the contrary notwithstanding, the Borrower’s compliance with the terms and conditions of any written asset management plan approved by the Lender in writing shall constitute the Borrower’s compliance with its obligations under the Loan Documents to maintain, repair and furnish any apartment units in the Improvements that are or become vacant.  

6.9

USE OF THE REAL PROPERTY

The Borrower agrees that the Real Property may only be used as a residential apartment complex and for no other purpose. The Real Property may not be converted to a cooperative or condominium without Lender’s prior written consent, which consent may be withheld in Lender's sole and absolute discretion.

6.10

LEGAL REQUIREMENTS

The Borrower shall maintain in full force and effect all governmental approvals and licenses required for the conduct of the Borrower’s business and for the maintenance and operation of the Real Property in compliance with applicable law, and shall comply with all Legal Requirements relating to the Real Property at all times.

6.11

CONTRACTS AND FRANCHISES

The Borrower shall maintain in force all contracts and franchises necessary for the conduct of the Borrower’s business and for the operation of the Real Property in accordance with good commercial practice.

6.12

COVENANTS REGARDING CERTAIN TITLE MATTERS

The Borrower shall promptly pay, perform and observe all of its obligations under the Easements included within the Appurtenances or under reciprocal easement agreements, operating agreements, declarations, and restrictive covenants included in the Permitted Encumbrances, shall not modify or consent to the termination of any of them without the prior written consent of the Lender, shall promptly furnish the Lender with copies of all notices of default under them, and shall cause all covenants and conditions under them and benefiting the Real Property to be fully performed and observed.

6.13

INDEPENDENCE OF THE REAL PROPERTY

The Borrower shall maintain the independence of the Real Property from other land and improvements not included within or located on the Land. In fulfilling this covenant, the Borrower shall neither take any action which would make it necessary to own or control any property other than the Real Property in order to meet the obligations of the landlord under any Lease, or in order to comply with the Legal Requirements, nor take any action which would cause any land or improvements other than the Land and the Improvements to rely upon the Land or the Improvements for those purposes.

6.14

COMPLETE LOTS AND TAX PARCELS

The Borrower shall take no action that would result in the inclusion of any portion of the Land in a tax parcel or subdivision lot that is not entirely included within the Land.

6.15

COMMERCIAL PROPERTY

The Real Property shall be used for commercial purposes as a multifamily residential apartment complex and not by the Borrower  for residential, personal, family or household purposes.

6.16

REAL PROPERTY IS NOT HOMESTEAD PROPERTY

The Real Property shall NOT BECOME HOMESTEAD PROPERTY of the Borrower or of the spouse of any person named as the Borrower .

6.17

NO AGRICULTURAL USES

The Real Property shall not be used principally for agricultural or farming purposes.

6.18

PERFORMANCE UNDER DEVELOPMENT AGREEMENTS

The Borrower shall fully, timely and completely perform all of the obligations of the owner of the Real Property due under the Development Agreements and shall cause no default under any of the Development Agreements.

6.19

STATUS OF CERTAIN TITLE MATTERS

The Borrower shall not take or fail to take any action with respect to the Easements included within the Appurtenances or the reciprocal easement agreements, operating agreements, declarations, and restrictive covenants included in the Permitted Encumbrances if, as the result of such an action or failure, the subject Easement or other title matter would (a) be rendered invalid or without force or effect, (b) be amended or supplemented without the consent of the Lender, (c) be placed in default or alleged default, (d) result in any lien against the Real Property, or (e) give rise to any assessment against the Real Property, unless immediately paid in full.

6.20

RESTORATION UPON CASUALTY OR CONDEMNATION

If a casualty or condemnation occurs, the Borrower shall promptly commence and diligently complete the Restoration of the Real Property, provided the related Insurance Proceeds or Condemnation Proceeds held by the Lender are available for Restoration under the terms of Sections 8.3 and 8.4.

6.21

PERFORMANCE OF LANDLORD OBLIGATIONS; MANAGEMENT STANDARD

The Borrower shall perform its obligations as landlord under the Leases, shall cause the Real Property to be professionally leased and managed in a manner that is consistent with good commercial practices for institutional owners of multifamily apartment projects (the “Management Standard”) and shall neither take any action, nor fail to take any action, if the action or failure would be inconsistent with the commercially reasonable management of the Real Property for the purpose of enhancing its long-term performance and value. The Borrower shall not, without the Lender’s written consent, extend, modify, declare a default under, terminate, or enter into any Lease of the Real Property, except as otherwise permitted under the Loan Documents.

