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200801986 If the amounts held by Lender for &craw IteI1ls exceed. the amountS penniued to be held by RESP A, Lender shall account to Borrower for the excess futlds as required by RESP A. If the amounts of funcJ.s held by Lender 1lI any time are not sufficient to pay 1he Escrow Ite,mS when due, Lender may notify the Borrower and require Borrower to make up the shortage as pennitted by RBSPA. The Escrow Funds are pledged as additional security for all sums secured by Illis security Instrument. If Borrower tenders to Lender the full paymem of all such sums, Borrower's account shall be etedited with the balance remaining for all installment items (a), (b), and (c) and any mortgage insurance premium installment mat Lender has not become obligated to pay to the Secretary, and Lender shall promptly refund any ~x.cess funw; to narrower. lIDmediately prior to a foreclosure sale of the Property or its acquisition by Lemler, Borrower's account shall be credited with any balance remaining for aU installments for irems (a), (b), and (c). 3. Application of Payments. All payments under paragraphs 1 and 2 shall be applied by tender as follows: First, to the mortl;tage insurance premium to be paid by Lender to tbe SecretarY or to the monthly charge by the Secretary instead of the monthly mortgage insurance premiUlll; Second, to my taxes, special assessments, leasehold payments ot ground tents. and fire. flood and otber hazard insurance premiums, as required; Third, to interest due under the Note; ~, [Q amortization of Ute principal of the Note; and Fifth, to late charges due under the Note. 4. Firlil, :ii'lood RJld Other Bazard ID$uraDce. Borrower shall insure all impIOvemenIS on the Property, whether now in existence or subsequently erected, against any hazards. casualties, and contingencies, including fire, for which Lender requi~es insurance. This insurance shall be maintained in the amounts and. for the perloW; thaI Lender ~uires. Borrowcr shall also inSUTIil all improventents on the Property, whether now in ex.istence or subsequently erected, against loss by floods to the extertt required by the secretary. All insurance shall be canied with companies approved by Lender. The in!nll"3D.ce policies and any renewals shall be beld by Lemler 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 10s6 if not made promptly by Borrower. Each insurance company concerned is hereby authorized and direcu:d to make payment for S\lCh 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 appUed 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 tbe principal sball not extend or postpo:ne the due dare 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 indebtednesll under the Note and this Security lnstrwnent shall be paid to me entity legally entitled thereto. In the event of foreclosure of this Security Iwtrument or otl1er transfer of rhle to the Property that extinguishes the indebtedness, all right, ritle and imerest of aorrower in and to insurance policies in force shall pass to the pwchaser . 5. Occupancy, Preservation, MaintcJlaJlce and Protection of tbe Property; Borrower's Loan Application; Leasebolds. Borrower shall occupy, establish, Md use the Property as Borrower's principal residence within sixty days after the execution of this Security Instrument (or within sixty days of a latlilr sale or transfer of the Property) and shall eontinue to occupy the property as Borrower's principal residence rOt at least one year after the date of OCCUpiWCY, 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 cxtenuating circumstances. Borrower shall not commit waste or destroy, damage or substanti31ly change the Property or allow the Propeny to deteriorate, reasonable wear and teat excepted. lender ma.y 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 G-4RINEIISeOll <Bl Pago 3 of 8 Inlti;ll;: MF Cf