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Washington State Housing Finance Commission, revert to the City of Everett HOME Program. The Agency shall, upon closeout of the Project, expiration or termination of this Loan Agreement, transfer to the City: 1. Any HOME funds on hand; and 2. Its rights in any accounts receivable attributable to the use of HOME funds. H. Required Reserves The Agency shall establish a"Replacement Reserve Account"and an "Operating Reserve Account", and other reserve accounts, as proposed in the Project budgets, or as may be required by this Agreement. Unless otherwise approved by the City, the Agency shall make every reasonable effort following Project completion to fund all replacement and operating reserves in accordance with the amounts capitalized in the Project development budget (Exhibit B) and annual contributions to these reserves as identified in the pro forma operating budget for the Project. Ongoing deposits shall be made annually to the Replacement Reserve in the amount of $350 per unit per annum, increasing at 3.0% annually, and to the extent available from the Project's cash flow, annual contributions to the Operating Reserve to achieve at least 6 months of operating expenses, reserves and debt service. Withdrawals from the accounts shall be made in a manner consistent with the requirements of the funding entities, including the City, if the City elects to impose such requirements. If disbursements from reserves are required by other lenders or investors, a copy of such reserve disbursement approvals shall be provided to the City. Withdrawals from the replacement reserve account shall be made only for capital improvements such as replacing or repairing structural elements, furniture,fixtures, or equipment of the Project which are reasonably required to preserve the Project. Withdrawals from the operating reserve account may be utilized only to cover actual and reasonable operating expenses, or to compensate for vacancy and bad debt losses. Any other reserves required by the City and identified in this Agreement, shall not be used for purposes other than the purposes designated in said budgets for such reserves. If other funding entities have differing requirements, the City may amend this paragraph in writing to be consistent with those other requirements. All reserves shall remain with the Project upon sale or transfer, and shall be used solely for the purposes stated therein, notwithstanding any change in the ownership of the Project. I. Tenant Security Deposits Any funds collected as security deposits shall be kept separate and apart from all other funds of the Project in a trust account with a depository insured by the Federal Deposit Insurance Corporation and shall be held and disbursed in accordance with Washington law and this Loan Agreement. The balance of such account shall at all times equal or exceed the aggregate of all outstanding obligations under said account, plus accrued interest thereon. Loan Agreement Cocoon House Page 29 of 51