6.22

FINANCIAL REPORTS AND OPERATING STATEMENTS

(a)

Maintenance of Books and Records

During the term of the Loan, the Borrower shall maintain complete and accurate accounting and operational records, including copies of all Leases and other material written contracts relating to the Real Property, copies of all tax statements, and evidence to support the payment of all material property-related expenses.

(b)

Delivery of Financial and Property-Related Information

Within one hundred twenty (120) days after the end of each of its fiscal years, or, if a Default exists, on demand by the Lender, the Borrower shall deliver to the Lender (A) copies of the financial statements of the Borrower, and to the extent the same are prepared and available for its general partner, such general partner, including balance sheets and earnings statements, (B) a complete and accurate operating statement for the Real Property, and (C) a complete rent roll, all in form satisfactory to the Lender. The rent roll must be certified by the Borrower to be true and correct and must include each tenant’s name, unit type and address, rent, lease expiration date, renewal options and related rental rates, delinquencies and vacancies. If the Borrower fails to deliver the items required in this Subsection, the Lender may engage an accounting firm to prepare the required items. The Borrower shall cooperate fully with any investigative audit required to permit the accounting firm to produce these items, and the fees and expenses incurred in connection with their preparation shall be paid on demand by the Borrower.

(c)

Effect of Failure to Deliver Financial and Property Reports

If no Default exists and the Borrower fails to provide the financial and property reports required under this Section within one hundred twenty (120) days of the close of any fiscal year, the Lender will provide a Notice of this failure and a thirty (30)-day opportunity to cure before a Default shall exist. All monthly payments of principal and interest under the Note that become due after this cure period has elapsed but before the reports are received by the Lender must be accompanied by a fee of .000834 times the principal balance of the Loan at the beginning of the previous month, regardless of whether the Notice has asserted that the failure constitutes a Default under this Mortgage. This fee is to compensate the Lender for (A) the increased risk resulting from the Lender’s inability to monitor and service the Loan using up-to-date information and (B) the reduced value and liquidity of the Loan as a financial asset.

(d)

Certification of Information

The financial and operating statements provided under this Subsection need not, as an initial matter, be certified by an independent certified public accountant as having been prepared in accordance with generally accepted accounting principles, consistently applied, or, in the case of financial statements prepared on a cash or income tax basis, or of operating statements, as not materially misleading based on an audit conducted in accordance with generally accepted auditing standards. The Borrower shall, however certify that such statements are true and correct, and the Lender expressly reserves the right to require such a certification by an independent certified public accountant if a Default exists or if the Lender in the exercise of its reasonable discretion has reason to believe that any previously provided financial or operating statement is misleading in any material respect.

6.23

ESTOPPEL STATEMENTS

Upon request by the Lender, the Borrower shall, within ten (10) Business Days of Notice of the request, furnish to the Lender or to whom it may direct, a written statement acknowledging the amount of the Indebtedness and disclosing whether, to the best of the Borrower’s knowledge, any offsets or defenses exist against the Indebtedness. Thereafter, the Borrower shall be estopped from asserting any other offsets or defenses alleged to have arisen as of the date of the statement.

6.24

PROHIBITION ON CERTAIN DISTRIBUTIONS

If a Default exists under Subsection 10.1 or under any of Subparagraphs (b), (c), (d), (e) or (f) of Subsection 10.2, the Borrower shall not pay any dividend or make any partnership, trust or other distribution, and shall not make any payment or transfer any property in order to purchase, redeem or retire any interest in its beneficial interests or ownership.

6.25

USE OF LOAN PROCEEDS

The Loan proceeds shall be used solely for commercial purposes.

6.26

PROHIBITION ON CUTOFF NOTICES

The Borrower shall not issue any Notice to the Lender to the effect that liens on the Real Property after the date of the Notice will enjoy priority over the lien of this Mortgage.

6.27

PROHIBITED PERSON COMPLIANCE

Borrower warrants, represents and covenants that neither Borrower nor any Obligor nor any of their respective affiliated entities is or will be an entity or person (i) that is listed in the Annex to, or is otherwise subject to the provisions of, Executive Order 13224 issued on September 24, 2001 (“EO13224”), (ii) whose name appears on the United States Treasury Department's Office of Foreign Assets Control (“OFAC”) most current list of “Specifically Designated National and Blocked Persons” (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf), (iii) who commits, threatens to commit or supports “terrorism”, as that term is defined in EO 13224, or (iv) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in subparts [i] - [iv] above are herein referred to as a “Prohibited Person”). Borrower covenants and agrees that neither Borrower, nor any Obligor nor any of their respective affiliated entities will (i) conduct any business, nor engage in any transaction or dealing, with any Prohibited Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services to or for the benefit of a Prohibited Person, or (ii) engage in or conspire to engage