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201302853 If the amounts held by Lender for Escrow Items exceed the amounts permitted to be held by RESPA, Lender shall account to Borrower for the excess funds as required by RESPA. If the amounts of funds held by Lender at any time are not sufficient to pay the Escrow Items when due,Lender may notify the Borrower and require Borrower to make up the shortage as permitted by RESPA. The Escrow Funds are pledged as additional security for all sums secured by this Security Instrument. If Borrower tenders to Lender the full payment of all such sums,Borrower's account shall be credited with the balance remaining for all installment items(a), (b),and (c)and any mortgage insurance premium installment that Lender has not become obligated to pay to the Secretary, and Lender shall promptly refund any excess funds to Borrower. Immediately prior to a foreclosure sale of the Property or its acquisition by Lender, Borrower's account shall be credited with any balance remaining for all installments for items(a), (b),and(c). 3.Application of Payments.All payments under paragraphs 1 and 2 shall be applied by Lender as follows: First,to the mortgage insurance premium to be paid by Lender to the Secretary or to the monthly charge by the Secretary instead of the monthly mortgage insurance premium; Second,to any taxes,special assessments,leasehold payments or ground rents,and fire,flood and other hazard insurance premiums.as required; Third,to interest due under the Note; Fourth.to amortization of the principal of the Note;and Fifth,to late charges due under the Note. 4.Fire,Flood and Other Hazard Insurance.Borrower shall insure all improvements on the Property,whether now in existence or subsequently erected,against any hazards,casualties,and contingencies,including fire,for which Lender requires insurance. This insurance shall be maintained in the amounts and for the periods that Lender requires. Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected,against loss by floods to the extent required by the Secretary.All insurance shall be carried with companies approved by Lender.The insurance policies and any renewals shall be held by Lender and shall include loss payable clauses in favor of,and in a form acceptable to,Lender. In the event of loss,Borrower shall give Lender immediate notice by mail.Lender may make proof of loss if not made promptly by Borrower.Each insurance company concerned is hereby authorized and directed to make payment for such loss directly to Lender, instead of to Borrower and to Lender jointly. All or any part of the insurance proceeds may be applied by Lender,at its option, either(a)to the reduction of the indebtedness under the Note and this Security Instrument,first to any delinquent amounts applied in the order in paragraph 3,and then to prepayment of principal, or (b) to the restoration or repair of the damaged Property. Any application of the proceeds to the principal shall not extend or postpone the due date of the monthly payments which are referred to in paragraph 2,or change the amount of such payments.Any excess insurance proceeds over an amount required to pay all outstanding indebtedness under the Note and this Security Instrument shall be paid to the entity legally entitled thereto. In the event of foreclosure of this Security Instrument or other transfer of title to the Property that extinguishes the indebtedness, all right, title and interest of Borrower in and to insurance policies in force shall pass to the purchaser. 5. Occupancy,Preservation, Maintenance and Protection of the Property;Borrower's Loan Application; Leaseholds. Borrower shall occupy,establish, and use the Property as Borrower's principal residence within sixty days after the execution of this Security Instrument (or within sixty days of a later sale or transfer of the Property) and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy,unless Lender determines that requirement will cause undue hardship for Borrower,or unless extenuating circumstances exist which are beyond Borrower's control. Borrower shall notify Lender of any extenuating circumstances.Borrower shall not commit waste or destroy,damage or substantially change the Property or allow the Property to deteriorate,reasonable wear and tear excepted.Lender may inspect the Property if the Property is vacant or abandoned or the loan is in default. Lender may take reasonable action to protect and preserve such vacant or 98756749 imueis: •f� rtN(NE)(9802)01 Page 3 of 8